The International Monetary Fund (IMF) has approved the payment of $385 million to Jordan, in the second tranche of a three-year $2 billion loan program to help the country push through economic reforms, the finance minister said.
Jordan was hit by a financial crisis last year as foreign aid fell and welfare payments soared, leading it to sign a $2 billion IMF loan deal in July, conditional on budget tightening and unpopular cuts in fuel subsidies and hikes in electricity tariffs.
The latest disbursement comes after an IMF review of the country's economic performance and brings the Fund's loans to Jordan so far to about $770 million.
"It's an extremely positive development, the fact the executive board of the IMF met and approved the staff report on Jordan and approved the release of the second payment of $385 million," Jordanian Finance Minister Umayya Toukan told Reuters.
Toukan said Jordan was making progress in reducing the budget deficit and streamlining a costly subsidy system, adding that the IMF's endorsement of the country's progress in moving ahead sent a positive signal to investors.
"This is really evidence we are moving in the right direction and we complied with commitments we made in the standby arrangement, and this should give confidence to the markets and international agencies that we are committed to reform," Toukan added.
Jordan's decision last November to cut subsidies on most fuel products sparked violent protests.
The IMF's deputy managing director Nemat Shafik said in a statement following the announcement that the economy was performing well in a tough political environment.
"The authorities have managed a difficult environment by taking appropriate policy actions under their Fund-supported economic program," Shafik said.
"Their efforts have mitigated the adverse impact of regional political instability, higher energy import prices, and a large influx of refugees from Syria," she added.
Last November's lifting of fuel subsidies and their replacement with a cash transfer scheme to cushion the poor constituted an "important step towards a stronger fiscal position and improved social equity," Shafik said.
Approval of the new tranche had been delayed due to concerns that Prime Minister Abdullah Ensour, a strong advocate of reform, may be replaced following elections in January. But in the end, Ensour was reappointed last month.
Jordan's economic problems deepened after 2011 as a sharp reduction in supplies of the cheap Egyptian gas it used to generate most of its electricity forced it to pay an extra $2.5 billion a year for diesel and fuel bought in the global markets.
Shafik said that it was crucial to raise electricity tariffs to help the country's state electricity company recoup nearly $2 billion in losses that deepened the country's budget deficit.
The government, which backtracked on implementing the price hikes last year for fear of social unrest, intends to proceed with the move over stages as early as this summer without hurting low-income consumers, according to officials.
The cost of accommodating over 450,000 refugees from the civil war in neighboring Syria has also added to Jordan's economic woes.
The IMF says further economic reforms would help raise Jordan's economic growth to 5 percent in two years from an estimated 3 percent this year and slash the budget deficit by more than half to 3 percent of gross domestic product (GDP).
The kingdom should continue bolstering its foreign reserves, which rose in February by 24 percent to $8.22 billion from the end of last year, boosted by at least $1.5 billion of Gulf money and greater confidence in the local currency, Shafik said.
"The central bank's focus on further building foreign exchange reserves and containing inflation remains warranted," Shafik added.
Inflation rose to a high of 7.75 percent in February, rising from 4.8 percent in December after fuel price hikes.
Reuters
11 April
