By Massoud A. Derhally
Loan will help country deal with economy slowed by higher oil prices, Arab Spring uncertainty
The International Monetary Fund (IMF) agreed to loan US$2bn to
Jordan, which imports almost all of its energy needs and has one of the
smallest economies in the Arab world, and relies on foreign aid and grants to
finance its current and fiscal deficits.
“Jordan’s economy has been hit by exogenous shocks that were
outside the government’s control," Kristina Kostial, the IMF mission chief
for Jordan said in a statement. "Repeated and extensive disruptions to the
flow of natural gas from Egypt due to the sabotage of the Sinai Peninsula
pipeline, together with high and rising oil prices, required imports of
expensive fuel products for electricity generation.
Jordan's fiscal deficit could rise to JRD2.93bn (US$4bn) this
year if economic conditions in the country do not improve, the Jordan Times
reported in May, citing Minister of Finance Suleiman Hafiz. The kingdom's
fiscal deficit would be JRD2.06bn after the receipt of foreign aid and grants,
the Amman-based newspaper reported, citing Hafez. The kingdom's debt would rise
to JRD17.5bn by the end of the year from JRD14.3bn.
The overall budget deficit increased to about 6 percent of
GDP in 2011 as a result of commodity subsidies, and other social spending and
borrowing by the government on behalf of Jordan’s National Electric Power
Company to cover more costly imported fuel oil used during extensive periods of
interrupted natural gas supply when saboteurs attacked pipelines in Egypt.
"Regional tensions and the global economic downturn
adversely affected tourism, worker remittances, and FDI," Kostial said.
"As a result, growth has slowed. Despite improvement in tourism income and
remittances in 2012 along with the projected decline in oil prices, the
external current account deficit is expected to widen to an estimated 14 percent
of GDP in 2012."
The kingdom's public debt-to-GDP ratio increased to about 64
percent at the end of 2011. Jordan's economy is forecast to grow 2.8 percent
this year from an estimated 2.5 percent in 2011, while inflation is projected
to rise to 4.9 percent from 4.4 percent last year, according to the IMF.
“In response to the negative external shocks, the Jordanian
government has adopted a national reform program," Kostial said.
"The IMF staff agreed to support Jordan’s agenda for a
socially acceptable fiscal consolidation," she said. "It will provide
liquidity during the next three years, which will allow the authorities to
gradually implement their agenda. Anchored in Jordan’s currency peg which has
served the country well, the key objectives of the authorities’ programme are to:
correct fiscal and external imbalances; and foster high and inclusive growth."