Regarding Iraq .. "When we start a program, we start a program with a certain time period that the government has in mind during which they propose to implement a certain set of measures which they come up with and for which they would like financing from the IMF to help ease the process of transition. In some countries what happens over time is that either because of external reasons or because of domestic policy constraints, it takes longer than anticipated to complete those measures. And in those cases, the IMF is often quite flexible in saying okay, well if it takes a little bit more time, we can adjust the timing of the IMF’s own program to support that, if it’s still a coherent and sustainable effort. And so is the case of Iraq.
The Iraqi authorities asked for an extension to a program which was coming to its end because they felt they needed a little bit more time to complete some of the measures that had been anticipated for the last review. The program has thus and been extended, as you know, for seven months. The SBA is normally a three-year maximum length. But if there was a reason to extend the program by a couple of months, either at the end or at the time of individual reviews when our Board considers progress under the program, then sometimes those reviews also can be moved a little bit if it takes a bit of extra time for governments to complete the necessary measures.
But certainly our expectation is that this is a three-year program that the government has come up with. That’s what they’ve asked for our support for, and at this stage we’re very confident that those measures will be implemented in that time"
August 03, 2012
Jordan Gets $2.0 Billion IMF Loan to Support Economy
*Country hit hard by adverse external shocks, affecting energy imports, tourism, remittances, and foreign investment
*Jordan’s program designed to address these shocks
*While protecting the vulnerable and fostering high and inclusive growth
The IMF Executive Board has approved a loan for Jordan to give the country time to correct budgetary and balance of payments imbalances while maintaining social stability.
Jordan, facing a series of economic shocks that have hurt energy imports, tourism, remittances, and foreign investment, has drawn up a national program designed to address its fiscal and external imbalances.
The IMF Executive Board approved a 36-month Stand-by Arrangement for Jordan amounting to about $2.05 billion, subject to quarterly reviews.
Kristina Kostial, the IMF mission chief to Jordan, explained to IMF Survey magazine the underlying reasons for the loan and discusses the overall economic outlook for the Middle East country, which has a population of about 6.5 million.
IMF Survey: Why does Jordan need IMF assistance?
Kostial: The Jordanian authorities plan an ambitious fiscal consolidation to reduce public sector financing needs, and lower public debt, which is carefully balanced against the risk of a recession and social acceptance.
The loan will provide the necessary liquidity to help Jordan get through a difficult period and make adjustments gradually.
IMF Survey: What put the economy under pressure?
Kostial: Jordan was hit by a series of external shocks in the past year. Repeated sabotage of the Arab Gas Pipeline in the Sinai Peninsula reduced the average daily flows of natural gas from Egypt. This necessitated an increase in imports of expensive fuel products for electricity generation while oil prices were high.
At the same time, regional tensions adversely affected tourism, remittances, and foreign direct investment. As a result, growth slowed significantly, investor confidence weakened, and the external current account deficit (including grants) widened to 12 percent of GDP in 2011 from 7 percent in 2010.
With the help of exceptionally large grants, fiscal policy accommodated the social impact of these shocks in 2011 and the authorities focused their attention on social policies, increasing commodity subsidies, other social spending, and also wages. Together with a weakening in domestic revenue, these measures raised the primary fiscal deficit (excluding grants) to 9.6 percent of GDP in 2011.
Expensive fuel imports also caused losses of the publicly owned National Electric Power Company (NEPCO) to increase to 4.9 percent of GDP in 2011 from 0.8 percent of GDP in 2010.
IMF Survey: How will the program, supported by the IMF, change things?
Kostial: The authorities’ program is designed to address the fiscal and external imbalances. The program would provide the authorities with a framework to achieve a gradual fiscal consolidation.
The deficits of the central government and NEPCO (as well as other loss-making public agencies) will be reduced in order to return public debt to a sustainable path. To a large extent, this will hinge on the success of Jordan’s strategy to diversify its energy sources and move electricity generation back to cost-recovery levels by establishing transparent and sustainable energy prices, pursued with assistance from the World Bank.
There is substantial scope for increasing tax revenue and improving tax administration. Tax revenue declined by five percent of GDP since 2007. Though this reflects to some extent a weakening of the economy, the main contributors were tax policy changes and weak administration.
Importantly, the program will help the government to make policies more pro-poor. Better-off households currently benefit from generalized subsidies, at the expense of the larger part of the population. Thanks to the reforms supported by the program, these households will now be asked to pay a fair price for some goods and services, allowing the social safety net to be better targeted at those who are in real need.
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