Jordan-IMF reforms: Targets 22% unemployment, 2024 energy cost cuts

IMF building
(File photo: Jordan News)
AMMAN – According to Al-Mamlaka TV, the government agreed on a new program with the International Monetary Fund (IMF) on Wednesday that aims to improve resilience in the face of growing global and regional challenges, support financial policies, address structural barriers to growth, create job opportunities, and complete a comprehensive review of all energy purchase agreements.اضافة اعلان

Addressing regional events and Jordan’s high unemployment rate
The IMF published a letter of intent from the Finance Minister, Mohammad Al-Ississ, and the Central Bank of Jordan (CBJ) Governor, Adel Al-Sharkas, in which the government stated that the recent Extended Fund Facility (EFF) agreement with the fund was successful and helped Jordan build resilience and maintain it, absorb successive shocks, and maintain overall stability.

It emphasized that Jordan's external environment "remains difficult," with increasing global and regional tensions, rising interest rates, and uneven global development.

It stated that the war in Gaza has a negative impact on the Jordanian economy by reducing tourism and investment revenues, as well as the possibility of rising fuel prices and borrowing costs, explaining that Jordan is capable of overcoming the crisis with international support “if there is no significant escalation.”

The government confirmed that it has been able to maintain stability in the overall economy and reduce financial and external imbalances and weaknesses over the past few years, where wise financial and monetary policies have helped support comprehensive economic growth in the face of various external shocks, maintain monetary and financial stability, and keep inflation low.

According to the letter of intent, these policies have helped increase reserves and reduce the budget deficit, including by expanding the revenue base in a sustainable and equitable manner, gradually lowering public debt, maintaining market access under favorable conditions, and maintaining confidence in the Jordanian economy amidst difficult global tensions.

The government confirmed that its financial and monetary policies are on the right track to meet specific goals in its program with the fund, where it established a ministerial committee responsible for reviewing overdue debts and signed memoranda of understanding to ensure data exchange from various government agencies with the Department of Statistics (DoS), in addition to the success in implementing the action plan of the Financial Action Task Force (FATF) to enhance the effectiveness of the anti-money laundering and counter-terrorism financing framework, which helped Jordan exit the gray list as of October 2023.

The government explained that despite its achievements, "unemployment rates are still very high," particularly among women and young, and that growth, despite its resilience, has not met its expectations. "There are still needs in the balance of payments," including looming debt service commitments and the need to improve reserve building while addressing climate and health problems.

“Unemployment rates are still high, exceeding 22 percent, and are extremely high among youth and women, reaching 47 percent and 31 percent, respectively,” according to government data.

The government stressed the need for "strong, timely support from international development partners to continue to help Jordan overcome global and regional adverse developments, address the challenges posed by climate change, and bear the burden of hosting a large number of refugees."

It emphasized that the new agreement will focus on continuing to gradually adjust public finances to put public debt on a steady downward trajectory to less than 80 percent of the GDP by 2028, protecting the exchange rate link with appropriate monetary policies, and accelerating structural reforms to stimulate job-rich growth.

The government has confirmed that the new agreement will work with the economic reform vision strategies to continue improving the business environment, obtaining financing, labor market flexibility, competition policies, public administration, as well as the financial feasibility and efficiency of utility sectors such as electricity and water.

The government has maintained its commitment to improving protection for the most vulnerable populations by increasing social safety nets, boosting public service delivery, and promoting good governance practices.

The government has requested support from the IMF through a new extended agreement under the EFF for 48 months in the amount of 926.370 million Special Drawing Rights (SDR) (270 percent of Jordan’s quota).

The government emphasized that the high interest rate environment has a dampening effect on inflation, reflecting the CBJ’s monetary policy commitment to protecting the exchange rate link, explaining that the inflation rate has fallen slightly to just over 1 percent in September 2023 over the past twelve months.

Reviewing energy agreements and practices in the Kingdom
As stated in the same letter of intent from Ississ and Sharkas, the government will implement a strategy to reduce the cost of energy generation from the National Electric Power Company (NEPCO) by April 2024 based on legislative and contractual analysis.

On September 13, 2023, the Ministry of Energy and Mineral Resources launched a study to review renewable energy and traditional energy purchase agreements from a technical, economic, commercial, and legal perspective, with the goal of learning from best practices in the region and similar field experiences.

It also stated that it will implement an executive strategy to lower electricity sector costs and increase efficiency, ensuring NEPCO's long-term financial sustainability while supporting the transition to renewable energy sources. The blueprint is expected to be adopted in October 2024, according to the report.

The government confirmed that it has conducted a review of agreements with electricity distribution companies and has appointed an international consulting firm to conduct a comprehensive review of the electricity system, including generation, transmission, and distribution, and propose the necessary measures to achieve the financial sustainability of NEPCO.

The government is expected to take several measures to improve the financial situation of NEPCO in the near future, including tendering for the construction of a wide-area distribution network using the fiber optic infrastructure of NEPCO, the Irbid District Electricity Co. Ltd. (IDECO), and the electricity distribution company by March to generate additional flows in the revenues of NEPCO, where the contract is expected to be awarded by July 2024.

Additionally, the government has committed to implementing major reforms in the energy sector to permanently reduce the losses of NEPCO, acknowledging that the scope for significant improvement in the financial situation of NEPCO in the near term “will be limited” due to long-term contractual obligations on both the generation and distribution sides, as well as the presence of an environment characterized by high interest rates and sluggish demand as consumers shift to renewable energy.

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