Friday, April 12, 2013

Optimism remains high as Jordan tackles its economic difficulties

It always seems to be a case of good news and bad news as far as Jordan is concerned. Yes, times are indeed tough with civil war raging just across its border with Syria. How the war eventually impacts Jordan's economy in the medium to long-term is a question which at the moment can only but remain unanswered.

Short-term, and with Syrian refugee numbers climbing above 250,000, international aid has been vital in helping provide some – but not all – of the costs of shelter, food and medical care for those  fleeing the civil war. How long the Jordanian government can go on meeting the increasing aid balance is yet another unanswered question.

Yet optimism remains high both within government circles and among members of a dispirit business community always ready to explore new markets or pursue any potentially profitable venture or corporate opportunity. A strong and resilient banking sector continues to provide vital support along with useful products and services such as the business credit card, corporate account and payments and cash management services so necessary nowadays for commercial success.

But all of that aside, Jordan industry and trade minister Shabib Ammari is one who retains a positive outlook despite the problems afflicting the country. He told the Reuters news agency recently that while he expected foreign direct investment to shrink slightly this year, he could see figures for next year growing to between $2bn and 3bn.

Part of that inward investment will come from funds released by the IMF as part of a $2 billion loan deal – a Stand-By Arrangement (SBA) as the IMF call it – which was approved in August, last year. A second tranche of the SBA, worth around $384 million, has just been released following a mainly-positive review of Jordan's economic performance to date.

The hope is the IMF loan will support economic reforms aimed at maintaining macroeconomic stability and improving the fiscal and external positions, while protecting the vulnerable segments of the population and fostering stronger and more inclusive growth.

Following discussions on Jordan by the IMF Executive Board, Ms.Nemat Shafik, Deputy Managing Director and Acting Chair, said, “The authorities have managed a difficult environment by taking appropriate policy actions under their Fund-supported economic program. Their efforts have mitigated the adverse impact of regional political instability, higher energy import prices, and a large influx of refugees from Syria.”

The removal of fuel subsidies last year accompanied by a cash transfer to compensate lower and middle income groups was, she said, an important step toward a stronger fiscal position and improved social equity. This, together with other revenue and expenditure measures, had paved the way for higher capital spending in the current budget. Looking ahead, it remained important to further improve tax administration and the public financial management.

Ms.Shafik said the central bank had managed pressures on reserves well by raising interest rates and maintaining the attractiveness of dinar-denominated assets. Its focus on further building foreign exchange reserves and containing inflation remains warranted.

She added, “The planned increase in public investment will support growth. Additional reforms to boost competitiveness and reduce unemployment remain nonetheless essential. Recent measures to improve access to finance for small and medium enterprises, strengthen banking supervision, develop capital markets, and promote youth employment are welcome steps in the right direction.”

The full IMF statement can be seen here.

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