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The road ahead is long and we can do it

Feb 16,2020 - Last updated at Feb 16,2020

We learned from various media outlets that Jordan has reached a preliminary agreement with the International Monetary Fund (IMF) mission regarding a new four-year programme, in accordance with what is known as the Extended Fund Facility (EFF) whereby Jordan would obtain a $1.3 billion loan from the IMF. This programme aims at increasing growth, creating jobs, enhancing external and financial stability, increasing transparency and improving social spending. What is EFF, and what would be the effect of the programme on economic growth rates?

The EFF is a financing mechanism provided by the IMF to assist member states that are experiencing major imbalances in payments due to structural constraints; or that suffer from slow growth and substantial weakness in the balance of payments. This facilitation is supposed to support efforts to implement comprehensive programmes that include policies to correct structural imbalances over an extended period. According to the available information, the structural reform agenda is designed to improve the investment climate and reduce costs for companies, which will make it easier to create jobs while protecting the poor and most vulnerable groups. Under this agreement, Jordan will be able to access international financial resources to support the reform efforts.

Under the programme, fiscal and monetary policies will continue to safeguard macroeconomic stability; by reducing fiscal and external vulnerabilities in an equitable, growth-friendly and inclusive manner. A gradual and steady fiscal consolidation and reform path is expected to bring down public debt over the programme period, while allowing sufficient space for social and capital spending. Monetary policy will continue to be anchored by the exchange rate peg, which serves the economy well. International reserves will be maintained at comfortable levels.

In addition to macroeconomic stability, the programme is centred on a pro-growth reform agenda, which is based on measures to improve tax administration and reduce tax evasion, as well as more effective public-sector investment, reduced business costs and measures to improve government transparency and the investment climate. Key reforms include reduced electricity prices for businesses to improve competitiveness, together with development of a plan to reduce production costs and direct households’ subsidies only to those who need it. In addition, the authorities will introduce measures to help young people and women enter the labour force.

All these reforms and multiple policies are positive and serve the investment environment in the country, but their impact on economic growth rates will not be at the required level. According to the programme estimates, GDP is expected to grow by 2.1 per cent this year, compared to a rate that will not exceed 2 per cent for 2019. The growth rate is expected to increase gradually in the coming years, to reach 3.3 per cent by the end of the programme in 2023.

However, in order for the economic growth rate to be able to reduce unemployment rates, it must not be less than 5 per cent. These rates will not be felt substantially by the citizen because they remain at levels close to the natural population growth rates. What is required to increase economic growth rates to higher levels? Strong economic, investment and fiscal stimulus policies are required that focus on stimulating sectors of the real economy and that would accelerate economic growth rates. The road ahead is long and we can do it.

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