São Paulo – The International Monetary Fund (IMF) disclosed on Tuesday (7) that the government of Jordan needs to reduce public net debt, social spending and the deficit in country accounts. A Fund mission met with local authorities between January 22nd and February 2nd to evaluate the conditions of the local economy. All IMF member countries are submitted to this evaluation. Despite having warned about Jordan’s vulnerability, the Fund delegation said that the banking system in the country is sound.
The 2011 figures have not yet been closed, but the IMF announced that the rate of unemployment grew last year and reached 13%. Also in 2011, the foreign deficit reached 9.5% of Gross Domestic Product (GDP) and international reserves dropped 14%, to US$ 10.7 billion. Inflation dropped to 4.5% due to the government not transferring oil price increases to the people.
The report says that forecasts for Jordan in 2012 have become "increasingly challenging, in light of growing social pressures and heightened instability in the region". Forecasts show that the economy of Jordan should grow just 2.75% this year, little more than the 2.5% of 2011, due to political disturbances in the region, high imported commodity prices and growing risks to the country’s ability to finance itself. This year, inflation should climb to 5.5% due to high oil prices being transferred to consumers.
"Regional political events with possible spillovers to Jordan—including unrest in neighbouring countries—could adversely affect economic activity through lower tourism receipts and FDI, and more costly access to capital markets. In addition, a deepening of the European crisis could indirectly affect Jordan, mostly through its adverse impact on regional oil exporters (a major source of Jordanian trade, external grants, remittances, tourism and investment flows),” says the Fund’s report.
The IMF forecasts that the country will have a considerable budget consolidation in 2012 and that Jordan needs to make other efforts during the year. One is controlling the fiscal deficit, reducing risks associated to high public spending and maintaining fiscal sustainability. The budget must be focussed on greater domestic investment and cost reduction among ministries, reforms in the universal subsidy system for diesel and petrol and freezing public sector hiring.
In the evaluation of the IMF, the Central Bank of Jordan has developed prudent regulation and supervision of the banking system which, in turn, is sound. According to the study, banks have been conservative in terms of credit concession, remaining lucrative and capitalised, but may be exposed to greater default.
*Translated by Mark Ament
