Fiscal support and conditions attached to a planned IMF loan deal of about US$2 billion (Dh7.34bn) may help to ease Jordan’s perilous balance sheet slide, say analysts.
“It should help and give them some space and relieve some pressure from the local banks, which have been funding the government debt,” said Rachel Ziemba, the director of Eastern Europe, Middle East and Africa and global macro-economics at Roubini Global Economics. While the size of the package, announced last week, is large relative to Jordan’s modest quota at the IMF, the funds will not cover all the country’s needs. Its annual subsidies bill alone is estimated at more than $3bn a year.
But the funding should assist in financing the current account deficit, expected to widen to 14 per cent of GDP this year.
Jordan’s economy is reeling after a series of shocks starting with the Arab Spring last year. Protests flared in the country briefly and wider region, deterring investors and tourists, an important source of foreign exchange revenues.
Energy import bills also have risen after more than a dozen bomb attacks since early last year on the Egyptian gas pipeline that supplies Jordan.
More recently, an escalation of the conflict in Syria has hit Jordan’s transport industry and sparked an influx of refugees.
“The IMF agreement will help stabilise price action, given the ongoing risks from external and domestic shocks,” wrote Jonny Goulden and Brahim Razgallah in a JPMorgan research note last week.
But analysts say the deal may also be important in deflating a bloated public sector. Conditions attached to the three-year IMF programme are likely to require measures similar to an austerity drive unveiled by the government in May.
Those steps, which included electricity and fuel price rises and some tax increases, were “significant measures to bring the fiscal and energy policies to a sustainable path”, the IMF said last week. It added the loan was partly designed to encourage further budget consolidation.