The International Monetary Fund (IMF) executive board has welcomed Jordan’s fiscal tightening in the 2012 budget, urging further fiscal consolidation over the medium term.
In a new report, carried by the local media, the IMF executive directors commended the country’s adaptation of a comprehensive medium-term strategy to restore fiscal buffers and reduce public debt.
Such a strategy, they said, should encompass enhanced tax administration, further fuel subsidy reforms, better-targeted social and capital spending, continued containment of the public sector wage bill and improved public sector financial management. The report said that consultation with Jordan revealed that the 2012 budget focuses on raising domestic revenue by removing tax exemptions, revamping property transfer fees and imposing higher tax rates on luxury goods.
The budget is also based on containing current spending by freezing public sector hiring, reducing the operational costs of ministries and reforming the present system of subsidies for gasoline and diesel, the report said.
The budget also provides for the implementation of targeted transfers to alleviate higher fuel costs associated with the phasing out of fuel subsidies.
Based on the latest developments and macroeconomic assumptions, the report stated that the 2012 overall deficit is expected to narrow by about one per cent of the gross domestic product (GDP) relative to the 2011 outturn, reaching 5.25 per cent of the GDP.
With this, and given likely borrowing for own-budget entities, the public debt-to-GDP ratio would rise slightly to 65.5 per cent by the end of 2012.
Further fiscal consolidation will be essential over the medium term to return fiscal and external balances to a sustainable level, the report said.
“As recent unrest in the region is likely to have engendered rising sovereign risk in Jordan and other Middle East countries, further tightening of monetary conditions is appropriate to sustain the attractiveness of Jordanian dinar-denominated assets and strengthen the international reserve position,” the report added.
The peg of the Jordanian dinar to the US dollar has served the country well by anchoring inflation expectations and providing stability in a challenging regional and global environment, according to the report.
The IMF welcomed improvements in banking regulations in line with the recommendations of the fund’s Financial Sector Assessment Programme, which have “helped create a liquid, well capitalised and profitable banking sector.” They encouraged continued vigilance against financial risks, particularly from rising non-performing loans.