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Ammon News - AMMONNEWS - The International Monetary Fund (IMF) has said that a move by authorities to reduce exemptions from general sales tax and customs duties is “critical” for the success of a newly approved correction programme.

On Wednesday, the IMF executive board approved a three-year extended arrangement under the Extended Fund Facility (EFF) for Jordan for an amount equivalent to Special Drawing Right (SDR) JD514.65 million (about $723 million, or 150 per cent of Jordan’s quota) to support the country’s economic and financial reform programme.

Following the board’s decision, an amount of about $72.3 million is made available for immediate disbursement, while the remaining amount will be phased in over the duration of the programme, subject to six reviews.

The programme aims at advancing fiscal consolidation to lower public debt and broaden structural reforms to enhance the conditions for more inclusive growth, a statement by the fund said on Thursday.

Describing the route the economy should take, the IMF said: “Public debt needs to be put on a downward path through gradual fiscal consolidation over the medium term while preserving essential social spending. To this end, it is critical to reduce the general sales tax and customs duty exemptions and to amend the Income Tax Law.”

“The electricity company NEPCO needs to reach operational cost recovery and Water Authority of Jordan’s finances should be consolidated. Public financial management should be strengthened to enhance fiscal transparency and reduce fiscal risks,” the statement said.

The fund, however, gave credit to authorities for steering national economy during a stormy period that witnesses turbulence and refugee influx to the Kingdom.

“The Jordanian economy has performed favourably under a difficult external environment, including the hosting of a large number of Syrian refugees,” the statement quoted IMF’s First Deputy Managing Director and Acting Chair David Lipton as saying following the executive board discussion on Jordan.

“Macroeconomic stability has been maintained thanks to significant policy adjustment and reforms. However, economic performance remains below potential and the hosting of Syrian refugees weighs on the economy and public finances.

“The authorities have developed a comprehensive economic reform programme to enhance the conditions for more inclusive growth and preserve macroeconomic stability,” he said, urging early and decisive actions to provide new economic opportunities, jobs, and bolster confidence under a difficult environment.

“While the domestic and regional conditions are challenging, the authorities’ strong commitment and their ownership of the programme is welcomed. Continued donor support through sufficient grants and concessional financing as stated in the Jordan Compact [pledges made to Jordan at the London donor conference and Jordan’s commitments in return] will also be important to support programme goals,” the IMF executive said.

He added: “Monetary policy has been skilfully managed, and will continue to be anchored by the exchange rate peg and focus primarily on preserving an adequate level of reserves. To further strengthen the regulatory framework, adoption of the amendments to the central bank law is a step in the right direction, and those for commercial banking law and of the secured lending and insolvency laws should be expedited.”

“A swift implementation of the structural reform agenda would enhance the resilience and depth of the financial sector and the business environment, and help tackle challenges facing SMEs in terms of access to finance. Labour market reforms are needed to boost youth and female employment and lessen informality.”