Moody’s: Jordan’s IMF Extended Fund Facility will support government finances

[28-06-2016 06:31 AM]

Ammon News - AMMONNEWS - Public finances have been declining since 2009, with government debt surpassing 90 per cent of GDP in 2015, versus 65 per cent in 2009. However, under the auspices of the SBA program, which also unlocked access to additional funding, structural fiscal reforms began to produce positive results, slowing the debt buildup. The central government’s fiscal deficit, excluding foreign grants, narrowed to 6.8 per cent of GDP in 2015 from 7.2 per cent in 2014 and 8.2 per cent in 2013 (see exhibit).

Under the new EFF program, the government expects to post a budget surplus of JOR170 million (0.5 per cent of GDP) by 2019 (including grants), and remain in surplus through 2021, not only as a result of structural reforms and access to further funding, but also as the country continues to benefit from lower oil prices.

Notwithstanding Jordan’s progress under IMF supervision, the ongoing crisis in neighbouring Iraq (unrated) and Syria (unrated) has added negative pressure to Jordan’s already-weak government finances because the country has been at the forefront of absorbing refugees, alongside Turkey (Baa3 negative) and Lebanon (B2 negative). Additional donor support will provide some relief.

Situated at the crossroads of a region in perpetual turmoil, Jordan has had a long history of hosting refugees from neighbouring countries. The 2015 census reveals that the country is home to around 2.9 million guests (30 per cent of the overall population) from Syria, Egypt (B3 stable) and Iraq, among other countries.

The latest influx of Syrian refugees totals around 655,000, bringing the total number of Syrians living in Jordan to just under 1.3 million, or 13.2 per cent of the overall population. To put that into perspective, it is equivalent to Germany (Aaa stable) absorbing the entire population of Sweden (Aaa stable) without its resources, a feat that would inevitably strain government resources.

The United Nations High Commissioner for Refugees estimates that the direct cost of hosting the latest influx of Syrian refugees will total $1.1 billion in 2016 alone. The government has raised $316 million to date, leaving a $789 million shortfall (2.1 per cent of GDP).

Aside from direct costs in the form of public service provisions, large inflows of refugees have indirect costs as the population growth spurt increases pressure on labor markets, and food and real estate prices. The government thus estimates the fiscal cost of hosting and integrating the refugees into the Jordanian economy at an even higher $2.6 billion per year (seven per cent of GDP).

A key credit support factor for Jordan has been its unique history of external support in the form of grants and loan guarantees from various international actors, including the US (Aaa stable), the European Union (Aaa stable), and Gulf Cooperation Council1 countries. The latest IMF agreement will ensure that this support continues.

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