IMF officials give Jordan some wiggle room on reforms

WASHINGTON Sat Oct 12, 2013 9:23pm EDT

WASHINGTON Oct 12 (Reuters) - International Monetary Fund officials relaxed some fiscal and other targets for Jordan under its $2 billion loan program as the country struggles to deal with an influx of Syrian refugees and energy supply disruptions.

The IMF officials on Saturday agreed to give Jordan about $258 million, its third tranche of aid under a three-year loan program started last year to help the Middle Eastern country speed up economic reforms and boost growth.

The IMF's executive board must still sign off on the disbursal, which should happen in November.

Jordan will get each subsequent chunk of cash if the IMF decides it has sufficiently complied with the conditions of the program, which include getting the government's finances in order and cutting subsidies for electricity and fuel. An IMF seal of approval can also help mobilize support from other donors.

The IMF had previously set a target for the government deficit and losses at the state-owned electricity firm NEPCO at 7.2 percent of GDP for next year, but agreed to relax it by about 1 percentage point in light of Jordan's tough external environment, Kristina Kostial, IMF mission chief for Jordan, told reporters in a briefing.

The Fund also loosened targets for how quickly Jordan would have to raise electricity tariffs, she said, praising the government's commitment to reforms.

"Jordan has been really hit hard with exogenous shocks," Kostial said. "When I compare April with where we stand now, it's, I think, even gotten tougher on Jordan," she said. The IMF last reviewed Jordan's program in April.

"Of course you have to acknowledge the financial realities, clearly, but we want to be as flexible as possible in accommodating these exogenous shocks," she said.

Jordan has been hard-hit by the cost of an estimated half a million refugees fleeing the civil war in neighboring Syria and the influx has further squeezed the economy following a financial crisis last year.

Jordan, which imports 97 percent of its energy, has also seen purchase costs soar above $5 billion in the last two years - equivalent to about 15 percent of its gross domestic product - after supplies of cheap Egyptian gas were disrupted by repeated blasts of a pipeline.

The disruptions have left Jordan dependent on costly diesel and fuel oil, and the country is preparing a hike in electricity prices, a politically fraught move after street protests erupted last year over fuel subsidy cuts demanded by the IMF.

However, there have also been signs of economic recovery with foreign reserves boosted to about $10.7 billion with an infusion of Gulf money, and with investors showing rising confidence in Jordan's economy, officials have said.

Wealthy Gulf Arab states - Kuwait, Qatar, Saudi Arabia and the United Arab Emirates - have extended a combined $5 billion of project financing to Jordan to help the country recover.

Jordan is also planning to sell a U.S.-backed Eurobond, though it has held off on issuing it due to the fiscal impasse in the United States that has spooked global markets.

"Technically everything is ready, that's the only thing which is holding this off," Kostial said, in reference to the government shutdown and the standoff in the U.S. Congress.

"Otherwise this could have happened already," she said.

The IMF projects Jordan's economy should grow between 3 and 3.5 percent over the next year, supported by Gulf money for new infrastructure projects and a solid tourism season.

Inflation, which eased to 5 percent year-on-year in August, should also continue to fall.

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