WASHINGTON/DUBAI (Reuters) - The International Monetary Fund agreed on Wednesday to lend $2 billion to Jordan, whose economy has been hit by high oil prices and Arab Spring political unrest in neighboring countries.
“The IMF staff agreed to support Jordan’s agenda for a socially acceptable fiscal consolidation,” the IMF said in a statement. “It will provide liquidity during the next three years, which will allow the authorities to gradually implement their agenda.”
Jordan’s foreign reserves stood at about $8.7 billion in June, central bank Governor Ziad Fariz told Reuters last month, down from $10.9 billion at the end of last year. He said the reserves covered about five months of Jordan’s imports.
That suggests the IMF loan will cover only a little more than one more month of imports - not necessarily enough to make a decisive difference to the country’s balance of payments. The IMF also urged the international community to support Jordan with additional grants and government investment.
The IMF predicted Jordan’s current account deficit, its shortfall in trade of goods and services, would widen to 14 percent of gross domestic product in 2012. It previously estimated last year’s deficit at 9.5 percent.
The Fund said Jordan’s economy had been hit by exogenous shocks that were outside the government’s control.
The Fund noted that its loan to Jordan, at about 800 percent of the country’s quota in the IMF, was unusually large relative to the economy’s size. Normally, a country can borrow up to 200 percent of its quota annually and 600 percent cumulatively.
Jordan originally sought a $1.8 billion, five-year IMF facility but Finance Minister Suleiman al-Hafez said last month the expected amount had been cut to $1.4 billion. There was no explanation on Wednesday why the IMF had decided on a bigger amount.
Disruptions to the flow of Egyptian natural gas to Jordan - the pipeline was sabotaged again this week in the Sinai Peninsula - have forced Jordan to import expensive fuel products for electricity generation, the IMF noted.
Meanwhile, tourism income and remittances from Jordanian workers abroad have been hit by the global economic slump and the unrest in the region. Government finances have been weakened by higher welfare spending to buy social peace during the Arab Spring, and by the cost of caring for refugees from Syria.
In an effort to cut its deficits, Jordan launched an austerity drive in May, raising fuel and electricity prices, imposing higher taxes on luxury goods and increasing corporate taxes on banks and mining companies.
But the government’s room for maneuver has been limited by the threat of unrest; Islamist and tribal opposition groups have held street protests against price rises, warning the authorities that austerity measures could trigger wider demonstrations and even civil disorder in impoverished areas.
The IMF on Wednesday endorsed Jordan’s economic policies, saying planned reforms of the electricity sector and business regulation would boost economic growth even as the government repaired its finances. The Fund also praised the peg of the Jordanian dinar to the U.S. dollar.
Last year, Jordan’s economy was kept afloat by a $1.4 billion cash injection from Saudi Arabia, a powerful ally concerned about the uprisings around the region.
Although Jordanian officials say they expect further aid from Saudi Arabia, there has been no similar injection of Saudi money so far this year, and some officials have said this prompted Jordan to seek IMF assistance.
The IMF said its agreement to provide aid under a stand-by arrangement was subject to approval by its executive board, which was expected to consider the plan in the near future.
Editing by Stephen Nisbet