In a conversation with IMF Country Focus, Jordan’s Minister of Finance Mohamad Al-Ississ digs deeper into the economic impact of COVID-19 on his country, policies they’ve pursued to limit the fallout and protect the vulnerable, and how rapid IMF financing has softened the blow of the pandemic and allowed the government to invest in critical areas during the crisis.
How has COVID-19 affected Jordan’s economy?
The IMF expects Jordan’s economy to contract in 2020—for the first time in decades. This is particularly concerning because we had managed to grow at an average rate of 2 percent despite enduring regional and international shocks to our economy amounting to 44 percent of GDP over the past decade, and even while implementing a massive fiscal consolidation strategy. This contraction speaks volumes about the massive impact of COVID-19.
The global slowdown is also expected to impede foreign direct investment, remittances, trade, and tourism, the latter of which represented 10 percent of GDP pre-pandemic. In addition, we have over 250,000 daily wage workers affected by the lockdown and businesses facing a liquidity crunch.
I believe we have been able to turn this adversity into an opportunity. We responded to the crisis with immediate fiscal and monetary measures and, coupled with our strong underlying fundamentals including sustainable debt and a healthy financial system, boosted confidence in our economy. This led to a double-tranche Eurobond issuance that was highly oversubscribed and at competitive interest rates of 4.95 percent over 5-year maturity and 5.85 percent over 10-year maturity.
The economy has also adapted well. For instance, Jordan’s stock of vibrant tech start-ups can be tapped into to facilitate business activity in the region amid limited cross-border traveling. Moreover, the country is entering into global supply chains; not only are we self-sufficient in producing masks, but we are also exporting them.
What measures have you taken so far to tackle the pandemic and protect the most vulnerable?
Jordan’s response to COVID-19 is in line with the country’s overarching principle: prioritize human safety. After only a few infections, we were one of the first countries to implement a strict lockdown. We invested in affordable and widespread testing, delivered food and necessary items to households, and lowered sales tax on key protective equipment. Consequently, we have one of the lowest numbers of per capita COVID-19 cases worldwide, and were therefore able to pursue a gradual reopening.
We also immediately established a fund to cover emergency medical outlays to ensure that our Ministry of Health has the necessary funds. We meanwhile provided temporary cash-flow relief to companies by allowing delayed payments of sales taxes and customs duties, delayed utility payments, temporarily reduced social security contributions, and supported vulnerable daily wage workers via our National Aid Fund cash transfer program.
Our Social Security Investment Fund has also enacted a wide set of policies, including in-kind transfers and benefits for the unemployed and self-employed. On the monetary side, the Central Bank of Jordan reduced policy rates, injected liquidity by reducing reserve requirements on time deposits, and eased terms of financing programs for small- and medium-sized enterprises. In addition, the government committed to compensate arrears owed to the private sector, which we are now accelerating.
How will the new four-year, $1.3 billion Extended Fund Facility (EFF) for Jordan be used to support the economy in this time of crisis?
Jordan’s EFF program is borne out of a partnership between the Jordanian authorities and IMF staff, and focuses on growth, jobs, and social safety nets. The funds will be allocated toward financing our general budget including health, education, and social support. Although COVID-19 has pushed us to reprioritize budget expenditures, we remain committed to our home-grown program objectives.
Moving forward, we will continue to fund necessary capital expenditures to energize the economy (albeit to a lesser extent), maintain public sector wages, and strengthen social safety nets. Importantly, we remain committed to provide support to the Syrian refugees that we host. Finally, IMF lending enables us to lower our debt service costs, which will help free up additional fiscal space for pressing priority areas.
The IMF also recently approved $396 million in emergency assistance under the Rapid Financing Instrument (RFI) to fight COVID-19. How are you using these funds, and how will you ensure these funds are used in a transparent and accountable way?
It is at times of extreme global hardship that true partnerships show, and the IMF’s prompt response to the COVID-19 crisis is a testament to both policy for the good and good fiscal policy. Our domestic revenue fell due to the lockdown even as expenditure needs expanded relentlessly. Although our domestic banking sector and the Social Security Investment Fund are healthy and capable of lending for these needs, we are cognizant that, just as our borrowing requirements have grown, so have needs of businesses and consumers. It is therefore crucial that the government looks toward external finance to avoid crowding out private sector credit.
RFI funds are being spent from our national treasury account in line with the best international standards of public financial management. For transparency, we have created specific budget lines for this purpose to track and report crisis-related expenditures, and have linked the emergency fund to the Treasury Single Account. The Jordanian Audit Bureau will also undertake ex-post audits of all crisis-mitigating inflows and spending, and will publish the results.
As you deal with COVID-19, what economic, health, or social challenges are you most worried about looking ahead?
Above all else, few feel the impact of the accumulation of these crises more than the youth of the Middle East and North Africa region—a generation that has witnessed foregone opportunities in terms of jobs and education. It is critical that we channel the tech literacy and innovation of our youth, given the newfound need to work remotely. In addition, social support must be disbursed as indiscriminately as a vaccine would be in order to prevent an outbreak of negative social impacts before having to treat its symptoms. In this regard, a major concern I have is that the international community leaves global challenges such as the Syrian refugee crisis in the past, although it remains a daily reality for us in Jordan.