IMF says Jordan’s energy crisis poses toughest reform challenge

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Jordan must tackle a soaring energy import bill by reducing power subsidies to get its economy back on track, the International Monetary Fund said on Wednesday.

IMF deputy head Nemat Shafik said Jordan’s aid-dependent economy was hit hard by “several external shocks at the same time “when the Arab Spring revolts against autocratic rule spread across the Middle East, but the major challenge now was energy imports.

“Energy is the Achilles heel of the Jordanian economy, it’s a huge vulnerability for Jordan ... the biggest drain on the economy,” Shafik told reporters at the end of an IMF mission to review progress in last year’s standby arrangement.

Jordan imports 97 percent of its energy. A sharp reduction in supplies of the Egyptian gas it uses to generate most of its electricity has forced it to pay an extra $2 billion a year since 2011 for diesel and fuel bought in global markets.

The cost of accommodating over 300,000 refugees from its northern neighbor Syria has added to Jordan's economic woes.

Combined with a drop in foreign aid and soaring welfare payments, the kingdom went through an acute financial crisis that forced it to take a $2 billion IMF loan last July.

That was conditional on a budget tightening plan that includes reducing hefty subsidies on fuel and raising electricity tariffs.

Jordan’s decision last November to cut subsidies on most fuel products sparked violent protests but had steered the country away from the “very inefficient” subsidy system in place in most Middle Eastern countries, Shafik said.

“In Jordan the government put in place a cash transfer scheme which went to 70 percent of the population. So the only people who actually pay the full price are the top 30 percent in Jordan. I think that is a good strategy,” Shafik said.

Further economic reforms would help raise growth to 5percent in two years from an estimated 3 percent this year and slash the budget deficit by over a half to 3 percent of gross domestic product (GDP), Shafik said.

The deficit was 7.5 percent of GDP last year.

“Our hope if the program is successful and we are able to implement all the measures by 2015 (is that) we will see(economic) growth in the 4.5 and 5 percent range,” Shafik said.

He saw some signs of economic recovery in 2013, with foreign reserves boosted by at least $1.5 billion of Gulf money and greater confidence in the local currency while state revenues were also rising.

“We are mostly satisfied. On the fiscal side there is over performance and on the monetary side there is renewed confidence,” Shafik said.

But officials say continued success in implementing IMF guided reforms could be derailed if a new government, expected to be chosen this week, reneges on pledges to further reduce subsidies given by Prime Minister Abdullah Ensour’s government.

“It’s really critical. We want to cushion reforms so that they are politically and socially sustainable,” Shafik

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