IMF Relaxes Jordan Program Targets Amid Syrian Refugees

The flood of Syrian refugees into Jordan has prompted the International Monetary Fund to relax some of the targets linked to a $2 billion loan program to the Arab kingdom, a fund official said.

The IMF agreed to cut one percentage point from next year’s target for the central government’s deficit combined with losses of the national electricity company, originally set at 7.2 percent of economic output, said Kristina Kostial, the fund’s Jordan mission chief yesterday. She spoke after Jordan and the IMF reached a staff-level agreement that would pave the way for the third tranche of the loan program, or about $258 million.

While the government will continue to raise electricity tariffs next year, the increases “are less ambitious than we had envisaged in the program, so we are relaxing that,” Kostial told reporters in a briefing in Washington.

Jordan’s economy, the smallest in the Middle East after Bahrain, has been hurt by the burden of hosting hundreds of thousands of refugees fleeing the civil war in neighboring Syria. The government sought IMF assistance after repeated disruptions of natural gas supplies from Egypt and a slowdown in economic growth hurt public finances. Jordan depends on imports to meet almost all of its energy needs.

As part of the program, the government started to lift energy subsidies. Aid from the six-nation Gulf Cooperation Council, which includes Saudi Arabia and Kuwait, has helped boost foreign-currency reserves to $10.7 billion.

U.S. Guarantees

Jordan’s gross domestic product expanded 2.8 percent in the first half of this year and is set to accelerate between 3 percent and 3.5 percent through the end of 2014, the IMF said.

The yield on Jordan’s $750 million bonds due in 2015 has plunged about 1 percentage point this year to 3.97 percent on Oct. 11, according to data compiled by Bloomberg.

The kingdom hired JPMorgan Chase & Co. (JPM), Citigroup Inc. and HSBC Holdings Plc (HSBA) to manage the sale of $1.25 billion in U.S.- guaranteed Eurobonds. The sale has been delayed because of the U.S. budget impasse, Kostial said.

“This is the only thing which is holding this off, otherwise this could have happened already,” she said. Jordanian and American officials have discussed the possibility of a second U.S. guarantee next year. “We think it’s a great idea,” she said.

Source : bloomberg