Jordan Times
Sunday, December 3, 2006
'Growth may be
marginally lower in 2007’
IMF praises national economy’s performance, lists set of recommendations to
sustain sound track record
By Mahmoud Al Abed
AMMAN — The International Monetary Fund (IMF) said in a recent report that
Jordan’s economy has done well over the current year and listed a set of
recommendations to sustain the sound track record over the past decade.
In the November 28, “Concluding Statement for the 2006” drafted after
consultations with authorities under Fourth Post-Programme Monitoring
Discussions, authors of the report indicated that real growth in gross domestic
product (GDP) is likely to end the year at 6 per cent or more.
“Core inflation appears well contained although headline inflation may
temporarily increase to 6 per cent due to higher domestic fuel and imported food
prices,” the report said
Unemployment has also declined “but remains high at more than 14 per cent,” the
report added.
According to the IMF, the Amman Stock Exchange index has exhibited more
stability than most markets in the region. It attributed this aspect to “a large
correction at the beginning of the year.”
Noting that the current account deficit has recently begun to narrow and is
being financed mainly by long-term capital inflows, the IMF expects import
growth for the current year to stand at 12 per cent (half of last year’s level),
while exports are expected to rise by 18 per cent.
“This is a certificate of good conduct on the performance of the government by
the IMF,” said economic analyst Yousef Mansour, CEO of Envision Consulting
Group.
“We have always been saying that the fundamentals of national economy are sound
and strong. We hope GDP growth this year exceed the 6 per cent forecasted,” he
said.
Last year, Jordan recorded 7.2 per cent in real GDP growth, down from 8.4 per
cent in the previous year.
Although the IMF expects the macro-economic outlook for 2007 and the medium-
term to remain positive and inflation to fall to 5 per cent next year, it
forecast real GDP growth to remain at 6 per cent over the medium- term, under
favourable regional conditions and supportive domestic policies.
“For next year, growth may be marginally lower due to slowing housing and equity
markets, declining corporate profits, the delayed effects of higher interest
rates, continued fiscal adjustment, and labour market constraints,” the IMF
predicted
The report projected the fiscal deficit, excluding grants for the year, to
improve by 2.5 percentage point of GDP — equivalent to an adjustment of half
percentage point of GDP in the overall deficit including grants.
The deficit has been financed easily without adding to macroeconomic pressures,
and the public debt ratio is projected to decline to 74 per cent of GDP by
end-2006.
The banking sector has also shown healthy signs, according to the report, which
commended regulation and supervision as having strengthened noting that the
health of the banking system has improved.
“Banks are well capitalised, nonperforming loans have declined and profits of
the sector as a whole remain comfortable,” it elaborated.
Structural reforms are also progressing well, the IMF report continued,
particularly privatisation. Through November 2006, five companies were sold,
yielding receipts of $0.6 billion (4.3 per cent of GDP).
The government has also embarked on a programme to improve education, health,
and public administration with support from the World Bank and other agencies.
The IMF saw the medium-term balance of payments to be sustainable as long as
supportive economic policies are in place.
“With strong growth and prudent borrowing policies, external debt could be
halved in five years from its present level of 52 per cent of GDP. In terms of
policies, sustained fiscal adjustment, cautious monetary policy, and structural
measures should narrow the current account deficit. By 2011, the deficit could
fall below 10 per cent of GDP, with reserves covering four months of prospective
imports, according to the report.
The mission recommended a public debt-to-GDP ratio target of 60 per cent in 2011
as a key fiscal anchor.
“The public debt law’s target of 80 per cent for 2006 was instrumental in
achieving much needed adjustment in the past, and it would be useful to update
the law with a new target,” the report concluded.