COMMISSION STAFF WORKING DOCUMENT Ex-ante evaluation statement on EU macro-financial assistance to the Hashemite Kingdom of Jordan Accompanying the document Proposal for a DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL providing macro-financial assistance to the Hashemite Kingdom of Jordan
Date: 2013-04-29
Institutions: European Commission
Subjects: European neighbourhood policy, Jordan, balance of payments assistance, economic reform, economic stabilisation, financial aid

EUROPEAN 
COMMISSION 

Brussels, 29.4.2013  
SWD(2013) 151 final 

COMMISSION STAFF WORKING DOCUMENT 

Ex-ante evaluation statement on EU macro-financial assistance  
to the Hashemite Kingdom of Jordan 

Accompanying the document 

Proposal for a 

DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

providing macro-financial assistance to the Hashemite Kingdom of Jordan 

{COM(2013) 242 final} 

EN 

   EN 

 
 
 
 
  
 
 
 
TABLE OF CONTENTS 

1.  Problem analysis and needs assessment ................................................................................ 3 

1.1.  Introduction................................................................................................................... 3 

1.2.  Jordan's macro economic situation ............................................................................... 4 

1.3.  IMF and other donor support ........................................................................................ 6 

1.4.  Jordan's external financing needs ................................................................................. 8 

1.5.  Structural reform challenges....................................................................................... 10 

2.  Objectives and related indicators of the macro-financial assistance ................................... 12 

2.1.  Objectives ................................................................................................................... 12 

2.2.  Indicators .................................................................................................................... 12 

3.  Delivery mechanisms and risk assessment.......................................................................... 12 

3.1.  Delivery mechanisms.................................................................................................. 12 

3.2.  Risk assessment .......................................................................................................... 13 

4.  Added value of EU involvement ......................................................................................... 15 

5.  Genval criteria on macro-financial assistance..................................................................... 15 

5.1.  Exceptional Character and Limited Timeframe.......................................................... 15 

5.2.  Political preconditions and EU-Jordan relations ........................................................ 16 

5.3.  Complementarity ........................................................................................................ 17 

5.4.  Conditionality ............................................................................................................. 17 

5.5.  Financial Discipline .................................................................................................... 17 

6.  Planning of future monitoring and evaluation..................................................................... 18 

6.1.  Monitoring .................................................................................................................. 18 

6.2.  Evaluation ................................................................................................................... 18 

7.  Achieving cost-effectiveness............................................................................................... 18 

 
 
1. 

PROBLEM ANALYSIS AND NEEDS ASSESSMENT 

1.1. 

Introduction 

Since  early  2011,  Jordan's  economy  has  been  significantly  affected  by  the  domestic  events 
related to the Arab Spring and the ongoing regional unrest, notably in neighbouring Egypt and 
Syria.  Combined  with  a  weaker  global  environment,  the  political  transition  of  Jordan  has 
taken  a  heavy  toll  on  external  receipts  and  has  strained  public  finances.  Lower  tourism  and 
foreign  direct  investment  (FDI)  inflows,  higher  international  energy  prices  and  the  repeated 
disruptions to the flow of natural gas from Egypt, which forced Jordan to replace gas imports 
from Egypt with more expensive fuels for electricity generation, have put a drag on growth 
and  have  resulted  in  a  marked  deterioration  in  the  balance  of  payments  and  fiscal  position. 
Jordan  has  also  been  affected  by  the  intensification  of  the  Syria  crisis,  notably  through  the 
inflow  of  refugees  and  its  fiscal  implications.  While  Jordan  has  so  far  managed  to  date  to 
maintain  macroeconomic  stability,  including  through  substantial  fiscal  consolidation  efforts 
and  financial  support  from  foreign  donors,  there  are  significant  balance  of  payments  and 
financing needs.  

Under  the  pressure  of  a  sharp  drop  of  international  reserves  in  the  first  half  of  2012,  the 
Jordanian  authorities  have  agreed  on  a  USD  2  bn  (800%  of  quota),  36-month  Stand-By 
Arrangement  (SBA)  with  the  IMF,  approved  on  August  2012.  The  aim  of  the  SBA  is  to 
support  the  government's  economic  reform  programme,  eliminate  economic  vulnerabilities 
and foster sustainable and inclusive growth.  

In this context, the Jordanian government requested Macro-Financial Assistance (MFA) from 
the EU in the amount of EUR 200 mn in December 2012. The Commission intends to submit 
to  the  European  Parliament  and  the  Council  a  proposal  for  MFA  to  the  benefit  of  the 
Hashemite  Kingdom  of  Jordan  amounting  to  a  maximum  of  EUR  180  mn  in  the  form  of 
loans. The proposed legal base is Article 212 of the TFEU. The EU's MFA would contribute 
towards covering Jordan's residual external financing needs in 2013 and 2014, in the context 
of the IMF programme.  

The  proposed  MFA  would  help  Jordan  address  the  lingering  economic  consequences  of  the 
Arab Spring and the external shocks of its energy sector. It would reduce the economy's short-
term  balance  of  payments  and  fiscal  vulnerabilities,  while  supporting  the  adjustment  and 
reform programmes agreed with the IMF and the World Bank, as well as the reforms agreed 
under  the  EU's  budgetary  support  operations  (including  the  Good  Governance  and 
Development  Contract  operation  of  EUR  40  mn  financed  by  the  Support  for  Partnership 
Reform and Inclusive Growth (SPRING) programme).   

The  proposed  assistance  would  promote  policy  measures  to  improve  public  financial 
management  and  tax  reform  while  strengthening  the  social  safety  net  (including  through  a 
better  targeting  of  the  cash  transfers  system  put  in  place  last  November  to  compensate 
households for the reform of the energy subsidy system); measures to improve the regulatory 
framework and climate for investment; and reforms to reduce unemployment and encourage 
participation in the labour market, notably among women. 

The proposed MFA is consistent with the political and financial pledges made by the EU to 
the Jordanian authorities at the EU-Jordan Task Force meeting in February 2012. It is also in 
line with the aims of the new partnership for the South Mediterranean region proposed at the 
G8 Deauville summit and the orientations of the new European Neighbourhood Policy. 

 
 
1.2. 

Jordan's macroeconomic situation and structural reform challenges  

Jordan has faced worsening economic conditions since 2011 due to the regional and political 
turmoil  associated  with  the  Arab  Spring  and  the  weaker  regional  and  global  economic 
environment.  These  circumstances  negatively  affected  two  of  the  main  external  drivers  of 
economic growth, namely tourism receipts and FDI. In addition, the frequent interruption of 
gas  supplies  from  Egypt  has  forced  the  government  to  replace  gas  with  more  expensive  oil 
imports,  which  has  increased  the  import  bill  significantly.1  These  adverse  external  shocks 
have contributed to create large fiscal and external imbalances.  

In  this  context,  and  following  a  period  of  robust  economic  growth  averaging  6.5%  during 
2000-2009, partly reflecting a propitious external environment, GDP growth dropped sharply 
to  2.6%  in  2011.  GDP  growth  picked  up  moderately  to  2.9%  in  the  first  half  of  2012, 
following a recovery of tourism receipts and despite the weak performance of the mining and 
construction sectors. In 2013, GDP growth is projected to be supported by increased FDI in 
the energy and banking sectors but remain relatively low (at about 3%). 

Consumer price inflation increased moderately in the course of 2012, reaching an average of 
4.8%, compared to 4.5% in 2011, as the impact of domestic fuel and electricity tariff increases 
was partially offset by that of weaker domestic demand. Inflation is expected to rise further to 
6.1%  on  average  in  2013,  partly  as  a  result  of  the  foreseen  energy  price  adjustments.  Since 
mid-2011, monetary policy has been tightened in order to preserve the attractiveness of JOD-
denominated assets. In July 2011, the central bank raised its policy interest rates by 25 basis 
points,  followed  by  another  50  basis  points  rise  in  February  2012.  In  December  2012,  the 
Overnight Window Deposit Rate was increased by another 75 basis points, while the interest 
rates  on  the  Overnight  Repurchase  Agreement  rate  and  the  Re-discount  rate  remained 
unchanged.  The  current  fixed  exchange  rate  policy  (peg  to  the  USD)  has  helped  anchor 
inflation expectations. 

The  external  position  has  worsened  markedly  since  the  beginning  of  2011  due  to  the 
aforementioned shocks. The current account deficit (including grants) reached 12% of GDP 
in  2011  (19%  of  GDP  excluding  grants),  up  from  7.1%  of  GDP  in  2010  (11.3%  of  GDP 
excluding grants), partly due to a 16.6% increase in the import bill. By the end of 2012, it had 
widened further to 17% of GDP (20.6% of GDP excluding grants), despite a 15.3% increase 
in  tourism  receipts  (broadly  attributed  to  tourist  flows  from  Arab  countries)  and  a  3.5% 
increase of remittances. The projection is, however, that the current account deficit excluding 
grants will narrow down to 12.1% in 2013 in view of stronger export growth and a gradual 
normalisation  of  gas  supplies  from  Egypt.  The  shortfall  in  FDI  in  2011-2012  further 
deteriorated  the  external  position.  Financing  needs  for  2011-12  were  largely  met  through 
foreign assistance, in particular form the Gulf Cooperation Council (GCC) countries and the 
Bretton  Woods  institutions,  and  the  mobilisation  of  international  reserves,  which  fell  by 
14% (to USD 10.7 billion) in 2011 and more dramatically throughout 2012, to reach USD 5.2 
billion (just above the standard minimum benchmark of 3.5 months of imports) by the end of 
the year.  

1Although in mid-January Jordan's Egyptian gas supplies temporarily returned to normal levels after nearly two 
years of reduced supply (240 million cubic feet per day compared to an average of 40 mcf for most of 2012), 
they have recently dropped again to one-third of their normal levels, prompting fresh concerns over the security 
of the country’s primary energy source. Moreover, the renegotiation of the gas supply contract with Egypt has 
approximately tripled its price. 

 
 
                                                            
Table 1: Jordan – Selected macroeconomic indicators, 2009-2013 

2009 

2010

2011 

2012 
Prel. 

2013
Proj. 

(Annual percentage change, unless otherwise 
indicated) 

National Accounts 
  Real GDP growth 

Population (million) 

  Consumer price index, period average 
  GDP per capita (USD) 
  Unemployment rate (in percent) 

5.5 
5.98 
-0.7 
3,987 
12.9 

3.0 
2.6 
6.54 
6.25 
6.1 
4.4 
5,213 
4,618 
… 
12.9 
(In percent of GDP, unless otherwise indicated) 

2.3 
6.11 
5.0 
4,323 
12.5 

3.0 
6.40 
4.8 
4,883 
13.1* 

Consolidated government operations 
  Government and government-guaranteed gross debt 

   o/w external debt 
  Revenue and grants 
  Expenses 

   Overall fiscal balance 
   Overall fiscal balance excluding grants 

External sector 
  Current account balance  
  Current account balance excluding grants  
  Gross international reserves, end of period (USD bn) 
   - In months of next year's imports of goods/services 
Foreign direct investment, net  

  Nominal exchange rate (peg to the USD) 

64.8 
22.9 
26.5 
35.4 
-8.9 
-10.9 

67.1 
24.6 
24.9 
30.4 
-5.6 
-7.7 

70.7 
21.9 
26.4 
33.2 
-5.7 
-11.7 

79.4 
20.0 
24.4 
31.6 
-7.2 
-10.7 

83.5 
22.4 
25.7 
31.2 
-5.5 
-9.3 

-4.9 
-9.0 
11.0 
7.7 
9.9 
1.41 

-7.1 
-11.3 
12.4 
7.4 
6.3 
1.41 

-12.0 
-19.0 
10.7 
5.9 
5.0 
1.41 

    -17.0 
-20.6 
5.2 
2.9 
4.2 
1.41 

12.1 
-16.3 
7.7 
4.1 
4.6 
1.41 

    Sources: Jordanian authorities and IMF staff estimates                                               * Third quarter 

Public  finances  have  been  under  strain  due  to  the  social  expenditure  packages  adopted  in 
2011,  the  budgetary  impact  of  the  increase  in  energy  import  prices  and  the  economic 
slowdown.  The  budget  deficit  excluding  grants  increased  from  7.7%  of  GDP  in  2010  to 
11.7%  in  2011,  while  public  debt  had  risen  to  70.7%  of  GDP  by  end-2011  (from  67.1%  of 
GDP  at  end-2010).  Although  the  2012  budget  adopted  in  February  envisaged  a  large  fiscal 
adjustment compared to 2011, by mid-year it had become clear that this could no longer be 
possible,  reflecting  much  higher  than  assumed  fuel  subsidies,  a  higher  wage  bill  due  to  the 
reform of the civil service, higher pension and health outlays, and spending on housing and 
medical  assistance  for  Syrian  refugees.2  To  mitigate  debt  sustainability  risks  and  possible 
shortfalls  in  external  flows,  the  government  decided  in  May  2012  to  take  additional  fiscal 
measures, amounting to 3.4% of GDP. The aim  was to  lower the overall deficit in 2012  by 
approximately 1.5 percentage points of GDP (to 10.7% of GDP, excluding grants).  

On  the  expenditure  side,  fiscal  consolidation  measures  (amounting  to  2.9%  of  GDP) 
included: the removal of subsidies on gasoline octane 95, jet fuel and heavy fuel oil; a 13% 

2Jordan  is  being  seriously  affected  by  the  on-going  Syrian  refugee  crisis.  With  the  biggest  influx  of  Syrian 
refugees (about 180,000 by January 2013) and the fastest growing refugee camp (about 1,000 Syrians crossing 
Jordanian borders every day), Jordan has been the most affected country in the region at a time the economy is 
already grappling with severe shortages of water and electricity. Since the outbreak of the Syrian conflict, the 
budgetary  cost  of  hosting  Syrian  refugees  is  estimated  to  have  exceeded  EUR  600  mn  (about  3%  of  the 
Kingdom’s GDP). 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                            
decrease in the subsidy for gasoline octane 90; a 6% increase in the price of diesel; as well 
cuts  in  capital  spending  and  current  expenditure  (including  ministries'  operational  spending 
and  military  expenditure  and  the  freezing  of  hiring  in  all  government  ministries  with  the 
exception of the Ministries of Health, Education, and Social Development).  

On the revenue side, the consolidation effort amounted to 0.4% of GDP and was reflected in: 
the introduction of a sales tax on cellular phones and air conditions; the increase in the taxes 
on cars, air tickets and alcoholic and tobacco products; an increase in visa resident fees; a rise 
in  money  transfer  fees;  and  the removal  of  certain  exemptions.  At  the  same  time,  efforts  to 
improve tax administration are being stepped up. 

In early September 2012, the government took the decision  to introduce a 6% tax on diesel 
and to remove subsidies from gasoline octane 90. However, this decision, which is a structural 
benchmark of the IMF programme, was initially suspended by the King. The liberalization of 
gasoline octane 90 finally took place in mid-November (together with the lifting of subsidies 
on  diesel,  kerosene,  and  household  gas  prices),  in  full  alignment  with  the  price  adjustment 
structural benchmark set by the IMF program. Although these measures led to serious social 
protests in mid-November, the government maintained the fuel price adjustments.  

Under the programme agreed with the IMF, substantial additional fiscal adjustment measures 
are  planned  for  2013,  including  increases  in  diesel  and  kerosene  prices,  reductions  in  tax 
exemptions and, possibly, increases in excise taxes, with the aim of cutting the fiscal deficit 
excluding grants to 9.3% of GDP for that year (5.5% including grants). 

1.3. 

IMF and other donor support 

On 3 August 2012, the IMF Board approved, as noted, a USD 2 bn (800% of quota) 36-month 
Stand-By  Arrangement  (SBA)  for  Jordan.  In  their  talks  with  the  IMF,  the  Jordanian 
authorities were originally interested in a programme under the Precautionary and Liquidity 
Line. However, the IMF considered that Jordan did not qualify for this facility; in particular, 
the  IMF  judged  that  the  country's  vulnerabilities  were  too  high  ("low"  and,  exceptionally, 
"moderate"  vulnerabilities  is  one  of  the  eligibility  criteria  for  the  PLL).  They,  therefore, 
finally agreed on a standard SBA. The negotiations were completed very quickly, allowing a 
first disbursement in the fourth quarter of 2012. The programme is relatively frontloaded, with 
300% of quota (out of the total of 800%) paid out in the first two tranches (the second tranche 
is to be disbursed upon completion of the first programme review). 

The program envisages a package of measures aimed at strengthening growth while reducing 
vulnerability  to  exogenous  shocks,  notably  by  reforming  the  energy  subsidies  system, 
bringing  NEPCO  back  to  cost  recovery  and  promoting  energy  supply  diversification.  The 
program further foresees consolidating the fiscal sector through an effective rationalization of 
the  tax  system,  improved  tax  administration  and  cuts  in  expenditure  (not  only  through  the 
reform  of  energy  subsidies  but  also  by  restraining  other  current  as  well  as  capital 
expenditure). Finally, the program aims at strengthening the business environment, fostering 
private sector-led innovation and promoting trade and foreign investment. 

Under  the  IMF  programme's  macroeconomic  framework,  economic  activity  is  projected  to 
gradually gain momentum during the program period, with real GDP growth accelerating to 
3%  in  2012  and  to  4.5%  over  the  subsequent  years  of  the  programme.  Starting  from  2014, 
inflation is expected to slow down to 2.7% in 2015 (6.1% in 2013) on the back of sustained 
fiscal consolidation combined with a moderation in international food and fuel prices. Further 
easing  of  international  fuel  and  food  prices  and  stronger  export  growth  combined  with  the 
emergence  of  alternative  energy  sources  by  mid-2015  and  the  implementation  of  structural 
reforms for enhancing competitiveness are expected to gradually reduce the current account 

 
 
deficit (excluding grants) to about 9% of GDP by the end of the program, down from nearly 
21% of GDP in 2012.  

The  first  review  of  the  IMF  program  was  scheduled  to  be  completed  by  last  December. 
However,  delays  in  the  adjustment  of  energy  prices  and  in  the  adoption  of  other  measures, 
including a medium-term strategy to bring the state-owned electricity company back to cost 
recovery,  has  delayed  the  completion  of  the  review.  The  proximity  of  the  January  elections 
also complicated matters, including the discussion on the 2013 budget. However, most of the 
macroeconomic  performance  criteria  for  end-September,  as  well  as  other  structural 
benchmarks, were met. An IMF mission arrived to Amman in mid-February (aiming also to 
collect end-December figures) to finalise discussions, including on the second review of the 
programme. Progress is being made, with support from USAID and  the World Bank  on the 
finalisation  of  the  medium-term  strategy  for  NEPCO  and,  provided  that  the  IMF  and  the 
authorities agree on some additional measures to keep the fiscal programme on track, the first 
and second review of the programme are expected to be completed by the IMF Board in early 
April.  

Regarding other official lenders, the World Bank made available USD 250 mn in the form 
of  a  Development  Policy  Loan  (DPL2)  in  early  2012,  to  strengthen  transparency  and 
accountability, budget and debt management, efficiency of public spending and services, and 
private  sector development. A second DPL (DPL3)  in  the  amount  of  USD  100  mn  is  under 
discussion.  

France has extended a low-interest, medium-term budget support loan to Jordan worth USD 
192  mn,  with  the  first  payment  already  made  in  the  fourth  quarter  of  2012  and  the  second 
payment expected to follow in the first half of 2013. Official financing in the form of budget 
support loans has been also made available from Japan, with USD 175 mn to be disbursed 
over 2012-14.  

Concerning  official  assistance  in  the  form  of  grants,  a  USD  5  billion  grant  package,  to  be 
disbursed  over  5  years  starting  in  2012,  was  approved  by  the  GCC  in  2011  (equally 
distributed  among  Saudi  Arabia,  Kuwait,  UAE,  and  Qatar  and  linked  to  development 
projects).3  US  grant  disbursements  to  the  budget  over  the  period  2012-15  are  estimated  at 
nearly USD 900 mn with a third of it already disbursed in 2012.  

The EU has made available EUR 293 mn in grants for the period 2011-13 under its regular 
cooperation, in support of Jordan's  political  and  economic  reform  agenda.  In  addition,  EUR 
70 mn has been allocated to Jordan in 2012 under the SPRING programme, and EUR 10 mn 
from Humanitarian Aid  to support Syrian refugees. The first part of the SPRING  allocation 
(EUR 30 mn) has already been released. It will be used for programs in the areas of education, 
electoral  system  reform,  justice  sector  reform  and  SMEs,  covering  a  multi-year  period. 
Following the implementation of a series of political and economic reform benchmarks, the 
second tranche of the SPRING allocation (EUR 40 mn) was allocated to the GGDC operation, 
the financial agreement of which was signed during President Barroso's visit to Jordan on 7 

3Out  of  the  entire  grants  of  USD  5  billion  from  the  GCC  countries,  24%  will  be  directed  towards  local 
development, 18% towards roads development, 14% for the energy sector, 12% for the health sector and 10% for 
the  water  sector.  Kuwait,  Saudi  Arabia  and  the  UAE  already  disbursed  US$  250  mn  each  in  2012,  while  the 
UAE decided in January 2013 to advance the disbursement of the remainder of its pledge (US$ 1 bn) by making 
a deposit in the Jordanian Central Bank. However, the disbursement to the budget will take place only gradually 
over  the  period  2013-16,  linked  to  the  actual  implementation  of  investment  projects  in  the  above-mentioned 
areas.   

 
 
                                                            
October  2012.4  Half  of  the  second  tranche  of  the  SPRING  programme  (EUR  20  mn)  was 
disbursed  at  the  end  of  2012  and  the  remaining  EUR  20  mn  after  all  benchmarks  of  the 
GGDC have been met, possibly in the second half of 2013. 

1.4. 

Jordan's external financing needs 

Preliminary  figures  produced  by the  first  IMF  in  the  context  of  the  first  review  of  the  SBA 
point  towards  the  existence  of  a  significant  residual  financing  gap  for  the  remainder  of  the 
IMF programme period (ending in July 2015). During 2012, Jordan has covered its balance of 
payments financing gap through a combination of a sharp drawdown in official reserves, the 
receipt  of  several  one-off  grant  disbursements  from  the  GCC  countries  and  disbursements 
from the IMF and other multilateral and bilateral donors. Based on the new IMF figures, the 
external financing gap for the IMF programme period (2013-2015) is estimated at USD 5.9 
billion (Table 2).  

This financing gap is broadly attributed to two main factors; first, a sizeable current account 
deficit (totalling USD 13 bn) that, despite its downward trend, cannot be fully offset by the 
capital  account  surplus  (USD  10.5  bn)  and,  second,  the  authorities'  intention  to  build  up 
reserves over the period 2013-2015 (in the amount of USD 3.4 bn). With reserves already at a 
critically  low  level  at  the  end  of  2012  (just  above  the  minimum  benchmark  of  3  months  of 
imports, as noted), the IMF and the Commission consider it important to aim at a considerable 
replenishment  of  official  reserves  during  the  programme  period.  With  Jordan's  balance  of 
payments  remaining  very  vulnerable  to  external  shocks,  notably  further  disruptions  in  gas 
supplies from Egypt and political developments in Syria and other countries in the region, it is 
deemed unadvisable to continue to cover part of the external financing gap by drawing on the 
official  reserve  cushion.  On  the  contrary,  it  is  essential  to  rebuild  the  reserve  cushion  to 
address unforeseen shocks and restore foreign investor confidence. 

Regarding  the  current  account,  the  main  driving  factor  is  the  trade  deficit,  which  is 
exacerbated by an elevated energy import bill, amounting to nearly one-third of total imports. 
The trade deficit  is  only  partly  mitigated  by the positive and  improving balance on services 
and  current  private  transfers.  Concerning  the  capital  account  balance,  and  contrary  to  what 
happens  to  the  current  account,  it  shows  a  gradual  deterioration  over  the  duration  of  the 
program. FDI is, however, projected to gradually recover, reaching 6% of GDP in 2015, up 
from  4%  in  2012.  It  is  also  assumed  that  the  authorities  will  issue  a  substantial  amount  of 
Eurobonds in the course of 2013-15 but plans to issue a first Eurobond in late 2012 or early 
2013 have been repeatedly delayed due to unfavourable market conditions. 

Net of disbursements under the SBA and the World Bank's Development Policy Loan (DPL), 
Jordan faces a residual external financing gap of USD 4.1 billion during the period 2013-15. 
Key contributions to covering this gap are, in this order, those of the GCC countries (US$ 3 
bn),  the  US  (US$  563  mn),  the  EU's  MFA  (up  to  EUR  180  mn),  France  (US$64  mn),  and 
Japan (US$110 mn).5 The proposed MFA from the EU would contribute to fill in 4.4% of the 
residual gap.  

4Benchmarks  are  essentially  linked  to  the  on-going  political  reform  process  (adoption  of  the  Political  Parties 
Law, the Electoral Law, the Independent Electoral Commission Law and the Constitutional Court Law), as well 
as to key measures in the fields of economic and social reform, including the adoption of the Income Tax law, 
the PPPs law, the Investment law, the new Consumer Protection law, the Audit Bureau law and the Bankruptcy 
and Insolvency law. 
5As  noted  above,  the  UAE  has  decided  to  advance  the  disbursement  time  of  their  remaining  USD  1  bn 
contribution by making a deposit in the Central Bank of Jordan in January 2013. Nevertheless, this decision does 
not  affect  net  reserves  (since  it  creates  for  now  a  commensurate  short-term  liability  of  the  central  bank  to  the 
UAE), nor the actual financing accruing to the budget. 

 
 
                                                            
Table 2: Jordan's External Financing Gap and Potential Financing Sources  (USD mn) 

1. Current Account Balance* 
2. Capital and financial account** 
3. Overall balance (1+2) 
4. Reserves (“-“ indicates increase) 
5. Overall External Financing Gap (3+4) 
6. Exceptional Financing by IMF and WB 
    Net IMF Disbursements 
    Disbursements of World Bank's DPL 
7. Residual Financing Gap (5+6) 

-6,396 
934 
-5,462 
3,546 
-1,916 

378 
250 
-1,288 

Financing of the gap 
    EU MFA 
  France 
  US bugdetary grants 
  Japan 
  GCC countries support 
  Arab Monetary Fund*** 

Total 
Total MFA as % of the residual gap for 2013-15 

2012 

2013 

2014 

2015 

-5,317 
3,919 
-1,398 
-1,037 
-2,435 

875 
100 
-1,460 

116 
64 
195 
85 
1,000 
0 
1,460 

-4,444 
3,863 
-581 
-1,222 
-1,803 

470 
0 
-1,333 

116 
0 
184 
25 
1,000 
0 
1,325 

-3,314 
2,806 
-508 
-1,152 
-1,660 

352 
0 
-1,308 

0 
0 
184 
0 
1,000 
0 
1,184 

0 
128 
334 
65 
750 
-22 
1,277 

Total  
2013-15

-13,075 
10,588 
-2,487 
-3,411 
-5,898 

1,697 
100 
-4,101 

232 
64 
563 
110 
3,000 
0 
3,969 
4.4 

*  Figures  include  EU  grants  financed  by  the  ENPI  and  the  SPRING  programme  and  exclude  US  budgetary 
support  grants  and  the  USD  5  bn  grants  announced  by  the  GCC  in  2011  to  be  disbursed  during  2012-2016 
(approximately USD 1 bn per year).   
** Figure for 2012 excludes disbursements under the World Bank Development Policy Loan. 
*** The Arab Monetary Fund figure has been reported by the Central Bank of Jordan for past year and relates 
mostly to small guaranteed loans.  
Source: European Commission staff estimates based on discussions with the IMF. 

1.5. 

Structural reform challenges 

As  underlined  at  the  Joint  Dialogue  on  Economic  Reforms  conducted  by  the  Commission 
with the Jordanian authorities last October, Jordan has made significant progress in a number 
of  key  reform  areas.  This  includes  the  adjustment  of  energy  prices,  plans  to  diversify  the 
energy  supply,  measures  to  raise  women's  participation  in  the  labour  force,  schemes  to 
support SMEs access to finance, and the submission to parliament of legislative proposals on 
income  taxation,  PPPs  and  social  security  reform.  However,  substantial  structural  reform 
challenges  have  yet  to  be  addressed.  Moreover,  many  legislative  proposals  remain  stuck  in 
parliament and the dissolution of the parliament and organisation of parliamentary elections 
held at end-January 2013 further delayed their adoption.  

In  the  energy  sector,  energy  supply  diversification  efforts  have  been  made  through  the 
construction of a liquefied natural gas terminal in Aqaba, the development of the production 
of shale oil from domestic fields and the expansion of domestic gas extraction. Jordan is also 
taking  steps  to  restructure  the  oil  refinery  and  downstream  distribution  system,  notably  by 
breaking the monopoly of Jordan Petroleum Refinery Company, the sole importer of crude oil 
and refined oil products.  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The  other  key  component  of  energy  sector  reform  is  the  adjustment  of  energy  and 
electricity  prices,  which  is  essential  both  for  energy  efficiency  and  security  as  well  as  for 
fiscal consolidation. The authorities increased electricity tariffs twice in 2012 and, under the 
IMF  programme,  are  committed  to  implementing  new  increases  in  electricity  tariffs  in  the 
coming years and to announce a medium-term strategy, prepared with input from the USAID, 
to bring NEPCO, the country's electricity wholesaler and transmission company, back to cost 
recovery  and  resolve  NEPCO’s  accumulated  debt,  which  has  reached  JD  2.3  bn.  More 
specifically, the authorities are considering increasing electricity tariffs by 40% between 2013 
and 2017.6  

Regarding  the  social  safety  net,  the  new  social  security  law  (approved  only  by  Cabinet), 
which foresees, in addition to changes in the pension system, the creation of a Maternity and 
an  Unemployment  fund,  is  definitely  a  step  forward.  The  passing  of  this  law  represents  a 
benchmark for the EU's Good Governance and Development Contract (GGDC), financed by 
the  SPRING  programme.  In  order  to  compensate  poor  households  for  the  adjustment  of 
energy  prices,  the  authorities  have  recently  introduced  a  system  of  targeted  transfers  to  the 
poor  to  compensate  part  of  the  households  for  the  adjustment  of  energy  prices.  While  the 
combined reform will help save about TD 350-400 million to the budget (nearly 50% of the 
subsidies  cost  foreseen  for  2013),  representing  an  important  step  in  the  right  direction,  this 
cash transfer scheme is not sufficiently targeted on the poor as 80% of the population will be 
compensated.  Finally,  a  better  targeting  of  the  National  Aid  Fund  (NAF),  the  main  state-
funded social safety net in Jordan, would have a beneficial effect on the budget and on social 
security justice.7  

In the area of tax reform, the draft Income Tax Law submitted to Parliament in September 
2012 aims at boosting tax collections while increasing the progressivity of taxation. The law, 
the submission of which was a benchmark of both the IMF programme and the EU's GGDC, 
focuses, in particular, on lowering the very high exempted threshold (from JD 24,000 to JD 
18,000)  so  as  to  capture  more  of  the  middle-class  in  the  tax  base,  while  increasing  the  top 
rates for individuals and increasing rates for corporations.  

When it comes to labour markets, the need for reform is significant. Jordan faces very high 
levels  of  unemployment  and  very  low  participation  rates  (particularly  among  young  people 
and women). The unemployment rate reached 13.1% during the third quarter of 2012, 10.7% 
amongst males and 24% amongst females. Joblessness reaches 17% and 48% in the male and 
female  population  aged  19-24,  respectively.  At  the  same  time,  there  is  need  to  increase 
participation  to  labour  market,  which  is  among  the  lowest  worldwide  (about  40%).  Policies 
adopted  by  Ministry  of  Labour  during  recent  years  have  targeted  the  reduction  of 
unemployment even in rural and remote areas, while encouraging participation in the labour 
market,  notably  among  women,  including  through  the  recent  introduction  of  a  maternity 
leave, to be financed by the Maternity Fund.  

Another structural area where significant weaknesses remain is public finance management 
(PFM), with key challenges being the establishment of a better demarcation between internal 
financial control, internal audit and external audit, and the strengthening of the independence 
of the Audit Bureau. 

6According to NEPCO, there are plans to increase electricity tariff by 14% in 2013 and by 16% in 2014. 
7Established in 1986 as a response to the elimination of food subsidies, the NAF has about 88,000 beneficiaries 
and a budget of more than JD 78 million (0.4% of GDP). Its main assistance programme, the so-called Recurring 
Financial Aid Programme, is aimed at raising the income of poor families. 

 
 
                                                            
While Jordan already has a relatively open trade regime,8 it could benefit from further trade 
liberalisation.  The  preparatory  process  for  the  launch  of  Deep  and  Comprehensive  Free 
Trade  Agreement  (DCFTA)  negotiations  started  in  March  2012  in  Amman  as  part  of  the 
scoping  exercise  and  both  sides  have  been  engaged  in  continuous  dialogue  concerning  the 
rules of origin issue. Jordan has also made progress in the preparation of negotiations of an 
Agreement  on  Conformity  Assessment  and  Acceptance  (ACAA),  aimed  at  facilitating  the 
access  of  industrial  products  from  Jordan  into  the  EU  internal  market  and  vice-versa. 
Transposition of vertical legislation into Jordanian standards for the three priority sectors (gas 
appliances,  toys  and  electrical  products)  has  continued.  So  far,  44  directives  have  been 
transposed. Still jeopardising the progress on a technical level is the pending amendment to 
the Law on Standards and Metrology, without which most of the new standards may not be 
enforced.  The  proposed  MFA  operation  could  facilitate  the  adoption  of  the  amended 
standards law with a view to defining the new obligations of stakeholders for product safety 
and to establishing the new conformity assessment and market surveillance regime in Jordan. 

Finally, in the areas of investment, MFA could facilitate the passing of the draft PPPs law, 
while helping improve the institutional and regulatory framework for investment through the 
adoption of the new Investment Law and by-laws, with positive implications for foreign and 
domestic investment as well as job creation.  

Many of the above-mentioned economic reforms are part of the policy programmes supported 
by the IMF, the World Bank and the EU's budget support operations. The conditionality of the 
proposed MFA will complement and reinforce that of these operations. 

2. 

OBJECTIVES AND RELATED INDICATORS OF THE MACRO-FINANCIAL ASSISTANCE 

2.1. 

Objectives 

The objectives of the proposed MFA operation are to:  

•  Contribute to covering the external financing needs of Jordan in the context of a significant 
deterioration of the country's external accounts brough about by the negative shocks to the 
energy sector and the economic and political developments in the region.  

•  Alleviating Jordan's budgetary financing needs, also in the context of the  Syrian regugee 

crisis. 

•  Support the fiscal consolidation effort and external stabilisation in the context of the IMF 

programme. 

•  Facilitate  and  encourage  efforts  of  the  authorities  of  Jordan  to  implement  measures 
identified  under  the  EU-Jordan  Action  Plan,  while  reinforcing  the  EU's  economic  policy 
dialogue with the authorities. 

•  Support  structural  reform  efforts  aimed  at  improving  the  overall  macroeconomic 
management,  strenghening  economic  governance  and  transparency,  and  improving 
conditions for sustainable growth. 

8Jordan's average tariff of 13% is relatively low when compared with other countries in the region. Jordan is a 
member of both the Great Arabic Free Trade Area (GAFTA) and the Agadir Agreement and has also concluded 
FTAs with the US, Turkey, Syria, the EFTA and Singapore. 

 
 
                                                            
2.2. 

Indicators 

The  fulfilment  of  the  objectives  of  the  assistance  will  be  assessed  by  the  Commission, 
including in the context of the ex-post evaluation (see below), on the basis of the following 
indicators:  

•  Progress with macroeconomic and financial stabilisation, notably by assessing the degree 

of adherence to the IMF-supported programme.  

•  Progress with the implementation of structural reforms, notably the specific policy actions 
identified  as  conditions  for  disbursement  of  the  assistance,  which  will  be  included  in  a 
Memorandum  of  Understanding  to  be  negotiated  between  the  Commission  and  the 
Jordanian  authorities.  Conditions  will  include  structural  measures  relevant  for  ensuring 
macroeconomic stability, e.g. measures in the field of public finance management reforms, 
fiscal reforms, as well as measures to support competitiveness and investment. 

3. 

DELIVERY MECHANISMS AND RISK ASSESSMENT 

3.1. 

Delivery mechanisms 

The  proposed  new  MFA  would  amount  to  EUR  180  million.  Regarding  the  form  of  the 
assistance,  the  Commission  proposes  to  disburse  the  full  amount  in  the  form  of  a  medium-
term loan. 

The  Commission's  intention  to  include  only  loans  is  consistent  with  the  methodology  for 
determining the use of grants and loans in EU MFA endorsed by the EFC in January 2011.9 
This  proposal  is  based  on  two  criteria.  First,  Jordan  is  a  middle-income  country  with  a 
relatively  high  per  capita  income  level.  Jordan's  per  capita  Gross  National  Income  (GNI) 
(USD 4,380) is above the average level of the EU’s Southern partner countries covered by the 
European  Neighbourhood  Policy,  representing  the  fourth  highest  per  capita  income  in  the 
region following Israel, Lebanon and Algeria.10 For comparison, in 2010 the Parliament and 
the Council approved a MFA loan of EUR 500 million to Ukraine and a MFA grant of EUR 
90 million to Moldova. Ukraine’s per capita GNI was USD 3,120, while that of Moldova was 
USD 1,980. 

Secondly,  although  Jordan's  public  debt  ratio  (80%  of  GDP  at  the  end  of  2012,  including 
government  guaranteed  debt)  is  relatively  high,  having  increased  in  the  last  couple  of  years 
due to the losses of the national electricity company (NEPCO) that accompanied the shocks of 
the  energy  sector,  Jordan  has  a  rather  low  external  indebtedness  level.  At  the  end  of  2012, 
Jordan's  external  public  debt  ratio  was  only  about  20%.  Following  implementation  of  the 
envisaged medium-term national strategy for bringing NEPCO back to cost recovery and of 
additional  fiscal  consolidation  measures,  the  IMF  expects  that  public  debt  will  gradually 
decline  to  reach  78.6%  of  GDP  in  2017.  In  this  context,  Jordan's  public  debt  dynamics  are 
expected to be sustainable in the medium term with high probability. Also, the fact that the 
bulk  of  Jordan’s  public  debt  –  80%  of  the  total  by  end-2012  –  is  domestic  makes  it  less 
vulnerable  to  international  creditors'  sentiment.  The  possibility  of  granting  debt  relief  to 
Jordan has not been considered, given Jordan’s relatively low external debt ratio.  

9 See Commission Staff Working Paper of 7.7.2011, SEC (2011)874 on criteria for determining the use of loans 
and grants in EU MFA.  
10World Bank’s Atlas 2011 figures. GNI per capita is the gross national income, converted to U.S. dollars using 
the World Bank Atlas method, divided by the midyear population. 

 
 
                                                            
The proposal to provide the full MFA in the form of loans is also consistent with the treatment 
granted  by  the  World  Bank  and  the  IMF  to  Jordan.  Indeed,  Jordan  is  not  eligible  for 
concessional financing from either the IDA or the IMF's Poverty Reduction and Growth Trust 
fund. 

MFA  is  an  untied  and  undesignated  macroeconomic  support  instrument,  which  helps  the 
beneficiary  country  meet  its  external  financing  needs,  and  may  contribute  to  alleviating 
budgetary financing needs. The funds would be paid to the Central Bank of Jordan. Subject to 
provisions  to  be  agreed  in  the  Memorandum  of  Understanding,  including  a  confirmation  of 
residual budgetary financing needs, the funds may be transferred to the Ministry of Finance of 
Jordan as the final beneficiary.  

3.2. 

Risk assessment 

There are fiduciary, policy and political risks related to the proposed MFA operation.  

There is a risk that the macro-financial assistance, which is not dedicated to specific expenses 
(contrary  to  project  financing,  for  example),  could  be  used  in  a  fraudulent  way.  In  general 
terms, this risk is related to factors such as the quality of management systems in the central 
bank and the ministry of finance, administrative procedures, control and oversight functions, 
the security of IT systems and the appropriatedness of internal and external audit capabilities.  

To mitigate the risks of fraudulent use several measures will be taken. First, the Memorandum 
of  Understanding  and  the  Loan  Agreement  will  comprise  a  set  of  provisions  on  inspection, 
fraud  prevention,  audits,  and  recovery  of  funds  in  case  of  fraud  or  corruption.  Also,  the 
assistance will be paid to a dedicated account at the Central Bank of Jordan. Moreover, before 
the  agreement  on  the  Memorandum  of  Understanding  is  reached,  the  Commission  services 
will conduct, with the support of external consultants, an Operational Assessment, in order to 
assess the reliability of financial circuits and administrative procedures that are relevant to this 
type of assistance and will determine whether the framework for sound financial management 
of macro-financial assistance is sufficiently effective in Jordan. In the light of this assessment, 
specific  mechanisms  applying  to  the  management  of  the  funds  by  the  beneficiaries  may  be 
introduced in agreement with the national authorities. The Commission is also using budget 
support assistance to help the Jordanian authorities improve their public finance management 
systems  and  these  efforts  are  strongly  supported  by  other  other  donors.  Against  this 
background, special conditionalities on improving public finance management will potentially 
be  required.  Finally,  the  assistance  will  be  liable  to  verification,  control  and  auditing 
procedures  under  the  responsibility  of  the  Commission,  including  the  European  Antifraud 
Office (OLAF), and the European Court of Auditors.  

Another key risk to the operation stems from the regional economic and political uncertainty, 
notably in Syria, which has direct implications for the Jordanian economy. On the domestic 
front,  the  main  risk  is  instability  related  to  difficulties  in  the  political  and  economic  reform 
process. As noted above, the approval by the parliament of several legislative proposals has 
been delayed ahead of the organisation of parliamentary elections on 23 January 2013. With 
the  elections  now  behind,  there  is  a  better  chance  of  progress  with  some  of  these  reforms. 
However,  significant  political  uncertainties  remain.  The  full  implementation  of  the 
stabilisation and reform measures contained in the IMF and other programmes supported by 
the international community, including the proposed MFA operation, might be undermined by 
social  dissatisfaction.  The  social  unrest  that  followed  the  energy  subsidy  reform  of  mid-
November  underlines  the  political  challenges  associated  with  this  part  of  the  reform 
programme. A derailment of the adjustment process could put the objectives of the proposed 

 
 
operation  in  jeopardy,  endanger  macroeconomic  stability  and  prevent  the  effective 
disbursement of the MFA.   
Jordan also remains vulnerable to possible negative exogenous shocks. The supply problems 
of the energy sector represent another risk given the high dependence of Jordan on imported 
natural  gas  from  Egypt.  Although  in  the  medium-term  supply  risks  should  be  mitigated  by 
efforts to explore new energy sources (the liquefied natural gas terminal, in particular, could 
be  operation  already  before  2015),  for  the  next  couple  of  years  Jordan  will  remain  very 
exposed to the security situation in the Sinai Peninsula. 
Finally,  there  are  risks  stemming  from  a  possible  weakening  of  the  European  and  global 
economic environment and an increase in international energy and food prices  

Having made a thorough assessment of the risks, the Commission services consider that there 
are sufficiently strong grounds to proceed with the MFA to Jordan.  

The  Commission  services  will  maintain  close  contacts  with  the  authorities  during  the 
implementation  of  the  macro-financial  assistance  in  order  to  address  quickly  any  concerns 
that may arise.  

4. 

ADDED VALUE OF EU INVOLVEMENT 

The Community financial support to Jordan reflects the country's strategic importance to the 
EU in the context of the European Neighbourhood Policy. The instrument of macro-financial 
assistance is a policy-based instrument directed to alleviate short- and medium-term external 
financial  needs.  As  a  part  of  the  overall  EC  package  of  assistance,  it  would  contribute  to 
support the European Union's objectives of economic stability and economic development in 
Jordan.  By  helping  the  authorities's  efforts  to  establish  a  stable  macroeconomic  framework, 
the proposed assistance would help improve the effectiveness of other EU financial assistance 
to the country, including budgetary support operations. 

By helping the country overcome the economic shock caused by the regional crisis, notably in 
Syria, the external energy supply problems and the domestic Arab Spring-related unrest, the 
proposed MFA will contribute to promoting macroeconomic stability and political progress in 
the  country.  By  complementing  the  resources  made  available  by  the  international  financial 
institutions,  bilateral  donors  and  other  EU  financial  institutions,  it  contributes  to  the  overall 
effectiveness of the package of financial support agreed by the international donor community 
in the aftermath of the crisis.  

In addition to the financial impact of the MFA, the proposed programme will strengthen the 
government's  reform  commitment  and  its  aspiration  towards  closer  relations  with  the  EU. 
This result will be achieved, inter alia, through appropriate conditionality for the disbursement 
of the assistance. In a larger context, the programme will signal to the other countries in the 
region  that  the  EU  is  ready  to  support  countries  like  Jordan,  embarking  on  a  clear  path 
towards political reforms, in moments of economic difficulties. 

5. 

GENVAL CRITERIA ON MACRO-FINANCIAL ASSISTANCE 

In  October  2002,  the  Council  reconfirmed  a  set  of  principles  for  the  use  of  the  European 
Union's macro-financial assistance (Genval criteria)11. The five criteria are: (i) the exceptional 
character of the assistance; (ii) its complementarity to financing of the International Financial 
Institutions  (IFIs);  (iii)  the  existence  of  policy  conditionality  attached  to  the  assistance;  (iv) 

11 Council conclusions of 8 October 2002 on MFA and the accompanying letter of the Council President to the 
Commission President.  

 
 
                                                            
the  existence  of  political  pre-conditions;  and  (v)  strong  financial  discipline  that  needs  to 
accompany the MFA.  

5.1. 

Exceptional Character and Limited Timeframe  

The proposed MFA operation will be exceptional and limited in time and will run in parallel 
to the IMF's Stand-By Arrangement (SBA), although with a shorter time span than the SBA 
itself. Against this background and given the expected time of approval of the programme, the 
assistance is expected to be implemented in  2013-2014. The disbursement of the first tranche 
could take place in the second half of 2013 provided that the IMF programs remains on track. 
The second tranche, conditional on a number of policy measures, agreed with the EU, could 
be  disbursed  in  the  first  half  of  2014.  While  in  the  short-term  the  country  faces  substantial 
balance  of  payments  financing  needs,  the  macroeconomic  and  structural  adjustment 
programme agreed with the IMF and supported by the proposed MFA is expected to produce 
a gradual strengthening of the balance of payments and fiscal positions.  

5.2. 

Political preconditions and EU-Jordan relations  

MFA  is  reserved  to  geographically  close  third  countries  that  respect  democracy  and  human 
rights and with which the EU maintains close political and economic links. 

Political Preconditions: Jordan is a constitutional monarchy with regular, reasonably fair and 
free elections, although its democracy still suffers from a number of deficiencies. Since 2011, 
as part of the Arab Spring changes affecting the region, Jordan has embarked on a series of 
political  reforms,  with  the  Parliament  adopting  in  September  2011  over  40  constitutional 
amendments, representing a significant step towards a fully-fledged democratic system. The 
constitutional  and  other  legal  amendments  included  inter  alia:  the  establishment  of  a 
constitutional court; a new political parties law; a new electoral law; the establishment of an 
independent elections’ commission; restrictions on government’s ability to issue provisional 
(temporary)  laws;  the  abolition  of  military  trials  for  civilians;  and  restrictions  of  the  State 
Security  Court’s  jurisdiction.  Some  of  the  above  amendments  are  in  line  with  the 
commitments included in the new ENP Action Plan, negotiated in 2010. 

EU-Jordan  relations:  The  EU  has  for  long  had  an  interest  to  engage  with  Jordan, 
acknowledging  Jordan's  stabilizing  role  in  the  region  as  well  as  its  mutual  economic  and 
financial  links.  The  contractual  relations  between  the  EU  and  Jordan  are  framed  by  the 
Association  Agreement  in  May  2002,  which  liberalizes  trade  between  the  two  parties  and 
foresees  the  strengthening  of  our  bilateral  political  dialogue  and  economic  cooperation. 
Bilateral  relations  have  been  further  reinforced  under  the  EU's  European  Neighbourhood 
Policy  (ENP),  including  through  the  adoption  of  a  five-year  ENP  Action  Plan  in  2005, 
replaced by a new 5-year Action Plan in 2010, which identifies key reform measures in both 
the  political  and  economic  spheres  and  promotes  Jordan's  regulatory  convergence  with  the 
EU.  Moreover,  Jordan  is  the  first  Mediterranean  partner  country  with  whom  the  EU  has 
concluded technical negotiations leading to an "Advanced Status". It is also a member of the 
Union for the Mediterranean. Economic ties with the EU are also important. In 2011, the EU 
was Jordan's first source of imports (20.1%), although it was only the seventh destination of 
Jordan's exports. And the EU has offered to Jordan, as noted, the negotiation of DCFTA with 
the goal to increase Jordan's integration into the EU single market.  

Since the Arab Spring, the EU has declared on various occasions its commitment to support 
Jordan in its economic and political reform process. Indeed, the EU’s commitment to support 
Jordan’s  political  and  economic  reform  was  the  main  message  of  the  first  EU-Jordan  Task 
Force held in Amman in February 2012.  

 
 
In  sum,  while  Jordan's  road  to  full  democracy  is  not  without  difficulties  and  significant 
uncertainties  remain,  the  country  has  taken  significant  steps  towards  political  and  economic 
reform and there is also a strong framework of bilateral relations between the EU and Jordan 
under  the  Association  Agreement,  the  ENP  and  other  recent  initiatives.  Jordan  has  also 
responded to EU calls for entering into stronger political, security and economic relations and 
for  sharing  responsibility  in  conflict  prevention  and  resolution  and  remains  a  key  partner  in 
the region. 

In  this  context,  Jordan  is  considered  to  satisfy  the  political  preconditions  for  MFA.  A  more 
detailed assessment of the compliance with this criterion, provided by the European External 
Action  Service  (EEAS),  is  reproduced  in  the  Annex  of  this  Staff  Working  Document. 
Compliance  with  this  criteria  will  continue  to  be  monitored  by  the  Commission  in  liaision 
with EEAS throughout the life of the MFA operation. 

5.3. 

Complementarity 

The  proposed  MFA  would  complement  the  assistance  provided  by  other  multilateral  and 
bilateral  donors  in  the  context  of  the  IMF-sponsored  economic  programme.  In  particular,  it 
would  complement,  both  financially  and  through  coordinated  policy  conditionality,  the 
economic adjustment and reform programmes supported by the IMF's Stand-By Arrangement 
and  the  World  Bank's  DPL  operation.  In  combination,  the  total  financing  provided  by  the 
multilateral  and  bilateral  creditors/donors  would  amount  to  USD  5.8  billion  for  the  period 
2013-15. The EU's MFA would represent 3.1% of the total financing package for 2013-2015, 
including contributions from the IMF and the World Bank's DPL operations. The EU's MFA 
would  also  complement  the  standard  EU  aid  packages  mobilised  under  the  ENPI  and  the 
SPRING programme, including the policy matrix of the Good Governance and Development 
Contract (GGDC) operation.  

5.4. 

Conditionality 

As it is normally the case with MFA, the disbursements would be conditional on successful 
programme  reviews  under  the  IMF  SBA  and  on  the  effective  use  by  Jordan  of  these  IMF 
funds. In addition, the European Commission and the Jordanian authorities would agree on a 
specific set of structural reform measures, to be defined in a Memorandum of Understanding. 
These  reform  measures  will  support  the  authorities'  reform  agenda  and  complement  the 
programmes  agreed  with  the  IMF,  the  World  Bank  and  other  donors,  as  well  as  the  policy 
programmes associated with the EU's budgetary support operations. 

The European Commission will seek a broad consensus with the Jordanian authorities, so as 
to  ensure  a  smooth  implementation  of  the  agreed  conditionality.  These  policy  conditions 
should  address  some  of  the  fundamental  weaknesses  accumulated  over  the  years  by  the 
Jordanian economy. Possible areas of conditionality could in principle include: public finance 
management;  fiscal  reforms  to  increase  tax  collections  and  improve  the  progressivity  of  the 
tax  system;  reforms  to  strengthen  the  social  safety  net;  labour  market  reforms  (to  reduce 
unemployment  and  raise  participation  rates,  notably  among  women);  and  measures  to 
improve the regulatory framework for trade and investment. 

5.5. 

Financial Discipline 

The  planned  assistance  would  be  provided  in  the  form  of  a  loan  and  should  be  financed 
through the borrowing operation that the Commission will conduct on behalf of the EU. The 
budgetary costs of the assistance will correspond to the provisioning, at a rate of 9%, of the 
amounts disbursed in the guarantee fund for external lending of the EU, from budget line 01 
04  01  14  ("the  provisioning  of  the  Guarantee  Fund").  Assuming  that  the  first  loan 
disbursement will be made in 2013 for the amount of EUR 100 million and the second loan 

 
 
disbursement in 2014 for the amount of EUR 80 million and according to the rules governing 
the guarantee fund mechanism, the provisioning will take place in the 2015-16 budgets. 

To ascertain that the beneficiary has in place a sound financial management in line with the 
requirements of the Financial Regulation, the Commission services will undertake, as noted, 
an  Operational  Assessment  that  should  provide  an  updated  report  on  the  reliability  of  the 
financial circuits and administrative controls at the Ministry of Finance and the Central Bank 
of  Jordan,  while  considering  the  results  of  the  Public  Finance  and  Financial  Accountability 
(PEFA) assessment of Jordan conducted in 2011 with EU funding, and the regular reports on 
PFM produced by the EU Delegation.  

6. 

PLANNING OF FUTURE MONITORING AND EVALUATION 

This assistance is of exceptional and macroeconomic nature and its monitoring and evaluation 
will be undertaken in line with the standard Commission procedures.  

6.1.  Monitoring 

Monitoring  will  involve  the  review  of  reports  and  data  provided  by  the  authorities  and  by 
review missions to Jordan by Commission staff. To monitor the fulfilment of the objectives of 
the programme throughout the implementation period of the assistance, the Commission will 
use two types of indicators:  

•  Adherence  to  the  IMF-supported  programme,  including  compliance  with  macroeconomic 
performance  criteria  and  structural  reform  benchmarks  identified  under  the  SBA,  as 
reported by the IMF in the context of the regular review of the programme.  

•  Progress in the implementation of structural policy indicators, which are to be agreed with 
the  Jordanian  authorities  in  a  Memorandum  of  Understanding.  In  this  process,  the 
Commission services will monitor key areas of the public finance management system, as 
they  will  be  identified  in  the  update  of  the  Operational  Assessment,  so  as  to  have  the 
relevant  information  on  any  changes  in  the  control  environment.  Ahead  of  the 
disbursement of the second instalment, the authorities will be asked to submit a compliance 
statement in relation to the policy conditionalities. In addition, under the Memorandum of 
Understanding  monitoring  system,  the  authorities  will  be  required  to  submit  quarterly 
reports of certain economic and reform indicators.  

Although  this  assistance  is  centrally  managed,  where  appropriate,  the  EU  Delegation  in 
Jordan  will  also  be  called  to  provide  reporting.  An  annual  report,  as  well  as  regular 
information  on  developments  in  the  management  of  the  assistance,  to  the  European 
Parliament and to the Council are foreseen.  

6.2. 

Evaluation 

Ex-post evaluations of macro-financial assistance operations are foreseen in the Multi-Annual 
Evaluation Programme of the Commission's Directorate-General for Economic and Financial 
Affairs.  An  ex-post  evaluation  of  the  proposed  macro-financial  assistance  to  Jordan  will  be 
launched within a period of two years after the completion of the operation. A provision for 
the ex-post evaluation is included in the proposed Decision for the assistance, and will also be 
included 
the 
macroeconomic assistance budget line will be used for this evaluation.  

the  Memorandum  of  Understanding.  Budget  appropriations  from 

in 

7. 

ACHIEVING COST-EFFECTIVENESS 

The proposed assistance would entail a high degree of cost effectiveness for several reasons:  

 
 
•  First,  since  the  assistance  would  be  leveraged  by  that  provided  by  the  international 
financial  institutions,  with  which,  as  noted,  it  would  be  closely  coordinated,  its  ultimate 
impact  could  be  very  significant  compared  to  its  cost.  Moreover,  in  negotiating  specific 
policy  conditions,  the  Commission  will  be  able  to  draw  on  the  expertise  of  those 
institutions,  including  the  International  Monetary  Fund  and  the  World  Bank,  and  to 
influence their conditionality as well in ways that will take into account the EU's views.  

•  Second,  providing  a  coordinated  macroeconomic  support  to  Jordan  on  behalf  of  the  EU 
countries,  the  MFA  would  be  more  cost  efficient  than  the  provision  of  a  similar  total 
amount of financial support by EU Member States individually.  

•  Third, part of the assistance would be provided in the form of loans, the budgetary impact 

of which is more limited. 

•  In  addition,  the  Commission  will  aim  at  achieving  synergies  with  other  EU  policies  and 
instruments used to support the implementation by the beneficiary of the relevant measures 
(notably in the area of public finance management).  

 
 
ANNEX 

EUROPEAN EXTERNAL ACTION SERVICE 

DIRECTORATE North Africa, Middle East, Arabian Peninsula, Iran 
and Iraq 
DIVISION Middle East I – Egypt, Jordan, Lebanon, Syria 

Brussels, 6th March 2013 

ASSESSMENT ON JORDAN POLITICAL REFORMS 

As reiterated in the course of the latest meeting of the EU-Jordan Association Council in December 
2012, the EU values Jordan as a key partner in both the European Neighbourhood Policy (ENP) and 
the Union for the Mediterranean and is committed to further strengthening a close, constructive and 
mutually beneficial partnership. 

Jordan has kept over the years a constructive and balanced position in promoting stability in the region 
and  in  supporting  the  two-state  solution  of  the  Middle  East  Peace  Process.  In  an  overall  context  of 
heightened tension in the region, notably due to the civil unrest in Syria, Jordan has kept an open-door 
policy towards Syrian refugees and played a vital role in providing support and hospitality to the ever-
growing number of refugees (over 400.000) fleeing the atrocities. 

Despite  the  political  unrest  in  neighbouring  countries,  Jordan  has  so  far  managed  to  preserve  its 
domestic  stability.  Protesters  in  Jordan  did  not  call  for  regime  change  but  rather  for  reform  of  the 
existing  political  system.  In  this  respect,  the  last  couple  of  years  were  particularly  politically 
challenging with frequent change of governments. The unfolding events in the Mediterranean region 
pressured HM King Abdullah to follow through on promises of political reforms and in response to the 
evolving domestic political situation, HM King Abdullah set up in spring 2011 the National Dialogue 
Committee and the Royal Committee on Constitutional Review. 

The National Dialogue Committee was tasked to propose consensus-based drafts for new electoral and 
political  parties’  laws.  In  June,  it  presented  a  number  of  proposals  including  inter  alia  the 
establishment of an independent electoral commission overseeing the elections process (in lieu of the 
Ministry of Interior) and a draft law aiming at facilitating the creation of political parties. Both drafts 
were eventually adopted by the Parliament with some changes. 

The  Royal  Committee  on  Constitutional  Review,  entrusted  to  carry  out  an  in-depth  review  of  the 
Constitution,  submitted  in  August  its  recommendations  to  the  Parliament.  A  month  later,  the 
Parliament endorsed 41 constitutional amendments representing an important quality leap in Jordan’s 
reform process and the largest change of the Constitution since its adoption in 1952. 

The  EU  fully  supports  Jordan  reform  process,  both  politically  and  financially.  In  recognition  of  the 
progress  made by Jordan in delivering of on-going political and economic reform  measures, the EU 
provided in 2012 to Jordan an additional financial aid of € 70 million from the SPRING (Support for 
Partnership, Reform and Inclusive Growth) Programme. This  was announced by the HR-VP Ashton 
during the first meeting of the EU-Jordan Task Force held in February 2012. 

The  political  reforms  initiated  in  2011  continued  in  2012  in  particular  with  the  establishment  of  the 
Independent  Electoral  Commission  and  of  the  Constitutional  Court,  the  adoption  of  a  new  political 
parties’  law  and  a  new  electoral  law.  It  is  noteworthy  that  some  of  these  laws  are  in  line  with  the 
commitments made by the Jordanian authorities in the framework of the joint EU-Jordan ENP Action 
Plan negotiated in 2010. 

 
 
 
 
 
 
Legislative  elections  took  place  in  January  2013.  For  the  first  time,  Jordan  (Independent  Electoral 
Commission)  extended  an  invitation  to  the  EU  to  deploy  an  Electoral  Observation  Mission  (EU 
EOM).  The  EU  EOM  in  its  preliminary  statement  indicated  that  the  legislative  elections  were  well 
organised  and  administered.  It  commended  the  Independent  Election  Commission  for  its  successful 
implementation of the electoral process as a whole. 

The  new  electoral  law  (adopted  in  July  2012)  has  been  strongly  criticised  by  many  political  and 
reformist forces. As in November 2010, the Islamic Action Front, main opposition party, boycotted the 
parliamentary  elections.  Despite  some  improvements  (a  few  additional  seats  attributed  to  the  urban 
districts, a new voters’ registration process), the electoral law does not ensure equality in the number 
of people represented and does not provide equality of votes. 

As regards the bilateral ties, over the last years, the EU and Jordan have developed excellent relations 
and  have  made  significant  strides  in  building  a  closer  relationship  notably  through  the  entering  into 
force  in  2002  of  the  Association  Agreement  and  further  consolidated  in  the  framework  of  the 
European Neighbourhood Policy and of the Union for the Mediterranean. 

On  several  occasions,  Jordan  has  been  a  frontrunner  among  the  Mediterranean  partners.  The 
“advanced  status”  partnership  and  the  new  EU-Jordan  ENP  Action  Plan  agreed  in  2010  set  the 
framework  of  our  enhanced  relations  and  reflect  our  mutual  commitment  to  achieving  closer 
integration. 

Jordan  was  the  first  country  in  the  Near  East  to  sign  (in  December  2010)  a  Euro-Med  Aviation 
Agreement aiming at creating a common aviation market with the EU and boosting tourism, business 
and trade activities. 

In December 2012, the EU and Jordan signed the Framework Protocol to the Association Agreement 
allowing Jordan’s participation in some Union programmes. 

In  December  2012,  the  kick-off  meeting  of  the  Dialogue  on  Migration,  Mobility  and  Security  took 
place in Amman. 

The  offer  of  a  Deep  and  Comprehensive  Free  Trade  Area  (DCFTA)  will  aim  at  progressively 
integrating Jordan into the EU single market thereby strengthening Jordan’s economy. 

In sum, while a number of difficulties and challenges remain, Jordan is making steady progress in its 
path of strengthening the democratic institutions, including multi-party parliamentary system, the rule 
of  law  and  the  respect  of  human  rights.  The  EU  will  continue  to  support  Jordan  in  pursuing  these 
efforts paving the way to a more inclusive and participatory political system. In the framework of the 
“advanced status” partnership, Jordan is also  further developing its  cooperation with the EU. In this 
context, the political preconditions for Macro-Financial Assistance can be considered to be satisfied.