COMMISSION STAFF WORKING DOCUMENT Ex-ante evaluation statement Accompanying the document Proposal for a DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL providing further macro-financial assistance to the Hashemite Kingdom of Jordan
Date: 2016-06-29
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Community loan, EU aid, European neighbourhood policy, Jordan, economic reform, economic stabilisation, financial aid

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 29.6.2016  SWD(2016) 213 final   COMMISSION STAFF WORKING DOCUMENT Ex-ante evaluation statement  Accompanying the document  Proposal for a  DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  providing further macro-financial assistance to the Hashemite Kingdom of Jordan  {COM(2016) 431 final}  
 
 
Ex-ante evaluation statement 

Further EU Macro-Financial Assistance to the Hashemite Kingdom of Jordan 

TABLE OF CONTENTS 

1.  PROBLEM ANALYSIS AND NEEDS ASSESSMENT ..................................................................... 3 

1.1 

1.2 

1.3 

1.4 

1.5 

1.6 

Introduction ............................................................................................................................. 3 

Jordan's macroeconomic situation ......................................................................................... 4 

Structural reform challenges ................................................................................................... 7 

IMF and other donor support .................................................................................................. 9 

Progress under the first MFA operation (MFA-I) .................................................................. 11 

Jordan's external financing needs ......................................................................................... 12 

2.  OBJECTIVES AND MONITORING INDICATORS OF THE MACRO-FINANCIAL ASSISTANCE ...... 14 

2.1 

Objectives .............................................................................................................................. 14 

2.2  Monitoring indicators ............................................................................................................ 15 

3.  DELIVERY MECHANISMS AND RISK ASSESSMENT ................................................................ 15 

3.1 

3.2 

Delivery mechanisms ............................................................................................................. 15 

Risk assessment ..................................................................................................................... 16 

4.  ADDED VALUE OF EU INVOLVEMENT ................................................................................. 17 

5.  ASSESSMENT OF CRITERIA APPLICABLE TO MACRO-FINANCIAL ASSISTANCE .................... 17 

5.1 

5.2 

5.3 

5.4 

5.5 

Exceptional Character and Limited Time-frame .................................................................... 17 

Political preconditions and EU-Jordan relations ................................................................... 18 

Complementarity................................................................................................................... 19 

Conditionality ........................................................................................................................ 19 

Financial Discipline ................................................................................................................ 19 

6.  EVALUATION AND COST-EFFECTIVENESS ........................................................................... 20 

6.1 

6.2 

Evaluation .............................................................................................................................. 20 

Achieving cost-effectiveness ................................................................................................. 20 

Annex: Assessment on Jordanian political reforms prepared by the European External Action 

Service 

2 

 
 
 
1.

PROBLEM ANALYSIS AND NEEDS ASSESSMENT 

1.1 

Introduction 

Since  early  2011,  the  Jordanian  economy  has  been  significantly  affected  by  the  ongoing 
regional  unrest,  notably  in  neighbouring  Iraq  and  Syria.  Combined  with  a  weaker  global 
environment, this regional unrest has taken a heavy toll on external receipts and has strained 
public  finances.  Lower  tourism  and  FDI  inflows,  blocked  trade  routes,  and  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 weighed on Jordan's external and fiscal position. The Syrian conflict has impacted Jordan 
not only by disrupting trade with and through Syria but also by causing an inflow of around 
1.3  million  of  Syrian  refugees  into  Jordan  that  has  increased  pressure  on  Jordan's  fiscal 
position, public services and infrastructure. While Jordan has so far managed to  maintained 
macroeconomic stability through a combination of prudent macroeconomic policies, selected 
structural reforms and substantial donor support, the situation remains vulnerable. 

In 2012, Jordan and the IMF agreed on a first adjustment programme, which was supported 
by  a  three-year  Stand-By  Arrangement  (SBA)  in  the  amount  of  USD  2  billion.  Under  this 
programme,  which  was  successfully  completed  in  August  2015,  Jordan  made  considerable 
progress  in  terms  of  fiscal  consolidation  (also  helped  by  the  decline  in  oil  prices),  current 
account adjustment and reserve build-up. The IMF programme was complemented by a first 
Macro-Financial Assistance (MFA-I) from the EU in the amount of EUR 180 million, which 
was  adopted  by  the  European  Parliament  and  the  Council  in  December  2013  and  was 
disbursed in two tranches of EUR 100 million and EUR 80 million in February 2015 and in 
October 2015, respectively.  

The  persistent  conflicts  in  neighbouring  Syria  and  Iraq  have  continued,  however,  to  disrupt 
Jordan's  foreign  trade  and  undermine  investor  and  tourist  confidence.  Indeed,  the  Jordanian 
economy suffered a major setback in 2015, with growth decelerating, revenues from exports 
and tourism declining markedly and FDI contracting by 38%. And while Jordan's fiscal and 
current  account  imbalances  have  declined  in  recent  years,  also  supported  by  the  decline  in 
international  oil  prices,  they  remain  sizeable,  and  the  country  is  facing  substantial  debt 
repayment obligations in the coming years. 

In  this  difficult  context,  in  November  of  last  year,  the  Jordanian  government  published  a 
concept  paper  (Jordanian  Economic  Response  to  the  Syrian  Crisis:  Piloting  the  Holistic 
Approach)  calling  for  increased  support  from  the  international  community  to  address  the 
economic consequences of the Syrian crisis, and in particular the presence of a large number 
of  Syrian  refugees  in  Jordan.  At  the  conference  'Supporting  Syria  and  the  Region',  held  in 
London  on  4  February  2016,  the  international  community  pledged  about  USD  10  billion  to 
help the countries most affected by the Syrian refugee crisis. Of this amount, the EU pledged 
EUR 2.39 billion for the countries affected by the Syrian refugee crisis including a EUR 200 
million  loan for the purpose of  a second Macro-Financial  Assistance operation (MFA-II) to 
Jordan.  On  3  March,  through  a  letter  from  the  Ministry  of  Planning  and  International 
Cooperation to the Commissioner for Economic and Financial Affairs Taxation and Customs, 
the  Jordanian  authorities  formalised  their  request  for  a  new  MFA  from  the  EU.1  The  new 
proposed MFA operation will be part of the so-called Jordan Compact, a document that the 
EU  and  Jordan  are  discussing  and  that  will  contain  precise  commitments  on  both  sides 
(including financial assistance from the EU) to address a number of policy priorities. 

At  the  same  time,  Jordan  and  the  IMF  are  having  discussions  on  a  successor  financial 
arrangement, which is  expected to  be put  in  place during the second semester of 2016. The 

1 In this letter, the authorities requested a new MFA in the amount of EUR 350 million. 

3 

 
 
                                                           
arrangement, which will probably take the form of an Extended Fund Facility (EFF), would 
support a new economic adjustment and reform programme probably covering 3 years. 

In this context, and consistent with the pledge made at the London conference, the European 
Commission intends  to submit  to the European Parliament  and the Council a proposal  for a 
second  MFA  to  Jordan  of  up  to  EUR  200 million,  in  the  form  of  medium-term  loans. 
Although  this  amount  is  lower  than  the  amount  requested  by  the  Jordanian  authorities,  it  is 
justified  based  on  an  updated  assessment  of  the  country's  external  financing  needs,  burden-
sharing considerations and the room for manoeuvre available in the EU budget. 

The proposed EU MFA, which would complement the assistance provided by the IMF, would 
help  Jordan  cover  part  of  its  residual  external  financing  needs,  for  the  period  2016-17, 
estimated  at  about  USD  3.2  billion.  Since  it  is  intended  that  the  assistance  would  be 
channelled  to  the  budget,  the  new  assistance  (as  the  previous  one)  would  also  help  Jordan 
cover part of the fiscal costs associated with the Syrian refugee crisis.  

The proposed assistance would promote measures building on the reform efforts supported by 
the  previous  MFA  and  would  complement  the  policy  programmes  of  the  IMF,  the  World 
Bank  and  the  budgetary  support  operations  financed  by  the  European  Neighbourhood 
Instrument  (ENI).  These  measures  are  likely  to  cover  reform  areas  such  as  public  financial 
management (PFM) and other aspects of economic governance, tax reform, the strengthening 
of the social safety net, energy and water sector reforms, trade and investment, and the labour 
market, including measures to facilitate the integration of Syrian refugees into the Jordanian 
labour market. 

1.2 

Jordan's macroeconomic situation 

Despite the difficult regional situation and the implementation of restrictive macroeconomic 
policies, Jordan has so far managed to avoid a recession. Growth averaged 2.7% in the period 
2011-2014,  supported  by  the  receipt  of  substantial  financial  assistance  from  foreign  donors. 
However, the intensification of the Syrian crisis in 2015, through its effects on trade, tourism 
and  investor  confidence,  as  well  as  the  slowdown  in  the  Gulf  Cooperation  Council  (GCC) 
economies,  which  are  not  only  important  trading  partners  for  Jordan  but  also  an  important 
source of tourism, remittances and financial flows, contributed to a deceleration of growth to 
2.4% from 3.1% in 2014. This is the lowest growth rate recorded in Jordan since 2010. For 
2016, real GDP growth is expected to recover moderately (to around 3%) supported by low 
oil  prices  and  some  rebound  in  confidence  related  to  the  assistance  packages  announced  by 
donors.  

The  deceleration  of  the  economy  resulted  in  a  sizeable  increase  in  unemployment.  After 
declining  from  12.6% in 2013 to  11.9% in  2014, the unemployment rate  increased again  to 
13.6%  in  the  fourth  quarter  of  2015  and  to  14.6%  during  the  first  quarter  of  2016. 
Unemployment  remains  particularly  high  for  young  people  and  women  (33%  and  23.7%, 
respectively, in the first quarter of 2016).  

Helped  by  sharp  declines  in  food  and  fuel-related  prices,  consumer  prices  fell  by  0.9%  in 
2015  (with  core  inflation  at  about  2%,  however,  partly  reflecting  the  demand  from  Syrian 
refugees). Consumer price inflation is expected to recover this year as fuel prices stabilise or 
pick up somewhat, but it is expected to remain low (in the 1%-1.5% range). 

Jordan has made substantial progress with fiscal consolidation since its  fiscal deficit jumped 
in  2012-2013,  largely  reflecting  adjustment  measures  taken  in  the  context  of  the  IMF 
programme (including the introduction of a new income tax law in 2015) and the decline in 
oil  prices,  which  allowed  to  reduce  markedly  the  operating  loss  of  NEPCO  (the  national 
electricity company) and the state transfers to this company. Thus, the overall fiscal balance, 

4 

 
 
which includes transfers to NEPCO and to WAJ (the Water Authority of Jordan) as well as 
grants, declined from a peak of about 11% of GDP in 2013 to 3.5% of GDP in 2015.  

Table 1: Jordan – Selected macroeconomic indicators, 2012-2017 

National Accounts 
  Real GDP growth 
  Population (million) 
  Consumer price index, period average 
  GDP per capita (USD) 
  Unemployment rate (in percent, eop) 

2012 

2013 

2014 

2015 
Prel. 

2016  
Proj. 

2017  
Proj. 

(Annual percentage change, unless otherwise 
indicated) 

2.7 
6.4 
4.6 
4,843 
12.2 

2.8 
6.53 
4.8 
5,152 
12.6 

3.1 
6.68 
2.9 
5,375 
11.9 

2.4 
6.82 
-0.9 
5,513 
13.6 

3.2 
6.98 
1.2 
5,705 
14.6* 

3.7 
7.13 
2.1 
5,932 

(In percent of GDP, unless otherwise indicated) 

Consolidated government operations 
  Revenue and grants (i) 
  Expenditure (ii) 

Overall fiscal balance (i – ii) 
Primary government balance (1)  
Combined public sector deficit (2)  
  Government and government-guaranteed    

gross debt 

External sector 
  Current account balance  
  Current account balance excluding grants  
  Gross international reserves, eop (USD bn) 
 - In months of next year's imports  

of goods/services 

  Foreign direct investment, net  
  Nominal exchange rate (peg to the USD) 
  Total external debt  

23.0 
31.9 
-8.9 
-10.4 
-12.7 
80.2 

-15.2 
-20.0 
5,299 
2.4 

4.8 
1.41 
57.8 

* First quarter 

24.1 
35.3 
-11.1 
-4.7 
-9.4 
86.7 

27.9 
38.0 
-10.3 
-4.5 
-9.2 
89.0 

25.0 
29.0 
-3.5 
-5.2 
-6.1 
93.4 

25.1 
30.4 
-3.4 
-3.7 
-3.2 
92.1 

25.7 
30.8 
-2.0 
-2.5 
-2.2 
89.1 

-10.3 
-17.1 
12,060 
5.2 

-6.6 
-11.9 
14,973 
7.0 

-8.8 
-11.7 
15,678 
7.8 

-6.4 
-9.4 
16,100 
7.4 

-5.6 
-10.4 
16,471 
7.5 

5.3 
1.41 
65.1 

5.2 
1.41 
63.9 

2.9 
1.41 
66 

3.5 
1.41 
64.5 

6.0 
1.41 
62.7 

(1) Excluding grants and transfers to NEPCO and WAJ 
(2) Sum of the primary central government deficit, excluding grants and transfers to NEPCO and WAJ, and 

NEPCO's operating loss 

Sources: Jordanian authorities and preliminary IMF staff estimates                                             

The improvement in the underlying fiscal position is, however, somewhat exaggerated if one 
only looks at the overall fiscal balance, which has benefited from the impact of the decline in 
oil  prices.  To  better  assess  the  underlying  fiscal  trend,  the  IMF  prefers  to  use  another 
indicator,  the  so-called  primary  deficit  of  the  central  government,  excluding  grants  and 
transfers to NEPCO and to WAJ. While this measure also shows an improvement since 2012 
(see  Table  1),  the  improvement  is  less  marked  and  the  measure  deteriorated  again  2015 

5 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(increasing to 5.2% of GDP from 4.5% of GDP in 2014) and is more than three percentage 
points of GDP above what the IMF had programmed. The deterioration in 2015 reflected the 
impact  of  the  economic  slowdown  on  revenues,  which  more  than  compensated  for  the 
positive  effect  of  the  entry  into  force  of  the  new  income  tax.  The  combined  deficit  of  the 
central government and NEPCO (which adds to the above-mentioned primary deficit measure 
NEPCO's operating loss) remains above 6% of GDP and is also substantially above what had 
been targeted under the IMF's SBA programme (3.5% of GDP).  

The  persistent  fragility  of  the  fiscal  position  is  further  highlighted  by  the  fact  that  Jordan 
continues to be very dependent, in order to cover its fiscal gap, on foreign grants (which are 
expected  to  remain  lower  in  the  coming  years  than  they  were  in  2012-2014,  reflecting  the 
impact of lower oil prices on the finances of GCC donors) 2  and by the risk that oil prices will 
recover  more  markedly  than  currently  assumed.  Moreover,  Jordan  must  continue  to 
accommodate  the  significant  fiscal  cost  related  to  the  Syrian  refugees.  According  to 
authorities' estimates, the total number of Syrian refugees is already about 1.3 million (or 20% 
of the Jordanian population), although only around 630.000 of them are registered. The fiscal 
cost  of  the  refugees  mainly  takes  the  form  of  higher  expenditure  in  subsidies,  health, 
education  and  infrastructure.  According  to  the  Jordanian  authorities,  the  cost  of  direct  and 
indirect  expenses  related  to  the  hosting  the  Syrian  refugees  has  amounted  to  approximately 
USD 6.6 billion since the beginning of the Syrian conflict.  

Reflecting substantial borrowing from foreign donors, as well as the issuance of international 
bonds,  Jordan's  gross  public  debt  increased  further  to  93.4%  of  GDP  end  the  end  of  2015, 
continuing an upward trend observed since 2008, when the ratio stood at 60.2% of GDP. The 
public debt's dynamics are, however, judged by the  IMF to  be sustainable provided that the 
country continues to deliver on further medium-term fiscal adjustment and to be supported by 
the international  community. Credit ratings by  Moody's and  S&P have remained since mid-
2013 at B1 and BB-, respectively. However, S&P revised, in April 2016, its outlook for the 
long-term  rating  of  Jordan  to  negative  from  stable  reflecting  the  unsupportive  regional 
environment and the country's high dependency on foreign grants. 

Regarding  monetary  policy,  the  Central  Bank  of  Jordan  (CBJ)  reduced  the  rediscount  rate 
from  4.25%  in  early  2015  to  3.75%  in  July  2015,  as  inflation  had  turned  negative  while 
lending to the private sector (4.4%) remained subdued. This decision was also motivated by 
the  comfortable  level  of  international  reserves  and  expectations  of  a  narrowing  current 
account  deficit.  Growing  confidence  in  the  dinar  contributed  to  a  slight  reduction  of  the 
dollarization  ratio,  to  about  25%  in  February  2016.  The  current  fixed  exchange  rate  policy 
(peg  to  the  USD)  has  continued  to  serve  the  economy  well  by  helping  anchor  inflation 
expectations. 

The  escalation  of  the  conflicts  in  Syria  and  Iraq  in  2015  weighed,  as  noted,  on  exports, 
tourism  and  investor  confidence.  Exports  decreased  by  6.6%  as  a  result  of  disrupted  trade 
routes while income from tourism dropped by 7.1%, reflecting a sizeable decrease in tourists' 
arrivals from 4.1 million in 2014 to 3.7 million in 2015. Workers remittances increased only 
marginally (by 1.5%) in 2015. Despite these unfavourable developments, the current account 
deficit (excluding grants) is estimated to have shrunk to 11.7% of GDP for 2015 compared to 
11.9%  in  2014.  This  was  driven  by  a  deep  decline  (of  41%)  in  energy  imports,  reflecting 
lower  oil  prices,  which,  together  with  the  weakening  of  domestic  demand,  led  to  a  sizeable 
drop of 11.5% in total imports. Since it peaked at 20% of GDP in 2012, the current account 
deficit (excluding grants) has been consistently shrinking, supported by fiscal consolidation, 
the replacement of fuel imports with cheaper gas imports and the decline in oil prices from the 
second half of 2014. Including grants, however, the current account deficit declined from over 

2 Between 2013 and 2015, foreign grants averaged 3.6% of GDP. In 2015, foreign grants declined to 3.3% of 

GDP. 

6 

 
                                                           
15% of GDP in 2012 to 6.6% in 2014 but it is estimated to have increased again to 8.8% of 
GDP in 2015, reflecting the above-mentioned marked decline in foreign grants. In sum, while 
there  has  been  quite  an  impressive  adjustment  in  the  current  account  since  2012  the  deficit 
remains very large, especially if foreign grants are excluded, and this despite the low level oil 
prices.  External  pressures  continued  in  the  first  quarter  of  2016,  leading  to  a  sizeable 
widening  of  the  trade  deficit  (by  13%)  compared  to  the  same  period  in  2015.  This  was  the 
result  of  a  significant  fall  in  exports  by  12%  combined  with  a  4%  increase  in  imports. 
Remittances also contracted by 4.4% in the first two months of 2016 year-on-year.  

The  decline  in  foreign  direct  investment,  from  USD  1.8  billion  in  2014  to  around  USD  1.2 
billion in 2015 created further pressures to the external position. Despite the sizeable decline 
in  FDI,  the  capital  and  financial  account  recorded  a  net  inflow  of  USD  2.2  billion in  2015, 
compared to a net inflow of USD 1.2 in 2014. This was made possible by the issuance in June 
of two Eurobonds guaranteed by the US Treasury for a total of USD 1.5 billion (a 7-year USD 
1 billion bond with a 2.578% coupon and a 10-year USD 500 million bond with a 3% coupon) 
and the issuance in November of a non-guaranteed Eurobond of USD 500 million with a ten-
year maturity and an annual coupon of 6.1%.3 

In March 2016, net international reserves stood at a comfortable level of USD 13.4 billion, 
equivalent  to  around  7  months  of  next  year's  imports.  Including  gold,  international  reserves 
stood  at  about  USD  15  billion. Jordan's  external  debt  has  been  on  an  upward  trend,  having 
risen from about 57% of GDP in 2012 to 66% of GDP at the end of 2015. The IMF projects 
that it will enter a downward trend starting from 2016. 

1.3 

Structural reform challenges   

In  the  context  of  the  adjustment  and  reform  programmes  supported  by  the  assistance  of  the 
IMF,  the  World  Bank  and  the  EU's  first  MFA  operation,  which  was  completed  in  October 
2015, the Jordanian authorities made significant progress in a number of key structural reform 
areas. 

included 

improvements 

tax  policy  and 
Structural  reform  progress  since  2012 
administration, steps to strengthen PFM, efforts to diversify energy supply (partly in response 
to  the  interruption  of  gas  imports  from  Egypt),  the  elimination  of  fuel  subsidies  and  the 
related  introduction  of  a  system  of  cash  transfers  to  compensate  households,  and  the 
revamping  of  the  investment  framework.  However,  substantial  structural  reform  challenges 
have  yet  to  be  addressed  and  there  is  substantial  scope  for  strengthening  economic 
governance.  Moreover,  some  legislative  proposals  (e.g.  for  the  Audit  Bureau  law)  remain 
stuck in parliament, with their adoption having been significantly delayed.  

in 

In the area of taxation, and following several delays, the Jordanian parliament adopted a new 
income  tax  law  in  January  2015,  which  increased  progressivity  by  raising  tax  rates  and 
introduced new tax grids. However, its fiscal impact was weaker than initially agreed with the 
IMF and the reform maintained an excessive number of exemptions. A revision of the income 
tax  law  aimed  at  lowering  the  threshold  of  the  tax-exempted  income  and  widening  the  tax 
base remains a key challenge if Jordan is to move decisively to a more equitable tax system 
while  sustaining  fiscal  consolidation  efforts.  There  is  also  ample  room  for  raising  tax 
collections by continuing to improve tax administration. 

Substantial progress was achieved in PFM reform. Consistent with what was foreseen in the 
conditionality  of  MFA-I  and  the  budgetary  support  operations  financed  by  the  ENI,  the 
authorities adopted in late 2014 and early 2015 new regulations better defining the scope of 

3 It should also be noted that on 23 May 2016, NEPCO launched the first Islamic Sukuk bond for USD 105.7 

million at an interest rate of 3.5% maturing in 2021. 

7 

 
 
                                                           
internal  control  and  internal  audit  and  strengthening  internal  control  standards  and  the 
institutional setting. They have also increased staffing and training in internal financial control 
units while making progress with the certification of internal auditors. This should facilitate 
the  transition  of  the  Audit  Bureau  from  pre-audit  to  post-audit  activities.  Unfortunately, 
however, the draft new law on the Audit Bureau, which was submitted to parliament in 2013, 
has yet to be adopted, as noted. If adopted as proposed, it should help strengthen the Audit's 
bureau  independence  and  remit  while  eliminating  its  involvement  in  pre-audit  activities. 
There is also substantial scope for improving budget preparation, in particular by enhancing 
financial  and  programme  performance  analysis,  and  for  strengthening  public  debt 
management,  a  challenge  that  has  become  more  pressing  following  the  rapid  increase  in 
public  debt  levels  witnessed  in  recent  years.  Another  problem  in  PFM  that  needs  to  be 
addressed is the payment arrears in the health care system.  

Jordan liberalised the prices of most fuel products at the end of 2012 and has been gradually 
increasing electricity tariffs in recent  years, as part of a plan agreed with  the IMF under the 
SBA  programme,  to  bring  them  to  cost  recovery  and  thus  eliminate  the  operating  losses  of 
NEPCO. These efforts  continued throughout  2015, even though the authorities increased by 
only 7.5% NEPCO’s electricity tariffs at the beginning of 2015 instead of by the 15% increase 
foreseen in the IMF programme. The Budget Law for 2016 does not foresee any increase in 
electricity tariffs as NEPCO is still benefiting for the low oil prices (and the increased reliance 
on cheaper imports of liquefied natural  gas) for its  electricity production. While the smaller 
increase  finally  adopted  the  parliament  in  2015  has  been  partly  justified  by  the  lower  than 
initially assumed international oil prices, NEPCO remains exposed to a rebound in oil prices, 
which underlines the importance of pursuing the strategy of tariff increases to ensure full cost-
recovery.  Efforts  to  reform  the  water  sector  and  bring  Water  Authority  of  Jordan,  which  is 
contributing  significanlty  to  the  fiscal  deficit,  to  operational  cost  recovery  should  also 
continue.  

At the same time, consistent with Jordan's Energy Strategy, the authorities have continued to 
advance  with  their  plans  to  diversify  energy  sources  and  increase  energy  efficiency.  A 
significant  step has  been the entry into operation in  mid-2015 of the new  Liquefied Natural 
Gas terminal in Aqaba and the upgrading of the Liquefied Propane Gas terminal. Agreements 
have  also  been  signed  for  the  provision  of  gas  from  Cyprus  and  Algeria  and  of  electricity 
from  Saudi  Arabia. Other projects  being implemented or planned concern shale oil, nuclear 
energy  and  renewable  energies.  This  is  combined  with  the  implementation  of  an  ambitious 
energy efficiency plan aimed at achieving 20% energy savings by 2020. At the same time, the 
government  is  working  to  develop  a  comprehensive  regulatory  framework  for  the  entire 
energy sector. All these efforts should help Jordan cover the increased demand for electricity 
in the coming years and to reduce further the cost for energy imports (reduced already from 
18.7%  of  GDP  in  2012  to  11%  of  GDP  in  2015).  Despite  their  large  upfront  costs,  these 
projects  are  expected  to  create  significant  fiscal  benefits  provided  that  oil  prices  stay  on 
average above USD 50 per barrel in the next 10 years.  

In  order  to  compensate  households  for  the  elimination  of  fuel  subsidies,  the  authorities 
introduced  at  the  end  of  2012  a  cash  transfer  programme.  While  the  programme  was  not 
sufficiently  targeted  on  the  poor  households,  it  helped  achieve  substantial  fiscal  savings. 
Moreover,  substantial  progress  was  achieved  subsequently  to  improve  the  targeting  of  the 
programme. However, the programme was interrupted during 2014 reflecting the decline of 
oil prices since the scheme foresees the interruption of the cash compensation if international 
oil prices decline below USD 100 per barrel. Another significant step towards strengthening 
the social safety net was the adoption of the Social Security Law in 2014, which foresees the 
introduction  of  the  Unemployment  Fund  and  of  the  Maternity  Fund.  The  Maternity  Fund, 
which helps finance the cost of maternity leave, should have a positive effect on Jordan's still 
very low rates of participation of women in the labour force.  

8 

 
Labour  market  reform  remains  an  important  challenge.  Indeed,  unemployment  is,  as  noted, 
very high, particularly among women and youth, while the presence of refugees has increased 
competition  for  work  in  some  sectors  and  regions.  Labour  policies  should  be  revised  to 
improve skills matching, ensure training opportunities, promote entrepreneurship and expand 
worker's  mobility.  As  part  of  the  Jordan  Compact,  the  authorities  will  take  measures  to 
increase  the  employment  of  the  Syrian  refugees  in  certain  sectors  -  granting  the  necessary 
work  permits  -  supported  by  EU,  including  through  a  relaxation  in  the  rules  of  origin.  The 
new IMF programme is also expected to emphasize labour market reforms. 

The authorities have taken important  steps to  improve the  investment framework, consistent 
with  what  was  foreseen  in  the  conditionality  of  MFA-I.  Following  the  adoption  of  a  new 
Investment  Law  in  2014,  they  adopted  in  2015  by-laws  clarifying  tax  exemptions  and 
streamlining  investment  incentives.  Also,  a  high-level  Council  for  Competitiveness  and 
Innovation  was  established  with  the  participation  of  the  private  sector  to  review 
competitiveness  issues.  A  new  PPP  law  in  line  with  international  practice  was  adopted  in 
November 2014 while the PPP Unit in the Ministry of Finance became operational last year. 
While Jordan already has a relatively open trade regime,4 it could benefit from further trade 
liberalisation. The preparatory process for the launch of Deep and Comprehensive Free Trade 
Area  (DCFTA)  negotiations  started  in  December  2011  but  has  not  yet  been  completed, 
reflecting  disagreements  in  a  number  of  areas,  including  rules  of  origin  and  public 
procurement.  As  noted  earlier,  both  sides  have  been  engaged  in  negotiations  concerning  a 
temporary  relaxation of  the rules of origin  by  the EU side applicable to  their bilateral trade 
under  the  Association  Agreement,  which  should  facilitate  Jordanian  exports  to  the  EU  and 
create additional employment opportunities for both Jordanians and Syrian refugees in certain 
sectors.  As  foreseen  in  the  MFA-I  programme,  Jordan  has  also  made  progress  in  the 
preparation  of  negotiations  of  an  Agreement  on  Conformity  Assessment  and  Acceptance 
(ACAA),  aimed  at  facilitating  access  of  industrial  products  from  Jordan  to  the  EU  internal 
market  and  vice-versa.  In  June  2015,  the  Parliament  endorsed  amendments  to  make 
legislation on Standards and Metrology compatible with both the EU and WTO requirements. 
Jordan  has  decided  to  focus  for  now  the  ACAA-related  harmonisation  efforts  on  electrical 
products,  toys,  gas  appliances  and  pressure  equipment  as  priority  sectors,  although 
negotiations have not yet been launched. 

Overall,  although  reform  progress  has  been  substantial,  structural  reform  efforts  should  be 
pursued and intensified in order Jordan to achieve the double goal of fiscal consolidation and 
growth  enhancement  in  a  challenging  regional  environment.  In  May  2015,  the  government 
published  Jordan  2025,  a  10-year  economic  blueprint  to  support  comprehensive  and 
sustainable economic development  and strengthen social  cohesion.  It  represents  a long-term 
strategy,  entailing  about  400  policy  actions  aimed  at  safeguarding  macroeconomic  and 
financial  stability,  achieving  high  and  sustainable  growth  rates,  improving  competitiveness 
and reducing unemployment and poverty.  

1.4 

IMF and other donor support 

In  August  2015,  Jordan  completed  the  USD  2  billion  (800%  of  quota),  three-year  SBA 
programme  agreed  with  the  IMF  in  2012.  Through  this  programme,  the  country  made 
considerable  progress  in  terms  of  fiscal  consolidation  (also  helped  by  the  decline  in  oil 
prices), current account adjustment and reserve build-up. The implementation of the structural 
part  of  the  programme  was  more  mixed,  with  good  progress  in  areas  such  as  fuel  subsidy 

4Jordan'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. 

9 

 
 
                                                           
reform,  financial  supervision  and  energy  and  water  security  but  a  more  hesitant 
implementation in the areas of income tax reform, electricity tariff adjustment and PFM.  

The Jordanian authorities and the IMF staff are currently negotiating a successor arrangement, 
which is expected to be in place in the second semester of 2016. The new IMF programme, 
which will probably take the form of a 3-year EFF, is expected to have an increased focus on 
structural  issues,  including,  as  noted,  labour  market  reform.  The  size  of  the  new  IMF 
programme is expected to be in the order of USD 1 billion. Following and IMF staff visit at 
the end of March and early April, a negotiating mission of the IMF took place between mid-
May and early June which made substantial progress  towards agreeing on a new programme.  

The  World  Bank  has  provided  a  number  of  policy-based  loans,  mostly  in  the  form  of 
Development  Policy  Loans  (DPLs)  to  Jordan  since  2012  to  support  the  country's 
macroeconomic adjustment and reform efforts.  A first  DPL, amounting  to  USD 250 million 
and aimed at enhancing governance, fiscal management, public sector efficiency and private 
sector-led growth, was made available in 2012 and was followed in 2014 by another DPL of 
the  same  amount  and  focusing  on  the  same  reform  areas.  In  2014,  the  World  Bank  also 
approved  a  USD  150  million  emergency  project  loan  to  help  Jordan  deal  with  the  health 
implications  of  the  Syrian  refugee  inflow.  In  September  2015,  it  approved  a  third  DPL  of 
USD  250  million  to  support  the  water  and  energy  sectors  and  in  March  2016  a  USD  100 
million  DPL  to  support  the  creation  of  about  100,000  new  jobs  for  Jordanians  citizens  and 
Syrian refugees in the next five years. For this particular DPL, the World Bank's  Board has 
granted,  on  an  exceptional  basis,  concessional  terms  given  the  extraordinary  situation  and 
fiscal costs related to presence of large numbers of Syrian refugees.  

On 15 April 2016, as part of the so-called MENA Financing Initiative launched by the World 
Bank Group in cooperation with the United Nations and the Islamic Development Bank, eight 
countries (Canada, France, Germany, Japan, the Netherlands, Norway, the United Kingdom, 
the  United  States)  and  the  EU  pledged  USD1.64  billion  to  help  communities  in  Jordan  and 
Lebanon  hosting  Syrian  refugees,  as  well  as  to  finance  recovery  from  conflict  and 
reconstruction needs across the Middle East and Northern Africa (MENA) region. The overall 
pledge includes USD 141 million in grants, USD 1 billion in soft loans and USD 500 million 
in guarantees. Out of the overall pledge, projects worth around USD 800 million are expected 
to be generated in 2017, mostly benefiting Jordan and Lebanon.  

Since  Jordan  became  a  country  of  operations  of  the  European  Bank  for  Reconstruction  and 
Development  (EBRD)  in  2012,  the  Bank  has  approved  projects  in  the  amount  of  USD  534 
million  for  the  country.  Most  of  these  resources  have  been  channelled  to  projects  in  the 
energy,  infrastructure,  industry,  commerce,  agribusiness  and  financial  institutions  areas. 
Cumulative disbursements until May 2016 amounted to USD 266 million. 

Regarding bilateral donor assistance, in 2011, the Gulf Cooperation Council (GCC) countries 
decided to allocate USD 5 billion in grants to finance development projects in Jordan during 
the  2012-2016  period.  This  amount  was  divided  between  Kuwait,  Qatar,  Saudi  Arabia,  and 
the United Arab Emirates, with each country paying USD 1.25 billion. As of the end of 2015, 
the  above  resources  had  been  almost  entirely  spent  by  the  Jordanian  government  with  the 
exception  of  the  Qatar  pledge,  which  has  not  been  disbursed.  The  funds  were  directed  to 
projects  related  to  transport  infrastructure,  health,  education,  energy,  water  and  local 
development.  Although  discussions  are  still  in  progress  the  GCC  countries,  combined,  are 
expected  to  provide  to  Jordan  in  2016-2017  with  about  USD  1.2  billion  in  budget  support 
grants .   

The United States Agency for International Development (USAID) assistance programme to 
Jordan is one of the largest USAID programmes in the world, having disbursed from 2011 to 
2015 around USD 4.67  billion grants  in  sectors  like humanitarian aid,  health, water supply, 
governance, economic development and others. In September 2015, USAID approved a USD 

10 

 
429.7 million grant for similar projects. The United States (US) has also supported Jordan by 
providing guarantees for the issuance of Jordan sovereign bonds in the US market (USD 1.25 
billion in 2013, USD 1 billion in 2014 and USD 1.5 billion in 2015).  

Between 1999 and 2015 Japan has provided to Jordan USD 475 million in the form of grants 
and USD 530 million in the form of concessional loans, in addition to the technical assistance. 
In  2015,  the  Japanese  development  agency  disbursed  to  Jordan  approximately  USD  204 
million, in the context of the policy loan for fiscal and public service reform, and about USD 
92 million to UN and international organisations in Jordan for projects related to the Syrian 
crisis.  In March 2016, Jordan and Japan signed a USD 16.4 million grant agreement for the 
purchase of equipment and services for the ministries of water and municipal affairs. As part 
of  the  effort  to  cover  its  financing  needs,  Jordan  has  requested  in  2016  a  new  development 
policy loan from Japan in the amount of USD 300 million.  

France,  through  the  Agence  Française  pour  le  Development  (AFD),  has  been  providing 
substantial assistance to Jordan. This included the provision in 2012 of a budget support loan 
in the amount of EUR 150 million focusing on policy actions in the energy sector. This was 
followed by the additional loans in the amount of about EUR 95 million in 2014 and EUR 75 
million in 2015, the latter being the first tranche of a EUR 150 million budget support loan 
focusing  on  the  water  sector.  For  2016,  AFD  is  providing  the  second  tranche  (EUR  75 
million) of the EUR 150 million budget support loan approved in 2015. It has also approved 
two  project  loans,  a  EUR  55  million  loan  to  finance  the  Green  Corridor  electricity 
transmission  network,  co-financed  by  the  EU  budget  and  the  EIB,  and  a  EUR  39.1  million 
loan municipal water project.  

Since  the  outbreak  of  the  Syrian  crisis  the  EU  has  allocated  almost  EUR  1.13  billion  to 
Jordan. This includes, in addition to the EUR 180 million from the previous MFA operation, 
EUR 500 million in regular programmed bilateral cooperation for Jordan financed under the 
ENI,  about  EUR  250  million  from  the  humanitarian  budget  and  more  than  EUR  30  million 
from  the  Instrument  contributing  to  Stability  and  Peace.  Also,  since  2012,  UNICEF  has 
received a total of EUR 24 million from the EU for child protection, water and sanitation, and 
child  cash  programmes  in  Jordan.  Looking  forward,  and  as  part  of  the  Jordan  Compact 
currently  under  negotiation,  the  EU  is  tentatively  planning  to  provide  to  Jordan  about  EUR 
550 million in grants for the next three years plus the EUR 200 million of the proposed new 
MFA loan.  

Moreover,  an  increasing  part  of  non-humanitarian  aid  for  countries  affected  by  the  Syrian 
crisis is channelled through the EU Regional Trust Fund in response to the Syrian crisis, also 
known as the 'Madad Fund', founded at the end of 2014. This fund primarily addresses longer 
term  resilience  needs  of  Syrian  refugees  in  neighbouring  countries,  as  well  as  the  hosting 
communities. It aims to do so in a coherent way by merging various EU financial instruments 
and contributions  from  Member States into one single, flexible and quick mechanism. With 
recent pledges from 20 Member States (amounting to over EUR 63 million) and contributions 
from various EU instruments, the available resources of the Madad Fund amounted to more 
than  EUR  700  million  in  March  2016.  Out  of  these,  a  total  of  EUR  390  million,  including 
EUR 83 million for Jordan, have already been allocated by the Trust Fund Board. 

Between 2011 and 2015, the EIB has made available EUR 264 million to Jordan for private 
sector development, water sector and green energy projects.  

1.5 

Progress under the first MFA operation (MFA-I) 

Following  an  official  request  from  the  Jordanian  authorities  in  December  2012,  the 
Commission adopted on 29 April 2013 the proposal for a first MFA to Jordan of up to EUR 
180  million  in  the  form  of  loans.  The  assistance  was  intended  to  help  Jordan  deal  with  the 

11 

 
 
economic  impact  of  negative  shocks  stemming  from  regional  political  instability,  including 
disruptions in the supply of gas from Egypt and the Syrian conflict, which was affecting both 
the balance of payments and the fiscal position, notably through the inflow of Syrian refugees. 
The Commission's proposal was adopted by the European Parliament and the Council on 11 
December 20135. 

Following the consultation of the Member States' Committee on Macro-Financial Assistance 
on  4  March  2014,  the  MoU  and  Loan  Facility  Agreement  related  to  this  assistance  were 
signed at an official ceremony in Brussels on 18 March 2014. As part of the preparations for 
this MFA operation, an Operational Assessment was conducted in April 2013 and confirmed 
the reliability of the country's financial and administrative circuits.  

The assistance was disbursed in two tranches. The first tranche, of EUR 100 million, which 
was conditional on the IMF programme being on track, was disbursed on 10 February 2015. 
The  disbursement  was  delayed  by  several  months  reflecting  Jordan's  need  to  amend  certain 
aspects  of  its  public  debt  legislation.  The  disbursement  of  the  second  tranche,  of  EUR  80 
million,  was  subject  also  to  the  fulfilment  of  a  set  of  policy  conditions  specified  in  a 
Memorandum of Understanding (MoU) signed by the EU and the Jordanian authorities. These 
conditions  fell  under  the  following  thematic  areas:  public  finance  management  and  tax 
reform; the strengthening and the social safety net and labour market reform; the investment 
framework  and  trade;  and  energy  sector  reform.  The  conditions  of  the  programme  were 
broadly  fulfilled,  with  the  exception  of  one  condition  regarding  the  Audit  Bureau  law,  for 
which  a  waiver  was  granted.  Thus,  with  the  7th  and  final  review  of  the  IMF  programme 
having  been  successfully  completed  on  31  July,  the  Commission  proceeded  on  15  October 
2015 to the disbursement of the second tranche of the assistance.  

1.6 

Jordan's external financing needs 

The projections made by the IMF staff, in February 2016, point towards significant balance of 
payments needs for the period 2016-2017, with the total external financing gap estimated at 
USD  3.2 billion  (USD  2 billion  in  2016  and  USD  1.2 billion  in  2017;  see  Table  2).This 
financing  gap can be broadly  attributed to  three factors:  a persistently large current  account 
deficit, significant debt amortization requirements, especially for 2016, and some build-up of 
foreign exchange reserves. Each of these factors is analysed in what follows. 

The IMF foresees that the current account deficit including grants will gradually narrow (to 
6.4%  of  GDP  in  2016  and  to  5.6%  of  GDP  by  2017),  reflecting  a  moderate  recovery  of 
exports and tourist inflows, a reduced import bill (under the assumption that oil prices remain 
at  relatively  low  levels)  and  a  significant  increase  in  foreign  grants.  However,  the  deficit  is 
expected to remain sizeable, particularly if foreign grants are excluded. Moreover, despite the 
downward trend in the current account deficit including grants, the deficit is not expected to 
be covered by the surplus  in  the capital  and financial account  during the 2016-2017 period. 
Having  dropped,  as  noted,  in  2015  (to  an  estimated  USD  1.2  billion),  net  FDI  inflows  are 
projected to recover moderately in 2016 (to USD 1.3 billion) and more significantly (to USD 
1.7 billion)  in  2017,  reflecting  the  hoped-for  boost  in  investor's  confidence  related  to  the 
package  of  international  donor  support  announced  at  the  London  conference,  the  continued 
implementation of prudent macroeconomic policies in the context of the new IMF programme 
and the assumed continued ability of the authorities to maintain, social peace and consensus 

5 Decision No 1351/2013/EU of the European Parliament and of the Council of 11 December 2013 on providing 
macro-financial assistance to the Hashemite Kingdom of Jordan, OJ L 341, 18.12.2013, p. 4. 

12 

 
 
                                                           
domestically.  These  inflows  of  FDI  will  however  still  remain  significantly  below  their  pre-
2011 conflict levels, notably as a percentage of GDP.6   

The  second  factor  contributing  to  the  estimated  external  financing  gap  is,  as  noted,  the 
significant  debt  amortisations  foreseen,  notably  for  2016.  Although  decreased  when 
compared to 2015 (USD 939 million), debt amortisations will remain significant in 2016 and 
2017,  amounting  to  USD  618  million  and  USD  534  million  respectively,  while  they  are 
estimated to jump to USD 1 billion in 2018.  

A third factor contributing to the estimated external financing gap, although to a much lesser 
extent,  is  the  build-up  of  net  international  reserves.  Although  the  current  level  of  reserves 
(representing,  as  noted,  about  7  months  of  imports)  can  be  considered  as  comfortable,  the 
authorities  and  the  IMF  consider  that  it  is  important  to  maintain  them  close  to  their  current 
levels,  given  Jordan's  vulnerable  external  position  to  a  sharp  rebound  in  oil  prices  and 
persistent regional political instability and Jordan’s dependency on foreign grants. In fact, the 
moderate  assumed  build-up  of  reserves  is  less  than  the  amount  necessary  to  maintain  the 
import-cover  ratio  due  to  the  projected  growth  in  imports.  This  ratio is  projected  to  decline 
slightly (from 7.8 months of imports in 2015 to 7.5 months of imports in 2017). 

Although  the  amounts  of  the  new  IMF  programme  are  yet  to  be  defined,  the  preliminary 
intention is to go for a 3-year EFF starting in the second semester of 2016 and for an amount 
of  around  USD  1  billion.  Assuming  some  frontloading  of  IMF  disbursements  to  take  into 
account that the external financing gap is relatively larger at the beginning of the programme, 
purchases from the IMF in the period 2016-2017 are assumed to be about USD 600 million. 
Taking  into account  the  IMF  repurchase obligations stemming  from  the  recent SBA (which 
amount to USD 268 million in 2016 and USD 492 million in 2017), our projections imply that 
net  IMF  financing  would  be  relatively  small  in  2016  (about  USD  65  million)  in  2016  and  
negative (USD 225 million) in 2017. This means that a significant part of the total projected 
external  financing  gap for the period 2016-2017 is  expected to  be covered by other donors, 
including the EU.  

According  to  preliminary  information,  the  World  Bank  is  expected  to  disburse  to  Jordan  a 
USD  250  million  DPL  in  2016,  and  a  further  USD  100  million  DPL  in  2017.  The  Bank  is 
expected  to  finalise  its  Country  Partnership  Framework  for  Jordan  for  2017-2022  by 
September  2016.  In  total,  the  budget  support  amounts  provided  by  the  World  Bank  would 
represent around 11% of the projected external financing gap for 2016 and 2017. 

After deducting net IMF disbursements and disbursements of World Bank policy-based loans, 
this  would  still  leave  a  residual  external  financing  gap  of  USD  3.1 billion  for  the  period 
2016-2017  to  be  covered  by  other  donors.  The  proposed  new  MFA  operation  of  EUR  200 
million would, therefore, cover 7.4% of the estimated residual financing gap.  

The remainder of the residual external financing gap is expected to be covered by budgetary 
support grants to be provided by the GCC countries (about USD 1.2 billion), budget support 
grants from the US (about USD 650 million), a USD 258 million policy loan from the Arab 
Monetary  Fund,  the  EUR  75  million  budgetary  support  loan  from  France  and  EU  grants 
provided under budgetary support operations (about EUR 160 million). Several other donors 
(e.g.  Japan)  are  currently  reviewing  their  strategy  for  Jordan  –  following  the  London 
conference – and they are likely to contribute additional funds. The USA might also consider 
providing new sovereign bond guarantees.  

6 Net FDI inflows averaged about 10.3% of GDP in the period 2003-2008, compared to a projected average of 

4.7% in 2016-17. 

13 

 
 
 
                                                           
* For the period 2016-2017 excludes official grants in the form of policy-based budgetary support. 
** Mainly issuance of international bonds (possibly with US guarantees) and Sukuk bonds  

Sources: IMF staff estimates and projections (February 2016), Jordanian authorities and Commission staff 

calculations. 

The Commission and the IMF also assume, as shown in the table below, that Jordan may have 
to  access  the  international  markets  without  donor  guarantees,  as  it  did  in  2015,  in  order  to 
cover part of the residual external financing gap; whether in the form of international bonds or 
of Sukuk bonds. 

2.

OBJECTIVES  AND  MONITORING 
ASSISTANCE 

2.1  Objectives 

INDICATORS  OF  THE  MACRO-FINANCIAL 

The objectives of the proposed MFA operation are to:  

i)  Contribute to covering the external financing needs of Jordan in the context of a sizeable 
external  financing  gap  brought  about  by  the  impact  of  on-going  regional  conflicts  and 
instability.  Alleviate  Jordan's  budgetary  financing  needs,  which  partly  reflect  the  impact 
of regional instability, including in particular the fiscal cost related to the influx of Syrian 
refugees. 

14 

Total2016-171. Current account balance*-4,617-3,797-3,334-7,1302. Capital and financial account1,6022,1552,5544,7093. Overall balance (1+2)-3,015-1,642-780-2,4214. Reserves (“-” indicates increase)-526-421-393-8145. Overall External Financing Gap (3+4)-2,063-1,173-3,2356. Exceptional Financing by IMF and WB807314-125189    Net IMF Disbursements55764-225-161    Disbursements of World Bank’s DPL2502501003507. Residual Financing Gap (5+6)-1,748-1,298-3,046Financing of the gap EU MFA-II113113227 EU budget support grants9687184 France budget support loan84084 USA budget support grants417231648 GCC budget support grants6495461,195 Arab Monetary Fund policy loan2580258 Other grants459Total identified sources1,6229832,604Other financing sources**1273154427.4%Table 2: Jordan’s External Financing Gap and Potential Financing Sources(USD million)201520162017Total MFA-II as % of the residual gap for 2016-2017 
 
 
 
 
 
 
 
ii)  Support the fiscal consolidation effort and external stabilisation in the context of expected 

the IMF programme. 

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

iv)  Facilitate  and  encourage  efforts  by  the  Jordanian  authorities  to  implement  measures 
identified under the EU-Jordan Association Agreement and in the context of the bilateral 
cooperation programmes, support regulatory convergence and economic integration with 
the EU and strengthen the EU's economic policy dialogue with the authorities. 

2.2  Monitoring 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:  

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

of adherence to the IMF-supported programme.  

ii)  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. 

3.

DELIVERY MECHANISMS AND RISK ASSESSMENT 

3.1 

Delivery mechanisms 

The MFA-II operation under consideration would amount to maximum of EUR 200 million. 
Given the proposed size of the operation, the European Commission is considering releasing 
the assistance in two equal instalments of EUR 100 million each. The first instalment would 
be disbursed at the end of 2016 while the second would be disbursed in the second quarter of 
2017.  

The  Commission  proposes  providing  the  full  amount  of  the  assistance  in  the  form  of  a 
medium-term loan. This is consistent with the methodology for determining the use of grants 
and loans in EU MFA operations, as endorsed by the Economic and Financial Committee in 
January 2011, which takes into account the following criteria:7 

Firstly,  Jordan  is  an  upper  middle-income  country  with  a  relatively  high  per  capita  income 
level.  Jordan’s  per  capita  Gross  National  Income  (GNI),  which  amounted  to  USD  5,160  in 
2014,  is  the  fifth  highest  per  capita  income  in  the  Southern  neighbourhood,  after  Israel, 
Lebanon, Libya, and Algeria.8 

Secondly, while Jordan’s public debt ratio has significantly increased in recent years reaching 
93%  of  GDP  in  2015,  the  public  debt  dynamics  are  judged  to  be  sustainable  provided  the 
authorities  continue  to  deliver  on  further  medium-term  fiscal  adjustment.  According  to  the 
IMF’s latest Debt Sustainability Assessment (DSA), Jordan’s public debt ratio is expected to 
peak  in  2015  and  then  start  declining.  Jordan's  external  debt,  although  it  has  also  increased 

7“Criteria  for  Determining  the  Use  of  Grants  in  EU  Macro-Financial  Assistance”,  note  of  the  European 

Commission to the EFC, January 2011. 

8 World Bank’s Atlas 2014 figures. GNI per capita is the gross national income, converted to US dollars using the 

World Bank Atlas method, divided by the country’s population. 

15 

 
 
 
 
 
                                                           
substantially in recent years, remains at a manageable level. Having reached 66% of GDP at 
the end of last year, it is projected to enter a downward trend from 2016. 

Thirdly,  Jordan  is  not  eligible  for  concessional  financing  from  either  the  IDA  or  the  IMF's 
Poverty Reduction and Growth Trust.  

3.2 

Risk assessment 

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

There is a risk that the MFA, 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  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  of  the  Central  Bank  of  Jordan.  Moreover,  the  Commission  services  will 
undertake  an  Operational  Assessment  with  the  support  of  external  consultants  before  they 
implement  the  proposed  MFA-II  operation  in  order  to  assess  the  reliability  of  financial 
circuits  and  administrative  procedures  that  are  relevant  to  this  type  of  assistance  and  to 
determine that the framework for sound financial management of macro-financial assistance 
is sufficiently effective in Jordan. The Commission is also using budget support assistance to 
help  the  Jordanian  authorities  improve  their  PFM  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.  

A second risk stems from the possibility that Jordan will fail to service the financial liabilities 
towards the EU stemming from the proposed MFA loans (default or credit risk), which could 
be  caused  by  a  significant  additional  deterioration  of  the  balance  of  payments  and  fiscal 
position of the country or/and by unforeseen events.  This  risk is mitigated, however, by the 
fact that the EU’s MFA would be part of an international package of official assistance led by 
the IMF that is supporting an adjustment and reform programme aimed at restoring fiscal and 
balance of payments sustainability through the implementation of a series of policy measures, 
included  those  to  be  agreed  in  the  MoU  between  the  EU  and  the  Jordanian  authorities. 
Moreover, the risks for the EU budget are in a first instance covered by the EU’s Guarantee 
Fund for external actions. 

Another key risk to the operation stems from the regional political and security situation, in 
particular  the  spillovers  from  the  conflicts  in  Syria  and  Iraq,  which  could  result  in  an 
intensification  of  their  economic  impact  on  Jordan  and  fuel  domestic  social  unrest.  A 
derailment  of  the  adjustment  process  could  put  the  objectives  of  the  IMF-supported 
programme  in  jeopardy,  endanger  macroeconomic  stability  and  prevent  the  effective 
disbursement of MFA-II.  

Finally,  there  are  other  risks  stemming  from  a  possible  recovery  of  international  oil  prices, 
from  a  possible  weakening  of  the  global  economic  environment  and,  alternatively,  from  a 
further  weakening  of  the  GCC  countries  caused  by  a  protracted  period  of  low  oil  prices, 
which may also entail a reduction in aid flows from them. 

16 

 
 
Having made a thorough assessment of the risks, the Commission services consider that there 
are sufficient grounds and guarantees to proceed with the proposed 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 Union's financial support to Jordan reflects the country's strategic importance to the EU 
in the context of the European Neighbourhood Policy. The MFA instrument is a policy-based 
instrument directed to alleviate short- and medium-term external financial needs. As a part of 
the  overall  EU  package  of  assistance,  it  would  contribute  to  support  the  European  Union's 
objectives  of  economic  stability  and  economic  development  in  Jordan.  By  supporting  the 
authorities'  efforts  to  establish  a  stable  macroeconomic  framework  and  improve  economic 
governance,  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  difficulties  caused  by  the  regional  conflicts 
and  the  refugee  crisis,  the  proposed  MFA  will  contribute  to  promoting  macroeconomic 
stability and political progress in the country, helping in this way also address the root causes 
of  the  refugee  and  migration  crisis.  By  complementing  the  resources  made  available  by  the 
international  financial  institutions,  bilateral  donors  and  other  EU  financial  institutions,  it 
should contribute to the overall effectiveness of the package of financial support agreed by the 
international donor community.  

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 economic and political reforms, in challenging economic circumstances. 

5.

ASSESSMENT OF CRITERIA APPLICABLE TO MACRO-FINANCIAL ASSISTANCE

9 

5.1 

Exceptional Character and Limited Time-frame 

The  MFA-II  operation  would  be  exceptional,  aiming  to  support  the  restoration  of  a 
sustainable  external  finance  situation  of  Jordan.  It  would  run  in  parallel  to  the  IMF 
arrangement, currently under negotiation, which is expected to start in the second semester of 
2016. The proposed MFA-II would only be implemented if such an IMF arrangement is put in 
place,  and  only  during  a  strict  timeframe  covering  the  first  two  years  of  the  new  IMF 
programme.  Against  this  background  and  given  the  expected  time  of  approval  of  the 
programme, the assistance is expected to be implemented in 2016-2017. The disbursement of 
the first tranche could take place at the end of 2016 provided that the IMF program has been 
signed and remains on track. The second tranche, conditional on a number of policy measures, 
agreed with the EU, could be disbursed in the second quarter of 2017. While in the short-term 
the  country  faces  substantial  balance  of  payments  financing  needs,  the  macroeconomic  and 
structural  adjustment programme to  be 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.  

9 Established Commission practice in line with the Joint Declaration by the European Parliament and the Council 
adopted together with Decision No 778/2013/EU of the European Parliament and of the Council of 12 August 
2013 providing further macro-financial assistance to Georgia, OJ L 218, 14.8.2013, p. 15.    

17 

 
 
 
                                                           
5.2 

Political preconditions and EU-Jordan relations  

MFA  is  reserved  to  geographically  close  third  countries  that  respect  effective  democratic 
mechanisms  (including  a  multi-party  parliamentary  system)  and  the  rule  of  law  and  that 
guarantee human rights, and with which the EU maintains close political and economic links. 
Countries that are covered by the ENP, like Jordan, are eligible for MFA. 

Political  preconditions:  A  pre-condition  for  granting  MFA  is  that  the  eligible  country 
respects effective democratic mechanisms, including a multi-party parliamentary system and 
the rule of law, and guarantees respect  for human rights.  Since 2011, Jordan has embarked, 
under the leadership of H.M. King Abdullah II, on a number of political reforms to strengthen 
parliamentary  democracy  and  the  rule  of  law.  A  Constitutional  Court  and  an  Independent 
Electoral Commission have been set up and a number of major laws, including the Electoral 
Act and the Political Parties Act as well as laws on decentralisation and municipalities, have 
been  passed  by  the  Jordanian  Parliament.  In  recent  years,  Jordan  has  also  strengthened  the 
protection  of  civil  and  political  rights  granted  to  women.  While  there  is  still  room  for 
reinforcing  its  democratic  institutions  and  legal  framework  and  for  making  its  democracy 
more  representative  of  the  different  social  and  ethnic  groups,  Jordan  has  managed  to  make 
progress  in  this  area  despite  a  difficult  regional  environment  and  continues  to  exert  a 
stabilising  and  moderating  role  in  the  region.  In  this  context,  the  political  preconditions  for 
MFA may be considered to be satisfied.10 

EU-Jordan  relations:  The  EU  and  Jordan  have  developed  a  close  political  and  economic 
relationship over the years. In 2010, an Advanced Status partnership was agreed between the 
EU and Jordan that entails expanded areas of cooperation. The legal basis for the EU-Jordan 
relationship  is  the  Association  Agreement  that  entered  into  force  on  1  May  2002  and  the 
different  cooperation  and  dialogue  instruments  created  under  the  ENP.  Jordan  is  also  a 
member  of  the  Union  for  the  Mediterranean.  The  EU  aims  to  assist  Jordan  in  the 
implementation  of its own reform process  based on the priorities and  actions defined in  the 
Single Support Framework adopted for 2014-2017. In response to the conflicts in Syria and 
Iraq, and with a view to further strengthening the solid and multi-faceted relationship between 
the  EU  and  Jordan,  the  two  sides  have  started  negotiations  on  a  new  Partnership  Priorities 
Agreement which will guide EU-Jordan relations for the period 2016-2020. The partnership 
priorities  involve  the  fulfilment  of  mutual  commitments,  to  be  specified  in  the  EU-Jordan 
Compact, also currently under negotiation.  

Jordan's economic ties with the EU are very important. In 2014, the EU was Jordan's second 
largest  trading  partner,  with  a  trading  share  of  15.5%  after  Saudi  Arabia  with  17.7%  and 
before  the  US  (third  trading  partner  with  a  share  of  8.5%).  A  preparatory  process  for 
launching negotiations on a Deep and Comprehensive Free Trade Area (DCFTA) is on-going. 
The DCFTA would aim at improving market access opportunities and the investment climate 
and  at  promoting  closer  economic  integration  between  the  EU  and  Jordan.  It  would  extend 
significantly  beyond  the  scope  of  the  existing  Association  Agreement  to  include  trade  in 
services,  government  procurement,  competition,  intellectual  property  rights  and  investment 
protection.  Overall,  the  future  DCFTA  could  lead  to  a  gradual  integration  of  Jordan's 
economy into the EU single market. While the actual negotiations on the DCFTA have yet to 
be launched, both  sides  have, as noted, started discussions on a temporary  relaxation of the 
rules  of  origin  applicable  to  their  bilateral  trade,  which  it  is  hoped  will  provide  a  boost  to 
Jordanian  exports  to  the  EU  and  create  additional  employment  opportunities  for  Jordanians 
and Syrian refugees.  

10 A complete assessment of the satisfaction of the political precondition for MFA,  provided by the European 

External Action Service, can be seen in the Annex of this document.  

18 

 
                                                           
In sum, Jordan has taken important steps towards strengthening democratic rights and the rule 
of law. There is also a solid and intensifying framework of bilateral relations between the EU 
and Jordan under the Association Agreement, the ENP, the interest to launch negotiations for  
a  DCFTA  and  the  recent  initiatives  of  Partnership  Priorities  Agreement  and  the  Jordan 
Compact. The political preconditions for considering a MFA, and the criterion referring to the 
relations with the EU,  are therefore considered to be satisfied. 

5.3 

Complementarity 

The  proposed  MFA-II  would  complement  the  assistance  provided  by  other  multilateral  and 
bilateral  donors in  the context  of the new  IMF-sponsored economic programme. Part of the 
financing  to  be  provided  by  donors  remains  to  be  identified  but,  based  on  the  information 
currently  available  and  assuming  an  IMF  programme  of  a  structure  as  described  in  the 
previous section, donors other than the EU are expected to cover at least 74% of the estimated 
external  financing  gap  for  the  period  2016-2017.  The  proposed  new  MFA  would  represent 
7.4%  of  the  residual  financing  gap.  This  is  consistent  with  the  existing  burden-sharing 
guidelines applicable to  MFA, while it ensures  also  the value added and  significance of the 
EU's involvement.  

The  proposed  MFA  would  also  complement  the  standard  EU  aid  packages  mobilised  under 
the ENI and contribute to EU's new package of assistance related to the Syrian refugee crisis, 
as it will be defined in the Jordan Compact. Since it is intended that the assistance would be 
channelled  to  the  budget,  the  assistance  would  help  cover  part  of  the  fiscal  cost  associated 
with the large stock of refugees. By supporting the adoption from the Jordanian authorities of 
an appropriate framework for macroeconomic policy and structural reforms, the EU’s MFA-II 
would enhance, as noted, the added value and effectiveness of the EU's involvement through 
other financial instruments.  

5.4 

Conditionality 

Disbursements  under  the  proposed  MFA-II  operation  would  be  conditional  on  successful 
programme  reviews  under  the  IMF  programme  and  on  the  effective  use  by  Jordan  of  these 
IMF  funds.  In  addition,  the  Commission  and  the  Jordanian  authorities  would  agree  on  a 
specific  set  of  structural  reform  measures,  to  be  defined  in  a  MoU.  These  reform  measures 
will build upon those implemented under MFA I. They would 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  and  other  crisis-related  programmes.  They  would  be  consistent  with  the  main 
economic  reform  priorities  agreed  between  the  EU  and  Jordan  in  the  context  of  the  Single 
Support  Framework  2014-2017,  the  Partnership  Priorities  Agreement  and  the  Jordan 
Compact.  

Possible  areas  of  conditionality  could  in  principle  include:  PFM  and  other  aspects  of 
economic governance; tax reforms; reforms to strengthen the social safety net; labour market 
reforms  (including measures to support the integration of Syrian refugees in Jordan's  labour 
market); energy and water sector reforms; and measures to improve the regulatory framework 
for  trade  and  investment,  including  measures  that  could  prepare  the  ground  for  the  future 
DCFTA agreement. 

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 impact of the assistance will correspond to the provisioning of the EU's Guarantee 
Fund for external actions, at a rate of 9% of the amounts disbursed, from budget line 01 03 06 
("Provisioning  of  the  Guarantee  Fund").  Assuming  that  the  first  loan  disbursement 
(amounting  to  EUR  100  million)  is  made  in  2016  and  the  second  loan  disbursement 

19 

 
(amounting  to  EUR  100  million)  is  made  in  2017,  and  in  line  with  the  rules  governing  the 
guarantee  fund  mechanism,  the  provisioning  will  take  place  in  the  2018-19  budgets.  This 
distribution  of  tranches  takes  into  account  the  pressing  external  financing  needs  of  Jordan, 
concentrated in 2016. 

To ascertain that the beneficiary has in place a sound financial management in line with the 
requirements  of  the  Financial  Regulation,  the  European  Commission  services  undertook  in 
2013  (in  preparation  for  the  MFA-I  operation  for  Jordan)  an  Operational  Assessment  that 
provided a positive report on the reliability of the financial circuits and administrative controls 
at  the  Ministry  of  Finance  and  the  Central  Bank  of  Jordan.  To  update  this  assessment,  the 
European Commission will undertake a new Operational Assessment before it implements the 
proposed  MFA-II  operation.  Also,  developments  in  this  area  will  continue  to  be  closely 
monitored thought regular progress reports on PFM reforms produced by the EU Delegation 
in  Amman.  In  addition,  the  results  of  the  new  Public  Expenditure  and  Financial 
Accountability  (PEFA)  assessment  of  Jordan,  financed  by  the  EU,  are  expected  to  be 
available in late 2016 and will help to monitor progress and identify remaining challenges in 
the area of PFM. 

6.

EVALUATION AND COST-EFFECTIVENESS 

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

6.1 

Evaluation 

Ex-post  evaluations  of  MFA  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  MFA  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 in the Memorandum of 
Understanding. Budget appropriations from the macro-financial  assistance  grant budget line 
will be used for this evaluation.  

6.2 

Achieving cost-effectiveness 

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

i)   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  IMF  and  the  World  Bank,  and  to  influence  their  conditionality  as  well  in 
ways that will take into account the EU's views.  

ii)  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.  

iii)  The  entire  proposed  assistance  would  be  provided  in  the  form  of  loans,  the  budgetary 

impact of which is more limited. 

iv)  Finally,  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 PFM).  

20 

 
 
 
 
 
ANNEX 

EUROPEAN EXTERNAL ACTION SERVICE 

Head of Division 

Middle East and North Africa 
MENA.1. Egypt, Syria, Lebanon, Jordan 

Brussels, 6 June 2016 
PD/ma  Ares(2016)  

NOTE TO THE FILE 

ASSESSMENT ON Jordan's POLITICAL REFORMS 

Since  2011,  Jordan  has  embarked,  under  the  leadership  of  H.M.  King  Abdullah  II,  on  a  number  of 
political reforms to strengthen parliamentary democracy and the rule of law. A Constitutional Court 
and an Independent Electoral Commission have been set up and  a number of major laws, including 
the  Electoral  Act  and  the  Law  on  Political  Parties,  as  well  as  laws  on  decentralisation  and 
municipalities, have been passed by the Jordanian Parliament. Following the dissolution of Parliament 
(in  place  since  January  2013)  on  29  May  2016,  elections  are  expected  in  September.  A  new 
government under the leadership of Hani Mulqi was appointed on 1 June 2016. 
. 

Political reform continues despite daunting challenges 

Under the leadership of King Abdullah II, Jordan has embarked on a political and economic reform 
process  since  early  2011;  the  country  has  gone  through  a  sui  generis  response  to  the  Arab  Spring 
unfolding  across  the  region.  While  the  events  in  neighbouring  countries  implied  a  strong  focus  on 
security  and  continued  stability  of  the  political  system,  this  occurred  in  parallel  with  a  number  of 
changes introduced in view of enhancing a system of 'parliamentary government' and strengthening 
the  rule  of  law  and  public  participation.  It  is  in  that  light  that  new  institutions  were  created 
(Constitutional Court,  Independent  Election Commission) and that the above mentioned legislation 
was introduced. EU financial support is oriented amongst other on enhancing democratic governance 
in Jordan, through institutional support  (justice sector, parliament, election commission)  as well as 
through support of democratic stakeholders (civil society organisations, political parties, media). 

Jordan's  progress  in  gradually  transitioning  towards  a  more  democratic  political  system,  despite 
substantial challenges, represents an important case in the region, in particular when compared with 
other  countries  in  the  region.  Consequently,  the  political  preconditions  for  Macro-Financial 
Assistance may be considered to be satisfied. 

21 

 
 
 
 
 
 
 
 
 
 
This  being  said,  as  witnessed  over  the  past  two  years  with  the  increasing  influence  of  extremist 
ideology  and  terrorist  activities  in  the  region,  the  challenge  will  remain  for  Jordan  to  pursue  a 
significant rhythm of reform and enhancing an open and inclusive society. Jordan faces a number of 
interconnected challenges on the economic front (high youth employment, decrease of investments 
and  trade  resulting  from the  regional  context),  at  risk  of  increasing  the  attractiveness  of extremist 
ideology and terrorist activities and of decreasing political space and the enjoyment of fundamental 
freedoms.  

On the human rights front Civil society actors are increasingly concerned by anti-terrorist legislation 
potentially  limiting  fundamental  freedoms,  the  growing  number  of  reported  cases  of  torture  and 
mistreatment  in  detention,  and  more  generally  by  their  diminishing  public  space.  Restricted 
freedoms of expression have also been noted in the media.  

No significant changes  are expected in the short term to the current institutional system in Jordan 
and the process of political reform will need to be pursued in view of strengthening the legislative 
and  judiciary  power  branches  and  enhancing  their  independence.  Significant  legislation  has  been 
adopted,  which  needs  to  materialise  further.  On  the  individual  rights  front,  further  steps  are 
necessary to ensure access to justice and right to a fair trial, prohibition of torture, women's rights. 
Economic  and  political  empowerment  of  youth  and  women  will  be  essential  in  view  of  enhancing 
stability and democracy in the country. 

EU-Jordan Relations 

The  EU  and  Jordan  enjoy  excellent  relations  and  have  been  linked  by  an  Association  Agreement 
signed in 2002 (advanced status since 2010).  

The EU and Jordan are allies  in international politics (eg  International Syria Support Group, Middle 
East  Peace  Process)  and  have  largely  congruent  views  on  the  root  causes  of  and  responses  to 
regional and global crises. For instance, the King of Jordan has been an advocate for tolerant society, 
inter-religious and inter-cultural dialogue (Aqaba retreat). JO has concluded a peace treaty with Israel 
(1994) and King Abdullah II is the custodian of the Holy Sites in Jerusalem. JO has played an active 
role on the multilateral and regional front  (eg UNSC member 2014-15;  UfM co presidency with EU 
since 2012). 

Overall excellent EU-Jordan relations have  been symbolised by a number of highest-level meetings 
since the beginning of the year. EU Principals (EU Presidents and Commissioners) met Queen Rania in 
January and King Abdullah II in March. HRVP Mogherini visited Jordan on 22 March; Commissioner 
Hahn's last visit dates from January. The 4 February London Conference on Syria and the region was 
another opportunity for senior-level contacts. 

The high intensity of contacts reflect both: 

(i) 

(ii) 

mutual commitment to further strengthen the EU-Jordan partnership, going beyond the 
humanitarian and development domain (eg security, mobility, trade);  
high  expectations  from  Jordan's  side  that  the  EU  will  sustain  its  financial  support  to 
Jordan, both bilaterally and in view of the impact of the refugee crisis. Jordan has been 
quite prominent on the 'rules of origin request' in the context of the EU-Jordan Compact, 
as it sees this as a test of the EU's commitment towards Jordan.  

22 

 
 
 
 
 
 
 
 
 
Partnership Priorities/Compact 2016-18/20 
In  the  spirit  of  the  ENP  review,  the  EU  has  proposed  to  Jordan  partnership  priorities  for  2016-18 
(possible extension to 2020)  which would  cover  political  dialogue  and  assistance  across  a  range  of 
areas:  security  including  counter-terrorism;  mobility  (implementation  of  the  EU-Jordan  Mobility 
in  support  of  economic 
Partnership);  trade;  macro-financial  assistance;  bilateral  assistance 
development, job creation, quality education; democratisation, rule of law, human rights.  

In the meantime, cooperation has expanded on different files:  

- 

security/counter terrorism: a 15 March EU-Jordan workshop will engender a road map and 
cooperation into different areas of work, associating both EU agencies, and member states; 
EU  and  JO  are  committed  to  a  regular  dialogue  on  security  issues,  addressing  both  root 
causes and response; 

-  mobility partnership: following a mandate given by Council to COM on 11 April, negotiations 

between EU and JO are expected to start soon on visa facilitation and readmission; 

-  humanitarian and bilateral assistance: the EU expects to commit close to €300M for bilateral 

- 

cooperation, support to host communities and refugees in 2016; 
elections: parliamentary elections are expected for September and the EU has been invited 
to observe. An exploratory mission will be  deployed to look  into the  advisability, feasibility 
and usefulness of deploying an EU Election Observation Mission. Such a mission, if decided, 
will be a component of EU's support to strengthening political, electoral and parliamentary 
institutions in the country. 

In  sum,  while  major  political,  security,  economic  and  social  challenges  remain,  Jordan  has  made 
progress towards establishing a democratic system based on the rule of law and respect for human 
rights.  The  EU  is  fully  committed  to  support  Jordan  in  this  challenging  transition  process.  In  this 
context, the political preconditions for Macro-Financial Assistance may be considered to be satisfied, 
although  they  will  have  to  be  closely  monitored  during  the  life  of  the  proposed  Macro-Financial 
Assistance operation. 

Patrick COSTELLO 

23