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: 2019-09-06
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: EU aid, EU loan, European neighbourhood policy, Jordan, economic reform, economic stabilisation, financial aid, macro-financial assistance

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 6.9.2019  SWD(2019) 324 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(2019) 411 final}  
 
 
Ex-ante evaluation statement on  
EU macro-financial assistance to Jordan 

TABLE OF CONTENTS 

1. 

Problem analysis and needs assessment ....................................................................... 2 

1.1. 

1.2. 

1.3. 

1.4. 

1.5. 

Introduction .................................................................................................... 2 

Jordan’s macro-economic situation ............................................................... 3 

IMF and other donor support ......................................................................... 5 

External financing needs ................................................................................ 7 

Structural reforms .......................................................................................... 9 

2. 

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

2.1. 

2.2. 

Objectives .................................................................................................... 12 

Monitoring Indicators .................................................................................. 12 

3. 

Delivery mechanisms and risk assessment ................................................................ 13 

3.1. 

3.2. 

Delivery mechanisms ................................................................................... 13 

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

4. 

5. 

Added value of EU involvement ................................................................................ 14 

Characteristics of macro-financial assistance ............................................................ 15 

5.1. 

5.2. 

5.3. 

5.4. 

5.5. 

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

Political preconditions and EU-Jordanian relations ..................................... 16 

Complementarity.......................................................................................... 17 

Conditionality .............................................................................................. 17 

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

6. 

Evaluation and cost-effectiveness .............................................................................. 18 

6.1. 

6.2. 

Evaluation .................................................................................................... 18 

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

1 

 
 
 
 
1. 

PROBLEM ANALYSIS AND NEEDS ASSESSMENT 

1.1. 

Introduction 

In  recent  years,  the  Jordanian  economy  has  been  significantly  affected  by  regional  unrest, 
notably in neighbouring Iraq and Syria. This regional unrest has taken a heavy toll on external 
receipts  and  has  strained  public  finances.  Lower  tourism  and  FDI  inflows,  blocked  trade 
routes  for  8  years,  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 positions. 
The Syrian conflict has impacted Jordan not only by disrupting trade with and through Syria 
but  also  by  causing  a  large  inflow  of  around  1.3  million  of  Syrians  refugees  (according  to 
estimates  from  the Jordanian  authorities)  of  which  660,330  are  registered  with  the  office  of 
the United Nations High Commissioner for Refugees – UNHCR (data as of 4 august 2019). 
This  large  inflow  of  Syrian  refugees  into  Jordan  has  increased  pressure  on  Jordan’s  fiscal 
position, public services and infrastructure. 

A  broadly  appropriate  policy  response  and  large-scale  international  support  helped  the 
country to preserve macro-economic stability. Jordan was supported by a financial assistance 
programme by the International Monetary fund (IMF) and other international donors. As part 
of  this  assistance  package,  the  EU  implemented  two  macro-financial  assistance  (MFA) 
programmes totalling EUR 380 million to alleviate the short-term financing pressures Jordan 
has been facing, while supporting economic reforms and the reduction of vulnerabilities. Key 
economic reforms in the context of the above-mentioned programmes (such as the abolition of 
energy subsidies and the expansion of the tax base) helped the country to lower external and 
fiscal  deficits,  to  replenish  part  of  its  foreign  reserves  and  to  avoid  a  balance  of  payment 
crisis.   

However,  Jordan’s  economy  remains  vulnerable  to  external  shocks.  Despite  improvements, 
real  growth receded to  1.9% in  2018, the lowest rate since 1996. Unemployment jumped to 
19% in early 2019, while FDI plummeted to 2.4% of GDP in 2018, the lowest inflow  since 
2003.  The  replenishment  of  Jordan’s  international  reserves  proceeded  more  slowly  than 
expected. Despite efforts, fiscal  consolidation  was not  sustained at  the initially programmed 
pace,  as  a  result  of  lower  than  expected  growth,  which  weakened  tax  revenues,  and  the 
generation of losses by the electricity company in the absence of cost-reflective tariffs. Public 
debt  has  barely  decreased  and  Jordan  remains  dependent  on  foreign  aid.  Indeed,  Jordan 
continues  to  face  considerable  external  financing  needs  including  payment  obligations  on 
Eurobonds and other external market borrowing which comes due in 2020-22.  

The  “London  Initiative”  conference,  held  in  February  2019,  played  an  important  role  in 
securing  additional  concessional  financing  and  budget  grants  from  donors  to  help  Jordan  to 
bridge  its  external  financing  gap  for  the  next  years  in  a  way  that  would  safeguard  debt 
sustainability. In this context, seeking support for the country’s renewed balance of payments 
needs,  including  the  replenishment  of  international  reserves,  the  Jordanian  authorities 
requested further MFA from the EU on 11 July 2019 in the amount of EUR 500 million in 
three instalments.  

Taking  into  consideration  this  request  and  following  an  in-depth  assessment  of  the  political 
and  economic  situation  in  Jordan,  the  European  Commission  is  submitting  to  the 
European Parliament and the Council a proposal to provide MFA of EUR 500 million to 
Jordan in the form of loans. Having taking into account the preliminary discussions of the 
Jordanian  authorities  with  IMF  staff  for  a  new  IMF  programme  for  Jordan  beyond  March 
2020,  the  proposed  MFA  operation  envisages  three  instalments.  The  proposed  MFA  will 

2 

 
 
 
 
cover part of Jordan’s residual external financing needs in 2020 and 2021 in the context of the 
prospective  new  IMF  programme.  These  needs  are  estimated  at  USD  5.8  billion 
(approximately EUR 5.1 billion) after taking into account financing resources that have been 
approved  by  the  IMF  and  the  World  Bank  until  June  2019.  The  EU’s  renewed  assistance 
would  be  expected  to  reduce  the  economy’s  short-term  balance  of  payments  and  fiscal 
vulnerabilities,  while  supporting  the  government’s  adjustment  and  reform  programmes 
through  an  appropriate  package  of  accompanying  policy  measures  to  be  agreed  with  the 
Jordanian authorities in a Memorandum of Understanding. 

1.2. 

Jordan’s macro-economic situation 

The Jordanian economy  has been particularly  affected by the conflict  in  Syria, which broke 
out in 2011. Following a period of robust growth averaging 6.2% during 2001-2010, Jordan’s 
GDP growth has decelerated to an average of 2.4% in 2011-2018. While reflecting Jordan’s 
long-standing  macro-economic  and  structural  weaknesses,  the  economic  slowdown  was 
largely driven by a series of external shocks including the disruption of critical export routes 
and markets from protracted regional conflicts, the sharp decline in FDI, the hosting of Syrian 
refugees, and rising oil prices and borrowing costs reflecting the rise of Fed’s rates. 

The weakening of economic activity continued in 2018, as real GDP growth slowed to 1.9% 
in  2018  (from  2.1%  in  2017)  marking  the  lowest  rate  of  expansion  since  1996.  Positively, 
tourist inflows and exports recovered somewhat and two border crossings with Iraq and Syria 
were reopened in 2018. In the fourth quarter of 2018, low-cost gas imports from Egypt also 
resumed. However, these developments have yet to manifest themselves in growth figures: in 
the first  quarter of 2019, real  GDP increased by  2%, essentially unchanged when compared 
with the pace of recent years.  

Against this background, unemployment rose to 19% in Q1 2019 from 18.4% a year earlier, 
marking  a  significant  upward  trend  since  2014,  when  it  stood  at  12.9%. Unemployment  for 
youth  (38.5%)  and  women  (28.9%)  remains  high  compared  to  unemployment  for  men 
(16.4%). 

Inflation rose to  4.5% in 2018 (from 3.3% at  the end of 2017) reflecting  the increase in  oil 
prices during much of 2018 and the rise of the General  Sales Tax in various basic products 
that was enacted in January. However, in the first four months of 2019 inflation moderated to 
0.6% as the effect of the tax increases faded away. The Central Bank of Jordan increased the 
re-discount rate in seven steps from 3.75% to 5.75% between February 2017 and December 
2018. This broadly mirrors the Fed’s rate rises, given the peg of the Jordanian Dinar to the US 
dollar.  The  tightening  cycle  coincided  with  a  gradual  yet  moderate  increase  in  inflation,  as 
mentioned  earlier.  In  June  2019,  the  re-discount  rate  remained  unchanged  (at  5.75%)  as 
foreign  exchange  pressures,  which  had  persisted  in  2018,  eased  in  light  of  a  fading  and 
eventual  reversal  of  market  expectations  for  further  US  monetary  policy  tightening. 
Nevertheless,  in  the  context  of  the  second  review  of  the  IMF  programme,  the  authorities 
expressed their readiness to tighten monetary policy, if needed, to ensure reserve targets are 
met.  

Jordan made significant progress in consolidating its public finances in the past years, but on 
on the back of the  weak growth profile  and lack of progress  in  addressing the losses of the 
public  electricity  and  water  supply  providers,  this  progress  could  not  be  sustained  in  2018. 
The overall fiscal deficit (including grants) widened to 3.3% of GDP in  2018 from 2.2% of 
GDP in 2017. The combined public sector deficit – a fiscal metric that takes into account the 
balance of NEPCO (the public electricity provider) and WAJ (the Water Authority of Jordan) 
– jumped to 4.3% of GDP in 2018 from 2.9% of GDP in 2017 reflecting increased cost of oil 
combined with the absence of cost-reflective tariffs in the electricity and water sectors, which 

3 

 
 
 
 
encourages  over-consumption.  For  2019,  the  IMF  programme  foresees  the  reduction  of  the 
fiscal  and  of  the  combined  public  sector  deficit  to  2.3%  and  2.6%  respectively.  In  the  first 
four months of 2019 the fiscal deficit narrowed to 3% of GDP from 3.8% of GDP  year-on-
year. However, tax revenues declined by 1.4% year-on-year raising concerns about the budget 
execution until the end of 2019. 

At  the  end  of  March  2019,  total  gross  public  debt  stood  at  94.4%  of  GDP,  practically 
unchanged  from  end-2018.  External  public  debt  amounted  to  39.4%  of  GDP,  out  of  which 
72% was denominated in USD, to which the Jordanian Dinar is pegged. While the elevated 
level of public debt is a source of vulnerability, the IMF judges it to be sustainable, provided 
that the country continues to deliver on fiscal adjustment and growth enhancing reforms and 
that the international and regional donor community continues to provide significant support 
to Jordan. 

With respect to the external sector, Jordan’s current account deficit narrowed in 2018 to USD 
2.9 billion or 7% of GDP (10.3% excluding grants) from 10.5% of GDP in the same period in 
2017. This reflected a moderate increase in goods exports (which increased by 3.4% in value 
terms), while goods imports decreased (by 1.3% in value terms). In the first quarter of 2019, 
goods exports performed even more strongly, recording a 9.3% increase in value terms, while 
goods  imports  decreased  by  3.2%  in  value  terms.  In  the  same  period,  income  from  tourism 
increased by 6.1% year-on-year while remittances increased only marginally.   

Foreign  direct  investments  (FDI)  plummeted  to  USD  959  million  in  2018  (2.2%  of  GDP), 
down by 52% in US dollar terms compared to 2017. This marked the lowest net FDI inflow 
since  2003.  This  downward  trend  is  consistent  with  the  long-term  weakening  of  FDI  (as  a 
share of GDP) since the Syrian conflict: from an average of 12.7% in 2005-2010 to 4.5% in 
2011-2018.  The  regional  conflict,  which  blocked  trade  routes  for  8  years,  the  economic 
slowdown  in  Gulf  countries,  which  were  Jordan’s  major  investors,  but  also  the  country’s 
structural weaknesses, such as rigid labour markets, constraints to foreign investors and high 
business costs, contributed to the decline of FDI inflows. 

The  decline  in  FDI  created  further  pressures  on  the  capital  and  financial  account,  as  did  a 
decline in public borrowing from around USD 1 billion in 2017 to less than USD 500 million 
in  2018.  These  pressures  contributed  to  a  sizeable  decrease  of  the  commercial  banks’  net 
foreign  assets  (by  around  USD  900  million)  in  2018,  partially  caused  by  tighter  monetary 
policy in neighbouring countries and the political instability in Jordan in mid-2018 (when the 
Prime  Minister  resigned  in  response  to  public  discontent  notably  over  tax  reform  plans). 
Conversely,  a  small  net  inflow  of  USD  41  million  in  private  portfolio  investments  in  2018 
(compared to a large net outflow in 2017), as well as a considerable increase by around USD 
600 million in other investments supported the capital and financial account in 2018.  

The current level of reserves  – standing at USD 13.2 billion (or 7.1 months of imports) at 
the end of April 2019 – should be increased to make the country more resilient to the above 
factors.  This  is  particularly  important  given  the  vulnerability  of  the  external  position,  the 
elevated  risks  from  regional  conflicts  or  geo-political  tensions,  the  exchange  rate  peg  and 
exposure to oil price shocks.  

4 

 
 
 
 
 
Table 1. Jordan – Selected Macro-economic indicators, 2015-2021 

2015 

2016 

2017 

2018 

Real GDP change, % 
Consumer price inflation, %, end of period 
Key monetary policy rate, end of period 
Unemployment rate, % LFS 
Overall fiscal balance including grants, % of GDP 
Combined public sector balance(1), % of GDP 
Grants to the Budget, % of GDP 
Government gross public debt, % of GDP 
Gross external public debt, % of GDP 
Current account balance, % of GDP 
International reserves, USD billion 
International reserves, months of imports 
Foreign direct investment, % of GDP 
Source: IMF, CBJ, MoF 
(1) Defined as the sum of the primary central government balance (excl. grants and transfers to NEPCO and WAJ), NEPCO 
operating balance, WAJ overall balance, and, starting in 2019, Aqaba, Miyahuna and Yarmouk Water Distribution 
Companies’ overall balance. 
(2) IMF projections - May 2019  

2.0 
3.2 
4.75 
18.5 
-2.2 
-2.9 
2.5 
94.3 
39.9 
-10.6 
14.2 
7.5 
4.9 

1.9 
3.6 
5.25 
18.7 
-3.3 
-4.3 
3.0 
94.4 
37.4 
-7.0 
12.5 
6.4 
2.2 

2.4 
-1.6 
3.75 
13.1 
-5.3 
-7.1 
3.3 
93.4 
35.3 
-9.1 
15.7 
8.5 
3.7 

2.0 
0.8 
3.75 
15.3 
-3.2 
-3.8 
3.0 
95.1 
37.5 
-9.5 
14.5 
8.2 
4.0 

2020(2) 
2.4 
2.5 
- 
- 
-2.3 
-1.7 
2.1 
94.1 
42.3 
-6.2 
15.7 
7.4 
4.3 

2019(2) 
2.2 
2.5 
5.25 
19.0 
-2.3 
-2.6 
2.4 
94.6 
41.3 
-7.0 
14.3 
7.0 
3.6 

2021(2) 
2.6 
2.5 
- 
- 
-1.9 
-0.6 
1.6 
92.4 
44.4 
-6.6 
17.4 
7.9 
4.3 

Despite  the  favourable  developments  in  exports  and  tourism,  a  number  of  vulnerabilities 
remain. The country continues to operate under a difficult economic environment impacted by 
the  protracted  regional  conflict,  the  hosting  of  Syrian  refugees,  the  disruption  or  slow 
recovery  of  critical  export  markets  and  the  marked  fall  of  FDI.  As  a  result,  growth  has 
remained in very low levels and is insufficient to reduce high unemployment. As happened in 
2018, the pace of future fiscal adjustment could be lower than envisaged if growth weakens 
further  and  Jordan  fails  to  mobilise  tax  revenues  through  combating  tax  evasion  and 
increasing  the  capacity  of  tax  administration.  The  same  could  happen  if  Jordan  does  not 
achieve  to  restructure  effectively  the  loss-making  state-owned  (electricity  and  water) 
companies  which  add  to  the  general  government’s  deficit.  In  addition  to  the  above  risks, 
borrowing costs are higher compared with Jordan’s Eurobonds that will mature in the coming 
years (many of which were US-guaranteed), rendering a roll-over of the bonds costly. For the 
above reasons, the current projection for the decline of public debt to 83.7% by 2024 remains 
fragile and depends on the success of fiscal adjustment and growth-enhancing reforms that the 
authorities have committed to do, as well as on the their ability to continue attracting sizeable 
donor and market financing. Reserves remain below IMF adequacy standards and could come 
under renewed pressure in 2020-2021, when the country is expected to make around USD 3.1 
billion of payments (interest and principal) on sovereign and Eurobonds external debt. In this 
context, the further replenishment of Jordan’s international reserves seems necessary, and the 
EU’s  additional  MFA  could  usefully  support  this  effort,  both  directly  (through  its 
disbursements)  and  indirectly  (as  a  catalyst  for  private  capital  inflows  and  instilling 
confidence in the local currency).  

In conclusion, Jordan’s economy remains fragile with substantial external financing needs and 
exposed to a number of vulnerabilities. In this context, continued support from the IMF and 
Jordan’s international partners, including the EU, remains essential.  

1.3. 

IMF and other donor support 

In August 2016, the IMF approved a three-year Extended Fund Facility (EFF) programme for 
Jordan of around USD 723 million (150% of quota). This programme followed a three-year 
Stand-By  Arrangement  (SBA)  in  the  amount  of  USD  2  billion  (800%  of  quota)  which  was 
approved by the IMF in August 2012 and completed in August 2015.  

5 

 
 
 
 
  
The  primary  purpose  of  the  EFF  programme  is  to  aid  the  country  to  achieve  a  gradual  but 
steady  fiscal  adjustment  to  lower  public  debt  and  to  implement  broad  structural  reforms  to 
enhance the conditions for higher and more inclusive growth. The main elements of the EFF 
arrangement, when it was approved, were: 

  To  achieve  gradual  and  steady  fiscal  consolidation  to  bring  the  public  debt  down  to 
safer levels (from 94% in 2016 to 77% of GDP by 2021) while protecting vulnerable 
parts  of  the  population.  Structural  benchmarks  in  the  fiscal  area  included:  the 
revamping of the tax exemption framework of the General Sales Tax, implementing a 
more  broad-based  income  tax  law,  the  adoption  of  a  new  public  debt  management 
strategy as well as measures to maintain NEPCO’s operational balance and reduce the 
WAJ’s deficit.  

  To  boost  structural  policies  in  order  to  improve  the  business  climate  and  promote 
growth  and  jobs.  In  this  regard,  the  IMF  programme  had  envisaged  streamlining 
inspection  procedures  for  businesses  and  improving  the  operation  of  the  single 
investment  window by  automating and integrating the services provided  by Jordan’s 
Investment Commission. 

  To deepen the financial  sector and  facilitate access  to  finance. Measures  in  this area 
included the establishment of a new bank resolution framework, the adoption of new 
legislation on insolvency and on secured lending operations. 

Since  the  approval  of  the  EFF,  in  August  2016,  macro-economic  conditions  have  worsened 
markedly.  In  the  period  2016-2018  economic  growth  averaged  to  2%  from  3.3%  initially 
envisaged.  Tax  revenue  shortfalls,  the  absence  of  effective  measures  to  ensure  financial 
viability  of  the  electricity  and  water  companies,  and  delays  in  implementing  a  new  broad-
based income tax law, slowed down the pace of fiscal consolidation: at the end of 2018, the 
combined  fiscal  deficit  (which  includes  the  balance  from  the  electricity  and  water  utilities) 
was recorded at 4.3% of GDP from 2% of GDP forecasted in 2016 while public debt is now 
expected to decline to 92.4% of GDP in 2021 from 77% of GDP as forecasted in 2016. At the 
same  time,  new  external  financing  needs  appeared  for  2020-2021  estimated  by  the  IMF  to 
USD 5.8 billion.  

The implementation of the IMF programme advanced with significant delays due to uneven 
reform implementation and to the re-emergence of significant external financing needs. A first 
disbursement  of  USD  72.3  million  was  made  available  to  Jordan  on  approval  of  the  EFF 
programme,  while  a  second  disbursement  of  USD  71  million  was  made  available  with  the 
completion  of  the  first  review  of  the  programme,  which  was  approved  in  June  2017  by  the 
IMF  Executive  Board.  Following  delays  in  the  implementation  of  tax  policy  benchmarks 
(notably  the  new  income  tax  law  which  was  adopted  in  December  2018,  instead  of  March 
2017  as  initially  agreed),  the  IMF  reached  a  staff-level  agreement  with  the  Jordanian 
authorities  in  February  2019  on  the  completion  of  the  second  review.  However,  the  review 
was only completed on 6 May 2019 by the IMF Executive Board, after the provision by the 
international  community  of  sufficient  financial  assurances  (of  around  USD  5.1  billion)  to 
cover  Jordan’s  external  financing  gap  for  the  period  2019-2023.  The  financial  assurances 
from  the  international  community  will  support  a  comprehensive  medium-term  reform 
programme – the so-called Five-Year Reform and Growth Matrix6 – that Jordan devised with 
the  assistance  of  the  World  Bank  and  presented  at  the  “London  Initiative”  conference  on 
28 February 2019.  

Following the completion of the second programme review, a total of USD 310 million (out 
of  USD  723  million)  had  been  disbursed  from  the  IMF  programme.  At  the  same  time,  the 
IMF  Board  decided  to  extend  the  time-span  of  the  programme  until  March  2020.  In  this 
context,  the  third  programme  review  is  expected  to  take  place  in  September  2019  and  the 
fourth  and  last  programme  review  in  March  2020.  The  focus  of  the  remainder  of  the  EFF 

6 

 
 
 
 
programme will be on actions that enhance the  financial sustainability of the electricity and 
water utilities in Jordan. Other benchmarks include strengthening the PPP framework and the 
monitoring  of  contingent  liabilities,  transferring  the  supervision  of  insurance  market  to  the 
Central  Bank of Jordan  and studying different  options for a temporary lowering of the pay-
roll tax for women and the youth.   

The Jordanian government has already started preliminary discussions with the IMF staff for a 
follow-up programme beyond March 2020.  

Since  the  onset  of  the  Syrian  conflict  in  2011,  the  USD  2.8  billion  extended  by  the  IMF 
(through  a  Stand-By  Arrangement  and  an  Extended  Fund  Facility)  for  Jordan  has  been 
complemented by substantial support from Jordan’s bilateral partners, including the EU. The 
World Bank has extended loans of USD 3.1 billion under different instruments while the EU 
has  extended  around  EUR  2.1  billion  for  the  same  period.  Other  international  financial 
institutions  such  as  the  EBRD  and  the  EIB  and  bilateral  donors  such  as  France,  Germany, 
Italy, the US, Japan and the countries of the Gulf Cooperation Council have also significantly 
scaled  up  their  activity  to  support  the  country  to  cover  its  financing  needs  and  increase  its 
resilience. 

The High-level mission to Jordan led by EU Commissioner Hahn in June 2019 and composed 
of eight International and European financial institutions and partners was an important sign 
of  coordinated  international  support  to  Jordan  in  facing  its  economic  challenges  and  in 
implementing its socio-economic reforms. The proposed macro-financial assistance will build 
on  these  efforts  to  align  international  support  in  order  to  help  Jordan  stimulate  inclusive 
growth,  jobs  creation  and  macro-economic  stability  and  contribute  to  ensure  that  reform 
momentum is maintained. 

1.4. 

External financing needs  

Jordan continues to face considerable external vulnerabilities. While the country’s monetary 
policy  followed  closely  the  movements  in  US  interest  rates,  it  did  not  prevent  a  decline  of 
almost USD 1 billion of gross international reserves in 2018. Part of the shortfall was covered 
in early 2019 (partly due to USD deposits by Saudi Arabia, Kuwait and the UAE). However, 
the  process  of  replenishment  of  reserves  has  been  slower  than  initially  programmed  by  the 
IMF.1 As a result, as of April 2019 foreign exchange reserves remain well below the IMF’s 
reserve adequacy metric.2 Thus, further reserve build-up is needed to reduce external liquidity 
risks,  in  particular  in  light  of  the  repayment  obligation  of  USD  3.1  billion  of  external  debt 
(principal and interest) falling due in 2020-21.  

According to the estimate of Jordan’s financing needs by the IMF in May 2019, Jordan faces 
an  external  financing  gap  of  USD  6.4  billion,  or  EUR  5.6  billion,3  in  2020-2021  (see 
Table 2). A considerable portion (USD 2.4 billion) of the country’s external financing needs 
relates to the accumulation of international reserves programmed to reach 113% of the reserve 
adequacy  metric  of  the  IMF.  The  remainder  (USD  4  billion)  corresponds  to  the  balance  of 
payments deficit.  

1   A waiver of non-observance of performance criterion on the Net International Reserves of the Central Bank 

of Jordan (CBJ) was provided during the second IMF programme review in May 2019. 

2   This  metric  is  composed  of  three  indicators  that  measure  reserves  in  relation  to  months  of  future  imports, 
broad money and short-term external debt repayments. As a rule of thumb, reserves within 100-150% of the 
metric are considered adequate. Jordan’s reserves stand at 97%. 

3   All conversions in this document are based on a EUR/USD exchange rate of 1.13. 

7 

 
 
 
 
                                                           
Part  of  the  external  financing  gap  should  be  financed  by  the  IMF  and  the  World  Bank 
arrangements, with net disbursements of USD 554 million. Taking the IMF and World Bank 
net disbursements into account, Jordan’s residual external financing needs will still amount to 
USD 5.8 billion (approximately EUR 5.1 billion) in 2020-2021, of which USD 2.8 billion in 
2020  and  USD  3.0  billion  in  2021.  The  proposed  EUR  500  million  MFA  from  the  EU 
would thus cover 9,7% of the residual external financing gap for the period 2020-2021. 
Compared with the IMF estimates of May 2019, the EU’s increased MFA contribution would 
enable Jordan to reduce its Eurobond issuance in 2020 from USD 1.25 billion (as assumed in 
the IMF Country Report accompanying the May 2019 programme review) to around USD 1 
billion, thus  helping to  contain interest  costs and contributing to  debt  sustainability. Despite 
significant contributions also from other bilateral and multilateral donors aside from the IMF, 
the World Bank and the EU, an amount of USD 1.7 billion has yet to be identified for 2021.   

(1) Amounts in EUR have been converted on the basis of a EUR/USD exchange rate of 1.13. 
(2) For the period 2019-2021 excludes official grants in the form of policy-based budgetary support. 
(3) For the period 2019-2021 excludes official loans in the form of policy-based budgetary support. 
(4) Part of the Eurobond that comes due in 2020 (USD 1,250 million) is expected to be covered by MFA funds. 

8 

1. Current account balance (1)-2.973-4.007-3.668-3.895-7.5632. Capital and financial account (2)2.0401.5691.3772.2223.5993. Overall balance (1+2)-933-2.438-2.291-1.673-3.9644. Reserves (“-” indicates increase)954-1.863-1.046-1.398-2.4445. Overall External Financing Gap (3+4)20-4.301-3.337-3.071-6.4086. Exceptional Financing by IMF and WB-201.450572-18554    Net IMF Disbursements-493-8141-1823              Disbursements3362410241              Repayments-417-200-18-218    Disbursements of World Bank’s DPL4731.53153105317. Residual Financing Gap (5+6)0-2.851-2.765-3.089-5.854Financing of the gap EU MFA-II loan115000 EU MFA-III loan 0339226565 EU budget support grants94302151 UK grants1101100110 Netherlands grants57000 USA grants750475475950 Saudi Arabia grants505050100 United Arab Emirates grants505050100 Other grants677686162 France loan118119119238 Germany loan1855858116 Italy loan5454054 Japan loan200100100200 Kuwait loan100100100200 Saudi Arabia loan2525025 UAE loan2525025 Arab Monetary Fund loan100100100200 Islamic Development Bank loan2627027 Other loans (off-budget)0 Eurobonds (3)7251.02501.025Total identified sources2.8512.7631.3853.123Other unidentified financing sources021.7041.706Total MFA-III as % of the residual gap for 2020-20219,7%Table 2: Jordan’s External Financing Gap and Potential Financing Sources(USD million)2018201920202021Total 2020-2021 
 
 
 
 
 
1.5. 

Structural reforms 

Reform achievements in 2016-2018, with uneven progress across sectors 

Within a challenging external environment Jordan continued efforts for the implementation of 
its  reform  agenda  in  order  to  reduce  macro-economic  imbalances  and  to  generate 
employment.  These  efforts  were  supported  by  large-scale  financial  and  technical  assistance 
provided by multilateral and bilateral partners, including the IMF, the World Bank and the EU 
(MFA-II). However, Jordan’s efforts delivered only uneven success as the reform process was 
challenged by regional instability, the low growth environment  and rising unemployment as 
well as by domestic political and social tensions and vested interests which continued to exert 
influence on policy-making in the country.  

Despite  these  domestic  challenges  and  the  difficult  economic  and  external  situation,  Jordan 
managed to  push  through reforms  in  a variety of sectors, many of which supported through 
conditionality under MFA II.  

In the area of public finance management, the authorities – in line with MFA conditionality 
– adopted and published, in June 2017, an updated Medium-Term Public Debt Strategy with a 
view to enhancing debt management, improving market access conditions and increasing the 
average maturity of public debt. The strategy applies to central government debt, as well as to 
the publicly guaranteed debt of independent public institutions. By increasing the volume and 
maturity external borrowing, this strategy helped to prevent an increase in interest payments, 
which decreased marginally to 3.34% of GDP at end-2018 from 3.39% at end-2015, despite 
an environment of rising global interest rates in much of this period, especially for emerging 
markets.  

Also, the authorities strengthened the external audit function by adopting a new Audit Bureau 
Law,  in  September  2018,  which  enhanced  the  autonomy  of  the  Jordan’s  Supreme  Audit 
Institution  with  regard to  the formulation of its  budget.  Formal  acceptance of the  INTOSAI 
rules as the working standard for the Audit Bureau was also reflected, for the first time, in the 
new  legislation.  Furthermore,  the  Audit  Bureau  withdrew  from  contacting  pre-audits  in  the 
Internal Control Units of the Ministry of Finance strengthening their capacity and increasing 
transparency.  Moreover,  the  government  strengthened  the  public  procurement  function  by 
adopting  a  new  by-law  in  May  2019  which  is  consistent  with  internationally  good  practice 
and is expected to generate considerable fiscal savings for the state.  

When  it  comes  to  tax  policy,  the  government  that  took  office  in  June  2018  adopted  a  new 
Income Tax Law in December 2018 following long-standing preparations and consultations, 
amid  popular  discontent.  The  law  broadened  the  tax  base  by  lowering  the  exemption 
thresholds  for  individuals  and  households  (a  joint  condition  with  the  IMF  programme), 
increases  taxes  on  certain  corporate  sectors  and  sets  the  basis  for  a  greater  focus  on  tax 
evasion and tax law enforcement. However, the broadening of the tax base, especially when it 
comes to the personal income taxation (PIT), was less ambitious than initially proposed due to 
the  high  political  cost  it  carried.  Thus,  the  fiscal  performance  of  the  PIT-related  changes  is 
expected to yield around 0.2% of GDP in additional revenues annually over the medium term, 
whereas the rest of the interventions in other areas of the law (corporate tax, reduction of tax 
exemptions, improvements in tax compliance) are expected to yield around 0.6% of GDP in 
the  medium  term.  Overall,  the  new  law  was  a  measure  in  the  right  direction  and  paved  the 
way to the completion of the second review of the IMF programme by the Executive Board 
on 6 May 2019.  

In addition, in 2017 and 2018, the Jordanian government enacted a set of measures to increase 
the general  sales tax rate on more than 160 items.  In this context,  the general  sales tax was 
increased to 10% for commodities that were previously subject to rates of 0%-4%. Also, the 

9 

 
 
 
 
authorities decided to lift food subsidies on bread, to introduce a levy of JOD 500-JOD 1,500 
(about EUR 630-EUR 1,900) on imported cars and to raise a special tax on carbonated drinks 
from 10% to 20%. Finally, an increase in excise tax on Octane 95 and 98 gasoline to 30% was 
enacted,  as  well  as  an  increase  in  tax  on  cigarettes  to  reach  JOD  0.20  per  pack.  The  above 
measures were a good step towards the rationalisation of the tax exemptions framework in the 
indirect  taxation  (general  sales  tax  and  custom  duties).  Nevertheless,  their  revenue 
performance was lower than expected due to the slowdown of the economy.  

With  regard  to  social  protection,  the  authorities  made  substantial  progress  towards 
establishing  an  operational  National  Unified  Registry  (NUR),  an  automated  data  exchange 
system which will improve the targeting of social transfers to help protect vulnerable groups 
more  effectively.  They  also  envisage  the  gradual  extension  of  cash  transfers  to  more 
recipients. Moreover, they prepared new studies to estimate poverty lines over updated data – 
for  the  first  time  since  2010  –  to  determine  their  approach  on  poverty  reduction.  They  also 
took multiple measures including lifting restrictions and providing vocational training with a 
view  to  generate  employment  for  Syrian  refugees.  In  addition,  the  government  amended  its 
labour regulations to allow part-time employment as well as to allow hiring of non-Jordanians 
in  highly  specialised  occupations  and  positions,  especially  in  technical  sectors  such  as 
communications, energy, engineering, and professional services.   

Some important reforms for enhancing growth performance were completed in 2018: 

  Four  by-laws  for  businesses’  monitoring  and  inspection  were  enacted  following  the 
adoption of the relevant  law in 2017, leading to around 94,000 labour inspections in 
2018. The streamlining of inspection regulations is expected to reduce duplication of 
inspections by different government departments as well as to enhance monitoring of 
business activities in an effort to reduce informal employment.  

  The law on secured lending was adopted in May 2018 with relevant by-laws following 
in  November  2018.  Along  with  the  completion  of  an  online  Movable  Collateral 
Registry, this reform is expected to increase lending to SMEs by 7% annually.  

  The insolvency  law, which was enacted in  May  2018, enables the re-organisation of 
businesses  (under  certain  deals  reached  with  creditors)  and  regulates  the  insolvency 
proceedings of foreign companies in Jordan according to international conventions. 
  The  abolition  of  pre-registration  approvals  issued  by  the  Ministry  of  Interior  for 
business activities that have low or no impact on public safety and security was also 
adopted  in  2018,  while  a  “Regulatory  Predictability  Framework”  was  developed  to 
improve  the  process  of  issuing  regulations  that  affect  businesses,  including 
instructions and decisions.  
  Finally,  new  governance 

Investment 
Management,  Public-Private  Partnership  and  Venture  Capital  financing,  including 
specific tax treatment for the Venture Capital funds in Jordan.  

frameworks  were  adopted 

for  Public 

  Acknowledging  the  importance  of  financial  inclusion  to  growth,  the  government 
developed  the  National  Financial  Inclusion  Strategy  (2018–20)  to  ensure  that  all 
segments  of  society,  including  individuals  and  organisations,  can  access  financial 
services through banks and other financial institutions. 

Main government reform priorities for the future 

Acknowledging the need for more and deeper structural reforms, the government launched in 
November 2018 a two-year work plan under the name Path to Revival for 2019–20 (widely 
known as the Renaissance plan), which is centred on three main pillars: 1) strengthening the 
rule of law, 2) increasing productivity and 3) enhancing solidarity. Actions in the context of 
the  first  pillar  aim  at  improving  relevant  legislation,  developing  political  life,  protecting 
public freedoms, combating corruption, enhancing integrity and transparency and advancing 

10 

 
 
 
 
decentralisation as well as citizens’ participation in their communities. Actions in the context 
of  the  second  pillar  aim  at  creating  30,000  additional  jobs  by  2020  (mostly  through  the 
manufacturing  sector,  the  garment  and  textile  industries,  the  tourism  and  hospitality  sector) 
increasing exports by 5% annually, reducing the cost of energy imports by 15% by end-2020, 
increase  FDI  flow  by  10%  by  end-2020  and  at  bolstering  the  performance  of  public 
administration.  The  third  pillar  will  have  a  focus  on  increasing  social  protection  and 
improving  the  level  of  public  services,  such  as  health,  education,  water,  environment  and 
transport.  

With  a  view  to  tackling  economic  challenges  more  effectively,  Jordan  has  embarked  on  a 
more  ambitious,  comprehensive  and  wide-ranging  reform  programme  which  was 
prepared in collaboration with the World Bank and presented during the “London Initiative” 
conference in February 2019. This reform programme – the so-called Five-Year Reform and 
Growth  Matrix  –  aims  to  preserve  macro-economic  stability,  to  increase  Jordan’s  growth 
prospects,  to  make  the  economy  more  competitive  and  export-led  and  to  attract  new 
investment.  Many  of  the  actions  in  the  Five-Year  Reform  and  Growth  Matrix  cover  targets 
envisaged  by  the  Renaissance  plan.  The  government  has  identified  a  set  of  cross-cutting 
(horizontal) reforms and sectoral (vertical) reforms over the following Pillars:  

Horizontal Reform Pillars:  

1.  Pursue  macro-economic  adjustment,  narrow  imbalances,  manage  risks,  and  improve 

public sector efficiency 

2.  Reduce business costs, improve regulatory quality, and increase competition 
3.  Drive FDI and promote export development of products, services, and markets 
4.  Deepen access to finance from banks and non-bank financial institutions 
5.  Create more flexible labor markets for job creation 
6.  Expand and emprove social safety nets to better protect the poor and vulnerable. 

Vertical Reform Pillars  

7.  Improve public transport efficiency and access 
8.  Increase energy efficiency and access 
9.  Promote water security and agribusiness 

Some of the envisaged reforms are relevant to improve Jordan’s fiscal performance, such 
as the enhancement of the financial sustainability of the electricity and water companies, the 
implementation  of  a  new  public  procurement  system  for  the  public  sector,  the  increase  of 
revenue mobilisation by combating tax evasion and enhancing tax administration capacity, the 
review of the frameworks for Public Investment Management and Public Private Partnerships, 
and the improvement of the framework for assessing contingent liabilities.  

Other  reforms  of  a  more  structural  nature  will  be  essential  for  Jordan  in  order  to  achieve 
higher and more inclusive growth  and to  reduce unemployment  especially among women 
and  youth.  In  this  regard,  reducing  business  cost,  raising  domestic  firm-level  productivity, 
streamlining  licencing  and  inspection  requirements,  reducing  the  regulatory  compliance 
burden,  possibly  open  new  sectors  to  investments  would  help  local  firms  to  integrate  into 
global value chains and therefore could raise FDI and export potential.  

Labour market reforms, in the direction of reducing labour market fragmentation, increase 
flexibility, reducing skills mismatch through vocational training, improve working conditions, 
enhancing  the  supervisory  and  inspection  role  of  the  Ministry  of  Labour  and  providing 
incentives  for  employment  of  women  and  youth  will  be  important  to  bring  unemployment 
down.  

Given the challenging economic context and the rise of unemployment, the social protection 
system in Jordan needs to be supported in order to be more effective. Actions to improve the 

11 

 
 
 
 
identification of more vulnerable citizens should continue. The cash transfers scheme should 
be better targeted and more effectively combined with the provision of social services. There 
is also a scope to increase its coverage in the next years as its targeting improves.   

While  the  government  plans  go  in  the  right  direction,  implementation  of  the  reforms  is 
likely  to  be  challenging  for  the  authorities.  Given  the  scale  and  scope  of  the  reform  plan, 
close  engagement  and  coordination  with  various  government  constituents  (Prime  Minister, 
the Minister of Planning and International Cooperation, the Secretaries General of the key line 
ministries,  and  other  key  determinants  of  ownership  of  the  programme)  will  be  critical  for 
success.  Targeted  policy  conditionality  linked  to  international  support  programmes, 
such  as  the  proposed  EU  MFA,  can  play  an  important  role  in  strengthening  domestic 
reform  implementation.  Close  coordination  with  and  between  development  partners  on 
reform  priorities and disbursement conditionalities is  essential in  this  context.  A new multi-
donor trust fund with seed funding of about USD 18.5 million over five years from the United 
Kingdom,  as  well  as  foreseen  contributions  from  other  donors  including  the  EU,  will  help 
supporting  this  coordination,  including  through  a  dedicated  Secretariat  in  the  Ministry  of 
Planning and International Cooperation. Last but not least, communication by the authorities 
with  the  general  public  will  be  essential  to  ensure  popular  buy-in  to  the  reform  programme 
and overcome vested interests. 

2. 

OBJECTIVES AND RELATED INDICATORS OF THE MACRO-FINANCIAL ASSISTANCE 

2.1. 

Objectives 

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  lower-than-expected  growth  and 
private  capital  flows,  significant  external  debt  amortisation,  additional  fiscal  cost  of 
hosting the Syrian refugees and the need to build up foreign exchange reserves; 

(ii)  alleviating Jordan’s budgetary financing need; 

(iii) support the fiscal consolidation and external stabilisation efforts in the context of the 

IMF programme; 

(iv)  support  structural  reform  efforts  aimed  at  improving  the  overall  macro-economic 
management,  strengthening  economic  governance  and  transparency,  improving 
conditions  for  sustainable  growth,  reducing  unemployment  and  enhancing  debt 
sustainability; 

(v)  facilitate  and  encourage  efforts  of  the  authorities  of  Jordan  to  implement  measures 
identified under the EU-Jordan Association Agreement and the Partnership Priorities 
in 
the  bilateral  cooperation  programmes,  support  regulatory 
convergence and economic integration with the EU and strengthen the EU’s economic 
policy dialogue with the authorities. 

the  context  of 

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:  

  Progress with macro-economic and financial stabilisation, notably by assessing the degree 

of adherence to the IMF-supported programme.  

12 

 
 
 
 
  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  proposed  new  MFA  would  amount  to  EUR 500  million  disbursed  in  three  instalments. 
The Commission proposes to disburse the full amount in the form of medium- to long-term 
loans. As usual, these loans will have favourable conditions in terms of long maturities (of up 
to 15 years on average) and a low interest rate (the rate at which the EU, benefiting from its 
high  credit  rating,  borrows  the  funds  in  the  international  capital  markets).  This  form  of 
financial support is similar to the one provided under the previous two MFA programmes that 
were  implemented  in  2015-2019.  It  is  consistent  with  the  treatment  granted  by  the  World 
Bank and the IMF to Jordan.  

MFA provides untied and undesignated macro-economic support, which helps the beneficiary 
country  to  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.  

First,  there  is  a  risk  that  the  MFA  could  be  used  in  a  fraudulent  way.  As  MFA  is  not 
designated  to  specific  expenses  by  Jordan  (contrary  to  project  financing,  for  example),  this 
risk  is  related  to  factors  such  as  the  general  quality  of  management  systems  in  the  Central 
Bank of Jordan and the Ministry of Finance, administrative procedures, control and oversight 
functions,  the  security  of  IT  systems  and  the  appropriateness  of  internal  and  external  audit 
capabilities. 

To mitigate the risks of fraudulent use several measures will be taken. The Loan Agreement 
will  comprise  a  set  of  provisions  on  inspection,  fraud  prevention,  audits,  and  recovery  of 
funds in case of fraud or corruption. It is further envisaged that a number of specific policy 
conditions  will  be  attached  to  the  assistance,  including  in  the  area  of  public  finance 
management, with a view to strengthening efficiency, transparency and accountability. Also, 
the assistance will be paid to a specific account of the Central Bank of Jordan.  

Moreover, in line with the requirements of the Financial Regulation, the Commission services 
will carry out an Operational Assessment of the financial and administrative circuits of Jordan 
to  ascertain  that  the  procedures  in  place  for  the  management  of  programme  assistance, 
including MFA, provide adequate guarantees. The assessment will cover areas such as budget 
preparation and execution, public internal financial control, internal and external audit, public 
procurement,  cash  and  public  debt  management,  as  well  as  the  independence  of  the  central 
bank.  The  preliminary  findings  of  the  consultancy  company  to  be  engaged  with  this 
Operational Assessment are to be received in the first quarter of 2020. Developments in that 
area will be further closely monitored by the EU Delegation in Amman. The Commission is 
also  using  budget  support  assistance  to  help  the  Jordan  authorities  improve  their  PFM 
systems, and these efforts are strongly supported by other donors. 

13 

 
 
 
 
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. 

Second, a 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 for example by a significant additional deterioration of the balance of payments and 
fiscal position of the country. A potential trigger for this risk could be the deterioration of the 
regional  geopolitical  situation,  in  particular  the  protracted  conflict  in  Syria,  which  obstructs 
regional trade flows and acts as an important deterrent to private capital inflows. A worsening 
of  the  regional  geopolitical  situation  could  have  a  negative  impact  on  Jordan’s  macro-
economic  stability,  affecting  the  performance  of  the  IMF  programme  and  the  disbursement 
and/or repayment of the proposed MFA.  

This  risk  is  mitigated,  however,  by  the  fact  that  the  EU’s  MFA  is  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 
Memorandum of Understanding between the EU and the Jordanian authorities. Moreover, the 
risks for the EU budget are cushioned by the EU’s Guarantee Fund for external actions. 

Finally, there is a risk of weak reform implementation. This might be due to possible social 
unrest  in  the  face  of  a  difficult  economic  environment,  high  unemployment  and  the 
continuation of fiscal consolidation and the related rise in taxes or adjustment in utility tariffs. 
Specific  professional  groups  or  other  vested  interests  may  attempt  to  obstruct  or  weaken 
reform decisions resulting in insufficient reform implementation. 

However,  despite  the  difficult  regional  economic  and  social  environment,  the  Jordanian 
authorities  have  requested  further  MFA,  knowing  that  disbursements  will  be  conditional  on 
the  implementation  of  reforms  to  be  agreed.  This  conditionality  provides  a  tool  to  support 
reform-oriented forces in the country. Also, the MFA will be part of large-scale support from 
the international community which will facilitate a better and more coordinated overview of 
the  government’s  performance  over  implementation  of  the  reforms.  Moreover,  politically 
Jordan remains highly committed to the Association Agreement and the Partnership Priorities 
with the EU, which foresee close cooperation under three pillars: a) strengthening cooperation 
on  regional  stability  and  security  including  counter-terrorism;  b)  promoting  economic 
stability, sustainable and knowledge-based growth, quality education and job creation; and c) 
strengthening democratic governance, the rule of law and human rights. 

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  Jordanian  authorities  during  the 
implementation of the MFA in order to address quickly any concerns that may arise. 

4. 

ADDED VALUE OF EU INVOLVEMENT 

The proposed MFA to Jordan reflects the country’s strategic importance to the EU and is in 
line with the objectives of the European Neighbourhood Policy (ENP). The MFA instrument 
is a policy-based instrument that aims to alleviate short- and medium-term external financial 
needs. As a part of the overall EU package of assistance, it would contribute to supporting the 
Union’s objectives of economic stability, economic development and resilience in Jordan and, 
more broadly, in the South European neighbourhood. 

The MFA programme will highlight the EU's solidarity with and confidence in Jordan, as well 
as  Jordan's  geo-political  importance  for  the  EU  in  the  context  of  the  Syrian  crisis.  This  is 

14 

 
 
 
 
consistent  with  EU’s  commitments  towards  Jordan  as  expressed  on  several  occasions  in 
recent  years  including  in  the  London  Initiative  conference  in  February  2019  and  in  the 
Brussels III conference in March 2019.  

By supporting the Jordan authorities’ efforts to establish a stable macroeconomic framework 
and implement ambitious structural reforms, the proposed MFA operation enhances the added 
value of the overall EU involvement in Jordan and improves the effectiveness of other forms 
of  EU  financial  assistance  to  the  country,  including  budget  support  operations  and  grants 
available  through  external  financial  instruments  under  the  current  multiannual  financial 
framework for 2014-2020.  

In addition to the financial impact of the MFA, the proposed programme will strengthen the 
government’s  reform  commitment  and  further  foster  its  aspiration  towards  closer  relations 
with the EU, as reflected by the Association Agreement that entered into force in May 2002 
and the Partnership Priorities with the EU that have been in force since 2016. 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  embarking  on  a  clear  path  towards  economic 
reforms. 

The proposed MFA is also an integral part of overall international support for Jordan and will 
continue  to  complement  and  add  value  to  the  assistance  provided  by  other  multilateral  and 
bilateral  donors.  By  complementing  the  resources  made  available  by  the  IFIs  and  other 
donors,  EU  MFA  contributes  to  the  overall  effectiveness  of  the  financial  support  agreed  by 
the international donor community. Furthermore, by providing long-term financing on highly 
concessional  terms,  usually  lower  than  the  other  multilateral  or  bilateral  donors,  the  MFA 
programme  will  contribute  to  enhancing  Jordan’s  debt  sustainability,  while  helping  the 
country  to  preserve  necessary  social  spending  amid  the  persistent  economic  and  social 
pressures  arising  from  the  challenging  regional  context.  MFA  conditions  will  also  help 
fostering a sustainable balance of payments and budgetary position, raising potential growth, 
promoting  integration  and  regulatory  convergence  with  the  EU  and  strengthening  public 
finance management. 

5. 

CHARACTERISTICS OF MACRO-FINANCIAL ASSISTANCE 

5.1. 

Exceptional Character and Limited Timeframe  

The  proposed  MFA  operation  would  be  exceptional,  aiming  to  support  the  restoration  of  a 
sustainable  external  finance  situation  of  Jordan.  It  would  have  an  availability  period  of  2.5 
years from the entry into force of a Memorandum of Understanding, as part of conditionality 
requirements  described  below.  The  operation  is  expected  to  run  along  with  continued  IMF 
programme  engagement  with  Jordan.  While  the  current  IMF  programme  is  set  to  expire  in 
March  2020,  the  Jordanian  authorities  and  IMF  staff  have  started  discussions  in  order  to 
engage  in  a  follow-up  programme  from  March  2020  onwards.  Against  this  background  and 
given the time required for the legislative process in the European Parliament and the Council, 
the  EU’s  assistance  is  expected  to  be  implemented  in  2020  and  2021.  Subject  to  the 
implementation of the policy measures to be agreed, the disbursement of the first instalment 
could  take  place  in  the  second  quarter  of  2020,  the  disbursement  of  the  second  instalment 
could take place in the fourth quarter of 2020, while the disbursement of the third instalment 
could be made available in the spring of 2021.  

15 

 
 
 
 
5.2. 

Political preconditions and EU-Jordanian relations  

MFA is available to third countries that are politically, economically and geographically close 
to  the  EU.  Countries  that  are  covered  by  the  ENP,  like  Jordan,  are  in  principle  eligible  for 
MFA. In order to receive MFA, the beneficiary country needs to respect effective democratic 
mechanisms (including a multi-party parliamentary system) and the rule of law and guarantee 
the respect for human rights.  

Political preconditions: The political preconditions for receiving MFA may be considered to 
be  fulfilled  in  the  case  of  Jordan.  Jordan  has  continued  its  political  reform  efforts  to 
strengthen  parliamentary  democracy  and  the  rule  of  law.  The  country  maintained  its 
commitment  to  improve  the  general  human  rights  situation,  and  recorded  legislative 
improvements notably as regards the independence of the judiciary and women’s rights. It has 
to  be noted that social  cohesion  was threatened  by regional instability, high unemployment, 
terrorist incidents and emerging risks of radicalisation. In this context, the increased need for 
security and political stability was not conducive to further democratisation, strengthening of 
human rights and expanding fundamental freedoms. Therefore, challenges remain, especially 
in  the  areas  of  gender-based  violence  and  gender  equality,  fundamental  freedoms,  death 
penalty,  torture  and  child  protection  as  well  as  in  freedom  of  expression  and  association. 
Nevertheless,  overall,  Jordan’s  progress  in  enhancing  its  democratic  governance  and 
strengthening  the  rule  of  law  under  substantial  challenges,  represents  an  important  case  in 
particular when compared with other countries in the region.4 

EU-Jordanian relations: The EU and Jordan enjoy excellent relations and have been linked 
by an Association Agreement since 2002 (advanced status since 2010). In 2016, they signed 
the  Partnership  Priorities  which  were  extended  until  2020  and  enhanced  cooperation  in  the 
following  areas:  a)  strengthening  cooperation  on  regional  stability  and  security  including 
counter-terrorism; b) promoting economic stability, sustainable and knowledge-based growth, 
quality  education  and  job  creation;  and  c)  strengthening  democratic  governance,  the  rule  of 
law and human rights. The EU and Jordan are allies in international politics (e.g. 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.  

Trade relations between the EU and Jordan are governed by the Association Agreement. This 
agreement established a Free Trade Area opening up two-way trade in goods between the EU 
and Jordan. In July 2016, the EU and Jordan agreed to make the rules or origin that Jordanian 
exporters use in their trade with the EU more flexible. Both sides reviewed and improved this 
initiative in  December 2018. The EU is Jordan’s first  trading partner, accounting for 17.1% 
(in value terms) of Jordan’s total trade in 2018. Jordanian goods exports to the EU amounted 
to EUR 300 million in 2018 while goods imports from the EU amounted to EUR 3.6 billion 
(in value terms).  

The EU is also an important source of assistance to the reform process in Jordan. The EU has 
already  disbursed  to  Jordan  EUR  380  million  in  the  context  of  two  MFA  programmes 
implemented over the period 2015-2019. Since the onset of the Syrian conflict  in  2011, the 
EU has extended around EUR 2.1 billion to Jordan under different instruments. In addition, 
the EIB has signed projects of EUR 486 million and the EBRD has signed projects of EUR 
1.3  billion  in  the  same  period  to  support  infrastructure  development  and  private  sector 
activity, among others.  

4   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. 

16 

 
 
 
 
                                                           
5.3. 

Complementarity 

The  proposed  MFA  would  complement  and  add  value  to  the  assistance  to  the  country 
provided by other multilateral donors in the context of the IMF-led economic programme as 
well  by  the  EU  itself,  through  external  financial  instruments  under  the  current  multiannual 
financial framework for 2014-2020.  By supporting the adoption by the Jordanian authorities 
of  an  appropriate  framework  for  macro-economic  policy  and  structural  reforms,  the  EU’s 
MFA  would  enhance  the  added  value  of  the  overall  EU  involvement,  increasing  the 
effectiveness  of  the  EU’s  intervention  including  through  other  financial  instruments.  The 
proposed  MFA  would  also  contribute  to  the  EU’s  leverage  on  policy  making  in  Jordan  by 
helping the country reduce economic vulnerabilities and promote higher  and more inclusive 
economic growth. 

5.4. 

Conditionality 

Disbursements  under  the  proposed  MFA  operation  would  be  conditional  on  successful 
reviews under the IMF programme and on the effective drawing by Jordan on IMF funds, as 
well  as  on  the  fulfilment  of  the  political  preconditions.  In  addition,  the  Commission  –  on 
behalf of the EU – 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  would  support  the  authorities’  reform  agenda  and  complement  the  programmes 
agreed  with  the  IMF,  the  World  Bank  and  other  donors,  as  well  as  those  strategies  and 
reforms  supported  through  the  EU’s  budget  support  operations.  They  would  be  consistent 
with the main economic reform priorities agreed between the EU and Jordan in the context of 
the Association Agreement and the Partnership Priorities. 

Paying  attention  in  particular  to  the  Five-Year  Reform  and  Growth  and  reform  Matrix 
elaborated  by  the  Jordanian  government  with  assistance  from  the  World  Bank  (see  Section 
1.5), possible areas of conditionality could include: economic governance, including PFM and 
tax administration; the utility sector; labour market and business environment reforms; social 
policy and social cohesion. Specific attention will be put on the coordination and alignment of 
those conditions with EU and other financial institutions in order to maximise the leveraging 
effect of EU assistance and the impact of international support to Jordan.  

5.5. 

Financial Discipline 

The  planned  assistance  would  be  provided  in  the  form  of  a  loan  and  should  be  financed 
through  a  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 03 06 (“Provisioning of the Guarantee Fund”). Assuming that the first loan disbursement 
will be made in the second quarter of 2020, the second loan instalment in the fourth quarter of 
2020  and  the  third  loan  instalment  in  the  second  quarter  of  2021  for  a  total  amount  of 
EUR 500  million,  and  according  to  the  rules  governing  the  guarantee  fund  mechanism,  the 
provisioning of the loan will take place in the budgets for 2022 (for EUR 27 million) and 
2023 (EUR 18 million).  

Based on current projections on the utilisation of the budget line 01 03 06, the Commission 
assesses  that  the  budgetary  impact  of  the  proposed  MFA  operation  for  Jordan  can  be 
accommodated. 
In line with the requirements of the Financial Regulation, the European Commission services 
would  carry  out  in  the  first  quarter  of  2020,  as  noted,  an  Operational  Assessment  of  the 
financial and administrative circuits of Jordan. Developments in this area will continue to be 

17 

 
 
 
 
closely monitored also through the regular assessment of PFM reforms by the EU Delegation 
in Amman. 

6. 

EVALUATION AND COST-EFFECTIVENESS 

This  assistance  is  of  exceptional  and  macro-economic  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  MFA  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)  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 IMF and the World Bank, and to influence 
their conditionality as well in ways that will take into account the EU’s views.  

(ii)  Second, providing  a coordinated macro-economic 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) Third,  all  of  the  assistance  would  be  provided  in  the  form  of  loans,  through  which 
scarce budgetary funds are effectively leveraged, thus enhancing the impact of the EU 
budget. 

(iv)  In addition, the Commission will aim to achieve 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).  

18 

 
 
 
 
 
 
 
 
EUROPEAN EXTERNAL ACTION SERVICE 

Brussels, 11 July 2019 
Ares(2019)  

Assessment of Democracy, Human Rights,  
the Rule of Law and Political Reforms in Jordan 

Jordan has continued its political reform efforts to strengthen parliamentary democracy and the rule 
of law. The country maintains its commitment to improve the general human rights situation, and has 
recorded legislative improvements notably as regards the independence of the judiciary and women’s 
rights. A new reform-oriented government under the leadership of Omar al-Razzaz was appointed on 
5 June 2018. 

Political reform continues despite daunting challenges 

Jordan has continued its political and economic reform efforts against the background of persistent 
political, economic and social challenges.  

The instability in the region pressed the authorities to maintain a strong focus on the stability of the 
political system. The deteriorating economic conditions (high youth unemployment, decrease of 
investments and trade resulting from the regional context) pose a threat to social cohesion, risk 
increasing the attractiveness of extremist ideology and terrorist activities, and as such also reinforced 
the authorities’ priority goal to ensure domestic stability. As a result, the country’s efforts to further 
democratise and strengthen the protection of human rights largely continued to take a backseat. The 
challenge remains for Jordan to pursue a significant reform path and enhance an open and inclusive 
society.  

On the human rights front, specifically, Jordan has recorded legislative improvements as regards the 
independence of the judiciary and women’s rights. The 31st session of the UN Universal Period 
Review (UPR) in November was an occasion for Jordan to reiterate its commitment to uphold human 
rights standards, and the EU recognised the progress made and commended the efforts to improve 
the general human rights situation in the country. Nevertheless, challenges remain, especially in the 
areas of gender-based violence and gender equality, fundamental freedoms, death penalty, torture 
and child protection. The erosion of the space for freedom of expression and association, in 
particular, has continued. 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 freedom 
of expression has also been noted in the media.  

19 

 
 
 
 
 
 
 
 
 
 
 
 
 
Despite this challenging context, the goal to gradually reform the system is broadly shared across the 
political spectrum. Significant legislation has been adopted, which needs to be implemented. Since 
taking office in June 2018, Prime Minister Razzaz has relaunched the reform process. 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 to strengthen the legislative and judiciary power branches 
and enhance their independence. On the individual rights front, further steps are necessary to 
ensure access to justice and the right to a fair trial, prohibition of torture and women’s rights. 
Economic and political empowerment of youth and women will be essential to enhance stability and 
democracy in the country. EU financial support is oriented amongst others towards enhancing 
democratic governance in Jordan, through institutional support as well as through support of 
democratic stakeholders. 

Overall, Jordan’s progress in enhancing its democratic governance and strengthening the rule of law 
under substantial challenges, represents an important case, in particular when compared with other 
countries in the region. 

EU-Jordan Relations 

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

The EU and Jordan are allies in international politics (e.g. 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 a tolerant 
society and inter-religious and inter-cultural dialogue (Aqaba Process). Jordan has concluded a peace 
treaty with Israel (1994). Jordan has played an active role on the multilateral and regional front (e.g. 
Union for the Mediterranean co-presidency with the EU since 2012). 

Overall, the excellent EU-Jordan relations have been symbolised by a number of highest-level 
meetings during the past year. The King visited Brussels in December 2018, and met with the HRVP 
and the Commission and Council Presidents. Numerous EU high-level visits to Jordan recently took 
place (HRVP, Commissioner for European Neighbourhood Policy and Enlargement Negotiations, 
Commissioner for Humanitarian Aid and Crisis Management and the EUMC Chair). Furthermore, the 
King met the HRVP on a side meeting of the Arab League summit in April 2019, and the President of 
the Commission in the margins of the Christchurch Call to Action Summit in Paris in May 2019. The 
EU-Jordan Association Council held in Luxembourg on 17 June 2019 further confirmed the strong and 
solid partnership between the EU and Jordan. 

The high intensity of contacts reflects both: 

(i) 

(ii) 

The  mutual  commitment  to  further  strengthen  the  EU-Jordan  partnership,  going  beyond 
the humanitarian and development domain (e.g. security, mobility, trade);  
The  high expectations from Jordan’s side that the EU will continue  to sustain its financial 
support to Jordan, notably in view of the impact of the refugee crisis. Following a request 
from  Jordan,  further  flexibilities  to  the  relaxation  of  the  Rules  of  Origin  scheme  were 
approved at the 4 December 2018 meeting of the Association Committee. 

20 

 
 
 
 
 
 
 
 
 
 
 
The EU and Jordan have extended until the end of 2020 their Partnership Priorities, which cover 
political dialogue and assistance across a range of areas: security including counter-terrorism; trade; 
bilateral assistance in support of economic stability and development, job creation, quality 
education; democratisation, the rule of law and human rights.  

An EU Electoral follow-up Mission (EfM) visited Jordan in September 2018 to assess the 
implementation of the recommendations of the EU Election Observation Mission (EOM) fielded on 
the occasion of the 2016 parliamentary elections, and the opportunities and challenges facing Jordan 
in improving the rule of law and elections procedures. The EfM noted some progress in 
implementation of the EOM recommendations and encouraged Jordan to take further steps in this 
regard. 

In sum, while major political, security, economic and social challenges remain, Jordan has made 
progress towards a more effective democratic political system based on the rule of law and respect 
for human rights. The EU is fully committed to supporting Jordan in this challenging transition 
process. In this context, the political preconditions for Macro-Financial Assistance may be considered 
to be satisfied. 

21