Jordan : Fifth Review Under the Stand-By Arrangement, Request for Waivers of Nonobservance of Performance Criterion and Applicability of Performance Criterion, Modification of Performance Criterion, and Rephasing of Access-Staff Report; Press Release; and Statement by the Executive Director for Jordan

EXECUTIVE SUMMARY Jordan’s economy has been resilient in an increasingly difficult regional environment. Previously highlighted risks have materialized, most notably major disruptions of gas flows from Egypt, and new ones have emerged, particularly from the conflict in Iraq. The macroeconomic situation, however, has remained largely stable, with a narrowing current account and international reserves remaining at a comfortable level. Program performance in 2014 is broadly on track. The end-September performance criterion (PC) on the central government primary deficit is estimated to have been met, but the PC on the combined public sector deficit is likely to have been missed owing to a shortfall in gas flows from Egypt. International reserves continued to over-perform through September. All PCs for the remainder of the year are expected to be met with the exception of a higher combined deficit from the gas shortfalls (0.7 percent of GDP compared with the program), which is financed by grants. Further fiscal consolidation will take place in 2015, but stronger tax reform is called for. Continued adjustment will move debt onto the programmed downward trend, while new grants will cover higher electricity company NEPCO losses owing to lower Egyptian gas supply (1.4 percent of GDP higher compared with the program). Most of the central government adjustment is on the expenditure side. Parliament approval of an income tax law is expected by year-end, but further tax reform is paramount. Losses of NEPCO will start declining in 2015, reflecting a tariff increase planned for January and the liquefied natural gas terminal becoming operational in mid-year. Despite some positive steps in structural reforms, more is needed to generate jobs. Progress has been made in facilitating investment, broadening access to finance, and improving transparency. But labor market reform warrants more attention in order to address structurally high unemployment. There is also scope to upgrade public financial management and modernize the tax administration. Vision 2025-a government strategy document under discussion-is an opportunity to focus more on these issues. Mounting risks underscore that continued grants are vital for the coming years. Grants are already helping, but continued support is needed, including for hosting the Syrian refugees. The completion of the fifth review makes available SDR 82.25 million (about $129 million)