The International Monetary Fund (IMF) Programs and the Jordanian Economy

Abstract

DOI: 10.7176/EJBM/11-3-23

Introduction

The economic crisis experienced by the Kingdom during the 1980s influenced the performance of several key economic indicators; real GDP fell by (11%) and inflation rose by (25%) in 1989, as a result of the balance of payments crisis that led to the collapse of the Jordanian dinar exchange rate. This crisis dates back to the early 1980s; the Kingdom followed several economic development plans and relied on financing for external loans and grants. With grants and foreign aid reduced in the mid-1980s, the government continued to work on structuring its expenditures and relied on foreign loans to finance the deficit recorded in the general budget. In 1987 and 1988, the government largely turned to internal borrowing to fill the budget deficit, in light of the Kingdom's inability to obtain the necessary external financing, which led to the depletion of the Central Bank's reserves of foreign currencies and the collapse of the exchange rate. In the light of these variables; Jordan has adopted several economic reform plans in cooperation with the IMF and the World Bank to restore macroeconomic stability by minimizing internal and external imbalances such as rising public budget deficits, debt ratios, current account balance of payments and restoring confidence in the Jordanian dinar.

Despite many external shocks to the Kingdom during the period (1989-2004), it succeeded in achieving some of the main objectives within these programs despite the slow momentum of economic reform, especially in the area of public finance. The period following the Kingdom's exit from IMF programs has seen a marked improvement in many macroeconomic indicators; the real GDP of the Kingdom grew by an average of 9.7% during the period (2005-2008) driven by increased global demand for Jordanian goods and services, and restore confidence in the Jordanian dinar after a peg to the US dollar in the mid-nineties. However, unfavorable regional and global economic conditions adversely affected the Kingdom's economic performance, especially after the impact of the Kingdom on the global financial crisis in 2009 and the subsequent events of the "Arab Spring", which affected the political and economic stability of many countries in the region, which affected the ways of land trade linking the Kingdom with the countries of the region, in addition to cutting off the Kingdom's supply of Egyptian gas after the revolution of January 25, 2011. Faced with these challenges, the Kingdom has adopted a national reform plan, in cooperation with the International Monetary Fund, in 2012 to address the imbalances that resulted from local and regional political and economic conditions. These goals were aimed at reversing the budget deficit and the current account to sustainable levels, reducing the volume of public debt and achieving total and sustainable macroeconomic stability[1].

[1] Mashaal, Z. (2019) Jordanian Journal of Economic Sciences, Volume 6, Issue 1, 2019, The Impact of the IMF Macroeconomic Stabilization and Reform Programs: Evidence from Jordan, p.1, Amman, Jordan