Port in Jordan
Port in Jordan. IMF says Jordan is pressured by conflicts in Syria and Iraq. Approves $124.5mn aid.Reuters

Jordan is pressured by the conflicts in Syria and Iraq as well as the disruptions in gas supply from Egypt but the macroeconomic situation remains stable, the International Monetary Fund said on Wednesday.

The fund also approved the release $124.5m aid to the Middle East country as the next tranche of an ongoing program, worth $2bn.

"Jordan faces an increasingly difficult regional environment. The conflicts in Syria and Iraq, as well as the disruptions in gas supply from Egypt, are putting pressure on the economy, in particular on the fiscal and external accounts," the 12 November press release said.

"Nonetheless, the macroeconomic situation has remained largely stable, with growth gradually recovering, inflation contained, the current account deficit narrowing, and international reserves at a comfortable level."

Jordan's performance under the IMF-supported aid program continues to be broadly on track, the fund said.

"The authorities remain committed to fiscal consolidation. Fiscal measures for 2015, including contingencies, provide assurances that public debt will move onto a downward path, starting in 2016," IMF said.

Energy Crisis

The disruptions to the gas supply has badly affected the electricity company of the country, IMF said, and added that even if the plans of gas imports from the Mediterranean works out, supply will not meet demand.

"The losses of the electricity company have been higher than expected due to shortfalls in gas supply, with the additional costs being financed by grants," IMF said.

For Jordan, steadfast implementation of the energy strategy will be important to ensure cost recovery of the company in the medium term.

"While longer-term prospects are now better because of the possibility of gas imports from the Mediterranean, additional measures may be needed should gas supply fall short of the expectation.

Reserves, Reforms

IMF said the Jordan central bank's focus is appropriately placed on maintaining comfortable foreign exchange reserves and more effective banking supervision.

"The central bank is appropriately focused on maintaining comfortable international reserves buffers. Efforts will also continue to further strengthen banking supervision and contain macro-financial risks," the fund said.

IMF said Jordan has made progress in implementing structural reforms but more are required to improve the labour market and business climate.

"Progress has been made in implementing structural reforms. However, stronger and deeper reforms are needed to address the structurally-high unemployment and boost growth."

"Priority should be given to labor market reform, further improving the business climate, and upgrading public financial management and tax administration."