Toelichting bij COM(2025)456 - Providing macro-financial assistance to Jordan

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dossier COM(2025)456 - Providing macro-financial assistance to Jordan.
bron COM(2025)456 EN
datum 05-08-2025


1. CONTEXT OF THE PROPOSAL

• Reasons for and objectives of the proposal

The outlook for Jordan’s economy is subject to large downside risks, in the face of continued regional instability and a fragile global outlook. Jordan’s real GDP growth was estimated at 2.5% in 2024 and is projected to remain broadly unchanged in 2025. Inflation remained below 2% by end-2024, supported by lower import prices and continued monetary tightening by the Central Bank in line with the US dollar peg. However, potential spillovers of nearby wars have increased pressures on Jordan’s security situation and economic resilience, further raising downside risks to its outlook. The Middle East has been experiencing increasing instability, due to the war in Gaza, the fragile ceasefire in Lebanon, the fall of the Assad regime in Syria. The escalation of tensions between Israel and Iran in mid-2025 disrupted travel and increased uncertainty, with direct impacts on the tourism sector and likely adverse effects on consumer and investor confidence. While Jordan’s economic backdrop remains broadly stable, heightened volatility and geopolitical unpredictability pose growing challenges for its future economic and social stability.

Moreover, the country faces deep-rooted structural challenges. The unemployment rate remains persistently high at 21.4%, with even higher rates among the youth, while female participation ranks among the lowest in the world. These labour market weaknesses continue to constrain Jordan’s growth potential and hinder broader economic inclusion and social cohesion. Fiscal pressures intensified in 2024 amid spillover effects from regional conflicts and falling prices of key export commodities. Although the government introduced revenue-raising measures and cut down on capital spending, the general budget deficit still widened to 5.6% of GDP. Public debt rose slightly to 90.4% of GDP (excluding Social Security Corporation holdings) 1 . The current account deficit widened to close to 6% of GDP in 2024, driven by lower exports and a decline in tourism revenues. Jordan’s structural reliance on energy and food imports, coupled with a weak export base, continues to weigh on external balances. Despite stable reserves of around USD 21 billion, vulnerabilities to external shocks persist, reinforcing the need for continued international financial support.

In recent years, Jordan has pursued efforts to modernise its economic structure, notably through the launch of the Economic Modernisation Vision (EMV) in 2022, a ten-year strategy aimed at boosting investment, creating jobs, and raising living standards. Building on earlier reforms, such as the 2018 London Initiative, the EMV focuses on eight key sectors and includes measures to enhance public sector efficiency and citizen engagement, with reform efforts supported also through the consecutive IMF programmes and EU Macro-Financial Assistance (MFA). The first phase (2023–2025) is nearing completion, laying the groundwork for future implementation. These reform efforts have advanced despite a series of overlapping external shocks, including the protracted Syrian refugee crisis, the COVID-19 pandemic, global supply disruptions triggered by Russia’s unprovoked war of aggression against Ukraine, and renewed regional tensions following the Israel-Gaza conflict and Red Sea trade disruptions. Although recent diplomatic steps toward Syria’s reintegration have been positive, they have yet to create the conditions conducive to the large-scale return of refugees from Jordan.

Given the series of external shocks and Jordan’s strategic role in promoting regional stability, the country has received substantial international support over the past decade through various international partners. This includes four consecutive IMF programmes since 2012, four MFA operations by the EU since 2014, significant US assistance, and targeted support for hosting Syrian refugees.

–The first three MFA programmes (MFA I: EUR 180 million; MFA II: EUR 200 million; MFA III: EUR 500 million + EUR 200 million top-up in response to COVID-19) provided a total of EUR 1.08 billion in loans between 2014 and 2023. Moreover, following a request by the Jordanian authorities on 8 October 2023, the EU adopted a new MFA IV operation in 2025, amounting to EUR 500 million, with disbursements planned over 2025–2027. The MFA IV will be disbursed upon fulfilment of agreed policy conditions in the Memorandum of Understanding (MoU), covering measures in public finance management, governance and anti-corruption, social and labour market policies, and in energy and the business environment.

–Jordan is also making good progress under the USD 1.2 billion IMF Extended Fund Facility (2024-2027), which has completed three positive reviews to date (the last one concluded on April 2025). Besides, on 25 June 2025, the IMF also approved approximately USD 700 million under the Resilience and Sustainability Facility (RSF) to support reforms addressing climate-related and pandemic preparedness risks.

–Although temporary uncertainty remains around the disbursement of US budget support in 2025, Jordan has successfully mobilized critical external financing from the World Bank, and GCC partners.

Beyond short-term financial assistance, the European Union (EU) and Jordan have a close and long-standing partnership, anchored in the EU-Jordan Association Agreement, which has been in force since 2002. This relationship has steadily deepened over the years, reflecting strong political ties, economic cooperation, and shared regional interests. In January 2025, the EU and Jordan have agreed to strengthen their ties through a Strategic and Comprehensive Partnership (SCP) aimed at promoting shared prosperity, stability, and security, rooted in mutual trust and long-standing cooperation. This renewed partnership focuses on six key pillars: political relations and regional cooperation; security and defence; economic resilience, trade and investment; human capital; migration; and protection of, and support to, refugees. Its implementation will be supported by a substantial financial package (including through MFA), combining short- and long-term assistance to advance Jordan’s macro-fiscal and structural reform agendas, scale up investment support, and provide targeted aid for the delivery of strategic priorities.

Given their challenging economic situation and sizeable and unmet financing needs, Jordanian authorities requested an additional MFA V operation of EUR 500 million in January 2025. The request highlighted the deteriorating economic and political environment, noting that regional turmoil intensified throughout 2024, compounding an already uncertain and unstable global context. Moreover, these developments have weighed on foreign direct investment, exports, domestic consumption and domestic revenues, further weakening Jordan’s economic and fiscal outlook and increasing the risk of larger external financing needs. The renewed violence in the region, including escalating tensions between Israel and Iran in mid-June, led to flight suspensions in Jordan and is likely to further complicate the country’s fragile economic recovery, dampen investor and tourist confidence, and contribute to an increasingly uncertain outlook.

1.

Against this background, the European Commission proposes to provide further financial support to Jordan, in the form of a new MFA, with the following features:


–After an in-depth assessment of the political and economic situation in Jordan, the Commission is submitting to the European Parliament and the Council a proposal to provide a new MFA of up to EUR 500 million to the benefit of Jordan. The proposed MFA would help Jordan cover part of its overall residual external financing gap, which is estimated at around USD 3.9 billion in the context of the ongoing IMF programme over the period of 2024-2027. It would also help safeguarding the ongoing reform progress.

–The disbursement would take place in three instalments, with the release of instalments strictly linked to progress with the implementation of both the IMF programme and a number of additional policy measures to be agreed between the Commission and the authorities and listed in a Memorandum of Understanding (MoU). The MoU could, in principle, include policy reforms covering economic governance (such as public finance management and measures to strengthen domestic revenue mobilization), social and labour market policies, governance, anti-corruption measures, utilities, and the business environment.

–The implementation of the proposed operation is expected to go hand-in-hand with the support under budget support operations financed by the Neighbourhood, Development and International Cooperation Instrument - Global Europe (‘NDICI-GE’).

–As further elaborated in the Commission Staff Working Document (SWD) accompanying this proposal, the Commission considers, based also on the assessment of the political situation made by the European External Action Service (EEAS), that the political and economic pre-conditions for the proposed MFA operation are satisfied.


• Jordan’s economic context

The Middle East faces growing instability from the war in Gaza, a fragile Lebanon ceasefire, the fall of Syria’s regime, and the recent Israel-Iran conflict. These tensions heighten pressure on Jordan’s security and economy, with rising volatility and increasing downside risks, Economic growth decreased to 2.5% y-o-y (year on year) in 2024 (from 2.9% in 2023), due to the increased uncertainty resulting from the instability in the region, including the war in Israel-Gaza, and the moderation of global growth. Key sectors such as tourism and trade continued to perform relatively well, despite disruptions linked to the war, and exceeding initial expectations, supported by an increase in regional tourist arrivals that partially offset the decline in visitors from the West. Despite this, tourism revenues fell by 2.3% in 2024, and the number of visitors declined by 3.9%. The sectors that contributed most to economic growth were manufacturing, agriculture, transport and communications, as well as financial services. Jordan started 2025 with sustained economic growth, broadly in line with the 2.5% recorded in 2024, driven by continued recovery in tourism, manufacturing and agriculture. However, the second quarter is expected to have been affected by the escalation of tensions between Israel and Iran, which prompted the temporary closure of Jordanian airspace. This disruption, led to suspension of flights and disrupted cargo traffic, and caused broader uncertainty, thus likely weighting on investor and consumer confidence.

The unemployment rate remains high, despite a small decrease to 21.4% in 2024 (from 22.0% in 2023). The unemployment rate among men stood at 18.3% and at 33.3% among women. Youth unemployment remains an important challenge and continues into young adulthood, as the unemployment rate for the age brackets of 15-19 years and 20-24 years was 54.7% and 46.4%, respectively. At only 34.3%, labour force participation remains an important challenge, where men’s and women’s labour force participation are both low or very low at 53.6% and 14.8%, respectively, which compares to 72% and 18% in the MENA region, respectively.

Inflation pressures are contained, in line with recent monetary policy decisions. Inflation fell to 1.6% in 2024 on average y-o-y (from 2.1% in 2023) though it picked up at the beginning of 2025 (2.2% in Jan-Feb 2025, y-o-y) in line with the central bank’s monetary easing. Most recently, main drivers of inflation were prices for rents, meat and poultry, and tobacco and cigarettes. Price decreases were recorded in particular for clothing, dairy products and oils, the latter two had contributed to driving inflation in previous years. Since September 2024, the Central Bank of Jordan (CBJ) cut its interest rate in 3 steps by 100 basis points to 6.5%, marking the end of the monetary tightening phase that began 2.5 years earlier. Between March 2022 and July 2023, the main rate was raised in 10 steps from 2.5% to 7.5%. The CBJ decisions were necessary given the JOD’s peg to the USD, to be in line with the US Federal Reserve’s monetary tightening/easing and avoid pressures on capital flows, and indeed contributed to the moderation of inflationary pressures.

The banking system remains liquid and well capitalised. The capital adequacy ratio stood at 18% in 2024 (from 17.9% in 2023), well above the required 12%. The non-performing loans (NPL) ratio slightly increased to 5.6% in 2024 (from 5.1% in 2023), while the coverage ratio for NPLs stood at 74.8% in 2024. Banks’ profitability remained stable with an estimated return on assets of 1.2%.

Public finances show vulnerabilities, though the IMF’s overall public debt sustainability assessment is supportive. The general government deficit reached 5.6% of GDP in 2024, which is higher than in the previous year (from 5.1% of GDP in 2023). The primary deficit (excluding interest payments on public debt) stood at 0.1% of GDP (0.4% of GDP in 2023). Current expenditure accounted for 89.9% of public expenditure. Besides interest payments (20% of current expenditure) main components of expenditure were military expenditure (29.6%), compensation of civil sector employees (19.3%) and pensions (16.3%). Public debt amounted to 90.4% of GDP (excluding the debt held by the Social Security Investment Fund, SSIF) in 2024, slightly higher than the 89.2% of GDP in 2023. Including the SSIF debt, public debt stood at 116.8% of GDP in 2024, which compares to 113.8% in 2023. Jordan’s public debt is assessed as sustainable with a high probability by the IMF (Article IV, June 2025). Indeed, while the high level of public debt renders Jordan vulnerable to a tightening in financial conditions, the large share of concessional debt provides an important cushion. Moreover, Jordan has significant buffers: foreign exchange reserves correspond to 7.7 months of imports; and assets of the Social Security Investment Fund reached 40 percent of GDP. The risk of sovereign stress is assessed as moderate by the IMF.

Jordan’s external situation remains fragile, but foreign exchange reserves are adequate. The current account deficit (including grants) widened to 5.9% of GDP in 2024 (from 3.6% in 2023), as the services surplus decreased, while the goods deficit and the primary income deficit widened. Main domestic goods export items were chemicals and minerals (30% of goods exports) mainly destined for India and Arab countries, as well as clothes (20%) largely destined for the US. The largest goods import groups were transport equipment & spare parts (10% of goods imports) mainly from China, the US and South Korea; petroleum products (6%) mainly from Saudi Arabia and India; and textiles (5%) from Asia. The current account deficit continued to be mitigated by strong secondary income flows: remittances reached 6.8% of GDP in 2024, while programme financing (World Bank, IMF and other bilateral/multilateral support) reached 4.2% of GDP. Foreign direct investment decreased to 3.3% of GDP in 2024. The CBJ's gross foreign reserves remained strong and above 100% of the IMF’s reserve adequacy metric.

The outlook over the next few years is uncertain. Looking ahead, a modest uptick in growth for 2025 and in the following years was expected by the IMF in June 2025, but this forecast predates the Israel-Iran conflict. The regional wars pose an important downside risk to the outlook, in particular due to the increased level of uncertainty in the region and the possible future impact on the important tourism sector, further fuelled by the recent conflict between Israel-Iran. External and fiscal deficits are expected to remain high, reflecting the underlying structural challenges to sustainably improve fiscal revenue and the trade deficit. Given the large public debt burden, the fiscal consolidation course needs to continue, in addition to ongoing economic modernisation efforts to improve the business environment, to foster private sector growth, including by attracting foreign direct investment.


• Consistency with existing policy provisions in the policy area

The proposed MFA would support the resources allocated to Jordan under the existing operation adopted by the European Parliament and the Council on 14 April 2025 under the Decision (EU) 2020/33 2 on providing MFA to the Hashemite Kingdom of Jordan amounting to EUR 500 million in loans to be disbursed during the period 2025-2027.

• Consistency with other EU policies

The EU and Jordan have developed a close and long-standing partnership, underpinned by the Association Agreement that has been in force since 2002, and that was upgraded to an Advanced Status partnership in 2010 3 . This relationship was further reinforced by the adoption of the EU-Jordan Partnership Priorities in June 2022, setting the strategic framework for cooperation until 2027. The priorities reflect shared values and a commitment to reforms in the areas of good governance and respect for human rights, the promotion of sustainable economic development and, and the strengthening of cooperation on regional stability and security.

Jordan also enjoys solid economic relations with the European Union, which stands as one of its key trading and investment partners. Their trade relationship is anchored in the EU-Jordan Association Agreement, which facilitates preferential access to EU markets. Jordan has also benefited from the EU’s simplified rules of origin initiative since 2016, designed to stimulate exports and industrial development. In line with the EU’s 2021 Trade Policy Review, the EU and Jordan are working to deepen trade and investment relations, including efforts to improve the business climate, advance sector-specific regulatory alignment, and fully harness the potential of the Association Agreement.

This cooperation was further elevated through the launch of the EU-Jordan Strategic and Comprehensive Partnership, endorsed in January 2025. The partnership outlines key areas for deeper collaboration, including political relations and regional cooperation, security and defence, economic resilience, trade and investment, human capital development, migration, and the protection and support of refugees. These pillars align closely with Jordan’s Economic Modernisation Vision (2022–2033) and aim to support the country’s long-term resilience, inclusive growth, and ability to respond to regional and global challenges.

The proposed MFA operation aligns with the EU’s broader objectives under the European Neighbourhood Policy (ENP). It contributes to support the European Union’s objectives of economic stability and development in Jordan and, more broadly, resilience in the South European neighbourhood. The EU MFA would complement the grants mobilised under the NDICI and other EU programmes and instruments and, in particular, the conditions envisaged under the budget support packages being implemented by the EU under the current multiannual financial framework (MFF) 2021-2027. By continuing to support the adoption by the Jordanian authorities of an appropriate framework for macroeconomic policy and structural reforms, the EU’s MFA would increase the added value and effectiveness of the EU’s overall financial support measures, including through other instruments.

2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

• Legal basis

The legal basis for this proposal is Article 212 of the Treaty on the Functioning of the European Union (‘TFEU’).

• Subsidiarity (for non-exclusive competence)

The subsidiarity principle is respected as the objectives of maintaining short-term macroeconomic stability in Jordan cannot be sufficiently achieved by the Member States alone and can be better achieved by the European Union. The main reasons are the budgetary constraints faced at the national level and the need for strong donor coordination in order to maximise the scale and effectivenes of the assistance.

• Proportionality

The proposal complies with the proportionality principle: it confines itself to the minimum required in order to achieve the objectives of short-term macroeconomic stability and does not go beyond what is necessary for that purpose.

As identified by the Commission based on the estimates of the IMF in the context of the EFF, the amount of the proposed new MFA corresponds to 14.6% of the estimated residual financing gap for the period 2025-2027. This is consistent with standard practices on burden-sharing for MFA operations (for a country with an Association Agreement, the upper limit is 60% according to the ECOFIN Council conclusions of 8 October 2002), taking into account the assistance pledged to Jordan by other bilateral and multilateral donors. When considering the overall EU support to Jordan via various instruments (including the proposed MFA, MFA IV, EU budget support and EIB loans, excluding bilateral support by Member States), the total EU support would cover about 35.4% of the estimated residual external financing gap. The overall EU contribution including budget support and EIB loans to Jordan is expected to be higher than in the past.

• Choice of instrument

Project finance or technical assistance would not be suitable or sufficient to address the macroeconomic objectives. The key added value of the MFA compared to other EU instruments is to alleviate external financial constraints and to help create a stable macroeconomic framework, including by promoting a sustainable balance of payments and budgetary situation, and an appropriate framework for structural reforms. By helping to put in place an appropriate overall policy framework, MFA can increase the effectiveness of the actions financed in Jordan under other, more narrowly-focused EU instruments.

3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS

• Ex-post evaluations/fitness checks of existing legislation

The Commission’s MFA proposal builds on lessons learnt from ex-post evaluations carried out on past operations in the EU’s neighbourhood, including on the ex-post evaluation of the MFA-II operation provided to Jordan in 2016-2019 that was governed by Decision (EU) 2016/2371 of the European Parliament and of the Council of 14 December 2016 4 , as well as the most recent ex-post evaluation of Covid-19 MFA package, which covered Jordan MFA-III 5 .

The Jordan 2016-2019 ex-post evaluation 6 concluded overall that the MFA-II programme met its objectives. Its design was relevant to Jordan’s economic challenges, while it contributed substantially to the effective stabilisation of Jordan’s external and fiscal financial position. The programme had considerable added value for the EU as it supported macroeconomic stability in a neighbouring partner country and mitigated the impact of the Syrian refugees crisis. It was designed and implemented in a way that was coherent with other EU policies and instruments.

• Stakeholder consultations

MFA is provided as an integral part of the international support for the economic stabilisation of Jordan, including from the IMF. To prepare this proposal for MFA, the Commission consulted with the IMF, which is disbursing a sizeble financing programme. The Commission consulted the Alternate Economic and Financial Committee on the 2 July 2025, where an endorsement for the draft proposal was provided. The Commission has also been in regular contact with the Jordanian authorities.

• Collection and use of expertise

In line with the requirements under Regulation (EU, Euratom) 2024/2509 7 (‘Financial Regulation’), the Commission services has carried out an operational assessment of the financial and administrative circuits of Jordan ahead of the implementation of MFA IV. The purpose was to ensure that the country’s procedures for managing programme assistance, including MFA, provide adequate guarantees for sound financial management. The final report of the operational assessment, prepared by a consultancy company, was received in October 2024. The report noted clear progress in public finance management systems and other financial circuits since 2020, when the last exercise was undertaken. The report concluded that the status of Jordan’s financial circuits and procedures is deemed favourable for an MFA operation. As the operational assessment was conducted less than a year ago and its findings remain valid, the Commission considers that a new assessment is not required for the proposed MFA V operation.

• Impact assessment

The EU’s MFA is an exceptional emergency instrument aimed at addressing severe balance-of-payments difficulties in non-EU countries. This MFA proposal is therefore exempted from the requirement to carry out an Impact Assessment in line with the Commission's Better Regulation Guidelines (SWD(2015) 111 final) as there is a political imperative to move ahead quickly in a situation requiring a rapid response.

More generally, the Commission's MFA proposals build on lessons learnt from ex-post evaluations carried out on past operations in the EU's neighbourhood. The new MFA, and the economic adjustment and reform programme attached to it, will help alleviate Jordan’s short-term financing needs while supporting policy measures aimed at strengthening medium-term balance of payments and fiscal sustainability and raising sustainable growth, thus complementing the programme of the IMF Executive Board. These policy conditions should address some of the fundamental weaknesses shown over the years by the Jordanian economy and economic governance system. Possible areas of conditionality could, in principle, include reforms to improve economic governance, including public finance management and tax administration, social and labour market policies, business environment and energy/green transition.

• Fundamental rights

Countries that are covered by the European Neighbourhood Policy are eligible for MFA. 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.

Jordan has continued its political reform efforts to strengthen parliamentary democracy and the rule of law. In 2021, Jordan launched a political modernisation process aspiring to foster political participation of women and youth, to overcome tribal allegiance and encourage the formation of nationwide programme-based political parties, introduced through amendments to the Elections and Political Parties Laws. In 2023, the government amended the Labour Code in line with international human rights standards. Despite a very challenging context, Jordan remains committed to advancing reforms towards a more effective democratic political system based on the rule of law and respect for human rights. In this context, the political preconditions for MFA are considered to be satisfied.

4. BUDGETARY IMPLICATIONS

The proposed MFA operation of up to EUR 500 million in loans for Jordan is planned to be disbursed in three instalments to be released over a period of up to 2.5 years. The loan will be provided under the External Action Guarantee with a provisioning at a rate of 9%, which will be programmed under the NDICI-GE, for a total amount of EUR 45 million (budget line 14 02 01 70 ‘NDICI – Provisioning of the Common Provisioning Fund’). The loans shall be granted in the form of amortising loans with a grace period and subsequent capital repayments in equal tranches over a long period. Such a loan structure will be beneficial for both the beneficiary in that it facilitates repayments, and the EU budget, by spreading contingent liabilities over a long time-frame.

5. OTHER ELEMENTS

• Implementation plans and monitoring, evaluation and reporting arrangements

The European Union will make the MFA available to Jordan for a total amount of up to EUR 500 million, provided in the form of loans, which will contribute to covering Jordan’s residual external financing needs in the operation’s availability period. The assistance is planned to be disbursed in three instalments, provided that the policy measures attached to each instalment have been fully implemented in a timely manner. The assistance will be managed by the Commission. Specific provisions on the prevention of fraud and other irregularities, consistent with the Financial Regulation, are applicable.

Disbursements under the proposed MFA operation will be conditional on successful programme reviews under the IMF programme. In addition, the Commission and the Jordanian authorities will agree on a specific set of structural reform measures, to be set out in a Memorandum of Understanding. These reform measures should 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. They should be consistent with the main economic reform priorities agreed between the EU and Jordan in the Association Agreement, the Partnership Priorities and annexed Compact, the SCP and Jordan's Modernisation Vision and other national strategies.