Venture at 10: Kristina Kostial

Kristina Kostial, Former International Monetary Fund Mission Chief for Jordan

Date of Interview: August 2015

To overcome persistent economic shocks, in 2012 Jordan successfully sought out a loan from the IMF in return for introducing a series of tough economic reforms. In May 2015, when Venture spoke to Kristina Kostial, the IMF mission chief for Jordan, the organization had just endorsed the seventh and final review of the $2 billion standby arrangement with the Kingdom, paving the way for the release of the remaining tranche of funding.

Kostial commended the Kingdom’s “bold” fuel subsidy reforms, in addition to energy and water sector reforms that have reduced the combined public sector deficit significantly. Yet she expressed her organization’s disappointment at the new Income Tax Law, which failed to bring more taxpayers into the tax net. In this interview Kostial also outlined a roadmap that includes further reforms that must be introduced to stave off future economic crises.

From the Interview:

Why was it so necessary for Jordan to seek out the IMF?

Jordan was hit by major exogenous shocks. Starting in 2011, repeated damage to the Arab Gas Pipeline reduced gas inflows from Egypt and prompted an increase in imports of more expensive fuel products for electricity generation. As a result, the public electricity company started to make large losses, amounting to about 5 percent of GDP in 2011. Moreover, growth dropped sharply to 2.6 percent in 2011 in the wake of the global economic downturn, from an average of 6.5 percent during 2000–09. This, together with tax policy choices and a rise in spending, led to an increase in the central government’s primary deficit (excluding grants) by 5 percent of GDP to 9.6 percent of GDP in 2011. At the same time, the current account deficit (excluding grants) widened to over 17 percent of GDP in 2011 from about 11 percent of GDP in 2010. Macroeconomic challenges and pressures intensified in the first half of 2012. This triggered a loss in confidence, in turn leading to a loss in international reserves.

In response to these negative external shocks, the Jordanian government adopted a national reform program in May 2012. To avoid sharp adjustments that could hurt growth and the vulnerable parts of the population, and to guard against additional shocks, the government asked for financial assistance from the IMF under a 36-month Stand-By Arrangement. The IMF has provided liquidity during 2012–15 to allow the authorities to gradually implement their program. The key objectives of this program have been to correct macroeconomic imbalances in an equitable and fair way while strengthening growth prospects.

Looking forward, how optimistic are you now about Jordan’s economic prospects?

Jordan is demonstrating resilience in a difficult regional environment, particularly the conflicts in Syria and Iraq. The fiscal and energy sector positions are strengthening, the current account deficit is narrowing, international reserves have been rebuilt to an adequate level, and inflation is low. Absent any further external shocks, sustaining public sector consolidation and accelerating structural reforms will help ensure that such resilience would continue and be further fortified. At the same time, there is a need for the international community to sustain its support and help Jordan shoulder the burden of regional conflicts.

That said, Jordan needs more jobs. Unemployment is structurally high, particularly among the youth and educated, at about 31 percent and 17 percent, respectively. This, combined with low labor force participation—especially among females—which, at 13 percent, is lower than the MENA average of 22 percent—has resulted in very low employment to working-age population ratios. Indeed, only 32 percent of working-age people are employed, a rate that is lower than the MENA average of 44 percent and way short of the world average of about 60 percent. Therefore, it is paramount to further improve Jordan’s economy.

How concerned are you with Jordan’s ballooning debt, which currently stands at more than 90 percent of GDP?

We project Jordan’s gross public debt at 90 percent of GDP at end-2015 (net public debt is estimated at about 82 percent of GDP). This is high relative to average debt levels in emerging market economies, which are in the range of 50-60 percent of GDP.

What is important to note is that public debt is broadly stabilizing in 2015. Going forward, the authorities are committed to reducing debt gradually to about 70 percent of GDP by 2020.

What’s happened since?

Jordan completed its first Stand-By Arrangement in August 2015, and Kostial told Venture at the time that the Kingdom had asked for an extension. Kostial said the fund was considering Jordan’s request with talks between the two parties set to begin last fall. The new program would most probably help the country tackle ballooning debt levels and unemployment. A new IMF team, headed by the new mission chief to Jordan Martin Cerisola as well as Kostial, visited the Kingdom last month, meeting with the Prime Minister and other Jordanian officials to discuss the new deal.


This is part six of a 10-piece story. Articles in the series of Venture at 10 also include: