JORDAN ECONOMIC MONITOR Uncertain and Long Trail Ahead Spring 2021 Middle East and North Africa Region Jordan Economic Monitor Uncertain and Long Trail Ahead June 2021 Middle East and North Africa Region © 2020 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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TABLE OF CONTENTS Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Acronyms and Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vii Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix ‫الملخص التنفيذي‬ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv 1.  Economic Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 The Real Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Labor Market Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Fiscal and Debt Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Balance of Payments Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Monetary Policy and Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.  Outlook and Upcoming Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 Special Focus 1: A Year into the Pandemic: Jordan’s Private Sector Snapshot . . . . . . . . . . . . . . . .29 Special Focus 2: COVID-19 and Inequality in the MENA Region and in Jordan . . . . . . . . . . . . . . . . 37 Annex I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43 A: The Cyclicality of Fiscal Policy in Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 B: Merchandise Trade Balance, Workers’ Remittances, and International Oil Prices: Some Empirical Observations in the Case of Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45 Annex II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Selected Recent World Bank Publications on Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Summary of Recent Special Focuses from the Latest Jordan Economic Monitors . . . . . . . . . . . . . . . . . . . . .50 iii List of Figures Figure 1 Jordan Per Capita GDP Growth in Historical Context (1980–2020) . . . . . . . . . . . . . . . . . . . . . . . . . .1 Figure 2 Stringency Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 3 Decline in Real GDP During 2020 for Selected Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Figure 4 Schematic Representation of Circular Flows in the CGE Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 5 Output Gap Analysis (seasonally Adjusted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Figure 6 Potential Output . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Figure 7 Services Took the Largest Hit in 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Figure 8 Annual Demand Side Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Figure 9 Labor & Human Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 10 Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Figure 11 Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Figure 12 Factor Input’s Contributions to Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 13 Quarterly Changes in Employment by Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Figure 14 Unemployment Rate Significantly Edged Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Figure 15 Labor Force Participation Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Figure 16 Employment Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 17 Government Deficit vs. Debt (2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 18 Fiscal Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Figure 19 Fiscal Response 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Figure 20 Discretionary Fiscal Response to the COVID-19 Crisis (Country Comparison) . . . . . . . . . . . . . . . 13 Figure 21 Correlation between Real Output and Real Spending (Cyclical Components) . . . . . . . . . . . . . . . . 13 Figure 22 Did Fiscal Policy Respond Proactively During the COVID-19 Crisis? (1980–2020) . . . . . . . . . . . . 13 Figure 23 Median Public Debt by Country Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Figure 24 Coupon Rates of US$ Denominated Debt Issuances During 2020, by Maturity for MENA Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Figure 25 Drivers of Change in CG Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Figure 26 Outstanding CG Debt and Average Time to Maturity (ATM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Figure 27 Global Economic Developments and Trend in Jordan’s Current Account . . . . . . . . . . . . . . . . . . . 17 Figure 28 Jordan’s Imports and Remittances Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Figure 29 Overall Balance of Payments Position and CBJ’s Foreign Reserves Adequacy . . . . . . . . . . . . . . .19 Figure 30 Changes in the CBJ’s Balance Sheet and Trend in Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Figure 31 Contribution to Jordan’s Headline CPI Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Figure 32 Trend in Monetary Aggregates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Figure 33 Average Change in Monthly Sales Compared to a Year Ago—Comparator Countries . . . . . . . . . 30 Figure 34 Capacity Utilization—Comparator Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 Figure 35 Proportion of Monthly Sales That are Exported Directly in Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Figure 36 Share of Firms Using Commercial Bank’s Loans as Main Source of Financing since Onset of Pandemic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 Figure 37 Comparator Countries with Shares of Firms Assumed or Confirmed Closed . . . . . . . . . . . . . . . . .32 Figure 38 Share of Confirmed Firms That Closed Since the Start of the Pandemic . . . . . . . . . . . . . . . . . . . . 32 Figure 39 Share of Firms Introducing New Product or Service in Response to COVID-19— Comparator Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Figure 40 Technology Uptake and Performance in Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 Figure 41 Share of Firms Reporting Receiving National Support and Type of Support Received . . . . . . . . .34 Figure 42 Respondents Receiving Support from Public Cash Transfer Programs Following COVID-19 35 iv JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD Figure 43 Percentage of Individuals without Access to Piped Water in Dwelling, Living in Multigenerational Households, and Overcrowding by Per Capita Consumption Decile . . . . . . . . 39 Figure 44 Unemployment Rate from 2018 to 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Figure 45 Employment Status of Workers Who Were Employed Before COVID-19 . . . . . . . . . . . . . . . . . . . . .40 Figure 46 Correlation between Real Output and Real Spending (cyclical Components) . . . . . . . . . . . . . . . . 44 Figure 47 Did Fiscal Policy Respond Proactively During the COVID-19 Crisis? (1980–2020) . . . . . . . . . . . . 44 Figure 48 Jordan’s Imports and Remittances Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Figure 49 Accumulated Response of Shock to International Oil Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 List of Tables Table 1 COVID-19 Fiscal Package During 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Table 2 Jordan Selected Economic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 List of Boxes Box 1 Jordan’s 2020 Growth Puzzle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Box 2 Jordanian Economy and COVID-19 Crisis—Long Trail Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Box 3 A Growth Accounting Exercise for Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Box 4 The Cyclicality of Fiscal Policy in Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Box 5 Merchandise Trade Balance, Workers’ Remittances, and International Oil Prices: Some Empirical Observations in the Case of Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Box 6 A Model-Based Analysis of Recent Inflation Developments in Jordan . . . . . . . . . . . . . . . . . . . . . . .21 Table of Contents v PREFACE T The objective of this report is to apprise Consultant, EMNF2), Ali H. Abukumail (Senior Private the Government of Jordan, think-tanks and Sector Specialist, EMNF2), and Andrius Skarnulis researchers, the public, and the World Bank’s (Young Professional, EMNF2) who contributed to the senior management of Jordan’s economy, outlook, Special Focus on ‘A year into the pandemic—private structural reforms and development challenges. The first sector snapshot with focus on Jordan.’ The team is also chapter covers recent economic developments, with grateful to Alia Jane Aghajanian (Economist, HMNSP), sections on growth, labor market developments, fiscal Laura Rodriguez Takeuchi (Young Professional, and debt developments, the balance of payments, and EMNPV), and Frederica Alfani (ET Consultant, EMNPV), monetary policy and inflation as well as macroeconomic who contributed the Special Focus on ‘COVID-19 and outlook and risks. The second part of the report is inequality in the MENA region and in Jordan’. The comprised of special focus sections, which for this report boxes ‘Jordanian economy and COVID-19 crisis—Long focus on findings from COVID-19 follow-up surveys trail ahead,’ ‘A model-based analysis of recent inflation for Jordan; and COVID-19 and inequality in Jordan. developments in Jordan,’ and ‘Merchandise trade bal- This Monitor update was prepared by the ance, workers’ remittances and international oil prices: Macroeconomics, Trade & Investment Global Practice Some empirical observations in the case of Jordan’ were under the guidance of Saroj Kumar Jha (Country the contribution of Asif Mahmood (Consultant, EMNM1). Director, MNC02), Holly W. Benner (Resident The box ‘The cyclicality of fiscal policy in Jordan’ was Representative, MNCJO), and Eric Le Borgne authored by Yifan Zhang (Consultant, EMNM1). The (Practice Manager, EMNM1). Analyses were contrib- box ‘A growth accounting exercise for Jordan’ was the uted by Saadia Refaqat (Senior Economist, EMNM1), work of Anastasia Janzer (ET Consultant, EMNM1), and Anastasia Janzer (ET Consultant, EMNM1), and Asif the box ‘Jordan’s 2020 Growth Puzzle’ was authored Mahmood (Consultant, EMNM1) who co-wrote the by Peter Griffin (Consultant, EMNM1). Outlook and Upcoming Challenges section. Anastasia The report benefitted from comments and Janzer (ET Consultant, EMNM1) wrote the Real guidance provided by Eric Le Borgne (Practice Sector and Labor Market Developments sections. Manager, EMNM1), Christos Kostopoulos (Lead Yifan Zhang (Consultant, EMNM1) wrote the Fiscal Economist, EMNM1), and Holly W. Benner (Resident and Debt Developments section. Asif Mahmood Representative, MNCJO). Saadia Refaqat (Senior (Consultant, EMNM1) wrote the Balance of Payments Economist, EMNM1) led the overall effort, with assis- and the Monetary Policy and Inflation sections. tance from Anastasia Janzer (ET Consultant, EMNM1). The team is grateful to John Gabriel Goddard This report is based on data and information available (Lead Economist, EMNF2), Patricia Haydamous (ET up to end-April 2021. vii ACRONYMS AND ABBREVIATIONS ATM Average time to maturity M01 First Month/January BoP Balance of Payments M06 Sixth Month/June CAPB Cyclically adjusted primary balance M1 Monetary aggregate 1: Sum of currency CAD Current Account deficit in circulation and overnight deposits CBJ Central Bank of Jordan M2 Monetary aggregate 2: Sum of M1, CG Central Government deposits with an agreed maturity of up CGE Computable General Equilibrium to two years and deposits redeemable CPI Consumer Price Index at notice of up to three months COVID-19 Coronavirus Disease 2019 MENA Middle East and North Africa Dec December MERS Middle East Respiratory Syndrome DoS Department of Statistics Mln. million DSA Debt Sustainability Analysis MoF Ministry of Finance EFF Extended Fund Facility M-o-M Month-on-month ECDC European Centre for Disease NAF National Aid Fund Prevention and Control NDA Net domestic assets FDI Foreign direct investment NFA Net foreign assets FX Foreign exchange NEPCO National Electricity Power Company GCC Gulf Cooperation Council No. Number GFC Global Financial Crisis OECD Organisation for Economic GG General Government Co-operation and Development GDP Gross Domestic Product OxCGRT Oxford COVID-19 Government HDR Human Development Report Response Tracker HP filter Hodrick-Prescott HP filter PB Primary Balance ILO International Labour Organization PPP Purchasing Power Parity IMF International Monetary Fund PSO Public Service Obligation ISIC International Standard of Industrial Q-o-Q Quarter-on-Quarter Classification Q1 First Quarter Jan-Feb January to February Q3 Third Quarter JD Jordanian Dinar Q4 Fourth Quarter LFP Labor Force Participation RHS Right hand side ix RFI Rapid Financing Instrument United Nations Children’s Fund UNICEF SARS Severe Acute Respiratory Syndrome United Nations Educational, Scientific UNESCO SMEs Small and medium-sized enterprises and Cultural Organization SSC Social Security Corporation U.S. United States SSIF Social Security Investment Fund US$ United States Dollar ST Short-term WAJ Water Authority of Jordan TFP Total Factor Productivity WEO World Economic Outlook UN United Nations WBG World Bank Group UNHCR United Nations High Commissioner for WFP World Food Programme Refugees y-o-y Year-on-year x JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD EXECUTIVE SUMMARY D espite recent progress on vaccine the Central Bank of Jordan, and the Social Security developments to combat the COVID-19 Corporation have adopted timely and rapid economic pandemic, the global economic recovery measures targeting individuals and sectors most remains surrounded by high uncertainty. During affected by the crisis, aiming to protect jobs and the first half of 2020, global economic output declined avert sustainable damage to the economy. The total by an unprecedented level, resulting in a sharp fall intervention package of the Central Bank of Jordan in global trade. The latest estimates from the IMF amounted to around 8 percent of GDP. On the other WEO in April 2021 indicate that the global economy hand, fiscal measures in response to the pandemic contracted by 3.3 percent in 2020. This contraction included a sales tax exemption on certain medical is substantially deeper than one observed during equipment and additional spending for purchases the Global Financial Crisis of 2007–08. However, of health equipment and supplies. Support for busi- recent trends are pointing toward a strong recovery nesses and the tourism sector included a reduction for global economic activity in the second half of of social security contributions, a reduction of the 2021supported by substantial fiscal and monetary general sales and service tax for restaurants and stimuli.1 Nevertheless, the extent of the protraction hotels as well as JD 20 million direct support for is closely linked to vaccine rollout, which is gaining the tourism sector. In addition, workers have been critical mass in some developed economies, but supported through the Social Security Corporation’s remains uneven across the world. Indeed, the World unemployment allowances for workers in businesses Bank is projecting global economy to grow by 4 not able to operate during the pandemic. Government percent in 2021.2 Nevertheless, this global outlook of Jordan also provided cash support to the poor and retains an important country-specific component vulnerable households through regular cash transfer which depends on the adjustment capacity of each economy as well as the effectiveness of its policy to minimize permanent scarring to the economy as well 1 According to the IMF World Economic Outlook for April as pace and scale of domestic vaccine rollout. 2021, global output and trade are projected to increase by 6.0 percent and 8.4 percent in 2021. Respectively, The Government of Jordan has responded these projections indicate 0.5 and 0.3 percentage points with various measures to alleviate the socio- upward revision when compared to the IMF projections economic impact of the COVID-19 shock. In made in January 2021. order to mitigate its repercussions, the government, 2 World Bank. Global Economic Prospects, January 2021. xi programs implemented by the National Aid Fund levels of labor force participation in the world, and high (NAF) as well as the Takaful-1 cash transfer programs, informality. Economic growth has not led to a reduction which have also been extended to provide temporary in unemployment as employment shifted from high‑ to cash transfers to households of informal workers low‑productivity sectors, which has been driving down through Takaful-3, as well as the Istidama program, the overall level of labor productivity. The pandemic aimed at subsidizing wages and social security con- has compounded this deterioration in labor market tributions of formal workers in affected companies. In indicators with unemployment reaching 24.7 percent March 2021, Government further announced another in Q4-2020 as compared to 19.0 percent recorded in stimulus packages and relief measures, totaling the same period last year. The youth age-group (15–24 around 1.4 percent of GDP which included extending years) remained disproportionally affected by the crisis, the time for Istidama and expansion Takaful-3 to more with youth unemployment reaching an alarming level beneficiaries. with every second youth unemployed, while for female In 2020, Jordan’s economy contracted youth, incidence reached as high as three out of every by 1.6 percent, the first contraction in three four. This finding is supported by a recent WBG survey decades. While historic for Jordan, this contrac- of MENA firms including Jordan (see Special Focus tion nevertheless was among the shallowest in the 1) according to which, lockdowns and demand shocks world in 2020 (see Figure 2), and quite muted given have had a strong impact on the private sector which Jordan’s economic structure and, in particular, its resulted in high closure rates, particularly in the ser- significant reliance on tourism receipts. Part of this vices sector, which accounts for Jordan’s 60 percent reduced impact can be attributed to the authorities’ share in output and two-thirds share in employment. timely and large fiscal and monetary stimuli, totaling Reflecting the challenging global envi- around 10.5 percent of GDP.3 Moreover, our analysis ronment, Jordan’s external account sharply indicates that though the tourism shock caused a deteriorated in 2020 despite substantial nar- significant decline in the value of country’s services rowing of country’s merchandise trade account. exports, this negative impact was partially mitigated Specifically, the current account deficit (CAD,) by a substantial improvement in terms of trade including grants, widened to US$3.5 billion or 8.0 caused by the decline in the international oil prices. percent of GDP in 2020 compared to US$0.95 billion This was further aided by appropriate adjustment or 2.1 percent of GDP in 2019. Interestingly during on the current account supported by availability of 2020, on net basis, Jordan witnessed a windfall gain additional external financing (Box 1: Jordan’s 2020 as a result of the positive oil price shock, though on growth puzzle). The real question for Jordan however, the other hand, this led to decline in remittances, still remains—how to put growth back on the path to given significant dependence on flows from Gulf recovery and, subsequently, a high and inclusive Cooperation Council (GCC) countries (Box 5: trajectory, given that Jordan’s economy had been Merchandise trade balance, workers’ remittances and losing steam even prior to the pandemic (Box 3: A international oil prices: Some empirical observations growth accounting exercise for Jordan). Part of these in the case of Jordan). The sharp oil price decline led challenges have been further exacerbated by the to a drop in Jordan’s import bill, leading to significant Covid-19 shock. Putting the economy back on a sus- improvement in the trade balance, which narrowed tained and inclusive recovery growth path requires from 19.6 percent of GDP in 2019 to 16.5 percent important adjustments in policymaking. of GDP in 2020. However, an unprecedented (76 Unlike the real economy, the labor market percent) decline in international tourism flows kept deteriorated sharply in 2020 and is in worrisome shape. Even before the pandemic, Jordan’s labor 3 Around 8 percent of GDP in liquidity measures by the market suffered from structural issues that have led CBJ and fiscal measures of around 2.5 percent of GDP to a gradual deterioration of labor market outcomes, (fiscal measures excluding equity injections, loans, asset including rising unemployment, one of the lowest purchase). xii JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD the CAD at an elevated level. Nonetheless, external resulted in high closure rates, particularly in the ser- financing remained comfortable due to better market vices sector. To respond to the challenges, Jordanian access along with higher donor official inflows, which firms have introduced new products and are using helped reduce increasing pressure from the external digital technologies more intensively, however, the account, keeping foreign reserves coverage at an pace of transformation has lagged behind other appropriate level. Given, higher commodity prices countries. Moving forward, the priority should be to anticipated in 2021, Jordan’s CAD is projected to support firms in building their resilience, especially remain broadly at the same level compared with 2020. among smaller firms, with support in areas related Despite limited fiscal space, Jordan was to firm capability improvement, export development able to initiate countercyclical fiscal policy to and promotion, and technology uptake. The second respond to COVID-19 shock. Jordan’s fiscal policy Special Section analyzes the socioeconomic effects which historically has been typically pro-cyclical, of the COVID-19 pandemic in the Middle East and responded counter-cyclically in 2020 (Box 4: The North Africa region, with a special zoom in on Jordan. cyclicality of fiscal policy in Jordan), providing a stimuli Similar to other MENA countries, the pandemic of around 2.7 percent of GDP to the economy which has increased extreme poverty and led to a rise in helped prevent a more severe economic contraction income inequality in Jordan. The rising inequality has and perhaps larger job losses.4 This naturally widened consequences for planning the post-COVID period the fiscal deficit of the Central Government (CG), in Jordan. Building back better will need to offer the including grants,5 to 7.4 percent of GDP or almost poorest and most vulnerable the opportunity to regain 2.8 percentage points of GDP higher than 2019 due to what they have lost and build resilience for future decline in domestic revenues and elevated spending shocks, while labor market, social protection, health (to accommodate for COVID-19 related spending pres- and education policies will need to be (re)considered sures)—similar fiscal developments took place across through a lens of equity and inclusion. the world in the wake of COVID-19 shock.6 Moreover, Going forward, Jordan’s economy is like other countries, Jordan also experienced a rise in expected to recover gradually from the COVID-19 public debt as General Government (GG) debt-to-GDP crisis. Real GDP in 2021 is projected to grow by ratio increased by almost 7 percentage points to reach 1.4 percent. This is showing only a muted recovery almost 85 percent at end-2020 (or 106.5 percent for because of limited base effect, a population that the Central Government). Since the more protracted would still not be immune to the COVID-19 by end- the pandemic, the larger its impact on public finance 2021 given known vaccine procurement, delivery, is likely to be, it is critical for countries to maintain a credible medium-term fiscal framework; this will enable to set a path for rebuilding fiscal buffers at a pace 4 IMF Fiscal Monitor, Database of Country Fiscal contingent on the recovery and to reduce public debt Measures in Response to the COVID-19 Pandemic, April burden. For countries constrained with fiscal space, 2021. Includes additional spending to the health sector, like Jordan, there is an urgent need to also direct foregone revenues, and quasi-fiscal operations. 5 As per IMF Government Finance Statistics classification, attention toward creating space through increased including use of cash and statistical discrepancy. revenue collection, greater tax progressivity, and by 6 According to the IMF Fiscal Monitor April 2021, average reducing wasteful subsidies.7 overall deficits as a share of GDP in 2020 reached Two special sections of this report focus on 11.7 percent for advanced economies, 9.8 percent for the pandemic’s impact on private sector firms as emerging market economies, and 5.5 percent for low- well as poverty and inequality in Jordan. Surveys income developing countries. 7 Rodriguez Takeuchi, Laura Kiku, Wai-Poi, Matthew results presented in the Special Focus on Jordan’s Grant. 2021. Fiscal Policy, Poverty and Inequality in Private Sector Snapshot reveal that, a year into the Jordan: The Role of Taxes and Public Spending – Policy pandemic, the lockdowns and demand shocks have Summary (English). Washington, D.C.: World Bank had a strong impact on the private sector, which Group. Executive Summary xiii and vaccination programs, as well as the presence of world. Over the medium-term, a wide range of growth- underlying structural impediments that were keeping enhancing reforms are necessary to considerably the economy operating below its potential even strengthen the business and investment environment, before the crisis hit. Furthermore, the global path to boost innovations and competitiveness, and improve recovery remains uneven and unclear at this stage. productivity in order to support a strong growth For Jordan, in the short-to-medium term, recovery recovery and much-needed sustainable job creation. remains contingent upon the speed of vaccination, These reforms are also important in the post-COVID not only at home but also abroad due to its significant context of reducing debt vulnerabilities amid rising trade, travel, and investment linkages with the outside macroeconomic imbalances. xiv JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD ‫الملخص التنفيذي‬ ‫والبنك املركزي األردين‪ ،‬واملؤسسة العامة للضامن االجتامعي باتخاذ تدابري‬ ‫رسيعة ويف توقيت مناسب الستهداف األفراد والقطاعات األكرث ترضرا ً‬ ‫بفعل األزمة‪ ،‬وذلك بهدف حامية الوظائف ومنع وقوع رضر مستدام‬ ‫الرغم من التقدم الحاصل مؤخراً عىل صعيد توفري املطاعيم‬ ‫ملواجهة جائحة كوفيد‪ ،-19‬ال تزال عملية تعايف االقتصاد العاملي‬ ‫ة بحالة من عدم التقني‪ .‬فخالل النصف األول من العام‬ ‫محاط ً‬ ‫ب‬ ‫عىل االقتصاد‪ .‬وشكلت الحزمة اإلجاملية ملبادرة البنك املركزي األردين نحو‬ ‫‪ ،2020‬تراجع الناتج االقتصادي العاملي إىل مستويات غري مسبوقة‪ ،‬األمر‬ ‫ة‬‫‪ 8%‬من الناتج املحيل اإلجاميل‪ .‬حيث تضمنت التدابري املالية استجاب ً‬ ‫الذي أدى إىل انخفاض حاد يف التجارة العاملية‪ .‬وتشري أحدث تقديرات‬ ‫للجائحة إعفاء معدات طبية محددة من رضيبة املبيعات واإلنفاق‬ ‫تقرير آفاق االقتصاد العاملي‪/‬صندوق النقد الدويل يف نيسان ‪2021‬‬ ‫اإلضايف عىل املشرتيات من املعدات واإلمدادات الطبية‪ .‬واشتمل الدعم‬ ‫إىل انكامش االقتصاد العاملي مبقدار ‪ 3.3%‬يف العام ‪ .2020‬ويعد هذا‬ ‫املقدم للرشكات وقطاع السياحة عىل تخفيض نسب اشرتاكات الضامن‬ ‫االنكامش أعمق بكثري من ذلك الذي حدث أثناء األزمة املالية العاملية‬ ‫االجتامعي‪ ،‬وتخفيض الرضيبة العامة عىل املبيعات ورضيبة الخدمات‬ ‫(‪ .)2008–2007‬رغم ذلك‪ ،‬تشري االتجاهات الحديثة إىل حدوث تعاف‬ ‫عىل املطاعم والفنادق باإلضافة إىل تقديم دعم مبارش لقطاع السياحة‬ ‫قوي يف النشاط االقتصادي العاملي خالل النصف الثاين من العام ‪2021‬‬ ‫بقيمة ‪ 20‬مليون دينار‪ .‬فضالً عن ذلك‪ ،‬تلقى العاملون الدعم من خالل‬ ‫مدفوعاً بتحفيزات مالية ونقدية ضخمة‪ .8‬رغم ذلك‪ ،‬يرتبط مدى إطالة‬ ‫مخصصات تأمني البطالة املقدمة من قبل املؤسسة العامة للضامن‬ ‫املدى بصورة وثيقة مبدى توفري اللقاح‪ ،‬والذي يكتسب زخامً كبريا ً يف بعض‬ ‫االجتامعي للعاملني يف الرشكات غري القادرة عىل العمل أثناء الجائحة‪.‬‬ ‫الدول املتقدمة‪ ،‬لكن مع وجود تفاوت عرب دول العامل األخرى‪ .‬ويف الواقع‪،‬‬ ‫كام قدمت الحكومة األردنية دعامً نقدياً لألرس الفقرية واملحرومة من‬ ‫يتوقع البنك الدويل أن يحقق االقتصاد العاملي منوا ً مبقدار ‪ 4%‬يف العام‬ ‫خالل برامج منتظمة للتحويالت النقدية املنفذة من قبل صندوق املعونة‬ ‫‪ .20219‬بيد أن هذه النظرة املستقبلية العاملية تحافظ عىل مكون هام‬ ‫الوطنية باإلضافة إىل برامج التحويالت النقدية ضمن برنامج تكافل‪،-1‬‬ ‫يختص بكل دولة‪ ،‬والذي يعتمد عىل قدرة كل اقتصاد عىل التكيف ومدى‬ ‫والتي تم توسيعها أيضاً لتقدم تحويالت نقدية مؤقتة ألرس العاملني‬ ‫فعالية سياسته من أجل تقليل األرضار الدامئة عىل االقتصاد‪ ،‬وكذلك وترية‬ ‫يف القطاع غري املنظم من خالل برنامج تكافل‪ ،-3‬باإلضافة إىل برنامج‬ ‫ومدى توفري اللقاح واإلقبال عليه‪.‬‬ ‫استدامة‪ ،‬والهادف إىل دعم األجور واشرتاكات الضامن االجتامعي للعاملني‬ ‫استجابت الحكومة األردنية من خالل اتخاذ العديد من التدابري‬ ‫يف القطاع املنظم لدى الرشكات التي ترضرت جراء الجائحة‪ .‬ويف آذار‬ ‫الهادفة إىل التخفيف من األثر االقتصادي واالجتامعي لصدمة كوفيد‪.-19‬‬ ‫‪ ،2021‬أعلنت الحكومة أيضاً عن حزم تحفيزية وتدابري إنعاشية إضافية‪،‬‬ ‫ومن أجل التخفيف من تداعيات الصدمة‪ ،‬قامت الحكومة األردنية‪،‬‬ ‫تشكل يف مجموعها قرابة ‪ 1.4%‬من الناتج املحيل اإلجاميل‪ ،‬والتي تضمنت‬ ‫متديد فرتة برنامج استدامة والتوسع يف برنامج تكافل‪ -3‬من أجل شمول‬ ‫املزيد من املنتفعني‪.‬‬ ‫‪8‬بحسب تقرير آفاق االقتصاد العاملي الصادر عن صندوق النقد الدويل لشهر‬ ‫ ‬ ‫شهد االقتصاد األردين يف العام ‪ 2020‬انكامشاً مبقدار ‪،1.6%‬‬ ‫نيسان ‪ ،2021‬من املتوقع أن يرتفع حجم الناتج والتجارة عىل املستوى‬ ‫وهو االنكامش األول خالل ثالثة عقود‪ .‬وبالرغم من أنه قد شكل حدثاً‬ ‫العاملي مبقدار ‪ 6.0%‬و‪ 8.4%‬يف العام ‪ .2021‬وتشري هذه التوقعات‪ ،‬تباعاً‪،‬‬ ‫تاريخياً يف األردن‪ ،‬إال أن هذا االنكامش كان من بني األقل عىل مستوى‬ ‫إىل إجراء تعديل صعودا ً مبقدار ‪ 0.5‬و‪ 0.3‬نقطة مئوية باملقارنة مع توقعات‬ ‫العامل يف العام ‪( 2020‬انظر الشكل ‪ ،)2‬وتم التخفيف منه بالنظر إىل‬ ‫الصندوق يف كانون الثاين ‪.2021‬‬ ‫هيكلية االقتصاد األردين وبالتحديد اعتامده الكبري عىل عوائد السياحة‪.‬‬ ‫‪9‬البنك الدويل‪ ،‬تقرير اآلفاق االقتصادية العاملية‪ ،‬كانون الثاين ‪.2021‬‬ ‫ ‬ ‫‪xv‬‬ ‫التجريبية يف الحالة األردنية)‪ .‬وقد أدى االنخفاض الحاد يف أسعار النفط‬ ‫وميكن أن يعزى هذا األثر املخفف بشكل جزيئ إىل التحفيزات املالية‬ ‫إىل انخفاض يف فاتورة مستوردات األردن‪ ،‬مام أدى إىل تحسن ملحوظ يف‬ ‫والنقدية الكبرية التي قدمها السلطات يف توقيت مناسب‪ ،‬والتي شكلت‬ ‫امليزان التجاري‪ ،‬والتي تقلص من ‪ 19.6%‬من الناتج املحيل اإلجاميل يف‬ ‫ة عىل ذلك‪،‬‬ ‫ما مجموعه قرابة ‪ 10.5%‬من الناتج املحيل اإلجاميل‪ .10‬عالو ً‬ ‫العام ‪ 2019‬إىل ‪ 16.5%‬من الناتج املحيل اإلجاميل يف العام ‪ .2020‬إال أن‬ ‫يشري تحليلنا أنه وبالرغم من أن الصدمة التي تلقاها القطاع السياحي‬ ‫االنخفاض غري املسبوق يف تدفق السياحة الدولية (‪ )76%‬أدى إىل إبقاء‬ ‫تسببت يف انخفاض ملموس يف قيمة صادرات البالد من الخدمات‪ ،‬إال‬ ‫عجز الحساب الجاري مرتفعاً‪ .‬رغم ذلك‪ ،‬بقي التمويل الخارجي مريحاً‬ ‫أن هذا األثر السلبي قد تم تخفيفه جزئياً من خالل إدخال تحسينات‬ ‫بفضل الوصول الجيد إىل السوق باإلضافة عىل ارتفاع التدفقات الرسمية‬ ‫كبرية عىل صعيد التجارة بفعل انخفاض أسعار النفط العاملية‪ .‬كام تم‬ ‫من الجهات املانحة‪ ،‬مام ساعد يف خفض الضغط املتزايد عىل الحساب‬ ‫دعم ذلك من خالل التعديل املناسب يف الحساب الجاري بدعم من توفر‬ ‫الخارجي‪ ،‬واملحافظة عىل مستويات مناسبة من احتياطيات العمالت‬ ‫متويل خارجي إضايف (الصندوق ‪ :1‬أحجية النمو يف األردن ‪ .)2020‬رغم‬ ‫األجنبية‪ .‬وبالنظر إىل االرتفاع املتوقع يف أسعار السلع يف العام ‪،2021‬‬ ‫ذلك‪ ،‬يبقى هنالك سؤال هام لألردن‪ -‬كيفية وضع النمو مجددا ً عىل درب‬ ‫من املتوقع أن يبقى عجز الحساب الجاري لألردن بشكل عام عند نفس‬ ‫التعايف‪ ،‬وبالتايل‪ ،‬عىل مسار قوي وشمويل بالنظر إىل أن االقتصاد األردين‬ ‫املستوى باملقارنة مع العام ‪.2020‬‬ ‫فقد زخمه حتى ما قبل الجائحة (الصندوق ‪ :3‬مترين لحساب النمو يف‬ ‫بالرغم من محدودية الحيز املايل‪ ،‬متكن األردن من الرشوع يف‬ ‫األردن)‪ .‬وقد تفاقم جزء من هذه التحديات بفعل جائحة كوفيد‪.-19‬‬ ‫تطبيق سياسة مالية ملواجهة التقلبات الدورية بغرض االستجابة لصدمة‬ ‫وتتطلب إعادة االقتصاد إىل مسار منو وتعايف بشكل مستدام وشمويل‬ ‫كوفيد‪ .-19‬فقد استجابت السياسة املالية يف األردن والتي كانت منذ‬ ‫إجراء تعديالت جوهرية عىل صعيد رسم السياسات‪.‬‬ ‫ة للتقلبات الدورية بشكل عكيس للتقلبات الدورية يف العام‬ ‫القدم مساير ً‬ ‫بعكس االقتصاد الحقيقي‪ ،‬شهد سوق العمل تدهوراً شديداً يف‬ ‫‪( 2020‬الصندوق ‪ :4‬التقلبات الدورية للسياسة املالية يف األردن)‪ ،‬من‬ ‫العام ‪ 2020‬وهو بحالة مقلقة‪ .‬فحتى ما قبل الجائحة‪ ،‬كان سوق العمل‬ ‫خالل تقديم حوافز بنحو ‪ 2.7%‬من الناتج املحيل اإلجاميل لالقتصاد‪ ،‬األمر‬ ‫األردين يعاين من مشكالت هيكلية أدت إىل تدهور تدريجي ملخرجات‬ ‫الذي ساعد يف منع حدوث انكامش اقتصادي أكرث شدة ورمبا خسارة‬ ‫سوق العمل‪ ،‬مبا يف ذلك ارتفاع نسب البطالة‪ ،‬ونسب مشاركة يف القوى‬ ‫عدد أكرب من الوظائف‪ .11‬وأدى ذلك بشكل بديهي إىل اتساع العجز املايل‬ ‫العاملة تعد من بني األدىن يف العامل‪ ،‬وارتفاع حجم القطاع غري املنظم‪ .‬ومل‬ ‫للحكومة املركزية (مبا يف ذلك املنح)‪ 12‬إىل ‪ 7.4%‬من الناتج املحيل اإلجاميل‬ ‫يفلح النمو االقتصادي يف الحد من نسب البطالة ذلك أن التشغيل تحول‬ ‫أو قرابة ‪ 2.8‬نقطة مئوية من الناتج املحيل اإلجاميل باملقارنة مع العام‬ ‫من القطاعات عالية اإلنتاجية إىل القطاعات متدنية اإلنتاجية‪ ،‬األمر الذي‬ ‫‪ 2019‬بسبب انخفاض اإليرادات املحلية وارتفاع اإلنفاق (للتأقلم مع‬ ‫أدى إىل انخفاض إجاميل يف إنتاجية العاملة‪ .‬وأدت الجائحة إىل املزيد من‬ ‫ضغوطات اإلنفاق املتعلقة بكوفيد‪ -)-19‬تم اتخاذ تدابري مالية مشابهة‬ ‫التدهور يف مؤرشات سوق العمل حيث وصلت البطالة إىل ‪ 24.7%‬يف‬ ‫ة عىل ذلك‪ ،‬وكام هو الحال‬ ‫عرب دول العامل عشية صدمة كوفيد‪ .-1913‬عالو ً‬ ‫ة مع ‪ 19.0%‬يف نفس الفرتة من العام‬ ‫الربع الرابع من العام ‪ 2020‬مقارن ً‬ ‫يف دول أخرى‪ ،‬شهد األردن ارتفاعاً يف الدين العام حيث ارتفعت نسبة‬ ‫ة بشكل غري متكافئ‬ ‫املايض‪ .‬وبقيت فئة الشباب (‪ 24–15‬عاماً) مترضر ً‬ ‫دين الحكومة املركزية إىل الناتج املحيل اإلجاميل بنحو ‪ 7‬نقاط مئوية‬ ‫جراء األزمة‪ ،‬حيث وصلت البطالة يف صفوف الشباب إىل مستويات مقلقة‬ ‫لتصل إىل نحو ‪ 85%‬يف نهاية العام ‪( 2020‬أو ‪ 106.5%‬بالنسبة للحكومة‬ ‫بحيث أصبح واحد من بني كل شابني متعطالً عن العمل‪ .‬أما بالنسبة‬ ‫املركزية)‪ .‬وبالنظر إىل أنه وكلام طال أمد الجائحة‪ ،‬كلام كان من املرجح‬ ‫للشباب من اإلناث فقد كانت ‪ 3‬من أصل كل ‪ 4‬شابات متعطالت عن‬ ‫أن يكون أثرها أكرب عىل املالية العامة‪ ،‬فإن من املهم للغاية أن تحافظ‬ ‫العمل‪ .‬ويلقى هذا االستنتاج الدعم من دراسة أجرتها مجموعة البنك‬ ‫الدول عىل إطار مايل موثوق متوسط املدى؛ حيث سيساعد ذلك يف متهيد‬ ‫الدويل مؤخرا ً عىل الرشكات يف دول منطقة الرشق األوسط وشامل أفريقيا‬ ‫الطريق إلعادة بناء هوامش أمان مالية بوترية مرهونة بالتعايف وخفض‬ ‫مبا يف ذلك األردن (انظر قسم الرتكيز الخاص ‪ .)1‬فبحسب الدراسة‪ ،‬كان‬ ‫عبء الدين العام‪ .‬وبالنسبة للدول التي تعاين من ضيق الحيز املايل‪ ،‬مثل‬ ‫لإلغالقات وانخفاض الطلب أثر قوي عىل القطاع الخاص‪ ،‬مام أدى إىل‬ ‫األردن‪ ،‬فإن هنالك حاجة ماسة أيضاً لتوجيه االهتامم نحو إيجاد حيز من‬ ‫ارتفاع نسب إغالق الرشكات‪ ،‬وبالتحديد يف القطاع الخدمي‪ ،‬والذي يشكل‬ ‫‪ 60%‬من الناتج ويوفر ثلثي الوظائف يف األردن‪.‬‬ ‫‪1‬قرابة ‪ 8%‬من الناتج املحيل اإلجاميل عىل شكل تدابري لتوفري السيولة من قبل‬ ‫ ‪0‬‬ ‫بشكل يعكس البيئة العاملية الصعبة‪ ،‬تدهور الحساب الخارجي‬ ‫البنك املركزي األردين وتدابري مالية بنحو ‪ 2.5%‬من الناتج املحيل اإلجاميل‪.‬‬ ‫لألردن بصورة حادة يف العام ‪ 2020‬بالرغم من التقليص امللحوظ يف‬ ‫‪1‬تقرير الراصد املايل الصادر عن صندوق النقد الدويل‪ ،‬قاعدة بيانات التدابري‬ ‫ ‪1‬‬ ‫حساب تجارة السلع يف األردن‪ .‬عىل وجه التحديد‪ ،‬اتسع عجز الحساب‬ ‫ة لجائحة كوفيد‪ ،-19‬نيسان ‪ .2021‬يتضمن اإلنفاق‬ ‫املالية البلدانية استجاب ً‬ ‫الجاري (مبا يف ذلك املنح) إىل ‪ 3.5‬مليار دوالر أمرييك أو ‪ 8.0%‬من الناتج‬ ‫اإلضايف عىل قطاع الصحة‪ ،‬واإليرادات الضائعة‪ ،‬والعمليات شبه املالية‪.‬‬ ‫ة مع ‪ 0.95‬مليون دوالر أمرييك أو‬ ‫املحيل اإلجاميل يف العام ‪ 2020‬مقارن ً‬ ‫‪1‬بحسب تصنيف اإلحصائيات املالية الحكومية لدى صندوق النقد الدويل‪ ،‬مبا‬ ‫ ‪2‬‬ ‫‪ 2.1%‬من الناتج املحيل اإلجاميل يف العام ‪ .2019‬وبشكل مثري لالهتامم‬ ‫يف ذلك استخدام التباين النقدي واإلحصايئ‪.‬‬ ‫وخالل العام ‪ ،2020‬وعىل أساس صاف‪ ،‬حقق األردن مكاسب غري متوقعة‪،‬‬ ‫‪1‬بحسب تقرير الراصد املايل الصادر عن صندوق النقد الدويل يف نيسان‬ ‫ ‪3‬‬ ‫كنتيجة للصدمة اإليجابية ألسعار النفط‪ ،‬إال أن ذلك أدى من ناحية‬ ‫‪ ،2021‬بلغ متوسط العجز اإلجاميل كحصة من الناتج املحيل اإلجاميل يف‬ ‫أخرى إىل انخفاض تحويالت املغرتبني‪ ،‬بالنظر إىل االعتامد الكبري عىل‬ ‫العام ‪ 2020‬إىل ‪ 11.7%‬لدى االقتصادات املتقدمة‪ ،‬و‪ 9.8%‬لدى اقتصادات‬ ‫التدفقات من دول مجلس التعاون الخليجي (الصندوق ‪ :5‬ميزان تجارة‬ ‫األسواق الناشئة‪ ،‬و‪ 5.5%‬لدى الدول النامية متدنية الدخل‪.‬‬ ‫السلع‪ ،‬وتحويالت املغرتبني‪ ،‬وأسعار النفط العاملية‪ :‬بعض املشاهدات‬ ‫‪xvi‬‬ ‫‪JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD‬‬ ‫بالنظر إىل املستقبل‪ ،‬من املتوقع أن يشهد االقتصاد األردين‬ ‫خالل زيادة تحصيل اإليرادات‪ ،‬وتعزيز تصاعدية الرضيبة‪ ،‬وتقليل أوجه‬ ‫تعافياً تدريجياً من أزمة كوفيد‪ .-19‬حيث من املتوقع أن ينمو الناتج‬ ‫الدعم املهدر‪.14‬‬ ‫املحيل اإلجاميل الحقيقي يف العام ‪ 2021‬مبقدار ‪ .1.4%‬ويظهر ذلك تعافياً‬ ‫يركز قسمني خاصني من هذا التقرير عىل أثر الجائحة عىل رشكات‬ ‫متواضعاً بسبب محدودية تأثري القاعدة‪ ،‬ووجود عدد من السكان الذين‬ ‫القطاع الخاص والفقر والتفاوت يف األردن‪ .‬حيث تكشف نتائج املسوحات‬ ‫سيبقون دون تحصني من كوفيد‪ -19‬بنهاية العام ‪ 2021‬بسبب األمور‬ ‫املقدمة يف قسم الرتكيز الخاص حول ملحة رسيعة عن القطاع الخاص يف‬ ‫املتعلقة برشاء اللقاح‪ ،‬وتوصيلها‪ ،‬وبرامج التطعيم‪ ،‬باإلضافة إىل وجود‬ ‫األردن أنه‪ ،‬وعقب مرور عام عىل الجائحة‪ ،‬كان لإلغالقات وانخفاض الطلب‬ ‫معيقات هيكلية أساسية تبقي االقتصاد يعمل دون قدراته الكاملة حتى‬ ‫أثر قوي عىل القطاع الخاص‪ ،‬مام أدى إىل ارتفاع معدالت إغالق الرشكات‪،‬‬ ‫ة عىل ذلك‪ ،‬يبقى املسار العاملي للتعايف غري‬ ‫ما قبل وقوع األزمة‪ .‬عالو ً‬ ‫وخصوصاً يف القطاع الخدمي‪ .‬وبغرض االستجابة للتحديات‪ ،‬قامت الرشكات‬ ‫متكافئ وغري واضح يف هذه املرحلة‪ .‬وبالنسبة لألردن‪ ،‬وعىل املدى القصري‬ ‫األردنية بإدخال منتجات جديدة وتقوم باستخدام التكنولوجيات الرقمية‬ ‫إىل املتوسط‪ ،‬سيبقى التعايف مرهوناً برسعة عملية التطعيم‪ ،‬ليس فقط‬ ‫بشكل أكرث كثافةً‪ ،‬بالرغم من أن وترية التحول بقيت أقل مام هو يف دول‬ ‫عىل املستوى املحيل بل أيضاً يف الخارج نظرا ً لصالت األردن القوية يف‬ ‫أخرى‪ .‬وبالنظر إىل املستقبل‪ ،‬يجب إعطاء األولوية لدعم الرشكات يف بناء‬ ‫التجارة والسفر واالستثامر مع العامل الخارجي‪ .‬وعىل املدى املتوسط‪ ،‬فإن‬ ‫صمودها‪ ،‬خصوصاً الرشكات الصغرية‪ ،‬من خالل تقديم الدعم يف مجاالت‬ ‫من الرضوري تطبيق سلسلة واسعة من اإلصالحات املعززة للنمو من‬ ‫تتعلق بتحسني قدرات الرشكات‪ ،‬وتطوير وتشجيع الصادرات‪ ،‬واستخدام‬ ‫أجل تقوية بيئة األعامل واالستثامر بصورة ملموسة‪ ،‬وتعزيز االبتكارات‬ ‫التكنولوجيا‪ .‬ويقوم القسم الخاص الثاين بتحليل التأثريات االقتصادية‬ ‫والتنافسية‪ ،‬وتحسني اإلنتاجية بغرض دعم تعايف منو قوي واستحداث‬ ‫واالجتامعية لجائحة كوفيد‪ -19‬يف منطقة الرشق األوسط وشامل أفريقيا‪،‬‬ ‫ة يف‬‫الوظائف املستدامة املطلوبة بشدة‪ .‬كام تعد هذه اإلصالحات مهم ً‬ ‫مع الرتكيز بشكل خاص عىل األردن‪ .‬وكام هو الحال يف الدول األخرى يف‬ ‫سياق ما بعد كوفيد‪ -19‬من حيث تخفيض هشاشة الدين يف خضم ارتفاع‬ ‫املنطقة‪ ،‬أدت الجائحة إىل ازدياد معدالت الفقر املدقع واتساع التفاوت يف‬ ‫االختالالت االقتصادية الكلية‪.‬‬ ‫مستويات الدخل يف األردن‪ .‬ويوجد للتفاوت املتزايد تبعات عىل التخطيط‬ ‫ملرحلة ما بعد كوفيد‪ -19‬يف األردن‪ .‬حيث ستتطلب إعادة البناء بصورة‬ ‫أفضل إعطاء الفئات األشد فقرا ً واألكرث حرماناً الفرص الستعادة ما فقدوه‬ ‫‪1‬رودريغيز تاكويش‪ ،‬لورا كيكو؛ وي‪-‬بوي‪ ،‬ماثيو غرانت‪ .2021.‬السياسة املالية‬ ‫ ‪4‬‬ ‫وبناء الصمود يف مواجهة الصدمات املستقبلية‪ ،‬بينام تجب إعادة النظر يف‬ ‫والفقر والتفاوت يف األردن‪ :‬دور الرضائب واإلنفاق العام‪ -‬ملخص السياسة‬ ‫سياسات سوق العمل‪ ،‬والحامية االجتامعية‪ ،‬والصحة والتعليم من منظور‬ ‫(باللغة اإلنجليزية)‪ .‬واشنطن العاصمة‪ :‬مجموعة البنك الدويل‪.‬‬ ‫املساواة والشمول‪.‬‬ ‫امللخص التنفيذي‬ ‫‪xvii‬‬ 1 ECONOMIC UPDATE The Real Sector than acceleration of economic growth. As a result, over the last decade economic growth has not been The pandemic hit Jordan’s economy when it enough to provide enough jobs for the country’s was already losing steam. Jordan’s per capita rapidly growing population nor to improve living GDP has been on a declining trend since 2009, standards. Real GDP growth has been particularly exhibiting marginal positive trend only in 2018 and sluggish during the past four years due to eroding 2019 (Figure 1). The latter increase, however, can be productivity together with a slowdown in capital attributed to a slowdown in population growth rather accumulation, even before the COVID-19 crisis hit FIGURE 1 • Jordan Per Capita GDP Growth in Historical Context (1980–2020) (Percent) 35 30 Accelerated to avg. 4.4 25 percent during 2004–09 20 15 10 Growth avg. at 1.9 Dropped to an avg. 5 percent during 1992–2003 of –1.3 percent post crisis 0 –5 –10 –15 –20 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Increase Decrease Sources: DoS and World Bank staff calculations. 1 FIGURE 2 • Stringency Index COVID-19 Government Response Tracker, Figure 2) (100 = Total Closure) made Jordan one of the countries with the lowest 100 COVID-19 cases per capita, but this also led to an almost standstill of economic activity and interna- 80 tional tourism travel. A second and much stronger 60 COVID-19 wave hit the country during the last quarter 40 of 2020 and was accompanied by targeted contain- ment (though still relatively strict in comparison 20 with peers). However, in 2020, Jordan’s real GDP 0 contracted by a modest 1.6 percent, compared to Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 2.0 percent growth in 2019, revealing a much lower- than expected impact of COVID-19 disruptions on Egypt Pakistan Kuwait the economy (Box 1: Jordan’s 2020 growth puzzle). Saudi Arabia Qatar Jordan This contraction is also much lower than regional Source: Oxford COVID-19 Government Response Tracker. and global peers (Figure 3). As expected, the COVID-19 shock has also significantly widened the output gap. The output gap gives an indication of how efficiently an economy the economy (Box 3: A growth accounting exercise is running by measuring how far off the economy is for Jordan). The COVID-19 crisis amplified these from its potential output (i.e., output generated when challenges through a shock to Jordan’s vital tourism all factors of production, such as labor and capital, sector, a slowdown in external trade, and relatively are operating at full capacity).15 According to our strict and long-lasting containment measures estimates, the Jordanian economy registered a large required to minimize the spread of the virus. Despite imposing one of the world’s most 15 In this analysis we are using four different statistical rigorous lockdowns, Jordan GDP contraction filtering techniques on quarterly data (Q1-2008 to Q4- in 2020 turned out to be relatively modest. At 2020) including the Hodrick-Prescott (HP) (1987) filter, the onset of the pandemic, authorities’ stringent a de-trending statistical method most commonly used lockdown measures (as measured by the Oxford filter in macroeconomics, with smoothing parameter, a FIGURE 3 • Decline in Real GDP During 2020 for Selected Countries (Percent) 10 5 0 –5 –1.6 –10 –15 –20 Montenegro Belize Peru Spain Iraq United Kingdom Philippines Italy Greece Mexico France Portugal Namibia Malta South Africa Colombia Belgium Thailand Chile Slovenia Canada Mongolia Cyprus Hungary Germany Japan North Macedonia Brazil Latvia United States Samoa Russia New Zealand Estonia Poland Kazakhstan Australia Israel Indonesia Nepal Jordan Luxembourg Korea Lithuania Bhutan Pakistan Iran Turkey China Myanmar Egypt Bangladesh Ethiopia Sources: DoS and World Bank staff calculations. 2 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD BOX 1. JORDAN’S 2020 GROWTH PUZZLE The COVID-19 shock led to a 1.6 percent contraction of Jordan’s real GDP in 2020 despite having multiple COVID-19 waves during 2020 and one of strictest lockdown globally to contain its spread, which seems puzzling. In this box we analyze the reasons behind this puzzle, using a CGE model that incorporates short-term behavior with limited wage flexibility, allowing for temporary unemployment as firms may lay off workers during the COVID-19 crisis.a Our findings from the CGE model reveal that the tourism shock caused a significant decline in the value of exports, approximately of a magnitude of 10 percent of GDP. This negative impact was, however, partially mitigated by a substantial improvement in terms of trade caused by the decline in the international price of oil in the early part of 2020. Consequently, Jordan managed to take good advantage of this windfall with the value of oil product imports declining by over 52 percent or over 5 percent of GDP over 2020.b Furthermore, additional external funding allowed the current account deficit to substantially decline, further offsetting the impact from the decline in export earnings from tourism.c Moreover, the decline in petroleum prices lowered output prices in the domestic productive sectors, which in turn helped to offset the decline in consumption and employment throughout the economy; this effect was most pronounced in the energy intensive sectors. In addition, part of the expanded external funding inflow was used by the government to provide a strong fiscal stimulus through a combination of revenue and expenditure measures (Table 1), significantly expanding the Central Government deficit. Lower taxes and higher transfer payments left more money in the purse of the households, further offsetting the decline in domestic consumption and employment. The combination of windfall gains from oil prices, fiscal stimulus, and external funding mainly used for consumption expenditures materially insulated Jordan from the tourism trade shock and left only a smaller impact (-1.6 percent of GDP) from COVID-19 lockdowns (full and partial) on the economy. In the CGE model, we notice that this result is also contingent on a shift from private investment to consumption and a higher import propensity in tourism consumption of re-exported goods than found for the economy in general. Looking forward to 2021, some recovery of the export of tourism services are currently forecast. However, with international price of oil currently trading at pre-COVID-19 crisis levels, the current account deficit is likely to remain on the high side high. Thus, the windful gain experienced in 2020 is likely to operate oppositely, dampening any immediate expectation of a strong recovery. FIGURE 4 • Schematic Representation of Circular Flows in the CGE Model Direct Tax Payments Fac Government Households tor Fiscal Good Sup s Utility ply System Indir Demand Savings Maximization Fac tor ect T Wa Good ax Pay and ges s Pay me Dem Savings men nts s d s ent ts Goo P aym ds Factor Market Cost Goods Demand Goo Investment Minimization Goods Payments Goods Market and em ts Savings Go ments D en tor ods Supp Armington rt Pay ym Go Impo Fac Pa od Assumption Re tor s ven rts Fac Impo ue Revenue ly Cost Exports Revenue Maximization Minimization Rest of the world Exports Activities a An economy-wide recursive dynamic Computable General Equilibrium (CGE) representation of the Jordanian Economy has been developed in collaboration with the World Bank Jordan team. The model has both disaggregated sector and household representation by income deciles. This model is designed to analyze economy-wide implications of specific policy measures in the fiscal and external focus areas both in isolation as well as any relevant combined effects. The economy-wide label implies that the model has a specific level of aggregation in all sectors of the Jordanian economy. The CGE specification implies that the model is a numerically specification of the demand and production relationships, the interrelationship between them, and is solved simultaneously for prices in all markets. The model has 23 productive sectors, each producing a unique commodity that is traded domestically and in competition with imported goods and/or exported internationally. The Jordanian government’s revenue system has been given specific consideration. The government collects direct taxes on factor incomes as well as shares of capital rents. The governments also collect indirect taxes on intermediate and final consumption expenditures and on imports. Finally, the governments receive fees and fines from households. The Governments’ consumption expenditure, investment, and subsidies and transfers to households are given exogenously. The Jordanian relationship with rest of the world is given by imports and exports of each commodity as well as any net-incomes and exogenous transfers to government and/ or households. The model has options to both assume fully flexible factor prices and thus full employment (long-run) or to simulate shorter-run behavior through limiting factor price flexibilities with adjustments made instead to factor employment. This analysis was based on estimates from the Spring 2021 Macro Poverty Outlook. b Oil products imports according to DoS database including Petroleum Crude, Gas Oil, Diesel Oil (Solar), Lubricating Oils, Natural Gas Liquefied, Petroleum Spirit (Benzene), and Natural Gas. c Export earnings from tourism has been distributed to goods and services in the economy using the 2016 Tourism Satellite Account. Economic Update 3 FIGURE 5 • Output Gap Analysis (seasonally FIGURE 6 • Potential Output Adjusted) (Percent) (Percent of GDP) 3.0 2.0 2.0 1.0 1.0 0.0 0.0 –1.0 –1.0 –2.0 –2.0 –3.0 –3.0 –4.0 –4.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 –5.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2017 2018 2019 2020 2018 2019 2020 Hodrick-Prescott Hamilton Baxter-King Hodrick-Prescott Baxter-King Hamilton Actual (seasonal adjusted) Source: World Banks staff calculations. Source: World Banks staff calculations. negative output gap during the last three quarters of ment’s targeted measures to keep this activity oper- 2020, significantly deviating away from its potential ational during the lockdowns. The agriculture sector and underutilizing its resources (Figure 5). Closing also benefitted from increased demand for local pro- the gap or making sure scars to the economy are not duce, registering 1.6 percent growth. permanent, require policy actions such as monetary On the demand side, net exports and a of fiscal stimulus to boost demand. However, poten- drop in investments dragged growth down. Net tial output has been declining over past few years exports made the largest negative contributions (Figure 6), indicating that solid structural reforms are to economic output in 2020, pulling down growth needed to reverse this trend. by almost 4.0 percent (Figure 8). This significantly On the supply side, the services sector has negative contribution was the result of an unprec- been hit hardest, closely followed by industry. Ser- edented decline in travel receipts to Jordan, which vices (with almost 60 percent share in the economy)16 dropped by 76 percent. Moreover, gross fixed provided a negative contribution of 0.7 percentage capital formation negatively contributed 0.8 percent points, followed by the industrial sector with negative to real GDP decline as public investment declined 0.6 percentage points contribution to GDP (Figure 7). further, reflecting the disproportional burden of fiscal In line with expectations, contact-intensive services consolidation on capital spending given rigidities on activities have been most adversely impacted by the the recurrent side. In contrast, central government COVID-19 shock. The ‘transportation, storage & com- consumption along with private demand appears munications’ sectoral output registered the strongest to have supported real GDP from the demand side. decline, followed by ‘community, social and person- The latter has significantly cushioned the shock on al services’ and ‘wholesale & retail trade, restaurants economic activity, propelled by significantly favorable & hotels.’ Meanwhile, the drop in industrial output ap- price developments (Box 1: Jordan’s 2020 growth pears to have been led by a 3.8 percent decrease in construction activity which seems to be associat- ed with the decline in investment activity. This was band-pass filter as proposed by Baxter and King (1999), the Beveridge and Nelson (1981) decomposition, and followed by manufacturing activities (contracting by Hamilton’s approach (2018). The application of different 2.7 percent). Interestingly, the ‘mining and quarrying’ filtering techniques is yielding similar results, indicating subsector fared relatively well, registering a growth of robustness of the estimation. 0.8 percent in 2020, potentially shielded by govern- 16 As share of GDP at market prices. 4 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD FIGURE 7 • Services Took the Largest Hit in 2020 FIGURE 8 • Annual Demand Side Contribution Point Contribution to GDP Growth Point Contribution to GDP Growth (Percent) (Percent) 2.0 8 6 0.0 4 2 –2.0 0 –2 –4.0 –4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 –6 2018 2019 2020 2014 2015 2016 2017 2018 2019 2020 Net Taxes On Product Services Industry Private Consumption Public Consumption GFCF Agriculture Real GDP Net exports GDP at market prices Sources: DoS and World Banks staff calculations. Source: World Banks staff estimates. puzzle) as well as the Government of Jordan’s fiscal COVID-19 Fiscal Package During 2020 TABLE 1 •  COVID-19 package, amounting to 2.7 percent of GDP (Percent of GDP) (Table 1) and monetary stimulus of around 8 percent Additional spending or foregone revenues 0.9 of GDP in 2020.17 Health sector 0.2 During the first four months of 2021, Non-health sector 0.7 Jordan’s economy has faced another pandemic induced setback. Within a period of twelve months, Quasi-fiscal operations 1.6 Jordan witnessed its third and strongest COVID-19 Total 2.5 wave (March and April 2021), leading to targeted Source: IMF Fiscal Monitor, Database of Country Fiscal Measures in Response to the closures, return of curfew on Fridays along with early COVID-19 Pandemic, April 2021. Note: Excludes liquidity measures such as equity injections, loans or asset purchase. market closures, all aimed at mitigating the health impact. At the same time, vaccination rollout remains relatively modest. As of May 4, around 7.8 percent of the country’s total population has received at Household Income and Expenditure Survey informal least one vaccine dose, which is almost on par with workers accounted for 35 percent of the workforce the global average of 7.9 percent for the same time and are disproportionally concentrated in poor and much lower than some regional peers, such as and near-poor households. Moreover, economic Morocco and Kuwait. Moreover, only 2.8 percent of growth has not led to a reduction in unemployment, population has received two vaccine doses. in part due to Jordan’s rapidly growing population and large influx of refugees and migrants.18 Other structural issues include a shift of employment from Labor Market Developments high‑ to low‑productivity sectors, which a has been driving down overall levels of labor productivity and Even before the pandemic, labor market creating distortions in allocations of resources in the outcomes were gradually worsening. Jordan’s labor market suffered from structural issues resulting 17 Both stimuli packages are not mutually exclusive of each in steadily rising unemployment, one of the lowest other. levels of labor force participation in the world, 18 Jordan Country Private Sector Diagnostic (May 2021, and high informality. According to the 2017–18 forthcoming). Economic Update 5 economy.19 In addition, Jordanian workers are facing 19 Winkler, Hernan and Alvaro Gonzalez. 2019. Jordan low returns from both education and experience.20 Jobs Diagnostic. Jobs Series; No. 18. World Bank, Washington, DC. As a result, a large share of Jordan’s crucial human 20 World Bank. 2019. World Development Report 2019: The capital resource has remained underutilized, despite Changing Nature of Work. World Development Report; its young and educated population, which is socially Washington, DC. BOX 2. JORDANIAN ECONOMY AND COVID-19 CRISIS—LONG TRAIL AHEAD COVID-19 Shock Led to a Recession in Jordan in Timely and Significant Measures, Particularly 2020, Though a Shallower One than Most Peers Expanding CBJ’s Balance Sheet, Reduced the and Neighbors. Pandemic’s Impact. Real GDP growth during 2020 Monetary and Fiscal Stimuli % y-o-y change % age points of change in GDP during 2019–20 8 12 Brunei 4 10 Saudi Slovenia 0 Bahrain Arabia Croatia Lithuania Δ in primary fiscal balance 8 Israel –4 Botswana Argentina Hungary –8 6 Albania Tunisia Estonia –12 4 S. Korea India Thailand Namibia Malaysia –16 Philippines 2 –20 Egypt Bulgaria Mexico Jordan –24 0 Jordan Saudi Egypt Qatar Tunisia Morocco Turkey Arabia –2 –5 0 5 10 15 20 Q1 Q2 Q3 Q4 Average Δ in central bank's assets While the Liquidity Support Helped Production Notwithstanding the Shallow Economic Activities in Jordan to Recover Sharply After the Contraction, Jordan Posted Large Twin Deficits in Easing of Lockdowns, Employment Conditions, 2020. Nonetheless, Remained Weak. External and Fiscal Accounts Production and Employment % of GDP, 2020 Average 2019 levels = 100 4 Manufacturing Employment 2 110 110 100 100 0 90 90 80 80 –2 70 70 60 60 –4 50 50 –6 40 40 30 30 –8 2019 Q1–2020 Q2–2020 Q3–2020 Q4–2020 2019 Q1–2020 Q2–2020 Q3–2020 Q4–2020 –10 MENA Oil importers –12 Jordan Tunisia Egypt Morocco Mauritania Djibouti Jordan Morocco Tunisia Egypt Saudi Arabia Current account balance Fiscal balance (continued on next page) 6 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD BOX 2. JORDANIAN ECONOMY AND COVID-19 CRISIS—LONG TRAIL AHEAD (continued) Ongoing Third COVID-19 wave and Slow Vaccine Indeed, Recent Post-COVID Economic Projections Rollouts, Dampens Jordan’s Economic Recovery Depict That the Country’s Economic Recovery Prospects. Would Remain Relatively Slower than its Peers Over the Medium-Term. Covid-19 Situation: Cases vs Vaccinations % total population, as of May 4, 2021 Growth Outlook 2019 = 100 Bahrain 125 Turkey 120 Morocco 115 Jordan 110 Lebanon 105 Tunisia 100 Iraq 95 Egypt 90 2019 2020 2021 2022 2023 0 6 12 18 24 30 36 42 48 Jordan Morocco Egypt Total vaccinated Total cases Mauritania Djibouti MENA Source: CBJ, DoS, IMF, World Bank Macro Poverty Outlook (April 2021), ourworldindata.com, World Bank staff calculations. BOX 3. A GROWTH ACCOUNTING EXERCISE FOR JORDAN As mentioned earlier, Jordan’s economy was suffering from persistently weak economic growth prior to the COVID-19 pandemic. Using World Bank’s Growth Accounting Tool, this box attempts to quantify the contribution of factor inputs—namely capital, labor, human capital, and total factor productivity—over the last two decades in order to analyze the drivers behind the decline in Jordan’s economic dynamism. In this model, annual GDP is a function of capital and human capital adjusted labor: Yt = At K tαH t1−α and H t = ht ∗L∗ t. Where Yt is GDP in year t, Kt and Ht represent the capital stock and human capital in year t, while α represents the elasticity of output with H t = ht ∗L∗ respect to labor, which is proxied by the labor share in national income. Moreover, t is represented by the labor force (population aged 15–64 years) in year t, while the estimated level of human capital per unit of labor input in year t (ht) is calculated as the exponential of the product of return to education ( φ , in percent) and average years of schooling in year t (St): ht = exp ( φ St). Finally, At is the total factor productivity (TFP) in year t, where growth in TFP is calculated as a residual, i.e., output growth not explained by either growth in capital or growth in labor.a It represents a crucial measure of productivity and is considered the single most important component of long-run growth in advanced economies.b Growth of factor inputs Labor. Between 2001–2010, labor supply in Jordan grew at an average rate of 3.8 percent, accelerating to 5.3 percent during 2011–15 and then declining to 2.9 percent during 2016–20 (Figure 9). The labor share in national income for 2017 is estimated at 36.5 percent, which implies for 1 percent growth in the labor supply an additional 0.36 percentage point of output growth is generated, while a 1 percentage increase in the capital stock would add 0.64 percentage points to output growth.c Thus, changes in the labor input inadvertently have a smaller impact on output than changes in capital inputs. (continued on next page) Economic Update 7 BOX 3. A GROWTH ACCOUNTING EXERCISE FOR JORDAN FIGURE 9 • Labor & Human Capital Capital FIGURE 10 •  (Percentage growth) (Percentage growth) 10 10 8 8 6 6 4 2 4 0 2 –2 0 –4 –2 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 –4 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Labor (L) Level of human capital per labor (h) Sources: DoS, UN population statistics, UNICEF, HDR, World Penn tables, World Bank Sources: DoS, UN population statistics, UNICEF, HDR, World Penn tables, World Bank calculations. calculations. FIGURE 11 • Productivity FIGURE 12 • Factor Input’s Contributions to (Percentage growth) Growth Growth Rate (Percentage points) 10 10 Period 2 8 8 Period 1 Period 3 6 6 4 2 0 4 –2 –4 2 –6 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 0 Capital Stock (α * gK) –2 Labor ((1–α) * gL) Human Capital per Labor ((1–α) * gh) –4 Total Factor Productivity (gA) 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Real GDP (gY) Sources: DoS, UN population statistics, UNICEF, HDR, World Penn tables, World Bank Sources: DoS, UN population statistics, UNICEF, HDR, World Penn tables, World Bank calculations. calculations. Human capital. The estimated level of human capital per unit of labor input takes into account the average years of schooling based on data from the Human Development Report (HDR) and return to education, which utilizes UNICEF estimates.d According to UNICEF, one additional year of education results in a 4 percent increase in earnings for the average Jordanian worker.e Based on these estimates, the calculated level of human capital per unit of labor has remained almost stagnant during the past two decades, growing by an average of 0.2 percent during this period. (continued on next page) 8 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD BOX 3. A GROWTH ACCOUNTING EXERCISE FOR JORDAN (continued) Capital. The capital stock is estimated using a “rule of thumb” method K0 = [“rule of thumb” K/I ] with a capital output ratio at 1.9 based on estimates from the World Penn tables.f According to this method, the growth of capital stock accelerated during the first decade of analysis, reaching its peak in 2010. Thereafter, growth of capital remained positive but lost vigor before finally turning negative in 2019 (Figure 10). Although growth of capital stock calculated here is comparable to estimates from the World Penn tables 10, the magnitude in decline during the last decade is significantly stronger, likely attributed to different estimates for annual gross fixed capital formation during this period. Total factor productivity. TFP consequently is calculated as a residual (also referred to as Solow residual or Multifactor Productivity). TFP measures the unobserved drivers of growth, thus capturing the efficiency in the use of labor and capital and is therefore often interpreted as technological progress, innovation, or build up in workers’ skills and competencies. The latter is (to some extent) captured by the human capital component in this model. Our analysis shows TFP growth remained strong until 2007 before slowing down in 2008 and turning negative during 2009–2017 (Figure 11). These findings are largely in line with estimates from the World Penn tables. Factor input’s contributions to growth The analysis was also performed for three different periods mirroring Jordan’s economic cycles during the past two decades (Figure 12). Using the method developed by Bai-Perron (2003) to identify multiple structural breaks, the first period (period 1) identified is a moderate growth period during 2000–2003, with average growth of 4.9 percent. The second period (period 2) is the period of high growth (2004–09), where growth averaged at 7.5 percent. During the third period of analysis (period 3) in 2010–20 average growth dropped to 2.0 percent. For each of these periods, growth is decomposed into factors of production, which may shed light on the patterns and drivers of diverging economic growth during the cycles. The deconposition according to the three economic cycles shows that real GDP growth in the period 1 was underpinned by strong TFP growth. During the second period, on the other hand, robust economic growth appears to be mainly supported by capital accumulation, but labor and TFP also made strong contributions to growth. However, during period 3, economic growth appears to be mainly supported by labor accumulation while the contribution of capital accumulation was positive but had significantly weakened. These findings contrast with Abou Hamia (2020), who finds that physical capital was the principal driver in Jordan’s output growth between 2010–17. Interestingly, during this period (2010–20), TFP contracted by 1.0 percent, causing a fundamental shift in Jordan’s growth dynamics from the earlier decade. Meanwhile, the impact of human capital accumulation on growth remained consistently negligible throughout all periods. A comparison with similar middle-income countries—namely Turkey, Pakistan and Egypt—across the same time period reveals that Jordan’s TFP contribution to growth was significantly stronger during 2000–09, but Turkey and Pakistan were able to raise their productivity during 2010–19, at a time when Jordan’s TFP growth turned negative. Furthermore, during the last decade, these countries were able to lift output growth through stronger contribution of capital compared to Jordan, which lacked stronger growth impetus from investments. In conclusion, the weakening of all factor inputs during the past years implies that a wide range of growth-enhancing reforms are needed to revive growth. It is true that Jordan benefited significantly from the “peace dividend” in the region during the decade of 2000 and now with recent new developments in the region, return on this dividend appear have somewhat diminished. Thus, there is a need for Jordan to think about a new development paradigm going forward that can revive growth through addressing the issue of incentives as well as weak institutions in the economy. Reference: Abou Hamia, Mohamad Ahmad. “Are developing countries accumulating sufficient total factor productivity to sustain their economic growth and job creation? Empirical evidence from the Middle East and North Africa region.” Review of Development Economics 24.3 (2020): 1102–1127. a Growth rate is calculated as a geometric average growth rate between the beginning and end year (t, t+T) using the continuous compound (natural log) average growth rate formula. b Alberto Musso and Thomas Westermann. Assessing Potential Output Growth in the Euro Area. A Growth Accounting Perspective. ECB Occasional Paper Series No. 2 2 / January 2005. c Labor income share as a percent of GDP-ILO modelled estimates (ILOSTAT), July 2019 (%). d Mean years of schooling based in data from the data center of the UN Human Development Report. (Sourced from: UNESCO Institute for Statistics (2020), Barro and Lee (2018), ICF Macro Demographic and Health Surveys, UNICEF Multiple Indicator Cluster Surveys and OECD (2019b). Data is available until 2019. 2020 assumed unchanged from previous year for this analysis. e UNICEF Jordan, Jordan Country Report on Out-of-School Children. Middle East and North Africa Out-of-School Children Initiative, December 2020. f Based on World Penn table 8.0. Calculated by dividing Capital stock by Output-side real GDP (both at current PPPs in 2005 US$ million) for Jordan in 1980. Economic Update 9 FIGURE 13 • Quarterly Changes in Employment FIGURE 14 • Unemployment Rate Significantly by Sectors Edged Up (Percentage point change, quarter- (Percent) on-quarter) 30 35 1.0 28 30 0.5 26 0.0 24 25 –0.5 22 20 –1.0 20 18 15 –1.5 –2.0 16 10 –2.5 14 12 5 –3.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 10 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2020 2020 Male Female 2017 2018 2019 2020 Agriculture Manufacturing Services Employment rate Total Male Female, RHS Sources: DoS and WB staff calculations. Sources: DoS and WB staff calculations. unsustainable and can lead to increasing social (laws affecting women’s decisions to work), and mar- tension and public discontent. riage (legal constraints related to marriage).23 Labor force participation showed only mar- COVID-19 shock has had a particularly ginal deterioration during 2020. The labor force adverse impact on employment in the services participation (LFP) rate declined marginally to 34.0 per- sector. Both, male and female employment fell, but cent in 2020, compared to 34.3 percent a year earlier. the year-on-year (y-o-y) decline was more pronounced The nominal adjustment mainly came on account of a for men (3.8 percent y-o-y in Q4-2020), while female 0.2 percent decline in male labor market participation, employment dropped by a 1.0 percent y-o-y. On an while female LFP slightly improved, reaching 14.2 per- annual basis, detailed data shows that the pandemic- cent in this period. Similarly, labor force participation induced job shedding predominantly affected the remained highest among youth, leading to a 1.3 services sector (Figure 13) while employment in the percent decline in LFP among youth. The increase in manufacturing and agricultural sector dropped mar- LFP for women may be because Jordanian female LFP ginally. Within the services sector, employment losses already stands among the lowest in the world.21 Recent for men were more significant in the ‘public adminis- research has found that low female LFP in Jordan tration and defense,’ and ‘wholesale and retail trade’ varies significantly with educational attainment.22 as well as the ‘transportation and storage’ subsectors, Extremely low participation levels among Jordanian women with high school education or less seem to be associated with traditional social norms and poor 21 Jordan ranked 133rd out of 156 countries in the Economic Participation and Opportunity subindex public transportation. Female university graduates, on according to the World Economic Forum’s Global the other hand, exhibit similar participation rates than Gender Gap Report 2021. men, but cannot find enough jobs and jobs that allow 22 Kasoolu, Semiray, Ricardo Hausmann, Tim O’Brien, for appropriate work-family balance. These findings and Miguel Angel Santos. “Female Labor in Jordan: are consistent with the assessment form the Women, A Systematic Approach to the Exclusion Puzzle.” CID Business and Law 2021 report, which shows that Working Paper Series 2019.365, Harvard University, Cambridge, MA, October 2019. Jordan’s relatively low index score has mainly been 23 The Women, Business and the Law 2021 study examines the result of low scores in indicators related to mobility progress toward gender equality by measuring the laws (constraints on freedom of movement), workplace and regulations that restrict women’s economic inclusion in 190 economies. 10 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD FIGURE 15 • Labor Force Participation Rates FIGURE 16 • Employment Rate (Percent) (Percent) 70 20 60 14 60 50 12 15 10 50 40 8 40 10 30 6 30 20 4 5 10 20 2 10 0 0 0 Q1–2017 Q2–2017 Q3–2017 Q4–2017 Q1–2018 Q2–2018 Q3–2018 Q4–2018 Q1–2019 Q2–2019 Q3–2019 Q4–2019 Q1–2020 Q2–2020 Q3–2020 Q4–2020 Q1–2017 Q2–2017 Q3–2017 Q4–2017 Q1–2018 Q2–2018 Q3–2018 Q4–2018 Q1–2019 Q2–2019 Q3–2019 Q4–2019 Q1–2020 Q2–2020 Q3–2020 Q4–2020 Total Male Female, RHS Total Male Female, RHS Sources: DoS and WB staff calculations. Sources: DoS and WB staff calculations. while job losses for females were particularly pro- FIGURE 17 • Government Deficit vs. Debt (2019) nounced in the ‘education’ subsector—the sector (Percentage of GDP) employing the largest share of working women. 120 The sharp deterioration of labor market JOR (2020) Debt stock (% of GDP) 100 JOR (2019) indicators during 2020 indicates a strong impact EGY 80 TUN of COVID-19 disruptions on the labor market. Labor QAT DJI 60 MAR market indicators steadily deteriorated during 2020, IRN bringing unemployment to unprecedentedly high level 40 IRQ of 24.7 percent in Q4-2020, registering an 5.7 per- 20 ARE SAU KWT cent y-o-y increase (Figure 14). Alarmingly, gender 0 –2 0 2 4 6 8 10 12 gap appears to have significantly worsened by the Overall Fiscal Deficit (% of GDP) pandemic as female unemployment at the same time Sources: MPO Spring 2021, MoF. surged by almost 8.7 percentage points (y-o-y) to reach Note: Fiscal deficit and debt stock of the Central Government. 32.8 percent, while male unemployment increased by 4.9 percentage points to 22.6 percent. The same was reflected for youth unemployment (age group COVID-19 crisis, government managed to implement 15–24 years) which touched an alarmingly high level counter-cyclical expansionary policies, estimated at of around 50.0 percent at end-2020, compared to an around 1.6 percent of GDP (Box 4: The cyclicality of already elevated level of 41.1 percent in Q4-2019. Within fiscal policy in Jordan).25,26 Consequently, the fiscal this category, female youth unemployment surged to 75.4 percent compared to 53.4 percent a year back. 24 Between 2011–19, Jordan has taken a significant fiscal adjustment to cut the deficit (excluding grants) by a significant 5.3 percent of GDP, bringing it down to a still Fiscal and Debt Developments large 7.1 percent of GDP by the end of 2019. 25 Counter-cyclical expansionary policies here defined as Jordan confronted the COVID-19 shock on the sum of additional fiscal spending, foregone revenue, and liquidity support, net of off-setting fiscal measures the back of limited fiscal policy space. Despite 26 The fiscal impulse was estimated as the difference significant fiscal consolidation during 2011–19, Jordan between the changes in primary balance and in cyclical entered the pandemic period with less fiscal space adjusted primary balance. See Box 2—The cyclicality of than its regional peers (Figure 17).24 To respond to the fiscal policy in Jordan for detailed explanation. Economic Update 11 FIGURE 18 • Fiscal Balance FIGURE 19 • Fiscal Response 2020 (Percentage of GDP) (Percentage of GDP) 0.4 0 0 0.2 –1 0.0 –2 –2 –0.2 Percent of GDP –0.4 –3 –4 –0.6 –4 –3.6 –0.8 –5 –0.7 1.1 –1.0 –6 –6 –1.2 –5.9 –1.4 –8 –7 –2.7 –1.6 Cumulative (RHS) –8 –1.8 –10 2019 PB Automatic Discretionary Off-setting 2020 PB Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Stabilizer fiscal policy measures Sources: IMF Fiscal Monitor: Database of Country Fiscal Measures in Response to the 2020 2019 COVID-19 Pandemic. WB staff estimates. Notes: PB stands for primary balance. See Box 4—The cyclicality of fiscal policy in Source: MoF. Jordan for detailed explanation. deficit27 of the Central Government (CG) grew rapidly social spending to support the most vulnerable and between March and May 2020 when Jordan entered launched initiatives to keep workers employed, but the first wave and the deficit continued to widen the scale remains relatively limited compared to throughout the year (Figure 18). other emerging countries (Figure 20).30 In addition, The widening of the CG fiscal deficit was primarily driven by a decline in domestic revenues caused by the economic downturn as 27 In this report, central government’s deficit includes spending remained elevated. Domestic revenue statistical discrepancy and use of cash as per IMF in 2020 declined by almost 1.8 percent of GDP, Government Finance Statistic specification. Taxes on financial transactions considered a financing item and reflecting mostly the automatic stabilizers effects28 as are not included in the domestic revenue. Direct taxes the impacts of discretionary revenue measures (e.g., include taxes on income and profits. temporary tax reductions and deferrals) remained 28 Jordan’s current tax system is modestly progressive and relatively moderate (Figure 19). Detailed data from therefore automatic stabilizers help to reduce tax burden the Ministry of Finance (MoF) indicates that direct tax when the economy slows down through progressive revenue registered a robust growth of 8.2 percent taxes. Reference: Fiscal Policy, Poverty and Inequality in Jordan: The Role of Taxes and Public Spending – Policy on the back of strong tax collection from individuals Summary (English). Washington, D.C.: World Bank Group. (19.5 percent increase y-o-y) and salaried employees http://documents.worldbank.org/curated/en/1134516 (11.0 percent increase y-o-y), which resulted from 15905549990/Fiscal-Policy-Poverty-and-Inequality-in- authorities’ efforts to curb tax evasion and expand Jordan-The-Role-of-Taxes-and-Public-Spending-Policy- the tax base by focusing on tax administration effort. Summary. Indirect taxes, on the other hand, grew by 6.4 percent 29 In fact, after adjusting for the accounting shift, tax revenue in 2020 may have declined by almost 17.2 percent y-o-y, primarily reflecting the impact of shift of fees and compared to 2019. taxes on oil derivatives from non-tax revenue to sales 30 Jordan has announced a host of measures in response taxes.29 Non-tax revenue, on the other hand, exhibited of the epidemic, included (i) the postponement of significant decline across all categories, dragging 70 percent of customs duty collections and the reduction overall domestic revenues down. of social security contributions from private sector Increased government spending, on the establishments (from 21.75% to 5.25%); (ii) additional JD 50 million for purchases of health equipment and other hand, reflects both inherent expenditure supplies, rental of hotels for quarantines, and additional rigidities as well as discretionary fiscal policies to COVID-related security costs; (iii) temporary cash mitigate COVID-19 impact. Since the outbreak of transfer program for the unemployed and self-employed the pandemic, the authorities have increased critical (JD 81 million); (iv) reducing the general sales tax 12 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD FIGURE 20 • Discretionary Fiscal Response the government had to cover additional expenses to the COVID-19 Crisis (Country related to existing categories such as compensation Comparison) of employees, military expenditures, and interest pay- (Percent of GDP) ments (each increased by around 0.3–0.5 percent of 12 Percentage of GDP 9 6 from 16 percent to 8 percent and the service tax from EMMIEs avg: 4.0 percent 3 EMMIEs avg: 2.5 percent 10 percent to 5 percent for hotels and restaurants; (v) allowing the tourism sector to pay its 2019 tax liability 0 in installments with no penalty; (vi) a package worth a MEX CHN BRA SAU RUS THA PAK COL JOR POL PHL EGY IND IDN total value of JD 448 million, which includes measures to protect existing jobs (JD 113 million), employ youth in Additional spending and forgone revenue Equity, loans, and guarantees COVID-related programs (JD 10 million), and augment social welfare programs (JD 60 million, primarily via an Sources: DoS, IMF Fiscal Monitor: Database of Country Fiscal Measures in Response expansion of the Takaful cash transfer program). Detailed to the COVID-19 Pandemic. Estimates as of March 17, 2021. information can be found from IMF fiscal policy tracker. BOX 4. THE CYCLICALITY OF FISCAL POLICY IN JORDAN Fiscal policy plays a central role in stimulating economies as well as in stabilizing output. This is particularly important for a country like Jordan where effectiveness of monetary policy is limited due to a fixed exchange rate peg. If used effectively, fiscal policy can help stabilize the output counter-cyclically through business cycles, i.e., to expand during recession and contract during boom.a However, literature finds that fiscal policy in most developing countries instead remains procyclical (Gavin and Perotti 1994). This study reconfirms the key findings in literature (see Abdih, et al. 2010; and Slimane and Tahar 2010, for example) that, in the MENA region, the fiscal policy has typically amplified the business cycles. As shown in Figure 21, the correlation between the cyclical components of real government spending and real output are positive for 15 countries out of 19 countries in our sample. (For detailed technical specifications see Annex I A) Jordan is one of those country where fiscal policy has been generally procyclical. The procyclical pattern observed in government spending in Jordan can be mostly attributed to capital spending, as the elasticity of capital spending to growth is as much as 5.1 (and statistically FIGURE 21 • Correlation between Real Output FIGURE 22 • Did Fiscal Policy Respond and Real Spending (Cyclical Proactively During the COVID-19 components) Crisis? (1980–2020) 0.8 0.1 Cyclical component of real GDP (in logs) 0.6 0.05 0.4 0.2 0.0 0.0 –0.2 2020 –0.05 –0.4 Bahrain Kuwait Egypt Tunisia Algeria Djibouti Lebanon Morocco Saudi Arabia Jordan Mauritania Sudan Iraq Iran Pakistan Libya Qatar Afghanistan Yemen –0.1 –0.1 –0.05 0.0 0.05 0.1 0.15 Cyclical component of government spending (in logs) Sources: Data for Jordan is from MoF and DoS of Jordan. Data for other countries is Sources: Data for Jordan is from MoF and DoS of Jordan. Data for other countries is from IMF WEO Database, October 2020. from IMF WEO Database, October 2020. a Kaminsky et al. (2004) defines counter-cyclical fiscal policy as tax rates increase (decrease) and government spending decreases (increases) in good (bad) times. Analogously, pro-cyclical fiscal policy is defined tax rates decrease (increase) and government spending increases (decreases) in good (bad) times. Fiscal policy is defined as acyclical if tax rates and government spending remain constant over the business cycle. (continued on next page) Economic Update 13 BOX 4. THE CYCLICALITY OF FISCAL POLICY IN JORDAN (continued) significant). This means capital spending expands during boom periods and contracts significantly during recession. On the other hand, recurrent spending appears to be a-cyclical (i.e., remains constant over business cycles) as the elasticity of growth to recurrent spending is only 0.24 and statistically insignificant. In the light of COVID-19 shock, most countries, including Jordan, have resorted (perhaps relatively less due to fiscal space issues) to fiscal policy to protect the most hard-hit sectors and vulnerable populations in order to lessen the economic fallout of COVID-19 shock. An interesting question here is what has been the fiscal outcome in Jordan amid the COVID-19 crisis? Did Jordan follow its broad historical pattern of procyclicality (i.e., cutting spending during the recession), or was it different this time around? As shown by Figure 22, Jordan’s data point for year 2020 falls outside the shaded area, reflecting that fiscal policy in Jordan did respond proactively to recessionary conditions despite limited fiscal space. This finding is formally confirmed by a calibration of discretionary fiscal policy response—measured as the change in cyclical adjusted primary balance (CAPB) (For technical details see Annex IA). Our finding shows that estimated change of cyclical adjusted primary deficit (excluding grants) is around JD504 million (~1.6 percent of 2020 GDP).b This implies that of the 2.3 percent of GDP increase in primary deficit (excluding grants) in 2020 compared to 2019, 1.6 percent of GDP came from discretionary fiscal policy response, while the remaining 0.7 percent is the automatic revenue/spending changes due to the output fluctuation. This indicates that despite limited fiscal space, Jordan was able to generate considerable countercyclical fiscal stance in response to the downturn in 2020. b Based on the assumption that revenue elasticity is equal to one (i.e., revenues are perfectly correlated with the cycle) and expenditure elasticity is equal to zero (i.e., expenditures are not affected by the cycle). This is a common assumption used in fiscal policy literature. GDP during 2020 compared to the previous year).31 even achieving this nominal target in this turbulent To alleviate some pressure, authorities took an early time is likely to remain challenging. decision to delay the public wage increase initially The COVID-19 global recession and eco- scheduled for early 2020, and imposed a hiring freeze. nomic policy response has triggered a surge in Despite these measures, capital spending seemed to debt levels in MENA region and rest of the world. have borne the brunt of the new fiscal priorities as it Estimates are that the pandemic will increase the declined by 10.1 percent y-o-y to 2.7 percent of GDP region’s public debt to about 56 percent of GDP in in 2020, compared to the already tapered level of 2020,34 accelerating the rise in public debt during 2.9 percent of GDP in 2019. the past decade. Notably, the debt levels of MENA The contraction in output and ensuing medium-income oil importers are the highest across fall in revenues, along with emergency lifelines MENA country groups (which was true even before to households and firms, pushed up the CG’s the pandemic) and are much higher relative to overall deficit (excluding grants) by 2.8 percent peers in the same income groups outside the region of GDP (from 7.1 percent in 2019 to 9.9 percent (Figure 23).35 Meanwhile, many MENA countries—such of GDP in 2020). When grants are factored in, the as Egypt and Jordan—faced relatively high borrowing overall deficit of the CG reached 7.4 percent of GDP compared with 4.6 percent of GDP in 2019—more 31 Part of the increases were due to COVID-19 related than twice as large as the 2020 budget target of expenses. 3.7 percent of GDP. 32 The government launched a total amount of JD 448 The approved 2021 budget (CG) targets million stimulus and mitigating package to confront the a fiscal deficit (including grants) of 6.2 percent repercussion of the COVID-19 pandemic in March 2021. of GDP. This is only 1.0 percent of GDP lower than 33 2021 recurrent spending contains a public sector salary increase earmarked for 2020 but got delayed due to the deficit for 2020 as some recovery in domestic Covid-19 shock. revenues are expected to be offset by increased 34 Data source: IMF regional economic outlook April 2021. spending on stimulus and mitigating packages,32 35 Debt data are generally not available for MENA low- interest payments, and wage bills.33 Nevertheless, income countries (Yemen and Syria). 14 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD FIGURE 23 • Median Public Debt by Country FIGURE 24 • Coupon Rates of US$ Denominated Group Debt Issuances during 2020, by (Percent of GDP) Maturity for MENA Countries 100 10 90 80 Percent of GDP 70 8 60 50 Coupon rate (%) 40 6 30 20 10 0 4 High income Middle-income oil exporters Middle-income oil importers High income Middle-income oil exporters Middle-income oil importers 2 0 2019 2020 2020 2030 2040 2050 2060 2070 Maturity MENA World JOR BHR EGY QAT SAU SAU SAU Sources: World Bank, Macro and Poverty Outlook (April 2021), Gatti, Roberta, et al., (2021). Sources: Cbonds.com, Gatti, Roberta, et al., (2021). Note: Country groups are represented by median observation of the group. The high- Note: Data are from the beginning of 2020 to February 27, 2021. For comparability, income group in MPO is limited to only countries covered by the World Bank. only coupon rates of US$ denominated debt issuances are displayed. costs during the pandemic (Figure 24), weighing on billion, equivalent to 61.0 percent of GDP, compared already elevated debt levels.36 to 56.1 percent of GDP last year, while average time The pandemic has resulted in a steep to maturity for domestic debt stood at 4.5 years increase in Jordan’s debt-to-GDP ratio, albeit one compared to 3.0 years at end-2016 (Figure 26). similar in magnitude to other regional peers. Prior Furthermore, external debt reached 45.4 percent to the pandemic, CG debt was already at an elevated level of 97.4 percent of GDP in 2019 (compared to an average of around 84 percent of GDP in 2010–18).37 36 Jordan issued a double-tranche US$1.75 billion In the wake of the COVID-19 crisis, CG debt level Eurobond in June 2020. The double-tranche bond was has risen by almost 10 percentage points of GDP split into a US$500 million bond at 4.95 percent over 5-year maturity and a US$1.25 billion bond at 5.85 compared to end-2019 level. Meanwhile, the general percent for 10-year maturity. government (GG) debt (i.e., net of Social Security 37 Central government budget and guaranteed debt Investment Fund (SSIF) debt holdings) registered including debt holdings by SSIF. Includes legacy arrears a similar increase (around 8 percentage points of in 2019. GDP).38 A decomposition of the change of debt-to- 38 General Government debt includes debt (direct and GDP shows that the increase in 2020 CG debt has guaranteed) of the central government, NEPCO, WAJ, water distribution companies, and the SSC. Includes been largely driven by the increase in primary deficit legacy arrears in 2019. as well as the positive interest rate-growth differential 39 The change in debt to GDP is mainly determined by the (known as the snowball effect).39 This pattern is signifi- primary balance and the difference between the interest cantly different from early 2010s where a persistently rate and the nominal GDP growth rate. If the interest negative interest rate-growth differential helped arrest rate-growth differential is strictly positive, a primary fiscal the rise in debt ratios (Figure 25). surplus is needed to stabilize or reduce the debt-to- GDP ratio—known as the snowball effect. Conversely, a Despite increase in its public-debt-to GDP persistently negative on government debt would imply ratio Jordan has been successful in continuing that debt ratios could be reduced even in the presence the trend to lengthen its debt profile. For instance, of primary budget deficits (lower than the debt effect at end-2020, domestic debt for CG reached JD 18.9 induced by the differential). Economic Update 15 FIGURE 25 • Drivers of Change in CG Debt FIGURE 26 • Outstanding CG Debt and Average (Percent of GDP) Time to Maturity (ATM) (Percent of GDP [LHS] and years 12 120 [RHS]) 10 100 8 60% 15 Percent of GDP 6 80 Percentage of GDP 4 60 2 40% 10 Years 40 0 –2 20 20% 5 –4 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 0% 0 (r-g)*b Primary deficit 2016 2017 2018 2019 2020 Other Change in debt-to-GDP CG Debt (% of GDP) (RHS) Domestic Debt (% of GDP) External Debt (% of GDP) Sources: DoS, MoF, DSA, WB staff calculations. ATM of domestic debt (years) Note: (r-g)*b refers to the interest rate and growth differentials on existing public debt. ATM of external debt (years) Other includes privatization receipts, contingent liabilities, NEPCO debt flows and residual. Sources: MoF. WB staff calculations. of GDP at end-2020, (an increase of almost US$2.5 shock appears to have relatively marginal impact on billion during the year) mainly from a net issuance of Jordan’s debt burden.40 US$750 million Eurobond and the fact that loans from international institutions and average time to maturity of Jordan’s external debt averaged around 9.2 years Balance of Payments Position compared to 6.7 years three years earlier. Jordan issued a double-tranche US$1.75 billion Eurobond The global economic environment throughout in June 2020 (which was split into a US$500 mil- 2020 showed a significant amount of uncer- lion bond at 4.95 percent over 5-year maturity and tainty as countries went through multiple waves a US$1.25 billion bond at 5.85 percent for 10-year of COVID-19 infections. During the first half of maturity and priced significantly lower than the recent 2020, global economic output declined by an un- issuances by peer countries) and Jordan’s previous precedented level, resulting in a sharp fall in global auction of a US$1 billion Eurobond in October 2017. trade. However, recent trends are pointing toward a This sustained progress has helped Jordan reduce strong recovery for global economic activity in the the financing risk associated with the external debt, second half of 2020 supported by substantial fiscal albeit at a higher interest cost. and monetary stimuli (Figure 27).41 This anticipated In light of recent developments, economic recovery in global demand, nevertheless, remains recovery and fiscal consolidation efforts have scarred with uncertainty due to the combined become even more important ingredients for preserving debt sustainability. Stress tests indi- cate that Jordan’s debt sustainability remains very 40 As part of Public Debt Sustainability Analysis (DSA), the sensitive to real GDP growth shock—a prolonged stress tests allow to assess a country’s debt sustainability. recession (i.e., real GDP growth remaining stagnant 41 According to the IMF World Economic Outlook for April 2021, global output and trade are projected to increase at 1.4 percent for 2021–23) can hike debt up by by 6.0 percent and 8.4 percent in 2021. Respectively, 3.7 percentage points of GDP by year 2025 com- these projections indicate 0.5 and 0.3 percentage points pared to baseline. Another important shock remains upward revisions when compared to the IMF projections the primary deficit shock, while real interest rate made in January 2021. 16 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD FIGURE 27 • Global Economic Developments and Trend in Jordan’s Current Account Global economic activity Current account & its drivers Regional trend in exports (% y-o-y changes, seasonally adjusted) (% of GDP) (% y-o-y change) 20 20 25 15 20 10 10 15 5 0 0 10 –5 5 –2.1 –10 –10 0 –8.0 –6.9 –8.8 –15 –9.2 –10.6 –5 –20 –20 –10 –25 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 –30 –15 2015 2016 2017 2018 2019 2020 2017 2018 2019 2020 Global trade volumes Current transfers Income A/C Tunisia Jordan Turkey Industrial production (OECD) Services A/C Trade balance Egypt Pakistan Morocco Industrial production (EMEs) Sources: Haver, CPB, CBJ, World Bank staff calculations. impact of the global debt burden and subdued per- pressures. For example, net foreign direct investment formance of the services sector as social distanc- (FDI) flows at 1.6 percent of GDP have almost remained ing measures still remain a norm in many parts of flat in 2020 when compared to 2019. The government the world. successfully issued a Eurobond worth US$1.75 billion Reflecting the challenging global environ- at relatively competitive interest rates at a time when ment, Jordan’s external account position sharply global investors’ sentiments were down.43 This helped deteriorated in 2020.42 Specifically, the current ac- in smooth servicing of a maturing Eurobond worth count deficit (including grants) widened to US$3.48 bil- US$1.25 billion in the later part of 2020. In addition lion or 8.0 percent of GDP in 2020 compared to a to raising debt from international capital markets, the moderate deficit of US$0.95 billion or 2.1 percent of government also borrowed around US$1.5 billion (on GDP in 2019 (Figure 27). Although, exports fared well net basis) from other bilateral and multilateral external compared to peers, they still contracted by 4.5 percent sources, including the IMF. These financial inflows, during 2020 compared to 7.3 percent growth in 2019. together with substantial market inflows under the Imports, on the other hand, contracted by 11.3 percent non-resident foreign accounts, helped reduce the oth- in 2020, largely on account of lower international oil erwise increasing external pressures due to widening prices along with slowdown in domestic economic CAD in 2020. activity (Box 5: Merchandise trade balance, workers’ remittances and international oil prices). As a result, the 42 The sharp deterioration in Jordan’s external account mainly trade deficit vis-à-vis 2019 declined by around 18 per- reflects its significant economic linkages with the rest of cent. However, this reduction was more than offset by the world. Estimates from 2020 indicate that taken together an almost two-thirds decline in travel receipts as the trade, travel, remittances, and FDI comprise around global tourism sector remained badly hit in 2020. In 67.7 percent of Jordan’s economic output. The same ratio addition, around a 9 percent decline in workers’ remit- was 81.8 percent in 2019 and mainly reflects the significant tances put further strain on the country’s already weak fall in travel receipts during COVID-19 crisis in 2020. 43 According to MoF, a tranche of US$500 million at external account position. 4.95 percent over a 5-year maturity and another tranche Given the widening CAD, the reliance on of US$1.25 billion at 5.85 percent over a 10-year official debt flows surged amid insufficient private maturity, were oversubscribed more than 6.25 times foreign investment flows to avoid external sector after attracting bids worth over US$6.25 billion. Economic Update 17 MERCHANDISE TRADE BALANCE, WORKERS’ REMITTANCES, AND INTERNATIONAL OIL PRICES: BOX 5.  SOME EMPIRICAL OBSERVATIONS IN THE CASE OF JORDAN In recent years, around one-fifth of Jordan’s total imports comprised energy imports, while almost of two-thirds of workers’ remittance inflows for Jordan originated from the neighboring oil exporting Gulf nations (Figure 28). Given such underlying exposures, decreases in global oil price on one hand help reduce the external sector pressures and provides windfall gains through lower trade imbalances, while on the other hand it also potentially deteriorates the outlook for workers’ remittances due to reduction in income of oil exporting countries. Thus, the net impact on the current account depends on which impact prevails. The theoretical and empirical underpinnings for such dual role of oil prices to impact the current account is well documented in economic literature (e.g. see Mitra 1995; Lueth and Ruiz-Arranz 2007). Typically, for the trade balance, analyzing the impact from the changes in international oil prices is straightforward as a change in trade prices would adjust the current account dynamics accordingly. However, to examine the impact of changes in oil prices on workers’ remittances, one needs to take into account host of other factors that may affect the underling relationship among these variables. In this context, we investigated the impact of changes in international oil prices on Jordan’s trade balance and workers’ remittances for period 2008M01–2020M06 in an empirical Structural Vector Autoregressive setup. (For detailed technical specifications see Annex IB) Our results indicate that in an event where international oil price increase by US$10 per barrel, on an accumulated basis, Jordan’s trade deficit widen by 6.9 percent, while workers’ remittances increase by 2.4 percent over the 12-month period. These results indicate the dominating effect of changes in global oil price in determining the Jordanian trade balance relative to outlook on remittances from major source countries. Therefore, the likelihood is that the recent higher projections for global oil prices in 2021 will to worsen country’s trade balance more than the expected improvement in remittances. Thus, conditional upon projections for global oil prices, Jordanian CAD during 2021 is expected to remain broadly at the same level of 2020. FIGURE 28 • Jordan’s Imports and Remittances Structure Product-wise top 20 imports, Remittances inflows, share in total (2015–19) share in total (2015–18) Mineral fuels, mineral oils and products Machinery, mechanical appliances Gulf Cooperation Council Vehicles other than railway or tramway Electrical machinery and equipment United States Cereals Plastics and articles thereof West Bank and Gaza Knitted or crocheted fabrics Pharmaceutical products Libya Iron and steel Meat and edible meat offal Germany Organic chemicals Articles of iron or steel Canada Paper and paperboard Edible fruit and nuts Indonesia Optical, photographic, cinematographic Dairy produce; birds’ eggs; natural honey Miscellaneous edible preparations Iraq Apparel and clothing accessories, knitted or crocheted Essential oils and resinoids All other countries Preparations of cereals, flour, starch 0 5 10 15 20 0 20 40 60 80 Source: International Trade Centre, World Bank, World Bank staff calculations. Note: Gulf Cooperation Council consists of Saudi Arabia, UAE, Kuwait, Qatar, Oman and Bahrain. Due to financial inflows in 2020, the Central gross foreign reserves stood at US$16.96 billion Bank of Jordan’s (CBJ) gross foreign reserves at end December 2020; indicating an increase of position strengthened further. Specifically, CBJ US$1.55 billion compared to the end December 18 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD FIGURE 29 • Overall Balance of Payments Position and CBJ’s Foreign Reserves Adequacy CAD & financial flows CBJ reserves adequacy – 2020 Cross country reserves adequacy (Billion US$, 4-quarters rolling sum) (Billion US$, end-period) (RM=remaining maturity, latest available) 6 18 Gross Reserves ST external debt Gross reserves in 15 Required level of % of gross reserves months of imports 4 reserves as per 12 Turkey 2 9 Egypt 0 6 –2 Morocco Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 3 Jordan 0 3M 20% of 100% of 100% of IMF (net) Debt flows Imports Broad ST ARA Albania Non-debt flows CAD G&S Money External Matrix (M2) Debt 75 50 25 0 0 2 4 6 8 10 Sources: Haver, CPB, IMF, CBJ, World Bank staff calculations. Note: ST External Debt = Short-term external debt based on remaining maturity over the next 12 months. 2019 level.44 These reserves cover around 8 months recovery in global demand, however, has put pressure of country’s import bill; almost three times higher than on international commodity prices, such as oil and the required benchmark rule of around 3 months. food items, which in turn is leading to some uptick This position broadly remains unchanged according in consumer prices in both advanced and emerging to recent data up to February 2021 despite some economies in recent months.46 decline in CBJ’s reserves holding. More importantly, The CBJ also provided substantial mone- estimates show that in comparison to other oil tary stimulus during 2020. In aggregate, the impact importing regional and peer economies, Jordan’s of CBJ’s liquidity measures introduced during the first reserves holding currently remains at an adequate phase of the pandemic (i.e., in 2020) is estimated level according to the standard reserve adequacy at around 8 percent of GDP. Reflecting substantial measures (Figure 29). This is an encouraging liquidity injections to support the businesses and development, particularly in the context of gaining households, the CBJ’s assets grew by 16.9 percent policy credibility among the foreign investors toward during 2020 (Figure 30). This expansion in the bal- the Jordanian economy by improving resilience to ance sheet of the CBJ has been in line with trends potential future external shocks. observed in other regional oil importing countries. Inflationary pressures remain muted in 2020 mainly because of relatively lower inter- Monetary Policy and Inflation national commodity prices and weak domestic demand. Reflecting such commodity price dynamics, Global financial conditions continued to remain accommodative due to unprecedented monetary measures taken by central banks to combat the 44 Gross foreign reserves as defined in this report include COVID-19 shock. Since the start of the pandemic, reserves of gold, Special Drawing Rights, cash & these monetary measures, which amounted to nearly deposits and bonds & treasury bills. 45 IMF Global Financial Stability Report, April 2021 US$10 trillion (around 12 percent of global output 46 According to World Bank Commodity Price Data, average in 2020), have helped bolster prospects of global international spot price of crude oil was hovering around economic recovery compared to earlier expectations US$68/bbl near end March 2021, showing an increase of moderate recovery.45 The anticipated strong of around 30 percent since the beginning of this year. Economic Update 19 Changes in the CBJ’s Balance Sheet and Trend in Inflation FIGURE 30 •  Assets of the central bank as % Jordan – CPI inflation and its drivers (Dec 2019=100, in US$, (% y-o-y changes, contribution Regional trend in CPI in 2020 of GDP % of est. GDP for 2020) in %age points) (average CPI 2019=100) 180 3 115 54 113 160 2 1 110 140 105 129 0 120 103 112 –1 104 100 100 –2 97 FM M J S N J M M J S ND J F 98 2019 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 80 2019 2020 2021 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Food & beverages Fuel & transportation Pakistan Tunisia Egypt Jordan Egypt Tunisia Core Saudi Arabia Iran Morocco Morocco Pakistan Headline Jordan Sources: Haver, IMF, CBJ, World Bank staff calculations. food and fuel inflation were the major drivers of bank liquidity support as total deposits grew by Jordan’s headline CPI inflation, which on average 4.2 percent in 2020 compared to 4.3 percent growth stood at 0.3 percent in 2020 compared to 0.8 percent in 2019. Overall, recent data for Jan–Feb 2021 indi- in 2019 (Figure 30). On the other hand, core infla- cates that the demand for credit continues to remain tion—calculated after excluding the food and energy strong despite the third wave of domestic COVID-19 components from the CPI basket, remained stable infections. at 0.7 percent in 2020 compared to 1.3 percent in In 2020, growth in broad money supply 2019, indicating subdued domestic demand amid accelerated, supported by strong credit demand the COVID-19 pandemic (Box 6: A model-based from the private sector and fiscal expansion analysis of recent inflation developments in Jordan). to minimize the impact of the economic crisis. In a regional context, headline CPI inflation in Jordan Broad money supply (M2) during 2020 expanded has relatively remained stable at lower plateau when by 5.8 percent compared to 4.8 percent increase compared to other regional oil importing economies posted during 2019. Detailed data indicates that net throughout the pandemic year (Figure 30). This trend domestic assets (NDA) mainly contributed toward continued in first two months of 2021 as well where growth in money supply as contribution from net average inflation remained flat over the same period foreign assets (NFA), remained marginal (Figure 32: last year. Trend in monetary aggregates). The changes in the Demand for credit by the private sector latter, largely reflects pressures on country’s external increased in 2020 despite challenging cir- accounts, particularly the deterioration in foreign cumstances. Detailed data for 2020 shows that exchange receipts on account of travel restrictions credit expansion to the private sector remained and tourism related activities to control the spread of broad-based, across all sectors except for mining. virus. Overall, the banking system’s liquidity remained Specifically, lending to the private sector grew by appropriate during the crunch period due to timely 6.3 percent in 2020 compared to 4.3 percent in 2019 interventions and support by the CBJ, which has (Figure 32). However, as highlighted earlier, in large helped mitigate some of the impact of crisis on the part this credit demand can be attributed to central economic activity. 20 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD A MODEL-BASED ANALYSIS OF RECENT INFLATION DEVELOPMENTS IN JORDAN BOX 6.  Inflationary pressures in Jordan have remained quite subdued Contribution to Jordan’s Headline FIGURE 31 •  in the past couple of years. This trend was further reinforced by CPI Inflation the COVID-19 crisis during 2020. Specifically, average headline (Annual average % change in CPI, CPI inflation in 2020 was recorded at 0.3 percent, which contribution in percentage points) decelerated from 0.8 percent in 2019 and 4.5 percent in 2018. Recent inflation figures (though it’s early in the year) appear 6.0 to be quite low when compared to average annual inflation 4.5 of around 2.4 percent during the last decade. In this context, we attempt to analyze the recent supply-demand side inflation 3.0 dynamics in Jordan through an empirical structural model setup. For this purpose, taking stock from recent literature (Chin 1.5 2019) and using data sample from 2004Q1 until 2020Q4, we 0.0 estimated reduced-form Phillips curve specification with time- varying parameters to understand inflation drivers in Jordan. –1.5 Our results reveal that the inflation persistence (i.e., lagged –3.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 coefficient) played an important role in setting the inflation trajectory in Jordan over time, followed by movement in the international commodity prices, particularly the oil price. Others Inflation lag Credit gap Output gap However, contribution from other important macroeconomic Tax Non-oil price Oil price Exchange rate variables, according to this analysis, particularly from the Constant Average demand side, interestingly appear to have had marginal impact Source: World Bank staff calculations based on data from CBJ, DoS. on determining inflation in Jordan. In recent years, it can be Note: ‘Others’, which refers to a model residual include the part of inflation dynamics observed that both decline in international oil prices along not captured by the model. with contraction in aggregate demand, may have caused deceleration in domestic prices, which currently appear to be moving below their historical trend (Figure 31: Contribution to Jordan’s headline CPI inflation). This impact has been accelerated during 2020 due to the COVID-19 shock. Broadly, these results are consistent with earlier empirical results found in case of Jordan (e.g. Jaradat et al. 2011 and Adayleh 2018) which have also found significant role of changes in oil prices in domestic price settings along with past inflation.a a Adayleh, Radi M. 2018. “Determinants of inflation in Jordanian economy: Fmols approach.” Journal of Internet Banking and Commerce 23.2: 1–19. Chin, Kuo-Hsuan. 2019. “New Keynesian Phillips Curve with time-varying parameters.” Empirical Economics 57.6: 1869–1889. Jaradat, Mahmoud, Hussein Ali Al-Zeaud, and Habib Al-Rawahneh. 2011. “An econometric analysis of the determinants of inflation in Jordan.” Middle Eastern Finance and Economics 15: 120–132. FIGURE 32 • Trend in Monetary Aggregates Growth in bank lending Drivers of money supply (cumulative % change, (y-o-y % growth, contribution Trend in credit and deposits % share in parenthesis) in percentage points) (average 2019 levels=100) 8 115 Mining (1.0) 6 110 Industry (12.4) 4 Financial services (15.4) 105 Construction (25.1) 2 General trade (16.0) 0 100 Tourism, hotels & restau. (2.4) –2 95 Transportation services (1.4) –4 Agriculture (1.4) 90 –6 FM M J S N J M M J S ND JF Total (100.0) FM M J S N J M M J S ND JF 2019 2020 2021 –25 –20 –15 –10 –5 0 5 10 15 20 25 2019 2020 2021 Credit to private sector 2019 2020 NFA NDA M2 Total deposits Sources: Haver, IMF, CBJ, World Bank staff calculations. Economic Update 21 2 OUTLOOK AND UPCOMING CHALLENGES T he pace of vaccine rollouts remains key to projected to recover by a modest 1.4 percent this year. overcome both the health and economic However, according to IMF’s March 2021 (end-of- effects of the COVID-19 crisis and to mission assessment of the 2nd review of the Extended ensure sustainable development in the short Fund Facility (EFF)) growth during 2021 is projected and medium term. Overall, the Ministry of Health recover to around 2 percent, slightly lower than the sets it COVID-19 vaccination target at 75 percent of 2.5 percent projected during the first EFF review in the adult population. In the first phase, Jordan aims January 2021, due to slower-than-anticipated global to vaccinate high risk groups such as healthcare vaccine rollout and an associated delay in tourism to workers, all people over 50 years, or populations with Jordan. Furthermore, IMF is projecting the primary chronic illness(es) as well as essential workers. The deficit (excluding grants) in 2021 to be around World Bank is preparing additional financing to the 4.3 percent or 0.6 higher compared to first EFF review COVID-19 Emergency Response Project to expand projection and CAD (including grants) for 2021 to be vaccination coverage through additional vaccine around 8.3 percent of GDP. purchase and deployment. The support aims to Over the medium-term, growth is projected cover the additional adult population (2.4 million) to to remain subdued due to structural impediments help Jordan achieve herd immunity. Nevertheless, that have been keeping the economy operating vaccination depends on vaccine availability through below its potential. As detailed in Section 1, global supply chains and vaccine acceptance among Jordan’s productivity and investments have substan- the beneficiaries. Slow roll-out has direct bearing on tially weakened over the past decade as real GDP economic recovery as contact-intensive sectors, such growth decelerated from an average of 6.5 percent as services and tourism, are likely to see a protracted between 2000–09 to 2.4 percent in recent decade recovery during 2021. Taking into account these (2010–19). In fact, since 2009, per capita GDP has uncertainties along with an expected but uneven been predominantly on a declining trend. Similarly, global economic recovery, the Jordanian economy is productivity in services, which accounts for around 23 58 percent of GDP and 72 percent of total employ- expected to materialize as substantially higher fees ment, has been shrinking over the past decade. This on oil derivatives (part of indirect taxes). Moreover, implies that a wide range of growth-enhancing reforms continued strengthening of tax administration effort are necessary to considerably strengthen the busi- and gradual reduction of existing tax exemptions, is ness and investment environment, boost innovations expected to help increase tax collection.48 However, and competitiveness, and improve productivity. This drag is likely to come from muted collection on non- is important to support a much-needed strong revival tax revenues particularly over next few years. On the in growth and sustainable job creation. Moreover, expenditure side, spending pressures arising from during a time if unprecedented rise in unemployment, higher compensation of employees, interest pay- policies targeted at raising participation and employ- ments, and higher defense spending, are likely to ment rates, in particular among highly educated keep recurrent spending in 2021 elevated. Capital women and the youth provides a window of oppor- expenditures, on the other hand, are projected to tunity. With the launch of the Five-Year Reform Matrix grow moderately, reaching only 3.2 percent of GDP in in 2019, the government identified a set of reforms 2021. Hence, even a modest fiscal consolidation effort to address major challenges to its competitiveness. (0.9 percent of GDP) projected for 2021 hinges on The Reform Matrix is undergoing a mid-term review in materialization of additional fiscal measures, agreed 2021 with public sector efficiency and tourism pillars under the IMF-EFF program. Over the medium term, being added. Moreover, the government has laid out the CG fiscal deficit (including grants) is projected structural reforms and strategic objectives to achieve to gradually decline once economic growth starts to enhanced growth as reflected in the Executive pick up and the crisis abates, reaching 5.0 percent of Development Plan and the Economic Recovery Plan. GDP in 2023. However, consolidation efforts over the These structural reforms are projected to buoy the medium-term rely heavily on timely implementation economy and lift real GDP growth gradually. of additional fiscal measures agreed upon as part of Headline inflation in 2021 is projected to the IMF-EFF program aimed at meeting program debt modestly increase to 2.0 percent, largely due to sustainability objectives. rising international commodity prices, particularly The current account deficit at 8.4 percent oil. Specifically, led by anticipated demand recovery is projected to remain largely at the same level in major economies such as the U.S. and China,47 the in 2021 before gradually narrowing over the global oil price on average is expected to increase by medium-term. Merchandize exports are projected to around 42 percent in 2021. This trend would have a undergo a healthy recovery in 2021 on the back of spillover effects on domestic prices in Jordan due to an expected strong rebound in Jordan’s main trading significant reliance on imported energy. Nonetheless, partners such as U.S. and China. However, expected given that the economy is projected to operate below increases in international food and oil prices along its potential for yet another year, the positive impact of global prices would remain limited and range- bound on domestic prices. Going forward, headline 47 China’s economy grew by 18.3 percent in Q1-2021 (https://www.ft.com/content/e45496ec-82ff-4586-a062 inflation is projected to follow a moderate trend and -20124739fcc1). gradually converge to its recent historical path over 48 These measures include for instance closing close tax the medium-term. loopholes by removing articles related to preferential tax A modest fiscal consolidation effort is treatment in the 2014 Investment Law; simplify the tax projected to narrow the fiscal deficit of the CG system and reduce fragmentation by passing legislation (including grants) to 6.5 percent of GDP, or to introduce a single tax administration and a single customs service; arrest outright tax fraud/evasion by around 1 percent of GDP lower than 2020. Total signing an agreement to commit cigarette companies revenues and grants in 2021 are projected to increase to implement the track-and-trace monitoring system to by 2.0 percent of GDP compared to 2020, driven by reduce cigarette smuggling (IMF Country Report No. a strong rebound in international oil prices, which is 21/11). 24 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD with underlying gradual recovery in domestic demand ability to secure financing, including financial support would keep the import bill on the higher side, causing from international donors. Moreover, DSA reveals sig- the trade deficit to rise in 2021. Tourism receipts, on nificant downside risks as the debt trajectory remains the other hand, are expected to modestly improve in particularly sensitive to a variety of economic shocks, 2021 reaching pre-COVID level only by 2023. In the such as protracted economic slowdown, primary immediate run, a modest recovery in travel receipts deficit shock, or a contingent liability shock. is expected on the back of Jordanian expatriates, Overall, given the increasing public debt as downside risks for broader tourism recovery still burden and widening twin deficits, Jordan’s prevail, given slow vaccination rollout in most parts of economic outlook—particularly over the medium- the world. Over the medium-term, the current account term—is still surrounded by a high level of deficit is projected to gradually improve to 4.4 percent uncertainty. In the short run, being a small open of GDP by 2023. The current account deficit would economy, Jordan’s economic development and keep the country’s external financing requirements underlying recovery remains highly contingent upon on the higher side, particularly when large Eurobond the speed of vaccination rollout both at home and payments become due, and anticipation of private abroad. Major downside risks to this outlook include inflows remain weak. So far, this risk is covered by slow vaccination rates or accessibility, resurging expected improvement in official inflows from bilateral virus cases, and associated lockdowns. Moreover, and multilateral sources that would help keep the CBJ new virus variants that have proved to be more foreign reserves adequacy at appropriate levels. contagious can undermine vaccine effectiveness Public debt is projected to remain elevated and pose an imminent risk to global and domestic before declining over the medium term, but economic recovery. On the upside, governments risks remain on the high side. According to the and central banks worldwide have rolled out sizable World Bank’s recent Debt Sustainability Analysis fiscal and monetary stimuli to boost a faster recovery (DSA), the Central Government debt is projected to and limit scarring, which may continue to create a increase by around 5 percentage points of GDP by demand boost through improved income channels end-2021 and remain elevated in subsequent years for emerging markets like Jordan. Expedited vaccine before gradually declining from 2024 onwards. This accessibility and rollout due to availability of new assessment, however, hinges upon the authorities’ vaccines or higher production capacity represents commitment to fiscal adjustment, implementation of another upside risk. Overall, the balance of upside growth-enhancing reforms, monetary policy’s commit- and downside risks are broadly equal, but unusually ment to the exchange rate peg as well as Jordan’s large uncertainty is surrounding this outlook. Outlook and Upcoming Challenges 25 TABLE 2 • Jordan Selected Economic Indicators 2018 2019 2020 2021 2022 2023 Act. Act. Act. Proj. Proj. Proj. Real sector Real GDP growth 1.9 2.0 –1.6 1.4 2.2 2.3 Real GDP per capita growth a 0.1 0.5 –2.5 0.7 1.9 2.2 Nominal GDP (JD billion) 30.482 31.597 31.025 31.889 33.165 34.690 Money and prices (annual percentage change, unless otherwise specified) CPI Inflation (p.a.) 4.5 0.8 0.3 2.0 2.0 2.3 Money (M2) 1.2 4.8 5.8 2.8 4.0 4.6 Government finance (percent of GDP, unless otherwise specified) Total revenues and grants 25.7 24.3 22.5 24.5 24.4 23.6 Domestic revenue 22.8 21.8 20.0 22.0 22.2 22.5 Foreign grants 2.9 2.5 2.5 2.5 2.2 1.1 Total expenditure and use of cash 29.3 28.9 29.9 31.7 31.6 31.4 Currentb 25.0 25.0 27.0 28.5 28.0 27.8 o/w compensation of employees 4.7 5.0 5.4 5.6 5.4 5.3 o/w interest payments 3.3 3.5 4.0 4.1 4.0 4.1 o/w transfers 7.8 7.2 7.8 8.9 8.7 8.6 Capital expenditure 3.1 2.9 2.7 3.2 3.6 3.6 Use of cashg 1.2 1.0 0.2 0.0 0.0 0.0 Statistical discrepancy, net 0.3 0.0 0.0 0.0 0.0 0.0 Additional fiscal measures c 0.0 0.0 0.0 0.7 1.8 2.9 Overall balance (deficit (–), including grants) –3.3 –4.6 –7.4 –6.5 –5.4 –5.0 Primary balance (deficit (-), including grants) 0.0 –1.1 –3.3 –2.3 –1.4 –0.9 Advances to WAJd 1.4 1.6 1.4 1.3 1.2 0.8 Budget financing needs 4.7 6.2 8.7 7.7 6.6 5.8 Total Debt (in million US$, unless otherwise specified) Debt to GDP ratio (%)e 92.9 97.4 106.5 111.2 113.3 113.9 Debt to GDP ratio (%), net of SSC’s holdingsf 74.3 78.0 85.4 88.1 88.3 87.2 External sector (percent of GDP, unless otherwise specified) Current account –6.9 –2.1 –8.0 –8.4 –6.7 –4.4 Trade balance –24.0 –19.6 –16.5 –19.3 –19.7 –19.0 Export FOB 18.1 18.7 18.2 18.9 19.0 19.1 Import FOB 42.0 38.3 34.6 38.2 38.6 38.1 Services and income (net) 5.3 6.6 –1.8 0.2 2.7 4.9 Travel receipts 12.2 13.0 3.2 4.4 7.3 10.6 (continued on next page) 26 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD TABLE 2 • Jordan Selected Economic Indicators (continued) 2018 2019 2020 2021 2022 2023 Act. Act. Act. Proj. Proj. Proj. Current transfers 11.8 10.9 10.3 10.6 10.4 9.7 Net private investments (FDI and portfolio only) 2.3 1.4 1.4 2.3 2.8 3.5 Gross usable FX reserves (US$ million) 12,512 13,512 15,127 15,026 14,937 14,389 in months of next year’s imports of GNFS 6.8 7.9 8.8 8.2 7.7 7.1 Source: Data from the Jordanian authorities and World Bank staff estimates. a Based on World Bank population projections. b Includes net lending and transfers to NEPCO and WAJ. c Additional fiscal measures to target deficit reduction based on IMF Country Report No. 21/11 (January 2021). d Based on information from the 2021 Budget law and IMF staff report No. 21/11 (January 2021). e Government’s direct and guaranteed debt (including NEPCO and WAJ debt) and securitization of domestic arrears in 2019. f Projected SSC holdings of public debt as estimated in IMF staff report No. 21/11 (January 2021). g Based on information from IMF staff report No. 21/11 (January 2021). Outlook and Upcoming Challenges 27 SPECIAL FOCUS 1: A YEAR INTO THE PANDEMIC: JORDAN’S PRIVATE SECTOR SNAPSHOT Surveys conducted by the WBG show that, a year Government. To contain the spread of COVID-19 into the pandemic, the lockdowns and demand cases, the Jordanian government implemented strict shocks have had a strong impact on the private lockdowns in the early days of the pandemic. From sector, including high closure rates, particularly in the mid-March 2020 until May 2020, as the country went services sector. Liquidity remains a major issue for into a full lockdown, so did the private sector firms. firms. To respond to the challenges, Jordanian firms Only essential operations related to medical care, have introduced new products and are using digital bakeries, food and food products, and electricity technologies more intensively. However, the pace of supply remained open. Another lockdown was transformation has lagged behind other countries. announced as COVID-19 cases surged in November. The programs put forward by the government to As part of its response to the evolving crisis, the support the recovery have reached a significant Jordanian government adopted support mechanisms share of companies interviewed, but some gaps to mitigate the impact on private companies and remain. Moving forward, the priority should be to retain jobs. These policies included wage subsidies, support firms in building their resilience, especially tax deferrals, regulatory relief (e.g., waivers on among smaller firms, with support in areas related licensing), and support through the financial system to firm capability improvement, export development to keep credit flowing to the real sector. and promotion, and technology uptake. This special section outlines the findings of two surveys conducted in August 2020 and January 2021 to ask (formal) Jordanian firms Introduction about the ongoing effect of the pandemic on their business operations, access to finance con- The COVID-19 pandemic has had a major impact straints, and relevance of the policy response. on Jordan’s private sector, partially mitigated as These surveys collected data from 601 compa- a result of targeted policies introduced by the nies, which is a representative sample of private 29 establishments in manufacturing and services. This FIGURE 33 • Average Change in Monthly data collection is part of a global effort by the WBG Sales Compared to a Year Ago— Comparator Countries to understand the impact of the pandemic on the private sector and identify solutions.49 Many useful 0% –18.7% –22.8% studies have been published in Jordan looking at –23.6% –10% –27.5% –27.9% –29.2% these questions, and the surveys we report comple- –13.6% –20% –14.8% –14.7% –16.5% –38.9% –17.2% –40.2% ments these results by providing a direct comparison –46.8% –30% –47.1% –49.7% –51.3% of how companies saw their environment before the –56.6% –40% crisis started and as it developed, as well as allowing –50% comparability with companies located in other middle- –60% El Salvador Jordan Georgia Morocco Cyprus Malta Bulgaria Croatia Hungary income countries. As a starting point, it is important to note that even prior to the COVID-19 pandemic, the private sector in Jordan faced intense structural Round 1 Round 2 performance challenges. As reported in the WBG Enterprise Survey 2019, companies were experi- encing negative growth in annual sales (-6.1 percent), employment growth (-1.4 percent), and real annual a drop of around 50 percent y-o-y. The drop in labor productivity growth (-7.3 percent). Firms utilized sales in Jordan remained around 50 percent even only 59.3 percent of their capacity, compared to nine months into the pandemic, whereas in many 68.7 percent in MENA, and only 14.1 percent of firms middle-income countries where this survey was invested in fixed assets compared to 30.1 percent in applied, sales showed a smaller decline and also a MENA. Thus, companies in Jordan entered the crisis partial recovery (Figure 33). The majority of firms in with smaller buffers and were less equipped from a Jordan (83 percent of those in the sample) faced a productivity perspective, which explains some of the decrease in demand for their products and services results subsequently discussed. and a decrease in sales (89 percent). A small minority of firms (4 percent) saw an increase in demand and even fewer an increase in sales (3 percent)—a trend Impact of the pandemic on business that applied especially in food manufacturing. operations and financing The lockdowns and restrictions on travel needed 49 The Enterprise Analysis Unit at the World Bank Group is to curb the pandemic caused major disruptions working together with the World Bank country teams to to value chains in Jordan, as they did in the rest develop and implement the COVID-19 follow up surveys of the world. The initial lockdown greatly impacted in more than 40 countries. In Jordan, this data collection internal demand for goods and services as stores and builds on the sample of firms that participated in the most recent Enterprise Survey in 2019. Distribution of transportation closed for extended periods of time and firms by size and sector are as follows respectively: affected the supply of manufactured goods for export (i) size- 57 percent small, 31 percent medium, and markets. With the reopening of business activity, 12 percent large. (ii) sector—48 percent manufacturing, firm sales did not rebound to pre-pandemic levels. and 52 percent services. Microenterprises and informal Tourism, most affected among the service industries, firms are not part of the sample. The first round was dropped dramatically and has not recovered, having collected after early lockdowns, at a time when Covid-19 cases in Jordan were low and contained, and the second knock-on effects for a range of companies. round following a larger wave at end 2020. A panel The combined impact of the demand and dataset component is available for future research. The supply shocks was a sharp decrease in monthly data and questionnaires are available at: https://www. sales among Jordanian firms interviewed, with enterprisesurveys.org/en/covid-19. 30 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD FIGURE 34 • Capacity Utilization—Comparator FIGURE 35 • Proportion of Monthly Sales That Countries are Exported Directly in Jordan (Percent) 90% 80% 25% 70% 20% 60% 50% 15% 40% 69% 63% 50% 77% 57% 84% 66% 67% 75% 10% 30% 20% 5% 32% 42% 51% 52% 53% 62% 66% 67% 76% 10% 0% 0% All Small (5–19) Medium (20–99) Large (100+) Manufacturing Services El S alvador Georgia Jordan Cyprus Morocco Malta Bulgaria Croatia Hungary Round 1 Round 2 Round 1 Round 2 Sources: Haver, IMF, CBJ, World Bank staff calculations. Capacity utilization of firms reported in Access to finance and liquidity issues remain both rounds hovered at 50 percent, down from a huge cross-cutting constraint, as firms tried to 65 percent prior to the COVID-19 pandemic. This bridge their financing gaps and ensure adequate contrasts with capacity utilization in other countries funding to maneuver the sharp falls in sales. (including several that also experienced second Ninety-seven percent of firms in the survey reported and third waves of COVID-19 cases), which saw a having liquidity shortage problems since the onset recovery as time evolved (Figure 34).50 Factors to of the pandemic. To deal with the shortage of funds, take into consideration when looking at this finding around 40 percent of firms opted to seek additional are the starting point of capacity utilization prior to liquidity through credit or equity, and 45 percent of the pandemic—which was relatively low in Jordan’s firms delayed their payments to landlords, tax authori- case—and the country’s local and international ties, and others. The share of firms that accessed bank market size and reach. credit increased by the time of the second survey in On the trade front, a majority of firms wit- January 2021, a trend that is consistent across com- nessed a decline in direct and indirect exports panies of different size, sector, and export orientation starting from pre-pandemic levels. Share of sales (Figure 36). More female managed firms were able to exported directly and indirectly decreased as the pan- access loans between the two rounds of surveys. At demic continued. Overall, surveyed firms experienced the same time, small firms lag behind in their access to a fall in direct exports as a share of sales from the bank credit compared to larger companies. first to the second round (Figure 35). This continued decline in exports, even for larger firms, indicates that Jordan’s private sector faces a particularly tough 50 Not all countries faced the same pattern of pandemic environment when it comes to their main products waves and measures taken to address them, but it is and markets. At the global level, trade flows in 2020 assumed that the strictest measures were implemented did not fall as much as originally expected, however at the beginning of the pandemic. Further waves of the survey are being applied in many countries, which this performance is quite uneven across regions or should help with understanding the short-term and long- categories of goods, with stronger recoveries in Asia term impacts. and in manufactured products such as electronics 51 https://www.wto.org/english/news_e/pres21_e/pr87 and apparel.51 6_e.htm. Special Focus 1: A Year into the Pandemic: Jordan’s Private Sector Snapshot 31 FIGURE 36 • Share of Firms Using Commercial January 2021 on the list of sectors most impacted.53 Bank’s Loans as Main Source of These activities account for a large share of the Financing Since Onset of Pandemic Jordanian economy and they are among the most % of firms ever used loans from comm banks as affected by the pandemic. Firms of all sizes have been main source since COVID-19 start 60% affected, with the survey showing that medium-sized 50% 40% firms have been more resilient, a finding that needs 30% further validation in following rounds of the survey. 20% 10% 0% Direct exports are 10% or more of sales All Small (5–19) Medium (20–99) Large (100+) Manufacturing Services Non-exporter Top manager is female Top manager is male How did Jordanian firms adapt to overcome the challenges? The surveys indicate that firms in Jordan did not adjust their production lines and services in Round 1 Round 2 response to the pandemic nearly as much as in other middle-income countries (Figure 39). The share of firms that introduced (or discontinued) products and The shocks have led to high rates of per- services is less than 2 percent, a number that is stable manent closures among businesses, particularly across the two rounds. This is well below other middle- in the service sector and non-essential goods income countries. A closer look shows that there was manufacturing. Compared to selected middle- more adaptability in some subgroups. Exporting firms income countries, firm closures in Jordan were on the and firms with female managers had a higher rate of higher end (Figure 37). By August 2020, an estimated adjusting the firm’s products and services across the 12.9 percent of large firms terminated their business activity, a ratio that increased to 17.9 percent by January 2021 (Figure 38). The highest share of closures was in 52 After the second round of surveys, further closures were expected when 144 hotels announced their the services sector (14.2 percent), mostly in tourism, closure.—almalaknews— 144 2554 construction, and other non-essential manufacturing, . such as chemicals and garments.52 This is consistent 53 Ministry of Labor article—accessed on April 13th 2021. with information published by the Ministry of Labor in (link). FIGURE 37 • Comparator Countries with Shares Share of Confirmed Firms that FIGURE 38 •  of Firms Assumed or Confirmed Closed since The Start of the Closed Pandemic % of firms ever used loans from comm banks as 20% main source since COVID-19 start 17.9% 25% 23.3% 15% 14.2% 21.4% 13.6% 20.0% 11.3% 20% 18.1% 17.8% 10% 15% 10.9% 5.4% 5% 4.7% 10% 6.4% 3.9% 5% 1.6% 0% All Manufacturing Services Small (5–19) Medium (20–99) Large (100+) 0% Morocco El Salvador Cyprus Bulgaria Jordan Croatia Hungary Georgia Malta 32 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD FIGURE 39 • Share of Firms Introducing New FIGURE 40 • Technology Uptake and Product or Service in Response to Performance in Jordan COVID-19—Comparator Countries Adapting types of products Proportion of establishment’s 70% 60% online sales out of total sales 36.1% 50% 57.8% 23.8% 40% 19.6% 16.4% 15.0% 14.3% % of firms that started or 10.6% 10.7% 10.6% 30% 9.3% 7.1% 6.7% 5.9% 5.6% 20% 2.6% increased remote work 1.8% 1.3% 10% 0% % of firms that started Bulgaria Croatia Cyprus El S alvador Georgia Hungary Malta Morocco Jordan orincreased online business activity % of firms introduced new product or service 0% 10% 20% 30% 40% 50% 60% 70% in response to COVID-19 outbreak % of firms discontinued product or service in Round 1 Round 2 response to COVID-19 outbreak Note: Question on online sales was only part of the round 2. two rounds. In terms of size and sector, medium sized companies. The Government of Jordan provided firms operating in the food sector were much most temporary cash-flow relief to companies by allowing likely to adjust their products or services. The limited delayed payments of sales taxes and customs duties, restructuring of product lines is a risk factor that could delayed utility payments, temporarily reduced social affect competitiveness of Jordanian private sector in security contributions, and subsidized wages and em- the post-pandemic business environment and make ployees support through the National Aid Fund cash it harder to regain market share and deserves further transfer and through the SSIF . At the same time, the study as well as policy support. CBJ reduced policy rates by 150 basis points during In regard to the use of digital tools, a 2020, injected liquidity by reducing the reserve re- large share of firms increased remote work and quirement from 7 to 5 percent for commercial banks expanded their online business activity.54 Overall, (JD 550 million to banks). there wasn’t a particular subgroup that excelled but it A significant share of firms in the survey ben- is worth mentioning that a larger fraction of large firms efitted from the support programs implemented; increased remote work and online activity, followed of these measures, the support for wages in the by medium and then small firms, a result that is likely formal sector was the most visible. Jordanian firms correlated with the level of managerial capabilities reported receiving more support in the first round and financial resources. Despite the changes in the of the survey, soon after the onset of the pandemic, business model, the impact on sales has been limited with around 37 percent of firms reported receiving up till now (Figure 40), although there is stronger some form of support (Figure 41). Of the firms that performance among medium-sized firms and those in received support, around 69 percent enjoyed wage retail. Relative to what is observed in other countries, subsidies, 19 percent accessed new credit, and the results suggest that there are obstacles hindering about 10 percent received fiscal exemptions or Jordanian firms’ ability to benefit from a tech driven deferrals of interest payments, rents, or mortgages. environment as a tool to boost productivity. This was well reflected in the preservation of the full- time employees where, across the board, less than Policy response 54 Digital tools refer to any activity that uses online The policy response implemented by the govern- platforms, webservices, or online payment systems, and ment included a range of support measures for requires access to a broadband connection. Special Focus 1: A Year into the Pandemic: Jordan’s Private Sector Snapshot 33 FIGURE 41 • Share of Firms Reporting Receiving services. Manufacturing firms and firms that export, National Support and Type of particularly in the food processing sector, have Support Received been more resilient in the face of these challenges. 60% Where Jordan’s private sector seems to lag behind 50% other middle-income countries is in the drive to 40% adapt to the “new normal” and take advantage of 30% exporting opportunities. While many firms started or 20% increased their online business activities, generally 10% the restructuring of product and service offerings 0% has been fairly limited. Further rounds of this survey Total Small Medium Large Manufacturing Retail Other Services will be completed to confirm these results and better understand the impacts and possible solutions. The pandemic exacerbated weaknesses Since the outbreak of COVID-19, has this establishment when it comes to trade development and market received any national or local government support in response to the crisis? reach, as well as access to finance. Whereas Since round 1, has this establishment received any national Jordan witnessed a slight improvement in 2019 on or local government support in response to the crisis amounts exported, this could not be sustained during the pandemic. The share of firms exporting has decreased over time, as did the share of exports in 1 percent of fulltime employees were let go over the their total sales. Access to finance remains the big- course of the year. gest challenge facing private firms in Jordan. Almost The surveyed firms indicated that they all the firms reported having liquidity shortages since would like to see additional support, particularly the onset of the pandemic, resulting in delayed pay- cash transfers, but also more of the types of sup- ments to landlords, tax authorities, and others. To port deployed so far.55 When asked what type of solve this issue, many firms sought commercial bank support they need, the majority of firms would prefer loans as a main source of financing. receiving cash transfers for businesses, in addition to The support provided by the government access to new credit or loans. Second highest priority at the onset of the pandemic has been broad- is fiscal exemptions or reductions. based, but further measures will be needed to tackle the on-going waves of the pandemic. It is critical that these policies need to help companies Conclusions build their resilience and future productivity, not just survive. The on-going pandemic has highlighted The survey results put a spotlight on a number the need for agile adaptation with long-term vision, of trends that need to be better understood, and although support provided is necessary on as they indicate Jordan’s private sector has the short-term, consideration to green recovery, not yet experienced a significant recovery. improving technology, and modernization is As a result of the pandemic, most businesses in Jordan experienced sharp drops in sales, leading to stagnating capacity, which was already low 55 Xavier Cirera, Marcio Cruz, Elwyn Davies, Arti Grover, entering the crisis. Sizeable closures have been Leonardo Iacovone, Jose Ernesto Lopez Cordova, experienced despite the range of public policies Denis Medvedev, Franklin Okechukwu Maduko, Gaurav Nayyar, Santiago Reyes Ortega, Jesica Torres, Policies implemented. Mirroring what happened in many to Support Businesses through the COVID-19 Shock: countries that imposed lockdowns and travel A Firm Level Perspective, The World Bank Research restrictions, the impacts seem more pronounced Observer, Volume 36, Issue 1, February 2021, Pages in tourism, construction, and non-essential retail 41–66, https://doi.org/10.1093/wbro/lkab001. 34 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD FIGURE 42 • Respondents Receiving Support from Public Cash Transfer Programs Following COVID-19 (Percentage) 30 25 Respondents (%) 20 15 10 5 0 Total Poor Non-poor Febr Jul Aug Sept Bottom quintile 2 3 4 Top quintile Bottom quintile 2 3 4 Top quintile Bottom quintile 2 3 4 Top quintile PSE DJI IRQ EGY MAR TUN Source: COVID-19 High Frequency Surveys (World Bank 2020). necessary for a faster recovery and future resil- firm’s performance on technological adoption and ience. Further support needs to be extended in both integration into global value chains, thus increasing financial and technical resources to enhance the the market reach. Special Focus 1: A Year into the Pandemic: Jordan’s Private Sector Snapshot 35 SPECIAL FOCUS 2: COVID-19 AND INEQUALITY IN THE MENA REGION AND IN JORDAN The socioeconomic effects of the COVID-19 for Djibouti, Egypt, Iraq, Libya, Morocco, Palestine, pandemic are unprecedented. Since the start of Saudi Arabia, Tunisia, and Yemen, and results can the outbreak, about 112 million cases of COVID-19 be found on the COVID-19 High Frequency Sur- across the globe have been reported, including vey Global Dashboard.57 Results from this data more than 2 million deaths.56 In addition, the show that widespread impacts amplify pre-exist- pandemic has thrown entire economies into disarray ing inequalities between rich and poor across and upended livelihoods. Despite being initially and within countries (Sánchez-Páramo and Nara- heralded as the “great equalizer,” new evidence yan 2020). For example, in Tunisia five rounds of has shown that the consequences of COVID-19 a phone survey were implemented between April have been borne unequally, disproportionately and October 2020 to track the impact of the pan- affecting the poor and vulnerable (Hill and Narayan demic over time. Younger respondents with less 2020; Serkez 2021; Oxfam 2021). This Special education and who are either unemployed, self- Focus looks at the inequality-enhancing effects of employed, or working with non-wage income have COVID-19 in the MENA region, with a special zoom reported a deterioration in living standards for in on Jordan. their household.58 COVID-19 and inequality in the MENA 56 According to the European Centre for Disease region Prevention and Control (ECDC). 57 COVID-19 High Frequency Survey Monitoring Dashboard created and hosted by the World Bank Since the onset of COVID-19, many statistical provides 93 harmonized indicators on 14 topics, to agencies have been collecting data to assess compare the COVID-19 impact across countries over the socioeconomic impacts of the crisis on time, by industry sector, and regions. households. Presently, such data are available 58 For more details see (Alfani et al. 2021). 37 The phone surveys conducted in MENA show The poor and vulnerable also have less access to that mitigation measures put forward by govern- medical treatment, and for many the medical costs ments have been insufficient in avoiding significant are beyond their financial means.60 In Jordan, a rapid increases in poverty. Relatively few households needs assessment phone survey conducted by benefited from cash transfers programs (Figure 42) UN agencies shows that female-headed and larger because many are informally employed and therefore households were more likely to report challenges outside existing benefit schemes. in accessing healthcare and medicines during the lockdown (UNHCR, UNICEF, and WFP 2020).61 COVID-19 and inequality in Jordan Economic impact Jordan was initially hailed as a success story in the fight against COVID-19. The government swiftly Globally, one of every five jobs can be performed implemented strict restrictions, sealing international from home, compared to one of every 26 jobs in low- borders and imposing a lockdown for 4 months that income countries (Garrote Sanchez et al. 2020). The only allowed citizens to leave their houses for medical ability to telework is correlated with income, as white- emergencies. The country has since seen two surges collar jobs are more suited to be done from home, in COVID-19 cases and has implemented a series and wealthier households tend to have better internet of shorter and targeted lockdowns. While these connectivity. In addition, poor individuals are less measures were initially successful in stemming the likely to work in the public sector, which has been transmission of the virus, they placed a significant able to resist lay-offs and salary cuts. economic burden on households, especially those During the initial lockdown between March among the poorer segments of society. and June 2020, the Government of Jordan took rapid measures to protect workers. Defense order No. 6, introduced in April 2020, effectively banned the layoff Health impact of private-formal sector workers, set restrictions on the wage cuts, and provided some relief for firms; As in other countries, the poor in Jordan have been the Social Security Corporation also introduced mea- more vulnerable to contracting the virus and less sures to pay unemployment benefits to compensate likely to receive and afford adequate treatment when workers affected by the crisis. But informal sector needed, with disproportionately higher levels of workers were not covered by these measures, even those without health insurance. Figure 43 shows that though a complementary cash assistance program poorer households in Jordan live in overcrowded living conditions, making it more difficult to isolate and increasing the likelihood of community spread 59 In the U.S., for instance, the richest men live 12 years of the virus. They are also more likely to live in multi- longer and richest women 10 years longer than the poorest men and women (Isaacs and Choudhury 2017). generational households, increasing the transmission 60 Even in countries where medical care is freely provided, risks to vulnerable elderly who cannot be isolated from COVID-19 has become a disease of the poor. In the UK interactions with others in the homes. Further, more than for instance, the Office for National Statistics reports that 10 percent of the poorest households do not have access those living in the most deprived neighborhoods have been to piped water, limiting the ability to follow hygiene and more than twice as likely to die from COVID-19 as those hand-washing recommendations to avoid contagion. in the least deprived (Office for National Statistics 2020). 61 This study was conducted among 1,124 Syrian and Around the world, there is evidence that non-Syrian refugee households living outside of camps, members of poorer households tend to have more non-Jordanians, and migrant workers living in informal underlying health conditions,59 making them more tented settlements from April 6 to April 8 2020 (UNHCR, susceptible to becoming severely ill with COVID-19. UNICEF, and WFP 2020). 38 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD FIGURE 43 • Percentage of Individuals without FIGURE 44 • Unemployment Rate from 2018 to Access to Piped Water in Dwelling, 2020 Living in Multigenerational (Percent) Households, and Overcrowding by Per Capita Consumption Decile 40 33.6 32.8 35 25 28.9 27.2 27.5 28.6 30 27.8 26.8 27.1 25.7 24.1 24.3 20 23.9 24.7 25 22.9 15 18.4 18.7 18.6 18.7 19 19.2 19.1 19 19.3 20 21.5 21.2 22.6 10 15 16 16.6 16.3 16.9 16.4 17.1 17.1 17.7 18.1 5 10 0 5 T1 (poorest) 2 3 4 5 6 7 8 9 10 (richest) All 0 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2020 Q1 2020 Q2 2020 Q3 2020 Q4 Overcrowding (3+ people per room) (%) Household has children and elderly household members (%) All Women Men No access to piped water (%) Source: DoS. was launched in parallel to support them for three period starting from April 1st 2020: 17 percent had months.62 While labor income makes up roughly the been permanently dismissed and a further 31 percent same proportion of income across all wealth deciles, were temporarily dismissed (Kebede, Stave, and around half of the workers in the bottom two deciles Kattaa 2020).64 are informal and not protected by the Defense Orders While there are no official poverty numbers (World Bank Group 2020). since the pandemic began in Jordan, estimates Data on unemployment shows that unem- from an early microsimulation analysis (World Bank ployment in Jordan has increased over 2020, from 2020) suggest that the possible short-term increase 19.0 percent in the last quarter of 2019 to 24.7 percent in national poverty could be as high as 11 percentage in the last quarter of 2020 (DoS 2021). As shown in points for Jordanians. However, recent growth pro- Figure 44, this change is far larger for women, as jections show that the Jordanian economy has not female unemployment increased from 24.1 percent to suffered as much as expected (see the Jordan Macro 32.8 percent in the same period. Female labor force participation rates were already one of the lowest in the 62 The Government of Jordan, with support from the World world at around 15.1 percent (Lugo, Muller, and Wai-Poi Bank, launched a program to provide cash support to 2020), and has decreased further to 13.7 percent by poor, informal and vulnerable households. It consisted the last quarter of 2020 (DoS 2021). The COVID-19 of (i) a temporary cash transfer to 190,000 additional vulnerable households and (ii) temporary benefit top- crisis is likely to reinforce existing challenges and bar- ups for existing NAF and Takaful beneficiaries whose riers for women’s economic engagement. Perceptions benefits were below a certain threshold. around the importance of securing jobs for men 63 The World Values Survey finds that 58.9 percent of before women, or women’s primary responsibility for Jordanians strongly agree and 22.5 percent agree that childcare, are likely to prevail in crisis settings.63 men have more right to a job than women when jobs are The situation is particularly dire for those scarce (Inglehart et al. 2014). 64 The ILO report is based on a telephone survey targeting working in the informal sector. An early rapid-response 3,000 Syrian and Jordanian workers who have received survey of vulnerable workers conducted by the ILO support or participated in ILO projects. 1,580 interviews reported that nearly half of Jordanians working before were completed between 9 and 14 April 2020 (Kebede, the pandemic were out of work during the five day Stave, and Kattaa 2020). Special Focus 2: COVID-19 and Inequality in the MENA Region and in Jordan 39 FIGURE 45 • Employment Status of Workers Who Were Employed Before COVID-19 (Percentage) Employment status of workers who were employed before COVID-19 Percentage Other 31 31 31 7 Activities of extraterritorial organizations and bodies 25 75 Activities of households as employers/for own use 10 70 20 Education 15 48 29 10 Administrative and support service activities 6 51 16 27 Accomodation and food service activities 22 48 22 7 Wholesale and retail trade 7 25 50 18 Construction 13 52 35 Manufacturing 8 57 27 9 Agriculture, forestry and fishing 10 50 40 Total 11 42 31 17 0% 20% 40% 60% 80% 100% Working as usual or from home Paid leave Temporary lay-off and expected to return to work Permanently laid off Source: Extracted from ILO report on vulnerable workers in Jordan (Kebede, Stave, and Kattaa 2020). Poverty Outlook of April 2021). In combination with MERS, H1N1, Ebola, and Zika had very similar the government emergency cash assistance, the pov- effects on poverty and inequality (Barro, Ursúa, erty impact should be considerably less than forecast. and Weng 2020; Furceri et al. 2020). What is Finally, refugees in Jordan have been even more different with COVID-19 is the scale and duration vulnerable during the COVID-19 pandemic. Informality of the pandemic and hence its continued impact. rates of Syrian refugees are around 80 percent, sub- Economic projections confirm that extreme poverty stantially high compared to informality in the Jordanian will increase by at least 119 million people across population which is around 35 percent (World Bank the globe due to COVID-19, upending the global Group 2020). Refugee households face an additional trend toward poverty eradication. In MENA, around source of vulnerability during the pandemic, because 5 million people are expected to fall into extreme these households spend a higher share of their income poverty by the end of 2021 (Lakner et al. 2021). on food expenses, they are likely to feel the impact of Income inequality is expected to rise in low-income rising food prices more strongly. Although general and emerging countries alike (IMF 2021). inflation has remained relatively contained in Jordan, The effects of the disproportional exposure of the interagency survey of vulnerable populations in poor and vulnerable households to the pandemic will early April 2020 found that half of Syrian refugees and be felt for a long time to come (i.e., economic scar- over two-thirds of refugees living in informal tented ring). The longer people are out of a job, the harder it settlements experienced food price increases in the is to get back into the job market, and human capital previous week (UNHCR, UNICEF, and WFP 2020). will continue to deteriorate. Lower incomes and rising prices of basic essentials in many places will force poor households to cut back on their nutritional intake Conclusion and further undermine their health (Adams-Prassl et al. 2020; Bartik et al. 2020; Montenovo et al. 2020). The inequality increasing effect of COVID-19 is Children of poor and vulnerable households will pay not surprising; past pandemics such as SARS, the highest price and learning disruption associated 40 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD with school closures will lead to human capital loss Statistics, The Hashemite Kingdom of Jordan. and stronger educational and income inequality in http://dos.gov.jo/dos_home_e/main/archive/ the future (Fort, Ichino, and Zanella 2020; Lustig and Unemp/2020/Emp_Q4_2020.pdf. Tommasi 2020). Fort, Margherita, Andrea Ichino, and Giulio Zanella. The rising inequality has consequences for plan- 2020. “Cognitive and Noncognitive Costs of Day ning the post-COVID period in Jordan. Building back Care at Age 0–2 for Children in Advantaged better will need to offer the poorest and most vulner- Families.” Journal of Political Economy 128 (1). able the opportunity to regain what they have lost and https://www.journals.uchicago.edu/doi/abs/10. build resilience for future shocks. Labor market, social 1086/704075?journalCode=jpe. protection, health and education policies will need to Furceri, Davide, Prakash Loungani, Jonathan D. Ostry, be (re)considered through a lens of equity and inclu- and Pietro Pizzuto. 2020. “Will Covid-19 Affect sion. This can make up for the large losses that have Inequality? Evidence from Past Pandemics.” been experienced, and help build the foundation for a CEPR Press, no. 12: 138–57. stronger, more inclusive social contract. Garrote Sanchez, Daniel, Nicolas Gomez Parra, Caglar Ozden, Bob Rijkers, Mariana Viollaz, and Hernan Winkler. 2020. “Who on Earth Can References Work from Home?” Policy Research Working Paper 9347. Washington DC: World Bank. Adams-Prassl, Abi, Teodora Boneva, Marta Golin, and https://openknowledge.worldbank.org/handle/ Christopher Rauh. 2020. “Inequality in the Impact 10986/34277. of the Coronavirus Shock: Evidence from Real Hill, Ruth, and Ambar Narayan. 2020. “Covid-19 and Time Surveys.” Journal of Public Economics 189 Inequality: A Review of the Evidence on Likely (104245). Impact and Policy Options.” Working Paper. Alfani, Federica, Dorra Dhrif, Vasco Molini, Dan London: Centre for Disaster Protection. Pavelesku, and Marco Ranzani. 2021. “Living IMF. 2021. “World Economic Outlook Update.” Standards of Tunisian Households in the Midst International Monetary Fund. https://www. of COVID-19 Pandemic.” Policy Research imf.org/en/Publications/WEO/Issues/2021/ Working Paper 9581. Washington DC: World 01/26/2021-world-economic-outlook-update. Bank. https://openknowledge.worldbank.org/ Inglehart, R., C. Haerpfer, A. Moreno, C. Welzel, K. Kizilova, handle/10986/35289. J. Diez-Medrano, M. Lagos, P. Norris, E. Ponarin, Barro, Robert J., José F. Ursúa, and Joanna Weng. and B. Puranen. 2014. “World Values Survey: All 2020. “The Coronavirus and the Great Influenza Rounds – Country-Pooled Datafile.” Madrid: JD Pandemic: Lessons from the ‘Spanish Flu’ for the Systems Institute. https://www.worldvaluessurvey. Coronavirus’s Potential Effects on Mortality and org/WVSDocumentationWVL.jsp. Economic Activity.” w26866. National Bureau of Isaacs, Katelin, and Sharmila Choudhury. 2017. “The Economic Research. https://doi.org/10.3386/ Growing Gap in Life Expectancy by Income: w26866. Recent Evidence and Implications for the Social Bartik, Alexander W., Marianne Bertrand, Zoë B. Security Retirement Age.” CRS Report R44846 Cullen, Edward L. Glaeser, Michael Luca, and Version 4. Congressional Research Service. Christopher T. Stanton. 2020. “How Are Small Kebede, Tewodros, Svein Stave, and Maha Kattaa. Businesses Adjusting to COVID-19? Early 2020. “Facing Double Crises: Rapid Assessment Evidence from a Survey.” w26989. National of the Impact of COVID-19 on Vulnerable Bureau of Economic Research. https://doi. Workers in Jordan.” Report. International org/10.3386/w26989. Labour Organization. http://www.ilo.org/beirut/ DOS. 2021. “Unemployment Rate during the Fourth publications/WCMS_743391/lang--en/index. Quarter of 2020.” Amman: Department of htm. Special Focus 2: COVID-19 and Inequality in the MENA Region and in Jordan 41 Lakner, Christoph, Nishant Yonzan, Daniel Gerszon Oxfam. 2021. “The Inequality Virus.” Oxfam Mahler, R. Andres Castaneda Aguilar, and Methodology. Oxfam International. https://oxfami Wu Haoyu. 2021. “Updated Estimates of the library.openrepository.com/bitstream/handle/10 Impact of COVID-19 on Global Poverty: Looking 546/621149/tb-inequality-virus-methodology-no Back at 2020 and the Outlook for 2021.” Data te-250121-en.pdf. Blog (blog). January 11, 2021. https://blogs. Sánchez-Páramo, Carolina, and Ambar Narayan. 2020. worldbank.org/opendata/updated-estimates- “Impact of COVID-19 on Households: What Do Phone impact-covid-19-global-poverty-looking-back- Surveys Tell Us?” Voices (blog). November 20, 2020. 2020-and-outlook-2021. https://blogs.worldbank.org/voices/impact-covid- Lugo, Maria Ana, Miriam Muller, and Matthew Wai-Poi. 19-households-what-do-phone-surveys-tell-us. 2020. “Middle East and North Africa – Women’s Serkez, Yaryna. 2021. “Opinion | We Did Not Economic Participation in Iraq, Jordan, and Suffer Equally.” The New York Times, March Lebanon.” Text/HTML. Washington DC: World 11, 2021, sec. Opinion. https://www.nytimes. Bank Group. https://documents.worldbank. com/interactive/2021/03/11/opinion/covid- org/en/publication/documents-reports/ inequality-race-gender.html. documentdetail/933641600751429640/Middle- UN. 2008. “International Standard Industrial Classification East-and-North-Africa-Women-s-Economic- of All Economic Activities (ISIC), Rev.4.” Series M Participation-in-Iraq-Jordan-and-Lebanon. No.4, Rev. 4. Statistical Papers. New York: United Lustig, Nora, and Mariano Tommasi. 2020. “Covid-19 Nations Department of Economics and Social and Social Protection of Poor and Vulnerable Affairs: Statistics Division. https://unstats.un.org/ Groups in Latin America: A Conceptual Framework.” unsd/publication/seriesm/seriesm_4rev4e.pdf. 8. COVID19 Policy Documents Series. UNDP. UNHCR, UNICEF, and WFP. 2020. “Multi-Sectoral https://www.latinamerica.undp.org/content/ Rapid Needs Assessment: COVID-19 – Jordan rblac/en/home/library/crisis_prevention_and_ | World Food Programme.” https://www.wfp. recovery/covid-19-and-social-protection-of-poor- org/publications/multi-sectoral-rapid-needs- and-vulnerable-groups-in-.html. assessment-covid-19-jordan. Montenovo, Laura, Xuan Jiang, Felipe Lozano Rojas, World Bank. 2020. “High-Frequency Monitoring Ian M. Schmutte, Kosali I. Simon, Bruce A. Systems to Track the Impacts of the COVID-19 Weinberg, and Coady Wing. 2020. “Determinants Pandemic.” Brief. Washington D.C: World Bank. of Disparities in Covid-19 Job Losses.” w27132. https://www.worldbank.org/en/topic/poverty/ National Bureau of Economic Research. https:// brief/high-frequency-monitoring-surveys. doi.org/10.3386/w27132. World Bank Group. 2020. “Jordan – Emergency Cash Office for National Statistics. 2020. “Deaths Involving Transfer COVID-19 Response Project.” Project COVID-19 by Local Area and Socioeconomic Appraisal Document. Washington DC: World Deprivation.” Statistical Bulletin. https://www.ons. Bank Group. https://documents.worldbank. gov.uk/peoplepopulationandcommunity/births org/en/publication/documents-reports/ deathsandmarriages/deaths/bulletins/death documentdetail/488131593396075008/Jordan- sinvolvingcovid19bylocalareasanddeprivation/ Emergency-Cash-Transfer-COVID-19-Response- deathsoccurringbetween1marchand17april. Project. 42 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD ANNEX I  he Cyclicality of Fiscal Policy in A: T we follow Abdih, et al., (2010), and use government Jordan spending as the main indicator to assess the cyclical properties of fiscal policy. This research uses panel Fiscal policy plays a central role in stimulating data on government spending and GDP from 1980 to economies as well as in stabilizing output. This is 2019 for the MENA countries.66 The real GDP annual particularly important for a country like Jordan where time series are decomposed into trend and cyclical effectiveness of monetary policy is limited due to a components using the Hodrick-Prescott filter. Positive fixed exchange rate peg. If used effectively, fiscal cyclical components coincide with boom periods as policy can help stabilize the output counter-cyclically output is above the economy’s potential. The HP filter through business cycles, i.e., expand during recession was then applied to the real government spending and contract during boom.65 However, literature finds (deflated using GDP deflators), while a positive that fiscal policy in most developing countries instead (negative) cyclical component indicates expansionary remains procyclical (see Gavin and Perotti (1994) for (contractionary) fiscal policy. In applying the HP filter example). The cyclical behavior of fiscal outcomes in MENA countries is of particular interest as those 65 According to Kaminsky et al. (2004) definition, counter- countries witnessed the highest output volatility. Abdih, cyclical fiscal policy refers to tax rates increase et al. (2010) study the aggregate fiscal outcomes for (decrease) and government spending decreases the whole MENA and the Caucasus and Central Asia (increases) in good (bad) times. Analogously, pro-cyclical (CCA) regions and conclude that fiscal policy has fiscal policy is defined tax rates decrease (increase) and typically amplified business cycles at the regional level. government spending increases (decreases) in good (bad) times. Fiscal policy is defined as acyclical if tax This Annex focuses on Jordan with a particular focus rates and government spending remain constant over on fiscal policy response during COVID-19 pandemic. business cycle. Given the absence of systematic time series 66 The panel data is uneven because of lack of the data, for data on tax rates for the countries in our sample, example, the data for Afghanistan is from 2003 to 2019. 43 FIGURE 46 • Correlation between Real Output FIGURE 47 • Did Fiscal Policy Respond and Real Spending (Cyclical Proactively During the COVID-19 components) Crisis? (1980–2020) 0.8 0.1 Cyclical component of real GDP (in logs) 0.6 0.05 0.4 0.2 0.0 0.0 2020 –0.2 –0.05 –0.4 Bahrain Kuwait Egypt Tunisia Algeria Djibouti Lebanon Morocco Saudi Arabia Jordan Mauritania Sudan Iraq Iran Pakistan Libya Qatar Afghanistan Yemen –0.1 –0.1 –0.05 0.0 0.05 0.1 0.15 Cyclical component of government spending (in logs) Sources: Data for Jordan is from MoF and DoS of Jordan. Data for other countries is Sources: Data for Jordan is from MoF and DoS of Jordan. Data for other countries is from IMF WEO Database, October 2020. from IMF WEO Database, October 2020. to extract the cyclical components of the series, we In the light of the COVID-19 shock, most follow Backus and Kehoe (1992) and use a smoothing countries, including Jordan, have resorted (perhaps parameter λ = 100 for all countries. relatively less due to fiscal space issues) to fiscal policy Empirical findings suggest the existence of to protect the most hard-hit sectors and vulnerable pro-cyclical fiscal policy in most MENA countries populations in order to lessen the economic fallout (similar to the findings in Abdih, et al. 2010 and of COVID-19 shock. An interesting question here is Slimane and Tahar 2010). As shown in Figure 46, the what has been the fiscal outcome in Jordan amid the correlation between the cyclical components of real COVID-19 crisis? Did Jordan follow its broad historical government spending and real output are positive pattern of procyclicality (i.e., cutting spending during for 15 countries out of 19 countries in our sample. the recession), or was it different this time around? Interestingly, we find fiscal policy in Jordan is pro- Figure 47: Did fiscal policy respond proactively during cyclical as the correlation coefficient is positive and the COVID-19 crisis? (1980–2020) provides some intu- statistically significant at the 10 percent level. This ition to this question in Jordan as it plots the cyclical means Jordan’s fiscal policy has typically amplified components of both government spending (x-axis) the business cycles. We further show that the procy- and real GDP growth (y-axis) for year 1980–2020. The clical pattern observed in government spending in green line indicates the long-run positive relationship Jordan can be mostly attributed to capital spending, between the cyclical components of government as the elasticity of growth of capital spending is as spending and the real GDP. The data indicates that much as 5.1 (and statistically significant at 1 percent a fall in the upper right orange area are years that level), i.e., one percentage deviation of output from coincide with an expansionary fiscal policy during its trend is associated with around 5.1 percent devia- good times, while the data points that fall in the lower tion of capital expenditure in the same direction.67 left green area are years coincide with a contractionary This means capital spending expands during boom periods and contract significantly during recession. 67 Total government expenditure can be broken down On the other hand, recurrent spending appears to be into two types of expenditure: recurrent spending which acyclical (i.e., remains constant over business cycles) represents day-to-day costs that are necessary to keep as the elasticity of growth to recurrent spending is the government running; and capital spending which are only 0.24 and statistically insignificant. inherently payments for acquisition of assets. 44 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD fiscal policy during recessions. For 2020, Jordan’s of the European Economic Association, 6(5): data point falls outside the shaded area, reflecting 1006–1036. expanding government expenditure in Jordan during Backus, D. K., P. J Kehoe, and F. E. Kydland. 1992. the crisis. Therefore, it appears fiscal policy in Jordan “International real business cycles.” Journal of did respond proactively to recessionary conditions Political Economy, 100(4): 745–775. during 2020 despite limited fiscal space. Fedelino, A., M. Horton, and A. Ivanova. 2009. To formally examine the fiscal policy response “Computing cyclically-adjusted balances and in Jordan amid the COVID-19 crisis, we also adopt automatic stabilizers.” (Vol. 2009, pp. 1–12). a different approach.68 Specifically, we look into the International Monetary Fund. cyclically adjusted primary balance (CAPB)—a com- Kaminsky, G. L., C. M Reinhart, and C. A. Végh. monly used fiscal indicator in the literature that reflect 2004. “When it rains, it pours: procyclical capital discretionary fiscal policy response. In principle, the flows and macroeconomic policies.” NBER CAPB focuses on discretionary actions and, com- Macroeconomics Annual, 19: 11–53. pared to the primary balance (PB), leaves aside the Riascos, A., & C. A. Vegh. 2003. Procyclical influence of automatic stabilizers (such as a fall in tax government spending in developing countries: revenues or a rise in transfers because output falls). The role of capital market imperfections. The CAPB can be calculated using the ratio of rev- unpublished (Washington: International Monetary enue and expenditure to GDP, the output gap, and the Fund). elasticity of revenue and expenditure with respect to Slimane, S. B., & M. B. Tahar. 2010. “Why is fiscal policy the output gap (for detailed formulation, see Fedelino procyclical in MENA countries?” International et al. 2009). The expansionary (contractionary) fiscal Journal of Economics and Finance, 2(5): 44–53. policy coincides with ΔCAPB < (>) 0 (Δ is the differ- ence between two consecutive years). Based on the real GDP and fiscal balance in Merchandise Trade Balance, B:  2020, Jordan’s output gap is estimated to be around Workers’ Remittances, and –3.1 percent in 2020, while the estimated change of International Oil Prices: Some cyclical adjusted primary deficit (excluding grants) Empirical Observations in the Case equals to JD504 million (~1.6 percent of 2020 of Jordan GDP).69 This implies that, of the 2.3 percent of GDP Movement in international oil prices play an important increase in primary deficit (excluding grants) in role in shaping the underlying economic activities 2020 compared to 2019, 1.6 percent of GDP came of (and their outlook across) many advanced and from discretionary fiscal policy response, while the emerging economies. This importance further increases remaining 0.7 percent is the automatic revenue/ if the economy is running a significant trade deficit spending changes due to the output fluctuation. This from the energy bill, while also having a large share indicates that despite limited fiscal space, Jordan was of labor exports toward oil exporting nations. In such able to generate considerable countercyclical fiscal cases, a positive oil price shock on one hand, helps stance in response to the downturn in 2020. reduce the external sector pressures providing windfall Reference 68 As it is not possible to estimate the correlation coefficient Abdih, Y., P. Lopez-Murphy, A. Roitman, and R. between fiscal policy instruments and real output for only one year. Sahay. 2010. “The cyclicality of fiscal policy in the 69 Based on the assumption that revenue elasticity is equal Middle East and Central Asia: is the current crisis to one (i.e., revenues are perfectly correlated with the different?” IMF Working Papers, 1–26. cycle) and expenditure elasticity is equal to zero (i.e., Alesina, A., F. R. Campante, and G. Tabellini, G. 2008. expenditures are not affected by the cycle). This is a “Why is fiscal policy often procyclical?” Journal common assumption used in fiscal policy literature. Annex I 45 FIGURE 48 • Jordan’s Imports and Remittances Structure Product-wise top 20 Imports, Remittances Inflows, share in total (2015–19) share in total (2015–18) Mineral fuels, mineral oils and products Machinery, mechanical appliances Gulf Cooperation Council Vehicles other than railway or tramway Electrical machinery and equipment United States Cereals Plastics and articles thereof West Bank and Gaza Knitted or crocheted fabrics Pharmaceutical products Libya Iron and steel Meat and edible meat offal Germany Organic chemicals Articles of iron or steel Canada Paper and paperboard Edible fruit and nuts Optical, photographic, cinematographic Indonesia Dairy produce; birds’ eggs; natural honey Miscellaneous edible preparations Iraq Apparel and clothing accessories, knitted or crocheted Essential oils and resinoids All other countries Preparations of cereals, flour, starch 0 5 10 15 20 0 20 40 60 80 Source: International Trade Centre, World Bank, World Bank staff calculations Note: Gulf Cooperation Council consists of Saudi Arabia, UAE, Kuwait, Qatar, Oman and Bahrain gains through lower trade imbalances, while on the accordingly. However, to examine the impact of other hand, it also potentially deteriorates the outlook changes in oil prices on workers’ remittances, one for workers’ remittances due to reduction in income needs to take into account host of other factors that of oil exporting countries. Thus, the net impact on the may affect the underling relationships among these current account depends on which impact prevails. variables. In this context, we investigated the impact Jordan falls in one of those emerging economies that of changes in international oil prices on Jordan’s faces such trade-offs as energy imports makes around trade balance and workers’ remittances for period one-fifth of Jordan’s total imports in recent years, while 2008M01–2020M06 in an empirical Structural Vector almost of two-third of workers’ remittance inflows for Autoregressive setup having the following specification: Jordan originates from the neighboring oil exporting Gulf nations (Figure 48).70 Given such underlying oilt = E t −1[oilt ] + εtoil exposures, the Jordanian external sector potentially faces both upside and downside risks from changes y_met = E t −1[ y_ME t ] + δ11εtoil + εty_me in international oil prices, particularly if the trend remains persistent in one direction for some time. The y_jort = E t −1[ y_jort ] + δ21εtoil + δ22εty_ME + εty_jor theoretical and empirical underpinnings for such dual role of oil prices to impact the current account is well tbt = E t −1[tbt ] + δ31εtoil + δ32εty_me + δ33εty_jor + εttb documented in economic literature (e.g., see Mitra 1995 and Lueth and Ruiz-Arranz 2007). wrt = E t −1[wrt ] + δ41εtoil + δ42εty_me + δ43εty_jor + δ44εttb + εtwr Typically, for the trade balance, analyzing the impact from the changes in the international 70 We excluded oil related exports from this analysis as they oil prices is straightforward, as change in trade account for only 0.8 percent of Jordan’s total exports in prices would adjust the current account dynamics the last five years. 46 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD FIGURE 49 • Accumulated Response of Shock to International Oil Prices Trade balance response, in % y-o-y change Workers’ remittances response, in % y-o-y change 5 8 0 6 4 –5 2 –10 0 –15 –2 –20 –4 0 1 2 3 4 5 6 7 8 9 10 11 12 0 1 2 3 4 5 6 7 8 9 10 11 12 No. months after shock No. months after shock Sources: CBJ and World Bank staff calculations. Note: Orange line denotes +/– 2 standard deviations from the mean response. where εtoil , εty_me , εty_jor , εttb and εtwr are the oil price, external the Jordanian trade balance relative to outlook for and domestic income (proxy by industrial production remittances from major source countries. Therefore, in the MENA region and Jordan), trade balance, and the likelihood is that the recent higher projections workers’ remittances shocks, respectively. E t −1[⋅] is for global oil prices in 2021 is expected to worsen the expectation of a variable based on information set country’s trade balance more than the expected at the end of period t–1. improvement in remittances. Thus, conditional upon Results indicate that in an event where the projections for global oil prices, Jordanian current international oil price increases by US$10 per barrel, account deficit during 2021 is expected to remain at after a lag of one quarter Jordan’s trade balance the same level in 2021. is likely to deteriorate by around 1.1 percent, while simultaneously the impact on workers’ remittances References is estimated as an increase of 0.5 percent (y-o-y). As highlighted, because of significant labor exports Mitra, Pradeep K., and Pradeep Mitra. 1994. from Jordan toward oil exporting neighboring nations, Adjustment in oil-importing developing countries: the favorable impact on remittances mainly works A comparative economic analysis. Cambridge through positive changes in the external income of University Press. these nations as oil prices increases in the global mar- Lueth, Erik, and Marta Ruiz-Arranz. 2007. “Are workers’ kets. On an accumulated basis, the positive shock to remittances a hedge against macroeconomic international oil price would increase the Jordan’s shocks? The case of Sri Lanka.” IMF Working trade deficit by 6.9 percent, while increasing workers’ Papers: 1–14. remittances by 2.4 percent over the 12 months period Raissi, Mehdi, and Kamiar Mohaddes. 2011. “Oil (Figure 49). prices, external income, and growth; lessons from Overall, these results indicate the dominating Jordan.” No. 2011/291. International Monetary effect of changes in global oil price in determining Fund, 2011. Annex I 47 ANNEX II Selected Recent World Bank Publications on Jordan (for an exhaustive-e list, please go to: http://www.worldbank.org/en/country/jordan/research) Title Publication Date Document Type The Amman Climate Plan: A Vision for 2050 Amman March 31, 2021 Report Jordan Economic Monitor—Fall 2020: Navigating through Continued Turbulence March 1, 2021 Report Fiscal Policy, Poverty and Inequality in Jordan: The Role of Taxes and Public Spending—Policy Summary March 1, 2021 Working Paper Hashemite Kingdom of Jordan—Social Security Corporation (SSC): Toward Coverage Expansion and a More March 1, 2021 Report Adequate, Equitable and Sustainable Pension System The Lives and Livelihoods of Syrian Refugees in the Middle East: Evidence from the 2015–16 Surveys of Syrian July 21, 2020 Policy Research Working Paper Refugees and Host Communities in Jordan, Lebanon, and Kurdistan, Iraq Coping with the Influx: Service Delivery to Syrian Refugees and Hosts in Jordan, Lebanon, and Kurdistan, Iraq July 21, 2020 Policy Research Working Paper The Fallout of War: The Regional Consequences of the Conflict in Syria June 17, 2020 Report Jedad: Promoting Market Opportunities for Refugee and Host Community Businesses in Jordan June 9, 2020 Report Jordan Economic Monitor—Spring 2020: Weathering the Storm June 1, 2020 Report Women’s Economic Empowerment in Jordan April 1, 2020 Brief Does the Internet Reduce Gender Gaps? : The Case of Jordan March 13, 2020 Policy Research Working Paper Estimating Poverty for Refugee Populations: Can Cross-Survey Imputation Methods Substitute for Data Scarcity? December 3, 2019 Policy Research Working Paper Measuring Social Norms About Female Labor Force Participation in Jordan June 26, 2019 Policy Research Working Paper How Does Poverty Differ Among Refugees? Taking a Gender Lens to the Data on Syrian Refugees in Jordan October 17, 2018 Policy Research Working Paper 49 Summary of Recent Special Focuses goal of reducing poverty and inequality. The recent from the Latest Jordan Economic expansion of social assistance programs is making Monitors Jordan’s fiscal policies more equalizing. Fall 2020 JEM: “Moving Toward an Spring 2020 JEM: “Women and Work in Equitable and Sustainable Pension and Jordan” Social Insurance in Jordan” Women’s participation in Jordan’s labor market Addressing pension and social insurance issues is the fourth lowest in the world with less than 15 means addressing financial, fiscal, social, and percent of women working or looking for work. economic challenges. More than half of the population Jordanian women who do want to work face an in Jordan is not yet effectively covered by contributory unemployment rate reaching almost 25 percent in social security programs. Although designed to be 2019, nearly twice that of men—meaning that low financially self-sustainable, the contributory pension rates of female participation mask an even lower program is actually unsustainable. The program rate of employment. Expanding women’s access also creates inequities and adverse incentives. to economic opportunities remains critical. Equal Despite some past reform efforts, the program has access to economic opportunities as men enjoy is a still considerable parametric inconsistencies (benefit precondition for ensuring that everyone reaches their promises are not in line with contribution rates and full life potential. Moreover, significant and sustained retirement ages). Such inconsistencies are bridged, increases in female labor participation would at the moment, by favorable demographics, but in potentially have substantial impacts on economic less than a decade, revenues from contributions will growth. However, female workers in Jordan face not be enough for pension spending. There are some multiple barriers in the labor market. Although potential solutions and proposals that Jordan could Jordan has taken important recent legal reforms to adopt in order to improve pension outcomes, and its remove barriers to women’s employment, restrictions financing mechanisms. and legal differentiation between women and men remain, and further legal reforms and regulations are Fall 2020 JEM: “The Incidence of Taxes needed to address the gender gap. and Public Spending in Jordan” Spring 2020 JEM: “Jobs Diagnostics” The degree to which different households contribute to and benefit from fiscal policies varies across Job creation for youth and women is weak. Jordan’s income distribution. Taken together, the overall difficult job challenges are made even harder by allocation of taxes (personal income tax and sales growth rates that are persistently low, a large and taxes) and public spending (cash transfers, water growing labor force that is increasingly informal, and and electricity subsidies, and health and education a weak private sector that did not create enough in-kind benefits) in Jordan is modestly progressive. jobs to encourage youths and women to participate The fiscal system helps to reduce inequality, though in the labor force. Moreover, labor segmentation much of the effect comes from in-kind benefits and appears to be on the rise. The World Bank Jobs the pattern of taxes and cash spending could be Diagnostic (2018) indicates where the challenges for made to benefit the poor and middle class further. In Jordanian policymakers lie in their quest to improve comparing Jordan with other countries, it is evident the economy’s jobs performance. Many of these that more could be achieved. Further, Jordan’s need challenges require policy intervention to improve the for fiscal consolidation can be compatible with the jobs picture. 50 JORDAN ECONOMIC MONITOR: UNCERTAIN AND LONG TRAIL AHEAD 1818 H Street, NW Washington, DC 20433