JORDAN ECONOMIC MONITOR Navigating through Continued Turbulence Fall 2020 Middle East and North Africa Region Jordan Economic Monitor Navigating through Continued Turbulence With a Special Focus on pensions and the incidence of fiscal policy in Jordan Fall 2020 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. 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TABLE OF CONTENTS Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Acronyms and Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi 1.  Economic Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Global and Regional Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 The Real Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Labor Market Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Public Finances: Fiscal and Debt Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Balance of Payments Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Monetary Policy and Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.  Outlook and Upcoming Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 Global and Regional Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Outlook for Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Special Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 Special Focus 1: Moving Toward an Equitable and Sustainable Pension and Social Insurance in Jordan 25 Special Focus 2: The Incidence of Taxes and Public Spending in Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Annex I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 Annex II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Selected Recent World Bank Publications on Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Summary of Recent Special Focuses from the Latest Jordan Economic Monitors . . . . . . . . . . . . . . . . . . . . .40 iii List of Figures Figure 1 Average Changes in Sales Across Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 2  Fraction of Businesses in Arrears or Expected to Fall in Arrears . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 3 Weakened Net Exports and Subdued Private Demand Pulled Down Growth in Q2-2020 . . . . . . . 4 Figure 4 Services Provides the Largest Downward Contribution to GDP Growth in Q2-2020 . . . . . . . . . . . .4 Figure 5 Q-o-Q Change in Real GDP in Q2-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Figure 6 Manufacturing Activities Exhibited Significant Drop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 7 Stock Prices Dropped Sharply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 8 Labor Market Indicators Deteriorated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Figure 9 Quarterly Changes in Employment by Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Figure 10 Year-on-Year Growth of Fiscal Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Figure 11 Current Account Indicators During H1-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Figure 12 Balance of Payments Summary in H1-2020 and CBJ’s Foreign Reserves Position . . . . . . . . . . . . 14 Figure 13 Trade Openness in MENA Oil Importers and Jordan’s Trade Structure . . . . . . . . . . . . . . . . . . . . . 15 Figure 14 Jordan’s Participation in GVC and Untapped Export Potential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Figure 15 CBJ’s Policy Rate, Headline Inflation and Cross-Country Real Interest Rates . . . . . . . . . . . . . . . . .16 Figure 16 Policy Support Measures by Central Banks of MENA Countries to Combat COVID-19 . . . . . . . . 17 Figure 17 Credit to Private Sector and Trends in Monetary Aggregates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Figure 18 Public Pension Spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Figure 19 Public Pension Spending vs Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 Figure 20 Current Balance under Different Baseline Scenarios (SSC Pension Program) . . . . . . . . . . . . . . . .28 Figure 21 Current Balance under Pure PAYG vs PAYG with Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Figure 22 Current Balance under Different Reform Options (SSC Pensions Program) . . . . . . . . . . . . . . . . . .29 Figure 23 Payments of Taxes and Benefits of Public Spending by Household Consumption Decile . . . . . .31 Figure 24 Payments of Taxes and Benefits of Public Spending by Household Consumption Decile . . . . . .31 Figure 25 Fiscal Impact on Monetary Inequality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 Figure 26 Budget and Effectiveness of Main Taxes and Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 List of Tables Table 1 TFP Estimates for Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Table 2  Summary of Jordan’s Fiscal Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Table 3  Jordan Selected Economic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 Table 4  Fiscal and Distributional Impacts of Potential Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Table 5  Key Fiscal Indicators, 2017–2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Table 6  External Financing Requirements and Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37 List of Boxes Box 1. Six Charts Illustrating the Early Impact of COVID-19 Shock on the Jordanian Economy . . . . . . . xiii Box 2. Businesses through the COVID-19 Shock: Firm-Level Evidence from 49 Countries . . . . . . . . . . . . 2 Box 3. Analyzing GDP’s Surprisingly Muted Contraction in Q2-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Box 4.  Total Factor Productivity Performance in Services and Manufacturing Using Micro-Level Data . . 7 Box 5. Identifying Jordan’s Position in Global Value Chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Box 6.  CBJ’s Policy Measures to Support Businesses and Households during the COVID-19 Crisis 17 iv JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE PREFACE T he objective of this report is to apprise the Rodriguez Takeuchi (Young Professional, EMNPV) Government of Jordan, think-tanks and and Matthew Wai-Poi (Senior Economist, EMNPV) who researchers, the public, and the World contributed to the Special Focus on the Incidence of Bank’s senior management of the Kingdom of Taxes and Public Spending in Jordan. The team is Jordan’s economy, outlook, structural reforms, and also grateful to Montserrat Pallares-Miralles (Senior development challenges. The first chapter covers Social Protection Specialist, HMNSP), who contributed recent economic developments, with sections on the Special Focus on Pension and Social Insurance growth, labor market developments, public finances, in Jordan. The boxes ‘Six Charts Illustrating the Initial the external sector, and inflation and monetary Impact of COVID-19 on the Jordanian Economy’, developments as well as macroeconomic outlook ‘Identifying the Jordan Position in Global Value Chains’, and risks. The second part of the report is comprised and ‘CBJ’s Policy Measures to Support Businesses of Special Focus sections which for this report focus and Households during the COVID-19 Crisis’ were on pension and social insurance in Jordan; and the contributed by Asif Mahmood (Consultant, EMNM1). incidence of taxes and public spending in Jordan. The boxes ‘Total Factor Productivity Performance in This Monitor update was prepared by the Services and Manufacturing Using Micro-level Data’ Macroeconomics, Trade & Investment Global Practice and ‘Analyzing GDP’s surprisingly muted contraction in under the guidance of Saroj Kumar Jha (Country Q2-2020’ was contributed by Yifan Zhang (Consultant, Director, MNC02) and Eric Le Borgne (Practice Manager, EMNM1). EMNM1). Analyses were contributed by Saadia Refaqat The report benefitted from comments and (Senior Economist, EMNM1) and Anastasia Janzer (ET guidance provided by Eric Le Borgne (Practice Consultant, EMNM1) who co-wrote the Labor Market Manager, EMNM1), Christos Kostopoulos (Lead Developments and Public Finances sections. Yifan Economist, EMNM1), and Holly W. Benner (WB Zhang (Consultant, EMNM1) wrote the Real Sector Resident Representative for Jordan). Saadia Refaqat section. Asif Mahmood (Consultant, EMNM1) wrote (Senior Economist, EMNM1) led the overall effort, with the Balance of Payments and the Monetary Policy and assistance from Anastasia Janzer (ET Consultant, Inflation sections. Saadia Refaqat wrote the Outlook EMNM1). This report is based on data and informa- and Risks section. The team is grateful to Laura tion available through mid-November 2020. v ACRONYMS AND ABBREVIATIONS xM Specific number (x) of cumulative months ISIC  International Standard of Industrial ASE Amman Stock Exchange Classification ATM Average Time to Maturity ITC International Trade Centre BoP Balance of Payments JD Jordanian Dinar bps Basis Points LFP Labor Force Participation CBJ Central Bank of Jordan LHS Left hand side CPI Consumer Price Index M1  Currency with the public plus demand COVID-19 Coronavirus Disease 2019 deposits in Jordan dinar with the DB Defined Benefit banking system of the private sector, DoS Department of Statistics public entities, and non-banking EFF Extended Fund Facility financial institutions, plus demand EU European Union deposits of other banking institutions in ECDC  European Centre for Disease Jordan dinar with the CBJ. Prevention and Control M2  M1 plus demand deposits in foreign EMDE  Emerging Markets and Developing currencies plus time and saving Economies deposits in Jordan dinar and foreign FDI Foreign Direct Investment currencies with the banking system FX Foreign Exchange of all the sectors mentioned in the GCC Gulf Cooperation Council definition of money supply (M1). GDP Gross Domestic Product MENA Middle East and North Africa GFC Global Financial Crisis MIC Middle-income Countries GoJ Government of Jordan MoF Ministry of Finance GST General Sales Tax m-o-m Month-on-Month GVCs Global Value Chains NAF National Aid Fund H1 First Half of the Year NDA Net Domestic Assets H2 Second Half of the Year NFA Net Foreign Assets IBRD  International Bank for Reconstruction NEPCO National Electricity Power Company and Development NSA Non-seasonally adjusted IMF International Monetary Fund OECD  Organisation for Economic IPI Industrial Production Quantity Index Co-operation and Development vii PAYG Pay-as-You Go SST Special Sales Tax PIM Public Investment Management SVA Sector Value Added PIT Personal Income Taxation TFP Total Factor Productivity PFM Public Financial Management T-bills Treasury Bills pp Percentage Point UK United Kingdom PPP Public-private Partnership UNCTAD  United Nations Conference on Trade PSO Public Service Obligation and Development q-o-q Quarter-on-Quarter US United States Q1 First Quarter US$ United States Dollar Q2 Second Quarter WAJ Water Authority of Jordan RHS Right hand side WEO World Economic Outlook SA Seasonally adjusted WBG World Bank Group SMEs Small and Medium Enterprises WTO World Trade Organization SSC Social Security Corporation y-o-y Year-on-year SSIF Social Security Investment Fund viii JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE EXECUTIVE SUMMARY T he global economy continues to reel unprecedented interventions by the central banks and from the COVID-19 shock. The initial governments, however, remains uneven and still far economic impact of COVID-19 on global from the pre-pandemic levels. In particular, most of the output is projected to be far more devastating than major economies are again observing a surge in new the disruptions observed during the peak downturn infections and some of them have already re-instituted of the global financial crisis of 2007–09. Across the targeted lockdowns. This leaves the global economic world, lockdowns and mobility restrictions meant outlook more uncertain over the coming period. to control the spread of virus caused a significant The Jordanian economy is also hit hard by slump in consumer spending and production during the pandemic amidst already high unemployment the first half of 2020. This in turn created substantial and debt levels. Prior to the COVID-19 shock, for the challenges for labor markets worldwide and has led past four years the economy was growing at a low to widespread layoffs. In addition to the economic trajectory of around 2.0 percent. This rate of growth cost, however, the pandemic has also inflicted an was insufficient to absorb the country’s young and irreversible cost to economies in the form of human growing labor force. These challenges have now loss. So far, estimates indicate that over one million been exacerbated by COVID-19 related economic humans have lost their lives worldwide, while millions disruptions. Jordan’s unemployment rate spiked to more still battle the pandemic. Beside its impact 23.0 percent in Q2-2020, 3.7 percent higher than on human life, the COVID-19 pandemic has wide- Q1-2020, with youth, particularly female youth, dispro- ranging socio-economic impacts, endangering lives, portionally affected by the crisis. Moreover, according livelihoods, employment, and earnings as well as to a World Bank study on the short-term impact of the impeding service delivery. According to World Bank COVID-19 pandemic on businesses, Jordan is among estimates, the pandemic could also lead to permanent the countries with the largest expected drop in sales, loss in learning resulting in trillions of dollars in lost at 60 percent, while 54 percent of businesses report earnings.1 they have fallen or expect to fall in arrears. Despite the challenging conditions, recent global economic information indicates some recovery, albeit uneven and possibly temporary, 1 World Bank: Simulating the Potential Impacts of the across countries after gradual easing of lock- COVID-19 School Closures on Schooling and Learning downs. This recovery, which is largely supported by Outcomes: A set of Global Estimates. June 18, 2020. ix Jordan’s economy has been impacted a 5.5 percent contraction projected in Fall MPO 2020. through a shock to domestic activity due to the However, given considerable uncertainty, there’s lockdown as well as fading trade, tourism, and significant downside risks to these projections. remittances due to the country’s strong linkages Sustaining the growth momentum beyond with rest of the world. On the macroeconomic front, the near term, however, requires critical reforms to significant improvement in the external sector over address chronic structural issues in the Jordanian the past two years have been reversed. The current economy. As there remains tremendous uncertainty account deficit has widened in the first half of 2020, around the economic outlook, policy making in this despite a noticable contraction in imports. A high challenging time must adapt and move quickly to reduction in inflows related to total exports, travel and focus on limiting persistent economic damage from remittances have been the main factors. Similarly, the COVID-19 crisis, including supporting households falling revenues along with inherent rigidities on the and firms, protecting vulnerable and poor from losses current spending side are not only providing limited of earnings and jobs, and preventing learning losses. fiscal space but have already resulted in an unprec- Maintaining macroeconomic stability, nevertheless, edented increase in Jordan’s debt to GDP ratio, with in this turbulent time remains crucial. As the crisis public debt of the Central Government rising to almost abates and recovery strengthens, policy focus needs 110 percent of forecasted GDP at end-July 2020. to shift toward accelerating the structural reforms However, this is not unique to Jordan. Given the global required to support growth and creating buffers. pandemic shock, nearly all developing countries are Small- and medium-size enterprises can be supported facing higher public and external debt burdens than by increased and easier access to finance. In the before the crisis. A coordinated, targeted, and ambi- context of the Five-Year Reform Matrix, a stronger tious package of international support can help avoid a focus on reforms to expand female participation in the reversal of decades of development progress—thereby labor force, investment climate reforms, and reforms mitigating the impact of the crisis on poverty, gender to strengthen the business environment and expand gaps, fragility, conflict, and instability. digitization would promote a faster recovery. The However, in contrast to other regional ongoing IMF Extended Fund Facility (EFF) program economies and to expectations, the initial impact supports Jordan’s economic and financial reform pro- of COVID-19 shock on the Jordanian economy gram to support energy reforms and jobs agenda. In has been moderate during the peak downturn. addition, Jordan’s economic recovery would benefit Timely monetary and fiscal measures adopted by the from deepened reforms, a broader reform agenda as Government of Jordan and CBJ at the early stage of well as improved reform implementation. For instance, the crisis, such as SME fund, policy rate cuts and relax- reform of the competition framework would help make ation of reserve requirement, appear to have been the economy more contestable, efficient, and attract important to mitigate some of the negative impact foreign direct investments. This is important in the caused by COVID-19 shock. As a result, World Bank context of creating jobs, reducing debt burden, and staff projections have been upward revised to a 3.5 boosting the country’s much needed growth potential percent contraction projected for 2020, compared to over the medium term. x JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE SIX CHARTS ILLUSTRATING THE EARLY IMPACT OF COVID-19 SHOCK ON THE JORDANIAN BOX 1.  ECONOMY The initial decline in global output due to For Jordan, as in case of most economies, COVID-19 is much higher than the global financial the decline remains pronounced due to local crisis of 2007–09 lockdowns to control virus spread Change in output during peak downturn Jordan: Google mobility trends & stringency index cumulative change in %1 mobility trends compared to baseline in %2 UK 100 Argentina 75 Tunisia 50 India 25 Euro Area 0 Malaysia –25 Morocco –50 Singapore –75 Saudi Arabia –100 China 1-Mar 17-Mar 2-Apr 18-Apr 4-May 20-May 5-Jun 21-Jun 7-Jul 23-Jul 8-Aug 24-Aug 9-Sep 25-Sep 11-Oct 27-Oct 12-Nov US Israel Bahrain Jordan Indonesia Grocery & Pharmacy Parks Retail & Recreation Workplaces –15 –12 –9 –6 –3 0 3 6 9 Transit Stations Stringency Index GFC COVID-19 100=total closure Both government and central bank introduced Recent trends suggest some recovery in economic several targeted liquidity measures to support activity after calibrated ease in lockdowns at economy home and abroad Targeted measures taken in 2020 to support economy Economic activity indicators as % of GDP Levels, average 2019=100 9.0 140 7.5 120 100 6.0 80 4.5 60 3.0 40 20 1.5 0 2019 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 0.0 Refinancing program Reserves requirement Current deposits Credit for tourism Employment Health sector Tourism sector Assitance for elder Farmers Total Construction permits Non-energy imports (number) (US$) Liquidity measures introduced by: Industrial production Workers' remittances (index) (US$) Central Bank of Jordan Government Travel receipts (US$) Energy imports (US$) Exports (US$) (continued on next page) Executive Summary xi SIX CHARTS ILLUSTRATING THE EARLY IMPACT OF COVID-19 SHOCK ON THE JORDANIAN BOX 1.  ECONOMY (continued) The recovery path remains highly uncertain in Rise in new infections, if continued, could the light of recent surge in local cases potentially weaken the already weak outlook for Jordanian economy Daily new cases of COVID-19 per million people 7-day rolling averages 108 1200 WB staff pre–COVID growth outlook 1000 106 Cumulative output loss 800 US$ 8.0 billion or 19% of GDP, 2019 104 600 400 102 200 100 0 1-Mar 13-Mar 25-Mar 6-Apr 18-Apr 30-Apr 12-May 24-May 5-Jun 17-Jun 29-Jun 11-Jul 23-Jul 4-Aug 16-Aug 28-Aug 9-Sep 21-Sep 3-Oct 15-Oct 27-Oct 8-Nov 20-Nov 98 96 WB staff post–COVID growth outlook Israel, 505 Jordan, 118 Egypt, 1.2 Iraq, 96 Lebanon, 185 S. Arabia, 12 94 2018 2019 2020 2021 2022 Sources: CBJ, DoS, IMF, Oxford, ECDC, Oxford COVID-19 Government Response Tracker, Google, National Statistics, WB staff estimates. 1 Cumulative change in output, on year-on-year basis, pertains to Q4-2008 and Q1-2009 during the GFC. For the COVID-19, cumulative change in output is for H1-2020 on year-on- year basis. 2 Based on data up to October 4, 2020. 3 Based on data up to October 8, 2020. xii JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE 1 ECONOMIC UPDATE Global and Regional Developments and a worsening outlook, has triggered a flight to safety; it has tightened global and emerging market The COVID-19 Pandemic and its mitigation financial conditions. Equity markets plunged world- measures have triggered the deepest global wide, spreads on riskier categories of debt have recession since the Great Depression. Despite the widened and commodity prices have declined sharply, rise in testing and enforcement of social distancing including oil. The economic blow has been alleviated measures, the spread of the COVID-19 virus has not by large scale fiscal and monetary support, contrib- slowed. Its health and human toll are substantial and uting to the recent stabilization in financial markets. continue to grow; many are suffering from diminished However, they remain fragile. Despite unprecedented prospects and disrupted livelihoods. The COVID-19 support, advanced economies are forecast to shrink pandemic has shocked an already slowing global by 7 percent in 2020, while Emerging Market and economy into a deep recession; the World Bank’s Developing Economies (EMDE) are projected to Global Economic Prospect’s baseline forecast of a 5.2 shrink by 2.5 percent, well below the trough in EMDE percent contraction in global GDP in 2020 is the most growth of 0.9 percent in 1982 and the lowest since significant in eight decades and almost three times as 1960. EMDE countries will suffer disproportionately steep as the 2009 global recession. as a function of the size of their domestic outbreaks Despite unprecedented policy support, and healthcare capacity, integration into global value advanced economies are forecast to perform chains, and dependence on foreign financing, inter- worse than emerging and developing countries. national trade, commodity exports and tourism. Overall, consumption and investment have been Countries in the Middle East and North sharply curved, while labor supply and production Africa have been disproportionally affected by have been restricted. The cross-border spillovers the crisis, with oil producers contracting the have disrupted financial and commodity markets, most. Economic conditions in the Middle East and global trade, supply chains, travel, and tourism. North Africa (MENA) have deteriorated due to the Financial market volatility, reflecting high uncertainty pandemic and the measures taken to stem it. The 1 BOX 2. BUSINESSES THROUGH THE COVID-19 SHOCK: FIRM-LEVEL EVIDENCE FROM 49 COUNTRIES The World Bank Group and several partner institutions collected data in 49 countries covering more than 100,000 businesses on the short-term impact of COVID-19 pandemic on businesses.a In Jordan, 535 firms were questioned for this survey, with around 69 percent of them being small or medium-sized enterprises. As for sectors, almost half (47.5 percent) of the surveyed Jordanian firms were operating in the manufacturing sector, 31.8 percent in other services and 20 percent in retail. The novel dataset provides several findings for better understanding the magnitude and distribution of the shock, how main channels businesses are being affected, and how firms are adjusting. Impact on sales: Across the 48 countries, the COVID-19 shock has been severe and widespread across firms, and the negative impact on sales has been large and persistent. Although almost 90 percent of businesses opened up after 10 weeks from the peak of the outbreak, the negative impact on sales is still looming large. The average drop on sales in the first 4 weeks following the peak of the outbreakb was between 60 and 75 percent. In the following months, the drop in sales was almost reduced to half in the second month, 48 percent in the third month, and 41 percent in the fourth month. On average, sales dropped by about 49 percent across all countries, with a standard deviation of 0.25, compared to the same period in the last year. The survey results suggest that the average drop in sales for Jordanian firms has been relatively high at 53 percent.c Once controlling for the size, sector, timing of survey, and country fixed effects, Jordan ranges among the countries with the largest expected drop in sales at 60 percent (Figure 1). Moreover, the study shows that there is a large heterogeneity effect across firms within these groups, which implies that the shock is affecting similar firms differently. Impact on employment: Among the 48 countries, employment has mostly adjusted along the intensive margin, i.e., many firms are providing granted leave or reducing numbers of hours worked or wages of workers, while only a small share of firms has decided to lay-off workers (extensive margin). As expected, firms that experienced larger sales drops also experienced a larger reduction in employment. On the extensive margin, the estimated elasticity is 0.076, suggesting that for every 1 percentage point in sales reduction, there is a 0.076 percentage point reduction in employment. Although this is not the main channel of adjustment in the short-term, this number reflects a significant short-term negative effect given the sizable drop in sales experienced by firms in the first 4-6 weeks around the peak of the shock. FIGURE 1 • Average Changes in Sales across Countries Predicted mean Average predicted percentage change in sales 30 –28 20 –32 10 –71 –63 –63 –60 –60 –59 –57 –56 –54 –54 –51 –50 –49 –46 –45 –40 –38 –34 –31 –31 –43 –42 0 –65 –63 –60 –60 –59 –59 –57 –54 –54 –53 –51 –50 –48 –42 –40 –40 –35 –31 –29 –24 –10 –20 –30 –40 –50 –60 –70 –80 –90 –100 ZAP BGD NPL HDN IND JOR TUN KEN XKX MDG PHL LKA SLV GIN NER ZWE GTM PAK BRA DZA MDA ALB KHM VNM ZMB IDN TGO GEO LBR MNG ITA TCD TUR BGR CYP TZA GRC ROU NIC RUS CIV POL SEN SVN Mean 10th and 90th percentile Source: World Bank, Businesses through the COVID-19 Shock: Firm-level evidence from 49 countries. Liquidity and survival: Among the 48 countries, smaller firms are disproportionately facing more financial constraints (as was generally the case pre-COVID-19). The study finds a significant degree of heterogeneity in liquidity constraints across countries, ranging from 89 percent of firms in South Africa reported to have fallen or expect to fall in arrears, to only 13 percent in Indonesia (Figure 2). Jordan ranges in the upper mid-range regarding reported liquidity constraints with 54 percent of businesses reported to have fallen or expect to fall in arrears. Moreover, the study finds that firms in sectors that faced larger reductions in demand, such as accommodation and food preparation services, tend to have bigger financial woes. Firm responses: Firms are increasingly relying on digital solutions as a response to the shock. Around 48 percent of firms made greater use of technology, changed the product mix, or both. The most common firm response to the pandemic shock has been to expand the use of digital platforms. Around 34 percent of firms have increased or started the use internet, social media, and digital platforms, while 17 (continued on next page) 2 JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE BUSINESSES THROUGH THE COVID-19 SHOCK: FIRM-LEVEL EVIDENCE FROM 49 COUNTRIES BOX 2.  (continued) FIGURE 2 • Fraction of Businesses in Arrears or Expected to Fall in Arrears Predicted mean 100 (now or who believe will fall in 6 months) Fraction of businesses in arrears 80 89 79 80 60 75 76 65 58 59 62 66 40 52 54 55 58 49 50 51 51 40 41 41 45 50 36 38 38 39 20 5 26 26 26 26 28 23 13 13 0 TCD IDN RUS CYP GRC BGR POL GEO SVN ALB TUR ZMB ITA ROU ZWE GTM SLV XKX TGO NIC TZA GIN PAK JOR MDA HND IND VND NER LKA SEN KEN MNG NPL BGD ZAF Source: World Bank, Businesses through the COVID-19 Shock: Firm-level evidence from 49 countries. percent of firms have invested in new equipment, software, or digital solutions in response to the pandemic. However, the increase in the use of digital platforms is quite heterogeneous across countries and dependent on the firm size, i.e., the probability of implementing digital solutions is much lower for smaller firms. a This box is an extract from Apedo-Amah et al.: Businesses through the COVID-19 Shock: Firm-level evidence from 49 countries. World Bank Policy Research Working paper, forthcoming. b The COVID-19 outbreak peak for each country in the survey is proxied by using Google mobility data around transit stations. For each country, the date when mobility reached the trough is identified. For countries where Google mobility data is not available, we predict mobility using the stringency of the lockdown restrictions provided in Hale et al. (2020). c Unconditional mean (i.e., expected value), with significant dispersion between the 10th and the 90th percentiles. sharp fall in demand for oil is curtailing exports in The Real Sector the region’s oil exporters, with adverse spillovers to non-oil sectors. Moreover, the region continues to The COVID-19 pandemic has impacted Jordan suffer from challenges related to longstanding secu- in a period when growth was already weak. For rity strains and refugees, as well as large structural instance, between 2016–2019, Jordan’s economy impediments to growth. Overall GDP in the region grew at the slowest pace in the last decade with an is forecasted to shrink by 4.2 percent in 2020, sig- average annual growth rate of 2.0 percent, due to a nificantly constrained by renewed policy cuts in oil combination of factors including numerous external production. Among oil exporters, GDP is projected shocks, such as regional conflicts, associated trade to contract by 5 percent in 2020, with tourism, which disruptions, and a sizable refugee influx, but also deep was previously improving and was supported by structural issues related to the domestic economy. government initiatives, expected to suffer substan- On the demand side, net exports supported the tially. Economic activity in the region’s oil importers growth despite a weakened domestic demand. On is projected to drop by 0.8 percent, due to spillovers the supply side, services proved to be key growth from weakness in advanced economies and major driver while the industrial sector slipped, partly due to EMDEs, pandemic-related disruptions, and falling higher average productivity observed in the services tourism. sector (Box 4). Nonetheless, the growth pattern Economic Update 3 Weakened Net Exports and Subdued FIGURE 3 •  Services Provides the Largest FIGURE 4 •  Private Demand Pulled Down Growth Downward Contribution to GDP in Q2-2020 Growth in Q2-2020 Point contribution to GDP growth, Point contribution to GDP growth, percent percent 15 4 2 10 2 5 0 0 0 –5 –2 –2 –10 –4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 –4 2018 2019 2020 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2018 2019 2020 Private demand Central goverment consumption Net exports Central goverment investment Agriculture Industry Services GDP growth (RHS) Net taxes on product Real GDP Source: DoS and World Banks staff calculations. Source: CBJ. has been disrupted by the unprecedented crisis during Q2-2020, providing the largest downward as it put additional pressure on Jordan’s economy contribution to GDP growth (–1.6 percent). Within through two channels: a shock to domestic activity the services sector, transportation and retail were due to the lockdown;2 and fading trade, tourism, and directly impacted by the strict curfew/lockdown. As remittances inflows due to the synchronized nature evident from the Google mobility data (Box 1), activity of the downturn. in transit stations and retail (during the strict curfew3 Real GDP for Jordan contracted by 3.6 period i.e., March 21 to May 3) declined by almost percent in Q2-2020 year-on-year (y-o-y) fol- 87 percent and 63 percent, respectively, compared lowing an already weakened growth of 1.3 to pre-COVID levels. According to DoS released percent in the first quarter. On the demand side, figures, ‘transport, storage & communications’ and net exports contracted by around 20.1 percent ‘wholesale & retail trade, restaurants & hotels’ cumu- y-o-y in Q2-2020, pulling down growth by 3.2 per- latively registered the most significant contraction in cent, in contrast with strong growth (contributing Q2, declining by 9.2 percent and 6.0 percent, y-o-y 3.9 percent to real GDP growth) in the previous respectively. Industry, on the other hand, (with around quarter. Deep contraction in net exports reflects one fourth share in the economy) declined by 5.0 considerably weak demand for goods and services, percent y-o-y during the second quarter, contributing including tourism. Private demand and govern- –1.2 percent to GDP growth. This decline was mainly ment investment, which weighed down growth in driven by a sharp contraction in manufacturing and Q1-2020, continued to decline further, pulling down construction output (5.3 percent and 6.3 percent growth by 0.3 percent and 0.6 percent, respec- contraction, respectively) as production activities tively. The Central Government consumption, on the other hand, contributed a positive 0.5 percent to real GDP growth in Q2-2020 (Figure 3). On a 2 At the onset of the pandemic, Jordan has enforced cumulative basis, this led to 1.2 percent y-o-y con- rigorous measures to contain the spread of the virus, traction of real GDP growth in the first half of 2020. including closure of businesses and a complete work stoppage except for vital public and private institutions On the supply side, decline was most from 21 Mar to 3 May, while international commercial pronounced in the services and industrial sec- flights were suspended until 8 September 2020. tors (Figure 4). Services output (with almost 60 3 The curfew prohibits the movement of people and closes percent share in the economy) dropped markedly all shops and business. 4 JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE BOX 3. ANALYZING GDP’S SURPRISINGLY MUTED CONTRACTION IN Q2-2020 According to officially released figures (DoS) contraction in Jordan’s real GDP during Q2-2020 (i.e., during the eye of the global pandemic) was much less significant than earlier anticipated given the scale of shock in other countries (Figure 5). For instance, among 95 countries shown below whose Q2 data is now available, only 5 countries are showing positive quarter-on-quarter (q-o-q) growth, one of them being Jordan. On seasonally adjusted basis, Jordan still outperforms most countries in Q2 GDP growth (–4.6 percent q-o-q growth) coming at number twelve. Given that Jordan has implemented one of the world’s strictest curfew (detailed measures see footnote 2) for almost half of this period, the relatively moderate contraction of Jordan’s Q2 GDP seems an unexplained anomaly. Q-o-Q Change in Real GDP in Q2-2020 FIGURE 5 •  Percentage change, non-seasonally adjusted and seasonally adjusted 30 20 10 0 –10 –20 –30 –40 –50 –60 China Uganda Brunei Iran Hong Kong Ghana Vietnam Taiwan Korea Russia Singapore Jordan Egypt Saudi Arabia Norway Estonia Ireland Namibia Indonesia Denmark Australia Bahrain Luxembourg Kazakhstan Nigeria Japan Israel Switzerland Sweden Slovakia Costa Rica Netherlands Czech Republic Poland United States Uruguay Guatemala Rwanda Thailand Germany Brazil New Zealand Serbia Ukraine Bosnia & Herz. Slovenia Paraguay Turkey Belgium Austria North Macedonia Italy Chile Georgia France Portugal Greece Hungary Colombia Philippines Croatia Argentina South Africa Malaysia Dominican Rep. Mexico Honduras Spain Belize United Kingdom El Salvador Bolivia India Botswana Peru Macao Maldives NSA SA Source: National Statistics, OECD. In addition, other available economic indicators (high frequency and otherwise) available for the same period are indicating much larger deterioration, for instance: • Industrial production activities measured by IPI (CBJ) slumped by 33 percent during this period (Figure 6), whereas industrial sector registered a much lower y-o-y contraction of 5.0 percent in Q2-2020. 2020 Q1 Q2 y-o-y % growth SVAa IPIb SVAa IPIb Industrial sector, y-o-y % growth, of which: 0.2 –8.8 –5.0 –33.0 Mining and quarrying –1.1 1.0 –2.5 –2.7 Manufacturing 0.5 –10.3 –5.3 –34.4 Electricity and water 1.2 2.0 –2.9 –10.6 Source: CBJ. a Sector value added. b Industrial production quantity index. (continued on next page) Economic Update 5 BOX 3. ANALYZING GDP’S SURPRISINGLY MUTED CONTRACTION IN Q2-2020 (continued) • External sector indicators (DoS and CBJ) are also showing a significant impact of COVID-19 economic shock in Q2-2020 Q2-2020 Trade indicators, y-o-y % growth Goods exports –17.1 Services exports –89.1 Remittances –13.8 Source: CBJ. • Similarly, construction activity indicators (CBJ) are showing a sharp contraction—as both construction area and number of permits during Q2-2020 (y-o-y) declined by almost 50 percent. Moreover, on monthly basis, no construction permits were issued in April and only a limited number in May. • According to the Department of Land and Survey, real estate sales and volume during the first half of 2020 were down by 21 percent and 44 percent, respectively, while slow down appearing in ‘finance, insurance, real estate, and business services’ subsectors of GDP for Q2 appears to be much more timid. Q2-2020 Real estate indicators, y-o-y % growth Real estate trade volume (H1) –44.0 Real-estate sales (H1) –21.0 Apartment sales (H1) –24.0 Land sales (H1) –20.0 Source: Department of Land and Survey, based on Petra news. • In addition, Google mobility data shows a significant drop in activities, such as transit stations and retail during Q2, which declined by around 77.9 percent and 41.6 percent, respectively, during Q2 compared to pre-COVID levels (see Box 1). Q2-2020 y-o-y % growth SVAa Mobility Wholesale & retail trade, restaurants & hotels –6.0 –41.6 Transport, storage & communications –9.2 –77.9 Source: CBJ, Google mobility data. a Sector value added. • Furthermore, firm-level evidence from 49 countriesa (World Bank) estimates Jordan among the countries with the largest expected drop in sales averaging 60 percent (see Box 2). In comparison, average drop in sales for Tunisian firms’ was estimated at 60 percent, while Tunisia registered a whopping 21.6 percent real GDP contraction (year-on-year) in Q2-2020. Given these apparent anomalies, it is important that this year annual estimates are produced using supply and use tables. Annualized methodology using supply and use tables was last used in 2016. However, given counter-intuitive Q2 GDP numbers and the scale of the shock, it is important this year is treated with much more care and annualized numbers are produced using simplified supply and use table to lend credibility to 2020 GDP figures. a World Bank. Businesses through the COVID-19 Shock: Firm-level evidence from 49 countries. WB Policy Research Working paper, forthcoming. (continued on next page) 6 JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE BOX 3. ANALYZING GDP’S SURPRISINGLY MUTED CONTRACTION IN Q2-2020 (continued) FIGURE 6 • Manufacturing Activities Exhibited Stock Prices Dropped Sharply FIGURE 7 •  Significant Drop Stock price indices, 1 Feb 2020 = 100 Industrial production quantity index, y-o-y growth, percent 115 110 20 0 105 –20 100 –40 ASE closure –60 95 during lockdown –80 90 –100 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul 85 2019 2020 80 2019 Jan 2019 Mar 2019 May 2019 Jul 2019 Sep 2019 Nov 2020 Jan 2020 Mar 2020 May 2020 Jul 2020 Sep Mining and quarrying Manufacturing Overall industrial production index Electricity, gas, steam and air conditioning Source: Amman Stock Exchange website. Source: CBJ. measured by Industrial Production Quantity Index by stable demand for domestic agricultural produce (IPI) slumped significantly during the second quarter as well as demand from some of the neighbouring (Figure 6). Agriculture, in contrast, registered a timid countries. growth of 0.7 percent y-o-y in Q2-2020, supported TOTAL FACTOR PRODUCTIVITY PERFORMANCE IN SERVICES AND MANUFACTURING USING BOX 4.  MICRO-LEVEL DATA Total Factor Productivity (TFP), defined as the portion of output not explained by the amount of inputs used in production, is a crucial measure of productivity and an essential predictor for growth. However, research on Jordan’s TFP performances has been focusing on aggregate level, i.e., measuring TFP at the country level, which exhibits disadvantages since it cannot account for firm-level heterogeneity. This study uses micro level panel data—the Jordan Enterprise Survey Data Set (joint project of EBRD, European Investment Bank, and the World Bank Group) between 2013 and 2019a—to calculate TFP. In addition, this study separated TFP estimations at the industry level, so that the results would reveal Jordan’s comparative advantages. The existing literature on calculating TFP using micro data is commonplace, especially for developed countries, due to the availability of firm-level data (See Bartlesman and Doms 2000 for example). One study concerning emerging countries is Seker and Saliola (2018), which estimated TFP for 69 developing countries. We follow their approach in this study to measure TFP. First, we use the Cobb-Douglas production function shown in the equation below: Yit = AitKα Lβ M γ it it it (continued on next page) Economic Update 7 TOTAL FACTOR PRODUCTIVITY PERFORMANCE IN SERVICES AND MANUFACTURING USING BOX 4.  MICRO-LEVEL DATA (continued) Where is output measured as annual real sales, K is the replacement cost of capital, L is annual labor costs, M is cost of intermediate goods, all these variables are from the Jordan Enterprise Survey Data Set and are deflated using the GDP deflator. A is the TFP term. The parameters α, β and γ are the output elasticities of capital, labor and intermediate goods, respectively. Log linearization the above equation and estimating firms’ TFP as the residual terms from the regression, logÂit = logYit – α logKit – β logLit – γ logMit We separate the firms into two industries groupings: manufacturing (including food, garments, and other manufacturingb) and services (including retails and other servicesc). The average sectoral productivities are then calculated using sampling weights. Thus, they illustrate the productivity levels of an average firm in each country. Under this specification, there are 254 firms (of which 214 within manufacturing sector and 40 within services sector) in this analysis, and the factor elasticities are estimated to be 0.16, 0.34 and 0.42 in respective order for capital, labor, and intermediates goods, which is comparable to elasticity levels in the literature.d TFP estimates for each industry are shown in Table 1. The TFP calculated using the micro data for Jordan shows that- the TABLE 1 • TFP Estimates for Jordan aggregated TFP is around 1.00, which is comparable to the Seker and Saliola (2018)’s estimation of 1.45 for Jordan. Moreover, Industries groupings # of firms in analysis TFP manufacturing sector average TFP is estimated to be around Manufacturing 214 1.50 1.50, while that for services sector is 4.59. The results reveal that the productivity of an average firm in the services sector in Services 40 4.59 Jordan is much higher than the productivity of an average firm in the manufacturing sector, which is in line with existing literature Total 254 1.00 using macro level data (e.g., M.M. Alalaya et al., 2016). The Note: WB staff estimates. relatively high productivity observed in the services sector is a consequence of firm characteristics as well as a well-developed business environment, which means this comparative advantage can be expanded with relative ease by redeploying the capacities that the country already has. Therefore, by actively promoting the services sector, Jordan may develop more sustainable growth that is consistent with its comparative advantages. In the context of COVID-19, the services sector was heavily impacted by social distancing and lockdown measures. Consequently, the disruptions to this key growth driver of Jordan’s economy are expected to lead to a deterioration of Jordan’s productivity, with potentially persistent impact. Therefore, prudent measures to protect the services sector and help it adjust to the new normal during the crisis are of great importance for Jordan’s sustainable growth. References: Alalaya, Mohammad M., Adel Al Khattab, and Mahmaod Al-Rawad. “Structural Changes and Productivity Trends: Evidence from Jordan’s Manufacturing.” Bartelsman, Eric J., and Mark Doms. “Understanding productivity: Lessons from longitudinal microdata.” Journal of Economic Literature 38.3 (2000): 569–594. Eslava, Marcela, et al. “The effects of structural reforms on productivity and profitability enhancing reallocation: evidence from Colombia.” Journal of Development Economics 75.2 (2004): 333–371. ¸ Seker, Murat, and Federica Saliola. “A cross-country analysis of total factor productivity using micro-level data.” Central Bank Review 18.1 (2018): 13–27. a The dataset can be found at http://www.enterprisesurveys.org/~/media/GIAWB/EnterpriseSurveys/. b Food (ISIC Rev. 3.1 codes 15), Garments (ISIC code 18) Other Manufacturing (ISIC codes 16, 17, 19–37). c Retail (ISIC code 52) and Other Services (ISIC codes 45, 50, 51, 55, 60–64, and 72). d Seker and Saliola (2018) find factor elasticities to be 0.23, 0.50 and 0.40 in respective order for capital, labor, and materials using firm level data from Jordan for year 2006. In the same study, they also show that the elasticities for capital in other MENA countries take value around 0.1, that for labor ranges from 0.28 to 0.59, while that for material ranges from 0.43 to 0.78. Other studies also include energy costs into regression. For example, Eslava et al. (2004) shows that elasticities for capital, labor, energy, and materials of about 0.08, 0.24, 0.12 and 0.59, respectively, using firm-level data for Colombia for the period 1982–1988. 8 JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE Labor Market Developments Q2-2020, declining by a nominal 0.4 percentage points q-o-q, indicating that Jordanians may not be discour- Recently released labor market indicators reflect aged by the COVID-19 shock and expect jobs to return significant disruptions from the COVID-19 pandemic soon. Interestingly, the recent decline was entirely driven to Jordan’s labor market. Jordan’s unemployment by a 1.0 percent drop in male LFP (q-o-q) while female rate reached 23.0 percent in Q2-2020, 3.6 percentage LFP increased by a nominal amount, i.e., 0.1 percent. point above its Q1-2020 rate, and 3.8 percentage This broke the trend prior to the COVID-19 shock, as point higher than Q2-2019 (Figure 8). Unemployment LFP for both, males and females had been gradually dropped across gender—male unemployment improving since Q3-2019. Moreover, Jordanian female increased by 3.4 percent quarter-on-quarter (q-o-q), LFP remains one of the lowest in the region, almost 5.6 while female unemployment surged by 4.3 percent percent below the MENA average in 2019.4 q-o-q. Unemployment rates also increased across The COVID-19 shock had a particularly all educational levels, except for workers with no adverse impact on employment in the services formal education. On q-o-q basis, the increase was sector. The employment rate for Q2-2020 dropped particularly large for university graduates—the group by 1.5 percent compared to the previous quarter and with the highest rate of unemployment—reversing 1.6 percent compared to Q2-2019. Both, male and some marked gains made during the previous two female employment fell, but the decline was more quarters. Moreover, the youth workforce appeared pronounced for men (at 2.7 percent), while female particularly vulnerable to the COVID-19 shock as employment dropped by a nominal 0.5 percent q-o-q. unemployment rate for youth jumped to 44.5 percent Detailed data shows that the pandemic’s impact on in Q2-2020, 3.8 percent higher than Q1-2020. This hike male employment in Q2-2020 mainly impacted jobs was predominantly driven by a whopping 17.6 percent in the services sector, particularly the ‘transportation increase (q-o-q) in the unemployment rate of young and storage’ subsector (Figure 9). Job losses for women, exacerbating the already large gender gap. females, on the other hand, were particularly pro- Nonetheless, the hike in unemployment is estimated to nounced in the education subsector (which employs be somewhat cushioned by the reductions of nominal wages of formal private sector employees. 4 In 2019, the MENA average for female labor force Labor force participation fell again after participation rates stood at 20.2 percent. Among MENA showing some timid improvement. The labor countries, only Yemen and Iraq registered lower female force participation (LFP) rate stood at 34.1 percent in labor force participation rates. FIGURE 8 • Labor Market Indicators Deteriorated FIGURE 9 • Quarterly Changes in Employment by Percent Sectors Percentage point change, q-o-q 24% 40% 22% 1.0 20% 0.5 35% 18% 0.0 16% –0.5 30% –1.0 14% –1.5 12% –2.0 25% 10% –2.5 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 –3.0 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 19 19 19 20 20 19 19 19 20 20 Male Female Participation Employment Agriculture Manufacturing Unemployment rate (RHS) Services Employment rate Source: DoS, WB staff calculations. Source: DoS, WB staff calculations. Economic Update 9 the largest share of working women), but a simulta- FIGURE 10 • Year-on-Year Growth of Fiscal neous increase in public administration employment Revenues Percentage change, y-o-y partially cushioned this decline. 270% 100 30 80 60 20 Public Finances: Fiscal and Debt 40 10 20 Developments 0 0 –20 –40 –10 The COVID-19 shock and the economic lockdown –60 –20 –80 measures are expected to cause deterioration in the –100 Jan Feb Mar Apr May Jun Jul –30 fiscal accounts in 2020. Economic contraction and Taxes on income and profits General sales tax domestic lockdown, combined with a decline in imports International trade Non–tax revenues have led to a sharp deterioration in domestic revenue Domestic revenues, cumulative (R.H.S.) collection. As a result, the fiscal deficit (excluding grants) of the Central Government during 7M-2020 widened to Source: DoS, WB staff calculations. 4.5 percent of GDP,5 1.5 percent of GDP higher than the deficit reached during the same period last year. Consequently, deficit in 7M-2020 already stands at 71 collection from non-tax revenues reached merely 2.3 percent of the budget target for 2020. percent of GDP compared to 4.8 percent during the Domestic revenues also show significant same period last year (although part of the reason impact for the first seven months of 2020, for the decline was the shift of fees on oil derivatives declining to only 11.7 percent of GDP compared from this head to indirect taxes, but other remaining to 13.1 percent in the same period last year. Tax key heads such as property income or revenues from revenues during this period registered a robust growth selling goods and services also plummeted). Finally, of 9.9 percent as a result of growth in collection of foreign grants during this period stood at JD 118 mil- taxes on income and profits and increase in collec- lion or 22.1 percent higher than 7M-2019. tion from sales tax. For instance, taxes on income and The spending side, not surprisingly, profits reached 2.9 percent of GDP during this period remains fairly inflexible given inherent rigidities compared to 2.6 during the same period last year in expenditures. Even though government delayed while sales tax collection stood at 6.1 percent of GDP the public sector wage increase (announced at end- during this period compared to 5.2 percent in the 2019) until the end of 20208 current expenditures same period last year. While solid growth of taxes on income and profits may be attributed to the govern- ment’s efforts to curb tax evasion,6 sales tax collection 5 2020 GDP based on World Bank staff projections. benefitted from a shift of fees and taxes on oil deriva- 6 According to Finance Minister Mohamad Al Ississ, tives—making up 3.4 percent of GDP in 2019—from Jordan has raised at least US$600 million in taxes at end-September due to its rigorous campaign against tax non-tax revenues to sales taxes. Interestingly, it was evasion, which started in 2020. the collection in June 2020 which exhibited extraordi- 7 On 3rd May 2020, the Government issued Defense Order nary recovery (of almost 100 percent) which seemed No 10 under which the deadline for filing income tax returns to turn the table on the earlier slump as a result of was extended from 30th April to 30th June. Moreover, all lockdown measures and a decision to postpone tax tax sales were suspended during the lockdown period and filing7 (Figure 10). Moreover, robust growth in tax col- resumed 14 days after the end of the lockdown. 8 The authorities have temporarily reduced salaries to lection continued throughout July. In contrast, taxes on senior government officials, postponed the increase in international trade and transactions during 7M-2020 wages and allowances for all public sector employees contracted by almost 7 percent, largely reflecting until the end of 2020, and imposed a hiring freeze on the notable decline in imports. Unlike tax revenues, new positions. 10 JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE Summary of Jordan’s Fiscal Operations TABLE 2 •    % of GDP Percent growth 7M-2019 7M-2020 Budget 7M-2019 7M-2020 Budget Total revenues and grants 13.6 12.1 27.8 2.4 –13.8 10.3 Total domestic revenues 13.1 11.7 25.1 2.1 –13.5 11.2 Total tax revenues 8.4 9.4 18.2 –3.4 9.9 20.8 Taxes on income and profits 2.6 2.9 4.2 9.2 6.7 24.2 Taxes on financial transactionsa 0.1 — — –17.6 — — General sales tax 5.2 6.1 13.0 –5.6 13.2 19.8 Taxes on foreign trade 0.5 0.5 1.1 –5.7 –6.8 19.7 Non-tax revenues 4.8 2.3 6.9 13.2 –54.0 –8.0 Grants 0.5 0.4 2.6 10.6 –22.1 2.3 Total expenditures 16.1 16.3 31.5 4.6 –2.2 9.0 Current expenditures 14.8 15.4 27.3 6.5 0.3 5.5 Compensation of employees 2.9 3.2 5.5 11.5 5.7 6.7 Purchases of goods and services 0.6 0.4 1.3 13.4 –27.6 15.3 Interest payments 2.1 2.4 4.1 12.8 11.3 12.6 Military expenditures 4.8 5.1 8.6 5.5 1.8 1.6 Goods subsidies 0.0 0.0 0.0 — — — Transfers, of which: 4.4 4.3 7.8 1.2 –6.5 4.2 Pensions and compensation 2.6 3.0 4.8 4.7 14.0 6.4 Social safety net / cash support 0.5 0.0 0.4 3.2 — –18.8 Capital expenditures 1.3 0.9 4.2 –13.1 –30.9 39.0 Overall balance (excl. grants & use of cash)b –3.0 –4.5 –6.4       Primary balance (excl. grants & use of cash)b –0.9 –2.1 –2.3       Memorandum items:       Nominal GDP (annual, JD million) 31,597 30,486 30,486       Source: MoF and World Bank Staff Estimation. a Taxes on financial transactions are categorized as financing item as of 2019 and 2020. b Use of cash items are as per IMF. during 7M-2020 showed a nominal growth of 0.3 per- percent of GDP, representing an unprecedented low cent y-o-y. This modest increase was mainly driven by as it continues to serve as a buffer for fiscal retrench- higher interest payments, spending on compensation ment given rigidities on the recurrent side. of employees, and military spending. On the other The surge in fiscal deficit (of the Central hand, a significant drop in purchased goods and ser- Government), lower inflation and a sharp decline vices as well as transfers helped curb the pressure. in GDP sharply increased debt during 7M-2020 Capital spending, on the other hand, stood at 0.9 by almost US$ 3.3 billion. Jordan’s public debt at Economic Update 11 end-July 2020 stood at 109.7 percent of forecasted usually bear a higher premium), interest payments GDP compared to 97.4 percent at end-2019.9 from external debt accounted for around 36 percent Domestic debt continues to dominate debt composi- of total interest payments. tion, making up for almost 57 percent of total debt during 7M-2020. Although the government mainly relied on domestic borrowing to finance the mounting Balance of Payments Position deficit during the first half of 2020, the recent issu- ance of a double-tranche US$1.75 billion Eurobonds The COVID-19 pandemic has substantially in June 2020 has increased the share of external disrupted already struggling global trade activity debt to 43.4 percent at end-July compared to 40.1 during the first half of 2020. The scale of impact percent at end-2019. Jordan was able to tap into the was felt worldwide due to restrictive measures that international market despite the COVID-19 crisis and caused substantial slowdown in global production and attained a favorable pricing on its recent Eurobonds consumption. Initial figures suggest that global trade issuance. The double-tranche bond issued by volumes contracted around 9.0 percent in first six Jordan was split into a US$500 million bond at 4.95 months of 2020 when compared to same period last percent over 5-year maturity and a US$1.25 billion year. Nevertheless, this decline in global trade is quite bond at 5.85 percent for 10-year maturity and priced low relative to what was observed during the global significantly lower than the recent issuances by peer financial crisis of 2007–09.13 Moreover, latest data for countries10 and Jordan’s previous auction of a US$1 July to August indicates a strong rebound in global billion Eurobond in October 2017. trade activity from the COVID-19 shock after the ease Refinancing risk of Jordanian debt appears in lockdowns in many parts of the world (although the to be low compared to regional peers. Average recent resurgence of COVID-19 in many part of the time to maturity (ATM) of domestic debt stood world poses significant risk to this initial recovery). at 4.5 years in June 2020, which is relatively high Jordan’s external sector also faced substan- compared to regional peers. For instance, domestic tial challenges after the emergence of COVID-19 debt in Egypt (T-Bills and Bonds) had an ATM of 1.42 pandemic in the second quarter of 2020. The years at end-March 201911 while ATM of domestic pandemic has reversed the strong performance of debt in Tunisia in 2018 was only slightly better than Jordan’s external sector in the first two months of 2020, Jordan at 5.8 years.12 On the other hand, the ATM of external debt stood at a comfortable 8.6 years at end-June 2020. Interestingly, relatively longer tenor 9 Including the securitization of domestic arrears in 2019. for both domestic as well as external debt reflects 10 For instance, in July 2019, Tunisia issued a EUR 700 the government’s own efforts to direct borrowing to million Eurobond due 2026 at an interest rate of 6.37 long-term concessional loans from multilaterals and percent. Moreover, Egypt issued a three-tranche bilateral creditors as well as toward borrowing at the US$ 5 billion Eurobond in May 2020, which included longer tenor domestically. For instance, at end-July a US$ 1.25 billion bond with four-year maturity at 5.75 percent, a US$ 1.75 billion bonds with 12-year maturity 2020, almost one fifth of Jordan’ total external debt at 7.625 percent, and US$ 2 billion bond with 30-year was borrowed from bilateral creditors and almost maturity at 8.875 percent. one third from multilaterals, while bonds (Eurobonds 11 Medium-Term Debt Management Strategy for the Fiscal as well as local bonds in foreign currency) consti- Years 2018–19 through 2020–21, Egyptian Ministry of tuted more than half of total external debt. Moreover, Finance. external debt remains fairly concessional. For 12 République Tunisienne, Ministère des Finances Rapport sur la dette publique. instance, during 2019, even though external debt 13 During the peak of global financial crisis, i.e., from constituted almost 40 percent of total debt (bud- September 2008 until March 2009, the decline in global getary and guaranteed) while having a significantly trade volumes was recorded at approximately 13.0 longer maturity profile than domestic debt (i.e., percent on a y-o-y basis. 12 JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE Current Account Indicators during 8M-2020 FIGURE 11 •  Percentage change y-o-y 20 30 20 0 Cumulative 10 growth 20 0 10 –5 0 0 –20 –10 –10 –5.4 –10 –40 –10.1 –20 –15 –20 –14.8 –60 –30 –20 –30 –40 –80 –70.0 –40 –50 –100 –25 J F M A M J J A J F M A M J J A J F M A M J J A J F M A M J J A Exports (f.o.b.) Imports (c.i.f.) Travel receipts Remittances inflows Energy No travel activity in Apr–May Non-energy due to complete border closure Source: CBJ, DoS. when total exports grew by 14.8 percent y-o-y, while oil prices. On balance, the trade deficit improved travel receipts increased by 13.6 percent. However, as a decline in imports outpaced the fall in exports. after the COVID-19 shock, challenges have arisen However, this favorable development was more than due to the country’s relatively higher linkages with offset by unprecedented drop in travel receipts due to rest of the world through trade, travel, remittances and prolonged border closures both at home and abroad investment channels.14 Consequently, with the notable and decrease in workers’ remittances from slowdowns decline observed so far in external demand due to in neighboring oil exporting countries.15 COVID-19 shock, Jordan’s current account deficit has The widening current account deficit along substantially widened compared to its previous trend. with weakening private foreign inflows increased Current account deficit during H1-2020 reliance on debt-related inflows to keep the stood at US$1.68 billion (or 8.1 percent of external sector sustainable. In particular, on a net H1-GDP), which is 23 percent higher than the def- basis, foreign direct investment contracted by 38 icit posted in the same period last year. Detailed percent in Q2-2020 after registering a 41 percent data reveals that approximately 80 percent of the H1 increase in Q1. A similar trend was observed regarding deficit in current account accumulated only in the portfolio-related flows where risk aversion on the part second quarter as most of the external indicators of international investors caused significant outflows were showing promising trends up to February. For from emerging markets. To minimize unfavorable instance, exports and travel receipts were indicating effects of global developments and to avoid pres- an average 14 percent and 15 percent growth respec- sures on foreign reserves, authorities received a tively during January through February 2020. Imports loan of around US$-400 million through IMF’s Rapid volumes were also improving gradually, highlighting Financing Instrument lending in May and World Bank the underlying recovery in domestic demand. disbursement in July 2020. Since February, the onset of the COVID-19 pandemic globally and the subsequent decline in external demand caused considerable deteriora- 14 The latest estimates from 2019 indicate that together tion in Jordan’s external sector indicators. Exports trade, travel, remittances, and investments account for showed a double-digit decline y-o-y during the March– approximately 85 percent of Jordan’s economic output. May 2020 period. Similarly, contraction in imports, both 15 Estimates suggest that around one-third of workers’ energy and non-energy, remained significant due to remittances toward Jordan is coming from oil exporting the fall in domestic demand and lower international Gulf countries. Economic Update 13 Balance of Payments Summary in H1–2020 and CBJ’s Foreign Reserves Position FIGURE 12 •  Balance of payments summary in million US$, CBJ foreign reserves in billion US$ H1- H1- H1- 18.8 12.5   2019 2018 2019 2020 Current Account –1,223 –2,039 –1,365 –1,680 18.0 12.0 Trade Balance –9,004 –4,968 –4,556 –3,322 17.3 11.5 Services & Income 2,937 1,024 1,171 –21 16.5 11.0 o/w: Travel Receipts 5,794 2,416 2,616 1,127 15.8 10.5 Current Transfers 4,845 1,904 2,020 1,663 15.0 10.0 Capital & Financial 2,085 1,065 1,635 1,864 Direct Investment (net) 687 539 429 435 14.3 9.5 Portfolio Investment (net) –1,068 –153 –1,041 –28 13.5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct 9.0 Other Investment (net) 2,398 662 2,239 1,420 CBJ gross foreign reserves (left axis) Net Errors & Omissions –673 –414 –368 –593 Reserves adequacy (right axis) in months of import cover CBJ Gross FX Reserves 15,401 14,103 14,656 15,412 Source: CBJ, World Bank staff estimates. Latest external sector developments are improvement in month-on-month (m-o-m) figures from pointing toward gradual recovery both in Jordan May 2020 onward remained encouraging. Specifically, and abroad after calibrated ease in lockdowns by exports recovered by an average of 17 percent, growth many countries. Though the recovery is still uneven in imports averaged around 9 percent and remittances and quite far from the pre-pandemic levels, it remains inflows gradually went up by 2 percent during June uncertain in the light of recent escalations in targeted to August 2020 on a m-o-m basis. For travel receipts, lockdowns due to rises in COVID-19 cases across the however, both the developments and outlook are por- world again, including Jordan. Notwithstanding, the traying a dismal picture due to continuation of domestic BOX 5. IDENTIFYING JORDAN’S POSITION IN GLOBAL VALUE CHAINS Since the mid-1990s, the inter-connectedness of the global economy has strongly accelerated. In particular, trade and production have become increasingly organized around what is commonly referred to as global value chains (GVCs). GVCs developed because the advances in information and transportation technologies as well as falling trade barriers over the last two decades have allowed firms to unbundle production into tasks performed at different locations, allowing them the advantage of relatively lower factor cost. Countries like Bangladesh, China, Vietnam, Japan, Mexico, and Korea have mostly built their successful export-led growth stories through greater participation in the GVCs. Jordan is a small open economy where total merchandise trade accounts for nearly 70 percent of the country’s total output in 2019, though that percentage was slightly above 90 a decade ago. This slowdown is largely the result of external shocks to the economy stemming from regional conflicts and closed borders to neighboring economies, particularly during the last ten years. Despite these challenges, the country has made significant progress in liberalizing its trade since its WTO accession in 2000. This included reducing the applied tariff rates on all stages of processing goods, but in particular on intermediate goods. Furthermore, Jordan is the only country in the Middle East that has signed a free trade agreement with the US and the EU. In terms of trade structure, Jordan’s major export items include textile apparels, fertilizers, and pharmaceutical products. Major intermediate imports include steel, cotton, and chemicals. (continued on next page) 14 JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE BOX 5. IDENTIFYING JORDAN’S POSITION IN GLOBAL VALUE CHAINS (continued) Trade openness in MENA oil importers and Jordan’s trade structure FIGURE 13 •  Merchandise trade, as % of GDP Exports structure, % share in total Imports structure, % share in total 120 100 Others 80 22% Raw materials 60 40 Foodstuffs Textiles Intermediate 5% 29% Non-energy 20 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Consumer Machinery Chemicals & /electrical 7% allied ind. Energy Tunisia Jordan 24% Capital Vegetable Mineral Morocco Djibouti products 5% Egypt Paksistan products 8% Source: DoS, IMF, ITC. The latest estimates indicate that Jordan’s participation in GVCs stands around 40 percent of its gross exports. This participation primarily stems from the firms’ backward linkages, i.e., use of foreign inputs to produce final exports. The firms’ participation in forward linkages, i.e., the share of intermediate inputs the Jordanian firms are exporting to other countries, remains low. The apparel and pharmaceutical sector have more backward linkages while the chemical sector carries more forward linkages, due to the existence of large chunks of natural resources such as phosphate and potash. Broadly, these results are also corroborated by recent World Bank Enterprise surveys for Jordan conducted in late 2019. Recently, the COVID-19 pandemic has disrupted both the global supply and demand for goods, which created significant challenges for trade in GVCs. Nonetheless, the pandemic also provides opportunities to emerging countries like Jordan to capture their untapped export potential (such as the pharmaceutical and agriculture sectors, for example). This is important in the context of achieving long term competitiveness and sustainability for the country’s external accounts. Jordan’s participation in GVC and untapped export potential FIGURE 14 •  GVC participation, % of total exports Sectoral participation Estimated export potential, (weighted), % of exports million US$ 60 Coke & petroleum Fert. & chemicals Non-metallic minerals Textiles 50 Meat & fish Beverages & tobacco Pharmaceutical 40 Rubber & plastics Live animals 30 Wood & paper Precious stones Basic metals Vegetables 20 Mining & quarrying Crop production Processed food 10 Pharmaceutical Plastic & rubber 0 Chemicals Mineral products Textiles 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Machinery 0.0 2.5 5.0 7.5 10.0 Paper products Fruits Forward participation Backward participation 0 250 500 750 1,000 1,250 1,500 Backward participation Forward participation Source: UNCTAD, Eora Global Supply Chain Database, DoS, ITC, World Bank staff estimates. Economic Update 15 CBJ’s Policy Rate, Headline inflation and Cross-country Real Interest Rates FIGURE 15 •  Inflation in y-o-y % change, CBJ main rate in % per annum, real interest rate in percentage points Real interest rates 6 Latest policy rate – Latest y–o–y inflation 5 4 Egypt 3 CBJ main rate Jordan 2 China Israel 1 Tunisia 0 Morocco –1 Mexico –2 Bangladesh Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Pakistan Turkey Sri Lanka India Core Fuel & transportation Saudi Arabia Food & beverages Headline inflation –6 –4 –2 0 2 4 6 Source: CBJ, IMF, National Statistics. restrictive policies and social distancing measures. the CBJ’s keenness to mitigate the repercussions of Overall, reflecting some positive developments in the pandemic but at the same time its commitments recent months, in particular the issuance of Eurobond to maintaining monetary policy stability including the of around US$1.75 billion, CBJ gross foreign reserves pegged exchange rate with the US dollar. Specifically, stood at US$16.8 billion at end-October 2020 and is average headline CPI inflation decelerated by only estimated to cover around 10.7 months of imports.16 30 bps in the first ten months of 2020 (Figure 15). This trend largely reflects the substantial softening in international commodity prices, particularly oil prices Monetary Policy and Inflation this year, along with weak domestic demand. Given the muted inflationary trend and Global financial conditions continued to remain without exchange rate pressure, the real interest accommodative following the unprecedented rates in Jordan remain relatively high when scale of liquidity measures introduced by most compared to most of the regional and other peer central banks during the COVID-19 pandemic. countries. The CBJ has been mitigating the potential These measures have been largely supported by impact of this through direct liquidity injections to sup- policy space available to many countries, including port the economy, which has remained substantial in the emerging economies, due to relatively lower aftermath of the pandemic. In aggregate, the monetary inflationary trends before the pandemic hit. The initial stimulus in form of liquidity measures introduced by the impact of the ease in monetary policy stance and CBJ to combat COVID-19 related economic disruptions other unconventional policies is reflected in the recent is estimated to be around 8.0 percent of GDP (Box 6).18 economic recovery observed in many economies after the ease in lockdowns and other restrictive measures. In case of Jordan, recent data indicates 16 In addition, CBJ’s consistent buying spree of gold amid that the supportive measures introduced by the higher international prices has further supported the Central Bank of Jordan (CBJ) have mitigated gross reserves increase during 10M-2020. 17 Against the market and independent analysts’ the otherwise significantly negative affect of projections of double-digit decline in output during pandemic on the economy.17 However, the adjust- the second quarter of 2020, the official figures show ment in CBJ’s monetary policy stance during the moderate contraction of 3.6 percent in GDP y-o-y. pandemic with a 150 basis points (bps) cut reflects 18 For details, see IMF’s COVID-19 Policy Tracker. 16 JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE CBJ’S POLICY MEASURES TO SUPPORT BUSINESSES AND HOUSEHOLDS DURING THE BOX 6.  COVID-19 CRISIS In early months of 2020, the Jordanian economy was showing visible signs of recovery supported by generous support from the international community - including the IMF and World Bank - along with the authorities’ commitment to implement a comprehensive structural reform plan. However, since mid-March 2020, the global emergence of the COVID-19 pandemic and the ensuing containment measures to control its domestic spread, hit the Jordanian economy hard. Amid the growing concerns of the potentially devastating impact of COVID-19 on economic activity, CBJ, in addition to policy rate cuts, introduced several liquidity measures to support businesses and households during the downturn. These measures broadly included reduction in banks’ cash reserves requirement; deferment of principal repayments on loans taken by companies and individuals; subsidized financing for firms (particularly in the SME sector) to pay salaries to their employees; and created a concessionary refinance facility for investment projects in sectors like agriculture, renewable energy, and information technology. Figure 16 shows that although CBJ support through policy rate adjustment remains limited, it’s other regulatory support measures, remain at par with peer economies from the region. In aggregate, the direct impact of the CBJ liquidity support measures is estimated to be around JD 2.4 billion (~US$ 3.4 billion) or 8.0 percent of GDP (estimate based on CBJ). Policy Support Measures by Central Banks of MENA Countries to Combat COVID-19 FIGURE 16 •  Policy and regulatory support measures by Central bank policy rate, % the central banks of MENA oil importing countries Jordan Morocco Egypt Tunisia Pakistan 20 COVID–19 Policy rate cut 150 bps 75 350 150 625 16 shock ● ● ● Reserves requirement 200 bps 200 12 Prudential regulations ● ● ● ● ● 8 Employees’ salaries ● ● ● ● ● 4 New investment ● ● ● ● ● 0 Loan deferment ● ● ● ● ● Jan-19 Jun-19 Nov-19 Apr-20 Sep-20 SME sectors ● ● ● ● ● Egypt Pakistan Tunisia Jordan Morocco Housing support ● ● ● ● ● Source: DoS, IMF COVID-19 Policy Tracker, Central Banks’ Websites. Note: Green (Red) dots indicate action (no action) taken by the central w.r.t. specific measure. The initial impact of targeted liquidity mea- banks increased during the first nine months of 2020 sures undertaken by the CBJ reflect an increase by JD614.2 million (1.7 percent) to reach JD35.9 in demand for private credit, which continued to billion. Furthermore, during the COVID-19 pandemic, show moderate growth despite weak domestic the dollarization ratio decreased to stand at 19.9 per- demand. Cumulatively, lending to the private sector cent in September 2020, compared to 20.6 percent grew by 6.1 percent during 9M-2020 despite the in 2019. turbulent economic conditions, even higher than 3.9 Regarding the trend in overall monetary percent growth registered in the corresponding period aggregates, both expansion in net foreign assets last year. In particular, the major contributors to credit (NFA) and net domestic assets (NDA) provided demand came from the construction sector in the light support to interbank liquidity conditions. Some of recently provided incentives, and general trade and liquidity pressures emerged in the early days of industry due to gradually improving external demand lockdown in March 2020 and there was subsequent (Figure 17). On the other hand, the total deposits at deterioration in external accounts. However, these Economic Update 17 Credit to Private Sector and Trends in Monetary Aggregates FIGURE 17 •  Y-o-y % changes, % share in total credit given in parenthesis 8 Mining (1.0) 6 Construction (25.1) 4 Industry (12.4) 2 Financial services (15.4) 0 General trade (16.0) –2 Tourism, hotels & restau. (2.4) –4 Transportation services (1.4) –6 Agriculture (1.4) Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 –25 –20 –15 –10 –5 0 5 10 15 20 25 9M-2019 9M-2020 NFA NDA M2 Source: CBJ. pressures have somewhat subsided in recent months financial institutions along with the issuance of the due to support from the international community, Eurobond. As highlighted, credit expansion on the CBJ’s interventions, and an ease in social distancing back of targeted interventions by CBJ was the main measures. The recent expansion in NFA largely driver for NDA growth. reflects the loans received by CBJ from international 18 JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE 2 OUTLOOK AND UPCOMING CHALLENGES Global and Regional Outlook mitigation measures, financial crises, a further drop in commodity prices, and a slower recovery due to The global recovery outlook for 2021 will be lasting impacts on consumers and firms and a retreat muted; and downward risks to the outlook are from global value chains. significant. While a global recovery is envisioned MENA is expected to partially recover in for 2021, it is likely to be subdued; global GDP is 2021, however unusually high levels of risk to the forecasted to expand by 4.2 percent in 2021; advanced outlook remain, linked not only to COVID-19 but economies are projected to grow by 3.9 percent, also to regional conflict and fragility. The outlook while EMDE economies are projected to expand by in large MENA economies is weighed heavily by the 4.6 percent. This reflects that the pandemic will likely pandemic, although moderate inflation in parts of the lead to a slow and incomplete return to activities that region allows some space for additional monetary require face-to-face interaction, such as tourism, as easing. Regional growth is expected to resume in some degree of social distancing continues. Firms, 2021 and reach 2.3 percent, as the pandemic sub- households and governments have relied on savings sides and investment recovers. Growth in oil exporters and debt to mitigate the effects of 2020’s recession; is expected to record 2.1 percent in 2021, benefiting thus, a period of deleveraging is likely to follow as from large infrastructure investments in the GCC. they rebuild precautionary savings and strengthen The rebound will be supported by longer-term diver- their balance sheets. Lower spending and continued sification programs, the recent relaxation of foreign uncertainty will lead to persistent investment investment restrictions, and improved regulatory envi- weakness and the innovation embodied therein, ronments. For non-oil importers, growth is projected with consequences for growth and productivity. to reach 3.2 percent in 2021, benefiting from regional Moreover, financial turmoil and commodity price global spillover effects. Oil importers rely on tourism collapse will likely have significant long-term effects activity and are vulnerable to further decline in tourist on many economies’ potential growth. Risks include arrivals and global disruptions. Risks to the outlook are a more protracted pandemic and a prolongation of heavily tilted to the downside and include much more 19 widespread regional COVID-19 outbreaks, prolonged help to keep the monetary policy stance accom- weakness in oil prices and global activity, and the modative in order to revive growth. The softening risk of intensification of regional conflicts and fragility, of consumer prices is coming from the subdued which will further challenge socio-economic recovery. outlook of international commodity prices, including international oil prices. Going forward, headline inflation is expected to follow a moderate trend and Outlook for Jordan gradually converge to its recent historical path over the medium-term. The COVID-19 pandemic represents an Faced with prolonged containment mea- unprecedented shock for the world and Jordan sures, the fiscal deficit of the Central Government is alike. Jordan’s rigorous domestic lockdown at the expected to widen. In 2020, total domestic revenues onset of the pandemic and subsequent targeted are projected to be around 20.2 percent of GDP or 1.6 closures (more recently as a result of the recent percent of GDP lower than last year due to a substan- resurgence of cases) combined with the decrease in tial decrease in non-tax revenues as well as taxes on global economic and trade activity are projected to imports and trade taxes (Table 5). Non-tax revenues are create a significant drag on the domestic economy. also projected to decline by almost 3 percent of GDP In particular, Jordan’s services sector, vital to in 2020 as a result of disruptions in domestic economic growth, is anticipated to contract substantially as activities and a shift of taxes and fees on oil derivatives a result of sluggish business activities, prolonged from non-tax revenues to domestic sales tax. Moreover, suspension of international travel, and depressed the projected double-digit contraction in imports is likely consumer sentiment. As a result, Jordan real GDP to have a significant negative impact on sales taxes growth in 2020 is projected to contract by 3.5 on imports and taxes on international trade. However, percent (although for reasons noted in Box 3, some some of recently introduced measures against tax eva- significant downside risk exists to these projections), sion and improving tax compliance is likely to cushion followed by a timid 1.8 percent recovery in 2021 as some of this decline in domestic revenues. On the domestic demand is anticipated to remain weak, spending side, total spending is projected to nominally given the ongoing pandemic resurgence as well increase by 1.9 percent, reaching 30.5 percent of GDP as the fiscal consolidation effort under the IMF in 2020 despite a temporary cut in public sector wage program. benefits and postponement of the public sector wage Over the medium-term, however, growth is increase anticipated earlier in 2020. Similar to last year, projected to remain subdued unless structural the burden of fiscal retrenchment is likely to be borne impediments to growth are resolved. Accelerated disproportionally by capital spending, which is projected and comprehensive reforms to Jordan’s business to remain around 3.2 percent of GDP (compared with and investment climate as well as reforms to boost 2.9 percent of GDP in 2019). Overall, the fiscal deficit its stagnant productivity would be required for a fast of the Central Government (including grants) in 2020 is and sustained growth recovery. This would also help projected to increase from 4.6 percent of GDP in 2019 attract investments, restore private sector confidence to 6.9 percent of GDP in 2020. Over the medium term, and provide a much-needed increase to the country’s domestic revenues are projected to average around domestic competitiveness. Moreover, piloting of 21.9 percent of GDP which is slightly below the average solutions for climate-responsive economic recovery of 22.4 percent of GDP for the last five years. Recurrent represents an opportunity to increase energy effi- spending over this period is forecasted to be around ciency and access, increase competitiveness, and 27.6 percent of GDP as pressure from domestic secu- support a resilient recovery. rity related spending, higher interest payments and Headline inflation in 2020 is projected to payments related to Public Service Obligation (PSO)19 remain subdued as reflected through a signifi- cant widening of Jordan’s output gap. This would 19 PSO is related to the energy sector. 20 JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE continue to create pressure. Capital spending, on the are projected to decrease by 14 percent as around other hand, will gradually pick-up, reaching 3.6 percent three-fourths of Jordan’s remittances inflows originate of GDP by 2022. Overall, the fiscal deficit of the Central from weakening oil exporting neighbor economies. Government is projected to gradually decline over the On the flipside, lower global oil prices and subdued medium-term, reaching 4.9 percent in 2022. However, domestic demand are projected to substantially this assessment strongly hinges on the identification reduce Jordan’s import bill. On balance, despite and implementation of additional fiscal measures the challenging external account position, Jordan’s amounting to almost 3.5 percent of GDP over the next foreign reserve adequacy is estimated to remain at year, which are required to ensure compliance with a comfortable level in 2020 due to generous support the agreed debt-reduction trajectory of the IMF-EFF provided by the international community along with program. timely issuance of Eurobonds (Table 6). Over the A higher fiscal deficit, low inflation, and the medium-term, the current account deficit is projected sharp contraction in GDP is expected to keep to gradually improve to 3.0 percent of GDP conditional the public debt level elevated. According to the upon a sustainable recovery in external demand and World Bank’s recent Debt Sustainability Analysis, domestic economic activity. However, most of this the Central Government debt is projected to reach improvement is expected to come from improvement almost 110 percent of GDP at end-2020, increasing in trade deficit as restrained international tourism from 97.4 percent at end-201920 and remain elevated and travel receipts—which makes around 13 percent over the medium term. General government debt, of GDP—are projected to remain below pre-COVID i.e., excluding Social Security Corporation (SSC) levels even by 2022. debt holdings, on the other hand, is projected to The balance of risks is strongly tilted increase to 88.4 percent of GDP in 2020 compared toward the downside. The ongoing COVID-19 to 78.0 percent in 201921 and reach 91.2 percent pandemic, and especially uncertainties around the of GDP over the medium-term. Debt-creating flows evolution of the pandemic, pose a significant down- over the medium-term are projected to gradually side risk to Jordan’s economic outlook, as well as for decline from 2021 onward as the primary deficit the global economy. Indeed, recent sharp increases starts to narrow and growth picks up. This assess- in COVID-19 cases in Jordan and the subsequent re- ment, however, is contingent on fiscal adjustment institution of targeted lockdowns, if prolonged, could and growth-enhancing reforms committed to by the potentially lead to a protracted downturn in domestic authorities, as well as continued mobilization of con- economic activity. This will put further pressure on cessional external and market financing. As a result, the country’s already elevated unemployment levels, the debt trajectory remains susceptible to even a especially among youth and women. This impact small shock i.e., economic slowdown, primary deficit could be accelerated if significant downside risks shock, or a contingent liability shock, for example. surrounding the global economic outlook materialize. On the external front, the current account More importantly, the economy’s chronic structural deficit (including grants) in 2020 is projected to weaknesses may continue to hinder a fast recovery widen to 7.0 percent of GDP, reversing some of over the medium-term. This assessment is supported the gains Jordan achieved during the last three by limited fiscal space in the presence of significantly years. Exports in 2020 are projected to fall sharply higher contingent liabilities from state-owned compa- and contract by almost 12 percent due to the down- nies and outstanding arrears that pose an imminent turn in global demand and an unfavorable outlook risk to country’s debt dynamics in both short and for Jordan’s major export markets (i.e., US, India, and medium terms. Saudi Arabia). Moreover, prolonged airport closure and diminished international tourism are expected to 20 Includes securitization of domestic arrears in 2019. substantially reduce tourism-related revenues to one- 21 SSC holdings of public debt in forecasted period as fifth of their 2019 level in 2020. Similarly, remittances estimated in IMF staff report No. 20/180 (May 2020). Outlook and Upcoming Challenges 21 Jordan Selected Economic Indicators TABLE 3 •  2017 2018 2019 2020 2021 2022 Act. Act. Act. Proj. Proj. Proj. Real sector         Real GDP growth 2.1 1.9 2.0 –3.5 1.8 2.0 Real GDP per capita growth a –0.3 0.1 0.5 –4.5 1.1 1.7 Agriculture (share of GDP) 4.6 4.7 4.7 5.0 4.9 4.9 Industry (share of GDP) 24.6 24.4 24.3 22.3 23.0 23.0 Services (share of GDP) 58.0 58.2 58.5 60.6 59.8 59.6 Net taxes (share of GDP) 12.8 12.7 12.5 12.0 12.3 12.5 Money and prices (annual percentage change, unless otherwise specified) CPI inflation per annum 3.3 4.5 0.8 0.1 1.8 2.3 Money (M2) 0.2 1.2 4.8 3.3 3.6 4.3 Government finance (percent of GDP, unless otherwise specified) Total revenues and grants 25.3 25.8 24.3 23.6 24.0 24.3 Domestic revenue 22.8 22.8 21.8 20.2 21.6 22.2 Foreign grants 2.4 2.9 2.5 3.3 2.3 2.0 Total expenditure and use of cash 27.8 29.3 28.9 30.5 31.0 31.3 Current b 24.2 25.0 25.0 27.3 27.6 27.7 Capital expenditure 3.6 3.1 2.9 3.2 3.4 3.6 Adjustment on receivables and payables (use of cash) 0.0 1.2 0.0 0.0 0.0 0.0 Statistical discrepancy, net 0.4 0.3 0.0 0.0 0.0 0.0 Additional fiscal measures (fiscal gap) c 0.0 0.0 0.0 0.0 1.5 2.2 Overall balance after fiscal measures             Overall balance (deficit (-), excl. grants) –4.6 –6.2 –7.1 –10.3 –7.9 –6.9 Overall balance (deficit (-), incl. grants) –2.2 –3.3 –4.6 –6.9 –5.5 –4.9 Primary balance (deficit (-), excl. grants) –1.7 –2.9 –3.6 –6.2 –3.7 –2.8 Primary balance (deficit (-), incl. grants) 0.7 0.0 –1.1 –2.9 –1.4 –0.8 Advances to WAJ 0.3 1.4 1.6 2.1 1.3 1.2 External sector (percent of GDP, unless otherwise specified) Current account –10.6 –6.9 –2.7 –7.0 –5.5 –4.5 Trade balance –25.8 –24.0 –20.2 –17.7 –18.3 –17.8 Services and income (net) 4.2 5.3 6.6 –0.5 2.7 3.6 Services balance 4.7 5.8 6.6 –0.1 2.7 3.4 Travel receipts 11.2 12.2 13.0 3.0 4.4 4.8 Current transfers 11.0 11.8 10.9 11.3 10.1 9.7 Net private investments (FDI and portfolio only) 3.7 2.3 1.4 1.5 2.6 2.8 (continued on next page) 22 JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE Jordan Selected Economic Indicators (continued) TABLE 3 •  2017 2018 2019 2020 2021 2022 Act. Act. Act. Proj. Proj. Proj. Foreign currency reserves (US$ million) 14,256 12,513 13,512 14,602 15,896 16,335 Foreign currency reserves (in months of next year’s imports of GNFS) 7.5 6.7 9.5 9.7 10.2 10.3 Total debt (in US$ million, unless otherwise specified) Total debt stock 38,462 39,927 43,396 47,522 50,545 53,303 Central Government debt to GDP ratio (%)d 92.8 92.9 97.4 110.5 113.5 114.8 General Government debt to GDP ratio (%) e 75.9 74.3 78.0 88.4 90.5 91.2 Memorandum items:         Remittances (US$ million) 3,345 3,308 3,338 2,871 2,842 2,871 Foreign direct investment (US$ million) 2,026 964 783 710 1,088 1,239 Export FOB (% growth) –0.5 3.2 7.4 –12.0 7.0 5.5 Import FOB (% growth) 6.2 –0.8 –4.1 –13.8 7.0 3.3 Travel receipts (% growth) 14.7 13.2 10.2 –77.5 50.0 15.0 Remittances (% growth) 0.3 –1.1 0.9 –14.0 –1.0 1.0 Nominal GDP (JD billion) 29.400 30.482 31.597 30.486 31.583 32.925 Source: Government Data and World Bank Staff Calculations. a Based on World Bank population projections. b Includes net lending, transfers to NEPCO and WAJ, and other use of cash. c Additional fiscal measures to target deficit reduction based on IMF Country Report No. 20/180 (May 2020). d Government’s direct and guaranteed debt (including NEPCO and WAJ debt) and securitization of domestic arrears in 2019. e Net of Social Security Corporation (SSC) debt holdings. Projected SSC holdings of public debt as estimated in IMF staff report No. 20/180 (May 2020). Outlook and Upcoming Challenges 23 SPECIAL FOCUS Special Focus 1: potential solutions and proposals that Jordan could adopt in order to improve pension outcomes, and its Moving Toward financing mechanisms. an Equitable and There is an urgent need to address pension and social insurance issues in the MENA region, Sustainable Pension including Jordan. Although Jordan’s pension system is relatively in a better shape than other and Social Insurance MENA countries, it still faces considerable chal- in Jordan lenges. Addressing pension and social insurance issues means addressing financial, fiscal, social, and economic challenges. Such challenges include low cov- Addressing pension and social insurance issues erage, financial unsustainability, inequities, inadequate means addressing financial, fiscal, social, and pension benefits, and adverse labor market and saving economic challenges. More than half of the population incentives, among others. There are some potential in Jordan is not yet effectively covered by contributory solutions and proposals that Jordan could adopt in social security programs. Although designed to be order to improve their pension outcomes. International financially self-sustainable, the contributory pension experiences show that the consequences of not program is actually unsustainable. The program reforming pension programs ahead of demographic also creates inequities, and adverse incentives. waves create a huge burden for the next generations. Despite some past reform efforts, the program has More than seventy percent of older adults in still considerable parametric inconsistencies (benefit Jordan still rely on family, other types of informal promises are not in line with contribution rates and care, or state transfers.22 Also, co-residence rates retirement ages). Such inconsistencies are bridged, of the elderly in Jordan are some of the highest in the at the moment, by favorable demographics, but in less than a decade, revenues from contributions will not be enough for pension spending. There are some 22 Source: Pensions database WB. 25 region, for both men and women (84 percent of men Public Pension Spending FIGURE 18 •  and 70 percent of women).23 With falling birth rates, Percent of GDP rising life expectancies, and changes in urbanization, Percent migration, and family structures, the reach and scope Ukraine Poland of these informal arrangements might be weakening Jordan Turkey and require implementation of new policies to protect Tunisia Algeria older adults. A needed pension reform should be con- Iran Egypt sidered in the context of the current overall trends and Lebanon Iraq reforms regarding labor markets policies, and social West Bank and Gaza Kuwait protection systems (e.g., efforts to promote private Morocco Ecuador sector employment, labor mobility, and more efficient Djibouti Bahrain welfare state/wealth redistribution mechanisms). Malaysia Ghana Today the Jordanian social security system 0 5 10 15 (administered by SSC) provides benefits to less Source: World Bank pensions database. than half of its population for old-age, disability and survivors, maternity, work injury, and unem- ployment insurance.24 As in most countries, old-age, Despite the relatively low coverage, Jordan’s disability, and survivor’s insurance is the main and total public spending on pensions is currently one oldest sub-group of all programs. The first law of 1978 of the highest in MENA. The country’s pension expen- was subject to several modifications, particularly in ditures totaled around 9 percent of GDP in 2019 (when 2001, and 2010. The law was actually profoundly included both SSC and old pension scheme). This redesigned in 2010 and finally approved by the parlia- spending, as percentage of GDP, is the highest in the ment with further amendments in 2014. Some of the MENA region (Figure 18). In 2019 the general budget programs, such as maternity leave and unemploy- paid around 5 percent of GDP (JD1.4 billion) for the old ment insurance, were initiated during these reform scheme pensions, while SSC paid around 4 percent of years. The SSC also provides voluntary pensions. GDP (JD1.1 billion) for its pension benefits. Until 1995, the SSC covered only private Jordan is also currently spending on pen- sector workers, while civil servants and the military sions above what it would be expected based had their own independent schemes. However, in on international comparisons. Figure 19 presents 1995 and 2003, reform laws were passed, and civil the relationship between demographics and pension servants and military schemes were closed to new spending. On the horizontal axis, the dependency entrants, and all new hiring contracts in the government ratio is defined as the percentage of the population and the army became covered by the same scheme. It over the age of 60 as percentage of total population. is estimated that by 2060–70, Jordan will have a unified It ranges from less than 5 percent in demographically social security system where public sector and private young countries like Ghana to nearly 23 percent sector workers will be solely covered by one agency, in Japan—the country with the oldest population. the SSC. Meanwhile, the old pension schemes for mili- tary, and civil servants will be phased out. In 2019 the total amount of these old pension schemes (for both 23 Source: An examination of co-residence rates in the civil and military beneficiaries) represented a liability of developing world. Social Protection and Labor Policy JD1.4 billion. This amount is still expected to increase Note. May 2015. until 2023 when it will gradually start to decrease. In 24 By law those that are covered include all Jordanian and non-Jordanian private-sector employees, public-sector addition to old-age beneficiaries, these old schemes employees, self-employed persons, and citizens of are also expected to pay for their dependents, hence Jordan working at diplomatic missions or for international even though there have not been any new contributors, organizations in Jordan. Voluntary coverage is also the payments will still be paid for a very long time. available. 26 JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE Public Pension Spending vs FIGURE 19 •  around JD1.5 billion, while pension spending repre- Demographics sented around JD1.1 billion. Accumulated amount of Point contribution to GDP growth, reserves, for all programs in SSC, represented around percent 36 percent of GDP (JD10.9 billion) by end March 2020, and already JD11 billion by end June 2020. 18% Even in the absence of an aging population, Pension spending (as % of GDP) 16% 14% Ukraine the pensions program in Jordan would still face 12% Jordan Poland financial challenges. Despite some past reform 10% Turkey efforts, the pensions program has some parametric 8% inconsistencies. As in most pay-as-you-go (PAYG) Egypt Tunisia 6% Ghana schemes worldwide, benefit promises are not in line 4% Morocco 2% Ecuador y = 0.0037x with contribution rates and retirement ages.26 Such Malaysia R² = 0.826 inconsistency is bridged, at the moment, by favorable 0% Philippines 0 5 10 15 20 25 30 35 demographics, which create a surplus due to a much % of population over 60 years old higher number of contributors when comparing to the Source: World Bank pensions database. number of beneficiaries (1,345,118 contributors vs 25 The pension program of SSC is designed as contributory, Countries with similar demographics to that of Jordan earnings-related, pay-as-you-go (PAYG), and defined- such as Tajikistan, Namibia, or Belize spend much benefit (DB). The level of social security contributions in less on pensions (less than 3 percent of GDP). The SSC (so-called payroll taxes), is currently 21.75 percent vertical axis shows public pension expenditures as a for all programs, and 17.5 percent is for pensions only. percentage of GDP. Countries close to the regression Contributory means that participating employees in the line spend what is normal (according to international pension scheme are required to support the scheme with contributions. Earnings related means that pensions are experience) given their demographics. Jordan is sig- based on the beneficiary’s earnings. Pay-as-you-go (PAYG) nificantly above the line, which means that its pension in its strictest sense, is a method of financing whereby spending is associated with a dependency ratio that current pensions are paid out of current revenues from is more than its current ratio. contributions. When revenues are higher than expenditures The pension program of SSC was designed some reserves can be accumulated, hence PAYG can be to be self-financed, but it is not, and is therefore fully or partially-funded, as is Jordan. Defined benefit (DB) means the pensions are calculated based on a prescribed not financially sustainable.25 There is too often a formula that usually considers several factors—mostly mistaken conclusion that the program is financially length of employment and salary history. healthy simply because, at the moment, it is gener- 26 In order to make sure that a pension scheme is ating cash surpluses (i.e., contributions to the scheme sustainable, the design parameters would need to be exceed benefits). However, a pension program is aligned. In other words, if the aim is to make the PAYG sustainable only when it has the capacity to pay cur- pension scheme sustainable and self-financed (and non-regressive), then the linkages between the various rent—and future—benefits over a long horizon under parameters of the pension system design would need to reasonable assumptions without shifting substantial be respected. Basically, to make a PAYG DB financially burdens to future generations and without having to sustainable, policy makers can choose only two of the cut benefits, increase contributions, or change quali- three key parameters: (i) contribution rate, (ii) relative fying conditions. For instance, in 2019, there were 1.3 pension level, and (iii) retirement age. Once two million people contributing to the pension program, parameters are set, the third is determined endogenously. At the end, demographic changes are not the sole and only 242.0 thousand beneficiaries, and even cause of the pension scheme unsustainability, but the with these favorable demographics, revenues from intergenerational transfers will increasingly be less able contributions could hardly cover pension benefits. to finance the gap for the Jordan pension scheme since In 2019, revenues from contributions represented the parameters are inconsistent with long term balance. Special Focus 27 FIGURE 20 • Current Balance under Different FIGURE 21 • Current Balance under Pure PAYG vs Baseline Scenarios (SSC Pension PAYG with Reserves Program) Percent of GDP Percent of GDP 6% 10% 4% 2% 5% 0% 0% –2% –5% –4% –10% –6% –8% –15% –10% –20% –12% 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 2054 2056 2058 2060 2062 2064 2066 2068 2070 –14% 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 2054 2056 2058 2060 2062 2064 2066 2068 2070 BASELINE 2 (no expansion of coverage) BASELINE 1 (some expansion of coverage) Current balance of pure PAYG (with no reserves) BASELINE 3 (lower investment returns) Current balance of PAYG (with reserves) BASELINE 4 (wide expansion of coverage) Source: Pension reform options simulation toolkit, WB staff estimates. Source: Pension reform options simulation toolkit, WB staff estimates. SSC. However, even when investment returns are 242,000 beneficiaries). However, since the number considered, the program is unsustainable. Looking of beneficiaries is projected to increase faster than only at the pure PAYG scheme (with no reserves), basi- the number of contributors over time, as experience cally when considering only revenues from contributions shows worldwide, the program will eventually need to and other revenues that are not investment returns rely on different sources of funding, i.e., the general (such as fines), versus the pension spending, the deficit budget, since the pensions program of SSC is pro- is projected to appear by around year 2033. When jected to run at a deficit in approximately 10 years investment returns are considered, the deficit does not from now. With investments the deficit could be appear until around year 2043. Figure 21 illustrates the delayed but only for around 10 more years.27 difference of these projected current balances. Unless further reforms are applied, even Only when a combination of measures (that under the assumption of considerable expansion is, a reform package) is considered, the pensions of coverage, the program is still unsustainable. program of SSC is sustainable. Figure 22 illustrates Current balances under different no-reform scenarios the projected current balances under different reform are illustrated in Figure 20. The deficit in baseline 1 scenarios. Scenario reform 1 shows the impact of (when slight expansion of overage is assumed) is what would happen if only a new additional measure expected to be around year 2044. When no expan- is considered which is applying actuarially fair fac- sion of coverage or lower investment returns are tors to penalize early retirement (without indexing assumed, the deficit appears a few years earlier. On pensions in payment until the legal retirement age is the other hand, when further expansion of coverage reached, as it is the current practice). Scenario reform is assumed, the deficit does not appear until around 2 instead assumes that pensions are indexed at any year 2050. However, under this baseline scenario age (and actuarially fair factors are also applied). 4, the deficit is eventually even deeper than in any Scenario reform 3 assumes scenario reform 2 plus other scenario. Having more contributors also means three very important measures: i) increasing the wage having many more beneficiaries as well, and con- sequently higher implicit pension debt, and higher 27 Primarily the result of system demographics, SSC spending in an unsustainable type of design. reserves are projected to keep increasing for the next 15 Investment returns make a big difference in or 20 years. However, they are also projected to deplete the financial situation of the pensions program of quickly after that. 28 JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE FIGURE 22 • Current Balance under Different mechanisms, but could rely on other innovative alter- Reform Options (SSC Pensions natives that would be more appropriate for the new Program) characteristics of the labor market. Percent of GDP Beyond short-term measures, a long-term 15% strategy29 is needed to address the pension sys- 10% tem’s financial obligations that extend over half 5% 0% a century. Pensions is a long-term issue. It is often –5% politically and technically difficult to cut benefits of –10% existing retirees and older workers nearing retirement, –15% because of unaffordable past promises. Too many 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 2054 2056 2058 2060 2062 2064 2066 2068 2070 countries are facing such challenges. This makes it BASELINE 1 (some expansion of coverage) difficult for short-term reforms to improve the financial REFORM 1 (penalizing early retirement with actuarially sustainability of the system in the long run. The pen- fair factors) sions program of SSC has the opportunity to consider REFORM 2 ( reform 1 + pension indexation at any age) REFORM 3 (reform package) a long-term strategy before it is too late. International experience has shown that the longer reforms are Source: Pension reform options simulation toolkit, WB staff estimates. postponed, the higher the cost for the population. Jordan now has an important window of opportunity to further reform its pension program. base for pension calculation with valorization to wage Additional reforms would need plan to expand cov- growth; ii) decreasing accrual rate; and iii) increasing erage of good quality pensions—where good quality retirement age (all of them being applied gradually). is defined as pensions that create a balance between As shown in Figure 22, only in this reform package sustainability on the one hand and adequacy on the scenario the program can be sustainable. Of course, other, without creating inequities, or other distortions, there are infinite ways of combination of measures and which are delivered in an efficient way in terms of and pace of reforms that can be considered. This is costs, investment returns, and labor market impact. only an example, but some of the measures—indexing The needed pension reform should be considered pension and increasing the wage base for pension not only in the context of all SSC programs, but in calculation (valorized to wage growth)—are good the context of the current overall trends and reforms practice in any combination. regarding the labor market, and labor market policies, Despite all the efforts to expand coverage, as well as the social protection programs. Jordan a large number of the Jordanian working popu- could also be an example of pension reform for the lation is still not covered by any social security rest of the MENA region if this window of opportunity scheme. Also, affiliates of the SSC contribute on is well-taken. At the moment, compelling examples for average about only one-third of their working life. reform come mostly from outside the region. Also, the Coverage is low not only because many individuals experiences of Greece or Italy, for example, show the never contribute, but also because many others consequences of not reforming, resulting in a failure contribute only part of the time they should. In fact, to get ahead of the demographic wave. Jordan must the densities of contribution in Jordan are consider- choose to make important decisions now, or create a ably smaller, for instance, than densities reported huge burden for subsequent generations. various Latin American countries. The incidence of social security coverage in Jordan substantially varies by employment status and the institutional 28 By end 2019 there were 1,345,118 people actively contributing to SSC, but it is estimated that almost sector of work. But all in all, today around half of the 1,500,000 will be actively contributing by the end of 2020. labor force in Jordan actively contributes.28 Based on 29 Reform packages need to be well-assessed in terms of international experiences expanding coverage would their impact on different generations, the labor market, not necessarily be feasible through only traditional and the macroeconomic and fiscal environment. Special Focus 29 Special Focus 2: The time, poorer and more vulnerable households may benefit from social protection and public healthcare Incidence of Taxes and primary education but less from investments in and Public Spending tertiary education which their children may not attend. Here we analyze the incidence across the household in Jordan30 income distribution of the following fiscal instruments: personal income tax (PIT); benefits from the National The degree to which different households contribute Aid Fund (NAF), the bread subsidy compensation to and benefit from fiscal policies varies across scheme and other cash transfers; sales taxes (GST income distribution. Taken together, the overall and SST); water and electricity subsidies; and health allocation of taxes (personal income tax and sales and education non-cash (or ‘in-kind’) benefits. taxes) and public spending (cash transfers, water In absolute terms, the net benefit of taxes and electricity subsidies, and health and education and transfers in Jordan is greatest for poorer in-kind benefits) in Jordan is modestly progressive. individuals in the lowest deciles and declines The fiscal system helps to reduce inequality, though as households get richer. However, much of this much of the effect comes from in-kind benefits and progressivity comes from health and education the pattern of taxes and cash spending could be spending. The payments in taxes from households made to benefit the poor and middle class further. In in the poorest 10 percent of the income distribution comparing Jordan with other countries, it is evident (Decile 1) are less than the benefits they receive that more could be achieved. Further, Jordan’s need (‘Total Impact’ green line in Figure 23) including non- for fiscal consolidation can be compatible with the cash health and education. In contrast, the poorest goal of reducing poverty and inequality. The recent 80 percent of the population are net beneficiaries of expansion of social assistance programs is making the system—that is, they receive more benefits from Jordan’s fiscal policies more equalizing and additional the public spending than they pay in taxes and user reforms to sales taxes and electricity subsidies fees—and those in the top 10 percent are net con- present opportunities to make the fiscal system more tributors. If we exclude in-kind health and education progressive without increasing spending. spending, considered non-cash benefits (‘Total Cash Fiscal policy is potentially one of the most Impact’ orange dot line in Figure 23), only individuals powerful tools governments have for reducing in the bottom forty percent of the distribution are net poverty and inequality, but not all households are beneficiaries of fiscal policy. affected in the same way. There are various policies A consideration relative to household which governments use to reduce poverty and increase market incomes (Figure 24), reveals that the equal access to opportunities for all, such as invest- pattern of taxes and spending could be improved ments in human capital development, infrastructure, to benefit the poor and middle class more. This and job creation. However, many of these can take figure shows the taxes paid and benefits received years if not generations to have significant impacts. by each household as a percentage of their market Fiscal policy can be altered quickly and can generate income, since paying JD 100 in in taxes is a much large short-term effects on poverty and inequality. It is greater burden to households with low incomes than then important to understand who contributes to, and for those with high incomes. Similarly, the value of a benefits from, fiscal policies. For instance, how much JD 100 transfer received means more to those with income tax a worker pays depends upon how much lower incomes. The poorest decile receives cash they earn, what deductions they can claim, and often 30 This section is a summary of the report Fiscal Policy, their household composition. How much GST they Poverty and Inequality in Jordan. The Role of Taxes and pay depends on what they spend upon, and the price Public Spending on fiscal incidence in Jordan by Laura of what they buy depends as much on sales taxes as Rodriguez (lrodrigueztak@worldbank.org) and Matthew on the taxes on the inputs to production. At the same Wai-Poi (mwaipoi@worldbank.org). 30 JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE Payments of Taxes and Benefits FIGURE 23 •  transfers worth 26 percent of their market income of Public Spending by Household and cash and non-cash benefits equal to 68 percent. Consumption Decile Meanwhile, the net contributions of the richest house- Million JD holds represent only about 8 percent of their market 400 income. Furthermore, the net cash fiscal contribution Fiscal revenue / expenditure 300 200 as a share of market income increases only modestly 100 from Deciles 6 (0.1 percent) to 9 (4.0 percent). 0 –100 Jordan’s revenue and spending as a –200 percentage of GDP is relatively high compared –300 –400 to other countries, but the composition of both –500 Decile 1 2 3 4 5 6 7 8 9 Decile 10 has historically been less progressive than in Household per capita market income decile other countries. How much policies cost (in the case of spending) or revenues they bring in (in the Direct taxes Indirect taxes – direct Indirect taxes – indirect Direct transfers case of taxes) has implications for the effectiveness Total indirect subsidies – Total Indirect subsidies – of different fiscal instruments in reducing inequality. direct indirect In–kind spending (education) In–kind spending (health PIT are very progressive but make a small marginal Total impact Total cash impact contribution to inequality reduction, reducing the inequality as measured by the Gini Index by only 0.1 points, because they collect so little revenue (less than 1 percent of GDP). Indirect taxes (GST and SST) are paid far more in absolute terms by richer house- holds, as these are based on overall consumption, FIGURE 24 •  Payments of Taxes and Benefits but represent a greater burden on poorer households of Public Spending by Household relative to what they can afford. These indirect taxes Consumption Decile also represent by far the largest revenues (8 percent Percentage of Market Income of GDP) and make a significant negative marginal 100 contribution to inequality, increasing the Gini Index by Fiscal revenue / expenditure 80 0.5 points. In terms of transfers, residential subsidies 60 in water and electricity are received in similar absolute amounts across deciles 1 to 8 in the income distribu- 40 tion, reflecting the fact that these subsidies are not 20 targeted to the poor but based solely on the amount 0 of electricity or water consumed. Still, these subsidies –20 Decile 1 2 3 4 5 6 7 8 9 Decile 10 are higher relative to market income for poorer Household per capita market income decile households, indicating potential adverse impacts if removed without mitigating measures, a common Direct taxes Indirect taxes – direct Indirect taxes – indirect Direct transfers result in many countries. Indirect subsidies – direct Indirect subsidies – indirect Individuals in the bottom decile receive In–kind spending (education) In–kind spending (health Source: Rodriguez and Wai-Poi (2020). Total impact Total cash impact more in direct transfers than those at the top, Notes: Households are grouped into per capita market income deciles. Direct taxes include personal income tax, property tax and border exit tax. Indirect taxes but not more than middle-income households. include GST and SST. Indirect taxes-indirect is the cascading indirect effect of GST The absolute amount received in direct transfers exemptions on selected goods and services. It has been modeled using the 2010 IO table uprated to 2016. Direct transfers include NAF, bread subsidy compensation, by deciles 2 to 7 is almost flat, meaning that many and other government transfers. Indirect subsidies include electricity and water. middle-income households receive as much in direct Indirect subsidies -indirect is the cascading impact of commercial and industrial tariffs on households. In-kind spending includes health and education, net of costs or user transfer benefits as poorer households. Compared fees. In-kind spending on health based on use of inpatient and outpatient healthcare. Contributory pension contributions and receipts are treated as deferred savings and with water and electricity subsidies, direct transfers income. Total Cash Impact excludes in-kind benefits. such as NAF and the bread subsidy compensation Special Focus 31 Fiscal Impact on Monetary Inequality FIGURE 25 •  Points reduction in Gini index 9 8 7 6 5 4 3 2 1 0 –1 –2 South Africa (2010) United States (2011) Argentina (2012) Ukraine (2016) Iran (2011) Poland (2014) Tunisia (2010) Namibia (2009) Romania (2016) Tanzania (2011) Mexico (2014) Mexico (2012) Croatia (2014) Uruguay (2009) Kenya (2015) Ecuador (2011) Brazil (2008) El Salvador (2011) Mexico (2010) Chile (2013) Russia (2010) Panama (2016) Armenia (2011) Egypt (2015) Jordan (2018) Albania (2015) Costa Rica (2010) Belarus (2015) Dominican Republic (2006) Venezuela (2013) Ethiopia (2010) Colombia (2010) Nicaragua (2009) Uganda (2012) Jordan (2010) Colombia (2014) Ghana (2012) Peru (2011) Honduras (2011) Peru (2009) Paraguay (2014) Burkina Faso (2014) Indonesia (2012) Guatemala (2011) Sri Lanka (2009) Bolivia (2009) Comoros (2014) Source: Rodriguez and Wai-Poi (2020) and Commitment to Equity Institute database (as at May 2020). have a much lower budget allocation but provide Within 47 countries and years for which there is data a similar contribution to inequality reduction; they (Figure 25) on the degree of inequality reduction reduce inequality by 1.2 points compared to 1.4 achieved through fiscal policy, Jordan is ranked in points from electricity and water subsidies, despite the bottom half, being 25th from top considering only costing much less. Finally, more education benefits cash taxes and benefits; it is 28th if we also consider are received in both absolute and relative terms by education and health non-cash benefits. poorer households, reflecting their greater number Nonetheless, the recent expansion of of children in the household and the significant use social assistance programs is making Jordan’s of private education by richer households. Health fiscal policies more equalizing. In 2019, Jordan spending benefits are shared relatively evenly in introduced a complementary program (Takaful) to absolute terms across the distribution, meaning they the main social assistance program (NAF). Takaful still benefit poorer households more as a percentage expanded in 2020 and is expected to reach 85,000 of market income, but not as much as in the case of households by 2021. Compared to the categorical education. Together, health and education reduce targeting of NAF and near-universal bread compen- inequality by 3.1 points, which, for the money spent, sation transfer, Takaful’s poverty targeting means makes them more effective at reducing inequality significant impacts on inequality reduction. The new than subsidies but less effective than direct transfers. program is estimated to reduce inequality by 0.7 Overall, Jordan’s current fiscal system points when fully implemented. is modestly progressive, but more could be Further fiscal reforms are necessary in achieved. Comparing household inequality based Jordan as there is sufficient scope for ones that on households’ market incomes (with that based on would help both close the fiscal gap while further their post-fiscal incomes after paying income and reducing poverty and inequality. In 2019, Jordan’s consumption taxes as well as receiving government public debt to GDP ratio was almost 98 percent, transfers and subsidized services), inequality falls 5.9 including arrears. The need for fiscal consolidation points as measured by the Gini Index, from 35.1 to existed before the COVID-19 pandemic due to limited 29.5 points. When we consider only monetary taxes fiscal space and emergency spending to support and benefits (that is, excluding non-cash education vulnerable households and businesses through and health services), inequality falls by only 2.6 points. the pandemic along with lower revenues due to the 32 JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE Budget and Effectiveness of Main FIGURE 26 •  Fiscal and Distributional Impacts of TABLE 4 •  Taxes and Transfers Potential Reforms 2,000 8 Change in marginal Estimated contributiona to budget 1,500 6 inequality savings Effectiveness JD billion 1,000 4 Points JD million 500 2 GST reform –0.1 120 0 0 Electricity residential tariff reform 0.3 86 –500 –2 PIT GST + SST Total transfers Bread NAF Takaful Other Electricity subsidy Water subsidy Total inkind Education (net) Health (net) Takaful expansion 0.7 –100 NAF re-certification 0.4 0 All reforms 1.3 106 With bread savings b 0.6 216 Taxes Direct Indirect Inkind transfers subsidies benefits Source: Rodriguez and Wai-Poi (2020) based on HEIS 2017-18 and World Bank calculations. Budget (LHS) Effectiveness (RHS) a Marginal contribution is the points which the Gini Index is reduced between market income and consumable income; a positive contribution is a reduction in Gini, negative contribution is an increase in Gini. The change is the difference with respect to the Source: Rodriguez and Wai-Poi (2020) based on 2017-18 HIES, 2018 Government marginal contribution before the reform. Budget, administrative data and World Bank analysis. The budget change in JD is estimated by applying the percentage change in the ‘survey- Notes: Budget Is the budget identified in the survey. Effectiveness is marginal budget’ to the actual administrative budget. contribution / budget. GST and SST include the cascading indirect effect of GST b Approximate bread subsidy compensation budget for 2020. exemptions. Total electricity and water subsidies include residential subsidies and the indirect effect of commercial and industrial (cross) subsidies. economic shock will make fiscal reforms even more The Takaful expansion can be complemented with important in a post-COVID world. Reforms to GST, a recertification of NAF to better target the benefits. electricity subsidies, and social protection transfers These would come at some fiscal cost but have impor- could further reduce inequality by 1.4 points while tant benefits for the poorest households; in addition to closing the fiscal gap by JD 106 million (Table 4). A the impact of Takaful, the recertification of NAF would GST reform could eliminate lower rates and exemp- reduce inequality by an additional 0.4 points. Further, tions on various goods and services; 60 percent of the current bread subsidy compensation payments are these foregone revenues go to the richest 30 percent ineffectively directed, as they are received by nearly of households. Electricity tariffs could be set at the 80 percent of Jordanian households. This spending cost of production for the richest 40 percent of house- could be redirected to increase health insurance holds (increasing some tariffs and reducing others), coverage for current NAF and Takaful beneficiaries, but not change or reduce tariffs for most Jordanians. or eliminated with commensurate fiscal savings. Special Focus 33 ANNEX I Key Fiscal Indicators, 2017–2022 TABLE 5 •  In percent of GDP, unless otherwise specified 2017 2018 2019 2020 2021 2022 Act. Act. Act. Proj. Proj. Proj. Total revenues and grants 25.3 25.8 24.3 23.6 24.0 24.3 Domestic revenue (excluding grants) 22.8 22.8 21.8 20.2 21.6 22.2 o/w tax revenues 14.8 14.9 14.6 15.9 16.1 16.5 o/w non-tax revenues 8.1 7.9 7.2 4.3 5.5 5.8 Grants 2.4 2.9 2.5 3.3 2.3 2.0 Total expenditure and use of cash 27.8 29.3 28.9 30.5 31.0 31.3 Current expenditures 24.2 25.0 25.0 27.3 27.6 27.7 o/w wages and salaries 4.7 4.7 5.0 5.3 5.2 5.1 o/w interest payments 2.9 3.3 3.5 4.0 4.1 4.0 o/w transfers, of which: 7.0 7.8 7.2 7.6 8.3 8.5 Pension 4.3 4.4 4.3 5.2 5.2 5.2 National Energy Security PSO a — — — 0.0 0.7 0.8 Capital expenditure 3.6 3.1 2.9 3.2 3.4 3.6 Adjustment on receivables and payables (use of cash) 0.0 1.2 1.0 0.0 0.0 0.0 Statistical discrepancy, net 0.4 0.3 0.0 0.0 0.0 0.0 Additional fiscal measures (fiscal gap) b 0.0 0.0 0.0 0.0 1.5 2.2 (continued on next page) 35 Key Fiscal Indicators, 2017–2022 (continued) TABLE 5 •  In percent of GDP, unless otherwise specified 2017 2018 2019 2020 2021 2022 Act. Act. Act. Proj. Proj. Proj. Overall balance after fiscal measures Overall balance (deficit (-), incl. grants) –2.2 –3.3 –4.6 –6.9 –5.5 -4.9 Overall balance (deficit (-), excl. grants) –4.6 –6.2 –7.1 –10.3 –7.9 -6.9 Primary balance (deficit (-), incl. grants) 0.7 0.0 –1.1 –2.9 –1.4 -0.8 Primary balance (deficit (-), excl. grants) –1.7 –2.9 –3.6 –6.2 –3.7 -2.8 Financing 2.5 4.6 6.2 9.0 6.8 6.1 Foreign financing (net)c 5.5 1.9 0.6 5.6 2.4 1.2 Domestic financing (net) –3.0 2.7 5.6 3.4 4.4 4.9 Memorandum items: Advances to WAJd 0.3 1.4 1.6 2.1 1.3 1.2 Central Government debt to GDP ratio (%)e 92.8 92.9 97.4 110.5 113.5 114.8 General government debt to GDP ratio (%)f 75.9 74.3 78.0 88.4 90.5 91.2 GDP at market prices (JD millions) 29,400 30,482 31,597 30,486 31,583 32,925 Source: Jordanian authorities, IMF Staff Estimates, and World Bank Staff Estimates. a Based on World Bank Staff estimates of Public Service Obligation (PSO) related to energy sector. b Additional fiscal measures to target deficit reduction based on IMF Country Report No. 20/180 (May 2020). c Includes net issuance of domestic FX bonds. d Based on IMF Country Report No. 20/180 (May 2020). e Government’s direct and guaranteed debt (including NEPCO and WAJ debt) and securitization of domestic arrears in 2019. f Net of Social Security Corporation (SSC) debt holdings. Projected SSC holdings of public debt as estimated in IMF staff report No. 20/180 (May 2020). 36 JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE External Financing Requirements and Sources TABLE 6 •  In US$ millions, unless otherwise indicated 2017 2018 2019 2020 2021 2022 Act. Act. Act Proj. Proj. Proj. Gross financing requirements 6,474 5,503 4,466 6,545 4,148 4,750 Current account deficit (excl. grants) 5,496 4,490 2,554 4,641 3,758 3,350 Of which: Energy imports (c.i.f) 3,034 3,754 3,072 2,426 2,882 3,179 Amortization of public loansa 492 520 499 458 372 376 Amortization of sovereign bonds b 0 0 1,000 1,250 0 1,000 GCC deposits at CBJ 0 0 0 0 0 0 IMF repurchases 486 493 414 196 18 24 Gross financing sources 4,489 5,021 4,086 5,015 3,582 4,131 FDI, net 2,026 964 687 710 1,088 1,239 Public grants 1,097 1,523 1,331 1,648 1,317 1,276 Public sector borrowing c 209 280 658 668 565 412 Issuance of sovereign bondsd 1,500 0 0 1750 0 1000 GCC deposits at CBJ 0 1,166 0 0 0 0 Non-resident purchases of local debt –55 –193 32 0 0 0 CBJ other financing (net) e –127 –193 –88 0 0 0 Private capital flows, netf –160 1,474 1,466 239 612 204 Errors and omissions 720 –1040 –673 0 0 0 Change in reserves (+ = increase) –130 –954 372 1,049 1,310 465 TOTAL FINANCING NEEDS 1,135 568 1,425 2,579 1,876 1,084 TOTAL PROSPECTIVE FINANCING SOURCES 1,135 568 1,425 2,579 1,876 1,084 Official financing 1,135 568 1,425 2,579 1,876 1,084 Identified official budget support 664 568 1,259 1,892 1,590 797 Jordan compact off-budget grants 399 0 0 0 0 0 IMF purchases 72 0 166 687 286 287 Memorandum items Gross usable reserves 14,256 12,513 13,512 14,602 15,896 16,335 In months of prospective imports GNFS 7.5 6.7 9.5 9.7 10.2 10.3 Source: Jordanian authorities, IMF Staff Estimates, and World Bank Staff Estimates. a Includes project loans and Arab Monetary Fund, and excludes IMF repurchases. Based on IMF Country Report No. 20/180 (May 2020). b Expected to be met with market borrowing and continued external donor support, as per commitments made at the London Initiative. c Based on IMF Country Report No. 20/180 (May 2020). d Includes guaranteed and non-guaranteed bonds. e Includes CBJ other accounts receivable/payable (net) minus deposit flows (net) excluding GCC deposits. f Includes changes in commercial banks’ NFA, portfolio investment and other capital flows. Annex I 37 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 Lives and Livelihoods of Syrian Refugees in the Middle East: Evidence from the July 21, 2020 Policy Research Working Paper 2015-16 Surveys of Syrian Refugees and Host Communities in Jordan, Lebanon, and Kurdistan, Iraq Coping with the Influx: Service Delivery to Syrian Refugees and Hosts in Jordan, July 21, 2020 Policy Research Working Paper Lebanon, and Kurdistan, Iraq 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 June 9, 2020 Report Businesses in Jordan 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 December 3, 2019 Policy Research Working Paper Substitute for Data Scarcity? 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 October 17, 2018 Policy Research Working Paper Syrian Refugees in Jordan 39 Summary of recent Special Focuses face multiple barriers in the labor market. Although from the latest Jordan Economic Jordan has taken important recent legal reforms to Monitors remove barriers to women’s employment, restrictions and legal differentiation between women and men Spring 2020 JEM: “Women and Work in remain, and further legal reforms and regulations are Jordan” needed to address the gender gap. Women’s participation in Jordan’s labor market is the Spring 2020 JEM: “Jobs Diagnostics” fourth lowest in the world with less than 15 percent of women working or looking for work. Jordanian women Job creation for youth and women is weak. Jordan’s who do want to work face an unemployment rate difficult job challenges are made even harder by reaching almost 25 percent in 2019, nearly twice that growth rates that are persistently low, a large and of men—meaning that low rates of female participation growing labor force that is increasingly informal, and mask an even lower rate of employment. Expanding a weak private sector that did not create enough jobs women’s access to economic opportunities remains to encourage youth and women to participate in the critical. Equal access to economic opportunities as labor force. Moreover, labor segmentation appears men enjoy is a precondition for ensuring that everyone to be on the rise. The World Bank Jobs Diagnostic reaches their full life potential. Moreover, significant (2018) indicates where the challenges for Jordanian and sustained increases in female labor participation policymakers lie in their quest to improve the economy’s would potentially have substantial impacts on jobs performance. Many of these challenges require economic growth. However, female workers in Jordan policy intervention to improve the jobs picture. 40 JORDAN ECONOMIC MONITOR: NAVIGATING THROUGH CONTINUED TURBULENCE 1818 H Street, NW Washington, DC 20433