JORDAN ECONOMIC MONITOR En Route to Recovery Fall 2021 Middle East and North Africa Region Jordan Economic Monitor En route to recovery Fall 2021 Middle East and North Africa Region © 2021 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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TABLE OF CONTENTS Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Acronyms and Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vii Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix ‫ امللخص التنفيذي‬. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii 1.  Economic Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Real and Labor Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Fiscal and Debt Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Balance of Payments Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Monetary Policy and Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.  Outlook and Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Special Focus 1: How Wealthy is Jordan? Measuring Jordan’s Comprehensive Wealth using Wealth of Nations Approach (1995–2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 Special Focus 2: Public Transportation Challenges in Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Annex I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 Annex I.A: Technical Supplement for Productivity enhancing Firm Exit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 Annex I.B: Technical Supplement for performing Constant Market Share (CMS) Analysis . . . . . . . . . . . . . . 40 Annex I.C: Technical Supplement for Normalization of U.S. Monetary Policy and its Potential Impact on Jordanian Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 Annex I.D: Technical Supplement for Wealth of Nation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Annex II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Selected Recent World Bank Publications on Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Summary of Special Focuses from the Latest Jordan Economic Monitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 iii List of Figures Figure 1 Selected Countries’ Annual GDP Growth in 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 2 Growth Contribution from the Supply Side . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 3 Recovery Gap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 4 Yearly Changes in Employment by Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 5 Growth Contribution to Domestic Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Figure 6  Breakdown of Current Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 7  Government and Guaranteed Gross Debt Composition at End June 2021 . . . . . . . . . . . . . . . . . . . 9 Figure 8 Public Debt Service (Budget and Guaranteed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Figure 9 Jordan’s Current Account Developments and their Drivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 10 Financial Flows towards Jordan and CBJ’s Foreign Reserves Adequacy . . . . . . . . . . . . . . . . . . . . 13 Figure 11 Trends in Inflation, Money Supply and Banks’ Credit in Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Figure 12 Per Capita Wealth: Jordan vs UMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Figure 13 Renewable Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Figure 14 Nonrenewable Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Figure 15 Adjusted Net Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Figure 16 Calculating ANS in 2017: Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Figure 17 Return on Wealth (2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Figure 18 Factor Growth Rates (Annual) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 Figure 19 Number of Private Small-Passenger Vehicles vs. Public Cars and Buses in Jordan (2008–2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 Figure 20 Modal Transport Share in Amman in 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 Figure 21 Public Transportation Share in MENA Cities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Figure 22 Jordan Population Share per Governorate (2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Figure 23 Recommendations Pillars and Cross Cutting Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 List of Tables Table 1 Jordan – Selected Economic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 List of Boxes Box 1 COVID-19 Pandemic and Jordanian Economy: From Shock towards Recovery . . . . . . . . . . . . . . xii Box 2 COVID-19 Pandemic Impact on Jordanian Firms: Evidence from the 3rd Follow-Up Enterprise Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Box 3 Is There a Silver Lining to the COVID-19 Crisis? – Unproductive Firms Exit . . . . . . . . . . . . . . . . . . . 5 Box 4 Jordan’s Merchandize Export Performance: A Constant Market Share Analysis . . . . . . . . . . . . . .14 Box 5 Normalization of the U.S. Monetary Policy and its Potential Impact on the Jordanian Economy 19 iv JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY PREFACE T he Jordan Economic Monitor provides an wealth using Wealth of Nations Approach (1995-2018), update on key economic developments has been led by Saadia Refaqat (Senior Economist, and policies over the past six months. It also MTI) and Yifan Zhang (Consultant, MTI). The Jordan presents findings from recent World Bank work on Economic Monitor has been completed under the Jordan. The Monitor places them in a longer-term and guidance of Christos Kostopoulos (Lead Economist), global context and assesses the implications of these Eric Le Borgne (Practice Manager), Holly W. Benner developments and other changes in policy on the (Resident Representative), and Saroj Jha (Regional outlook for Jordan. Its coverage ranges from the macro- Director). Nabeel Darweesh (External Affairs Officer) is economy to financial markets to indicators of human the lead on communications, outreach, and publishing. welfare and development. It is intended for a wide The findings, interpretations, and conclusions audience, including policy makers, business leaders, expressed in this Monitor are those of the World Bank financial market participants, and the community of staff and do not necessarily reflect the views of the analysts and professionals engaged in Jordan. Executive Board of The World Bank or the govern- The Jordan Economic Monitor is a product of ments they represent. the Middle East and North Africa (MENA) unit in the For information about the World Bank and its Macroeconomics, Trade and Investment (MTI) Global activities in Jordan, including e-copies of this publica- Practice in the World Bank Group. The overall effort has tion, please visit www.worldbank.org/en/country/ been led by Saadia Refaqat (Senior Economist, MTI) jordan. To be included on an email distribution list and Anastasia Janzer (Consultant, MTI). The report has for this Jordan Economic Monitor series and related been prepared by a core team composed of Saadia publications, please contact Nabeel Darweesh Refaqat (Senior Economist, MTI), Anastasia Janzer (ndarweesh@worldbankgroup.org). For questions (Consultant, MTI), Asif Mahmood (Consultant, MTI), and and comments on the content of this publication, Yifan Zhang (Consultant, MTI). Special Focus I: Public please contact Saadia Refaqat (srefaqat@worldbank. Transportation challenges in Jordan, has been led by org) or Anastasia Janzer (ajanzeraraji@worldbank. Mira Morad (Transport Specialist), María José Sala org). Questions from the media can be addressed to Pelufo (Transport Consultant), Óscar Edmundo Díaz Nabeel Darweesh (ndarweesh@worldbankgroup.org). (Transport Consultant), and Muneeza Mehmood Alam (Senior Transport Economist). Special Focus II: How The data cut-off for this Jordan Economic wealthy is Jordan? Measuring Jordan’s comprehensive Monitor is October 3, 2021. v ACRONYMS AND ABBREVIATIONS 7M 7 (cumulative) Months GDP Gross Domestic Product 8M 8 (cumulative) Months GFC Global Financial Crisis ANS Adjusted Net Savings GG General Government ATM Average time to maturity GNFS Goods and nonfactor services Aug August GNI Gross National Income BoP Balance of Payments HS Harmonized System BRT Bus rapid transit HP filter Hodrick-Prescott HP filter bps Basis points IMF International Monetary Fund CAD Current Account deficit JEM Jordan Economic Monitor CBJ Central Bank of Jordan JD Jordanian Dinar CG Central Government LFP Labor Force Participation CCE Commodity Composition Effect LMIC Lower-Middle-Income Countries CMS Constant Market Share MDE Market Diversification Effect CPI Consumer Price Index MENA Middle East and North Africa COVID-19 Coronavirus Disease 2019 MOF Ministry of Finance DoS Department of Statistics M-o-M Month-on-month EFF Extended Fund Facility NDA Net domestic assets EFTA European Free Trade Association NEPCO National Electricity Power Company EME Emerging Market Economy NFA Net foreign assets EMRF Exports, Imports, Remittances, and No. Number FDI stock OECD Organization for Economic ES Enterprise Survey Co-operation and Development FDI Foreign direct investment PAFTA Pan-Arab Free Trade Area Fed Federal Reserve (U.S. central bank) Agreement FOB Free on Board Q-o-Q Quarter-on-Quarter FOMC Federal Open Market Committee Q1 First Quarter FTA Free Trade Agreement Q2 Second-Quarter GAM Greater Amman Municipality Q4 Fourth Quarter GCC Gulf Cooperation Council SCD Systematic Country Diagnostic vii SDR Special drawing rights UNHCR United Nations High Commissioner SMEs Small and medium-sized enterprises for Refugees SSC Social Security Corporation U.S. United States SSIF Social Security Investment Fund US$ United States Dollar SVAR Structural Vector Autoregressive UMIC Upper Middle-Income Countries TFP Total Factor Productivity WAJ Water Authority of Jordan UCLG-MEWA United Cities and Local WDI World Development Indicators Governments-Middle East and West WBG World Bank Group Asia Section WON Wealth of Nation UITP International Association of Public WTO World Trade Organization Transport Y-o-Y Year-on-year viii JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY EXECUTIVE SUMMARY J ordan’s economy is showing signs of gradual unemployment (ages 16–25) stood even higher, with recovery following a moderate contraction half of the active youth being unemployed. Moreover, the of 1.6 percent in 2020. Unlike other regional deterioration in the unemployment rate in Jordan appears economies, this muted contraction during the first to be much higher compared to regional peers, perhaps year of the pandemic can be largely attributed to because almost 70 percent of Jordanians work in the Jordanian authorities’ timely and coordinated policy services sector. This is supported by recent findings from response along with a positive terms of trade shock the follow-up survey of the Enterprise Survey, which for whose impact was seen during the early part of 2020. Jordan is highlighting a stronger decline in the workforce Notwithstanding the restrictive pandemic measures, in small-sized firms and in the services sector in general. the economy managed to grow by 1.8 percent in H1- Fiscal policy has played an active role 2021, reflecting a low base effect and gradual removal in supporting incomes during the pandemic, of earlier restrictions. while at the same time Government revenues Recovery in economic growth during contributed to a marked improvement in the H1-2021 has been led by services and industry, yet Central Government fiscal position. The rebound many subsectors have not reached pre-pandemic in economic activity and surge in imports have pro- performance. Growth in the services sector was mainly pelled a firm recovery in domestic revenue collection, led by finance and insurance as well as subsectors of which registered a growth of 21 percent y-o-y during government services, contributing around 60 and 25 7M-2021. This improvement was further supported percent to services growth, respectively. The industrial by concerted policy efforts to achieve the envisaged sector, on the other hand, grew on the back of mining budget revenue targets for 2021. On the spending and quarrying and manufacturing, reflecting a healthy side, recurrent spending remained elevated. Impor- rebound in exports of chemicals and phosphates. tantly, capital spending during 7M-2021 was robust, However, prolonged slack in travel and tourism has put reaching 1.4 percent of GDP; almost twice the level a drag on a stronger recovery of services. achieved in the same period last year. As a result, Regrettably, the pandemic may have left deep Central Government fiscal deficit1 (CG, excluding scars on Jordan’s unemployment and amplified existing vulnerabilities. The pandemic has increased 1 Based on the classification of the Government Finance the unemployment rate to 24.8 percent in Q2-2021, Statistics, i.e., including the use of cash and statistical up from 19 percent before the pandemic hit. Youth discrepancy. ix grants) during 7M-2021 stood at 3.3 percent of GDP prospects remain constrained by chronic struc- compared to 4.4 percent of GDP in the same period tural impediments and downside risks apply due last year. Jordan’s government and guaranteed gross to the uncertain global outlook. Accelerating global debt-to-GDP ratio remained elevated at 108.7 percent recovery from the pandemic due to improved vaccine in end-July 2021 (almost on par with end 2020 level), rollouts and continuation of the broadly accommoda- while the government and guaranteed gross debt (net tive domestic policy stance are the major drivers for of Social Security Investment Fund (SSIF) holdings) this year’s growth, which is expected to reach 2.2 stood at almost 87 percent of GDP in end-July 2021. percent in 2021. Yet, downside risks to the recovery Accommodative monetary policy and an in the global economy come from uncertainties output gap aided recovery and kept inflation low. surrounding the Delta variant and the asymmetrical The CBJ undertook several measures during the pan- recovery of the global economy and the anticipated demic to support the economy, including a 150-bps cut tightening of Fed’s monetary policy stance. Moreover, in the policy rate and liquidity support to the economy; Jordan’s moderate level of vaccination poses a in March 2021, the CBJ further increased the size of its serious downside risk in case of another COVID wave. subsidized lending program for SMEs by 40 percent to With limited fiscal space, along with an already higher JD700 million. Yet, owing to an output gap, CPI inflation level of unemployment and a potential increase in was recorded at 1.1 percent y-o-y in 8M-2021 compared the financial sector’s vulnerabilities, policymakers in to 0.5 percent in 8M-2020, while core inflation remained Jordan need to remain vigilant and watchful of these flat at around 0.9 percent in both periods. potential risks and prioritize advancing reforms and The country’s current account imbalances support measures that can boost job creation, a continued to widen for another year, particularly sustained recovery and equitable growth. through the widening of the trade gap, though Two special sections of this report focus strong donor inflows helped Jordan build up its separately on measuring Jordan’s national reserves. The widening of Jordan’s trade deficit wealth and the public transportation challenge reflects a combined impact of unfavorable terms of for Jordan. A broad-based assessment of national trade—specifically due to the rise in global food and oil wealth based on produced capital, human capital, prices, as well as improvement in domestic demand. natural capital, and net foreign assets (based on In contrast, weaknesses in services’ trade continued World Bank Wealth of Nations methodology) finds due to protracted recovery in travel receipts. Overall, that Jordan has been falling behind comparators. the current account deficit (CAD, including grants) in The assessment covers 1995–2018 and finds that H1-2021 worsened to US$3.2 billion or 15.3 percent Jordan’s per capita wealth in 2018 stood 5 percent of GDP compared to US$1.7 billion or 8.3 percent lower than in 1995. Moreover, Jordan’s per capita of GDP in H1-2020. Despite this deterioration and wealth over time has significantly fallen behind Upper limited prospects for foreign investment flows, CBJ’s Middle-Income Countries (UMIC). For instance, in gross foreign reserves stood at US$17.9 billion at end 2018—a typical UMIC citizen had 4.3 times as much September 2021; up by around US$938 million from wealth than a typical Jordanian. Although human the end December 2020 position. This improvement capital continues to be the largest asset category has been largely supported by timely donor support for Jordan, its share has been stagnating. Between (grants as well as lending), increase in disbursements 1995–2018, Jordan’s natural resources depreciated of the IMF-EFF program, and SDR revaluation gain. by almost one-fourth in per capita terms. Given these Overall, standard reserves adequacy measures challenges, Jordan needs to diversify its wealth port- broadly suggest that the CBJ’s foreign reserves folio, reverse the declining share of its human capital, remain at a comfortable level despite a widening of and urgently increase its produced capital. the external account deficit. Public transportation in Jordan poses Going forward, economic growth is significant development constraints. Looking at projected to recover though medium-term various sources, the costs are estimated to be at least x JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY six percent of GDP a year, not counting the adverse public transit services leading to a low ridership impact poor transportation services pose to women’s and limited access for most Jordanians, particularly employment. Jordan has historically prioritized women, youth, and those with reduced mobility. The investing in transportation infrastructure with limited government launched initiatives to improve the public attention being paid to transportation services (like transportation system, but implementation has been public transportation). While this has resulted in sig- slow. Going forward, policies reforms should focus nificant new transportation infrastructure, it has also squarely on a goal of effecting a modal shift from resulted in inefficient, uncoordinated, and unreliable private cars to public transportation. BOX 1. COVID-19 PANDEMIC AND JORDANIAN ECONOMY: FROM SHOCK TOWARDS RECOVERY Jordanian Authorities Had Been Able to Jordan’s Vaccination Level Remains Comparable Successfully Contain Two Significant Waves of to the Region, but More is Needed for a COVID-19 through Timely and Effective Measures. Sustained Robust Recovery. Daily new confirmed Covid-19 cases Share of people vaccinated against COVID-19 per million population, 7-days ma % of population 900 800 Saudi Arabia 700 Turkey 600 Morocco 500 World 400 300 Tunisia 200 Jordan 100 Pakistan 0 Lebanon Mar-8-20 Apr-25-20 Jun-12-20 Jul-30-20 Sep-16-20 Nov-3-20 Dec-21-20 Feb-7-21 Mar-27-21 May-14-21 Jul-1-21 Aug-18-21 Oct-5-21 Iraq Egypt 0 10 20 30 40 50 60 70 Jordan Lebanon Morocco Iraq Saudi Arabia World Fully vaccinated Partly vaccinated (continued on next page) Executive Summary xi BOX 1. COVID-19 PANDEMIC AND JORDANIAN ECONOMY: FROM SHOCK TOWARDS RECOVERY (cont.) The Economy is Gradually Recovering from a Amid an Already High Unemployment Rate— Relatively Muted Pandemic Shock, Albeit at especially among Youth—the Pandemic Has Slower Pace than Regional Economies. Exacerbated the Unemployment Challenge. Real GDP Unermployment Rate 4-qma, 2019=100 Q4–2019=100, end-period rate in % 18 170 12 160 150 6 140 0 130 24.8% 12.8% –6 120 17.9% 110 6.6% –12 100 12.8% –18 90 7.3% –24 80 Q4–19 Q1–20 Q2–20 Q3–20 Q4–20 Q1–21 Q2–21 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2019 2020 2021 Morocco Egypt Jordan Jordan Morocco Tunisia Tunisia Saudi Arabia Saudi Arabia Turkey Egypt The Country’s Major Economic Activity Indicators Notwithstanding this Recovery, the Pandemic Has Continue to Show Underlying Improvement. Left Deep Scars on the Private Sector. Jordan's Economic Activity Indicators Share of firms that permanently closed % y-o-y change since pandemic started (%) 30 2019 Q1–20 Q2–20 Q3–20 Q4–20 Q1–21 Q2–21 Real activity 25 Manufacturing –1.3 –4.4 –35.2 –2.9 –12.3 –1.7 56.2 Construction permits –32.0 –23.1 –50.4 12.3 0.1 62.7 154.4 20 Exports Overall volumes 19.6 13.4 –11.8 8.6 0.3 –2.3 31.1 14.6 15 Manufactured articles 4.1 –17.6 –4.0 144.1 –22.5 29,2 0.8 Chemicals 9.4 –7.3 24.6 174.8 47.2 58.5 14.0 10 Imports Capital goods 1.5 –34.8 –36.2 –9.4 5.4 27.2 11.2 5 Intermediate goods –3.1 –7.0 –11.2 0.3 –3.1 27.6 36.8 Consumer goods –5.4 7.6 –12.5 17.9 2.0 10.3 28.4 0 Mongolia Jordan Morocco Chad Italy Bulgaria Estonia Honduras Portugal Moldova Zimbabwe Poland Georgia Armenia Lebanon Kazakhstan Somalia Malta Serbia Latvia El Salvador Travel receipts 10.2 –10.7 –98.9 –91.6 –84.4 –77.6 2290.6 Private sector credit 4.3 5.5 5.7 6.8 6.3 6.1 5.5 Source: CBJ, DoS, IMF, www.ourworldindata.org, World Bank Enterprise Surveys, Haver and World Bank staff calculations. xii JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY ‫الملخص التنفيذي‬ ‫طا يف دعم الدخل أثناء‬ ‫را نش ً‬ ‫كام ولعبت السياسة املالية دو ً‬ ‫الوباء‪ ،‬بينام ساهمت اإليرادات الحكومية يف نفس الوقت يف تحسن‬ ‫ملحوظ يف الوضع املايل للحكومة املركزية‪ .‬وقد أدى انتعاش النشاط‬ ‫ر االقتصاد األردين مؤرشات عىل االنتعاش التدريجي عقب‬ ‫االنكامش املعتدل بنسبة ‪ 1.6‬يف املائة يف عام ‪ .2020‬وعىل عكس‬ ‫االقتصادات اإلقليمية األخرى‪ ،‬ميكن أن يُعزى هذا االنكامش‬ ‫هُ‬ ‫ظِ‬ ‫يُ‬ ‫االقتصادي والواردات إىل انتعاش قوي يف تحصيل اإليرادات املحلية‪ ،‬حيث‬ ‫“الصامت نسبياً” خالل العام األول للوباء إىل االستجابة السياسية‬ ‫وا بنسبة ‪ 21‬يف املائة عىل‬ ‫وا بنسبة ‪ 21‬يف املائة التي سجلت من ً‬‫سجل من ً‬ ‫املتناسقة ويف الوقت املناسب من جهة السلطات األردنية إىل جانب‬ ‫م هذا التحسن‬ ‫دِ‬ ‫عَ‬ ‫أساس سنوي خالل فرتة ‪ 7‬أشهر من عام ‪ 2021‬وقد ُ‬ ‫الصدمة اإليجابية يف معدالت التبادل التجاري التي لوحظ تأثريها خالل‬ ‫بشكل أكرب بجهود السياسات املتضافرة لتحقيق أهداف إيرادات املوازنة‬ ‫الربع األول من عام ‪ ،2020‬وعىل الرغم من التدابري الوقائية التقييدية‪،‬‬ ‫املرجوة لعام ‪ ،2021‬أما من ناحية اإلنفاق فقد بقي اإلنفاق الجاري‬ ‫فقد متكن االقتصاد من النمو بنسبة ‪ 1.8‬يف املائة يف النصف األول من عام‬ ‫عا‪ ،‬واألهم من ذلك‪ ،‬كان اإلنفاق الرأساميل خالل فرتة ‪ 7‬أشهر من‬ ‫مرتف ً‬ ‫‪ ،2021‬األمر الذي يعكس تأثريا ً أساسياً (تضخم) منخفضاً وإزالة تدريجية‬ ‫عام ‪ 2021‬كبريا ً‪ ،‬حيث وصل إىل ‪ 1.4‬يف املائة من الناتج املحيل اإلجاميل؛‬ ‫للقيود السابقة‪.‬‬ ‫ما يقرب من ضعف املستوى الذي تم تحقيقه يف نفس الفرتة من العام‬ ‫ساهمت الخدمات والصناعة يف تعايف النمو االقتصادي خالل‬ ‫‪2‬‬ ‫املايض‪ ،‬ونتيجة لذلك‪ ،‬بلغ العجز املايل للحكومة املركزية (باستثناء املنح)‬ ‫النصف األول من عام ‪ ،2021‬إال أن العديد من القطاعات الفرعية مل‬ ‫خالل الفرتة ‪ 7‬أشهر من عام ‪ 3.3 2021‬يف املائة من إجاميل الناتج املحيل‬ ‫تصل إىل أداءها املعهود قبل وقوع الجائحة‪ .‬حيث كان النمو يف قطاع‬ ‫مقارنة بـ ‪ 4.4‬يف املائة من إجاميل الناتج املحيل يف نفس الفرتة من العام‬ ‫الخدمات معتمدا ً عىل التمويل والتأمني فضال عن القطاعات الفرعية‬ ‫املايض‪ ،‬وبقيت نسبة إجاميل الدين املضمون إىل إجاميل الناتج املحيل‬ ‫كل منها بنحو ‪ 60‬و‪ 25‬يف املائة من منو‬ ‫للخدمات الحكومية‪ ،‬حيث ساهم ٌ‬ ‫مرتفعة عند ‪ 108.7‬يف املائة بحلول نهاية متوز‪( 2021‬تقريبًا نفس املستوى‬ ‫الخدمات‪ ،‬عىل التوايل‪ ،‬من ناحية أخرى‪ ،‬منا القطاع الصناعي معتمدا ً عىل‬ ‫مع مستوى نهاية عام ‪ ،)2020‬يف حني أن الحكومة األردنية وإجاميل الدين‬ ‫يا يف صادرات‬ ‫التعدين واملحاجر والصناعة‪ ،‬األمر الذي يعكس انتعاشً ا صح ً‬ ‫املضمون (صايف مقتنيات صندوق استثامر الضامن االجتامعي) بلغ حوايل‬ ‫املواد الكيميائية والفوسفات‪ ،‬ومع ذلك‪ ،‬فقد أدت مدة الركود الطويلة يف‬ ‫‪ 87‬يف املائة من الناتج املحيل اإلجاميل يف نهاية متوز ‪.2021‬‬ ‫السفر والسياحة إىل إعاقة انتعاش أقوى للخدمات‪.‬‬ ‫وساعدت السياسة النقدية التيسريية وفجوة اإلنتاج يف امليض‬ ‫ولكن لألسف‪ ،‬رمبا يكون الوباء قد ترك آثاراً وخيمة عىل مشكلة‬ ‫قدماً نحو االنتعاش وأبقيا التضخم منخفضً ا‪ ،‬حيث اتخذ البنك املركزي‬ ‫البطالة يف األردن وزاد من نقاط الضعف القامئة‪ ،‬فقد أدى الوباء إىل زيادة‬ ‫األردين العديد من اإلجراءات أثناء الجائحة لدعم االقتصاد‪ ،‬مبا يف ذلك‬ ‫معدل البطالة إىل ‪ 24.8‬يف املائة يف الربع الثاين من عام ‪ ،2021‬مقارنة بـ ‪19‬‬ ‫خفض معدل السياسة النقدية مبقدار ‪ 150‬نقطة أساس ودعم السيولة‬ ‫يف املائة قبل انتشار الجائحة‪ ،‬فقد بلغت البطالة بني الشباب (الذين ترتاوح‬ ‫لالقتصاد؛ ويف آذار ‪ ،2021‬زاد البنك املركزي األردين من حجم برنامج‬ ‫ما) أعىل من ذلك‪ ،‬حيث كان نصف الشباب عاطلني‬ ‫أعامرهم بني ‪ 16‬و ‪ 25‬عا ً‬ ‫البنك املركزي لدعم الرشكات الصغرية واملتوسطة بنسبة ‪ 40‬يف املائة إىل‬ ‫عن العمل‪ ،‬عالوة عىل ذلك‪ ،‬يبدو أن التدهور يف معدل البطالة يف األردن أعىل‬ ‫بكثري مقارنة بشقيقاتها من دول املنطقة‪ ،‬رمبا ألن ما يقرب من ‪ 70‬يف املائة‬ ‫من األردنيني يعملون يف قطاع الخدمات‪ ،‬وذلك استنادا ً إىل النتائج األخرية من‬ ‫‪2‬بناءا ً عىل إحصاءات مالية الحكومة‪ ،‬مبا يف ذلك استخدام النقد والتباين‬ ‫ ‬ ‫دراسة استقصائية للمتابعة يف املؤسسات‪ ،‬والتي تُظهر انخفاضً ا اكرب يف القوى‬ ‫اإلحصايئ‪.‬‬ ‫العاملة يف الرشكات الصغرية ويف قطاع الخدمات بالنسبة لألردن بشكل عام‪.‬‬ ‫امللخص التنفيذي‬ ‫‪xiii‬‬ ‫فريوس كوفيد – ‪ ،19‬فباإلضافة إىل محدودية الحيز املايل وارتفاع مستوى‬ ‫‪ 700‬مليون دينار أردين‪ ،‬ومع ذلك‪ ،‬وبسبب فجوة اإلنتاج‪ ،‬سجل تضخم‬ ‫البطالة الفعيل والزيادة املحتملة يف نقاط الضعف يف القطاع املايل‪ ،‬يحتاج‬ ‫مؤرش أسعار املستهلك ‪ 1.1‬يف املائة عىل أساس سنوي يف ‪ 8‬أشهر من عام‬ ‫صناع السياسات يف األردن إىل توخي الحيطة والحذر من هذه املخاطر‬ ‫‪ 2021‬مقارنة بـ ‪ 0.5‬يف املائة يف ‪ 8‬أشهر من عام ‪ ،2020‬بينام ظل التضخم‬ ‫املحتملة وإعطاء األولوية لإلصالحات املتقدمة وتدابري الدعم التي ميكن‬ ‫األسايس ثاب ً‬ ‫تا عند حوايل ‪ 0.9‬يف املائة يف كال الفرتتني‪.‬‬ ‫أن تعزز خلق فرص العمل واالنتعاش املستدام والنمو املنصف‪.‬‬ ‫استمرت اختالالت الحساب الجاري للبالد يف االتساع ملدة عام‬ ‫يركز قسامن خاصان من هذا التقرير بشكل منفصل عىل قياس‬ ‫آخر‪ ،‬ال سيام اتساع الفجوة التجارية‪ ،‬عىل الرغم من تدفقات املانحني‬ ‫الرثوة الوطنية األردنية وتحديات النقل العام يف األردن‪ .‬وجد تقييم‬ ‫القوية التي ساعدت األردن يف بناء احتياطاته‪ ،‬إذ يعكس اتساع العجز‬ ‫واسع النطاق للرثوة الوطنية عىل أساس رأس املال املنتج ورأس املال‬ ‫التجاري األردين التأثري املشرتك لكل من الرشوط التجارية غري املواتية ‪-‬‬ ‫ء عىل منهجية‬ ‫البرشي ورأس املال الطبيعي وصايف األصول األجنبية (بنا ً‬ ‫وتحديدا ً بسبب ارتفاع أسعار الغذاء والنفط العاملية ‪ -‬فضالً عن تحسن‬ ‫ثروة األمم التابعة للبنك الدويل) أن األردن ال يرقى ملستويات املقارنة‬ ‫الطلب املحيل‪ ،‬يف املقابل‪ ،‬استمرت نقاط الضعف يف تجارة الخدمات‬ ‫مالياً‪ ،‬إذ يغطي التقييم الفرتة الواقعة بني عامي ‪ ،2018-1995‬ووجد أن‬ ‫بسبب االنتعاش البطيء يف إيصاالت السفر‪ ،‬وبشكل عام‪ ،‬تفاقم عجز‬ ‫ثروة الفرد يف األردن يف عام ‪ 2018‬كانت أقل بنسبة ‪ 5‬يف املائة مام كانت‬ ‫الحساب الجاري (مبا يف ذلك املنح) يف النصف األول من عام ‪ 2021‬إىل ‪3.2‬‬ ‫عليه يف عام ‪ ،1995‬وعالوة عىل ذلك‪ ،‬انخفض نصيب الفرد من الرثوة‬ ‫مليار دوالر أمرييك أو ‪ 15.3‬يف املائة من إجاميل الناتج املحيل مقارنة بـ‬ ‫يف األردن مبرور الوقت بشكل ملحوظ عن البلدان ذات الدخل املتوسط‬ ‫‪ 1.7‬مليار دوالر أمرييك أو ‪ 8.3‬يف املائة من إجاميل الناتج املحيل يف النصف‬ ‫األعىل‪ ،‬فعىل سبيل املثال‪ ،‬يف عام ‪ - 2018‬كان لدى املواطن العادي من‬ ‫األول من عام ‪ ،2020‬وعىل الرغم من هذا التدهور واالحتامالت املحدودة‬ ‫البلدان ذات الدخل املتوسط األعىل ثروة تبلغ ‪ 4.3‬أضعاف ثروة األردين‬ ‫لتدفقات االستثامر األجنبي فقد بلغ إجاميل االحتياطيات األجنبية للبنك‬ ‫العادي‪ ،‬وعىل الرغم من أن رأس املال البرشي ال يزال ميثل أكرب فئة من‬ ‫املركزي األردين ‪ 17.9‬مليار دوالر أمرييك يف نهاية أيلول‪ 2021‬بحوايل ‪938‬‬ ‫فئات األصول يف األردن‪ ،‬إال أن حصته يف حالة ركود‪ ،‬فقد انخفضت قيمة‬ ‫م هذا التحسن‬ ‫دِ‬ ‫عَ‬ ‫مليون دوالر أمرييك من نهاية كانون األول ‪ .2020‬وقد ُ‬ ‫املوارد الطبيعية يف األردن بني عامي ‪ 1995‬و ‪ 2018‬بنحو الربع من حيث‬ ‫إىل حد كبري من خالل دعم املانحني يف الوقت املناسب (املنح واإلقراض)‪،‬‬ ‫نصيب الفرد وبالنظر إىل هذه التحديات‪ ،‬يحتاج األردن إىل تنويع محافظ‬ ‫والزيادة يف مدفوعات برنامج “تسهيل الصندوق املمتد”‪ ،‬ومكاسب إعادة‬ ‫ثروته وعكس اتجاه انخفاض نصيبه من رأس املال البرشي وزيادة رأس‬ ‫تقييم حقوق السحب الخاصة‪ ،‬وبشكل عام‪ ،‬تشري مقاييس مدى كفاية‬ ‫ماله املنتج عىل وجه الرسعة‪.‬‬ ‫االحتياطيات بشكل عام إىل أن االحتياطيات األجنبية لدى البنك املركزي‬ ‫تشكل وسائل النقل العام يف األردن قيودًا تنموية كبرية‪ ،‬فبالنظر‬ ‫األردين ال تزال عند مستوى مريح عىل الرغم من اتساع العجز يف الحساب‬ ‫إىل املصادر املختلفة‪ ،‬ت ُقدر التكاليف مبا ال يقل عن ‪ 6‬يف املائة من الناتج‬ ‫الخارجي‪.‬‬ ‫املحيل اإلجاميل سنويًا‪ ،‬دون احتساب التأثري السلبي الذي تسببه خدمات‬ ‫من املتوقع مستقبالً أن يتعاىف النمو االقتصادي عىل الرغم من‬ ‫النقل الرديئة عىل توظيف النساء‪ ،‬وعىل مر السنوات‪ ،‬أوىل األردن األولوية‬ ‫استمرار تقييد التوقعات متوسطة املدى بالعوائق الهيكلية املتفاقمة‪ ،‬إذ‬ ‫لالستثامر يف البنية التحتية للمواصالت مقارنة باالهتامم املحدود يف‬ ‫تتبلور مخاطر الهبوط بسبب التوقعات العاملية غري الجديرة بالثقة‪ .‬يعترب‬ ‫خدمات النقل (مثل النقل العام)‪ ،‬ففي حني أن هذا األمر أدى إىل الوصول‬ ‫ترسيع التعايف العاملي من الوباء‪ ،‬بسبب تحسن نرش اللقاحات واستمرار‬ ‫لبنية تحتية جديدة ومعتربة للمواصالت‪ ،‬فقد أدى أيضً ا إىل نشوء خدمات‬ ‫السياسة املحلية التيسريية عىل نطاق واسع‪ ،‬من العوامل الرئيسية للنمو‬ ‫نقل عام غري فعالة وغري منسقة وغري موثوقة مام أدى إىل انخفاض عدد‬ ‫هذا العام‪ ،‬والذي من املتوقع أن يصل إىل ‪ 2.2‬يف املائة يف عام ‪ ،2021‬مع‬ ‫الركاب ومحدودية الوصول ملعظم األردنيني وخاصة النساء والشباب‬ ‫ذلك‪ ،‬تأيت مخاطر الهبوط الذي قد يصيب االنتعاش يف االقتصاد العاملي‬ ‫وذوي الحركة املحدودة‪ ،‬كام أطلقت الحكومة مبادرات لتحسني نظام‬ ‫الناجم عن الشكوك املحيطة “مبتحور دلتا” واالنتعاش غري املتكافئ‬ ‫ما‪ ،‬يجب أن تركز‬ ‫النقل العام‪ ،‬لكن التنفيذ كان بطيئًا‪ ،‬وللميض بذلك قد ً‬ ‫لالقتصاد العاملي إضافة إىل التشديد املتوقع ملوقف السياسة النقدية‬ ‫إصالحات السياسات بشكل مبارش عىل الهدف الذي يرمي إلحداث تحول‬ ‫للبنك املركزي األمرييك‪ ،‬وعالوة عىل ذلك‪ ،‬فإن مستوى التطعيم محدود‬ ‫منوذجي من استخدام السيارات الخاصة إىل وسائل النقل العام‬ ‫را سلبياً جدياً يف حالة حدوث موجة أخرى من‬ ‫املدى يف األردن يشكل خط ً‬ ‫‪xiv‬‬ 1 ECONOMIC UPDATE Real and Labor Sector a result, Jordan’s real GDP grew by 1.8 percent in H1-2021. Following a moderate contraction in 2020, Recovery in economic growth during Jordan’s economy is showing early signs of H1-2021 has been led by services and industry, yet recovery. Jordan’s output during 2020 shrank by many subsectors have not reached pre-pandemic 1.6 percent, marking the first contraction in three performance. The rebound in H1-2021 was mainly decades. The contraction, while historic, has been led by the services sector (with 60 percent share in less severe than anticipated and relatively much the economy) contributing 0.8 percentage points to smaller than regional and global peers, as a result real GDP growth, followed by the industrial sector and of authorities’ timely and coordinated fiscal and agriculture sector which contributed 0.6 percent and monetary stimuli (Figure 1). In the first half of 2021, 0.1 percentage points to real GDP growth, respec- the economy faced another setback early on as the tively (Figure 2). The services sector grew on the back country was hit with another intensive COVID-19 of finance and insurance as well as subsectors of wave. Consequently, authorities had to rely on a government services. Growth in the industrial sector new round of containment measures to mitigate was mainly led by mining and quarrying and manu- the health impact, delaying the much-anticipated facturing, reflecting a healthy rebound in commodity opening of the economy. However, considering exports, namely chemicals and phosphates. Despite the stringency of the restrictions, the recovery this good performance, GDP growth is largely exhib- of economic activities during H1-2021 has been iting a low-base effect following its contraction during solid. One plausible explanation for this is that H1-2020. Moreover, various subsectors remain below given experience in the first year of pandemic, it is their pre-pandemic output. Specifically, restaurants plausible that all economic agents have started to and hotels as well as transportation and communica- adapt to COVID-19 shock relatively efficiently. As tion services are still far below their pre-pandemic 1 FIGURE 1 • Selected Countries’ Annual GDP Growth in 2020 Percent 10 5 3.6 0 –1.6 –5 –4.1 –3.7 –10 –7.1 –8.6 –10.4 –15 –20 Montenegro Belize Peru Spain Iraq United Kingdom Philippines Italy Tunisia Greece Mexico France Namibia Portugal Morocco Malta South Africa Colombia Bhutan Belgium Thailand Chile Slovenia Canada Mongolia Cyprus Hungary Germany North Macedonia Saudi Arabia Brazil Qatar United States Russia Estonia Samoa Poland Kazakhstan Israel Nepal Indonesia Jordan Luxembourg Korea Lithuania Australia Japan Pakistan New Zealand Iran Turkey China Bangladesh Egypt Ethiopia Source: WDI. levels as a result of a prolonged slack in travel and FIGURE 2 • Growth Contribution from the tourism and partial lockdowns.3 Furthermore, as Supply Side Percentage points shown in Figure 3, the recovery gap (deviation of output from its pre-pandemic trend) has widened in 4.0 Q2-2021 compared to Q1-2021. 2.0 Despite signs of early economic recovery, the ability of Jordan’s private sector to respond 0.0 to changing conditions is likely to be tested. In –2.0 the wake of COVID-19, the CBJ has provided sup- port to business, with a focus on SMEs, through –4.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 subsidized lending programs.4 However, the World 2019 2020 2021 Bank’s Enterprise Survey Follow-up Survey continues Agriculture Industry Services to paint a challenging picture of the private sector, Net Taxes Real GDP particularly for small firms (see Box 2). For instance, Source: DoS and World Bank staff calculations. according to the survey, almost 67 percent of Jordanian firms surveyed in June 2021 continued to experience a decline in sales compared to a year ago, while almost 15 percent of firms have permanently closed since the COVID-19 pandemic started. On the more positive side, some additional research shows 3 As a third wave of infections hit the country, weekend that the pandemic may have aided the process of and evening curfews were reinstated in late February. creative destruction (Schumpeter, 1939) in Jordan On June 1, the government announced a three-phased whereby more productive firms push less productive plan to gradually reopen the economy: which started in firms out of existence (see Box 3). Importantly, firms June and reached a full reopening in September 2021. that operated in the services sector, with relatively 4 CBJ created a JD500 million SMEs lending program at the onset of the crisis in 2020. In March 2021, the CBJ small size and no digital presence remained more increased the envelope of the SME scheme to JD700 vulnerable, as they were 20–30 percent more likely to million, raised the borrowing limits under the scheme for exit the market during the pandemic relative to their especially hard-hit sectors and extended the terms of the comparators. loans by one year. 2 JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY FIGURE 3 • Recovery Gap FIGURE 4 • Yearly Changes in Employment by JD million; Seasonal adjusted Sectors Percentage point change, y-o-y 8,000 7,800 1.0 0.5 7,600 Recovery gap 0.0 –0.5 7,400 –1.0 7,200 Recovery speed –1.5 –2.0 7,000 –2.5 Q1-2018 Q2-2018 Q3-2018 Q4-2018 Q1-2019 Q2-2019 Q3-2019 Q4-2019 Q1-2020 Q2-2020 Q3-2020 Q4-2020 Q1-2021 Q2-2021 –3.0 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 2020 2021 2020 2021 Real GDP forecast using pre-crisis trend Male Female Real GDP (seasonally adjusted) Agriculture Manufacturing Source: DoS and World Bank staff calculations. Services Employment rate Source: MoF and World Bank staff calculations. The COVID-19 shock has amplified existing the pandemic has disproportionally affected contact- structural challenges to employment generation. intensive employment sectors where more men are In Q2-2021, Labor force participation (LFP) stood employed (Figure 4). Female employment, on the at 33.7 percent. Meanwhile, insufficient job creation other hand, only declined marginally (0.8 percentage kept unemployment at high levels (24.8 percent points y-o-y) given women are more intensively in Q2-2021), compared to 23.0 percent during the employed in the public sector, where job shedding same period last year. Youth unemployment (ages has remained restrained or non-existent. Employment 16–25) stood even higher, with one out of every two numbers for females shield one important factor that youth being unemployed. The increase in unemploy- female workers are reporting a drastic reduction in ment in Jordan appears to be much more substantial their working hours. For instance, during Q2-2021, than that of regional peers.5 This is perhaps because almost one third employed females reported working around 67 percent of Jordanians work in the services part-time (less than 40 hours a week). This is nearly sector, out of which, more than 60 percent are three-fold increase compared to the pre-crisis level. involved in contact-intensive activities (i.e., restaurant and hotel, transportation, etc.).6 Meanwhile, the employment rate in Jordan remained weak at around 25.4 percent (Q2-2021), even 0.9 percent lower than the same period last year. This decline in employment 5 For example, unemployment in Egypt stood at 7.3 seems to be coming from the decline in male employ- percent in Q2-2021, representing a 2.3 percentage points y-o-y decrease; unemployment rate in Saudi ment, which declined by almost 1.1 percentage Arabia declined by 2.4 percentage points to 6.6 percent points y-o-y to reach 41.2 percent in Q2-2021, which in Q2-2021. is 3.5 percentage points lower than the pre-crisis level 6 Data sources: DoS, WB staff estimates based on 2019 in Q2-2019. This could be attributed to the fact that labor market statistics. Economic Update 3 COVID-19 PANDEMIC IMPACT ON JORDANIAN FIRMS: EVIDENCE FROM THE 3RD FOLLOW-UP BOX 2.  ENTERPRISE SURVEY The World Bank Group has launched follow-up surveys to the standard Enterprise Surveys (ES) in more than 40 countries. The intent of the survey is to assess the impact of the crisis on businesses and see how they are recovering as the global health situation has started to improve following the initial impact of COVID-19 shock. In Jordan, 3 rounds of the follow-up survey have been launched, which build on the sample of firms that participated in the 2019 Enterprise Survey. The baseline ES for Jordan contains a total of 601 interviews conducted from May 2019 through November 2019 and three follow-up surveys were conducted during July-August 2020 (first round), November- January 2021 (second round), and June-July 2021 (third round). A summary of results of the most recent follow-up survey (round 3) is presented below: Despite some improvements, business closures remain high, and sales are still negative. Findings of the recent survey reveal that around 15 percent of firms have permanently exited the market since the pandemic was declared (March 11, 2020) and 38 percent have exited compared to the baseline (ES in 2019). Moreover, firms in June 2021 reported a one-third drop in monthly sales vis-à-vis June 2020. However, this decline in monthly sales was lower compared to the last 2 rounds (at 51 and 50 percent respectively). Moreover, the pandemic has had a large effect on full-time employment and has widened the gender gap. Since December 2019, employment levels have, on average, declined by 19 percent (Figure B.1), while the share of female full-time workers during this period, decreased by almost 8 percent. Small firms and firms operating in the services sector seem to be disproportionally more affected by the crisis. Large variations between firm size exists as small firms experienced, on average, higher business closures (42 percent), larger drop in sales (40 percent), a stronger decline in workforce (26 percent) and a stronger decline in the share of female workforce (14 percent). Among sectors, the services sector registered the largest drop in employment levels (Figure B.1), while the share of females declined by more than 10 percent. Moreover, firms are still facing payment arrears and a liquidity crunch. The private sector in Jordan continues to experience financial distress 15 months into the crisis. More than half of the firms in June 2021 reported delaying payments to suppliers, landlords, or tax authorities for more than one week. This is significantly higher than the 36 percent of firms that reported delaying payments (by one week) in June 2020. Government support needs to shift focus to small-sized firms and services businesses. To counter the economic effects of the pandemic, the government has put various measures in place to assist businesses, including the reduction of social security contributions, reducing taxes for selected sectors and employment programs. The share of firms that received COVID-19 pandemic-related government support increased to 40 percent during June 2021 from 33 percent in June 2020. Remarkably, the share of firms that received government assistance seems highest in the manufacturing sector as well as among medium and large firms. The survey also shows that firms in the services sector expect that it will take them around 13 months before they are able to return to their normal (pre-pandemic) level of sales, while firms in the manufacturing sector estimates that they could reach the pre-pandemic sales level in around 9 months. Hence, stronger support for small-sized firms and firms in the services sector can help them surviving the crisis. FIGURE B.1 • Change in Permanent Workforce FIGURE B.2 • Share of Firms that Received Percentage point change since or Expect COVID-19 Pandemic- December 2019 Related Government Support Percent 0 60 56 –4 52 53 45 46 46 46 Percentage –10 42 40 38 –11 40 33 37 % of Firms 33 30 –13 29 28 –20 25 24 –19 20 –23 –26 –30 Jordan Small Medium Large Manuf. Serv. 0 Jordan Small Medium Large Manuf. Serv. R-1 R-2 R-3 Source: Enterprise Surveys, The World Bank, http://www.enterprisesurveys.org – Jordan COVID19 Follow up surveys Round 3 (June/July 2021). Source: Enterprise Surveys, The World Bank, http://www.enterprisesurveys.org – Jordan COVID19 Follow up surveys Round 3 (June/July 2021). Note: The R-1 series refers to changes June/July 2020 vs June/July 2019, R-2 refers to October/December 2020 vs October/December 2019, R-3 refers to May/June 2021 vs May/June 2020. Source: The World Bank, Jordan COVID19 Follow up survey round 3: https://www.enterprisesurveys.org/en/covid-19. 4 JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY BOX 3. IS THERE A SILVER LINING TO THE COVID-19 CRISIS? – UNPRODUCTIVE FIRMS EXIT The pandemic-induced recession has sparked a surge in business exit in Jordan as has been the case for rest of the world. Among 601 Jordanian firms surveyed in the World Bank Enterprise Surveys, almost 88 firms confirmed permanent closure since the COVID-19 pandemic, indicating an exit rate of almost 15 percent. There is a long-standing view that exit can be productivity-enhancing due to the so- called ‘cleansing effects’ (Foster, et al. 2014), or Schumpeterian competitive destruction (Schumpeter, 1939)a. A key question is whether exit during the pandemic was productivity-enhancing as has been mentioned in the literature.b In other words, did the COVID-19 crisis ‘cleanse’ out the unproductive firms in Jordan, or is the crisis displacing productive firms undermining long-run productivity growth? To answer this question, we use the World Bank ES data and the COVID-19 ES Follow-up Survey data (third round, which was conducted during June-July 2021) for Jordan to assess the effect of firm productivity on the probability of firm exit. Survivors seem to have higher labor productivity than exiters. Figure B.3 presents the kernel density functions for labor productivity in the sample, showcasing the wide dispersion of productivity distribution between the confirmed-exit firms and survival firms. The results reveal a strong and negative relationship between productivity and firm exit in Jordan during the time of COVID-19 crisis. This perhaps suggests that the process of cleansing out of unproductive establishments may be at play. This finding points to the probability that during the pandemic, productive firms tended to push less productive firms out, which might have potential long-term economic gains through resources reallocation. Firms that operated in the services sector, with relatively small size and no digital presence were more vulnerable (Figure B.4). First, we find that firms in the services sector are most sensitive to social distancing and thus have a much higher likelihood of exiting than firms within the manufacturing sector. Second, the study finds that firms having a digital presence are less like to exit the market during the pandemic as they could leverage technology to offset the physical remoteness imposed by the social distancing. Third, firm size is estimated to be negatively correlated with exit probability, with large firms (with 100 employees and more) facing lower risks of exiting the market, whereas no clear evidence has come out for innovation and access to finance play a role. FIGURE B.3 • Kernel Density Functions for Labor FIGURE B.4 • Relationship between Firm Productivity Characteristics and Exit Rate Density function, confirmed- % of firms confirmed permanently exiters vs. non-exiters closed since COVID-19 pandemic 0.3 14.6 Sector All Services 19.6 Manufacturing 4.2 Smoothed density 0.2 Large (100+ workers) 15.7 Size Medium (20-99 workers) 6.6 Small (5-19 workers) 18.9 0.1 manager Male 14.2 Owner- Exports Top Female 30.2 Non-exporter 16.9 0 Exporter 7.4 6 8 10 12 14 Domestic 15.7 ship Sales per worker (log) 10% of more foreign ownership 2.4 Confirmed Exiters Non−exiters 0 5 10 15 20 25 30 35 Sources: World Bank staff estimates based on the World Bank ES and the COVID-19 Sources: World Bank staff estimates based on the World Bank ES and the COVID-19 ES Follow-up Survey data (third round) for Jordan. https://www.enterprisesurveys.org/ ES Follow-up Survey data (third round) for Jordan. https://www.enterprisesurveys.org/ en/covid-19/ en/covid-19/ a Creative destruction describes the way in which downturns drive a reallocation of resources within and between sectors in a search of greater efficiency and new markets. b For instance, the early-1990s recession in the U.S. strengthened the exit selection – the relationship between business productivity and exit—and thus increased the aggregate productivity (Foster, 2016). Economic Update 5 2 FISCAL AND DEBT DEVELOPMENTS J ordan’s fiscal accounts are showing a FIGURE 5 • Growth Contribution to Domestic healthy rebound during 2021. During 7M- Revenues Percentage points, 7M-2021 2021, the Central Government fiscal deficit (excluding grants) registered a deficit of 3.3 percent 30 21.4 of GDP, considerably lower than 4.4 percent of GDP 20 deficit registered during the same time last year. 10 2.2 2.1 Domestic revenue collection remained 0 robust. During 7M-2021, domestic revenues reg- –13.2 –10 istered a healthy growth of 21 percent y-o-y aided –20 by improved economic activity and improved tax collection efforts. Direct tax collection, led by taxes –30 7M-2018 7M-2019 7M-2020 7M-2021 on income and profits, grew by 9.8 percent. Indirect Int. trade tax Non-tax Revenues taxes grew by 19 percent, benefiting from improved Income & profit tax GST demand and double- digit import growth (as import- Other Taxes Total Domestic Revenues related taxes grew by around 26 percent during Source: MoF and World Bank staff calculations. 7M-2021). Moreover, a strong rebound in non-tax revenues (43 percent growth) made a sizable con- During 7M-2021, total spending of the CG reached tribution to domestic revenue collection in 7M-2021 16.9 percent of GDP, higher than 16.0 percent of GDP (Figure 5). The largest contribution to non-tax growth recorded during the same period in 2020. Current came from revenues from selling goods & services expenditures registered a growth of 6.4 percent y-o-y, (which included a 70 percent surge in land registra- with all categories contributing evenly to the overall tion fees) as well as property income, which appeared to have benefited from high real estate activity.7 7 According to the Department of Land and Survey, during Meanwhile, existing spending rigidities 8M-2021, the real estate sales (including apartment and along with pandemic related spending pressures land sales) increased by almost 50 percent compared to kept total spending elevated for another year. the same period in 2019. 7 increase. Expenses linked to the government’s FIGURE 6 • Breakdown of Current Expenditures measures towards mitigating the impact of COVID-19 Share of current expenditures, 7M- 2021 shock significantly increased spending pressure on purchases of goods and services and social assis- Purchases of goods tance. Moreover, inherent rigidities associated with & services 3.9 certain recurrent categories (i.e., wages and pension, defense spending, and interest payments, which con- Compensation Transfers of employees stitute almost 70 percent of CG recurrent spending), 20.8 26.5 leave very little room for flexibility (Figure 6).8 In addi- Interest tion, capital spending during this period registered Payments Military 16.5 an increase, reaching 1.4 percent of GDP, almost Expenditures twice as high as the level reached in 7M-2020, even 32.3 surpassing the 7M-2019 level by a small margin. This increase, however, is a welcome break from the past, given the high importance of public investment for Source: MoF and World Bank staff calculations. growth. Output recovery, higher inflation, and lower fiscal deficit have helped keep public debt as an time to maturity (ATM) of domestic debt to 4.5 years almost constant percentage of GDP. At the end at end 2020 from 1.9 years ten years earlier. In line of July 2021, Jordan’s government and guaranteed with this strategy, during H1-2021, new issuances gross debt ratio stood at 108.7 percent of forecasted of domestic debt remained titled towards long-term GDP, almost on par with the end 2020 level. At the instruments, i.e., treasury bonds constituted almost same time, Social Security Investment Fund (SSIF) 70 percent of total net issuances. The ATM of holdings of public debt increased slightly, resulting in domestic debt during H1-2021 stood at 5.0 years. a slightly lower level of government and guaranteed Similarly, external debt has a relatively long maturity, gross (net of SSIF debt holdings) of almost 87 per- currently standing at 8.3 years.9 cent of GDP. Nonetheless, higher maturities and higher Despite Jordan’s elevated debt level, the debt have impacted the cost of Jordan’s debt structure of the debt remains favorable. At end service. While longer term maturities are reducing June-2021, domestic debt constituted around almost refinancing risks, the interest cost has risen with the 60 percent of Jordan’s government and guaranteed longer tenor (Figure 8). At end July 2021, repayments gross debt with treasury bills and bonds making up of external debt stood at 2.2 percent of GDP, twice as for almost 90 percent of domestic debt (Figure 7). high as in 7M-2020, mainly because of higher external Interestingly, more than a third of domestic bonds debt repayments during this period. As a result, total are being held by the state-owned SSIF. With respect debt service (budget & guaranteed) during 7M-2021 to the external debt, the stock of Jordan’s external increased to 4.8 percent of GDP, compared to 3.5 per- public debt remains highly concessional with almost cent of GDP during the same time last year. half of the external debt coming from multilateral and bilateral lenders. Eurobonds and local bonds in foreign currency have gained importance over past few years, and they constitute almost one-fifth of total 8 For instance, interest payments continued to register government and guaranteed gross debt. double-digit growth while wages and salaries rose by 7 percent, as a result of the postponement of the public Jordan has continued with its efforts to sector wage increase during 2020. In addition, military lengthen the maturity of its debt profile. During expenditures—Jordan’s largest spending category— the past years, Jordan has considerably lengthened grew by 4.2 percent. its maturity profile, increasing the weighted average 9 Based on World Bank staff estimates. 8 JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY FIGURE 7 • Government and Guaranteed Gross FIGURE 8 • Public Debt Service (Budget and Debt Composition at End June 2021 Guaranteed) Share of government and Percent of GDP guaranteed gross debt 12 10 9.1 9.5 Domestic CBJ advance; 8.1 8.2 loans; 1% 8 6.6 6.1 6.5 5% 5.3 Held by 6 4.1 4.1 4.2 4.9 4.8 SSIF; Eurobonds; 19% 4 20% 2 Domestic 0 bonds, 53% Jul-2 1 201 1 201 2 201 4 201 5 201 8 2009 2010 2013 2016 2017 2019 2020 Multilateral; 14% Not held by SSIF; Repayment of Foreign Debt 34% Interest Payments Bilateral; Public debt service Commercial; 7% 1% Source: MoF and World Bank staff calculations. Source: MoF and World Bank staff calculations. Note: Public debt service includes interest payments debt (on budget and guaranteed debt) and repayment of foreign debt (budget and guaranteed debt). Fiscal and Debt Developments 9 3 BALANCE OF PAYMENTS POSITION G lobal economic recovery has broadly subdued as targeted restrictions on travel activities remained robust this year, although some continued due to the rise in cases of the Delta variant signs of moderation have lately emerged. of COVID-19.10 The latter has also impacted recent The recovery has so far resulted in improved global trade activity as Jordan’s merchandise trade 10 According to the WTO, although the pace of decline volumes indicated 18.2percent y-o-y growth during in worldwide trade in services has been decreasing in 7M-2021 against 12.2 percent contraction in 7M- recent quarters, however, it is still showing 13.9 percent 2020. However, recovery in services remained y-o-y contraction in Q1-2021. FIGURE 9 • Jordan’s Current Account Developments and their Drivers a. Current account and its drivers b. Terms of trade and trade deficit c. Major external indicators as % of GDP 3-mma average 2019 level=100, indices, 3-mma 20 200 1.5 125 180 1.2 100 10 160 0.9 75 0 140 –2.1 0.6 50 –10 –6.9 –8.5 –8.3 120 –10.6 25 100 0.3 –20 –15.4 0 80 0.0 2019 Feb-20 Apr-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 –30 2017 2018 2019 2020 H1- H1- 2020 2021 Exports Non-energy imports Trade balance Services Trade deficit, billion US$ (right axis) Remittances Energy imports Income Curr. transfers Term of trade, 2010=100 (left axis) Travel receipts Sources: CBJ, IMF, World Bank staff estimates. 11 port activities across major cities around the world attributed to the surge in non-energy related imports, amid already skyrocketing containers freight costs as the contribution from energy imports remained and robust increase in global commodity prices.11 relatively modest. Given a 62 percent increase in If these trends persist, it will affect Jordan’s current the international price of oil during 7M-2021, modest account outlook. growth in the energy import bill implies decline in Overall, the recent global developments imported quantities. However, closer inspection have so far exacerbated Jordan’s already weak indicates that this trend is sharply reversing in recent external account position. The current account months. deficit (CAD, including grants) in H1-2021 widened Together with the surge in the trade deficit, to US$3.2 billion or 15.3 percent of GDP compared the higher cost of freight and insurance and to US$1.7 billion or 8.3 percent of GDP in H1-2020 delayed recovery in travel receipts and remit- (Figure 8.a). This deterioration in CAD was largely tances has kept the CAD at an elevated level for driven by substantial 25 percent y-o-y increase in another year. Travel receipts reached only 40 per- country’s merchandise trade deficit and continued cent of the pre-COVID level (Figure 8.c). Nonetheless, weaknesses in services related trade. The surge in monthly figures for travelers as well as receipts, are the merchandise trade deficit reflects the combined showing a steady improvement in recent months due impact of unfavorable terms of trade—particularly to the recent ease in domestic travel restrictions both due to the rise in global food and oil prices and home and abroad. Workers’ remittances, on the other improving domestic demand (Figure 8.b). In contrast, hand, registered a marginal growth of 0.6 percent in weaknesses in the services trade were mainly the 7M-2021 compared to a contraction of 9.8 percent result of lower travel receipts12 and escalating global during same period last year. Even with a low base- transportation cost. effect, this slow recovery in remittances broadly Growth in merchandise exports remained indicates restrained ease in travel restrictions for for- significant as both price and quantity factors eign workers in source countries, such as GCC. This contributed positively. According to the latest is largely because of rising global concerns around data from DoS, total exports from Jordan grew by virulent Delta COVID-19 infections. 14 percent in 7M-2021 against 6.1 percent decline The widening CAD along with insufficient observed in the same period last year. Detailed data private and official flows increased pressures on up to July indicated that around 60 percent of the total foreign reserves during H1-2021. Foreign direct improvement in Jordan’s exports during 7M-2021 investment (FDI) on net basis declined to 0.9 percent can be explained by the chemical and phosphate of GDP in H1-2021 as compared to 2.1 percent sectors, followed by clothes and textile. Regarding during the same period last year. A similar trend was export markets, the U.S., India and neighboring GCC observed for portfolio flows. These trends reflect explain around three-fourths of the total increase in continued uncertainty on part of foreign investors Jordanian exports. In particular, the continued expan- towards emerging markets in general. Official loan sion of Jordanian exports to the U.S. maintains the flows towards Jordan in H1-2021 also remained half positive effects of the bilateral FTA since 2001 (Box 4). of the amount received over the same period the Furthermore, while the price effect has contributed previous year. Given the decline in private foreign positively towards the recent growth in exports, the inflows, the commercial banks drew down their assets quantity effect dominated. Despite a significant increase in merchan- dise exports, this increase was substantially 11 Recent trend shows that the average global price to ship a 40-foot container has more than quadrupled from a outpaced by growth in imports. Jordan’s total year ago, to around U.S.$10,000 in Sep 2021. import bill increased by almost 19 percent in 7M-2021 12 Travel receipts totaled about 3 percent of Jordan’s GDP against a 15.9 percent contraction in 7M-2020. Out of in 2020; declining from an average of 12 percent during this increase in the import bill, almost 90 percent is 2016–19. 12 JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY abroad to the tune of US$613 million in H1-2021 tranche, and approximately US$460 million increase (Figure 10.a) to manage liquidity. This has helped due to IMF new SDR allocations have supported recent improve the domestic forex liquidity of the banking increase in the CBJ foreign reserves (Figure 10.b). system amid the widening trade gap. Reflecting these Overall, the standard reserves adequacy-measures developments and pressures in the overall balance of broadly suggest that the CBJ’s foreign reserves remain payments position, the CBJ’s gross foreign reserves at a comfortable level at end September 2021 despite showed a moderate decline of US$433 million to widening of the external account deficit (Figure 10.c). reach US$16.5 billion as of end June 2021 compared Moreover, this relatively comfortable reserves position to end December 2020 position. also holds even in comparison to other oil importing Latest data, however, indicates noticeable regional and peer economies.13 increase in the CBJ’s foreign reserves which has further strengthened its reserves adequacy. For instance, as of end September 2021, the CBJ’s 13 Cross-country data through August 2021 shows that, gross foreign reserves stood at US$17.9 billion; up by compared to Jordan’s 9.5 months of import cover, the around US$1.4 billion from end June 2021 position. same ratio for Morocco, Tunisia, Egypt, and Pakistan – Specifically, receipts of around US$600 million under the other major oil importing MENA countries—stood at bilateral grants, US$200 million from the IMF-EFF 6.1, 4.1, 6.2 and 2.6, respectively. FIGURE 10 • Financial Flows towards Jordan and CBJ’s Foreign Reserves Adequacy a. Net financial flows b. CBJ gross foreign reserves c. CBJ reserves adequacy billion US$ billion US$ billion US$, Sep-2021 2.8 20 20 Domesric $ bonds +0.4 bln Gross Reserves 2.1 + Eurbond +$1.75bln IMF SDR … 19 16 Required level of reserves as per 1.4 IMF +$0.2 bln + US 0.7 grants $0.6 bln 18 8 0.0 RFI +$0.4 bln –0.7 17 4 –1.4 16 Eurobond - Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 Dec-20 Jun-21 $1.25 bln 0 3M Imports G&S 20% of Broad Money (M2) 100% of ST External Debt 100% of ARA Matrix 15 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 FDI Official flows IMF flows Other pvt. flows Sources: CBJ, IMF, World Bank staff estimates. Balance of Payments Position 13 BOX 4. JORDAN’S MERCHANDIZE EXPORT PERFORMANCE: A CONSTANT MARKET SHARE ANALYSIS The key reason that most emerging economies, such as Jordan, consistently face balance of payments problems is their failure to grow their exports over time. This fact was widely supported by economic literature that emerged after the East Asian crisis of 1997–98. In the past two decades, exports from Jordan broadly remained stagnant in proportion to world exports. However, as proportion to GDP, exports are showing a decline of around 10 percentage points since 2002. This suggests an export loss of around US$5.0 billion, which is quite substantial for an economy like Jordan. The slowdown in Jordanian exports has been exacerbated in the past decade. The decline in exports as share of GDP became notably more prominent after the Global Financial Crisis (GFC) of 2007–08 because of the concurrent slowdown in global trade activity along with rises in regional conflicts. Moreover, Jordan’s long-term real exchange rate appreciation against major trading partners has impeded the competitiveness of the traded goods sector. With the objective to improve exports and overall trade, the country entered into several free trade agreements (FTAs) with major economies and regions, such as the U.S., Canada, and the European Union during the past two decades (Figure B.5). FIGURE B.5 • Jordan’s Relative Export Performance and Trade Agreements in the Past Two Decades Share in world exports, in % Exports to GDP, 2002=100, indices Jordan’s trade under eight FTAs, % of 2019 0.20 250 Share in world exports ↑ relative to 2002 225 SGP, TUR, 2005; 0.16 2011; 200 0.6% % share in 2020 3.5% 0.12 175 CAN, 150 AGADIR, 2012; 2007; 0.5% 0.08 125 3.7% USA, 100 2001; RoW, 0.04 13.3% 34% 75 0.00 50 EU, 2002; 0.00 0.04 0.08 0.12 0.16 0.20 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 14.5% % share in 2002 PAFTA, 1998; 29.0% Jordan Morocco Lebanon Oil importing MENAP Tunisia Egypt Other EMEs Pakistan Jordan Source: WDI, IMF, WTO, WB staff calculations. Note: PAFTA = Pan-Arab Free Trade Area Agreement; EFTA = European Free Trade Association; RoW = Rest of the World This box uses the Constant Market Share (CMS) analysis to identify the underlying factors for the decline in Jordanian exports. The CMS analysis essentially decomposes growth of actual exports during a specified period into four parts (i.e., the world trade effect, the commodity composition effect (CCE), the market diversification effect (MDE), and a residual (Annex I.B. for technical details regarding CMS analysis)). The four items measure the individual impact of expanding global trade, individual commodities, export-partners’ demand, and other factors on the country’s export. We performed our analysis on annual export data from 2002–2020 due to consistent availability of Harmonized System level exports for all dimensions. Furthermore, we divided our analysis into three sub-samples along with two crisis years: 2009 and 2020. Our findings reveal that the market diversification and world trade effect played a major role in driving Jordanian exports over the past two decades (Figure B.6). In contrast, the commodity effect remained unimportant, particularly after the GFC. These calculations imply that the country’s FTAs delivered necessary support for export expansion, specifically the FTA with the U.S. being a Jordan’s biggest export market. Notwithstanding, limited product diversification has restrained export growth. The analysis also points towards Jordan’s limited export basket, which kept growth in the narrow range. These findings are in line with studies from the Jordan strategy forum (2017), which finds that the economic complexity of Jordan’s exports has been on a declining trend. Therefore, for the sustainable balance of payments, policy focus should be geared towards increasing the country’s’ product diversification. From the post COVID perspective and considering an untapped potential, Jordan’s already established chemical and textile industries provide fine opportunities for the export sectors to integrate into upstream global value chains of pharmaceuticals and other allied industries. (continued on next page) 14 JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY (continued) BOX 4. JORDAN’S MERCHANDIZE EXPORT PERFORMANCE: A CONSTANT MARKET SHARE ANALYSIS FIGURE B.6 • Jordan Export Drivers and Constant Market Share (CMS) Analysis Jordan export-to-GDP, in % Jordan’s export drivers, CMS analysis, billion US$ 40 6,000 4,000 30 COVID-19 2,000 Expansion 20 Arab 0 spring Global trade 10 slowdown –2000 2002–08 2009 2010–14 2015–19 2020 2001–20 GFC 0 World trade effet CCE, Top 3 CCE, Others MDE, Top 3 MDE, Others Residual 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Change in exports Source: WDI, International Trade Centre, WB staff calculations. Monetary Policy and Inflation 15 4 MONETARY POLICY AND INFLATION T he global economy has experienced further increased the size of its subsidized lending increasing price pressures in recent program for SMEs by JD200 million to bring total months due to supply-demand support for the sector at JD700 million.15 mismatches amid improving vaccine-rollouts. While the underlying economic recovery is These pressures and their earlier impact have been steadily building, a large output gap is keeping noted by recent monetary policy meetings held at inflation in Jordan on the lower side. Cumulatively, both advanced and emerging economies’ central headline CPI inflation was recorded at 1.1 percent banks. Indeed, central banks in some of these y-o-y in 8M-2021 compared to 0.5 percent in 8M-2020 markets have begun to tighten monetary policy while (Figure 11.a). Over the two periods, core inflation several others, including the U.S. Federal Reserve, remained flat at around 0.9 percent. Although have signaled a possible tightening of stance in the the recent escalation in global commodity prices, period ahead.14 Certainly, these developments have including that of oil and food, is gradually feeding into implications for emerging market economies like monthly readings for headline CPI inflation, the impact Jordan (Box 5). so far remains contained for Jordan (Figure 11.b). So far, CBJ’s monetary policy stance The CBJ’s accommodative monetary policy has remained accommodative over the last stance along with targeted measures to help the 18 months. In addition to the 150-bps cut in the policy rate, the CBJ’s COVID shock-related liquidity 14 In the first 10 months of 2021, there were 59 unique support to the economy is estimated at around instances where centrals banks have raised their policy 8 percent of GDP (during 2020); one of the largest rate. In the same period last year, there were 170 unique amongst regional central banks. The latest figures events where central banks cut their main policy rate for economic activity indicators reveal that the policy (http://Cbrates.com). 15 According to the CBJ annual report for 2020, lending stimulus provided by the CBJ reduced the negative rates for SMEs were 2 percent for a period of 42 months, impact of the COVID-19 shock on economic growth including a grace period of 12 months. About 4,919 during 2020 when relatively stricter but intermittent projects, valued at JD447.2 million, benefited from the lockdowns were in place. In March 2021, the CBJ program during 2020. 17 FIGURE 11 • Trends in Inflation, Money Supply and Banks’ Credit in Jordan a. Current account and its drivers b. Average CPI c. Banks’ credit (Percent) (Index, 2019 = 100) (Cumulative percentage change) 3.0 112 1.5 110 Industry (12.4) 2.4 1.2 1.8 108 Construction (25.1) 1.2 106 0.9 General Trade (16.0) 0.6 104 Tourism, Hotels 102 0.6 & Restau. (2.4) 0.0 Transportation –0.6 100 0.3 Services (1.4) –1.2 98 Agriculture (1.4) 2019 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Aug-21 J M M J S DJ M M JA 0.0 2020 2021 Total (100.0) –10 –5 0 5 10 15 20 25 Core Fuel & Transportation Egypt Tunisia Food & Beverages Saudi Arabia Morocco 7M-2020 Headline Iraq Jordan 7M-2021 Sources: CBJ, World Bank staff estimates. economy has kept the banking system relatively shows that, credit to the construction sector has been liquid during the crunch time. For example, during a major contributor to this trend (Figure 11.c). This 7M-2021, broad money supply (M2) expanded by phenomenon is explained by a growth in domestic 3.6 percent y-o-y compared to 2.5 percent a year demand and a substantial increase in construction ago. Disaggregated data reveals that all increases material prices during this year. For example, con- in money supply this year have originated from the sumer prices related to home maintenance services banking system’s net domestic assets (NDA), as net during 7M-2021 increased by 6.5 percent y-o-y, which foreign assets (NFA) marginally contracted by 0.3 per- is the highest increase in almost 9 years. cent during this time. The trend in NFA is explained by From the financial stability perspective, the underlying increase in the current account deficit. In pandemic-related impact on the banking system’s case of NDA, credit to both public and private sector overall soundness remained muted. The banks’ supported its expansion during 7M-2021. non-performing loans (NPLs) increased from 5.0 In particular, the increase in credit to pri- percent of total loans in 2019 to 5.5 percent in 2020.16 vate sector was crucial as this helped businesses Meanwhile, banks’ total profit (after tax) decreased by to stay afloat during the downturn. Specifically, 44 percent in 2020, which is the highest decline ever credit to the private sector grew by 3.5 percent during recorded since data has been available. 7M-2021. Importantly, subsidized credit to SMEs grew by 17.2 percent y-o-y in Q1-2021, making up almost 16 During the global financial crisis of 2008–09, Jordanian 11 percent of total credit. The overall trend, however, banks NPLs/loans ratio surged to 6.7 percent in 2009 indicates deceleration in private credit growth in compared to 4.2 percent in 2008, while their profit after 7M-2021 as compared to last year. Sector-wise data tax declined by 17 percent. 18 JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY NORMALIZATION OF THE U.S. MONETARY POLICY AND ITS POTENTIAL IMPACT ON BOX 5.  THE JORDANIAN ECONOMY Accelerating recovery in the US along with increasing inflationary pressures raise expectations towards a higher policy rate. The U.S. economic outlook has substantially strengthened following a decline in the country’s output of 3.5 percent in 2020—the highest contraction since the Great Depression. Recent readings indicate that most of the major high-frequency economic indicators for the U.S. economy are trending close or above the pre-COVID level. Inflation has also been on the rise as the y-o-y headline figure is hovering at a 13-year high of 5 to 6 percent. These developments have been considered by the Federal Reserves’ monetary policy making body, the Federal Open Market Committee or FOMC, in their latest meeting in July 2021. During the meeting, 7 out of 18 FOMC members have indicated that they expect relatively higher policy rate in 2022 and 13 members expect higher policy rate in 2023. This expected normalization in the U.S. monetary policy has bearing on the global economy along with emerging economies, including Jordan. Indeed, the country’s U.S. dollar pegged exchange rate regime makes its domestic monetary stance to be largely driven by external developments. However, the influence is not just limited to interest rate settings, but the spillovers of this policy choice make other country’s economic indicators susceptible to changes in the U.S. monetary policy stance (Figure B.7). FIGURE B.7 • Significance of the U.S. Economy for Jordan and Major Oil Importing MENA Countries Policy rate, in % U.S. share in E.M.R.F.*, Dynamic correlation with U.S., % of GDP, 2019 1995–2019 18 0,6 15 0,3 12 9 0,0 6 –0,3 3 Morocco, Tunisia, 0 4.6 4.0 –0,6 Jun-00 Oct-02 Feb-05 Jun-07 Oct-09 Feb-12 Jun-14 Oct-16 Feb-19 Jun-21 –12 –9 –6 –3 0 3 6 9 12 Lags/Leads for Jordan Jordan, Egypt, EMEs Pakistan, 3,4 Oil MENA 4 8.6 6.9 Real GDP (quarters) Jordan US Inflation (months) Source: WDI, CBJ, OECD, IMF, World Bank staff calculations. Note: EMEs = Emerging Market Economies; MENA_Oil_4 = Pakistan, Tunisia, Morocco, Egypt, weighted by GDP; * E.M.R.F. = Exports, Imports, Remittances and FDI stock Using a structural vector autoregressive (SVAR) set-up, we attempt to empirically examine the marginal impact of changes in the U.S. monetary policy on major economic indicators for Jordan. We also compare the results for Jordanian economy with four major MENA oil importing countries; Morocco, Egypt, Tunisia and Pakistan, using similar SVAR method. The data sample is from Q1-2002 through Q4- 2019. We intentionally excluded 2020 from our analysis due to it being a COVID-19 shock year (Annex I.C for technical details regarding SVAR analysis). There is a clear pass-through impact of the US policy rate for CBJ’s policy setting. The results from empirical analysis show that a 1 percentage point (or 100 bps) increase in the Federal Reserve policy rate increases the policy rate in Jordan by around 34 bps over a one-year period and around 44 bps over two years. This impact is quite high when compared to other oil importing MENA countries. A similar pattern of results is reported for other key indicators. For instance, the estimated decline in Jordan’s output gap is quite high, causing inflation to decrease over 2-years (Figure B.8). In contrast, due to limited U.S. policy pass-through effect, little movement is observed in key indicators of major MENA oil importing countries. Our estimated pass-through impact of U.S. policy rate for CBJ’s policy setting is also in line with evidence found for other emerging economies following fixed exchange rate regime. These results are important for future policy implications on Jordanian economy. (continued on next page) Monetary Policy and Inflation 19 NORMALIZATION OF THE U.S. MONETARY POLICY AND ITS POTENTIAL IMPACT ON BOX 5.  THE JORDANIAN ECONOMY (continued) FIGURE B.8 • Estimated Impact of Change in the U.S. Monetary Policy Stance on Key Economic Indicators Cumulative pass-through impact of one %age point change in the U.S. policy rate, % Comparison with available evidence, 1-year 0.5 0.05 0.5 Policy rate 0.4 0.4 0.00 0.3 0.3 –0.05 0.2 0.2 –0.10 Credit growth Credit growth Output gap Output gap Inflation Inflation 0.1 0.1 0 Jordan MENA Oil 4 0.0 1 2 3 4 5 6 7 8 Jordan EMEs Fixed Floating regime Jordan MENA Oil 4 1-year 2-year WB staff Caceres et. al (2016) Source: CBJ, IMF, Haver, World Bank staff calculations. 20 JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY 5 OUTLOOK AND RISKS J ordan’s economy is expected to perform modestly above Jordan’s growth during the past five well in 2021 on the back of continued but years prior to the pandemic (2015–19), which aver- calibrated monetary and fiscal support. aged at around 2.1 percent. Therefore, to enable a The real GDP is projected to grow at 2.2 percent resilient recovery that can help boost inclusive and in 2021 against a contraction of 1.6 percent last sustained growth and job creation, it is critical for year. This recovery has been further cemented by Jordan to balance high quality fiscal adjustment with accelerating global economic activity, better vaccine reforms to attract private investment and improve pro- rollout, ramped up cash transfers, and nearly full re- ductivity to support a sustainable increase in exports opening of the domestic economy.17 The recovery, and investments. nonetheless, is likely to remain uneven across Inflationary pressures are expected to different economic sectors as slow revival in tourism remain range-bound despite recent increase in and travel to Jordan remains a major constraint for the international commodity prices. Headline CPI a strong economic upswing of the services sector. average inflation is projected to reach 2.0 percent in Moreover, Jordan’s private sector has been hit hard 2021 compared to 0.3 percent in 2020. Amid a sig- by the pandemic and may have limited capacity to nificant output gap, this push in prices would largely galvanize quickly. Meanwhile, a stronger government come from the supply-side, driven by higher global impulse to growth remains limited due to the lack of commodity prices, particularly international prices for fiscal space and anticipated tightening of the money oil and food. Beyond 2021, as the underlying economic supply. These factors together with the pre-pandemic recovery consolidates and transitory factors dissipate, inefficiencies of the economy are likely to keep headline CPI inflation is expected to gradually increase medium-term growth modest at best. to its long-term trend at around 2.3 percent. Over the medium term, only modest growth is projected. Once the global economic recovery 17 On September 1, Jordan ended its COVID-induced curfew takes hold and the domestic tourism sector fully that was imposed since April 2020, allowing all sectors to recovers, economic growth is projected to average work around-the-clock with operational capacity of 100 around 2.4 percent over the medium-term (2022–25), percent and to return to in-person education. 21 On the external front, the surge in the trade in 2023 at around 115.2 percent of GDP and thereafter deficit amid depressed services is projected to gradually declining. In terms of the government and keep the CAD at an elevated level for another year. guaranteed gross debt net of SSIF debt holdings, the Despite a strong recovery in exports, pent-up domestic World Bank outlook shows that the debt-to-GDP ratio demand along with higher global commodity prices are peaks at 90.5 percent of GDP in 2022 and declines projected to expand the import bill at much higher pace thereafter. The outlook suggests that Jordan’s debt is during 2021 than in the previous year. Moreover, the sustainable should the economy reach a growth rate protracted recovery in tourism would keep the services of about 2.3 percent of GDP, based on a strong fiscal balance negative for yet another year. Meanwhile, consolidation program, a strong reforms program, workers’ remittances are expected to remain broadly and continued recovery in the global economy and stagnant. As a result, the CAD (including grants) is relative stability in the region. projected to widen to around 11 percent of GDP in 2021 Downside risks to Jordan’s economic out- compared to a deficit of 8.5 percent in 2020. Going look are substantial. These risks channel through forward, an improvement in vaccine rollouts, better both external and domestic uncertainties. For instance, prospects for global travel, and a modest increase in given the relatively low level of vaccination, another remittances are likely to help narrow Jordan’s CAD over COVID wave poses a serious downside risk to the the medium-term. Specifically, travel receipts are pro- country’s economic outlook through its impact on jected to reach pre-COVID level by 2023, which would already weak tourism and reinstatement of some social help reduce the CAD to 5.5 percent of GDP by 2023. distancing measures. Yet, Jordan has fully reopened Despite spending pressures, 2021 is likely its economy as of September, while tourist arrivals are to return to the path of fiscal consolidation. gradually picking up. Thus, the government would During 2021, CG fiscal deficit (including grants) is need to maintain a careful balance between economic projected to narrow to 5.6 percent of GDP, almost 1.7 and health consideration. Moreover, the anticipated percentage points lower compared to 2020. Despite tightening of Fed’s monetary policy stance is likely elevated spending pressures during 2021, fiscal to have implications for emerging market economies consolidation effort remains anchored on authorities’ (including Jordan) and their currencies through both tax policy and administration efforts.18 Thus, domestic trade and financial linkages. This would also have revenues are projected to show a robust rebound, implications for the banking system’s financial sta- supported by the economic upswing, and double-digit bility, particularly in the context of COVID-19 support growth of imports. Capital spending during this year measures. Similarly, a prolonged increase in global is projected to reach 3.1 percent of GDP, higher than prices of major import items would also create risks 2020 when it bottomed out at around 2.7 percent. for external sector sustainability through acceleration Over the medium term, the CG fiscal deficit (including of the country’s already high financing needs. This grants) is projected to gradually improve, reaching could also slow the economy or fuel domestic infla- 4.7 percent by 2023. However, this consolidation tion expectations. In addition, large public sector’s effort is largely contingent on the timely implementa- contingent liabilities continue to pose another major tion of additional fiscal measures as agreed under the challenge. Thus, given already high unemployment IMF-EFF program, as well as continued robust efforts rates, policymakers in Jordan need to remain vigilant to strengthen tax administration and to fight tax eva- and watchful of these potential risks and their spillover sion to broaden the tax base. effects and prioritize advancing reforms and support Despite consolidation efforts, Jordan’s measures that can boost job creation, a sustained public debt is projected to remain at an elevated recovery and equitable growth. level in the near-term. The baseline scenario of the World Bank’s outlook shows that Jordan’s govern- 18 For instance, the implementation of the digital track-and- ment and guaranteed gross debt is projected to rise to trace system to monitor tobacco production and reduce around 112.8 percent of GDP in 2021 before peaking cigarette smuggling to be implemented by July 2021. 22 JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY TABLE 1 • Jordan – Selected Economic Indicators 2018 2019 2020 2021 2022 2023 Act. Act. Prel. Proj. Proj. Proj. Real sector Real GDP growth 1.9 2.0 –1.6 2.2 2.3 2.3 Real GDP per Capita growth a 0.1 0.6 –2.5 1.5 2.0 2.2 Nominal GDP (JD Billion) 30.482 31.597 31.025 32.205 33.590 35.135 CPI Inflation (p.a.) 4.5 0.8 0.3 2.0 2.0 2.3 Government finance (percent of GDP, unless otherwise specified) Total revenues and grants 25.7 24.3 22.7 25.1 24.7 23.9 Domestic Revenue 22.8 21.8 20.1 22.5 22.4 22.5 Foreign Grants 2.9 2.5 2.5 2.6 2.3 1.5 Total expenditure (incl. use of cash)b 29.3 29.2 30.0 30.7 31.0 30.8 Currentc 25.0 25.0 27.2 27.6 27.7 27.3 Capital Expenditure 3.1 3.1 2.7 3.1 3.3 3.5 Overall balance (deficit (-), incl. grants) d –3.3 –4.9 –7.3 –5.6 –5.2 –4.7 Primary Balance (deficit (-), incl. grants)d 0.0 –1.3 –3.1 –1.5 –1.2 –0.8 Advances to WAJe 1.4 1.6 1.2 1.3 1.1 0.7 Budget Financing needs 4.7 6.5 8.5 6.9 6.4 5.5 Total Debt (percent of GDP, unless otherwise specified) Government and guaranteed gross debtf 92.9 97.4 109.0 112.8 114.6 115.2 Government and guaranteed gross debt, net of SSIF holdingsf/g 75.1 78.0 88.0 90.1 90.5 89.8 External sector (percent of GDP, unless otherwise specified) Current Account –6.9 –2.1 –8.5 –10.9 –7.7 –5.5 Memorandum Items: Export FOB (% growth) 3.2 7.3 –4.5 8.1 5.2 5.3 Import FOB (% growth) –0.8 –5.5 –10.1 17.7 6.3 3.0 Travel Receipts (% growth) 13.2 10.2 –75.7 46.0 82.0 55.0 Remittances (% growth) –1.1 0.9 –9.1 0.5 1.0 2.5 Gross usable Foreign Currency Reserves (US$ million) 12,512 13,511 15,127 13,958 12,733 11,727 in months of next year’s imports of GNFS 6.8 8.9 8.3 7.0 6.1 5.2 Source: Data from the Jordanian authorities and World Bank staff estimates. a Based on World Bank population projections. b Includes use of cash based on IMF Country Report, Aug 2021 of 1.2% of GDP in 2018, 1.0% in 2019 and 0.1% in 2020. c Includes net lending and transfers to NEPCO and WAJ. d Incudes additional fiscal measures to target deficit reduction based on IMF Country Report, Aug 2021 of 1.1% of GDP in 2022 and 2.2% in 2023. e Based on information from the IMF Country Report No. 21/188. f Government’s direct and guaranteed debt (including NEPCO and WAJ debt) and securitization of domestic arrears in 2019 and 2020. g Net of debt holding of the SSIF. Projected SSIF holdings of public debt as estimated in IMF Country Report, Aug 2021. Outlook and Risks 23 SPECIAL FOCUS 1: HOW WEALTHY IS JORDAN? MEASURING JORDAN’S COMPREHENSIVE WEALTH (1995–2018) The lackluster growth of Jordan’s economy in measure that captures income and production in the most recent decade has been compounded one year but does not account for any changes in with slow wealth accumulation. During 2010–18, the underlying wealth asset base. Hence, used alone, Jordan’s per capita wealth has been on a declining GDP is likely to provide misleading signals about the trend. As a result, the wealth gap with upper middle- state of the economy, the efficiency of asset utiliza- income countries significantly widened by year tion, and the sustainability of development. GDP also 2018; a typical UMIC citizen had 4.3 times as much does not reflect depreciation and depletion of assets; wealth as a typical Jordanian. Moreover, Jordanian it does not indicate whether accumulation of wealth citizen wealth in 2018 was five percent lower than has kept pace with population growth, or whether in 1995. Given limited natural resources in Jordan, a mix of different assets can support a country’s convergence toward upper middle-income countries development goals. In line with the methodology would require Jordan to focus its polices on building developed by the World Bank in the Wealth of Nations human capital and increasing the efficiency of (2021) study, this section comprehensively assesses asset utilization. Moreover, Jordan also needs to Jordan’s various asset classes (natural, produced, unblock bottlenecks in its produced capital growth intangible and its various sub-components). (Annex by improving its business climate and regularity I.D: Technical supplement for Wealth of Nation). environment. From an individual’s perspective, a typical Why should we care about wealth? Jordanian in 2018 was five percent less wealthy Understanding the difference between ‘income’ and compared to 1995. Jordan’s per capita wealth was ‘wealth’ is critical. While GDP provides an important around US$34,130 in 1995, it increased by 26 percent measure of economic performance, it is a flow to reach US$42,991 in 2009 (Figure 12). However, 25 this good progress was lost in the decade of 2010s FIGURE 12 • Per Capita Wealth: Jordan vs UMIC as by 2018, Jordan’s per capita wealth had dropped constant 2018 US$, million to US$32,228. This loss can be attributed to Jordan’s increase in population.19 Jordan experienced one of 160,000 the highest growths in population in the world, as well 140,000 as a slowdown in total wealth accumulation. Jordan’s 120,000 total wealth between 1995–2009 grew at an average 100,000 rate of 4.8 percent per year, supported by the accu- 80,000 mulation of produced capital (including machinery, 60,000 structures, equipment, and urban land) and human 40,000 capital. However, strong growth exhibited during this 20,000 period was interrupted by a series of external shocks 0 (i.e., the global financial crisis (2009), the first Arab 1995 2000 2010 2015 2020 2018 Spring (2011) and the Syrian refugee crisis (2012)). Jordan UMIC These shocks appear to have had long-term effects Source: World Bank staff estimates using WON (2021). on the Jordanian economy (SCD 2016), as a result, growth in wealth accumulation during the post-crisis period has fallen behind – as total wealth during over 100 countries over two decades, from 1995 to 2010–2018 grew by less than 1 percent per year only. 2014, we find that climbing the development ladder Moreover, the per capita wealth gap requires accelerated investment in and accumulation between Jordan and upper-middle income coun- of human capital. Therefore, to achieve convergence tries (UMIC) has widened significantly during with UMIC, Jordan needs to reverse the downward 2010–18. For instance, in 1995, a typical UMIC trend of human capital share. At its current rate, citizen was 50 percent wealthier than that a typical Jordan’s human capital share is likely to stagnate at Jordanian. However, by 2018, a typical UMIC citizen its current level unless key structural reforms are put had 4.3 times as much wealth as a typical Jordanian. in place. Along with this emerging wealth gap, another striking Another key factor driving down Jordan’s feature is its composition. For instance, in 1995, wealth over time appears to be the depreciation of Jordan’s produced capital20 per capita was on par natural capital. For instance, between 1995–2018, with UMIC, however, by 2018, it had declined to half Jordan’s natural resources depreciated by 24 per- of the UMIC level. Meanwhile, Jordan’s per capita cent in per capita terms, compared to a 44 percent human capital wealth which stood at 63 percent of increase for UMIC per capita average for the same a UMIC per capita in 1995, had dropped to less than period. In assessing the natural capital of Jordan one-fifth of a UMIC by 2018. The gap had been wid- ening consistently in recent years and is still growing at an accelerated rate. 19 During the decade of the 2010s, Jordan experienced Interestingly, human capital, at 54 percent, one of the highest rates of population growth on account comprises of the largest share of wealth in Jordan, of the massive wave of migrants and refugees. In 2021, which is slightly lower than UMIC’s average share Jordan hosts an estimated 1.36 million Syrian refugees of around 66 percent. With relatively limited natural (with 665,884 registered, UNHCR Jordan, March 31, resources and little produced capital, over 60 percent 2021), representing 15 percent of the total population of Jordan’s total wealth in the early 2000s was made (Hashemite Kingdom of Jordan, Ministry of Planning and International cooperation, Jordan Response Plan for the up of human capital. But this has been declining Syrian Crisis 2020–2022, 22 June 2020). over time. For instance, during 2010–18, the share 20 Produced capital includes machinery, structures, of human capital in Jordan’s wealth had plateaued equipment, and urban land, using WON (2021)’s at around 54 percent. In assessing human capital of methodology. 26 JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY FIGURE 13 • Renewable Natural Resources FIGURE 14 • Nonrenewable Natural Resources constant 2018 US$, millions constant 2018 US$, millions 4,500 9.2 4,000 280 4,000 3,500 Driven by Per capita, constant 2018 USD Per capita, constant 2018 USD 9.0 fall in 3,500 3,000 phosphates 230 Constant 2018 USD 3,000 8.8 prices Natural Hazards: Drought 2,500 180 2,500 Percent 8.6 2,000 2,000 1,500 130 1,500 8.4 1,000 1,000 8.2 80 500 500 0 8.0 0 30 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Forests, timber Forests, non-timber Oil Natural gas Mangroves Fisheries Phosphates Metals and minerals Protected areas Cropland prices, RHS Pastureland Pastureland (share in land area), RHS Source: World Bank staff estimates using WON (2021). Source: World Bank staff estimates using WON (2021). over the same period (1995–2018), we found that the ANS provides national-level decision-makers with a dynamics of renewable natural resources and that clear, relatively simple indicator of how sustainable of non-renewables displayed significantly different their country’s investment policies are. A higher ANS trends. For instance, the value of renewable natural often correlates with higher GDP growth (WON 2021). resources21 shrank significantly in the early 2000s Figure 15 shows that Jordan’s ANS as percent of GNI due to the loss of arable land (caused by the severe averaged around 16.3 percent during 1990–2004 droughts in 2000–2001) (Figure 13). While the trend but dropped by half during the period of 2005–2017. of non-renewable resources, primarily phosphates, This decline can be largely accounted for by the increased exponentially from 2006 to 2012, driven decline in gross national savings. A snapshot of com- by prices as well as new production and discoveries. ponents of ANS in 2017 shows that a large portion However, significant downward adjustments in the of savings was used to compensate consumption of price of phosphate during 2012 to 2018, lead to a sig- fixed capital, followed by pollution damages, while nificant drop in Jordan’s main non-renewable item22 disinvestments in natural capital remained marginal (Figure 14). Although Jordan benefits from abundant (Figure 16). phosphate reserves, which are among the country’s Even though Jordan’s wealth build-up main economic exports. But if the depletion of min- has markedly slowed down in recent years, erals (i.e., phosphate), is not offset by positive savings from new incomes, Jordan’s wealth will continue to draw down over time.23 21 Renewable natural resources are defined as pastureland, Adjusted net savings (ANS) is an alterna- cropland, protected areas and forests, using WON tive measure of sustainable wealth conversion (2021)’s methodology. 22 Jordan’s non-renewable natural resources declined from and for Jordan, albeit positive, has fallen over US$29,317 in 2012 to US$10,478 in 2018, representing 2005–2017. It is necessary to monitor the country’s a decrease of almost 64 percent in just six years (or adjusted net savings, which accounts for the deple- declining by 71 percent in per capita term). tion of natural resources (Hamilton 1994 and 1995). 23 Using WON (2021)’s methodology. Special Focus 1: How Wealthy is Jordan? Measuring Jordan’s Comprehensive Wealth (1995–2018) 27 FIGURE 15 • Adjusted Net Savings Calculating ANS in 2017: Jordan FIGURE 16 •  as percent of GNI as percent of GNI 30 1990–2004: 14 avg. 16.3 percent Minus 12 consumption 20 of fixed Plus 10 capital education Minus Minus expenditures depletion of pollution 8 natural capital % of GNI damages 10 6 2005–17: avg. 8.2 percent 4 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2 Jordan Lower middle income 0 Gross Net National NNS Plus Depletion- Adjusted Upper middle income Linear (Jordan) National Saving Education Adjusted Net Saving Saving (NNS) Expenditure Saving Source: World Bank staff estimates using Lange, Woden, and Carey (2018), WDI. Source: World Bank staff estimates using Lange, Woden, and Carey (2018), WDI. FIGURE 17 • Return on Wealth (2018) FIGURE 18 • Factor Growth Rates (annual) percent percent 12 Turkey 10 Ireland 8 Percent 6 Egypt 4 Jordan 13.4% 2 0 Morocco –2 Jordan Egypt Turkey Philippines Ireland Jordan Egypt Turkey Philippines Ireland Philippines MENA Upper middle income 2000–2009 2010–2019 High income: OECD 0% 5% 10% 15% 20% 25% Capital Stock Labor Total Factor Productivity Real GDP Ratio of GDP to total wealth Source: World Bank staff estimates using WON (2021). Source: World Bank staff estimates using WON (2021). the efficiency of asset utilization has improved. and strong growth in productivity during 2010–19, Jordan’s return on wealth (i.e., the ratio of GDP whereas Jordan’s productivity dragged down the to wealth) stood at around 13.4 percent in 2018, growth momentum during this period (Figure 18).24 which is well above the average of LMIC and UMIC Given these challenges and to mitigate its asset (Figure 17). Nevertheless, this return is marginally risks, Jordan needs to diversify its wealth portfolio. lower than the return on wealth experienced by Specifically, given the significance of human Jordan’s peers, namely, Turkey, Ireland and Egypt, whose return on wealth stood at 22, 17, and 14 percent, respectively. This difference in the effi- 24 Based on the growth accounting exercise for Jordan, during 2010–20, Jordan’s TFP contracted by 1.0 ciency of asset utilization appears to be related to percent, causing a fundamental shift in Jordan’s growth total factor productivity, which advanced at different dynamics from the earlier decade. Detailed analyses see rates for different countries. In fact, Jordan’s peers Box 3. A Growth Accounting Exercise for Jordan, JEM mentioned above, all enjoyed positive rates of TFP Spring, 2021. 28 JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY capital in Jordan’s overall wealth, and to reverse Reference: the declining trend, a sustained policy focus on both increasing its share and increasing returns Hausmann, R., T. O’Brien, M. A. Santos, A. Grisanti, on the stock of human capital wealth is warranted. S. Kasoolu, N. Taniparti, & R. Villasmil R. 2019. Moreover, Jordan needs to unblock bottlenecks in Jordan: The elements of a growth strategy. CID its produced capital growth which has been stagnant Working Paper Series. during 2009–2018, compared to 5.6 percent growth The Changing Wealth of Nations 2021: Managing for a typical UMICs citizen. This requires immediate Assets for the Future (upcoming). attention to improving business climate with a focus World Bank Group. 2016. Hashemite Kingdom of Jordan on improving domestic competition and improving Promoting Poverty Reduction and Shared Prosperity: regulatory environment as well as predictability. Systematic Country Diagnostic. World Bank. Special Focus 1: How Wealthy is Jordan? Measuring Jordan’s Comprehensive Wealth (1995–2018) 29 SPECIAL FOCUS 2: PUBLIC TRANSPORTATION CHALLENGES IN JORDAN 25 There are significant development constraints to each other.26 In today’s global economy, people, public transportation in Jordan. Looking at various goods, and information are becoming increasingly sources, the costs are estimated to be at least six mobile. In this sense the availability of accessible, percent of GDP a year, not counting the adverse affordable, quick, safe and secure mobility has a impact poor transportation services pose to women’s direct bearing on the level of economic development. employment. Jordan has historically prioritized With a growing population and the significant influx of investing in transportation infrastructure with limited refugees, horizontal growth of Jordanian cities over attention being paid to services such as public the past decade has been significant and mobility transportation. While this has resulted in significant demand in the Jordan has been on the rise. The pace new transportation infrastructure, it has also resulted of growth in the private vehicle fleet in Jordan has in inefficient, uncoordinated, and unreliable public far outstripped the growth in the public vehicle fleet. transit services leading to a low ridership and The number of private cars operating in the Kingdom limited access for most Jordanians, particularly between 2008 and 2018 increased from over half a women, youth, and those with reduced mobility. million to just over a million vehicles – a growth of The government launched initiatives to improve the about 94 percent in a decade. In contrast, public public transportation system, but implementation vehicles including cars and buses, have only grown has been slow. Going forward, policy reforms should focus squarely on the goal of effecting a modal shift from private cars to public transportation. 25 This Special Section is based on the World Banks’ “Jordan Public Transport Diagnostic and Recommendations report”, (forthcoming). 26 Reference: Berg, Claudia N. and Deichmann, Uwe and Context Liu, Yishen and Selod, Harris. 2015. Transport Policies and Development. World Bank Policy Research Working Transportation connectivity and inclusive and Paper No. 7366, Available at SSRN: https://ssrn.com/ sustainable growth are inextricably bound with abstract=2630818. 31 FIGURE 19 • Number of Private Small-Passenger 2019.28 Efficiency gains in transportation would serve Vehicles vs. Public Cars and Buses to reduce the import bill. in Jordan (2008–2018) Consequences of Jordan’s poor public Number of vehicles transportation system will be worsened in the 1,100,000 future if no action is taken. Inaction will lead to 1,000,000 increased congestion and saturation of the system, 900,000 800,000 and result in losses for Jordan. If no action is taken, Number of vehicles 700,000 the annual Greenhouse Gas (GHG) emissions from 600,000 500,000 the transportation sector could increase to over 400,000 11,000 Gg per year over the next 10 years until 2030. 300,000 200,000 This would cost the economy a staggering US$552 100,000 million–US$1.1 billion per year, measured in shadow 0 price of carbon. Enhancing the public transport system 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 in Jordan is also estimated to yield significant human Year capital gains, particularly for women and children. Private small-passenger cars The active labor force participation of women is lim- Public cars and buses ited, partly compounded by the lack of transportation Note: The term public refers to public use and not exclusive government ownership options. Such low participation results in productivity of vehicles. It includes includes privately owned cars used as taxis or ride sharing services and private and government owned busses. losses of around US$65 million per year by 2030 if no Source: Annual Reports of the Jordan Ministry of Transport 2011, 2014, and 2018. action is taken to improve the transportation system. Meeting the growing mobility needs of by 45 percent, from 29,130 to 42,167 within the same Jordanians in a sustainable and inclusive manner period (Figure 19). requires concerted effort to improve the public Inefficiencies in the transportation system transportation system, thereby inducing a shift pose a significant cost to the Jordanian economy. from private vehicles to shared and public transit. Overall, transportation-related inefficiencies are esti- Public transportation ridership in Jordanian cities is mated from various sources to be at least six percent known to be low. Two studies conducted more than of Jordan’s annual GDP. According to the Greater a decade ago showed telling findings. The Amman Amman Municipality (GAM), traffic congestion losses Transport and Mobility Master Plan (2010) showed in Amman in terms of delays and wasted fuel amount that only 13 percent of all trips were made using to JD1.5 billion annually, which accounts for ap- public transportation and 9 percent by yellow taxis, proximately five percent of the 2018 GDP. Looking while private cars accounted for one third of all trips. at other sources, other transportation costs including Moreover, walking remained low at around 26 percent losses due to traffic fatalities and injuries, amount to of trips. The remaining trips were made using other approximately one percent of Jordan’s GDP in recent years (JD296 million in 2020); noise pollution, with 27 The World Bank (August 18, 2009). Hashemite Kingdom of costs ranging between JD54 and JD160 million in Jordan Country Environmental Analysis. Retrieved from: 2014; and pollutant emissions, with Jordan’s cost https://documents1.worldbank.org/curated/en/31 of environmental degradation estimated to be in the 5631468284337239/pdf/478290ESW0JO0P1IC0discl range of JD143 to JD332 million (in 2009).27 osed09131101.pdf. The transportation sector also contributes 28 Import composition from the Observatory of Economic significantly to Jordan’s energy bill. Jordan’s Complexity (2019 data; https://oec.world/en/profile/ country/jor) and the current account is from the IMF energy imports amounted to US$3.74 billion in 2019, Report Jordan—Second Review Under the Extended while its imports of refined petroleum products came Arrangement Under the Extended Fund Facility, to $1.4 billion in the same year; the country’s cur- Request for Augmentation of Access, and Modification rent account balance equaled US$-0.9482 billion in of Performance Criteria June 17, 2021 (EBS/21/56). 32 JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY FIGURE 20 • Modal Transport Share in Amman FIGURE 21 • Public Transportation Share in in 2010 MENA Cities Percent (various years, percent) 60% Istanbul 50% 19% 33% 40% Tehran 9% 30% 13% Rabat 26% 20% Alexandria Zarqa 10% Amman Private vehicle Walking Collective transport Taxi Other 0% Source: Moroccan Ministry of Interior, UITP and UCLG-MEWA (December 2020), Source: Amman Transport and Mobility Master Plan, 2010. Urban Mobility Report 2020. modes of transportation including private school other activity, have put high pressure on transportation buses (Figure 20). Along the same line, the Zarqa infrastructure. A study on the existing bus services in Energy Efficient Urban Transport Plan (2011) showed Amman is ongoing, including surveys. This would help that public transportation and non-motorized trans- pinpoint the challenges around the public perception. port modes in Zarqa only accounted for 16 and 25 The Government of Jordan has been tak- percent of the trips respectively, while private cars ing steps towards enhancing the public trans- accounted for 37 percent of the trips. The modal split portation system and is currently engaged in at a national level is expected to be similar to that of several projects and initiatives to meet this ob- Amman and Zarqa a decade ago, since significant jective. While Jordan has historically prioritized policy changes have only been very recent. However, investing in transportation infrastructure with lim- more recent data would be required to have a clear ited attention being paid to the quality of transpor- view on the modal share as of today. tation services, this has been changing in the past In contrast, other cities in the Middle East and few years. The 2017 public transportation law set North Africa region present higher proportions of the framework for the much-needed reforms with trips made by public transportation (Figure 21). For the mandatory grouping of small operators, there- example, 55 percent of trips in Istanbul in 2017 were by opening the door to better route coordination made by public transportation, while this percentage and service contracts with key performance indica- for Tehran, Rabat, and Alexandria represented 35 tors on quality, safety, green mobility, and service re- percent (2017), 21 percent (2015), and around 20 liability. Although the reform process supported by percent (2015) respectively.29 the 2017 law is not yet advanced, discussions with The lack of a well-organized and efficient public transportation system has put significant pressure on transportation infrastructure and 29 Data for Rabat was provided by the Moroccan Ministry policy action is required to revert this trend. Public of Interior. Data for Istanbul, Tehran, and Alexandria was extracted from UITP and UCLG-MEWA (December perception is that the lack of safe, accessible, reliable, 2020), Urban Mobility Report 2020. Retrieved from: affordable, and green public transportation and the sig- http://uclg-mewa.org/uploads/file/921e80d14cd24d nificant reliance on private vehicles, together with the 8a8db14e7c757376d6/UITP_UCLG-MEWA_Urban_ centralization of businesses, government services, and Mobility_%20Report_2020.pdf. Special Focus 2: Public Transportation Challenges in Jordan25 33 FIGURE 22 • Jordan Population Share per Governorate (2019) Mafraq 6% Balqa 5% Madaba Aqaba 2% 2% Karak 3% Ma'an 2% Ajlun Amman 42% Irbid 19% Zarqa 14% Jarash 2% 2% Tafilah 1% Source: DoS. operators have been conducted in a few cities, ser- Digitization of government services could also vice level agreements have been drafted, and public be a contributor to reducing vehicular trips and reduce transportation strategies are being developed. How- pressure on transportation infrastructure. In fact, GAM ever, in order to have a well-prepared reform, and has recently expanded the use of e-services and the ensure its success, well-tailored consolidation plans impact of this on reducing congestion should be able to for each city are necessary, based on livelihood as- be assessed within a year. sessments of operators, including their daily activi- Ensuring that the transportation options ty and income. In addition, the Ministry of Transport cater to the different needs of males and females and LTRC are preparing pilot public transportation is paramount for ensuring sustained and inclusive projects in Irbid and Zarqa with the support of the growth in Jordan. Women’s labor force participation European Bank for Reconstruction, while a third pi- rate in Jordan is under 15 percent.30 A recent study lot for Jarash is being planned directly by the gov- conducted in Jordan found that 47 percent of women ernment. In addition, the currently ongoing Amman have turned down jobs due to the lack of viable public and Amman-Zarqa BRT is the first initiative that aims transportation options.31 In GAM 33.6 percent of women at improving the public transportation service along reported being dissatisfied with the current public trans- high-density areas and routes focusing on the Am- portation system with 18.1 percent reporting extreme man Governorate (GAM). The GAM includes 42 per- dissatisfaction. In addition, 62.6 percent of women cent of the population of Jordan (Figure 22) while have been subjected to some form of harassment while Zarqa includes 14 percent of the population; many accessing public transportation. As a result, only one employees commute daily from Zarqa to Amman. third of public transportation users are women and less While the government is moving in the right than 50 percent of women use public transportation. direction to enhance the quality of public trans- Improving public transportation in Jordan can serve portation services, additional efforts are needed as an equalizer between men and women in terms of to reverse the long-term trend away from public access to economic opportunities. The Government transportation. These efforts need to focus on opti- mizing bus systems in Jordan and extending the BRT 30 International Labor Organization, ILOSTAT database. network in Amman and other cities in the future as 31 Gender in Public Transportation. A Perspective of Women cities continue to grow. Users of Public Transportation; SADAQA, (2018). 34 JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY of Jordan also adopted in 2019 the Code of Conduct Several deficiencies in the public transit (CoC) for public transportation. This CoC is the first system have resulted in low modal share for ever of its nature in the sector, and aims at regulating public transportation. The current public transporta- the conduct of passengers, drivers, and operators in tion system in Jordan is lacking in four main areas: public transportation to benefit all users, particularly availability, affordability, social and cultural acces- women and girls, thus improving access to economic sibility, and physical accessibility. As a result, the opportunities and increasing women’s participation in system struggles to meet current mobility demands. the labor market. Following the adoption of the CoC in 2019, and to improve safety in the world of work for • Availability. The public transportation services women, the CoC is now being implemented through the have poor coverage and low frequencies. Servic- Mashreq Gender Facility grant with World Bank support es are often concentrated on high demand corri- to the Ministry of Transport, in close collaboration with dors, which can be more profitable to operators, the Jordanian National Commission for Women. resulting in overserved areas and leaving lower demand areas underserved. • Affordability. The lack of the public transpor- Summary of key sector challenges tation system’s integration of both services and fares leads to long commuting times and high Improving the public transportation system and transportation costs, affecting the system’s af- reducing Jordan’s dependency on private cars fordability. The average daily round trip is 2.5 is a key step in “eco-economic” decoupling. hours and the average expenditure on transpor- Transportation, together with the energy sector, is the tation per household is over JD2,000 per annum. main contributor to GHG emissions and one of the Moreover, Jordanian households spend 17 per- largest energy consumers in Jordan. In 2016, GHG cent of their average income on transportation, emissions in Jordan amounted to 31,063.32 Gg of while for youth, it is as high as 23 percent. CO2 equivalent, with 28 percent of these coming • Social and Cultural Accessibility. Public trans- from fuel combustion in the transportation sector. portation services are low-quality and tend to be GHG emissions related to transportation increased unreliable, with no timetables and little informa- from 4,706 Gg of CO2 equivalent in 2006 to 8,787 tion for users, and is perceived as unsafe, espe- Gg of CO2 equivalent in 2016 and cost the Jordanian cially by women. economy between US$320.9 million and US$641.8 • Physical Accessibility. The accessibility to ser- million in 2016. In 2021, GHG emission levels due to vices and opportunities provided by public trans- transportation stand at 10,600 Gg of CO2 equivalent. portation in Jordan is not universal. People with Decarbonizing the transportation sector through a disabilities, as well as other mobility-impaired modal shift from private to public transportation would people such as the elderly, pregnant women, provide significant benefits in terms of reducing GHG or parents carrying children, face severe mobil- emissions and Jordan’s energy bill. ity challenges due to, among other, the lack of A further step in de-carbonization could be accessibility-related features such as pavement taken by introducing cleaner vehicles; this would ramps or dedicated signage. Those who strug- be critical to further mitigating climate change gle with physical accessibility also may be espe- impact of the transportation sector. Among the dif- cially vulnerable to the affordability challenge ad- ferent transportation decarbonization technologies, dressed above. electrification stands out amongst the most promising emerging disruptive technologies, but it is incipient in The above situation is compounded by Jordan and remains an untapped opportunity for the the system’s fragmentation at both operational country. The next section recommends detailed cost and institutional levels. At an operational level, 85 benefit analysis in this area. percent of the public transportation fleet is owned Special Focus 2: Public Transportation Challenges in Jordan25 35 and operated by private individuals. Similarly, the to other intermediate cities, such as Jarash, Irbid, institutional setup is also exceedingly complex. It Zarqa, As Salt, and Madaba. The current individual involves two technical ministries, a regulator, and two operators should be brought and integrated to the local authorities, resulting in conflicts of roles and new transportation systems using fare and payment responsibilities among the involved parties. integration. The livelihood assessment of current bus operators and measures to mitigate adverse impacts on the individuals should be included. Public Policy Recommendations transportation services would also need to be improved through updating of the fare structure. The Ministry Public transportation enhancement is a key enabler of Transport and the governorates’ transportation of economic growth by, among other, generating authorities should update the transportation employment and reducing energy consumption model to develop an operational design based on and pollutant emissions. When designed well, it actual demand as well as incorporate Intelligent can shape land use and development patterns to Transport Systems, quality information for users, and generate jobs and enable economic growth. It can implementing key performance indicators to improve also play a key role in reducing global emissions, quality of services. It is likely that a reformed public noise, and air pollution by enabling the modal shift transportation system in Jordan would need financial from private to public modes of transportation. Several support from the governments preferably through initiatives, mainly at a small scale or related to specific investments in capital expenditure. investments, have been initiated by the government To achieve the necessary modal shift from to enhance public transportation. However, Jordan private cars to public transportation, in addition to still has a long way ahead to achieve an attractive, improving public transportation other measures safe, accessible, reliable, affordable, and green should be established to reduce car use, such as public transportation system with enhanced service a parking management and potentially congestion delivery that provides men and women with access to charging that can use help governorates capture services and job opportunities and contributes to the resources that can be invested in the improvement of decarbonization agenda. public transportation. However, this can only be intro- Addressing the deficiencies of the public duced once an affordable, safe, and reliable public transportation system in Jordan requires action. transportation system is in place. Action is needed to both: (a) improve the efficiency A road safety strategy should also be devel- of the existing public transit system; and (b) introduce oped and implemented to protect the most vulnerable a public transit system that has a higher capacity to actors of the roads: pedestrians. The strategy should move people. Therefore, policy recommendation include investments in sidewalks to enhance them areas regarding the public transportation system in and make them continuous. With better sidewalks, Jordan can be grouped into two key pillars and two and safer crossings, more citizens will have safe cross-cutting solutions: access to public transportation. Pillar 1 – Public Transportation Reforms: The Pillar 2 – BRT as a Trigger of Better Public government will need to make critical decisions when Transportation: The Amman BRT project can it comes to reforming the public transportation sector, be a great opportunity to reevaluate the public which are most helpful when done in a transparent transportation system in Jordan, including its and consultative manner. The main recommendation institutional arrangements since a BRT would require a is that Jordan takes action in the bus consolidation new agency for its management, operation, planning, area by developing and implementing a realistic financial stability, and communication with users. The strategy to incorporate individual operators as Amman BRT has potential to become a showcase formal companies, starting in Amman and extending for the country and the region. A competitive bidding 36 JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY process for its operations and maintenance is public transportation in the country, the government recommended to attract new players in the sector, is in a good position to leverage this momentum by including investments from the private sector. pairing physical interventions with the development of A successful BRT business model, well inte- related policies to ensure the improvement of public grated with the current single operators, is required. transportation efficiency and the development of Competition between the BRT and other bus, minibus high-capacity services. (Coaster), and service taxi (shared taxis) operators needs to be managed. It is encouraged that some Cross cutting solution 1 – Access for All in of the other operators become feeders to the BRT Public Transportation: It is recommended that with physical, operational, technological, and fare inclusiveness and gender considerations are integration. For the system to work, enforcement of mainstreamed at the policy and institutional levels. consequences for informal transportation services, as Design and operational standards also need to be well as illegal parking, would also be necessary. developed and implemented as part of the broader The currently ongoing experimental operation of public transportation system reform. Policies the BRT has shown its potential for success and helps linked to planning, regulating, and operating public the Greater Amman Municipality in identifying necessary transportation that considers everyone needs to be adjustments. Close attention needs to be given to the developed. sections going in mixed traffic. One solution is to pro- vide for priority for buses, which will prevent buses from Cross cutting solution 2 – Public Transportation being stuck in traffic once the BRT is fully operational. Decarbonization and Climate Change Adaptation: In addition, attention needs to be given to maintenance: It is important assess the “what, how, what cost/ the new BRT infrastructure is going to require periodical benefit” of a lower carbon transportation sector in maintenance to make sure that the benefits of the Jordan, including shifting from private vehicles to exclusive corridor are not lost by imperfections in the public transportation, introducing cleaner vehicles, road that slow buses down. Road safety is of paramount and promoting non-motorized mobility. Analysis and importance and will need to be well monitored. policies need to be developed to assess economy- With the expected increase in demand for the wide costs, benefits, opportunities, regulatory issues, Amman BRT in the coming years, closed stations and barriers to the introduction and scale-up of the should be built. Also, prepayment of the ticket before use of e-buses in public transportation and non- boarding the bus should be allowed to avoid slowing motorized means of transportation. A Non-Motorized down the buses and discouraging users from taking Mobility Plan also needs to be developed at a national the BRT. The construction and maintenance of sta- level and implemented at local levels. Adapting public tions is also a great opportunity to attract private transportation assets against climate change and investment. disaster risks also need to be an area of focus. Amman Another priority should be the involvement the has the potential to become a city in which citizens private sector in ensuring the success of other invest- can move safely by bicycle, but the infrastructure for ments linked to public transportation such as Transit that needs to be built. The bicycle trips can be made Oriented Development or terminals. from origin to destination but also to feed the BRT In the context of the first BRT initiative in system, which would require an infrastructure to leave Jordan, among other government efforts to enhance bikes at stations. Special Focus 2: Public Transportation Challenges in Jordan25 37 FIGURE 23 • Recommendations Pillars and Cross Cutting Solutions Public Transport Reform BRT as a Trigger of Better Public Transport Prioritization of public transport PILLARS Success of BRT project Review and update of strategies, regulations, Reevaluation of the public transport system models, and institutional arrangements in Jordan Consolidation of bus operators Success of investments Bus scrapping program Engagement of the private sector Improvement of public transport services Access for All in Public Transport CROSS CUTTING SOLUTIONS Inclusion of people in a situation of vulnerability, including people with reduced mobility, people with disabilities, and women, in public transport planning, regulation, and operation Public Transport Decarbonization and Climate Change Adaptation Decarbonization of the economy, including transport Shift from private vehicles to public transport Introduction of cleaner vehicles Promotion of non-motorized mobility Adaptation of public transport assets to climate and disaster risks 38 JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY ANNEX I Annex I.A: Technical Supplement for for firm permanent exit from the market. takes 1 if the Productivity enhancing Firm Exit firm was operating in the ES baseline (at year 2019) but declared permanent close in the third round of The data set used in Box 3 combines the World Bank COV-ES, and 0 otherwise. Productivity is the main Enterprise Surveys (ES) and the COVID-19-ES Follow- explanatory variable of interest and is proxied by the up Survey (COV-ES). The baseline ES for Jordan log of annual sales per labor in year 2019. FirmControli,k contains a total of 601 firms conducted from May 2019 includes firm-specific characteristics such as size, through November 2019. Almost half of surveyed access to finance, exporter status, foreign ownership, Jordanian firms were operating in the manufacturing gender of the top manager, innovation, firm having its sector, while around 38 percent in other services and own website. S denotes sector specific variables (in 14 percent in retail. The follow-up COV-ES re-contacted this case, it takes manufacturing and services). all establishments sampled in the baseline ES in May The marginal effects for a set of logit regres- 2020, November 2020, and June 2021, respectively. sions are displayed in Table 1, starting with a This allowed us to identify the firm operating status parsimonious specification, and adding the various and build explanatory and control variables. controls sequentially. The logit model is used to model the prob- ability of firm exit as a function of firm productivity and other firm-specific characteristics. The baseline References: Logit-regression estimates the following equation, Foster, L., C. Grim, & J. Haltiwanger. 2016. Reallocation Prob(Exiti,j = | Productivityi,j, FirmControli,j, Sj) in the great recession: cleansing or not? Journal of Labor Economics, 34(S1), S293-S331. Where the subscript i denotes each firm; j the sector of activity. The dependent variable Exit is the proxy 39 TABLE 1 • Logit Regression Marginal Effects VARIABLES (1) (2) (3) (4) (5) Sales per worker (log) –0.044*** –0.054*** –0.041*** –0.042*** –0.028** (0.014) (0.015) (0.014) (0.016) (0.153) Services 0.086** 0.102*** 0.104** 0.107*** (0.038) (0.039) (0.042) (0.041) Medium size (20–99 workers) –0.004 0.012 0.001 (0.043) (0.045) (0.043) Large size (>=100 workers) –0.133*** –0.119*** –0.122*** (0.035) (0.041) (0.042) Top manager is female (Y:1, N:0) 0.337*** 0.326*** 0.337** (0.125) (0.127) (0.125) Export directly >10% of sales 0.023 –0.004 0.028 (0.064) (0.063) (0.072) Foreign ownership >10% (Y:1, N:0) 0.315** 0.308** 0.338** (0.135) (0.138) (0.137) Has bank loan or line of credit (Y:1, N:0) –0.027 –0.024 (0.045) (0.045) Product innovation (Y:1, N:0) –0.026 –0.006 (0.051) (0.050) Have own website/digital presence (Y:1, N:0) –0.116*** (0.050) Number of Observations 340 340 330 305 305 Standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1 Muzi, S., F. Jolevski, K. Ueda, & D. Viganola. 2021. The CMS analysis was first suggested by Productivity and Firm Exit during the COVID-19 Tyszynski (1951) and was refined by Leamer and Crisis. Stern (1970), Richardson (1971), Fagerberg and Sollie (1987), and Kapur (1991). Empirically, in line with studies by Leamer and Stern (1970), Fagerberg Annex I.B: Technical Supplement for and Sollie (1987) and ECB (2005), the equation to performing Constant Market Share perform CMS analysis is as follows: (CMS) Analysis X1 – X0 = r∑i Xi0 + ∑(ri – r)X0 i + ∑i∑j(rij – ri)Xij 0 + The Constant Market Share (CMS) analysis is a way ∑i∑j(Xij –1 Xij – 0 rijXij) 0 to analyze the international trade pattern of a country ….. (1) during the given time period. It is an accounting method for decomposing country’s growth of actual exports where; during a specified period into four parts; (1) the world Xijt = the value of country export of commodity i to trade effect; (2) the commodity composition effect; market j at time t; = the rate of growth of world exports; (3) the market diversification effect; and (4) a residual. ri = the rate of growth of world exports of commodity i; 40 JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY rij = the rate of growth of world exports of commodity Richardson, J. D. 1971. “Constant Market Share i in market j. Analysis of Export Growth.” Journal of The first term in equation (1) is explained as International Economics, 1: 227–239. ‘the world trade effect,’ which measures the impact of Tyszynski, H. 1951. “World Trade in Manufactured expanding global trade on selected country’s exports. Commodities, 1899–1950.” The Manchester In an era of globalization, a small open economy School of Economics and Social Studies, 19: should have a large positive global trade effect. The 272–304. second term in the equation is generally termed as ‘the commodity composition effect,’ which measures the contribution to country exports from individual Annex I.C: Technical Supplement commodities. A positive value indicates that country’s for Normalization of U.S. Monetary merchandise exports are concentrated in products Policy and its Potential Impact on with higher-than-average growth rates and vice versa. Jordanian Economy The third term in equation is explained as ‘the market distribution effect,’ which reflects the contribution The structural vector autoregressive (SVAR) models from export-partners’ demand. A negative value indi- have been the workhorse of empirical macroeconomic cates that the country’s exports destined to countries analysis over the last decade. They have become such where demand is slower than the global average because SVARs incorporate additional identifying growth and vice versa. The last term in the equation is assumptions based on economic theory on model generally interpreted as ‘the residual,’ which basically responses in contrast to the standard, reduced- reflects the impact of other factors, including changes form VAR representations. Delving down from a in relative prices, competitiveness effect, government structural form to a reduced form requires certain policies, and non-price factors. assumptions about the matrix which establishes the Like any other methodology, the CMS analysis relation between the reduced form residuals and the also carries some merits and demerits. While the structural disturbances (innovations). obvious advantage is to identify the underlying factor Motivated by their rigorous use in policy responsible for export growth, the main disadvantage analysis, we also employed SVAR models to of the CMS analysis is that it rests on the assumption estimate the pass-through effect of changes in that a country’s export share in the world market the U.S. monetary policy stance on the Jordanian remains constant overtime. monetary policy and other key economic indica- tors. A similarly modeled SVAR structure is used to obtain results for major MENA oil importing coun- References: tries. Specifically, taking a lead from Caceres et. al (2016) and Chen et. al (2014), our SVAR model European Central Bank. 2005. “Competitiveness and equations are as follows: the Export Performance of the Euro Area Trade.” Occasional Paper, 30. European Central Bank. FFRt = Et–1 [FFRt] + ε tFTR Fagerberg, J., and G. Sollie. 1987. “The Method of Constant Market Share Analysis Reconsidered.” JPRt = Et–1 [JPRt] + δ11εtFFR + εtJPR Applied Economics, 19: 1571-83. Kapur, S. N. 1991. “The Structure and Competitiveness PSCt = Et–1 [PSCt] + δ21εtFFR + δ22εtJPR + εPSC t on India’s Exports.” Indian Economic Review, 2: 221–37. OGAPt = Et–1 [OGAPt] + δ31εtFFR + δ32εtJPR + δ33εtPSC + εOGAP t Leamer, E. E., and R. M. Stern. 1970. “Quantitative International Economics.” Boston: Allyn and CPIt = Et–1 [CPIt] + δ41εtFFR + δ42εtJPR + δ43εPSC t + δ44εOGAP t + Bacon Inc. 171–183. εt CPI Annex I 41 where εFFRt , εJPR t , εtPSC , εOGAP t , and εCPI t , are the U.S. methodology builds on the foundation laid in previous federal funds rates, Jordan rediscount rate, private works by the World Bank, including Expanding the sector credit growth, output gap and headline Measure of Wealth (World Bank 1997), Where Is inflation shocks, respectively. Et–1[˙] is the expectation the Wealth of Nations? (World Bank 2006), and The of a variable based on information set at the end of Changing Wealth of Nations (World Bank 2011 and period t–1 and δ is the impulse response coefficients. Lange et al. 2018). Choice of the lag is based on the Akaike information The following sections provide a brief overview criterion (AIC). Equation (1) presents the structural of the methodology and data sources for estimating form of the VAR model as follows. each wealth component. Detailed documentation of the data and methodology, and the technical studies Yt = AYt–1 + Bεt(1) and background papers that underlie the updated methodology, are available on the wealth accounting Where Y = [U.S. federal funds rates, Jordan rediscount page of the World Bank website.32 rate, private sector credit growth, output gap, headline inflation], Total Wealth ε = (εtFFR, + εtJPR, + εPSC t , + εtOGAP , + εCPI t ) A nation’s wealth consists of a diverse portfolio of assets, which together form the productive base of 1 0 0 0 0 the national economy. These assets include: δ11εtFFR 1 0 0 0 and B = δ21εFFR t δ22εFFR 1 0 0 • Renewable natural capital—including forests δ ε FFR δ32ε JPR δ33ε PSC 1 0 (timber and ecosystem services), mangroves, 31 t δ ε FFR δ42ε JPR δ43ε PSC δ44ε OGAP 1 fisheries, agricultural land (cropland and 41 t pastureland), and protected areas. As mentioned, a similar SVAR set-up has also • Non-renewable natural capital—including fossil been estimated for four major MENA oil importing fuel energy (oil, natural gas, and coal) and 10 countries, including Pakistan, Tunisia, Morocco and metals and minerals. Egypt while using their GDP as weights. • Produced capital—including machinery, structures, equipment, and urban land. • Human capital—including the knowledge, skills, References: and experience embodied in the workforce. • Net foreign assets—including portfolio equity, Carceres, C., Y. Carrière-Swallow, I. Demir, and B. debt securities, foreign direct investment, and Gruss. 2016. “U.S. Monetary Policy Normalization other financial capital held in other countries. and Global Interest Rate.” IMF Working Paper, 16/195. International Monetary Fund. Total wealth is calculated by summing up each Chen, J., T. Mancini-Griffoli, and R. Sahay. 2014. “Spillovers component of wealth: from United States Monetary Policy on Emerging Markets: Different This Time?” IMF Working Paper, Total wealth = Renewable natural capital 14/240. International Monetary Fund. + Nonrenewable natural capital + Produced capital + Human capital + Net foreign assets Annex I.D: Technical Supplement for Wealth of Nation This appendix summarizes the data and methods 32 https://datacatalog.worldbank.org/dataset/ behind the Wealth of Nations 2021 edition. The wealth-accounting. 42 JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY Adjusted Net Savings33 In economic theory, investment net of depre- ciation and depletion equals the change in wealth. Adjusted net saving (ANS) is measured as gross As a result of both practical data limitations faced national savings minus depreciation of produced in measuring adjusted net saving (ANS), as well as capital, depletion of resources, the cost of air accounting definitions for savings and investment in pollution damage to human health, as well as a credit the System of National Accounts (SNA), this is not the for education expenditures. case for this volume’s wealth accounts. A significant ANS is calculated as: gap between ANS and the change in wealth may sometimes occur. ANS = GNS – CFC + EDU – NRD – GHG – POL Where ANS =Adjusted net savings References: GNS = Gross National Savings, calculated as the difference between Gross National Income Gerber, J. et al. 2020. “Changing Wealth of Nations: (GNI) and public and private consumption. Calculating Agricultural Value.” World Bank CFC = Consumption of fixed capital, the replacement Report. value of capital used up in the process Lange, Glenn-Marie; Wodon, Quentin; Carey, Kevin. of production, also a standard item in the 2018. The Changing Wealth of Nations 2018: system of national accounts. Building a Sustainable Future. Washington, DC: EDU = Current public expenditure on education. World Bank. As a lower-bound first approximation, the World Bank. 1997. Expanding the Measure of Wealth. calculation thus included current operating Washington, DC: World Bank. expenditures in education (see World Bank, ———. 2006. Where Is the Wealth of Nations? Measuring 1996). Capital for the 21st Century. Washington, DC: NRD = Natural resource depletion, calculated as World Bank. the sum of net forest depletion, the depletion ———. 2011. The Changing Wealth of Nations: of fossil energy resources, and metals and Measuring Sustainable Development in the New minerals depletion. Millennium. Washington, DC: World Bank. GHG = Damages due to carbon dioxide emissions from fossil fuel use and the manufacture of cement, estimated to be US$30 per ton of CO2 times the number of tons of CO2 emitted. POL =  Damages due to exposure of a country’s population to air pollution. Damages are 33 Detailed information and data can be found at: calculated as forgone labor output due to https://datacatalog.worldbank.org/dataset/ premature death from pollution exposure. adjusted-net-savings. Annex I 43 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 Jordan Economic Monitor – Spring 2021: Uncertain and Long Trail Ahead June 23, 2021 Report The Business Case for Investing in Women’s Employment in Jordan Case Study: Umniah – Safe June 17, 2021 Report and Respectful Workplaces Education Expenditure, Enrolment Dynamics and the Impact of COVID-19 on Learning in Jordan April 28, 2021 Working Paper The Amman Climate Plan: A Vision for 2050 Amman March 31, 2021 Report Jordan Economic Monitor – Fall 2020: Navigating through Continued Turbulence March 1, 2021 Report Fiscal Policy, Poverty and Inequality in Jordan: The Role of Taxes and Public Spending – Policy March 1, 2021 Working Paper Summary Hashemite Kingdom of Jordan – Social Security Corporation (SSC): Toward Coverage Expansion March 1, 2021 Report and a More Adequate, Equitable and Sustainable Pension System The Lives and Livelihoods of Syrian Refugees in the Middle East: Evidence from the 2015–16 July 21, 2020 Policy Research Surveys of Syrian Refugees and Host Communities in Jordan, Lebanon, and Kurdistan, Iraq Working Paper Coping with the Influx: Service Delivery to Syrian Refugees and Hosts in Jordan, Lebanon, and July 21, 2020 Policy Research Kurdistan, Iraq Working Paper The Fallout of War: The Regional Consequences of the Conflict in Syria June 17, 2020 Report Jedad: Promoting Market Opportunities for Refugee and Host Community Businesses in Jordan June 9, 2020 Report (continued on next page) 45 (continued) Title Publication Date Document Type Jordan Economic Monitor – Spring 2020: Weathering the Storm June 1, 2020 Report Estimating Poverty for Refugee Populations: Can Cross-Survey Imputation Methods Substitute for December 3, 2019 Policy Research Data Scarcity? Working Paper Measuring Social Norms About Female Labor Force Participation in Jordan June 26, 2019 Policy Research Working Paper How Does Poverty Differ Among Refugees? Taking a Gender Lens to the Data on Syrian Refugees October 17, 2018 Policy Research in Jordan Working Paper Summary of Special Focuses from the Fall 2020 JEM: “Moving Toward an Latest Jordan Economic Monitors Equitable and Sustainable Pension and Social Insurance in Jordan” Spring 2021 JEM: “A year into the pandemic: Jordan’s private sector Addressing pension and social insurance issues snapshot” means addressing financial, fiscal, social, and economic challenges. More than half of the population Surveys conducted by the WBG show that, a year in Jordan is not yet effectively covered by contributory into the pandemic, the lockdowns and demand social security programs. Although designed to be shocks have had a strong impact on the private financially self-sustainable, the contributory pension sector, including high closure rates, particularly in program is actually unsustainable. The program the services sector. Liquidity remains a major issue also creates inequities, and adverse incentives. for firms. To respond to the challenges, Jordanian Despite some past reform efforts, the program has firms have introduced new products and are using still considerable parametric inconsistencies (benefit digital technologies more intensively. However, the promises are not in line with contribution rates and pace of transformation has lagged other countries. retirement ages). Such inconsistencies are bridged, The programs put forward by the government to at the moment, by favorable demographics, but in support the recovery have reached a significant less than a decade, revenues from contributions will share of companies interviewed, but some gaps not be enough for pension spending. There are some remain. potential solutions and proposals that Jordan could adopt in order to improve pension outcomes, and its Spring 2021 JEM: “COVID-19 and financing mechanisms. inequality in the MENA region and in Jordan” Fall 2020 JEM: “The Incidence of Taxes and Public Spending in Jordan” The COVID-19 pandemic has thrown entire economies into disarray and upended livelihoods. Despite being The degree to which different households contribute initially heralded as the “great equalizer,” new evidence to and benefit from fiscal policies varies across income has shown that the consequences of COVID-19 have distribution. Taken together, the overall allocation been borne unequally, disproportionately affecting of taxes (personal income tax and sales taxes) and the poor and vulnerable. This Special Focus looks at public spending (cash transfers, water and electricity the inequality-enhancing effects of COVID-19 in the subsidies, and health and education in-kind benefits) MENA region, with a special zoom in on Jordan. in Jordan is modestly progressive. The fiscal system 46 JORDAN ECONOMIC MONITOR: EN ROUTE TO RECOVERY helps to reduce inequality, though much of the effect men enjoy is a precondition for ensuring that everyone comes from in-kind benefits and the pattern of taxes reaches their full life potential. Moreover, significant and cash spending could be made to benefit the and sustained increases in female labor participa- poor and middle class further. In comparing Jordan tion would potentially have substantial impacts on with other countries, it is evident that more could be economic growth. However, female workers in Jordan achieved. Further, Jordan’s need for fiscal consolida- face multiple barriers in the labor market. Although tion can be compatible with the goal of reducing Jordan has taken important recent legal reforms to poverty and inequality. The recent expansion of social remove barriers to women’s employment, restrictions assistance programs is making Jordan’s fiscal poli- and legal differentiation between women and men cies more equalizing and additional reforms to sales remain and further legal reforms and regulations are taxes and electricity subsidies present opportunities needed to address the gender gap. to make the fiscal system more progressive without increasing spending. Spring 2020 JEM: “Jobs Diagnostics” Spring 2020 JEM: “Women and Work in Job creation for youth and women is weak. Jordan’s Jordan” difficult job challenges are made even harder by growth rates that are persistently low, a large and Women’s participation in Jordan’s labor market is the growing labor force that is increasingly informal, and fourth lowest in the world with less than 15 percent of a weak private sector that did not create enough jobs women working or looking for work. Jordanian women to encourage youths and women to participate in the who do want to work face an unemployment rate labor force. Moreover, labor segmentation appears reaching almost 25 percent in 2019, nearly twice that to be on the rise. The World Bank Jobs Diagnostic of men—meaning that low rates of female participation (2018) indicates where the challenges for Jordanian mask an even lower rate of employment. Expanding policymakers lie in their quest to improve the econ- women’s access to economic opportunities remains omy’s jobs performance. Many of these challenges critical. Equal access to economic opportunities as require policy intervention to improve the jobs picture. Annex II 47 1818 H Street, NW Washington, DC 20433