HASHEMITE KINGDOM OF JORDAN The World Bank Group THIRD QUARTER 2004 A Quarterly Publication of the Jordan Country Unit 37125 In this edition Page · World Bank Contacts 2 · Jordan Poverty Assessment 3 · Recent Economic Developments 11 · Bank Group Operations 15 · News, Recent and Upcoming Activities 20 · Recent World Bank Publications 24 Hashemite Kingdom of Jordan Update World Bank Contacts Joseph Saba, Country Director Shaha Riza, Acting Manager Tel. (202) 473 2992 External Relations and Outreach Fax (202) 477 1482 Tel. (202) 458 1592 Email: Jsaba@worldbank.org Fax (202) 522 0006 Email: Sriza@worldbank.org Osman Ahmed, Lead Country Officer Tel. (202) 473 7063 Sereen Juma, Communications Officer Fax (202) 477 1482 Tel. (202) 473 7199 Email: Oahmed@worldbank.org Fax (202) 522 0003 Email: Sjuma@worldbank.org Paolo Zacchia, Senior Country Economist Beirut Country Office Tel. (961 1) 987 800 Fax (961 1) 986 800 World Bank Internet Address: Email: Pzacchia@worldbank.org www.worldbank.org Sophie Warlop, Operations Analyst To view and order World Bank Publications: Tel. (202) 473 7255 http://publications.worldbank.org/ecommerce/ Fax (202) 477 1482 Email: Swarlop@worldbank.org For more information on World Bank programs in Jordan: Samia Rechache, Program Assistant www.worldbank.org/mena Tel. (202) 458 4127 Fax (202) 477 1482 To locate research papers, best practices, Email: Srechache@worldbank.org terms of reference, presentations, key policies, communities of practice, project World Bank Address: information and useful links from the World 1818 H Street, NW Bank and other sites: Washington, DC 20433 Email: askMNA@worldbank.org Editorial Team: Mohammed Feghoul Chadi Bou Habib Margaret Henderson Janine C. Kane Gudivada Venkateswara Rao Markus Scheuermaier Srinivasan Thirumalai Sophie Warlop Paolo Zacchia With special thanks to Mary Saba 2 Third Quarter 2004 Hashemite Kingdom of Jordan Update JORDAN POVERTY ASSESSMENT The World Bank and the Government of Jordan recently completed a collaborative poverty assessment in Jordan. This article summarizes the key results of the assessment. The main conclusion of the assessment is that poverty declined in Jordan between 1997 and 2002-03 no matter which method of assessment is chosen. Based on the methodology discussed below, it is estimated that the percentage of poor in Jordan fell by a third from 21.3 percent in 1997 to 14.2 percent in 2002. Introduction growth, the unemployment rate persisted at around 15 percent through much of the 1990s. Jordan's recent economic growth performance has been noteworthy. Since 1999, GDP growth has In response to the continuing concerns about the consistently stayed above population growth, slow pace of poverty reduction, Jordanian despite repeated negative shocks emanating from authorities announced a new strategy for poverty the Region. This resilience has been a hard-won alleviation in 2002. Key policy initiatives are to: achievement through conscious policy choices increase and extend the National Aid Fund and an accelerated pace of structural reforms. (NAF); support sustainable microfinancing; and Jordan's achievement in human development has increase employment opportunities in rural areas also been remarkable. In terms of health and and small towns through Cluster Village education, Jordan is better than comparators Development. In addition, social safety net policy worldwide at similar levels of GDP. Yet, despite changes under the new strategy have been rapidly the gains in economic growth and human implemented. Jordan's National Social and development, Jordanians are unsure whether the Economic Plan (2004-06)2 reflects the continued fruits of development and reform are reaching the concern of national planners, and puts "relatively poor. high levels of poverty and unemployment" at the top of the list of current challenges facing Jordan. Jordan had little poverty or unemployment prior The assessment fills the knowledge gaps to the economic collapse in 19891. The economic identified in the new strategy for poverty collapse pushed 17 percent of the population into alleviation by utilizing the newly available results poverty, and rendered 20 percent of the labor of the Household Expenditure and Income force unemployed. Successful macroeconomic Survey. stabilization in the early 1990s reversed the decline in GDP growth and helped moderate the The assessment considers poverty in Jordan in twin problems of poverty and unemployment. 2002-03, and examines the changes that have However, growth proved to be transient and the occurred since 1997 as a result of economic expectation of peace dividends from the 1994 growth and the income distribution policies of the peace accord did not fully materialize. Though per Government of Jordan. By assessing the social capita consumption declined by 1.5 percent a year protection policy implemented under the National between 1992 and 1997, active redistribution Strategy for Poverty Alleviation (2002), and policies reduced consumption inequality, and drawing implications for poverty alleviation reduced the proportion of poor by some 2.6 outcomes in the areas of social protection, health, percentage points. However, with weak economic and education, the assessment aims to aid in the efforts of government, civil society, and development partners to address the needs of the poor in a more effective manner, and accelerate 1The root causes of the collapse were the unsustainable the pace of poverty reduction. expansion of the public sector and the collapse of oil prices in the mid-1980s. Jordan is vulnerable to the price of oil indirectly through worker remittance 2 Draft by Ministry of Planning and International inflows from Jordanian workers in oil-rich countries. Cooperation, Jordan. Third Quarter 2004 3 Hashemite Kingdom of Jordan Update The following six key areas are studied in-depth Building a consensus on a new poverty line is to facilitate the implementation of the important to measure and monitor poverty in Government's poverty alleviation program: Jordan. Since the last official poverty line was established in 1987, poverty studies have used a · Poverty In Jordan: Incidence And Trends. diverse set of methodologies to arrive at poverty (Section A); lines ranging from JD252 to JD478 per capita per · Why Has Poverty Declined In Jordan, And year for 1997 (in 1997 prices). As a consequence, Will The Decline Continue? (Section B); there has been little agreement about the · The Effectiveness Of The Social Protection magnitude of poverty. The new Household Program In Alleviating Poverty. (Section C); Expenditure and Income Survey provides an · How Well The Poor Are Able To Use The excellent opportunity to construct new poverty Labor Market To Improve Their Living lines for Jordan that satisfy well-established Conditions. (Section D); criteria4 set by poverty researchers. Figure 1 · Gaps In Education Between The Poor And presents new poverty lines at the governorate Non-Poor. (Section E); and level for 1997 and 2002-03. The new poverty · Gaps In Health Outcomes Between The Poor lines are specific to family composition (age and And Non-Poor. (Section F). sex of family members) and where the family lives, and reflect the new calorie requirements for A. Poverty In Jordan: Incidence Jordanians, and allow for actual expenditure on And Trends. non-food items, as observed in the household survey. The main conclusion of the assessment is that poverty declined in Jordan between 1997 and Progress in poverty reduction in Jordan has been 2002-03 no matter which poverty line is chosen. geographically (governorates, sub-governorates Using the most appropriate poverty line discussed and rural-urban) uneven. In three governorates in the assessment, the assessment estimates that (Balqa, Karak, and Aqaba) there is no strong the percentage of poor in Jordan fell by a third evidence to suggest that poverty either increased from 21.3 percent in 1997 to 14.2 percent in 2002. or decreased. In all other governorates, except The depth of poverty3 also declined from 5 to Zarqa, poverty declined significantly, particularly 3 percent. in Maan and Mafraq, where the 1997 poverty levels exceeded 30 percent. In Zarqa, however, Figure 1. Average Total Poverty Line, By Governorate 450 400 1997 2002-03 350 Year 300 250 Per at 200 150 Capi 100 Per 50 JD 0 ounl ale di Irb Mafraq Aj Balqa fe Jaresh Karak Maan Zarqa Ta Aqaba Madaba Amman Jordan Source: Staff estimates, based on Household Expenditure and Income Surveys, 1997 and 2002-03, Department of Statistics, Jordan. 4The key criteria are that poverty lines should: (i) be specific to household demographic characteristics such as age and sex; (ii) allow for spatial price differences; 3The proportionate deficit of actual consumption of the (iii) allow for economies of scale; and (iv) be based on poor from the poverty line. observed household expenditure patterns. 4 Third Quarter 2004 Hashemite Kingdom of Jordan Update poverty significantly increased from 16 percent to separated or divorced women. Excessive reliance 22 percent. The increase in unemployment on social protection programs and other types of registered in Zarqa (from 11 to 14 percent), and transfers is a source of vulnerability for FHH. As the steep rise in NAF claimants,5 indicate that a consequence of lower labor force participation living conditions must have worsened in Zarqa, and greater unemployment, FHH rely less on possibly due to factors such as the relocation of participation in production activities (wages or military establishments. Geographic distribution own account production) than MHH. Female- of poverty in Jordan at sub-governorate level headed households are also particularly vulnerable exposes select areas of extreme poverty. Jordan to worker remittance inflows. The percentage of has some pockets (13 out of 73 sub-districts) of poor FHH would increase by 50 percent in the severe poverty, where more than 34 percent of the absence of remittances. population is poor. Most are located in remote desert areas, where chronic poverty, low literacy Poverty among children is marginally higher than rate, and the nomadic nature of the poor pose in the general population. Children (under 18 special challenges for spreading the fruits of years of age) constitute half the population in development. Jordan. Poverty among them is 16 percent, nearly two percentage points higher than the general Rural Jordan is lagging behind in poverty population, because poorer households have a reduction. Jordanians residing in rural areas and larger number of children. Poverty pushes living off agricultural incomes tend to be poorer. children to work while they should be in school, Currently, 19 percent of the rural population is particularly the boys. Based on the new poor compared to 13 percent in urban areas. Household Survey, it is estimated that about 3 Poverty in rural areas is declining more slowly percent of children between the ages of 10-18 than in urban areas, resulting in a widening rural- years are employed. However, the prevalence of urban gap between 1997 and 2002. However, a child labor is probably underestimated, as positive feature of poverty in Jordan is that the households are typically reluctant to acknowledge chronically poor--defined as those whose poverty that they have underage children working. The is expected to persist--comprise only 29 percent Survey found that male children start working of all the poor.6 The remainder have such shallow earlier. About 5 percent of male children in the income deficits that they move in and out of age group 10 to 18 are reported to be working, poverty as their incomes fluctuate7. Apart from which suggests that more male than female the chronically poor, the assessment analyzes the children drop out of school to work. More than 12 vulnerable groups of poor women and children. percent of children either do not enroll in or do not complete secondary education. Current Women head about 10 percent of households in policies to protect children from child labor, and Jordan. The results of the new Household Survey to rehabilitate those who fall behind in education, indicate that there is little difference in poverty may need to be improved to minimize the measures between female-headed households suffering of poor children. (FHH) and male-headed households (MHH). However, some select sub-groups of FHH, such as B. Why Has Poverty Declined In divorced and separated women, have a higher Jordan, And Will The Decline incidence of poverty than corresponding male- Continue? headed households. Therefore, social protection programs need to target households headed by The decline in poverty in Jordan is largely due to the growth in aggregate real private per capita 5 The National Aid Fund was established in 1986 with consumption that registered a fast 3.5 percent the main objective of enhancing and institutionalizing annual growth over 1997-2002 compared to 0.8 the social safety net. The NAF originally provided percent annual rise in per capita GDP (Figure 2). untargeted, generalized subsidies on foodstuffs. The aggregate inequality measure (Gini) did not 6 In Indonesia for example, nearly 80 percent of the change significantly during this period, showing poor are deemed to be chronically poor. that the growth in consumption is broad-based and 7 If the non-poor who could become poor because of not confined only to the richer classes (Figure 3). income fluctuations were counted, the population vulnerable to poverty is slightly higher at 16 percent in This fast rise in private consumption is 2002-03. corroborated by evidence from Jordan's National Third Quarter 2004 5 Hashemite Kingdom of Jordan Update Accounts and international experience of middle- Figure 3. Welfare (Consumption) Gain income countries. Accruing To All Income Groups In Jordan Figure 2. Annual Growth In Per Capita Private Consumption And Income 4 10.0 Income Per Capita 3 Consumption Per Capita 5.0 Capita 2 0.0 Per Real Consumption 1 -5.0 0 1 2 3 4 5 6 7 8 9 10 -10.0 Decile -15.0 Source: Household Expenditure and Income Survey 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2002-03 and National Accounts. Source: Household Expenditure and Income Survey Meeting the poverty reduction goals of Jordan's 2002-03 and National Accounts. new national plan will require resolute efforts. Jordan's National Social and Economic Plan Sustaining private consumption growth at the (2004-06) aims to reduce poverty by one-third. current rate to reduce poverty will be hard and Given the new poverty line and assuming contingent on Jordan accelerating its GDP growth unchanged income distribution, Table 1 projects rate to 6 percent or more. It is also consistent with standard poverty measures for 2006 under the finding that employment gains for the poor alternative assumptions of growth in per capita have not been robust and must improve so that the real consumption. A growth rate of about 1.1 gains in consumption for the poor have a sound percent in real per capita consumption is required and sustainable basis. So far, the gains in to cap the number of poor at the 2002 level, while consumption of the poor have been driven mainly achieving a one-third reduction would require by a greater share of spending and transfers, and about 4 percent real per capita consumption not from rising incomes or employment. growth. Reaching the absolute target would require an even larger growth of 5.5 percent, The fast rise in private consumption appears to be showing the challenging task ahead. due to a recovery in consumption trends that is mainly policy driven. Private consumption is rising in response to a supportive macroeconomic environment (low real interest rates, appreciating real exchange rates, for example) and confidence in economic prospects from structural reforms. Table 1. Poverty Projections For 2006 Projections of poverty in 2006 Baseline Assumptions about annual growth of per capita real consumption 2002 Elasticities 0.5 1 1.5 2 2.5 3 3.5 4 Headcount Ratio 14.2 -1.9 13.7 13.1 12.6 12.1 11.5 11.0 10.4 9.9 Poverty Gap 3.3 -2.3 3.1 3.0 2.8 2.7 2.5 2.4 2.2 2.1 Severity 1.1 -2.5 1.1 1.0 1.0 0.9 0.9 0.8 0.7 0.7 Number of Poor ('000) 733.2 778.1 748.5 718.5 688.1 657.2 625.9 594.2 562.0 Source: Staff estimates. 6 Third Quarter 2004 Hashemite Kingdom of Jordan Update C. The New Social Protection transfers to contribute to a much larger reduction System Is Leaky And Needs in the poverty gap, not only between rich and Improvement. poor, but also across regions. Given all of these findings, it seems clear that adopting poverty as Driven by concern for the poor, the Government the overarching criterion for receiving NAF of Jordan has directly intervened to improve the benefits, rather than using the myriad of income of poor families through social protection categories as at present, could improve targeting. mechanisms. The general conclusion from the analysis is that, though NAF transfers helped the Figure 4. Income Supplement Program poorest of the poor, roughly two-thirds of all (Recurring Cash Assistance): Families Assisted transfers leaked to the non-poor, implying a And Assistance Per Family, 1996-02 significant room for improvement. 70000 600 Number of Families Reacting to criticism that the Recurrent Cash Assistance Per Family 550 60000 Assistance Program was helping only about 30 percent of the poor, the Government's new 500 50000 Poverty Alleviation Strategy8 recommended 450 expanding coverage to all eligible individuals and 40000 families, and increasing assistance to all families 400 falling beneath the World Bank poverty line. 30000 350 Renamed the Family Income Supplement 1996 1997 1998 1999 2000 2001 2002 Program, this cash assistance program was Year expanded to reach not only the poor who cannot work (the disabled, widowed women, etc), but Source: National Aid Fund, Jordan, 2003. also the working poor. As a result, the number of beneficiaries and the assistance per beneficiary rose sharply in 2002. In addition, the overall NAF Figure 5. The Leaky Social Safety Net budget was expanded nearly three-fold from 1996 to 2002 (Figure 4). However, relative to 1000 Urban Rural Government spending on public pensions for civil 900 servants, total NAF expenditures on vulnerable Annual 800 groups is modest. 700 JD, 600 The impact of NAF transfers on poverty is modest 500 because a large proportion of the benefits accrue Family, 400 to the non-poor. Except in a few governorates, Per 300 such as Ajloun and Karak, NAF's poverty- 200 alleviating role appears to be marginal in 100 Benefit 0 comparison with the level of spending. Without 1 2 3 4 5 6 7 8 9 10 NAF transfers, the percentage of poor would be higher by 0.8 percent and the poverty gap by 0.7 Expenditure Deciles percent, but with improved targeting, the benefits could be much higher. Source: National Aid Fund, Jordan, 2003. As it stands, two-thirds of NAF benefits leak to D. How Well Are The Poor Able To the non-poor; and the absolute amount of transfer Use The Labor Market? remains about the same for decile groups, four to ten in urban areas, and four to nine in rural areas The poor seek to improve their living conditions (Figure 5). There appears to be scope for NAF by using the one asset they have in abundance-- labor. Whether they are able to use this asset to escape poverty ultimately depends on how 8 Poverty Alleviation for a Stronger Jordan, A successful they are in finding work and how much Comprehensive National Strategy, Jordan Poverty they are able to earn. Alleviation Program, Ministry of Social Development, Jordan, May, 2002. Third Quarter 2004 7 Hashemite Kingdom of Jordan Update Finding work in Jordan remains a major challenge Poverty has also declined for employed workers for the poor, as unemployment has persisted in the since 1997, and the proportion of households in 14 to 15 percent range since the mid-1990s, and is Jordan headed by the "working poor" has declined showing a slightly worsening trend. Based on from almost 10 percent in 1997 to only 6 percent projections of labor force growth, significant in 2002. Yet, there were about 100,000 working reductions in unemployment over the next decade adults living in poor families in 2002-03. will require economic growth averaging 6 to 7 percent a year, which is substantially higher Figure 6. Youth Unemployment Among The than the 3.8 growth that occurred over the 1997- Poor And Non-Poor By Governorate, 2002 2002 period. The recent slowdown in labor force growth could be a forewarning of worker 70 discouragement. 60 Non-Poor Poor The poor are not looking for jobs as much as the 50 non-poor. Labor force participation rates for the 40 poor, at 37 percent, are lower than for the non- poor, at 40 percent. At the same time, poverty 30 rates for the population where the household head 20 is unemployed have realized the greatest relative declines since 1997. All groups experienced 10 significant declines in poverty between 1997- 0 2002, but while the poverty rate for those where the household head was employed or not sh re Irbid economically active declined over the period by Maan Amman Ja Zarqa Karak Madaba Tafeela Mafraq Balqa Ajloun Aqaba 34 percent and 30 percent, respectively, the poverty rate for those where the household head Source: Staff Estimates, Based on Household was unemployed declined by almost 39 percent. Expenditure and Income Survey, 2002-03. However, transfers, which have played a major role in this decline, cannot be a sustainable basis E. The Poor Are Lagging Behind for continued poverty reduction. In Education. Unemployment increases the risk of poverty in Despite significant gains in education, the poor, Jordan. Families of the unemployed are especially in rural areas, lag behind the rest of the significantly more likely to be poor--21.5 percent population in terms of educational attainment. In of the population with an unemployed household 2002, while the proportion of illiterates was head lives below the poverty line, compared with between 8 percent and 9 percent in the upper four only 12.8 percent of the population where the wealth quintiles, 12 percent of the poorest quintile household head is employed, and 15.9 percent of are reported to be illiterate--a statistically the population where the household head is not significant difference. Overall, illiteracy was more economically active. Though poverty has declined than twice as high for the rural poor as for the for the unemployed as a group, the least educated urban poor (20.4 versus 9.6 percent). While all unemployed have increased their absolute and children have equal physical access to education relative risk for poverty over the 1997-2002 facilities, poor children are less likely than the period. Seen in the context of declining returns to rich to enroll in education levels beyond the education for those with low education, this group primary level. The difference in enrollments is may become increasingly vulnerable in the future. most pronounced for higher education, with the The unemployment rate is high among youth, poorest quintile representing less than one-third women, and particularly educated women. Youth the proportion of the richest 20 percent in public from poor families have a higher unemployment and private higher education institutes (Figure 7). rate than the non-poor (42 as opposed to 36 percent). In 6 of the 12 governorates, the youth Illiteracy goes hand in hand with poverty. In unemployment rate exceeds 50 percent (Figure 6). addition, the payoffs of having higher education in reducing the likelihood of being poor have dramatically improved between 1997 and 2002. 8 Third Quarter 2004 Hashemite Kingdom of Jordan Update For example, a head of household who is illiterate for example, targeted scholarships and subsidized is 19 times more likely to be poor as one who has loans. attained more than two years of college education. F. The Poor Have Weaker Health Figure 7. The Poor Lag Behind In Every Stage Outcomes, But Bear A Higher Of Education Burden Of Expenditure. 100% Recent household surveys9 reveal important inequalities in the health indicators of the poorest 75% 20 percent of Jordanian society. The poor are exposed to greater health risks and have 50% significantly lower access to health services than the rich. Infant and child mortality rates for the 25% poor are 1.5 to 1.7 times higher than for the 0% richest quintile (Figure 8). For poor children who Poorest 2 3 4 Richest do survive, the effects of malnutrition are severe. 20% 20% Stunting (height for age) and wasting (weight for Basic Secondary Higher age) are nearly 7 times greater than for children of the richest quintile. Prevalence of disability is Source: Household Expenditure and Income Survey, nearly twice as high for the poor than in the 2002-03. richest quintile. Moreover, the process indicators show lower numbers of physician-assisted This is indicative of the demand for skill-intensive deliveries, fewer deliveries at home, and a lower labor during the era of structural reforms. rate of contraceptive use. Some underlying risk However, even with similar endowment of higher factors for these lower health outcomes include education, the returns to higher education are lower school completion rates (particularly for 60 percent higher for the non-poor compared to women), higher rates of smoking, and poorer the poor possibly because the poor have fewer methods of waste disposal. Other factors, such as opportunities to take advantage of their higher health financing methods, suggest a substantial education than the non-poor. Nevertheless, the degree of regressivity, with the poor paying value of higher education remains high for both proportionately more out-of-pocket for outpatient the poor and the non-poor. care (9 percent of household income), as opposed to the richest (7 percent). Why do inequalities remain in the education system? Evidence from other studies and analysis Figure 8. Infant And Child Mortality Rates By of the 1997 and 2002 Household Expenditure and Income Quintile Income Surveys sheds light on possible factors. 45 Limited opportunities to generate income for 40 people in rural areas, lower levels of mobility and 35 a lack of information on educational Mortality 30 opportunities, as well as the lack of access to 25 credit markets and other means of student Child Rates 20 financial aid may be the constraining factors and 15 sustaining inequalities in the education system. 10 Public spending is more equitably distributed at Infant 5 the lower levels of education, and there is scope 0 for greater equity in higher education. Analysis of Lowest Second Middle Fourth Highest the per-student subsidy at the different levels of Income Quintile education reveals that basic education subsidies are pro-poor, while higher education subsidies are Source: Demographic and Health Survey, 1997, pro-rich. Thus, there is a strong case for Department of Statistics, Jordan enhancing the targeting of higher education financing toward lower-income groups, through, 9 Demographic and Health Survey, 1997, Department of Statistics, Jordan. Third Quarter 2004 9 Hashemite Kingdom of Jordan Update Preliminary analysis of public sector spending on alleviation across governorates may call for health suggests that it is pro-poor, as the poor tend appropriate correction mechanisms in the to make more use of both the outpatient and incentive framework if benefits clearly outweigh inpatient services offered by hospitals under the costs. Ministry of Health. The services provided by the Royal Medical Services (a publicly funded Third, the leakages in the Government's recently organization), on the other hand, are utilized more implemented social assistance program (Family by higher income groups for both types of care. Income Supplement Program) for combating Recommendations to improve health outcomes of poverty are high with the non-poor collecting two- the poor include: childhood nutrition, reproductive thirds of the assistance. health care, and health finance reforms favoring the poorer sections of the society. Fourth, the persistence in the unemployment rate for the poor is troublesome, because a lasting Conclusion impact on poverty reduction will require jobs for the poor and improvement of their incomes. Despite the significant reduction in levels of Families headed by unemployed persons have poverty, there are some important concerns about reduced poverty even though their employment the sustainability of the current pace of poverty and income have not increased, primarily due to reduction efforts in Jordan that have some greater share of transfers and more spending. important policy implications. Fifth, the persistent disparity of the poor and non- First, the current pace of poverty reduction will poor in non-income dimensions of poverty, such require that economic growth (and ensuing as education and health, will hamper efforts by the income gains) improve significantly in order to poor to improve their earning potential, especially provide a more sustained pace of future for the next generation. consumption growth and poverty reduction. Sustainability of the current pace of reduction in Overall, therefore, the long-term policy needs to poverty would require acceleration in GDP focus more on regional imbalances in growth to at least 6 percent (and per capita growth development, improvement of access to the poor to levels of about 3.5 percent per annum) or in education, health, and jobs for sustained higher that benefits the poor, substantially larger reduction in poverty. In the transition, there is an than the 3.8 percent growth average during 1997- urgent need to plug the leakage in the 2002. Recent economic growth has picked up Government's cash transfer program, two-thirds despite large economic shocks, and needs to be of which is collected by the non-poor, and sustained and/or accelerated. institute poverty monitoring systems for timely remedial action instead of waiting for results from Second, the uneven geographic spread of poverty surveys at five-year intervals as at present. reduction has left three governorates (Balqa, Karak and Aqaba) with no change in poverty and the Zarqa governorate with an actual increase, besides leaving one-sixth of the sub-districts For more information on the details of the desperately poor where more than 34 percent of Jordan Poverty Assessment, please contact the population is presently poor. Yet, public Mohammad Khasawneh interventions will continue to be relevant for (Mohammad.K@mop.gov.jo) poverty alleviation. Where the private sector is or Srinivasan Thirumalai unlikely to reach, such as in the remote areas of (tsrinivasan@worldbank.org). Jordan, the Jordanian authorities have options to use social assistance for the poor unable to work and community-based development programs for all others. Also, the uneven pace of poverty 10 Third Quarter 2004 Hashemite Kingdom of Jordan Update RECENT ECONOMIC DEVELOPMENTS Overview And Economic Outlook between 6 and 8 percent beyond 2004, a more likely outlook is a growth rate between 5 and Economic developments in Jordan in the First 6 percent. Key macroeconomic vulnerabilities can Half of 2004 have largely been positive and have occur with rising inflation--which could impact demonstrated the ability of the Jordanian economy interest rates and competitiveness--and with a to rebound after a mild recession in 2003, due to surge in imports which could weaken Jordan's the war in Iraq. The growth witnessed in late 2003 external balance. and early 2004 is, in some respects, similar to the surge in economic activity in the early years of the Economic Growth And The Real new millennium, and appears to be partly driven Sector by exports, both to Iraq and the United States. The new factor, however, is the positive spillover of Real GDP growth reached 7.2 percent in the First high oil prices which have spurred growth in Half of 2004 compared to the same period in Jordan in the First Half of 2004, through high 2003. The sector breakdown shows that the first workers' remittances and buoyant tourism contribution to GDP growth came from the revenues. Manufacturing Sector, which contributed to 29 percent to total GDP growth. Indeed, the The prospects for 2005 are on balance, positive, Industrial Production Index (IPI) increased by although vulnerabilities remain with respect to the 13.7 percent compared to the First Half of 2003, sustainability of economic growth. and the IPI of the Manufacturing Sector rose by 15.5 percent. The second largest contribution to On the one hand, many of the factors behind the GDP growth (28 percent) arose from the recent surge of economic activity are volatile: Transport, Storage and Communication Sector trade with Iraq is subject to high uncertainty due and the third contribution (11 percent) arose from to unstable security; spillover from the Gulf the Construction Sector. The Hotel and Restaurant countries depend on continued high world oil Sector--a good indicator of tourism activity-- prices; and the dynamic growth of textile exports increased its added value by almost 19 percent. is likely to be slowed due to the termination in 2005 of restrictive provisions of the Multi-Fiber The positive growth dynamic of the First Half of Agreement, which is likely to be offset only 2004 more than catches up to the depressed First partially by the positive effects of the United Half of 2003. This reflects a strong economic States-Jordan Free Trade Agreement. activity with Iraq; a continued strength in exports to the US; and a positive spillover in high oil On the other hand, sources of growth are prices--through remittances and capital inflows-- diversified, and this reduces the risk of negative while oil grant support from Arab oil producers factors. In particular, stabilization of the security has helped reduce the impact of high oil prices. situation in Iraq and oil prices are likely to be inversely correlated, ensuring that at least one of The Manufacturing Sector has been sustained by a these two positive factors remains active for strong recovery in exports to Iraq--which have Jordan. increased by 165 percent in the First Half of 2004--as well as continued strength in exports to On the policy front, the Government's reform the United States [mainly from Qualified effort shows no sign of abating, and this continued Industrialized Zones (QIZs)], which have commitment to structural reforms, together with increased by 61 percent. Transit trade with Iraq strong visibility of Jordan on the international was also behind the strong performance of the economic scene, should continue to spur growth. Transport Sector. The growth of the Construction Sector can be linked to the rise in oil prices, as the Overall, although there is some possibility that sector traditionally benefits from the associated Jordan could sustain very high growth rates, increase in remittances. Tourism also contributed Third Quarter 2004 11 Hashemite Kingdom of Jordan Update Table 1. Real GDP Growth 2000 2001 2002 2003 First Half of 2004 Share of the Sector Value Added Growth to the GDP Growth Agriculture and Mining 0.3% 3.9% 21.7% 2.0% 0.3% Manufacturing and Construction 22.9% 30.2% 47.8% 28.1% 44.9% Trade and Tourism 20.8% 5.3% 4.4% 13.5% 8.3% Transport and Communication 17.4% 30.5% 2.5% 33.3% 27.5% Business Services - Net 11.0% 11.0% 1.6% 3.5% 1.7% Public and Private Services 24.1% 13.2% 18.9% 16.5% 5.9% Total GDP 4.1% 4.9% 4.8% 3.3% 7.2% Source: Jordanian Authorities and World Bank Staff Estimates. to the dynamism of the economy. Although tourist exports, rose in value terms by 33 percent in the arrivals were up only 5.3 percent from a year First Quarter of 2004 compared to the same period earlier, spending seems to have increased by in 2003, while imports increased by 37 percent. around 20 percent, based on the Hotel and Restaurant Sector performance. Overall, although Growth of merchandise exports in real terms, the Iraq factor seems to have been a preponderant exceeded 34 percent in the First Half of 2004. The in determining the very good growth results at end largest growth of exports was in manufactured June 2004, the spillover of the high oil prices-- goods, especially in the clothing category. Exports through tourism, remittances, and FDI--also to Iraq resumed and increased in value terms by helped considerably, as did the continued good 165 percent in First Half of 2004 compared to performance of the QIZs. First Half of 2003, reaching US$267 million. Exports to the United States increased in value by It is expected that the economy will slow down 61 percent, reaching US$418 million. Exports to slightly in the Second Half of 2004, due to Iraq and the United States represented seasonal factors in the Tourism and Construction respectively 17.5 percent and 27 percent of Sectors, and the possibility of worsening security domestic exports in the First Half of 2004. conditions in Iraq. Still, expected growth for 2004 ranges between 5 and 6.5 percent. Imports of oil products increased by 43 percent in value terms and 23 percent in volume. The The Consumer Price Index (CPI) increased by increase in volume reflects higher economic 3.6 percent in the First Half of 2004 compared activity, and, possibly, the de-stocking of reserves to 1.6 percent in First Half of 2003. The largest that occurred in the Second Quarter of 2003, when increases were registered in the Food and Non- imports from Iraq where interrupted. Imports from Tradable categories, which rose by more than Arab countries increased by 47 percent in the First 5 percent at end June 2004 over a 12 month Half of 2004 compared to the First Half of 2003. period. The increase in oil prices had a modest This increase is particularly high with regards to impact on rising household fuels and electricity Saudi Arabia (411 percent) and reflects the prices by about 3.5 percent, but might be substitution of oil imports from Iraq by oil imports underrepresented in the CPI calculation. This at higher prices from Saudi Arabia. seems to indicate that the strong economy is starting to have inflationary effects, which could Data for non-merchandise transaction (First bring a reversal of monetary policy in the coming Quarter of 2004 only) show an increase in freight months. receipts (40 percent), Net Travel Receipts (31 percent), Net Public Transfers (14 percent) External Sector and Workers' Remittances (10 percent.) Net Travel Receipts and Workers' Remittances are The Trade Deficit deteriorated, reaching directly linked to the improvement in the regional 41 percent of GDP. Figures show that total economic situation following the increase in oil exports, including domestic exports and re- prices. The increase in freight income is consistent 12 Third Quarter 2004 Hashemite Kingdom of Jordan Update with the increasing Trade and Transportation Figure 1. Central Bank Net Reserves activities with Iraq. 5,500 The positive results on the Services and Transfers accounts helped offset 77 percent of the increase 5,000 in the Trade Balance Deficit in the First Quarter of 2004. The Current Account Deficit thus 4,500 remained moderate at US$28 million in the First n Quarter of 2004, despite the increase in the Trade illio m 4,000 Balance Deficit by US$254 million. US$ 3,500 Table 2. Balance of Payments First Quarter 2004 Results, in US$ Million 3,000 2001 2002 2003 2004 Trade Balance -480 -403 -443 -697 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Exports and Re-exports 472 580 673 869 Source: Jordanian Authorities and World Bank Staff Estimates. Imports 952 982 1116 1565 Current Account Balance 65 -12 142 -28 Public Finance o/w Workers' Remittances (Net) 363 380 412 452 The 2004 budget forecasts a 7.4 percent increase o/w Net Public Transfers 122 87 206 250 in domestic revenues, and a 3.2 percent rise in Capital and Financial Account -19 2 -158 -36 expenditures that would reduce the deficit (before grants) from 10.6 percent of GDP at the end of o/w FDI 28 14 43 202 year 2003 to 9.2 percent at year-end 2004. Source: Jordanian Authorities and World Bank Staff Estimates. For the First Half of 2004, domestic revenues increased 32.3 percent compared to 2003, while During the First Quarter of 2004, the Capital expenditures remained stable in nominal Account registered a US$36 million deficit terms. The increase in taxes on income and against a US$157 million deficit a year earlier. profits accounts for 17 percent of the total surge in The improvement in the Capital Account results revenues. The rise of the Sales Tax on imported from a large increase in Direct Investments from goods and of Customs Duties (linked to the large US$43 million to US$202 million between the increase in imports) accounts for 31 percent, while First Quarter of 2003 and the First Quarter of the increase in Fees Collection accounts for 17 2004. percent of the revenue increase. The rise of Petroleum Taxation and in Sales Tax Rates, Disposable foreign reserves reached together with other tax increases, should continue US$4.8billion at end June 2004. Foreign to further enhance revenue in the coming months. reserves kept their levels of June 2003 but decreased by US$385 million compared to their On the expenditures side, Debt Service, Defense, level of December 2003, reflecting the worsening and Goods and Services expenditures diminished, trade deficit in the Second Quarter of 2004, and an while annual salary increases led to a 5 percent increase in the dollarization. Reserves by the end rise in the Civil Service Wages Bill. Investment of the year 2003 reached 52 percent of GDP. Expenditures increased by 4.6 percent, and Reserves at end June 2004 represented the Pension Expenditures by 8.8 percent. equivalent of 8 months of imports against 11 months a year ago. The Budget Deficit, before grants and rescheduled interests, reached JD116 million in the First Half of 2004, equivalent roughly to 1.5 percent of GDP, against a deficit of JD367 million in the the First Half of 2003, equivalent to around 5 percent of GDP. This significant reduction in the Budget Third Quarter 2004 13 Hashemite Kingdom of Jordan Update Deficit was offset by the reduction in external 2004, and the positive response of the market to grants, which amounted to only JD73 million in the decrease in lending rates. the First Half of 2004, against JD457 million in the First Half of 2003. The Budget Deficit after Dollarization grants, therefore, worsened, moving from a surplus of JD90 million in the First Half of 2003 The Dollarization Rate reached 25.6 percent of to a deficit of JD43 million in the First Half of deposits in June 2004 against 22.5 percent and 2004. 23 percent respectively in December 2003 and June 2003. Compared to December 2003, deposits Financial Sector in foreign currencies increased by 18.6 percent, while M2 (money and quasi money) progressed Demand and Time Deposits in the Commercial by 4.1 percent and deposits in Jordanian Dinars Banks increased by 10.5 percent between the decreased by 0.1 percent. The foreign currency First Half of 2003 and the First Half of 2004, deposits increase reached US$552 million and by 6.1 percent since end 2003. In compared to December 2003 and US$638 million comparison, the growth of deposits between the compared to June 2003. These developments First Half of 2002 and the First Half of 2003 was suggest that Jordanian depositors tend to conserve 6.1 percent and 4.9 percent between end 2002 and their assets in foreign currency (worker's the First Half of 2003. Foreign liabilities remittances), thus, explaining the discrepancy decreased by 5.6 percent, or US$254 million, between the decrease in foreign currency reserves between end 2003 and the First Half of 2004. The of the Central Bank and the Balance of Payments year-to-year increase in deposits by JD782 million Deficit. exerted considerable pressure on banks' margins as lending did not follow. Consequently, interest Interest rates in the Banking Sector continued rates on clients deposits with the banking sector to decrease in the First Half of 2004. The dropped. Central Bank re-discount rate remained stable compared to year-end 2003. Interest rates on CDs Table 3. Selected Monetary Indicators slightly increased over the same period. This Half Year Results development allowed the banks to mitigate the decrease of creditor rates on deposits and to 2001 2002 2003 2004 maintain a more substantial decrease of debtor M2 Year-to-Year Increase 6.7% 7.7% 7.4% 9.2% rates on loans to the private sector. Change in Lending to the Private Sector 11.4% 5.2% 3.0% 9.8% Figure 2. Dollarization of M2 in Percent Interest Rates on CDs - 3 Months 4.6% 3.9% 2.3% 2.5% 26% 26% Interest Rates on Overdrafts 10.8% 9.7% 10.1% 8.7% 25% CPI Average Increase 0.5% 2.8% 1.6% 3.6% 25% Source: Jordanian Authorities and World Bank Staff Estimates. 24% 24% The share of the deposits with the Central Bank in Jordanian Dinars in the total assets of 23% the commercial banks slightly increased from 23% 18 percent in the First Half of 2003 to 22% 19 percent in the First Half of 2004. This figure remains below the 20 percent reached at -01 -02 -03 end 2003. Loans to the private sector increased by Dec Mar-02 Jun-02 Sep-02 Dec Mar-03 Jun-03 Sep-03 Dec Mar-04 Jun-04 JD483 million (US$682 million) or 9.8 percent on Source: Jordanian Authorities and World Bank Staff a yearly basis. More than half of that increase Estimates. occurred during the Second Quarter of 2004, underlining both the acceleration of the activity in 14 Third Quarter 2004 Hashemite Kingdom of Jordan Update BANK GROUP OPERATIONS IBRD Projects In The Pipeline wastewater services for the Amman Service Area; and (ii) laying the groundwork for the sustainable Regional and Municipal Development involvement of the private sector in the overall Project (US$35 million). The objective of the management of these services. Project is to: (i) strengthen the intergovernmental finance system; (ii) upgrade financial Health Sector Reform Project (HSRP). management, technical and administrative (US$35 million.) The Project is based on the capacities at the local level; and (iii) increase the findings of the Health Sector Study, prepared coverage and quality of municipal service jointly by the World Bank and the Government of provision, with particular emphasis on under- Jordan (April 1997). served areas. Higher Education Development Project IBRD Ongoing Projects (HEDP). (US$34.7 million.) The objective of the Project is to initiate improvements in the quality, relevance and efficiency of Jordan's higher The current portfolio in Jordan consists of seven education, and to support Jordan's program to projects for a total commitment amount of reform sector governance. US$319.7 million, of which US$126 million has been disbursed to-date. Horticultural Exports Promotion Learning and Innovation Loan (US$5 million). The Loan Second Tourism Development Project (TDP- will initiate the process of establishing Jordan as a II). (US$32 million.) The Project aims at: reliable supplier of non-traditional, high-value (i) creating the conditions for an increase in export crops to niche markets in the European sustainable and environmentally sound tourism in Union and Gulf countries. Petra, Wadi Rum, Jerash, and Karak; and (ii) realizing tourism-related employment and Education Reform for the Knowledge income-generation potential at Project sites. Economy (US$120 million). The Project supports systemic educational reform in Jordan that Amman Water and Sanitation Management extends from Early Childhood Education through Project (AWSMP). (US$55 million.) The Project Secondary Education. The Project will contribute aims at: (i) improving the efficiency, to the development of human capital with the Undisbur- Loan sed Approval Amount Amount Closing Active Portfolio Date US$ M US$ M Primary Sector Date Second Tourism Development Jul-97 32.0 8.2 Urban Development Jun-05 Amman Water and Sanitation Management Mar-99 55.0 6.1 Water Supply/Sanitation Jan-06 Health Sector Reform Mar-99 35.0 7.0 Health Dec-04 Higher Education Development Feb-00 34.7 17.6 Education Dec-05 Horticultural Exports Promotion Agriculture Markets and Learning and Innovation Jun-02 5.0 4.3 Trade Dec-06 Education Reform for Knowledge Economy May-03 120.0 113.0 Education Dec-08 Amman Development Corridor Jun-04 38.0 38.0 Transport Jun-09 Total 319.7 194.2 management, operation, and delivery of water and Third Quarter 2004 15 Hashemite Kingdom of Jordan Update skills and competencies required by the o Japanese Social Development Fund Grant ­ Knowledge Economy. Legal Aid for Poor Women (US$191,000). The objective of this Grant is to provide legal services Amman Development Corridor (US$30 to poor women in Jordan as a means to improve million). The Project aims at: (i) assisting Jordan's their daily lives. growth strategy by providing needed infrastructure to support Amman's role as a o Integrated Ecosystems/Rift Valley Grant regional center for trade and services; and (US$350,000). The objective of the Grant is to (ii) helping ensure that Jordan's road assets are assist in the preparation of the Integrated managed in a cost-effective and sustainable Ecosystem Management in the Jordan Rift Valley manner. Project, whose main objective is to secure the ecological integrity of the Jordan Rift Valley as a Ongoing Grants globally important ecological corridor and migrator flyway, through a combination of site o Institutional Development Fund (IDF) protection and management, nature-based socio- Grant for Enhancing Women's Health economic development and land use planning. (US$140,000). Under the Grant, research/studies will be undertaken to: (i) cover the gaps o Sustainable Development of Renewable identified; (ii) develop a detailed plan for a Energy Resources and Promotion of Energy National Women's Center; (iii) carry out a Needs Efficiency Grant (US$1 million). The objectives Assessment Survey on females in the southern of the Grant are to contribute to the Government's part of Jordan where access to services are efforts to integrate climate change concerns in its limited; and (iv) with the findings, develop a economic development strategy by removing the detailed package of preventive and curative barriers to promoting the development of the services. country's renewable energy resources (wind, solar and geothermal), and in enhancing the efficiency o Institutional Development Fund Grant for of energy use in line with the policy to meet the Strengthening the Capacity of the National energy needs of Jordan in an economic and Council for Family Affairs (US$114,000). The environmentally sustainable manner; and by Grant will assist the National Council for Family supporting a feasibility study for the future Affairs in playing an important role in developing development of a commercial size wind energy policies and national strategies (and monitoring project with private sector involvement. their implementation), and advocating on behalf of, children and families, in close collaboration Conservation of Medicinal/Herbal Plants with relevant public agencies. Project (US$5 million Global Environment Facility). The Project supports the conservation, o Institutional Development Fund Grant to management, and sustainable utilization of Support the Development of a Monitoring and medicinal and herbal plants in Jordan through Evaluation System (US$395,000). The Grant will ensuring effective in-situ protection of threatened contribute to the design and implementation of a habitats and ecosystems and ex-situ sustainable sound monitoring and evaluation framework for use. The main components are: (i) institutional the Government to: (i) adequately monitor input strengthening; (ii) pilot sites conservation; requirements of large scale reform projects, and (iii) public awareness and education; and (ii) follow implementation of large scale, multi- (iv) income generation activities. sectoral reform projects through various activities. o Japanese Social Development Fund Grant ­ Integrating "At Risk" Children/Youth in Mainstream Society (US$994,860). The objective of the Grant is to build capacity of community- Further information on ongoing and pipeline based referral and partner organizations, including projects can be found at: NGOs, to help reintegrate "at risk" children/youth http://www4.worldbank.org/sprojects/ into mainstream society. 16 Third Quarter 2004 Hashemite Kingdom of Jordan Update IFC Ongoing Projects Marriott International and targets both health and leisure tourists. Al-Hikma Pharmaceuticals Limited. The Project is designed to help Al-Hikma El-Zay. El-Zay specializes in the manufacture Pharmaceuticals upgrade and expand its existing of high quality men's suits. The Project consists pharmaceutical and chemical plants, and build a of: (i) an expansion program to diversify El-Zay's new plant. A new project involves the extension product line by manufacturing men's outerwear; of a corporate loan to finance the company's and (ii) a financial restructuring designed to modernization and expansion plans. This program strengthen El-Zay's balance sheet by replacing of investments is being planned to help prepare most of its short- and medium-term debt with the company for a future United States' initial long-term debt. IFC's investment is to help the public offering, and will include an IFC corporate company complete the Project's financial plan and governance component to help the company improve its financial structure by providing satisfy the recent corporate governance and funding on terms and maturities not otherwise securities law reform in the United States (the available in Jordan. Sarbanes-Oxley Act of 2002), which institutes new rules regarding the corporate governance of Arab International Hotels Company (AIHC). publicly held corporations listed in the United The Project consists of the renovation and States, including American Depository Receipts. expansion of the Amman Marriott, a leading hotel The IFC loan will help the company expand its located in the Shmeisani area of Amman. The operations, enhance its research and development work comprises: (i) the complete refurbishment of facilities, and refinance short-term loans in the all the hotel's 294 rooms; and (ii) the addition of MENA region, Europe, and Asia. conference and banqueting facilities, a health club, retail space, movie theaters, and an Zara Investment Holding Company. The underground parking facility. The expansion and Project consists of the construction and operation modernization of the Marriott will boost the hotel of an international standard 312-room hotel and to a 5-star international level, allowing it to match complex comprising 44 apartments, partially the quality level provided by its competitors. serviced by the hotel; well-equipped exhibition/conference facilities; an auditorium; a Jordan Hotels and Tourism Company health club, managed by Hyatt International; and a (JHTC). The Project comprises an extensive Wellness Center and 231-room hotel complex on refurbishment of most of the Intercontinental the Dead Sea, combining medical and recreational Hotel's existing 366 rooms and the addition of 125 facilities, managed by Mövenpick. Economic new rooms and facilities. The hotel will replace benefits accruing to Jordan include foreign 15 of its elevators, its boilers, and the kitchen, exchange generation and the creation of about 600 safety, and telecom equipment. The Management direct jobs. IFC's main role in this Project is to Agreement between Intercontinental Hotels provide long-term funding on terms and maturities Corporation and JHTC has recently been extended not available in Jordan, and help the Zara to 2007. IFC has approved a rescheduling of its Company mobilize local loans. IFC has approved loan to JHTC and JTC has prepaid IFC. a rescheduling of its loan to Zara Company and Zara has prepaid IFC. Modern Agricultural Investment Company (MAICO). The overall objective of the company's Business Tourism Company. The Project operations is to act as a market and technology consists of building and operating the Jordan beacon to help diversify and upgrade the range Valley Marriott and Spa, a resort of international and combination of crops and irrigation methods, standards which includes: (i) a 216-key hotel; and which would develop a modern export sector, (ii) a health/medical spa and beauty care facility. thereby maximizing the economic return on The Dead Sea, due to its unique therapeutic irrigation water, and ultimately rationalize its characteristics and climate, has established itself overall consumption. as a world-class center for the treatment of various skin and muscular-joint ailments, such as psoriasis Middle East Investment Bank (MEIB) and rheumatism. The complex is managed by Recapitalization. The Project involves both Third Quarter 2004 17 Hashemite Kingdom of Jordan Update MEIB's (the smallest commercial bank in Jordan) for modernizing its assembly lines and increasing recapitalization to meet the Central Bank of efficiencies; and (ii) expand by establishing a joint Jordan's minimum capital requirements, and its venture with the Haier Group of China. The restructuring, managed by Société Générale expansion project will broaden MEC's product Libano-Européenne de Banque. IFC investment is line while maintaining the focus on household part of this larger recapitalization and goods to be sold primarily in regional markets. restructuring program for MEIB. It complements the Technical Assistance Program in Jordan, provided by both IFC and the World Bank. Further information on IFC ongoing and pipeline projects can be found at: Boscan Jordan (International Luggage http://www.ifc.org/projects Manufacturing Company). The Project is to expand the operations of Boscan Jordan Group, a MIGA Ongoing Projects Jordanian manufacturer of soft-side luggage Jordan has been a member of MIGA since products selling primarily to the United States MIGA's inception in 1988. MIGA's outstanding market. The company has since switched its portfolio in Jordan consists of two Contracts of operations to textiles. Guarantee for a project in the manufacturing sector with gross exposure of US$45.4 million Jordan Gateway Project. The Project is to and net exposure of US$31.8 million. The develop, construct, and operate an industrial estate coverage is for two shareholder counter- covering about 65 ha (of which about 50 ha would guarantees provided to the Danish investor's be in Jordan) at the Jordan-Israel border. affiliate company, Kemira Agro Oy of Finland, for guarantees to the Project financiers. Al Tajamouat Industrial City (ATIC). The Project will expand the existing integrated This Project is significant in many ways: it industrial estate, ATIC. The expansion involves international collaboration between the commenced in late 2000 to keep up with the high European Investment Bank and the Islamic demand for QIZ space in Jordan. Development Bank, the Project's financiers; as MIGA's first project in Jordan, it underscores the Indo Jordan Chemical Company. The agency's intent to play a larger role in the region; Company owns and operates a 244,000 mt/year and the Project is the first reinsurance of a MIGA (as of 100 percent P205) phosphoric acid plant contract by Finnvera, Finland's investment and ancillary facilities adjacent to a phosphate insurance agency, resulting from an October 2000 rock mine in the south of Jordan, as well as agreement between the two agencies to work storage facilities at the Red Sea Port of Aqaba. together to coinsure and reinsure projects, with the P205 is used to produce DAP, a widely used goal of increasing Finnish investment into fertilizer. The company has prepaid IFC. emerging economies. Middle East Regional Development MIGA received a request for its technical Enterprise (MEREN) Silica Sand. The US$15.5 assistance services in the Fourth Quarter of FY04 million Greenfield Project is to establish the in the areas of training and institutional capacity MEREN Silica Sand Plant, which will building. An assessment mission is programmed manufacture high quality silica sand to be mainly for early in FY05 to initiate this assistance. The exported to European glass manufacturers. estimated amount of foreign direct investment facilitated by MIGA into Jordan to date is Middle East Complex for Engineering, US$86.5 million. MIGA's online investment Electronics, and Heavy Industries (MEC). MEC promotion services (www.fdixchange.com and is the leader in Jordan for electronics and www.ipanet.net) feature 138 documents on household appliances. It is the premier appliance investment opportunities and the related legal and assembler in the country and is the sole distributor regulatory environment in Jordan. of products for the Korean companies LG Electronics, Inc. and Daewoo. The Project is to: Further information on MIGA can be found at: (i) relocate MEC's existing production facilities http://www.miga.org/ 18 Third Quarter 2004 Hashemite Kingdom of Jordan Update Bank Lending to Jordan ­ Fact Sheet Sectoral Distribution by Value Jordan joined the World Bank in 1952, and received its first IDA credit in 1961. Over the Urban past 42 years, a total of 80 credits and loans Development Agriculture have been granted to Jordan for a total amount 6% 4% of US$2,215 million. Jordan is also a member of Other IFC, ICSID, and MIGA. 9% Transportation IDA US$86 million (15 Credits) 6% Adjustment IBRD: US$2,129 million (65 Loans) 30% Of Which: Investments: US$1,345 million Water Supply & Santn Adjustments: US$870 million (8 Projects) 9% Disbursements: US$2,016 million Electric Pwr & Repaid: US$990 million Engy Finance Obligation: US$1,008 million 13% 2% Hlth, Nutn & Popultn Education 3% 19% Net Flows and Net Transfers Disbursements Projects Approved by Fiscal Year 180 120 160 Fiscal # of US$ 100 Year Projects M. 80 140 1994 2 100.0 60 120 1995 3 146.6 40 1996 2 120.0 ionlli noilli 100 20 1997 2 140.0 m 80 $ 0 m$SU 1998 3 67.0 US -20 60 1999 3 210.0 -40 2000 1 34.7 40 2001 1 120.0 -60 2002 1 5.0 -80 20 2003 2 240.0 -100 0 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 2004 1 38.0 Fiscal Year 2005 0 0 Fiscal Year Total 21 1221.3 Net Flows Net Transfers Third Quarter 2004 19 Hashemite Kingdom of Jordan Update News, Recent And Upcoming Activities World Bank International Disability Conference - Disability And Inclusive Development: Sharing, Learning, And Building Alliances On November 30 and December of the 2004 Conference will involve many 1, 2004, the World Bank will partners. The conference will enable participants organize its Second International to discuss progress made, confront challenges and Disabilities Conference, entitled opportunities, and move this important work "Disability and Inclusive forward. The progress made to-date is due to Development: Sharing, Learning, and Building increased interest in disability and development Alliances." This two-day event in Washington, across a whole host of development agencies, civil D.C. will bring together hundreds of disability and society, the UN family and donors. development experts from around the world, who will participate in panel discussions, hear keynote In line with the Bank's mission of poverty addresses from distinguished speakers within the reduction, this conference is a reflection of the disability and economic development Bank's commitment to incorporate the concerns of communities, browse the many disability-related disabled people into its ongoing operations and display booths, and share knowledge on state-of- research. The Bank believes that in order to the-art technology and best practice in disability achieve its goal of eliminating poverty, it is work. essential to bring people with disabilities into the mainstream of economic development. This event constitutes the follow-up to the December 2002 international disability conference. Over the past two years, there has been some exciting work done within the For more information and to access online disability and development community, which the registration for the conference, please visit: Bank hopes to build upon in order to reduce www.worldbank.org/disability global poverty for disabled people. The activities The World Bank's New Debt Website Much of the debt burden in low- needed to properly address the severe debt income countries dates back to the burdens of these countries. 1970s and 1980s. Many poor countries had borrowed to fund The Bank's new Debt Department builds on the domestic projects on the back of the HIPC Initiative's work. It serves several purposes, commodity price boom, believing that high prices including the implementation of the proposed and export earning would be sustained. Oil price new debt sustainability framework for low- shocks during that time, which caused recessions income countries and the continued throughout the world, combined with high interest implementation of the HIPC Initiative. The rates and low commodity prices hit borrowing department is also responsible for shaping the countries especially hard. World Bank's position--when possible, in coordination with the debt policy community in Though many countries recovered, many did not. general--on global debt issues facing developing Although several rounds of debt restructuring took countries. place to alleviate the debt burdens these countries faced, it soon became evident that a multilateral For more information, please visit: debt reduction effort, such as the Heavily Indebted www.worldbank.org/debt Poor Countries (HIPC) Initiative, would be 20 Third Quarter 2004 Hashemite Kingdom of Jordan Update Evaluation ... A Necessary Science The World Bank is boosting its capacity to both areas have made impact evaluations easier to evaluate the impact of its projects and programs implement. aimed at reducing poverty. The endeavor is part of a plan to help developing countries achieve the Learning From Experience Millennium Development Goals--international development targets to be reached by 2015. One series of programs to be put under the spotlight are the conditional cash transfer One initiative is to undertake impact evaluations programs supported by the Bank around the on strategically selected projects and programs to world. These programs, to which countries such measure their lasting impact on the lives of the as Mexico and Brazil have devoted significant poor. budgets, seek to break a vicious cycle of poverty being transferred across generations. A Task Force on Development Impact Evaluation was put together to focus on projects and The programs deliver cash transfers to poor programs, such as slum upgrading, education, families who keep their children in school and health and utility reforms, as well as conditional send them to health clinics for regular checkups. cash transfers--programs in which poor families receive monthly grants in return for keeping their Sound evaluations of several such programs in children in school and taking them to health Latin America have shown their impact in centers for regular check-ups. improving human development outcomes. But further evaluations can help answer remaining The First Of Its Kind questions on how to design such programs and the extent to which they can be replicated elsewhere. While the Bank undertakes standard project evaluations as a matter of course, the deeper focus In a departure from existing practices, the on the long term impacts is a first for the Bank. evaluations will be stored in a live online database accessible to policymakers. It is ultimately all part With over 100 researchers in its Development of the Bank's push to measure the effectiveness of Economics Department (DEC), and access to aid delivery. All projects funded by the World operational experience, few other organizations Bank are evaluated. Evaluation at the Bank has can match the Bank's capacity to undertake such two major dimensions: evaluations. An impact evaluation differs from a traditional evaluation as it seeks to assess, in a · self evaluation by the units responsible for comprehensive way, how a project affects the particular programs and activities; and lives of people in a targeted group. A standard · independent evaluation by the Operations evaluation assesses whether or not, or to what Evaluation Department (OED). extent, a program has reached its intended objective, while an impact evaluation is aimed at Public Engagement On Project evaluating the broader development impact of the Impact project on the population. In the past decade, people who may have been It compares observed outcomes to what the adversely affected by World Bank-financed situation would have been if the program had not projects have had the right to air their concerns been undertaken. It is really the development through the Inspection Panel. dimension--that is what we are trying to evaluate. In the past, such evaluations were constrained by The Inspection Panel, a three-member body which the lack of data and the technical challenges of began operations in September 1994, is the first developing a counterfactual, that is, what would body of its kind to give voice to private citizens in have happened without the program. Over the past an international context. In the 10 years since the few years though, significant improvements in Panel was established, 33 requests have been filed Third Quarter 2004 21 Hashemite Kingdom of Jordan Update for investigation. Six complaints were filed in the through the Bank's Department of Institutional 2004 fiscal year. Integrity (INT). An internal unit, INT, investigates not only allegations of fraud and corruption in The Inspection Panel has a mandate to investigate Bank Group operations, but also allegations of complaints from two or more people who believe staff misconduct. they have been or will be harmed by a project in which the Bank has allegedly failed to abide by its In just eight months, to March 2004, the Bank policies and procedures. referred 18 cases of fraud or corruption to national justice authorities. So far, more than 180 The Panel provides a way for private citizens-- companies and individuals have been disbarred especially poor people--to gain direct access to from doing business with the Bank--with their the World Bank's Board of Executive Directors. names and sanctions posted on the Ultimately, the Board reviews the panel's Bank's website. recommendations and decides whether an investigation should take place. Of the 33 requests for inspection filed in the past 10 years, the Panel recommended investigation in 14 cases. For more information, please visit: www.worldbank.org/ The public also has the ability for call for investigations into allegations of corruption ICSID On a number of occasions in the ICSID is an autonomous international past, the World Bank, as an organization, however, it has close links with the institution, and the President of the World Bank. All of ICSID's members are also Bank, in his personal capacity, have members of the Bank. Unless a government assisted in mediation or conciliation makes a contrary designation, its Governor for the of investment disputes between governments and Bank sits ex officio on ICSID's Administrative private foreign investors. The creation of the Council. The expenses of the ICSID Secretariat International Center for Settlement of Investment are financed out of the Bank's budget, although Disputes (ICSID) in 1966 was, in part, intended to the costs of individual proceedings are borne by relieve the President and the staff of the burden of the parties involved. becoming involved in such disputes. But the Bank's overriding consideration in creating ICSID Pursuant to the Convention, ICSID provides was the belief that an institution specifically facilities for the conciliation and arbitration of designed to facilitate the settlement of investment disputes between member countries and investors disputes between governments and foreign who qualify as nationals of other member investors could help to promote increased flows of countries. Recourse to ICSID conciliation and international investment. arbitration is entirely voluntary. However, once the parties have consented to arbitration under the ICSID was established under the Convention on ICSID Convention, neither can unilaterally the Settlement of Investment Disputes between withdraw its consent. Moreover, all ICSID States and Nationals of Other States (the Contracting States, whether or not parties to the Convention) which came into force on October dispute, are required by the Convention to 14, 1966. ICSID has an Administrative Council recognize and enforce ICSID arbitral awards. and a Secretariat. The Administrative Council is chaired by the World Bank's President and Besides providing facilities for conciliation and consists of one representative of each State which arbitration under the ICSID Convention, the has ratified the Convention. Annual meetings of Center has, since 1978, had a set of Additional the Council are held in conjunction with the joint Facility Rules authorizing the ICSID Secretariat to Bank/Fund Annual Meetings. administer certain types of proceedings between States and foreign nationals which fall outside the 22 Third Quarter 2004 Hashemite Kingdom of Jordan Update scope of the Convention. These include proceeding at any other place. The ICSID conciliation and arbitration proceedings where Convention contains provisions that facilitate either the State party or the home State of the advance stipulations for such other venues when foreign national is not a member of ICSID. the place chosen is the seat of an institution with Additional Facility conciliation and arbitration are which the Center has an arrangement for this also available for cases where the dispute is not an purpose. ICSID has to date entered in such investment dispute, provided it relates to a arrangements with the Permanent Court of transaction which has "features that distinguishes Arbitration in The Hague, the Regional it from an ordinary commercial transaction." The Arbitration Centers of the Asian-African Legal Additional Facility Rules further allow ICSID to Consultative Committee in Cairo and Kuala administer a type of proceedings not provided for Lumpur, the Australian Center for International in the Convention, namely fact-finding Commercial Arbitration in Melbourne, the proceedings, to which any State and foreign Australian Commercial Disputes Center in national may have recourse if they wish to Sydney, the Singapore International Arbitration institute an inquiry "to examine and report on Center and the GCC Commercial Arbitration facts." Center in Bahrain. These arrangements have proved their usefulness in many ICSID cases and A third activity of ICSID in the field of the have helped to promote cooperation between settlement of disputes has consisted in the ICSID and these institutions in several other Secretary-General of ICSID accepting to act as respects. the appointing authority of arbitrators for ad hoc (i.e., non-institutional) arbitration proceedings. The number of cases submitted to the Center has This is most commonly done in the context of increased significantly in recent years. These arrangements for arbitration under the Arbitration include cases brought under the ICSID Rules of the United Nations Commission on Convention and cases brought under the ICSID International Trade Law (UNCITRAL), which are Additional Facility Rules. In addition to its specially designed for ad hoc proceedings. dispute settlement activities, ICSID carries out advisory and research activities relevant to its Provisions on ICSID arbitration are commonly objectives and has a number of publications. The found in investment contracts between Center collaborates with other World Bank Group governments of member countries and investors units in meeting requests by governments for from other member countries. Advance consents advice on investment and arbitration law. The by governments to submit investment disputes to publications of the Center include multi-volume ICSID arbitration can also be found in about 20 collections of Investment Laws of the World and investment laws and in over 900 bilateral of Investment Treaties, which are periodically investment treaties. Arbitration under the auspices updated by ICSID staff. Since April 1986, the of ICSID is similarly one of the main mechanisms Center has published a semi-annual law journal for the settlement of investment disputes under entitled ICSID Review-Foreign Investment Law four recent multilateral trade and investment Journal. The journal was recently rated as one of treaties (the North American Free Trade the top 20 international and comparative law Agreement, the Energy Charter Treaty, the journals in the United States. Cartagena Free Trade Agreement and the Colonia Investment Protocol of Mercosur). To learn more about ICSID, please visit: Under the ICSID Convention, ICSID proceedings www.worldbank.org/icsid/ need not be held at the Center's headquarters in Washington, D.C. The parties to an ICSID proceeding are free to agree to conduct their Third Quarter 2004 23 Hashemite Kingdom of Jordan Update Recent World Bank Publications MNA Publications remediation has been estimated for a limited number of actions for each environmental Gainers and Losers from Trade Reform in category, and, although the cost of remediation is Morocco (Working Paper 3368). The Paper uses the focus here, and mainly of investments and Morocco's national survey of living standards to programs, a discussion of the policy context is measure the short-term welfare impacts of prior warranted. Reducing degradation, and protecting estimates of the price changes attributed to the environment should be viewed in the context various trade policy reforms for cereals--the of economic and sector policies and development, country's main food staple. The Paper finds small and in the broader framework of environmental impacts on mean consumption and inequality in management. A comparison of benefits the aggregate. There are both gainers and losers (reductions in damage) and costs (remedial and (contrary to past claims) the rural poor are actions), can be useful to point to environmental worse off on average after trade policy reforms. issues, for which benefits of remediation are likely The Paper decomposes the aggregate impact on to exceed the cost of remedial actions. inequality into a "vertical" component (between people at different pre-reform welfare levels) and Current World Trade Agenda: Issues and a "horizontal" component (between people at the Implications for the Middle East and North same pre-reform welfare level). There is a large Africa Region (Working Paper 27396). The horizontal component which dominates the Paper discusses the imperatives for trade reform vertical impact of full de-protection. The diverse in the MENA region and presents an overview of impacts reflect a degree of observable the process and rules of multilateral negotiations heterogeneity in consumption behavior and and MENA countries' involvement. It also income sources, with implications for social examines the three sector areas of agriculture, protection policies. services, and textiles and clothing. This Paper focuses on three key questions for the MENA Cost of Environmental Degradation - The Case region: (1) How will trade liberalization in of Lebanon and Tunisia (Working Paper 29902). agriculture, services and implementation- This Paper is the first step in a process supported completion of the textiles and clothing agreements by the Mediterranean Environmental Technical affect MENA prospects?; (2) How should the Assistance Program (METAP), towards using MENA countries position themselves going environmental damage, and cost assessments as forward in these negotiations?; and (3) How can instruments for integrating environmental issues the MENA countries shape their domestic policies into economic and social development. The and unilateral/multilateral trade policies to specific objectives of this Paper are threefold: maximize the gains and minimize potential (1) provide an estimate of the cost of downsides, from such prospective and far- environmental degradation; (2) provide an reaching negotiations? analytical framework that can be applied periodically by professionals to assess the cost of Reforms and Growth in Middle East and environmental degradation over time; and, North Africa Countries: New Empirical (3) provide a basis for a training program for Evidence (Working Paper 29886). This Paper ministries, agencies, institutes and other interested analyzes the linkages among economic reforms, parties to incorporate assessments of human capital, physical infrastructure, and growth environmental degradation costs into for a panel of 44 developing countries over the policymaking and environmental management. period of 1970-80 to 1999. The authors generate The Paper also provides cost estimates of select aggregated reform indicators using principal remedial actions that may be necessary to protect component analysis and show that the growth and restore the environment, and, presents a performance of the MENA region has been discussion comparing damage and remediation disappointing, because these economies have costs and the potential benefits of remedial action lagged behind in terms of economic reforms. for some environmental issues. The cost of However, the analysis also reveals that the growth 24 Third Quarter 2004 Hashemite Kingdom of Jordan Update dividend of some reforms has been small. This is Also available: the case when structural reforms are implemented in an unstable macroeconomic environment Gender and Development in the Middle East (which corresponds to the situation of the MENA and North Africa: Women in the Public countries in the 1980s), and when macroeconomic Sphere (ISBN: 0-8213-5676-3 SKU: 15676). reforms are accompanied by a low level of Unlocking the Employment Potential in the structural reforms (as observed during the 1990s). Middle East and North Africa: Toward a New Social Contract (ISBN: 0-8213-5678-X Deeper Integration and Trade in Services in SKU: 15678). the Euro-Mediterranean Region: Southern Better Governance for Development in the Dimensions of the European Neighborhood Middle East and North Africa (ISBN: 0- Policy (ISBN: 0-8213-5955-X SKU: 15955). The 8213-5635-6 SKU: 15635). Arab countries of the southern Mediterranean rim Trade, Investment, and Development in the have long suffered from economic stagnation and Middle East and North Africa: Engaging an increasing marginalization in the global with the World (ISBN: 0-8213-5574-0 SKU: economy. Deeper economic integration with the 15574). enlarged European Union--accounting for a quarter of global GDP and foreign direct Bank Publications investment--could become a main driver for economic development in the southern World Development Report 2005: A Better Mediterranean countries. The planned Euro- Investment Climate for Everyone (ISBN: 0- Mediterranean free trade area for goods is a first 8213-5682-8 SKU: 15682). Firms and step in that direction, but additional measures are entrepreneurs of all types--from microenterprises needed to translate geographic proximity into to multinationals--play a central role in growth economic growth; especially, the removal of non- and poverty reduction. Their investment decisions tariff barriers, the liberalization of services trade, drive job creation, the availability and and comprehensive behind-the-border policy affordability of goods and services for consumers, reforms. The European Neighborhood Policy, and the tax revenues governments can draw on to launched in 2003, could provide an appropriate fund health, education, and other services. Their policy framework for an integration strategy contribution depends largely on the way between the EU and its southern periphery. governments shape the investment climate in each location--through the protection of property This Report analyzes the adjustment needs and rights, regulation and taxation, strategies for policy options associated with deeper integration providing infrastructure, interventions in finance between the two sides of the Mediterranean Sea. It and labor markets, and broader governance puts specific emphasis on the dynamics of deeper features such as corruption. integration at the company level, including issues such as outward processing trade, supply-chain The World Development Report 2005 argues that integration, and the outsourcing of back-office improving the investment climates of their functions. In addition to a general discussion of societies should be a top priority for governments. deeper integration and trade in services Drawing on surveys of nearly 30,000 firms in 53 liberalization, the title also contains a detailed developing countries, country case studies, and assessment of individual sectors­especially the other new research, the Report explores questions backbone services and other markets of particular such as: relevance for deeper integration. Even though the main focus is on regional integration, the title also · What are the key features of a good factors multilateral liberalization issues into its investment climate, and how do they analysis, as well as options, for the pursuit of an influence growth and poverty? open regionalism. · What can governments do to improve their investment climates, and how can they go about tackling such a broad agenda? Third Quarter 2004 25 Hashemite Kingdom of Jordan Update · What has been learned about good law today. This right is buttressed by a large practice in each of the main areas of the number of soft law instruments, emerging investment climate? customary international law, as well as an · What role might selective interventions increasing number of domestic law instruments. and international arrangements play in improving the investment climate? World Bank Atlas (36th Edition) (ISBN: 0- · What can the international community do 8213-5732-8 SKU: 15732). The Atlas (36th to help developing countries improve the Edition) vividly illustrates the key development investment climates of their societies? challenges in the world today. It provides easy-to read, colorful world maps, tables and graphs Remittances: Development Impact and Future highlighting key social, economic and Prospects (ISBN: 0-8213-5794-8 SKU: 15794). environmental data for 208 countries. New research shows the astonishing scope of remittances, with formally documented flows now Reshaping the Future: Education and Post- estimated at US$90 billion for 2003. Globally, Conflict Reconstruction (ISBN: 0-8213-5959-2 remittances now constitute the largest source of SKU: 15959). The aim of this Report is to draw financial flows to developing countries after international attention to the key role that Foreign Direct Investment (FDI), and indeed in education can play in both preventing conflict and many countries they now exceed FDI flows. in reconstructing post-conflict societies. The Report also alerts developing countries and donors The Report explores policy options for enhancing alike to the devastating consequences of conflict the poverty alleviation impact of remittance on a country's education systems and outcomes, money in recipient countries, and addresses and emphasizes the importance of maximizing the concerns about increasing migration and opportunities to reform education systems inequality. It looks at new technologies that allow presented by a reconstruction setting, adopting a remittance service providers to reduce direct long-term development perspective, and transaction costs and open new channels, emphasizing equity and quality in the delivery of enhancing convenience for remitters and education services. Every education system has improving levels of transparency and the potential to exacerbate the conditions that accountability for regulators and policy makers. It contribute to violent conflict. Based on this also establishes a baseline for further research and notion, the Report argues that education warrants collaborative effort, showing the areas where the high priority in both humanitarian response and international financial institutions can add value to post-conflict reconstruction. The central message enhance the positive impact of remittance flows of this Report is that education plays a key role in and minimize less welcome effects. both conflict prevention and in the reconstruction of post-conflict societies. It highlights significant The Human Right to Water: Legal and Policy findings on education and post-conflict Dimensions (ISBN: 0-8213-5922-3 SKU: 15922). reconstruction drawn from thorough research and The Report traces the issue of the right to water literature review, a survey and database of key through a number of international legal indicators for 52 conflict-affected countries, and a instruments, particularly General Comment No. review of 12 country studies. 15 which recognizes such a right. It analyzes the international legal regime for human rights, and To order by phone or fax: argues that the nexus between development, water Phone: 1-800-645-7247 or 703-661-1580; and human rights is well established therein. Fax 703-661-1501 Although the central theme of the Report is To order on-line: General Comment No. 15 issued by the http://publications.worldbank.org/ecommerce/ Committee on Economic, Social and Cultural E-mail: books@worldbank.org Rights in 2002 which explicitly recognizes a Research and working papers are also available in human's right to water, the Report argues that the electronic format free- of-charge at: Comment supports the idea that there is an http://econ.worldbank.org/ incipient right to water emerging in international 26 Third Quarter 2004