JORDAN ECONOMIC MONITOR THE CHALLENGE AHEAD Spring 2016 Global Practice for Macroeconomics & Fiscal Management MIDDLE EAST AND NORTH AFRICA REGION The World Bank JORDAN ECONOMIC MONITOR | THE CHALLENGE AHEAD PREFACE The Jordan Economic Monitor provides an update To be included on an email distribution list for on key economic developments and policies over this Jordan Economic Monitor series and related the past six months. It also presents findings from publications, please contact Nada Abou Rizk recent World Bank work on Jordan. It places them (nabourizk@worldbank.org). For questions and in a longer-term and global context, and assesses comments on the content of this publication, please the implications of these developments and other contact Léa Hakim (lhakim1@worldbank.org) or Eric changes in policy for the outlook for the country. Le Borgne (eleborgne@worldbank.org). Questions Its coverage ranges from the macro-economy to from the media can be addressed to Mona Ziade financial markets to indicators of human welfare (mziade@worldbank.org). and development. It is intended for a wide audience, including policy makers, business leaders, financial market participants, and the community of analysts and professionals engaged in Jordan. The Jordan Economic Monitor is a product of the World Bank’s Global Practice for Macroeconomics & Fiscal Management, (GMFDR) team. It was prepared by Léa Hakim (Economist), Samer Matta (Economic Analyst) and Zeina Hasna (Economic Analyst), under the general guidance of Eric Le Borgne (Lead Economist) and Auguste Tano Kouame (Global Practice Manager). The Special Focus was prepared by Sima Kanaan, Lead Social Development Specialist. May Ibrahim (Senior Executive Assistant) provided Arabic translation and Zeina El Khalil (Communications Officer) print-produced the report. Macroeconomic projections are as of 1 March 2016. Data is as of 15 April 2016. The findings, interpretations, and conclusions expressed in this Monitor are those of World Bank staff and do not necessarily reflect the views of the Executive Board of The World Bank or the governments they represent. For information about the World Bank and its activities in Jordan, including e-copies of this publication, please visit www.worldbank.org.jo Preface | 1 THE WORLD BANK TABLE OF CONTENTS PREFACE........................................................................................................................................................ 1 EXECUTIVE SUMMARY ............................................................................................................................... 4 …ò«ØæàdG ¢üî∏ªdG .............................................................................................................................................. 7 RECENT ECONOMIC AND POLICY DEVELOPMENTS ........................................................................... 8 Output and Demand ....................................................................................................................................... 8 Labor and Employment ................................................................................................................................. 11 Fiscal Policy................................................................................................................................................... 12 External Sector .............................................................................................................................................. 13 Monetary Policy and Finance ........................................................................................................................ 14 PROSPECTS ................................................................................................................................................ 18 SPECIAL FOCUS: Enhancing Municipal Service Delivery Amidst Urban Displacement in Jordan ....... 20 I. Context ..................................................................................................................................................... 20 II. The Emergency Services and Social Resilience Program (ESSRP) – An Innovative Approach for Dealing with Urban Displacement ................................................................................................................................. 24 III.Results to Date.......................................................................................................................................... 24 IV.Lessons Learned........................................................................................................................................ 26 V. Project Adjustments and Potential for Generating Employment Opportunities ......................................... 28 VI.Addressing Urban Displacement – the Opportunities and Challenges of Working Through Local Authorities 29 DATA APPENDIX ........................................................................................................................................ 31 SELECTED SPECIAL FOCUS FROM RECENT LEBANON ECONOMIC MONITORS.......................... 32 SELECTED RECENT WORLD BANK PUBLICATIONS ON JORDAN .................................................... 34 LIST OF FIGURES FIGURE 1. GDP growth slows for the first time since 2010 ......................................................................... 9 FIGURE 2. Jordan’s 2015 growth rate broadly in line with MENA average .................................................. 9 FIGURE 3. Services and industry are main drivers of growth ....................................................................... 9 FIGURE 4. ... despite a weaker tourism sector ............................................................................................. 9 FIGURE 5. Lower housing demand slows down the construction sector. .................................................. 10 FIGURE 6. ... while mining and quarrying production improves ................................................................ 10 FIGURE 7. Net exports and private demand fuel growth on the demand side . .......................................... 11 FIGURE 8. ....with steady increases in credit growth . ................................................................................ 11 FIGURE 9. High and worsening unemployment rate ................................................................................. 12 FIGURE 10. Fiscal deficit narrower in 2015 despite revenue contraction .................................................... 13 FIGURE 11. Debt-to-GDP ratio exceeds 93 percent ..................................................................................... 13 FIGURE 12. Lower energy imports narrow the goods trade balance ............................................................ 14 FIGURE 13. Wider current account due to lower public transfers and service exports ................................ 14 FIGURE 14. Deflationary pressures throughout 2015 .................................................................................. 15 FIGURE 15. … with core at lowest since May 2013 ..................................................................................... 15 FIGURE 16. Central Bank of Jordan continues loose monetary stance in 2015 ............................................ 15 FIGURE 17. ASEI weaker than 2014 ............................................................................................................. 15 FIGURE 18. Most municipalities targeted incurring fiscal deficits (2010-2012 average) ............................... 21 FIGURE 19. Salaries and wages account for 60 percent of average municipal expenditures compared to 16 percent for service provision capital expenditures ........................................................................................ 21 FIGURE 20. Per capita municipal expenditure decreases by average of 29 percent with refugees ............... 21 FIGURE 21. Pre-existing structural vulnerabilities in Jordan, exacerbated by Syrian crisis, main fault lines for JORDAN ECONOMIC MONITOR | THE CHALLENGE AHEAD social cohesion and community resilience .................................................................................................... 22 FIGURE 22. Project Rationale ....................................................................................................................... 22 FIGURE 23. Most indicators achieved / surpassed target ............................................................................. 25 FIGURE 24. Proportion of households agreeing that the municipality responds to their priority needs ....... 27 FIGURE 25. Methodology of the first monitoring round............................................................................... 27 FIGURE 26. Reported levels of household satisfaction with ESSRP Solid Waste Management Intervention . 28 LIST OF TABLES TABLE 1. Financial Soundness Indicators ................................................................................................. 16 TABLE 2. Selected Economic Indicators ................................................................................................... 31 LIST OF BOXES BOX 1. The Jordan Compact ................................................................................................................. 16 BOX 2. The Emergency Services and Social Resilience Program – Fact Sheet ....................................... 23 BOX 3. Women’s Sewing Workshop in Sarhan ..................................................................................... 24 BOX 4. ESSRP Independent Monitoring Methodology .......................................................................... 27 BOX 5. Good Practice Case Study: Gharb Irbid .................................................................................... 28 LIST OF KEY ABBREVIATIONS USED bps: Basis points H1, H2: First half of the year, second half of the year. 3mma: Three-months moving average pp: Percentage points Q1 (Q2, Q3, Q4): First (second, third, fourth) quarter of the year qoq: Quarter-on-quarter sa: Seasonally adjusted saar: Seasonally adjusted, annual rate yoy: Year-on-year lhs, rhs: Left hand side, right hand side (for axis of figures) ESSRP: The Emergency Services and Socail Resilience Program Table of Contents | 3 THE WORLD BANK EXECUTIVE SUMMARY i. Amidst a turbulent regional political a sovereign guarantee) instead of the government. and security environment, Jordan wrestles with This provided a 6.9 percent of GDP relief to the sluggish growth and high unemployment. A fiscal balance, without which the fiscal deficit would number of risks materialized in 2015, particularly have widened. NEPCO’s debt, the fiscal deficit and related to security spillovers and their negative impact slowing GDP growth contributed to pushing the on tourism, construction, investment and exports. gross debt-to-GDP ratio to 93.4 percent at end- As such, the economy slowed down for the first time 2015. Jordan is working towards an Extended Fund since 2010, further widening Jordan’s output gap, Facility (EFF) with the IMF, anticipated to support with growth declining from 3.1 percent in 2014 to further fiscal consolidation efforts in parallel to 2.4 percent for 2015. However, growth remained spurring growth-enhancing structural reforms. otherwise broad-based. The largest contributions to growth came from ‘finance and insurance services’, iv. The current account deficit widened ‘transport, storage and communications’, ‘producers despite the impact of depressed oil prices on of government services’, ‘electricity and water’ imports. Lower public transfers and 7.1 percent and manufacturing sectors although it was ‘mining reduced travel receipts pushed the current account and quarrying’ and ‘electricity and water’ that saw deficit wider by 1.6 percent of GDP to 8.9 percent the highest growth rates in 2015. Unemployment despite a tighter merchandize trade balance reached an average of 13.0 percent in 2015, 1.1 and growing, yet decelerating, remittances. The percentage points wider compared to 2014. merchandize trade balance narrowed by 14.7 percent on account of 40.6 percent tighter energy ii. Deflationary pressures persisted for most imports which outweighed a 7.1 percent contraction of 2015 due to continued lower oil prices, a of domestic exports. While domestic exports were weakened Euro, a negative output gap, and the buttressed by 10.9 percent growth in phosphate disappearance of previous years’ supply side exports, they were affected by land trade route constraints (such as those on housing, due to the closures with Syria and Iraq, Jordan’s traditionally large refugee influx in 2012-13). While the central largest export partner, overtaken by the Gulf bank continued its expansionary monetary policy, Cooperation Countries (GCC) and U.S. reducing the policy lending rate by 125 bps over 2015, its US$14.2 billion (7.5 months of imports) v. Growth is projected to rebound slightly, gross foreign exchange reserves were 0.5 percent to an average of 3.3 percent over 2016- higher by end-2015 compared to end-2014. 2018, provided no further spillovers from the Syrian crisis occur. This, however, reflects a iii. The fiscal deficit was narrower in 2015 downward level shift from the previous medium- thanks to lower transfers to the National Electric term projections given the protracted low oil Power Company (NEPCO) and Water Authority prices’ impact—through the GCC—on reducing of Jordan (WAJ) and other expenditures amid investment, and potentially grants and remittances reduced domestic revenues and grants. The fiscal to Jordan. Growth is projected at 3.0 percent deficit tightened to 3.6 percent of GDP in 2015 in 2016 on account of a growing ‘mining and from 9.3 percent. In 2015, NEPCO and WAJ mostly quarrying’ sector, some energy investments and resorted to borrowing from commercial banks (with base effect of tourism and construction sectors. The 4 | Executive Summary JORDAN ECONOMIC MONITOR | THE CHALLENGE AHEAD baseline forecast also assumes (i) agreement on an IMF EFF leading to fiscal adjustment and lower debt-to-GDP levels, and (ii) some trickling in of grants and concessional financing pledged at the February 2016 London donor conference. Jordan’s announced plan to create jobs for Jordanians and Syrian refugees, attract new investment, rebuild host communities, and mobilize sufficient financing to support its macroeconomic framework is ambitious and contingent on timely reform implementation. vi. The balance of risks is on the downside. Chiefly, Jordan will need to continue managing repercussions from the regional security and political situation, and the challenges of hosting 1.37 million Syrians (of which 639,704 registered refugees).1 Additionally, since Jordan benefits from the GCC for remittances, exports, FDI and grants – large sources of foreign exchange - persistently low oil prices are a risk for Jordan this year and in the medium term. Weak global demand may impact demand for Jordan’s mining exports. Furthermore, the willingness and speed of reform implementation particularly to improve the business climate will be crucial to attract Jordan’s investment aspirations. 1 Total Syrian population as per 2015 Census. Registered Syrian refugees figure as per UNCHR 3 March 2016. 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äGQɪãà°SG ÜòLh óbh .»dɪdG õé©dG ™°SƒJ øe Iƒ£îdG ∂∏J â©æe å«ëH ,»dɪLE’G ò«ØæJ •ôà°ûJh ,»∏μdG OÉ°üàb’G QÉWEG ºYód ΩRÓdG πjƒªàdG áÄÑ©Jh ƒªædG DƒWÉÑJh »dɪdG õé©dGh AÉHô¡μ∏d á«æWƒdG ácô°ûdG ¿ƒjO âªgÉ°S .âbh ÜôbCG »a äÉMÓ°UE’G ≈dEG »dɪLE’G ΩÉ©dG øjódG áÑ°ùf ™aO »a »dɪLE’G »∏ëªdG èJÉædG »a .2015 ΩÉ©dG ájÉ¡f »a áĪdÉH 93^4 ≈dEG »dɪLE’G »∏ëªdG èJÉædG …ò«ØæàdG ¢üî∏ªdG | 7 THE WORLD BANK RECENT ECONOMIC AND POLICY DEVELOPMENTS 1. Jordan remains a secure country in a the number of seats in the Lower House from 150 volatile region yet vulnerabilities have surfaced. to 130, allows those who turn 18 ninety days before Security incidents in the last year have served election day to vote, divides electoral districts and as reminders of underlying threats to and in the allocates a 15-seat quota for women. Kingdom. Such incidents have negatively impacted the economy with land route closures a blow to exports. The Jaber/Nassib crossing land route with Syria closed by Jordan in April 2015 and that of Terbil with Jordan closed by Iraq in July 2015 due Output and Demand to security concerns. While these routes remain closed, there are efforts to re-open the road between 4. A number of risks manifested in 2015 Baghdad and Amman. dragging down growth for the first time since 2010. While previous shocks to the economy 2. Population pressures, quantified by the such as the main influx of Syrian refugees and recent census, and economic shocks are likely to Egyptian gas supply interruptions were “priced have raised poverty in Jordan. Data and analysis in”, new vulnerabilities emerged.3 The total closure from previous decades reveal that growth has been of land trade routes with Syria and Iraq in April the main driver of poverty reduction in Jordan. and July 2015 respectively, and other security- However, many Jordanians are still vulnerable to related challenges within and around Jordan fall into poverty given the uncertainty the country adversely impacted trade, tourism, investment and is facing on many fronts including the influx of construction. Headwind possibly also stemmed forced displaced populations, prices and delicate from lower government expenditures related to labor market dynamics. The 2015 population census the fiscal consolidation program embarked on highlights a large growth rate in Jordan’s population. with the International Monetary Fund (IMF) 2012- At 9.5 million, Jordan’s population surged by 70 2015 Stand-by-Arrangement (SBA) though these percent compared to 2004 (5.6 million), or a 10- may have also improved confidence in the macro fold increase in 55 years. The census reveals that framework. Progressive pick-up in subsequent 30 percent of the population is non-Jordanian, of quarters of 2015 was insufficient to offset the break- which 1.3 million Syrians, followed by 0.6 million in-growth momentum observed in the first quarter Egyptians and Palestinians each. Officially, 639,704 (Q1-2015) of the year.4 Growth thus slowed to 2.4 Syrians are registered with UNHCR (3 March 2016) percent from 3.1 percent in 2014 further widening and managing the refugee crisis remains one of Jordan’s output gap (Figure 1). While Jordan’s Jordan’s utmost challenges. 2015 economic growth performance is broadly in line with the Middle East and North Africa (MENA) 3. While some political reforms emerge, the population is feeling the impact of sluggish growth. 3 The main influx of Syrian refugees occurred in 2012 and 2013 such that end-2013, 90 percent of the currently registered The 2016 Elections Law was ratified on March 10th refugees had already been relocated to Jordan. As of 3 March after extensive discussions within and outside 2016, 639,704 Syrians are registered with UNHCR. The 2015 census reveals a total of 1.3 million Syrians. Parliament setting the ground for Parliamentary elections due by January 2017. The law decreases 4 On a year on year basis, growth for Q1-2015, Q2-2015 and Q3-2015 registered 2.0, 2.4, and 2.6 percent respectively. 8 | Recent Economic and Policy Developments JORDAN ECONOMIC MONITOR | THE CHALLENGE AHEAD GDP Growth 2000-2016 Supply Side Contribution to Real GDP Growth (yoy) Net Taxes On Product Services Industry Agriculture GDP 10 4.0 9 3.5 8 3.0 Percent (%) 7 2.5 6 Period Averages : 2.0 2000-2009:6.5% Percent (%) 5 Period Averages : 1.5 4 2010-2016:2.7% 1.0 3 0.5 2 0.0 1 -0.5 Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4 0 -1.0 2010 2011 2012 2013 2014 2015 2016p 2000 2005 2008 2011 2014 2001 2002 2003 2004 2006 2007 2009 2010 2012 2013 2015 -1.5 FIGURE 3. Services and industry are main drivers of FIGURE 1. GDP growth slows for the first time since 2010 growth... Source: Department of Statistics and World Bank staff calculations Source: Department of Statistics and World Bank calculations GDP Growth in MENA Tourism 8000.0 25.00 7000.0 20.00 15.00 Number, Thousands 6000.0 10.00 10 5000.0 Percent (%) 5.00 8 4000.0 0.00 6 3000.0 -5.00 Percent (%) 4 2000.0 -10.00 1000.0 -15.00 2 0.0 -20.00 0 2011 2012 2013 2014 2015 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015e -2 Tourism Receipts (USD Million) Tourist Arrivals (thousands) -4 Tourism Receipts (yoy growth, %) Tourist Arrivals (yoy growth, %) EGYPT JORDAN LEBANON MENA FIGURE 2. Jordan’s 2015 growth rate broadly in line with FIGURE 4. ... despite a weaker tourism sector MENA average Source: World Bank Economic Prospects, January 2016 Source: Ministry of Tourism, Central Bank of Jordan and World Bank average of 2.5 percent, it lags behind estimated which saw 9.6 percent less permits granted in 2015 average growth of developing countries at 4.3 was impacted, in part, by lower housing demand percent (Figure 2).5 due to the population abatement resulting from a significantly slower Syrian refugee influx and from 5. Despite the main drags on growth from a hesitant market averse to investment (Figure 5). A tourism and construction sectors, a range of number of sectors however pushed up growth. Of all sectors contributed to growth. Throughout 2015, sectors, ‘mining and quarrying’ witnessed the largest the economy grew by an average of 2.4 percent surge growing by 11 percent following by ‘electricity overcoming setbacks in ‘restaurants and hotels’ and and water’ at 10.9 percent. The mining and quarrying construction sectors which retracted by 3.3 percent production index grew by 11.4 percent in 2015 and 1.3 percent respectively compared to 2014 compared to 2014 driven by another strong year (Figure 3). Such results reflect a subdued tourist for phosphate and potash production (each growing season with 4.8 million tourists visiting the Kingdom by 10.9 percent and 12.9 percent respectively) in 2015, 9.7 percent lower than in 2014 (Figure 4). (Figure 6). Despite its impressive performance, Tourist reluctance to visit Jordan amidst conflict in the contribution of ‘mining and quarrying’ to GDP neighboring countries also impacted travel receipts, growth retracted to 0.17 percentage points in 2015 7.1 percent lower in 2015. The construction sector compared to its contribution of 0.34 percentage points of GDP in 2014. ‘Finance and insurance 5 World Bank. Global Economic Prospects. January 2016. Recent Economic and Policy Developments | 9 THE WORLD BANK Construction Mining, Quarrying and Manufacturing 16,000 45,000 200 14,000 40,000 Thousands of Square Meters 35,000 150 12,000 30,000 Index 10,000 100 Number 25,000 8,000 20,000 6,000 50 15,000 4,000 10,000 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2,000 5,000 0 0 2010 2011 2012 2013 2014 2015 Manufacturing Mining and Quarrying Area Construction Permits (rhs) Phosphate Potash FIGURE 5. Lower housing demand slows down the FIGURE 6. ... while mining and quarrying production construction sector... improves Source: Central Bank of Jordan and World Bank staff calculations Source: Central Bank of Jordan and World Bank staff calculations services’, ‘transport, storage and communications’, extended a scheme to charge Arab visitors the same ‘producers of government services’ were the largest rate as Jordanians at tourist sites through the end contributing sectors to growth from the supply side of 2016. That month, it also extended a real estate (each contributing 0.46 points, 0.45 points, 0.26 incentive until 30 November 2016 exempting first- points to GDP growth in 2015, respectively) followed time homebuyers from registration fees for the first by ‘electricity and water’ and manufacturing. 150m2 for apartments 180m2 or less. Cabinet is additionally contemplating a 2016 summer festival 6. Incentive measures introduced by the to stimulate trade and internal and external tourism. government in 2015 have been extended and While it is too soon to estimate the impact and expanded in an effort to boost economic activity effectiveness of recent measures, such that the fiscal and improve service. In addition to incentive cost of the tax incentives may not compensate the measures adopted in tourism and real estate in the impact on economic activity, there are signs of some first half of 2015, the government introduced further improvement in tourism towards which incentives incentives in the Information, Communication and and marketing campaigns could have contributed. Technology (ICT) and transportation sectors in While tourist arrivals regressed by 15.4 percent in October 2015.6 Aiming to support the ICT sector, the first half of 2015 (H1-2015) compared to H1- the government outlined sales tax exemptions on 2014, they picked up to 3.7 percent in H2-2015 (vs. goods and services related to ICT services, a 30 H2-2014). percent reduction on income tax rates for 10 years and custom duties exemptions on specific ICT 7. An improvement in net exports services.7 Incentives in the transportation sector underpinned growth from the demand side. In aim at improving performance of the sector and real terms, net exports improved by 13 percent bettering experience of passengers. Sales tax and attributed to 11.9 percent reduced real imports customs duty exemptions have been granted to which overrode underperforming exports. Net companies operating Bus Rapid Transit services exports are estimated to have been the main driver and those that have a fleet of at least 20 new and of growth contributing to 3.4 percentage points environmentally-friendly transport buses at the time of GDP across 2015 (Figure 7). Private demand of registration. In December 2015, the government (private consumption and private investment) was flat in 2015 despite contributing to growth in the 6 For details of tourism and real estate incentives, refer to World Bank. Jordan Economic Monitor. Spring 2015. second and fourth quarters of 2015. Lower oil 7 Services include those related to software development, prices induced an increase in disposable income mobile applications, information technology training, e-learning, affecting private consumption (personal loans website portals, digital content, outsourcing and electronic and credit growth from commercial banks to the games. 10 | Recent Economic and Policy Developments JORDAN ECONOMIC MONITOR | THE CHALLENGE AHEAD Demand Side Contribution to Real GDP Growth (yoy) Commercial Bank Lending Private Demand Net Exports 25,000 Public Consumption Public Investment 20,000 GDP Growth (rhs) JD million 20 3.8 15,000 17.5 3.5 15 3.3 12.5 3.0 10,000 10 2.8 Percent (%) Percent (%) 7.5 2.5 2.3 5,000 5 2.0 2.5 1.8 0 0 1.5 -2.5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Ap 2 Ju 2 O 2 Ja 2 Ap 3 Ju 3 O 3 Ja 3 Ap 4 Ju 4 O 4 Ja 4 Ap 5 Ju 5 O 5 Ja 5 16 1.3 1 r-1 l-1 -1 1 r-1 l-1 -1 1 r-1 l-1 -1 1 r-1 l-1 -1 -5 n- n- n- n- n- 1.0 ct ct ct ct Ja -7.5 2011 2012 2013 2014 2015 0.8 -10 0.5 -12.5 0.3 Total Lending to Private Sector Total Lending to Public Sector -15 0.0 Total Lending FIGURE 7. Net exports and private demand fuel growth FIGURE 8. ... with steady increases in credit growth on the demand side... Source: World Bank staff calculations Source: Central Bank of Jordan and World Bank staff calculations private sector increased to 16.8 percent and 4.4 registered the uppermost average unemployment percent, respectively in 2015 (Figure 8) although rate for 2015 at 16.8 percent, a 5.3 percentage private demand was weaker as evidenced by a 33.9 point differential compared to that of the capital. percent drop in net foreign direct investment and Madaba and Tafiela recorded the next highest frailer real estate demand. Public investment and average unemployment rates of 15.7 percent each. public consumption on the other hand were drags Compared to other governorates throughout 2015, on growth, decreasing by an average of 4.3 and Madaba was hardest hit witnessing both the largest 3.8 percent in real terms between 2014 and 2015, increase in average unemployment (+3.5 percentage respectively. points) and the largest reduction in its LFRP (-2.8 percentage points to 35.9 percent). 9. The government has committed to an ambitious program creating jobs for up Labor and Employment to 200,000 Syrian refugees contingent on international support as part of the Jordan 8. In line with weaker economic growth, Compact. It is difficult to estimate the number of structurally high unemployment worsened Syrian workers currently working in Jordan as most reaching its highest level since 2007. At an average are not eligible for a work permit and are engaged of 13.0 percent for 2015, the unemployment rate in Jordan’s informal economy. Estimates range from worsened by 1.1 percentage points compared to 70,000 to 200,000 mostly working in construction, 2014 with the female unemployment rate of 22.5 agriculture, services, retail and wholesale trade percent more than double that of men (11 percent). and restaurants.8 As part of Jordan’s compact with The youth unemployment rate remained elevated the international community entered into at the averaging 30.8 percent in 2015, a slight increase Supporting Syria and the Region conference held in of 0.2 percentage points from the previous year. London (‘London donor conference’) on February The labor force participation rate (LFPR) only saw 4th 2016, Jordan committed to ‘turning the Syrian a marginal improvement from 36.4 percent in refugee crisis into a development opportunity’ by 2014 to 36.7 percent in 2015, with large gender- attracting new investment and providing incentives based heterogeneity, with female participation to five pilot development zones (Box 1). Coupled at 13.3 percent against 60 percent for males. The employment rate has exhibited a sharp downward 8 Lower end estimate: International Labour Organization trend since 2009 with a dive since mid-2015 to and FAFO. Impact of Syrian Refugees on the Jordanian Labour reach 31.9 percent. On a governorate basis, Maan Market. 2015. Upper end estimate: Jordan Ministry of Labour, June 2015. Recent Economic and Policy Developments | 11 THE WORLD BANK Jordan Labor Market Dynamics (sa) tax outweighing the pick-up in taxes on income and profits and have been affected by forgone revenues 42 15 related to sectoral incentive measures. Non-tax 40 14 revenues deteriorated due to smaller revenues Percent (%) 38 Percent (%) 13 36 from selling goods and services and other non- 12 34 tax revenues. Grants were less forthcoming at 3.3 32 11 percent of GDP in 2015 compared to 4.9 percent of 30 10 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 GDP the preceding year. Excluding grants, however, 2008 2009 2010 2011 2012 2013 2014 2015 the fiscal deficit improved to 6.9 percent of GDP Employment Rate (ER), lhs Labor Force Participation Rate, lhs from 14.2 percent in 2014 due to lower current and Unemployment Rate (UR), rhs capital expenditures. Current expenditures (as share FIGURE 9. High and worsening unemployment rate of GDP) were tighter due to reduced spending on purchases of goods and services, interest payments, Source: Department of Statistics and World Bank staff calculations wages and salaries, and food subsidies compared to 2014. Despite continuation of the GCC-financed with expected simplified rules of origin from the capital expenditure program, capital expenditures European Union, these zones are anticipated to also retracted in 2015. The primary balance remains provide jobs for Jordanians and Syrians. Jordan also in deficit at -0.1 percent of GDP (a primary deficit commits to facilitating the issuance of work permits of 3.5 percent of GDP excluding grants). Following for Syrians inside and outside these zones which has completion of the US$ 2 billion SBA in August 2015, the potential to formalize the status of many Syrians Jordan is working towards an Extended Fund Facility within Jordan. There is a risk this may displace other (EFF) with the IMF. While the EFF is also anticipated foreign workers in Jordan. to support further fiscal consolidation efforts and reduce the debt-to-GDP ratio, it will focus more on spurring growth-enhancing structural reforms particularly related to improving the business environment. Fiscal Policy 11. The gross debt-to-GDP ratio reaches a 10. The fiscal deficit was narrower in 2015 high while some debt management measures thanks to lower transfers to the National Electric are introduced. NEPCO borrowing in 2015 Power Company (NEPCO) and the Water Authority given operating losses (its debt continues to be of Jordan (WAJ) and other expenditures amid government guaranteed) combined with the fiscal reduced domestic revenues and grants. The fiscal deficit and slowing GDP growth contributed to deficit reached 3.6 percent of GDP in 2015 compared pushing the gross debt-to-GDP ratio to 93.4 percent to 9.3 percent of GDP in 2014. NEPCO resorted to by end-2015. The share of domestic currency debt borrowing from commercial banks instead of the decreased from 64.5 percent at end-2014 to 62.3 government in 2015 providing a 6.2 percent of GDP percent. Two Eurobond issuances were undertaken relief to the fiscal balance. Transfers to WAJ decreased during 2015 with a total issue size of US$ 2 from 0.8 percent of GDP in 2014 to 0.1 percent of billion and weighted average cost of 3.57 percent. GDP in 2015. Without these lower utility transfers, Following the US$ 1.5 billion dual-tranche US- the fiscal deficit would have widened as domestic guaranteed issue in June, the government issued revenues and grants underperformed compared a ten-year US$ 500 million Eurobond issuance to 2014 and there was a one-off expenditure to (without a US guarantee) at 6.125 percent coupon reimburse payables and arrears. Domestic revenues in November. Jordan demonstrated sizable appetite decreased by 1.5 percent of GDP on account of for its credit with this transaction almost five times lower tax and non-tax revenues. Tax revenues were oversubscribed. On the domestic currency financing predominantly driven down by slower general sales side, Jordan is diversifying its instrument mix. While 12 | Recent Economic and Policy Developments JORDAN ECONOMIC MONITOR | THE CHALLENGE AHEAD Fiscal Deficit (excluding grants, % of GDP) Jordan Debt to GDP Ratio (1998-2016) Domestic Revenues Total Expenditures Budget Balance (excl. grants) 120 Budget Balance (incl. grants) 45 20 100 40 15 80 Percent (%) 35 Percent (%) 10 Percent (%) 30 60 25 5 40 20 0 15 20 -5 10 0 -10 2016p 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 5 0 -15 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 External Internal Total p FIGURE 10. Fiscal deficit narrower in 2015 despite FIGURE 11. Debt-to-GDP ratio exceeds 93 percent revenue contraction Source: Ministry of Finance and World Bank staff calculations Source: Ministry of Finance and World Bank staff calculations the anticipated inaugural Sukuk has faced delay, the closures with Syria and Iraq. Exports to Iraq were Ministry of Finance re-introduced 6-month Treasury 40.5 percent lower in 2015 compared to 2014 Bills and introduced a five-year floating rate Treasury while exports to Syria, though six times smaller, bond in two auctions since December 2015 at small were similarly affected by a 40.4 percent reduction volumes. The Ministry has also published an auction over the same period. Iraq’s share of exports has calendar for the first time. While this does not yet dwindled from 18.4 percent in 2013 to 10.3 percent specify the instruments to be auctioned nor the dates in 2015. With higher exports to the U.S. and GCC in of auctions, the calendar outlines the 2016 monthly 2014 and 2015, the U.S. and GCC are now Jordan’s issuance volumes targeted by the government and is largest export partners with 20.9 percent of exports a step towards further transparency to the market. in 2015 to the US compared with 29.8 percent for the GCC. Despite reductions in domestic exports of dairy products, cereals, vegetables, pharmaceuticals and fertilizers, a number of industries buttressed exports led by higher phosphates and potash exports External Position (10.9 percent and 2.5 percent, respectively) and that of garments (7.8 percent) in 2015 compared to the 12. The trade in goods balance narrowed previous year. thanks to significantly lower energy imports over- compensating the overall decline in exports of 13. Despite the improved trade balance, the goods. The merchandize trade balance narrowed current account widened on account of lower by 14.7 percent on account of 11.4 percent tighter public transfers and weaker service exports. The imports outweighing a 6.6 percent contraction current account deficit widened from 7.3 to 8.9 of total exports (Figure 12). A sharp fall in global percent of GDP from 2014 to 2015 on account of energy prices and a weaker Euro contributed to 5.5 percent of GDP lower secondary income balance 40.6 percent reduced value of energy imports in and a 2.2 percent of GDP smaller services account addition to a slight decrease in non-energy imports. (Figure 13). The secondary income balance was At 21.4 percent, the largest share of Jordan’s imports driven down by 2.3 percent of GDP lower public stemmed from the EU followed by those from Saudi transfers echoing the drop in foreign grants. While Arabia and China (15.3 percent and 12.7 percent the trade in goods balance improved by 6.2 percent respectively). Total exports of goods were driven of GDP, the trade in services balance was 2.2 percent largely by 7.1 percent lower domestic exports of GDP wider, mostly impacted by slower export of compared to 3.4 percent shier re-exports. Domestic services. In 2015, exports of services deteriorated by exports were adversely affected by land trade route 3.1 percent of GDP compared to the preceding year, Recent Economic and Policy Developments | 13 THE WORLD BANK Trade in Goods Balance Current Account Balance 25 0.7 10,000 8,000 0.6 20 6,000 0.5 4,000 15 US$ bln US$ bln 0.4 2,000 US$ million 10 0.3 0 2009 2010 2011 2012 2013 2014 2015 0.2 -2,000 5 -4,000 0.1 -6,000 0 0.0 -8,000 2008 2009 2010 2011 2012 2013 2014 2015 -10,000 Imports Exports Current Transfers Income Account Trade deficit Energy imports -12,000 Trade Balance Current Account Exports of phosphates (rhs) FIGURE 12. Lower energy imports narrow the goods trade FIGURE 13. Wider current account due to lower public balance transfers and service exports Source: Central Bank of Jordan and World Bank staff calculations Source: Central Bank of Jordan and World Bank staff calculations mainly led by a 1.4 percent of GDP contraction in average of minus 0.9 percent, with only the months travel receipts. While remittances grew in nominal of January and June that were not in deflation on terms by 1.5 percent throughout 2015, they a year on year (yoy) basis. At US$50.8/barrel, the contracted as a share of GDP by 0.3 percent of GDP average crude oil price in 2015 was 47 percent lower compared to 2014. than that in 2014. Lower oil prices continue to affect downward pressure on headline inflation particularly 14. Jordan’s foreign asset position stood on transportation and ‘fuel and lighting’, albeit at a ground. At US$ 2.8 billion by end-2015, the slower pace. Lower global food prices (about 16 net foreign asset position of commercial banks percent of Jordan’s imports are food) are the main improved in H2-2015 to end-2015 one percent drivers of increased deflation since November 2015 lower compared to end-2014. The CBJ’s US$14.2 and into the first quarter of 2016 which registered billion (7.5 months of imports) foreign exchange average deflation of 1.2 percent yoy compared to the reserves were 0.5 percent higher by end-2015 first quarter of 2015. At its lowest since May 2013, despite more than doubling its stock of gold via core inflation10 averaged in 3.4 percent in 2015 and purchases throughout the year.9 The economy de- 2.2 percent in December yoy reflecting dissipation dollarized during 2015. Compared to an average of one-off supply shocks including pressures on of 18.4 percent in 2014, dollarization of deposit rents which have abated given the slowdown in the hovered around 17.0 percent during 2015 where it refugee influx.11 Core inflation is tending towards its also stood at end-2015. expected level given the Jordanian Dinar’s peg to the US Dollar and the Fed’s 2 percent inflation target. 16. To further stimulate the sluggish economy, the Central Bank of Jordan continued Monetary Policy and its loose monetary policy stance in 2015. Three key policy rates ended the year 75 basis points lower Finance on average compared to end-2014 thanks to rate 15. Deflationary pressures persisted for most of 2015 due to continued lower oil prices, a 10 Core inflation is here defined as headline inflation minus weakened Euro, a negative output gap, and the energy and food items in the consumer price index (specifically disappearance of previous years’ supply side transport, fuels and lighting, and food and non-alcoholic beverages) netting out items with temporary price volatility. constraints. Headline inflation recorded a period 11 Refer to previous Jordan Economic Monitors for an 9 Reserves exclude bank deposits in foreign countries. elaboration of these supply shocks. 14 | Recent Economic and Policy Developments JORDAN ECONOMIC MONITOR | THE CHALLENGE AHEAD Headline and Core Inflation - yoy growth Interest Rates 8 7 12 6 10 8 5 Percent (%) 6 4 4 Percent (%) 3 2 2 0 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jan-11 Apr-11 Oct-11 Apr-12 Apr-13 Apr-15 Jan-12 Oct-12 Jan-13 Oct-13 Jan-14 Apr-14 Oct-14 Jan-15 Oct-15 Jan-16 -2 1 -4 0 -6 Dec-13 Dec-15 Dec-14 Oct-13 Oct-14 Sep-13 Sep-14 Sep-15 Oct-15 Nov-13 Nov-14 Nov-15 Feb-13 Feb-14 Feb-15 Feb-16 May-13 May-14 May-15 Mar-13 Mar-15 Mar-16 Mar-14 Jun-13 Jun-14 Jun-15 Jan-14 Jan-15 Jan-16 Jan-13 Apr-13 Apr-14 Apr-15 Aug-13 Aug-14 Aug-15 Jul-13 Jul-14 Jul-15 -1 -2 Average Lending Rates (%) Policy Lending Rate (%) -3 Headline Inflation Core Inflation Average Lending Rates (%) Policy Lending Rate (%) FIGURE 16. Central Bank of Jordan continues loose FIGURE 14. Deflationary pressures throughout 2015 monetary stance in 2015 Source: Department of Statistics and World Bank staff calculations Source: Central Bank of Jordan, Department of Statistics and World Bank Drivers of Core Inflation Amman Stock Exchange Weighted Index 7 6 5 4,800 4 4,700 Percent (%) 3 4,600 4,500 2 4,400 Point 4,300 1 4,200 0 4,100 4,000 Sep-13 Sep-14 Sep-15 Nov-13 Nov-14 Nov-15 May-13 May-14 May-15 Mar-14 Mar-15 Mar-13 Mar-16 Jan-13 Jan-15 Jan-16 Jan-14 Jul-13 Jul-14 Jul-15 -1 3,900 -2 3,800 30-1-2014 26-2-2014 25-3-2014 2-1-2014 21-4-2014 19-5-2014 16-6-2014 13-8-2014 9-9-2014 9-10-2014 05-11-2014 2-12-2014 30-12-2014 2/1/2015 3/1/2015 3/26/2015 4/22/2015 5/20/2015 6/17/2015 7/14/2015 8/12/2015 9/8/2015 10/8/2015 11/5/2015 12/3/2015 12/31/2015 1/27/2016 2/23/2016 3/21/2016 13-7-2014 Other Personal Effect Personal Care Education Home Maintenance Rents Clothing and Footwear Tobacco and Cigarettes Core Inflation growth Communication FIGURE 15. … with core at lowest since May 2013 FIGURE 17. ASEI weaker than 2014 Source: Department of Statistics and World Bank staff calculations Source: Amman Stock Exchange and World Bank staff calculations cuts in February and July.12 In real terms however, 17. The 2015 equity market was rates remain higher than their historical values at underperforming on the whole save for a rally similar stages of the business cycle (Figure 16). The in the last month of the year. The Amman Stock policy rate cuts stimulated lending to the private Exchange Index (ASEI) reversed its largely downward sector by 6.1 percent in real terms in December trend throughout 2015 and surged by 5.7 percent 2015 yoy compared to 0.6 percent in December month on month (mom) in December 2015 as 2014 yoy. This could have been positively affected a result of a 4.2 and 15.6 percent increases in the by NEPCO borrowing. The interbank and Treasury banking and services sectors, respectively. However, bonds average interest rates moved in the same this strong performance during the last month of the direction, lower by 98 bps and 147 bps respectively year could not fully recover the losses incurred earlier between December 2014 and December 2015 with in the year, leading to a 0.2 percent cumulative loss the government relying more on external financing in 2015 (Figure 17). By end-March 2016, the ASEI sources in 2015 given two Eurobond issuances. had lost another 3.5 percent of its value compared to end-2015 amidst the crash in international stock markets resulting from fears about the crash in oil 12 The re-discount, repo and window rates were reduced by a prices and turbulence in China. total of 50bps, 50bps, and 125 bps respectively to 3.75 percent, 3.75 percent and 1.50 percent as of end-2015. Recent Economic and Policy Developments | 15 THE WORLD BANK TABLE 1. Financial Soundness Indicators (in percent unless otherwise stated). 2008 2009 2010 2011 2012 2013 2014 2015 Nonperforming Loans/Total Loans 4.2 6.7 8.2 8.5 7.7 7.0 5.6 5.0 (Provisions (in percent of classified loans 63.4 52.0 52.4 52.3 69.4 77.0 77.6 75.7 Risk-weighted Capital Adequacy Ratio 18.4 19.6 20.3 19.3 19.0 18.4 18.4 19.1 Leverage Ratio 12.9 13.0 13.1 13.1 13.3 12.9 12.5 13.0 ROE 11.5 8.8 8.8 8.3 8.6 9.9 11.0 10.3 ROA 1.4 1.1 1.1 1.1 1.1 1.2 1.4 1.3 (Net Profits Before Taxes (in JD million 564.3 460.4 523.4 516.6 587.8 719.5 822.1 876.0 Liquidity Ratio 141.2 159.1 161.4 152.9 143.5 149.1 152.2 162.2 Growth Rate of Total Assets 11.4 7.4 9.6 7.9 4.3 9.1 4.9 5.1 Growth Rate of Customer Deposits 13.2 12.1 10.9 8.3 2.4 10.5 9.3 7.7 Growth Rate of Credit Facilities 17.2 2.1 8.6 9.8 12.5 6.3 5.2 9.5 Source: Central Bank of Jordan BOX 1. The Jordan Compact. Jordan has committed to the Jordan Compact to address the challenges presented by the Syrian refugee crisis. At the February 4th, 2016 ‘Supporting Syria and the Region’ conference in London, Jordan committed to the Compact, “a new holistic approach between the Hashemite Kingdom of Jordan and the international community to deal with the Syrian refugee crisis.” The Compact supports the Jordan Response Plan for 2016-2018 which assesses budgetary needs of US$ 8 billion for refugee and resilience response programs across impacted sectors including education, energy, environment, health, justice, livelihoods and food security, local governance and municipal services, shelter, social protection, transport, and water sanitation and hygiene (WASH). The Compact centers on the following three pillars: “1. Turning the Syrian refugee crisis into a development opportunity that attracts new investments and opens up the EU market with simplified rules of origin, creating jobs for Jordanians and Syria refugees whilst supporting the post-conflict Syrian economy; 2. Rebuilding Jordanian host communities by adequately financing through grants the Jordan Response Plan 2016-2018, in particular the resilience of host communities; and 3. Mobilizing sufficient grants and concessionary financing to support the macroeconomic framework and address Jordan’s financing needs over the next three years, as part of Jordan entering into a new Extended Fund Facility program with the IMF.” Additionally, Jordan commits to undertaking reforms towards achieving the Compact. These are related to reforms that improve the business and investment environments, implement administrative procedures allowing Syrian refugees to apply for work permits and allow Syrian refugees to formalize their businesses. The Compact also focuses on the education sector, committing to provide education to each child in Jordan for the 2016/2017 academic year. The plan is estimated to cost US$ 1 billion to implement over 2016-2018 and hinges on financial support from the international community and relaxed rules of origin from the EU. While the international community has pledged financial support towards the Compact, a number of areas require clarification. Pledges in London amounted to US$ 700 million in grants in each of 2016, 2017 and 2018 and further support is expected from multilaterals to scale up concessional financing to Jordan. Four related points are important to understand to assess fiscal impacts: (i) first, the amount of firm financing specifically for Jordan is yet to be announced, including how much financing is new and incremental to what has already been programmed by donors; (ii) second, the split of financing between grants and concessional financing and at what terms would impact Jordan’s fiscal balance, interest cost, and debt levels; (iii) third, how much of the support will support humanitarian versus development programming; (iv) finally, how much financing will be disbursed through the budget or off- budget. Off-budget funding is typically directly channeled to NGOs and UN agencies, and while welcome, would not be captured in supporting the fiscal balance. 16 | Recent Economic and Policy Developments JORDAN ECONOMIC MONITOR | THE CHALLENGE AHEAD 18. Jordan’s banking indicators largely improved in 2015. Banks’ nonperforming loans (NPL) ratio continued to improve for the fourth year in a row to 4.0 percent by end-2015 from 8.5 percent end-2011 and the lowest since 2008 (4.2 percent) (Table 1). While banks’ Return on Equity (ROE) and Return on Assets (ROA) both slightly weakened to 10.3 percent and 1.3 percent respectively by end-2015 (compared to 11.0 percent and 1.4 percent respectively), the capital adequacy and leverage ratios both improved to 19.1 percent and 13.0 percent, respectively, by end-2015. For the first time since 2012, banks’ exposure to sovereign debt13 is lower at the end of the year compared to the previous year. By end-2015, this accounted for 40.6 percent of total assets (and further to 40.4 percent by end-January 2016) compared to 40.8 percent end-2014. 13 Bank’s sovereign debt exposure is computed as the ratio of commercial banks’ aggregate investment in claims on public sector and deposits at CBJ relative to total assets. Recent Economic and Policy Developments | 17 THE WORLD BANK PROSPECTS 19. Growth is projected to rebound slightly, with a number of projects in development in 2016.14 to an average of 3.3 percent over 2016-2018. Inflation for 2016 is forecasted at 1.3 percent on The main assumption underlying this projection is account of a growing economy, higher average an unchanged situation regarding the Syrian crisis. global oil prices, normalization of real estate market The projections reflect a downward level shift from demand and expected price adjustments for utilities. the previous medium-term projections given the Downside risks are present should these factors not protracted low oil prices’ impact—through the GCC— materialize.15 The current account deficit is projected on reducing investment, and potentially grants and to narrow to 6.6 percent of GDP in 2016 on account remittances to Jordan given the Jordanian working of improved exports of goods and travel services diaspora in the Gulf especially in Saudi Arabia. although this deficit is likely to be wider should The baseline forecast also assumes (i) agreement emerging developments from the GCC countries on an EFF leading to fiscal adjustment and lower on Jordan’s exports, remittances and travel receipts debt-to-GDP levels, (ii) some trickling in of grants continue to slowdown. GCC-grants are expected and concessional financing pledged at the London to continue financing capital expenditure projects donor conference in line with the Jordan Compact’s and the U.S. has pledged US$ 1.275 billion in non- attempt to mitigate the pressures of hosting Syrian military aid for 2016. refugees; (iii) enhanced exports related to the Jordan Compact economic opportunities plan, mostly 21. Potential exists for an uptick of these kicking in in 2017. projections given some movement in geo- political developments. Some of the larger factors 20. The outlook for 2016 forecasts growth at that could influence more favorable projections 3.0 percent on account of a growing mining and include: (1) continuation of the 27 February 2016 quarrying sector, some energy investments and implemented cease-fire in Syria and progress to a base effect of tourism and construction sectors. In longer term solution to the conflict, significantly signs of growth for Jordan’s phosphate and potash diminishing risks to Jordan and providing it with an industry, a US$ 1.4 billion deal between Jordan’s opportunity to support the reconstruction effort; Phosphate Mines Company and China’s Chongqing (2) re-opening of the Baghdad-Amman route as Minmetal and Machinery Import and Export per current discussions between both countries Company Ltd seeks to build a fertilizer factory in which would boost Jordan’s exports; (3) a higher Aqaba. Additionally, the Arab Potash Company amount of support and investment realized from is planning to increase production capacity by the international community in line with the 245,000 tons. These developments bode well for London donor conference and subsequent donor higher volumes of potash, phosphate and fertilizer meetings compared to projection assumptions. exports in 2016 although global demand patterns are likely to depress the full export potential. On the energy front, Jordan continues plans to diversify 14 Refer to the Spring 2015 and Fall 2015 Jordan Economic its energy mix in line with Jordan’s target of 10 Monitors for discussion on Jordan’s energy diversification percent renewable energy input into the energy mix efforts. by 2020, mainly harnessing solar and wind energy 15 As per World Bank commodities forecast for crude oil, average, spot at US$ 37.0/barrel in 2016 increasing to US$ 48.0/ barrel in 2017. 18 | Prospects JORDAN ECONOMIC MONITOR | THE CHALLENGE AHEAD 22. However, the balance of risks is on the downside. Chiefly, Jordan will need to continue managing repercussions from the regional security and political situation, and the challenges of hosting 1.27 million Syrians (of which 639,704 registered refugees). Additionally, since Jordan benefits from the GCC for remittances, exports, FDI and grants - large sources of foreign exchange - persistently low oil prices are a risk for Jordan this year and in the medium term. Also, fiscal adjustment fatigue becomes a more prominent risk in the upcoming period. Weak global demand could depress demand for potash and phosphate, particularly from India and China. Furthermore, the willingness and speed of reform implementation particularly to improve the business climate will be crucial to attract the investment Jordan aspires for. 23. Jordan’s initiative to create economic opportunities for Jordanians and Syrian refugees is ambitious, and contingent on timely reform implementation. The plan to create jobs for Jordanians and Syrian refugees by attracting new investment is an innovative holistic approach to an emergency situation involving a number of actors in the international community (Box 1). Jordan will need to embark on investment climate reform, labor market reform, trade reform, and special economic zones development to implement the plan, among other measures. Under the plan, five development zones will be provided with investment incentives. Combined with easier access to European markets compared to current conditions by summer 2016, the plan is envisaged to create jobs for Syrians and Jordanians and boost exports. Jordan will need to overcome a history of implementation challenges to deliver on the plan. Prospects | 19 THE WORLD BANK SPECIAL FOCUS ENHANCING I. Context MUNICIPAL SERVICE 24. An urban refugee crisis undermines the capacity of the Government of Jordan to DELIVERY AMIDST sustain the quality of its services and protect its developmental outcomes. By mid-2013, an URBAN DISPLACEMENT estimated 650,000 Syrian refugees had crossed the border to Jordan representing over 10 percent IN JORDAN of the country’s population. While some Syrians were living in camps, more than 80 percent were Responding to one of the largest refugee crisis in living in urban centers where they shared the space, modern history, humanitarian agencies have played resources and services with Jordanian hosts. This a colossal role in providing basic subsistence and influx of refugees rapidly expanded the population protection for hundreds of thousands of Syrian of many towns. In some cases, like in Ramtha, the refugees who sought refuge in Jordan. However, with population had increased by almost 25 percent. The eighty per cent of refugees living in host communities, additional pressures were undermining the coping the pressure on local resources and services was mechanisms of public institutions, communities, mounting, underscoring the need for addressing households and individuals. Public authorities lacked capacity gaps at the local level - something that could the resources to keep up their service provision, not be sustained through a humanitarian response. such as maintaining health and education services, The Emergency Services and Social Resilience Program providing adequate roads, transportation and street (ESSRP) was launched as a multi-donor platform lighting, ensuring waste collection and disposal, and to meet this need. The Project proved critical in delivering core social services. Due to emerging helping local authorities cope with the social and needs, funds from planned capital expenditures were political risks associated with the refugee crisis and being diverted towards immediate operating costs served as an innovative approach to dealing with posing a risk to longer-term development outcomes. urban displacement. It also brought to the fore the challenges associated with working through a local 25. The hospitality of Jordanian communities government system that is constrained by systematic was being eroded and symptoms of community inefficiencies and structural issues, undermining its tensions were emerging. Jordanian host responsiveness and highlighting the need for critical communities - individuals and households – in reforms. the affected areas were experiencing downward pressures on their incomes, increased competition for housing, employment and basic commodities. Community life was also interrupted with the large influx of Syrian refugees. Because of the close ties across the border and a belief in the short-term nature of the crisis, Syrians benefited from large amounts 20 | Special Focus JORDAN ECONOMIC MONITOR | THE CHALLENGE AHEAD Average Deficit/Surplus per Municipality as Average Municipal Expenditures Percent of Overall Revenues and Expenditures by Category 2010, 2011, 2012 20.00% Financial investment expenses 0.2% 10.00% Acquisition for investment purposes 0.2% Service provision capital expenditures 15.8% 0.00% Managerial capital expenses 0.5% Balama Al Jadeedah Sahel Horan Ramtha Al Sholah Al Za'tary Wal Manshieh Al Serhan Gharb Irbid Irbid AlMafraq -10.00% Interest and exchange expenses 5.8% -20.00% Maintenance expenses 4.1% -30.00% Social expenses 0.3% Environmental and health supervision… 0.4% -40.00% Rental expenses 0.9% -50.00% Admin and general expenses 12.4% -60.00% Salaries, wages and allowances 59.3% -70.00% 0.0% 20.0% 40.0% 60.0% 80.0% % of Rev % of Exp FIGURE 19. Salaries and wages account for 60 percent of FIGURE 18. Most municipalities targeted incurring fiscal average municipal expenditures compared to 16 percent deficits (2010-2012 average) for service provision capital expenditures Source: Institutional Assessment Report of the nine municipalities Institutional Assessment Report of the nine municipalities to be to be supported by the ESSRP, A Study Commissioned by the World supported by the ESSRP, A Study Commissioned by the World Bank. Bank. Working document. November 2013. Working document. November 2013. of in-kind and financial support from Jordanian Average Percent Decrease of Municipal Expenditures per Capita per Municipality (Impact of Refugees) individuals, charities and businesses. However, with the continuation of the crisis and limited support targeting hosting communities, the burden on -25.79% Al Sholah Jordanians was increasingly becoming untenable. -26.05% Al Za'tary Wal Manshieh -23.49% Balama Al Jadeedah Hospitality was wearing thinner and symptoms of -15.28% Gharb Irbid tension among communities were increasing. Given -30.46% Al Serhan -27.08% Sahel Horan the uncertainty around the longer-term situation -29.35% Ramtha of refugees, there was a felt need for supporting -55.50% AlMafraq -18.92% Irbid adaptive coping strategies targeting communities -60.00% -50.00% -40.00% -30.00% -20.00% -10.00% 0.00% and local authorities to manage tensions and strengthen their resilience to this change. FIGURE 20. Per capita municipal expenditure decreases by average of 29 percent with refugees Source: Institutional Assessment Report of the nine municipalities 26. Jordan’s municipalities have been to be supported by the ESSRP, A Study Commissioned by the World suffering years of underinvestment and the Bank. Working document. November 2013. erosion of their local assets. Municipalities in Jordan are responsible for a range of functions and growth resulting in increased informal settlements; services, among them solid waste collection, road limited participation especially in local development construction, rehabilitation and maintenance, street planning; and out-dated financial management lighting and cleaning, construction and operation of practices and systems. These challenges were slaughterhouses, markets, public parks, libraries, exacerbated by a very precarious financial situation and town planning activities. The Syrian crisis (Figure 18) whereby municipalities suffered from a accentuated many of the challenges facing Jordanian crippling salary burden (Figure 19) and unsustainable municipalities even before the crisis. Amongst debt service, a limited revenue base, and very low those challenges - limited attention to service and unpredictable levels of fiscal transfers. This has delivery performance, standards and outcomes; left municipalities with very little investment capacity out-dated equipment and logistical means to ensure to respond to the needs of their population.16 It was delivery and maintenance of services and assets; under such conditions that municipalities were insufficient capacities underpinned by a freeze on called upon to address an additional burden on public recruitment and a patronage-based system of recruitment; limited attention to unplanned urban 16 National Resilience Plan – 2014-2017, January 2014, Ministry of Planning and Cooperation, Jordan. Special Focus | 21 THE WORLD BANK Ministry MACRO-LEVEL TENSION DRIVERS Governorate Healthcare, water, solid waste management Municipality + micro-level tension drivers MICRO-LEVEL TENSION DRIVERS Community Livelihoods, housing, education Household/individual FIGURE 21. Pre-existing structural vulnerabilities in Jordan, exacerbated by Syrian crisis, main fault lines for social cohesion and community resilience Source: REACH Jordan Emergency Services And Social Resilience Project (JESSRP) Monitoring Study 1, November 2015 their services due to the large influx of refugees and they had witnessed in their municipality. The use limited resources were stretched further (Figure 20). of unsustainable coping mechanisms to dispose of waste (dropping garbage anywhere outside or 27. Water, solid waste management and burning it) was causing serious environmental and livelihoods (housing and employment) were health hazards. High rental costs were also resulting identified as the three sectors most impacted in the increased vulnerability of households as by the Syrian refugee crisis.17 The pressures most of them were resorting to borrowing and resulting from the large influx of Syrians into urban taking loans to be able to pay rent. The increased communities affected all aspects of life amongst demand for housing also led to a boom in new Jordanian host communities and were giving rise construction, which resulted in the establishment of to social tensions. According to a study done by new neighborhoods requiring roads, street lighting REACH, 40 percent of Jordanians and 29 percent and connections to services. It was in this latter of Syrian households identified increase in water context that the World Bank identified as a priority shortages as the most prominent change they to address needs at the local level since, at the time, witnessed in their community. The increase in the support from the international community was daily disposal of solid waste has almost doubled in largely targeting the needs of refugees themselves. some areas. Across Irbid and Mafraq governorates Support to national service delivery systems was daily waste accumulation was reported to have being channeled through line ministries with slow increased by an estimated 340 tons and waste trickle down impact on local communities who accumulation was reported by over a fifth of were shouldering the biggest burden. households as the second most prominent change Investments in social infrastructure Reduced tensions Strengthened social Visible and tangible improvements of Increase in confidence and cohesion & resilience access to municipal services trust in local government FIGURE 22. Project Rationale Source: REACH Jordan Emergency Services And Social Resilience Project (JESSRP) Monitoring Study 1, November 2015 17 REACH, Social Cohesion in Host Communities in Northern Jordan, Assessment Report, May 2015. 22 | Special Focus JORDAN ECONOMIC MONITOR | THE CHALLENGE AHEAD BOX 2. The Emergency Services and Social Resilience Program – Fact Sheet. The World Bank responds to the Syrian crisis through a comprehensive package of interventions. At the early stages of the Syrian refugee crisis, the World Bank provided a State and Peace-building Fund Grant (SPF, US$1.2 million) to improve access to basic education, vocational training opportunities for targeted host and displaced communities. As the crisis intensified, a larger program of support was designed to help Jordan build up resilience to the current and future impacts of conflict spillover. Through a loan of US$ 150 million, the World Bank funded an Emergency Project to Assist Jordan Partially Mitigate Impact of Syrian Conflict which financed vaccines, drugs and treatment of Jordanians crowded out of public hospitals, as well as universal bread and Liquid Petroleum Gas (LPG) subsidies. The Emergency Services and Social Resilience Program was launched in 2012 as another component of the World Bank’s support to host communities with the objective of helping Jordanian municipalities and host communities address the immediate service delivery impacts of Syrian refugee inflows, and strengthen municipal capacity to support local economic development. The operation formed part of a wider World Bank response to support Jordan mitigate the socio-economic impact of Syrian refugees. Beneficiaries ESSRP targets municipalities most affected by the Syrian crisis using as a proxy the proportional increase in total population. In its first year of implementation, the ESSRP supported nine municipalities in the Northern Governorates of Irbid and Mafraq. At the time, both Governorates were hosting 55 percent of the refugee population in Jordan. The nine selected municipalities had an estimated population of about 791,150 Jordanians and 299,000 Syrians. By the second year, it was evident that the pressure of the refugee influx was expanding to other parts of the country including in the middle and southern regions. As such, an additional seven municipalities were targeted bringing the total number of participating municipalities to 16 with an estimated population of 1.8 million, of whom a quarter million were Syrian refugees. Given the focus of the Project on supporting non-exclusionary municipal services, it benefited both host and refugee communities. The participatory mechanisms of the Project were intended to promote inclusion and enhance the voice of host communities including women and children. With its focus on institutional support, the Project also sought to support institutions at different levels to prepare emergency preparedness and risk management plans and systems. Project Components and Activities Funding investments in municipal services through the transfer of annual municipal grants. The ESSRP was designed as a simple project with two main components – 1) A municipal grants component and 2) A capacity building and Project management component. Component 1 provides direct Municipal Grants to municipalities on an annual basis. The individual allocations are based on the total number of refugees and are transferred to municipalities on a bi-annual basis thereby providing some predictability that allows municipalities to plan for the use of resources over a multi-year period. Municipal grants financed public services and programs that were directly within the municipal competence – e.g. solid waste management, rehabilitation of roads, street lighting, pest control, recreational facilities, local economic development and livelihoods, etc. in addition to financing the rehabilitation and building of social infrastructure, such as women’s and children’s centers, soccer fields, parks, or other communal infrastructure, activities and services. The identification and prioritization of key investments is done through a community consultative process that leverages consultative mechanisms established and supported by other partners including UNDP, USAID and others. The ESSRP provided critical technical assistance to strengthen capacity of implementing partners including municipalities. Component 2 finances technical assistance to participating municipalities to help them plan, implement and manage activities funded by the Municipal Grant, as well as project management support to implementing agencies to coordinate, manage and oversee the Project. It also provides capacity building for key Government agencies and vulnerable communities in emergency preparedness, and risk planning, management and financing. Project management support is extended to the Ministry of Municipal Affairs (MOMA), the Cities and Villages Development Bank (CVDB) and other national and subnational agencies and institutions involved in the coordination, management and oversight of the Project’s implementation. It finances inter alia implementation support, fiduciary and safeguards oversight and management, and other project related communication activities, workshop, trainings and Project monitoring. Special Focus | 23 THE WORLD BANK solutions for urgent service delivery needs. Finally, II. The Emergency and assuming that the Syrian crisis and the refugee situation were expected to evolve, the Project was Services and Social designed with some flexibility to allow for easy scale up in line with the evolving needs. Resilience Program (ESSRP) – An Innovative Approach for Dealing III. Results to Date with Urban Displacement 29. The ESSRP leverages funding from a wide range of donors becoming one of the largest 28. Supporting local service delivery is a channels for supporting local service delivery. critical ingredient for maintaining social cohesion ESSRP investments supported a wide range of and resilience. Given the predominantly urban investments and had entered its third year of nature of the displacement challenge in Jordan, implementation making a steady progress towards the ESSRP was launched in 2012 as an innovative meeting its objectives. The Multi-Donor Trust Fund mechanism that sought to address pressures on has leveraged since its inception a total budget of US$ local communities working through local authorities 65 million with grant financing from the World Bank who were at the frontline of the crisis and who were and the Governments of the UK, Canada, Sweden, expected to offer quick solutions to rising tensions Denmark and Switzerland. The Government of (Box 2). The Project was premised on a number of Jordan has also contributed US$ 3 million. As such, key approaches – i) to build citizens’ confidence in the ESSRP has become one of the largest platforms local authorities through investments that resulted for supporting host communities working at the in tangible improvements in terms of better security local level to finance critical service delivery and through improved street lighting, improved hygiene addressing the needs of expanding populations. through garbage collection and reduced tensions through safer spaces for young people; ii) to equip 30. Municipal grants were invested across municipalities with discretionary resources that a range of assets including equipment, basic enable them to problem solve as they are the first ones infrastructure and community spaces enhancing to be called upon to address emerging community local service delivery. Out of the US$ 40 million problems; iii) to build individual and community that have already been transferred from the World resilience by treating resilience as a dynamic process Bank administered MDTF since the beginning of encompassing positive adaptation within the context the Project, the ESSRP had financed investments of adversity through fostering institutional spaces totaling US$ 27 million while commitments for for communities and to finance locally engendered ongoing contracts stand at US$ 13 million. Given BOX 3. Women’s Sewing Workshop in Sarhan. Sarhan municipality built a space to house a sewing workshop for women. One of the owners of a garment factory in one of the Qualified Industrialized Zones (QIZ) established the sewing workshop to create employment opportunities for the women residing in the town. The workshop employed over 150 women in two shifts. The investment in building a new space for the workshop through the ESSRP enabled hiring up to 400 women and meeting hygienic standards for work. The success of this partnership between the municipality and the private sector has prompted other municipalities to seek similar opportunities. On one of the visits to a neighboring community, one of the women who was also a member of the municipal council said that creating opportunities for women in their hometown was critical since their families would not be in favor of them traveling out of the town for work. 24 | Special Focus JORDAN ECONOMIC MONITOR | THE CHALLENGE AHEAD Results Framework by August 2015* Baseline Jan-2014 December 2016 Target Direct project beneficiaries (number) 1.824 mn Female beneficiaries (%) 45 Conflict affected people receiving benefits in 1st year of project effectiveness (number) 1.144 mn Conflict affected people receiving benefits in 1st yr of proj. effectiveness, female (number) 852K Participating municipalities ensuring pre-crisis levels of per capita investments in at least 2 sectors (%) 100 Participating municipalities implement/facilitate at least 2 priority subprojects identified in local economic development plans (%) 33 Participating municipalities clearing annual financial and technical audits without adverse opinion (%) 100 Participating municipalities committing at least 75 percent of their Municipal Grant each year (%) 100 Participating municipalities with service delivery needs assessments completed in participatory manner (%) 100 Priority service delivery/ community infrastructure projects implemented by 69 participating municipalities (number) Participating municipalities with local development plans updated/completed in participatory manner (%) 100 Participating municipalities that publicly disclose project budgets and audit results (%) 100 Participating municipalities and governorates having emergency management plans** (%) Key staff in participating municipalities and governorates trained on emergency preparedness procedures** (number) FIGURE 23. Most indicators achieved / surpassed target Source: World Bank ESSRP Results Framework. 1 December 2015. *Blue bars represent actual results as of August 2015 compared to target. ** Indicators for this component have not yet started implementation. the acute shortages in capital investments prior to 31. By addressing critical capacity gaps, the the crisis, the Project provided a critical opportunity ESSRP resulted in some visible improvements for municipalities to upgrade their equipment fleet in the levels and quality of local services, and to be able to address their biggest challenge of expanded attention to host communities’ needs managing the huge increase in the volume of solid as well as those of refugees. By the end of 2015, waste and wastewater and the associated health the impact of the ESSRP has become quite visible and environmental implications. Investments in particularly in smaller municipalities where small equipment represented an estimated 35 percent of investments can have a relatively large impact. the total value of grants. The remaining 65 percent Since the Project was amongst the first to support were used to invest in upgrading basic infrastructure service delivery at the municipal level, it signaled an including roads maintenance and construction of important shift in the attention of the international sidewalks, water drainage systems, retaining walls, community towards the needs of host communities. culverts, and the opening of new roads to keep up with As such, it also helped address a perception of a the expansion of municipal areas due to construction single focus on the needs of refugees living in poor of new housing units for refugees. Municipalities communities where the basic needs of Jordanians also invested in building social spaces for youth and themselves were not being adequately addressed. children including soccer fields and parks as well The ESSRP provided a critical injection of funds that as community and knowledge centers that offered helped offset a huge funding gap that has undermined entertainment and learning opportunities for the the ability of municipalities to deliver on their most community. A few projects were funded to support basic services and was undermining their credibility productive sectors that generated employment for vis-à-vis their population. Mayors and municipal local citizens including the construction of spaces council members expressed their appreciation for housing private sector run businesses. for being empowered to directly implement their projects, to make decisions on their priority needs Special Focus | 25 THE WORLD BANK and to have a sense of predictability of funds to the delivery of services, or the need to communicate plan their investments over a three year period. better with the communities. Since the ESSRP is Although it was not a main objective of the Project, limited to the financing of services that fall within the municipal staff also welcomed the technical support mandate of municipalities, it does not address the they were receiving for implementing the project concerns of the community in terms of the impact of and for organizing consultations and improving their the refugee influx of crowding in schools and health outreach to the community. On their side, both the centers and the lack of job opportunities and access Government and the donors appreciated having a to affordable housing. When comparing between single instrument and a coordinated approach for municipalities, however, there was a large diversity channeling funds at the local level. of perceptions of municipalities’ responsiveness, ranging from 47 percent of households agreeing 32. The ESSRP meets and, in some instances, that the municipality was responsive to their needs exceeds its 2015 results indicators resulting in (e.g. Al Sholah) to only 17 percent of households higher per capita investments than before the in some other municipalities. This variance can, in Syrian crisis. By the end of the second year, the part, be attributed to the differences between the ESSRP had already exceeded a number of its target municipalities themselves in terms of population results indicators for 2015 (Figure 23). Municipal per- and size, demographic composition, capacity of capita investments in solid-waste management and municipal staff and a range of other factors. For roads rehabilitation have exceeded pre-crisis level; a example, larger municipalities are likely to face total of 11 community spaces had been established; greater challenges in engaging with and consulting participatory investment plans were completed the broader community, and to effectively and by all sixteen municipalities and all municipalities evenly deliver services to the community. This have cleared their financial audits for 2014 and was reflected in the feedback of households on 2015. Meetings with municipal council members the extent to which they have been consulted on and community representatives confirmed great investments funded by the Project. This is then improvements in the quality of services delivered by likely to be reflected in negative perceptions of municipalities. municipal responsiveness to needs. Demographic composition of municipalities could be another factor influencing municipalities’ engagement with IV. Lessons Learned communities and subsequently communities’ perceptions of municipal responsiveness to priority 33. Surveyed households confirm needs. This was illustrated in the level of satisfaction improvements in the quality of services but being higher in municipalities that were more remain unhappy with the responsiveness of homogenous (e.g. Al Serhan). Other factors that municipalities to their needs. The first independent may influence households’ perceptions of municipal monitoring round of the ESSRP was conducted responsiveness could be linked to overall funding or in August 2015 assessing interventions that were external support as provided through other donors. financed through the first year of municipal grants (Box 4). The findings of the monitoring confirmed 34. The efficiency of ESSRP interventions is that project interventions were addressing key undermined by lengthy bureaucratic procedures priority needs as identified by both households and and limited capacity for strategic and financial municipal officials. Solid waste management and planning. The REACH assessment of the efficiency public roads were identified by households as the top of the investments pointed to delays encountered two priority needs, followed by street lighting. On the in the procurement and delivery of the first round other hand, 56 percent of households still perceived of equipment procured by the Project. This was municipalities as not being very responsive to their attributed to the lack of capacity, insufficient needs (Figure 24). This could be interpreted as the understanding of the required procurement existence of unmet needs, inefficient use of assets in procedures and, in cases where procurement was 26 | Special Focus JORDAN ECONOMIC MONITOR | THE CHALLENGE AHEAD done at the local level, to limited responsiveness of the local markets. Delays in procurement and/ Al Sho'aleh 47% 16% 37% or delivery of equipment were also attributed to Al Za'atri and Mansheah 43% 13% 44% Gharb Irbid 41% 10% 49% complicated clearance requirements from the Center Al Serhan 38% 21% 41% and lengthy customs procedures. Another issue Sahel Horan 29% 23% 48% that undermined the efficiency of the Project was Irbid Al Kubra 25% 20% 55% the lack of adequate financial planning for operation Bala'ama Al Jadeedah 23% 17% 60% and maintenance costs linked to the Project’s Mafraq Al Kubra 18% 16% 66% investments. As an example, municipalities were Al Ramtha Al Jadeedah 17% 23% 60% procuring additional lighting, which was essential Agree or strongly agree Neutral Disagree or strongly disagree to address security in the streets, while suffering from huge debts against the electricity company. FIGURE 24. Proportion of households agreeing that the municipality responds to their priority needs) In other incidents, equipment procured – such as compactors for collecting garbage – was not being Source: REACH Jordan Emergency Services And Social Resilience Project (JESSRP) Monitoring Study 1, November 2015 operated at full capacity due to the lack of trained operators. BOX 4. ESSRP Independent Monitoring Methodology. ESSRP is monitored through an independent organization that examines process and outcome performance. The World Bank and DFID had contracted REACH – an independent organization - to undertake the monitoring and impact evaluation of the ESSRP. The aim of the monitoring process is to identify and extract best practices and lessons learned, to make the necessary adjustments to Project implementation, and to inform similar engagements that seek to address the needs of host communities as a result of urban displacement. The REACH monitoring is based on a combination of household surveys, focus group discussions and key informant interviews with municipal staff and implementing partners. The monitoring rounds look at process level monitoring and outcome level monitoring (Figure 25). Process level monitoring examines change at the institutional level based on three indicators of successful interventions: the relevance of interventions and their alignment with priority needs; the accountability of the process by which interventions are selected and subsequently implemented; and, finally, the efficiency of the implemented projects, namely the efficiency of the procurement process, the extent to which assets are being efficiently used and the financial sustainability of funded projects. The outcome level monitoring examines the effectiveness of the interventions and the quality of service delivery and perceptions of improvements amongst the community. Ministry Governorate Process level monitoring Municipality Community Outcome level monitoring Household/individual FIGURE 25. Methodology of the first monitoring round Source: REACH Jordan Emergency Services And Social Resilience Project (JESSRP) Monitoring Study 1, November 2015 Special Focus | 27 THE WORLD BANK Mafraq Al Kubra 51% 24% 25% the quality of roads, 43 percent were still dissatisfied with the overall quality citing the lack of sufficient Gharb Irbid 48% 23% 29% maintenance, the need for broader coverage of Irbid Al Kubra 37% 38% 26% municipal areas and for more sidewalks. Similarly for street lighting, although more than 50 percent Al Ramtha Al Jadeedah 36% 38% 26% reported improvements over 2014, the community Al Za'atri and Mansheah 35% 36% 29% complained of insufficient coverage and of the need to ensure that new roads were provided with sufficient Bala'ama Al Jadeedah 34% 32% 34% lighting. Most municipal areas lacked sewage Very satisfied and satisfied Moderately satisfied systems and households continued to rely on private Very dissatisfied and dissatisfied desludging services for removal of waste. Forty-nine FIGURE 26. Reported levels of household satisfaction percent of households surveyed were dissatisfied with ESSRP Solid Waste Management Intervention with public leisure spaces citing the non-availability Source: REACH Jordan Emergency Services And Social Resilience of such spaces, their poor maintenance and/or, in Project (JESSRP) Monitoring Study 1, November 2015 some cases, the focus on specific demographics. 35. Although levels of satisfaction varied widely across both services and municipalities, communities reported improvements in the quality of services compared to the 2014 baseline. V. Project Adjustments However, for the most part, the reported rates of satisfaction have not significantly improved and Potential for from 2014. Although 34 percent of households reported improvements in the quality of solid waste Generating Employment management, 53 percent of households still reported being dissatisfied with the quality of the service. Opportunities Over 70 percent attributed their dissatisfaction to infrequent garbage collection. Other reasons 36. Improvements in Project management mentioned included the insufficient number of procedures and processes have been introduced workers, poor management by municipalities, and to enhance project efficiency and outcomes. Many insufficient numbers of waste containers. Similarly, of the issues identified in REACH’s independent with the rehabilitation of roads, while 37 percent monitoring were also identified through Joint confirmed that there have been improvements in Annual Reviews carried out by the Government in BOX 5. Good Practice Case Study: Gharb Irbid. Gharb Irbid represents an example of a municipality which conducted well designed effective community consultations, with a high diversity of participants and detailed documentation to ensure that the results of these processes inform the planning and design of projects. Municipal officials reported they held 10 community discussions, in 10 separate villages, as well as more general outreach activities, such as bilateral meetings and informal conversations at weddings and community events. It appeared that the officials within the Local Development Unit (LDU) were personally motivated to communicate and engage with the local community. For the community discussions, participants were selected from a diversity of backgrounds, including mokhtars (community leaders), women’s groups, Syrians and representatives of community based organizations (CBOs) and the private sector. Potentially as a result of the wide geographical reach of these consultations 5 percent of households reported that they had been consulted and 100 percent of consulted households reported they were either satisfied or very satisfied with the process. Further, the LDU was able to provide copies of the documentation for this process, which demonstrates that there was a clear and transparent mechanism by which the communities’ opinions were recorded and subsequently taken into account in the planning process. 28 | Special Focus JORDAN ECONOMIC MONITOR | THE CHALLENGE AHEAD partnership with the World Bank and participating Jordan has recently concluded a “Compact” with donors. Indeed, one of the major challenges faced the International Community whereby it committed during the first year were related to delays in the to easing access to the labor market for Syrians in delivery of equipment, limited implementation return for commitments for increased donor support capacity at the municipal level and heavy bureaucratic to Jordan’s host communities and the financing its requirements. Consultations with communities Jordan Response Plan (2016-2018), addressing its over priority needs were not sufficiently guided developmental and fiscal needs over the next three by standard project procedures and, as a result, years and providing easier access for Jordanian there were wide variations in the quality of such products to EU markets (Box 1). The World Bank consultations. To address these challenges, a number is currently working on scaling up the ESSRP to of actions were taken to improve the responsiveness include a window for financing labor intensive of the Project both in terms of speed and also the works that will have the double benefit of supporting quality and relevance of its investments. A Municipal improvements in infrastructure to facilitate growth Support Team consisting of several experts was opportunities at the regional level while creating jobs recruited to provide implementation support to for Syrian refugees based on a more relaxed system municipalities; procurement procedures were of permits. ESSRP would thus serve as one of the streamlined by reducing the number of technical instruments though which Jordan could benefit from reviews; and additional experts were recruited to investments to support its longer-term development improve the oversight function of the CVDB and the while creating longer term solutions to the existing Project Management Unit in the areas of financial protracted refugee crisis. management and monitoring and evaluation. 37. Building municipal capacity for community outreach and participatory consultations is seen as key to achieving the Project’s objectives. UNDP was VI. Addressing Urban contracted to work with municipalities to prepare multi-year investment priorities that helped provide Displacement – the the basis for subsequent consultations on 2016 investment sub-projects. In preparation for 2016 Opportunities and planning process, clear guidelines were developed for the consultation process. In addition, municipalities Challenges of Working received support in organizing a more structured outreach to smaller community groups and in through Local Authorities conducting consultation workshops that resulted in lists of prioritized interventions that were thereafter 39. Supporting local authorities is a critical reviewed by a designated sub-project selection element for building community and institutional committee that included as members community resilience in an urban refugee crisis where the representatives. These harmonized procedures were majority of refugees settle in host communities. reflected in a revised Project Operational Manual. In Although the ESSRP could not address the full range 2016, the Project also introduced a requirement that of issues that were driving tensions at the community a minimum of 15 percent of municipal allocations level, including the perceived additional pressure be invested in developmental/social projects that on employment, housing and crowding in the generated a specific number of jobs or that benefited classrooms, the Project helped boost the credibility marginalized groups of the community, including of local authorities in terms of their responsiveness women, gender and youth. to the needs of their own community. The Project also signaled the limitations of a purely humanitarian 38. The scale up of the ESSRP will help Jordan response to refugee crises and the need to rapidly meet its commitments under the Jordan Compact. shift the focus of the international community Special Focus | 29 THE WORLD BANK towards supporting longer-term approaches that helped mitigate the impact of the crisis on services that were already stretched in meeting the needs of the Jordan’s own citizens. Amongst the lessons learnt, however, is that the efficiency and effectiveness of working through local authorities is conditioned upon the capacity of existing systems across all levels of Government. 40. Supporting resilience at the community and institutional level is critical for addressing situations of protracted displacement. However, such support should be complemented with reform efforts that support improvements in the efficiency and accountability of service delivery systems. In the case of Jordan, and while the design of the Project was kept simple, its procedures were streamlined, and municipalities were provided with maximum flexibility to manage the implementation of their investments, the efficiency of the Project’s interventions was undermined by a centralized and bureaucratic local governance system and a generally low level of capacity at the municipal level. Despite ongoing and past efforts to address these inefficiencies, municipal performance continues to suffer from structural issues that relate to an unpredictable and tight fiscal transfer system, a limited revenue base and heavily staffed municipalities that are running large amounts of debt and high salary costs. The ability of the Project to finance a broader range of social and developmental services was also constrained by the absence of systems in place for allowing municipalities to work with other partners like the private sector and non- governmental organizations. In light of the newly passed decentralization and municipal laws, Jordan faces a real opportunity to embark on a systematic process of reforms that can address these systematic issues and unlock the potential for creating a more accountable system of local governance; one that delivers better and more efficient services to its citizens. 30 | Special Focus JORDAN ECONOMIC MONITOR | THE CHALLENGE AHEAD DATA APPENDIX TABLE 2. Selected Economic Indicators. 2013 2014 2015 2016 2017 2018 Act. Act. Act. Proj. Proj. Proj. Real sector (annual percentage change, unless otherwise specified) Real GDP 2.8 3.1 2.4 3.0 3.3 3.6 Real GDP per Capita 0.6 0.8 0.0 0.8 1.0 1.3 Agriculture (share of GDP) 3.1 3.3 3.3 3.2 3.1 3.1 Industry (share of GDP) 25.0 25.2 25.2 26.1 26.0 25.9 Services (share of GDP) 56.0 55.8 55.9 60.1 60.2 60.3 Net taxes (share of GDP) 15.9 15.7 15.6 10.6 10.6 10.7 Money and prices (annual percentage change, unless otherwise specified) CPI Inflation (p.a) 4.8 2.9 -0.9 1.3 2.7 1.5 Money (M2) 9.7 6.9 8.1 6.2 7.4 6.0 Investment & saving Total Investment 28.1 28.0 22.9 23.2 24.8 25.6 Gross National Savings 17.6 20.7 14.0 16.7 18.8 20.2 Government finance (percentage of GDP, unless otherwise specified) Total revenues and grants 24.1 28.6 25.5 24.7 24.8 23.5 Domestic Revenue (excluding grants and privatisation) 21.5 23.7 22.2 21.8 22.1 22.2 o/w. tax revenue 15.3 15.9 15.4 15.3 15.4 15.4 Foreign Grants 2.7 4.9 3.3 2.9 2.7 1.3 Total expenditure and net lending 35.7 37.9 29.1 27.8 27.1 26.1 Current1 31.4 33.4 24.9 23.7 23.1 22.8 o/w wages and salaries 5.0 4.9 4.7 4.1 4.1 3.9 o/w interest payment 3.1 3.6 3.4 3.3 2.9 3.0 o/w Transfer to utilities (NEPCO and WAJ) 6.0 7.0 0.1 0.0 0.0 0.0 Capital & Net Lending 4.3 4.5 4.2 4.1 4.0 3.3 Overall balance (deficit (-), excl. grants)2 -14.2 -14.2 -6.9 -5.5 -4.0 -2.6 Overall balance (deficit (-), incl. grants) -11.5 -9.3 -3.6 -2.6 -1.3 -1.3 Primary Balance (deficit (-), excl. grants) -11.1 -10.5 -3.5 -2.1 -1.1 0.4 Primary Balance (deficit (-), incl. grants) -8.4 -5.7 -0.1 0.7 1.6 1.7 External sector (percentage of GDP, unless otherwise specified) Current Account -10.4 -7.3 -8.9 -6.6 -6.0 -5.5 Net Exports -29.6 -26.4 -22.4 -17.3 -16.3 -13.8 Export FOB 42.4 43.3 37.7 40.0 43.6 47.3 Import FOB 72.0 69.7 60.1 57.3 59.9 61.0 Net Income and transfers 19.2 19.1 13.5 10.7 10.2 8.3 Net Private Investments (FDI and Portfolio) 10.2 8.6 6.8 5.6 7.3 8.0 Gross Reserves3 (Months of Imports GNFS4) 5.9 6.7 7.5 6.9 6.4 6.4 Total Debt (in million US$, unless otherwise specified) Total Debt Stock 29,192 31,983 35,136 36,302 37,050 38,092 Debt to GDP Ratio (%)5 86.7 89.0 93.4 90.1 87.4 84.8 Memorandum Items: Nominal GDP (Billion JD) 23.9 25.4 26.6 28.5 30.0 31.8 GDP (in million US$) 33,679 35,917 37,612 … … … Source: Government Data and World Bank Staff Calculation. Projections as of 1 March 2016. Data as of 15 April 2016. 1 Includes adjustment to other receivables for 2012 (0.4% of GDP) and transfers to NEPCO and WAJ. As of 2015, NEPCO and WAJ reverted to government-guar- anteed borrowing from commercial banks. The government transferred 0.1 % of GDP to WAJ in 2015. 2 Includes fiscal gap of 2016 (0.5% of GDP) and 2017 (1% of GDP) and 2018 (1.3% of GDP) 3 Reserves exclude bank deposits in foreign currencies 4 GNFS: Goods and Non-Factor Services. 5 Government and guaranteed gross debt. Includes NEPCO and WAJ estimated borrowings for 2016-2018. Data Appendix | 31 THE WORLD BANK SELECTED SPECIAL FOCUS FROM RECENT JORDAN ECONOMIC MONITORS FALL 2015 JEM: “A SPRING 2015 JEM: HICCUP AMIDST “PERSISTING FORWARD SUSTAINED RESILIENCE DESPITE CHALLENGES” AND COMMITTED Access to Finance in Jordan: (Special Focus) Access to finance is underdeveloped in Jordan where firms REFORMS” rate their inability to receive credit as the second overall obstacle to their operations. This status Tech startup ecosystem in Jordan: (Special Focus) quo is of particular concern for micro-, small-, and A new wave of entrepreneurship and innovation medium-sized enterprises (MSMEs), which make is emerging in both developed and emerging up over 90 percent of the Jordanian economy and economies, spurred by digital entrepreneurs. are major contributors to its competitiveness and Various developments, particularly those led by employment potential. The situation has only Information and Communications technology (ICT), worsened since 2006, with basic Access to Finance have reduced the cost of innovation and market indicators deteriorating for firms across the country, access substantially, allowing small tech businesses of varying size and age, and in different sectors. The to compete with established industries. Today a Jordanian authorities, including the Central Bank startup can be created with just a laptop and Internet of Jordan, have introduced several measures to connection. This has led to the surge of tech startup improve access to finance but instrumental structural ecosystems worldwide, where communities of reforms are still needed to instigate transformational entrepreneurs interact. Jordan in particular could improvements across the board. benefit from this phenomenon, particularly for job creation. Tech startup founders are predominantly university-educated, a factor that could alleviate the country’s high unemployment rate among those with a college degree. The innovation that SPRING 2014 JEM: startups bring can also be beneficial to the country’s tech hub aspirations by making the sector more “RESILIENCE AMID dynamic and sustainable. Jordan is no stranger to the tech ecosystem having spawned one of the TURMOIL” most successful startups in the region; Maktoob. It now needs to leverage this early mover advantage Updating Poverty Estimates at Frequent Intervals: by finding solutions to constraints like talent, space Preliminary Results from Jordan: (Special Focus and funding that are hindering the development of 1) Jordan, not unlike many countries, relies on its tech startup ecosystem. infrequent household expenditure and income surveys (HEIS) to estimate poverty in the country. In Jordan, the last HEIS survey dates from 2010 so 32 | Selected Special Focus from Recent Jordan Economic Monitors JORDAN ECONOMIC MONITOR | THE CHALLENGE AHEAD that the last official poverty estimates is also from large increase in discouraged Jordanian workers (as that year. When policy decisions are made in 2014, these have a reservation wage that they perceive they are therefore based on rather dated estimates cannot be satisfied under the current environment of poverty. Not only has Jordan suffered from a and therefore prefer to drop out of the labor force series of negative shocks, the Government has also altogether; since these discouraged workers are no introduced major mitigation programs (e.g., the longer searching for jobs, they are not counted in the petroleum cash compensation transfer). Have these rank of the unemployed). Given Jordan’s previously programs been successful in protecting the poor? Is low labor force participation rate prior to the Syrian Jordan still progressing in its fight against poverty? conflict, the recent drop in the participation rate is a To help answer these questions, World Bank staff source of concern. developed an alternative method for estimating poverty by imputing household consumption data into the Employment-Unemployment Survey, which is conducted every quarter. This approach offers alternate annual poverty estimates for Jordan. Based on this new approach, estimates for 2011 and 2012 point to a small decrease in the poverty rate compared to 2010. Previous Bank research revealed, however, that a third of the population lived below the poverty line in at least one quarter of the year. Hence, while progress continues in tackling chronic poverty, transient poverty affects a large swath of the population, which points to a large share of vulnerable Jordanians. Syrian Refugees and Labor Market Outcomes in Jordan: (Special Focus 2) A large influx of refugees into a country occurring over a relatively short time is bound to have a major impact on the host country’s labor market. While in principle both positive and negative impacts could arise from such a shock, ultimately the net impact on the Jordanian labor market remains an empirical question. Official data are utilized to examine the impact on three labor market indicators – labor force participation, the employment rate and the unemployment rate - while accounting for economic activity through using construction permits as a control variable, at the level of governorates. The Vector Autoregression (VAR) methodology has been adopted on panel data that involves a cross-section of governorates in Jordan, during the time period Q4 2007 to Q3 2013. We find evidence suggesting that the Syrian refugees are causing a reduction in the national labor force participation rate of Jordanians. Preliminary analysis reveals this could be the result of refugees willing to work for relatively low wages, causing a Selected Special Focus from Recent Jordan Economic Monitors | 33 THE WORLD BANK SELECTED RECENT WORLD BANK PUBLICATIONS ON JORDAN (for an exhaustive-e list, please go to: http://www.worldbank.org/en/country/jordan/research) 34 | Selected Recent World Bank Publications on Jordan NOTES NOTES 0.9375 cm The World Bank www.worldbank.org/jo