JORDAN ECONOMIC MONITOR
THE GREEN ECONOMIC BOOST
Spring 2017
Global Practice for Macroeconomics & Fiscal Management
MIDDLE EAST AND NORTH AFRICA REGION
The World Bank
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
PREFACE
The Jordan Economic Monitor provides an update Bank staff and do not necessarily reflect the views
on key economic developments and policies over of the Executive Board of the World Bank or the
the past six months. It also presents findings from governments they represent.
recent World Bank work on Jordan. It places them
in a longer-term and global context, and assesses For information about the World Bank and its
the implications of these developments and other activities in Jordan, including e-copies of this
changes in policy on the country’s outlook. Its publication, please visit www.worldbank.org.jo
coverage ranges from the macro-economy to
financial markets to indicators of human welfare To be included on an email distribution list for
and development. It is intended for a wide this Jordan Economic Monitor series and related
audience, including policy makers, business publications, please contact Nada Abou Rizk
leaders, financial market participants, and the (nabourizk@worldbank.org). For questions and
community of analysts and professionals engaged comments on the content of this publication,
in Jordan. please contact Léa Hakim (lhakim1@worldbank.
org) or Eric Le Borgne (eleborgne@worldbank.
The Jordan Economic Monitor is a product of the org). Questions from the media can be addressed
World Bank’s Global Practice for Macroeconomics to Mona Ziade (mziade@worldbank.org).
& Fiscal Management, (GMFDR) team. It was
prepared by Léa Hakim (Economist) and Zeina
Hasna (Economic Analyst), under the general
guidance of Eric Le Borgne (Lead Economist
and Acting Practice Manager). The Special
Focus ‘A Time for Green Growth and Climate
Action’ was prepared by Léa Hakim (Economist),
Monali Ranade (Senior Operations Officer) and
Concepcion Aisa Otin (Senior Financial Officer);
World Bank. The Special Focus on the Welfare
Impact of Recent Price Changes in Energy and
Water was prepared by Caroline van den Berg (Lead
Economist), Joern Huenteler (Energy Specialist),
Amr Moubarak (Social Protection Specialist), and
Jon Jellema (Consultant); World Bank. Zeina El
Khalil (Communications Officer) print-produced
the report.
Macroeconomic projections are as of 15 April
2017. Data is as of 1 June 2017.
The findings, interpretations, and conclusions
expressed in this Monitor are those of World
Preface | 1
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TABLE OF CONTENTS
PREFACE........................................................................................................................................................ 1
EXECUTIVE SUMMARY ............................................................................................................................... 6
…ò«ØæàdG ¢üî∏ªdG .............................................................................................................................................. 9
RECENT ECONOMIC AND POLICY DEVELOPMENTS ......................................................................... 10
Output and Demand ..................................................................................................................................... 10
Labor and Employment ................................................................................................................................. 14
Fiscal Policy................................................................................................................................................... 17
External Position............................................................................................................................................ 18
Monetary Policy and Finance ........................................................................................................................ 20
PROSPECTS ................................................................................................................................................ 24
SPECIAL FOCUS ......................................................................................................................................... 25
I. A Time for Green Growth and Climate Action ......................................................................................... 25
A. Context ..................................................................................................................................................... 25
B. Jordan’s Climate Change and Green Economy Commitments .................................................................. 26
C. The Economic Case for Climate Action ..................................................................................................... 30
D. A Role for Climate Finance and Climate-Smart Fiscal Policy ..................................................................... 32
E. Moving from Plan to Policy Action ............................................................................................................ 34
F. Considerations for Transformation to a Low-Carbon and Green Economy ................................................ 36
References .................................................................................................................................................... 38
II. Welfare Impact of Recent Price Changes in Electricity and Water .......................................................... 40
A. Context ..................................................................................................................................................... 40
B. Empirical Methodology & Data ................................................................................................................. 41
C. Results ...................................................................................................................................................... 42
Electricity.................................................................................................................................................. 42
Water ....................................................................................................................................................... 45
Combined Effects ..................................................................................................................................... 48
D. Policy Implications ................................................................................................................................... 49
Electricity.................................................................................................................................................. 49
Water ....................................................................................................................................................... 49
Linkages to Social Protection .................................................................................................................... 50
E. Conclusions .............................................................................................................................................. 51
References .................................................................................................................................................... 51
DATA APPENDIX ........................................................................................................................................ 52
SELECTED RECENT WORLD BANK PUBLICATIONS ON JORDAN .................................................... 53
LIST OF FIGURES
FIGURE 1. Jordan’s lower growth plateau .................................................................................................. 11
FIGURE 2. Quarterly growth slows in seasonally adjusted terms .............................................................. 11
FIGURE 3. As Jordan’s growth rate underperforms the MENA average ...................................................... 11
FIGURE 4. Industry’s slowdown largest impact on overall supply-side growth .......................................... 11
FIGURE 5. Output gap turned negative in 2015. ........................................................................................ 12
FIGURE 6. Output gap widened further in 2016 ........................................................................................ 12
FIGURE 7. Industrial price index reflects the slowdown for mining and quarrying... .................................. 13
FIGURE 8. Tourism is picking up in 2017 albeit from a low base… . .......................................................... 13
FIGURE 9. …while construction indicators improved as of 2016 .............................................................. 13
FIGURE 10. Private demand has been subdued since 2014… ..................................................................... 13
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JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
FIGURE 11. The three main labor market indicators continue to worsen ..................................................... 15
FIGURE 12. Maan exhibits highest unemployment rate per governorate by far ........................................... 15
FIGURE 13. Net jobs created on a decline especially by the formal private sector ...................................... 16
FIGURE 14. New minimum wage as a share of income per capita surpasses OECD and MENA ratios ........ 16
FIGURE 15. Fiscal situation has improved… ................................................................................................. 17
FIGURE 16. …while the gross debt-to-GDP ratio rises ................................................................................ 17
FIGURE 17. The trade in goods balance narrowed despite lower exports of phosphates and potash… ........ 19
FIGURE 18. …and as Jordan’s exports to the GCC, Iraq and Syria continue to suffer ................................... 19
FIGURE 19. The current account widened despite an improved trade balance… ......................................... 19
FIGURE 20. …as affected by slower remittances .......................................................................................... 19
FIGURE 21. Stock of foreign currency reserves decline ................................................................................ 20
FIGURE 22. Inflationary pressures appear since late 2016 ........................................................................... 20
FIGURE 23. Tobacco, cigarettes and ‘other’ items drive core inflation .......................................................... 21
FIGURE 24. Dollarization rising since October 2016 partly due to several one-off factors ........................... 21
FIGURE 25. Real interest rates at recent low due to inflation. ...................................................................... 21
FIGURE 26. Commercial bank lending to both private and public sector continues to grow… .................... 22
FIGURE 27. …SMEs benefitting from new credit channels across sectors .................................................... 22
FIGURE 28. Stock Exchange makes headway in 2017 .................................................................................. 23
FIGURE 29. Jordan’s Sectoral Breakdown of Total GHGs in 2006 ................................................................ 27
FIGURE 30. Jordan Energy Sector Climate Change Action ............................................................................ 28
FIGURE 31. Jordan National Green Growth Plan Clusters ............................................................................ 29
FIGURE 32. Proxy to Climate Relevant Expenditures .................................................................................... 32
FIGURE 33. Jordan - Climate-related Development Finance in 2014 from OECD DAC Statistics ................. 33
FIGURE 34. Total Commitments to Jordan by Sector, USD million .............................................................. 33
FIGURE 35. Nominal electricity tariffs 2010-2016........................................................................................ 43
FIGURE 36. Household electricity consumption by quintile mapped onto tariff block structure, indicating
households exempt from tariff increases 2010-2016. ................................................................................... 43
FIGURE 37. Household water consumption by quintile mapped onto tariff block structure ........................ 45
LIST OF TABLES
TABLE 1. Financial Soundness Indicators ................................................................................................. 23
TABLE 2. Household Size, Tariff Block, and Mean Electricity Share ......................................................... 43
TABLE 3. Cumulative real total cost increase for household/domestic electricity consumption 2010-2016 43
TABLE 4. Cumulative welfare losses (per capita) from electricity tariff increases between 2010 and 2016
(in constant 2013 JD and percent of pre-reform welfare) .............................................................................. 44
TABLE 5. Description of scenarios for future electricity tariff adjustments ............................................... 44
TABLE 6. Welfare losses (per capita) from the electricity tariff increase needed to cover a (hypothetical)
US$10/bbl oil price increase in 2017 under two scenarios (S1, S2) .............................................................. 45
TABLE 7. Cumulative real total cost increase for household/domestic water consumption between 2010
and 2017 ................................................................................................................................................. 46
TABLE 8. Median marginal tariff block and mean water share in budget.................................................. 46
TABLE 9. Description of scenarios for welfare impacts from water tariffs ................................................ 47
TABLE 10. Welfare losses (per capita) from cumulative water tariff increases between 2010 and 2017
(Scenario A: including groundwater tariff increases for industry) .................................................................. 47
TABLE 11. Welfare losses (per capita) from cumulative water tariff increases between 2010 and 2017
(Scenario B: excluding groundwater tariff increases for industry) ................................................................. 47
TABLE 12. Direct and indirect welfare losses (per capita) from water and electricity tariff increase in
2010–2017 ................................................................................................................................................. 48
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TABLE 13. Total welfare losses (per capita) from water and electricity tariff increase in 2010–2017 ......... 48
TABLE 14. Selected Economic Indicators ................................................................................................... 53
LIST OF BOXES
BOX 1. Potential Output Gap Analysis .................................................................................................. 12
BOX 2. Jordan Economic Growth Plan (2018-2022).............................................................................. 14
BOX 3. Population Effect on Water Demand ......................................................................................... 26
BOX 4. Snapshot Jordan’s Nationally Determined Contributions (NDCs) ............................................. 27
BOX 5. Potential Positive Economic Spillover Effects from Climate Smart Investments......................... 31
BOX 6. Jordan’s New Electricity Tariff Adjustment Mechanism ............................................................. 46
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)
EE: Energy Efficiency
EMRC: Energy and Minerals Regulatory Commission
GHG: Greenhouse Gases
IMF: International Monetary Fund
MOPIC: Ministry of Planning and International Cooperation
NEPCO: National Electric Power Company
NDC: Nationally Determined Contribution
RE: Renewable Energy
SME: Small and Medium Enterprise
USD: United States Dollar
WAJ: Water Authority of Jordan
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JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
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THE WORLD BANK
EXECUTIVE SUMMARY
i. Jordan’s economy remains sluggish. (excluding fuel, transportation and food) averaged
Growth slowed down in 2016 for the second year 2.2 percent. Inflation has picked up since November
in a row—to 2.0 percent from 2.4 percent in 2015— 2016 and is expected to accelerate into 2017, due to
further diverging from its potential and below the higher oil prices’ impact on transportation and fuel
2.7 percent MENA average. This is largely due to a prices, and fiscal measures introduced to reduce the
weaker mining and quarrying sector, partly related fiscal deficit.
to downward pressures on global potash prices.
Growth was also affected by a confluence of factors iv. The fiscal deficit narrowed in 2016 and
related to repercussions from the Syrian crisis, further into 2017 (excluding grants), yet debt
notably the closure of export routes to Iraq and Syria remains elevated. The fiscal deficit contracted to
and lower tourism amid regional instability, despite 3.2 percent of GDP in 2016 following a number of
a recovery in construction in 2016. The sectors that measures introduced that year including the removal
contributed the most to growth in of 2016 were of 2015 Goods and Sales Tax exemptions, reduction
‘finance and insurance services,’ ‘transport, storage of tax exemptions on imported used cars, increasing
and communications’ and ‘real estate’. taxes on cigarettes and alcohol, and raising the
transfer fees on car sales. Excluding grants, the
ii. The labor market faces significant stress. fiscal deficit continued to improve by 21 percent
A new methodology adopted by the Department in Q1-2017 yoy to 0.26 percent of estimated GDP.
of Statistics as of the first quarter of 2017 (Q1- Debt however remains elevated at 95.4 percent of
2017) reveals that unemployment reached 18.2 adjusted GDP as of end-March 2017, with further
percent in Q1-2017, with labor force participation pressures stemming from the financing needs of the
and employment rates of 40.5 percent and 33.1 Water Authority of Jordan whose debt is government-
percent, respectively, with women worse off across guaranteed.
these. These figures are not comparable with the
previous methodology. Labor market indicators had v. The current account deficit slightly
appeared to be worsening through 2016. Up until widened in 2016 due to lower current transfers.
then, higher levels of unemployment and continued The current account deficit widened from 9.1 percent
trend declines in the labor force participation and to 9.3 percent of GDP due to lower current transfers
employment rates had been observed, particularly for including a 2.4 percent contraction of remittances,
youth. This could have stemmed from discouraged and decreased tourism receipts (albeit at a slowing
workers given perceived competition from refugees, rate). The trade in goods deficit narrowed led by
limited job creation and the overall weakness of the 6.2 percent decline in imports (due to declining
economy that constrains overall job creation. energy imports) which overweighed the 4.1 percent
deterioration of exports of goods which continued
iii. Inflationary pressures appear after two to be affected by land trade route closures with Iraq
years of deflation. Jordan witnessed deflation for the and Syria.
second year in a row in 2016 with Consumer Price
inflation averaging -0.8 percent (period average) vi. Monetary policy swiftly tightened as of
largely due to an average decline in international oil December 2016 following the Fed’s lead and in
prices and lower food prices, while core inflation support of the exchange rate peg. The Central Bank
6 | Executive Summary
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
of Jordan raised key policy rates three times since donors will continue to prove difficult as reflected
for a cumulative 100 bps to maintain the JD-USD in the 2017 budget debates and recent austerity
deposit rate spread, and tackle rising dollarization protests.
and falling reserves. Dollarization of deposits
(share of deposits in USD/total deposits) reached ix. Jordan has an opportunity to vitalize green
19.5 percent by end-March 2017, its highest rate growth and undertake climate action as part of a
since December 2013; partly due to one-off factors. sustainable solution to addressing Jordan’s fiscal,
The stock of foreign currency reserves held at the economic and climate vulnerabilities. Climate
central bank has been declining to US$11.4 billion action needs to be coordinated across government
by end-April 2017 yet reserves still cover a solid 7.8 and includes introducing climate-smart fiscal
months of imported goods (excluding re-exports). policy and strengthening the energy grid. Such
action could boost the economy and result in job
vii. Jordan’s economic growth prospects are creation, reduced dependence on commodity
expected to remain tepid over the medium-term. imports, attraction of Foreign Direct Investment
Assuming no change in the geopolitical situation, and mobilization of international climate finance.
growth is forecasted to improve to 2.3 percent in Further analysis and policy coordination is required
2017 on account of improvements in tourism and to fully optimize Jordan’s potential for low-carbon
exports. In the medium-term, growth is expected to economic transformation and to address the short
average 2.6 percent over 2017-2019 as the impact run transition costs (Special Focus 1).
of some business climate reforms materialize. The
current account is expected to narrow in 2017 x. While the short-term welfare impacts
due to higher current transfers offsetting a wider of electricity and water tariff reforms on
trade balance, the latter due to higher oil imports, households have so far been limited, targeted
before tending to 6 percent of GDP by 2019. As social protection measures to accompany any
Jordan adheres to the IMF Extended Fund Facility future price increases would limit future impact
Program, the fiscal balance and debt-to-GDP on the poor. Analysis of the short-term welfare
ratio are bound to improve despite higher cost of impacts on households of the electricity and water
borrowing stemming from higher interest rates. tariff reforms implemented between 2010 and
2016 suggest that welfare impacts so far have been
viii. A major challenge for the Jordanian limited. Household expenditures on electricity and
authorities remains stimulating growth and water are still modest by international standards,
job creation, while reining in the fiscal deficit but the Government should consider combining
and hosting more than 660,000 registered further tariff reforms with targeted social protection
Syrian refugees. This is even more imperative as measures to limit the impact on the poor (Special
security threats manifest, labor market indicators Focus 2).
deteriorate and inflationary pressures appear.
However, short of a positive shock such as the
reopening of trade routes with Iraq or a peaceful
conclusion to the Syrian conflict, and in light of
fiscal and monetary policy tightening, it is difficult
to foresee an impactful jumpstart to growth unless
strategic structural reforms are implemented at a
quicker pace. The Economic Policy Council’s newly
launched Jordan Economic Growth Plan 2018-2022
bodes well to stimulate some of these reforms.
Given the difficult socio-economic environment,
introduction of fiscal adjustment measures to
contain the deficit and ease reliance on grants from
Executive Summary | 7
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…ò«ØæàdG ¢üî∏ªdG | 9
THE WORLD BANK
RECENT ECONOMIC AND POLICY
DEVELOPMENTS
1. Security incidents have escalated in and double economic growth over 2018-2022. The EPC
around Jordan further unveiling threats and was established by the King in June 2016 and the
fueling unease. Three incidents occurred on the JEGP is the second main set of recommendations
Rukban area on the northeast Jordan border with from the EPC. The government also launched its
Syria and Iraq since December 20161 in addition to Green Growth Plan which identifies a green growth
an IS-attack in February 2017 on the Iraqi border corridor, smart urban transformation and rural
with Jordan. An attack claimed by the Islamic resilience as representing the convergence between
State in the southern city of Al-Karak within Jordan climate action, sustainable local development and
claimed 10 lives and wounded at least 30 others on macroeconomic considerations with a focus on
18 December 2016 followed by clashes. the energy, water, waste, transport, tourism and
agriculture sectors.
2. The 2017 Budget debates were heated
and resulting reforms proved contentious. Heated
discussions over the draft 2017 Budget tax hikes and
spending cuts, prepared in line with meeting the IMF
Extended Fund Facility program targets which Jordan Output and Demand
embarked on last August, resulted in the watering
down of some revenue-enhancing measures to 4. Jordan’s economy continued to decelerate
protect low and middle-income households. The as geopolitical repercussions take a toll. Growth
introduction of a number of expenditure-reducing in 2016 slowed for the second year in a row to 2.0
and revenue-enhancing measures that took effect percent compared to 2.4 percent in 2015 (Figure
early February 2017 were met by protests a 1). The growth slowdown was driven by a number
couple of weeks later across Amman, Salt, Karak of factors mainly related to the precarious regional
and Madaba, despite an increase in the minimum situation that suppressed investor sentiment,
monthly wage from JD 190 to JD 220.2 On the handicapped tourism, and led to the closure of trade
local governance front, municipal and governorate routes with Iraq and Syria severely affecting Jordanian
elections are scheduled for 15 August 2017. This exports to the region (both as final destinations
will be the first governorate elections held in light of and transit routes). Jordan’s hosting of more than
the 2016-enacted Decentralization Law. 660,000 Syrian refugees has hiked demand for
goods and services and strained public finances.3
3. The Government has announced two Data for the fourth quarter of 2016 (Q4-2016) of 2.0
cross-cutting plans to stimulate the sluggish percent year-on-year (yoy) brought down the annual
economy. In light of a slowing macroeconomic growth to 2.0 percent compared to 2.4 percent in
environment and high unemployment, the 2015. On a seasonally adjusted basis, Q4-2016
Government adopted a Jordan Economic Growth resumed the declining trend of quarterly economic
Plan (JEGP) as recommended by the Economic growth revealing further weakness although there
Policy Council (EPC) (Box 2). The JEGP aims to was an improvement in the fourth quarter of 2016
compared to Q4-2015 (Figure 2). As spare capacity
1 These three incidents occurred on 17 December 2016, 21
January 2017, and 3 May 2017.
3 UNHCR records 660,315 registered Syrian refugees since 1
2 Refer to paragraph 14 for details of these measures. June 2017.
10 | Recent Economic and Policy Developments
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
GDP Growth 2000-2016 GDP Growth in MENA
Percent (%)
10 Percent (%)
9 10
8
8
7
6 Period average: 6
2000 - 2009: 6.5%
5 Period average: 4
4 2010 - 2016: 2.6%
3
2
2 0
1 -2
03
04
05
06
07
08
09
10
11
12
13
14
e
p
15
16
20
20
20
20
20
20
20
20
20
20
20
20
20
20
0
-4
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
EGYPT JORDAN LEBANON MENA
FIGURE 3. As Jordan’s growth rate underperforms the
FIGURE 1. Jordan’s lower growth plateau
MENA average
Source: Department of Statistics and World Bank staff calculations Source: World Bank Economic Prospects, January 2017
Annualized Qoq Seasonally Adjusted GDP Growth Rate Supply Side Contribution to Real GDP Growth (yoy)
Net Taxes On Product Services
Percent (%)
Industry Agriculture
12
GDP
10 Percent (%)
3.50
8
3.00
6
2.50
4 2.00
2 1.50
0 1.00
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 0.50
-2
2009 2010 2011 2012 2013 2014 2015 2016 0.00
-4
-0.50
Annualized sa GDP growth rate 2010 2011 2012 2013 2014 2015 2016
-1.00
FIGURE 2. Quarterly growth slows in seasonally FIGURE 4. Industry’s slowdown largest impact on overall
adjusted terms supply-side growth
Source: Department of Statistics and World Bank staff calculations Source: Department of Statistics and World Bank calculations
in the economy increases, it is estimated that 2016 industrial price index in 2016 (Figure 7).4 The
Jordan’s output gap as a share of its potential output largest contributors to growth in 2016 were ‘finance
for 2016 was negative 1.12 percent (Box 1). As of and insurance services’ and ‘transport, storage and
2015, Jordan is lagging MENA’s average estimated communications’, each contributing by 0.52 pp and
growth of 2.7 percent for 2016 (Figure 3). 0.45 pp to real GDP growth, respectively; followed
by ‘real estate’ (contributing 0.23 pp), ‘electricity
5. On the production side, and despite and water’ (0.2 pp), ‘manufacturing’ (0.19 pp), and
sluggish growth in 2016, only three sectors ‘community, social and personal services’ and ‘net
were drags on growth (Figure 4). The sectors that taxes on product’ that each contributed by 0.17
retrenched over 2016 were ‘mining and quarrying’, pp to real GDP growth. Although ‘restaurants and
‘imputed bank service charge’ and ‘restaurants and hotels’ slightly regressed by 1 percent in 2016 yoy
hotels’ by 0.2, 0.19, and 0.01 percentage points (pp), compared to 2015, and ‘construction’ witnessed a
respectively. In growth terms, ‘mining and quarrying’ tempered rebound of 1.1 percent yoy in 2016, both
contracted by 12.1 percent in 2016 yoy reflecting sectors maintained negligible effects on real growth
pressure on potash prices that affected international in 2016. Early indications in 2017 reflect a pickup
demand for Jordan’s potash as also reflected in the in some real sector indicators, albeit from the low
drop of the mining and quarrying component of the
4 The average of the mining and quarrying component of the
IPI index dropped by 9 percent in 2016 compared to 2015.
Recent Economic and Policy Developments | 11
THE WORLD BANK
BOX 1. Potential Output Gap Analysis.
The potential output gap is often considered a good proxy of an economy’s wellbeing. By measuring how far
off the economy is from its potential output (output generated at full capacity), the potential output gap is funda-
mental to the conduct of sound macroeconomic policy.
Two basic methods are applied for estimating potential output gap: statistical filtering and structural estima-
tions. Statistical filtering includes the Hodrick-Prescott (HP) filter, a de-trending statistical method, which is em-
ployed in this analysis using three standard smoothing parameters (1600, 1000, 500). The application of different
smoothing parameters serves as a robustness check of the estimation process. Further, the statistical filtering is ap-
plied on annual data (sample period 1975-2019) and quarterly data (1992Q1-2017Q4).* Annual data post 2016 and
quarterly data post 2016Q4 are obtained from World Bank staff projections. As for the second estimation method,
structural estimations are based on a Production Function Model which incorporates economic theory that relates
output to total factor productivity and production inputs. The structural estimations are only applied on annual data
post 1990.
After nine years of operating above potential, Jordan suffered from a negative output gap in 2015. Throughout
2006-2014, Jordan witnessed high growth rates that led to positive deviations from its potential and thus report
positive output gaps. During that period, the output gap averaged +2.3 of potential output. However, in 2015,
Jordan’s output dropped below its potential with the output gap turning negative to reach -0.44 percent of potential
GDP (on average across the four estimation techniques employed). The gap widened further to -1.12 percent of
potential output in 2016 as growth continued to be subdued (Figure 5).
At the quarterly level, the three HP filters yield similar results further asserting the expectations of a widening
output gap in 2016. In 2016, the output gap is estimated to be negative in each of the quarters with all parameters
employed. The output gap is estimated at -0.36, -0.12, -0.03 and -0.06 percent of potential output (on average
across the three HP filters) in 2016Q1, 2016Q2, 2016Q3 and 2016Q4, respectively (Figure 6).
The various estimation techniques employed, at the annual and quarterly levels, consistently conclude
that the Jordanian economy has been deviating away from its potential in the negative direction. This is not
surprising given that the country’s economy has been plagued by a turbulent regional setting that slowed down
many important pillars of the economy, including: trade, industry, tourism, investment, consumption, employment,
among others.
Output Gap Output Gap
(percent of potential output) (percent of potential output)
Percent (%) Percent (%)
5.00
8.00
4.00
5.00
3.00
2.00 2.00
-1.00 1.00
1 p
2017p
2018p
p
18p
2019p
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
9
2
-4.00 0.00
Q1p
Q3p
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
-7.00 -1.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017p
-2.00
-10.00 Output gap as a % of potential output, Production Function
Output gap as a % of potential output, HP filter, ƪ=100 -3.00
-13.00
Output gap as a % of potential output, HP filter, ƪ=6.25 Output gap as a % of potential output, HP filter, ƪ=1600
-4.00 Output gap as a % of potential output, HP filter, ƪ=1000
-16.00 Output gap as a % of potential output, HP filter, ƪ=400
Output gap as a % of potential output, HP filter, ƪ=500
FIGURE 5. Output gap turned negative in 2015. FIGURE 6. Output gap widened further in 2016.
Source: Department of Statistics and World Bank staff calculations Source: Department of Statistics and World Bank staff calculations
* It is noteworthy that the HP filter is normally prone to end-point bias hence annual data was extended to 2019 and quarterly data extended to
2017Q4.
12 | Recent Economic and Policy Developments
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
Mining, Quarrying and Manufacturing Construction Sector
Manufacturing Area Number of Permits, rhs
Index Mining and Quarrying
Mining of chemical and fertilizer minerals Thousands of Square Meters Number
140
16,000 45,000
120
14,000 40,000
100 35,000
12,000
80 30,000
10,000
25,000
60 8,000
20,000
40 6,000
15,000
4,000 10,000
20
2,000 5,000
0
0 0
10
13
14
15
16
00
01
02
03
04
05
06
07
08
09
11
12
2010 2011 2012 2013 2014 2015 2016
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
FIGURE 7. Industrial price index reflects the slowdown FIGURE 9. …while construction indicators improved as
for mining and quarrying of 2016
Source: Central Bank of Jordan and World Bank staff calculations Source: Central Bank of Jordan and World Bank staff calculations
Tourism Sector Demand Side Contribution to Real GDP Growth (yoy)
Private Demand Net Exports
Tourist Receipts (yoy growth, %) Public Consumption Public Investment
Percent (%) Tourist Arrivals (yoy growth, %) GDP Growth, rhs
40 Percent (%) Percent (%)
10.0 3.5
30 3.3
20
7.5 3.0
2.8
10 5.0 2.5
2.3
0
2.5 2.0
Oct-13
Oct-14
Oct-16
Jan-13
Apr-13
Jul-13
Jan-14
Apr-14
Jul-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Jan-17
Apr-17
-10 1.8
0.0 1.5
-20 2011 2012 2013 2014 2015 2016 1.3
-2.5 1.0
-30
0.8
-40 -5.0 0.5
0.3
-50 -7.5 0.0
FIGURE 8. Tourism is picking up in 2017 albeit from a FIGURE 10. Private demand has been subdued since
low base… 2014
Source: Ministry of Tourism, Central Bank of Jordan and World Bank Source: World Bank staff calculations
2016 base. Tourist receipts only contracted by 0.5 contractions from private demand and public
percent in 2016 yoy compared to a 7.1 percent investment in 2016 (Figure 10). In real terms,
contraction in 2015 yoy (Figure 8) and the pickup while exports deteriorated by 4.7 percent in 2016
has continued through to the first four months of yoy compared to the previous year, net exports
2017.5 Meanwhile, construction permits and area are estimated to have contributed by 1.7 pp to real
both rebounded in 2016 (Figure 9) and improved GDP growth in 2016, the main driver of growth
further in the first quarter of 2017.6 from the demand side. Public consumption was
also a driver of growth in 2016 with an estimated
6. Net exports and public consumption contribution of 1.2 percentage points. On the other
drove growth from the demand side offsetting hand, private demand (private consumption and
private investment) is estimated to be the largest
5 In the first four months of 2017, tourist receipts and arrivals
increased by 17.9 percent and 12.5 percent respectively drag on growth in 2016, contracting growth by
compared to contractions of 2.6 and 5.2 percent in the same 0.6 percentage points representing weakened
period in 2015, respectively, although reflecting low-base effect investment and consumption sentiment amidst
given the weak tourism performance in 2015.
continued turbulence in the region. Even though
6 Construction permits and area improved by 10.2 and
1.4 percent in 2016, a substantial rebound from the 9.6 and credit growth and personal loans from commercial
12.5 percent contractions in 2015, respectively, and further banks to the private sector increased by 10 percent
improved by 19.4 and 18.0 percent during the first quarter of and 3.1 percent in December 2016 yoy, personal
2017 compared to the same period in 2016, respectively.
Recent Economic and Policy Developments | 13
THE WORLD BANK
BOX 2. Jordan Economic Growth Plan (2018-2022).
In effort of reigniting growth, the Jordanian government and the Economic Policy Council (EPC) collabo-
rated on producing the second set of economic reforms* which took the form of a five-year Jordan Economic
Growth Plan (JEGP). The JEGP aims at doubling economic growth over 2018-2022, reducing debt burden, creating
jobs and increasing income levels notwithstanding the challenging regional situation. A series of international and
regional, economic and political, setbacks (such as: the 2009 global financial crisis, the wave of Arab uprisings, the
closure of trade routes with major trade partners and the recent surge in food and oil prices) have caused Jordan
to fall off track to reaching the growth targets previously set in Jordan’s 2025 Vision. Therefore, the JEGP aims at
jumpstarting growth in the next few years such that growth forecasts for 2021-2025 would be in line again with the
Jordan 2025 Vision.
According to EPC, a doubling of economic growth would require at least a 5 percent growth rate annually,
equivalent to US$ 1.8 billion annually. However, almost 50 percent of the economy is strained and cannot grow
further. For instance, government services growth is limited as the government is bounded to a rationalized fiscal
policy over the medium term. This in turn leaves it up to productive sectors to generate the additional US$ 1.8
billion required. Analysis carried by EPC suggests the following increases in value added of the productive sectors,
and the corresponding growth rate of each sector needed to bring forward its suggested increase in value added:
Sector Increase in Value Added ($US mln) Corresponding Growth Rate (%)
Agriculture 113 10
Manufacturing 530 10
Electricity & Water 128 13
Construction 254 15
Hospitality and Tourism 169 5
Transport 334 12
Information & Communication Technology 222 12
The JEGP adopts a holistic approach to identifying the reforms needed for 19 sectors. In total, the JEGP clas-
sifies 95 policy actions (total value of US$ 894 million), 85 government projects (total value of US$ 8.8 billion)
and 27 private sector investment opportunities (total value of US$ 13.3 billion), which are meant to help stimulate
growth and revive the Jordanian economy.
*For more on the first set of economic reforms by EPC, refer to Box 2 of World Bank. Jordan Economic Monitor – Reviving a Slowing Economy.
Fall 2016.
Source: “Jordan Economic Growth Plan 2018-2022”, The Economic Policy Council.
loans had recorded a 16.8 percent growth by end-
2015 yoy. While the Jordan Investment Confidence Labor and Employment
Index (JICI) reported a 7.2 percent decline between
February 2016 and September 2016, signs of 7. The labor market faces significant stress,
recovery have been evident since October 2016 to with worsening unemployment, employment
March 2017. Moreover, public investment was also and labor force participation rates. In 2016
a drag on growth contracting it by 0.3 percentage structural unemployment reached a high averaging
points in 2016, partly reflecting the government’s 15.3 percent, 2.3 percentage points worse than
rationalized expenditure policy. 2015 affecting the high skilled more predominantly
(Figure 11). Gender-based heterogeneity persists as
female unemployment rate reached 24.1 percent
while the male unemployment rate reached 13.3
percent, both increasing from 22.5 and 11 percent
in 2015, respectively. The labor force participation
14 | Recent Economic and Policy Developments
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
Jordan Labor Market Dynamics Unemployment Rate by Governorate in 2016 (%)
Employment Rate (ER)
Labor Force Participation Rate (LFPR)
Unemployment Rate (UR), rhs
Aqaba 15.8
Maan 19.1
Percent (%) Percent (%)
Tafiela 15.4
38 16 Karak 15
37 15 Ajloun 16.7
36 Jarash 15.5
35 14 Mafraq 16.3
Irbid 17.4
34 13
Madaba 14.8
33 12 Zarqa 14.7
32 Balqa 14.8
31 11 Amman 14.1
30 10
2013 2014 2015 2016
FIGURE 11. The three main labor market indicators FIGURE 12. Maan exhibits highest unemployment rate
continue to worsen per government by far
Source: Department of Statistics and World Bank staff calculations Source: Department of Statistics and World Bank staff calculations
rate and the employment rate (i.e., employment to previous statistics reflecting vulnerabilities for women
population ratio) both further declined in 2016 to (33 percent unemployed vs. 13.9 percent for men)
36 and 30.5 percent from 36.7 and 31.9 percent and youth with the highest rate of unemployment
in 2015, respectively. Both declines stemmed from for those aged 15-19 years old at 39.5 percent and
worse labor dynamics for males. The labor force those 20-24 years old at 35.4 percent unemployed.
participation rate and employment rate for males Also consistent, is the high level of unemployment
dropped by 1.3 and 2.5 pp between 2015 and 2016, amongst those holding university degrees, at 21.4
while those for females remained more or less flat. percent. The governorate with the highest level of
Youth remain the most vulnerable fraction of the labor unemployment is also Maan at 26.2 percent.
force with youth unemployment rising to 35.6 percent
in 2016, also a historical high, from 30.8 percent in 9. Net job creation in Jordan has been on
2015. On a governorate basis, Maan registered the a declining trend between 2007 and 2015. The
highest unemployment rate for 2016 at 19.1 percent, Jordanian economy created a net of 48,309 jobs in
5 percent higher than the rate recorded in the capital 2015, almost 3.3 percent less than the total net jobs
Amman; while Jarash suffered from the largest surge created in 2014 and 31.3 percent less than those
in unemployment rate, a 3.6 pp increase from 2015 created in 2007 (Figure 13). Between 2007 and
to reach 15.5 percent in 2016. All governorates 2015, 64 percent of the average net jobs created
witnessed increasing unemployment rates except were in the formal private sector, while 33.9
for Tafiela and Madaba where unemployment rates percent were in the public sector and 2.1 percent
dropped by 0.3 and 0.9 pp to 15.4 and 14.8 percent, were in nongovernmental organizations and the
respectively (Figure 12). informal private sector. However, while the private
sector created the majority of new jobs, the private
8. New methodology points to more stark sector itself has been generating less net jobs over
labor market results. A new methodology adopted time. The number of net jobs created in the private
by the Department of Statistics as of the first quarter sector in 2015 were 14.3 percent less than those
of 2017 (Q1-2017) seeks to expand the sample size in 2014 and 43.3 percent less than those created
used in measuring employment indicators and refines in 2007. Meanwhile, net jobs created in the public
the calculation of those employed. The methodology sector in 2015 depict a 24.8 percent increase since
is not comparable to previously published data but 2014, compared to a slight decline of 3.7 percent
reveals that unemployment reached 18.2 percent since 2007.
in Q1-2017, with labor force participation and
employment rates of 40.5 percent and 33.1 percent, 10. In addition to weak job creation, the
respectively. The new methodology is consistent with increase in the number of labor protests further
Recent Economic and Policy Developments | 15
THE WORLD BANK
Breakdown of Net Jobs Created Minimum Wage as a Share of Income Per Capita
Total number of net jobs created in nongovernmental organizations
and informal private sector
Total number of net jobs created in private sector
Total number of net jobs created in public sector
Total number of net jobs created OECD 34.1%
Linear (Total number of net jobs created)
79,500
74,500 MENA 48.8%
69,500
64,500
59,500 Comparator Countries 69.1%
54,500
49,500
44,500 Synthetic Control (Weighted average) 47.3%
39,500
34,500
29,500 Jordan (Minimum Wage at 190 JD) 65.0%
24,500
19,500
14,500 Jordan (Minimum Wage at 220 JD) 75.3%
9,500
4,500
-500
2007 2008 2009 2010 2011 2012 2013 2014 2015
FIGURE 13. Net jobs created on a decline especially by FIGURE 14. New minimum wage as a share of income
the formal private sector per capita surpasses OECD and MENA ratios
Source: Department of Statistics and World Bank staff calculations Source: International Labor Organization, World Bank Development
Indicators and World Bank staff calculations. The comparator
countries are in line with those selected with Find my Friends Tool
for the Jordan Systematic Country Diagnostic: Synthetic Control
countries are Bulgaria, Guatemala, Paraguay, and Romania; in line
with “Synthetic Jordan” and comprise China, Djibouti, Grenada,
Guyana, Hong Kong, Moldova, Zimbabwe. For more, refer to Special
Focus of Fall 2016 Jordan Economic Monitor.
asserts the fragile status of the Jordanian labor effective for 10 years as of July 2016. Additionally,
market. Labor protests increased by 22 percent time and support are required for industry to comply
in 2016 compared to the year before according to with EU standards and understand opportunities
the annual report on labor protests published by from the trade deal.8 Separately, the government
the Phenix Center for Economic and Informatics approved a 16 percent minimum wage increase to
Studies, with the majority of the protests being 220 JD/month. This is mainly expected to affect the
staged by the private sector (185 out of a total of private sector. The Ministry of Finance estimated the
288 protests in 2016). This result echoes mounting impact on the Treasury to be limited to JD 3 billion.
economic pressures on the Jordanian labor market, At 75 percent of income per capita, Jordan’s new
particularly in the private sector, partially explaining minimum wage surpasses the same ratio for OECD
the unprecedented elevation in the Jordanian and MENA (Figure 14). Too high of a minimum
unemployment rates. wage can negatively impact the formal labor market
as workers with a marginal productivity below that
11. Job creation due to the Jordan Compact threshold are effectively priced out. Given the high
has progressed slowly while the minimum and rapidly worsening unemployment situation
wage is raised.7 Job creation and the take up of in Jordan, the large increase in the minimum
work permits by Syrian refugees - toward the wage might be expected to further complicate the
government’s 200,000 target - have been slow recovery of the labor market, especially for lower
to materialize. By end-2016, about 37,000 work skilled workers.
permits (free of charge until end-2017) had been
issued. Industry is finding it difficult to attract the
15 percent Syrian labor required to produce goods
in designated development zones that benefit from 8 The Jordan Compact was expected to create 50,000 jobs
the European Union’s relaxation of Rules of Origin for Syrians outside the 18 designated development zones
covered by the European Union’s relaxed rules of origin in
7 For more on the Jordan Compact, refer to Box 1 and addition to hundreds of thousands of jobs for Jordanians and
paragraph 9 of World Bank. Jordan Economic Monitor – The Syrians inside development zones. The latter requires strong
Challenge Ahead. Spring 2016; and paragraph 9 of World Bank. support from the Government of Jordan and different donors for
Jordan Economic Monitor – Reviving a Slowing Economy. Fall existing manufacturers and to attract new investments into the
2016. development zones.
16 | Recent Economic and Policy Developments
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
Fiscal Deficit (Excluding Grants, % of GDP) Jordan Debt to GDP Ratio (end of period)
Domestic Revenues Budget Balance (excl. grants), rhs
Total Expenditures Budget Balance (incl. grants), rhs
Percent (%) External Internal Total
Percent (%) Percent (%) 120
45 16
40 100
14
35 12 80
30
10 60
25
8
20 40
6
15
4 20
10
5 2 0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Mar-17
0 0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
FIGURE 15. Fiscal situation has improved… FIGURE 16. …while the gross debt-to-GDP ratio rises
Source: Ministry of Finance and World Bank staff calculations Source: Ministry of Finance and World Bank staff calculations
13. Despite the tighter deficit and cost
Fiscal Policy recovery by NEPCO, gross debt continued to
grow to 95.1 percent of GDP by end-2016. This
12. The central government’s fiscal aggregates reflects muted economic growth coupled with
improved in 2016 backed by introduced measures a higher debt stock. The debt stock increased
and limiting spending. The budget deficit improved by 4.9 percent to US$ 36.8 billion by end-2016
by 0.3 pp in 2016 to an estimated -3.2 percent of compared to end-2015 with 60.5 percent of the debt
GDP (compared to -3.6 percent in 2015), despite denominated in local currency (Figure 16). Higher
a 0.3 pp reduction in grants. The primary deficit borrowing needs by the Water Authority of Jordan
slightly widened however to 0.2 percent of GDP (WAJ), whose debt is government-guaranteed, was
on account of a 0.4 pp fall in interest payments a factor. WAJ’s higher financing needs stem from
in 2016 yoy (Figure 15). Both fiscal and primary the impact of higher electricity tariffs and increased
balances improved however by 0.6 pp and 0.2 pp of demand for water from Syrian refugees.9 NEPCO
estimated GDP respectively when excluding grants. which had posed debt pressures since 2013, due to
The improved budget deficit was a result of a 0.5 importation of oil versus cheaper gas supply from
pp increase in domestic revenues coupled with a Egypt with unchanged tariffs, achieved cost recovery
0.1 pp reduction in expenditures. The cutback in in 2015 (Refer to paragraphs 60 and 76). Debt held
expenditures was mainly due to a 0.4 pp reduction by WAJ and NEPCO combined (including advances
in capital expenditures that outweighed a 0.3 pp from the treasury and on-lending loans) constitute
increase in current expenditures which itself resulted about 25.7 percent of Jordan’s gross debt. The Tariff
from a 0.6 pp rise in expenditure on defense and Adjustment Mechanism introduced as of 1 January
security. Permanent measures contributed to the 2017 and activated as of 1 April 2017 is expected
improvement in fiscal balance, including: (i) An to at least maintain cost recovery for NEPCO.10 To
increase in: a. cigarettes prices by JD 0.05/packet; b. meet financing needs, the government issued a US$
cigarettes prices by JD 0.10/packet in Aqaba zone; 1 billion 10-year Eurobonds on October 24th, 2016,
c. diesel, kerosene and gasoline prices by JD 0.025/ its only tap of international capital markets that year.
liter; d. the special sales tax on wines and spirits; While the issuance was not guaranteed by the US
(ii) The removal of 2015 GST exemptions including Treasury, at a yield of 5.8 percent and coupon rate
on clothes, shoes, watches, jewelry; (iii) Adding an
9 Refer to paragraph 59 of Special Focus 2 “Welfare Impact of
extra fee for “transfer of titles” on used vehicles; and Recent Price Changes in Electricity and Water” featured in this
(iv) Reducing the depreciation allowance on used Jordan Economic Monitor.
imported cars. 10 As of 1 June 2017, the Fuel Clause was kept at zero
because the three-month moving average of the Brent oil price
has remained below the threshold of $55/bbl.
Recent Economic and Policy Developments | 17
THE WORLD BANK
of 5.75 percent, rates were more favorable to the exemptions from a larger set of products (effectively
government than the US$ 500 million Eurobond raising the Good and Services Tax to 16 percent
issued 11 months prior for the same tenor at 6.125 on selected goods and services including internet
percent coupon. The government issued JD 5.46 (from 8 percent)), increasing custom duties on non-
billion worth of Treasury bills and bonds in 2016 essential imported goods by 5 percent, increasing
diversifying its instrument mix by re-introducing fuel prices by 3-8 percent, increasing taxes on
6-month Treasury bills, 2 and 3-year Treasury telecom services from 8 to 16 percent, increasing
bonds, and 5-year floating rate Treasury Bonds at fees on passports from JD 20 to JD 50, adding
limited sizes and inaugurating its 10-year Treasury further taxes on cigarettes, and introducing a 10
Bond issue in September 2016. Issuances of ten- percent tax on soda beverages. Expenditure-limiting
year Treasury Bonds accounted for about 21 percent measures include deducting 10 percent from civil
of the total value of securities issued, the highest of servants’ monthly salaries that exceed JD 2,000 and
any instrument. The Ministry of Finance sought to setting a cap of JD 3,500 on public sector salaries.
further diversify its debt instruments. After years of Expenditure allocations to current and capital
setting up the legislative framework, Jordan issued expenditures for 2017 were reduced by JD 133
its first sovereign Sukuk in October 2016 for JD 34 million and by a further JD 204 million in May 2017.
million with 5-year tenor with a 3.3 coverage issue. Cabinet indicated that capital expenditure projects
This followed the May 2016-issued 5-year Sukuk that were reduced in the latter cut would be financed
for NEPCO priced at 3.5 percent. A second 5-year by Public Private Partnerships (PPPs) and announced
NEPCO Sukuk was issued in March 2017 priced at the adoption of some PPP projects. The Government
4.1 percent (Murabaha rate). Additionally, in a deal of Jordan started a Train the Trainers (TTT) Program
that was more than three times oversubscribed, for Public Investment Management (PIM) and PPP,
the Ministry of Finance issued a US$ 500 million a prerequisite towards implementation of the PIM
Eurobond (not guaranteed by the US Treasury) governance framework and enhanced efficiency in
on April 26th 2017 with a yield of 5.875 percent public resource allocation. Further, the authorities
maturing in 2026. adopted an electricity Tariff Adjustment Mechanism
to take effect as of 1 January 2017 to mitigate against
14. The fiscal deficit (excluding grants) further losses by NEPCO. A tariff increase would be
improved in Q1-2017 although debt remains triggered should the oil price exceed NEPCO break-
elevated, as new fiscal measures are adopted. even point (Box 6). Future policy changes include
Excluding grants, the overall central government’s amending the income tax law.
fiscal and primary deficits aggregates improved in
line with the fiscal consolidation program in the
first quarter of 2017 narrowing by 0.26 and 0.19
percentage points of estimated GDP respectively
compared to Q1-2016. With a 62 percent reduction External Position
in grants received in this period, the fiscal and primary
deficits including grants widened by 0.04 and 0.11 15. Despite falling exports, the trade in goods
percentage points of estimated GDP respectively. deficit narrowed for the second year in a row
The non-grant fiscal balances improved due to lower buttressed by lower energy imports. The trade
expenditures as revenues slightly underperformed in goods deficit receded by 7.5 percent in 2016
Q1-2016 levels (as a share of GDP). Debt increased yoy reflecting 6.2 percent lower imports of goods
to US$ 37.3 billion by end-March 2017 (95.4 offsetting a 4.1 percent decline in total exports of
percent of adjusted GDP). Fiscal measures adopted goods (Figure 17). The contraction in imports was
earlier in the year aimed to improve Jordan’s fiscal driven by a 23.4 percent drop in energy imports
standing with more planned in the medium-term reflecting the combined effects of lower international
in line with the IMF program. Revenue-raising oil prices on average in 2016 compared to 2015,
measures introduced in 2017 include removing tax and some impact from the diversification of energy
18 | Recent Economic and Policy Developments
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
Trade in Goods Balance Current Account Balance
Imports Exports
Current Transfers Income Account
Trade Deficit Energy Imports (rhs)
US$ million Trade Balance Current Account
Exports of Phosphates (rhs) Exports of Potash (rhs)
US$ bln US$ bln 10,000
25.0 7.0 8,000
6.0 6,000
20.0 4,000
5.0
2,000
15.0 4.0 0
-2,000 2009 2010 2011 2012 2013 2014 2015 2016
10.0 3.0
-4,000
2.0
5.0 -6,000
1.0 -8,000
0.0 0.0 -10,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 -12,000
FIGURE 17. The trade in goods balance narrowed despite FIGURE 19. The current account widened despite an
lower exports of phosphates and potash… improved trade balance…
Source: Central Bank of Jordan and World Bank staff calculations Source: Central Bank of Jordan and World Bank staff calculations
Annual Domestic Exports to Top Destinations Total Workers Remittances (yoy growth)
U.S.A. Saudi Arabia India UAE
Iraq Kuwait Syria GCC Percent (%)
15.0
JD Thousand
1,600,000 10.0
1,400,000
1,200,000 5.0
1,000,000
0.0
800,000
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
600,000 -5.0
400,000
-10.0
200,000
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 -15.0
FIGURE 18. …and as Jordan’s exports to the GCC, Iraq
FIGURE 20. …as affected by slower remittances
and Syria continue to suffer
Source: Central Bank of Jordan and World Bank staff calculations Source: Central Bank of Jordan and World Bank staff calculations
sources towards renewable energy and cheaper potash exports while those of phosphates declined
liquefied natural gas (LNG). Domestic exports of by 17 percent. Exports of food and live animals also
goods on the other hand, 8.9 percent lower than faced significant decline of 19.9 percent. While
2015, continued to be challenged by land route domestic exports contracted, re-exports surged
closures to Iraq and Syria that remained closed by 26 percent in 2016 yoy due to the re-export of
throughout 2016 despite high-level discussions high-value aircraft parts. Trade-in-goods results for
to potentially reopen. As such, exports to Iraq and the first two months of 2017 (2M-17) also reflect
Syria fell by 32 and 64 percent, respectively. Exports a narrowing trade balance of 4.4 percent compared
to Saudi Arabia reversed trend in 2016 declining to the same period in 2016 led by a 12.5 percent
by 18 percent (mainly due to lower exports of live pick-up in total exports that offset 3.4 percent higher
animals and fruits and vegetables in the first half of imports. The rise in exports was mainly driven by
2016 due to price effect). Kuwait’s exports, partly an 8.1 percent surge in domestic exports despite
capturing demand from the Iraqi market, rose by downward pressures generated from closure of
9.8 percent. However, overall growth of exports to trade routes with Iraq and Syria. Exports to GCC
the GCC market contracted by 7.3 percent as did and Syria dropped by 20 and 23 percent yoy during
India’s (Figure 18). From a product perspective, 2M-2017, respectively, while exports to Iraq reveal
lower international prices of potash due to global a tempered rebound of 10 percent yoy although
oversupply resulted in a 30.6 percent decline in largely reflecting a low-base effect.
Recent Economic and Policy Developments | 19
THE WORLD BANK
Reserves and Import Coverage Ratio Headline and Core Inflation - yoy growth
Foreign Reserves in JD
Reserves as months of imports, excluding re-exports, rhs Headline Inflation Core Inflation
Percent (%)
Foreign Reserves in JD Reserves as Months of Imports 8
12,000 12.0
6
10,000 10.0
8,000 8.0 4
6,000 6.0
2
4,000 4.0
2,000 2.0 0
Jan-15
Jan-16
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
0 0.0
Dec-16 -2
Sep-16
Oct-16
Nov-16
May-16
Feb-16
Feb-17
Mar-16
Mar-17
Jun-16
Jan-16
Jan-17
Apr-16
Apr-17
Aug-16
Jul-16
-4
FIGURE 21. Stock of foreign currency reserves decline FIGURE 22. Inflationary pressures appear since late 2016
Source: Central Bank of Jordan and World Bank staff calculations Source: Department of Statistics and World Bank staff calculations
16. The current account deficit widened of donor financing including the second tranche of a
slightly to 9.3 percent of GDP in 2016 led by lower US$ 250 million Development Policy Loan from the
current transfers. Compared to 9.1 percent of GDP World Bank, with $1.63 billion (61 percent) of the
in 2015, the current account deficit widened due 2016-2018 Jordan Response Plan funded in 2016.11
to 0.8 and 2.7 pp of GDP declines in the services Reserves further declined in early 2017 dropping
account and current transfers despite 0.4 and 2.9 a further 11.7 percent to US$ 11.4 billion by- end-
pp improvements in the income account and trade- April 2017, the lowest since October 2013, but still
in-goods deficits, respectively (Figure 19). The covering 7.8 months of imported goods (excluding
narrowing of the income account deficit was led by re-exports). The decline in reserves is partly due to
a 0.4 pp pickup in investment income. Meanwhile, an Arab Bank deal for which local investors bought
the decline in the services account was mainly USD from the Central Bank (Figure 21).
due to 0.5 and 0.6 pp decreases in travel (net) and
government services (net), respectively, with the
former representing tourists’ reluctance at visiting
Jordan amidst rising security concerns during the
period captured. However, since November 2016, Monetary Policy and
tourist arrivals and receipts have improved through
April 2017 yoy. The decline in current transfers in Finance
2016 was mainly a result of a 2.8 pp drop in inflows.
Of these, remittances regressed 2.4 percent (or 18. After two years of deflation, Consumer
0.5 pp of GDP) affected by lower oil prices which Price inflation has resumed. Jordan witnessed
impacts Jordanians working in the GCC but on an deflation for the second year in a row in 2016 largely
improving trend since November 2016 (Figure 20). due to an average decline in international oil prices
and lower food prices with Consumer Price inflation
17. A combination of lower inflows, exchange averaging -0.8 percent (period average) compared
rate pressure and rising dollarization weighed on to -0.9 percent (p.a.) in 2015.12 Core inflation
the stock of reserves held at the Central Bank. By (excluding food, transportation and fuel) abated
end-2016, the stock of foreign currency reserves closer to its long run average due to lower rents
reached US$ 12.9 billion reflecting a tempered
11 For more on the Development Policy Loan, refer to
rebound compared to the past six months, although paragraph 60 of Special Focus 2 “Welfare Impact of Recent
still lower than end-2015 by 9 percent, partly due to Price Changes in Electricity and Water” featured in this Jordan
Economic Monitor.
several one-off factors. This is despite the issuance
of a US$ 1 billion Eurobond in October and receipt 12 The average crude oil spot price in 2016 was 42.8 $/barrel
compared to an average of 50.8 $/barrel in 2015.
20 | Recent Economic and Policy Developments
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
Drivers of Core Inflation Interest Rates
Percent (%)
7
Average Lending Rates (%), Nominal Policy Lending Rate (%), Nominal
6 Average Lending Rates (%), Real Policy Lending Rate (%), Real
5
4 12
3 10
8
2
6
1
4
0 2
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
-1 0
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
-2
-2 Other Personal Effect Personal Care
Education Home Maintenance Rents -4
Clothing and Footwear Tobacco and Cigarettes Core Inflation growth
Communication
FIGURE 23. Tobacco, cigarettes and ‘other’ items drive FIGURE 25. Real interest rates at recent low due to
core inflation. inflation
Source: Department of Statistics and World Bank staff calculations Source: Central Bank of Jordan and World Bank
Deposit Dollarization Rate (%) tariffs would also contribute.14 By March 2017, and at
3.8 percent average for Q1-2017, headline inflation
30.0 reflected the highest period average recorded value
25.0 since December 2013; although it declined slightly
20.0
to 3.7 percent by April-2017. Inflation was fueled
15.0
by higher prices of transportation costs and fuel
10.0
5.0 and lighting (both related to oil prices) followed by
0.0 tobacco and cigarettes and rents.15
Jan-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Jan-17
Mar-17
Mar-11
Nov-12
Nov-13
Mar-15
Nov-16
19. Dollarization rates reached 19.5 percent
by end-March 2017. The dollarization rate of
FIGURE 24. Dollarization rising since October 2016 deposits (share of deposits in USD/total deposits
partly due to several one-off factors
in the money supply) rose by 100bps in December
Source: Central Bank of Jordan and World Bank
2016 alone to 18.9 percent end-2016 compared to
its end-2015 rate of 17.0 percent (Figure 24). The
and miscellaneous items that fueled the reduction consequent rise of dollarization rate in March 2017
averaging 2.2 percent in 2016 from 3.4 percent in to 19.5 percent was partly due to JD 442 million of
2015 (Figure 22 and Figure 23).13 Headline inflation data reclassification of bank deposits and to the Arab
has picked up since November 2016 and is expected Bank share deal.
to accelerate into 2017, due to higher oil prices’
impact on transportation and fuel prices, the impact 20. The Central Bank responded to the decline
of raising the minimum wage, and higher costs in reserves and rising dollarization with raising
related to the government’s introduction of fiscal interest rates on monetary policy tools, ending
measures of taxes, fees and custom duties in 2016 a three-year expansionary monetary policy. The
and 2017 (Refer to paragraphs 12 and 14). Potential Central Bank of Jordan raised its overnight dinar
electricity tariff increases and their impact on water deposit rate, one-week repurchase and deposit rates
14 For a discussion on tariff changes in electricity and water,
refer to Special Focus 2 “Welfare Impact of Recent Price Changes
in Electricity and Water” featured in this Jordan Economic
Monitor.
13 This miscellaneous aggregate category includes alcoholic
beverages, water and sanitation, household furnishings, health, 15 Headline and core inflation reached 0.8 percent yoy and
culture and recreation, restaurants and hotels, insurance 3.1 percent yoy in December 2016. By April 2017, headline
connected with transportation, contribute to other unions, other and core inflation had risen further to 3.5 percent yoy and 3.6
services. percent yoy, respectively.
Recent Economic and Policy Developments | 21
THE WORLD BANK
Commercial Bank Lending Credit Extended to SMEs
Loans
Total Lending to Private Sector Number of Project SMEs, rhs
Total Lending to Public Sector
JD million Jordanian Dinar Number
Total Lending
35,000,000 80
25,000
30,000,000 70 70
20,000 25,000,000
60
50
20,000,000
15,000 40
15,000,000 36 37
30
10,000 10,000,000 22
25
20
15
5,000,000 13 12 12 10
5,000 6 8 9
2 3
0 0 0 0 0 0 0 0 0 0 0 0 0
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
0
Oct-13
Oct-14
Oct-15
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Jan-14
Apr-14
Jul-14
Jan-15
Apr-15
Jul-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Industrial Renewable Tourism Agriculture Information
Sector Energy Sector Sector Sector Technology
Sector
FIGURE 26. Commercial bank lending to both private FIGURE 27. …SMEs benefitting from new credit channels
and public sector continues to grow… across sectors
Source: Central Bank of Jordan and World Bank Source: Central Bank of Jordan and World Bank
by 25 basis points each, effective from 18 December alternative sources of financing including Sukuks
2016, in light of the Fed’s recent monetary tightening and concessional borrowing from multilateral and
to maintain the JD-USD deposit rate spread. CBJ bilateral organizations. CBJ’s September 2016
kept its rediscount rate and the overnight purchase circular announced a subsidized 1.0 percent interest
agreement intact in order to stimulate domestic rate for extended advances to all targeted economic
credit. However, in response to rising dollarization sectors (industry, tourism, agriculture, and IT which
and pressures on the peg, CBJ increased its four was added in 2016) for a period of 10 years for
key rates by 50 bps each on 22 February 2017.16 projects outside of Amman especially for Small and
The third interest rate hike of 25 bps transpired in Medium Enterprises.18 Credit extended to SMEs via
direct response to the Fed’s equivalent rate hike the CBJ’s financing program grew by 29 percent
announcement on 19 March 2017, only the Fed’s in value terms and with 76 percent more projects
third in 10 years (Figure 25).17 Despite these rises, benefitting in 2016 yoy (Figure 27). More broadly,
real interest rates are at a recent low given rising the CBJ announced its 2018-2020 financial inclusion
inflation. strategy in November 2016 which includes further
measures to improve financing options for SMEs,
21. Commercial banks’ lending to the private micro-finance services, support financial literacy and
sector markedly improved in 2016 in part due enhance consumer protection in the financial sector.
to dividends from improved access to finance The CBJ had already supported efforts at improving
measures. Commercial banks’ lending to the access to finance such as through supporting the
private sector averaged 8.3 percent monthly yoy establishment of Jordan’s first credit bureau, licensed
growth in 2016 compared to 2.6 percent in 2015 in December 2015.
(Figure 26). Lending to the private sector rose to
10 percent yoy in December 2016 and further to 22. Jordanian banks continue to be broadly in
10 percent yoy in March 2017. However, lending sound standing. Banks’ nonperforming loans (NPL)
to the public sector receded from 50.4 percent ratio improved for the fifth consecutive year to 4.4
average monthly yoy growth in 2015 to 15.9 percent percent by end-2016 from 8.5 percent end-2011
in 2016, and 1.9 percent in the first three months and the lowest since 2008 (4.2 percent) (Table 1).
of 2017, reflecting the public sectors’ resorting to However, banks’ Return on Equity (ROE) and Return
on Assets (ROA) both declined to 8.8 percent and
16 The CBJ weekly repo rate, re-discount rate, interest rate on
repurchase agreements (overnight), and the overnight deposit 1.1 percent by end-2016 (compared to 10.3 percent
window rate. and 1.3 respectively by end-2015), respectively.
17 The Fed’s and CBJ’s announcements of 25 bps increases
each occurred on 17 March 2017. The CBJ’s rate hikes took 18 Circular to Licensed Banks number 4/11843 dated 7
effect on 19 March 2017. September 2016.
22 | Recent Economic and Policy Developments
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
Amman Stock Exchange Weighted Index 23. While the Amman Stock Exchange Index
Point
(ASEI) retracted in 2016 reflecting general
4,800 investor sentiment, its performance is off to an
4,700
4,600 encouraging start in 2017. The ASEI declined by 3.8
4,500
4,400
percent yoy by end-2016 as a result of drops in the
4,300
4,200
banking, industry and services sector components
4,100 by 0.2, 3, 16.3 percent, respectively (Figure 28).
4,000
3,900 The Amman Stock Exchange’s total value traded
3,800
also shrunk in 2016 although by 31.8 percent yoy
2-1-2014
27-1-2014
18-2-2014
12-3-2014
3-4-2014
27-4-2014
20-5-2014
12-6-2014
6-7-2014
3-8-2014
25-8-2014
16-9-2014
13-10-2014
04-11-2014
26-11-2014
18-12-2014
1/18/2015
2/9/2015
3/4/2015
3/26/2015
4/19/2015
5/12/2015
6/4/2015
6/28/2015
7/22/2015
8/13/2015
9/6/2015
10/1/2015
10/26/2015
11/17/2015
12/10/2015
1/4/2016
1/26/2016
2/17/2016
3/10/2016
4/3/2016
4/25/2016
5/18/2016
6/13/2016
7/10/2016
8/1/2016
8/22/2016
9/21/2016
10/13/2016
11/6/2016
11/28/2016
12/21/2016
16-01-2017
07-02-2017
01-03-2017
23-03-2017
16-04-2017
compared to a 51 percent yoy increase in 2015.
These results reflect the Jordan Investor Sentiment
FIGURE 28. Stock Exchange makes headway in 2017 Index published by the Jordan Strategy Forum that
broadly revealed a decline every month since March
Source: Amman Stock Exchange and World Bank staff calculations
to September 2016, albeit recovered slightly since
to March 2017. The ASE activity rebounded in the
The capital adequacy according to Basel III was first five months of 2017 recording a 1.6 percent
19.0 percent by end-2016 while the leverage ratio improvement from end-2016 to end-May 2017. The
increased to 13.0 percent compared to 19.1 and 12.7 pick-up was mainly led by 0.3, 1.4 and 3.3 percent
percent by end-2015, respectively. Banks’ exposure increases in the services, banking and industry
to sovereign debt was lower for the second year in sectors, respectively, offsetting a 5.4 percent drop
a row accounting for 36.2 percent of total assets in the insurance sector. The cumulative total value
(and further to 35.5 percent by end-March 2017) traded at ASE by end-April 2017 increased by 114
compared to 40.6 percent end-2015. The net foreign percent compared to the same period last year, due
asset position of commercial banks stood at minus to a 168 percent increase yoy in total value traded in
US$ 1.4 billion by end-2016 compared to minus the financial sector which offset 11 and 26 percent
US$ 2.8 billion end-2015. decreases in the total value traded in the services
and industrial sectors, respectively.
Table 1. Financial Soundness Indicators.
(in percent unless otherwise stated) 2010 2011 2012 2013 2014 2015 2016
Nonperforming Loans/Total Loans 8.2 8.5 7.7 7.0 5.6 4.9 4.4
Provisions (in percent of classified loans) 52.4 52.3 69.4 77.0 77.6 74.7 78.2
Risk-weighted Capital Adequacy Ratio 20.3 19.3 19.0 18.4 18.4 19.1 19.0
Leverage Ratio 13.1 13.1 13.3 12.9 12.5 12.7 13.0
ROE 8.8 8.3 8.6 9.9 11.0 10.3 8.8
ROA 1.1 1.1 1.1 1.2 1.4 1.3 1.1
Net Profits Before Taxes (in JD million) 523.0 517.0 588.0 719.0 822.0 862.0 750.3
Liquidity Ratio 161.4 152.9 143.5 149.1 152.2 149.0 138.1
Growth Rate of Total Assets 9.6 7.9 4.3 9.1 4.9 5.1 2.8
Growth Rate of Customer Deposits 10.9 8.3 2.4 10.5 9.3 7.7 0.9
Growth Rate of Credit Facilities 8.6 9.8 12.5 6.3 5.2 9.6 8.7
* Preliminary and not annualized.
Source: Central Bank of Jordan
Recent Economic and Policy Developments | 23
THE WORLD BANK
PROSPECTS
24. While sluggish, Jordan’s economy is monetary policy rates are also expected to continue
anticipated to remain resilient yet demonstrate rising in line with the Fed’s expected rate hikes.
slow adjustment. Jordan’s economy is expected With both fiscal and monetary policy tightening, and
to pick-up marginally to 2.3 percent growth in given subdued growth, and limited fiscal space, the
2017 with a slightly higher uptake forecasted in the only viable option to kick start growth is through
medium-term to average 2.6 percent over 2017- credible and decisive structural reforms, especially
2019 (Refer to Data Appendix). These projections are supply side ones to remove bottlenecks to growth.
based on a status quo of geopolitical situation and The Economic Policy Council’s newly launched
assume the realization of impacts of reforms related Economic Growth Plan for 2018-2022 bodes well to
to stimulating private sector investments (such as stimulate some of these reforms.
through improving predictability of regulations,
improving access to finance for small and medium 27. A major challenge for the Jordanian
enterprises, and trade facilitation) and higher exports authorities remains stimulating growth and job
due to the European Union’s relaxation of Rules of creation while reining in the fiscal deficit – even
Origin kicking-in, and as sectors such as tourism, more imperative as labor market indicators
mining and construction improve. deteriorate and living conditions become more
expensive as inflationary pressures appear.
25. The current account deficit is expected However, short of a positive shock such as the
to narrow over the medium-term. In 2017, the reopening of trade routes with Iraq or a peaceful
current account deficit is expected to narrow to 8.7 conclusion to the Syrian conflict, it is difficult to
percent of GDP while energy imports are anticipated foresee an impactful jumpstart to growth unless
to rise on account of higher forecasted oil prices. structural reforms are implemented at a quicker pace.
In the medium-term, the current account deficit is Given the difficult socio-economic environment, the
forecasted to tighten to an average of 7.3 percent introduction of fiscal adjustment measures to contain
(2017-2019) due to stronger exports of garments the deficit and ease reliance on grants from donors
and potash, and a turnaround in exports of services, will continue to prove difficult as reflected in the
notably anticipated positive growth in tourism 2017 budget debates and austerity protests. Another
receipts, and positive inflows of remittances from primary challenge to Jordan remains navigating
the GCC given higher oil prices. the storm of implications from the Syrian crisis,
including hosting more than 660,000 registered
26. Fiscal and monetary policies are expected Syrian refugees, a situation that is becoming even
to remain contractionary. Fiscal consolidation more protracted. Securing donor support in the way
will continue to predominantly focus on revenue- of budget support grants and concessional financing
enhancing measures. While financial viability of the is critical both vis-à-vis Jordan’s external position
energy sector has improved, financing needs in the and to strengthen Jordan’s prosperity and resilience
water sector continue to pressure the debt situation as it implements its reform agenda, Jordan Economic
as operation and maintenance cost recovery is not Growth Plan and Jordan Compact.
expected until 2021.19 Given Jordan’s peg to the USD,
19 Refer to paragraph 78 of Special Focus 2 “Welfare Impact
of Recent Price Changes in Electricity and Water” featured in
this Jordan Economic Monitor.
24 | Prospects
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
SPECIAL FOCUS
reaching an average of 15.3 percent in 2016. While
I. A TIME FOR GREEN the fiscal deficit was reined in to 3.2 percent in 2016,
the gross debt-to-GDP ratio rose to 95 percent,
GROWTH AND CLIMATE overstepping the 60 percent legal guidance. About
25 percent of that debt is due to debt incurred by
ACTION20 National Electric Power Company of Jordan (NEPCO)
and the Water Authority of Jordan (WAJ) whose debt
Climate action is an important part of a sustainable is government-guaranteed. This reveals how the
solution to addressing Jordan’s notable fiscal, Jordanian economy is dependent on international
economic and climate vulnerabilities. Jordan’s energy markets and vulnerable to any uncertainties
Vision 2025, the recently launched National Green such as oil prices and energy imports, though these
Growth Plan and Jordan’s Nationally Determined are now to a larger extent mitigated in the energy
Contribution (NDC) on Climate Change outline sector due to a number of implemented reforms.21
such a pathway. While some building blocks are in
place, in order to fully optimize Jordan’s potential 29. Dependence on imported fossil fuels
for low-carbon economic transformation, further to serve the growing demand for electricity,
analysis is required to design public policy in water and transportation by industrial and non-
line with macroeconomic and fiscal objectives, industrial consumers has a direct fiscal, climate
mobilize climate finance and strengthen private and environmental impact. The former caused by
sector engagement. Such an endeavor will require energy subsidies and the latter by greenhouse gas
coordinated efforts of all ministries with a leading emissions and local pollution. These impacts can
role by the Ministries of Finance, Environment, and be reduced and fiscal resilience can be increased
Planning and International Cooperation. through policies and investments to promote
clean technologies, energy efficiency and resource
conservation in energy, water, transport and
Context industrial sectors.
28. Jordan’s economy has been recently 30. Since 2011, Jordan’s energy sector has
characterized by sluggish growth, high undergone major structural transformation. The
unemployment, and fiscal and debt vulnerabilities Government of Jordan continues to implement
which are impacted by the energy and water a number of major reforms, including full
sectors. The economy has lost momentum in the past liberalization of fuel prices over time, a gradual and
couple of years due to spillovers from the neighboring ongoing increase in electricity tariffs towards full
security situation in Syria and Iraq. Economic growth cost recovery, the construction of infrastructure to
has averaged 2.6 percent over 2010-2016 reflecting import natural gas with the LNG terminal operational
this and other exogenous shocks such as the halting since mid-2015, and the introduction of a number
of gas supplies from Egypt in 2012, slowing to 2.0 of measures to attract private capital into renewable
percent in 2016. Unemployment is structurally high,
21 In 2013 and 2014, the central government transferred 6.0
percent of GDP and 7.0 percent of GDP respectively to NEPCO
20 Authored by Léa Hakim (Economist), Monali Ranade and WAJ combined. As of 2015, NEPCO achieved cost recovery
(Senior Operations Officer) and Concepcion Aisa Otin (Senior and resorted to commercial bank borrowing and government
Financial Officer); World Bank. transfers to WAJ have been limited.
Special Focus | 25
THE WORLD BANK
BOX 3. Population Effect on Water Demand.
Jordan has faced a steep increase in water demand in recent years as a result of rapid population growth (the
Syrian refugee influx led to an increase in demand by 21 percent throughout the country and a 40 percent
increase in demand in the northern governorates), income growth, and urbanization. Future climate projec-
tions are likely to show an increase in mean annual temperature of about 2oC by 2050 with the country becoming
warmer and drier with frequent heat waves and fewer days of frost. Water availability in this scenario is likely to
continue to decrease and the demand for energy to treat and transport water likely to increase.
Source: World Bank Jordan 2nd Programmatic DPL
energy. Initial assessment indicates that total carbon 32. Sustainable economic growth, human
emissions from the power sector in Jordan has development and climate action in Jordan need
decreased by 31 percent during 2014-16 (carbon to be achieved in the context of scarce water
intensity decline of 35 percent) while reducing and arable land resources, complex regional
losses in the National Electric Power Company and geopolitics, dependence on fossil fuel imports
continuing to absorb a large influx of refugees. This and a growing young population. The Jordan World
exemplifies the convergence of fiscal strengthening Bank Systematic Country Diagnostic underscores
and climate change mitigation. water and climate change as the main constraints to
eradicating extreme poverty and promoting shared
31. While Jordan has been and is prosperity in a sustainable way in addition to energy,
implementing structural and fiscal reforms, natural resources and the environment.24 (Box 3)
more can be done to move to a transformational Rainfall variability, which causes both droughts and
low-carbon and green economic growth path. floods, is likely to increase extreme precipitation,
The Government of Jordan delivered a number of which causes flash flooding and landslides, can
reforms to improve Jordan’s fiscal position in the have a severe impact through loss of lives, land
wake of the International Monetary Fund Stand-by and infrastructure. Increasing temperatures, with
Arrangement (2012-2015) and current Extended frequent heat waves, are likely to increase demand
Fund Facility. These have included removal of fuel for electricity for cooling and dependence on
subsidies in 2012 while introducing a cash transfer groundwater.
for vulnerable households.22 Specific to the water
and energy sectors, the government has also
implemented measures to enhance the financial Jordan’s Climate Change
viability and enhance energy efficiency in the sectors
including as part of the World Bank’s Programmatic and Green Economy
Development Policy Loans.23 However, there is
untapped potential for Jordan to move towards a Commitments
green economy and reap environmental, social and
financial rewards, including from tapping into global 33. Jordan is a party to the UN Framework
climate finance funds. Jordan also has the opportunity Convention on Climate Change (UNFCCC) and is
to attract private financing to further benefit from its one of the most active and pioneering countries
renewable resources. Due to its geographic location, in the region. Jordan has submitted three National
Jordan is one of the best places in the world to invest Communications on Climate Change (1997, 2009
in solar energy projects (PwC 2016). and 2014). Jordan was amongst the first group of
developing countries to join the Kyoto Protocol in
22 Refer to paragraphs 12 and 14 for some EFF fiscal reforms
and footnote 42 on the cash transfer program. 2003 and proactively supported innovation in the
23 For a more extensive discussion of reforms in the water
and energy sectors, refer to Special Focus 2 “Welfare Impact 24 World Bank. 2015. Jordan - Promoting Poverty Reduction
of Recent Price Changes in Energy and Water” featured in this and Shared Prosperity: Systematic Country Diagnostic.
Jordan Economic Monitor. Washington, DC: World Bank Group.
26 | Special Focus
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
Jordan's Sectoral Breakdown of Total GHGs in 2006 than 0.06 percent of global emissions. The total GHG
(TNC Report 2014)
emissions in Jordan were 28.72 million tCO2e with
the share of emissions from fossil fuels for energy
LULUCF
3% Others
related activities (including transport) accounting
Manufacturing
Agriculture industries
9%
10%
Other sectors
(Commercial,
for 73 percent of the total emissions in 2006
5%
Energy
(incl. Transport)
residential
and (Figure 29). The modeled impact of climate change
Industrial Processes 73% agricultural)
9% Transport
16%
10% on Jordan notably affects the already scarce water
Waste Energy
10% industries resources and consequently, the agricultural sector,
28%
Breakdown of Energy biodiversity and ecosystems, coastal areas, urban
(incl. Transport)
areas, the health sector, all of which have socio-
Compiled figure courtesy A. Abdelfattah
economic repercussions on local communities.
FIGURE 29. Jordan’s Sectoral Breakdown of Total GHGs The NDC includes specific commitments to reduce
in 2006
GHG emissions (mitigation) and to reduce the
Source: Jordan Third National Communication, 2014.
vulnerability to climate change impacts (adaptation).
Box 4 provides a snapshot of Jordan’s NDC.
carbon markets. Jordan’s National Climate Change
Policy of 2013 is also the first comprehensive policy 35. Despite Jordan’s vulnerability to climate
in the Arab region and the Middle East. Continuing change, the economic cost has not been quantified
this leadership, the Government of Jordan has ratified which constrains the fiscal and economic urgency
its Nationally Determined Contributions (NDC) of action today. There has not yet been a concrete
under the Paris Agreement in November 2016. calculation of the negative impacts of climate change
on the country’s economy based on global GHG
34. While Jordan is not a major global emitter trends. Such an assessment would need to estimate
of Greenhouse Gases (GHG), it is highly vulnerable the direct costs from climate change across sectors
to impacts of climate change, especially on water such as the environment, agriculture, human health,
resources. Jordan’s GHG emissions represent less and indirect costs resulting from these effects
BOX 4. Snapshot Jordan’s Nationally Determined Contributions (NDCs).
The Government of Jordan has submitted a comprehensive Nationally Determined Contribution (NDC) to-
wards climate change mitigation and adaptation to the Paris Agreement. The energy sector is a priority for Jor-
dan, from economic, social and environmental perspectives; accounting for the largest share of Jordan’s emissions.
This is reflected in the large share of energy related projects, which collectively add more than 1500MW renewable
energy; reach more than 100,000 households, improve industrial processes in cement, chemical, food and steel,
among others and increase share of public transport and efficient vehicles. Water is a major climate mitigation
and adaptation concern from multiple perspectives including: access; utilization, such as climate smart agriculture
practices; energy consumption for water pumping; conservation in all sectors, and waste water treatment. Forestry
sector projects include both plantations in urban and northern areas and rangeland protection. As transportation
is also a major emitter, public transport is important for the urban centers to reduce congestion from fast-growing
vehicle population and projects include a Bus Rapid Transit (BRT) project and promotion of hybrid public vehicles.
The expected cost of achieving Jordan’s NDC target of reducing GHG emissions by 14 percent over the
baseline scenario by 2030 is USD 5.7 billion. The NDC target includes an unconditional target of 1.5 percent
compared to business as usual scenario levels which the government commits to achieving with its own resources,
and a conditional target of 12.5 percent contingent upon external support including access to financing, technology
and capacity building. This 14 percent target is based on expected implementation of around 70 sectoral projects
and relevant policy measures. The Government of Jordan has secured USD 542.75 million through its own means
to meet the unconditional target. Accordingly, Jordan now requires at least USD 5.157 billion to achieve its con-
ditional target. The cost of achieving the mitigation target is based on estimates articulated in the 2014 National
Communication report to the UNFCCC and projects identified subsequently and will benefit from development of a
fully costed and comprehensive strategy to align with broader development goals in Jordan.
Source: Jordan NDC
Special Focus | 27
THE WORLD BANK
Jordan 2025- A National Vision and Strategy
Ministry of Energy & Mineral Resources Ministry of Environment
National Energy Strategy, 2007-2020 Environmental Law 2017
Renewable Energy JEF bylaw 66 in 2009
National Energy Efficiency National Climate Change Policy
Action Plan (NEEAP), 2013 2013-2020 Jordan INDC 2015
I
Ministry of Transport MoMA & Other Ministry of Water &
Transport National Ministries Irrigation
Strategy, 2014 Waste Strategy, 2015 RE and EE Policy 2015
Greater Amman Ministry of Ministry of Finance
Authority Agriculture PPP Law 2015
Amman Investment Law
Sustainable Action 2003
plan, 2012
Amman 2025
Master Plan, 2008
FIGURE 30. Jordan Energy Sector Climate Change Action
Source: PMR 2016
slowing Jordan’s economic growth. These changes and programs. Figure 30 presents an overview of
would impose damages on different segments the relevant policies and strategies that provide
of Jordan’s economy and society. Without this the overall enabling framework for Energy Sector-
information, analysis to compare the cost of action specific Climate Action in Jordan. The common factor
versus inaction is incomplete. that binds them is the National Vision and Strategy
for Jordan 2025. While the government is cognizant
36. In Jordan, the National Climate Change of the challenges surrounding climate change and
Policy and related interventions rely on a has supported specific efforts, there is a need for
framework of the laws, and strategies developed more holistic efforts towards implementation and
by sectoral line Ministries and relevant authorities. achieving “positive externalities” such as job creation.
Jordan has many of the building blocks in place and On the implementation level, a lack of coordination
the time is ripe to build on existing sector-specific and cohesion across ministries, agencies and
strategies and experiences. As a country keen to development partners can be the source of mixed
transform its economy, to some extent, Jordan is signals regarding short term needs and longer
also a casualty of its own success. A quick review term development priorities, which is particularly
reveals a vast number of sectoral plans, strategies challenging for private sector participation. Enhancing
28 | Special Focus
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
Cluster 1: Green Growth Corridor
The green growth corridor is focused on NEPCO’s Green Corridor project which runs along the backbone of Jordan
between Aqaba and Amman. This provides a framework for a number of interlocking projects. The focus is on improv-
ing Jordan’s energy resilience as well as providing new economic growth opportunities along the route. Acknowledging
the long term need to move away from fossil fuels to provide baseload energy, solar technologies such as Concentrated
Solar Power (CSP) is recommended for exploration along the route
Key Cluster 3: Rural Resilience
Rural Area The rural resilience cluster aims
to strengthen rural communities
Urban Area
and their surrounding ecosystems
Green Growth Corridor by diversifying incomes, ensuring
resource availability and reduc-
Cluster 2: Smart Urban ing environmental impacts. Job
The urban cluster aims to trans- provision is an important aspect
form Jordan’s urban areas into of this rural cluster to encourage
green cities that are attractive equitable distribution of the refu-
to both investors and residents gee inflows across the Kingdom.
through a series of flagship green Tourism is also introduced, on the
growth projects. The cluster se- basis that the other interventions
lects a group of interventions can help to boost the perceived
which can be used to publicise stability of the area- this is of
the urban area as ‘green’ to po- crucial importance given current
tential investors while also creat- challenges in the tourism sector
ing an improved urban space to around international perceptions
live in. of Jordan’s safety.
FIGURE 31. Jordan National Green Growth Plan Clusters
Source: The National Green Growth Plan, 2016
the complementarity of reforms across sectors and investors through a “direct submission proposal”
coordination among agencies would improve the procurement scheme, a competitive tender; and
ability of the government to align climate change and public procurement under “turnkey” contracts. In
development priorities, articulate expectations from 2014, Jordan established net metering and wheeling
the private sector, define specific climate-related arrangements to encourage small and distributed RE
financing needs and opportunities, and strengthen located on industrial, commercial or residential sites.
the role of citizens and civil society. In addition, the Government has set tax exemptions
for RE systems and equipment from customs duties
37. Jordan holds a pioneering position in the and sales tax. As a result, Jordan has one of the
MENA region on renewable energy. This reflects most advanced regulatory and policy frameworks
the leading role played by the Ministry of Energy for RE investment in the MENA region.” This
and Mineral Resources in achieving green growth policy framework has shown strong results, with
in Jordan. “The Renewable Energy (RE) and Energy investments rising from zero in 2012 to, according
Efficiency (EE) Law 2012 is at the core of Jordan’s to the Government, over USD 1.6 billion in 2016
RE Investment Policy framework. Under this and (OECD 2016).
associated by-laws, Jordan has implemented
incentive schemes and procurement methods for 38. Building on the strong linkages between
awarding long-term power purchase agreements climate change, national development priorities
to grid-connected RE projects, including: a feed- and the urgent need to create economic
in-tariff (the first to be implemented in the Middle opportunities, the Government of Jordan intends
East), unsolicited expressions of interest from to pursue a Green Economy pathway. The National
Special Focus | 29
THE WORLD BANK
Green Growth Plan for Jordan was launched in May Foreign Direct Investment (FDI) for the development
2017 and focuses on energy, water, waste, transport, of infrastructure projects, which would in turn
tourism and agriculture sectors. The World Bank contribute to the involvement of the local workforce
definition of Green Growth is growth that is efficient in and the development of human capital. While
its use of natural resources, clean in its minimization such effects need to be modeled and quantified,
of pollution and environmental impacts, and resilient investment in sustainable energy and climate positive
in its consideration of physical disasters and natural related interventions could have a sizeable potential
hazards in the face of a changing climate. The Green with spillover effects across Jordan’s economy (Box
Growth Plan has identified three clusters: a green 5). The transition towards a low-carbon, green
growth corridor, smart urban transformation and economy typically entails high short term costs.
rural resilience (Figure 31). These three clusters These costs need to be appropriately quantified to
represent the convergence between climate action, assess the impact on fiscal and debt sustainability.
sustainable local development and macroeconomic
considerations. The ‘Smart Urban’ cluster, for 40. Further analysis is essential to quantify
instance, would include implementation of project the economic and job-generating impact from
and policy interventions such as public transport, pursuing a green growth agenda. However,
waste management and clean energy service sand preliminary indications and global assessment is
building, vehicle and appliance standards. These positive:
interventions would not only improve the quality
of service delivery and the financial sustainability of • The National Green Growth Plan (NGGP
utilities/service providers, it would also improve the 2016) notes that “despite high growth rates,
quality of life of local residents. the Jordanian economy has created relatively
few new skilled jobs, meaning many people of
working age are still economically inactive or
The Economic Case for have emigrated. The majority of jobs created by
growth to date have been low-paid, low-skilled
Climate Action jobs and have largely been taken by migrant
workers due to the large proportion of skilled
39. Jordan has a strong economic argument Jordanians.”25 ILO survey26 results show that the
to become more efficient in the use of its incidence of job informality among youth reaches
energy resources, move towards climate friendly above 50 per cent in Jordan, with refugee crisis
investments and contribute to reducing the increasing informality alongside deteriorating
fiscal burden and enhancing economic growth wage levels and working conditions. The need
although transition costs are likely to be high and for skills development and job creation presents
will have to be carefully managed. Beyond the an opportunity to enable development of
positive effects on the environment, including from skills for green jobs. Through a combination
reducing GHG emissions, climate friendly policies of green growth and sustainable consumption
and investment could support a reduction in the and production efforts, the six sectors, namely
fiscal burden of the sector and higher economic energy, transport, water, agriculture, waste and
growth. On the fiscal front, further reduction in tourism, have the “collective potential to attract
dependence on commodity imports (oil and gas) sustainable green investments amounting to 1.3
in international markets. This, in turn, would bring billion U.S dollars and creating 51,000 new jobs
additional stability to the budget due to a lower in the next 10 years” (SCP 2016).
exposure to the fluctuation of commodity prices. • “The Jordanian Government has estimated
In turn, this could support better debt management that RE and EE projects in Jordan could create
leading to an enhanced credit rating for Jordan and around 2000-3000 jobs in remote and less
a reduction in its cost of funding. The stimulation of 25 Jordan - National Green Growth Program, December 2016
economic growth could stem from the attraction of
26 ILO 2015
30 | Special Focus
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
BOX 5. Potential Positive Economic Spillover Effects from Climate Smart Investments.
Climate Smart Investment has the potential to support growth and sustainable development in Jordan. Some
positive spillovers, additional to environmental impacts, include effects on:
i. Debt management: The diversification of the energy matrix renders Jordan less dependent on foreign oil/gas
imports thus creating its own market and making it less exposed to the volatility of energy prices. This brings
stability and reliability to the Government’s fiscal balance and much less subject to “last minute” calls to the
Ministry of Finance in order to issue funds for the utilities.
ii. Labor market: Climate smart investments could result in a shift towards “green jobs” to the country. The
shift needs to be managed to support net job creation.
iii. Private sector development: Climate smart investments would reinforce and help the development of an
incipient private sector in the area of sustainable energy and the development of their own technologies
customized for Jordan needs.
iv. International political positioning and additional funding: Positions Jordan as a serious actor in attracting
climate change finance.
developed areas in Jordan.” (OECD 2016) 41. Jordan’s renewable energy experience
This does not include potential for increasing exemplifies the transformational role of concerted
domestic manufacturing of solar PV or other government action that delivers multiple
potential jobs across the renewable value chain. benefits, improving sustainability of the energy
Initiatives such as the Jordan Renewable Energy sector, effectively engaging the private sector,
and Energy Efficiency Fund (JREEEF) of the creation of local jobs, contribution to the global
Ministry of Energy and Mineral Resources are climate agenda and moving towards a green
helping create and address consumer demand economy. Continuing on this tremendous progress
for RE and EE products. The Government of and undertaking key priority actions, particularly
Jordan is also encouraging local manufacturing enhancing the energy grid to absorb more RE, will
of efficient products in Jordan, which is likely to place Jordan on a low-carbon, green energy pathway.
create additional green jobs across the energy This experience is also valuable for the overall
efficiency value chain. Green Economy vision of Jordan. Climate mitigation
• Every job needs to become greener to ensure goals in transport, waste, buildings and agriculture
sustainable transformation towards a green sectors can further enhance the green economy
economy. An ILO report identifies three sources agenda. Transport sector policies to encourage
of change that contribute to creation of green public transport, fuel economy, electric vehicles
skills and jobs – shifts between industries, and improved transportation services also provide
development of new occupations and changing multiple benefits including: limiting fuel imports,
skill profiles within occupations (ILO 2011). As improving local air quality, reduced commute/travel
noted in Jordan’s Third National Communication times, creation of jobs in the transport system and
to the UNFCCC, “with over 70 percent of its reduced carbon emissions. The buildings sector
population under 30 years of age, Jordan’s big is another example where ‘enhancing building
investment needs to be in its talent.” Skilled codes for newly established residential complexes
Jordanians are the invaluable asset that Jordan targeting poor families’ would not only ensure proper
needs to achieve transformation towards a insulation but through a link with the green building
sustainable, low-carbon, climate resilient and codes also support efficient water and waste water
green growth pathway. management and overall energy consumption.
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Proxy to Climate Relevant Expenditures
A Role for Climate Total expenditures by climate relevant agencies (excl. salaries, wages, pensions)
Total expenditures by climate relevant ministries (excl. salaries, wages, pensions)
Share of total central budget expenditure (excl. salaries, wages and pensions), rhs
Finance and Climate-
Share of total central budget and unit agencies' expenditures
(excl. salaries, wages and pensions), rhs
USD Million Percent (%)
2,500 0.25
Smart Fiscal Policy 2,000 0.2
1,500 0.15
42. Jordan estimates the cost of meeting its 1,000 0.1
NDC targets at US$ 5.7 billion, however, detailed 500 0.05
assessment regarding the cost breakdown and 0 0
alignment with macro-fiscal targets need to be 2010 2011 2012 2013 2014 2015 2016e 2017p 2018p 2019p
assessed. Mitigation actions in the NDC related FIGURE 32. Proxy to Climate Relevant Expenditures*
to “developing and utilizing the local conventional
Source: World Bank calculations based on General Budget
and renewable sources of energy” or “rationalizing Department Budgets (2017 Budget Law and previous Budget Laws).
energy consumption in all sectors” may require fiscal *
Refer to footnotes 28 and 29 for list of included ministries and
agencies.
incentives, tax credits, tax relief or other instruments
to incentivize achievement of the targets. Such
instruments have a cost for the government in the relevant ministries’ current and capital expenditures
short term until the longer run benefits materialize. excluding salaries, wages and pensions. If climate-
As such, a comprehensive assessment of the cost relevant unit agencies’ budgets are included, the
of mitigation and adaptation measures needs to total figure rises to an average of USD 1,948 million
be undertaken in line with Jordan’s sustainable over 2000-2016 which is about 17 percent of
development targets. total expenditures (excluding salaries, wages and
pensions).29 These figures illustrate the scale that
43. Jordan is already spending considerable Jordan is already spending in terms of domestic
sums on domestic climate change related finance climate finance and the projected increase in the
and is a recipient of international sources of climate medium term. However, caution must be exercised
finance. Climate finance encapsulates financing as the Ministry of Finance climate-relevant figures
for climate change mitigation and adaptation are not included, and these proxy figures are likely
actions that can stem from national, regional and to overestimate the total figure as all expenditures
international sources. Despite spending an average are treated equally whereas in a proper CPEIR, each
of USD 42.8 million per year (0.1 percent of GDP) on expenditure is evaluated based on how strongly it
environmental protection from 2010-2015, Jordan is climate relevant. In terms of international climate
spends a much higher share of its budget on climate finance, OECD DAC Statistics indicate that in 2014
relevant expenditure.27 On the domestic front, and Jordan received over USD 300 million towards
short of conducting a full Climate Public Expenditure climate change related activities. Another form of
and Institutional Review (CPEIR), Jordan is already domestic and international climate finance relates
spending about USD 808 million per year on current to the Central Bank of Jordan’s financing program
climate-relevant expenditure (2000-2016) with an for Small and Medium Enterprises (SMEs) for
average of USD 1,002 million per year projected over Renewable Energy and Energy Efficiency projects.
2017-2019.28 This is a proxy only based on climate- The Jordan Renewable Energy and Energy Efficiency
27 Calculated based on Ministry of Finance General Finance
29 Climate-relevant unit agencies identified as: the Water
Bulletin December 2016.
Authority, Aqaba Railway Corporation, Housing and Urban
28 Climate-relevant ministries/agencies as identified from Developing Corporation, Jordan Hejaz Railways, Jordan
the central government budget used here were the Ministry of Standards and Metrology Organization, Land Transport
Industry and Trade, Ministry of Energy and Mineral Resources, Regulatory Commission, Jordan Maritime Authority, Aqaba
Ministry of Agriculture, Ministry of Water and Irrigation, Ministry Development Corporation, Jordan Water Company (Miyahuna),
of Environment, Ministry of Health, Ministry of Transport, Aqaba Water Company, Samra Electric Power Company,
Ministry of Transport/Metereology Department, and the Jordan Jordanian Airports Company, Yarmouk Water Company, and the
Royal Geographic Center. Energy and Minerals Regulatory Commission.
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JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
Top Ten Donors for Jordan, Commitments, USD million
Water Supply
& Sanitation
Climate Mitigation Both Mitigation and Adaptation Climate Adaptation
69.6
Total commitments by Climate Objective, USD million
0 50 100 150 200 250 300
Agriculture, Energy
European Bank for Unallocated Forestry,
Reconstruction and Development
Germany
/Unspecified Fishing 33.0
International Finance Corporation 81.1 28.5
Gal Envt
EU Institutions Protection
7.0
Global Environment Facility
Government &
Korea
Civil Society
Sweden 19.3
0 20 40 60 80 100 120
FIGURE 33. Jordan - Climate-related Development FIGURE 34. Total Commitments to Jordan by Sector, USD
Finance in 2014 from OECD DAC Statistics million
Source: OECD DAC Statistics 2014 Source: OECD DAC Statistics 2014
Fund (JREEEF) channels funding from national and financing needs. While Jordan is working towards
international sources to all sections of society. further improving its fiscal position, its historical
dependence on grants and current high debt-to-GDP
44. Jordan enjoys strong relationships with ratio reflect its exposure with respect to mobilizing
development partners, donors and multilateral external financing. More efficient fiscal spending
institutions and these could be further leveraged. coupled with enhanced revenue mobilization and
According to the OECD DAC statistics for 2014 the financial sustainability of the energy and water
largest funders for projects that address climate sectors is required to improve the fiscal deficit and
change include the EBRD, Government of Germany, limit further increases in debt.
the International Finance Corporation and the
EU. A majority of this funding is committed to 46. Jordan could tap a myriad of financial
priority sectors such as Water and Energy and to instruments to finance green projects, although
government and civil society activities. In addition, debt instruments need to be used cautiously
development partners including the Agence bearing in mind Jordan’s high level of indebtedness.
Française de Développment (AFD), United States Instruments include debt instruments stemming
Agency for International Development (USAID), from domestic or international debt issuances,
United Nations Development Program (UNDP), guarantees or syndicated loans. Jordan could also
United Nations Environment Program (UNEP), leverage the legal and financial infrastructure in place
Global Green Growth Institute (GGGI) and the since 2016 to be able to issue Sukuk bonds, Islamic
World Bank continue to support development of finance bonds that are Shariah compliant, and also
policies, projects and institutional mechanisms that meet a lot of the criteria of sustainable/responsible
support climate change mitigation and adaptation investments. The main challenge would be identifying
action. With stronger coordination and planning the underlying asset. Additionally, Jordan could also
between the ministries of Planning and International explore tapping into additional instruments that
Cooperation, Environment and Finance, and with attract a community of socially responsible investors
leadership of Ministry of Finance (MOF) in leveraging or to finance green projects. Socially responsible
financing, further international climate finance could investors are interested to invest in green bonds,
become available to support climate action in Jordan. notes linked to ‘green indices’, Asset Backed
Securities (ABS structures) using energy savings for
45. The mobilization of further climate finance example as assets. These kinds of structures have
to implement the NDCs and Green Growth Plan the potential of providing additional confidence to
would support multiple environmental, social investors since they have an asset backing them.
and economic targets especially given Jordan’s This can be translated in a price decrease thus
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potentially improving the funding cost of the entity a monitoring, reporting and verification (MRV)
behind the structure/issuance. In other words, the mechanism to capture climate action across all
effect could be seen as a guarantee. Development sectors, and exploring matchmaking mechanisms to
of reporting systems would support the overall debt enhance the ability of the public and private sectors
management framework. Other instruments related to access existing and new financing sources.
to concessional sources of finance are the Climate Adaptation and mitigation interventions in Jordan’s
Investment Funds such as the Global Environmental NDC can be clustered geographically, and can also
Facility (GEF), and from bilateral agencies including be clustered as projects and policy interventions (as
AFD, KfW Development Bank, and USAID. Finally, per Figure 34). Building on the growing success of
Jordan could benefit from guarantees and lines for the renewable energy sector, particularly private
RE/EE through private commercial banks and partial sector participation, there is significant potential for
risk sharing facilities. rationalization of energy consumption in all sectors.
Energy efficiency improvement can be supported
47. Many of Jordan’s current investment through (a) projects, such as water pumping and
needs are already in the Green Growth arena. street-lighting, (b) improved standards for appliances
The Greater Amman Municipality has been and equipment, and (c) stronger building codes. The
pursuing a Green Growth Program, which provides transport sector is a major and fast growing fuel
a foundation for cross-sector action for green consumption sector, which can be supported through
economic development in the largest urban center (a) projects such as, improved public transport and
in Jordan. Nationally, many of Jordan’s investments introduction of zero emission electric vehicle (ZEV)
relate to RE, EE, wastewater treatment plants, and and (b) improved vehicle efficiency and emission
green transport corridors. Given that these are standards. NDC adaptation related activities include
investments already in the pipeline would imply that (a) projects such as afforestation of rangelands and
Jordan would not incur additional debt for pursuing forest areas and (b) strengthening climate-informed
a green or sustainable path. A second implication disease control programs and surveillance systems
from implementing these initiatives relates to and promote climate smart agricultural practices.
reduced dependence on fuel imports which would These activities can be further aggregated, within
reduce volatility of Jordan’s fiscal stance related to clusters or across project or policy interventions,
fluctuations in the fuel price or exchange rate. for efficiently identifying financing resources and
improving pace of implementation.
Moving from Plan to 49. A just transition in the labor market is
encouraged in moving towards a Green Economy
Policy Action transformation. Both the International Labour
Organization (ILO) and the Paris Agreement on
48. Achieving Green Growth in Jordan Climate Change highlight and call for the transition
requires an alignment of policy, planning for workers to be just to ensure no one is left
and financing frameworks, enabling financial behind, with the Paris Agreement recognizing the
mechanisms, building institutional capacity opportunity and creation “of decent work and
and effectively engaging all government and quality jobs in accordance with nationally defined
non-government stakeholders. As one of the development priorities.” Furthermore, the ILO’s
recommendations, the Green Growth Plan suggests Guidelines support the need for assessment of labor
clustering of interventions to ensure coordination market implications at macro and sector level, policy
between policies and implementing partners, coherence and ongoing social dialogue (ILO 2016).
ensure the intervention are mutually reinforcing,
and combine investments from both the public and 50. Adaptation to climate change is a
private sector. Through the Partnership for Market significant undertaking yet an adaptation and
Readiness (PMR) initiative, Jordan is establishing related financing strategy is not yet developed.
34 | Special Focus
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
An adaptation strategy requires multiple pillars. responsible investors that otherwise may not get
Jordan’s NDC actions includes examples of some of into the market.
these. Key pillars include: (a) the provision of public
goods to reduce risk exposure, for example related to 52. The government has exhibited a strong
infrastructure, water services, awareness campaigns interest in engaging the private sector although
ex. the NDC action “Developing emergency and higher engagement requires greater policy
fast response plan to providing emergency relief certainty, particularly long range infrastructure
and aid to those affected by impacts of seasonal planning and effective communication. The RE
severe cold (mainly during snow storms) and hot and EE Law has attracted private sector interest
conditions and support programs for incomes of and investment in utility scale RE projects. The
families impacted by drought”; (b) public policies Government and development partners are actively
such as Jordan’s Water and Wastewater Strategy; supporting private sector development, particularly
(c) standards and regulations that integrate climate in the sectors pertaining to green economy and
change consideration such as building codes ex. clean energy. However, emphasis on providing
the NDC action “Enhancing codes of buildings for concessional finance to end-users of clean energy
newly established residential complexes targeting technologies has an unintended consequence of
poor families to include proper insulation”; and (d) limiting the ability of intermediaries and enterprises,
financial instruments such as insurance, microcredit, including Energy Service Companies, to engage with
and catastrophe bonds. This latter instrument is the the market. This reduces the potential multiplier
least developed in Jordan’s climate change strategy effect that intermediaries can have as they can reach
and related documentation and a comprehensive a larger number of small customers, particularly
adaptation plan could further set a sound financial MSMEs and households. Aligning financing
strategy. mechanisms with private sector led delivery
mechanisms could accelerate the pace of clean
51. Access to finance is central to Jordan’s technology adoption in Jordan.
vision for green growth and climate action and
for achievement of national priorities and sector 53. The government particularly recognizes
strategies. The Green Growth Plan identifies the potential for greater reliance on private
the availability of finance as a key component of sector participation for large investments
Jordan’s green growth strategy, highlighting the across all sectors and implementation of the
new opportunities to attract more private financing Public Investment Management (PIM) - Public
in addition to the more traditional concessionary Private Partnerships (PPP) Framework. The
funding and grants. The Jordan NDC identifies the government approved the PIM 2017-2019 Action
need for US$ 5.7 billion, which will have to come Plan. Implementation of this plan would result
from a combination of domestic and international in a qualitative improvement in Jordan’s public
resources. Jordan’s efforts to attract financing for investments and the selection of projects facilitating
Green sectors could be further leveraged with a growth. Private sector participation could be further
conducive policy environment and if Jordan were to enhanced through improved coordination among
take a more prominent position in the international agencies, aggregation of investment opportunities
arena of Green financing. Jordan has the potential within a sector and active, ongoing private sector
to get funds from international sources of finance, dialogue. In addition, and as also noted by the
such as the Global Environment Facility (GEF) and IMF staff concluding statement, “there is a need to
Green Climate Fund (GCF). All traditional financial promptly tackle red-tape. Discussions with business
instrument could be used to finance green projects sector representatives indicate a pressing need to
including, from debt coming from a domestic or simplify regulatory process, improve legal stability,
international debt issuance, guarantees, syndicated predictability, and the rule of law, and enact
loans. There is also the possibility to use additional the inspection law.” (IMF, 2016) These actions,
instruments to attract a community of social combined with the ongoing efforts to improve the
Special Focus | 35
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enabling environment for small and medium scale to provide complementary support to embed Green
enterprises such as through the credit bureau and Growth into government operations. For example,
efforts to strengthen financial inclusion, could given Jordan’s large annual procurement volumes,
accelerate the pace towards green economy in Jordan could consider developing a Sustainable
Jordan. Public Procurement strategy. Third, strengthened
coordination between government entities and
54. The Ministry of Finance has a crucial development partners, to facilitate an alignment
role in designing policies and attracting climate of policy signals to the private sector, for example
finance for both mitigation and adaptation. on application of feed-in-tariffs, strengthening the
Fiscal policies can be considered that both address energy grid, and attracting private sector investment.
pollution and other externalities that contribute to Fourth, conducting a comprehensive assessment
climate change and are revenue-generating for the and costing of fiscal and other policies required
Treasury which further supports the fiscal position. to meet Jordan’s mitigation and adaptation targets
On the expenditure side, climate change needs to and green growth aspirations. Based on this, Jordan
be mainstreamed in budget processes. Jordan could can select and ensure that implementation and
consider undertaking a Climate Public Expenditure movement towards a green economy is in line with
and Institutional Review (CPEIR) to define the current macroeconomic stability, fiscal and debt targets and
status of Jordan’s public spending from a climate objectives especially given the expected short run
change lens and to identify a suitable approach costs of transition for the budget and given Jordan’s
to incorporate climate change into the planning target to improve its fiscal balance and reduce its
and budgeting process. This CPEIR can in turn debt-to-GDP ratio to 77 percent by 2021 (in line
serve as a building block to then develop a climate with the current IMF program).
fiscal framework for Jordan which would through
delivering a CPEIR and implementation of the NDC 56. Attracting investment to support climate
which would further support efficient spending, job action and green growth requires a number of
creation, and fiscal resilience in the face of climate prerequisites:
change related fiscal risks.
• Coordination between key government agencies
(MOPIC, Ministry of Environment, Ministry
Considerations for of Energy and Mineral Resources, Ministry of
Water and Irrigation, Central Bank, Ministry of
Transformation to a Finance). The Minister of Finance has a leading
role in development and implementation of the
Low-Carbon and Green Climate Change and Green Growth financing
strategy to enable investments that will help
Economy the economy grow while better managing its
debt. This would require leveraging public,
55. In order to enable achievement of the NDC concessional, commercial and private financing,
and the Green Growth Plan, the following next in addition to international climate financing.
steps could be considered. First, further analysis • Alignment of policy signals, financing
and macroeconomic modeling is required to quantify instruments, and capacity support across
savings from energy and water related mitigation and government and the donor community. For
adaptation actions across all sectors, contribution to instance, promotion of zero emission, electric
green economic development, related job-creation vehicle transport may be inhibited if “subsidies
potential and identification of comprehensive amount reduce the price of vehicle fuel more than they
of financing (from all sources) needed. Second, reduce the price of electricity. As the cost of
plan a just and fair transition towards this new electric vehicles falls, such subsidy imbalances
pathway (ILO 2016) and identify recommendations might begin to have major implications
36 | Special Focus
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
for competitiveness, pollution, household
consumption, and affordability.” (OEF, 2017)
• A plan aligned with Jordan Vision 2025 to
encourage and proactively engage domestic
and international financing sources, investors
and private sector interested in climate change,
sustainability and green growth. For instance,
Jordan could consider a series of green bonds or
green Sukuk, which by itself would not reduce
Jordan cost of funding but would attract a more
diverse group of investors.
57. Sustainable solutions to addressing
Jordan’ fiscal, economic (growth) and climate
vulnerabilities can pave the way towards achieving
low-carbon and green societal transformation.
Jordan has begun its journey towards a low-carbon,
green economy despite the challenges facing the
region and the country and is also committed to
achieving the sustainable development goals (SDGs).
Climate change is being mainstreamed into the
policies and strategies of key sectors and the National
Green Growth Plan has identified a pathway to
transform the economy in line with the Jordan Vision
2025. Scaling up climate action can support Jordan’s
fiscal and macroeconomic objectives, proactively
support the creation of green decent jobs and,
strengthen resilience of the society and economy.
This will require further analysis and consultation
with stakeholders including civil society and the
private sector, assessment of the short run costs of
the transition, and identification of mechanisms for
collaboration across the government and the private
sectors. The role of the Ministry of Finance, in
collaboration with the Ministries of Environment and
Planning and International Cooperation, is crucial
in realizing Jordan’s Green Growth and sustainable
development aspirations.
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some extent, they mostly benefit the better off, who
II. WELFARE IMPACT OF often consume more energy and water per person.
The IMF estimated that 26 percent of electricity
RECENT PRICE CHANGES subsidies in Jordan benefit the richest quintile of the
income distribution, compared to 19 percent for the
IN ELECTRICITY AND poorest quintile (Sdralevich et al., 2014).
WATER30 59. Electric and water subsidies in Jordan
reached fiscally unsustainable levels after 2010
Over the past seven years, Jordan has repeatedly when the cost of service for the state-owned
reformed its electricity and water tariffs to reduce utility companies in the two sectors escalated. In
government subsidies and reduce the vulnerability the electricity sector, rising oil prices and the abrupt
to price shocks. This section evaluates the short-term decline of gas imports from Egypt since 2010 had
welfare impacts on households of the electricity and raised fuel costs for the National Electric Power
water tariff reforms that were implemented between Company (NEPCO), causing financial losses of over
2010 and 2016. The results suggest that welfare JD 1 billion per year between 2011 and 2014. In 2013
impacts so far have been limited and household and 2014, the central government transferred 6.0
expenditures on electricity and water are still modest percent of GDP and 7.0 percent of GDP respectively
by international standards, but the Government to NEPCO and WAJ combined.31 The water sector
should consider combining further tariff reforms with has seen costs escalating due to the impacts of the
targeted social protection measures to limit the impact Syrian refugee crisis and—as a major consumer
on the poor. In the electricity sector, which reached of electricity— is directly affected by the increase
full cost recovery at the end of 2015, further tariff in electricity tariffs charged to the two main water
reforms will be needed to sustain cost recovery amid supply agencies, the Water Authority of Jordan
fuel price fluctuations, and to reduce cross-subsidies (WAJ) and the Jordan Valley Authority (JVA), from
to keep large consumers from ‘leaving the grid’. In JD 79 million in 2012 to JD 156 million in 2015.
the water sector, where operation and maintenance In 2015, the Government’s transfers to the water
cost recovery has not yet been achieved, further tariff sector were reduced to JD 20 million, and further
reforms will be needed to ensure at least operation reduced to zero in 2016 (compared to JD 203 million
and maintenance cost recovery by 2021. in 2013 and JD 206 million in 2014), while capital
expenditure increased. In 2016, WAJ’s net borrowing
reached JD 394 million. By 2016, total debt held by
Context NEPCO and WAJ had reached around JD 7 billion
equivalent to 24 percent of estimated 2016 GDP
58. Evidence is mounting that energy and water and 26 percent of Jordan’s gross debt. Accumulating
subsidies in the MENA region are associated with such large amounts of debt on the utilities’ balance
slow economic growth and high unemployment sheets reduces their ability to operate as commercial
as they shift investment from labor-intensive entities and poses significant fiscal risks for the
to resource-intensive sectors (Devarajan et al., Government, as all debt of NEPCO and WAJ is
2014). These subsidies limit the ability of utilities guaranteed by Jordan’s Ministry of Finance.
to operate as commercial entities and impact their
ability to finance their operation, maintenance and 60. Jordan has reduced cost and reformed
investments. Moreover, tariff subsidies are often tariffs to improve cost recovery of electricity and
neither well targeted nor cost-effective. Though water services. The Government’s reform program,
subsidies may reach the poor and vulnerable to supported by the World Bank’s Energy and Water
Sector Development Policy Loan Program (2015-17)
30 Authored by Caroline van den Berg (Lead Economist), Joern
Huenteler (Energy Specialist), Amr Moubarak (Social Protection 31 In 2015, NEPCO resorted to borrowing from commercial
Specialist), and Jon Jellema (Consultant); World Bank. banks and transfers to WAJ were limited.
40 | Special Focus
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
as well as two IMF programs, includes a series of
tariff reforms, policies to promote renewable energy Empirical Methodology &
and energy efficiency in the electricity and water
sectors, and measures to reduce system losses Data
and other operating costs. In the electricity sector,
a series of electricity tariff reforms, in combination 62. The analysis presented in this Special
with the decline in international oil prices since Focus is based on estimates of direct and indirect33
mid-2014, the switch from oil to cheaper natural welfare effects of the proposed electricity and
gas since mid-2015, and the commissioning of the water tariff increases between 2010 and 2017. The
first large-scale renewable energy plants, allowed effect of the different policy measures was simulated
NEPCO to reach cost recovery in the fourth quarter using the World Bank Subsidy Simulation Model
of 2015. The water sector still has some way to go to (SUBSIM). Welfare impacts are approximated by the
reach cost recovery, but the IMF estimates that the change in household expenditures. The direct welfare
Government’s reforms will allow WAJ to generate a effects were calculated by applying the revised tariff
positive operational margin by 2021. schedules to household expenditures for electricity
and water. Household expenditures were taken
61. By ensuring that Jordan’s energy and water from the Household Income and Expenditure Survey
sectors become more financially sustainable, the (HIES) 2010/201134 and adjusted for real wage
Government’s recent pricing reforms are expected increases and consumer price inflation between
to have a positive effect on economic growth and 2011 and 2017. To estimate these indirect welfare
employment and a net positive impact on the impacts, an input-output table of the Jordanian
poor and the bottom 40 percent. The reforms economy was used to estimate the price changes in
would also reduce air pollution (and hence reduce all production sectors that use electricity and water
its impact on public health) and reduce the effect of as an input either directly or indirectly. The estimate
overexploitation of groundwater32, thus contributing was made under ‘cost push’ assumptions within a
to achieve the Bank’s twin goals in a sustainable price-shifting model: producers pass on any increase
manner. These positive effects, however, take time in input prices by increasing sales prices with a
to materialize as the economy adjusts to changes in proportional amount. The HIES was then used to
relative prices. In the short term, consumer welfare link household consumption expenditures to these
will be affected by energy and water tariff increases. production sectors and program, for consumption
This Special Focus of the Jordan Economic Monitor taking place in each sector, and for determining
will estimate the short-term welfare impacts of how much the price of that consumption block is
the recent electricity and water tariff changes in likely to rise when electricity and water subsidies
electricity and water on household welfare. are reduced. The difference between a household’s
expenditure on its consumption basket (excluding
water or electricity) in 2010 and 2017 is equal to our
measure of ‘indirect welfare losses’ brought about
by the tariff increases (see Atamanov et al., 2015 for
more details on the methodology).
33 Direct effects measure the impact of residential electricity
and water tariff increases on household budgets. Indirect effects
calculate the effect of electricity and water tariff increases in
non-residential sectors that are passed through to households.
34 The HIES 2010/2011 survey, while the most recent data
32 The Syrian refugee crisis has increased the total use of available for research, precedes the influx of Syrian refugees
groundwater because of the rapid increase in demand since and may therefore no longer be fully representative of Jordanian
2013; but the per capita water consumption has decreased households. The authors intend to repeat this analysis once the
between 2013 and 2015. 2016/17 data is available.
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63. Potential electricity tariff increases in
2017 were modeled using two different scenarios: Results
A 11.25 fils per kWh increase for all tariff blocks
(Scenario S1) and a 14.56 fils per kWh increase Electricity
for tariff blocks below 500 kWh (Scenario S2).
Both scenarios reflect the full pass-through of a 65. Jordan’s Electricity and Minerals and
(hypothetical) cost increase equivalent to a US$10 Regulatory Commission (EMRC) revised electricity
per barrel increase in the oil price in 2017 beyond tariffs nine times between 2010 and 201636 in order
NEPCO’s break-even point, but assume a different to restore cost recovery in the electricity sector
distribution of the additional cost across consumers (EMRC, 2016). Wholesale tariffs increased from an
(more details below). In a next step, those real total average of 47 fils per kWh in 2010 to 81 fils per kWh
cost increases in total cost (by tariff block) were in 2016, raising NEPCO’s revenues by around JD 650
applied to household expenditures (based on their million, according to World Bank estimates.
marginal tariff block assignation). The difference
between a household’s total electricity spending in 66. Tariff increases mostly affected industrial,
2010 and 2017 is equal to the measure of ‘direct commercial and large household consumers,
welfare losses’ brought about by the tariff increases. leading to large build-up of cross subsidies
between consumers groups. The term cross-
64. In the case of water, potential water tariff subsidies refers to the fact that, in a situation with
increases were modeled using the forecasted unequal distribution of costs between consumer
tariff increases as programmed in the Structural groups, those groups paying high tariffs effectively
Benchmark Program (2013–2021) that the ‘subsidize’ those with lower tariffs. While such
Government developed to increase sector cross-subsidies are relatively common across the
revenues35 while reducing the costs of service developing world, they have reached an unusually
delivery to improve O&M cost recovery in the high level in Jordan. Electricity tariffs for large
water sector by 2021. Since 2013, the Government household consumers are more than eight times
has implemented a series of tariff increases affecting larger than tariffs for small household consumers37.
different types of water users. These include The development of household tariffs over this
residential water and wastewater tariffs, water period is shown in Figure 35.
and wastewater connection charges, industrial
groundwater fees, agricultural groundwater tariffs, 67. While these tariff increases almost doubled
and surcharges and penalties for illegal wells. The revenues in the power sector, these electricity tariff
Government has finalized its update of the Structural reforms had relatively modest impacts on real
Benchmark Program as part of the recently agreed household welfare, for three main reasons. First,
Extended Fund Facility with the IMF. The updated most households were exempt from tariff increases
program includes another series of tariff and on their direct consumption of electricity. As shown
fee increases covering various groups of water in Figure 35, the four lowest tariff blocks (covering
consumers forecasted to take place between 2017 consumption up to 600 kWh per month) were exempt
and 2020. from tariff increases. Figure 36 shows that only very
36 Tariffs were raised in January 2010, July 2011, May/June
2012, August 2013, January 2014 and January/February 2015.
Both in 2012 and in 2015, tariffs were revised twice in short
succession. In November 2016 tariffs were lowered for large
consumers.
37 Large cross-subsidies also exist between large and small
35 The National Water Strategy 2016–2025 reaffirms the commercial and industrial consumers. For example, banks pay
Government’s commitment to rationalize the price structure of four times as much per kWh as small industrial consumers and
water and wastewater services to ensure efficient use of water, seven times as much as charities. However, cross-subsidies
improve the use of commercial practices, and reduce subsidies between non-residential consumers’ groups are beyond the
to the sector. scope of this analysis, which is focused on households’ welfare.
42 | Special Focus
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
Nominal Electricity Tariffs in Fils/Kwh Electricity Usage Per Month By Quantile
(Categorized by Tariff Blocks)
300
Above Above 1000 kWh
250 1000 kWh per month
per month
751-1000 kWh
200 751-1000 kWh
601-750 kWh
601-750 kWh
150 Share of
Households 501-600 kWh Tarrif
501-600 kWh Blocks
100 exempt
301-500 kWh 301-500 kWh from
161-300 kWh increases
since
50 161-300 kWh
2010
1-160 kWh
0 1-160 kWh
2010 2011 2012 2013 2014 2015 2016 Poorest 2 3 4 Richest
Quintiles
FIGURE 36. Household electricity consumption by
FIGURE 35. Nominal electricity tariffs 2010-2016. quintile mapped onto tariff block structure, indicating
households exempt from tariff increases 2010-2016.
Source: Energy and Minerals Regulatory Commission. Source: Authors’ calculations based on 2010/11 HIES.
Table 2. Household Size, Tariff Block, and Mean Electricity Share.
Income Quintile Median Household Size % in Block 2 % in Block 3 Electricity Share
(161-300 kWh/month) (301-500 kWh/month)
1 (poorest) 7 62 28 1.7
2 6 53 40 1.5
3 6 51 38 1.5
4 5 42 45 1.3
5 (richest) 3.75 27 44 1.3
Source: Authors’ calculations based on 2010/11 HIES.
Table 3. Cumulative real total cost increase for household/domestic electricity consumption 2010-2016.
Block 1 2 3 4 5 6 7
kWh/month 1-160 161-300 301-500 501-600 601-750 751-1,000 Above 1,000
Real increase in tariff (%) 0 0 0 0 0.8 20.0 49.0
Source: Authors’ calculations.
few, mostly rich households consume more than 68. Cumulative household welfare impacts
600 kWh of electricity per month. Second, electricity from electricity tariff increases between 2010 and
represents only a relatively small share of household 2016 are estimated between 0.44 and 0.5 percent
expenditure (1.7 to 1.3 percent on average for the of pre-reform welfare, with most effects coming
poorest and richest quintiles, respectively, as shown from indirect effects. Table 4 provides estimates of
in Table 2). Third, even for the higher tariff blocks, the direct and indirect impacts of these cumulative
real tariff increases were dampened by inflation. The (2010–2016) real electricity cost increases. Table 4
cumulative increase in real total electricity costs (for indicates that the indirect effects of real increases
households) by tariff block is listed in Table 3.38 in the industrial cost of electricity on household
welfare are much more significant than the direct
38 Where cumulative inflation was greater than the nominal effects. Total electricity costs for industrial users
increase in total electricity tariffs, the real increase was capped (not shown in Figure 35) are estimated to have risen
at zero.
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Table 4. Cumulative welfare losses (per capita) from electricity tariff increases between 2010 and 2016 (in constant 2013 JD
and percent of pre-reform welfare).
Indirect Direct Total
Quintile
JD % JD % JD %
Poorest 3.7 0.44 0.00 0.00 4 0.44
2 5.6 0.45 0.01 0.00 6 0.45
3 7.4 0.45 0.03 0.00 7 0.45
4 10 0.44 0.17 0.01 10 0.45
Richest 18 0.42 3.33 0.08 18 0.50
Source: Authors’ calculations based on 2010/11 HIES.
Table 5. Description of scenarios for future electricity tariff adjustments.
Description
Scenario
Total tariwff adjustment Distribution of tariff adjustment
Scenario 1 Increase in total cost of electricity service by JD Fuel clause is applied uniformly to all tariff categories
162 million (equivalent to effect of increase in Fuel clause is higher for smaller consumers to reduce
Scenario 2 (crude oil price by $10/bbl cross-subsidies
Source: Authors’ assumptions.
by 67 percent in real terms (after inflation) between 6 provides estimates of the marginal direct and
2010 and 2016. In contrast, direct effects are, on indirect impacts of a (hypothetical) electricity cost
average, negligible, as most households (regardless increase under two different scenarios (S1 and S2).
of income level) consume electricity volumes that Both scenarios capture tariff increases in response
corresponded to tariff blocks that did not see any to escalating sector cost, assuming a cost increase
real tariff increase. Table 4 also shows that while the equivalent to a US$10/bbl increase in the Brent oil
total impact (direct and indirect) of electricity price price, beyond NEPCO’s break-even point (e.g., from
increases is small, it is marginally larger (relative to US$55/bbl to US$65/bbl).39 This hypothetical cost
income) for richer households. increase, which corresponds to a total cost increase
by JD 162 million, could come from increasing
69. If fuel costs increase in the future, natural gas prices or from other cost items such
electricity price increases under the new tariff as interest payments, capacity charges, etc. If
adjustment mechanism would impact households passed on fully to consumers under the new tariff
more directly, but welfare effects would most adjustment mechanism, such an increase in the oil
likely still within an acceptable range (which is price (or an equivalent increase in other cost items)
defined as less than 1 percent of total household would raise the fuel clause by 11.34 fils/kWh if, as
expenditures) if oil prices remain below $70/bbl. currently envisioned, the clause is not differentiated
While NEPCO reached cost recovery in 2015, future by consumer category (Scenario 1). This value would
changes in fuel cost or electricity mix may require rise to 14.46 fils/kWh if the Government chooses to
further adjustments to the electricity tariff. Sector
39 We estimate here the welfare effect of a hypothetical oil
stakeholders in Jordan have put forward proposals price increase by US$10/bbl beyond NEPCO’s break-even price
to share the burden of any future electricity tariff of oil in 2017, which the Government currently (as of October
2016) estimates at US$55/bbl. The welfare effect would be the
increases more equally between consumer groups same if other cost items – such as interest payments, capacity
(e.g., JSF, 2016). To estimate what such a policy charges for generators, or renewable energy payments – increase
would mean for household expenditures, Table by an equivalent amount (JD 162.3 million p.a.) compared to
the baseline.
44 | Special Focus
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
Table 6. Welfare losses (per capita) from the electricity tariff increase needed to cover a (hypothetical) US$10/bbl oil price
increase in 2017 under two scenarios (S1, S2). See Table 5 for description of scenarios.
Direct welfare effects Total effects
Indirect welfare effects S1: S2: S1 S2
Uniform fuel clause for all consumers Higher fuel clause for smaller consumers to
reduce cross-subsidies
% % % % %
Poorest 0.14 0.53 0.70 0.67 0.84
2 0.14 0.44 0.58 0.58 0.72
3 0.14 0.39 0.51 0.53 0.65
4 0.14 0.35 0.45 0.49 0.59
Richest 0.13 0.28 0.32 0.41 0.45
Source: Authors’ calculations based on 2010/11 HIES.
reduce cross-subsidies and effectively applies the Water Usage Per Month By Quintile
(Categorized by Tariff Blocks)
tariff increase only to the lowest three (less than 500
kWh/month) tariff blocks (Scenario 2).
Above 144 m3
70. Table 6 shows that the tariff adjustment 127-144 m3
91-126 m3
mechanism is mildly regressive in relative terms
Share of 73-90 m3
in both scenarios. The poorest quintile would see Households 55-72 m3
an aggregate welfare impact of 0.67 percent and 37-54 m3
19-36 m3
0.84 percent in Scenarios S1 and S2, respectively,
0-18 m3
compared to 0.41 percent and 0.45 percent for the Poorest 2 3 4 Richest
Quintiles
richest. Table 6 indicates that the direct effect of real
increases is more significant than the indirect effects FIGURE 37. Household water consumption by quintile
mapped onto tariff block structure
from the additional industrial cost of electricity on
Source: Authors’ calculations based on 2010/11 HIES.
household welfare. Table 6 also shows that while the
total impact (direct plus indirect) of electricity price
increases is small, it is larger (relative to income) for for different quintiles of the income distribution,
smaller households. especially when seen in contrast to Figure 36. The
fact that water rationing is widespread in Jordan as
Water the country is one of the most water scarce countries
in the world adds to the relatively small differences
71. Since 2011, the Government is not only in water consumption between poorer and richer
reforming water tariffs of residential and non- households. Trying to exempt poor households from
residential water and wastewater users, but also price increases by exempting lower consumption
for agricultural and industrial groundwater users categories is therefore less effective than in the case
through a combination of changes in tariffs and of electricity. Second, changes in the tariff structure
fee structures. While total effects on household since 2015 have affected the poorer households more
expenditures are smaller compared to the changes than richer households. The cumulative increase in
in the electricity sector, these water tariff reforms real total water costs by tariff block (for households)
had larger direct effects on households for two is listed in Table 7. For households, there are real
reasons. First, unlike in the electricity sector, cumulative cost increases for each block, especially as
water consumption is not very sensitive to income the Government has used a combination of increases
(Komives et al., 2005). This fact is illustrated in Figure in variable costs and fixed charges to generate sector
37, which shows average water usage per month revenues. The real total cost increases for households
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BOX 6. Jordan’s New Electricity Tariff Adjustment Mechanism.
Many countries around the world allow utilities to pass through fuel cost to consumers on a regular basis using
a ‘fuel clause’ in the tariff. These fuel clauses come under different names, including “fuel surcharge”; “fuel and
power purchase cost adjustment”; “fuel cost adjustment”, “fuel adjustment charges”, “fuel adjustment clause” or
“power cost adjustment”. Examples of countries with such adjustment mechanisms include the United States, the
UAE, Japan, South Korea, Thailand, Pakistan and many more. The different names notwithstanding, all the mecha-
nisms share the same functionality: to pass through hard-to-control changes in power generation or purchasing
cost— by adding one or more adjustable components to consumer electricity bills—in order to mitigate financial
risks for the utilities and to encourage price-responses in consumption. Notably, the fuel cost adjustment is done in a
process that is separate from the normal tariff review (which often happens annually or quarterly), and the base tariff
remains the same during the tariff period.
Since 2010, Jordan’s electricity tariff includes such a fuel clause that allows EMRC to adjust wholesale and
end-consumer electricity tariffs on a regular basis to pass through variations in fuel cost. However, EMRC has
so far kept the fuel clause at zero despite significant variations in fuel cost. On October 5, 2016, EMRC adopted a
tariff adjustment mechanism (TAM) to activate the fuel clause. The objective of the TAM is to sustain NEPCO’s abil-
ity to recover its cost through electricity sales. Under the new TAM, effective from January 1, 2017 onwards, EMRC
will adjust the fuel clause on a monthly basis in case the total cost of electricity service is higher than the average
selling price of electricity. The EMRC will determine the cost of the electricity system every month based on data
submissions by NEPCO and the distribution companies. The required adjustment for each sector and category would
then be calculated by EMRC’s tariff department and recommended for adoption to the Council of Commissioners of
EMRC. Upon adoption, EMRC will communicate the fuel clause schedule to the distribution companies so that these
would include the fuel clause in their billing. Due to lagged data availability, the revision for a specific month would
be based on data from two months before (e.g., adjustment of the month of October would be based on actuals from
August). EMRC will undertake a true up adjustment at the end of the year to ensure that these delays do not cause
any net losses for NEPCO.
Table 7. Cumulative real total cost increase for household/domestic water consumption between 2010 and 2017.
Block 1 2 3 4 5 6 7 8
Per Quarter (m3) 0-18 19-36 37-54 55-72 73-90 91-126 127-144 >144
% increase tariff WAJ 28.0 36.0 6.6 3.7 8.1 7.1 8.6 10.0
% increase tariff water companies 22.0 23.0 2.2 1.7 6.6 6.4 7.6 9.2
Source: Authors’ calculations based on 2010/11 HIES.
Table 8. Median marginal tariff block and mean water share in budget.
Quintile Median Household Size % in Block 3 % in Block 2 or 4 Water Share in Budget
Poorest 7.00 59 34 1.4
2 6.00 57 36 1.2
3 6.00 56 37 1.0
4 5.00 54 38 0.9
Richest 3.75 48 38 0.8
Source: Authors’ calculations based on 2010/11 HIES.
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JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
Table 9. Description of scenarios for welfare impacts from water tariffs.
Description
Scenario
Direct effects Indirect effects
Based on household water tariffs Based on industrial tariff increases, including those for
Scenario A
Based on industrial tariff increases, excluding groundwater
Scenario B those for groundwater
Source: Authors’ assumptions.
Table 10. Welfare losses (per capita) from cumulative water tariff increases between 2010 and 2017 (Scenario A: including
groundwater tariff increases for industry).
Indirect Direct Total
Quintile
JD % JD % JD %
Poorest 2.3 0.27 0.60 0.06 2.9 0.34
2 3.4 0.27 0.78 0.05 4.2 0.33
3 4.5 0.27 0.80 0.04 5.3 0.32
4 6.0 0.27 0.98 0.03 7.0 0.31
Richest 11 0.25 1.67 0.02 13 0.29
Source: Authors’ calculations based on 2010/11 HIES.
Table 11. Welfare losses (per capita) from cumulative water tariff increases between 2010 and 2017 (Scenario B: excluding
groundwater tariff increases for industry).
Indirect Direct Total
Quintile
JD % JD % JD %
Poorest −0.50 −0.059 0.60 0.06 0.10 0.01
2 −0.73 −0.059 0.78 0.05 0.04 0.00
3 −0.96 −0.059 0.80 0.04 −0.16 −0.01
4 −1.29 −0.058 0.98 0.03 −0.31 −0.01
Richest −2.41 −0.055 1.67 0.02 −0.74 −0.02
Source: Authors’ calculations based on 2010/11 HIES.
served by the water companies (customers served groundwater (for industry) tariff increases are not
by the regional water utilities of Miyahuna (Amman), included, total water costs for industrial users have
Aqaba and Yarmouk) have been slightly lower than not risen in real terms between 2010 and 2017 and
those for households whose water and wastewater estimated indirect effects on household welfare are
services are provided by WAJ. in this scenario (defined as Scenario B) negligible.
72. The size of the indirect effects of water tariff 73. If groundwater tariffs are included in the
increases on household expenditures depends estimation (Scenario A), indirect effects—while
on assumptions about groundwater tariffs. Total still relatively modest in size—outweigh direct
water costs for industrial users are estimated to effects. Table 10 provides estimates of the direct
have risen 48 percent in real terms (after inflation) and indirect impacts of real water cost increases
from 2010 to 2017 if groundwater (for industrial (including both groundwater and piped water). Table
use) tariff increases are included (Scenario A). If 10 indicates that the indirect effects of real increases
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Table 12. Direct and indirect welfare losses (per capita) from water and electricity tariff increase in 2010–2017.
Indirect Direct
Water Scenario A: Water Scenario B: Electr. Scenario 1: Electr. Scenario 2:
Quintile With GW tariff increase Without GW tariff increase Uniform fuel clause Reduced cross-subsidies
% JD / % JD / % JD / %
Poorest 0.91% 0.58% 0.08% 0.16%
2 0.92% 0.59% 0.07% 0.13%
3 0.93% 0.60% 0.06% 0.10%
4 0.91% 0.59% 0.06% 0.09%
Richest 0.87% 0.56% 0.16% 0.16%
Source: Authors’ calculations based on 2010/11 HIES.
Table 13. total welfare losses (per capita) from water and electricity tariff increase in 2010–2017.
Total
Water scenario A / Water scenario A / Water scenario B / Water scenario B /
Quintile Electr. Scenario 1 Electr. Scenario 2 Electr. Scenario 1 Electr. Scenario 2
% % % %
Poorest 1.00% 1.08% 0.67% 0.75%
2 1.00% 1.05% 0.67% 0.72%
3 0.99% 1.03% 0.66% 0.70%
4 0.98% 1.01% 0.65% 0.68%
Richest 1.03% 1.03% 0.72% 0.72%
Source: Authors’ calculations based on 2010/11 HIES.
in the industrial cost of water on household welfare water on household welfare are similar in magnitude
are more significant than the direct effects. Table 10 (though of the opposite sign) to the direct effects.
shows that piped water accounts for a small share of Table 11 also shows that the total impact (direct plus
household budgets and also that most households indirect) of piped water price increases are near zero
(regardless of income level) consume water volumes for every household independent of whether they
corresponding to tariff blocks that have not seen are classified as rich or poor.
moderate real increases in total costs. Table 10
also shows that while the total impact (direct plus Combined Effects
indirect) of water price increases are small, they are
larger (relative to income) for poorer households. 75. We estimate total effects of the electricity
and water tariff increases in 2010-2017 on
74. If groundwater tariffs are not included household welfare in the range of 0.65-1.08
in the estimation (Scenario B), increases in real percent of pre-reform welfare. Table 12 and Table
piped water costs for industry would be in fact 13 provide estimates of the joint direct and indirect
negative. This means that the cumulative nominal impacts of water and electricity tariff increases in
increase in total piped water costs over the period 2010-2017. Results are shown for four different
from 2010 to 2017 was less than inflation over the scenarios for the total effects (A1, A2, B1 and B2). A1
same period, leading to a real decrease in the water and A2 combine Scenario A for the indirect effects
costs for industry. Table 11 indicates that the indirect of water tariffs for industry with Scenarios 1 and 2,
effect of real tariff decreases in the industrial cost of respectively, for the 2017 electricity tariff increases.
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JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
B1 and B2 combine Scenario B for the indirect put pressure on the Government to distribute the
effects of water tariffs for industry with Scenarios burden of future tariff hikes more evenly across
1 and 2, respectively, for the 2017 electricity tariff consumer groups.
increases (See sections above for a discussion of the
individual scenarios for water and electricity). The 77. If oil prices rebound in 2017, there would
joint consumption effect of energy and water tariff be scope for the regulator to increase tariffs
increases are assumed to be additively linear. while reducing cross-subsidies, but targeted
compensation mechanisms should be considered
if oil prices approach $70/bbl. Tariffs were not
Policy Implications increased in 2016 because revenues were sufficient
at the end of 2015 to cover the sector’s full cost.
Electricity However, the sector remains exposed to fuel price
fluctuations for at least the coming 2-3 years due
76. Cost recovery of electricity services to the pricing structure of NEPCO’s LNG supply
was achieved in 2015 without threatening contracts. The Government currently estimates that
affordability for end-consumers, because almost NEPCO breaks even if oil prices average US$55/bbl
all households were exempt from tariff increases. in 2017. While the overall impacts of a $10/bbl price
Our results suggest that the welfare impact of increase would still be modest (<1 percent), any
recent tariff increases for residential consumers, further increase would lead to significant welfare
including the poor and vulnerable, was small (see losses for the poor under the new tariff adjustment
Table 4). Cross-subsidies between electricity mechanism. This means that the pass-through of
consumer groups have buffered the impact on the fuel costs and the intended gradual reduction of
poor, which still pay only around 2 percent of their cross-subsidies between consumer groups must
total household welfare for electricity, less than half be designed and monitored carefully to ensure that
of the affordability threshold of 5 percent of total the economic benefits of tariff reforms outweigh the
household consumption typically assumed in the impact on the poor. This could be achieved by linking
literature (e.g., Briceño-Garmendia and Shkaratan, price increases directly to compensation measures
2011). These results are in line with the simulation for the most vulnerable customers (see below).
done by Atamanov et al. (2015), which showed that
the 2010-2015 electricity tariff reforms had little Water
impact on the per capita welfare of households.
However, going forward the Government is looking 78. Operation and maintenance cost recovery
to reduce cross-subsidies between consumers in the water sector is not expected to be achieved
groups, although the exact distribution of future until 2021 due to the sharp increase in electricity
tariff increases is yet to be determined. Cross- rates in recent years. Water tariffs, charges and fees
subsidies between consumer groups have reached have increased between 2010 and 2016, and more
a limit and households may be more significantly are planned between 2017 and 2021. However, the
impacted in the future. This is because tariffs for water tariff reforms have had so far little impact on
large households or large commercial consumers, the per capita welfare of households, even poor
which pay up to 2.5 times the average cost and eight and vulnerable households (see Table 10 and Table
times as much per kWh as the smallest consumers, 11). The Government has ensured that all water
are significantly affecting their cost competitiveness, consumers (not only households) have seen their
especially in the case of firms competing in export prices increase, but it is worth noting that as of 2016,
markets. Furthermore, tariffs have risen to levels no water consumer pays the full cost of water. Every
where it is more economical for large commercial water user essentially receives a subsidized water
users to produce their own electricity from solar rate, with the subsidies widely varying between
or diesel sources, a scenario that over time would consumer categories. Between 2010 and 2016,
deprive the sector of its revenue base. Both effects industrial groundwater users faced the largest tariff
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increases. This policy has significantly reduced the tariffs for groundwater use by industry41 are uniform
price gap between industrial groundwater and piped across consumption quintiles. The combined direct
water, but still provides incentives for industries to and indirect impacts of the water tariff increases in
use groundwater instead of piped water. The effect 2010-2017 on household welfare are estimated to
of these industrial groundwater tariffs, however, be small, but mildly regressive.
affects residential households if it assumed that these
cost increases are passed through to households. Linkages to Social Protection
The indirect effect of the overall tariff increases
has shown to be significantly larger than the direct 80. Future utility tariff reforms could be
effects (see Table 10). The government uses cross- explicitly linked to targeted compensation
subsidies in the sector. The use of cross-subsidies payments to protect the poor, but this would
is widespread in the water sector between different require reforms to Jordan’s social safety nets and
groups of consumers (agriculture, households, improved targeting mechanisms. The experience of
industry and commerce), but also within these the fuel subsidy cash compensation scheme in 201242
consumer categories through the use of increasing shows that Jordan can mobilize broad, cash-based
block rates (for residential and agriculture water use). compensation of households relatively quickly.
Interestingly, the Government also used a decreasing However, social safety nets targeting the poor and
block rates in the sector for non-residential piped vulnerable did not expand during the series of fuel,
water users. This is rather surprising as a decreasing electricity and water price reforms in recent years
block rate structure40 is usually applied in an despite expected increases in poverty headcount.43
environment where water resources are abundant, Although the National Aid Fund (NAF) reached over
and industrial customers often impose lower average 100,000 households (little over 300,000 individuals)
costs because they enable the utility to capture and disbursed JD 85 million in cash assistance in
economies of scale (Whittington, 2002). The results 2016, this coverage amounts to less than half of the
indicate that the reduction of subsidies and cross- poor in Jordan.44 To address the impact of any future
subsidies in the water sector must be designed and fiscal adjustments (including future utility price
monitored to ensure that the benefits between and reforms) on the most vulnerable, Jordan would need
within water user categories are well distributed. improved mechanisms to target social protection
services for the bottom quintiles. The Bank’s National
79. The Government has built into the water Unified Registry and Outreach project is currently
tariff reforms measures to mitigate the impact being restructured to establish an integrated and
on the poor and vulnerable by distributing tariff automated data-exchange system (as the National
increases across all water consumers and by using Unified Registry system) connecting the NAF with
cross-subsidies between residential and non- key participating institutions and data provider
residential consumers. However, the cumulative
impact of the reforms since 2011 has been modest. 41 It is assumed here that the water tariff increases are the
same across sectors. In case the Government pursues cross-
The same is true for the marginal impacts of the 2016 subsidy policies, the indirect effects may be larger. Price
reforms, which focused on non-residential users, and elasticity effects in the water sector tend to be relatively low and
hence have not been considered here.
the planned reforms in 2017 (see Table 10 and Table
11). This reflects modest real tariff increases, the 42 The fuel cash compensation transfer program that was
set up as an ad-hoc mechanism in 2012 to alleviate the effect
smaller size of the proposed water tariff increases for of the subsidy reform for petroleum products. This temporary
households compared to non-residential consumers compensation scheme covered 70 percent of Jordanian
households, but became inactive in December 2014.
and the smaller share of water expenses in the total
household expenditure as compared to electricity. 43 Based on 2010 Household Income and Expenditure Survey
(HIES), poverty headcount is estimated at 14.6 percent following
The indirect welfare losses due to higher water fuel subsidy reforms (Atamanov et. al)
44 Assuming 2010 poverty headcount rate, Jordan’s NAF will
40 With decreasing block tariffs, the rate per unit of water is need to triple in size to cover all the poor in Jordan, requiring an
high for the first (lower) block of consumption and decreases as additional JD 170 million assuming no increases in administrative
the volume of consumption increases. costs to expand current programs or introduce new ones.
50 | Special Focus
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
agencies. If future investment in the expansion of
the registry is prioritized, Jordan can have a unified References
registry and an integrated case management system
that can identify, compensate and refer services to Atamanov, A., Jellema, J., Serajuddin, U., 2015. Energy
poor, vulnerable, and potential beneficiaries in the subsidies reform in Jordan: Welfare Implications of
bottom two quintiles in an integrated approach. This Different Scenarios Energy Subsidies. World Bank
approach will more accurately draw on administrative Policy Research Working Paper 7313, Washington,
data and household visits (where needed) to improve DC. doi:10.13140/RG.2.1.4579.3126
decisions on eligibility and benefit delivery for current
and future safety nets programs. Briceño-Garmendia, C., Shkaratan, M., 2011.
Power Tariffs: Caught Between Cost Recovery and
Affordability. World Bank Policy Res. Work. Pap.
Conclusions 5904. doi:10.1596/1813-9450-5904
81. Many household and industrial Devarajan, S., Mottaghi, L., Iqbal, F., Mundaca, G.,
consumers have experienced real increases in Laursen, M., Vagliasindi, M., Commander, S., Chaal-
the cost of water and electricity in recent years Dabi, I., 2014. MENA Economic Monitor: Corrosive
as the Government has been taking measures Subsidies. The World Bank, Washington, DC.
to restore cost recovery in the energy and water
sectors, but short-term welfare losses for (poor) Electricity and Minerals Regulatory Commission
households have so far been modest in view (EMRC), 2016. Distribution Tariffs 2010-2016.
of the expected benefits from the reforms. This EMRC, Amman, Jordan.
Special Focus estimates cumulative welfare effects
of the price reforms between 2010 and 2017 on Jordan Strategy Forum (JSF), 2016. Position Paper
households at approximately 0.65 to 1.08 percent, on Alternatives to Increasing the Electricity Tariffs in
depending on the chosen scenario for 2017. With Jordan. Jordan Strategy Forum, Amman, Jordan.
respect to both electricity and water tariffs, richer
households have experienced greater absolute Komives, K., Foster, V., Halpern, J., Wodon, Q., 2005.
welfare losses. However, as a share of income, total Water, Electricity, and the Poor: Who Benefits from
(direct and indirect) welfare losses from electricity Utility Subsidies? The World Bank, Washington, DC.
cost increases are relatively uniform across the
income distribution. Therefore, while the overall Sdralevich, C., Sab, R., Zouhar, Y., Albertin, G., 2014.
impacts are modest as a share of total expenditures, Subsidy Reform in the Middle East and North Africa:
the results indicate that the reduction of subsidies Recent Progress and Challenges Ahead. International
and cross-subsidies in electricity and water must be Monetary Fund (IMF), Washington, DC.
designed and monitored carefully to ensure that the
benefits, specifically improvements in the business
climate and employment (which are not captured
by the results presented here), outweigh the impact
on the poor. Furthermore, as the window for price
subsidization closes in Jordan, future utility tariff
increases will require to be accompanied by more
robust social safety nets interventions to protect
the poor and vulnerable population beyond broad-
based compensations.
Special Focus | 51
THE WORLD BANK
DATA APPENDIX
TABLE 14. Selected Economic Indicators.
2014 2015 2016 2017 2018 2019
Act. Act. Act. Proj. Proj. Proj.
Real sector (annual percentage change, unless otherwise specified)
Real GDP 3.1 2.4 2.0 2.3 2.6 3.0
Real GDP per Capita 0.3 -0.0 -0.0 0.6 1.2 1.8
Agriculture (share of GDP) 3.3 3.3 3.4 3.4 3.3 3.3
Industry (share of GDP) 25.2 25.2 24.9 24.9 25.0 25.1
Services (share of GDP) 55.8 55.9 56.3 56.0 55.9 56.0
Net taxes (share of GDP) 15.7 15.6 15.4 15.8 15.8 15.7
Money and prices (annual percentage change, unless otherwise specified)
CPI Inflation (p.a.) 2.9 -0.9 -0.8 3.0 2.1 1.9
Money (M2) 6.9 8.1 4.0 3.9 8.8 9.3
Investment & saving
Total Investment 28.0 24.1 22.1 21.0 21.5 22.8
Gross National Savings 20.7 15.0 12.8 12.3 13.9 17.2
Government finance (percentage of GDP, unless otherwise specified)
Total revenues and grants 28.6 25.5 25.8 27.1 27.9 28.1
Domestic Revenue (excluding grants and privatisation) 23.7 22.2 22.7 24.4 25.0 25.4
o/w. tax revenue 15.9 15.4 15.5 16.8 17.3 17.5
Foreign Grants 4.9 3.3 3.0 2.7 2.9 2.8
Total expenditure and net lending 37.9 29.1 29.0 30.0 30.5 30.4
Current1 33.4 24.9 25.2 25.8 26.0 25.8
o/w wages and salaries 4.9 4.7 4.6 4.9 4.7 4.6
o/w interest payment 3.6 3.4 3.0 3.4 3.4 3.4
o/w Transfer to utilities (NEPCO and WAJ) 7.0 0.1 0.0 0.0 0.0 0.0
Capital & Net Lending 4.5 4.1 3.8 4.3 4.5 4.6
Overall balance (deficit (-), excl. grants)2 -14.2 -6.9 -6.2 -5.6 -3.7 -3.0
Overall balance (deficit (-), incl. grants)2 -9.3 -3.6 -3.2 -2.9 -0.8 -0.2
Primary Balance (deficit (-), excl. grants)2 -10.5 -3.4 -3.2 -2.2 -0.3 0.4
Primary Balance (deficit (-), incl. grants)2 -5.7 -0.12 -0.2 0.5 2.6 3.2
External sector (percentage of GDP, unless otherwise specified)
Current Account -7.3 -9.1 -9.3 -8.7 -7.6 -5.6
Net Exports -26.4 -22.9 -20.8 -21.2 -20.2 -18.7
Export FOB 43.3 37.6 35.1 36.6 39.5 42.5
Import FOB 69.7 60.5 55.9 57.8 59.6 61.2
Net Income and transfers 19.1 13.8 11.5 12.5 12.5 13.1
Net Private Investments (FDI and Portfolio) 9.1 7.7 7.1 7.3 7.7 8.2
Foreign Currency Reserves (US$ Millions) 14,079 14,153 12,883 13,293 13,966 14,238
Foreign Currency Reserves3/ (Months of Imports GNFS4/, exclud- 7.1 7.8 7.6 7.3 7.2 6.7
ing re-exports5/)
Total Debt (in million US$, unless otherwise specified)
Total Debt Stock 31,984 35,126 36,843 38,491 38,498 39,258
Debt to GDP Ratio (%)6/ 89.0 93.4 95.1 95.6 91.7 88.9
Memorandum Items:
Nominal GDP (Billion JD) 25.4 26.6 27.4 28.5 29.7 31.3
GDP (in million US$) 35,917 37,612 38,752 … … …
Source: Government Data and World Bank Staff Calculation. Macroeconomic projections are as of 15 April 2017.
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 1.8% of GDP in 2018 and 2.0% of GDP in 2019.
3/ Reserves exclude bank deposits in foreign currencies.
4/ GNFS: Goods and Non-Factor Services.
5/ As of January 2017, coverage ratio calculation for the series deducts re-exports from imports.
6/ Government and guaranteed gross debt. Includes WAJ estimated borrowing for 2017-2019.
52 | Data Appendix
JORDAN ECONOMIC MONITOR | THE GREEN ECONOMIC BOOST
SELECTED RECENT WORLD BANK
PUBLICATIONS ON JORDAN
(for an exhaustive-e list, please go to http://www.worldbank.org/en/country/jordan/research)
Title Publication Date Document Type
Tafila Region Wind Power Projects: Cumulative Effects Assessment 2017/03/01 Working Paper
Jordan - Program for International Student Assessment 2015 2016/12/15 Brief
Jordan - Second Programmatic Energy and Water Sector Reforms 2016/12/01 Loans & Credits
Development Policy Loan
Jordan Economic Monitor, Fall 2016:Reviving a Slowing Economy 2016/11/24 Report
European Investment Bank & World Bank Group Partner to Support 2016/10/17 Press Release
Entrepreneurs in the Middle East & North Africa
Economic and Social Inclusion Helps Prevent Violent Extremism and 2016/10/5 Press Release
Contribute to Growth in the Middle East and North Africa
Jordan’s Economic Outlook - Fall 2016 2016/10/3 Publication
Does Improved Local Supply of Schooling Enhance Intergenerational Mobility 2016/09/15 Working Paper
in Education? Evidence from Jordan
Jordan Economic Monitor, Spring 2016: The Challenge Ahead 2016/05/01 Report
Jordan - As-Samra Wastewater Plant Expansion 2016/05/01 Brief
Jordan - Queen Alia Airport 2016/04/07 Brief
Jordan - Tafila Wind Farm 2016/04/06 Brief
The Cost of Irrigation Water in the Jordan Valley 2016/04/01 Working Paper
Learning or Leaning: Persistent and Transitory Spillovers from FDI 2016/03/02 Working Paper
The Welfare of Syrian Refugees: Evidence from Jordan and Lebanon 2015/12/22 Publication
Jordan Economic Monitor, Fall 2015: A Hiccup Amidst Sustained Resilience 2015/10/01 Report
and Committed Reforms
Jordan - Developing an Efficient Public Investment Management System 2015/10/01 Brief
A Research Paper on the Impact of Gender Diversity on the Economic 2015/09/01 Working Paper
Performance of Companies in Jordan
Estimating Poverty with Panel Data, Comparably: An Example from Jordan 2015/07/21 Policy Research Working Paper
Energy Subsidies Reform in Jordan: Welfare Implications of Different 2015/06/17 Policy Research Working Paper
Scenarios
Jordan Economic Monitor, Spring 2015: Persisting Forward Despite 2015/06/01 Report
Challenges
Selected Recent World Bank Publications on Jordan | 53
0.9375 cm
The World Bank
www.worldbank.org/jo