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Jordan: Recovery Under Global Uncertainty Development Policy Loan

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Recovery Under Global Uncertainty: the Jordan Experience

Recovery Under Global Uncertainty: the Jordan Experience


After boasting an 8.1 percent average growth rate between 2004-2008, Jordan’s economy slowed to growth of 2.3 percent in 2009 as it felt the effects of the global financial crisis, hurting both fiscal stability and a range of social protection programs. In response to a request from the Government of Jordan, the World Bank provided a Development Policy Loan (DPL) that supported the Government’s medium-term development program. This program helped strengthen the resilience of the economy to external shocks and sustain higher economic growth rates while cushioning the impact of economic slowdown on the poor and vulnerable.


The global economic slowdown created several medium-term challenges for Jordan. The three most important of these were declining transfers that adversely affected the capital account; declining private capital flows, which were a major source of growth for Jordan; and a sharply lower global and regional growth outlook that resulted in lower exports and remittances. As a result, domestic economic performance worsened beginning in September 2008 with a significant adverse impact on low income households in the country.

The sudden impact of the financial crisis on the economy, and the shortfall in tax revenues that resulted from the economic slowdown, demanded a high degree of flexibility and responsiveness by the Government and by the International Bank for Reconstruction and Development (IBRD) in assisting it.


The DPL was underpinned by a long-standing technical dialogue with the Government of Jordan on key development challenges in the following four complementary policy areas: reducing fiscal vulnerability; strengthening the financial sector; improving the business climate; and facilitating access of vulnerable groups to a more effective and fiscally-sustainable social protection system.

Due to the extensive analytical work that had been conducted prior to the DPL, the Bank team was able to prepare the loan in less than six months. In particular, a series of studies and assessments on the impact of the global financial crisis helped to speed the process: the Fiscal and Poverty Impact Study, with a focus on the price shocks and subsidy reform provided a quick and comprehensive response to the Government’s request to inform the short- to medium-term policy agenda; the Financial Sector assessment program update; and the Impact on the Real Economy & Private Sector Assessment.

The Bank’s work was relevant and strongly appreciated by the Government because it analyzed the impact of most of Government’s compensation measures on poverty, income distribution and public finances. The programmatic nature of the Bank’s support allowed the Bank to provide timely and targeted policy advice to the Government to inform policy decisions to face these external shocks and to initiate reforms.


The DPL has supported improvements in several key outcomes through specific actions taken by the government during 2009:

  • Reduced fiscal imbalances and enhanced macroeconomic stability.
    • Distortionary tax exemptions were reduced, and a new framework for scrutinizing introduction of future preferential rates was initiated.
    • A fiscal consolidation plan, including completion of subsidy reform, was reinstated. The budget deficit excluding grants declined to US$470 million in the first half of 2010 compared to US$884 million in the first half of 2008.
    • The Ministry of Finance adopted an enhanced budget calendar to strengthen the initial strategic phase of budget preparation, during which budget performance, strategies and priorities are reviewed and medium-term spending requirements evaluated.

These policy actions had immediate effects which helped the government in 2010 to weather the negative fiscal effects of the global crisis.

  • Strengthened financial sector and broadened access to finance.
    • The Central Bank adopted a plan for more consolidated supervision providing a comprehensive view of potential risks to the banking sector. The Central Bank has completed a first run of stress testing on the aggregate banking sector balance sheet and has issued guidelines on stress testing to individual banks.
    • The cabinet approved a Credit Bureau Law that improves small- and medium-sized enterprise access to finance by facilitating bank lending through making credit information of borrowers available and alleviating restrictions on use of collateral.
  • Improved business environment.
    • A new Company Law was approved where minimum capital requirements for limited liability companies was abolished.
    • The Cabinet approved the bankruptcy and insolvency law, thereby defining the priority order of secured creditors in bankruptcy cases.
    • Improvements of tax system: An online filing system for tax returns and electronic payment systems has been initiated and is being used by at least 10 percent of corporate tax payers in November 2010 compared with 1.5 percent in 2009.
    • Improvements in registration: The registration through the Companies Control Directorate of the Ministry and Trade was facilitated through four additional one-stop-shops outside Amman offering a full range of services.
  • Expanded social insurance and improved efficiency of social safety net.
    • A new Social Security law was passed in March 2010 that also covers innovative reforms such as unemployment insurance. The unemployment insurance program includes now coverage for all Social Security Corporation members since November 2010, whereas no members were covered previously.
    • Coverage of the targeted poor population by National Aid Fund assistance increased from 20 percent in 2006 to 40 percent in 2010.

Bank contribution

The DPL complemented other activities in Jordan encompassing investment lending and technical assistance. Among others, the DPL had links with the Social Protection Enhancement Project, (US$4 million, FY08); IFC’s US$50 million equity investment in Capital Bank in support for small- and medium-sized enterprise financing and improved governance standards; and the programmatic technical assistance on public financial management reforms (FY08-FY10).


The fast-track implementation of the comprehensive DPL program reflected strong Government ownership with active engagement by Ministry of Planning and International Cooperation, Ministry of Finance, Central Bank, Ministry of Industry and Trade, Ministry of Justice, Ministry of Social Development, and Social Security Corporation. The Bank and the International Monetary Fund (IMF) teams closely collaborated in the preparation of the DPL: the World Bank-IMF Financial Sector Assessment Program for Jordan informed the financial sector component of the DPL; the other areas of joint work covered technical assistance to Ministry of Finance in developing a medium-term debt management strategy, and assessment of progress and way forward with public financial management reforms; cooperation also included a review of macroeconomic developments. The IBRD DPL team also collaborated with the US Agency for International Development and the European Union, especially in the areas of business environment reforms and public financial management, and with the International Finance Corporation on the credit bureau law. The build-up to this operation has capitalized on consultations with civil society, professional groups, and private sector representatives. These consultations were undertaken directly or through other related IBRD activities.


The measures undertaken under the financial sector and business climate policy areas supported small- and medium-sized companies in providing better access to finance and improving the tax and registration system. The social protection component contributed to the design of an innovative unemployment insurance reform which provided all members of the Social Security Corporation with full coverage. The design of this reform was considered by clients as innovative and state-of-the-art, and the IBRD’s international experience and connections contributed to this result.. Overall, this Development Policy Loan indirectly benefited the whole population and also contributed to maintaining stability during the fiscal crisis.

Toward the Future

The success of the DPL operation has encouraged the government to ask IBRD for a follow-up programmatic series of DPLs with the objective of deepening reforms under the first program while extending the policy program to cover public administration reforms. IBRD will continue to support in addressing fiscal consolidation and growth enhancement through its new Country Partnership Strategy (CPS) for FY11-14 and a follow-on programmatic series of DPLs. The overarching goal of the World Bank Group’s engagement under the new CPS “Enhancing Growth Resilience and Creating Jobs” is supported by three pillars: (i) strengthening fiscal management and increasing the capacity to cope with shocks; (ii) strengthening the foundation for growth and employment with a focus on competitiveness; and (iii) enhancing social protection mechanisms and pursuing local development. Support to government’s fiscal consolidation program will be provided through the ongoing Public Expenditure Management technical assistance and the forthcoming programmatic series of DPLs. In addition, the DPL series will address the establishment of a middle office in the Debt Management department at the Ministry of Finance to strengthen debt management, make debt service flows more predictable and reduce interest payments as a share of public spending, thereby generating fiscal space that can be used for growth-enhancing capital spending. Reforms in efficiency of public spending will also be supported by the first of the DPL series. These reforms and planned DPL build on the earlier Emergency DPL. With a new series of programmatic DPLs under the new CPS FY11-14, the World Bank will make use of its leverage to continue supporting the fiscal consolidation and growth efforts as well as other parts of its policy agenda.

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