Country Brief

DEVELOPMENT PROGRESS

The Hashemite Kingdom of Jordan, with 5.5 million inhabitants, is notably resource-poor, with limited agricultural land, no oil resources, and considerably scarce water. Its only natural resources are potash and phosphate. The population is urbanized at around 80 percent, and is one of the youngest among lower-middle income countries, with 38 percent under the age of 14. Although demographic growth, currently at around 2.6 percent per year, is slowing, total population is expected to reach almost 7 million by 2015. Notwithstanding the difficult regional political environment and the lack of resources,Jordan has achieved above-average development outcomes compared to other lower middle-income countries. This favorable situation can be credited to sound development policies, recent capital inflows and to one of the world's highest levels of unilateral transfers, in the form of workers’ remittances and public grants, together amounting to between 20 and 25 percent of GDP. Jordan’s GNI per capita in 2006 was $2,290.

Jordan’s economy has shown strong performance in recent years and growth continues to be robust—averaging 7 percent during 2004-06 period—with 2007 results signaling continued high growth. However, Jordan remains vulnerable to possible adverse external events, such as the evolution of world oil prices, the level of foreign grants, the regional security situation, and the flows of short-term external capital. Growth is broad based, led by manufacturing, construction, real estate and services sectors; total factor productivity increased by 2.5 percent annually since 2000, well above historical norms. High growth helped boost public revenues, but the economy also showed signs of increasing vulnerability as pressures for higher public expenditures and the inflationary impact of rising fuel prices became tangible in 2006. On the fiscal side, higher revenues and reduction in oil subsidies helped control budget deficit before grants, but the deficit remained high, at around 7 percent of GDP, while the public debt, notwithstanding the negative valuation effect of the weaker US Dollar, also decreased to 78 percent of GDP. Jordan’s current account deficit has also been narrowing, reaching about 13 percent of GDP by the end of 2006 (down from 2005 highs of 18 percent of GDP). So far, this has been offset by remittances, public transfers from abroad and swelling capital inflows. With continued strong FDI inflows, Central Bank reserves have significantly increased, reaching US$6.5 billion (equivalent to 6 months of imports, GNFS).

In terms of human development, Jordan is above average with respect to lower middle-income countries. These positive results are based on consistent levels of spending—more than 25 percent of GDP—on human development (education, health, pensions, social safety nets). In addition, Jordan ensures a high level of gender parity in access to basic public services. In education, the Government launched in 2003 a comprehensive cutting-edge modernization program, aimed at radically overhauling the basic education system to align with the needs of a knowledge-based economy. School enrollment rates at each level of education are close to other countries at Jordan’s income level. In terms of quality, Jordan ranks above international averages in science, but still below average in math. Population pressures and increasing income levels are placing demands for further expansion of education and health services. The key issues and remaining agenda concern continuing and expanding reforms for better access to higher quality education to match skills for productive jobs created for a competitive economy.

Current Challenges

Over the last 10 years, Jordan has been very active in reforming its economy. It ranks as one of the best reformers compared to other middle income-countries. Structural reforms have been especially active in liberalizing private investment regime, opening the trade regime, establishing modern regulation and institutions for the private sector development, and privatization. Further improvement in the business environment in Jordan, both on the public and private sector sides, is important to unlock the growth potential. The process of structural reforms has been accompanied by a painful fiscal consolidation that has steadily reduced government debt from above 200 percent of GDP in the early 1990s, to 78 percent at year-end 2006. Continued implementation of fiscal consolidation program and structural reforms along with a supportive regional and external environment are critical for sustaining good economic performance in the period ahead.

In the last three years, reflecting a transition from the reforms of the 1990s, the country has shifted towards more complex institutional reforms, often leading the way in the MENA region with respect to second generation reforms. Continued effort to upgrade public institutions and governance systems is important to help increase competitiveness, efficiency and productivity.   

Using the demographic opportunity of a very young population to transform Jordan from a small lower-middle income and vulnerable country into a modern knowledge-based economy is at the core of King Adballah II’s vision for the country. The long-term vision implies a bold modernization of the country’s economic, institutional and political infrastructure, based on the enhancement of its human capital, and the elimination of poverty. Education, improving the business environment, and attacking deep poverty are at the core of this vision, and the Government is well aware that this also requires a modern and efficient administration, and a more open and participative polity. This vision has been translated into a strategic plan and operational policy with a series of broad-based consultations under a National Agenda providing a ten-year integrated development plan. The National Agenda is expected to facilitate monitoring and evaluation of the Government’s action.

The Government has set up the necessary administrative mechanisms to start implementing the National Agenda. Among the top development priorities of the Government are investment in human resources and institution building, upgrading critical infrastructure, fighting poverty and improving social services; and among the top political reform priorities are expanding freedoms and participation in society, removing remaining gender discrimination, and enhancing the independence and fairness of the judiciary. The major challenges in terms of the quality of public policy in the years to come, beyond refinement of specific policies, will be that of policy coordination and budget alignment, on which the speed and effectiveness of the implementation will depend. Addressing the inefficient use and pricing of water will be critical to meet coming needs.

World Bank Assistance

The Bank’s program in Jordan is guided by the joint 2006-2010 Bank/IFC Country Assistance Strategy (CAS). The CAS focuses on poverty reduction and job creation, in the context of an increasingly volatile fiscal, economic and socio-political situation. The CAS (endorsed by the Board in May 2006) deploys a program of (i) analytic and advisory services and technical assistance directed at building institutional capacity; (ii) financial instruments including IBRD loans; and (iii) Bank guarantees (for private investments in infrastructure). Implementation is underway with two projects and one guarantee approved in fiscal year 2008, accompanied by a strong program of analytical and advisory services.

The CAS is organized in four cross-sectoral clusters:

• Strengthening the investment environment for a skill-intensive and knowledge-based economy;
• Supporting local development through increased access to services and economic opportunities;
• Reforming social protection and expanding inclusion; and
• Restructuring public expenditures and supporting public sector reform.

The Bank has excellent relations with Jordan and has supported the country’s economic reform program, especially in education, social protection, privatization, and public expenditure. The GoJ has sought Bank assistance on key policy issues and requested critical lending in specific areas, resulting in a clear, country-owned integrated policy framework financed by various partners.

All dollar figures are in US dollar equivalents. October 2007

For more information, please contact:
In Washington: Dina El Naggar, Phone: 1 (202) 473-3245; Fax: 1 (202) 522-0003; Email: delnaggar@worldbank.org