The World Bank · The World Bank Report No: ... QIZ Qualified Industrial Zones ROSC Report on the Observance of Standards and Codes ... List of Supporting Documents

Document of The World Bank

Report No: ICR1986

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-77950)

ON A

LOAN

IN THE AMOUNT OF US$300 MILLION

TO THE

HASHEMITE KINGDOM of JORDAN

FOR A

RECOVERY UNDER GLOBAL UNCERTAINTY

DEVELOPMENT POLICY LOAN

June 26, 2012 Poverty Reduction and Economic Management Department Middle East and North Africa Region

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CURRENCY AND EQUIVALENTS (Exchange Rate as of June 2012)

Currency Unit = Jordanian Dinar (JD) US$1 = JD 0.709 JD 1 = US$1.409

FISCAL YEAR

January 1 – December 31

ABBREVIATION AND ACRONYMS CAS CASPR

Country Assistance StrategyCountry Assistance Strategy Progress Report

CBJ Central Bank of JordanEC European Commission ESW Economic Sector WorkEDP CPI

Executive Development Plan Consumer Price Index

DB Doing BusinessDPL Development Policy LoanGCC Gulf Cooperation Council GDP Gross Domestic ProductGFMIS Government Financial Management Information System GNI Gross National IncomeGoJ Government of JordanFDI Foreign Direct InvestmentFSAP Financial Sector Assessment ProgramIBRD International Bank for Reconstruction and Development IFC International Finance CorporationIMF International Monetary FundMENA Middle East and North AfricaMNSED Middle East and North Africa Social and Economic DevelopmentMOU Memorandum of UnderstandingMTEF Medium-Term Expenditure FrameworkNAF National Aid FundPER Public Expenditure ReviewPPP Public Private PartnershipsQIZ Qualified Industrial ZonesROSC Report on the Observance of Standards and Codes SPEP Social Protection Enhancement ProjectSSC Social Security CorporationUSAID United States Agency for International Development ZF Zakat Fund

Vice President: Country Director: Sector Manager:

Task Team Leader: ICR Team Leader:

Inger Andersen Hedi Larbi Bernard Funck Sebnem Akkaya Ibrahim Al-Ghelaiqah

HASHEMITE KINGDOM OF JORDAN

RECOVERY UNDER GLOBAL UNCERTAINTY DEVELOPMENT POLICY LOAN

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Program Performance in ISRs H. Restructuring 1. Program Context, Development Objectives and Design ........................................................ 1

2. Key Factors Affecting Implementation and Outcomes .......................................................... 6

3. Assessment of Outcomes ........................................................................................................ 9

4. Assessment of Risk to Development Outcome ..................................................................... 14

5. Assessment of Bank and Borrower Performance ................................................................. 15

6. Lessons Learned ................................................................................................................... 17

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ....................... 18

Annex 1. Bank Lending and Implementation Support/Supervision Processes ......................... 19

Annex 2. Beneficiary Survey Results ....................................................................................... 20

Annex 3. Stakeholder Workshop Report and Results ............................................................... 21

Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR.................................. 22

Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders ................................... 23

Annex 6. List of Supporting Documents ................................................................................... 24

MAP .............................................................................................................................................. 25

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A. Basic Information

Country: Jordan Program Name:

Jordan Recovery Under Global Uncertainty Development Policy Loan

Program ID: P117023 L/C/TF Number(s): IBRD-77950 ICR Date: 06/28/2012 ICR Type: Core ICR Lending Instrument: DPL Borrower: JORDAN Original Total Commitment:

USD 300.00M Disbursed Amount: USD 300.00M

Revised Amount: USD 300.00M Implementing Agencies: MOPIC Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 07/23/2009 Effectiveness: Appraisal: 08/31/2009 Restructuring(s): Approval: 11/19/2009 Mid-term Review: Closing: 12/31/2011 12/31/2011 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Moderately Satisfactory Risk to Development Outcome: High Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory

Quality of Supervision: Moderately Unsatisfactory

Implementing Agency/Agencies: Moderately Satisfactory

Overall Bank Performance: Moderately Satisfactory Overall Borrower

Performance: Moderately Satisfactory

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C.3 Quality at Entry and Implementation Performance IndicatorsImplementation

Performance Indicators

QAG Assessments (if any)

Rating:

Potential Problem Program at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Program at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing) Banking 33 33 Central government administration 33 33 General finance sector 12 12 Law and justice 11 11 Other social services 11 11

Theme Code (as % of total Bank financing) Legal institutions for a market economy 38 38 Micro, Small and Medium Enterprise support 12 12 Public expenditure, financial management and procurement

25 25

Social safety nets 12 12 Tax policy and administration 13 13 E. Bank Staff

Positions At ICR At Approval

Vice President: Inger Andersen Shamshad Akhtar Country Director: Pilar Maisterra Hedi Larbi Sector Manager: Bernard G. Funck Farrukh Iqbal Program Team Leader: Ndiame Diop Sebnem Akkaya ICR Team Leader: Ibrahim Al-Ghelaiqah ICR Primary Author: Ibrahim Al-Ghelaiqah

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F. Results Framework Analysis Program Development Objectives (from Project Appraisal Document) The overall development objective of the DPL is to support the implementation of the Government’s medium-term development program in the context of the current global financial crisis and economic slowdown. More specifically, the program supports following policy areas, aiming at strengthening the resilience of the economy to better position Jordan to resume and sustain high growth while cushioning the impact of the economic slowdown on the poor and vulnerable:

Reducing the fiscal vulnerability by broadening tax base, and enhancing effectiveness of government expenditures;

Increasing resilience of the financial sector by further strengthening regulation and supervision, and improving access to credit;

Improving the business climate to encourage more private sector investment; Facilitating access of vulnerable groups to a more effective and fiscally

sustainable social protection system. The DPL operation is a core element of the Bank’s Country Assistance Strategy, CAS, (FY06-10) and the Country Assistance Strategy Progress Report (2009). It constitutes a strong support of the three pillars of the CAS which seek to: (i) strengthen the investment environment and build human resources for a value-added, skill-intensive and knowledge-based economy; (ii) reform social protection and expand inclusion; and (iii) restructure public expenditures and support public sector reform. By consolidating the Bank’s long standing technical dialogue and assistance to support the key reforms in these areas, this operation is also expected to inform the preparation of the new CAS (scheduled for FY2011). Revised Program Development Objectives (if any, as approved by original approving authority) NA (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Reduced fiscal imbalances and enhanced macroeconomic stability

Value (quantitative or Qualitative)

Reduced tax exemptions that distort relative prices and create inequity, and a new framework for scrutinizing introduction of future preferential rates.

0.00 percent Partially Achieved

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Date achieved 09/01/2009 10/31/2010 10/31/2010 Comments (incl. % achievement)

The GoJ was successful in implementing the tax exemptions in 2009 and 2010. However, the decision to eliminate tax exemption on some goods and services was reversed after two years.

Indicator 2 : Reduced expenditure pressures, improved fiscal sustainability and increased flexibility of the budget by reinstituting fiscal consolidation plan, including completion of subsidy reform.


Lower budget deficit and financing requirement in 2009 than suggested by the budget execution parameters in the first quarter of 2009, and in 2010 than in 2009.

Lower fiscal deficit in 2010 by 3 percent of GDP

Partially Achieved


The GoJ succeeded in lowering the fiscal deficit in 2010 to 7.7 percent of GDP. However, in 2011 the budget deficit reached 11.6 percent of GDP.

Indicator 3 : The establishment of the new budget calendar


New budget calendar, Established to facilitate the first Cabinet discussion in the first quarter of 2010 on budget performance, strategies and priorities

N/A Partially Achieved

Date achieved 06/01/2009 10/01/2010 12/31/2011

Comments (incl. % achievement)

The MoF established the new budget calendar in 2009. Unfortunately, efforts to enhance the calendar did not materialize as the preparation of the 2012 budget was delayed and the approval of the 2012 budget was not complete till March 2012.

Indicator 4 : Strengthened financial sector and broadened access to finance


The Central Bank of Jordan has completed a first run of stress testing on the aggregate banking sector balance sheet

NA Achieved


Indicator 5 : The Central Bank of Jordan has prepared a plan to broaden and strengthen its consolidated supervision procedures


(i) evaluation of the existing legal and regulatory structure to

NA Achieved

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ensure that supervision has adequate scope to conduct comprehensive consolidated supervision; (ii) targeted examinations of material foreign operations of Jordanian banking entities.


Indicator 6 : Develop a credit bureau as a step towards reducing barriers to SME and individual lending


Establishment of the Credit Bureau Not Achieved

Date achieved 06/30/2011 06/12/2011 Comments (incl. % achievement)

The Council of Ministers has approved the Credit Information By-Laws on July 2011 to enable the creation of Credit Bureau but up to date the Credit Bureau was not established.

Indicator 7 : Enhanced risk monitoring by lowering reporting threshold of the public credit registry


The CBJ reduced the reporting threshold to the public credit registry from JD 30,000 to JD 20,000, thereby doubling the number of bank borrowers covered.

JD 30,000 Achieved


Indicator 8 : Further improvement in business environment by reducing of entry cost, rationalization of entry regulations and clarity of information.


GoJ has approved the draft Company Law which set the minimum capital requirement for limited liability's companies to zero percent of GNI and eliminate the requirement for depositing 50 percent of the capital of limited

NA Achieved

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liability's companies in commercial


Indicator 9 : Further improvement in business environment by facilitation of the registration process.


The Ministry of Industry and Trade has expanded the one-stop-shop to four additional one-stop-shops offices outside Amman offering a full range of services.

One-stop-shop Achieved


Indicator 10 : Further improvement in business environment by rationalization of exit regulation.


The Cabinet has approved the Bankruptcy Law which defined secured creditor priority in bankruptcy cases

NA Achieved


Indicator 11 : Further improvement in business environment by improvement in contract enforcement process


Establishment of eight selected courts outside Amman by Ministry of Justice

One court Achieved


Indicator 12 : Further improvement in business environment by improving the working of the tax system


Apply the use of on-line filing system for tax returns and electronic payment systems

NA Achieved

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Indicator 13 : Workers affiliated with Social Security Corporation (SSC) protected against the risk of becoming unemployed


All SSC members covered by the new unemployment insurance scheme

Achieved

Date achieved 10/30/2010 10/30/2010 Comments (incl. % achievement)

Indicator 14 : Increase the effectiveness of the National Aid Fund (NAF)


Coverage of target poor population by NAF assistance increase to 40 percent of those under NAF threshold.

Not Achieved

Date achieved 10/30/2010 12/31/2011

Comments (incl. % achievement)

According to the Director of NAF the new targeting mechanism estimated that 250,000 applications were received in 2011, which represented 25 percent of Jordanian families. The database at NAF was not ready to receive this high volume of applications.

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : N/A Value (quantitative or Qualitative)

Date achieved Comments (incl. % achievement)

G. Ratings of Program Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD millions)

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H. Restructuring (if any) Not Applicable

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1. Program Context, Development Objectives and Design 1. The Jordan Recovery Under Global Uncertainty Development Policy Loan (DPL) was a stand-alone DPL which was prepared during 2009 and approved in November 2009. The overall development objective of the DPL was to support the implementation of the Government’s medium-term development program in the context the global financial crisis and economic slowdown. More specifically, the program supported the following policy areas, aiming at strengthening the resilience of the economy to better position Jordan to resume and sustain high growth while cushioning the impact of the economic slowdown on the poor and vulnerable: (i) reducing the fiscal vulnerability by broadening tax base, and enhancing effectiveness of government expenditures; (ii) increasing resilience of the financial sector by further strengthening regulation and supervision, and improving access to credit; (iii) improving the business climate to encourage more private sector investment; and (iv) facilitating access of vulnerable groups to a more effective and fiscally sustainable social protection system.

1.1 Context at Appraisal 2. Jordan is an upper middle income country with a population of 6 million and a per-capita GNI of US$4,390 (2010), and socio-economic indicators that generally exceed those observed in comparable countries. Jordan’s economy is dominated by services, which account for over 70 percent of GDP and more than 75 percent of jobs. Jordanian policy makers’ ambition is using the demographic opportunity of a very young population to move toward a high-wage, knowledge-based economy. 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. Fertility rate (3.6 percent) is higher than Middle East and North Africa (MENA) and lower middle income countries average. This transformation would require policies that encourage business creation and remove the distortions that presently distract entrepreneurs from focusing on Jordan’s comparative advantage which requires emphasizing the quality of education—areas of priority in Jordan’s National Agenda. 3. Over the last decade, Jordan had been very active in reforming its economy. It had a sound record as one of the lead reformer in MENA, particularly in liberalizing private investment regime, opening the trade regime, establishing modern regulation and institutions for the private sector development and privatization, strengthening public financial management system and building human resources through a comprehensive education sector reform. The process of structural reforms had been accompanied by a painful fiscal consolidation that steadily reduced government debt from above 200 percent of GDP in the early 1990s, to 60 percent by the end of 2008. While the price shocks in 2008 (which coincided with the elimination of oil subsidies) led to divergence from the fiscal consolidation efforts with wide-ranging compensation policy, the Government’s continued to emphasize economic reforms and macro-fiscal sustainability evident by the approval of the Executive Development Program, the country’s medium-term development plan (2011-13). 4. Notwithstanding the difficult regional political environment and the lack of resources, Jordan had achieved above-average development outcomes within its income group. Underpinned by its strong trade links with the region, Jordan’s economy had shown strong performance since 2000 with annual real GDP growth averaging 7.5 percent and per capita GDP more than doubling. Growth had been broad based, led by manufacturing, construction, real estate and services sectors. Inflation remained low (except for the surge in 2008 driven by

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international oil and food prices) and although the external deficit widened, sizable FDI inflows enabled a steady and sizable increase in international reserves. This could be credited to sound development policies, recent substantial capital inflows and to one of the world's highest levels of unilateral transfers (workers’ remittances and public grants, amounting to about 20-25 percent of GDP). However, Jordan resumed vulnerable to adverse external events, such as world oil and food prices fluctuations and the global recession as well as deterioration in external flows. 5. At the time of the DPL, sustaining growth and reducing unemployment and poverty were the main development challenges in Jordan. Against the background of strong growth in investments and GDP, labor force growth in Jordan had been also strong. Thus, unemployment among nationals had declined slowly (from 14.5 percent during 2000-05 to 13 percent in 2010). On the other hand, unemployment was high for women and reached 21.7 percent in 2010 against 10.4 percent for male. Youth unemployment is twice the national average, an acute social problem since nearly 70 percent of the population is under the age of 29. Close to 30 percent of the country’s population falls within the 15 to 29 age range. Indeed, a key challenge for Jordan is to absorb new entrants in the labor market, while reducing the unemployment rate. 6. The global economic slowdown had created several medium-term challenges for Jordan. The three most important of these are declining global oil prices (which have a positive impact on trade deficit but a negative impact on transfers and capital account), declining private capital flows to developing countries (which were a major source of growth for Jordan in the recent past), and sharply lower global and regional growth outlook (which affect exports and remittances). Reflecting these effects, domestic economic performance had worsened since September 2008. The collapse in commodity prices favored a reduction in expenditures through a decline in budgetary subsides but also generated a drop in tax revenues because of lower prices and lower economic activity. Also, while improving the current account balance, the decline in international prices and more broadly global turmoil has reduced foreign inflows, and negatively affected growth. 7. The economic slowdown had an adverse impact on the Kingdom’s fiscal balances in 2009, prompting the government to adopt a fiscal consolidation plan as part of its medium term executive program (2011-2013). A combination of decline in domestic revenues, drop in grants alongside a relatively stable expenditure levels have led to the quasi-doubling of the fiscal deficit in 2009. This prompted the government to adopt a fiscal consolidation plan in 2010 with a policy mix including rationalization of exemptions, increases in sales taxation on new commodities, containment of public consumption, and rationalization of capital spending. The plan designed by the ministry of finance has been adopted as one of the pillars of the executive plan and was translated in a Medium Term Expenditure Framework which in its turn was reflected in the 2011 budget law. The fiscal pillar in the executive plan sets an objective of improving the fiscal performance, ensuring its sustainability and increasing the reliance on local resources and calls for (i) rationalization of spending, (ii) restructuring of revenues, and (iii) reducing the debt burden. 8. Significant spending cuts helped narrow the fiscal deficit (excluding grants) by 3 percentage points of GDP in 2010, from 11 percent of GDP in 2009 (Table 1). Faced with an already deteriorating social climate, the Government chose to reduce capital, rather than current, spending significantly in 2010. A drop in international prices nonetheless helped the government to keep consumer subsidies at a low level but the recent surge in oil prices created a significant challenge to the government financial positions. As foreign grants continued to decline, however, such fiscal retrenchment proved insufficient to arrest the rise of public debt. The ratio of (net) public debt, which had reached a low at 55 percent of GDP in 2009, crossed the 60 percent line in

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2010 (Table 1). In addition, fiscal slippage emerged in 2011 and fiscal deficit (excluding foreign grants) reached 11.6 percent of GDP due to combined effects of increase in expenditure and reduction in domestic revenue.

Table 1. Key Macroeconomic Indicators (2008-13)

9. External current account deficit had deteriorated and became volatile since 2005. Jordan had maintained current account positions that were broadly balanced from mid-1990s through 2004. The deterioration in 2004-2005 and 2008 reflected an exceptionally rapid increase in imports, as the saving-investment balance shifted. In 2008, the current account deficit was 9.3 percent of GDP, down from a peak of 17.3 percent in 2007. The FDI had financed about 70 percent of the deficit, with the remainder mostly as a source of remittances from Iraqi migrants and overseas Jordanians. This allowed for a rise in official reserves which stood at 8.6 billion dollars by end 2008 (up from US$7.5 billion in 2007). The external current account deficit stabilized around 5 percent of GDP in 2009 and 2010, respectively, and was financed by FDI and remittances. As a result, external reserves reached a record level at US$12.8 billion (about 8.6 months of imports) at the end of 2010. However, in 2011 the current account deficit was widened to 9.3 percent of GDP despite comfortable level of reserves due mainly to the persistent increase in commodity prices and higher cost of imports bill.

Percent 2008 2009 2010 2011 2012 2013

Actual Actual Preliminary ProjectedNational Accounts and PricesReal GDP Growth 7.2 5.5 2.3 2.5 3.0 3.5Nominal GDP (US$ million) 22,018 23,880 26,492 28,512 31,012 33,798GDP Deflator (Change in Percent) 19.9 2.8 8.4 5.3 5.5 5.3Consumer Price Index (change in percent) 14.9 -0.6 5.0 5.5 4.5 4.0Money & BankingGrowth of Money Supply 17.3 9.3 11.5 7.8 8.8 9.0Total Deposits-Resident (% of GDP) 100.3 102.5 103.7 103.3 103.3 103.3Lending to the Public Sector to Total Banks Assets (in percent) 19.7 19.5 18.8 20.4 22.9 24.7External AccountsBalance of Trade in Goods & Services (% of GDP) -31.0 -23.2 -21.8 -23.5 -21.5 -19.7Current account balance (% of GDP) -9.3 -4.7 -5.0 -9.2 -8.4 -7.2Foreign Direct Investments (% of GDP) 15.4 7.2 9.2 8.1 9.1 10.5Remittances (US$ million) 3,166 3,126 3,173 3,187 3,379 3,481International Reserves (US$ million) 8,568 11,471 12,845 12,540 12,749 13,624Fiscal AccountsTotal revenues 32.7 26.7 24.8 27.7 25.1 25.1 Domestic revenues 28.1 24.8 22.7 22.6 22.6 22.8 Grants 4.6 2.0 2.1 5.1 2.5 2.4Total expenditures 34.8 35.7 30.4 34.2 30.5 29.8 Primary current expenditures 26.4 24.8 23.2 25.8 23.3 22.5 Total interest expenditures 2.3 2.3 2.1 3.1 3.0 3.2 'Interest expenditures on domestic debt 1.6 1.8 1.7 2.4 2.3 2.6 'Interest expenditures on foreign debt 0.7 0.5 0.5 0.7 0.6 0.6 Capital expenditures 6.1 8.5 5.1 5.4 4.2 4.1Fiscal balance excluding grants -6.8 -10.9 -7.7 -11.6 -7.9 -7.1Fiscal balance including all grants -2.2 -8.9 -5.6 -6.5 -5.4 -4.7Primary balance excluding grants -4.5 -8.6 -5.6 -8.5 -5.0 -3.9Primary balance including all grants 0.1 -6.6 -3.5 -3.5 -2.5 -1.5Gross Public Debt over GDP 60.2 64.8 67.1 68.9 68.8 67.8Net Public Debt over GDP (*) 54.8 57.1 61.1 63.4 63.0 61.1Memo itemsRevenues Including Grants (US$ million) 7192.2 7885.4 6582.5 7885.4 7786.7 8486.5Primary Balance of Stabilisation -14.1 -2.4 -4.3 -1.7 -2.6 -2.5

(*) Public Sector Deposits are assumed to be constant at the 2010 level. Debt figures include the 300 million guarentee for NEPCO in 2011.Source: Government of Jordan for fiscal trend and bank staff calculations. Prices data are taken from DEC Commodity Forecast

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10. The confluence of the global financial crisis, economic slowdown and the increase in commodity prices led then the GoJ to seek the assistance of the World Bank in 2009 and tapped into the Bank’ fast-disbursing assistance through the use of the stand-alone DPL. The Bank approved the single tranche DPL of US$300 million on November 23, 2009 to support the Government’s efforts to address economic and social consequences of the global financial crisis and economic slowdown while improving resilience of the Jordanian economy to adverse shocks. The 2009 DPL thrust was focused on reducing fiscal vulnerability, strengthening the financial sector, improving the business climate and enhancing social protection. 1.2 Original Program Development Objectives (PDO) and Key Indicators (as approved) 11. The overall development objective of the 2009 DPL was to support the implementation of the Government’s medium-term development program in the context of the current global financial crisis and economic slowdown. More specifically, the program supported the following policy areas, aiming at strengthening the resilience of the economy to better position Jordan to resume and sustain high growth while cushioning the impact of the economic slowdown on the poor and vulnerable:

Reducing the fiscal vulnerability by broadening tax base, and enhancing effectiveness of government expenditures;

Increasing resilience of the financial sector by further strengthening regulation and supervision, and improving access to credit;

Improving the business climate to encourage more private sector investment; Facilitating access of vulnerable groups to a more effective and fiscally sustainable social

protection system. 12. The DPL operation was a core element of the Bank’s Country Assistance Strategy, CAS, (FY06-10) and the Country Assistance Strategy Progress Report (2009). It constituted a strong support of the four strategic objectives of the CAS which seek to “(i) strengthen the investment environment and build human resources for a value-added, skill-intensive and knowledge-based economy; (ii) supporting local development through increased access to services and economic opportunities; (iii) reform social protection and expand inclusion; and (iv) restructure public expenditures and support public sector reform.” By consolidating the Bank’s long standing technical dialogue and assistance to support the key reforms in these areas, this operation contributed to the preparation of the new DPL 2012 and new CPS (2012-15).

1.3 Revised PDO The PDOs were not revised.

1.4 Original Policy Areas Supported by the Program (as approved)

The DPL focused on the following activities:

(i) Fiscal Adjustment and Reforms: 13. This involved supporting the Government’s efforts to reinstitute the fiscal consolidation plan so as to reduce large fiscal imbalances and to maintain macroeconomic stability. Activities included: broadening the tax base, and improving efficiency and effectiveness of the public expenditure policies, including through enhanced processes for

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formulation and evaluation of fiscal policies.

(ii) Financial Sector Policies A. Strengthening of the Regulatory and Supervisory Framework 14. The main objective of this component was to support the CBJ in its continuing effort to promote financial sector stability and bank soundness. This focused on the CBJ’s efforts to identify and to respond to existing, perhaps previously unidentified risk through actions to apply more rigorous risk management, improve capital adequacy and to take more “macro” or high level actions to address systemic trends. B. Access to Finance 15. The aim was to support the Government’s objective of increasing employment and reducing poverty through improved access to finance. Improved access to finance for SMEs will contribute to achieving the National Agenda target of raising SME’s contribution to employment in Jordan to 45 percent in 2017. Bank lending as a transmission mechanism for the economic slowdown is amplifying the impact on SMEs and risks constraining private sector employment and holding back the ability of the SME sector to play its part in economic recovery.

(iii) Business Environment Reforms 16. The objective of this component was to further improve the business environment in Jordan through reducing firms’ operating costs. More specifically, the reform was aimed at focusing on reducing firm’s entry costs and improving the exit process; improving the resolution of business disputes at the level of the judiciary in order to reduce firm’s operating costs, allowing more firms to be created with positive impact on job creation and employment; and easing the tax payment and filling. These actions were fully in line with the National Agenda objectives and will help increase the real sector’s resilience to the adverse shocks to the economy.

(iv) Social Insurance and Social Safety Net Reforms A. Social Insurance Reform 17. The social insurance reform was designed to support the Government’s objective of improving the long term sustainability of the social insurance system while expanding the scope of the benefits to include unemployment insurance. To this effect, the regulatory framework of the SSC will be reformed in the following areas: (i) old age, disability and survivorship pensions; (ii) work injuries and professional diseases; (iii) unemployment insurance; (iv) maternity benefits; and (v) health insurance. B. Social Safety Net Reform 18. The main objective of social safety net reform was to increase the efficiency and poverty impact of Jordan’s social safety nets through acceleration of the NAF Renewal Plan. Accelerating the NAF’s renewal plan has become urgent as fiscal constraints and poverty concerns—especially given high exposure to external shocks—require that the poverty impact, and effectiveness and efficiency of the social assistance be maximized. The renewal plan, which has implemented, consists of: (i) implementation of a Management Information System to establish a Database on Poor and Vulnerable Population; (ii) strengthening NAF technical,

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administrative and benefit delivery capacity; and (iii) improving the targeting mechanism by adoption of the proxy-means testing (PMT) targeting method.

1.5 Revised Policy Areas The policy areas were not revised.

1.6 Other significant changes There were no significant changes in the operation’s design, scope, scale, schedule and implementation arrangements.

2. Key Factors Affecting Implementation and Outcomes

2.1 Program Performance

Table 2. Jordan: List of Prior Actions and Conditions from Legal Agreement

Single Tranche List conditions from Legal Agreement/ Program Document Status

The Cabinet has issued a decision that (i) eliminated all tax exemptions without specific duration or amount and issued through its authority; (ii) made Cabinet consideration of any new exemption conditional on an explicit framework that identifies the rationale, costs in foregone revenues, and establishes a specified duration; and (iii) clarified that no tax exemptions will be proposed through non-tax legislation.

Completed/Prior Action

The Prime Minister has issued 2010 Budget Circular including (i) the medium-term fiscal parameters for 2010-12 with a revised 2009 budget as a baseline in which 2009 public expenditures, other than subsidies, were reduced by at least 4.0 percentage points of GDP compared to original 2009 budget law; and (ii) a comprehensive policy framework—including stable wage and salary expenditures in terms of GDP compared to 2008-09 and termination of remaining subsidies for oil derivatives and barley—and resulting expenditure ceiling, which translates into a lower budget deficit before grants by at least 1.0 percentage point of GDP in 2010 over 2009.


The Ministry of Finance has 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.


The Central Bank of Jordan 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; first run stress testing by each individual bank has been completed.


The Central Bank of Jordan has prepared a plan to broaden and strengthen its consolidated supervision procedures. This plan covers the following key areas: (i) evaluation of the existing legal and regulatory structure to ensure that supervision has adequate scope to conduct comprehensive consolidated supervision; (ii) targeted examinations of material foreign operations of


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Jordanian banking entities to inform design of the relevant supervisory strategy(s); (iii) securing MOUs with the relevant host countries of Jordanian banking operations; and (iv) regular update of supervisory strategies to include documentation and oversight of banking group(s) overall organizational configuration (including economic as well as direct and downstream entities), governance structures, group risk profiles and management processes, and central control functions. Cabinet has approved a draft Credit Bureau Law that makes full borrower credit information and history available, for both bank and non-bank borrowers, and that gives borrowers the right to verify their data.

Completed/Prior Action The Cabinet approved the draft law on October 2009.

Central bank has reduced the reporting threshold to the public credit registry from JD30,000 to JD20,000, thereby doubling the number of bank borrowers covered.


The Cabinet has approved a draft Company Law thereby (i) abolishing the minimum capital requirements for limited liability’s companies and (ii) eliminating the requirement for depositing 50 percent of the capital of limited liability’s companies in commercial banks.

Completed/Prior Action The draft Law was approved by November 2009.

The Companies Control Directorate of the Ministry of Industry and Trade has expanded the one-stop-shop and representative offices setting (already existing in Amman and five other locations in the country) to the four locations which have not yet any representative offices, with offices for municipalities and the Income and Sales Tax Department are fully operational.


The Cabinet has approved a draft Bankruptcy and Insolvency Law thereby defining secured creditor priority order in bankruptcy cases.

Completed/Prior Action According to the Secretary General at the Ministry of Industry and Trade, The draft Law was approved by July 2009.

The Ministry of Justice has instituted fully operational specialized commercial sections at eight courts outside Greater Amman to improve the resolution of business disputes via a decision of the Judicial Council.


The Ministry of Finance has initiated the implementation of (i) an online filing system for general sales tax return; and (ii) an electronic payment system for corporate income tax and general sales tax connected to the e-government gateway.


The Cabinet has approved a draft Unemployment Insurance Program, as part of the draft Social Security Law, to provide unemployment insurance benefits to the members of Social Security Corporation which consists of the following: (i) a flexible mechanism of unemployment insurance savings accounts (UISA) financed by contributions of employers and employees; (ii) provisions allowing to use the balances of savings accounts or borrow from accumulated pension rights with limits to be determined by regulations; (iii) coverage for all Social Security Corporation members after a minimum vesting period to be defined by regulations

Completed/Prior Action According to the Director General at the Development and Employment Fund, The draft Law was approved by September 2009.

The National Aid Fund has initiated testing of new targeting mechanism that is envisaged under the NAF Renewal Action Plan, including: (i) improved questionnaire finalized; (ii) database software developed; and (iii) data from at least 2,000 households out of planned total 6,000 collected.

Completed/Prior Action According to the Director General at the NAF, the Renewal Action Plan was enacted on March 2009.

8

2.2 Major Factors Affecting Implementation: 19. Jordan’s economy was impacted severely by the global crisis and regional political turmoil, and has struggled to regain its balance ever since. Growth slumped in 2009-10 (down to 2.3 percent in 2010) and fiscal deficit accelerated to 11 and 8 percent of GDP for the same period, respectively (Table 1). In the face of disappointing revenue performance and dwindling foreign grants, the GoJ was left with the decision to scale back public investment which has impacted growth. Real GDP growth was stagnant in 2011 and increased only by 2.5 percent. Therefore, it was difficult, on the country level, to implement actions that perceived as a cause of hardship to the public especially at the state of regional political events. Actually, mitigating measures that had a significant cost on the budget, such as increasing fuel prices to contain subsidies and freeze up hiring at the public sector were proven to be difficult to maintain in 2011. 20. The 2009 DPL program was broad and covered a wide range of areas, some of them subject to difficult political economy, a fact that influenced implementation. For instance, the design of the DPL was broad and did not sufficiently take into account of Jordan’s frequent change in government that delays the execution of the reform program. Between 2006 and 2010, the government changed four times. This can be observed during the initial stage of reform, as the change in government indirectly contributed to further delays in the implementation of particular measures of the reform program. Furthermore, it is important to take into account Jordan’s high exposure to exogenous shocks, which may offset the expected impact of particular reforms and the DPL implementation. 21. The implementation of the 2009 DPL operation was facilitated by the strong background analysis that support it, including policy notes, analysis conducted during the preparation of previous operations, and other AAA, such as poverty assessment, Public Expenditure Review, and Financial Sector Assessment Program. As a single-tranche DPL, the team prepared a policy matrix that included too many actions that was designed to accommodate the 2006-2010 CAS and the government program in that time. While most of indicators of the program were met, some of them were structural in nature and not crisis related in the sense that they covered vast issues related to the GoJ program and might not be suitable to tackle the immediate crisis in hand. Further, the indicators that were specified at the DPL program required underpinning analytical work and constant follow up to assure their implementation.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization: 22. Program performance was to be evaluated based on 14 quatitative performance indicators that supported 4 policy areas which were specified in the program matrix. The performance indicators were to be monitored through the Government’s own monitoring and evaluation system. The Ministry of Planning and International Cooperation (MoPIC) resumed a consulative role and responsible for coordinating the actions among the concerned institutions (such as Ministry of Finance, Central Bank, Ministry of Industry and Trade, Ministry of Justice, Ministry of Social Development and Social Security Corporation). Together with MoPIC, these institutions collect the necessary data for the identified monitoring indicators. The MoPIC and the Bank have agreed to monitor the progress in the program supported by the DPL. The performance indicators selected were well-linked to the policy actions in the program matrix and well-linked to the broader development objectives prompted by the operation but were not all crisis specific.

9

23. However, the choice of the indicators was not well thought through to serve the crisis that Jordan was facing at that time. For example, indicators such as unemployment insurance program and the establishment of the credit bureau were structural in nature and had medium to long-term implications that required constant follow up for its implementation. Furthermore, given the nature of the operation (a one-tranche DPL with expected duration of one year), it would have been unrealistic to expect significant changes in higher order development indicators within the time frame covered by the operation. In addition, there were no supervision and monetoring by Bank’s staff byond the approval of the Board. Hence, the design of the monitoring and evaluation framework was concentrated on the government progress in meeting the conditions of tranche release.

2.4 Expected Next Phase/Follow-up Operation (if any): 24. Based on the results of the initial stand-alone 2009 DPL, the Bank launched the First Programmatic Development Policy Loan for Jordan in 2012. The 2012 DPL is aimed at supporting government actions to develop a broad consensus on critical reform areas, especially in the area of fiscal and institutional reform. In January 2012, the Bank Board approved the first Programmatic DPL for an amount of US$250 million. The first programmatic DPL will contribute to addressing Jordan’s weaknesses in the area of governance, fiscal management, public sector efficiency and private sector-led growth. These are key areas of reform in Jordan’s Executive Development Plan (EDP) for 2011-2013, around which the CPS (FY 2012-15) was developed.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation Rating: Moderately satisfactory 25. The Program Development Objectives (PDOs) were appropriate but covered a wide range of objectives including structural issues that had long-term implications. The actions taken under the four policy areas proved relevant in responding to the economic and social challenges that Jordan faced in 2008 and 2009. However, implementing these actions and translating the proposed laws into legal actions were proven to be a challenging task for the GoJ. For example, laws such as the Bankruptcy and Insolvency law, and the Credit Bureau Law were approved by cabinet but the implementation of such laws proved to be very difficult and required constant efforts by the GoJ to enact these laws effectively. Hence, the design of the PDOs should have been more appropriate if it was crisis specific. 26. Efforts by the Government to reinstitute the fiscal consolidation plan to reduce large fiscal imbalances and to maintain macroeconomic stability were successful for the year 2010 but the GoJ failed to have a sustainable impelementation for fiscal measures proposed by the 2009 DPL. Activities such as elemination of tax exemptions and improving efficiency and effectiveness of the public expenditure policies, were successful for 2009 and 2010 but they were hard to maintain and the prior actions were reversed after 2010. For example, the cabinet issued a decision to eleminate all tax exemptions without specific duration or amount and clarified that no tax exemption will be proposed through the non-tax legislation. These decisions were implemented for two years but reversed in 2011 and some tax exemptions were conducted again. These actions and other expenditure sources such as wages and subsidies contributed to a higher budget deficit in 2011 ( fiscal balance excluding grants reached 11.6 percent of GDP).

10

27. The design of the “Recovery under Global Uncertainty” DPL as a stand-alone operation was relevant in the case of Jordan given the nature and timing of the impact of the exogenous shock on the Jordanian economy. However, some of the PDOs required medium-term actions and structural in nature. Indeed, among the 14 prior actions, there were at least 7 that involved matters which need follow-through in the medium term, e.g. establishment of Credit Bureau, tax exemptions, commercial courts, unemployment insurance, social safety net targeting. Many of the actions (including the Credit Bureau establishment) and fiscal consolidation were picked up by the recent 2012 programmatic DPL which is a continuation of the reforms supported by the 2009 DPL. Indeed in order to respond to the need of these prior actions, a programmatic DPL was more suitable in that regard and a close monitoring is essential to achieve the outcomes of the DPL. 28. Given the complex design of the DPL, the GoJ’ succeed on identifying most of the program objectives despite its limited implementation capacity. While the relevant lessons learned from Bank experience elsewhere were correctly identified, the mitigation measures proposed for two crucial lessons proved to be adequate in the case of Jordan. The first lesson was the importance of developing ownership and accountability at the country level. The second lesson was the importance of adequate coordination amongst different implementing ministries in order to have an effective implementation of the proposed measures.

3.2.1 Achievement of Program Development Objectives Rating: Moderately satisfactory 29. The 2009 DPL was successful in achieving most of its objectives but was not successful in providing a sustainable path for the program’s DPOs to have a meaningful outcomes. Of the fourteen development indicators specified in section 2.1, information could be found on the actual performance of all indicators (Table 3), of which nine were fully achieved, three partially achieved and two were not achieved. In particular, efforts to broadening the tax base (38,000 individuals were added to the tax base in 2011) were successful but domestic revenues were disappointing. Domestic revenues were stagnant at 22.6 percent of GDP in 2011 (Table 1). In addition, efforts supported by the operations concentrated on measures to reduce fiscal vulnerability by eleminating tax exemptions and enhancing effectiveness of government expenditures were not successful as the efforts to reform the subsidy system and contain the wage bill were not complete. However, the Government was successful in enhancing the calendar to strengthen the initial strategic phase of budget preparation. The calendar includes Cabinet level consultations in the first quarter of each year on the key parameters and issues underlying the development of the MTEF based on a Budget Policy and Priorities Paper (BPPP) prepared by the General Budget Directorate. Unfortunately, efforts to enhance the calendar were not sustained as the preparation of the 2012 budget was delayed and the approval of the 2012 budget was not complete till March 2012. Overall, the final outcome for the reduced fiscal imbalances and enhanced macroeconomic stability was partially achieved due to the inability of the Government to adopt an effective approach to sustain successful reform and to some extent to global economic and political factors that still shaping the region. 30. The indicator strengthening the financial sector by further enhancing regulation and supervision and improving access to finance were successful. The CBJ implemented most of Basel II requirements on control and supervision. Consequently, the CBJ continues to exercise prudent regulation and supervision of the banking system, and banks have remained conservative in their funding practices (with the JD loan/deposit ratio near 73 percent at

11

December 2011). The banking sector’s macro-prudential indicators were strong—banks remain profitable and well capitalized, deposits (largely JD-denominated) continue to be the major funding base, liquidity ratios and provisioning remain high, while non-performing loans increased slightly to 8.5 percent at mid-2011. Credit to the private sector rebounded (growing by 9.5 percent y-o-y in December 2011). 31. The GoJ succeeded in implementing business environment reforms identified by the 2009 DPL but the ranking in 2012 Doing Business Report was worsened. While the 2011 Doing Business Report acknowledged Jordan’ efforts in improving its credit information system, the 2012 Doing Business Report ranked Jordan 150 out of 183 countries in terms of ease of getting credit, higher by 20 points from 2011. This was a clear indication that Jordan needs to create a Credit Bureau in order to improve SME’s access to financial services. In the same vein, the GoJ needs to enact the recently approved Investment Law which aimed at reducing restrictions to private investment. These two elements are the missing link that needed to improve the business environment reform and might help to enhance the ranking of doing business for Jordan.

32. The GoJ did not succeed in increasing the efficiency and enhance the poverty impact of Jordan’s social safety net by implementing the NAF Renewal Plan. This was due mainly to the NAF’s limited implementation capacity. The 2009 DPL had pointed out to the inefficiency and ineffectiveness of the NAF and provided a solid solutions through modernizing the NAF. The GoJ had initiated a reform to establish the new targeting mechanism for NAF which was included in the 2009 DPL (Table 2 and 3). The new targeting mechanism estimated that 250,000 applications were received in 2011, which represented 25 percent of Jordanian families. The database at NAF was not ready to receive this high volume of applications and the update of the system and database were not successful in implementing the envisaged reform. 33. At the time of development of the operation in 2009, Jordan confronted a downturn in economic performance and reduced access to external financial markets. The Government had adopted anti-cyclic economic policies in late 2009 to attenuate the macroeconomic impact of the looming economic slowdown but was concerned with how the expected increased current account deficit would be financed, particularly with reduced access to external financial markets and reduced level of FDI, remittances and foreign grants. The World Bank finance was viewed as necessary to substitute for this reduction in foreign financing. Thus, the operation largely succeeded to provide the needed finance. While GDP growth fell in 2010 to 2.3 percent (from 5.5 percent in 2009), the rate of reserve coverage of imports was comfortable at over 7 months import coverage in 2010. On balance, taking into account all these factors, a DPL rating of moderately satisfactory appears appropriate.

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Table 3. Jordan: Key Outcome Indicators (by November 2010)

Single Tranche 1) Reduced fiscal imbalances and enhanced macroeconomic stability

Status

Reduced tax exemptions that distort relative prices and create inequity, and a new framework for scrutinizing introduction of future preferential rates.

Partially achieved All exemptions were eliminated by a decree issued by cabinet. Some were re-installed two years later.

Reduced expenditure pressures, improved fiscal sustainability and increased flexibility of the budget by reinstituting fiscal consolidation plan, including completion of subsidy reform.

Partially AchievedThe GoJ succeeded in lowering the fiscal deficit in 2010 to 7.7 percent of GDP. However, efforts to freeze wages and reduce subsidies were not successful as overall balance (excluding grants) reached 12 percent of GDP in 2011.

Enhance processes for formulation and evaluation of fiscal policies. The establishment of the new budget calendar had helped to facilitate the first Cabinet discussion in the first quarter of 2010 on budget performance, strategies and priorities based on first such study.

Partially Achieved

2) Strengthened financial sector and broadened access to finance Status Further improving the transparancy of banking system, and risk recognition

and management of evolving risks.

Achieved

Comprehensive consolidated supervision approach based on Basel II was adopted by CBJ which will provide a more comprehensive and systemic view of potential risks to the banking sector.

Achieved

Develop a credit bureau as a step towards reducing barriers to SME and individual lending

Not Achieved The Council of Ministers has approved the Credit Information By-Laws on July 2011 to enable the creation of Credit Bureau but up to date the Credit Bureau was not established.

Enhanced risk monitoring by lowering reporting threshold of the public credit registry

Achieved

3) Further improvement in business environment

Status

Reducing of entry cost, rationalization of entry regulations and clarity of information. GoJ has approved the draft Company Law which set the minimum capital requirement for limited liability’s companies to zero percent

Achieved

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of GNI and eleminate the requirement for depositing 50 percent of the capital of limited liability’s companies in commercial banks.

Facilitation of the registration process. The Ministry of Industry and Trade has

expanded the one stop shop to four additional one-stop-shops offices outside Amman offering a full range of services.

Achieved

Rationalization of exit regulation. The Cabinet has approved the Bankruptcy Law which defined secured creditor priority in bankruptcy cases.

Achieved

Improvement in contract enforcement process through establishment of eight selected courts outside Amman by Ministry of Justice

Achieved

Imroving the working of the tax system through increased use of on-line filing system for tax returns and electronic payment systems

Achieved

4) Workers affiliated with Social Security Corporation (SSC) protected against the risk of becoming unemployed and the effectiveness of the National Aid Fund (NAF) is being increased

Status

All SSC members covered by the new unemployment insurance scheme.

Achieved

Coverage of target poor population by NAF assistance increase to 40 percent of those under NAF threshold.

Not Achieved According to the General Director of NAF the new targeting mechanism estimated that 250,000 applications were received in 2011, which represented 25% of Jordanian families. The database at NAF was not ready to receive this high volume of applications and the update of the system and database will be finalized by end-2011. Up to date, there is no evidence of achievement in that regard.

3.4 Justification of Overall Outcome Rating Rating: Moderately satisfactory 34. The overall outcome rating is moderately satisfactory. In general the DPL achieved most of the PDOs. More importantly, delays and reversal of policy decisions were observed due mainly to the regional political events and the design of the “Recovery under Global Uncertainty” DPL as a stand-alone operation which some of the PDOs were structural in nature and required medium-term actions.

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3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 35. Several issues concerning the performance of the safety net programs have emerged, in particular the NAF. The main issue is that the poverty impact of the cash transfers has been found to be modest: a major segment of the poor is not reached (low coverage) and the leakage of resources to the non-poor is substantial. In 2006, only some 20 percent of people under the threshold for the NAF assistance received NAF benefits, comprising 14 percent of the total number of recipients; and only some 20 percent of recipients rose above the poverty line as a result of receiving NAF benefits. The 2009 DPL had pointed out to the inefficiency and ineffectiveness of the NAF. These include (i) weaknesses in targeting method; (ii) an incomplete policy and institutional framework; (iii) overlapping institutional mandates as well as fragmentation and duplication of programs; and (iv) weak monitoring mechanisms and modest use of Management Information System in managing programs. The GoJ had initiated a reform to establish the new targeting mechanism for NAF but the update of the system and database were not successful in implementing the envisaged reform specified at the 2009 DPL. (b) Institutional Change/Strengthening 36. Little institutional change could be achieved of this single tranche operation. Some of the policy actions such as establishing a new budget calendar by Ministry of Finance, contibuted to facilitate the first Cabinet discussion in the first quarter of 2010 on budget performance, strategies and priorities. It has had an indirect impact on their institutional strengthening, by increasing emphasis on budget preparation, and the evaluation of medium-term spending requirements. (c) Other Unintended Outcomes and Impacts (positive or negative, if any) N/A

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops N/A

4. Assessment of Risk to Development Outcome Rating: High 37. This rating results from the vulnerability of the development outcomes achieved under this operation. This vulnerability arises from (i) the country’s high exposure to the exogenous shocks from the Arab Awakening and from global economic and political factors that are shaping the region; combined with (ii) a propensity to respond to them through short term expedients rather than with a long term, growth oriented stance. As a result, some of the positive results achieved under this DPL were not sustained or might be under pressure. The rating takes into account Jordan’s high exposure to exogenous shocks related to the global external environment and fluctuations in global commodity prices. In the same vein, higher global fuel and food prices combined with the uncertainties created by regional political developments and frequent disruptions of gas supply from Egypt have affected the Jordanian economy. These factors combined have led to a larger import bill and lower FDI and tourism revenues. The external environment going forward, both in Europe, globally and regionally, is

15

loaded with uncertainties. Events in Europe will affect Jordan indirectly through the US and the region, Jordan’s main trade partners. A mitigating factor is however that Jordan has over the years built considerable foreign reserve buffers to deal with shocks. 38. Furthermore, some of the progress made under the DPL came under pressure as circumstances changed. This is particularly the case in fiscal areas. While some of the measures taken in the 2009 DPL, were controversial, the GoJ had succeeded in implementing through 2010. Subsequently, the waves of demonstrations that have swept across the Middle East and North Africa since early 2011, Jordan included, have given voice to the longstanding aspirations and frustrations. In Jordan, the demonstrators’ demands have revolved around lowering the cost of living, reducing unemployment, reducing corruption and increasing political accountability of government bodies. The Government reacted with a mix of large scale fiscal initiatives but tentative political overtures. As the political events evolved in 2011, the immediate response of GoJ was to suspend the adjustment of domestic prices to global and regional developments and initiated additional social spending which led to increased subsidies significantly. The resulting worsening fiscal and economic conditions had impacted the DPL’s main outcome, fiscal consolidation plan, contributing to an unplanned budget deficit as high as 12 percent of GDP in 2011. In this context, the institutional framework for fiscal management supported by the DPL, proved unequal to the task of keeping medium-term fiscal consolidation on track.

5. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues)

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately satisfactory 39. This rating reflects one positive factor and two negative factors. The positive factor was: the exceptionally close link between the World Bank’s analytic work, and the design of the operation. The analytical work included the programmatic assistance on PFM initiated in 2006 an ongoing analysis of fiscal policy and growth in Jordan, IMF’s Article IV reports, advisory work on higher education and health, financial sector assessment program and the ongoing public sector TA project. The continued quality of the analytic work is evident in that it served as an analytic basis for the subsequent World Bank operation (First Programmatic DPL, 2012) which addresses many of the same issues, but in a more specific and direct manner. 40. On the negative side, the design set out in the operation had weaknesses. While the use of relatively lower order outcomes as indicators is understandable given the short duration of the operation, the quality of the indicators chosen should have been more considered to facilitate close supervision in a fragile environment. In other words, the indicators that were used in the 2009 DPL were not crisis specific and some of them were structural in nature and required medium-term follow up which went beyond the DPL associated PDOs. The other negative factor is related to the conditions of the GoJ and their realism of the program. The DPL overestimated the GoJ’s implementation capacity due to frequent change in government, which proved in practice to be limited. However, the 2009 DPL was prepared under very difficult time constraints to meet budgetary programming needs and that may influenced the design of the DPL.

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41. The combination of the high quality of the analytical work with poor design and a fiduciary risk management that, albeit in a challenging environment, seemed to have considered all possible options, suggest that an overall rating of moderately satisfactory is indicated. (b) Quality of Supervision Rating: Moderately unsatisfactory 43. Close dialogue continued on most aspects of the DPL program beyond the Board approval and later intensified under the subsequent programmatic DPL. A range of project, analytical and technical assistance activities formed the base of an effective dialogue with the GoJ. These include but not limited to the programmatic assistance on PFM initiated in 2006 an ongoing analysis of fiscal policy and growth in Jordan, advisory work on higher education and health, financial sector assessment program, Investment Climate Survey, social protection, poverty update and the preparation of a public sector TA project (later dropped, as the engagement folded into that for the subsequent programmatic DPL). There was no overall monitoring of policy implementation, or of the results framework set in the program matrix (as evidence by the absence of ISN). (c) Justification of Rating for Overall Bank Performance Rating: Moderately satisfactory 5.2 Borrower Performance (a) Government Performance Rating: Moderately satisfactory 44. The Government was actively engaged in the design of the operation, but failed to undertake realistic plans for development outcomes to be delivered sustainably. The government was not in the position to generate the political support in Jordan which would have been required to move key pillars of the reform as envisaged. Overall, the GoJ succeeded, however, in highlighting major obstacles to fiscal consolidation and strengthen fiscal management, which was picked up by the EDP and core PDOs of the 2012 DPL. (b) Implementing Agency or Agencies Performance Rating: Moderately satisfactory 45. The main coordinating agency was the Ministry of Planning and International Cooperation (MoPIC). Other government institutions are responsible for the implementation of their related function of the DPL operation. The MoPIC is responsible for coordinating the actions among the concerned institutions (such as Ministry of Finance, Central Bank of Jordan, Ministry of Industry and Trade, Ministry of Justice, Ministry of Social Development and Social Security Corporation). More importantly, most of the actions envisioned under the program were involved broad coordination with other Ministries and government entities, making coordination very demanding, especially given the frequent change of government in Jordan. Over all, the

17

MoPIC and other related Government agencies were successful in implementing most of the key elements of the program. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately satisfactory This is a direct result of the rating of moderately satisfactory for the Government and moderately satisfactory for the implementing agency performance.

6. Lessons Learned 46. A key lesson learned from the 2009 DPL is that the realism of the reform agenda in terms of content and risks has to be assessed carefully in the preparation of the operation. For instance, the 2009 DPL was based on objectives that were spelled out on the 2006 CAS and the CASPR results matrix. These objectives did not sufficiently take into account Jordan’s frequent change in government that delays the execution of the reform program. While the matrix continued to be broadly relevant throughout the time period of the CAS, certain milestones could have been more realistic. Furthermore, in the design of a new DPL, it is important to take into account Jordan’s high exposure to exogenous shocks, which may offset the expected impact of particular reforms. 47. The political economy of structural reform in Jordan is very complicated and induced delays and the legislative process can take longer time that hindered serious efforts to structural reforms. This was evident in some of the prior actions that required laws and regulations to some certain sectors. Therefore, for future DPL program, in any attempt to design and implement prior conditions, technical discussions ought to be at advanced stage on all measures selected for inclusion in the DPL. It is also necessary to call for the approval by the Council of Ministers as a crucial step that signals concrete change, even though Parliament approval is required for draft laws to become laws. 48. There is a crucial need for country ownership and other government institutions to work in harmony and better coordinated spirit for the DPL program to achieve and deliver results. Given their complexities and often cross-cutting nature, the pace and scope of reforms should be driven by the judgment and tactical sense of the key Government counterparts. Where the dialogue is well aligned with Government’s reform strategy in the Executive Development Plan and complementary programs, the ownership and commitment for reform are strong. Therefore, to enhance monitoring by government agencies, it is crucial to establish a monitoring and evaluation system that depends on having sufficient capacity within the Jordan’s institutions. Establishment of a sound M&E policy with clear institutional arrangements for collecting, analyzing and reporting data is critical to implement an important reform and making evidence-based policy decisions. This can be achieved by establishing separate entity that consists of MoPIC and other institutions such as Ministry of Finance, Central Bank of Jordan, Ministry of Industry and Trade, Ministry of Justice, Ministry of Social Development and Social Security Corporation that supervised by Bank staff to ensure its functionality and effectiveness. 49. One crucial lesson learned from the 2009 DPL and will benefit future DPLs is that close monitoring and supervision by Bank staff is critical for the success of engagement with the GoJ. A constant monitoring and supervision by Bank staff is very important as well and the need for Bank staff to have an evocative dialogue with the GoJ to set their priorities straight is crucial to have meaningful outcome. While, it is understood that at the time of the 2009 DPL,

18

Jordan was facing economic crisis due to the international financial crisis and at the end of the CAS period but the need to align the PDOs with a tailored specific DPL that serves the country precise problems is important in order to have a successful outcomes. 50. Donor coordination plays a major role in program success, and the Bank should make great efforts to preserve a unified dialogue within donors. This will benefit Jordan by building credibility for the reforms, but also by focusing the attention and expertise from multilateral donors on a complex program of reform. For the Bank and donors it might help to mitigate the risk of this type of reform and reduce the supervisory burden on each donor.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies Borrower comments were received from MoPIC. The total allocation of loan amounts was $300 million in which $299.25 million as a single tranche and front-end fee of $0.75 million. (b) Cofinanciers (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society)

19

Annex 1. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members Names Title Unit Responsibility/Specialty Lending Sebnem Akkaya Lead Economist MNSED Task Team Leader Chadi Bou Habib Senior Economist MNSED Wael Mansour Economist MNSED Laura Ard Lead Financial Sector Specialist FCMCG Gustavo Demarco Lead Economist MNSSP Anton Dobronogov Senior Economist AFTP2 Jean-Michel Noel Marchat Lead PSD Specialist AFTFW

Douglas Pearce Practice Manager FFIDR Haneen Ismail Sayed Lead Operations Office MNSHE Ritva Reinikka Sector Director AFTHD William Fox Consultant MNSED International Translation Vendor - Translation/Proofread Supervision Sebnem Akkaya Lead Economist MNSED Task Team Leader Wael Mansour Economist MNSED Jean-Michel Noel Marchat Lead PSD Specialist AFTFW

Ahmad Ibrahim Omar Customer Service Representative GSD Translation

Muna Abeid Salim Senior Program Assistant MNSED Aldar Consulting Vendor Translation/Proofread (b) Staff Time and Cost

Stage Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including travel

and consultant costs) Lending

Total: 47.10 339.83 Supervision/ICR

Total: 32.92 142.91

20

Annex 2. Beneficiary Survey Results N/A

21

Annex 3. Stakeholder Workshop Report and Results N/A

22

Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR The Borrower has no comments regarding the text.

23

Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders N/A

24

Annex 6. List of Supporting Documents

Public Expenditure Review 2006-07 Programmatic TA on Public Expenditure Management 2007-09 Financial Sector Assessment Program Update 2008-09 Report on the Observance of Standards and Codes 2008-09 Jordan Leasing Project (IFC) 2006 Jordan: Article IV Consultations, 2010 and 2012 (IMF) Price Shocks and Subsidy Reform: Fiscal and Poverty Impact Std. 2008 Transparency International Report 2009 and 2010 Global Integrity Report 2009 and 2010 Doing Business Making a Difference for Entrepreneurs (WB/IFC) 2011 Investment Climate Survey 2007 Doing Business Better in Jordan (IFC) 2009 Poverty Update 2008 Poverty Institutional Framework 2007-08 Wage and Earnings Statistics 2008 Programmatic TA on Social Insurance 2006-09 Strategy for Modernization of Social Safety Nets 2007-08 Investment and Labor Market 2007 Institutional Financial Management Capacity Asses.-Social Sector 2007 Social Protection Enhancement Project 2008 Jordan: First Programatic DPL, December 2011

Jabal RamJabal Ram(1,734 m) (1,734 m)

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35°E 36°E 37°E 38°E 39°E

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JORDAN

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IBRD 33424

JANUARY 2005

JORDANSELECTED CITIES AND TOWNS

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RAILROADS

GOVERNORATE BOUNDARIES

INTERNATIONAL BOUNDARIES

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endo r s emen t o r a c c e p t a n c e o f s u c h boundaries.