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Factsheet June 4, 2019

FAQ: Second Equitable Growth and Job Creation Programmatic Development Policy Financing

1. What is a Development Policy Operation?

Development Policy Loans (DPLs) are one of the World Bank’s three financing tools. DPLs are robust, flexible and quick-disbursing financing instruments that help countries achieve development results by supporting a program of policy and institutional reforms provided through general budget financing.

Development Policy Financing supports a diverse set of countries and covers a broad spectrum of sectors — from disaster risk management to fiscal reforms to social safety nets to environmental policy reforms…

2. Why Does Jordan Need this Development Policy Loan from the Bank?

Over the last decade, Jordan has preserved its economic and social stability while absorbing many external shocks. Jordan’s economy has grown at about 2% a year over the past three years, constrained by regional challenges and structural impediments. The unemployment rate remains high. GDP growth should be triple the current growth rate if the economy is to productively employ the country’s young and fast-growing population. In addition, the presence of 1.3 million Syrians refugees in Jordan continues to place a significant economic challenge and social stress on the country.

The GOJ has already embarked on a reform program that aims to drive growth, create jobs for a growing population, and recover economic stability. However, deeper reforms are needed to change the structure of the economy and improve its efficiency and productivity. Jordan needs to improve investment and allow internal markets to become more contestable in order to produce more and better jobs for its people. Energy and transport sector reforms are needed to mitigate fiscal risks and improve competitiveness. Better debt management is required to attain fiscal sustainability.

The DPL2 will provide the GOJ with resources to undertake priority reforms in these key areas and lay the foundations for a stronger and outward oriented Jordanian economy.

3. How Does the DPL2 Link to the Government Identified Priorities?

The DPL2 is closely aligned with the Government’s own economic reform agenda. Since the new government took office in June 2018, it has prioritized reforms that stimulate growth and create jobs while maintaining macroeconomic stability. This program is closely linked to the Government’s medium-term reform agenda, known as the Five-Year Reform Matrix (2019-23), and to the Prime Minister’s two-year plan Road to Renaissance (2019–20), which complements the economic plan of the Five-Year Reform Matrix with governance and social reforms. The Five-Year Reform Matrix includes a set of cross-cutting (horizontal) reforms and sectoral (vertical) policy reforms prioritized and sequenced over the next five years to deliver on the country’s jobs, youth, and growth agenda. Collectively, these reforms aim to make the economy more efficient and re-orient it toward export-led growth by creating a better business and investment environment. The three pillars of the DPL2 are thus structured to support private sector-led growth, reform the labor market and improve macroeconomic management.

4. What Are Some Examples of the Reforms that Will be Supported under the DPL2?

On the private sector side, the DPL2 supports reforms that: Promote foreign direct investments and exports in service sectors that are advantageous for Jordan; streamline licensing and inspections to reduce business costs especially for small businesses; improve credit infrastructure (insolvency and secured transaction laws) to support business growth; develop new regulations for public procurement to create opportunities especially for small and medium enterprises and to reduce fiscal costs; promote broadband services to harness the potential of digital economy and support Jordan’s younger generation; develop new legislation for public private partnerships to respond to public investment needs.

The DPL2 will also support the implementation of the Roadmap for Financial Sustainability of the Electricity Sector which prioritizes cost reductions over tariff increases, while ensuring periodic tariff adjustments and strengthening the overall regulatory set-up to bring it closer to global best practices. Actions under this roadmap would bring NEPCO’s debt service obligation to optimum levels, support timely electricity bill recovery, and address excess capacity and avoidable costs going forward. The roadmap would also help diversify energy sources to mitigate vulnerability to energy security.

Furthermore, the DPL2 will allow the government to continue to expand and improve the targeting of social safety nets for the poor and vulnerable.

5. How Does this World Bank Package of Support Help in Creating Economic Opportunities for Jordanians?

Prolonged weak economic growth has reflected in elevated unemployment indicators and a declining labor force participation rate. The unemployment rate remained elevated at 18.6% during 2018, compared with 18.3% in 2017. Unemployment patterns consistently show high unemployment among females, youth, and university graduates in Jordan’s labor market. Moreover, the weak economic performance is further reflected in a declining labor force participation rate, which reached 36.2% in 2018, notably lower than 39.2% in 2017.

The reforms supported by the DPL2 are expected to encourage domestic and foreign investments and create an environment conducive to business growth which will generate an increase in economic opportunities to the Jordanian people.

6. How Will the Program Help Improve the Employment of Women in Jordan?

Female labor force participation in Jordan is among the lowest in the world at 14%, and below the Middle East average of 19%. Reasons are multiple, ranging from widespread gender biases about women’s role as the primary caregiver, inadequate child care provision schemes, and concerns around safe transportation. Underpinning these challenges are differences in Jordanian laws based on gender and marital status that disadvantage women and affect their ability to participate in the labor force.

Recognizing that gender equality is smart economics, contributing to poverty reduction, strengthening resilience and boosting shared prosperity, the GOJ has adopted an admirable and smart gender agenda and committed to increasing female labor force participation to 24% by 2025.

To encourage employment of women and youth, new legislation was passed to promote and regulate flexible work (part-time and temporary contracts) and facilitate the establishment of childcare centers at the workplace. Gender related references were removed from labor laws and bylaws. Codes of conduct that address harassment in the public transport system and workplace were also adopted.

The DPL2 will sustain these efforts by supporting the removal of regulatory barriers that affect female labor force participation. Moreover, the program tackles mobility obstacles (such as high transportation costs, concerns around safe transportation and inadequate transport infrastructure) which adversely affect female labor force participation.

7. How Will the Program Help Protect the Poor and Most Vulnerable?

The Government of Jordan is undertaking reforms to strengthen social safety nets to protect the poor and help with their transition out of poverty. A National Social Protection Strategy was endorsed and the National Aid Fund expansion program was also launched: Takaful will increase social protection coverage to an additional 85,000 households by 2021. The program brings an improvement in the targeting system and adopts a digitalized payment system for better transparency as well as a strong grievances and redress mechanism. These reforms will enhance income support to the poor, make the program more transparent, and improve citizens’ experience and trust.

To make social safety nets more responsive to shocks, the DPL2 will support the introduction of energy support benefits to help protect poor consumers and the development of a targeting mechanism for these benefits.

8. How Will the Program Help Improve the Employment of Youth in Jordan?

Youth unemployment, for those aged 15-34 years, rose to around 39.8% in 2017.  To address this critical challenge, growth in the economy is key.  Reforms underway to tackle obstacles to FDI and reduce the cost of doing business are aimed at improving the growth rate of the economy. Furthermore, the DPL2 will support efforts to provide more flexible work contracts, like part-time and temporary contracts, which are the most common entry point for young people into the labor market.  Finally, with the support of the World Bank, the GOJ is studying ways to reduce the cost of hiring new entrants into the labor market.

9. How Will the Program Help Address Corruption, Increase Transparency and Better Governance in Jordan?

The procurement reforms supported by the DPL2 are at the heart of the GOJ reform agenda. These reforms will result in increased transparency, cost-savings and efficiency, greater competition in the public procurement market, and the advancement of broader policy objectives, including empowering small and medium enterprises, women, and youth. The consolidated bylaw will update procurement practices and eliminate loopholes and irregularities stemming from the current fragmentation of the legal framework. The existence of an independent complaints-handling unit and a policy and regulatory unit will improve the objectivity and fairness of the public procurement system. Furthermore, the enhancement of JONEPS (Jordanian On-Line E-Procurement System) will facilitate wider and more equitable access to the procurement market for the private sector while facilitating access to information and inclusion of stakeholders, including civil society, in synergy with Jordan’s commitments and action plans pursuant to the United Nations Convention Against Corruption and the Open Government Partnership. These reforms will contribute to national economic development and facilitate a more attractive landscape for private sector investors.

10. Doesn’t a World Bank Loan Add to Jordan’s Debt Burden?

At the end of 2018, Jordan debt to GDP ratio stood at 94.4% (almost 63% of which was domestic). The share of World Bank lending to Jordan marked less than 6% of total publicly guaranteed debt. It is worth noting that World Bank loans come at significantly more favorable terms than what markets offer. They help a country refinance its debt and potentially reduce the debt burden while also changing the maturity profile of external debt.

The DPL2 brings the World Bank Group’s total commitments to Jordan to US$ 2.78 billion, of which US$ 228.2 million are financed by Global Concessional Financing Facility (GCFF). Launched in 2016, the GCFF provides concessional financing to middle income countries hosting large numbers of refugees at rates usually reserved for the poorest countries.

11. What are the DPL2 Financing Terms and How Will it Be Disbursed?

The DPL2 US$1.45 billion package is designed to disburse in two equal tranches to support the Government’s reform plan for growth and to allow adequate time for completion of necessary additional reforms that are central to the achievement of the program overall results.

The package comes at a significantly lower financing cost than market rates and benefits from guarantees of $250 million by the United Kingdom and $200 million by the Kingdom of Saudi Arabia. The terms of the loan are concessional, and the maturity of the loan is for 34 years. In financial terms, DPL2 provides significant advantage over market-based financing for budgetary needs.

12. Who is Responsible for the Implementation of the Reforms?

The Ministry of Planning and International Cooperation (MOPIC) is the main project counterpart vis-à-vis the World Bank. MOPIC will coordinate with other government organizations involved in the reform program – including Ministry of Finance, Ministry of Economy, Ministry of Labor, Ministry of Social Development, Ministry of Energy and Mineral Resources, Ministry of Digital Economy and Entrepreneurship, ….

13. How will the World Bank Group Track the Execution of Supported Reforms?

The World Bank will maintain regular implementation support to provide policy advice and technical assistance to the institutions involved in the implementation of the reform program. This is complemented by the ongoing World Bank engagements (including operations and Technical Assistance) in the sectors relevant to the DPL.