Jordan - Current economic position and prospects

nn)rlTMFNT OF INTFRNATIONAT. BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Repor NO. EMA-54n UUK1tLN1 LLUUNUN1U t'Ua11LUiN AND PROSPECTS OF JORDAN October 10, 1972 I mis report was prepared ior oiiiciai use only y bn ihe1Bank Goup. i nitay not bc pub'ushdU, quoted I or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  CURRENCY EQUIVALENTS Currency Unit: Jordanian Dinar (JDj) JD 1 = U$ 2.80 Us$1 JD 0.357 JD 1 million US$ 2,800,000.00  TABLE OF CONTENTS Page No. 11AP BASIC DATA SU'n^m!AR'f AN'D CONCLUSIONS ....................................... 0........ i I. DlACKTIOUUN ....................... * .... . *....... 1 II. ECONOMIC STRUCTURE AND PERFORMANCE ............... ... 3 IlI. DEVELOPMENT PLANNING ................................ 6 IV. POPULATION MANPOWER AND EMPLOYMENT ... ............... 9 V. DOMESTIC FINANCE .................................... 13 VI. THE BALANCE OF PAYIIENTS .............. ............. 16 VII. PROSPECTS ......................... ....... ..... 19 ANNEX - MAJOR ECONOMIC SECTORS ........................... 22 A. Agriculture .................................... 22 B. Industry' .............................. ......*. 35 C. Transport .. ..................................... 42 STATISTICAL APPENDIX This report is based on the findings of an economic mission which visited Jordan in November/December 1971. The mission was composed of Messrs. F.A. Atabani (Chief), A. Zaman (general economist), C.J. Martin (planining adviser), G. Yates (agricultural economist), R. Pioger (irrigation specialist), S. Wellisz (consultant on industry), K. Marsden (ILO consultant on employment and manpower), K. Mera, (regional economist), and R. Venkateswaran (transport economist).   Lo-k ;. Muttheibeh. | g |< T/b~~~~~~Unerra WCnontroetio;nl , J. f ;/ $t , /.~~t k T, b s It Xu,I Zerq |___ AMMAN0 El AzvoqO I~~~~1 e h ModWatt, _ : {~~~ ~~/AJ ,0 i it ))t 'iI ] ( *4ltl /-@tr~~~~~~~~~~~~~tano @ (I'J *I ! ,.,.11 > fif \ + I~Tofil ) / / )o opP Haso \ intar _p =r to t-o for gpitionra n ia by the international tank foe a Reconotru tton ' I I 'I ~~~~~~~~~~~~~~~~~~at h t . t .I111Ir-i | @3 / | Petrao) (a po l )/ ~~\\N IL,,. untetnu/uifHitiyO / RAILWAYS ASPHALT ROADS -s--a.-x>s Existing Pri-tay %A ~~~~~~~~-n a-s-.-.- Under Construction Setondory 1 / Sv t}/ aXonOnnnxnxxm PrNoposed Under Con ttuction ftN It Phosphate Deposits g)~ a' w- *s*******....Trons-Arobian P.pel.na \%t * Refinery Mudowwara l, a to 20 30 40 so 4W - - Otoupied TK,rUto,,es SFPTEMBER 1969 oRDn 25.2   Page 1 of 2 pages COUNTRY DATA - JORDAN ARF.A 2J POPULATION DENSITY 97,740 kmt 2.4 million ( 1971) 25 per k / Rate of Growth: 3.5% (frml96l t01970 ) 215.6 per km-of arable land POPULATION CHARACTEPTRSTTCS HAFALTH Crude Birth Rate (per 1,000) 45.6 (1970) Population per physician 3,680 (1966) Crude Death Rate (per 1,000) 18.0 (1970) Population per hospital bed 580 (1966) infant Mortality (per 1,000 live births) 28.0 (1968) INCOME DISTRIBUTION DISTRIBUTION OF LAND OWNERSHIP % of national income, lowest quintile ., % owned by top 10% of owners highest quintile *. % owned by smallest 10% of owners ACCESS TO PIPED WATER ACCESS TO ELECTRICITY % of population - urban 85 (1971) % of population - urban - rural 55 (1971) - rural NUTRTTION EDUCATION Calorie intake as % of requirements 98.0 (1964-66) Adult literacy rate % 55.0 (1965 Per capita protein intake 64.8 (1964-66) Primary school enrollment % 96.0 (1966) 1/ GNP PER CAPITA in 1971 : US $ 255 GROSS NATIONAL PRODUCT IN 1970 ANNUAL RATE OF GRO'w'TH (, constant prices) US $ Mln. % iL961-66 1t967- D-7 1970 GNP at Market Prices 577.1 100.0 7.9 -4*5 -17.4 Gross Domestic Investment 54-1 9.4 6.9 -13-3 -36.0 Gross National Saving 34.7 6.0 Current Account Balance, -19.4 -3.4 Exports of Goods, NFS2/ 84-5 14.6 13.6 0.6 - 6.2 Imports of Goods, NFS/ 251.8 43.6 10.5 7.1 -22.5 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1970 Value Added Labor Force V. A. Per Worker TS _$141n. % ThQusaa % US $ % Agriculture 81.2 16.7 115 32.9 70O6.1 Industry 82.1 16.9 25 7.2 3281L.0 Services 323.1 66.4 79 22.5 4089.9 Unallocated . .. 131 37 Total/Average 486' 100.0 350 100.0 GOVERNMENT FINANCE General Government CU'ntral Government (US $ Mln.) % of GP ( Mln.) % of GDP 1970 1970 1968-70 1970 _14970 _Qr_7n Current Receipts 183.9 33-9 33.8 183.9 33-9 33-8 Current Expenditure iQ5-5 -e ,,65.3 30.5 30.2 Current Surplus 18.6 3.4 3.6 18.6 3.4 3.6 Capital Expendituras 60.7 11.2 11.4 60.7 11-2 11.4 External Assistance (net) 6.4 1.2 2.1 6.4 1.2 2.1 1/ The Per Capita GNP estimate is at 1970 market prices, calculated by the same conversion technique as the 1972 World Atlas. All other conversions to dollars in this table are at the average exchange rate prevailing during the period covered. 2! Balance of Payment Fgitres not available  Page 2 of 2 pages COUNTRY DATA - JORDAN MONEY, CREDIT and PRICES 1965 1969 1970 1971 19Bl 197t2 (Million JI) outstanding end period) Money and Quasi Money 64.1 118.8 129.1 135.1 135.0 135.6 Bank Credit to Public Sector 2.1 io.6 16.0 27-5 26.4 30-3 Bank Credit to Private Se_tor 31.6 43.5 43.6 44.9 43.9 47.2 (Percentages or Index Numbers) Money and Quasi Money as % of GDP 38.2 53-9 66.7 65.4 General Price Index (1967 = 100) 111.6 117.9 120.3 121.5 123.1 Annual percentage changes in: General Price Index 11.6 5.6 2.0 Bank credit to Peblic Sector 189.1 50-7 71e 6 Bank credit to Private Sector 13.4 0.3 3-0 BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1968-70Q 1968 1969 IO US $Mln % (Millions US $) Phosphates 9.3 29.8 Tomatoes axid TomaHtoe j-ice 4.7 15.1 Exports of Goods, NtFS 72-5 87-3 84-5 Citrus Fruits 2.3 7.4 Imports of Goods, NFS 225.8 304.7 251.8 Cigarettes 1.5 4.8 Resource Gap (deficit = -) -17 -217Tj? -167rj Cements 1.1 3.5 Eggolants 0.9 2.9 Interest PayerLs (nt) 13.8 16.9 17.1 All other comodities 11, Workers' Remittances 11.5 19.4 15.5 Total 31.2 lOQ,0 Other Factor Payments (net) 3-8 3-0 2.7 Net Transfers 152.5 132.6 112.6 EXTERNAL DEBT, DECEMBER 31. 1970 Balance on Current Account 28.3 - 45j - 1 9. US $ MIn Direct Foreign Investment - 0.1 2.2 - 3.8 Net MLT Borrowing 12.5 11.0 2.2 Public Debt, incl. guaranteed 177.7 Disbursements (15-4) (13.2' '6.0' Non-Guaranteed Private Debt Amortization ( 2 ( 2.2 (3.8 Total outstanding & Disbursed Subtotal 12.4 13.2 - 1.6 Capital Grants .. .. .. DEBT SERVICE RATIO for 1971 21 Other Capital (net) 1.5 1.8 2.1 6.3 Other items n.e.i 1 I 1'IH Increase in Reserves (+) + 45.7 30.5 4.4 Public Debt, incl. guaranteed Non-Guaranteed Private Debt Gross Reserves (end year) 306.4 278.6 274.7 Total outstanding & Disbursed Net Reserves (end year) 294h8 266.6 262.4 RATE OF EXCHANGE IBRD/IDA LENDING, M4arch 31, 1972 (Million US S): Through - 1971 IBRD IDA US $ 1.00 = JDO.357 1.00 = US $2.80 Outstanding & Disbursed 10.3 Undisbursed 5.7 Since - 1971 Outstanding incl. Undisbursed ,.-- US $ 1.00 JDO.357 JD 1.00 = US $2.80 l/ Ratio of Debt Service to Exports of Goods and Non-Factor Services. not available  Summary and Conclusions i. Recent economic events in Jordan have been influenced by the 1967 war with Israel and the subsequent confrontation with the Palestinian guer- illa movements. The war, and the consequent occupation of the West Bank, led to widespread disruptions of economic activities and severely curtailed the growth of the most promising sectors such as agriculture, tourism and indus- try. Following the 1967 war, growing political tensions led to increasingly severe clashes between the Jordanian Army and the guerilla forces. The severity of the situation finally led the Government in September 1970 to use the army against the guerillas. As a result, the Government's authority once again extends to all parts of the East Bank of Jordan. ii. This success, however, has been bought at some economic cost. Arab aid which had assumed an important role in the post 1967 period, has been drastically curtailed through the suspension of both Libyan and Kuwaiti financial support with little promise of being resumed in the near future. Only Saudi Arabia continues to provide financial support to Jordan. A very difficult budgetary and balance of payments position was averted only through the resumption of budget support from the United States. iii. Capital aid, however, continues to be provided to Jordan on favor- able terms. The principal capital donors during 1967-71 have been, Saudi Arabia, the United States, the United Kingdom, the German Federal Republic who together contributed around 75 nercent of the total gross canital inflow of around US$55 million. The Government of Kuwait, the Kuwait Fund for Arab Economic Develonment and IDA contributed the balance in roughly equal pro- portions. iv. After 1967 Jordan, at first, paid little attention to development policies; nriorities and'other mediAn ar.d lon-ter.,m cons,ider i-.s. Te emphasis of economic policy was shifted toward short run management of the eronomy. With insufficient interest in overall ecor.o.ic development strategies and policies, the Jordan Development Board (JDB) deteriorated in effectiveness and imnortance as it lost its prominent role as well as most of its staff. There is, however, evidence that the Jordan Government is now turning its attention constructively to the -erlod ahead, as shon by the decision to re-vitalize the planning mechanism through the creation of a National Plan- nine rounril (renlacina the TDB) and to dra up, a ne Three Year Develop= ment Plan for which the best economic talent in the country has been en- gaged. The TNDP hns adreed, at tebGovernment's request, to finance a technical assistance project in planning. The World Bank will be the executing agency. v. The' new importance attached to planning and the emphasis on mediut. and long-term policies for the development of the productive sectors are like- ly to have a fa-oable ef fect n tAlle meUlu. ardU '.Log-term prospects of the economy. The most promising development potential exists in the agricultural  - ii - secto:. .Agricultural lar.1 and waeA tens r reairn the rnnmt valuahle of tfho coniiint-ruy natural resources and their future development could provide additional pro- Auction, exports andA em,ployment. At- present Jordan 4mports- ther larger part U L ..AI1,Lp L L L'. V)l_.L f- ~ f* * . , ',. -- - - - _r - of its food requirements and is not exploiting the export advantage it en- : ___ :J U%_ : a AL %-U..T - 14 tha 11,.1 successfulof A the cou.nt.M' 4- t rigated agriculture, rainfed farming and livestock, Jordan could supply most ofL its food r=eq4u`iremen1ts sucht as whLeat and m'eat and at the same- tim.e develop expotts of citrus and other fruits for which markets exist in other Middle LasterLL Countries - partLcuLarLy thl&e Gulf States = an- p Yly Europe too. Jorudan' rianufa-Ctuiring sectLr Ls still in an embryonic state of de= velopment. Small artisan type enterprises predominate. The Government pro- motes, protects anu regulates pLi-vate enterpIr is e anU sponsors r.odern , Large scale establishments. In the past Government sponsorship has helped to mobilize capital for "ilumpy" industrial investments, thus channelling ca- pital towards relatively capital-intensive projects that generate little em- ployment. This has meant that iess capitai was available to small lauor iF- tensive enterprises whose growth was thereby impeded. If industrial poli- cies are to be adapted to reflect the resources and the problems facing ehe Jordanian economy, then a way must be found to give direct and indirect aid to small scale industries. One possibie way or acnieving tnis would De by giving encouragement and providing finance to the Industrial Development Bank to set up special services to cater to the needs of small units. vii. At present phosphate rock is Jordan's largest single export and virtually the only product exported to non-Arab countries. Prospects for fu- ture expansion of phosphate mining are contingent upon the reopening of the Suez Canal and the development of new markets in South Asia and the Far East, whereas the development of phosphate-based industry requires the cooperation of potential customer countries. viii. The 1970 Establishment Survey has revealed that services (mostly puLlic) account for more than 30 percent of tile total labor force. Tne major employment categories within the Services Sector are the Army and lolice, public administration and education. Maintenance of a service es- tablislnient on such a scale has been made possible by the sizable budget support Jordan began receiving atter 1967. The suspension of a major part of Arab budget support since 1970 has made it difficult for the Government to maintain such a large establishment and almost impossible to expand it. There is clearly a need to begin longer term plans to expand employment op- portunities in the more productive sectors through capital-saving techniques and incentives. ix. Jordan's transport system is well developed and is not likely to be a constraint to economic growth over the next decade. However, Jordan faces the main problem of how to plan effectively for more intensive use of already constructed transport facilities while at the same time, protecting and maintaining investments already made and planning and improving selec- tively parts of the system justifying additional investments.  - iii - x. The Central Government budget in Jordan has traditionally been in deficit as a result of the limited tax base, the maintenance of a sizable de- fense establishment and the Government's efforts to promote the nation's eco- nomic development. The Government consistently relied on foreign aid (budget sunport) firstly from the United Kingdom, then from the United States and more recently from Arab Governments. Between 1967-1969 budget support con- sti.tfhted mnre than 50 percent of the total Government revenues but declined thereafter to 48 percent and 44 percent in 1970 and 1971 respectively. De- spite decl4ning budget Sunnort, total revenues increased by about 3 percent per year during the period 1967-71 as domestic revenues rose by around 9 per- cent per year nver the same period. At the same time and narticularlv after 1969 the Government has been attempting to curtail the rate of growth of to- tal expenditures which as reduced from 35 percent in 1Q67 to around-5 ner- cent in 1971. But the attempts to raise revenues and control expenditures were apparently not enough to prevent sizable overall budetar def-i cits from recurring. To finance these deficits the Government has drawn down its cash balances and borrowed extensively from the banking sector. xi. Recent domestic developments are reflected in the balance of pay- ments where substantial deficits have resulted from declining receipts from exports, LLLV.LisUbles and trar,sfers. -nIt97t, for th.e third successive year, both the current account and the overall balance of payments were in deficit. Elxyorts durAin6g the 190617=7'1 period suffered f-irstly from the Adisturbances 4-i the Jordan Valley that seriously affected agricultural production and second- ly from the recent temporary closure of the Syrianr border which affected both phosphate and agricultural exports. But in the past few months the Syrian autnorities have reopeneU tile'r borders fLor Jordanian exports. Durring th same period, however, the Jordanian authorities have maintained rather liberal trade policies based on low tariffs, minimum resort to quantitative restric- tions and free entry for such essential goods as foods and raw materials in an attempt to stabilize etie internal price level through easy access to Im- ports. Such a policy was made possible by the high levels of budget support received under the Khartoum Agreement. Current transfers from abroad have been a major item in the balance of payments and have helped to finance part o0 thfe deficit on tile traue ualance. Hiowever, these nave Uecl'liea s'inPe 1969 and are not expected to increase in the near future. xii. Capital aid has, in the past, been provided to Jordan mostly on soft terms. A large part of capital aid has been provided interest free and the remainder on 2 - 3 percent per year. -Average maturity has been around 24 years with 6 - 8 years grace. External public debt outstanding at the end of 1971 was JD 64 million (US$178 million) of which JD 17 million (US$48 million) was undisbursed. Debt service as a percentage of earnings from ex- ports and non factor services, was 6.3 percent for the same year. In view of Jordan's limited ability to service external debt, its limited resource base, the low per capita income and the need for substantial and continued external assistance if the country is to develop its productive sectors, capital aid should continue-to be provided on concessionary terms.  xiii. With the Government's recent concern with development issues and the reorientation of economic policies that is currently being undertaken as part of the Three Year Plan, and barring a repetition of the 1970 civil dis- turbances, the future prospects of the Jordanian economy appear to be better than at any time since 1967. But to realize the full development potential, leading to an eventual phasing out of budget support, will be a long-term process in which the Three Year Plan is to be viewed as a first step only. During the Plan period it is expected that Jordan will continue to need bud- get support of about the same magnitude of the recent past (around JD 35 million a year). Gross Domestic Product could grow by 5 - 7 percent per year between 1973-75. From recent experience, gross investment, to be channelled mostly to agriculture and industry, could be around JD 35 million a year and national savings between JD 15-17 million a year. The deficit on the current-account is projected at between JD 18-20 million a year. However, prospects for the longer term will depend on Jordan's ability to sustain the development momentum, adopt the appropriate economic policies and in- vestment criteria. Given these preconditions and assuming that peace re- turns to the area, it is likely that the country can match the rates of economic progress that were experienced in the pre 1967 years.  I. INTRODUCTION 1. Lying in the arid zones of the Middle East, Jordan covers an area of around 97,000 square kilometers, of which about 6,000 square kilometers lie on the West Bank of the Jordan river. Only about 5 percent of the total is cultivable land. Cropping on about 90 percent of the cultivable land is dependent on limited and irregular rainfall. Irrigated agriculture is main- ly confined to the Jordan rift valley. Besides phosphate rock, which is ex- ported in sizable quantities, there are few known mineral resources. 2. The population of Jordan is estimated at 2.42 million in 1971. Of this total approximately 1.72 million live in the East Bank and the re- mainder in the West Bank. Population growth has averaged 3.5 percent a year since 1961. Over the same period the population density increased fron 18 to 25 per square kilometer. One third of the labor force is em- ployed in agriculture, while industry provides employment for one tenth of the labor force and a similar proportion are engaged in construction activities. Somewhat more than one third of the total labor force finds employment in the services sector. 3. The Government of Jordan is a hereditary constitutional monarchy with a bicameral legislature consisting of a Council of Notables appointed by the King and a Council of Representatives elected by male suffrage. Executive power is vested in the King and the Council of Ministers. The Cabinet and the Prime Minister are appointed by the King. 4. Recent political and economic events in Jordan have been influ- enced by the 1967 war with Israel and the subsequent confrontation with the Palestinian guerilla movements. The war and the consequent occupation of the West Bank. led to widespread disruption of economic activities and severely curtailed the growth of the most promising sectors such as agriculture, tourism and industry. Growing political tensions led to increasingly severe clashes between the Jordanian army and the guerilla forces. Initially, the monarchy was hesitant to take action against the guerillas who, by the summer of 1970, had assumed physical control of large sections of Jordan and were collecting levies even in Ajmman. The severity of the situation finally caused King Hussein to use his army to assert his sovereignty, and consequently engulfed the country in a civil war in September. Following the civil war and the Jordanian army's final thrust against the guerillas in the summer of 1971, the Government's authority once again extends to all parts of the East Bank of Jordan. While the Palestinian guerillas were forced to seek refuge in neighboring Arab countries, Jordan is repairing the war damages, hampered only rarely by anti-government gestures to which the authorities have re- sponded firmly. But there still remains to be settled the fundamental question of a lasting peace in the area and the state of the West Bank. In March 1972, King Hussein advanced.a proposal for the creation of a United Arab Kingdom combining two states, one in East Jordan and one in West Jordan, under the leadershin of the King. The two states wnuld enJoy va suthtantial measure of local autonomy.  2- 5. The Government's success in reestablishing its authority and con- trol over the country affected its relations with some of the countries in the Arab world. The elimination of the guerillas not only cost Jordan financial support from Libya and Kuwait, but also led to the temporary closure of the Syrian and Iraqi border to Jordanian trade. Specially the action by the Syrian government has had far-reaching repercussions on the economy of Jordan since the vast majority of Jordanian exports and imports pass through Syria. However, the borders have recently been partially reopened for transit traffic and exports of Jordanian phosphates, fruits and vegetables.  II. ECONOMIC STRUCTURE AND PERFORMANCE 6. Agriculture, including livestock production, accounting for around 18 percent of GDP, is the largest productive sector in the economy, employ- ing one-third of the labor force and earning around 45 percent of export re- venues. Industrial production is making a moderate but increasingly impor- tant contribution to GDP despite the sethack-s resulting from the 1967 war. the civil disturbances of 1970, and the consequent disruption of domestic and foreign markets. The eronomy is verv hpavilv denendent on external transfers, which together with net factor income from abroad have, on aver- age, accounted for about one-fourth of GNP since 1969. In its trade rela- tions, Jordan is a limited exporter of some agricultural commodities and phosphates, while 4-m,t--4"ra c^nmparai-4elyr lavrg chrro e-of fnnodtuffs, manufactures for consumers, and capital equipment and producer goods. The economy Ls essentially a-Ad on a free omrket concept, b 4nc the mid- 1950's the Government has acted in a regulatory and promotional capacity in sponsor