Acceleration of Investment-Enabling Reforms Needed for Resilient Recovery and Inclusive Job Creation

Despite a challenging global and domestic environment, Jordan’s growth during the first half of 2022 accelerated to 2.7 percent, propelled by a strong recovery of tourism, the full reopening of the economy, and improving exports. Yet, the rebound in growth was only modestly reflected on labor market indicators. An acceleration of structural reforms is needed to address long-standing challenges to private sector-led growth and support the economic inclusion of women, youth, and other segments of workers in the formal labor market.  

According to the World Bank’s latest edition of the Jordan Economic Monitor (JEM) Fall 2022 titled: “Public Investment: Maximizing the Development Impact”, external economic conditions have deteriorated due to the global food and fuel crisis. Export growth in Jordan was robust (44 percent in the first half of 2022), but the increase in the imports’ bill and a wider current account deficit led to sustained pressures on the balance of payments. Inflation has also reached its highest level since 2018 but remains contained compared to regional peers. On the fiscal front, while domestic revenue collection continued to improve as a result of the economic recovery and efforts to broaden the tax base, higher revenues were outpaced by greater public spending.

“Jordan’s economy has been severely impacted by the challenging global context, notably the increase in global commodity prices,” said Jean-Christophe Carret, World Bank Mashreq Country Director. “In an effort to increase resilience and support economic recovery, the Government of Jordan adopted several measures to mitigate the impact on consumers and businesses, particularly vulnerable households and workers. Yet going forward, a faster pace of reforms is critical to unlock Jordan’s growth potential and for inclusive job creation, particularly for women and youth.”

The Fall 2022 JEM recommends to focus future domestic policy measures on building resilience and cushioning the impact of global risk factors, through 1) the acceleration of structural reforms and improving long-term fiscal sustainability; this also requires mitigating fiscal pressures from SOEs, notably in the energy and water sector and, 2) the adoption of deep labor market reforms to overcome labor market segmentation and unlock Jordan’s human capital potential. Over the medium term, a more challenging global environment and higher borrowing costs will warrant a more cautious fiscal consolidation trajectory to ensure that a primary surplus can be achieved by 2025.

The Special Focus Section of the JEM highlights the role of public investment as a driver of growth, with a focus on recent trends, and the efficiency and effectiveness of capital spending. This is particularly relevant given Jordan’s limited fiscal space. Public investment spending in Jordan has steadily declined during the past two decades to reduce the fiscal deficit, but also due to consistent under-spending compared to the budget and insufficient allocations for operation and maintenance costs.

“Jordan has made important progress in improving the institutional and implementation framework for public investment. Given the important of public and private investment for realizing the Vision 2033, it will be critical to maximize the efficiency of public investment; this requires strategic, long-term planning based on realistic financing assumptions as well as transparent project selection,” said Hoda Youssef, World Bank Senior Country Economist.

With Jordan being highly vulnerable to climate change and extreme weather conditions, purposefully integrating climate concerns in public (and private) investments would also advance the Kingdom’s achievement of its climate targets and promote a transformation towards a greener economy, in line with the Economic Modernization Vision 2033.