Jordan’s Economic Reforms

1. Jordan’s Economic Reforms The Exchange May 13-15, 2013 Abu Dhabi, United Arab Emirates,

2. Outline Background Information. The Economic Crisis (1988-1989). Jordan's Economic Adjustment Programs 1989-2004. Major Pillars Main Objectives Main Achievements. National Program 2004-2009 Main Components and Objectives Public Sector Reform Current Challenges.

3. Background Information The Jordanian Economy is an Open Small Country with a vision toward a Market-Oriented approach with Abundant Skilled Human Resources despite the Limited Natural Resources. Population: 6.38 million in 2012. Geographical Area: 89.3 Thousand Sq.Km. Upper Middle-Income Country : Nominal Percapita Income $4849.8 in 2012.

4. The Economic Crisis 1988-1989 Main Features • Deterioration of real GDP growth ( -13.4% ). • Double-digit inflation rate ( 25.7% ). • Aggravation of external debt 190% of GDP. • Mounting budget deficit 20.8% of GDP before grants and 10.1% of GDP after grants. • Severe depletion of foreign exchange reserves. • Sharp devaluation of the Jordanian dinar.

5. The Economic Crisis 1988-1989 Main Causes External Shocks Sharp fall in grants. Remarkable reduction in workers' remittances and national exports to Arab oil producing countries. Internal Factors Expansion of public sector. Intensive government subsidies. Inefficient tax system and trade regime. High levels of Borrowing from the Central Bank.

6. Jordan’s Economic AdjustmentPrograms 1989-2004 Jordan has been implementing comprehensive economic adjustment programs since 1989. It has adopted sex IMF-supported programs during the period 1989-2004 before its "graduation" from such programs in July 2004.

7. Jordan’s Economic AdjustmentPrograms 1989-2004 Major Pillars Attaining macroeconomic stabilization to effectively mange demand side in the Jordanian economy. Implementing structural reforms to strengthen the supply side of the national economy

8. Key Reform Measures by Sector Public Expenditures Removing subsidies and building a social safety net. Controlling employees payrolls. Rationalizing govt. procurements of goods and services. Reforming the pension system. Adopting a national privatization program.

9. Jordan’s Economic AdjustmentPrograms 1989-2004 Main Objectives Reducing the budget and current account deficits. Controlling inflation rates. Rebuilding CBJ foreign reserves. Achieving sustainable growth.

10. Key Reform Measures by Sector Public Revenues gradually Reform tax system eventually leading to the application of VAT(Applying general sales tax in 1994). Lowering income tax rates (Highest 45%). Merging the Income Tax and the General Sales Tax (GST) Departments into a single department. Gradual liberalization of foreign trade and tariff structure reform (Reducing the custom tariff ceiling to 30%). Raising prices of petroleum products.

11. Key Reform Measures by Sector Public Debt Enacting a new Public Debt Law. Rescheduling external debt . Stopping borrowing from commercial creditors. Concluding debt swap and debt repurchase agreements. Writing-off part of external debt (Paris and London Clubs). Shifting towards internal public debt through issuing treasury bills and bonds. Early repayment of Brady bonds.

12. Key Reform Measures by Sector Investment Promotion Upgrading the investment institutional framework. Simplifying the investment procedures through activating the one-stop shop. This facility has reduced the registration required period from 98 working days to 36 working days and then to 11 working days. Developing the investment incentive regime.

13. Key Reform Measures by Sector Monetary and Financial Sector Fully liberalizing interest rates structure. Shifting towards indirect monetary policy. Implementing full convertibility for both current and capital transactions. Pegging the Jordanian dinar to the US dollar (1995). Strengthening banks’ supervision and regulation. Enacting modern banking law. Increasing the minimum banks’ paid – up capital.

14. Key Reform Measures by Sector Monetary and Financial Sector cont. Increasing the capital adequacy ratio. Activating competition among banks. Creating Jordan deposit insurance corporation. Separating regulatory functions from operational functions in Amman financial market. Modernizing Amman financial market and creating central settlements and securities depository.

15. Key Reform Measures by Sector External Sector Improving the efficiency of Customs Administration, gradually reducing the tariff rates and exempting the industrial production inputs. Eliminating state monopoly in trade sector and opening it to the private sector. Concluding several important multilateral and bilateral trade agreements, such as with the WTO,EU and US Free Trade Area, QIZs.

16. Key Reform Measures by Sector During the period 1990-2004, Jordan enacted many new laws and bylaws and amended existing ones in various sectors. The following are some of the most important examples: • Competition Law • Telecommunication and Electricity Laws • Electronic Transaction Law • Customs Law • Companies Law • Securities Law • Public Debt Law • Banking Law • Leasing Finance Law • General Sales Tax Law • Privatization Law • Investment Promotion Law • Income Tax Law

17. Jordan’s Main Achievements

18. 2004-2009 Challenges Heavy burden of outstanding external debt, despite the substantial reduction in debt-to- GDP ratio. High levels of Poverty and Unemployment. Vulnerability to external shocks steaming from the region.

19. National Reform Program2009-2005 Main Components and Objectives Maintaining and reinforcing achievements made under the completed IMF supported programs. Enhancing self-reliance. Reducing unemployment and poverty rates. Strengthening resilience of Jordan’s economy against external shocks. Improving the competitive position of the Jordanian economy. Deepening the domestic financial market through diversification of financial instruments and strengthening institutions and regulations

20. National Reform Program 2005-2009

21. The Strategy of Financial Reform2007-2004 In order to participate in government efforts of reforming the Public Sector (PSR), the Ministry of Finance has adopted a comprehensive strategy for the period 2004-2007 as one of the major elements of PSR.

22. The Strategy of Financial Reform The Vision Highly effective & efficient financial management. The Mission Meeting the development needs of the Kingdom through, securing financial resources, setting spending priorities, managing public debt and financial commitments, and providing suitable services for both public and private sectors.

23. The Strategy of Financial Reform The strategy was build upon a mission of the IMF/ WB, This mission was with aim to enhance: Participation and common commitment Transparency and disclosure Integrity & Honesty Equity and objectivity Responsibility and accountability Self dependence

25. Aims of Financial Reform • With support from the IMF, World Bank, USAID, GTZ (now GIZ) and other donors, Jordan has taken many steps to strengthen fiscal policy and its management in order to: • Increasing the efficiency of the planning, preparation and execution of the budget in line with national priorities.

26. Financial Management Reforms including: Medium Term Fiscal Framework (MTFF). Result Oriented Budgeting (ROB). Treasury Single Account (TSA). Budget Classification (GFS 2001). Cash Flow Management (CFM). Government Information System (GFMIS). E- Accounting, E- Procurement, E-Payment. Public Expenditure Review (PER). Institutional Capacity Building and Human Resources Development Lands and Registration Taxes

27. Public Financial Management (PFM) reforms recommended by the 2009 IMF/World Bank mission to Jordan • The main achievements include: adoption of a revised budget calendar providing more time for expenditure review and strategy analysis; deepening results-oriented budgeting (RoB) by further improving the definition of ministry and program level objectives, performance targets and indicators; aligning the government capital spending program and the Executive Program; introducing a new macroeconomic forecasting model scheduled to be fully • Extending the treasury single account (TSA) coverage to budget and trust accounts in commercial banks and transferring most government revenues in commercial banks to the TSA on a daily basis; • and expanding the scope of the Government Financial Management Information System (GFMIS) project to include budget preparation thus paving the way for an integrated approach in improving PFM.

28. PFM reforms revised action plan In 2011 PFM reforms recommended by the 2009 mission and suggested changes to the action plan and timeline for their implementation. The revised action plan also identifies existing and currently planned donor support in PFM by the IMF, including METAC and the World Bank (WB), as well as by USAID,6 the EU, and GTZ. The main reform objectives that remain are, to: (i) strengthen the management of there form process, by addressing its persistent fragmentation, both from the authorities and donors’ side; (ii) establish an integrated budget planning and management process that effectively links policies to public resource allocation; and (iii) further develop treasury systems, including government banking arrangements, commitment controls; cash management and GFMIS

29. New program 2011 The program will have three main objectives: First, to restore macroeconomic and financial stability. The program seeks to implement sustainable fiscal, monetary and financial and structural policies Second, to make policies more equitable and inclusive. Third, to support growth and the medium-term external position by improving the investment climate through targeted structural reforms.

30. strengthen public financial management (PFM) Over the past two years, we simplified our budget preparation calendar; compiled a comprehensive Budget Manual; enhanced expenditure analysis capacity with the publication of Public Expenditure Perspectives; provided extensive training for our staff on the Government Financial Management Information System (GFMIS), Key Performance Indicators (KPIs) and Results-oriented Budgeting (RoB). In the context of our on-going reform plan. Improve our cash management and Commitment Control System (CCS) In particular, we will introduce a commitment control system through the GFSM to register, report and account for expenditure commitments against [monthly] cash allocations Accelerate the rollout of the GFMIS and TSA, especially the CCS module in GFMIS.

31. Key Projects and Programs of Financial Reforms

32. Aims of Financial Reform • With support from the IMF, World Bank, USAID, GTZ and other donors, Jordan has taken many steps to strengthen fiscal policy and its management in order to: • Increasing the efficiency of the planning, preparation and execution of the budget in line with national priorities.

33. Financial Management Reforms including: • Medium Term Fiscal Framework (MTFF). • Result Oriented Budgeting (ROB). • Treasury Single Account (TSA). • Budget Classification (GFS 2001). • Cash Flow Management (CFM). • Government Information System (GFMIS). • E- Accounting, E- Procurement, E-Payment. • Public Expenditure Review (PER). • Institutional Capacity Building and Human Resources Development • Lands and Registration Taxes

34. 1. Medium Term Fiscal Framework (MTFF) Aims: • Improving the Medium Term Fiscal Framework MTFF preparation process. • Forecasting the budget over short and med term using modern approaches and throw away the traditional way in allocating expenditure and thus by defining the overall spending ceiling and the partial ceilings.

35. 2. Result Oriented Budgeting (ROB) Aims: • Implement the result oriented budgeting concept in all line ministries and government institutions • Link the government expenditures with targeted results through the adoption of key performance indicators in line with the concept of ROB.

36. 3.Treasury Single Account (TSA) Aims: • Establish Single Treasury Account for all government accounts at the commercial banks and Central Bank and unifying itunder one single account to be controlled by the Ministry of Finance.

37. 4. Budget Classification (GFS 2001). Aims: • Improve the budget classification in accordance with the best international standards that supports transparency and clearness to help in analyzing and controlling the budget and decision-making.

38. 5. Cash Flow Management (CFM) Aims: • Attaining effective management of treasury accounts through • Increasing the efficiency of the treasury cash flows. • Allocating needed liquidity through improving the monthly cash flow plans

39. 6. Government Financial Management Information System - GFMIS Aims: • Computerizing the general budget systems and link all budget units with MOF • Improving transparency through building an information system and a central database covering the central government financial activities

40. 7. E-Accounting, E-Payment and E- Procurement ِAims: To support the country's public administrative reform process to set up a modern unified government-wide e-accounting, e-procurement and e-payment system in order to: • Reducing transaction costs and time and • Building up data base for revenues according to it sources • Increasing the efficiency of the public procurement. • Simplify revenue collection procedures, enhance the level of service provided, and reduce the size of personal mistakes.

41. 8. Public Expenditures Review (PER) Aims: • Review annually the main sectors expenditures to evaluate it and increase efficiency of resources.

42. 9. Institutional Capacity Building and Human Resources Development Aims: • Establish the training center and provide necessary training for MOF and related departments employees • Increase the matching between the job description matching and the employees qualification

43. 10. Lands and Registration Taxes Aims • Improving the qualifications of government Qualify staff working in fields related to property tax. • Make amendments to concerned legislation • Establish a unified database for property taxes • Delegate the Minister's authorities to the municipalities. • Improve level of services to citizens. • Improve tax collection.

44. What we want and still? • Providing financial assistant and know-how, • Sharing experiences and capacity building on best practices and lessons learned from others in financial reform

45. Concluding Remarks We strongly believe that Jordan’s comprehensive economic adjustment path since 1989 has been hard but fruitful domestic efforts supported by the international community. This positive outcome gives us convincing reasons for confidence that Jordan will be able to meet remaining challenges, accumulate achievements, in spite of the challenges and obstacles, we emerge as an example for a small country looking for the attainment of sustainable economic growth.

46. THANKS