HASHEMITE KINGDOM OF JORDAN The World Bank Group FOURTH QUARTER 2006 A Quarterly Publication of the Jordan Country Unit In this edition Page • World Bank Contacts 2 • Strategy for Public Private Partnerships 3 • Recent Economic Developments 9 • Bank Group Operations 13 • A Strategy for Modernization of Social Safety Net in Jordan 17 • Recent World Bank Publications 19 Hashemite Kingdom of Jordan Update World Bank Contacts Joseph Saba, Country Director World Bank Internet Address: Tel. (202) 473 2992 www.worldbank.org Fax (202) 477 1482 Email: Jsaba@worldbank.org To view and order World Bank Publications: http://publications.worldbank.org/ecommerce/ Sebnem Akkaya, Senior Country Economist Beirut Country Office For more information on World Bank Tel. (961 1) 987 800 programs in Jordan: Fax (961 1) 986 800 www.worldbank.org/mena Email: Sakkaya@worldbank.org To locate research papers, best practices, Sophie Warlop, Operations Analyst terms of reference, presentations, key Tel. (202) 473 7255 policies, communities of practice, project Fax (202) 477 1482 information and useful links from the World Email: Swarlop@worldbank.org Bank and other sites: Email: askMNA@worldbank.org Lorraine James, Program Assistant Tel. (202) 473 5621 Jordan Public Information Center Fax (202) 477 1482 Department of Public Libraries Email: Ljames@worldbank.org Greater Amman Municipality Downtown, Next to the Roman Amphitheater World Bank Address: Tel: 962-6-4627718/9 1818 H Street, NW Washington, DC 20433 Editorial Team: Sebnem Akkaya Hooman Dabidian Chadi Bou Habib John Speakman Sophie Warlop With special thanks to Mary Saba 2 Fourth Quarter 2006 Hashemite Kingdom of Jordan Update STRATEGY FOR PUBLIC PRIVATE PARTNERSHIPS Government partnerships with the private sector infrastructure development. For each percentage for the delivery of public services and economic point of GDP growth in GDP, the infrastructure development form a key component of the stock rises by one percent. There will be Government of Jordan (GoJ)’s economic significant expenditure needed in the water and development strategy. This commitment to energy sectors. In Jordan, investment in these Public Private Partnerships (PPP) was reflected sectors is relatively expensive because there are in Jordan’s program for social and economic no large rivers or easily exploitable energy transformation which aimed to: (i) attract more resources. private capital by accelerating the privatization program, promoting private investment in large Major Planned Infrastructure Projects 2006-2015 infrastructure projects and further improving the Indicative Financing environment for private investment; and (ii) Sector Illustrative Projects Required for improve the efficiency and effectiveness of the Sector government institutions and delivery of basic Amman East, Aqaba- $2-3 Billion public services through public sector reform Energy Amman Power Transmission, Wind Power programs. This commitment is reaffirmed in the Telecom. $0.2-0.3 Billion National Agenda. Queen Alia International $1-1.5 Billion Transport Airport, Aqaba Port, Zarqa Background Light Rail Water Disi Water Conveyor1 $1-2 Billion Other Solid Waste $0.5 -1 Billion GoJ has successfully engaged in many PPP Municipal projects, but there is still a significant need for Projects further improvement in PPP practices, despite Total $4.7-7.8 Billion Source: Bank Staff Estimates. the recent success with the Amman East power station. There is significant market interest in The GoJ needs to find more innovative means of PPP investment, with substantial local and financing. At present, total capital expenditure is regional liquidity available. PPPs present the 19 percent of the budget (about 7 percent of GoJ with a unique opportunity to: (i) relieve the GDP.) This level of investment is insufficient to constraints on the budget; (ii) improve overall meet the needs and is significantly lower than economic efficiency; (iii) mitigate risk; (iv) other top–performing economies. Clearly, in an attract significant new private sector investment; environment where the budget is under stress, and (v) strengthen the balance of payments. the GoJ cannot provide for all the country’s capital needs. Among many PPP projects implemented by GoJ, are some significant successful cases in The GoJ will have to seek the assistance of the infrastructure, energy, education, and tourism, private sector. This can be done either by such as Amman buses and water, the gas allowing the private sector to deliver the pipeline from Egypt, the tourism sector in activity, or implementing some kind of Aqaba, tertiary education, and telecoms. There partnership with the private sector. Private sector are also some failed or delayed experiences. involvement brings three particular advantages: (i) it can help improve operational efficiency, The needs are great and the GoJ lacks thereby reducing operational outlays; (ii) it financial capacity to respond to these needs. either removes capital expenditure or defers Over the next decade, Jordan will likely need capital expenditure; and (iii) it strengthens the about US$6 billion to finance its infrastructure. GoJ’s balance sheet by transferring debt and The National Agenda emphasizes that Jordan’s some risk to the private sector. ambitious growth plans will not happen if there is not adequate water, power, transport and telecommunications. Studies show that there is a close relationship between economic growth and 1 Excludes the Dead Sea/Red Sea Canal Project. Fourth Quarter 2006 3 Hashemite Kingdom of Jordan Update Jordan’s PPP Program—Lessons attract any private investment. In addition to Learned designing smart subsidies, good regulation is essential. Investors need certainty that tariffs Jordan needs effective decision-making and will remain viable. This can be achieved through better preparation. Review of Jordan’s PPP independent regulators, as can be found in the experiences in the water and sanitation, energy, electricity and telecom sectors or through transport, municipal services and tourism sectors regulation by contract. provides a number of important lessons. PPPs have been successful when there has been a Strengthening The Enabling strong and committed leadership addressing Environment design issue. PPPs have failed when the GoJ has been indecisive and where the projects have not There are a number of significant weaknesses in been properly prepared. the enabling environment for PPPs when Jordan is compared to countries successful in PPPs: In a number of cases, important PPP transactions were not properly conceived and planned. Basic • There is no overarching policy and legal questions were not answered before taking the framework. project out to the market: (i) will investors bid • PPPs are not tightly integrated into the for the project as conceived; (ii) is the GoJ GoJ’s economic planning. willing and able to pay the expected charges, • There is no dedicated PPP institutional subsidies or grants; and (iii) are the project capability. agreements complete and in a form that will be • There are significant weaknesses in local acceptable to private investors. Using the same capital markets. complex hierarchical decision-making structure for PPPs as privatization deals resulted in delays Policy and legal framework is a necessary and deterioration of private sector interest. condition for overall PPP effectiveness. When the right framework is in place transactions will A review of Jordan’s PPP program shows three happen. Moreover international experience broad lessons: shows that countries which were successful in attracting private investment have a separate • There is room for improvement in how the policy and legal framework for PPP and have PPP process is carried out. branded it separately from privatization. In • There is an opportunity to be smarter about Jordan, PPPs are not closely aligned with subsidies. economic planning. There are two concerns: • When Jordan’s experience is compared against best practice, the need to strengthen • PPPs carried out in isolation of economic the enabling environment is clear. planning may not be priorities or provide real savings. PPP provides an opportunity for the GoJ to • There is no mechanism to estimate, make subsidies more efficient. For PPPs to consolidate, and integrate contingent work, tariffs should allow for cost recovery. For liabilities into the overall budget process. segments of the population that cannot afford cost recovery tariffs, Output Based Aid (OBA) PPPs need a dedicated institutional capability or performance-based subsidy models can be closely linked to the Ministries of Finance and used to bridge the gap. These models suggest Planning. A sound policy and legal framework, that when affordability is an issue, subsidies can together with integration into the GoJ’s be justified as long as they are explicit, targeted economic planning is not enough. To resolve the and performance-driven. In the absence of cost processing problems mentioned above, a recovery tariffs or OBA models, private dedicated institutional capacity is required. At investment will not be possible. Consequently, present Jordan lacks such a capacity. in the water sector, the GoJ settled for management contracts with the private sector, PPPs can be used to encourage necessary and in solid waste management, it failed to capital, market reform. Strong local capital 4 Fourth Quarter 2006 Hashemite Kingdom of Jordan Update markets are essential if the full potential of PPPs the synchronization of the GoJ’s is to be unlocked. Local investment banks have procurement rules with PPP process. the potential to support PPPs, but lack basic • The development of a comprehensive tools, such as a robust bond market. One of the approach to improving subsidy efficiency, reasons for a weak bond market is the fact that so people needing subsidies continue to get the GoJ is not very active or innovative in them. The private sector can take on a larger raising debt through local capital markets on its share of project risk, and the quantum of own account or through PPPs. There is, thus, no subsidy paid from the budget can be reliable reference yield curve available to the reduced. This is an area where OBA market. Also there are no specific risk mitigation techniques can be introduced. instruments available. In these areas, there has been some progress. A The GoJ must exercise leadership in this draft policy is under preparation. Work is program. It is critical that PPPs be supported underway on developing a standard and monitored by the GoJ as a whole. PPPs methodology for PPP process. should not be delegated solely to line ministries for implementation. There should be a strong, The medium-term priorities will tend to resolve high level oversight of the program. This is themselves naturally. In terms of other medium where the Ministries of Finance, Planning and term priorities, the need to develop capital Industries can play important roles, and why a markets, building an internal incentive system clear policy statement is so important. for PPPs, and creating a water regulator represents the next group of issues to attend to. The policy matrix below summarizes the The issuing by the GoJ of longer maturity bonds recommendations and provides some broad so a secondary market can be developed is one options to address challenges for a successful such initiative. Fortunately, there is plenty of PPP program in an enabling environment. The liquidity at present and the capital markets are policy matrix defines these measures in terms of unlikely to be a binding constraint to implement short-term, medium-term, and long-term transactions. However, as the market becomes initiatives. more sophisticated in terms of evaluating risks, these questions will become pressing. With What TO Do First? internal incentive systems again this links closely with public expenditure reforms. What is The list of issues identified is daunting. Clearly, important is to make sure they are included. Like it would take a number of years to satisfactorily many of the medium-term priorities which will resolve all the issues. Therefore, a parallel track tend to evolve naturally through pressure of should be adopted, whereby transactions market forces, the establishment of a water continue and pilot some of the new concepts and regulator can wait. If one looks at the other at the same time work continues to build the regulatory experiences in Jordan, it shows that institutional underpinnings for PPP. Three medium-term priorities only evolved when there urgent institutional matters require attention: was a pressing market need. • A comprehensive PPP policy statement that Significant Needs For PPPs In sets out commitment and some key Different Economic Sectors operating principles in terms of There are investment needs in most areas of responsibilities for implementation. Government service delivery. Tourism and • The development of an agreed and vocational training are other areas with consistent methodology to implement PPPs, investment needs and these areas have been including processes and procedures and assigned high priority in the National Agenda. establishing that detailed financial, market, Development of municipal level economic and engineering analysis must feed into the activities is also important. design of transactions, and be carried out before transactions proceed. This includes If structured properly, there is tremendous potential for PPPs in Jordan in virtually every Fourth Quarter 2006 5 Hashemite Kingdom of Jordan Update sector at both the GoJ and municipal level. A • Waste Management (collection, disposal, quick survey of various sectors shows that most landfills); of the pipeline for PPP projects will probably be • Other municipal services. in the following areas: A Policy Matrix summarizing the • Water (distribution); recommendations follows. The following Policy • Wastewater (collection, treatment); Matrix provides some broad options to address • Roads (O&M, bridges, bypasses); challenges in undertaking a comprehensive and • Other transport (airports, seaport); sustainable PPP program in each sector. The • Electricity, including renewable energy policy matrix defines these measures in terms of generation; short-term, medium-term and long-term • Social sector (delivery of health, education initiatives. and housing with emphasis on facilities management); POLICY MATRIX Area Issues Options for Way Forward2 ENABLING ENVIRONMENT Policy Gap • GoJ’s privatization program is associated with Short-Term sale of assets. Most successful PPP programs • A formal PPP policy announcement would demonstrate a focus on provision of more and better services renewed GoJ focus on improving and enhancing service and transferring risk to the private sector. delivery and attracting private investment and expertise. Legislative • Privatization Law allows private participation Short-Term Gap structures but does not cover all possible • Given that the Privatization Law is the only legislation that structures. deals with BOTs and its various forms, it would be • The Department of Public Works is drafting a appropriate if the PPP regulations are drafted by EPC. The procurement bill, to include PPP procurement. existing draft regulations are for ALL activities under the EPC is drafting its own regulations detailing the Privatization Law. PPPs must be clear and a separate set of process for privatization transactions. regulations issued, to avoid confusion. Infrastructure • Line Ministries undertake investment plans for Medium-Term Planning and service delivery, but the process is not structured. • Infrastructure planning should be consolidated and closely Fiscal Issues • Infrastructure planning is not closely aligned with linked to the budgetary process. Infrastructure projects must the budgeting or fiscal planning process. be backed by robust business cases. • At times there is confusion on who gives the final • Ministries / public institutions should prove that PPP is not sign off on projects. Project planning and the best way before receiving any allocations. approval process is diffused between the • Guidance must be provided on how to understand, estimate, Ministries of Finance and Planning. record and provide for explicit and implicit liabilities • There is also a need for inter-ministerial arising out of PPP deals. coordination for cross sector issues. • Existing budgeting process to be replaced with a fully • There is very little understanding of implicit and functional MTEF at the earliest. explicit contingent liabilities arising out of PPP Long-Term deals, let alone being able to value and ”provide” • Create a specialized fund to backstop GoJ’s commitments for them. to PPPs, and create more confidence to invest and lower the project risks / costs. Institutional • EPC has developed strong in-house capacities Short-Term Transaction over time, however, it still lacks project finance • There is a need for a separate ring fenced centralized PPP Execution expertise and specific expertise in drafting and Unit. It could be created under the general umbrella of the and Capacity Building negotiating PPP type agreements. EPC, but again it may be advisable to have its own branding. • The Unit must establish ‘gateways’ through which PPP projects must go and play a coordination role aligning its work with investment planning and budgeting functions. Medium-Term • Regulations must be accompanied by detailed guidelines. • Main terms of the PPP contracts can be standardized so that all projects have similar risk profiles. 2 Short Term=1 year and less. Medium Term=1-3 years. Long Term=3+ years. 6 Fourth Quarter 2006 Hashemite Kingdom of Jordan Update POLICY MATRIX Area Issues Options for Way Forward2 Project • All ministries must have, like the Ministry of Short-Term Monitoring Water and Irrigation, a Project Management Unit • Independent ex-post audit of PPP deals will ensure and monitoring PPP deals for compliance. transparency, timely decisions and well negotiated deals. Auditing (and ex-post • The Audit Authority has never audited Capacities maybe created within the Audit Authority to review) privatization / PPP deals. audit PPPs. Dissemina- • Other than having a website, there is very little Short-Term ting Strategy other dissemination that EPU is involved in. The • PPP policy announced with proper media coverage. website, it seems is also not updated regularly. • Workshops must be organized to “educate” opinion leaders and national, governorate and municipal officials in PPPs. Financing • There is little project finance capacity in the Short-Term and Funding market. • Project finance principles have to be promoted in the market Constraints • Long term fixed rate local currency finance is not – this can be done by organizing workshops, seminars, available. Maximum term for fixed rate is 7 years training courses and study tours. after which it is floating. Local currency Medium-Term financing for over 9-10 years is not available. • Launching a regional hedge fund needs to be done. A study • Fixed income / bond market is very weak. GoJ is into creating a debt/equity fund for infrastructure projects not very active in raising funds via bonds. The needs to be done. GoJ only sells bonds to commercial banks, • Set up a special ring fenced road fund funded via various therefore investment banks / companies can’t levies that can be used to finance road maintenance PPPs. create the underlying asset base for long-term • Explore the demand for creating an Output Based Aid Fund debt instruments / hedge funds. for subsidizing water projects. Options for using Bank • There are no hedge funds in Jordan offering risk guarantee instruments can also be explored. mitigation instruments. There are no specialized • CVDB’s role and mandate needs to be expanded to include debt / equity funds for which there seems to be a lending to the private sector. It can fill financing gaps, if strong appetite. any, due to the perceived sub sovereign risk. • Regional investors are willing to invest in Jordan. Medium- to Long-Term • Although financial institutions charge risk • The GoJ needs to become active in the bond market and margins to finance GoJ projects, partial risk help develop long term reference yield curves. Government guarantees are not in demand. bonds should be available to a larger base of customers. • CVDB has been active in financing municipal Secondary market for bonds needs to be created. projects, but it only lends to the public sector. Regulation • Private sector participation in infrastructure is Short-Term dependent on its perception of sector risks. The • If the GoJ wants concession water distribution, or Solid key indicator is whether the sector is indepen- Waste Management, to private sector, it would need tight dently regulated. If there is no independent provisions on tariff setting in the contract, and, in case, the regulator, investors look at the country’s concessionaire is not allowed to charge cost recovery tariffs, procurement framework for PPPs and whether it then the concession agreement will need to be very precise has the capacity to “regulate through contract”. on how the gap would be filled. The comfort the private sector needs is that key Medium-Term decisions like tariff setting is not done arbitrarily. • Establish an independent Water Regulator. SECTOR ISSUES Water and • The Amman experience with a private operator Short Term Sanitation for distribution has been very successful and has • The GoJ needs to seriously reconsider its views about provided benchmarks for the entire country. creating public enterprises for operating water distribution However the Ministry and the Water Authority utilities. The USAID funded study must be allowed to believes that all the functions should be explore ALL options equally. transferred into a public institution. Experience Short to Medium Term indicates that public entities succumb to political • Whether public or private service delivery, the GoJ needs to pressures and inefficiencies start creeping in. come up with a clear and transparent policy on water • There is an interest to look at OBA models to deal subsidies. There is a need for explicit, targeted subsidies with cost recovery issues. that are linked to service provider’s performance. Energy • Jordan is trying to reduce its dependency on oil Short to Medium Term powered electricity generation and explore • Pilot PPP projects in renewable energy sector can be options in renewable energy. undertaken. • The concession for the Oil Refinery runs out in • Inputs can be provided to the options study being done on 2008, after which the sector will have to open for opening up of the Oil Sector (refined oil and related competition. Huge investments are required to products). modernize it before it becomes able to compete. Fourth Quarter 2006 7 Hashemite Kingdom of Jordan Update POLICY MATRIX Area Issues Options for Way Forward Transport • Queen Alia International Airport (Amman) and Short Term King Hussein International Airport (Aqaba) need • Transaction advisors for Queen Alia International Airport expansion. The GoJ would like to study the option may need to be supervised especially if the scope of the of lumping the two transactions together. project is increased to include creating a regional inter-modal • Jordan has a decent network of 100% paved supply chain hub around the airport. roads, but the roads have not been maintained Short to Medium Term well. Annual spending on road maintenance is • Amman – Zarqa Rail Link may attract private sector interest, US$12 million vs. US$25 million required. if there is sufficient government support upfront. The GoJ • The World Bank approved a loan to help the GoJ must make sure that the land is free from any claims. There develop efficient transport and logistics services will probably be a need to provide grants for the upfront by removing bottlenecks and providing access to capital cost. If the revenue risk is pushed to the operator, it affordable land for investment and urban develop- will probably ask for minimum revenue guarantees. ment purposes. The Ring Road will improve • There is an urgent need to rehabilitate and maintain roads. access to airport and other key locations and Private sector can be hired under performance-based permit freight traffic to bypass urban areas. contractual arrangements. • There are two main projects underway in the Rail Medium Term sector: (a) privatize Aqaba Railway and (b) • PPPs can also be done for building bridges and bypasses. Amman Zarqa Rail link. The GoJ is commis- The Bank is already involved in the Amman Development sioning consultant services to draw up a master Corridor Project that includes building a bypass around plan for the railway sector. At least two new lines Amman. Similar projects maybe done in secondary cities. will be considered, one running from Aqaba to the Medium to Long Term Dead Sea, and one from Amman to Iraq border. • There are good opportunities for private sector at the Aqaba • Jordan only has one port at Aqaba which needs port on a Landlord model. The port needs the private sector upgrading to be fully utilized. Therefore, the port to rehabilitate and operate the port under a master concession should be linked to the rest of the country’s model and make it more efficient to allow it to operate to its transport infrastructure and supply chain. full capacity. Solid • The GoJ subsidizes solid waste management, Short Term Waste namely the difference between cost recovery and • Aqaba could be a pilot for a Solid Waste Management PPP. Manage- tariffs via budget support. The subsidy is across Short to Medium Term ment the board – high income neighborhoods pay the • Scaled tariffs need to be introduced. This can be used to same as low income. The private sector can be cross subsidize lower income areas under some performance- involved immediately. However earlier attempts based arrangements with service providers. There may be a in Amman failed due to low tariffs that don’t need for continued GoJ support for subsidies in some allow cost recovery. instances, but overall the burden on the fiscus will go down. Other • There are opportunities for private sector Short to Medium Term Services participation in facilities management, fleet • There is a whole spectrum of activities in which the private management, revenue collection and tourism. sector can be involved, and that would create better and more Most PPP programs have substantial portfolios in services and reduce the burden on the fiscus. Guidelines can these areas, mainly because they open up fiscal be drafted on how to procure such services, and government space for other government functions and enhance institutions encouraged to procure services under longer-term government efficiency. contracts rather that incurring upfront costs procuring assets. 8 Fourth Quarter 2006 Hashemite Kingdom of Jordan Update RECENT ECONOMIC DEVELOPMENTS Overview to the non-tradable sectors. The other non-tradable sectors that have benefited from the external Jordan has maintained strong economic inflows are the construction and real estate performance through the Third Quarter of sectors, growing by 14.6 and 2.5 percent, 2006. Real GDP growth in the First Half of 2006 respectively, against 7.5 and 1.2 percent growth remained high at 6.4 percent. The growth is broad registered in the First Half of 2005. The based and has been led by manufacturing, manufacturing sector also remained dynamic, construction, real estate and services sectors. The growing by 11 percent, thanks to the strong continuing high demand for these sectors is partly external and internal demand. Preliminary data for explained by the high liquidity in the region. the Third Quarter of 2006, however, points to a Capital inflows and inflow of tourists to Jordan slow-down in the economic activity. The reached record high levels since 2005. The strong Industrial Production Index, declined by 0.6 economic growth helped boost public revenues percent in the Third Quarter of 2006, compared to significantly, while public spending has remained a 9.1 percent increase registered during the First tight, resulting in lower public deficit. Increasing Half of 2006 and 10.3 percent increase registered fuel prices, together with high demand in the during the Third Quarter of 2005. economy, however, created inflationary pressures, which led the Authorities to tighten their Figure 1. Real GDP Growth and the monetary policy. The external Current Account Manufacturing Sector Deficit reached record high levels—potentially 10 25 nearing 20 percent of GDP by the end of the 9 23 year—which points to the continued exposure of 8 20 the economy to adverse economic shocks, 7 18 particularly, in the region. Manufacturing 6 15 GDP Real Sector Developments 5 13 4 10 3 8 At 6.4 percent, real GDP growth was strong in the First Half of 2006. Although the rate of real 2 5 growth slowed compared to the 7.6 percent 1 3 registered in the First Half of 2005, the 2006 0 0 Q1-04 Q2-04 Q3-04 Q4-04 Q1-05 Q2-05 Q3-05 Q4-05 Q1-06 Q2-06 growth performance remains stronger than expected. This positive outlook is largely GDP Manufactures explained by the strength of private aggregate demand stimulated by massive Capital Inflows, Source: Ministry of Planning and World Bank staff mainly Foreign Direct Investments (FDI). calculations. On the supply side, the leading sectors are External Sector Developments services, construction, real estate and manufacturing. In the services sector, restaurant Jordan’s Current Account Deficit rose by 44 and hotels benefited from increasing regional percent in the First Half of 2006 over the First demand, boosting their activity by 5.1 percent in Half of 2005. The increase in the external deficit the First Half of 2006 compared to 2.2 percent stems from a large increase (18.5 percent over the during the same period in 2005. Community, First Half of 2005) in the Trade Deficit of Goods Social, and Personal Services (CSP) increased by and Non-Factor Services (GNFS), which reached 12.2 percent over 7.6 percent growth achieved in US$2.9 billion in the First Half of 2006. This 2005. The dynamism of CSP reflects the positive increase reflects a 12 percent increase in imports income effect of continuing high external inflows of GNFS, partly offset by a 6.9 percent increase in Fourth Quarter 2006 9 Hashemite Kingdom of Jordan Update exports of GNFS. Net Workers Remittances and 13.9 percent, but their share in total exports Net Compensation of Employees grew by 5.9 slightly declined to 32.8 percent against 34 percent, but fell well short of financing the percent a year earlier. Similarly, exports of food growing Trade Deficit—covering only 35 percent and beverages grew by 11.6 percent, while their of the shortfall. The Current Account Deficit was share in total exports declined to 9.1 percent from largely financed by the Capital Inflows, with FDI 10.9 percent achieved in the same period of last and other capital inflows continuing to record year. The most dynamic component of exports large increases. FDI inflows alone amounted to was re-exports, benefiting from diversion of US$2.18 billion, roughly four times the level Lebanese international trade activity to Jordan attained in the First Half of 2006 and higher than during the hostilities of the summer of 2006: re- the US$1.67 billion attained in 2005. The Capital exports have soared by 57 percent in the first three Account surplus hit US$2 billion by mid-year quarters of 2006, accounting for 50 percent of the compared to US$429 million registered in the increase in total exports. First Half of 2005 (Figure 2). The large Net Capital Inflows allowed Jordan to raise the The growth rate of imports of goods has also foreign reserves of the Central Bank to US$6.3 slowed down, particularly in the Third Quarter of billion by September 2006, compared to US$5.3 2006, registering only a 10.1 percent increase billion registered at end-2005. during the first three quarters of 2006, compared to 31 percent increase registered in the same Figure 2. Current and Capital Account period last year. This outcome is the combination Balances of a 13.5 percent increase in imports of goods (US$ million) during the First Half of 2006 and a 2 percent increase only in the Third Quarter of 2006. Price 1,500 dynamics account for 4.4 percentage points of the 1,200 increase registered during the first three quarters 900 of 2006, with the remaining 5.5 percentage points reflecting the increase in import volume. The 600 price dynamics, in turn, is explained by a 35 300 percent increase in the oil price index, partly offset by a 4 percent decrease in the price index of 0 all other import items. The latter development is -300 partly explained by the appreciation of the Jordanian Dinar against the Euro over the period. -600 -900 Current Account Balance Capital Account Balance Fiscal Developments -1,200 H1-01 H1-02 H1-03 H1-04 H1-05 H1-06 The GoJ’s domestic revenues continued to increase significantly for the third year in a Source: Central Bank of Jordan, Ministry of Planning row. Domestic revenues grew by 26 percent in the and World Bank staff calculations. first three quarters of 2006, compared to a 23 percent increase achieved during the same period The growth rate of exports of goods has somewhat last year. The most dynamic revenue components slowed, but Jordan continues to diversify its were Sales Tax and taxes on income and profits, export offer. Exports of goods rose by 18.2 accounting for 30 percent and 24 percent of the percent during the first three quarters of 2006. The increase in total revenues, respectively. clothing industries located in the Qualified Accordingly, cumulative domestic revenue Industrial Zones (QIZs) remain the major collection, as of September 2006, reached 89 exporters of manufactured goods: clothes exports percent of the budget target set for 2006. The increased by 16.5 percent during the first three revenue collection is expected to overshoot the quarters of 2006, against 9.2 percent in the same 2006 target by at least 10 percent. Overall, the period last year. Their share in total exports strong performance of domestic revenues reflects remained stable at around 25 percent. Exports of the strength of the economy since last year. chemicals and manufactured goods other than clothing, which have higher value added, rose by 10 Fourth Quarter 2006 Hashemite Kingdom of Jordan Update Growth in public spending has slowed end-September 2006, compared to JD589 million considerably. Expenditures declined by 0.7 registered in the same period last year. The budget percent in the first three quarters of 2006, balance after grants was in surplus by JD70 compared with the 16.2 percent increase million, despite a major decline in grants, which registered in the same period last year. This low were down to JD160 million compared to JD424 increase is largely explained by major reductions million in September 2005. The primary balance in oil subsidies, resulting in a 62 percent decline showed a similar pattern. in oil subsidies since April and compensating for significant increases in interest payments (32 The total debt stock of the public sector increased percent) and pension transfers (14.4 percent). The by JD452 million since December 2005, with the increase in interest payments reflected the share of domestic debt in total on the rise. The combined effect of a 20 percent increase in the share of foreign debt in total debt decreased from domestic debt portfolio and higher interest rates 67 percent at end-2005 to 64 percent in September on Jordanian Treasury bills and bonds. Between 2006. In contrast, the share of domestic debt September 2005 and September 2006, interest rate increased to 36 percent of the total debt from 33 on three-months T-bills has increased by 118 percent at end-2005. Over 35 percent of the basis points (bpt) to 6.58 percent, and interest rate external debt will be maturing in the coming five on six-month T-bills has increased by 76 bpt to years, requiring (on average) about US$500 6.91 percent. million financing annually, thus exerting stronger pressure on Jordan’s Foreign Accounts—by Table 1. Central Government Budget matter of comparison, external debt maturing in 2005 did not exceed US$417 million. 2004 2005 2006 Domestic Revenues 1592 1956 2467 Prices, Money and Banking Tax Revenues 1069 1351 1657 Income and Profits 179 248 373 Inflation measured by the Consumer Price Index Sales Tax 608 760 914 (CPI) accelerated in the first three quarters of the Customs 197 223 230 year following the cuts in oil subsidies. The CPI Other 85 120 140 increased by 6.2 percent in the first three quarters Non-Tax Revenues 472 574 782 of 2006, well above the 2.8 percent increase Repayment 51 31 27 registered during the same period in 2005. Prices in the fuel and electricity sector (which accounts Total Expenditures 2191 2545 2527 for 4.3 percent of the CPI) rose by 27 percent, Current Expenditures 1643 2098 2056 compared with 5.4 percent increase attained a year Excluding debt service 1539 1968 1885 earlier, revealing the strong role played by oil o/w Defense and Security 474 523 565 subsidies in sheltering consumers from the o/w Oil Subsidies 177 423 210 increase in oil prices. Debt Service 104 130 171 External 64 76 85 The broad money supply (M2) grew by 8.8 Internal 39 54 86 percent between December 2005 and September Capital Expenditures 548 447 471 2006, down from a 13.8 percent increase registered a year earlier. This outcome reflects Surplus / Deficit -599 -589 -61 both the increase in foreign capital inflows and Primary Balance -495 -459 111 domestic assets. Indeed, among the counterparts Balance Including Grants of M2, Net Foreign Assets rose by 16.6 percent Surplus / Deficit 71 -165 100 and Net Domestic Assets by 1.2 percent. The most Primary Balance 174 -35 271 dynamic aggregate of the money supply was the Grants 670 424 160 currency in circulation in Jordanian Dinars Source: Jordanian Authorities and World Bank staff (increasing by 13.8 percent), followed by demand estimates. deposits in foreign currencies (increasing by 9.5 percent), and by time deposits in Jordanian Dinars Higher revenues and the reduction in oil subsidies (increasing by 8.3 percent). helped control the budget deficit. The cumulative budget deficit before grants was JD61 million at Fourth Quarter 2006 11 Hashemite Kingdom of Jordan Update Lending to the private sector continued to increase and by 94 bpt on discounted bills and bonds. in line with strong demand for credit and However, the prime lending rate that banks offer substantial increase in the banks’ resources. to their best clients decreased by 25 basis points, Claims on private sector (resident) rose by 21.7 which indicates strong competition in the banking percent (JD1.7 billion) between December 2005 sector for the best private clients. and September 2006, slightly below the 23.1 percent increase registered a year earlier. The The Amman Stock Exchange (ASE) index share of these claims in the commercial banks’ dropped by 25.7 percent since December 2005, assets rose to 39.4 percent in September 2006 but it is still significantly higher than its from 36 percent in December 2005. By sector, December 2004 level. The change in the index consumers and stock market investors remained was less dramatic than observed in the rest of the the most dynamic borrowers, with a 31 percent region’s capital markets, with the index remaining increase in lending to these two groups in the first 43 percent higher than its level of December three quarters of 2006. Commercial banks’ claims 2004. Part of the decline in the ASE was triggered on the public sector increased by 21 percent over by the Securities Commission’s decision to the first three quarters of 2006. prohibit brokers from lending to investors in excess of their margin accounts. That decision, led The Authorities’ interest rate policy has become investors to sell stocks to pay their debts to increasingly tighter. To control the inflation, the brokers. The decline in the broad ASE index was Central Bank has raised the discount rate by 100 fueled by drops in insurance (36.3 percent) and bpt since December 2005. Most interest rates on banking (29.2 percent) indexes. The decline in deposits have risen and lending rates followed, services and industry indexes were relatively albeit at a lower pace. More specifically, interest lower, reaching 22.6 percent and 11.7 percent, rates on overdrafts have increased by 39 bpt respectively. during the first three quarters of 2006; by 18 bpt on interest rates on loans and advances increased; Table 2. Real Interest Rate and GDP Inflation Dec-04 Dec-05 Change Sep-06 Change 04/03 06/05 percent percent (bpt) percent (bpt) Central Bank Rediscount Rate 3.75 6.50 275 7.50 100 Certificates of Deposit (3-month) 2.85 6.20 335 6.58 38 Certificates of Deposit (6-month) 3.20 6.95 375 6.91 -4 Treasury Bills (6-month) 3.36 6.21 285 6.73 52 Treasury Bonds 7.05 8.82 177 8.15 -67 Average Interest Rates on Deposits Demand 0.36 0.47 11 0.88 41 Saving 0.74 0.83 9 1.11 28 Time 2.50 3.52 102 5.10 158 Average Interest Rates on Lending Overdrafts 8.81 9.26 45 9.65 39 Loans and Advances 7.59 8.10 51 8.28 18 Discounted Bills and Bonds 8.96 7.92 -104 8.86 94 Prime Rate Served to Best Clients 6.00 7.00 100 6.75 -25 Source: Central Bank of Jordan and World Bank staff estimates. 12 Fourth Quarter 2006 Hashemite Kingdom of Jordan Update BANK GROUP OPERATIONS To support Jordan's National Agenda, the Bank's education and training sector by: (i) increasing lending program over the next four years will employers’ participation in workforce skills revolve around the following four cross-sectoral development; (ii) strengthening the institutional clusters: capacity of employment skills, and developing related agencies; (iii) developing labor market • strengthening the investment environment for a information system. skill-intensive and knowledge-based economy; • supporting local development through increased IBRD Ongoing Projects access to services and economic opportunities; • reforming social protection and expanding The current portfolio in Jordan consists of seven inclusion; and investment projects for a total commitment • restructuring public expenditures and supporting amount of US$280 million, of which US$110 public sector reform. million has been disbursed to-date. The portfolio also includes a partial risk guarantee for US$45 IBRD Projects In The Pipeline million. { Social Protection Enhancement Project { Higher Education Development Project (US$10 million). The Project will assist the (HEDP). (US$34.7 million.) The objective of the Government of Jordan in its efforts to alleviate Project is to initiate improvements in the quality, poverty among the poorest of the population, relevance and efficiency of Jordan's higher while providing opportunities to become self- education, and to support Jordan’s program to reliant. These will be achieved by enhancing the reform sector governance. social protection programs through: (i) improving targeting and administration of the cash assistance { Horticultural Exports Promotion Learning programs; (ii) strengthening and improving the and Innovation Loan (US$5 million). The Loan quality of social welfare services; and (iii) will initiate the process of establishing Jordan as a strengthening and further developing programs reliable supplier of non-traditional, high-value aimed at developing earning skills and capacities export crops to niche markets in the European of the poor and vulnerable. Union and Gulf countries. { Private Participation in Infrastructure { Education Reform for the Knowledge Project (US$20 million). The Project will Economy (US$120 million). The Project supports establish an Infrastructure Fund that will address systemic educational reform in Jordan that market failures that have prevented significant extends from Early Childhood Education through private sector involvement in the financing of Secondary Education. The Project will contribute small to medium-sized (US$2-20 million) to the development of human capital with the infrastructure projects taking place. These market skills and competencies required by the failures include the availability of financing for: Knowledge Economy. (i) the construction phase of projects; (ii) the long- term; and (iii) renovation and energy conservation { Amman Development Corridor (US$30 activities. The type of interventions used for the million). The Project aims at: (i) assisting Jordan's Fund will include guarantees and loans. growth strategy by providing needed infrastructure to support Amman’s role as a { Employer-Driven Skills Development Project regional center for trade and services; and (US$10 million). The Project would provide (ii) helping ensure that Jordan’s road assets are financial resources for institutional reform and managed in a cost-effective and sustainable capacity development, technical assistance and manner. investments in the technical and vocational Fourth Quarter 2006 13 Hashemite Kingdom of Jordan Update Loan Undisbursed Approval Amount Amount Closing Active Portfolio Date US$ M US$ M Primary Sector Date Investments Higher Education Development Feb-00 34.7 4.7 Education Jun-07 Horticultural Exports Promotion Agriculture Markets and Jun-02 5.0 2.2 Dec-07 Learning and Innovation Trade Education Reform for Knowledge May-03 120.0 51 Education Dec-08 Economy Amman Development Corridor Jun-04 38.0 30.1 Transport Jun-09 Public Sector Capacity Building Mar-05 6.5 5.9 Public Sector Mar-09 Regional and Local Development Dec-06 20.0 20.0 Urban Development Dec-11 Cultural Heritage, Tourism and Jan-07 56.0 56.0 Urban Development Sep-12 Urban Development Project Total 280.2 169.9 Partial Risk Guarantee Amman East Power Guarantee Mar-07 45.0 Energy { Public Sector Capacity Building Project Guarantee is to enhance competition, and (US$6.5 million). The objective of the Project is therefore help reduce the Project's financing costs. to support the ongoing implementation of the The Project components consist of a 370-MW Government’s public sector reform strategy by gas-fired, combined-cycle power station to be ensuring that the required institutional developed, owned and operated by a private sector infrastructure is in place and functioning. It also project company. The power station will be seeks to support an important set of cross-cutting constructed east of Amman, and about 1 km from reforms in areas ranging from policy coordination the Arab Gas Pipeline. The fuel supply will be to improved financial and human resource natural gas from Egypt; distillate fuel oil will practices. serve as backup fuel for emergency operations only. { Regional and Local Development Project (US$35 million). The objectives of the Project are Ongoing Grants to: (i) strengthen the intergovernmental finance system; (ii) upgrade financial management, Jordan’s active grant portfolio includes 10 grants technical and administrative capacities at the local for a total of US$22.9 million, of which US$9.1 level; and (iii) increase the coverage and quality million has been disbursed to-date. of municipal service provision, with particular emphasis on under-served areas. o Sustainable Development of Renewable Energy Resources and Promotion of Energy { Cultural Heritage, Tourism and Urban Efficiency Grant (US$1 million). The objectives Development (US$35 million). The objective of of the Grant are to: (i) contribute to the the Project is to develop regionally balanced Government's efforts to integrate climate change cultural tourism through regeneration of historic concerns in its economic development strategy by urban neighborhoods and creation of cohesive and removing the barriers to promoting the culturally rich urban attraction poles. development of Jordan’s renewable energy resources (wind, solar and geothermal), and in { Amman East Power Guarantee (US$45 enhancing the efficiency of energy use in line with million). The Project's main objective is to meet the policy to meet the energy needs of Jordan in Jordan’s electricity needs in an economically and an economic and environmentally sustainable environmentally sustainable manner to contribute manner; and (ii) support a feasibility study for the to economic growth and the well-being of future development of a commercial size wind Jordan’s population. The purpose of the IBRD 14 Fourth Quarter 2006 Hashemite Kingdom of Jordan Update energy project with private sector involvement. delivery of public services, and creation of fiscal space. { Conservation of Medicinal/Herbal Plants Project (US$5 million). The Project supports the { Project Preparation Technical Assistance conservation, management and sustainable Grant (PHRD) for the Employer-Driven Skills utilization of medicinal and herbal plants in Development Project (US$350,000). The Grant Jordan through ensuring effective in-situ supports the Project preparation by improving the protection of threatened habitats and ecosystems institutional capacity of the future implementing and ex-situ sustainable use. The main components agencies, carrying out employers’ consultations are: (i) institutional strengthening; (ii) pilot sites and carrying out surveys. conservation; (iii) public awareness and education; and (iv) income generation activities. { Project Preparation Technical Assistance Grant (PHRD) for the Social Protection { Ozone Depleting Substances (ODS) Enhancement Project (US$495,000). The Grant Phaseout II (US$5 million). The overall objective supports the Project preparation to enable the is to assist Jordan in phasing out the use of ODS Project to begin implementation as soon as it is within its territory through, inter alia: (i) the effective. introduction of appropriate policy measures; (ii) the institutional strengthening of responsible { Project Preparation Technical Assistance governmental entities; and (iii) the Grant (PHRD) for the Private Partnership in implementation of specific cost-effective priority Infrastructure Project (US$750,000). The Grant investments to reduce consumption of Ozone supports the Project preparation by providing a Depleting Substances in the manufacturing and feasibility study and a business plan for the Fund, servicing sectors. and consultation workshops with the financial sector, service providers, construction sector and consumers. { Promotion of a Wind Power Market (US$350,000 Global Environment Facility). The { Project Preparation Technical Assistance objective of the Project is to remove barriers to Grant (PHRD) for the Higher Education wind farm development, including lack of a legal Development II (US$380,000). The Grant and regulatory framework, lack of institutional supports the preparation of the second phase of capacity and inadequate information on wind the Higher Education Development Program. resources, with the reforms clearing the way for a private entity to build a 60MW wind farm. { Statistical Capacity Building Grant - Development of the Statistical Master Plan { Privatization Technical Assistance (US$74,800). The objective of the Grant is to (US$9.5 million). The objectives of the Grant evaluate Jordan’s current statistical system and are to strengthen the investment climate and job propose a sustainable national statistical system creation, leading to new investments and to through the design of a Statistical Master Plan. improve effectiveness and efficiency of the Further information on ongoing and pipeline projects can be found at: http://www4.worldbank.org/sprojects/ Fourth Quarter 2006 15 Hashemite Kingdom of Jordan Update Bank Lending To Jordan – Fact Sheet Sectoral Distribution by Value Jordan joined the World Bank in 1952, and received its first IDA credit in 1961. Over the Urban past 44 years, a total of 85 credits, and loans Development Economic Policy 9% have been granted to Jordan for a total amount 14% of US$2,346 million. Jordan is also a member of Other IFC, ICSID, and MIGA. 9% Agriculture 4% IDA US$86 million (15 Credits) Transportation IBRD: US$2,260 million (70 Loans) 5% Of Which: Investments: US$1,476 million Public Sector Development Governance Water Supply Policy Loans: US$870 million (8 Projects) 15% & Santn 8% Disbursements: US$2,123 million Finance Repaid: US$1,182 million 2% Obligation: US$927 million Electric Pwr & Engy. 13% Education Hlth, Nutn & 18% Popultn 3% Projects Approved by Net Flows and Net Transfers Disbursements Fiscal Year 180 120 160 Fiscal # Of US$ 100 Year Projects M. 80 140 1994 2 100.0 60 1995 3 146.6 120 40 1996 2 120.0 US$ million US$ million 20 100 1997 2 140.0 1998 3 67.0 0 80 1999 3 210.0 -20 60 2000 1 34.7 -40 2001 1 120.0 -60 40 2002 1 5.0 -80 20 2003 2 240.0 -100 2004 1 38.0 2001 2002 2003 2004 2005 2006 2007 0 2005 1 15.0 Fiscal Year 2001 2002 2003 2004 2005 2006 2007 2007 3 121.0 Net Flows Net Transfers Fiscal Year Total 25 1357.3 16 Fourth Quarter 2006 Hashemite Kingdom of Jordan Update A STRATEGY FOR MODERNIZING THE SOCIAL SAFETY NET SYSTEM IN JORDAN Event programs, and a short review of Jordan’s safety net programs and assessment of their efficiency On December 4, 2006, members of the World and effectiveness and impact on poverty. Bank’s Jordan Social Protection Team presented to H. E. Prime Minister Bakhit the strategy for Jordan spends about 1 percent of GDP on safety modernizing the social safety net system in net programs annually. Overall, the programs Jordan, with particular focus on the renewal of reach an estimated 8-10 percent of the population. the National Aid Fund (NAF). The presentation However, only one fourth of the recipients are was attended by H. E. Minister of Planning and empirically found to be poor. The biggest cash International Cooperation, the Director General of social assistance program targeted at the poor, NAF, the Secretary General of the Ministry of implemented by the NAF (about 0.6 percent of Social Development, the Director General of the GDP in 2005) is empirically found to reach only a Department of Statistics and other high level small fraction of the poor and its impact on officials. poverty is negligible. Key Messages According to the 2005 Household Expenditure Survey, only 17 percent of the population with per The presentation’s key messages were: capita consumption below NAF threshold reported receiving NAF assistance. Most • Resources to alleviate and prevent poverty are (94 percent) of NAF beneficiaries reported having adequate in Jordan, but they are not used per capita consumption above the NAF threshold. efficiently or effectively, nor have the This poor performance is determined by the intended impact and results been achieved. current NAF mandate, the design of the programs • Delivery systems are not fulfilling their and implementation constraints, including: the mission and they are in need of current definition of target groups, targeting modernization. mechanism, weak implementation capacity and • The NAF cannot do a significantly better job inadequate monitoring and evaluation. Secondly, in reducing poverty, given its current program between 1998 and 2005, close to US$400 million design and mandate. Hence, a new definition was invested into a range of economic of the target population and new targeting empowerment projects implemented under the mechanism are needed. Enhanced Productivity Program (EPP); yet, their poverty impact and sustainability are unclear. The Prime Minister asked the World Bank Team Finally, the third key element of the safety nets— and its Jordanian counterparts to continue with the social care and rehabilitation services provided to development of the new targeting formula and needy women, children and youth, persons with mechanism for NAF assistance and asked to be disability and the elderly are undeveloped and informed regularly of the work progress. He also cover only a fraction of the needy population in a expressed his support for the proposed Social fragmented and uncoordinated manner. Protection Enhancement Project. The final and key part of the presentation focused Summary of the Presentation on what should be done to improve efficiency, effectiveness and the poverty impact of social The presentation on the Social Safety Net System safety net programs. A range of measures, in Jordan, a Strategy for Modernization and including those related to the political economy of Development included a description of major change, was proposed for the GoJ’s consideration. components (and safety nets as one of them) of a For NAF renewal, the key suggestions included: social protection system and their major (i) redefine the target population by focusing on Fourth Quarter 2006 17 Hashemite Kingdom of Jordan Update the very poor households, irrespective of their sustainability was proposed as a base to inform socio-economic characteristics; (ii) introduce an decision-markers on which EPP projects to retain indicator-based targeted mechanism and make and how to improve implementation eligibility testing and benefit award decision- arrangements. For social care and rehabilitation making objective to the extent possible; services, a gradual expansion was suggested based (iii) improve benefit administration; (iv) develop on a community-based service provision model, an integrated MIS with a comprehensive database and with the Ministry of Social Development of poor and vulnerable households; (v) introduce a developing related policies, regulating, setting up monitoring and evaluation system; (vi) separate standards and performing monitoring and policy making from policy implementation; and evaluation. Finally, in order to link various social (vii) develop transitional arrangements. safety net elements into an integrated system, the introduction of case management and referral Regarding the EPP, an impact assessment to system was proposed. quantify costs and benefits and assess 18 Fourth Quarter 2006 Hashemite Kingdom of Jordan Update RECENT WORLD BANK PUBLICATIONS MENA Publications participation in the generation of electricity, and implementation of a power pool with a view of Water, Food Security and Agricultural Policy developing a competitive market. While these in the Middle East and North Africa Region reforms will eventually contribute towards a more (MENA Working Paper Series 47). The paper sustainable sector, their implementation and provides an overview of the key issues in water success will require tackling the under-pricing of management, food security and agricultural policy natural gas and electricity. Without tackling these in the Middle East and North Africa region issues, the impact of reform efforts will remain (MENA) today with a view to furthering limited, and to some extent academic, and run the discussion and debate on this critical issue to risk of increasing the Government's fiscal growth in the MENA region. exposure as under-writer of the policies and transactions in the sector. This Report reviews Explaining Large Inventories: the Case of Iran some key challenges in the sector and highlights (MENA Working Paper Series 48). According to their strategic implications. Iran’s National Accounts, during the period of 1988-2003 the annual change in inventories Morocco - Poverty and Social Impact Analysis averaged 7.3 percent of GDP. In an ideal economy of the National Slum Upgrading Program with no distortions, change in inventories should (Report No. 36545). The Report titled "Villes sans be zero on average. Because of inefficiencies and bidonvilles" has been conceived as a contribution statistical errors, in developing countries it towards greater receptiveness, and seeks to bring typically falls in a range between one and two some insights on the social dynamics of the percent of GDP. The paper argues that variation in neighborhoods targeted by the program and on the the change in inventories in Iran could be impacts to be expected from upgrading the explained by: impact of cost of capital effect and operations. supply shocks expectations in a context of high dependency on the oil revenues and imports of Libya - Country Economic Report (Report No. capital/intermediary goods; periodical softening 30295). The Libyan economy is dominated by and hardening of budget constraints of public hydrocarbons and the public sector. Sizeable oil enterprises; variations in statistical errors related wealth has supported decent living standards for to differentials between PPI and CPI inflation; and Libya's population and socioeconomic possibly shifting financial constraints which may development compares favorably with standards bind on private purchases of goods and services. in other MENA countries. Libya has the potential to raise oil production and revenues significantly Iran - Power Sector Note (Report No. 38360). in coming years given its large reserve base, but Over the past decade, the Iranian electricity the main challenge for Libya is to promote growth sector's ability to supply reliable service has come of the non-oil sector and spur diversification of its under increasing pressure. This is evidenced by economy. Non-hydrocarbon GDP growth has more frequent gas supply constraints to generation been weak and oil revenue volatility has been plants, high levels of debt and increasing losses in transmitted to non-hydrocarbon GDP growth. the network. The key roots of the problems in the Weak non-oil GDP growth reflects both sector are the under-pricing of natural gas which insufficient private investment and low fuels the majority of the power generation, and the productivity of capital Improving efficiency and low retail electricity tariffs which lead to high per productivity growth is a precondition for faster capita consumption of electricity and thus large growth and a greater investment effort. Strong investment requirements in new generation productivity growth is also a prerequisite for capacity to keep up with the demand. The competitive diversification out of hydrocarbons. Government of Iran is aware of the challenges and is pursuing a number of reforms to improve the performance of the sector, including private sector Implicit Pension Debt in the Middle-East and North Africa—Magnitude and Fiscal Fourth Quarter 2006 19 Hashemite Kingdom of Jordan Update Implications (MENA Working Paper Series 46). the most effective policy measures being deployed This Paper breaks down the contingent liability of by national and regional governments, by firms a mandatory pension system into two components: and universities themselves to enhance the (i) the implicit pension debt; and (ii) the pay-as- contribution which tertiary institutions can make you-go asset. It then estimates these two to economic change. components for 12 pension schemes across 6 countries and presents international comparisons. World Development Report 2007: The results indicate that implicit pension debts are Development and the Next Generation (ISBN: large, often higher than the explicit public debt. 0-8213-6549-5 SKU: 16549). The theme of the The large majority of pension schemes have World Development Report 2007 is youth. As this negative pay-as-you-go assets. Under these population group seeks identity and independence, circumstances, it is misleading to consider the they make decisions that affect not only their own implicit pension debt a contingency, as well-being, but that of others, and they do this in a governments will have to finance it with almost rapidly changing demographic and socio- certainty. The Paper recommends including the economic environment. Supporting young implicit liabilities of the mandatory pension people's transition to adulthood poses important system and the pay-as-you-go asset. opportunities and risky challenges for development policy. Are education systems Recent Publications on Jordan: preparing young people to cope with the demands of changing economies? What kind of support do ¾ Jordan—Country Assistance Strategy they get as they enter the labor market? Can they (Report No. 35665-JO). move freely to where the jobs are? What can be ¾ Strategic Options for Energy Sector done to help them avoid serious consequences of Development (Report No. 32281). risky behavior, such as death from HIV-AIDS and ¾ Jordan—Poverty Assessment (Report No. drug abuse? Can their creative energy be directed 33802). productively to support development thinking? Project Appraisal Documents for ongoing World Bank documents can be accessed at the projects, Implementation Completion Reports for World Bank Public Information Center located closed projects and Project Information at: Documents for projects under preparation are also Jordan Public Information Center available on-line. Department of Public Libraries Greater Amman Municipality Bank Publications Downtown, Next to the Roman Amphitheater Phone: 962-6-4627718/9 How Universities Promote Economic Growth (ISBN: 0-8213-6751-X SKU: 16751). With To order by phone or fax: technological capability increasingly becoming Phone: 1-800-645-7247 or 703-661-1580; the touchstone of competitiveness in an open and Fax 703-661-1501 integrated world environment, the role of To order on-line: universities in economic growth is taking on a http://publications.worldbank.org/ecommerce/ greater salience. Not only do they impart E-mail: books@worldbank.org education, but are also coming to be viewed as Research and working papers are also sources of industrially valuable technical skills, available in electronic format free-of-charge at: innovations and entrepreneurship. Realizing this http://econ.worldbank.org/ potential of universities so as to spur growth is To access the World Bank e-Library, an online, now a priority in developed and developing fully cross-searchable portal of over 3,000 countries. This calls for coordinated policy World Bank documents, please visit: actions. The distinguished contributors to this www.worldbank.org/elibrary Volume examine the wealth of international experience on the efforts underway to multiply Podcasts available at: linkages between universities and businesses, and http://podcasts.worldbank.org offer valuable and succinct guidance on some of 20 Fourth Quarter 2006