Transcript Jordan’s Economic Reforms

The Exchange
May 13-15, 2013
Abu Dhabi, United Arab Emirates,
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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.
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.
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The Economic Crisis 19881989
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.
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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.
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Jordan’s Economic Adjustment
Programs 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.
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Jordan’s Economic Adjustment
Programs 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
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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.
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Jordan’s Economic Adjustment
Programs 1989-2004
Main Objectives
 Reducing the budget and current account
deficits.
 Controlling inflation rates.
 Rebuilding CBJ foreign reserves.
 Achieving sustainable growth.
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Key Reform Measures by Sector
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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.
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Key Reform Measures by
Sector
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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.
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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.
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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.
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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.
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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.
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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
 Public Debt Law
 Telecommunication and
 Banking Law
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Electricity Laws
Electronic Transaction Law
Customs Law
Companies Law
Securities Law
 Leasing Finance Law
 General Sales Tax Law
 Privatization Law
 Investment Promotion Law
 Income Tax Law
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Jordan’s Main Achievements
1989
2004
Real GDP Growth
Inflation (% CPI)
Overall Budget Balance (after grants)
in % of GDP
Foreign Exchange Reserves ($ million)
-13.4
25.7
-10.1
7.0
3.4
-3.3
130
4824
External Debt in % of GDP
Current Account Deficit in % of GDP
Merchandise exports in % of GDP
190
-10.0
26.0
68.9
0.8
36.5
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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.
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National Reform Program
2005-2009
Main Components and Objectives
 Maintaining and reinforcing achievements made under the
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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
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The Strategy of Financial Reform
2004-2007
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.
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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.
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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
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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.
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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
10. Lands and Registration Taxes
1.
2.
3.
4.
5.
6.
7.
8.
9.
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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.
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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
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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.
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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.
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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.
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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
10. Lands and Registration Taxes
1.
2.
3.
4.
5.
6.
7.
8.
9.
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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 .
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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.
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3.Treasury Single Account
(TSA)
Aims:
 Establish Single Treasury Account for all government
accounts at the commercial banks and Central Bank
and unifying it under one single account to be
controlled by the Ministry of Finance.
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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 .
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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
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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
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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:
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

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.
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8. Public Expenditures Review
(PER)
Aims:

Review annually the main sectors expenditures to
evaluate it and increase efficiency of resources .
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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
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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.
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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
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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.
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