Jordan faces daunting short-term challenges due to the Syrian conflict

Jordan is shouldering a particularly heavy economic and social burden from the worsening of the Syrian crisis as estimates show a negative impact of about one percentage point on Jordan’s GDP due to the conflict, a senior World Bank official said.
The crisis has also created a large scale population exodus which Jordan is struggling to absorb (620.000 registered refugees as of October 2014), and the additional demand for public services is adding a significant burden to the country’s already weak public finances, Inger Andersen, Vice President, Middle East and North Africa at the World Bank told Petra in an interview on the sidelines of the recent WB-IMF meetings.
She pointed out that the WB has stepped in with a combined loan and grant package of about $200 million to help Jordan maintain access to healthcare services and basic household needs and help municipalities strengthen their service delivery capacity.
While regional tensions and their recent extension to Iraq are weighing down heavily on the Jordanian economy through a widening trade deficit and weaker investor confidence, the economic impact of the Isis move into Iraq is so far broadly contained, Andersen added. The official said: "While a key direct negative impact is the disruption of trade routes (Iraq being the largest export destination for Jordan), the largest impact on growth is the indirect impact on confidence, both related to consumers and investors." However, she noted that the global outlook for Jordan remains positive as a reduced energy bill and higher government investment are expected to boost economic growth in 2015 and 2016 (to 3.4 and 3.9%, respectively).
Following are some excerpts of the interview: Jordan is receiving military, humanitarian and development aid from a number of donors, but additional resources are still direly needed to help the country mitigate the impact of regional shocks. We should also not lose sight of the continued need for reforms to foster growth and job creation in the medium term in order to reduce the large deficits and mitigate macroeconomic vulnerabilities.
The World Bank Group is actively supporting the development of a thriving private sector in Jordan which is critical in order for the economy to grow and for jobs to be created - a goal whose relevance is all the more obvious as the country grapples with the impact of the regional situation. In the context of a recent World Bank project, a number of important steps have been taken to strengthen the investment climate with the adoption of critical laws on public private partnership (PPP), secured lending and investment. The Bank is also supporting access to finance through a $70m project for micro, small and medium enterprise development which has helped create over 2.000 private sector jobs, in particular for women and youth/most disadvantaged segments of society.
The International Finance Corporation, the World Bank’s private sector arm, has considerably scaled up its program in Jordan in recent years and is mobilizing other investors into the Jordanian market. In FY14, IFC investments totaled around $420 million, bringing its total investment portfolio (including mobilized funding) over $1 billion. The portfolio is mostly concentrated in the chemical, pharmaceutical, transportation, power and financial sectors. IFC is also providing advisory services to strengthen Jordan’s financial infrastructure (credit bureau, secured lending) and corporate governance, build the capacity of microfinance institutions as well as simplify business regulations.
Energy demand in Jordan has grown dramatically in the past years, reflecting both population and economic growth. At the same time, regional tensions have hurt Jordan’s energy supply and forced the country to substitute cheap gas from Egypt with expensive oil products imports, thereby imposing a major strain on the budget. The securing of fuels and diversification of Jordan’s energy sources are among the country’s most critical challenges to reduce macroeconomic vulnerabilities. The government has been exploring ways to invest in and attract private capital for wind and solar to help satisfy growing demand and decrease its reliance on imported fuels.
The Bank has supported government in setting up an institutional structure for energy efficiency, and to assist in the promotion of a wind power market. The Bank is also supporting Jordan with a technical assistance program assessing financial sustainability of the sector. The International Finance Corporation (IFC), the World Bank’s private sector arm, has a growing program in renewable energy in Jordan.
It has recently signed project financing totaling $207.5m to support Jordan’s renewable program, in particular with 7 solar projects which will help transform Jordan’s power generation base away from expensive, imported fossil fuels towards sustainable, clean renewable energy. IFC also recently financed the development of a 117 MW wind farm in Tafilah (US$221 million) – the country’s first privately-owned renewable energy facility.
We are at a critical juncture for the region with complicated transitions and tragic conflicts bearing destabilizing impact for the world. In this context, the international community has a collective and historical responsibility to scale up its support and respond to the current "Bretton Woods moment". In 1944, the world came together while World War II was still raging to think into the future and to establish the Bretton Woods institutions to rebuild the shattered economies in Europe and to promote economic cooperation. It is today a similar moment for the MENA Region.
MENA faces a triple challenge that threatens stability and prosperity: (i) long-standing distortions that generated jobless growth and poor service delivery as well as low financial access and inclusion; (ii) severe imbalances (including regressive and costly fuel subsidies) that threaten macroeconomic stability; (iii) deep political and social tensions, escalating into violence.
The World Bank Group is building its engagement through a two-pronged approach: (i) address the urgency of the immediate crises through the provision of emergency assistance aiming at alleviating the suffering of the people and improving their livelihoods; (ii) while at the same time keeping a sustained focus on the investments that are needed for medium and long term development, inclusive growth and enhanced service delivery.
The World Bank Group’s engagement in MENA continues to be driven by its strategic pillars (jobs, inclusion, governance and private-sector-led growth), with a special focus on vulnerability, exclusion, poor service delivery and weak government institutions, lack of voice and opportunity which define the twin goals.
In Jordan, the Bank is responding through both emergency operations, including grants to service the hosting communities and strengthen the capacity of local governments, and with medium to longer term investment projects aimed at providing the people with infrastructure in such sectors as water, electricity, water and transport.