埃及经济研究论坛（ERF）：评估约旦公共债务的可持续性：重振私营部门、提升社会产出的重要性

ERFWorkingPaPersseries

AssessingtheSustainabilityofJordan’s

PublicDebt:

TheImportanceofReviving

thePrivateSector

andImprovingSocialOutcomes

ZafirisTzannatosandIbrahimSaif

WorkingPaperNo.1649

August2023

ASSESSINGTHESUSTAINABILITYOFJORDAN’SPUBLIC

DEBT:THEIMPORTANCEOFREVIVINGTHEPRIVATE

SECTORANDIMPROVINGSOCIALOUTCOMES1

ZafirisTzannatosandIbrahimSaif

WorkingPaperNo.1649

August2023

Theauthorsacknowledge,withthanks,thesupportandcommentsreceivedfromIshacDiwanandIbrahimElbadawi;thepeerreviewersMaryKawar,AdnanMazarei,andNesreenBarakat,aswellasKevinCarey,AliaalMahdi,andMustafaNabli;andtheparticipantsofmeetingsheldinAmmaninMarch2023andCairoattheERFAnnualConferenceinMay2023.TheauthorsalsothankLaithAl-Ajlouniforhisearlierinvolvementinthepreparationofthepaperandcontributiontothecollectionofdatausedintheanalysis.

Sendcorrespondenceto:

ZafirisTzannatos

TheLebaneseCenterforPolicyStudiesandtheJordanStrategyForum

ztzannatos@

1ThisworkhasbenefitedfromafinancialgrantfromtheEconomicResearchForum.ThecontentsandrecommendationsdonotnecessarilyreflecttheviewsoftheEconomicResearchForumortheorganizationstheauthorsareaffiliatedwith.

Firstpublishedin2023by

TheEconomicResearchForum(ERF)

21Al-SadAl-AalyStreet

Dokki,Giza

Egypt

.eg

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Allrightsreserved.Nopartofthispublicationmaybereproducedinanyformorbyany

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Thefindings,interpretationsandconclusionsexpressedinthispublicationareentirelythoseoftheauthor(s)andshouldnotbeattributedtotheEconomicResearchForum,membersofits

BoardofTrustees,oritsdonors.

1

Abstract

ThispaperexaminesdebtsustainabilityinJordan.First,itnotesJordan’seconomictrajectory,whichhasbeencharacterizedbylongstop-gocycles;realGDPpercapitapeakedintheearly1980sfollowedbyaprecipitousdeclinein1992,thenpeakedagainintheearly2010sandhassincedeclinedtolevelslastseenintheearly2000s.Second,theselongswingshavebeenassociatedwithincreasingrelianceoninternationalsupport.Muchofthisinternationalsupporthascontributedtoincreasinglevelsofpublicdebt,thecompositionofwhichisshiftingfromdomestictoexternalbrowning–somethingthatshouldbeexaminedagainsttheexchangeratethathasremainedpeggedforthreedecades.Third,duetounprecedentedhighratesofeconomicgrowthduringthe2000s,thedebt-to-GDPratiowasreducedbyhalfduringthe2000seventhoughthedebtleveldoubled.Havingnearlyreachedafiscalcliffbytheendofthe2010s,thegovernmentannouncedhundredsofreformssupportedbyJordan’sinternationalpartner,whichaimtoimprovemacroeconomicmanagementandaccelerateprivatesectordevelopment.Fornow,debtsustainabilityseemsfeasibleforthenextthreetofouryears,butinthefuture,itwilldependonhowquickly,consistently,andeffectivelythereformswillbepursuedandwhethertherewillbeanyadverseexternalshocks.Weconcludethattherightpolicymixtoreducethedebt-to-GDPratioshouldfocusonpoliciesthatpromoteeconomicgrowth,rationalize–notnecessarilyreduce–publicexpenditures,raiserevenuesinanon-regressiveway,andtakeintoaccountseveralimplicitliabilitiessuchasthosearisingfromthepensionsystemandclimatechangeadaptationmeasures.

Keywords:Publicdebt,sustainability,Privatesector,Socialoutcomes,Jordan

JELClassification:H6,F3

ﻣﻠﺨﺺ

ﻃﻮ:ﻟﺔ؛?ﻟﻎﻧﺮﻳﺐﺍﻟﺮﺍﺩﻥﺍﻟﻨﺎﺕﺍﻟﻤﺤﻠﯩﻲﺍﺟﻤﻤﺎﺗﻲﺍﻟﺤﻘﻖﻱﺗﻮﺭﺭﻓﻲﻟﻼﻭﺃ心ﺍﻗﻨﻨﻨﺎﻣﻤﻼﻫﻬﺖﺍﺭﻓﻨﺎﺩﺍﺍﻓﻲ1992،ﺙ?ﻟﻎﺭﺭﻭﺕﻧﺎﺓ

ﺗﺘﻨﺎﻭﻝﻫﺬﻩﺍﻟﻮﺭﻗﺔﺍﻟﻘﺪﺭﺓﻋﻠﻰﺗﺤﻤﻞﺍﻟﺪﻳﻮﻥﻓﻲﺍﻷﺭﺩﻥ.ﺃﻭﻻ،ﻱﻱﻟﻰ曾ﺍﻟﺴﻘﺮ:ﺍﻗﺖﺍﻟﻢ…ﺭﺍﻻﻗﺲﺍﺩﻝﺭﺩﻥﺍﻟﺬﺍ…3?ﺩﻭﺭﺍ心ﺗﻮﻕ

ﯨﺎﺧﺄﻓﻲﻟﻼﻭﺃﻣﺎﻉ2010ﻭﺍﻧﻔﺮﺽﻧﻨﺬﺭﻟﻚﺍﻟﺤﻲ曾.ﻗﺖﺍﻟﻢ…ﻭ:ﺍ心ﺍﻝﻭﻫﺪ心ﺍﺧﺎﻧﺎﺓﻓﻲﺃﻭﺍﻟﻞﺍﻝﻗﺪﺍﻷﻭﻝﻥﺍﻟﻘﺎﻥﺍﻟﺤﺎﺩ

ﻭﺍﻝ:.ﻭﺛﻴﻴﺎﻧﻘﻴﻴﺎ،ﺍﺭﺗﻮﻳﻴﻲ口ﻫﻴﻴﺬﻩﺍﻟﺴﻘﻠﻮﻳﻴﺎ心ﺍﻟﻴﻮ:ﻟﻴﻴﺔﻟﻲﺍﺩﺓﺍﻟﺎﻋﺴﻤﻴﻴﺎﺩﻋﻠﻰﺍﻟﻴﻴﺪﻉﺍﻟﻴﻲﺩﻭﺗﻲ.ﺍﻩﺍﻝﻣﻠﻰﻥ曾ﻫﻴﻴﺬﺍﺍﻟﻴﻴﺪﻉﺍﻟﻴﻲﺩﻭﺗﻲ:ﺩﺓ

ﻥﺍﻟﺬ…心ﺍ:ﻭﺳﻴﻴﻴﻴﻴﻴﻴﻴﻲﻳﺪﻻ،ﻣﺎﻻﻇﻠﻨﺎﺗﻮﻱًﺍﻟﻤﺪﺓﺛﻪﺫﻻﺛﺔﻋﺤﺴﻲﻗﻮﺩﻭﻝﺛﺎﻝﻥ:ﻭﻛﺖﻡًﺍ،ﺏ…ﻥﻟﻮﺣﺴﻼﻟﯩﺤﻤﻼﻥﺩﻻ心ﺍﻟﻨﻤﻮﻱﺍﻟﺎﻗﺴﺮﻳﻴﺎﺩﺗﻘﻨﻮﻟﻼﺍﻟﻤﺎﺕﺟﺮﺍﻓﻼﺭﺓﺍ.ﻱﻟﻰ曾-ﺍﻟﻢﻭﻩ…ﻥﻕﻱﺟﺦﻩﻝﺍﻝﻓﺢﺍﻷ?ﺍﻟﻖﺍﺍﻻﻟﺤﺎﻱﺩ

ﻳﺶﻻﻭﻳﻴﺐ،:口ﻳﻴﻴﻨﺮﻓﻨﺎﻝ…ﺓﻭﻳﻴﻲﻳﺪﻻﺗﻖﺗﺎﻧﻼﺍﻟﻤﺤﻠﯩﻲﺍﺟﻤﻤﺎﺗﻲ?ﻣﻘﺪﺍﺭﺍﻟﻨﺮﻳﻴﻲﺧﻬﻞﺍﻝﻗﺪﺍﻷﻭﻝﻥﺍﻟﻘﺎﻥﺍﻟﺤﺎﺩﻭﺍﻝ:ﻳﻲﻋﻠﻰﺍﻻﺍ

ﻥﻋﺎﻳﻴﻴﻴﻨﺖﻥ…ﯨﻮﺳﻴﻴﻴﻲﻳﺪﻻ.ﺩ?ﻧﺄ心ﺩﺍﻙﺓﻧﻮﻛﺤﻼﻧﺄﻟﻴﻴﻴﻴﺮﺕﺗﻖﺓ:ﻭﺍﺓﻻﺓﻗﻼﻣﻠﺎﻟﻮﻟﺢ?ﺓﻳﺎﺓﻥﻣﺎﻉ2010،ﺃﻋﻠﻦ口ﻧﯫ心ﺍﺟﺼﻴﻴﻴﻴﻬﺎﺍ心ﺍﻝ

ﻳﺪﻋﻤﺔﺍﺍﻝﻙﺍﻟﺪﻭﺗﻲﻝﺭﺩﻥ،ﻭﺍﻝﺗﺔﺩﻗﺖﺗﺢ…ﻳﻴﻴﻴﻴﻴﻴﻴﻲ曾.ﻗﺪﺍﺭﺓﺍﻟﺎﻗﺴﺮﻳﻴﻴﻴﻴﻴﻴﻴﺎﺩﺍﻝ<ﻟﯩﻲﻭ3ﺷﻲﻝﺗﻨﻤﻘﺔﺍﻟﻘﻴﺎﻭﺍﻟﻔﺎﺭ.ﻭﻑ.ﻱﺍﻟﻮﻕ口ﺍﻻﺍﻩ،ﺗﻮﺩﻭ

ﺍﻟﻘﺪﺭﺓﻋﻠﻰﺗﺤﻤﻞﺍﻟﺪﻳﻮﻥﻧﻤﻜﻨﺔﺧﻬﻞﺍﻝ…ﻳﻴﻴﻴﻨﻮﺍ心ﺍﻟﻤﻪﻗﺖﺍﻷﺭ?ﻳﻴﻞﺍﻟﻤﻘﻮﻟﺔ،ﻭﻝﻧﺔﺍﺯﻳﻴﻴﻴﺘﺴﻮﻕﻓﻲﺍﻟﻢ…ﻳﻴﻴﻴﺴﻘﻮﻝﻋﻠﻰﻧﺪﻯﺍﻟﺸﻲﺓﻭﺍﻻ…3

ﻭﺍﻟﺮﺍﻟﻘﺔﺍﻝﺯﻳﻴﻴﻴﺘﺴﺒﻞﻟﺔﺍﺍﺟﺼﻴﻴﻴﻴﻬﺎﺍ心ﻭﻧﺎﻗﺮﺍﻛﺎﻥ口ﺯﻳﻴﻴﻴﺴﺤﺪﺃﺻﻴﻴﻴﻴﺪﻧﺎ心ﺧﺎﺭﻣﻘﺔﻥﺍﻙ…ﻳﻴﻴﻴﺔ.ﻭﻧﻔﻞﻗﺖﺃﻥﻧﻲﺍﻝ…ﺯﻳﻴﻴﻴﺎ心ﺍﻟﺮﻳﻴﻴﻴﺢ

ﺿﺮﻓﻞﺗﻔﺮﻗﺾﻝ…ﺓﻭﻳﻴﻴﻴﻴﻴﻲﻳﺪﻻﺗﻖﺗﺎﻧﻼﻟﯩﺤﻤﻼ-心ﺍﻗﺮﻧﻼ،ﺓﻧﺎﻻﺓﺩﺍ:ﻭ心ﺍﺩﺍﺍﻳﺠﺎﻱﺗﺎﻣﻤﺠﺎﻱﺓﻕ:ﺭﻱ?ﻟﯩﺎﻭﻧﻲ曾ﻧﺄ،ﺓﻕﻣﺎﺍﺗﺴﻼﻳﻠﯩﻊﺓﺍﻋﺎﺍﻧﻮﻻ…心ﺍﻳﻴﻴﻴﻴﻴﻴﺰﺍﻗﻴﻴﻴﻴﻴﻴﻲﺩﻳﺪﻻﻥﻟﻼﺍﺱﺕﺍﻭﻣﻨﻞ心ﺍﻧﺎ،ﺩﺍﻳﻴﻴﻴﻴﻴﻴﺮﺳﻘﻼﺍﺓﻗﻨﻤﻴﻴﻴﻴﻴﻴﻴﻴﻴﻴﻴﻴﻴﻴﻴﻨﻠﺎﺩﻗﻴﻴﻴﻴﻴﻴﻴﻴﺎﺗﻮﻟﻤﻨﻜﻠﺖﺓﺋﻴﻴﻴﻴﻴﻴﻴﻴﻴﻴﻴﻴﻴﻴﻴﻴﺎﻧﻼ-ﻭﻟﺒﺲ?ﺍﻝﻉﻣﺎﻥ.ﻱﺭﺓ

ﺍﻟﻢﺍﻳﺎ心ﺍﻟﺴﻘﺎﻋﺪﻳﺔﻭﺗﺪﺍﻟﻠﻰ曾ﺍﻟﺴﻜﻖﻧﻞﺗﻐﻠﻰ曾ﺍﻟﻤﻨﺎﺥ

2

1Introduction

ThispaperexaminesthesustainabilityofpublicdebtinJordan.Itdoessobyexploring,ataratherbroadlevel,therecenttrendsandcurrentfiscalandeconomicsituationwhilerecognizingthesizeableimpactthatthemultitudeofexternalshockshaveinflicteduponJordaninthelastdecade.Itdoesnot,andcannot,reachthesophisticationanddepthofbroaderapproaches2orspecificrecentanalysesforJordan.3Suchataskwouldhaverequiredmoredetailedinformationregardingthedebtstructureintermsofitsmaturity(shortorlong),thecurrencycomposition(domesticorexternaland,inthelattercase,inwhatcurrency),therepaymentschedule(smoothorlumpy),thebondholders’profile,andmuchmoreinformationthanwhatiscurrentlyavailabletotheauthors.4

Instead,thepaperfocusesonthedivergencebetweenexpendituresandrevenuesthatresultsinbudgetdeficitsandhigh(er)ratesofdebt,includingservicingthedebt,thenatureofexpenditures–thecompositionofwhichcanbecomemoregrowthenhancing(e.g.bypromotinginvestment)andmoresociallyeffective(e.g.throughmoreequitablesocialspending)–andtheoutcomesoftheprivatesectorintermsofeconomicgrowth/productivitygains,employment,andlaborearnings,allofwhichcancreateavirtuouscycleandreduceresistancetoreforms.

TheanalysisofthispapersuggeststhatJordan’sdebtstresshasarisenfrompersistingbudgetdeficitsandincreasingborrowingthathasmorerecentlycomefromexternalsources,andconcludesthatfuturedebtsustainabilityshouldmorepromisinglyrelyonachievingfasteconomicgrowth.Theneededreformstoavoidfallingoffthefiscalcliffintheshortrunandtoaccelerategrowthinthelongerrunarewellknown,astheyhaverepeatedlybeenincludedinthemanyvisionandstrategydocumentsthatJordanhasadoptedinthepastandhavealsobeenincludedindonoragreementsinthelastthreedecades.Thoughagreeduponinternallyandexternally,thesereformshavenotbeenpursuedconsistentlyovertime.AlthoughJordanhasmadeprogressinseveralareas,ithasnotmovedaheadasfastasothersintheworldeconomy.Inaglobalizedworld,itdoesnotmatterhowfastyoumove,buthowfastyoumoverelativetoothers.

Jordanmaynotbeconfrontedwithunsustainabledebtuntilthebetterpartofthecurrentdecade.Inthewordsofthemostrecentassessment,theenvisaged“fiscaladjustmentmaintainsdebtona

2SeeIMF(2022a).

3SeeIMF(2022b).

4Othercriticalcomponentsofdebtthathavedifferentimplicationsfordebtsustainabilityincludeseveraldebtinstrumentssuchasdebtsecurities,loans,currencyanddeposits,specialdrawingrights(SDRs),accountpayables,andinsurance,pension,standardizedguaranteeschemes,orrepurchaseagreements(orrepos).Additionalinformationrequirementsincludethelawsgoverningthedebtsuchasthedomesticlawsapplicabletodomesticdebt,foreignlawsthatapplytodebtowedtoexternalcreditors,ormultilateraldebtthatmightbeissuedininternationalmarketsandmaybesubjecttolawsfromdifferentjurisdictions.Suchlawsdonotconstituteariskbuthaveimplicationsforthemodalitiesandcostsofdebtrestructuringshouldthisberequiredandagreedon.TheIMFanalysesgoevenfurtherbyexaminingdebtrisksfromchangesinnaturalresourceexploitation/revenues,climate-relatedimpactsandadaptationcosts…etc.

3

firmlydownwardtrajectory,withriskstodebtsustainabilityremainingelevatedbutmanageable…[being]mitigatedby…expectationsofcontinuedrobustdonorfinancingatfavorableterms.”5

However,Jordanisfacingsovereignstressamidpersistentlyloweconomicgrowth.Movingahead,Jordanshouldcontinueitseffortsindebtstabilization,whichitbeganattemptingaftertheLondonInitiativein2019.Thoughonanexplosivedebttrajectoryduringthelastdecade,theaveragematurityofdomesticdebthasnowbeenextendedsignificantly.6Intheabsenceofsomeunforeseenevent,therolloverriskislowandthereistimetointroducereformslimitingtheintensityofausteritymeasuresandenablingtheeconomytostartaccelerating.

Inconclusion,debtstabilizationwoulddependlessondecreasingthenumeratorandmoreonincreasingthedenominatorinthedebt-to-GDPratio.Theformerwouldrequireausteritymeasuresthataredifficulttoimplementduetotheirsocialimplications–whichalsoexplain,toagreatextent,whyJordandelayedintroducingthenecessaryreformsinthepast–alongwiththemanyshocksthathaveemergedinthemeantime.TheincreaseinGDPwouldrequireadeparturefromtheapparentdevelopmentparadigmandsocialcontractthatJordanhasbeenfollowinginthelastthreedecadesorso.Thus,thepaperalsoexaminesthehealthoftheprivatesectorandthesocialconditionsinJordan.MuchwilldependonwhatJordandoestoaddressitsshort-termliquidityissuesandhowquicklyitdoessowhilealsoaddressingstructuralissuesbeforetheycreateinsolvencypressuresthataretoughtocounter.

Thepaperisorganizedasfollows.Section2offersabird’seyeviewofthetrajectoriesofdebtandtotalandpercapitaGDPandtheirlikelyfuturecourse.Section3reviewstheexternal/internalcompositionofdebtanditsservice.Sections4and5provideasnapshotoftheevolutionandcompositionofpublicexpendituresandpublicrevenues.Section6examinesthetrendsandcurrentstateoftheprivatesector.Section7departs,insomesense,fromwhatisconventionallyincludedindebt-sustainabilityanalysesbydelvingintotheconditionsofthesocialsectors,especiallylabormarketoutcomesthatarecriticalfromapoliticaleconomyperspective.Section8summarizestheprospectsofdebtsustainabilityinJordanandconcludes.

2TheunpleasanttrajectoriesofGDP,incomes,anddebt,andtheirlikelyfuturecourse

Jordanhadhighincreasesinpercapitaincomesinthe1970sandearly1980sthatwerefollowedbyperiodsoflowornegativegrowth

(Figure1)

.Italsoexperiencedtwoperiodsofrapidgrowtheachlastingforalmostadecade.Thefirstonebenefittedfromtheregionaloilboomafter1973,whichendedin1982.Theeconomywentintoadownwardspiralafter1983,culminatinginafiscal

5IMF(2022b):p.11.

6Excludingtreasurybills.IMF(2022b):p.46.Short-termdebtwasreducedfrom60percent(asapercentageoftotalexternaldebt)in2009to37percentin2021(WorldBankDevelopmentIndicators).AccordingtotheMinistryofFinance,theaveragematurityofdomesticdebtasof2022-Q1was4.4yearsand9.9yearsforexternaldebt(GoJ,2022b).

4

1976

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1982

1984

1986

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1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

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2020

6

crisisby1989thatnecessitatedexternalsupportandthesignificantdevaluationofthenationalcurrency.

Theeconomyrecoveredrelativelywellthroughoutthe1990sdespitetheshockfromthearrivalofnearlyhalfamillionJordanianreturneesfromKuwaitandotherGulfcountriesin1992aftertheGulfWar,atatimewhenthedomesticpopulationwasbarelyfourmillion.Intheearly2000s,economicgrowthwasrevived,partlybecauseoftheconflictelsewhereintheregion,especiallythewarinIraqin2003thatresultedin“dramaticchanges”inFDI.7Asaresult,thedebt-to-GDPratiowasreducedbyhalf(fromaround100percenttojust50percent)duringthe2000seventhoughpublicdebtdoubledduringthatperiodfromaroundUSDsixbilliontoUSD12billion.

Economicgrowthstartedstallingagaininthe2010s.Admittedly,therehavebeenseveralshockstotheeconomy,thoughnotallhavebeenuniquetoJordan(seebelow).Throughouttheseyears,asbefore,Jordanhadtorelyongenerousexternalsupporttokeeptheeconomyfloating.Forexample,sincetheearly1990s,theIMFaloneprovidedsupporttoJordanin1994,1996,1999,2002,2012,2016,and2020.8

Figure1.PercapitaGDP(constantJD)andunemploymentrate(rightaxis%)Ahistoricalperspective

3,500

3,000

2,500

2,000

1,500

3,541

3,585

2,792

(2002)2,721

2,313

2,120

20

20

50

45

40

35

30

25

20

15

10

5

0

Source:WorldBankDevelopmentIndicators.

Sincetheearly1980s,realpercapitaincomepeakedintheearly1980sandlate2000s,roughlyatthesamelevel.By2021,itslevelwas25percentlowerthaninbothyears.Percapitawealthalsostagnated.AcomparisonofthechangeinthesetwoindicatorsbetweenJordanandtheaverageupper-middle-incomecountryisnotable

(Figure2

and

Figure3)

.

7WorldBank(2018).

8YoussefandZaki(2021).

5

Since1992,percapitaincomegrowthwaspositiveduringonly15ofthese37yearsuntil2019.9Morethanhalfoftheseyearswereinthemorerecentyears,from2009to2020,whenpercapitaincomesdeclinedonaverageby(minus)1.5percentperyear.

Comparedto2009,realGDPhasincreasedby25percent,butpercapitaincomehasdeclinedbynearlythesameamount

(Figure4)

.10ThePPPconversionfactorofprivateconsumption(fromJDperinternationalUSD)inJordanincreasedby0.27sincethestartoftheeconomicboom(2000)to0.32in2021,implyingadeclineofpurchasingpowerfrom3.7to3.1.

Itistruethatthepopulationwas6.5millionin2009andreached11millionby2021,anincreaseof70percent.However,hadthepopulationincreasedattheratethatwasincreasingin2009(at3.13annuallybeforetheSyrianinfluxofrefugees),thepopulationwouldhaveincreasedto9.1million(orby40percentcomparedto2009).Thisdifferenceofnearlytwomillionisnotsolelyduetotheinfluxoftheestimated1.3millionrefugees.11Forexample,whilethenumberofworking-ageSyriansincreasedby625,000from2010to2016,thecorrespondingnumberofothernon-Jordaniansincreasedbymorethan825,000.12Thelatterreflects,inpart,thepreferenceofemployersandtheaccommodatingdomesticlaborpoliciesthatencouragetheuseoflow-costmigrantworkers,apointdiscussedlaterinthispaper.Eitherway,thepresenceofSyrianrefugeesreducedthepercapitaGDPbutnotproportionatelytotheirshareofthepopulation.13Allinall,thedeclineinpercapitaincomemaynothavebeen25percentbutmayhavebeenaroundhalfthatfigure.

9Before1992,thegrowthinpercapitaincomesfluctuatedwidely.Itincreasedathighratesinthe1970stilltheearly1980s,peakingatanannualrateof17.4percentin1979andstillgrowingatarateof13percentin1981.Thelatterwasfollowedbyadecadeofnegativepercapitaincomegrowthuntil1991,theyearofthearrivalofnearlyhalfamillionreturneesfromKuwait.Thereturneesincreasedtheshareofthelaborforcewithpost-secondaryeducationbymorethan10percent.Percapitaincomesincreasedbymorethaneightpercentthefollowingyear,in1992.Thegrowthinpercapitaincomesthenfluctuatedatlowaverageannualgrowthrates(0.5percent)until1999.Between2000and2008,percapitaincomesincreasedatanannualratethataveraged3.5percent,peakingat5.7percentin2004.

10Overthelongerhistoricalperspective,thehighestper-capitaincomeinrealtermswasUSD5,055,in1982andtowardtheendofthe2000scomparedtoUSD3,837in2021(Mansur,2023).

11IMF(2022b).

12KrafftandAssaad(2018)basedonJLMPS2010andJLMPS2016.

13TheconflictinSyriaisestimatedtohaveshavedoff1.6percentagepointsinJordan.ThedecreaseinthetransittradethroughSyriatookaway3.1percentagepointsandincreasedthepovertyratebyfourpercentagepoints.Incomparison,therefugeearrivalsboostedGDPby0.9percentagepointsandincreasedlaborsupply,buttherewasanimpactonthedemandforpublicservices,transport,education,healthservices,water,energy,andmunicipalwaste(WorldBank,2020).

6

Figure2.PercapitaGDP(PPP,constant2017international$)

Jordanvsupper-middle-incomecountries

Source:WorldBankDevelopmentindicators.

Figure3.Percapitawealth(constantUS$,inmillions)

Source:WorldBankstaffestimatesusingWON.

Inthemeantime,publicdebtincreasedalmostlinearlysince2009(topline,

Figure4)

.ItsannualrateofincreasehasbeennearlyeightpercentcomparedtotheincreaseinrealGDPbyonlytwopercent.Bytheendof2022,thegovernment-guaranteedgrossdebtwas114percentofGDPand

7

91percentofGDPafternettingouttheSocialSecurityCorporation’s(SSC)holdings.14ThebudgetdeficitaveragedoversevenpercentofGDPduringthe2010s(Figure5).Admittedly,thoughtheGlobalFinancialCrisisin2008maynothavehadasignificanteffectonJordan,theimpactfromothershockshasbeensignificant,startingwiththefalloutoftheArabSpringin2011andthesubsequentinfluxofSyrianrefugeesandIraqisin2013aftertheemergenceofISIS,thedisruptionoftradewithIraq,theinterruptionofEgyptiangassuppliestothecountryin2012/13,theCOVID-19pandemicin2020,and,morerecently,thefoodandfuelcrisisoftheUkraine/Russiawar.Theseallnecessitated,tovariousdegrees,anincreaseinpublicspending–leavingaside(fornow)whetherthelevelofadditionalborrowingandthecompositionofpublicexpenditureswerewhattheyshouldhavebeen.

Asmentionedinthepreviousparagraph,therearetwoestimatesofJordan’sdebt,includingandexcludingthepensionreservesofthepension-accumulatedfundsattheSSC.Publicdebt,asdefinedintheIMF’sdebt-sustainabilityanalysis,referstotheconsolidatedgrossdirectandguaranteeddebtofthecentralgovernmentandincludesthedeficitsoftheNationalElectricityCompany(NEPCO)andJordan’sWaterAuthority(WAJ),andtheassetsofthestate-ownedSSC.Onthismeasure,thedebtreachednearly92percentofGDPbytheendof2021(comparedtomorethan110percentiftheSSCreservesareexcluded).

Figure4.Totaldebt(%ofGDP)andrealGDP(totalandpercapita),2009-21(index2009=100)

Sources:CentralBankofJordanandWorldBankDevelopmentIndicators.

14IMF(2022b).

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Figure5.Totalbudgetdeficit(%ofGDP,reversescale)

11%10%

10%

10%

9%

8%

7%

6%

5%

4%

2009201120132015201720192021

Sources:CentralBankofJordanandWorldBankDevelopmentIndicators.

ThepensionreservesoftheSSCareboundtodeclineovertimeduetothedemographictransitionincreasingtheshareofthepopulationabovethepensionableage.Oncurrenttrends,thefuturepensionoutlaysareprojectedtoexceedtherevenuesfromPAYGcontributionsbythemid-2030s,andtheaccumulatedreservesintheSSCareprojectedtobedepletedbythemid-2040s.15Estimatesofthedebtsustainabilitywoulddifferaccordingtowhichmeasureofdebtisused.

Takingthelowerestimateintoaccountimpliesthatdebtreferstocurrent(i.e.,notcontingent)liabilities.TheIMF’slatestforecastsuggeststhat“thedebtwillfallbelow80percentofGDPby2027butitsdeclinewoulddeceleratesignificantlythereafter.”Thisshouldbeconsideredintandemwiththepensionpaymentsthatarealreadyacceleratingovertime.Infact,anotherIMFscenariothatincludesclimatechangeadaptationexpenditures(estimatedattwopercentofGDP)suggeststhatthedebtratiowillstagnateafter2027andwillbetwopercenthigherin2034comparedtothebaselinescenario.ThelatteryearverymuchcoincideswiththeestimatedendofpositiverevenuesfortheSSCoverpensionpaymentsfundedfromthePAYGsystem.Furthermore,thelatestIMFassessmentisprojectingthatdebtstabilizationisalreadyexpectedtotakeplacetwoyearsafterthebeginningoftheprogram.

3Theincreasingshareofexternaldebtanditsservice

Thelevelofexternaldebtislowerthanthatofdomesticdebt.ExternaldebtisatJD16.6billioncomparedtoJD19billionofdomesticdebt,resultingintheirrespectivesharesreaching46percentand54percentofthetotaldebt.However,theexternaldebthasincreasedatamuchfasterratethanthelatter.WhiletheexternaldebtasapercentageofGDPhasmorethantripledsince2009,theshareofdomesticdebtfellshortofdoubling

(Figure6)

.Thepublicexternaldebtincreasedto40.6percentofGDPin2021andfurtherto42.3percentin2022,mainlyduetotheimpactofthe

15WorldBank(2021).

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pandemicandtherisingenergycostsfollowingtheRussia-Ukrainewar,inanupwardtrendhadstartedearlierinthe2010s.

Bytheendof2021,thedebtservicereached4.5percentofGDP.16Inlinewiththeincreasingshareofexternaldebtmentionedabove,theinterestpaidtoexternaldebtincreasedmuchfasterthanthatgoingtoservicethedomesticdebt(Figure7).However,thecostofdomesticborrowingaccountsfor3.1percentofGDPcomparedto1.4percentofGDPbeingpaidtoexternaldebt,notwithstandingthefactthateachkindofdebtaccountsforalmosthalfofthetotaldebt.Thereasonisthattheinterestpaidtodomesticdebthasconsistentlybeenhigherthanthatpaidtoexternaldebt.Since2009,theinterestondomesticdebthasaveraged4.3percentcomparedto2.3percentforexternaldebt.Thedifferencehasincreasedovertime,reaching5.5percentfordomesticborrowingandlessthanhalfofthat(2.7percent)forexternalborrowingby2021.

Figure6.Evolutionandcompositionofdebt(%ofGDP;index2009=100)

Source:CentralBankofJordan.

Figure7.Evolutionandcompositionofdebtservice(%ofGDP;index2009=100)

Source:CentralBankofJordan.

16Predictedsharebasedonincreasesinthelastfouryearsthataverage0.03ppincrease.Forexample,interestpaymentwas4.2percentofGDPin2020,3.7percentin2019,3.4percentin2018,andthreepercentin2017.

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Ontheonehand,theincreasingrelianceonexternalborrowingcanexposeJordantocurrencyrisk,somethingthatcanbeavoidedbytakingintoaccountthebenefitsandrisksofdomesticborrowing.Sofar,Jordanhasavoidedtherisksassociatedwithexternalborrowinginforeigncurrencybypeggingthenationalcurrencytothedollaratarateof1.41forthreedecades.Thismayhavesignificantlycontributedtomakingexportsexpensivewhilereducingthecostofimports,therebyadverselyaffectingdomesticproduction,employment,andthebalanceofpayments.However,asJordanhasincreasedtheshareofforeigncurrencydenominateddebt,thedebtissubjecttogreaterexchangeraterisktotheextentthatthereisexchangeratemisalignment(overvaluation)thatmayresultindepreciation,therebyleadingtodebtspikes.17

Ontheotherhand,thesubstantialshareofdomesticintotaldebthasimplicationsandcarriesrisksforthedomesticbanks.18Byborrowingdomestically,thedemandforfundsraisesthedomesticinterestrates,andthiscanbeoneofthereasonsthatservicingthedomesticdebtinJordanistwiceascostlyasservicingtheexternaldebt.Highinterestratesdiscouragetheprivatesectorfromborrowing.Thiscrowdingoutofprivateborrowingreducesinvestment,currenteconomicactivity,andfuturegrowth.19Anadditionalcomplicationarisesif,throughtheincentiveofhighreturnsonholdinggovernmentdebtorcompulsion,thebanksdonoteffectivelymakeindependentdecisionsregardingtheirportfoliostructure,therebyholdinglargeamountsofgovernmentdebtcomparedtowhatwouldotherwisebeconsideredoptimal.Thiscanleadtodefaultsshouldthegovernmentbeunabletorepayorrestructurethedebt.Inextreme(butnotthatrare)cases,thiscanleadtoadomesticfinancialmeltdown.

TheIMFcurrentlyassessesthecontagionriskamongbankstobelimitedwhiletheofficialgrossreservesattheCentralBankofJordan(CBJ)remainadequate.It,however,notesthesizeableexternalsupportofbilateralandmultilateraldonors,theIMF’sSpecialDrawingRights(SDR)allocations,andthelargeexposureofbankstothesovereign.Itfurthernotesthatcreditconcentrationriskissubstantialandat-risknon-financialcorporations’debtcouldincreasesignificantlyinanadversecasescenario.Theidentifiedareasforimprovementaremanyandchallenging.Theyincludeamorerisk-basedandforward-lookingbankingsupervisionapproach,theneedforsupervisoryassessmentstobedevelopedformorerisk-sensitivecapitalrequirementsandforAnti-MoneyLaundering/CombattingtheFinancingofTerrorism(AML/CFT),amorerefinedstrategy,andthebridgingofdatagapsfortheimplementationofstresstests,systemicforeigncurrencyliquidityanalyses,andtheassessmentofhouseholdandcorporatesector

17IMF(2022):pp.24-25.

18Theshareofdomesticcreditprovidedtothegovernmentbythebankingsystemhasinvariablyhoveredbetween20

percentand25percentinthelastdecade(IMF2022b):p.