SETP Background

Reforms: 1989-1999

In 1989, Jordan suffered from an economic crisis where inflation reached an annualized 25.6% and real economic growth contracted by an annualized rate of 13.4%, while the Jordanian dinar depreciated by 35% against the US dollar. Furthermore, the Balance of Payments and the foreign reserves at the Central Bank were at record low levels of US$34 million, while the balance of outstanding external debt as a percentage of GDP reached 180.6% and its service as a percentage of exports reached 24.9%.

 Economic reform efforts began in the early 1990s and were, therefore, primarily focused on attaining macroeconomic stability and rectifying fiscal imbalances. By 1999, the stringent reform efforts were successful in sustaining an efficient macroeconomic management policy, which included the gradual reduction of high fiscal imbalances, and the implementation of a structural reform agenda. This success was mostly evident in propelling real GDP growth to 3.1% in 1999 compared with a contraction of 10.7% in 1989, lowering the external debt/GDP ratio from 157% in 1989 to 90% in 1999, containing inflation from 25.6% in 1989 to 0.6% in 1999, and boosting exports to reach US$1.48 billion in 1999.

Reforms: 1999-2001

Reform efforts were revisited in 1999 when His Majesty King Abdullah II ascended to the throne, prompting an accelerated pace and the launch of new strategies and initiatives aimed at enhancing the welfare of the Jordanian people and propelling economic growth to higher and sustainable levels. The GOJ thus began to focus on devising and implementing measures to combat the critical challenges facing the economy, having as their hallmark institutionalizing the public-private partnership, while at the same time laying the foundation for building a new Jordanian model that is resilient to external factors and that accommodates the evolving global trends. This new model was based on the premise of transforming Jordan from a primary-driven economy, into an investment-driven and knowledge-based one.

Since the private sector is to be the main engine of growth and the driving force of the economy, the GOJ was keen to develop a partnership with the private sector and civil society institutions to reach a national consensus on the path that Jordan is to take to realize its developmental objectives.

Accordingly, the First National Economic Forum was held at the Dead Sea during the period 26-27 November 1999, which brought together over 160 people from both the private and public sectors to address and present recommendations on the means to achieve sustainable economic and social development. The meeting produced a substantial number of recommendations which addressed 5 main areas which include economic liberalization and development, financial reforms, administrative reforms, legislative reforms, and education and higher education reforms.

Subsequently, and based on the recommendations of the First Economic Forum, and in accordance with the directives of His Majesty King Abdullah II, the Economic Consultative Council was established in December 1999. The ECC is comprised of 20 members, including 16 private sector and civil society representatives. The mandate of the ECC includes setting national strategies, following on the implementation of the recommendations of the First Economic Forum, activating the role of the private sector in decision-making processes, activating and institutionalizing the public-private partnership, setting time-bound plans to accelerate economic growth, and forming task forces that address core areas of the development process such as public sector reform, capital market development, and suitable legal and institutional frameworks (the task forces include experts from the ECC as well as experts from the private and public sectors and civil society institutions).

The ECC worked with the government, the private sector, and civil society institutions to translate the recommendations of the First National Economic Forum to action plans in preparation for their implementation. Topics addressed included the formulation of strategies to increase the role of banks in economic development; establishing the port city of Aqaba to a Special Economic Zone; administrative reform; tourism promotion; making English language and computer courses mandatory in schools; computerization of government services; privatization; judicial reform; recommendations on the national strategy to decrease the budget deficit; and promoting information technology as an enabler for economic growth.

The Second National Economic Forum was held during the period 31/3 - 1/4/2001 with the aim of assessing the performance of the ECC in addressing the First National Economic Forum's recommendations, in addition to formulating national strategies to reassess policies as pertains to the following areas: agriculture, administrative reform, investments, cultural and civic education, rural development, human resource development, and governorates' development.

Launch and Structure of the SETP

His Majesty King Abdullah II acknowledged the importance of the ECC recommendations and the need to implement all the policies, plans, and reforms that have been formulated as a result of the process of building a national consensus on the development needs of Jordan, reached at the First and Second National Economic Forums and all the task forces and working groups that followed. Thus, on 25 October 2001, His Majesty the King instructed the GOJ to chart an integrated socioeconomic program to accelerate the pace of social and economic reforms and raise the quality and standard of living of Jordanians. As a result of the Royal Directive, the GOJ launched the Social Economic Transformation Program on 15 November 2001.

However, the general budget could not accommodate and prioritize the policies, plans, and reforms formulated. For example, despite the fact that Jordan depends on its human capital for development, capital expenditures as a percentage of total expenditures in the areas of Human Resource Development and Basic Government Services remained low (capital expenditures in 2001 in education and health care were 4.5% and 14%, respectively, of total government expenditures in those sectors).

In light of the limited financing capabilities of the general budget, and to ensure the Program's implementation without jeopardizing the macroeconomic stability that Jordan has enjoyed over the last decade, the GOJ sought to fund the Program via additional grants from donors and a partial utilization of the privatization proceeds as per article (5) - (C) of the Temporary Law No. (2) for the year 2002.

The Program was entered into Chapter 2 of the general budget, and is, therefore, part and parcel of the Budget Law, and as such all its financial and administrative rules and regulations apply to it, which ensure accountability and transparency through an institutionalized mechanism for monitoring and evaluating the progress of projects per article (9) - (g) of the Budget Law No. (12) for the year 2003 and article (10) - (g) of the draft Budget Law for the year 2004. Moreover, the SETP is subject to the Jordanian Parliament's scrutiny and becomes law only upon its approval, similar to all other GOJ projects.

Furthermore, the SETP has been discussed with and approved by the IMF and World Bank. Several IMF missions have judged that the SETP will not have a negative impact on the macroeconomic stability of Jordan. In fact, the SETP was seen by the IMF to have a positive impact on GDP, and as thus, the SETP has been included in the Budget Law. (The World Bank reviewed the SETP and provided feedback that was incorporated in the Program.)