Jordan 2017

1. Jordan has been receiving assistance towards the improvement of public financial management (PFM) for more than a decade, principally from USAID and the European Union (EU). EU assistance, which has mainly been provided through budget support, has generally been partly conditional on the maintenance of macroeconomic stability, the implementation of a continuing programme of public financial management (PFM) reform, and further improvements in the transparency of PFM. This assessment, which is sponsored by the EU, is intended to provide an overview of progress in PFM since the previous assessment in 2011, and at the same time to establish a benchmark for the future measurement of progress against the criteria set out in the new Performance Measurement Framework published in February 2016 by the PEFA partners.
2. The assessment focuses mainly on budgetary central government (BCG - the 53 Chapters of the main budget) which accounts for 80 per cent or more of expenditure under the control of central government bodies. But it also covers at various points the revenue and expenditure of the 59 extra-budgetary Government Units (GUs) which are increasingly treated in the same way as BCG in annual budget legislation and for the purposes of expenditure and cash management. Most of these bodies fulfil administrative or regulatory functions, but a few are public utilities or even trading bodies. Sub-national governments play a relatively minor role in PFM in Jordan, being responsible in total for about 6 per cent of General Government expenditure, more than half of which is attributable to the Greater Amman Municipality (GAM). The funded social security scheme functions separately outside the main budget or that for the GUs.
3. Jordan has faced a much more difficult macro-economic environment during the period covered by this assessment (2013-16) than the country faced during the period 2008-10 covered by the previous PEFA assessment made in 2011. This primarily reflects the impact on Jordan’s economy and society of the intensified conflicts in Syria and Iraq, which have damaged Jordan’s trade and investment, and precipitated an influx of refugees who put large additional strains on Jordan’s public services and public finances. The country’s tax and other revenues have fallen well short of what is needed to finance the maintenance of adequate public services while at the same time meeting the infrastructure needs of a rapidly expanding population. Meanwhile the proportion of GDP collected as tax revenue remains some 5 percentage points lower than it was in 2007 as a result of decisions on tax rates and exemptions. Jordan has thus remained dependent on external help from the Gulf Cooperation Council, European and North American development partners to balance its external payments and to finance significant public investments.
4. Much of the framework within which external assistance has in recent years been provided to Jordan has been set by the Stand-By Arrangement (SBA) concluded for the period 2012-15 with the International Monetary Fund (IMF). This foresaw substantial fiscal consolidation to be achieved by increasing tax revenues, reducing the losses incurred by the electricity supply company (NEPCO), containing other current expenditures, and reprioritizing public investment. At the same time PFM improvements were to be sought by improving cash forecasting and control, especially by implementing the commitment control module of the Government Financial Management Information System (GFMIS) and extending the coverage of the Treasury Single Account (TSA) at the Central Bank of Jordan (CBJ). Following the completion of the SBA a new agreement has recently (August 2016) been concluded with the IMF on an Extended Fund Facility (EFF), which in addition to committing to further fiscal consolidation provides for continuing improvements in tax administration, reorganization of public debt management and publication of a new debt management strategy, more complete and transparent budget execution reporting, and production of a road map for the introduction of full accruals-based budgetary accounting.
5. This assessment shows that Jordan has generally been able to maintain aggregate fiscal discipline, with effective cash and debt management, and prompt and accurate budget execution reporting. Aggregate expenditure has been kept within budgeted amounts, although there have been fluctuations in the balance between recurrent and capital expenditure. Actual domestic revenue has been fairly close to forecast, and the commitment control module of GFMIS is working effectively. Payroll control and procurement management are generally satisfactory. The recent fall in world oil and gas prices has considerably eased Jordan’s fiscal position, making it possible to stem NEPCO’s losses without politically damaging increases in electricity tariffs.
6. Considerable efforts have been made to improve the strategic allocation of resources, through the preparation of strategic plans for service delivery, and the requirement for key performance indicators (KPIs) to be specified for every Department’s expenditure programmes against which actual achievements are measured. For the moment, however, the KPIs for the most part are defined in terms of outputs or activities rather than outcomes in terms of service improvements, and the budget documentation does not provide any clear indication of the actions to be undertaken in order to achieve given outputs, let alone outcomes. The Government’s Vision 2025 document and the Executive Development Programme 2016-18 provide a framework within which specific decisions on investments or other actions to achieve service improvements should be fitted. The establishment of the public investment management unit in the Ministry of Planning and International Cooperation (MoPIC) as a prior action under the EFF should further strengthen performance. This will be supplemented by the initiative currently in progress by MoPIC and the General Budget Department (GBD) to introduce systematic arrangements for the monitoring and evaluation of investment projects.  But the impact of these arrangements is held back by what are admitted to be the inadequate links between strategic plans and actual decisions.  Furthermore the scope for initiatives is limited by the lack of fiscal space: a very high proportion of total expenditure is devoted to civil and military pay, with most of those concerned being engaged on administrative functions rather than service delivery. At the same time the relatively low proportion of GDP collected in taxes limits the availability of resources to meet the costs of service improvements.
7. High scores on PFM Indicators do not necessarily show that resources are used efficiently for service delivery.  This assessment shows that the focus is on ensuring that correct procedures are followed rather than on good performance in providing public services. Although there are ongoing efforts to improve internal and external audit, these activities have remained mainly focused on compliance with regulations. Increasing attention is now being given to the performance of systems and to financial reporting. The resources and procedures devoted to internal control through layers of supervision of each expenditure transaction remain excessive, although again there are ongoing efforts to rationalise the resources devoted to these activities. The very high proportion of total employment in the country accounted for by employment in government services (some 40 per cent of total employment as registered for social security purposes) already raises questions about the efficient use of resources by general government; the very low proportion of women in the labour force, despite the fact that girls reach higher standards in school than boys, provides further evidence that cultural factors may stand in the way of economic and social development. Although external audit has made progress in developing performance audit alongside its traditional emphasis on compliance control, it has not yet made much impact in identifying ways to deliver services more efficiently. Internal audit is beginning to look at the performance of control systems rather than just at the incidence of non-compliance with applicable rules, but again the main focus is not on improving the efficiency of service delivery. Controls over staff numbers and payroll work efficiently to prevent errors, but there is no career planning to ensure that people with the most useful abilities and experience are available to fill demanding senior posts. 
8. Overall the picture is of continuing gradual improvement in PFM despite a very unfavourable external economic environment. Financial management information systems have improved substantially, as has cash management and control. A commitment control module has been successfully introduced into GFMIS, and work is under way to rationalise internal control and further develop internal and external audit. Much fiscal information is published promptly, although there is still scope for improvement. Following a World Bank consultancy in 2015, the Government decided in June 2016 to implement new arrangements for Public Investment Management. These provide that MoPIC should take responsibility for managing the single pipeline of possible projects, and that no project is undertaken until its viability and priority have been confirmed by economic analysis carried out according to predetermined criteria. At the same time a  framework is being developed for monitoring and evaluation of the results of investment decisions and policy initiatives. Tax collection has been to some extent reorganized, and some progress has been made in imposing control on tax arrears; but Jordan’s tax collected as a proportion of GDP is 5 percentage points lower than in 2007 as a result of policy decisions, while a complex structure of tax exemptions was estimated in 2013 to cost 7 per cent of GDP.
9. There are good prospects for continuing improvements in PFM, supported by EU and USAID assistance. The Government’s undertakings to the IMF in the context of the EFF provide further confirmation of this, and the further fiscal consolidation which is part of this programme should eventually free up resources to be used for service improvement. An improvement in the situation in neighboring countries would offer the prospect of a stronger economy in Jordan and reduced strains on the country’s infrastructure and public services, but for the time being this cannot be relied on. Meanwhile continuing efforts will be needed to make tax collection more efficient, to make internal control less burdensome, and to reorient internal and external audit work to contribute more effectively to improving the efficiency of service delivery. But it has to be recognized that PFM structures and procedures which match all the PEFA criteria for measuring good practice will not of themselves ensure the delivery of good public services: this will also depend on political decisions about the amounts to be raised through taxation, and the relative priorities given to the different activities of government.