Poverty Alleviation in Jordan in the 1990s: Lessons for the Future

71 Pages·2001·0.65 MB·English

by  Radwan Shaban

Poverty Alleviation
in Jordan
Lessons for the Future
Radwan A.Shaban
Dina Abu-Ghaida
Abdel-Salam Al-Naimat
The World Bank
Middle East and North Africa Region
Copyright © 2001 The International Bank for Reconstruction
and Development / THE WORLD BANK
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Manufactured in the United States of America
First printing June 2001
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Orientations in Development was launched by the World Bank’s Middle East and North Africa
Region in 2001 to share analysis of the multifaceted development issues facing the region and
to offer practical and innovative solutions. From managing scarce water resources to preserving
cultural heritage to enacting policies that promote equitable growth and reduce poverty, the
region confronts a broad range of challenges. Each contribution in this series seeks to deepen
the knowledge on these topics and enrich the policy debate among development practitioners
both within the region and worldwide.
This report was written by Radwan A. Shaban (task manager) and Dina Abu-
Ghaida of the Middle East and North Africa Region of the World Bank, and Abdel-
Salam Al-Naimat from Jordan’s Royal Scientific Society. The peer reviewers were
Bruce Fitzgerald (IFC), Paul Glewwe, Dominique van de Walle (DECRG), and
Giovanna Prennushi (PRMPO). This work was started as part of the analysis for the
report on Jordan’s Public Sector Review, and we would like to thank Christian
Petersen (MNSED), Shanta Devarajan, Jeffrey Hammer, Martin Rama, and Vinaya
Swaroop (DECRG) for helpful discussions. This report benefited from the guidance
of numerous Jordanian officials and scholars, and we would like to thank their excel-
lencies Dr. Abdel-Razzak Bani-Hani, Dr. Jamal Salah, and Dr. Hussein Shakhatreh, in
addition to Messrs. Ghaith Fariz, Atef Khalil, and Maan Nsour. This report benefited
significantly from discussions with Jordanians held at the hands-on training workshop
on “Policy Analysis of Household Data Sets” that the authors conducted in Amman
from June 26 to July 7, 1999. Helpful comments were also provided by Daniela
Gressani, M. Willem van Eeghen, Mustapha Nabli, Sarosh Sattar, Sudhir Chitale
(MNSED), Jacques Baudouy, Marlaine Lockheed, P. Zafiris Tzannatos (MNSHD),
Richard Adams (PRMPO), Guzman Garcia-Rivero (MNSRE), Inder Sud, Tufan
Kolan, and Jayanta Roy (MNCMS). The report also benefited from comments
received at a conference presentation at the University of Jordan in April 2000. The
report was edited by Laura Goodwin and Scott Bloom. We acknowledge partial finan-
cial assistance from the Dutch Trust Fund to the Poverty Board.
Foreword
It is with great pleasure that I present as the second installment in our
Orientations in Developmentseries this report on the policies and strate-
gies of the government of Jordan to alleviate poverty over the last
decade. As readers are likely to know, the Jordanian economy faced
deep and unexpected shocks in 1989 following a currency devaluation
and accompanying economic crisis. The crisis led to both an increase
in the number of people living in poverty—a sixfold increase between
1987 and 1992—and increasing inequality within society. The govern-
ment made difficult decisions—in particular, phasing out nontargeted
subsidies, such as food subsidies—and expanded programs of targeted
assistance to the poor, which have resulted in declines in the number
of people living in poverty in both absolute and percentage terms.
Despite these improvements, the challenge of poverty reduction
continues to exist. Poverty remains at higher levels than prevailed in
the 1980s, and without increases in the rate of economic growth, there
are limits to the relief that can be provided by the social safety net. At
the same time, it is recognized that economic growth alone will not
benefit everyone, and that poverty monitoring and targeting efforts
will need to continue.
This report was written jointly by staff and consultants from the
World Bank and Jordanian experts, and the process through which it
was prepared, discussed, and disseminated highlights the commitment
by all parties to continuing the fight to alleviate poverty. I am confi-
dent that both the report and the process will contribute to the discus-
sion and ultimate success of poverty alleviation efforts in Jordan.
JEAN-LOUISSARBIB
VICEPRESIDENT
MIDDLEEASTANDNORTHAFRICAREGION
Contents
Executive Summary vii
I. INTRODUCTION 1
I.1. Background 2
I.2. Household Income and Expenditure Surveys 4
II. Poverty and Inequality Declined between
1992 and 1997 7
II.1. Poverty Declined between 1992 and 1997 7
II.2. Inequality Was Reduced between 1992 and 1997 10
II.3. Why Is There a Perception of Increasing Poverty
in Jordan during the 1990s? 13
III. Role of Government Programs 15
III.1. Phasing Out of Food Subsidies 15
III.2. Increasing Importance of Cash Transfers 17
III.3. Distributional Impact of Food Subsidies and
Cash Transfers 19
IV. POLICY IMPLICATIONS 23
Annexes
Annex I: Poverty Lines 31
Annex II: Robustness of the Result of Poverty Reduction 37
Annex III: Poverty Profile: 1992 and 1997 43
Notes 55
References 57
v
Tables,Figures,and Boxes
Table 1: Macroeconomic Indicators in Jordan, 1990-97 3
Table 2: Selected Human Development Indicators 3
Table 3: Average Per Capita Consumption Expenditure,
1992 and 1997 (by decile, in 1997 JD) 8
Table 4: Measures of Poverty in Jordan, 1992 and 1997 10
Table 5: Decomposition of Poverty Reduction in Jordan
between 1992 and 1997 11
Table 6: Measures of Inequality in Jordan, 1992 and 1997 12
Table 7: Comparison of the Simple Profile of the Poor
between 1992 and 1997 19
Table 8: Poverty Projections for Three Growth Scenarios 25
Table 9: Simulating the Impact of Uniform Negative Shocks
on Expenditure 26
Figure 1: Poverty Is Unambiguously Lower in 1997
Compared with 1992 for All Widely Used Poverty Lines 8
Figure 2: Inequality Unambiguously Declined between
1992 and 1997 12
Figure 3: International Comparison of Inequality 13
Figure 4: NAF Beneficiary Households and Cash Assistance
Have Increased over Time 18
Figure 5: Distributional Impact of Food Subsidies and
Government Cash Transfers 21
Figure 6: Poverty Projections for 1998-2002 in Response to
Growth Projections — for Updated Official Poverty Line 24
Box 1: Jordan Gradually Eliminates Food Subsidies 16
Box 2: Service-Delivery Survey of the NAF Conducted
by the Jordan Institute of Public Administration (JIPA) 28
Executive Summary
The purpose of this report is to draw lessons for improving the policy
design of poverty alleviation schemes in Jordan. The conclusions herein
are based on analyses of trends in consumption poverty1 in Jordan and
assessment of the impact of government programs (including food sub-
sidies and cash transfers) on poverty alleviation in the 1990s.
Poverty declined in Jordan between 1992 and 1997:
• The percentage of Jordan’s population below the poverty line was
lower in 1997 than it was in 1992. This decline is not dependent on
the choice of poverty line.
• More specifically, the fraction of the population living below the
poverty line of JD 313.5 per capita per year2 (using per capita con-
sumption expenditure) declined from 14.4 percent in 1992 to 11.7
percent in 1997. Other measures of poverty also declined during the
same period, as shown below.
SUMMARY TABLE 1
Poverty declined in Jordan between 1992 and 1997
1987 1992 1997
Poverty Line
(current annual JD per capita) 148 261 313.5
Poverty Measures
Headcount Index (percent of population)3 3.0 14.4 11.7
Poverty Gap Index (percent) 0.3 3.6 2.5
Absolute Magnitudes
Number of Poor People (thousands) 87.4 554.3 538.2
Total Poverty Gap (current JD,millions) 1.3 35.9 36.6
Source:Based on Table 4 in main report (1987 data are from the World Bank [1994] Poverty Assessment).
Welfare measure is per capita consumption expenditure.
vii
viii Poverty Alleviation in Jordan:Lessons for the Future
• The decline in incidence and depth of poverty between 1992 and
1997 is observed for any poverty line below JD 491 per capita per year
(see Section II.1). For example, using a poverty line of JD 365 per
capita per year, the fraction of the population that was poor declined
from 20.8 percent in 1992 to 18.2 percent in 1997.
• Despite the reduction in poverty between 1992 and 1997, there is
widespread belief that poverty actually increased in Jordan during the
mid-1990s. This belief is partly in reaction to declining overall per
capita incomes since 1996 in the context of expectations of rapid eco-
nomic improvements following the 1994 Jordanian-Israeli peace
treaty. In addition, poverty in Jordan in 1997 remained far higher than
it was in 1987 (see Summary Table 1 above).
Poverty declined because inequality declined:
• In 1997 prices, per capita expenditure levels went down from JD 821
in 1992 to JD 762 in 1997. However, the poorer 40 percent of the
population had higher per capita expenditure levels in 1997 than in
1992, while the richer 60 percent were worse off.
• This clear reduction in inequality outweighed the effect of the decline
in per capita expenditure levels and led to a lower poverty rate in 1997
than in 1992.
• Inequality in per capita consumption expenditure, as measured by the
Gini Index,4 declined from 0.40 to 0.36 during this period. This
underlying level of inequality is essentially moderate by regional and
international standards.
Government programs contributed to poverty alleviation:
• In 1992, government programs consisted predominantly of food sub-
sidies, which benefited the non-poor more than the poor.
• In 1997, government cash transfers constituted the bulk of govern-
ment programs, and these benefited the poor more than the non-
poor.
• In addition, the data indicate that the poorest tenth of the Jordanian
population benefited from National Aid Fund assistance more in 1997
than in 1992. The Development and Employment Fund and the
Zakat Fund also target the poor.
Poverty Alleviation in Jordan:Lessons for the Future ix
Poverty continues to be a major policy challenge for Jordan:
• The absolute number of poor people only dropped from 554,000 in
1992 to 538,000 in 1997 (see Summary Table 1).
• Declining per capita income leads to greater poverty, for a given level
of inequality. Thus, the decline in per capita GDP in Jordan since
1996 is expected to lead to increasing poverty.
• The poor and near-poor remain vulnerable as a result of the shallow-
ness of poverty in Jordan (many people concentrated close to the
poverty line) and the adverse effects of potential shocks. A 10 percent
uniform reduction in expenditure is estimated to increase the number
of the poor by 35 percent.
Policy Conclusions
1. Sustainable reduction of poverty requires resumption and sus-
tainability of growth. Government transfers had a role in bringing
poverty down, but budgetary constraints limit their expansion and, in a
recessionary economy, also their sustainability. After several years of neg-
ative growth in per capita incomes, Jordan needs to resume growth to
reduce poverty as well as improve overall standards of living. Poverty
projections for different growth scenarios are shown in the figure below.
Structural adjustment reforms that enhance and accelerate growth are
therefore critical for poverty reduction in the future.
2. There is a need for policy response to the vulnerability of the
poor and near-poor to economic shocks. The current government
welfare program aims at the permanently poor. It is therefore not
equipped to respond flexibly and quickly enough to relieve any hardship
resulting from a negative shock. One mechanism for reducing the vul-
nerability of the poor and near-poor to negative shocks is through com-
munity-based public works programs that offer jobs at low wages. These
mechanisms provide insurance to low-income households, encourage
risk-taking, and lead to higher incomes in the long run.
3. The capacity of the National Aid Fund (NAF) needs to be signif-
icantly enhanced. Increased reliance on targeted cash assistance has had
a measurable impact on poverty alleviation. Yet, more could be achieved
with the available resources if implementation inefficiencies are over-
come. NAF requires capacity and institutional strengthening in such
areas as its organizational structure, mission, and business operations.