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Document ofTHE WORLD BANK

FOR OFFICIAL USE ONLY

Report No. 16785

IMPLEMENTATION COMPLETION REPORT

THE HASHEMITE KINGDOM OF JORDAN

AGRICULTURE SECTOR ADJUSTMENT LOAN(Ln. 3817-JO)

June 30, 1997

Natural Resources, Water and Environment DivisionMiddle East DepartmentMiddle East and North Africa Region

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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CURRENCY EQUIVALENTS DURING IMPLEMENTATION

Currency Unit = Jordanian Dinar (JD)

November 1994 US$1.00 = JD 0.67May 1995 US$1.00 = JD 0.67April 1997 US$l.00 = JD 0.69

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

ACC - Agriculture Credit CorporationAMO - Agriculture Marketing OrganizationAMPCO - Agricultural Marketing and Produce CompanyASAL - Agriculture Sector Adjustment LoanASAP - Agriculture Sector Adjustment ProgramASTAP - Agriculture Sector Technical Assistance ProgramASTSUP - Agriculture Sector Technical Support ProjectBOO - Build-Own and OperateBOP - Balance of PaymentsBOT - Build-Operate and TransferCBJ - Central Bank of JordanCG - Consultative GroupCIDA - Canadian International Development AgencyDRC - Domestic Resource CostDSCR - Debt Service Coverage RatioEDI - Economic Development InstituteERDL - Economic Reform and Development LoanERP - Effective Rate of ProtectionESAL - Energy Sector Adjustment LoanGDP - Gross Domestic ProductGTZ - German Agency for Technical CooperationICB - International Competitive BiddingICR - Implementation Completion ReportIMF - International Monetary FundITPAL - Industry and Trade Policy Adjustmnent LoanJVA - Jordan Valley AuthorityKfW - Kreditanstalt fUr Wiederaufbau (German Credit Agency for Reconstruction)LRMC - Long Run Marginal CostMCM - Million Cubic MetersMOA - Ministry of AgricultureMOP - Ministry of PlanningMWI - Ministry of Water and IrrigationNCARTT - National Center for Agricultural Research and Technology TransferO&M - Operation and MaintenancePCR - Project Completion ReportPIP - Public Investrnent ProgramQRs - Quantitative RestrictionsUSAID - United States Agency for International DevelopmentWAJ - Water Authority of JordanWBG - West Bank and Gaza

GOVERNMENT OF THE HASHEMITE KINGDOM OF JORDAN - FISCAL YEAR

January I - December 31

Vice President: Kemal Dervi§Director: Inder K. SudDivision Chief: Salah DarghouthTask Manager: Christopher Ward

FOR OFFICIAL USE ONLY




Table of ContentsPage No.

PREFACE

EVALUATION SUMMARY ................................................................. i-ix

PART I: OPERATION REVIEW FROM THE BANK'S PERSPECTIVE ............... IOperation Identity .................................................lI

1. Background .................................................. IA. Macroeconomic Environment and the Adjustment Program ...................... IB. Results and Remaining Problems .................................................. 3C. The Sectoral Background ................................ .................. 3

II. Operation Design, Objectives and Description ...........................................5A. Development of the Operation and Accompanying Measures ................... 5B. Objectives .................................................. 6C. Operation Description .................................................. 6D. Cofinancing .................................................. 7E. Loan Conditions of ASAL ................................................. 7

III. Achievement of Objectives .......................................................... 9A. Optimal Use of Natural Resources .......................................................... 9B. Market Liberalization ......................................................... 10C. Institutional Development .......................... ............................... 10

IV. Implementation Record ................... 11...................................... lA General ......................................................... ItB. Reform to Support Transition to an Optimal Use of Natural Resources.. IIC. Market Liberalization ......................................................... 18D. Institutional Development: Sector Policy and Services ............................ 20

V. Project Sustainability. 21VI. Bank Performance .................... 22VII. Borrower Performance .................... 23

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

Table of Contents (cont'd)

VIII. Assessment of Outcome ..................... 23IX. Future Operations ..................... 27X. Key Lessons Learned ..................... 27

PART II: STATISTICAL TABLES ............................. 29

Table 1: Summary of Assessment .30Table 2: Related Bank Loans .31Table 3: Project Timetable .32Table 4: Loan Disbursements: Cumulative Estimated and Actual. 32Table 5: Key Indicators for Project Implementation .33Table 6: Key Economic Indicators .35Table 7: Studies Included in Project .36Table 8A: Project Costs .37Table 8B: Project Financing .37Table 9: Economic Costs and Benefits .37Table 10: Status of Legal Covenants .38Table I1: Compliance with Operational Manual Statements .40Table 12: Bank Resources: Staff Inputs .40Table 13: Bank Resources: Missions .41

APPENDIXES A and B .................................................................................................. 42

MAPS: IBRD Nos. 19828R1, 19983R and 20979R




PREFACE

1. This is the Implementation Completion Report (ICR) for the Agriculture Sector AdjustmentLoan (ASAL) (Ln. 3817-JO) for Jordan in the amount of US$80 million. The loan was approved onDecember 8, 1994 and declared effective on May 19, 1995. The loan was closed on April 30, 1997.It was fully disbursed and the last disbursement was made on May 13, 1997.

2. The ICR Parts I and II were prepared by the Natural Resources, Water and EnvironmentDivision (MN2NE) of the Middle East Department.

3. The ICR is based on a desk review of material used in the preparation and supervision of theOperation and on a field visit to Jordan in May 1997 to discuss the operation with Borrower staff andother stakeholders. During the field visit, a meeting was held under the chairmanship of the Ministryof Planning at which agencies involved in implementation commented on the draft of Part I of theICR. The minutes of the meeting are included in Appendix B.

4. The ICR was prepared by Messrs. Christopher Ward, Principal Operations Officer, TijanSallah, Economist, and Youssef Fuleihan, Senior Agricultural Economist (MN2NE). The ICR wasreviewed by Mr. Salah Darghouth, Division Chief (MN2NE), Ms. Tufan Kolan, Project Advisor, andMr. Jayanta Roy, Acting Lead Economist (MN2DR).

Agriculture Sector Adjustment Loan




EVALUATION SUMMARY

A. Introduction

1. Adjustment Program. At the time that ASAL was presented to the Board in December1994, the adjustment program that Government had been implementing had reduced themacroeconomic imbalances. Bank strategy (and that of the IMF) was to support the stabilization andadjustment program through balance of payments support. This support has subsequently continuedwith success that Jordan may soon successfully conclude its macroeconomic adjustment process.

2. Sectoral Background. At the time that ASAL was appraised, the most importantagriculture sector issue was the need to improve the efficiency and sustainability of the sector's useof water, the country's scarcest resource. On the production side, the major constraint to agriculturalgrowth was the market. Exports had historically been dependent on the politically vulnerableregional markets and development of new markets and products was slow. Governmentinterventions in prices and markets provided a high level of protection to farmers, but also preventedthe sector from adapting to a more demanding external market and to the growing shortage of water.The sectoral adjustment program supported by ASAL was thus designed to promote a sound long-term agriculture and water-sector policy framework and to support the implementation of a firstround of actions within that framework.

B. Operation Design, Objectives and Description

3. ASAL was based on Government's own draft Agricultural Policy Charter and had a highdegree of national ownership. ASAL objectives were: (i) to promote the transition to a moresustainable and efficient use of resources, particularly water, through better planning and throughdemand management by both pricing and regulation; and (ii) to free up markets and thus enable theprivate sector to invest, produce and trade in line with Jordan's comparative advantage in agriculture.The ASAL also aimed at institutional development to improve agricultural production services.

4. The loan was to be disbursed in two tranches: a first tranche of US$50 million, and asecond tranche of US$30 million. Cofinancing of DM 30 million (about US$20 million equivalent)under German financial cooperation funds via KfW was made available. At the same time as ASAL,

ii Agriculture Sector Adjustment Loan

the Bank appraised and negotiated a technical assistance project, the Agriculture Sector TechnicalSupport Project (ASTSUP, Ln. 3818-JO)), to provide support to water management, research,extension, and monitoring and evaluation.

Reforms to Promote Efficient Natural Resource Use

5. The program was based on the integrated approach to water resources management set outin the Government's policy framework and designed to support the transition to an optimal use ofJordan's very scarce water resources. The actions were: (i) restructuring the country's water sectorinstitutions, which were competing inefficiently with each other, in such a way that water resourcesplanning and management were unified; (ii) promoting more efficient use of water through demandmanagement, increasing the irrigation tariff towards the economic efficiency price; (iii) establishingbetter regulatory control over the country's over-exploited groundwater resources; and (iv)prioritizing public investments in water, in order to ensure least cost supply.

6. Restructuring Water Institutions. As part of the ASAL, Government, in association withthe Bank, conducted an institutional study (with CIDA financing) on the mandates and structures ofthe three water sector institutions: the Ministry of Water and Irrigation (MWI), the Jordan ValleyAuthority (JVA), and the Water Authority of Jordan (WAJ). On the basis of the study, Governmentproposed a series of reforms, to restructure the three agencies to separate bulk from retail delivery; toseparate regulatory from service functions from service functions; to promote private sectorparticipation; and to bring an integrated approach to water resources planning and allocation. TheBank approved this restructuring plan prior to second tranche release. The Government is movingquickly to execute this plan, with donor support.

7. Efflcient Use of Water through Demand Management. Under ASAL, a series of priceincreases was agreed that would promote efficient water use in Jordan Valley irrigation.Government made a first increase from 6 fils (about I US cent) per cubic meter to 15 fils (about 2.5US cents) in March 1995, prior to loan effectiveness. This increase led to an improvement in costrecovery. However, concerns were raised about the impact on farm incomes of any further priceincreases, and Government developed an alternative plan for improving efficiency through: (i)progressive handover of responsibilities for operation and maintenance to farmer groups; (ii)development of new high-value market outlets for Jordan Valley produce; and (iii) cost reductionsthrough improved efficiency of JVA operations. On the strength of this alternative plan,Government requested a waiver of the second tranche release condition that charges should be raiseda second time, to 25 fils/m3 . Government's request was made in the context of the broaderadjustment program under which several other measures were being implemented at the time,including the increase in electricity tariffs and the removal of the bread subsidy. The slow recoveryof agricultural export markets following the Gulf crisis was also a factor. Government also statedthat it remained committed to raising water charges when market conditions for farmers improved.Based on progress achieved in other measures of the reform, and Government's commitment to thealternative plan and to raising water charges as market conditions improved, a waiver was agreed bythe Bank.

8. Establishing Better Regulatory Control over Groundwater. The major issue ongroundwater was the alarming rate of depletion. ASAL was designed to support Government's

Agriculture Sector Adjustment Loan iii

program to enforce volumetric metering and control of groundwater production, supply and usage.Compliance with this program was to be a condition of second tranche release. Government madesatisfactory progress in the implementation of the program. At the time of second tranche release,the metering program was substantially complete and the monitoring program was operational in sixof the country's nine basins. By the end of 1996, 78 percent of all the country's wells were meteredand monitored. Government had strictly controlled the issue of any new well licenses and wasregulating the drilling industry. A related condition of second tranche release was to reduce theextraction from the Disi fossil aquifer in order to conserve it for higher value future uses.Government signed a formal agreement with the Disi farming companies to reduce groundwaterextraction during the 1996/97 crop season to 28 percent below 1993 levels.

9. Prioritizing Public Investments in Water. The Letter of Sector Policy contained an agreedinvestment program. Investments were prioritized according to least cost criteria.

Agricultural Market Liberalization

10. The reform program in market liberalization was designed to remove the many constraintsto the free flow of goods and market determination of prices. The rationale was that constraintsprevented farmers and traders from receiving the price signals that would allow them to produce andtrade efficiently in line with the comparative advantage that economic studies showed Jordan topossess in many products. The actions for agriculture produce were: (i) the removal of subsidies; (ii)the lifting of price controls; (iii) the liberalization of external trade, the lifting of monopolies and thedivestiture of the monopoly company; and (iv) the deregulation of the land market in the JordanValley.

11. Removal of Subsidies. Prior to ASAL, the producer prices of wheat, barley and tomatoeswere set at above import parity levels by Government. The price of imported barley for animal feedwas also set at subsidized levels. Before Board presentation, Government eliminated the subsidiesand, as a condition of second tranche release, eliminated all public sector barley imports from April1997. Moreover, Government liberalized wheat imports and removed the large bread subsidy; this isa major adjustment reforn representing a measure not envisioned in the original program.

12. Lifting of Price Controls. Margin controls and controls on prices of major fresh andprocessed foods were eliminated before Board presentation except for controls on fruit andvegetables, which were lifted as a condition of second tranche release.

13. Liberalization of External Trade Regime. Agriculture lagged behind other sectors in tradereforms and remained characterized by widespread quantitative restrictions and high tariffs. Themonopolies held by one parastatal, the Agricultural Marketing and Produce Company (AMPCO)were rescinded in March 1994, as a condition of appraisal. As a condition of Board presentation,Government eliminated other monopolies, import and export bans, quantity restrictions and licensesfor agricultural produce, and as of 1995, set consolidated tariffs (including surcharges and fees) onthese items according to new tariff bands of five to 50 percent in such a way that the production-weighted average did not exceed 30 percent. As a condition of second tranche release, a divestitureprogram for AMPCO was approved by the Bank, and it is under implementation by the Government.

iv Agriculture Sector Adjustment Loan

14. Deregulation of Land Market. In developing irrigation in the Jordan Valley, Governmenthad imposed a restrictive covenant on freeholders that the land should be farmed by owner occupiersand, as a result, land was not to be the subject of a long lease. This restriction prevented largerholdings (with the economy of scale for exports) from developing. As a condition of second trancherelease, Government submitted the necessary amendment to the legislature to legalize private, freelytransferable long-term leases up to 30 years in the Jordan Valley.

Institutional Development

15. Implementation of the Institutional Development Programme. The reform program ininstitutional development was designed to limit Government's role as an investor and serviceprovider to activities and subsectors where the private sector could not be expected to act. Theprogram provided for the implementation of institutional changes in the Ministry of Agriculture(MOA), and in several producer services -- research, extension, rural credit and cooperatives.

16. There has been progress. The Council of Ministers has approved the Agriculture PolicyCharter that sets out Government's policy of liberalized private sector development in agricultureand defines a narrow scope for Government intervention. Research and extension strategies havebeen developed that give prominence to the role of the private sector. MOA has embarked on achange process designed to adapt it to its new strategic role. Reform programs have been developedfor rural finance and the cooperative sector to help them serve agricultural producers alongsustainable, market-oriented lines. Implementation is, however, lagging and there remains scope toimprove the efficiency of those services that remain in the public sector.

C. Achievement of Objectives

17. Reforms to Promote Efficient Natural Resource Use. As a result of ASALimplementation, Jordan is now moving toward more efficient use of its scarce water. First, goodbasic policy principles in water resources management have been adopted, including an integratedapproach to resource management, a conservation program, and private sector participation in urbanwater delivery. Second, putting into practice an integrated and economic approach to water sectormanagement has been instituted. Third, demand management has been strengthened in the irrigationsector. Fourth, despite the technical and political difficulties related to groundwater management,Government has taken bold actions towards bringing groundwater under control. On balanceperformance of the reforms to promote efficient water use is deemed satisfactory. The cabinetratification of the National Water Strategy in April 1997 demonstrates Government's fullcommitment to the ASAL agenda. In addition, Government is working with the Bank and otherdonors on a priority investment program in the sector that will effectively consolidate the policyadjustment made under ASAL and put the new orientations into practice.

18. Market Liberalization Program. The key program objective was to put in place theenabling environment for production and marketing that would allow Jordan to exploit itscomparative advantage for agriculture. The program was fully implemented on time and as a result,a substantial change has been effected in the sector. Government has effectively eliminateddistortions between internal and world market prices and reduced protection. In addition,Government has opened the cereals trade to the private sector and has withdrawn completely from

Agriculture Sector Adjustment Loan v

the trade. Producer subsidies in agriculture have been eliminated, and as a result commercialagriculture has developed, including the growth of contract farming that provides some security toproducers. Trade monopolies and other controls have been dismantled, and import and export tradeis now freely undertaken. However, up to now, production and market response have beendisappointing. It is likely that, in order to develop Jordan's comparative advantage in high valueexports, project support to the development of high value horticultural production and export will beneeded as a complement to the policy reforms effected.

19. Institutional Development Program. Within the Ministry of Agriculture, while theorganization chart has been changed, there is no apparent improvement in performance or cost. Forthe producer services, there are good plans and good intentions but the time horizon for institutionalchange is beyond two-and-a-half year life of an adjustment operation.

D. Implementation Record

20. Overall, the implementation of ASAL has been satisfactory, despite some delay and somechanges as described below. The first tranche was disbursed upon effectiveness, which was delayedfrom January 1995 to May 1995 to allow Government to introduce higher irrigation tariffs. Thesecond tranche, which was originally expected to be disbursed in April 1996, was disbursed in May1997 after two postponements. Disbursement was against general imports, and there were noproblems in either procurement or disbursement. Government maintained a satisfactorymacroeconomic framework throughout the life of ASAL. The ASTSUP project is being successfullyimplemented in support of the adjustment program; for example, water meters are being suppliedand fitted to farm turnouts in support of the water management program. A major study was carriedout on CIDA financing in support of the restructuring of water institutions. The Ministry ofPlanning successfully conducted implementation throughout.

21. A particular problem arose with the adjustment of irrigation water charges. Governmentraised irrigation water charges by 150 percent in 1995 prior to effectiveness of the loan, and intendedto implement a second round increase of a further 67 percent prior to release of the second tranche.Widespread political opposition to further increases in water charges and farmer opposition in theJordan Valley, which have taken place in the context of other substantial price adjustments in theeconomy, led Government to postpone the second increase. Nevertheless, Government remainscommitted to the principle of raising water charges, and is adopting an alternative approach toachieving the policy objective of eliminating public subsidy of irrigation water and promotingefficient use of the country's scarce water resources. This approach is to encourage the developmentof a higher value agriculture through export promotion whilst progressively transferringresponsibility for both management and financing of the irrigation schemes to users groups. It isexpected that over time this approach will achieve higher capacity to pay and phase out the publicburden in the irrigation sector. Consequently, a waiver of this condition for the second trancherelease was approved by the Bank.

E. Project Sustainability

22. The key factor in sustainability is the Government's commitment to the program, and thereis evidence of such a commitment. With improved macroeconomic stability, Jordan has succeeded

Agriculture Sector Adjustment Loan

in following an effective stabilization and adjustment path. The "Agriculture Policy Charter," whichwas adopted by the Council of Ministers, sets out Government policy of liberalized private sectordevelopment in agriculture and defines a narrow scope for Government intervention in the provisionof services. MOA has embarked on a change process designed to adopt it to its new strategic role.There is high likelihood that the achievement of ASAL would be maintained.

F. Bank Performance

23. In many ways, ASAL represents good practice of Bank handling of sectoral adjustment.There was close coordination with the Government and donors in the design of the program.Supervision missions were frequent. Staff continuity was a strong plus and staff performance wasgood throughout, with appropriate skill mix. Other positive features include: (i) the integration ofthe ASAL within a broader stabilization and adjustment framework; (ii) the origins of the ASAL injoint sector analysis by Jordan and the Bank; and (iii) the linking of the natural resource managementissues with the production and trade issues to create a complementary package of intersectoralmeasures. On the negative side are: (i) the relatively high cost of preparation; (ii) the complexity ofthe operation; and (iii) the over-optimistic expectations with respect to achieving quantifiable resultsupon closing of its loan.

G. Borrower Performance

24. Borrower performance has been satisfactory. Borrower ownership was strong and much ofthe analytical work was carried out either by the Borrower or jointly. At the technical level, staffcontinuity and commitment were excellent throughout. A coordination committee was set up to actas the counterpart of supervision missions and to oversee implementation of the measures and itperformed effectively.

H. Assessment of Outcome

25. Overall, the reform program has effected a substantial adjustment in the agriculture andwater sectors. In the agriculture sector, Government intervention during the period of the programhas dwindled, and the trade and incentive framework now contains few distortions. There is littlethat remains to be done on the agricultural policy front. There is, however, still need for institutionbuilding to improve the availability of services both in the private and the public sectors, and somediscrete promotion of private sector export marketing. These actions are to be supported underprojects currently being prepared for IFC and Bank support.

26. In the water sector, the program has contributed substantially to improving policy andmanagement of the nation's scarcest resource. The policy agenda is not yet complete, particularlythe key question of water pricing. Government is adopting an alternative program for irrigationwater pricing that would eventually transfer responsibility for the operation and maintenance ofirrigation schemes to beneficiaries.

27. Reforms in the water and agricultural sector are part of the Government's structuraladjustment program, the full impact of which will take time to read. The early signs of impactoverall, are, however, positive.

Agriculture Sector Adj]ustment Loan vii

28. Impact Monitoring and Evaluation. In the design of ASAL, attention was paid to impactmonitoring both in order to prepare the case for evaluation and to allow adjustment of policies incase of need. MOA, with GTZ support, set up a unit for impact monitoring which is workingeffectively. However, the time scale required for monitoring is a number of years, and to datevery little data have been published. ASAL impacts were expected to occur in many ways. First,there was expected to be a beneficial fiscal impact; this has occurred. Second, consumer priceswere expected to fall; there is little evidence on this so far and effects will need monitoring overthe longer-term. Third, employment impacts were expected to be neutral; this cannot besubstantiated. Fourth, the elimination of subsidies and the liberalization were expected to reduceincentives to produce some crops and increase incentives for others, changing productionpatterns and -- possibly -- having some differential impact on incomes; from the scant evidenceavailable, it appears that there is some switch towards more water efficient and higher valuecrops. There are only some monitoring data based on some farm budget work suggestingimproved incentives to water conservation. This -- and a possible early response to the 1995 risein water charges -- is confirmed by emerging changes in crop mix, with the high value, water-efficient crops like aubergine and cucumber doubling in output 1994/95, whilst production ofless water efficient crops like tomatoes stagnated, and production of the water-intensive melonfell 30%. These findings are confirmed by the evident investment of many farmers in morewater efficient technology, and a move amongst the top farmers to a very "hi-tech," water-conserving system of production.

29. Poverty. ASAL is part of the structural adjustment program, of which a key objective isto promote growth through efficiency. Any transition costs of adjustment should not beprojected in the long run. Overall, the impact of ASAL on the poor was expected to be beneficialas poor consumers would benefit from lower prices under trade liberalization. As stated above,monitoring over several years will be necessary to establish patterns. In 1996, there was anincrease in the consumer price of cereals, but this was due to the rise in world prices and wasunrelated to ASAL. Other elements in the ASAL program had an explicitly "pro-poor" objective.An increasing block tariff system to provide a minimum water allocation to the poorer farmer at areasonable basic rate has been successfully introduced. The research and extension strategies givepriority to poorer areas and production systems.

30. Rating. Overall, the outcome of the ASAL is rated as follows:

Outcome : SatisfactorySustainability : LikelyInstitutional Development : ModestBank Performance : SatisfactoryBorrower Performance : Satisfactory

viii Agriculture Sector Adjustment Loan

I. Future Operations

31. The new policy framework following the ASAL adjustments is well set out inGovernment's own-recently published Water Strategy and Agricultural Policy Charter. Although nofurther adjustment operation in the water and agriculture sectors is envisaged, many of the policychanges effected will be put into practice in a series of follow-up operations. The integratedapproach to water resources management and the involvement of private management in urban waterwill be supported under the proposed Amman Water Supply Project (proposed for Bank financing).Association of private capital is proposed on a BOT basis in a wastewater treatment project (alsoproposed for Bank financing). Development of agricultural export markets is envisaged under aproject now being prepared for Bank financing. Support to efficiency improvements in JordanValley irrigation and to reinforcement of water management institutions may also be provided undera new Bank-financed operation.

J. Key Lessons Learned

32. Overall, ASAL effected a substantial adjustment in the water and agriculture sectors. Theprincipal lessons to be learned from ASAL can be summarized as follows:

(a) in a water-scarce economy like Jordan, the linkage of adjustments in agriculturalpolicy to adjustments in water sector policy is essential. This linkage has someclearly positive aspects (e.g., market liberalization permitting and encouraging waterconservation measures), but it has also some positive ones (e.g., where market outletsfail to develop, it may be difficult to pursue demand management for waterconservation through increases in water charges);

(b) where demand management through water tariff increases is problematic, there canbe alternative measures (such as handing over to farmers some of the responsibilitiesand costs) that contribute to the same objective;

(c) sector operations should be as simple as possible. Several of the components whichwere included in the sector adjustment program and reflected in Government'sLetter of Sector Policy were not successfully implemented and ASAL did notinfluence their outcome in any way. Institutional development components wouldhave been better supported through a project than through a policy-based loan;

(d) it is important to build on national ownership and to involve cofinanciers throughout.The origins of ASAL in joint work and shared analysis led to a high degree ofownership of politically difficult measures and in the fast-changing environment thathas characterized the country and the region in recent years;

(e) monitoring and evaluation of adjustment is a long-term affair, and it is unrealistic toexpect quick results as was the case during appraisal; and

Agriculture Sector Adjustment Loan ix

(f) thorough preparation is a good investment, as implementation is correspondinglysmoother. The Bank and Government invested large resources in preparation, butimplementation required far less resources.




PART I: OPERATION REVIEW FROM THE BANK'S PERSPECTIVE

Operation Identity

Name Agriculture Sector Adjustment Loan (ASAL)Loan Number 3817-JORVP Unit Middle East and North Africa RegionCountry The Hashemite Kingdom of JordanSectors Water and Agriculture

1. BACKGROUND

A. Macroeconomic Environment and the Adjustment Program

Economic Structure

1. Jordan is a small economy. Until the Gulf War of 1990, Jordan's closest economic ties werewith the oil-producing countries in the Gulf region that provided Jordan with financial assistance,markets for most of its exports, and employment for a large number of its workers. From the early1970s, the country achieved a decade of rapid growth that raised its per capita income from US$380 in1973 to US$1,690 in 1982. Stagnation and the effects of the Gulf War subsequently reduced the percapita income to US$1,120 in 1991, which in real terms was less than half of the 1982 level. Jordan'sclose ties with the region, its limited resource base, and its past economic policy orientation created anextremely narrow economic structure and high vulnerability to external shocks. This vulnerability wasexacerbated by rigidities in the economy and by deteriorating investment efficiency, which becamemore pronounced during the stagnation that began in 1983.

The 1989-1994 Adjustment Program

2. Recognizing this vulnerability, the Government adopted an adjustment program in mid-1989supported by an IMF Stand-By Arrangement and by the Bank's Industry and Trade Policy AdjustmentLoan (ITPAL). In this first phase of adjustment (1989-1994), the program focused on: (i) fiscaladjustments to reduce the budget deficit including containment of military expenditure, reduction ofconsumer subsidies, and tariff and tax reforms to enlarge the revenue base and enhance revenueperformance; (ii) a large devaluation of the Jordanian Dinar in 1989 followed by the pursuit of a

2 Agriculture Sector Adjustment Loan

flexible exchange rate policy to maintain competitiveness; (iii) restructuring of tariff and tradepolicies; (iv) deregulation of interest rates; and (v) promotion of private sector development in tradeand industry. The program was being successfully implemented when the Gulf Crisis occurred in mid-1990. Jordan lost its major export markets and aid from the Gulf countries, and it suffered losses inrevenue from transit trade, tourism and workers' remittances. It also had to shoulder additional outlaysfor social services for returning workers and their families (about 300,000 people).

3. Despite these setbacks, the Government continued the program with Bank and IMF support.The Bank released the second tranche of ITPAL in March 1992, approved the Energy SectorAdjustment Loan (ESAL) in October 1993 and released the first tranche of ESAL in late 1993 to helpclose Jordan's financing gap. At the same time, Jordan obtained rescheduling of Paris Club debt and,following the peace agreement between Israel and Jordan, major creditors granted debt forgiveness.Regular Consultative Group Meetings chaired by the Bank helped close the financing gaps.

The Adjustment Program since 1994

4. At the time that ASAL was presented to the Board in November 1994, the adjustment programhad reduced the macroeconomic imbalances. Growth was continuing, the internal imbalances,especially the fiscal deficit, had been considerably reduced and domestic inflation had fallen to 4percent. The current account deficit also steadily improved (down to 6 percent in 1994) with exportsof goods and services showing broad-based growth.

5. Overall, the key to further growth was seen in accelerating trade and business environmentreforms in order to maximize outward-oriented growth. This was essential, as Jordan still facedeconomic problems, particularly high unemployment (15-20%) and increased poverty (15-20% belowthe poverty line, up from 3% in 1986). In addition, although debt rescheduling and write-off hadprovided substantial debt service relief, Jordan's external debt in 1994, at about 117 percent of GDPafter debt reduction, remained a heavy burden on the economy.

6. With this background, the central objectives of the adjustment program were to redressmacroeconomic imbalances, reduce sector distortions and restore economic growth. The second phaseof the adjustment program (1995-97) thus focused on unblocking the remaining domestic policyconstraints in pursuit of an outward-oriented and private-sector-led growth strategy. These constraintswere: (i) the trade regime (still largely inward-oriented with high tariffs and non-tariff barriers); (ii) theregulatory regime (which still favored public enterprise); (iii) the investment incentives (discretionary,with burdensome procedures); (iv) the price controls (especially for major food items and agriculturalproduce); (v) the public sector efficiency (an over-sized and generally under-paid civil service); and(vi) the financial system (rigid, over-exposed to speculations in real estate and capital markets, andcharacterized by high costs and low volume of financial intermediation).

Bank Strategy

7. Bank strategy (and that of the IMF) was to support the stabilization and adjustment programthrough balance of payments support. This strategy was appropriate because the high rates ofprojected growth (5-6 percent per annum for the rest of the 1990s) required not only an aggressiveadjustment program but also substantial capital inflows, successive debt relief and steady increases inofficial reserves. Jordan's gross financial requirements amounted to about US$1.5 billion on average

Agriculture Sector Adjustment Loan 3

per year in 1994-1996. Therefore, the Bank and the IMF cooperated with Government in a programdesigned to achieve the maximum debt relief and concessional financing, and on a series of structuraladjustment loans that would help close the financing gap.

B. Results and Remaining Problems

8. Despite a steadily more difficult external economic environment, the ambitious agenda ofadjustment followed since 1989 has been successful, and performance criteria under successive IMFoperations have been met. GDP growth averaged 7 percent in 1993-1995, while inflation declined toless than 4 percent. In 1996, growth slowed to 5.2 percent due to tight monetary conditions and lessprogress with respect to regional integration than previously anticipated.

9. The external current account deficit for 1996 is estimated at three percent of GDP, animprovement of 0.9 percent relative to 1995. The capital account deteriorated in 1996 as net privatecapital inflows declined while lending from official creditors remained at about the previous year'slevel. Nevertheless, the Central Bank, through tight monetary policy, managed to increaseinternational reserves to almost $700 million, or more than two months of imports. Money supplybasically did not increase in 1996 against an increase in nominal GDP of more than II percent.Despite unanticipated high expenditures on subsidized grains, which eventually led to the eliminationof the subsidy, the Government took further important steps towards fiscal consolidation. The deficitamounted to 4.6 percent of GDP, an improvement over a deficit of 5.3 percent of GDP in 1995.

10. Considerable progress was also made in terms of structural reforrns during 1996 with thesupport of the Bank's Second Economic Reform and Development Loan (ERDL-II), which targetsclose integration with global markets and the establishment of an investment-friendly, efficientbusiness environment. The outlook for 1997 is promising, with GDP projected to grow in the 6percent range, while inflation and the ratios of the current account and budget deficit to GDP all areexpected to stay in the 3 percent range. Jordan may soon successfully conclude its macroeconomicadjustment process.

C. The Sectoral Background

Agriculture and Water

11. Agriculture contributes around 7 percent of GDP. The most important sector issue is the needto improve the efficiency and sustainability of the sector's use of water. Jordan is a dry country whereagriculture accounts for almost three quarters of water consumption. There are virtually no moresources of surface water that can be economically harnessed; and pumping of groundwater is alreadyexceeding levels at which the resource can be renewed. At the same time, municipal and industrialdemand is increasing. Water quality is also becoming a problem. During identification of ASAL, itwas apparent that major changes in water use were inevitable, and planning and managing the changeshad become critical.


12. Government recognized the gravity of the situation and, prior to 1994, had taken some stepstowards improving water management: imposing relatively high water charges on municipal andindustrial users, imposing a resource cost on industrial wells, and rationing water use in the JordanValley and to urban consumers. These efforts, although significant compared with most neighboringcountries, nevertheless fell short of achieving adequate control of the resource. Although averagewater use for agriculture had fallen below 10,000 m3/ha, Jordan had yet to exploit the full water-savingpotential of modern irrigation technology; unaccounted for water in municipal supplies exceeded 50percent; groundwater was being seriously overdrawn; and there was a general decline in water qualitydue to salinization and increasing pollution.

13. The causes of these problems were identified as:

(a) lack of national policy - there was no national water policy to guide planning in anintegrated and economically optimal way for the allocation, development andmanagement of water resources;

(b) competing institutions - the water utility, the Water Authority of Jordan (WAJ), andthe Jordan Valley Authority (JVA) each pursued its own agenda, and the Ministry ofWater and Irrigation (MWI) had not yet developed a capacity for overall planning andmanagement; and

(c) insufficient attention to demand management - the emphasis in the water sector waslargely on increasing supply. Demand management existed perforce because of lack ofwater, but it was determined by political influence and administrative allocation, ratherthan by systematic attempts to encourage efficiency or to pass water to its highestvalue economic use.

Agriculture and the Market

14. A major constraint to agriculture was the market. Exports had historically been dependent onthe politically vulnerable regional market, which was partly closed to Jordan as a result of the Gulfcrisis. Development of new markets and products was slow. Government interventions in prices andmarkets provided a high level of protection to farmers, but also prevented the sector from adapting to amore demanding external market and to the growing shortage of water. Output and input subsidiesand trade restrictions produced high Effective Rates of Protection (ERP) and led to: distortionsfavoring high water consuming crops (banana production rose 400 percent 1982-92); increased herdsize putting pressure on range resources (the sheep and goat population has quadrupled since 1960);expansion of uneconomic irrigated cereals; and a steep rise in production of tomatoes, bought byGovernment at a loss. The direct fiscal cost of the subsidies in 1992 was about JD 15 million (0.5percent of GDP). The cost of trade restrictions was borne by consumers in terms of higher prices andby the economy in terms of foregone output.

15. Despite a generally open economy and a recent history of liberalization, the structure ofJordan's agricultural markets in 1994 thus remained strikingly controlled. Government directlyinfluenced the price of many products: tomatoes benefited from a high support price, cereals wereprocured by Government at above import parity prices, and there were subsidies on animal feed.

Agriculture Sector Adjustment Loan S

Retail prices of many agricultural and processed food products were also controlled. Import andexport quantitative restrictions (QRs) and parastatal monopolies further distorted the incentivestructure and inhibited market development. All staples were subject to import licensing, and QRswere restrictively applied to imports and exports of fruit and vegetables.

16. The sectoral adjustment program supported by ASAL was thus designed to promote thedefinition and adoption of a sound long-term water sector policy framework, to support theimplementation of a first round of actions within that framework, and to bring the agriculturalincentive structure into line with Jordan's comparative advantage and long-term sustainability.

II. OPERATION, DESIGN, OBJECTIVES AND DESCRIPTION

A. Development of the Operation and Accompanying Measures

Origins and Ownership of the Operation

17. In the agriculture sector, the process of policy analysis had begun with a jointGovernment/Bank sector work exercise that led to the 1990 Agriculture Sector Strategy Paper (ReportNo. 7547-JO, June 1990). Early attempts to identify and prepare the operation were interrupted by theGulf War. However, the Ministry of Agriculture (MOA) continued agriculture policy analysis withUSAID and GTZ assistance, and this process generated general support for reform from officials andfarmers. By 1993, it had resulted in the drafting of an "Agriculture Policy Charter" which set out abroad agenda for sector reform. Bank preparation missions for ASAL worked with Government in1993/94 on this draft, and the dialogue broadened to include the preparation of a water policyframework. The latter incorporated many actions that Government was already undertaking orproposing to undertake. The draft Charter and the water policy framework served as the basis for theLetter of Sector Policy, which was discussed and agreed at negotiations in September 1994.

18. The fact that ASAL was based on Government's own draft Policy Charter meant that theoperation had a high degree of national ownership. The draft Charter was subsequently adopted byGovernment and published in 1996. The water policy framework served as one of the bases for a longdialogue between 1995 and 1997 within Government and between Government and donors on waterpolicy. Ultimately, many of its provisions have been incorporated into the Water Strategy that wasadopted by Government in May 1997 and subsequently published.

Accompanying Measures

19. In order to ensure efficient implementation of the reforms and to help build public and privatecapacity in services to the agriculture and water sectors, Government requested donor assistance foraccompanying technical support. In the President's Report, this is discussed as an integratedAgriculture Sector Technical Assistance Program (ASTAP), and an elaborate demonstration of themutual complementarity and support between the policy adjustment and the technical assistanceprograms is set out. At the same time as ASAL, the Bank appraised and negotiated a project within


ASTAP, the Agriculture Sector Technical Support Project (ASTSUP), to provide support to watermanagement, research, extension, and monitoring and evaluation.

B. Objectives

20. ASAL objectives were to:

(a) promote the transition to a more sustainable and efficient use of resources, particularlywater, through better planning and through demand management by both pricing andregulation; and

(b) free up markets and enable the private sector to invest, produce and trade in line withJordan's comparative advantage in agriculture. Price changes were expected to provide amajor adaptive push to the sector, promoting efficiencies and shifts in crop mix. Overall,these changes, combined with increases in the input costs of water, were expected toeffect substantial efficiencies in water use.

C. Operation Description

21. The components of the adjustment program supported by ASAL were:

(a) efficient natural resource use, to support the transition to an optimal use of water andland resources. Within the inter-sectoral water policy framework, ASAL supportedreforms to initiate: (i) restructuring water sector institutions to maximize efficiency andunify planning and management; (ii) promoting efficient use of existing water resourcesthrough demand management; (iii) establishing control on over-exploited groundwaterresources; and (iv) prioritizing public investments in water;

(b) market liberalization, to free up markets and so encourage private investment and tradeto flourish. The program, which was squarely within the overall liberalization programacross sectors, provided for improvements to the incentive structure through: (i) theremoval of subsidies; (ii) the lifting of price controls; (iii) the liberalization of extemaltrade, the lifting of monopolies and divestiture of the monopoly company; and (iv) thederegulation of markets in land; and

(c) institutional development, assuring efficient public investment and service provisiononly where Govemment had a necessary role, and making room for the private sectorwhere the latter had a comparative advantage. The adjustment program supported byASAL provided for the implementation of institutional changes in research, extension,rural credit and cooperatives.

The legal covenants that made up ASAL are set out at the end of this chapter.

22. The loan was to be disbursed in two tranches: a first tranche of US$50 million, and a secondtranche of US$30 million. The first tranche was to be available upon effectiveness (expected in

Agricultre Sector Adjustment Loan 7

January 1995); and the second was to be disbursed after compliance with the release conditions(expected by April 1, 1996). Disbursement was to be against general imports.

D. Cofinancing

23. Throughout preparation and appraisal the Government and the Bank worked closely with theKfW, and cofinancing of DM 30 million (about US$20 million equivalent) under German financialcooperation funds via KfW was made available. Other donors (GTZ, USAID) also participated inappraisal of ASAL and provided financing for projects within the ASTAP/ASTUP framework.

E. Loan Conditions of ASAL

Actions Taken Before Board Conditions of Second TranchePresentation Release

Objective: Maintain a supportive macroeconomic framework and external finaucing.

Macroeconomic Framework An appropriate medium-term Maintain the macroeconomicmacroeconomic framework, framework, including satisfactoryincluding external financing plan, progress with external financingis in place. plan.

Objective: Support the transition to an optimal use of water and land resources.

Water Institutions Agree on institutional changes andthe action plan for theirimplementation.

Supply and Demand Restrict issue of groundwaterManagement licenses to high priority industrial,

tourism and university projectswith adequate utilization plans.

Agree on a policy to enforce Make satisfactory progress involumetric metering and control of implementing basin managementall water production, supply and plans country-wide, based on theusage. agreed policy.

Announce and implement an Continue the agreed program byagreed program to cover O&M further raising average tariffs to 25costs of Jordan Valley irrigation fils/m3. Note: this condition waswater, including an initial increase waived.in the weighted average tariff to atleast 15 fils/m 3 .

Agree on a program for Eliminate cereals cropping at Disirenegotiating the cropping pattern or reduce groundwater extractionfor the remaining Disi contracts. at Disi by 25% below 1993 levels.


Actio. Take B _Conditonsof Second Tranche____________J j - - \ i ] j00 0jl00 fahF¢$nton I 0 0; 0tt 0 00 0000 Release 00

Ot;ective: Improve the in ceti structure thg lationand so proot development o makt

inldin enladetra makets narIWuOua produce, anid maret in land and transport.

Subsidies Eliminate the procurement subsidyon domestically-produced cereals.

Eliminate livestock feed price Agree to a 60% reduction in publicsubsidy. Adopt a plan for sector barley imports for 1996, andwithdrawal of public sector from their elimination in 1997.barley trade, including 20%reduction in public sector barleyimports for 1995.

Announce repeal of official tomatoprocurement price.

Price Controls Remove controls on prices and Eliminate margin and price controlsmargins of major fresh and on fresh fruits and vegetables.processed agriculturalcommodities.

Trade Regime Eliminate import and exportmonopolies and restrictions foragricultural commodities and forpackaging materials and decide tomove to tariff-based system, so thatproduction-weighted average tariffwould not exceed 30%.

Initiate study for divestiture of Satisfactory progress inAMPCO. implementing divestiture plan.

Land Market Submit an amendment to the JVAlaw to extend the maximum lease

._______________________ .______________=_______________ period in the Jordan Valley.

Objehie: Dfin the gs.t:rategic role of Government in the agriculture sector and ensure thiatprivate andpublic ser¶ce to theEf stor ate delivered efficiently. __________________________

National Agricultural Submit agreed Letter of SectorPolicy Policy with annexed Water Policy

Framework and PIP 1995-97.


III. ACHIEVEMENT OF OBJECTIVES

24. ASAL comprised a series of actions which, taken together, were considered by Governmentand the Bank to be essential to adjust water use to reflect scarcity and to develop a full marketeconomy in agriculture. The following paragraphs discuss actual performance overall in relation tothese components.

A. Optimal Use of Natural Resources

25. As a result of ASAL implementation, preliminary indications show signs of significantimprovement. First, basic policy principles in water resources management that were contentiousthree years ago are now integrated into Government policy and practice, including the key elements ofan integrated approach to resource management, a conservation program, and private sectorparticipation in urban water delivery. Second, institutional change has been instituted, putting intopractice an integrated and economic approach to water sector management. An action plan forrestructuring of water sector institutions has been adopted by Government (including integration ofwater resources planning functions, separation between regulatory and service delivery functions, andbetween bulk and wholesale supply). Third, strengthening of demand management has been initiatedin the irrigation sector. Fourth, despite the technical and political difficulties encountered throughoutthe world in groundwater management, the nation has made progress towards bringing groundwaterunder control.

26. The impact of these changes is beginning to be felt. Plans for private sector involvement areunder discussion, including a management contract for Amman water supply (intended for WorldBank support) and private sector participation in wastewater treatment (also with World Bankinvolvement) under BOT arrangements. In the farm sector, there is increasing recognition that waterhas a value, and farmers are investing in water-saving technology. There is increasing activity indeveloping higher value export markets in order to achieve the higher financial returns to water thatwill justify its retention in the agriculture sector.

27. However, there is still scope for further change. Water sector management needs to improveand the capacity of the reformed structure will have to develop step by step. Government hasrequested donor support for a strengthening program. The private sector participation agenda in waterremains tentative, and it will be necessary to demonstrate early success, as with the proposed Ammanwater management contract, in order to mobilize support for continuing the program. Thegroundwater situation still gives room for unease, as the extraction rate remains well above therecharge rate in some basins. The Government is undertaking a program to arrest this in the majorbasins supplying the cities, and has requested donor support for this program.

28. On demand management, the recognition of water as an economic - and scarce - resource hasnot yet translated into a ready acceptance of full cost recovery in irrigation. The program of efficiencyimprovements in which donors are supporting Government is intended to help create a climate ofacceptance as well as to moderate the rise in costs. The program of handover of irrigation schemes to


farmers is in its infancy, and will need sustained commitment - and some early successes - to maintainmomentum. The Bank, including EDI, and other donors are providing support to the program.

29. In sum, the picture is generally positive, with a water economy moving towards efficiency andan increasingly integrated approach to water resources management. However, the political and socialconstituencies of change need to be reinforced by real benefits flowing from change, and this willrequire sustained commitment from decision makers, and continued support from donors.

B. Market Liberalization

30. The key program objective was to put in place the enabling environment for production andmarketing that would allow Jordan to exploit its comparative advantage for agriculture. As a result ofthe ASAL, a substantial change has been achieved in the sector. Government has effectivelyeliminated distortions between internal and world market prices and eliminated protection. Inaddition, Government has opened the cereals trade to the private sector and has withdrawn completelyfrom the trade. This measure has gone far beyond what the program originally envisaged, asliberalization of the very important wheat trade and removal of the bread subsidy have been added tothe liberalization of the barley trade. Producer subsidies in agriculture have been eliminated, and as aresult commercial agriculture has developed, including the growth of contract farming that providessome security to producers. Trade monopolies and other controls have been dismantled, and importand export trade is now freely undertaken (e.g. banana imports). As a result, some consumer priceshave dropped.' Finally, Government direct intervention in agricultural marketing, through theparastatal agency AMPCO, has disappeared, the company is moving into profit and its redundantassets have been redeployed.

31. The overall picture is positive. However, up to now, production and market response has notmaterialized yet. Exports to high value markets are increasing only slowly and it is evident thatdespite Jordan's theoretical comparative advantage in high value exports, further measures beyondpolicy adjustment are needed. As a result, Government is now working with the Bank on aninvestment program to promote development of commercial high value exports with a focus on theEuropean market. In addition, a group of private investors is working with IFC on a proposal for anexport marketing company.

C. Institutional Development

32. The key objective of the program was to achieve a cost-effective improvement in servicedelivery. There has been progress. The Council of Ministers has approved the "Agriculture PolicyCharter" that sets out Government's policy of liberalized private sector development in agriculture anddefines a narrow scope for Government intervention in services that provide public goods or target thepoorer areas. In line with this declaration, the policy of liberalization and limited Government servicesthat MOA has been developing since the late 1980s is being implemented. With ASTAP/ASTSUP

Prices of fruits and vegetables have gone down. However, prices of cereals, the staple food of the poor, have risen asGovernment has withdrawn the consumer subsidy.


support, research and extension strategies have been developed that give prominence to the role of theprivate sector and only a complementary role to public services. MOA has embarked on a changeprocess designed to adapt it to its new strategic role. Reform programs have been developed for ruralfinance and the cooperative sector to help them serve agricultural producers along sustainable, market-oriented lines.

33. The program of changes underway should ultimately reduce the role - and fiscal cost - ofpublic interventions. Implementation is, however, lagging and there remains scope to improve theefficiency of those services that remain in the public sector. Government is working with donors todevelop these services, particularly in the poorer rural areas. The expectation that ASTAP/ASTSUPwould effect material change in agricultural services and institutions has not been fully realized. Infact, although other donors (particularly GTZ, KfW and USAID) cooperated in financing activitiesunder ASTAP, and coordination was initially good, the linkages were weaker once implementationbegan and the concept of an integrated ASTAP program was never really sustained by Government orother donors. Thus although most of the support activities originally conceived under ASTAP have infact been carried out one way or another, the impact has been limited.

IV. IMPLEMENTATION RECORD

A. General

34. Overall, the implementation of ASAL was satisfactory, despite some delay and some changesas described below. The first tranche was disbursed upon effectiveness, which was delayed fromJanuary 1995 to May 1995 to allow Government to introduce the higher irrigation tariffs. The secondtranche was disbursed after compliance with the release conditions (expected by April 1, 1996,actually in May 1997 after two postponements of the closing date, needed to allow Government tocomplete the required actions). Disbursement was against general imports, and there were noproblems in either procurement or disbursement.

B. Reforms to Support Transition to an Optimal Use of Natural Resources

Water Institutions

35. The scant water resources available and the burgeoning population place a heavy responsibilityon institutional capacity for water management. The MWI has had nominal responsibility for waterresources management but with its limited staff has played only a minor role up to now. The WAJ isresponsible for urban water and sewerage services and for water resources management other than inthe Jordan Valley. The JVA is responsible for water resources development, irrigation and socio-economic development in the entire Jordan Valley, and for construction of all dams nationwide. Theincentive structure therefore allowed - and even encouraged - each agency to utilize available waterresources within its specific area of responsibility, not to integrate planning to maximize efficiencyfrom a national perspective. As a result, the water sector has been characterized by: fragmented andshort-term planning; a focus more on expanding supply than on managing demand; and polarization ofwater management between competing irrigation and urban water uses, rather than coordination and


integration in the national interest. At the institutional level, both WAJ and JVA are substantiallyover-staffed and there are only weak incentives for these agencies to provide efficient and sustainableservices. As a result, inefficiencies in service provision have resulted in a serious waste of resources,large subsidies, a heavy fiscal burden on Government, and loss of consumer confidence.

36. During preparation of ASAL, Government, in association with the Bank, began an institutionalstudy (with CIDA financing) on the mandates and structures of the three water sector institutions. Thestudy was expected to propose options for restructuring of the sector in line with the broad principlesof maximizing efficiency, of unifying planning and management of water resources down to wholesalelevel, of minimum cost to the public purse and of maximum user participation. A decision on thisrestructuring (satisfactory to the Bank) and on a related implementation plan was agreed as a conditionof second tranche release. It was intended that implementation of the restructuring would be supportedunder a capacity development project.

37. At the end of the first phase of the study in 1995, the Government adopted six guidingprinciples for institutional reform in the water sector, which were endorsed by the Bank. Theseprinciples were: (i) to strengthen policy development and water resource planning capabilities; (ii) toseparate governance functions from service delivery functions; (iii) to separate wholesale (nationalinfrastructure) operations from retail (service delivery) operations; (iv) to develop the commercialorientation of operations; (v) to facilitate input to water policy from other institutions, the public andindustry; and (vi) to build financial viability into the proposed institutional design.

38. A second phase of the study was conducted during 1996. Based on the analysis andrecommendations of the study, and after extensive consultation, Government adopted an action planfor coordinated water resource management that incorporated the six principles. Although somedesirable outcomes of the study were limited by practical realities, especially in relation to changesneeding legislative amendments and in integrating bulk water supply, the proposed restructuringrepresents a significant step forward. The main reforms proposed by Government are: restructuring ofthe organizational structures of the three agencies; separation of JVA's irrigation services from itsother functions; the coordination of bulk water supply for irrigation, municipal and industrial use;devolving responsibility for service delivery to local commercially-oriented units, such as privately-managed water utilities and irrigation user groups; adoption of BOT or similar contracting concepts;separation of regulatory and service delivery functions; consolidation of water resource planningresponsibilities; and establishment of a Higher Council (initially as a Water Advisory Committee toavoid changes in the law) with broad representation to oversee and guide the water sector.

39. The importance of these reforms cannot be over-emphasized although it is recognized that itwill take time to implement them. In the Bank's experience, there are rare instances whereinstitutional inefficiency in the water sector on the scale of that in Jordan has been overcome withoutmajor institutional restructuring. In particular, the separation of regulatory functions from thoserelated to service delivery, and the commercial orientation of the service agencies, whether theyremain in the public sector or are privatized, are essential features of an efficient institutionalarrangement.

40. The restructuring plan responded to all six of the agreed principles and the Bank approved theplan prior to second tranche release. The Government is moving quickly to implement reforms whereit can and has indicated that legislative amendments are anticipated to be implemented in 1998.


Transfer of planning functions to the MWI has already taken place. The Bank and other donors mayprovide support under an institutional development project. Private sector management of the waterand sewerage services of Greater Amman is the central component of the Amman Water andSanitation Management Project that the Bank pre-appraised in March 1997, BOT/BOO contracts areproposed for two other projects in the Bank's lending program - the Amman/Zarqa Wastewater Project(identified in March 1997) and the Disi-Amman Conveyor (consultants were appointed in April 1997for advice on implementation arrangements).

Efficient Use of Water through Demand Management

41. Supply and demand characteristics of water in Jordan were - and are - determined by thephysical separation of water markets. In summary, there are two main systems: the Jordan Valleysystem fed by surface water managed by the JVA, a public institution largely devoted to irrigatedagriculture; and the Highlands system fed largely by pumped groundwater in both private and publichands and used for municipal, industrial and agricultural purposes. The two systems are separated byan elevation of more than 1,000 m, which imposes very high costs on transfers from the Valley to theHighlands. There is, however, one existing pipeline with an annual pumping capacity of 45 mcm; thiscapacity was not fully utilized at the time of ASAL negotiations.2 Because the investment costs arealready sunk, this facility can transfer water from the Valley to the Highlands at a moderate marginalcost.

42. Demand management, designed to allocate water to its highest value use, thus required quitedifferent instruments in the Jordan Valley and in the Highlands. For the Jordan Valley, the prioritywas to ensure the full use of the existing pipeline to the Highlands and then to provide incentives to themost efficient use within the Valley of the balance of water that could not be transferred to theHighlands unless a new pipeline were constructed. The policy that was supported under ASAL was toraise water charges progressively over time to reach the efficiency price at which, after the transfer tothe Highlands, supply and demand in the Valley would balance.

43. This efficiency price could not be calculated with certainty and was, in any case, highlyvariable between seasons and over time. It was greater than the price at which enough water to effectthe transfer to the Highlands would be released (estimated to be 23 fils/m3, about 3.5 US cents) andbelow the estimated long-run marginal cost (LRMC) (230 fils/m3, about 35 US cents). The approachunderlying the ASAL water pricing covenants was to make progressive increases in charges, combinedwith continued rationing of water. This proposal to use a "ratchet effect" combination of priceincreases and rationing was practical and had worked successfully elsewhere (for example, in Israel).Relying only on very rapid increases in prices could have had a serious short-term destabilizing impacton production with a risk that the increases could carry the charge above the efficiency price and leadto the loss of unused water to the Dead Sea.

21 At completion of ASAL in April 1997, Government was embarking on an expansion of this pipeline to 90 MCM to take theextra water available under the Peace Treaty.


44. Thus, the long-term policy framework for the Jordan Valley under ASAL provided for movingtowards equilibrium in water supply and demand by a combination of price signals and physicalrationing or regulation. A first series of price rises was to take place to bring the water charge at leastto cover the operation and maintenance (O&M) costs of the system. The O&M costs were assessed ina GTZ-financed study at 25 fils/m3 compared to the prevailing charge of 6 fils/m3. Although the fullO&M cost was still below the efficiency price, there was a logic to selecting this as the target duringthe ASAL period. The figure of 25 fils/m3 was roughly equal to the price which would, in theory,reduce demand for irrigation and release water for full use of the existing pumping capacity to theHighlands. O&M costs thus served as a convenient and comprehensible proxy for the lower bound ofthe efficiency price.

45. Full O&M cost recovery would also have achieved a useful fiscal objective, savingGovernment some JD 3 million annually. In addition, the increases in the charge would promoteefficient water use, and create user pressures on JVA to be more efficient.

46. Government made a first increase from 6 fils (about I US cent) per cubic meter to 15 fils(about 2.5 US cents) in March 1995, prior to effectiveness. This increase led to an improvement incost recovery; however, it resulted in a strong reaction from Jordan Valley farmers. The reaction wasexacerbated by the poor market conditions for Jordanian agricultural exports within the region, whichhad persisted since the Gulf War.

47. In view of these developments, Government informed the Bank prior to second tranche releasethat it was not politically and socially feasible at that time to raise water charges any further.Government was naturally concerned to mitigate negative impacts within the country at a time whenthe population had been faced with multiple price increases under other components of the structuraladjustment program (including bread prices and power tariffs) and when expectations were high thatthe peace process in the region would bring some advantage to the population. Government asserted,however, that it remained committed to raising water charges when market conditions for farmersimproved, and argued that it was carrying out an action plan designed to achieve the policy objectiveswhilst avoiding any further damaging confrontation. This plan comprised three major elements: (i) aprogram (with EDI and USAID support) to study and test a possible progressive handover of theresponsibility for operation and maintenance of the irrigation network to farmer groups, who couldassume financial responsibility, so that irrigation water charges would no longer be set by governmentand would therefore cease to be a political issue; (ii) development (with Bank and IFC support) ofagricultural markets, particularly high value export markets in Europe, that would create newprofitability and ability to pay amongst farmers; and (iii) a program of efficiency improvements withinthe JVA that had already begun to bring down the cost of operation and maintenance of the schemes,combined with the introduction of cost accounting that would allow transparent communication of realcosts to farmers.

48. A second factor adduced by Government for not making the further price increase at theagreed time was that the transfer capacity to the Highlands was already fully utilized. The objective ofreleasing water from the Jordan Valley to Amman for urban consumption had, it was argued, therefore

3 This study is currently being revised with USAID financing.


source of the extra water appears to have been increased releases by Israel under the Peace Treaty. Ineconomic terms, this extra supply - at little or no cost - had shifted the lower bound of the efficiencyprice downwards. Economically the argument for making a further price increase at the agreed timehad thus diminished.

49. Government also stated that the ASAL had already achieved the secondary objective of forcingJVA to become more efficient, and that the O&M cost was no longer as much as 25 fils/m3. It should,however, be emphasized that the O&M cost has nothing to do with the economic efficiency price, asexplained above. Recalculating the actual cost of O&M (as the MWI currently proposes to do) mightthus reassure Government on the size of the remaining operating subsidy, but it would do nothing toadvance the water economy towards efficiency pricing.

50. After due consideration, the Bank deemed the overall progress under the componentsatisfactory and agreed to waive the second tranche condition of increasing the irrigation charges from15 to 25 fils. It is understood that Government still subscribes to the economic rationale for themedium and long term but is temporizing in view of the short-term political and economic situation.

Establishing Control over Groundwater

51. The major issue on groundwater was the alarming rate of depletion. Government, well awareof the situation before negotiations, was conducting studies to evaluate the problem, had created"Basin Protection Units" to begin to impose controls, had imposed a resource charge on groundwateruse by industry, and had halted groundwater development, other than for exceptional projects. ASALmissions correctly recognized the extraordinary difficulty of reimposing control over groundwater andsaw that in the socio-political context of Jordan it was unrealistic to expect rapid and radical reforms.What was needed was firm political direction, a good information base, public awareness, anddevelopment of the institutional capacity for regulation. ASAL was designed to provide some externalsupport to Government's ongoing program, notably to attempts to develop basin management plansand to enforce volumetric metering and control of water production, supply and usage. Compliancewith this program was to be a condition of second tranche release. ASTSUP was to provide support tothe metering and groundwater monitoring program.

52. The Government made satisfactory progress in the implementation of the basin managementprogram, and demonstrated strong commitment in controlling groundwater extraction. With supportfrom the Bank and KfW, Government expanded the work of the Basin Protection Units andimplemented a program to meter wells and monitor and regulate extraction. At the time of secondtranche release, the metering program was substantially complete and the monitoring program wasoperational in six of the country's nine basins. Seventy-eight percent of all the country's wells weremetered and monitored. The remainder of the program had encountered some resistance from wellowners and Government was resorting to sanctions, with assistance from a special inter-ministerialcommittee and from the Public Security Department. In May 1997, Government published a two-pageannouncement giving the owners of 667 illegal wells notice to close them. Government had strictlycontrolled the issue of any new well licenses and was regulating the drilling industry. Bank guaranteeswere being required from well owners to ensure adherence to the terms of licenses, and a surcharge of


250 fils (50 US cents) per cubic meter had been imposed on any extraction beyond licensed amounts.Government also initiated a public information campaign to ensure transparency about the publicinterest and to generate cooperation from well owners and the public.

53. A second ASAL action was to reduce the extraction of fossil groundwater from the Disiaquifer in the South in order to conserve it for possible higher value future uses, including a possibletransfer to municipal uses in Amman. Government had already, prior to negotiations, canceled five ofthe nine contracts with the commercial farming concerns drawing water from the aquifer and set up aninterrninisterial committee to negotiate reduction of water extraction with the four remaining fanningconcerns. The condition of second tranche release was that either cereals farming, which isparticularly wasteful of water, would be eliminated or water abstractions would be reduced by at least25% from 1993 levels.

54. In the 1994/95 crop season, the four farming companies had reduced usage to 13 percent below1993 levels, and it was expected that this decline in commercial interest would continue. Hence,Government suspended the negotiations. However, in the 1995/96 season, cereals prices rose and thecompanies slightly increased their extraction. Government therefore reopened negotiations and signeda formal agreement with the companies to reduce extraction during the 1996/97 crop season to 28percent below 1993 levels. The Bank was satisfied that Government had acted with decisiveness toachieve the ASAL target. Medium-term options for transferring Disi water to municipal use are beingexamined as part of the feasibility studies for the proposed Disi-Amman conveyor project.

Other Measures in the Water Sector

55. In addition to the measures that were the subject of conditionality, a number of other measureswere agreed through the mechanism of the Letter of Sector Policy. This included agreement on theprioritization of public investments. The Letter of Sector Policy set out the criteria to be used forprioritizing investments according to economic and/or cost minimization criteria. Major proposedinvestments in the water sector were examined at appraisal according to least cost criteria with theproviso that, given financing and implementation constraints, precedence among new supply projectsshould go to one major project, rather than to a plethora of small ones. The final Public InvestmentProgram (PIP) in water for 1995-97, which was in accord with Government policy and investmentselection criteria, was discussed at negotiations and the agreed version was annexed to the Letter ofSector Policy.

56. At negotiations, one project proved somewhat contentious, the Southern Ghors Project, whichwas an expensive multi-purpose project that originally included a low return and very expensivecomponent to expand irrigated agriculture. Government restructured the project to emphasize theindustrial component. During implementation, the advent of the so-called "Peace Water" followingthe agreements with the Israelis led to a debate between Government and the Bank on the correctchoice of projects. By this stage, however, the Bank was conducting a broad dialogue on water withGovernment across sectors through sector work on water policy 4 and was preparing for a large

4/ A Sector Report (No. 14648 of March 28, 1996) was discussed with Government. The report includes an agreedinvestment program for the sector.


investment program in the sector. Thus, although ASAL was the starting point for a systematicdialogue and agreement on the investment program in 1994, thereafter the dialogue broadened and isbeing successfully pursued through other means. In May 1997, Government published its WaterStrategy, which reflects the dialogue between Bank and Government.

Natural Resources and Environment

57. The Letter of Sector Policy also dealt with the problem of over-grazing and the resultingdeterioration in rangeland productivity. The link was made to economic incentives to overstockingand range conversion, which were expected to diminish with the elimination of subsidies. This wassuccessfully carried out. Other environmental measures were discussed in the Letter such as revisionof land tenure regulations that would identify user rights, establishment of incentives for sustainablemanagement (e.g., long-term leases and technical support for communities contracting to executemanagement plans) and prohibition on conversion of rangeland to environmentally unsustainablearable farming. Adoption of new regulations and their effective implementation was expected to occurin 1995. This did not happen, and the fact that there was no specific condition under ASAL meant thatthere was never any proper follow-up either on the Bank side or on the Government side. An attemptwas made to seek IDF financing for studies of the condition of rangelands and the socio-economy ofpastoral systems to provide information for revising the tenure regulations and designing appropriatefuture range management programs. However, Bank management rejected this proposal. The studiesmay now be carried out under an IFAD project.

58. The Letter of Sector Policy also dealt with the excessive use of pesticides, seen as a danger tohealth (with high levels of organochlorines in human breast milk) and to the promotion of exports (twocountries had banned Jordanian produce due to high levels of residue). In 1994, Government wasexpected to initiate a review of the regulatory framework and practices with a view to establishing anew framework. Government, with GTZ support, has initiated a promising campaign for integratedpest management (IPM), and it is expected that this may result in a new framework in due course. Inaddition, it is expected that pesticide residue testing will be supported under a proposed future Bankproject (Agricultural Exports Project, currently under identification).

59. It is evident that these two components were not "enforceable" in the same way as covenantswould have been. With hindsight, it would have been better to omit them from ASAL as this wouldhave simplified the operation.


C. Market Liberalization

Subsidies

60. At the time of negotiations, the producer prices of wheat, barley and tomatoes were set atabove import parity levels by Government. The price of imported barley for animal feed was also setat subsidized levels. As a condition of Board presentation, Government announced 1994/95 cerealsprocurement prices that eliminated subsidies. Subsidies on feed barley were also eliminated, and themarket was liberalized. Government announced the livestock feed price for 1994/95 reflecting theelimination of the subsidy and adopted a plan for withdrawal of the public sector from the barley trade,including a reduction in public sector barley imports for 1995 of 20% below the 1992/94 average.Govemment also announced the elimination of tomato price support effective from January 1, 1995.The condition of second tranche release was that Government would announce a ceiling on publicsector barley imports for 1996 of at least 60% below the 1992-94 average, together with theelimination of public sector barley imports in 1997. However, in 1996, the Government did not reduceimports as much as expected because of the availability of advantageous official bilateral tradeagreements with regional partners. Distribution was, however, handled through the private sector.Commercial imports and local production made up the balance of supply. Prices were at world marketlevels. By decision of the Council of Ministers, Government eliminated all public sector barleyimports after April 1997. Moreover, Government liberalized wheat imports and removed the largebread subsidy, a move that had not been envisioned in the original program; this action has had a farmore important beneficial impact on public finances than removal of the barley subsidy. In May 1997,Government announced that it would complete its withdrawal from the market by leasing its grainstorage facilities to the private sector.

61. The only problem in the program to eliminate subsidies was that in 1995, under pressure frominfluential producers, Government intervened afresh in the pricing of tomatoes. However, this was aunique transition phenomenon. The market is now well established and the problem has not recurred.

Price Controls

62. In 1994, the retail margins of fresh fruit and vegetables and the prices of many fresh andprocessed commodities were being controlled by Government. These controls distorted price signalsand discouraged investment. Margin controls and controls on prices of major fresh and processedfoods (including fresh and frozen meat, the major dairy products, eggs, olive oil, tomato paste,chickpeas and lentils) were eliminated by Government as a condition of Board presentation, except forcontrols on fruit and vegetables, which were to be lifted as a condition of second tranche release. TheCouncil of Ministers decided on September 11, 1996 to eliminate price and margin controls on freshfruits and vegetables, and implemented this decision effective from April 22, 1997.

Trade Regime

63. The trade reform initiated by Government in 1988/89 began to reduce tariff exemptions andquantitative restrictions (QRs) and reduced both the general tariff level and bans. These reformsmainly affected manufactures. Agriculture lagged behind in trade reforms and remained characterized


by widespread quantitative restrictions and high tariffs. One parastatal, Agricultural Marketing andProduce Company (AMPCO), had a monopoly on import of four fresh products. Government alsomaintained controls on other agricultural and food products, including import bans (five products),monopolies (six products) and QRs (50 products). In addition, tariffs and surcharges ran as high as 50percent for many fruits and vegetables and effective protection rates were as high as 65 percent.

64. The AMPCO monopoly was rescinded in March 1994, as a condition of appraisal. As acondition of Board presentation, Government eliminated other monopolies (except for three productswhere there was still a consumer subsidy) and import and export bans, quantity restrictions (except fora few minor products) and licenses for agricultural produce, and agreed to set consolidated tariffs(including surcharges and fees) from 1995 on these items according to new tariff bands of 5 to 50percent in such a way that the production-weighted average did not exceed 30 percent. Agriculturaltrade governed by international agreements and protocols which prohibited the imposition of tariffsand surcharges was initially excluded from these arrangements. Government also eliminatedrestrictions on the import of packaging materials and reduced tariffs and surcharges to a combinedmaximum of 30 percent, as these controls and tariffs had led to high packaging costs for exports.

65. Satisfactory progress in implementation of an action plan for AMPCO divestiture satisfactoryto the Bank was a condition of second tranche release. A study was undertaken using Danish TrustFund financing, the timetable to divestiture was agreed at negotiations, and a divestiture program wasapproved by the Bank in 1995. This program provided for the selling off to the private sector of allAMPCO's assets except for the tomato paste business, either on a break-up or a going concern basis;for the operation of the tomato paste business on commercial lines without subsidy for the periodnecessary to bring it to profitability and to create a track record that would make it attractive toinvestors; and (once this record was established) to bring the company to market through anintroduction on the Amman stock exchange. During 1996, Government successfully divested itself ofthe AMPCO assets except for the tomato paste business. AMPCO began contract farmingarrangements with farmers which proved very popular, and the company posted a profit in 1996according to the draft accounts. AMPCO's board has decided to establish a second year of profitableoperations and to substantially complete the process of divestiture by the end of 1998.

Factor Markets

66. In developing irrigation in the Jordan Valley, Government had imposed a restrictive covenanton freeholders that the land should be farmed by owner-occupiers and, as a result, land was not to bethe subject of a long lease. However, in the new market conditions under which farmers plan for highinvestment export-oriented agriculture, this restriction has proved a disincentive to commercialfarming and investment. Therefore, as a condition of second tranche release, Government was tosubmit the necessary amendment to the legislature to legalize private, freely transferable long-termleases up to 30 years. The Council of Ministers approved on March 15, 1997 an amendment to the lawwhich has been submitted to parliament.

67. On a related matter, it was found during appraisal that agricultural exports were constrained byregulations in the transport market. Government stated in its Letter of Sector Policy that, beginning in


1994, Royal Jordanian Airways would be required to compete on an equal basis with other freightcarriers in air freight and air freight handling. This has been done.

Market Development under ASTAP

68. The policy measures taken were designed to create incentives and opportunities for investmentand trade. Under ASTAP, support was to be given to market development, a key bottleneck.However, the Bank, after investing considerable technical resources, had to abandon a proposal toinclude a component under ASTSUP to support the development of a private export marketingcompany, as Government would not agree to using available grant funds to prepare the business planof the proposed company. Instead, technical assistance was provided to AMO first by USAID (whichhad long supported the agricultural exports sector), and then by GTZ. This resulted in the creation of aprivate Exporters Association to represent the industry, but it does not appear to have led to anysensible increase in exports. Government renewed its request to the Bank and IFC for support in thearea of export marketing in 1996 and an identification mission visited Jordan in May 1997.

D. Institutional Development: Sector Policy and Services

Sector Policy

69. As a condition of Board presentation, Government submitted the Letter of Sector Policy. TheLetter incorporated all of the above reforms and conditions, but also set out a broader agenda of policyand institutional development in agricultural services. It was the intention to monitor theimplementation of these various policies and programs during supervision, in tandem with thesupervision of ASTSUP, which supported part of the program.

70. The Agricultural Policy Charter was discussed at length in various fora, and eventuallyadopted by Government and published in November 1996.

Agricultural Services

71. At the time of appraisal, public institutions in agriculture in Jordan were performing poorly.There was little public extension, and research and pesticide monitoring were weak despite extensivedonor support. The development of rural finance and of the cooperative movement had been impairedby excessive Government intervention. The Letter of Sector Policy proposed a program for theimprovement of these services, based on a redefinition of Government and private sector roles in thesector, and articulated through a series of strategies for key institutions and services. Implementationof the program was to be supported under ASTAP.

72. Ministry of Agriculture. For the Ministry of Agriculture, it was proposed to adapt structureand staffing to a new, more limited, mandate defined in the Letter of Sector Policy; to implementprivatization, corporatization or other forms of decentralization; and to make essential public servicesmore productive and better managed. Government worked out a program of institutionalreorganization and change which was supported by USAID and GTZ.

73. Results in implementation were mixed. MOA's policy analysis, statistics and monitoring andevaluation functions received extensive support from GTZ and have performed well. However, the


more ambitious proposals for institutional restructuring and change that were supported by both GTZand USAID have so far resulted in little more than "shifting boxes around" without any discernibleimprovement in performance or reduction in cost. The recent moves by Government to restructure thecivil service may yet give new impetus to the process but the outcome is far from clear.

74. Research. The research function was found at appraisal to be ineffective, with farmersreceiving little benefit. A program to develop agricultural research, including action on theinstitutional status of the research institution, the National Center for Applied Research andTechnology Transfer (NCARTT), was developed. This program resulted in the consolidation ofNCARTT with a permanent statute and good management, and the development of a well thought-outresearch strategy. Financing for research has been increased and ASTSUP is providing some supportto research management, focused on upgrading NCARTT's adaptive research capacity by fundingdegree training in priority areas for its staff and by funding the establishment of a managementinformation system.

75. Extension. The Government agricultural extension service was found to be small and weak.Government was to develop an extension strategy, which has been done (1997), and GTZ and theBank are providing modest support under ASTSUP, including for a pilot extension program. Banksupport focused on providing training in extension methodology, marketing extension andcommunications skills for male and female extension staff.

76. Agricultural Credit. The Agriculture Credit Cooperation (ACC) was appraised as having thepotential to be a well-run institution but was suffering from Government intervention. Governmentwas proposing a new policy that would convert ACC into a deposit-taking institution and bring itunder Central Bank supervision, and to revise ACC's charter to ensure its autonomy. ACC haddeveloped a loan recovery plan. Studies and technical assistance were proposed to help implementthis program, including a proposal for an IDF grant, but this was later rejected by Bank management.The agenda has recently been revived through a study carried out under ERDL, and Government isagain seeking financing to provide some technical assistance to the development of ACC into abroader-based institution.

77. Cooperatives. The cooperative movement, despite a promising early start, had been sappedby Government control and subsidy. Although not specifically mentioned in the Letter of SectorPolicy, it was agreed at appraisal that Government would develop a policy statement and restructuringproposal for the cooperative movement that would separate regulatory and implementation functionsand lay the foundations for the revival of a bottom-up cooperative movement. The Bank sent amission to help write up this proposal. In May 1997, Government had passed new legislation oncooperatives and restructuring was underway.

V. PROJECT SUSTAINABILITY

78. The key factor in sustainability is the Government's commitment to the program, and thereis evidence of such a commitment. With improved macroeconomic stability, Jordan has succeededin following an effective stabilization and adjustment path. The "Agriculture Policy Charter,"


which was adopted by the Council of Ministers, sets out Government policy of liberalized privatesector development in agriculture and defines a narrow scope for Government intervention in theprovision of services. MOA has embarked on a change process designed to adopt it to its newstrategic role. There is high likelihood that the achievement of ASAL would be maintained.

79. Jordan is going through rapid economic and political transition and it was correctlyrecognized in the President's Report that this, compounded with the volatile regional situation,created risks to the sustainability of the adjustment program. Underpinning any sustainability hasto be an essential macroeconomic stability; it will be evident from the discussion in Chapter II thatJordan has succeeded in following the stabilization and adjustment path to date. Risk of anyderailment at this stage is consequently very small indeed.

80. A second set of risks, again correctly identified in the President's Report, are the social andpolitical risks that could arise with the application of new relative prices and the reduction ofvested interests. Here, Government's strategy has been twofold. First, adjustment has not onlycosts but benefits, and under ASAL the costs to, say, banana farmers arising from lower pricedbanana imports have been matched against the benefits accruing to the much larger - if less vocal -constituency of banana consumers happy to get a better quality product at a lower price. Thisstrategy has by and large been successful under ASAL, with two exceptions. The first and mostworrying is the possible impact on livestock producers of the phase out of subsidies, which mayhave created some impoverishment amongst the vulnerable Bedouin group. In this case,Government is right to be concerned and intervention under the safety net is a priority. Thisnegative impact is suggested by field work undertaken by the MOA impact monitoring program inmid 1996. However, the result is not yet confirmed by the data (see Part B above) and MOA isconcentrating on confirming or otherwise this possibility. The second case is that the JordanValley irrigation farmers, where ultimately Government's assessment of the risk led it to request awaiver of the condition. Nonetheless, indications are that the progress made with the "ratchet" isirreversible, and that as soon as market conditions improve Government intends to continue alongthe path it has traced out.

VI. BANK PERFORMANCE

81. In many ways, ASAL represents good practice of Bank handling of sectoral adjustment.There was close coordination with the Government and donors in the design of the program.Supervision missions were frequent. Staff continuity was a strong plus and staff performnance wasgood throughout, with appropriate skill mix. Other positive features include: (i) the integration ofthe ASAL within a broader stabilization and adjustment framework; (ii) the origins of the ASAL injoint sector analysis by Jordan and the Bank; and (iii) the linking of the natural resourcemanagement issues with the production and trade issues to create a complementary package ofintersectoral measures. On the negative side are: (i) the relatively high cost of preparation; (ii) thecomplexity of the operation; and (iii) the over-optimistic expectations with respect to achievingquantifiable results upon closing of its loan.

82. Some of the intentions of the Bank were never fulfilled but this represents reasonableflexibility rather than a fault. For example, the President's Report had proposed that a full mid-


term review of the adjustment experience in the water sector should be carried out prior to secondtranche release. In the event, the Bank was pursuing an intensive dialogue with Government onwater in the context of sector work and the future lending program, so that quite reasonably theBank decided that it was not necessary to mount a separate mid-term review for ASAL alone.

VII. BORROWER PERFORMANCE

83. Borrower ownership was strong (see above) and much of the analytic work was carried outeither by the Borrower or jointly. At the technical level, staff continuity and commitment wasexcellent throughout. At the decision-making level, problems emerged with the very frequentchange of ministers that is a fact of Jordanian life. Between identification in 1993 and completionin 1997, the Bank dealt with seven different Ministers of Agriculture, three different Ministers ofPlanning and four different Ministers of Water and Irrigation (these three ministries constituted theinner circle for the ASAL). Much time was expended in reviewing the analytic work and indeveloping a mutual understanding with each successive office holder.

84. In implementation, Borrower performance was good. A coordination committee was set upto act as the counterpart of supervision missions and to oversee implementation of the measures.The Ministry of Planning was effective in securing this coordination.

VIII. ASSESSMENT OF OUTCOME

85. Overall, the reform program has effected a substantial adjustment in the agriculture andwater sectors. In the agriculture sector, Government intervention during the period of the programhas dwindled, and the trade and incentive framework now contains few distortions. There is littlethat remains to be done on the agricultural policy front. There is, however, still need for institutionbuilding to improve the availability of services both in the private and the public sectors, and somediscrete promotion of private sector export marketing. These actions are to be supported underprojects currently being prepared for IFC and Bank support.

86. In the water sector, the program has contributed substantially to improving policy andmanagement of the nation's scarcest resource. The policy agenda is not yet complete, particularlythe key question of water pricing. Government is adopting an alternative program for irrigationwater pricing that would eventually transfer responsibility for the operation and maintenance ofirrigation schemes to beneficiaries.

87. Reforms in the water and agricultural sector are part of the Government's structuraladjustment program, the full impact of which will take time to read. The early signs of impactoverall, are, however, positive. Some tentative early results are discussed below.


Impact Monitoring and Evaluation

88. In the design of ASAL, attention was paid to impact monitoring both in order to prepare thecase for evaluation and to allow adjustment of policies in case of need. MOA, with GTZ support,set up a unit for impact monitoring which is working effectively. However, the time scale requiredfor monitoring is a number of years and to date, very little data have been published. ASALimpacts were expected to occur in many ways. First, there was expected to be a beneficialfiscalimpact; this has occurred (see below). Second, consumer prices were expected to fall; there is littleevidence on this so far and effects will need monitoring over the longer-term (see below). Third,employment impacts were expected to be neutral; again there are no data available yet (see below).Fourth, the elimination of subsidies and the liberalization were expected to reduce incentives toproduce some crops and increase incentives for others, changing production patterns and --possibly-- having some differential impact on incomes; from the scant evidence available, ifappears that there is some switch towards more water-efficient and higher-value crops, while thereare not yet any monitoring data on income impacts except for some farm budget work suggestingimproved incentives to water conservation (see below).

Fiscal Impact

89. Adjustments supported under the ASAL were expected to result in a reduction of the fiscaldeficit by around JD 20 million per annum (0.6 percent of GDP) as follows: (i) direct producer andinput subsidies, amounting to an estimated JD 10.2 million in 1992, would be eliminated; (ii) fullrecovery of irrigation O&M costs in the Jordan Valley would generate an additional JD 3.0 millionannually; (iii) the replacement of QRs by tariffs, and the reduction of tariffs and surcharges to aproduction-weighted average maximum of 30 percent, would raise net customs revenue, estimatedat about JD 3.7 million per annum; and (iv) the divestiture of AMPCO would save Governmentaround JD 3.0 million annually in subsidy transfers, in addition to a one-time revenue from theproceeds from the company's divestiture. These targets have been achieved, except that therecovery of irrigation O&M costs is only about 60% of the anticipated level, as the second roundof increases was never made.

Other Economic Impacts

90. Trade liberalization and the dismantling of monopolies were expected to have a positiveimpact on consumers as most prices were expected to fall. The actual outcome has been mixed,with the price of vegetables dropping considerably, whilst the price of cereals rose steeply in 1996in line with rising world prices. However, the time series since adjustment is too short to drawconclusions and monitoring over a more extended period is recommended. The employmentimpact was expected to be neutral, but no data are yet available.

Impact on Production and Producer Incomes

91. Prior to appraisal, KfW (ASAL cofinancier) prepared a study of the expected impacts ofASAL adjustment measures on farm incomes. The study showed that income losses could affectall farmers to some extent as subsidies were phased out and barriers to imports were lifted, but that


these effects could be compensated for many farmers by new market opportunities, croppingpattern changes and productivity increases. The President's Report discussed how ASALresponded to this analysis by both sequencing and support measures. Measures that would have animpact on the poorest (particularly the livestock producers) were phased, and the majority ofsupport in the ASTSUP was designed to focus on production systems where there is potential forincome increases, with priority to poorer producers.

92. Regarding production, only 1995 data are yet available. These data show a sharp increasein vegetable output which suggests that producers are taking advantage of new marketopportunities. This - and a possible early response to the 1995 rise in water charges - is confirmedby the pattern for individual crops, with the high-value, water-efficient crops like aubergine andcucumber doubling in output during 1994-95, whilst production of less water efficient crops liketomatoes stagnated, and production of the water-intensive melon fell 30%. The livestock figuresdo not yet show any response to adjustment - the key increase in feed price came only in 1996.

93. On the income side, there are no data yet at the microeconomic level. Movement of theAmman wholesale price index during 1994-96 would suggest that livestock producers have notsuffered a drop in incomes and fruit and vegetable producers may have been able to recoup pricedecreases through increased output and exports, and changing the crop mix to higher value crops.However, only monitoring over a longer period will reveal the nature and scale of income impacts.

Impact on On-Farm Water Management

94. It was expected that the increase in the price of irrigation water under ASAL would have abeneficial impact on water management, especially as the block tariff system would entail heavywater users paying up to 35 fils/m3 for their water (six times the previous tariff). Calculationsbased on a sample survey at the farm level in 1996 suggest that farmers growing water-efficientcrops under modern systems have seen little change in their gross margin from the rise in watercharge (for strawberries or cucumbers in plastic houses there has been less than a 1% decrease ingross margin). By contrast, farmers growing bananas or squash (heavy water users) have seentheir gross margins drop by 10-20%. These findings are confirmed by evident investment of manyfarmers in more water efficient technology, and a move amongst the top farmers to a very "hi-tech" water conserving system of production.

Poverty

95. Overall, the impact of ASAL on the poor was expected to be beneficial as poor consumerswould benefit from lower prices under trade liberalization. As stated above, monitoring of severalyears will be necessary to establish patterns. In 1996, there was an increase in the consumer priceof cereals, but this was due to the increase in world prices and was unrelated to ASAL.

96. Several other elements in the ASAL program had an explicitly "pro-poor" objective ofhelping poorer farmers. Under the irrigation cost recovery program, an increasing block tariff


system was to be used to provide a minimum water allocation to poorer farmers at a reasonablebasic rate. This was successfully introduced, with the result that only the larger farmers or thosegrowing water-inefficient crops are paying the high rates. The research and extension strategiesadopted under ASAL and supported under ASTAP have an explicit mandate to concentrate on theproduction systems of the poorer farmers. In addition, the proposed monitoring program was toprovide Government with information on any emerging unforeseen problem. This program hasbeen successfully set up by MOA, with GTZ support, and it has begun to publish and disseminatefindings about the impact of adjustment. However, a longer time span will be needed forsignificant results to emerge.

97. It was also assumed that some farmers faced with reduced incomes from farming might falltemporarily or chronically below the poverty line, although the number of farmers facing thiseventuality was not expected to be great. There are no data yet to confirm any such outcome.However, the MOA monitoring program has flagged the marginal livestock farmer as being "atrisk," as the phasing out of the feed subsidy coincided with a rapid increases in world barley pricesin 1996. World prices are now abating, but Government is nonetheless considering sometransitional support to these marginal farmers whilst they adjust their production systems.

Impact on Water Resources

98. ASAL was designed to promote a long-term process of gaining control over Jordan's scarcewater resources, with the major benefits coming from the program of institutional, regulatory andmanagement reforms. Benefits are likely to accrue mainly in the medium to long term and aredifficult to assess at this stage. However, full utilization of existing diversion capacity between theValley and the Highlands is now providing an extra 20 mcm annually for municipal use (anincrease of about 10 percent in national availability for municipal use); this has an immediateeconomic benefit estimated at about JD 8 million per year. The impact of other ASALachievements like prioritization of investments in new supply and the progress on demandmanagement are also likely to have large benefits but these are difficult to quantify. Nevertheless,reallocation of both renewable and fossil groundwater to municipal and industrial use potentiallyhas a very high return, given the likely high value added in these sectors.

Environmental Impact

99. Environmental impact was expected to be beneficial. Water sector measures were expectedto improve the ability to conserve water resources and to monitor and manage water. The pressureon farming profitability was expected to reduce incentives for over-pumping groundwater in theHighlands and this, combined with stronger regulation, would help reduce over-exploitation ofgroundwater. Elimination of producer subsidies for cereals was expected to remove one of theprimary factors encouraging conversion of rangeland to unsustainable forms of agriculture. It wasthought that removal of feed subsidies might, in the short term, put increased pressure temporarilyon the range but that it would, in the medium term, cause a reduction of livestock populations andhence of overgrazing of the rangeland.


100. There is scant empirical data available yet to bear out these expectations. However, theMOA monitoring program intends to focus on impacts on livestock systems and on the rangelandin its 1997 programs, so data may be available within twelve months. On two provisions,expectations cannot have been fulfilled as the measures were never undertaken - amendment ofland tenure provisions for rangeland, and action on the pesticide regulatory framework.

Rating

101. Overall, the outcome of the ASAL is rated as follows:

Outcome : SatisfactorySustainability : LikelyInstitutional Development : ModestBank Performance . SatisfactoryBorrower Performance : Satisfactory

IX. FUTURE OPERATIONS

102. The new policy framework following the ASAL adjustments is well set out inGovernment's own-recently published Water Strategy and Agricultural Policy Charter. Althoughno further adjustment operation in the water and agriculture sectors is envisaged, many of thepolicy changes effected will be put into practice in a series of follow-up operations. The integratedapproach to water resources management and the involvement of private management in urbanwater will be supported under the proposed Amman Water Supply Project (proposed for Bankfinancing). Association of private capital is proposed on a BOT basis in a wastewater treatmentproject (also proposed for Bank financing). Development of agricultural export markets isenvisaged under a project now being prepared for Bank financing. Support to efficiencyimprovements in Jordan Valley irrigation and to reinforcement of water management institutionsmay also be provided under a new Bank-financed operation.

X. KEY LESSONS LEARNED

103. Overall, ASAL effected a substantial adjustment in the water and agriculture sectors. In thewater sector, ASAL contributed substantially to improving policy and management of the nation'sscarcest resource. The policy agenda is, however, not yet complete, particularly the key questionof water pricing. Government is adopting an alternative program for irrigation water pricing thatcould eventually transfer responsibility for the operation and maintenance of irrigation schemes tobeneficiaries. In the agriculture sector, Government intervention during the period of the programhas dwindled, and the trade and incentive framework now contains few distortions. There is littlethat remains to be done on the agricultural policy front. There is, however, still need for institutionbuilding to improve the availability of quality services both in the private and the public sectors,


and for some discrete promotion of private sector export marketing. These actions are to besupported under projects currently being prepared for IFC and Bank support.

104. The principal lessons to be learned from ASAL can be summarized as follows:

(a) in a water-scarce economy like Jordan, the linkage of adjustments in agricultural policyto adjustments in water sector policy is an essential one. This linkage has, however,not only positive aspects (e.g., market liberalization permitting and encouraging waterconservation measures) but also less positive ones (e.g., where market outlets fail todevelop, it may be difficult to pursue demand management for water conservationthrough increases in water charges);

(b) where demand management through water tariff increase is problematic, there can bealternative measures (such as handing over to farmers some of the responsibilities andcosts) that contribute to the same objective;

(c) sector operations should be as simple as possible, while consistent with achieving theirgoals. Several of the components that were "added on" to ASAL via the Letter ofSector Policy were not really successfully implemented and ASAL did not influencetheir outcome in any way. It would have been better to have heeded advice givenduring preparation by several reviewers that the operation be simplified. In particular,the ambitious program of institutional development would have been better supportedthrough a project than through a policy-based loan;

(d) it is important to build on national ownership and to involve cofinanciers throughout.The origins of ASAL in joint work and shared analysis led to a high degree ofownership of even politically difficult measures and even in the fast-changingenvironment that has characterized the country and the region in recent years;

(e) monitoring and evaluation of adjustment is a long-term affair, and it is a mistake toexpect quick results as was the case during appraisal; and

(f) thorough preparation is a good investment, as implementation is correspondinglysmoother. The Bank and Government invested large resources in preparation, butimplementation required far less attention.





PART II. STATISTICAL TABLES

Table 1: Summary of AssessmentTable 2: Related Bank LoansTable 3: Project TimetableTable 4: Loan Disbursements: Cumulative Estimated

and ActualTable 5: Key Indicators for Project ImplementationTable 6: Key Economic IndicatorsTable 7: Studies Included in ProjectTable 8A: Project CostsTable 8B: Project FinancingTable 9: Economic Costs and BenefitsTable 10: Status of Legal CovenantsTable 11: Compliance with Operational Manual StatementsTable 12: Bank Resources; Staff InputsTable 13: Bank Resources: Missions

30 Agricultural Sector Adjustment Loan




Table 1. Summary of Assessments

A. Achievemnent Objectives fbsantalPartial Not alicable(V) (if) (7 ) ()

Macro Policies 1 0 0 0

Sector Policies 10 0 0

Financial Objectives 0 / 0 0

Institutional Development 0 / 0 0

Physical Objectives 0 0 0 (I,)

Poverty Reduction 0 0 0 (V)

Gender Issues 0 0 0 (i)

Other Social Objectives 0 0 0 (i)

Enviromnental Objectives 0 0 0 0

Public Sector Management 0 1 0 O

Private Sector Development 0 10 0

Other (specify) 0 0 0 0

B. Proiect Sustainabilitv Lielv Unlikely Uncerain(V) (if) (V)

1 0~~~~~~~~1 0

C. Bank Performance satisfar-toa Satisf&ctl Deficient

(if) (if) (V)

Identification 0 1 0

Preparation Assistance 0 1 0

Appraisal 0 1 0

Supervision 0 1 0

HighlvD. Boffower Performance satisjv Satisfatrv Deficient

(if) (if) (i)

Preparation 0 1 0

Implementation O O

Covenant Compliance 0 1 O

Operation (if applicable) 0 0 0

Higb& h1vE. Assessment of Outcome 395w -1 nasfKaa m ha=

(i) (i) (i) (i)

0 / 0 0





Table 2. Related Bank Loans

Loan TitlePrps erftau

Preceding operations

1. Agriculture Sector Technical Support Support the implementation of the Agricultural 1994 OngoingProject (Ln. 3817-JO). Sector Adjustment Loan (ASAL) by

rehabilitating farm turnouts and installing watermeters and other water control devices in boththe Jordan Valley and on wells in the JordanHighlands to enable surface and groundwatermeasurement and management. The project isalso to strengthen research and extensioncapacities to support poorer farmers underadjustment, and to build monitoring capacity totrack the impacts of adjustment.

2. Trade Adjustment (Ln. 3142-JO) Structural transformation of the economy by 1990 Closedstimulating export-oriented growth.

3. Emergency Recovery (Ln. 3306-JO) Meet immediate needs for essential social 1991 Closedservices and infrastructure as a result of the Gulfcrisis.

4. Energy Sector Adjustment Loan (Ln. Restructure the energy sector 1994 Disbursing3651-JO)

Folowing operations

5. Export Development (Ln. 3993-JO) Assist Government's Export Development 1996 Disbursingprogram aimed at building Jordan's exportcompetitiveness and increasing export revenues.

6. Economic Reform and Development Support broad-based policy and institutional 1997 DisbursedLoan 11 (Ln. 4115-JO) reforms with respect to the financial sector,

privatization, trade and the regulatoryframework.

Includes projects in the same sector/subsector as this project and adjustment operations with related objectives. A limit of10 years is observed when listing preceding operations.




AGRICULTURE SECTOR ADJUSTMENT LOAN(Ln. 3817J0)

Table 3. Project Timetable

Steps in Project Cycle Date Planned Date AitualI.... :: :: LbatetEsimate

Identification (Executive Project Summary) April 1993

Preparation June 1993 December 1993

Appraisal March 1994 April 1994

Negotiations May 1994 August/September 1994

Letter of Sector Policy October 27, 1994

Board Presentation July 1994 December 8, 1994

Signing December 19, 1994

Effectiveness January 1995 May 19, 1995

First Tranche Release (if applicable) May 19, 1995

Second Tranche Release April 1, 1996 May 13, 1997

Project Completion

Loan Closing December 31, 1996 April 30, 1997

Table 4. Loan Disbursements: Cumulative Estimated and Actual(USS millions)

| ~~~~~. . , :.. . , . . . . -. . . . ...

FY95 P 6' : i 97Appraisal Estimate 50 80 80Actual 50 50 80Actual as % of Estimate 100% 62% 100%

Date of Final Disbursement May 13, 1997




AGRICULTURE SECTOR ADJUSTMENT LOAN(Ln. 381740)

Table 5. Key Indicators for Project Implementation

Agreed Actions Situation4I-d

-V$Objetive: Main *a $suprtiVe mo roecOnomic: famework and externalnaning.'A I

Maintain the macro-economic framework The macroeconomic framework is satisfactory.including satisfactory progress with externalfinancing plan.

Oh00ctlvc: 0-SuLpportthe trasition to an optimal luse*ofwaterl ad land resour l;s.

Adopt an agreed water policy framework The framework was adopted in 1994. MWI has sincepublished a national Water Strategy.

Conduct a study of water institutions and identify The study has been completed and an agreedareas for change. Agree institutional changes and reorganization plan is under implementation.the action plan for their implementation.

Restrict issue of groundwater licenses to high WAJ Board adopted policy and WAJ has supplied a tablepriority industrial, tourism and university projects showing licenses issued during 1995/96 in compliancewith adequate utilization plans. with this agreement.

Agree on a policy to enforce volumetric metering Under the agreed policy, installation of well metersand control of all water production, supply and reached 78% at end 1996. Government is implementingusage. Make satisfactory progress in the basin protection plans and is closing down illegalimplementing basin management plans wells.countrywide, based on the agreed policy.

Announce and implement an agreed program to Tariff increase to 15 fils was effective from Februarycover operation and maintenance costs ofJordan 1995. Government requested a waiver of the secondValley irrigation water, including increases in the increase to 25 fils and this was approved by the Bankweighted average tarif to at least 15 fls/rm3 Board in April 1997.(1995) and 25fils/m3 (f996).

Eliminate cereals cropping at Disi or reduce Extraction is to be reduced by 28% in 1997.groundwater extraction at Disi by 25% below1993 levels.

Review rangeland tenure and adopt new Not done.regulations.

Implement new regulatory framework for Not done.pesticides.


Agreed Actions Situation

Objective: Improve the incentive structure through liberalization and so promote development of markets,Including internal and external markets in agricultural produce, and mirkets in land and transport.

Eliminate the procurement subsidy on Subsidies were eliminated in 1995.domestically produced cereals.

Eliminate livestockfeedprice subsidy. Adopt plan Subsidies were eliminated in 1995 and public barley (andfor withdrawal ofpublic sectorfrom barley trade, wheat) imports were eliminated in May 1997.including 20% reduction in public sector barleyimportsfor 1995 (60% in 1996) and eliminationin 1997.

Repeal official tomato procurement price. Official tomato procurement price was abolished as of Jan.1, 1995.

Remove controls on prices and margins of major Controls were removed, except on fresh fruit and vegetables,fresh and processed agricultural commodities. in 1995. Controls on fruit and vegetables were removed in

April 1997.

Eliminate import monopolies and import and Monopolies, QRs and import licenses have been removed.export restrictionsfor agricultural produce andfor packaging materials, and move to a tariff-based system, so that production-weightedaverage tariff would not exceed 30%.

Study, agree and make satisfactory progress in Plan has been agreed. AMPCO has sold its non-performingdivestiture ofAMPCO. assets and is concentrating on the tomato processing activity.

The company will be privatized before the end of 1998.

Submit an amendment to the JVA law to extend The amendment has been submitted to parliament.the maximum lease period in the Jordan Valley topromote long-term investment.

Allow other companies to compete in airfreight Done.and airfreight handling on an equal basis withRJ.

Objective: Define the strategic role of Government in the agriculture sector and ensure that private andpublic services to the sector are delivered efficiently.

Adopt Agriculture Policy Charter. The approved Charter was published in November 1996.

Adopt a program of institutional reorganization With GTZ and USAID support, MOA is undertakingand change. internal change process.

Adopt strategy.for research. Prepare a strategy Research strategy has been adopted and is underfor extension. implementation. Extension strategy has been prepared with

GTZ support.

Adopt and implement a policy statement, charter An IDF grant is financing a study on ACC and on broaderand loan recovery planfor ACC. questions of rural finance. Government has prepared a draft

restructuring plan for ACC.

Adopt and implement a policy statement and JCO has been abolished and a small new unit created to playrestructuring program for the cooperative Government's role in cooperative supervision. Restructuringmovement. of the cooperative movement is underway.





Table 6. Key Economic Indicators

1995 1"996 199 1995 1996

GDP (million, current US$) 6854 7560 6013 6645 7267GDP Growth Rate (%) 6.2 6.1 8.1 6.9 5.2Domestic Inflation 4.3 4.0 2.2 3.6 5.1ICOR 4.9 49 4.2 4.8 6.1

Investment (percent of GDP) 26.0 26.2 33.1 31.8 33.4Consumption (percent of GDP) 94.4 92.3 89.6 88.2 87.9Gross Domestic Savings (percent of GDP) 5.6 7.7 10.4 11.8 12.1Gross National Savings (percent of GDP) 16.2 17.9 27.9 29.4 31.8Current Account Balance, excl. grants (percent of GDP) -9.8 -8.3 -12.0 -8.8 -8.9

Government Revenues, excl. grants (percent of GDP) 31.2 30.6 29.7 31.0 29.0Government Expenditures (percent of GDP) 35.7 34.7 35.9 36.3 33.7Budget Deficit (minus, excl. grants) (percent of GDP) -4.6 -4.1 -6.1 -5.3 -4.6

Memo items:Real Export Growth Rate (Goods and Services) 6.1 8.3 1.2 10.9 6.6

Merchandise (FOB) 7.0 9.9 7.8 16.8 6.8Non-traditional goods 7.3 10.6 11.3 22.5 9.7

Real Import Growth Rate (Goods and Services) 1.6 6.2 -5.5 5.6 7.2Merchandise (CIF) 2.5 7.5 -7.6 3.4 7.6

Debt/GDP Ratio (percentage) 105.8 96.1 114.5 104.6 97.4Debt Service/Exports goods, services, workers' remit. (percentage) 15.3 14.2 12.1 13.3 13.0

2 Estimate





Table 7. Studies Included in Project

... . . . . .. :::.. .-.-Stuidy . - Purpose as Defined Status Impact of Study

at Appraisal/Redefined :

1. Study on Options for To recommend best option Completed Substantial divestiture ofDivestiture for for divestiture of AMPCO's AMPCO facilities achieved.AMPCO assets and operations and for

preparation for sale of corebusiness to private sector.

2. Structural Adjustment To provide support with Completed Study contributed toand Policy Support water sector restructuring to organizational change toProject - Water: Jordan Jordan's Ministry of Water improve institutional

and Irrigation. effectiveness.

3. Farmer Perceptions, To develop a qualitative Underway Methodology has been defmedand their reactions to impact monitoring approach and monitoring has begun. Astructural changes in of agricultural policies in publication in December 1996agriculture Jordan. of preliminary findings

received broad distribution. Asummary of findings isannexed to the ICR. Themonitoring project continues.

4. Qualitative Impact To gauge micro-economic Underway IdemMonitoring of ASAL response to ASAL.(Humboldt University)




AGRICULTURE SECTOR ADJUSTMENT LOAN(Ln. 3817J0)

Table SA. Project Costs

Appraisal Estimate (IJSSM) AchlQt EawUSSM)

l.ocal l-oreign lotal Loctal Foreign rtail

1. IDA 0 80 80 0 80 80

2. KfW 0 20 20 0 20 20

TOTAL 0 100 100 0 100 100

Table 8B. Project Financing

Apprisal Estiman (US$M | > r ) _

Local Foreign Total Local Foreign TotalSource Costs Costs Costs Costs

IDA 0 80 80 0 80 80

Government of Germany

(through KfW) 0 20 20 0 20 20

TOTAL 0 100 100 0 100 100

Table 9: Economic Costs and Benefits

Not applicable.





Table 10. Status of Legal Covenants

Agmrnt Saton tCovenat Prest Original Revsed Desciption of C.m.nenCsType Stats Fuffillment Fulfilment Covenant

Date Da .

Loan 3.01(a) 9 C The Borrower and the Bank shall from time to time, at the request of either party, Complied with.exchange views on the progress achieved in carrying out the Program and the actionsspecified in Schedule 4 to this Agreement.

3.01(b) 9 C Prior to each such exchange of views, the Borrower shall furnish to the Bank for its Complied with.review and comment a report on the progress achieved in carrying out the Program, insuch detail as the Bank shall reasonably request.

3.01(cXi) 9, 10 C Without limitation to foregoing & to Borrower's obligations under Section 9.07 of the Complied with.General Conditions, commencing 6 months after effective date of this Agreement theBorrower shall: (i) cause Min. of Planning to submit semi-annual reports concemingimplementation of Program in such detail as the Bank shall reasonably request; and

3.01(cXii) 9 C (ii) cause the Min. of Agriculture to submit semi-annual reports concerning trends in Complied with.production, resource use, incomes, employment and prices through household surveysand case studies.

3.02 3 C Except as the Bank shall otherwise agree, procurement of the goods to be financed out Complied with.of the proceeds of the Loan shall be govemed by the provisions of Schedule 3 to thisAgreement.

3.03(a) I C The Borrower shall maintain or cause to be maintained records and accounts adequate Complied with.to reflect in accordance with consistently maintained sound accounting practices theexpenditures financed out of the proceeds of the Loan.

3.03(bXi) I C The Borrower shall: (i) have the records and accounts referred to in paragraph (a) of Complied with.this Section for each fiscal year audited, in accordance with appropriate auditingprinciples consistently applied, by independent auditors acceptable to the Bank;

3.03(bXii) I C (ii) fumish to Bank as soon as available, but in any case not later than six months after Complied with.the end of each such year, a certified copy of the report of such audit by said auditors,of such scope and in such detail as the Bank shall have reasonably requested; and


3.03(bXiii) I C (iii) fumish to the Bank such other information concerning said records and accounts Complied with.and the audit thereof as the Bank shall from time to time reasonably request

3.03(cXi) I C For all expenditures with respect to which withdrawals from the Loan Account were Complied with.made on the basis of statements of expenditure, the Borrower shall: (i) maintain orcause to be maintained, in accordance with paragraph (a) of this Section, records andaccounts reflecting such expenditures/

3.03(cXii) I (ii) retain, until at least one year after the Bank has received the audit report for the Complied with.fiscal year in which the last withdrawal from the Loan Account was made, all records(contracts, orders, invoices, bills, receipts and other documents or customs certificates,as appropriate) evidencing such expenditures;

3.03(cXiii) I C (iii) enable the Bank's representatives to examine such records; and Complied with.

3.03(cXiv) I C (iv) ensure that such records & accounts are included in annual audits referred to in Complied with.paragraph (b) of this Section and that report of such audit contains separate opinion bysaid auditors as to whether statements of expenditures submitted during such fiscalyear, together with procedures and intemal controls involved in their preparation, canbe relied upon to support related withdrawals.

Covenant types:I = Accounts/audits2 = Financial performance/revenue generation 8 = Indigenous people

from beneficiaries 9 = Monitoring, review, and reporting3 = Flow and utilization of project funds 10 = Project implementation not covered by4 = Counterpart funding categories 1-95 = Management aspects of the project or 11 = Sectoral or cross-sectoral budgetary or

executing agency other resource allocation6 = Environmental covenants 12 = Sectoral or cross-sectoral policy/7 = Involuntary resettlement regulatory/institutional action

13 = OtherPresent Status:

C = Covenant complied withCD = Complied with after delayCP = Complied with partiallyNC = Not complied with





Table 11. Compliance with Operational Manual Statements

- ~~Statement Nwnber and Title . Describi and Commeint on Lack of Cornpfiance-

(No significant lack of compliance)

Table 12. Bank Resources: Staff Inputs

Planned ActualStage of Project Cycle . ::-- - -_:

Weeks USS :Weeks -. $UW000s:o...

Preparation to Appraisal 255.7 708.9

Appraisal-Board 20.9 80.5

Negotiations through Board Approval 19.3 67.3

Supervision 33.6 154.3

Completion 4.0 12.3

TOTAL 333.5 1,023.3





Table 13. Bank Resources: Missions

St i-0; Sof ;t 0 0 .MonW Ni . .f00 Days ju tin0000 SMecializetDSt ffSklls I eettDvlopen T f'.pC:Ptjedct Cyle SYa Pei!i: sns iV iField; :-iEiVepredsente Etatus P blom Pile

Preparation Feb-Mar. 7 17 Task Manager, Water1993 Specialist, Sector

Economist, Agriculturist,Credit Specialist,Marketing Specialist,Livestock Specialist

Preparation June-July 3 22 Task Manager, Sector1993 Economist, Marketing

Specialist

Pre-appraisal Dec. 1993 14 17 Task Manager, SectorEconomist, IrrigationEngineer, 2 WaterSpecialists, CreditSpecialist, LivestockSpecialist, Agriculturist,Extension Specialist,Coop. Specialist, 2Envrn. Specialists

Appraisal April 1994 5 16 Task Manager, SectorEconomist, 2 WaterSpecialists, MarketingSpecialist

Appraisal to Apr.-Dec. 7 Task Manager, SectorBoard 1994 Economist, Lawyer,

2 Water Specialists,Irrigation Engineer

Board to Dec. 94- 7 Task Manager,Effectiveness May 1995 Sector Economist,

Lawyer, 2 WaterSpecialists, IrrigationEngineer

Supervision May 1995 1 10 Task Manager(posteffectiveness)

Aug. 1995 1 10 Task Manager

Feb. 1996 1 10 Task Manager

June 1996 1 10 Task Manager

Completion May 1997 1 10 Task Manager

- 42 -

Appedix A

THE HASHEMITE INGDOM OF JORDAN


No Aide-Memoire was prepared. Minutes of the Meeting were prepared for the meetingdated May 31,1997, which reviewed the draft ICR. The Minutes containing the Borrower'scomments are included in Appendix B.

- 43 -

Appexndi BPage 1 of 2




REVIEW FROM THE BORROWER'S PERSPECTIVE

Minutes of Meeting to Discuss the Draft Implementation Completion Report (May 21, 1997)

1. A meeting was held at the Ministry of Planning on May 21, 1997 to discuss the draftImplementation Completion Report (ICR) submitted by the World Bank. It was agreed thatcomments made in the meeting would be taken into account when the report is finalized forpresentation to the World Bank Board, and that Government would submit any further comments forPart II of the ICR by May 31, 1997.

2. The meeting was attended by Mr. Mustafa Zahran (Chairman), Dr. Faisal Abboud Salem(MWI), Dr. Nejdawi (MOA), Dr. Walid Abdo Rabboh (MOA), Dr. Gunter Feiler (MOA) andMr. Christopher Ward (World Bank).

Comments on the Draft

3. The changed relationship with the Gulf countries should be stated in Chapter II. Thesections dealing with the water program should be brought into line with the changes recently agreedto be incorporated into the Grey Cover Water Strategy report, and the recent progress made in thewater sector should be recorded, notably: the adoption and publication of the National WaterStrategy, and the development of an investment program for the sector.

4. The role of IVA in the socio-economic development of the Jordan Valley should beunderlined in Chapter IV. The impact of population pressure and growing urban use on waterdemand should be mentioned in Chapter IV as contributing to the institutional challenge of sectormanagement. Government's interest in a capacity building program for water institutions should bementioned in Chapter IV. Government's recent decision to increase urban water tariffs should bementioned in Chapter IV. References to the willingness-to-pay study for urban water should bedeleted, as this was a summary exercise that is to be repeated in more depth shortly. Chapter IV

- 44 -

AppedPage 2 of 2

should mention that the capacity of Deir-Alla-Amman pipeline is to be increased to 90 mcm. Itshould be mentioned in Chapter IV that Government is currently revising the Jordan Valley O&Mcost study, on USAID financing.

5. References to reactions to the rise in Jordan Valley tariffs should specify that this responsewas raised by concerned farmers from the valley.

6. The paragraph dealing with changes in pesticide practice should deal with the substantialbeneficial change and progress effected under the IPM project, which has reduced pesticide use andincreased protection for many farmers.

7. Reference to market development under ASTAP should note that USAID was a long-timesupporter of the sector (long bef7ore ASTAP), and that USAID and GTZ support to AMO was notnecessarily a second best alternative to supporting an export marketing company.

8. Regarding institutional change in the Ministry of Agriculture, whilst the slow progress madeis recognized, mention should be made of the Government-wide effort to improve civil serviceperformance.

9. Regarding the cooperative sector, mention should be made of the recent cooperative law, andof Government's on-going program to help restructure the movement.

10. In Chapter V, the demand management program of JVA should be evaluated in more detail,as this is a positive achievement. In the same chapter, the achievement of JVA in achieving highercost recovery should be mentioned, and the sharp increase on the cost side stemming from the risingenergy prices should be spelled out. Regarding impacts on natural resources, impact on range shouldbe dealt with, and MOA will provide details of this.

11. On the impact of market liberalization, it should be mentioned that: Government has alreadywithdrawn from the cereals trade; and that although some consumer prices may have dropped, somemay have risen. To the extent that these are prices of products consumed by the poor (e.g., cereals),this may have had an adverse poverty impact. MOA will provide details.

12. It should be made clear that the IFC-supported private export company and the proposedBank-supported agricultural export project are quite independent.

13. The treatment of the weaknesses of the concept and implementation of an integrated ASTAPprogram in Chapter V needs to be made clearer. In Chapter V, it should be spelled out that althoughimported bananas were better quality and their import drove down the inflated price of the localproduct, the imports were not necessarily cheaper.

14. In the section on monitoring, it should be made clear that a long lead time (up to three years)had been found to be necessary before such a system could begin to generate useful data.

MAP SECTION

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Report No.: 16785Type: ICR

Documents

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