we simulate this expansion until 2021 based on Takaful targeting and benefits rules in HEIS.<sup>69</sup> Figure 16 shows that the distribution of benefits under Takaful is highly progressive, with nearly half of the benefits received by the bottom decile and over 70 percent by the bottom two deciles. This is significantly better than that achieved by NAF or the bready subsidy compensation. The overall impact of the Takaful expansion is to reduce poverty and inequality by 1.3 and 0.7 points respectively. Moreover, existing NAF beneficiaries are planned to be recertified using the Takaful targeting once the current Takaful expansion is complete.<sup>70</sup> As Figure 16 indicates, this could potentially lead to further reductions in poverty and inequality without additional expenditures. The marginal contribution to poverty and inequality of the recertified NAF is 1.2 and 0.8 points respectively. Compared to the current contributions of NAF (0.9 and 0.4 points for poverty and inequality, respectively) the better targeting of NAF would reduce poverty by an additional 0.4 points and inequality by 0.4 points. We estimate the combined impact of these social protection reforms as an additional 1.7 and 1.3 points reductions in poverty and inequality. Finally, removing the bread compensation scheme would have negative poverty and inequality impacts but, although not modelled here, the budget allocated to this transfer, while broad in coverage by design, could be used in a targeted fashion—such as extending subsidised health insurance coverage for the poor—to achieve better equalising and poverty reducing effects, or considering the Takaful expansion already underway, kept as fiscal savings.

# **_Box 1. The household impacts and social protection response to the COVID-19 pandemic in Jordan_**

The COVID-19 outbreak spread rapidly across the world. To varying degrees, countries introduced measures to contain and mitigate health emergency, including restrictions on individual mobility and economic activity in addition to public health measures. In Jordan, schools and borders were closed in mid-March 2020, and a nationwide curfew was set on March 21. The global pandemic and measures taken to contain it brought supply and demand shocks to the economy; Jordan’s economy was hit hard exacerbating pre-existing challenges for growth, labour markets and household welfare. The Government of Jordan (GoJ) introduced measures to protect formal workers and households, limiting layoffs and wage cuts. It also launched a World Bank supported program to provide cash support to poor and vulnerable households whose employment and incomes were not protected by formal instruments. This support included (i) temporary (6 month) cash transfers to 190,000 vulnerable households; (ii) additional funds to the Takaful budget to continue its 2020 expansion; and (iii) temporary (6 month) benefit top-ups for NAF and Takaful beneficiaries whose benefits were below a certain threshold.

The potential impact of the economic shock and the mitigating effect of the social protection response on household welfare were estimated through a microsimulation model (modelled in July 2020). First, household consumption was decreased from the baseline through the loss of domestic and international remittances, as well as labour income falls, which varied by the household’s sector of employment and whether they work informally. Consumption is then increased for the recipients of targeted cash transfers as part of the official emergency response. Real consumption is also affected by changes in the cost of living due to inflation or deflation resulting from the crisis (estimates of which come from a CGE model). Each of these channels was allowed to vary by month and household consumption and poverty was projected out monthly from the start of the crisis in March for 22 months to the end of 2021.

69 Conducted by the World Bank Social Protection team. This means that the results should be interpreted as if implementation was as envisioned by the targeting system. Though problems of implementation could reduce Takaful’s effectiveness we are not able to account for potential inclusion or exclusion errors in the targeting. An evaluation of the actual targeting performance of Takaful has not yet been completed.

70 We simulate this re-certification by allocating NAF based on the Takaful ranking score. Since we do not find enough households that would pass the Takaful assets and income filters, we keep the additional 31,000 poorest NAF households in the re-certified programme, even if they did not meet the eligibility criteria.