Document of The World Bank FOR OFFICIAL USE ONLY Report No. 16219-MOR MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY OF THE WORLD BANK GROUP FOR THE KINGDOM OF MOROCCO JANUARY 8, 1997 Country Operations I Maghreb and Iran Department Middle East and North Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY AND EQUIVALENT UNITS Currency Unit = Moroccan Dirham (DM) US$1.00 = DH 8.777 DH 1.00 = US$.1139 FISCAL YEAR July 1 - June 30 GLOSSARY OF PRINCIPAL ABBREVIATIONS ANI) ACRONYMS AfDB African Development Bank BAJ Barnamaj al Aoulaouiyat al Ijtimaiya (Social priority program) BMCE Banque marocaine du commerce exterieur BNDE Banque nationale pour le developpement economique CAS Country Assistance Strategy CIH Credit iznmobilier et h6telier EDI Economic Development Institute EIB European Investment Bank EU European Union FATIMA Facilitation of Trade and Investment in the Mediterranean Region FDI Foreign Direct Investment FIAS Foreign Investment Advisory Service FTA Free Trade Agreement GATT General Agreement on Tariffs and Trade GDR Global Depository Receipt GEF Global Environmental Facility GOM Government of Morocco ICOR Incremental Capital Output Ratio ICR Implementation Completion Report IDF Institutional Development Fund LIBOR London Interbank Offered Rate LOF Loan Option Facility LSMS Living Standards Measurement Survey MEDA Mediterranean Development Assistance METAP Mediterranean Environmental Technical Assistance Program MFA Multi-Fiber Agreement MIGA Multilateral Investment Guarantee Agency NGO Non-Governmental Organization OED Operations Evaluation Department ONCF Office national des chemins defer OPIC Overseas Private Investment Corporation PE Public Enterprise PHRD Population and Human Resources Development PPII Private Provision of Infrastructure Initiative PSD Private Sector Development RDS Rural Development Strategy REER Real Effective Exchange Rate SAMIR Societe anonyme marocaine de l 'industrie du raffinage Vice President : Mr. Kemal Dervi~ Director : Mr. Daniel Ritchie Division Chief : Mr. Christian Delvoie Country Officer Mr. Rene Vaurs Country Economist Mr. Luc De Wulf FOR OFFICIAL USE ONLY KINGDOM OF MOROCCO Country Assistance Strategy Contents Page No. Executive Summary ........................................ i Country Context ......................................1I - Economic Developments ...................................... I - Political Developments .......................................3 - Challenges: Internal and External .......................................3 - Development Goals and Reform Priorities .......................................6 - Prospects ...................................... 10 Bank Group Assistance Strategy .......................................11 - Status of Current Program and Dialogue .......................................1 I - Business Framework ....................................... 12 - Assistance Priorities ...................................... 13 - Instruments ...................................... 15 - Exposure ...................................... 21 - Risk Management ...................................... 22 - Performance Monitoring ....................................... 23 Agenda for Board Discussions ....................................... 23 Attachments - Attachment 1: Business Compact - Attachment II: Standard Annexes Map IBRD 24657 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY FOR THE KINGDOM OF MOROCCO Executive Summary The Chlallenge: Accelerating growth and social development through strong reform within a process of political opening. The next three years will be fundamental in setting the stage for future development, as Morocco embarks on significant economic, political and social reforms. In the past decade the country has made great strides toward economic transformation, achieving growth and macroeconomic stability. During the mid- to late 1980s, GDP and export growth were among the best in the Middle East and North Africa, and well above the average for comparator countries. Fiscal and balance of payments imbalances, which had reached double-digit levels in the early 1980s, were brought under control, and the overall economic environment was stabilized. By most indicators, Morocco qualified as a "star performer" during this period: all the more remarkable an achievement as Morocco 's policy makers in the mid-eighties had inherited a large foreign debt burden and had to stabilize the economy and generate resources for growth without the benefit of an outright debt reduction. More recently, however, Morocco has lost ground, and economic performance has faltered GDP growth has been negative in three of the past five vears, partly because of repeated and severe droughts. The reform process also slowed. This slowdown has highlighted the persistence of a number of structural weaknesses. Macroeconomic balances are still fragile and the debt overhang remains a serious problem. External competitiveness, strong during the 1980s, has been eroding. The economy is overly susceptible to drought and insufficiently diversijied Growth fundamentals are inadequate, as evidenced by low savings and investment rates. The human resource base is unpreparedfor the challenges of the twenty-first century. And disparities between urban and rural areas-the two Moroccos-are large and persistant. Morocco's recent history demonstrates its ability to confront challenges. Now that stability has been restored, the basis for strong, sustainable growth and social development must be strengthened. Morocco can realize 5 to 6 percent sustained growth, provided it moves forward promptly with its broad reform agenda. This is a prerequisite to reduce urban unemployment and rural poverty. But economic growth alone will not be sufficient. It will need to be accompanied by decisive efforts in accelerating social and rural development to reduce the existing social disparities. Medium-term priorities include enhancing competitiveness and fostering a more dynamic, aggressive private sector; deepening fiscal consolidation; paying special attention to human resources, where Morocco lags far behind its competitors; implementing a coherent rural development strategy; improving natural resource management, particularly for water; and, to support this broad agenda, building a more effective and efficient public administration. Placing the economy on a sustainable high-growth path while simultaneously reducing social disparities is not the only challenge. Morocco is also engaged in political reforms within a new constitulional framework that supports universal suffrage for the lower house of Parliament, decentralization of public authority, and greater legislative involvement in medium-term economic decision-making. Although these developments may slow economic reform in the immediate -~ II - future, over the long ternl they shoulcd enhance popular participation in development and help ensure its sustainability. The Autlhorities' Response: Builcling consensus for ihe next phase of reform using strong signals an1d visible initial action. The Moroccan aulhorities recognize these challenges and understand the difficult tradeoffs they may entail. They have alreacly taken several major steps that signal their comnmitinent: * the recent free trade agreement with the European Union (Morocco was the second country in the region to sign such an agreen7ent) will lock in " the process of integration with the global economy, * the reforlmi process is being intensified, especially in the areas of public enterprises, privalization, the financial sector and private sector development; and * major new rural development programs have been designed, focusing on basic education, health care, water supply and rural infrastructure, although most of these pr ograms are still at an early stage of implementation. Perhaps most important, widespread public debate over the past eighteen months is building a consensus on future development priorities. Moroccans realize that their economy must become more campetitive and their society more cohesive. Action has begun in several important areas, but a medium-term framework has yet to be finalized, particularly in such sensitive areas as budget reallocations, education reform, rural development and public sector reform. This agenda must be addressed in the coming months, even as the country prepares for its constitutional changes and subsequent elections. The World Bank's Response. Renewed support for economic reform while strengthening social and rural development and promoting new ways of doing business. The World Bank has always enjoyed excellent relations with Morocco, and we have fully participated in the recent public debates in preparing this Country Assistance Strategy. But the new economic environment and the large social agenda facing the country, coupled with the mixed results of our past assistance in this area, callfor a new business compact between the Bank and Morocco. This compact includes. * a new lending approach, with fewer traditional investment projects and renewed support for policy-based adjustment lending, * stronger social and rural development and poverty alleviation programs, accounting for at least one-third of our investment program and conditioning the volume of all our adjustment lending; * new instruments, such as guarantees, pilot projects, new International Finance Corporation (IFC) products, and a unique "connector" role that helps bring together Morocco's private sector and entrepreneurs from other countries; * outreach efforts, to enhance the public debate and build constituencies for reform; - iii - * increased partnership. especially with the European Union but also with the African Development Bank, the UN agencies and bilateral partners: and * establishment of a resident mnission. The Bank 's efforts will focus on four priorily areas consistent with the Government's reform agenda: encouraging more rapid growth, supporting increased social and rural development, strengthening environmental managenment, and reforming the public sector. The allocation of lending and non-lending services in each of these areas will be calibrated to reflect the progress achieved Progress on social objectives will be the fundamental determinant of Bank support, it will determine the overall volume of Bank support as well as the size of individual adjustment operations. Conclusion: Comnmitnment to reform is essentialfor fulfilling Morocco 's promise. It has become something of a cliche to talk of countries at the crossroads. Still, Morocco is undergoing a significant economic, political and social transition. Integrating with the global economy, developing greater pluralism in political life, and mitigating social disparities will require persistence, a strong commitment to reform, and continued support from the World Bank. In this context it seems that Morocco is poised for a qualitative change toward a more open society, politically and economically, ready to take its place in the global economy. This appears to be the direction set by the head of state, with support from a growing modern, dynamic and outward looking segment of society. The transformation faces many obstacles, however. In some cases progress may be blocked by concerns about social stability-yet genuine social stability will come onlyfrom social integration andjob creation, notfrom attempts to preserve old structures. Change and movement may involve risks-but given the country's poverty and social disparities, too slow a pace of change will entail even more risk. To improve the lives of its people and realize its economic potential, Morocco needs to move forward without delay. COUNTRY ASSISTANCE STRATEGY MOROCCO Country Context Economic Developments 1.0. Morocco has experienced two phases of economic development over the past ten years. In the first, the late 1980s, Morocco had the potential to become a successful emerging economy based on solid adjustment and stabilization. In the early nineties, however, economic activity slowed considerably, because of three severe droughts and reduced adjustment efforts. As a result Morocco's performance has fallen below that of comparator countries (Table 1). Although significant recovery now appears to be under way, efforts will need to be consolidated to recover lost ground. Table 1. Annual Growth and Export Performance, 1986-95 (Percent) 1986-90 1991-95 GDP Morocco 4.5 1.2 High-growth comparator countries a/ 8.5 8.3 Lower-middle income country average b/ 3.4 4.7 Exports Morocco 9.4 5.0 High-growth comparator countries a/ 13.6 18.2 Lower-middle-income country average bl 5.8 9.4 Malaysia, Thailand, and Chile; weighted average. b/ Excludes Eastern Europe and the republics of the former Soviet Union. Source: World Bank data. 1.1. In 1983 Morocco initiated an extensive adjustment and stabilization program with support from the World Bank and the IMF. This program had a dramatic effect on macroeconomic balances between 1984-85 and 1991-92: the budget deficit fell from 10.4 percent of GDP to 2.7 percent; the current account deficit dropped from 7.3 percent to 1.7 percent during this time. In addition, stabilization was accompanied by substantial growth in output and rapidly expanding exports. And with rising per capita incomes poverty went from about 23 percent during the mid- 1980s to 13 percent in 1991. 1.2. During this period, broad structural reforms also reoriented the economy from one with pervasive state controls to one relying mainly on market mechanisms. Key reforms included: - overhaul of the tax system including introduction of a value added and general income tax; - economic liberalization, including major reductions in protection levels as well as rationalization and liberalization of most government-regulated prices; - financial sector reform and liberalization of interest rates; - initiation of a successful privatization program; and - streamlining and reform of the business environment. 1.3. These efforts helped Morocco attract foreign investment once its external debt was rescheduled. Open policies-including current account convertibility for all investors and capital account convertibility for foreigners, a new investment code and the privatization program- boosted direct foreign investment to a high 2.8 percent of GDP in 1994, partly because of the large investment associated with the gas pipeline to Europe. - 2 - -2-~~~~~~~~~~ 1.4. Since the early 1990s, however, Morocco's economic performance has slowed, mainly because of unfavorable external events including severe droughts as well as sluggishness in Europe, its most important external market. As a result growth has slackened and urban unemployment has increased rapidly, reaching 23 percent in 1995. Meanwhile, poverty has increased significantly, possibly back to its level in the early 1980s. Poverty is essentially a rural phenomenon in Morocco, and the rural poor are particularly vulnerable to droughts. - GDP growth was negative during the drought years (1992, 1993 and 1995); - between 1992 and 1995 the fiscal deficit rose from 2.2 percent of GDP to 5.7 percent; - the current account deficit widened from 1.7 percent of GDP to 4.9 percent, leading to a reduction in the level of reserves; and - external competitiveness has been eroded, with the real effective exchange rate appreciating by about 15 percent since 1990. 1.5. Throughout this period, however, the Government has continued to pursue prudent monetary policies. Inflation has been kept in check because the Government has resisted financing the mounting budget deficits by printing money; domestic debt financing has been used instead. As a result domestic debt now amounts to 43 percent of GDP. 1.6. A strong recovery is expected for 1996. Thanks to abundant rainfall, GDP is expected to grow by more than 10 percent, led by a strong rebound in agriculture. Recovery has been accompanied by a renewed commitment to holding down the budget deficit (the 1996/97 budget targets a deficit of 4 percent of GDP before privatization; 2.5 percent after privatization proceeds are included), maintaining prudent monetary policies, and increasing foreign reserves to four months of imports, thanks to a recovery in foreign exchange eamings (especially tourism and remittances) and a reduced food import bill. 1.7. This short-term recovery remains vulnerable, however, and will need to be consolidated to form the basis for the sustained higher growth that is needed to ease unemployment and achieve rural and social objectives. Such consolidation will require higher savings and investment rates and improved external competitiveness. Figure I . Growth rates Figure 2. Fiscal and current account balances 80 0 8.0 4 C ... . .... .... 60.0- . 160 20 O 40 4.0 0 0 t 4 0 - 0 - 200 . i i:g 0. }000420 rs ................................ n29 35 1 , 8 1989 \ J, _ 199 5 0.? 0 0 45 0. _l I r-___!r't°° ap4.0/ '-20.0 2.19857 1989 i7 1989 1991 13 995 -40.0 ---4 ° -8.0 -60.0 -6 0 D . :. ~~~ Agricuture 1111111verallGDP -,*Trends(10-yearmovingaverage) - FsaDectCrntAout Figure 3. Public and private savings indicators Figure 4. Urban unemployment by age and gender 2 5.0 ......... .............. .. 40 .. -.-; 2 0.0 ,@3 o 7 5.0~~~~~~~~~~~~~~~~~~~~-. SD,00 C I ' 0 1 1987 1989 1991 1993 1995 0 - 60 - S .O- ---_~__. ~._ _ ...........................__ 25.0.0 40 U Pivae avigs Pbli Svins aI -3599 -3- Political Developments 2.0. The slowdown in economic performance, coupled with increasing unemployment, has prompted widespread public debate on economic and development policies. The Government has responded by resuming adjustment efforts, and King Hassan II has launched several broadly based initiatives to strengthen consensus and deepen the process of political opening. 2.1. Four events are worth highlighting: - in 1995, Morocco concluded negotiations with Europe on a free trade agreement, underscoring its intention to open up the economy to the rest of the world. More than just an economic objective, this agreement signifies a major departure for the entire private sector, until now still relatively protected; - that same year, the King released confidential policy notes, prepared by the Bank at his request, in an effort to broaden the debate on the development agenda, foster national consensus and provide renewed momentum to the reform effort; - in September 1996 a constitutional referendum put forward by the King received widespread support. This revised framework has introduced three important changes: a new two-chamber Parliament will be established, made up of a lower house elected by universal suffrage and an upper house elected by representatives of regional and local communities, professional associations and labor unions; regional administrations will be strengthened; and the Government will now set its development agenda in a broad development plan that includes a multiyear public investment program. Elections are scheduled for mid 1997; - the Government also has introduced measures to curb tax fraud and corruption, and concluded a "gentleman's agreement" with the private sector and a social pact with unions to ensure social stability during this period of renewed adjustment efforts and political opening. C*hallenges 3.0. The main challenge for Morocco over the next few years will be to establish a firm basis for sustained improvement in economic and social performance. Doing so will allow growth to eventually double to 6 percent, generate employment for a rapidly expanding labor force, and improve the living standards of the entire population. In this respect Morocco is no different from most developing countries. But to realize this goal, Morocco must come to grips with several unique challenges, including: the coexistence of a prosperous urban population and a rural society-half the population-that is poor, largely uneducated, and ill-prepared for the future; an economy that remains overly dependent on agriculture despite an accelerating cycle of drought; and a private sector that is expected to serve as an engine for modernization, employment generation and increased competitiveness, but that is still relatively conservative. 3.1. Morocco has shown that it can address challenges, undertake reform, and achieve economic progress. But given this new configuration of circumstances-a rapidly changing global environment and growing domestic disparities-the Government will need to articulate and put into action a decisive program of reform to deal with the country's structural weaknesses. 3.2. Growthfundamentals and competitiveness. There are several key issues: Internal constraints - the budget deficit is still too high. In addition, the structure of its expenditures is not growth- oriented and has become rigid: 24 percent of revenue is used to service interest on the public debt (equally divided between domestic and external debt), and 47 percent goes toward paying -4 - the wage bill. Public expenditures are inefficient and poorly allocated. Although declining, security-related expenditures still account for more than 6 percent of GDP; - domestic savings, at 15 percent of GDP, and gross investment, hovering around 20 percent, are far below levels in high-growth emerging economies (above 30 percent). Past investment has been inefficient, with an incremental capital-output ratio of 5.8 during the 1980s; - despite progress, the economy is not yet well diversified and remains extremely vulnerable to external shocks, such as droughts. There have been twenty nine droughts since 1911-an average of one every three years. Agriculture fluctuates between 10-20 percent of GDP but accounts for 40 percent of employment, and agro-industries make up about 30 percent of the industrial sector. Despite progress in irrigation, rainfed agriculture still accounts for 75 percent of agricultural value added. External environment - although Morocco is a relatively open economy-trade accounts for 60 percent of GDP- protection levels are still high, limiting international competitiveness and maintaining a significant anti-export bias. Tariffs (including a flat surcharge of 15 percent) on manufacturing goods average 40 percent, and imports of strategic agriculture products (wheat, sugar, meat, edible oils) are subject to rates in excess of 100 percent. As a result Morocco is producing agricultural goods in which it has little comparative advantage. Tariffs on manufacturing trade with Europe will, however, be reduced over a twelve-year period as part of the recently signed free trade agreement. Morocco has also agreed on a gradual reduction of trade protection in agriculture as part of its agreements with the World Trade Organization; - after strong export growth in the late 1980s, export performance has decelerated significantly in the 1990s, and MIorocco is losing market share in most of its traditional export segments. In addition, trade integration is slowing (Table 2). Exports are concentrated in low-value products with limited prospects-textiles and processed phosphates-and in slow-growing nmarkets-- almost 60 percent of exports go to Europe. Although services such as tourism have untapped potential, recent performance has been disappointing. Morocco has one of the world's lowest return rates of tourists; - finally, Morocco's external debt, although declining, remaiins high, at 70 percent of GDP. Some 30 percent of current account revenues goes to servicing debt. Table 2. Trends in World Trade Integration, 1986-95 Integration indicator 1986-90 1991-95 Trade growth World 6.3 6.4 Morocco 8.9 4.5 Speed of Integration World 2.6 3.7 Morocco 4.4 3.2 Source: IMF World Economic Outlook; speed of integration defined as growth rate of trade minus growth rate of output. 3.3. Social agenda. Morocco's social development agenda is enormous. Past growth has been concentrated in the Western coastal corridor, leaving rural areas behind in the development process. The resulting disparities have created a dual economy. Particularly worrisome, for both competitiveness and equity reasons, are the low levels of literacy and education (Table 3). Finally, one of the key challenges facing Morocco is its rapidly growing labor force (about 3 percent a year), since migration, which provided a safety valve in the past, has become increasingly constrained in host countries. Table 3. Comparative Data on Education Achievements Morocco Comparator countries Average years of schooling of the labor force 2.8 6.7a Primary school enrollment (percent) 62 102b Adult literacy (percent) 45 7__b Countries classified as "strong integrators" in the World Bank Global Economic Prospects, 1996. b/ Low-and middle-income country average. although high levels of public spending have been devoted to the social sectors, they have tended to favor urban areas. As a result social indicators in rural areas are comparable to those in Sub-Saharan Africa. A two-tier education and health system has emerged, offering good facilities for the urban middle class and poor or no services in rural areas; rural infrastructure is also deficient, particularly water, electricity, and transport. These weaknesses compound the problems of access to such basic services as schools and health centers, markets and job opportunities (Table 4); not surprisingly, the Bank's 1994 poverty assessment found a strong concentration of poverty in rural areas and a direct link between poverty and social problems such as low literacy, education and health indicators, and high fertility rates. Rural women suffer the most from these inequities (see also Box 1, later in this paper); slow growth, coupled with rural-urban migration, has been the main cause of increased urban unemployment. This situation is exacerbated by rigid labor laws favoring the already employed rather than flexibility and job creation. In addition, the social safety net is poorly targeted and underdeveloped. As a result the informnal sector has expanded rapidly. Table 4. Disparities between Urban and Rural Areas, 1990-94 Urban Rural Population (millions) 13.4 12.6 Number ofpoor (millions) 1.2 3.8 Percentage of households with drinking water 86 14 Percentage of population with electricity 81 10 Percentage of pregnant women who receive a prenatal home care 65 24 Percentage of pregnant women who gave birth at home 43 84 Female primary enrollment (as percentage of school-age population) 79 26 Overall literacy rate (population aged 10 and older) 63 25 Female literacy rate (population aged 10 and older) 51 II Sources: World Bank, Kingdom of Morocco, Poverty, Adjustment, and Growth (1995); and Kingdom of Morocco 1994 Census. 3.4. Natural resources management and the environment. Morocco is becoming a water-scarce economy, a scarcity aggravated by increasing pollution. Average rainfalls have been declining over the past fifteen years. Yet despite some recent progress-improvements in cost recovery, creation of a Ministry for the Environment and passage of the water law-the issue has not received the attention it deserves. - based on current resources and consumption, per capita water availability is likely to fall by 50 percent over the next twenty years. With irrigation as the main user (85 percent) in an agriculture sector that benefits from extensive protection, tax advantages, and subsidized water pricing, the country is not using this scarce resource efficiently. Water quality also has become an issue, with pollution increasing in all river basins; -6 - - other environmental issues, such as industrial and coastal pollution, are also emerging, and will worsen if not addressed early on. Moreover, the Ministry for the Environment is young; it needs institutional strengthening and improved coordination with other ministries. 3.5. Role of the state. Addressing these problems effectively and relaunching the reform effort decisively will require a strong and dynamic response from the Moroccan leadership and the public administration. Yet the central administration is excessively centralized, and local administrations are weak. One major obstacle has also been the segmentation of decision-making on economic matters resulting in long delays in reaching decisions. This fragmentation has been compounded by the absence of an agreed medium-term ,conomic program, as well as the inevitable conflicts among ministries in a constrained budget environment. - progress has been achieved in reducing the role of the state in productive sectors through privatization, but public enterprises still account for 12 percent of value added, and suffer from weak finances and large arrears, - despite consistent progress in enhancing the business environment, red tape, bureaucratic delays and a weak judiciary are still highlighted by the private sector as a major hindrance to investment; - with a wage bill accounting for 10-11 percent of GDP, the sheer size of the civil service is the key issue hampering the efficiency of the central administration. Although many higher-level staff are competent, the overall quality of administration is weak, with outdated budget procedures focusing on a priori controls and short-term objectives; - efforts to decentralize administrative power have been under way for sorne time, including sharing arrangements of the value added tax receipts, but local administrations remain underdeveloped. Addressing this issue should be a priority to avoid increasing bureaucratic layers. Implemented efficiently, decentralization could be crucial to the eventual success of rural development programs; - more importantly, Morocco will require a strong program of coordinated actions to address the above challenges effectively. This will require strong cohesion within the Government and society, along well defined development priorities. Development Goals and Reform Priorities 4.0. The Government is well aware of the challenges facing Morocco and has initiated actions to address them. Still, the development agenda remains large. Furthermore, the country is entering a new political phase. Thus even though there are signs of an emerging economic tuniaround and of stronger commitment to reform, the country is likely to remain in political transition for at least another year, until the new constitutional framework has been implemented and a new Parliament has been elected. The renewed commitment to reform, the clear signal given by the EU free trade agreement and the broad consensus reached on the main objectives should, however, ensure strong support for the development agenda outlined below. 4.1. Growth agenda and competitiveness. To resume growth and ensure competitiveness, policymakers must focus on two urgent priorities: deepening macroeconomic stability while strengthening growth fundamentals, and increasing external competitiveness and private sector development. (The third crucial element of the growth and competitiveness agenda, human resources development, is discussed in the next section.) 4.1.1. Deepening macroeconomic stability. Further reducing the budget deficit is the most urgent short-term priority to boost savings and investment. - as part of the recent Article IV consultations, the Government has discussed with the IMF how to mobilize resources to compensate for the loss of revenue resulting from the - 7 - EU free trade agreement (estimated at 0.3 percent of GDP a year for the rest of the decade); contain recurrent expenditures by limiting the wage bill and reducing food subsidies; and compensate for any deviations in expenditures within the budget; - in addition, the Government has set an ambitious target of balancing the budget (after privatization proceeds are included) by 2000 and is launching a number of programs to achieve that goal. These include tax reform, a broadly based public enterprise reform and privatization program, and a proposal to phase out remaining food subsidies and transfers; - the next step will be to prepare a medium-term deficit reduction plan based on a multiyear expenditure rationalization program. Three priorities will require careful attention: strengthen the growth orientation of the budget by protecting priority investment programs, an area somewhat neglected in the past; set clear targets for reducing the wage bill within the context of a broad public administration reform; and carefully review the financing of the budget deficit to reduce the stock of domestic arrears, balance internal and external borrowing requirements, and earmark privatization proceeds for debt reduction, public enterprise rationalization, and recapitalization of the pension fund. 4.1.2. Enhancing external competitiveness and private sector development. This is a complex and urgent agenda that will require coordinated efforts in several areas: developing macroeconomic incentives through consistent progress on stabilization and flexible exchange rate management; introducing a broad program to improve the business environment for private investment; deepening reforms to improve infrastructure services and financial markets; and upgrading competitiveness at the enterprise and sector levels. In addition, Morocco must diversify its markets and products by broadening the FTA provisions on a non-discriminatory manner to other countries and by promoting regional trade integration, such as through the Arab Maghreb Union. - in the past year, the Government has devoted considerable effort to improving the business environment: commercial and company codes were recently approved by Parliament, and various pieces of legislation on labor, prices and competition, and private participation in infrastructure (power, telecommunications and municipal services) are at an advanced stage. Collaboration between the private and public sectors is also improving; - the Government is committed to opening all infrastructure sectors to private investment and management, and concessions are being studied in sectors such as electricity, water, transport, telecommunications and industrial parks; - the Government is also reviewing plans to initiate an upgrading program at the enterprise and sector levels, while the private sector has taken the lead in identifying bottlenecks and growth strategies in such key strategic sectors as textiles, tourism, fisheries, and information/electronics. In contrast, little progress has been made in reviewing agriculture incentives, a crucial area for both the overall growth and rural income growth; - finally, although much has been accomplished in setting up a market-based financial system, additional effort is needed. The next stage of reform should aim at consolidating recent efforts, diversifying enterprises' access to financial services (bonds, the stock exchange), allowing capital account convertibility for residents, and reforming institutional savings to mobilize domestic savings and improve the efficiency of intermediation. - 8 - 4.2. Social development agenda. The Government's social agenda requires action on four fronts: education reform, health sector reform, rural development, and mechanisms to improve the flexibility of the labor market while strengthening the social safety net. 4.2.1. Education reform. Improving the human resources base through comprehensive education reform is a key priority not only for equity and social reasons but also to support future growth and competitiveness. - the first priority should be to increase access to and improve the quality of basic education, with a focus on rural women and girls. This goal should be achieved primarily through a progressive reallocation of budgetary expenditures from secondary to primary education. In addition, efficiency and cost recovery measures should be introduced, especially through a reform of tertiary education; - the program should also promote private participation at all levels of education and strengthen the ongoing shift in the provision of vocational training from the public to the private sector, while improving responsiveness to labor markets; - although there is general consensus on the need for extensive education reform and progress is being made on elements of this program, efforts may be proceeding too slowly to make the qualitative jump required in this crucial area. Speeding up the process will require considerable consensus-building, however, since this is a sensitive and complex undertaking. 4.2.2. Health sector reform. Sector efficiency will be addressed initially by: - reforming the hospital sub-sector to control hospital costs because of its large impact on the health budget (75%); - improving resource allocation and utilization, and targeting investments towards underserved areas (a process that has already started with the recently approved social priority BAJ project) and priority public health programs (such as maternal care or immunization). Resource utilization will also be improved by modernizing management practices; - addressing quality of care by several complementary actions (definition of quality assurance standards and personnel policies, revision of basic curricula of medical and nursing schools and rehabilitation of facilities); and - introducing new health financing schemes to improve the level of resources available to the sector and its equitable distribution. 4.2.3. Rural development and poverty reduction. Reducing disparities between rural and urban areas and easing rural poverty will require reallocating budgetary resources toward the provision of basic services in rural areas and improving agricultural productivity and rural incomes. After slow progress, there recently has been growing recognition of the importance of this issue, in part due to the impact of recent droughts and increasing urban migration. - the Government recently defined a number of programs aimed at accelerating infrastructure investment in rural areas: master plans have been developed for rural roads, electricity, and potable water, and, with Bank support, an integrated social sectors program is being initiated in the thirteen poorest provinces identified in the 1994 poverty assessment (the BAJproject). The challenge now will be to ensure timely implementation and adequate budgets for these programs while broader education and health reform programs are launched; - overall, however, the Government still needs to develop a coherent action plan to improve rural incomes on a sustainable basis, with the full participation of the - 9 - beneficiaries. Such a strategy should focus on three interrelated aspects: reviewing the overall incentive framework in agriculture, implementing priority infrastructure and services support programs, and developing institutional arrangements for implementation based on increased community participation, decentralization, and better coordination among the ministries concerned. 4.2.4. Labor flexibility and safety net. Reducing urban unemployment will depend fundamentally on success in accelerating growth. At the same time the Government must improve flexibility in the labor market and strengthen the social safety net. - the Government introduced new labor legislation this year, but it was stalled in Parliament. Since then efforts have been devoted to fostering a social pact between employers and unions. In addition, a review of employment and the informal sector is under way. Together these actions should lead to renewed consensus and new proposals over the next year or so; - in the interim, the Government should strengthen the social safety net to improve targeting and service delivery and to restructure social insurance, in parallel with current efforts aimed at reducing untargeted food subsidies. 4.3. Natural resources and environmental management. These efforts must be accompanied by improved environmental management to ensure the sustainability of growth. Environmental priorities include developing a concerted plan for natural resources management, particularly for water; implementing mechanisms for integrated environmental management in the most polluted zones; and institutional strengthening of the newly created Ministry of the Environment. In addition, the Government is reviewing its water pricing policies in agriculture and finalizing its environmental action plan, which should be ready in 1997. River basin authorities are also being established in the largest and most polluted basins. Provided these efforts lead -to quick implementation, Morocco could make good progress in addressing this sensitive issue. 4.4. Public sector modernization. An efficient public administration will be essential to the success of this broad agenda. Although efforts have been initiated in a number of areas, a comprehensive approach may soon be needed given existing budget constraints, the need to enhance public-private partnerships and the need to reorient fundamentally the way the administration functions. The new institutional framework proposed in the Constitution increases the complexity of this already broad agenda. - the Government has already made efforts to redefine the role of the state. Cumulative privatization proceeds total nearly US$1 billion, concessions are being developed in many utilities, and the Government is initiating a comprehensive review of public enterprises to increase financial autonomy and efficiency; - with regard to the central administration, the 1996/97 budget has imposed constraints on new hiring, and studies are underway to review the role and functions of the central administration. Reform initiatives have also been launched in various ministries, including the ministries of finance, energy, and public works, and in customs administration; - decentralization has also been on-going for some time; with the new Constitution and elections, movement in this area is likely to accelerate significantly over the next few years; - while these are all solid initiatives, what may be required now is a comprehensive review focusing on reducing the size of the central administration as part of a civil service reform program, modernizing budget procedures and investment planning, improving procedures for decentralization while strengthening the capacity of local administrations, and ensuring speedy implementation of the public enterprise reform and privatization agenda. Strengthening the judicial system is also of high priority to enhance private investments and operations. - 10- Prospects 5.0. Morocco has demonstrated strong commitment to sound economic management over the last decade, and is well positioned to undertake the reform agenda presented above. Provided it succeeds in implementing it speedily and consistently, it should be able to realize sustainable progress in promoting growth, equity and social cohesion in the next few years. However, realizing Morocco's potential will require decisiveness and increased cohesion along well-defined priorities as Morocco's development agenda is large and complex. 5.1. The projections below (Table 5) illustrate the possible impact of a proactive reform scenario along the lines outlined above. The reform effort would basically seek to repeat Morocco's performance in the late eighties. The projections assume rapid progress in three crucial areas: steady budget deficit reduction, implementation of a broadly-based competitiveness strategy, and an improved business climate leading to increased private investments. Progress on external competitiveness, public sector reform, privatization and concessions, and financial sector reform will be key. 5.2. While setting the stage for more rapid growth, complementary policies will need to be developed to reduce social disparities and strengthen the sustainability of the growth process. This will in particular require increased efforts towards social and rural development. In view of budget constraints, resources will need to come from decisive budget reallocations and improved cost recovery and efficiency measuires combined with comprehensive sectoral reforms, esp- ;ally in education, health and agriculture. At the same time, safety nets will need to be strengthened, based on improved targeting mechanisms. Table 5. Key Macroeconomic Indicators and Reform Scenario, 1996-2003 __ :_____::_____:: :::: :; (Percent) ___i:________________ 1986-90 1991-95 1996 1997-99 X 2000-03 Prelim. Projected Projected Rates of Change (% p.a.): GDP 4.5 1.2 10.3 4.0 5.6 Agriculture 8.8 -0.3 64.8 2.2 4.4 Industry 3.7 1.8 3.2 5.2 8.1 Exports 9.4 5.0 1.9 6.3 7.3 Ratios of GDP (%) Gross investment 22.7 21.7 20.4 23.6 27.0 o/w FDI 0.7 1.9 1.7 2.0 3.1 Domestic savings 18.4 15.6 14.5 17.9 21.3 Current account balance -1.5 -2.6 -2.3 -1.6 -1.3 Fiscal deficit a/ -5.7 -3.6 -4.2 -2.5 0.0 Debt outstanding 99.4 75.3 66.6 65.0 52.3 Debt service/exports 53.2 34.5 26.2 24.0 21.9 Source: World Bank i Fiscal deficit excludes privatization receipts. The Government's fiscal year changed from a calendar-year basis to a July l/June 30 basis in mid-1996. Data for 1996 refer to a reconstructed twelve-month calendar year. Data from 1997 onward are based on the new fiscal years. b/ Projections are based on a trend line. In the short term, Morocco's economic performance will continue to fluctuate with climatic conditions. - 11 - Bank Group Assistance Strategy Status of Current Program and Dialogue 6.0. The Bank has always enjoyed excellent relations with Morocco. However, the new environment facing the country, the need to forcefully resume the reform effort on a broad front and the persistence of strong social disparities, combined with our high exposure and the mixed results of our past efforts, clearly call for a new approach. 6.1. Past Bank assistance has been at a high level and wide-ranging, with commitments averaging US$425 million a year over the past ten years. Together with the IMF, the Bank has been a key partner in the Government's adjustment and stabilization efforts, especially since 1983. As a result the Bank's exposure is now quite high-the debt outstanding and disbursed is US$3.4 billion, or 21 percent of Morocco's public external debt. Debt service to the Bank amounts to just over 5 percent of exports. 6.2. In the light of this significant involvement, the Bank's Operations Evaluation Department recently completed a Country Assistance Review to assess the impact of the Bank's assistance efforts over the past ten years. The review found that the Bank's efforts had produced mixed results. The main conclusions of the review were that: - given the high volume of lending and analytical work, including a large proportion of adjustment lending (37 percent), the overall success of the Bank's strategy should be closely correlated with the Government's own success in adjustment and growth. In this respect, the overall effectiveness of the Bank's assistance program has been rated as mixed, since the Government's reform effort has been implemented gradually, major structural weaknesses remain after ten years of adjustment and growth remains too modest and erratic; - excellent support at the start of the adjustment program (1983) was followed by compromises between stabilization and adjustment objectives and then by over-optimism in the early 1990s. The Bank did help the country achieve a major improvement in its fiscal balance and break from past autarkic policies, but the report questions the sustainability of the reform program; - sector dialogue and individual project outcomes show much better results, with the exception of agriculture (mixed) and education (poor). Although ratings on project completion objectives and institution building rank above Bankwide averages, project sustainability is rated lower; - the main recommendations of the review are for the Bank to focus on structural fiscal issues and rekindle the process of public enterprises reform; restore momentum in the reform process; assist in strengthening human and physical infrastructure and in redirecting public spending towards the social sectors; and focus on Morocco's scarce water resources, all objectives in line with the proposed strategy. 6.3. Likewise, the results of the previous Country Assistance Strategy discussed at the Board in November 1993, have been mixed. Key priorities and achievements have been as follows: - progress has been most notable on the private sector agenda; a new financial sector adjustment operation was approved in July 1995 and considerable effort has been devoted to fostering consensus on private sector development over the past three years; - progress on the social objectives, however, remained slow. The integrated social sectors program (BAJ) was only approved in late FY96 after much delay; - the last CAS proposed an end to the adjustment effort; such a move was clearly premature. Based on solid portfolio performance in the late 1980s, the previous strategy also proposed a large shift in lending, with increased support for investment projects. This suggestion was also premature. Because of the reappearance of severe budget constraints and poor financia. - 12 - planning, portfolio performance has deteriorated since 1993. By June 1995 the undisbursed amount had reached US$1.5 billion, necessitating a major portfolio restructuring effort. 6.4. Faced with these challenges, a new approach was clearly needed. Following the appointment of a new Government in early 1995, the Bank organized a two-day seminar to prepare the new Country Assistance Strategy. The seminar was attended by key senior officials and was followed by discussions in the Fall on the main objectives for fuiture Bank support and in early summer 1996 on the detailed programming of activities. A societywide dialogue on development constraints and priorities also emerged in 1995. The widespread debate that followed the King's release of confidential Bank policy notes was supplemented by increased Bank participation in seminars, conferences, and discussions with the press. During FY96, progress was also made on the following fronts: - policy dialogue which had stalled, resumed and new projects were accelerated, especially in priority social sectors (the integrated BAJ project); and - the Government undertook a major restructuring of the existing project portfolio, resulting in the cancellation of about US$260 million in loans and the redimensioning of many projects. At the same time, budget allocations to Bank-financed projects were strengthened, leading to better disbursement performance. Business Framework 7.0. The key challenge for Bank assistance to Morocco is to increase our impact while carefully managing our exposure. To do so, we must prornote new ways of doing business, with a particular focus on partnership, new instruments, outreach efforts to build consensus, and institution building. At the same time we intend to resume policy-based lending to help accelerate the reform program and to strengthen support for social and rural programs. Our proposed business framework, fully discussed and agreed with the Government, is as follows: 7.1. New lending approach. Given our high exposure and continued budget constraints, this CAS proposes reducing traditional investment lending to about US$250-300 million a year. Doing so will provide room for renewed policy-based lending and new instruments, such as guarantees. Moreover, one-third of the investment program will be reserved exclusively for social and rural investments, and adjustment lending will be conditioned on progress towards agreed social objectives. Investment projects will be designed to attract additional cofinancing on concessional terms. Finally, the investment program will focus on local communities and autonomous agencies for implementation. 7.2. Partnership. The Bank values its close partnership with the Government achieved through open and candid dialogue. This partnership will continue as efforts are made to reach out to other segments of civil society. Additional efforts at partnership will receive attention: - first, the European Union has become one of the most important external players in Morocco, both in terms of policy and financing. The Bank is working closely with the EU and both agencies have coordinated their assistance programs to avoid overlap and to strengthen complementarities. For example, a Bank staff member will be located in Brussels to coordinate support to the private sector development agenda. In addition, increased coordination is being initiated with the African Development Bank and strengthened with the UN agencies; - second, although the Bank has always coordinated its Morocco assistance efforts with the IMF, this partnership will be reinforced given the need for renewed adjustment. Informal coordination is already in place to help the Moroccan authorities prepare a comprehensive medium-term economic program consistent with stabilization and growth objectives; and - 13- - third, the Bank is developing its "connector" role, facilitating contacts and exchanges between the Moroccan private sector and counterparts in Spain, Italy and other Mediterranean countries. 7.3. Institution building and community participation. Over the past few years a major effort has been launched to expand our dialogue and to build constituencies for reform. In addition, project designs increasingly incorporate beneficiary participation, especially in the rural and social sectors. Coordination with non-governmental organizations (NGOs) and local communities is, however, still at an early stage. Our future program will strengthen outreach efforts, -while maintaining our privileged dialogue with the Government. Particular attention will be given to working with NGOs, especially on issues relating to women in development (Box I below). To this end, efforts will be made to tap EDI resources for best practice, secure Institutional Development Fund (IDF) and Population and Human Resources Development (PHRD) grants, increase dissemination of analytical work through seminars (such as the recent seminars on globalization and on private provision of infrastructure), develop new approaches relying more on local inputs, and implement pilot projects. 7.4. Non lending services. Over the past several years, the Bank has devoted considerable resources to analytical work with mixed results. In the last year our strategy has been to complement fewer and better focused formal studies with informal policy notes and increased dissemination. Non lending services are highly valued in Morocco, and are crucial for building consensus and preparing reform programs. At the same time greater efforts still need to be made in using local expertise such as universities and communities and in improving dissemination. Efforts have also been made to connect Morocco with experts in other countries, including business networks in Spain and Italy and study tours in East Asia and Latin America. 7.5. Flexibility. As the Bank's interventions become more focused, care will be needed to keep our instruments flexible. The Country Assistance Strategy is a living document, and the political environment in Morocco is in transition. Thus we must build on areas where strong consensus exists while preparing the ground in more sensitive ones. In addition, during the next year we-Will prepare for discussions with the administration that comes into being following the elections. 7.6. Resident mission. In view of what is likely to be a massive agenda and a very critical role for the World Bank, the Government and the Bank recently agreed to open a resident mission in Morocco, to complement the IFC's representative office. The future responsibilities of the mission are currently under discussion with the authorities. Assistance Priorities 8.0. Priorities for Bank assistance closely reflect the country's development agenda outlined in Part I. Foremost among these will be focusing on a new growth agenda, based on an acceleration of reforms, as a means of addressing both urban unemployment and rural poverty in a complementary and sustainable way. Economic growth will, however, not be sufficient to correct the existing large social gap between urban and rural areas, and will therefore need to be accompanied by decisive reallocations in public expenditures and increased efforts within a constrained budget environment. For this reason, Bank assistance will seek to complement closely efforts at economic reforms and social development, both in terms of the volume and direction of its support. In addition, Bank assistance will seek to leverage additional concessional resources from other agencies to ease the existing budget constraints. The Bank Group's proposed assistance program, detailing our objectives, instruments, and monitoring indicators, is detailed in the attached business compact (Attachment I). - 14 - 8.1. Growth and competitiveness. Helping Morocco to resume forcefully its reform efforts to achieve strong growth and increase economic competitiveness will be a pivotal objective for the Bank over the next few years. The Bank's macroeconomic dialogue will be closely coordinated with the IMF and will focus on helping to reduce the budget deficit, while improving the budget's growth orientation and its capacity to deliver basic services. Support on the competitiveness agenda will be closely coordinated with the European Union. The joint IFC-World Bank program to strengthen private sector development is included in the proposed business compact. 8.2. Social and rural development and poverty alleviation. The second basic objective of the Bank, complementing support for economic reform, will be to strengthen the Government's social and rural development efforts to reduce rapidly the existing social disparities and to strengthen prospects for long-term growth. The Bank's main objectives will be to support concrete actions to reform education and health delivery; develop integrated rural development approaches by increasing rural investment, providing basic services, creating jobs, and fostering dialogue on the agriculture incentive framework; strengthen the social safety net; and stimulate employment generation by small and medium-size enterprises. Various projects are at advanced stages of preparation to support priority rural infrastructure programs. Analytical work and dialogue will be pursued on the most sensitive issues (integrated rural development and education reform) to foster consensus and accelerate implementation of practical approaches. Our proposed program on gender issues is outlined in Box I below. Box 1. Gender Agenda A key priority in the Government's social strategy and the proposed GAS will be to address the issue of the gender gap in Morocco. Despite consistent progress, women have been mostly left behind the mainstream of economic development in Morocco, especially in rural areas. - only 26 percent of rural girls attend primary school, and 90 percent of rural women are illiterate. Moreover, maternal mortality rates are high (330 per 100,000 live births), reflecting the fact that only 40 percent of births are attended by trained health personnel;, - while women account for 21 percent of the Moroccan labor force (reflecting a near doubling in participation rates since 1970), they are more vulnerable to changes in the labor market. Urban unemployment for women is nearly 50 percent higher than for met). * The Authorities recognize this problem, but efforts to address it have been slow and scattered. The Constitution recognizes equality between men and women, but women's participation in politics and positions of responsibility remains low, and women's associations are only now emerging. * Bank efforts to improve opportunities for women have so far been focusing on three area;s: understanding the constraints and priorities facing rural women through participatory analytical work (FY95); emphasizing rural infrastructure projects (such as the provision of rural roads and potable water) because of the immediate impact such projects have on enrollnent of girls; and developing integrated approaches in rural areas, such as the social priority (BA]) project, with a focus on schooling for girls (through, among other things, the provision of special facilities). * The Government recognizes that a more systematic approach will be needed in the future to make a qualitative difference and has asked for Bank support in this endeavor. To this end, we are proposing the following approach: - first, accelerate basic rural investments which impact on girls'education, with particular focus on the provision of potable water; - second, incorporate specifically gender issues in all our social and rural development projects, together with new approaches (such as micro-credit and social funds); - third, initiate a strategy note on gender issues, developed in a participatory way with women's associations and Government agencies, to help focus Government's efforts and define further avenues for Bank support, and - fourth, incorporate analysis and recommendations pertaining to women's integration in all major economic and sector work, in particular in the on-going studies on the rural development strategy and the employment and informal markets. - 15- 8.3. Natural resources and environmental management. A third priority is to continue to strengthen environmental management and integrated water development. The Bank will help keep this issue high on the Government's agenda through consensus building, institutional strengthening and pricing reform, as well as by strengthening integrated water management in the most important river basins. 8.4. Public sector modernization. Finally, our fourth priority will be to support public sector reform, an area that is increasingly recognized as central to Morocco's development agenda. Our efforts will focus on three areas: encouraging privatization and resuming support for public enterprise reform; increasing efficiency of the civil service administration; and supporting decentralization. Our support will, however, depend greatly on the Government's commitment to reform in this area, as well as on the arrangements that emerge under the new constitutional framework. Although there is consensus on the broad agenda for public enterprise reform and privatization, plans to increase public administration efficiency and phase in decentralization are still evolving, and strong analytical work and commitment are still needed. 8.5. In keeping with the breadth of the development agenda, the Bank's assistance program is broadly based. To relaunch the reform process, two quick-disbursing operations have been identified with the Government: a second financial sector reform operation and support for privatization and public enterprise reform. Processing these operations will not only require accelerating the pace of reforms, but also achieving tangible progress in implementing priority rural and social programs. Instruments 9.0. The Government expects continued strong Bank Group support during this period of renewed reform efforts. Although the financial resources available will be limited by our high exposure, the Government will continue to seek our advice, take advantage of our ability to catalyze financing for priority investments, and depend on our support in the design and implementation of policy-based operations. Demand is growing for non-lending services, including seminars and institution-building in new areas (such as concessions and privatization), pilot projects to foster local participation and to support informal sector activities, and new instruments to support private investment in large infrastructure projects (such as guarantees and IFC participation). The proposed program will draw on all the instruments available to address the priorities agreed with the Government. Lending program 9.1. Base case lending program. US$1.0 billion over the next three years. - investment lending amounting to US$750 million (about US$250 million per year) with at least one-third of the investment program earmarked for social and rural development; - one US$50-75 million quick-disbursing policy-based operation, in support of public enterprise reform; - one US$180 million guarantee operation for the Jorf Lasfar power generation project. This operation is relatively well advanced and would help catalyze more than US$800 million in commercial bank and Export Credit Agency financing; - Triggers. The base case lending program assumes: (i) continued improvement in macroeconomic indicators and competitiveness monitored in close coordination with the Fund; (ii) consistent progress on the implementation of priority social projects (the BAJ in particular); and (iii) strong progress on public enterprise reform, including a significant opening of infrastructure to private investment. -16 - 9.2. High case lending program. US$1.5 billion over the next three years. - US$750-900 million (US$250-300 million a year) toward investment lending, with one-third of the program reserved for social and rural development; - adjustment lending increased to US$300-400 million over the three-year period in support of two or three quick-disbursing policy-based operations for financial sector reform, public enterprise reform, and possibly public administration modernization or social sector reform; - guarantees totaling US$300 million; - Triggers. Detailed triggers and monitoring indicators are provideed in Box 2 below. The overall volume of lending and the size of each adjustment operation will depend on both the magnitude of the reform effort an progress towards agreed social objectives. 9.3. Low case lending program. US$780 million over the next three years. - investment would be cut to US$600 million over three years, with focus on social and rural programs; - no guarantees beyond the US$180 million under discussion for independent electricity production; - Triggers. Such limited activity would be triggered by: (i) a macroeconomic situation that remains fragile-but not in crisis-with slow progress on implementing policies that are fundamental to growth; and (ii) limited progress on solving structural issues as reflected in delays on concessions, on the legislative agenda and on the liberalization of infrastructure services. Progress on social objectives would be supported by our project pipeline. - In the unlikely case that the macroeconomic situation were to unravel, the lending program would be reduced to a minimum ($100 million a year), focusing strictly on the social sectors. 9.4. IFC program. - in 1992, Morocco became the IFC's tenth-largest client. Since then, however, demand for IFC's services has declined, because of the foreign exchange exposure of its client enterprises. The IFC and the Bank are working with the Government to develop a flexible foreign exchange market, which should alleviate this problem over time; - technical assistance from IFC has focused on capital market development. In addition, FIAS has provided assistance to improve the environment for foreign direct investment; - key priorities for the next few years include developing the domestic capital market, opening up infrastructure to private investment, and continued assistance from FIAS on investment promotion, as required. 9.5. MIGA Program. - although Morocco has been a full member of the Multilateral Investment Guarantee Agency (MIGA) since 1992, investor interest in MIGA's guarantees has been limited. With the increasing focus on private provision of infrastructure, this interest is now growing. MIGA is, for instance, reviewing a guarantee operation for the Jorf Lasfar power generation project to complement the Bank guarantee requested, as well as other projects in the manufacturing sector. Box 2 - High Case Lending Triggers Measures Monitoring Indicators/Expected Outcomes Macroeconomic Managementl * Monitoring of key macroeconomic indicators as per table 5, includiig * Budget deficit reduced by about 1% of GDP per year, and amounting to less consistent budget deficit reduction and expenditure reallocation than 2% of GDP by 2000; (including reduction in the wage bill); and * Public wage bill declining by 2% of GDP by 2000 (to below 9% of GDP); * Implementation of a comprehensive competitiveness program. * Current account balance reduced to below 2% and debt service to 25% of GDP by 2000; e Export growth increasing from 5% to 7% per year by 2000. Key Economic Reforms * Public enterprises - institutional and legal framework to strengthen financial autonomy; . PE value-added reduced from 12% to 8% of GDP by 2000; - completion of the on-going privatization program (114 PEs) and * Foreign direct investment increasing to 2.5% of GDP by 2000; launching of new program; and * Concessions in place in power generation, telecommunication, transport and - framework for private provision of infrastructure services and municipal services (water); concessions. * [number of privatization deals and value, and level of transfers to/from PEs being worked out as part of project preparation]. * Financial Sector - reform of the pension system; * [specific indicators being developed as this would be a far reaching and - restructuring, liberalization and modernization of the insurance sector phased process]; in line with EU standards; * Objective would be to increase domestic savings to at least their previous - reform of savings banks and institutions; and leveis (18% of GDP by 2000) while improving the sustainability of the - strengthening of capital markets. pension system. Rural and Social Development * Timely implementation of the BAJ project, with annual budget *BAJ: rural girls enrollment to increase from 35 to 70% in the 13 BAJ allocation of at least US$40 million in 97/98 and US$50 million per I provinces, and basic health coverage from 47% to 60% of rural population year thereafter; by 2000; * Implementation of a rural water program to increase rural coverage * Rural water: new water connections to 250.000 people in 97/98; 500,000 in from 14% to 80% of the population in about 10 years; annuai 98/99, and 750,000 per year thereafter; financing needs estimated at around US$75 million per year with . Education: enrollment in basic education increasing from 3 to 3.5 million by budget allocation of US$30 million per year; 1 2000, with enrollment of rural girls increasing from 450,000 to 700,000; * Preparation of a multi-year public expenditures and reform program in * Health: access to basic health centers increasing from 1/10000 to 1/7000 by education and health by December 31, 1997. 2000 with particular focus on assisted deliveries (from 18 to 30%) and contraceptive prevalence (from 35 to 45%). - 18 - Non-lending Services 9.6. Formal economic and sector work will become more focused than in the past, to make room for informal policy and strategy notes, institution building efforts, and dissemination. The Bank will focus on two formal pieces a year: an employment and informal sector study, and an integrated rural development strategy for FY97, to be followed by an environment strategy and action plan, and a new CEM focusing on progress in the reform agenda and the role of the public sector for FY98. A strategy note will also be prepared on issues relating to women in development. Further analytical work will depend on the Government's priorities and progress in our policy dialogue. Action plans for education and health, the social safety net, and decentralization would receive high priority. 9.7. Non-lending activities will also encourage networking with other countries to share successful experiences and strengthen partnerships, as well as promote participation of local experts and hands-on assistance (such as on investment programming) to reinforce local analytical and planning capacities. Finally, efforts to consolidate partnerships with the private sector will continue through the Private Sector Development Committee (PSD) established in Morocco in 1995 and a series of "'cluster "studies, as will efforts to extend support to local think tanks, NGOs and women's associations. 9.8. EDI. The EDI program seeks to reinforce our overall policy dialogue in the country and has been developed in ciose coordination with the Region, along two broad lines: regional efforts to foster a network of local economic institutions; and country-specific seminars based on the priorities outlined in the CAS. Annual regional events will focus on education reform, health care financing, governance and fiscal decentralization, and banking for the poor. Some of these will be grouped as part of Mediterranean Development Fora, the first one to take place in Marrakech in May 1997. In addition, two Morocco-specific seminars will focus on community-based develooment and financial market reform. Portfolio MUanagement 9.9. Past operations have generally had a positive impact, thanks to strong implementation capacity in technical ministries and good project design. The sustainability of these operations is less evident, however. Two sectors show consistent problems: education, where results are poor, and agriculture, where they are mixed. This is the general conclusion of the recent OED review of 24 projects out of a portfolio of 57 loans approved over the last ten years. A broad summary of the OED evaluation is given below: - 89 percent of projects show a satisfactory outcome (above the 70 percent Bank average); - 49 percent will likely have sustainable benefits (below the 56 percent Bank average); - 56 percent would support substantial institutional development (above the 39 percent Bank average); - by contrast, education and health projects had a 22 percent satisfactory outcome, compared with a 66 percent Bankwide average. 9.10. In terms of our active portfolio, after slow deterioration in FY92-95, the Government made a major effort in the course of FY96 to review and restructure its entire Bank portfolio. This effort made considerable progress in several areas: - about US$260 million of the portfolio has already been cancelled, and additional cancellation requests are pending. Not surprisingly, most of the cancellations took place in education and agriculture; - 19- - thanks to better budget allocations, disbursements increased steadily, from US$223 million for investment projects in FY95 to US$485 million in FY96 (US$335 million for investment projects). These adjustments raised the disbursement ratio from a low 11 percent of outstanding balances in FY94 and 14 percent in FY95, to 23 percent at the end of FY96 (Table 6); - the number of projects at risk was reduced from six to four at present (about 15 percent of the portfolio); - based on actions taken and contemplated for the remainder of FY97, the disbursement ratio is expected to continue to improve to 25 percent of outstanding balances. The number of projects at risk is expected to remain at its current level (see Table 6). Table 6. Portfolio Status FY95 FY96 FY97 Number Share Number Share Number Share (percent) (percent) (percent) Total projects 28 32 29 Investment projects 27 30 27 Development. objectives Problem projects 2 7 4 13 2 8 Implementation objectives 6 Problem projects 6 21 6 19 4 15 Projects at risk 6 22 - 20 4 15 Disbursement ratio (percent) I__ 14 23 25 9.11. Despite this improvement, progress remains fragile. Budget constraints and cumbersome budgetary procedures likely will continue for some time, necessitating constant monitoring. To alleviate the direct burden of Bank borrowing on the budget itself, a larger share of total lending will be channeled to autonomous agencies, while the ongoing review of budgetary procedures should gradually facilitate expenditure management. In addition, there is still ample room for improvement, especially in project sustainability. As a result new project concepts based on participatory approaches and beneficiary assessments have been developed, especially in the social and rural sectors. The BAJ, for instance, was developed with regional administrations and seeks integrated approaches to improve sustainability. The Bank also has developed a portfolio improvement plan, shared with the authorities, and will continue to place implementation issues high on its agenda through annual implementation reviews. These reviews will continue at least until the resident mission is fully operative, at which time it will replace Washington-based monitoring. 9.12 The proposed lending program (Attachment I) seeks to balance projects that have an expected high risk/reward ratio with more simple and focused projects with targeted impact. Support for the education and public enterprise reforms belongs to the former group of projects, while support for the railway and the rehabilitation of historic Fez belongs to the latter. Pilot projects will also be developed in new areas (rural development, microenterprises credit) to test new approaches and to facilitate wider scale replication. 9.13. Given recent budget cuts and competing claims on regional resources, a key challenge will be to deliver an expanded program with fewer resources than in the past (about 20-25% reduction compared to FY95-96). This will come from a redirection/reduction in traditional economic and sector work and increased efficiency in delivering new projects while protecting supervision activities. Funding for the resident mission is still under review given its large up-front cost. - 20 - Donor coordination 9.14. Although no formal consultative process exists, the Bank closely coordinates with other financing agencies, and most Bank-financed projects are cofinanced. Informal donor coordination will remain an essential element of the Bank's assistance program, both to harmonize support for the Government's reform effort and to secure concessional financing for priority social and rural programs. In addition, Bank efforts will also focus on supporting foreign direct investment flows through specific operations and continued improvements in the business environment (Box 3). - increased coordination with the European Union will be a key priority, given its increased scope for financing under the Mediterranean Development Assistance (MEDA) initiative and its emerging dialogue on external trade arrangements and support measures, as part of the free trade agreement; - cooperation is also being strengthened with the African Development Bank. AfDB is expected to cofinance the two policy-based operations under preparation, in addition to various investment projects; - increased cooperation is also being developed with the UN agencies, especially in the social sectors, where they concentrate most of their activities; - relations are also excellent with bilateral agencies, based on continued informal contacts. The Government has often sought technical assistance from bilateral agencies to complement policy-based lending by the Bank or to finance priority projects under broad sectoral frameworks, especially in the social sectors, where it places a premium on concessional funding and where the Bank acts as a "gap filler"; - finally, the Bank uses a host of financing sources for project preparation, especially Japan's Population and Human Resources Development grant facility. Box 3. Foreign Assistance * Gross borrowing requirements on concessional terns will remain large given Morocco's high debt service and limited access to capital markets. In addition, continued external support will be required for priority Government programs. Gross borrowing requirements have averaged US$1.6 billion a year since the early 1990s, although net transfers have been marginal. * Over time, a progressive shift has taken place from bilateral to multilateral support, with the Bank accounting for about 25 percent of gross disbursements. * In addition to the Bank, the main external donors are: the European Union and European Investment Bank (ECU450 million grant program agreed over the next three years to be matched by soft loans and equity participation from EIB); the African Development Bank (annual program of about US$150 million); France (US$200 million annually, with half from the Treasury and half from the Caisse Fran9aise de Developpement); Japan (recent agreement to increase its annual assistance program to US$200 million); and Germany (US$50 million per year). Together, these agencies provide nearly US$1 .2 billion a year in official assistance. In addition, France and Spain recently agreed to debt conversion operations, through debt to equity swaps. * Given the large growth in private flows to developing countries and the likely continued budgetary pressures in donor countries, Morocco aims to attract much more private foreign investment. Given its high external debt, Morocco's access to capital markets is likely to remain somewhat constrained and expensive until a strong track record has been established on the refonn program and on foreign direct investment. - 21 - Exposure 10.0. The program described above seeks to stabilize the Bank's exposure while increasing quick-disbursing support. Policy-based lending will, however, be conditioned by strong progress on the fiscal and competitiveness fronts, together with steady progress on social and rural development. 10.1. The financial impact of the proposed program on expected flows and exposure, based on the high-case scenario, is summarized in Tables 7 and 8 below. Morocco's external debt remains high as does the Bank's exposure in that debt. A prudent strategy and careful monitoring of reform are essential. The Bank's exposure is, however, manageable: - Morocco has long been committed to prudent economic management and appropriate corrective measures; it also has always been current on its debt servicing obligations; - the EU free trade agreement will provide increased credibility to the Government's reform program, and efforts are under way in many areas to relaunch the reform process; - although high, the extemal debt is steadily declining relative to GDP and exports. In addition, Morocco will be relying increasingly on foreign direct investment (and partly on grants from the European Union). 10.2. Our high case program (Table 8) would broadly stabilize our exposure over the next three years; all exposure indicators show continued improvement, even under moderate economic projections. The base case lending program would reduce gross disbursements faster (net disburs'.ments would decline to -US$60 million in FY98, to-US$100 million in FY99, and to - US$140 million FY00). Table 7. Net Lending by the World Bank, fiscal 1991-2000 (millions of US dollars) Average Actual Estim. Projection 1991-93 1994 1995 1996 1997 1998 1999 1 2000 Commitments: 467 412 58 540 480 500 500 500 Investment 467 412 58 290 300 300 300 300 Guarantees - - - - 180 50 50 100 Adjustment 170 - - 250 - 150 150 100 a/ Gross disbursements 401 311 232 485 360 370 406 380 Repayment 260 292 333 344 372 388 406 408 Additional Repayment b - - - - 18 23 28 38 Net disbursements 140 19 -102 141 -12 -18 0 -28 Interest and charges 248 264 279 275 267 264 262 261 O/W: Guarantees - - - - 0.3 0.8 1.2 1.5 Net transfers -108 -245 -381 -134 -279 -282 -262 -289 - 22 - Table 8. World Bank Exposure, calendar 1994-2000 1994 1995 1996 1997 1998 1999 2000 Total debt outstanding and dis- bursed (US$ billions) 22.5 22.7 22.3 22.7 23.1 23.2 23.2 IBRD 3.7 3.7 3.7 3.8 3.8 3.8 3.9 Guarantees - - - 0.2 0.2 0.3 0.4 Exposure ratios: IBRD debt service/exports (5%) 5.9 5.6 5.4 5.2 4.9 4.6 4.2 Incremental IBRD DS/exports b/ - - - 0.1 0.2 0.2 0.2 IBRD DS/public DS (20%) c/ 21.8 19.5 20.9 21.2 22.5 19.2 18.9 Increment. IBRD DS/pub. DS b/ - - - 0.6 0.8 0.8 1.1 Pref. Cred. DS/public DS (35%) 37.7 34.2 35.9 35.4 38.5 33.3 33.3 Share of IBRD portfolio 3.2 3.5 j 3.2 3.2 3.2 3.1 3.1 In FY00, the high case lending program is likely to include either sector lending approaches in the sooial sectors or continued support for public enterprise and/or administrative reform. b/ Assumes performanice or credit guarantees lasting ten years and callable any time, with 0.4 percent fees (if guarantees are called, the face value of the amount covered falls due immediately). C, Exposure indicators for IBRD and preferred creditors improve substantially from 1999 onward because of large repayment of rescheduled commercial debt principal Risk M'anagement 11.0. Morocco's development agenda is large and the country is in a stage of political tiansition. There are three rnain sources of risks which may affect the effectiveness of our proposed program: delays in undertaking the reforms required to promote high growth-this would increase urban unemployment and further exacerbate social problems; delays in increasing social and rural development efforts in tandem with economic reforms-this would widen the social gap between urban and rural areas; and deterioration in external competitiveness due to policy reversals or slow adjustment-this would prevent the Bank from stabilizing its exposure. These risks should be evaluated against the potential rewards of our proposed strategy. I 1.1. The above risks are significant as the country is undergoing a political transition. However, we feel that they are manageable as a national consensus has emerged on Morocco's development agenda. In addition, since the mid-eighties, the Government has shown a solid track record in macroeconomic management. Finally, the EU free trade agreement has locked in the reform program. Nevertheless, over the next few years a strong dialogue will be needed to ensure steady implementation of the reform program. 11.2. The proposed assistance program has been tailored to mitigate these risks. It seeks to balance macro and sector reforms, earmarks specific assistance for social and rural development programs and conditions high case lending to progress on economic reforms and social objectives. Moreover it aims to strengthen consensus in sensitive areas through increased analytical work, dissemination and pilot activities. The proposed program has been developed in close consultations with the Government and discussed widely in Morocco; the Bank's assistance will help consolidate the emerging consensus on development priorities and assist in translating it into a specific program of actions. 11.3 Progress will, however, need to be closely monitored in view of our relatively high exposure and the country's vulnerability to external shocks. Our macroeconomic dialogue will be reinforced through regular joint reviews with the IMF and as part of our proposed policy-based - 23 - operations, and our lending program will be adjusted to the pace of reforms and progress toward social objectives as per the specified triggers (see Box 2 above). Performance Monitoring 12.0. The Bank Group strategy seeks to support accelerated and broadly based reforms during a period of econoirmic and political transition. The strategy should be judged as having been successful if, within three years, substantial progress has been achieved in articulating and implementing a comprehensive economic and social program along the lines identified in this document. 12.1. The next three years will be a transition period toward renewed and sustained growth. Thus success of the Bank's strategy should be judged against policy advances rather than immediate econoinic outcomes, especially as Morocco's short-term performance is highly dependent on external factors. Specific objectives and performance indicators are included in the attached business compact (Attachment 1). Success of the proposed strategy should be measured against: - progress in reducing the budget deficit, in reallocating expenditures and in developing a business environment conducive to economic and export growth; - speed of implementation of social programs and rural development, and progress achieved in reducing the gender gap; - achievements in environmental management, especially in establishing river basin authorities and in water pricing; and - success in initiating and implementing a broad public sector refcirin aid in maintainirig the momentum of private sector development. Agenda for Board Discussions 13.0. The Board may wish to focus its discussion on the follovving issues: - the CAS's sectoral priorities and the balance between macro and sector approaches in the pursuit of sustainable poverty reduction; - the risks to the Bank relative to the rewards that the CAS program may bring; and - the triggers proposed for the alternative lending program, in particular those related to social issues. James D. Wolfensohn President Attachments Washington, D.C. January 8, 1997 Attachment I KINGDOM OF MOROCCO World Bank Group Business Compact FY97-99 Contents 1 Overview 2. Growth and Competitiveness 3. Social Agenda 4. Environmental and Natural Resources Management 5. Public Sector Modemization Attachments 1. Summary World Bank FY97-99 Program 2. IFC Program 3. EDI Program 4. Joint World Bank/IFC PSD Agenda - I - 1. Overview Key Objective: Reduce poverty through: - resumed broad-based reform effort to promote growth, reduce unemployment pressures and speed up world integration; and - major complementary effort to strengthen human resources development and to reduce the social gap between urban and rural areas. Areas of Intervention: -growth and competitiveness: deepen macro stabilization, improve budget composition, and accelerate private sector development; - social agenda: implement programs to improve basic services in poorest provinces; launch major effort in rural infrastructure to reduce existing social gaps; and support dialogue on education reform, coverage of health services, safety net efficiency, integrated rural development, and gender issues; -environmental management: promote consensus and awareness, and strengthen integrated water management; -public sector modernization: accelerate public enterprise reform and privatization; reduce wage bill; initiate dialogue on public administration reform, and support decentralization. Instruments: -resume policy-based lending; -reduce traditional investment lending while strengthening our pipeline on rural and social development; -promote new instruments and new approaches, such as guarantees and pilot projects in new sectors of intervention, -broaden dialogue and dissemination of analytical work; -continue active portfolio management; -increase partnership, especially with EU, AfDB and UN agencies; and -open a resident mission. Indicative Programs: -Base Case: US$1.0 billion over three years in lending and guarantees; -High Case: US$1.5 billion, including increased policy-based lending; high case contingent on progress in economic reforms and social objectives; -Low Case: US$780 million, focusing on investment lending and one guarantee, -IFC: increase in lending and equity participations over US$100 million per year, -MIGA: US$50 million being considered for the Jorf Lasfar electricity generation project. Monitoring Indicators: the country would have emerged from its current transition with a stronger reform program on a broad front with the following overall results: (i) more sustainable macroeconomic balances, characterized by a low overall budget deficit, accompanied by a resumption in economic dynamism (exports and FDIs); (ii) vigorous implementation of priority social development and rural infrastructure programs, with agreement on the main directions of education and health reform; (iii) continued progress on environmental and natural resources management, with establishment of key river basin authorities; and (iv) initiation of a major public sector reform, with accelerated privatization, a more flexible budget structure through a rationalization of the civil service, and continued decentralization. - 2 - 2. Growth and Competitiveness Objectives: * improve internal and external balances, with focus on budget deficit reduction and composition of expenditures; * improve external competitiveness through the implementation of a broad-based prograrm . promote private sector participation in infrastructure services; and * deepen the financial markets, while reforming institutional savings institutions to promote savings. Instruments: * continued dialogue, in close coordination with the IMF, on the macroeconomic program, with hands-on assistance on medium-term planning and programming; * dialogue on the business environment through a study of unemployment, labor markets and the informal sector, and support of public/private partnership (PSD Committee); * support for vocational training and for infrastructure improvements, through active promotion of private provision, guarantees and IFC participation, with focus on power, telecommunications, industrial estates and transport, and the establishment of a pilot infrastructure fund; * joint support with the EU on a broad mise a niveau program of enterprises, and with close participation of the private sector (cluster study); * support for continued financial sector reform, through a possible quick-disbursing loan focusing on institutional savings and continued IFC assistance on capital markets development and mortgages; * dialogue on agriculture incentive framework as part of an integrated rural development strategy; . pilot operations to support micro-enterprise promotion and micro-credit; * the detailed joint IFC/WB program to support private sector development is attached. Monitoring Indicators: Outcomes . near balanced budget -- fiscal deficit below 2 percent of GDP; and public external debt service below 25 percent of exports by 2000; * exports resuming their growth level of the late eighties (7 percent by 2000); * increased private investment, with foreign direct investments amounting to 2.5 percent of GDP- * domestic savings to reach 18 percent of GDP; * consistent progress on macroeconomic management and external competitiveness; . implementation of commercial and competition legislations, passage of new labor legislation and regulatory frameworks for private participation in place, in power, telecommunications and ports and concessions initiated; * implementation of reform of the pension -system and postal savings, establishment of a market- based municipal finance system, and progress in establishing a fully developed foreign exchange market, . agreement on framework to reduce trade protection on "strategic" agricultural commodities. Indicative WB lending program: * about US$180-300 million in guarantees; US$100 million in IFC participations; and US$175- 300 million in lending over the next three years including a possible quick-disbursing policy-based operation to support financial sector reform. - 3 - 3. Social and Rural Development Obiectives: * achieve consensus on education reform, including budget shift towards basic education, . reduce substantially rural/urban and gender gaps through improved access to basic social services. infrastructure and job creation, with increased community participation; * improve targeting and effectiveness of social safety net and support for the informal sector, * ensure increased public financing for basic health services and adequate health coverage for poor and rural populations. Instruments: * continuing dialogue on education reform through technical preparation of reform options (PHRD and IDF), seminars, and possible lending depending on progress; * two-track rural development strategy: (i) strong support for infrastructure development in key sectors, such as potable water and rural roads, and for improved delivery of basic social services and employment programs; and (ii) analytical work and dialogue on integrated rural development, including review of the agricultural incentive framework, with pilot projects to test new approaches; * support for low-income housing approaches to follow on successful past projects and dialogue as part of recently completed sector work; * initiate reform of the safety net through new approaches (social fund) and programs for the informal sector (microcredit); * support for systemic reforms in hospital management and health financing; * preparation of a strategy note to highlight gender policy issues. Monitoring Indicators: Outcomes * implementation of agreed action plans to reach near-universal access to primary education, potable water and basic health care by 2010; * appropriate programs in place to increase enrollment of rural girls in primary education from 26 percent to 40 percent, and rural access to potable water to 40 percent, by 2000. * adequate budgetary allocations in place for priority programs in potable water and basic social services (see Box 2 in main text); * in 13 rural BA.1 provinces, girls' enrollments increase from 35 to 70 percent and basic health care coverage increases from 47 to 60 percent; * consensus on education reform objectives, with spccific efficiency and expenditure measures and programs developed for each level of education; * consensus on measures to strengthen hospital management and restructure health financing; * consensus on integrated rural development strategy; * development of targeted social assistance and income-generating programs for the poor. Indicative WB lending program. * about US$350/400 million for the next three years; US$100 million per year exclusively reserved for rural and social programs. - 4 - 4. Environmental and Natural Resources Management Objectives: * continue to support institutional strengthening and awareness and assist in completing the national environmental action plan; * promote integrated water management, especially in key river basins; and * continue to improve water pricing. Instruments: * support for the national environmental action plan, awareness of environmental issues, and water pricing policies through sector work, policy dialogue, seminars and on-going projects; * support for integrated management of water resources through the establishment of decentralized river basin authorities, starting with Oum-er-R'bia, and pilot projects supporting sustainable watershed management protection; * support for improved control of the worst polluted zones with emphasis on quality monitoring, stakeholders involvement and financial sustainability, starting with the Sebou river; . promotion of sustainable fisheries resources through the use of trust funds and IDF grants, and of solar energy and Mediterranean pollution (regional project) through GEF funding; * continued promotion of sound environmental analysis in all public sector projects; and * promotion of integrated approaches to urban rehabilitation, focusing on urban poverty, environment and cultural heritage in Fez. Monitoring Indicators: * completion of environmental action plan, using participatory approaches, * regulatory frameworks in place for water and environment; * establishment of river basin authorities in Oum-er-R'bia and Sebou; and * continued progress on water pricing, so that water charges cover at least all O&M costs in all irrigated perimeters (from 50-80 percent at present). Indicative WB lending program: * About US$125/150 million over the next three years. - 5 - 5. Public Sector Modernization Objectives : refocus and strengthen the role of the public sector, through * resumption and acceleration of public enterprise reform and privatization, * dialogue on public administration reform, with focus on sustainable reduction of the salary bill and reorientation of public expenditures towards basic services; and * support for the on-going movement towards decentralization, while strengthening the capacities of local communities, and promoting community participation. Instruments: * preparation for a new public enterprise - PE reform operation, which will focus on: (i) systemic issues, such as pensions, arrears and financial autonomy; (ii) acceleration of the privatization program; and (iii) private provision of infrastructure services; * lending to the railways and power companies, based on detailed agreements on financial autonomy, revision in statutes to allow private sector participation, and resolution of the pension issue; * dialogue on public administration reform through sector work, a new CEM, policy dialogue, technical assistance and IDF grants in key ministries, until clear consensus has emerged on the direction, pace and approach in this sensitive area. Budget reform, multi-year programming of expenditures and reduction in the wage bill, are currently under discussion. Pilot IDF projects are also on-going in various ministries; and * support for decentralization is included in many on-going and new operations throughout our pipeline, such as municipal finance projects, as well as support for greater community participation with EDI support. Monitoring Indicators: Outcomes * completion of privatization program of 114 public enterprises, with PE value added reduced from 12 to 8 percent of GDP; * wage bill in central administration reduced to below 9 percent of GDP by 2000. Effforts * agreement on, and implementation of, a multi-year framework for PE reform and privatization; regulatory frameworks for private sector participation in place in all infrastructure sectors; new legal framework for the remaining PEs, enhancing autonomy, approved; * initiation of a comprehensive public administration reform program and clarification of new decentralization framework, in line with the new Constitution. Indicative WB lending program: * US$200-350 million over the next three years, including a possible quick-disbursing operation on PE reform. Attachment I to Business Compact Page 1 of I MOROCCO CAS - SUMMARY INDICATIVE WORLD BANK FY97-99 PROGRAM Growth & competitiveness Social Agenda Environment/Natural Resources Public sector modernization INDICA TIVE LENDING PROGRAM USS min US$ min US$ min US$ min Investments 125/150 Investments 350/400 Investments 125/150 Investments 150/200 Power sector Rural Water Supply Water Resource Management I Railways I Vocational Training Health Management Sebou River Protection Municipal Finance 11 Microenterprise Pilot Social Priority/Fund 11 Fes Medina rehabilitation Public Administration (FY'00) Competitiveness Upgrading (FY'00) Low Income Housing Rural Infrastructure Pilot Rural Development Pilot Education Reform (FY'00) Rural Development (FY'00) Policy-based (quick-disbursing) 50/150 Policy-based (quick-disbursing) 50/150 Financial Market 11 Public Enterprise Reform Guarantees 180/300 NON LENDING SER VICES Economic & Sector Work Employment & Informal sector FY97 Rural Development Strategy FY97 Environment action plan review FY98 CEM/Role of the state FY98 Informal reports/Technical assistance for FY97-98 Strategy note on gender EU cooperation on competitiveness Promotion of social funds & NGOs Support for fisheries strategy Cooperation with IMF Participation in the PSD Committee IDF - higher education Participation in METAP-GEF Support for MT framework IDF - Telecom. privatization Dissemination and EDI seminars on IDFs to modernize 2 ministries and rural development support legal reform PORTFOLIO MANA GEMENT FY96 investment portfolio 1 0 1 1 1 0 1 o/w problem projects I o/w problem projects 2 o/w problem projects 3 o/w problem projects 0 Undisbursed ($ mln) 201 Undisbursed ($ mln) 311 Undisbursed ($ mln) 473 Undisbursed ($ mln) 63 Disbursement Ratio FY96 26% Disbursement Ratio FY96 15% Disbursement Ratio FY96 27% Disbursement Ratio FY96 11% Target Disburs. Ratio FY99 24% ITarget Disburs. Ratio FY99 27% Target Disburs. Ratio FY99 30% Target Disburs. Ratio FY99 34% RESOURCE ALLOCATION * Amount in Million US$ 5.60 Amount in Million US$ 6.80 Amount in Million US$ 5.20 Amount in Million US$ 3.80 % of total 26% % of total 32% % of total 24% % of total 18% Attachment 2 to Business Compact Page 1 of 1 IFC's role in private sector development IFC's investment strategy in Morocco will focus on infrastructure and capital markets projects. Foreign investors in infrastructure projects have approached IFC to (i) mobilize resources, (ii) co-invest and provide them with added comfort; and (iii) intermediate with the Moroccan Government and local investors. The financial sector currently faces a situation of excess liquidity, while local investors are currency-risk averse in the absence of hedging instruments, and the lack of a true yield curve and foreign exchange market. Six IFC loans to Moroccan companies have been prepaid in the last two years for a total of about US$113 million. Oncc full Dirham convertibility is in place, IFC should be able to mobilize long-term funds through syndicated loans, to be onlent by Moroccan banks to small- and medium-scale enterprises. Pipeline. The project pipeline is concentrated in capital markets and large infrastructure projects: * Securitization: Following IFC technical assistance that should shortly lead to the enactment of a securitization law, discussions with Credit Immobilier et H6telier on securitizing a portion of its mortgage portfolio will be launched. This should boost local bond and mortgage markets and promote the building of new housing units. Extending the scope of the securitization law to other types of assets is also possible. * Credit line to BMCE: a US$30 million credit line to BMCE, Morocco's largest private sector bank, in support of small-scale exporters to finance equipment purchases and upgrades of productive capacity. * Middle East North Africa Fund: establishing the first regional direct investment fund of US$250 million for select countries in the MENA region, invested in equity and quasi-equity investments in companies located in Morocco, Tunisia, Egypt, Jordan, as well as the West Bank and Gaza. This Fund will be leveraged on 1:3 ratio and have an OPIC guarantee. * Greater Casablanca Water and Sewage: a US$2 billion 30-year concession for the water, sewage and power distribution in Casablanca. * Privatization & Upgrading of the SAMIR refinery: co-invest in the further privatization and in the subsequent upgrading of SAMIR, Morocco's largest refinery. * Casablanca-El Jadida Highway Concession: cofinancing of the first concession of a highway in Morocco for private investment (a US$200 million project). * Advisory on Privatization of Royal Air Maroc: possible advisory service to the Moroccan Ministry of Privatization on the privatization of the national airline company, based on our experience in the successful privatization of Kenya Airways. • Tangiers Port Concession and Construction of a new port: assist the Govemment in the award of the concession of the Tangiers port (a US$300 million project). Other Possible Projects: assist selected banks in establishing hedging mechanisms and improving asset liability management. High on this list is the Loan Option Facility (LOF) used to effectively neutralize the interest rate and liquidity risks inherent in funding medium-term assets from short-term dcposits. * A 50 MW windmill power plant has been awarded to a French consortium led by Electricite de France who might seek an IFC financing of this $60 million project. Advisory Services: if requested, IFC could provide assistance to GOM on establishing a credit rating agency in association with the Inter-Arab Rating Company. Attachment 3 to Business Compact Page 1 of I Economic Development Institute (EDI)'s Pro2ram During FY97 EDI plans three Morocco specific events, and at least one regional event in Morocco. In addition Moroccans are invited to various regional events. Morocco specific seminars * "Support for Community-based Development and Microenterprise: Policy and Planning Seminar (Mav 1997) to raise awareness among senior government officials and representatives of the private and NGO community on the institutional and regulatory obstacles facing microentrepreneurs. A workshop on micro-credit is also planned to coincide with this seminar. * "Financial market reform and economic growth". EDI will cosponsor this seminar with a local university and an economic newspaper. The target audience is both the academic communitv and rcpresentatives of the private and public sector. * Workshops on the tax, regulatory and pricing functions in the energy sector, in support of Bank cfforts to strengthen the Ministry of Energy through an on-going IDF. Regional Seminars taking place in Morocco * Training for managers of grassroots projects of the Maghreb region (February 97); the audience will be trainers and community leaders that are to carry out grassroots activities in their respective countries as part of identified development projects. * Regional conference on water and agriculture. Regional events to which Moroccan participants are being invited * Meeting of the regional network for the Facilitation of Trade and Investment in the Mediterranean Region (FATIMA) * Meeting of the network on Private Provision of Infrastructure Initiative (PPII) . Conference on education reform * Conference on health care finance * Conference on fiscal decentralization * Conference on agricultural policy, water and trade . Conference on banking for the poor KINGDOM OF MOROCCO Attachment 4 to Business Compact FY97-99 COUNTRY PROGRAM - PSD/ENHANCING EXTERNAL COMPETITIVENESS Page 1 of 3 Countrv Objectives Pcrformance Indicators Bank Groups Services Tasks Modernization of Infrastructure Services * Foster private participation in infrastructure Design and implement competition and Adjustment lending (on Privatization Support Loan privatization reforms in major utilities and basis of completed ESW) transport * Increase investment and improve quality Amount of private investment leveraged by and cost efficiency of services Bank services * Power Closing of Jorf Lasfar Project: $800 million WB Guarantee Power Guarantee Closing of windmill project, $60 million project IFC Investments IFC Loan/Equity * Telecommunications New Telecommunications law before end of 96. Technical assistance IDF grant licensing of operators in selected services in Possible IFC investment in IFC Loan/Equity 1997; privatization 1997/98 high value-added areas. * Railways Corporatization and restructuring of ONCF Investment lending Railways restructuring + Industrial Parks Closing of two concessions (Nouaceur, El WB Guarantce; Industrial parks guarantees; Jadida) IFC loan or equity Possible IFC investment * Water Closing of water concession in Casablanca IFC advice/investment IFC Loan / Subordinated Loan / or IFC Guarantee Possible IFC role in subsequent similar IFC advice/investment operations. * Roads Closing of concession (El Jadida) IFC investment IFC loan & cquity * Ports Closing of concession (Tangiers) & construction Possible IFC investment Possible IFC loan & equity of new port Supervision/lCRs * Public provision of essential infrastructure Timely implementation of ongoing projects Power Distribution services Port Sector Water supply V Telecoms Rcstructuring Casablanca Sewerage Second rural electrification Secondary roads Municipal Finance I Provide basic infrastructure services to about 90 Investment lending Municipal Finance 11 small and medium/size districts Expand power transmission facilities Investment lending PSD 11 / Power project Attachment 4 to Business Compact - Page 2 of 3 Country Objectives Pcrformance Indicators Bank Groups Services Tasks Business Environment * Continue reforms to enhance incentive Approval of Labor Law and of Price and Competition Technical assistance Review of subsequent drafts framework and establish level playing Law field between private sector, public enterprise and administration Continued participation in Policy notes and recommendations sent to Prime Technical assistance monthly PSD committee Minister by private/public PSD committee and follow- meetings up actions * Promotc macro stability and competitive Reduced budget deficit and competitve real effective Sustained macroeconomic Maintain dialogue exchange rate exchange rate dialogue in collaboration with IMF Financial Sector Development * Establish a market based financial system Interest rate liberalization, establishment of a fully- Supervision and technical Financial Markets functioning foreign exchange market, elimination of assistance Development Loan banks' forced placements in T Bills, bank privatization. Quantitative indicators on financial IFC credit lines in multiple IFC syndicated loans market development agreed with Government. currencies Provide long-term resources for productive investment and strengthen participating financial institutions. Supervision/ICRs Financial Sector Develop.; Industrial Finance; Municipal Finance I; National Rural Finance; Establish a market-based municipal finance system Investment Lending Municipal Finance II * Deepen Capital Markets * Continue capital market reform Implement reform program of institutional investors Adjustment lending Financial Markets (insurance companies, pension funds) Development Loan II Develop new private institutions, including central IFC advice/investment IFC equity; maintaining depository, rating agency and creation of a venture dialogue capital company targeting SMEs. * Promote new financial instruments Develop use of GDRs, CP, LOF and mortgage backed IFC advice/investment LOF Transaction under securities; extend the scope of the securitization law. consideration. * Provide long-term domestic finance Establish private infrastructure financing facility with IFC Guarantee/Invest-ment Private Infrastructure for private infrastructure projects. Moroccan banks on a cas by case basis. Finance Project. Attachment 4 to Business Compact - Page 3 of 3 Country Objectives Performance Indicators Bank Groups Services Tasks Industry Competitiveness * Prepare private industry for open environment that will ensue from association agreement with EU + Enhance competitiveness or private Implement phase I of clusters study (completed) and Technical assistance Bank executing agency of firms in a selected number of prepare action plan for phase 2 by mid-97 project funded by "clusters" Moroccan private sector and EU * Enhance technology development Strengthen support agencies providing assistancc to the Invcstment lending in Industrial and strengthen industry support industrial sector cooperation with EU Competitiveness project institutions Adjustment Lending Privatization Support * Continue privatization program Reduce share of PE value added in GDP from 12% to IFC advice/ Loan 8% Investment * Upgrade labor force' skills Increase of private firms' in-service training Lending/ Supervision PSD3 - In service training expenditures project * Develop micro-enterprise sector Identification of key constraints impeding development ESW Employrment and informal of sector labor study Improve access to credit, training Investment lending Micro-Enterprise Development Project * Improve Capital Structure of private "Mise a Niveau" or Upgrade Program possible IFC Investment Capital Development sector SMEs Fund (OPIC fund) Attachment 11 KINGDOM OF MOROCCO Country Assistance Strategy Standard Annexes Contents Al. Selected Indicators of Bank Portfolio Performance and Management A2. Bank Group Fact Sheet A3. Summary of Economic and Sector Work A4. Priority Poverty Indicators A5. Key Economic Indicators A6. Key Exposure Indicators A7. Status of Bank Group Operations in Morocco A8. Morocco at a Glance CAS Annex Al Run Date: 12;23,96 Data as of: 12/23/96 Morocco - Selected Indicators of Bank Portfolio Performance and Management Indicator FY94 FY95 FY96 FY97 Portfolio Performance Number of projects under implementation 32.00 28.00 32.00 26.00 Average implementation period (years)' 3.96 4.54 4.42 4.36 Percent of problem projects rated U or HU° (for past years, rated 3 or 4) Development objectives' 6.25 7.14 12.50 15.38 Implementation progress (or overall 21.88 21.43 18.75 15.38 status for past years)4 Canceled during FY in USSm 0.37 21.62 197.55 123.17 Disbursement ratio (%)' 11.23 13.72 23.00 9.22 Disbursement lag (o/O)r 19.06 28.92 19.28 21.87 Memorandumitem: %completedprojects 16.67 16.07 16.13 16.13 rated unsatisfactory by OED Portfolio Management Supervision resources (total USS thousands) 1501.36 1363.37 1846.55 707.89 Average supervision (USS thousands/project) 46.92 48.69 57.70 27.23 Supervision resources by location (in %) Percent headquarters 0.00 0.00 69.28 62.09 Percentresidentmission 0.00 0.00 30.72 37.91 Supervision resources by rating category (USS thousands/project) Projects rated HS or S 43.86 48.61 57.12 24.35 Projects rated U or HU 57.85 48.99 60.23 43.03 Memorandum item: date oflastnext CPPR a. Average age of projects in the Bank's country portfolio. b. Rating scale: "HS" denotes "Highly Satisfactory", "S" denotes "Satisfactory", "U" denotes "Unsatisfactory", and "HU" denotes "Highly tUnsatisfactory". c. Extent to which the project will meet its development objectives (see OD 13.05, Annex D2, Preparation of Implementation Summary [Form 590]). d. Assessment of overall performance of the project based on the ratings given to individual aspects of project implementation (e.g., management, availability offunds, compliance with legal covenants) and to development objectives (see OD 13.05, Annex D2, Preparanon of Implementation Summary [Form 590]). The overall status is not given a better rating than that given to project development objectives. e. Ratio of disbursements during the year to the undisbursed balance ofthe Bank's portfolio at the beginning ofthe year: investment projects onlv. f For all projects comprising the Bank's country portfolio, the percentage difference between actual cumulative disbursements and the cumulative disbursement estimates as given in the "Original SAR/PR Forecast" or, if the loan amounts have been modified, in the "Revised Forecast." The country portfolio disbursement lag is effectively the weighted average of disbursement lags for projects comprising the Bank's country portfolio, where the weights used are the respective project shares in the total cumulative disbursement estimates. Note: Disbursement data is updated at the end of the furst week of the month. Supervision resources include Salaries, Benefits, and Travel for all sources of funds but excludes FAO staff and PCR task costs. CAS Annex A2 Run Date. 122'3/96 Data as of 12'23/96 Morocco - Bank Group Fact Sheet FY 1994-2000 IBRD/IDA Lending Program, FY 1994-2000 Past Current Planned' Category FY94 FY95 FY96 FY97 FY98 FY99 FY00 Commitments (UiS$m) 412 0 57 6 540.0 233.0 385 0 435 0 140.0 Sector (%)b Agnculture 597 0.0 18.5 215 13 00 14.3 Basic Health 0.0 0.0 12.6 00 0.0 00 00 Education 0.0 0.0 10.0 9.9 0 0 41 4 0.0 Environmental Instit 1.5 0 0 0.0 0.0 0 0 0 0 0.0 Finance 0.0 0.0 46 3 0.0 0.0 0 0 42.9 Health 0 0 0.0 0.0 0.0 15.6 0 0 0.0 Industry 0.0 00 0.0 0.0 5.2 00 0.0 Non-sector 0 0 0.0 0.0 0.0 0.0 13.8 0.0 Other Finance 0 0 0.0 0.0 0.0 26.0 0 0 0.0 Pollunion,wasteM'gnt 00 0.0 0.0 0.0 0.0 00 14.3 Power 0.0 0.0 0.0 0.0 23.4 0.0 0.0 Public Sector Manage 0.0 0.0 0.0 68.7 0.0 23.0 28 6 Social Sector 0 0 0.0 5.2 0.0 0.0 0.0 0.0 Transportation 0.0 100.0 0.0 0.0 0o0 0.0 00 Urban 0.0 0.0 0.0 0.0 13 0 16.1 0 0 Water Supply & Sewag 38.8 0.0 7.4 0.0 15 6 5.7 0 0 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 1000 Lending instrument (%) Adjustment loans' 0 0 0.0 46.3 0.0 26.0 23 0 0.0 Specific investment loans and others 100.0 100.0 53.7 100.0 74.0 77 0 100.0 TOTAL 100.0 100.0 100.0 100.0 100.0 100 0 100 0 Disburse-nents (US$m) Adjustment loans' 155.0 8.3 153.2 94.1 0.0 0 0 0.0 Specificuivestmentloansandothers 155.7 2232 331.8 124.5 2286 1676 119.5 Repayments (USSm) 291.9 333 2 344.0 166.4 0.0 0 0- 0.0 Interest (tSSrn) 264.0 279.3 274.9 119.8 0.0 0.0 0.0 a. Ranges that reflect the base-case (i.e., most likely) scenano For IDA countnes, planned commitments are not presented by FY but as a three-year-total range; the figures are shown in brackets A footnote indicates if the pattrn of IDA lending has unusual charactenstics (e g, a high degree of frontloading, backloading, or lumpiness). For blend countries, planned IBRD and iDA commitments are presented for -ach year as a combined total. b For future lending, rounded to nearest 0 or 5%. To convey the thrust of country strategy more clearly, staff may aggregate sectors. c Structural adjustment loans, sector adjustment loans, and debt service reduction loans. Note Disbursement data is updated at the end of the first week of the month CAS Annex A2 Run Date: Morocco - IFC and MIGA Program, FY94- Past Category FY94 FY95 FY96 IFC approvals (USSm) 18.9 0.6 0.6 Sector (%) Cement & Construction 1.0 0.0 0.0 Financial Services 1.0 1.0 1.0 (blank) 0.0 0 0.0 TOTAL 2.0 1.0 1.0 Investment instrument (%) Loans 54.0 0.0 0.0 Equity 46.0 100.0 100.0 Quasi-equity' 0.0 0.0 0.0 Other 0.0 0.0 0.0 TOTAL 100.0 100.0 100.0 MIGA guarantees (USSnm) 9.0 9.0 MIGA comnmitments (USSm) 0.0 0.0 'Includes quasi-equity types of both loan and equity instruments. CAS Annex A3 Run Date: 12/23/96 Data as of: 12,/23/96 Morocco - Summary of Economic and Sector Work (USS thousands) Actual Planned Category FY96 FY97 FY98 - FY99 Agriculture 633.5 285.4 156.0 0.0 Education 57.6 0.0 0.0 0.0 Environment 8.9 96.7 65.0 0.0 Multi Sector 151.7 0.0 145.6 0.0 Other 79.4 52.3 87.6 73.7 Popihealth/nutrition 91.0 0.2 116.8 0.0 Public Sector Mgmnt 214.2 13.8 0.0 0.0 Social Sector 66.6 25.8 0.0 0.0 Urban Development 19.7 1.5 0.0 0.0 Total 1322.6 475.7 571.0 73.7 Page 1 Annex A4 Morocco Page 1 of 2 Most Same region/income group Next Latest single year recent Mu,t-ast Lower- higher Unit of estimate & North middkl income Indicator measure 1970-75 1980-85 1988-93 Afrca income group Priority Poverty Indicators POVERTY Upper poverty line local curr. .. .. 2,568 Headcount index % of pop. 26 13 Lower poverty line local curr. .. 2,070 Headcount index % of pop. 17 7 G.NP per capita USS 550 600 1,040 1,980 1,590 4,350 SHORT TERM INCOME INDICATORS Unskilled urban wages local curr. .. .. U nskilled rural wages Rural terms of trade Consumerprice index 1987=100 35 90 136 Lower income Fooda 91 125 Urban Rural SOCIAL INDICATORS Public expenditure on basic social services To of GDP .. Gross enroUiment ratios PRimary % school age pop. 62 77 69 97 104 105 Male 78 94 80 103 Female 45 60 57 90 Mortality Infant mortality per thou. live births 122.0 97.0 65.6 52.3 39.0 35.8 Under 5 mortality .. .. 84.0 69.9 61.5 42.6 Immunization M'.easles % age group .. .. 76.0 81.3 77.6 82.0 DPT .. 44.0 79.0 84.0 82.2 74.2 Child mnalnutrition (under-5) .. .. 9.0 Life expectancy Total years 53 58 64 66 67 69 Female advantage 3.1 3.4 3.4 2.3 5.9 5.9 Total fertilty rate births per woman 6.9 5.1 3.6 4.7 2.9 2.9 Maternal mortality rate per 100,000 live births .. 327 .. Supplementary Poverty Indicators Expenditures on social security %o of total gov't exp. .. .. .. Social security coverage % econ. active pop. .. .. .. Access to safe water total % of pop. 51.0 57.6 72.8 83.5 .. 86.7 Urban 92.0 100.0 100.0 98.7 .. 93.9 Rural 28.0 25.0 50.0 69.0 .. 66.7 Access to health care m .. .. 62.4 87.4 Population growrth rate I GNP per capita growth rate Development diamondb 6 (annual average, percent) I (annual average, percent) Ufe expectancy 4! 2 1 GN O l' . * Gmssross prr ~~~~~~primary capita enrollment 197G-75 1980-85 19S8-93 1970-75 1980-85 1988-93 Access to safe water 2 Morocco Morocco - Lower-iddle-incoe - Lower-middle-income a. See the technical notes, p.387. b. The development diamond, based on four key indicators, shows the average level of development in the country compared with its income group. See the introducion. Annex A4 Morocco Page 2 of 2 Most Same region/income group NeXt Lates single year recent mla-=:s Lower- higher Unit of estimate & Nort.h middle- income Indicator measure 197-0-75 1980485 1988.93 Africa income group Resources and Expenditures HUMAN RESOURCES Population (nire=-1993) thousands 17.305 21,816 25,945 261,650 1,096.665 500,507 Age dependency ratio ratio 1.03 0.83 0.70 0.87 0.69 0.62 Urhan % of pop. 37.7 43.9 47.5 55.2 54.7 71.2 Population growth rate annual %7 2.5 2.4 2.2 2.7 1.6 1.7 Urban 4.2 3.7 3.2 3.7 2.9 189 Labor force (15-64) thousands 4.656 6.676 8,567 71,333 459.196 190.136 Agriculture %7 of labor force 52 46 . Industry 21 25 . F'emale 16 20 21 16 3'1 29 Female.s per I100 males Urban number 108 100 . Rural 104 107 NATURAL RESOURCES Area thou. sq. km 446.55 446.55 446.55 11,021.26 40,682.67 21,848.14 Density pop. per sq. km 38.75 48.85 56.83 23.10 26.52 22.51 Agricultural land % of land area 602;1 65.66 68.90 32.10 39.61 41.26 CThange in agricultural land annual % 1.08 0.18 -1.15 0.04 -0.13 0.08 Agricultural land under irrigation % 3.94 4.25 4.16 30.59 12.66 8.84 Forests and woodland thou. sq. km .. 0.08 0.09 0.45 5.95 8.0.4 Deforestation (nct) annual % . . -1.45 DiCOME Household income Share of top 20%o of households %Y of income 49 39 46 Share of bottom 40% of households 1 2 23 17 ShIre of bottom 20% of households 4 10 7 EXPE-NDrIURE Food 7oof GDP .. 30.1 . Staples ..9.4 . M,eat, fish, milk, cheese, eggs ..8.9 . Cereal imports thou. metric tonnes 1.509 2.177 3.653 38,092 66,28l-- 48,947 Food aid in cereals *75 518 234 1,249 5.477 544 Food production per capita 1987= 100 85 91 96 102 101 102 Fertilizer consumption kg/ha 6.2 10.4 10.4 89.9 48.0 67.8 Shame of agriculture in GDP % of GDP 17.3 16.6 14.3 13.3 15.7 8.0 Housing %7 of GDP ..6.7 . Average household size persons per household 6.0 5.9 5.7 U-ban 5.0 ..5.2 Fixed investment: housing % Of GDP ..4.1 . Fuel and power % of GDP ..1.4 . Energy consumption per capita kg of oil equiv. 198 256 299 1.097 1.595 1,632 Households with clectricity Urban %7 of households . . 90.0 Rural S. .13.0 Transport and communication % of GDP ..6.3 . Fixed investment: tainsport e-quipment ..1.5 . Total road length thou. km 50 58 59 1INVESTTMENT IN HUMAN CAPITAL Health Population per physician persons 13,100 15.536 4,710 .. 3,277 Population per nurse ..918 . Populationi per hospital bed 700 795 785 633 604 395 Orai rehydyration therapy (under-5) % of cases 1.. 4 56 .5 1 Education Gross enrollment ratio Seccondary % of school-age pop. 1 6 34 28 56 53 53 Femnale 12 27 29 50 Pupil.teacher rato: primary pupils per teacher 42 28 28 26 ..25 Pupii.teacher ratio: secondary 24 19 Is 21 Pupils reaching grade 4 % of cohort 85 83 85 95 Repeater rate: primary % of tota enroll 28 20 i5 Illitecracy % of pop. (age 15+) 79 58 51 45 19 14 Ferrale % of fem (agelS5+) .7 1 62 57 1 7 Newsoaocr circulation per thou. o.2 1 15 1 3 33 74 125 Wornc Bank Intemational Economics Depantncnt. Apnl 1995 Annex A5 Page 1 of 3 Morocco - Key Economic Indicators Estimate Projected Indicator 1991 1992 1993 1994 1995 1996 1997 1998 National accounts (as % GDP at current market prices) Gross domestic product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Agriculturea 20.1 15.7 14.7 18.4 14.3 21.2 20.5 20.3 Industrya 30.9 32.3 32.3 31.5 33.2 30.7 31.2 31.5 Servicesa 49.0 52.0 53.0 50.1 52.5 48.1 48.3 48.2 Total Consumption 82.8 83.9 84.5 84.3 86.6 85.5 83.7 82.2 Gross domestic fixed 22.2 22.5 22.2 20.5 22.0 20.1 21.9 23.1 investment Government investment 3.8 4.6 6.1 5.5 5.2 5.0 5.0 5.0 Private investment 18.9 17.8 14.9 15.7 15.8 15.4 17.2 18.5 (includes increase in stocks) Exports (GNFS)b 24.1 25.1 26.5 25.3 27.3 27.5 28.9 30.3 Imports (GNFS) 29.7 31.5 32.0 30.9 34.9 33.4 34.8 35.9 Gross domestic savings 17.2 16.1 15.5 15.7 13.4 14.5 16.3 17.8 Gross national savingsc 21.3 20.3 19.0 18.9 16.1 18.1 20.2 22.0 Memorandum items Gross domestic product 27835 28558 26866 30350 32411 33488 33934 35257 (US$ million at current prices) Gross national product per 1090.0 1080.0 1030.0 1140.0 1030.0 capita (US$, Atlas method) Real annual growth rates (%, calculated from 1980 prices) Gross domestic product at 6.9% -4.1% -1.1% 11.6% -7.6% 10.3% 3.3% 4.1% market prices Gross Domestic Income 7.3% -2.9% -1.3% 12.6% -8.4% 10.6% 3.1% 4.2% Real annual per capita growth rates (%, calculated from 1980 prices) Gross domestic product at 4.7% -6.0% -3.1% 9.5% -9.4% 8.2% 1.4% 2.3% market prices Total consumption 7.9% -3.4% -2.7% 10.6% -8.0% 7.1% -0.6% 0.8% Private consumption 9.9% -6.1% -5.0% 14.4% -8.7% 7.2% 1.3% 1.5% (continued) Annex A5 Page 2 of 3 Morocco - Key Economic Indicators (Continued) Estimate Projected Indicator 1991 1992 1993 1994 1995 1996 1997 1998 Balance of Payments (US$m) Exports (GNFS)b 6715.7 7161.0 7124.2 7688.0 8840.3 9195.7 9796.9 10684.8 Merchandise FOB 5093.5 5009.5 4935.8 5538.1 6675.5 6944.0 7419.7 8138.5 Imports(GNFS)b 8270.9 8985.6 8590.3 9367.9 11314.5 11179.6 11795.9 12669.4 Merchandise FOB 6833.8 7451.1 6976.6 7619.0 9936.0 9706.9 10248.4 11022.5 Resource balance -1555.2 -1824.6 -1466.1 -1679.9 -2474.2 -1983.9 -1998.9 -1984.6 Net current transfers 2270.2 2465.1 2149.5 2124.1 2096.4 2240.3 2357.8 2469.3 (including official current transfers) Current account balance 172.7 -579.7 -512.1 -671.8 -1482.1 -633.9 -461.5 -331.0 (after official capital grants) Net private foreign direct 375.5 503.4 522.0 815.2 535.0 535.0 550.0 650.0 investment Long-term loans (net) -400.0 -10.5 306.3 -184.4 -12.0 275.8 259.6 286.2 Official 694.0 557.0 -82.0 -227.1 -64.4 -102.7 -200.9 -39.4 Private -1094.0 -567.5 388.3 42.6 52.4 378.5 460.5 325.6 Other capital (net, including 805.1 887.3 125.2 554.3 257.6 25.0 133.3 125.0 errors and omissions) Change in reserveSd -953.2 -800.4 -441.4 -513.3 701.5 -201.8 -481.5 -730.2 Memorandum items Resource balance (% of -5.6% -6.4% -5.5% -5.5% -7.6% -5.9% -5.9% -5.6% GDP at current market prices) Real annual growth rates (1980 prices) Merchandise exports 4.8% -2.9% 8.2% 0.4% 7.0% 2.4% 6.1% 7.1% (FOB) Primary 1.8% -6.5% 4.9% -9.9% 0.4% 2.3% 5.1% 6.3% Manufactures 2.0% -8.4% -0.1% -4.1% 15.5% 2.1% 6.5% 7.2% Merchandise imports 4.2% 9.3% 1.0% 5.2% 3.4% -2.3% 3.4% 5.0% (CIF) Public finance (as % of GDP at current market prices)e Current revenues 22.9 26.1 26.5 24.2 23.9 23.3 23.0 23.3 Current expenditures 19.8 21.3 21.9 21.4 22.5 21.3 20.4 19.6 (Continued) Annex A5 Page 3 of 3 Morocco - Key Economic Indicators (Continued) Estimate Projected Indicator 1991 1992 1993 1994 1995 1996 1997 1998 Current surplus (+) or def. (-) 3.1 4.9 4.6 2.8 1.4 2.0 2.5 3.7 Capital expenditure 6.2 7.1 7.8 6.7 7.1 6.2 6.1 6.0 Fiscal Deficit (-) -3.1 -2.2 -3.3 -3.9 -5.7 -4.2 -3.5 -2.3 Foreign financing, net 0.2 -1.3 -0.4 -1.6 -0.8 -0.6 -0.7 0.1 Monetary indicators M2/GDP (at current market 62.5 68.2 72.5 69.6 74.5 69.4 69.4 69.4 prices) Growth of M2 (%) 16.7 9.7 9.0 7.3 6.2 5.9 6.4 7.0 Private sector credit/total credit (%) 84.4 65.1 48.2 64.5 41.0 65.9 67.2 80.6 Price indices( 1980 = 100) Merchandiseexportprice 98.7 100.0 91.0 101.7 114.5 116.4 117.1 120.0 index Merchandise import price 94.9 94.5 87.4 90.6 105.4 105.3 107.5 110.1 index Merchandise terms oftrade 104.1 105.9 104.2 112.3 108.7 110.5 108.9 108.9 index Real effective exchange rate (1980=100 64.4 65.4 66.5 68.5 71.2 .... (US$/LCU)' Real interest rates Consumerprice index 8.0% 5.7% 5.2% 5.1% 6.1% --- --- --- (% growth rate) GDP deflator 6.5% 4.9% 3.6% 0.2% 7.2% 3.0% 3.0% 2.8% (% growth rate) a. If GDP components are estimated at factor cost, a footnoote indicating this fact should be added. b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Should indicate the level of the government to which the data refer. f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation. Annex A6 Page 1 of 1 Morocco - Key Exposure Indicators Estimate Projected Indicator 1991 1992 1993 1994 1995 1996 1997 1998 Total debt outstanding and 21566.0 21599.0 21261.0 22513.0 22719.0 22303.8 22740.7 23172.3 disbursed (TDO) (US$m)a Net disbursements (US$m)a -168.6 996.3 -212.2 -336.4 -109.0 229.8 338.9 336.2 Totaldebtservice(TDS) 3138.6 2076.7 3231.2 3269.8 3415.0 3075.5 3098.0 3023.2 (USSm)a Debt and debt service indicators (%) TDO/XGSb 242.2 223.5 228.4 231.2 203.1 190.1 182.5 171.7 TDO/GDP 77.5 75.6 - 79.1 74.2 70.1 66.6 67.0 65.7 TDS/XGS 35.2 21.5 34.7 33.6 30.5 26.2 24.9 22.4 Concessional/TDO 25.5 27.1 27.4 28.5 28.7 29.7 29.5 29.5 IBRD exposure indicators (%) IBRD DS/public DS 22.9 24.9 21.6 21.8 19.5 20.9 21.2 22.5 Preferred creditor DS/public DS 44.2 50.6 38.9 37.7 34.2 35.9 35.4 38.5 IBRD DS/XGS 5.3 -5.4 5.9 5.9 5.6 5.4 5.2 4.9 Share of IBRD portfolio 3.4 3.3 3.3 3.2 3.5 3.2 3.2 3.2 IFC (US$m) Loans 5.4 135.0 63.8 23.9 6.7 ... Equity and quasi-equity /c 1.7 0.0 0.0 3.9 4.6 ... MIGA MIGA guarantees (US$m) --- --- --- --- --- --- a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short- term capital. b. "XGS" denotes exports of goods and services, including workers' remittances. c. Includes equity and quasi-equity types of both loan and equity instruments. CAS Annex A7 Run Date: 12/23/96 Data as of 12/23/96 Status of Bank Group Operations in Morocco IBRD Loain and IDA Credlits in the Operations Portfolio Difference Last ARI'l' Original amount in US$ millions between expected Supervision Rating Project Loan or Fiscal and actual Development Implementation ID Credit No. Year Borrower Purpose IBRD IDA Cancellations Undisbursed disbursements' Objectives Progress Number of Closed Loans/Credits: 118 Active Loans MA-PE-38978 L40911 1997 GOVERNMENTOFMOROCCO P'SDIL-VOCTRG. 11.50 11.67 MA-PE-38978 1.40910 1997 GOVERNMENT OF MOROCCO PSD ti-VOC TRG. 11.50 11.50 MA-PE-42414 L40260 1996 GOVTOFMOROCCO COOR/MON SOCIAL PRO 28.00 2800 066 IIS HS MA-PE-42415 1,40250 1996 GOVTOFMOROCCO SPI-IIFALTII 6800 68.00 0.66 IIS 1lS MA-PE-5501 1.40240 1996 GOV. OF MOROCCO SPI - EDUCATION 54 00 54 00 0 66 IIS IIS MA-I'E-5503 L40100 1996 KINGDOM )F MOROCCO SEW.& WATER RZI.ISE III 40.00 40010 .35 S S MA-PE-41303 1.39351 1996 GOVERNMFNT OF MOROCCO EMERG. DROI1UiiT RECOV 50.00 21 34 -2s.87 IIS IIS MA-P'E-5489 L39010 1995 KINGDOM OF MOROCCO SECONDARY ROAI)S 57.60 57.60 11 75 IIS S MiA-PE-5493 L37650 1994 GOV. OF MOROCCO ASLLi 121.00 61.00 27.58 13.74 S S MA-PE-5499 L36880 1994 GOV. OF MOROCCO IRR AREAS AGR. SERV 25.00 5.00 17.98 8.38 S S MA-PE-5435 1.36650 1994 KINGDOM OF MOROCCO/ONEP WAI'ER SUPPLY V 32.00 30.13 -1.87 HIS S MA-PE-5435 L36640 1994 KINGDOM OF MOROCCO/ONEP WATER SUPPLY V 128.00 116.04 34.96 liS S MA-PE-5486 L36620 1994 CNCA NATiONAL RURAL FINAN 100.00 50.00 28 99 64.99 S S MA-PE-5504 L36470 1994 KINGDOM OF MOROCCO ENVIRONMENT MANAGEME 6.00 5.40 1 99 U U MA-PE-5514 L36180 1993 GOV. OF MOROCCO LAND DEVELOPMENT 66.00 5529 70.54 HS S MA-PE-5517 L36170 1993 GOV.OFMOROCCO/FEC MUNICIPALFINANCEI 100.00 3238 -67.62 [IS S MA-PE-5462 L35870 1993 GOVERNMENT SECONDILSIIMPROVEME 215.00 35.00 139 18 21.18 I S MA-PE-5438 L35570 1993 KINGDOM OF MOROCCO TELECOM.RESTRUCTURIN 100.00 5651 41 86 U S MA-PE-5495 L33720 1991 MOROCCAN BANKS FINANCIAL SECTOR DEV 11.50 3 85 -7 65 S S MA-PE-5495 L33710 1991 MOROCCANBANKS FINANCLALSECTORDEV 9.50 2.31 0.41 -6.78 S S MA-PE-5495 L33670 1991 MOROCCAN BANKS FINANCIAL SECTOR DEV 19.50 1 IX -18.32 S S MA-PE-5495 L33660 1991 MOROCCAN BANKS FINANCIAL SECTOR DEV 29.50 20.05 84.65 S S MA-PE-5460 L32950 1991 GOVERNMENT OF MOROCCO BASIC EDUCATION 145.00 45.00 56 33 83.67 S U MA-PE-5433 L32840 1991 GOVT. OF MOROCCO PORT SECTOR 99.00 14.56 -84.44 itS HS MA-PE-5433 L32830 1991 GOVT. OF MOROCCO PORT SECTOR 33.)0 5.00 10.26 15.26 HS HS MA-PE-5459 L32620 1991 GOVT. OF MOROCCO SECOND RURAL ELECTRi 114.00 50.00 40.03 87.37 U U MA-PE-5440 L31710 1990 KINGDOMOFMOROCCO HEALTHSECTORINVEST 104.00 23.60 23.60 S S MA-PE-5437 L31560 1990 GOVERNMENT FORESTRYiU 49.00 12.81 12.81 S S MA-PE-5480 L30260 1989 GOVERNMENT OF MOROCCO RURAL PRIMARY EDUCAT 83.00 8.00 3.69 11 69 S I MA-PE-5425 L29540 1988 GOVT OF MOROCCO S.& M IRRIG.1 23.00 7.99 7.99 S S MA-Plh-5449 1.2R260 1987 MINIST'RYOF IN'ERIOR GREATER CASABlANCA S 60) 0) 16 9 169Y S S CAS Annex A7 Run Date 12/23/96 Data as of 12123/96 Status of Bank Group Operations in Morocco IBRD,Loans aiid IDA Credits in the Operations Portfolio Difference Last ARPP Originial amount in US$ millions between expected Supervision Ratine Project Loan or Fiscal and actual Development Implementation ID Credit No Yeai U3orrower l'urpose t31RD) II)A Cancellations Undisbuised disbmsements' Objectives l'rogress TOTAL 1993 60 0 00 261.31 1013 34 403 19 Active Loans Closed Loans Total Total disbursed (IBRI) and IDA) 716 34 5250 94 5967.28 Of whichi repaiid 4t) 59 245S.48 25()1) 017 Total now held by 111RI) aid IDA 1691.71 2798.71 44t90.48 Amount sold 0.00 20.11 20.11 Of which repaid 0 00 20.11 20.11 Total undisbursed 101334 0.00 101334 a. Isteiided disbursenients to date minuis actual disbtirseimicnts to datc as projcctcd at appraisal. b. Folliawing ic l FY94 Anitiiiilt Review of 'orlt'l 'io Pcrloriinitce (ARI'I'), a letter-based systemi wt,s ittiodtiiced (IIS -iiglily satislactciry, S -stlislactory, 11 UllStaitisIicttry, lil I higily unsatislaclory) scc P'roposeil linpronieinients in l'riajicc and Po'i)ffolio P'eifonnemc'e Rrlinig A felolologt' (SecM94-90) I ), Atigtist 23, 1 994. Note: Disbursesenit data is updated at the end of the first week of the monith. CAS Annex A7 Run date: 12'23/96 Morocco - Statement of IFC Investments Committed and Disbursed Portfolio As of 11/30/96 (In US Dollar Millions) Committed Disbursed IFC IFC F'YApproval Companv Loan Equity Quasi Partic Loan Equity Quasi Parric 1963/78/83 BNDE 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1980 SOMIFER 0.00 2.35 0.00 0.00 0.00 2.35 0.00 0.00 1985 BNDE 4.54 0.00 0.00 0.00 4.54 0.00 0.00 0.00 1987/90 CIH 38.69 0.00 0.00 3.79 38.69 0.00 0.00 3.79 1987/93 SETAFIL 3.44 1.20 0.00 0.00 3.44 1.20 0.00 0.00 1990 EN NASR 1.17 0.00 0.00 0.00 1.17 0.00 0.00 0.00 1992/96 Banque Extcricur 0.00 7.11 0.00 0.00 0.00 0.00 0.00 0.00 1992/94 Ciments du Maroc 6.83 0.00 0.00 3.16 6.83 0.00 0.00 3.16 1993 INTERFINA 0.00 3.30 0.00 0.00 0.00 2.44 0.00 0,00 1994 Euratlas Capital 0.00 4.00 0.00 0.00 0.00 0.00 0.00 0.00 1994/96 Mediafinance 0.00 1.16 0.00 0.00 0.00 1.16 0.00 0.00 1995 Artijan 0.00 0.52 0.00 0.00 0.00 0.13 0.00 0.00 1995 Fin. Euratlas 0.00 0.09 0.00 0.00 0.00 0.00 0.00 0.00 Total Portfolio: 54.67 19.73 0.00 6.95 54.67 7.28 0.00 6.95 Approvals Pending Commitment Loan Equity Quasi Partic 1991 SOCIETEPALMBAY 0.00 1.83 0.00 0.00 Total Pending Comni.tment: 0.00 1.83 0.00 0.00 Annex A.8 - Page 1 of 2 Morocco at a glance M. East Lower- POVERTY and SOCIAL & North middle- Morocco Africa Income Development diamond* Population mid-1996 (millions) 26.9 273 1,154 GNP per capita 1995 (US$) 1,130 1,780 1,700 Life expectancy GNP 1995 (billions USS) 30.4 486 1,961 Average annual growth, 1990-95 Population (%) 2.0 2.7 1.4 Labor force (%) 2.6 3.3 1.8 1 GNP Gross Moat recent estimate ~~~~~~~~~~~~~~~per primary Mr>st recent emae (latest year available since 1989) capita enrollment Poverty: headcount index (% of population) 13 Urban populaton (% of totalpopulaion) 48 56 56 Life expectancy at birth (years) 85 66 67 Infant mortality (per 1,000 live births) 55 49 36 Child malnutrition (% of children under 5) 9 Access to safe water Access to safe water (% of population) S9 82 78 Illiteracy (% of population age 15+) 56 39 Gross primary enrollment (% of school-age population) 73 97 104 Morocco Male 85 104 105 Lower-middle-income group Female 60 90 101 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1975 195a 1994 1995 Economic ratlos- GDP (bilions US$) 9.0 12.9 30.3 32.4 Gross domestic investmenVGDP 25.2 27.1 21.3 21.0 Exports of goods and non-factor services/GDP 22.5 25.5 25.3 27.3 Openness of economy Gross domestic savingsGD1P 14.3 18.4 15.7 13.4 Gross national savings/GDP 13.3 20.7 18.9 16.1 T Current account balancelGDP -8.1 -6.4 -2.4 -4.9 Interest payments/GDP 0.7 4.3 4.2 4.2 Savings H Investment Total debVGDP 26.2 122.4 71.1 88.3 Total debt service/exports 6.7 33.5 34.3 31.6 Present value of debt/GDP .. .. 82.3 Present value of debtfexports .. .. 194.2 Indebtedness i975-84 1995-95 1994 1995 1996.04 (average annual growth) GDP 4.4 2.9 11.6 -7.6 5.6 Morocco GNP per capita 1.7 0.9 10.2 -9.3 3.8 -- Lower-middle-income group Exports of goods and nfs 4.2 5.9 *0.9 4.1 6.5 STRUCTURE of the ECONOMY (% of GDP) 1975 1985 1994 1995 [ Growth rates of output and Investment(%) Agnculture 17.3 16.6 18.4 14.3 1 15 Industry 34.7 33.4 31.5 33.2 10 Manufacturing 16.6 18.6 17.6 19.2 5 Services 48.0 50.0 50.1 52.5 0 /A -5 90 93 94 9 Private consumption 69.4 65.8 67.4 71.2 .10 General government consumption 16.3 15.8 16.9 15.5 Imports of goods and non-factor services 33.4 34.2 30.9 34.9 -GDI GDP (average annual growth) 1975-84 1985-95 1994 1995 Growth rates of exports and Imports (%) Agriculture 1.4 -0.1 63.0 -45.9 25- Industry 3.0 2.8 4.3 3.1 20 Manufacturing .. 3.5 4.2 2.9 15 Services 6.4 3.8 3.2 1.2 10 5 Private consumption 3.6 4.4 16.6 -6.9 o General govemment consumption 5.7 3.2 1.7 -3.7 .5 90 91 92 93 94 95 Gross domestic investment 0.0 1.1 11.5 -8.5 10! Imports of goods and non-factor services -0.6 7.3 5.2 4.0 Gross national product 4.0 3.0 12.4 -7.6 Exports Imports Note: 1995 data are preliminary estmates. 'The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. Annex A.8 - Page 2 of 2 Morocco PRICES and GOVERNMENT FINANCE Domestic prices 1976 1986 1994 1996 Inflation (%) (% change) 10 Consumer prices .. 7.7 5.1 6.1 8 Implicit GDP deflator 1.5 8.4 0.2 7.2 5 4 Govemment finance 2< (% of GDP) 0o Current revenue .. 20.7 24.2 23.9 90 91 92 93 94 95 Current budget balance .. -2.4 2.8 1.4 GDP del C P Overall surplus/deficit .. -9.6 -3.2 -5.3 TRADE 1976 1986 1994 1996 (millions US$) Export and import levels (mill. USS) Total exports (fob) .. 2,283 5,538 6,676 12,000 Other agriculture .. 603 1,280 1,457 10, 000 X Phosphorus .. 479 273 291 t Manufactures .. 477 1,474 1,600 6,000 Total imports (cif) .. 3,921 8,265 9,936 6"000 T Food .. 507 798 1,332 43'000 r f rU F Fuel and energy .. 1,074 1,113 1,184 2,000 Capital goods .. 649 1,845 1,854 0 .. Export pr.ce index (1987=100) .. 89 122 137 89 90 91 92 93 94 99 Import price index (1987=100) .. 104 113 131 rExports ElImports Terms of trade (1987=100) .. 86 108 104 BALANCE of PAYMENTS 1976 1986 1994 1996 1 a (millions US$) Current account balance to GDP ratio (%) Exports of goods and non-factor services 1,997 3,278 7,688 8,840 0 o . Imports of goods and non-factor services 2,939 4,402 9,368 11,314 89 90 91 592 93 94 9 Resource balance -942 -1,124 -1,680 -2,474 t1 I Net factor income -88 -766 -1,170 -1,209 -2 Net current transfers 482 1,031 2,070 2,115 2 | Current account balance, -3 before official transfers -548 -826 -726 -1,587 -44 Financing items (net) 519 845 1,240 886 Changes in net reserves 28 -19 -513 702 |5 Memo: __I Reserves including gold (mill. US$) .. 345 4,548 3,613 Conversion rate (bocaV1US$) 4.1 10.1 9.2 8.5 EXTERNAL DEBT and RESOURCE FLOWS 1976 1986 1994 1996 (millions US$) Composition of total debt, 1995 (mill. USS) Total debt outstanding and disbursed 2,353 15,753 21,587 22,147 IBRD 244 1,288 3,746 3,966 IDA 31 43 35 33 G 418 A 3966 Total debt service 172 1,429 3,338 3,541 IBRD 33 167 572 630 F. 5742 IDA 0 1 2 2 Composition of net resource flows Official grants 26 416 279 300 :D 2831 Official creditors 253 412 -313 -284 Private creditors 591 195 201 132 Foreign direct investment 0 20 601 818 Portfolio equdy 0 0 63 29 E: 9105 World Bank program Commitments 33 379 127 433 A - IBRD E - Bilateral Disbursements 111 307 246 426 B - IDA D - Other multilateral F - Private Principal repayments 18 87 302 350 I- CI-MF G - Short-term Net flovvs 93 220 -56 76 I | Interest payments 15 81 271 282 Net transfers 78 139 -327 -206 International Economics Department 11/27/96 MAP SECTION 12 B. 0 ZS B~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~E A H-i N,d :~ MOROCCO Kh I Souk ei AtbcX |,O Jcrf El h Ke nihn. di o/^> u u t t i RABAT A. Acud= O;NDRTIHt Ao TS L A iM½ Sof CENTRAL Jcf J.did. tl W.S 3r 0CL- EA N S , nnor Be,' Of r E N ders SrcndOUTH i fo e 32 - , FENSisF k ^ . mr/ r cil internal ~ ~ ~ on of The Worl Bank= end the hnrrrrdorien shown ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~mi nnthio mo2 do nt _ oeMAJOR ROADS se d c ,ert_ SECONDARY ROADS Ae^) J u c K a o ~~~~~~~~~~~~~~~~~~~~~~~~LOCAL ROADS This mrsp hes be n pnsp^red i J~~~;teroudon SS ° Zeceoe / -°° I I I~ RA LROADS SvyTheWorS Bnkssdff AuMIOU S S H/A PROVINCE CAPITALS enosementwE or occponrnce n St soh oodoie. INENAINL ONDRE irrFmol use oS ThfWc*Sore^,,,e thI NATIONAL CAPITAL Greup Th. Ibrnnlinsu SXS oncS th. Sb- s. shown Ar0 TOWNS AND CITIES port ef The WcrrAldtAon Gr^up, Tizn W Tsz= * i rOszr^t ELEVATION ABOVE 1 000 METERS ony judcmt en th. Iw1/ _ S enssorstynent oroccepS_nc oS z f ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ECONOMIC REGION BOUNDARIES h~~~~~ INTERNATIONAL BOUNDARIES >\ f. t w _ _ ~~~~~~~~~~~~~~~~~~~~~~~~~INTERNATIONAL BOUNDARY - ,,/ Guelmim / o ~ ~~~~~~~ 50 100 150 2eo ,._e / ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~KlLOMfERSr 28' 5c 3 0 49 28 - rr II J-..TZ T I £-J fV1 EJ j;l I r_J497!9 I