Document of The World Bank FOR OFFICIAL USE ONLY Report No. 86518-MA INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION MULTILATERAL INVESTMENT GUARANTEE AGENCY COUNTRY PARTNERSHIP STRATEGY (CPS) FOR THE KINGDOM OF MOROCCO FOR THE PERIOD FY2014-2017 April 1, 2014 Maghreb Country Department, World Bank Middle East and North Africa Region International Finance Corporation Middle East and North Africa Region Multilateral Investment Guarantee Agency 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 EQUIVALENTS Currency unit: Moroccan Dirham (MAD) as of March 1, 2014 US$1 = MAD 8.13705 MOROCCO FISCAL YEAR WORLD BANK GROUP FISCAL YEAR January 1 - December 31 July 1 - June 30 List of Abbreviations and Acronyms AAA Analytical and advisory activities AFD Agence Franqaise de Diveloppement (French Development Agency) AfDB African Development Bank AMC Asset Management Company AMDL Moroccan Agency for the Development of Logistics ANAPEC Agence Nationale de Promotion de l'Emploi et des Comptences (National employment and skills promotion agency) ASIMA Social and Integrated Agriculture BAM Bank Al Maghrib - Central Bank BCP Banque Centrale Populaire BPO Business Process Outsourcing CEM Country Economic Memorandum CNEA National Business Environment Committee CSP Concentrated Solar Power CPSCR CPS Completion Report CTF Clean Technology Fund DTF Deauville MENA Transition Fund DPL Development Policy Lending ESCP Economic Competitiveness Support Program ESW Economic and Sector Work EU European Union FDI Foreign direct investment GCC Gulf Cooperation Council GDP Gross Domestic Product GEF Global Environment Fund GIZC Integrated Management of Coastal Zones GoM Government of Morocco GPSA Global Partnership for Social Accountability HCP Haut CommissariatAu Plan HMIS Health Management Information System ICT Information and Communication Technology IDF Institutional Development Fund IGF Inspection Gindrale des Finances IGG Inclusive Green Growth IMA Moroccan Institute of Directors INDH Initiative Nationale de Diveloppement Humain (National Initiative for Human Development) MDG Millennium Development Goals MDTF Multidonor Trust Fund 11 MENA Middle East and North Africa MSME Micro, Small, and Medium Enterprises MTEF Medium-term expenditure framework NCD Non-communicable Diseases NHSFO Non-honoring of sovereign financial obligations NHFO-SOE Non-honoring of financial obligations of state-owned enterprises ONEE Office National de l'Eau et de l'ElectricitW (National Office for Water and Electricity) ORDAR Offices rigionaux de dveloppement agricole et rural PACT Local Government Support Program PAGER National program promoting potable water supply to rural populations P-ESW Programmatic economic and sector work PERG National program for universal rural electrification PforR Program for Results PICCPMV Integrating Climate Change in the Implementation of the PMV PJD Parti pour le Diveloppement et la Justice (Development and Justice Party) PMV Plan Maroc Vert PNEI National Pact for Industrial Emergence PNEEI National Program of Energy Efficiency in the Industry PNRR Programme National de Routes Rurales (National Rural Roads Program) PPP Public-Private Partnerships RAMED Non-contributory Health Insurance Program SEDP Skills and Employment DPL SME Small and Medium Enterprise SOE State Owned Enterprise SWM Solid Waste Management TA Technical Assistance TFP Total Factor Productivity UNICOP Union Nationale des Industries de la Conserve de Poisson WSS Water supply and sanitation 111 IBRD IFC MIGA Vice President Inger Andersen Dimitris Tsitsiragos Michel Wormser Country Director Simon Gray Mouayed Makhlouf Ravi Vish Country. CountryJoumana Cobemn Representative Task Team Leader Michael Hamaide Serena Cavicchi Persephone Economou Acknowledgement This Country Partnership Strategy (CPS) was prepared under the guidance of Simon Gray, World Bank Country Director, and Joumana Cobein, IFC Principal Country Officer. The World Bank team was led by Michael Hamaide, Task Team Leader and Senior Country Officer for Morocco. The IFC team was led by Serena Cavicchi, Co-Task Team Leader and Strategy Officer. MIGA participation was led by Persephone Economou. The CPS Core Team included: Bachir Abdaym, Ibtissam Alaoui, Aurelien Antoine Claude Boyer, Kamel Braham, Joelle Businger, Jean-Pierre Chauffour, Philippe De Meneval, Hind Kadiri, Andrea Liverani and Fabien Seiderer. The following WBG Morocco Country Team members and colleagues have also made important contributions to this strategy: Teymour Abdel Aziz, Richard Abdulnour, Randa Akeel, Diego Angel-Urdinola, Axel E. N. Baeumler, Amine Benjelloun, Zineb Benkirane, Fadwa Bennani, Maha Bensaid, Fatiha Bouamoud, Sanaa Bouchikhi, Franqois Boulanger, Xavier Chauvot de Beauch6ne, Dalila Bouna, Lida Bteddini, Roger Coma Cunill, Soumia Driouch, Alejandra Eguiluz, Aziza El Aouad, Khalid El Massnaoui, Khadija Faridi, Nawal Filali, Jaafar Friaa, Catherine Gozard, Fabrice Houdart, Gabriella Izzi, Hind Kadiri, Abdoulaye Keita, Gloria La Cava, Candice Le Tourneur, Song Li, Daniela Marotta, Mohamed Medouar, Samia Melhem, Fanny Missfeldt- Ringius, Sameh 1. Mobarek, Laila Moudden, Ziad Nakat, Silvia Pariente-David, Nadine Poupart, Patricia Ravelomanantsoa, Achraf Rissafi, Paul Scott Prettitore, Khadija Sebbata, Gabriel Sensenbrenner, Sylvia Solf, Kathleen So Ting Fong, Manaf Touati, Paolo Verme, and Vincent Vesin. Special thanks are extended to Ina-Marlene Ruthenberg and Jean-Luc Bernasconi, who peer reviewed the document; to Victoria Gyllerup, for her invaluable guidance on results; to Amanda Van Kirk, for her always constructive support and substantial contribution to the CPS CR, to all the counterparts of the Government of Morocco, and to Minister Mohammed Louafa and his team at the Ministry of General Affairs and Governance in particular; to the many actors of Morocco's civil society met during the consultations, for sharing their genuine views and expectations; and to colleagues from partner donor agencies in Morocco. iv COUNTRY PARTNERSHIP STRATEGY (CPS) FY14-17 FOR THE KINGDOM OF MOROCCO TABLE OF CONTENTS EXECUTIVE SUMMARY I. INTRODUCTION ............................................. ............1 II. COUNTRY CONTEXT....................................... .............. 1 Political Context............................................................1 Social Context and Poverty Profile ............................... ....................2 Economic Developments and Prospects ................................ ...........4 Key Development Challenges ..................................................7 Government Priorities and Medium-Term Strategy ............................13 III. BANK GROUP PARTNERSHIP STRATEGY .................................. 15 111.1. Lessons Learned from previous CPS and Stakeholder Feedback ....................15 III.1.A. Lessons from CPS Progress & Completion Report .......................15 111.I.B. Client Feedback and Stakeholder Consultations ................... .......... 17 111.2. Proposed World Bank Group Partnership Strategy ...............................18 111.2.A. World Bank Group Partnership Strategy Overview ..........................18 111.2.B. Expected Results and Program of Lending and Non-Lending Activities .. ..........19 111.3. Implementing the FY14-17 Country Partnership Strategy . ................... ......30 III.3.A. Managing the Program ..............................................30 III.3.B. Portfolio and Pipeline Management ................................ .....33 III.3.C. Partnerships and Donor Coordination ......................... ...........34 IV. MANAGING RISKS ...................................................34 v CPS ANNEXES Country Specific Annexes: Annex 1: Morocco CPS Program Selectivity Annex 2: Morocco CPS Results Framework (FY14-17) Annex 3: Morocco CPS FY14-17 Completion Report Annex 4: Morocco Detailed Macroeconomic Overview Standard CPS Annexes: Annex A: Morocco at Glance Annex B2: Selected Indicators of Bank Portfolio Performance and Management Annex B3: IBRD Program Summary - Proposed IBRD Base-Case Lending Program Annex B3: IFC Investment Operations Program Annex B4: Summary of Non-lending Services Annex B5: Morocco Social Indicators Annex B6: Key Economic Indicators Annex B7: Key Exposure Indicators Annex B8: IBRD Operations Portfolio Annex B9: Statement of IFC's Committed and Outstanding Portfolio vi EXECUTIVE SUMMARY i. Amidst the historic and tumultuous changes that have marked the Region in recent years, Morocco has embarked on a promising and peaceful political and social transition toward a more open society. The transition has come in response to the demands of Moroccans who took to the streets in early 2011 to call for change as the economy failed to deliver on jobs and opportunities, particularly for youth, despite years of strong growth and prudent economic management. ii. In response, the King of Morocco launched a broad program of reforms and a new Constitution was adopted in 2011. It presents a revised governance framework, strengthening the powers of the Head of Government and of Parliament and the independence of the judiciary. It grants greater human and social rights, providing for a more open and decentralized system of governance. A new coalition Government formed in 2012 has sought to implement the reforms promised under the new Constitution. As weak global growth has dampened Morocco's economic performance and hindered job creation, the Government has increasingly focused on managing social pressures, and this has delayed reforms. In 2014, the coalition Government renewed its commitment to the reform program. iii. Morocco's economic prospects are closely tied to Europe's, and any slow-down there will undermine the macro-economic outlook through continued weak exports, tourism, remittances or FDI. High fuel prices, deterioration in the regional context, or renewed global financial turmoil would compound these challenges. While the Government has launched a series of sector strategies to boost economic performance, absent a reorientation of the economy toward the tradable sector and increased competitiveness, growth and job creation will remain weak. Morocco will therefore need to increase its efforts to enhance competitiveness and gain market share on global markets. These efforts will require a higher quality of domestic investments and continuing to attract large flows of foreign direct investments. It will call for increased opportunities and economic freedom for all Moroccans, to compete, produce and participate in the economy, and a greater role for the private sector. iv. Macroeconomic stability will depend on strengthened governance and robust fiscal consolidation-particularly subsidy, pension, and fiscal reforms, a prudent monetary policy, and greater flexibility in exchange rate management. While subsidy and pension reforms are most urgent, including establishing more effective and inclusive social protection programs, structural reforms are needed in the medium term to boost enterprise productivity by better channeling resources to competitive industries. The 2014 Budget Law confirmed the Government's strategy to continue reforming the subsidy system and launch the reforms of the pension and fiscal systems this year. In addition, government intends to adopt the Organic Budget Law to strengthen the articulation and implementation of local government budgets. The government plans to proceed with justice reform, improve access to financing, especially for SMEs, address constraints to land access, develop logistics services, and reinforce technical training. Assuming these reforms take place, growth in the non-agriculture economy could reach around 5.5 percent over the medium term, with inflation below 2 percent and the budget deficit below 3 percent of GDP. v. Against this backdrop, the World Bank Group (WBG) seeks to renew its commitment to support Morocco in accelerating sustainable and inclusive growth to create much-needed employment and to achieve the twin goals of eliminating poverty and boosting shared prosperity. Under this four-year Country Partnership Strategy (CPS), the WBG proposes to scale up its support for Morocco's open governance and green growth agendas, supporting innovative multi-sector approaches to sustainable and environmentally- Vii sound development, for the benefit of future generations and to improve private sector-led competitiveness and global integration. The CPS deepens the WBG's focus on improving governance and strengthening the accountability and capacity of institutions that manage public resources and deliver basic services, particularly at the local level. Promoting citizens' voice and participation is integral to these efforts, as is the focus on gender and youth. The CPS is designed to support these objectives with a broad array of financial and technical instruments and services drawing on the comparative strengths of IBRD, IFC and MIGA. vi. Morocco's estimated demand for IBRD financing during the CPS period of FY14- 17 may reach US$4 billion. Lending volumes in FY15-17 will depend on country performance, IBRD's lending capacity, demand by other Bank borrowers and global economic developments. This level of financing represents a notable scale up for the World Bank in Morocco and would allow for a high case lending scenario that would support the critical reforms and investments in the area of public administration reform, increased accountability and decentralization, employment support, inclusive green growth, agriculture modernization and basic services. This stepped-up engagement will respond to Morocco's need for external financing and enable the authorities to pursue economic transformation against a backdrop of economic difficulties in Europe that have dampened external demand; high international food and fuel prices; and escalating social pressure pressures to create jobs and to deliver on the promises of the new Constitution. Development Policy Loans (DPL) are expected to continue to play an important role in IBRD lending to support reforms. At the same time, as the Bank shifts toward a more results-centered program, providing increased levels of technical assistance for reforms and building institutional capacity, the proportion of non-DPL financing, namely investment lending and program for results lending, is expected to increase. vii. IFC will focus its efforts on attracting more private capital to Morocco, and in FY14 IFC expects to invest about US$150 million from its own account. Assuming continued improvements in the business environment, IFC expects to invest a total of around US$350- 400 million over the FY15-17 period from its own account, as well as mobilize additional resources from other investors. IFC will continue to boost investor confidence in Morocco by playing a counter cyclical role and will adjust its approach to allow for flexibility in implementing its program to reflect changes in market conditions. In line with the principles of additionality, IFC will remain selective in its engagement in the country and continue focus on innovative areas, inclusion and south-south/regional integration. Promoting South-South investments, particularly to support the expansion of Morocco's regional players, will be a critical aspect of IFC's strategy. IFC's stepped up engagement in Morocco will continue to focus on increasing private sector led growth, creating jobs and expanding access to finance for small and medium business, especially of youth and women. IFC will continue to implement a sizeable advisory program to address constraints to private sector development which is critical to foster a competitive private sector. vii. The Bank Group's performance will be measured against its contributions to the priorities of the Government as proposed in the CPS. Annex 2 presents a Results Framework that tracks progress towards expected CPS outcomes in each of the three Results Areas. The Bank will hold Performance Learning Reviews to evaluate program performance jointly with Moroccan counterparts. viii. The CPS identifies several risks to the program and mitigating measures: Economic, social and external risks: Uncertain economic prospects in Europe and emerging markets create downside risk to Morocco's trade position, economic growth, fiscal performance and pace of financing for investments. Morocco will remain under tremendous domestic pressure to continue generous social programs. The CPS program is designed Viii precisely to provide financial and technical assistance on these complex issues, including reforms to improve the fiscal situation, to help the economy become more competitive and to bolster broad-based support for reforms. Political risks. The implementation of the CPS and achievement of proposed outcomes are predicated on the Government's adherence to the ambitious reforms set out in its program. The WBG will maintain a close dialogue with the authorities and other stakeholders and help raise awareness of reform options. Program coordination risks: To mitigate delays in preparation and implementation of multi-sector operations due to weak coordination, the Bank will work closely with its partners to establish consensus and define clear roles and responsibilities, in line with the respective technical expertise and mandate of agencies. Implementation risks are relate principally to resolving safeguards issues around land acquisition and compensation that have delayed implementation of some investment operations The Bank has launched a review of these and other safeguards issues and is discussing a program for resolving them with the authorities. The Bank will also work closely with counterparts to ensure the availability of data that is essential for key analytical activities to proceed. ix I. INTRODUCTION 1. This document presents the World Bank Group (WBG) Country Partnership Strategy (CPS) for Morocco for FY14 to FY17. The WBG's approach under the new CPS has evolved in a number of important ways since the 2010 CPS (Board presentation in January 2010) and CPS Progress Report (Board presentation in June 2012). Following the historic political and social events in the Middle East and North Africa (MENA) region since early 2011, Morocco has engaged in a promising transition and reform process built on the principles of a new Constitution providing for greater accountability, openness, and opportunity. At the same time, weak global growth, strains on natural resources, and stubborn unemployment levels have dampened Morocco's economic performance and highlighted the need for important shifts in its development model. 2. Against this backdrop, the WBG seeks to renew its commitment to support Morocco in accelerating sustainable and inclusive growth to create much-needed employment and to eliminate poverty and boost shared prosperity. Under this CPS, the WBG proposes to scale up its support for Morocco's open governance and green growth agendas, supporting innovative multi-sector approaches to sustainable and environmentally sound development for the benefit of future generations, and to improve private sector-led competitiveness and global integration to reduce the country's vulnerability to shocks. Indeed, a broader global integration agenda will be the paramount driver of private sector development, job creation, and structural changes in Morocco in the coming years. The CPS deepens the WBG's focus on improving governance and strengthening the accountability and capacity of institutions that manage public resources and deliver basic services, particularly at the local level. Promoting citizens' voice and participation is integral to these efforts, as is the focus on gender and youth. The CPS is designed to support these objectives using a broad array of financial and technical instruments and services from IBRD, IFC, and MIGA. II. COUNTRY CONTEXT Political Context 3. Morocco's political landscape has been relatively stable over the past decades. The country is governed by a parliamentary constitutional monarchy, whereby executive power is exercised by a multi-party government led by a Head of Government and by the King who is the Head of State. Legislative power is vested in both the Chamber of Representatives and the Chamber of Councilors, while the judiciary is independent from the Government. 4. The Arab Spring in early 2011 spurred a peaceful political transformation in Morocco. Reflective of this call for sweeping change, Moroccans-young people in particular-called for a revamped democratic system, improved governance, and greater freedoms, voice, and opportunities. Although Morocco has experienced noteworthy economic and social advances since the 1990s, high unemployment and lack of opportunity led protestors to denounce exclusion and corruption. 5. The King responded by launching a comprehensive program of reforms, including the drafting of a new Constitution adopted through a referendum in July 2011. The Constitution presented a revised governance framework and strengthened the powers of the Head of Government and of Parliament, and the independence of the judiciary. It granted greater human and social rights, providing for a more open (and decentralized) system of governance and laying out the rules for fairer and more inclusive development. 1 6. Breaking with the past and as required by the new Constitution, the King designated a Head of Government from the party that won the most seats in legislative elections held in November 2011. After years in opposition, the Justice and Development Party (Parti de la justice et du developpement, PJD) achieved a groundbreaking victory by winning the most seats in legislative elections. In January 2012, the King named Abdelilah Benkirane, the head of the PJD, as Head of Government to form a new coalition government ("Benkinrane I") that would be tasked with delivering on the main reforms under the new Constitution and to harmonize legislative texts with the new constitutional provisions. 7. Benkirane I was slow to deliver on the ambitious legislative agenda amid significant social pressures and a weakened economic environment. As growth slowed, in the context of the Eurozone crisis and instability in the region, the Government focused on managing social pressures. Progress on reforms was also hampered by the differing views of coalition members on how best to approach them. Moreover, new requirements for public consultations have lengthened the process for finalizing and adopting new policies. 8. In 2014, the coalition Government renewed its commitment to pursue reforms and implement the Constitution. Following changes in the coalition government in 2013,1 the Benkirane II Government confirmed its commitment to push forward with reforms and accelerate the legislative agenda set out by the new Constitution. Social Context and Poverty Profile2 9. With an average economic growth rate of nearly 5 percent from 2001-2011, Morocco reduced poverty and boosted shared prosperity. Extreme poverty has practically been eradicated, dropping from 2 percent to 0.28 percent over the same period.3 Relative poverty also declined, from 15.3 percent to 6.2 percent, and population vulnerability (those living just above the poverty line) decreased from 22.8 percent to 13.3 percent.4 Still, nearly 20 percent of the country, or 6.3 million Moroccans, live in poverty or under constant threat of falling back into poverty. During the same period, the wellbeing of the bottom 40 percent of the population grew both in absolute terms (the wellbeing of the poor improved) and relative terms (the wellbeing of the poor improved relative to that of the non-poor), suggesting an ** 5 increase in shared prosperity. 10. Inequality, poverty and vulnerability remain important challenges. Morocco's Gini coefficient of 0.41 reflects stubbornly high levels of inequality. Disparities in poverty rates across regions provide one measure of this inequality: in 2011, the poverty rate in seven of Morocco's sixteen regions was higher than the national average, as much as 40 percent higher in three of those regions (Figure 1). Moroccan cities, generating 75 percent of GDP, have pockets of entrenched poverty and high rates of unemployment. Inequality hinders the potential for economic growth to reduce poverty rates further and delays the emergence of a larger middle class. Notably, the withdrawal of the Istiqlal party, the second largest in the coalition,and the subsequent entry of the center-right National Rally of Independents (NRI) party in the government coalition. 2 All poverty indicators for 2011 are HCP estimates mapping 2007 HHCS data with LFSs. Results are published by HCP in the 2013 MDGs report. Extreme poverty refers to the population living on less than US$1 PPP/day. The drop is based on the national poverty threshold, corresponding to the equivalent of US$2.15 PPP in 2007. 4Alternative poverty measurements confirm this decline. The Alkire-Foster multidimensional poverty rates declined from 28.5% in 2004 to 8.9% in 2011. The wellbeing of the bottom 40% of the population grew by 3.3 percent over 2001-2007, against the growth rate of per-capita household consumption (3.2%) over that period. 2 Figure 1. Morocco's Poverty Rates - Regional Evolutions Gharb-Chrarda-Eleni Hssen 17 15.& Doukala-Abda 1A3 Souss-Massa-Daraa 6 9 Fes-Boulemane i1S Marrakech-Tensift-Al Haouz 1174 Taza-Al Hoceima-Taounate 10.7 Oriental E 1 2.1 Meknes-Tafilalet U 2007 U 2011 Tadla-Azilal i i .3 I I Chaouia-aurdigha 6 11 Tang - 7.4 ager-T&touan I National poverty Refgionsdu Sud 6.3 rate in 2007 Rabat-SaL!-Zemmiour-Zaer 5.1 National poverty 3.- - ~ratein 2011 Grand-Casablanca 2.3 0.0 6.2 8.9 Percent Source: HCP, 2007 HHCIS and 2013 MDGs Reports 11. Poverty rates are highest in rural areas. Ten percent of Morocco's 13.4 million rural residents lived below the poverty line in 2011. They account for two-thirds of the poor in Morocco and are largely employed in informal agriculture (including fisheries and forestry). Poverty is linked to difficult geographic conditions, particularly mountainous areas, as well as to deteriorating infrastructure, poor access to basic services and very limited formal employment opportunities. The emerging effects of climate change are expected to have the greatest impact on the poorest and most vulnerable. Participants in CPS consultations in the Taounate province confirmed the long distances, lack of adequate transportation, and costs encountered in reaching schools and health facilities, noting that their children leave for school before daybreak and return after sunset, often by foot. Close to a quarter of rural households have no direct access to a road and live at least 10 kilometers away from basic health services. The share of births attended by skilled health personnel averages 63 percent, compared to 92 percent in urban areas.6 In certain regions (such as the Atlantic coast and Mediterranean mountainous region), households still do not have access to safe drinking water. Telecommunications service coverage also poses a challenge in rural areas. These factors all combine to lower the quality of life, productivity, and prospects of rural households. 12. Despite some notable progress on key human development indicators, Morocco still lags in health and education achievements. Immunization of one-year-olds is nearly universal and indicators of life expectancy and average infant and maternal mortality rates have all improved over the past ten years.7 Nonetheless, they compare poorly to similar economies and progress has been uneven, with rural areas being left behind. Morocco is in the midst of a rapid demographic and epidemiological transition, seeing fewer communicable illnesses but growing incidence of chronic disease which has important cost implications for the health sector. Non-communicable diseases (NCD) account for 75 percent of all deaths, followed by diabetes. The leading cause of death for young Moroccans (between the ages of 20 and 29) is 6 WDI Data Life expectancy improved from 71.7 years in 2004 to 74.9 years in 2011 (Source: HCP); Mortality rates increased by over 15 percent from 2000 to 2012 (Source: UNDP). 3 road traffic accidents, which have increased by an alarming 35 percent during 2000-2010. Morocco spends less on health care than do countries of similar socioeconomic development. 13. There has been remarkable improvement in access to education, though the MDG of universal primary school completion is unlikely to be achieved by 2015. Net primary school enrollment rates increased from 75 to 96 percent between 2000 and 2011, and similar improvements were noted at the secondary level.9 Nonetheless, educational quality and learning outcomes continue to lag well behind those of other countries with similar or even lower income levels and overall illiteracy rates and gender disparity in secondary and higher education also remain high. International studies have shown that 74 percent of Moroccan students do not reach even the lowest benchmark level of Grade 4 mathematics, compared with the international median of 10 percent. 14. With less than half of the Moroccan population economically active, Morocco has one of the lowest labor participation rates among emerging economies. Despite declining by 4 percent between 2000 and 2011, unemployment has remained at around 9 percent, or one million people. Unemployment rates are higher in urban areas (13.7 percent compared to 4 percent in rural areas), among women (at 10 percent compared to 9 for men, though with a very low participation rate of 25 percent), youth (18 percent, although only 32 percent participate), and highly educated individuals, according to the Haut Commissariat Au Plan (HCP). 15. Access to basic infrastructure services has increased dramatically over the past 15 years, although quality and sustainability remain of concern. Nearly 98 percent of urban households have access to a power network, and 98 percent of rural households have electricity. Thousands of villages have standpipes providing potable water for 93 percent of the population as of 2013 (compared to 61 percent in 2004). The rate of connection to sewerage is estimated at around 76 percent in large cities. The mobile telephone penetration rate has grown dramatically from 73 percent in 2008 to 122 percent in 2013. Despite these advances, overall progress has been uneven and some rural and peri-urban areas, as well as small and medium- sized cities, still lack access to basic infrastructure services. Moreover, the reliability, maintenance, and financial sustainability of these services remain a persistent challenge, particularly at the local level. Economic Developments and Prospects" 16. Structurally, the Moroccan economy remains oriented toward nontradable activities (such as construction, public works, and low value-added services) and volatile, poorly productive agriculture. Given this orientation, Morocco has made little productivity gains over the past two decades despite high levels of investment." Investment efforts- dominated by publicly funded large infrastructure projects-have boosted the productivity of labor, but have not triggered a growth take-off through higher total factor productivity (TFP). Some positive effects may still occur in coming years as the TFP gains from government expenditures on infrastructure (energy, highways, ports, airports, industrial zones) materialize. But Morocco has yet to guarantee the productivity gains needed to support the emergence of a Budget allocation to the health sector represented 5.1% (2009), 5.0% (2010), and 4.8% (2011) of total government budget. 9 UNESCO Institute of Statistics. 10 See Annex 3 for a more detailed macroeconomic analysis of recent developments and prospects. Morocco has consistently invested 5 to 10 percentage points of GDP more than peer countries and its total investment as a share of GDP has increased from 25 percent of GDP in the 1990s to 35 percent currently. 4 larger middle class. The challenge of increasing and further sharing prosperity remains paramount. 17. One important explanatory factor behind Morocco's weak economic performance can be traced to its difficulty in benefitting from the current wave of globalization. Morocco's share of global exports has hovered around 0.15 percent since the mid-1970s, while most competitors have seen substantial increases in their shares. The price of the national export basket has generally been higher, than that of key competitors and this gap has widened since the global financial crisis. High and rising export prices are symptomatic of persistent weaknesses in the competitiveness of Moroccan enterprises on the global market. Moroccan firms strive to improve the sophistication and quality of their export products. While existing firms have increased their market share for existing products in existing destinations, the renewal of the exporter base with entry and exit of firms is limited, and existing firms exhibit little product and market innovation. 18. The enormous competitiveness challenge faced by Moroccan firms was highlighted by the country's response to recent adverse external shocks. While the 2008 financial crisis has had limited direct effects on Morocco's economy, the subsequent food and fuel price crises and Eurozone crisis have had more serious repercussions. Morocco suffered a major deterioration of its terms of trade, compounded by a significant increase in its food import bill since 2008 (18 percent per year on average). Moreover, with a strong trade exposure to the European Union (EU), Morocco has been adversely affected by the sovereign debt crises in Spain, Italy, and Portugal, and the subsequent slowdown of economic growth in Europe more generally. As a result, economic growth beyond the agricultural sector has decelerated to an average of 3.5 percent since 2009, compared to 4.7 percent during 2000-2008. Growth has been driven mostly by debt-creating domestic demand, most notably by growing public expenditures. On the upside, the emergence of new growth drivers in higher value-added industries (such as car manufacturing and aeronautics) and the expansion of Moroccan companies in Western Africa are potentially creating the conditions for Morocco to become a regional hub for investments between Europe and Sub-Saharan Africa. 19. In response to deteriorating fiscal trends, the Government initiated the reform of the subsidy system and began to rein in other recurrent and capital expenditures. Morocco's fiscal balance swung from a surplus of 0.4 percent of GDP in 2008 to the highest deficit in two decades, at 7.3 percent of GDP, in 2012. The activation of a price indexation mechanism helped cut subsidies by almost 2 percentage points of GDP in 2013. The consolidation measures also included limiting the rise of the wage bill to 2 percent and cutting capital outlays by 6.2 percent. As a result, the fiscal deficit narrowed to 6 percent of GDP12 in 2013, and the recourse to international markets was limited to US$750 million in 2013, as compared to US$1.5 billion in 2012. Following an agreement signed with the Gulf Cooperation Council (GCC) countries in 2012, Morocco has also received US$615 million in capital grants in 2013. Outstanding government debt continued to increase in 2013 (albeit at a slower pace than in recent years) to reach 62.3 percent of GDP. 20. The pursuit of expansionary fiscal policies has fuelled current account deficits in recent years. After widening to 9.7 percent of GDP in 2012, the current account deficit is estimated to have improved to 8.7 percent of GDP in 2013. Europe has remained Morocco's main trading partner by far. On the financing side, in a context of a fixed exchange rate, net 12 The budget deficit does not take account of capital grants, which are registered as source of financing. The budget deficit including capital grants was 5.4 percent of GDP in 2013. 5 foreign direct investment (FDI) inflows grew by an impressive 23 percent in 2013. After two years of falling foreign exchange reserves, overall financial flows more than covered the current account deficit in 2013, leading to a consolidation of foreign reserves by US$1.3 billion to US$18.5 billion (4.3 months of imports). 21. The financing of fiscal deficits tightened banking system liquidity. In 2012, Bank Al-Maghrib partly compensated for this by relaxing its stance in a context of low inflation: cutting its policy rate from 3.25 to 3 percent, lowering the commercial banks' reserve requirement from 6 to 4 percent, and increasing liquidity injections. In 2013, the monetary stance was less accommodating and money supply grew by only 2.8 percent, compared to 4.5 percent in 2012. Non-performing loans continued to increase in 2013, reaching 5.9 percent of bank credit to the private sector. With the loan-to-deposit ratio exceeding 100 percent in domestic banks, the scope for extending credits to the private sector is increasingly constrained. The implementation of the Basel III accords, which comes into force in 2014, is expected to put further pressure on credit extension, especially longer terms and to larger borrowers. Table 1. Selected Macroeconomic Indicators (2010-17) Actual Est Projections 2010 2011 2012 2013 2014 2015 2016 2017 GDP Growth (%) 3.6 5.0 2.7 4.4 3.0 4.6 4.8 4.9 In-,estment (a, %" of G;DP) 35.0 3)6.0 35 .3 33. 33 Il.2 321.9 32. 32 - . 7 DomesticSavings(aso ofGDP) 25.2 29.3 21,1 19.3 20.5 21.4 22.1 23.0 Unemploy ment Rate (%)) 9.1 81. 9 9.0 9. .. CPI Inflation (%) (period average) 0.9 0. 1.3 1.9 1.7 1.9 2.3 2.3 Budget Baanice ofli th G /GDP, - 4.' -6.9 7.3I -6.1 -4.8 -4.1 -3.4 31 5Subsidy outlaysI/GDP, % 3.6 6.1 6.6 4.7 4.3 3.9 3.4 3.2 DelbtStocko1 thc(G/GEP,", 50. 53.7 601 6.3 6. 61. 601 8. External Debt Stock /GDP, %29.0 29.3 34.4 38.4 40.5 40. 40.6 39.4 Current Account Balance / GDP,% -4.5 -8.0 -9 7 -8.7 -7.7 -6.6 -5.8 -5.0 Net Official Reserves (billion US$) (including gold) 23.3 20.3 17.2 18.4 19.7 20.0 20.8 21.6 Source: Government of Morocco and World Bank estimates and projections 22. Progress toward fiscal consolidation and improvement in external indicators underscore that the Government's medium-term macroeconomic framework remains broadly appropriate. Nevertheless, difficult conditions in the global and regional environment entail significant downside risks. In particular, three debt sustainability analysis tests put the medium-term public debt-to-GDP ratio in the 62-64 percent range, highlighting the risks posed by a limited reform scenario. However, successful implementation of the Government's revamped development strategy should ensure that this outcome is avoided (see Table 1 for key macroeconomic projections under a strong reform scenario). In the 2014 Budget Law, the Government confirmed its intention to continue reforming the subsidy system and to launch a reform of the pension system. In addition, it has asserted its commitment to deepen regionalization and deconcentration and adopt the organic budget law necessary to enhance the central and local governments' ability to deliver better and more efficient services. To improve the investment climate further, the Government plans to proceed with justice reform; improve access to financing, especially for small and medium enterprises (SMEs); address constraints in access to land; develop logistics services; and reinforce technical training. Last year, Bank Al-Maghrib announced its aim to move toward a more flexible exchange rate mechanism over the next three years. 6 Key Development Challenges A. Accelerating and Sustaining Economic Growth Accelerating shared growth 23. One of the key challenges for Morocco is to grow its economy faster than at historical rates in order to generate more jobs and greater wealth. Prudent economic management produced average growth rates of around 5 percent during 2001-2011 and reduced poverty (see above section on the poverty profile). Yet this growth rate has been insufficient to reduce unemployment, which has held at 9-10 percent since 2006. A simultaneously declining participation rate points to a disturbing trend of increased exclusion. It is estimated that Morocco needs to reach annual growth rates of 6-7 percent to absorb new entrants into the labor market and generate greater wealth for all. 24. To achieve stronger growth rates, Morocco will need a structural transformation of its economy, with a focus on broadening economic opportunities. These include a more stable macroeconomic environment, trade and exchange rate policies that support the competitiveness of Moroccan products, an improved business environment with a financial sector that better serves smaller and newer firms, more opportunities for private investment across all sectors, a labor force that is better trained and more productive, and a reduction in Morocco's reliance upon and inefficient use of natural resources (e.g. groundwater, imported fossil fuels). 25. A more stable macroeconomic environment can only come with a more diversified and resilient economy. Morocco's reliance on a few sectors (for example, agriculture, tourism, and phosphates) and on fragile and deteriorating natural resources, which are often exported without much local transformation and to a few markets (such as the Euro zone), makes it particularly vulnerable to internal and external shocks. The further development of agro-industry, along with a comprehensive program to modernize irrigation and adapt agriculture practices and crops to a changing climate, would further protect Morocco against such shocks. In addition, Morocco's dependence on fossil fuels and energy imports makes its economy vulnerable to global price fluctuations, while its significant potential in renewable energy (wind and solar) and in energy efficiency, including in transport, remain largely untapped. 26. Trade and exchange rate policies must support competitiveness and integration in global value chains. While export development plans are in place and Morocco has adopted an ambitious agenda with regard to free trade agreements, especially vis-i-vis the EU, the implementation of comprehensive investment climate reforms, increased productivity and reduced trade and investment barriers will be required to ensure deeper integration with global markets. In recent years Morocco has invested in robust trade reforms, notably in customs, and in major and successful transshipment activities. Yet trade costs remain relatively high, mostly due to supply chain inefficiencies, in particular among Maghreb countries. Modernizing logistics services can better connect Morocco to global value chains. Morocco also needs to shift progressively to a flexible exchange rate regime that would better support its export strategies and help increase resilience to external and internal shocks. 27. Implementing a comprehensive global integration agenda would require greater government efforts to coordinate and execute economic integration initiatives. Strategic reform areas will include foreign investment policy and investment protection, services trade 7 liberalization, competition policy, and consumer protection-all areas in which Morocco has room for improvement. This may require lifting government coordination to a higher position in the political hierarchy and establishing administrative units within the civil service to support the transition. Drawing best practices from successful experiences in Poland, Serbia, Slovenia, and Turkey could help Morocco build the institutions and implementation mechanisms needed to promote effective integration. 28. Morocco's financial sector could be more diversified and better serve SMEs and new firms. Morocco has a fairly diversified financial system that grew rapidly over the past decade. Financial system assets as a percentage of GDP have reached levels comparable to some high-income countries.13 Morocco's financial system has therefore performed well in mobilizing savings for the formation of capital. However, finance functions pertaining to allocating and monitoring capital inhibit growth. At this stage of Morocco's development, a better mix between banking and capital markets might help increase diversity among investors, improve transparency in capital decisions, and foster good corporate governance. Raising the proportion of equity capital in the financial structure of particular SMEs, by facilitating access to external finance, could also enhance creditworthiness. Finally, implementing G-20 financial system reforms will naturally give capital markets a greater role in providing long-term financing to the economy. 29. An environment more conducive to starting and growing businesses would boost economic activity and provide needed opportunities for disadvantaged youth and women entrepreneurs. Despite some business environment reforms, the legal and regulatory environment in many respects still does not facilitate the creation or formalization of small enterprises. The unpredictable application of rules by the bureaucracy and the courts, together with numerous administrative instructions and circulars, create an opaque and overly complex environment that discourages informal businesses from formalizing. As a result, informality rates are high in Morocco, with most informal workers being in small firms that engage in low- productivity activities.14 SMEs also commonly face barriers in access to land, finance, information, and support. These challenges were brought up emphatically throughout CPS consultations by young entrepreneurs and women who are most affected by these constraints. 30. Upgrading the skills of the labor force would improve productivity and employment rates in Morocco. This issue has worsened in recent years, with 35 percent of firms pointing to difficulties in identifying skilled workers as an important constraint, compared to 20 percent in 2004.15 This lack of skills is due to inadequate education (for the new labor force) and a lack of continued education (for the existing labor stock). During CPS consultations, participants expressed frustration with the mismatch between academic programs and employment opportunities, particularly the limited relevance of educational curricula in today's job market. 31. Labor regulations and comparatively high payroll taxes discourage the emergence of a dynamic labor force and formal employment, disproportionately affecting youth and women. Morocco's highly restrictive fixed-term contract laws and heavy employment regulations and costs constitute important obstacles to firms that seek to adjust their staffing to cope with new demand, technologies, and economic shocks. With one of the highest minimum 13 Over 200 percent of GDP. 14 Gatti, R.; Angel-Urdinola, D.; Silva J. and Bodor, A. 2011. Striving for Better Jobs: The Challenge of Informality in the Middle East and North Africa. Washington D.C.: World Bank 15 Doing Business for Morocco, World Bank, 2008 8 wagesl6 in the world and relatively high payroll taxes, the cost of formal labor is inflated in Morocco. As a result, businesses prefer to remain informal to minimize labor costs and rigidities, which negatively affects the quality ofjobs available to young people and women. Sustainable growth forfuture generations 32. Stronger health and education outcomes would boost Morocco's economic growth. 11 percent of economic growth and 25 percent of total income growth in developing countries during 2000-2011 could be traced to health improvements alone.17 Early interventions in health and education are key to ensuring a healthy and productive workforce for Morocco's future. Malnutrition, in particular, impairs cognitive development in early childhood and limits learning, performance, productivity, and earnings later in adult life. In addition, the rise of NCDs has significant consequences for future health spending and labor productivity. 33. A more sustainable use of natural resources will help to ensure they continue to be available to future generations. At issue is the overexploitation of Morocco's natural capital base on which the economy relies heavily and which is vulnerable to climate change. Agriculture and fisheries (accounting for nearly 20 percent of GDP) face land and water resource constraints; aquifers are being overexploited to provide water for irrigation and, to a lesser extent, industry; and the sustained growth of the tourism sector relies on coastal and marine assets that are also under pressure. Morocco is also particularly vulnerable to climate change: global warming and a decline in rainfall will negatively affect already scarce water resources, and have serious implications for the many industries that rely upon them.'8 34. Actions taken by Morocco to mitigate the potential impact of natural hazards will decrease threats to sustainable growth. Morocco is susceptible to destructive earthquakes, as well as flooding, droughts, and rising sea levels, all of which are expected to worsen due to climate change with potential impacts likely to be exacerbated by urbanization. Greater Casablanca, for example, is becoming increasingly prone to flooding, coastal erosion, and marine inundation. Rural areas are also vulnerable. A majority of Morocco's farms are small, semi-subsistence, and largely rain-fed, hence at risk of losses in the face of recurrent droughts. B. Addressing Social and Economic Exclusion 35. Reducing inequality and exclusion is a prerequisite for a stronger economy in the long term. Great disparities still exist in access to social and economic opportunities and services between coastal and interior regions, urban, peri-urban and rural areas, within rural areas, and among different segments of the population. During CPS consultations, civil society representatives from marginalized or remote regions complained about the lack of political will to implement social and infrastructure programs that would sustainably improve living conditions at the local level. These concerns were at the heart of the protest movement that led to the 2011 constitutional reforms. 36. Improving the prospects of the rural poor requires sustainable farming practices, higher incomes, and more diverse income opportunities. Farming is the main source of income in rural areas, and for the vast majority it consists of semi-subsistence farming of low productivity and quality on small lands. Women's work on such farms is often unrecognized or 16 Equivalent to 70% of average wages in 2011. 1 Global Health 2035: A World Converging within a Generation, The Lancet on December 3, 2013. 18 These include hydropower generation capacity, rainfed agriculture yields, and water for irrigation, fisheries, and tourism. 9 unpaid. Small farmers face significant constraints, including land titling issues and land fragmentation, limited farmer organization, unpredictable rainfall, marginal land, and limited access to markets. Highlighting the dualist nature and inequality of the agriculture sector, fewer than one percent of farmers have very profitable, commercial, and export-oriented farms, representing 14 percent of cultivated land. Increased value added from irrigation water and crops produced, improved agriculture value chain management and commercialization practices, reform of extension services, and promotion of local transformation through agro- industry would ensure that better sector performance translates into higher incomes for all. Promoting aquaculture and ecotourism activities would provide alternative income sources in marginal and mountainous rural areas while reducing pressure on natural resources. 37. Integrated, participatory development approaches are needed to improve rural access to social and infrastructure services. Experience demonstrates that truly integrated and participatory rural development approaches are critical to improving living conditions and creating economic opportunities in rural areas. Achieving better service levels in a given area calls for concerted and coordinated multi-sector approaches centered on harmonized planning. The challenge for Government is to bridge sector divides and support the local level (e.g. communes) to find innovative ways of providing services in rural areas. 38. With half of Morocco's population living in cities, improving urban service delivery is a key priority for the Government. Urban and peri-urban centers face uneven access to city services such as solid waste management, public transportation, water, sanitation, and sewerage infrastructure, highlighting the need for structured and integrated programs to upgrade or expand services in response to the needs of growing urban populations. To that effect, the technical and financial capacity of municipalities needs to be enhanced, and public funds need to be allocated for key services that are not currently being delivered, including through performance-based partnerships with public or private service providers. In addition, ICT and e-government services can help play a key role in promoting more effective, transparent and equitable delivery of services. 39. Local governments, the primary citizen interface for a majority of basic services, will require significant strengthening. Limited access to information and space for voice limits opportunities to enhance public and private service provision. Local government capacity and community organization need to be strengthened and combined with local participatory governance and community-driven development approaches to decide on and deliver solutions that ensure quality service to all citizens. In parallel, central and local government resources need to be allocated according to local priorities. 40. Creating opportunities for young people who are disproportionately excluded from the economy and have limited voice is an important challenge. More than half of young people are inactive, neither in school nor employed. While unemployment rates are higher for more educated youth, a vast majority of unemployed young people have not completed middle school or are illiterate.19 A staggering 82 percent of girls drop out of school and are not in the labor force due to family reasons or discouragement. Most employed young people work in the informal sector with few, if any, benefits and under precarious conditions. Government employment policies have focused primarily on supporting university graduates - an approach that has had only limited impact on youth employment. A diagnostic on 11 countries20 highlighted the issue of employability (the mismatch between the available 19 63 percent and 30 percent, respectively. 20 McKinsey & Company. 2011. "Education for Employment for Youth in the Arab Region," (March). 10 workforce and available jobs) and its links to the lack of information sharing between the education sector and the job market, the lack of data on placement rates per education type, and the poor quality of job intermediation. Additional efforts need to be made to partner with the private sector and to work with youth groups, schools, and other local organizations to develop programs that more effectively keep young people active, particularly by better informing and equipping them for the future. 41. Shortcomings in the implementation of the legal framework undermine the economic, social, and political status of women. Social norms exclude women socially and economically, leading to social phenomena such as harassment and domestic violence, for which there is no comprehensive legislation. In addition to gaps in the legal framework, women are affected by limited application of existing legislation, caused by weak institutional capacity and selective enforcement by public officials influenced by social norms. In particular, some social norms restrict women's ability to exercise newly acquired rights, further limiting their economic, social, and political participation. Women's access to top management positions is limited both in the professional and political arena. 42. Efficient subsidy and targeted safety net programs are needed to better support disadvantaged and excluded Moroccans. The current social protection system is not effective in fighting poverty, as it favors primarily the wealthiest households and supply chain networks. Data from 2012 show that the richest 25 percent of Morocco's households benefit from 46.7 percent of all butane subsidies and around 40 percent of all liquid fuel subsidies.21 At the same time, social assistance programs remain limited in scope, fragmented, and poorly targeted, while the social insurance system has limited coverage and displays ad hoc financing mechanisms and redistributive arrangements that increase the cost of formal employment and make the system financially unsustainable and inequitable. The challenge for the Government is to raise awareness about the advantages of reforming these programs in order to expand their coverage, improve their targeting, and promote program integration while assisting the sector stakeholders who are most affected. In particular, the Government needs to reach consensus on how best to sequence and apply subsidy and safety net reforms. C. Strengthening Governance and Institutions for Better Public Interventions 43. Improving public sector governance and the capacity of institutions and service providers is critical to ensuring effective and inclusive public interventions. Access to basic public services is central to sustained poverty reduction and to the promotion of shared prosperity. Indeed, the poorest segments of the population are particularly dependent, and therefore vulnerable, to any discretion or quality deficiencies in public service provision. Lack of access to these basic services has a direct effect on citizens' living conditions and purchasing power. To remedy this, the Constitution has mandated the government to implement reforms to make institutions more accountable and transparent in the delivery of public services at the local level, including through decentralization and fiscal transfers. 44. At the central level, a key priority is improving public sector governance, including strengthening accountability and transparency in the management of public resources. The budget is considered opaque, insufficiently strategic, highly fragmented, and difficult to monitor and evaluate. Similarly, the process for fiscal transfers is highly 21 Wealth being determined by consumption quintile, World Bank estimates, Verme, Araar and Gadiry-Barry, 2012. 11 prescriptive and rigid with the result that spending is not as effective as it could be.22 To address these challenges, the organic budget law is being revised to introduce performance- based budgeting. State-owned enterprises (SOEs) represent two-thirds of public investment and half of public expenditures and play an important role in delivering services and implementing public policy. As such, the Government has embarked on a program to modernize the governance of SOEs to promote more efficient service delivery. 45. Morocco's health sector illustrates some of the governance challenges that undermine access to services and their quality. The system faces a critical shortage of health personnel, who are often poorly trained, do not report to work, and are not equitably distributed, particularly to health facilities in rural areas. There is also no system for regulating or evaluating the quality of health care providers and no program for career management. Many health care facilities are poorly operated, lack legitimacy and are not accountable to patients. Drug policies and controls are weak (prices of drugs are inconsistent and leakages occur). At the institutional level, different actors have overlapping functions, or one institution may do more than it is mandated to do. 46. Morocco's procurement system also needs to be modernized. It would benefit from greater transparency, accountability, and efficiency to align with international good practices and to effectively reduce the risk of corruption.23 The revision of the procurement decree at the end of 2013, harmonizing the application of public procurement across all government entities, is a welcome first step. 47. The new Constitution introduced the principle of open governance by granting citizens the right to information, to public consultation, and to petition the Government and Parliament. The Government has launched a number of initiatives in this regard, which strengthen voice and public participation but that need to be translated into dedicated policies applied across the public sector. These reforms, including a new access to information law, take time to implement and will require education and communication campaigns to raise awareness and change behaviors. To facilitate this process, the Government is seeking to further develop e-government solutions, as illustrated by the Watiqa24 platform. 48. At the local level, governance reforms should aim to improve access to and quality of service delivery, by listening to users and making service providers more accountable. What matters most to citizens is receiving services whose cost, timeliness, and reliability is acceptable. Many of these services are provided primarily at the decentralized level, either by municipalities or other decentralized government entities. To guarantee that such services are efficiently delivered and relevant to the user, infrastructure bottlenecks need to be addressed, tariff issues (for example, in water, sanitation, and electricity) resolved, and greater voice in service delivery discussions allowed at the local level. Public services need to be modernized and more accessible to citizens. Strengthening the private sector's role in infrastructure assets and service delivery, through public-private partnerships (PPPs) and greater competition, would also help ensure proper, cost-efficient, and sustainable management of good-quality service delivery. 22 Increased spending on priority sectors such as education and justice have not witnessed improved performance, according to public expenditure reviews undertaken by the WBG in the health, education, and justice sectors. 23 Procurement system assessment of the Use of Country System (UCS) pilot program in 2010-2011. 24 Watiqa is a new one-stop online service enabling citizens to request various administrative documents (for example, birth certificates) and receive them via registered mail. 12 Government Priorities and Medium-Term Strategy 49. The Government's strategic priorities mirror in great part the principles, changes, and actions prescribed by the new Constitution. This was detailed in the Head of Government's January 2012 speech, which laid out the Government's 2012-2016 program. The latter reflects constitutional priorities such as inclusion, reinforcement of good governance principles, human rights, and protection of individual freedoms, as well as institutional responsibility and accountability, sustainable development, and the move toward a more decentralized system of governance. 50. The Government's program is structured around five mutually-reinforcing pillars: (I) deepening national identity, preserving social cohesion and diversity, and openness; (II) consolidating the rule of law, strengthening good governance, democratic participation and advancement of regionalization and decentralization, in the context of accountability and true citizenship; (III) pursuing strong, competitive, multi-sector, diversified, wealth- and employment-generating, and equitable economic growth; (IV) promoting social programs guaranteeing equitable access to basic services and strengthening solidarity and equal opportunities across citizens, generations, and regions; and (V) Consolidation of the country's regional and international credibility and promotion of public services aimed at Moroccans living abroad. Based on the WBG's comparative advantages and aim of ensuring selective support to those areas of the Government program that will most effectively address the key development challenges identified, the CPS program seeks most directly to support three of these pillars (II, III and IV) (Figure 2). Figure 2. Morocco's Challenges, Government Program and CPS focus Development Government Program Challenges Pillar 1: Deepening national identity, preserving social cohesion and diversity Pillar II: Consolidation of the rule of Law Accelerating & sustainingecnomitc Pillar IllPusuit of a strong, competitive, muti-sector, diversified, and weafth and employment generating economy C Pillar III: Pursuit of an economic policy0 Addrssig sciagan guaranteeing that the benefits of growth Addrssig soialandare shared econmic Pillar IV: Promotion of social programs exclusion guaranteeing equitable access to basic services and strengthening solidarity and equal opportunities across citizens, generations, and regions Pillar V: Consolidation of Morocco's regional and international credibility, as well as support to Moroccans abroad 13 51. Under Pillar II, the Government is pursuing governance reforms focused on the delivery of public services, access to information and public consultation, tax reform, budget reform, advanced regionalization (that is, decentralization), and a better- functioning justice sector. A common goal of these governance reforms is to improve the effectiveness of public policies and the delivery of public services to all citizens. This is being pursued through an integrated, holistic program of governance reforms using mutually reinforcing reform levers across the public sector, covering the central administration, SOEs, and local governments. Over the last decade, Morocco has invested heavily to improve local service delivery. Several national sector plans have directed large amounts of funding to infrastructure for local services in the form of financial incentives for investment and professionalizing services (mostly through PPPs), in particular in sanitation (Programme National d'Assainissement), solid waste management (Programme National des Dchets Menagers), urban transport, urban upgrading (Mise i Niveau urbaine), and rural electrification. Although programs to universalize access to services have been fairly successful, about two million people in low-income peri-urban areas still do not have water or sanitation services. In parallel, the new constitutional rights on access to information and public participation aim to create a more open and inclusive government to foster voice and accountability. Public financial management and public sector reforms aim to strengthen public institutions and accountability in the use of public resources in order to improve the delivery and efficiency of public services. Decentralization reforms focus on strengthening local governance and bringing the most relevant and efficient services to citizens, based on the principle of subsidiarity that decisions should be taken as close as possible to the citizens. 52. Under this pillar, the Government also seeks to improve economic and financial governance. Strengthening the Competition Council, improving governance in SOEs, putting in place more transparent and performance-based budgeting, reforming public procurement, rebalancing the pension system through parametric reforms, and implementing fiscal transfers to local governments are key efforts in this regard. 53. Under Pillar III, the Government seeks to improve economic productivity. To this end, Morocco continues to implement key Box 1. Government's 2012-2016 Program - sector-specific strategies consisting mainly of Selected Targets tax incentives to sectors with high growth potential, combined with dedicated As part of its program, the Government set out infrastructure investments, simplification of to achieve the following targets by 2016: administrative procedures, and broader access * Growth rate of 5.5 percent to financing. Several strategies have been * Inflation rate of 2 percent adopted covering the main sectors that * Reduction of unemployment rate to 8 percent Morocco wishes to develop, such as agriculture . improved sustainability of public finances by (through the Plan Maroc Vert), ICT (through reducing the budget deficit to 3 percent Plan Maroc Numeric), and tourism (Plan Azur . Strengthened competitiveness of the economy and Vision 2020). An ambitious industrial . Improved investment climate . Greater support to SMEs strategy was launched in 2005 and continues to 9 Encouraged exports be implemented under the "National Pact of 9 Development of long-term savings Industrial Emergence 2009-2015 (PNEI)," 9 Renewable energy reaches 42 percent of signed in February 2009 between key ministries installed capacity (by 2020) and representatives of the private sector and the Energy efficiency leading to 12 percent in Professional Banking Association. It covers ten energy savings (by 2020) pillars: offshoring, automobiles, aeronautics, electronics, textile and leather, agro-industry, SME competitiveness, investment climate, training, and industrial zones. 14 54. Sustainable management of natural resources is also a key component of Pillar III. The Government has made the green growth agenda a top priority. The Framework Law on Environment and Sustainable Development, approved in January 2013, defines the rights and obligations of the state and citizens for the protection and preservation of the environment and sustainable development; establishes the "Police de l'Environnement" to strengthen environmental control and inspection; introduces a green tax (the "fiscalit verte"); and promotes waste reduction, reuse, and recycling with a view to achieving more productive and resilient use of environmental assets. The Government is currently preparing a national strategy for the sustainable management of natural resources. 55. Pillar IV is focused on improving social indicators and economic opportunities. Through continued support to employment creation programs and the introduction of new programs to insert the unemployed into business and associations, the Government aims to reduce the employment rate to 8 percent by 2016. Other priorities include improving Morocco's weakest health indicators, such as infant and maternal mortality; addressing the growing challenge of NCDs; improving service quality across the health sector; and reducing the financial burden on households and protecting them from impoverishment due to out-of- pocket health expenditures. A particular emphasis on promoting women's social and economic opportunities, including through participation, is also stressed under this Pillar. More generally, human development remains a priority for the Government, supported heavily through the National Initiative for Human Development (INDH). More than ever, the importance of fulfilling the goals of the Education Charter, and in particular promoting better governance and quality in the education sector, has been recognized as one of the Government's top priorities. 56. Social solidarity, equity, and inclusion are all emphasized under this pillar, with a special focus on poor and vulnerable households. The Government seeks to move from channeling support to the population through universal energy and food subsidies to more efficient, targeted safety nets. In September 2013, the Government embarked on an important reform to progressively phase out all fuel subsidies except butane, which is used predominately by the poor. The Government is considering how best to move forward with a broad parallel reform of the more cost-effective and better-targeted social assistance program. Broadening the array of citizens that can benefit from the pension system is also an important feature of the program Finally, continued expansion of basic infrastructure services such as water, sanitation, electricity, roads, and ICT, including mobile phone and Internet services, to remote and underserved areas remains a government priority. III. BANK GROUP PARTNERSHIP STRATEGY Lessons Learned from the Previous CPS and Stakeholder Feedback A. Lessons from the CPS Progress and Completion Reports 57. The FY10-13 CPS concentrated on three strategic pillars: (i) growth, competitiveness and employment; (ii) service delivery to citizens; and (iii) sustainable development in a changing climate, supported by the two crosscutting beams of governance and territoriality. A CPS Progress Report was prepared in 2012 to assess implementation progress and make mid-course adjustments, in particular to bring new emphasis to the themes of inclusion, governance, accountability, voice, and opportunity. 58. The WBG's performance in designing and implementing the CPS program was rated good in the CPS Completion Report (CPSCR). The evaluation highlighted the relevance of the strategy's highly flexible design as social, political, and economic 15 transformation took hold in Morocco and the broader MENA region over the course of the CPS period. The CPS made use of a unique mix of instruments to support implementation of the Government's ambitious reform agenda, backed up by a well-designed results matrix that closely linked expected CPS outcomes to the outcomes of planned interventions and struck a practical balance between flexibility and specificity. WBG implementation of the CPS program was characterized by largely satisfactory project outcomes, disbursements above the regional average despite significantly expanded lending commitments, increased IFC investment in key sectors, a strong program of analytical and advisory activities, and close and effective partnerships with the Government, development partners, foreign investors, regional players, and nongovemment stakeholders in the country. 59. The CPSCR concludes that good progress was made toward achieving most CPS proposed outcomes. The CPSCR rates program performance as moderately satisfactory, with notable achievements in private and financial sector reform, access to education, addressing vulnerability and social exclusion, agriculture sector management, and solid waste management (SWM). Substantial progress was made toward most other expected outcomes, though some targets on water management, energy and health sector reforms, and climate change adaptation were not achieved. In general, successful CPS interventions enjoyed high- level government ownership and integration with government programs; participatory approaches; effective technical assistance (TA); and well-specified, operationally integrated, and regularly monitored outcome indicators. In a few areas (such as the competitiveness program), momentum was slowed by the additional challenges associated with interagency coordination and under the auspices of new multi-sector DPLs, by low government staffing, or as a result of imperfectly specified targets. 60. Lessons from the CPSCR have informed the design of the FY14-17 CPS. WBG engagement in strategic areas such as competitiveness, governance, green growth, social protection, and service delivery remains relevant and has been scaled up in pursuit of promoting shared prosperity and eliminating poverty. The integration of gender and youth across CPS pillars and activities is maintained and further deepened through discrete new interventions. This CPS retains the previous strategy's flexible model, which successfully allowed the WBG to adjust its program as needed to respond to emerging priorities. Although significant sector advancements were made through single-sector DPLs under the previous CPS, the CPSCR pointed out the importance of supporting more ambitious second-generation reforms with cross-sectoral dimensions while continuing to focus on service provision, strengthening coordination to achieve tangible results, and enhancing citizen participation. This approach responds to the Government's request for more multi-sector programs to help tackle more complex, multidimensional problems. Building on the previous CPS focus on a wide reform agenda, under this CPS, the WBG will bring more focus to implementation support, with a more balanced portfolio of instruments (relying less heavily on DPLs). Given the positive experience with Morocco's first Program for Results (PforR) operation, approved for the INDH2 in 2012, together with the Government's interest in managing for results, the WBG will mobilize this new instrument to achieve a more balanced, results-focused program, in conjunction with continued DPL and investment lending support where appropriate. In terms of investment lending, the CPSCR confirmed that many operations encountered challenges with implementation readiness, which delayed the pace of procurement and disbursement, particularly in the first year of implementation. This issue has proved particularly acute with grant-financed operations. Overall, the CPSCR concludes that the FY1O-13 CPS was generally implemented as planned and reached a majority of the intended results. 16 B. Client Feedback and Stakeholder Consultations 61. The WBG carried out comprehensive and inclusive in-country consultations in 2013 through formal conferences and bilateral meetings with the Government, civil society, private sector, academia, and development partners, at both the central and regional level. A wide variety of development stakeholders were invited to provide feedback, comments, and recommendations around key themes of WBG involvement in Morocco. They were asked to offer their views on the new partnership framework with regard to Morocco's development priorities. A dedicated web space was created to keep stakeholders informed about the CPS process and invite further comments. 62. Civil society recommendations have been critical to the WBG's dialogue with the Moroccan Government and have helped to frame the orientation of the CPS. Civil society representatives have provided valuable feedback based on their experience on the ground and their knowledge of major bottlenecks in key sectors, and have made constructive proposals to enhance the WBG's support to the Government. The following are key recommendations made by civil society. 63. Morocco's civil society constitutes a vibrant and growing development stakeholder whose field presence and experience are invaluable. Its capacity and expertise should be strengthened to more effectively deliver on the ground. One of the most common demands made by civil society organizations during CPS consultations was the chance to be involved in Morocco's development programs from inception to implementation, including in the decision- making process. They requested that their role be better recognized and taken into consideration in development policies and reforms at the local and national level. 64. Governance is at the heart of Morocco's development challenges. In virtually all consultations held, civil society stakeholders pointed to weak governance mechanisms as a key cause of public service failures to deliver on promised results, despite the involvement in some cases of substantial financial resources. Stakeholders advocated for urgent collective action to upgrade governance norms and guidelines in all public facilities and services, mirroring a strong demand among street protesters in 2011: combating corruption, privilege, and rent seeking. 65. In particular, there was a request for increased transparency and participation at all levels of decision making. Be it at a central or local, sectoral or administrative level, Morocco's governance system will gain in efficiency and performance if managed through the prism of transparency, participation, and accountability, according to stakeholders. This is seen as the thrust of the new Constitution. 66. The performance of public services, and social programs in particular, falls well below people's expectations, especially in lagging regions and some urban and peri-urban areas. Training, education, and capacity building for civil society, young people, rural women, and local authorities are needed to equip citizens with adequate knowledge and competences to become effective actors in an open society.25 Stakeholders called on the WBG to support efforts to provide more economic opportunities, combat corruption and nepotism, and promote entrepreneurship and private sector development. 25 An open society is understood as a flexible and tolerant society that is based on the rule of law and justice, individual responsibility, accountability, transparency, freedom of information and participation, and that promotes fairness in political, legal and economic systems, as well as equal opportunities for all. 17 Proposed World Bank Group Partnership Strategy A. World Bank Group Partnership Strategy Overview 67. The WBG, through its renewed partnership with Morocco, seeks to selectively deepen its support for a more open society and sustainable economic and social opportunities for all Moroccans. The CPS builds on the strategic areas of cooperation under the 2010 CPS, as well as selective themes introduced in the 2012 CPS Progress Report in response to the 2011 Constitution. This support includes promoting a more competitive economy, creating employment, improving service delivery to citizens, greening growth, and increasing the focus on voice and accountability, particularly in local governance, by bringing citizens into decision-making processes. Within these themes, the WBG team focused on three areas of strategic engagement with the aim of achieving, through tailored packages of services, 14 selective outcomes directly linked to the WBG goals (Annex 1). 68. The new CPS will increase the focus on competitive growth to create much-needed jobs, while ensuring that growth is sustainable, inclusive, and responsive to the WBG's twin objectives of boosting shared prosperity and eradicating extreme poverty. The WBG will scale up its support for Morocco's green growth agenda, supporting innovative multisector approaches to sustainable and environmentally sound development, for the benefit of future generations and to reduce the country's vulnerability to shocks. The strategy also brings a new focus to improving governance and service delivery, with increased support for more efficient, transparent, and inclusive governance arrangements across all levels of government (central to local), as well as in state-owned and private enterprises responsible for ensuring equitable access and quality of services. Promoting citizens' voice and participation is integral to these efforts, as is the focus on gender and youth. 69. The CPS retains a flexible approach while increasing the focus on multisector operations to better respond to Morocco's development challenges. While the CPS program has been designed to achieve specific objectives and outcomes, the program is indicative and there is some flexibility to address any unforeseen or newly emerging priorities that may arise in Morocco. In particular, the detailed program of support and the coverage of milestones will give greater focus to the first two years of the CPS period, namely FY14-15. A CPS Progress Report will define the milestones for the remaining period, namely FY16-17, allowing for mid-term adaptation based on the latest conditions. The focus on transversal and multisector operations will reduce what has at times been a fragmented and narrow sector approach. This is expected to enable the WBG to support Morocco's more ambitious reforms. A detailed Results Framework is presented in Annex 2. 70. On this basis, three strategic results areas are proposed as an organizing framework for the new CPS program (Figure 3): * Result Area 1: Promoting Competitive and Inclusive Growth * Result Area 2: Building a Green and Resilient Future * Result Area 3: Strengthening Governance and Institutions for Improved Service Delivery to All Citizens 71. Because of their sensitivity and recognized importance to Morocco's development, the CPS proposes to maintain or raise the visibility of three crosscutting themes throughout its program: (i) gender, (ii) youth, and (iii) voice and participation. 18 Figure 3. Morocco CPS FY14-17: Strategic Results Areas and CPS Outcome Areas Supported Areas of Government Program *Consolidation of the rule of Law (Pillar II) * Strengthening of good governance, democratic participation, and advanced regionalization and decentralization (Pillar II) * Pursuit of a strong, competitive, multi-sector, diversified, and wealth and employment generating economy(Pillar Ill] * Pursuit of an economic policy guaranteeing that the benefits of growth are shared (Pillar III) Promotion of social programs guaranteeing equitable accessto basic services and strengthening solidarity and equal opportunities across citizens, generations, and regions (Pillar IV) WBG's Support ResultsArea2 ResultsArea3 Promoting Competitive & Building a Green & Strengthening Governance& Inclusive Growth Resilient Future Institutions for Improved Service St,cteEic_Ouome 1.1.Enhantethe StrategicOutcome 3.1. Suppoit moreopencand enviionment with a more supportive of soil, coastal and water resources inclusive governanceensuing effective rights institutionalframiewouk for buinesentry,ade StrategicOutcomez2-2.Increaserenewabe for ctitien toaccessinfornation and petition facilitation and SME development energygenerationand enhance energy government trategioutcome1..Improveaccessto e FStrategicOutcome 3.2. Enablemoretransparent finance, with a particular focus on low income Strategic Outcome 2.3. Better integrateaccountable managementof public households, micro, small and youngfirms, and mechanismsto preventand mitigateaainst resources through buet and procement youth women t i reforms Strategic utcome. IncreasetheproduRoutcome 3.3. improve capacyto n, andvalue-addedoftheagri-foodsector manageand assesthe delivery of keyservices, StReZ Oucomeco.4. Better aaeragefte b socio-economic potential of integrated rural j!r(Oto -.Epn ce5t mi develogment_and_tourism serves(water, sanitation, electiity,transport, StrategicOutcome l.5. Improvethereliability of telecommuaicationi, health, eduction) electricity supply Strategic Outcome 1.6. Better match suis developed through highereducationor vocational training with the needs of the job market Strategic Outcome 1.7. Improve access to and effectiveness of social protection programs, espe,cilly for youth B. Expected Results and Program of Lending and Non-Lending Activities Results Area 1: Promoting Competitive and Inclusive Growth 72. Under this Results Area, the WBG will support the Government of Morocco in its efforts to achieve a more competitive economy in which the benefits of growth are shared by all. The WBG will support policies and interventions that promote investment in competitive sectors as one channel for accelerating Morocco's growth potential to further reduce poverty; and strengthen the business environment and financial sector to encourage and accompany entrepreneurs and emerging businesses, facilitate the participation of all Moroccans, including the rural poor, women and young people, in the economy, and ensure a greater role for the private sector. (See Annex 1 which discusses the proposed pLqgram. xpected outcomes and impact on WBG Goals). Strategic Outcome oti Enhance the business environment with a more supportive institution aframework for business entry, trade facilitation and SME development Link to twin goals: This outcome will boost economic activity to help create jobs and is linked to the goal of boosting shared prosperity. 73. Business environment. Efforts to improve the business environment were initiated under the Economic Competitiveness Support Program (ECSP) DPL series and associated 19 technical and advisory assistance, and will be pursued under a second ECSP operation (FY15). The ECSP series will be complemented by dedicated assistance, several parallel studies, and additional TA. For instance, a new Country Economic Memorandum (FY14/15) will examine opportunities to promote a more open society and thus reignite Morocco's economic dynamism to set it on a higher and more inclusive growth path. Joint Bank-IFC TA will continue to be dedicated to institutional strengthening of the Competition Council (Conseil de la Concurrence), increasing the transparency with which the Investment Commission (Commission des Investissements) grants incentives, and strengthening public-private coordination in designing investment climate reforms through the public-private National Business Environment Committee (ComWit National de l'Environnement des Affaires, CNEA). 74. Trade facilitation. A study on trade and integration with the EU will further inform the understanding of, and future support to, the competitiveness agenda. Morocco's first-ever reimbursable TA initiative is exploring how the establishment of a new Moroccan Investment Agency could help provide adequate tools for supporting public and private investments in strategic projects in productive and transformative sectors such as agribusiness. TA on ICT- enabled business process outsourcing (BPO) will help the country cement its status as a destination for foreign investment in areas such as call centers and software development. The WBG will provide TA to the transport sector, potentially through the Deauville MENA Transition Fund (DTF), to focus on logistics, public-private partnerships in transport, an assessment of transit along the trans-Maghreb corridor, the competitiveness of the national railway, and the trucking industry. Additional TA in logistics will support the newly created Moroccan Agency for the Development of Logistics (AMDL), urban logistics, customs reforms, and collaboration with other international financial institutions. In addition, IFC will continue to support a public-private initiative in collaboration with AMDL and the private sector to improve youth employability and the sector's overall competitiveness. 75. Entrepreneurship and SME development. The World Bank and IFC will pursue an integrated approach to facilitate entrepreneurship and SME development. The MENA MSME Technical Assistance Facility, a joint World Bank-IFC led project, will continue to provide TA to governments, regulators, financial institutions, and micro, small, and medium enterprises (MSMEs) in Morocco. Additional support for microenterprises, microfinance institutions, and their enabling environment will be provided under a Microfinance Development Project (FY14), financed by the DTF. A new procurement framework enabling greater participation of SMEs in public contracts and systematic publication of awards is also receiving TA through an Institutional Development Fund (IDF) grant. IFC will complement the Bank's support to SMEs by investing in financial intermediaries, SME funds, and microfinance institutions. IFC will continue to implement a sizeable advisory program in MSME finance, business environment, skills development and corporate governance program, which is critical to strengthen companies' ability to attract investment and promote economic development. Strategic Outcome 1.2. Improve access to finance, with a particular focus on low income households, micro, small and young firms, and youth and women Link to twin goals: This outcome will help create more opportunities for young entrepreneurs and boost shared prosperity. 76. Micro and SME finance. These priorities will be supported through several WBG instruments: (i) the programmatic DPL series (FY14-16) in support of capital market development and SME access to finance; (ii) the Microfinance Development Project, which will promote access to finance among low-income households, MSMEs, and women; (iii) an 20 IFC microfinance investment and advisory program that will continue to support the three main microfinance institutions, enhancing their resilience and diversifying their product offerings to improve their ability to manage risks and to scale up their outreach, particularly to women and youth, in a sustainable manner; (iv) the ongoing MSME Development Project, which provides partial credit guarantees to SMEs and is nearly fully disbursed after 18 months of implementation due to high uptake of the credit guarantee for very small enterprises, confirming needs in this area and opening up the possibility of a follow-on operation; (v) training to improve the financial literacy of women and youth and for microfinance institutions, supported through a regional TA program on enhancing microfinance for women and youth; and (vi) Bank TA and lending to provide innovative entrepreneurs with capital and support adapted to the risk profile of early-stage ventures. As one of the priority areas of its engagement in Morocco, IFC will continue to support SMEs by investing in financial intermediaries, private equity funds targeting high-growth SMEs, and through microfinance institutions that provide access to finance mostly to women and young entrepreneurs 77. Capital market development. The programmatic DPL series mentioned above will support capital market development by promoting more sophisticated financing tools that optimize domestic and foreign investment allocations in productive and innovative sectors. Strategic Outcome 1.3 Increase the productivity and value-added of the agri-food sector Link to twin goals: This outcome will increase revenues for farmers, thereby boosting prosperity and reducing poverty in rural areas. 78. The Bank will continue to support the Plan Maroc Vert (PMV), which seeks to double the agriculture sector's value-added and supports activities to integrate commercial and small farmers into domestic and international markets. The Bank will continue to support the PMV components that aim to enhance farmers' income through better techniques, skills, and knowledge support, and IFC will continue to promote private agribusiness investments to maximize outreach to farmers and help increase and diversify rural incomes. In line with the PMV DPL series, the Bank will further support the expansion of drip irrigation and associated improvements in the value chain and farmers' organizations through additional lending.26 In the outer years of the CPS, new lending, possibly though PforR operations, and programmatic economic and sector work (ESW) is envisaged to support further agriculture modernization (including restructuring of the Department of Agriculture's decentralized services at the regional level, establishment of regional irrigation utilities to improve service to farmers, establishment of agro-industrial areas and trade and commercialization platforms, and sustainable approaches to improve the livelihoods of small famers27). Focus on productive adaptation of Morocco's agriculture sector to climate change will also continue under the ongoing GEF-funded Social and Integrated Agriculture (ASIMA), Integrating Climate Change in the Implementation of the PMV (PICCPMV) and Integrated Management of Coastal Zones (GIZC) projects, as well as the new Inclusive Green Growth (IGG) DPL series 26 Additional financing to the Modernization of Irrigated Agriculture in the Oum Er Rbia River Basin project (FY15). 27 Pillar 2 of the PMV program. 21 Strategic Outcome 1.4. Better leverage the socioeconomic potential of integrated rural development and tourism Link to twin goals: This outcome will help create new economic opportunities in rural areas thereby boosting shared prosperity. 79. Integrated Rural Development. Building on its past support to the implementation of the Rural Development Strategy, as well as from Integrated Rural Development projects financed by the IFAD and EU, the Bank will support rural development in targeted regions of Morocco, through a new PforR operation aiming to (i) promote local economic opportunities in agriculture and off-farm sectors, especially for women; (ii) ensure an integrated approach, coordinated at the provincial level, in order to decentralize decisions on resource allocation closer to the population to further the process of de-concentration and decentralization; (iii) strengthen the capacity of the "communes rurales" by reinforcing their role in local development; and (iv) further the process of transfer of responsibilities to local development associations and producer organizations. The Bank will also support efforts to diversify economic activities through integrated rural development programs that promote linkages between investment in agriculture and nonagriculture sectors in rural areas through the ongoing GEF-funded GIZC project. 80. Tourism. A Tourism Development lending project is working to leverage the socioeconomic potential of Morocco's 31 medinas and its rural and natural assets by supporting the Ministry of Tourism's M'dinti and Qariati programs, which aim to diversify the sector and create additional revenues and job opportunities through new investment and management models on the empowerment of regions, cities, and local communities. Strategic Outcome 1.5. Improve the reliability of electricity supply Link to twin goals: This outcome will help ensure businesses can operate without interruption, as part of a more competitive economy needed to create employment and boost shared prosperity. 81. To ensure the electricity supply needed to meet the growing demand associated with a stronger and more competitive economy, while increasing Morocco's energy security by reducing its exposure to the volatile prices and subsidy burden associated with imported fossil fuels, the WBG will support ONEE's efforts to strengthen its power transmission grid through the ongoing ONEE Support Project, as well as Morocco's strategic development of renewable energy capacity (see Results Area 3), regional integration efforts, and potential IFC investments in the energy sector. MIGA will see to support eligible foreign investors in renewable energy through traditional political risk insurance and new products (see para 116). Strategic Outcome 1.6. Better match skills developed through higher education or vocational training with the needs of the job market Link to twin goals: This outcome will help create employment for young people and is linked to the goal of shared prosperity 82. Skills training. The Skills and Employment DPL (SEDP) series, launched in FY12 and whose second operation is planned for FY14, supports the Government's program of improving skills, productivity, and quality of employment. The CPS will support efforts to enhance the quality and relevance of higher education and vocational training through assistance in implementing the reforms initiated under the SEDP series, as well as TA to the 22 establishment of the "Agence d'valuation universitaire" and the participation of Moroccan universities in the CMI University Regional Network to support governance reforms. The WBG plans to support the implementation of the new vocational training strategy that is under preparation, aiming to develop a training system that better responds to labor market needs and offering additional opportunities, especially to disadvantaged youth and women, through TA and possibly lending. The Bank will support the Government in gaining tools to monitor jobs and skills offerings through a National Labor Observatory, and the IFC will support improvements in employment-based education offerings at a sectoral level. Through the E4E Initiative for Arab Youth, IFC will work with the AMDL and the Ministry of Tourism to put in place sector-specific labor observatories that will complement the National Labor Observatory. Furthermore, IFC will work with the Ministry of Tourism to refine the sector's existing qualification framework and design a training program to improve the management/administration of education providers in the sector. The E4E Initiative also focuses on providing high quality training to youth, in order to fill their skill gap and prepare them better for the job market, as well as enhancing their career opportunities. 83. Micro-entrepreneurship. Through a DTF TA operation (FY14), the Bank will continue to help disadvantaged youth receive micro-entrepreneurship development services and to assist in strengthening the institutional capacity of national and local stakeholders, including civil society organizations that work with young people. The Bank will provide technical support to the Government in preparing and implementing an Integrated National Youth Strategy and establishing a Consultative Council for Youth, which aims to strengthen youth participation in policy decisions that affect them directly. 84. Revenue-generating activities. The Bank's flagship PforR operation supporting the second phase of the National Human Development Initiative (INDH2) works through local governments and community-driven development to promote services and income-generating activities in poor areas, including for young people and women, while increasing local communities' participation in decision making. Similarly, the IGG DPL series will promote investments aimed at diversifying revenues and job opportunities in rural areas. Strategic Outcome 1.7. Improve access to and effectiveness of social protection programs, especially for youth Link to twin goals: This outcome will help ensure that social protection reaches the most vulnerable, to reduce poverty. 85. Active Labor Market Programs. The Bank will continue to support active labor market programs for unemployed youth. Through policy dialogue and lending, the Bank plans to support the reform agenda of the national employment and skills promotion agency (ANAPEC), based on a four-pillar policy framework: (i) developing results-based PPPs; (ii) improving the effectiveness of labor intermediation; (iii) developing results-based monitoring and evaluation frameworks; and (iv) promoting entrepreneurship/self-employment, on-the-job training, and life skills training among job seekers. Lending in outer years of the CPS period could include an operation focused on youth employment opportunities. To offer opportunities for less formal learning and lower barriers to labor market entry, including geographic boundaries, time flexibility, and home-based work, the Bank will continue to support ICT solutions and innovative ideas such as ICT-enabled micro-work (such as employing people with limited opportunities for sustainable employment as principal workers in BPO centers, and shifting simple outsourcing work from cities to poor rural areas for cost reduction). 23 86. Employment regulations. To prepare the ground for a more favorable regulatory framework for employment creation in the formal sector (notably for youth and women), the Bank will engage with the Government to identify reform options in the areas of labor regulation, labor taxation, and wage-setting mechanisms (including minimum wage policy). 87. Social protection programs and policies. The Bank will continue to provide analytical support on subsidies and the social protection system through a Social Protection ESW and TA, pension TA, and poverty ESW. The Social Protection TA envisions developing the Government's technical capacity to improve efficiency in the delivery of social safety nets by: (i) finding alternatives to develop a national methodology to target poor households, and (ii) proposing options to develop a unified registry of beneficiaries of social assistance programs. Analytical work and TA on subsidies and social protection systems will continue to inform policies to improve the targeting of beneficiaries of social safety nets and will inform the preparation of a possible Social Protection P4R (FY16/17). Likewise, analytical work and TA on youth inclusion will inform the design of a possible Youth and Employment Support operation (FY16/17). The INDH2 project remains a critical pillar of the social protection system being supported by the Bank and is expected to show good results during the CPS period. Analytical work on gender will inform the policy dialogue on promoting the inclusion of women, as well as the integration of gender considerations in development policy and programs. Results Area 2: Buildin! a Green and Resilient Future 88. Under this Results Area, the WBG will support Morocco's efforts to: (i) increase the efficiency and sustainability of natural resource use, and (ii) mitigate the economy's vulnerability to natural hazards. Poor and vulnerable groups are known to be more impacted by common goods problems and environmental externalities. Measures aimed at improving the sustainability of natural assets and environmental stewardship are key to ensuring equity and shared prosperity, including from an inter-generational perspective. The WBG will support policies and measures that enhance the management of natural assets to sustain the growth of key sectors, including through strengthened management of soil, coastal, and water resources; more rational production and utilization of energy; increased use of renewable energy and resource efficiency; and more integrated and effective mechanisms to prevent and mitigate against natural disasters and the effects of climate change. Strategic Outcome 2.1. Strengthen management of soil, coastal, and water resources Link to twin goals: This outcome will help ensure that natural resources are used in a sustainable manner and is linked to both reducing poverty and boosting shared prosperity. 89. Land and coastal management. Consistent with the Government's objective of encouraging growth that is less costly for the environment, the Bank will continue to promote industrial depollution, better soil management, integrated coastal management, and enhanced and adapted agriculture techniques and knowledge through the ongoing GEF-financed Social ASIMA, GIZC, PICCPMV projects, as well as through the IGG DPL series. 90. Water resources. The Bank will continue to promote wastewater treatment and reuse. Additionally, in the context of both ongoing and new lending support to the water sector, the Bank will support nonrevenue water reduction, desalination, and access to improved sanitation. 24 91. Climate change. In line with Morocco's green growth agenda, the Bank will continue to support the analysis of climate change impacts through TA and programmatic ESW, as well as TA on mining sector reform. Strategic Outcome 2.2. Increase renewable energy generation and enhance energy efficiency Link to twin goals: This outcome will help ensure that scarce resources are invested more sustainably in the energy sector and is linked to both reducing poverty and boosting shared prosperity. 92. Renewable energy. In the context of Morocco's intent to reduce its dependence on fossil fuels, development of the country's vast renewable energy resource potential remains a top priority for the Government. Morocco's new energy strategy targets a renewable energy capacity of 42 percent by 2020. To maintain the momentum behind Morocco's Solar Plan, and building upon the success of the first phase of the 500W Ouarzazate concentrated solar plant (Noor I) project, together with the Clean Technology Fund (CTF), and many other donors, the WBG intends to support the Moroccan Agency for Solar Energy's strategy for developing the remaining 350 MW of the solar complex through the Noor II & III project (FY15). On top of its own financing, the WBG will help mobilize additional concessional financing (notably through CTF funding for Concentrated Solar Power), and IFC will seek to increase private sector participation in the implementation of future phases of the Solar Plan. A Partnership for Market Readiness Grant (FY15) will support the establishment of national systems to measure and manage greenhouse gas emissions in different sectors. The Bank also intends to support the Government in pursuing regional collaboration opportunities with Maghreb and EU countries. The country's ambitious move to greater renewable energy use requires further reinforcement of the power system to enable it to absorb large amounts of renewable generation while meeting growing demand. In that context, the Bank proposes to assist ONEE, as operator of the power system, in coping with potential grid instability from integrating wind and solar power at a large scale without corresponding investments through a Clean and Efficient Energy lending project (FY15) aiming at optimizing the dispatch. 93. Energy efficiency. The Government has set an ambitious target of 12 percent energy efficiency savings by 2020. Rapid growth in electricity demand has strained the operation of existing power generation and transmission assets, leading to damaging network congestion. To alleviate the concentration of peak coincidence of electric loads, and thus to avoid the costly investment and heavy carbon footprint associated with additional generation, the WBG proposes to support policy measures and investments that encourage reductions in electricity consumption during times of peak electricity demand. This support would be provided through the Clean and Efficient Energy project. The IGG DPL series will continue to support institutional reforms in the energy sector through the creation of an energy regulator and revision of the legislative framework for renewable energy. During FY14-16, IFC's advisory services will focus on resource efficiency, namely on the implementation of projects with a number of agribusiness companies and provision of a sector-tailored guidance manual to scale up the adoption of cleaner production technologies through relevant aggregators (such as industrial associations). IFC also intends to implement resource efficiency projects with a number of companies in various sectors in the industrial zone in Casablanca. Finally, IFC will identify technologies with high resource efficiency potential per industrial sector and design business model(s) for wider uptake in the market. 25 Strategic Outcome 2.3. Better integrate mechanisms to prevent and mitigate against natural disasters Link to twin goals: This outcome will help mitigate the impact of natural disasters --which disproportionately affect the poor -- and is linked to the goal of reducing poverty. 94. The Bank plans to support the Government's efforts to consolidate, modernize, and expand existing risk prevention and mitigation initiatives into an integrated risk management strategy and program, through an Integrated Risk Management Support PforR (FY15). The new project would build on many years of Bank-led analytical work and technical assistance, with support from key donors, including the Swiss Agency for Development and Cooperation. TA on climate change adaptation in rural roads is also being prepared. Results Area 3: Stren!thenin! Governance and Institutions for Improved Service Delivery to All Citizens 95. Under this Results Area, the WBG will support activities to: (i) strengthen public sector governance and institutional capacity, and (ii) improve access to basic and quality services for all citizens. The WBG will support policies and interventions that promote a more open and inclusive governance framework, more transparent and accountable management of public resources, and more effective and equitable delivery of basic and quality services to all Moroccans across the public sector. Access to basic public services is central to sustained poverty reduction and to promoting shared prosperity as the poorest segments of the population are particularly dependent on these services for their social and economic well-being. Strategic Outcome 3.1. Support more open and inclusive governance ensuring effective rights for citizens to access information and to petition government Link to twin goals: This outcome is linked to both boosting shared prosperity and reducing poverty. 96. Morocco's new constitution has strengthened the principles of open governance and introduced new citizen rights, such as the right to information (article 27) and the right to petition and to propose legislative motions (articles 14 and 15) in order to foster more participatory democracy. These rights now need to be translated into specific policies and implemented. The Government has undertaken reforms to increase fiscal transparency and public access to information, including through the publication of draft laws and regulations prior to consideration for adoption. To improve voice and citizen engagement, the Government has launched a national dialogue for the implementation of the constitutional provisions on citizen participation. The Bank is directly supporting these policies, including a draft law on public petitions, a public consultations policy, and the law on access to information, through a Transparency and Accountability (Hakama) programmatic DPL series, launched in FY14, and associated TA. The Bank is supporting demand for social accountability through a multi- stakeholder working group on e-participation and through the Global Partnership for Social Accountability (GPSA), which Morocco joined in 2013. Design and implementation of the new budget reform and citizen engagement policies will be supported by a New Governance Framework Implementation Support TA (FY14), financed by a DTF. INDH2 will contribute to this objective through its emphasis on inclusive local development, notably through community participation of women and youth and enhanced social accountability mechanisms targeting program beneficiaries. 26 97. To ensure better and wider governance of service delivery, and of its accountability framework in particular, citizens and their representatives need more opportunities to participate in the planning, organization, management, and control of service provision, making the decision-making process more transparent. Combined with the ongoing decentralization process, greater participation allows citizens to play a real role in public policy. Entry points include enhancing access to water supply and sanitation, including in rural areas (through the FY14 Second Rural Water Supply project) and improving the quality of public transportation services (through the FY15 Urban Transport PforR operation). Strategic Outcome 3.2. Enable more transparent and accountable management of public resources through budget and procurement reforms Link to twin goals: This outcome of improving effectiveness of public spending is linked to reducing poverty. 98. To help the Government carry a more strategic budget policy, increase the allocative and operational efficiency of public spending, and improve fiscal transparency, accountability, and the focus on performance, the WBG will support reforms such as the introduction of programmatic, multiannual, and performance-based budgeting; a new legal framework for PPPs aimed at leveraging private investments, expertise, and competition; and a modernized public procurement framework that strengthens the management of public resources through unified regulation, introduction of grievance mechanisms, increase use of e-procurement, and institutional and capacity building. In addition, the WBG will support the move toward a more strategic and less systematic ex-ante control system (financial control) together with increased reliance on ex-post controls (internal and external audits). Likewise, the WBG will seek to help improve the efficiency of public investments and the effectiveness of public services by strengthening the governance of SOEs and agencies, and the implementation of the new code for SOE governance in priority sectors. Some of the reforms supported will contribute to Strategic Outcome 3.3. by improving the capacity and management of public services. This support will be provided through a Transparency and Accountability DPL series ("Hakama") (FY14) in close coordination with the EU and the African Development Bank (AfDB), a DTF- funded New Governance Framework TA (FY14), and an IDF-funded TA. A Public Expenditure and Financial Accountability assessment will be undertaken jointly with the EU and AfDB to update the analytical underpinnings of the large public financial management reform program and to assess progress to date. 99. Through the above-mentioned governance program, the Bank will assist in modernizing the management of local finances and intergovernmental fiscal relations. This entails a revision of the system for financial transfers to local governments, with a view to strengthening the legal framework, making the rules more transparent, and enhancing the impact of transfers, in line with the Government's regionalization strategy. In parallel, financial management information systems will be strengthened by extending the integrated expenditure management system to municipalities. 27 Strategic Outcome 3.3. Improve capacity to plan, manage, and assess the delivery of key services, especially at the local level Link to twin goals: This outcome of improving public service delivery is linked to both reducing poverty and boosting shared prosperity. 100. Sector-specific services. Strengthening the capacity of municipalities and improving their services is critical to delivering good-quality services to all citizens. Despite recent achievements, additional efforts are needed to enhance governance, particularly on the demand side, in sectors such as transport and SWM by improving accountability, transparency, and access to information, and by providing citizens and civil society with new and effective opportunities for engagement and voice while reducing disparities in the quality of and access to services. To achieve these goals, the WBG will continue its support to the SWM sector through a Fourth Municipal Solid Waste Management DPL (FY15) aimed at extending access to and improving the quality of SWM services, as well as support to the urban transport sector through a PforR operation (FY15) to improve coordination, quality, and access in urban transportation with the aim of creating more sustainable and livable cities, connecting people to opportunities, and reducing congestion and emissions from personal cars and taxis. The ongoing Judicial Performance Enhancement for Service to Citizens Project will contribute to this objective by strengthening the institutional capacities of the Ministry of Justice and Liberties and improving the transparency and effectiveness of its services to citizens and businesses. 101. Local government capacity. In addition to sector-specific reforms, there is a need to strengthen the overall institutional and technical capacity of local governments. The Local Government Support Program (Programme d'Appui aux Collectivits Territoriales, PACT) (FY14), financed by the DTF, aims to leverage the economies of scale inherent in municipal cooperation by establishing: (i) support centers to provide TA to local governments in preparing and managing public service projects; and (ii) municipal groupings allowing municipalities to build capacity to better invest in, manage, and operate the services they have been mandated to provide to their constituents, whether directly or by contracting private operators. The Bank will scale up its support to the Government's effort to strengthen local government service delivery capacity through potential PforR financing (FY16) while continuing to strengthen local governments' role in including communities through participatory planning and avenues for voice and accountability through its ongoing support to the INDH program. MIGA is looking to support a foreign investment into an integrated utility service provider at the municipal level. 102. Education. The Bank will sustain the support provided to the education Emergency Plan and the associated wave of reforms being defined by the Government through wide consultations, together with other development partners. Going forward, TA and lending support will have a stronger focus on improving the quality, equity, and governance of education, particularly through supporting the acquisition of basic skills in early grades and more effective teacher policies; consolidating and improving the efficiency of subsidy programs targeting rural and disadvantaged areas; and improving the governance of the education system by building the capacity of the regional academies and providing support to school-based management mechanisms. 103. Health. To support the Government's program for expanding equitable access to primary health services and improving the quality and distribution of health human resources to needed regions, and to address governance issues and gaps in the health management 28 information system (HMIS), the Bank proposes a Health Sector PforR (FY15), underpinned by a recent health public expenditure tracking survey and public expenditure review. The HMIS, also supported though a MENA Multidonor Trust Fund (MDTF) grant, will strengthen health sector officials' capacity to plan and provide health care access to more people across the country, and improve service efficiency by making health information available to policymakers and the public in a transparent manner. To further support health sector reforms, the Bank is considering another complementary lending operation and additional TA in the outer years. 104. E-government. In order to improve service delivery by reducing the redundancy in Morocco's development effort and increase the efficiency of overall government service delivery, the Bank will consider assisting the e-government agenda by ensuring that government services, datasets, and infrastructure are shared and mutually utilized, based on coherently defined interoperability. Strategic Outcome 3.4. Expand access to basic services (water, sanitation, electricity, transport, telecommunications, health, education) Link to twin goals: This outcome of expanded access to services is linked to both reducing poverty and boosting shared prosperity. 105. In order to reduce the outstanding access gap still observed in some areas for some basic services, efforts still need to be made to extend services such as roads, water supply and sanitation, electricity, telecommunications (mobile phones, internet, broadband networks infrastructure), health, and education to underserved areas, particularly in rural and peri-urban areas. Increasing the rural population's access to all-weather roads through the successful National Rural Roads program (ongoing and future lending); assisting the efforts of ONEE, local governments, and municipal service providers in expanding access to water supply and sanitation services in underserved urban, peri-urban, and rural areas; strengthening access to reliable power supply in underserved areas, particularly in remote areas and lagging regions, through the development of renewable energy solutions; improving access to primary health care services through the Health Sector PforR and TA in support of national consultations that were initiated with the Second National Health Conference, preparation of a universal health coverage strategy, and development of a National Health Charter; and enabling basic telecommunications in remote areas will all constitute a focus of Bank support over the CPS period. 106. To promote further rural deployment of infrastructure, the Bank envisages TA to formulate policies and regulations as well as supporting PPPs to catalyze further private investment, in particular in agro-industry and in trade and commercialization platforms for farmers. Crosscuttin! Themes: Gender, Youth, and Voice and Participation 107. The WBG's program will adopt a gender-sensitive approach that takes into account the role of women and provides them with equal opportunities. Morocco's new Constitution introduces the principle of gender equality and emphasizes the need to involve women in the development process. Nevertheless, key indicators show that progress still needs to be made to strengthen their status and give them equal access to opportunities. In this respect, the CPS program seeks to promote more emphatically and concretely the gender agenda throughout WBG-supported activities, including the INDH2 operation. To help track 29 progress in this area, gender-disaggregated indicators will be used in such key areas as entrepreneurship, revenue-generating activities, skills training, active labor market programs and access to basic services. A comprehensive Country Gender Assessment (FY14) is expected to expand the Bank's understanding of challenges faced by women in Morocco and yield concrete recommendations on how best to support opportunities and services for women. IFC will complement the WBG's engagement in this area through a strategic and selective approach, especially through access to finance instrument, looking for opportunities in its investment and advisory services to improve job creation and empowerment of women and youth entrepreneurs. 108. No one can deny the challenges faced today by Morocco's young people, one of the largest and most vulnerable segments of the population. While acknowledged to have the potential of being a rich and powerful engine of growth, this group is too often left out of economic opportunities and of the decision-making process around matters that affect it most. As a complement to the Bank's support for a new coherent and integrated government strategy, as well as ongoing support to youth representation and participation under the INDH2, youth challenges will be addressed through sector-specific interventions (such as the education, employment, or entrepreneurship agendas) with the common goal of seeking to provide young people with the social and economic opportunities they need to succeed and become productive contributors to Morocco's future. 109. Increased voice and participation are seen as prerequisites for a more inclusive development process and as a lever for improving the delivery of key public services. The new Constitution fosters good governance and citizen engagement through enhanced access to information, participation, and responsibility across all sectors and institutions. While large- scale initiatives have already been launched in this area, especially around the law on access to information and policies on public consultation, much still needs to be done to develop the operational instruments and support the implementation of these new policies across the public sector in order to inform and shape citizens' voice and establish an adapted space for citizen participation. This requires support to both the public sector and civil society organizations, notably through the GPSA. Implementing the FY14-1 7 Country Partnership Strategy A. Managing the Program 110. Country demand for the CPS period FY14-FY17 is estimated at up to US$4 billion (Table 2). The indicative financing program for FY14 is US$1,185 million and is reasonably firm. Lending volumes in FY15-17 will depend on country performance, IBRD's lending capacity, demand by other Bank borrowers, and global economic developments. This level of financing represents a notable increase over the total amount of financing granted during the previous CPS, which amounted to just under US$2.5 billion. This larger lending envelope would allow the Bank to pursue a high-case lending scenario to support critical reforms and investments in public administration reform, accountability and decentralization, employment support, inclusive green growth, and rural services. This stepped-up engagement would respond to Morocco's financing demands and enable the authorities to pursue economic transformation against a backdrop of economic difficulties in Europe, which have dampened external demand; high international food and fuel prices; and social pressure to create jobs and deliver on the promises of the new Constitution. 30 111. A greater focus on results and implementation will require a more balanced mix of instruments. Development policy operations (DPLs), which accounted for 60 percent of total lending during the last CPS period, have had a proven record of combining policy advice and support with flexible financing. They are expected to continue to play an important role in IBRD lending support to Morocco. At the same time, given the Government's shift toward a more results-centered program and the greater emphasis sought on supporting reform implementation and institutional capacity building in particular, the share of non-DPL financing, namely investment lending and PforR lending, is expected to increase to nearly half of IBRD financing over the CPS period. In particular, greater use of the PforR instrument, successfully introduced in Morocco in support of the second phase of INDH and particularly appreciated for its focus on tangible results on the ground, the intensive and continued capacity building support it offers throughout implementation, and its flexible disbursement arrangements, will be considered where most relevant. The timing and composition of IBRD financing is expected to be managed flexibly, allowing for financing across instruments and areas of engagement in response to evolving global conditions and country priorities within the overall envelope. Table 2. Projected IBRD Financing Program FY14-FY17 FY14 FY15 FY16-FY17 (indicative)* Project Name US$m Project Name USSm Project Name LUS$m Development Policy Financi q Accountabitty and Transparency 1 200 Economic Competitiveness 2 120 Inclusive Green Growth 2 Inclusive Green Growth 1 300 Solid Waste 4 130 Accountability &Transparency 2 & 3 Capital Markets & SME Finance 1 300 Gender Skils & Employment 2 100 Capital Markets & SME Finance 2 SubToral 900 Sub-Total 250 Su&Total Program fir Result Financl I Urban Transport 200 Energy Efficiency Health Sector Modernization 100 Agriculture Modernization Integrated Risk Management 75 Support to ORDAR Creation Support to Periurban WSS Service Extension INDH 3 Local Government Institutional Capacity Social Protection Reform Judiciary Reform Implementation Rural Development Program lEducation Support Su&Total Sub-Total 375 Su&Total knvestment Project financLnj i ONEE support AF 40 Noor CSP 2-3 150 Youth & Employment Support Rural Roads I AF 95 Clean & Efficient Energy 125 Rural Road 3 Rural Water Supply 150 OER "rigation AF 180 Water & Sanitation Early stage entrepreneurship 50 Tourism Development Non-Revenue Water 100 ICTDevelopment Sub-Total 285 Sub-Total 605 Sub-Total TOTAL TOTAL 1,230 TOTAL Total Estimated Lending Envelop 4,000 operations proposed for FY16-17 are indicative only, as the program Wit be confirmed at the time of CPS Progress Report 112. AAA will remain a key ingredient of the Bank's strategic support. To optimize the Bank's knowledge and leverage greater impact on the ground, and in continuation of past practice, the Bank will selectively use analytical and advisory services, and particularly programmatic ESW, as an integral part of the implementation of the CPS program, continuing to inform and support the policy dialogue on reforms and the overall lending and grant portfolio. Discussions around the planned Country Economic Memorandum (CEM) should 31 help to seek a more integrated view of where Morocco stands on key economic issues. Support to Morocco's green growth agenda and analysis of the impacts of climate change will continue through programmatic ESW. Building on past knowledge work,28 a new programmatic ESW will help to assess and review management models for service delivery, tariff and efficiency improvements in the water and sanitation sector, and decentralization and integration of the impacts of climate change in sector policies. Where appropriate, strategic partnerships with Moroccan counterparts (such as the fruitful ongoing collaboration with HCP on poverty work and on the ongoing Country Gender Assessment, the envisaged partnership with the Social and Economic Council of Morocco on the CEM) will be sought. Opportunities to build on emerging lessons from the country's first fee-based TA will be assessed in due time. The Bank will continue to be flexible and responsive to other counterpart demands by providing just-in- time AAA when appropriate. 113. Where opportunities arise, promotion of South-South exchanges will continue. Given Morocco's own successful, and at times pioneering, experience in some key development areas (such as climate change adaptation, integrated natural catastrophe risk management, reliance on civil society for youth programs, use of the PforR instrument in support of ambitious national human development programs, and pioneering solar energy generation models), the WBG will continue to encourage Morocco's sharing of good practices and successful experiences with other Bank client countries. Promoting South-South investments will remain an integral part of IFC's strategy in Morocco. Supported by IFC's program, the expansion of Morocco's banking sector to Sub-Saharan Africa helped partially offset the impact of the slowdown of the Eurozone. IFC will continue to support Moroccan regional players and further mobilize resources to increase investments, deepen regional integration, and expand South-South opportunities, especially into Sub-Saharan Africa. 114. The continued but selective use of grants, trust funds, and partnerships will allow for complementary and targeted interventions where most relevant. Where feasible, DTF funding will be sought for larger-scale TA activities that aim to accompany critical reforms or programs of a truly transformational nature and that require particularly intensive technical support (such as support to the national governance framework, to local government capacity building, to the introduction of underserved youth to micro-entrepreneurship, or to the development of microfinance). GEF funding will be leveraged strategically to complement operations supporting pilot or innovative initiatives in the area of sustainable development. Similarly, support to sensitive reforms and groundbreaking analytical work in the social sectors (such as social protection, subsidy reforms, and health) will continue to rely in part on grant facilities such as the Japan Social Development Fund and MENA MDTF. 115. IFC will continue to increase its support to Morocco with a view to restoring investor confidence through countercyclical investment support to existing clients and new firms. The focus will be on financial markets, with equity investments likely representing the majority of new investments as a means to help the economy through the crisis. IFC will explore investments in agribusiness, education, aeronautics, renewables, and mining. Through its advisory services program, IFC will help improve the Moroccan business environment, with a focus on PPPs in the infrastructure sector. At the same time, IFC will assist businesses in improving their corporate governance and internal controls, which are vital to attracting investors. 28 2008-2010 Water PESW 32 116. MIGA is open to continuing its support for sustainable projects with high development impact in sectors aligned with the broader WBG strategy. MIGA has continued to expand its product line by introducing two new products: non-honoring of sovereign financial obligations (NHSFO) in 2010 and non-honoring of financial obligations of state-owned enterprises (NHFO-SOE) in 2013. Foreign investments in Morocco, including projects in the infrastructure and energy sectors, may be eligible for support through these products. MIGA will strive to ensure that eligible investments avail themselves of these new products to support foreign investments. MIGA's client base has expanded and now includes equity investors, lenders and capital market investors. MIGA will reach out to such potential clients, including through business development missions. Notwithstanding the new products, MIGA will continue to support investors interested in Morocco through traditional political risk insurance, including through its Small Investment Program. Supporting foreign investments into Morocco is in line with MIGA's MENA Initiative, according to which MIGA has mobilized up to US$1 billion in capacity for new guarantees for cross-border investments into the MENA region. Working together with IFC, MIGA will continue to support Morocco's efforts to attract foreign private investors, including South-based and regional investors, through the provision of guarantees for noncommercial risk. MIGA also stands ready to support Moroccan investors and banks seeking to expand their operations in developing economies. B. Portfolio and Pipeline Management 117. Morocco's lending portfolio, totaling US$1.2 billion as of January 2014, consists of one PforR operation with a commitment of US$300 million, and 9 investment operations, with commitments totaling $945 million and an undisbursed balance of US$556 million. While this undisbursed balance may appear high, it should be noted that close to 40 percent of it is driven by an atypical project, the US$200 million Noor I CSP project, whose financing profile will, by design, only lead to disbursements toward the end of the project's life (FY16). The remaining balance is explained by a combination of new operations, some of them involving new partners, and a few investment operations faced with challenging land acquisition administrative procedures. Though still falling short of expectations, overall disbursement improved somewhat over the past two years, with a FY13 disbursement ratio reaching 12.1 percent. 118. IFC scaled up its engagement in Morocco during the last CPS period. Since January 2011, IFC has invested a total of US$590 million, including mobilization through its subsidiary, IFC Asset Management Company (AMC), as well as cross-border investments. IFC's investment portfolio has grown and has reached almost US$ 396 million in 16 companies (end-February 2014). IFC had a record year in FY13 with annual commitments increasing to about US$272 million (including mobilization). This increase was driven by a large equity investment of US$204 million in Banque Centrale Populaire (BCP) to support the Government's reforms of the banking sector through BCP's increased lending to SMEs and expansion into Sub-Saharan Africa. Furthermore, IFC committed over US$300 million of investments in South-South projects during the past three years. In FY13, IFC also made an equity investment of US$7 million in the education sector. In FY14 thus far, IFC has committed a total of US$ 133 million in social housing, agribusiness, funds, and MSME support. In addition, IFC has been scaling up its advisory work in the areas of microfinance, SME banking, corporate governance, investment climate, energy efficiency, public-private partnerships in infrastructure and skills development for the youth as part of the regional E4E Initiative for the Arab Youth. 33 119. Over the course of the last CPS, the Bank successfully introduced the new PforR instrument to Morocco in the context of its support to the second phase of the INDH program. In addition to focusing on results, strengthening institutional capacity and governance, and optimizing coordination among partners, the new instrument responded to the Government's request for greater use of country systems. It is anticipated that several areas of support under the new CPS will benefit from this instrument. 120. Key stakeholders will be involved more proactively and better prepared to implement new lending operations and grant-funded activities. The recent past has seen recurring slow disbursements in some investment lending activities and a majority of grant- funded operations. Following the recommendations of a June 2013 country fiduciary forum in Rabat, a more proactive and integrated approach to portfolio management has been initiated, in close collaboration with Moroccan counterparts. It ensures that all stakeholders with direct involvement in implementation are brought on board and together much earlier during project preparation, so that key steps such as proper budgeting, setup of payment mechanisms and clarification of roles can be secured before effectiveness. In addition, a more systematic application of the existing but still little-known "green circuit" procedures29 for activities funded under donor grants, which allow for lighter and more ex-post financial controls in the Government's management of funds, is being sought. Another positive development for the auditing of Bank-financed projects is the agreement obtained to progressively migrate auditing responsibilities from the Inspection Generale des Finances to the Cour des Comptes, which is also mandated to carry out such functions and whose independence has been strengthened by the new Constitution. C. Partnerships and Donor Coordination 121. Articulation of donor strategies for support to the Moroccan Government is often in sync, sharing similar areas of focus and strategic objectives. Alignment of donor programs with government priorities will continue to be strong. This is especially true around ongoing or new budget support operations (such as Hakama, IGG, SEDP2), but it also applies to ongoing and envisaged results-based lending programs (including INDH, health, agriculture, and urban transport) as well as investment lending operations, where possible (for example, the Noor I CSP project and support to the national rural roads program). In addition to seeking joint synergies (such as with the EU when supporting health and governance reforms, with the Agence Frangaise de Developpement (AFD) on the employment agenda, or with AfDB and the EU on a new Public Expenditure and Financial Accountability assessment), the Bank will step up its engagement in key areas where other donors withdraw due to their own strategic realignment (as with the AFD in the health sector). Close and effective donor coordination will continue through regular thematic meetings held locally at the technical level, through the more strategic exchanges with in-country representations or visiting officials from headquarters, or through numerous interactions sought around joint operations, from the exploratory phase of preparation phase through implementation. IV. MANAGING RISKS 122. Economic, social, and external risks. A fragile global environment, characterized by an uncertain economic recovery in Europe and volatile economic conditions in many emerging markets, create downside risks to Morocco's trade position, economic growth, and fiscal performance, as well as to the pace of financing the country's investments. Adhering to sound 29 Decree N 2-07-1235 of 5 Kaada 1429 (November 4, 2008). 34 macroeconomic management-including reining in spending-and accelerating reforms to boost Morocco's competitiveness and revenues will help reduce its vulnerability to external shocks and mitigate the risk of a narrowing fiscal space with limited policy options. The Bank's program is designed to support the authorities in undertaking reforms critical to strengthening the country's trade position and competitiveness, and to increase the fiscal space through reforms and fast-disbursing resources. Morocco will remain under tremendous domestic pressure to maintain generous social programs and will need to raise awareness and communicate widely regarding the objectives of wage, subsidy, and social safety net reforms to bolster broad-based support. CPS outcomes which would be most at risk are associated with improving the business environment, social protection programs and strengthening governance. The WBG is supporting these efforts through the DPL and TA activities discussed in the CPS document. The program's flexible design will allow for adjustments to Bank support in line with the pace of reforms, as needed. Should the environment for the private sector deteriorates significantly, IFC will stand ready to provide selective and high impact countercyclical support to help existing and new clients continue their business operations and maintain their workforces. 123. Political risks. Implementation of the CPS and the achievement of proposed outcomes, particularly under Results Areas 1 and 3, are predicated on the coalition government's adherence to the ambitious reforms set out in its program and mandated by the new Constitution. Any reduction in the depth and scope of those reforms would directly affect the CPS program, especially the delivery of the envisaged DPL operations and the proposed scale up in lending support. The WBG will maintain a close dialogue with the authorities and other stakeholders and continue to provide TA aimed at improving the knowledge base and understanding of policy options for the reform program, in particular for sensitive or complex reforms supported by the CPS program, such as subsidies, social protection, decentralization, competitiveness, transparency, and employment promotion. 124. Program coordination risks. Given the shift toward more transversal and multi-sector programs supported by the WBG under the CPS, there is a risk of weak coordination among the many government actors supporting implementation, which could in turn lead to delays in preparation and implementation of such operations. To manage such risk, the Bank will work closely with its partners to establish consensus and define clear roles and responsibilities in line with each agency's mandate and technical expertise. This will be particularly critical for the delivery of the envisaged PforR operations, which involve multiple stakeholders and are particularly critical to achieving outcomes across all three Results Areas. 125. Implementation risks. Land acquisition and compensation issues played a role in delaying preparation and implementation of investment operations under the previous CPS. Given the continued reliance on investment projects, especially to achieve the outcomes under Results Area 3, and the opportunity for lending scale up under the CPS, the Bank has launched a review of these and other safeguards issues and is discussing a program for resolving them with the authorities. Success of some of the analytical work supported by the CPS (for example, the planned Country Gender Assessment) relies heavily on official data. The Bank will pursue close collaboration with relevant government counterparts to ensure that such data can be made available where possible and to reduce the risk of weakening the credibility and impact of such work. 35 Annex 1 : Summary MOROCCO CPS Selectivity, WBG Development Solutions and Impact on WBG Goals Poet Sh.rs Theme 1: Promoting Competitive and Inclusive Growth The WBG will support the Government of Morocco in its efforts to achieve a more competitive economy in which the benefits of growth are shared by all. Structural economic transformation, including trade and exchange rate Low High 1. Enhance the policies to support competitiveness and integration in global value chains. Programmatic and multi-sector knowledge and convening services business environment Business environment more conducive to supporting micro, small and supporting implementation of reform and modernizations initiatives. with a more supportive medium enterprises (MSMEs); regulation and payroll taxes favorable to IBRD funding to increase economic competitiveness; IFC investment institutional framework for pooeadnmclbrfreadceto ffra mlyet nfnnilmres elsco n SE ud.W nweg businesswetry, rade implementation of policy reforms related to investment climate; change of on trade and integration, ICTs', value chain improvements in facilittiossentandtr regulatory framework to reduce dominant positions and unfair competition agriculture. IFC's advisory services to support investment climate High High in sectors such as ICT; heavy administrative burden and lack of reforms and corporate governance project development transparency; public agencies' coordination to reduce the gap between the laws and their application Capital markets are not sufficiently developed, which impedes the to BG programmatic and integrated approach to facilitate capital High High 2. Improve access to comotenss labo fca creatio fomakmarket development, entrereeneurship and SME development, finance, with a inpttvns ftefnaca etr iesf fo akn ocptl .cluding through corporate governance. Additional support for particular focus on low im ets p y acout te tninves cimal a ng microenterprises, microfinance institutions, and improve the enabling Average High income households, environment, including with a new procurement framework enabling ____ micro, small and greater participation and transparency. FC's investment services young firms, and youth SMEs lack access to finance and need support to grow, formalize and directly in financial intermediaries, private equity funds targeting and women become sustainable and create better employment opportunities high-growth SMEs, and through microfinance institutions to provide access to finance mostly to women and youth. 3. Increase the Clearer legal framework for water resource, including governance and non- Bank and IFC financing to support improvements in financial sector productivity and value- conventional water resources; irrigation modernization, through IBRD financing and IFC investments in financial markets, ge High added of the agri-food More efficient and modernized agriculture sector. Agriculture's higher banks, insurance, SME funds and microfinance. Bank and IFC work Hihig sector value added, including local processing of products. on youth and women micro-entrepreneurship. Integrated rural development: diversify economic opportunities to improve Programmatic and multi-sector knowledge and convening services 4. Better leverage the incomes in rural areas, promoting decentralization and transfer of supporting implementation of reform and modernizations initiatives. socio-economic responsibilities to local development associations and producer IBRD funding to increase green growth and modernize water and potential of integrated organizations to empower them energy sectors. fiFC investment in agribusiness and education. GEF High High rural development and Diversification of the tourism sector to create additional revenues and job contribution to knowledge (agriculture and coastal management). IFC of tourism opportunities through new investment and management models on the Advisory on irrigation PPP projects and E4E for logistics and tourism. empowerment of regions, cities, and local communities. Collaboration with DPs. Ensure electricity supply meets the growing demand for a more WBG support ONEE's efforts to strengthen its power transmission 5. Improve reliability copensu e ecctouy ectsonofexposureo the m grid and strategic development of renewable energy capacity, regional High High 5.Imroe elabliy competitive economy. Reduction of exposure to the volatile prices and inerto.fot,adpoeta F netet inighenegyseghr of electricity supply. subsidy burden associated with imported fossil fuels. integration efforts, and potential IFC investments m the energy sector. MIGA to engage with foreign investors in renewable energy. Low skilled/lack of proper skills of labor force; labor regulations and 6. Better match skills payroll taxes do not promote a dynamic labor force and the creation of Programmatic and multi-sector knowledge and convening services developed through formal employment; limited voice and economic opportunities for young supporting implementation of reform and modernization initiatives for higher education or people and women; insufficient economic growth rate to reduce skills and employment, education, gender, and inclusive green growth. High High vocational training unemployment; limited diversification of job opportunities, particularly in Bank and IFC work supporting employment creation through trainings with the needs of the rural areas; women and youth still marginalized from the economic and and skills enhancement activities. Collaboration with DPs. job market decision making process; poor quality of IGA and weak capacities of the poor to implement them 36 7. Improve access to Strong disparities in accessing to social and economic opportunities and Programmatic and multi-sector knowledge and convening services and effectiveness of services; pronounced urban-rural disparities; lack of efficient and well- supporting labor market programs, revisions of employment High High social protection targeted subsidy program for a more effective impact and support to regulations, and social protection program and policies (including programs, especially disadvantaged and excluded population. through and results-based instruments, and Bank's knowledge work for youth on cash transfers, poverty and gender assessment). Theme 2: Building a Green and Resilient Future The WBG will support Morocco's efforts to (i) increase the efficiency and sustainability of natural resource use, and (ii) mitigate the economy's vulnerability to natural hazards Unsustainable use of natural resources, including coastal water management (salinization of aquifers, water supply issues, loss of biodiversity, and ecologically sensitive areas, particularly in the northeast Programmatic and multi-sector knowledge and convening services High High 1. Strengthen coast with erosion and sea level rise). Poor and vulnerable households are supporting inclusive green growth, rural and regional water supply management of soil, more affected by these challenges and mitigating them has a greater impact systems, and modernization of irrigation and desalinization systems. coastal and water on prospects for the poor GEF support to social and integrated agriculture, integrated coastal resources Land degradation contributes to small farmers' poverty, marginalization, zone management, and integrating Climate Change practices. IFC High Low and overall environmental degradation. Advisory on Water PPP projects. Inefficient use of water for irrigation leads to wasted resources High Low High dependence on fossil fuel at high cost to scarce public resources that 2. Increase renewable could otherwise be invested in programs and services for the poor; Programmatic knowledge, technical assistance and convening services energy generation and difficulties to absorb large amount of renewable generation while meeting to improve green growth through clean energy (solar and wind) and Average High enhance energy increasing energy demand; lack of development of a sustainable renewable energy efficiency management. IFC Advisory on resource efficiency energy capacity; energy insecurity, lack of access for to all Moroccan efficiency/clean techs. households and businesses due to competitive prices. 3. Better integrate Lack of clear strategies/actions to mitigate natural hazards and their impact prevention and Programmatic knowledge, technical assistance and conveng services mitiatin mehansmson: highly populated urban areas (including in hazard prone areas), the mitigation ua economy and agriculture. A fragmented approach to risk management has to develop an integrated risk management approach in line with High Average dgistnturs l been less effective than a comprehensive integrated approach would be. adaptation to climate change, and with mitigation strategies. disasters Theme 3: Strengthening Governance and Institutions for Improved Service Delivery to All The WBG will support activities to (i) strengthen public sector Citizens governance and institutional capacity, and (ii) improve access to basic and quality services for all citizens. 1. A Support a more Government faces challenges in delivering the governance and institutional open and inclusive reforms promised under the new constitution. These reforms would governance framework improve delivery of social, economic and infrastructure services on which Combination of financial and programmatic knowledge initiatives. Average Average through effective rights the poor and vulnerable rely the most. Financing to support overall and sector-specific improvements in for citizens to access Lack of transparency and participation in the formulation of public policies accountability and transparency through projects and other activities. information and has led to policies and actions that do not always adequately respond to Average Average petition government issues they seek to resolve 2. Enable a more Urgent need to improve public sector governance, including increasing transparent and accountability and transparency public resource management to deliver accountable management of public better public services to citizens, in particular the poorest and most IBRD) financing for accountability and transparency operations. High Low ranes e Throuhic underserved; need to enhance fiscal transparency and efficiency for Knowledge support including with work with DPs. budget and spending to have greatest impact for citizens, in particular poor and rural budge andcommunities. procurement reform 37 Municipalities with low capacity to deliver services and economies of scale 3. Improve capacity to are not leveraged to address urban growth challenges; improved Combination of financial, programmatic, and knowledge services to plan, manage and governance and effectiveness of public service delivery at national and support accountability, transparency, and justice initiatives both at assess key service local level. Institutional arrangements for inter-municipal cooperation to be local and central level - and encompassing sectors (health, education, High High delivery, especially at adopted in metropolitan areas; inertia in trying new service delivery models transport, water, etc). local level. to serve inter-municipal challenges. Inefficient & nontransparent public administration processes. 4. Expand access to Rural areas have less access to services, affecting in particular poorest Programmatic and multi-sector knowledge and convening services basic services (water, communities supporting implementation of projects aiming to support education, sanitation, transport, Disparities in access to lower secondary education; high repetition and accessibility to services, water and waste management, and transport - High Low telecommunications, dropouts; and low quality of education -- and governance aspects health, education). dropouts;_and_low_quality_of_education_--_and_governance_aspects Note: The above assessment identifies whether WBG interventions have a high, average or low expected impact on income poverty or on the access to any of the basic needs that are reflected in the multi-dimensional poverty assessment. A high value represents areas where the initial expected direct impact could be on both the income side and the access to basic needs. In other words, this refers to strategic areas on which WBG interventions could have a direct impact on "extreme poverty", defined as population with monetary income below the 'minimum welfare' line and with at least three deprivations. An average value reflects areas where the initial impact could be either on the income side or on the access to basic needs. Finally, a low value refers to areas that may not necessarily have an expected direct impact on the income or the basic needs sides (i.e. a direct impact on the extreme poor). Shared prosperity focuses on income growth of the bottom 40 % of the population; 'average' or 'low' indicates the WBG's impact on economic growth in general. 'High' indicates impact on specific target groups within the bottom 40%. 38 Annex 2: Morocco CPS Results Framework (FY14-17) CPS Outcomes and Indicators (with CPS Milestones Indicative WBG Program 2014 baselines and FYI 7-end targets) Result Area 1: Promoting Competitive and Inclusive Growth 1.1 Enhance the business environment with a more supportive institutional framework for business entry, trade facilitation and SME Development Business Environment Business Environment On-going Financing Key administrative business procedures e The public-private National Commission for Business Economic Competitiveness (DPF) Key MSME Development (IPF) simplified and standardized by CNEA Environment (CNEA) adopts annual reform programs 1FC Investments in Financial Markets, Real Sector and SME (number) and publishes them with an evaluation of reform Funds Baseline: 20 impacts TreIndicative New Financing R lar: poEconomic Competitiveness 2(DPF) applicable administrative forms to businesses and Entrepreneurship FundaPF) citizens has been formally established f Key authorities concerned (tax, OMPIC, trade Indicative AAATATFthers register, CNSS) use the common business identifier First Study for the establishment of the Moroccan Investment ofpteAgency(TA) " IF caacit buldin ofMorocanInsttut ofCountry Economic Memorandum (ESW) Directors training 100 persons Trade and Integration-EU (ESW) Trade and Integration - Phase Er (ESW) Trade Facilitation Trade Facilitation Morocco Trade and Competitiveness (ESW) Ei mValue Chain and Trade Improvement in Agriculture (ESW) Regular production amFC Advisory services to support Investment Climate reforms performance and monitoring indicators exchange is operational and used by the key public IFC Maghreb Corporate Governance project from PORTNET, including e.g. indicators authorities and private trade operators involved in Broadband and eGov policy advice(TA) of transit time import and export operations CT -enabled BPO(TA) Baseline: No Target: Yes Entrepreneurship and SME Development Entrepreneurship and SME Development MSMEs receiving capacity building * The regulatory framework applicable to individual support through the corporate governance entrepreneurs has been simplified and adapted to their support tool (number) (IFC) specific needs Baseline: 0 E A corporate diagnostic tool for SMEs developed to Target: 20 enable SMEs to identify and implement corporate governance practices. CPS Outcomes and Indicators (with CPS Milestones Indicative WBG Program 2014 baselines and FYI 7-end targets) 1.2 Improve access to finance with a particular focus on low income households, micro, small and young firms, and youth and women Micro and SME Finance Micro and SME Finance On-going Financing Volume of outstanding MSME portfolio of * The Caisse Centrale de Garantie (CCG) launches a Financial Sector (DPF) MSME Development (IPF) Participating Financial Institutions public-private fund dedicated to start-ups by 2016 IFC investments in Banks, Insurance, SME Funds and Baseline: 78,644 MAD million (2012) * 6 CCG outlets in the regions by 2016 (baseline: 2 in Microfinance Target: +20% (2017) 2013) Microfinance Development (7F) * Creation of a centralized collateral registry by 2016 Youth Micro-Entrepreneurship(TF) Microloans outstanding (number) (IFC) * 3 Alternative Microfinance Products developed and Indicative New Financing Baseline: 221,400 (127,286 to piloted by 2016 Financial Sector 2(DPF) women)(2012) * 6,000 targeted beneficiaries receiving financial IFC Investments in Financial Markets Target:272,772 (156,820 to women) (2018) literacy training by 2016 Indicative AAAITAITF10thers New small or young firms reached by CCG Enhancing Microftnancefor Women and Youth (TA) Baseline: 1572 (June 2010- June 2013) * Rules and procedures of Morocco's Capital Market Target: 3000 (June 2013 -June 2016) Agency (AMMC) are adopted to implement Law 42- Capital Market Development 13 and creating independent capital market supervisor Finance professionals required to register by 2016 under Law 42-13 certified by AMMC in e Securities lending contracts regulated and recorded in trading, compliance, asset management, central depositary by 2016 and* AMMC complies with IOSCO Principles 6 and 7 on adefina:ncial ifanalyis (2013 the perimeter of regulation and maintaining financial Baseline: no certification (2013) stability 1.3 Increase the productivity and value-added of the agri-food sector New agribusinesses created based on * Participating farmers using drip irrigation (in targeted On-going Financing partnership projects with farmers in large area Doukkala-Haouz-Tadla) increases from 1 % in Inclusive Green Growth(DPF) Modernization of Irrigation in cER (IPF) scale irrigation (number) 2013 to 50% by 2016 FC Investment in Agribusiness and Education Baseline: 0 (2013) * Feasibility studies of establishing seaweed and Social & Integrated Agriculture(GEF) Integrated Coastal Zone Target: 20 (2016) shellfish farms undertaken by 2016 Mgt (GEF) * IC's support to a leading industrial poultry producer Indicative New Financing eand its expansion plan including feedmill, chicken and Modernization of Irrigation in ER AF (IPF) Doukkala-Haouz-Tadla (ha) turkey rearing, and hatchery capacity. Agriculture Modernization (Pforl?) Baseline: 4,873 (2013) * 3 "Agropolis" and agricultural products trade Support to ORDAR Creation (PforR) Target: 8,966 (2016) platforms created by 2017 Indicative AAAITAITF10thers e Enhanced incentive framework for agro-business IFC Advisory on irrigation PPPprojects investment by 2017 Value Chain and Trade Improvement in Agriculture (ESW) 40 CPS Outcomes and Indicators (with CPS Milestones Indicative WBG Program 2014 baselines and FYI 7-end targets) Farmers reached by IFC investments * Laws creating the ORDARs adopted and regional Baseline: 0 (2013) irrigation utilities for improved service delivery to Target: 3,000 (2017) farmers established in 5 regions by 2017 1.4 Better leverage the socio-economic potential of integrated rural development and of tourism Integrated Rural Development Jnteizrated Rural Development On-going Financing Integrated Rural Development Programs e National Committee on Impact Studies validates the Inclusive Green Growth(DPF) IntegatedSocial & Integrated Agriculture (GEF) implemented in selected regions Directive specific to the aquaculture sector Integrated Coastal Zone Mgt (GEF) Baseline: 0 e Six local development plans incorporating coastal Integrating CC in the PMV (GEF) Target: 3 zone management in the Eastern Mediterranean Coast T mTourism Development(IPF) TuimTourism Integrated Rural Development (PforR) Ecotourism Sector Jobs created over the Tors Ecoturim Scto Jos ceatd oer he . At least two Local Development Entities tasked with Indicative AAAITAITFlOthers period 2013-2017, gender disaggregated managing rural tourism investments (Qariati program) Tourism Development(TA) (number) established by 2016 JFC E4E advisory in Logistics and Tourism Baseline: 0 Target: 1,100 * Small co-lodges piloted in villages along the Eastern Mediterranean Coast by 2016 1.5 Improve reliability of electricity supply Electric transmission losses South of eOn-going Financing Chichaoua (%) NInclusive Green Growth(DPF) Baeie 1 21)2016 ONEE (IPF) Target: 8.50 % (2015) * Double circui transmission line constructed be n Indicative AA iTAcTF urthers nWater and Energy Nexus - Thirsty Energy (TA, KP) Reduction of unserved energy (MWh) Chichaoua and Agadir by 2016 Baseline: 832.7 (2007) e Tariff study completed by 2016 Target: 400 (2015) 1_______________1_______ 1.6 Better match skills developed through higher education or vocational training with the needs of the job market Skills train ink Skills train in On-going Financing Internal efficiency of vocational training ( 10 University programs evaluated by the new Skills& Employment (DPF) covered by a programmatic evaluation agency on their adequacy for the job IncE4Eiv aorn Lroti adTui programs,o-odgnclilstivenGrllage Glonwthe(aster contract (%) (broken down by gender) market Youth Micro-Entrepreneurship(TF) Baseline: 75% (2010) e The National Qualifications Framework has been Target: >90% from 2013 onwards operationalized by the Ministry of National Education Indicative New Financing *TarfSkills& Employment 2(PforR) 41 CPS Outcomes and Indicators (with CPS Milestones Indicative WBG Program 2014 baselines and FYI 7-end targets) Youth are trained on management skills and Vocational Training by 2016 INDH3(PforR) and reach jobs or career advancement e On-the Job Training Law, providing for the Gender(DPF) YouhpndrmpoynntSupies.PF opportunities. governance and financing of on-the job training has Baseline: 0 been drafted by 2016 Indicative AAAITAITF10thers Target: 1500 youth trained (30% women) * A National Labor Observatory to monitor and analyze Programmatic Employment(TA) the labor market has been established by 2016 ICT-Enabled Micro-work(TA) Support to the Vocational TrainingStartegy (TA) * IFC investment to support an established quality Support to the University Evaluation Agency (TA) private educational institute 'Institut des Hautes IFC Investments in Education Etudes de Management' to provide more technically E4E in Logistics and Tourism oriented education at an affordable cost to 1000 E4E Training programs students e The capacity of a 3-4 training providers has been built by 2015 with IFC in-house Business Edge solutions and they will offer certified high quality training to 1000 youth and entrepreneurs until end of FYm7. Micro-entreIreneurshp Micro-enr eprenieurshcip Youth micro-entrepreneurs who receive * 4500 youth aspiring to be entrepreneurs who post-creation follow-up support for at least successfully complete entrepreneurship training by 12 months (number), of which female (%) 2017 Baseline: 0 * Impact evaluation of pilot program to strengthen Target: 1800 (40% women) micro-entrepreneurship carried out by 2017 E Law drafted establishing a legal, fiscal and social Revenue generating activities status for self-entrepreneurship that minimizes the Income-generating activities (IGAs) costs, simplifies the administrative procedures and implemented by cooperatives, associations provides social insurance coverage by 2016 or companies which are viable two years Revenue zeneratink activities after benefiting from INDH financing (%) e INDH financed IGAs implemented by cooperatives, Baseline: 25% (2012) associations, and private firms up from 18% in 2012 Target: 40% (2015) to 35% in 2015 * 50% of income generating activities in the rural targeted areas implemented by women * CLDH and CPDH (INDH local governance committees) include 20% women and 15% youth from 2012 onwards 42 CPS Outcomes and Indicators (with CPS Milestones Indicative WBG Program 2014 baselines and FYI 7-end targets) 1.7. Improve access to and effectiveness of social protection programs, especially for youth Active Labor Market Prozrams Active Labor Market Programs On-going Financing New enrolments with ANAPEC per year, * The National Employment and Skills Promotion _NDH2tpf6rR) by gender (number) Agency (ANAPEC) strengthens its capacity to Inclusive Green Growth (DPF) Baseline: 130,000 (2011) develop results-based Public Private Partnerships Indicative New Financing Target: 160,000 (60% male, 40% female) (PPPs) to promote entrepreneurship/self-employment. INDH3(PforR) (2016) * All ALMP programs evaluated (impact or process Social Protection Reform (PforR) evaluations) Youth and Employment Support (IPF) Social Protection Programs/Policies Employment regulations Indicative AAAITAITF10thers Total subsidy envelope to diesel, gasoline Reform options prepared in the areas of labor Subsidy Reform and Cash Transfer Program (TA) and industrial fuel (in % of GDP) regulation, labor taxation, and wage setting Morocco Poverty(ESW) Baseline: 3% (2012) mechanisms (including minimum wage policy). Morocco Gender Assessment(ESW) Target: <2.5% (2017) Social Protection ProtramslPolicies * Reform of inefficient universal subsidy system, A single registry including beneficiaries of including introducing automatic price adjustment for the two largest social assistance programs diesel, gasoline and fuel (RAMED and TAYSIR) is built e Proposing options to develop a unified registry of Baseline: No - (Social Assistance beneficiaries of social of social assistance programs programs have their own information * Identifying possible options for a pro-poor INDH system) targeting Target: Yes ( AAdministrative offices (Ministry of Interior) at the local level are equipped with ICT tools necessary to register social assistance beneficiaries in all localities * RAMED's targeting method (formula and implementation) is assessed and adjusted periodically. Results Area 2: Building a Green and Resilient Future 2.1. Strengthen management of soil, coastal and water resources Land and coastal zone management Land and coastal zone management On-going Financing Land area where sustainable land Two regional coastal zone management plans Inclusive Green Growth(DPF) Regional Potable Water Supply Systems(IPo) management practices were adopted as a (Schemas Regionaux d'Amenegement du Littoral) Rural Water Supply and Sanitation(iPF) result of Bank program (ha) approved by 2017 ER Irrigation Modernization (JPF) Baseline: 0 (2013) Completion of a hydrological study of biodiversity Social & Integrated Agriculture(GEF) Tre:500 (2017) ecosystem interest sites by 2016 Integrated Coastal Zone Mgt(GEF) Target: Integrating CC in the PMV(GEF) *RAMED'stargetingdOum Er Rbia Sanitation 43 CPS Outcomes and Indicators (with CPS Milestones Indicative WBG Program 2014 baselines and FYI 7-end targets) Marine areas brought under biodiversity protectionIndicative New Financing protetion(ha)Rural Water Supply 2(IPF) Baseline: 0 (2013) Rural Water Supply 3UPF) Target: 20 (2017) Water resources OER Irrigation Modernization AF(PF) eImpacts of climate change on water resources Desalination and NR W reduction (IPF) Water resources assessed in 3 additional river basins by 2016 (up from Reduction pollution (as measured by tons one in 2013) Water/Energy Distribution Restructuring(ESW) of BOD abated yearly) e Aquifers (nappes) in which groundwater abstraction is Support to Artisanal Mining(TA) Baseline : 0 (2013) regulated by an aquifer agreement among 'large' Impacts of CC in WRM (TA) Target: 1,830 (2017) water consumer (Baseline:1(2013), Target: 3 (2017) Non-Revenue Water Assessment (ESW) e Revised Water Law adopted by CG IFC Advisory on Water PPP projects Climate Change Small farmers in the selected Plan Maroc Climate Change Vert Pillar II projects integrating at least e Development of the capacities of public and private one climate change adaptation (%)institutions for integrating climate change adaptations Baseline : 0 (2011) in projects directed to small farmers in five target Target: 35% (2015) regions by 2015 2.2 Increase renewable energy generation and enhance energy efficiency Renewable Energy Renewable Ener On-going Financing Installed solar energy capacity * Commissioning of the Noor I Concentrated Solar Noor I Concentrated Solar Power (IPF) Baseline: 20 MW (2013) Power plant by 2015 Inclusive Green Growth (DPF) Target: (i) 180 MW installed; (ii) 375 MW e Reinforcement of the power system to enable it to Indicative New Financing under development (having achieved absorb large amount of renewable generation while Noor l III Concentrated Solar Power Project (IPF) financial close) (2017) meeting the increasing demand Clean and Efficient Energy Project(PforR) Energy Efficiency (PforR) e Revision of the legislative framework for renewables IFC Investments in Wind and Solar Energy o allow for renewable energy generation connected to the medium voltage grid Indicative AAA/TA/TF/Others Partnership for Market Readiness (CF) Water/Energy Distribution Restructuring(ESW) uppoClean Energy (Phase 2)(TA) New buildings (hospitals, residential, e New decree on energy efficiency in the building IFC Advisory on resource efficiency/clean techs tertiary) integrating legal BE requirements sector implemented Baseline : 0% (2013) Target: 50% (2017) 44 CPS Outcomes and Indicators (with CPS Milestones Indicative WBG Program 2014 baselines and FYI 7-end targets) 2.3. Better integrate prevention and mitigation mechanisms against natural disasters TBD at the CPS progress report stage * Select number of risk mitigation projects launched - Indicative New Financing based on the scope of the Integrated Risk both in terms of risk mitigation and risk insurance Integrated Risk Management Project (PforR) Management Project * Reform of institutional risk management practices Indicative AAA/TA/TF/Others launched Integrating CC in the PMV(GEF) * A more integrated risk management system Climate Change Adaptation & Mitigation Strategy(ESW) established Climate Change Adaptation in the road Sector(TA) Results Area 3: Strengthening Governance and Institutions for Improved Service Delivery to All Citizens 3.1. Support a more open and inclusive governance framework through effective rights for citizen to access information and petition government Open Budget Index (OBI) from the * Draft law on Access to information and accompanying On-going Financing Intemational Budget Partnership (IBP) regulation prepared in line with art 27 of the Accountability and Transparency (DPF) Baseline: OBI Score 38 (2012) constitution and intemational good practice RNrHl(WatrS y Target: OBI Score 42 (2015) * Draft organic law on public petition in line with the Urban Transport Project(PforR) new constitutional right and the recommendations of IGG DPL 2 (DPF) Open Government partnership's OGP score the National Dialogue and intemational good practice Indicative New Financing on access to information * Social accountability tools such as Citizens' Report Accountability and Transparency Series (DPF) Baseline: OGP 2 out of 4 (2012) Cards (CRCs) introduced in at least three large cities Agriculture Modernization (P4R) Target: OGP 4 out of 4 (2015) by 2016 INDH3(PforR) * Strengthening participatory monitoring and evaluation Indicative AAATA/TF10thers Women within local govemance bodies in INDH targeted areas, through the use of social Support New Governance Framework(TF) (CLDH &CPDH) ()accountability tools Baselinec: 20% * Number of birth certificates provided electronically Target*: 22% using "Watiqa" is 2850 by 2015. 3.2. Enable a more transparent and accountable management of public resources through budget and procurement reforms PEFA indicators related to budget * New organic budget law and its implementing On-going Financing transparency, policy based budgeting and regulation, including the new programmatic budget Accountability and Transparency (DPF) external scrutiny classification and performance indicators (Oincluding Indicative New Financing Baseline: 2009 PEFA assessment: gender) by 2016 Accountability and Transparency 2 (DPF) Indicator n'6 scored B; nO 12: C, * The National Public Contracts Committee, including INDH3(PforR) n'26: D, and n027: B non-State actors is established with a stronger mandate Indicative AAAITAITF10thers Target: Increase by one notch PEFA on oversight, complaints handling and training by Support New Governance Framework(TF) scores (indicators 6, 12,26 and 27) (2015) 2015 PEFA diagnostic (with EU and ADB) (ES W) * 80% of municipalities have real time information on budget execution through the roll out of an integrated 45 CPS Outcomes and Indicators (with CPS Milestones Indicative WBG Program 2014 baselines and FYI 7-end targets) Procuring entities subject to the new expenditure management information system (GID) procurement rules (number) by 2015 Baseline: 1,571 (2012) Target: 3,345 (2015) 3.3. Improve capacity to plan, manage and assess key service delivery, especially at local level Cities with over 300,000 inhabitants with At least three cities over 500,000 inhabitants have On-going Financing long term multimodal urban transport established local governments-owned holding Inclusive Green Growth(DPF) longONEE AF(IPF) master plan companies ("Socijt s de Patrimoine") with urban Modernization of Irrigation in OER (IPF) Baseline: 5 cities (Casablanca, Tangiers, transport planning and management authority for the Social &Integrated Agriculture(GEF) Tetouan, Marrakesh, and Rabat) (2013) urban transport sector, Integrated Coastal Zone Mgt (GEF) Target: 8 cities (2017) Three conurbation associations created and/or 1FC Investment in Agribusiness and Education expanded (geographically or in sector terms) with Solid Waste Sector (DPLIV) Local Government Support Program clear/sustainable legal, financial, governance, and Indicative New Financing (PACT) s operational with at least two staffing arrangements Tourism Development (IPF) support centers established A national program has been set up to support the Modernization of Irrigation in OER (IPF) Baseline : No (2013) contractualization (between State and LGs) of the Urban Transport (PforR) Target: Yes (2017) improvement of municipal management and strategic Indicative AAAITAITFlOther, urban development Tourism Development(TA) Water and Electricity infrastructure investment Water & Energy Nexus- Thirsty Energy (TA, Kp) planning and policies are harmonized FCutAdvisory n thegticn ouris * Establishment of a third party conciliation mechanism for delegated municipal services by 2016 (solid waste DPL) 3.4. Expand access to basic services National rural road accessibility index * 15,560 kms of rural roads rehabilitated or upgraded On-going Financing Baseline: 77 % (2013) under Second National Rural Roads Program by 2015 Rural Roads (IPF) Rural Water Supply and Sanitation (IPF) Target: 80% (2015) (up from 13,171 km in 2013) Regional Potable Water Supply SystemsPF) * Program establishing sustainable management models Ois Er Rbia Sanitation PF) People in rural areas provided with access for water and sanitation services in small towns and INDwt (PforR to Improved Water Sources (number) rural areas in place Support t'o Periurban WSS Service Extension Baseline: 171,000 (2013) * 90% of water supply and wastewater facilities built Indicative New Financing Target: 465,000 ± 335,000 (2017) have functioning and sustainable management Rural Roads otAF (IPF) structures Urban Transport Proect (PforR) * 10 waste water treatment plants constructed in the Clean and Efficient Ener n Project(PcF) Oum Er Rbia Basin by 2017 Rural Water Supply (IPF) 46 CPS Outcomes and Indicators (with CPS Milestones Indicative WBG Program 2014 baselines and FYI 7-end targets) People in urban areas provided with access Water and Sanitation (IPF) to Improved Sanitation (number) Health (PforR) Baseline: 0(2013) Non-Revenue Water(IPF) Target: 65,000 (2017) Indicative AAA/TA/TF/Others Promoting Accessibility of PLM(PHRD) Education Support(TA) Morocco Systems Approach for Better Education Results Workforce Development(TA) improving the governance ofprovision ofsocial services(ESW) Public Expenditure Review: Health and Education(ESW) Climate Change Adaptation in the road Sector(TA) 47 Annex 2 : Country Partnership Strategy FY10-13 Completion Report I. INTRODUCTION 126. This Country Partnership Strategy Completion Report (CPSCR) evaluates the Country Partnership Strategy prepared jointly by the World Bank and International Finance Corporation (IFC) for the Kingdom of Morocco for FY2010-2013. Based on a review of the operational support, technical assistance, and knowledge and coordination services provided by the World Bank Group (WBG), this CPSCR: (i) assesses the extent to which expected CPS outcomes, as updated in the May 2012 CPS Progress Report (CPSPR), were achieved; (ii) evaluates the WBG's performance in designing and implementing the CPS program; and (iii) draws lessons for the preparation of the forthcoming CPS for FY2014-2017. 127. The main objective of the CPSfor FY2010-2013, which was presented to the World Bank's Board of Directors in January 2010, was to support the government in the implementation of its reform program. In doing so, the WBG's intention was to focus on the "how to" of implementation by facilitating institutional reform and coordination, to support reform implementation in areas requiring interagency coordination and capacity building through lending programs built on a strong foundation of analytical work, and to help increase the results orientation of country programs. The strategy focused on three thematic pillars of relevance to both the International Bank for Reconstruction and Development (IBRD) and IFC: (i) growth, competitiveness, and employment; (ii) service delivery to citizens; and (iii) sustainable development in a changing climate. In addition, all CPS activities were to address two crosscutting beams: governance and territoriality.30 128. This evaluation of the performance of the CPS program, and of the WBG's design and implementation of the strategy, points to positive results overall. The country team has rated program performance Moderately Satisfactory, highlighting notable achievements in private and financial sector reform, access to education, addressing vulnerability and social exclusion, agriculture sector management, implementation of conditional cash transfers, and solid waste management. Substantial progress was made toward most other expected outcomes, though some targets in water management, energy sector reform, and climate change adaptation were not achieved. WBG performance is rated Good, reflecting the highly flexible design of the CPS and its responsiveness to the significant social, political, and economic changes that took hold in Morocco during the CPS period. Implementation of the CPS program was characterized by largely satisfactory project outcomes, disbursements above the regional average despite expanded lending commitments, increased IFC investment in key sectors, a strong program of analytical and advisory work, and close and effective partnerships. This evaluation is based on the results matrix as updated in the CPSPR, and 31 ratings are based on the latest guidelines on assessing country partnership strategies. Highlights of the program assessment are discussed below, and details are provided in the summary assessment matrix (Annex 2A). 30 In Morocco, territoriality is understood to refer broadly to deconcentration, decentralization, regionalization, and spatially aware development. 31 World Bank. 2013. "Guidance to Staff on the Country Assistance Strategy Completion Report." Operations Policy and Country Services (OPCS) Department (November); and "Assessing Country Partnership Strategies: A Shared Approach." OPCS and Independent Evaluation Group. II. CHANGES IN COUNTRY CONTEXT AND PROGRESS TOWARD LONGER- TERM NATIONAL DEVELOPMENT GOALS 2.1 Social and Political Environment 129. Following the Arab awakening, Morocco's social and political context has shifted considerably since the preparation of the FY2010-2013 CPS. Morocco's experience with this social movement has been relatively peaceful and constructive compared to other countries in the region. Street protests conducted during 2011 and early 2012 centered around the need for political change, including the establishment of a more democratic constitution enshrining the principles of popular sovereignty, an independent judiciary, and separation of powers. Protesters called for greater social equality, better social welfare services, improved media freedom and independence, and better, more transparent governance. Despite many of the same popular grievances expressed in other countries affected by this movement, Morocco's experience underlines its political distinctiveness in the region. Successive national governments have overseen an impressive political, economic, and social transformation, with a marked acceleration of reforms in recent years. Though these gains did not provide immunity to popular dissatisfaction or remaining development challenges, the country's experience has shown that Moroccans seem more inclined to seek evolution within the system rather than seeking change outside of it. 130. In March 2011, King Mohammed VI responded to popular calls for reform with a broad package of political, institutional, and social reforms that gathered widespread popular support through a constitutional referendum held in July 2011. The new constitution reinforces the principles of good governance, human rights, and protection of individual freedoms, including extending the previous guarantee of political equality between women and men to civil and social arenas as well. In addition, the new constitution strengthens the separation of powers, judicial independence, and checks and balances, and lays the basis for regionalization as a decentralized system of government. Transparent elections held in November 2011 brought the Justice and Development Party (PJD) to power in a convincing victory. The King named the head of the PJD, Abdelilah Benkirane, as Head of Government in January 2012. 2.2 Recent Economic Developments 131. Morocco's economy performed relatively well during the CPS period, despite the environment of regional upheaval and global economic slowdown. Annual growth averaged 3.8 percent during 2010-2012 and registered 4.4 percent in 2013, during which a 21 percent jump in agricultural production offset slower growth in other sectors. Growth of non- agriculture GDP declined from an average of 4.9 percent during the period 2000-2008 to 3.4 percent per year, on average, since 2009. The main drivers of growth have been domestic demand and fiscal spending. After declining steadily from 62 percent of GDP in 2005 to 50.3 percent in 2010, government debt has grown to 61.9 percent of GDP in 2013, where it was contained by substantial capital grants. The Government has made a significant effort to control inflation mainly through subsidies on food and fuel products, with growth in the consumer price index limited to one percent in the last few years, though increasing slightly to 1.9 percent in 2013. Gross investment as a share of GDP has increased from 25 percent in the 1990s to 35 percent currently, and net foreign direct investment inflows more than doubled over the CPS period, increasing from US$ 1.5 billion in 2009 to US$ 3.4 billion in 2013. 49 132. Fiscal sustainability has been tested by increased government spending to alleviate popular grievances and counteract the economic effects of the financial crisis in Europe. Subsidies on food and fuel, at 6.6 percent of GDP in 2012, exceeded capital expenditures for the first time. In 2012, the budget deficit widened to 7.6 percent of GDP, well above the Budget Law's target of 5.5 percent. In 2013, owing to lower world fuel prices and the start of a fuel price indexation system, the subsidy bill declined to 4.8 percent of GDP and the fiscal deficit narrowed to just below 6 percent of GDP. 133. Morocco's terms of trade deteriorated significantly over the CPS period, faced with high prices for food and fuel and diminished demand in European markets. The country's food import bill rose significantly in 2012 in response to severe drought conditions domestically at a time of soaring international prices for food, especially wheat. With no domestic oil production, Morocco's spending on fuel imports was similarly affected by high oil prices, which averaged US$ 110 per barrel in 2011-2012. At the same time, demand for Moroccan products declined in the European Union-the country's principal trading partner, largely as a result of sovereign debt crises in Spain, Italy, and elsewhere, and the broader economic slowdown that followed. 134. Given these external challenges, Morocco will have to rely on its own forces to foster the structural transformation necessary to eradicate poverty, grow the middle class, and meet citizens' high expectations. Though Morocco's production structure has gradually shifted toward services (whose share in GDP has increased from 51.8 percent in the 1990s to 55.8 percent in the 2000s), continued weak performance in manufacturing and agriculture has prevented the country from taking full advantage of opportunities for better market access. With further structural changes, Morocco could expand its export potential-and the growth and employment benefits that would follow. 2.3 Poverty and Human Development 135. Economic growth in Morocco has been pro-poor, but vulnerability and inequality remain important challenges. Absolute poverty has decreased sharply in the space of a decade, from 15.3 percent in 2001 to 6.2 percent in 2011. Average per-capita income doubled during the same period to US$ 3,100 in 2011. Despite the country's improved poverty profile, 13.3 percent of Moroccans live just above the poverty line and thus continue to face the threat of falling into poverty. Rural areas are subject to higher poverty rates (15 percent in 2011), largely as a result of difficult geography, deteriorating infrastructure, poor access to basic services, and limited opportunities for formal employment. Income inequality has remained high, with a Gini coefficient of 0.41.32 136. Unemployment is an enduring challenge, particularly in urban areas and among young people. Overall unemployment has remained steady at about nine percent since 2011, after dropping from about 13 percent in 2000. Unemployment is 13.7 percent in urban areas, as compared to four percent in rural areas. Youth unemployment is high at 18 percent overall and 35 percent in urban areas. The unemployment rate among women is ten percent, as compared to nine percent for men. 32 The Gini coefficient measures the dispersion of wealth, with 0 indicating perfect equality and I indicating maximum inequality. 50 137. Despite good progress on poverty reduction and social indicators such as access to education, Morocco lags behind comparator countries on human development outcomes, especially for women. Morocco ranks 130th of 187 countries on the United Nations Development Programme's 2013 Human Development Index.33 Life expectancy increased from 71.7 years in 2004 to 74.9 years in 2011. Infant mortality rates declined from 36.1 per 1,000 live births in 2004 to 26.8 in 2012, and the maternal mortality ratio dropped from 170 per 100,000 live births in 2000 to 100 in 2011. Yet health indicators continue to lag behind similar economies (Table 1). Similarly, despite a remarkable expansion in access to schooling, with net primary school enrollment rates growing from 52.4 percent in 1990/91 to 93.5 percent in 2006/07 to 96.6 percent in 2011/12, literacy remains low at about 67 percent, and gender disparities and gaps in educational quality and efficiency remain. Table 1: Key Social Indicators - Morocco in Comparison Life Expectancy at Birth Infant Mortality Rate Maternal Mortality Ratio Country (years) (per 1,000 live births) (per 100,000 live births) 2011 2012 2010 Algeria 70.8 17.2 97 Egypt 70.7 17.9 66 Jordan 73.6 16.4 63 Kuwait 74.3 9.5 14 Lebanon 79.6 8.0 25 Morocco 74.9 26.8 100 Oman 76.3 10.0 32 Saudi Arabia 75.3 7.4 24 Tunisia 74.8 13.8 56 Sources: Haut Commissariat an Plan for Morocco life expectancy data; World Development Indicators. III. PROGRAM PERFORMANCE 138. The strategic themes of the CPS and the majority of its envisioned activities were implemented broadly as expected, though the country team made effective use of the strategy's flexible approach to make mid-course adjustments and additions in response to changing country circumstances and priorities. The CPS was built around 19 program areas that were recognized at the time of CPS preparation as being at different stages of development. Of these program areas, 14 were considered sufficiently well advanced to be included in the CPS results matrix, and it was expected that the program would be adjusted based on client needs as well as any progress made in fleshing out the program areas that were still under development at the start of the CPS period. By the time the mid-term CPSPR was prepared, Morocco had experienced significant social and political changes, including the adoption of the new constitution and election of a new coalition government. The CPS program was adjusted to reflect a greater focus on governance and accountability, social and economic inclusion, and voice and participation. 139. A revised results matrix was presented in the CPSPR, reflecting both the pace of implementation progress and shifts in emphasis in both the Government's and the WBG's programs. The health sector activities envisaged in the CPS did not evolve as planned, following the Ministry of Health's decision not to engage the WBG in support of the health agenda. Program Area 1.3 on the health sector was therefore dropped from the results matrix and will not be evaluated by this CPSCR, save for an exploration of lessons learned from this experience. By contrast, as the WBG's engagement in the area of trade and competitiveness 3 The Human Development Index measures a country's average achievement along three dimensions: life expectancy, educational attainment, and income. 51 had evolved into a key element of the country program, the CPSPR included a new results area to capture implementation progress and outcomes. Expected results in public sector management, skills and employment, and social protection were fine-tuned to align more closely with government priorities and with the actual delivery of the WBG program. In other areas, indicators were added or revised to strengthen gender disaggregation and ensure effective measurement of progress toward expected outcomes. These changes were indicated clearly in the text of the revised results matrix appended to the CPSPR. 140. Overall performance of the CPS program is rated Moderately Satisfactory, as expected program outcomes were mostly achieved (Annex 1). There were notable results in private and financial sector reform, access to education, addressing vulnerability and social exclusion, agriculture sector management, implementation of conditional cash transfers, and solid waste management. Substantial progress was made toward most other expected outcomes, though some targets on water management, energy sector reform, and climate change adaptation were not achieved. In general, successful CPS interventions enjoyed high- level government ownership and integration with government programs; participatory approaches; effective technical assistance; and well-specified, operationally integrated, and regularly monitored outcome indicators. In a few areas, momentum was slowed by the additional challenges associated with interagency coordination under the auspices of new multisectoral development policy loans (DPLs), by low government staffing, or as a result of imperfectly specified targets. 3.1 Pillar One: Growth, Competitiveness, and Employment 141. Performance on the first strategic pillar is rated Moderately Satisfactory. Good progress on private sector reform took shape in significant improvements to Morocco's Doing Business indicators over the course of the CPS period. The country's ranking for overall ease of doing business rose from 124th of 181 economies in 2009 to 87th of 189 economies in 2013. Importantly, Morocco eliminated the minimum capital requirement for limited liability companies and slightly exceeded targets on strengthening investor protection. The financial sector reform agenda advanced considerably over the CPS period supported by a joint Bank- IFC package of lending, TA and advisory services, exceeding targets on strengthening credit infrastructure for small businesses, improving liquidity, and putting in place the legal framework needed to establish independent supervisory authorities on insurance and pension funds and on capital markets. Performance on expanding household access to finance was mixed, exceeding targets on increasing the number of deposit accounts relative to the population and initially meeting targets on reducing the share of nonperforming loans in microfinance institutions before this indicator slipped again in 2012. Moderate progress was achieved on the multisectoral agendas related to skills and employment and trade and competitiveness, which the WBG supported through DPLs and technical assistance. Delays related to changes in the Government's organizational structure and limited human resource capacity were among the constraints. 3.2 Pillar Two: Service Delivery to Citizens 142. Performance on the second strategic pillar is rated Moderately Satisfactory. All expected outcomes were at least partially achieved, and there was exceptional progress in a few key areas. The education sector saw impressive gains in primary school enrollment rates-both overall and for girls specifically-reflecting improvements in student retention. Under the Government's National Initiative for Human Development (known by its French acronym, INDH), targets on the use, accountability, and inclusiveness of basic infrastructure 52 services were exceeded as a result of strong political support and successful mobilization to reach over five million beneficiaries. In the social protection arena, the Tayssir pilot program of conditional cash transfers in education reached nearly double the targeted number of beneficiaries and has been scaled up to the national level. An impact evaluation showed that the program played a role in reducing dropout rates and improving students' math test results. The RAMED program of non-contributory insurance for poor and vulnerable segments of the population was scaled up to the national level, and its targeting systems were improved. Other areas showed moderate progress toward expected outcomes. There was some progress in introducing key public sector management tools such as medium-term expenditure frameworks (MTEF) at the sector and subsector level and e-government platforms. In the education sector, expanded school enrollment at the primary level was not matched at the lower secondary tier, largely as a result of low enrollment in rural areas and overly ambitious targets. Expected results in reducing repetition rates and increasing the efficiency of human resource allocations were not achieved. In the transport sector, rural access to all-weather roads improved significantly, and preparation of a strategy for the maintenance of unclassified rural roads has advanced, though at a slower pace than expected. In the agriculture sector, targets on irrigation water management and public sector support to smallholders were achieved, and there was good progress in integrating smallholders into domestic markets. 3.3 Pillar Three: Sustainable Development in a Changing Climate 143. Performance on the third strategic pillar is rated Moderately Satisfactory. Good progress was recorded in the water management sector, with improvement in off-farm irrigation networks and extension of subsidized household access to piped sanitation supported though WBG investment projects. Targets on urban sewerage and wastewater treatment coverage were not met, however. There was some progress on institutional reforms in the energy sector, though price reform targets were not met owing to historically high oil prices during the CPS period. CPS targets in the solid waste management sector were all achieved, including the establishment of legislative decrees and improvements in financial sustainability and cost effectiveness through a successful series of DPLs in the sector. Good progress was recorded on climate change adaptation. An adaptation action plan was adopted for the agriculture sector, and pilot initiatives on adaptation in the sector were launched as planned as part of the PMV DPL series and supporting GEF activities. There was some movement on developing a national climate change strategy, but the establishment of climate early warning systems has been delayed. 3.4 Cross-Cutting Beams 144. Through the CPSPR, the WBG indicated its intention to realign its governance agenda to support the development and implementation of Morocco's new constitution and the subsequent changes to the country's overall governance structure. Governance continued to be mainstreamed in all WBG operations, supported by institutional development activities under DPLs on competitiveness and sustainable access to finance. The first INDH program was designed around the principles of transparency, accountability, and inclusiveness, and its expected outcomes amended in the CPSPR to reflect this enhanced governance focus. The Public Administration Reform DPL IV focused on strengthening budget management, human resource management, and e-government, and there has been good progress on procurement reforms. These initiatives were supported by extensive analytical and advisory work, including programmatic economic and sector work (P-ESW) on public administration reform, a Country Governance and Anticorruption assessment, a Use of Country Systems Initiative Pilot, and a Bank Governance Review. The country team is 53 continuing to deepen its governance focus, preparing an Accountability and Transparency DPL and a New Governance Framework Implementation Support Project for implementation beginning in FY2014. 145. The CPS supported governance improvements at the sector level. The Solid Waste DPL3 has helped strengthen demand-driven governance improvements by supporting the progressive rollout of Citizen Report Cards on the quality and adequacy of municipal solid waste services, following a successful pilot in T6mara. In the agriculture sector, the first DPL in support of the Plan Maroc Vert worked to improve the legal and institutional framework and enhance the governance and public financial management of agricultural investment support. The Education DPL helped strengthen sector public expenditure management, and as part of the Urban Transport DPL agencies involved in sector governance were established and strengthened. 146. The WBG has implemented a program of targeted assistance to the justice sector, building on the new Government's strong focus in this area. The ongoing Judicial Performance Enhancement Project aims to strengthen the Government's capacity to deliver efficient, timely, and transparent justice services to citizens and businesses by piloting a participatory reform process involving judges, court staff, and the public in selected courts, and strengthening central capacity to support and monitor the court system. The project has been somewhat slow to roll out, but there have been some consultations with judges and administrative staff and several planned activities will be launched in the near future. This program has been accompanied by justice sector technical assistance in FY20 11 and a Justice Public Expenditure Review in FY2013. 147. The CPS aimed to support the Government's objective of fostering spatially inclusive development and increasing the role, performance, accountability, and empowerment of local governments. These goals were tackled largely through sector programs, with good results in expanding access to critical services in rural areas. The Second Rural Roads Project has made significant progress in increasing the share of Moroccans who have access to an all-weather road (from 54 percent in 2005 to 77 percent in 2013) and is on track to meet the target of 80 percent by the end of 2015. The Improved Access to Water and Sanitation Services Project supported an innovative, large-scale, and successful pilot in poor peri-urban neighborhoods of three cities to demonstrate output-based aid mechanisms for the promotion of water and sanitation service connections in chronically underserved areas. The ongoing Rural Water Supply and Sanitation Project is making progress in expanding sustainable access to potable water supply in rural areas. Several sector interventions focused on strengthening local government. These activities were supported by technical assistance on regional development for disadvantaged areas and on governance and territoriality. The New Governance Framework Implementation Support Project aims to support fiscal decentralization by assisting in the revision of the fiscal transfer and equalization system for local governments and providing training to regional and other local authorities. 3.5 Gender, Inclusion, and Voice 148. The CPSPR committed to strengthening the focus on gender, inclusion, and voice during the remainder of CPS implementation. The WBG has focused on using knowledge as a platform for dialogue and advocacy by disseminating data from analytical and advisory work to inform reforms, nourish public debate, and ensure more effective targeting. Work on gender and inclusion has been informed by a report on promoting youth opportunities, a TA program in employment, a social protection strategy note, and statistical work on poverty. A Gender Assessment is underway, with delivery expected in FY2014. In addition, the WBG has 54 continued to work with stakeholder and citizen groups to implement the ongoing portfolio with an emphasis on gender mainstreaming where possible, and enhancing outreach and communication. The CPSPR introduced several new, gender-disaggregated outcome indicators intended to better assess the effect of CPS programs on women and girls in education and in the area of vulnerability and social exclusion. Progress toward these targets was good under the INDH program and on primary education, but less successful on girls' enrollment and repetition rates in lower secondary school. 149. Approved in FY2012, the flagship Program for Results (PforR) operation on targeting women, tackling vulnerability, and strengthening inclusion-the National Initiative for Human Development 2-has so far been successful in expanding educational support and opportunities for local governance among women. This program aims to address economic and social inclusion through a participatory and community-driven approach that promotes voice in development and reaches out to marginalized groups such as women and young people. Its monitoring and evaluation component features gender-disaggregated information and wide application of social accountability tools. In addition to the INDH2, the MSME Project (FY2012) aims to improve access to finance among women-owned micro, small, and medium enterprises, and the WBG has prepared a project on Strengthening Micro- Entrepreneurship for Disadvantaged Youth (FY2014) to strengthen youth inclusion through self-employment. 150. IFC's investment and advisory services have focused on empowering women entrepreneurs, especially in underserved regions. IFC has partnered with microfinance institutions that have a strong gender focus, helping to increase their outreach and thus increase access to finance among women micro-entrepreneurs. Table 2: Achieving the CPS Objectives - Overview Program Areas Performance Rating PiHar I MS 1.1 Biness Environment Achueved 12 Financial Sector Refonn Achieved 13 SkiM1 and Emplovment Mostly Achieved I 4 Trade and Competitiveness Partially Achieved Pillar II MS 21 Public Sector Management Partially Achieved 22 Quaity and Access in Education Mostly Achieved 23 Health Sector Reforfm Dropped 24 Vulnerability and Social Exclusion Achieved 2.5 Transport Partially Acieved 26 Agricultural Sector Reform Achieved 27 Social Protection Reform Achiev ed Pillar M S 3.1 Water Management Mostly Achieved 32 Low Carbon Energy Policy and Energy Pzrtially Acieved 3-3 Solid Waste Management Achieved 3 A Climate Change Adaptation Mostly Achieved IV. WORLD BANK GROUP PERFORMANCE 151. Overall WBG performance is rated Good. The strategy's flexible design allowed the WBG to respond quickly to adjust the CPS program as social, political, and economic transformation took hold in Morocco and the broader Middle East and North Africa (MENA) region. The CPS used a unique mix of instruments to support implementation of the Government's ambitious reform agenda, backed up by a well-designed results matrix, in that it closely linked expected CPS outcomes to the outcomes of planned interventions and struck a 55 practical balance between flexibility and specificity. WBG implementation of the CPS program was characterized by largely satisfactory project outcomes, disbursements above the regional average despite expanded lending commitments, increased IFC investment in key sectors, a strong program of analytical and advisory activities, and close and effective partnerships with the government, development partners, and nongovernment stakeholders in the country. 4.1 Design and Relevance 152. The flexible design of the CPS proved highly relevant, allowing the WBG to make seamless program adjustments in response to changes in government and in the social, political, and economic environment more broadly. Based on the lessons learned in implementing the previous Country Assistance Strategy, the CPS for FY2010-2013 was intentionally designed as a flexible, evolving program. It encompassed a 24-month business plan of firmly developed activities whose expected outcomes were defined in the accompanying results matrix, embedded within a longer-term strategic framework that included several potential activities still under development. The later stages of the CPS program were to be laid out more concretely at mid-term, through the preparation of the CPSPR and a fully updated results matrix. This nimble design proved to be an asset, as the CPS program and expected results were easily adjusted following changes in the country's constitution and government and in response to the economic challenges posed by the domestic drought and the financial crisis in Europe. The flexibility of the CPS also proved to be an effective risk mitigation measure, as both risks highlighted in the original CPS- systemic and exogenous risks related to the global economic crisis, as well as the role of political economy factors in successful implementation of the government program-came into play during CPS implementation. 153. While the original strategy's three strategic pillars remained relevant, the CPS program was revised at mid-term to align with the priorities of the new government and to adhere to the MENA region's commitment to "do things differently" following the Arab awakening. The program was adapted to focus more on strengthening governance and accountability, ensuring greater social and economic inclusion, and increasing voice and participation. The CPSPR proposed two fundamental directions for the WBG program going forward. First, it aimed to support more ambitious reforms, including an enhanced focus on sectoral governance, communication, and participation in ongoing program areas, and stepped-up engagement on economic competitiveness in support of growth and job creation, governance, social protection and subsidy reform, and strengthening inclusion and voice, particularly for young people and women. Second, the CPSPR introduced multisector approaches to lay the basis for consolidation in the next CPS, allowing stronger alignment with the Government's priority of addressing complex cross-sectoral issues. This adjustment took shape in a move from single-sector development policy lending to more intricate cross- cutting programs in areas such as skills and employment, competitiveness, and green growth. These shifts in the CPS program design were appropriate and effective in advancing the WBG's contribution to achieving Morocco's country development goals, and in setting the stage for continued support under the forthcoming CPS, though it is important to note that the increased focus on multisectoral approaches introduces new challenges in coordination and implementation. 154. The CPS program employed a unique mix of instruments to support implementation of the Government's ambitious reform agenda. The use of DPLs has become a defining aspect of the WBG's program in Morocco, reflecting the Government's preference for this 56 instrument's flexibility and ability to tackle the structural challenges posed by sectorwide reforms. In parallel, the WBG implemented sectoral investment lending programs in key sectors such as water and sanitation, rural roads, irrigation modernization, agriculture, and judicial reform. Beginning in FY2012, the WBG successfully introduced the new and innovative PforR instrument in the context of a second program in support of the INDH. The PforR format responds closely to the government's request for greater use of country systems and stronger focus on results.34 155. As part of the flexible CPS approach, IFC's program adapted to market conditions in a difficult environment for private investment. In response to sweeping changes in the regional context and in the domestic political environment, IFC stepped in to restore investor confidence by increasing its engagement in Morocco. The global crisis had a dampening effect on IFC's investment pipeline, however, especially in infrastructure and the real sector. Some projects were delayed or passed on to public financing, and some potential investment areas, such as direct agribusiness investments, did not materialize due to a lack of suitable opportunities. 156. The CPS program was underpinned by a well-designed results framework, which succeeded in striking a balance between flexibility and specificity. The CPS results matrix, and its updated version in the CPSPR, provided a clear link between country development goals and expected CPS outcomes, targets, milestones, and proposed programs. The realism of CPS objectives was broadly on target, though some sectors saw advanced progress by the time of the CPSPR in FY2012 while targets in a few areas (such as school completion and energy sector reform) proved to be overly ambitious. Monitoring and evaluation of CPS outcomes and targets was, in most sectors, relatively well integrated into supervision and results monitoring at the program level. 4.2 Implementation 157. Lending commitments slightly exceeded the anticipated envelope. The CPS proposed an annual IBRD lending envelope of US$ 600 million. Over the course of CPS implementation, IBRD commitments to Morocco averaged about US$ 630 million per year and reached record levels in FY20 10 at US$ 729.5 million, after which they amounted to US$ 480.3 million in FY2011, US$ 716 million in FY2012, and US$ 593 million in FY2013. The WBG delivered eleven DPLs, seven investment projects, and one PforR project during the four-year CPS cycle. Pursuing several DPLs at once allowed the Bank to provide deeper support to a broader range of reforms than would have been the case had several sectors been bundled into multisectoral DPLs. At the close of the CPS period, the IBRD investment portfolio consisted of eleven operations for a total of US$ 1.3 billion in commitments, with an undisbursed balance of US$ 922.5 million. The relatively high level of undisbursed funds is explained by a combination of new operations, some of which involve new partners; a few investment operations that face challenging administrative procedures related to land acquisition; and atypical projects such as the US$ 200 million Ouarzazate (Noor I) Concentrated Solar Power Project, whose design implies that disbursements are only expected toward the end of the project (FY2016). 34 This new instrument, introduced in January 2012, supports government programs and links the disbursement of funds directly to the delivery of defined results with a special focus on strengthening institutions. 57 158. Performance of the IBRD portfolio has been broadly satisfactory, with all projects rated satisfactory or moderately satisfactory. There have been some delays in launching new projects due to lengthy procurement processes and a focus on capacity building at the start of project implementation, particularly for decentralized entities that are responsible for project implementation. The disbursement ratio averaged 15.6 percent over the CPS period, outperforming the regional average of 13.6 percent. Table 3: Morocco IBRD Portfolio Highlights FY2010 FY2011 FY2012 FY2013 Number of projects 12 11 11 11 Number of problem projects 2 2 0 1 Number of projects at risk 2 2 0 1 Net commitment amount 1,161.1 1,344.5 1,305.3 1,305.3 Commitments at risk, % 15.0 13.0 0.0 3.3 Proactivity, % 100 0 100 Disbursement ratio 21.72 14.09 18.23 12.14 Source: World Bank Business Warehouse. 159. As evidenced by the substantial program shifts introduced at the time of the CPSPR, implementation of the CPS has been responsive to changing country circumstances, emerging needs, and client requests. As discussed above, the intentionally flexible design of the CPS allowed for mid-course adjustments to strengthen the WBG program in the light of game-changing regional and domestic developments. As envisioned, the WBG responded to these shifts by rebalancing the sectoral and thematic emphasis of the CPS program to better match government plans and needs, and by expanding the use of multisectoral (e.g. support to skills and employment, social protection, competitiveness) and results-based (e.g. PforR support to INDH2) instruments as CPS implementation evolved. The country team's responsiveness extended to the implementation of individual initiatives as well. 160. The WBG continues to mobilize significant trust funds to complement its engagement in Morocco. The inclusion of trust funds in the WBG country budget has been particularly successful, helping to ensure smooth implementation. 161. A strong program of analytical and advisory activities (AAA) has helped to broaden and deepen the knowledge base in critical areas, informing the design and implementation of sector reform programs and the preparation of DPLs and investment programs across the CPS portfolio. Twinning reform implementation with technical assistance, capacity building, and policy dialogue has been a key aspect of the WBG's partnership with Morocco. The WBG approach has been to carry out strong AAA that underpins dialogue and advocacy in many sectors, and then build up engagement to DPL or investment financing once sectoral reform programs are well designed, fully costed, and set to be evaluated on the basis of relevant objectives and indicators. The WBG's AAA program in Morocco has served as a vehicle for effective advocacy on critical issues such as youth exclusion, social protection reform, poverty analysis, governance, competitiveness, labor market dynamics, and innovative service delivery approaches such as conditional cash transfers. 162. IFC scaled up its engagement in Morocco during the CPS period. Since January 2011, IFC committed a total of US$ 477 million in investments, including mobilization of investments through its subsidiary, IFC Asset Management Company (AMC), as well as cross-border investments. IFC's investment program has grown from a committed portfolio of only around US$ 6 million in FY2006 to US$ 272 million in FY2013. A 75 percent increase in IFC's investment portfolio between FY2012 and FY2013 was driven by IFC's large equity 58 investment of US$ 204 million in Banque Centrale Populaire to support its lending to a greater number of small businesses and expansion into Sub-Saharan Africa. IFC also made an equity investment of US$ 7 million (within a total project size of US$ 21 million) in the education sector in connection with the regional Education for Employment Initiative in the Arab World (e4e). This expansion has allowed IFC to have significant development impact, including supporting the creation of around 12,000 jobs and helping generate $1.3 billion of volume in MSME loans. 163. IFC's investment activities have been complemented by a strong advisory services program for investment climate, microfinance, and public private partnerships (PPPs) in infrastructure. IFC supported two flagship PPP projects showcasing Morocco's regional leadership on climate change and water: (i) a PPP advisory project to help assess the feasibility of and structure the Ouarzazate Concentrated Solar Power Project; and (ii) assistance to the Ministry of Agriculture in structuring and implementing Morocco's first PPP for desalination and integrated irrigation in the Chtouka region, one of Morocco's largest agricultural areas. IFC also provided capacity building to the Ministry of Finance to help with the design and implementation of PPP projects in health and education. 164. The CPS commitment to greater collaboration and harmonization yielded dividends in the form of successful World Bank-IFC integration, strong donor coordination, and a growing partnership with nongovernment stakeholders. As foreseen in the jointly prepared, well-integrated results framework, collaboration between the World Bank and IFC was strong over the course of CPS implementation. Examples include support to MSMEs through IBRD lending and a joint TA facility, and joint advisory and TA work on targeted measures to improve the business climate. Coordination among Morocco's development partners has continued to be effective, with close alignment between donor programs and government priorities, especially around budget support operations. Donor partnerships have been particularly strong in education, public administration reform, financial sector reform, rural roads, and support for the government's INDH. Finally, consultation with nongovernment stakeholders, outreach to beneficiaries, and dissemination of knowledge evolved into central themes over the course of CPS implementation. This increased emphasis on civil society partnerships reflected the WBG's broader effort to take a more inclusive approach to development in response to the profound changes in the MENA region. In Morocco, these efforts involved further strengthening transparency about WBG programs and broadening relationships to provide a wider range of stakeholders with opportunities to provide input into program and give feedback on implementation results. V. LESSONS RELEVANT TO THE NEXT COUNTRY PARTNERSHIP STRATEGY 165. Implementation of the CPS confirmed the importance of flexible program design. The strategy's two-level approach included a 24-month business plan of firmly developed activities and a longer-term framework of potential intervention areas. This approach allowed the WBG to adapt to country circumstances and client demand, including as a new Government took office and developed its own reform plans and as a new constitution was adopted midway into the program. 166. Morocco's response to the challenges emerging from the Arab awakening highlights the importance of understanding the political economy environment. Although Morocco faced many of the same challenges confronted by its neighbors-high unemployment and poor job quality, inequality, exclusionary practices that benefited elites, and a public service delivery system that partially failed to deliver good-quality results-its 59 responses were more effective as a result of the Government's willingness to work in a participatory and inclusive manner.35 There is a broad understanding in Morocco that to achieve real social transformation requires two comprehensive sets of reforms: fostering equitable growth and jobs, and strengthening service delivery and governance. The CPS aimed to strengthen its focus in these areas following the CPSPR, and will continue to seek opportunities to do so in the next CPS. 167. High-level government ownership-together with consistent and constructive dialogue-are helpful in generating interest and building momentum for reform. Under the CPS, reforms with regular high-level attention were able to move forward more easily. This included the investment climate work through the national commission on business environment, IFC's advisory work with the central bank on credit access, and agriculture sector reforms under the government's high-profile Plan Maroc Vert and the National Plan for Irrigation Water Conservation in Morocco. High-level dialogue on broad macro sustainability issues raised awareness of the importance of controlling the wage bill, allowing reform progress even after this objective was dropped from the CPS and in the absence of a dedicated program in this area. Where reform commitment was not backed up by appropriate resources, as in the case of insufficient staffing to implement trade and competitiveness reforms, progress was slow. Even where there has been clear government ownership, as on business environment reforms, their impact has been weaker than anticipated given that the bureaucracy has been slow to adapt to new practices. This suggests the importance of pairing high-level dialogue with practical change management approaches targeted to working-level staff. 168. While capitalizing on client ownership and reform momentum, attention to appropriate sequencing remains important. Some reforms envisaged under the CPS stalled because smaller reform steps that enjoyed significant interest and backing were taken before overarching frameworks were in place. In the area of public sector management, for example, multiannual performance budgeting objectives did not yield intended results because sector medium-term expenditure frameworks (MTEFs) were developed before the global MTEF. In the solid waste sector, policy reforms adopted under the first two DPLs may have advanced more quickly than the administrative procedures required to implement them. 169. Participatory approaches are essential to ensure broader stakeholder ownership of reform. In light of Morocco's new constitutional mandate to conduct more systematic public consultations and foster citizen participation, the CPSPR highlighted the need to strengthen the WBG's support for greater outreach, inclusion, and accountability. Participatory approaches were successful in ushering forward reform through the INDH, on agriculture, on water and sanitation, and in implementing the Clean Development Mechanism in the solid waste sector. It will be important to build on these successful experiences in the forthcoming CPS. 170. The single-sector DPLs on which the CPS program relied were effective in moving forward on a broad program of first-generation reforms amid weaknesses in cross- ministerial coordination, but Morocco's development needs-and the Government's reform interests-now center around more complex second-generation reforms that involve more cross-sectoral challenges. Several of the Government's priority reforms, in areas such as trade and competitiveness, employment generation, and climate change adaptation and green 3s The new constitution specifically states that the government is obliged to work in a more participatory and inclusive way. 60 growth, can only be achieved through across-the-board efforts encompassing a wide variety of actors. In response to this need, the WBG program has begun to move toward the design of operations that support the Government in mobilizing multiple institutions and actors and ensuring better coordination and communication. This shift implies a risk that implementation progress will stall in the face of continued challenges in cross-agency collaboration. However, recent experience demonstrates that carefully designed multisectoral operations, backed by support for institutional coordination mechanisms, could improve the chances of reform success and, indeed, have a greater impact on complex cross-sectoral reforms than a "silo" approach centered on individual sectors. For example, the experience of the CNEA shows that interministerial coordination mechanisms can help build reform momentum if given appropriately high-level support. In the water sector, improved coordination and better governance were key factors in resolving the disconnect between water mobilization investments and irrigation infrastructure (each the responsibility of a different agency) on the one hand, and underutilization of already mobilized water resources. 171. The strong AAA approach adopted under the CPS was a key factor in developing and maintaining strong country engagement, and this will need to continue and deepen as more ambitious reforms are undertaken. It will be important to ensure, however, that the WBG has the required knowledge and expertise to accompany the Government and can add real value to the process. Well-targeted technical assistance can help foster institutional and technical capacity building, an area that is expected to receive greater emphasis as the WBG moves to implement activities with a stronger focus on implementation and results, as well as initiatives that aim to strengthen governance, accountability, and voice. In parallel, as echoed by regular counterpart requests, there is a need to step up technical assistance and implementation support for reforms. This is particularly important as the program continues to shift toward multisectoral reform programs. The WBG program needs to step up implementation support going forward. 172. Thoughtful design of monitoring and evaluation frameworks was a factor in the successful implementation of CPS programs. The INDH program benefited from a thorough approach to monitoring and evaluation design, which was emphasized not only as a mechanism for tracking and improving INDH performance and for measuring achievements against targets, but also as a key element in two-way communication with beneficiaries. Achievements in the transport sector were facilitated by the use of an indicator on rural access to all-weather roads, which was well defined, measurable, and well understood and internalized by all stakeholders. On business environment reforms, the WBG followed the Government's lead in concentrating on improving performance against the high-profile Doing Business indicators, which resulted in significant progress in key areas of this survey. Good results in advisory projects led by IFC showed the importance of involving project stakeholders in developing monitoring and evaluation frameworks to ensure the same vision of success. In other areas, such as public sector management reforms, the country team felt that ownership of reforms could be strengthened through enhanced consultation of users and stakeholders, notably in the definition of performance objectives and indicators. 61 Annex 2A: Morocco CPS Completion Report Summary Assessment Matrix Pillar 1: GROWTH, COMPETITIVENESS AND EMPLOYMENT 1.1 BUSINESS ENVIRONMENT: Government Objectives: Improve the business environment, especially for SMEs, via a comprehensive investment climate reform strategy supported by an effective reform implementation and coordination Key Issues Targeted : (1) Uneven quality of the business law/regulatory framework and its enforcement, leading to an unlevel playing field that reduces entry of new SMEs and diversification and (2) Weak and uninstitutionalized process of PSD reform identification, preparation, implementation and coordination. Progress Overview: Among other achievements, Morocco improved its Doing Business indicators the most in 2011 compared to other global economies, climbing 21 places to 94 out of 183 economies on overall ease of doing business; with continued progress, Morocco is now ranked 87 of 189 economies. This improvement reflects progress on CPS outcomes such as eliminating the minimum capital requirement for limited liability companies and strengthening investor protections. Progress in reducing the time and cost of registering a business has been slower than planned, but is expected to gain momentum through the establishment of e-registration in 2014. CPS Outcomes Status and evaluation summary Bank Group Program Lessons Learned Instruments/Status Streamlined regulatory environment Achieved Lending Business environment simplification is a key demand and a more equitable enforcement of Competitiveness DPL (Approved from the private sector. Moroccan authorities have been rules, particularly for new entrants & FY13; Closed FY14; S); able to streamline regulatory processes and SMEs. Competitiveness DPL2 now administrative procedures in certain areas, but with a underway relatively moderate impact. * Indicator: Minimum capital Minimum capital requirement for a limited liability The Competitiveness DPL and TA assistance to the requirement for a limited liability company is 0% of GNI. The amendment to the AAA CNEA aimed at generating an ambitious approach to company (as % of GNI per capita) Limited Liability Company law was included in the e IDF for national commission on this issue. Following the TA, the Ministry in charge of Baseline: 2009: 11.8% annual reform program of the public-private National business environment (CNEA) Administrative Simplification has contmcted out a Target: 2013: less than 1%. Commitee for Business Environment, chaired by the (Closed FY14; MU due to late private firm with the mission of establishing a Head of Government and prepared by the Ministry of delivery) streamlined mechanism for simplifying procedures Industry and Commerce (MCINET) which is the e Bank TA to the NCBE (CNEA) through a certification process for administrative forms. authority in charge of overseeing commercial law. (between 2010-2012) In parallel, several legal and regulatory reforms have e ICT Strategy Implementation been undertaken by concerned ministries. * Indicator: Administrative steps to 5 administrative steps required to create a business, However, even though there is a clear progress and create a business/cost associated as at an average cost of 9.5% of income per capita. IFC willingness of authorities to continue moving on that % of GNI per capita Morocco reduced the costs and number of 9 TA to support regulatory reforms front, the concrete impact of these efforts remains Baseline: 2009: 6 steps/16% administrative steps through setting up a common of the business environment relatively weak, as the bureaucracy is slow to adapt its Target: 2013: 3 steps/8%. process at the local Regional Investment Committee e Alternative Dispute Resolution practices to the new business environment. one-stop shops. The planned e-registration process advisory (ADRII) aimed at *In terms of project implementation, advisory projects has not progressed due to a lack of agreement on encouraging the use of commercial led by IFC showed the importance of building synergies processes. It is planned to be fully operational in mediation to streamline conflict among different project partners for greater impact, as 2014 under the leadership of the tax administration settlement processes (Delivered well as the importance of having project stakeholders and close involvement of the NCBE. June 2013) involved in developing monitoring and evaluation SIndicator: 0 of firms which claim The baseline was established in the 2009 Investment * Quality of Public Service Delivery frameworks to ensure the same vision of success. that the rule s/regulations are applied Climate Assessment (ICA), to be measured again in (IFC AS) to improve the quality of * On corporate governance, market-level activities have in an unpredictable and inconsistent 2013 ICA. The repeat ICA was not conducted due to the regulatory environment been successful in the long term in convincing firms to way. a lack of government interest. The ongoing regional (Underway as of March 2013) implement better practices. However, working on Baseline: 2009: 60%o ICA may have findings in late 2014. It is important * Corporate governance advisory and regulatory reforms by assisting regulators (central bank, Target: 2013: 4000 to note, however, that Morocco jumped from 127th to capacity building to enhance market authority, stock exchange) to promulgate 87 th in the Doing Business rankings between DB201 1 corporate governance standards of corporate governance directives would speed up the and D1320 14, pointing to a better business private SMEs (Launched in FY13; reform process. environment overall, to be completed FY16) 9E4E logistic s/tourism labor * Indicator: Average of the Doing Average index on strength of investor protection observatories (Underway; to be Business indices of extent of increased to 4.7 in 2013, as reported in Doing completed FY16) director's liability, ease of Business 2014. Morocco adopted: (a) an shareholders' suit; and strength of implementing decree to its corporations law, minority investor protection. prepared by MCINET, which improved minority Baseline: 2009: 3 shareholder protection; and (b) an amendment to the Target: 2013: 4.5 law on judicial procedures before commercial courts, prepared by the Ministry of Justice, which facilitated shareholder suits. More effective reform coordination Achieved * The CNEA was established in 2010 by the Moroccan and implementation in the business authorities with World Bank assistance. The purpose of environment area. the CNEA was to remedy the coordination failures that were identified during previous diagnostics, notably the * Indicator: Effectiveness indicators * Dropped This indicator was dropped at the CPSPR ICA. of investment climate reform stage and replaced with the new indicator below. * In many ways, the CNEA has proved successful in commissions generating interest and momentum on investment Baseline: 2009: average score climate reforms. It is now routinely chaired by the Head among 4 existing reform of Government and has established its legitimacy as the commissions: 1.7 main tool to identify and monitor investment climate Target: 2013: 2.5 for CNEA reforms. * The CNEA now needs to be more ambitious and tackle * Indicator (as of CPSPR): Increase in * Overall ranking in the Doing Business survey more aggressively the systemic constraints that are not Doing Business Ranking. increased from 124 of 181 economies in 2008 measured by the Doing Business report. Coordination Baseline: 124 in 2009 (DB2009)to 94 of 183 economies in 2011 with the private sector needs to be enhanced to ensure (DB2012) to 87 of 189 economies in 2013 that reforms have an actual impact on business (DB2014). transactions and private sector development. 63 1.2 FINANCIAL SECTOR REFORM - Government Objectives: (1) Improve further access to finance for households; (2) Strengthen access to finance for SMEs; (3) Promote financial stability; and (4) Foster capital market development to improve access to finance, competition, and risk management. Key Issues Targeted : (1) More than half of the population does not have access to banking or postal accounts and MFI weaknesses could affect over 1.2 million customers; (2) SMEs remain underserved; (3) New risks generated by the development of the financial system (e.g. real estate, interest rate, etc.); and (4) Limited development of long term market instruments. Progress Overview: Nearly all targets met. Establishment of authorities on capital markets and insurance and pension funds has advanced significantly through the passage of key laws, and nomination of the heads of these authorities is expected soon. CPS Outcomes Status and Evaluation Summary n ru aLessons Learned Instruments/Status A restructured financial sector Mostly Achieved LT o n khp allowing for sustainable expansion e Sustainable Access to Finance strong agenda in the area of financial inclusion and of access to finance by DPL 1 (Approved FY10, has worked over the past decade with the WBG and households. Closed FY12, S) MFIs to design a program for extending access to 9 Financial Sector DPL 2 (FY1 3) finance among households. These efforts are paying * Indicator: Increase in number of Number of total deposit accounts relative to the dropped off, demonstrating the importance of tailoring WBG total deposit accounts relative to population increased to 50% in December 2010, e MSME Development Project interventions to areas with strong ownership, in this the population. 54% in December 2011, 57% in December (Investment loan, approved case by the central bank. Baseline: 43% (banks and the 2012, and 58% in June 2013. The banks have FY12; S) post office) in December 2008. continued to roll out low-income banking services under the central bank's financial AAA inclusion strategy, endorsed by the Alliance for e Technical assistance, funded by Financial Inclusion (AFI). MNA Transition Fund * Bank Governance Review " Reduction in the NPL ratio of The NPL ratio of MFIs decreased to 6.2% in (2009) MFIs December 2010 and 4.3% in December 2012, * Strengthening Crisis Baseline: 9% in June 2009. then rose to 9.6% in December 2012. Key Preparedness and Processes factors in the initial achievement of this target (FIRST) (2010) included more effective supervision, merger of e Review of framework for microfinance institutions (MFIs), and pausing to mobile payments (2012) clean up the loan portfolio. IFC * Access to Finance advisory 64 Established credit infrastructure Achieved aimed at improvement of IFC established strong credibility during the first more conducive to SME finance financial infrastructure with the project with BAM (2006-2009), which positioned creation of a credit bureau and IFC as the preferred advisor to BAM in the area of * Indicator: Increase in the The number of monthly consultations to the ongoing support to BAM (Bank credit reporting. Continuous follow-up and number of monthly credit bureau reached 12,500 in January 2010, Al-Maghrib, central bank) for provision of high-level advice following the consultations to the credit implementation. conclusion ofthe first project helped maintain a bureau. 79,9 in December 01,9017 in 2 ,n Capacity building for strong relationship between both institutions in Baseline: 2,000 consultations in microfinance. Support provided credit reporting, ensured that Morocco is moving in November 2009 baseline is because the credit bureau had just to the 3 main MFIs to scale up the right direction in this area, and may potentially been set up when the baseline was calculated. their outreach, now serving result in a second project in the next period. about 800,000 micro- BAM's strong awareness of and buy-in regarding entrepreneurs. the importance of credit reporting and capacity *Investment in local banks, helped it to partner with IFC in awareness and insurance companies, SME capacity-building activities designed for countries in funds, and MFIs focused on the MENA and Africa regions, which has positioned women and MSMEs. IFC own Morocco as one of the knowledge centers in the account investments in financial region on credit reporting. Better identification of risks in the Mostly achieved markets reached US 290 financial system through the million in January 2014. introduction of fuilly independent *Support to banking sector and supervisors. improved financial infrastructure T Indicator: Establishment of new A law creating the insurance and pension find Morocco Secured Lending insurance supervisor authority was voted by both chambers of Project to establish legal Baseline: none Parliament in 2013. infrastructure for secured transactions to expand access to c Indicator: Establishment of new The law creating the capital market authority finance for Moroccan SMEs capital market supervisor was promulgated in 2013. (Started 2013) Baseline: none The law for nominating the heads of both authorities was adopted by government in February 2014, paving the way for operationalization of these entities in the near feture. 65 Improved liquidity of the Achieved * Success in this area demonstrates the importance of benchmark yield curve, creation of close consultations with industry. new instruments (e.g. covered bonds. * Indicator: Reduction in the Number of lines of Treasury bills: 63 (Dec. number of lines of Treasury 2013). Key enabling factors included bills implementation of the FIRST TA and issuance Baseline: 170 lines in June 2009 of a strategy adapted to macro conditions. 1.3 SKILLS AND EMPLOYMENT - Government Objectives: (1) Improve access to and quality of higher education (and vocational education and training [VET]) system; (2) Improve labor market information systems; (3) Extend active labor market programs; (4) Set-up an unemployment insurance scheme. Key Issues Targeted: (1) Inadequacy of higher education (and VET) supply to demand; (2) Knowledge of labor market dynamics is insufficient to inform policies and program; (3) Labor market rigidity and lack of income protection mechanisms hamper labor mobility and productivity. Progress Overview: Moderate progress recorded, although data collection has been challenging. CPS outcomes in this sector were amended in the CPSPR to reflect the Skills and Employment DPL. Bank Group ProgramLesnLard CPS Outcomes Status and Evaluation Summary n ruaLessons Learned Instruments/Status Matching skills developed within Partially achieved Lending The Second Skills and Employment DPL has been the vocational training and higher 9 First Skills and Employment delayed by several months due political changes in education systems to the needs of DPL (Approved FY12; Closed Morocco and the subsequent government reshuffle, the labor market ("flow") FY13; 5) which has heavily affected the departments * Indicator: Rate of internal 9 Second Skills and Employment involved. The limited capacity in the relevant Rate of internal efficiency of vocational training DPL under preparation, to be sectors has been another factor. efficien cofvocatona byain programs covered by a programmatic contract: delivered in FY1 4 subject to *The employment TA has helped strengthen capacity programs covered by a programmatic contract no aggregated data were available at the time of completion of prior actions, in several areas: (i) strategic vision; (ii) establishing Baseline: 75% (2009/10) publication. However, 2013 data related to a Labor Market Observatory; (iii) improving the Target: >90% (20 12/13) specific sectors show high levels of both internal AAA design of Active Labor Market Programs; and (iv) ate Programmatic Employment TA, facilitating the dialogue for the preparation of an on- and exteal efficiency oftraining programswhich aims to strengthen the-job training law, etc. All related prior actions are covered by a programmatic contract: (i) 100 government capacity to: (i) now nearing completion. percent of the 400 trainees of the aeronautics design the 2012-2106 DPLs can be a challenging instrument in low- 66 center (GIMAS) completed the program and employment promotion capacity sectors. were employed; and (ii) 95 percent of the 3,425 strategy; (ii) strengthen the When a series of two DPLs is approved, it is trainees in the Renault center were employed. labor market information important for the Bank to continue its commitment system; and (iii) prepare the in supporting the reforms of the second DPL and to * Indicator: University graduation University graduation rate in open-enrollment Vocational Training Law take into account the political environment in (ongoing; most of the outputs gauging the processing time. rate in open-enrollment faculties faculties: 64% in 2012: data for 2013 requested planned at the concept stage Baseline: 64% (2009/10) but not obtained by the time of publication. have been delivered or are Target: 69%o (2012/13) nearing completion). Improving the effectiveness of Achieved Growth, Employment and intermediation services, including Poverty PESW (Underway; to active labor market programs be completed FY14). ("stock") *Indicator: Number of new Number of new enrolments with ANAPEC: enrolments with ANAPEC, 158,770 in 2012 (60%o men, 40%o women), including proportion of non- including 10( of non-graduates! 150,559 in 36 graduates , per year, by gender 2013 (61% men, 39%o women), including 15%o of Baseline: 130,000, including 1%o non-graduates. of non-graduates (2011) Target: 150,000, including (13 of non-graduates (2013) Improving ob quality Achieved Indicator: Number of firms, The number of firms formerly operating in the formerly operating in the informal sector, registered annually for informal sector, registered professional tax, has increased steadily following annually for professional tax fiscal measures implemented in January 2011. Baseline: n.a. (2010) Target: 14,000 (2012)b- 2011: 6,449 firms cumulative 2012: 12,410 firms 2013: 19,400 firms 36 Non-graduates are those who have not completed high school (baccalaureat), or do not have a vocational training diploma. 67 1.4 TRADE AND COMPETITIVENESS - Added to the CPS Results Matrix at CPSPR - Government Objectives: (1) Modernizing the legal and institutional framework of foreign trade; (2) Streamlining trade logistics at the ports of entry; (3) Strengthening the institutional framework for the competition policy Key Issues Targeted: (1) Enhancement of transparency and predictability on the regulatory framework applicable to safety and hygiene standards for local producers and importers; (2) Reduction of administrative burden (time and costs) and increased transparency for importers and exporters; and (3) Reduction of dominant positions and unfair competition. Progress Overview: This new results area was added through the CPSPR to reflect the focus of the Bank's Competitiveness DPL. All planned actions have been initiated, but targets have only been partially achieved, due either to a lack of resources or to overambitious indicators. CPS Outcomes Status and Evaluation Summary Bank Group Program Lessons Learned Instruments/Status Modernizing the legal and Partially achieved Lending It is suggested that this indicator be amended to institutional framework of foreign Economic Competitiveness reflect the number of rejected products and the trade Support Program DPL number of prosecutions. * Number of controls on imported 76,000 controls on imported products (2012), (Approved FY13; Closed products including 343 rejections. Data for 2013 will be FY14; S) Baseline: 71,000 (2011) available in March 2014. 9 Competitiveness DPL2 now Target (2013): over 100,000 8,300 control operations on the local market, underway Streamlining trade logistics at thein 94 cases bein brought to litigation. Stealiin rae ogsic a te Partially achieved AAePortnet deployment took longer than expected. The ports of entry e TAon trade capacity building delay can be explained by delays in implementation * Reduce the total time (dischargeof the Guichet Unique du Commerce Extrieur Reduce th total tme (discarge 7 dys (Dec.2013). eTA on AnalyticalSuprtohe (n-opspfrfrigtad,wchstob outlet) for containers Government of Morocco in the (e-sop sh for f oreign trade, wiitb Baseline: 2010 average Portnet is used only to unload containers and is Analysis of Constraints to dvped b the Mnt of orinT Target (2013): Reduce by 25% not yet a single entry point for all controls Competitiveness and by 2013 C In addition, the partners involved do not have the (stopover only). CmeiieesPlcDsgn same degree of IT maturity, underestimating the (FY 12) impact on information systems interconnection. Strengthening the institutional Partially achieved AAA on data and statistics, * The average processing time is one year due to framework for the competition including simulation of insufficient resources. policy industrial and trade policies (To " A manual of procedures for investigations would * Number of cases of self-referral, 2 official investigations in 2013. Incomplete be completed FY14) facilitate the work of investigators. investigation and sanctions progress can be explained by a lack of sufficient impoed b theNatinalhuman resources, as there are only 6 operational imposed by the National staff+ 3 operational staff in 2 years. Competition Council. Baseline: 0 Target: 4 official investigations by end 201376,000controlsonimportedproducts(2 68 Pillar 2: SERVICE DELIVERY TO CITIZENS 2.1 PUBLIC SECTOR MANAGEMENT - Government Objectives: (1) Increase transparency, accountability and performance measurement of the budget; (2) Progress in implementing key components of HR reform; (3) Consolidate and control civil service payroll evolution; (4) Simplification of PA procedures and greater availability of on line services. Key Issues Targeted: (1) Insufficient visibility of policies in their medium-term budgetary implications which would allow for budgetary allocation decisions in a multiyear framework; (2) Need to improve HR management to enhance civil service performance including in deconcentrated entities; (3) Strengthen payroll management to foster control of overall public wage bill and promote macroeconomic stability; and (4) Inefficient and nontransparent procedures undermine quality and reliability ofPA processes. Progress Overview: Moderate progress recorded based mainly on PARL IV DPL actions. Some good progress on reducing the wage bill was achieved in 2010 but was then reversed due to Arab Spring pressures up to 2012. As the medium-term sustainability of public finance was at risk, the government worked to better control expenditures in 2013, including the wage bill, with encouraging results. The First Transparency and Accountability DPL series was signed in December 2013. It supports key policy reforms to enhance transparency and accountability in the management of public resources and foster a more open mode of governance through access to information and public participation. A parallel technical assistance project, funded by the Transition Fund, was approved in October 2013 to support the implementation of reforms related to performance budgeting, citizen participation, and fiscal decentralization. CPS Outcomes Status and Evaluation Summary Bank Group Program Lessons Learned Instruments/Status Multiannual budgetary planning Partially achieved Lending The multiannual performance budgeting did not yield integrated with the process of * PAR IV (Approved FY10; the intended results in the absence of a central preparation of the Budget Law. Closed FY11; 5) medium-term budget framework and a clear legal e Accountability and framework. Sector MTEFs were developed without a * Indicator: Number of additional In progress. More than 16 ministries have Transparency DPL underway global MTEF or initial globalization of ministries that routinely do a developed over 19 sector or subsector MTEFs. (Approved FY14) appropriations at budget item level before genuine Medium-Term Expenditure Most ministries are familiar with this tool, but it budget program and heads were defined. The benefits Framework (MTEF). is not yet fully operational, in the absence of a AAA from testing the performance approach were Baseline: 12 ministries, in global MTEF and multi annual budget ceilings. e Pension Reform TA therefore limited. This is being addressed through the October~ ~ ~ ~ ~ B09 h e rai ugtlw hc a -Government TA new organic budget law. n Compensation Reform TA There is a need for stronger coordination with a approved by the Council of Ministers in January dropped number of connected reforms, including payroll and 2014 and is awaiting parliamentary approval, Public Administration Reform human resources management as well as the intends to address this shortcoming by TA deconcentration charter. Similarly, synergies between introducing a multi annual budget perspective Country Governance and ti- these central reforms and sector strategies seem to and a programmatic approach. In the meantime, Corruption have been underutilized. the 2014 budget law launched the preparation of P-ESW The long and incremental preparation phase and its programmatic budgets for 4 ministries on the Public Expenditure Review extended pilot testing have led to reform fatigue in line ministries. A shorter implementation phase (2 to basis of performance objectives and indicators. 3 years) with a participatory platform approach may be more effective in fully mobilizing the 69 The pending HRM policy adopted Achieved administration for reform implementation, as in the by the government. This concerns Latin American experience with public sector the decree on Harmonization of reforms. Civil Service Status of "Editors- Lessons learned from the steering of the preparatory Rdacteurs" and "Technicians." and experimental phase confirm the need to strengthen and formalize the steering of the reform on three levels: (i) a specific, temporary, and adequately fumnded coordination unit within the * Indicator: Decree adopted by the The number of different civil servant statutes Ministry of Finance and dedicated temporary units, government. was reduced through the adoption of three which are directly attached to sector ministries and Baseline: Preparatory background decrees at the beginning of 2011, merging 22 have both budget and operational expertise; (ii) work has started. statutes into 3. senior-level thematic inter-ministerial committees for consolidating and broadening the working groups created to revise the organic budget law; and (iii) a political interministerial committee that would meet regularly to steer the reform, arbitrate and to monitor its implementation. Ownership of reforms could be strengthened through: (i) enhanced consultation of users and stakeholders, notably in the definition of performance objectives and indicators; (ii) creating a reform community (through an Internet/Intranet website and topical seminars) aimed at networking experts and disseminating knowledge and experience; (iii) intensifying and institutionalizing information and training (ENA, management training organizations, etc.). The wage bill is in line with the Dropped * Although no Bank program is addressing the wage government medium term target of bill issue explicitly, dialogue with the government on 10 percent of GDP. the consolidation of public finance to ensure macroeconomic sustainability over the medium term Indicator: Share of Wage Bill in This outcome was dropped due to the raises awareness of the government on the need to GDP. Government's response to the Arab awakening, control the wage bill. The government is felly Baseline: 10.3%n in 2009. including wage increases for civil servants. The committed to rationalizing management of the wage focus of the Bank's program shifted away from bill, which it succeeded to achieve in 2013 despite support for a traditional administrative reform i o a agenda toward the improvement of transparency, n accountability, and public service delivery. 70 Nevertheless, after an increase to 11.6% of GDP in 2012, the wage bill was reduced to around 11% of GDP in 2013. E-government is introduced to Partially achieved The Bank has focused its support on two key e- simplify PA procedures including government initiatives. (1) A collaborative Internet for service delivery. platform called Watiqa, enabling citizens to order their birth certificates online and to receive them * Indicator: Number of Government Over 9 Government Priority projects fully through registered mail; the geographic and Priority projects (15 listed) fully implemented; e-Consulat, Integrated functional scope of this platform is being extended. implemented. management of public expenditure, Online VAT (2) The adoption of e-procurement and reverse Baseline: None in 2009. claims, Paying Corporate Tax, Paying Income auctions, for which the legal basis has been tax, Setting up and electronic certificationestablished. tax,Seting p ad elctrnic ertficaionFurthermore, a multi-stakeholder working group has authority, Employee online social claims, been established with participation from the civil Customs declarations, society and academe to develop an e-participation platform concretizing the new constitutional right for participatory democracy. Other applications are on their way to being implemented: Online bidding for public tenders, enterprise creation, Common identifier and inter-operability among administrations. 71 2.2 QUALITY AND ACCESS IN EDUCATION - Government Objectives: (1) Achieve universal compulsory basic education by 2015; (2) Improve system performance (teaching, management and stewardship); (3) Mobilize and utilize resources effectively. Key Issues Targeted: (1) Large number of school-aged remains excluded from the system, with high repetition and dropout rates; (2) Weak external efficiency and quality of the education system; and (3) Weak institutional performance in teaching, management and stewardship. Progress Overview: Good progress toward most outcomes, particularly in the area of access to primary education. Slower progress in expanding access to lower secondary education reflects low enrollment in rural areas as well as overly ambitious indicators. Targets on quality and management capacity were mostly achieved. The thrust of the Bank's support to education evolved during the CPS period, focusing more on quality than on access. Gender-disaggregated indicators were introduced in the CPSPR. CPS Outcomes Status and Evaluation Summary Bank Group Program Lessons Learned Instruments/Status Increased net enrollment rates for Mostly achieved with 2 targets fully achieved Lending Budget support provided jointly with other primary and lower secondary and 2 targets partially achieved e Education DPL (Approved FY10; development partners has been instrumental in education. Closed FY11; MS) helping the Ministry of National Education e Education DPL2 (Approved FY1 3; S) (MEN) achieve most of its targets in terms of * Indicator: primary education net Primary education net enrollment rate targets e Skills and Employment DPL improved access to education. enrollment rate. exceeded: 93.9% (2009/10), 96.4% (2010/11), (Approved FY12; Closed FY13; S) Targets regarding lower secondary education Baseline: 90.5% (2008/09). 96.6% (2011/12). Good progress as a result of Second Public Administration Reform were overly ambitious given wide disparity in Targets: 91.9% (2009/10), 93.2% improved student retention as reflected in lower DPL (Approved FY06, Closed FY07; enrollments between urban and rural areas. (2010/11), 94.6% (2011/12). dropout rates (from 4.6% to 2.8%). S) e Accountability and Transparency DPL * Indicator: lower secondary net Lower secondary education net enrollment rate underway (Approved FY14) enrollment rate. improved but fell short of targets: 48.0% Baseline: 42.7% (2008/09). (2009/10), 51.0% (2010/11), 53.9% (2011/12). AAA Targets: 51.5% (2009/10), 62.0% Partial progress reflects overly ambitious * Impact evaluation of conditional cash (2010/11), 74.7% (2011/12). targets, as well as low enrollment in rural areas transfer program in rural primary (31%in 2011/12). schools (Data collected, draft report (31% completed, final report underway) Additional gender indicators added e Education PER (Draft completed) at CPSPR: a PETS-QSDF (PETS TOR developed) Indicator: female primary Female primary education net enrollment rate IFC education net enrollment rate targets exceeded: 92.7% (2009/10), 95.4% PPP in Education Baseline: 89.1% (2008/09). (2010/11), 96% (2011/12). Good progress due Targets: 92.5% (2010/11), 94.2% largely to improved female net enrollment in (2011/12). rural areas (from 93% to 97%). 72 * Indicator: female lower secondary Female lower secondary net enrollment rate net enrollment rate improved but fell short of targets: 47.3% Baseline: 42.4% (2008/09) (2009/10), 50.2% (2010/11), 52.9% (2011/12). Targets: 61.8%o (2010/11), 74.6%0. (2011/12). Partial progress reflects overly ambitious targets, as well as low enrollment in rural areas (24% in 2011/12). Reduced repetition rates for primary Partially achieved Improving internal efficiency and quality of and lower secondary education. education requires a better understanding of *key factors related to both demand and supply Primary education repetition rate improved butin this area is currently Baseline: 12.3%o (2008/09). fell short of targets: 12.0% (2009/10), 9.3% insufficient. Targets: 9.100 (2009/10), 6.7% (2010/11), 8.2% (2011/12). Repetition rates are (2010/11), 5.0%o (2011/12). still high, particularly for boys (9.8% in 2011/12). One possible explanation is that it is taking time to put in place the planned student monitoring and support mechanism (education non formelle). * Indicator: lower secondary Lower secondary education repetition rate repetition rate. remained stable: 16.1% (2009/10), 16.3% Baseline: 15.2% (2008/09). (2010/11), 16.0% (2011/12). Repetition rates Targets: 13.0% (2009/10), 11.1% are still high, particularly for boys (19.4% in (2010/11), 9.5% (2011/12). 2011/12). Same factors as above. Additional gender indicators added at CPSPR: * Indicator: Primary female Primary female repetition rate improved repetition rate significantly, but still fell short of targets: 9.8% Baseline: 10% (2008/09). (2009/10), 7.3% (2010/11), 6.4% (2011/12). Targets: 5.9% (2010/11), 4.5% Same factors as above. (2011/12). * Indicator: lower secondary female Lower secondary female repetition rate repetition rate remained stable: 12.1% (2009/10), 12.3% Baseline: 11.5% (2008/09) (2010/11), 11.6% (2011/12). Same factors as Targets: 8.9% (2010/11), 7.9% above. (2011/12). 73 Improved education quality with a Mostly achieved * DPLs are not appropriate for supporting the focus on restructuring teachers' government in addressing issues (such as training and learning evaluation. quality and internal efficiency) that require closer collaboration with the client. * Indicator: Establishment of National Learning Assessment System (PNEA) national learning assessment established. One learning outcomes survey system. conducted; second planned survey postponed Baseline: Not yet established due to teacher strikes. New upper secondary (2008/09). Target: New upper secondary education strategy at early stages of education strategy is developed preparation, awaiting ongoing consultations on and implemented by 2012; overall education sector strategy. National learning assessment system has been established and at least one learning outcomes survey has been carried out (with analysis and dissemination) by 2012. Improved management capacity and Mostly achieved increased accountability of results at all levels, within the context of decentralization. * Indicator: Proportion of lower Proportion of lower secondary teachers secondary teachers working the working the full complement of hours assigned full complement of hours assigned. improved, but fell short of targets: 40.2% Baseline: 37.5% (2008/09). (2009/10), 43.00 (2010/11), 59.8% (2011/12). Targets: 40.5% (2007/08), 53.8% Despite measures adopted by MEN for in the schools sector (covering teacher redeployment, mobility, and retention), which improved efficiency in administrative processing, their effect on efficiency in managing HR particularly on teacher deployment has been limited. 74 2.3 HEALTH SECTOR REFORM - Government Objectives: (1) Reduce the burden of major health conditions; (2) Reduce inequity in access to services affecting poor and rural populations; (3) Improve financing and efficiency of the sector; and (4) Improve governance of the sector. Key Issues Targeted: (1) Dual burden of non-communicable diseases and poor maternal and child health outcomes; (2) Public financing of health services remains inadequate, resulting, among other things, in high out-of-pocket expenditures; and (3) Limited access to affordable and quality pharmaceutical products (quantity scarce in public sector, prices high in the private sector). Progress Overview: The Bank's Health DPL preparation was cancelled because no agreement was reached on the adequacy of the measures to be supported, the instrument, or sector needs. Technical assistance was carried out. 2.4 VULNERABILITY AND SOCIAL EXCLUSION - Government Objectives: (1) Reduce rural poverty, urban social exclusion and vulnerability; (2) Empower poor and vulnerable groups for their own development. Key Issues Targeted: (1) High level of rural poverty, social exclusion and vulnerability; (2) Insufficient access to/use of basic infrastructure, social services and economic opportunities, by poor and vulnerable groups; (3) Lack of convergence of poverty alleviation policies and implementation mechanism across government agencies; and (4) Centrally- driven approach dealing with poverty and social exclusion, with little room for participation and empowerment of the stakeholders. Progress Overview: Advanced progress recorded based on the successful completion of INDH-1, in which many outcomes surpassed their targets. The CPS outcomes in this program area were amended at the time of the CPSPR in response to changes made in INDH-1 project development objectives, at the government's request, to better capture the outcomes of inclusiveness, accountability and transparency, and to measure the impact on the target population. Recognizing the value added provided by the Bank, the client requested Bank technical and financial support for the p ogram's second phase, launched in June 2011. The Bank is supporting the INDH-2 through the first PforR operation in Morocco (2012-2015). CPS Outcomes Status and Evaluation Summary Bank Group Program Lessons Learned Instruments/Status Use of services and infrastructure Achieved Lendiniz Design of and support to the participatory 9INDH Project (SWAP, 2007-20 10) process was critical. Particular Bank * Indicator: Number of persons (men, Number of persons (men, women, and youth) completed (Approved FY07; Closed contributions included supporting the women and youth) reporting reporting increased use of basic infrastructure FY12; MS) preparation or revision of the operational increased use of basic infrastructure and socioeconomic services created by INDH, 9 INDH 2 PforR Operation, 2011-2015 manuals that guided the program as a whole. and socioeconomic services created broken down by program (Approved FY12; S) Strong focus on procedures helped ensure by INDH (rural/urban/vulnerable/crosscutting), at * JSDF Grant S2.85m Promoting fiduciary soundness and appropriate Baseline Target (June project's end in June 2011: Accessibility for Persons with safeguards, including elaboration of financial (Dec. 2006): 2011): Rural: 78% men, 71% women, 61% youth Limited Mobility (Approved FY12; and procurement manuals, an environmental Men 0% Men 70% Urban: 73% men, 72% women, 56% youth S) management plan and a resettlement plan, Women 0% Women 50% Crosscutting: 74% men, 67% women, and 58% inclusion of environmental screening in Youth 0% Youth 30% youth. This indicator was not tracked for the subproject selection, and designation of a vulnerability component, which focused instead safeguards focal person at the INDH 75 on budget priorities and NGO participation in AAA coordination unit at the central level. decision making and project management. * PESW Targeting mechanisms for urban These achievements were the result of high * Breaking Barriers to Youth Inclusion neighborhoods could have been refined to mobilization, strong political support, and the * Governance of Service Delivery to ensure more objectivity in selection. implementation of over 22,000 subprojects for Citizens 5.2 million beneficiaries. This key project * Poverty PESW (Underway; to be development indicator was monitored and completed FY14). followed up on regularly. IFC Transparency Achieved *Ongoing IFC support to microfinance s Ecto *(Targetinemechanismdforsurba *Indicator: 00 of CLDH, CPDH and 10000 of CLDH, CPDH, and CRDH's sco ivsmn n dioy CRDH's decisions published, decisions published, relating to the projects relating to the projects approved/rejected and annual physical and approved/rejected and annual financial reports at project's end in June 2011. physical and financial reports This was a key intermediate indicator in the Baseline: 000 in Dec. 2006 project, monitored closely during Target: 950c in June 2011 implementation. Accountability & ownership Achieved * Indicator: % of projects 90 rural, 72% urban, and 790 of implemented by communities, cross-cutting projects implemented by NGO, Communes communities, NGOs, and communes at the Baseline Target(June project's end in June 2011. Lessons of (Dec. 2006): 2011): experience from community-driven Rural 000 Rural 60 development projects elsewhere were Urban 0n Urban 70% introduced in the INDH design. Crosscutting Cross- 000 cuing 70 Inclusiveness Achieved *Indicator: 00 of women in CLDH, 170% of women in CLDH, 170o in CPDH, and CPDHofCLandPDH anRCRH' s110 in CRDH. The key enabling factors for Baseline Target this achievement were the implementation of (Dec. (June awareness-raising and capacity development 2006): 2011): activities and the inclusion of specific CLDH O CLDH140 indicators to assess progress overtime. CPDH 0% CPDH 140% CRDH 0% CrH 70% 76 * Indicator: % of youth in CLDH, 12% of youth in CLDH, CPDH, and CRDH. CPDH and CRDH. Success factors as described above. Baseline: 0% in December 2006 Target: 7% in June 2011 ADDITIONAL INDICATORS ADDED AT THE CPSPR Achieved Lending *The significant difference between the target ** INDH 2 (Approved FY2; ) and the result achieved regarding the girls' Srese in the i80.4% of girls who reside in the educational success rates points to the possibility that who reside in the educational dormitories (Dar Taliba) graduated to the next either the baseline or the target value were dormitories (Dgr--Tlib-Dar Taliba), underestimated. This will be assessed during graduating to the next grade. gan eeeing at in the upcoming mid-term review of the project. Baseline: 45% Target: 50% by end-2012 girls also benefitted from educational support during their stay in the dormitories. * Increase in the % of women and 20.1% of women and 16.4% of youth (18-35 youth (18 -35 years old) in local youh (8 -35 ear ol) i loal years old) in local governance bodies--CLDH governance bodies: CLDH & CPDH. and CPDH-i 2012. This was achieved thanks Baseline: 17% women and 12% youth at end-201 1. to the lessons learned in implementing INDH- Targets: 20% women, 15% youth by . end-2012 t Increase in % of lGA implementing A capacity building program was implemented, agencies receiving capacity building. including training of over 800 NGOs. The final Baseline: 20% of above agencies and exact number will be validated in 2014, but receive capacity building (2011) preliminary estimates foresee that 50-60% of Target: 50% (20,15%yothb Tunde.IGA agencies received capacity building 77 2.5 TRANSPORT - P Government Objectives: (1) Rural Roads: Improve access of rural dwellers to basic infrastructure and social services with all weather roads; (2) Urban Transport: develop the institutional framework, improve efficiency of services and infrastructure, and ensure the environmental and social sustainability. Key Issues Targeted: (1) Rural Roads Accessibility: only 54% of the rural population has access to roads that can be used all times; (2) Responsibility over maintenance of the 3,000km of unclassified roads is unclear; (3) Inefficient provision of transport services and infrastructure due also to weak institutional capacity. Progress Overview: Advanced progress recorded. Access among the rural population to an all-weather road improved significantly from 54 percent in 2005 to 77 percent in 2013. Preparation of a strategy for the maintenance of unclassified rural roads has advanced, albeit at a slower pace than expected. Indicators and milestones for the Urban Transport PforR will be specified at the time of preparation and will be captured by the next CPS. The JSDF grant supporting accessibility of people with reduced mobility expects to achieve results only by end-2013, which is beyond the timeframe of the current CPS; results of this activity will therefore be captured in the next CPS. CPS Outcomes Status and Evaluation Summary Bank Group Program Lessons Learned Instruments/Status Increased accessibility of rural Partially achieved Lending One key success factor of the Second National population to all-weather roads - from * Rural Roads Project (Approved Program of Rural Roads was its monitoring 65% (2009) to 80% (2012). FY04; Closed FY11; S) and evaluation system, which was built upon * Second Rural Roads Project and the indicator of the rural population's access to Indicator: Percentage of rural Percentage of rural population that has access Additional Financing (Approved an all-weather road. All stakeholders population that have access to all to all-weather roads: 75% (December 2012), FY06; AF FY10; Second AF under understood and internalized this well-defined weather-roads. 77% (June 2013). In 2005, the government preparation; S) and measurable indicator, which is more Baseline: 65% (2009) launched the Second National Program of 9 Urban Transport DPL 1 (Approved relevant than the length of improved roads. Target: 80% (2012). Rural Roads to increase this percentage from FY11; Closed FY12; MS) 54% in 2005 to 80% in 2015 through the 9 Urban Transport DPL 2 (FY13) improvement of 15,600 km of rural roads. In replaced by Urban Transport PforR 2007 the government decided to bring the (FY15) program's completion date forward to 2012, 9 JSDF Grant ($2.85m) Promoting but this proved infeasible due to a lack of Accessibility for Persons with financing. The program is ongoing, with Limited Mobility (in supervision completion expected in 2015 as originally phase) planned. AAA Sustainable maintenance of Partially achieved 9 TA to reinforce the Port Authority unclassified roads. (ANP) FYCo4;sCoderd Faciitaionan Indicator: Action plan for Sustainability of unclassified rural roads has inrau sctourae trady frct and sustainability of unclassified rural advanced, albeit at a slower pace than expected conatre stdfoMahe roads in place. since institutional stakes are complex. Ani Baseline: No plan prepared interministerial committee was formed in * Transport and Energy Efficient AAA Target: Plan implemented by 2012. 201 Ito devise a strategy for the maintenance of 78 these roads, including institutional, financial, IFC and organizational arrangements. The * PPP in transport committee proposed three strategic options in October 2013, and the decision is expected in 2014. The committee would then develop the selected option in details with a view to beginning implementation in 2015. Efficient planning and management of Partially achieved Local issues related to procurement, financing, the urban transport sector. governance, and coordination may contribute to delaying the implementation of initiatives * Indicator 1: Number of cities over 1 city (Casablanca) has established a fully by both cities and local governments. It is 500,000 inhabitants which have functioning urban transport planning authority critically important, therefore, to include in the established an urban transport (AODU) with oversight and advisory program strong incentives for cities to achieve planning and management authority responsibilities. 1 mid-sized city (Agadir) is results, coupled with institutional Baseline: 1 city (Casablanca) working to set up a similar institution. The strengthening and complementary Target: 4 cities by 2013 Ministry of Interior's current strategy is to have investments. local government-owned holding companies (Socit de Patrimoine) assume the role of urban transport planning and management authorities. Over the medium term, it is planned that STRS (Socimo de Tramway de Rabat-Sal will act as the de facto urban transport authority for Greater Rabat. The Urban Transport Project (PforR) will support this strategy under the next CPS. * Indicator 2: Number of cities over 5 cities (Tangers, Casablanca, Rabat, T6touan, 500,000 inhabitants which have Marrakech) have adopted a long term adopted a long term multimodal multimode urban transport master plan (PDU). urban transport master plan 2 other mid-sized cities (Agadir and Oujda) Baseline: 1 city (Casablanca) have made significant progress on their PDUs Target: 6 cities by 2013. following initial delays due to local procurement issues. Financial support allocated to urban Partially achieved transport projects with high economic returns toTwo urban infrastructure investments are * Indiao: tralovernmen boat re relevant for this indicator: ourity1) Tramway in Rabat, estimated to cost 3.8bn 79 investment funding in cities over DH. The central government's share of the 500,000 inhabitants. funding is 1.7bn DH (45%), channeled through Baseline: To be established through a company responsible for land planning the first UT DPL. (AAVB); this is the entity that will be investing Target: 20% in 2013. in the tramway as well as in other infrastructure projects. 2) Tramway in Casablanca, estimated to cost 6bn DH. Central government funding is 4bn DH (66%). 2.6 AGRICULTURAL SECTOR REFORM - (IVED Government Objectives: Increased competitiveness and diversification of the agricultural sector to sustain stronger agricultural growth and employment. Key Issues Targeted: (1) Low quality domestic marketing infrastructure (wholesale markets and slaughterhouses) that inhibits price formation; (2) Inefficient management of water resources in irrigation sector; and (3) Under-performing public sector support and services. Progress Overview: Significant progress has been recorded, due mainly to the successful implementation and completion of the DPL series in support of the Plan Maroc Vert (Morocco Agricultural Policy). CPS Outcomes Status and Evaluation Summary Bank Group Program Lessons Learned Instruments/Status Improved integration of smallholders Mostly achieved Lending The Ministry of Agriculture and Maritime into domestic markets. 9 Oum Er Rbia Irrigation Project Fisheries (MAPM) has demonstrated (Approved FY1 0; MS) sufficient capacity to design and implement * Indicator: Million tons domestically Improved integration of smallholders into e PMV DPL 1 (Approved FY11; agreed reforms. However, this capacity produced fresh fruit and vegetable domestic markets: 3.25 million tons of Closed FY12; S) continues to be challenged in the case of sold in national wholesale markets, domestically produced fresh fruit and 9 PMV DPL 2 (Approved FY1 3; S) reforms entailing interministerial coordination, Baseline: 2.2 million tons vegetables sold in wholesale markets, as in the case of improving the efficiency of Target: 4 million tons. Modernization of irrigation project is domestic markets. The convention between local government and progressing well, with 20,000 ha to be 9 Reducing domestic market distortions through tmodernized; the first sectors to be increased investment and improved Imprvnt miniteraio deparmentoes nt impemetin frit nd egeabl whlesle completed by the end of 2014. management of marketing infrastructure and metiliberalizing distribution systems for fruit and market pilot projects that introduce new Policy dialog continues on financial vegetables will require more time because the management models has been signed for sustainability. PMV DPL-2 tariff process of change involves many actors, both Berkane. measure replaced by more structural in the central government and in the support for sector reform to turn municipalities, that have traditionally played a large role in regulating marketing at the local 80 ORMVAs from an administration status level. Two additional conventions for into a utility called Regional Irrigation wholesale markets are underway, one in Companies, as part of a broader reform Mekn s and one in Rabat. Improved irrigation water Achieved to consolidate all of MAPM's * The government has made a strong push to management. deconcentrated services at the regional support PMV, PNEEI, and FDA subsidies level into one called ORDAR (Regional . Modernization of large-scale irrigation takes * Indicator 1: area equipped with drip Drip irrigation water management: 365,000 ha Office for Agricultural and Rural time, as it requires the development of new irrigation systems. equipped by the end of 2013. Achievement of Development). 16 laws were prepared Baseline: 2008: 165,000 ha; this target was enabled by the MAPM's strong and are being reviewed by the irrigation stcture. Target: 2013: 360,000 ha. engagement in implementing the Plan Maroc government, farmers to take control of their farming Vert, and within it the National Irrigation strategy and learn how to best use drip Modernization Program (PNEEI), combined irrigation. with subsidies made available to farmers AAA * The participatory approach embedded in the through the FDA fund. 9 WBG and FAO technical assistance project structure was a key to success, and has * WBG TA on PPP models for been replicated by other donors funding * Indicator 2: 00 O&M cost recovery %00&M cost recovery in the 5 ORMVAs: ORMVAs PNEEI (AfD13 and EIB). in 5 ORMVAs Despite the government's recall of tariff * Partnership with FAO embedded in the Baseline: 2007: 76%. reforms, collection rates have improved to 900 Modernization of Irrigation project is Target: 88% in5 ORMVAs. In addition, 76% correspond to recognized by all parties as good practice. Target for this indicator changed from the sustainable cost, which goes beyond O&M * New modes of engagement need further 7 to 5 ORMVAs and from 100% to and includes a portion of renewal. Although support in the form of technical assistance to 88% to align with indicators ofPlan ORMVA-specific, the ballpark breakdown for manage technology; development of adapted Maroc Vert DPL2 all ORMVAs is 80 O&M /20 renewal. As extension services to deliver on intensification a result, the O&M cost recovery is over 900 ambition; and encouraging the creation of new for 5 ORMVAs. value chain to incentivize farmers to switch to higher-value crops. e MAPM led a strong push to increase the collection ratio in ORMVAs that were performing less well; through improved service, this generated improvement in Gharb ORMVA. O Farmers have no problem paying more for water, as long as the water generates added value beyond this cost. The key to water efficiency is to combine the added value of agriculture and the added value per cubic meter of irrigation water. 81 Improved public sector support and Achieved * ADA, the agency responsible for services to smallholders. implementing and monitoring the PMV, is highly dynamic. They are able to combine * Indicator: # of Pillar II projects 340 projects implemented as of the end of these Pillar II approaches with the value chain implemented in 2013. FY13. These projects involve 530,000 diversification they are also promoting. Baseline: 50 Pillar II projects (2009) beneficiaries, 660,000 ha, and represent a total * Strengthening good governance and public Target: 290 Pillar II projects (2013) amount of MAD 12 billion (US$1.4 billion) in financial management is important to sector investment. Provincial technical committees outcomes. have been established for the pre-selection of * Pillar II of PMV demonstrates the Pillar II projects. The main contributing factors government's push to confront problems of to the achievement of this outcome are the falling productivity and low incomes of small lessons learned since the launch of the Plan farmers. Maroc Vert in 2008 and the priority given by * There is important domestic pressure to the government to this program. Pillar II address challenges in small-scale farming in projects are financed mainly by public an effort to increase its contribution to the rest resources. of the economy. 82 2.7 SOCIAL PROTECTION REFORM- Government Objectives: (1) System reform to consolidate SP: (i) Design and implement a more equitable, efficient and coherent package of social protection programs; (ii) As part of the above, reform the oil and food subsidies programs. Key Issues Targeted: (1) Main safety net remains the general subsidies provided by the Caisse de Compensation which in the medium to long term may become unsustainable. In addition, the poor receive only about 10 percent of the allocated amounts (2007). Lack of coherent social protection strategy to inform reform options; (2) Current SP system is fragmented. The various targeting methods generate inequities. Efficiency and impact of most programs are unknown; (3) Less than 25% of the labor force has access to pensions, health insurance, and other social security benefits. Progress Overview: The most promising social protection programs envisioned in the CPS-RAMED (a non-contributory insurance scheme for poor and vulnerable segments of the population) and Tayssir (a conditional cash transfer program) were rolled out. The govermnent introduced measures to decrease fuel subsidies. CPS Outcomes Status and Evaluation Summary Bank Group Program Lessons Learned Instruments/Status A more coherent, equitable, and Achieved AAA In June 2012, the government introduced a one- sustainable supply of social * ESW/TA on Social Protection and off increase in the price for unleaded gasoline and protection programs available to poor Targeting Strategy (Delivered May diesel fuel by 20 percent and 16 percent, and vulnerable groups. 2012). respectively-the sharpest single increase in fuel * TA on social security extension prices in several years. In August 2013, the Prime Number of beneficiaries of Tayssir Number of beneficiaries of Tayssir program dropped Minister approved an Order introducing program. has reached 757,000 (2012/2013). The pilot 9 ESW/TA on the political economy automatic price adjustments based on Baseline: 80,000 students was scaled up and an impact evaluation showed of removing food and fuel international price fluctuations for three (2008/09) an effect in reducing dropout rates (by 4 points subsidies (Delivered early 2011). subsidized petroleum products (diesel, gasoline, Target: 400,000 (2012/2013) on average, 5 points for girls) and in improving * TA for food and fuel subsidy and industrial fuel). students' math test results, reform dropped *Despite the lack of political consensus regarding * Programmatic ESW/TA for Social social protection and subsidy reforms in Morocco Protection and Subsidy Reform and the lack of a high-level government champion (Ongoing; roadmap toward the supporting a comprehensive medium-term reform establishment of an unconditional of subsidies, high-level officials in the cash transfer program delivered to government acknowledge that the Bank's Ministry of General Affairs and technical assistance on subsidy reform in recent Governance (MAGG) in October years has shaped the government's decision- 2012; models to perform incidence making process. At the technical level, the analysis of the impacts of food and government acknowledges that future social fuel subside reform scenarios on protection reforms (and notably the development macro variables (e.g. inflation, of a system of household compensation) will need budget, poverty) delivered early to be in place if other subsidized products 2012). (notably butane) are indexedliberalized, as they have higher incidence on the consumption 83 patterns of poor, vulnerable, and middle class households. In this context, the Bank needs to continue to identify and assess policy options to further reform subsidies and social protection and discuss them with the main stakeholders despite uncertainties. Doing so is expected to inform the political process and promote consensus building. More efficient and effective social Achieved * In addition to technical issues, the establishment protection operational systems, of national registries/identification systems including targeting, and M&E. confronts political economy challenges. The Bank may be able to overcome these political economy * The RAMED targeting system has In 2012, the government decided to scale up challenges by using its convening power at the been implemented nationally and the pilot RAMED nationally and improved the national level. can be used by other social targeting system processes. However, assistance programs. RAMED's targeting system is not yet used by other social protection programs. Expansion and diversification of Dropped due to change in Bank engagement social security coverage. * Number of non-salaried workers registered with National Social Security Fund Baseline: n.a. (2011) Target: 200,000 (2013) 84 Pillar 3: SUSTAINABLE DEVELOPMENT IN A CHANGING CLIMATE 3.1 WATER MANAGEMENT - Government Objectives: (1)Promote water demand management; (2) Improve water resources quality protection; (3) Adaptation to climate change impacts on water resources (see CC matrix); (4) Improve water supply and sanitation (WSS) service coverage and efficiency; and (5) Pursue institutional reforms of the water sector. Key Issues Targeted: (1) Sub-optimal use of irrigation water, overexploitation of aquifers and weak enforcement of water abstraction regulation; (2) Inadequate sewerage, lack of wastewater treatment, environmental degradation and weak enforcement of water quality regulation; (3) Water resources management institutions not well prepared; (4) Inadequate access to WSS service in poor peri-urban and rural areas, need for enhanced cost recovery and investment capacity in WSS utility service and inefficient sector organization and operator regulation; and (5) Weak inter-ministerial coordination. Progress Overview: Moderate progress recorded, with significant progress on modernization of irrigation practices, preparation of an action plan on climate change adaptation, and improved coordination. Targets on increased coverage of urban sewerage and wastewater treatment were not met, however. The results matrix in this area was fully revised during the CPSPR to better reflect the Bank's program and align with the objectives of the three water/sanitation/irrigation investment projects approved by Board in June 2010 (after the CPS). CPS Outcomes Status and Evaluation Summary Bank Group Program Lessons Learned Instruments/Status Modernization of irrigation practices Achieved Lending * The government has made a strong push to in agriculture and better control of * Oum er Rbia (OER) Irrigation promote and fund drip irrigation through the groundwater abstraction. Project (Approved FY10; MS) PNEEI and FDA. *PMV DPL (Approved FY11; 9 The areas equipped consist of private farmers Indicator: area equipped with drip Target exceeded, as area equipped with drip Closed FY12; S) equipping themselves. irrigation systems. irrigation systems nationwide reached 365,000 * PMV DPL2 (Approved FY13; S) 9 Equipment with drip irrigation systems depends Baseline: 2008: 800 ha. ha in 2013. 9 Improved Access to Water and on the development of new infrastructure to Target: 2013: 15,000 ha. Sanitation Services Project (OBA deliver water under pressure to farmers in the Under the Modernization of Irrigation Project, scale-up) (Approved FY07; Closed large-scale irrigation perimeter. The Bank is works for off-farm drip irrigation networks to FY12; 5) pioneering such development with the first equip 7,700 ha are expected to be completed, * OER Sanitation Project (Approved support to PNEEI for the modernization of 20,000 allowing a switch to drip irrigation service FY10; MU) ha. Through the PMV DPL series and irrigation provision, by December 2014. Works launched * PHRD grant to the OER basin modernization projects, the WB is working on the or being launched for the equipment in agency entire value chain to ensure agriculture modernized irrigation of 60,000 ha in large- * Rural Water Supply and Sanitation intensification while preserving its sustainability. scale irrigation perimeter, 21,000 under the ongoing Bank project to be completed between Project (Approved FY06; ) Investment planning needs to be carefully ongingBak pojct o e cmpete btwen * Regional Potable Water Supply mastered to ensure timely delivery of all end-2014 and 2016. Procurement of on-farm Systems Project (Approved FY10; infrastructure aspects and minimize delays. equipment is ongoing, with delivery expected MS) 9 Accompanying measures to demonstrate the to take place in 2014. 1 Oo potential in drip irrigation, and to help farmers 85 AAA determine their farming strategy and organize * ESW on CC impacts on water themselves in associations to equip themselves resources management take time, but this time needs to be taken as it is key to sustainability and drawing the benefits of the investments. Increased urban sewerage and Not achieved * Delays in wastewater collection and treatment wastewater treatment coverage (in projects are to be expected due to the NIMBY project areas) (Not In My Back Yard) syndrome. Voice and participation improvements since 2011 translated * Indicator 1: Number of households The OBA Pilots for service extension to poor into more and stronger opposition. with access to piped sanitation peri-urban areas subsidized access of 9,036 * The OER Sanitation Project, although Baseline: 2008: 10,000 hhd. households to piped sanitation by the end of implemented by ONEE, responds to communes' 2011. requests for such investments. The post-2011 Target 2013: 40,000 hhd. period saw an increase in local politics translating into delays in obtaining commitments of communes. Some communes decided to drop out of the project and are being replaced by * Indicator 2: Wastewater treatment As of end-2013, no wastewater treatment communes that show a clear demand. capacity installed capacity has been installed and no additional * The Government of Morocco has not yet Baseline: Zero in 2008. household connections to water supply and implemented the National Program for Water and Target: 200,000 eq inhabitants. sanitation were established. The OER Sanitation extension to low-income peri-urban Sanitation Project is facing implementation areas. Although some progress took place, it is delays, but the project is nevertheless not in Bank support and is therefore not recorded. proceeding at an accelerated pace and results are expected by the end of 2014. Better knowledge of CC impacts on Achieved * Understanding CC impacts on water resources is water resources. key to informing public policies and major investments in the sector, such as interbasin * Indicator: Action Plan for Study on the preparation of the CC Adaptation transfers and desalination for water supply, as adaptation to CC in the OER basin Action Plan was delivered in April 2013 (in available freshwater resources get more scarce, prepared French). The action plan was included in a despite >90% mobilization of surface water. Baseline: Zero. Bank ESW finalized in June 2013 (in Eglish). * Impacts of CC are significant in the OER basin Target: One action plan. and demonstrate that water availability stated in current plans and strategies (PDAIRE, Plan National de l'Eau) is overoptimistic. * Further to the study, the OER River Basin Agency is working to accompany a voluntary reduction of groundwater abstraction in the OER river basin, to protect this strategic resource. 86 * This study should he carried out in other river basins in Morocco. The Bank was asked to carry out similar impact assessments, with due adaptations, in water-wealthy river basins. * This study is the result of funding from WPP and PsRD. There is a need for Bank fsnding to be allocated to other CC impact studies on water resources as part of Bank sector dialog. Increased access to and efficiency of Mostly achieved * Demand for improved water supply service, either WSS services (in project areas). through standpipes (rural areas) or through house Iniao:%access to water The OB iosfrsrieetninto porconnections (peni-urban areas), is very high. service in rural and pen-urban peni-urban areas subsidized access to piped 9Kycnrbtr/nbln atr o areas covered by project. water supply for 10,504 households by the end fcusonclent aces (A prequisite subid Baseline: 2009: 0%. of 2011, which corresponds to 52,500 people, paym ent acsocia mneentste to cary Target: 70%. which represent over 80% of the target out an camanan awaness ri population. The target was therefore exceeded in peri-urban areas. Though targets for rural among beneficiary populations. access to water service in rural areas were not * The limitations are linked in part to lengthy fullyinfrastructure projects needed to provide service funlydet project res onongrank- to remote areas and associated technical obstacles fuinded projects contributed to an overall increase in the coverage of water service in rural areas from 610% in 2005 to 930% in 2013. * In pen-urban areas, the limitation is the end ofthe grant funding and the fact that the government In the Rural Water Supply and Sanitation has not yet implemented the national service Project areas, 183,000 gained access, which extension program, although requested in the new represents 49.l1% of the target population. The CPS. overall population in project provinces with access to safe and reliable water supply increased by about 9%. Better coordination between Achieved * Improved coordination and better governance ministries involved in the water contributed to put a halt to the disconnect sector. between water mobilization investments (responsibility of MEMEE) and irrigation * Indicator: Number of integrated This prior condition to PMV DPL 2 was met. infrastructure (responsibility of MAPM), and water mobilization-irrigation Adequate funding for the irrigation perimeters underutilization of already mobilized water investment plans prepared located downstream from dams under resources. In 2010, the gap between the potential Baseline: 2009: 0. construction has been allocated in the budget area irrigable by reservoirs and the actual area Target 2013: 3 (2011, 2012 and law in each of the last four years (2010-2013). irrigated by these reservoirs reached 108,000 ha. 2013). It is particularly relevant to consider 2010, _______________ The investment needed to fill this gap is estimated 87 given the utility of improving budget at MAD 15 billion. programming as early as possible. * MAPM elaborated a program to close the Achievement of this target required irrigation infrastructure gap. This program is coordination between MAPM and MEF. included in the multiyear agreement on the financing of the PMV (2009-2015) signed between MEF and MAPM. * This integrated planning approach allows MEF to allocate financial resources for investments in water mobilization consistently with investments in irrigation infrastructure development. * Water scarcity in Morocco calls for more such integrated approaches in the coming years, ideally. Such coordination, embedded in the Water Law (10-95) should be implemented systematically and involve all stakeholders. 3.2 LOW CARBON ENERGY POLICY AND ENERGY SECTOR RESTRUCTURING - Government Objectives: Enhance energy security and ensure availability of energy to all households and businesses at competitive prices, while protecting the environment and mitigating climate change. Key Issues Targeted: (1) High import dependency and strong reliance on fossil fuels, resulting in a high carbon content of the energy mix; (2) Budgetary burden of price support schemes; (3) Finding the financial resources required by large investment needs of fast growing energy demand, especially to finance highly capital intensive low carbon technologies; and (4) Avoiding a negative effect on the balance of trade because of the switch to more complex low carbon technologies. Progress Overview: Good progress at the level of the program. It should be noted that the indicators measuring the CPS outcome are dominated by effects that are outside of the control of the measures that were adopted. The results matrix has been updated. Since the CPSPR, the Noor I (previously Ouarzazate Phase 1) project has become effective and construction has begun. The Ain Beni Mathar ISCC is fully operational and the project closed with satisfactory outcomes. The ONEE Support Project is making good progress and Additional Financing to tackle cost overruns has been approved. The Bank's program will continue to explore ways of being more innovative on issues such as pricing reforms and energy efficiency. To this end, dedicated triggers have been inserted in a Green Growth DPL. Dedicated TA for energy efficiency is also underway. CPS Outcomes Status and Evaluation Summary Bank Group Program Lessons Learned Instruments/Status Reduction of energy intensity and Achieved Lending * In the case of the last CPS, a large number of increased penetration of renewable, * ONEE Support Project (Approved energy instruments were being used, but the to transition the Moroccan energy FY08; S; additional financing for indicators measuring the CPS outcome are system to a low carbon path. transmission investment, company dominated by effects that are outside of the * Indicator: Energy intensity. Energy intensity declined somewhat over the restructuring in FY14) control of the measures that were adopted. Thus 88 Baseline (2007): 0.275 toe/$000 time period with a level of 0.26 toe/$000 GDP * Ouarzazate Concentrated Solar the effectiveness of the instruments cannot be GDP in 2009 and 0.22 toe$000 GDP in 2011. PowerIBRD + CF (Approved effectively captured. Going forward CPS Note: Baseline rebased to use IEA FY12; Effective FY13; under outcomes should be more closely aligned with the statistics: energy intensity was construction; 5) underlying instruments that are being used. 0.275 toe per $000 GDP (GDP in * Am Beni Mathar integrated solar The share of renewable energy in TPES is better constant 2000$). combined cycle power plant project measured by excluding hydropower, as successfully completed (GEF hydropower is subject to significant annual * Indicator: Share of renewable in Share of renewable in TPES increased to 6.70 funds) (FY13) fluctuations. To understand the progress that is TPES. in 2010, but was at a reduced level, and being made on new and renewable energy sources Baseline (2007): 2.2% share of reached 4.7% in 2012, as the share of AAA is could be useful to choose an indicators that renewable in TPES. renewable energy is highly sensitive to * PSW on energy market reform and simply states the MW installed, even if such an Note: Baseline rebased to use hydropower conditions. clean energy indicator does not well capture the GWh Ministry of Energy, Mines, Water * TA on low carbon planning for produced. & Environment statistics power sector Implementation of price reform, to Not achieved * ESMAP Energy Supply Strategy (3) The same point as under (1) applies here. reduce the budgetary burden of price * Maghreb Vulnerability Assessment While the recent Green Growth DPL contained a subsidies and ensure the financial (power sector) trigger for subsidies, the effects of this trigger viability of the energy operators. * PESW on Maghreb Energy Market have not yet trickled down. A precise analysis of (regional market integration, Euro- subsidy flows will be essential going forward if * Indicator: Share of explicit energy Share of energy subsidies in GDP increased to Med market in support of CSP) similar triggers are to be retained in the next CPS. subsidies in GDP. 5% in 2011 and 5.8%37 in 2012 due to high * Maghreb Fossil Fuels (CCS) (final (4) ONEE's profitability has also not improved Baseline: 3.5% in 2008. world oil prices, report to be delivered in 2014) over the reporting period mainly due to high * MENA local manufacturing study international energy prices. A more permanent * Indicator: Profitability of ONE as Profitability of ONE has varied over the measured by EBITDA. reporting period, with an EBITDA of 17% in and w or o lre F )u to onEE' finae oing orard need Baseline: 21%o in 2007. 2009, 25a in 2010, 1o in 2011, and 7% in rotdy o or.occo strat n togbe fnanure lendin o ould Quarter 1 of 2012. In April 2012 the merger admalocmnf sec with the water company ONEP took place and delishmen ofd4) the EBITDA for the joint company ONEE for (eiee 04 Quarter 2 and 3 in 2012 was 7 . Variations in Ta on ofgei inu the EBIDTA across years are affected byonarcdioes(ngn) international energy prices and the level of precipitation (availability of hydropower). 37' 48 billion MMAD of energy subsidies (Source: MEF) for a 828 billion MMAD GDP (source: HCP Planning Department) 89 Establishment of institutions and Partially achieved * (5) The volume of FDE operations has been financial mechanisms to successfully continuously high, with fluctuations which are implement energy sector reform typical for lumpy energy sector investments. As (FDE, ESCOs, etc.). such, it seems to be an effective tool for supporting activities of energy sector reform. * Indicator: Volume of operations of Volume of operations of FDE38. * (6) While the concept is interesting, best practice FDE. 2009: 167.5 MDH, 2010:160.9 MDH no longer suggests that ESCOs are an effective Baseline: Zero 2008. 2011: 349.4 MDH, 2012: 76 MDH instrument in and of itself to bring about reductions in levels of energy intensity. This * Indicator: Volume of EE operations Volume of EE operations through ESCOs: aside, the CPS did not contain any specific through ESCOs. negligible measures dedicated to the setting up of ESCOs, Baseline: Zero in 2008. and therefore a lack of progress of this indicator is not surprising. Development of a local Partially achieved * (7) Development of a manufacturing base needs a manufacturing capability for dedicated set of policies that are best supported renewable technologies and energy by technical assistance. The CIC was designed efficient equipment - a green with the help of the Bank's assistance and is stimulus package - therefore expected to go forward as part of the Noor II & contributing to job creation. III CSP project. * Indicator: Share of renewable PG Share of renewable PG equipment produced equipment produced locally and locally and exports of renewable equipment: exports of renewable equipment. small but growing. Aside from a slight increase Baseline: Zero. of locally manufactured parts due to an increase in construction of renewable energy projects (especially the Ouarzazate 1 (now Noor 1) project, a Climate Innovation Center (CIC) has been designed to take the agenda further. 38 Source: MEF : data collected for the Climate Change PER, 2011. 90 3.3 SOLID WASTE MANAGEMENT - Government Objectives: (1)Provide legal and institutional basis for effective establishment of integrated municipal solid waste systems ; (2) Enhance the sustainability of the municipal solid waste sector through the introduction of financial mechanisms and incentives ; and (3) Upgrade and operationalize the existing EIA system and improve the environmental and social performances of the solid waste sector. Key Issues Targeted: (1) Lack of policy planning and coordination in the sector, and ineffective implementation of the national solid waste law; (2) Ad-hoc, limited and inefficient allocation of financial resources to the sector and modest cost effectiveness of the services; and (3) Poor waste disposal practices with huge environmental and social negative impacts. Progress Overview: All targets achieved, mainly due to the successful completion of the DPL-2 for the Solid Waste Sector. The legislative framework for the municipal solid waste sector is nearly complete. The financial sustainability of the solid waste management sector and the cost effectiveness of municipal solid waster services have improved. Disposal practices met targets. A Solid Waste Carbon Fund program has been appraised by the Bank and the related Emission Reduction Purchasing Agreement (ERPA) signed in 2013. CPS Outcomes Status and Evaluation Summary Bank Group Program Lessons Learned Instruments/Status Effective inter-ministerial Achieved Lending Continued coordination among ministries, coordination of the National Solid * Solid Waste DPLI (Approved national entities, and municipalities is needed for Waste Program (PNDM) and FY09; Closed FY10; ) sustained successful results. One of the major strengthened regulatory framework * Solid Waste DPL2 (Approved impacts of the first three DPLs was to mainstream through the enactment of executive FY11; Closed FY12; S) coordinated planning to support the MSW reform regulations for SWM planning, * Solid Waste DPL3 (Approved program. This was a major milestone in the way norms and standards. FY13; Closed FY14; S) the government conducts business, not only in the S Solid Waste Carbon Finance solid waste sector but in other reform areas. The Indicator: Issue of decrees on With the enactment of its first Solid Waste Law program appraised and related Bank was able to act as a catalyst for a new SWM norms and standards, and in 2006, Morocco benefits from a solid ERPA signed modus operandi for interministerial collaboration regional planning. framework of legislation to address the and accompany the government in a new spirit of Baseline: 2008: None. challenges of the sector through integrated An ICR for the first programmatic openness, in which the ministries were looking solid waste management. Morocco has now series (DPL 1 and 2) has been for partnerships but were not yet working together almost completed the required legislation in the delivered and published on cross-sectoral issues. The new interministerial municipal solid waste sector, building on the committee will continue to play this coordinating enactment of its first solid waste law 28.00. It AAA role, including the introduction of eco-taxes and has published decrees related to: (a) waste * PPIAF/PSP Stdy the oversight of the development of the recycling classification, (b) administrative procedures * PSIA I (FY09) value chains. and technical specifications for sanitary * PSIA 11 (FY13) landfills (Official Gazette dated January 7, 2010), and (c) procedures for the elaboration of provincial and prefectural MSW master plans (Official_Gazette_dated July 22, 20 10).( 91 Better financial sustainability of Achieved * Policy reforms adopted under the first two DPLs SWM sector Allocation of financial may have advanced more quickly than the resources are consistent with the administrative procedures required to implement sector policies and programs. them. This was due in particular to the allocation of financial support from the center to the Indicator: Percentage of financial 80% of financial resources are allocated to municipalities for solid waste investments and the resources allocated to municipalities based on published and implementation of model contracts for private municipalities based on transparent transparent eligibility criteria service providers. Therefore, special attention eligibility criteria should be paid in the future to the implementation Baseline: 2008: 0% capacity of the relevant agencies for investment appraisals, financing, and contracting Improved cost effectiveness of mechanisms. private sector involvement in * While private sector participation in the MSW providing MSW services; and sector increased substantially (collection services additional sources of revenues are provided by private operation to more than generated through Clean 75% of the urban population), the capacity Development Mechanism (CDM). building and standard specifications supported by the DPL series have shown their limitations in * Indicator: Average cost of MSWM The average cost of MSW services provided by terms of improving cost-effectiveness; more services provided by private private operators was reduced to about 380 needs to be done in terms of market development. operators. DH/ton in 2012. For now, the major cities have the funds Baseline: 2008: 441 DH/ton. necessary to contract out services, based on revenues from the municipal service tax, but as coverage rates and service standards continue to increase, new sources of funds targeted at MSW should be developed, including the eco-tax. The second programmatic series supports a number of actions intended to improve budget management, reduce LG arrears toward private sector service providers, and set in place conciliation mechanisms. Additional sources of revenues Achieved * External factors-including the complex and long generated through Clean CDM registration process, as well as the volatility Development Mechanism (CDM). of the carbon market-affected the outcome of this program and its delivery timing. Flexibility in * Indicator: Number of CDM A Solid Waste Carbon Fund program has been the design and early involvement of key players projects developed in solid waste appraised by the Bank and the related Emission (private operators and local governments) are key. sector. Reduction Purchasing Agreement (ERPA) Baseline: 2008: Zero projects. signed in 2013. The program targets 16 92 landfills and is expected to cover a total volume of waste of approximately 3.38 million tons per year, representing more than 50% of municipal solid waste collected in urban areas. Emission reductions are estimated at an average of 838,000 tCO2e per year, amounting to 7.5 million tCO2e over nine years (2012-2020). The signed ERPA will enable the Bank as trustee of CPF to purchase 2 million tCO2e. Disposal practices comply with Achieved * The institutions at regional and local level remain international social and below capacity compared to what is needed to environmental standards. take the program into the next phase, including development and implementation of regional * Indicator: Percentage of collected 32% of collected waste was being disposed of sanitary landfills. DPL3&4 will place emphasis waste is being disposed of in in sanitary landfill at the end of 2011. The on the overall coherence of reforms in the sector sanitary landfill. construction of new landfills in Casablanca and with regionalization of support and oversight Baseline: 2008: 10% Marrakech will help reach 60% by the end of structures, coupled with targeted project Target (2011): 30% of collected 2014.. management support (AMO) to local municipal wastes are disposed of governments in the context of the PNDM. in sanitary landfills. 93 3.4 CLIMATE CHANGE ADAPTATION - Government Objectives: Improve resilience to climate variability and change through the integration of adaptation actions across and within sectors. Key Issues Targeted: (1) Limited interagency coordination and policy coherence on CC adaptation; (2) Limited ability to design climate-resilient sector policies; and (3) Few experiences on the ground of viable adaptation options Progress Overview: The planned Climate Change DPL was replaced by the Inclusive Green Growth DPL series, whose first operation was approved in December 2013, after the close of the CPS period. CPS Outcomes Status and Evaluation Summary Bank Group Program Lessons Learned Instruments/Status Improved inter-agency coordination Mostly achieved AAA A key lesson is the importance of working on climate change adaptation by ESW on CC issues in: WRM, through existing sector strategies to let emerge mainstreaming climate adaptation in agriculture, transport, coastal cities climate related concems affecting existing goals, the national development planning adaptation, climate migration and in order to catalyze government wide support to process. displacement (Delivered June joined up climate action. The future CPS 2012) integrates will need to take this lesson into " Indicator: development of a Partial progress in developing a national 9 GEF - Capacity building for account in the preparation of the second Inclusive national climate change strategy climate change strategy. The 2nd National Adaptation in WRM and Green Growth DPL and the Integrated Risk Baseline: Zero Communication to UNFCCC was completed Agriculture (In progress) Management PforR. and submitted; preparation of the 3rd * Adaptation Climate Change communication is underway. Coastal Cities of North Africa A White Paper on Climate Change has been Risk Management AAA (Delivered finalized, and the National Sustainable 2011) Development Strategy, which is to be launched in Spring 2014, has a heavy emphasis on climate. Integration of an article on CC policy in Framework Law of Environment is currently seeking parliamentary approval. * Indicator: at least one adaptation In agriculture, an action plan has been put in action plan adopted in at least one place by the Agence pour le Developpement of the key vulnerable sectors Agricole (ADA) for prioritizing the public (agriculture, urban; transport or financing of projects directed to small farmers others) (Pillar 11 Projects under the Plan Maroc Vert) Baseline: Zero that include climate change adaptation measures, which are partially implemented as *part of the GEF project "Integrating Climate 94 Change in the Implementation of the Plan Maroc Vert." Adaptation pilots initiated in selected Achieved areas. * Indicator: adaption pilots 9 pilots on the implementation of adaptation launched in at least 2 regions in measures in agriculture had been launched by the context of Plan Maroc Vert; the end of 2013, 5 of them as part of the GEF Baseline: Zero project "Integrating Climate Change in the Implementation of the Plan Maroc Vert." These 5 projects span 5 regions: Chaouia - Ouardigha (involved in 3 projects); Rabat - Sal6 - Zemmour - Zar (2 projects), the regions targeted by the GEF project; as well as Gharb (1 project); Tadla (1 project); and Doukkala (2 projects). Development of tools and Not achieved mechanisms to increase resilience and alertness. * Indicator: Establishment of climate Climate early warning system still being early warning systems (e.g. designed. forecasting of spring cereal harvest based on winter precipitation data) Baseline: Zero 95 Annex 2B: Planned Lending Program and Actual Deliveries, FY1O-FY13 CPS Plans Status IBRD IBRD US$m US$m Sustainable Access to Finance DPL 100 Delivered (amount increased) 200 Education Sector DPL 60 Delivered 60 Public Administration Reform DPLIV 100 Delivered 100 Rural Roads Additional Financing 80 Delivered (amount increased) 81.5 Urban and Rural Water 150 Delivered (amount increased) 175 Oum Er Rbia Irrigated Agriculture 70 Delivered 70 Oum Er Rbia Sanitation 40 Delivered (amount increased) 43 Subtotal 600 729.5 Urban Transport Sector DPL 136.7 Delivered 136.7 Support to Plan Maroc Vert DPL 205 Delivered 205 Solid Waste Sector DPL2 138.6 Delivered 138.6 National Initiative for Human 300 Deferred to FY12 FY11 Development II Energy Sector DPL Dropped Energy Development Fund Dropped Health Sector DPL Dropped Subtotal 780.3 480.3 Subtotal FY10-11 1,380.3 1,209.8 Progress Report Plans Status Ouarzazate Concentrated Solar Power 200 Delivered 200 First Skills and Employment DPL 100 Delivered 100 Judicial Performance Enhancement 16 Delivered 16 FY12 National Initiative for Human 300 Delivered 300 Development II (PforR) Micro, Small and Medium Enterprise 100 Delivered 100 (MSME) Development Subtotal 716 716 Economic Competitiveness Support 160 Delivered DPL1 Accountability and Transparency DPL 150 Approved FY14 Urban Transport Sector DPL2 100 Planned for FY15 as PforR Second Competitiveness DPL 80 Planned for FY15 FY13 Plan Maroc Vert DPL2 203 Delivered 203 Solid Waste Sector DPL3 130 Delivered 130 Education Sector DPL2 100 Delivered 100 Inclusive Green Growth DPL 100 Approved FY14 Road Asset Management 1,023 Dropped Subtotal 2,046 593 Subtotal FY12-13 2,762 1,309 CPS Plans Status Annex 2C: Planned Non-Lending Services and Actual Deliveries, FY1O-FY13 Economic and Sector Work Technical Assistance CPS Plans Status CPS Plans Status Transport and Climate Change Delivered Rural Land Market Development Dropped (PCN) Agricultural Sector Review Delivered Urban Development Strategy Delivered Adaptation to Climate Change in Delivered ESMAP: Energy Supply Delivered Agriculture Strategy Country Governance and Delivered Morocco Nutrition Strategy Dropped FY10 Anticorruption (CGAC) Public Administration Reform Delivered Regional Development for Delivered PESW Disadvantaged Areas Poverty Assessment PESW Dropped Morocco Environment and Dropped Water Morocco Housing Finance Dropped Morocco Railways TA Dropped Social Protection Strategy Delivered Justice Reform TA Dropped Poverty PESW Dropped National eGov Strategy Dropped Promoting Youth Opportunities Delivered Transport in Ports and Railways Delivered and Participation Clean Energy Delivered Justice Sector TA Delivered Use of Country Systems Delivered Institutionalizing a Reform Dropped FY11I Initiative Pilot Process for Business Environment Poverty PESW TA Dropped Pension Reform Delivered E-Security TA Delivered Trade Capacity Building Delivered Governance and Territoriality Delivered Bank Governance Review Delivered Analytical Support to the Delivered Country Environmental Analysis Dropped Government of Morocco in the Poverty PESW Delivered Analysis of Constraints to Competitiveness and Competitiveness Policy Design Justice Survey Dropped FY12 Sustainable Transport and Dropped Logistics Financial Literacy Survey Dropped Reform Process for Improving Delivered the Business Environment E-Government and Broadband Delivered TA Education Public Expenditure Dropped Compensation Reform TA Dropped Tracking Survey Assessment of Climate Change Delivered E-Government and Broadband Delivered FY13 Impacts on Water Resources Policy Advice Management Justice Public Expenditure Delivered Health Sector Support TA Delivered Review 97 Annex 3 : Detailed Macroeconomic Overview Economic Developments 173. Structurally, the Moroccan economy remains largely dependent on a volatile and poorly productive agricultural sector. The sector is the first employer in the economy, absorbing almost 40 percent of the labor force. Although on a declining trend, the share of agricultural and fisheries activities has remained significant over the last decade (an average 15.6 percent of GDP at factor costs). The reliance of agriculture on erratic weather conditions also explains the volatile nature of growth. The decline in the primary sector's share of GDP benefitted services sector, and notably the relatively low value-added services. As a result, Morocco could not guarantee the productivity gains that would have allowed the emergence of a larger middle class. The challenge of increasing and further sharing prosperity remains. 174. One key stylized aspect of Morocco's weak economic performance can be traced in its difficulty to benefit from the current wave of globalization. Morocco's share of global exports has been stagnant around 0.15 percent since mid-70s, while most competitors saw substantial increases in their shares. The price of the national export basket has generally been higher than that of key competitors and the gap has widened since the global financial crisis. High and rising export prices are symptomatic of persistent weaknesses in the competitiveness of Moroccan enterprises on the global market. 175. While the 2008 financial crisis had a limited impact on Morocco's economy, the food and fuel price crisis had an important effect, which was magnified by reduced demand from European markets. With the price of oil averaging US$110 per barrel in 2011-2012, Morocco suffered a major deterioration of its terms of trade. This deterioration was compounded by a significant increase in its food import bill in 2012 because of a severe domestic drought at a time of soaring international food prices, especially of wheat. Moreover, with a strong trade exposure to the EU, Morocco has been adversely affected by developments in the Eurozone, in particular sovereign debt crises in Spain and Italy, among other countries, and the subsequent slowdown in economic growth. The banking/sovereign crises in Europe and related recessionary tendencies reduced demand for Moroccan exports and tourism, while remittances declined. As a result, growth of non-agriculture GDP decelerated to an average of 3.5 percent since 2009 compared to 4.7 percent over 2000-2008. Growth has mostly been driven by debt-creating domestic demand and fiscal spending. 176. The private sector in Morocco was compelled to find new growth drivers. Thanks to solid economic fundamentals, a smooth political transition, and a relatively good track record of conducting reforms as well as the capacity of finding new sectors of growth, helped the Moroccan private sector weather the effects of the crises. While both traditional domestic- and export-driven sectors39 slowed down, the Moroccan private sector reacted by shifting its focus to new high value industries (i.e. car manufacturing, aeronautics, etc.) and the expansion of Moroccan companies in Sub-Saharan Africa, creating the basis for Morocco to become a regional hub for investments. 177. External shocks however, highlighted the weak competitiveness of Moroccan enterprises. Morocco has made virtually no productivity gains over the past two decades, 39 Exporters of traditional products (particularly phosphates and textiles) have continued to struggle, while the newer branches of Morocco's manufacturing sector (especially the automotive and aerospace industries) have grown. 98 despite high levels of investment: (i) Morocco has consistently invested (public and private) 5 to 10 percentage points of GDP more than peer countries; (ii) investment as a share of GDP has increased from 25 percent in the 1990s to 35 percent currently. Investment has been insufficiently productive, even though its high level has helped dampen the volatility of growth. Quite simply, investment has merely boosted the productivity of labor (a gain of 3 percent per year since 1999), but has not yet triggered a growth take-off through higher Total Factor Productivity (TFP). Some impact might still occur in that government capital expenditures (about 5 percent of GDP in average) focus on infrastructure (energy, highways, ports, airports, industrial zones), for which TFP gains take longer to materialize. 178. Investments in the infrastructure sector have remained dominantly led by the public sector, with limited clarity on the efficiency of the Moroccan investment and capital allocation model. Public investment increased dramatically from about US$6.3 bln to US$16.5 bln between 2005 and 2013, with a large share carried out by state owned enterprises (65 percent in 2013). These investments were focused on large infrastructure projects, including the extension of the Tangier Med port, the construction of new highways, the extension of phosphate production facilities (Office Chrifien des Phosphates, OCP), and increasing electricity production by ONEE. Lack of private sector involvement in these investments is also due to the absence of a legal framework for public-private partnerships and restrictive regulations in some sectors, including medium voltage energy, healthcare, and intercity transport. In 2014, a number of laws (including on PPP and energy) that could have a positive impact on private sector involvement in the infrastructure sector, both in terms of local as well as foreign investors, are expected to be ratified. 179. The authorities put a great deal of emphasis on controlling inflation. Subsidies on food and fuel products have helped cap inflation, notwithstanding recently higher import prices. The consumer price index evolution has been low over the last few years (at 1 percent in average), but edged up to 1.3 percent in 2012 and 1.9 percent in 2013, with food prices contributing the most (+2.2 and +2.4 percent respectively). Increases in administered prices for fuel and their direct impact on transportation (up 3.2 percent) have had limited indirect effects on inflation so far. However, the fixed exchange rate combined with subsidies on imported food and fuel products have increased pressures on international reserves. BAM's expansionary stance has helped to mitigate private sector crowding out. However, poor fiscal fundamentals have begun to feed through to higher interest rates, with yields on the key 5- year bond gaining 100 basis points since mid-2012. 180. Increased government spending on subsidies, higher civil service wages and pensions helped counteract weak demand from Europe, but is jeopardizing fiscal sustainability. In 2012, for the first time, subsidies were higher than capital expenditures and the pension fund for the civil and military services entered a phase of rapid decumulation (payout). The fiscal outcome for the year was worse than expected with the deficit widening to 7.3 percent of GDP, compared to 5.5 percent in the Budget Law, despite good tax collection and hikes in subsidized fuel prices (up 19.6 percent for gasoline, 14 for diesel, 13.4 for industrial fuel). Subsidies (on fuel and food) and the wage and pension bill (up 12.4 and 8.7 percent, respectively) exceeded half of total expenditures. 99 Table 1. Annual subsidies in central government budget, in percent of GDP Est. Commodities 2007 2008 2009 2010 2011 2012 2013 Food 0.8 1.1 0.7 0.7 0.9 0.8 0.8 Fuels 1.7 3.5 1.1 2.9 5.2 5.8 3.9 Total Subsidies 2.5 4.6 1.7 3.6 6.1 6.6 4.7 Source: Ministry of Economy and Finance 181. In a difficult but decisive move, Government initiated reforms of the subsidy system in 2013 to help reverse the deteriorating fiscal trend. The fiscal deficit narrowed to 6 percent of GDP40 in 2013 as a result of the activation of a price indexation mechanism that cut subsidies by almost 2 percentage point of GDP. The budget also benefitted from lower world fuel prices. The government's decision to rein in recurrent expenditures and capital outlays also explains the consolidation of public finance. The rise of the wage bill was contained to 2 percent in 2013- thanks to the absence of any exceptional promotions or wage increases- while capital outlays were cut by 6.2 percent. 182. Government debt increased significantly in 2012 to reach 60.1 percent of GDP, but was contained to 62.3 percent of GDP in 2013 in part thanks to substantial capital grants. The deficit in 2013 was mostly financed domestically, though Morocco also tapped international markets (BBB- rating). The Treasury issued 4.7 percent of GDP in domestic bonds and raised US$750 million through international bonds in May 2013. It also benefited from the equivalent of one billion dollars in capital grant, mainly from the Gulf countries. Although less than a quarter of debt is denominated in foreign exchange, Morocco's government debt increased by 15 percentage points of GDP in just five years of which 6.4 points in 2012 alone. 183. Substantial capital grants, mainly from the GCC, were critical in financing the current account deficit and consolidating foreign reserves in 2013. Fiscal expansion and weak exports and remittances fuelled the current account deficit in 2012 and to a lesser extent in 2013. After widening to 9.7 % of GDP in 2012, the current account deficit is estimated to have improved to 8.7 percent of GDP in 2013 with both imports (CIF) and exports (FOB) declining by 2 % and 0.8 %, respectively. Europe has remained by far Morocco's main trading partner (absorbing 60 % of its exports and providing 80 % of the remittances received) with a strong concentration on only two markets: France and Spain accounting for a third of total exports and half of total remittances. On the financing side, in a context of fixed exchange rate, net FDI inflows grew by an impressive 23 % in 2013. Thanks to the capital grants and the issuance of Eurobonds, overall financial flows more than covered the current account deficit, leading to a consolidation of foreign reserves by US$1.3 billion to US$18.5 billion (4.3 months of imports) end 2013. 184. Current account deficits have tightened banking system liquidity. BAM compensated by relaxing its stance in a context of low inflation: cutting its policy rate from 3.25 to 3 percent in March 2012, lowering reserve requirement from 6 to 4 percent in September 2012, and increasing liquidity injections. However, money supply grew by only 2.8 percent in 2013, compared to 4.5 percent in 2012. Bank credit to the economy grew 3.5 percent (4.6 percent in 2012), mostly driven by mortgage credit (6.3 percent) on the back of housing programs and credit for business equipment (1.9 percent). Consumption credit 40 The budget deficit does not take account of capital grants, which is registered as source of financing. The budget deficit including capital grants was 5.4 percent of GDP in 2013. 100 slowed down to 2.1 percent in 2013, while working capital loans declined by 6 percent. Non- performing loans have been increasing in 2013 and represented 5.9 percent of bank credit to the private sector in December 2013. With the loan-to-deposit ratio above 100% in domestic banks, deposit growth is insufficient to support loans growth to the private sector. Implementation of the Basel III accords starting 2014 is expected to put further pressure on credit extension, especially longer terms and to larger borrowers. Economic Prospects 185. The Government's medium-term macroeconomic framework is broadly appropriate, although both the global and regional contexts exacerbate downside risks. Recessionary tendencies in Europe would undermine the macro-economic outlook through continued weak exports, tourism, remittances or FDI. High fuel prices, deterioration in the regional context, or renewed global financial turmoil would compound these challenges. Under these conditions, it would become difficult to sustainably finance pre-crisis growth levels if internal demand remains the key driver of growth. Absent a significant reorientation of the economy toward the tradable sector and increased competitiveness, growth, private sector job creation will remain weak. 186. Morocco's macroeconomic prospects are essentially linked to the country's capacity to generate productivity gains. Morocco would therefore benefit from increased efforts to enhance competitiveness and gain market shares on global markets. Along with the sector strategies already under implementation, these efforts would involve improving the quality of domestic investments and continuing to attract large flows of FDIs. This would call for more opportunities and economic freedom for all Moroccans, to compete, produce and participate in the economy, including with a greater role for the private sector. Moreover, macroeconomic stability depends on strengthened governance and robust fiscal consolidation-particularly subsidy, pension, and fiscal reforms, a prudent monetary policy, and greater flexibility in exchange rate management. While subsidy and pension reforms are most urgent, including establishing more effective and inclusive social protection programs, proceeding with structural reforms is needed in the medium term to boost enterprise productivity through better channeling resources to competitive industries. 187. Besides the measures discussed above, the Government confirmed in the 2014 Budget Law its strategy to continue reforming the subsidy system and launch the reforms of the pension and fiscal systems this year. In addition, it intends to deepen regionalization and de-concentration and adopt the Budget Organic Law to enhance central and local governments' budget design and implementation for better public service delivery and efficiency. To improve further the investment climate, the government planned to proceed with the justice reform, improve access to financing, especially for the SMEs, address access to land constraints, develop logistics services, and reinforce technical training. The Central Bank also announced last year its objective to progressively put in place a more flexible exchange rate mechanism over the next 3 years. Assuming these reforms take place, growth in the non-agriculture economy would reach around 5.5 percent over the medium term, with inflation below 2.5 percent and the budget deficit below 3 percent of GDP. Main macroeconomic indicators under a strong reform scenario are found in Table 2. 101 Table 2. Selected Macroeconomic Indicators (2010-17) Act. Est. Proj. 2010 2011 2012 2013 2014 2015 2016 2017 Real economy Annual percentage change, unless otherwise indicated GDP (nominal--local currency) 4.3 5.0 3.2 5.9 5.4 7.0 7.3 7.3 Real GDP 3.6 5.0 2.7 4.4 3.0 4.6 4.8 4.9 Per Capita GDP 2.5 3.8 1.6 3.3 1.9 3.5 3.8 3.9 Contributions: Consumption 1.1 5.0 3.6 3.1 1.7 3.0 3.1 2.9 Investment -0.8 1.4 -0.9 -0.3 1.0 1.2 1.4 1.6 Net exports 3.4 -1.5 0.0 1.6 0.2 0.4 0.3 0.4 Imports 3.6 5.0 2.0 -0.4 4.1 4.0 4.6 4.7 Exports 16.6 2.1 2.7 1.5 6.3 6.6 7.1 7.3 Unemployment rate (ILO definition) 9.1 8.9 9.0 9.2 ... ... ... ... GDP deflator 0.6 0.1 0.5 1.5 2.4 2.3 2.3 2.3 CPI (pa) 0.9 0.9 1.3 1.9 1.7 1.8 2.3 2.3 Fiscal Accounts Percent of GDP, unless otherwise indicated Expenditures 29.9 33.1 35.0 31.9 31.5 30.8 30.0 29.8 Revenues 25.2 26.2 27.6 25.8 26.6 26.7 26.7 26.7 Central Govemment Budget Balance -4.7 -6.9 -7.3 -6.1 -4.8 -4.1 -3.4 -3.1 Central Govemment Debt 50.3 53.7 60.1 62.3 62.9 61.8 60.1 58.2 Selected Monetary Accounts Base Money 4.2 6.4 4.5 2.8 ... ... ... ... Credit to non-govemment 11.0 10.4 5.1 3.1 ... ... ... ... Interest (key policy interest rate) 3.25 3.25 3.00 3.00 ... ... ... ... Balance of payments Current Account Balance -4.5 -8.0 -9.7 -8.7 -7.6 -6.6 -5.8 -5.0 Imports 44.3 49.9 51.5 48.1 46.6 46.1 45.8 45.5 Exports 33.4 35.8 36.0 33.6 33.8 34.6 35.2 35.9 Foreign Direct Investment, net 1.1 2.4 2.8 3.3 3.2 3.1 3.2 3.3 Net reserves in US$, bln (eop) 23.3 20.3 17.2 18.4 ... ... ... ... In months of next year's imports 5.6 4.9 4.2 4.4 ... ... ... ... As % of short-term extemal debt 0.9 0.5 0.4 0.5 ... ... ... ... Extemal Debt 29.0 29.3 34.4 36.5 38.6 38.8 38.7 38.4 Terms of Trade, change in % -3.4 4.1 -13.1 0.8 0.7 1.7 0.1 0.1 Exchange rate (average) 8.42 8.09 8.63 8.48 ... ... ... ... Other memo items GDP, nominal MAD, bln 764.0 802.6 828.2 877.3 924.9 989.9 1,062.1 1,139.7 GDP, nominal US$, bln 90.8 99.2 96.0 103.4 ... ... ... ... 188. External debt sustainability remains within reach provided reforms take hold. The current account deficit would progressively narrow from 9.7 percent of GDP in 2012 to around 5 percent in 2017 benefiting from better export potentials and a recovery of tourism and remittances. External debt is expected to peak at close to 40.8 percent of GDP in 2015 before declining thereafter. Foreign reserves would remain at a little more than four months of imports, assuming foreign investors retain confidence and GCC financial support materializes timely as it has been the case so far.41 Over the last two years, FDIs inflows has seen double digit growth (22 percent on average, in US dollars) and is expected to continue at the same pace over the next few years. 189. Assuming the process of reforming the subsidy and pension systems continues as planned by the Government and the wage bill cost of civil servants is better controlled through restrained hiring and wage policies as confirmed in the Budget Law 2014, the fiscal framework would remain sustainable over the medium term. Stress tests suggested sustainability over the medium term, although debt in three tests stayed between 62-64 percent of GDP, highlighting the risks posed by a limited reform scenario. Even under the 41 The Government signed in February 2013 a grant for US$1.25 billion over a five-year period with the Kuwait Development Fund (KDF). KDF made a first installment of US$500 million in November 2013. In 2013, the Government also received US$675 million from the Saudi Development Fund under a US$ 1.25 billion grant agreement. Qatar pledged its share of US$1.25 billion in January 2014 and activated the first and second installment of a total of US$500 in March 2014. All these grants are part of a cooperation agreement with GCC governments for US$5 billion. 102 more optimistic scenarios, the debt ratio to GDP would remain above the range generally judged appropriate for mid-size emerging markets.42 42 See IMF World Economic Outlook, Fall 2013: "based on past fiscal performance, the sustainable public debt level for a typical emerging market may only be about 25 percent of GDP, (...) emerging markets as a group have failed to respond in a manner consistent with ensuring fiscal sustainability once public debt exceeds 50 percent of GDP." 103 CPS Annex A - Morocco at Glance Morocco at a glance 11122/13 M. East Lower Key Development Indicators & North middle Morocco Africa income Age distribution, 2011 P12012) Male Female Population, mid-year (millions) 32.5 337 2,533 7579 Surface area (thousand sq. km) 447 8,775 20,842 Population growth (%) 1.4 1.7 1.6 Urban population (%of total population) 58 59 39 4549 30-34 GNI(Atlas method, US$ billions) 96.8 1,279 4,488 GNI per capita (Atlas method, US$) 2,980 3,866 1,772 15-19 GNI per capita (PPP, international $) 4,880 8,052 3,837 0-4 10 5 5 10 GDP growth (%) 2.7 4.2 5.5 percent of total populatio GDP per capita growth (%) 1.3 2.4 3.9 (most recent estimate, 2005-2012) Poverty headcount ratio at $1.25 a day (PPP, %) 3 3 30.2 Poverty headcount ratio at $2.00 a day (PPP, %) 14Under-5 mortality rate (per 1,000) Life expectancy at birth (years) 75 72 66 Infant mortality (per 1,000 live births) 29 26 46 90 Child malnutrition (%of children under 5) 3 6 24 70 60 Adult literacy, male (%of ages 15 and older) 69 84 80 so Adult literacy, female (%of ages 15 and older) 44 68 62 40 Gross primary enrollment, male (%of age group) 118 108 116 30 Gross primary enrollment, female (%of age group) 111 101 112 20 10 Access to an improved water source (%of population) 97 89 87 1990 1995 2000 2011 Access to improved sanitation facilities (%of population) 51 88 47 Morm DMddle East & NhAfca Net Aid Flows 1980 1990 2000 2012 a (US$ millions) Net ODA and official aid 1,161 1,241 434 993 Growth of GDP and GDP per capita (%) Top 3 donors (in 2010): France 135 217 155 254 15 European Union Institutions 12 29 117 223 Japan 4 111 103 121 lo Aid (%of GNI) 5.7 4.4 1.2 1.1 Aid per capita (US$) 60 51 15 31 o -5 Long-Term Economic Trends -l0 95 05 Consumerprices (annual %change) 9.4 7.0 1.9 1.3 GDP implicit deflator(annual%change) 15.2 7.8 -0.6 0.4 - GDP - GDP ct Exchange rate (annual average, local per US$) 3.9 8.2 10.6 8.6 Terms of trade index (2000= 100) 83 94 100 101 1980-90 1990-2000 2000-12 (average annual growth %) Population,mid-year(millions) 19.4 24.2 28.7 32.5 2.2 1.7 1.0 GDP (US$ millions) 21,079 28,839 37,022 95,982 5.1 2.9 4.7 (%ofGDP) Agriculture 18.4 19.3 14.9 14.6 6.8 0.3 5.5 Industry 29.8 30.4 29.1 29.6 2.4 3.0 3.6 Manufacturing 15.9 18.9 17.5 15.2 3.3 2.6 2.8 Services 51.1 50.3 56.0 55.8 1.5 1.7 4.9 Householdfinalconsumptionexpenditure 61.8 60.0 61.4 59.7 5.0 2.8 4.7 General gov't final consumption expenditure 18.0 16.8 18.4 19.2 5.2 2.3 4.2 Gross capitalformation 28.5 28.7 25.5 35.3 2.3 3.4 7.3 Exports of goods and services 19.9 25.7 28.0 36.2 6.2 5.5 5.4 Importsofgoodsandservices 28.2 31.2 33.4 50.4 3.5 4.4 7.0 Gross savings 22.1 28.3 24.3 25.3 Note: Figures in italics are for years other than those specified. ..indicates data are not available. 'a.Aid data are for 201. Development Economics, Development Data Group (DECDG). 104 Morocco at Glance (Continued) Morocco Balance of Payments and Trade 2000 2012 Governance indicators, 2000 and 2011 (US$ millions) Total merchandise exports (fob) 7,411 21,400 Total merchandise imports (cif) 11,531 44,783 Voice and accountablity Net trade in goods and services -2,085 -14,654 Poltial stabilty and absenceofviolence Current account balance -475 -9,555 as a %of GDP -1.3 -10.0 Regulatory quality Personal transfers and Ruleoflaw compensation of employees (receipts) 2,161 7,256 Control of corruption Reserves, including gold 5,138 16,648 0.0 250 50.0 750 100. Central Government Finance 02000 Chighr s pce nti rank (0-100) (/oofGDP) Current revenue (including grants) 23.6 26.3 Source: Woddwide Govemance Indicators (www.goinicator.or) Taxrevenue 217 24.1 Current expenditure 23.4 28.7 Technology and Infrastructure 2000 2011 Overall surplus/deficit -4.8 -7.5 Paved roads (%of total) 56.4 70.4 Highest marginal tax rate (%) Fixed line and mobile phone Individual .. .. subscribers (per 100 people) 13 124 Corporate .. High technologyexports (%of manufactured exports) 11.3 7.7 External Debt and Resource Flows Environment (US$ millions) Total debt outstanding and disbursed 20,674 29,514 Agricultural land (%of land area) 69 67 Total debt service 2,610 3,232 Forest area (%of land area) 12.7 12.7 Debt relief (HIPC, M DRI) - - Terrestrial protected areas (%of land area) 1.5 15 Total debt (%of GDP) 55.8 30.8 Freshwater resources per capita (cu. meters) 985 899 Total debt service (%of exports) 24.3 9.1 Freshwater withdrawal (billion cubic meters) Foreign direct investment (net inflows) 470 3,387 C02 emissions per capita (mt) 1.2 15 Portfolio equity(net inflows) 30 110 GDP per unit of energy use (2005 PPP $ perkg ofoil equivalent) 8.3 8.3 Composition of total external debt, 2012 Energy use per capita (kg of oil equivalent) 356 517 Short4erm, ID , 2723 World Bank Group portfolio 2000 2011 Pnvate, 6,960 (US$ millions) Other muli- lateral, 8,399 IBRD Total debt outstanding and disbursed 2,837 2,866 Disbursements 138 711 Principal repayments 307 208 Bilateral, 7,5 Interest payments 190 60 US$ trillions IDA Total debt outstanding and disbursed 27 12 Disbursements 0 0 Private Sector Development 2000 2012 Total debt service 2 1 Time required to start a business (days) - 12 IFC (fiscalyear) Cost to start a business (%of GNI per capita) - 15.7 Total disbursed and outstanding portfolio 29 122 Time required to register property(days) - 75 of which IFC own account 29 122 Disbursements for FC own account 1 5 Ranked as a major constraint to business 2000 2011 Portfolio sales, prepayments and (%of managers surveyed who agreed) repayments for IFC own account 7 6 ' Access to/cost of financing .. 84.4 ' Tax rates .. 62.6 M IGA Gross exposure - - Stock market capitalization (%of GDP) 29.4 60.6 Newguarantees - - Bank capital to asset ratio (%) 9.8 8.1 Note: Figures in italics are for years otherthan those specified. 1122/13 ..indicates data are not available. - indicates observation is not applicable. Development Economics, Development Data Group (DECDG). 105 Millennium Development Goals Morocco With selected targets to achieve between 1990 and 2015 (estimate closest to date shown, 41-2 years) Morocco Goal 1: halve the rates for extreme poverty and malnutrition 1990 1995 2000 2011 Poverty headcount ratio at$1.25 a day (PPP, %of population) 2.5 .. 6.3 2.5 Poverty headcount ratio at national poverty line (%of population) V.1 .. 15.3 6.2 Share of income or consumption to the poo rest qunitile (%) 6.6 .. 6.3 6.6 Prevalence of malnutrition (%of children under 5) 9.0 .. .. 3.1 Goal 2: ensure that children are able to complete primary schooling Primaryschool enrollment (net, %) 58 72 79 97 Primary completion rate (%of relevant age group) 52 48 57 89 Secondaryschool enrollment (gross, %) 37 38 38 67 Youth literacy rate (%of people ages 15-24) 55 62 67 85 Goal 3: eliminate gender disparity in education and empower women Ratio of girls to boys in primary and secondary education(0) 67 72 80 7 Womenemployed inthenonagricultural sector (%of nonagricultural employment) 20 18 Proportion of seats held by women in national parliament (%) .. 1 1 V Goal 4: reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 85 47 31 Infant mortality rate (per 1,000 live births) 66 57 40 29 Measles immunization (proportion of one-year olds immunized,%) 80 88 93 94 Goal 5: reduce maternal mortality by three-fourths Maternal mortalityratio (modeled estimate, per 100,000 livebirths) 332 228 228 IQ Births attended by skilled health staff (%of total) 31 34 48 74 Contraceptive prevalence (%of women ages 15-49) 42 50 .. 67 Goal 6: halt and begin to reverse the spread of HIVIAIDS and other major diseases Prevalence of HIV (%of population ages 15-49) 0.1 0.1 0.1 0.2 Incidence of tuberculosis (per10,000 people) 10 113 95 85 Tuberculosis case detection rate (%, all forms) 76 73 86 86 Goal 7: halve the proportion of people without sustainable access to basic needs Access to an improved water source (%of population) 75 .. 80 96 Access to improved sanitation facilities (%of population) 58 .. 68 51 Forest area (%of land area) 6.8 12.7 12.7 12.7 Terrestrial protected areas (%of land area) 1.2 15 1.5 15 CO2emissions (metric tons percapita) 1.0 1.1 12 15 GDP per unit of energy use (constant 2005 PPP $ per kg of oil equivalent) 9.7 8.2 8.3 8.3 Goal 8: develop a global partnership for development Telephone mainlines (per 100 people) 1.6 4.2 4.9 11.0 Mobile phone subscribers (per 100 people) 0.0 0.1 8.1 113.3 Internet users (per 100 people) 0.0 0.0 0.7 51.0 Households with a computer(%) .. .. .. 39.0 Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 100 people) olds) 12 10D 140 1 75 10D 80- 50 50- 25 2-25- 40- 05 20- 20D0 2005 2010 1w0 1995 2000 2011 2000 20D5 2010 Pr ry n t endme tra t Raticodgirstobysinpnma.y&.nonday OMor OMddleE-t &N hAfr-a OFed+mobilesubscribe 9I ne s Note: Figures in italics are for years other than those specified. ..indicates data are not available. 1122/13 Development Economics, Development Data Group (DECDG). 106 CPS Annex B2 Selected Indicators* of Bank Portfolio Performance and Management As of March 20, 2014 Indicator 2011 2012 2013 2014 Portfolio Assessment Number of Projects Under Implementation a 12 12 14 16 Average Implementation Period (years) b 2.3 2.1 2.7 3.0 Percent of Problem Projects by Number a, 16.7 0.0 7.1 6.3 Percent of Problem Projects by Amount a 13.0 0.0 3.3 2.3 Percent of Projects at Risk by Number a, d 16.7 0.0 7.1 6.3 Percent of Projects at Risk by Amount a, d 13.0 0.0 3.3 2.3 Disbursement Ratio (%) e 14.1 18.1 12.1 13.4 Portfolio Management CPPR during the year (yes/no) No No No No Supervision Resources (total US$) 1,588 1,587 2,048 1,600 Average Supervision (US$/project) 70 62 81 65 Memorandum Item Since FY 80 Last Five FYs Proj Eval by OED by Number 133 8 Proj Eval by OED by Amt (US$ millions) 8,592.0 813.1 % of OED Projects Rated U or HU by Number 24.8 0.0 % of OED Projects Rated U or HU by Amt 24.3 0.0 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. 107 CAS Annex B3 - IBRD/IDA Program Summary As of March 20, 2014 Strategic Implementation b Fiscal year Proj ID US$(M) Rewards b Risks (HIMIL) (HIMIL) 2014 Accountability and transparency 200.0 Inclusive Green Growth 1 300.0 Capital Market Develop. & SME Finance 300.0 Rural Water Supply II 150.0 Second Rural Roads 2 - addt'l financing 95.0 Second Skills and Employment DPL 100.0 ONEE Support AF 40.0 Subtotal 1,185.0 2015 Noor II and Ill Concentrated Solar Power 150.0 Clean and Efficient Energy 125.0 Health Sector Support 100.0 Integrated Risk Management 75.0 Second Competitiveness DPL 120.0 Solid Waste Sector DPL4 130.0 Urban Transport Sector 200.0 Early Stage Entrepreneurship 50.0 Non-Revenue Water 100.0 OER Irrigation AF 180.0 Subtotal 1,230.0 2016-2017 Inclusive Green Growth DPL2 (Indicative) Support to ORDAR Creation Judiciary Reform Implementation Rural Development Program Financial Sector DPL2 Rural Roads Ill Accountability and Transparency DPL2 & 3 Education Support Tourism Development Agriculture Modernization Local Government Modernization INDH3 Peri-Urban Water Supply and Sewerage ICT Development Gender DPL Energy Efficiency Social Protection Reform Youth and Employment Support Water and Sanitation Subtotal 1,585.0 TOTAL 4,000.0 108 CAS Annex B3 - IFC Program Summary IFC Investment Operations Program FY10 FY11 FY12 FY13 FY14 (*) Commitments (US$m) Gross IFC Own Account (OA) 10.5 18.5 106.4 199.1 133.2 Net** IFC Own Account + Mobilization 10.5 18.5 156.4 271.7 133.2 OA Commitments by Sector (%) Agriculture and Forestry 0% 0% 0% 0% 18% Oil, Gas and Mining 21% 16% 3% 0% 0% Construction and Real Estate 0% 0% 0% 0% 41% Finance & Insurance 0% 84% 97% 90% 26% Collective Investment Vehicles 79% 0% 0% 3% 15% Education Services 0% 0% 0% 7% 0% Total 100% 100% 100% 100% 100% OA Commitments by Investment Instrument (%) Guarantee 0% 36% 26% 24% 11% Loan 0% 14% 0% 0% 15% Quasi-Equity (inc. Loan Type) 0% 34% 0% 0% 19% Straight Equity (inc. Fund) 100% 16% 74% 76% 55% Total 100% 100% 100% 100% 100% (*) As of March 12, 2014 109 CAS Annex B4 - Summary of Nonlending Services As of March 20, 2014 Product Completion FY Cost (US$000) Recent completions Justice Public Expenditure Review FY13 262 Climate Change Impact on Water Resource Mgmt FY13 76 Health Sector Support FY13 73 eGov and Broadband Policy Advice FY13 136 Climate Change Adaptation and Mitigation Strategy FY14 609 Trade and Integration FY14 304 Governance of Service Delivery FY14 462 Community-Based Disaster Risk Management FY14 46 Integrated Risk Management and Strategy FY14 245 Systems Approach for Better Education Results FY14 45 Underway Gender Assessment FY14-15 150 PER Health and Education FY14 500 Poverty PESW FY14 500 Employment TA FY14 400 Broadband and eGov Policy Advice FY14 130 Support to Improve SOE governance in MENA Region FY14 210 Trade Facilitation and Logistics in MENA Region FY14 90 Gender Learning and Operational Initiative in MENA Region-TF FY14 300 Country Economic Memorandum FY15 200 Trade and Competitiveness FY15 50 Subsidy Reform and Cash Transfer Program FY15 500 Support to Artisanal Mining FY15 50 Climate Change Adaptation in Road Sector TA FY15 150 Tourism Development FY15 50 GAC in Moroccan Health Management Information System TF FY15 365 Public Employment and Governance in MENA FY15 110 Water and Energy Nexus - Thirsty Energy Initiative TF FY15 400 Promoting Social Entrepreneurship TF FY15 350 Planned Non-Revenue Water Assessment ESW Water/Energy Distribution Restructuring ESW PEFA Diagnostic ESW ICT-Enabled Micro-Work TA Employment TA Poverty ESW Clean Energy TA Phase 2 110 CPS Annex B5 Morocco Social Indicators Latest single year Same regionlincome group M. East Lower- & North middle- 1980-85 1990-95 2006-12 Africa income POPULATION Total population, mid-year (millions) 21.8 26.4 32.5 339.6 2,507.0 Growth rate (% annual average for period) 2.3 1.8 1.1 1.7 1.5 Urban population (% of population) 44.9 51.9 57.7 59.5 38.9 Total fertility rate (births per moman) 4.7 3.6 2.2 2.8 2.9 POVERTY (% of population) National headcount index 26.0 13.1 6.2 Urban headcount index 17.3 7.6 3.5 Rural headcount index 32.6 18.0 10.0 INCOME GNI per capita (US$) 670 1,280 2,960 3,453 1,879 Consumer price index (2005=100) 54 91 123 INCOM EICONSUM PTION DISTRIBUTION Gini index 39.2 39.2 40.8 Low est quintile (% of income or consumption) 6.7 6.6 6.6 Highest quintile (% of income or consumption) 46.3 46.4 48.1 SOCIAL INDICATORS Public expenditure Health (% of GDP) .. 1.0 1.4 3.0 1.5 Education (% of GDP) 5.9 5.6 6.0 4.7 4.2 Net primary school enrollment rate (% of age group) Total 61 72 97 93 87 Male 73 81 97 95 88 Female 48 63 95 90 86 Access to an improved water source (% of population) Total .. 75 97 89 87 Urban .. 94 100 95 93 Rural .. 58 92 82 84 Immunization rate (% of children ages 12-23 months) Measles 45 88 94 91 79 DPT 51 86 .. 91 73 Child malnutrition (% under 5 years) .. 9 3 6 24 Life expectancy at birth (years) Total 59 68 75 71 66 Male 58 66 74 69 64 Female 60 70 76 73 68 Mortality Infant (per 1,000 live births) 83 57 29 21 46 Under 5 (per 1,000 live births) 115 76 31 26 61 Adult (15-59) Male (per 1,000 population) 264 234 .. 176 239 Female (per 1,000 population) 207 184 .. 111 166 Maternal (per 100,000 live births) .. 228 112 81 260 Births attended by skilled health staff (%) 24 34 74 .. 57 CAS Annex BS. This table was produced from the CMU LDB system. 1122/13 Note: 0 or 0.0 means zero or less than half the unit show n. Net enrollment rate: break in series betw een 1997 and 1998 due to change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months w ho received vaccinations before one year of age or at any time before the survey. 111 CPS Annex B6: Key Economic Indicators Actual Estimte Projected Indicator 2007 2008 2009 2010 2011 2012 2013 2014 2015 National accounts (as % of GDP) Gross domestic product 100 100 100 100 100 100 100 100 100 Agriculture 14 15 16 15 15 15 17 16 16 Industry 27 30 29 30 30 30 29 29 29 Services 59 55 55 55 54 56 54 55 55 Total Consumption 77 75 75 75 77 79 80 79 78 Gross domestic fixed investment 31 33 31 31 31 31 30 30 30 Government investment 4 5 6 6 6 6 5 5 5 Private investment 28 28 25 25 25 26 25 25 25 Exports (GNFS)b 36 37 29 33 36 36 34 35 35 Imports (ONFS) 45 51 40 43 49 50 47 47 46 Gross domestic savings 23 25 25 25 23 21 20 21 22 Gross nationalsavingsc 32 33 30 31 28 25 25 26 27 Memorandum items Gross domestic product 75223 88879 90554 90770 99212 95982 103803 108992 115361 (US$ million at current prices) GNI per capita (US$, Atlas method) 2340 2600 2870 2960 2990 2960 3140 3180 3360 Real annual growth rates (%, calculated from 98 prices) Gross domestic product at market prices 2.7 5.6 4.8 3.6 5.0 2.7 4.5 3.0 4.6 Gross Domestic Income 3.0 4.4 7.9 1.8 4.3 2.0 4.3 3.1 5.0 Real annual per capita growth rates (%, calculated from 98 prices) Gross domestic product at market prices 1.8 4.6 3.7 2.4 3.6 1.3 3.4 2.0 3.6 Total consumption 3.0 4.8 5.1 0.3 5.4 3.0 4.0 1.5 3.1 Private consumption 2.8 5.0 3.5 1.0 6.0 2.1 4.5 1.9 3.2 Balance of Payments (US$ millions) Exports (GNFS)b 27268 33430 26182 30308 35529 34877 35159 37739 40827 Merchandise FOB 15129 20095 13973 17771 21631 21400 21274 22521 24123 Imports (GNFS)b 34610 46267 37026 40192 49480 49531 48846 50893 53172 Merchandise FOB 29206 39573 30189 32744 40908 41394 40680 42362 44230 Resource balance -7342 -12837 -10844 -9884 -13951 -14654 -13687 -13154 -12345 Net current transfers 7661 8727 7360 7290 8010 7474 7684 8065 8462 Current account balance -70 -4637 -4930 -4078 -7986 -9555 -8632 -7981 -7033 Net private foreign direct investment 2183 2002 1476 985 2389 2474 2598 3500 3500 Long-termloans (net) 370 1445 2321 2559 1684 2742 4541 3863 2898 Official 820 1758 1902 1161 1672 85 3833 3165 3155 Private -450 -312 419 1398 12 2658 708 697 -257 Other capital (net, incl. errors & ommissions) -416 -291 937 1739 1280 872 1296 1336 1324 Change in reservesd -2067 1481 196 -1206 2632 3467 198 -718 -689 Memorandum items Resource balance (% ofGDP) -9.8 -14.4 -12.0 -10.9 -14.1 -15.3 -13.2 -12.1 -10.7 Real annual growth rates ( YR98 prices) Merchandise exports (FOB) 3.5 -4.3 .. .. 1.3 14.1 0.8 5.1 5.9 Primary 5.1 -9.4 .. .. -3.3 -1.1 3.6 6.7 7.6 Manufactures 0.9 1.3 .. .. 3.5 23.0 -2.3 2.9 3.3 Merchandise imports (CIF) 11.8 6.5 .. .. 8.2 1.5 0.5 4.1 5.0 (Continued) 112 CPS Annex B6: Key Economic Indicators (Continued) Actual Fs tintLte Projected Indicator 2007 2008 2009 2010 2011 2012 2013 2014 2015 Public finance (as % of GDP at market prices)e Current revenues 27.4 29.7 25.8 25.4 25.9 26.3 25.9 26.2 26.1 Current expenditures 24.1 25.5 23.1 23.8 26.9 28.7 26.3 25.7 25.0 Current account surplus (+) or deficit (-) 3.2 4.2 2.7 1.6 -0.9 -2.4 -0.4 0.5 1.1 Capital expenditure 4.6 5.5 6.3 6.2 6.2 5.9 5.3 5.3 5.3 Foreign financing 0.6 1.6 1.7 2.1 0.9 1.8 3.9 3.7 2.6 Monetary indicators M2/GDP 114.6 116.1 116.9 116.7 118.3 119.8 119.0 119.6 119.8 Growth ofM2(%) 17.5 13.3 7.0 4.2 6.4 4.5 6.4 6.0 7.1 Private sector credit growth / 74.6 80.6 92.8 108.2 66.5 68.5 59.6 66.2 72.5 total credit growth (%) Price indices( YR98 =100) Merchandise export price index 153.9 211.0 .. 164.4 197.6 171.4 169.0 170.2 172.2 Merchandise import price index 130.3 161.3 .. 138.6 160.0 159.7 156.0 156.1 155.2 Merchandise terms oftrade index 118.1 130.8 .. 118.6 123.5 107.4 108.3 109.0 110.9 Real exchange rate (US$/LCU) 87.0 80.3 82.8 87.0 85.8 94.4 90.4 90.4 90.4 Real interest rates Consumerprice index (%change) 2.5 3.7 1.0 1.0 0.9 1.3 1.6 1.7 1.4 GDP deflator (% change) 3.9 5.9 1.5 0.6 0.1 0.4 2.4 2.4 2.3 a. GDP at factor cost b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Consolidated central government. f "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation. 113 CPS Annex B7: Key Exposure Indicators Actual Estimated Projected lIndicator 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total debt outstanding and 20679 20957 24631 26299 29049 29518 37726 41609 44307 disbursed (TDO) (US$m)a Net disbursements (US$m)a 651 1102 1842 2564 2025 469 4691 3883 2698 Total debt service (TDS) 4023 4205 3413 3306 3234 3232 3440 3656 3914 (US$m)a Debt and debt service indicators (%) TDO/XGSb 59.2 50.7 73.9 69.9 66.7 70.2 87.2 90.0 89.1 TDO/GDP 27.5 23.6 27.2 29.0 29.3 30.8 36.3 38.2 38.4 TDS/XGS 11.5 10.2 10.2 8.8 7.4 7.7 7.9 7.9 7.9 Concessional/TDO 29.2 34.3 32.6 33.2 32.3 33.1 32.2 32.1 32.5 IBRD exposure indicators (%) IBRD DS/public DS 16.5 15.8 18.9 12.1 12.1 10.6 10.4 10.9 11.5 Preferred creditor DS/public 34.2 39.0 49.8 43.7 51.7 52.7 50.1 47.6 44.8 DS (%) IBRD DS/XGS 1.1 0.9 1.0 0.7 0.6 0.7 0.7 0.8 0.8 IBRD TDO (US$m)d 2578 2540 2543 2468 2866 2723 4313 5145 6046 Of which present value of guarantees (US$m) Share oflBRDportfolio(%) 2 2 2 2 3 3 4 5 6 IDA TDO (US$m)d 17 16 14 13 12 10 9 8 6 IFC (US$m) Loans Equity and quasi-equity /c MIGA MIGA guarantees (US$m) a. Includes public and publicly guaranteed debt, private nonguaranteed, use oflMF credits and net short- termcapital. b. "XGS" denotes exports of goods and services, including workers'remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements. d. Includes present value of guarantees. e. Includes equity and quasi-equity types ofboth loan and equity instruments. 114 CAS Annex B8 - Operations Portfolio (IBRD/IDA and Grants) As of March 20, 2014 Closed 158 Projects IBRD/IDA* ' Total Disbursed (Active) 1,131.05 of which has been repaid 16.97 Total Disbursed (Closed) 3,000.88 of which has been repaid 3,146.56 Total Disbursed (Active + Closed) 4,131.94 of which has been repaid 3,163.53 Total Undisbursed (Active) 708.57 Total Undisbursed (Closed) 0.00 Total Undisbursed (Active + Closed) 708.57 Active Projects Difference Between Last PSR Expected and Actual Supervision Rating Original Amount in US$ Millions Disbursements Project ID Project Name Development Implementation Fiscal Year IBRD GRANT Cancel. Undisb. Orig. Frm Rev'd Objectives Progress P129774 GEF Social & Integrated Agriculture S MS 2013 6.44 6.44 0.45 P130903 Accountability and Transparency DPL # # 2014 200.00 P121271 GEF Integrated Coastal Zone Mgt S MS 2013 5.18 4.98 1.50 P117081 GEF Integrating CC in the PMV S MS 2011 4.35 3.23 1.47 P127956 Inclusive Green Growth DPL # # 2014 300.00 P125799 Judicial Performance Enhancement MS MS 2012 15.80 15.57 P093719 Modern. of Irrig. Agric.in OER Basin MS MS 2010 70.00 42.39 21.48 P129326 MSME Development S S 2012 50.00 0.29 (40.46) P116201 National Initiative for Human Dev Il S S 2012 300.00 170.58 P104265 ONE Support Project S S 2008 190.50 60.34 42.87 P122028 Ouarzazate Concentrated Solar Power S MS 2012 200.00 199.50 P098459 Oum Er Rbia Sanitation MU MU 2010 43.00 41.92 21.90 18.75 P100397 Regional Potable Water Supply Systems MS MS 2010 175.00 161.24 144.04 71.25 P094007 Rural Roads II S MS 2006 141.52 (90.65) (15.51) P086877 Rural Water Supply and Sanitation S S 2006 60.00 16.73 10.82 5.91 P120541 Second Education DPL S S 2013 100.00 TOTAL 1,845.82 15.97 723.22 (629.20) 80.40 CPS Annex B9 MIS International Finance Corporation Report Run Date: 03t20/2014 Statement of IFC's Committed and Outstanding Portfolio Amounts in US Dollar Millions Accounting Date as of: 02/28/2014 Page 1 Region(s):Middle East and North Africa Country(s): Morocco COMMITTED OUTSTANDING 2010 ARiF 0 10.95 0 0 0 10.95 0 0 3.54 0 0 0 354 0.00 '2007 AIAmana-Maroc 0 0 1.15 0 0 1.15 0 0 0 1.15 0 0 1.15 000 2014 Alliances 0 30.00 25.00 0 0 55.00 0 0 0 0 0 0 0 0.00 '2008 AkeriMed Mahreb 0 6.25 0 0 0 6.25 0 0 0.77 0 0 0 0.77 0.00 2013 8QP 0 51.76 0 0 0 51.76 0 0 51.07 0 0 0 51.07 0.00 2008 BiCE 0 0 96.55 0 0 96.55 0 0 0 96.55 0 0 96.55 0.00 '2013 CNAV FundI 0 13.73 0 0 0 13.73 0 0 2.28 0 0 0 2.28 0.00 2008 CapRal N Africa 0 4.21 0 0 0 4,21 0 0 2,44 0 0 0 244 0.00 '2014 FBPMC 20.00 0 0 0 0 20.00 0 0 0 0 0 0 0 0.00 200612012 FONDP 0 0 0 8.95 0 8.95 0 0 0 0 0.35 0 0.35 0 00 '2013 aM 0 7.00 0 0 0 7.00 0 0 7.00 0 0 0 7.00 0.00 201012011/2012 a.iWh 0 5.72 0 0 0 5.72 0 0 5.72 0 0 0 572 0.00 2000 Maohreb Inv. At 0 0.02 0 0 0 0.02 0 0 0.02 0 0 0 0,02 0.00 2000 Maahreb investP 0 0.00 0 0 0 0.00 0 0 0.00 0 0 0 0.00 0.00 '014 Mediterrania 1 0 20.69 0 0 0 2069 0 0 0.45 0 0 0 0.45 0.00 200812012 MtaAfrica 0 0.88 0 0 0 088 0 0 0.88 0 0 0 0.88 0.00 19881199011993 ETAL 0.00 0.00 0 0 0 0.00 0 0.00 0.00 0 0 0 0.00 0.00 '2012 Saharn Finances 0 69.04 0 0 0 69.04 0 0 69.04 0 0 0 69,04 0.00 2014 Zalaoh Holdin 0 24.00 0 0 0 24.00 0 0 2400 0 0 0 24.00 0.00 Total Portfoio 20.00 244.25 122.70 8.9 0 396.91 0 0.00 167.21 97.70 0.3 0 265.26 0.00 116