Document o f The World Bank FOR OFFICIAL USE ONLY Report No. 50316-MA INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND INTERNATIONAL FINANCE CORPORATION COUNTRY PARTNERSHIP STRATEGY FOR THE KINGDOM OF MOROCCO FOR THE PERIOD FY10-13 December 30,2009 Maghreb Department Middle East and North Africa Region International Finance Corporation Middle East and North Africa This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents mav not otherwise be disclosed without World Bank authorization. The date ofthe last Country Assistance Strategy Progress Report (no. 41254 - MA) was December 20, 2007 CURRENCY AND EQUIVALENTS (Exchange Rate as o f October, 2009) Currency Unit = Moroccan Dirham (MAD) US$I =MAD 7.6726 FISCAL YEAR January 1 - December 3 1 ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activity AFDB African DeveIopment Bank ANAM National Health Insurance Agency (Agence Nationale de 1' Assurance Maladie) AREF Regional Academy for Education and Training (Acade'mie Re'gionale d'Education et de Formation) BADOC Communal Database (Base de Donne'es Communales) BAM Central Bank (Bank AI Maghrib) BMCE Morocco's External Trade Bank (Banque Marocaine du Commerce Exte'rieur) CAM Agricultural Credit of Morocco (Cre'dit Agricole du Maroc formerly CNCA) CAS Country Assistance Strategy CASCR Country Assistance Strategy Completion Report CASPR Country Assistance Strategy Progress Report CEM Country Economic Memorandum CFAA Country Financial Accountability Assessment CIH Real Estate and Hotels Credit (Cridit Immobilier et Hotelier) CPDH Provincial Committees for Human Development (Comitks Provinciaux de De'veloppement Humain) CPL Currency Pool Loans CPPR Country Portfolio Performance Review CPRDR Restricted Provincial Committees for Rural Development (Comite's Provinciaux Restreints de De'veloppement Rural) CPS Country Partnership Strategy DB Doing Business DEPP Public Institutions and Privatization Direction (Direction des Etablissements Publics de la Privatisation) DPL Development Policy Loan EEP Education Emergency Plan EIB European Investment Bank ENP European Neighborhood Policy ESW Economic and Sector work EU European Union FA0 Food and Agriculture Organizationof the United Nations FDI Foreign Director Investment FDR Rural Development Fund (Fonds de De'veloppement Rural) FTA Free Trade Agreement GAFTA Greater Arab Free Trade Area GDLN Global Development Learning Network GEF Global Environment Facility GPOBA Global Program for Output-Based Aid HCP High Commissariat for Planning (Haut Commissariat au Plan) HDI Human Development Index IBRD International Bank for Reconstruction and Development ICA Investment Climate Assessment ICT Information and Communication Technology FOR OFFICIAL USE ONLY IDA International Development Association IDF Institutional Development Fund IFRS International Financial Reporting Standards IMF International Monetary Fund INDH National Initiative for Human Development (Initiative Nationale pour le De'veloppement Humain) IRD Integrated Rural Development IRES Royal Institute of Strategic Studies ITES Information Technology Enabled Services LPG Liquefied Petroleum Gas MADR Ministry o f Agriculture and Rural Development (Ministdre de 1'Agriculture et du De'veloppement Rural) MADPRM Ministry of Agriculture, Rural Development and Fisheries (Ministdre de I 'Agriculture, du De'veloppement Rural et des Pdches Maritimes) MATEE Ministry o f Regional Planning, Water and Environment (Ministdre de 1'Ame'nagement du Territoire, de I'Eau et de I'Environnement) MEDA Multilateral Effective Development Assistance MENA Middle East and North Africa MIC Middle Income Countries MDG Millennium Development Goals MFI Microfinance Institutions MIGA Multilateral Institution Guarantee Agency MTEF Medium-Term Expenditure Framework NCICR National Commission for Investment Climate Reforms NSP National Sanitation Programs ODA Official Development Assistance ONEP National Water Supply Board (Ofice National de 1'Eau Potable) OVTWP Office for Vocational Training and work Promotion PAGER National Rural Water Supply Program (Programme d'Approvisonnement Groupe en Eau Potable des Populations Rurales) PAR Public Administration Reform PBG Pacte de Bonne Gouvernance PDAIRE Water Master Plan (Plan Directeur dilme'nagement Inte'gre' des Ressources en Eau) PEP-MENA Private Enterprise Partnership - Middle East and North Africa PESW Programmatic Economic Sector Work PMH Small and Medium Scale Irrigation (Petite e? Moyenne Hydraulique) PNE National Water Master Plan (Plan National de 1 'Eau) PPP Public Private Partnerships PSIA Poverty and Social Impact Analysis RAMED Medical Assistance Plan (Re'gime d'tlssistance Me'dicale) REC Strategic Staffing Framework (Re'fe'rentiel des Emplois et des Compe'tences) ROSC Report on the Observance of Standards and Codes RWSS Rural Water Supply and Sanitation SEE State Secretariat o f Water (Secre'taire d'Etatpour I'Eau) SME Small and Medium Enterprises SODEA Agricultural Development Company (Socie'te'de De'veloppement Agricole) SWAP Sector Wide Approach TA Technical Assistance TOR Terms o f References VAT Value Added Tax VIT Total Value Reality (Valeur Immobilidre Totale) VRP Voluntary Retirement Program WBG World Bank Group wss Water Supply and Sanitation This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not be otherwise disclosed without W o r l d Bank authorization. MANAGERS AND STAFF RESPONSIBLE FOR THIS CPS IBRD IFC Vice President Shamshad Akhtar Rashad-RudolfKaldany Country Director Mats Karlsson Michael Essex Task Team Leader Franqoise Clottes Joumana Cobein ACKNOWLEDGEMENTS The World Bank Group greatly appreciates i t s sustained collaboration with the Government o f Morocco, in shaping all stages o f development o f this strategy. Valuable inputs were also received from many agencies, development partners, representatives from professional associations, civil society, academia, and the private sector who helped the Bank Group to understand better the country's challenges and achievements, in the context o f the consultations conducted by the Morocco Country Office. This Country Partnership Strategy was prepared under the guidance of Mats Karlsson, by a team led by Franqoise Clottes, Country Manager for the World Bank in Morocco and TTL o f this CPS. The core drafting team included Andrea Liverani, Stefan0 Paternostro, Najy Benhassine, Khalid El Massnaoui, Paola Ridolfi, Eavan O'Halloran, Youssef Saadani, Soumia Driouch, Laila Moudden, Khadija Sebbata, Anwar Soulami, Hafida Sahraoui. For the IFC, Abdelkader Allaoua, Joumana Cobein, Yasser Charafi and Rapti Goonesekere were the core contributors to this CPS. Very special thanks go to Andrea Liverani for his unique contribution as the main writer o f the strategy. The preparation of this CPS involved a large number o f contributors from many units o f the World Bank Group, particularly from the extended Morocco country team. Although it i s impossible to name them all, they are all to be thanked and congratulated for their excellent collaboration and teamwork. The following members made especially important contributions: Nabil Chaherli, Silvia Pariente David, Pier Mantovani, Jean-Charles Crochet, Julia Bucknall, Alexander Bakalian, Abdelmoula Ghzala, Michel Bellier, Fatiha Amar, Roberto Rocha, Didier Debals, Cedric Mousset, Robert Maurer, Tony Bigio, Rachidi Radji, Heba El Gazzar, Ruslan Yemstov, Ndiame Diop, Philippe De Meneval, Paul Noumba, Hassan Lamrani, Raffaello Cervigni, Benedicte Leroy de la Briere, Nadine Poupart, Samia Melhem, Georg Caspary, Carlo Rossotto, Salim Benouniche, Yolanda Tayler, Alaleh Motamedi, Rafika Chaouali, Jean-Charles de Daruvar, Hocine Chalal, Samia Msadek, Pierre Rondot, Gloria L a Cava, Fatou Fall, Mohamed Medouar, Tara Wishwanath, Jaafar Sadok Friaa, Anas Abou El Mikias, Abdoulaye Keita Gareth Locksley, Catherine Laurent, Philippe Van der Celen, Jan Richter, Gunter Heidenhof and Luis Constantino. Many other team members made substantial contributions to the preparation o f the CPS retreats, in Kairouan with the Maghreb team, in Annapolis with the extended Morocco country team, in Skhirat with representative of the government, as well as in Khemisset for the joint Bank/IFC Country Offices retreat. Particular thanks go to Hassan Lamrani, Mohamed Medouar, Khalid El Massnaoui, Najat Yamouri, Paul Noumba, Michael Hamaide and Luis Alvaro Sanchez for their advice and comments at various stages during the preparation of the strategy. Grateful thanks are also extended to the Maghreb front office team, Kathleen So Ting Fong, Chantal Guidinetti, Micheline Faucompre and Sophie Muller. Finally, the team would like to acknowledge the late Abdeslam Chebli, Advisor to the Executive Director for Morocco, for his commitment to the values o f the World Bank Group and for helping so many staff members, over the years, to better understand Morocco. H e provided continued advice and support during the preparation of this CPS. TABLE OF CONTENTS EXECUTIVE SUMMARY ............................................................................................................. i I. INTRODUCTION ............................................................................................................. -1 I1. MOROCCO'S DEVELOPMENT ACHIEVEMENTS ................................................... 2 A. Macroeconomic Performance and Outlook .......................................................................... 2 B. Growth, Employment and Competitiveness ......................................................................... 5 C. Poverty, Social and Human Development............................................................................ 6 111. LONG TERM CHALLENGES......................................................................................... 9 A. Accelerating Growth and Employment Creation................................................................ 10 B. Reducing Social Disparities................................................................................................ 12 C. Ensuring Sustainability ....................................................................................................... 13 N. GOVERNMENT PROGRAM......................................................................................... 14 A. National Vision ................................................................................................................... 14 B. Regional and Global Space ................................................................................................ 15 C. Sector Strategies ................................................................................................................. 17 D. Cross-Cutting Changes ....................................................................................................... 19 E. Implementation Challenges ................................................................................................ 20 V. WORLD BANK GROUP STRATEGY ......................................................................... -21 A. Experience and Lessons Learned.,..................................................................................... -21 B. Consultations ...................................................................................................................... 23 C. The World Bank Group Program 2009-2013 ..................................................................... 24 Pillar 1: Growth, Competitiveness, Employment ............................................................... 26 Pillar 2: Service Delivery to Citizens ................................................................................. 30 Pillar 3: Sustainable Development in a Changing Climate................................................. 36 CPS Cross-Cutting Beams: Governance and Territoriality ................................................ 40 D. Lending Volumes ............................................................................................................... 41 E. Principles and Rules of Engagement .................................................................................. 42 F. Instruments........................................................................................................................ -42 G. Alignment, Harmonization, and Use o f Country Systems.................................................. 45 V I. R I S K S ................................................................................................................................ 46 APPENDICES: Appendix 1 : Results matrix ................................................................................................ 47 Appendix 2: Private sector development strategy ............................................................. 62 Appendix 3: FY06-FY09 Morocco CAS Completion Report ............................................ 82 Appendix 4: Consultations report ..................................................................................... 121 Appendix 5: Use o f country systems ................................................................................ 132 Appendix 6: Donors' deployment ................................................................................ 135 Appendix 7: Trust fund management ............................................................................... 139 FIGURES: Figure 1: Evolution of Morocco human development indicators from 1980 - 2005 Figure 2: Central Government debt i s declining and sustainable (in percent o f GDP) Figure 3: Despite the impact of the global crisis, public finances remain sustainable (in percent of GDP) Figure 4: The recent deterioration of the current account mirrors the deterioration of the trade deficit in percent of GDP Figure 5: Relative decline of private investment in manufacturing Figure 6: Decreasingunemployment Figure 7: Poverty reduction in Morocco versus other MENA countries Figure 8: Most important constraints to businesses Figure 9: Net enrollment rate in primary and lower secondary education Figure 10: Morocco's national development visions Figure 1 1: Ensuring continuity from CAS to CPS TABLES: Table 1: Baseline medium term macroeconomic indicators Table 2: Financing requirements of the central Government (In percent of GDP) Table 3: Regional comparisons o f selected health outcomes Table 4: Inequalities in health status between rural and urban areas, 2007 Table 5: Morocco's main trading partners, 2008 Table 6: Ten sector reform strategies produced since 2007 Table 7: Summary o f CASCR findings on 2005-2009 CAS results matrix Table 8: Bank group financing activities in support of CAS Pillars Table 9: CPS program areas by level of dialogue Table 10: Planned lending program (FY 10- FY 1 1) BOXES: Box 1: Concentrated solar power in Morocco - A Bank-Governmentpartnership for energy, security, sustainability and growth CPS ANNEXES: Annex A2: Country at-a-glance Annex B2: Selected indicators of Bank portfolio performance and management Annex B3: Indicative IBRD lending program, FY09- 12 Annex B3: IFC investment operations program Annex B4: Summary of non-lending services (planned key activities (FY09-12)) Annex B5: Social indicators Annex B6: Key economic indicators Annex B7: Key exposure indicators Annex B8: Operations portfolio (IBRD/IDA and grants) Annex B8: IFC committed and disbursed outstanding investment portfolio EXECUTIVE SUMMARY 1. Morocco's considerable development achievements over the past decade have initiated a process of social and economic transformation, positioning the country as one of the leading reformers in the MENA region. Morocco i s strategically positioned between the European Union and Sub-Saharan Africa, endowed with both Mediterranean roots and a long Atlantic coast, and i s a leading member of the Arab world. Successive governments have invested in solid macro-economic management, progressive opening of trade with regional and global partners, and an ambitious process of legal, policy and institutional modernization that has far-reaching political, economic and social dimensions. Sustained higher growth rates have led to a decrease in absolute poverty and unemployment levels, while access to services of education, clean water, and rural roads has improved. These achievements have been recognized internationally. Morocco has reached investment grade status. I t had i t s second successful international bond offering without external guarantee in 2007. I t has become one o f the leading destinations of foreign direct investment in MENA. It i s the only country in the MENA region to have signed an advanced status agreement with the European Union. The international f development community recognizes the relevance and quality o f i t s development program, and i s providing increased levels of resources and support. ii. Buoyed by ten years o f good economic performance, Morocco i s showing resilience in the global crisis. The economic outlook i s relatively favorable. The past ten years have seen sustained output growth, falling unemployment, rising investment, substantial reduction in public debt, and low inflation. This performance i s largely due to sound macro-economic policies combined with determined implementation of structural reforms. The financial crisis has had limited direct impact on the economy. Implementation of a stimulus package has helped the most affected sectors and social groups deal with its impact. Monetary and exchange rates policies remain appropriate. The macroeconomic outlook i s projected to remain favorable. Higher financing needs, should they arise, can be dealt with through the domestic market as well as a planned increase in longer-maturing external financing. The external position i s projected to remain sustainable over the medium term. ... 111. Despite this progress, Morocco still lags on human development outcomes. Absolute poverty has decreased sharply, from 15.3 percent to roughly 9 percent between 2001 and 2007, but economic vulnerability (near-poverty) remains widespread meaning that a quarter of population - 8 million people - remains either in absolute poverty or under constant threat of poverty.. Unemployment stands at a 30- year low (9.6 percent in 2008) but youth unemployment i s high, social protection coverage i s limited, and better jobs are needed for inequality to decrease. There has been a remarkable increase in access to education, but overall illiteracy rates and gender disparity in access to secondary education remain very high. Both education quality and learning outcomes severely lag those of other countries with similar income levels. Despite progress in increasing overall l i f e expectancy and reducing average infant mortality rate, levels o f infant and maternal mortality remain unacceptably high, and lag MDG targets. Inequality and urban-rural disparities in poverty and social outcomes remain a challenge. Youth exclusion i s a concern. Social and human development challenges are at the core of the current government program, including the National Initiative for Human Development (INDH) and health and education strategies developed since 2007. iv. The main long-term challenge i s to achieve higher growth and employment creation, while reducing social disparities and ensuring the environmental sustainability o f the development model. Firstly, achieving higher and more sustained growth i s key to solving the unemployment challenge and will require a combination of higher quality human capital, an improved business environment, better and cheaper access to key infrastructure services, and a more competitive private sector capable of driving increased economic diversification and export-orientation in a global economy. Secondly, reducing high inequality will require social protection systems and safety nets and a reduction o f the rural-urban gap. Addressing the lagging condition o f women i s a priority. Access to quality social infrastructure and services such as roads, health, education, water and sanitation, and electricity i s key to achieving positive spillover effects from urban growth-poles. Thirdly, ensuring long-term environmental sustainability requires addressing head-on the increasing vulnerability to climate change. Here, the immediate and overwhelming concern i s to cope with increased scarcity o f water. This requires transformative change in water allocation and management practices, as well as in institutional roles and capacities. Transforming the energy sector i s the next objective, focusing in particular on enhancing energy security while scaling up mitigation efforts. Morocco's energy risks can be better managed through closer regional integration and can benefit greatly from carbon financing options. v. Starting in 2007, Morocco elaborated a comprehensive set of new sector strategies to lead economic and social transformation over the next five years. In assuming the throne in 1999, King Mohammed V I set out a vision of rapid growth, improved transparency and governance, poverty eradication, and better social conditions. Since then, successive governments elaborated and sought to implement this vision. The government program for the period 2008-2012 frames the main directions for reform. The program has three main objectives: (i) improve social indicators by focusing on health, education, and more effective social protection; (ii) enhance growth, export potential and investment by focusing both on relevant transversal issues and on key sector strategies (industrial emergence, energy, water, agricultural development, export strategy, and justice); and (iii) implement cross-cutting reforms that influence results in all sectors, such as improving governance, reforming public administration and deepening decentralization and deconcentration for better service delivery. This was followed by a major effort o f strategic formulation in key sectors, starting with the six priority sectors: health, education, agriculture, water, and energy, with justice s t i l l under preparation. Budget allocations, with a multi-year commitment, were increased substantially for these sectors. vi. The Bank Group's objective over the next four years i s to support implementation o f the reform program. The government's program i s encountering implementation challenges typical of second generation reforms. This i s the area where the WBG has been specifically asked to help. Firstly, the WBG will contribute on "the how to" o f implementation by facilitating institutional reform, sequencing of steps, and change-management, This i s an area in which Bank's DPLs and analytic program have developed a solid track record. Secondly, the WBG will continue to support reform implementation in areas requiring inter-agency coordination, and capacity building, through both S I L s and DPLs accompanied by analytical work. Finally, as requested by the government, all CPS activities will seek to pay particular attention to increasing the results orientation o f country programs. The CPS i s structured around three thematic pillars o f relevance to both IBRD and IFC: (1) growth, competitiveness and employment; (2) service delivery to citizens; (3) sustainable development in a changing climate; and two cross-cutting "beams"-- governance and territoriality. vii. The government i s inviting the WBG to increase i t s financial support, remain an engaged knowledge partner, and maintain a flexible approach. The CPS ensures continuity in the WBG's support to government, as well as opportunities for scaling up and expanding engagement to new areas (e.g., climate change, skills development, or new opportunities opened by the Arab World Initiative, the Clean Technology Fund, or the Concentrated Solar Plan). CPS implementation will be characterized by flexibility to respond to new reform opportunities or challenges (a key lesson of the CAS Completion Report), and a focus on monitoring results (both helping the government monitoring its program as well as tracking results from WBG activities). This i s ensured by a flexible and evolving CPS framework, built around 19 program areas (encompassing lending and knowledge activities) which are at different stages o f development. This provides a medium term (24 months) business plan o f firmly developed activities where expected outcomes can be laid out, as well as a longer term strategic framework to foster selectivity, ii including areas where activities will be defined later. I t i s envisaged that the CPS result matrix will be fully up-dated mid-point through implementation. viii. The government has requested IBRD lending of $600 million annually. This level is confirmed for FY10, with lending levels for FYll-13 indicative. This adds up to an expanded IBRD program in Morocco, focused on reform. Government asked the Bank for help in addressing structural constraints and long-term challenges, and particularly with reform implementation. As stated by a Government official during a joint CPS brainstorming, "from the Bank program, the project we seek i s about the implementation o f reforms". ix. I n line with the principles o f additionality and selectivity, I F C i s expected to deploy a sizable investment and advisory program, contingent on demand and market conditions. IFC's investment strategy will complement IBRD activities in close alignment with the CPS pillars. IFC will focus on financial and infrastructure sectors, as well as on high value-added investments in manufacturing, social sectors (health and education) and agribusiness. IFC's potential investments in energy, utilities or ports as well as select investments in Emergence's sectors, would contribute to Pillar 1 o f the CPS (growth, competitiveness and employment). Potential investments in the banking sector, microfinance and the education sectors would help improve financial and educational services to citizens (Pillar 2). Finally, the focus on potential investments in renewable energy will contribute to Morocco's sustainable development objectives (Pillar 3). IFC will also continue to deliver its on-going advisory program, in support of business environment and financial sector reform. x. The international development community's engagement in Morocco i s well coordinated and guided by national programs and strategies. The CPS stands ready to take this further and actively support the EU advanced status agreement. ODA has grown significantly in recent years, although it remains a modest portion of total public expenditure. Delivery i s characterized by alignment with government programs, an advanced level o f coordination, and increased use o f budget support and country systems. IBRD and the EU are currently engaging jointly in five key sectors (health, education, MDH, PAR, and rural roads), for a joint total financing above $900 million. This strategic collaboration i s expected to increase as the EU advanced status agreement evolves. In this context, the government has expressed a preference for working with DPLs in support o f policy reform, and it i s expected that this should represent a large proportion o f the program. The CPS will seek to advance the greater use o f country systems, as requested by the government. xi. The CPS identifies the risks to the program and proposals to mitigate them. First, the short- term growth outlook i s subject to uncertainties on the timing, speed and shape o f the recovery from the global crisis. The Bank will help analyze the risks through continued monitoring and dialogue with the authorities on the overall macroeconomic context, as well as through analysis of options for remedial measures and program adaptation, contingent on need and government request. Second, the successful implementation o f the reform agenda i s dependent upon political economy factors. Second generation reforms will likely see resistance from affected interests. Possible outcomes include the derailing of reform objectives, a stalling o f the reform process, and a decline o f the credibility o f the reform agenda in the eyes o f public opinion. The Government's recent emphasis on governance reforms, such as that o f the justice sector, will help mitigate these risks. The Bank will offer appropriate TA - with, if requested, a specific focus on political economy constraints - to support the implementation o f sector strategies. ... 111 MOROCCO: COUNTRY PARTNERSHIP STRATEGY FY10-13 I. INTRODUCTION 1, The World Bank Group's engagement in Morocco i s framed by four parameters. These are clear national development goals, substantial challenges alongside considerable achievements, an increasingly sophisticated client, and requests for an expanded engagement to support further reform. 2. The Government has set clear development goals that guide public policy. Since the accession o f King Mohammed V I in 1999, successive governments have articulated a pro-development vision for public policy, based on strategies that identify constraints and target reform o f key sectors. Public funding i s then allocated to strategic priorities. The result i s a program o f political, economic, and social reforms whose effects are starting to be visible, even as much more remains to be done. 3. Morocco's recent development `trajectory i s one o f contrasts. Considerable achievements in establishing a sound macroeconomic framework, reducing poverty and extending access to basic services have not yet allowed it to achieve key social indicators, which in areas like health and education remain well below those o f comparable countries. The contrast between growth on one hand, and poverty and exclusion on the other, i s a main development challenge. 4. Morocco i s an increasingly sophisticated client. Clarity in strategic direction i s matched by capacity in central government. Engagement takes place in an environment where development finance i s growing, but remains modest relative to the overall national development program. The Government increasingly seeks on-demand technical and strategic assistance. 5. The WBG's program in Morocco is expanding, focused on support to reform. The government has asked the Bank for help in addressing structural constraints and long term challenges, and particularly to support implementation o f the reform agenda. As stated by a Government official during a joint CPS brainstorming, "for the Bank program, the project we seek i s about the implementation o f reforms". The identification of the Bank as a key partner for reform implementation has led to requests for engagement in multiple sectors and for increased financial support. 6. This document lays out the Bank Group's first Country Partnership Strategy (CPS) for Morocco. In providing the framework o f future engagement, it formalizes the shift from assistance to partnership. The document describes the context by highlighting the contrast between the country's main development achievements and i t s key long term challenges. It presents the Government's development program and i t s implementation challenges. Finally, the document outlines the Bank Group's strategy in Morocco over the next four years while addressing the key risks to CPS success. Details and specific data are presented in the Annexes. More detailed briefing documents prepared in the context o f the CPS are also available on the Bank`s web site'. 'A specific website features up to date information on Morocco/World Bank partnership, in Arabic, English and French and i s accessible through the following links: www.albankaldawli.org/ma; www.worldbank.org/ma; www.banquemondiale.org/ma. 1 1 1. MOROCCO'S DEVELOPMENT ACHIEVEMENTS 7. Morocco's recent development track record i s characterized by positive achievements alongside substantial challenges. Morocco has performed well in moving i t s development agenda forward during the past decade. Sound macro-economic management and good economic performance allowed for sustained capital spending on social and economic infrastructure and an amelioration of key development indicators. The period 2001 to 2007 saw unprecedented rates o f poverty reduction, with absolute poverty decreasing from 15 percent to roughly 9 percent. Access to drinking water increased from 65 percent to 84.5 percent in 2007, net primary enrollment rates increased from 68.6 percent in 1998 to 93.5 percent in 2007 and immunization coverage reached 94 percent. Yet, in spite of the significant budgetary resources allocated to social sectors (more than 50 percent), key development outcomes in areas such as education, health and employment are below expectations. This limited progress i s evidenced by Morocco's mixed MDG track record and Human Development Index (HDI) performance. Morocco i s likely to miss its targets on child mortality and maternal health, and lags behind regional neighbors and countries with comparable GDP per capita in terms of HDI (Figure 1). In acknowledging that results have been below expectations, the Government recognizes the need to ensure that growth translates into broad based benefits and to reduce the disconnect between efforts and development outcomes. Figure 2. Central Government debt is declining _ _ -and sustainable (in percent of GDP) 81) (Io,o __ - - - - - - -- -_ __ - _- __ -~ x u - . . - . . OECD , I "0, , 1 0 9 CEE and C I S 60.0% Larln Arn.rlc. and 0 8 Caribbean 50 0% E a s t h i l i and P a s l f l c 411 11% . i n 11% i 211 11% 111 11% 1111% i i 1998 1999 2111111 ZIIIII 11102 21103 11104 ZIIIIJ zoo6 11107 zonR zoo9 0 3 O 2 1780 - _ . ..--. 1985 1990 1995 . _ _ __ 2000 __ 2005 -Foreign ~ D o m s s l l c -Told Source Indicator table G o f the Human Development Report 2009 Source Moroccan Government and staff estimates. A. Macroeconomic Performance and Outlook 8. Morocco's economic performance improved significantly during the past decade, as indicated by sustained high growth in output, falling unemployment, rising investment, and low inflation. Economic growth averaged 5.1 percent over the period 2001 to 2008, almost twice as high as the average of the previous decade. This performance allowed per capita income to almost double to reach US$2,850 in 2008. In addition, the growth pattern improved as it became less volatile. Specifically, it became less dependent on agriculture, a sector that s t i l l accounts for a large, but decreasing share, of GDP (an average 13 percent). Unemployment declined from 14 percent to 9.6 percent, although questions remain over the quality of the jobs available to large segments of the population. Investment increased sharply from around 25 percent to 36 percent of GDP, improving the prospects of sustained strong performance. Inflation remained subdued at about 2.5 percent on average. Finally, Morocco became more integrated in the global economy, although the share of trade i s s t i l l low relative to comparator countries (76 percent of GDP), revealing ample room for improvement. 2 9. Strong economic performance i s largely due to sound macroeconomic policies and sustained structural reforms. Since 2005, Morocco maintained sound fiscal policies leading to the consolidation of public finances. As a result, the budget ran surpluses in 2007 and 2008 (averaging 0.3 percent of GDP)'. The Government adopted a prudent debt strategy with central government debt declining to 47.3 percent of GDP in 2008 from 62 percent in 2005 (Figure 2). The Government pursued monetary policy geared toward maintaining low and stable inflation and enhanced financial sector supervision. Morocco's integration into the world economy deepened through the signing o f many FTAs. Overall, these efforts have led to a stable macroeconomic situation, stronger public finances, and a sound financial sector. Morocco gained investment grade status in 2007 from one rating agency, which further reinforced the confidence of investors, both domestic and foreign. Figure 3. Despite the global crisis, public finances Figure 4. The recent deterioration of the current remain sustainable (In percent of GDP) account mirrors the deterioration of the trade deficit in percent of GDP burce: Moroccan Government and staff estimates 10. The Government has implemented a stimulus package to help the most affected sectors and support incomes. The income support package includes an increase of 10 percent in the wages of civil servants at the lower end of the salary scale and the minimum wage for private sector employees3. Effective January 2009, the marginal income tax was cut from 42 percent to 40 percent and will be cut to 3 8 percent January 2010. The upper end of the exempt income bracket has also been extended. Direct support measures for affected firms include financial relief (guarantees on loans; rescheduling of debt; help with export insurance) as well as subsidies for training and marketing. 1 1. Sound macroeconomic policies and efforts to improve competitiveness would allow Morocco to respond to the global crisis and to position itself to benefit from the recovery o f the world economy. The government intends to maintain a prudent fiscal stance and to sustain the structural reform momentum of recent years. Growth rates are projected to improve from 3 percent in 2010 to around 5.2 percent in 2013, mostly driven by domestic demand, both private consumption and investment (Table 1). Achieving this level of growth over the medium term i s contingent on implementing an ambitious reform program, and the recovery pace of the main trading partners. 12. After a temporary higher deficit in 2010, the fiscal stance should remain sound over the medium term, with fiscal deficits under the targeted threshold o f 3 percent o f GDP. This would Budget deficit does not include Hassan I1 Fund. This measure was introduced in two steps, a first 5 percent increase in July 2008 and a second one in July 2009. 3 derive from the ongoing fiscal reform and more targeted social programs, as well as a better-controlled wage bill. The budget deficit i s expected to edge up to 4.5 percent of GDP in 2010 before dropping to around 2.2 percent by 2013. Reaching this outcome implies maintaining momentum of the ongoing tax reform to broaden the tax base, improve the efficiency of the VAT, strengthen tax administration, and remove tax exemptions. These measures would offset the negative impact of the reduced top rates on corporate and personal income taxes. Under these assumptions, revenues are projected to stabilize at around 25 percent of GDP. On the expenditure side, the consolidation of public finances relies on three critical measures: reform of oil and food subsidies, tight control of the public wage bill, and an active debt management. Under these conditions, public debt will stabilize in 2010 at almost the same level as that of 2008 (47.6 percent of GDP) before following a downward trend to less than 44 percent of GDP in 20 13. Table 1. Baseline medium term macroeconomic indicators Projections 2008 2009 2010 2011 2012 2013 Growth Rates in percent Real GDP 5.6 5.0 3.0 4.4 5.1 5.2 Ratios to GDP Gross domestic investment 36.3 33.6 34.2 34.4 34.4 34.5 Fiscal balance 0.4 -2.7 -4.5 -2.9 -2.4 -2.2 Central Government dDebt 47.3 46.3 47.6 46.9 45.4 43.9 Current account balance -5.4 -5.8 -5.3 -4.8 -4.1 -3.2 FDI 2.3 1.5 2.6 2.7 2.8 2.9 External debt 23.4 24.4 25.1 24.9 24.1 23.0 Source: Moroccan Government and staff estimates. 13. The financing needs stemming from the higher budget deficit in 2010 and declining deficits over the medium term are easily financed through domestic market as well as from increased drawings on external loans (Table 2). In this context, domestic financing would remain the main source, although external financing would increase. Indeed, since 2006, net external financing reversed i t s long negative trend to turn positive, reflecting the government's strategy to slightly change the debt composition in favor of external borrowing. This financing strategy would ease the pressure on domestic financial markets and prevent crowding out of the private sector's investment now that the money market i s less liquid than was the case in recent years. At the same time it i s consistent with the intention to maintain a comfortable level of foreign reserves. Table 2. Financing Requirements o f the Central Government (In percent o f CDP) Projections 2008 2009 2010 2011 2012 2013 Financing required 9.4 10.3 12.1 10.5 9.8 9.4 Budget deficit (+) -0.4 2.7 4.5 2.9 2.4 2.2 Amortization 9.7 7.6 7.5 7.5 7.4 7.2 Domestic 8.3 6.8 6.7 6.7 6.6 6.3 External 1.4 0.8 0.9 0.8 0.9 0.9 Total Financing available 9.4 10.3 12.1 10.5 9.8 9.4 Domestic financing 6.1 8.0 9.3 8.2 7.7 7.6 External disbursement 2.0 2.1 1.9 1.4 1.3 1.o Others (Privatization. cauital grants) 1.3 0.2 0.9 0.9 0.8 0.8 Source: Moroccan Government and staff estimates. 14. The external position i s expected to remain sustainable over the medium term. The current account i s expected to slightly deteriorate in 2009, and then to slowly decline to 3.2 percent of GDP in 4 2013. The balance of payments i s expected to progressively improve, with lower trade and current account deficits, which would benefit from improved export performance and a recovery of tourism activities and workers' remittances. This scenario assumes continued reform efforts, sound macroeconomic and fiscal policies, and targeted sector strategies that entail higher public investment. These would translate into higher private investments (including FDI), and progressive gains in export competitiveness, including tourism. In this context, external debt i s expected to follow a downward trend to reach 23 percent o f GDP in 2013 down from 25 percent of GDP in 2010. At the same time, gross foreign reserves would stay at an average of 6 months o f imports. B. Growth, Employment and Figure 5: Relative decline of private investment in Competitiveness manufacturing (private investment in manufacturingas a percent o f total 15. Despite the positive growth private investment) experience of the last decade, persistent 30 constraints to productivity and export orientation prevent Morocco from : reaching its full growth potential. Since the acceleration of business environment 15 reforms in the mid-nineties, private 10 investment increased from 15 percent to 22 percent of GDP, a rate that compares to 5 those in the most dynamic economies. FDI 0 has also performed well. However, most of 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 this increase in private investment has Source :Moroccan ministry of commerce and industry occurred Outside Of the manufacturing annual survey o f manufacturingf i r m s (1995-2007) sector (Figure 5) - mostly in real estate, . - tourism and services. Manufacturing exports have grown at 8 percent per year on average since 2002 - half the performance of emerging middle-income countries. In 2008, 72 percent o f manufacturingvalue- added and 77 percent of exports were of low technological intensity. The performance of the manufacturing sector highlights the economy's limits in productive capacity. The global slowdown and i t s impact on Morocco's exports i s a reminder of the need to diversify and enlarge the country's export base away from low knowledge, low value-added, traditional products. Low value added exports further constrain growth as they fail to penetrate external markets and set the economy on a low productivity/low growth/low wages course. Out o f i t s 20 most important exports, only one was in an activity growing in global trade where Morocco i s gaining world market share. Exports remain insufficiently diversified: Morocco exports 42 products per one million inhabitants, compared to 130 for Tunisia and 160 for Malaysia. 16. Business environment reforms have not yet led to the needed structural transformation of the private sector. Over the past decade Morocco has a) achieved a stable macroeconomic environment; b) improved the investment climate - including in the area of infrastructure and regulations; c) adopted an ambitious FTA agenda; and d) turned i t s financial sector into one of the most developed in the region. Yet, the progress in business environment reforms has not yet fostered the structural transformation of the private sector into an engine of a competitive, high-growth economy. Weaknesses remain, especially in those areas - like regulatory reform - that require a lot of public agency coordination, and where a gap remains between the rules and regulations as they appear on the books and how they're applied to individual investors. Also, some areas of trade policy - including trade logistics and distortions in the trade regime between importers and local producers - remain weak. Financial sector reforms have yet to trickle down to domestic SMEs that remain credit constrained. 5 17. Agriculture remains central for Figure 6: Decreasing unemployment promoting growth, but the sector remains plagued by structural problems. Moroccan agriculture i s characterized by 201% 12'%1 low productivity at farm level and low value-added along the agro-food chain. I t s IS'X 24% dualistic nature sees a predominant rain-fed sub-sector (where 70 percent of the poor I O K 16% live) co-exist with a smaller, but more 5 8 competitive, export-oriented and irrigated % %I sub-sector. Overall, producers, large and 0% 0% small, are constrained by the institutional 1999 2 0 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2 0 0 9 ~ 1 environment. Weak investment incentives, National -Urban low quality products, and little Urban Youth-right axis -Urban Women-right axis diversification away from low value added Source: Moroccan government and staff calculation. products lock the sector into stagnant output, limited employment generation, and low incomes. The slow shift to high value crops and off-farm economy activities, together with a deficient rural transport infrastructure and weak land rights tenure systems i s still impinging on rural job creation and incomes. Morocco's efforts to take advantage of the opportunities provided by a globalized food market remain constrained by limited progress in domestic price reform, market liberalization, and trade openness. 18. The unfinished business o f structural reform explains why the decrease in unemployment rates has not fully translated in improved households' well-being (Figure 6). Sustained growth had a direct positive effect on unemployment, which stands at a 30 - year low (9.6 percent in 2008 and 9 percent over the first three quarters 2009). But to a large extent, the drop in overall unemployment veils critical shortcomings in the labor markets and the low quality of growth. In urban areas, unemployment remains high (1 3.8 percent), mainly for youth (3 1.6 percent), females (20.1 percent), and the educated (1 8.7 percent). Improvement in employment i s also explained by low and decreasing participation rates - mainly for women (26.3 percent) - rather than by the ability of growth to generate enough jobs. In addition, the quality of the jobs created remains a concern. Recent employment creation has favored low paid jobs in the informal and agricultural sectors and concentrated on low skilled workers. The labor market i s also characterized by skill shortages which constitute a constraint to the development of high value-added businesses. C. Poverty, Social and Human Development 19. After the largely lost decade of the 1990s, the country achieved unprecedented rates of poverty reduction between 2001 and 2007 (Figure 7). Absolute poverty decreased from 15.3 percent to roughly 9 percent. The fall has been more marked in rural areas (1 0.6 percentage points reduction) than in urban areas (2.8 percentage points). Part of this evolution i s explained by the effect o f sustained growth on unemployment, which stands at a 30 - year low (9.6 percent in 2008). The recent progress in poverty reduction made a decisive break with past performance, as for the first time since the 1980s the absolute number of the poor i s clearly falling. 20. Although absolute poverty has decreased, economic vulnerability (near-poverty) remains widespread. Based on official figures, 17.5 percent of the population has consumption levels just above the poverty line. The combined number of poor and vulnerable or near poor in Morocco i s 26.5 percent, meaning that a quarter of population - or 8 million people - remains either in absolute poverty or under constant threat o f poverty. The importance of looking at near poverty (vulnerability) in addition to absolute poverty results from three factors. First, poverty in Morocco i s measured by using a frugal poverty basket picking up only the very poor using a poverty line (10 dirhams per person per day) well 6 below that used by countries at similar GDP levels. Second, the period under review was preceded by a decade of increasing poverty (from 1991 to 2001) during which many near poor were pushed into poverty. Resumed growth and economic stability helped these transient poor to move back to near- poverty from poverty, while core chronic poverty remained untouched. Lastly, the recent fall in poverty in rural areas i s not unprecedented. A similar episode of falling rural poverty was observed between 1985 and 1991, and it was followed by a decade-long deterioration. The see-saw evolution of poverty across the intermittent surveys in the 1990s reflects the vulnerability of the economy to shocks, and the large number of people who hover just above the poverty line. Figure 7: Poverty reduction in Morocco compared to other M E N A countries 40 35 l I 30 , Morocco -* -. I I 25 , 20 I I 15 , ~ 10 5 /Jordan 0 mid 1980-s around 1990 mid 1990-s around 2000 2005 latest ( 2 0 0 7 ) Note: Figures refer to the proportion o f the population with income per capita below the international benchmark o f US$2 a day per person in 2005 Purchasing Power Parity, except Morocco official poverty incidence which i s based on national poverty lines (relative). Latest (2007) point for Iran, Jordan and Tunisia i s a forecast. Source: World Bank and HCP. 2 1. Despite being broad-based, recent progress in. poverty reduction was accompanied by increasing disparities. The partial closure of the rural-urban gap has not cancelled entrenched disparities: 70 percent of poverty in Morocco i s s t i l l rural. In 2007, the urban poverty rate was 4.8 percent compared to 14.5 percent in rural areas. Even though a l l groups among the poor-the extreme poor, the poor, and the near poor - gained from growth, the pattern of growth was not unambiguously pro-poor and it was not equally shared. As inequality increased in both urban and rural areas to reach unprecedented levels, growth for the poor was slower than the average growth and it was still below the levels needed to reduce poverty by half in 20 years. Regional differences are substantial, but practically all regions contain pockets of severe poverty in slum areas or in villages. 22. The overall decrease in unemployment rates has led to reduction in poverty incidence, but being employed does not necessarily guarantee protection from poverty. An absolute majority among the poor are working poor. The informal sector, primarily in agriculture, which employs 70 percent of Morocco's labor force, i s characterized by low pay, insecurity of job tenure, and lack of safety standards. Almost 70 percent o f Morocco's poor are employed in just two sectors (agriculture and construction) which are characterized by informality. Formal sector workers, especially those employed by the public sector, are well protected, and enjoy a significant wage premium. The poor, predominantly without education, or with only basic education, cannot compete for such jobs. 23, Recent efforts to increase the availability o f educational services and opportunities have led to expanded access to education at all levels, but have not always translated into improved outcomes. The national net enrollment rates for primary education increased from 52.4 percent (1990- 7 1991) to 93.5 percent (2006-2007). Net enrollment in middle school increased from 17.5 percent to 43.4 percent (2006-2007), and in upper secondary education from 6.1 percent to 17.5 percent (2006-2007). This increased enrollment in compulsory education has placed pressure on higher education. It has led to a substantial increase in student enrollment (about 25 percent between 1993 and 2006). Remarkable progress has also been made in-ensuring equitable access to education for children. The gender parity index in primary education between urban boys and rural girls aged 6-1 1 has narrowed from 1.5 to 1 in the past decade. Nevertheless, the speed with which primary education has been generalized has not been accompanied by equivalent progress in returns to education, and serious enrollment disparities persist as children proceed through the education system. While access to primary education i s almost universal, only 71 percent of children aged 6-11 complete primary schools (MDG 2008), and 72.2 percent of rural women cannot read (the national average for women i s 52.7 percent). Despite the noted increase in enrollment rates, the illiteracy rate of the 15-24 cohort remains high (nearly 24 percent) with repercussions on labor productivity (MDG 2008). The quality of education remains problematic. The grades of Moroccan students in the TIMSS 2003 survey are low compared to the MENA region and other participating countries, despite high expenditure per pupil. 24. Lack o f affordable access to quality services explains why the poor are not benefiting from the expansion of services. The poor gained from improvements in all social sectors, but not enough to make a decisive break with their condition, partly because of limited access to services in sectors such as education, maternal health, and housing. For example, survey data show that only half of the population uses health services for illness, and this share i s only 40 percent for the rural poor. Services are underused because of financial, social, and geographic barriers. Low education outcomes of the poor are related to problems of progressionthrough the system and low quality of education. The main barriers for the poor in accessing better health care are high (informal and formal) payments, high transportation costs, and low quality of service. Lack o f adequate local health facilities, combined with poor roads and expensive transport, particularly hurts women. Overall, the performance of the education sector shows how the contrast between achievements and gaps i s matched by a disconnect between efforts and outcomes. Table 3. Regional comparisons of selected health outcomes Country Life expectancy at Infant mortality rate Maternal mortality rate birth (per 1,000 live births, (per 100.00 live births, (years, 2004) 200415) 200415) Algeria 71 30.4 96.8 Morocco 71.8 40.0 227.0 Egypt 68 20.5 62.7 S. Arabia 71 19.1 12.0 Lebanon 70 18.6 88.4 Tunisia 72 20.6 48.0 Kuwait 77 8.2 4.0 Jordan 71 22.0 40.3 Oman 74 10.3 15.4 Source: Ministry o f Health, La sunti en chiffres 2004 et EPSF 2003-2004. 25. Despite the recent improvement of health indicators, important gaps remain. The health financing and management systems do not appear to meet the needs of the majority of the population. In addition to the deterioration of physical infrastructure due to a lack of appropriate maintenance, public health services suffer from an acute personnel constraint at all levels (medical and management). This i s reflected in the stark contrast with other health outcomes. Maternal mortality stands at 227/100,000, or 45 times Europe's average. Infant mortality rates (40/1,000 in 2004) remain intolerably high. The nutritional status of infants and women remains of concern, with approximately 18 percent of under-five children considered to be stunted and approximately 9.3 percent wasted. Those in the lowest 8 socioeconomic quintile are three times a likely to die o f infant illnesses (Tables 3 and 4). Only 15% o f s mothers use exclusive breastfeeding for 6 months, and early cognitive stimulation i s often insufficient as evidenced by child care practices4. Table 4. Inequalities in health status between rural and urban areas, 2007 Indicators Urban Rural National Fertility rate 2.1 3 .O 2.5 Crude birth rate 18.3 21.5 19.6 Crude mortality rate 4.8 6.6 5.5 Population growth rate 1.4 1.5 1.4 Infant mortality rate 33 55 40 Under-five mortality rate 38 69 47 Neonatal mortality rate 24 33 27 Post-neonatalmortality rate 9 22 14 Maternal mortality rate 187 267 227 Life expectancy at birth 75.5 67 72.2 Source; Ministry o f Health, la sant6 en chiffres 2007. 26. I n the absence o f effective safety nets, large out-of-pocket payments for services strain the budgets o f the poor. In the health sector, until very recently, there was no systematic policy to provide health insurance to the poor. Major illness i s acknowledged to be one of the most sizeable and least predictable shocks to the economic opportunities o f families. Healthcare expenditures may lead to divestment o f household assets (selling o f f property, and so forth), and ultimately to overall impoverishment. The poverty-ill-health vicious circle can undermine future economic welfare. Progress in housing and infrastructure i s also uneven. Despite impressive spending on a slum-upgrading program and a commitment to clear the slum areas, it i s estimated that 780,000 households, or 4 million people, live in what i s considered "substandard or inappropriate" housing. Massive investments in the water supply have led to the improvement in access to safe water on a national scale. Yet many rural households have to travel to get potable water, and non-connected populations in poor neighborhoods in cities rely on standpipes, wells, or informal vendors. 1. 11 LONG TERM CHALLENGES 27. To consolidate its development achievements, Morocco needs to address challenges that are both immediate and influence long-term outcomes. Over the past three years, the government has led a number o f diagnostic exercises involving the participation o f civil society, academia and think tanks. These include the 2006 50th Year Anniversary Report; the 2008 Report o the Superior Council o f f Education; the 2009 Report o f the Royal Institute o Strategic Studies (IRES); and the on-going Scenarii f 2030 exercise led by the Haut Commissariat au Plan (HCP). These products converge in painting a picture o f substantial challenges, which can be clustered around three overarching objectives: (i) achieving higher growth and job creation; (ii) reducing social disparities; and (iii)ensuring sustainability. The government program, presented in Part IV, strives to addresses them. Enqulte nationale a lndicateurs Multiples et Sante` des Jeunes, ENIMSJ 2006-2007, Ministry o f Health, January 2008). Lastly, few programs address the needs o f early childhood development either by providing services or by encouraging demand for those services. 9 A. Accelerating Growth and Employment Creation 28. Higher and more sustained growth i s central to solving the unemployment challenge, but without higher quality human capital, higher growth will not be achieved. Despite being markedly more positive than in the 1990s, current growth rates are insufficient to absorb the overall labor supply produced by the country's demographic transition, the diminishing role o f agriculture in absorbing labor and a more active role for women in the job market. To enhance job creation over the next two decades, and to consolidate progress in reducing poverty, Morocco will need to achieve a growth rate above 6 percent a year. Investing in high valued added sectors i s a prerequisite to enhancing growth and improving job quality, as i s improving the quality o f human capital. Morocco has made progress in the education sector, but concerns about quality and efficiency remain. Despite evidence that continuous training increases labor productivity (and private sector growth), only 20 percent of Moroccan firms in the manufacturing sector train their workers. Another important element to promote productivity growth, and hence better jobs, concerns the use o f active labor market and retraining programs to target workers and/or production units in the informal and agricultural sectors. The presence of strong job protection mechanisms i s usually associated with lower formal employment and the proliferation o f part-time and informal jobs. Improving labor mobility and wages, and progressively increasing formal sector employment, will require more flexibility in labor regulation, associated with the introduction o f income protection mechanisms. Finally, expanding the coverage o f the social insurance system will imply having a more mobile labor force and workers that are more likely to engage in higher risks higher return activities. 29. Improving the business Figure 8: Most important constraints to businesses environment i s a prerequisite for (Percent o f firms that rate each constraint as Severe or Vew Severe) faster growth, a more competitive Tax rates 56 private sector, and an effective Accessto land diversification of the economy. N o Electricity emerging economy has been able to Anti-competitiveor Informalpractices ..lllfli 351 , i Access to finance I sustain high growth for long periods of Availabllityofskllledpersonnel &1 3 b32 time without a competitive, diversified Legalsystem 30 I Corluption i - 27 and technologically sophisticated private -- ~ Tax administration sector. Despite substantial progress since bbor regulations A 16 the launch of the Emergence program, Customs 14 I Businessregistration Morocco i s still lagging in this area. I 9 is criminality i 1 Transport Although real-estate, tourism and the services sector continue to show 3 Politicalinstability L z ! , j ~ I dynamism, industrial growth has lagged 00 100 200 300 400 500 600 other emerging countries (2.9 percent a year, compared to an average of 6.2 Source: Investment Climate Assessment o f Morocco (World Bank, 2008). percent among emerging economies). Weaknesses remain in-areas that require public agency coordination (such as regulatory reform) and in the enforcement o f laws and their application to individual investors. Several constraints in the business environment remain problematic for firms, particularly new entrants. Access to land remains a pending and binding constraint to growth, as are tax rates. More generally, administrative procedures and the judicial system lack transparency and need to be better managed to avoid corruption, discretion and privileges to connected businesses. Corruption i s seen as a growing constraint for a representative panel of businesses interviewed both in 2004 and 2007, and one that disproportionally affects smaller domestic firms. A consequence o f a constraining business environment, corruption and poor property rights enforcement, i s the uneven playing field in the business place. Competition from the informal sector and the dominant position occupied by a few large incumbents hurt the development o f some sectors and the 10 emergence of new industrial players. These issues are consistently rated in firm surveys as the most important constraints to businesses (Figure 8). 30. Private sector development will require further financial market reforms and the upgrading o f national ICT infrastructure. Morocco has reduced financial sector vulnerabilities, especially as a result o f the restructuring o f ailing public specialized financial institutions. As concerns over stability have eased, policy attention needs to be directed to development o f the core financial system, in particular to (i) enhance efficiency, competition and competitiveness, and improve access to financial services; (ii)promote the nonbank segment o f the financial sector, notably by strengthening the role o f capital markets in the economy; and (iii) build institutional capacity to implement and enforce the recently enacted legal framework for the financial system. Moreover, private sector would benefit from the emergence o f a domestic knowledge economy driven by investments in ICT infrastructure 3 1. To achieve its growth potential, Morocco needs to improve the export orientation of its economy. International experience shows that internal demand alone i s insufficient to sustain high growth rates. Over the last two decades, growth has mainly been driven by domestic demand, while the contribution o f net exports o f goods and non-factor services has been increasingly negative. Past policies and investments have favored the production o f non-traded goods and services with high import inputs and geared towards domestic markets - real estate,. telecommunications, retail and wholesale services, transport, and financial services. To reap the full benefits o f international interdependence, the trade regime needs to redress i t s anti-export bias. So far Morocco has pursued a strategy o f selective market opening through bilateral or regional agreements (Euro-Med, US-FTA, Turkey-FTA, GAFTA) aimed at taking the opportunities offered by international markets. The EU advanced status consolidates this progress, promising further economic integration between Moroccan and the EU and with global markets. Internationalizationof Morocco's economy can benefit from a stronger push towards regional integration. As with other countries in the region, Morocco's main trade relationships are with non-MENA countries. The recent progress in opening the economy can leverage the country's favorable geostrategic positioning as a bridge between Europe and Africa. But it i s losing out due to the limited integration o f trade, investments and financial markets at regional level. Increased intra-MaghrebMENA integration can deliver large potential gains in terms of growth. Despite good recent progress in merchandise trading, integration remains limited in trade in services, banking and key sectors such as energy and transport. Required actions include reducing trade barriers, harmonizing the regulatory environment across borders, and improving trade logistics. 3 2. Global integration requires the structural transformation o f lagging sectors. The agriculture sector faces the strongest pressures to change. Moroccan agriculture remains one o f the least productive in the region, employing almost half o f the labor force but yielding not more than 13% o f GDP. Although the share of the sector to total GDP i s decreasing, its direct and indirect impacts on the economy remain substantial, making Morocco's growth volatile (the 2006 GDP growth o f 7.8% in 2006 fell to 2.7% in 2007 and then increased to 5.6% in 2008). While needing to further diversify the economy, Morocco needs to transform i t s agriculture sector. Imports from: YOshare Exports to: YOshare EU (27 countries) 51.9 EU (27 countries) 58.8 20.0 17.8 6.6 5.1 4.7 3.9 11 33. T o tap into I C T - led opportunities and grow to potential in a globalized knowledge economy, Morocco needs to engage in second generation I C T reform. Morocco enjoyed a first-mover advantage in the Maghreb at the end of the 1990's, having engaged early in telecommunications liberalization and privatization. This first reform enabled fast growth of telecommunications services and the development of I T and off-shoring industries. But this advantage has eroded with time and the country i s now facing a number of constraints that are hindering i t s competitiveness: prices are high in broad-band and mobile segments, reflecting insufficient competition; I T skills are scarce; and ICT- exports have remained below those of comparator MICs. For the ICT sector to become a driver of growth, modernization and economic and social transformation, Morocco needs to engage in further reforms. In particular, competitiveness of the national I T industry and of the off-shoring SMEs depends on fast and cost-effective broad-band roll out, increased competition, and empowered regulation. B. Reducing Social Disparities 34. Reducing the relatively high inequality and social disparities characterizing Morocco will require equity-enhancing growth and targeted social protection policies. Morocco has relatively high inequality by regional standard (Gini index of 0.407) and one which appears to be increasing over time. This i s in contrast with other countries in the region (e+, Tunisia), which have managed to gradually reduce the extent of inequality to a level below that of Morocco, while starting from higher levels of disparity. One of government's objectives i s to ensure a fairer sharing of the dividends o f growth and benefits o f the reforms. As noted above, large groups remain excluded from the recent increase in employment, with unemployment rate for urban youth and educated youth standing at 3 1.8 percent and 18.5 percent respectively. The recent apparent rapid improvement of some social indicators i s only weakly affecting broad nationwide outcomes for the poor. Inclusiveness- reaching marginalized groups and promoting equal access to government services and economic opportunities - requires reform of regressive policies, such as those on phasing out energy and food subsidies. Supporting action i s needed to strengthen social protection systems and safety nets, which have a potential to reduce most striking inequalities. 35. The rural-urban gap remains large. Today, around 55 percent of the population lives in urban centers, compared to 29 percent in 1960. In 2025 Morocco's population will reach 3 8 million, of which 68 percent will be urban. The challenge in this regard consists of responding to the enormous demand for infrastructure and social service provision arising in the urban axis, without leaving the rest of the country behind. Since 1985 the demographic trend has been associated with a growing gap between urban and rural household expenditures, which was partly reversed between 2001 and 2007. Nonetheless, rural household expenditures remain on average 35 percent lower than urban ones. Cities remain the main areas of economic dynamism, representing 80 percent of productive activity (industry and services) and three out of four employment opportunities. Access to and quality of basic social infrastructure and services such as roads, health, education, water and sanitation, and electricity in more remote rural areas continue to lag behind those in leading urbanized regions. Strong spatial disparities in education and health access are associated to pockets of high poverty. 36. Addressing the lagging condition of women is key to improving development outcomes. The first challenge i s to reduce maternal mortality, which can be largely prevented or treated if expectant mothers received prenatal care at equipped facilities. Only 4.3 percent of pregnant women in the poorest quintile deliver their babies with the assistance of a doctor; 70 percent deliver them at home. The second challenge i s to increase women literacy over time, by securing equal access to education for girls. The gender parity index in primary education between urban boys and rural girls aged 6- 1 1 has narrowed from 1.5 to 1 in the past decade but serious enrollment disparities persist as children proceed through the education system (Figure 9). Morocco i s one of the few countries where the difference in illiteracy rates between men and women has increased since 1970, rather than experiencing a substantial decrease as in 12 other countries. A large majority of the 2.5 million children who do not attend school are rural girls, especially in secondary education. Enrollment for rural girls aged 12 to 14 in 2007 was just 15.6 percent. Unemployment already affects women more than men, and i s likely to increasingly do so in the future. Figure 9: Net enrollment rate in primary and lower secondary education Net Enrollment Rate (%), Primary Net Enrollment Rate ph), Lower-Secondary 100 ----Urban Male 80 -Rural Female 60 40 ----Urban Male 40 -Rural Female 20 20 0 I 7 0 ZOO0 2001 2002 2003 2004 2005 2006 2007 2000 2001 2002 2003 2004 2005 2006 2007 Source: Ministry o f Education 37. The reduction o f social inequalities revolves around the improvement of the quality and coverage of service delivery. Key sectors such as health and education require the implementation of a range o f institutional development measures aimed not only at extending access but also enhancing results. These include: (i)introducing greater accountability through improved incentive systems as well as monitoring and evaluation mechanisms; (ii)pursuing the deconcentrationof the sector in line with the overall public administration reform program. Particular attention needs to be provided to deconcentrating human resources in order to ensure effective deployment of health and education personnel and increase productivity; and (iii) enhance equitable provision of health and education opportunities to the population by diversifying financing and paying greater attention to the implementation of demand side measures. C. Ensuring Sustainability 38. The impact o f climate change i s already deeply felt, and vulnerability will increase in the coming decades. The country's drivers of vulnerability include i t s large reliance on agriculture as source of income and employment, the scarcity of effective risk management instruments; limited ability of faster-growing sectors in urban areas to create new jobs and absorb excess rural labor force; and finally, the relatively large share in total exports (1 5 percent) of products from irrigated agriculture, which over- uses increasingly scarce water resources. High value assets in urban areas and tourism resorts, and strategic infrastructure in transport and other sectors are already exposed to natural disaster risks, which could be exacerbated by climate change. In the absence of adaptation, projections for Morocco's climate over the coming decades depict a warmer and drier climate, with precipitation possibly declining 10 percent by 2030, and twice as much by mid century. Such scenarios could cause declines in rain-fed yields of up to 10 percent in certain parts of the country, an increase of 10 percent or more in the probability of poor harvests, and, in irrigation water, a widening between demand and supply, with inflows to reservoirs expected to decline 30 percent more than rainfall. These impacts could materialize in the coming two decades, and would likely achieve a much larger scale towards mid-century. In the absence of adaptation measures, declining cereal yields and shrinking water resources will increase the country's dependence on staple crop imports for food provision (currently close to 50 percent for cereals). 13 39. The current and future challenges o f the water sector will not be met without both infrastructure development and institutional reform Morocco faces four challenges: (a) there i s already not enough water to meet current needs, and climate change will severely constrain ability to meet the expected increase in demand; (b) sector governance and institutions are weak; (c) water use in agriculture i s inefficient; and (d) access to water supply and sanitation services i s still inadequate (more than 80 percent o f rural households lack individual water supply connections, and only 5 percent o f the country's wastewater i s adequately treated). Because of these challenges, frequent droughts have a major impact on the economy, public spending i s less efficient than it could be, irrigation water i s frequently rationed in public irrigation schemes, and groundwater i s running out. Coping with scarcity will require a better balancing o f supply and demand with a view to making water allocation and planning more efficient. The country needs better interagency coordination and a reinforcement o f some sector agencies, as well as better enforcement o f groundwater and pollution control rules. Public funding needs to be aligned with public priorities, through medium-term expenditure frameworks for the sector. In agriculture, physical investment coupled with support to farmers can help improve the value that each drop o f irrigation water generates, but real progress will depend on broader structural changes in the sector. Subsidies for technologies such as micro-irrigation can help soften the blow o f the necessary reduction in water use, but only if groundwater use i s strictly controlled. Similarly, to improve water supply and sanitation services, the government will need to invest more in infrastructure and to fund some social transfers, as well as making some institutional reforms. 40. Sustainable economic performance requires transforming Morocco's energy sector. The first challenge in this sense concerns enhancing energy security, and ensure that the needs o f energy consumers-- be citizens or firms-are met at least cost, without creating a burden for the economy. Morocco's heavy dependency on energy imports (97%) induces energy supply risks and exposure to price fluctuations (at $145/barrel in 2008, the total energy bill stood at M A D 71 billion). The expected quadrupling of the primary energy demand by 2030 will further aggravate the import dependency. Ensuring security of supply will require a diversification o f an energy mix currently dominated by coal and oil (87%), a reinforced integration in the Mediterranean electricity market, diversification o f supply sources for oil and other conventional forms o f energy, development o f indigenous energy resources (such as solar and wind), and enhanced energy efficiency (which could yield up to 15% o f energy savings). To meet these goals Morocco needs an institutional and regulatory framework to create the appropriate incentives and a restructuring o f the sector to ensure financial viability o f the operators. Secondly, Morocco needs to step up mitigation efforts, not only to reduce local C02 emissions and participate in the global action to attempt to halt global warming, but also to reap mitigation co-benefits and carbon finance revenues. The imperative here i s to shift its energy system to a low carbon path. 4 1. Morocco's energy risks can be better managed through closer regional integration. The energy situation in the Maghreb countries i s diverse (with Algeria and Libya being major hydrocarbon exporters while Tunisia and Morocco are import dependent). However, all countries in the region face common challenges in terms o f growing domestic energy consumption as well as increasing demand for green electricity both at home and across the Mediterranean. Morocco has a stake in working with its regional partners to enhance security of supply in a context o f environmental protection and globalization o f energy markets. IV. GOVERNMENT PROGRAM A. National Vision 42. Since the start o f the decade, Morocco has pursued a renewed national development vision. This vision underpins an ongoing process o f strategic reform whose main elements can be broken down according to international, political, social and economic objectives. The international dimension i s one 14 of increased and progressive integration in regional, European, and global markets, and of a strategic partnership with the EU. Politically, the emphasis lies on respect for human rights, the fight against corruption, consolidation of electoral democracy and acceleration of the decentralization agenda. Economically, the vision aims to achieve strong, employment-creatinggrowth through economic opening and liberalization, support to private sector development and foreign direct investment, major infrastructure works and selective sector priorities. In the area of social development, it aims to enhance the performance of the education sector, reduce the incidence of poverty and of rural-urban disparities, and improve the condition of women. 43. Over that decade, successive governments have led a process o f legal, policy and institutional modernization, positioning the country over time as one of the leading reformers in the M E N A region. They have successfully managed fiscal consolidation, stabilized the economy, created an environment for sustained growth, reformed the financial sector, and enacted a number of critical legal changes. They have created new governance institutions, signed trade agreements with key partners, and re-shaped government programs and budget allocations to better target key social and structural challenges. The reform of the Family Code (Moudawana) in 2004, the launch of the National Initiative for Human Development in 2005, and the establishment of the Conseil Supe`rieur de 1 `Education in 2006 are important landmarks of social change. Morocco's 2008 signature of the EU Advanced Status Agreement, represents both a strong signal of sustained political and legal reform and an act of international recognition for the reform process. B. Regional and Global Space 44. Advancing integration with regional and global trade partners has been an objective for decades in Morocco. Since the early 1990s, Morocco sought to deepen i t s economic integration at regional and global levels through trade agreements. To this end, it pursued deeper preferential integration with external actors through signing an Association Agreement with the European Union effective in 2000, a Free Trade Agreement with the USA in 2004, as well as other preferential agreements with a number of regional partners. 45. I n October 2008, Morocco signed an "Advanced Status" agreement with the European Union, which sets the stage for deeper strategic and economic orientation towards the EU. The agreement defines new ambitions for the relationship and deepens the previous Association Agreement. It will frame the EU's future as a development partner in Morocco. It opens participation in several European agencies, reinforces Morocco's position within the EU's neighborhood policy, and will likely increase the level o f EU assistance. Over time, it i s expected to lead to convergence of legislation and regulations with the EU's in selected sectors, at a pace and sequence which remains to be defined. I t could open the way for a long term alignment with the Acquis Communautaire, the joint legislative body of the EU. 15 16 C. Sector Strategies 46. The new government appointed in 2007 elaborated a national program, centered on enhancing growth and competitiveness and improving social outcomes. I t launched its Social and Economic Development Program for the period 2008-2012. The j r s t objective of the program i s to improve social outcomes, particularly in education, health, access to services including housing, and in due course to establish targeted safety nets mechanisms as a substitute for ineffective subsidies. The second objective i s to enhance growth, export potential, and investment in the country by focusing simultaneously on key productive sectors (industrial emergence, agricultural and fisheries development), on infrastructure sectors contribution to growth (energy, transport, water) and on cross-cutting enablers (export strategy, ICT strategy, and business environment). The third objective i s to implement cross- cutting reforms needed to deliver results in all sectors: (1) improving governance; (2) reforming public administration; and (3) deepening decentralization and deconcentration, for better service delivery. Within these broad objectives, the program identified six priority sectors: health, education, justice, water, energy, and agriculture. It also increased the budget allocation of these sectors, within a multi-year framework. Education Programme Najah (2009-2012) Health Health Action Plan (2008-2012) Agriculture Plan Maroc Vert (2008-2020) billion MAD(S8.2 billion) are public programs between the State and professional organizations By 2020: Production o f 1.6 M T Fisheries Consumption: from 10-12 to 16 Kgkapitdyear 16projects Halieutis Exports annually: MAD 3.1 billion 5 Transverse actions (2009-2020) Employment: from 61,650 in 2009 to 115,000 Creation o f the National Agency for Aquaculture development Creation o f the Center o f Fisheries Products Water demand management 2020 : water balance restored in all basins (water saving plans) Water 2030: 60% decrease o f urban pollution Water supply development National Water (dams, transfers , desalination 2030: access to sanitation = 90% Strategy 2015: access to water in rural areas = 95% and RWS) Environmental protection 17 (sanitation plan, protection of ~~ ~ aquifers, flood protection) 40 actions Energy 2012: increase of electricity production by 3,000-4,000MW (currently 5,000 MW) Creation o f a national National Priority Orientation committee chaired Actions 2012: 22 million o f energy savings light bulbs (currently 2.5 by the Prime Minister. (2008-2012) millions) Creation o f a steering committee. Rural roads: expand network by 15,500 km to serve 80 % of rural populationby 2012. Transport Highway maintenance and modernization: annual program of Action Strategy 2,000 km. 0 19 priority themes for action. (2008-2012) ity and improve safety. cal efficiency as a major factor o f competitiveness. Goals: social transformation, e-Gov services, SMEs Establishment of an inter- productivity, ICT industry development, and human capital ministerial committee CIGOV ICT Cross-cuttingthemes are education, capacity building, training 53 specific actions Maroc N u d r i c and knowledge partnerships Implement: -by 201 1, 15 key 2013 projects and services; -by 2013, Projected GNP impact estimated to be MAD 7 billion (direct) (2009-2013) 89 projects and services, and over MAD 20 billion (indirect) including 40 transactional E-gov. services going from 16 to 89 projects National commission created to Solid Waste Service and disposal standards for urban areas implement the PNDM; 90% collection coverage by 202 1 Publication o f decrees related to National Municipal 100% urban areas equipped with sanitary landfills by 2021 the EIA and solid waste laws Solid Waste implementation Closure and rehabilitationof 300 existing open dumps Management Signing of seller participation Program Promotion o f solid waste reduction, recovery and valorization with the Bank for the (2007-2022) Reduction in carbon emission development o f a nation-wide CDM program 111 actions 220,000 jobs created Industry Creation of the Moroccan Industrial GDP increase o f MAD 50 bn (7 % PIB) Agency for Investments Emergence II Increase in export value (MAD 95 bn) (2009-2015) Creation of a steering committee 69 sectoral actions Exports 2018: Increase the number of exporting firms to 7,700 from Main targets: major exporting 5,700 currently activities: car industry, electric Plan StratPgique 2018: triple exports (excluding phosphate and tourism) to MAD and electronic industries, textile des Exportations 327 billion (compared to MAD 114 billion in 2008). and leather, off-shoring (2009-2018) activities, and agribusiness and fishing products 47. As a first step, key ministries produced comprehensive new sector strategies. These respond to the overall national vision, target known development challenges, and set measurable stretch targets. They are well grounded by diagnostics, having made use of an abundant stock of knowledge resources. They formulate short and medium-term action plans, capable of driving both policy changes and implementation steps, within a time horizon of 2012 or beyond. Some are supported by newly-created agencies (Plan Maroc Vert and Emergence) to improve implementation effectiveness. Others rely on the establishment o f inter-ministerial structures to coordinate transversal issues, such as the ICT (Numeric 2023) or energy strategies. Many are supported by dedicated infrastructure investments and have benefited from targeted budget increases in 2008 and 2009. Table 6 summarizes ten sector strategies produced since 2007. While it i s too early to evaluate the results of most of them, some o f the older sector strategies such as Emergence (industry) have had early successes in attracting key international 18 investors, for example in the automobile, offshoring and aeronautic sectors, or in the tourism sector in the case of the Plan Azur. D. Cross-Cutting Changes 48. Beyond the elaboration o f sector strategies, the program has focused on selected areas that impact future development outcomes. These include: (i)experimenting with a new comprehensive approach to social safety nets; (ii) deepening the focus on governance issues; (iii) improving local government autonomy; and (iv) continuing support for public administration reform. 49. Government i s testing a new approach to safety nets designed to better target the needs of the poor and the vulnerable. The INDH program introduced in 2005.the first large-scale poverty- targeted interventions by selecting the poorest 264 urban neighborhoods and 403 rural communes. It remains the key vehicle of targeted poverty interventions, and has contributed to changing the policy direction on safety nets. The current approach i s pragmatic. It pilots ways to introduce new social safety nets, while developing and improving their targeting and effectiveness through evaluation. Examples include: ( 1) implementation of a conditional cash transfer pilot in education, aiming at increasing school retention rates (the Tayssir program); (2) pilot introduction of a medical insurance scheme for the poor (RAMED), which i s now in the process of being scaled-up; (3) improved geographical targeting o f food subsidies (tender wheat flour); (4) implementation o f a low-income housing construction program; and (5) improving institutional capacity to target policies and subsidies. In addition, increases in minimum wage have been enacted, as well as an increase in children allowances and extension of their coverage to workers of the agricultural sector. A comprehensive review of social protection i s also under way at the same time as a review of food and energy subsidies. 50. The governance program builds on previous initiatives. During the past decade, successive governments have launched a series of governance programs. These include the 1995 national program for good governance, the 1998 "Pacte de Bonne Gouvernance (PBG)" and the 2000 white paper on public administration reform. The PBG had three main objectives: (i) ethics and moralization of public administration; (ii)efficiency and efficacy of public administration; and (iii) strengthening the capacity for coordination and promoting transparency in public affairs. The goal of these efforts was to transform public administration into an effective and efficient institution able to deliver better services to citizens and be a driver for private sector development. A number of specific governance and anticorruption measures were taken and new institutions created. The current Government has outlined a governance agenda around four pillars: (i)transparency and values in public l i f e and public policy; (ii) efficacy of public action; (iii) completion of initiatives to strengthen the capacity of key Institutions; and (iv) improvement of territorial governance. 5 1. The program aims to increase the role of local government, its performance, accountability, and empowerment. Since King Mohammed VI'S Royal Address of 12 December 2006 (reinforced on November 2008) the strengthening of local governments has become central to the government's agenda. Among those: (a) the 2007 Anti-Money Laundering and Financial Crime Act, and the establishment o f a Financial Investigation Unit (FIU) in the Office o f the Prime Minister; (b) the 1998 procurement decree which led to significant alignment with international best practices (its amendment in 2007 has deepened the reform, although additional amendments are yet needed to assure equivalence to best international practices); (c) a law requiring certain categories o f civil servants and public officials to disclose their incomes and assets; (d) the creation in 2007 o f an agency for the Prevention o f Corruption (Instance Centrale de Prevention de la Corruption); (e) the establishment in 2005 o f a new legislative framework for political parties which has streamlined the rules on the creation o f political parties; (0 substantial improvements made to the legislative framework in the area o f freedom o f association and assembly that have led to the emergence o f a more active and dynamic civil society; and (8) the liberalization o f the audio-visual sector with the issuance o f licenses to private operators for radio and TV broadcasting. 19 Enabling the empowerment of the communes represents a strategic change. The 2003 Charte Communale was further amended in December 2008 to transfer a range o f management responsibilities to the communes. Strategy formulation at the municipal level has been piloted in Settat and E l Jadida. A recent initiative provides incentives for communes to develop a Communal Development Plan, to increase participatory strategic planning at the local level. Government now intends to accelerate the implementation pace of i t s decentralization program through real decision-making and resource transfers to local governments, together with adequate deconcentration o f public administration officials. A public dialogue started with the establishment o f a consultative commission which was tasked to develop a concept for regionalization. Two pilot regional spatial development plans (for the Tadla-Azilal and Meknbs-Tafilalet regions), 16 regional agricultural plans identifying a series o f investments in agricultural development, and two pilot regional development strategies (for the Fbs-Boulmane and the Souss-Massa regions) have recently been adopted by the regional councils. 52. Government intends to continue the process of public administration reform. The agenda seeks to: (i)develop a new results-orientedbudget system with public policy evaluation mechanisms; (ii) renew efforts to improve public sector governance through enhanced internal and external controls, auditing, more transparent budget reporting and simplified procedures; (iii)improve the human resource management framework; (iv) improve the quality o f public services by introducing localized management, further pursuing the deconcentration process; and (v) simplify administrative procedures through the development of e-government so as to improve public services and ensuring the integrity and transparency o f relations between the administration and the user. E. Implementation Challenges 53. Strategy implementation challenges are well recognized. The 2006 Rapport du Cinquantenaire noted that the "reform process demonstrates a level of dynamism that needs to be preserved and strengthened". Consolidating it [...I requires a clear view o f the risks that may compromise its success, such as the lack of synchronization or coherence of the overall reform process; the incapacity to reach adequate impetus, the risk o f a partial accomplishment of expected objectives; the non-effectiveness of new laws, which could compromise both the success o f the reforms as well as the country's democratic future". Meeting this challenge requires: 0 Moving from the "what" to the "how to" o f reforms, with an increased need for coherence and coordination. To reach its ambitious results, the set o f sector strategies developed will require structural, cross-cutting actions, likely falling outside the remit of any single agency, such as fostering public ownership, exercising leadership over major trade-offs, and arbitrating allocation o f scarce resources. 0 A clear focus on results, supported by a government-wide emphasis on monitoring and evaluation. Today not enough i s known about the impact o f social programs or existing sector strategies, or the nature o f their incidence on beneficiaries. Focusing on results requires a cultural move from measuring inputs to assessing and managing for results. The new sector strategies' selection o f measurable targets combined with the on-going public administration reform creates an opportunity for substantial improvements in the area o f result tracking. 0 Reduced distance between citizens and the administration. As noted in the Rapport du Cinquantenaire, decentralization has been on the agenda for decades. Getting better results for public engagement will require deconcentrating key ministerial agencies, delegating authority further, pairing the devolution o f financial resources with a parallel transfer of authority, enhancing the role o f regional, spatial and urban planning, as well as empowering users to play an active role in accountability mechanisms. 20 Human resources. The quality, allocation and management o f human resources could constrain strategy implementation in a number o f sectors, particularly education, health and justice. Regionalization similarly faces local capacity gaps, notably within local elected bodies, which in turn may provide arguments for retaining control over decisions and resources centrally. Addressing on-the-job training needs, building capacity, and enhancing both deployment, recruitment and resource managements functions will be essential. 54. With clear objectives defined, an ambitious set o f well-articulated sector strategies covering the next five years, widespread understanding o f cross-cutting constraints, and the experience o f having managed successfully a first wave o f reform, the country has an opportunity to face up to its implementation challenges and take a transforming step into its future. V. WORLD BANK GROUP STRATEGY A. Experience and Lessons Learned 55. Morocco made impressive progress in a number of the priority areas supported by the 2005-2009 CAS. These included maintaining macro-stability, increasing efficiency of the financial sector, improving access to finance, and improving water management and access to water and sanitation. Progress was also made on access to basic education as measured by enrollment rates, efficiency of public administration, access to all-weather roads in rural areas, improved housing options for the poor, and to a lesser degree on improving the investment climate. Some new areas of activity were introduced during CAS implementation, such as energy sector, solid waste, and support for the national human development initiative. At the same time, some areas in which outcomes were initially targeted did not advance as anticipated, such as activities in higher education and agro-business development. Table 7 summarizes the CAS Completion Report's (CASCR) findings on development outcomes. 56. The CASCR finds that the four CAS pillars remained valid throughout the period. I t notes that opportunities arose during implementation to advance CAS objectives through new activities, and that the Bank Group appropriately adapted to respond to these opportunities. O f the 10 IBRD lending operations delivered during the period, five were not foreseen when the CAS was discussed by Executive Directors. The IFC program changed radically from one centered on providing advisory services to one that included significant equity and debt investments (see Table 8). The Bank delivered ten lending operations for a total o f $1.127 billion, an average o f $280 million per year. This comprised six DPLs and four investment projects, with the DPL proportion representing two thirds o f the value o f new commitments. 21 Table 7. Summary of CASCR findings on 2005-2009 CAS results matrix Strategic Stratepic Strategic Stratepic Obiective 1 Obiective 2 Obiective 3 Obiective 4 Improve competitiveness Increase access to basic Improve water management and the investment services by the poor and Improve education and access to water and climate marginalized system's efficiency sanitation services 1.1 Maintain 2.1 Reduce the 3.1 Increase access to 4.1 Improve legal, macroeconomic number o f households and quality o f basic financial and institutional stability livings in slums by 0 education @ framework in the water (0 60% sector 1.2 Increase efficiency 2.2 Improve access to 3.2 Increase 4.2 Improve access and o f public basic services, social graduation and treatment coverage in administration programs and employment rates o f targeted river basins (> economic opportunity @ students in high 0 0 by poor and school, higher vulnerable education, and populations vocational training 1.3 Improve investment 4.3 Improve technical and climate c, financial performance of water sector operators. 0 1.4 Increase efficiency o f the financial sector and access to finance e 1.5 Increased competitiveness o f small and medium- 0 sized agro-business I 0 Achieved c) Partially achieved 0 Not achieved I 57. I F C played an important role during the CAS period through a record investment program, sizeable advisory activities and i t s entry into local capital markets. From an investment role previously limited due to the availability o f alternative sources of financing, IFC has now stepped up its activities and positioned itself as a strategic partner with added value in both its investment and advisory services. During the CAS period, IFC's investment increased substantially to reach $272.5 million from $4 million, mostly aligned with CAS Pillar 1 (improve competitiveness and the investment climate)'. 5 8. The principal lessons from the CASCR that can guide future Bank engagement are: 0 The engagement strategy in general, and the results matrix in particular, should have the flexibility to accommodate inevitable uncertainties over a four year period, specifically to introduce new activities to respond to shifts in country circumstances and government requests, and to do less of or discontinue activities that may become relatively less important or less likely to advance. 0 Strategic objectives supported by the Bank should have broad national support and, while selectively engaging with the authorities to analyze and advance often unclear reform choices and 7 For instance, in FY08 and FY09, IFC committed a record US$255 million in seven projects in multiple sectors, such as commercial banks, microfinance, wastewater public utilities, investment funds for small and medium enterprises (SMEs), property development in low income housing and building materials sector. 22 helping to build consensus, to avoid long-term commitments until a judgment can be made as to likelihood o f success and comparative advantage. Individual programming decisions need sufficient flexibility to respond to the outcome o f dialogue and changed global, regional or national circumstances. The importance o f building on the progress achieved in allowing IBRD and IFC to work together as a Bank Group. Continue coordinated work with development partners, including on joint forward planning. Table 8. Bank Group Financing Ac vities in Support of 2 15-2009 CAS Pillars Pillar 1 Pillar 2 Pillar 3 J Pillar 4 Improve competitiveness and the Increase access to Improve Improve water investment climate basic services by the education management and t- poor and system's access to W&S marginalized efficiency services Financial Sector (DPL) *Housing Sector (DPL) *Basic Water Sector (DPL) IBRD *Public Administration Reform Adjustment Loan 1 *Rural Roads I (SWAP) 1 Education *Rural Water Supply (initially (FY05), I (FY06-07), Ill (FY08-09) I Reform and Sanitation (SIL) planned) support Program (SIL) 1 IBRD Energy sector (DPL) *ONE Support Project (SIL) Integrated Solar Power (GEF) *Support to INDH (SWAP) *Support to the *Establishment of the evaluation *Support to utility service access in slums (Output Based-Aid) (added) Government reform module for the pilot) program on Solid Waste Education-CCT Management (DPL) pilot (Tayssir) *Support to several private equity funds (Maghreb *Affordable housing for Support to Water Invest, Capital North Africa Venture Fund, low and middle income Public Utility RADEEJ Altermed) households (MIXTA) (water-electricity and Support to micro-finance institutions (FONDEP, *Structured finance sewerage) Jaida, AI Amana ) package to Radeej, a *PPP in irrigation *Quasi-equity investment in BMCE Bank water, electricity and (Guerdane) Morocco Cement Sector (Greenfield Ynna Cement sewerage utility in El Public-private project) Jadida partnership in multi- Advisory services on business simplification to the regional water project Casablanca Regional Investment Center (Veolia Water *TA to Ministry of Justice on Commercial International) Mediation *Advisory support to Ministry of Finance on PPPs strategy in infrastructure *Establishment of Private Credit Bureau with the Central Bank *PPP for Guerdane irrigation project 1st domestic 7-year bond offering by a supranational entity B. Consultations 59. Preparation o f this CPS benefited from an extensive consultation process involving numerous civil society organizations, youth, academics, the private sector and other donors. Three objectives structured the consultation approach retained: (i)to discuss the priorities and the role o f the World Bank in Morocco; (2) to reach out and listen to constituencies with weaker voices; and (iii)to 23 provide depth o f exchanges on sector specific themes. These meetings were characterized by free and open dialogue and were a rich experience, quite unique for the Middle East and North African region. The key messages include: e Widespread doubts about the real outcomes o f the reform process, with questions as to i t s credibility leading to perceptions o f `reform fatigue' by external audiences; e Specific need for results in education; e Cross-cutting calls for justice sector reform; e Broad skepticism about the poverty impact o f reforms and the measuring o f poverty more generally; e Firm demand for more and better evaluation of government programs and sector strategies' impact; e Broad enthusiasm for the inclusion o f governance and territoriality as transversal themes, mixed with pragmatic reminders of the difficulty o f finding entry points for change; e Concrete encouragement to the Bank to: (1) use its voice more; (2) evaluate more systematically; (3) help the government build an accountability culture; e Insistence on the need for more analysis on key gender issues in our dialogue and sustained gender advocacy; e Increased awareness o f the need to better understand the exclusion dynamics affecting Moroccan youth in order to tap a formidable reservoir of energy and talent; e Support o f the private sector for the Government's last minute addition o f the PPP theme to the CPS; e Importance o f fostering the knowledge economy by enabling the private sector through a well regulated and competitive market for infrastructure services; m Need to identify areas o f donor collaboration in real time. C. The World Bank Group Program 2009-2013 60. The objective of the W B G action in Morocco over the next four years is to support government in the implementation o f its reform program. As discussed above, the government's program i s subject to implementation challenges typical o f second generation reforms. This i s the area where the Bank has been specifically asked to help. Firstly, the WBG w i l l focus on "the how to" of implementation by facilitating institutional reform and coordination - an area in which Bank's DPLs have gained a solid reputation with the client. Secondly, the WBG will seek to maintain its role o f aggregator and facilitator o f inter-agency coordination by supporting reform implementation in cross-sectoral areas, through both S I L s and DPLs. Finally, CPS activities will seek to pay particular attention to increasing the results orientation o f the government's programs, in line with the findings of the CASCR and in response to a specific request o f government. 6 1. The CPS ensures continuity in the WBG's support to Morocco, as well as opportunities for scaling up and expanding engagement to new areas. In addition to consolidating the 2005-2009 CAS Strategic Objectives (Figure 1 l), CPS builds on the lessons learned from the previous CAS such as the the need to ensure selectivity in Bank Group engagement, to focus on activities where the World Bank Group can bring value added, and to respond to client's demand. 62. The CPS provides a framework which will insure continuity in collaboration and enhance complementarity between I F C and IBRD. Building on the close collaboration which characterize the preparation o f the CPS, the IFC and IBRD will jointly support government in i t s private sector development policies, specifically in the areas o f business environment, trade, competitiveness, financial 24 sector development and public-private partnership. Appendix 2 provides greater details on the WBG's private sector approach in the context of the CPS. Figure 11: Ensuring continuity from CAS to CPS Strategic Strategic Strategic Strategic objective 1 objective 2 objective 3 ahjective 4 CPS 2009-2013 63. The need to respond to the changing conditions of the country context i s ensured by a flexible and evolving CPS program. The CPS i s built on 19 Program Areas organized within three thematic pillars (1. Growth, Competitiveness, and Employment; 2. Service Delivery to Citizens; Sustainable Development in a Changing Climate) and two cross cutting beams (Governance, and Territoriality). The Program Areas in which engagement has already been fully agreed upon are presented in full in the section below, together with the related CPS Outcomes. Table 9. CPS woeram areas bv level of dialogue CPS Pillars Growth, Service Sustainable competitiveness, delivery to development in a employment citizens changing climate Program Areas already deJned Business environment 0 Financial sector reform 0 Skills and employment 0 Public sector management 0 Qualiw and access in education 0 Health sector reform 0 Vulnerability and social inclusion Rural & urban transport Agricultural sector reform . 0 0 0 Social protection reform 0 Low carbon energy policy and sector restructuring t 0 Water management 0 Solid waste management 0 Pr r prepa Urban development 0 0 Information and communication technoloeies Justice sector reform Trade and competitiveness 0 0 0 . Leveraging PPPs for infrast. investsandservice delivery 0 Climate change 0 Notes: The table maps the CPS Program Areas according to CPS Pillars and status o f dialogue/preparation(Defined / Under Preparation). The dot's size indicates the relative weight o f each Results Cluster under each Pillar. 25 Program Areas in which dialogue and programming are still evolving are presented more briefly, and their related CPS Outcomes will be firmed up at CPS mid-term. This provides a medium term business plan (24 months) o f firmly developed activities, and a four year framework for program areas where engagement will be defined. Table 9 presents a breakdown o f program areas by level o f dialogue. Additionally, two crosscutting beams, Governance and Territoriality, aim to influence the overall WBG program through a diversity o f operational entry points. "Territoriality" i s a term which i s understood in Morocco as shorthand for deconcentration, decentralization, regionalization, and spatially-aware development programs. 64. I F C will focus on financial and infrastructure sectors, as well as on high value-added investments in manufacturing, social sectors (health and education) and agribusiness, while retaining flexibility to adapt to opportunities and changes. IFC's potential investments in energy, utilities or ports as well as select investments in Emergence's sectors, would contribute to Pillar 1 o f the CPS (growth, competitiveness and employment). Potential investments in the banking sector, microfinance and the education sectors would help improve financial and educational services to citizens (Pillar 2). Finally, the focus on potential investments in renewable energy will contribute to Morocco's sustainable development objectives (Pillar 3). IFC will also continue to deliver its on-going advisory program, in support o f business environment and financial sector reform. I t will retain flexibility to adapt to change and to respond to new opportunities, as a fbnction o f evolving market conditions and pace of sector reform. P I L L A R 1: GROWTH, COMPETITIVENESS, EMPLOYMENT 65. The structural transformation of the Moroccan economy requires a comprehensive and coordinated set o f policies in many areas. These include a stable macroeconomic environment; an improved business environment-including in the area o f infrastructure and in regulatory institutions that level the playing field; a trade policy that supports the competitiveness o f Moroccan products; a financial sector that better serves smaller firms; a labor force that i s better trained and effective social protection and labor market institutions. While progress has been made in all these areas, there i s a strong need to increase the impact o f reforms and the private sector response. Activities under the first CPS pillar aim to support government's objective to enhance Growth, Competitiveness and Employment. Under this pillar, government has invited the Bank Group to center its program on the seven Program Areas presented below, o f which the first three are already fully defined, while the remaining five are under preparation. Defined Program Areas within Pillar 1 Program Area 1.1: Business Environment Government Goal: Improve the business environment for all firms, especially for SMEs, via a n comprehensive investment climate reform strategy supported by a effective reform implementation and coordination process. CPS Outcomes 1: Streamlined regulatory environment and a more equitable enforcement o f rules, particularly for new entrants and SMEs 2: More effective reform coordination and implementation in the business environment area. 66. Morocco's business environment requires more favorable conditions for new entrants, in particular for small and medium-sized domestic firms. Government's support to private sector development focuses on: (i) reducing the current unpredictability and opaqueness of the legal, administrative and judicial aspects o f the country's business environment, which tend to favor well- 26 established investors; (ii)promoting transparency and accessibility o f laws, regulations, circulars, and procedures. 67. Support to government's program will focus on regulatory reform and institutional coordination. First, the WBG will facilitate the development of a simplified regulatory environment and more equitable enforcement o f rules. This will be achieved via technical assistance activities in the areas o f (i)regulatory streamlining and improved measurement and benchmarking o f the implementation o f the regulatory framework; (ii)improving the legal framework for corporate governance and minority shareholder protection, and enhancing transparency of rules and regulations; and (iii)business entry simplification at one-stop-shops. Second, the WBG will contribute to more effective reform coordination and implementation in the business environment area. Bank assistance will focus on: (a) helping government in institutionalizing the new National Commission for Investment Climate Reforms (NCICR) as an organized, effective and participatory reform platform; and (b) developing consultation mechanisms, economic impact analysis and monitoring and evaluation tools for preparing projects and measuring progress o f investment climate reforms. Support will involve technical assistance to the NCICR, and could possibly involve a lending operation with an investment climate pillar. 68. IFC's Advisory Services in M E N A will continue to support business environment reforms, in close coordination with IBRD. The IFC will focus on areas that require field expertise in regulatory reform and process reengineering for regulatory simplification. I t will further support the development of alternative dispute resolutions systems, starting with capacity building of a mediation and arbitration center in Casablanca. IFC's support will be selective, reflecting availability o f donor financing and additionality. Program Area 1.2: Financial Sector Reform Government Goal: Improve access to finance by households and SMEs while promoting financial stability and capital market development through enhanced competition and risk management. CPS Outcomes 1: A restructured financial sector allowing for sustainable expansion o f access to finance by households 2: Established credit infrastructure conducive to SME finance 3 : Better financial risks identification through the introduction o f independent supervisors 4: Improved liquidity o f the benchmark yield curve to foster capital market development. 69. Morocco's financial sector experienced rapid growth in the second half o f the 2000s following a major reform of the banking sector. Despite progress, important gaps remain. Access greatly improved (43 percent of Moroccans had bank or postal accounts in 2008, an increase of 9 percent points since 2005), but remains insufficient. Microfinance Institutions (MFIs) played a key role in providing access to over a million poor people, but their fast growth (four fold in terms o f credit and doubling in terms o f customers in 2005-2007) stopped in 2008 when their credit portfolio started deteriorating. The entry o f a few large banks on the SME market improved overall access (credit to SME increased 40 percent in 2005-2008 and now represents a fifth o f banks' loan portfolios), but key segments remain underserved such as those concerning small enterprises and long term finance, and a more difficult economic environment may jeopardize recent achievements. Furthermore, despite successful efforts to strengthen the soundness o f systemic institutions, recent growth has generated new financial stability issues (e.g. asset and liability management, exposures to the real estate sector, linkages within the financial system). Finally, the potential for growth o f some activities such as long term market finance has not yet materialized. 70. The authorities have requested a second Financial Sector DPL to support second generation reforms. Their four pillar program aims at increasing both breadth and depth, while enhancing 27 financial stability. Government's first objective i s to foster access to finance for households. In this area, the Bank will accompany the government's actions to enhance the viability o f the Microfinance sector - building on IFC's strong program in the sector and the set up o f a postal bank. The second objective i s to strengthen access to finance for SMEs. Here, the Bank group will contribute to the establishment o f a strong credit infrastructure (modern credit bureau industry and partial credit guarantee scheme). The third objective i s to further strengthen financial stability and ensure that financial sector development can be sustained. To this effect, and building on the existing framework, the Bank will assist the authorities in the preparation o f new tools to monitor risks and ensure that supervisors have adequate independence to take action where necessary. The fourth objective i s to foster capital market development. In this area, Bank support will be geared towards improving the liquidity o f the benchmark yield curve, which will help harness institutional investors' potential. 71. I F C will continue to support government's goal in the financial sector via its advisory services as well as through strategic investments in financial institutions, including microfinance institutions and possibly SME finance instruments. On the investment side, IFC will continue to look for opportunities to invest in financial institutions that aim at developing low income banking and to n support the emergence o f some banks as regional players. I terms o f advisory activities, technical support to strengthen the credit information infrastructure will continue to be provided to the central bank and possibly to specific banks. Other potential advisory activities include capacity building to financial institutions in risk management, modern SME lending techniques and credit scoring. Program Area I ,3 Skills and Employment Government Goal: Achieve a better match between supply and demand o f labor market skills through improved access to and quality o f higher education and vocational education and training (VET) system, better labor market information systems and extended active labor market programs. CPS Outcomes 1 : Better match between labor market needs and higher education and vocational education /training (VET) schemes 2: M&E system o f labor market policies and programs established 3 : Introduction o f income protection mechanisms to improve labor mobility 72. Morocco's labor market i s characterized on the one side by high unemployment among higher education and VET graduates and on the other by skills shortages in strategic sectors. The skills mismatch i s due to rigid hiring and firing procedures, high severance payments, and highly taxed wages, as well as the large proportion o f the labor force which i s poorly educated and employed in low- paid jobs. 73. The World Bank Group aims to help government address these challenges through a multi- sector operation supporting policy reforms in the areas o f higher education, vocational training, and social protection. I F C could play an complementary investment role. This operation will I include: (i)supporting reforms for improved relevance o f higher education and possibly vocational education and training to labor market needs; (ii)strengthening labor market M&E systems and institutions; and (iii)facilitating labor mobility through improved regulations and income protection mechanisms. Because labor market information i s poor and inadequate to inform policies, an AAA program i s also envisaged to complement existing analyses. Subject to the adoption of an appropriate legal framework increasing the creation o f private universities offering accredited diplomas, IFC would consider potential investments in the education sector. 28 Program Areas under development within Pillar 1 Program Area 1.4: Urban Development 74. I n light of Morocco's continued and rapid urbanization, government aims to improve the capacity of cities to respond strategically to challenges, in order for them to withstand the pressures they will increasingly face. Government has requested the Bank to consider possible support to manage the urbanization process through actions aimed at: (i) improving the coherence o f municipal projects with the national land use planning strategy, and the development o f long-term integrated urban area projects; (ii) fostering the effective application of unified management systems, the establishment o f contractual agreements and pooling o f resources for implementation o f city projects as well as the rapid adoption of the new Urban Development Code; (iii) building awareness among the elected representatives as regards land-related issues,,the modernization of the territorial civil service, management and training o f human resources and the more systematic involvement o f civil society in development plans; and (iv) supporting the mobilization of local resources, the identification o f new revenue streams, and an investigation o f the potential for loans as part o f the overall financing o f urban needs. Finally, the Bank through i t s recently launched Marseille Center for Mediterranean Integration, will provide TA under the theme "Strategic Urban Development" focusing on: (a) regional and urban planning; (b) urban land management; (c) urban expansion and renewal. Program Area 1.5: Information and Communication Technology 75. Government i s planning second generation reforms to restore Morocco's lead in ICT. Despite the success of the first round o f reforms, significant challenges remain. First, prices in both the broadband and mobile sectors remain high, limiting access. Second, ICT-based exports remain well below those o f comparator MICs. Third, Morocco's immature broadband infrastructure hampers the development o f domestic software and I T industries. Fourth, Morocco faces an undersupply o f trained I T workforce. Support to government's reforms would aim at enhancing ICT competitiveness. Engagement would take place along two main axes: (i)supporting a new phase o f telecommunicationsand broadband reform; (ii) enhancing the emergence o f a business process outsourcing - I T enabled services (BPO/ITES) industry through skills development. Under the first axis the main objectives would be to increase competition and foster market structure reform through regulatory and institutional reform. To reduce the skills shortage, the Bank would provide support to the development o f an adequate Curriculum for I T Skills to accompany the launch o f training courses that match industry needs. The instruments discussed with government include: a program o f technical assistance in the areas o f e-government and I T development and continued policy dialogue on telecommunications reform. A new DPL operation could potentially emerge from this process. The skills development component would be integrated in the new education and skills development projects. Program Area 1.6: Justice Sector reform 76. Justice sector reform i s at the center o f government's agenda and among the top priorities for the current legislature Major issues include: (i)poor quality and lack o f transparency o f judicial decisions; (ii) lack o f qualifications and specialization o f magistrates and auxiliaries o f justice; (iii)long delays in case management and unreliable enforcement o f court decisions; (iv) uneven access to justice and to legal and judicial information; and (v) weak budget and human resources management capacity at the ministry and court levels. A strategy for the reform o f the justice system has not been finalized but it i s expected to materialize in the coming months. Government has requested Bank support in supporting the reform of the justice system to improve service delivery to citizens. The Bank i s ready to support government efforts starting with the finalization o f the strategy through tailored AAA such as topic- specific advisory services, quality o f service delivery surveys, and sharing of international best practice. 29 Once in place, the strategic framework could be supported by a sector DPL to accompany reform implementation. The IFC will maintain and strengthen its advisory activities supporting the Ministry of Justice in the area of alternative dispute resolution. Program Area 1.7: Trade and competitiveness 77. Government's trade policy aims to boost growth and job creation by expanding markets for Moroccan goods and services and transform Morocco into an investment and production platform for global investors. However, current efforts have not yet led to robust export performance nor accelerated significantly the structural transformation of the economy. Furthermore, the preferential stance in trade liberalization i s increasing tariff dispersion leading to trade diversion and providing incentives for fraud. To address these challenges, Morocco i s reducing trade and investment barriers and i s pursuing deeper preferential integration. WBG support would focus on six areas: (i) facilitate tariff and non-tariff reforms on an MFN basis; (ii) facilitate further investment climate reforms to enhance the capacity of SME to exploit opportunities offered by the global market; (iii) encourage a further reduction of barriers to trade and investment in services and regulatory convergence with the EU in selected areas of Morocco's interest; (iv) support export promotion and (v) enhance the modernization of Morocco's innovation system; (vi) improve the performance of trade logistics. Support could be extended through two main instruments: (a) a CompetitivenessDPL with a substantive trade and integration component; (b) continued TA to improve technical capacity and the development of new tools to monitor the trade strategy. The Bank will continue technical support in the areas of trade logistics and trade in agriculture. IFC will consider potential investments in ports activity or logistical platforms in Morocco with a view to improving the trade logistics infrastructure and will complement IBRD activities through its advisory support in the business environment area. 78. The IFC will continue to focus on developing investment and lending opportunities in support of the new industrial and agriculture strategies o f Morocco. Morocco's industrial and agricultural strategies aim at anchoring the country's strategy to supporting the emergence of world-class firms in a select number of sectors where Morocco's comparative advantages are deemed substantial: (i) agribusiness; (ii)light automotive and aerospace manufacturing; (iii) fisheries; (iv) business process outsourcing; (v) electronics; and (vi) industrial "handicrafts". Modernization of these industries to become internationally competitive could offer investment opportunities for IFC. PILLAR 2: SERVICE DELIVERY TO CITIZENS 79. Reducing social disparities and closing the gap between efforts and results requires a closer attention to the effectiveness of the public administration and the outcomes of public policies and investments. Activities under the second CPS pillar aim to support the government's objective to enhance access to and quality of service delivery for all citizens. Under this pillar, the Government has invited the Bank Group to center its program on the eight Program Areas presented below, of which the first seven are already fully defined, while the remaining one i s still under preparation. Program Area 2.1: Public Sector Management Government Goals: Develop an efficient administrationcapable to contribute to enhancing the competitiveness o f the national economy and the sustainable development o f the country while promoting investment through the new sectoral strategies and ensuring the medium-term viability o f the macroeconomic framework. CPS Outcomes 1 : Multiannual budgetary planning integrated with the process o f preparation of the Budget Law; 2: Key HR policies ready to be adopted : e.g. new standard job classification; 3: The wage bill i s in line with the government medium term target o f 10 percent of GDP; 4: E-government i s introducedto simplify PA procedures including for service delivery. 30 80. Increasing the efficiency of the public sector i s crucial to the successful implementation o f the economic and social reforms needed to improve economic performance and achieve sustained growth. The government i s engaged in an ambitious Public Administration Reform (PAR) program since 2002. The reform aims at ensuring the viability o f the macroeconomic framework by improving the efficiency o f public expenditure and the optimal allocation of budgetary resources. Support to PAR remains a key element o f the Bank- government partnership. The Bank has engaged in PAR since its launch, jointly with the EU and the AFDB. In the future, support to government will firstly focus on the implementation of a new results-oriented budget system which includes public policy evaluation mechanisms for enhanced service delivery. Second, the Bank will support activities that will facilitate the adoption o f new HR policies to improve HR management by: (i) simplifying civil service employment regulations; (ii) adopting an efficient and transparent remuneration system and (iii) introducing promotion mechanisms based on merit, competence and probity. Third, the Bank will help improve public wage bill management in key ministries so as to maintain the current Government medium term target o f a wage bill at 10 percent of GDP. Finally, the Bank will support the on-going introduction o f e-government to simplify administrative procedures and to improve public service delivery thus contributing inter alia to the integrity and transparency of relations between the administration and users. Bank support will involve a mix o f advisory and lending services centered on the new Public Administration Reform Loan (the fourth phase o f the Bank's DPL support to Morocco's public administration reform program- PARL W ) , as well as Programmatic ESWs. 8 1. Looking forward, a third series o f interventions i s envisaged to support further the next phases o f reform. The Program Administration Reform agenda will evolve on several dimensions, such as: (i) finalization of the draft Organic Budget Law (OBL); and .(ii) completion of the deconcentration strategy and conclusion of preparatory work and subsequent implementation of the current phase o f the HR reform. The Bank i s prepared to design a new series of lending operations to support the next Program Administration Reform phase and further strengthen the results orientation o f the program for enhanced service delivery. In addition, the new series would further reinforce donor harmonization as it will be developed in full coordination with the next EU and AfDB program. 'rogram Area 2.2: Quality and Access in Education Government Goal: Achieve universal compulsory basic education by 20 15, promote initiative and excellence in upper secondary and higher education and improve system performance (teaching, management and stewardship). CPS Outcomes 1: Increased net enrollment rates for primary and lower secondary education; 2: Reduced repetition rates for primary and lower secondary education; 3: Improved education quality with a focus on restructuring teachers' training and learning evaluation; 4: Improved management capacity and increased accountability o f results within the context o f decentralization. 82. Government aims, via its Education Emergency Plan (EEP) 2009-2012, to ensure that students leave the formal education system with the knowledge and skills required by the Moroccan economy and society. The EEP presents a program o f reforms and actions with four strategic objectives: (i)universalize basic education by 2015; (ii) promote initiative and excellence in secondary and higher education; (iii) improve system performance (teaching, management and stewardship); and (iv) mobilize the necessary resources. The Bank has been instrumental in forming an innovative consortium o f five major donors that will support the government's EEP implementation through a set of parallel financing operations and analytic work, all underpinned by a shared program matrix and a common monitoring system. The Bank's own Development Policy Lending program will focus on measures that: (i) rationalize the supply of, and strengthen the demand for, basic education (including pre-school education) 31 through the development and refinement o f planning, targeting and monitoring tools, and (ii)enhance overall system governance especially at the critical regional level. 'rogram Area 2.3: Health Sector Reform Government Goal: Reduce the burden of major health conditions, reduce inequity in access to services affecting poor and rural populations, and improve governance of the sector. CPS Outcomes 1: Integrated management of non-communicable disease (NCD) prevention and treatment at primary provider level; 2: More comprehensive nutrition activities integrated in the provision o f maternal and child health services; 3: Increased transparency and equity in budget allocation, and improved capacity o f regions to manage and deliver services; 4: Good quality and affordable pharmaceuticals are accessible to the population in public health facil it ies. 83. Morocco is at the center of a demographic and epidemiological transition. Despite progress in increasing overall l i f e expectancy, reducing average infant mortality, reducing average fertility rate and reducing the spread o f communicable diseases, the country faces health challenges. Specifically, maternal mortality remains high, particularly in rural areas, and major inequalities in health status and in access to care persist. The Health Action Plan 2008-2012 translates the government's long term vision presented in Sante, Vision 2020 (2008) into four operational pillars: (i) revising role and responsibilities o f the various stakeholders in the health sector; (ii)development o f a care package that i s easily accessible, adequate in quantity and quality, and well distributed on the territory; (iii)planning and implementation o f specific national plans for prevention and control o f diseases; and (iv) strengthening o f health surveillance and hazard management systems. 84. The Bank will support government's health reform through a combination of lending and AAA activities, in coordination with other donors (e.g. EU, AFD, AfDB and Spain). Support will focus on the following objectives: (i)improve maternal and child nutrition and chronic diseases prevention through inter alia better prevention, detection and treatment at the primary care level, as well as communication; (ii) facilitate the regionalizatioddecentralization o f health services through the establishment o f Etablissements Publics de Sank!; and (iii)reform o f the pharmaceutical sector to improve drug availability and reduce costs through the establishment o f the national pharmaceutical agency. In addition, the Bank w i l l support the transversal governance pillar o f the Health Action Plan 2008-20 12 including budget preparation and execution processes, financial and human resource allocation, health management information systems, and the implementation o f systems fostering better accountability. Government Goal: Reduce poverty, social exclusion and vulnerability by empowering poor and vulnerable groups and particularly women and youth. CPS Outcomes 1: Improved access to basic infrastructure, social services and economic opportunities by poor and vulnerable groups, including women and youth; 2: Sustainable and improved quality of services to vulnerable groups; 3: Better coordination of national policies and institutional mechanisms to reduce vulnerability; 4: Consolidation o f participatory approaches to ensure that basic infrastructure and socio economic services with the needs o f the poor and vulnerable groups, including women and youth. 32 vulnerability. INDH relies on bottom up participation and planning to improve living standards and give greater voice to the poor in targeted communities. The program also aims to promote better coordination of poverty alleviation policies and implementation mechanism across government agencies. Expected outcomes include: (i) reduction of poverty, social exclusion and vulnerability; (ii)consolidation of the participatory approaches to local service delivery planning; and (iii) improvement of the access to basic infrastructure, social services and economic activities by poor and vulnerable groups. The Bank will continue its support to INDH, focusing in particular on (a) consolidation o f participatory approaches for bottom up planning of interventions; (b) supporting increased access to basic infrastructure service delivery, basic infrastructure and economic activities; and (c) facilitating interagency coordination of policies and interventions. The Bank will consider supporting the second phase of INDH, currently planned for the period 201 1-2015 based on a thorough evaluation of the experience to date and the proposed way forward. Specific support to the Government's youth and gender agenda will continue through dedicated analytical work. One AAA activity i s under implementation on youth inclusion with the following objectives: (i) identify the key factors leading to the social and economic exclusion of young people aged 15 to 29 years; (ii) support the national youth strategy that i s currently being formulated by the Ministry of Youth and Sports; and (iii) provide an investment roadmap for youth inclusion in a variety of dimensions across sectors. Regarding gender, analytical activities would be developed in line with government's demand. These could take the form of TAs in relevant sectors, or pilot interventions based on sound analytic work. For example, the positive experience in supporting gender budgeting could be continued in the coming years; the data effort associated with the youth AAA can lend itself to specific analytical work on gender issues that would inform sector strategies or specific programs as appropriate. Program Area 2.5: Transport Government Goals: Increasethe rural population's access to all-weather roads and improve urban transport by reducing congestion. CPS Outcomes 1: Increased accessibility o f rural population to all-weather roads - from 65% (2009) to 80% (2012); 2 : Sustainable maintenance o f unclassified roads; 3: Efficient planning and management o f the urban transport sector; 4: Financial support allocated to urban transport projects with high economic returns. 86. Improving access of rural dwellers to basic transport infrastructure i s among the key goals of the government's 2020 Rural Development Strategy. The first National Program of Rural Roads (NPRR-1) was launched in 1995 and finished in 2006, with impressive results: over 11,000 kilometers of unpaved roads were rehabilitated, with proven positive repercussions on the net enrollment ratio of girls in primary school and the price of some staple foods. Following the positive experience with NPRR-1, government requested Bank support to NRRP-2, which aims to expand access to an all-weather road by relying on a strong participatory process, vertical coordination among government levels, and a comprehensive monitoring and evaluation system. The Bank, with other donors, i s co-financing the NRRP-2 whose overall estimated cost i s US$l.8 billion. Given the satisfactory progress of the program, the government requested an additional financing. Through i t s support to the NPRR, the Bank i s contributing, together with the government and a number of other donors, to the gradual extension of the rural network coverage to increase rural populations' access to all-weather roads. In addition, the Bank and other donors are supporting the government to ensure sustainable maintenance of the unclassified rural roads by facilitating the setting up of an agreement between the local communities, the Ministry of Interior and the Ministry of Equipment to ensure that maintenance i s carried out and i s appropriately funded. 87. Government i s also engaged in addressing emerging problems in urban transport. With the growth of cities and rapid development of motorization, urban transport has become a severe problem and 33 its improvement i s a priority for local governments. Increasing congestion i s affecting the competitiveness o f cities and the population's access to jobs and services. Since 2006, the WBG has supported the government's efforts at improving the efficiency o f urban transport in the country's large cities. An extensive AAA program has allowed the Government and the Bank to jointly identify key issues and formulate the main strategic reforms needed to address these issues. government has requested Bank support to the design and implementation o f urban transport reforms through a series o f development policy loans. The focus will be on: (i)improving the planning and management o f the sector and, (ii)developing systems and incentives so that public and private resources flow to investments and activities with the highest social and economic returns. More specifically the proposed Urban Transport DPLs would contribute to: (a) reduce transport costs and improve the mobility o f people and goods, therefore improving the cities' competitiveness, and creating the proper framework for follow up employment and growth stimulating investments; (b) improve the quality and efficiency of urban transport services; and (c) improve sustainable development by mitigating greenhouse gas emissions. The proposed DPLs would also contribute to reinforcing important cross cutting themes such as regional development, governance, and public private partnerships. Program Area 2.6: Agricultural Sector Reform Government Goal: Increasedcompetitiveness and diversification o f the agricultural sector to sustain stronger agricultural growth and employment. CPS Outcomes 1: Improved integration o f smallholders into domestic markets; 2: Improved irrigation water management; 3: Improved public sector support and services to smallholders. 88. Government recently launched the Plan Muroc Vert (PMV), an ambitious agricultural reform program. The PMV aims to turn agriculture into a source o f growth and employment creation. Investments will aim at increasing productivity, improving food security, and encouraging climate change adaptation. The PMV's two pillars (the first focused on developing high added value commercial agriculture and the second on increasing incomes o f smallholder farms) will be supported by institutional reforms aimed at creating an enabling business environment. The Bank will help government to: (i) improve integration o f smallholders into domestic markets, by piloting public private partnerships in the construction and management o f municipal agricultural and animal markets, slaughterhouses, and fresh fruit and vegetable markets; (ii)improve irrigation water management, by facilitating the delegation o f irrigation management responsibilities to private operators, implementing the National Irrigation Water Management Program, and enhancing coordination among government stakeholders; (iii)improve public sector support and services to smallholders by introducing transparent, competitive, and participatory procedures in the identification and implementation o f PMV pillar I1 projects. In supporting government's agricultural reform agenda, the Bank will particularly aim to: a) Improve integration o f smallholders into domestic markets, by piloting public private partnerships in the construction and management o f municipal animal markets, slaughterhouses, and fresh fruit and vegetable markets, with a view to improve access o f smallholders to quality market infrastructure, improve price formation, as well as enhance the overall safety and quality o f domestically marketed food; b) Improve irrigation water management, by facilitating the delegation of irrigation management responsibilities o f the Public Agricultural Development Agencies (ORMVA's) to private operators, implementing the National Irrigation Water Management Program, and enhancing coordination among government stakeholders. More efficient use o f irrigation water will additionally be encouraged through improved water pricing and irrigation management, and enforcement o f controls on ground water extraction; 34 c) Improve public sector support and services to smallholders by introducing transparent, competitive, and participatory procedures in the identification and implementation o f PMV pillar I1 projects, in line with the recent reforms undertaken by government to regionalize and streamline the delivery o f agricultural services. Program Area 2.7: Social Protection Reform Government Goal: Design and implement a more equitable, efficient and coherent package o f social protection programs and reform the oil and food subsidies programs. CPS Outcomes 1:A more coherent, equitable, and sustainable supply o f social protection programs for poor and vulnerable groups; 2: More efficient and effective social protection operational systems, including targeting and M&E; 3 : Expansion and diversification o f social security coverage. 89. Government has intensified its efforts at building efficient social safety nets and social insurance schemes in the past years but the system still faces important challenges. These include the need to increase coverage, improve targeting, increase the adequacy of interventions to the needs o f the poor and vulnerable, and strengthen coordination at both central and local levels. Government i s also trying to progressively reduce the predominance o f untargeted oil and food subsidies as the main safety net, and to develop targeted social assistance programs promoting the insertion o f poor and vulnerable groups in the economy. Following the exchange o f international experience on oil and food subsidy reforms in 2008, government has requested the Bank's help with social protection reform. Bank support will focus on the design and implementation of a more equitable, coherent and sustainable package o f social assistance and social insurance programs. This will be achieved through the completion of the ongoing Targeting and Social Protection Strategy, and a mix o f lending and complementary AAA to facilitate the implementation o f its recommendations. The strategy under preparation analyzes: (i) the match between the needs for and supply o f social assistance and social insurance programs with a view to identify gaps and overlaps; (ii)targeting systems; and (iii) the institutional framework for social protection. The analysis may lead to scaling up promising programs or setting up new ones which will require stronger systems and processes (e.g. targeting, beneficiary registry management & maintenance, payment systems, M&E, communication,). In parallel, the Bank will continue to provide TA on social security expansion and diversification, and may initiate AAA where critical program gaps are being identified under the ongoing work such as Early Childhood Development. Program Areas under development within Pillar 2 Program Area 2.8: Leveraging PPPs for infrastructure investments and service delivery 90. Public Private Partnerships represent an opportunity to enhance the effectiveness o f government's future investments i n infrastructure and service delivery. Morocco has developed valuable experience in PPPs during the past decade. Yet, use o f PPPs remains ad hoc, lacking a strategic vision and constrained by a number of shortcomings. Government can significantly benefit from additional usage o f PPP, given the country's substantial infrastructure needs, its need to maintain fiscal balance, and the potential efficiency gains involved. World Bank Group support to PPP initiatives could be either sector-specific, via a component o f an investment lending operation or a AAA activity (in the infrastructure sectors for example), or crosscutting and focused on helping the government address the PPP agenda at institutional level, for instance through TA support to a new central PPP unit. 91. The growth o f PPP transactions in Morocco offers opportunities for IFC to play a role either as an investor in specific project, o r as an advisor. In the energy sector, the anticipated liberalization o f the power sector and in particular, plans for independent power generation and renewable 35 energy could present key opportunities for IFC. In the transport sector, opportunities are also likely to arise from the large government-led infrastructure projects such as the Tangier Med Port or from urban transport projects for large cities such as Rabat or Casablanca. In the area of solid waste management where recent reforms open new opportunities for the private sector, the IFC could support PPPs in new waste management plants, at the municipal level. PILLAR 3: SUSTAINABLE DEVELOPMENT IN A CHANGING C L I M A T E 92. Morocco's future economic development i s vulnerable to energy supply disruption and price volatility, water scarcity and natural resource depletion. Climate change impacts are already felt today. Activities under the third CPS Pillar aim to support government's renewed attention to long standing environmental sustainability issues and future challenges brought about by climate change. Government has solicited the Bank's support on four program areas, of which one i s currently under .. development. Defined Program Areas Program Area 3.1: Water Management Government Goal: Promote water resources conservation and protection and improve water service coverage and efficiency. CPS Outcomes 1 : Reduced water losses and better control o f groundwater abstraction; 2: Increased urban sewerage and wastewater treatment coverage; 3: Better knowledge o f CC impacts on water resources; 4: Increased access to and efficiency o f WSS services; 5: Better coordination between ministries involved in the water sector. 93, Government recently launched its new water sector strategy. Although its details remain unpublished, it i s announced to focus on: (i)accelerated investment in development o f conventional and alternative water resources; (ii)new policy emphasis on demand management and water savings in irrigation and utility service; (iii) continued support to resource protection and wastewater management programs; (iv) development o f flood control works; and (v) institutional reforms. In the water supply and sanitation (WSS) subsector, government remains committed to achieve equitable WSS access in rural and periurban areas, upgraded urban sanitation services and increased utility service efficiency. 94. Building on the gains and lessons of a substantial water program under the 2005-2009 CAS, the 2010-2014 CPS will seek to strengthen the Bank- government partnership in the water sector. It will maximize the cross-cutting contribution o f water to Morocco's economic growth, social development, and climate change adaptation needs. The diversity, complexity and evolution of water challenges across the water resources management, irrigation, and water supply and sanitation subsectors, call for a flexible and strategically targeted application o f Bank instruments. Policy and investment lending appear most relevant in subsectors such as irrigation and WSS with clear impacts on the economic growth, social development, and water demand management agendas. Policy reform and investment needs in water resources management, including strategy optimization in light of climate change impacts, may best be addressed through policy lending, TA and ESWs, as well as through selected investments in resource development. 95. Accompanying the government's efforts in promoting PPPs in the water sector, I F C will consider opportunities in water and sanitation concessions in new cities or in desalination projects. Investment in the water and sanitation sectors might also offer opportunities for IFC subnational lending, 36 along the lines o f its investment in a sanitation project in a local utility in the city o f El Jadida in FY08. Finally, it could also provide advisory support in specific PPP transactions as it successfully did in the irrigation sector, in the Guerdane region. 'rogram Area 3.2: Low Carbon Energy Policy and Energy Sector Restructuring Government Goal: Enhance energy security and ensure availability o f energy to all Moroccan households and businesses at competitive prices, while protecting the environment and mitigating climate change. CPS Outcomes 1 : Reduction o f energy intensity and increased penetration o f renewables to transition the energy system to a low carbon path; 2 : Price reform implementation, to reduce the budget burden o f price subsidies and ensure the financial viability of energy operators; 3: Establishment o f institutions and financial mechanisms to successhlly implement energy sector reform; 4: Development o f a local manufacturing capability for renewable technologies and energy efficient equipment-a green stimulus package-therefore contributing to job creation. 96. T o address the challenges o f energy security, sustainable development and competitiveness, government formulated a new strategy in 2009. The objectives are: energy security, availability of energy to all Moroccan households and businesses at competitive prices, energy demand management, promotion of national expertise and development o f technological know-how and environmental protection and climate change mitigation. To achieve these objectives, the key elements o f the strategy are: (i)diversify and optimize the energy mix around reliable and competitive energy technologies, in order to reduce the share o f oil to 40% by 2030; (ii)develop the national renewable energy potential, with the objectives o f increasing the contribution o f renewables to 10-15% o f primary energy demand by 2012; (iii)make energy efficiency improvements a national priority; (iv) develop indigenous energy resources by intensifying hydrocarbon exploration activities and developing conventional and non-conventional oil sources; (v) integrate into the regional energy market, through enhanced cooperation and trade with both other Maghreb countries and the EU. 97. Government has requested Bank lending to help address these challenges and make the energy sector an engine of sustainable growth and competitiveness. To address the objectives of energy security, competitive energy supplies and low carbon intensity, it i s essential to improve the operational and financial performance o f the sector and strengthen its governance. To that end, the CPS will support actions in a number of areas: (i)energy efficiency and renewable energy ("maitrise de l'e`nergie''); (ii)technology promotion for local use and exports, with a view to improving domestic environmental sustainability and increased performance o f the national economy but also help government contribute to global climate change mitigation; (iii)sound operational and financial performance o f the energy sector; (iv) management o f energy price subsidies, so as not to burden the economy, while at the same time not penalizing the most vulnerable populations (through targeted subsidies); (v) governance o f the energy sector, to enable the necessary institutional and sector reforms to improve sector performance. 98. IBRD will support these outcomes through a mix o f instruments. First, a DPL built on three pillars: (i) security o f supply, while ensuring a sustainable energy future, (ii) competitiveness o f energy supplies and (iii) capacity building for strong operational and financial performance. Second, investment s lending and credit lines are being provided to promote energy efficiency and renewable energy, a part o f the investment plan recently approved by the Clean Technology Fund (CTF) to access concessional resources for low carbon investment. This will help improve energy efficiency in all end-use sectors - industry, buildings and transport, including railways - and increase the penetration of renewable energy in 37 the power sector. Third, a GEF grant supports the construction o f a solar assisted combined cycle power plant in the North east o f the country. Fourth, the concentrated solar power scale-up initiative calls for use o f CTF financing for the large scale development o f solar based power generating capacity. Morocco plays a key role in the development o f the vast untapped Maghreb solar potential. The Bank w i l l also finance essential basic infrastructure necessary to exploit the region's solar resources: transmission within the country or cross-border, storage (for instance thanks to pumped storage) and other required transmission and balancing investment. Finally, the Bank w i l l support regional integration, in particular the construction o f the Maghreb common energy market and the integration into the EU market (in particular through exports o f green electricity). 99. IFC will pursue investments in viable renewable energy projects. It will support investments in privately sponsored wind generation plants and w i l l also consider investments i n solar generation projects. Box 1: Concentrated solar power in Morocco - A Bank-Government partnership for energy security, sustainability and growth Renewable energy (RE) i s central to the energy dialogue between the World Bank Group and the government o f Morocco. Examples include the Bank-financed low-carbon energy supply strategy, the development of the contractual framework for wind self-generation, the GEF grant for the Ain Beni Mathar integrated solar combined cycle power plant, the various provisions contained in the Energy DPL for a law on RE, an implementationplan for wind power promotion, and price reform to promote energy efficiency (EE) and RE. The CPS will support government's objective to enhance the role of the energy sector as an engine of equitable growth, while ensuring sustainability. On November 2nd 2009, a US$9 billion solar plan was announced that aims to install 2,000 M W of solar power generation capacity by 2020. With this plan, the equivalent o f Casablanca's electricity consumption - 4,500 GWh annually - w i l l be produced from Concentrated Solar Power (CSP). This ambitious goal requires transformation o f the energy sector and has economy-wide implications. It will orient industrial development and the research community (e.g., through publicly-financedresearch centers) towards RE. I t will foster low-carbon development of the energy sector and enhance energy security. I t will stimulate large investments, enhance Morocco's competitiveness and define it as an `early mover' on a promising green technology. Both construction and operation o f the projects would provide major employment opportunities. The Bank will support Morocco's solar plan through the Energy DPL, concessional financing proposed through the Clean Technology Fund, and possible investment lending operations and technical assistance. I t could also serve as a `pilot' for the PPP work envisaged by the Moroccan government together with both the World Bank and the IFC. I t i s intended that CSP projects currently planned will be privately owned and operated. The scale of the initiative requires public support, concessional financing from donors, and implementation o f an enabling regulatory and institutional framework to make CSP competitive enough to attract private investment. If Morocco succeeds in combining the CSP know-how with the right domestic regulatory environment, RE has the potential to export large amounts of CSP-power to Europe and to become a major long-term driver of green growth in Morocco. The PPP approach, to be tested in this CPS, offers promise in making this happen. Program Area 3.3: Solid Waste Management I Government Goals: (i)effective establishment of integrated municipal solid waste systems based on a I sound legal and institutional basis; (ii)enhanced sustainability through the introduction of financial mechanisms and incentives; (iii) improve the environmental and social performance o f the solid waste sector through the upgrading and operationalizationo f the existing EIA system. CPS Outcomes 1: Effective inter-ministerial coordination of the National Solid Waste Program (PNDM) and strengthened regulatory framework through the enactment of executive regulations for Solid Waste Management (SWM) planning, norms and standards 2: Better financial sustainability through: (i) allocation o f financial resources consistent with the sector policies and programs; (ii) improved cost effectiveness o f private sector operators involved in providing SWM services; (iii)additional sources o f revenues generated through Clean Development Mechanism (CDM); 3: Disposal practices complying with international social and environmental standards, by establishment o f an Environmental Impact Assessment system. 100. Morocco's Municipal Solid Waste (MSW) Management Sector faces major performance constraints. These include: (i)poor waste disposal practices with huge environmental and social negative impacts; (ii) domestic M S W production increasing exponentially; (iii) a weak legal and institutional framework; (iv) poor cost effectiveness o f services; with weak long-term financial sustainability; (v) urgent need for integrated and modernized solid waste management systems, which will mitigate negative economic, environmental, and social impacts o f the existing systems; and (vi) limited and inefficient allocation o f financial resources and missed opportunities available under international climate change mechanisms. 101, The Bank will support government in the key steps taken towards reform o f the S W M system. After the passing o f the Solid Waste Management Law 28-00 in November 2006, government launched a 15-year, 3-phase National Municipal Solid Waste Management Program to restructure and modernize the sector. Firstly, the Bank will support the Government objectives o f putting the sector on a sound institutional footing by supporting effective interministerial coordination and a strengthened regulatory framework. Secondly, the Bank will support financial sustainability by ensuring that financial allocations are consistent with the program objectives, by devising measures to enhance the cost effectiveness o f private sector operators and making sure that additional sources o f C D M revenues are leveraged. Thirdly, the Bank w i l l help government in ameliorating the environmental and social performance o f the sector, by upgrading the EIA system and ensuring that environmental and social constraints are considered at various stages o f the decision chain. Program Areas under Development Program Area 3.4: Climate Change Government Goal: Improve resilience to climate variability and change through the integration of adaptation actions across and within sectors and explore new avenues for mitigation. CPS Outcomes 1 : Improved inter-agency coordination and policy coherence on climate change; 2: Defined adaptation and mitigation planning in key sectors; 3: Adaptation pilots launched in selected areas; 4: Development o f tools and mechanisms to increase resilience and alertness. 102. Government intends to strengthen the country's ability to cope with current and future climatic variability and longer-term change, while at the same time lowering emissions. There i s increased awareness o f climatic vulnerability and interest in opportunities offered by low carbon growth. The National Climate Change Council and the National Scientific Committee for Climate Change are increasingly active. A number o f recent sector strategies attempt to address climate change implications, such as the new agriculture strategy, Plan Maroc Vert. I t focuses on efficiency in the use o f water, as sustainability o f water resources i s a national priority. Mitigation efforts are already under way in the energy and solid waste sectors. The transport, urban, and agriculture sectors are identifying further prospects. A consolidated strategy i s needed to resolve the trade-offs posed to public policy. 103. Government has requested the Bank's support to address climate change. First, building on Morocco's second national communication to the UNFCCC, the Bank will support the preparation o f an 39 integrated adaptation and mitigation strategy. Second, the Bank will contribute to adaptation and mitigation planning through ESW in areas such as integrated risk management, coastal cities adaptation, transport (both mitigation and adaptation), integrated coastal zone management and climate-induced migration. Third, the Bank will support the design and implementation of adaptation pilots, for instance in the agricultural sector, combining investment, policy lending, ESW and GEF resources. Fourth, the Bank will support the development of climate information tools and analysis, to help build the knowledge base required to inform policy. Going forward, the Bank will remain open to increase i t s support to Morocco's adaptation and mitigation needs and investments across all sectors. CPS - Crosscutting Beams: Governance and Territoriality Governance 104. The W B G will support the government's governance approach and program. Government's ambitious development outcomes require addressing critical governance issues, such as low internal and external accountability on results, and lack of sufficient feed-back loop on the incidence of public expenditure. It has been agreed with government that governance i s therefore a crosscutting theme affecting engagement in the entire Bank program. Entry points for governance work will be assessed at the concept stage of all instruments. The Bank will seek to maximize value for money in public expenditure and improve the delivery of public services. The C-GAC analysis completed in 2009 provided Bank teams with a platform to identify such entry points. Specific attention will be devoted to efficiency gains to maximize the impact of public spending in the delivery of key services particularly in health, education, water and sanitation and social protection, and to strengthen the institutional framework in selected sectors. 105. The Bank will support institutional development at the national and local levels. The public administration reform DPL will support budgetary and HR efficiency. The Solid Waste and Urban Transport DPLs aim to support more effective regulatory frameworks, as do engagements in the water and energy sectors. The Bank will help strengthen the new National commission for investment climate reforms. Dialogue on urban development aims at improving the institutional coherence of municipal projects and to align them with the national land use planning strategy. 106. Improved public expenditure will be pursued through capacity to measure results and orient service delivery to outcomes.' IBRD i s contributing to the development of more efficient and effective social protection operational systems, including targeting and M&E. I t supports the government's Education Emergency Plan (2009-20 12) to focus on improved education quality by restructuring teachers' training and learning evaluation and increasing management capacity to account for results. It i s conducting a user survey on health sector facilities and services. The Skills Development DPL will support government to establish an M&E system on labor market policies and programs. The Bank will develop tools for economic impact analysis and monitoring and evaluation for measuring progress of investment climate reforms. The Bank will consider accompanying other initiatives, such as helping to pilot the use of new accountability tools and supporting key governance institutions. This could be done through non lending support to the new anti-corruption agency (Instance Centrale de Pre`vention de la Corruption, ICPC), MIS capacity building to enable easy access to development outcomes information (key service delivery statistics, results/achievements) by citizens, particularly in social sector, and piloting the use of citizen's report cards and users' surveys. Finally, the Bank's commitment to increase the use of country systems in the delivery of i t s program also constitutes an opportunity to improve institutional performance in a range o f public financial management, procurement, social and environmental areas. 40 Territoriality 107. The Bank will support the government's objective to foster spatially inclusive development, and to increase the role o f local government, i t s performance, accountability, and empowerment. First, effective spatially inclusive development programs, such as those aimed at facilitating the integration o f lagging areas with growth-pole regions, require the establishment and development o f institutions and policies that respond to local needs and demands. Government's spatial development agenda aims at a better regulation of land, labor, and product markets; the provision o f quality basic social services; and investments in connecting infrastructure through territorial-based interventions. Second, achieving these results depends on a further definition o f roles and responsibilities o f the central and sub- national governments and a stronger link between the envisaged deconcentration and decentralization reforms. Improved capacity and accountability mechanisms at the sub-national level, and an appropriate distribution o f fiscal and human resources are then required. The Bank will seek to further discuss the choices and implications of a greater reliance on levels below central government in order to support a vision of "territoriality" and use the Bank program to support its realization. 108. Numerous entry points exist and provide a foundation for further support. The PAR Loan and its related ESW address some of the challenges o f the deconcentration agenda, such as reforming HR and budget policies. The Solid Waste Management DPLs support devolved decision-making authority and management functions to the communes, together with increased financial capacity and authority. Bank financial support for implementation of the Plan Maroc Vert (PMV) will help readjust the balance between central and local level decision making in the agricultural sector. Lending and AAA activities support increased transparency, efficiency and equity in budget allocation, and improved capacity o f regions to manage and deliver services in the health sector. The Bank supports increased local capacities and better coordination o f national policies and institutional mechanisms in the National Initiative on Human Development (INDH). Other examples include rural roads and various operations (urban transport and solid waste) to facilitate direct private sector contracting by the communes. Going forward, the Bank will broaden the dialogue through additional AAA products and will consider requests for financial support for the second half o f the CPS program period. D. Lending Volumes 109. Government has requested an annual IBRD lending envelope of US$600 million which i s more than twice the average annual lending volume during the FY06-FYOg CAS period. The interest to borrow more from the Bank reflects both a wish to benefit from Bank support on an expanded reform agenda and a debt restructuring strategy that would see a greater proportion o f external financing on favorable terms. Three main factors underpin the strategy to increase the proportion o f multilateral financing. The first i s linked to the public debt maturity structure. The average maturity has fallen in recent years, and i s expected to fall further given that the central government mostly financed its needs through issuing T-bills o f up to one year in the domestic market. The authorities therefore wish to lengthen average maturity. The second relates to the higher balance o f payments needs. The third i s to accommodate the current higher borrowing requirements from the budget in a context of tightening liquidity o f the domestic financial markets after a long period of an over-liquid money market. 1 10. The Government's reform agenda i s reflected in a strong pipeline o f operations for the next two fiscal years. Table 10 below shows a tentative lending program o f $600 million in each year. Most operations listed for FY 10 are in the final phases of preparation. The operations listed for FY 11 have been the subject o f a formal request by the government, and are currently under preparation. Current indications are that this level o f demand will continue beyond FY 11, A l l operations are intended to support the most critical reform programs, with a particular focus on the six priority sectors identified, as well as the transversal themes o f governance, territoriality, and public administration reform. 41 Public Administration Reform IV (DPL) Urban Transport Sector (DPL) Sustainable Access to Finance (DPL) Support to Plan Muroc Vert (DPL) Education Sector (DPL) Solid Waste Sector (DPL) National Initiative for Human Development I1 Urban and Rural Water (SIL) (INDH) - (Instrument to be defined) Rural Roads Additional Financing (SIL) Energy sector (DPL) Oum Er Rbia Irrigated Agriculture Energy Development Fund (Financial Modernization(SIL) Intermediary Loan) Oum Er Rbia Sanitation (SIL) Health Sector (DPL) I Planned Total: $600 million Target Total: $600 million 11 1. The proposed FYlO IBRD lending envelope o f $600 million i s confirmed. Around half i s expected to be in the form of development policy lending. The lending envelope for FY 1 1 and beyond i s indicative at this stage and i s conditional on IBRD's overall lending capacity. E. Principles and Rules of Engagement 1 12. I n Morocco's rapidly evolving reform environment, a client owned program requires flexibility. During the last programming cycle, the Bank avoided straitjacketing i t s action within the rigid contours of the CAS program to effectively address the country's shifting needs and remain relevant. This CPS addresses the issue directly by developing a clear medium term business plan (24 months) of defined operations, while maintaining leeway to adjust the program based on the results of dialogue in the remaining program period. Equally, the Results Matrix shies away from specifying outcomes and indicators for operations that are currently under development. The midterm CPS review will provide the opportunity to do so while developing the definitive .business plan for the second half of the program. 113. Ensuring a flexible and client owned program will also require particular attention to selectivity issues. To maintain a focus on the Bank's mandate, while ensuring client ownership, future interventions will have to go through a simple three-question test: (i) I s there a need? (ii) s there a clear I government demand? (iii) Does the Bank have a comparative advantage in bringing or brokering capacity? If the answer to any of these questions i s "no", then there will be a case for staying out. F. Instruments 1 14. CPS implementation will be supported by the full range o f IBRD instruments. The choice of instruments will be determined by three criteria: status of dialogue, demand from the government, and the characteristics of the specific operation. 1 15. DPLs have so far been central to the lending program, reflecting the reform nature o f engagement. O f the ten lending operations delivered during the previous CAS (2005-2009) for a total of $1.127 billion, six were DPLs, representingtwo thirds of commitments. The DPLs supported sector-wide structural reforms with substantial development impact in areas such as: (i)increased efficiency of public administration; (ii)increased efficiency of the financial sector and improved access to finance; (iii) 42 enhanced energy security, increased energy efficiency, and an improved framework for renewable energies development; (iv) increased access to low-income housing; (v) improved water management and increased access to drinking water and sanitation services; and (vi) more efficient and safer nation- wide management o f solid waste. The reform content o f Bank-financed S I L s and SWAps has also been substantial, as in the education sector and the National Initiative for Human Development. DPLs are the preferred instrument o f the Government. In addition to providing flexibility, they provide an adequate conduit for the kind o f structural challenges that sector-wide reforms entail. If necessary, the Bank will consider increasing the volumes o f i t s DPLs to respond to these preferences in line with the nature o f the proposed program. To the extent possible, the Bank will consolidate DPL interventions based on synergies and sector compatibility. 116. The Morocco portfolio has seen significant changes in recent years. As the Bank has responded to government's preference for the DPL instrument, the investment lending portfolio has declined considerably in number o f projects from 14 in FY07 to 6 today. The aggregate size o f the portfolio has remained relatively large as the program i s consolidated into fewer but larger-size projects. The portfolio amounts to $433.7 million in commitments, o f which $237.8 million i s undisbursed. The performance of the portfolio has been strong with one unsatisfactory project (currently being restructured) that accounts for just 6% o f overall commitments. Portfolio performance indicators on realism, proactivity and disbursement are all good. Looking forward, government has requested the Bank to develop further investment projects in the coming two years in rural roads and water and sanitation. These are sectors where the implementation track has been strong. I 1 7. The Bank has a large trust fund program. I t supports 36 discrete activities in the aggregate amount of $64 million, in ten sectors aligned with government priorities. It i s guided by the principles of country ownership, alignment with CPS objectives, being complementary to other Bank activities, broad dissemination o f findings, and selectivity in deployment. It i s mainly focused on analytic work, much o f which i s linked to policy-based lending. Key areas supported are public sector management, energy, water, education (innovative testing of Conditional Cash Transfer pilots) and climate change. Appendix 7 provides more details on the role of trust funds in the program. 1 1 8. The Bank's role as knowledge partner in Morocco will depend both on maintaining the quality of its AAA products as well as alignment with demand. ESW will continue to play a particular role in increasing awareness as in the analytical work program proposed on poverty, youth and gender. I t will also be deployed to build consensus on how to approach important challenges, as in social protection, economic integration, business environment, agriculture and climate change. AAA products will also be developed to support large and complex operational engagements as in public sector reform, enhanced service delivery, water and energy. 1 19. Analytical products will provide the starting point o f engagement in areas where dialogue i s recent. This includes areas such as public-private partnerships, areas where there i s uncertainty about the impact o f a first generation reform or where there are reputational risks o f engagement through financial support. However, in order to enhance its knowledge leverage, the Bank will need to consolidate the ESW portfolio to make it less fragmented, and reflect on its approach to mobilizing trust fund support, with a view to align it on client's demand. 120. One key challenge i s to increase capacity for monitoring and evaluation to deliver increasingly complex policies, ensure the reduction of social disparities and reduce lower exposure to risk. In the context o f increasing decentralizationo f decision making and implementation and the need to build capacity across key agencies the Bank will concentrate on assisting Morocco overcome key gaps in the data on economic vulnerability and the impact o f risks on living standards. The value added of 43 Bank involvement i s to improve quality o f nationally-owned capacity, facilitate better coordination in a decentralized system o f data collection and evaluation, and support greater openness and participation o f civil society. 12 1. I F C will focus on investments with demonstrated additionality and strong development impact. This will include for instance large financing needs, exceeding the capacity o f domestic banks, or those requiring longer maturities, foreign currency financing or complex structuring that are not available locally. Through the use o f equity, quasi-equity and structured finance products such as guarantees, IFC will also consider smaller investments in strategic sectors (e.g. agribusiness, education and health sectors, wind projects) where it can add value. IFC's advisory program will continue to complement investments, with activities focused on the business climate and PPP advisory-based transactions in infrastructure. 122. MIGA's stands ready to support pillars I and I 1 of the CPS. First, building on trade liberalization and increasing trends o f Moroccan direct investments abroad, MIGA stands ready to accompany private sector competitiveness, by supporting the international development of Moroccan enterprises mainly into sub-Saharan Africa. Second, MIGA could support government's efforts to improve the delivery o f local services by supporting international investors considering infrastructure investments at the sub-sovereign level. 123. I n the context o f its Arab World Initiative, the Bank will work with the Moroccan authorities to capitalize on the opportunities o f better regional and cross-border cooperation. Initiatives include: The regional Concentrated Solar Power initiative (supported by concessional financing from the Clean Technology Fund). AAA products addressing barriers to economic integration both in terms of trade and FDI. The Bank has developed a substantive knowledge program on financial integration and works closely with the Arab Monetary Fund and the IMF. In the area of regional transport, the Bank i s playing the role o f facilitator and knowledge partner. In addition to contributing to the EU `Regional Transport Action Plan for the Mediterranean Region 2007-20 13' in partnership with the EU, EIB, AfDB and other donors, the Bank i s scoping opportunities to further dialogue on logistics efficiency for intraregional trade through a portfolio of ESW products. On employability, the Bank i s active in the development o f a regional qualification system, activating a regional labor market, and improving social protection and labor management for migrants. Morocco i s the focus o f several ESW products, TA and capacity building activities addressing regional dimensions o f climate change adaptation. These address issues such as the impacts on climate change on coastal cities, internal migration, the role o f climate change for the ecosystems o f the region, technical support to planning and capacity for waste water treatment and a regional analysis o f the economic and social impacts of climate change on agriculture). In the water sector, MENA supports capacity building of institutions such as the Arab Water Council, and activities such as the Arab Water Management Initiative, Regional Water Initiative and a regional Institutional Development Fund grant in Public Engagement in Water Management. Morocco i s one of the founding members o f the Marseille Center for Mediterranean Integration (MCMI) together with Tunisia, Egypt, Lebanon and Jordan. The Center targets the strategic territory o f upstream knowledge management, by facilitating joint learning across the Mediterranean. The MCMI work builds on program clusters directly in line with Morocco's 44 objectives. These include: (i) Skills, Employment and Labor Mobility, (ii)(Environment) and Water; (iii) Urban and Spatial Development; (iv) Knowledge Economy, Innovation and Technology. As a founding member, Morocco i s both set to benefit from and play a key role in the success of the MCMI regional program. 124. The I F C will continue to support south-south investments and cross-border flows. Building on i t s recent investment in BMCE Bank which targeted the bank's expansion in 11 Sub-Saharan African countries, IFC will continue to support Moroccan companies expansion at the regional level, namely in the Maghreb and Africa. IFC will also pursue investments in Morocco with emerging regional players. G. Alignment, Harmonization, and Use of Country Systems 125. Donor financing has increased substantially during the past ten years. In 2006, total net ODA and official aid reached $1,046 million (equivalent to 1.6% of GNI, or $34 per capita) up from $419 million (1.2% of GNI and $1 5 per capita) in 2000. The level of IBRD disbursements between 2005 and 2008 averaged $275 million per year, making it the second largest donor after the EU. Notwithstanding i t s increasing level, ODA accounts for a relatively small proportion (less than 5%) o f total annual government expenditure. Appendix 6 provides more details on donor's deployment. 126. Donor coordination has improved, helped by strong national programs and the active role of government. Donors are working to ensure greater upstream coordination in country programs and sector activities. This was visible in 2009 when four of Morocco's main donors - World Bank, AfDB, AFD and EU - initiated a process of mutual collaboration in the development of their respective new or updated strategies. Cerfain areas such as INDH, public administration reform, education, have seen particularly strong collaboration, with systematic use of joint missions, harmonized results frameworks, and shared disbursement conditions. Others, like the rural road access program, have brought several donors together around a sector-wide approach. Donors increasingly recognize their respective areas of comparative advantage. 127. The Bank Group i s committed to greater collaboration and harmonization. It stands ready to provide support to the EU advanced status agreement, should the government want it. IBRD and the EU are currently engaging jointly in five key areas, education, health, INDH, public administration reform and rural roads, for a cumulatedjoint total financing estimated in excess of $900 million. In other areas, such as justice, energy, and agricultural reform, parallel interventions are currently envisaged. This collaboration i s expected to increase as the content of the advanced status agreement gets further defined. The IFC will also continue i t s close coordination and collaboration with other donors and partners such as AfJJB, EIB and Proparco, particularly in the infrastructureand financial markets sectors. 128. Country systems are already the main channel for delivering donor support. Government's progress on the overall fiduciary framework, i t s efforts to improve i t s systems, and the degree of transparency and openness to external validation it has demonstrated has led to increased reliance on country systems to deliver donor financing. According to the 2008 Survey on the implementation of the Paris Declaration, about 80 percent of donor financing was disbursed into what can broadly be described as national systems. Budget support contributed significantly to this result. 129. Morocco's country systems, and its commitment to further strengthen them, underpin the national development. program and the environment for donor support. Improvements in public financial management, procurement and safeguard procedures form part o f the government's overall objective of improving the quality of the administration and reinforcing the competitiveness of the national economy. I t confirmed i t s interest to be considered a candidate country in the piloting program 45 in the use of country procurement systems under Bank-supported operations. Following a CPAR (2007), it i s undergoing further evaluation of i t s national procurement system. It also agreed to undergo external bench-marked evaluations of its financial management systems (CFAA, 2003 & 2007, and PEFA in 2009). These assessments noted that Morocco's systems are relatively strong and present low fiduciary risk. They also identified areas needing improvement. Government has expressed a willingness to address these, and in many cases has already agreed to the establishment o f improvement plans. Appendix 5 provides more details on the status of the use of country systems in financial management, procurement, and environmental and social safeguards. 130. Government has requested the Bank and other donors to make increased use of country systems, in line with their commitments to do so in the Paris Declaration (2005) and Accra Agenda for Action (2008).8 It wishes to see tangible progress toward this objective during CPS implementation. Building on the processes described above, the Bank will sustain i t s partnership with the government to assess systems, identify directions for improvements, invest in capacity building and accompany change implementation, with the objective of progressively increasing the use of country systems. VI. RISKS 13 1. Two issues threaten the objectives of this Country Partnership Strategy. First, the short term growth outlook i s subject to systemic and exogenous risks. Morocco i s confronted with uncertainties on the timing, speed and shape of the recovery from the global crisis. While there are encouraging signs of a possible end to the crisis, it i s too early to predict how the global economy will emerge from the recession. It i s yet unclear to what extent Morocco will continue to be confronted with the impact of the economic slowdown on i t s exports, remittances, ability to attract FDI and sustainability o f its public stimulus program. Morocco's track record of strong macroeconomic management suggests that it i s well placed to face the uncertainties arising from the current crisis. The Bank will help mitigate the associated economic risks through continued monitoring and dialogue with the authorities on the overall macroeconomic context, as well as analysis of options for remedial measures as eventually requested by the government. 132. Second, the successful implementation o f government reform agenda hinges on political economy factors. Once second-generation reforms are rolled out, the resistance of vested interests will add to the complexities of implementation. Possible outcomes include the derailing of reforms' objectives, a stalling o f the reform process, and a decline of the credibility of the reform agenda in the eyes o f public opinion. Government's recent emphasis on deep governance reforms, such as that of the justice sector, i s a key factor in the mitigation of these risks. The Bank Group will offer appropriate TA - with, if requested, a specific focus on political economy constraints - to support the operationalizationof sector strategies. * Paragraph 15 o f the Accra Agenda for Action states that "Donors agree to use country systems as the first option for aid programs in support o f activities managed by the public sector [. . .] Should donors choose to use another option and rely on aid delivery mechanisms outside country systems (including parallel project implementation units), they will transparently state the rationale for this and will review their positions at regular intervals." 46 * * ._ h m w -0 Y 0 Y E- e, 5 i 9 0 c I) Y .- 8 4 c-' z m d .- 8 8 Y 0 > -0 c m v C .- 0 c-' d C .... v1 N S 0 U 1 0 2 3 I 0 * g S W 3 i 0 e W E Y E 2 B E rc 0 - U 0 c) Q c C 3 . . - 2 n h 2 c e : C 6 r C . C C x 91 . . M - 0 CI M E - W , I .e 3 3 -0 9 B 0 : I 3 . . 0 . 0 0 0 Y v) 0 0 0 0 0 vi E Y 5 C .-0 Y 8 'E .- a Y VI 3 U a, E 8 3 ._ E E 0 c.) v) Y Y U R Y a a 5 Y E 2 0 5 P 8 s Y 3 . 4 b l i 3 . e . . 1 1 .. l o n b 0 c! 3 w B 8 a 4 m d .- C 0 .z 3 id u .3 s s id a 8 3 j; .- e, o B > 2e .- 0 > 8 z a E al 5 ._ 0 e, w $ f > a .- X u -0 a 5 3 E 0 Y 6 % v) 3 E 4 W & 0 9 M B Y J . w g > u 2 2 - B a ri- 0 Y x W Y s G e, 5 C .3 $ .- OD 2 N Appendix 2 Appendix 2: PRIVATE SECTOR DEVELOPMENT STRATEGY Lines of engagement of the World Bank and the IFC over the CPS 2010-2014 period Private sector development, competitiveness and the structural transformation of the Moroccan economy: I. Private sector development in Morocco: progress in reforms, the new sectoral approach and the persistence o f old challenges 1. Over the past decade, Morocco has made a lot o f progress in business environment reforms. The private sector has responded to these reforms, but productivity, export diversification and technological intensity lag other emerging countries. The needed structural transformation of the Moroccan economy i s not yet happening. Since the business environment reforms accelerated in the mid-nineties, private investment rates increased from 15 percent to 22 percent currently - a rate that compares to the ones in the most dynamic economies. The attractiveness of FDI has also been strong. However, most of this rise in private investment has occurred outside of the manufacturing sector (figure A2.1) - mostly in real estate, tourism and services. In fact, 72 percent of manufacturing value-added and 77 percent of exports in 2008 were of low technological intensity. Even if entrepreneurship has flourished over the past years - business entry rates increased from 8 percent in 2000 to 13 percent in 2007, most of it i s either in low-value added activities or in non-tradablereal estate, services and construction sectors. In manufacturing, fewer f i r m s are created than was the case twenty years ago, fewer export (20 percent in 2007 compared to 27 percent in 1995), and new f i r m s are less productive than older firms. The concentration of private investment in lower value-added activities explain why Morocco lags other countries in labor productivity: in 2007, it represented only 20 percent o f the average labor productivity in manufacturing in the OECD, and about 50 percent of that in middle-income emerging countries. Figure A2.1: Relative decline of private investment in manufacturing (private investment in manufacturing as a percent o f total private investment) I I_ 30 10 5 0 ----~-I.---I-I-"l-l.l-____--_--__I.----.- l_-l All these are symptoms o f weak creative destruction in the Moroccan economy, and therefore weaker economic and productivity growth prospects. N o emerging economy has been able to sustain high growth of long periods of time, without a profound structural transformation of its economy made of increased manufacturing exports and a more diversified and more technologically sophisticated private sector. This transformation i s not yet happening at a large scale in Morocco. 62 Appendix 2 2. Such structural transformation of the private sector requires a comprehensive and coordinated set o f policies in many areas: a stable macroeconomic environment; an improved business environment - including in the area of infrastructure and in regulatory institutions that level the playing field; a trade policy that supports the competitiveness o f Moroccan products; a financial sector that better serves smaller firms; a labor force that i s better trained and effective social protection and labor market institutions. While progress in all these areas i s notable, there i s a strong need to increase the impact o f reforms and the response o f private investors to these reforms. Weaknesses remain in the business - environment, especially in those areas like regulatory reform - that require a lot o f public agency coordination, and where a gap remains between the laws as they appear on the books and how they're applied to individual investors. While export development plans are in place (Emergence and Maroc Export) and Morocco adopted an ambitious FTA agenda, some areas of the trade policy - including trade logistics and trade finance - remain weak. Financial sector reforms have been impressive in Morocco, but there i s room for these reforms to trickle down to domestic SMEs that remain credit constrained. Finally, the employability of Moroccan workers in a changing environment remains a critical problem in the labor market: firms which need to move up the value chain to remain competitive require better trained workers currently a scarce resource according to business surveys. In face o f this scarcity, the reform o f the education system i s only slowly improving the employability o f new job seekers. Improving the skills of the labor force, the functioning o f labor market institutions and the effectiveness o f social protection i s paramount to help the structural transformation o f the Moroccan economy. 3, The global crisis and its impact on Morocco's balance o f payments i s also a reminder o f the need to diversify and enlarge the country's export base. Manufacturing exports have grown at 8 percent per year on average since 2002 - half the performance of emerging middle-income countries. The contents of exports i s also symptomatic o f the slow structural transformation of the Moroccan economy: out o f its 20 most important exports, only one was in an activity growing in global trade and where Morocco i s gaining world market share. Also, exports are not diversified enough: Morocco exports 42 products per one million inhabitants, compared to 130 for Tunisia and 160 for Malaysia (figure A2.2). Yet, this trend has improved lately with the growth o f exports o f services and new niches in electronics and car parts. 4. The new industrial strategy in place bets on further growth of these emerging sectors (offshoring, electronics, aeronautics, car parts) and other, more established exports (e.g. textile, agribusiness, tourism) - hence its name, Emergence. To increase private investment, exports and job creation, the government has launched a series o f sectoral plans (most notably in tourism and industry). These consist mainly o f tax incentives to specific sectors, combined with dedicated infrastructure investments. The roll-out o f the 2005-2008 Programme Emergence has been mainly focused on the offshoring and textile sectors. I t has also given strong signals to the automobile and aeronautic sectors which have benefited from notable foreign investments over the recent years. 63 Appendix 2 Figure A2.2 : Insufficient export diversification in Morocco Number of products exported per 1 million inhabitants. 6oo 1 Source ; COMTRADE (2008) 5. Looking forward, the challenge will be in the implementation and coordination o f all the policies that affect private sector development-in particular to address persistent transversal constraints in the business environment that affect mostly domestic SMEs. The success of all the sectoral programs (in industry, trade, agriculture, tourism, skills development, etc.) will depend on the ability of the government to coordinate, implement and evaluate policies at various levels and through various agencies. This has proven to be especially difficult in the past when strong inter-agency coordination i s required. A l l these interventions and support plans are also heavily constrained by remaining transversal issues in the business environment: the availability of skills; access to land and finance for SMEs; rules and regulations - and especially their implementation by the administrations in charge - that are cumbersome and often arbitrarily and inconsistently applied; and a weak judiciary. Recently, the new ambitious public-private Pacte national pour 1 'Emergence Industrielle was launched to address these transversal issues and sectoral plans in a coordinated manner. New inter- ministerial commissions have been created to improve coordination. As with previous plans and commissions, the main challenge will be in their implementation. 11. World Bank Group support for a more competitive private sector in Morocco 6. Over the CPS horizon, the World Bank and the I F C will continue to support-in a coordinated and complementary way - the Moroccan government in its private sector development policies, specifically in the areas of business environment, trade, financial sector development and public-private partnerships. This support will take the form of: (i)technical assistance and policy advice by both institutions - some of it done jointly; (ii)policy-based lending by the World Bank; and, (iii)investments and lending by IFC to private entities, and possibly transaction-based advice in the area of public-private partnership. This joint appendix describes the challenges o f private sector development in Morocco, focusing on the four areas above. In view of the Government current policies, it also describes the type of cooperation and support that will be provided by both arms o f the World Bank Group during the duration o f the CPS. 7. The guiding principles o f the World Bank Group engagement in the private sector development are consistent to the pillars and overall approach o f the CPS: It will be flexible to be responsive to government requests and emerging priorities; and selective, by focusing on higher impact activities that are in line with the most important business environment issues facing the private sector. 64 Appendix 2 The Bank-IFC activities will also be consistent with the strategic pillars o f the CPS. Supporting private sector development by improving the trade and business environment i s at the core o f the competitiveness-growth-employment challenge of the Moroccan economy (pillar 1). Similarly, supporting the development o f public-private partnerships (PPPs) in the social sectors will contribute to improving the delivery o f social services to citizens, as to improving access to financial services o f the poor (pillar 2). PPPs in the infrastructure sectors will also help the Moroccan government in responding to the infrastructure needs of its economy (in water, energy and transport for example), in a sustainable way (pillar 3). As will be argued in section 3 below, governance issues-a transversal theme that i s common to all three pillars o f the CPS, appear prominently in the private sector development agenda. 1. 11 IBRD and IFC complementary roles in investment and advisory projects 8. The successful experience of cooperation between the two institutions over the past years will be carried on during the next CPS period. The Bank has usually taken the lead in strategic analytical exercises (like the investment climate assessments) or policy advice, while the IFC - through its Advisory Services activities - has been focusing on more operational assistance, supporting the implementation o f reforms. The key has been a joint involvement at the initial stages o f every engagement, and close coordination during every TA or ESW project, including at the design stage. Bank staff involved in analytical work has systematically been involved in the initial conceptual phase o f advisory projects. Inversely, IFC was systematically consulted and involved in the preparation o f analytical pieces by the World Bank. 9. During the next CPS period, such collaboration will continue to target areas of strategic focus. In particular, IFC's investment strategy in Morocco will complement the Bank's strategic priorities in the infrastructure sectors. In the area of public-private partnerships-an area where WBG support has been requested by the government, the Bank will support the government in the development o f an adequate legal framework (in specific sectors, or at the.broader level). The IFC could provide advisory support in specific PPP transactions, or be an investor itself in public-private ventures. This support could be provided along the lines o f IFC's landmark PPP advisory transaction in the irrigation sector in the Guerdane region in Morocco. A. IFC's engagement in Morocco and current strategy 10. I F C has significantly picked up its activities in Morocco and currently has a committed portfolio o f USS272.5 million in 12 companies. During the period FY08-09, IFC committed a record US$255 in seven projects in multiple sectors in Morocco, such as commercial banks, microfinance, wastewater public utilities, investment funds for small and medium enterprises (SMEs), property development in low income housing and building materials sector. While IFC has historically had a selective approach in Morocco due to the availability o f alternative sources o f financing, IFC has stepped up its activities and been positioning itself on strategic investments and partnerships, with clear additionality and role. IFC's engagement i s predominantly in financial markets (53% o f total commitments), including microfinance providing much needed access to finance to the poorer segments o f the population and in general manufacturing (35% o f commitments). 11. IFC has also developed a sizeable advisory program in Morocco, with a focus on (a) promoting alternative dispute resolution mechanisms to improving the business environment - with the Ministry of Justice; (b) helping identify public-private partnerships in key infrastructure sectors - with the Ministry of Finance; (c) simplifying business creations starting with the city o f Casablanca; and (d) strengthening credit information and SME finance, through the establishment o f a private credit bureau - 65 Appendix 2 with the Central Bank. In addition, IFC i s providing advisory work to Morocco's microfinance sector as part o f i t s investment packages. 12. Despite competitive market conditions and availability o f other sources o f financing, IFC can still play a significant financing role for large investments exceeding the capacity o f domestic banks or for innovative projects requiring complex structuring through the use o f equity, quasi-equity and structured finance products. IFC's value-added also lies in i t s global expertise combined with a good local presence and image in the market. With a more vibrant private sector environment and important developments in key sectors, IFC has increased opportunities and can play a key role in the financial sector, in infrastructure, and in the manufacturing, and agribusiness sectors. 13. Looking forward to the CPS period, and in line with the principle o f additionality and role, IFC's investments will focus on the infrastructure sectors (power, ports, renewable energy, transport, and utilities sectors), financial sector (microfinance and SMEs) as well as select investments in manufacturing, agribusiness, education activities and municipal/local finance. This investment strategy will be aligned with the priority activities o f the World Bank in these sectors and will complement the technical assistance and financial support the Bank intends to provide along the three pillars. IFC's potential infrastructure investments in energy, utilities or the ports, as well as selected investments in Emergence's sectors, would contribute to the growthhompetitiveness agenda of the CPS (pillar 1). Potential investments in the education and microfinance sectors would help in improving financial and education services to citizens, especially the most disadvantaged (pillar 2). Finally, the focus on potential investments in renewable energy and the power sector will contribute to reaching the objectives o f the third pillar of the CPS for sustainable development and the climate change agenda (pillar 3). 14. IFC will also continue focusing on South-South investments and building strategic partnerships with regional players. Given that Morocco i s increasingly investing in the region, namely in West and East Africa, IFC would like to accompany Moroccan companies' expansion in AfricdIDA countries, along the lines of IFC's recent investment in BMCE Bank, targeting the bank's expansion into 11 Sub Saharan African countries. 15. I n complement to its investment activities, IFC's Advisory Services in M E N A will also continue to provide advisory services to improving the business enabling environment, building capacity of financial intermediaries to lend to MSMEs and encouraging public private partnerships in infrastructure. IV. Getting specific: priority areas of engagement A. Improving the business environment for all firms and leveling the playing field Current challenges and policies: 16. Diversifying the economy will require improving the business environment through complex and in-depth reforms of the legal, regulatory and administrative frameworks, which restrict access o f new entrants to the market while favoring established incumbents. The ability of the government to carry on complex investment climate reforms will be essential to address this challenge. Despite the many reforms carried on over the past decade, there seems to be a growing gap between the government ability to launch and adopt new legislations and regulations, and its ability to design adequately and implement key reforms that could actually make a difference for the private sector. Several key constraints in the business environment remain problematic for firms. Access to land 66 Appendix 2 remains a pending and binding constraint to firm growth-and more so for exporters, as i s tax rates. In spite of several reductions, Morocco has one of the highest corporate tax rates in the world and the existing tax regime penalizes the recruiting of skilled workers-a scarce resource according to firms. More generally, administrative procedures and the judicial system lack transparency and need to be better managed to avoid corruption (a growing constraints for a representative panel of businesses interviewed both in 2004 and 2007-one that affects disproportionally more smaller domestic firms), discretion and privileges to connected businesses. A consequence of a constraining business environment, corruption and poor property rights enforcement, i s the uneven playing field in the business place-competition from the informal sector and monopolistic situations of a few large incumbents hurt the development of some sectors and the emergence of new industrial players. These issues are consistently rated in firm surveys as the most important constraints to businesses (figure A2.4). Figure A2.4: Most important constraints to businesses (Percent o f firms that rate each constraint as Severe or Very Severe) I . Access to land 40 Anti-competitive or informal practices Access to finance Avai labiIity of ski I Ied pe rsonne I Tax administration Labor regulations Business registration Political instability 0.0 10.0 20.0 30.0 40.0 50.0 60.0 Source: Investment Climate Assessment o f Morocco (World Bank, 2008). 17. Many o f these constraints-corruption, administrative uncertainty, enforcement of the rules and the judiciary-relate to issues o f governance of market institutions. Whether it i s with the judiciary, the discretionary enforcement of regulations by the public administrations, the independence and efficacy of market regulatory institutions-in particular in ensuring fair competition and a leveled playing field; or the control of corruption, the private sector development agenda i s fundamentally charged by governance challenges. The link with other priority topics of the CPS where the government have requested Bank support i s clearest in the area of judicial reform. The judicial system, through commercial courts, should play a key role in the development of commercial transactions by providing a predictable and reliable mechanism for the resolution of commercial dispute. Since commercial courts have been established in 1997, progress towards a professional and secured judicial system has been slow. Morocco i s among the middle-income countries where businesses complain the most about the judiciary 67 Appendix 2 being a constraint to growth (figure A2.5). Most o f them perceive the system to be unfair and the enforcement o f the rules and regulations to be unclear and subjective (figure A2.6). Figure A2.5: The judicial system as a major Figure A2.6: Impartiality and the implementation constraint to businesses. o f the rule of law. (Percent o f firms which rate the "The judicial (perception o f firms on the impartiality and clarity in the system" as a SeverelVery Severe constraint) application o f the la%) Are courts impartial? Totally disagree Tend to disagree Tend to agree Totally agree . . Are laws and reaulatrons rnterpreted redrctable manner? Source Investment Climate Assessment o f Morocco (World Bank, 2008). 18. Willing to address cross cutting constraints in the investment climate, the Moroccan government has launched several reform initiatives supported by ad hoc inter-ministerial working groups o r committees. The results have been mixed. The efficiency o f this institutional structure to foster reforms o f the business environment has remained relatively weak. These committees tend to suffer from a number o f recurrent weaknesses such as the lack o f a clear mandate, unclear political commitment and leadership, weak capacity, and absence o f methodology and monitoring tools. 68 Appendix 2 19. Recently, the government has developed a new comprehensive approach to private sector development, that aims at addressing past weaknesses in the conduct of partial, uncoordinated reforms. By formally adopting in February 2009 the "National Pact o f Industrial Emergence - Pacte National pour I 'Emergence Industrielle (PNEI, Contrat Programme 2009-2015", the government has established a public private agreement aimed at undertaking 11 1 specific commitments over the period 2009-20 15, taken both by ministries (Justice, Interior, Economy and Finance, Agriculture and Fishing, Education and research, Labor and Training, Industry, Commerce and New Technologies, International Trade, Economic and General Affairs) and representatives o f private sector organizations (CGEM, Banks' Professional Organization GPBM) signatories to the Agreement. These commitments are gathered under 10 different pillars: Off-shoring, Automobile, Aeronautic, Electronics, Textile and Leather, Agro- Industry, SME Competitiveness, Investment Climate, Training, Industrial Zones). 20. The government's strategic plan for private sector development is a mix between sector- specific policies and comprehensive investment climate reforms. Its first axis o f measures i s sector- specific, and focuses on the sectors previously identified in the Emergence 2005 program. The second axis i s aimed at addressing cross-cutting constraints under the "Investment Climate" PNEI pillar. Under this second axis, the government i s establishing a Public Private committee for business environment ("Comite National de I'Environnement des Affaires" - CNEA) in charge o f identifying economic reform projects and overseeing their actual implementation through improved inter-ministerial coordination mechanisms. This committee i s headed by the Prime Minister. Its participants and working groups follow a common methodology and approach to the reform, in order to address the coordination issues that plagued the ability o f previous reform committees to deliver on otherwise well-designed action plans. World Bank engagement: 2 1. The objective of the Bank support in the area of private sector development is to promote a business environment favorable to new entrants, in particular to small and medium domestic firms. To this end, for the duration o f the CPS, the Bank will assist the government in reducing the current unpredictability and opaqueness o f the legal, administrative and judicial aspects o f i t s business environment, which tend to favor well-established investors. Promoting transparency and accessibility o f laws, regulations, circulars, and procedures that shape the Morocco's business environment will therefore be a priority of Bank's assistance. An action plan o f priority legal and regulatory reforms has recently been adopted by the CNEA Committee and the government has solicited World Bank Group support to the different reform teams in charge o f implementing it. This action plan will form the basis o f the cooperation between the World Bank Group and the government o f Morocco in the area of investment climate reforms. 22. I n addition, the Bank will assist the government in setting up an organized, efficient and participatory reform process. This assistance will aim at developing a well-managed use o f consultation mechanisms and economic analysis for preparing projects. U s e o f monitoring and evaluation tools will also be promoted as essential tools for measuring progress o f investment climate reforms. Consultation process, economic impact analysis and monitoring tools will be used and designed to measure the satisfaction o f end-users on government's policy and administrative services. 23. I n line with these priorities, several technical assistance activities are envisaged for the CPS period: 0 Continuing the current activity aimed at assisting the MAEG in coordinating and implementing reform processes in the business environment area, through the development o f the CNEA, and focusing on the 20 - item investment climate action plan. 69 Appendix 2 Assessing and prioritizing the reform needs of the business environment - The Bank will assist the government in preparing detailed and prioritized annual reform programs for private sector development. 0 Launching a regulatory simplification project - A project aimed at identifying, analyzing and simplifying all administrative and regulatory procedures for businesses. This technical assistance project, based on a specifically-tailored regulatory simplification approach developed by the Bank and other international institutions, could have a major impact on the quality o f administrative services and the easiness to do business in Morocco. Improving the governance o f enterprises - Following the adoption o f a non-binding code o f corporate governance for enterprises, next steps could focus on a detailed assessment o f governance framework and practices for listed companies. This assessment would allow disseminating international best practices for corporate behavior and initiate reforms aimed at further developing the use o f financial markets by private sector. 24. I n addition to the technical assistance activities, a comprehensive approach to the trade and competitiveness issue could take the form o f a Competitiveness Development Policy Loan that would integrate an investment climate pillar as well as a trade and competitiveness pillar. Such a project would support the different policy initiatives that are ongoing in Morocco, and which aim at increasing and diversifying the export base in face o f the structural deterioration of the balance o f payments. I F C engagement: 25. The I F C will continue to focus on developing investment and lending opportunities in support o f the new industrial and agriculture strategies of Morocco. Morocco's industrial and agricultural strategies aim at anchoring the country's strategy to supporting the emergence o f world-class firms in a select number o f sectors where Morocco's comparative advantages are deemed substantial: (i) agribusiness; (ii) light automotive and aerospace manufacturing; (iii) fisheries; (iv) business process outsourcing; (v) electronics; and (vi) industrial "handicrafts". Modernization o f these industries to become internationally competitive could offer investment opportunities for IFC. 26. I n the area of advisory activities, IFC's Advisory Services in the M E N A region, will continue to support business environment reforms, in close coordination with the World Bank. The IFC will focus on areas that require field expertise in regulatory reform, and process reengineering for regulatory simplification. IFC's support will be selective reflecting availability o f donor financing and additionality. Moreover, in support to the second pillar o f the Judicial Reform Ian o f Morocco (this six- pillar major reform was announced by King Mohammed V I on August 2, ` 0 2009), IFC's Advisory Services in MENA will further its support to the development o f alternative dispute resolutions systems (as arbitration and mediation), starting with capacity building o f a mediation and arbitration center in Casablanca. B. Improving trade and competitiveness to rip the gains o f openness and FTAs Current challenges and policies: 27. Morocco strives to use trade policy to boost growth and job creation by expanding markets for Moroccan goods and services and transforming Morocco into an investment and production platform for global investors wanting shift production processes to competitive and logistically efficient sites. However, current efforts have not yet led to robust export performance nor accelerated significantly 70 Appendix 2 the structural transformation of the economy. Furthermore, the preferential stance in trade liberalization i s increasingtariff dispersion leading to trade diversion and providing incentives for fraud. 28. Export performance i s below expectations, leading to forgone growth and job creation opportunities. Export grew by only 93% between 2000 and 2008 against more than 300% for the MENA and East Asia regions in the same period. Because global trade grew robustly in that period, Morocco lost world market share in merchandise exports. Despite the signing of a large number of preferential trade agreements, the geography of export destination has not changed significantly yet. Morocco s t i l l ships 75% of i t s exports to the EU, only a few percentage points lower than in 2000. Exports to MENA, SSA and the USA are still low. Overall, producers tend to be small and medium enterprises facing many constraints in their environment that make them ill-prepared to take advantage of the opportunities offered by the global market. These constraints include access to finance, unfair competition with the informal sector, macroeconomic instability, etc. Exporting i s a sustainable activity for only a fraction of SMEs in Morocco. 29. Lackluster export performance led to worsening trade balance. The trade deficit increased from $3.2 billion in 2000 to $14.1 billion in 2007. However, Morocco has been able to maintain current account surpluses thanks to strong services exports ($12.1 billion in 2007) Figure A2.7 Declining proportion o f firms that export. (Percentage o f manufacturing firms that export.) and net private transfers ($7.7 billion in 30 2007). Morocco thus does not have a 28 structural external balance/ financing 26 need problem. This i s all the more so 24 that FDI has been growing fast, 22 20 reaching $2.8 billion in 2007 or 3.7% 18 o f GDP against $220 million or 0.6% 16 of GDP in 2000. The main issue i s that 14 export has not played the growth and 12 job creation engine it has the potential 10 - 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 20C6 to play, and this has slowed down the structural transformation of the Source: Moroccan Ministry o f Commerce and Industry (1 995-2007). economy. A sign of this i s that relatively fewer firms have engaged in exports over the past years (figure A2.7). 30. The pace of structural transformation/ diversification i s indeed slow. The technological content of export i s progressing(32% o f total in 2008 against 22% in 2000) but Moroccan exports are still highly concentrated in low-value added or primary export products (60 percent). The little in the way of increase in technological content of export i s due to rising FDI in aeronautics and mechanical engineering. However, FDI to industry remains limited (5% of the total in 2008) as the bulk of foreign investment in Morocco goes to construction (30%), tourism (19%) and banking (13%). The extent of diversification i s highly dependent on FDI and in the years to come, Morocco should strive to attract more FDI in industries. This would be an important instrument to reduce unemployment of educated and highly skilled would-be workers. Without a shift in labor demand in favor of highly qualified jobs, trade integration will not be able to help employment. 3 1, Tariff dispersion is creating distortions and increasing incentives for fraud on the origin of goods. Morocco's commitment to further opening of its market, notably by implementing the Association Agreement with the EU, results in widening tariff gaps across import origins. The preferential liberalization will reduce import tariffs vis-a-vis the EU, and bring the overall average of effectively applied duties further down. However, the MFN tariffs towards third countries will not automatically 71 Appendix 2 follow the path o f the EU and phase-out schedule agricultural tariffs will only be marginally affected, as a result of their limited coverage in the Euro-Med Agreement. The increased wedges between agricultural and manufacturing tariffs, as well as disparities between manufacturing products originating in the EU and those originating in non-preferential trade partners may create trade diversion and fraud on origin. The latter would increase unfair competition in the domestic market and could undermine investment. 32. T o address the above challenges, Morocco i s reducing trade and investment barriers and i s pursuing deeper preferential integration (Le., including some degree o f regulatory convergence) with external anchors through its Association Agreement with the EU (75% of Moroccan trade) and a Free Trade Agreement with the USA. Shallower preferential agreements were signed with a large number o f partners, including the Arab League under GAFTA, Tunisia, Egypt and Jordan under the AGADIR Agreement, Turkey and other bilateral partners. Significant progress i s being made in improving transport and logistics and the efficiency o f backbone services (ports, air transport, telecommunications and financial services). More recently, Morocco has elaborated sectoral strategies to attract foreign investment and strengthen production in key strategic sectors such as aeronautics, offshoring of services, automobile components, etc. World Bank and IFC engagement: 33. The World Bank Group intends to support Morocco's above trade integration policies, and will focus on five interdependent outcomes/results: i)tariff and non-tariff reforms on an MFN basis; ii) further investment climate reforms to enhance the capacity o f SME to exploit opportunities offered by the global market; iii) hrther reduction o f barriers to trade and investment in services and regulatory convergence with the EU in selected areas o f Morocco's interest; iv) export promotion and v) modernization o f Morocco's innovation system. These areas are crucial if trade integration i s to foster greater competitiveness and job creation and to contribute to a transition to a knowledge-based, skill- intensive and technology-based economy. 34. I t i s important to view these five pillars of the trade integration strategy as integrated and to attempt to make progress in all o f them to maximize impact. The whole i s greater than the sum o f i t s individual parts. One o f the key potential benefits o f Bank's involvement will be to help better integrate the different elements o f Morocco's trade and investment strategy. 35. Effectively supporting Morocco in the above five areas could be done through two main instruments. First, through the potential Competitiveness Development Policy Loan, which could include a trade and integration pillar that would support, in an integrated fashion, measures to: Reduce trade transaction costs through tariff reforms, convergence to EU product and quality standards and reduction o f time and cost to trade through selective and streamlined technical controls o f imports and e-governance o f trade procedures; Improve trade finance and trade insurance to facilitate the penetration of new markets Assist in implementing the services trade reforms scheduled in the Morocco-USA Free Trade Agreement Further encourage investment and trade in services by reducing the regulatory and policy bottlenecks faced by firms in emerging exporting sectors. The development o f new export promotion instruments, the modernization and streamlining o f trade-support and innovation-support institutions. 72 Appendix 2 36. Second, it will be important to continue Bank support to build adequate technical capacity and tools to support and monitor the trade strategy. The Bank's capacity building efforts in recent years successful helped strengthen capacity at the Ministry of Foreign trade. However, while the tools recently developed by the Ministry have increased their capacity to inform policy (the IMPALE MODELE), fbrther support i s needed for the current models to address emerging issues such as the impact o f the Emergence Plan and the structural transformation o f the economy. Additional technical assistance to improve the IMPALE MODELE (Ministry o f Foreign Trade) and enhance capacity in other relevant Ministries i s warranted. The Bank will also continue its technical support in the areas o f trade logistics and trade in agriculture. 37. The IFC's will complement World Bank activities in the trade area through its advisory support in the business environment area. Also, potential investments in ports activity or logistical platforms in Morocco would also contribute to improvingthe trade logistics infiastructure of the Kingdom. C. Support to financial sector reform Current challenges and policies: 38. Morocco's primary objective in the financial sector is to ensure an efficient and stable - financing of the evolving needs of its economy Following a major modernization effort spearheaded by the Moroccan authorities, the financial system appears well positioned to address upcoming challenges thanks to i t s development (with assets totaling almost twice the GDP), the existence o f key market mechanisms, a good diversification among sectors compared to regional peers and a restructured state- owned financial sector. The Moroccan financial system i s increasingly opening up and building ties with neighboring economies. Financial institutions have not been directly affected by the global financial crisis. Figure A2.8: Access to finance as a constraint to business growth. (Percent o f firms which rate the "Access to finance" as a Severe or Very Severe constraint) 1 Source: Investment Climate Assessment o f Morocco (World Bank, 2008). 39. While improving access o f poorer households and smaller firms to modern financial services. Morocco's commercial banks are among the more sophisticated in MENA and offer a wide range of financial services through specialized subsidiaries. However, they are mostly geared towards serving big corporations, a segment which i s reaching saturation. A large portion o f the population i s not being served by this banking system (bank penetration rate stands at a low 25-30 percent). Similarly, in the corporate world, despite the progress o f the recent years in terms o f firm access to credit, too many 73 Appendix 2 SMEs remain credit-constrained, and large proportions of them consistently rate "Lack of access to finance" among their top constraints - even if that proportion declined since 2004 (figure A2.8). 40. The financial sector first challenge is to keep improving its provision of financial services to all Moroccan economic agents: Meeting growing needs for long term finance (investment projects, housing etc.). Banks have been active in providing long term loans in the past few years, when funding was easy. They still bear most of these long term risks, which reduces their leeway to make new loans, and face a more challenging funding environment, as the financial system i s less flush with liquidity. Moreover, although the size of Moroccan institutional investors bodes well for the potential development of long term instruments (long term bonds, securitization etc.), this potential i s not yet tapped on a large scale, either by financial institutions or by other companies. Ensuring that SMEs as well as a wider proportion of Moroccan citizens can have access to financial services ( e g about a third of Moroccan individuals have access to banking products). SME finance i s critical for the Moroccan economy considering SMEs' contribution to growth and employment. Additional progress i s still needed (in terms of availability, advice, venture capital etc.). 41. A second challenge relates to the ongoing modernization of the financial infrastructure, including the supervisory framework, to sustain the development of the financial sector while preserving i t s safety: Ensuring that capital market and insurance sector's supervision can be carried out at arm's length, from the government and from the industry. In a more complex, globaly integrated and market driven environment, the independence of the insurance and, to a lesser extent, securities supervisors need to be bolstered. They would provide strong foundations on which to improve the regulation and supervision of these industries, Implementing the new Anti-Money Laundering and Combating the Financing of Terrorism (AML /CFT) regime across the financial sector. 42. The Moroccan authorities prepared a comprehensive strategy to address these challenges. In a speech delivered in July 2008, the Minister of Economy and Finance presented this strategy, which includes second generation reforms after state-owned financial institutions were restructured, banking supervision dramatically improved and key financial infrastructure modernized. I t incorporates recommendations made during the 2007 Financial Sector Assessment Program (FSAP): Bolstering the provision of long term finance by (1) the promotion of long term savings (especially by individuals), (2) more efficient market mechanisms (long term benchmark yield curve, revised securitization framework etc.) and (3) a better coordination among state-owned financial institutions. More risk sensitive regulation for the insurance and pension sectors may also increase their demand for long dated products, making it easier to place long term debt, Promoting access to finance for individuals and improving further SME finance thanks to: (1) a revamp of public support mechanisms for SME finance, (2) the modernization of the financial services of the Post office, so that it can offer a broader range o f services to its many customers (13% of Moroccans), (3) the set up of a credit bureau which will be fully operational by September 2009, and (4) a review of the framework applicable to the microfinance sector, 74 Appendix 2 Modernizing securities markets with (1) the creation o f an organized market for derivative products, designed to help economic agents hedge their financial risks, (2) a diversification o f the shareholding o f the stock exchange beyond brokers , (3) a reform o f the regulatory framework for asset management and (4) the strengthening o f the securities supervisor's independence, Creating a fully independent insurance supervisor (in lieu o f the current division o f the Ministry of Economy and Finance), Implementingthe AML /CFT regime across the industry, Continuing the international opening o f the Moroccan financial sector. Contemplated measures include (1) a further liberalization of the capital account, (2) an increased flexibility o f the exchange rate and (3) more financial integration with Maghreb countries as well as other neighbors (European Union, African countries etc.). 43. These measures should also help enhance the resilience o f the financial system, thanks to (i) better regulation and supervision, (ii) improved risk management possibilities (development o f long term compartments, new market etc.) and (iii) enhanced operational coordination among financial sector authorities. World Bank engaRement: 44. The World Bank will continue to support the authorities in addressing these challenges. Beyond the assistance provided at the time o f the first financial sector Development Policy Loan (DPL, 2005) and during the latest FSAP (2007), the World Bank i s working with the Moroccan authorities on: (1) identifying key areas in the securities sector where progress could be made to meet the best international standards; and (ii) strengthening financial stability arrangements. on 45. The World Bank i s also exploring the possibility o f providing additional lending through a new financial sector DPL which would support the authorities' reform agenda. In this context, the World Bank will provide assistance in the form o f analytical work to help design the specifics o f the reform agenda. 46. The contemplated financial sector DPL is a key element of the CPS program. It would be built around four pillars: 0 Broadening and deepening o f capital markets and promotion o f long term savings, 0 Strengthening financial supervision, 0 Making financial services accessible to more individuals, 0 Improving SME access to finance. 47. Through these different activities, the World Bank Group wishes to achieve: 0 Guaranteed availability o f adequate long term finance, 0 Improved access to finance for Moroccan individuals, 0 Better SME finance, 0 Improved resilience o f the financial system, 0 Further development of diversified capital markets. 75 Appendix 2 IFC engagement: 48. Consistent with the overall financial sector reform agenda of the Government, I F C will continue its support via its advisory services as well as through strategic investments in financial institutions, including microfinance institutions and possibly SME finance instruments. On the investment side, IFC will continue to look for opportunities to invest in financial institutions that aim at developing low income banking and to supporting the emergence o f some banks as regional players. In terms o f advisory activities, technical support to strengthen the credit information infrastructure will continue to be provided to the central bank and possibly to specific banks. Other potential advisory activities include capacity building to financial institutions in risk management, modern SME lending techniques and credit scoring. D. Public-private partnerships for more efficient service delivery and responding to infrastructure needs Current challenges and policies: 49. Morocco has developed a valuable experience in PPPs during the past decade. In many aspects, it has been a pioneer in the use of PPPs in the MENA region. Sectors as diverse as power generation, water and electricity distribution, urban transport, waste management, container terminals, irrigation, among others, have seen one or more PPPs developed and implemented. In contrast to other developing countries where for instance water concessions were canceled or renegotiated soon after approvals, water and electricity distribution concessions in Morocco have passed the test of time and have performed well in achieving their development objectives. 50. The number of public-private partnerships involving municipalities significantly increasedg over the past decade, even though the government did not establish a modern PPP framework until 2005. Urban transport concessions were issued to private bus companies in Casablanca, Rabat, Marrakech, and Agadir by the end o f the 1980s. This surge o f interest in private participation in infrastructure was driven by two main consideration: (i) tighter fiscal space constraints significantly limited the central government ability to cope with the growing infrastructure needs o f the economy and the society; and (ii) the decentralization agenda that led to the consolidation o f municipalities as primary responsible entities for the delivery/supply o f local public infrastructure services such as water and electricity distribution, sewage, solid waste collection and management, streets lighting, urban transport services to municipalities. In this regards, municipalities can opt to deliver these services through municipal owned utilities or by contracting out to private sector. 51. However, despite this breadth o f experiences, Morocco's use o f PPPs remains an ad hoc process, lacking a strategic vision and constrained by a number of shortcomings. Morocco's use o f PPPs remains significantly below potential. As of to date, the implementation o f PPPs projects have been highly fragmented and decentralized. It i s crucial to move from this piecemeal approach into a more comprehensive and integrated approach that aims to the development of a vibrant PPP market in Morocco. The development of PPPs in Morocco remains constrained by: Water and electricity distribution: Casablanca (l997), Rabat (1999), Tanger and Tetouan (2002). In Solid waste management: around 15 collection service contracts (5 years duration), and few BOT contracts for landfills management. In urban transport - numerous service concession agreements are in place for urban bus transportation services in cities. 76 Appendix 2 Lack of a clear PPP visionary approach - it has now become urgent that the government prepares and publishes a PPP policy paper that outlines its visionary approach about PPPs and how it intends to strengthen the existing PPP framework, and implement the next generation o f PPP projects. Incomplete PPP legal and regulatory framework - bylaws and executive regulations o f Law 54-05 have not been issued four years after its enactment. Further, law 54-05 has provided Morocco with a modern PPP legal framework which applies specifically to PPP projects undertaken by municipalities and state owned enterprises (ONEP, ONE, RAM, etc.). Unfortunately, Law 54-05 does not apply to PPPs that could be initiated directly by the central government. Institutional weaknesses in contracts oversight and enforcement - For instance: (i) most municipalities still lack capacity to prepare high quality PPP transactions and are dependent on the support mobilized by the Interior Ministry; (ii)municipalities are still ill equipped to exercise their oversight over PPP contracts and effective regulation o f PPP/concession contracts i s uneven depending on project; (iii)the sanctity o f the PPP contracts i s often breached by granting authorities therefore weakening the balanced commitments agreed in the contracts; (iv) in some sectors such as solid waste management, granting authorities often fail to appropriate adequate budgetary resources to service their payment commitments with the private operator; (v) tariffs are not automatically adjusted according to indexation formulae agreed in the contracts; and, (vi) PPP contracts as any other administrative contracts are subject to the external audit o f the "Cour des comptes" whereas modalities for such audits have not been defined. Weak coordination mechanism and lack o f a framework to manage PPP fiscal risks - The implementation o f PPPs i s highly decentralized whereas there i s a need to strengthen coordination in project preparation to ensure consistency o f contractual arrangements across sectors. The absence o f a dedicated PPP unit makes the whole process inefficient, non predictable and time costly. Absence of a reliable dispute resolution mechanism for PPP contracts - with the multiplication o f PPP contracts, there i s a need to establish a dedicated dispute resolution mechanism for PPPs besides the tribunal administrative. Multiplicity o f counterparts on the public party end (municipalities, Ministry o f Interior, Ministry o f Finance, etc.). e Regulatory uncertainty in regards o f transfer of staff when there i s a change o f the equity investor (private party) in a given PPP/concession project (e.g.: renewal o f solid waste collection contracts for Agdal-Ryad in Rabat or El Jadida). E. The Case for PPPs 52. The central argument in favor of PPPs is that of efficiency gains. This essentially means that: (a) for new (greenfield) projects, a significant reduction of construction risk - delays and cost overruns, estimated t o affect up t o 30% of publicly procured projects; (b) for existing (brownfield) projects, improved quality of service and better value for money, by leveraging the know-how of private sector operators. Additional arguments for PPP include: 77 Appendix 2 Better risk allocation: well structured PPPs can substantially transfer project risk to the private sector (construction, traffic, environmental.. .etc.). More accurate project costing for better decision-making: publicly-procured projects often benefit from embedded subsidies that are seldom accounted for in the decision-makingprocess. 0 Lower transaction costs for grantors: PPPs replace multiple contracts (construction, management, financing., .etc.) with a single concession agreement. Lower total project costs: greenfield PPP projects avoid significant upfront cash outlays while brownfield ones allow the monetization o f existing assets. Depending on the Government's discount and reinvestment rates, this can lead to lower project cost (on an NPV basis). 53. Empirical studies conducted by the Bank and other institutions (OECD, 2007) suggest that as a Low Medium Income Country in the M E N A region, Morocco should allocate around 9.2 percent of its yearly GDP to meet the infrastructure demand needs" o f its economy and society. This effort i s required to expand and upgrade the existing infrastructure stock as well as to ensure its adequate maintenance. Expanding, upgrading and maintaining infrastructure systems i s made necessary by demographic and urbanization trends as well as by the transformation o f the economy. Assuming a 2008 GDP of MDH689 billion", we estimate that Morocco will need to invest about MDH64 billion'* yearly in infrastructure. Available information in Morocco suggests that the public and private sectors currently invest around MDH48 billion a year in infra~tructure'~. This represents approximately 75 percent o f what i s needed to sustain growth prospects. Therefore, Morocco faces an infrastructure investment gap o f about MDH20 billion a year, and the question facing the authorities i s how such a gap can be bridged without deepening public deficits? Given: (i) the country's substantial infrastructure needs; and (ii) the need to maintain fiscal balance, the government can significantly benefit from a well-designed PPP initiative. I t would allow to: Avoid the large upfront costs of greenfield infrastructure projects (e.g.: in power generation); 0 Optimize the use o f public resources: not all projects are appropriate for private participation. A PPP initiative would allow the government to focus public spending on essential but none commercially viable projects. Reap the efficiency gains the private sector can provide: these would be decoupled from the government's efforts to upgrade/modernize the country's public sector. In the social sectors, stepping up Government's efforts: PPPs in education or health allow the government to focus i t s resources on the provision of education and health services, not the construction and operation o f facilities. Improve the management and maintenance o f certain public infrastructure facilities, and reduce the distortionary role of State-ownership in certain markets. For example, access o f firms to lo Sectors covered: Highways; Ports; Railways; Power Generation, Transmission and Distribution networks; Telecom; Water supply and sanitation. This assessment excludes other important economic and social infrastructure. " Source: Ministry o f Finance website '* 13 This represents approximately half o f the total public investment projected in 2009. This ballpark estimate i s computed with data from the Ministry o f Finance but should be treated with caution, as a more robust analysis i s needed to estimate current infrastructure spending in Morocco. At first glance, available data shows that the public sector represents around 90% o f infrastructure investments in Morocco. 78 Appendix 2 industrial land remains a key constraint to business in Morocco, despite the public investments in numerous industrial zones across the country (Morocco i s the middle-income country where this access problem appears as the most severe in business surveys-figure A2.9). Expanding successful PPP transactions to more industrial zones should help reduce this constraint. Figure A2.9: Access to industrial land constrains the growth o f firms. (Percent o f firms which rate the "Access to industrial land" constraint as Severe or Very Severe) 45 140% 40 35 30 25 20 15 10 5 0 Source: Investment Climate Assessment o f Morocco (World Bank, 2008). F. Unlocking the potential of PPPs: contours o f a Morocco PPP Initiative 54. T o unlock the potential of PPPs, addressing the above constraints i s key. However, PPPs also require learning by doing and accumulation o f experiences. With this in mind, a dual-track approach could be thought of: A ) In the short-term: the establishment of a small PPP screening unit, at the level o f the Ministry o f Finance to jump-start the. This unit's mission would be to identify straightforward, plain vanilla projects that are appropriate for PPP financing, in coordination with the implementing ministries or agencies. In this first phase, the objective should be to restrict public financing only to those projects that really warrant it. This unit can also centralize some essential support functions (contracting o f financial, legal and technical advisors). B) In the medium to lone; term: the central PPP unit's role and ambition may be extended further to include: (a) long-term infrastructure needs assessment for better planning; (b) PPP Policy formulation, i.e., the definition o f criteria for identifying projects suitable for PPP financing; (c) central support role for implementing agencies and municipalities; (d) identification and implementation o f the required reforms o f the country's regulatory and fiscal frameworks to enable PPPs and (e) expanding the PPP frontier, in particular to the social sectors. World Bank engagement: 55. World Bank support to PPP initiatives could be sector-specific and part of a project o r AAA activity (in the infrastructure sectors for example). I t could also be transversal and focused on helping the government o f Morocco address the PPP agenda in a comprehensive manner, through a central PPP unit. Specifically, if the government decides to systematize the use o f PPPs in certain sectors, the World Bank could support it via: 79 Appendix 2 An assessment of the infrastructure needs o f the Moroccan economy to sustain growth prospects o f 5 to 8 percent per year. The proposed study would review alternative financing options to address these needs. I t would explore strategic infrastructure projects that could be developed through PPPs, and provide recommendations for policy, legal and institutional changes to allow for the development o f more PPPs. A similar assessment o f potential leads for PPP operations, but in the social sectors (health or education). 0 Technical Assistance to build capacity at the level o f the central government (in particular in the Ministry o f Economy and Finance and the Ministry of Interior), or in sectoral ministries (like transport or energy) to improve the ability o f the public sector to identify opportunities for PPP, negotiate their terms, conduct economic analysis, supervise the service delivery and the partner's compliance with the terms o f the PPP transaction. For example, in the Solid Waste sector, it could build on the ongoing pilot, initiated with the Solid Waste DPL, to support the preparation o f a draft National standard bidding documents. The technical assistance could also take the form o f support to specific projects or transactions, in the upstream analysis. I t could also include support to improving the PPP legal and regulatory framework. IFC engagement: 56. The growth o f PPP transactions in Morocco offers many opportunities for I F C to play a role either as an investor in specific projects, or as an advisor. More specifically, investment leads have been identified in a few areas and may concretize over the CPS period: 0 In the energy sector, the anticipated liberalization o f the power sector and in particular, plans for independent power generation and renewable energy could present key opportunities for IFC. Examples o f projects that could potentially benefit from PPP transactions include the thermal power station o f Terfaya, the potential Liquid natural gas terminal, the regionalization o f the electricity market with the development o f independent power production or power purchase agreement arrangements. Moreover, the anticipated development of wind power-generation plants could offer opportunities to extend the concession projects realized in the North of Morocco and in the Essaouira plant. In the education sector, opportunities could develop in the health and education sectors if the legal framework i s reformed. Specifically, the higher education sector could offer important opportunities for IFC investments, but important legal and regulatory constraints remain which limit the creation o f private universities that can offer officially recognized diplomas in Morocco. 0 In the transport sector, opportunities are also likely to arise from the large government-led infrastructure projects such as the Tanger Med Port. 0 In the water sector, new concessions are expected in a number o f cities (like Oujda or Beni Mellal), to extend the experiences of Tangiers, Casablanca and Rabat. BOTSare also expected for desalination plants. A l l should offer opportunities for IFC investments, in particular in terms of sub-national lending. 57. Finally, the recent reforms o f the regulatory framework for solid waste management will offer opportunities for I F C support to PPPs in certain cities for new waste management plants. The IFC could also provide advisory support in specific PPP transactions along the lines o f IFC's successful PPP advisory transaction in the irrigation sector in the Guerdane region in Morocco. 80 Appendix 2 V. Synthesis: World Bank and I F C engagement in private sector development over the CPS period 58. The World Bank and I F C engagement in private sector development can be synthesized along the three pillars o f the CPS: Table A2.1. Areas o f Engagement of the World Bank and the IFC in the area of Private Sector Development Domain o f intervention CPS Pillars Climate Growth, Service Change & competitiveness, delivery Sustainable employment development 1. Business environment 0 World Bank: TA regulatory reforms, potential DPL, judiciary reform (commercial justice pillar). 0 0 IFC TA regulatory reforms (PEP-MENA), commercial mediation, alternative dispute resolution. (justice) 2. Trade and competitiveness 0 World Bunk: TA trade reforms and analysis, potential DPL IFC: TA regulatory reforms, potential investments in ports logistical platforms. 3. Financial sector development World Bank: DPL, TA, FSAPs. IFC: TA credit bureau, TA SME lending, investments in . 0 financial sector, microfinance and SME finance. 4. Public-private partnerships World Bank: TAIcapacity building. 0 IFC: potential investments in urban transport, ports, 0 education, solid waste, utilities, renewable energy PPPs. 81 Appendix 3 Appendix 3: FY06-FY09 MOROCCO CAS COMPLETION REPORT Country: Morocco Date of CASs: June 30,2005 Date of Progress Report(s): November 13,2007 Period Covered by the CAS Completion Report: July 2005 - June 2009 I. Introduction 1. This Country Assistance Strategy Completion Report (CASCR) reviews the World Bank Group's program in Morocco for the FY06-09 period. It reviews implementation of the planned program set out in the CAS document, as well as new activities introduced during the period. The flexibility introduced in implementation made important contributions to Morocco's development. The experience of implementation provides lessons which inform the new Country Partnership Strategy for FY10-13I4. 11. National Development Objectives and CAS Relevance 2. The CAS was based on government's reform agenda that had been formulated in 2002. This agenda focused on employment-generating growth and the reduction of poverty and exclusion. It had the following focus areas: (i) continue implementing the ongoing Public Administration Reform Program; (ii) reduce geographic disparities and the rural-urban divide; (iii) capitalize on the rapid emergence of a restructured and resilient financial sector; (iv) intensify efforts to attract foreign direct investments in manufacturing, tourism and agro-industry; (v) continue to focus on the successful convergence program with the European Union; and (vi) mitigate rising social pressure linked with urban exclusion and rural isolation and expand the benefits of growth to the population at large, particularly the young with school degrees and those living in extreme poverty. 3. The CAS reflected broad consultation with government at central and decentralized level, academia, private sector, civil society representatives and development partners. These consultations continued during implementation, fostering an environment of adaptation o f the program to evolving national priorities. They became a vehicle for communication and knowledge exchange, in particular with civil society, including with the opening of Public Information Centers outside of Rabat. The CAS was founded on four pillars: (i)improve competitiveness and the investment climate; (ii) increase access to basic services for poor and marginalized people; (iii)improve the educational system; and (iv) strengthen the management of water resources, access to drinking water and sanitation services. Governance was the main cross-cutting theme in support of the institutional reforms needed to improve the transparency, accountability and inclusiveness in the public sector. 4. Morocco's development agenda took on a broader mandate when a new government was appointed in October 2007. I t s vision was one of faster progress on growth, poverty eradication and social conditions. Over the following 18 months, it identified sectoral and structural constraints, developed a set of sector strategies, and allocated budgetary funding to these priorities. The result i s an l 4 The analysis o f the CASCR i s based on reviews of: (a) portfolio implementation performance reports; (b) the last two Implementation Status and Results Reports (ISRs) and Aide-Memoires o f each project active during the CAS period; (c) Implementation Completion Reports (ICRs) o f projects completed during the CAS period, Independent Evaluation Group (IEG) Reviews of ICRs, and Quality Assurance Group (QAG) Reviews, where available; (d) interviews with selected client counterparts; and, (e) self-assessments by the Country Team. 82 Appendix 3 ambitious program of reforms, particularly in sectors identified as priority - education, health, water, energy, agriculture and justice. 5. The CAS Progress Report" sought to align the program with the government's new vision. It confirmed that the overall CAS objectives and pillars remained relevant and aligned with the country's program. It highlighted the importance of selectivity and flexibility and adapted the program to meet Government requests in various sectors. This led to increased interest in engaging the Bank Group, leading to an increase in the number and diversity of requests to complement the government's own resources and those of other development partners. Among the new activities supported by the Bank were the National Initiative for Human Development (INDH), solid waste reform, energy sector reform, initial work on climate change, and early work to introduce conditional cash transfers in education. These areas have become major opportunities to contribute to national development outcomes through both lending and non-lending activities. The mix of lending and non-lending interventions adapted accordingly. Lending was increasingly channeled through budget support, with Development Policy Loans (DPLs) reaching 67 percent of total financing over the implementation period. Programmatic ESW was used to provide the analysis underpinning the reforms supported by the DPLs. IFC adapted i t s program to respond to the new opportunities, particularly notable being a large increase in investments from $4 million in 2002-2004 to $244 million in 2008. 6. The I F C also significantly stepped up its activities in Morocco, achieving a turnaround o f its investments and reaching record levels o f commitments. Commitments were distributed through commercial banks, microfinance, wastewater local public utilities, and investment funds for SMEs and property development in low income housing. On the advisory side, IFC has broadened i t s efforts, by supporting the government's landmark PPP in the irrigation sector, and has been active in supporting the business environment by developing commercial mediation, business simplification and improving credit information infrastructure. 7. I n summary, while the document was not formulated as a Country Partnership Strategy, implementation of the strategy saw adoption of the essential features of a CPS. It laid the foundation for a genuine partnership approach that emphasized broad consultations as an input to priority setting, the flexibility to adapt the program to new country conditions and government priorities, and commitment to improved responsiveness and diligence, as well as improved coordination on respective processes. 1. 11 Summary of World Bank Group Program 8. During the CAS period July 2005 to June 2009, the Bank delivered ten lending operations for a total o f $1.127 billion, an average of $280 million per year (see Table A5.1 below). This was within the CAS proposed financial envelope of $250-350 million per year. The Bank's lending included six DPLs and four investment projects, with the DPL proportion representing two thirds of overall new commitments. Total disbursements were $1,088 million, averaging $272 million per fiscal year. The overall quality o f the portfolio remained strong with problem projects accounting for less than 10 percent. 9. The Bank Group's program remained focused on the four pillars o f the CAS. It was adapted to respond to changes in the Government's program and choice of lending instruments. The Bank delivered new lending operations in each pillar, with the exception of pillar 3 where the Basic Education project (PARSEM) had just been approved in FY05 before the CAS was finalized. New areas of engagement - energy, solid waste, the National Initiative for Human Development (INDH) - were added to the lending program, building on other elements of Bank engagement in these sectors. For example, the government re-engaged in energy sector dialogue with the World Bank in 2005, which led to Bank Is Morocco Country Assistance Strategy Progress Report, November 13,2007, Report No. 41254-MA 83 Appendix 3 support for a technical assistance program in energy, and subsequently led to the formulation o f a comprehensive energy sector reform program. In this context, the energy DPL (FY07) and an energy investment lending operation (FY08) were approved and became a core part of the Bank's support to the first CAS pillar of increasing Morocco's competitiveness. Similarly, at the end of 2006, the government embarked on a new reform program in Solid Waste Management. Bank support encompassed AAA, trust funds, regional reports and data gathering. A Solid Waste DPL was delivered in FY09, the first o f i t s kind in the sector for the Bank. Support for the MDH was introduced into the program as it became the main poverty-focused program of the government and involved multi-donor support to i t s implementation. The INDH i s fully aligned with the second CAS pillar o f increasing access to basic services by the poor and marginalized. Table A3.1: World Bank and IFC Program 2005-2009 WR Improve water investment climate education's management & by the poor and system's efficiency marginalized sanitation services 05 - Housing DPL 150 -Education project 80 (FY05-08) PARSEM (FY05- FY09) 06 - Financial Sector DPL (FY06-07) 200 -Rural Roads II 60 - Rural Water Supply 60 - Public Administration Reform 120 (FY06-12) and Sanitation (FY06- I Adjustment Loan I (FY06-07) 12) 07 - Energy Sector DPL (FY07-08) 100 -National 100 - Output-based aid 7 - Integrated Solar Power (FY07-12) 43.2 Initiative for contracted private Human sector delivery Development (GPOBA) (FY07- (FY07-11) FY I O ) - Water Sector DPL 100 08 - Public Administration Reform 100 l l I I (FY07-08) Adjustment Loan Ill(08) 150 -ONE Support Project (FY08-14) I I -Solid Waste DPL I 132.7 I - Support to several private equity funds - Affordable housing for - Support to Water Public (Maghreb Invest, Capital North Africa low and middle income Utility RADEEJ (water- Venture Fund, Altermed) households (MIXTA) electricity and sewerage) - Support to micro-finance institutions -Structured finance - PPP in irrigation (Guerdane) (FONDEP, Jaida, AI Arnana ) package to Radeej, a - Investment in partnership in a - Quasi-equity investment in BMCE Bank water, electricity and multi-regional water project - Morocco Cement Sector (Greenfield Ynna sewerage utility in El (Veolia Water International) Cement project) Advisory services on Jadida business simplification to the Casablanca Regional Investment Center on business simplification - TA to Ministry of Justice on Commercial Mediation ~ Advisory support to Ministry of Finance on PPPs strategy in infrastructure - Establishment of Private Credit Bureau with the Central Bank - PPP for Guerdane irrigation project - I" domestic 7-year bond offering by a 84 Appendix 3 Relevant experience for its demand-driven, bottom-up community approach had already been collected and lessons learned under the Bank-supported Social Development Agency project (implemented from 2003-2008) and through the two rural projects - Irrigation-Based Community Development project (implemented between 2002 and 2008) and Rainfed Agriculture Development (under implementation since 2003). 10. The choice o f lending instrument evolved, with increased demand for development policy lending (DPL) reflecting both the policy-nature o f the reform program and the government's financing preferences. The PARL, series, supporting public administration reform, remained a cornerstone o f the Bank's DPL support. The positive experience from the Housing DPL (approved just before the CAS was finalized in FY05) and the Financial Sector DPL (FY06) further solidified the role o f DPLs in the Bank's financial support. The CAS-proposed investment lending project in.the water sector evolved to become a DPL and the new DPLs for energy and solid waste were approved. Overall, the larger use of the DPL instrument was based on long-term dialogue and solid analytical work, often in the form o f complex programmatic ESW (see below for discussion on AAA). DPLs allowed for a deeper and more productive dialogue on difficult reforms, and aligned Bank resource transfers to concrete actions required to launch or continue reforms in each sector. DPLs were supplemented by new investments in infrastructure, notably in supporting rural roads, water supply and sanitation. 11. The AAA program comprised 59 pieces of analytical work of which 35 were economic and sector work and 24 were technical assistance activities. The flexible, on-demand approach facilitated responsiveness to key areas emerging in the dialogue, analysis o f new priorities and complex cross- cutting themes, and knowledge services that were aligned with the requests o f the client. At times, this approach came at the cost of selectivity and resulted in some fragmentation. Technical assistance and policy advice efforts have been most of the time demand-driven and o f high quality, although not always timely. 12. I F C has played an important role in Morocco during the CAS period with its presence on the ground for advisory services, i t s entrance into the local capital markets, and a record investment program. During the CAS period, IFC's portfolio expanded substantially, in sharp contrast with the previous CAS. In FY09, IFC's total committed portfolio in Morocco reached US$272.5 million in 12 companies, making it the fifth largest exposure in the MENA region. From zero commitments between 2002 and 2005, IFC's investment activities started to increase sharply in 2006 and reached US$244 million in FY08. These commitments, ranging from investments in banks, microfinance institutions, water & wastewater utilities, investment funds for small and medium companies, to construction sector and property development in low income housing, were the result o f IFC's refocus on investment activities and in line with the WBG strategic objectives. 13. Supporting the financial sector (Pillar I) has been the centerpiece o f IFC's strategy and program, particularly as it supports the development o f SMEs and financial services to the poorer segment o f the population. IFC has been active in supporting investment funds bringing much needed capital and expertise to over 25 high-growth small and medium companies in Morocco. IFC has also worked with leading Moroccan banks to help them develop profitable SME banking operations. IFC also undertook various initiatives to develop the country's financial and credit information infrastructure, and helped establish jointly with the Central Bank a best practice private credit bureau. IFC's support to the microfinance sector has helped over 500,000 small borrowers' access much needed financial services. Moreover, IFC's investment in BMCE Bank, has helped strengthen the bank's capital and expand in 11 Sub-Saharan African countries. In infrastructure, IFC played a key role in advising the government on structuring and implementing the first public-private partnership globally for irrigation, and helped mobilize commercial funding for local water & wastewater utilities. On the Treasury front, IFC issued a bond in Morocco denominated in dirhams - a transaction that was the first domestic bond offering by a 85 Appendix 3 multilateral institution in Africa as well as in the Middle East - thus contributing to the broadening o f the financial markets in the country. IV. Progress on CAS Pillars and Bank Group Contribution 14. The CAS Results Framework provides a structure for assessing the contribution of the Bank Group (see Appendix 1). Implementation experience yielded a number o f lessons which are being reflected in the new CPS. The four pillars were underpinned by 12 outcomes and 112 indicators. Experience has shown that this framework was too specific and, in some cases, lacked sufficient realism. A more appropriate framework would allow for greater flexibility both over time and to respond to new needs and opportunities. I t would also acknowledge that Moroccan institutions and stakeholders are the principal drivers o f country development outcomes, as the Bank i s a relatively modest sized player in this context, and that Bank performance i s better evaluated by a sense o f "contribution" to results rather than firm "attribution". 15. Morocco made substantial progress in many areas during the CAS period. In particular, it made progress under Pillar 1 (improve competitiveness and the investment climate), Pillar 4 (improve water management and access to water and sanitation), and - to a lesser extent - Pillar 2 (increase access to basic services by the poor and marginalized). More modest progress was made under pillar 3 (improve education system's efficiency). Morocco's achievements under each CAS pillar are discussed below and the Bank's contribution i s assessed. Table A3.2: Impact o f Bank Group Program on Pillars o f the FY06-09 CAS Pillar 1 Pillar 2 Pillar 3 Pillar 4 Improve competitiveness and Increase access to basic Improve education system's Improve water management and -the investment climate services by the poor and efiiciency access to water andsanitation marginalized services 1.1 Maintain macroeconomic 2.1 Reduce the number of 4.1 Improve legal, financial and households livings in I) 3.1 Increase access to and quality of basic education I) institutional framework in the (D slums by 60% water sector stability 2.2 Improve access to 3.2 Increase graduation basic services, social and employment rates o f , 4.2 Improve access and I.2 Increase efficiency of public administration (D programs and economic (D students in high school, higher education, and treatment coverage in targeted 0 opportunity by poor and river basins vulnerable populations vocational training 0 1.3 Improve Investment climate 4.3 Improve technical and 0 financial performance of water sector operators. 1.4 Increase efficiency of the Financial sector and access to finance 1.5 Increased competitiveness of Small and medium-sized agro- 0 I0 Achieved (> Partially achieved 0 Not achieved I 86 Appendix 3 Pillar I:Improve competitiveness and the investment climate 16. This pillar had five focus areas: (i)maintain macroeconomic stability; (ii) increase efficiency of public administration; (iii)improve the investment climate; (iv) increase efficiency of the financial sector and access to finance of businesses; and (v) increase competitiveness of small and medium-sized agribusinesses. A. Maintain macroeconomic stability during the CAS period 17. Morocco sustained solid macroeconomic performance. Growth averaged above 5% annually with certain sectors such as tourism, telecommunications, finance, insurance, and construction recording levels of between 6 and 10 percent per year on average over the past four years. Since 2005, Morocco maintained sound fiscal policies and continued to address fiscal risks, leading to the consolidation of public finances. As a result, the budget ran surpluses in 2007 and 2008 and again in the first half o f 2009 (averaging 0.3 percent of GDP), and central government debt steadily declined to 47 percent of GDP in 2008 from 62 percent in 2005. In addition, it pursued appropriate monetary policy geared toward maintaining low and stable inflation (an average 2.5 percent since 2005) and enhanced financial sector supervision. The external position i s solid, with the current account in surplus for six consecutive years over the period 2001-06 and in quasi-balance in 2007. Public finances continue to be well managed with effective fiscal reforms pursued over the past few years. The most striking structural change was the shrinking o f the share of the primary sector by 3.5 percentage points of GDP at factor cost to reach an average of 15.7 percent over the period 2001-08, a share that i s still high compared to leading transition economies. As a result, GDP growth and macroeconomic stability became more resilient to the variability of the agricultural sector. The services sector grew by 4.3 percentage points to average 56.1 percent of GDP, driven by the telecommunication sector and other services provided to businesses and households. Manufacturing has declined to an average 16.5 percent of GDP since 2001, down from 18.8 percent in the 1990s. 18. The Bank provided analytical support as it engaged in continued monitoring o f the overall macroeconomic situation in close coordination with the IMF. Medium term issues have been nourished with a series of formal and informal AAA and TA activities. A CEM on Morocco's growth challenges was delivered in 2006; a TA on trade issues, still on-going, has strengthened inter alia Government capacity to evaluate the impact of planned and on-going bilateral trade agreements; a series of in-depth policy notes, informally shared with Government, have been developed to guide the overall economic dialogue and the preparation of the new CPS. In addition, issues of specific relevance to the macroeconomic stability of the country have been addressed in the sectoral policy dialogue developed around the design and implementation of DPLs and related accompanying TAs. For example, issues of public sector HR reform and wage bill management have been tackled by the PARL series and the associated TA (programmatic ESW). Finally, the Bank's Treasury Department provided advisory services in debt management, as Morocco was one of the earliest clients to sign a Master Derivatives Agreement with the IBRD. B. Increased efficiency o f the public administration 19. Government carried out a broad range o f reforms that led to improvements to the efficiency o f the public administration. Civil service reform contributed to a reduction of the wage bill from 1 1.7 % in 2005 to 10.2 % of GDP in 2008. Measures included a voluntary retirement program, a limit to new recruitment, cancellation of vacancies, and geographic and sectoral refocusing of human resources. Government established a Medium Term Expenditure Framework in 9 ministries, together with the dissemination of a methodological guide. Five additional ministries are expected to complete their MTEFs by the end of 2009. Limited progress was made on deconcentration, with the creation of ad hoc 87 Appendix 3 functions at decentralized level and performance-based contracts with external services at regional level in a few sectoral ministries. Important progress was made in introducing an e-Government and information society framework, and high impact measures introduced on-line administration. Successful e-Government applications were developed in the area o f custom processing (the "Badr" platform), e- procurement, tax reporting and payments, and externalization o f key IT processes. 20. Since 2002 the World Bank, the EU and the African Development Bank have supported Government with a mix o f financing and advisory activities. The key objectives of the public administration reform program (PARAP) are: (a) improving Government efficiency in the management o f budget resources through greater transparency, accountability, and performance measurement; (b) improving Government efficiency in the management o f human resources; and (c) consolidating and controlling civil service payroll evolution and (d) developing e-Government. A series o f three Development Policy loans, called Public Administration Reform Loans (PARLs), has accompanied the reform process (FY05, FY06, FY08) with PARL IV scheduled for FY 10. The PARLs mostly addressed results (outputs) in terms of reform implemented and modernized tools adopted by the various public entities, mostly on a pilot basis. A programmatic ESW (P-ESW) was delivered in parallel with its focus designed to accompany the reforms pursued under the PARL agenda. The PARLs are considered to have been satisfactory on meeting their objectives (June 2009 ICR for PARLs I and I1 and the on-going assessment o f PARL 111). Government showed commitment to implementing the program and donor coordination among the Bank, EU and AfDB was strong throughout and played a major role in program success. The Index o f the Quality o f government o f the Bank's Economic Development Prospects report, which i s a percentile rank relative to other countries o f the world, was 74 in 2007 (100 meaning best environment) compared to a rating o f 58 in 2000. See Table A3.3 below for outcomes. Table A3.3: Performance of CAS Outcome Indicators Performance Monitoring Baseline Goals for 2009 Outcome (Est.) Indicator Wage bill reduced 13% 11% o f GDP 10.4%o f GDP budget deficit brought down 5.7% o f 3.6% o f GDP 3% o f GDP GDP Voluntary retirement system Reduced by 25% Underway: technical commission still deficit reduced working on the reform, adjustments to the systems' parameters introduced Transparent and efficient 0 All 34 ministries 24 human resources management implemented applied Results-based budgeting 0 18 ministries 25 ministerial departments (6 o f them introduced benefited from IDF grant) Administrative and budgetary 0 All 34 ministries Underway although taking longer than deconcentration scheme expected: the deconcentration strategy i s under adopted preparation C. Improve the Investment Climate 2 1. Morocco experienced good investment performance. Gross investment reached 36.3 percent o f GDP in 2008 and FDI increased by 8 percent per year over the last five years, reaching $4.5 billion or 6 percent o f GDP in 2007. Most o f the FDI happened in five sectors: telecommunications (22 percent o f the total), new industry sectors (20.9 percent), tourism (17.8 percent), real estate (16,5percent), and banking (5.9 percent). Most o f these sectors posted high growth rates over the period 2001-08, of which 88 Appendix 3 telecommunications (up 12.4 percent), real estate and construction (up 7.6 percent), financial services (up 6.9 percent), and mechanical and electrical industries (up 6 percent). Liberalizing transport and energy, investments in transport infrastructure, strengthening the financial sector, and selectively opening the trade regime have further contributed to the diversification o f the economy, especially since 2004. This progress, together with good macro management, contributed to Morocco achieving investment grade status in 2007, which further reinforced the confidence o f investors, both domestic and foreign. 22. Important investment climate reforms have been introduced over the past four years. The corporate governance framework for joint stock companies (socie'te's anonymes) was reformed, an arbitration and mediation law was introduced, and the corporate tax rate was decreased. The business simplification project with the Regional Investment Center was instituted in Casablanca in 2007, with support from IFC, which helped accelerate business start-up procedures. As part of the decentralized management o f investment, powers were vested in regional Walis in relation to consensual transfers/conveyance or rentals of State-owned land for investment projects; a procedural handbook and a national committee for investment-related procedures were set up to simplify these procedures. Some progress was made on the legal authorization to freely enter into contracts for a limited duration, and on the review o f the 2003 Labor Code, applicable to dismissals based on technological, structural, or economic reasons. 23. There remains a need to increase the impact of reforms. In particular, the business environment continues to present challenges, especially in those areas-like regulatory reform-that require coordination across public agencies, and where a gap remains between the laws as they appear on the books and how they're applied to individual investors. Morocco's ranking in the annual Doing Business report i s largely static, at 128'hglobally, and 13th under the Middle East and North Africa region Doing Business ranking. 24. The Bank Group provided analytic support to the most urgent reforms in transport, logistics, fiscal reform and the investment climate. Analytical work included a study on Land Reform which identified regulations in industrial land as one o f the issues to be addressed and two Investment Climate Assessments (ICAs), in 2005 and in 2008. Debate on Morocco's Doing Business ranking led to a request from the main business organization (CGEM) to reopen negotiations with unions to bring more flexibility to labor regulations. The Bank was asked to provide technical assistance to organize an efficient public-private mechanism for identifying reform needs, and support the establishment o f a national committee to monitor and facilitate reforms among different ministries. IFC developed a sizeable advisory program to strengthen the investment climate and support private sector development. I t s advisory program focused on (a) promoting alternative dispute resolution mechanisms to improving the business environment - with the Ministry o f Justice; (b) helping identify public-private partnerships in key infrastructure sectors - with the Ministry o f Finance; (c) simplifying business creations starting with the City o f Casablanca; and (d) strengthening credit information and SME finance, through the establishment of a private credit bureau - with the Central Bank. Overall, the Bank Group's program was considered to have made a satisfactory contribution. See also Table A3.4. 89 Appendix 3 Table A3.4: Performance o f CAS Outcome Indicators PerformanceMonitoring Indicator Baseline Goals Outcome for 2009 Reduce the time necessary for industrial 82 days 40 days Almost achieved: 47 days (DB 2010) land registration Reduce "Doing Business" Indicators (1): 100 (1): 25 Some progress: related to job market rigidity: (1) Difficulties in recruiting (2): 70 (2): 40 (1) Difficulty in recruiting 89 (DB 2010) (2) Difficulties in laying-off (2) Difficulty in laying o f f workers 50 (DB 20 10) workerslemployees Increase proportion o f industrial f i r m s 20% 30yo Progress but goal not achieved: that offer vocational training to their 24.4% (ICA 2008) employees, from 20 % in 2004, to 30 %. Time in port for goods reduced. 8 days 3 days Achieved: Imported goods and merchandise: 4 days. Exported goods and merchandise: 2 days (ICA 2008) Account certification required for I IFRS In progress: public interest entities Standards IFRS allowed since 2007. Most listed companies affiliated with Europe adopted IFRS State-owned `public interest" entities are allowed to use IFRS standards since 2008 Local finance reform adopted I I Achieved: Parliament adopted this reform in 2007 Development strategy for urban transport I I Achieved: strategy adopted and implemented adouted (with support from WB) D. Increase Efficiency of Financial Sector and Access to Financing for Businesses 25. The financial sector became more stable and liberalized during the past four years. The Ministry o f Finance and Central Bank exercised strong leadership throughout. The Central Bank - Bank AI-Maghrib (BAM) - i s equipped with modern surveillance mechanisms. Banking supervision i s largely compliant with a majority o f Base1 I1 principles. The supervision o f insurance companies, not covered by the BAM, i s also largely compliant with international principles. There have been advances in capital market supervision. The banking sector i s stable, profitable, sufficiently capitalized, and more resilient to shocks as indicated by the significant decrease in the share in total credit o f nonperforming loans from 18.3% in 2004 to less than 6% in 2008. Since 2008, Bank AI-Maghrib and other supervisory agencies have embarked on a program aimed at strengthening national financial stability, a priority highlighted by the 2007 FSAP. The financial sector has been marginally affected by the global financial crisis owing t o i t s l o w exposure to external shocks. 26. I n FY06, a Financial Sector DPL ($200 million) helped strengthen the legal and institutional environment for financial intermediation and risk management, and to increase the private sector's participation in the provision of financial services. All targets o f the operation were met and the January 2008 ICR rated the operation satisfactory for Development Objectives and highly satisfactory for Implementation Progress. It concluded that the government's performance was Highly Satisfactory. The new framework has provided more autonomy to the Central Bank in conducting monetary policy and banking supervision, while including a strengthened mandate to intervene in financially troubled commercial banks. I t broadened the scope o f banking supervision to cover institutions (CDG, 90 Appendix 3 microfinance, postal services and associations) previously excluded from regulatory oversight. Progress on regulation and supervision o f the insurance sector was less significant. The Bank and the IMF carried out a Financial Sector Assessment Program (FSAP) review in 2007 which underpinned the reforms supported by the DPL. The government reforms supported by the DPL and FSAP have reduced financial sector vulnerabilities, especially as a result o f the restructuring o f ailing public specialized financial institutions. Concerns over stability have eased and policy attention has now been directed increasingly to core financial system development issues. The formerly state owned banks are in an advanced state o f restructuring and are in compliance with prudential requirements. They have redefined their strategy, business plan and market niche. The share o f government involvement in the banking sector has dropped from 40% in 2002 to 23% by 2008. On April 2009, the four authorities with responsibilities for the financial stability o f Morocco's financial system (Ministry of Economy and Finance, Central Bank, Securities Ethics Council and Department o f Insurance and Social Welfare) participated in a financial crisis simulation exercise sponsored by FIRST Initiative and the World Bank. The exercise was designed to test how the authorities would work together to manage a potential systemic crisis within their financial system. 27. The IFC has been very active in banking, micro-finance and investment funds covering. This included (i) the establishment o f the Credit Bureau; (ii) advisory work to Morocco's microfinance sector as part o f i t s investment packages; and (iii) support to the expansion o f BMCE Bank into 11 Sub- Saharan countries, therefore contributing to strengthen South-South Cooperation. IFC has also been active on the Treasury front. In FY05, it issued a bond in Morocco denominated in dirhams. This transaction was the first domestic bond offering by a multilateral institution in the country and in the MENA region. The transaction contributed to develop the domestic capital market, provide a new top quality investment opportunity, introduce "best practices" in the domestic capital market, and provide Morocco with a market visibility throughout the region. The 7-year bond o f US$I 17 million equivalent was distributed to more than 20 Moroccan institutional investors, including insurance companies, mutual funds and pension funds. IFC also financed several investment projects per year between FY06-FY09 which provided critical credit financing to micro-finances institutions or delivered equity financing: US$3.3 million partial credit guarantee to Fondep, a microfinance institution, allowing it to mobilize US$6.6 million in local currency funding; US$ 12.3 million in a regional private equity fund, Maghreb Private Equity Fund 1 , targeting 1 SMEs in Morocco, Algeria and Tunisia; US$22 million financing package to Jaida, Morocco's newly established microfinance fund. The financing i s in the form of 100% sovereign-linked guarantee to allow Jaida to raise subordinated debt in local currency from Moroccan banks; US$2 1 million financing package to A I Amana, Morocco's leading microfinance institution. The local currency financing package i s composed o f subordinated and senior debt, in the form of a local currency loan and credit guarantees. The subordinated debt was designed with the features o f Tier I1 capital, to help the MFI increase its capital base. This i s also IFC's first local currency debt to a microfinance institution and also the first subordinated debt to an MFI in Morocco; U S $ l 10 million quasi-equity investment (Upper Tier I1 capital) in BMCE Bank to support the bank's international expansion, namely in Sub Saharan Africa through the acquisition o f Bank o f Africa; 91 Appendix 3 US$8 million equity investment to Capital North Africa Venture Fund, a private equity fund managed by Capital Invest, an affiliate of a Moroccan bank, which will target high growth SMEs primarily in Morocco; US$7 million investment in Altermed, a private equity fund targeting SMEs with small capitalization needs in Morocco; 28. I n summary, Morocco's strong commitment to carrying out financial sector reform and the Bank Group's support to the financial sector overall are judged as satisfactory. (See also Table A3.5). Table A3.5: Performance of Outcome Indicators .... ~ ~ . . . . . _ . . . . ..~ ~~~~~~~~~~~~~ ~. ~~ Performance Monitoring Baseline Goals for Outcome Indicator 2009 Reduce the level o f NPLs as YO f o 18% 5% Almost achieved: 5.5% as o f April 2009 total credit Specialized banks (CIH and CAM) Achieved: Banks restructured restructured Increase medium/long-termbank 22.1% o f 30.7% o f GDP Achieved: > 43 % o f GDP in 2008 financing GDP Increase share o f mediumAong-term 40% 50% Achieved: >SO% by end-2008 bank financing in total credit E. Increased Competitiveness of Small and Medium-sized Agribusinesses 29. The agricultural sector in Morocco continues to face daunting challenges. I t i s characterized by a dualistic nature with, on the one hand, a predominant rain-fed sub-sector where 70 percent o f the poor live characterized by low productivity levels, and on the other hand, a small, competitive, export- oriented, irrigated sub-sector. Both large and small producers are constrained by inter-locking incentive, institutional and investment environment issues. Domestic price and market liberalization i s not complete, nor i s trade liberalization. More progress i s needed in land rights tenure systems and water management. An institutional framework compatible with demand-driven commercial and competitive agriculture i s yet to emerge. The recent launch o f the government's new and ambitious four year strategic framework for the agriculture sector (the "Plan Maroc Vert") constitutes a concerted response to this challenge. Government i s currently mobilizing support to this plan's implementation, including from the World Bank and other donors. 30. The Bank Group contributed to this pillar through a range o f mainly cross-cutting interventions.I6 It continued to implement two on-going integrated rural development projects - the Development o f Rain-fed Agriculture Project (known by its French acronym DRI-MVB) and the Irrigation Based Community Development Project (known by its French acronym DRI-PMH). The objectives o f these projects were to improve incomes and quality o f l i f e o f rural communities and to pilot new institutional arrangements to ensure greater community participation and integration o f sectoral programs. The DRI-PMH was focused on irrigation and closed at the end o f 2008 and the DRI-MVB i s focused on rain-fed agriculture and i s still under implementation. Implementation experience from these projects demonstrates the difficulty in piloting new and innovative approaches. The community-driven approach was a relatively novel idea to Morocco and the projects took a long time to get off the ground and put the necessary institutional and human capacity in place. Thereafter, implementation accelerated. l6 The Water sector DPL focused attention on the sustainability o f hydro resources and i s described in more detail later in this document under Pillar I V for Water Sector. 92 Appendix 3 Government agencies are demonstrating capacity to implement and fiscal decentralization i s proving to aid the approach. The ICR o f the DRI-PMH highlights that the project demonstrated that participatory community-based planning and integrated local level investment programming are feasible in rural areas of Morocco and add value in terms both o f ownership and impact. The model adopted by the project has been transferred and scaled up in other parts of the country, and nourished the design o f the nation-wide poverty reduction program INDH (see Pillar 11). The integration of investment programs at provincial level under the coordination of the governors has been effective although more needs to be done to ensure the effective implementation o f these programs. Lessons learned from these two projects are furthermore useful for the design o f the new Bank operation requested by the government to support the Plan Maroc Vert's component that targets the poorest rural areas and farmers. 3 1. The Bank Group had an active AAA program. This included an ESW report on land tenure and a policy note on the implementation o f public-private partnerships contracts to improve agricultural competitiveness and strengthen quality and vertical integration o f four sub-sectors. The IFC, with the Bank's support, advised the government on structuring and implementing the first public-private partnership (PPP) in irrigation worldwide. The project was for the construction and operation o f the irrigated perimeter o f Guerdane (1 0,000 hectares), which aims to increase the availability of irrigation water for about 600 citrus producers, thereby increasing and stabilizing their production and revenues, with benefits for more than 10,000 people. IFC - with the support o f a technical assistance grant from France's Fonds D'etudes et D'aide au Secteur Prive and the Bank's technical expertise in the water sector - provided the government with advice on structuring and implementing the Guerdane PPP to deliver high- quality, accountable and financially and environmentally sustainable public service to end-users. IFC also worked with the government to ensure a highly competitive and transparent bidding process for the transaction. The CAS indicators for this sub-component are shown in Table A3.6. Table A3.6: Performance of Outcome Indicators Reform strategy as defined by studies finalized by Achieved. In 2008, the Government developed and presented 2007, approved and implemented by 2009 in 2008 a ambitious agriculture competitiveness strategy: the n Plan Maroc Vert although the Bank was not directly involved in its preparation. Implementationo f public-private partnerships Ongoing: this approach was proposed in Bank's policy note contracts focused on improving competitiveness, and it i s now in the Government's new program. quality and vertical integration o f four sub-sectors (cereals, vegetables, olives, citrus and livestock) Guerdane PPP in irrigation i s supporting citrus growers Liberalization o f the cereals and sugar sector before Liberalization occurred in the sugar sector as the 4 state sugar 2009 producers were purchased by COSUMAR (ONA) a private holding group. N o progress on cereals liberalization. F. Energy Sector and Climate Change 32. Although not foreseen at the time o f CAS preparation, the government resumed an active energy sector dialogue with the World Bank, leading to unplanned program activities. The Bank provided technical assistance focused on energy security and efficient management o f resources. It led to the government formulation, in coordination with other development partners and particularly the EU, of a comprehensive energy sector reform program. At a time o f fast increasing energy prices, the Bank judged engagement important to the CAS objectives of improving competitiveness and increasing access to services could not be achieved without due consideration to a well performing energy sector. In response, during CAS implementation, the Bank delivered three financing operations (Energy DPL for 93 Appendix 3 $100 million, an investment loan to the electricity company ONE for $150 million, and a GEF grant for $43 million for a solar assisted gas-fired combined cycle power plant). The DPL operation aimed to support security of supply, while ensuring a sustainable energy future; competitivenessof energy supplies through cost reduction and improved sector performance in order to be able to reduce subsidies, building capacity building for strong operational and financial performance.The Bank delivered extensive analytic work in energy sector studies, policy notes and technical assistance (P-ESW). Against the background of the Bank analysis and support, the new government undertook a strategic study o f the sector in the fall of 2007, reformulated its energy strategy and launched new thinking on reform of the compensation mechanism. 33. Toward the end of the CAS period, work was initiated to address climate change issues. The government and the Bank, in partnership with the African Development Bank, formulated an investment plan to access resources of the Clean Technology Fund to finance investment that would lower the carbon intensity of the Moroccan economy. Morocco i s also part of the regional investment plan to scale-up use of solar thermal energy through the Concentrated Solar Power (CSP) technology to meet the energy needs of both MENA region and European countries. Regional integration i s a key element of these different activities, as it would help achieve the objectives of enhancing energy security and reducing the carbon intensity of the energy system. 1 Pillar 1 : Increase access to basic services for poor and marginalized people 34. Poverty in Morocco fell from 15.3% in 2001 to 9% in 2007", with a decline from 25.lo/o to 14.5% in rural areas where 43% of Moroccans live. The economic recovery in the 2000s has increased employment, reduced poverty, and improved social outcomes. Unemployment rates have been falling constantly and were, before the crisis, at a 30-year low. However, they remain high at around 9 percent (estimated figure as of first half of 2009) and questions remain over the quality of the jobs available. The reduction in unemployment i s due to slower labor force growth rather than employment creation. There i s broad national consensus on the need for growth acceleration over the next decade. Morocco will need to continue to pursue reforms that accelerate the economic transformation toward higher value added and more diversified products and rely more on trade in world markets as an additional source of growth. 35. The Bank Group provided a broad range o f support to this goal. The overall assessment i s that important achievements have been made, with clear progress on housing, poverty reduction, and monitoring. Some of the areas of engagement proposed in the CAS - such as new integrated rural development projects - did not materialize as planned because the country context and the Government's program evolved as described elsewhere in this report. A. Reduce the Number of Households Living in Slums by 60% 36. This CAS goal built on the Government's housing sector reform which started in 2003 with support from the Bank on the sector institutional setting and needed reforms. This engagement supported the formulation of a national strategy highlighting urban poverty reduction, cultural conservation and local economic development objectives associated with the rehabilitation of the medinas. In support of this national strategy, in June 2005, a $150 million, two-tranche Housing DPL was approved whose objectives were to: (i) strengthen the institutional, regulatory and fiscal environment for a well-functioning housing market and for the emergence of market-based solutions to the country's housing sector constraints; and (ii) increase the access of low-income and severely disadvantaged " This i s the national poverty figure in Morocco. I t i s based on a poverty threshold o f $2 per day per person in new PPP which i s a level far below what other countries at the same level o f GDP are using. 94 Appendix 3 households to more affordable and higher quality housing. The ICR concluded that the project was satisfactory in reaching its development objectives and in its implementation progress. Progress on institutional and regulatory reforms (the project's first development objective) was stronger than that recorded on the second objective (focused on low-income and disadvantaged households), although both were rated satisfactory. Government strengthened the national slum upgrading program, set aside public land for social housing and contracted on-site infrastructure to the private sector. However, implementation difficulties meant that just 28 percent o f slum households benefited from the low-income housing program and 2.5% o f households are still located in slum areas (an improvement over the project's baseline o f 4%, but less than the ambitious CAS outcome goal o f 1.5%). The Bank's urban AAA work continues to analyze key issues and contribute to reforms and policies. The Bank delivered an ESW in FY08 on Historic Cities Rehabilitation, followed by a policy workshop in FY09. I t provided analytical support in Urban Transport and Transport Logistics, with studies and technical assistance, including preparation o f the Urban Sector Strategy study. This has recently crystallized into a formal request for an Urban Transport DPL that i s under preparation for FY 10 delivery. 37. I F C invested $75 million in Mixta, a Spanish property developer focusing on affordable housing (targeting low and middle income households) in Morocco and Africa. This was a further innovative investment by IFC in a new area of business. IFC's investment has provided Mixta with long- term financing to develop affordable housing namely in the North o f Morocco, addressing the unmet and rising demand for affordable housing units, both in the lower and middle-market segments. The CAS indicators (Table A3.7) for this sub-component capture some of the progress recorded during the CAS period. Table A3.7: Performance o f Outcome Indicators Performance Monitoring Indicator Baseline Goals Outcome for 2009 Slum households, including female- N o 70% Partially achieved: 82,000 households benefited from headed households, benefit from low- baseline the cities without slums program, or 28% o f the number income housing program o f households in slums (293,000). Share o f population living in slum 4% 1.5% Partially achieved: 2.5% households located in slums, areas reduced taking into consideration the current rate o f population growth. Urban planning code, real-estatetax i i Pending: Urban planning code and residential rental law reform, and the residential rental sector reform was approved by the Council o f sector reform laws passed government in June 2008, but it still needs approval o f Council o f Ministers and Parliament B. Poor and Vulnerable Populations Living in Rural, Periurban and Urban Areas have Improved Access to Basic Services, Social Programs, and Economic Opportunities 38. Road access o f the rural population exceeded the CAS target (see Table A5.8). The government's national program for rural roads was supported in a harmonized way by the Bank and other donors with each donor providing parallel financing, with some similarities to a SWAP approach. Donors agreed to collectively finance investments with the government for rehabilitating 15,000 kilometers of rural roads, providing coordinated technical and financial support, and assessing progress around an integrated results framework. Investments in the secondary road network had a major impact on access to services where these were coordinated with efforts in schools and water supply, building on participatory approaches with provinces and local communities. The impact of the first phase was tangible: in villages that gained access to an all-weather road the net enrollment ratio o f girls in primary school rose from 28% to 68% and the price o f some staple foods declined by 50%. 95 Appendix 3 39. After the CAS was finalized, the government asked for the Bank's financial support to the National Initiative for Human Development (INDH). This was delivered in the form of a SWAP loan of US$lOO million approved in December 2006. The program targets urban neighborhoods and rural communes with multi-sectoral public infrastructure and revenue generating investments focusing on the most vulnerable populations. It relies on bottom up participation and planning and gives a more central role to elected local governments and to NGOs. The INDH approach built on the experience of three earlier Bank-funded projects - the Social Development Agency (ADS) project which piloted capacity building and community mapping; and the two rural projects - Irrigation Based Community Development project and the Rainfed Agricultural Development project - which support bottom-up and demand-driven community development. Support for INDH has become a major element of the Bank's program under this Pillar. There has been considerable progress in INDH implementation. Poverty in the communities targeted by INDH f e l l from 36% to 21%. 40. The Bank delivered a substantial AAA program. It built on the Miles Report on Skills and Employment to build consensus around the need for a reform of subsidies and the potential benefits of a cash transfer program. Budget issues related to the food and oil crises saw further Bank analysis and advice on reform of subsidies and the Bank provided technical and analytical support to monitor poverty. The Bank's P-ESW instrument helped the government generate relevant information for policy decisions, analyze the effectiveness of policies, and expose gaps in knowledge and data. Poverty maps introduced with Bank support changed the way poverty was perceived and addressed in Morocco, leading to more attention to poverty pockets in rich provinces. The use of poverty maps, and the Bank's poverty work more generally, have helped policy makers identify and implement social programs and have strengthened the authorities' ability to identify and monitor poverty. This poverty mapping also shaped the design and targeting of the INDH. 41. The Bank's program provided some support to the health sector, focused on advisory and technical assistance as well as the implementationof a trust fund in support of nutrition (GAIN program). Through this trust fund, the Bank was able to support the preparation of the national strategy on nutrition. Health coverage and efficiency of the multiple systems in place remain major concerns and the government assessed in the fall of 2007 that the sector was in need of a fundamental reform. Since then, a sector strategy has since been put in place. The European Union and the African Development Bank, as well as other bilateral donors, are heavily engaged in the health sector and, to date, the Bank's work has been limited to technical support to complement the engagement of other donors in the area of assisting with the targeting of the insurance scheme (RAMED) to the poorest. This scheme has been launched as a pilot in November 2008 so it is, therefore, still too soon to see real progress. Bank support was small in this area. 42. I F C carried out a pilot landmark investment aligned with the objective o f improving access to basic services. It provided a US$21 million structured finance package to Radeej, a water/electricity/sewage utility in El Jadida. This was the first time ever in Morocco that a public utility could access IFC financing and marked IFC's 1" sub-national transaction in MENA. The guarantee provided by IFC led to the brokering of long term commercial financing for Radeej's wastewater upgrading program. Such long term commercial financing would likely not have been forthcoming in the absence of IFC and attests to the catalytic financing nature of IFC. This initial transaction opened the way for other public utilities to access long term commercial funding, for needed investments in wastewater in three major cities (Marrakech, Kenitra and Agadir). 43. While Table A3.8 shows the positive achievement that the CAS outcome indicator for rural road access was exceeded, it also shows that other indicators were not aligned with the actual delivery o f the Bank's program. The Bank did not provide support to health insurance, the poverty 96 Appendix 3 mapping work superseded the construction o f the database for social policies, and the decentralized institutional structure that i s pursued under the INDH i s not captured by the indicator on ministerial coordination. Table A3.8: Performance o f Outcome Indicators Performance Monitoring Baseline Goals Outcome Indicator for 2009 Road access for rural populations 50% 6 1% Exceeded: 64% (2008), expected 80% in 20 I O increased Increase health insurance coverage 15% 50% Not achieved as Bank program did not engage here except in a small-scale way in complement with other donor interventions. Construction of national, commune / / The use o f the poverty maps has helped policy makers level, multisectoraldatabase to design and implement social policies targeted at the improve basis for designing and poor. targeting social policies and enabling program evaluation. Increased coordination across / I The core provincial rural development committees - ministries for targeting public Comit&s Provinciaux Restreints de Developpement expenditures to poor areas as Rural (CPRDR) - are operational in 1 1 provinces and evidenced by the hnctioning o f are supported by the Bank's Irrigation-Based provincial committees for rural dev. Community Development and Rainfed Rural Development projects. Local, provincial and regional committees have been set up under INDH. C. Solid Waste Management 44. Not foreseen at the time of CAS preparation, the government requested support from the Bank for the solid waste management program it launched at the end of 2006. Only 70% o f urban solid waste i s collected and less than 15% o f collected waste i s disposed o f in an environmentally and socially acceptable manner. A 15-year, 3-phase program prepared in 2008 set out objectives for the modernization o f solid waste management with specific targets. The sector had been addressed in the CAS under the water pillar but not specifically identified as a strategic objective. The Bank has been engaged in a long-term program o f support that encompassed AAA, trust funds, regional reports and data gathering. Following a government request, the Bank approved i t s first DPL in the solid waste sector in March 2009 ($132 million). This path-breaking operation built upon the policy dialogue and advisory role o f the previous five years. It focuses on improving the governance o f the sector, enhancing sustainability o f services, building public-private partnerships and mainstreaming environmental and social priorities. It also assists Morocco to take advantage o f the Clean development mechanism and gain access to the carbon finance market through decreasing the emissions o f green house gases from open landfills. A second DPL i s planned as part o f the new CPS. Pillar 111: Improve the Efficiency o f the Education System 45. Government devoted attention to primary and higher education for the past several years in response to high geographic, demographic and gender inequalities. Access to education at all levels has been expanded, with national net enrollment rates for primary education, middle school and upper secondary all increasing. This increased enrollment has placed pressure on higher education and has led to a substantial increase in student enrollment (about 25% between 1993 and 2006). Good progress has also been made in ensuring equitable access to education for young children. The gender parity index in 97 Appendix 3 primary education between urban boys and rural girls aged 6-11 has narrowed from 1.5 to 1 in the past decade. Nevertheless, serious enrollment disparities persist as children proceed through the education system. Illiteracy rates remain high in rural areas and among women, unemployment among high school and even university graduates remains high, and there i s a perceived disconnect between economic growth and standards of quality in all levels of the education system. With the goal of facilitating a comprehensive assessment of progress in education, the two CAS components under this pillar are grouped together. A. Increase Access to and Quality o f Basic Education and B. Increase Graduation and Employment Rates o f High School, Higher Education and Vocational Training Students 46. There has been progress in improving access. The national net enrollment rates for primary education have increased from 52.4% (1990-1991) to 93.5% (2007-2008). Between 2000 and 2008, net enrollment in middle school increased from 17.5% to 43.4%, and in upper secondary education from 6.1% to 17.5%. Education completion rates have progressed but the prospects to meet the MDGs remain uncertain. Primary school completion rate has increased from 57.8% in 2004 to 70.8% in 2007. The disparity between girls and boys remains an issue. It i s not clear whether, at the current pace, universal primary school completion can be achieved by 2015. The completion o f middle school education has improved (from 43.7% in 2004 to 78.6% in 2007), with rates for boys (74.9%) lower in comparison to that for girls (82.9%). Morocco has been less successful in balancing the observed increase in enrollments with the required education quality and skills improvement. The internal efficiency of the education system i s low at all levels. High drop-out and repetition rates are prevalent at most levels. Learning achievements and external efficiency are problematic. Ensuring the financial sustainability of schooling expansion and strengthening the overall sector's governance are challenging. 47. The Bank supported improvement of education access and standards, in particular through a Primary Education loan (PARSEM 1). This project was approved in FY05 and implemented throughout the CAS period (it closed in June 2009). I t was implemented along with financing from several other donors. The principal objective o f PARSEM i s to support government efforts to provide basic education and improving quality o f that education to all children ages six to fourteen in a financially sustainable manner. To meet this objective, PARSEM contributed to the establishment of practices, mechanisms, and approaches that will improve the education system on an ongoing basis. As well as contributing to the enrollment outcomes mentioned above, concrete efforts were made through the project to improve the governance of the sector by addressing fiduciary weaknesses, including with training in procurement and financial management to staff of the AREFs (regional academies recently instituted) and diagnosis on evaluation systems within the Ministry of Education. These include the decentralization process (AREFs are gradually playing a key role in reform implementation), the strengthening of the in- service training program and the execution of learning evaluation. 48. I n June 2008, the Education Emergency Plan (Plan d'Urgence 2009-2012) was finalized which lays out an ambitious reform program that underscores government's prioritization of the education sector in Morocco's development. Support to the preparation of this plan was provided during preparation by donors engaged in the education sector (including the Bank through PARSEM). Since June 2008, donors have been delivering their financial support to the Plan d'Urgence and the Bank has a DPL under preparation in FY 10 in support of this. 49. The Bank supported the Ministry of Education in putting in place a conditional cash transfer program in rural primary education. Starting with technical discussions in early 2007, to the launch o f the program in the fall of 2008, the Bank has been providing technical assistance through a series of short technical notes and regular missions, to answer specific needs expressed by the Ministry of 98 Appendix 3 Education and the Higher Education Council at each step o f the pilot implementation. From the preliminary design phase, to setting-up the whole information infrastructure and operational procedures, the Bank provided just-in-time support for a pilot program that was set-up in record time by the government. This was not an activity planned in the C A S but flexibility and responsiveness to an urgent and strategic demand by the Government allowed the Bank to play a key role in setting-up this important initiative. Today, the program called Tayssir benefits more than 40,000 households (close to 90,000 students) in 5 regions and 266 schools. It has the infrastructure o f a best-practice conditional cash transfer program, and i s subject to a rigorous impact evaluation that i s being conducted with the support o f the Bank. As o f September 2009, government i s considering the extension o f Tayssir to 6 new regions, to benefit 160,000 new households. The originality o f the Tayssir pilot i s also that it i s designed to offer the government a very reliable impact evaluation at the end o f the second year o f the program. The evaluation has been designed using the most recent techniques by the Poverty Action Lab o f MITI8, in collaboration and with the financial support o f various trust funds mobilized by the Bank. 50. The CAS outcome indicators as shown in Table A3.9 below do not represent well the impact o f the government's program and the Bank's contribution. In some cases, the goals were unrealistic and overly ambitious. In others, there were no baselines provided, making it difficult to assess progress. Furthermore, the outcome indicators did not match the goals in the results framework o f the Bank's education project (PARSEM) which were more realistic and should have been used as the basis for assessing the Bank's performance since they are directly linked to the Bank's project. It's also important to emphasize the difficulties here between attribution o f outcomes and contribution to outcomes: the Bank i s just one o f many development actors in the education system, and finances a relatively small amount o f the overall education program, so it i s inappropriate to apply a standard o f attribution o f outcomes to the Bank's program. Table A3.9: Performance of Outcome Indicators Increase girls' elementary school 89% 96 92.1% net primary enrollment rate for girls in attendance rate and rural-middle urban areas (2007-2008) and 87.1% in rural areas school attendance (2007-2008) 9% 40% Middle school attendance rate estimated at 18 percent in 2007. Increase primary school and middle 57.8% 87% Some progress made: 70.8% (2007) school completion rates 43.7% 71% 78.6% (2007) Increase number o f rural N o baseline No target 49.5% o f the rural communes have access to communes having access to middle middle school instruction in 2007-2008 school instruction Gender gap in youth illiteracy 47.5% N o target Improved: Illiteracy rate among 10 years old or reduced above in 2007 (29.4% men, 52.6% women) The proportion o f professionally- 20% 50% Labor force with secondary education or more qualified people (higher education stood at 17.3% in 2005 which i s lower than the and professional training) acceding CAS baseline. Available data here i s incomplete every year to the job market grows to assess outcome. Employment rate o f vocational 55% 75% Progress made: 63%. training graduates grows Private sector's increased No baseline N o target 5.6% o f students enrolled in private tertiary involvement in higher education. education institutions in 2006-2007 A leading lab on impact evaluations that was set-up at the Massachusetts Institute o f Technology, Cambridge, MA, USA (see www.povertyactionlab.org). 99 Appendix 3 Pillar IV: Improve Water (Resources) Management and Access to Potable/Drinking Water and Sanitation Services 5 1. Morocco's water policies have long focused on securing scarce and unevenly distributed resources for urban and agricultural needs. It has done this through the development of dams, large scale irrigation perimeters, and urban water supply systems. While creating solid infrastructure and capable institutions, this supply-driven focus also led to neglecting parallel investments in demand management, water supply in rural areas, sanitation and pollution control. Starting in 1995 with the promulgation of the Water Law, government has sought to bring about better resource management and protection, as well as improved access and efficiency in the water sector. Reform progress has been slow and Morocco's water sector - understood as encompassing resource management, irrigation, and water supply and sanitation (WSS) - remains in transition towards a more efficient resource management and service. For all its infrastructure achievements, the sector faces pressing challenges, including large scale degradation and depletion of water resources, substantial gaps in water supply and sanitation coverage, and generally inefficient water usage. Such water-related constraints contribute to limiting economic and social development opportunities across Morocco. 52. Building on three decades o f water project partnerships and renewed policy dialogue since 2002, the government and the Bank agreed that the water sector would remain central to their partnership. The water pillar of the CAS was conceived in this context. As highlighted in Tables A5.10, A5.11 and A5.12, there progress has been made. During the course of CAS implementation, as the government showed an increasing preference for DPLs, it requested the Bank to provide DPL support to the water sector, to complement the investment projects underway or planned. In October 2005, the government confirmed that the reform program would seek advances in sector governance, resource management, irrigation, and water supply and sanitation (WSS), while ensuring continuity with previous sector reforms and adjustment operations. The DPL was designed as a series of four loans (Programmatic-DPL, or P-DPL) to sustain the incremental implementation over several years of the government's broad reform program. The reforms aimed at bringing about more efficient and sustainable water management and service delivery. The program addressed central issues in sector governance and financing, while supporting sub-sectoral reforms in resource management, irrigation, and water supply and sanitation. It was guided by principles o f integrated resources management, as well as demand and performance management. Goals and key measures included: (i)strengthened water sector governance, financing arrangements, and policy coordination; (ii) enactment of integrated water resource management (IWRM) towards sustainable water uses; (iii) improved service, asset management and usage productivity in irrigation; and (iv) better access to water and sanitation services, and increased wastewater treatment capacity. Following satisfaction of agreed actions in each of the four reform tracks, DPL-1 was disbursed in June 2007. Despite good progress on the irrigation and water supply and sanitation reform tracks, DPL 2 could not be triggered as planned in 2008, due to delays in the implementation of sector governance reforms and mixed results in the IWRM reform track. Accordingly the Programmatic DPL framework expired in May 2009. Premature termination aside, the DPL process i s believed to have facilitated meaningful policy and awareness gains, on the long path to sustainable management of water resources and water demands. In support of the water pillar, programmatic ESW (P-ESW) was carried out as part of a flexible, multi-year approach designed to support reform scoping and design, to promote interministerial collaboration, and to benefit key institutional sector actors. Trust Fund support ($2.7 million) was mobilized for studies and TA. 100 Appendix 3 A. Improve the Legal, Financial and Institutional Framework in the Water Sector 53. Major results were achieved in this area, supported by the DPL. These included: (i) the Adoption o f the National Sanitation Plan (PNA) for the period 2006-2009, and establishment o f criteria for the allocation and management o f subsidies granted under this Plan; (ii)the development and launch o f the National Plan for Irrigation Water Efficiency (PNEEI), and (iii) increased budget financing for the development o f rural water supply. Some critical institutional constraints were addressed, including complexities and inefficiencies o f sector organization; breadth o f river basin agencies mandates exceeding their financial resources; the slow enactment o f Law 10/95 on Water; the growing gap between water demands and available water resources; and lack o f policies to manage demand. As highlighted in Table A3.10, there was some good progress made in achieving the outcome indicators o f the CAS for this component o f Pillar IV. Table A3.10: Performance of Outcome Indicators Performance Monitoring Baseline Goals for 2009 Outcome Indicator Share o f the water budget 5% 12% Achieved:. The budget allocated to the NAP for earmarked for pollution 2009 rose to 500 million dirhams and the PAGER control and rural water program to 100 million dirhams; both figures supply increased represent exactly 12% o f the state budget Trend confirmed in 2008. Joint Watershed Agency- 0 10 In progress despite the delay for promulgation o f the commune projects decree on river basin agency cost sharing. Number implemented in each of projects co-funded by River Basin Agencies i s watershed growing, and it i s estimated to exceed on average 10 projects (e.g. in the Oum Er Rbia River basin). Collection rate of 0 15% Good progress, especially for surface water billed withdrawal and discharge by regional irrigation agencies. Billing and fees by River Basin collection of discharge (pollution) and individual Agencies increased abstraction fees remain very low. B. Increased Access to Water and Wastewater Treatment in Target Basins 54. Concrete results were attained in increasing access to potable water and sanitation in rural areas and poor peri-urban areas. The Bank supported through two interventions. In FY06, it approved a Rural Water Supply and Sanitation (RWSS) project in the El Jadida and Safi provinces which supports the national water operator - ONEP. The project development objective i s to support the government program to increase sustainable access to potable water supply in rural areas, while promoting improved wastewater management and hygiene practices. The project i s being implemented satisfactorily, although with some procurement delays, and there i s a high demand from beneficiaries for the project's services, particularly for house connections. The project i s at i t s mid-term review point so i t i s s t i l l premature to assess its impact. Preparation has recently started on a second ONEP Urban and Rural Water Systems (URWS) project to meet urban and rural coverage and access goals in four provinces and pioneering a household-connection service and sanitation strategy for rural areas. 55. The second intervention, partially foreseen at the time o f the CAS, was to support an innovative and successful large-scale pilot since 2007 in poor un-zoned periurban neighborhoods of Casablanca, Meknes and Tangiers, to demonstrate Output Based Aid (OBA) mechanisms for the 101 Appendix 3 promotion of water and sanitation service connections in chronically un-served areas. Funded through a $7 million GPOBA grant, this pilot program promotes innovative partnerships between private or public operators, local authorities and the government, for the subsidized extension o f water service connections in chronically neglected marginal areas. Progress and lessons learned to date on these pilots have been very promising, and the principle of output-based aid as an efficient targeted subsidy mechanism has been confirmed by the midterm review. The project i s aligned with INDH objectives and progress has been such that, with due scale-up streamlining and adaptations, it can serve as a template for government to achieve its stated INDH goals o f providing access to basic utility services in poor communities nationwide. 56. The Irrigation Based Community Development Project continued to be implemented during the CAS period, reaching successfully local communities with small irrigation schemes and strengthening bottom-up decision making mechanisms. This project was discussed above as regards its achievements at rolling out a bottom-up participatory development approach but its impact on irrigation and agricultural productivity merits discussion here. As noted in the ICR, the project's outcomes were considerable as it strengthened management of irrigation schemes in a participatory way which lent to improved efficiency o f water use, greater agricultural productivity from better irrigation, and ultimately improved incomes. The economic rate o f return on the irrigation investments surpassed the project's goal and the overall ICR rating was satisfactory (despite the problems with slow project start-up and the lengthy implementation period). 57. I F C has been very active in the water sector through several interventions: (i) $40 million a equity investment and stand-by loan to Veolia Water International which was part o f a multi-region investment; (ii) the Guerdane project, the first ever public-private partnership in irrigation, described earlier; and (iii) $2 1 million structured finance package to Radeej, a water/electricity/sewage utility in the El Jadida, also described earlier. Table A3.11: Performance o f Outcome Indicators 90 % o f PAGER systems 90% Achieved. The access to water supply in rural hnctional areas has reached 87% in 2009 Improved individual No baseline. No target In progress. INDH projects and GPOBA supply o f water pilots underway. In January 2009, the Inter- sanitation for poor urban ministerial Water Commission mandates and periurban Ministry o f Interior and ONEP to develop neighborhoods program to bridge the WSS service access gap in poor periurban areas o f Morocco. Government expressed interest for a loan to support the program. Good water quality rating N o baseline N o target Undocumented indicator. from 70 YOo f quality measurement stations C. Water Sector Operator Performance 58. The Ministry of Agriculture made progress in improving the performance o f irrigation agencies. The irrigation tariff adjustment plan has been approved and i t s implementation has begun. The collection rate for irrigation water bills i s now very good in most ORMVAs (Regional 102 Appendix 3 irrigation and agricultural extension agencies). Service delegation transactions (PPP) are under review and ready to be rolled out for four ORMVAs. Public-public performance contracts have been developed, with Bank assistance, between government and the ORMVAs. Gains are also reported in water supply and sanitation service regulation (tariffs, performance), including a Service Delegation Law approved to rule the selection and contracting o f service providers and their performance management. On the other hand, limited progress was achieved for the design and implementation o f tariff policy reform and o f regulation reform. I t i s too early to assess if Bank-supported initiatives to build capacity within water resources management institutions or river basin agencies, will be conclusive. Despite the urgency, Bank technical assistance for the development of sustainable aquifer management strategies and studies conducted to forecast climate change impacts on agriculture and water resources management have until now only benefited from partial government ownership, and have suffered data disclosure delays. Table A3.12: Performance of Outcome Indicators Performance Monitoring Baseline Goals for 2009 Outcome Indicator Prices cover normal costs N o baseline N o target Progress. Tariff Adjustment Plan issued. for exploitation and First implementation step in process. with a maintenance o f 7 ORMVAs rate adjustment adopted in 2009 Collection levels o f N o baseline >80% in 7 Achieved: operating expenses increased irrigation fees ORMVAs from 65% to 72% and will reach 98% in 201 1 with planned tariff increases twice a year Water supply and sanitation: In progress with good outlook. Limited tariff adjustment reform occurred in March 2006, New tariff and performance falling short o f expected reform needs. PSIA regulation systems in place results to inform reflection on tariff 59. I n conclusion, the 2006-2009 CAS saw the Bank support important initiatives in Morocco's water sector. Results were seen in the irrigation and WSS subsectors, both determined in pursuing reform, bridging infrastructure gaps and improving performance. Some progress has also been initiated for WRM, but in this subsector however, government's call for more effective policies and efficient expenditure i s lagging, and depends upon a difficult switch to demand management policies and selective pursuit o f new resource development. Nevertheless, the water sector partnership with the government over the 2006-2009 period can be seen a productive. The Bank's policy dialogue, investment lending, s policy lending and technical assistance have accompanied and supported several strategic and irreversible transformations and gains. V. Other Cross-Cutting Elements o f the Bank Group's Program in Morocco Use of Country Systems 60. The Bank has been in discussion with authorities in Morocco for several years to increase the use of country systems in its program. The objective i s to help Morocco bring its national practices in line with international good practices on financial management, procurement, as well as in the areas o f environmental and social safeguards. The context i s that o f the commitments made in the Paris (2004) and Accra (2008) Declarations on effectiveness o f development aid. Specifically, "donors agree to use country systems as the first option for aid programs in support o f activities managed by the public sector". The government o f Morocco has encouraged the Bank to accelerate its efforts in this area. 103 Appendix 3 61. The Moroccan government requested to be a pilot on the Use of Country Procurement Systems. The assessment of the Moroccan procurement systems, as per the Pilot program's methodology, i s currently being finalized. It has concluded that Morocco has an overall solid public procurement system. However, four areas of reform have been identified, which were discussed during a National Symposium on Public Procurement organized by the Ministry of Economy and Finance in April 2009. According to the pilot program, a mid-term action plan i s to be agreed with the government in order to confirm Morocco as a pilot country. The Bank expects to reach such an agreement before the end of 2009. Morocco had also agreed to undergo external bench-marked evaluations of its financial management systems (CPAR, CFAA in 2003 and 2007) and the PEFA in 2009. To date, the government has demonstrated strong willingness to implement the action plans. 62. Important progress has been made towards adopting a country environmental and social protection system in World Bank-financed projects particularly regarding the strengthening of the environment protection framework. During the preparation of the Solid Waste Sector Policy Development Project, a fruitful dialogue started with the Moroccan authorities. An evaluation of the environmental protection framework targeted to Waste Management was initiated and the differences recorded have in great part been taken into consideration by the sector through convincing regulatory and institutional measures, specifically through decentralization o f reviews and approvals of environmental impact studies at the regional level, and also through preliminary public consultations. 63. The Bank provided support to procurement and financial management issues during CAS implementation (see Table A3.13 below). Table A3.13: Morocco Fiduciary Activities Coordination o f the corporate Organization within the framework o f Building a relationship o f mutual respect the CPPR o f several successful capacity and trust with country authorities and financial reporting agenda development workshops on Financial playing an advisory role Management and Audit. Preparation and broad dissemination o f Assessment of the F M capacity o f Building capacity and simplification of CFAA sectors and implementing agencies to F M procedures. define appropriate F M arrangements for projects and programs. The default solution i s use o f country system. Participation to PEFA mission Participation to a transactions review for The improvement o f the F M portfolio Education Sector and an Expenditure performance. review o f NGOs involved in INDH Program Particiuation to Public Administration Right balance between client needs and I Reform minimum fiduciary requirements. Handling o f procurement in Morocco Capacity building for PIU, I A Procurement reform on good track in portfolio (IL and DPL) Morocco CPAR with a report issued on December Sectors and PIU/ I A capacity assessment Bank seen as major partner in 2005 and updated on July 2008 in procurement and set up o f procurement procurement provisions in investment lending projects (procurement thresholds upgraded) UCS piloting program (underway- draft PPR o f active project portfolio (annually Sectors, PIU and I A capacities improved report on phase 1 and 2 assessment basis) and recommendation for issued on august 09) improvement 104 Appendix 3 World Bank: a key player in Regular supervision o f active portfolio Portfolio performance improved in procurement dialogue and procurement procurement reform in Morocco: (i) Support to Modernization of public procurement (IDF grant); (ii) Part of all major events on public procurement and procurement reform Public administrationreform Communications 64. The program has main-streamed communications into Bank Group activities to support reforms. This was facilitated by decision makers who were increasingly convinced of the need to open up the dialogue on reforms to all socioeconomic actors. The Bank Group was recognized as a trusted partner and a strong reform proponent. The communication activities aimed at promoting a better understanding of issues, challenges and reform tradeoffs by all development partners to ensure increased development effectiveness of Bank activities and programs. 65. The communications strategy covering FY 2006-09 was based on the recommendations and development challenges identified during the CAS preparation consultations. It was designed to support Bank Group activities in order to achieve CAS strategic objectives. Through focusing on promoting dialogue, building awareness and understanding of the reform process, communication activities facilitated consensus-building for reform and contributed to public debate to generate more proactive responses and leverage local ideas and inputs. It was implemented through four pillars - Media Outreach, Civil Society Engagement, Knowledge Dissemination and Communication for Bank Operations. Box 1 -Client Feedback Interviews o f selected government officials and development partners were conducted during the preparation o f this report. Major points highlighted during these consultations include: The World Bank Group i s sought after for its financing role, technical assistance, knowledge, and as an interlocutor, convener and catalytic force o f other partners. It demonstrated great flexibility in implementing the CAS program, showing very good responsiveness to Morocco's needs and requests. The World Bank Group has been instrumental, over the CAS period, in facilitating and accelerating the pace o f necessary reforms in Morocco. Although the financial support i s appreciated, Bank Group i s considered as a key partner that brings innovative solutions, catalyzes reforming ideas and helps bringing about change in Morocco. It i s also valued for its role in voicing areas for improvement. DPLs are very well appreciated as reform instruments. Although the overall quality o f ESW is viewed as high, some remarks were made concerning the slow completion o f some o f the Bank products. There i s also some concern regarding the supply-driven aspect o f some ESW that was undertaken during the CAS period. There i s recognition o f the crucial role played by the Country Office in maintaining regular contacts with the government, which allows for good coordination and ongoing evaluation o f the partnership strategy. More formal consultations with government could be held regularly on the overall implementation o f the CAS program. This would complement the CAS Progress Report that only allows for stocktaking o f the implementation o f the CAS program at the midpoint period. There i s a perception that evaluation o f activities after completion is not sufficient, especially in the case o f repeater projects, and does not allow assessing the ultimate impact o f projects in improving the l i f e o f Moroccan citizens. Similarly, there i s some concern over the need for more and better monitoring and evaluation by the government, in particular regarding the Bank Group's program indicators. There are high expectations on the use o f country systems, and it would be an important step forward in the relationship with the Bank. On procurement in particular, issues faced in the INDH program have led the Bank to provide technical support to their Moroccan counterparts, which has proven successful in improving Moroccan capacity and procedures. This will be useful to the INDH but also more generally to other Bank projects in the country. The Bank Group acts as a catalyst in many sectors. In education, donor coordination has been particularly successful, and there are good prospects in the health sector for example. On the government side, discussions are underway in order to improve the coordination framework for donor relationships. 105 Appendix 3 VI. Lessons Learned Stratepic Enpavement 66. Importance of Partnership. The implementation o f the CAS represented a shift in the nature o f the relationship between the Bank Group and Morocco from one o f assistance to one o f partnership. This shift was illustrated and greatly facilitated by broad-based country dialogue, which became more pronounced during implementation. This led directly to adoption by the Bank o f a more flexible approach on programming of activities and lending. Articulating this partnership more explicitly and fully should be a priority o f the new CPS. 67. Ensuring Both Continuity and Flexibility. Even with the flexible and client-responsive approach that drove program adaptation, the four pillars structuring the CAS remained valid throughout the program period. Engagement in on-going and new sectors were covered by the pillars. The Bank Group's flexibility was shown through adapting the scope o f the program (for example, engaging in new sectors while doing less in others), as well as in timing and instrument choice (for example, with DPLs assuming a greater than anticipated share o f lending becoming more important). The overall architecture and on-going relevance o f the CAS four pillars were confirmed in the CAS Progress Report. They remain a valid starting point in preparing the new CPS. 68. Flexibility in Engagement. Flexibility and responsiveness were not new to the Bank Group's engagement in Morocco, but have now appropriately become the rule rather than the exception. From the beginning o f CAS implementation, the Bank Group avoided a narrow interpretation o f its activities within the somewhat detailed specifics of the initial CAS program. This was evident early in the CAS cycle when opportunities quickly arose for fuller than anticipated in energy and solid waste sectors as well as in the nation human development initiative. This flexible approach has allowed the Bank Group to make greater contributions to Morocco's development and has meant a better client-focused program, and should continue to be a cornerstone o f the new CPS. 69. Moving from Analysis to Advocacy to Action. The Government appreciated the Bank Group's partnership and flexibility and recognized i t s ability to provide support to areas with the potential for path-changing, long-run impact. The Government had a good understanding of the Bank Group's comparative advantage and regularly confirmed where and how it wanted the Bank to play a role. The nature o f engagement was one which moved from analysis, to advocacy and then action through a sustained and incrementally larger package o f support (for example, as evident in the support to the energy and solid waste sectors). This was a successful and appreciated approach and led to further requests for increased financial support. 70. Importance o f One World Bank Group. The implementation o f the CAS saw a very close collaboration between IFC and IBRD. The broadened and expanded IFC program made important contributions to several CAS pillars, aided by mutual knowledge and frequent communication. Joint Bank-IFC involvement in the early stages o f analytical exercises or policy advice helped to secure impact. The Bank has usually taken the lead in strategic analytical exercises (as with the investment climate assessment) or policy advice, while the IFC-through i t s advisory services-has focused on more operational assistance, supporting the implementation o f reforms. Bank staff involved in analytical work have systematically been involved in the initial conceptual phase of IFC's advisory services projects. In the same way, IFC was consulted and involved in the preparation o f analytical pieces by the World Bank. This collaboration provides a strong foundation for greater Bank Group synergies and should continue to be a central element in the new CPS. 106 Appendix 3 Results 71. Need for Greater Adaptation and Realism. The 2005 CAS result matrix was too specific. I t contained detailed goals and multiple indicators that were over ambitious. The framework soon provedobsolete, as experience quickly showed the need for program flexibility, with consequences for changing planned outcomes and deliverables. Even in areas where the Bank did engage as planned, some goals were seen as unrealistic and overly ambitious. In others, no baseline information was available, making it difficult to assess progress. The CAS outcome indicators did not match the goals in the results frameworks o f some o f the Bank Group's projects (notably education) which were more realistic and should have been used as the basis for assessing the Bank Group's performance. The lesson learned i s to ensure a more reasonable and practical results framework that accounts for the flexibility o f the Bank Group's approach. In this respect, the new CPS results framework should be simplified but dynamic, with the intention that it should evolve as the program evolves. 72. Joint and Dynamic Accountability. There i s a need to work more closely with the Government to jointly assess progress and update results and indicators. Monitoring and evaluation of development activities are currently insufficient and there i s a need for a stronger results orientation for both Government and Bank Group programs. In the context o f a Middle Income Country strategy, the Results Framework should allow sufficient flexibility to adapt to the evolving program. At the same time, it should be used a a management tool for both the Bank Group and Government to build management and s monitoring capacity in Government institutions, including those supported by Bank Group programs. This should be pursued through building the capacity o f Government agencies to plan, budget and ' manage for results. The Bank's project teams will also need to focus more on helping sectors develop M&E systems which would in turn help project data collection and reporting. As the new CPS i s implemented, the Bank Group and Government should jointly assess progress and update results and indicators to reflect the increased specificity o f the program and to ensure continuedjoint accountability. 73. Attribution versus Contribution. The results approach in the CAS reflected an overly ambitious attempt to show direct attribution of Bank activities to country outcomes. As a provider of a significant yet modest proportion o f international development finance to Morocco, the Bank Group's impact on core development indicators i s limited, making it difficult to measure impact. In some areas such as public administration and education, the Bank i s just one o f many development actors and finances a relatively small amount o f the overall education program, so it i s inappropriate to apply a standard o f attribution o f outcomes to the Bank's program. This needs to be taken into account going forward. Propram Activities 74. Experience with DPLs. The DPL lending instrument became more important in the Bank's program during CAS implementation based mainly on the Government's expressed preference for this type o f support. The tranche or programmatic support o f DPLs created a dynamic o f institutional and financial incentives which were conducive to the achievement o f the intended results. In some instances, the Government used its commitment to the DPLs as a tool to concretize reforms and overcome the administrative inertia and disagreements between responsible department^'^. In DPLs, the quality o f the underlying technical analysis i s essential to a successful outcome2'. The success o f the DPLs was due in large part because there was a strong underlying foundation o f technical analysis that underpinned the policy dialogue and reform program. In particular, the Programmatic ESW (P-ESW) was used very effectively in support o f the PARL, energy and water sector DPLs. 19 This was a concrete lesson learned as outlined in the ICR for the Housing Sector DPL but also i s relevant to other sectors. 2o The ICRs o f the PARL and Financial Sector DPL provide details on this point. 107 Appendix 3 75. However, experience from implementing the different DPLs was mixed. In the case o f the PARL and the Financial Sector DPL, the Ministry o f Finance was simultaneously the champion of reforms, the ministry responsible for their implementation and the direct beneficiary o f the DPL funds to the national budget. This created a more conducive environment for effective implementation and hence success. This was not the case, however, with the Energy, Water or Housing DPLs which involved multiple ministries and agencies, thus complicating the reform environment. For a reform approach that involves several actors, it i s essential to have the right level o f coordination and to have a shared understanding o f the institutional incentives. Going forward, more attention needs to be placed on how to strengthen that coordination. 76. The success of a reform program i s due not only to legal measures taken but also to strengthening o f the capacity o f the institutions involved in the reform. The importance o f institutional coordination around reforms and their implementation i s also critical. Commitment and goodwill alone are not sufficient and it i s essential to ensure the institutional capacity of implicated agencies to implement their component o f the reform. In a MIC such as Morocco with a clear sense o f the challenges ahead and strategies in place, the Bank Group's program should focus less on the "what" and more on the "how to". This i s crucial to respond to the main challenges o f the reform process - implementation and results. 77. Donor coordination played an important role in project success and this needs to be further reinforced going forward. In the case o f the PARL, Education and the Rural Roads projects, donors provide support on the same program framework that benefited the client by building credibility for the reforms but also focusing on a unified expertise from donors in support to a complex program o f reform (particularly the case for the PARL). For the Bank and other donors, this has helped to mitigate the reputational risk of some types o f reforms and has reduced the supervisory burden on each donor. Given that there are now clear strategies in place for each sector, the onus i s on the donors to really follow through on their commitment for greater harmonization through aligning themselves better around these strategies and ensuring joint implementation o f reform programs and investments. Such efforts at harmonization should be central to all areas o f Bank Group engagement for the future. 78. 1 The Challenge o f Service Delivery. The experience gleaned from Pillars I1 and 1 1 o f the CAS highlights the long-term challenge o f strengthening service delivery to ensure shared prosperity and greater equity. Results in the education sector were perhaps the most muted o f all the Bank's interventions and some of Morocco's indicators in the social sectors give rise to concern despite the attention and resources provided to address them. A strict focus on access to basic services comes often at the expense o f enhancing the quality o f these services for all. There i s o f course no quick fix here but rather this demands a second generation o f reforms that reorient service delivery on the users rather than providers. Such a shift should underline future Bank Group interventions in this area. 79. Importance o f a Longer-Term Framework for Certain Activities. Experience from implementing the two rural projects (DRI PMH and DRI MVB) and from implementingthe INDH to date have shown that bottom-up participatory approaches take time to get off the ground and demand a huge amount o f careful preparation and capacity building up-front before investments can be rolled out. Indeed, often the very creation o f a participatory approach and the necessary management and coordination committees are achievements in themselves and can absorb the focus o f the first phase of project implementation. This obliges a longer-tern focus o f support that continues the partnership through this first preparatory phase and into future phases o f implementation and investment. 80. Communications. The CAS launched a broad series o f consultations during i t s preparation and this was further advanced during implementation. These consultations nourished priority setting and knowledge exchanges and were mainstreamed into the communications strategy of the Bank Group which 108 Appendix 3 itself was designed to support the achievement o f the CAS strategic objectives. Through focusing on promoting dialogue, building awareness and understanding o f the reform process, the Bank Group facilitated consensus-building for reform and contributed to feeding the public debate in view o f generating more proactive responses and leveraging local ideas and inputs. This has been a truly path- breaking endeavor in Morocco and should be consolidated during the implementation o f the next CPS. 81. Use of Country Systems. Morocco has high expectations for i t s eligibility on the use o f country systems. It has considerably strengthened its public financial management, procurement and safeguards procedures. Donors have increasingly assessed Morocco to be a good reformer in this regard, with more than 80 percent o f donor financing now delivered through country systems, according to the estimate made in 2007 in the context of the Accra process. It i s therefore important to continue and extend the positive collaboration to date. This i s a challenge that must be reflected in the next CPS. 109 t 6 0 0 N x 9 8 I ~ .- 9 Y s C .-E - e, % a IB 1 TI a e! - P CT 3 U C SE. 3 gx od 0 3 .- C e, 3 Q Y - e 8 E 5: a W `3 U - d e 0 s : : I Y 8 6 2 g A . e, 3 I 4 C 41 M -0 m n 3 3 s e, Y f ti B 8 e, C 8 e, m m h m 1 3 E 2 L g IY 0 e, M c b '2 M c 0 - e! x B y1 ti c 3 J , 0 N Appendix 4 Appendix 4: CONSULTATION REPORT Overview 1. . I n development, consulting i s essential at every step of the process. In Morocco, the World Bank has been engaged for a long time in the regular process o f consultations with the government as well as with numerous actors and stakeholders involved in the development o f the country. Consultations, conducted in a variety o f formats, took place at strategic planning meetings, during preparation and supervision phases o f projects, throughout the preparation and dissemination o f analytical work as well as in the monitoring and evaluation phase of projects. 2. The aim of this dialogue was to better understand the priorities, challenges and obstacles. It also contributed to defining the perceptions, the consensus, as well as the divisions o f opinion and was an opportunity to disseminate analytical reports and lessons learned. These consultations also shaped the thought process and the approaches as well as the implementation o f programs in the different sectors. Consultations for preparing the strategic partnership framework took place over an 18 month period and included the following steps: Technical meetings. They were primarily focused on sectors, contributed to shaping the programmatic choices and guided the dialogue throughout the 18 month period. 7 7 Internal consultations at the World Bank. The meetings - Consultations highlights at Kairouan (November 2008) and Annapolis (March 2009) facilitated a joint reflection and cross sectoral J 15 round tables and 4 focus groups, held coordination of the Bank teams and the IFC to attempt in Rabat, Sale, Skhirat, Mohammedia, to respond in a more concerted way to the needs o f the Tangier, Fez and Marrakech. country. J More than 330 persons consulted, representing different age groups and A strategic meeting between Moroccan government interests : representatives and a team from the World Bank - More than 60 N G O members, (Skhirat, April 2009) provided clarification and - More than 30 representatives recorded the expectations of the government in the from the private sector, framework o f the partnership. Finally, a phase o f broad - More than 60 youth, consultations, directly focusing on preparing the CPS, - More than 150 academics, took place during the months o f May and June 2009. students, PhDs, research professors This report summarizes this most recent phase o f and heads of university. consultations.(See highlightst o the right). J The participation of more than 30 experts 3. Three principal priorities structured the approach o f from the World Bank Group, local and this broad consultation: international at different meetings. L 1 To discuss the priorities and the role o f the World Bank in Morocco: The consultations were structured so as to introduce the World Bank Group's approach to development in order to gather opinions on the development priorities in the country; the themes proposed by the CPS (pillars and cross sectoral themes); the role o f the World Bank in Morocco, perceptions relating to the efficiency of i t s activities and its impacts; and the aspects to strengthen to better support the country. T o listen to constituencies with weaker voices. A l l voices are important in the development process, but not a l l voices have the same impact. A specific effort was made to go and meet the 121 Appendix 4 audiences and the beneficiaries who have the least input in order to listen to their particular visions and their perspectives on development priorities in ,Morocco. Particular attention was given to youth, women's NGOs, local NGOs (particularly in rural areas), young researchers and students. T o provide depth to the consultations on the sector specific themes. Thematic consultations were conducted on the subjects and/or the sectors that emerged from the discussions during the pre CPS consultations phase and that had to be approached through other tools for example: gender issues, the knowledge economy, public-private partnership, or the stakes in development in rural areas. 4. The second part of the consultation phase organized in May and June 2009 was comprised of 18 meetings. These meetings were organized according to a variety o f formats (roundtables, broad- based meetings, workshops, and brainstorming. Participation was at both local and national levels. Participants were from different provinces, primarily Rabat, Fes, Casablanca, Tanger, and Marrakech and came from rural, semi-urban and urban areas. 5. These meetings were characterized by an atmosphere that encouraged free and open dialogue and they were a rich and unique experience for the Middle East and North Africa (MENA) region. Although the debates were at times passionate when discussing the means and activities to implement to concretize the development objectives, there was a broad consensus on the strategic direction that emerged from the first phase o f consultations. The criticisms and the suggestions were constructive and focused on the future with a common interest to work for the successful transition o f the country towards stronger human development and a place in the global economy. Additionally, the debates facilitated a progressive and conceptual understanding of the CPS with the different audiences consulted. all o the ideas that It should be noted that the opinions expressed in this report do not reflect f emerged during the consultations. The opinions represented were repeatedly emphasized, had a strong consensus and took into consideration the specifics o the World Bank in terms o areas o f f f expertise. Additionally, these findings do not claim to represent any official position o any o the f f groups or audiences consulted. I. Principal Consultations: Debates and Recommendations A. Investment and development in the private sector I.A.4 Consultations with representativesfrom the private sector: 6. This meeting, jointly organized with the I F C brought together actors from the private sector, several of whom worked quite far from the Rabat-Casablanca area. The open and constructive debate assisted in forging a new consensus around two priorities considered by the participants as being essential elements: Importance o f maintaining economic growth as a necessary condition of development. 0 Necessity of developing a clearly articulated strategic vision of the Moroccan economy with several projects o f reform. 122 Appendix 4 The efforts and the engagement of the government to improve the business environment was acknowledged and emphasized in different discussions; however, several participants brought up the persistence of certain obstacles to investment particularly concerning the financial sector and public administration, specifically: Difficulty of access to bank credit and particularly the slow nature of the process; Lack of visibility on the State's fiscal policy for the next 5 years; 0 Weakness in the correspondence of education to the employment market and the lack o f qualified staff; Slow nature of the decentralization process and the lack of transparency within the public administration. 7. Several recommendations were formulated and particularly emphasized the importance o f reforms in the judicial and education sectors. Several participants stated that these reforms are essential conditions that cannot be ignored in the development of the private sector. Several other suggestions covering cross sectoral themes included: Strengthening human capital through educational reforms and professional training; Accelerating the implementation of industrial policies already developed such as "Emergence" in implementing monitoring and evaluation mechanisms; Initiating a regular and sustainable dialogue with the different decision makers, the financial sector and the economic operators; Broaden the dialogue with employers in a manner that includes a l l regions of the country beyond the Rabat Casablanca area; 0 Adapt the tax system to the specifics of the Moroccan economic fabric while taking into consideration the world economic environment and i t s constraints. The informal sector was also intensely discussed and brought out diverging points of view. For certain participants, the issue i s of better controlling the informal sector that i s currently not subject to any tax system. Others see the problem as an excess of taxes and controls that push businesses to the informal sector. II.A.4 Consultations on Public Private Partnership (PPP) 8. This consultation brought together representatives from public establishments and private enterprises who manage delegated services to discuss opportunities for and constraints to developing public private partnerships in Morocco. Two principal elements were identified as areas requiring considerable restructuring: T \ "The legislative environment 0 The legal environment to facilitate public private remains ineficient and still partnerships in Morocco. constitutes an impediment to the The problem of underinvestmentand lack of inclusion in f implementation o numerous budgeting o f services. reforms. lfmany laws exist or are produced, there are often gaps and Several activities and reforms designed to promote public private inaccuracies and are rarely applied f and evaluated at the level o their partnerships were formulated: application. '' 123 Appendix 4 I 1 Establish a comprehensive legislative framework designed to guarantee the development o f this type of partnership; Strengthen the regulatory mechanisms by rewriting the "Educational andjudicial reforms are legislative texts on the questions o f delegation o f public fundamental requirements in any type services at the local level; f f o reform o signijcant stature." Establish these regulatory functions at the local level in order to move towards decentralization; Strengthen transparency in the grants process of public private partnership contracts; Define and clarify the institutional plan of delegated management and establish the necessary institutional mechanisms to improve coordination and arbitration; Analyze the budgeting systems for delegated public services, the proposed budgetary allocations and the priorities determined by the government; Revisit programming and strengthen the levels o f investments which remain insufficient; Develop capacities of central and local civil servants for more efficient management o f public private partnerships. Most o f the participants also called for more consideration o f the social implications o f public private partnerships. According to certain participants, an overhaul o f the labor law and management laws delegated to the public authorities has become a necessity. Consultation on the Knowledge Economy: 9. This consultation brought private operators, academics and representatives o f the public administration back together and began by discussing the significant progress that Morocco has made in the domain of information technology and communication both in terms o f infrastructure and regulation. The debates that followed the presentation o f the Impact Plan, which aims to implement the necessary conditions to make the Knowledge Economy a motor o f economic development in Morocco, identified the challenges that need to be met for the promotion o f a knowledge economy. The participants unanimously agreed that while Morocco has strong potential for developing digital content and strengthening human competencies, there are many obstacles that need to be addressed: e Review the pricing policies for information services and strengthen regulation in this sector; e Respond to the lack o f human resources and the needs o f the sector which constitute a major impediment; e Monitor and evaluate the training linked to this area and establish a reference for this sector. Engineering fields, the Universities and the Schools o f Science and Technology should adapt to the needs o f the market in this sector; e Go from the concept of a Technoparc to that o f Technopole in collaborating with the academic community; e Seriously promote research and innovation that could help this sector create value and wealth; e Encourage private operators to do more to promote their activities, which would make this sector to more attractive to young people. B. Services to Citizens: 10. The following three cross sectoral elements emerged from the discussions during the first phase of consultations and the open debates in the meetings of the second phase of consultations as key elements to improve the impact and consistency of the reforms. 124 Appendix 4 Involve all concerned parties in the development o f reform projects. Support from civil society should be better channeled to increase the efficiency o f the reforms; Economic policies to strengthen growth should take into consideration the most vulnerable populations; The different programs in the fight against poverty should be better coordinated for a more comprehensive approach and execution. Throughout the meetings, the different audiences who were consulted invited the Bank to provide a more detailed analysis of the Moroccan economy in order to move towards quantitative indicators and an examination of major structural impediments. Consultations on the Education Sector 11. I n all consultations, the education sector emerged as being at the heart of development challenges in Morocco. In addition, the discussion with the civil society actors, the private sector, academics, and public partnerships raised the following concerns: The quality o f education i s very low and i s still more problematic in the context o f current economic changes in Morocco. Reforming the education system should be considered the highest priority in terms o f reforms and particular attention should be focused on the quality of teaching and informal education. I 1 The following conclusions and recommendations emerged from the consultations conducted with the actors and representatives from the different sectors: " q w e must invest in one single 0 Despite a relevant assessment and a strategic vision o f the sector in the counrry, we should government and the principal actors, effective invest in education- in the training o f implementation remains challenged by a number o f the next generation. " problems that impede reform; 0 Involvement o f all key actors in the discussions on education reforms i s necessary through a long term, yearly dialogue; 0 Improve governance in the education system through strengthening the responsibility and investment in the capacities o f teachers; 0 Improve the evaluation and monitoring system in the entire education sector and establish some quality norms; I Promote the decentralization of the education system and reexamine the budgeting system in the sector as well as the mechanisms and processes of execution; f I we do not improve governance, we 0 Analyze and update the content o f pedagogical manuals mnnotsucceedin improving the and teacher training. education sector. 12. The debate on public education vs. private education was characterized by several diverging views. Although several participants recommended regulation of the private education sector, it was also suggested that both private and informal education alternatives be encouraged, especially in rural areas. A third suggestion was made to strengthen partnerships between the actors in the private and public sectors. As for higher education, the participants expressed their satisfaction with the launching o f the Urgent Plan for the Acceleration o f the Implementation of Education Reform and Training 2009-20 1 1. However, they insisted that i s necessary to emphasize the value o f scientific research in Morocco and the importance o f including the university in the development o f socio economic research. Several participants brought up the problem o f the territorial approach of development and the importance o f considering the university community as an essential partner to resolve specific problems o f development to each region. 125 Appendix 4 Consultations on reforming the judicial system 13. Reform of the judicial system was brought up in the majority o f consultations as being a development priority in Morocco. The different actors who were consulted shared similar points o f view and there was an overwhelming consensus that reform o f the judicial system was an essential condition for success and consistent reforms in the other socio economic sectors. The consultation session on the judicial sector also invited back representatives from a network o f 10 Moroccan associations that had introduced a memorandum calling for reform in the judicial sector in Morocco. Throughout the discussion o f suggestions contained in the memorandum and the debate that followed, important elements emerged as priorities in formulating a strategy for reform that would be both voluntary and ambitious: Reform should be comprehensive in developing a strategy that strengthens the development of a modern equitable judicial system; Implementation o f evaluation and performance mechanisms, the efficiency o f the court system as well as There is a problem with evaluating the performance ofjudges. The the quality o f judgments; measure o their effectiveness is f Zmprove the functioning o f the judicial system, and also calculated by the number o closed f access to justice; cases without reviewing the integriq Implementation o f a mechanism guaranteeing o their decisions. f independence to the judicial system; 0 Strengthen mechanisms o f transparency and combating corruption; Reform of the penal code, penitentiary establishments, and the revision o f training systems for judges and lawyers. Gender and Development 14. Two consultations were organized around the crosscutting theme of gender. The first meeting gathered representatives from development associations, economists and sociologists specializing in gender. The second meeting was held with female members o f parliament. The results that emerged in these two meetings confirm that the advances in terms o f reforms for a better integration o f gender aspects are undeniable, notably in the sectoral plan. However, the lack o f consistency and coordination o f sectoral actions denotes the absence o f a national strategy incorporating gender. The following recommendations were formulated as being necessary conditions to ensure an equitable and sustainable development in all the,sectors: f- 7 Education reform and strengthening women's access to f "The costs o reproduction weigh the judicial system (particularly thorough training) are heavily on the daily life and the crucial to the empowerment o f women. future o women and stress the f economic capacity. 0 In dept, analyses and cross sectoral studies on gender should be conducted to serve as the foundation o f a "It is necessary to develop gender comprehensive national strategy that could then be used expertise that effectively serves the at the sectoral level. communes and local associations." Analysis of the impact of the global economic crisis on employment and women's role in the labor force should "There is also aproblem with the be conducted immediately because the sectors that are lack o reliable statistics. For f threatened are essentially those that will impact women in example, at the level o continuing f terms o f business and employment. education we do not have any figures for women. Participants invited the World Bank to play a more active role proposing appropriate analyses in providing the technical base for L / 126 Appendix 4 supporting the government in the development and implementation o f strategies and sectoral policies including the gender aspect. C. Governance, Development and Basic Services 15. The governance aspect in the sense of access to basic services by citizens was raised as an issue. A wide consensus was reached in the consultations on the following axes: Balance between economic and social issues needs to be maintained through better distribution of the outputs of growth; 0 The success o f reforms i s measured according to the impact on the daily lives o f citizens. Monitoring and evaluation o f results o f the reforms i s absolutely necessary; 0 Monitoring and evaluation o f results o f the reforms will bring improvement in poverty reduction programs and should therefore serve as a reference to measure the results that show accountability for funds. This approach has a direct impact on the improvement o f governance. Consultations on Governance and Citizen Services 16. Morocco has a large variety o f associations that have an important role to play in the development of the country in a dynamic and constructive approach. The consultations with the consumer associations, who are an important component o f the Moroccan association community, allowed for the gathering o f opinions on the obstacles that inhibit performance in certain key sectors such as education, health and the judicial system. The absence o f evaluation mechanisms and ensuring accountability in public administration were recurring points that emerged from the consultations. The importance o f strengthening the mechanisms o f evaluation and transparency in terms o f delegation o f management o f public services was strongly underlined. The majority o f participants identified the problems o f governance at three levels: 0 The lack o f mechanisms and transparent procedures encourage abuse; 0 Inadequate access to information leads to a lack o f understanding o f rights and civic duties; 0 The absence o f effective monitoring and evaluation takes responsibility away from the managers. These three elements demonstrate a close link between the efficiency o f public and private services and good governance. "Good governance is based on sharing information. Unfortunately, this is not happening. " Consultation on governance and local development 17. This roundtable, comprised of representatives of the association community from the north, focused on the following themes: The important socioeconomic transformations put the governance at the core of the problem in local development. The participants raised the point that the lack o f good governance i s an obstacle to local development and produces a loss o f confidence o f the population in the public management. They a l l identified the need to: 127 r Appendix 4 Establish a code o f ethics to encourage transparency in local basic services; "The success o a reform, regardless f Strengthen the financial transparency o f local Of the depends On the manner administrations in establishing mechanisms o f transparent in which the government is encouraged, monitored and accounting; measured." Improve the capacity of human resources within local entities by developing training programs for elected officials; Give local agencies the means to promote participation and strengthen the procedures o f quality control in determining how power i s delegated; Strengthen the capacities o f local NGOs by ensuring they have an important role in local development projects; Develop a code o f ethics and transparency to strengthen good governance within NGOs and professional associations; Encourage information sharing, exchange and dialogue among the different partners in i J development at the local level. f 7 "The local authorities need to be COnSUltatiOnS with repreSentatiVeSfrom the NGO COmmU1zify strengthened. Thq need qual$& and the academic community staffwith modern procedures. " 18. This meeting with different individuals in the academic and associative communities identified governance as a top priority for reform in Morocco. The participants emphasized the principal needs of development in Morocco: 0 Strengthen transparency in the execution o f the financial laws; 0 Encourage political debates on the results o f reform programs; 0 Revisit the "INDH" (National Human Development Initiative) to make a development tool for the community that i s more efficient in reducing poverty; 7 Restructure the organizational structure and function o f the `lAtpresent,there are no real local governments that present various challenges; tangible results for reform in the 0 Analyze the aspects o f governance in the education sector. education (higher education This meeting was also an opportunity for the participants to discuss included),judicial and employment the role o f the World Bank Group. The following elements emerged sectors. " from the debate: ~ 4 0 The importance o f the "support" role that the World Bank Group can play in implementing reforms. According to the participants, the Bank should broaden and strengthen the analytical field, the evaluation and debates on reform programs and in collaboration with the different stakeholders in the development of the country (government, civil society, and private sector). The support o f the Bank should be cross sectoral and improve the consistency o f development programs, particularly, in terms o f good governance in the key sectors- education, justice and the financial sector. D. Agricultural and Rural Development 128 Appendix 4 1 19. This consultation session brought together economists high school, they do not guide us, and sociologists specializing in rural development as well as they misguide us. ,, representatives from professional associations. The Morocco Green Plan was cited by several participants as being open to new approaches, but does not contain detailed activities and does not clearly state what the eventual c- - impact on the agricultural and rural development sectors will be. f "The goal o the reforms is to Additionally, the participants identified that there are multiple modernize agriculture and make it challenges with the agriculture sector including the management profitable (exports), but this is not o f water resources, access to financing, land reform, improvement benefitting the rural population. The o f rural infrastructure and tax issues. question to be asked is about adaptation to the context and the The participants made several recommendations including: f reality o the country. Populations at the local and regional levels need to . Improve the dialogue between the operators in the sector and the government in order to succeed in the be included. '' - implementation o f the Morocco Green Plan; Find solutions for threatened aquifers that over exploited, particularly in desert zones where ecosystems have been threatened or destroyed; Analyze finance mechanisms o f agribusinesses with support from professional agriculture organizations; Promote the transfer o f technology and skills in the framework o f the Green Plan and evaluate the different results in terms o f rural infrastructure before launching new initiatives; 0 Strengthen interprofessional legislation in order to encourage coordination and development o f synergies between the different agricultural entities; - 0 Accelerate land reform to encourage private investment in "Morocco is in the completion of rural areas, prudently approach the question o f change o f many nationalprograms: PERG usage in collective lands and introduce systematic pNmz> etc. Pe need to V compensation for women's rights; stop, take stock and evaluate what we have done to improve the Improve the training o f administrators, specifically in inJi.astructure how to reduce schools such as the National School for Administration the inequalities, 19 and The Institute o f Agronomy and Veterinary Sciences; ~ Evaluate the energy costs o f rural investment and the national implications. E. Youth: Actors in Development? 20. Two meetings were organized with youth groups concerning priority activities and reform in Morocco. The first meeting was a roundtable with young members of NGOs and the second meeting included four focus groups in the field in several semi urban neighborhoods. The participants emphasized the importance o f the crosscutting nature o f the following stakes: Social and economic integration o f youth; 0 Appropriate training/employment considering the needs of the private sector; The rural exodus that accentuates the vulnerability and the poverty in a semi urban neighborhood aggravated by the weakness o f traditional social solidarity; 0 Accelerated urbanization and the precarious nature o f community infrastructure; 0 f Inequalities are pronounced, particularly in terms o f Taking the example o the necessity to better integrate gender in the economic opportunities and employment as well as reform process, it is also important political participation. f to consider the role o youth in development.'' 129 Appendix 4 Several recommendations were made: 0 Conduct a sectoral and regional social analysis on youth to support the formulation o f adapted policies and strategies; Strengthen transparency mechanisms and encourage youth to participate in the development o f social policies. F. Decentralization 2 1. Throughout the many consultations, the theme o f decentralization continued to emerge. The necessity o f strengthening the decentralization process was continuously raised by the participants. For I 1 several participants, territoriality i s a key requirement for equitable and supported development. The following recommendations were provided: "Economic growth can happen only ifthere is improvement in the 0 Analyze and initiate a dialogue on the framework of employment situationfor young decentralization with the different development priorities people, 11 and the reforms already launched; 0 Strengthen the decentralization process by supporting a strategic and global vision; 0 Analyze the problems o f budgeting and financial management at the local level (arbitration, allocations, procedures); 0 Be vigilant in ensuring that investments destined for regions are made in an equitable manner and that they correspond to local needs. G. Cooperation with international partners in development 22. The meeting with the international partners in - "Real decentralization is development allowed for the discussion and information imperative in responding dissemination on the program o f activities and the areas where to local needs. There is cooperation can be strengthened in order to better serve the also an absence o coordination f development of Morocco. Participants noted that: and consistency between the national, regional and 0 The different sectors and program of activities of the World local levels. " Bank and their own programs in Morocco are complementary. e The programs established by the Moroccan government ~ 0 constitute a direct line that helps to facilitate the partnership activities. 0 The questions o f development are territorial and adaptation to the changing climate constitutes areas where collaborative opportunities between different donor agencies can be developed. Coordination between different funding agencies should be developed more in terms o f collaboration and simplicity, to ensure more efficiency for development aid. H. Main themes that emerged from the consultations: 23. I n addition to those themes discussed previously in this report, there were additional themes that emerged. These elicited exchanges that were both important and significant. 130 Appendix 4 Poverty and statistical information 24. This question was widely emphasized by numerous participants during different consultations. According to the participants: More detailed impact analyses are necessary for the government to formulate policies that respond to the challenges in the priority sectors, particularlyjustice, education and governance. Support the efforts of the High Commission Plan to develop the statistics by gender in the areas such as poverty, the standard of living, work of rural women and other areas for which there i s relatively little statistical information. 0 Raw statistical disaggregated data should be accessible to actors in development, particularly to researchers. Implementation o reforms f 25. This key theme continued to recur and was the subject of several discussion threads in the different meetings. The participants expressed the following points of view: 0 If the reports are objective and the strategies are defined, the actual challenge for the country i s the effective and efficient implementationof reforms. 0 A cross sectoral consistency of reforms i s essential given the interdependence of sectors Certain participants also expressed their wish that the World Bank Group improve their performance indicators to facilitate the monitoring of reforms in which they participate. Social protection and fight against exclusion 26. This subject was raised in a recurrent and crosscutting manner throughout the consultations. I t came up in most of the interventions in the framework of the following observations: An analysis of results and real impact of programs in the fight against poverty i s necessary; It i s necessary to introduce implementation of a real policy of social protection particularly in extending the coverage of social security and in strengthening the mechanisms of the fight against social exclusion (youth and women); It i s important to consider the vulnerable segments of the population who can be affected by reforms; Specific studies should be conducted to better identify the needs of certain vulnerable categories of society; The changes which are directly discernable for the users should be placed at the heart of programs of development in Morocco. 131 Appendix 5 Appendix 5: USE OF COUNTRY SYSTEMS 1. This note summarizes the Bank's overall view of country systems in Morocco today, the process underway to improve such systems, and the direction for furthering the Bank/MOG partnership on use of country systems during the CPS 20 10 to 20 13 .2' I. Country systems in Morocco today 2. Financial management. The five main components of country systems are budgeting, accounting and financial reporting, treasury management, internal controls and internal audit, and external audit. The Bank's experience in Morocco, the CFAAs (2003 and an update in 2007), and the PEFA review (2009) indicate that the public financial management system i s governed by an elaborate legal and regulatory framework including a strict control framework that has ensured a high degree of reliability of the accounts and transparency. The public financial management cadre i s of good quality. In general, the Moroccan public finance system i s considered to pose a low fiduciary risk. Bank-funded projects are fully integrated in the government annual budget. Bank financed projects are also integrated in the government accounting system. The Bank has long relied on the government treasury system for effecting project expenditures. Bank funded projects are subject to the existing national internal control system for control of commitments and payments. Annual audits of Bank-financed projects on the other hand are carried out by the Inspection Ge`ne`rale des Finances (IGF) and reporting on donor funded activities i s based on parallel systems. 3. Procurement. The Moroccan public procurement system i s considered one of those in the M N A Region most in line with international best practice, the results of a major reform process underway since 1998. The system comprises the framework of laws and regulations; procurement procedures, capacity and staffing; how these procedures are applied in practice; and measures to ensure integrity. The governing laws and regulations largely follow international practice, a view generally endorsed by the administration, the private sector and civil society. Public finance, including procurement, generally benefits from a strong and effective audit culture. Bank reviews, notably the CPAR (2008), PEFA review (2009), and a further internal procurement review" all generally note that overall fiduciary risk i s low. Bank evaluation of national systems has allowed use of relatively high thresholds for national competitive bidding in the Bank's portfolio of investment operations. At the same time, the laws and regulations of the government do not apply to public enterprises (many of whom, however, have alternative strong systems and human resources), architectural services, and concessions. There i s not yet an effective complaints mechanism in place. 4. The quality of the Moroccan procurement system has evolved very positively during the last 10 years. The revision of the public procurement decree led to improvements, such as an increase in the minimum bid preparation period for high value contracts, the implementation of electronic publication of procurement and award notices encompassing the largest part of public procurement packages, and the reinforcement of measures aimed at the prevention of fraud and corruption. Standard bidding documents for goods and works were put in place in 2009. Further reform of the public procurement control mechanisms i s ongoing. International arbitration in contracts and bidding documents has been introduced. A Central Body for Prevention of Fraud and Corruption has been created. In addition to the above, other reform activities under preparation include: preparation of General Conditions of Contract for Goods and Services, amendment of the General Conditions of Contract for Works, and preparation o f 21 For the purpose o f this annex, country systems are those pertaining to financial management, procurement, and social and environmental safeguards. 22 See Programme pilote d 'utilisation des Systdmes nationaux de Passation des Marches dam le cadre des ope`rations supporties par la Banque mondiale, August 2009, MNAPR. 132 Appendix 5 regulations related to the Public private partnership law. 5. Social and environmental safeguards. Important progress has been made in this area, especially during 2008, particularly regarding the strengthening of the environment protection framework. Preparation of the Solid Waste Sector Policy Development Project in 2007 saw the start of a dialogue with the authorities in this area. An evaluation of the environmental protection framework targeted to waste management was initiated and the differences recorded have largely been taken into consideration by the sector through significant regulatory and institutional measures, specifically through decentralization of reviews and approvals of environmental impact studies at the regional level, and also through the introduction of a public consultation process during the environmental assessment process. The process now being followed to fill major gaps between the Moroccan system and internally accepted principles and practices i s described in paragraph 9 below. 1 1. Process to improve country systems 6. Financial management. U s e of country systems in financial management (and other areas) contributes to scaled-up development impact, increased country ownership, better capacity, donor harmonization, and increased cost-effectiveness, For these reasons they are, where feasible, the default option for implementing Bank-supported projects. The Bank has identified areas where improvements can be made, on which it i s in dialogue with national authorities. These include reduced delays in drafting annual financial statements, greater use of the recently-completed integrated system (GID) to track and report on all expenditures, a stronger internal audit function in line Ministries in order to provide an assurance on the soundness of, and compliance with internal controls in the light of the ongoing reforms, and the move from the ex-ante to ex-post controls and greater accountability of public sector managers. Greater reliance on country systems and institutions requires a shift of the independent audit function of donor-funded activities to the National Audit institution, the Cour des comptes, an institution that has seen major reforms and improvements and alignment with international standards over the past few years. 7. Procurement. The Bank and the government have been in dialogue on procurement reform for many years. Dialogue includes other leading donors, and i s considered by the Bank to be intense and productive. Morocco confirmed its interest in becoming a candidate for the pilot use of country procurement systems approved by the Bank board in April 2008, the first country in the M N A Region to do so. In a recent report on the use of country procurement systems, Morocco received relatively high evaluation scores, clearing 43 criteria out of the 55 defined by the OECD/DAC methodology, one o f the highest scores recorded.23At the same time, some of the criteria on which it did not attract an adequate score will require action before country systems can be used. Morocco i s a leader in providing electronic access to public procurement information and processes (see www.marchespublics.lzov.ma), and has launched initiatives to promote e-procurement. 8. The key improvement for meeting the UCS piloting program has been identified as follows: Legalfiamework (ensure broad legal consistency of public procurement policies and principles of all public procuring entities and covering all types of goods, works and services through a public procurement law covering all public entities and all types o f goods, works and services; ensure that "objective qualification and evaluation criteria" specified in the public procurement decree are reflected in the standard bidding documents; and develop/amend the general conditions of contract for further alignment with international best practices and recent evolution within the Moroccan public procurement framework). 23 See Piloting Program in Use o Country Systems - First Progress Report, SecM2009-05 13, October 5,2009, Annex D - f UCS Evaluation Scores. 133 Appendix 5 Integrity in public procurement system (restructure the complaints mechanism towards a system that i s independent, efficient, transparent, having the authority to suspend the ongoing procurement and to make binding decisions; put in place an effective internal control mechanism; and provide additional staff and resources to the entity responsible for fighting fraud and corruption to allow it to carry out its mandate effectively). The Bank hopes to reach agreement with the government shortly on an action plan (as foreseen in the approved pilot program) to address these issues. 9. Social and environmental safeguards. The Bank i s expanding the process described in paragraph 5 to include the water and sanitation sector through a project currently under preparation (Oum Er Rbia Sanitation Project). With regards to social safeguards, more specifically projects involving involuntary resettlement o f people, land acquisition, or expropriation for public use, the Bank intends to identify and seek to resolve known differences through a process similar to that applied to environmental safeguards. This will involve analysis o f the equivalence between Morocco's regulatory and institutional framework and the principles that constitute the basis of World Bank policies. This will be followed by an evaluation o f the acceptability o f the implementation modalities of this framework. The Bank has initiated this approach in the preparation phase of the Oum Er Rbia Sanitation Project. This approach will allow a deeper dialogue between Moroccan authorities and the Bank towards harmonizing the systems applicable to these aspects and also towards gradually using Moroccan environmental and social safeguards systems in Bank-financed projects. 111. Advancing Use of Country Systems in the CPS 10. Government o f Morocco has consistently been requesting the Bank and other donors to make increased use o f country systems, in line with their commitments to do so in the Paris Declaration (2005) and Accra Agenda for Action (2008).24 I t wishes to see tangible progress made in Morocco toward this objective during CPS implementation. According to the 2008 Survey on the implementation o f the Paris declaration, the proportion o f donors financing disbursed through what can broadly be described as national systems has been increasing, budget support contributing largely to these results. Building on the processes described above, the Bank will sustain its partnership with the government to assess systems, identify directions for improvements, invest in capacity building and accompany change implementation, with the objective o f progressively increasing the use o f country systems. 24 Paragraph 15 o f the Accra Agenda for Action states that "Donors agree to use country systems as the first option for aid programs in support o f activities managed by the public sector [...I Should donors choose to use another option and rely on aid delivery mechanisms outside country systems (including parallel project implementation units), they will transparently state the rationale for this and will review their positions at regular intervals." 134 Appendix 6 Appendix 6: DONORS' DEPLOYMENT I. Overview 1. Morocco has good relations with its development partners, aided by a national vision for the country's development and by its development achievements, particularly over the past ten years. There i s broad support among Morocco's donors for its chosen strategic direction. 2. Most donor programs have aimed to align with the government program that was approved by Parliament in October 2007. The individual sectoral strategies and medium-term expenditure frameworks that have been laid out since then present a good framework for donors to deliver their support more effectively. 3. Donor programs in Morocco - especially those of the large donors - have seen increasing volumes of financing over the past few years. The increased financial support reflects recognition o f Morocco's leadership o f the national development effort, support for the approved national program, and a demonstrated track record o f achievement. Around eighty percent o f donor financing in the last three years was disbursed using what can be broadly described as national systems either through budgetary support or other instruments. Budgetary support i s widely used by Morocco's larger donors-the European Union (where it exceeds 90 percent), the African Development Bank, and the World Bank- and i s becoming an increasingly important instrument for bilateral donors. 4. Overall, donor coordination has improved in recent years, and i s relatively good. Donors are willing to cooperate closely around the government program. The responsibility to oversee donor's programs i s shared across three different ministries in Morocco (Ministry of Finance, Ministry o f Foreign Affairs and Ministry o f Economic and General Affairs). The government has indicated that it wishes to see more progress made more quickly on implementing the principles and commitments of the international aid effectiveness agenda, adapted as appropriate to Moroccan circumstances. There i s scope for improvement by donors in this area. Donors are making progress to ensure harmonized upstream country and sector programming. Greater harmonization was facilitated in 2009 when four o f Morocco's main donors - World Bank, AfDB, AFD and EU - all either prepared a new strategy (World Bank and AFD) or updated their strategies at the mid-way point (EU and AfDB), with broad national and cross- donor consultation and collaboration a feature o f the process o f each. 5. Donor collaboration has been strongest in those areas in which donors have been engaged over the long-term, such as public administration, education, and .transport, and in more recent priority areas such as the National Initiative for Human Development (Table A8.1). Furthermore, there i s good recognition o f the relative competences and areas o f comparative advantage o f each donor: for example, the EU i s taking the lead among donors on gender and human rights issues, while EIB i s heavily involved in infrastructure investments. 6. Donor aid accounts for a small proportion o f government financing - between 4 and 5% in - 2007 albeit higher than in many other middle income c~untries.'~More than 95 percent o f all reported sources in 2007 came from the seven largest donors (France, EC, Germany, Japan, Spain, Italy, and the US). Aid volumes have been increasing over time, more than doubling from 2004 to 2007. In addition to official development assistance (ODA), IBRD commitments and gross disbursements have averaged $280 million and $284.5 million respectively in the last four fiscal years. Annual lending from the AfDB has been in a similar range. *'ODA to Morocco in 2007 was $1.3 billion (source: OECD DAC database). This excludes financing provided by IBRD (to ~ whom debt repayments largely equal disbursements in recent years) and AfDB. 135 Appendix 6 Table A6.1: Main Sector Programs with Donor Harmonization Involving IBRD (Exchange rate 1 = $1.48 as o f December 7,2009) - Donors Sectors PARL AfDB 98 AFD - EIB - Spain - EU 108 WB 100 Degree o f Financing Government Policy Reform Public Administration Reform Program Education Budget support & Education 111 74 318 - 138 100 Emergency Plan Invest'. (2009-2012) Health Strategy Health 104 52 114 21 186 35 c, P Budget sup ort & Invest. Action Plan (2008-2012) Second National Rural 67 74 89 - 153 60 SWAp4 Road Program Roads (2005-2012) O 1 INDH - - - 8' 89 100 c, SWAp4 INDH Program (2006-2010) Financial Secteur TBD - - - - TBD 0 Budget support Financial sector reform Total 380 200 521 29 536 395 I Note: Financing amounts reflect current or envisioned volume of financing although these may be subject to change 0 : Substantially harmonized (Joint missions, harmonized results framework and disbursement conditions). 0 : Partially harmonized. I/Including a grant aid o f $22 Million from the European Union's Neighborhood Investment facility (FIV). 2/ The Investment lending instrument i s used by the European Investment Bank. 3/ Funding via the FIV. 4/ The World Bank has adopted Specific Investment Loan (SIL) instrument. 51 Debt swap funding. 1 1. Paris Declaration on Aid Effectiveness 7. I n recent years, around 80 percent o f donor financing was disbursed using national budget, financial reporting and auditing, and procurement procedures either through budget support operations or projects making use of country systems. The large majority o f donor financing i s directed to the government sector (World Bank - 96%, AfDB - 93% and EU - 90%). A significant portion o f the programs o f some bilaterals, such as Spain, Germany and Canada, i s delivered to the non- government sector. 8. A survey in 2008 into implementation of the Paris Declaration in Morocco revealed a broadly positive message. At the same time, it recognized that donors could do more to align better with government program and concluded with a shared understanding o f the need to make progress on more streamlined and harmonized results management. Discussions with the government reveal impatience to see implementation deepened and accelerated. 136 Appendix 6 1. 11 The Main Donors in Morocco 9. The European Union program is set in the context o f the EU Neighborhood Policy.26 Since 2000, Morocco and the EU have increased significantly their cooperation and integration through the signing of many bilateral agreements. Most important was the signature of the Association Agreement which entered into force in 2000. In 2008, the European Union and Morocco further strengthened relations when Morocco was accorded "Advanced Association" status (see Box A6.1 below). 10. Morocco receives financial support from the European Neighborhood and Partnership grant instrument. The EU grants an increasing proportion of that assistance in the form of budgetary support for the implementation of Morocco's major structural reforms (90 percent of EU aid i s now delivered through budget support). The current financial programming covers the period 2007-2010 and involves a total commitment for the EU-Morocco partnership program of 698 million Euros, equivalent to $1,033 million. Specifically for 2009, financing will be in the order of 3 17 million Euros ($469 million), compared to 228 million Euros ($337 million) delivered in 2008. I Box A6.1: Morocco's EU Advanced Association Status Main Measures Morocco i s the first and only southern Mediterranean country to obtain Advanced Association Status with the EU, which was 1 granted in 2008. The advanced status means an increase i n EU aid, participation in several European agencies, and a generally more favorable position within the overall E U neighborhood policy. I t constitutes an ambitious roadmap for the years to come, in particular: - I n the political field: establishment, on an ad hoc basis, o f an EU-Morocco summit, ministerial-level consultation mechanisms, an invitation to Morocco to be present in the wings o f certain E U Council ministerial or working group meetings, negotiation o f a framework agreement for Morocco's participation in crisis-management operations; and strengthening dialogue channels between both parties' legislative institutions, in order to bring Morocco's legislation closer to that o f the EU. - Economically, both partners will seek to develop a comprehensive and deeper free trade agreement covering new areas such as public procurement, intellectual property rights, capital movements, competition and sustainable development. - Other policy matters to be pursued include: harmonization o f laws and rules in a gradual process beginning with priority sectors; the gradual integration o f Morocco into a number o f EU sectoral policies; and the development o f people-to-people exchanges. - International security: Morocco's participation, systematically, in the EU's peace keeping operation, without having to negotiate the terms o f each operation. 1 1. The European Union i s finalizing i t s Indicative National Program (Programme Zndicatif National - P I N which covers the 2011-2013 period and i s based on the folIowing priority axes: (i) development o f social policy; (ii) economic modernization; (iii) institutional support; (iv) good governance and human rights; and (v) protection of environment. It i s expected that financing for this program will be greater than in the past. Initial indications are that the program will exceed 165 million Euros per year. 12. The EuroDean Investment Bank (EIB) has been active in Morocco since 1978. Morocco, Egypt and Tunisia are the three largest users o f EIB funding in the region, with Morocco claiming a share o f about 20% o f dedicated regional resources. The main focus of EIB's investments in Morocco i s infrastructure, particularly energy, transport and water sectors and this focus i s expected should continue in the next three years. Development of the private sector, particularly small and medium-sized enterprises, and creating a favorable investment climate are also priorities of the EIB's 26 World Bank relations with the European Commission and the European Investment Bank in the MENA region are structured around the Strategic Partnership Agreement in the Middle East and North Africa Region M o U (signed in May 2004 and joined by IFC in 2007) and the Luxemburg Group process. The Luxembourg Group brings together the EC-EIB-WB-IFC- I M F for high-level consultations semi-annually since 2002 to discuss common strategic and operational issues in the region. 137 Appendix 6 program. More recently, it has increased i t s support to the education sector, alongside with the Bank, with a euro 200 million contribution in 2009. The total current program o f the EIB i s 744 million Euros (equivalent to $1,101 million) to cover a three year period. 13. The Morocco program o f the African Development Bank (AfDB) makes it the largest o f all the AfDB's client countries with total financing to date reaching $9 billion. The program i s forecast to continue to grow. Having delivered $327 million (220 million SDR) in new lending in 2008, it aims to more than double this to $745 million (500 million SDR) in 2009. The strategy for the AfDB in Morocco for the period 2007-201 1 was assessed at the mid-term point in 2009 and confirmed as being on-track and appropriate. I t i s focused on three pillars: (1) strengtheningof governance; (2) development and upgrade of infrastructure and enterprises; and (3) promotion of human development. 14. - The French development agency Agence Francaise de DCveloppement (AFD) - has been present in Morocco since 1992 and has focused its assistance on: (1) support to the social sectors (education and health); (2) private sector development; and (30 infrastructure investments in roads, transport and energy. AFD's strategy for 2007-2009 provided 460 million Euros ($680 million) and this i s expected to increase for the 2010-2012 period. In 2007, AFD disbursed $187 million in assistance of which $125 million went to Government with the rest allocated to non-state actors such as the private sector and NGOs. Increasingly, the program of AFD will place an accent on non-sovereign financing. 15. Morocco i s the largest recipient o f Spanish development financing with disbursements estimated by Spain in the context o f the 2008 Survey on the Paris Declaration at $285 million in 2007. The Spanish program i s unique in Morocco because it involves multiple actors including both central government and decentralized regional governments in Spain that each have their own programs with central government in Morocco and decentralizedregional entities (e.g. Tangiers municipality). The program i s focused on three main sectors: (1) basic social needs - health, education, water, housing; (2) governance and institutional strengthening; and (3) economic development. Spain i s also orientating some of i t s development financing towards budget support and i s planning to deliver budget support in the health sector, in harmonizationwith the EU program. 16. The Millennium ChallenPe Account (MCA) was agreed by the United States with Morocco in August 2007, for a five year period and for a total amount of US$696 million. This marked a major new chapter in the relationship between Morocco and the United States and substantially supplements the USAID program, which disbursed $20 million in 2007. The MCA focuses on contributing to enhance economic growth, by increasing productivity as well as improving employment, and has the following components: (1) investing in fruit tree productivity (US$300 million); (2) small- scale fisheries (US$ 116 million); (3) artisan crafts and Fez medina (US$ 112 million); (4) financial services and support to enterprises (USD 80 million); and (5) administrative, monitoring and evaluation (USD 88 million). 138 Appendix 7 Appendix 7: TRUST FUND MANAGEMENT 1. The Bank's program makes significant use of Trust Fund (TF) financing, mainly in support of analytical work. This has facilitated the Bank's ability to respond to government requests for support and address emerging development issues in a flexible and prompt manner. The TF program has helped the Bank deliver a broader knowledge program, including in some cutting-edge areas, and to pilot innovative approaches. This knowledge then feeds into the design o f Bank projects and programs. The audience includes policy-makers, academics, Bank staff, private sector, multilateral and bilateral donors. 2. This CPS will build on this foundation, ensuring that TFs adapt to support the objectives o f the strategy. The program will be guided by the following principles: (i)ownership by government; (ii) alignment with CPS objectives; (iii) complementary to other Bank activities; (iv) findings disseminated to inform the design of future national and donor-supported programs, and (v) selectivity in deployment. 3. The TF program i s organized according to CPS pillars. This alignment facilitates assessment o f results. The total TF portfolio comprises 26 activities amounting to $64.5 million in ten sectors (public sector management, social protection, transport, health, education, human development, climate change, agriculture, water, energy and inclusion). O f this, $43.2 million i s for one GEF-financed project supporting and integrated solar combined-cycle power plant. Other sizeable activities in the TF portfolio in terms o f financing include the GPOBA pilots for water supply and sanitation (total o f $7 million), the GEF Africa Stockpile program ($4 million) and a JSDF grant for capacity building to improve schooling for the poor ($2.2 million). The rest of the portfolio ($8.1 million) i s aimed at knowledge services and capacity building. 4. TF supported activities provide valuable analytical underpinnings for IBRD's DPL programs. Areas that benefit include public sector management, the energy sector, and the water sector. The education sector has made innovative use of TFs by supporting the testing o f Conditional Cash Transfer (CCT) pilots for rural schools which aim to improve the transparency, accountability and effectiveness of service delivery in the education sector. Related analytical work influences education policy reforms supported through the Education DPL. The lessons learnt from the CCT pilot and its evaluation are expected to be useful to the broader development community in Morocco. TFs on climate change, a priority CPS area, have expanded. They help develop a better understanding among Moroccan decision makers and development partners o f the impacts o f CC and the policy measures or other actions needed to respond. They use participatory research techniques for building analytical models and predictive scenarios. They help define work that can be carried out under forthcoming projects. 139 Y * - c I 'SS3N3AI1IL3dM103 'HLMOtl3 - I tlVl71d 1~3l4AOIdW3 N3Z1113 01At13A113a 331At113S - Z NV711d - -I- 31W173 3N13NVH3 V N I LN3UTd073A3a 378VNIVISnS -E lIV771d CPS Annex A2 Morocco at a Glance 9/01/09 M East Lower Key Development lndloators &North middle Morocco Afnca income Ago dlstrlbutlon, 2007 (2008) Female Population mid-year (millions) 312 30 3,435 Surface area (thousand s q km) 447 8,778 35.51) Population growth (Oh) 12 17 10 Urban population (Ohof total population) 5s 57 42 GNl(Atlas method US5 billions) 80 8 883 6,543 GNIpercapita(At1as method.US$) 2,590 2.820 1905 GNI per capita (PPP. international $) 4,050 7 402 4,585 I 6 4 2 0 2 4 8 GDP growth (%) 56 59 0 2 prcont ol total p3prislion GDP per capita growth (Oh) 43 41 91 (moat recent e a t l m a t e . 2003-2008) I Povertyheadcount ratio at 5125aday (PPP O ) h 3 4 Under-6 mortallty rate (per 1,000) Povertyheadcount ratio a t $ 2 0 0 a d a y ( P P P O) h 14 n Life expectancy at birth (years) 73 70 69 BO Infant mortality (per 1000 live births) 40 32 38 a0 Child malnutrition (%of children under 5) 1) 25 70 60 Adult literacy, male (%of ages 15 and older) 69 82 88 50 Adult Iiteracy,female(%of ages 15 and older) 43 65 77 40 Gross pnmaryenrollment, male (Ohof agegroup) 08 1 12 30 Gross pnmaryenrollment female (%of age group) 03 09 20 I 10 0 Access to an improved water source (%of population) 93 89 88 Access to improved sanitation facilities (%of population) 79 77 55 1880 lB95 2000 2007 I N e t A l d Flows 1880 1990 2000 2008 ' (US$ millions) Net ODA and official aid 899 1048 48 1090 Growth of GDP and GDP par oaplta 1%) TopJdonors(in2007) European Commission 12 29 Iff 325 1 1 5 . France t35 28 155 28 10 Germany 1) 71 6 #3 5 Aid(%of GNI) 49 4.2 12 15 0 Aid per capita (US5) 46 43 15 35 -5 Lo n g - T e r m Eoo n o mlo T r e n d s -1 0 05 Consumer prices (annual Ohchange) 94 70 19 39 GDP implicit deflator (annual Ohchange) 152 55 -0 6 59 Exchange rate (annual average, local per US$) 39 82 06 78 Terms of trade index(2000 = '00) 80 75 00 DO 1380-80 1880-2000 2000-08 (average annualgrowth Yd Population, midyear (millions) 8 4 24 2 28 5 312 22 16 12 GDP (US5 millions)' 8,821 25,821 37,022 88,879 42 28 50 (%of GDP) A gricult ure 8 4 I77 149 146 67 -11 49 Industry 30 9 32 4 29 1 30 3 30 29 44 Manufacturing 8 8 8 4 I75 140 41 27 32 Services 50 6 49 9 56 0 55 0 42 33 51 Household final consumption expenditure 66 8 64 6 614 60 0 40 30 49 General gov't final consumption expenditure 8 3 155 8 4 I72 44 25 33 Gross capital formation 24 2 25 3 25 5 36 3 16 38 91 Eworts of goods and services I74 28 5 28 0 36 7 80 56 71 Imports of goods and services 26 7 3'19 33 4 50 2 46 48 88 Gross savings 8 6 25 2 24 3 30 9 Note Figures in italics are f o r years other than those specified 2008 data are preliminary indicates data are not available 5 Aid data are for2007 (')there is a senes break starting 8 9 8 Development Economics Development Data Group (DECDG) 142 Morocco B a l a n c e o f P a y m e n t s and Trade 2000 2008 Governance indicators, 2000 and 2007 (US$ millions) Total merchandise exports (fob) 7.49 9.934 Total merchandise imports (cif) 11,531 41,520 V u c e m d accmmtablity Net trade in goods and services -2,085 -12,846 Pdlbcal S t a l l t y Current account balance -475 -4,821 as a %of GDP -1.3 -5.4 Regulatayquality R u l e d lw Workers' remittances and compensation of employees (receipts) 2,81 6,730 Conb-d d caruption Reserves, including gold 5,t38 24,341 0 25 50 75 100 D2007 C e n t r a l G o v e r n m e n t Finance 02000 (%of GDP) Current revenue (including grants) 23.6 29.5 Soume Kaufmann-Kraay-Maitmm, World Bank Tax revenue 21.7 27.2 Current evenditure 23.5 23.6 T e c h n o l o g y and Infrastructure 2000 2007 Overall surpiusldeficit -4.8 0.4 Paved roads (%of total) 56.4 619 Highest marginal tax rate (%) Fixed line and mobile phone Individual 44 44 subscribers (per a people) 0 Q 73 Corporate 35 30 High technologyexports (%of manufactured exports) n3 9.0 External D e b t and R e s o u r c e Flows E nviro n m e n t (US$ millions) Total debt outstanding and disbursed 20.78 20.825 Agricultural land (%of land area) 69 68 Total debt service 2,702 4,204 Forest area (%of land area) Q.7 Debt relief(HIPC,MDRI) - - Nationally protected areas (%of land area) 12 14 Total debt (%of GDP) 55.9 23.4 Freshwater resources per capita (cu. meters) 994 940 Total debt service (%of exports) 21.0 a.4 Freshwaterwithdrawal (billion cubic meters) 12.6 Foreign direct investment (net inflows) 157 2,015 C 0 2 emissions per capita (mt) 1.2 16 Portfolio equity(net inflows) 6 -66 GDP per unit of energy use (2005 PPP $ per kg of oil equivalent) 8.0 8.3 Composition oftotal external debt, 2008 Energy use per capita (kg of oil equivalent) 310 458 ShPt-tem, /BRD, 2.5'0 (US$ millions) IBRD Total debt outstanding and disbursed 2,637 2,578 Disbursements t36 48 Pnncipal repayments 307 294 Interest payments 90 x)4 , US$milliow IDA Total debt outstanding and disbursed 27 l7 Disbursements 0 0 Private Sector Development 2000 2008 Totaldebt service 2 1 Time requiredl o start a business (days) - 12 IFC (fiscalparJ Cost to start a business (%of GNI per capita) - a.2 Total disbursed and outstanding portfolio 29 2 Time requiredto register property(days) - 47 of vvhich IFC own account 29 2 Disbursements for IFC own account 1 0 Ranked as a major constraint to business 2000 2007 Portfolio saies, prepayments and (%of managers Surveyed vvho agreed) repayments for iFC o w account 7 2 ' Access tolcost of financing 84.4 ' Taxrates 62.6 M IGA - - Gross exposure Stock market capitalization (%of GDP) 29.4 a0.4 New guarantees - - Bank capital to asset ratio (%) 9.8 8.9 143 v Mi IIenni urn Development Goa Is Morocco with selected targets to achieve between 1990 and 2015 (esbmate closest to dale show, r/. 2parsJ G o a l 1: h a l v e the rates f o r extreme p o v e r t y a n d m a l n u t r l t i o n 1990 1995 2000 2007 Poverty headcount ratio at $125 a day(P PP. %of population) 2.5 63 25 Poverty headcount ratio at national poverty line (%of population) a.1 153 142 Share of income orconsumption to the poorest qunitile (%) 6.6 63 65 Prevalence of malnutrition (%of children under 5) 9.0 w2 G o a l 2: ensure t h a t children are able t o c o m p l e t e p r i m a r y s c h o o l i n g Primary school enrollment (net. O ) h 58 72 79 94 Primarycompletion rate (%of relevant age group) 51 48 57 83 Secondaryschool enrollment (gross, %) 30 38 38 56 Youth literacyrate (%of people ages 15-24) 55 62 87 76 G o a l 3: eliminate gender disparity i n e d u c a t i o n and e m p o w e r w o m e n Ratio o f girls to b o r j in primaryand secondaryeducation (%) 67 72 80 86 Women employed in the nonagricultural sector (%of nonagricultural employment) 20 . 3 ? Proportion of seats held bywomen in national parliament (%) 1 1 n G o a l 4: reduce under-5 m o r t a l i t y b y two.thirds Under-5 mortalityrate (per 1,000) 85 47 47 Infant mortalityrate (per 1000 live births) 66 57 40 40 Measles immunization (proportion of one-yearolds immunized,%) 80 88 93 90 G o a l 5 : reduce m a t e r n a l m o r t a l i t y b y t h r e e - f o u r t h s Maternal mortalityratio (modeled estimate, per D0,OOO live births) 332 228 220 227 Births attended by skilled health staff (%of total) 31 34 40 59 Contraceptive prevalence (%of w m e n ages 15-49) 39 42 45 63 G o a l 6 : h a l t and b e g i n to reverse the s p r e a d o f H l V l A l D S a n d o t h e r m a j o r d l s e a s e s Prevalenceof H N ( % o f population ages 15-49) 0.1 0.1 01 Incidence o f tuberculosis (per DO.OOO people) m lT3 95 80 Tuberculosis cases detected under DOTS (%) 93 81 G o a l 7: h a l v e the p r o p o r t i o n o f people w i t h o u t sustalnable a c c e s s t o basic needs Access to an improvedwater source (%of population) 75 80 93 Access to improved sanitation facilities (%of population) 58 88 79 Forest area (%of total land area) 88 P.7 P.7 Nationally protected areas (%of total land area) 07 I,2 14 C 0 2 emissions (metnc tons per capita) 10 11 12 16 GDP per unit of energyuse (constant 2005 PPP $ per kgof oil equivalent) 93 8.0 8.0 83 G o a l 8 : d e v e l o p a g l o b a l partnership f o r d e v e l o p m e n t Telephone mainlines (per D people) O 1.7 4.3 5.0 7.8 Mobile phone subscribers (per D people) O 0.0 0.1 0.2 64 9 internet users (per D people) O 0.0 0.0 0.7 2 14 Personal computers (per D people) O 0.3 1.2 3.6 Education lndlcators (Oh) Measles immunization (% o f 1-year ICT indicators (per 100 people) olds) 100 n 1 75 60 50 50 40 50 25 30 25 20 -0 10 2000 2002 2004 20062007 0 0 1990 1995 2000 2007 2000 2002 2004 20062007 EMomcco EMlddie Ea81 B North N n e OFixed + mobik wbscnbeaOinlemel YSem Note Figures in italics are for years other than those specified indicates data are not available 9/vo9 Development Economics, Development Data Group (DECDG) 144 CPS Annex 8 2 Selected Indicators* of Bank Portfolio Performance and Management As Of Date 11/13/2009 Indicator 2007 2008 2009 2010 Portfolio Assessment Number of Projects Under Implementation a 14 8 7 6 Average Implementation Period (years) 2.8 2.8 3.1 3.9 Percent of Problem Projects by Number 21.4 0.0 14.3 16.7 Percent of Problem Projects by Amount 8.0 0.0 4.7 6.2 Percent of Projects at Risk by Number a, 21.4 12.5 14.3 16.7 Percent of Projects at Risk by Amount a* 8.0 17.9 4.7 6.2 Disbursement Ratio (%) e 27.1 39.4 21.4 10.8 Portfolio Management CPPR during the year (yeslno) No Yes Yes Yes Supervision Resources (total US$'OOO) 1302 1255 1028 1000 Average Supervision (US$'OOO/project) 77 78 103 90 Memorandum Item Since FY 80 Last Five FYs Proj Eva1 by OED by Number 121 10 Proj Eva1 by OED by Amt (US$ millions) 7,312.9 550.1 % of OED Projects Rated U or HU by Number 25.6 40.0 % of OED Projects Rated U or HU by Amt 25.7 11.3 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. 145 CPS Annex B3 IBRDllDA Program Summary As Of Date 1111312009 Proposed IBRDllDA Base-Case Lending Program Strategic Rewards a Implementation a Fiscal year Project ID US$(M) (HhWL) Risks (HAWL) 2010 Sustainable Access to Finance DPL 200 Public Administration Reform IV TBD Education Sector DPL TBD Oum Er Rbia Irrigated Agric. Modernization TBD Oum Er Rbia Sanitation TBD Rural Roads II Additional Financing TBD Urban and Rural Water TBD Subtotal 600 201 1 Energy Development Fund Health Sector DPL Support Plan Maroc Vert DPL Urban Transport Sector DPL Solid Waste Sector DPL2 Energy Sector DPL National Initiative for Human Development It Subtotal 600 Note: Lending envelope for F Y I 1 and beyond is indicative. a. For each project, indicate whether the strategic rewards and implementation risks are expected to be high (H), moderate (M), or low (L). 146 CPS Annex 9 3 IFC Investment Operations Program 2007 2008 2009 201 o* Commitments (US$m) Gross 24.58 271.96 272.61 Net** 24.58 271.96 272.61 Net Commitments by Sector (%) CGF 98 59 53 CFN 2 6 5 CGM 27 35 CSF 8 7 Total 100 100.0 100 0 Net Commitments by Investment Instrument (%) Equity 2.2 15 24 Guarantee 77.5 24.1 22 Loan 18.5 17 Quasi loan 20.3 42.4 37 Total 100 100.0 100 0 * As of November, 2009 ** IFC's Own Account only 147 CPS AnnexB4 Summary of Nonlending Services As Of Date I 312009 I11 Product Completion FY Cost (US$OOO) Audiencea Objective Recent completions Land Markets and Growth FY08 415 GIB KGlPSlPD Policy Notes (New Govt) FY08 386 GIB KGlPSlPD Investment Climate Assessment FY08 247 GIB KGlPS Poverty PESW FY08 245 GlDlB KGlPS Water Sector Reform PESW FY08 130 GIDIBIPD KGlPSlPD Public Admin Reform PESW FY08 231 GIDIB KGlPSlPD Investment in Historic Cities FY08 242 GIDIB KGlPS Doing Business TA FY08 14 GIB KGlPS FSAP Update FY08 241 GIB KGlPS Social Safety Net for LPG FY08 23 GIBID KGIPS Oil Products Sector Liberalization FY08 55 GIBID KGIPS Structuring New Energy Agency FY08 162 GIBID KGlPS Use of Country System - Environment FY08 20 GIB KGIPS Health Improvement TA FY08 94 GIB KGlPS E-government & ICT Development FY08 155 GIB KGIPS Public Administration Reform PESW FYO9 104 GIB KGlPS Clean Development Mechanism FYO9 67 GIB KGlPS Trade Policy Modelling Cap Bldg Ill&IV FYO9 61 GIB KGlPS Support to INDH FYO9 412 GIB KGlPS Media Industry Policy Note FYO9 117 GIB KGlPS Framework for Windpower FYO9 223 GIB KGlPS Gender Budgeting FYO9 100 GIB KGIPS Evaluation & Qty Assess of Education FYO9 63 GIB KGIPS Health Sector Reform TA FYO9 257 GIB KGIPS Reform Process of Business Environ. FYO9 106 GIB KGIPS Fin. Crisis Simulation (FIRST) FYO9 189 GIB KGIPS Underway Transport and Energy Efficiency FYI0 170 GIB KGlPS Agricultural Sector Review Update FYI0 383 GlDlB KGlPSlPD Adaptation to climage Change in Agric. FYI0 390 GIB KGlPSlPD Energy Market Reform Support TA FYI0 275 GIB KGlPS Public Expenditure Review FYI0 325 GlDlBlPD KGlPSlPD Poverty PESW FYI0 216 GIB KGlPS Poverty Assessment FYI0 150 GIB KGlPS Social Protection Strategy FYI0 280 GIB KGlPS 148 CPS Annex B4 Summary o f N o n lending Services As Of Date 11/13/2009 UCS lnnitiative Pilot-Procurement FYI0 100 GlBlD KGIPSIPD Country Governance FYI0 100 GIB KGlPS Public Administration Reform PESW FYI0 140 GlBlD KGIPS ROSC Assessment FYI0 80 GIB KGIPS Urban Development Strategy FYI0 147 GIB KGIPS Port Trade Facilitation TA - Customs FYI0 57 GIB KGlPS Energy Supply Strategy FYI0 130 GIB KGIPS Housing Finance TA FYI0 7 GIB KGlPS Pension Reform FYI0 186 GIB KGlPS Justice TA FYI0 170 GIB KGIPS Reforming the Business Environment FYI0 150 GIB KGlPS ICT Sector Development FYI0 100 GIB KGIPS Maghreb Cross Border Constraints FYI0 220 GIB KGIPS Maghreb Energy Market Study FYI0 200 GIB KGIPS Maghreb Vulnerability Assessment-Po FYI0 80 GIB KGIPS Climate Change Social Aspects FYI0 200 GIB KGIPS Climate Change Impact on Cities in N. FYI0 150 GIDIB KGIPS Breaking Barriers Youth Inclusion FYll 340 GIB KGIPS Climate Impact on Water Resources FYll 100 GIB KGIPS Country Environmental Analysis-Safeg FYll 95 GIB KGIPS Climate Change Adaptation&Mitigatior FYll 200 GlDlB KGlPS Gov. of SeNice Delivery to Citizens FYll 300 GIB KGlPS Regional Dev. For Disadmntaged Area FYll 51 GIB KGlPS Risk Prevention and Mgmt-Natural Ha2 FYll 230 GlDlB KGlPS a. G: Government; D: Donor; B: Bank; PD: Public Dissemination b. KG: Knowledge Generation; PD: Public Debate; PS: Problem-solving 149 CPS Annex B5: Morocco Social Indicators Latest single year S a m e regionlincome group M. East Lower- 8 North middle- 1980-85 1990-95 2002-08 Africa Income POPULATION Total population, mid-y ea r (millions) 21.8 26.4 31.2 313.2 3,434.5 Growth rate (% annual average for period) 2.3 1.8 1.I 1.8 1.1 Urban population (% ofpopulation) 44.9 51.9 56.4 57.2 41.6 Total fertility rate (births per woman) 4.7 3.6 2.3 2.8 2.3 POVERTY (% ofpopulation) National headcount index 26.0 13.1 9.0 Urban headcount index 17.3 7.6 4.8 Rural headcount index 32.6 18.0 14.5 INCOME GNI per capita (US$) 600 1,280 2,590 2,820 1,905 Consumer price index (2000=700) 54 91 117 133 142 Food price index (2000=700) 53 97 122 INCOM WCONSUM PTION DISTRIBUTION Gini index 39.2 39.2 39.2 Low est quintile (% of income or consumption) 6.7 6.6 6.5 Highest quintile (% of income or consumption) 46.3 46.4 48.1 SOCIAL INDICATORS Public expenditure Health (% of GDP) 1.o 1.2 2.8 2.0 Education (% of GNl) 6.0 5.0 6.0 3.2 Net primary school enrollment rate (% of age group) Total 61 72 94 90 90 Male 73 81 95 92 91 Female 48 63 90 88 90 Access to an Improved water source (% of population) Total 75 93 89 88 Urban 94 100 95 96 Rural 58 85 81 83 Immunization rate (% of children ages 72-23 months) Measles 45 88 90 90 82 DPT 51 86 92 79 Child malnutrition (% under 5 years) 9 10 25 Life expectancy at birth (years) Total 59 68 72 70 69 Male 58 66 71 68 67 Female 60 70 74 72 71 Mortality Infant (per 7,000 live births) 83 57 40 32 38 Under 5 (per 7,000) 115 76 47 38 50 AdUk (15-59) Male (per 7,000 population) 264 234 164 197 Female (per 7,000 population) 207 184 112 125 Maternal (per 700,000 live births) 228 227 200 300 Births attended by skilled health staff (%) 24 34 59 80 69 C A S A n n e x 6 5 This table w a s p r o d u c e d f r o m the C M U L D B s y s t e m 1210 8 1 0 9 N o t e 0 o r 0 0 m e a n s z e r o o r l e s s t h a n h a l f t h e u n i t s h o w n N e t e n r o l l m e n t r a t e b r e a k in s e r i e s b e t w e e n 1 9 9 7 a n d 1 9 9 8 d u e t o c h a n g e f r o m I S C E D 7 6 t o I S C E D 9 7 I m m u n i z a t i o n r e f e r s to c h i l d r e n a g e s 1 2 - 2 3 m o n t h s w h o r e c e i v e d v a c c i n a t i o n s b e f o r e o n e y e a r o f a g e o r a t a n y time b e f o r e t h e s u r v e y 150 CPS Annex B6: Morocco - Key Economic Indicators Gross domestic producta 100 100 100 100 100 100 100 100 100 Agnculture, forests, and fishmg 15 17 14 15 20 ia 18 17 17 lndustry 28 27 27 30 27 28 28 29 29 Services 57 56 59 55 53 54 54 54 54 Total Consumption 77 76 77 77 80 79 79 78 77 Gross domestic fixed mvestment 28 28 31 33 33 33 33 33 34 Government mvestment 3 3 4 5 5 5 5 5 5 Pnvate mvestment 24 25 28 28 28 28 28 28 28 Exports (GNFSf 32 34 36 37 27 28 29 30 31 Imports ( W S ) 38 40 45 50 40 41 42 42 43 Gross domestic savings 23 24 23 23 20 21 21 22 23 GOSS national savings' 31 32 32 31 28 29 30 30 31 Memorandum items Gross domestic product 61132 67271 71614 82241 114580 (US$nullion at current prices) GNI per capita (US$, Atlas method) 1920 2180 2290 2500 2740 2940 3130 3300 3450 Real annual growth rates (%, calculated from 98 prices) Gross domestic product at market prices 3.0 7.8 27 56 5.0 3.0 4.4 5.1 52 Gross Domestic Income 1.6 7.0 30 67 4.3 2.9 4.4 5.2 54 Real annual per capita growth rates (YO, calculated from 98 prices) Gross domestic product at market pnces 19 65 15 43 3.7 1.7 3.2 3.9 40 Total consumption 15 48 26 72 7.4 1.1 2.2 3.0 29 Pnvate consumption 13 56 25 ai 6.7 1.4 2.5 2.8 26 Balance of Payments (US% millions) Exports ( W S f 18809 21700 27268 32792 24520 26837 29352 32092 35226 Merchandlse FOB 10697 11921 15129 19934 12216 13507 14798 16108 17577 Imports (GNFSf 22757 26121 34610 45638 36771 39796 42524 45259 48121 Merchandlse FOB 18905 21659 29206 39074 30630 33270 35596 37921 40336 Resource balance -3948 421 -7342 -I2846 -12251 -12959 -13173 -13168 -12896 Net current transfers 5387 6313 7664 8852 8135 9208 9724 10271 10850 Current account balance 1130 1412 -70 -4821 -5336 -5097 -4835 -4338 -3638 Net pnvate foreign duect mvestment I510 2005 2183 2015 1410 2500 2700 3000 3300 Long-term loans (net) -455 -309 370 1285 1646 1741 1114 647 274 Official 259 467 82 1 1758 1666 1780 1258 858 600 Pnvate -714 -777 -45 1 -473 -20 -39 -143 -210 -325 Other capital (net, incl errors & ommissions) 171 -421 -416 44 248 448 338 332 325 d Change m reserves -2356 -2687 -2067 1478 2032 408 683 359 -26 I Memorandum items Resource balance (YO ofGDP) -6 5 -6 6 -10 3 -15 6 -13.3 -13.3 -12.9 -12.1 -11 3 Real annual growth rates ( YR98 pnces) Merchandise exports (FOB) -0 4 -2 4 52 -46 -12 2 62 69 74 77 M r y 70 32 12 -3.5 -22 6 43 46 50 53 Manufactures -6 1 -6 1 71 -3 a -17 0 83 94 99 99 Merchandlse q o r t s (CIF) 14 6 53 20 7 6.0 -6 1 50 52 57 56 (Continued) 151 CPS Annex B6: Morocco - K e y Economic Indicators (Continued) Actual Esttmate Projected Indicator 2005 2006 2007 2008 2009 2010 2011 2012 2013 Public finance (as % ofGDP at market pr&es)e Current revenues 23 8 25 1 27 3 295 25 1 23 7 24.9 25.2 25.3 Current expenditures 26 0 23 5 24 0 253 226 22 5 22.0 21.8 21.7 Current account surplus (+)or deficit (-) -2 2 16 33 42 25 12 2.9 3.4 3.7 Capital expenditure 39 41 46 55 58 59 6.0 6.0 6.0 Foreign fmancmg -0 2 00 06 13 15 14 1.o 0.7 0.6 Monetary indicators MUCDP 90 0 96 2 104 7 1037 1053 106 3 1074 1085 109.6 Growth ofM2 (%) I40 I70 16 1 10 8 92 62 75 82 8.3 Pnvate sector credit growth / 85 9 99 8 97 6 99 4 49 80 8 828 833 83.3 total credit growth (YO) Price indices( W 8 =loo) Merch,andise export price index 154.6 1766 212 9 2942 2053 213 7 2189 221 9 224.9 Merchandise import price index 115.9 I26 7 I39 9 171 9 1349 I39 5 141 8 1429 1440 Merchandise terms oftrade index 133.4 I39 3 1522 1712 1522 153 1 1544 1552 156.1 Real exchange rate (US$/LCU)' 95.5 95 4 87 0 803 771 77 1 77 1 77 I 77.1 Real interest rates Consumerprice index (%change) 1.o 33 20 39 09 23 21 18 1.8 GDP deflator (YO change) 1.5 15 39 59 25 22 20 19 1.9 a GDP at factor cost b "GNFS" denotes "goods and nonfactor services " c Includes net unrequited transfers excludmg official capital grants d Includes use o f 1MF resources e Consolidated central govemmnt ' f "LCU" denotes "local currency units " An mcrease m US$/LCU denotes appreciation 152 CPS Annex B7: Morocco - K e v Exnosure Indicators Y I Actual Estimated Projected Indicator 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total debt outstanding and 16174 17815 20543 20825 22520 24242 25256 25804 25977 disbursed (TDO) OJS$m)' Net disbursements (US$m)" 318 -358 65 1 1102 1696 1721 1014 547 174 Total debt service (TDS) 2728 3399 4018 4204 2578 2738 2760 2972 3027 (USSm)" Debt and debt service indicators (%I TDO~XGS~ 67 1 63 9 58 8 51 4 70 3 68 5 65 6 61 7 57.1 TDOiGDP 27 2 27 1 27 3 23.4 24 4 25 1 24 9 24 I 23.0 TDSiXGS 11 3 12 2 11 5 10.4 81 77 72 71 6.7 ConcessionaVTDO 44.5 45 9 42 7 42.8 37.2 38.8 39 8 40 6 41.2 IBRD exposure indicators (YO) IBRD DSipublic DS I 66 20.6 16.5 15.8 18.2 15.7 15 6 14 8 13.7 Preferred creditor DS/public 38 6 40 6 34.2 39.0 51.2 50 7 52 9 51.2 50.2 S D (%)' IBRD DSiXGS 16 15 1.1 I O 12 I O 09 09 0.8 IBRD TDO (Ussmf LLJO 2267 2578 2540 2612 2882 3204 3521 3862 Ofwhich present value o f guarantees (US$m) Share o f IBRD portfolio (YO) 2 2 2 2 3 3 3 3 4 IDA TDO wssmf 20 18 17 16 14 13 12 11 9 IFC (US$m) Loans Equity and quasi-equity /c MIGA MIGA euarantees CVSrSm', a. Includes public and publicly guaranteed debt, private nonguaranteed, use o f IMF credits and net short- termcapital. b. "XGS" denotes exports ofgoods and services, including workers'remittances. c . Preferred creditors are defmed as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements. d. Includes present value ofguarantees. e. Includes equity and quasi-equity types ofboth loan and equity instruments. f. The exposure numbers for FYI 1 and beyond are indicative only. 153 O b m k ? f ~ w m w a a 0 0 0 0 0 0 0 0 0 0 0 0 N N N N N N PI 0 0 0 0 0 0 0 0 0 0 0 151 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 g 0 ~ 0 0 0 ti; ~ ~ 0 0 8 0 0 0 ? r P m om o o o o o o o o 03 S ~ 8 z z o;ogoogom~m W h 0 ; ; ;0 ; 3 % o o o o o o o o q o o r- 8 t h' P