Announcement of Morocco Launching Industrial Adjustment Program with World Bank Support on February 2, 1984

World Bank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A.* Telephone: (202) 477-1234 BANK NEWS RELEASE NO. 84/38 Contact: Fawzi Rihane February 2, 1984 (202) 477-5325 MOROCCO LAUNCHES INDUSTRIAL ADJUSTMENT PROGRAM WITH WORLD BANK SUPPORT Morocco has launched a program aimed at improving industrial efficiency, boosting exports, and promoting greater use of domestic savings to increase long-term finance for industry. A World Bank loan of $150.4 million will support the program, aimed at reforming export incentives and trade policy. By 1986, industrial production is expected to rise by 5 percent, and exports to increase by $320 million. Some 200,000 jobs are also expected to be created. The program is part of a continuing effort by the government to address imbalances in the economy. During the mid-1970s, with the boom in the price of phosphate--a key Moroccan export--the government increased its investments in development projects. However, starting in mid-1975, the economy suffered from a drop in the volume of exports of phosphates and a high petroleum import bill. High government investments and other public expenditures during the boom years later affected the balance of payments and the government budget. In 1978 the government embarked on a three-year stabilization program which included cuts in public investments and stricter import controls, and a currency devaluation in 1980. Despite these measures, the budget and balance of payments deficits remained at about 12 percent of the gross domestic product (GDP), with the current account deficit at 8 percent of GDP. A severe drought in 1981 cut agricultural production by 20 percent and led to substantial imports of cereals. The rise in international interest rates contributed to a large increase in Morocco's debt servicing, and the world economic recession caused a fall in the remittances by Moroccan workers abroad. These remittances are a principal source of foreign exchange. As a result, the current account deficit rose from $1.4 billion in 1980 to $1.9 billion in 1982, or from 8 percent to 13 percent of GDP. Morocco increased its borrowings abroad. By 1982, its external medium and long-term debt had risen to $9 billion, or 61 percent of GDP. In 1983 the total debt reached $13 billion. The debt service on its medium and long-term debt amounted to $1.2 billion in 1980, or 27 percent of total exports, and to $1.4 billion in 1982 (36.3 percent of exports). NOTE: Money figures are expressed in U.S. dollar equivalents. -2- Under the current adjustment program, the government will carry out a reform of the system of export incentives by reducing the number of products under export licensing control and by making it easier for exporters to have duty-free access to imported materials. Marketing arrangements for exports of food products and the system of export credits will also be improved. These reforms will be carried out over a five-year period. Price controls on manufactured products will also be gradually lifted. To complement these reforms, direct government control of exports will be reduced. The World Bank loan will be used to finance imports during the adjustment period. The reform of export incentives is expected to result in an increase over three years of 26 percent in manufactured products and 6 percent in food and agricultural products (for a total value of $200 million). During the same period, tourism is estimated to rise by 20 percent, or by $116 million. The increase in exports is expected to generate about 110,000 jobs in 1984 and some 210,000 by 1986. Workers' remittances are also expected to increase by about $108 million in 1986. The World Bank has supported 64 projects in Morocco, with a total lending of over $2.4 billion. The current Bank loan is for 17 years including four years of grace, with a variable interest rate linked to the cost of the Bank's borrowings. It also carries an annual commitment charge of 0.75 percent on undisbursed balances and a front-end fee of 0.25 percent on the amount of the loan. -0-