Morocco - Health Sector Investment Loan Project

Document of The World Bank FOR OFFICIAL USE ONLY 4o 3< 71 -7 400C Report No. 8108-MOR STAFF APPRAISAL REPORT KINGDOM OF MOROCCO HEALTH SECTOR INVESTMENT PROJECT JANUARY 8, 1990 Population and Human Resources Division Country Department II Europe, Middle East and North Africa RegioL, This document has a restricted distribution and may be used by recipients only in the performance of their oficial duties. Its contents may not otherwise be disclosed without World Bank authorization.  KINGDOM OF MOROCCO HEALTH SECTOR INVESTMENT PROJECT '1 STAFF APPRAISAL REPORT CURRENCY EQUIVALENTS (As of September 1989) Currency Unit Moroccan Dirham (DH) US$1.00 DH 8.5 DH 1.00 US$0.1176 FISCAL YEAR January 1 - December 31 GLOSSARY OF ABBREVIATIONS AIDS Acquired Immune Deficiency Syndrome (HIV infection) CHU Centre Hospitalier Universitaire University Hospital Center CNOPS Caisse Nationale des Organisations de Prevoyance Sociale (publics employees social security funds) CNSS Caisse Nationale de S6curit6 Sociale (private sector social security Zunds) EMS Emergency Medical Services GDP Gross Domestic Product GOM Government of Morocco HIV Human Immunodeficiency Virus (AIDS) IMF International Monetary Fund MCH-FP Maternal-Child Health-Family Plsn.ling MOF Ministry of Finance MOH Ministry of Public Health NGO Non-governmental Organizations PIC Programme d'Investissement Cible (Target Investment Program) PMU Project Monitoring Unit P/M Person/Month consultancies SAL Structural Adjustment Loan SIAAP Service de l'Infrastructure d'Actions Ambulatoires Provinciales (provincial level basic health services) STD Sexually Transmitted Diseases TIP Target Investment Program UNFPA United Nations Fund for Population Activities UNICEF United Nations Children's Fund USAID United States Agency for International Development WHO World Health Organization  FOR OMCUAL USE ONLY KINGDOM OF MOROCCO HEALTH SECTOR INVESTMENT PROJECT STAFF APPRAISAL REPORT Table of Contents Loan Summary i Basic Data iv I. INTRODUCTION 1 II. SECTOR BACKGROUND 2 The Sector 2 Sector Issues 7 Bank Experience with Lending in the Sector 9 Rationale for Bank Involvement 10 Other Donors 10 III. THE PROJECT 11 Project Objectives 11 Project Description 11 IV, PROJECT COSTS, FINANCING AND IMPLEMENTATION 15 Project Costs 15 Proj ect Financing 17 Project Implementation 18 Procurement 19 Disbursement 21 Status of Preparation 21 Special Account 21 Accounts and Audits 22 V. BENEFITS AND RISKS 23 VI. AGREEMENTS AND RECOMMENDATIONS 24 This report is based on the findings of an appraisal mission which visited Morocco in June 1989. The mission comprised Mme. J. Weissman (PHN Projects Officer, mission leader), Drs. S. Habayeb and D. Jolly (Public Health Specialists), V. Rodwin (Health Economist), and Messrs. H. Sederlof (Senior Projects Officer), H. Go (Architect), and I. Talai (Financial Analyst). This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  VII. ANNE S 1. Administrative and Policy Reform Matrix 2. MOH Organization Charts a. 1976-1989 b. 1989 3. Organization of Health Services Delivery System at the Provincial level 4. Organization of Primary (Ambulatory) Health Services 5. Health Expenditures a. Investment Expenditures b. Recurrent Expenditures 6. Training and Technical Assistance Programs a. Training b. Technical Assistance 7. Project Cost Tables 8. Implementation Schedule 9. Disbursement Schedule 10. Selected Documents Available in Project Files 11. Basic Data - Comparative Indicators (1987) E  KINGDOM Or MOROCCO HEALTH SECTOR INVESTMENT PROJECT STAFF APPRAISAL REPORT Loan SummaK Borrower: Kingdom of Morocco Amount: US$104.0 million equivalent Terms: Twenty years, including five years grace, at the standard variable interest rate. Description: The proposed loan would support the first phase of a long term effort to reestablish sustainable public health programs natiorvide. It advances the priorities identified as part of the 1989-92 Target Investment Program endorsed by the Structural Adjustment Loan (Ln. 3001-MOR). Bank support in 1990-93 and beyond is needed to maintain the shift in focus of the investment program from hospitals to a more balanced program of investments in primary health care and essential diagnostic and referral services. The proposed project would build on pilot-scale efforts financed by the Health Development Project (Ln. 2572-MOR) which has helped establish sound standards and flexible institutional arrangements for the delivery of primary health care. It is designed to rehabilitate essential basic health services using existing infrastructure. It would provide the resources required to reinforce priority health programs in primary care and at the first level of referral; strengthen the administration and management of health services and the maintenance of buildings and biomedical equipment. It would also support ongoing Ministry of Health (MOH) efforts to test and implement various improvements in service quality and efficiency; increase cost recovery for curative care; facilitate the mobilization of additional resources in support of the sector; and streamline arrangements for services financed by public and private sector insurance funds. Benefits: In the short and medium term, the proposed project would raise the credibility of the public sector health services by reinforcing the essential primary, diagnostic and emergency health services of the MOH in a time of fiscal stringency. The project would contribute to MOH goals to reduce infant and maternal morbidity and mortality, improve the nutrition status of vulnerable population groups, control preventable diseases, and reinforce MOH ability to respond to the growing number of accidents which require emergency medical care. The project's support of administ,ative reforms is expected to contribute to improved  - ii - planning, personnel and financial management, and increased productivity in the use of sector resources. In the medium to long term, improvements in MOH maintenance and repair capabilities are expected to safeguard investments in infrastructure and equipment, and sector reforms are expected to provide Morocco with a financially and economically sustainable health system which has broader nationwide coverage. The policy and sector reform programs are expected to furnish the means to increase individual, public and private sector expenditures on health care without depending solely on central government revenues for the entire increase. Risks: The principal risks relate to GOM ability to provide adequate financial resources for the health sector on a sustained basis pending the successful outcome of long term efforts to mobilize additional resources, and the implementation capacity of the MOH. The project represents a special effort to redirect additiona.l resou.-es to the sector and is therefore expected to receive the necessary allocations even in difficult budgetary conditions. Continuous monitoring of expenditures will be conducted in the context of the Bank's annual review of public investments. The experience gained in the first Bank- financed project is expected to reduce initial delays in project start-up. Equipment lists have been prepared, reviewed and approved by the Bank, as have standard bid documents related to the procurement of works and goods. Ongoing efforts to strengthen the management capabilities of the MOH and the decentralization of administrative functions to the provincial and facility level are expected to improve r.ector performance and thus contribute to an increased project implementation capacity.  - iii - Estimated Project Costs"/ Local Foreign Total ----(US$ Million)------ A. Basic Health Services Service Delivery System 17.6 19.1 36.7 MCH 4.4 6.9 11.3 Control Of Communicable Diseases 10.1 17.2 27.3 Control of Non-Communicable Diseases 0.9 1.5 2.4 School and University Health 0.8 1.5 2.3 Env'ronmental Control 1.4 1.6 3.0 Support Programs 1.6 2.4 4.70 Sub-Total Basic Health Services 36.8 50.2 87.0 B. Referral Services 21.2 23.3 44.5 C. Administrative Services 1.9 1.7 3.6 D. Sectoral Reforms 0.5 1.3 1.8 Total Baseline Costs 60.4 76.5 136.9 Physical Contingencies 5.1 6.7 11.8 Price Contingencies 9.8 12.8 22.6 Total PROJECT COSTS 75.3 96.0 171.3 Financing Plan: Government: 67.3 67.3 IBRD: 8.0 96.0 104.0 TOTAL: 75.3 96.0 171.3 Estimated Disbursements Bank Fiscal Year 91 92 93 94 95 96 ---------------------(US$ Million)--------------- Annual 17.0 25.0 30.0 22.0 9.0 1.0 Cumulative 17.0 42.0 72.0 94.0 103.0 104.0 tonomic Rate of Return: N.A. 1 Inclusive of direct taxes and customs duties estimated at US$ 41.0 million.  - iv - KINGDOM OF MOROCCO HEALTH SECTOR INVESTMENT PROJECT STAFF APPRAISAL REPORT BASIC DATA SHEET General Data Year Source Population (in millions) 24.5 1989 5 GNP per Capita (current US$) 620 1987 2 Adult Literacy Rate male/female (X) 45/22 1985 7 Primary School Enrollment Relevant Age Group male/female (X) 61/48 1987 8 Dependency Ratio (economically dependant population/productive population) 81.4 1985 1 Population Below Poverty Level urban/rurai (X) 28/45 1985 5 Vital Indicators Life Expectancy (in years) male/female 59/63 1989 5 Crude Birth Rate per 1000 population 33 1986 3 Crude Death Rate n n 10 1986 3 Infant Mortality Rate per 1000 live births 73 1989 5 Maternal M.ortality Rate per 100,000 live births 400 1989 5 Poculation Growth and Projectlons Annual Rate of Population Growth (X) 2.5 1980-86 3 2.3 1990-95 1 2.1 1995-2000 1 Rate of Growth of Labor Furce 3.3 1980-85 3 Population Age 15-64 (X) 3.1 1985-2000 3 Population Projections (millions) 30.5 2000 1 36.3 2010 1 Hypothetical Size of Stationary Population (millions) 59 1988 3 Total Fertility Rate (average number of children per woman) 4.5 1986 3 Health. Nutrition and Family Planning Health Population with Access to Health Services Urban/Rural (X) 90/61 1989 5 Rural Population with Access to Potable Water (X) 7 1988 2 Low Birth Weight Infants (X under 2.5 kg.) 7 1982-87 5 Women of Reproductive age (15-49 years) Immunized TT (X) 45 1989 5  -V Year Source Children under 1 year Immunized (X) BCG 99 1989 5 DPT 3 92 Polio 3 92 Measles 92 Expenditures on Health as X of CNP 3.3 1987 5 MOH buaget as X of total GOM budget 4.9 1989 5 Health Expenditures Per Capita Public Sector US$ 8 1987 9 Private Sector 17 1987 9 Physicians/1000 population 1/5300 1987 5 Nursing Personnel/1000 population 1/1160 1987 5 Hospital Bed/population 1/83r 1987 5 Hospital Admissions/1000 population 16 1988 5 Hospital Occupancy Rate (X} 65 1988 5 Nutrit.ion Daily Calorie Supply per capita 2729 1985 3 Daily per capita Calorie Supply as X of Requirement 108 1985 7 Children 12-23 months under weight for age (wasting) Z 6 1980-87 7 Children 24-59 months under hteight for age (stunting) X 12 1980-87 7 Prevalence of Breast-feeding infants 3 months of age (X) 95 1980-86 7 Infants 6 motths of age (Z) 61 Family Planning Contraceptive Prevalence 1987 6 Married Women of Reproductive Age (X) 35.9 Modern Methods (X) 28.9 Traditional Methods (XX 7 Prevalence According to Educational Status 1987 6 Women with Secondary Edvcation + (X) 52.8 Primary Education 46.6 None 24.8 Source of PP Services, Modern Methods Public Sector (X) 79 1987 6 Private Practitioners 11 Pharmacies 9 NGO 1 SOURCES: 1. EMENA Population Projections 1988-89; 2. Social Indicators of Development, 1988; 3. World Development Report 1989; 4. Bank Estimates; 5. Ministry of Public Health; 6. Demographic and Health Survey, 1987; 7. The State of the World's Children, UNICEF, 1989; 8. SAR, Rural Primary Education Project, World Bank, 1989; 9. La D6pense de Sant& au Maroc, Ministry of Public Health, 1989. See Annex 11 for Comparative Indicators from other countries  KINGDOM OF MOR.OCCO HEALTH SECTOR INVESTMENT PROJECT STAFF APPRAISAL REPART I. INTRODUCTION 1.01 Morocco has experienced a prolonged period of economic adjustment during the 1980s which was necessitated by a failure to adjust rapidly to adverse external factors which transpired in the latc 1970s. The phosphate- led boom (1975-1977) generated an ambitious public investment program which required increasing amounts of external financing after the price of phosphates collapsed. An extended period of droughr followed, and this, combined with rising interest rates on foreign borrowing, led to a balance of payments crisis in 1983. A rescheduling of the mounting external debt that year was accompanied by a comprehensive program of economic policy reform which has been sustained and intensified in the last five years. 1.02 In the reform process, IMF standbys and Bank support of medium- term adjustment programs in key sectors have been used to reduce the current account and treasury deficits and lay the foundation for substantial changes in the nature and scope of Government interventions in the economy. During the past five years, Morocco has succeeded in maintaining a modest rate of growth and low inflation rates while addressing internal and external imbalances. A Structural Adjustment Loan (SAL) was approved in late 1988 (Ln. 3001 - MOR). The execution of the target public investment program (TIP) is being monitored under the SAL, with particular attention to the completion of investments in four areas - health, education, agriculture, and essential infrastructure - which have suffered in recent years from below-average budgetary allocations and payments against works completed. Investments in these areas are being given priority and their execution rates significantly enhanced in an etfort to alleviate the impact on low income groups of the economic austerity programs of recent years. 1.03 Sectoral adjustment programs initiated during the past five years in Agriculture, Education, Public Enterprises, and Trade, Finance and Industry are designed to support Government efforts to raise the ei#iciency of production, stimulate exports, increase the equity and efficiency of the educatlon system, and promote fiscal reform. In addition, Government is increasingly targeting investments which are productive or which will provide essential infrastructure needed to support the growth of the private sector, and expand the access of the population, and in particular the poor, to education and health services.  11. SECTOR BACKGROUND The Sector PoRulation and Health Stacus 2.01 The health status of the Moroccan population is characterized by life expectancy -hich is 15 years lowe'r than in the industrialized czuntries, and infant morta'ity which is ten times higher. Nevertheless, conditions have improved substantially during the past twenty years; life expectancy has increased from 50 to 61 years and infant mortality has declined from 145/1000 live births to about 73/1000. The population growth rate has remained high, at about 2.52 per annum, as a result of a 41X decline in che death rate and a concurrent 271 reduction in the birth rate. The population can be expected to double in about 29 years, to 50 million, unless the birth rate declines more rapidly. because of the youthful age structure of the population, the labor force is growing even faster than the general population, and at the current rate of increase of 3.31 per annum, will double in only 23 years. 2.02 Women and children suffer the most serious consequences of high fertility and inadequate health care. Infants under one year of age account for 511 of all deaths, half of which occur during the first 28 days of life. Many of these neonatal deaths could be prevented if prenatal care and attended deliveries were more widely available. Only 251 of women who become pregnant receive any prenatal .--are and trained medical personnel attend only 251 of all deliveries. In some rural areas, less than 31 of deliveries are attended. Maternal mortality may exceed 400/100,000 births, in contrast to 10 de_.hs per 100,000 births experienced in the developed countries. 2.03 Tuberculosis and other communicable diseases, respiratory infections and diarrheal diseases are the most common causes of morbidity and mortality for all age groups. There is also increasing evidence that in urban areas, the incidence of chronic degenerative diseases such as cancer and heart disease is rising. Accidents of all kinds and especially traffic accidents are rapidly becoming a major cause of morbidity and mortality. The impact of these health problems on natioral development is substantial and can be measured in economic terms by the Joss of productivity which is the result of a physically debilitated labor force and by the need for expensive medical care for diseases whiclh could be prevented at a fraction of the cost. Nutrition 2.04 Data on the nutritional status of the population is limited, but a 1986 Demographic and Health Survey indicated that about 171 of pre-school children are either underweight for age, under height for age, or both. Children in rural areas are twice as likely to suffer from nutritional deficits as children in urban areas, and children in their second year of life are particularly at risk because they are often abruptly weaned to a diet which is inadequate in quantity and nutritional value. The 1984-85 National Contumption Survey indicates that, barring some major improvement in the distribution and utilization of the existing food resources, per capita food consumption has changed little since the early 1970s. Although it is  - 3 - difficult to quantify the relationship between food consumption patterns and nutritional status because of the technical difficulties inherent in measuring consumption, experience worldwide has demonstrated that malnutrition is usually a contributing factor when the infant mortality rate exceeds 50/1000 live births. In Morocco, infant mortality is above 50/1000 in every province and prefecture, and exceeds 100/1000 in several. Health Sector Finances 2.05 Public and private sector expenditures on health care in Morocco each averaged about 1X of GDP between 1978 and 1984. MOH recurrent expenditures have equaled slightly over 4X of total government expenditures durirg the same period, in contrast to 5 - 8X spent in other middle income coun.ries. Between 1980 and 1987, the operating budget of the Ministry of Health increased by about 1.32 in real dirhams, but the population grew at an average annl. 1 rate of about 2.51, suggesting that the public sector is losing ground in its efforts to increase coverage of the population in the absence of any significant productivity increases. According to the 1984-85 Household Consumption Survey, individual household expenditures for health care are low, at only 51 of i.ncome. About 501 of these expenditures are for medical consultations and 351 are for the purchase of medicines. Consumption of health care provided by the health sector is much higher in the major urban areas, 244 Dirhams per capita, in eontrast to 55 Dirhams per capita in poor rural areas. These differences in spending patterns are indicative of the higher consumption rate of the more affluent in urban areas and the greater availability of services in those areas. 2.06 The public sector dominates the delivery of health care in Morocco; more than 80X of the population depend on services provided by the civilian public sector, and more than 90X of the public sector health budget is furnished by the central government budget. At Independence, the CO)M began to develop a health services infrastructure pyramid based on population/ service ratio guidelinl3s formulated by the WHO for use in countries which did not have sufficient epidemiological information to develop plans based on the actual health care needs of the population. Given the limitations of this type of health care planning, the Moroccan public health system was well- conceived, with a hierarchy of facilities which begins with basic outpatient services offered by mobile teams snd dispensaries and culminates in the highly specialized treatment available in the two university hospitals. Reliable data are not available on the use by approximately 201 of the population of the military medical system or the private and quasi-private sector health services. There are two social security systems - CNSS (Caisse Nationale de S6czrite Sociale) for private sector employees and CNOPS (Caisse Nationale des Organisations de Pr6voyance Sociale) for public sector employees. Individuals may also purchase health insurance in the private sector, or pay out-of-pocket for health care provided by private sector practitioners. There is some overlap of public and private sector which is inherent in the operation of the social security systems. CNSS operates its own hospitals, but there is no provision for contributions for health care by CNSS members, therefore they and non-members who use the CNSS hospitals must pay for services, either out- of-pocket or through the use of health insurance purchased in the private sector. The CNOPS beneficiaries contribute to a series of mutual funds from  - 4 - A which they are reimbursed for health care, however they may use the facilities of the CNSS, the MOH, or the private sector. 2.07 The MOH operating and investment budgets together provide an average of only US$8 per capita for health care. As a full series of basic immunizations costs about US$5 per child, it is obvious that the MOH budget is in no way adequate to meet the health care needs of the population, regardless of the manner in which it is used. About 52X of the MOH budget is allocated to the hospitals, about 26X to administration, and 22X to ambulatory care. About 701 of the personnel budget is allocated to hospitals, and the remainder to administration and ambulatory care. Because civil service employment regulations offer limited flexibility with respect to cutbacks in the personnel budget, a reduction in the level of recurrent expenditures means that the amount available for non-personnel operating costs - medicines and medical supplies such as suture material and bandages, x-ray film, disinfectants, and chlorine for treatment of wells is less, and maintenance jobs are postponed indefinitely. It is this decline in the non-personnel operating budget, from 421 in 1977 to 30X in 1988, which has caused the highly visible and much criticized decline in the quality and quantity of care available in the public health services in recent years. Health Policy and Strategy 2.08 Morocco's Economic Development Plans since 1973 have articulated the intention of Government to extend basic health services to the entire population but the plans lacked priorities and placed equal emphasis on the development of preventive and curative services. Given the nature of the problems described in Para. 2.01-2.04, this strategy was not entirely appropriate. Hospital construction has been emphasized in the past, which favored the coast and major urban areas. Although approximately 60X of the rural population now live within 10 km. of a MOH facility, many rural areas are still underserved and some population groups have virtually no access to any of the services offered by thc MOH. The 1988-92 Plan is the first which indicates clearly that priority will be given to primary care and underserved areas. However, the KOH has been unable to change the direction of its investment program because of the fiscal problems of recent years, which limited investments to the completion of works, primarily hospitals, which were begun during earlier plan periods. Some of the hospitals which are still under construction were begun in 1974. This backlog from prior investment programs is expected to clear within the next two-three years, which will permit the MOH to execute an investment program which redresses the imbalances of the past and is more responsive to the priority health care needs of the population. 2.09 The strategy for the 1988-92 Development Plan is therefore one of consolidation. The Bank has reviewed the entire investment program with the Ministries of Plan, Finance, and Health, including the investments which would be financed under the project, and concluded that the overall investment program is fully appropriate. It indicates that the Ministry of Public Health will: (i) complete projects begun under previous plans; (ii) maintain, renovate and rehabilitate existing infrastructure; (iii) develop basic health services in order to reduce infant mortality, increase the use of birth  -5. spacing, and improve the nutritional status of mothers and children; (iv) implement management procedures which will maximize and rationalize the allocation of resources with effective participation of local communities; and (v) define a financing policy for the sector with appropriate pricing and increased participation of groups and individuals in the assumption of responsibility for the cost of medical treatment and other medical benefits. 2.10 As the Moroccan public health system has matured, the expanded use of surveys and improved data collection through the service delivery system are gradually leading to more sophisticated program and investment planning. The MOH is now taking its investment planning in a new direction, based more closely on demographic and epidemiological indicators used to define the priority health care needs of the different population groups and the assumption that the limited resources available must be used more efficiently. In 1981, the MOH began preparation of what was to become a Bank-financed Health Development Project (Para. 2.20). As part of the preparation process, a four-pronged strategy for primary care was developed, based on precise population mapping. The strategy involves the use of four levels of intervention: (1) ambulatory care in fixed facilities; (2) itinerant nurses for home visits and community meetings; (3) mobile teams for distant settlements; and (4) MOH-trained traditional birth attendants and community- based voluntary health workers. The exact mix used in each province depends on population density, topography, access, existing physical and human resources, and community involvement and preferences. 2.11 The new primary health care strategy places emphasis on the organization of services for geographically defined population groups; the preventive aspects of health care including early screening and detection of disease; and the participation of local community groups in planning activities, determining meeting places for itinerant nurses and mobile teams, and discussing the health needs of the community. This coverage strategy reduces the requirement for fixed facilities, which would have to be increased many times over in order to reach the majority of the population. A USAID- supported Family Planning pilot project in 1976 provided the basis for the primary health care outreach strategy, which continues to include family planning services as a priority program. The results to date of the application of the new strategy are promising. In the three provinces where the strategy has been tested, the use of hospital emergency rooms for non- emergency care has declined and the population covered by the primary care programs has increased by carefully targeting services to those who need them. All of the other provinces are in the process of preparing and progressively implementing service delivery plans based on the model developed in the three pilot provinces. The full application of the model on a nationwide basis will require an infusion of additional resources, including some small-scale civil works, considerable materials and equipment, and training. Maintenance 2.12 The maintenance of health facilities and medical equipment has often been deferred in Morocco because of the inadequate funds available for sector operations and because of insufficient maintenance infrastructure, human and material resources, and organizational skills. Human and material  -6- resources are now available for the maintenance of buildings, but there is still a lack of infrastructure for the maintenance of medical equipment. The MOH has recently completed a diagnosis of equipment maintenance problems with the assistance of UNDP, and has formulated the following strategy: (i) establish a network of workshops in strategic locations across the -^untry where technicians can resolve a majority of the most common medica] iquipment problems; (ii) identify relevant training requirements, plan and exezute a training program; (iii) establish national policies and procedures for medical equipment procurement which will contribute to lower maintenance costs. This strategy will be supported by the proposed project (Para. 3.07). Management and Cost Recovery 2.13 The Ministry of Health has made an effort to improve other aspects of the health system as well. Seven provincial hospitals plus the two university hospitals (CHU, centre hospitalier un"versitaire) have been given some managerial autonomy to administer their non-personnel operating budgets. One of the immediate effects has been an average increase in fees collected of about 50X per hospital during the first year of the program, 1988. In addition, some fees have been increased, including the fee for specialist consultation at the CHU, and others are being updated. Nevertheless, the administrative systems of the MOH remain cumbersome and highly centralized, and for the most part, have not been modified to reflect good modern management practices. Limited progress has been made in the computerization of personnel and financial records, but these systems are still incomplete and will require considerable addit onal work if they are to be fully exploited as management information systems. A substantial in-kind contribution was documented as part of the health financing study supported by the Health Development Project. Patients, particularly in hospitals, provide their own bedding, meals, medicines and medical supplies when these are not available at the facility. Consultant services financed by the Health Development Project also contributed to the preparation of the reorganization plan for the MOH which has been approved at all levels of government and will be implemented during 1990 (Para. 2.22). Other ongoing work financed by the Health Development Project which is expected to contribute to MOH efforts to increase efficiency and cost recovery includes a study of hospital administration and a program to strengthen the drug supply system. 2.14 Efforts are being made to improve the managerial and administrative aspects of MOH operations because of increasing Government awareness of the limitations associated with the health sector's heavy dependence on central government revenues. There is also a growing consensus that additional ways must be found to increase revenues generated by user charges, improve internal efficiency, enhance the use of public and private sector insurance systems, mobilize community resources in support of local and regional services, and encourage the private sector to take a more active role in the provision of health care. The government is considering various options, which might include the indexation of hospital fees to keep pace with increasing costs, the regular adjustment of hospital per diem rates and fees for outpatient emergency diagnostic and treatment services, the use of private sector health services and insurance, modification of the relationship of the MOH to the existing social and health insurance schemes, and forecaating of  -7- net revenues compared to projected total public health expenditures. Options under consideration are outlined in Annex 1. 2.15 The environment in which these changes are expected to take place is complex. Health care costs are increasing steadily as a result of technological advances in medicine, inflationary pressures, and rising public awareness and expectations for more and better health care. Adjustments in the MOH fee structure wiill be difficult to justify to patients unless they are accompanied by significant improvements in the quality of care and the physical environment in which care is offered. Full cost recovery at the point of service without specific safeguards is not an option, because the public sector will always have to take into consideration the need to provide services free or at a nominal charge to the large low income and indigent population groups. Although the percentage of the population which is below the poverty level has declined from about 40% in 1971 to 30% in 1985, the absolute number of poor has remained the same because of rapid population growth and skewed income distribution. In addition, the public sector will continue to be responsible for public health services which are in the public interest, such as basic immunization, environmental health and communicable disease control programs, and response to emergencies and natural disasters. Sector Issues 2.16 The Moroccan government is faced with the following issues: (i) the need to invest in major improvements in a deteriorating public health services infrastructure in order to improve the general acceptability of health services; (ii) increase the effective utilization of existing resources; and (iii) generate additional resources to meet future needs. Continuing gains in health status will depend to a large extent on the capacity of the system to adjust to new demands generated by gradual changes in the epidemiological pattern and the rising expectations of a population that is expected to double in the next thirty years. 2.17 Deterioration of Existing Facilities. The chronic neglect of the sector in recent years, which is reflected in inadequate levels of funding (see Paras. 2.05 and 2.07) has led to frequent disruptions and deficiencies in the delivery of care at all levels. Pressure on hospitals to provide routine curative care has increased because of the deficiencies at lower levels in the system. Hospitals and medical equipment have not been maintained either, and the dedication of budget resources to the completion of hospitals planned ten years ago has caused existing facilities to suffer, as sufficient funds have not been made available for major repair and renovation work, for operations or for the extension and improvement of the ambulatory care network. The MOH has not purchased a single piece of radiology equipment in five years, and surgical units of hospltals operate at less than fifty percent of capacity because of the shortaga of surgical instruments and sterilization equipment. Basic emergency services in all but the largest hospitals are inadequate because of the lack of proper care and maintenance of equipment and failure to replace obsolete and damaged equipment on a regular basis. The effort to keep the hospitals operating, even at a low level of productivity, has in turn drained resources from the primary health care services. Until this pattern of disinvestment is reversed, it is difficult to imagine that other, badly  -8 needed reforms of the sector will take place, and even if undertaken, will easily gain acceptance by the public. MOH is aware of the immediate priority that needs to be attached both to rehabilitation of existing stock and to a more balanced allocation of scarce budget funds between various levels of the system. Plans for the rehabilitation of health infrastructure on a priority basis have been developed, and rationalization of health services with the dual objective of efficiency and effectiveness in service delivery will be a critical feature of administrative reform in the sector. 2.18 Ineffective Utilization of Existing Resources. Management and planning of the health sector is highly centralized in MOH. As a result, the system does not easily respond to local needs, which in turn impedes any effort to introduce mechanisms aimed at more efficient use of facilities and to generate individual and community contributions in support of health sector operations. At the same time, administrative practices are in many respects archaic and are characterized by redundancy and duplication. MOH is aware of the advantages of decentralizing management and planning responsibilities, and a program of gradual delegation of such tasks in underway (see Para. 2.12). However, this will require additional training to ensure that appropriate managerial ability and professional skills are available, as well as information systems that will allow staff to effectively use the resources at their disposal, and to monitor and evaluate the effects of their intervencions. While such skills are sorely lacking at all levels of the system, MA". programs are being developed, with some support from the Health Development Project, to address these constraints. 2.19 Resource mobilization and credibility of public sector health servic.s.s. The government's ability to mobilize extrabudgetary resources in support of the health sector has been severely constrained by the low credibility of the public health services and the administrative ossification of the public health system. Visible improvements in service delivery will require substantial pump-priming investment and will need to precede any call for further community and patient contributions to the system. The successful mobilization of additional resources for the sector will be critical not only to ensure adequate operation of the existing health system, but also for any expansion of the system to meet future needs. This process should involve a modest but sustained increase in the sector share of the central government budget, beginning with the programs supported by the proposed project, as well as means to reduce its heavy dependence on that budget by mobilizing additional resources from local authorities, and through selective increases in cost recovery from users of public health services. In addition, the role that the private sector could play as a complement to and, to some extent, as a substitute for, public services, needs to be examined further. In this context, a crucial role will be played by health insurance, and the relationship between the MOH and the two social security systems, the CNSS and the CNOPS, needs to be rationalized. Options are being developed in the framework of a major health financing study supported by the Health Development Project. Already, several initiatives to increase cost recovery have been tested by the MOH and are being expanded. Specialist consultation fees at the CHU level were instituted recently, at 2ODH per visit, and the CHUs and seven other hospitals now keep the fees collected for use in the  - 9 - iacility. Receipts in these facilities more than doubled from 1987 to 1988, and the system is being expanded to other hospitals during 1989. Bank Experience with Lending in t., lector 2.20 The Bank's experience ii the sector began with the Health Development Project (Ln. 2572-MOR), which will receive US$28.4 million of Bank financing over a six year period. It was approved in June, 1985, but did not become effective until July, 1986, because of a delay in issuing the decree approving the loan agreement. It is designed to assist Government to strengthen primary health services in three provinces on a pilot basis, improve the drug supply system, enhance the capacity of the MOH to plan for further expansion of the health services, train personnel, conduct research and evaluation activities, and administer the health services. The project is complemented by smaller, parallel investments in health and family planning services by USAID, UNFPA, UNICEF, UNDP, and WHO. 2.21 Although disbursements have been slow until recently, project implementation has been very satisfactory from a technical standpoint; local training and planning for the implementation of the new primary health care strategy began before project effectiveness. The logistics of primary health care delivery under a wide range of conditions have been tested and refined, and more than 50X of the first phase of construction of dispensaries, health centers, and rural hospitals in the three provinces has been completed. Disbursements have been lower than anticipated because of the failure of MOF and MOH to allocate the anticipated counterpart resources to the project during the fVrst two years of project implementation. The concentration of resources in three pilot provinces, while justified from s4 technical standpoint, also created understandable resistance from other provinces and complicated the annual allocation of the investment budget. This problem has been resolved gradually with the successful execution of major elements of the project and recognition that the long term benefits of the project extend beyond the three pilot provinces. 2.22 The project has served as a catalyst for many other changes in the MOH. A major reorganization of MOH has been approved and will be implemented during 1990. The Bank has reviewed the proposal for reorganization of the Ministry and supports this effort to increase administrative efficiency. The pilot experiment to decentralize the management of selected hospitals (Para. 2.13) is being expanded to include more hospitals; provincial level basic health services staff have been trained and have prepared provincial level plans for the implementation of the basic health services programs. A standard list of drugs has been developed for the basic health services, and the designs are being finalized for a small drug formulation and packaging facility which would meet the needs of the MOH only for a selected number of essential drugs for the primary i.4alth care programs. In addition, a major study on health financing, sources and uses of funds, options and constraints, is nearing completion, and the first phase of a study of hospital administration has been completed. The MOH has also undertaken a study of the emergency medical services and has inventoried all of the MOH buildings, x-ray equipment and vehicles in an effort to improve MOH planning for infrastructure investments. Planning for investments in new infrastructure is now being  - 10 - linked to priority program goals, such as the extension of maternal and child health services, and improvements in emergency care and transport, particularly for accident victims and obstetrical emergencies. Rationale for Bank Involvement 2.23 The project would contribute to the GOM objective of expanding social sector programs and hence mitigate some of the adverse effects of economic stabilization and adjustment by intensifying its efforts to target these programs to poor ard underserved areas. It would constitute the initial phase of a long term effort to reverse the negative trends in the evolution of the sector and reestablish sustainable public health programs nationwide. It would build on pilot-scale MOH efforts under the Bank-financed Health Development Project which have formulated sound standards and flexible institutional arrange"qents for the delivery of primary health care and also upgrade the quality of selected diagnostic and emergency services. While the proposed investments are expected to play a crucial catalytic role in COM efforts to ensure the continuation of essential basic health services, they will also permit MOH to move ahead with the design of a package of policy reforms which encourage improvements in quality and efficiency, increase cost recovery for curative care, mobilize additional resources in support of the sector, streamline arrangements for services financed by the CNSS and CNOPS. It would also act as a catalyst for additional concessional funding, from bilateral donors as well as WHO, UNICEF, UNFPA, and NGOs, which is not available in the amount required to undertake a major rehabilitation of the health services. A Bank-sponsored breakthrough ensuring adequate financing for essential public investments was initiated under the SAL (Para.1.02) and needs the reinforcement of the proposed project to enhance the effectiveness of MOH utilization of its investment resources and ensure continued improvements in the quality and coverage oC health services. Other Donors 2.24 Several other donors are supporting GON efforts to improve health and nutrition status and reduce fertility. USAID has prepared a US$30 million, seven year Family Planning and Child Survival Project which began in October, 1989, as a follow-up to a US$23 million project which ended in 1989. The new project will finance training, technical assistance, commodities, and some operating costs of the Maternal Child Health-Family Planning programs. The design of this project has been coordinated closely with the preparation of the Bank project to ensure complementarity and avoid overlap. UNICEF has a US$7.5 million project which supplies technical assistance, vaccines, and oral rehydration salts in support of the immunization, diarrheal disease control, nutrition, health education, and MCH programs. UNFPA is providing about US$3 million yearly to finance a comprehensive program of population activities including population education in schools and the agricultural extension services, analysis of census data, commodity and technical support of MCH-FP services, traininig, and technical assistance. UNDP is providing US$3 million of technical assistance and training in support of hospital and laboratory equipment maintenance programs (para. 2,12). The WHO program finances about US$0.8 million per year of consultant services, fellowships, and training. Other bilateral donors, including France, Spain, Canada, and China provide  - 11 - mainly fellowships, consultant services, and commodities. The proposed project provides a supportive framework for the complementary efforts of other donors because it addresses systemic issues related to the distribution and financing of health services, the adequacy of existing infrastructure and the policy environment of the sector. III. THE PROJECT Project Objectives 3.01 The principal objectives of the project are to assist Government to: (1) reestablish sustainable health programs nationwide, reinforce priority health programs in primary care and at the first level of referral, and obtain maximum yield from past infrastructure investments; (2) strengthen the administration and management of services provided by the MOH in order to increase efficiency, control costs and facilitate the implementation of administrative reforms designed to decentralize the management of health services; and (3) promote sector and policy reforms wh'