Statement by Khalid Alyahya at the Board meeting of January 30, 1997

CONFIDENTIAL InternationalBank for Reconstructionand Development 86316 InternationalDevelopmentAssociation InternationalFinance Corporation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY EDS97-18 January 29, 1997 Board Meeting of January 30,1997 Statement by Khalid Alyahya Morocco: Country Assistance Strategy This is an excellent CAS in its presentation and its comprehensive coverage. It reflects the depth of the dialogue between the Bank and the authorities. The attached Business Compact is a welcomed improvement in presentation, and provides a clear set of benchmarks to assess future performance against. Having made some comments earlier this week when CODE discussed the Bank's assistance to Morocco, I will just make two remarks on deepening reforms and on private sector development. There are indications of strong national ownership of the reform program in Morocco. The commitment of the authorities to pursue reforms has been unwavering even in times of severe droughts and other adverse external developments. Indeed, as the present CAS notes, "the Government has shown a solid track record in macroeconomic management". As to the future, there is a clear need to deepen initiated reforms in order to preserve the results achieved so far and allow the economy to realize its potential. The development agenda, as presented in the CAS, is broad, and there is a need to develop some sense of prioritization within that agenda. The CAS, in my view, does a good job in helping the Government establish those priorities. For example, to improve social conditions, priority is given to the re-allocation of public resources for that purpose; to address environmental sustainability, water management is clearly presented as the core issue; to build a stronger consensus on reforms, the need for wider policy dissemination is highlighted; to establish access to international markets, the nurturing of ties with strategic trading partners is advocated. However, the issue of vulnerability to climatic conditions remains. On average, Morocco has suffered from drought once every three years. Yet, the economy continues to be dependent on agriculture. More worrisome is that 75 percent of agricultural value added is still rainfed. It is obvious that growth is very difficult to sustain under such circumstances. I wonder if there are relevant lessons from other countries in arid regions that Morocco can benefit from. lThis documenthas a restricteddistributionand maybe used by recipientsonly in the performanceof their offiTcial duties. It should not be distributedwithoutthe consentof the ExecutiveDirectorconcerned.  2 My second point is about the need to enhance the role of the private sector in economic activity. This issue is critical for the success of reforms since the new employment opportunities are expected to be created by the private sector. In the past, the incentive structure in the economy and bureaucratic procedures have not been conducive to growth in the private sector. However, it is encouraging to note in the present CAS that "progress has been most notable on the private sector agenda" during the past three years. Implementation of the financial sector adjustment operation, which was approved last fiscal year, should provide valuable assistance to ongoing efforts in this domain. In addition, further improvement in the external competitiveness, and increased reliance on privatization and concessions for the provision of basic services, will be key in realizing a higher trend in real growth. Bank assistance in this regard, including the two possible quick disbursing operations in financial sector reform and in privatization and public enterprise reform, seems appropriate. I also welcome the joint World Bank - IFC program to enhance private sector development, which is presented in full detail in attachment 4 to the Business Compact. In conclusion, I concur with the CAS assessment that "Foremost among [development priorities] will be focusing on a new growth agenda, based on an acceleration of reforms, as a means of addressing both urban unemployment and rural poverty in a complementary and sustainable way". Discussion of the Business Framework in the CAS explicitly acknowledges that the challenge facing the Bank in Morocco will be to increase the impact of its assistance while carefully managing the Bank's financial exposure. Nevertheless, management should exercise flexibility in moving towards a higher lending scenario in support of increased efforts by the Government to implement structural reforms.