Morocco - Housing Loan To Credit Immobilier Et Hotelier Project

Document of L- The World flank FOR OFFICIAL USE ONLY Report No. P-3461-MOR REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$60.0 MILLION TO CREDIT IMMOBILIER ET HOTELIER WITH THE GUARANTEE OF KINGDOM OF MOROCCO FOR A HOUSING DEVELOPMENT PROJECT February 16, 1983 This document has a restricted distribution and may be uLsed by recipients only in the perfermance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  KINGDOM OF MOROCCO CURRENCY EQUIVALENT Currency Unit - Dirham (DH) US$l = DH6.00 DHI = US$o.17 FISCAL YEAR January 1 - December 31 GLOSSARY OF ABBREVIATIONS BNDE = Banque Nationale pour le Developpement Economique CDG = Caisse de Dep8t et de Gestion CIH = Credit Immobilier et Hotelier ERAC = Etablissements Regionaux d'Amenagement et de Construction MHAT = Ministere de l'Habitat et de l'Am6nagement du Territoire  FOR OFFICIAL USE ONLY KINGDOM OF MOROCCO HOUSING DEVELOPlENT PROJECT LOAN AND PROJECT SUMMARY Borrower: Credit Immobilier et Hotelier (CIH) Guarantor: Kingdom of Morocco Amount: US$60.0 million equivalent, including the capitalized front-end fee Terms: Amortization in 17 years, including four years of grace, at the standard variable interest rate. On-lending Terms: About $59.0 million will be on-lent by CIH to developers for housing construction and land development for three years, and to individual households for self-construction for a maximum 25 years at the prevailing interest rate of 14%. The Government would bear the foreign exchange risk on the loan but CIH would bear the risk of fluctuations of the interest rate of the Bank loan. Project Description: The project is designed to (a) increase the housing stock serving low-income groups in Morocco; (b) assist CIH in its efforts to encourage both private and public developers to produce low income housing; and (c) develop CIH's appraisal ability in this field. To achieve these objectives the project would finance construction of low-cost housing schemes for subsequent sale of housing units targeted at the selected income group through CIH and a technical assistance program to CIH. The direct benefits from the project would be the provision of about 13,000 new housing units affordable to households in the lower half of the urban income distribution, with monthly incomes below $330. About 40% of these units would benefit population with incomes below the urban poverty threshold, about $170 per household per month. The project would also promote home ownership as a means of mobilizing individual savings and help to reduce government subsidy in the housing sector through increased interest rates. Project risks related to reaching target population and CIH's financial viability are acceptable. The eligibility criteria and the monitoring procedures are designed to ensure that housing schemes constructed under the project are targeted to low-income groups. Various financial assurances are also designed to protect CIH's financial viability. This document has a restricted distribution and may be ljsed by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Estimated Disbursements: Bank FY 1983 1984 1985 1986 1987 1988 1989 -----------------US$ Million----------------- Annual 0.8 12.0 17.5 18.5 7.2 3.2 0.8 Cumulative 0.8 12.8 30.3 48.8 56.0 59.2 60.0 Staff Appraisal Report: No. 4151-MOR dated February 8, 1983.  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US!6O.0 MILLION TO CREDIT IMMOBIL]ER ET HOTELIER WITH THE GUARANTEE OF KINGDOM OF MOROCCO FOR A HOUSING DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed loan to Credit Immobilier et H8telier (CIH), with the guarantee of the Kingdom of Morocco, for the equivalent of US$60.0 million including the capitalized front-end fee, to help finance a first housing development project. The loan would have a term of 17 years, including 4 years of grace, at the standard variable interest rate. About $59 million of the proceeds of the loan would be onlent to developers for housing const:ruction and land development for three years, and to individual households for self-construction for 25 years, with an interest rate of 14% per annum. PART I - THE ECONOMY 1/ 2. A basic economic mission visited Morocco in November 1978, and updating missions in September and December 1979 and in May 1980. A report entitled "Morocco: Basic Economic Report" (3289-MOR) was distributed to the Executive Directors in December 1980. A report on Morocco's Public Sector Investment Program for 1981-85 is expected to be distributed to the Board shortly. An economic mission on industr:ial incentives and export promotion was in Morocco in September 1982. Country and Economic Data Sheets are attached as Annex I. Introduction 3. Compared with many developing countries, Morocco is well endowed with natural resources. Morocco has the world's largest and most easily recoverable phosphate reserves, which makes the phosphate sector a key export sector. Other minerals such as iron ore, manganese, lead and zinc are also exported, but in much smaller amounts. Coal and hydropower plants satisfy only a small part of the country's energy requirements, but Morocco has some uranium and oil shale resources which could become significant energy sources in the long term. There are moreover preliminary indications of natural gas reserves. Morocco has also a relatively good agricultural potential. In * addition, Morocco's proximity to Europe has favored trade, tourism and labor migration with the EEC countries. 1/ Parts I and II are essentially the same as in the Oulmes-Rommani Agricultural Development Project (Report No. P-3413-MOR of November 22, 1982).  - 2 - 4. During the first 15 years after independence (1956), a conservative approach to economic policy predominated in Morocco, and GDP increased at an average rate of 4% a year in the 1960s. A relatively weak savings effort and conservative external borrowing policies permitted only a slow rise in the share of resources allocated to investment. Morocco thus entered the 1970s with no major financial imbalances, but a relatively limited growth capacity. Although some industrialization had taken place, over half of the labor force was employed in the relatively inefficient traditional agricultural sector, and primary products accounted for close to 90% of merchandise exports, with phosphates representing about a quarter of the total. Economic Expansion in the Mid-1970s 5. During the 1970s, economic policy became more ambitious, and the original 1973-77 Development Plan strategy stressed an intensified savings effort and development of exports. In 1974, with the sudden jump in phosphate prices, phosphate export earnings more than quadrupled, and although the petroleum import bill also quadrupled in 1974, the current account of the balance of payments remained in surplus. The Plan's concern for exports and savings lost some of its urgency. The Government launched a massive public investment program which brought about a sharp acceleration in the rate of growth of the economy, and GDP grew at the rate of 6.7% per year between 1973-1977. The expansion of the investment program also led to a considerable increase in demand for imported goods and services, whose share in GDP doubled from 19% in 1972 to 37% in 1977. 6 ~ The phosphate boom, however, was shortlived and phosphate exports starited falling in both volume and value as early as mid-1975. Phosphate pricess continued to decline until 1980. Markets for other exports as well as for tourism and labor migration were also negatively affected by the world recession. Agricultural production and exports entered a period of prolonged stagnation and Morocco turned from a net exporter to a net importer of foodstuffs. As a result of all these factors, the growth of exports of goods and nonfactor services, which in constant prices had exceeded 8% a year in 1968--72, averaged only 1% a year in 1973-77. 7. Accelerated investment, growing public expenditures, and particularly increased defense spending in response to growing tensions in the Western Sahara, created strong pressures on both the balance of payments and the Government budget. While investment jumped from about 15% of GDP in the early 1970ss to 32% in 1977, gross domestic savings rose briefly from 15% of GDP in 1972 to 20% of GDP in 1974 thanks to phosphate receipts, but fell back to 10-12% in 1976-77. The large resource gap which emerged as early as 1975 rose to an unsustainable 20% of GDP in 1977 (in current prices). To help finance the gap, Morocco borrowed heavily from the international capital market, which led to rapid increases in external debt and the debt service burden. The debt service ratio rose from 5.6% of exports of goods and services in 1975 to 10.7% in 1977.  - 3 - 8. The Government's overall budget position also deteriorated considerably during the period 1973-77. lWhile budgetary revenues increased rapidly as a result of the windfall phosphate profits in 1974 and 1975 and of the growth of import duties and taxes in Eollowing years (reaching 22% of GDP in 1977), the growth of expenditure far exceeded that of revenues. Budgetary outlays rose from 19% of GDP in 1972 to 39% in 1977. As a result, the Government's overall budget deficit increased sharply, reaching peaks of 18% of GDP in 1976 and 1977. Stabilization Program 1978-1980 9. In order to redress the rapidly deteriorating financial situation, the Moroccan Government in 1978 adopted a three-year stabilization program, characterized by a substantial retrenchmenit of investment and import levels. In 1978, the first year of the adjustment, public investment was cut back by nearly half in real terms and the growth of current budgetary expenditure held down to 3% (in real terms). These measures of fiscal restraint were combined with tight credit policies and stringent import controls. As a result, the overall budget deficit declined to about 1O% of GDP and the external payments situation improved in 1978. Later, however, the stabilization program encountered a number of obstacles, including poor harvests, petroleum price increases and the rise in interest on the commercial debt. In addition, internal pressures led to some relaxation of the highly restrictive fiscal policy adopted in 1978. By 1980 both fiscal and external imbalances were still substantial: the resource gap (in current prices) remained at about 11% of GDP, and the ratio of the overall budget deficit to GDP at about 12%. 10. The reduction in the Government deficit during the 1978-80 period was achieved chiefly through cutbacks in the Level of budgetary investments, which dropped from 27% of GDP in 1977 to 12% in 1980. The growth of current expenditure proved difficult to restrain because of the continuing need to maintain defense and social expenditures, the growing interest payments on the public debt and the rising cost of consumption subsidies. The latter tripled in 1979-80 reaching 2% of GDP, as price increases for subsidized staple food and petroleum products could not catch up with the rise in import costs for these products. Reflecting these pressures, the growth of current expenditure reached 27% in 1980 and their share of GDI' represented 22%. 11. In the external sector, non-oil i.mports were reduced substantially and remained below the 1977 level in nominal terms due to a sharp reduction in capital goods imports (by about two-thirds in real terms between 1977 and 1980). Oil imports on the other hand increased 2.5 times in value due to price and volume increases. Export earnings improved in 1979 and received a significant boost from the recovery of phosphate prices in 1980. Thus, despite a large increase in the petroleum import bill and a rise in external debt interest payments, the current account deficit before grants was reduced from $1.8 billion, or 17% of GDP, in 1977 to about $1.4 billion, or 8% of GDP, in 1980.  -4- 12. The adverse impact of the stabilization program on employment has probably been substantial in contrast with the rapid rate of employment creation during 1973-77. On the whole, the policies followed since 1978 have had a high cost in terms of growth and employment and appear to have been only partly successful in their short-term stabilization objectives. Recent Developments 13. In 1981, the economy was subjected to strong external shocks: a substantial increase of imports of cereals, following a drought which reduced agricultural value added by about 23% in real terms; a large appreciation of the US dollar; and a rise in foreign interest rates, which further increased the cost of debt service. As a result of these factors, economic and financial performance worsened. Gross domestic product fell by 1.3% in real terms, the Treasury deficit reached 14% of GDP in 1981, and the current account deficit reached $1.9 billion in 1981 (12.6% of GDP). Economic activity improved in 1982 as agricultural production recovered thanks to a good lharvest, but phosphate prices weakened. adversely affecting export earnings. GDP is estimated to have increased by 5 to 6% in real terms but the external payments situation has not improved significantly. The budgetary situation improved somewhat as a result of a combination of tax increases and expenditure restraining the measures adopted in the framework of a stand-by agreement reached with the IMF in April 1982, but the Treasury deficit remains high. Medium Term Prospects 14. The initial development strategy in the 1981-85 Plan period was to reach a high rate of GDP growth (6.5%), needed to obtain an acceleration of employment creation and a strengthening of Government programs for social and regional development. The Plan projection was, however, too ambitious and although the financial constraint lessened somewhat in 1982 as the economy recovers from the 1981 drought, Morocco's external financial situation will remain difficult in 1982-85 and will continue to constrain GDP growth. 15. Bank projections for the 1981-85 Plan period are based on the assumption that exports of goods and non-factor services could grow by 5.8% in real terms, while imports of goods and non-factor services would be allowed to rise by no more than 0.5% p.a. in real terms, as the need for food imports is expected to diminish, the increase in capital goods and oil imports to slow down, and payments for military equipment to be lower. Moreover, the growth in investment expenditures would not exceed 3.1% p.a. in real terms. Given these assumptions, domestic savings could recover from the abnormally low 1981 level (7.8% of GDP) to-reach 12.5 % of GDP in 1985,-the resource gap would gradually decline from 13.3% of GDP in 1981 to 7.5% in 1985, while GDP could still grow at about 4.5% p.a. in real terms or just over 1% per capita. 16. The projected export growth would result from an increase (in real terms) of 6.6% in phosphate and phosphate based products and 9.5% p.a. in  manufactured products between 1981-85. Such a performance would depend upon identification of new markets and could be accomplished only if high priority is given to export promotion. In the case of finished and intermediate products, the extent to which the projected increase in exports would materialize depends on the revision of incentives granted to exporters, the diversification of Moroccan exports towards non-traditional exports and new markets, and the appropriate level of the exchange rate. 17. A sustained reduction of the trade gap will be difficult to achieve unless growth of merchandise imports is drastically curtailed. This would require not only a higher increase in agricultural output so that the level of food imports would decline in real terms, but also an effective domestic pricing policy so as to limit the growth of petroleum imports (assumed at 1.3% p.a.) from 1981 to 1985. It would require moreover a reduction of the capital goods imports growth to 1.8% p.a. in 1981--85 through cuts in Treasury civilian investment with respect to the level planned in the 1981-85 Plan, and a revision of the various investment codes so as to reduce financial incentives to imported capital goods. 18. In view of the projected stagnation in per capita household incomes, any significant increase in domestic savings would mainly come from substantial improvements in Government savings performance. As part of the 1982 stand-by arrangement between Morocco and the IMF, several measures and reductions in real Government expenditures were implemented in 1982. The Bank's projections assume that progress will continue in this area. 19. Given the strong constraints on [nvestment levels, the future rate of growth of the economy will depend to a large extent on the sectoral allocation and the efficiency of investment. In conEormity with the Plan objectives, the Government should start fewer large capital-intensive projects and restrict the allocation of investments to priority subsectors. Priority is to be given to projects that are export oriented, less capital intensive and which use a greater proportion of domestic resources. In addition, particular attention will have to be paid by the Gov,srnment to manpower planning and to the employment effect of investments in order to prevent unemployment from rising. Social Development 20. Social expenditures have been at a high level in recent years, accounting for more than half of current outlays. However, social indicators still appear to be at a relatively low level in Morocco. The limited effectiveness of past social policies in reaching the lower income groups, especially in rural areas, is increasingly recognized as a major issue, and the strategy of the 1981-85 Development Plan emphasizes rural development in rainfed areas, where most of the poorest households in Morocco currently live, and the need to improve mechanisms for delivering services to meet basic needs at an affordable cost, especially in rural areas. An effort is also being made to increase the involvement of local communities in meeting basic  -6- needs, particularly for low cost housing, water supply, sewerage and electrification. Although rapid results cannot be expected in any of these areas, implementation of these policies would help meet the needs of low-income groups, while holding down the budgetary cost of social programs. External Debt and Debt Service 21e Morocco sharply increased external borrowings after 1974. Nearly all of the increase came from Arab and commercial sources. Morocco also drew on the IMF automatic credit facilities in early 1976, and obtained about $70 million in IMF compensatory financing in August 1978. In October 1980, the IMF approved an extended arrangement for a three-year period in the amount of SDR 810 million in support of a medium term program of financial adjustment. This arrangement was interrupted in 1981 when it appeared that the assumptions and targets of the EFF program were no longer possible. It was replaced in 1982 by a stand-by arrangement in the amount of SDR 281 million and purchase of SDR 236 million under the Compensatory Financing Facility. The 1982 financial program, which was supported by the standby arrangement now drawing to a close, sought to reduce the deficit in the current account of the balance of payments (excluding grants) to 10% of GDP and to decrease the overall Treasury deficit by one-third-to 8% of GDP. Other major elements of the program included an upward revision of the interest rate structure, restraint in overall credit and monetary expansion, further trade liberalization, and progress with respect to both tax reform and reform of the state enterprises. PreLiminary data indicates that the targets under the standby for end-1982 were met. The performance criteria of the program were observed and Morocco was able to make the last drawing under the standby arrangement in February 1983. Discussions are underway of a possible further standby arrangement for 198-3/84. 22. From the low levels of 1974-75, Morocco's external debt rose rapidly to $8.4 billion (disbursed only) by December 1981. Gross inflow of medium and long term capital reached $1.8 billion in 1981. Debt service amounted to $1.2 billion in 1980, $1.3 billion in 1981 and $1.5 billion in 1982 (27%, 31% and 35% respectively, of total exports of goods and services). As a result of recent and projected borrowings, debt service may be expected to average $1.8 billion annually during 1982-85. Because of the growing burden of debt service, external borrowing has become more restrictive and selective since 1978. If debt service is to stay manageable, the Government will have to continue this policy over the next few years while taking special measures to expand exports. 23. Loan commitments from multilateral and bilateral official sources to Morocco rose from $205 million in 1975 to $1368 million in 1978. In 1979-80 they have averaged $700-800 million a year (excluding grants). In 1981 they are estimated at $1759 million. Major sources of aid were France, Saudi Arabia, the UAE, the U.S., Germany and the Bank Group. At the end of 1981, the Bank Group's share in Morocco's outstanding and disbursed external public debt was 7.5%. The share of the Bank Group in debt service was 21% in 1976 and declined to 15% in 1977, and 7% in 1981. By 1985 the Bank Group's shares in debt outstanding and in debt service are projected at about 10 and 11% respectively.  PART II - BANK GROUP OPERATIONS IN MOROCCO 24. Bank and IDA lending to Morocco has supported 58 projects, financing a total of $l,988.5 million (net of cancellations), of which 1,164.5 million has been lent since the beginning of FY1978. IDA credits, totalling $50 million, have been made available for five projects and a Third Window loan for $25 million has been made for an education project. IFC investments have amounted to $61.6 million ($42.7 million after cancellations, terminations, repayments and sales). Annex II contains a summary statement of Bank loans, IDA credits and IFC investments and notes on the execution of ongoing IBRD/IDA projects as of September 30, 1982. Overall performance in project execution is satisfactory, although in some cases, delays in project implementation have been caused by management problems and budgetary constraints. 25. Past Bank Group lending has beer, concentrated in the agricultural and industrial sectors, which have accounted for 28 percent and 26 percent, respectively of total commitments; the balance is represented by utilities (16 percent), tourism (9 percent), education (8 percent), roads (6 percent), energy (4 percent) and urban development (3 percent). The main objectives of Bank lending in previous years were to foster and strengthen development institutions and to increase productive capacity, in order to improve the balance of payments. While these objectives remain, Bank lending now also focuses on supporting a number of other policy objectives: to contribute to the reduction of the Treasury deficits; t:o lower unit costs for the delivery of basic services, widen their distributi.on among regions and increase access by lower-income groups; and to increase employment and improve income distribution. 26. Since FY75, lending in agriculture has emphasized improvement in the productivity of rainfed agriculture and Livestock, which employ over 80 percent of the rural population, primarily small farmers. The Meknes and Fes-Karia-Tissa Agriculture Projects address this objective in the favorable cereal producing zone. The Loukkos, Middle Atlas, Forestry and Oulmes-Rommani projects extend support to less favorably endowed regions. Four lines of credit to Caisse Nationale de Credit Agricole (CNCA) have helped provide credit to farmers, and a fifth project is under preparation. Increased export earnings are expected to result from the Bank-supported project for Vegetable Marketing and Production, as well as from a project currently under preparation to improve the efficiency of the coastal fishing industry. The scope of future lending is likely to be expanded to include projects aimed at improving input supply and marketing nationwide. 27. Increased foreign exchange earnings or savings have also been the key objectives of Bank projects in industry, mining and tourism and led to nine lines of credit to the Banque Nationale pour le D4veloppement Economique (BNDE) for industrial projects and four lines of credit to Credit Immobilier et H8telier (CIH) for tourism projects. A project to increase mineral export earnings and raise the incomes of small-scale miners in southeastern Morocco was approved by the Board in FY82.  -8- 28. Projects in basic infrastructure and services have concentrated on improving the efficiency of existing investments and extending services to rural and low-income urban groups. A second urban development project aims at supporting the Government's efforts to provide shelter, basic services and employment to low-income urban families. A third highway project supports the Government's road maintenance efforts and a fourth project now being prepared would continue this effort and improve rural access roads. A loan for village electrification is helping bring power to over a hundred small towns and villages, and a third water supply project is providing access to safe water in small towns and semi-rural areas. A project aimed at strengthening the Communal Infrastructure Fund's (FEC) capacity to support local communities is being prepared. 29. Five education projects have focused on secondary level technical education and teacher training, on expanding basic education in the rural areas and on ensuring a greater orientation in primary schooling towards practical training. Further lending will be focussed on vocational training and on primary education. 30. In order to reduce Morocco's dependence on oil imports, the Government has made considerable efforts to develop national resources, notably of gas and oil shale. These efforts are being supported by the Bank through a gas exploration project and an engineering project aimed at studying the viability of developing the country's oil shale resources. Additional projects for further gas exploration, as well as coal and hydropower development, are being studied. 31. Morocco's disbursement performance improved in FY82. Disbursement shortfalls are, however, still being experienced, particularly for a few projects in new sectors, due mainly to institutional or project management problems. These cases are being closely monitored and implementation schedules have been established specifying critical actions, in agreement with the Government. In some projects, implementing agencies have been slow in submitting disbursement requests to the Ministry of Finance for transmittal to the Bank, but the Government has recently taken effective measures to resolve this problem. The rate of disbursement has also been affected by the appreciation of the dollar against other currencies. PART III - THE HOUSING SECTOR 32. Morocco's urban population has increased rapidly over the past two decades, expanding from 29% of the total population in 1960 to about 44% in 1981, or at an annual growth rate of more than 5%. Basic infrastructure and services in the urban areas are seriously deficient. About half the urban households are without water connections, 45% without sanitary installations and nearly a third without electricity. This rapid urban expansion, coupled with deficient infrastructure and services, has resulted in a widespread formation of slum areas and illegal housing development and an acute housing  shortage. The Government has estimated that about 700,000 units are required at present to meet the present backlog of demand, and another 90,000 each year afterwards to respond to urban growth. However, due to the limited capacity of both public and private sectors in the housing industry and the lack of adequate housing finance, the current level of output is only about 45,000 to 50,000 units per year. As a result, housing conditions during the last decade have progressively deteriorated with 40% of the housing stock either aged or lacking basic sanitary facilities and 20% consisting of shacks. The housing shortage has particularly affected low income groups. It is estimated that about 30% of the urban population is living in squatter areas, and that 30 to 40% of the squatter population has income below the urban poverty threshold of $170 per household per month. 33. In spite of the Government's efforts to contain rural emigration, it is projected that the urban centers will grow twice as rapidly as the rural areas over the next twenty years, having an additional 600,000 urban dwellers each year, and accounting for more than half of the country's inhabitants in the year 2000. To cope with this growth, the Moroccan authorities will have to direct their efforts to two main areas: (a) development of serviced land for housing; and (b) mobilization of additional public and private resources in the production of housing. Sector Issues 34. Land Development. One of the major constraints to housing construction by both public and private sectors has been the lack of serviced lots. Yet, large tracts of urban land, most publicly owned, lie vacant, although both the law and agencies needed to develop them exist. The production of serviced lots, in particular for low-moderate cost housing, has been primarily entrusted to the Ministry of Housing and Urban Development (MHAT) which established a special fund in 1973 for this purpose. About 113,000 lots have been produced, which satisfied approximately 10% of the total demand for serviced land. The shortfall is mainly due to financial constraints, as MHAT relies heavily on beneficiaries' advances to start and complete construction and on limited revolving funds of DH 6 million provided by the Government. Furthermore, as a Government Ministry, MHAT cannot raise funds independently, and it has been unable to pursue its goal effectively with limited resources. The role of the private sector in this domain has been insignificant partly due to the lack: of land subdivisions for plot development and partly due to inadequate financing. The Government is aware of these shortcomings, and plans to step up its own production of serviced land and at the same time to encourage the participation of private developers. 35. Housing and Construction Policies. About-90% of housing units are constructed by the private sector. A substantial part of these units (about * 30% of the housing stock) are illegal set:tlements which consist of houses built by individuals on undeveloped land,, without construction permits and in the absence of a development plan agreed upon by the administration. They are inefficiently spread out and therefore costly to service. Legal private housing construction is mainly carried ouit by contractors who have, until recently, mainly catered to high income clientele. With the erosion of the housing market for high priced units due to the more difficult economic  - 10 - situation, contractors are increasingly turning to the middle income clientele, and a few are specializing in building low income housing units, though on a small scale. The production of low income housing has been constrained by inadequate financing for both construction of such units and mortgage loans to the buyers. Legal private housing construction is now being encouraged by the Government as a way to control the spread of illegal settlements and to meet housing needs. To this end, the Government enacted legislation (April 8, 1981) which provides for various tax exemptions such as property tax, corporate profit tax and sales tax to individuals and companies which build or acquire housing units for their own use, for sale and for rent. The response to this legislation has been positive as demonstrated by the substantial increase in construction loans for housing requested from Credit Immobilier et Hotelier (CIH), a financial institution responsible for housing finance, in 1981-82. 36. Public housing production is mainly carried out by MHAT and by semi-autonomous regional construction agencies referred to as "Etablissements Regionaux d'Amenagement et de Construction" (ERACs). MHAT's activity in urban areas focusses on the production of core housing units of about 30 m2 located on serviced plots not exceeding 100 m2. The beneficiaries are expected to acquire the units on a lease-purchase basis and to complete the construction according to their needs and affordability. Because of the limited number of units actually produced (about 19,000 since the inception of the program in early 1970s) and the fact that many were used to accommodate families made homeless by emergencies, the program had little impact on resolving the housing needs of the poor. Moreover, the program is not financially sustainable since it relies exclusively on the Government budget for its financing, and does not provide for clearly set cost recovery procedures. The ERACs were established in 1974 with one agency in each of the seven economic regions of the country. They are technically coordinated by a central office of MHAT and their programs and budgets approved by the Ministry of Finance. ERACs are charged with providing low income housing. Their scope of operation, about 16,000 units since 1974, was limited due to managerial and financial constraints which now have largely been overcome. The costs of housing units produced by these agencies have escalated sharply, mainly as a result of increasing construction standards. Typical ERAC units currently cost more than $16,700 and are becoming less affordable to the target group. At the same time, the market for housing units above that price is eroding. The Government has recently instructed ERACs to lower the standards and to focus on the delivery of low cost housing units to low income groups. 37. Housing Finance. The housing system in Morocco rests on the mobilization of public, private and institutional savings. The Government budget provides equity and loan funds to public agencies operating in the housing sector as well as interest rate subsidies to the beneficiaries of various housing programs. The commercial banks mobilize private savings, a small part of which is converted into housing finance. Since March 1982, however, commercial banks have been required to earmark 1.5% of their deposits for housing finance either directly or by buying medium and long term securities issued by CIH. In 1973, a number of commercial banks started  - 11 - contractual saving schemes under which savers had the right to borrow at multiple of their deposits for financing housing. To date, these programs have had limited impact because the low interest rate on deposits and the short repayment period (5 to 6 years) were considered unattractive by the potential clientele. They have now virtually ceased to operate. Institutional savings are mobilized in the form of medium to long term securities subscribed to mainly by the Caisse de Dep8t et de Gestion (CDG), a public sector financial institution, and insurance companies. CIH, the onlv institution specialized in long-term housing mortgages, is the major borrower on this market. In 1981, CIH alone issued $54.8 million worth of long term bonds, or 28.4% of all issues. The volume of institutional savings available for long-term finance is, however, limited since its principal sources such as pension funds, insurance company reserves and social security funds have heavv recurrent commitments and depend for their growth on the relatively small number of salaried Moroccans. In recent years, mortgage financing in Morocco accounted for only an average of 15% of the total vearlv capital investment in the housing sector and benefited mostlv high income groups. In 1981, the Government decided to redirect a large part of funds for housing finance to low income groups. CIH has been designated by the Government to spearhead this new policy. This major shift in resource allocation is conducive to the participation of the private sector in crnstructing low cost, low income housing units (paragraph 35) and complements the Government instructions to ERACs to focus on the production of such units (paragraph 36). 38. Interest Rates for Housing Loans. The Government determines interest rate ceilings on deposits and loans and these apply to all institutional credits in Morocco. Interest rates charged by lending institutions for construction and mortgage loans are pegged at a nominal level of 14%, well above the projected inflation rate for Morocco (9% in 1983 and 1984 and 7.5% thereafter). The effective rates for mortgage loans, however, depend on the real estate value and the level of incomes, and range between 6% and 14%. The lowest rates, referred to as r6gime sp6c:Lal apply to housing units valuing below $21,700 and to beneficiaries with incomes below $420. The other rates are referred to as regime g6neral. The Government subsidizes the difference between the nominal and effective rates and the amount is paid directly to the lending institutions. Although the cost of such subsidy has been relatively small in the past (less than $1.0 million in 1982), the expansion of lending for low income housing units may increase the amount of subsidy significantly. The Government is aware of the problem, and has decided to change interest rates for housing loans before end February 1983 as follows: Real Estate Value ($) in 1982 prices Old Level (x) New Level (%) Regime special Less than 16,700 6-7 6-7 16,700 - 21,700 6-7 7-8 Regime general Less than 33,330 8 10 33,330 - 50,000 10 12 Above 50,000 14 14  - 12 - 39. Unless the Bank agrees otherwise, the new structure of interest rates would be maintained throughout the commitment period of the project (Guarantee Agreement, Section 3.04). On the assumption that the long-term market rate of interest in Morocco would be 12%, the change in interest rates would result in: (i) a greater degree of cross subsidization between the highest and lowest: income categories; and (ii) a reduction of the amount of subsidies by 35% over the period 1983-86. In addition, the weighted average effective intertest rate for all CIH's housing activities would amount to about 13%, substantially higher than the long-term rate of inflation in Morocco. By March 31, 1985, CIH would evaluate the impact of interest rate subsidy as well as the tax relief package (paragraph 35) in the housing sector, and the resullts will be discussed between CIH, the Government and the Bank (Loan Agreement, Section 4.12). The Government has informed the Bank that it would be prepared to envisage further modification of both CIH's nominal and effective interest rates for new mortgage loans in light of the cost of subsidies and of its financial situation. The Bank's Experience in the Sector 40. In support of the Government's efforts to provide shelter, basic services and employment to low income urban families, the Bank financed two urban development projects (FY78 and FY81) in the cities of Rabat, Kenitra and Meknes. These two projects provide infrastructure and shelters in slum quartiers, along with commercial and community facilities in selected areas. About 60,000 and 100,000 low income people are expected to benefit from the first and second projects, respectively. 41. The first project was instrumental in redirecting the Government policy from systematic demolition of slum areas to upgrading settlements when appropriate. Equally important, the project introduced low cost upgrading and shelter components which ensured affordability to the lowest income groups and incorporated cost recovery. Initial project performance was unsatisfactory but substantial improvement has recently occurred. The major problems lie with the complexity of the institutional arrangements, the lack of coordination between various executing agencies as well as their limited implementation capacities, and slow payments to contractors which have led to substantial delays in project execution. Also, lengthy land acquisition procedures delayed cost recovery, although where land title has been established, performance has been satisfactory. The second project has built on the experience of the first one. It provides for a simpler institutional arrangement for project execution and the implementation capacity of project authorities is reinforced when warranted. Its exectution is proceeding satisfactorily, but disbursements are slow due to lengthy administrative procedures. 42. In an effort to diversify Bank lending in the urban sector, the Bank carried out a sector survey in June 1981 to review the overall strategy as well as to identify new areas for lending. The report called for the  - 13 - continuation of Bank support for slum upgrading operations as they are cost effective in serving housing needs of the lowest income groups at limited costs to the Government. At the same time, the Bank could also achieve far reaching results in promoting the construction of low-cost housing for low income groups by channelling its funds, subject to rigorous eligibility criteria, to a well established and effective financial institution such as CIH. This approach is the cornerstone of the proposed project. PART IV - THE PROJECT Project Concept and Background 43. The project would continue the Bank's support for the provision of housing to low income groups in Morocco. To this end, the project would make financing available to both public and private developers engaged in the construction of such units. Repayments of these loans after three years would then be used by CIH to finance mortgage loans of selected target households. They are dispersed throughout Morocco, and their monthly incomes are in the lower half of the urban income distribution curve. By addressing the housing needs of this group, the project would help to alleviate the pressure on the development of illegal settlements, thus reducing the needs for future costly servicing of such areas (paragraph 35). 44. In the present Moroccan economic setting, the timing for such a project is particularly appropriate. The market for highly priced housing units is eroding and private developers are willing to move into the low cost housing market which has hardly been tapped (paragraph 35). By promoting homeownership, the project also contributes to private savings in the country. Furthermore, through an increase in interest rates for housing (paragraph 38), the project would have a favorable budgetary impact as it seeks to reduce subsidy in the housing sector. Lastly, the reallocation of funds available for housing finance by CIH from high income to low income groups (paragraph 37) would not only result in a net addition of housing stock, but would also be conducive to the replicability of the proposed project in the future. 45. The project was identified in September 1981 and prepared by the CIH staff. It was appraised in June 1982. Negotiations were held in Washington in January 1983; the leader of the Moroccan negotiating team was Mr. Othmane Slimani, President Director General of CIH. The main features of this project are outlined in the Loan and Project Summary at the beginning of this report; a Supplementary Project Data Sheet (Annex III) is also attached. A Staff Appraisal Report (No.-4151-MOR) is being circulated separately to the Executive Directors. Project Description 46. The project would consist of (a) a line of credit (LOC) to CIH of about $59.0 million for financing low income housing schemes meeting technical and economic criteria acceptable to the Bank; and (b) technical assistance to CIH to help develop its capability in appraising low-cost housing schemes and in advising private and public developers on all aspects of low cost housing design.  - 14 - 47. About $56.0 million of the LOC would finance construction loans to private and public developers to build a mix of housing unit types, ranging from core units (unfinished, including one to two rooms, whose completion is left to the initiative of the owners) to walk up apartment buildings; of this amount at least 25% would be earmarked for financing core units (Loan Agreement, Section 2.02 (a) (i)). The remainder of the LOC (33.0 million) would be used to finance individual housing construction and plot development loans. To be eligible for Bank financing, these schemes would have to meet the following criteria (Loan Agreement, Schedule 5, Part A): (a) price criteria: the maximum selling price of these units should not exceed $5,300 for the least expensive type (core units) and $13,300 for the most expensive (walk up apartment), anid the maximum selling price of developed plots should not exceed $30 per square meter. These prices would be adjusted on January 31 of each year to account for inflation; (b) technical criteria: in addition to CIH's technical requirements which are satisfactory, these schemes would have to meet criteria regarding land use efficiency, maximum size of the units and building structure and design; (c) economic criteria: all schemes whose costs exceed $500,000 should have an economic rate of return at least equal to 12%, which is the estimated opportunity cost of capital; and (d) financial criteria: all schemes whose costs exceed $500,000 should have a financial rate of return at least equal to 14%, which is the statutory on-lending rate of CIH. Upon completion of the construction schemes (usually 3 years), except for the individual housing construction loans, the loans would be converted to mortgage loans to potential buyers of the newly constructed housing units. This use of funds is a key incentive to developers to produce low income housing units. Therefore, CIH would include a clause in contracts with the eligible developers that their potential clientele will benefit from CIH financing, provided such clientele meets the eligibility criteria (Loan Agreement, Schedule 5, Part B 3(a)). The beneficiaries would be selected on the basis of monthly income of not more than $330 which would be reviewed annually and adjusted, if necessary, upon mutual agreements between the Bank and CIH (Loan Agreement, Schedule 5, Part C). Other selection criteria related to ownership are already enforced and are satisfactory to the Bank. The income ceiling and ownership criteria would minimize the risk of speculation. 48. The technical assistance program would focus on: (i) the development of a land use model; (ii) the establishment of a computerized data information system, including the provision of computer equipment, which would allow CIH's staff to store and retrieve information on previous and proposed schemes; and (iii) a study to be completed by July 1985 (Loan Agreement, Schedule 2) on the residential building construction sector. CIH would utilize consulting services to help develop the computer system (20 man/months) at a cost of $9,250 per man-month and to execute the study (12 man/months) at a cost of $12,500 per man-month, including fees, subsistence and travel. These experts would be selected according to the Bank guidelines; they would be hired not later than October 31, 1983; and their qualifications and experience would be satisfactory to the Bank (Loan Agreement, Section 3.02).  - 15 - Project Financial Features 49. Financing Plan. The proposed $63 million loan would be made directly to CIH at standard Bank terms and conditions for Morocco (17 years maturity, including four years of grace and variable interest rate). About $54.8 million would cover the foreign exchange component and about $4.2 million would cover local cost of the construction costs of housing schemes and land development. The remainder $1.0 million would cover the foreign cost of technical assistance component ($0.6 million) and the front-end fee ($0.4 million). As the development of core units (below $5,300) is a relatively new experience to private developers, they might be reluctant to participate actively in the production of such units. The financing of local costs would allow the disbursements of Bank funds up to 50% of CIH's loans for housing developments by private developers with at least 50% of housing units are core unit types (paragraph 52). This, together with CIH's customary contribution from its own resources, would help finance nearly the entire construction cost (exclusive of land) of such developments. Since it is expensive for developers to obtain bridge financing (usually at 17% from commercial banks), this measure would provide an appropriate incentive. Annual reviews would be carried out by the Bank and CIH to assess the achievement of project objectives (including this incentive) and to determine corrective measures, if warranted (Loan Agreement, Section 3.05 (b)). As the loan would represent only 10% of CIH's total borrowing over the 1983-86 period, CIH would absorb fluctuations of the Bank variable interest rate. The Government, however, would bear the foreign exchange risk (Guarantee Agreement, Section 3.02). CIH would repay the Bank loan on the basis of a fixed amortization schedule. However, to avoid rollover of Bank funds for activities outside the objectives of the project, CIH would be required to repay the Bank the repayments by the developers which are not used for mortgage loans to eligible beneficiaries to purchase the constructed units by the same developers within five years of the date of the contract providing for construction loans (Loan Agreement, Section 2.10). 50. On-Lending Arrangements. Out of the proceeds of the proposed loan, $59 million would be on-lent at 14% with maturity periods of 3 years for construction and land development loans and 25 years for individual construction loans. Mortgage loans would have maturity periods of up to 25 years at an interest rate of 6% for unit3 in a housing complex and 7% for individually constructed units (paragraph 38). 51. Procurement and Disbursement. The proposed loan would finance civil works and it is unlikely that any individual contract would exceed $1.5 million. As contracts would be small and scattered in space and time, they would not be suitable for international competitive bidding. Public developers would be subjected to Government procurement practices which allow for local competitive bidding and are satisfactory to the Bank. Furthermore, CIH requires that these contracts be reviewed by independent architectural and engineering consultants. Private developers tend to execute the construction either themselves or througb a variety of small contractors. They are  - 16 - required to go through a licensed architectural firm to oversee proper execution of construction and CIH scrutinizes their procurement practices closely. CIH's staff has acquired considerable experience in local construction and cost estimates and procurement practices and are able to effectively scrutinize cost estimates, invoices and other supporting documents provided by the developers and their contractors. CIH's procurement practices are satisfactory and therefore would be applied under the project. Computer equipment included in the technical assistance component (paragraph 48) would be procured under a contract with the supplier of existing computing equipment under terms and conditions acceptable to the Bank (Loan Agreement, Section 3.03 (b)). 52. Loan proceeds would be disbursed as following: (i) 35% of CIH's loans for low-cost housing construction and land development, or 50% of such financing if the schemes are sponsored by private developers and include at least 50% of core units (paragraph 49), and (ii) 100% of foreign expenditures and 75% of local expenditures for technical assistance component. Disbursements on construction loans to developers would be fully documented. Disbursements on all other loans will be made on the basis of statement of expenditures. Documentation for expenditures under statement of expenditures will be retained by CIH for auditing by CIH's auditors and for reviewing by Bank representatives. All schemes would be committed by June 30, 1986 and disbursements are expected to be completed by December 31, 1989 (Loan Agreement, Sections 2.03 (c) and 2.04). CIH's accounting and internal control procedures are adequate. CIH's financial accounts have been regularly audited by an independent auditor acceptable to the Bank. The quality of CIH's audit is satisfactory. The Institution: Credit Immobilier and Hotelier (CIH) 53. Organization. The Credit Immobilier et H8telier (CIH) was founded in 1920 as a mortgage bank specializing in housing finance. Since 1960 it has also been practically the sole institutional source of long-term financing for tourism projects in Morocco. CIH operates out of headquarters in Casablanca and has 18 regional branches. Though it is subject to corporate law, public institutions own a controlling majority of its capital and account for 11 of CIH's 15 board members. The ownership structure is as follows: Caisse de D4pot et de Gestion owns 30 percent of CIH's capital and holds bearer shares as proxy for another 25 percent; 12 insurance companies own 20 percent; commerc:ial banks, 15 percent; and Banque du Maroc (the central bank), 10 percent. 54. The full Board only meets two or three times a year on major policy issues and has delegated many of its powers to an Executive Committee consisting of 6 board members which meets monthly. The Committee examines and approves all tourism loan proposals and all housing loans of more than DH 150,000; a Management Committee and branch offices approve smaller housing loans. CIH's President Director General chairs the Board and the Executive and Management Committees. He is assisted by a Deputy Director General, a General Secretary and three Department Directors, for Credit, Finance and  - 17 - Commercialization. There are five main divisions under these departments: Studies, Project Evaluation, Identification, Loan Management and Finance. CIH's professional staff numbered 340 in 1982 and is of generally good quality. The Bank has extended four lines of credit to CIH in the past for a total of $148.7 million for hotel construction. CIH has generally exceeded expectations regarding institutional and operational performance. 55. CIH follows sound and conservative financial policies: its Statement of Policies provides notably that projects financed by CIH must be financially, technically and economically viable; that loans must be secured by adequate guarantees; and that CIH will provide its clients with technical assistance over the whole project cycle. The Statement also restricts CIH's equity investments. CIH has agreed not to modify its Statement of Policies without prior consultation with the Bank under the Fourth Loan to the Credit Immobilier et H8telier (No. 1943-MOR). In addition, CIH would limit its financial exposure in any single housing project to 20% of its equity and reserves, except if a full guarantee from the Government or any institution acceptable to the Bank covers CIH's credit risk (Loan Agreement, Section 4.10). 56. Procedures. CIH has developed over its 50 years of experience in housing projects a sophisticated set of information on building construction costs and standards and a good knowledge on the housing markets throughout the country. It is against this background that housing projects are evaluated. Developers or individuals requesting CIH financial assistance submit a report covering the technical, legal, financial and commercial aspects of the proposed scheme. CIH's staff first evaluate the credentials of the developers, mainly their financial status, experience in similar schemes, and the various guarantees and collaterals they are offering to back up the requested loan. The scheme would be appraised by CIH staff who would make recommendations on the amount, maturity, and special conditions to be met before the loan can be approved. The appraisal report would be reviewed by a Technical Committee made up of heads of the principal departments (Finance, Credit, Marketing and Legal), who would then make recommendations for approval or rejection of the loan to the Executive! or Management Committee. CIH can finance up to 80% of the total (including land) estimated cost of projects by developers for a period of three years. Financing for mortgage loans can be up to 90% of the total costs with a grace period of three to six months. CIH's appraisals of housing schemes are of high quality but somewhat weak on economic aspects. Recently, however, as a result of discussions with Bank missions, CIH appraisers have paid more attention to the economic analysis of schemes and devoted more time to discuss with and advise developers and individuals on scheme concept and design. As this would be the first sectoral loan to CIH in housing, all housing schemes benefiting from construction loans provided under the project would be reviewed and approved by the Bank. Schemes benefiting from either individuaL construction loans or land development loans would be small, and they would be reviewed a posteriori (Loan Agreement, Section 2.02 (a) and (b)). 57. After scheme approval, the proceeds of loans are made available in three tranches to individuals, and in four tranches to developers. Funds are disbursed only following a first field inspection by CIH's technical division  - 18 - which ensures that the portion of the investment to be financed with the borrowers' equity has been completed. Suhsequent inspections ensure that each CIH loan tranche has been utilized in accordance with the loan contract and the appraisal report. In case of non compliance by the borrowers (developers or individual households) with the agreed project design, disbursements can be suspended until the issue is resolved to the satisfaction of CIH. After completion of the construction phase and the sale of units, the Credit Department makes random checks to ensure that they are being used for residential purpose only and they are totally occupied by the individual borrowers. In case of a breach of the above rules, CIH requests the borrower to (i) reimburse CIH for all interest subsidies received which will be returned to the Government and (ii) pay CIH the statutory on-lending rate on the principal of the loan still outstanding. Since CIH's housing portfolio includes about 40,000 housing loans, there is no assurance that each loan beneficiary will be audited, but CIH's follow-up procedures serve as a deterrent and few violations have been so far reported. 58. Operations: Past and Projected. During the period 1979-81, CIH approved housing loans totalling $207.2 million which financed about 13,728 units, most of them in medium and high price ranges. The number of housing units financed by CIH peaked in 1979, but decreased sharply in 1980. The market was reactivated in 1981 due to the publication of the housing investment code which includes a tax relief package (paragraph 35) and the attention to the financing of low cost housing. Preliminary data from 1982 indicates that the upturn is of durable nature. During the same period, CIH approved hotel and other loans totalling $93.2 million. Since 1979, CIH stopped new equity investments and has initiated a systematic disinvestment effort by either selling or provisioning them, particularly in companies experiencing technical difficulties or financial losses. 59. CIH's total annual lending operations are projected to increase from $125 million (on an approval basis) in 1981 to about $263 million in 1986. Disbursements are expected to increase from abouit $97 million in 1981 to $249 in 1986. During the commitment period of the proposed project (mid-1983 - mid-1986), total approvals would increase by 22% per year and total disbursements by 26% per year. Most of this increase in activity, which CIH's current institutional set-up can manage, would entail a significant shift away from hotel lending towards housing lending, especially low-cost housing where lending would jump from virtually nothing to $40-50 million annually. 60. To match the expansion in activities, CIH would have to considerably intensify its efforts to mobilize resources, both domestic and external. It is projected that a resource gap (on approval basis) of about $529 million would have to be filled over 1982-86. Although the yearly amounts to be borrowed from local institutions have not been finalized, Caisse de Depot et de Gestion, Banque du Maroc and Banque Centrale Populaire have been traditional lenders to CIH, and thus, CIH should not have difficulties in meeting its resource needs. Given however, the limited absorptive capacity of the domestic financial market, CIH may have to borrow on international markets  - 19 - (generally at variable interest rates anc up to 7 years maturity) for an estimated amount of $13.5 million, in addition to the Bank loan. It is projected that CIH's borrowings at variable rates on the international markets would amount to less than 12% of total medium and long-term debts until 1986. CIH would take all appropriate actions satisfactory to the Bank to protect itself from the risk of loss resulting from variations in interest rate (Loan Agreement, Section 4.08). CIH's financirng plan for the period 1983-86 has been agreed upon during negotiations. At: the end of 1981, the average maturity of resources was 7.9 years compared to 5.6 years for loans. Because of CIH's new focus on low cost housing lending which has a maturity up to 25 years, this margin will likely narrow. CIH is required to ensure adequate matching of borrowing and lending funds (Loan Agreement, Section 4.09). Furthermore, as CIH is required to meet the minimum debt-service coverage ratio and a maximum debt-equity ratio (paragraph 62), the matching of funds will be closely monitored and corrective measures will be taken expeditiously. 61. Since CIH is the only institution permitted to finance long-term mortgage loans, it also finances mortgages in resettlement schemes. The nature of this type of operation may involve a greater than usual risk of non-repayment of mortgage loans. To protect CIH's creditworthiness, an assurance has been obtained that CIH will not provide loans for resettlement schemes unless such loans are guaranteed by the Government (Loan Agreement, Section 4.07 (a)). However, in practice, actual recovery of outstanding loans under such guarantee could take time and meanwhile CIH's liquidity position could be affected. For this reason, in addition to the above assurance, CIH will take all necessary steps to avoid arrears on resettlement loans, and if for reasons beyond its control, such arrears exceed 8%, the Government will promptly pay CIH at its requests any amount necessary to keep arrears on resettlement loans below 8% (Loan Agreement, Section 4.07 (b), Guarantee Agreement, Section 3.05). 62. Financial Performance. CIH's f:Lnancial performance has been good between 1977-1981, especially in the prof-itability area. The return on equity has reached 10.5% in 1981 compared to 6.7% in 1977, and CIH enjoyed a spread of 4.3 points in 1981, an increase of 80% over 1977. At the end of 1981 CIH's liquidity position was sound, with a current ratio of 1.5. Also CIH's debt-equity ratio of 10.8:1, and debt-service ratio of 1.2 at the end of 1981 met the limit of 13.8:1 and 1.0 respectively agreed upon under the Fourth CIH loan. These limits would also apply under the project (Loan Agreement, Sections 4.04, 4.05). As of December 31, 1981, arrears on housing loans amounted to about 6% of housing loans oul:standing; generally less than a year old. These arrears present no special r:isk as they are adequately covered by CIH's mortgage securities. Arrears on hotel loans amounted to 19.5% in December 1982. Agreements on an action plan have been reached with the Government and CIH to reduce arrears to 10.5% by December 31, 1983. Through the supervision of the ongoing Fourth Loan to CIH (paragraph 55), the execution of such plan will be monitored and appropriate measures will be undertaken to further reduce the level o:t arrears. CIH is expected to maintain the bealthy profitability it has shown since 1980. In 1984, the return on equity is projected to reach 30.7%.  - 20 - Benefits and Risks 63. The direct benefit of this project would be an increase of hoUsing stock in Morocco by 13,000 new units targeted at urban population whose income is at the lower half of the urban income distribution curve. About 37% of these units are expected to benefit households below the urban poverty threshlold of $170 per month. Furthermore, by linking the provisioo of construction loans to the provision of mortgage loans, and by increasing CII's participation in the financing of low cost schemes sponsored by private develcpers, the project would encourage the private sector to move into the construction of low income housing, which has until now been monopolized by public agencies with resource, management and manpower constraints. Finally, technical assistance to CIH would further reinforce its project appraisal capacity and the responsibility of providing advice to developers on all aspects of low cost construction design. 64. The estimated economic rate of return (ERR) for four schemes whose costs are known with some accuracy vary between 18% and 20%. Although the minimum requirement for the economic viability of these schemes is fixed at 12%, it is expected that ERRs of most schemes would be well above this cutoff rate as indicated by housing units with similar standards produced under the two Bank financed urban projects (paragraph 40). 65. There are three main risks associated with the project. The first risk is related to the possibility that CIH would finance mostly the schemes in the high price range allowed by the eligibility criteria. This risk would be reduced by (i) the requirement of 25% of the construction loans to developers to be earmarked for core units (paragraph 47); (ii) the incentives to private developers to construct these units (paragraph 49); and (iii) the monitoring procedure on the objectives of the project (paragraph 49). Secondly, there is some risk related to reaching the target population. This risk would be reduced by the provision of the beneficiaries eligibility criteria (paragraph 47) and CIH's other practices to minimize speculation (paragraphs 47 and 57). Lastly, there is a financial risk for CIH in financing the resettlement schemes, where it is more probable that the beneficiaries would be reluctant to repay the mortgage loans (paragraph 61). This risk would be reduced by the Government's guarantee to the financing of such schemes and the limit of arrears on outstanding resettlement loans. It is further reduced by the existing legislation and practices which allow CIH to foretclose on delinquent mortgages. PART V - LEGAL INSTRUMENTS AND AUTHORITY 66. The draft Loan Agreement between the Bank and the Credit Immobilier et Hbtelier, the draft Guarantee Agreement between the Kingdom of Morocco and the Bank, and the Report of the Committee provided for in Article III Section 4 (iii) of the Articles of Agreement are being distributed to the Executive Directors separately. The special features of the project which are referred to in this text are listed in Section III of Annex III of this report.  - 21 - 67. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 68. I recommend that the Executive Directors approve the proposed loan. A.W. Clausen President Attachments February 16, 1983 Washington, D.C.  - 22 - ANNEX I Page 1 of 6 TABLE 3A MOROCCO - SOCIAL INDICATORS DATA SHEET MOROCCO REFERENCE GROUPS (WEIGHTED AVE%AGES AREA (THOCSAND SQ. KM.) - HOST RECENT ESTIMATE)-A TOTAL 446.6/c MIDDLE INCOME ACrROICLTURRl. 202.2 /c MOST RECENT NORTH AFRICA & MIDDLE INCOME 1960 lb L970 lb ESTIMATE lb MEnDLE EAST LATIN AMERICA & CARIBBEAN CNR PER CAPITA (US$) 220.0 340.0 900.0 1253.6 1902.0 FFERCEY CONSUMPTION PER CAPITA (KELLOGRAMS OF COAL EQUIVALENT) 163.2 214.0 302.3 713.5 1259.9 p;p(HATION AND VITAL STATISTICS POPFUIATION, MID-YEAR (THOUSANDS) 11626.0 14993.0 20182.0 lR6AN POPUILATION (PERCENT OF TOTAL) 29.3 34.6 40.6 47.3 65.7 POPULATION PROJECTIONS FOPILATION IN YEAR 2000 (MILLIONS) 35.5 STATIONARY POPULATION (MILLIONS) 81.2 YEAR STATIONARY POPULATION IS REACHED 2090 POP"LATION DENSITY PER SQ. 1KM. 26.0 33.6 43.8 35.8 35.2 PER SR. YH. AGRICULTURAL LAND 61.1 75.0 96.6 420.9 92.5 POPULATION AGE STRUCTURE (PERCENT) 0l-14 YER. 44.8 47.6 46.1 44.3 39.7 LS-64 YRS. 52.6 48.3 50.7 52.4 56.1 65 YRS. AND ABOEE 2.6 4.2 3.2 3.3 4.2 POPULATION CROATH RATE (PERCENT) TO-TAl 2.6 2.5 3.0 2.8 2.4 URBAN 3.7 4.2 4.6 4.6 3.8 CROUE BSRTS RATE (PER THOUSAND) 51.8 47.3 44.9 41.2 31.4 CRUDE DrATH RATE (PER THOUSAND) 23.4 17.2 12.7 12.2 8.4 CROSS REPRODUCTION RATE 3.5 3.5 3.2 2.9 2.1 FAMILY PLANNING A CUEPTORS, ANNEIAL (THOUSANDS) .. 25.1 78.0/d USERS (PERCENT OF MARRIED WOMEN) .. 1.0 5.4/d FOOD ARND NUTRITION INDUr OF FOOD PRODUCTION PER CAPITA (1969-71-100) 99.0 98.0 88.0 100.4 110.0 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREKENTS) 100.8 103.0 106.5/e 108.5 108.4 PROTEINS (GRAMIS PER DAY) 64.6 66.5 68.3/e 71.9 66.0 (PF WHICH ANIMAL AND PULSE 13.8 12.6 13.5/e 18.0 34.0 CHILE (ACES 1-4) MORTALITY RATE 36.8 26.6 15.5 15.1 5.6 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 46.7 51.7 56.5 56.9 64.2 INFANT MORTALITY RATE (PER THOUSAND) 160.5 136.3 107.2 104.3 64.2 ACCESR TO SAFP lATER (PERCENT OF POPULATION)I TOTAL 30.6 51.0 55.0/d 59.1 65.6 URBAN 58.7 92.0 100.0/d 83.1 78.9 RURAL 19.0 28.0 25.0/d 39.8 43.9 ACCES' U)) FXCRURTA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 29.0 .. ,, 59.3 rRBAN .. 75.0 .. .. 75.3 R('RAL .. 4.0 .. .. 30.0 POPUlATION PER PHYSICIAN 9406.1 12814.5 11037.4/d 4015.5 1617.3 ROPUI.ATION PER NURSING PERSON .. 2742.2 1R26.3/e 1802.2 1063.5 POTULATION PER HOSPITAL. SEE TOTAL 625.6 664.3 773.6/e 641.7 477.4 URBA1 .. 454.7 623.4/e 538.3 679.8 RURAL .. 5B21.4 3089.6/e 2403.3 1903.4 ADOIISYEONS PFR HOSPITAL SEE .. 15.5 17.9/e 25.5 27.3 HOUSING AvFRArF SIZE OF ROITSEHOLE TOTAL. 4,8 5.5 .. . . "RRAlN 4.3 4.9 RURAL 5.1 5.8 AVERACF N(rNBER OF PERSONS PER ROOM1 TOTAL 2.2 2.4 URBAN 2.1 2.1 RURAL 2.3 2.6 ACcESS 'TO ELECTRICITY (PERCENT OP DPIELLINCS) TOTAL .. .. IRBAN .. 68.4 65.0. RURAl. .. .. .  - 23 - ANNEX I Page 2 of 6 TABLE 3A MOROCCO - SOCIAL INDICATORS DATA SHEET MOROCCO RFFERENCE GROUPS (WEIGHTED AVECAES - MOST RECENT ESTINATE) MIDDLE INCOME MOST RECENT NORTH AFRICA & MIDDLE INCOME 1960 /b 1970 /b ESTIMATE ,'b MIDDLE EAST LATIN AMERICA & CARIBBEAN EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 47.0 52.0 75.0 88.7 104.3 MALE 67.0 67.0 93.0 104.5 106.4 FEMALE 27.0 36.0 56.0 72.0 103.3 SECONDARY: TOTAL 5.0 13.0 22.0 39.7 41.3 MALE 7.0 18.0 21.0 49.3 40.4 FEMALE 2.0 7.0 17.0 29.0 41.8 VOCATIONAL ENROL. (% OF SECONDARY) 30.2 2.3 2.8 10.1 33.7 PUPIL-TFACHER RATIO PRIMARY 42.4 34.3 40.3 34.1 29.9 SECONDARY 6.3 20.4 21.D/f 23.7 16.7 ADULT LITERACY RATE (PERCENT) 13.8 21.4 28.0 43.3 79.1 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 10.7 14.8 19.6/d 17.8 42.8 RADIO RECEIVERS PER THOUSAND POPULATION 45.8 62.4 107.5 131.3 270.5 TV RECEIVERS PER THOUISAND POPULATION 0.4 11.6 38.4 44.1 107.7 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 22.1 16.2 11.8 31.5 63.7 CINEMA ANNUAL ATTENDANCE PER CAPITA Z.0 .. 2.0/e 1.7 2.7 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 3388.7 3945.2 5294.8 FEMALE (PERCENT) 10.0 14.2 15.8 10.6 24.4 AGRICULTURE (PERCENT) 62.0 57.0 52.0 42.4 31.3 INDUSTRY (PERCENT) 14.0 17.0 21.0 27.8 23.9 PARTICIPATION RATE (PERCENT) TOTAL 29.1 26.3 26.2 26.0 33.6 KALE 52.1 45.2 44.2 46.2 50.4 FEMALE 5.9 7.5 8.3 5.6 16.8 ECONOMIC DEPENDENCY RATIO 1.6 2.0 1.9 1.9 1.3 INCOME DISTRIBUTION RURAL .. .. 219.0/1 PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 18.-0& 20.0 .. HIGHEST 20 PERCENT OF HOUSEHOLDS 43.3/g 49.0/1 LOWEST 20 PERCENT OF HOUSEHOLDS 7.0_/ 4.0/ LOWEST 40 PERCENT OF HOVSEHOLDS 18.0/R 12.0_/g POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN 107.0 157.0 389.0 279.2 RURAL 66.0 101.0 238.0 178.6 184.1 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 242.0 403.6 518.0 RURAL .. .. 257.0 285.6 371.1 ESTIMATED POPULATION BELO1W ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN 51.0 38.0 28.0 22.1 RURAL 49.0 45.0 45.0 30.9 Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithietic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year betn.een 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1978 and 1980. /c Excludes the ex-Spanish Sahara; /d 1976; /e 1977; If 1975; ,S Consunption expenditures of households. May, 1982  -24- ~~~~~ANNEX I OEFPlttTlO5iS 1OF SOCIAL IMOICArORSPR e 3 0C . tne.'- A4t both Cho oats at, dra- Er-IPote eerlyjudg.d Cht. cc cio Ieln n reiale ii shol ale4 usC noted that t- Y -y tottrcts-: nationally bcon barsile . I th. ako tzdnrdLed efIi- tion. arid connepte u.ad iy difr.n. contIe incolctn Itedar. Th JOr arC noe tbelne.. .c.ft toL d..cr Lb. order ofeaiug . idicate tren d., andchr4 t -ecrtai sejor ditff . . thenfrnn rop ar .1 tees coun.trygopoChe ejCh `-ty 00 1d ( co.ntr .too etc soe-h. high.r average L..ne thee the cutr -ro oftouio conty(eteefa 'ih IncoMa Ol itooreo gru eher M'iddle [non North Africa an Middle ee E. I`s:, chof.n..hagt intocutoalotihtes. n tt vu roy at ts veseor ppoeto neihtad ant hmeIc cans for each Indic tored ettoen ny attn najr ty o th cootteeL.najrop See data for that CIndicator. Since the covrg of.. Coutre a-n ihe tiuin tare depede on teoei yi Ja- one In..canor etete engt, he. country end reference gr- Pe. SREA (,ho..ee.d aq.ket. nultIoeroeitled - tote Sianb,, anI oa oua c .t0 T-tl- Total -croace are cogJriect is-d area and inland ntr 1919 date. IIIen ndrteI dinded b hei epcieOse , optlco Oar tcoItore I- Let lts of ar icoltral oreosd teporariy or .permanenty a-ilabLe In. . ed prtoete geerl :p eO tall ese hoepitat -tOye forcrpe pate. ektad kitchen .aret or t Its alIce; 1919 4ena. htbiLteion1 Centers I. Moeptisfa ar neotIret -teIeil, - ttild to a -Is.etn. phyexiua. itbleeoerrnd _np int ca fy oceit IS pi APTPER ff- SPpe cpie ctimte d crroseetet r ce,'afOlf ar ae otto lde. nrl oeitle boesrIC.lOehelt -uae1 yie- oneso ahdaedrdMn ts do184 -asisl 1960. an edis cetr Ia pasnnl tfe y hsttobtn 1910. -4d 1980 daa..d,.icl eeitn.vts e.d.ifey e.tc.) ebyc fe npaIn rv ENERGI 111. TION M ~~~~~~~~:APITA 4.1~daion sod provide a IL:isid rage of esdic foi Ile For _otat- intL gaet o,sur en s aia P S, 91,O and 1919 ener. opeiLt.f bhp.a:, esL Icond crIb vder tote. fros hoepitele dittOd. byCh tie.'usro beAn. ?cOPtLA'Ildb ADD ltrAL STATISTlCS Total Poralsetc.. tud-f.ar (thcue.... )-ie. ijoly 1; 1960, 1410. and HOUSING19 Urban- rua inoevrof toso) 1 RotL 10 f -r..otoa oucto i bouseheii,i-;d cnit fagopo nfiut hr Ici quaters dIfferen datit: .one.of -r boo res ay affent eaaiii f date and their, eato eeLs. A hoarder orldger say or -y nott Inclded Iv amavg ctttniee 1960.1910,..nd 1980 date. the ho..senhld fereairte upee Lnaoto ivo-s 2000 - Cort.. populotian proetonbr asdo 18 e of prosprre neioin aertrni" Fcaildcol es n total population by ege and se- aethi enelty an. etilit ae.dnloa epoiey telneacasvoesen tatre Prodeceon pareetorsfor maety roe ners o be Ini 555 - ooopied pats. Ing lIfe soetnya birth voresing Ithcoara per cepit nom cee ofetr1 t Lpercent.of..nonEl).-.total urban. a-d rurl- level and feelf epec ...c erabililatgatI15 er . hePar- Con-nional daIine it eecriit...Ii.vstrtrSa etere forleni trt also " 1 havsihre levels ass_Ig Aeloslf tci.I , uben. and rurl seligs-eP.. sinely. edfrItyLI rende for proleoros purpoa..e. EDCAi.utoNfrlntRto Snocionoryviulan ion-Ina stationar popu.ies io Aeeisv 9vnciceP dmr E.Chci - toa,mlC odfrae-Icecta1 eI adyol th Ilrvfee s qaltoth eah et.an os thCaehnutun e- ifolso o LI gsa tePiar ee as rerIc ntgef.-reyIo naveoetn. hn sacioo nl Ste(tttinneeoe In e nsayotel-g ppl,tr_.vr.lylclje.hlde... 11 ty oieen lvlo ui etfyouc o rt,aetec.gnrtonyee-a d(ee ordfern-egtso ;h,r roa in o ..t 0evtepace lbelf tai ly- Th ettioaryporuat oo lceeas ounrie eb cnierel evoa ionenrl lnt ay ecen 10 ret-n ea iee. n ieysi f bspo ete ceeneieic f h pyuaco Iv-,osy oti r belts-& itanet-etft dB tolae Peovon -Mdya pouain"e' qaeY.ee 0 vcantc Y--ca .iua I j ..o.en dpercentff ..e..noaroh i - Iocaicv P irnnln only 196. 170 ed 119 det.Ch -PTorY-i -teacher ra p.jI ti. in. .. od. net crdat .. Tne ePt,_"t errlle i fretpopuatio far1950--Ad,..(Ib...-I d, ...od-y191V...Mb- P.riaioncott ae foerveo I ne ave rairis fubnpp-_dt2lT latunafor195-90 160-0. vd 810do.Poesner ore(ne thnend oruatinl Pesegercar coerce Cto -,rLat.o;190 1960. 290,ed 1980 daa.b.... eneerlpulcpe hceP"f""'ato;re uesat IresRerouta gaei. rgstte f(ogPee easesM-L9I- Ill beeJinI inete r- eer i vetLIe end. Idv years 1 ofte reitrta ofd rodeo fa oelrrtacle eidi-eeeprsns rsnta-ee ui a-noensrcafc;Oeefrrcntyasmynececeproeli nI Irn rete; osnolip line-yer average evdio8 I Ibid. 190. and 150. east cuntries aolished IicenednCt leeiv Pfvvie - Soertre.Caro tasndT anlvarfcaotsT onnr (tar thoeav ror-4Ilaiv - dIV rs .e..r fo.b.Acd tt of i_ih-nvncfv device. , une vrnsoIndnlfebypann program. C NS efeiOpoi e huadpaoaii;enbs n cne teecr PeoRvPooiP-.er..ece.o.mr.ldsen Preteef aredi vunCtead- vyer (ePeg.,etIn fT etnC nefet seen yf chil-nearing ag AI .. I nests abeose Pberth-.....dnl devices to ' eereCh-rculotio (ear ....ee . .o....t.v . - Shn th oettci j 1e fFodPonto pr6r0 (99leOb oe f e aiI arsooadCl dj C Re canne ut 'hnn e..r CarPnePertLn eArI - ,. tes on . ieaierot eaer hihat eileadyoneovtLat I. .cofe.n te PI e add.Agese rdcieo eeoh coiner is Cae nCO 0C Par cpitaearpi of elonie aeceni f rh. t.. monef- lio ptdifry area -fa.ce en oslpd a nldnthaeis,atdoa t. qcnils. edi od rcsig Idea--. dbe.) Eddsrbtn. eor-Aniotr nrai - atr are n frig oety ueo n coneh note . esidtd- pPD. aedoC pyioalilnegPfrnac at- lice - ereeseoltta-abrfoc;h90.110.d..0 oe FoLtY e hs ..t . Cesdalgnntnmee hsent , body enigma I.. aeIdsr rren Ieda fero be si Ins oercia.enas an Cet hinlion-ine fpplta.adalntgt re o ae at. "I. .en deri iny Y-asr- ndge ee p-erte.inoeg ofttl en frs Iosnl ei 915 910neb91 en,I.-O 97 o 1880 dens. T Pe cnt tepe f rten etesre dy -Prnsn oeee o ervein Prnoleln RtsIptnne -tne. si, ndfeeeIdPrtcierteo ards.- or.ne.hn.h..f. ga ftnlpeni n l rs fin siae r fees. national-eaortae. F.ldPvd h,orn, 96-- 11 e11 gn.h the tota Lab,,,forte ricdreeniendrie IsroeprdyIbi-S19Sod11dos ICOM otnt-g AtutoP6oPi.P. Y. hId ae -i eusn (pr hnend deea dah.pe hasodinPrcntg.o.rloi eLe.bthI cash and had) -Il tehene ivn- h teie at Id.ir .. Errs . i _fe abe ;190 186106S and0 .1980 0 dieee.BO FofRhveehl ..fRaL;. ...t IfTtY1 ,& TA -If i h...SOOPSn.I.lyc,, or, birth 2v9l00. 1915 . and 1990 Sate. o ..r.d ebndi irnepreteg nib cans~Idlth.. caution of age pe thausan live biths; 296,P197,se 19C00 det.. bsols .pvet 19rce197 ledrn9i datrt.mv. en e c hcadn ost ofpeople(natal orbae an r hraL 10- ei d.res fCb . acces to oafs aLsforoabfle.Il rarr eppl (Irioes Ree foic gsao nrae u natsntd OtmedtlniePvryIaeLvl(t e altionnoArr eae" cbasta rtepIetd aeas. ptg.adAeuoyenOlo urieitvepvryIna ee s n-brfo n ae e apt pscnep Lfthi eascn paoaina enrierd pulcoten v of the- counry. . Chelvl) derived from1: the0rore- Evoaainretsodoenloctednonmaretha 20 sesesfro a ave mapbe oya cih ajoeeneforbiggr cat f lvtl inbrbn Edee h-oenit e t t;nd55 to ort OlnolLeonofcrM lle-oa. rm,a oa husecet of peopl (total u 4n sad , total) egneb ocre'PCepsed - Popottteti ivided y viskn of pectinlo phyci fiovoel d and I Soia DaIta cia too ciane.tt.itfie fre aeiCel nhl .. an L P.ie, it lanai. iOre, Aaalysi and . friricin Deatn P"-Porelanto re Resa Per 0Son-Poe Yno diid d by0v.ee ofpP Iiio ayII mae ndfeai14aeasores aeeinee veres pre'tnoe torsos ari nursing eaail iatiee.~~~~~~~~~~~~~~~~~~~~~  25 - Population 20.8 million (mid-1981) ANNEX I GNP Per Capita: US$ 870 (1981) Page 4 of 6 MOROCCO - ECONOMIC INDICATORS Amount f/ (million US$ at Annual Growth Rates ()- current prices) Actu,al Projected Indicator 1980 1977 1978 197!t 1980 1981e/ 1982 1983 1984 1985 NATIONAL ACCOUNTS Gross domestic product a/ 17820 6.0 2.2 4.3 3.6 -1.3 4.0 5.1 4.5 4.3 Agriculture 3229 -12.3 18.0 -1.1 6.2 -23.0 7.0 9.6 3.1 2.5 Industry 5752 8.0 -0.9 7.7 -2.5 -0.5 3.7 4.6 5.4 5.1 Services 7762 8.5 4.0 5.1 6.4 3.4 3.7 4.3 4.3 4.3 Consumption 15770 5.3 4.2 5.8 2.5 2.2 1.3 4.2 3.5 3.6 Gross investment 4025 15.6 -25.9 1.3 -7.3 -3.6 6.5 -1.1 3.7 3.2 Exports of GNFS 3273 10.3 3.3 0.9 3.7 3.5 4.5 7.0 6.3 5.3 Imports of GNFS 5247 14.5 -17.4 3.3 -9.8 10.7 -1.9 -0.6 2.2 2.3 Gross national savings 2606 1.5 -15.4 3.2 6.0 -20.6 9.5 15.6 13.2 1.7 PRICES GDP deflator (1969 = 100) . 172.0 186.5 200.2 218.4 241.2 Exchange rate (US$ per DH) . .222 .240 .256 .254 .193 Share of GDP at Market Prices (Z) Average Annual Increase (2) (at current prices)d/ (at constant 1969 prices) (at constant 1980 prices) 1960 1970 1975 1980 1985 1990 1960-70 1970-75 1975-80 1980-85 1985-90 Gross domestic product 4.0 4.6 5.1 3.7 5.1 Agriculture _/ 29.1 19.2 17.9 18.1 17.1 15.1 3.5 -2.1 3.8 2.5 2.5 Industry b/ 23.5 27.2 35.2 32.3 34.9 35.8 4.7 7.1 4.2 3.9 5.5 Services b' 47.4 53.6 46.9 49.6 47.9 49.1 4.1 5.5 5.9 4.0 5.5 Consumption 89.2 85.5 85.5 88.5 87.7 84.0 4.1 4.8 5.8 3.0 4.2 Gross investment 10.3 18.5 25.4 22.6 20.0 20.0 8.0 9.3 -2.8 2.0 5.1 Exports GNFS 27.4 17.6 22.5 18.4 20.5 22.7 1.3 2.1 4.9 5.5 7.1 Imports GNFS 26.9 21.6 33.4 29.4 28.7 26.7 3.5 8.1 0.5 1.7 4.0 Gross national savings 11.0 14.8 19.3 14.6 14.5 17.9 3.5 15.3 -4.4 3.0 10.0 As Z of GD? 1960 1970 L975 1980 1981 PUBLIC FINANCE Current revenues 16.5 16.1 73.3 21.6 23.3 Current expenditures 15.6 14.5 20.2 21.8 24.7 Surplus (+) or deficit C-) 0.9 1.6 3.1 -0.2 -1.4 Capital expenditure 3.8 5.7 12.2 12.4 12.6 Foreign financing .. 1.3 3.7 5.6 9.3 1960-70 1970-75 1975-80 1980-85 1985-90 OTHER INDICATORS GNP growth rate (x) 4.0 6.0 5.2 3.4 5.1 GNP per capita growth rate (x) 1.6 3.1 1.8 -0.1 2.0 Energy consumption growth rate (X) 3.8 6.7 5.6 4.3 5.0 ICOR 3.09 3.0 4.1 6.2 3.9 Marginal savings rate 0.10 0.38 -0.15 0.27 0.28 * Import elasticityS/ 0.95 1.84 0.13 0.95 0.78 a/ At market prices. b/ Share of GDP at factor coat beginning in 1985 and sectoral growttl rates at factor cost beginning in 1980-85. c/ Goods only. d/ Projected years at constant 1980 prices. e/ Estimates. f/ 1977-1980 at 1969 prices, 1981-85 at 1980 prices. January 27, 1983 EMENA CP II-B ID 0180B P.1  -26 - Population 20.8 million (mid-1981) ANNEX I GNP Per Capita: US$ 870 (1981) Page 5 of 6 MOROCCO - EXTERNAL TRADE Amount Indicator (million US at Annual Growth Rates (%)1/ current prices) Actual Projected 1980 1975 1977 1978 1979 1980 1981 1982 1983 1984 1985 EXTERNAL TRADE Merchandise exports (FOB) 2414 -21.9 10.7 5.3 1.8 5.1 1.0 4.0 7.8 6.7 5.1 Primary products 1823 -25.2 7.7 5.4 0.0 5.8 -8.1 1.2 3.4 3.8 3.5 Phosphate rock 765 -29.9 9.6 9.6 3.2 7.4 -5.4 0.0 3.0 5.0 4.0 Others 939 -22.3 6.5 2.8 -1.7 14.7 -10.0 2.1 3.7 2.9 3.1 Intermediate & manufactures 591 -1.4 23.8 5.0 7.1 2.8 27.4 9.8 16.3 11.8 7.6 Merchandise imports (CIF) 4283 21.2 14.4 -19.9 6.6 -7.1 9.3 -1.9 0.5 3.9 4.0 Food 720 37.8 0.4 8.6 2.2 3.4 32.5 -16.8 -0.9 2.1 4.5 Petroleum 1006 12.8 8.7 11.0 12.1 -11,9 10.8 0.0 -1.1 3.3 3.2 Machinery and equipment 805 51.7 26.7 -44.3 -3.2 -19.8 7.5 3.0 -2.5 4.0 2.9 Others 1752 4.0 13.0 -15.1 12.5 -5.2 -0.3 2.6 3.7 5.0 4.8 PRICES (1980 = 100) Export price index . 89.9 68.4 69.7 83.5 100.0 123.3 125.1 137.1 153.5 171.8 Import price index . 64.1 67.9 73.0 79.2 100.0 122.3 130.9 140.2 154.3 169.8 Terms of trade index . 140.3 100.7 95.5 105.4 100.0 100.8 95.6 97.8 99.5 101.2 Composition of Merchandise Trade (X) Average Annual Increase (%) (at current prices) (Constant 1969 prices) (Constant 1980 prices) 1960 1970 1975 1980 1985 1990 1960-70 1970-75 1975-80 1980-85 1985-90 Exports 2.0 -1.2 6.6 5.2 7.6 Primary products 89.5 89.4 86.9 74.4 60.5 49.1 .. -2.7 5.3 1.3 3.3 Interm,ediates & manu- 10.5 10.6 12.9 25.6 39.5 50.9 .. 8.1 12.1 14.0 13.0 factures tmports 4.0 9.1 0.7 2.4 4.0 Food 27.3 16.9 25.0 16.9 16.9 15.5 .. 14.0 3.0 0.7 2.4 Petroleum 7.4 5.5 10.8 23.6 23.6 22.4 .. 9.6 5.3 2.4 2.8 Machinery and equipment 6.7 24.1 24.0 18.9 18.7 19.2 .. 12.8 -7.0 2.4 4.5 Others 58.6 53.5 40.2 40.6 40.7 42.9 .. 5.5 2.9 3.3 5.1 Share of Trade with Share of Trade with Share of Trade with Industrial Countries (%) Developing Countries (%) Capital Surplus Oil Exporters (%) 1960 1970 1980 1960 1970 1980 1960 1970 1980 DIRECTION OF TRADE Exports 72.3 73.7 76.5 27.7 25.4 21.6 .. 0.9 1.9 Imports 76.7 74.9 72.9 23.3 25.1 8.3 .. .. 18.8 1/ 1975-1980 at 1969 prices, 1981-1985 at 1980 prices September 22, 1982 EMENA CP II-B ID 0180B p.2  - 27 - Population 20.8 million (mid-1981) ANNEX I GNP Per Capita: USt 870 (1981) Page 6 of 6 MOROCCO - BALANCE OF PAYKENTS, EXTERNAL CAPITAL AND DEBT (million US$ at current prices) Indicator Actual Projected 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1990 BALANCE OF PAYMENTS Exports of goods and services 2288 2486 2955 3694 4364 4132 4087 4669 5401 6193 11297 Of which: Merchandise f.o.b. 1245 1283 1488 1938 2414 2283 2180 2575 3077 3618 7163 Imports of goods and services 3691 4364 4353 5268 5912 6095 5780 6276 6930 7734 12812 Of which: Merchandise f.o.b.ai 2305 2820 2628 3245 3770 3840 4054 4365 4994 5714 9856 Net current tranfers 47 52 50 44 128 102 - - - - - Current account balance -1355 -1826 -1348 -1530 -1420 -1861 -1692 -1607 -1529 -1541 -1515 Special grants 435 360 260 420 314 313 84 197 320 150 232 Current account balance after grants -920 -1466 -1088 -1110 -1106 -1548 -1609 -1410 -1209 -1391 -1283 Private capital 38 53 45 37 88 68 76 85 96 106 171 MLT loans (net) 838 1338 1109 946 971 1205 1071 1425 1371 1666 1359 Official .. .. .. .. .. 1315 994 736 878 982 1092 Private .. .. .. .. .. -110 77 689 493 684 267 Other capital 28 68 -13 73 -200 17 .. .. Monetary movements_/ 16 6 8 53 247 258 462 -100 -258 -381 -263 International reserves 548 609 772 917 814 508 470 543 653 787 1635 Of which: Gold 82 104 154 360 415 278 278 278 278 278 278 Reserves as months imports 1.8 1.7 2.1 2.1 1.7 1.0 1.0 1.0 1.1 1.2 1.5 EXTERNAL CAPITAL AND DEBT c/ Gross disbursements 725 1787 1182 1405 1567 1807 Concessional loans 111 636 325 293 750 1089 DAC 63 109 91 76 96 138 OPEC 41 507 189 168 584 837 1DA 4 3 - - 1 2 Other 3 16 45 49 69 112 Non-concessional loans 614 1151 859 1113 818 718 Official export credits 22 27 2 2 12 128 IBRD 59 68 72 137 64 129 Other multilateral 2 6 53 7 13 86 Private 531 1050 732 967 729 375 Suppliers credits 10 171 10 B 16 6 Financial credits and bonds 521 879 722 957 713 368 External Debt Debt outstanding and disbursed 2330 4069 5123 6182 7097 8381 Official 1250 1975 2456 2833 3482 4865 Private 1080 2094 2667 3349 3615 3515 Undisbursed debt 801 1024 2280 2337 2058 2901 Debt service Total service payments 162 264 547 798 1191 1340 Interest 66 148 252 410 618 738 Payments as % exports of G+S 7.2 10.7 18.7 21.8 27.0 31.3 Average interest rate on new loans (Z) 7.7 6.8 7.0 8.2 8.1 8.5 Average maturity of new loans (years) 11.7 13.1 13.2 15.9 13.7 8.0 As Z of Debt Outstanding at End of Most Recent Year (1980) Maturity structure of debt outstanding Maturities due within 5 years 47.9 haturitLes due within 10 years 88.0 Interest structure of debt outstanding Interest due within first year 7.3 a/ c.i.f. for projected years. b/ Projected values include 1MF credits. cl Years 1976-80 from IBRD External Debt Reporting System, 1981 from the BOP statistics. There are sizeable discrepancies in some years between the external capital and debt service flows reported under the IBR; Debt System and those recorded in the official balance of payments statistics shown in the upper part of this table. d/ Excluding debt service on IMF loans. January 27, 1983 EMENA CP II-B ID 0180B p.3  - 28 - ANNEX II Page I of 10 A. STATEMENT OF BANK LOANS AND IDA CREDITS (As of September 30, 1982) al Loan or US0 Million Credit Amount (less cancellations) Number Year Borrower Purpose Bank IDA Undisbursed Twenty-four Loans Fully disbursed 617.4 Four Credits Fully disbursed 36.0 1018 1974 Kingdom of Morocco Agriculture 32.0 8.4 555 1975 Kingdom of Morocco Agriculture 14.0 11.1 1202 1976 Kingdom of Morocco Tourism 21.0 11.6 i220-T 1976 Kingdom of Morocco Education 25.0 14.6 1416 1977 Kingdom of Morocco Agriculture 41.0 30.5 1428 i977 BNDE DFC 35.6 2.5 S-7 1977 Kingdom of Morocco Engineering 1.5 0.5 1528 1978 Kingdom of Morocco Urban Development 18.0 15.2 1602 1978 Kingdom of Morocco Agriculture 65.0 59.1 1625 1978 Maroc-Phosphore Industry 50.0 5.9 1681 1979 Kingdom of Morocco Education 113.0 108.9 1687 1979 Kingdom of Morocco DFC (SSI) 25.0 12.8 1695 1979 Kingdom of Morocco Power 42.0 41.9 1704 1979 CNCA Agriculture 70.0 30.8 1724 1979 Kingdom of Morocco Water Supply 49.0 30.4 1757 1980 Kingdom of Morocco Agriculture 58.0 49.6 S-18 1980 BRPM Oil Exploration 50.0 20.7 lboJU 1980 Kingdom of Morocco Highway 62.0 53.8 io48 1980 Kingdom ot Morocco Agriculture 34.0 32.2 1943 1981 CIH Tourism 100.0 7C.9 1944 1981 Kingdom of Morocco Urban Development 36.0 36.0 006 1982 Kingdom of Morocco Water Supply 87.0 87.0 20371/ 1982 BNDE DFC 70.0 70.0 20381! 1982 Kingdom of Morocco DFC (SSI) 70.0 70.0 20821/ 1982 Kingdom of Morocco Agriculture 29.0 29.0 21091/ 1982 Kingdom of Morocco Mining 9.5 9.5 21101/ 1982 Kingdom of Morcco Forestry 27.5 27.5 21141/ 1982 ONAREP Oil Shale 20.0 20.0 21491/ 1982 Kingdom of Morocco Education V 50.0 50.0 Total 1908.5 50.0 1010.4 of which has been repaid 239.4 1.2 Total now outstanding 1669.1 48.8 Amount Sold 20.1 of which has been repaid 17.7 2.4 T'otal now held by Bank and IDA 1666.7 48.8 Total undisbursed 999.3 11.1 1010.4 NOli a/ Does not include the Oulmes Rommani Agriculture Development Project, loan of 330 million, approveu December 14, 1982. 1/ Not etfective as of 9/30/82. However, since then the following loans have been declared effective; BNDE IX, Forestry, Small-Scale Mining, Middle Atlas Agricultural Development. B. STATEMENT OF IFC INVESTMENTS (As of September 30, 1982) US3 Million Loan Equity Total 1962/1978 BNDE Development Bank - 2.7 2.7 1966t CIL Canning Factory 0.9 0.5 1.4 1976 Marrakech Cement Cement Factory - 1.3 1.3 1977/1980 Temara Cement Cement Factory 4.7 3.6 8.3 1979 Agadir Cement * Cement Factory 12.5 2.2 14.7 1980 SOMIFER Copper Mining 13.0 2.3 15.3 1981/1983 Casablanca Cement Cement Factory 15.8 -2.1 17.9 Total Gross Comrmitments 46.9 14.7 61.6 Less cancellation, terminations, repayments and sales 15.4 3.5 18.9 Total commitments now held by IFL 31.5 11.2 42.7 Total Undisbursed 15.8 2.4 18.2 * Agadir Cement has been cancelled.  - 29 - ANNEX II Page 2 of 10 C. PROJECTS IN EXECUTION AS OF SEPTEMBER 30, 1982 1/ Ln. No. 1018 Sebou II Development Project; US$32.0 million of June 27, 1974; Date of Effectiveness: February 28, 1975; Closing Date: December 31, 1982. The project as originally appraised was completed in November 1980. Funds have been fully committed for the additional infrastructure works and equipment provided for under an amendment to the Loan Agreement approved in July 1980. Final disbursements are expected by end-March, 1983 and unused funds will be cancelled. Cr. No. 555 Meknes Agricultural Development Project; US$14.0 million of June 11, 1975; Date of Effectiveness: November 14, 1975; Closing Date: June 30, 1984. After a 2-year initial delay, project implementation has picked up momentum. Major activities concerned with the land consolidation and redistribution program have been completed in one district and civil works (roads, destoning and irrigation rehabilitation) have been started in the remaining three districts. Progress is slower than expected, mainly because project implementation has proven more complex than anticipated, which has been aggravated by project management prcblems. However, the first results of the completed components are promising. Because of the initial delay and the complexity in implementation, the origin.-l closing date was extended by three years. Ln. No. 1202 Bay of Agadir Tourism Project; US$21.0 million of February 27, 1976; Dal:e of Effectiveness: October 29, 1976; Closing Date: December 31, 1981. The project consists of infrastructure works and common facilities for a hotel/residential tourism development complex. Most infrastructure works were completed in December 1980, except for the construction of common facilities (representing some 20% of the total project costs). This delay is mainly due to institutional and project management problems. Project 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being ercountered, and the action being taken to remedy them. They should be: read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  - 30 - ANNEX II Page 3 of 10 completion is expected to be delayed by at least 18 months, and an extension of the closing date has been under consideration for a long time since it has been made contingent on the Government's agreement to an action program. The Government has now been advised that the Bank will cancel the balance of the loan on December 31, 1982 unless an action program has been agreed upon by that date. Ln. No. 1220-T Third Education Project; US$25.0 million of March 18, 1976; Date of Effectiveness: October 1, 1976; Closing Date: September 1, 1982. The project is designed to expand and improve primary and secondary education in rural areas and specialized training to meet manpower needs in education, agricultural extension, health and tourism. After an initial two-year delay, construction under the education and agriculture components is largely completed and funds are committed for the equipment and technical assistance components, but lengthy delays have been experienced in the implementation of the health and tourism components. Further extension of the closing date is being considered and will depend on improvements in disbursement performance, which has lagged due to administrative delays both in the Project Unit and the Ministry of Finance. Ln. No. 1416 Doukkala II Irrigation Project. US$41.0 million of June 16, 1977; Date of Effectiveness: December 1, 1977; Closing Date; June 30, 1984. The project aims at extending irrigation and related agricultural development in the Doukkala perimeter by 16,600 hectares; it also calls for provision of extension and credit services, and village infrastructure. The land consolidation program and the enlargement of the main canal are proceeding according to schedule. Implementation was slowed down due to budgetary constraints facing Morocco in 1980-81 which caused a delay of about two years. Project implementation has resumed vigorously under excellent project management. Ln. No. 1428 Eighth BNDE Project; US$45.0 million of June 16, 1977; Date of Effectiveness: December 21, 1977; Closing Date: September 30, 1982. The project is designed to meet part of the Banque Nationale de Developpement Economique's (BNDE) requirements for financing of the import component of industrial sub-projects, and of a small-scale industry pilot credit program ($5 million). The loan is fully committed, and the loan is expected to fully be disbursed before end 1982. BNDE's financial performance deteriorated sharply in 1981, but the trend should be reversed since a package of measures to rehabilitate BNDE financially and to strengthen the institution has recently been agreed upon.  - 31 - ANNEX II Page 4 of 10 Ln. No. S-7 Sewerage Engineering Project; US$1.5 million of August 30, 1977; Date cf Effectiveness: August 18, 1978; Closing Date: October 31, 1982. The project includes the preparation of a sewerage Master Plan for the Casablanca-Mohammedia region and of a first phase project. It would assist Morocco in developing the design ar,d planning criteria for urban sewer systems and strengthening the institutiona;l and financial bases for the development of this sector. Project imple!mentation was delayed by about 15 months, due to administrative and budgetary difficulties, but studies were launched in May 1980, and are now proceeding satisfactorily and an extension of the closing date is under consideration. The technical components of a possible project have been identified, but: institutional problems have not yet been resolved. Ln. No. 1528 Rabat Urban Developmen: Project; US$18.0 million of March 31, 1978; Date o- Effectiveness: November 21, 1978; Closing Date: March 31, 1983. The project is designed to improve living conditions of the urban poor in Rabat. It includes upgrading of slum infrastructure and social services in tbree squatter areas with a total population of about 60,000; an experimental sites and services housing scheme; an employment generation program; and related technical assistance. After initial delays, project implementation has recently improved significantly. Infrastructure works are under way and housing improvement loans are being made. Relocation to sites and services areas is under progress and some enterprises have started operation in the industrial zone. Disbursements, however, remain low and the matter is under review with the Government. Ln. No. 1602 Fes-Karia-Tissa Agriculture Project; US$65.0 million of September 6, 1978; Date of Effectiveness: February 18, 1979; Closing Date: June 30, 1986. The project aims at (i) improving the standard of living of about 33,900 farm families in the Fes-Karia-Tissa region, and (ii) contributing to the growth of agricultural production and to a reduction in Moroccan dependence on imported food commodities. These aims would be achieved through a reorganization and strengthening of agricultural extension and soil conservation services, training, the provision of credit and infrastructure. Although somewhat delayed, implementation is proceeding satisfactorily, due to excellent project management and good interagency coordination. However, disbursements have lagged due to delays by the implementing agencies in submitting reimbursement requests to the Ministry of Finance.  - 32 - ANNEX II Page 5 of 10 Ln. No. 1625 Maroc Phosphore Expansion Project; US$50.0 million of October 27, 1978; Date of Effectiveness: March 23, 1979; Closing Date: June 30, 1982 The project consists of expansion of existing production facilities at Safi through (a) the erection, on the site of the existing Maroc Phosphore plant, of an additional unit and ancillary facilities to produce for export 165,000 tpy of pbosphoric acid, and (b) the construction of sulphur melting and storing facilities as well as of new phosphoric acid concentration and storage facilities. Commercial operations have begun and the project will probably be completed on schedule. Maroc Phosphore's technical management appears satisfactory. The project account is being closed and an amount of about $5 million is expected to be cancelled. Ln. No. 1681 Fourth Education Project; US$113.0 million on April 25, 1979; Date of Effectiveness: October 16, 1979; Closing Date: December 31, 1984. The project consists of the construction, furnishing and equipping of 11 technical high scbools, a technical teacher training college, two higher instituites of technology, an institute of applied engineering and an extension of Mohammedia Engineering College and associated technical assistance. Implementation was initially delayed; however, all major contracts have now been signed and disbursements are expected to accelerate. Ln. No. 1687 Small Scale Industry Integrated Development Project; US$25.0 million of April 25, 1979; Date of Effectiveness: December 17, 1979; Closing Date: December 31, 1983. The project consists of support for a Government program to assist small and labor intensive industries through technical, managerial and financial assistance. The loan is virtually fully committed, and earlier disbursement delays should be remedied subsequent to the recent introduction of simplified administrative procedures. Ln. No. 1695 Village Electrification Project; US$42.0 million of May 22, 1979; Date of Effectiveness: April 30, 1980; Closing Date: June 30, 1984. This project, which is the first stage of a 15-year village electriiication program, would provide electricity to about 60,000 dwellings in more than 200 villages throughout the country. Problems of interministerial coordination and budgetary allocations delayed project start-up for about one year. Orders have now been placed for most of the equipment but no payments have yet been made. However, implementation is well under waly and the project is expected to be completed according to schedule.  - 33 - ANNEX II Page 6 of 10 Ln. No. 1704 Fourth Agricultural Credit Project; US$70.0 million of May 23, 1979; Date of Effectiveness: December 5, 1979; Closing Date: June 30, 1983. J The project aims at increasing Morocco's agricultural production thereby improving the standard of living of about 475,000 of Morocco's farm families. The project covers most of the Caisse Nationale de Cr6dit Agricole's (CNCA) medium- and long-term lending program and farm investment program through mid-1983. Cofinancing of $75 million is provided by IFAD and KfW. CNCA's on-lending as well as repayments were severely affected by the 1980-1981 drought, slowing disbursement of the Bank loan. To alleviate CNCA's sbort-term liquidity problems (due mainly to the drought), its lenders, including the Bank, have increased their disbursement percentages under their respective loans. Ln. No. 1724 Second Water Supply Project; US$49.0 million of July 2, 1979; Date of Effectiveness: February 4, 1980; Closing Date: June 30, 1984. The project is designed to improve access to safe water supplies for the population of the Mid-Atlantic Coast and the Greater Agadir area. It consists of: (i) the expansion of bulk water production and transmission facilities along the Mid-Atlantic Coast; (ii) the expansion of bulk water production and transmission facilities in Agadir; (iii) the establishment of a revolving fund to facilitate house connections for low income families; and (iv) studies on accounting and management systems. Administrative problems created some initial delays, but there is strong demand for the credit facilities for low-income house connections. The project is now proceeding satisfactorily and disbursements are expected to increase accordingly. Ln. No. 1757 Vegetable Production and Marketing Project; US$58.0 million of November 15, 1979; Date of Effectiveness: April 17, 1980; Closing Date: June 30, 1984. The project is the first phase of a long-term program for development of off-season vegetables for export. $50.0 million of the loan is to be on-lent for long and medium-term farm investments and incremental short-term production costs of vegetable quality control centers, for two small producer packing stations, and for seedling greenhouses benefitting about 8,000 farm families and creating seasonal employment. The balance of the loan would help finance infrastructure in the project area, and technical assistance. Implementation is proceeding satisfactorily. Overall production did not progress as scheduled due to two cold winters, but greenhouses, which have resisted frost fairly well, are gaining acceptance with the farmers and the prospects of rising production are promising.  - 34 - ANNEX II Page 7 of 10 Ln. No. S-18 Petroleum Exploration Project; US$50 million of May 19, 1980; Date of Effectiveness: October 24, 1980; Closing Date: December 31, 1983. The project aims essentially at accelerating the Government's petroleum exploration and development program. It has recently been transferred from BRPM, the original Borrower, to the new petroleum development agency, the Office National de Recherches et d'Exploitations Petrolieres (ONAREP). The project also provides technical assistance in prospect evaluation, analysis of results of exploration, and exploration management. Drilling so far has shown encouraging results, particularly as regards natural gas prospects. Procurement problems have hampered project implementation and recruitment of consultants has proceeded very slowly. Administrative problems have also delayed disbursements. Ln. No. 1830 Third Highway Project; US$62.0 million of May 19, 1980; Date of Effectiveness: September 29, 1980; Closing Date: June 30, 19-84. The project comprises (i) a three-and-a-half year time slice of the Government's pavement strengthening and preservation program; (ii) strengthening and management of the road maintenance program and (iii) technical assistance for the Ministry of Transportation to improve transportation planning and to study road maintenance. The pavement strengthening and maintenance activities are progressing satisfactorily. The hiring of consultants for technical assistance is behind schedule due to the slow preparation of the terms of reference. Disbursements have lagged due to delays in payment of contractors as well as transmittal of reimbursement requests to the Ministry of Finance. Ln. No. 1848 Loukkos Rural Development Project; US$34.0 million of December 22, 1980; Date of Effectiveness; September 30, 1981; Closing Date: June 30, 1987. The project should increase incomes and productivity of very poor subsistence farmers in the Loukkos Basin by reversing the declining trends caused by soil erosion and inappropriate farming practices. It consists of: (i) development and erosion control works on 15,000 steeply sloping hectares in Upper Loukkos; (ii) development of field crops and small irrigation improvements in Middle Loukkos; (iii) establishment and maintenance of pine plantations in the Izarene Forest; (iv) construction of roads and social service facilities in the Project area; and (v) execution of a cadastral survey on about 500,000 hectares of land. Once proven, the project implementation methodology could be widely replicated throughout Morocco's mountain and steppe land. Project implementation is progressing satisfactorily.  - 35 - ANNEX II Page 8 of 10 Ln. No. 1943 Fourth Hotel Development Project; US$100.0 million of February 5, 1981; Date of Effectiveness: April 9, 1981; Closing Date: December 31, 1985. The project provides funds over a three year period to the Credit Immobilier et H8telier (CIH), a Moroccan development bank specializing in the tourism and housing sectors, for the development of tourism hotels. It also includes studies for developing policies irn the tourism sector and training of CIH staff in appraisal methodologies for tourism projects. Commitments and disbursements have been extremely rapid. Ln. No. 1944 Second Urban Development Project; US$36.0 million of April 16, 1981; Date of Effectiveness: August 4, 1981; Closing Date: July 31, 1986. The project consists of the provision of shelter, basic services and employment to low-income urban families through a program for slum upgrading, sites and services and provision of serviced land for small-scale industries, to be implemented in the cities of Meknes and Kenitra. Assistance is also provided to strengthen the municipal services of the project cities. Implementation is on schedule, due to the efficient coordination through the provincial Governors' offices, but some delays in approval of contracts by the Ministry of Finance have occurred. Ln. No. 2006 Third Water Supply Project; US$87.0 million of September 28, 1981; Date of Effectiveness: March 15, 1982; Closing Date: December 31, 1986. The project includes the construction of two regional water supply systems and the expansion and upgrading of the water supply facilities in about 32 small towns scattered throughout Morocco. It would also provide revolving funds to facilitate house connections for low income households, equipment, technical assistance, training and studies. Ln. No. 2037 Ninth BNDE Project; JS$70.0 million of November 3, 1981. Date of effectiveness: November 2, 1982. Closing Date: December 31, 1986. The project would include a pilot component in the line of credit to BNDE, to finance export-oriented indust:rial sub-projects. The project also focusses on strengthening organizational aspects of BNDE in the field of project appraisal, portfolio monitoring and export promotion.  - 36 - ANNEX II Page 9 of 10 Ln. No. 2038 Small Scale Industry II Project; US$70.0 million of November 3, 1981; Not yet effective. Closing Date: June 30, 1986. The project comprises (i) a line of credit to the Government to be relent to BNDE and commercial banks for relending to small scale industries (SSIs); (ii) financing of the foreign exchange costs of technical assistance provided by the Government to SSIs; and (iii) financing of studies relating to the structure of incentives for SSIs. Ln. No. 2082 Middle Atlas - Central Area - Agriculture Development Project: US$29.0 million of March 5, 1982. Not yet effective. Closing Date; June 30, 1988. The project consists of interrelated forestry, range and cropping land development to bring about production increases of meat, milk, fodder, cereals and wood, on about 600 ha. in central Morocco, as well as to raise income and employment among the target population. Loan No. 2109 Small-Scale Mining Project: US$9.5 million of April 14, 1982. Not yet effective. Closing Date: December 31, 1988. This pilot project would increase the productivity of small-scale lead and zinc mining operations through provision of equipment and facilities, as well as credit to miners, in a remote region of Morocco thus increasing exports and raising rural incomes. The project would also strengtben the financial, technical and administrative base of CADETAF, the implementing agency, and finance studies as a basis for future expansion of mining activities. Implementation is proceeding satisfactorily. Loan No. 2110 Forestry Project: US$27.5 million of April 14, 1982. Date of effectiveness: October 28, 1982. Closing date: June 30, 1988. The project consists of destumping about 30,000 ha of eucalyptus plantations and degraded oak and cork forests and replanting witb eucalyptus, pine and acacia; upgrading and construction of forest and access roads; pasture improvement over 2,000 ha; and technical and institutional support. Project implementation has commenced satisfactorily. Loan No. 2114 Oil Shale Engineering Project: US$20.0 million of April 14, 1982. Not yet effective. Closing date: September 30, 1986. The engineering project would finance studies and the construction of a shale retorting test station to generate information and analysis on the characteristics of Moroccan oil sbale resources and on the technical and economic viability of alternative options for their development.  - 37 - ANNEX II Page 10 of 10 Loan No. 2149 Fifth Education Project: US$50.0 million of November 5, 1982. Not yet effective. Closing date: March 31, 1988. The project is designed to improve the effectiveness of primary education and support expanded science and mathematics teaching at the senior secondary level, through construction of four senior secondary teachers training colleges, 40 rural primary schools and the provision of teaching aids to about 700 primary schools.  - 38 - ANNEX III Page 1 of 2 KINGDOM OF MOROCCO HOUSING DEVELOPMENT PROJECT SUPPLEMENTARY PROJECT DATA SHEET Section I: Timetable of Key Events (a) Project identification: September 1981 (b) Time taken by borrower to prepare project: 8 months (c) Agencies responsible for project preparation: Credit Immobilier et H8telier (CIH) (d) First Bank mission to review project: September 1981 (e) Date of departure of Appraisal Mission; June 1982 (f) Date of completion of negotiations: January 13, 1983 (g) Planned date of effectiveness: July 1983 Section II: Special Bank Implementation Action None. Section III: Special Conditions 1. New interest rate structure would be maintained throughout the commitment period of the project, and by March 31, 1985, CIH would evaluate and discuss with the Government and the Bank the impact of interest rate subsidy and the tax relief package in the housing sector (para. 39). 2. Construction, land development, and mortgage loans would be subject to agreed eligibility criteria; the loan contracts between CIH and developers would include a covenant ensuring CIH refinancing of developers' newly built housing units (para. 47).  - 39 ANNEX III Page 2 of 2 3. Annual reviews would be carried out between the Bank and CIH to assess the acbievement of project objectives; CIH would be required to repay the Bank the repayments by developers which are not used for mortgage loans within five years of the date of contract (para. 49). 4. CIH's financial exposure in any single housing project would be limited to 20% of its equity and reserves (para. 55). 5. CIH would take appropriate actions satisfactory to the Bank to protect itself against the risk of loss resulting from interest rate fluctuations (para. 60). 6. CIH's loans to resettlement schernes would be guaranteed; and the Government would pay CIH at its request to keep arrears on resettlement schemes below 8% (para. 61). 7. CIH'S debt-equity ratio and debt service ratio would remain witbin the limits of 13.8:1 and 1.0, res;pectively (para. 62).  I  ,_______________________________________ _ _IBRD 15252 PORTUGA!I SPAIN ITALY GREECE TURKEY 1 KI NGDOM OF MOROCCO : A ; AUUSTNI R.0 TUISIA___ Main roads - Seq . R RoP2tboTArht '~ G oo .R I, MOROCC2_>'Scndr od A GERIA AR- Saolor odsTsl Rba1 _7R REP OF - - - - --- Tracks L A4 -