Morocco - Second Agricultural Sector Adjustment Project

DocumenLor The World Bank FOR OFFICIAL USE ONLY Report No. P-443 7-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$225.0 MILLION TO THE KINGDOM OF MOROCCO FOR A SECOND AGRICULTURAL SECTOR ADJUSTMENT LOAN October 30, 1987 This document has a restrided distribution and may be used by recipients only in the performance of their official duties. its contents may not otherwise be disclosed wihout World Bank authorization.  CURRENCY EQUIVALENTS Average Calendar 1986 Currency Unit = Dirham (DH) US$ 1.00 = DH 9.05 DHI 1.00 = US$0..10 WEIGHTS AND MEASURES The metric system is used throughout this report GLOSSARY OF ABBREVLATIONS CMV - Field Offices in Irrigated Areas (Centres de Mise en Valeur) CNCA - National Agricultural Credit Bank (Caisse Nationale de Credit Agricole) CP - Programme Contract CT - Field Offices in Rainfed Areas - (Centres de Travaux) DER - Rural Investment Division (Division de l'Equipement Rural) DPA - Provincial Department of Agriculture - (Direction Provinciale de l'Agriculture) DPAE - Division of Planning and Economic Analysis - (Division de la Planification et des Affaires Economiques) DPV - Crop Production Division (Division de la Production Vegetale) EFF - Extended Fund Fr..ility FERTIMA - National Fertilizer Marketing Company (Soci6t6 Marocaine des Fertilisants) INRA - National Agricultural Research Institute - (Institut National de la Recherche Agronomique) ITPA - Industrial & Trade Policy AdjustmenL ICB - International Competitive Bidding - (Appel d'offres international) MARA - Ministry of Agriculture and Agrarian Reform (Ministere de l'Agriculture et de la Reforme Agraire) OCE - National Export Company - (Office de Commercialisation des Exportations) OCP - National Phosphate Company - (Office Cherifien des Phosphates) ONICL - Grain Marketing Board - (Office National Interprofessionnel des Cereales et des Legumineuses) ORMVAs - Regional Office for Agricultural Development - (Office Regional de: Mise en Valeur Agricole) SCAMICMA - Regional Marketing Cooperatives - (Socikte Cooperative Agricole MarocainelCoop&rative Marocaine d'Approvisionnement) SONACOS - National Seed Company (Soci6t6 Nationale de Commercialisation des Semences) GOVERNMENT OF KINGDOM OF MOROCCO Fiscal Year January t - December 31  FOR OFFICIAL USE ONLY KINGDOM OF MOROCCO AGRICULTURAL SECTOR ADJUSTMENT LOAN Loan Summary Borrower: The Kingdom of Morocco Amount: US$225.0 million equivalent Terms: 20 years, including 5 years of grace, at the standard variable interest rate Loan Description: The proposed Loan would support the second phase of implementation of the Government's medium-term agricultural sector adjustment program, within the framework of a general macroeconomic restructuring program. The essential objectives of the sector adjustment program are to foster efficient agricultural growth and to contribute to the reduction of budgetary and current account deficits to manageable levels, while minimizing the social costs of adjustment. To achieve these objectives, actions have been taken over 1985/86 under the First Agricultural Sector Adjustment Loan and others will be implemented in the upcoming two years, to: (a) liberalize the agricultural and food pricing, marketing and trade regimes, while encouraging productivity increase, and ensuring adequate protection to low income groups; (b) complete the short-term restructuring and the design of medium-term priorities for the public expenditure program; (c) continue the streamlining of essential governmental support services and the transfer of commercially viable ones to the private and cooperative sectors; (d) encourage agro-industrial exports; (e) improve the management of natural resources (land, forests); and (f) further strengthen institutional capacity for sector policy analysis, formulation and performance monitoring. The foreign exchange provided by the Loan would be used to finance an agreed program of imports of inputs needed for stimulating agricultural production, including fertilizers, pesticides, seeds, animal feed, cattle for genetic improvement, fuel, agricultural machinery and spare parts and veterinary medecines. Benefits and Risks The reforms program is expected to create a more favorable environment for overall economic and sectoral growth in a time of severe resource constraints. In particular, liberalization of the agricultural and This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  food pricing, marketing and trade regimes combined with the restructuring of public expenditures are expected to (a) make the sector a more efficient producer of import-substitutes and export products; (b) lead to substantial fiscal and foreign exchange savings; (c) improve income distribution patterns in the agricultural sector while adequately protecting low income urban and rural landless groups by targeting the remaining food subsidies. The risks of the program relate to the length and difficulty of the process, possible social and political pressures, unpredictable developments in the external environment and uncertainties in the response of the private sector. These risks are limited by the Government's strong commitment demonstrated by an outstanding performance during the first phase of the adjustment program, and by the inherent flexibility of the phased medium-term approach. Estimated Disbursements. The proceeds of the Loan would be disbursed in three tranches. The first tranche of US$75 million would be available at the time of Loan Effectiveness. The second and third tranches of US$75 million each would be released after implementation of specific actions, including an overall satisfactory review of the implementation of the sector adjustment program. Appraisal Report: This is a combined President's and Staff Appraisal Report. Maps: No. IBRD 19761 19762 19763 19795. 3031E  KINGDOM OF MOROCCO SECOND AGRICULTURAL SECTOR ADJUSTMENT LOAN Table of Contents Page No. LOAN SUMMARY PART I : THE ECONOMY .............................................. 1 PART II : BANK GROUP OPERATIONS IN MOROCCO ......................... 7 PART III : THE MEDIiM-TERM AGRICULTURAL SECTOR ADJUSTMENT PROGRAM (MTASAP) ......................................... 9 A. Origin and Objectives .......................... . 9 * Reorienting the Prices and Incentives Framework .... 10 * Restructuring Public Investment and Expenditures Programs ............................ 12 - Strengthening Agricultural Support Services and Rationalizing the Role of the Public Sector ...... 14 * Improving Productivity of Land Use and Management of Natural Resources ............................. 16 Building up Policy Analysis Capacities and Sector Performance Monitoring ........................... 18 B. The Initial Phase of the MTASAP: Implementation Performance during the First Agricultural Sector Adjustment Loan (ASAL-I) ............................ 18 C. Refinement and Expansion of the Medium-Term Agricultural Sector Adjustment Program .... .......... 23 Liberalization of the Agricultural and Food Pricing, Marketing and Trade Regimes ........................ 24 Promotion of Agro-Industrial Exports .... ........... 32 Design of Medium-Term Public Investment Priorities 34 PART IV THE LOAN ................................................. 35 A. Rationale for the Proposed Second Agricultural Sector Adjustment Loan .............................. 35 B. The Action Program under the Loan ..................... 36 C. Loan Administration ................................... 43 D. Management, Coordination, Monitoring and Evaluation ... 48 E. Economic and Social Impact and Risk ................... 50 PART V RECOMMENDATION ........................................... 55 3031 E  Table of cuntents (Cont'd) ANNEXES I. Country data II. Status of Bank Operations III. Supplemental Loan Data Sheet IV. Government Letter of Sector Development Policy V. Content and Timetable of the Adjustment Program (Matrices): (a) Matrix of Key Actions; (b) Matrices by Subsector/Area VI. Outline of Report "Medium-Term Agricultural Sector Adjustment Program" in two volumes TABLES 1. Public Expenditures: Core Group of Priority Projects and Programs; Evolution of its Share in Total Planned and Actual Expenditures (1984-86) 2. Public Expenditures: Core Group of Priority Projects and Programs (1987) 3,4 & 5. Medium-Term Public Investment Priorities: Economic Viability and Priority Ranking of Future large Irrigation Projects under Investment Limitations (Net Present Values, Net Benefit/Investment Ratios) 6. Procurement: Imports of Agricultural Inputs Eligible for Financing under the Loan MAPS IBRD 19761 - Morocco IBRD 19762 - Large-Scale Irrigation Areas IBRD 19763 - Major Rainfed Agricultural Development Zones IBRD 19795 - Land Capabilities 3 0312E  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$225.0 MILLION TO THE KINGDOM OF MOROCCO FOR A SECOND AGRICULTURAL SECTOR ADJUSTMENT LOAN 1. I submit the following report and recommendation on a proposed Loan to the Kingdom of Morocco, for the equivalent of US$225.0 million, in support of the second phase of its five-year program for agricultural sector policy adjustments. This program is described in a Letter of Sector Development Policy, received from the Government in 1987 (Annex IV). The Loan would have a term of 20 years, including 5 years of grace, at the Bank standard variable interest rate. The African Development Bank is also considering a loan in support of this program. PART I - THE ECONOMY 2. An Economic Report titled "Morocco - Issues for a Medium-Term Structural Adjustment Program" (No. 6608-MOR, dated January 30, 1987) has been distributed to the Executive Directors. Background 3. Morocco has a population of 22 million growing at about 2.4% per annum and a GNP per capita of US$580 in 1986. Less than one-half of the population is urbanized, though the urban growth rate is twice as fast as that of the rural sector. The economy remains dependent on primary production for subsistence and exports. Morocco has the world's largest easily accessible phosphate reserves, so that phosphates and derivatives are major sources of value added and foreign exchange. About 44% of the labor force is engaged in agriculture, which generates 18% of value added in the economy. The agricultural potential is considerable: yields could be greatly increased by applying better techniques of cutltivation, particularly in fertile rainfed areas. The extensive coastline on both the Mediterranean and especially the Atlantic offers considerable fishery resources that are only partly exploited to date. 4. During the 1970s Morocco implemented ambitious investment programs. It was able to finance them initially through terms of trade gains due to a sharp rise in the price of phosphates that coincided with the 1973 rise in petroleum prices. When phosphate prices fell in 1975-76, Morocco resorted increasingly to external borrowing, grants and public sector deficits. In 1975 the country also asserted its claim to the then Spanish Sahara, which entailed heavy economic and military expenditures. The second oil price rise 303 1 E  - 2 - in 1979-80, a further fall in phosphate prices, and rising interest rates on foreign debt all militated in favor of intensifying stabilization efforts to absorb the combined impact of these external shocks on the economy. However, the investment program of the 1981-85 Plan exceeded available resources by a large amount and set the stage for a major retrenchment. The ensuing economic downturn was exacerbated by severe droughts during this period. 5. Morocco's growth performance reflects the effects of the imbalances and reveals some of the weaknesses underlying the economy. After a spurt of fast growth at an annual average of 7.5% during 1973-77, real GDP growth has averaged 3.6% p.a. between 1983 and 1986, and has been heavily influenced by climatic conditions. Economic growth increased to an estimated 5.8Z in 1986, which was largely due to the agricultural sector where, after stagnating during 1983/84, value added grew at an annual rate of about 17% in 1985-86 due to exceptionally good rains. Industrial growth recovered in a number of sectors as the result of export demand and higher agricultural incomes, though depressed international markets for phosphate derivatives slowed growth in the chemical and fertilizer sectors. Export volumes and tourist receipts increased considerably due in part to judicious exchange rate management, but weak prices (in dollar terms), particularly for phosphates, kept the increase in total earnings modest. After declining sharply in 1983 as a result of major cutbacks in Government investment activity, the construction sector grew again on the basis of resurgent private sector demand. This has been encouraged by favorable tax treatment, high demand for housing supported by growing workers' remittances, and continued private sector industrial investment, largely in export-oriented industries. Growth in the service sectors was less buoyant. Stabiization and Adjustment 6. In 1983, Morocco could no longer finance its external deficits and recognized the need to embark on a serious stabilization and adjustment program. The Government requested increased assistance from the IMF and the World Bank. On the basis of a SDR 200 million IMF stand-by program for the period of September 1983 to February 1985, Morocco obtained debt reschedulings from the Paris Club of US$1,350 million and from the London Club of US$630 million for the same period. The Bank has provided sector adjustrent loans totalling US$600 million in support of the program during 1984-86. The Government's structural adjustment program aims at increasing the productive efficiency and competitiveness of the economy. It includes measures of trade liberalization, export promotion, and sector reforms in agriculture, education, and public enterprises. Key elements of the stabilization program are: i) a fiscal reform which introduced a value added tax and aimed at improved revenue collection of existing taxes, ii) limits on the growth of the civil service and public sector salaries, iii) major cuts in the public investment program and reduction of consumer subsidies (prices on subsidized goods were raised by 20-40%), iv) increases in public enterprise tariffs, limits on credit to the economy and annual limits on external borrowing, and v) devaluation of the dirham. 7. As a result oE these programs, both external and domestic imbalances have been reduced. The deficits of the central Government budget and of the balance of payments current account have been brought down to an estimated 5.3 percent and 1.5% of GDP (after debt relief), respectively, in 1986. A new stand-by of SDR 230 million for December 1986 to March 1988 is now in effect. The main elements of the stabilization effort continue to be severe 303 1 E  restraint in Government investment and consumption, price increases to reduce consumer subsidies, limits on civil service growth and salaries, reductions in Government arrears, ceilings on credit to the economy and on non-concessional external borrowing. The current stand-by aims to reduce the overall budget deficit to 6.67 of GDP in 1966 and 4.3% of GDP in 1987 (on a commitment basis), and the current account deficit to 1.5% of GDP in 1986 and somewhat less in 1987. The program allows for an increase in the 1987 deficit of about 0.7% of GDP if additional concessional financing can be found for supplemental productive investments. Efforts to attract such funds have had limited success so far. The 1986 targets have largely been met. 8. In spite of these achievements, Morocco continues to face serious adjustment problems, primarily related to resource mobilization problems domestically and externally. The country embarked on the adjustment program with an exceptionally high debt/GDP ratio (including IMF) which remains at 106X in 1986. The debt service ratio is expected to remain about 60% during 1989-92 without further debt rescheduling. Virtually no new loans have been made by private banks without guarantees by creditor country governments, with the result that Morocco's liquidity position remains precarious. Reserves arc~ negligible and substantial external arrears have accumulated. The significant reduction of the budget deficit has been achieved through a decline in public investment expenditures to very low levels and a large build up of arrears by the Government in both capital and current expenditures. Revenues have declined slightly in relation to GDP. The low level of public investment expeneitures is jeopardizing Morocco's growth prospects for the medium-term, and the payment arrears have resulted in liquidity problems for the private sector. Insufficient investment funds and the persistence of domestic and external payment arrears seriously hamper the implementation of the Government's reform programs. Structural Adjustment Policies 9. The initial emphasis of the Government's liberalization program was on making the economy more export-oriented and increasing its productivity. In addition to depreciating the Dirham by about 18% in real terms since 1983, a series of measures were taken extending and improving the temporary import admissions scheme, removing virtually all export licensinxg requirements, dismantling the state monopoly on fruit and vegetable exports, and initiating a process of simplifying and clarifying export procedures. One of the primary means of improving economic productivity has been through reducing price distortions. Rationalization of the structure of protection has begun: tariffs have been reduced from levels as high as 4007 on some items, to a maximum of 45% and import taxes have been reduced or eliminated, import bans have been removed and most quantitative restrictions dropped. The effect of distortions on the price of capital has shrunk markedly through the freeing of all but a few interest rates, which are now at positive real levels, and removing much of the reduction in the cost of capital due to incentive schemes. There has also been widespread price liberalization of tradeable goods. 10. In conjunction with the efforts to stabilize the economy the Government began to implement a program of sector policy adjustments in 1984. Agricultural subsidies on fertilizers have been reduced by 40 percent, water charges were increased and the private sector was allowed to enter into fertilizer distribution and seed production-activities until then reserved to the state. The Government is also implementing an education reform spreading  -4- primary education in rural areas and increasing female participation, while reducing the overemphasis on higher education. 11. The initial results of these reforms have been encouraging. Growth of non-phosphate manufactured exports, tourism and worker's remittances have accelerated, whiLe imports have declined in real terms. The use of temporary import admissions has shot up and a recent survey shows that exporters are both investing and using capacity more intensively than before. The Government has decided to continue its adjustment and stabilization programs, and the Bank and the IMF are supporting these efforts with financial and technical assistance. 12. The process of trade liberalization and export promotion needs to be continued and extended. First, most remaining quantitative restrictions should be replaced by tariffs. At present they still apply to goods whose local production accounts for 54Z of industuial production and virtually all agriculture. In special cases, notably steel and vehicle assembly, tariffs equivalent to the protection by quantitative restrictions may be initially applied and then progressiveLy reduced giving time for necessary restructuring of the sectors. Second, the tariff reforms already started should be carried further with the objective of limiting protection to at most 25% and of reaching a standardized minimum with no exemptions other than temporary import admissions for export industries. Taxes on imports should be integrated into one single customs duty. 13. Third, simplification of procedures affecting imports and exports should continue. The Government has created a committee for that purpose, with representation from all concerned parties, and is obtaining technical assistance for it. Fourth, a system and procedures for countervailing duties to protect domestic producers, particularly in the agricultural sector, from dumping need to be defined. The Government's pricing reforms for agriculture are based on the use of realistic prices for the major crops and shielding local production from distortions caused Jy subsidized sales of surplus stocks by foreign producers. Fifth, the exchange rate needs to be kept under review to ensure that the real price of tradables supports efficient import- substitution and promotes rapid growth of agricultural and manufactured exports. 14. The need for a markedly higher level of domestic resource mobilization is evident from the Government's deficits and accumulated arrears, the low levels of public investment, and shortages of local counterpart funds for externally financed projects. Meeting the medium-term growth objective of 4-52 per annum will require a sharp increase in the level of national savings. 15. Greater public savings should arise from a reduction in current expenditures, in keeping with the intention of the Government to decrease its share in overall economic activity. Structural measures are also being identified to correct the basic weaknesses in the tax structure and improve the buoyancy of the fiscal system. Revenue losses linked to liberalization- induced reductions in the level of trade taxes would need to be offset by a combination of cuts in public expenditures and higher yields from other domestic taxes. Suitable measures would include broadening the base of the VAT, reducing tax exemptions, modernizing the system of excise taxes and improving the efficiency of tax administration. 303 X E  16. As a proportion of GDP, total Government expenditures (excluding interest payments) decreased by 10.6 percentage points between 1982 and 1986, mainly through sharp cuts in the investment budget. Personnel expenditures constitute the main cost in the recurrent budget, having risen from 8.5% of GDP in 1970 to 16% in the early eighties, and now are around 11% of GDP. The number of civil servants in 1986 is bO4,000, compared to 584,000 in 1984 and 278,000 in 1970. To date, restriction of personnel costs has been achieved by limiting salary increases to the lower end of the scale, and this has now reached its limits ar the purchasinig power of the civil service has declined over the past three years. With the assistance ot the Bank and the IMF, the Government has begun Lo address these problems. 17. Substantial changes have been made in the last couple of years to loosen or remove constraints to mobilize private sector savings and allocate resources Lo the most profitable uses. Apart from the relaxation of interest rates, measures taken include adjustment of credit ceilings so as to give banks an incentive to mobilize savings, the greater use of rediscounting and sale of Treasury bills to the public as means of developing money markets, and the partial passing on of foreign exchange risk to final borrowers. Over the medium term, the financial sector's effectiveness will be increased mainly by increasing competition and diversifying its financial instruments. To achieve this, several of the remaining restrictions on interest rates could be removed and the commission structure of the banks made more flexible. Other obstacles to competition arising from legislation or market structure should be Ji;ntified with a view to removing them. The bond market should be developed by greater use by the Treasury and public enterprises of negotiable bonds, and the stock market should be expanded and made more active. Foreign exchange risk should ultimately be borne entirely by financial institutions and final borrowers as they gain experience in handling it. 18. A significant part of Morocco's current economic problems stem from deficiencies in the planning, allocation, and management of public sector resources. The Government has begun to address these problems by improving planning, budgeting and monitoring of public investments through a better classification of expenditure items, stronger links between the Ministries of Finance and Plan, and computerization of the budgeting process. The guideLines for project evaluation, including the use of shadow prices and minimum requirements for public sector projects, are being strengthened and applied more rigorously. A new Five Year Plan 1988-92, which is expected to provide an indicative macroeconomic framework for the Government's policy decisions, is currently under preparation. 19. Although idministrative controls over economic activity have been considerably reduced in recent years, the Government recognizes that the state's economic role needs further redefinition. One declared objective of the Government is to disengage from commercial activities, and a program for divestiture of some public enterprises is being prepared on a case by case basis. Public sector enterprises account for about 20% of GDP and a much higher proportion of the corporate sector value added in the economy. The Government intends to eliminate all operating subsidies through price adjustments and, if necessary, through sectoral or enterprise restructuring. It would limit its financing for public service enterprises to equity and would not provide assistance to public enterprises able to raise funds on the capital market. At the same time the Government has started to restructure its relations with enterprises which remain in the public sector with a view 303 1 E  -6- to inducing greater efficiency through appropriate definition of responsibilities and performance objectives. The Bank is assisting the Government with a sector adjustment program for Public Enterprises. 20. The Government is committed to mitigating the hardship to the poor caused by the present economic difficulties. The design of an effective compensatory system has become an urgent issue since the Government plans to eliminate food subsidies by 1990. Its policy consists of a combination of two approaches. One would use the existing special agencies, which have functioned well and are precise in their targeting, to deliver nutritional assistance for specific groups such as school children, nursing mothers, etc. The other would use "inferior good" varieties with lower consumer appeal that could be subsidized at the production/ processing stage and commercializuid without attracting strong demand from the not-so-poor. Economic Projections 21. Morocco should be able to achieve an economic growth rate of about 4 to 5% per annum between 1988 and 1992, provided adjustment continues and external support is received. This level of GDP growth would permit real growth of consumption per capita of I to 22 p.a. Investment would rise from an average of 20.22 of GDP during 1985-86 to 21.5% during 1988-92. The marginal savings rate would be about 331 for the rest of the decade, which would enable gross domestic savings to rise from 12.2% of GDP in 1985 to 19.4% on average during 1988-92. There would be a significant shift in the composition of savings and investment, with the private sector generating 10.31 of GDP in savings and 12.7% in investments by 1990. The Government contribution to savings and investment would be 4.61 and 4.1% of GDP, respectively. Exports would grow at 5.6% p.a. until 1990 and at 5.7% p.a. thereafter. and there would be more import capacity to support a larger investment program and faster growth of GDP. Currently manufactured exports account for 20.0X of total exports, up from 12.01 in 1980. They would expand to about 221 by 1990 and 261 by 1995. 22. The current account should move into balance and even begin to show a small surplus in the early or mid-1990s as the adjustment program is implemented. This will allow Morocco to eliminate external arrears, build up reserves, and begin reaching more favorable debt/CDP ratios. At the same time efforts will be needed to permit Morocco to improve the structure of its external debt. Gross capital requirements in 1986-88 would average US$2.5 billion per year. Based on preliminary estimates, more than half of this would be covered by debt relief. The rest should be obtained through medium- and long-term capital inflows of nearly US$1 billion a year, assuming new official loan commitments of around US$800 million per year are forthcoming. From 1989-1991, even with a continuous improvement in the current account balance, gross capital requirements would still average atout US$2.1 billion a year, including financing gaps of around US$600 million. These gaps will have to be covered through additional borrowing. 23. In view of the continuing large capital inflows required in the next few years, the long-term external debt outstanding and disbursed would continue to rise until 1992, but would begin to stabilize thereafter. In the absence of debt rescheduling, the long-term debt service ratio would have risen to 56 and 72% of exports of goods and services (including workers'remittances) in 1985 30 3 1 E  -7- and 1986, respectively. With debt relief obtained for the period 1985-87, on the other hand, the debt service ratio will be kept at about 25% in 1987, and further rescheduling will be required to keep it at this level. PART U - OTHER BANK GROUP OPERATIONS IN MOROCCO 24. World Bank lending to Morocco, in support of 88 projects, has totalled US$3,592.7 million (net of cancellations) of which US$25 million were from a third window loan. US$2,954.0 million are currently outstanding, of which US$1,599.5 million are disbursed.-L These figures include IDA credits, totalling US$45.2 million, which were made available for five projects until 1975. Total IFC investments amount to US$94.5 million in 12 operations (US$90.4 million after cancellations, terminations, repayments and sales). 25. In recent years, project implementation experience has been mixed. While technical and management constraints within many project entities have been overcome, shortages of budget funds have hampered the performance of those entities which rely on the Government budget for part of their project financial requirements. Insufficient budgetary provisions pertain both to investment and current Government expenditures. Combined with rigidities in pricing policy, these shortfalls have contributed to disappointing financial performance of project entities through a build-up of arrears to private contractors and to public enterprises. Disbursement results have largely reflected the above conditions, as well as the fact that for much of the period 1984-86, appreciation of the Dollar vis-a-vis the Dirham reduced project costs and therefore reimbursable expenditures in dollar terms. To allev