Morocco - Contractual Savings Development Program (CSDP)

Report No. PID5533 Project Name Morocco-Contractual Savings Development Loan (CSDL) (@ Region Middle East and North Africa Sector Finance Project ID MAPE47582 Borrower Kingdom of Morocco Implementing agency Ministry of Finance Contact: Mr. Abdellatif Loudyi Director, Treasury Ministry of Finance, Trade, Industry and Handicraft Avenue Mohammed 5, Rabat, Challah, Morocco tel. (212-7) 76.35.20 fax (212-7) 76.49.50 Date initial PID prepared July 1997 PID update November 1997 Project appraisal date September 6, 1997 Project Board date January 8, 1998 Background 1. The Contractual Savings Development Program (CSDL) represents a continuation of the financial sector reforms that Morocco launched in the late eighties, and that the Bank has supported through previous operations -- notably the Financial Sector Development Project (FSDP) of 1991, and the Financial Market Development Loan (FMDL) of 1995. These operations gradually removed distortions impeding the mobilization of financial savings and their free intermediation; contributed to reducing the crowding out of financial resources by the Government; and improved competition in financial services. This approach has gone a long way toward eliminating major distortions to competition, establishing the market legislative, regulatory and physical infrastructure, and achieving a substantial degree of financial depth, as measured by the ratio of M2 to GDP (an annual average of 65 percent in 1995-96). Morocco has now a healthy commercial banking system and an emerging capital market, both of which are necessary for the development of a modern and productive private sector. 2. Despite these achievements, domestic savings and private investment in Morocco remain below those of countries that have achieved high and sustainable growth. To alleviate this constraint, a reform of the contractual saving sector -- insurance companies, the pension system, and savings banks -- coupled with continued fiscal discipline, is necessary for two major reasons: (a) despite their potential, underdeveloped and ailing insurance sector and pension system contribute to low savings mobilization, particularly  long-term savings; and (b) the Treasury captures a significant share of available long-term savings through its control over major contractual savings institutions, notably the Caisse de D6p