Morocco - Policy Reform Support Loan Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 20706 IMPLEMENTATION COMPLETION REPORT (SCL-44830) ON A LOAN IN THE AMOUNT OF US$ 250 MILLION EQUIVALENT TO THE KINGDOM OF MOROCCO FOR A POLICY REFORM SUPPORT LOAN (PRSL) December 21, 2000 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.  CURRENCY EQUIVALENTS (Exchange Rate Effective June 2000) Currency Unit = Dirham (DH) DH = US$ US$ 1.00 = DH 9.712 FISCAL YEAR July 1 June 30 ABBREVIATIONS AND ACRONYMS ADB African Development Bank ADS Agence de D&eeloppement Social BAJ Barnamaj alAoulaouiyat alljtimalya (Social Priorities Program) BCP Banque Centrale Populaire BNDE Banque Nationale pour le Developpement Economique CAS Country Assistance Strategy CCG Caisse Centrale de Garantie CDM Charbonnages du Maroc CNCA Caisse Nationale de Credit Agricole DH Dirham EN Entraide Nationale EU European Union FDI Foreign Direct Investment GDP Gross Domestic Product lAM Itissalat al-Maghreb (Public Telephone Company) IBRD Intemational Bank for Reconstruction and Development IMF International Monetary Fund INEJ Institut National des Etudes Judiciaires NGO Non-Government Organizations ODEP Office d'Exploitation des Ports ODI Office de Developpement Industriel OFPPT Office de la Formation Professionelle et de la Promotion du Travail ONCF Office National des Chemins de Fer ONDA Office National des Aeroports ONE Office National de lElectricite ONEP Office National de l'Eau Potable ONT Office National du Transport PAGER Programme d'Approvisionnement Groupe en Eau Potable des Populations Rurales PBG Pacte de Bonne Gestion PERG Programme d'Electrification Rurale Global PHRD Policy and Human Resources Development PN Promotion Nationale PNCRR Programme National de Construction des Routes Rurales PPI Private Participation in Infrastructure PRSL Policy Reform Support Loan PSA Private Sector Assessment RAM Royal Air Maroc SAL Structural Adjustment Loan SEFERIF Societe d'Exploitation des Mines du Rif TPI-SAL Telecommunications, Post and Information Technology Sector Adjustment Loan WTO World Trade Organization Vice President: Jean-Louis Sarbib Country Manager/Director: Mustapha Nabli Task Team Leader: Ali Khadr Team Leader at ICR: Amine Khene  FOR OFFICIAL USE ONLY CONTENTS Page No. 1. Project Data I 2. Principal Perfornance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 1 4. Achievement of Objective and Outputs 5 5. Major Factors Affecting Implementation and Outcome 10 6. Sustainability 10 7. Bank and Borrower Performance 11 8. Lessons Learned 12 9. Partner Comments 13 10. Additional Information 13 Annex 1. Key Performance Indicators/Log Frame Matrix 14 Annex 2. Project Costs and Financing 15 Annex 3. Economic Costs and Benefits 17 Annex 4. Bank Inputs 18 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 19 Annex 6. Ratings of Bank and Borrower Performance 20 Annex 7. List of Supporting Documents 21 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.   Project ID P058356 Project Name: POLICY REFORM SUPPOR Team Leader: Ali Mahmoud Khadr TL Unit: LCC3C ICR Type Core ICR Report DatE December 19, 2000 1. Project Data Name POLICY REFORM SUPPOR L/C/TF Number: SCL-44830 Countr Departmen: MOROCCO Region: Middle East and North Africa Region Sector/subsecto. ME - Economic Management KEY DATES Original Revised/Actual PCD: 08/03/1998 Effective: 06/18/99 06/18/99 Appraisal: 10/23/1999 MTR: 11/11/99 11/11/99 Approval: 06/01/1999 Closing: 12/31/99 12/31/99 Borrower/lImplementing Agenc: Other Partners: STAFF Current At Appraisal Vice President: Jean-Louis Sarbib Kemal Dervis Country Manage: Christian Delvoie Christian Delvoie Sector Manager: Mustapha Kamel Nabli John Page Team Leader at ICR: Amine Khene ICR Primary Author: Amine Khene 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: U Sustainability: UN Institutional Development Impact: M Bank Performance: U Borrower Performance: U OAC (if available) ICR Quality at Entr: Project at Risk at Any Time: 3. Assessment of Development Objective and Design, and of Quality at Entry 3. X Originc Objective: In the context of the economic and political liberalization taking place in Morocco, the new center-left alternance governrment, formed in early 1998 by a seven-party coalition, turned to the Bank for support in defining and leveraging a broad-based reform agenda. To this effect, the govermment requested a new approach to Bank assistance, based on credible prior action rather than forward-looking conditionality.  Acknowledging Morocco's track record of solid economic management and the Government's commitment to future reform, and determined to show up-front support for Morocco at a crucial juncture of its democratization process, the Bank responded positively and swiffly to the government's request, sending an important signal to the investor community that political opening and economic reform go hand-in-hand in Morocco. The specific lending instrument was a Policy Reform Support Loan (PRSL), a single-tranche operation, envisioned as the first sequence of a multi-year program of the Bank in support of the alternance government reform agenda. An outcome of the intensive dialogue between the government of Morocco (GOM) and the Bank, the PRSL had the objective of advancing the government's broad-based economic and social reform program which was designed to accelerate GDP and employment growth, and to increase access to basic services and reduce poverty. Under this program, the government gave a public commitment to pursue sound economic management, initiate public sector reform, encourage private sector development, and address the country's social development agenda. 3.2 Revise, Objective: Project objective was not revised. 3.: Origina Components: To achieve its overall objective, the PRSL envisioned various objectives and actions in the areas of macroeconomic management, public sector reform, private sector development, and social sector reform. Macroeconomic Management The objectives under this component were to maintain a consistent macroeconomic policy framework, consolidate macroeconomic balances, and increase medium-term GDP growth to 6 percent in order to reduce unemployment. The budgetary policy stance aimed to achieve a gradual reduction in the deficit, from 3.5 percent of GDP in FY 97/98 to around 2 percent of GDP by FY 01/02. This component also included preparation of measures during FY 98/99, to be implemented in subsequent budgets, in order to ensure a sustainable increase in budgetary savings. These measures included: (i) tax measures (per IMF recommendations); and (ii) measures to reduce the govermment wage bill by at least two percentage points of GDP by FY 03/04. Public Sector Reform The PRSL targeted three areas critical for public sector reform: (i) budgetary institutions; (ii) the civil service; and (iii) the judiciary. 1) Budgetary institutions For budget preparation, the objectives were to: (i) put in place institutional arrangements for annual budget preparation in order to ensure better medium-term strategic prioritization of public expenditures against a - 2 -  backdrop of fiscal discipline; and (ii) prepare annual budgets on the basis of a medium-term framework, to be detailed in the five-year Plan. For budget execution, the objectives were to: (i) achieve more transparent and streamlined management of expenditures and procurement, in order to foster more efficient and effective use of resources at the ministry/agency level; and (ii) ensure full implementation of the action plan designed to streamline budget execution (prepared under the BAJ project on the basis of prior diagnostic studies). 2) Civil service and administrative reform The objective was to define and implement a broad-ranging civil service reform program to ensure a progressive reduction of the central government wage bill (as a share of expenditure and of GDP) while maintaining service delivery levels and improving their quality. The project was designed to begin the process of addressing impediments to staff mobility across and within departments, excessive centralization of decision-making authority, poor enforcement of ethical standards, inadequate or non-existent service standards, complexity of remuneration structures, and poor links between performance and advancement. 3) Judicial reform The objectives were to: (i) enhance capacity to handle commercial litigation through the development of a network of specialized commercial courts and promote arbitration as an altemative mechanism for commercial dispute resolution; (ii) restructure Ministry of Justice to provide for more streamlined decision-making and improved service delivery, including the establishment of a new unit for user feedback; (iii) improve incentives and conditions (including issues relating to remuneration, career development, training, and professional status and ethics) in order to promote better performance and service delivery among court staff; (iv) improve professional standards and training for judges, notably through a comprehensive restructuring of INEJ to ensure greater managerial and financial autonomy, curriculum overhaul, and greater interaction with the business environment; and (v) develop and sustain a participatory approach to legal and judicial reform through partnership with all legal professions. Private Sector Development The PRSL targeted four areas critical to successful private sector development: (i) public enterprise reform and privatization; (ii) demonopolization and private participation in infrastructure; (iii) an improved business environment; and (iv) access to finance. 1) Public enterprise reform and privatization The objectives were to: (i) implement a comprehensive public enterprise reform and privatization program within the tenure of the alternance government; (ii) liquidate non-viable state-owned commercial ventures (beginning with two mining enterprises which constituted a significant part of the portfolio of non-viable enterprises) with an adequate provision for safety net measures and a settling of financial liabilities; (iii) revise the legal framework for transfer of state-owned commercial ventures to the private sector; (iv) accelerate sale of residual portfolio of state-owned enterprises previously targeted for privatization; and (v) initiate the sale of other enterprises not previously earmarked. -3 -  2) Demonopolization and private participation in infrastructure The objectives were to: (i) ensure that the legal, regulatory, and institutional framework encourages competition and efficient private participation in infrastructure; (ii) define and implement specific policy measures to encourage greater competition in the provision of energy services; and (iii) define and implement specific policy measures to encourage greater competition in the provision of transport services and improved intermodal transport. 3) Business environment The objectives were to: (i) establish a legal framework providing for greater transparency of customs valuation procedures, and further streamline customs clearance procedures and reduce delays; (ii) put in place a legal framework to foster competitive business practices, including a progressive substantial reduction in the scope of remaining price controls; and (iii) streamline procedures for the establishment and registration of private businesses and their assets. 4) Access to finance The objectives were to: (i) ensure the future financial viability and efficiency of state-owned financial institutions to improve allocation of resources and financing to the economy; and (ii) provide a legal basis for the efficient functioning of the micro-credit market, to increase access to finance of small and medium sized enterprises. Social Sector Reform PRSL targeted six areas critical to successful reform in the social sectors: (i) poverty reduction and social assistance; (ii) community development; (iii) basic infrastructure in rural areas; (iv) education; (v) adult literacy; and (vi) health. 1) Poverty reduction and social assistance The objectives were to: (i) prepare and start implementing a detailed action plan to increase access of the poor, particularly in rural areas, to basic social and infrastructure services; (ii) implement a comprehensive restructuring of Entraide Nationale (EN) to ensure more effective and efficient delivery of services notably through restraining the EN's role to the identification of needy groups, coordinating assistance and ensuring monitoring and evaluation; and (iii) strengthen existing safety nets mechanisms. 2) Community development The objective was to put in place a publicly funded mechanism to support low-income community development initiatives, using participatory methods of project identification and implementation and drawing on the capacity of NGOs. 3) Basic infrastructure in rural areas In support of the continued efforts under way in this field, the objectives were to: (i) increase access to potable water in rural areas from about 37% of the population in 1998 to 53 percent of the population in 2002; (ii) extend road access in rural areas to 58 percent of the population in 2003, compared with around 40 percent in 1998; and (iii) increase household access to electricity in rural areas under the normal - 4 -  electricity supply (PERG) program to 43 percent of the population by 2003. 4) Education The objective was to achieve universal enrollment of children 6 to 11 years old in basic education by 2002, with special concentration on rural areas, without significantly increasing overall education expenditures, notably through redeployment of under-utilized staff resources at the secondary level. 5) Adult literacy The objective was to put in place a flexible, publicly funded mechanism to support adult literacy programs through, inter alia, NGO programs and professional associations with the objective of increasing the effectiveness of adult literacy programs. 6) Health The objectives were to: (i) increase basic healthcare services in rural areas; (ii) ensure greater cost-effectiveness in the provision of healthcare services and pharmaceuticals; (iii) extend access to health insurance coverage, particularly for the poor and vulnerable; (iv) improve efficiency in hospital and healthcare management; and (v) decentralize decision-making authority. 3.4 Revise. Components: Project components were not revised. 3. ' Quality at Entry: The project was not selected for a quality at entry assessment by the Bank's Quality Assurance Group. 4. Achievement of Objective and Outputs 4. Outcome/achievement of oljective: The project achieved important results during its first year of implementation. The Bank's upfront support of the alternance government's reform program reinforced its credibility. In this respect, it is important to note that the African Development Bank (ADB) approved a parallel two-tranche policy-based lending operation in the amount of US$200 million. The PRSL supported the government in defining and leveraging a broad-based reform program, achieving policymaking coherence among the coalition members, and reinforcing the discipline of the policymaking process across various government entities. To signify its commitment to reform and transparency, the govermment publicized its Letter of Development Policy (LDP)- a detailed presentation of its economic and social reform program based on the Government's inaugural policy statement of April 17, 1998. The government made a significant effort to enforce policymaking discipline across ministries and agencies, and to build consensus for reform among the various stakeholders. Shortly after assuming office, the government took steps to contain an otherwise widening deficit for the 1997/98 fiscal year to 3.5 percent of GDP. Its 1998/99 budget, approved by Parliament in July 1998, provided for a similar deficit level. Sound management measures (see 4.2) were also initially taken in the areas of public sector reform, private - 5 -  sector development, and social reform. These measures helped to create significant consensus for the reforms. Then, in the sunmmer of 1999, at the time of PRSL presentation to the Board, Morocco was suddenly confronted with important economic and political challenges. In July 1999, after a 38-year reign, His Majesty King Hassan II died. And, because of severe drought, 1999 turned out to be a very bad agricultural year. In this context, and given the significantly looser extemal financial constraint as a result of large telecom privatization inflows, the Government decided to relax fiscal discipline (see 4.2) in order to enhance social stability. This weakened the momentum of the PRSL operation. The PRSL performance was also negatively affected by the limitations of project design. The PRSL was originally designed as the first in a series of similar operations over a three to five-year period. However, since the PRSL had not been discussed in the context of the Country Assistance Strategy (the CAS was due in 2000), the Board did not fully endorse the PRSL's programmatic lending approach. Hence, amid the complex circumstances of the simultaneous economic and political transition taking place in Morocco, the operation, lacking a strong programmatic lending rationale, achieved important initial results that were not implemented or followed through in a consistent manner. Implementation and follow-up of the PRSL measures proved to be generally difficult and slow, and lagged behind in some crucial areas, notably administrative and civil service reform. As a result, and even though the project achieved important objectives, its overall outcome is assessed as marginally unsatisfactory. 4. Outputs by components: Macroeconomic Management Government's macroeconomic policies were generally consistent with the PRSL framework during the year following its adoption. In 1998/99, budget deficit was brought down to 2.5 percent of GDP from 3.4 percent of GDP the previous fiscal year, despite a disappointing growth performance due notably to a bad agricultural year and deterioration of the economy's extemal competitiveness as reflected by the real appreciation of the Dirham. However, the transitional six-month budget law for 2000, before Morocco returns to calendar fiscal years in January 2001, marks a clear departure from the PRSL framework: (i) the budget deficit is expected to jump to 9.7 percent of GDP (compared to the PRSL objective of 2 percent in 2002) while the wage bill is expected to rise to 12.8 percent of GDP (compared to the PRSL objective of 10.5 percent in 2001); and (ii) budgetary savings are expected to be negative at -1.2 percent of GDP, compared to the PRSL objective of 3.6 percent in 2001. If these projections are accurate, the PRSL macroeconomic framework will cease to be relevant. In fact, the reversal of such trends seems very unlikely, particularly in the absence of a comprehensive administrative and civil service reform. Public Sector Reform In the area of public sector reform, with the exception of judicial reform, implementation of the PRSL proved to be particularly difficult and slow. - 6 -  1) Budgetary institutions With the exception of the 1999 organic budget law, which significantly reduced the number of special accounts and annex budgets, and of the procurement decree, the reforms designed to establish a medium-term public expenditure and associated macroeconomic framework have remained at an early stage of implementation (e.g., studies). This is also true for measures intended to improve the expenditure management process (from ex ante authorization requirements to effective payment of suppliers). Specifically, the Gestion integr&e de la d6pense (GID) study has been considerably delayed, and the findings and recommendations of the Normalisation des depenses publiques study are still not known. 2) Civil service reform Little progress has been achieved in the crucial area of administrative and civil service reform. Government policies have fallen short of containing the wage bill, promoting administrative decentralization, easing restriction on mobility of personnel, fostering better client relations, improving services to citizens, and overhauling incentives for Government employees. The Government's wage bill has not been reduced or contained. With respect to administrative decentralization, the Government has not yet approved the Charte de Deconcentration. With respect to client orientation, the Government has approved a Good Management Compact (Pacte de Bonne Gestion), but most of its principles and guidelines have yet to be translated into concrete measures and actions. 3) Judicial reform In the area ofjudicial reform, implementation of PRSL measures has been fully satisfactory. The government has: (i) enhanced the capacity of the specialized commercial courts to handle commercial litigation; (ii) restructured the Ministry of Justice to provide for more streamlined decision-making and improved service delivery; (iii) improved incentives and conditions to promote better performance and service delivery among court staff; (iv) improved professional standards and training for judges; and (v) developed a participatory approach to legal and judicial reform through partnership with the legal professions. Private Sector Development Although implementation has been uneven, some significant progress has been achieved in the area of private sector development. 1) Public enterprise reform and privatization The government has taken steps to strengthen govemance and performance of the enterprises remaining in the public sector; transfer in a transparent manner the majority of the remaining portfolio of public enterprises to the private sector, including IAM and RAM; and liquidate nonviable enterprises such as CDM and SEFERIF. 2) Private participation in infrastructure Parliament has approved a long-awaited law abolishing the monopoly of ONT on road freight, although the abolition is deferred for two years and ONT's regulatory functions have not been clearly separated from its commercial activities. The government has initiated a study of options for increasing competition in the -7 -  energy sector. It has also initiated work on a strategy for increasing competition and private provision in rail, air, road and maritime transport services. 3) The business environment The government has initiated a major customs reform. It approved a new customs code and was successful in reducing the average time required for customs clearance to less than one day (compared to two days in 1998). With Parliament's approval of a new competition law, the government has put in place a legal framework to foster competitive business practices, including a progressive substantial reduction in the scope of remaining price controls. It has also approved a single agency for the registry of intellectual property rights in the industrial and commercial sectors. 4) Access to finance Important steps are being taken to ensure the financial viability and efficiency of state-owned financial institutions such as CNCA, CIH, CCG, and BCP. However, Parliament still has not approved the draft legislation that transforms CNCA into a joint stock company. In order to provide legal basis for efficient functioning of the micro-credit market, a law facilitating nicrolending activities has been promulgated. Social Reforms With the exception of significant progress in the area of rural basic infrastructure, implementation has generally been difficult in the social sectors. 1) Poverty reduction and Social assistance The Government has prepared an action plan to increase access of the poor, particularly in rural areas, to basic social and infrastructure services. It has also prepared a document detailing the Entraide Nationale long-term development strategy, and started to implement a restructuring program for EN through: (i) the selection of provinces in which to begin implementing the restructuring program on a pilot basis; and (ii) an assessment of EN's vocational training and transfer of trainees to OFPPT programs. No information is available regarding the review of the necessary changes in EN's legal status, to be introduced in accordance with the restructuring program. 2) Commnunity development The government has initiated work on institutional arrangements to ensure operational autonomy of the Social Development Fund (ADS). Parliament has approved the law creating ADS, but the government has not yet appointed its Director General. 3) Basic infrastructure in rural areas The government should be credited with two important decisions : (i) the 50 percent increase in budget allocations to rural infrastructure programs, and (ii) the adoption of a long-delayed water surcharge on the upper tranches of urban consumers to increase the pace of the PAGER. As a result, the government has increased access to potable water in rural areas from about 37 percent of the population in 1998 to an estimated 43 percent in 2000. It has extended road access in rural areas to about 45 percent of the -8-  population in 2000, compared with around 40 percent in 1998. It has also increased douars' access to electricity in rural areas under the rural electricity supply program (PERG) by an average of 5 percent per year. 4) Education The government has extended rural schooling facilities through construction of more than 1,500 classrooms in 1998/99. In addition, a major education reform program is currently before Parliament. However, little was achieved with respect to staff mobility and redeployment of personnel. 5) Adult literacy The government has created an adult literacy fund which concluded around fifty agreements, including with NGOs and the private sector. 6) Health No major progress was made in extending health insurance coverage or ensuring affordable and adequate healthcare for low-income households. In February 2000, a national committee chaired by the Prime Minister was established to review this issue and make specific recommendations. The committee has completed its work; however, to date its recommendations have not been made public. The Ministry of Health has carried out a survey to identify the gaps in different categories of personnel in the 14 BAJ provinces. Ministry of Health made sustained efforts to allocate annually around 50 percent of personnel new positions to BAJ provinces. A decree has been enacted introducing user charges for services rendered by hospitals and other healthcare establishments under Ministry of Health control; this decree and will serve as a basis for future hospital management reform. Standardized bulk purchase procedure for pharmaceuticals has been adopted and purchases are being made according to the new procedure. Finally, national health accounts are about to be completed. 4.3 Net Present Value/Economic rate of return: Not applicable. 4.4 Financial rate of return: Not applicable. 4.5 Institutional development imnpact: The Bank strategy for institutional development consisted of using the PRSL operation as a focal point for developing consensus in favor of the reform agenda. The PRSL served as a vehicle for the articulation of a comprehensive short- to medium-term framework for economnic policy and institutional reform, and as a rallying device to help push through the implementation of a first set of measures that were central to this framework. It is important to note, in this connection, that: (i) the PRSL framework (as laid out in LDP) is, to date, the only relatively comprehensive, detailed and coherent economic framework attributable to the government; and (ii) as a vehicle, the PRSL lent impetus for the implementation of some important measures ( road transport liberalization, overhaul of the privatization framework, establishment of a social fund, keeping down the 1998/99 and the 1999/00 budget deficits). -9-  5. Major Factors Affecting Implementation and Outcome 5.] Factors outside the control of government or iinplementing agency: Implementation of the PRSL framework was hindered, at least in part, by two factors outside the control of government: (i) the death of King Hassan II in July 1999 after a 38-year reign; and (ii) persistent drought which led to two successive bad agricultural years. 5.2 Factors generally subject to governzment control: Implementation of the PRSL framework was hindered by three main factors subject to government control: (i) management of the exchange rate, which did not prevent a real appreciation of the dirham, and consequently, a deterioration of the external competitiveness of the Moroccan economy; (ii) lack of determination to push ahead with administrative and civil service reform; and (iii) insufficient consensus-building in favor of the PRSL framework among stakeholders. 5.3 Factors generally subject to inmplementing agency control. Not applicable 5.4 Costs andfinancing: Not applicable 6. Sustainability 6.1 Rationale for sustainability rating. Morocco's past record of very gradual reform implementation suggests that most of the reforms that began under the PRSL will be followed through in the long run. In particular, Morocco's Association Agreement with the European Union should be conducive to a sustained effort aimed at bringing Morocco up to par with its European partners, which will involve implementing many of the reforms agreed upon under the PRSL framework. The Agreement with the EU constitutes a strong incentive for deepening the approach indicated in the PRSL, and in fact has already proven to be a strong incentive for private sector development, particularly in the telecommunications sector. However, there is some question as to the speed and depth of effective reforn implementation. Given the close interlinkages between the four main PRSL areas, the speed and depth of implementation in each is crucial to the success of the overall process. There are particular concerns about the consensus and momentum still needed for reform in the area of administrative and civil service reform, where the current speed and depth of reform implementation are not sufficient to ensure that the PRSL framework can be sustained in the medium-term. 6.2 Transition arrangement to regular operations: Not applicable. 7. Bank and Borrower Performance Bank 7.1 Lending: The preparation of the loan entailed major and rapid resource mobilization on the part of the Bank, and close coordination among the many Bank sectors and multiple Government counterparts involved, as well as with the African Development Bank. It also entailed intensive examination of the Bank experience and lessons leamed from past involvement in Morocco. The loan was processed on a timely schedule. The overall policy reform framework drawn up in the context of the PRSL did not have any inconsistencies, - 10 -  misdiagnoses or similar flaws. However, since it became very unlikely that the PRSL would be followed by similar operations, its design ended up not having the strategic consistency necessary to ensure sustainability of the loan's measures. This negatively affected the overall momentum of the operation. The Bank's performance in lending is assessed as marginally unsatisfactory. 7.2 Supervision. Supervision of the loan was intensive. The method entailed assessment of follow-up to the initial measures taken prior to Board presentation, and, more generally, of what had taken place in relation to the roadmap laid out in the Letter of Development Policy. One minor drawback of the selected monitoring indicators was that they were difficult to update within the short lifespan of the loan. It is to be noted that, given the nature of the loan, all measures agreed upon at negotiations (completed in December 1998) were in fact implemented before Board presentation (June 1999), and that supervision focused largely on the extent of follow-up to these measures and adherence to the broader policy framework laid out in the Letter of Development Policy. The Bank's performance in supervision is assessed as marginally satisfactory. 7.1 Overall Bank performance: In addition to there being no obvious flaws in the policy and reform framework drawn up in the context of the loan, there were no defects in design hindering assessments of implementation. Despite the task team's high level of expertise, and particularly a very effective task team leadership that was able to successfully manage, in difficult circumstances, a complex multi-sector loan and coordinate among the various partners and counterparts involved, and despite the achievement of important objectives, overall Bank performance suffered from the ambiguity of the programmatic lending rationale of the loan. Although at the time of the supervision mission (November 1999), the record of what had been achieved warranted an assessment of marginally satisfactory, the persistent lack of follow-up on these crucial reforms since that time, added to the current fiscal slippage, now warrants a rating of marginally unsatisfactory. Overall Bank performance is assessed as marginally unsatisfactory. Borrower 7.4 Preparation: There was sustained dialogue and close cooperation at the time of preparation between the Bank and the Government. The Government managed to mobilize most relevant governmental entities in favor of the project, and to progress in building the needed consensus with other important stakeholders. Borrower's performance in lending is assessed as marginally satisfactory. 7.' Government implementation performance: Implementation was uneven and slow, most particularly in some areas crucial to the successful implementation of the Govermment's reform agenda such as administrative and civil service reforn. A number of measures, such as the effective creation of ADS, actually depended on follow-up measures that still have not been taken. Government's implementation performance is assessed as marginally unsatisfactory. 7.6 Implementing Agency: Not applicable. - 11 -  7. C)verall Borrowerperformance: After reasonable progress in many areas, despite significant shortcomings in some, the Borrower performance suffered from the lack of follow-up implementation in key structural and institutional reforms. Overall Borrower performance is assessed as marginally unsatisfactory. E Lessons Learned 1. In responding promptly to the request for support by the alternance Government, the Bank made a sound political decision, but may have underestimated the need to build a larger and stronger consensus in favor of the PRSL operation. An improved loan design would have helped ensure better implementation. In this regard: - One option would have been a more explicit, tighter-knit, and more carefully planned programmatic approach in the PRSL. Had this approach been followed to its logical conclusion, two things should have been done: (i) an interim CAS, a CAS update, or a similar instrument should have been prepared and processed in parallel with the operation as a vehicle for seeking Board discussion and approval of the approach; (ii) the loan should have been more explicitly designed as a programmatic loan, with a clearer delineation of successive sequences of measures as triggers for subsequent operations. - Another option (not necessarily mutually exclusive from the preceding) would have been to find a mechanism to build more broad-based consensus over and commitment to the PRSL framework, such as a number of open forums to discuss the PRSL framnework and scope prior to finalizing the operation. However, this would have had to be weighed against the extra time that would have been required, and thus the likely delay in delivering the operation as required. - A third option (again not mutually exclusive) that might have kept implementation more on track would have been follow-up with technical assistance or other projects in key areas, such as civil service reform. That would have added consistency and efficiency to the project through the enhancement of the administration's institutional capacity. This capacity - e.g., in regard to the lengthy and difficult preparation of the Plan, or the difficulty of effectively addressing administrative and civil service reform - should have been improved to enable the new government to prepare and implement a broad economic and social refonn agenda while maintaining a sound macroeconomic framework. - A fourth option would have been to make the PRSL a much more focused instrument, perhaps concentrating the policy and reform agenda supported by the loan squarely on the issue of medium-term fiscal adjustment and institutional and structural reform measures needed to support a broader operation. Incidentally, this was exactly the design envisioned by the Government and the Bank ( in the summer of 1999) for a follow-up "PRSL II". However, this choice would have diminished the impulse actually given to the implementation of a broad-based reform agenda. Trading off breadth for greater depth of coverage may well have resulted in better implementation, but may not necessarily have been more effective from a long-term development perspective. 2. Excessive pressure was exerted on staff in order to meet short deadlines, probably to the detriment of a deeper and more substantive dialogue on the many important issues addressed in the PRSL, as well as, consequently, of better government ownership of its reform agenda. Time (for dialogue and ownership as well as for implementation) is particularly crucial to the success of difficult efforts such as administrative - 12 -  and civil service reform. 3. One lesson to be drawn from the elaboration of the present ICR is that the choice of the Outcome rating is too limited to properly serve the purpose of an objective and fair assessment of the project. Specifically, a "Satisfactory" rating would be excessively positive whereas an "Unsatisfactory" rating would not do justice to a project that achieved important results under the particularly difficult circumstances of a combined economic and political transition. Consequently, our recommendation is to add two new ratings: "Marginally Satisfactory" and "Marginally Unsatisfactory". If such categories were available, this project would have been rated "Marginally Unsatisfactory". 4. Both the Governnent and the Bank would benefit from an open debate on the PRSL. Confronting their perspectives, sharing their views and experiences, assessing together the results of this operation in the context of a public seminar should help draw the best possible lessons for the future and deepen the ongoing dialogue between Morocco and the Bank. 9 Partner Comments (a) Borrower/implementing agency: POLICY REFORM SUPPORT LOAN (PRSL): COMMENTS ON THE IMPLEMENTATION COMPLETION REPORT Page 6:. Macroeconomic Management Paragraph 1: The report emphasizes that in 1998/99, the budget deficit was brought down to 2.5 percent of GDP (from 3.4 percent of GDP the previous fiscal year), despite disappointing growth perfornance. It should be made clear here that the 2.5 percent deficit estimate does not take privatization into account. Also, the word "disappointing" should be replaced by "inadequate." Paragraph 2: The report indicates that the budget deficit is expected to jump to 9.7 percent of GDP, although the PRSL objective is to reduce it to 2 percent in 2002. The wage bill is expected to rise to 12.8 percent of GDP (compared to the PRSL objective of 10.5 percent in 2001), and budgetary savings are expected to be negative at -1.2 percent of GDP (compared to the PRSL objective of 3.6 percent in 2001). As this analysis is limited to the 2000 transitional budget, it does not reflect developments in the macroeconomic framework over the fiscal years of the PRSL implementation process. This is reason enough to eliminate this paragraph, and to emphasize the considerable achievements of the 1999/2000 fiscal period. Although not mentioned in the report, these achievements include reduction of the deficit (0.7 percent with privatization, 2.6 percent without it), and reduction of the wage bill to 12 percent of GDP. Mention should also be made of the projections for the medium term incorporated in the now adopted Economic and Social Development, namely lowering of the deficit to 1.5 percent of GDP in 2004 and reduction of the wage bill to 2 percent of GDP by 2004. Page 7: Budgetary institutions The report notes that the Gestion integree de la depense (GID) study has been considerably delayed, and that the findings and recommendations of the Normalisation des depenses publiques study are - 13 -  still not known. It should be indicated that the GID study is under way. It is to be conducted in four phases, culminating in development and introduction of the GID system in the ministries involved (Infrastructure, Agriculture, Finance, and Health) before being extended to all remaining governnent departnents. The administrative order to begin the research activities forning part of the first phase of the study were issued to the consultant on September 21, 1999, and the draft report on the first phase has been endorsed by the Finance Ministry and the pilot ministries. The Normalisation des depenses publiques study is also under way. Page 8: Access to finance: The report states that Parliament has still not approved the draft legislation converting CNCA into a joint stock company. This measure should be transferred to the CNCA emergency reorganization plan, introduced as a means of ensuring the agency's financial viability. This plan calls in particular for: (i) the capital of this institution to be increased to DH 250 million; (ii) relief measures for debt-distressed farmers; and (iii) conversion of CNCA's legal status to that of corporation with board of directors, supervisory board, and introduction of contractual arrangements for the handling of operations dependent on specific government support. The necessary articles of incorporation have been submitted to Parliament for approval. Restructuring of Entraide Nationale: Implementation of the restructuring program agreed on between the Ministry and the World Bank is going ahead quite satisfactorily. Most of its provisions have been acted on. The agency's Staff Rules and Regulations, which took a year to negotiate, are now complete and are currently going through the process of adoption. Its organization chart is still in the course of negotiation. Social Development Fund: The Director General was appointed in July 2000 and the agency is currently in the set-up phase. Launching of a pilot operational phase is scheduled for early 2001. Page 9: Health: The report states that no major progress was made in extending health insurance coverage or ensuring access to adequate health care for low-income households. The Government has just completed drafting of two framework laws, one on compulsory health insurance (AMO) and one making provision for medical care for the economically disadvantaged (RAMEF). The AMO legislation focuses mainly on civil servants (central government and local governments), individuals who come under current CNSS arrangements, public- and private-sector retirees, self-employed individuals, and members of the liberal professions. The RAMEF legislation provides for total or partial payment of hospital care provided by public hospitals for low-income individuals. Adult literacv: A total of 82 agreements have been signed and are being implemented by NGOs and the private sector. - 14 -  Page 10: Exchange rate appreciation The report asserts that PRSL execution was hampered by exchange rate management which failed to prevent real appreciation of the dirham and a resulting decline in the extemal competitiveness of the Moroccan economy. It is of doubtful relevance to target the analysis here on the instrument of foreign exchange without considering other factors with a greater effect in strengthening the competitiveness of business enterprises - for instance, optimum cost management, outlet diversification, and enhanced productivity. In addition, it would be advisable to round out this report with particulars on the steps Morocco has taken recently in the matter of subsidies. The reference here is to reform of the oilseed subsector, effective November 1, 2000. A key aim of this reform, introduced in conjunction with a liberalization of subsector oil prices, is to bring consumers the benefit of more dynamic management of the equalization fund, aimed at: making a varied range of edible oils available at a price below or equal to the current price; keeping up the income levels of sunflower seed producers; and, by taking advantage of the potential for blends with olive oil, providing an additional outlet for national production of this commodity. The success of this reform requires lowering import duties on oilseeds and crude oils to the minimum rate of 2 percent. Besides enabling the edible oil industry to buy supplies at a lower cost on the intemational market, this will lay the foundations for fair and healthy competition between crushers and refiners. The reform will be accompanied by significant customs protection for refined oils and a lowering of the protection available on oil cake. The result will be a drop in livestock feed prices, and a related drop in the price of animal proteins, particularly poultry. Other support measures guaranteeing the success of the reform will include reimbursing farmers the difference between the current price and the cost price of imported grain. (b) Cqfinanciers: (c) Other partners (NGOs/private sector): 1( Additional Information - 15 -  Annex 1. Key Performance Indicators/Log Frame Matrix Not applicable. - 16 -  Annex 2. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Project Cost By Component US$ million US$ million 250.00 250.00 Total Baseline Cost 250.00 250.00 Total Project Costs 250.00 Total Financing Required 250.00 250.00 Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) Procuremen Methoo. Expenditure Category ICB NCB Otho.2 N.B.F. Total Cost 1. Works 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 2. Goods 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 3. Services 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 4. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Project Costs by Procurement Arrangements (Actual/Latest Estimatel (US$ million equival nt) . Procuremen MethocI Expenditure Category ICB NCB Othe.2 N.B.F. Total Cost 1. Works 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 2. Goods 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 3. Services 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 4. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) - 17-  5. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Figures in parenthesis are the amounts to be financed by th Bank Loar . All costs include contingencies. 2" Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the prqject management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units. Project Financing b: Componen (in US$ million equivalent) Percentage of Appraisal Component Appraisal Estimate Actual/Latest Estimate Bank Govt. CoF. Bank Govt. CoF. Bank Govt. CoF. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - 18 -  Annex 3: Economic Costs and Benefits Not applicable - 19-  Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, I FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 8 economists, S S I counsel, I evaluation officer, 6 private sector devpt spec., I procurement spec., I public sector spec., I population & health spec., 1 investment officer, I financial sector spec. Appraisal/Negotiation 10 economists, S S I evaluation officer, 2 human resources spec., I population & health spec., 3 private sector devpt spec., 2 public sector mgmnt spec., I consultant Supervision 3 economists, S S I population & health spec. ICR I Public Sector Management S S Specialist (b) Staff: Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ (,000) Identification/Preparation 54.0 308.0 Appraisal/Negotiation 30.5 94.0 Supervision 18.2 102.0 ICR 5.0 23.0 Total 107.7 527.0 Total of 527.0 represents the full cost including consultants and travel. - 20 -  Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N-Negligible, NA=Not Applicable) Rating FMacro policies O H O SU * M O N O NA Sector Policies O H OSUOM O N O NA 2 Physical O H OSUOM O N * NA Z Financial O H OSUOM O N * NA N Institutional Development 0 H O SU O M 0 N * NA Z Environmental O H OSUOM O N * NA Social Z Poverty Reduction 0 H O SU O M 0 N * NA 3Gender O H OSUOM O N * NA g Other (Please specify) OH OSUOM O N O NA Rural infrastructure and basic services S Private sector development 0 H O SU * M 0 N 0 NA X Public sector mnanagement 0 H 0 SU * M 0 N 0 NA a Other (Please specify) 0 H O SU O M 0 N 0 NA -21-  Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6.1 Bank performance Rating Z Lending OHS OS *OU OHU * Supervision OHS OS OU OHU * Overall OHS OS * U O HU 6.2 Borrowerperformance Rating Z Preparation OHS OS O u O HU Z Government implementation performance O HS O S 0 U 0 HU El Implementation agency performance O HS O S O U 0 HU Z Overall OHS OS *U O HU - 22 -  Annex M List of Supporting Documents - 23 -