Morocco - Contractual savings development program

 ICRR 10637 Report Number : ICRR10637 ICR Review Operations Evaluation Department 1. Project Data : Date Posted : 06/16/2000 PROJ ID : P047582 OEDID: OEDID : L4340 Appraisal Actual Project Name : Contractual savings US$M ) Project Costs (US$M) 235 279.5 development program Country : Morocco Loan/ US$M ) Loan /Credit (US$M) 100 100 Sector, Major Sect .: Other Finance , US$M ) Cofinancing (US$M) 135 179.5 Finance L/C Number : L4340 FY ) Board Approval (FY) 98 Partners involved : African Development Closing Date 12/31/1998 12/31/1998 Bank Prepared by : Reviewed by : Group Manager : Group : Michael R. Lav Alice Galenson Ruben Lamdany OEDCR 2. Project Objectives and Components a. Objectives The project's main objectives were to improve the accumulation and allocation of long -term savings and improve the allocation of savings to private productive investment by reforming the contractual savings institutions, including insurance companies, savings banks and the pension system, and to guarantee the long-term sustainability of the country's pension system. b. Components Specific policy measures supported by the project included : (a) completing the financial restructuring of the insurance sector, and improving its financial soundness and attractiveness to the public; (b) laying the basis for the improved efficiency, transparency, and financial viability of the existing pension system and for the development of capitalized pension funds; (c) changing the role of the Caisse de Depot et de Gestion (CDG) in the collection, administration and allocation of the financial resources of the pension system and savings banks; and (d) further improving capital market infrastructure and the range of instruments available to institutional investors . c. Comments on Project Cost, Financing and Dates The project comprised one tranche for US$ 100 million equivalent, divided between US$ 50 million and FRF295.1 million, along with parallel financing from the African Development Bank for US$ 179.5 million equivalent. The project was approved in June, 1998 and closed on December 31, 1998. 3. Achievement of Relevant Objectives : Two out of the three main performance indicators of the project (improvement in the ratio of contractual savings to GDP and decreased role of Treasury financing in contractual savings ) were achieved, and the short -term components of the project were largely implemented . By contrast, many of the medium-term project components have not yet been achieved . The main performance indicators were: (a) an improved ratio of contractual savings to GDP (the ratio increased from 2.9% in 1997 to 3.1% in 1998 which exceeded the estimated "target" of 3.0% in 1998, and the estimated ratio of 1999 is 3.5%); (b) decreased role of Treasury financing in contractual savings from 93.5% in 1997 to 49.4% in 1998; and (c) an increase in the ratio of equities and securities to bank credit, which was not achieved as the ratio declined from 59.2% in 1997 to 40.3% in 1998. Short term policy reforms which were implemented included: (a) Insurance sector reforms (introduction of solvency monitoring criteria for insurance companies, first settlement of outstanding claims against liquidated insurance companies, liberalization of insurance premiums, privatization of the state -controlled insurance company CNIA, restructuring of the public transport insurance company was begun, and increased tax -exempt annual ceiling on life insurance companies ) (b) pension reform (independent management of reserves of the pension fund (CMR) was formalized, and a monitoring committee responsible for assessing pension systems was created, and actuarial and other studies begun ); (c) actions were taken to transform the Caisse d'Epargne into an active funds manager including setting up of a mutual funds from CEN and CNSS funds deposited with the Caisse d'Epargne; and (d) reforms to improve the legal and regulatory structure of financial markets including presentation to the Council of Government of legislation governing the securitization and mortgage market . By contrast, few of the medium term components of this one-tranche project were implemented: (a) settlement of claims on liquidated insurance companies was not completed, (b) insurance premiums were not completely liberalized, (c) actuarial studies and financial audits of pension schemes were not completed and a consolidated report on implications of various reform scenarios was not completed, (d) promotional campaign to inform the public of benefits and possible problems with reforms was not launched (e) the sale of CDG assets in the hotel sector were disappointing . One of the few medium reforms to be implemented was the publication of the draft law on securitization in the Official Bulletin in 1999. 4. Significant Outcomes /Impacts : Insurance companies' reforms to move them towards market -based operations and privatizing the state -controlled insurance company (CNIA), independent management of pension fund reserves, and moving the Caisse d'Epargne towards being an active funds manager should all have important efficiency gains for the economy over time . 5. Significant Shortcomings (including non -compliance with safeguard policies ): The pace of implementation of reforms slowed considerably after the release of funds of this one -tranche operation. While progress was made in the financial restructuring of the insurance sector, this was by no means completed . Claims against liquidated insurance companies remained unsettled and insurance premiums have not been liberalized. Studies and audits needed as a basis for formulating the pension fund reform program have not yet been completed, while one of the project's objectives was to implement a reform program . Sales of CDG assets in the hotel sector have been disappointing . Financial market reforms to allow portfolio management by third parties have not been implemented, nor has a law on third -party management to facilitate development of money market mutual fund. 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Marginally Satisfactory Only two of the project's three main performance indicators were achieved . Performance was stronger in terms of implementing a number of short term policy reforms, but there were many shortfalls in implementing medium term reforms. Institutional Dev .: Substantial Modest The ICR states that the main institutional impact of the program was to change the CDG from a deposit taker to an active funds manager. Many of the proposed medium term reforms in the pension schemes, insurance companies, financial markets and the Caisse d'Epargne were not implemented. Since many of the medium term reforms dedicated to institutional development have not yet been implemented, a rating of "modest" institutional development is more appropriate than a rating of "substantial". Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf .: Satisfactory Satisfactory Quality of ICR : Satisfactory 7. Lessons of Broad Applicability : There is a strong contrast between the generally good implementation of the short term reforms, prior to tranche release, and the uneven implementation of the medium term reforms subsequent to tranche release . Perhaps there should have been a better matching of the time frame of the instrument and its objectives . For example, floating tranches might have been used to better match financial support with policy implementation . Alternatively, a stronger assessment of ownership of the reforms, including popular support which would endure possible changes in government, could have resulted in a better formulation of the project's policy agenda . These considerations are even more important with changes in government as with this project . 8. Audit Recommended? Yes No 9. Comments on Quality of ICR : The ICR is of satisfactory quality, and presented relevant information clearly and in a user -friendly fashion.