Morocco - Country assistance evaluation

Report No. 22212 Morocco Country Assistance Evaluation May 14, 2001 Operations Evaluation Department Document of the World Bank Abbreviations AAA Analytical and Advisory Activities AFSED Arab Fund for Social and Economic Development APPI Aggregate Project Performance Index BAJ Barnamaj al Aoulaouiyat al Ijtimaiya (Social Priorities Program) CAE Country Assistance Evaluation CAR Country Assistance Review CAS Country Assistance Strategy CDF Comprehensive Development Framework FIAS Foreign Investment Advisory Service FTA Free Trade Agreement GSM Global System for Mobile Communications IDF Institutional Development Fund IPP Independent Power Producer MDF Mediterranean Development Forum MENA Middle East and North Africa Region NGO Non Governmental Organization OED Operations Evaluation Department QAG Quality Assurance Group PE Public Enterprise PHRD Policy and Human Resources Development Fund PN Promotion Nationale (labor intensive public works program) PRSL Policy Reform Support Loan PSD Private Sector Development SPI Social Priorities Program I WBI World Bank Institute Director-General, Operations Evaluation: Mr. Robert Picciotto Director, Operations Evaluation Department: Mr. Gregory K. Ingram Manager, OEDCR: Mr. Ruben Lamdany Task Manager: Ms. Alice Galenson The World Bank Washington, D C 20433 USA Office of the Director-General Operations Evaluation May 14, 2001 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Morocco Country Assistance Evaluation This Country Assistance Evaluation covers the period since the last Country Assistance Review (CAR) and the Country Assistance Strategy (CAS) were issued in January 1997. Major political changes have occurred during this time, including an opening up of society, accompanied by public discussion of a broad range of economic and social issues. However, economic and social indicators show little improvement. A draft of this evaluation was discussed by CODE on April 13, 2001 and a report of that discussion is attached as Attachment 7. The 1997 CAS, which was fully consistent with the recommendations of the CAR, called for progress towards the resumption of growth and poverty alleviation through reducing the public deficit and reallocating expenditures; broad public sector reform and continued private sector development; implementation of social and rural development programs and progress in reducing the gender gap; and improvement in environmental management. The base case for lending was US$1 billion over three years, of which US$750 would be for investment projects, and one-third of that for social and rural development. Adjustment lending was to be limited to one US$50-75 million loan (an additional US$180 million was designated for a guarantee). The actual program differed substantially from that proposed in the CAS, with US$451 million in adjustment lending and less than US$300 million in investment lending. The Policy Reform Support Loan, which accounted for one-third of the three year lending program, was a one tranche operation with numerous actions; although some progress has been achieved, change has been slow in a number of crucial areas, including public sector reform, privatization and price liberalization. The private sector response has been disappointing, with the notable exception of telecommunications, where, with support through an adjustment loan, a license for mobile communications was recently awarded for US$1.1 billion. Projects at risk have been reduced from 48 to 15 percent of the portfolio in the last three years, and QAG ratings of quality at entry and supervision have been generally satisfactory. The Social Priorities Program has geneiated some improvements in education, including increases in girls' enrollment, and in public health programs, but additional reforms are needed to increase responsiveness to local needs and reorient expenditures toward basic education and primary health care. Natural resources are not managed sustainably: resources are underpriced, water availability is declining, and pollution costs are not recovered. Subsidized water for large scale irrigation schemes, along with trade protection and consumer subsidies, have encouraged water intensive crops in which Morocco has no comparative advantage. Decentralization of water ii resources management and the establishment of users' associations for small scale irrigation and water supply have, however, improved water management and quality outside of large scale irrigation. Financial sector lending in the last three years was through a one tranche Contractual Savings Development loan, which initiated needed reforms; without Bank follow up, action on medium term issues has lagged. Private participation has been strong in some infrastructure sectors. Lending for the transport sector has rightly stressed institutional issues, and has resulted in significant improvements in railway management and road maintenance. Urban water supply and sewerage projects suffer from low cost recovery and environmental problems, but some privatization has occurred, and a rural water supply and sanitation project is progressing well. The Bank's analytical and advisory activities have been of excellent quality; many pieces have been publicly disseminated and used as the basis for workshops and seminars. The Bank's catalytic support of the country's highly participatory preparation of a Gender Plan of Action has been praised as best practice, and regional conferences organized by the Bank have helped get difficult policy issues on the agenda. Work on the Comprehensive Development Framework has so far taken place almost entirely within the Bank, with little government or donor participation. The program proposed in the 1997 CAS was highly relevant to Morocco's needs, but the program as implemented was much less so, and the objectives set out by the CAS have, on balance, not been met. The program is relatively expensive, for both lending and non-lending activities. Based on OED's evaluation, the outcome of the program is rated marginally unsatisfactory, with modest institutional development. Sustainability of the limited results achieved is likely. The recommendations of the 1997 CAR are still valid. The Bank should continue to focus on public sector management issues, including the causes of the public deficit; support budget reallocations to basic health and education, to rural areas, and to benefit women and girls; support rainfed farming and small and medium scale irrigation, as well as reductions in agricultural subsidies; help remove obstacles to private sector development; and link future lending to increased capacity for growth and poverty alleviation, with greater selectivity in adjustment lending and measurable performance indicators in all projects. Given that the existing models have not achieved great success, new models should be supported on a trial basis, through ongoing as well as new lending, including support for nonformal schools and greater outreach by health clinics. The base case lending program could be smaller than in the past, with an emphasis on social and rural sectors, and should be based on progress in the key areas. The Bank's contribution in terms of analytical work, dissemination and dialogue on critical issues should continue regardless of the level of the lending program. In particular, the Bank should engage the government on appropriate uses of the windfall proceeds from privatization and continue to support the increasingly open discussions about corruption. Contents Preface .............................................................................................................................. 1. Background ............................................................................................................ 2. Country Assistance Strategy: Objectives and Design........................................ 2 3. Program Implementation and Outcome.............................................................. 3 A djustm ent L ending........................................................................................ 4 Investm ent Lending......................................................................................... 6 Social Sectors......................................................................................... 6 Environment, Water Resources, and Rural Development ..................... 7 Finance, Infrastructure and Private Sector Development....................... 8 Analytical and Advisory Activities (AAA)..................................................... 10 Comprehensive Development Framework and Donor Coordination ............. 12 Efficiency of the Morocco Program................................................................ 13 R atin g s ............................................................................................................ 13 4. Lessons and Recommendations ............................................................................ 14 Boxes in Text: 3.1 Meetings with Civil Society and Donors .............................................................. 12 4.1 M orocco- G ood Practice ..................................................................................... 15 Annexes A. Statistical Tables 1. M orocco at a G lance .................................................................................... 17 2. Social Indicators for Morocco and Comparator Countries .......................... 19 3. Morocco-Macroeconomic Indicators, 1989-1999..................................... 20 4. OED Summary Ratings for Morocco, FY97-00 .......................................... 21 5. OED Evaluation Findings, 1997-00............................................................. 22 6. Morocco-All Approved Projects, Evaluated and Ongoing as of October 31, 2000 23 7. Morocco-Active Loans as of December 1, 200 .6 ..... 26 8a. Comparative Cost Table for Morocco and MENA, FY97-99 ..................... 27 8b. Comparative Cost Table for Morocco and MENA, FY91-99 ..................... 27 This report was prepared by Alice Galenson (Task Manager). Laurie Effron and Andres Liebenthal peer-reviewed the report. Yusuf Ahmad and Oliver Raj akaruna provided research assistance. Silvana Valle provided administrative and research assistance. 2 9. M orocco- Developm ent Assistance by Donor .................................................... 28 10. M orocco- IBRD Flows......................................................................................... 29 11. M orocco- IFC's Held and Disbursed Portfolio..................................................... 30 12. Bank Senior Management and Country Team Responsible for M orocco in the Last Ten Years..................................................................... 31 B. W orld Bank Group and IM F Staff Interviewed............................................................... 33 C. List of People M et: M orocco.......................................................................................... 35 Attachment 1. Government Comm ents................................................................................... 37 2. Governm ent Comm ents, English Version ....................................................................... 45 3. OED Response to Governm ent Comm ents...................................................................... 51 4. M anagem ent Response .................................................................................................... 53 5. OED Response to M anagement Comm ents..................................................................... 57 6. M anagem ent Action Record............................................................................................ 59 7. Report from CODE ......................................................................................................... 61 Bibliography ................................................................................................................................ 65 Preface This Country Assistance Evaluation (CAE) examines Bank assistance to Morocco since the last Country Assistance Strategy was issued in January 1997. The CAE is a countrywide evaluation that concentrates on the relevance, efficacy, efficiency, sustainability and institutional development impact of the Bank's program of assistance. It is similar to project evaluations which review the relevance of the project objectives, the degree to which they were achieved (efficacy) and the cost effectiveness of the resources used (efficiency), but it takes the country as the unit of account. The CAE is issues-oriented, is geared toward current decision-making, and is selective as to time span and issues covered; the focus is on issues which are important today. This review covers all instruments of the Bank's assistance strategy, including lending and analytical and advisory activities. An example of good practice in Bank assistance is highlighted in Box 4.1. The CAE is based on Bank reports, including the Country Assistance Strategy paper of 1997, economic and sector reports (both formal and informal), Project/Implementation Completion Reports, project and general country files, and interviews with Bank, IMF and IFC staff, in Washington and in the Resident Mission; Annex B lists the staff interviewed. A draft of the report was discussed with government officials, representatives of NGOs and other donors, and members of civil society during a mission to Morocco in October 2000. Annex C contains a list of the government officials and donors met. Their cooperation and assistance is gratefully acknowledged. Written comments from the government, which were based on an earlier draft of the report, are presented in Attachments 1 (in French) and 2 (in English). They have received full consideration in this final version of the CAE. A number of paragraphs have been amended, and some footnotes added, to reflect the comments, and Attachment 3 presents OED's response. Written comments from Management on the final version are presented in Attachment 4, and OED's response in Attachment 5. In both cases, some differences in judgment remain, which is not unusual in an evaluation of this type. A draft of this evaluation was discussed by CODE on April 13, 2001 and a report of that discussion is attached as Attachment 7. 1. Background 1.1 OED published a Country Assistance Review (CAR) in January 1997; the Country Assistance Strategy (CAS) followed immediately. This Country Assistance Evaluation (CAE) focuses on the subsequent three years, a period marked by major political change. Following the approval of a new constitution by popular vote in 1996 and elections to a bicameral parliament in September 1997, a new government (formerly the opposition) came to power in early 1998. These events were accompanied by a significant opening up of society, with public debate of issues never before freely discussed. Growing poverty, and the contrast between the prosperous urban population and the other half that is rural, poor and largely uneducated, have become topics of widespread debate, with civil society beginning to hold government accountable for results. NGOs are a growing force, particularly in the areas of education, rural development and poverty alleviation. A steering committee with government, private, donor and NGO participants is creating an anti-corruption agenda. 1.2 The growth rate of Morocco's GDP fell from an annual average of 4.1 percent during 1986-91 to 1.9 percent during 1991-99 (Annex Table 3).2 Agricultural growth fluctuates due to periodic droughts, and stagnated in the 1990s, but growth in non- agricultural GDP also fell, from an annual average of 4.2 percent to 2.9 percent. Most of the gains of the late 1980s were lost in the 1990s, with rising urban unemployment, to 22 percent of the urban labor force, and a growing incidence of poverty, from 13 to 19 percent of the population (Annex Table 2). Twenty-seven percent of rural households are poor, compared to 12 percent in urban areas. Export growth has fallen below 5 percent per year, compared to 14 percent during the second half of the 1980s, due in large part to a steep decline in manufactured exports.3 Competitiveness has deteriorated, as reflected in the appreciation of the real effective exchange rate by around 19 percent between 1990 and 1999. 1.3 Social indicators reveal major gaps in the education and health systems, as well as in basic infrastructure (Annex Table 2). Despite relatively high expenditures on education and recent improvements in rural areas, half the population is illiterate, and primary school gross enrollment at 84 percent is well below the MENA average. Access to safe water has improved considerably in rural areas, but remains at 69 percent, compared to over 80 percent for MENA. A large gender gap is also apparent: the rate of urban unemployment is 50 percent higher for women than for men, and when employed, they earn up to 50 percent less; their rate of illiteracy is 65 percent, compared to 1. Morocco falls roughly in the middle of 99 countries on Transparency Internationals Corruption Perceptions Index. 2. The government points out that these comparisons can change significantly depending upon the periods chosen, due in part on the impact of droughts, which are becoming more frequent (Attachment 1). However, social indicators show a deterioration in conditions during the 1990s. Taking a longer timeframe, real GDP growth averaged around 4 percent per year during the 1970s and 1980s, while it fell to 2.4 percent per year in the 1990s. 3. The government notes that measured in Euros, the rate of growth of exports remained stable. In volume terms, growth rates in the second half of the 1990s have been below those of earlier periods. 2 39 percent for men; and their rate of primary school gross enrollment is 71 percent, compared to 95 percent for males. 1.4 The 1997 CAR and the CAS were prepared in parallel, with extensive consultation. The CAS objectives were in line with the CAR recommendations, which identified the most urgent areas for action as: the structural elements of the budget deficit; rationalization of public enterprises and acceleration of privatization; improvements in public sector management and the enabling environment for private sector growth; a more aggressive program of social and rural development; and preservation of scarce water resources. The CAR noted that despite a strong temptation to maintain the net flow of Bank resources, it was becoming increasingly important to ensure that projects contribute measurably to increasing the productive capacity of the economy. Structural adjustment lending should be more selective, with concrete indicators to show how it would improve the growth capacity of the economy and reduce poverty. 2. Country Assistance Strategy: Objectives and Design 2.1 The 1997 CAS stated that progress over the following three years should be judged against policy advances, rather than immediate economic outcomes, given the fact that the period would be one of transition toward renewed growth. It suggested that success of the strategy should be measured against: * progress in reducing the budget deficit, reallocating expenditures and developing a business environment conducive to economic and export growth; * success in initiating and implementing a broad public sector reform and maintaining the momentum of private sector development; * speed of implementation of social programs and rural development and progress in reducing the gender gap; and * achievements in environmental management, especially in establishing river basin authorities and in water pricing; 2.2 The CAS proposed a base case lending program of US$1 billion over three years, consisting of US$750 million of investment lending, at least one-third of which would be earmarked for social and rural development; US$50-75 million for a quick-disbursing policy-based operation; and a US$180 million guarantee for a power generation project, already well underway. Triggers for the base' case were continued improvement in macroeconomic indicators and competitiveness; consistent progress on implementing priority social projects; and strong progress on public enterprise (PE) reform, including a significant opening of infrastructure to private investment. 2.3 Within the social sectors, educational priorities were to improve the efficiency of primary education, curb the growth of higher education so as to free funds for basic education, increase access to and improve the quality of basic education, and expand and strengthen vocational training. In response to the very low indicators for female literacy and school attendance, the CAS added a focus on access by rural girls to basic education. Health sector priorities included a reallocation of resources, targeting expenditures toward 3 rural areas and priority programs, such as maternal care and immunization, as well as controlling hospital costs and introducing new health financing schemes. The CAS proposed incorporation of gender issues in all social and rural projects, initiation of a strategy note on gender issues in collaboration with women's groups and government agencies, and inclusion of gender analysis in all major economic and sector work. 3. Program Implementation and Outcome 3.1 The ratings of completed projects in Morocco are not a good measure of the country program performance since the 1997 CAS, as most of these projects were well underway at that time. What the record of these projects does show is the great need for improvement coming into the CAS period. Of the 16 projects that have closed and been rated since FY97, 9 had outcomes rated as satisfactory by OED (Table 3.1).4 The record for health and education was particularly poor: all 3 projects were rated unsatisfactory. Table 3.1: OED Evaluation Findings, FY97-00 Number of Satisfactory Likely Substantial ID Sector Projects Outcome Sustainability Impact Health/education 3 0 0 0 Infrastructure 5 4 5 3 Agriculture 5 3 4 1 Finance 3 2 3 2 Total 16 9 12 6 Source. OED 3.2 QAG rated the quality of entry of 5 projects approved during FY98 and 99. All were rated satisfactory, one highly so. Of 20 projects under implementation, 3 are considered to be at risk (15 percent by commitment amount, see Annex Table 7). This number represents a significant turnaround for the portfolio, which had 48 percent of commitments at risk three years earlier. Two ongoing projects in education and health were given excellence in supervision ratings by QAG following major efforts by the Region to improve their implementation. Rapid supervision assessments of 5 other projects rated 4 as satisfactory and 1 marginal, although the assessments did question the realism of the project performance ratings for the 3 projects classified as non risky. 3.3 The ongoing program is substantially different from that proposed in the CAS. Most striking is the distribution between investment and adjustment lending: whereas the CAS base case called for one relatively small adjustment operation, the actual FY97-99 program included three, totaling US$451 million, or 60 percent of the total. Some projects included in the CAS were dropped or delayed due to low government interest or 4. Despite the relatively poor outcome ratings, the Aggregate Project Performance Index is 6.5, the same as for MENA and only slightly below the Bank as a whole; this is due to relatively high sustainability ratings. The APPI is a composite measure of the ratings on outcome, institutional development impact and sustainability. The score can range from 2 to 10, with higher scores better than lower. The number given here is the average for projects evaluated during FY97-00 (Annex Table 4). 4 interventions by other donors, and others were reduced in scope. (The average commitment size of investment loans during FY97-99 was US$33 million, compared to over US$100 million during FY90-96.) The difference was made up by much larger than planned adjustment lending in the third year of the CAS period, while keeping total lending within the base case.5 The President's Report for the Policy Reform Support Loan (PRSL) argued that the base case triggers had been met, and the IMF reluctantly supported the loan; subsequently the macro situation and competitiveness have deteriorated (para. 3.29), and it could be argued that progress on PE reform has not been strong (para. 3.5). The high case lending program included a higher level of adjustment lending, but many of the triggers for the high case-including a declining public wage bill and budget deficit, rising export growth, declining share of PEs in GDP, and doubling of rural girls' enrollment-have not been reached. Adjustment Lending 3.4 The shift to higher adjustment lending-particularly the one tranche PRSL (FY99), which accounted for one-third of the FY97-99 lending program-was justified by the Region as a way of showing the Bank's strong support for the country's movement toward a more open political system and commitment to reform; the need for a commensurate commitment from the Bank; and the fact that with Bank lending fully integrated into budget strategy, the government and the Bank need simply reach agreement on performance indicators and then design an appropriate mix of lending instruments. The PRSL was seen as the first in a series of one tranche loans. However, while the PRSL may have established a more cohesive program than would otherwise have been the case, it was too unfocussed to have a major impact on any of the areas identified in the CAR and CAS as in critical need of reform, and the cohesion has not lasted.6 Many of the actions taken prior to Board presentation were first steps, sometimes in the form of studies or plans, and many others have not shown concrete results. Expanded adjustment lending was questioned by the Board, which noted the absence of an IMF program, and the idea of a second PRSL was shelved. Subsequently, significant inflows from a telecommunications license (para. 3.7) have reduced the need for Bank funds. 3.5 Progress has been made in private participation in infrastructure, financing of rural infrastructure, customs administration, and raising the priority of the social agenda (see below).8 In other areas, progress has been slower. Public sector reform-of the civil 5. During the second half of the 1980s and the early 1990s, more than half of lending was for adjustment. The 1993 Country Strategy Paper saw no further need for adjustment lending, and the balance shifted to investment projects. Implementation of the resulting program proved beyond the capacity of the government, and about US$350 million was cancelled during a major portfolio restructuring in 1995/96. Net transfers from the Bank to Morocco have been negative during the last decade (Annex Table 10). 6. The Letter of Development Policy was 43 pages long, and the matrix of policy objectives and actions listed 53 actions in 14 areas taken prior to Board approval. 7. The government points out that reforms were initiated which will have an important impact in the medium term. 8. The Region also stresses the importance of having encouraged a shift in the way of thinking in Morocco about the serious social gaps. 5 service, management of public enterprises (PEs), and budgetary processes-remains the area of greatest concern for the Bank. Morocco's civil service wage bill is among the highest in the world as a share of GDP-12.5 percent in the 2001 budget-and the number of civil servants is rising. The volume of privatizations has slowed, and transfers to PEs rose to 22 percent of public investment expenditures in the 1999/00 budget. In the area of trade liberalization, the EU Association Agreement allows 12 years to phase in lower tariffs, with an increase in effective protection over the first three years.9 Despite membership in GATT and agreements with a number of African and Arab countries, protection remains high. Tariff protection on agricultural products is particularly high, averaging 62 percent. The competition law providing for price liberalization was passed by Parliament, but with a five-year exemption for thirty commodities. Generalized food subsidies perpetuate market distortions by providing transfers to inefficient producers rather than relief to the poor. The Letter of Development Policy promised gradual reform of the subsidy system; as of November 2000, only edible oil subsidies are slated to be phased out. The long-sought law liberalizing road freight transport was diluted by a two year moratorium. No agreement has been reached on a more flexible labor code, a critical element of the environment for PSD, and few concrete results have emerged in the social sectors. Altogether, the achievements of the PRSL do not justify its prominence in the lending program. 3.6 The Contractual Savings Development loan was also a one tranche operation, designed to help mobilize savings and channel them into private investment. The conditions for Board submission were met, including some substantive actions, but on the whole the achievements were superficial and sometimes short-lived, and the outcome of the loan has been rated marginally satisfactory.'0 Action on medium term issues has lagged, perhaps due to the absence of a concrete commitment for future operations (the expected second loan is now scheduled for FY02). 3.7 A 1996 law opened up ownership in the telecommunications sector to the private sector and established a regulatory commission. The Telecommunications, Post and Information Technology Adjustment Loan supported further steps. Although the state- owned company has not been privatized, a license for mobile communications was awarded to a second operator. The winning bid of US$1.1 billion was far higher than expected, increasing Morocco's fiscal revenue for 1999 by about 13 percent. Even before the new license was issued, its imminence led to improved service and lower prices. Although more remains to be done, including privatization of the public operator, lending in this sector has clearly attained its goals. 9. During the discussion of the CAS, the Board commented that it relied too heavily on the EU Association Agreement to liberalize trade. The staff said they would continue to push for universal trade liberalization, but progress so far has been limited to a study on the fiscal impact of generalizing the reforms. 10. For example, the requirement of adopting an Insurance Code was technically met when it was approved by the Council of Government, but it was later rejected by the Council of Ministers. Other conditions included creation of committees and preparation of terms of reference. The government notes that this loan led to a number of reforms which will have an impact in the medium term. 6 Investment Lending 3.8 Investment lending amounted to just under US$300 million during FY97-99, with about half going to social and rural sectors. While this share exceeded the CAS target of one-third, it was relative to a much smaller total.'1 Social Sectors 3.9 The Social Priorities Program (BAJ, FY96), already underway at the time of the CAS, was expected to help increase the access of the poor to basic social services, enhance social protection and create opportunities for the poor to participate in economically productive activities. It comprises three complementary projects designed to improve the quality and quantity of basic health and education, enhance rural infrastructure using labor intensive techniques, and improve the government's capacity to monitor and analyze the socioeconomic status of the population in the 14 poorest provinces, containing over one-quarter of the population. 3.10 The Bank has long been concerned about the poor quality and coverage of education. Morocco's indicators compare unfavorably with comparator countries (Annex Table 2), despite a relatively high level of resources devoted to the sector.12 The main advance in the sector in recent years was the establishment of a Royal Commission, whose report contains many of the main ingredients for reform. However, the government has not yet established clear priorities or an agenda for implementation. Indicators for rural areas lag well behind those for urban, and they are far lower for females than for males. The current system, with highly centralized management, rigidly allocated postings, and inadequate teacher training, does not adequately address the problems. The Rural Primary Education project (FY89) and Rural Basic Education Development project (FY91), both of which closed in recent years, had unsatisfactory outcomes and negligible institutional impact. The BAJ has decentralized school construction and contributed to increases in girls' enrollment,'3 but suffers from a number of factors that discourage school attendance, particularly by girls: location outside of villages, lack of facilities (toilets, water, canteens), teachers who are not from the same area, or schedules that conflict with girls' household responsibilities. Nonformal community schools are more responsive to local needs and provide an excellent model for investment in the sector, whether through the BAJ or through new projects. The fragmentation of the sector among several ministries makes it particularly difficult to discuss efficiency improvements or 11. The Region and the government point out that Bank lending for social and rural sectors was highly leveraged, attracting substantial cofinancing. 12. Morocco spends 5.5 percent of its GDP on education, compared to 4.5-5 percent in countries of comparable per capita income, but 30 percent of the funds for basic education go for administrative overheads. Expenditures per pupil are three times higher in secondary school than in primary; other countries spend roughly the same, or in a few cases up to twice as much. 13. In one year, for example, government data show that the proportion of girls enrolled in the first year of basic education in the BAJ provinces rose from 41.8 to 44.8 percent, compared to a 0.2 percent increase in non-BAJ provinces (Direction de la Statistique, "Programme de Priorit6s Sociales: Indicateurs de Suivi," June 1999, p. 12). A recent study of the impact of the BAJ program also found that the majority of BAJ provinces showed significant improvement in girls' enrollment (Jacoby, 2000) 7 reallocation of spending within the sector. Nonetheless, this is a promising area for continued Bank focus: the government is open to reform and the potential impact is great. 3.11 Public spending on health is low both in per capita terms and as a share of the government budget, and disproportionately benefits higher income groups. One-third of ministry recurrent spending is for teaching hospitals, with occupancy rates below 60 percent. Progress has been slow in areas that could have an impact on the poor, such as redeployment of personnel to the poorest provinces, recruitment of more female nurses, greater outreach by clinics to the surrounding villages, access to essential drugs, or development of multi-sectoral approaches to improving health. The Health Sector Investment project (FY90), which closed in FY99, was rated marginally unsatisfactory because of shortcomings in physical objectives, inadequate counterpart funding, and a failure to increase public allocations to the sector; however, the project did help reorient policy toward primary health care and the BAJ continued this emphasis.14 A Health Management project (FY99) aims to improve the efficiency of hospitals and help introduce new financing mechanisms for public health care. 3.12 The Coordination and Monitoring of Social Programs and Labor Promotion project (part of the BAJ) aims inter alia to improve basic infrastructure and generate employment in rural communities through the labor-intensive public works program, the Promotion Nationale (PN). This program supports important social infrastructure in rural areas and helps local economies by injecting cash and creating temporary employment. While it has some problems-lack of a participatory approach in identifying and implementing activities, and inadequate coordination to ensure proper operation and maintenance of its facilities-it does a technically good job at a lower unit cost than many line ministries, and with a reasonable administrative cost structure. Environment, Water Resources and Rural Development 3.13 Morocco is well endowed with natural resources, but they are not managed sustainably: all are underpriced, water availability is declining, and pollution costs are not recovered. A draft OED environmental review of Morocco finds the results of the Bank's assistance to be marginally satisfactory. Water sector wrk was instrumental in setting priorities and sequencing reforms and investments. Decentralization, users' associations, pricing (other than for large scale irrigation) and privatization have improved water management, distribution and quality, with a favorable iipact on health. On the other hand, air pollution, solid waste, and soil degradation continue unabated, problems remain with urban water supply and sewerage (see below), and cost recovery for large scale irrigation remains a key issue. Progress on the Environmental Management project, intended to help the government strengthen its institutional and regulatory framework for environmental protection, has not been satisfactory, due to lack of consensus, as well as 14. Government data show that the population per physician declined by 380 in one year in the BAJ provinces, compared to 80 in the non-BAJ provinces, although it was still 3.5 times higher in the former (Direction de la Statistique, op cit., p. 16). However, a recent evaluation of the BAJ programs found no significant gains in access to health facilities, as measured by clinic visits and medicine acquisition (Jacoby, 2000). 8 to weak supervision. A project to tackle pollution in the Sebou River watershed was dropped; the Fes-Medina Rehabilitation project (FY99) which included waste management and prevention of pollution by small enterprises was signed after lengthy delays, and for a time was rated "at risk." The Lakhdar Watershed Management Pilot project (FY99) is testing participatory approaches to land use and natural resource management. The OED review concludes that capacity building projects are better carried out by aid agencies with staff in the field and grants available for pilot activities; that policy analysis and advice have often been more useful than lending; that the Bank should expand its contribution to setting environmental priorities, as well as its environmental interventions related to poverty alleviation; and that privatization and decentralization will probably have a greater impact on the environment than any investment project. 3.14 Morocco's rural development strategy calls for decentralized, community-driven, cross-sectoral programs. The changing approach to water management is a good example. Water is Morocco's most pressing environmental problem: about 85 percent of it is used for irrigation, for which the fees collected, in the case of the large scale schemes supported by earlier projects, fall well short of the costs of operation and maintenance. These water subsidies, along with trade protection and consumer subsidies, have encouraged water intensive crops in which Morocco has no comparative advantage; the dialogue with the government on this issue has made little progress. The Bank is now turning to adjustable program loans for small and medium scale irrigation schemes run by water user associations and for rainfed agriculture. Finance, Infrastructure and Private Sector Development 3.15 The financial sector has not been an area of emphasis for the Bank in recent years. The Contractual Savings Development loan (para. 3.6) was the only post-CAS operation in the sector (a microenterprise pilot was dropped from the program due to lack of government interest). Despite weaknesses, it did contribute to improved management of savings. Several other projects closed in recent years. The Financial Sector Development project (FY91) helped remove credit ceilings and reduce the mandatory placement of deposits. The Financial Markets Development project (FY96) increased the use of market mechanisms for Treasury financing and put in place a regulatory and institutional framework for the capital market, but a key condition-the privatization of some public banks-has yet to be met.16 Development of the capital market, which was spurred by the privatization of public enterprises in the early 1990s, has slowed; the last privatization carried out through the stock market was in 1997. Repeated efforts through Bank projects have not improved the public agricultural bank. Banking services are weak. However, the Bank is still involved in the sector through a PHRD grant for studies and training (some 15. This project, approved in FY94, just closed; its outcome was rated moderately unsatisfactory, and its institutional development impact, modest. The Region notes that the environment has not been a top priority for the Bank in recent years, when the focus has been much more on social programs. 16 The Financial Sector Development project was rated satisfactory, with substantial institutional development impact; the Financial Markets Development project was rated marginally unsatisfactory, with modest institutional development impact. 9 in association with an ongoing African Development Bank project), and QAG noted the likely positive impact of recent sector work on the banking system (para. 3.21). 3.16 The transport sector is relatively well developed in physical terms. The Bank has rightly stressed institutional issues in its lending, delaying the Railway Restructuring and Privatization project (FY97) for nearly 5 years until the government approved tariff adjustments and key managerial measures. Draft laws establishing a new railway organization, appropriate for eventual privatization, have been delayed by the issue of financing the pension deficit. The Secondary Roads project (FY95) was also delayed for two years until the government agreed to eliminate the road freight forwarding monopoly and liberalize trucking, but although the Land Transport Law was approved, its implementation has been delayed. Highway projects have contributed to increasing the priority of maintenance and ensuring its financing under a road fund. Air Maroc is being prepared for sale, and concessions are being considered for the airports. One big port has been offered for a BOT. Thus the sector is moving, if slowly, in the right direction, and Bank projects have encouraged this trend.'7 No new transport projects are planned. 3.17 Two urban projects were rated "at risk" in recent years (one has been upgraded) because of institutional problems and lack of internal and management controls. Two water supply and sewerage projects were also at risk (one now upgraded), with unmet cost recovery targets. Efficiency is low, with high levels of unaccounted for water and less than 60 percent of domestic and industrial wastewater collected by existing sewerage systems. The Second Sewerage and Water Reuse project is still missing an environmental action plan. Meanwhile, raw sewage discharge pollutes rivers and coastal areas, and use of treated wastewater for irrigation is still only experimental. A Rural Water Supply and Sanitation project is, however, progressing well, with full operation and maintenance costs and one-quarter of investment costs being collected by user associations; eventually the project will provide safe water to about 150,000 people, while reducing the burden on women and girls of carrying water for long distances. Access to safe water in rural areas has already improved dramatically (Annex Table 2). 3.18 Private participation has been important in some infrastructure sectors, most notably in telecommunications (para. 3.7). The Second Rural Electrification project (FY91), which closed in FY97, was substantially reduced in scope because of inadequate financing and institutional arrangements, but in its last years the project contributed to broad sector reform, including,the privatization of Casablanca's distribution company and the undertaking of a major IPP-financed generation project (with a US$180 million Bank guarantee).'8 Distribution of water supply is also being privatized. Concession agreements for Casablanca and Rabat permitted the cancellation of 44 percent of the commitment for Water Supply V (FY94), and agreements are underway in two additional cities. The Bank continues to press for additional such agreements. 17 All closed projects were rated satisfactory, and those under implementation are progressing satisfactorily. 18. The project was rated marginally unsatisfactory, with modest institutional development impact. 10 3.19 In the area of private sector development, a Private Sector Assessment Update (1999) noted that after a decade of efforts at stabilization, liberalization and deregulation and the launching of the privatization program, the response of the private sector has fallen short of the high expectations generated by the achievements of the 1980s. It concluded that further reforms are needed, of both policies and institutions. One of the suggested reforms, to improve the judicial system, is included in a Legal and Judicial Development Loan (FY00). FIAS has been discussing with the government three possible advisory projects designed to improve the foreign direct investment environment in the country: the development of a strategy and possible establishment of an investment promotion agency; a feasibility study for the establishment of an export processing zone; and a review of the investment incentives system. In the area of vocational training, the PSD III project had a covenant requiring the passage of a critical law by September 1998; this law has still not been approved, and the project is currently "at risk." 3.20 IFC's traditional investment activity in Morocco has been modest for two reasons: IFC's relatively high spreads compared with other international institutions such as the European Investment Bank; and the reluctance of local enterprises to assume the foreign exchange risk on borrowing. In this context, since FY97 prepayments of about US$18 million were made, and as of end-FYOO, the total IFC held portfolio was only US$32 million in six projects. However, because there is still a need for IFC investment where structuring is complex and the volumes are large, IFC invested US$94 million for its own account (plus an additional US$329 million in B-loans) in FYO1 in Medi Telecom, the winning cellular consortium for the second telecommunications license. This investment, which was recently committed, brought IFC's portfolio in Morocco up to US$114 million at the end of October 2000. Other new investments since the last CAS consist of an investment of US$14 million (both equity and loan) in a textile company; a partial risk guarantee in the MENA Forfaiting Facility to provide trade finance for local companies, of which the exposure in Morocco is expected to be US$10 million; and a US$5 million equity stake in a regional investment fund that will provide financing and venture capital to small and medium enterprises. MIGA has issued only one guarantee in Morocco-in 1994. It has received 4 preliminary applications for coverage of prospective investments. Analytical and Advisory Activities (AAA) 3.21 AAA in Morocco is generally of high quality, but relatively expensive, well above the average for MENA and for the Bank as a whole in recent years. For example, QAG reviewed a Financial Sector Strategy Note (still in draft), finding it "a solid piece, with good analysis... leading to clear recommendations. The study... has a narrow, albeit excellent, focus [and] is likely to have considerable impact on GOM." Although the study was not cheap, QAG concluded that "it was time and money well spent." 3.22 The 1997 CAR found that much of the Bank's excellent economic and sector work on Morocco had not been well used and recommended that relatively more resources be spent on dissemination and constituency building. This appears to be taking place, with some recent reports discussed in the local press and used as the basis for workshops and seminars in Morocco (ten seminars during 1999 covered such topics as educational 11 reform, health financing and corruption). A study of rural development is reflected in the government's just-published rural development strategy, and a PHRD grant funded 10 studies on different aspects of educational reform. Narrowly focused think pieces, often not issued formally, have replaced broader country economic memoranda.19 For example, one recent piece identifies weaknesses in the economy and sources of growth for the future, and another suggests judicious uses of the fiscal windfall arising from privatization. These pieces should provide a strong analytical backing for future discussions and lending. Given the high costs of AAA in Morocco, and the limited ability to influence government views, future work should focus on key areas where the Bank is most likely to make a difference (e.g., promoting education and health reform or advising on methods of privatization).20 As has been found in other middle income countries (e.g. Mexico), AAA work by the Bank can be highly valued and effective even when not attached to specific lending operations. 3.23 The CAS called for a strategy note on gender issues, to be developed through a participatory process. The Bank played a catalytic role by funding consultants and workshops which brought together government institutions and women's associations in public meetings. The result was a Gender Plan of Action, written by the Moroccans, designed to integrate women more fully into development. The process is considered a best practice example in the Region. Programs are underway in health, education, literacy, and basic infrastructure, with a particular focus on rural areas. A national research and training center for gender issues has been created, as well as a national campaign against violence. Draft legislation to improve the legal and political situation of women is strongly opposed by fundamentalist groups in the country, but the existence of open debate in itself is a major advance. 3.24 Morocco has had a number of IDF grants, with recent ones concentrating on social sectors and core governance functions (e.g. budget and accounting systems, procurement reform, and economic policy formulation). These grants have helped the Bank enter new areas, with eventual major involvement (e.g., telecommunications), and have addressed private sector activities, such as the modernization of legal information services. They have on the whole been very successful.21 3.25 At the regional level, the Bank supports the Mediterranean Development Forum, a consortium of think tanks and universities which has helped get difficult policy issues on the agenda. The first two MDF conferences, organized by the WBI, were held in Morocco in 1997/98 and attracted a broad range of Moroccan officials, as well as members of civil society. Coverage included education; economic journalism; telecommunications; empowering poor entrepreneurs; fiscal decentralization; global 19. The last formal economic report (CEM) was in 1995. Economic or sector work is planned or underway in a range of areas, including macroeconomics, public expenditure review, agriculture, environment, industry, financial sector, municipal management, private sector, gender, education and health (see also Bibliography). 20. The government suggests that to ensure agreement over the work program, a list of proposed studies be prepared, accompanied by expected contributions from the Moroccan side, and that the final documents be reviewed with the government before publication. 21. Based on a draft consultant review of IDF grants. 12 integration; poverty reduction; governance; and public-private partnerships. Participants rated these conferences highly, and the WBI evaluation concluded that the MDF partnership provides a good platform for collaboration and policy dialogue in the region. Comprehensive Development Framework and Donor Coordination 3.26 Morocco is a pilot country for the CDF. A letter from the Bank to the King proposing the effort was never answered, but based on enthusiasm in some parts of the government, the Bank pressed on. Seventeen matrices detail medium and long term sectoral goals, as well as those for cross-cutting areas such as gender, governance, and social protection. Numerous monitoring indicators for each matrix emphasize outcomes; selection of a smaller number of key indicators may be necessary. Governance has become a topic of open discussion in Morocco, and a project to improve the judicial system was approved in late FY00. A process of workshops and commissions, supported by the Bank, is broadening ownership of the development agenda. However, no coordinating document has yet been prepared to pull together the matrices, nor has much been done on cross-sectoral priorities, partnerships or comparative advantage. Morocco has no formal system for donor coordination.22 Substantive discussions with the government and other donors are only beginning: far from being in the driver's seat, the government was not involved in the initial preparation of the matrices. Staff note that the CDF provides a longer term framework for the government's new five-year plan. Not surprisingly, the recent evaluation of the CDF shows Morocco as being at relatively early Box 3.1: Meetings with Civil Society and Donors Meetings with members of civil society, including the heads of a number of NGOs, revealed a fair amount of anger against both the government and the Bank, as well as a sense of urgency about the challenges facing Morocco and suggestions for a more effective role for the Bank. The anger stems from several sources. NGOs see the Bank and the government as close partners whose interactions are totally non-transparent to society at large. While the specifics of the Bank's activities are unknown to civil society, it is apparent to them that there has been no economic or social progress, least of all for the poor, even though at the same time the country's indebtedness has increased. Consultations by the Bank with civil society during late October 2000 on the upcoming CAS were seen as lip service and unlikely to have any effect on future Bank strategy. At the same time NGOs had concrete recommendations as to which sectors ought to be the focus of Bank activity---education, health and infrastructure services such as water, electricity and roads-and on how the Bank could improve its poor past performance in the health and education sectors by adopting different strategies which take account of the views and experiences of potential beneficiaries, and which have proven to be successful. Some of the donors also felt left out from any consultative process. The government points out that since all donor funds are channeled through the budget, no coordination is necessary. However, these donors believe that greater coordination on strategy and on implementation would have a very beneficial impact on what is now largely ineffective external assistance. 22. The Region notes that unlike in many IDA countries, donors do not finance most of the investment budget in Morocco, so the CDF is less critical as a mechanism for coordination. The government points out that since all donor funds are channeled through the budget, no further coordination is necessary. 13 stages of many CDF elements (World Bank, 2000). It is too early to judge the effectiveness of this approach. Efficiency of the Morocco Program 3.27 The Morocco country assistance program is relatively expensive (Annex Tables 8a and 8b). Average total administrative costs per project are above both MENA and Bank averages. Costs per dollar of net commitment are close to the MENA average for the 1990s as a whole, but more than 50 percent higher than the average in the last three years-and more than double the bank average. This reflects a relatively high number of dropped projects,23 but also high costs of operations and relatively small projects. Preparation can be lengthy, and supervision expensive, due to low interest by many ministries in Bank loans,24 slow decision making, and weak incentives for disbursement. Finally, reflecting the high rate of unsatisfactory projects in recent years, as well as dropped projects, Morocco's average costs per satisfactory or non risky project for the last three years are nearly 75 percent higher than for MENA as a whole, and triple the bank average. Ratings 3.28 The program proposed in the 1997 CAS was highly relevant to Morocco's development needs. However, the program as implemented was much less so. In particular, the shifting of a substantial portion of the lending program from investment to adjustment operations, along with the loose focus of the biggest adjustment loan, the PRSL, reduced the potential for the program to contribute measurably to increasing the productive capacity of the economy and to reducing poverty, the two prime objectives highlighted in the CAR (para. 1.4). With some exceptions, the outcome of the program has been disappointing. In comparison both to the CAS projections and to other countries in the Region, the results in terms of growth and poverty reduction have been weak. 3.29 Measuring the success of the CAS strategy against its own criteria (para. 2.1), the results are at best mixed. In the provinces covered by the social priorities program, first year data indicate progress in reducing the rural education gender gap and improving rural access to health care. Private participation in some infrastructure sectors has expanded. However, the budget deficit has risen (to 8.3 percent of GDP in the 2001 budget); reallocations have not taken place as expected; and the business environment has improved only mildly. Competitiveness is deteriorating (para. 1.2). Broad public sector reform has not taken place, and the momentum for PSD has slowed, except in infrastructure. The critical need for strong growth-a pivotal objective of the CAS-has not been met. Environmental management remains weak, and water pricing is still 23. In a number of cases, the Bank has reportedly brought projects to the point of negotiations only to have them funded by other donors who offer cheaper money and less conditionality. 24. Bank lending to Morocco is fully integrated into the country's budget and expenditure management, and Bank projects do not change the budget envelope for a particular sector. 14 inadequate. Based on this assessment, the outcome of the CAS program must be judged marginally unsatisfactory, and institutional development impact, modest. 3.30 The Bank has contributed significantly to the growing public debate over economic policy. As noted above, AAA has been of high quality, and although its use is spotty, public dissemination of some studies has served to inform and broaden the debate and foster a consensus. On the lending side, the Region has put forth a major effort to improve the implementation of the investment portfolio. However, the major increase in adjustment lending vis-A-vis the CAS program is hard to justify. In particular, the PRSL was a risk which has not paid off in terms of cementing government ownership for a 25 continuing reform program. In terms of the CDF criteria, the record is mixed. The Bank has encouraged country ownership and participation within the country, but has been less active in promoting partnership or coordination with other donors and in identifying inter-sectoral linkages and its own areas of comparative advantage. The matrices identify many indicators of outcomes; these have not yet been narrowed down to a set of key indicators. While both the country, through its five-year plan, and the Bank, through the CDF matrices, are taking a long-term approach, the two exercises were carried out independently, and only now is the government attempting to integrate them. 3.31 Sustainability of the achievements so far is likely, but this assessment should not breed complacency, since the achievements in many areas are limited and are unlikely to have a major impact on the ultimate objectives of growth and poverty reduction. 4. Lessons and Recommendations 4.1 The recommendations in the CAR policy ledger (now called the Management Action Record) are still relevant. In particular: * The Bank should continue to spotlight public sector management issues, including the causes of the public deficit, such as the excessive public sector wage bill and inefficiencies of public enterprises. * The Bank should encourage the government to increase the share of the budget allocated to basic health and education, to rural areas, and to benefit women and girls. * The Bank should continue to focus on increasing cost recovery for irrigation water and eliminating other agricultural subsidies, as well as on promoting rainfed farming and small and medium scale irrigation. * The Bank should assist the government in removing obstacles to the private sector, including further efforts at trade liberalization (beyond the EU agreement), ensuring a market determined exchange rate,26 and reducing administrative bottlenecks. 25. The government notes that the PRSL permitted the launch of important reforms. 26. The government believes that such an exchange rate policy would cause increased inflation, with negative social consequences. 15 * Future lending should have a demonstrable link to capacity for growth and poverty reduction, structural adjustment lending should be more selective than in the past, and every operation should include measurable performance indicators. 4.2 Developments since 1997 reinforce and extend some of these recommendations. The Bank should support the growing willingness in the country to discuss corruption issues. The influx of privatization proceeds from infrastructure presents both an opportunity and a danger, and Bank should continue to engage the government on the appropriate use of this windfall. The slow rate of privatization more broadly calls for particular efforts, whether through AAA or lending, to improve the environment for private sector development; the recent Private Sector Assessment Update outlines the many reforms needed to enable the private sector to become the main engine of growth in the Moroccan economy. One tranche lending has proven ineffective, and any future adjustment loans should be smaller in size and conditioned on substantive and irreversible progress on a focused set of key reforms. 4.3 A minimal program would include lending for education, health and rural development, and should be based on progress on the first three areas highlighted above. Given that the existing models have not achieved great success, new models should be supported on a trial basis, through ongoing as well as new lending, including support for nonformal schools and greater outreach by health clinics. It may be difficult to maintain a sizeable lending program, since the government is apparently not eager to borrow from the Bank for programs with a high social content, for which funds on concessional terms are available from other sources, and in view of high inflows from privatization. Therefore, and in light of the implementation difficulties of recent years, the base case lending program could be substantially smaller than in the previous CAS. Beyond the social and rural sectors, lending should be based on evidence of substantive progress in the other areas listed above. The Bank's contribution in terms of analytical work, in collaboration with Moroccan experts, along with dissemination and dialogue on critical issues should continue regardless of the level of the lending program. Box 4.1: Morocco-Good Practice The Bank funded consultants and workshops that brought together civil and government institutions to design a Gender Plan of Action. The Bank's role was catalytic-the plan itself was produced by the Moroccans in a highly participatory manner. This process is regarded as best practice in the Region, and is a good example of the strategic use of relatively small sums of money. 17 Annex A Annex Table 1: Morocco at a glance M. East kqwer- POVERTY and SOCIAL & North middle- Morocco Africa Income Development diamond* 1999 Population, mid-year (millions) 282 291 ?,094 Life expectancy GNP por capita (Atlas method, US$) 1,190 2,060 1,200 GNP (Atlas method US$ billions) 336 599 2,513 Average annual growth, 1993-99 Population (%) 17 21 1 1 Labor force (%) 26 30 12 GNP -: Gross per primary Most recent estimate (latest year available, 1993-99) capita enrollment Poverty (% of population below national poverty line) 19 Urban population (% of total population) 55 58 43 Life expectancy at birth (years) 67 68 69 Infant mortality (per 1,000 live births) 49 45 33 Child malnutrition (% of children under 5) 15 15 Access to safe water Access to improved water source (% of population) 52 71 86 Illiteracy (% of population age 15+) 52 36 16 Gross primary enrollment (% of school-age population) 86 95 114 Morocco Male 97 102 114 Lower-middle-income group Female 74 88 116 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1979 1989 1998 1999 Economic ratlos GDP (US$ billions) 15 9 228 357 350 Gross domestic investment/GDP 245 237 22 5 242 Trade Exports of goods and servIqes/GDP 175 174 178 18.8 Gross domestic savings/GDP 129 149 142 153 Gross national savings/GDP 169 17 2 175 182 Current account balance/GDP -96 -35 -04 -08 Domestic Interest payments/GDP 3.0 4 8 2.9 34 Dmsc.nent Total debt/GDP 496 957 580 552 Savings Total debt service/exports 263 302 230 277 Present value of debt/GDP 52 3 Present value of debtlexports 153.2 Indebtedness 1979-49 1989-99 1998 1999 1999-03 (average annual growth) GDP 4 0 23 68 -07 37 Morocco GNP per capita 1 5 0 6 5.8 -2.2 2 0 Lower-middle-income group Exports of goods and services 43 35 22 48 59 STRUCTURE of the ECONOMY 1979 1989 1998 1999 Growth of Investment and GDP (%) (% of GDP) Agriculture 179 172 170 14 8 Industry 327 332 319 32 7 20 Manufacturing 168 178 171 173 . Services 494 496 51 1 526 o St 96 97 98 99 Private consumption 65 8 69 4 67 7 654 .20 General government consumption .21 3 157 -18 1 19,3 GDI --*-GDP Imports of goods and services 290 262 26 1 277 (average annual growth) 197b-89 1989-99 1998 1999 Growth of exports and Imports (%) Agriculture 58 -08 247 -198 3 Industry 24 32 18 28 20 Manufacturing 39 3.0 24 25 Services 43 2 8 51 31 1o Private consumption 46 30 85 -32 o General government consumption 1 0 32 66 62 94 95 97 so 99 Gross domestic investment 06 1 7 30 1 6 9 -io Imports of goods and services 1 3 49 21 4 47 Exports --imports Gross national product 37 24 7 6 -06 - Note: 1999 data are preliminary estimates The diamonds show four key indicators in the country (in bold) compared with its income-group average If data are missing, the diamond will be incomplete Annex A 18 Morocco PRICES and GOVERNMENT FINANCE Domestic prices 1979 1989 1998 1999 Inflation (%) (% change) a Consumer prices 83 31 27 07 6 Implicit GDP deflator 73 40 07 09 4 Government t1nance 2 (% of GOP, includes current grants) o Current revenue 222 226 274 269 94 95 9o 97 9 99 Current budget balance 28 1 4 38 26 ---GDP deflator -0-CPI Overall surplus/deficit -9 4 -6.0 -2 7 -4 7 TRADE (US$ millions) 19 9 '19% s 199 Export and import levels (US$ mill.) Total exports (fob) 1,955 3,851 7,144 7,372 112000 Agriculture and food items 641 1,016 1,627 1,590 Phosphate rock 568 489 459 434 9,000 Manufactures 345 1,644 3,932 4,085 Total imports (c) 3,673 5,842 10,274 10,804 Food 550 590 1,191 1,177 3,000 Fuel and energy 710 843 922 1,330 Capital goods 844 1,458 2,567 2,830 a 93 94 95 98 97 98 99 Export price index (1995=100) 71 85 93 87 Import price index (1995=100) 78 85 89 89 i Exports W Imports Terms of trade (1995=100) 91 99 105 98 BALANCE of PAYMENTS (US$ millions) 1979 1989 1998 1999 Current account balance to GDP (%) Exports of goods and services 2,707 5,391 9,970 10,535 1 Imports of goods and services 4,752 6,641 11,425 11,964 Resource balance -2,045 -1,249 -1,455 -1,429 o Net income -409 -1,159 -1,033 -977 -1 Net current transfers 923 1,606 2,345 2,137 Current account balance -1,531 -803 -144 -269 Financing items (net) 1,499 808 391 1,907 Changes in net reserves 32 -5 -247 -1,638 - Memo: Reserves including gold (US$ millions) 552 4,693 5,920 Conversion rate (DEC, local/US$) 3 9 86 5 9 6 9 8 EXTERNAL DEBT and RESOURCE FLOWS 1979 1989 1998 1999 (US$ millions) Composition of 1999 debt (US$ mill.) Total debt outstanding and disbursed 7,886 21,874 20,687 19,309 IBRD 504 2,686 3,388 3,377 116 IDA 38 40 29 28 3377 Total debt service 972 2,042 2,797 3,502 IBRD 65 381 505 515 6089 IDA 0 1 ,.2 1 Composition of net resource flows . .0 Official grants 65 101 Official creditors 331 688 -377 -176 Private creditors 673 228 , 469 -265 Foreign direct investment 39 167 313 839 Portfolio equity 0 0 7559 World Bank program Commitments 357 518 130 356 A - IBRD E - Bilateral Disbursements 137 364 291 404 B - IDA D - Other multilateral F - Private Principal repayments 25 182 300 304 C - IMF G - Short-term Net flows 112 182 -9 100 Interest payments 41 200 207 213 Net transfers 72 -18 -216 -113 Development Economics 19 Annex A Annex Table 2 : Social indicators for Morocco and Comparator Countries' Lower- Middle- Countries Moocco Morocco Morocco Morocco Tunisia Egypt MENA Income Yea 1990-1993 1994-1997 1998 1999 1994-1997 1994-1997 1994-1997 1994-1997 Population and Labot force Population, total (million) 25 4 27 3 278 28 2 9 2 60 3 174 1 3,603 0 Population giowth (%) 2 0 2 0 18 17 15 18 2 7 18 Labor force, total (Thous) 9,348 10,316 10,832 11,2952 3,501 22,328 160 2,370 Labor force gtowth (growth rate %) 18 17 18 10 2 8 2 6 3 1 2 1 Labor force, female (% of total) 346 346 347 347 309 294 260 400 Macroeconomic Indicators GDP Growth, Real (%) 0 2 3 5 6 8 -07 54 55 2 1 3,1 GNP pei capita, Atlas method (growth, %) -3 0 -3 9 -10 9 2 45 3 0 10 GNP pet capita, PPP (cunent international $) 3,210 3,200 3,120 31897 3,050 3,080 4,577 4,880 Pivate consumption (annual% growth) -5 8 -103 1 9 4 3 4 3 4 3 Poverty and Inequality (%) Population below national poverty line as a% 13 1 190 Rural 180 272 Urban 7 6 12 0 Laboi foice, children 10-14 (% of age group) 106 5 6 2 6 100 5 0 140 GINI Coefficient 392 395 39 5 320 percentage share, Lowest 10% 2 8 percentage share, Highest 10% 30 5 Education & Gender Illiteracy rate, adult total (% of people 15+) 61 54 1 52 9 520 330 473 380 260 Illiteracy rate, adult male (% of males 15+) 470 407 397 389 21 9 353 270 19 0 Illiteracy rate, adult female (% of females IS+) 75 0 67 3 66 0 649 442 595 500 340 School erollment, primary (% gross) 71 5 83 5 1165 1005 960 1080 School enrollment, primary, female (% gross) 58 9 71 4 95 0 88 0 School enrollment, primary, male (% gioss) 83 7 95 2 98 0 School enrollment, secondary (% gross) 362 38 5 63 9 64 0 580 School enrollment, secondary, male (% gross) 41 6 43 8 660 796 School enrollment, secondary, female (% gross) 304 33 0 632 699 Public spending on education (% of GNP) 5 6 5 4 5 0 6 7 4 8 5 2 4 3 Health & Gender Life expectancy at birth, total (years) 64 5 66 6 669 69 5 663 67 0 65 0 Life expectancy at birth, female (year s) 660 690 68 8 68 0 68 0 670 Life expentancy at birth, male (years) 62 0 65 0 65 1 680 650 66 0 63 0 Safe water (% of population with access) 582 690 84 0 81 0 75 0 Safe water, rural (% of r ujal population with access) 14 0 420 740 Safe water, urban (% of urban population with access) 1000 1000 950 Sanitation (% of population with access) 63 2 65 0 800 700 Sanitation, urban (% of urban population with access) 95 8 95 0 Mortality rate, infant (per 1,000 live births) 600 51 0 494 300 51 0 490 600 Mortality rate, under-5 (per 1,000 live births) 670 . 61 0 330 66 1 62 0 83 0 Malnutrition prevalence (% of children under 5) 9 5 11 7 152 Contraceptive prevalence (/c of women 15-49) 4r.5 500 600 480 530 61 0 Fertility rate, total (births per woman) 3 8 3 1 3 0 2 8 3 2 4 0 3 0 Mortality ratio, maternal (per 100,0001ife births) 340 51 0 300 51 0 490 360 Health expenditure, public (% of GDP) 1.3 1.3 .. .. 6.7 1.6 4.7 4.4 ILatest single year when available S = US dollar Sowces: World Development Indicators (World Bank, 2000); draft CAS for Morocco (World Bank, April 11, 2001); Moroccon Government Comprehensive Development Review (6/30/99) Annex A 20 Annex Table 3: Morocco-Macroeconomic Indicators, 1989-1999 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Real GDP Growth (%) 25 39 69 -40 -10 104 -66 122 -22 68 -0.7 Real Non-Agricultural GDP Growth (%) 63 36 46 -04 26 23 36 32 39 30 Real GNP Per Capita (% growth) 00 3 1 4.7 -57 -34 86 -84 102 -38 5.3 -10 Imports(% of GDP) 260 290 262 275 269 299 332 249 25.9 261 27.7 Exports(% of GDP) 170 194 183 174 179 20.8 236 172 18.8 178 188 Conumei Price Index 698 746 806 852 896 942 1000 103.0 1039 1069 1080 Foreign Direct Invmt (% of GDP) 03 07 06 1.1 15 1.8 15 1.4 39 16 54 Budget Deficit (% of GDP) -5 1 -22 -2 1 -1 4 -26 -3.2 -44 -3.3 -3 4 -2 5 -4.8 BOP Curr Acct Balance(% GDP) -35 -08 -1.5 -15 -2.0 -24 -3.6 01 -03 04 -0 8 Source World Bank indicators and IMF 21 Annex A Annex Table 4: OED Summary Rattns for Morocco, FY97-00 Numbet Percent Value Sm Petcent Adjustment Loans 3 18% 552 40% Non-Adjustment Loans 14 82% 818 60% TOTAL 17 100% 1,370 100% MENA 58 3,915 Batkwide $69 71,033 Number Pe>cent Value Sm Percent Satisfactory Outcome Adjustment Loans 2 67% 302 55% Non-Adjustment Loans 7 50% 482 59% Total Satisfactory Outcome 9 53% 784 57% MENA 40 69% 2,891 74% Bankwide 636 73% 57.655 81% Numbei Percent Value Sm Pepcent Likely Sustainability Adjustment Loans 3 100% 552 100% Non-Adjustment Loans 10 71% 573 70% Total Likely Sustainability 13 76% 1,125 82% MENA 32 55% 2,236 57% Baakwide 469 54% 46,654 66% Numbe, Percent Value Sm Petcent Substantial ID Adjustment Loans 1 33% 202 37% Non-Adjustment Loans 4 29% 373 46% Total Substantial ID 5 29% 575 42% MENA 18 32% 1,551 40% Bankwide 343 40% 32,062 47% Number Percent Value Sm Percent Development Objectives Satisfactory Satisfactory 17 85% 763 85% Unsatisfactory 3 15% 133 15% TOTAL 20 100% 896 100% MENA (Sat) 132 91% 6,630 91% Bankwide 1,408 93% 99,025 93% Implementation P; ogi ess Satisfactory Satisfactory l8 90% 833 93% Unsatisfactory 2 10 63 7% TOTAL 20 100% 896 100% MENA (Sat) 129 89% 6,222 85% Bankwide 1,353 90% 95.742 90% Number ofprojecs ARPP %Sat OED % Sat Net disc at exit Morocco 65% 53% 12% MONA 72% 68% 4% Bankwide 82% 73% 10 FY1997-0O Numb rI SD Morocco 17 6 5 21 MENA 57 6 5 19 Bankwide 861 6.7 1.9 Comprises projects approved and evaluated by OED as of August, 2000 in the OED Database, updated as of September 2000 2 The ratings of on-goingportfolio as of 10/31/2000 The "Disconnect" is the difference between the share of projects rated satisfactory during the last supervision year and the share of projects rated satisfactory after completion Thus it is an indication of the optimism in supervision ratings. Annex A 22 Annex Table 5: OED Evaluation Findings, FY97-00 OED Rated Projects On- Total Approved goingPortfolio*: Net Likely Projects / Projects / Net Number of Commitment, Satis Outcome Sustain Subst Inst Country Commitment $m (*) Commit $m (*) Projects $m (%)"o(%)* Devt (%)** Morocco 15/947 21/901 17 1,369 53/57 76/82 29/42 MENA 99/4,874 151 /7,493 58 3,915 69174 55/57 32/40 Bank-wide 1,230 / 93,964 1,614 /110,012 869 71,033 73/81 54I66 40/47 *As of August 2000 By number/by value ** As of October 31, 2000, Not all projects in the portfolio are rated Annex Table 6: Morocco AH Aproved Projects, Evaluated and Ongoing as of October 31, 2000 Fiscal year Pro. ID Title AmtD1$DA Outcome Institutional dev Sustainabitiy APPI Latest Latest Agnculture 1965 P005350 SIDI SLIMANE IRRIGATION 18 1966 P005351 AGRICULTURAL CREDIT 10 1970 P005355 SEBOU IRRIGATION 46 Unsatisfactory nr nr 1972 P005360 AGRIC. CREDIT CNCA 1I 34 Satisfactory nr nr 1974 P005365 SEBOU II DEVELOPMENT 32 Unsatisfactory nr nr 1975 P005369 MEKNES AGRICULTURE DEVT 14 Satisfactory nr nr 1975 P005370 SOUSS GROUNDWATER 19 Satisfactory nr nr 1976 P005372 DOUKKALA IRRIG 30 Satisfactory nr nr 1977 P005377 AGRICULTURE CREDIT Ili 35 Satisfactory nr nr 1977 P005378 DOUKKALA IRRIGATION II 41 Satisfactory nr nr 1978 P005381 KARIA-TISSA RAINFED AGR 55 Marginally Satisfactory Modest Uncertain 6 1979 P005384 CNCA IV 70 Satisfactory nr nr 1980 P005390 RURAL DEVT.LOUKKOS 34 Satisfactory Substantial Likely 8,25 1980 P005391 VEGETABLE PROD. & MKTG. 58 Satisfactory Modest Likely 7.25 1982 P005397 AG. DEV. MIDDLE ATLAS 29 Unsatisfactory Modest Unlikely 4.25 1982 P005398 FORESTRY PLANTATION PROJ. 28 Satisfactory Modest Likely 7.25 1983 P005404 AG.DEV.OULMES 30 Satisfactory Modest Uncertain 6.75 1983 P005405 SMALL&MED.IRRIG. 42 Satisfactory Substantial Likely 8.25 1984 P005410 CNCA-V 115 Satisfactory Modest Likely 7.25 1985 P005412 AGRIC.SEC.I 100 Satisfactory Modest Likely 7.25 1986 P005418' LARGE IRRGN. IMPROVE 46 Unsatisfactory Modest Uncertain 4.5 1986 P005424 'CNCA VI 120 Satisfactory Substantial Likely 8.25 1988 P005425 S.& M IRRIG.11 23 Satisfactory Modest Likely 7.25 1988 P005430 AGR.SECTOR li 225 Satisfactory Substantial Likely 8.25 1989 P005468 AGRIC. EXT. & RES. 28 Marginally Satisfactory Modest Unlikely 5.75 1989 P005469 NATIONAL AGRIC. CRED 190 Highly Unsatisfactory Negligible Unlikely 2 1990 P005437 FORESTRY 11 49 Satisfactory Modest Likely 7.25 1992 P005441 AG. SEC. INV. LOAN I 50 Unsatisfactory Modest Uncertain 4.5 1993 P005462 SECOND LSI IMPROVEME 215 S S 1994 P005486 MA-NATIONAL RURAL FINAN 100 Highly Unsatisfactory Negligible Unlikely 2 1994 P005493 ASIL II 121 Marginally Unsatisfactory Modest Likely 5.75 1994 P005499 IRR. AREAS AGR SERV 25 S S 1996 P041303 EMERG. DROUGHT RECOV 100 Highly Satisfactory Substantial Likely 10 1998 P005521 WATER RESOURCE MGMT. 20 S S 1999 P005519 LAKHDAR WATERSHED MG 4 S S 1999 P052247 PILOT FISHERIES DEV. 5 S S Economic Policy 1992 P005477 SAL II 275 Satisfactory Modest Uncertain 6.75 1999 P058356 POLICY REFORM SUPPOR 250 Education 1966 P005353 EDUCATION I 11 Satisfactory nr nr 1972 P005362 EDUCATION lI 9 Satisfactory nr nr 1976 P005374 EDUCATION III 25 Satisfactory nr nr 1979 P005386 EDUCATION IV 113 Satisfactory Negligible Uncertain 6.25 1982 P005401 EDUCATION V 50 Unsatisfactory Negligible Uncertain 4 1985 P005415 VOC. TRNG. I 27 Unsatisfactory Modest Uncertain 4.5 1986 P00421 EDUCATION SECTOR I 150 Unsatisfactory Substantial Likely 6 1987 P005426 VOC.TRAINING 11 22 Satisfactory Modest Likely 7.25 1989 P005480 RURAL PRIMARY EDUCAT 83 Unsatisfactory Negligible Uncertain 4 1991 P005460 BASIC EDUCATION 145 Unsatisfactory Negligible Uncertain 4 1996 P005501 SPI - EDUCATION 54 S S 1997 P038978 PSD Ill -VOC TRG. 23 U U Electric Pwr & Engy. 1974 P005367 POWER 25 Satisfactory nr nr 1976 P005375 SIDI CHEHO MULTIPURPOSE 49 Satisfactory nr nr, Annex Table 6: Morocco All Aproved Projects, Evaluated and Ongoing as of October 31, 2000 (continued) Fiscal Pro. ID Title IBRDIDA Outcome Institutional dev. Sustaability APPI Latest Latest yecrt ar Prj 0TteMt iO~m mpact Staabit API DO IP Electric Pwr. & Engy. (cont.) 1979 P005388 VILLAGE ELECTRIFICATION 42 Satisfactory nr nr 1982 P005402 OIL-SHALE ENGINEERING 20 Satisfactory nr nr 1988 P005428 POWER DISTRIBUTION P 90 Marginally Unsatisfactory Modest Uncertain 5.25 1991 P005459 SECOND RURAL ELECTRI 114 Marginally Unsatisfactory Modest Likely 5.75 Environment 1994 P005504 ENVIRONMENT MANAGEME 6 Moderately Unsatisfactory Modest Likely 5.75 Finance 1963 P005349 BNDE I (DFC) 15 1966 P005352 BNDE II(DFC) 18 1969 P005354 BNDE III (DFC) 15 Satisfactory nr nr 1970 P005356 BNDE IV (DFC) 15 Unsatisfactory nr nr 1971 P005358 BNDE V (DFC) 35 Satisfactory nr nr 1973 P005363 BNDE VI (DFC) 24 nr nr nr 1975 P005371 BNDE VII (DFC) 30 Satisfactory nr nr 1977 P005379 BNDE VIII (DFC) 45 Satisfactory nr nr 1982 P005399 BNDE IX 70 Satisfactory Substantial Likely 8.25 1983 P005406 ,FEC/MUNICIPALIrIES 16 Satisfactory Modest Uncertain 6.75 1987 P005452 IND.EXP FINANCE 1 70 Unsatisfactory Negligible Unlikely 3.75 1990 P005458 INDUSTRIAL FINANCE 170 Marginally Satisfactory Negligible Uncertain 5.5 1991 P005495 MA-FINANCIAL SECTOR DEVELOPMENT 235 Satisfactory Substantial Likely 8.25 1996 P005522 FIN.MARKETS DEV. 250 Marginally Unsatisfactory Modest Likely 5.75 HIth, Nutn & Popultn 1985 P005422 HEALTH DEVELOPMENT 28 Satisfactory Modest Likely 7.25 1990 P005440 HEALTH SECTOR INVEST 104 Marginally Unsatisfactory Modest Uncertain 5.25 - 1996 P042415 SPI-HEALTH 68 S S 1999 P005525 HEALTH MANAGEMENT 66 S S Industry 1974 P005366 MAROC PHOSPHORE 50 Satisfactory nr nr 1977 P005380 CIOR CEMENT 45 Satisfactory nr nr 1979 P005385 SMALLSCALE INDUSTRIES 25 Satisfactory nr nr 1982 P005400 SMALL SCALE IND II 70 Satisfactory Negligible Likely 6.75 1985 P005413 ELEC.MECH.IND 25 Unsatisfactory Modest Uncertain 4.5 Mining 1979 P005387 MAROC PHOSPHORE EXPANSION 50 Satisfactory nr nr 1982 P005403 SMALL SCALE MINING ENG 10 Unsatisfactory Negligible Unlikely 3.75 1985 P005416 JERADA COAL 27 Highly Unsatisfactory Negligible Unlikely 2 Multisector 1984 P005411 IND.TR.POL(SAP) 150 Satisfactory Substantial Uncertain 7.75 1986 P005414 IND. TR. POL (ADJ. i) 200 Satisfactory Substantial Uncertain 7.75 1989 P005472 SAL I 200 Satisfactory Modest Uncertain 6.75 Oil & Gas 1980 P005392 PETROLEUM EXPLORATION I 50 Satisfactory nr nr 1983 P005407 PETROLEUM EXPL. II 75 Satisfactory Modest Likely 725 Private Sector Devel 1997 P043725 RAILWAY RESTR & PRIV 85 S S 1999 P058128 MA-TELECOM, POST AND IT 101 S S Public Sector Mgmt. 1987 P005466 PERL 240 Satisfactory Substantial Uncertain 7.75 1989 P005473 PUBLIC ADMIN. LOAN 23 Satisfactory Modest Likely 7.25 2000 P063918 LEGAL AND JUDICIAL DEVELOPMENT 5 Annex Table 6: Morocco All Aproved Projects, Evaluated and Ongoing as of October 31, 2000 (contilnued) Fiscal Prol. ID Tiffe IBRD/IDA Outcome Institutional dev Sustainability APPI Latest Latest year Amt ($m) impact DO IP Social Protection 1996 P042414 COORIMON SOCIAL PRO 28 S S 1998 P047582 MA-CONTRACTUAL SAVINGS 100 Marginally Satisfactory Modest Likely 6.5 Telecommunications 1987 P005420 TELECOMMUNICATIONS I 125 Satisfactory Substantial Likely 8.25 1993 P005438 TFLECOM.RESTRUCTURIN 100 Highly Satisfactory Substantial Likely 10 Transportation 1970 P005357 ROADS I 15 Satisfactory nr nr 1974 P005368 ROADS II 29 Satisfactory nr nr 1980 P005393 ROADS 111 62 Satisfactory nr nr 1983 P005408 HIGHWAYS IV 85 Satisfactory Modest Likely 7.25 1986 P005417 PORT PROJECT 22 Highly Satisfactory Substantial Likely 10 1990 P005481 FIFTH HIGHWAY PROJEC 79 Satisfactory Modest Likely 7.25 1991 P005433 PORT SECTOR 132 Satisfactory Substantial Likely 8.25 1995 P005489 MA-SECONDARY ROADS 58 S S Urban Development 1971 P005359 CIN HOTEL FINANCING 10 Satisfactory nr nr 1972 P005361 CIH HOTEL FINANCING I 15 Satisfactory nr nr 1976 P005373 CIH HOTEL FINANCING III 25 Satisfactory nr nr 1976 P005376 TOURISM INFRASTRUCTURE 21 Unsatisfactory nr nr 1978 P005382 URBAN DEVELOPMENT I 18 Satisfactory Negligible Unlikely 6 i981 P005394 CIN IV 100 Satisfactory Substantial Likely 8.25 1981 P005395 URBAN II 36 Satisfactory Negligible Unlikely 6 1983 P005409 URBAN III 60 Satisfactory Modest Likely 7.25 1990 P005434 HOUSING FINANCE 81 Marginally Satisfactory Negligible Likely 6 1993 P005514 LAND DEVELOPMENT 130 1993 P005517 MA-MUNICIPAL FINANCE 1 104 Satisfactory Substantial Likely 8.25 1998 P005523 MUNICIPAL FINANCE II 70 U S 1999 P005524 MA-FESIMEDINA REHAB. 14 S S SUSTAINABLE COASTAL TOURISM 2000 P065757 DEVELOPMENT 2 S S Water Supply & Santn 1973 P005364 CASABLANCA WATER SUPPLY 48 Satisfactory nr nr 1978 P005383 CASABLANCA SEW-ENGR 2 Satisfactory nr nr 1979 P005389 WATER SUPPLY 11 49 Satisfactory Substantial Likely 8.25 1981 P005396 WATER SUPPLY III 87 Satisfactory Substantial Likely 8.25 1987 P005423 NATL. WATER SUPPLY R 60 Satisfactory Substantial Likely 8.25 1987 P005449 GREATER CASABLANCA S 60 Marginally Satisfactory Modest Likely 6.5 1994 P005435 WATER SUPPLY V 160 S S 1996 P005503 SEW.& WATER REUSE II 40 U U 1998 P040566 RURAL W.S.& SANITATN 10 S S Annex A 26 Annex Table 7: Morocco-Active Loans as of December 1, 2000 Approval Net Commit Undisbursed Last ARPP Name of Project Loans Supervision FY (USSM) Balance Rtn Rating Devt Imp Prorject Obi. Prog. at risk COORIMON SOCIAL PRO 1996 40260 28 11 6 S S Non risky HEALTH MANAGEMENT 1999 44240 66 546 S S Non risky IRR. AREAS AGR SERV 1994 36880 15 4 2 S S Non risky LAKHDAR WATERSHED MG 1999 44260 4 3 8 S S Non risky LEGAL AND JUDICIAL DEVELOPMENT 2000 45630 5 5 4 n a n a Non risky MA-FES/MEDINA REHAB 1999 44020 14 11.6 S S Non risky MA-SECONDARY ROADS 1995 39010 58 21 7 S S Non risky MA-TELECOM, POST AND IT 1999 44650 101 50 S S Non risky MUNICIPAL FINANCE 11 1998 42310 70 21 U S Actual PILOT FISHERIES DEV. 1999 44640 5 4 S S Non risky PSD III-VOC TRG 1997 40910 '23 127 U U Actual RAILWAY RESTR & PRIV 1997 41280 85 633 S S Non risky RURAL W S & SANITATN 1998 42540 10 5 6 S S Non risky SECOND LSI IMPROVEME 1993 35870 144 28 2 S S Non risky SEW.& WATER REUSE II 1996 40100 40 303 U U Actual SPI - EDUCATION 1996 40240 54 30 8 S S Non risky SPI - HEALTH 1996 40250 68 15 9 S S Non risky SUSTAINABLE COASTAL TOURISM DEV 2000 45730 2 23 S S Non risky WATER RESOURCE MGMT 1998 42890 20 17.2 S H S Non risky WATER SUPPLY V 1994 36640 89 20.9 S S Non risky Annex Table 8a: Comparative Cost Table for Morrocco and MENA, FY97-99 Net Total costs $ per Net commit. for satisf. Total costs $ per $1000 of Total cost Average total cost commitment $1000 of net and nonrisky projects, net commit. for satisf. & ($m) No. of projects $'000 per project $m commitment $m nonrisky projects Morocco 13.9 12 1,158.3 370.5 37.5 272.2 51.1 MENA 60.8 63 965.1 2,539.0 23.9 2,077.6 29.3 Bank wide 843.1 888 949.4 54,991.4 15.3 48,316.9 17.4 Annex Table 8b: Comparative Cost Table for Morrocco and MENA, FY91-99 Net Total costs $ per Net commit. for satisf Total costs $ per $1000 of Total cost Average total cost commitment $1000 of net and nonrisky projects, net commit. for satisf & ($m) No. of projects $'000 per project $m commitment $m nonrisky projects Morocco 37.5 34 1103.0 2,141.0 17.5 1,455.0 25.8 MENA 175.3 170 1031.0 10,324.0 17.0 7,732.0 22.7 Bankwide 2,266.10 2,310 981.0 167,653.0 13.5 141,008.0 16.1 Annex A 28 Annex Table 9: Morocco-Development Assistance by Donor: Total Receipts Net in $m Donor Countries 1986-1990 1991-1993 1994-1998 IBRD 1,129.3 419.7 -98.6 African Development Bank 571.23 543.9 283.4 EC 117.8 349.9 1292.2 Italy 453.8 313.2 360.5 France 539.4 485.3 1,181.1 Japan 211.2 40.8 -197.8 Spain 222.4 383.0 197.2 UN Agencies 156.9 100.8 65.7 Others 2,322.2 1,181.9 561.2 Total Receipts Net 5,724.3 3,818.4 3,644.9 Source: OECD CD ROM 2000 "International Development Statistics" Annex Table 10: Morocco-IBRD Flows ($m) Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 a. Gross Commitments 482.5 626.0 325.0 549.0 412.0 57.6 540.0 108.0 200.0 440.0 7.5 b. Gross Disbursements 372.4 357.5 506.1 347.2 310.7 231.5 485.0 301.7 270.9 411.4 106.8 c. Repayments 183.2 222.4 243.1 289.3 291.9 333.2 344.0 325.7 301.6 298.6 332.0 d. Net flows (b-c) 189.2 135.1 263.0 57.9 18.8 -101.7 141.0 -24.0 -30.7 112.8 -225.2 e. Interest payment and fees 209.3 238.4 241.0 258.5 263.3 278.7 274.4 249.9 218.1 215.8 200.4 f. Net transfers (d-e) -20.1 -103.3 22.0 -200.6 -244.5 -380.4 -133.4 -273.9 -248.8 -103.0 -425.6 Source: CTR X Annex A 30 Annex Table 11 Morocco STATEMENT OF IFC's Held and Disbursed Portfolio As of October 2000 IFC Data Warehouse (Amounts in US Dollar Millions) IFC Held IFC Disbursed FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1995 Attijari 0.00 0.48 0.00 0.00 0.00 0.48 0.00 0.00 1987/90 CIH 5.30 0.00 0.00 0.00 5.30 0.00 0 00 0.00 1990 ENNASR 0.94 0.00 0.00 0.00 0.94 0.00 0.00 0.00 2000 Maghreb Inv. Mgt. 0.00 0.02 0.00 0.00 0.00 0.02 0.00 0.00 2000 Maghreb Invest P 0.00 5.00 0.00 0.00 0.00 1.25 0.00 0.00 2001 Medi Telecom 66.38 0.00 22.13 296.70 0.00 0.00 0.00 0.00 1994/96 Mediafinance 0.00 1.16 0.00 0.00 0.00 1.16 0.00 0.00 1999 Settavex 3.43 9.00 0.00 0.00 3.43 9.00 0.00 0.00 Total Portfolio: 76.04 15.66 22.13 296.70 9.67 11.91 0.00 0.00 Approvals Pending Commitment FY Approval Project Name Loan Equity Quasi Partic 2000 Tikida 4.45 0.00 2.23 0.00 Total Pending: 4.45 0.00 2.23 0.00 Annex Table 12: Bank Senior Management and Country Team Responsible for Morocco in the Last Ten Years FY Vice President Director Division Chief Res. Representative Country Officer Country Economist 1991 Willi Wapenhans Kermal Dervis Wafik Grais n.a. J. Coudol Isabel Guerrero 1992 Caio Koch-Weser Pieter Bottellier Mahmood Ayub n.a. J. Coudol Isabel Guerrero 1993 Caio Koch-Weser Harinder Kohli Mahmood Ayub n.a. J. Coudol Ali Khadr 1994 Caio Koch-Weser Daniel Ritchie Mahmood Ayub n.a. J. Coudol Ali Khadr 1995 Caio Koch-Weser Daniel Ritchie Christian Delvoie n.a. Rene Vaurs Luc De Wulf 1996 Kermal Dervis Daniel Ritchie Christian Delvoie n.a. Rene Vaurs Luc De Wulf 1997 Kermal Dervis Daniel Ritchie Christian Delvoie n.a. Rene Vaurs Luc De Wulf 1998 Kermal Dervis Christian Delvoie n.a. Olivier Godron n.a. Paolo Zacchia 1999 Kermal Dervis Christian Delvoie n.a. Olivier Godron n.a. Paolo Zacchia 2000 Jean-Louis Sarbib Christian Delvoie n.a. Olivier Godron n.a. Paolo Zacchia 33 Annex B World Bank Group and IMF Staff Interviewed World Bank Group Staff and Consultants Laila Al-Hamad Regina Bendokat Denis Chaput Christian Delvoie Luc De Wulf Karim El Aynaoui Leila El-Hafi Mourad Ezzine Marisa Fernandez-Palacios Olivier Godron Margaret Henderson Ali Khadr Amine Khene Hassan Lamrani Linda Likar Douglas Lister Michel Loir Karen Mason Carmen Niethammer Anne Paugam Axel Peuker Christian Rey Dan Ritchie Shaha Riza Eluned Roberts-Schweitzer Lorenzo Savorelli Clemencia Torres Hans Wyss Paolo Zacchia IMF Valeria Fichera Edward Gardner Karim Nashashibi 35 Annex C List of People Met: Morocco, October 22-28, 2000 Government Ministère de l'Agriculture, du Développement Rural et des Pêches Maritimes M. Mohamed Ait Kadi, Secrétaire Général Ministère des Affaires Générales du Gouvernement M. Hassan Benabderrazik, Secrétaire Général Mme. Sabah Benchekroun, Relations Economiques Internationales M. M'hamed Hilali, Relations Economiques Internationales M. Karim Mansouri, Relations Economiques Internationales M. Younes Zrikem Ministère du Développement Social, de la Solidarité, de l'Emploi et de la Formation Professionnelle S.E. Abbas El Fassi, Ministre M. M'Hamed Karmouni, Secrétaire Général Mme. Naima Senhadji, Chef de la Division de Coopération Internationale, Directeur national du Programme pilote de lutte contre la pauvreté en milieu urbain et péri-urbain M. Guédira Najib, Directeur de la Agence de Développement Social (ADS) Ministère de l'Economie, des Finances et du Tourisme M. Nourredine Omary, Secrétaire Général M. Abdeltif Loudyi, Directeur du Trésor et des Finances Extérieures M. Fouad Sanir, Chef de la Division des Financements et Relations Multilatéraux, Direction du Trésor et des Finances Extérieures M. Abdelouahed Kabbaj, Directeur des Establishments Publics et des Participations M. Thami El Barki, Directeur des Assurances et de la Prévoyance Social M. Abdelcif Bennan, Adjoint au Directeur du Budget M. Mohammed Bougroun, Adjoint au Directeur du Budget Ministère de l'Education Nationale M. Ahmed Lamrini, Secrétaire Général M. Fedouane Belarbi, Directeur de la Stratégie, des Etudes et de la Planification M. Lahoussine Hajjad, Responsable de l'Unité de Gestion du Projet BAJ Mme. Latifa El Abida, Directrice de Budget et du Contrôle de Gestion M. Abdel Iloh Tahri, Chef de Service des Financements Extérieurs Ministère de la Fonction Publique et de la Réforme Administrative M. Abdelouahed Ourzik, Directeur de la Reforme Administrative 36 Annex C Ministère de la Prévision Economique et du Plan M. Mohamed Bijaad, Secrétaire Général, M. Ahmed Ibrahimi, Directeur de la Programmation Ministère de la Santé S.E. Thami El Khyari, Ministre M. Mohamed Laaziri, Directeur de la Planification et des Ressources Financières M. Jilali Hazim, Chef de la Division Financière Donors United States Agency for International Development (USAID), Morocco M. James Bednar, Director M. Abderrahim Bouazza, Economist Union Européenne M. Lucio Guerrato, Directeur M. Juan Jorge de la Caballeria, Conseiller Agence Française de Développement (PROPARCO) M. Rémi Genevey, Directeur 37 Attachment 1 I OBSERVATIONS CONCERNANT LE RAPPORT D'EVALUATION DE LA STRATEGIE DE COOPERATION BANQUE MONDIALE / MAROC 1- Choix de Uériodes pour I'anuréciation du taux de croissance du PIB Le rapport estime que le taux de croissance du PIB marocain, qui était de 4% en moyenne annuelle pendant la période 86-91, est tombé à 1,9% pendant la période 91-98. Il convient de signaler que le choix des périodes pour l'appréciation de l'évolution du PIB n'est pas pertinent dans la mesure où entre 1984 et 1990 on recense uniquement une année de sécheresse, alors qu'entre 1990 et 1998 on recense 4 années de sécheresse sévère. Le choix d'autres périodes aurait permis de nuancer le raisonnement sur la croissance, sinon même de l'inverser. Ainsi, en comparant les périodes 86-91 et 92-98, la Banque aboutit au constat que la croissance y est revenue de 4,1% par an à 1,9% par an et tire une série de conclusions sur la base de ce constat. Or, si par exemple on retenait les deux périodes 88-93 et 93-98, le taux de croissance passerait, alors, de 1,6% par an à 3,8% par an. Avec ce choix, la conclusion qui se serait imposée c'est que le rythme de la croissance a plus que doublé sur les cinq dernières années par rapport aux cinq années précédentes. Ce serait là un constat qui remet en cause toutes les conclusions de l'étude. 2- Choix des indicateurs -our rendre comte de certaines évolutions Selon ce rapport, la croissance des exportations est tombée sous les 5% par an alors qu'elle atteignait 14% pendant la deuxième moitié des années 80. Cette tendance est à, iiancer dans la mesure où si on exprimait ces mêmes exportations en Euro, ce qui serait plus logique puisque l'essentiel de nos exportations sont destinées à l'Europe, les deux pourcentages seraient respectivement de 9% et 8%. La conclusion qui s'imposerait alors dans ce cas c'est que nos exportations connaissent une certaine stabilité de leur rythme de progression et non plus un fort recul Attachment 1 38 3- Exécution et résultats du CAS de 1997 Le rapport d'évaluation souligne la grande différence entre ce qui est prévu et ce qui est réalisé. Il estime en outre que les résultats du CAS de 1997 sont jugés marginalement insatisfaisants et que les objectifs du CAS n'ont pas été atteints. Les résultats mitigés du CAS de 1997 s'expliquent notamment par: e une mise en place du CAS en l'absence d'un cadre stratégique de référence défini et précis tel que le plan de développement économique et social Il faut souligner que pour l'avenir, le gouvernement a élaboré un plan quinquennal couvrant la période 2000-2004, qui définit les priorités et les programmes d'action, ce qui est de nature a mieux orienter, aussi bien les efforts de développement de l'Etat que les actions d'aide et d'appui de la Banque Mondiale. • Des insuffisances au niveau de la préparation et de l'évaluation des projets en amont. 4- PRES et réformes Le rapport estime que: • le programme PRES n'a pas permis la redynamisation des réformes prévues par le CAS. " Le PRES n'était pas suffisamment ciblé, pour avoir un impact important là où des réformes étaient indispensables et que beaucoup de mesures ne se sont pas traduites par des résultats concrets. l Les résultats du PRES, à quelques exceptions près, ont été décevants, et ne semblent pas justifier la place centrale qu'il occupait dans le programme de prêt (Page 5 et P. 14) A cet égard, il convient de souligner que le PRES traduisait avant tout la volonté de la Banque d'appuyer le gouvernement pour entreprendre des réformes dans les domaines économique et social. D'autres prêts similaires devaient suivre pour soutenir la mise en ouvre des principales réformes. Ainsi il faut noter que plusieurs mesures de court terme ont été prises avant la présentation du PRES au Conseil d'Administration de la Banque portant essentiellement sur l'adoption de textes législatifs et d'études en vue de préparer le cadre institutionnel nécessaire au développement économique et social. D'autre part des réformes et des mesures ont été définies dans la 39 Attachment 1 lettre de politique de développement et constituaient de ce fait, les engagements du gouvernement à moyen terme. A ce titre, d'importantes réformes ont été engagées. Elles s'intègrent parfaitement dans le cadre de la stratégie du Gouvernement avec comme objectif central une croissance forte et durable et la réduction des disparités sociales. Bien que certaines mesures ne se sont pas encore traduites par des résultats concrets, elles ne manqueront pas d'avoir un impact appréciable à moyen terme. En conséquence, il s'avère prématuré au stade actuel de réalisation, de porter des jugements sur les résultats du PRES. - Le rapport note également que plus particulièrement le PRES constituait « un risque qui n'a pas été payant, si le but était de faire adhérer plus résolument les autorités à un programme soutenu de réformes ». Il est proposé de reformuler ce paragraphe en précisant que le PRES a permis le lancement d'importants chantiers de rélormes - En matière de libéralisation des échanges, il faut souligner que le Maroc a fourni des efforts appréciables afin de libéraliser davantage son économie. Le Maroc met en oeuvre toutes les clauses du GATT en matière de démantèlement tarifaire; celles-ci sont appliquées à tous les pays partenaires. En outre, dans le cadre de l'Association avec l'Union européenne, un programme de démantèlement est en cours d'application, qui a pour objectif la libéralisation totale des échanges des produits non agricoles sur une période de 12 ans. Cette expérience a été élargie à beaucoup d'autres pays, notamment africains et arabes, avec lesquels le Maroc a signé des accords d'association similaires, contrairement à ce qui est précisé dans le rapport. (p 5) - Par ailleurs, le rapport souligne que « la déclaration de politique de développement promettait une réforme progressive du régime des subventions, mais le système est toujours en place ». A cet égard, il convient de souligner qu'une réforme de la filière oléagineuse est entrée en application à partir du l' novembre 2000. Cette réforme qui s'accompagne d'une libéralisation des prix des huiles, vise en priorité à faire profiter le consommateur d'une gestion plus dynamique de la caisse de compensation, en lui offrant une gamme variée d'huiles alimentaires à un prix inférieur ou égal à celui en vigueur actuellement, à préserver les revenus des agriculteurs producteurs de tournesol et à assurer, grâce aux possibilités de coupage avec l'huile d'olive, un débouché supplémentaire à la production nationale de cette denrée. Attachment 1 40 L'aboutissement de cette réforme passe par une baisse au taux minimum de 2,5% des droits à l'importation sur les graines oléagineuses et les huiles brutes afin de permettre aux industriels de s'approvisionner au moindre coût d'approvisionnement sur le marché international et d'instaurer une concurrence saine et loyale entre triturateurs et raffmeurs Cette réforme sera accompagnée en même temps d'une protection douanière significative de l'huile raffinée et d'une baisse de la protection des tourteaux, ce qui permettra une décrue des prix des aliments de bétail et partant de ceux des protéines animales notamment avicoles. Parmi les autres mesures d'accompagnement qui garantiront l'aboutissement de cette réforme, il sera procédé au paiement aux agriculteurs de la différence entre le prix actuel et le prix de revient de la graine importée. Cette réforme de la filière oléagineuse s'ajoute aux mesures déjà prises en 1999 concernant la restitution par les industriels des subventions accordées au sucre granulé utilisé dans l'industrie. 5- Réforme duï secteur public Le rapport juge que le changement a été lent dans plusieurs domaines principaux (réforme du secteur public, privatisations...). L'idée que le changement dans les domaines principaux s'est caractérisé par la lenteur n'est pas suffisamment argumentée. A cet effet, les rapports établis sur le secteur des EEP par le Ministère de l'Economie et des Finances à l'occasion de la préparation des projets de lois de finances depuis 1998/1999 à nos jours, fait état d'importantes réalisations en la matière. Copies desdits rapports pourraient être mises à la disposition de la Banque Mondiale pour complément d'information. 6- Prfts à Paiustement: Prooçt_de développement de l'élparne institutionnelle. Les résultats de ce projet sont jugés superficiels et parfois éphémères. Or, il faut noter que ce programme a permis le lancement de réformes structurelles d'envergure dont les acquis s'inscrivent dans le moyen terme. A ce titre, on citera notamment les règlements des sinistres des compagnies d'assurance liquidées, la libéralisation en cours des tarifs d'assurance, la réflexion sur le devenir des systèmes de retraite et sur les missions de la CDG 41 Attachment 1 7- Poids des EEP dans léonomie nationale Le rapport note que la part du secteur public dans la valeur ajoutée a peu évolué depuis 1990. La part du secteur public dans la valeur ajoutée a plutôt connu une baisse due notamment à la privatisation d'importantes entreprises (SONASID, SAMIR, SCP, FERTIMA, BCME, RAD, RED.. .) et au transfert au privé de certaines activités telles que la production de l'électricité, de l'eau. 8- Secteur financier Le rapport mentionne (p.9) le fait que les services bancaires et la mobilisation de l'épargne restent faibles. A cet égard, il faut noter que l'épargne a évolué à un rythme soutenu, puisque le taux d'épargne intérieure est passé de 15,8% du PIB en 1996 à 20% en 1999. Les banques commerciales ont joué un grand rôle dans la mobilisation de cette épargne. En outre, les différentes réformes qu'a connu le secteur financier devraient dynamiser davantage l'activité bancaire, essentiellement dans la mobilisation de l'épargne grâce à la création de nouveaux instruments d'épargne. dans ce sens, le Plan prévoit un taux d'épargne intérieure de 24,3% du PIB en 2004. 9- Moratoire de mise en vigueur de la loi sur le transnort de marchandises par route Selon le rapport , un moratoire de 2 ans a été fixé pour la mise en ouvre de la loi sur le transport de marchandises par route. Effectivement, l'article 6 de la loi n° 16-99 relative au transport routier de marchandises prévoit que celle-ci n'entrera en vigueur qu'à l'expiration d'un délai de 36 mois à compter de la date de sa publication au bulletin officiel (13 mars 2000). Ce moratoire était rendu nécessaire pour la mise à niveau de l'ONT (compression des effectifs, restructuration...) d'autant plus que la même loi fait obligation à cet office de se transformer en Société Anonyme quatre ans à partir de la date de sa promulgation. 10- Régulation du secteur des télécommunications Il est avancé dans le paragraphe 3.7 qu'une commission indépendante est chargée de la régulation des activités des télécommunications. Attachment 1 42 En vertu de la loi n° 24-96, la régulation des activités des télécommunications est confiée à l'ANRT et non à une commission indépendante de régulation. 11- Gdstion de services de eau Il est avancé dans le paragraphe 3.18 que la plupart des services de l'eau relèvent du secteur public avec comme corollaire une gestion inefficace et peu compétitive. Ce constat est peu réaliste dans la mesure où les activités de distribution de l'eau ont été concédées au privé dans les grandes villes (Casablanca, Rabat) ou en cours de concession (Tanger, Tétouan). En effet, sur un volume d'eau de 404 millions de m3 distribué par l'ensemble des distributeurs communaux hors ONEP (125 m3), les deux concessionnaires de Rabat et Casablanca contribuent pour 178,8 millions de m3 soit 44% du total. 12- Recours aux urêts de la Baque Mondiale Le paragraphe 3.28 évoque le peu d'intérêt manifesté par de nombreuses administrations pour la mobilisation des prêts de la Banque Mondiale. Il est vrai que le recours à la Banque Mondiale a connu un fléchissement ces dernières années pour plusieurs raisons : - lourdeur dans le processus de préparation, d'évaluation et d'exécution des projets ; - meilleur ciblage des opérations devant être confiées au financement de la Banque Mondiale (assistance technique, restructuration); - contraintes budgétaires dues au fait que toute opération devant être soumise au financement de la Banque doit être justifiée par un support budgétaire. Concernant le portefeuille des projets des Entreprises Publiques financés par la Banque Mondiale, il a connu également une régression. Celle-ci s'explique essentiellement par: • une amélioration de leurs performances financières; " une politique de désendettement amorcée par certains Etablissements Publics (ODEP, IAM, Régies de Distribution...) ; 43 Attachment 1 • un meilleur recentrage des bailleurs de fond en fonction de la nature du projet notamment pour les projets à caractère social nécessitant des financements concessionnels plus avantageux. 13- Revenus des privatisations Le rapport estime que la Banque devrait favoriser la discussion avec les autorités sur le meilleur usage de l'aubaine provenant des revenus des privatisations. Il a été décidé que le Fonds HASSAN Il pour le développement économique et social recouvre 50% du produit des privatisations en vue de concrétiser des projets d'investissement. 14- Recommandations et orientations pou le prochain CAS - Le rapport indique que les recommandations du CAS de 1997 restent d'actualité. Il propose de mettre l'accent sur les questions liées à la gestion du secteur public, la réaffectation des crédits budgétaires en faveur des secteurs de l'éducation et de la santé et des zones rurales, l'appui à l'agriculture pluviale ainsi qu'à l'aide au développement du secteur privé. A cet égard, les actions à retenir au titre du prochain CAS devraient s'inscrire dans le cadre du plan quinquennal 2000-2004. Par ailleurs, il serait approprié que le prochain CAS cible pour ce qui est de la coopération avec la Banque des axes limités et définis de façon précise et hiérarchisée Ces axes pourraient concerner, le développement agricole (PMH, développement de la culture « bour »), le développement humain, le développement institutionnel à travers le soutien des réformes sectorielles. - Le rapport recommande l'adoption d'un taux de change fixé par le marché. Il y a lieu de rappeler que dans le contexte actuel marqué par une relative maîtrise des équilibres macro-économiques, la mesure demandée par la Banque ne semble pas appropriée dans la mesure où elle engendrerait des coûts en termes notamment de hausse d'inflation avec des conséquences sociales. Attachment 1 44 13- Activités d'Analyse et Conseils (AACI Le rapport estime que les AAC au Maroc sont coûteuses. Par ailleurs, il indique que compte tenu du coût élevé des AAC et de la capacité limitée à influer sur le point de vue des pouvoirs publics, il conviendrait que les futures études soient consacrées à des domaines essentiels où la Banque a toute les chances de faire évoluer la situation. Afin d'éviter des divergences de points de vue concernant ces études, il est suggéré : • d'arrêter d'une manière formelle la liste des travaux analytiques à entreprendre par la Banque ; • d'associer étroitement la prtie marocaine à l'élaboration de ces travaux, notamment aux niveaux de la collecte des données statistiques et des informations requises ainsi que de la démarche à adopter pour lesdits travaux ; et • de procéder à la revue desdits documents préalablement à leur finalisation et soumettre leur publication à l'approbation des autorités marocaines. 45 Attachment 2 COMMENTS REGARDING COUNTRY ASSISTANCE EVALUATION MOROCCO 1. Choice of periods for assessing GDP growth rate The report finds that the GDP growth rate in Morocco, which averaged 4% per year for the 1986-91 period, fell to 1.9% during the 1991-98 period. It is important to note that the periods chosen for assessing the evolution of the GDP are not relevant in that between 1984 and 1990, there was only 1 year of drought, whereas between 1990 and 1998 there were 4 years of severe drought. Choosing other periods would have permitted a more precise understanding of the growth, if not the opposite conclusion. By comparing the periods 1986-91 and 1992-98, the Bank found that growth went from 4.1% per year to 1.9% per year and drew a series of conclusions on the basis of this finding. However, if for example one used the two periods 1988-93 and 1993-98, the growth rate would go from 1.6% per year to 3.8% per year. With this choice, the conclusion would be that the pace of growth has more than doubled over the last five years compared to the preceding five years, which would make one question all the study's conclusions. 2. Choice of indicators for reporting on certain trends According to the report, growth in exports has fallen below 5% per year, whereas it reached 14% during the last half of the 1980s. This trend needs to be nuanced in that if one expressed the same exports in Euros, which would be more logical, since the majority of our exports are meant for Europe, the two percentages would be 9% and 8%, respectively. The conclusion in this case would be that our exports have shown a certain stability rather than a sharp set-back. 3. Implementation and Results of the 1997 CAS The evaluation report underlines the large difference between what is intended and what is achieved. It finds, among other things, that the results of the 1997 CAS were marginally unsatisfactory and the objectives of the CAS were not achieved. The modified results of the 1997 CAS can be explained as follows: * Implementation of the CAS in the absence of a clear and precise strategic framework such as the economic and social development plan. It must be noted that for the future, the government has developed a five-year plan covering the 2000-04 period, which defines the priorities and action plans, in order to better orient the development efforts of the State, as well as the World Bank's aid and support efforts. Attachment 2 46 * Inadequacies at the levels of project preparation and appraisal. 4. PRSL and reforms The report finds that: * The PRSL program did not permit the strengthening of reforms envisioned in the CAS. * The PRSL was not sufficiently targeted to have a significant impact in areas where reforms were essential and many measures did not translate into concrete results. * The performance of the PRSL, with few exceptions, was disappointing and does not seem to justify the central role it held in the lending program (pages 5 and 14'). In this regard, it must be noted that the PRSL reflected above all the willingness of the Bank to support the government in undertaking economic and social reforms. Other similar loans were to follow to support implementation of the principal reforms. Therefore it must be noted that several short-term measures were taken before presenting the PRSL to the World Bank Board of Directors, mostly concerning adoption of legislative texts and studies, with a view to preparing the necessary institutional framework for economic and social development. In addition, reforms and measures were set out in the development policy letter and thereby constituted the government's medium-term commitments. In this case, significant reforms were begun. They correspond perfectly to the Government's strategic framework with the central objective of strong and sustainable growth and reduction of social disparities. Although certain measures have not yet translated into concrete results, they will not fail to have significant medium-term impact. Consequently, it appears premature at this stage of implementation to judge the performance of the PRSL. - The report also notes that the PRSL itself constituted a "a risk which has not paid off in terms of cementing government ownership for a continuing reform program." It is proposed to reformulate this paragraph to specify that the PRSL permitted the launch of important reform work. - In terms of trade liberalization, it must be noted that Morocco has made appreciable efforts to further liberalize its economy. Morocco is implementing all clauses of the GATT in terms of tariff reduction; these are applied to all partner countries. In addition, in the framework of the Association agreement with the European Union, a tariff reduction program is being applied, with the objective of total trade liberalization of non-agricultural products over a period of 12 years. This experiment has been opened to many other countries, mostly African and Arab, with whom Note that the page references refer to the French translation of the previous version of the report. 47 Attachment 2 Morocco has signed similar association agreements, contrary to what is stated in the report (p. 5). - Also, the report notes that "the Letter of Development Policy promised gradual reform of the subsidy system, but the program has yet to be modified." In this regard, it is important to note that a reform of the edible oil subsector became effective as of November 1, 2000. The primary aim of this reform, which was accompanied by a liberalization of oil prices, is to allow the consumer to profit from a more dynamic management of the compensation fund by offering him a varied line of edible oils at a lower or equal price than is currently offered, while preserving the incomes of sunflower producers, and assuring, thanks to the possibility of diluting olive oil, a supplemental outlet for the national production of this commodity. The outcome of this reform is a decrease of the import duties to the minimum rate of 2.5% on edible oil and raw oils, to allow manufacturers to purchase them at the lowest prices on the international market and establish healthy competition between grinders and refiners. This reform will be accompanied by significant tariff protection on refined oil and a decrease in the protection of oil-cake, which will allow a decrease in livestock feed prices and thereby in process of animal proteins, particularly poultry. Among other accompanying measures that will guarantee the outcome of this reform will be a method of paying farmers the difference between the current price and the cost price of the imported grain. This reform of the edible oil subsector is in addition to the measures already taken in 1999 concerning the return by manufacturers of the subsidies given on granulated sugar used in manufacturing. 5. Public sector reform The report finds that change has been slow in several main areas (public sector reform, privatization ... ). There is insufficient support for the idea that change in the main areas was slow. In this regard, the reports prepared on the PE sector by the Ministry of the Economy and Finance at the time of preparation of the draft financial laws since 1998/99 make note of important achievements in this area. Copies of said reports could be made available to the World Bank for additional information. Attachment 2 48 6. Adjustment loans: Contractual savings development project The results of this project are judged to be superficial and sometimes short-lived. It must be noted, however, that this program permitted the launch of large-scale structural reforms with medium-term benefits. In this regard, one cites notably the claims regulations for liquidated insurance companies, the current liberalization of insurance tariffs, thoughts on the development of retirement systems and the missions of the CDG. 7. Weight of PEs in the national economy The report notes that the role of the public sector in value added has evolved little since 1990. To the contrary, the public sector's role in value added has decreased, due notably to privatization of large corporations (SONASID, SAMIR, SCP, FERTIMA, BCME, RAD, RED...) and to the transfer to the private sector of certain activities, such as production of electricity and water. 8. Financial sector The report mentions the fact that banking services and mobilization of savings remain weak (p. 9). In this regard, it must be noted that savings has evolved at a sustained pace, because the domestic savings rate went from 15.8% of GDP in 1996 to 20% in 1999. The commercial banks played a significant role in mobilizing this savings. Among others, the various reforms in the financial sector should further energize banking sector activities, mostly in mobilizing savings thanks to the creation of new savings instruments. In this sense, the Plan envisions a domestic savings rate of 24.3% of GDP in 2004. 9. Moratorium on enforcement of the law on road freight transport According to the report, a two-year moratorium was established for the implementation of the law liberalizing road freight transport. Actually, Article 6 of Law No. 16-99 relating to road freight transport specifies that it will not be effective until 36 months from the date of its publication in the official bulletin (13 mars 2000). This moratorium became necessary to allow for the reform of the ONT (staff reduction, restructuring...), even more because the same law required this office to convert to a corporation four years from the date of its enactment. 49 Attachment 2 10. Regulation of the telecommunications sector It is stated in paragraph 3.7 that an independent commission is charged with regulation of telecommunications activities. Law No. 24-96 states that regulation of telecommunications activities is entrusted to ANRT and not to an independent regulatory commission. 11. Management of water utilities It is stated in paragraph 3.18 that most water utilities are part of the public sector, and consequently suffer inefficient management and weak competitiveness. This finding is not very realistic in that water supply was concessioned to the private sector in the large cities (Casablanca, Rabat) or is in the process of being concessioned (Tanger, Ttouan). In fact, of 404 million m3 distributed by the group of community distributors outside ONEP (125 M), the two concessionaires in Rabat and Casablanca contribute 178.8 million m3, or 44% of the total. 12. Recourse to World Bank loans Paragraph 3.28 raises the issue of lack of interest shown by many ministries in World Bank loans. It is true that recourse to the World Bank has declined in recent years for several reasons: * Burdensome project preparation, appraisal, and implementation processes; * Better targeting of operations before being submitted for *World Bank financing (technical assistance, restructuring); * Budget constraints due to the fact that each operation being submitted for Bank financing must be justified by budgetary support. The portfolio of Public Enterprise projects financed by the World Bank has also declined. This is primarily because of: * An improvement in their fitiancial results; * A debt-reduction policy initiated by certain Public Institutions (ODEP, IAM, R6gies de Distribution...); * An improved targeting by donors in terms of the nature of the project, specifically for social projects requiring better concessional financing. 13. Privatization revenues The report finds that the Bank should encourage discussion with the authorities on better use of the windfall coming from privatization revenues. Attachment 2 50 It was decided that the HASSAN II Fund for economic and social development will receive 50% of the revenues from privatization with a view to carrying out investment projects. 14. Recommendations and directions for the next CAS - The report indicates that the recommendations of the 1997 CAS remain timely. It proposes to emphasize the questions linked to public sector management, redistribution of budgetary expenditures toward the education and health sectors and rural areas, support for rain-fed agriculture and support for private sector development. In this regard, the actions to be adopted in the next CAS should be integrated into the framework of the 2000-04 five-year plan. In addition, it would be appropriate for the next CAS to target limited, precisely defined and prioritized areas for cooperation with the Bank. These areas could be agricultural development (PMH, development of the "bour" culture), human development, and institutional development through support for sectoral reforms. - The report recommends adoption of a market-based exchange rate. It is important to remember that in the current context marked by a relative mastery of macroeconomic balances, the measure called for by the Bank does not seem appropriate in that it would generate costs, notably in terms of increased inflation, with social consequences. 15. Analytic and Advisory Activities (AAA) - The report finds that AAA in Morocco is costly. In addition, it indicates that in light of the high cost of AAA and the Bank's limited ability to influence government views, work should focus on key areas where the Bank is most likely to make a difference. In order to avoid divergent-points of view concerning these studies, the following procedures are suggested: * Draw up a formal list of analytical work to be undertaken by the Bank; * Closely associate the Moroccans to the development of this work, notably at the level of gathering statistical data and necessary information, as well as the approach to use for the work; and * Proceed with reviewing said documents prior to their finalization, and submit their publication to the Moroccan authorities for approval. 51 Attachment 3 OED Response to Government Comments The written comments from the Government were based on an earlier draft of this report. This final version of the CAE reflects some of the comments through revisions to the text or addition of footnotes (for example, in points 4, 7, 8, 10, and 11, the relevant material has been revised or, in some cases, deleted). In some cases, the Government agrees with the CAE, providing additional explanatory material. Some differences in judgement remain, however, which is not unusual in an evaluation of this type. Key comments (in italics) and OED's response are shown below: Recommendations and directions for the next CAS: OED agrees with the Government that the actions to be adopted in the next CAS should be integrated into the framework of the five-year plan and that the CAS should target specific, well defined areas. However, these should not be limited to the examples provided by the Government. In particular, the reform of public sector management and the elimination of obstacles to private sector development remain essential to increased growth and poverty alleviation. Choice ofperiods for assessing GDP growth rate: It is true that these comparisons can change, depending upon the periods chosen. This is due in part to the impact of droughts, which have been occurring with greater frequency in more recent years, causing wide fluctuations in GDP growth. However, social indicators show a deterioration in conditions during the 1990s. Taking a longer timeframe, real GDP growth averaged around 4 percent per year during the 1970s and 1980s, while it fell to 2.4 percent per year in the 1990s. To the extent that this may be due to the higher frequency of droughts, it is more urgent than ever to diversify the economy and use water in the most efficient manner possible. Choice of indicators for measuring exports: The critical point is that competitiveness has deteriorated, as reflected by the appreciation of the real effective exchange rate. In volume terms, growth rates of exports in the second half of the 1990s have been below those of earlier periods. PRSL and reforms: OED agrees that a number of reforms were undertaken in the context of the PRSL, and has updated the text based on the Government's comments. While it is true that the impact of some of the reforms will be felt only in the medium term, OED finds that on balance, the evidence of what was accomplished does not support a higher rating: despite efforts at trade liberalization, protection remains relatively high, and while reforms of the food oil subsector have taken place, important subsidies remain on other products. Reform of the public sector: While reforms have taken place in the public sector, this area is still of greatest concern for the Bank. The civil service wage bill has increased as a share of GDP in the 2001 budget (to 12.5 percent from around II percent in 1997 and 1998). Privatizations have taken place, particularly in infrastructure, but the volume has slowed. 53 Attachment 4 THE WORLD BANK/IFC/M I G A. OFFICE MEMORANDUM DATE December 20, 2000 TO Mr. Robert PiccioUq Director General. DGO HROUGH Mr. Jean-Louis Vice President. MNA FROM Christian Delvoie, i ector, MNCMG TENSION' 38636 SUBJECT Morocco CAE - Management Response 1. The CAE has been prepared in tandem, and in close coordination with the new Morocco CAS, at the request of the region, to provide an objective evaluation of the previous CAS period and highlight challenges, shortcomings and priorities. We believe the CAE focuses on the right issues and we support many of its findings and recommendations, although we do not agree with the overall assessment or rating proposed for reasons given below. One cause of concern is that the current CAE is a very limited exercise, carried out with limited resources, much narrower in scope, analysis and time span than the 1997 CAR. Contrary to the last CAR, it takes a very limited view of the development process underway in Morocco and thus often fails to acknowledge shifts in the longer term trends. Due to its limited scope, it is also sometimes based on quick and limited judgments rather than on deep analysis and understanding of the issues. Nevertheless, this exercise has been useful in bringing an outside independent evaluation and judgment and on fostering debate on the efficiency of the Bank's efforts. 2. Evaluating a country strategy is, by nature, a very complex undertaking. Development is a broad concept, encompassing many interrelated aspects, often evolving in an uneven way. More importantly, in the development process, the issue is what is being evaluated: actual outcomes or the process of societal changes to bring about those outcomes, and their resulting sustainability; government actions or the process of support from the Bank. In terms of the Bank*s inputs, the key questions to be asked are: was the Bank relevant during the period; was the mix of instruments used appropriate and were its interventions efficient; did it adapt to changing country circumstances, while keeping focus on the agreed objectives; and what was its value added during the period under review. 3. The 1997 CAS set clear directions and ambitious objectives: bridging the gap between rural and urban Morocco; supporting Morocco's economic integration in the world economy to boost growth; starting to address the rigidity of public expenditures and redirect social expenditures through public sector reform; and improving environmental management. It set outcome indicators, but stressed that process and reform progress would be more important to assess progress than actual achievements of the indicators, in view of the short timeframe of a CAS. Attachment 4 54 Robert Picciotto December 20, 2000 4. In terms of outcomes, while we would qualify many of the conclusions of the CAE, we nevertheless broadly agree with the thrust of its assessment: outcomes in terms of growth, poverty alleviation, public sector reform, or environmental management have not met their initial objectives. Indeed, poverty and unemployment have both increased over the last few years, calling for a new approach. We would also concur fully that, despite limited progress, the reform process has not accelerated as initially envisaged, and that a new impetus is needed to bolster growth. We are particularly disappointed by the lack of progress on public sector reform, the lack of decisiveness on the reform program, and the slow decision-making process in many vital areas. 5. But, contrary to the CAE, we would maintain that the Bank has been relevant during the period, and that institutional development, the key to development, has been substantial. While we agree that the expected outcomes may take longer than initially anticipated, we also believe that substantial progress has been achieved in fostering consensus behind them. Finally, we also feel that the perspective of the CAE is biased by one operation, the PRSL, and does not therefore present a fully balanced assessment of the overall thrust of our support. 6. Development is a process of societal change. During the period under review, Morocco underwent a major transformation in this respect, which is underestimated in the CAE. Morocco is in the middle of a major transition towards a more open political as well as economic system, at the vanguard in the whole MENA region. This entailed major trade-offs for the country between economic and political reforms, and resulted in a slow down on economic reforms. During the period under review, there was a sea change from a succession of technocratic decision makers to a political government, led by the opposition; civil society exploded; the press became freer; and sensitive issues, such as judicial reform, education reform, gender and corruption issues, emerged in the open. The implications of this major progress are not well reflected in the CAE. We would strongly argue that the effects of these changes are likely to be more sustainable than those resulting from any specific measures we could have supported; that they involved relative trade-offs in terms of economic progress, to which we have to be sensitive; and that they involved a major change in the way we had to do business in the country. We would also argue that the Bank played a critical role in this transition. We had to move from narrow agreements with 'key technocrats to broad consensus building across a range of different actois. Clearly this process takes time, but we do believe it will bring a deeper and more sustainable impact. 7. Was the Bank relevant and did it adapt to these changes ? Ask the Moroccans. The Bank was a catalyst in terms of rural development and education reform, the two most crucial areas identified in the CAS. It actively supported new sensitive emerging areas, in very participative and non-intrusive ways, such as on gender, judicial reform or corruption. It supported open debates with the emerging civil society, boosting its credibility and role. The Bank also sought to strengthen the credibility of the new Government (with the PRSL loan), -- a key to the current move towards democratic governments, and an action going much beyond the specific written measures supported 55 Attachment 4 Robert Picciotto December 20, 2000 by the loan itself. The process of preparing this operation was based on broad consensus building among the large leftist coalition in power (7 political parties) and resulted in a common understanding of the Government platform. And our program did result in marked improvements in social indicators and access to rural infrastructure in a very limited time span, albeit from a very low base, a key objective of the 1997 CAS. 8. Could we have done more ? Should we have been more forceful on reforms ? These are difficult questions to answer. But two things are certain today, which were not true four years ago: (i) Moroccans are now placing poverty reduction and social development at the center of their development agenda, together with increased participation; and (ii) the process of political opening will not be reversed. Those two actions together are likely to have more lasting results than any other measures supported by the Bank. We would also argue that the Bank credibility has been enhanced during the period, and our advice remains highly and widely sought, possibly more so than in many comparable countries. But we also agree that the lack of tangible results in terms of living standards are now becoming more pressing than ever, calling for renewed efforts and increased action. This discussion is at the center of our dialogue with the country as we prepare our new CAS. 9. The CAE stresses the shift between investment and adjustment loans in our lending program. In our view, this is irrelevant in judging our effectiveness. One, we never intended to value our interventions by the volume of lending but by their catalytic role. The shift was partly prompted by the increasing access of Morocco to concessional financing. For instance our small financial contribution on the rural water program - a key to our social agenda in rural areas, had a major impact and was highly leveraged by concessional financing. Overall, the design of our investment lending was based on two factors: (i) catalytic role towards program (rather than project) objectives, and/or (ii) support of key institutional objectives. Two, the PRSL, supported in the third year of the program, distorts the CAE analysis; yet, even with the PRSL, disbursements remained negative over the period and our overall base case lending program remained below the agreed threshold. Moreover, we cleaned up the portfolio, canceling a substantial portion of undisbursed balances. The result of all these actions was a reduction in our exposure, not increased financial support. Third, our actions sought to enhance the complementarity between portfolio management, new lending and AAA activities in reaching our program objectives, or seeking to enhance consensus behind them. Rather than assessing each action individually or the volume of lending, what is important, but clearly more difficult, would be to assess the impact of this broad approach on, say, health reform, education reform or rural infrastructure, both in terms of impact and of consensus building. There is today a consensus on education reform, the elimination of consumer subsidies, and broad debate on health reform, all highly controversial areas only 4 years ago, and rural infrastructure programs have now been launched in all basic services. 10. Finally, the CAE should be a useful guide in terms of lessons learned to build our next CAS. While it does bring some useful lessons and recommendations, it takes somewhat of a static approach in terms of lessons with which we do not fully agree. It states that the past objectives remain highly relevant today. While we broadly concur, we Attachment 4 56 Robert Picciotto December 20, 2000 also feel that the new environment we are now facing, especially the dynamism of the civil society and the availability of external finance, fundamentally change the way we have to do business in the country. Moreover, the lack of growth and the increased poverty over the last decade also raise fundamental questions on economic management issues, which have now to be at the center of our dialogue, more so than in the past. The repeated droughts, likewise, compound the urgency of the environmental and safety net agenda. The broad principles of education reform are now agreed; the issue today is implementation. We have not succeeded in implementing a broad public sector reform, not for lack of trying, but because of large entrenched interests. The scheduled elections in two years, coupled with a delicate social balance, make quick progress along traditional lines unlikely, requiring that we explore more promising new avenues that are opening up, such as decentralization, participation, governance, and simplification of the business environment, especially for small enterprises. All these points advocate for a new approach, rather than continuity with renewed vigor. 11. In summary, we do agree with the CAE assessments on outcomes, and the new CAS under preparation incorporates several of its recommendations. But we also believe that the assessment presented is partial and should be based on a much more comprehensive and long-term approach to development along the now widely agreed CDF principles, which the CAE fails to do. Judging the Bank's role narrowly misses the true nature of Bank involvement in a country. cc: Mmes\Messrs. Sarbib, El-Rifai (MNAVP); Nabli (MNSED); Koehn (MNSRE); Grais (MNSPF); Baudouy (MNSHD); Hammam (MNSID); Galenson (OEDCR); Fernandez-Palacios, Zacchia (MNCMG); by fax Godron (MNCMA); Morocco files 57 Attachment 5 OED Response to Management Comments As noted in the Preface, this report was intended to be a limited exercise, covering only the period since the previous country evaluation-the Country Assistance Review or CAR-was issued in January 1997. This is the period covered by the last CAS. In OED's view, much of the CAR diagnosis and agenda remains both relevant and incomplete. For these reasons, this CAE focussed on the issues and operations which were most relevant during the past 4 years. While a CDF process has begun in Morocco, it is so far difficult to link it to specific concrete results. OED appreciates Management's view that the changes occurring in Moroccan society may enhance the effectiveness of World Bank assistance in the future. However, this influence has yet to be realized. In the end, the assistance must be judged by its impact on growth and poverty reduction; but as acknowledged by Management, the objectives in these and other areas have not been met. OED shares the view of Management that institutional development and policy reform are at the heart of what is needed to put Morocco on a path of sustainable growth and poverty reduction. Much is happening in Morocco that may strengthen institutions and lead to policy reform in the future. However, many of the reforms supported by the Bank have yet to take hold. The PRSL, which was the major strategic initiative in these areas during the CAS period, did not have a significant impact. For this reason, OED judges the institutional development impact of the World Bank program to have been modest. The following points respond to some of Management's specific comments: * The description, in paragraph 2 of Management's comments, of what is being evaluated is consistent with OED methodology. * Management's response states (paragraph 5) that the CAE perspective is biased by the disappointing outcomes of one operation, the PRSL. The PRSL, which represented one third of the FY97-99 lending program, was a key policy initiative and was presented as a cornerstone in the policy dialogue with the Moroccan authorities. Still, OED also took into account the rest of the program, where, as described in the CAE (e.g., paragraphs 3.9-3.14), the results have been mixed. For example, effectiveness in the critical areas of health and educatiofi is still limited: better models are needed for providing primary education and health care in rural areas, and the allocation of public expenditures still does not reflect priorities. Water is a critical environmental problem and yet the pricing of water, along with trade protection and consumer subsidies, encourage the cultivation of water intensive crops. * OED agrees with Management's views (paragraph 6) that development is a process of societal change. However, political and social change often occurs in tandem with economic reform. Experience in many developing countries suggests that there need not be trade-offs between political and economic reforms. 58 Attachment 5 The government's response and OED interviews with government officials indicate that they believe that the Bank program was relevant (paragraph 7 of Management's comments). While this is very important, the CAE points out (Box 3.1) that segments of civil society are concerned that the Bank's program has increased the country's indebtedness, with nothing to show in the way of economic or social progress, particularly as the incidence of poverty has increased. Moreover, a number of NGOs and other members of civil society interviewed by OED are unclear about the object and follow-up of Bank consultations with them. * Management explains (paragraph 9), as the CAE had noted (e.g., paragraphs 3.2-3.3), that disbursements have remained negative and that the portfolio has been cleaned up. It is true that what matters more than any specific project is the ultimate impact on areas such as health reform, education reform or rural infrastructure. But in OED's view, the evidence so far does not support higher ratings. The report of the Royal Commission on Education does contain many of the main ingredients for reform, but these have not yet been reflected in clear priorities or in an agenda or even an agreed model for implementation. Consumer subsidies have not been eliminated, nor has the debate on health reform led to a reorientation of expenditures or to programs more responsive to local needs. * This CAE, as all other OED evaluations, is based on a comprehensive, long-term approach to development. Consultation and participation, are also an integral part of most OED evaluations. OED welcomes the Bank's efforts to apply these CDF principles, e.g., through its dialogue with stakeholders, including civil society. Looking forward, a strategy more focussed on results, another CDF pillar, would enhance the effectiveness of the Bank's assistance. In fact, results in reducing poverty and in strengthening growth need to be at the center of any evaluation. This is an area where Management and OED agree that progress has been slow to come. * Finally, OED appreciates Management's agreement with the CAE assessments on outcomes and welcomes the statement (paragraph 11 of Management's comments) that several of its recommendations will be incorporated into the CAS currently under preparation. Morocco Country Assistance Evaluation MANAGEMENT ACTION RECORD OF OED RECOMMENDATIONS AND MANAGEMENT RESPONSES Recommendations Management Response (i) In the area of public sector management, the Bank should focus on the The structural aspects of fiscal problems were an area of focus structural aspects of the fiscal problem, including the excessive wage bill, under the previous CAS. Progress was made on the elimination of inefficient public enterprises and the allocation of public spending. food subsidies, the reorientation of spending towards rural areas, and privatization of public enterprises improved management. Under the next CAS, the Bank will continue its efforts, through: (i) ESW, including a public expenditure review, and (ii) readiness to support public sector reform efforts in a flexible way should consensus emerge. In the meantime, we plan to deepen our support for decentralization, community participation and governance issues, and to reinforce our overall program focus on poverty alleviation and social development. (ii) The Bank should continue to urge the government to increase budget The proposed CAS' 'core program' fully conforms with this 1 allocations for basic health and education, for rural areas, and to benefit recommendation, including a proposal to support informal women and girls and should direct more of its lending to these areas; new education and literacy programs through a dedicated operation. models should be supported on a trial basis, including support for nonformal schools and greater outreach by health clinics. (iii) The Bank should support measures to improve the environment for The Bank recently conducted analytical work recommending trade private sector development, including price and trade liberalization. and price liberalization, and more generally the elimination of biases in the incentive framework including the exchange rate and agricultural protection. It intends to deepen this work as needed, and use it as a basis for high-level policy dialogue and consensus- building. It will also follow up on, and possibly assist with the implementation of, the recently-adopted competition law which also liberalizes most domestic prices. 61 Attachment 7 April 23, 2001 CODE2001-42 Report from CODE Committee on Development Effectiveness Informal Subcommittee's Report on Morocco Country Assistance Evaluation 1. The Informal Subcommittee of the Committee on Development Effectiveness (SC) met on April 13, 2001 to discuss the Country Assistance Evaluation (CAE) for Morocco (CODE2000-109). The U.S. Chair issued written comments in advance of the meeting. OED remarked that the CAE covered the four years since the 1997 CAS. Major political changes had occurred in Morocco during this time, including a substantial opening up of society, but poverty had increased significantly and social indicators showed little improvement. While the 1997 CAS was relevant to the needs of the country, OED stressed that the actual program implemented in this time period was quite different than what had been proposed in the CAS. OED also noted that the single-tranche Policy Reform Support Loan (PRSL), which accounted for one-third of the three year lending program, achieved little in critical areas such as public sector reform, privatization, and price liberalization. OED remarked that the Bank's economic and sector work had been excellent and cited the preparation of the Gender Plan of Action as best practice. Work on the CDF had, however, elicited little Government or donor participation and donor coordination was generally weak. As a whole, OED concluded that the outcome of the Bank's program in Morocco was rated marginally unsatisfactory, with a modest impact on institutional development. 2. Management noted that the Country Assistance Review (CAR) done by OED in 1997 had been very useful in preparing the 1997 CAS and it had been hoped that this CAE would provide similar guidance. However, Management found that the CAE was much more limited in scope than the earlier CAR, and that the analysis in the CAE had not been comprehensive and had been weaker than expected. In particular, Management stressed that the CAE did not sufficiently account for the major political, societal, and demographic changes that had taken place in Morocco nor did it acknowledge the improvements in rural and social indicators which had occurred through the launching of rural infrastructure programs supported by the Bank. Management considered that the CAE focused too much on narrow project outcomes and relied on past project performance and not enough on the current Bank strategy over the period. Management disagreed with the main recommendations of the CAE on stronger implementation of reforms. Instead, it felt that the new environment in the bountry was much more complex than in the past, and required a rethinking of Bank strategy and positioning. In particular, the current political opening process required much more effort on consensus building and new ways to tap the emerging civil society. The growth agenda was also not simply a matter of stronger reforms but required rethinking the whole economic management strategy of the country. 3. The SC welcomed the CAE and thanked OED for a well-written study. Members particularly welcomed the frank dialogue and exchange between OED and Management. The Chair representing Morocco noted that the CAE was a useful and important report. However, he stressed that Morocco was in the midst of major changes and the sustainability of its reform programs would only be clear in the medium to long term, rather than the shorter-term focus taken by the CAE. He also added that key exogenous risk factors had affected Morocco's Attachment 7 62 April 23, 2001 CODE2001-42 performance and the CAE had not accounted for these. Finally, he stressed that development tradeoffs were inevitable due to the major political and social transformation taking place in Morocco. 4. Among the specific comments raised by the SC were: 5. Methodology. Members questioned the CAE methodology of measuring outcomes of closed projects and wondered how the review of project performance was augmented to produce the overall evaluation in the CAE. Others questioned how to judge the value added of the new approaches (such as participation, empowerment, civil society) promoted by the Bank. Members also noted the comments made by the Chair representing Morocco and wondered whether OED was evaluating adjustment and institutional development reforms too early to truly judge impact and whether a broader approach was needed. Some members agreed with Management's contention that the CAE should have made greater allowance for the fundamental changes taking place in Moroccan society. Others responded that it was necessary to evaluate the Bank's programs regardless of changes in a country though some acknowledgement had to be made for dynamic and changing situations. Overall, the SC noted the tension between outcomes and time frames noting that it was difficult to realistically judge outcomes in the short time frame reviewed in the CAE. Members also stressed that when CAEs are limited low-cost exercises, it may not be possible for them to do justice to dynamic and complex situations in client countries. OED responded that the CAE reviewed ongoing as well as closed projects, and also noted that it had been explicitly stated in the CAE that the evaluation was meant to be an update on the more extensive CAR undertaken in 1997 which had a longer-term focus and time frame. OED further observed that though changes occurring in Moroccan society may enhance the effectiveness of Bank assistance in the future, this influence had yet to be realized. OED stressed that the latest data showed that GDP growth had slowed and poverty had increased by nearly 50 percent since the early 1990s, to 19 percent of the population. 6. CDF. Members expressed concern that the CAE indicated that the Government had not been sufficiently involved in the CDF and the CDF process had been Bank-led rather than Government-owned. The SC questioned why Morocco was a CDF pilot if the Government did not seem to own the process and stressed that the lessons from the 1997 CAS experience amplified the importance of country ownership. Overall, the SC expressed concern that the CDF seemed to be a supply-driven process. Management responded that the Government had been very much involved in the CDF through the preparation of their Five-Year Plan, and that they had asked for specific Bank input. It also noted that the current environment, with elections scheduled in about a year, was perhaps not condicive to completing the process and that various alternatives were under study. Management further noted that the Government had taken its own approach to the CDF by building consensus with various groups in society when preparing the Plan, and the Bank was assisting in this regard. 7. AAA. The Subcommittee stressed that the Bank's analytical and advisory activity had to be done in consultation with and in line with the priorities of the Government. Management agreed and noted that the Bank's comparative advantage in MNA countries was knowledge and advice rather than lending and the Bank was sensitive to the priorities laid out by clients in this regard. 63 Attachment 7 April 23, 2001 CODE2001-42 8. Instruments. The SC noted the poor outcomes of the PRSL and questioned the efficacy of adjustment lending, particularly single tranche programmatic-type operations, in circumstances such as those in Morocco in that time period. Overall, members felt that Management needed to do a better analysis of the appropriate instruments for Morocco and justify these in the upcoming CAS. Management agreed but stressed that the key issue was not single tranching but the need for clear upfront commitment and action from the Government. 9. Board Review. Members noted that OED and Management had both pointed to changes on the ground that had required major adjustments to the 1997 CAS. In this regard, members questioned why the 1997 CAS had not predicted these changes and asked why a CAS Progress Report had not been prepared to inform the Board. The SC asked how the Board had been involved given that such fundamental changes had taken place in the Bank's program. Management replied that these changes had indeed been brought to the attention of the Board when presenting the PRSL. It also stressed that CASs were to be viewed as living documents rather than static snapshots. 10. Next Steps. The CAS will be discussed at the Board in May 2001 and the SC requested Management to take account of its comments in the upcoming CAS. Matthias Meyer Chairman, CODE Subcommittee Distribution Executive Directors and Alternates President Bank Group Senior Management Vice Presidents, Bank, IFC and MIGA 65 Bibliography of Recent Material Jacoby, Hanan G. 2000. "Evaluating Decentralized Social Sector Programs: Evidence from Morocco's BAJ." World Bank, DECRG. March. Draft. USAID. 1999. "Developing the Capital Market in Kenya and Morocco." Center for Development Information and Evaluation, Impact Evaluation. April. Wellenius, Bjorn and Carlo Maria Rossotto. 1999. "Introducing Telecommunications Competition through a Wireless License: Lessons from Morocco." World Bank Finance, Private Sector and Infrastructure Network, Viewpoint. Note No. 199. November. World Bank. 2000. Comprehensive Development Framework: Country Experience, March 1999-July 2000. September. World Bank Reports:27 1994. "Poverty Assessment." Report No. 11918. January. 1994. "Kingdom of Morocco: Preparing for the 21st Century-Strengthening the Private Sector in Morocco." Report No. 11 8894-MOR. June 30. 1995. "Housing Sector Strategy." Report No. 13930-MOR. 1999. "Morocco: Environmental Review." OED. Draft. Dec. 6. 1995. "Kingdom of Morocco: Country Economic Memorandum-Towards Higher Growth and Employment." 2 volumes. Report No. 14155-MOR. Sept. 15. 1995. "Morocco: Enhancing the Participation of Women in Development." Report No. 14153. June 29 (green cover). 1997. "Country Assistance Strategy." Report No. 16219-MOR. January 8. 1997. "Kingdom of Morocco: Country Assistance Review." Report No. 16326. January 29. 1997. "Kingdom of Morocco: Private Sector Participation in Infrastructure." Report No. 15059-MOR. February. 1999. "Kingdom of Morocco: Private Sector Assessment Update-Fulfilling the Promise of Private Sector-Led Growth." Report No. 19975-MOR. December 15. 27 Not including documents relating to specific projects. 66 2000. "Morocco: Environmental Review." OED. Draft. Feb. 22. Informal World Bank Economic and Sector Work since FY97: Employment and Informal, FY97 Environment Review, FY97 Rural Development Prospects, FY97 Housing Strategy, FY98 Medium Term Strategy, FY98 Tourism Strategy, FY98 Education Sector Strategy, FY99 Gender: A Review of MNA Projects over the Last Ten Years-Kingdom of Morocco, FY99 Gender Policy, FY99 Health Financing, FY99 CDF Matrices, FY00 Financial Sector Strategy, FY00 Municipal Management, FY00 PIP/PEP, FY00 Poverty Update, FY00 Public Sector Strategy, FY00 Sources of Growth, FY00 Education Reform, FYO1