Morocco - Policy Reform Support Loan

 ICRR 10837 Report Number : ICRR10837 ICR Review Operations Evaluation Department 1. Project Data: Date Posted : 03/13/2001 PROJ ID : P058356 Appraisal Actual Project Name : Policy Reform Support Project Costs 250 250 Loan US$M ) (US$M) Country : Morocco Loan/ US$M ) 250 Loan /Credit (US$M) 250 Sector (s): Macro/Non-Trade Cofinancing 0 0 US$M ) (US$M) L/C Number : L4483 Board Approval 99 FY ) (FY) Partners involved : Closing Date 12/31/1999 12/31/1999 Prepared by : Reviewed by : Group Manager : Group : 2. Project Objectives and Components a. Objectives The objective of the Policy Reform Support Loan (PRSL) was to advance the new government's economic and social reform program, designed to accelerate GDP and employment growth and to increase access to basic services and reduce poverty . b. Components The PRSL supported a wide variety of actions in four areas : (i) Macroeconomic management, with a goal of gradually reducing the budget deficit and increasing medium -term GDP growth to 6%. (ii) Public sector reform, including improved budgetary procedures and prioritization and more transparent and streamlined management of expenditures; civil service and administrative reform to reduce the public wage bill, while improving service delivery; and judicial reform to enhance capacity and improve performance . (iii) Private sector development, including public enterprise reform and privatization, demonopolization and private participation in infrastructure; an improved business environment; and improved access to finance in the economy in general and to micro, small and medium enterprises in particular. (iv) Social sector reform, including poverty reduction through improved access to basic social and infrastructure services and stronger safety net mechanisms; community development; increased access to water, roads and electricity in rural areas; universal primary school enrollment, particularly in rural areas, through redeployment of under-utilized secondary school resources; adult literacy programs; and improved health care through greater cost effectiveness, greater access to insurance, more efficient hospitals, and decentralized decision-making. c. Comments on Project Cost, Financing and Dates The loan was for $250 million, disbursed in a single tranche at effectiveness (6/18/99). 3. Achievement of Relevant Objectives: (i) The macroeconomic component was not successful (see below). (ii) Under the public reform component, only the implementation of the judicial reform measures was fully satisfactory . (iii) Progress has been made in private participation in infrastructure: the monopoly on road freight was abolished, although the law will take effect only after two years, and studies have started on ways to increase competition and private provision in energy and other transport services. A major customs reform has been initiated, and has reduced the average wait for customs clearance from two days to less than one . Parliament approved a new competition law, which includes progressive reductions in price controls . Reductions in consumer subsidies have started, but only in late 2000, with one product (edible oils). Steps have been taken to ensure the financial viability of state -owned financial institutions, but restructuring is slow. A law facilitating microlending activities was promulgated . (iv) Progress in the social sectors has been slow, with the exception of rural basic infrastructure (see below). The Entraide Nationale for social assistance has prepared a long -term strategy, and the Social Development Fund is being set up . More than 1500 rural classrooms were constructed, but little has been achieved to improve staff mobility and redeploy personnel, and factors that discourage school attendance, especially by girls, have not been dealt with . An adult literacy fund has been created. No major progress was made in extending health insurance coverage or in ensuring affordable and adequate health care for low income households . User charges have been introduced for hospitals and other health care establishments, and standardized bulk purchase of pharmaceuticals has been adopted . 4. Significant Outcomes/Impacts: The last few years have seen a significant opening up of society, with public debate of issues never before freely discussed in Morocco. The Bank's support of the new government through the PRSL helped reinforce its credibility . The government publicized its letter of development policy to signal its commitment to reform and transparency . The government increased budget allocations to rural basic infrastructure by 50% and adopted a long-delayed water surcharge on better off urban consumers . As a result, access to potable water in rural areas has increased from 37% of the population in 1998 to 43% in 2000. Road access in rural areas has been extended from 40% to 45% of the population, and access to electricity in rural areas has increased by about 5% per year. 5. Significant Shortcomings (including non-compliance with safeguard policies): The PRSL was too large and unfocussed to have a major impact in any of the areas it covered . Many of the actions taken prior to Board presentation were only first steps, sometimes in the form of studies and plans, and follow through of initial results was difficult and slow . Public sector reform--of the civil service, management of public enterprises, and budgetary processes --has been the least successful component . Morocco's civil service wage bill is among the highest in the world as a share of GDP --12.5% in the 2001 budget--and the number of civil servants is rising. The budget deficit has risen, from 2.5% of GDP in 1998/99 to 8.3% in 2001, and GDP growth has fallen in the 1990s compared to the 1980s (it was negative in 1999). The volume of privatizations has slowed, and transfers to public enterprises have risen . 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Unsatisfactory Moderately Actual ICR rating was marginally unsat ., Unsatisfactory but this was not a choice. Institutional Dev .: Modest Modest Sustainability : Unlikely Unlikely Bank Performance : Unsatisfactory Unsatisfactory Borrower Perf .: Unsatisfactory Unsatisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness. 7. Lessons of Broad Applicability: (i) A very broad adjustment operation with an excessive number of elements, many of which have little practical value, is unlikely to achieve ambitious objectives . A more focused operation, with technical assistance in key areas (e.g. civil service reform) might have had more success . (ii) The original CAS objectives were highly relevant to Morocco's situation and the lending program should have stayed closer to that proposed in the CAS . 8. Assessment Recommended? Yes No 9. Comments on Quality of ICR: The ICR succinctly summarizes the results of a large number of dispersed actions and draws appropriate general conclusions.