Morocco - Ninth Banque Nationale Pour Le Developpement Economique (BNDE) Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-3098-MOR REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED NINTH LOAN TO THE BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE WITH THE GUARANTEE OF THE KINGDOM OF MOROCCO June 22, 1981 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  KINGDOM OF MOROCCO CURRENCY EQUIVALENT US$1.00 = DH5.00 FISCAL YEAR January 1 - December 31 GLOSSARY OF ABBREVIATIONS BNDE Banque Nationale pour le Developpement Economique CCG Caisse Centrale de Garantie CMPE Centre Marocain de Promotion des Exportations EEC European Economic Community EIB European Investment Bank ERR Economic Rate of Return ITC International Trade Center LIBOR London Inter-Bank Offered Rate ODI Office pour le Developpement Industriel PPAR Project Performance Audit Report SSI Small Scale Industry TAU Technical Assistance Unit  FOR OFFICIAL USE ONLY KINDGOM OF MOROCCO NINTH BNDE PROJECT Loan and Project Summary Borrower: Banque Nationale pour le Developpement Economique (BNDE). * Guarantor: The Kingdom of Morocco. Amount: US$70 million equivalent. Terms: The amortization schedule would be substantially the aggregate of the amortization schedules of the sub-loans, with interest at 9.6 percent per annum. Relending Terms; The proceeds of the loan would be relent at an effective interest rate of 10 percent per annum, which includes a 2 percent interest rebate. Subloans would have to be fully amortized within 15 years after signature of the proposed loan, and would have grace periods of up to 4 years. The Government would bear the foreign exchange risk on the loan. Project Description: The project consists of a line of credit to BNDE, of which up to $56 million would help finance the estimated foreign exchange cost of projects in industry in general, and at least $14 million would go to export-oriented industrial projects. The loan will support the Government's industrial program, particularly the drive for rapid growth of the export sector. It will also assist BNDE in stabilizing the terms and conditions of its resources. The loan finally has a specific focus on strengthening organizational aspects of BNDE in the field of appraisal, portfolio monitoring, and export promotion. Estimated Disbursements: $ Million Bank FY 1982 1983 1984 1985 1986 1987 Annual: 4,830 21,280 22,820 13,370 6,090 1,610 Cumulative: 4,830 26,110 48,930 62,300 68,390 70,000 Appraisal Report: Report No. 3407a-MOR, dated June 2, 1981. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED NINTH LOAN TO THE BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE WITH THE GUARANTEE OF THE KINGDOM OF MOROCCO 1. I submit the following report and recommendation on a proposed ninth loan to the Banque Nationale pour le Developpement Economique (BNDE), to be guaranteed by the Kingdom of Morocco, for the equivalent of US$70.0 million, to help finance efficient medium and small projects. At least $14.0 million of the loan would be for efficient export-oriented projects. The proposed loan would have an amortization schedule conforming substantially to the aggregate of amortization schedules applicable to the subloans, with a maximum of 15 years. Subloans would carry an effective interest rate of 10 percent per annum, taking into account a 2 percent interest rebate provided by Government, and would have to be repaid over at most 15 years from signature of the proposed loan, with a grace period of up to 4 years. PART I - THE ECONOMY 1/ 2. A basic economic mission visited Morocco in November 1978, and updating missions in September and December 1979 and in May 1980. A report entitled "Morocco: Basic Economic Report" (3289-MOR) was distributed to the Executive Directors in December 1980. Country and Economic Data Sheets are attached as Annex I. Introduction 3. Compared with many developing countries, Morocco is well endowed with natural resources. It has a considerable agricultural potential both in irrigated and rainfed areas. The Atlantic and the Mediterranean coastlines offer considerable fish resources. Morocco also has the world's largest and most easily recoverable phosphate reserves, which makes the phosphate sector a key export sector. Other minerals such as iron ore, manganese, lead and zinc are also exported, but in much smaller amounts. Coal and hydropower plants satisfy only a small part of the country's energy requirements, which are essentially met with imported oil. Morocco has however uranium and oil shale resources which it plans to exploit. In addition, Morocco's proximity to Europe has favored trade, tourism and labor migration with the EEC countries. 4. During the first 15 years after independence (1956), a conservative approach to economic policy predominated in Morocco. GDP increased at an average rate of 4% a year in the 1960s. Growth accelerated somewhat under the 1968-72 development plan as the economy derived substantial momentum from 1/ This part is an updated version of Part I of President's Report No. P3061-MOR of May 6, 1981 on a proposed loan for a Third Water Supply Project.  exports. However, a relatively weak savings effort and a small externally financed resource gap resulted in only a slow rise in the share of resources allocated to investment. Morocco thus entered the 1970s with no major financial imbalances, but a relatively limited growth capacity. Although some industrialization had taken place, over half of the labor force was employed in the relatively inefficient traditional agricultural sector, and primary products accounted for close to 90% of merchandise exports, with phosphates representing about a quarter of the total. Economic Performance in the 1970s 5. During the 1970s, economic policy became more ambitious. The 1973-77 Development Plan aimed at an acceleration of economic growth, as well as an improvement in income distribution. To accomplish this, the original plan strategy included two key elements: an intensified savings effort and the development of exports. However, in 1974, with the sudden jump in phosphate prices, phosphate export earnings more than quadrupled. As a result of this windfall, the value of merchandise exports doubled and budgetary receipts rose by 70% between 1973 and 1974. Although the petroleum import bill also quadrupled in 1974, the current account of the balance of payments remained in surplus. The plan's concern for exports and savings lost some of its urgency, and the Government launched a massive public investment program which brought about a sharp acceleration in the rate of growth of the economy and a considerable increase in demand for imported goods and services, whose share in GDP doubled from 19% in 1972 to 39% in 1977. 6. The phosphate boom, however, was shortlived; as early as mid-1975, phosphate exports started falling in both volume and value, and prices continued to decline until 1980. Markets for other exports as well as for tourism and labor migration were also negatively affected by the world recession and restrictions imposed by the EEC. Agricultural production and exports entered a period of prolonged stagnation, and Morocco turned from a net exporter to a net importer of foodstuffs. As a result of all these factors, the growth of exports of goods and nonfactor services, which in constant prices had exceeded 8% a year in 1968-72, was only 1% a year in 1973-77. 7. Stimulated by the high investment level, a high GDP growth rate of 7.3% a year was achieved during the 1973-77 plan period. This growth was led by the expansion of the construction and service sectors. The pattern of investment, however, favored economic and social infrastructure more than the productive sectors. In addition, public investments in industry, agriculture and transport tended to be capital intensive and to emphasize import substitution. 8. Accelerated investment and growing public expenditures created strong pressures on both the balance of payments and the Government budget. While investment jumped from about 15% of GDP in the early 1970s to 32% in 1977, gross domestic savings rose briefly from 13% of GDP in 1972 to 21% of GDP in 1974 thanks to phosphate receipts, but fell back to 10-11% in 1976-77. The large resource gap which emerged as early as 1975 rose to an unsustainable 20%  of GDP in 1977 (in current prices). To help finance the gaps, Morocco borrowed heavily from the international capital market, which led to rapid increases in external debt and the debt service burden. By the end of 1977, external debt outstanding was close to 40% of GDP. The debt service ratio rose from 5.6% of exports of goods and services in 1975 to 10.7% in 1977, and 18.5% in 1978. 9. The Government's overall budget position also deteriorated considerably during the period 1973-77. While budgetary revenues increased rapidly as a result of the windfall phosphate profits in 1974 and 1975 and of the growth of import duties and taxes in following years (reaching 23% of GDP in 1977), the growth of expenditure far exceeded that of revenues. Total budgetary outlays rose from 20% of GDP in 1972 to nearly 42% in 1977, in response to a number of pressures. These included not only the large scale public investment launched under the plan, but also the rapid increase in defense spending in response to growing tensions in the Western Sahara, and the acceleration of current expenditure for social programs (particularly education). As a result, the Government's overall budget deficit increased sharply, reaching peaks of 17 and 18% of GDP in 1976 and 1977. The expansionary monetary and fiscal policies pursued during the period led to some acceleration of domestic inflation, but excess demand was largely allowed to spill over into the external sector. Recent Developments 10. In order to redress the rapidly deteriorating financial situation, the Moroccan Government in 1978 adopted a three-year stabilization program, characterized by a substantial retrenchment of investment and import levels. In 1978, the first year of the adjustment, public investment was cut back by nearly half in real terms and the growth of current budgetary expenditure held down to about 13% (or less than 3% in real terms). These measures of fiscal restraint were combined with tight credit policies and stringent import controls. As a result, the overall budget deficit declined to about 12% of GDP and the external payments situation improved in 1978. Since then, however, the stabilization program encountered a number of obstacles, including poor harvests, petroleum price increases and the rise in interest on the commercial debt. In addition, internal pressures led to some relaxation of the highly restrictive fiscal policy adopted in 1978. Although the economy continued to make slow progress toward equilibrium, by 1980 both fiscal and external imbalances were still substantial. The resource gap (in current prices) remained at about 10% of GDP and the ratio of the overall budget deficit to GDP at about 11%. 11. The reduction in the Government deficit during the 1978-80 period was achieved chiefly through cutbacks in the level of budgetary investments, which dropped from 22% of GDP in 1977 to 12% in 1980. The growth of current expenditure proved difficult to restrain because of the continuing need to maintain defense and social expenditures, the growing interest payments on the public debt and the rising cost of consumption subsidies. The latter tripled in 1979-80 reaching 2% of GDP, as price increases for subsidized staple food and petroleum products could not catch up with the rise in import costs for these products. Reflecting these pressures, the growth of current  expenditure accelerated to 16% of GDP in 1979 and 22% in 1980. Substantial increases in domestic prices of food and petroleum products in late 1980 and early 1981 should now make it possible to contain consumption subsidies in 1981. With the help of economies in other areas, the Government's plan is to hold the growth of current outlays in 1981 to 11%, above the 1980 level. 12. In the external sector, non-oil imports were reduced substantially and remained below the 1977 level in nominal terms due to a sharp reduction in capital goods imports (by about two-thirds in real terms between 1977 and 1980). Oil imports on the other hand increased 2.5 times in value due to price increases. Export earnings improved in 1979 and 1980 and received a significant boost from the recovery of phosphate prices in 1980. Thus, despite a large increase in the petroleum import bill (from less than $400 million in 1977 to $1 billion in 1980) and a rise in external debt interest payments by about $350 million between 1977 and 1980, the current account deficit was reduced from $1.8 billion, or 18% of GDP, in 1977 to about $1.4 billion, or 8% of GDP, in 1980. The growth of external borrowing slowed considerably during the period. However, the absolute level of gross external capital requirements rose because of growing amortization payments on medium-term commercial credits contracted earlier and the rise in the interest rate on these credits in 1980 (paragraph 21). 13. The budgetary and balance-of-payments constraints had a serious impact on the levels of investment and economic activity in 1978-80. Annual GDP growtb dropped to about 3% in both 1978 and 1979. In 1980, GDP growth is estimated to have risen to about 6%, largely because of favorable weather, increased exports and some recovery of investment in the private sector. The adverse impact of the stabilization program on employment has probably been substantial in contrast with the rapid rate of employment creation during 1973-77. On the whole, the demand management policies followed since 1978 have had a high cost in terms of growth and employment and appear to have been only partly successful in their short-term stabilization objectives. These results brought out the urgent need to address adequately the long-term structural weaknesses which are at the root of the continuing financial imbalances in the Moroccan economy, and which must be corrected if an acceptable rate of economic growth is to be achieved over the medium term without unsustainable external deficits. Medium Term Prospects 14. Projectionsl' of the likely outcome of the continuation of past policies without concerted effort to implement major structural reforms suggest that Morocco would be faced with a prolonged period of slow growth, rising unemployment and continued large external imbalances which would keep the country in considerable dependence on external borrowing and could jeopardize its creditworthiness. To forestall such a deterioration, the Government adopted a strategy in the development plan for 1981-85 which aims at narrowing the external resource gap while accelerating growth and spreading 1/ For details on these Bank projections, see Morocco - Basic Economic Report, December 30, 1980 (No. 3289-MOR), Chapter III.  - 5 - the benefits of growth more widely. The main objectives are to achieve a significant increase in domestic savings and exports, a reduction in the elasticity of imports with respect to GDP, and a rise in productivity and the employment rate. The Plan's projections show that, if achieved, such changes would permit a gradual acceleration of annual GDP growth to 6.5% p.a., somewhat higher than Bank projections, in 1981-85, accompanied by a reduction of the resource gap to about 7% in 1985. 15. The containment of imports would result in part from the substitution of imports of food products (cereals, sugar, vegetable oil, meat and dairy products) to be brought about by an acceleration of the rate of growtb of agricultural production. This will require a wide range of institutional reforms in addition to a review of prices of certain inputs and outputs, and a greater allocation of resources to rainfed areas and to projects with high rates of return. The Government also intends to follow a determined policy in 1981-85 in the area of energy conservation, including in particular maintaining domestic energy prices at high levels, and making the necessary investment allocations to increase energy production from local sources. 16. An essential role in the achievement of the Plan's objectives will have to be played by export promotion aimed at exploiting Morocco's comparative advantage as regards phosphates and phosphate derivatives as well as the current favorable export prospects for manufactured goods, agricultural products and tourism. Exports of goods and nonfactor services are expected to rise at 8.5% p.a. in real terms over 1981-85. While feasible, such a growth rate would require implementation of the supporting investments and incentives policies. 17. Narrowing the resource gap while maintaining at the same time high investment levels would require an increase in domestic savings as well as rationalization of the pattern and content of investment. A vigorous recovery in domestic savings, which would rise from 11.5% of GDP in 1980 to 16% by 1985, would make it possible to narrow gradually the resource gap from about 10% in 1980 to 5% of GDP by 1985. Such a rise in the domestic savings rate would exceed the performance in 1973-77 when savings averaged 14% of GDP. It would demand intensive efforts to increase public savings (through an increase in budgetary savings and an improvement in the performance of public enterprises) and to stimulate private savings (through a revision of interest rates and improvements in financial intermediation). 18. Given the feasible level of investment, the future rate of growth of the economy will depend to a large extent on the sectoral allocation and the efficiency of investment as well as institutional reforms. Under the Plan, the Government will start fewer large capital-intensive projects and pay particular attention to the allocation of investments to priority subsectors. Priority is given to projects that are export oriented, less capital intensive and which use a greater proportion of domestic resources. In addition, particular attention will be paid by the Government to manpower planning and to the employment effect of investments in order to ensure that unemployment does not rise.  -6- Social Development 19. Comparatively slow economic growth and employment creation up to the early 1970s were accompanied by widening income disparities. The limited data available indicate that in the 1970s, while disparities continued to grow, household incomes increased in both urban and rural areas, and the lower income groups shared in the real increase in incomes. In addition, infant mortality has declined and life expectancy has increased, both significantly. More recently, partly in response to the demands of locally elected assemblies, the Government has shown more awareness of social problems and greater interest in the issue of basic needs. Social expenditures have been at a high level in recent years, accounting for more than half current outlays. However, social indicators still appear to be at low levels in Morocco. The limited effectiveness of past social policies in reaching the lower income groups, especially in rural areas, is increasingly recognized as a major issue, and the new strategy of the 1981-85 Development Plan emphasizes rural development in rainfed areas, where most of the poorest households in Morocco currently live, and improved mechanisms to deliver services to meet basic needs at an affordable cost, especially in rural areas. An effort is also being made to increase the involvement of local communities in providing basic needs, particularly for sites and services for low cost housing, water supply, sewerage and electrification. Although rapid results cannot be expected in any of these areas, implementation of these policies would help meet the needs of low-income groups, while holding down the budgetary cost of social programs. External Debt and Debt Service 20. Morocco sharply increased external borrowings after 1974. Nearly all of the increase came from Arab and commercial sources. Morocco also drew on the IMF automatic credit facilities in early 1976, and obtained about $70 million in IMF compensatory financing in August 1978. Agreement was reached with the IMF in 1980 for Morocco to draw on the Extended Fund Facility (EFF); the agreement provided for the use of IMF resources in the amount of SDR 810 million over the 1980-83 period, an amount subsequently increased to SDR 956 million ($1.2 billion). 21. From the low levels of 1974-75, Morocco's external debt rose rapidly to $7.2 billion (disbursed only) by December 1980. Gross inflow of medium and long term capital reached $1.55 billion in 1980. Debt service amounted to $800 million in 1979 and $1.2 billion in 1980 (22% and about 28%, respectively, of total exports of goods and services). The debt service rose considerably in 1980 due mainly to the steep rise in interest on commercial credits. As a result of recent and projected borrowings, debt service may be expected to average $1.5 billion annually in the early 1980s. The debt service ratio may drop to about 25% or less by 1985, depending on the success of the Plan's export drive, the containment of imports and the future developments in the interest rates on commercial credits. Because of the growing burden of debt service, external borrowing has become more restrictive and selective since 1978. If debt service is to stay manageable, Morocco will have to continue  - 7 - this policy over the next few years. Limits on commercial borrowing have been agreed within the framework of the Extended Facility arrangement with the IMF, and efforts should be continued to seek loans on softer terms. 22. Loan commitments from multilateral and bilateral official sources to Morocco rose from $205 million in 1975 to $1376 million in 1978. Since then, they have averaged $700-800 million a year (excluding grants). Major sources of aid were France, Saudi Arabia, the UAE, the U.S., Germany and the Bank Group. At the end of 1979, the Bank Group's share in Morocco's outstanding and disbursed external public debt was 8.4 percent. The share of the Bank Group in debt service was 21 percent in 1976 and declined to 15 percent in 1977, and 8 percent in 1979. By 1985 the Bank Group's shares in debt outstanding and in debt service are projected at about 10 percent and 11 percent respectively. PART II - BANK GROUP OPERATIONS IN MOROCCO 23. Bank and IDA lending to Morocco has supported 50 projects, financing a total of $1,694.9 million (net of cancellations), of wbich $1,189 million has been lent since the beginning of FY1975. IDA credits, totalling $50 million, have been made available for five projects. A Third Window loan for $25 million for the third education project was approved in March 1976. IFC investments have amounted to $29.1 million ($17.1 million after cancellations, terminations, repayments and sales). Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of April 30, 1981, and notes on the execution of ongoing IBRD/IDA projects. In some cases delays in project implementation have been caused by management problems and budgetary constraints; however, overall performance in project execution has been improving and is satisfactory. Total disbursements as of December 31, 1980, amounted to 63 percent of original appraisal forecasts, and 71 percent of revised forecasts. 24. Past Bank Group lending has been concentrated in the agricultural and industrial sectors, which have accounted for 30 and 21 percent respectively of total commitments; the balance is represented by utilities (18 percent), tourism (10 percent), education (9 percent), roads (6 percent), energy (3 percent) and urban development (3 percent). While limited as regards the transfer of resources to Morocco (Bank Group gross disbursements amounted to 2.2 percent of total fixed investment during the 1973-77 Plan period), the main objectives of Bank lending in the early years of Bank operations in Morocco were to foster and strengthen development institutions, provide technical assistance, especially for project preparation, and increase productive capacity, in order to improve the balance of payments.  - 8 - 25. While these objectives remain, over the last few years Bank lending has increasingly focussed on supporting a number of policy objectives: to promote exports and other foreign-exchange earning activities; to reduce imports, particularly of food and energy; to lower unit costs for the delivery of basic services, widen their distribution among regions and increase access by lower-income groups; and to increase employment and improve income distribution. 26. Since FY1975, lending in agriculture has empbasized improvement in the productivity of rainfed agriculture and livestock, which employ over 80 percent of the rural population, primarily small farmers. The Fes-Karia-Tissa Agriculture Project, approved in June 1978, directly addresses these objectives in the favorable cereal producing zone. The Loukkos project, approved in May 1980, extends support of these objectives to a less favorably endowed region and finances investments for agricultural development, erosion control, forestry and livestock. It should have a significant poverty impact and address major issues in developing Morocco's relatively densely populated but poorly endowed mountainous regions. Continued Bank support of rainfed agriculture is expected to be provided through an extensive livestock project in central Morocco and an integrated rural development project in the Khemisset province, both under preparation. A fourth line of credit to CNCA has helped provide credit to small and medium farmers, and a fifth project is under preparation. Increased export earnings are expected to result from a Bank-supported project for fruit and vegetable marketing and production, as well as from a project currently under preparation to improve the efficiency of the coastal fishing industry. 27. Increased foreign exchange earnings or savings and, more recently, job creation, have been the key objectives of Bank projects in industry and tourism. A second line of credit for small scale industries with an emphasis on job creation is being presented concurrently to the Board. A fourth line of credit to CIH for tourism projects was recently approved by the Executive Directors, in a sector which has contributed a substantial share of Morocco's foreign exchange earnings and provided significant employment. A project to increase the incomes of artisanal and small-scale miners in southeastern Morocco, a region largely bypassed by previous development efforts, is also scheduled to be presented to the Board shortly. 28. Projects to improve basic infrastructure and services have concentrated on improving the efficiency of existing investments and extending services to rural and low-income urban groups. A second urban development project was recently approved by the Board, which would continue to support the Government's efforts to provide shelter, basic services and employment to low-income urban families. A third highway project approved in FY1980 supported the Government's road maintenance efforts and a fourth project now being prepared would continue support for maintenance and improve rural access roads. A loan for village electrification approved in  - 9 - FY1979 is helping bring power to over a hundred small towns and villages. A third water supply project, recently approved, will provide access to safe water in small towns and semi-rural areas, as well as expand a pilot component initiated under the second project to provide credit for house connections to low income urban families. In addition, a project to strengthen the capacity of local communities to prepare and implement their own development programs and provide financing for such programs through the Communal Infrastructure Fund (FEC) is being prepared. It will not only help to widen the distribution of infrastructure and services but will also support the Government's policy of encouraging administrative decentralization and local participation. 29. Education continues to need attention to ensure Morocco's manpower development. While recent projects have focussed on secondary level technical education and teacher training, attention has also been given to expanding basic education in the rural areas and ensuring a greater orientation in primary schooling towards practical training. This would be complemented by future projects in non-formal education and vocational training. The Government's recent policy supporting primary health care would be tested through a project currently being prepared as a first phase in a nationwide program to reorganize medical and paramedical training, health education, nutrition, environmental sanitation and family planning services, especially in rural areas. 30. In order to reduce the impact of the oil import burden on the Moroccan economy, a project was approved in April 1980 that would contribute to the Government's efforts to accelerate the exploration and development of its petroleum potential. Preparation is also underway of an Engineering Loan to finance studies and a pilot unit to test the potential for commercial extraction of oil from oil shale. 31. The sectoral objectives implied in these projects as well as other objectives relating to price policy, efficiency and composition of the public sector investment program, and measures to mobilize domestic savings, would be reinforced by the policy changes envisaged under the first Structural Adjustment Loan which has been appraised and is under discussion with the Government. PART III - SECTORAL BACKGROUND Manufacturing: Recent Performance and Characteristics 32. The share of the manufacturing sector in GDP remained stable at about 17 percent in the 1970s. After a period of accelerated growth at 7 percent per annum in real terms in the Third Plan (1973-77), due almost entirely to the modern industrial sector, the growth of manufacturing slowed to 4.5 percent per annum in 1978-79, as a result of increasing financial constraints on the economy and a reassessment of industrial development  - 10 - policy. Gross fixed capital formation in industry in the 1973-77 plan period is estimated at DH 3.3 billion, much higher than during the Second Plan. The ,iain source of the upsurge in investment was the public sector, largely as a result of the launching of a dozen major projects. Almost half of public sector investment was channelled into highly capital-intensive subsectors. In the interim Austerity Plan (1978-80) the number of projects and investment decreased sharply; the primary emphasis of policy began to shift to exports and employment generation. Preliminary data for 1980 indicate a turnaround in industrial production and investment. 33. The manufacturing sector has remained largely oriented toward the domestic market for consumption goods, with food industries the dominant subsector (generating over one-third of industrial value added), followed by textiles (responsible for over one fifth of industrial value added) and other resource-based, intermediate goods industries (chemicals, cement, construction materials, paper and pulp). Import-substitution, a major feature in Morocco's industrial development thus far, has not reduced dependence on imports, but has led to replacement of substituted imports of consumer goods by imports of intermediate and capital goods. The share of domestic demand for manufactured goods met by local production increased only marginally, from 59 percent in 1975 to 62 percent in 1978. There have been significant recent increases in the volume of industrial exports (17 percent in 1980, as compared with 10 percent per annum during the period 1973-77) and their share in total export value (from about 24 percent in 1975 to about 39 percent in 1979). The food, textile and chemical industries are most active in exports and account for about 90 percent of manufacturing exports. Food industries have traditionally exported about 7 percent of their production, and textiles and chemicals emerged as significant export industries in the 1970s. 34. Manufacturing establishments and employment are concentrated along the Casablanca-Rabat-Kenitra axis, but recent Government policies aimed at regional decentralization have produced slight changes. While total industrial employment (excluding handicrafts) grew by 8.8 percent per annum between 1975 and 1978, the manufacturing sector only provides a small share of total employment (estimated at 11.5 percent in 1977). 35. Morocco's complex system of industrial incentives comprises protection and some export subsidization, pricing policy and investment incentives. There are indications that the price structure is highly distorted and not conducive to efficient resource allocation, that it discriminates against exports and intermediate goods industries, and through encouraging capital intensity, adversely affects employment generation. Protection is rarely revised, except upward, and has uneven subsectoral impact. Industrial investment incentives in the form of interest rebates, duty exemptions on imported equipment, and tax exemptions have not encouraged labor-intensive processes. Export incentives (tax exemptions on export generated profits and short-term export credits at concessionary interest rates have provided outside domestic credit ceilings; and assumption of the foreign exchange risk on export contracts by the Treasury)  - 11 - have not been sufficient to outweigh the disincentive effects of the high prices of local inputs and the relative higher profitability of the domestic market as a result of protection. There is thus a need to rationalize the incentive system to make it more responsive to the Government's objectives of employment generation and rapid export-led industrial growth (paragraphs 44 and 46). The Financial System 36. Morocco's financial sector includes Banaue du Maroc (the Central Bank), fifteen commercial banks, five specialized institutions including the industrial development bank, Banque Nationale pour le Developpement Economique (BNDE), and two savings banks. There is also a stock market in Casablanca with a limited and declining role. Commercial banks are efficient, have a good record of profitability, and are free from major Government interference. Sight deposits represent the major part of commercial banks' resources (59 percent in 1979), and short-term loans account for about 90 percent of their lending. The five specialized financial institutions are responsible for the bulk of medium- and long-term lending, and consist of institutions specialized by sector of activity, lending to agriculture and agri-business, tourism projects, housing, and industry, as well as an institution in charge of public fund management. Financing of industrial investment takes various forms: medium- and long-term credits of BNDE and commercial banks, foreign suppliers' credits, leasing, and equity participation. Commercial banks offer three-year equipment financing loans, but though the processing period for these is short, their cost is higher than that of medium term credits. Leasing, (introduced in 1965 and offered by three institutions) has only a marginal impact. While BNDE and commercial banks occasionally invest in equity participations in the private sector and the Office pour le Developpement Industriel (ODI) (paragraph 39) in the public sector, there is as yet no specialized venture capital company. Most equity financing comes from individual savings or from public sources. 37. Since 1978, the Government, in its effort to rebalance the economy, has curtailed public capital expenditures and tightened bank credit to the private sector. In practice, however, the banking system's short-term credits have increased as a proportion of total credits, with a worsening of the traditional illiquidity of Moroccan commercial banks. In 1980, the Central Bank raised its basic rediscount rate, for the first time since 1975, from 4.5 to 6 percent. 38. Lending Rates. The interest rate structure was overhauled in October 1980, with substantial increases in both deposit rates (to attract savings) and lending rates. The ceiling on commercial bank rates on rediscountable loans was raised from 8 percent per annum to 9 percent per annum for short-term loans and to 10 percent per annum for medium-term loans. BNDE introduced a single rate of 12 percent per annum on all its loans, regardless of maturity (replacing the former system of 10 percent per annum for medium-term and 11 percent per annum for long-term loans).  - 12 - However, the effective cost of capital for industrial borrowers from BNDE is 10 percent per annum, because a two-point interest rebate under the Investment Code remains in effect. The feasibility of eliminating the interest subsidy to improve efficiency is to be studied in the context of the Government's structural adjustment program. Lending rates were marginally negative in 1977 and 78, but became marginally positive in 1979 and 80. Inflationary pressures were moderate through 1976, and intensified in 1977, when the cost of living index rose to 12.5 percent. Austerity measures imposed in 1978 slowed the inflation rate to 9.7 percent in 1978 and 8.3 percent in 1979. In 1980 inflation increased to 9.4 percent. It is expected to be about 8-9 percent over the commitment period of the proposed loan, 1981-1983, slightly lower than BNDE's nominal (12 percent) and effective (10 percent) lending rates. Institutional and Policy Framework 39. The Government sets policies for the development of industry through its Ministry of Commerce and Industry, and also participates directly in manufacturing activity. The Office Cherifien des Phospbates (OCP) is responsible for mining, processing and exporting phosphates and derivatives, activities reserved to the public sector because of their importance to the economy. Under the supervision of the Ministry of Industry, the Office pour le Developpement Industriel (ODI) is responsible for industrial promotion activities. The ODI undertakes pre-investment studies, acquires equity shares in new industrial enterprises, and aims at contributing to regional development and local participation in manufacturing. 40. In the small scale industry (SSI) field, a Policy Making Unit was created in the Ministry of Commerce and Industry in 1978, to formulate development policies. A Technical Assistance Unit (TAU) was also established in the ODI to assist in the technical and managerial functioning of small scale industries. The Policy Making Unit had, by 1980, completed a study on SSI development incentives, and some of its policy recommendations have been incorporated in the 1981-85 Plan. The TAU appears to have provided effective assistance to a number of projects, in technology, management and finance. 41. In the field of export promotion, the recently created Centre Marocain de Promotion des Exportations (CMPE), assisted by the International Trade Center (ITC) in Geneva, is expected to function as the central institution for the promotion of exports. The CMPE plans to conduct studies between 1981 and 1983 on export markets for chemical industries and electrical and mechanical SSIs, to identify a list of products of high export potential, and to prepare a plan to penetrate US and Canadian markets. 42. Knowledge of the manufacturing sector is still incomplete, and Morocco has no unit for the study and planning of industry, evaluation and monitoring of implementation, and review of industrial policy. To fill this gap an Industrial Planning Unit is being established within the Ministry of Commerce and Industry (paragrapb 67).  - 13 - 43. The new 1981-85 Plan stresses three major objectives of industrial development: (a) expanding export industries based on local resources (such as, principally, phosphate-based chemicals) or using unskilled or semi-skilled labor (such as textiles); (b) employment creation through encouraging SSIs; and (c) promotion of efficient import-substitution industries for capital and intermediate goods. Under the Plan, industrial investment is projected to total DH 20.9 billion ($4.2 billion eauivalent) and generate a growth rate of 8.4 percent per annum in industrial value added. Industrial investment is to be focussed on: chemical industries for exports, mainly manufacture of phosphate derivatives (51 percent of investment); labor intensive SSIs (12 percent of investment); and the development of engineering industries (15 percent of investment), where, at Morocco's present stage of development, opportunities exist for efficient import substitution. 44. The revision of the incentives system (protection, and investment and export codes) will be undertaken by the Government after a series of studies to assess the current system and to recommend appropriate changes are completed; these studies, supported by the Bank, have been in progress since 1979. They will serve as a basis for rationalizing the protection and price structure, and for recommending new incentive systems. In the context of its program for structural adjustment, the Government has drawn up a program for completing the studies in 1981, for preparing its recommendations for reformulating the structure of protection and of the incentive codes in the first quarter of 1982, and for completing the gradual reform of the structure of protection and tariffs by mid-1983. The reforms are expected to reduce administrative delays, and the various biases that exist presently among sectors, among firms and between production for the local market and for export. The new codes are also expected to offer more effective incentives to foreign companies to make sub-contracting arrangements with Moroccan firms, and bring about transfers of technology. 45. While the preparatory work for the major industrial policy reforms outlined in the previous paragraph is underway, the Government plans to undertake several important actions for promoting exports in the short-term. The CMPE is being strengthened, administrative export procedures and access to export financing are being simplified, and an agency is being created for standardization and quality control, especially of industrial export products. The Government is also undertaking measures to promote the participation of domestic engineering industries in capital formation. These include the study and establishment of a credit system for financing the inputs and marketing of capital goods, and the establishment before March 1982, under the auspices of the Ministry of Commerce and Industry, of an Engineering Contracting Unit to integrate more domestic capital goods in public industrial projects.  - 14 - Bank Role in Industry 46. The role of the Bank in industrial development in Morocco has been to support structural change in industry through the efficient development of individual sub-sectors, through the development of institutions concerned with industrial development, and through a dialogue on policy issues. Past Bank financing has supported the development of industrial processing of Morocco's phosphate reserves; of the cement subsector; of BNDE as a source of medium-term financing for industry of growing importance and sophistication; and the development of SSIs, where there is considerable potential for efficient growth of production and generation of employment. Recently, the policy dialogue has focused on the structure of protection and incentives in general, on the expansion of manufactured exports, on employment generation and on developing the industrial structure. These areas are receiving priority from the Government and will form the main focus for Bank financing over the next several years. PART IV - THE PROJECT Project Background 47. The proposed project consists of a ninth line of credit to BNDE of $70 million. The loan follows from successful projects financed by the Bank in the past. The proposed project was appraised in October-November 1980, and negotiations were held in Washington, D.C. on May 17 to 22, 1981. The Moroccan delegation was led by Mr. Abdelkader Benslimane, BNDE's President Director-General. A staff Appraisal Report entitled "Ninth BNDE Project" (No. 3407a-MOR dated June 2, 1981) is being circulated separately to the Executive Directors. The main features of the loan and project are lis.ed in the Loan and Project Summary and in Annex III. Previous Bank Loans 48. The Bank has made eight loans to BNDE amounting to $184.7 million, net of cancellations. The BNDE VII loan (1061-MOR) of $30 million was fully committed and disbursed before the original closing date of December 31, 1979. The BNDE VIII loan (1428-MOR) of $45 million became effective December 21, 1977, and is now fully committed; disbursements amounted to $26 million as of May 1, 1981. i.e., 60 percent of expectations at the time of appraisal. The slow disbursement stems from the economic slowdown experienced in Morocco during 1978-80; the loan is now expected to be fully disbursed within six months of the original closing date of September 30, 1981. The estimated economic rate of return of projects under Loan 1428-MOR ranged from 18 to 50 percent, well above the minimum 10 percent.  - 15 - Project Performance Audit Report (PPAR) 49. PPAR No. 1805, dated November 23, 1977, covers the fifth loan to BNDE (Loan 736-MOR). The Completion Report forming the basis for the PPAR was prepared at the same time as the appraisal of the BNDE VIII Loan. The PPAR was generally appreciative of BNDE's institutional achievements, but singled out a few areas for improvement. The two main points stressed in the PPAR were the need for realistic interest rates, and the dangers inherent in financing large public sector projects in which BNDE's influence on project design is marginal. They were taken into account in the BNDE VIII project and are also fully reflected in the preparation of BNDE IX. As noted in paragraph 38, BNDE's lending rates were revised upwards as late as October 31, 1980; furthermore, BNDE now applies the same appraisal criteria to all projects it finances, whether public or private, and whether or not they are financed under a Bank loan. BNDE Operations 50. During 1977-79, the total investment cost of projects involving BNDE financing amounted to about DH 5 billion ($1 billion equivalent), compared to DH 6 billion ($l.2 billion equivalent) in 1974-76. BNDE's direct loan and equity approvals for these projects amounted to DH 1.5 billion (2300 million equivalent) and rediscounted loan approvals to DH 0.7 billion ($140 million equivalent); the balance was provided from equity funds, Government grants, and other loan financing, mostly in the form of suppliers' credits. 51. The average size of direct BNDE loans declined to DH 6 million ($1.2 million equivalent) during the 1979-80 period, from DH 9.4 million ($1.9 million equivalent) in 1976-77, indicating a shift to smaller projects. The decrease in the size of BNDE's direct loans partly reflects Morocco's revised industrial strategy of increasing emphasis on smaller enterprises. During the period 1977-80 over 75 percent of the amount of BNDE's loan approvals was in the private sector, compared to 45 percent in 1974-76. The most important sector of lending was manufacturing industry, followed by transport. BNDE's Structure, Management, and Staffing 52. While BNDE's corporate status has remained unchanged, its ownership structure has been somewhat altered since the Bank's last appraisal of BNDE in 1976, with Government control increasing from 38 percent in 1976 to 50 percent in 1980. This increase is not expected to cause any changes in BNDE's policies. 53. There have been major changes in BNDE's management and staff, including the appointment in January 1978 of Mr. Abdelkader Benslimane, former Finance Minister, as President Director-General. The turnover of senior staff affected BNDE's performance, particularly in economic project and sector work, and inadequate supervision of loans contributed to mounting arrears. Partly as a result of Bank concern and follow-up of these aspects,  - 16 - a new organizational structure was introduced in January 1981. The reorganization aims at improved coordination and efficiency, with greater departmental autonomy and increased emphasis on areas of priority, such as supervision and loan recovery, export promotion, and sector studies. An Export Unit has been created, and some of the proposed sector studies will relate to export promotion. A staffing plan, which was reviewed and found satisfactory during negotiations is being put into effect and an adequate number of experienced staff is being placed in the newly formed key divisions. 54. At the end of 1980, BNDE had a total staff of 170 including 78 professionals, compared to 60 professionals in 1976. BNDE's staff of economists was more than doubled in 1980, in anticipation of the above-mentioned reorganization. BNDE's Performance and Financial Position 55. BNDE's profitability and financial position were generally sound during the 1977-80 period, although they were affected in 1979-80 by the movement of international interest rates and the slowdown of domestic economic activity (paragraph 32). Profits before taxes declined from DH 42.7 million ($8.5 million equivalent) in 1978 to DH 37.6 million ($7.5 million equivalent) in 1979, but recovered somewhat to DH 40 million-($8.0 million) in 1980. The decrease was mainly due to the high cost of London Inter-Bank Offered Rate (LIBOR) indexed Euro-dollar borrowings, the average cost of which increased from 13 percent in 1978 to 20 percent in 1979 and the first half of 1980. This resulted in the fall of BNDE's interest spread which declined from 1.8 percent in 1977 to 1.0 percent in 1979, and 1.2 percent in 1980. However, the Euro-dollar borrowings are being repaid rapidly and will be completely repaid in 1982, while in October 1980 BNDE increased its nominal interest rate to a uniform 12 percent p.a. from 10 percent for medium term loans (up to 7 years) and 11 percent for long-term loans; as a result, the interest spread is expected to rise to 1.6 percent in 1981, 2.2 percent in 1982 and 3.0 percent in 1983, provided BNDE does not again have to increase its borrowings in the expensive Euro-currency market which does not seem likely (paragraph 62). In addition, BNDE's annual administrative expenses have remained relatively low and represented about 0.7 percent of average assets in 1980. The deteriorating trend in BNDE's profitability should therefore be reversed in 1981 and BNDE's profitability is expected to improve quickly and remain satisfactory during the 1981-84 period. In this connection, BNDE has accepted to seek to maintain profits at a level of at least 25 percent of equity from 1982 onwards; profits were less than 20 percent of equity in the recent past but are expected to improve with BNDE's widening interest spread. 56. BNDE's audited and unaudited balance sheets for the 1977-80 period show that BNDE's total assets increased by 33 percent between 1977 and 1980 with an increase of DH 506 million ($101 million equivalent; +29 percent) in its net portfolio outstanding. This steady growth of BNDE's lending activity, particularly in 1978 and 1980, has brought about a 10 percent increase in term borrowings, from DH 1,688 million ($338 million equivalent)  - 17 - in 1977 to DH 1,855 million ($371 million equivalent) in 1980. Consequently, the debt:equity ratio increased from 8.9:1 in 1977 to 9.9:1 in 1978 (i.e. almost the 10:1 limit agreed between the Bank and BNDE under the BNDE VII project). Decreased borrowings in 1978 and 1979, coupled with high repayments, contributed to a lower debt:equity ratio (9.7:1 and 9.3:1 at end-1979 and end-1980, respectively); projections indicate that the debt equity ratio will remain well below 10 over the next few years. As a result, no capital increase is considered necessary during 1981-83 unless commitments increase faster than anticipated. Under the proposed loan, BNDE would achieve and not exceed a maximum debt:eauity ratio of 10:1 as of January 1, 1982 (Loan Agreement, Section 4.06). 57. BNDE's debt service ratio (defined as the ratio of the sum of BNDE's total loan collections and net profit before taxes and interest charges to BNDE's debt service payments) has declined steadily since 1977, largely because of increasing loan arrears, and reached 1.0 in 1980, the minimum level provided for under the BNDE VIII loan. However, the debt service ratio is projected to be 1.2 in 1981 and should continue increasing thereafter due to a stabilization of the amount of debt service, coupled with a projected substantial increase of loan collections from 1981 onward. To provide adequate safegards against a future liquidity squeeze, BNDE has accepted to maintain a minimum debt service ratio of 1.1 from January 1982 onwards. 58. BNDE's arrears situation has seriously deteriorated since 1978, partly because of previous heavy financing by BNDE of enterprises which are now in structural and financial difficulties, but also because of the slowdown in overall economic activity. Rising arrears also resulted from inadequate follow-up by BNDE (paragraph 53). The portfolio affected by arrears of more than three months was DH 844 million ($169 million equivalent) or 34 percent of the loan portfolio outstanding as of December 31, 1980, and at that time, such arrears amounted to 10 percent of BNDE's outstanding loans. 59. BNDE's outstanding loans are either guaranteed by the Caisse Centrale de Garantie (CCG), a Government agency, and/or are secured by sufficient collateral. The major portion of CCG guarantees covers dues from public enterprises. The CCG honored its guarantee for the first time in December 1980 by covering DH 6.9 million ($1.4 million equivalent) due to BNDE by SEFERIF, a public sector mining company in serious financial difficulties. Following this first payment, the CCG has paid a further sum of DH15 million ($3 million equivalent) in April 1981. The Government has recently reinforced administration of the CCG, improved its funding mechanism, and plans to undertake a study to revise and improve its operation. 60. In view of the deteriorating arrears situation, the Government and BNDE have taken several measures to safeguard BNDE's financial position, reverse the trend of rising arrears, and address some of the underlying  - 18 - problems which have generated arrears. In the framework of its reorganization early this year, BNDE has created a Division for Loan Recovery, instituted stepped-up procedures for monitoring of arrears, and reinforced its Supervision Division. These measures, as well as CCG's payments to date, have resulted so far in a significant reduction from 10 percent of loans outstanding on December 31, 1980, to a current level of 8.4 percent in arrears. Furthermore, a plan of action was defined with BNDE and the Government to eliminate arrears owed by the four borrowers with the largest amounts in arrears. The plan of action outlines the successive steps leading either to a reestablishment of the financial viability of each borrower on a basis satisfactory to BNDE after a thorough examination covering technical, marketing and financial aspects as warranted; or to CCG payments corresponding to the arrears and according to an agreed timetable. BNDE therefore projects that arrears will be reduced to 8 percent of loans outstanding by end 1981, 6.9 percent by end 1982 and 5.5 percent by end 1983. On the basis of these projections which have been reviewed in detail, as well as of the auditors' assessment of BNDE's provisions for losses on outstanding loans, arrears should not put BNDE's financial position at risk. 61. Since the previous appraisal at the end of 1976, BNDE's continuous resource mobilization efforts have been successful, and total outstanding resources increased by 60 percent from DH 1,768 million ($354 million equivalent) at the end of 1976 to DH 2,821 million ($564 million equivalent) in September 1980. As regards local currency, which represented 41 percent of total resources as of December 31, 1980, BNDE has received resources from a share capital increase (DH 70 million in 1977), net cash generation and local borrowings. Bond issues (most of them 15-year bonds at 7.5 percent) represented almost 90 percent of local borrowings or 31 percent of total resources in December 1980. As regards foreign exchange resources, the Bank has continuously supported BNDE's objective to diversify its sources of funds. This objective has been substantially achieved. The proportion of Bank funds decreased from 42 percent of total resources outstanding in mid-1974, to 20 percent at the end of 1976 and to 8 percent in December 1980. 62. BNDE's realistic operational forecast for 1981-84 takes into account the expected recovery of industrial investments in Morocco, and assumes an increase in direct loan and equity commitments at 5 percent per annum in current prices from the relatively high basis in 1980. This program of commitments would mean that BNDE would require financial resources of DH 1,818 million ($364 million equivalent) until the end of 1983. BNDE has identified DH 1,208 million ($242 million equivalent) of resources. This figure includes DH 157 million ($31 million equivalent) of foreign resources, which BNDE expects to secure at fixed interest rates from OPEC, the Deutsche Entwicklungs Gesellschaft, the African Development Bank and the European Investment Bank. The balance of the resources identified are local and would come from cash generation, net loan collections and bond issues. The proposed Bank loans under the present project would provide an additional estimated DH 438 million ($87.5 million equivalent), of which DH 350 million ($70 million) would be under the proposed BNDE IX loan and  - 19 - DH 187 million ($17.5 million) would be channelled through BNDE under the proposed Second Small Scale Industry loan. Funds from the Bank loans are expected to be fully committed by end-1983. The net resource gap up to end-1983 would therefore be DH 175 million ($35 million), which BNDE is expected to be able to fill in due course. BNDE has accepted to consult with the Bank if it plans to substantially depart from this resource mobilization plan, and to keep a reasonable balance between its floating interest borrowings, which should not be excessive, and its borrowings at fixed interest rates. 63. Audits at BNDE are satisfactory, and are conducted by a reputable international accounting firm on an annual basis. The audited financial statements will continue to be submitted to the Bank within six months of the close of the financial year (Loan Agreement, Section 4.02). In view of the large arrears, in-depth reporting of this aspect will be arranged by BNDE on a quarterly basis. A statement with details of the arrears by sector will be prepared quarterly (Loan Agreement, Section 4.02 (iii)). Objectives of the BNDE Loan 64. The principal objectives of the project are: (a) the provision of foreign exchange needed to finance efficient projects undertaken by manufacturing and service companies; this is a continuation of the line of credit provided to BNDE under previous Bank loans; (b) the promotion and financing of efficient export-oriented projects (minimum 20 percent of the loan component); the selection, evaluation, promotion and follow-up of these projects, as well as other studies to be undertaken, will help to develop BNDE expertise in this field; and (c) the further strengthening of BNDE, particularly in the areas of project supervision, collection of arrears, as well as activities in support of export-oriented industries. BNDE Loan Features 65. At least 20 percent ($14 million) of the proposed Loan of $70.0 million will be used for financing the foreign exchange capital cost of export-oriented sub-projects, defined as sub-projects expected to export at least 20 percent of incremental production (Loan Agreement, Section 2.02 (b)). The remainder of the loan (up to $56 million) will be used for financing part of the foreign exchange requirements of manufacturing and service industries. All sub-projects must show a minimum financial rate of return (FRR) and an economic rate of return (ERR) of 12 percent (Loan Agreement, Section 3.02 (a) (ii)). 66. The proposed loan will be made to BNDE with the guarantee of the Government, and as with past BNDE loans, the Government would cover the foreign exchange risk. The amortization schedule will be based on the aggregate repayments of the sub-loans. The sub-loans will have a maximum  - 20 - repayment period of 15 years from signature of the proposed loan, including up to 4 years grace (Loan Agreement, Section 2.08 (b)). In view of the serious arrears situation, the free limit of $2.0 million established under the BNDE VIII loan will be retained for non export-oriented sub-projects under BNDE IX (Loan Agreement, Section 2.02 (c)) to allow the Bank to review sub-projects more closely. The upper aggregate free limit would be 60 percent of the total loan amount, or $42 million; there was no aggregate free limit under the previous loan, and since there were only two sub-projects above the free limit, the Bank was not able to review regularly the quality of BNDE's appraisal work. In line with the provision of the previous loan, there would be an upper limit of $6.0 million per sub-loan, or $8.0 million after including any sub-loan or investment made out of the proceeds of any prior loan to the same enterprise (Loan Agreement, Section 3.01 (c)). There will be no free limit on sub-loans for export projects, so as to ensure maximum feedback and supervision of these loans. As a result of this limit, together with the free limits set above, the Bank would expect to make a full review of about 5 projects above the free limit and of 5 export-oriented projects, representing about 33 percent of the number of sub-projects and accounting for about 50 percent of the loan amount; a further 20 projects below the free limit would be reviewed in less detail. 67. BNDE has considerable experience in appraising industrial projects, but has only recently begun focussing on export-oriented projects. In addition to promoting export-oriented projects, and developing methods to assess export potential and performance, BNDE will undertake further work on developing its export project appraisal and supervision capability. BNDE will also create an Export Unit (initially staffed with 3 persons) in the Appraisal Department, and the new Sector Studies Division of the Development Department will review export potential and constraints as part of the industrial sector and sub-sector work it will undertake. BNDE has expressed its interest in being associated with the efforts of the Centre Marocain de Promotion des Exportations (CMPE) (paragraph 41) to promote and develop exports and with the Industrial Planning Unit to be established within the Ministry of Commerce and Industry (paragraph 42). Procurement and Disbursement 68. Procurement will follow BNDE's normal procedures (international bidding or shopping), which are satisfactory. 69. Disbursements will only be made against standard documentation giving evidence of expenditures. The BNDE IX loan is expected to be fully committed by December 31, 1983, and to be fully disbursed by December 31, 1986 (Loan Agreement, Sections 2.03 (c) and 2.04).  - 21 - Justification and Risks 70. The BNDE IX loan would continue to assist a mature institution which plays an important role in Morocco's industrial sector, and will, in the face of difficult conditions in international financial markets, ( continue to require important but proportionately decreasing financing from the Bank in the foreseeable future. BNDE submits all the projects it finances to ever more rigorous appraisal according to high standards. It has taken vigorous action to address emerging problems of arrears, which can be expected to return to acceptable levels over the medium term, without at any point threatening its financial position. BNDE also plays a dynamic role in support of the Government's policies in the industrial sector. In particular, BNDE is expected to develop under the project the capacity to foster and support export industries, a prime concern of the Government and an area which assumes increasing importance in its policy dialogue with the Bank. There are no special risks attached to the project. PART V - LEGAL INSTRUMENTS AND AUTHORITY 71. The draft Loan Agreement between BNDE and the Bank., the draft Guarantee Agreement between the Kingdom of Morocco and the Bank, and the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement are being distributed to the Executive Directors separately. 72. Special conditions of the project are listed in the text and in Section III of Annex III. 73. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 74. I recommend that the Executive Directors approve the proposed loans. Robert S. McNamara President by Ernest Stern Attachments June 22, 1981 Washington, D.C.  ANNEX I - 22 - ~~~~~~~~~Page I TABLE 3A MOROCCO - SOCIAL INDICATORS DATA SHEET MOROCCO REFERENCE GROUPS (WEIGHTED AVEAGES LAND HAEA (ThOUSAND SQ. Rot.) - MOST RECENT ESTIMATE)L- lTAL 447.0/c MIDDLE INCOME AGRiCULTURAL 203.7 7c MOST RECENT NORTH AFRICA 6 MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b MIDDLE EAST LATIN AMERICA & CARIBBEAN GNP PtR CAPIIA (US_) 200.0 310.0 740.0 865.5 1616.2 NEhRGY CONSUMPTION PER CAPITA (XILOGRAMS OP COAL EQUIVALENT) 169.3 222.2 315.2 758.3 1324.1 poPUoATION AND VITAL STATISTICS UPPULATION, MID-YEAS (TI40SSIDS) 11626.0 14993.0 19538.0 ELgAN PlpOPUL.TlUN (PERCENT UF TOTAL) 29.3 34.6 39.9 45.2 64.2 PUPULATILh PRoJECTIONS KLPULATION IN YEAR 2UOU (tIILLIONS) 35.6 STATIONARY POPULATION (MILLIONS) 81.0 -YEAh STATIONARY POPULATION IS REACHED 2090 PtU-LATION DENSITY PFR SQ. EN. 26.0 33.5 43.7 36.3 34.3 PoE SQ. KM. AGRICULTULAL LAND 59.U 76.0 92.9 442.7 94.5 yoPULATION AGE SITRUCTURE (PERCENT) I-14 YES. 44.8 47.6 46.3 44.2 40.7 15-64 YRS. 52.6 48.3 50.4 52.4 55.3 cS YRS. AND ABOVE 2.6 4.1 3.3 3.4 4.0 POPULATION GOWTH KATE (PERCENT) TOTAL 2.6 2.5 2.9 2.7 2.4 UtbAN 3.7 4.2 4.5 4.6 3.7 CRU511 BIRTH RATE (PER THOUSAND) 50.2 47.4 44.2 41.5 31.4 CHUDL DEATH RATE (PER THOUSAND) 20.8 16.4 12.8 12.8 8.4 GROSS REPRODUCTION EATE 3.6 3.5 3.2 2.9 2.3 Ft'MILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 25.1 78.0 USERS (PERCENT OF NARRIED WOMEN) ., 1.0 5.4 FOOD ANO NUThITION INDEX UF FOOD PRODUCTION PEE CAPITA (1969-71=1Ou) 99.0 98.0 65.0 96.3 108.3 PFE CAPITA SLPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 96.0 102.0 105.0 110.4 107.6 PEOTEINSS (GRMS PER DAY) 62.0 66.0 67.0 73.4 65.8 OP WHICR ANIMAL ANL PULSE 13.0 13.0 13.0 17.L 34.0 CHILD (ACES 1-4) MUhTALITY KATE 30.3 21.9 15.7 14.9 7.6 hEALT h LIVE bXPECIANCY AT bIRTH (YEARS) 46.9 51.9 56.4 55.9 64.1 INFANT MOKTALITY A,NTL (PEk ThOUSAND) .. .- *. *- 70.9 ACCESS Tu SAFE WATER (PERCENT OF FOPUL ATIOON) TOTAL 30.6 51.0 55.0 59.4 65.7 URBAN 5B.7 92.0 100.0 83.9 79.7 gUhAL 19.0 28.0 25.0 40.8 43.9 ACCESS TU tXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 29.0 .. .. 59.9 UEbAN . 75.0 ..75.7 RURAL .. 4.0 .. .. 30.4 POPULATIUN lEK PHYSICLAN 9406.1/d 12814.5 11037.4 4174.5 1728.2 POPULATION PEe NURSING PERSON .. 2742.2 1693.5 1780.5 1288.2 POPULATION PER hOSPITAL 0ED TOTAL 626.0 664.3 773.6 647.4 471.2 UCbAN .. 454.7 623.4 547.2 558.0 EUEAL .. 5821.4 3089.5 3361.1 ALMlSSIOS PER HOSPITAL bED .. 15.5 16.5 25.3 AVI.RAGE SOZE OP HOUSEHOLD TOTAL 4.8 5.5 UKEAN 4.3 4.9 hLEAL 5.1 5.8 AVERAGE SOUBER OF PERSONS PER KOOCM TOTAL 2.2 2.4 UKE(BAN 2.1 2.1 RURAL 2.3 2.6 ACCLSS TO ELECTRICITY (PERCENT OP DWELLINCS) ToTAL 76.1/e URBAN 8.5.s7i 68.4 65.0* KLBAL 30.87 . . EL~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ .A  - 23 - ANNEX I Page 2 TABLE 3A MOROCCO - SOCIAL INDICATORS DATA SHEET MOROCCO RFFERENCE GROUPS (WEIGHTED AVE7AGES - MOST RECENT ESTIMATE)- MIDDLE INCOME MOST RECENT NORTH AFRICA & MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b MIDDLE EAST LATIN AMERICA 6 CARIBBEAN EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 47.0 52.0 72.0 85.1 101.7 KALE 67.0 67.0 90.0 101.5 103.0 FEMALE 27.0 36.0 54.0 67.5 101.5 SECONDARY: TOTAL 5.0 13.0 20.0 38.0 35.3 MALE 7.0 18.0 25.0 48.1 34.9 FEhALE 2.0 7.0 15.0 28.3 35.6 VOCATIONAL ENROL. (X OF SECONDARY) .. 2.0 3.0 11.3 30.1 PUPIL-TEACHER RATIO PRIMARY 43.0 34.0 39.0 34.9 29.6 SECONDARY .. 20.0 21.0 23.8 15.7 ADULT LITEkACY RATE (PERCENT) 14.0 21.4 28.0 43.0 80.0 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 11.0 14.8 19.6 18.3 42.6 RADIO RECEIVERS PER THOUSAND POPULATION 45.8 62.4 87.4 121.0 215.0 TV RECEIVERS PER THOUSAND POPUIATION 0.4 11.6 32.6 37.4 89.0 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 22.0 16.2 10.7 35.9 62.8 CINEMA ANNUAL ATTENDANCE PER CAPITA 2.0 .. 2.0 3.0 3.2 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 3369.7 3951.7 5117.3 FENALE (PERCENT) 10.1 14.1 15.6 10.5 22.6 AGRICULTURE (PERCENT) 62.5 56.9 52.7 43.5 35.0 INDUSTRY (PERCENT) 13.8 17.4 20.7 27.3 23.2 PARTICIPATION RATE (PERCENT) TOTAL 29.0 26.4 26.2 26.4 31.8 MALE 52.1 45.2 44.2 47.0 49.0 FEHAlE 5.9 7.5 8.2 5.7 14.6 ECONOLIC DEPENDENCY RATIO 1.6 2.0 1.9 1.8 1.4 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIBHEST 5 PERCENT OF HOUSEHOLDS 18.0/f 2D.O/f HIGHEST 20 PERCENT OF HOUSEHOLDS 43.377 49.07 . LOWEST 20 PERCENT OF HOUSEHOLDS 7.077 4.07 -* LOWEST 40 PERCENT OF HOUSEHOLDS 18.07f 12.07? POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN 107.0 157.0 389.0 271.4 RUSAL 66.0 101.0 238.0 144.6 187.6 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 242.0 400.8 513.9 RURAL .. .. 157.0 290.9 362.2 ESTIMATED POPULATION BELOW ABSOLUTE POVELRTY INCOlbL LEVEL (PERCENT) URBAN 51.0 38.0 28.0 22.1 RURAL 49.0 45.0 45.0 29.2 Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage cf countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for host Recent Estimate, between 1976 and 1979. /c Excludes the ex-Spanish Sahara; /d 1962; /e Brick buildings only; /f Consueption expenditures of households. Revised June, 1981  - 24 - ANNE I Pea 3 DEFINITIONS OF SOCIAL INDICATORS Notes: Although the data art drueo frosure generally judged the mas authoritative ad reliable, it hoald I-e be -otd that they y eat ha Wne- nainll -oparble because of the lack of standnditad defioitio an...d -onc.pt used by differen .oa.i. ll1in totentg b dece. mal "a. t, I ose thel...s.. aefu1 to desribe ordern of egoiUde, indicat trende, and cberaote.rieecrti eajoc dtierneebt-etoa e The ref ..o Ig.n.r .. ) the seacunr grou of toe subject ccu..try and (2) a on ry rop i th soehthigheraeaeitn than the caaty oa ofab uf acccor ierp o Cpt:l Sarplus Oil foporters" group hbere "Middla Ince Nort Africa and Kiddle tEen" gs thocehea o trma soicL-cl-rurlafviie . I tha referenc group data nh. a-rages ar popolatiot reigbhtd erith=eic -aomfor e-c dindlgeo and ahom na1y fm- mjority cf the courtniam Ira. group has data for then iodicatcr. Since. oh. e roeg of co-otrirT a 'n h ndetr depeds on the -vatleitlty of date end It ou uvifon, cautioc -ce be enr-i-d to ra --g vrgas of.. onetira-tortonthsr. h.an a ~veas ar ny .aefaf In tomaing the -a1a of on itdicat-orn.taiea anongthecouc..trynod referst- groo.p. LAUD AREA Ichou..and elk..) - oplnitpr reiolgd - onl, othe,,,and min - PopulatorftoaO Total - Tona surface area c-pciaiog lar re ndild miIa.bohan an Iurl divdd by thMe rep -tv aer of haspiti1 bade Aariruirtorl - tEticata of arcltrl.e sdteprrlyo Pe-r-a ly -tilbahe topblic and priat geerl n saoaled otie and re- fo rp,peecree., market atd kitchen goodene cr to lie fallon; 1979 data. hohtlitnaiatanrrs. Ws tl resn binhetspeeneetly stffed by at leston physician. gtatblisbeeta Providin principally roto- lNP PER CAPITA1 (tiS)) - GNP' Per c-pits net i-at ccuro aketpie, dial cart are no inoldd. Rae hospitals, h- .eer -molnd bealrh culeted by ..ae.. ccraic method an ucrldDakke (1077-7I basIs)'; 1990, ad edicar tntr toIeraenl stfftd by a Phny1ita "(hat bya 1070, nod 1970 dnca. modlce1 .as.snen, tr. idnife, etc.) which offe Se-Paten'- te damon. and provde A lieittd range of endcoa farIlities'. Pe tatt- tNEaGY CONSUMPTI1O0 PER CAPITA - Atu..I c--upoict of -nrciul energy Ic-1 tical porposne orha horpineis intloda WHO. prinoipal/ganra boPitai, nodtlslgnte. reroeo,ntua gte a-d hydro-. o -la and geoherma eIe- and rorel hospltal1n Io..' orrae hepntnls aed esditel an -enrity nrciry) inkIlogra ofoa nqui-1elo per -npica; 1960, 197i, aud 19790 reter. i, perielt-d h-spitale ate Included aly -ader tend.. date. die...ne rer goepite1 Bad - T.ta aneh o. fadminsio ... ... dichargee from hompitals dlvidad by the namber af beds. POPUAIO,AIN AND VITAL STATISTICS Tota Pouaio.iid-Yrar (thouma..da) - An of July 1; 19i0, 1970, and 19709 flOOSIffO data Ave.a ice of goasbld sroesrhseod-nal.renndrre- irhan P,raletin ,loar..nt of novel) - R."to of urban to -oca popolattot; Anenshald c_onsiat f A re f teiinleseser iig otr dfeetdafiniione.. of buhaoreaa may effect cop-rbilnny of dena And ibir gain el. A hoarero ledger my er may man he iecn=d f -encutrcee; 1960 1070, aod 1979 dare, tehuhodFrstitclPreaa Por..lenior Projoctiote Argeath= of rmr=na sr.Neo - otl. orbam en r_rl - Avrag e- Popuanio in eer 000 Curantpopula1icc proeccione- or -hsd on 1980 her0 of pe.o par roe in el ahao and renta totpied tamno Octalpopl at4ionb g o e n hi rrtallity. and ertocy rts alIngI reeprtvmy. Drlinaeoesenpreeaerta n proj-cticepaaetr for morneity rate compier of thre Iereasm ucutapdparts.l ing life enpecvavcy t hirth Incr..aing withcooy' pe aita incos Access to Electicityfareto Imlinas) _- tate Moe. en raral - leve, en d Ialelife1 cop-ta-y etabilining at .77.5 Iegrs The pavo- _ovnioa nllnga slob slecrictey in lInIng gatrasp-frstegm actare or ferility rta alshove hra leel afeoing dt-lia in of total, urban, an rural dmlliegsrmetmy fercil ity ecrordlog to . bom lava1 an _mtfacy plann.ingprfoene inch co-aY Is thenacige o"e of t "ee lcacobionciots of _-roctaity EDUCIATIONI nod f-rtility cretIn for pcoeto purpoes. Adiusted tor..lIent gait Statoay. clco - n ttoayppltion them. In oc groath since Pmaysbe-tol,aean1 fenl - Oate. intel, main an fete th irth rat Ia equa .l t ho doath -oe, eA elno the age strcture r- erllnc of all ages at the primary 1-1n ge P-ttates of rempactir etnontc. Ti mahee ol fe etltyrtsdltet pr Imr ene-.g- PoPa1leir...; te--IIy telaesrild-s egd 6-11 tha cr.plce-to le_ of unit net tmprodutoio rate, what math geasinyere hat adjasted for diffrnan lengths of prinaty sdaceoo; for of 'Pe"elae -Itel e-tly. Tha sttinryI popltico site ens c ries rich uni-reral sdn..ati-n enrolmen mey ss 10O0P ...reI ostten on he oalsof hepocted oharctrietio- of the popltinno 'O"a PpapII, are -e -v abv the effictel ece - n In the yea 2000, ed th. rg cf decieo etlt rt orpaa Sroaervhbl - os 1.ml ne fena1a Camnstad aabove;stndy act leve. nda...tiotr.qntrees les F- fcr yIcs ofappove Primary inearnotan; ea sttinry rrlto inrahd-The yea then a.teiory Pp.rletino prvds gaerl vo- tioal.ortehnoop tranin inernti.ns f- en"pib em oehw rahd. asalyo 12 to 17 Fsr at eg.; erreep.ndence. .nre arm geecrally Pouletirn D-eity acladed. Per en. ka. - fd-yenr popa1atiun per squre kilomete 1100 hectecas) of 9'ecetiama enrollm t (terc e f -cedaryl ) aaiellniatn to-I area; 9 1960, 1970 anM979 date nleds -ehitl.. indosail. at ether pragre nhiob epernc icdpend- Per sq. h.agl-uitural lood - Compucd as bhne fur agiclorlad manl oroadepar-tmet of secodary Iatitation. ony16, 170ad 1976 dat. neltahr rtio - rim-r. ad -ntEndr - Teta1 tdetsenole It PPrcolnnt fan Otratu Preret O- Children (I-lu yeerel, norkiag-ags (IS- pnimep n enc -ar bl dIVridd by anher ef tachr inthe hAymr),ed rtire 65yacnd oe)a ecnee f mid-y-c "por- torepoodig leyle cation 1960, 1970, ed1979 data. Malt isra rats fenren - LIneens ada1ts (able te red and wits) PopulatIon Grorh Rato -..ceni - tota - dAnna groth faire of tona eld- aspnrcntag of ntl e.. bI poyaletier egd 15 year.an ove. year populetirt for 1950-hI. 1960-70, end 1970-79~. PPorletiot Ir_ch URan (prarenl) - arbat - A-e growth -ava of urban PoP.- CONttSUsPTIOf latione for 1950-60. 1960-70, nod 1970-79. Pase-nsa Care (pltsobonsadecuail -. Pag r cr e -ieter Crue erthnat (rr h.u..d) - Annul liv- birtha per th....nd of mid-yea-cr snerne lethnsgt P.r.o-; snlda tn. eac2men n .poplation; lh l1970 nod 1979 data. e 'itr .vhiol lnde tenth Rtan frer rhouaodl - Annual deaths par thou-ds of id-year tadit Z.eiar (s othatnadeuthi- An tyrns ef -aeine 1orrah population; 1960, 1970, ed 19 79 dan. broadoats no gS-rnI ypblit Par- ahanand of pplisial; esaldne Irn sRpoduotion aS- Aveag I oeerf dnughtrsa roman rill hbnr In litn-ad r-r ...t In oeari ad in yeArs t-e rsgiatratIe of medIa he _cma rprdutI P:, peio It h naincapeet ag.-.paoifit fer- eats nsin sffnt; dote for recen pacts say ac he r arble slats tclity rates; u llr iaya 4rrar en inaS 1960. 1970, ao 1979. mast -tutigs abolished liesn. of hrt-ccro dvie udrasieof carionel famiy plesain prora. genra= pbil. t.fr H-Wc Ppeynlttee; enldns enlir-e-Mea TV rer.iver- Penio Pantng Uses (rocut fmardeon) - Pretge of mercird in cnartead In Inam h.. regitgrtien f Tr acne L.c iefet. all mariad rmnIA san ego group. ouaina diygnrlitrs e~p~ ege sap-reinaIl pobliotggit devted primaily to raarding generl me I i.e oteed-rd PON beM NUTRITION ra be"daily" if In appear en 1et f-ac time a sek. adnof Fond Pruuic or Carping 116997~1-00) - loden of par onpita a-ua line Ana Att-aneo refCaIt rYme-had. en the sta nf production Of all fon odca.Poution enclndea sesd end feed and tirkata -ld dar1ng thepo,isldn ed I.-n te driv-in nimee In - calender year haste. Coenditiga cove pri-ary god.eg egranad bile naits.. mate of -gor) n,hioh are edible end conai tnii5t5 (egt ofe n me teenlord. g.gregte prodacian of nch oounrY Is based en UJ PORCE national everage proAdoer price rslghte; 1961-h5, '1970, and 1979 dana. fTal Labntr Ppo (theeaels - goam-mlsaly eating P.-em, imoinste Par anto50rp of alores (ercon ofreoiramete) - Coratsd from arme fore so eloe bat endiadig hauanives, etdea,sa.. enry _olen of net food aupriln avalable In coutry per capita covering peyutnt ef all.5 .D nga nlanoei vepice .tmatimeer pe a.Available supplies compries dnrtit prcd_otin imports lass tot nemyarabla; 1960. 19fa1970 979ti data. tnoc. and changes Ia trrk. Net supplien enclul ..i;aI teed, seeds., Paas rtrc)- ee a forts .. rntegs ef mta.l blao E.me tcnin ins c. d In f-rd processing, cd losses I dierihoio. tqure. aeitnr forca_t)S - fbo fore n =nmig ferae, hndeg and netsrot - abtdby PAO aado physiologicnl nee ds fcr norma a-i- fliaig a ecetg o 1oa labor fnrr; 194g. 1970 end 1979 daga, vni and health ron ialg rovironacca cenperatna1re,boy actghts,,,! agIllsr potn' - hr fresi nma,ogaaatim egnt and -e dierrihucco of pvpnlatiAo, and aloig10 pec c etatademniip mater and gas e paretea ef tate) laker fero..; 1990, r.nerhold 1r-1; 1961-65, 1970, and 1977 dene. 1970 and 1979 data. Per .aPit. eurly of Prtnai (aren rpr dad-y roei con fpr Paric PaocranRae tare - octal,ale and f meal - Perti`ipatig-e ott supply of foud par day. get eupply of fond Is aia saoe Ra- stvt assatmes entl es n aaelkrfesa luIme-sta for hotenir -tbicahad hy UJSDA provide 0- nini- pecna f total, male end f.Inal pomati1n of eli en. resetively; albacre o SO ramsnE tnal rote IPer day end 10 gr-s of animal nod 1960. 1970, -ad 1979 dana. mean ew hand en DIn's parigeipesie Ptm poIsepoei,o which .17710 grana rhould hr atonal protaic. Theme snand- rfla:tning age-a eann f the pepalatien, ed Ir.g aims st .A arle ar Ilae char chos uf 75 gr-m of tota proteco cod 23 gran of fe etaos r fren natiea ante ani-a protein an on average for th acrid, propose.d by FAO In the Third Eomo redcyRatia - Ratio ofPopalaso aedet i5 se 69 a oe WorldId Po Iavy;161-65. 1970 end 1977 data. no the rtota lebnr forts. Parcain roreo urlyfrom eo. lan. us - Prtcain sopply of fovd de- rive "P" ros tcn sodpolest gam arda;1961-h5. 1970 and 1977 dec. INeCOME ltIntgIBOfl Chld laea 1-Al ortaifo ~Rat (.ret h_un.d A-IAa denth per thoc...dI it-raono rvte becom (both In -h sad Mad) - macs ied byeoht agegvop 1A yare t children it .hi ..aroP; for eat vlopiog con- 5pernt ichest -t 2pren,por 0 DO er t. ae pearet 40 perome tries dare derived fore life rabIes; 1960, 1970 avd 1979 dat. ef h=uehede. HCALTH POVoRTY TARGET MuPS ifi atrenoctgrh(e.)- Av-rnir nahr yE years of life remining Thr fo11siogeoies revyaPyPMnI-nt ene af pantry s-sl., orbirnh; 190I 90ad1979 dot.edsel ritrrtdrbtnadrbrtnin of ar pr cocend ivrbirhfa. Abseld eerymr leasEisthe-4r ir ae enw5m iia Arcaneto Set nair (oncooc or otule ithi toal urbanl o ua t. - ucitionally adaquay liar plea eretial no-fend reqnrt is sat herof oope (ota, rha. cd.rral.. ih. rasotebl boces to safe t pecfaa fteI rpcieP,yloa oa ucb,, arena Ipublic perona coueofch matr. dnlee is derivd f-re the rem ...ti W r teodpoe. oecdot acr-tan20 mtors fr_n ahbrow tap ba lee etc Pdu ..tfr ihrrs c iigi atsa Aoeesfoteta. hDiecl - tI-aco ofIoaltuh-.otl Uba.-n rra the coleccin anddisposl. vih cc inhou tr-caot ofhaannortaEnar-, edfacelRashDvghs andvanc-wate by aerhos yceec nhie-bl us oEPi pivesan sin-.t :tIwAbocats Anlyisen Pojonon -patm lar installatione. ~ ~ .. .1,tt.-1(R-t .lb r:.:.-bl. -... -Id iply thr 0. h...-if ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ HeylNN Pouainrr hsca oplco iiedb buhro practicing phyan- t, -,d.dI.-p.rti- p.rr h . ~frh PvuA. io ca uan erc-Ppcindvddb E--hrb.o. pradc-r1og mae o fene.le r gcdgcnroe. pacolnree, n deeltap .uee..1:  - 25 - Population : 19.5 (mid-1979) ANNEX I GNP Per Capita: US$ 740 (1979) Page 4 of 6 MOROCCO - ECONOMIC INDICATORS Amount (million US$ at Annual Growth Rates (%) current prices) Actual Projected Indicator 1978 1976 1977 1978 1979 p/ 1980 e/ 1981 1982 1983 1984 1985 NATIONAL ACCOUNTS Gross domestic Product a/ 12661 12.8 6.5 3.7 3.1 6.1 3.9 5.7 6.2 6.6 6.7 Agriculture 2423 11.7 -13.2 19.1 0.8 10.0 3.5 3.5 3.5 3.5 3.5 Industry 4052 9.8 10.0 1.1 2.9 2.9 4.0 6.0 7.4 7.4 7.4 Services 6168 14.8 9.6 1.9 3.7 6.9 4.0 5.2 6.2 6.9 7.0 Consumption 11203 11.7 2.0 7.4 3.3 5.1 4.0 2.3 4.1 4.8 6.0 Gross investment 3072 20.1 11.0 -23.1 -1.2 -5.8 -5.2 15.7 12.8 10.2 8.0 Exports of GNFS 2260 6.3 9.8 3.8 5.5 7.6 6.5 8.8 9.6 6.8 Imports of GNFS 3869 23.8 13.5 -16.1 -1.1 -0.3 -1.0 4.8 4.5 5.0 Gross national savings 1890 13.9 20.6 -16.6 11.5 -2.2 20.9 10.6 14.1 7.7 PRICES GDP deflator (1969 = 100) . 152.0 163.7 177.1 189.8 208.8 Exchange rate (Us$ per DH) . .226 .222 .240 .256 .254 Share of GDP at Market Prices (%) Average Annual Increase (X) (at constant 1969 prices) (at constant 1969 prices) 1960 1970 1975 1980 1985 1990 1960-70 1970-75 1975-80 1980-85 1985-90 Gross domestic product 4.0 4.9 6.4 5.9 6.8 Agriculture _/ 29.1 19.9 15.1 13.6 12.5 10.7 3.5 -0.5 5.1 3.5 3.5 Industry b/ 23.5 27.6 30.6 29.5 31.6 32.4 4.7 8.6 5.3 6.6 7.3 Services bl 47.4 52.5 54.3 56.9 55.8 56.9 4.1 5.5 7.3 5.9 7.2 Consumption 89.2 88.8 87.3 88.7 82.3 79.7 4.1 4.7 5.8 4.1 6.1 Gross investment 10.3 16.0 24.6 16.7 18.5 18.9 8.0 15.9 -2.4 9.4 7.3 Exports GNFS 27.4 18.9 14.8 15.4 16.9 17.3 1.3 2.6 6.3 8.0 7.2 Imports GNFS 26.9 22.5 24.4 20.8 17.8 15.9 3.5 7.2 2.1 2.7 4.3 Gross national savings 11.0 11.1 19.1 16.1 19.5 21.3 3.5 13.1 3.1 10.0 8.7 As % of GDP 1960 1970 1975 1980 e/ PUBLIC FINANCE Current revenues 16.5 16.6 23.3 22.3 Current expenditures 15.6 14.9 20.2 21.7 Surplus (+) or deficit (-) 0.9 1.7 3.1 0.6 Capital expenditure 3.8 5.9 12.2 12.1 Foreign financing .. 1.4 3.7 5.5 1960-70 1970-75 1975-80 1980-85 1985-90 OTHER INDICATORS GNP growth rate (%) 4.0 6.0 5.9 5.6 6.7 GNP per capita growth rate (%) 1.6 3.1 3.0 2.5 3.8 Energy consumption growth rate (%) 3.8 6.7 4.3 5.9 6.8 ICOR 3.09 2.77 3.87 2.88 2.74 Marginal savings rate 0.10 0.40 -0.002 0.33 0.24 Import elasticityE/ 0.95 1.44 0.28 0.76 0.80 a/ At market prices. h/ Share of GDP at factor cost beginning in 1985 and sectoral growth rates at factor cost beginning in 1980-85. c/ Goods only. e/ Estimate. l Preliminary. April 20, 1981 EMENA CP II-B  - 26 - Population 19.5 (mid-1979) ANNEX I GNP Per Capita: US$ 740 (1979) Page 5 of 6 MOROCCO - EXTERNAL TRADE Amount Annual Growth Rates (%) Indicator (million USS at (at constant 1969 prices) current prices) Actual Projected 1978 1975 1976 1977 1978 1979S-/ 1980 1981 1982 1983 1984 1985 EXTERNAL TRADE Merchandise exports (FOB) 1502 -22.8 12.8 8.0 3.5 5.5 9.4 7.6 6.0 9.3 10.4 6.5 Primary products 1143 -25.3 13.1 2.1 3.8 3.5 8.2 3.8 3.9 4.1 4.3 4.3 Phosphate rock 488 -29.9 12.0 7.5 10.4 3.3 6.1 5.0 5.0 5.0 5.0 5.0 Others 655 -22.5 13.8 -0.9 0.0 3.6 9.8 3.0 3.2 3.4 3.7 3.9 Intermediate & manufactures 360 -8.5 11.0 36.0 2.3 11.4 12.6 17.5 10.7 20.7 21.7 9.9 Merchandise imports (CIF) 2967 21.4 7.8 31.4 -26.4 9.7 -0.2 0.7 4.7 5.5 5.0 5.7 Food 481 35.5 -24.0 32.9 8.6 2.0 -1.3 -5.1 -5.3 -5.1 -5.2 4.9 Petroleum 427 12.8 2.9 14.5 10.7 12.2 3.9 3.8 -4.4 3.8 4.1 3.0 Machinery and equipment 813 51.7 20.4 76.3 -57.9 -3.2 6.3 1.0 17.2 13.3 10.2 10.6 Others 1246 5.2 14.8 4.9 -10.7 19.1 -3.5 2.4 4.5 5.4 5.4 3.2 PRICES (1969 = 100) Export price index . 256.5 207.8 201.9 211.4 231.7 264.2 291.5 319.8 348.7 380.6 411.3 Import price index . 205.0 211.7 223.4 236.1 252.4 293.4 326.0 351.4 379.2 408.7 437.9 Terms of trade index . 125.1 98.2 90.4 89.5 91.8 90.0 89.4 91.0 91.9 93.1 93.9 Composition of Merchandise Trade (%) Average Annual Increase (%) (at current prices) (at constant 1969 prices) 1960 1970 1975 1980 1985 1990 1960-70 1970-75 1975-80 1980-85 1985-90 Exports 2.0 -0.7 7.5 8.1 6.9 Primary products 89.5 89.7 86.9 73.7 61.3 59.8 .. -2.2 4.7 4.1 6.0 Intermediates & manu- 10.5 10.4 13.1 26.3 38.7 40.2 .. 9.0 17.8 16.0 8.1 factures Imports 4.0 8.1 0.0 4.5 5.4 Food 27.3 16.8 24.9 16.2 9.6 6.6 .. 14.0 0.8 -3.8 -1.8 Petroleum 7.4 5.5 10.7 25.0 24.2 23.4 .. 9.5 10.2 1.8 2.0 Machinery and equipment 6.7 24.0 23.9 18.6 28.2 32.3 .. 12.8 -3.0 11.3 8.7 Others 58.6 53.7 40.5 40.2 38.0 37.7 *- 3.8 -5.4 4.5 5.6 Share of Trade with Share of Trade with Share of Trade with Industrial Countries (%) Developing Countries (x) Capital Surplus Oil Exporters (%) 1960 1970 1975 1960 1970 1975 1960 1970 1975 DIRECTION OF TRADE Exports 72.3 73.7 60.8 27.7 25.4 38.8 .. 0.9 0.4 Imports 76.7 74.9 65.7 23.3 25.1 33.9 .. .. 0.4 e/ Estimate. April 20, 1981 EMENA CP II-B  - 27- Population : 19.5 (nid-1979) ANNEX I CNP Per Capita: US$ 740 (1979) Page 6 of 6 MOROCCO - BALANCE OF PAYMENTS, EXTERNAL CAPITAL AND DEBT (million USt at current prices) Indicator Actoal Proj-ted 1970 1975 1976 1977 1978 1979 1980 !/ 1981 1982 1983 1984 1985 1990 BALANCE OF PAYMENTS Exports of goods and services 775 2580 2288 2486 2955 3694 4318 5136 5852 6758 7872 8926 16088 Of which: Merchandise f.o.b. 488 1530 1245 1283 1488 1938 2413 2851 3314 3951 4759 5477 10336 Inports of goods and services 946 3134 3691 4364 4353 5268 5794 6369 6899 7911 8791 9865 16604 Of whicb: Mer-bandise f.o.b. 625 2267 2305 2820 2628 3245 3734 4158 4693 5344 6046 6846 12178 Net current tranters 27 8 47 52 50 44 66 - - - - - - Current acco.nt balance -144 -546 -1355 -1826 -1348 -1530 -1410 -1233 -1047 -1153 -919 -939 -516 Special grats 100 435 360 260 420 96 300 250 200 150 100 C-rrent aceuont balance after grants -144 -446 -920 -1466 -1088 -1110 -1314 -933 -797 -qS3 -769 -839 -516 Privote capital 21 21 38 53 45 37 ., 25 28 31 35 39 79 MLT loans (net) 90 304 336 1338 1109 946 1098 1083 901 1121 882 979 727 Official .. .. .. .. .. .. .. 716 643 683 554 612 618 Private .. .. .. .. .. .. .. 367 159 437 329 368 109 Other capital 56 104 30 68 -773 3 79 -70 -42 -30 - - - Nonetary movements -23 17 16 6 8 53 295 -105 -89 -169 -147 -179 -289 International reserves 161 437 548 609 772 917 814 977 1061 1229 1376 1556 2681 Of which: Gold 21 85 82 104 154 360 415 360 360 360 360 360 360 Reserves as nonths imports 2.0 1.7 1.8 1.7 2.1 2.1 1.7 1.8 1.8 1.q 1.9 1.9 1.q EXTERNAL CAPITAL AND DEBT a/ Gross disbursen.ents 175 664 736 1785 1191 1434 Concessional loans .. 164 121 634 334 321 DAC .. 109 73 107 100 76 OPEC .. 42 41 507 189 179 IDA .. I 4 3 - - Other '' 13 3 17 45 66 Noo-concesabonal loass .. 500 614 1151 857 1113 Official export credits .. 3 22 27 2 2 IBRD 16 110 59 68 72 137 Other -ssltila.eral .. 7 2 7 51 7 Private 25 380 531 1049 732 967 Suppliers credits .. 127 10 171 10 8 Fisancial credits and bonds .. 253 521 878 722 959 E.ternal Debt Debt outstanding and disbursed 703 1753 2341 4078 5139 6185 6987 Official .. 1121 1261 1984 2473 2842 3212 Private .. 632 1080 2094 2666 3343 3775 llndisbursed debt 239 652 805 1026 2263 2246 Debt service Total service pay.nets 58 145 162 265 548 799 1023 Interest 23 50 66 148 252 411 533 Paysseots an X exports of GoS 7.5 5.6 7.1 10.7 18.5 21.6 23.7 Average isterest rate on new loans () 4.4 7.3 7.5 6.8 6.9 8.3 Average maturity of sew loans (years) 18.5 14.7 12.2 13.1 13.3 15.8 As % of Debt Outstanding at fnd of Most Recent Year (1979) Maturity structure of debt outstanding Maturities due within 5 years 38.5 Maturities due within 10 years 73.2 Interest structure of debt outstanding Interest due within first year 6.9 April 20, 1981 EMENA CP I-8 a/ From IBRD External Debt Reporting System. There are sizeable discrepancies in none years between tho external capital and debt service flows reported under tbe 1BRD Debt System and those recorded in the official balance of payments statistics shown in the upper part of this table. e/ Estimated.  - 28 - ANNEX II Page 1 of 8 A. STATEMENT OF BANK LOANS AND IDA CREDITS (As of April 30, 1981) Loan or US0 Million_ Credit Amount (less cancellations) Number Year Borrower Purpose Bank IDA Undisbursed Eighteen Loans Fully disbursed 392.9 Four Credits Fully disbursed 36.0 1017 1974 Maroc-Phosphore Industry 50.0 0.4 1018 1974 Kingdom of Morocco Agriculture 32.0 11.5 555 1975 Kingdom of Morocco Agriculture 14.0 12.6 1123 1975 Kingdom of Morocco Agriculture 18.5 2.3 1201 1976 Kingdom of Morocco Agriculture 30.0 9.4 1202 1976 Kingdom of Morocco Tourism 21.0 12.9 1220-T 1976 Kingdom of Morocco Education 25.0 21.5 1299 1976 Kingdom of Morocco Power 49.0 1.9 1361 1977 CNCA Agriculture 35.0 0.0* 1383 1977 CIOR Industry 45.0 0.7 1416 1977 Kingdom of Morocco Agriculture 41.0 39.8 1428 1977 BNDE DFC 45.0 19.1 S-7 1977 Kingdom of Morocco Engineering 1.5 1.1 1528 1978 Kingdom of Morocco Urban Development 18.0 15.9 1602 1978 Kingdom of Morocco Agriculture 65.0 62.7 1625 1978 Maroc-Phosphore Industry 50.0 13.9 1681 1979 Kingdom of Morocco Education 113.0 112.9 1687 1979 Kingdom of Morocco DFC (SSI) 25.0 16.9 1695 1979 Kingdom of Morocco Power 42.0 41.9 1704 1979 CNCA Agriculture 70.0 56.9 1724 1979 Kingdom of Morocco Water Supply 49.0 43.7 1757 1980 Kingdom of Morocco Agriculture 58.0 53.3 S-18 1980 BRPM Oil Exploration 50.0 42.5 1830 1980 Kingdom of Morocco Highway 62.0 62.0 18481/ 1980 Kingdom of Morocco Agriculture 34.0 34.0 1943 1981 CIH Tourism 100.0 100.0 1944!/ 1981 Kingdom of Morocco Urban Development 36.0 36.0 Total 1557.9** 50.0 825.8 of which has been repaid 186.4 0.8 Total now outstanding 1373.0 49.2 Amount Sold 20.1 of which has been repaid 17.7 2.4 Total now held by Bank and IDA 1369.1 49.2 Total undisbursed 813.2 12.6 825.8 NOTE 1/ Not vet effective. * US $40,783.65 undisbursed. ** An $87 million loan for a Third Water Supply Project was approved on May 28, 1981, but has yet to be signed. B. STATEMENT OF IFC INVESTMENT (As of April 30, 1981) US$ Million Loan Equity Total 1963/1978 BNDE Development Bank - 2.7 2.7 1966 CIL Canning Factory 0.9 0.5 1.4 1976 Marrakech Cement Cement Factory - 1.4 1.4 1977 Temara Cement Cement Factory 4.8 3.5 8.3 1980 SOMIFER Copper Mining 13.0 2.3 15.3 Total Gross Commitments 18.7 10.4 29.1 Less cancellation, terminations, repayments and sales 13.7 3.4 17.1 Total commitments now held by IFC 17.5 9.2 2o.7 Total Undisbursed 4.0 0.4 4.4  - 29 - ANNEX II Page 2 of 8 C. PROJECTS IN EXECUTION / Ln. No. 1018 Sebou II Development Project; US$32.0 million of June 27, 1974; Date of Effectiveness: February 28, 1975; Closing Date: December 31, 1981. The project as originally appraised was completed in November 1980, except for the procurement of sugarcane transport equipment ($0.7 million). Funds have been virtually fully committed for the costs of additional infrastructure works foreseen under an amendment to the Loan Agreement made in July 1980. Ln. No. 1123 Souss Groundwater Project; US$18.5 million of June 11, 1975; Date of Effectiveness: September 26, 1975; Closing Date: June 30, 1982. The tube wells required for new irrigated areas (6,400 ha) were completed and tested one year ahead of appraisal schedule. Land clearing and distribution as well as construction of the Project Headquarters and Development Centers have been completed. Works related to the social components of the project which suffered from substantial delay are now underway. Budgetary constraints facing Morocco resulted in cutbacks in the operating budget and held back the assignment of additional personnel, causing 2 years delay in project implementation, and consequent cost overruns. A revised work program has been prepared to reflect this. Agricultural yields are satisfactory. Cr. No. 555 Meknes Agricultural Development Project; US$14.0 million of June 11, 1975; Date of Effectiveness: November 14, 1975; Closing Date: June 30, 1984. After a 2-year initial delay, project implementation has picked up momentum. Major activities concerned with the land consolidation and redistribution program have been completed in one district and works have been started in the remaining three districts. Progress is slower than expected, mainly because project implementation proves more complex than anticipated. However, the first results of the completed components are promising. Because of the initial delay and the complexity in implementation, the original closing date was extended by three years. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the undertanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  - 30 - ANNEX II Page 3 of 8 Ln. No. 1201 Doukkala Irrigation Project; US$30.0 million of February 27, 1976; Date of Effectiveness: July 20, 1976; Closing Date: June 30, 1981. The project includes sprinkler irrigation for 15,400 ha., infrastructure and equipment and a research laboratory on bilharzia. Construction of irrigation and drainage works is nearly complete. The first 4,600 ha. have been completed and put in service. Completion of the remainder is underway. Agricultural development has been satisfactory. The loan is expected to be closed on schedule. Ln. No. 1202 Bay of Agadir Tourism Project; US$21.0 million of February 27, 1976; Date of Effectiveness; October 29, 1976; Closing Date: December 31, 1981 The project consists of infrastructure works and public facilities for developing Agadir into a major tourism area. Most infrastructure works were completed in December 1980, except for the construction of public facilities (representing some 20% of the total project costs). This delay is mainly due to administrative and project management problems. Project completion is expected to be delayed by about 18 months, and an extension of the closing date will be considered. Ln. No. 1220 Third Education Project; US$25.0 million of March 18, 1976; Date of Effectiveness: October 1, 1976; Closing Date: June 30, 1983. The project is designed to expand and improve primary and secondary education in rural areas and specialized training to meet manpower needs in education, agriculture, health and tourism. After an initial two-year delay, there bas been improvement in project implementation. Construction of primary schools, secondary schools, a teacher training college and a rural development and extension training center is largely completed. Construction is well underway for other components. Disbursements under the loan are expected to increase in the near future. However, there is an overall delay of two years in project implementation. Ln. No. 1299 Sidi Cheho - Al Massira Hydro Project; US$49.0 million of July 2, 1976; Date of Effectiveness: November 16, 1976; Closing Date: December 31, 1981. The project comprises the construction of the Al-Massira dam, of a 120-MW power station including a 225-KV substation and of about 200 km of 225-KV transmission line, and the preparation of preliminary designs and bid documents for the Merija compensating dam and power station. The dam, reservoir power plant, and one transmission line have been completed and commissioned. The second transmission line is under construction. The project should be fully completed in the near future and disbursements are on schedule.  - 31 - ANNEX II Page 4 of 8 Ln. No. 1361 Third Agricultural Credit Project; US$35.0 million of February 7, 1977; Date of Effectiveness: August 11, 1977; Closing Date: June 30, 1981. The project aims at increasing Morocco's agricultural production and at expanding the capability of the Caisse Nationale de Credit Agricole (CNCA) as an agricultural lending institution. The project covered most of CNCA's program for medium- and long-term lending through August 1979 and included related technical assistance. Disbursements of IBRD funds aim at financing on-farm investments of small farmers, cooperatives and farmers' associations. Virtually all the Bank loan is disbursed, with the exception of funds for technical assistance, for which disbursements began only in late 1980. The loan is expected to be closed on schedule. Ln No. 1383 CIOR Cement Project; US$45.0 million of April 19, 1977; Date of Effectiveness: July 7, 1977; Closing Date: December 31, 1981. The project comprises construction of a 1.2 million tons per year cement plant in the Eastern Region of Morocco, and related distribution facilities. Overall project implementation is satisfactory. Training of key personnel is almost complete, and recruitment is adequate. The cement plant started operation in January 1979, and the distribution center, in July 1980. The Bank loan has been virtually fully disbursed. Ln. No. 1416 Doukkala II Irrigation Project. US$41.0 million of June 16, 1977; Date of Effectiveness: December 1, 1977; Closing Date: June 30, 1984. The project aims at extending irrigation and related agricultural development in the Doukkala perimeter by 16,600 hectares; it also calls for provision of extension and credit services, and village infrastructure. The land consolidation program and the enlargement of the main canal are proceeding according to schedule. Implementation was slowed down due to budgetary constraints facing Morocco which caused an initial delay of about two years. However, project implementation has resumed vigorously and the initial delay may be fully recovered. Ln. No. 1428 Eighth BNDE Project; US$45.0 million of June 16, 1977; Date of Effectiveness: December 21, 1977; Closing Date: September 30, 1981. The project is designed to meet part of the Banque Nationale de Developpement E.onomique's (BNDE) requirements for financing of the import component of specific industrial enterprises, and of a small-scale industry pilot project for which up to $5 million of Bank financing is included. The loan is virtually fully committed and about two-thirds disbursed.  - 32 - ANNEX II Page 5 of 8 Ln. No. S-7 Sewerage Engineering Project; US$1.5 million of August 30, 1977; Date of Effectiveness: August 18, 1978; Closing Date: October 31, 1982. The project includes the preparation of a sewerage Master Plan for the Casablanca-Mohammedia region and of a priority first stage project. It would assist Morocco in developing the design and planning criteria for urban sewer systems and strengthening the institutional and financial bases for the development of this sector. Project implementation has been delayed by about 15 months, due to administrative and budgetary difficulties, but studies were launched in May 1980, and are now proceeding satisfactorily. Ln. No. 1528 Rabat Urban Development Project; US$18.0 million of March 31, 1978; Date of Effectiveness: November 21, 1978; Closing Date: March 31, 1982. The project is designed to improve living conditions of the urban poor in Rabat. It includes upgrading of slum infrastructure and social services in three squatter areas with a total population of about 60,000; an experimental sites and services bousing scheme; an employment generation program; and related technical assistance. Construction is proceeding satisfactorily; however, there has been some delay in the non-physical aspects of the project. Ln. No. 1602 Fes-Karia-Tissa Agriculture Project; US$65.0 million of September 6, 1978; Date of Effectiveness: February 18, 1979; Closing Date: June 30, 1986. The project aims at (i) improving the standard of living of about 33,900 farm families cultivating about 256,000 hectares in the Fes-Karia-Tissa region, and (ii) contributing to the growth of agricultural production and to a reduction in Moroccan dependence on imported food commodities. These aims would be achieved through a reorganization and strengthening of agricultural extension and soil conservation services, training, the provision of credit and infrastructure. Although somewhat delayed, implementation is proceeding satisfactorily, due to excellent project management and good interagency coordination. Ln. No. 1625 Maroc Phosphore Expansion Project; US$50.0 million of October 27, 1978; Date of Effectiveness: March 23, 1979; Closing Date: June 30, 1982. The project consists of expansion of existing production facilities at Safi through (a) the erection, on the site of the existing Maroc Phosphore plant, of an additional unit and ancillary facilities to produce for export 165,000 tpy of phosphoric acid, and (b) the construction of sulphur melting and storage facilities as well as of new phosphoric acid concentration and  - 33 - ANNEX II Page 6 of 8 storage facilities. Implementation is proceeding satisfactorily and commercial operations have begun. Maroc Phosphore's technical management appears satisfactory. Ln. No. 1681 Fourth Education Project; US$113.0 million on April 25, 1979; Date of Effectiveness: October 16, 1979; Closing Date: December 31, 1984. The project consists of (i) construction, furnishing and equipping of 11 technical high schools, a technical teacher training college, two higher institutes of technology, an institute of applied engineering and an extension of Mohammedia Engineering College; (ii) technical assistance associated with the project items and for strengthening the Project Implementation Unit in the Ministry of National Education; (iii) pre-investment designs. Implementation has been proceeding slowly. Ln. No. 1687 Small Scale Industry Integrated Development Project; US025.0 million of April 25, 1979; Date of Effectiveness: December 17, 1979; Closing Date: December 31, 1983. The project consists of support for a new Government program to assist small and labor intensive industries through technical, managerial and financial assistance. The extremely strong demand for this kind of credit has resulted in virtually full commitment of the loan within the first year of the project. Ln. No. 1695 Village Electrification Project; US$42.0 million of May 22, 1979; Date of Effectiveness: April 30, 1980; Closing Date: June 30, 1984. This project, which is the first stage of a 15-year village electrification program, would provide electricity to about 60,000 dwellings in 220 villages located in 17 provinces. Administrative and budgetary problems have initially delayed project start-up. Consultants have been recruited and are engaged on the project. Procurement of engineering services is in progress. Ln. No. 1704 Fourth Agricultural Credit Project; US$70.0 million of May 23, 1979; Date of Effectiveness: December 5, 1979; Closing Date: June 30, 1983. The project aims at increasing Morocco's agricultural production thereby improving the standard of living of about 475,000 of Morocco's farm families. The project will cover most of the Caisse Nationale de Credit Agricole's (CNCA's) medium- and long-term lending program and farm investment program through August 1982. Cofinancing of $75 million is provided by IFAD and KfW. Disbursements are on schedule, CNCA's financial position may become tight due to the recent drought, but its lenders, including the Bank, are considering an increase in their disbursement percentages which should alleviate CNCA's problems.  - 34 - ANNEX II Page 7 of 8 Ln. No. 1724 Second Water Supply Project; US$49.0 million of July 2, 1979; Date of Effectiveness: February 4, 1980; Closing Date: June 30, 1984. The project is designed to improve access to safe water supplies of the population of the Mid-Atlantic Coast and the Greater Agadir area. It consists of: (i) the expansion of bulk water production and transmission facilities along the Mid-Atlantic Coast; (ii) the expansion of bulk water production and transmission facilities in Agadir; (iii) the establishment of a revolving fund to facilitate house connections for low income families; and (iv) studies on accounting and management systems. Administrative problems have created some initial delays, but there is strong demand for the credit facilities for low-income house connections, and the project is now proceeding satisfactorily. Ln. No. 1757 Vegetable Production and Marketing Project; US$58.0 million of November 15, 1979; Date of Effectiveness: April 17, 1980; Closing Date: June 30, 1984. The project is the first phase of a long-term program for development of off-season vegetables for export. $50.0 million of the loan is to be on-lent for long and medium-term farm investments and incremental short-term production costs of vegetable quality control centers, for two small producer packing stations, and for seedling greenhouses benefitting about 8,000 farm families and creating seasonal employment. The balance of the loan would help finance infrastructure in the project area, and technical as5istance. Implementation is proceeding satisfactorily. Overall production did uiot progress as scheduled due to the cold winter. However, for the first time since 1972/73, total exports have been higher than in preceeding years. Ln. No. S-18 Petroleum Exploration Project; US$50 million of May 19, 1980; Date of Effectiveness: October 24, 1980; Closing Date: December 31, 1983. The project aims essentially at accelerating the petroleum exploration and development efforts of the Bureau de Recherches et Participation Miniere (BRPM), the national enterprise for oil and mineral exploitation and development (excluding phosphates). It also provides technical assistance in prospect evaluation, analysis of results of exploration, and exploration management. Drilling has been started with encouraging results and some of the consultants have been hired. Administrative problems delayed initial disbursements.  - 35 - ANNEX II Page 8 of 8 Ln. No. 1830 Third Highway Project; US$62.0 million of May 19, 1980; Date of Effectiveness; September 29, 1980; Closing Date; June 30, 1984. The project comprises (i) a three-and-a-half year time slice of the Government's pavement strengthening and preservation program; (ii) strengthening and management of the road maintenance program and (iii) technical assistance for the Ministry of Transportation to improve transportation planning. The project is progressing satisfactorily. All contracts for the first year of implementation have been awarded. Ln. No. 1848 Loukkos Rural Development Project; US$34.0 million of December 22, 1980; Not yet effective; Closing Date; June 30, 1987. The project should increase incomes and productivity of very poor subsistence farmers in the Loukkos Basin by reversing the declining trends caused by soil erosion and inappropriate farming practices. It consists of; (i) development and erosion control works on 15,000 steeply sloping hectares in Upper Loukkos; (ii) development of field crops and small irrigation improvements in Middle Loukkos; (iii) establishment and maintenance of pine plantations in the Izarene Forest; (iv) construction of roads and social service facilities in the Project area; and (v) execution of a cadastral survey on about 500,000 hectares of land. Once proven, the project implementation methodology could be widely replicated throughout Morocco's mountain and steppe land. Project effectiveness has been delayed for administrative reasons. Ln. No. 1943 Fourth Hotel Development Project; US$100.0 million of February 5, 1981; Date of Effectiveness: April 9, 1981; Closing Date; December 31, 1985. The project would provide funds over a three year period to the Credit Immobilier et Hotelier (CIH), a Moroccan development bank specializing in the tourism and housing sectors, for the development of tourism hotels. It also includes studies for developing policies in the tourism sector and training of CIH staff in appraisal methodologies for tourism projects. Ln. No. 1944 Second Urban Development Project; US$36.0 million of April 16, 1981; Not yet effective; Closing Date: July 31, 1986. The project would support the Government's efforts to provide shelter, basic services and employment to low-income urban families through a program to be implemented in the cities of Meknes and Kenitra. Although the project is not yet effective, implementation is underway and ahead of schedule.  - 36 - Annex III Page 1 KINGDOM OF MOROCCO NINTH BNDE PROJECT SUPPLEMENTARY PROJECT DATA SHEET Section I: Timetable of Key Events (a) Time taken by the country to prepare the project: About six months (June 1980 through November 1980) (b) Agency which prepared the project: Banque Nationale pour le Developpement (BNDE). (c) Project first presented to Bank: June 1980 (d) First Bank mission to review the Project: June 1980 (e) Departure of Appraisal Mission: October 25, 1980 (f) Completion of negotiations: May 1981 (g) Planned date of effectiveness: October 31, 1981 Section II: Special Bank Implementation Action No special action necessary. Section III: Special Conditions (a) BNDE to achieve and not exceed debt-equity ratio of 10:1 as of January 1, 1982 (paragraph 56); (b) debt service ratio to be maintained at 1.1 from January 1982 onwards (paragraph 57); (c) BNDE to use at 20 percent of the proposed loan to finance export-oriented subprojects (paragraph 65); (d) BNDE to implement plan of action to secure payment of arrears due from four borrowers (paragraph 60); (e) BNDE to mobilize resources to finance its operations up to end-1983 (paragraph 62).