Morocco - Financial sector study

F.. .. ;hLf; el :i .., "l,:L ;PP :sSL Pf:s:t: i * .''$''t;'9,'l ,'S,;1;,',>',,',,.,.1',' ,., 5i>:..ii 'i r rf , : >; f ' : .;, % .:2 ,^:.. .$,: , .I, ,, ; !,, - 0,C C~~~~~~ :!. ;, .;' ..... :. ~~~UQ~~ aie -, SX|\. ! ^., C . w ,. r' ,z' ~ ~ ~ ~ ~ ~ ~ ~ ~ .,t* U~~~~~b ^ ,. | H H .'  CURRENCY EQUIVALENT Currency Unit = Dirham (DH) US$ 1.00 DH 7-1 (1983 average) = DIH 8-1 (1984 - 3 month average) DH 1.00 = US$ 0.141 (1983 average) = US$ 0.123 (1984 - 3 month average) FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY TITLE: MOROCCO: FINANCIAL SECTOR STUDY COUNTRY: KINGDOM OF MOROCCO REGION: EUROPE, MIDDLE EAST AND NORTH AFRICA SECTOR: FINANCIAL REPORT TYPE CLASSIFICATION MM/YY LANGUAGES 4957-MOR SRA Official Use 09/84 English/French PUBDATE: December 12, 1984 ABSTRACT: The report analyzes major development problems in the Moroccan financial sector, which include inadequate savings, absorption of an excessive proportion of total financial resources by the Treasury, limited competition in the financial system, and distortions in the allocation of credit. It provides guidelines for fiscal policy and government spending that would need to be followed to increase central government savings. It also proposes to develop private savings through interest rate policy and diversification of the range of financial instruments available to savers. The report analyzes the effects of the Treasury's large financial needs on credit availability to the private sector, as well as the consequences of low interest rates paid to the Treasury. It stresses the limited competition in the financial sector, and shows the adverse implications for sector efficiency. Proposals are made to substantially increase competition between the different types of institutions through changes in the interest rate structure, specialization in attracting and lending resources, and development of the capital market. Finally, the report analyzes current sectoraL selective credit policies, their impact on credit allocation, and suggests new credit policies. Specific aspects of financing in the agricultural, industrial, fisheries, tourism sectors are also considered, with particular reference to itnstitutionial and regulatory problems and projected medium-term financing needs. This document has a restricted distribution and may be used by recipients only in the performance of I their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  TABLE OF CONTENTS Page Map List of Abbreviations................................................ Summary and Conclusions ........................, i-xx CHAPTER I MACROECONOMIC ASPECTS OF INVESTMENT FINANCING: CURRENT SITUATION AND PROSPECTS ...................... 1 A. Introduction ..................................... 1 B. Increasing Reliance on External Financing ........ 1 C. Stabilization Policies, 1978-83 .................. 3 D. Structural Aspects of Investment ................. 4 E. Mobilization of National Savings ................. 4 F. Medium-Term Prospects ............................ 7 CHAPTER II PUBLIC SAVINGS .13 A. Introduction .13 B. Recent Trends in Public Savings and Debt Financing in Morocco .13 C. International Comparisons of Central Government Current Revenue and Expenditure .15 D. Current Budgetary Policy Measures .18 E. Medium-Term Projections .21 CHAPTER III MOBILIZATION OF PRIVATE SAVINGS .27 A. The Need to Mobilize Domestic Savings .27 B. Types of Savings .27 C. Factors Determining Household Savings .33 D. Networks for Receiving Deposits .34 E. The Expanding Role of Banks in the Moroccan Economy .37 F. Measures to Improve the Mobilization of Savings 39 G. More Bank Offices .39 H. Wider Use of Checks .40 I. Diversification of Financial Instruments Available to Savers ................... 41 J. Incentives to Banks to Accept Longer-term Resources ........................................ 42 CHAPTER IV INSTITUTIONS MAKING UP THE FINANCIAL INTERMEDIATION SYSTEM ................................ 45 A. Structure of the Financial Intermediation System. 45 B. Resources of the Financial Intermediation Sector. 46 C. Intermediation Spread of the Banking System ...... 47 D. Competition and Specialization in the Banking Sector ................................... 51  Page E. Measures to Increase Competitioni in the Banking Sector ................................... 53 F. Caisse Centrale de Garantie.(CCG) ................ 56 CHAPTER V INTEREST RATE POLICY ................................. 61 A. Management of Interest Rates ..................... 61 B. The Level of Interest Rates ...................... 62 C. Interest Rate Structure .......................... 65 D. Spread Between Lending and Borrowing Rates ....... 66 E. Increasing the Flexibility of Interest Rates ..... 69 F. Adjusting the Level of Interest Rates ............ 71 G. Expansion of the Interest Rate Structure ......... 73 CHAPTER VI ALLOCATION OF CREDIT AND SELECTIVE CREDIT POLICY..... 75 A. Allocation of Credit between the Treasury and the Economy .................................. 75 B. Distribution of Credit to the Economy and Selective Credits ................................ 75 C. Exchange Risk Coverage ........................... 81 CHAPTER VII FINANCING OF THE TREASURY AND PUBLIC ENTERPRISES .85 A. Financing of the Treasury .85 B. Financing of Public Enterprises .................. 92 CHAPTER VIII FINANCING OF AGRICULTURE ................ 103 A. Respective Roles of the Public and Private Sectors in the Financing of Agriculture .......... 103 B. Institutional Credit for Agriculture ............. 103 C. Interest Rate Policy ............................. 109 D. Increased Institutional Lending .................. 112 CHAPTER IX FINANCING OF INDUSTRY ................................ 115 A. Moroccan Industry and Industrial Investment, 1973-83 .......................................... 115 B. Financing Patterns in Industry ................... 117 C. Financing Sources for Industry ................... 121 D. Financing the Foreign Exchange Component ......... 125 E. General Terms of Investment Credits .............. 125 F. Investment Financing in the 1983-85 Period ....... 126 C. The Respective Roles of BNDE and the Commercial Banks in Medium-Term Lending .......... 129  -3- Page H. Enhanced Possibilities for Mobilizing Own Funds.. 130 I. Loans to Small and Medium Enterprises (SMEs) ..... 131 J. Loans to Craft Industries ........................ 132 K. Selectivity in Industrial Sector Credit .......... 133 Appendix to Chapter IX: Investment Banks . ....... 134 CHAPTER X FINANCING OF FISHERIES, TOURISM AND SHIPPING .137 A. Fisheries Sector .137 B. Tourism Sector .138 C. Shipping Sector .143 CHAPTER XI FINANCING OF HOUSING ..145 A. Financial Intermediation in the Housing Sector 145 B. Credit Structure .147 C. Home-Loan Interest Rates .148 D. Supply of Land .149 E. CIH's Financing Requirements .151 F. Participation by Commercial Banks .152 G. The Crucial Rcle of CDG .152 H. Development of Home Savings Plans ................ 153 CHAPTER XII THE CAPITAL MARKET .159 A. Overview of the Primary Capital Market .159 B. Government Loan Issues .159 C. Bond Issues of Public and Semipublic Agencies 160 D. Share Issues ..................................... 162 E. Secondary Market for Bonds Issued or Guaranteed by the Government ................................ 163 F. Secondary Market in Shares ....................... 163 G. Principal Obstacles to Expansion of the Capital Market ........................ 166 H. Measures to Expand the Capital Market ............ 167 STATISTICAL ANNEX ................................................... 173 LIST OF RECOMMENDATIONS ....................... 195 This report is based on the findings of a sectoral mission that visited Morocco in September 1983, consisting of Messrs. da Silva Lopes (Mission Chief), Mathieu (Deputy Mission Chief, economist), Schneider (specialist, public finance, IMF), de Boissieu (consultant, private savings), Coudol, Forestier (specialists, industry), Y. Amiot (consultant, industry), F. Amiot (consultant, housing sector), and Haddad (specialist, capital markets, IFC). Mr. Chausse (specialist, agricultural sector) contributed in the drafting of the report.  PORTUGAL5 SPAIN ITALY GREECE TURXY 16 i 36 KINGDOM OF MOROCCO ,, -, . tv-.. .'-1 jb _Ratl k TUN ISIA Moin roads MOROCCQ%o-V,J MOROCCO,: 54 \1 ( ~~~~~~~~Secondory roods - - - ..4~ ALGERIA