Morocco - Poverty, adjustment, and growth (Vol. 1 of 2) : Main report

* X I - a Report No.1 1 918-MOR Kingdom of Morocco Poverty, Adjustment, & Growth (In Two Volumes) Volume I Main Report January 1994 Country Operationw Division Country Department I Middle East and North Africa Region FOR OFFICIAL USE ONLY MICROGRAPHICS Report No: 11918 MOR Type: ECO Document of the World Bank 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  CURRENCY AND EXCHANGE RATE Cunrency Unit = Dirham (DH) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 DIH per UtS$, End of Period 6.27 8.06 9.55 9.62 8.71 7.80 8.21 8.12 8.04 8.15 9.05 |DH per USS, Period Average 6.02 7.11 8.81 10.06 9.10 8.36 8.21 8.49 8.24 8.71 8.54 FISCAL YEAR January 1st - December 31st  FOR OFFICIAL US ONLY JUNDRM OF MOROMg POVRY .ADAUSnnMN.& #1 0UVrH TABLE OF CONTENTS Pago No. EXECC771ESUM~A Y *....... .. .................... I CHAPTER I: A PROFILE OF POVERTY ................... 1 A. INTRODUCTION . .................... I B. DEFINING INCOME POVERTY ... ................. I C. AGGREGATE POVERTY INDICES AND THEIR EVOLUTION SINCE 1984/85 ............................... 3 D. AN OVERVIEW OF LIVING STANDARDS CONDMONS . . 8 E. POVERTY MONITORING ........................ 13 CHAPTER II: GROWTH & POVERTY REDUCTION DURING ADJUSTMENT 15 A. INTRODUCTION ............................. 15 B. THE MOROCCAN STABIUZATION EXPERIENCE ....... 15 C. THEROLE OFiISCALPOLICIES .................. 17 D. CHANGES IN INCENTIVES AND EMPLOYMENT GROWTH 19 E. WAGE POLICIES ................. ....... 23 F. THE ROLE OF WORKERS' REMITTANCES ............ 25 G. FUTURE PROSPECTS FOR POVERTY REDUCTION ..... 26 CHAPTERIII: URBAN POVERTY .............................. 30 A. INTRODUCTION ..............*............ 30 S. THE URBAN POOR: EMPLOYMENT AND WAGES ...... 30 C. REDUCTION OF POVERTY AND EMPLOYMENT GROWTH 34 D. CONCLUSIONS ....... ....................... 40 This report was suprvid and drfted by Mirl Pato. Prncpal contros Included Gulemo Haldm, Andrd Komn, Marn Ravalon, Fr s Steler and Domiique Van DeWade of the Bank and Jean-Paul Azam and Riccardo Fini, consuls. Patic Conway. consultant, contibuted to Chapr V. Michael Walton was the pe rvwe for the rept Mr. Ahmed Abzahd and his team at the Directon de la Sttsdque, Minby of Economic and Social Affis, Morocco, Wny provied astane aN the informion from te Uving Stundard Measurement Survey Data. At ft time th report wus prepad, Mahmood Ayub ws the DWson hdef and Harid Kohl was fth Dect. HMne Taln desk-topped the r prt. Ths document has a tted distibutio and may be used by recpients only In the prfomac of their officia dutie Its contents may n otewis be discloed whout Wodd Dank au triz  CHAPTERIV: RURALPOVERTY ........ ................ 44 A. INTRODUCTION ..... . .. ........ . 44 B. AGRICULTURE DEVELOPMENT . 44 C. THE CROPS AND THEIR PRICES .................. 46 D. EMPLOYMENT AND WAGES IN THE RURAL SECTOR ... 48 E. ACCESS TO LAND ..................... .64 F. ACCESS TO CREDIT . ...... 59 G. FINANCIAD PSICAL ASSETSN.. 60 H. CONCLWSIONS ... .... .62 CHAPTER V: SOCIALPOUCY AND THEPOOR ....... 65 A. INTRODUCrON. 65 B. SOCIAL PROGRESSAND POVERTY . .66 C. PBUC SPENDING AND THE POOR.. 74 0. WHO BENEFITS FROM SOCIAL PROGRAMS? . 81 E. CONCLUSIONS..... 84 ANNEXES ANNEX l: STATISTICAL TABLES ANNEX II: ALTERNATIVE METHODS OF CONSTRUCTING POVERTY LINES ANNEX III: A NOTE ON POVERTY MEASURES ANNEX IV: THE INFORMAL SECTOR ANNEX V: DIRECT AND INDIRECT TRANSFER PROGRAMS ANNEX VI: SOCIAL SECTOR DATA  A Ol,IWW 1. The Govenment of Morcco Is prepaig a stradtgy for Po vety alviatin and ocial promoton. This eport Is contbutin to such a sttegy. It ia hud on a compoher veLivi StandardAMeasumentSurvey ILSMSJ implmentedin 1891 withank SAWL e reptw lesand assesses thenature and dimension of povertyinA Morocco; It discuse the role of past and current public polce on poverty; and It provide recommendafons for policy interventions to further imovo the livig standards of the poor. 2. 7he report highffights the success of the Moroccan Govenment In alleviatig poverty through policis tthave produced laborintensive pattern of growth. Thrissuccess Is all the mo, remarkable because ft was achieved du theo 198s, o perod of profound stoliatbn and adjustment. However, progress In socal icto has not ben commensrate with kmrnvements in the pove.ety indcators and in spite of recent efforts Mrocco has not been able to catch up with compartor counties. 3. Economic growth is crucial for reducing povert further. it is also crucia, for providing the financing for basic social serices to improve the living standards of the poor. The challenge for the Government of Morocco n the 1990s is to Increase investments In human capital, withn o framework of fiscal discipline. These investments wtD not only contrute, in the long un, to higher growth: most Importnt, they wll mprove thelf that peopl led, which Is, In essence, whst economic development is al about. A.N_ _ _ _ O_ rw*h kd dmvow 4. Only two dedes ago, Morocco had a GNPper capita of US$500 and tho poor wer estimated at 6.05 mlion. By 1991 the GNP per capift had doubled and the number of poow, ds pid popution growth, had halved. Most of this poverty reduction occurred duri the iate 1980s. a comparison betwoen a 196485 household consumption survey nd the 1990-91 LSMS indictes that the percentage of the population with an avege consmpto below the poverty lgne feN from 21% to 13% durng that pedod. Changes In poverty over time /n Morocco should be troated with caution because there are copraison problems between these two surveys. Moreover, the chokco of a poverty line inevitbly involves some element of arbitrrness. 5. However, this report demonstrates that the conclusion that poverty fell In the second pwt of th 1980s is robust to the choice of diffetrent poverty lines and poverty measures. NoneWhless, this Is a fragile kmprovement: an estimated 1. 7 nmrion people are  -ii- 'near poor' as bo' have xpendture evels which are only 00% above the povet line. They are therf vulnerble to even smal deterortions in economic conditions. 6. T Govement's success In reducing poverty duing the 180 is largely atbtarutabl toitsably stablke the economy, undertake comprehensve strcturalreforMs and maintan high economic growth. Many of the polrcies in the 1970s that led to the economi cfsa also contnrbuted to poverty. Imporn end price controls and an overalued exchange rate affected fe profitability of aricultue, the main soue of ircome for theV l poo; subsdtked creditpograms favofed capitalintensive industris; andpu.ic sending was dhaWned towars infrstructre in urban ares, large ioration proiects in agdcutue, ad defspograms Thereversalofternsof trdeinthelate 970s* togetherwithanincrese h inteational intwest rates, large budget deficits and declining productity of public iveshtmnts peciptted a severe balance of payments csisin 1983. The ensuing period of adutent inluded a first phase of contrafctonary monetary, exchange rate and fiscal policies which deteiorated the living standards of the population; and a second phase in which sructural reforms in the trade, price, financial and fiscal areas were aimed at strngthenig the supply response of the economy and increasing productivity. During this second phase income and consumption expanded substantially. 7. The Govenment's program succeeded in achieving extemal and internal balanes.; in keeping inflation rates within single digit levels andin steadily improving debt indcators What is more important, stablzation was not achieved at the cost of economic rcson. Sustad GOP jrowth helped to protect consumption levels of tho population at rge. wersrealconsumptionporcapitahaddeclinedintheearly1980itregistereda growth of 4.5% on average juring the period 1987-1991. The key elements of the tGovernmnt program that contributed to the reduction of poverty were tho following: (a) structural reforms in the incntive framework promoted growth in labor demanding sectors, especially those oriented to the export markets, and in the &dwn based informal sector. Poverty reduction was achieved through expansion in temporaty and unskiled fobs - which in the manufacturing sector grow at 17% per year -, at lower real wages; fbi iber tionpiciesandgoodrainfallrisedegriculturaloutputandthe incomes of famers; while the increase in the agricultural minimum wage protected the incomes of rral wage earners; and Ic) in spite of a reduction of the budget deficit from double digit levels at the beginning of the l980s to less thn 2% of GDP in 1991, spending in the social sectors fil reatively less than totalpublic expenditure. Real sociSl expendituV per capit fol only by less than 2% a year during the 1980s.  8. The overall social indicators in Motrocco have improved durng the lst twenty years. There is, for example, evidence that children's welbeing has impoved sinficanty: ifant mortality has decined by 30% and the mortalty of children under fiv has falhen by 54%. However, Morocco's achievements in social outcomes pale by comparson with those of other developing countries. For example: infant mortality is stifl 25% higher than In th average lower-middle Income country; the fertilityrate is 22% higher; totaland fomale primary school eollments are 38% and 44% lower respectively. In additfon, many of these kn*ators are chaacterked by important imbalances along gender, urban-rl and reginal lnes. 9. Whatare the causesbehind theserelatively poorsocialindicators? Cearlypart of the explanation ries in the poor social conditions and large disparities inherited fom the past Thus, a comparison of the social indicators in Morocco and comparator countries in 1965 reveals disparities which were even larger. Secondly, scarce attention was glhve' In the 1960s and the 1970s, to both the level of public social spending and to issues of equality In access to social services. 70. In recant years the Govemmenthas paid greaterattention to the retively poor socia conditons of the population, and has even protected aggregate social spnding during the years of adjustment. Yet, the composition of such spending shows that urban areas received the larger share and the sAocation of public funds was not targeted to favor the poor. When considering the access to public services, urban-rural imbalances are strikin. For example, over 90% of households have potable water and electrcity in urban areas but only around 14% In rurl areas. And for some indicators the disparities have widened over tni: the gap between the W7teracy rate In urban and r-al areas has slightly incresed In the last twenty years. C. UEQYIMfflRPiLEM 11. The above analysls indicates that, desvite recent progress in reducing poverty, knproving the living standards of the less advantaged remains a priority for severl reasons: lal there ae about 3.3 million poor in Morocco. A larger number, mainly located In rual areas, have expenditure levels just above the poverty line; lb) thre is a substantial variation in living conditions, and welfare indicators, even among the poor, between urban and rural areas; and  -Af- fic social indeatos In Morocco are wel below those of comperator counte# and enonmous dispares In the access to social socs exist betn.weun wn ad rural areas and, to a lesser extent, betwoeen nales and femobs. 12. Designing a strategy to improve the iJving conditons of the poor will have to start with an identificaon of who the poor are and why they ae in poverty. Who aI Jb P<>2c7 13. Aggegatepovertynumbersmaskimportanturban-ruralandregionalvarations. Sfft. poverty In Morocco is increasingly a rwrl phenomenon: in 1991, 72% of al poor Ie., 2.5 mion of whom more than half extremey poor) lived in rural areas, compared to 70% In 1985. And the station may have worsened in the last two years owing to the devastating effects of a prolnged drought. there is a strong inequatit, of consumpton expendts between nrl and urban areas. Thus, in 1991 only 8.8% of the rnapopulation ent more than DH 8500 per capita per year (apprximately 3.5 times the ruralpoverty lnei whilo 38% of the urban popuation did. T.d, there are marked regional vaiatons n the incdnce of poverty Thus, the proporonof the popuationin povetrangos fombolow5% in te rich urban costal areas to above 25% in the rual areas of the CenterNort*, East and Center-South regions. 14. The poor In urban areas shae some of the charactedstics of the poor In rral areas. They tend to have above average household sizes and a highor number of inactive members in their households They are more likely to be unemploye4 or undermpoyed. Theylive rlativelymorein sub-standard housing. Illiteracyrates ethohighostandprimary enrollment rates are the lowest for te two groups. There are, however, differences in the ying standards of the poor in the two areas. Firt, among the employed, te highestpovety levels are found in rual areas, among rural wag eanmers, followed by small-scale fames