Identifier
Created
Classification
Origin
06RABAT176
2006-02-03 07:57:00
UNCLASSIFIED
Embassy Rabat
Cable title:  

WORLD BANK PROGRAMS IN MOROCCO

Tags:  EAID ECON EFIN KMCA MO 
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VZCZCXRO4844
RR RUEHLMC
DE RUEHRB #0176/01 0340757
ZNR UUUUU ZZH
R 030757Z FEB 06
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 2642
INFO RUEHCL/AMCONSUL CASABLANCA 1154
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION 0008
RUEATRS/DEPTTREAS WASHDC
UNCLAS SECTION 01 OF 04 RABAT 000176 

SIPDIS

SIPDIS

STATE FOR NEA/PI AND NEA/MAG
STATE PASS TO USAID/JRAGLAND

E.O. 12958: N/A
TAGS: EAID ECON EFIN KMCA MO
SUBJECT: WORLD BANK PROGRAMS IN MOROCCO


This cable is sensitive but unclassified - protect
accordingly

UNCLAS SECTION 01 OF 04 RABAT 000176

SIPDIS

SIPDIS

STATE FOR NEA/PI AND NEA/MAG
STATE PASS TO USAID/JRAGLAND

E.O. 12958: N/A
TAGS: EAID ECON EFIN KMCA MO
SUBJECT: WORLD BANK PROGRAMS IN MOROCCO


This cable is sensitive but unclassified - protect
accordingly


1. (SBU) Summary. The World Bank (WB) is one of the
longest serving development assistance programs in Morocco
and currently has 16 outstanding loans to the GOM worth a
total of approximately $500 million. It seeks to help
modernize Moroccan institutions through technical analysis
and lending programs. Currently, areas of concentration are
public administration, education, water resource management,
economic growth, social housing, rural development and the
financial sector. The WB has established a good working
relationship with the GOM and seeks to expand its
coordination with other bi-lateral and multilateral donor
organizations to increase efficiencies and reduce
duplication. Although WB cooperation with the USG has
historically been low, Morocco's participation in the
Millennium Challenge Account (MCA) could change this. Key
officers of the WB feel Morocco is moving in the right
direction, however, they regret that implementation of WB
programs has been very slow. End summary.


2. (U) The WB establishes multi-year country assistance
strategies (CAS) that allow it sufficient time to undertake
the dozens of tasks it seeks to achieve during the period.
The 2005-09 CAS seeks to build on the results of the 2001-04
CAS and together mark a significant increase in WB
programming in Morocco from historic levels. The goal of
the 2005-09 CAS is to help Morocco with its two main goals:
1) accelerating job growth and sustainable economic growth,
and 2) reducing poverty. The 2005-09 CAS seeks to
accomplish this through four key objectives. First, improve
general economic competitiveness and the investment climate
by increasing the efficiency of public administration,
ensuring macroeconomic stability, strengthening the
financial sector, and increasing competitiveness in the
agricultural sector. Second, reduce the number of families
living in slums by 60 percent, and increase access of the
poor to basic services, social programs, economic
opportunities and better housing. Third, improve the
quality of the educational system, improve access to

education, and raise graduation rates. Fourth, improve
water management and access to water services and
sanitation. The WB feels the environment for reform has
matured in Morocco as demonstrated by King Mohammed VI's
National Initiative for Human Development (INDH) to improve
social conditions.

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THE WORLD BANK PLAN
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3. (U) The WB foresees lending $270 to $380 million per
year to Morocco from 2005 to 2008 in support of projects
related to its aforementioned four objectives. While delays
in programming and other changes make actual lending levels
difficult to accurately measure, the WB's planned
disbursements for 2005-08 are as follows:

Year Project Description Loan Amount
(in millions)

2005 Public Administration Reform I $100
Basic Education Reform I $ 80
Financial Sector $200
TOTAL $380

2006 Housing $100
Rural Water and Sanitation $ 40
Public Administration Reform II $100
Rural Roads $ 30
TOTAL $270

2007 Public Administration Reform III $100
Education $100
Water Resource Management $100
TOTAL $300

2008 Development Policy $100
Basic Education Reform II $100
Urban Water and Sanitation $100
TOTAL $300

This equals $1.25 billion in projected loans over four years
in addition to technical analysis programs. The WB feels
its ability to offer technical analysis and appropriate
levels of financing are its greatest advantage over typical
donor organizations. Major technical analysis programs

RABAT 00000176 002 OF 004


during the 2005-09 CAS will cover the fields of: education,
pension reform, public administration reform, investment
climate assessment, water management, health insurance, land
titling, poverty alleviation, agricultural reform, housing,
social analysis, environmental impact studies, and
gender/labor markets. Together these programs have a cost
of approximately $2 million.

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PROGRAMS
--------------


4. (SBU) Macroeconomic stability is among the Public
Administration Reform Loans' (PARL) key objectives. The GOM
seeks to reduce its budget deficit to 3 percent of GDP,
control the state's contingent liabilities, and maintain
inflation below 2.5 percent. One of the chief constraints
to this is a public wage bill that equaled 12.8 percent of
GDP in 2004 and that the PARL seeks to reduce to 11 percent
by 2009. The WB's Country Manager, Ferid Belhaj, reported
that the GOM has made good progress so far by lowering the
rate to 12.1 percent in 2005, but this cost the GOM nearly
$1 billion in severance packages and other costs. Now, the
GOM must be resolute not to fall prey to the typical problem
of countries in this situation of bowing to public pressure
to hire new employees to replace those who were laid off as
a way of battling high unemployment. The GOM estimated a
4.5 percent budget deficit for 2005, but this does not
include funds used in the Hassan II Fund for social
programs. According to the WB, the true deficit is closer
to 7 percent. By 2009, the WB hopes to reduce the budget
deficit to 3.6 percent, but this will be difficult due to
Morocco's narrow tax base and large contingent liabilities
related to the pension system and specialized banks. All
three of these issues are addressed by the PARLs. For the
past several years, privatization receipts have helped cover
the budget deficit. However, with most major privatizations
complete, these funds will not be as readily available in
the future. The current deficit level is unsustainable and
if it is not reduced the WB's Senior Economist, Khalid
Masserouri, fears interest rates will rise, thus
discouraging foreign investment, hurting the GOM's
credibility and crowding out funds for social programs.


5. (U) At the same time, the WB will try to increase the
efficiency of Morocco's public administration. The PARLs
will be used to rationalize the current overly complex
budget process, improve accountability, and increase
transparency and efficiency of human resource management
within all ministries. They will also try to increase the
competitiveness of the economy and employment opportunities
(specifically by supporting small and medium enterprises),
develop vocational training programs, improve the mobility
of labor, and make improvements to infrastructure. The WB
envisions improving the field of land titling, increasing
employers' flexibility in hiring and laying off employees,
expanding urban transport, promoting finance reform and
decreasing the processing time for imports and exports to
promote trade. At the same time, the WB will try to
stimulate growth in the agriculture sector by promoting land
and investment reforms; improving competitiveness, quality
and vertical integration of the cereals, vegetable, olive,
citrus and livestock sectors; and promoting the means for
drought insurance. The WB is partnering with the European
Union (EU),the IMF, the African Development Bank (AFDB),
and others to promote these changes.


6. (U) The second major objective of the WB is to increase
access to basic services for the poor. The WB will offer
several loans related to low income housing, sewage and
water treatment, health management, social development, and
rural road construction during CAS 2005-09. Key programs
will include the following. The supply of social housing
units is forecast to more than double to 100,000 units by

2007. Reforms will be enacted in the urban planning code,
real-estate tax law and house rental sector. Health
insurance coverage for the poor is targeted to increase
from 15 percent of the population in 2004 to 50 percent in
2009, and access to rural roads to increase by 20 percent
by 2008. The WB will partner with the EU, the World Health
Organization, AFDB, and French bilateral cooperation in
this endeavor.


7. (U) The WB's third key objective is educational
assistance. Programs for the CAS 2005-09 will seek to
increase the level of girls' elementary school attendance
from 89 percent in 2004 to 97 percent in 2008, and rural
middle school attendance from nine percent in 2004 to 40

RABAT 00000176 003 OF 004


percent in 2008. Concerning both genders, the WB programs
aim to increase primary school completion rates from 64
percent in 2004 to 87 percent in 2008 and middle school
from 54 percent in 2004 to 71 percent in 2008. Other WB
programs will increase the number of rural communities that
have access to middle school instruction, close the gender
gap in literacy, provide increased levels of education
sector management training, and adopt results-based
budgeting by 2009. In the field of secondary school, the
WB will offer programs to increase the number of
"professionally qualified" people entering the job market
from the current level of 20 percent to 50 percent in 2009;
and increase the employment rate of vocational training
graduates from 55 percent to 75 percent by 2009. Other
programs will seek to boost the private sector's
involvement in higher education and strengthen
universities' financial autonomy. The Canadian
International Development Agency (CIDA) is a major partner
in this cause.


8. (U) The final major objective of CAS 2005-09 programming
involves water-related issues. The WB will work to
rationalize the water pricing system to cover normal
exploitation and maintenance costs; improve collection rates
for irrigation, extraction and discharge fees; improve the
supply of water sanitation for poor urban and peri-urban
neighborhoods; reach a good water quality rating from 70
percent of water quality measuring stations; and establish a
new tariff and performance regulation system by 2009.
Currently, insufficient coordination is hampering the sector
as demand for water is increasing and the shortage of water
is growing. The WB programs aim to establish a National
Water Savings plan by 2006, implement a national treatment
strategy by 2007, implement autonomous sanitation strategies
for rural zones by 2006, and define clear and realistic
sectoral policy objectives for all actors by 2006. Major
partners include CIDA, the French Development Agency and the
EU.

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APPRISING THE SITUATION
--------------


9. (SBU) Belhaj noted that the GOM was "on the right
track," but its record on implementation was poor. He said
numerous decrees related to water management had been
adopted 10 years ago, but had still not been implemented.
He noted bureaucratic problems within the GOM, which he said
had very good senior managers, but weak mid-level managers.
He also questioned how GOM decisions were made. Belhaj
added that Morocco must increase its level of economic
growth considerably in order to reduce its high rate of
unemployment, but current forecasts of 6 percent GDP growth
were unrealistic with the current policies the GOM had in
place. He also strongly noted that economic growth must
come from the private sector, but that Morocco's private
sector was not sufficiently dynamic or entrepreneurial.
Masserouri added that Morocco was one of the 10 worst
countries in the world regarding the inflexibility of its
labor market. The inability of employers to lay off workers
prevented them from hiring sufficiently large workforces to
pursue new or temporary business opportunities. He added
that Morocco had the 20th highest personal income tax rate
in the world, which served to stifle economic growth and
encourage a thriving black market (estimated at 60 percent
of GDP). He also faulted the GOM's trade regime that
continues to protect uncompetitive firms and allows numerous
non-tariff barriers. Finally, Masserouri said that the
Moroccan economy lacks sufficient innovation, research and
development, and IPR protection.

--------------
LESSONS LEARNED
--------------


10. (SBU) Looking back, the WB considers the CAS 2001-04
to have been "moderately satisfactory," but that it had too
many activities, was too fragmented, and did not link
outcomes to measurable indicators. It had planned to make
18 loans during the period, but only nine were actually
made. In addition, slow implementation resulted in most
projects being delayed 12 to 36 months. Historically,
cooperation between the WB and the USG has been low, but
this could change as the WB seeks to increase coordination
with other donors. Currently, the WB is in discussions with
the GOM regarding its possible participation in the INDH.
Masseroui expects a large program to be announced in early
2006 geared towards rural development projects much like the

RABAT 00000176 004 OF 004


GOM originally proposed for the Millennium Challenge
Corporation (MCC). In addition, Belhaj claimed that the
INDH was based on the CAS 2005-09. To what degree, if any,
the MCC might cooperate with the WB has yet to be decided,
but the two organizations have met to exchange information.
The WB should serve as a good source of information for any
USG assistance programs operating in Morocco such as USAID,
the Middle East Partnership Initiative and the MCC.

RILEY