Context
The wave of democratization that swept the MENA region in 2011also enveloped Morocco, although the experience has been a reasonably peaceful one. While the conditions that propelled the ‘Arab Spring’ were present in Morocco, there was also an ongoing process of reform. Ever since King Mohamed VI came to power in 1999, successive national governments have overseen an impressive political, economic and social transformation. It has so far not been enough, however, to overcome endemic corruption, persistent poverty and one of the largest gaps between rich and poor in the Arab world. A protest movement emerged in 2011, known as the February 20 Movement, named for the day mass demonstrations were launched calling for political change, a curbing of corruption and a more inclusive development process. Well-conducted demonstrations took place regularly across the country throughout 2011, with only sporadic outbursts of violence. The King responded with a proposal for broad and comprehensive political reforms that gathered the support of the population through a constitutional referendum held on July 1, 2011, which had a participation rate of 73 percent, with 98.5 percent voting in favor. The new constitution establishes a democratic and highly decentralized system of governance, an independent judiciary, and lays the foundations for a new social contract with laws guaranteeing both civic engagement and access to information. The King remains the ultimate authority, retaining control over the army and the power to veto new laws and ministerial appointments, but the new constitution also for the first time identifies the Head of Government as coming from the party with the most votes in parliamentary elections. Transparent elections, held on November 25, 2011, were won by the “Parti de la Justice et du Développement” (PJD), a moderate Islamist party that had traditionally been in active opposition and had seen its support increasing steadily in recent years. An intense period of discussions among political parties then followed, leading to the formation, in early January 2012, of a four-party coalition, with the leader of of the PJD Abdelilah Benkirane becoming the new Head of Government. The success of the recent reform process suggests Moroccans are more inclined to seek evolution within the system, continuous with the country’s history and religious values. The King remains popular, as the guarantor of political stability and social cohesion, but the election of an Islamist opposition party was further sign of the widespread desire for change. There is an expectation, indeed a demand that the new government break with the past and usher in more credible and faster reforms, notably in the areas of job creation, governance and improvement in the quality of public services delivered. While change may have been less dramatic, it is no less significant, as Morocco is on the threshold of a potentially profound social, political and economic transformation.
Morocco has been on a steady path of recovery from the stagnation of the 1990s, with sound macroeconomic management, and sustained growth in nonagricultural sectors. The economy proved relatively resilient in the face of the recent global economic slowdown. Growth for 2011 was estimated at 4.6 percent, recovering from the 3.7 percent registered in 2010. Public finance has been under tighter control as a result of reforms in expenditure and tax management, and sound active debt management. Debt declined steadily before the global economic crisis, falling from 62 percent of GDP in 2005 to 47.1 percent of GDP in 2009. Recently, it has risen to 50.3 percent of GDP in 2010 and even further to 52.7 percent in 2011, as public expenditure grew in an effort to respond to the demands of the mass demonstrations, and to mitigate the impact of the global crisis. Along with a public wage increase in 2011, spending on subsidies increased dramatically to cope with high world prices of food and fuel. Subsidies skyrocketed to a record level of US$5.93 billion in 2011, 76.5 percent higher than 2010, and now represent the most serious contingent liability on public finances.
This places significant financial restrictions on the new government, which has identified the lowering of the cost of the subsidy system as a priority, to free up the funds needed to support the reform process. High global commodity prices have also impacted the trade deficit, which deteriorated to 23 percent in 2011, from 19.5 percent in 2010. This was further aggravated by demand from the manufacturing sector, whose products continue to suffer from high import content. There has been little growth in exports, with export volume stagnating in 2011, reflecting their low diversification and the overall lack of competitiveness in the Moroccan economy. Higher imports combined with lackluster exports raised the current account deficit from 4.3 percent of GDP in 2010 to 7.3 percent in 2011. A 7.6 percent increase in remittances, and a 4 percent rise in tourism receipts prevented the deficit from widening further. Foreign exchange reserves are down from 6.8 months of imports of goods and services in 2010, but still at a comfortable level of 5.1 months. International confidence in Morocco’s macroeconomic stability has not wavered. In September 2010, it allowed for the successful completion of a ten year bond issue for one billion Euros, against a total demand of over 2.2 billion Euros. More recently it has translated into a flow of US$3 billion in Foreign Direct Investment in 2011. This was down 31.4 percent compared with the previous year, but disinvestment dropped to US$0.6 billion from US$2.4 billion in 2011.
Higher overall investment has improved the employment situation, with the number of jobless shrinking to 9 percent in 2011. Absolute poverty has also been declining, falling from 15.3 percent to 9 percent between 2001 and 2007. However, economic vulnerability remains widespread with 8 million people, one quarter of the population, still in absolute poverty or under its constant threat. A lack of economic opportunities has restricted the working poor, who represent an absolute majority of poverty in Morocco, to just two sectors. 70 percent of the working poor are employed in agriculture and construction, where informal conditions predominate. Entrenched disparities also persist despite the current growth. The rural and urban divide has grown ever wider. 70 percent of all poverty in Morocco is rural, and urban poverty rates are at 4.8 percent compared to 14.5 percent in rural areas. Social indicators also lag countries with similar income levels, with women faring particularly badly. 72 percent of rural women cannot read compared to the already-high national average for women of 52.7 percent. In rural areas only 40 to 50 percent of first graders actually complete the 6 years of primary school, with significantly smaller rates for girls. Nutritional status is also of grave concern, with one in five children under the age of 5 either stunted or wasted. The new government has acknowledged the development challenges, and announced an ambitious plan in January 2012, to boost the growth rate to 5.5 percent, lower unemployment to 8 percent, and improve the reach and quality of government services. With little room for more government spending, reform will have to be a central part of the program. High levels of investment have not delivered their expected results, suggesting an ongoing lack of competitiveness in the economy, poor productivity and the existence of monopolies, cartels and other privileged special interests. Economic reforms will be needed to clear away these inefficiencies and create a competitive environment capable of producing inclusive growth commensurate with investment, and delivering jobs and opportunities. Perhaps the most ambitious aspect of the Government’s program is its goal of bringing down the cost of the subsidy system, which is not only expensive but also inefficient, benefiting mainly the non-poor population. A full reform of the overall system would not only lower costs and ensure that it is reaching the most vulnerable, but allow for the redirecting of funds toward the necessary public investments to improve infrastructure and services.
Strategy
The 2010-2013 Country Partnership Strategy (CPS) agreed between the World Bank and Morocco was specifically designed with a flexible approach in order to remain aligned with the Government’s program and respond to reform opportunities and challenges as the program was being implemented.
The CPS was based on three strategic pillars: (i) growth, employment and competitiveness; (ii) services to citizens; and (iii) development sustainability in a changing climate.
The nature of the partnership is adapting to the reality of the new socio-economic and political context whereby strengthening governance and accountability, ensuring greater social and economic inclusion, and increasing voice and participation are priorities for both Government and the Bank.
The central role of Development Policy Loans (DPLs) continues to be a defining aspect of the Bank’s program in Morocco based on the maturity of reform programs in several sectors and the characteristics of specific operations. Delivering with DPLs has allowed the Bank to provide flexibility, especially as regards aligning lending volumes with the ambition of the reforms being pursued.
In parallel, the Bank continues to implement targeted sectoral investments, especially in the rural areas encompassing water and sanitation, and roads and agriculture projects. The Bank has also provided early support for Morocco’s US$9 billion renewable energy plan, which aims to use Concentrated Solar Power Technology to generate 2000 MW by 2020. The first phase, the Ouarzazate Solar Power project, is being funded with US$200 million from the International Bank for Finance and Reconstruction (IBRD) and $97 million from the Clean Technology Fund.
A new and innovative feature of the Bank’s program is the first-ever project Bank-wide to use the Program-For-Results (P4R) instrument, which will support the second phase of the Government’s key program to address development challenges, the National Initiative for Human Development (INDH2.) P4R links the disbursement of funds directly to the delivery of defined results, and is designed to help partner countries improve the design and implementation of their development programs and achieve lasting results by strengthening institutions and building capacity.
The Bank has also played an important knowledge role in Morocco, supporting the design and implementation of reforms with Technical Assistance (TA) and providing Analytical and Advisory Activity (AAA.) The AAA program has encompassed cutting-edge work on critical development issues, and provided an excellent advocacy vehicle for complicated and sensitive reforms. The new Government has incorporated the results of this work into its plan. The sharing of knowledge and technical expertise will continue to form and integral part of the Bank’s relationship going forward.
The Bank’s IBRD disbursements in Morocco have reached record levels. In the 2011 calendar year (the budget year for Morocco) over $710 million was disbursed, of which $600 million was in budget support. This was a sizeable increase over calendar year 2010 disbursements of $270 million (2008 and 2009 disbursements were each about $240 million). Should the current pipeline of IBRD lending for calendar year 2012 be delivered, then the Government can hope for at least the same level of disbursements in its 2012 budget year as were achieved in 2011.
The strategy of the International Finance Corporation (IFC) for Morocco focuses on investments in the financial and infrastructure sectors and on select value-added investments in manufacturing and social sectors while retaining flexibility to adapt to opportunities and market changes. IFC will also continue to deliver its on-going advisory program, in support of business environment and Public Private Partnerships (PPPs.) IFC is committed to scale up its activities with specific focus on access to finance for Small to Medium Enterprises (SMEs,) renewable energy, social housing, education, IT and other growth sectors. In addition, IFC will continue its support to regional integration through investments in regional funds for SMEs and cross border investments from Morocco to Sub Saharan Africa. IFC has a solid pipeline for FY12 of $250-300 million (including mobilization) in 4 or 5 projects in multiple sectors including microfinance, insurance sector, commercial banks and private equity for SMEs.
Results
An important achievement of the Bank Group during the CPS period to date is the greatly increased volume of disbursements that have been delivered in support of reforms, while also contributing to the Government’s financing needs to manage the impacts of the on-going global recession.
Over the course of its long term commitment to Morocco, the World Bank has managed a variety of programs aimed at supporting the government’s reform project, assisting the most vulnerable with improvements to infrastructure, and creating the conditions for sustainable economic growth. Some selected projects and the results they delivered are as follows:
Vulnerability and Social Exclusion: a combination of projects aimed to increase the social and economic inclusion of the poor and most vulnerable groups, while reinforcing participatory approaches and strengthening accountability mechanisms. Investment projects in support of INDH, together with TA and Trust Fund grants, had the following results: 73-84% of men, 66-75% of women and 41-65% of youth are reporting increased use of basic infrastructure and socioeconomic services created by INDH. 100 percent increase in the publication of local, provincial and regional development committee reports; including decisions related to projects approved or rejected, and annual physical and financial reports. 90% of Rural, 72% of Urban and 79% of Cross-cutting of projects are implemented by local communities, NGO and Communes.
Rural Roads: The majority of Morocco’s poor population lives in rural and isolated areas, where a lack of access to all-weather roads has left them physically cut-off from economic opportunities and key social services such as health and education. The Rural Roads Project lead to an increase in all-weather roads and: Some 11,500 km of rural roads have been constructed or rehabilitated under the program out of a target of 15,500 km. The National Rural Road Accessibility Index rose to 70 percent in 2010, compared to an index of 45 percent in 2002 and 50 percent in 2005. Some 1.9 million rural people are already benefiting from the project out of a target population of 3 million. The accessibility gap between the 10 highest-accessibility provinces and the 10 lowest-accessibility provinces rose from 0.38 in 2002 to 0.63 in 2010. The intercity transport service quality, measured by the Transport Service Improvement Indicator (TSII), indicates that 80 percent of sample roads that have been open for at least two years show an improvement in the quality of service, reflected in higher service frequency, more comfortable vehicles, and lower rates. The frequency of services, quality of vehicles in use, and service rates were improved.
Water and Sanitation: Peri-urban illegal settlements, which often constitute a substantial portion of major cities, face a shortage of safe drinking water and sanitation. A grant from the Global Partnership on Output-Based Aid (GPOBA) to pilot the introduction of performance-based subsidies to encourage service expansion resulted in subsidized access to water and sanitation for more than 52,500 people to date. Households that were simultaneously connected to water supply and sanitation services through the pilot totaled Growth, Competitiveness and Employment: The uneven quality of the business regulatory framework and its enforcement created an unpredictable business environment, reducing the entry of new SMEs and hampering diversification. IFC and Bank TA to support regulatory reforms of the business environment led to: Morocco improving its Doing Business indicators the most compared to other global economies, climbing 21 places to 94 by simplifying the construction permitting process, easing the administrative burden of tax compliance, and providing greater protections to minority shareholders. Parliament adopted a law in June 2011 eliminating the minimum capital requirement for Limited Liability Corporations Strength of investor protection index increased to 5. Morocco’s ranking overall in Protecting Investors increased from 153 to 97.
Quality and Access in Education: A large number of school-aged children and adolescents are excluded from the system, with high repetition and dropout rates. A combination of DPLs on Education, Public Administration Reform and Skills Development for the Labor Market, and a AAA evaluation of the impact of a conditional cash transfer program in rural primary schools led to: A Number of new schools built under Government’s Education Emergency Plan: primary – 32 (2009 & 2010); lower secondary – 39 (2009 & 2010); community schools (i.e. combined primary/lower secondary) – 5 (2009 & 2010) An increase in the primary education net enrollment rate: 93.9% (2009/10), 96.4% (2010/11) and an increase in the lower secondary education net enrollment rate: 48.0% (2009/10), 51.0% (2010/11) A lowering of the primary education repetition rate: 12.0% (2009/10), 9.3% (2010/11.)
Partners
Financing for donor programs in Morocco have increased over the past few years. This trend is attributed to the development efforts of the Moroccan leadership, support for national programs and a demonstrated track record of achievement. Approximately 80% of donor financing in the last three years was disbursed utilizing national systems, either through budgetary support or other instruments. Budgetary support is becoming an increasingly important instrument for bilateral donors such as the European Union (exceeding 90%), African Development Bank and the World Bank. Donor collaboration has been strongest in areas with a longer donor engagement, such as public administration, education, transport and human development.
The Government and its donor partners in Morocco participated in the 2011 OECD Survey on Monitoring the Paris Declaration on Aid Effectiveness. A total of 14 donors participated in the survey and declared that approximately $1.5bn of aid had been delivered in 2010 to Morocco. A few donors did not participate - China, Islamic Development Bank and the Arab Funds. The Government has evaluated the aid from these donors to be a further $500m in 2010. Therefore, a total of about $2bn of aid was received by Morocco in 2010. This amount does not include financing to the private sector from the IFC or European Investment Bank. All dollar figures are in US dollar equivalents. Updated April 2012 For more information, please contact:
In Washington: Lara Saade, lsaade@worldbank.org
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