Document of The World Bank

For Official Use Only

Report No. MA-72127

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

PROGRAM DOCUMENT

FOR A PROPOSED LOAN

IN THE AMOUNT OF EUR 151.1 MILLION (US$200 MILLION EQUIVALENT)

TO

THE KINGDOM OF MOROCCO

FOR A

FIRST TRANSPARENCY AND ACCOUNTABILITY DEVELOPMENT POLICY LOAN

(Hakama)

September 30, 2013

Poverty Reduction and Economic Management Department Middle East and North Africa Region 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.

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KINGDOM OF MOROCCO—GOVERNMENT FISCAL YEAR January 1st–December 31st

CURRENCY EQUIVALENTS

US$1 = 8.4077 Moroccan Dirham (MAD) as of August 31, 2013 US$1= 0.7553 Euro as of August 31, 2013

LIST OF ABBREVIATIONS AND ACRONYMS

AAA Analytical and Advisory Activities AfDB African Development Bank AREFs Regional Education and Training Offices AtI Access to Information CFAA Country Financial Accountability Assessment Ci-Gov Inter-ministerial subcommittee on e-Government services for Citizens CMD Modulated expenditure control CPS-PR Country Partnership Strategy - Progress Report CSO Civil Society Organization DPL Development Policy Loan EU European Union FDI Foreign Direct Investment FSAP Financial Sector Assessment Program GDP Gross domestic product GFS Government Financial Statistics GID Integrated Financial Management Information System (Gestion Intégrée de la Dépense) HR Human resources IBRD International Bank for Reconstruction and Development ICRR Implementation Completion and Results Report ICT Information and communications technology ICPC Anti-Corruption Agency (Instance Centrale de Prévention de la Corruption) IGF Inspectorate General of Finance (Inspection Générale des Finances) IMF International Monetary Fund LG Local Governments M&E Monitoring and evaluation MAD Moroccan Dirham MAGG Ministry of General Affairs and Governance (Ministère des Affaires Générales et de la Gouvernance) MEF Ministry of Economy and Finance MENA Middle East and North Africa MICNT Ministry of Industry, Trade and New Technologies (Ministère de l'Industrie, du Commerce et des Nouvelles Technologies) MFPRA Ministry of Civil Service and of Administrative Modernization (Ministère de la Fonction Publique et de la Modernisation de l’Administration) MoE Ministry of Education MoA Ministry of Agriculture MTEF Medium-Term Expenditure Framework NGO Nongovernmental organization OBL Organic Budget Law OECD Organization for Economic Co-operation and Development PARL Public Administration Reform Loan PARAP Public Administration Reform Support Program

PEFA Public Expenditure and Financial Accountability PER Public Expenditure Review P-ESW Programmatic Economic Sector Work PETS Public Expenditure Tracking Surveys PFM Public Financial Management PPD Public Procurement Decree PPPs Public-private partnerships PSIA Poverty and Social Impact Analysis SGG Secretary General of the Government SoEs State owned Enterprises TA Technical assistance TGR General Treasurer of the Kingdom (Trésorerie Générale du Royaume) TOFT Table of Treasury Financial Operations

Vice President: Inger Andersen Country Director: Simon Gray

Sector Director: Bernard Funck Sector Manager: Guenter Heidenhof

Task Team Leaders: Fabian Seiderer and Khalid El Massnaoui

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

PROGRAM DOCUMENT FOR A

FIRST TRANSPARENCY AND ACCOUNTABILITY

DEVELOPMENT POLICY LOAN (Hakama)

TO THE KINGDOM OF MOROCCO

TABLE OF CONTENTS

I.  INTRODUCTION AND COUNTRY CONTEXT 3 A.  RECENT POLITICAL AND SOCIAL DEVELOPMENTS 3 B.  RECENT ECONOMIC DEVELOPMENTS IN MOROCCO 5 C.  MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY 8 

II.  THE GOVERNMENT’S PROGRAM 8 A.  STRENGTHENING TRANSPARENCY AND ACCOUNTABILITY IN THE MANAGEMENT

OF PUBLIC RESOURCES 12 B.  FOSTERING OPEN GOVERNANCE 13 C.  GOVERNMENT CONSULTATIONS 14 

III.  BANK SUPPORT TO THE GOVERNMENT’S PROGRAM 15 A.  LINK TO THE COUNTRY PARTNERSHIP STRATEGY (CPS) 15 B.  COLLABORATION WITH THE IMF AND OTHER DEVELOPMENT PARTNERS 16 C.  RELATIONSHIP WITH OTHER BANK OPERATIONS 16 D.  LESSONS LEARNED 17 E.  ANALYTICAL UNDERPINNINGS 19 

IV.  PROPOSED SUPPORT PROGRAM 20 A.  POLICY AREAS AND PROGRAM DEVELOPMENT OBJECTIVES (PDO) 20 B.  OPERATION DESCRIPTION 23 

V.  OPERATION IMPLEMENTATION 35 A.  POVERTY AND SOCIAL IMPACTS 35 B.  ENVIRONMENTAL ASPECTS 36 C.  IMPLEMENTATION, MONITORING, AND EVALUATION 36 D.  FIDUCIARY ASPECTS, DISBURSEMENT, AND AUDITING 36 E.  RISKS AND RISK MITIGATION 38 

ANNEXES

ANNEX 1: DPL POLICY MATRIX .................................................................................................................... 41 ANNEX 2: LETTER OF DEVELOPMENT POLICY ....................................................................................... 45 ANNEX 3: MACROECONOMIC DEVELOPMENTS (2001-2011) AND DEBT SUSTAINABILITY ......... 61 ANNEX 4: FUND RELATIONS NOTE ............................................................................................................... 67 ANNEX 5: COUNTRY AT A GLANCE .............................................................................................................. 69 ANNEX 6: IMPLEMENTATION OF THE CORPORATE GOVERNANCE CODE IN 10 SOEs..….….…75

Boxes

Box 1: Good Practice Principles for Conditionality 22 

Figures

Figure 1. Growth shifted to higher path and is less volatile and less dependent on agriculture (in percent) 6 

Tables

Table 1. Annual subsidies in percent of GDP .................................................................................................... 7 Table 2. Baseline Medium Term Macroeconomic Indicators ............................................................................ 9 Table 3. Financing Requirements of the Central Government (in percent of GDP) ........................................ 10  The First Transparency and Accountability DPL (Hakama) was prepared by an IBRD team consisting of: Fabian Seiderer (TTL, MNSPS), Khalid El Massnaoui (co-TTL, MNSED), Jean Pierre Chauffour (Lead country economist, MNSPR), Lida Bteddini (MNSPS), Philippe de Meneval (MNSFP), Salim Benouniche, Abdoulaye Keita, Khadija Karidi (MNAPC), Lamyae Hanafi (MNAFM) Ibtissam Alauoi (MNAEX), David Bontempo (MNSED), Michael Hamaide (MNCA1), Tracy Hart (MNSEE), Sanaa Bouchikhi (MNCMA) and Mavo Ranaivoarivelo (MNSPR); Guenter Heidenhof (Sector Manager, MNSPS), Bernard Funck (Sector Manager, MNSPR), Joelle Businger (Country Program Coordinator, MNCA1), and Yolanda Tayler (Sector Manager MNAPC) provided guidance and advice throughout the operation. The legal adviser for this operation is Jean Charles De Daruvar (LEG). Peer reviewers are Ndiame Diop, (Lead economist, EASPI), and Nick Manning (Head, Governance and Public Sector Management Practice). Michael Hamaide provided key input and comments during the preparation phase. The team worked under the supervision and guidance of Simon Gray (Country Director, MNC01), Manuela Ferro (Director, MNSPR), and Guenter Heidenhof (Sector Manager, MNSPS). Special thanks are due to the Ministry of General Affairs and Governance, the Ministry of Economy and Finance, the Ministry of Interior, the Ministry for Civil Service and Administrative Modernization, the Ministry in charge of relations with Parliament and Civil Society Reform and the Secretariat General of the Government for their cooperation.

i

MOROCCO

FIRST TRANSPARENCY AND ACCOUNTABILITY

DEVELOPMENT POLICY LOAN (HAKAMA)

LOAN AND PROGRAM SUMMARY

Borrower Kingdom of Morocco

Implementing Agency Ministry of Economy and Finance (MEF) and line ministries

Financing Data

IBRD Loan

Amount: EUR 151.1 million (US$ 200 million equivalent).

Term: 29 years, including a grace period of 7 years; Flexible interest rate

Operation Type The proposed loan is the first Development Policy Loan (DPL) in a programmatic series of two single-tranche operations.

Main Policy Areas

The DPL will support the government’s policy reforms in two key areas:

i. Strengthening transparency and accountability in the management of public resources; and

ii. Fostering open governance.

Key Outcome Indicators

Pillar I: Strengthening transparency and accountability in the management of public resources, through:

A more open and transparent budget process, specifying the programmatic allocation of resources and the corresponding performance objectives and indicators for 5 ministries;

A more consistent implementation of public procurement rules across the public sector evidenced by the increase from 1571 to 3345 in the number of procuring entities subject to the new procurement rules;

Real time information on budget execution in 80% of municipalities through the roll out of an integrated expenditure management information system (GID).

Pillar II: Fostering open governance through:

Enhanced access to budget information evidenced by a higher score in the Open Budget Index as well as through adoption by Cabinet of a law on access to information;

Strengthening citizen voice and engagement through the adoption by cabinet of an organic law on petitions and a 20 percent increase in citizens having voiced their opinion to officials measured by the Gallup survey;

Improved citizen access to key administrative documents, evidenced by a five-fold increase in the number of birth certificates ordered online and delivered by registered mail.

ii

Program Development Objectives and Contribution to the Country Partnership Strategy (CPS)

The First Transparency and Accountability DPL is the first operation in a new governance programmatic series initiated after the adoption of a new Constitution in Morocco, on July 1, 2011, in the regional context of the Arab Spring.

The objective of this DPL series is to support the concretization of key new constitutional governance principles and rights, aimed at increasing transparency and accountability and enhancing citizen engagement and access to information.

The DPL is a key component of the Country Partnership Strategy (CPS) (FY2010-FY2013), as confirmed by the CPS Progress Report discussed by the Board in May 2012. It contributes to the first and second pillars of the CPS: (i) promoting macroeconomic stability through a more transparent and performance-oriented budget policy, and (ii) improving service delivery through increased voice and accountability of public administrations, SOEs and local governments. This DPL is fully aligned with the cross-cutting objective of the CPS to strengthen governance as well as with the MENA priorities and with the Corporate Goals. Governance is a pillar of the region’s engagement framework and open governance is a key indicator serving as “driver” of the Bank’s twin goals to boost shared prosperity and reduce extreme poverty.

Risks and Risk Mitigation

The program faces the following risks:

Political Risk. The King’s proactive launch of a wide reform program, resulting in a new constitution, elections, an opposition-led government did appease sociopolitical tensions. However, these could quickly resume in the absence of tangible results in the implementation of the constitution and the lack of visible improvements in the people’s socio-economic conditions.

Macroeconomic and fiscal risk. Morocco faces three major macroeconomic risks: (i) the persistence of unfavorable external conditions that impact negatively its fiscal and external accounts; (ii) the continued accommodation of strong social demands for public sector employment and subsidies; and (iii) delays in the implementation of key fiscal and structural reforms.

Governance and Institutional Capacity Risk. The governance risk is moderate given the strong emphasis on governance reforms in the new Constitution and the government’s development program. There is however a risk of resistance, within the administration, to these structural public sector reforms that imply increased transparency and accountability. The wide scope and depth of the current reform process may negatively affect existing institutional capacity constraints. The constitutional reform implies a fundamental overhaul of the existing legal and regulatory framework, requiring the preparation of 40 laws, including 19 new organic laws. A MENA Transition Fund governance project is providing the necessary technical assistance support to the implementation of these key reforms.

Another risk identified in earlier operations is the lack of coordination in governance reforms within the government. In order to address the risk of fragmentation and duplication, the government has mandated the Ministry of General Affairs and Governance (MAGG) to play such coordination role in this area.

Overall the risk of delays in implementing the supported actions is high and exacerbated by the negotiations to form a new government coalition and majority in parliament following the withdrawal of the second coalition partner on July 10, 2013.

Operation ID P130903

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IBRD PROGRAM DOCUMENT FOR A FIRST TRANSPARENCY AND ACCOUNTABILITY

DEVELOPMENT POLICY LOAN (HAKAMA) TO THE KINGDOM OF MOROCCO

I. INTRODUCTION AND COUNTRY CONTEXT

A. RECENT POLITICAL AND SOCIAL DEVELOPMENTS

1. The proposed First Transparency and Accountability Development Policy Loan (Hakama),1 in the amount of US$ 200 million, is the first in a programmatic series of two operations aiming to support the Moroccan government, formed following the November 2011 elections, in bringing about the expected changes in governance and implementing the new constitution. The proposed series supports structural reforms strengthening economic governance across the public sector and new policies fostering more inclusive and open governance. The DPL has been prepared jointly with the European Union (EU) and the African Development Bank (AfDB), leveraging a further US$ 250 million in support of common key policy actions such as the budget, procurement and open governance reforms. The programmatic approach is warranted by the scope and depth of the government’s governance reform program, the implementation of which will require time, assistance, and flexibility. This operation is complemented by the Transition Fund2 project supporting the implementation of Morocco’s new governance framework. This US$ 4 million grant provides technical assistance for the implementation of structural reforms fostering public engagement, performance based budgeting and fiscal decentralization.

2. While Morocco has been able to reduce extreme poverty, vulnerability remains high and is fueling a sense of deprivation and discontent. It is estimated that 3 percent of the population is living in extreme poverty and 173 percent is living just above the poverty line of US$1.25 per day. Morocco has made progress toward the achievement of its millennium development goals (MDG) but still faces major socioeconomic challenges. Despite substantial social spending (37 percent of total public expenditures excluding debt payments), inequality remains important, as evidenced by the high and steady Gini coefficient (0.41) measuring the concentration of wealth. Socioeconomic disparities and access to basic public services remain major issues, as evidenced by the very high rate of adult illiteracy (30 percent for men and 66 percent for women) and the fact that less than half of the first graders complete primary schooling in rural areas. Several public opinion surveys4 have confirmed citizens' negative views on the quality of government services. This situation illustrates persistent challenges in the effectiveness of Morocco’s development policies and public expenditures as well as the underlying governance challenges. Limited voice and participation in the design of public policies and insufficient accountability for their implementation are considered important constraints. Weaknesses in the accountability framework and insufficient checks and balances expose public institutions and policies to capture, discretion and corruption. This in turn undermines the quality of institutions and the delivery of public services, as shown by the recent diagnostic studies undertaken by Morocco’s Anti-corruption Institution (ICPC) in the health and transportation sectors.5

1 The term hakama is the Arabic translation for “governance.” This name was chosen by the government to signal a break with past administrative reform programs and to raise the visibility of the reform program among citizens. 2 www.menatransitionfund.org 3 Source : Haut Commissariat au Plan (HCP) 2007 4 The surveys conducted by the Arab Center for the Rule of Law and Integrity and the report from the Economic and Social Council’s on the governance of public services, published in October 2011, substantiate these perceptions. 5 Corruption diagnostic studies conducted by ICPC in the transport and health sectors in 2011: http://www.icpc.ma/wps/portal

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3. In the wake of the transitions in the MENA region, Morocco experienced demonstrations across the country calling for greater civic rights, accountability, and transparency as well as for jobs and improved social conditions. The Moroccan transition has taken shape through a gradual and generally peaceful process. Social discontent, which has been voiced across the country since February 2011, stems from perceived weaknesses in governance, the lack of social and economic inclusion, and a high unemployment rate, particularly among the young. Public perception of privileges and corruption remains high, as evidenced by Morocco’s low ranking on the Transparency International’s index (88th out of 176 countries in 2012)6.

4. In response to popular demands, the King announced a comprehensive program of political, institutional, and social reform in March 2011 that led to the revision of the Constitution. The new Constitution, adopted on July 1, 2011 aims at strengthening the country’s governance framework through an increased separation and balance of powers between the King, the Government and the Parliament. In addition, it reinforces the principles of good governance, human rights, and protection of individual freedoms as well as increased institutional responsibility and accountability. The main changes reflected in the new Constitution are: (i) strengthening the role of Parliament through greater legislative powers and increased oversight over the government; (ii) elevating the role of the Prime Minister to that of Head of Government, to be proposed by the political party winning parliamentary election; (iii) enhancing the independence of the Judiciary; (iv) strengthening human rights, including the right to access public information; (v) strengthening the accountability of institutions, including the National Council for Human Rights, the Competition Council, the Central Instance for probity and fight against corruption, and (vi) establishing far-reaching regionalization as a democratic and decentralized system of governance. The constitution foresees a period of five years to implement all these provisions, most of which are de-jure. While the de-facto implementation of these potentially far reaching changes might take more time and witness resistance, they generated very high expectations among the population.

5. An initial step of the transition was the renewal of Parliament and the subsequent change in

Government, which brought to power a coalition government led by the moderate Islamist Justice and Development Party (PJD). The important changes introduced in the mandates and functions of Parliament required its dissolution and elections were held on November 25, 2011. These were won by the PJD, which had traditionally been in active opposition and has seen its support increase steadily in recent years. The PJD won 27 percent of the vote, almost twice the winning percentage of the second largest political party. On July 9, 2013 the main coalition party withdrew from the government and negotiations are ongoing to form a new government and majority in Parliament. While this situation is unlikely to reverse the governance reforms supported by this DPL, most of which are anchored in the new constitution, it may affect the pace of their implementation.

6. To date, the government has placed a strong emphasis on governance reforms, social inclusion, and

the promotion of the civil rights introduced by the new constitution. The government is facing two important challenges. First, delivering on the agenda of profound and comprehensive governance reforms while managing the population's high expectations and dealing with likely resistance to reform stemming from vested interests and political opposition.7 The government is hard pressed between its electoral promises of change and increasing resistance from the establishment, which feels bolstered by the domestic and regional political situation. Second, reducing inequality and generating greater economic opportunities in the context of strong fiscal constraints and an unfavorable global economic environment, affecting particularly the manufacturing sector and jobs. The government program (2012-2016), which was approved

6 http://www.transparency.org/ 7 Some aspects of the PJD’s reform agenda may face resistance from the opposition, whose influence in Parliament has been strengthened, as well as from key constituents whose mandate will change, including the upper chamber of parliament, and labor unions, which are renegotiating the social contract.

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by the newly-elected Parliament on January 19, 2012, aims at addressing these challenges, notably by: (i) implementing the governance-related legislative and institutional changes derived from the constitution; (ii) strengthening the transparency and performance orientation in public financial management in order to improve the allocation and operational efficiency of public expenditures as well as the fiscal situation; and (iii) adopting specific policies to improve local governance and public service delivery and reduce the corruption and discretion that negatively affect public services and economic opportunities. The recent constitutional changes and the government program represent the road map for Morocco’s transition process.

7. This DPL series proposes to support the current transition process and policy reforms that: (i)

strengthen transparency and accountability in the management of public resources; and (ii) foster open governance. The series adopts a holistic and integrated approach to enhance its impact. It is supporting governance reforms across the public sector covering the central government, SoEs and agencies, local governments as well as inter-governmental relations. The Bank has provided policy advice and technical assistance for the design of most policy measures and laws supported by this DPL, with the support from the MNA multi-donor trust fund. The Transition Fund governance project will support the implementation of these structural reforms. While building on the long-standing engagement with public administration reform, under the Public Administration Reform Loan (PARL) series, this program supports the concretization of the performance budgeting reform through the adoption and implementation of the new organic budget law and procurement decree. This DPL series also delves into new reform areas derived from the constitution such as access to information, public petitions, as well as into the governance of SoEs and local finances.

B. RECENT ECONOMIC DEVELOPMENTS IN MOROCCO 8. In recent years, Morocco has been hit by a series of adverse exogenous shocks. Like other emerging

countries, Morocco has suffered from the 2008 global financial crisis, although the limited financial integration of Morocco into global financial markets has contained the direct contagion effects. More serious were the effects of the subsequent food and fuel crises. With the price of Brent crude oil averaging more than US$110 per barrel in 2011-2012 and no domestic oil production, Morocco has been confronted with a major deterioration of its terms of trade. This deterioration was compounded by a significant increase in its food import bill in 2012 as a result of a severe domestic drought at a time of soaring international food prices, especially of wheat. Finally, with a strong trade exposure to the EU, Morocco has been adversely affected by sovereign debt crises in the Eurozone and by the subsequent slowing down of economic growth.

9. These internal and external shocks combined with significant economic rigidities have exposed the fragility of the Moroccan economy in 2012. Gross domestic product (GDP) grew at a positive but modest 2.7 percent, compared to 3.4 percent expected in the 2012 Budget Law. This performance reflected the continued vulnerability of the agriculture sector (which declined by 8.9 percent) to erratic rainfalls, keeping total growth volatile, although less intense in the 2000s than before (Figure 1). The non-agricultural sector grew at a healthier rate of 4.5 percent; however mostly driven by debt-creating domestic demand. Public consumption increased by 7.9 percent and household consumption by 3.6 percent, the latter benefiting from wage rises and relatively low prices of non-food products. Investment increased at the more moderate rate of 2.7 percent, mostly driven by programs of social housing, public works, and industrial equipment.

10. Over the first quarter of 2013, overall GDP growth reached 3.8 percent, thanks to a 17.7 percent jump in agricultural production as a result of favorable weather conditions. This offset the slower growth of non-agricultural economic activities (1.9% GDP), which continued to suffer from the slowdown of foreign demand but also from a sluggish domestic demand. In particular, domestic investment dropped by 2 percent as compared to the first quarter of 2012.

6

Figure 1. Growth shifted to higher path and is less volatile and less dependent on agriculture (in percent)

‐10.5

‐7.5

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GDP Trend 1991‐2000 Trend 2001‐2012

11. The Government and the Central Bank (BAM) continued to demonstrate their commitment to control inflation. Notwithstanding higher world prices of imported commodities, inflation has been kept low thanks to price subsidies benefiting basic food and fuel products. Partly as a result of the Government’s price controls, the consumer price index averaged 1.3 percent in 2012 as compared to 0.9 percent in 2011. However, some inflationary pressures emerged since the beginning of 2013 (up 2.34 percent during January-July 2013) due mostly to the impact of price increases in transportation (up 4.3 percent), education services (up 6.1 percent), and to a lesser extent food (up 3.2 percent).

12. Morocco’s unemployment rate has been stubbornly high hovering around 9-10 percent in recent years—or about one million jobless people—despite years of respectable economic growth and declining participation rates. The unemployment rate has stabilized in 2013 first semester (9 percent) compared to the same period in 2012 mostly driven by the creation of jobs in the domestic trade sector and public administration, and to a lesser extent in the manufacturing sector. Less than half of the Moroccan population is actually active (i.e., either employed or looking for a job), which is one of the lowest participation rates among emerging economies. Participation rates declined steadily from 55.3 percent in 1999 to 48.4 percent in 2012. This overall weak participation is mainly explained by the very low participation of the youth (32.5 percent) and women (24.8 percent).

13. The gradual pace of public finance reforms coupled with the economic turmoil in Europe and continued high prices of commodities have eventually had their toll on Morocco’s fiscal accounts. Data released by the Moroccan authorities in early February 2013 indicate that the worsening of government finance in 2012 had been more pronounced than expected.8 The budget deficit widened to 7.6 percent of GDP in 2012, a slippage of more than 2 percentage points of GDP from the deficit adopted in the Budget Law.9 The deficit would have been even higher (by some 0.6 percentage point of GDP) had the Government not decided to increase the prices of liquid fuel products in June 2012.10

14. In early 2013, the universal subsidy system and an increasing wage bill continue to test Morocco’s record of fiscal prudence. Fiscal data released for the period January-June 2013 indicate a worsening of the main indicators. Revenues recorded one of the worst performances, receding by 1.1 percent compared to an increase of 8.3 percent during the same period of the previous year. At the same time, main expenditures

8 For overall consistency of indicators, all ratios to GDP have been calculated using the estimated nominal GDP released by the the HCP in February 2013 instead of the projected GDP envisaged in the Budget Law 2012. 9 The budget deficit does not take into account privatization receipts. 10 The prices of oil products increased by 19.6 percent for gasoline, 14 percent for gasoil, and 13.4 percent for industrial fuel.

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items continued to increase. In particular, despite the government’s decision to rein in non-wage recurrent expenditures and capital outlays, both increased significantly over the period, by 27.2 percent and 9.2 percent, respectively. However, these figures do not reflect the government’s decision in late March to cut budgeted investment by 25 percent and to limit transfers to SOEs for the remainder of the year. On a brighter note, subsidies declined by about 28 percent during the first 6 months of the year as a result of lower prices and volumes of imported petroleum products. At current international prices, total subsidies should remain within the Budget Law target of 4.5 percent of GDP (instead of 6.6 percent of GDP in 2012). The wage bill increased by 5.6 percent over this period, reflecting last-year’s salary increases and new hiring of civil servants. As a result, the budget deficit worsened to 7 percent of GDP over January-June 2013, almost one percentage point of GDP higher than during the same period in 2012.11

Table 1. Annual subsidies in percent of GDP

Commodities 2007 2008 2009 2010 2011 2012 Food 0.8 1.1 0.7 0.7 0.9 0.9 Fuels 1.7 3.5 1.1 2.9 5.2 5.7 Total Subsidies 2.5 4.6 1.7 3.6 6.1 6.6

Source: Ministry of Economy and Finance

15. Even though the accumulated fiscal deficits have been mostly financed on the domestic market, there

have been no apparent signs of significant private sector crowding out—thanks to the relaxation of monetary policy by the BAM. In 2012, the Treasury issued the equivalent of 6 percent of GDP in domestic bonds and sold part of its capital in “Banque populaire” for an additional 0.4 percent of GDP. To fill the financing gap, the Government raised US$1.5 billion bonds on international financial markets in December12. As a result, the central government debt increased by 5.9 percentage points of GDP in 2012 to reach 59.6 percent of GDP. While the central government is mostly indebted in its own currency (with only a debt of about 14 percent of GDP denominated in foreign exchange), the level and pace of deterioration of the debt are worrisome. In just 4 years, Morocco’s central government debt increased by 12 percentage points of GDP. Clearly, without meaningful corrective measures, Morocco’s current fiscal stance increasingly put at risk the sustainability of Morocco’s medium term macroeconomic framework.

16. The growing savings-investment gaps in the public sector have translated into widening external current account imbalances. Against the backdrop of sluggish external demand, notably from Europe, and deteriorating terms of trade, the trade deficit increased to 24 percent of GDP in 2012. Combined with declining tourism receipts (down 2.1 percent) and workers’ remittances (down 3.9 percent), the current account deficit widened to 10 percent of GDP. On the capital account side, net foreign direct investment (FDI) inflows grew by a healthy 22.8 percent during the period, thanks to foreign investors’ continued confidence in the Moroccan economy. However, total net external capital flows were not sufficient to finance the current account deficit, and net official international reserves declined by US$3.1 billion to reach the critical level of US$16.3 billion by end 2012, corresponding to 3.9 months of imports coverage. Reserves have stabilized since the fourth quarter of 2012 at around 4 months of imports.

17. During the first seven months of 2013, the external accounts of Morocco are estimated to have

improved thanks to the decline of world prices- especially that of fuels (down 6% during the period), and food –as well as the slowdown in domestic demand. However, tourism receipts decreased by 3.5% and

11 One needs to bear in mind that the 2012 budget execution started later than usual, which distorts somewhat the base on which increase rates are calculated. 12 Morocco also succeeded in topping up this operation with an additional US$ 750 million issued in May 2013 at similarly favorable terms and conditions.

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worker’s remittances receded by 0.8% over the period. Foreign investors continued to heavily invest in Morocco, with Foreign Indirect Investment (FDI) growing by 26.5% between January and July 2013.

18. To stimulate economic activity and contribute to the financing of the economy in a context of price

control and low inflation, the Central Bank (BAM) decided to reduce its policy interest rate from 3.25 percent to 3 percent in March 2012 and to lower the money reserve requirement for banks from 6 to 4 percent in September 2012. The BAM has maintained these rates during the first half of 2013. Together, with higher weekly liquidity injections by the BAM into the domestic banking system, these decisions had the effect of partially relaxing the liquidity constraints in the money market and helped finance the economy. As a result, the money supply increased by 5 percent at the end of June 2013 (compared to the previous year). Credit to the economy increased by 3 percent during the same period, primarily driven by credit to housing, which significantly increased by 5.2 percent thanks to the expansion of social housing programs supported by the Government. With increased access to credit and relatively low prices of housing equipment, the consumption credit also rose by 2.9 percent. At the same time, credit to corporate treasuries slowed down to 0.8 percent, partly as a result important late payments made by the public sector to reduce its large overdue arrears to the sector. Credit to business equipment edged up by 1.2 percent. Non-performing loans remained at an average 4.8 percent of total credit to the private sector.

C. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY 19. Morocco’s room for macroeconomic maneuvering has narrowed considerably. The twin deficits that

have accumulated to finance the series of adverse external shocks since 2008 have largely exhausted the room for maneuver that Morocco had built prior to these crises through prudent macroeconomic policies and management (see Annex on Morocco’s macroeconomic developments over the last decade, 2001-2011). They unveiled two main weaknesses that are endangering Morocco’s external and fiscal sustainability in case of a further deterioration of its external or domestic environment. First, the slow structural transformation of the economy hinders the prospects of a rapid increase in competitiveness, exports, and quality job generation. Second is the pursuit of highly onerous fiscal policies, such as the universal subsidy system and tax exoneration programs. These two weaknesses are contributing to the reversal of the downward trend of public debt and the depletion of foreign reserves to critical levels.

20. Macroeconomic prospects in the medium term will greatly depend on the scope, depth and pace of

Morocco’s reform programs as well as developments in Europe – the main trading partner of Morocco. Morocco is expected to benefit from comprehensive reforms aimed to improve the economy’s competitiveness and the effectiveness of its sectoral policies. The current reforms to strengthen governance and justice, improve the efficiency of public investment, and deepen decentralization are critical to achieving long-lasting improvement in economic efficiency, productivity, and employment. Under these assumptions, economic growth should recover to around 5 percent by 2016. Inflation is projected to remain under control at 2.5 percent or below.

9

Table 2. Baseline Medium Term Macroeconomic Indicators

21. However, should the underlying sources of growth be slow to materialize, growth prospects would

have to be adjusted downward. A continued sluggish world economy, particularly in Europe, would negatively impact the medium term macroeconomic outlook through reduced prospects for exports, including tourism, workers’ remittances and FDI flows. Similarly, sustained high commodity prices, a deterioration of the regional context and prolonged global financial uncertainties would have an adverse impact on Morocco’s prospects. Moreover, there is a potential risk that even pre-crisis growth levels might not be sustainable over the medium term if internal demand remains the key driver of growth.

22. In line with the new constitutional requirement, the Government has further committed to fiscal

stability and to progressively decrease the budget deficit to the medium term target of about 3 percent of GDP by 2017 through the implementation of a set of critical reforms. The key measures include: (i) reforming the universal subsidy system; (ii) implementing civil service reform, notably by introducing a ceiling on wage expenditures and a new remuneration system; (iii) accelerating the fiscal and pension reform agenda; and (iv) enhancing the efficiency of public as well as private investments. In May 2013, the

Projections 2010 2011 2012 2013 2014 2015 2016 2017 Part A: Main Macro Aggregates

Real annual growth rates GDP at market prices 3.6 5.0 2.7 4.5 3.0 4.6 4.9 5.0

Non-Agriculural GDP 4.5 4.9 4.5 3.0 4.3 5.0 5.3 5.4 GDP per capita 2.6 3.9 1.7 3.4 2.0 3.6 4.0 4.1 Total consumption 1.5 6.8 4.8 4.6 2.3 4.5 4.2 4.7 Gross domestic investment (GDI) -1.6 3.3 2.4 0.1 2.5 3.7 4.8 5.0 Exports (GNFS) 16.6 2.1 0.8 4.1 6.4 6.9 6.8 6.7 Imports (GNFS) 3.6 5.0 1.6 1.4 3.8 5.4 5.2 5.9

Nominal GDP growth 6.7 5.0 4.0 7.0 5.5 7.0 7.3 7.0 Savings-investment balance, as percentage of GDP

Gross domestic investment 35.0 36.0 34.5 33.7 33.4 33.1 33.1 33.0 of which Government investment 5.8 5.9 5.5 5.1 5.1 5.1 5.1 5.0

Foreign savings 4.5 7.9 10.5 8.3 7.1 6.1 5.5 5.1 Gross national savings 30.5 28.1 24.0 25.3 26.3 27.0 27.6 27.9

Government savings (Privatization receipts excl.) 1.8 -1.0 -2.6 -0.2 0.7 1.2 1.9 2.2 Non-Government savings 28.8 29.1 26.7 25.6 25.6 25.8 25.7 25.7

Gross domestic savings 28.0 25.0 22.6 20.4 21.5 22.4 23.1 23.6 Prices and money

CPI 0.9 0.9 1.2 2.4 2.4 2.3 2.3 1.9 Annual average exchange rate (LCU/US$) 8.4 8.1 8.1 8.5 8.6 8.6 8.6 8.6 Money growth 4.8 6.5 5.2 4.9 6.0 7.1 7.4 7.1

Part B: Government Finance Indicators Percentage of GDP

Total revenues (excl. privatization) 25.4 25.9 26.3 26.0 26.3 26.4 26.4 26.4 of which Tax revenues 23.2 23.4 24.1 23.6 23.8 23.9 23.9 23.9

Total expenditures (incl CST) 29.9 33.1 34.6 31.9 31.2 30.5 29.9 29.6 of which wages and salaries 10.3 11.1 11.6 11.3 10.9 10.7 10.5 10.4 of which subsidies 3.6 6.1 6.6 4.5 4.2 3.8 3.5 3.3

Deficit (-)/Surplus (+) (commit. Basis) -4.7 -6.9 -7.6 -5.6 -4.7 -4.0 -3.3 -3.0 Other

Total Debt of Central Government/GDP 50.3 53.7 59.4 60.0 60.6 59.6 58.0 56.3 Total interest payments/Tax revenues 9.9 9.7 10.0 10.9 10.6 10.1 9.6 9.0

Part C: Balance of Payments indicators Exports of G&S (US$, mln) 30,308 35,582 34,567 36,238 39,081 42,469 45,885 49,553 Imports of G&S (US$, mln) 40,192 49,482 49,508 49,989 52,101 54,931 58,240 62,153 Remittances (US$), change in % 3.5 12.8 -9.9 5.0 5.0 5.0 5.0 5.0 Current Account balance (in % of GDP) -4.5 -7.9 -10.5 -8.3 -7.1 -6.1 -5.5 -5.1 Net reserves (CB) in months of MGNFS 6.7 5.0 3.9 3.8 3.8 3.8 3.9 4.0

Source: Government of Morocco until 2012 and World Bank staff estimates

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authorities reduced the per-unit subsidy of wheat harvesting. In July, they adopted an ad hoc circulaire to make wage bill appropriations binding and limit the rollover of unspent investment appropriations. They also adopted a mechanism to index the domestic prices of fuel, gasoline, and diesel to world prices. The price indexation would kick in when the world prices exceed by plus or minus 2.5 percent of the reference price foreseen in the budget law. The Head of Government adopted a circular in July 2013 to that effect. Furthermore, the quota of subsidized wheat was reduced by 6 percent. These actions will help keep the 2013 subsidy bill closer to its budget target, while significantly reducing the vulnerability of the budget to international commodity price movements. They constitute major steps toward a comprehensive subsidy reform, which the authorities intend to adopt by the fall of 2013. Consistent with lessons from international experience, the broad reform is to include cash transfers to vulnerable groups to mitigate the social impact of the reform. Important analytical work and simulations have been done on the socio-economic impact of the subsidy reforms and different cash transfer mechanism but the decision has yet to be taken by the new government coalition. Finally, the Head of Government has introduced the principle of performance informed budgeting in the 2014 budget preparation circular (“Note de cadrage”), a prior action of this DPL.

23. The Government’s debt strategy is to diversify financing sources and take on a greater proportion of external financing (Table 3). In this context, new external financing schemes are being put in place beyond the classical multilateral and bilateral sources of financing. The government signed in February 2013 a grant agreement of US$1.25 billion over a five year period with the Kuwait Development Fund to support economic and social projects. In addition, the government signed in March 2013 a first installment of US$400 million grant of a total of US$ 1.25 billion committed by the Saudi Development Fund. Both grants are part of a broader cooperation agreement signed with the Gulf Cooperation Council countries last year committing US$5 billion over a five-year period. In August 2012, Morocco also benefited from a Precautionary and Liquidity Line (PLL) of US$6.2 billion approved by the International Monetary Fund (IMF). The PLL is part of the proactive approach of the Government to ensure new precautionary lines of credit to be able to cope in the event of an unforeseen severe deterioration of its external balances. The IMF concluded the first review of the PLL in February 2013 and the second review was successfully completed and presented to the IMF Board on July 31, 2013.

Table 3. Financing Requirements of the Central Government (in percent of GDP) Est. Projections 2012 2013 2014 2015 2016 2017 Financing required 19.6 18.5 17.7 16.2 15.5 14.5

Budget deficit (+) 7.6 5.6 4.7 4.0 3.3 3.0 Amortization 11.9 12.9 12.9 12.3 12.2 11.5

Domestic 10.6 11.7 11.6 10.9 10.7 10.0 External 1.3 1.2 1.3 1.4 1.5 1.5

Total Financing available 19.6 18.5 17.7 16.2 15.5 14.5 Domestic financing 15.4 13.3 13.2 12.1 11.9 11.1 External disbursement 3.0 3.8 3.2 3.0 2.5 2.4 Others (Privatization, grants,…) 1.1 1.4 1.3 1.2 1.1 1.0

Source: MoF of Morocco and World Bank staff estimates 24. In light of the recent measures taken by the authorities, the external position is expected to remain

sustainable over the medium term provided that key critical reforms under implementation continue to take hold. The current account deficit is projected to progressively edge downward to around 5 percent of GDP in 2017 benefiting from improved export potentials and a recovery of tourism activities and workers’ remittances. The latter would benefit from the anticipated progressive recovery in Europe, the main source of remittances flow to Morocco. This scenario critically assumes that Morocco would benefit from its continued reform efforts in trade and competitiveness, supported among others by the World Bank. These reforms, along with sector strategies already under implementation, would translate into higher productive private investments, including FDIs, and progressive gains in competitiveness of its exports,

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including tourism. Exports will also benefit from the healthy growth of major developing and BRICS countries, thanks to growing shares of Moroccan exports towards these countries. In this context, external debt is expected to follow an inverted U-path reaching a maximum at almost 37.7 percent of GDP in 2015 before steadily dropping thereafter, while net foreign reserves will remain at around four months of imports.

25. Balance of payments financing requirements constitute a moderate concern in the medium term, given

the country’s relatively low outstanding external debt, the financial support from the Gulf States, access to international financial markets at favorable conditions, and still adequate foreign reserves. As the current account deficits are projected to steadily improve in the medium term, financing large share of them through traditional multilateral and bilateral credit lines along with other private capital flows, including FDIs, should not be a major constraint. In addition, the Gulf Cooperation Council countries recently confirmed their program to invest US$5 billion over the next 5 years, mostly in the form of grant. Any remaining financing gap could be filled by tapping international financial markets. As noted above, the confirmed PLL from the IMF will continue to provide a potential line of credit over the period 2013-2014, although the authorities intend to continue to treat the PLL as precautionary.

26. A comprehensive public debt sustainability analysis indicates that the fiscal framework remains

sustainable although it would weaken under some medium term downside risks (see Annex 3). Indeed, when the debt sustainability analysis was run under the assumption of “no-policy-change” scenario, the debt stock increased steadily over the period 2013-2018. All the six bound tests proved sustainable over the medium term, although debt of three of the tests remained high within the range of 61-62 percent of GDP, which indicates that debt sustainability remains fragile to further deterioration in Morocco’s internal or external business environment.

27. In sum, while Morocco is facing growing economic and fiscal challenges, its macroeconomic policy

framework remains adequate. The macroeconomic framework is expected to remain sustainable in the medium term assuming that the recent key fiscal and structural reforms announced by the authorities (and envisaged in the 2013 Budget Law as described above) are implemented and amplified in a timely fashion. The projected macroeconomic outlook and the success of the structural reforms depend more than ever before on a robust fiscal consolidation, a prudent monetary policy, and comprehensive medium term reforms that supports external competitiveness. In particular, it is of utmost urgency that the government fully implements the recently announced reform of the subsidy system to ensure the sustainability and efficiency of public finance. Until now, the adverse effects of the global environment on Morocco have been weathered relatively well, thanks to strong economic fundamentals and sound macroeconomic policies carried out over the last decade. Yet, in contrast to when the international crisis struck in 2008, the Government today has much smaller margins for maneuver. Its commitment to deepen and expand the current reform efforts is key to the prospects for a sustainable recovery of investment, growth, and employment in the years to come.

II. THE GOVERNMENT’S PROGRAM

28. The 2012-2016 government program, which was presented to Parliament on January 26, 2012, is structured around five key pillars, which are: (i) deepening national identity and social cohesion; (ii) the rule of law and advancement of regionalization and governance; (iii) job creation and economic development; (iv) national sovereignty and social development; and (v) strengthening social services, including those aimed at Moroccans living abroad. The scope of the proposed DPL series focuses primarily on objectives outlined in the second component of the government program, which is described in more detail below.

29. The government program is anchored in the new constitution, whose implementation is the first

priority. Its second component focuses on the concretization of the constitution’s principles of good governance, human rights, protection of individual freedoms and accountability of institutions. The

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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. A section of the constitution, entitled “Liberties and Fundamental Rights,” in which freedoms of information (Article 27) and of the press (Article 28) are made explicit as fundamental rights is a direct response to recent protests and popular demands for better governance and avenues for civic engagement in decision making. Furthermore, the Constitution includes provisions for strengthening the role of the regions as key actors in leading social and economic development at the local level within the framework of the strategic Advanced Regionalization policy. In addition to improving the delivery of public services, these important constitutional changes present a unique opportunity to address more squarely the longstanding governance challenges affecting the country’s socioeconomic development policies.

A. STRENGTHENING TRANSPARENCY AND ACCOUNTABILITY IN THE MANAGEMENT

OF PUBLIC RESOURCES 30. The government program places an emphasis on improving the effectiveness of public institutions and

on modernizing public financial management. The proposed budget reform is considered a strong lever for enhancing fiscal transparency and accountability, and for expanding the scope and reach of reforms initiated under the previous government’s public administration reform program. The deterioration of public finances on the back of rising expenditures and weak revenues increased the importance to improve the budget’s allocation and operational efficiency. The adoption of a more strategic and programmatic budget management combined with a stricter control of the wage bill and subsidies are seen as a way to improve the fiscal space over the medium term while consolidating public finances. The objectives of greater financial transparency and accountability are considered equally important and mutually reinforcing objectives.

31. The programmatic and results-focused budget approach is also an important instrument in enhancing

Parliament’s oversight function. Article 77 of the new Constitution stresses the importance of balanced public finances and asserts that amendments proposed by Parliament to the executive’s budget proposal cannot affect the fiscal balance. While reaffirming the significance of sound and sustainable public finances, the proposed programmatic and results-focused budget approach would give Parliament a greater say in the budget setting process, by: (i) providing more timely information on the main budget assumptions and perspectives,13 (ii) allowing for greater visibility in budget allocations to the different programs, their intended objectives, and corresponding performance indicators; and (iii) elevating the level of the vote to chapters (ministries) and broad type of expenditures (current, investment, debt payments, etc.). The new performance focus will also increase the government’s external accountability over the use of public resources both before Parliament and the greater public.

32. The government also aims to strengthen internal accountability in the public sector by improving

managerial responsibility and instilling a stronger performance focus while strengthening performance monitoring and evaluation. Although the government does not envisage performance-based pay at this stage, the new performance assessment framework is expected to gradually influence the civil service incentive structure, which is currently driven mainly by compliance and inputs. The civil service compensation framework is currently being revised and could include a variable and performance based element. Likewise, the reform of ex-ante financial controls aims to provide more managerial flexibility to administrations that strengthen their internal control framework.

13 As early as July, when the budget preparation process begins.

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33. Another priority of the government is to enhance transparency and competition in its contractual relations with the private sector through the reform of the procurement rules and the adoption of a legal framework for public-private partnerships. Such increased competition is expected to provide new economic opportunities to less connected firms and in turn increase the value for money of public spending and attract more private investment towards key public services in a context of constrained public finances.

34. The government is extending the reform agenda across the entire public sector and is devising

complementary strategies to improve corporate governance of SOEs and agencies. This holistic approach is in line with the Constitution and the new regionalization strategy adopted in February 2011, which recognizes the increasing role that SOEs and local governments play in terms of public expenditure management and service delivery. The Government thus adopted a code of corporate governance for SOEs on March 19, 2012 and started implementing in 10 pilot entities. This code introduces good practice principles and recommendations to ensure that better governance and accountability mechanisms are in place for SOEs and agencies. These principles include measures to ensure responsible and transparent management of SOEs, and to guarantee the reliability, integrity and effectiveness of these entities’ actions, ensuring the accountability and transparency of the decision making process, to meet the expectations and aspirations of the various stakeholders. Similarly, the Government is reforming the law regarding the governance and financial control of SOEs in order to improve the Government’s oversight while enhancing the managerial flexibility and accountability of SOEs that have improved their internal governance and control framework, and thus improving the internal management framework of SOEs, spending efficiency and risk prevention.

B. FOSTERING OPEN GOVERNANCE

35. The government program reaffirms the implementation of the new constitutional right to information

through a dedicated law, a draft of which is currently undergoing a process of national consultation. The access to information reform consists of a two pronged approach aiming at fostering the proactive disclosure of information that is of general interest while enabling the public to request any information that does not fall under limited and well defined exceptions. Considering the time needed to fully implement such a complex and structural reform, the proactive disclosure of information is essential, to show tangible results in the short term. The Ministry of Economy and Finance is committed to enhance fiscal transparency and has prepared a dedicated policy to formalize the regular disclosure of key budget information. Other ministries are working on similar initiatives to concretize the new right to information while the legal and institutional framework is put in place. A notable example is the Secretary General of the Government which is publishing draft laws for public consultation since 2009. Initially the publication was limited to texts that have an impact on trade and investment, in line with the government’s commitment in the context of their free trade agreement with the US. Since 2012, the SGG goes beyond this commitment and has started publishing a large number of draft legal texts on its website, before transmission to Cabinet.

36. Another new and essential constitutional right the government is committed to implement swiftly is

that of citizens to propose legislation and petitions (Articles 14 and 15 of the new Constitution). Along with the right to access information, these new rights are the foundations of the participatory democracy sought by the Constitution. They need to be formalized and specified in organic laws, which is a priority of the government’s legislative program. Given the importance of a broad consensus with the civil society on the scope and modalities to exercise these rights, the Government has launched a National Dialogue concerning civil society and its new constitutional roles in March 2013. This dialogue, which is comprised of an independent commission of 63 members from government, civil society, academia and the media, aims to concretize the principles of the new Constitution on public engagement into a legal and policy framework in a participatory manner. It plans to hold broad and inclusive consultations at the national and regional level on these different rights and policies over a period of one year before submitting its proposals to the

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government and to parliament. A more detailed description of World Bank support to this reform is included in the operation description section.

37. The government has a large e-government reform agenda to improve public service delivery, at the

central and local levels. E-government reforms are considered an important lever in the modernization of the public administration and in delivering administrative services to remote areas. In 2009, the government adopted the national strategy entitled Maroc Numeric 2013, which aims to develop a knowledge-based economy with a focus on information and communication technologies (ICT) and improve service delivery. An e-government inter-ministerial committee (CIGOV) was established to oversee the implementation of the e-government program, which is a priority of the Maroc Numeric 2013 strategy. The CIGOV met 11 times between February 2010 and June 2013. Services and projects were prioritized based on an international benchmarking and studies conducted by the government as well as on proposal from civil society. In the context of this e-government program, 31 projects have been launched, of which 10 are being implemented and scaled up. One such project is an Internet platform called Watiqa, enabling citizens to order birth certificates and other administrative documents online and to receive them through registered mail. This innovative application aims to reduce transaction costs for citizens as well as the risk of discretion and corruption linked to direct interaction with local officials.

C. GOVERNMENT CONSULTATIONS

38. The constitutional revisions of 2011 were developed through a consultation process that included all

political parties and the country’s main constituencies. This process was initiated by the King in March 2011, when he appointed two commissions in charge of the political transition and of revising all other provisions, respectively. The commissions held consultations over a month before presenting their proposals to the King. The consolidated draft was then submitted to a referendum on July 1, 2011. In an effort to engage the public, a civil society initiative was launched through an online platform (www.réforme.ma). This was meant to raise awareness among citizens over the proposed changes and to stimulate an open debate on the expected constitutional changes. It helped feed into the government led consultation processes. The open government rights and reforms on access to information and citizen engagement were strongly advocated by the civil society and integrated in the new constitution. The PJD’s electoral program emphasized good governance reforms and the implementation of the new constitutional rights. After winning the elections, these commitments were incorporated in the government program approved by parliament and in the subsequent legislative program.

39. The reforms supported by this operation have undergone and will undergo a consultative process with a broad range of stakeholders before adoption by Cabinet. This is notably the case of the public procurement decree, the law on the reform of the governance and financial control of SOEs, the draft law on public-private partnerships, and the draft law on access to information, which were subject to numerous consultation events, some of which supported by the Bank. These draft laws have been published on the website of the Secretary General of the Government to enable broad and inclusive public consultations. They received numerous comments from a large spectrum of stakeholders (individuals, civil society organizations, public institutions, national and international companies, as well as from international organizations, including the World Bank). Many comments were made online and are public. The draft laws have been revised following these consultations and presented to the Cabinet. Likewise, the government has confirmed its intention to post the revised organic budget law and the forthcoming petitions law online for public consultation. This online consultation will complement earlier face to face consultations both within the administration and with interested parties, as was the case for the budget reform, the procurement reform and the draft access to information law. Likewise, the regionalization reform is the outcome of several extensive consultation processes, conducted first by the Consultative Commission on Regionalization established by the King and tasked with the drafting of the strategy and then through constitutional consultations. Finally, the e-government measures are the result of a strongly participatory process, in which

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citizens can make comments and proposals online. The watiqa initiative, which is supported by this DPL, was proposed by citizen. This exemplifies the positive impact of consultations for the acceptance and the quality of policies.

40. The DPL is supporting policy reforms aiming at fostering open governance, based on transparency and public participation. As such the access to information policy and draft law have been subject to large online and face to face consultations, including a national conference held in Rabat on June 13, 2013. This conference, supported by the Bank was opened by the Head of government and Parliament and convened 500 persons, including the private sector, civil society and international experts. It provided broad support for the policy and recommendations to strengthen the law and institutional arrangements. Likewise, the DPL supports the establishment of a national dialogue on the new constitutional rights on citizen engagement to develop the corresponding policies in a participatory manner, through national, regional and online consultations. The operation will specifically support the development of an organic law on public petitions to strengthen public voice. The support to these policies fostering public consultation and engagement is specified under section IV below. Beyond this DPL, the parallel Transition Fund project will provide technical and financial assistance for the development of a government wide public consultation policy, an online consultation platform foreseen by Ci-gov as well as to a training program for both public officials and civil society organizations.

III. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM

A. LINK TO THE COUNTRY PARTNERSHIP STRATEGY (CPS) 41. The proposed DPL is one of the key operations foreseen in the FY10-13 CPS presented to the Board in

January 2010. The CPS emphasizes two main tracks, namely: (i) continued support for the program areas undertaken to date and that remain relevant, with an enhanced focus on sectoral governance issues, consultation, and participation; and (ii) stepped-up Bank engagement in support of more ambitious priority reforms addressing cross-sectoral issues. These areas are: (i) economic competitiveness in support of growth and job creation (CPS Pillar 1); (ii) governance (the cross-cutting beam of the CPS); (iii) social protection and subsidy reform (CPS Pillar 2); and (iv) strengthening inclusion and voice, particularly regarding youth and women (covered under CPS Pillar 2).14 In response to the new constitutional provisions, the proposed DPL supports the reinforcement of transparency and citizen engagement by: (i) supporting the implementation of the new constitutional right to access to information and to petitions, which require specific legislation; and (ii) assisting government in increasing the transparency of the budget to stimulate policy discussions over the priorities and underlying strategies of government spending. In parallel, the Bank is providing technical assistance to the National Dialogue on public participation and on the design of a government wide public consultation policy and petitions law, through a grant from the Transition Fund. These reforms contribute to the government’s open governance agenda and to Morocco’s eligibility for the Open Government Partnership (OGP).15 The program is fully aligned with the priorities of the framework of engagement of the MENA region, and its pillar on governance. It supports directly one of the five key indicators on open governance that serves as “drivers” of the corporate twin goals to boost shared prosperity and reduce extreme poverty.

14 These areas of focus are all aligned with the MENA Regional Update presented to the Board in January 2013. 15 OGP was launched in September 2011 by Brazil, the USA and 6 other founding members. The Partnership provides a platform to share commitments and exchange experiences about reforms fostering a more open and inclusive mode of governance. To join, countries must meet minimum eligibility criteria and demonstrate commitments in four areas: (i) fiscal transparency, (ii) access to information through a law that guarantees the public’s right to information and access to government data, (iii) asset disclosures related to elected or senior officials, and (iv) citizen engagement in policymaking through public consultation. Three of these four areas are supported by this DPL series.

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B. COLLABORATION WITH THE IMF AND OTHER DEVELOPMENT PARTNERS

42. The World Bank and the IMF maintain close collaboration in Morocco. Regular contacts between the IMF and World Bank country teams are the norm, with discussions focused on respective work programs, country priorities, and recent developments and prospects, and reflecting the growing weight of DPLs in the Bank’s Morocco portfolio. Collaboration between the Fund and the Bank has been seamless, with a common understanding of the division of labor and a shared assessment of the critical macroeconomic challenges facing the country. The Fund participates in Bank project review meetings, where relevant. Similarly, Bank staff was consulted during the IMF’s PLL review missions in December 2012 and June 2013. Morocco’s next Article IV consultation is scheduled for December 2013.

43. The proposed DPL has been prepared in close cooperation with the European Union (EU) and the African Development Bank (AfDB). This close collaboration takes the form of joint missions, closely coordinated policy dialogue and technical assistance as well as of coordinated policy matrix. While each donor follows its own decision-making process and operational procedures, the teams make every effort to harmonize their approaches, methodologies, and phasing to the extent possible in the spirit of the Paris Declaration on donor coordination and alignment, of which Morocco is a signatory. The AfDB has adopted a programmatic series of two operations, while the EU has a four-tranche operation over four years, with a specific pillar on tax reforms, which it has supported in the past. Furthermore, technical assistance is closely coordinated among the three institutions around the pillars included in this program.

C. RELATIONSHIP WITH OTHER BANK OPERATIONS

44. This DPL series is complementary to the three following operations which support sector specific governance and service delivery reforms:

The First Economic Competitiveness Support Program DPL focuses on: (i) improving the investment climate, in particular by removing barriers to entry and simplifying the regulatory environment for doing business; (ii) furthering trade policy reform and trade facilitation; and (iii) improving economic governance by strengthening the competition agency's mission and prerogatives and increasing transparency and accountability in the granting of investment incentives. This DPL has numerous synergies with the proposed operation, in particular through mutually reinforcing measures on transparency, regulatory reforms, the corporate governance of SOEs, and procurement reform. These measures are geared towards improving the business environment and competitiveness agenda.

The Third Municipal Solid Waste Sector DPL supports four key objectives: (i) strengthening governance, particularly demand-side governance in the sector through improved accountability, transparency, and access to information by providing citizens and civil society with opportunities for public engagement and voice in the provision of solid waste services; (ii) anchoring the long-term institutional and financial sustainability of the sector in line with the new regionalization and decentralization agenda; (iii) upgrading the country’s environmental control and monitoring system; and (iv) developing a financially viable and socially inclusive waste recycling sector. The first component offers important potential synergies with the cross-sectoral governance reforms at both the central and local levels proposed by this operation. Reforms on transparency and access to information and local governance are mutually reinforcing and closely coordinated. There is also important complementarity between the local revenue generation supported by this DPL and the broader reform of local finances and intergovernmental transfers supported by Hakama.

The Governance framework implementation support project, financed by the Transition Fund, will support the implementation of key policy measures of the proposed DPL series, such as (i) the budget and public procurement reform, (ii) the national dialogue on public engagement and the petitions law, as well as (iii) the reform of the fiscal transfer and equalization system. Furthermore, the project foresees

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funding for a public financial management diagnostic (PEFA update), which will enable to measure the progress in the implementation of the program’s public financial management reforms and inform the DPL’s result framework.

45. In addition, a new justice sector technical assistance project, approved by the Board in June 2012, supports the institutional strengthening of the Ministry of Justice and of the Judiciary. This project supports, among others, the strengthening of the transparency and efficiency of courts, thereby reducing the uncertainty associated with the rule of law. It adopts a participatory approach to the establishment of modernization plans for the courts, thus reinforcing relevant reforms proposed under this operation. This operation thus complements the focus of this DPL on strengthening the Executive’s accountability and transparency as well as budgetary oversight by the Legislative.

46. The first pillar of the DPL and more specifically the budget and procurement reforms build on the past Public Administration Reform Loan Series (PARL I-IV), which support the inception and pilot testing of the reforms. The PARL series have supported the conceptual phase of the budget reform through the pilot testing of medium term expenditure frameworks in 5 ministries, the initiation of the reform on ex-ante financial controls as well as the development of e-procurement. While technically sound, these efforts have not yielded the intended results in the absence of the necessary legal changes. This is the priority of the present operation, which supports the revision of the organic budget law, the implementation of performance budgeting in ministries providing essential public services, the formal alleviation of ex-ante controls and the revision of the procurement decree to legalize e-procurement and reverse auctions.

D. LESSONS LEARNED

47. Key lessons can be drawn from the World Bank’s long-standing engagement with public administration reforms worldwide and in Morocco in particular, notably in terms of ownership and sequencing of reforms. These lessons are drawn from past transition experiences, notably in Eastern Europe and Asia and from an Independent Evaluation Group (IEG) evaluation of World Bank support for public sector reforms entitled “What Works and Why” (World Bank 2008) as well as from the past two public administration reform loans series (PARL I-IV) in Morocco and their Implementation Completion and Results Reports (ICR) published in March 2009 and June 2011, respectively. These lessons are also confirmed by the EU and the AfDB program evaluations conducted in 2010 as well as by the recent CPS Progress Report, presented to the Board in May 2012.

48. Other transition experiences, notably in Slovenia and Indonesia, show the importance of maximizing the short window of opportunity for transformational reforms before engaging in more technical and medium-term reforms. In Morocco, the first phase of the transition led to a new Constitution and a new government. The revision of the country’s governance structure and practices are high on the political agenda. This DPL adopts an opportunistic approach, seeking to seize the chance of supporting the key governance reforms and policies necessary to formalizing these new constitutional rights and bringing about the more open governance mode expected by the population. The alignment of the program’s objectives with the new Constitution and the government’s priorities also reinforces the ownership and appropriation of reforms and the likelihood of their success. The adoption of an explicitly Arabic name for the program (Hakama = governance) should further facilitate a broader understanding and awareness of the type of reforms it supports.

49. The IEG evaluation of public sector reforms highlights the important role political momentum, adequate sequencing of reforms and a realistic political economy analysis play in ensuring the success of reforms. The evaluation recommends being realistic about the time it takes to adopt public sector reforms and to achieve significant results, the need to understand the political context, identify prerequisites to achieving objectives, and focus first on the basic reforms that a country needs at this initial stage. The report also recommends the reconsideration of the balance between development policy and investment lending

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since development policy lending can help secure the enabling policy changes. Experience in Morocco through the PARL series confirms the important impact the political environment, the quality of the overall governance framework, and the strength of the institutional set-up have on the success (or failure) of such engagement. This is particularly true for strategic and complex reforms, such as expenditure management reforms, corporate governance reforms of SOEs, and the regionalization agenda, which have been on the reform agenda of the government for the past decade and have witnessed resistance. These reforms benefit from a more conducive political environment in the current transition phase. This DPL series proposes a phased approach supporting visible short-term measures signaling change in terms of transparency and participation, while supporting the design and implementation of new policies/ laws on budget management, access to information, and public petitions.

50. The political economy of reforms is a key factor of success and failure. The current transition represents an overall conducive environment for governance reforms. It was initiated by the king in response to the national and regional protests and calls for greater political and economic freedoms. The king reaffirmed his commitment to the transition process and governance reforms in his annual address to the nation in July 2013 (Discours du Trône). The moderate islamist party, PJD, who won the elections and is heading the government campaigned on a governance and social platform. While the ongoing change in the government coalition does not represent a risk of reversal of these reforms it may delay their adoption and implementation. At the level of the administration there will be likely resistance to reforms that substantially change the current mode of operation and require increased transparency and accountability. The government intends to address this potential resistance through different ways: (i) large internal and external consultations to enhance mutual understanding and support for the reform; (ii) training across the public administration to strengthen appropriation and capacity; (iii) non-financial incentives, such as public recognition of good performance (potential financial incentives, such as variable pay, are envisaged in the medium term in the context of a broader civil service reform); (iv) command and control through the development of a more robust monitoring and evaluation system (for the budget reform) and enforcement mechanisms (for the procurement and the access to information reforms).

51. Past engagement with public sector reforms in Morocco has shown the importance of managing expectations, both among the public and within government, and the need to effectively communicate these reforms. The previous reform program suffered from a lack of visibility and communication, both internally and externally, affecting the appropriation and implementation of reforms. For example, the budget reform preparation involved only a few staff in the Ministry of Economy and Finance and in line ministries. There was limited feedback to the line ministries on the instruments they were testing (MTEFs, performance indicators, etc.). The authorities have changed their approach and now engage in extensive consultations with Parliament and line ministries in order to take into account their views and ensure a better appropriation of the reforms. Likewise, more attention is given in the current program on training and communication initiatives. A dedicated training and communication plan for the budget reform is being developed with support from the EU.

52. Another key lesson, taken into account in this DPL series, is the importance of technical assistance for the design and implementation of these new policies. During the preparation of this DPL, the Bank has provided policy advice and technical assistance on 8 reforms supported by this operation. This support took the form of a monthly policy dialogue, policy notes, international benchmarking, advice and comments on the draft texts, consultation events as well as workshops and training. This support was made possible through additional resources from the Bank and the MNA multi donor trust fund. To support the implementation of this operation’s core reforms the Bank leveraged resources from the Transition Fund (TF) described above as well as from the IDF (procurement reform).

53. Other lessons learned from past DPLs in Morocco show the need to have strong inter-ministerial coordination structures in place to ensure the adequate steering of complex horizontal reforms. The reform program is currently coordinated by the Ministry of Economy and Finance and by the Ministry for

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General Affairs and Governance (MAGG) and monitored by the Office of the Head of Government. The reforms supported by this program, involve many additional ministries and agencies. This challenge is acknowledged by the authorities, who have agreed to set up a three-pronged steering structure, with: (i) an inter-ministerial steering committee for the government’s governance program; (ii) thematic inter-ministerial committees for technical and cross-cutting reforms, including budget reform, access to information, and e-government reforms; and (iii) a dedicated committee for the coordination of Hakama. All three levels are linked to ensure consistency and synergies.

E. ANALYTICAL UNDERPINNINGS

54. This operation benefits from a wealth of knowledge anchored in significant analytical and technical work, partly initiated under the previous public administration reform loans (PARL I-IV) and scaled up during the program preparation.

The public expenditure reviews (PER) conducted in 2012 in the health, education and justice sectors as well as the public expenditure tracking survey (PETS) in the health sector have confirmed the negative perception of citizen about the quality of public services. These analyses have highlighted common weaknesses in the governance and accountability framework of the public sector affecting the delivery of basic public services. More specifically the following challenges have been noted: (i) inefficiencies in the allocation of resources, (ii) weaknesses and delays in the implementation of public expenditures (with carryover of budget allocations up to 50%), (iii) uneven productivity of service providers (health centers, courts, schools), (iv) absenteeism, (v) and persistent disparities in the access to and quality of basic public services. This comprehensive analytical work has underlined the importance of governance reforms that strengthen the transparency and accountability of the public sector and improve citizen voice and participation.

The performance budgeting reform is considered an important lever to improve transparency and accountability in the use of public resources through a structured and public performance monitoring and evaluation system. The reform has benefitted from extensive analytical and technical support from the Bank. The Public Expenditure and Financial Accountability diagnostic (PEFA, 2009) highlighted weaknesses in the policy orientation of the budget and parliamentary oversight, which will be addressed by the introduction of a functional and programmatic budget structure. The above mentioned public expenditure reviews underlined cross-cutting challenges in budget execution and oversight, affecting the delivery of core public services. The development of a performance monitoring and evaluation system aims to help address these challenges by improving managerial accountability about the use of public expenditures and public service delivery. International benchmarking, policy advice and notes have notably been provided on: (i) the new organic budget law and programmatic classification, (ii) fiscal rules and multiannual budget programming, (iii) performance monitoring and evaluation, and (iv) on public agencies.

The procurement reform is another lever to reduce discretion and improve value for money as evidenced by the different procurement diagnostics (CPAR, Country System Assessment, GAC assessment). This reform has also benefitted from substantial advice from the Bank, since its inception, including on the preparation of the new procurement decree, the oversight and recourse body and on e-procurement. This work builds on earlier diagnostic studies and advice aimed at using Country Systems.

Access to information and public participation policies improve checks and balances and foster a more open mode of governance. The Bank supported the development of new policies on access to information and public participation through international benchmarking as well as through policy advice and notes on the legal and regulatory framework. An ongoing research on the economic benefits of access to public sector information provided further analytical underpinnings to this reform. The Bank supported international knowledge exchange on these reforms through a series of conferences and multi-stakeholder workshops in 2012 and 2013.

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Corporate Governance of SoEs and Public-Private Partnerships: Both the World Bank/IFC and the EU have provided substantial technical advice on the preparation of the corporate governance code in Morocco and the dedicated code for SOEs and government agencies. This includes the World Bank Corporate Governance ROSCs completed in 2002 and in 2011. The ROSC assessment benchmarked Morocco's legal and regulatory framework, practices, and enforcement framework, against the OECD principles. They provided the analytical underpinnings for the improvement of SoE’s governance structure, internal control framework, financial accounting and reporting system, and transparency. Likewise, the Bank, IFC and EIB have provided advice on the preparation of the new law on Public-Private Partnerships and capacity building to the department in charge of this reform (DEPP).

Regionalization: This reform agenda has been informed by analytical work from the Bank and the EU, including the MENA local governance policy review, the policy note on decentralization and devolution in Morocco prepared in 2010, the guidelines on devolution (Guide Méthodologique pour la Déconcentration, World Bank 2006). An ongoing diagnostic study on the fiscal transfer and equalization system is providing analytical underpinnings for this reform. It provides and international benchmarking and provides recommendations for a more rules based and effective transfer system.

IV. PROPOSED SUPPORT PROGRAM

A. POLICY AREAS AND PROGRAM DEVELOPMENT OBJECTIVES (PDO)

55. The objective of this DPL series is to support the concretization of key new constitutional governance principles and rights, aimed at increasing transparency and accountability and enhancing citizen engagement and access to information. The constitution and the subsequent government program envisage a five year implementation period. This DPL series will support the first phase of this program through the adoption of policies improving the management of public resources and fostering more open governance. The operation supports governance reforms across the public sector (central and local governments and SOEs) for enhanced consistency and effectiveness. It is composed of the two following pillars:

(i) Strengthening transparency and accountability in the management of public resources; and,

(ii) Fostering open governance.

The DPL’s policy matrix with the results framework is presented in Annex 1. This series builds on the technical outputs of the previous joint public administration reform loans (PARL series) while taking into account the new constitution and government's priorities.

56. The specific objectives and expected results of the DPL series reflect the sequence of the implementation of the constitution and government program as well as the medium term nature of the structural reforms supported. This DPL series supports the first phase of the constitutional reform and a subsequent series is expected to support the second phase. The objectives and expected results of the first series are specified for each pillar in the following sections and in Annex 1. The results expected for this first series are mainly de jure and intermediary in nature, considering the five year implementation timeline of these new policies.

Pillar I: Strengthening transparency and accountability in the management of public resources, through:

A more open and transparent budget process, specifying the programmatic allocation of resources and the corresponding performance objectives and indicators for 5 ministries;

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A more consistent implementation of public procurement rules across the public sector evidenced by the increase from 1571 to 3345 in the number of procuring entities subject to the new procurement rules;

Real time information on budget execution in 80% of municipalities through the roll out of an integrated expenditure management information system (GID).

Pillar II: Fostering open governance through:

Enhanced access to budget information evidenced by a higher score in the Open Budget Index as well as through adoption by Cabinet of a law on access to information;

Strengthening citizen voice and engagement through the adoption by cabinet of an organic law on petitions and a 20 percent increase in citizens having voiced their opinion to officials measured by the Gallup survey;

Improved citizen access to key administrative documents, evidenced by a five-fold increase in the number of birth certificates ordered online and delivered by registered mail.

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Box 1: Good Practice Principles for Conditionality

Principle 1: Reinforce ownership. The design of this program has been largely client-driven and is thus anchored in countrywide ownership. All key reforms supported are either envisaged in the new Constitution approved by popular referendum in July 2011 or central to the government program (2012-2016) approved by Parliament in January 2012. Principle 2: Agree upfront with the government and other financial partners on a coordinated accountability framework. The operation is prepared jointly with the EU and the AfDB, building on an established tradition of joint support for public administration reform in Morocco. Missions and aide-mémoires are provided regularly and the policy matrix is largely aligned. The Ministry of General Affairs and Governance coordinates this operation with other ministries and agencies. Principle 3: Customize the accountability framework and modalities of Bank support for country circumstances. By design, the program fully reflects the country’s circumstances, priorities, and institutional responsibilities, as indicated by the government. It supplements government efforts to implement its own reforms. The operation also benefits from the lessons learned from previous public administration reform loans and Implementation Completion and Results Reports (ICR) as well as from related technical assistance. This DPL benefits from the flexibility embedded in the CPS. Principle 4: Choose only actions critical to achieving results as conditions for disbursement. Prior actions and triggers have been identified through a process of extensive consultations with the Ministry of General Affairs and Governance, the Ministry Economy and Finance, the Ministry of Civil Service and of the Modernization of the Administration, the Ministry of Interior, and the Secretariat General to the Government. The prior actions and triggers focus on the key governance provisions foreseen in the Constitution and in the government’s program. Principle 5: Conduct transparent progress reviews conducive to predictable and performance-based financial support. Progress reviews will take place twice a year, timed so as to allow for a predictable review of progress and announcement of support levels at the beginning of the budget year. Supervision and policy dialogue will be further strengthened by parallel strategic technical assistance supporting the design and implementation of this operation’s key policy reforms.

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B. OPERATION DESCRIPTION PILLAR 1: STRENGTHENING TRANSPARENCY AND ACCOUNTABILITY IN THE

MANAGEMENT OF PUBLIC RESOURCES Component A: Adopting performance informed budgeting

57. Prior action #1 (Completed): the 2014 budget preparation Circular No. 12-2013 dated September 23, 2013 issued by the Head of the Government provides that at least three Ministries will start testing the new performance informed budgeting approach with the 2014 budget.

58. Prior action #2 (Completed): to strengthen managerial accountability and flexibility, the Minister of Economy and Finance has issued six Orders (Arrêtés) dated December 26, 2012 and seven Orders (Arrêtés) dated June 3, 2013 alleviating ex-ante financial controls for qualified authorizing officers and delegates.

59. Proposed triggers for the follow-up operation:

Indicative trigger #1: Adoption of the new organic budget law and its implementing regulations, including the new programmatic budget classification. Indicative trigger #2: Adoption of a performance monitoring and evaluation policy including: (i) the development of a performance monitoring system within the MEF and line ministries; (ii) an inter-ministerial validation mechanism for programs and performance indicators of ministries; (iii) performance audits, and (iv) performance evaluations involving external experts. Indicative trigger #3: Transmission to Parliament of the 2015 budget law, including a programmatic budget presentation and performance documents for 5 ministries.

Indicative trigger #4: The Government publishes a 3 year rolling budget framework, starting in 2015, with programmatic allocations for the first 5 ministries.

60. Rationale: The budget reform is a building block of Morocco’s governance and public sector reform agenda as it enhances government transparency and accountability, strengthens parliamentary oversight, and represents a strong lever for the modernization of the management of public expenditures and services. The current budget structure is opaque and does not permit strategic budget management and oversight as it is primarily based on administrative and economic classifications. It is highly fragmented, with more than 25,000 paragraphs and budget lines. Budget preparation and management is essentially input- and compliance-based, with limited attention given to performance and outcomes. Likewise, highly prescriptive rules on transfers and re-allocations limit managerial flexibility and the potential for greater operational efficiency. These weaknesses have an effect on the spending efficiency and accountability within the public administration as well as in relation to Parliament and taxpayers. For instance, priority sectors such as health and justice, which have benefited from additional human resources, operate in a fiscally constrained environment and have not witnessed improved performance, as evidenced by the preliminary findings of the public expenditure reviews.16

61. Today, the budget reform benefits from the momentum created by the new Constitution emphasizing the executive’s accountability and transparency and strengthening the parliament’s oversight role. The introduction of a performance management approach through which the government, ministries, and program managers commit to performance objectives and report on their achievements is considered as a key lever to strengthen the administration’s external and internal accountability. The new managerial

16 Public expenditure reviews were undertaken by the Bank in the health, education, and justice sectors.

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responsibility combined with increased flexibility in the management of public expenditures is meant to improve the budget’s operational efficiency. This will also require the integration of the budget with the performance management cycles as well as establishing robust performance monitoring and evaluation systems. The budget reform’s long inception phase under the PARL DPL series enabled preparatory work, such as the revision of the accounting and financial control systems, and exposed an increasing number of administrations to the new concepts of budget programs, medium-term expenditure frameworks (MTEFs) and performance indicators. However, the delays in the implementation of this reform have also led to a degree of frustration and skepticism among line ministries in the absence of tangible changes. The reform is mature and requires the revision of the legal and regulatory framework, as well as its institutionalization and operational implementation in line ministries to yield the expected results.

62. Finally, the revision of the organic budget law is a unique opportunity to concretize the Constitution’s new principle of balanced public finances (Article 77) through the adoption of clear and effective fiscal rules and medium term fiscal programming. If sufficiently clear and binding, such provisions in the organic law would provide useful directions for greater fiscal responsibility during the budget preparation process and support fiscal consolidation efforts. Furthermore, the inclusion in the organic law of tighter controls of carry-over of budget and personnel appropriations from one fiscal year to the next would help address key weaknesses in the current budget management that have contributed to the unexpected increase in the budget deficit in 2012.

63. Policy action: The priority is now to implement the new performance informed budget management approach, building on the long preparation phase and on the lessons learned from the previous DPLs. Therefore, a four-pronged approach is foreseen, focusing on: (i) the revision of the legal and regulatory budget management framework through the adoption of a new organic budget law and its implementing regulations with a sequenced reform action plan; (ii) the institutionalization of the reform by establishing a high level inter-ministerial steering committee, a specific unit dedicated to the reform within the Ministry of Economy and Finance, and reform groups in line ministries; (iii) the operationalization of the reform and performance management in line ministries; and (iv) the development of a comprehensive performance monitoring and evaluation system. Reform implementation will be sequenced over a five-year transition period, of which the initial building blocks will be supported by this DPL series. The first operation’s prior actions will focus on the measures needed to concretize this policy change by launching the reform implementation in key service delivery ministries while the new legal and institutional budget management frameworks are being adopted.

The first prior action supports the early implementation of this reform in key service delivery ministries, namely, Education, Agriculture, and Economy and Finance and the Office of Water and Forests. The Head of Government designated in the budget preparation circular the first wave of ministries required to prepare the budget programs and corresponding performance projects that will accompany the 2014 budget proposal. The second operation will focus on the formal adoption and implementation of this new budget management mode as well as the adoption of a performance monitoring and evaluation policy. A coordinated technical assistance program will support the implementation of this reform through advice, technical assistance, and training. The gender dimension will be taken into account by developing gender informed performance objectives and indicators in sectors faced with important gender disparities.

The second prior action supports the strengthening of managerial accountability and flexibility by alleviating ex-ante financial controls for qualified authorizing officers and delegates. This is the accomplishment of the reform of financial controls launched in 2009 under the past PARL series. It represents a tangible change for managers, who have improved their internal control framework, and will no longer be subject to ex-ante compliance controls for certain expenditures. These decisions are based on a risk based assessment framework and on the comprehensive audits carried out by the General Inspectorate of Finance (IGF) and the Treasury (TGR). Based on the findings of these audits, managers with the required qualifications will benefit from this increase in flexibility and responsibility.

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Triggers for the subsequent operation: The first trigger supports the adoption of the new organic budget law and implementing regulation with a view to introducing the key elements of the reform, namely the new programmatic budget structure and accounting procedures, the performance approach, a 3-year budget perspective, the limitation of personnel appropriations, and increased fiscal transparency. Given the deep and comprehensive changes proposed, this draft law requires thorough consultations within the government and with Parliament before its adoption. Such consultations have taken place both within the executive, with the Court of Accounts as well as with a dedicated bicameral commission set up by Parliament. The draft law will then be published on the government’s website for broader public consultations. The new organic budget law is therefore proposed as a trigger, building on the institutional and operational prerequisites for its effectiveness. The second trigger relates to the adoption of a monitoring and evaluation framework for the ministerial performance indicators. It consist of a four tier approach aligned with the budget cycle, including a performance monitoring system built in the MEF budget preparation information system (e-budget) to capture the performance objectives, indicators and targets for each ministerial budget program. This will enable the establishment of a consolidated performance program accompanying the budget proposal and a year-end report to be sent to Parliament. It will include an inter-ministerial validation mechanism to ensure that the ministerial budget programs and performance objectives and indicators comply with the guidelines and are robust. It will then be followed by ex-post performance audits by the Inspectorate General of Finance as well as evaluations of the ministerial programs involving external experts. This comprehensive monitoring and evaluation system is essential to ensure quality control, transparency and accountability of ministries. The third trigger relates to the gradual roll out of the reform implementation to 5 ministries for the 2015 budget. It will enable to consolidate the process for the first 4 ministries that tested this approach for the 2014 budget and expand it to a new ministry. The last trigger relates to the implementation of the multi-annual budgeting foreseen in the organic budget law in order to make the budget more strategic and to provide the necessary medium term outlook to ministries that are implementing the new programmatic and performance budget management approach.

64. Expected results: The new programmatic budget structure and the development for each program of strategic performance objectives and indicators will greatly improve the government’s transparency and accountability in the allocation and management of public resources. The development of a multi-annual budget framework and the introduction of managerial flexibility within programs will contribute to the improvement of operational efficiency. It should improve the budget execution rate and enable faster reallocation of resources. The performance documents prepared by each minister and program manager will offer a baseline for performance contracting as well as for monitoring and evaluation, including by Parliament. The result of these reforms and DPL measures will be assessed through an external Public Expenditure and Financial Accountability (PEFA) diagnostic and should lead to higher scores.

Component B: Improving competition and transparency in public procurement and public-private partnerships B1. Public Procurement

65. Prior action # 3 (Completed): The public procurement Decree nº 2-12-349 dated March 20, 2013, issued by the Head of Government to replace public procurement Decree nº2-06-388 dated February 2, 2007 to expand its scope to local governments, architects contracts and some public agencies (Etablissements Publics) and to introduce e-procurement, has been published in the National Gazette No 6140, dated April 4, 2013.

Indicative trigger #5: The Head of Government has issued a Decree establishing the National Public Contracts Committee, including non-State actors and with a stronger mandate on oversight, complaints handling and training.

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66. Rationale of the procurement reform: The modernization of the procurement framework aims at improving transparency and accountability in financial management as well as value for money through the introduction of e-procurement. The new Constitution (Article 36) specifies criminal provisions to ensure integrity and to prevent and punish conflict of interest and corruption in government contracts both during the bidding process and during contract implementation. Likewise, the government’s objective to improve the effectiveness of public investments and services explains the recent focus on e-procurement and its introduction in both the procurement decree and the government’s e-government strategy. Although the Moroccan procurement system has improved since the 2007 revision, it is still in need of greater transparency, accountability, and efficiency to align with international good practices and to effectively reduce the risk of corruption. The weaknesses of the current procurement system have been highlighted in the Bank’s Country Procurement Assessment Report (2007) diagnostic, which was updated in 2008, and the procurement system assessment of the Use of Country System (UCS) pilot program in 2010-2011. These assessments revealed that several procurement methods remain rather vague, creating room for discretion and potentially for corruption. They also confirmed the limitations of the current complaints mechanism, which lacks independence, transparency, and effectiveness. The requirement for an independent complaints mechanism is also stipulated in international trade agreements signed by Morocco.

67. Policy action: The proposed procurement reform will improve transparency and efficiency in public purchasing by introducing e-procurement procedures, reducing delays for non-complex contracts, and strengthening accountability and integrity in the procurement system, in line with OECD/DAC Methodology for Assessing Procurement Systems (MAPS). This methodology is based on a self-assessment through standardized performance indicators covering four pillars: a) the existing legal framework that regulates procurement in the country; b) the institutional architecture of the system; c) the operation of the system and competitiveness of the national market; and d) the integrity of the procurement system. The scope of the new procurement regulations is extended to certain SOEs17 as well as to local governments. The amendments to the public procurement decree (PPD) provide a legal basis for e-procurement. This will also enhance transparency by: (i) clarifying the publication requirements for bidding opportunities and harmonizing the public procurement procedures across the public sector; (ii) ensuring effective competition and a level playing field between private businesses and SOEs; (iii) introducing specific methods for the selection of consultants to ensure higher quality (life-cost evaluation for goods); (iv) clarifying the set of qualification criteria for complex contracts; (v) specifying the procedure for obtaining clarification during the bidding process; (vi) clarifying the elements to consider during the technical evaluation; and (vii) listing the contracts for specific methods of procurement. The PPD introduces also a definition of conflict of interest in procurement and administrative penalties, such as debarment from public tendering or criminal penalties in cases of corrupt practices against bidders or public officials. The decree mandates the online publication of a completion report for each contract, where the final amount is higher than or equal to MAD 1,000,000. A decree setting up a specific national public procurement commission (a regulatory body) will complement the PPD in order to improve the independence and effectiveness of the complaints mechanism. This can be ensured through membership of non–state actors, binding decisions that can suspend the procurement process, clear rules regarding potential conflicts of interest, and binding response times to complaints.

68. Expected results: The scope of the public procurement rules has been expanded to the entire public sector, covering also certain SoEs, local governments and architect contracts. The introduction of e-procurement and reverse auctions is expected to increase competition and accelerate the tendering process, leading to new business opportunities for all firms and generating substantial savings for the government. It is estimated that the use of reverse auctions for the purchase of standard supplies will lead to a 10% reduction in prices.

17 The list of SoEs and agencies subject to these rules will be established by the Minister of Economy and Finance in accordance with the law no 69-00 related to the State’s financial control over SoEs and other organizations.

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B2. Public-Private Partnerships

69. Prior action # 4 (Completed): The draft Law on Public Private Partnerships has been transmitted by the Head of Government to Parliament on February 21, 2013.

Indicative trigger # 6: The implementing regulations of the Law on Public Private Partnerships, regarding project selection criteria, standard contractual clauses and the monitoring and evaluation of PPP projects have been adopted.

70. Rationale: The persistent socio-economic development challenges and regional disparities highlight the need to scale up public infrastructure and service delivery. Considering the severe budgetary constraints and the limited capacity of the public administration in certain sectors/regions, such a scale up requires a greater involvement of private operators through public-private partnerships (PPPs) to leverage their financial resources, capacity and technology. Although Morocco has past experience in the delegated management of public services and carried out PPPs is specific sectors, such as transport, energy and water, it lacks a comprehensive and unified legal framework. Apart from the law no. 54-05 governing the delegated management of public services, other partnerships are covered by heterogeneous sector specific regulations or launched on an ad-hoc basis. This situation limits the scope of possible PPPs and might discourage potential firms, particularly SMEs which are more sensitive to the legal uncertainty it entails. As the financing and operating modalities of PPPs differ from classical public works or services contracts, they are not covered by the public procurement decree and tendering practices can vary greatly. Furthermore, PPPs can entail important risks and contingent liability for the public sector. The corollary of leveraging more private financing for public investments or services implies a long term financial commitment (over 30 years) from the government. While such partnership may alleviate in the short term the pressure on the investment budget, they constrain the budget in the long run. Thus, PPPs represent important opportunities to help address the deficit in public investments but entail also a number of risks that need to be mitigated.

71. Policy action: The Government has decided to develop a modern and unified legal framework for PPPs, in order to benefit from capacity innovation and private sector financing in the delivery and implementation, under the government’s responsibility, of economic, social and infrastructure services, while ensuring an optimal risk sharing. Such partnership entails allocating responsibilities to the party, best able to manage them most effectively and payment arrangements for the services rendered, based on their performance. The new legal framework aims to foster increased competition, transparency and accountability. The first PPP law represents a unified legal framework and incentive to the development of PPP in Morocco in favor of the Government, public institutions and enterprises, and applicable to various public sectors. The law will strengthen the competition rules for such partnerships, by introducing competitive bidding, clear rules for competitive dialogue, when the public entity is objectively impossible to define, alone and in advance, the technical means capable of satisfying their needs or establish the legal or financial set-up for the project, as well as the negotiated procedure in limited circumstances. In order to better appreciate and mitigate the risks, the law foresees the development of clear criteria for the assessment and selection of projects, as well as for the performance monitoring and evaluation of their implementation. These criteria will be specified in the implementing regulations, the adoption of which is a trigger for the next operation. Furthermore, the law will mandate all new PPPs to comply with standard contractual provisions. This should improve the transparency and accountability of such contractual relations.

72. Expected results: This law will increase the legal certainty for both private operators and public bodies, thus creating an enabling environment for an increase in PPPs and alternative modes of public service delivery. It will enable a greater harmonization with the procurement rules and foster competition. It will enhance the transparency of such contractual arrangements by mandating the approval by decree and the publication of a summary of the contract for the PPP passed with the State. The impact in terms of private investment and service delivery can only be seen in the medium term, given the time needed to build a pipeline and conclude such complex projects.

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Component C: Enhancing financial control and governance of SOEs and public agencies

73. Prior action # 5 (Completed): Decision-making bodies of at least five State owned enterprises and agencies, among a list of ten pilot entities, have adopted a resolution and action plan to implement the new code of corporate governance for State owned enterprises.

Indicative trigger # 7: The implementing regulations of the new law on the Governance and financial control of agencies and State owned enterprises aimed at modernizing State oversight and increasing their managerial flexibility and accountability have been adopted.

74. Rationale: SOEs and agencies play an important role in the economic and social development of Morocco, particularly through, the implementation of public policies, and the delivery of basic services. In late June 2013, the public portfolio consisted of 244 public institutions, 42 limited companies and 436 financial participations and subsidiaries of which 200 are majority owned (direct and indirect public ownership above 50%). They represent two-thirds of public investment and half of public expenditures. It is thus essential to fully involve SOEs in the governance and public sector reform agenda. In order to strengthen their performance and their effectiveness, SOEs are expected to strengthen their governance and transparency. The SOEs also fall within the scope of the law on access to information, and to this day, very few publish their financial statements, or governance structures, online. Strengthening transparency is a priority for reforms to improve the governance of SOEs and the reform of government control over these entities. Thus, the corporate governance code for SOEs was officially launched on March 19, 2012 by the Prime Minister’s Circular. This code aims to establish good governance practices of SOEs and to entrench the values and principles of transparency, accountability and communication. This code includes recommendations, rules and guidelines in the following five areas : (i) the role of the government, distinguishing between the functions and tasks assigned to the government and that are likely to influence the conditions under which the SOEs operate (its role as a strategic guidance, shareholder, oversight and control), (ii) the role and responsibilities of the Governance structures, (iii) the rights of shareholders and the equal treatment due to them, (iv) transparency and dissemination of information, and (v) relationships with stakeholders and the equal treatment due to them. The code also presents important potential synergies with the other reforms supported under this operation, including on fiscal transparency, public procurement and the budget reform. SOEs are also covered by the budget reform and will be fully integrated in the performance-informed approach. Although the code is not binding, SOEs are strongly encouraged to apply it or to explain what provisions have not been applied and why (“comply or explain”). The MEF is also required to give an update on the code’s implementation in its annual report sent to Parliament as an annex of the budget proposal. In order to build momentum through tangible results, the government intends to start implementing this code in 10 key SOEs delivering important public services, including five in 2013.

75. Policy Action: This program supports the adoption of corporate governance standards in pilot SOEs and public agencies. The Prime Minister’s Circular, issued on March 19, 2012, instructs members of the government to ensure that SOEs, that are under their supervision, adopt an implementation plan of the Code. The Circular also instructs governance bodies and SOEs to conduct assessments on governance, develop improvement plans, and monitor implementation. Five SOEs, with significant interface with citizens, have been selected for the initial implementation of this Code in 2013. They include the Morocco Highways Agency, the Board of Water and Electricity of Marrakech, the Energy Investment Company, the Moroccan Pension Fund, and the foreign exchange board. Five further SoEs have been identified for the second wave. The list and characteristics of the ten pre-selected SoEs and the status of the implementation of the corporate governance code is specified in Annex 6. The approach followed for the implementation of this code is based on the principle of “comply or explain”, taking into account the specificities of each SOE. Each of the ten SOEs has carried out corporate governance diagnostic and benchmarking against the code’s provisions. Based on this diagnostic, reviewed with MEF, they have developed an action plan to comply with the code. This action plan has then been submitted to the SOE’s governing body for adoption. The MEF has developed a monitoring and evaluation framework to supervise the implementation of the code and each SOE’s action plan. It is notably measuring (i) the establishment of the required internal governance structures, such as governance and audit committees, (ii) the development of a risk framework

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specifying the main risks faced by each SOE and the mitigating measures taken, (iii) the signature of performance contracts in line with the state, and (iv) the publication of each SOEs governance structures, their activities and its updated financial statements.

76. Along with the implementation of this corporate governance code, many reforms have been launched to enable SOEs to improve their performance, provide quality services and strengthen governance, including, in particular the reform of the State’s governance and financial control of SOEs. Thus, a study was undertaken and a draft law has been developed with the aim to shift this control towards a control more focused on reliability and on performance evaluations, and to ensure a better link of these controls with governance of SOEs, through the adopting of a differentiated approach and classification of the State’s portfolio. This new system will allow the improvement of SOEs internal management framework, the increase of spending efficiency and the prevention of risks, while enhancing the consistency with the performance informed budget reform.

77. Expected results: The government’s governance reform agenda, which aims to enhance accountability and transparency in the management of public resources, is being implemented gradually across the public sector. Five priority SOEs and agencies, providing important public services, will implement the new corporate governance code and as a consequence improve transparency, upgrade the functioning of their governance bodies. This should reduce potential conflicts of interest and improve the unequal treatment of shareholders and stakeholders. The implementation of this code will also reinforce the implementation of the budget and access to information reforms, two major levers for greater accountability and transparency. The detailed results indicators and targets are specified in results framework in Annex 1.

Component D: Modernizing management of local finances and intergovernmental fiscal relations.

78. Prior action # 6 (Completed): The Minister of the Interior has issued circular N° 3333, dated March 5 2013, extending the integrated expenditure management system (Gestion Intégrée des Dépenses) to municipalities.

Indicative trigger # 8: The Minister of the Interior has prepared and submitted for consultation the draft decree revising the financial transfer system to local governments, in order to strengthen the legal framework and the transparency of the rules as well as their impact in terms of incentives and equalization, in line with the new regionalization strategy.

79. Rationale: Advancing regionalization is a key pillar of Morocco’s governance transition, as confirmed by the constitutional revisions and the new strategy adopted in March 2011. The regionalization strategy aims at fostering local socio-economic development and reducing regional disparities by empowering local governments. Articles 140-141 of the Constitution states that local governments will benefit from increased competences and corresponding resources according to the principle of subsidiarity. These important changes will be implemented through the revision of the organic law on local governments, the law on local finances and the revision of the regulatory framework on inter-governmental fiscal transfers. The corollary of this increase in autonomy and competence is the strengthening of local governance and the revision of the current inter-governmental fiscal relations. This requires addressing the current weaknesses in the accountability and transparency of local governments, notably regarding public financial management. These shortcomings are notably reflected in the low score (C) in the last Public Expenditure and Financial Accountability (PEFA) assessment of the transparency of inter-governmental fiscal relations. Likewise, the current fiscal transfers and resources allocations from the central government would benefit from greater clarity and predictability. Municipalities receive directly less than 60 percent of their share of VAT (30 percent of the national VAT revenues) and the different rules on revenue sharing, transfers, and allocation criteria are scattered across different regulations and special Treasury accounts. Very little information is publicly available. For instance, the report on local finances accompanying the budget law does not disclose transfers to individual local governments.

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80. Policy action: To strengthen the managerial responsibility and accountability of local governments and address their financial management weaknesses the government has developed an integrated financial management information system (GID- CL). The government has announced the roll out of this information system to all municipalities through Circular no 3333. This system aims to simplify the procedures for the management of expenses; reduce the cost of public orders; and aims to provide the necessary information for better management of the budget. The universal adoption of this system will require local capacity building in areas of accounting and treasury; and logistical access to computers and improvements in internet access. This joint initiative from the Ministry of Interior and the Ministry of Economy and Finance follows a phased and participatory approach. The circular also introduces the setup of a local oversight committee, chaired by the Governor, which will be tasked with finalizing an action plan for implementation and overseeing implementation. These committees are inclusive and comprised all relevant stakeholders.

81. The Government has announced in its development program its intention to reform the current fiscal transfer and equalization system and consolidate all rules in a decree in order to make it more transparent, effective and conducive to the forthcoming transfer of competences and resources foreseen in the regionalization strategy. The competence sharing is a complex and highly political process, which requires an overhaul of the current legal and regulatory framework and deep consultations with and among local governments and sectoral ministries. The directly elected regional councils foreseen by the constitution need to be in place before such negotiations on competence sharing can begin. It would best be carried out in a sequenced approach, sector by sector and taking into account the subsidiarity principle, as recommended by the national commission of regionalization. As a consequence, the reform of the transfer and equalization system will be phased and at first be based on the current distribution of competences and resources.

82. Beyond these new policy actions, there are important financial management provisions in the law on local finance as well as in the decree on public accounting, which still require implementing regulations to become effective. For instance, a ministerial order (arrêté) is needed to specify and implement the provisions of the Law on Local Finance regarding the rules for financial reporting and disclosure by local authorities. Looking forward, the government envisages to present to Parliament in 2014 the amended Organic Law on Local Governments specifying: (i) the organization of the new regional councils, (ii) the criteria for transfer of competence based on the principle of subsidiarity, the responsibility for service delivery and adequacy of resources (iii) revision of the management rules for local finances, and (iv) the formalization of coordination mechanisms between the LG and State actors.

83. Expected results: This reform is expected to increase the transparency and accountability of local government’s financial management by providing real time information on the budget execution (for 80% of municipalities by 2015). As GID CL is a customized version for municipalities of the central government’s GID, this will also facilitate the production of consolidated accounts and foster greater transparency of inter-governmental fiscal relations. The legal consolidation of the transfer and equalization system will further contribute to increased transparency and accountability in the medium term.

PILLAR 2: FOSTERING OPEN GOVERNANCE Component A: Enhancing fiscal transparency and access to information

84. Prior action # 7 (Completed): The Minister of Economy and Finance has adopted a fiscal transparency policy through a decision dated June 12, 2013.

Indicative trigger # 9: Submission to Parliament of the draft law on Access to Information and accompanying regulations, in line with Article 27 of the Constitution and international good practice.

85. Rationale: The implementation of the new constitutional right of access to information (article 27) through a specific law is a priority in the government’s program. Weak access to information has been

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highlighted as a major challenge for many years, as evidenced by the low ranking of Morocco on Global Integrity’s 2010 transparency indicators.18 Demands for greater transparency and access to information have been continuous over the past decade, with civil society organizations presenting a draft access-to-information law to Parliament in 2006.19 Likewise, despite recent efforts by the Ministry of Economy and Finance, fiscal transparency remains limited in the absence of disclosure of key budgetary information. For instance, little information is available ahead of budget preparation on the macro-fiscal assumptions, priorities, and financial perspectives. In the absence of a specific transparency policy and a unified legal framework, disclosure is often ad hoc and subject to discretion. The financial information provided is often highly complex and technical, making it difficult to comprehend for the majority of the population. Public scrutiny is further hampered by the absence of timely public reporting on the budget’s execution. All these weaknesses explain the country’s low ranking in the Open Budget Index (in 2012 Morocco scored 38 points out of 100)20.

86. Fiscal transparency for government accountability and public oversight are key eligibility criteria of the new multilateral Open Government Partnership, which Morocco is considering joining. More transparent, timely, and reliable economic information provides a level playing field, reduces transaction costs, and allows private investors to make better economic and financial decisions. The budget decision making process would increase transparency through the systematic publication of each ministry's budget proposals. As argued by Hazell et al. (2010) and others, the chief users of freedom of information (FOI) mechanisms are not ordinary citizens but businesses, both local and foreign. Stiglitz, Orszag, & Orszag (2000), among others, provide theoretical justification for the expected benefits of public sector information (PSI), as “the cost of obtaining information [makes] private markets work better than before.” Better and equal access to information reduces information asymmetry, which, according to the theory of information economics, leads to distortions that reduce aggregate welfare. PSI also has market value in itself (spatial information, transport and logistics information, statistics, etc.) and thus constitutes a valuable resource for the development of innovative applications, goods, and services and contributing directly to the development of a knowledge-based economy in Morocco. Recent studies in the EU estimate the direct and dynamic gains from the use and re-use of public sector information at up to 1.7 percent of GDP in 2008.21 Likewise, Belgium's Technology Industry Association estimates the value of open government data released for reuse at EUR 875-900 million. The new momentum generated by the Constitution and the government’s commitment to transparency offers a unique opportunity to strengthen both the rights-based approach and the proactive disclosure of information.

87. Policy action: The government will implement this new constitutional right in a phased approach through: (i) the adoption of a proactive disclosure policy for key fiscal information while (ii) putting in place the legal and regulatory framework for general access to public sector information. Such a law will supplement a number of preexisting transparency rules in Moroccan law and practice and offer a unique framework in line with international standards. The law will strengthen the proactive disclosure policy, establish a right to request public information, and specify the process and the limited exemptions. It will establish a monitoring and evaluation system as well as a procedure for lodging complaints. The proactive disclosure and rights-based approaches can be mutually reinforcing, notably through the decision to proactively publish repeatedly requested information on government websites, on the basis that this information is clearly of public interest. Through its fiscal transparency policy the Ministry of Economy and Finance will disclose to the public key budget information, including: (i) the budget preparation circular and perspectives; (ii) the draft finance law and budget documents and ten (10) thematic reports; (iii) a draft and final citizens-budget; and (iv) monthly and end of year budget execution reports. This will improve the citizen information early in the budget process and increase the government’s accountability. The new policy and the attention it generates can also benefit the government’s Open Data initiative. This was

18 Global Integrity rankings for Morocco's access to information framework is “very weak,” with a ranking of 42nd out of 100 in the most recent rankings. The sub-component measuring the strength of the legal framework places Morocco at 33rd out of 100. 19 See: http://www.usfp.ma/site%20groupe%20socialiste/lg07-12/propositions/004.doc (in Arabic) 20 http://survey.internationalbudget.org/ 21 Vickery, G (2011) “Review of recent studies on PSI re-use and related market developments,” for the European Commission.

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launched in 2009 as part of the “Maroc Numeric 2013” strategy and attempts to group together a number of public data sets, subject to an open license (www.data.gov.ma). A number of additional steps will be necessary to ensure the adequate implementation of this law. This includes the preparation of detailed implementing regulations, guidelines for public officials, standard requests and complaints forms and processes, monitoring and evaluation schemes, and broad training programs.

88. Expected results: The proactive disclosure of key fiscal information covering the entire budget cycle will increase the government’s transparency and accountability and facilitate the scrutiny of the country’s budget process by both the media and citizens. As a result Morocco’s score in the Open Budget Index is expected to increase in 2013. This will represent a visible short-term result while the law on access to information is being developed and the medium-term reform required for its implementation is being launched.

Component B: Improving voice and citizen engagement

89. Prior action # 8 (Completed): The Secretary General of the Government has adopted and is implementing a policy under which draft laws and regulations are published on its website prior to their submission to the Cabinet for adoption.

90. Prior action # 9 (Completed): The Minister in Charge of Relations with Parliament and Civil Society has adopted Decision No 076, dated June 11, 2013, establishing a structured national dialogue for the implementation of the constitutional provisions on citizen participation.

Proposed triggers for the follow-up operation:

Indicative trigger # 10: Adoption by Cabinet of a draft organic law on public petitions in line with the new constitutional right, the recommendations of the National Dialogue and international good practice.

91. Rationale: The new Constitution recognizes the right to citizen participation in government decision making and introduces principles of public engagement (Articles 12-15). In concretizing these new rights, the government has committed to the development of an organic law on petitions (Article 15) in parallel with reforms promoting the right of access to information. A law on access to information and the right to petition are mutually reinforcing and constitute the foundations of open government.

92. In Morocco, there is no preexisting formal basis for the right of citizens to submit petitions to government, nor to submit legislative proposals. The new Constitution clearly articulates these new rights as taking the form of an organic law. The right to petition government is the right to make a complaint to, or seek the assistance of, one's government, without fear of punishment or reprisals. The act of petitioning is an important right as expressed in international example, whereby citizens gain the right to change government policies or practices through peaceful mass expression. The topics of petitions and legislative proposals, which are considered recent features of good governance, are usually prescribed at the lower level of ordinary laws or regulations. However, with their inclusion in the Constitution of Morocco, they now enjoy a preeminent status that supersedes any potential contradictory law or regulation. Beyond being a symbolic gesture with potential profound legal implications, this will change the dimensions of the debate on governance by expanding opportunities for improvement, such as facilitating a dialogue on social accountability with the Government.

93. Policy action # 8: The first phase of the public participation reform will provide a transparent platform for public access to draft laws and regulations and more transparency in the decision making process by providing citizens with a means of comparing draft and final laws. The broad publication of draft laws will help to develop a culture of transparency across the public sector through a centralized online platform led by the Secretary General of Government (SGG): http://www.sgg.gov.ma/sgg.aspx. The government’s policy of publishing draft laws and regulations before

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adoption by Cabinet, beyond the areas of trade and investment foreseen by the decree 2-08-229 is an important mechanism for public engagement.

94. Policy action # 9: The National Dialogue on the new role of civil society was launched on March 13, 2013 and is led by an independent consultative committee tasked with the development of the legal and policy framework on public engagement. In the second phase of the public participation reform, the government has decided to issue a ministerial decision led by the Ministry in Charge of Relations with Parliament which formalizes the National Dialogue process. The independent committee comprises 63 members, including 14 government representatives, 6 parliamentarians, 8 representatives from national constitutional institutions and 35 members from academia and civil society. The National Dialogue, to be implemented over one year, will encompass a wide-range of consultations to engage the public on the development of the new Constitutional rights on public engagement. The dialogue focuses on the three following pillars: (i) the concretization of the constitutional provisions related to the civil society, such as the right to petition and to propose legislation; (ii) the development of civil society; and (iii) the drafting of a national charter on participatory democracy. The DPL focuses on supporting the first pillar. The committee will utilize a range of mechanisms for consultation, including national, regional, and thematic seminars, an international symposium, national debates, listening sessions, online consultation methods, and written proposals. Through online methods and participation surveys, the committee will measure women’s access and participation in consultation activities, notably based on attendance sheets. The consultation seminars organized by the National Dialogue committee are opened to the entire civil society, including associations dedicated to women’s rights issues. Also, the national dialogue has set up an interactive website (www.hiwarmadani2013.ma) in order to foster an open and inclusive debate. So far, four regional seminars were held to consult civil society on the new constitutional rights for civic engagement. The participation was high with around 300 CSO representatives in each seminar. Key outputs of the national dialogue include draft laws and proposals which concretize the new rights of civil society according to the revised constitution. More specifically, the National Dialogue will develop draft laws and policies on public engagement, including a draft organic law on petitions, which will regulate the methodology and governmental procedures in line with this new right, and which builds on international principles, public consultations, and good practices in this domain. The participation of all constituencies of civil society is key for the success of this dialogue.

95. The government has also committed to developing a whole-of-government e-consultation platform to act as a centralized mechanism for government consultations. The e-consultation platform will be developed in parallel to the National Dialogue on civil society in the context of the Ci-Gov program. It will act as an institutionalized method for online participation, building on lessons learned through country-led initiatives such as the SGG website, the constitutional reform civil society-led initiative (www.reforme.ma) and the public consultations led by the independent committee of the National Dialogue. E-participation is a key priority for the National Council of Information Technology and Digital Economy (CNTI), chaired by the Head of Government. An inter-ministerial committee (CIGOV), chaired by the Ministry of Trade, Industry and New Technologies (MICNT) and comprised of representatives from numerous line ministries, was established to prioritize e-government projects covering different services and applications. E-participation has been identified as a key priority for CIGOV and an inter-ministerial subcommittee is dedicated to developing a strategy and action plan for the development and implementation of a centralized e-consultation platform. World Bank support to the conception of the online platform is provided through parallel technical assistance, including the MENA Transition Fund project, and primarily in the form of international expertise and policy advice.

96. Expected results: Extending the scope of public engagement in the form of an organic law on petitions will increase citizen’s voice and respond directly to the obligations and rights enshrined in the new Constitution. It will further help establish a mechanism for more informed policy-making throughout government. The first phase of the reform, which will provide public access to draft laws and regulations, will create the necessary platform for the development of a petitions process. International good practice and expertise will help foster the development of an organic law on petitions. The advancement of this legal right will be a symbolic gesture signaling a changing mode of governance and an opportunity to

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strengthen dialogue between government and civil society. These advancements will also help to strengthen the consensus and the implementation of adopted texts by giving citizens more voice. Furthermore, expanding the scope of public engagement will help minimize the number of avenues for targeted representation of policy priorities as well as expand the scope for social accountability, in addition to resulting in better targeted development policies in line with citizens' demands. The World Bank has supported the National Dialogue committee through international expertise on how to best target underrepresented groups and utilize methods to adapt to constraints such as illiteracy. Through policy advice the committee is designing its consultation methods according to international experience. Specific results expected include the regular submission of draft laws and regulations to the Council of Government on the SGG’s website. Furthermore, these reforms should increase citizen engagement, confirmed by an increase in positive responses on the Gallup World Poll measuring citizen participation, by 20 percent in 2015.

Component C: Providing online access to basic administrative services

97. Prior action # 10 (Completed): A new e-Government application (www.watiqa.ma) allowing citizens to access their birth certificates online has been developed and rolled out to twenty (20) provinces and one hundred (100) municipalities.

98. Rationale: The national e-government strategy launched in 2009 as part of the broader Maroc Numeric 2013 strategy has gained traction since the new Constitution placed special emphasis on the right to equal access of quality public services (Articles 31 and 154). Information and communication technologies are seen as tools for delivering on these rights, modernizing the delivery of public services, and improving the relationship between public services and citizens. As confirmed by the Economic and Social Council’s (CES) recent report on the governance of public services,22 citizens have a negative perception of public services. The relation between the administration and citizens is asymmetrical, and administrative services are seen as privileges rather than rights. This often leads to discretion and arbitrariness in their delivery. The e-government strategy aims at addressing these issues by increasing transparency and accountability in the relationship with users and by improving the quality and efficiency of the services provided. The inception of the e-government strategy and the establishment of its institutional framework were supported by the previous DPL series. The inter-ministerial CIGOV committee, chaired by the Minister of Trade, Industry and New Technologies, has identified and developed 31 priority e-government projects covering different services and applications.

99. Policy action: This action supports the government’s efforts to implement the e-government strategy through initiatives aimed at improving citizen’s access to key public services. The application called Watiqa is an innovative inter-ministerial cooperation between the Ministry of Industry, Trade and Information and Communication Technologies, the Ministry of Interior and the Moroccan post, enabling citizens to order birth certificates online and receive them through registered mail. This initiative exemplifies the government’s attempt to bring the administration closer to the citizens by reducing delays, costs and potential corruption. Interestingly, this initiative was suggested by citizens themselves through an online consultation platform on the e-government strategy. Watiqa is a priority for the government as it directly addresses the constraints encountered by users of administrative services, namely high and uneven transaction costs, discretion, and corruption, and it is likely to yield visible results for citizens. This online service eliminates the physical interaction between users and the public administration and thus the opportunity for corruption. It greatly reduces transaction costs related to time spent by users as well as their transportation costs. The standard fees, irrespective of the user’s location, benefit those living in remote areas, where poverty is often highest. The implementation of this project requires strong inter-ministerial cooperation. An initial service agreement was signed between the Ministry of Interior, MICNT, and Maroc Poste. The Ministry of Foreign Affairs will join this project in order to extend the benefits of this application to Moroccans living abroad and for whom the transactions costs of accessing these

22“Rapport d'Étape sur la Gouvernance des Services Publics.” 8th Ordinary Session of the Economic and Social, October 27, 2011.

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administrative documents are even higher. The internet platform (www.watiqa.ma) has been pilot tested in the municipality of Rabat for the delivery of birth certificates and is currently rolled out to 11 provinces and 38 municipalities. The project will be gradually extended to a wider range of administrative documents and services.

100. Expected results: Citizens will be able to order online key administrative documents and services, such as birth certificates and criminal records and receive these by registered mail. This will reduce the costs, time, and uncertainties associated with these indispensable administrative procedures.

V. OPERATION IMPLEMENTATION

A. POVERTY AND SOCIAL IMPACTS

101. The reforms supported by the proposed operation are not expected to have significant distributional impacts. The focus of the operation is centered on reforms aimed at: (i) improving the government’s transparency and accountability in the management of public resources; (ii) fostering open governance through access to information and citizen engagement. These reforms will contribute to implementing the new constitutional rights and governance principles, which are based on greater public accountability, transparency, and participation. Over the medium term, these reforms are expected to have a positive impact on citizens’ voice as well as on the efficacy of the public sector in delivering services.

102. The programmatic budget reform is expected to improve internal and external transparency and accountability over the use of public resources. It will strengthen the link between the government’s priorities and strategies (such as poverty reduction and better access to basic public services) and budget allocations. These priorities will be translated into public performance objectives and indicators, subject to monitoring and evaluation. This new budget management approach will strengthen Parliament’s role in the oversight of the government’s management of public resources. The extension of this approach to elected regional councils will lead to greater account being taken of regional and local priorities and to improvements in the consistency and coordination of both central and local government’s development efforts. Furthermore, the integration into this approach of SoEs receiving more than half of their resources from the central budget should further improve consistency, transparency, and public service delivery. In order to maximize the social impact, the first ministries selected for the implementation of the budget reform are the departments of Education, Agriculture and Finance, which all have a strong interface with the public. Likewise, interaction with citizens and the provision of public services are key selection criteria for the first five SoEs due to implement the corporate governance code. The multi-annual budget framework foreseen in the new organic budget law aims at making the budget more strategic and improving the fiscal space that can be allocated to priority social spending. Finally, through new unified legal framework for PPP, the Government should be able to leverage more private financing and expertise to scale up public infrastructure and services.

103. The development of access to information and public petitions policies are key steps in the adoption of a more open and inclusive mode of governance. These policies foster voice and government accountability and thus are anticipated to have a positive social impact in the medium term once they are fully implemented. In the long term, the successful implementation of citizens’ new right to petition will result in improved voice and citizen engagement in the policy process. Likewise, access to public sector information is expected to have both direct and indirect positive impacts. Equal and timely access to information reduces information asymmetry and costs for firms, leads to a more level playing field, and reduces opportunities for corruption and rent seeking. Public sector information also has value in itself. Its use and re-use generates value and creates new products and services, fostering employment.

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B. ENVIRONMENTAL ASPECTS

104. The policies supported by this operation are not likely to have significant effects on the environment, forests, or other natural resources. The proposed operation is a development policy loan in support of a broad program of policy and institutional reforms. All of the actions supported throughout the operation are policy-oriented, and none supports direct investments, involves physical works, or implies policy actions that would have significant environmental impacts. The proposed improved performance, evaluation, accountability, improved public access, and transparency of public budgets supported by this operation do not target environmental procedures and thus will neither directly improve nor degrade existing standards for public health and safety or the environment. Indirectly, however, as these institutional capacities for the ministries are strengthened, so will public expectations for all other ministries, including those relating to the management of natural resources and the environment.

C. IMPLEMENTATION, MONITORING, AND EVALUATION

105. The responsibility for implementing the program rests with the Ministry of General Affairs and Governance and with the Ministry of Economy and Finance. Building on the positive experience accumulated over the course of several World Bank-supported development policy operations, the two ministries will continue to take the lead in monitoring progress in implementation. Bank staff will continue to maintain dialogue with the key counterparts and the relevant sector ministries and will conduct periodic reviews of the government’s reform program and this DPL. The TTL’s decentralization to Morocco will further deepen policy dialogue and enhance supervision. In this context, dialogue and reviews will continue to focus on the outcomes of the program and on eventual adjustments that may be necessary to take into account the latest country developments, stakeholder support, and feasible options for realizing the intended development goals. Consequently, specific attention will be devoted to monitoring the indicators and results of the program.

106. It should be noted that this operation will benefit from joint and complementary supervision by the three institutions supporting this reform program, namely the European Union, the African Development Bank, and the World Bank. Furthermore, key policy reforms such as the budget and the procurement reforms and the development of the public consultation and petitions policies will benefit from technical assistance, thus feeding the policy dialogue and the supervisory missions. Finally, the setting up of a government-wide performance monitoring and evaluation system supported by the Bank should further support the monitoring of the program.

D. FIDUCIARY ASPECTS, DISBURSEMENT, AND AUDITING

Public Financial Management

107. In 2009, the World Bank and the EU carried out a joint Public Expenditure and Financial Accountability (PEFA) assessment. The PEFA report confirmed important progress in Public Finance Management (PFM) reforms in Morocco. The results based on the PEFA ratings indicate in particular that Morocco has an overall credible, comprehensive, and transparent budget. The main strengths of the Moroccan PFM are the following aspects: (i) credible and transparent budget (since the Ministry of Finance publishes the annual budget on its website in a timely fashion), (ii) transparency of taxpayer obligations and liabilities, (iii) timeliness and regularity of the reconciliation of Government accounts, (iv) accurate and timely in-year budget reports covering expenditures at both commitment and payment stages, and (v) strong cash and debt management. The main challenges of the Morocco PFM relate to: (a) the budget classification, since despite the level of detail, accuracy, and reliability, it does not yet allow for reliable direct tracking of program-related spending being financed under priority programs; (b) the weak link between public policy priority and budget allocations, (c) timeliness of the submission of the annual budget settlement law to Parliament (less than 15 months after the end of the fiscal year), (d) the limited

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extent of legislative scrutiny of the budget and external audit reports, and (e) the insufficient frequency, scope and follow-up of audit recommendations.

108. The Government is committed to address these challenges and, in order to do so, has introduced measures to: (1) move to a performance based budgeting framework, (2) develop a medium--term expenditure framework (MTEF) to assist in fiscal sustainability, (3) enhance fiscal transparency and budget information, (4) modernize its accounting and internal audit framework, and (5) improve revenue management. In conclusion, the strength of Morocco’s PFM system and the Government’s commitment to reform, taken together, are, in the Bank’s view, adequate to support the proposed operation.

Foreign Exchange

109. Although the IMF has not conducted a safeguard assessment of the BAM, the latter is audited on a yearly basis with the audit report being disclosed publicly. The World Bank has received the 2009, 2010 and 2011 audits, which were unqualified, but, despite a formal request sent to the BAM Governor on March 5, 2012 with respect to DPL operations, the World Bank has not had access to the associated management letters and has therefore limited information on the foreign exchange control environment. Therefore, as with recently approved DPLs, a dedicated account will be used.

Disbursement and audit

110. With reference to the flow of funds, the proposed loan will follow the World Bank’s Disbursement procedures for development policy lending. Once the loan becomes effective, the proceeds of the loan will be disbursed in a single installment. Specifically, disbursements will be made, provided that the World Bank is satisfied with the program being carried out by the Borrower, and with the appropriateness of the Borrower's macroeconomic policy framework. The account into which the loan proceeds will be deposited forms part of the country's official foreign exchange reserves. Flow of funds (including foreign currency exchange) is subject to standard public financial management processes. The government budget is global, unified and centralized in a Treasury account.

111. The loan proceeds will be deposited by the International Bank of Reconstruction and Development (IBRD) in a dedicated account opened for this DPL by the Borrower and acceptable to the World Bank at the BAM, upon submission of a signed withdrawal application. The Borrower should ensure that upon the deposit of loan proceeds into said account, an equivalent amount, in the local currency, is credited to the treasury current account. The Borrower will report to the Bank within thirty days of disbursement on the amounts deposited in the dedicated account and credited to the budget management system providing the exchange rate applied and the date of the transfer.

112. If the proceeds of the loan are used for ineligible purposes as defined in the Loan Agreement, IBRD will require the Borrower to promptly upon notice refund an amount equal to the amount of said payment to IBRD. Amounts refunded to the Bank upon such request shall be cancelled. The loan proceeds will be administered by the MEF.

113. Audits. IBRD reserves the right to ask for a transaction audit of the dedicated account. This audit, when asked for, will cover the accuracy of the transactions (credits and debits) of the dedicated account, including accuracy of exchange rate conversions, confirming that the dedicated account was used only for the purposes of the operation where no other amounts have been deposited into the account. Also the auditor would have to obtain confirmation from corresponding bank(s) involved in the funds flow regarding the transaction. The time period for submission of the audit report to the World Bank would be four months from the date a request for such audit is issued.

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E. RISKS AND RISK MITIGATION The program faces the following risks:

114. Political Risk. The King’s proactive launch of a wide reform program, resulting in a new constitution, elections, an opposition-led government did appease sociopolitical tensions. However, these could quickly resume in the absence of tangible results in the implementation of the constitution and the lack of visible improvements in the people’s socio-economic conditions. The second coalition party withdrew from Government on July 10, 2013. Negotiations are ongoing to form a new coalition and majority in parliament. Else, early elections will have to be held. This situation may impact the current government program and delay the implementation of the current reforms. These uncertainties and limited results on the ground may revive social tensions. The Government and the Bank try to mitigate the impact of this situation on the reform program, by locking in key policy changes, building consensus within the administration and with non-state actors about these reforms and supporting their swift implementation.

115. Macroeconomic and fiscal risk. Morocco faces three major macroeconomic risks: (i) the persistence of unfavorable external conditions that impact negatively its fiscal and external accounts; (ii) the continued accommodation of strong social demands for public sector employment and subsidies; and (iii) delays in the implementation of key fiscal and structural reforms. The combination of high oil prices, a sluggish European economy and strong social demands has put government finance under stress. Morocco’s fiscal space is eroding quickly due to increasing public expenditures. Structural reforms of the general subsidy system and other fiscal consolidation efforts have become a paramount priority to maintain Morocco’s macroeconomic sustainability. The planned reform of the organic budget law, aimed at improving the efficiency and performance of public expenditures as well as strengthening fiscal discipline are important reform priorities for the DPL.

116. Governance and Institutional Capacity Risk. The governance risk is moderate given the strong emphasis on governance reforms in the new Constitution and the government’s development program. There is broad consensus at the political level over the need to strengthen the government’s accountability, transparency, and scope for public participation. The sequencing of reforms and the management of high expectations among the population constitute a challenge, which the government aims to address by combining short-term visible measures with more medium-term structural reforms.

117. There is a risk of resistance, within the administration, to these structural public sector reforms which imply increased transparency and accountability. Reforms such as performance budgeting, access to information, citizen petitions have important behavioral underpinnings and consequences. This risk can only be partly mitigated by taking into account the current incentive structures and to identify possible measures to better align the incentives of the staff with the objectives of the reform. Such measures include notably internal and external communication and consultation, training, monitoring and evaluation, and where applicable individual recognition and bonuses.

118. Another risk identified in earlier operations is the lack of coordination in governance reforms within the government. In order to address the risk of fragmentation and duplication, the government has mandated the Ministry of General Affairs and Governance (MAGG) to play such coordination role in this area. Likewise, the authorities have agreed to set up a high-level inter-ministerial steering committee that will help oversee the coordination of key horizontal reforms, such as the budget reform.

119. The wide scope and depth of the current reform process may negatively affect existing institutional capacity constraints. The constitutional reform implies a fundamental overhaul of the existing legal and regulatory framework, requiring the preparation of 40 laws, including 19 new organic laws. This intense legislative activity might overburden key institutions, including the Secretariat General of the Government (SGG), the Cabinet, and Parliament. Aware of this challenge, the government has prioritized the legislative changes, focusing first on the organic laws and political reforms required to bring about the new governance structure foreseen in the Constitution (electoral laws, mandate of Parliament, the

39

role of the Head of Government, independence of the Judiciary, etc.). This phase is almost complete and the government is now focusing on the implementation of the new constitutional rights, supported by this DPL. The Government has adopted a legislative program to prioritize the adoption of legal texts and their submission to Parliament. This plan constitutes the government’s roadmap.

40

ANNEXES

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ANNEX 1: DPL POLICY MATRIX Numbering: prior actions are in bold; triggers are in bold and italic Areas of

intervention and program objectives

Prior actions for DPL 1

Indicative triggers for DPL 2

Indicators

Baseline

Outcomes

PILLAR I: STRENGTHENING TRANSPARENCY AND ACCOUNTABILITY IN THE MANAGEMENT OF PUBLIC RESOURCES

Component A: Adopting performance informed budgeting

Adoption of a programmatic and performance focused budget management framework to foster greater accountability and efficiency in the management of public resources.

1. Legal framework: Adoption of the new organic budget law and its implementing regulation, including the new programmatic budget classification.

PEFA23 indicators (PI) related to budget transparency (nº6), policy based budgeting (nº12) and external scrutiny (nº 26 and 27)

2009 PEFA assessment: indicator nº6 scored B, nº 12: C, nº26: D, and nº27: B

Budget transparency, link with policies, and oversight improved as evidenced by a one notch increase in PEFA scores (PI 6, 12, 26 and 27)

1. The 2014 budget preparation Circular No. 12-2013 dated September 23, 2013, issued by the Head of the Government, provides that at least three Ministries will start testing the new performance informed budgeting approach with the 2014 budget.

2. Adoption of a performance monitoring and evaluation policy including: • the development of a performance monitoring system within the MEF and line ministries; • an inter-ministerial validation mechanism for programs and performance indicators of ministries; • performance audits, and • performance evaluations involving external experts.

Introduction of performance M&E in the budget process measured by the number of parliamentary questions on performance.

Baseline 2012: None

Increase in the internal and external accountability on the use of public resources, through formalized performance M&E and evidenced by parliamentary questions on performance: target :6.

2. To strengthen managerial accountability and flexibility, the Minister of Economy and Finance has issued six Orders (Arrêtés) dated December 26, 2012, and seven Orders (Arrêtés) dated June 3, 2013 alleviating ex-ante financial controls for qualified authorizing officers and delegates.

3. Transmission to Parliament of the 2015 budget law, including a programmatic budget presentation and performance documents for 5 ministries.

23 Public Expenditure and Financial Accountability (PEFA) is a multi-donor diagnostic instrument, with 28 high level performance indicators measuring a country’s public financial management. Morocco was assessed in 2009 and the current budget reform should translate into better scores on budget transparency, link between policies and budget and external budget oversight (respectively indicators nº6, 12, 26 and 27. Indicators are ranked from A to D, D being the lowest score.

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Areas of intervention and

program objectives

Prior actions for DPL 1

Indicative triggers for DPL 2

Indicators

Baseline

Outcomes

Adoption of a multi-annual budget perspective by program

4. The Government publishes a 3 year rolling budget framework, starting in 2015, with programmatic allocations for the first 5 ministries.

Budget execution rate of these 5 ministries.

2012: 70% 2015: 80%

Component B: Improving competition and transparency in public procurement and public-private partnerships

Increase transparency and competition in public procurement, by (i) extending the rules to the entire public sector, (ii) introducing e-procurement and (iii) strengthening the oversight body.

3. Public procurement Decree No.2-12-349 dated March 20, 2013 issued by the Head of Government to replace public procurement Decree No.2-06-388 dated February 2, 2007 to expand its scope to local governments, architects contracts and some public agencies (établissements publics) and to introduce e-procurement, has been published in the National Gazette No. 6140 dated April 4, 2013.

5. The Head of Government has issued a Decree establishing the National Public Contracts Committee, including non-State actors and with a stronger mandate on oversight, complaints handling and training.

Number of procuring entities subject to the new procurement rules.

Savings through the use of electronic procurement and reverse auctions.

Baseline in 2012: 1571 public entities. Baseline: 0

2015: 3345 public entities, including 180 public agencies and 2500 local governments. Savings: -10% on the supplies purchased through reverse auctions. 24

Improve transparency and competition in public –private partnerships.

4. The draft law on public private partnership has been transmitted by the Head of Government to Parliament on February 21, 2013.

6. The implementing regulations of the Law on Public Private Partnerships, regarding project selection criteria, standard contractual clauses and the monitoring and evaluation of PPP projects have been adopted.

A unified legal and regulatory framework for PPPs fostering transparency and competition is operational.

2012: None

2015: Fully operational.

24 It is estimated that the use of reverse auctions instead of the current purchasing orders for supplies will lead to a reduction in prices of at least 10%.

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Areas of intervention and

program objectives

Prior actions for DPL 1

Indicative triggers for DPL 2

Indicators

Baseline

Outcomes

Component C: Enhancing financial control and governance of SOEs and public agencies

Improve governance and financial control of enterprises and public institutions

5. Decision-making bodies of at least five State owned enterprises and agencies among a list of ten pilot entities, have adopted a resolution and action plan to implement the new code of corporate governance for State owned enterprises.

Percentage of these SoEs and agencies that have implemented critical elements of this code and : established a

governance committee;

adopted a risk framework

published on their website (i) up to date financial statements and (ii) the members and activity of their governance structure

March 2012: 20% March 2012: 0% March 2012: 10%

2015: 80% 2015: 70% 2015: 80%

Modernizing the financial control of SOEs and public agencies, by adopting a risk based control system and strengthening their managerial flexibility and accountability.

7. The implementing regulations of the new law on the Governance and financial control of agencies and State owned enterprises aimed at modernizing State oversight and increasing their managerial flexibility and accountability have been adopted.

Number of SOEs and agencies subject to ex-ante financial controls. Budget execution rate of SOEs and agencies.

2012: 222 2012: 61.4%

2015: 200 2015: 70%

Component D: Modernizing the management of local finances and of intergovernmental fiscal relations.

Strengthen the transparency and financial management of local governments

6. The Minister of Interior has issued Circular No. 3333 dated March 5, 2013, extending the integrated expenditure management system (gestion intégrée de la dépense) to municipalities.

8. The Minister of the Interior has prepared and submitted for consultation the draft decree revising the financial transfer system to local governments, in order to strengthen the legal framework and the transparency of the rules as well as their impact in terms of incentives and equalization, in line with the new regionalization strategy.

Percentage of municipalities with real time information on budget execution via GID.

2012: None

80% of municipalities.

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Areas of intervention and

program objectives

Prior actions for DPL 1

Indicative triggers for DPL 2

Indicators

Baseline

Outcomes

PILLAR II: FOSTERING OPEN GOVERNANCE

Component A: Enhancing fiscal transparency and access to information

Increasing fiscal transparency and access to information

7. The Minister of Economy and Finance has adopted a fiscal transparency policy through a decision dated June 12, 2013.

9. Submission to Parliament of the draft law on Access to Information and accompanying regulations, in line with art 27 of the Constitution and international good practice.

Open Budget Index (OBI) from the International Budget Partnership (IBP)

Open Government partnership’s (OGP) score on access to information

2012 OBI score: 38 2012 OGP baseline : 2 points out of 4

2015 OBI score: 42 2015 OGP score: 4 points out of 4.

Component B: Improving voice and citizen engagement

Enhancing Citizen’s Voice and public participation.

8. The Secretary General of the Government has adopted and is implementing a policy under which draft laws and regulations are published on its website prior to their submission to the Cabinet for adoption.

9. The Minister in Charge of Relations

with Parliament and Civil Society has adopted Decision No 076, on June 11, 2013, establishing a structured national dialogue for the implementation of the constitutional provisions on citizen participation.

10. Adoption by Cabinet of a draft organic law on public petitions in line with the new constitutional right, the recommendations of the National Dialogue and international good practice.

Number of draft laws and regulations made public Gallup World Poll Survey indicator measuring citizen engagement in government affairs: “Have you voiced opinion to official in the past month?”

45 draft legal texts, mainly focusing on trade and investment have been published between 2009-2012. 2012 Gallup survey: “have you voiced your opinion to official in the past month?” Male 13%; Female 7%

Expansion of draft legal texts published by 30%. Increased citizen engagement, confirmed by an increase in positive responses by 20%.

Component C: Providing online access to basic administrative services Improve access and reduce corruption in the provision of administrative services through e-government.

10. A new e-Government application (www.watiqa.ma) allowing citizens to access their birth certificates online has been developed and rolled out to twenty (20) provinces and one hundred (100) municipalities.

Statistics on the demand and supply of birth certificates online.

2012:

Nb of requests: 576

Nb of certificates provided: 531

2015:

Nb of requests: 3000

Nb of certificates provided: 2850

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ANNEX 2: LETTER OF DEVELOPMENT POLICY (Unofficial translation dated September 23, 2013)

Mr Jim Yong Kim

President of the World Bank Group

Washington - USA SUBJECT: Development Policy Letter regarding the HAKAMA program

Mr. President, Over the last several years, Morocco has been implementing a broad public administration reform program. This program aims to promote ethics and modernization in the management of public affairs in accordance with principles of efficiency, transparency, and performance. Thanks largely to support from your institution, significant progress has been achieved. The Government remains committed to bolstering and institutionalizing new practices in the management of public resources and to focusing reforms in new priority areas. In line with the provisions of the new Constitution, these areas include accountability, transparency, and improving public services with a view to positively impacting citizens’ lives.

I. Context, Challenges, and Achievements 1. Context The new Constitution adopted in 2011 prioritizes political ethics and good governance. Several fundamental principles were enshrined in the document, including equal access to quality public services throughout the country; continuity of public services; transparency, accountability and responsibility in keeping with democratic values; compulsory oversight and evaluation and the right to information; and greater participation in the political decision-making process via public consultation. The new Constitution also includes a provision on the governance of public procurement.

F. المملكـة المغربيــة

---

G. رئيس الحكومة

---

H. الوزارة المنتدبة لدى رئيس الحكومة

المكلفة بالشؤون العامة والحكامة

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The reform of the Governance framework is necessary to enable Morocco to: i) adapt to changes on the global stage and rise to new economic and social challenges, and ii) foster a trusting relationship between citizens and government, a goal that can only be achieved through participation, transparency, accountability, and a public sector in tune with citizens' expectations. 2. Main Achievements With help from your institution, Morocco has been implementing a Public Administration Reform Support Program (PARAP) since 2003. This large-scale reform project aimed to establish results-based principles and methods in the management of public finances and human resources. PARAP Programs constituted the conceptual and trial phase of these critical reforms, which are now ready to be implemented. The main achievements and lessons of PARAP are:

Testing multi-annual budgeting methods by designing 3-year rolling medium-term expenditure frameworks (METF). During testing, many sector ministries became familiar with this instrument, which will be institutionalized under the amended version of the organic budget law;

Introducing comprehensive budgets and performance indicators for each budget item, which emphasized the need to design strategic programs and indicators for each major public policy area;

Aligning the oversight of public expenditures with the results and performance-based budget reform by simplifying procedures and implementing a performance audit to assess the efficiency and effectiveness of public expenditure;

Building integrated information systems for sharing information on budget implementation in order to improve the integrated expenditure management system (GID). Implementing these information systems upstream of the budget cycle and making them available to local governments and public institutions will improve analytical capacities and the exchange of digital information throughout the public sector; and;

Organizing discussions about organic budget law reform. Amending and implementing this law are priorities of this program.

Another component of the PARAP was support for the creation of an inter-ministerial committee charged with promoting e-government initiatives, the specific uses of which are now coming into focus. In light of the reforms undertaken and of lessons drawn from prior phases and in order to shore up progress already made and facilitate the implementation of new constitutional principles and rights with regard to governance, the Government has included the following priorities (or pillars) in new HAKAMA program:

a. Improving transparency and accountability in the management of public resources; b. Fostering open and transparent governance.

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II. Pillars and Objectives of the HAKAMA Program The HAKAMA program aims to build on reforms already undertaken. It strives to ensure accountability and transparency in governance in keeping with the provisions of the new Constitution, which seek to enhance citizen participation in the reform process. PILLAR I: Strengthening transparency and accountability in the management of public

resources Components of this pillar include:

Adoption of a programmatic and performance-based budget management framework to foster greater accountability and efficiency in the management of public resources;

Adoption of a multi-annual programmatic budget perspective; Increase transparency and competition in public procurement by extending the rules to

certain public institutions and local governments, introducing e-procurement, and strengthening the oversight body;

Improve transparency and competition in public-private partnerships; Improve the governance and control of enterprises and public institutions to enhance the

delivery of public services; Modernize the financial oversight and governance of public enterprises and institutions.

To achieve those objectives, the Government will implement the following measures: 1. Adoption of a performance-focused budget It is important to recall progress made to date in the implementation of the organic budget law relative to public finances, which will align expenditures with a 3-year rolling programmatic framework updated yearly and designed to improve the management of public resources and to make sector strategies more coherent while keeping the budget balanced. The program also intends to align the management of public resources with the principle of objectives and results, which requires reforming budgetary nomenclature in order to move from a prescriptive approach to expenditures to a programmatic budget presentation that incorporates regional elements. To align public finances with the performance approach, this project will: i) assign accountabilities after explaining operational objectives and the results expected of specific actions, and ii) give more managerial flexibility to authorizing officers while holding them accountable for reaching previously defined objectives and drawing up performance reports. Within this framework, authorizing officers will have greater responsibility, increased margin for maneuver, and simplified rules for the reallocation of credits. In order to implement accountability and to assess achievements on the basis of performance objectives, the General Inspectorate of Finance will conduct performance audits at least once every three years. Performance audit reports will be submitted to Parliament along with the budget review act.

48

To that end, ministerial departments will draw up a Ministerial Performance Project that will accompany the budget law and will outline strategies, programs, objectives, and performance indicators for the following year. Each department will also write a Ministerial Performance Report to accompany the budget review act for the year in question, comparing the achievements of each program with initial expectations. These reports will be included in the Annual Performance Report written by the Ministry of Economy and Finance and submitted to Parliament during the preparation of the budget review act. In addition, performance audits and assessments are planned. Assessments may involve external experts. In connection with the initial action to be undertaken under this component of the HAKAMA Program, early implementation of performance-based budgeting will be foreseen in the 2014 budget preparation circular signed by the Prime Minister, Head of Government, and be implemented by four pilot ministries (Economy and Finance, Education, Agriculture, and the High Commission for Water and Forests). These ministries will sign protocol agreements specifying guidelines for early implementation in order to conduct field tests of organic budget law provisions. Starting this year (2013), these ministries began aligning their new budgets with the performance objectives and indicators outlined in the 2014 budget law in view of the upcoming adoption of the organic budget law and its implementing regulations, including the new budgetary nomenclature. The second action under this component concerns the implementation of Modulated Expenditure Control, which aims to strengthen the managerial accountability and flexibility of authorizing officers and delegates. This action has been formalized by the selection by the General Inspectorate of Finance and the General Treasurer of the Kingdom of authorizing officers and delegates on the basis of management capacity assessments. 2. Increasing competition and transparency in public procurement and public-private

partnerships

Adoption of a public procurement decree. This decree was approved on March 20, 2013 (no. 2-12-349), was recorded in the Official Bulletin on April 4, 2013, and takes effect on January 1, 2014. It extends procurement rules to public sector agencies identified by the Ministry of Economy and Finance (in compliance with law 69-00 on the financial control of State-owned enterprises and other agencies), local governments and contracts with architects, and provides a legal basis for the introduction of e-procurement. In addition, the decree establishing the National Public Contracts Committee will be submitted to the Cabinet of Ministers (Conseil de gouvernement) for approval in 2014.This committee will be tasked with establishing an oversight body composed of representatives of the private sector, civil society, and institutions dedicated to good governance;

The Government has adopted a draft law on public-private partnerships (PPP) in order to improve transparency and competition in this area. This draft has been transmitted to Parliament and complements the public procurement decree. It aims to garner support from private investors in the implementation of policy and public services.

49

The implementing regulations of the law on public-private partnerships regarding procurement rules, selection criteria, and the evaluation of private agencies and enterprises will be adopted in 2014. 3. Improving governance and transparency in public enterprises and institutions The implementation plan for the new Code of Good Practices for State-Owned Enterprises and Agencies was adopted by the decision-making bodies of five public enterprises and agencies identified on the basis of their diagnostic and of the “comply or explain” principle. The first institutions to adopt the Code of Good Practices are the Morocco Highways Agency, the Board of Water and Electricity of Marrakech, the Moroccan Retirement Fund, the Energy Investment Company, and the Moroccan Exchange Office. In 2014, the decision-making bodies of five more public enterprises and institutions will adopt implementation plans for the new code. Additionally, the Government plans to sign a number of program contracts with public enterprises and institutions that deliver public services in order to strengthen their performance and governance. The implementing regulations of the law on governance and financial control by the State over public enterprises and agencies and other bodies will modernize the State’s financial oversight of public enterprises and agencies. 4. Strengthening the transparency of local finances in order to improve the provision of

public services at the local level was achieved by extending the integrated expenditure management system (GID) to local governments. The Minister of the Interior has adopted a circular to this effect.

In compliance with Article 58 of the Law on Local Finance, an order is being drawn up. It specifies the rules for the reporting and publication of local governments’ financial information The government will adopt a decree on the financial transfer system to local governments that will increase legal certainty and transparency of the rules and enhance the incentivizing and equalization impact of the transfer system. The Organic Law on Local Governments will be presented to Parliament. This law will specify the organization of the new regional councils, competences to be transferred, the revision of the management rules for local finances, and the formalization or coordination mechanisms between local governments, the State, public enterprises, and private actors. PILLAR II: Fostering open governance This pillar aims to:

Increase fiscal transparency and access to information; Enhance citizens’ voice, public participation, and citizen engagement; Improve access and reduce corruption in the provision of administrative services through

an innovative e-government application.

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To achieve these objectives, the following measures for improving fiscal transparency and access to information are being implemented: 1. A policy of proactive disclosure, the Ministry of Economy and Finance will publish key fiscal information on its website, including pre-budget statements, draft budgets along with the 10 accompanying thematic reports, a citizens’ budget, and the monthly and end-year budget execution reports. These documents will be published prior to being presented to Parliament, and they will disclose information regarding ministerial budgets and programs by local governments and public enterprises in order to promote citizen access to comprehensive budget information, strengthen the accountability of the State, and bolster citizens’ trust in the handling of public funds. In addition, a law on access to information has been drafted with support from your institution. This law was the object of extensive public consultation via the website of the Secretary General of Government and a national conference on June 13, 2013. Once this draft law has been finalized to account for the input received, it will be submitted for adoption. 2. Enhancing citizens’ voices, public participation, and citizens' engagement The new mode of governance aims to bolster citizens' engagement by improving public consultation. This is a key factor in achieving greater public participation, which is foreseen in the new Constitution. This measure has been concretized by the adoption of a policy on publishing draft laws and regulations, now on the website of the Secretary General of Government prior to their submission to the Government for adoption. Under the new public consultation policy, the Ministry in Charge of Relations with Parliament and Civil Society has created a platform for national dialogue with civil society for the implementation of the constitutional provisions on citizens' participation. To this end, a National Commission was created in March 2013. The roadmap and bylaws pertaining to the National Dialogue were formalized by a decision signed jointly by the Ministry in Charge of Relations with Parliament, civil society, and the President of the Commission on National Dialogue. The Commission’s tasks are to coordinate, enhance, and expand national dialogue in order to formulate collective solutions to issues pertaining to civil society and its responsibilities under the new Constitution. In addition, a draft law on citizens’ rights to petition in line with the new constitutional right, the recommendations of the National Dialogue, and international good practices will be adopted by the Cabinet. National dialogue on civil society focuses on three main pillars:

Implementation of constitutional provisions in concert with civil society, particularly those regarding the right to petition and parliamentary motions;

Enhancing participation and strengthening the third-sector; and Creating a national charter on participative democracy.

A website (hiwarmadani2013.ma) has been set up to facilitate dialogue and foster high participation by Morocco’s third-sector parties. In addition to offering information, it is also a platform where citizens can interact with members of the commission and share their comments

51

and suggestions. The commission also plans to organize numerous local meetings with citizens, national and international conferences, and meetings to review key points from the dialogue (draft laws, national charter on participative democracy, and a general report). 3. Online access to basic administrative services Online access to administrative services will simplify administrative procedures for citizens while improving administrative transparency, effectiveness, and the efficiency. The online office for ordering administrative documents (watiqa.ma) is one of other administrative services with high added value for citizens. The first documents this office made available to citizens were birth certificates. This service was created and tested in the city of Rabat, and is currently being expanded throughout the Kingdom of Morocco. Based on lessons learned during roll-out in Rabat, the inter-ministerial CIGOV committee has decided to extend Watiqa to urban and rural municipalities that meet information technology requirements while strengthening the monitoring and assessment mechanism for this new method of public service delivery. To date, Watiqa has been rolled out in 20 provinces and 100 municipalities. The Ministry of Industry, Trade, and New Technologies, the Ministry of Interior, and the Moroccan postal service have signed a partnership agreement. Another service based on the same principle of simplifying administrative procedures and bringing the administration closer to citizens has also been created: online access to criminal records (http://casierjudiciaire.justice.gov.ma). Currently, criminal records held by the courts of Casablanca and Kenitra are accessible online, and the service is now being expanded. The HAKAMA program is critical to building on efforts already undertaken. In light of this, the Moroccan Government requests that your institution issue a Development Policy Loan to fund this reform program. I would like to thank the Bank for its interest in Morocco’s governance reforms. Yours Sincerely

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ANNEX 3: MACROECONOMIC DEVELOPMENTS (2001-2011) AND DEBT SUSTAINABILITY 1. Morocco made significant economic headway during the last decade. The growth pattern shifted upward, averaging 4.9 percent over 2001-2011, much higher than the average rate of the 1990s (2.8 percent). Inflation was subdued, recording less than 2 percent on average over the period. The growth and inflation performance allowed gross domestic product (GDP) per capita to almost double over the last decade, to reach the equivalent of US$3,100 in 2011. The unemployment rate declined from 12.3 percent in 2000 to 8.9 percent in 2011. Absolute poverty decreased from 15.3 percent to roughly 9 percent between 2001 and 2007. Based on these achievements, Morocco gained “investment grade” rating in 2007, which was confirmed over 2009-2011 despite ongoing world economic turmoil. 2. These achievements were in part the result of sound macroeconomic policies. The steady consolidation of public finance turned fiscal deficits into surpluses in 2007 and 2008 (averaging 0.3 percent of GDP). The fiscal deficits widened to 4.7 percent of GDP in 2010 but remained manageable, before deteriorating further to 6.9 percent of GDP in 2011 reflecting higher food and fuel subsidies. The Treasury total debt steadily declined from 68 percent of GDP in 2000 to 47.1 percent of GDP in 2009, but reversed its downward trend starting in 2010 to reach 53.7 percent of GDP in 2011. Monetary policy sought to keep inflation in check while managing both liquidity and the exchange rate in an effective manner. In addition to timely adjustments of its money policy rate and reserve requirement rate, the Central Bank (BAM) implemented an adequate mix of its other instruments, including foreign exchange swaps, issuance or buyback of debt securities, and the purchase or sale of securities in the secondary market. 3. Morocco’s economic improvement was also due to the implementation of ambitious structural reforms. During the last decade, Morocco liberalized a number of sectors, including transport, energy, and telecommunications. The financial sector was strengthened in support of the new dynamism of the nonagricultural sector. Ambitious sector-specific strategies were implemented to increase investment and employment opportunities. Gross investment, which had averaged around 25 percent of GDP in the 1990s, picked up in the 2000s to reach 38 percent of GDP in 2008 (Figure 1). Morocco also sought to deepen its integration into the world economy through the signing of many free-trade agreements culminating with the “Advanced Status” awarded by the EU in 2008. FDI inflows increased to reach an average of 4.4 percent of GDP over 2006-11, thus contributing to the expansion of the country’s stock of capital. 4. Notwithstanding those economic achievements, Morocco remains confronted with important human and social challenges. Morocco’s social and human development outcomes are still below expectations. Economic vulnerability (poor and vulnerable) remains widespread, meaning that a quarter of the population – around 8 million people – is either in absolute poverty or under constant threat of falling back into poverty. The partial closure of the rural-urban income gap has not cancelled disparities: 70 percent of poverty in Morocco is still rural and in 2007 the urban poverty rate was 4.8 percent compared to 14.5 percent in rural areas. Income of the poor has been growing at a slower rate than the average income. There has been a remarkable increase in access to education, but overall illiteracy rates and gender disparity in access to secondary education remain high. Both education quality and learning outcomes lag behind those of other countries with similar income levels. Even with progress in increasing overall life expectancy and reducing average infant mortality rate, levels of infant and maternal mortality remain high, and lag MDG targets.

5. Morocco’s ongoing human and social challenges reflect the long structural transformation process of the economy. The production structure of the Moroccan economy has gradually shifted toward services with both primary and secondary sectors’ shares in GDP declining over time. However, while the strengthening of the service sector in the economy is emulating trends observed throughout the world, the weak performance of the manufacturing sector stems from the relatively slow modernization of the

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industrial sector, which also explains the performance of Moroccan exports. If there's been efforts to diversify products with high technological content, Moroccan exports are still concentrated on relatively diversified, little know-how knowledge, low value-added, traditional products Consequently, Morocco has not yet taken full advantage of market access opportunities and trade dynamics of its trading partners. Exports have been kept below potential and their contribution to growth and employment has yet to be unleashed

6. Morocco’s slow structural transformation seems to be less due to the lack of investment than to the low return on investment. Investment in Morocco appears to be less productive than in other emerging economies. Public investments are concentrated in relatively low-productivity projects or in projects that need time to fully mature. Indeed, a large share of public investments made in recent years has been directed to the tourism sector, phosphate related industries, energy, and infrastructure projects (highways, ports, airports, small dams, free trade zones, etc.). Investments in those sectors require time to be operational at full capacity and thus be profitable. The government has launched analytical efforts to investigate the issue and propose remedies.

Figure A. Rising investment, in percent of GDP

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FDI (right axis)

Source: Moroccan Government and Staff estimates.

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Figure B. Growth shifted to higher path and is less volatile and less dependent on agriculture (in percent)

Figure C. Unemployment declined, but remains high for urban youth and educated (in percent)

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Figure D. External position is deteriorating with vulnerability in trade (in percent of GDP)

Figure E. Public Finances have improved before the global

crisis but are now under pressure (in percent of GDP)

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Figure F. Inflation remains subdued

Cumulated year over year (in percent)

Figure G. After a steady decline, Central Government debt

increased in 2012, but is sustainable in the MT (in percent of GDP)

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Apr‐08

Jul‐08

Oct‐08

Jan‐09

Apr‐09

Jul‐09

Oct‐09

Jan‐10

Apr‐10

Jul‐10

Oct‐10

Jan‐11

Apr‐11

Jul‐11

Oct‐11

Jan‐12

Apr‐12

Jul‐12

Oct‐12

Food Non‐food CPI

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Pro

j. 20

13

Foreign Domestic Total

64

PUBLIC DEBT SUSTAINABILITY & EXTERNAL FINANCING REQUIREMENTS

Figure H. Public debt sustainability analysis, main scenarios

44.0

49.0

54.0

59.0

64.0

69.0

74.0

79.0

2012 2013 2014 2015 2016 2017 2018

Base Line Key Variables at their Historical Averages No Policy Change

Figure I. Public debt sustainability analysis, alternative scenarios

50.0

52.0

54.0

56.0

58.0

60.0

62.0

64.0

66.0

68.0

70.0

2012 2013 2014 2015 2016 2017 2018

B1 B2 B3 B4 B5 B6

65

Table A: Public Sector Debt Sustainability Framework, 2007-2018 (in percent of GDP, unless otherwise indicated) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

I. Baseline ProjectionsPublic sector debt 1/ 53.5 47.3 47.1 50.3 53.7 59.4 60.0 60.6 59.6 58.0 56.3 55.2

o/w foreign-currency denominated 10.7 9.9 10.7 12.1 12.4 14.1 15.8 16.9 17.4 17.2 17.0 17.0Change in public sector debt -3.8 -6.2 -0.2 3.2 3.4 5.7 0.7 0.6 -1.0 -1.7 -1.6 -1.2Identified debt-creating flows (4+7+12) -5.2 -5.6 -0.9 3.4 4.1 5.6 1.5 1.5 -0.2 -0.9 -0.9 -1.0

Primary deficit -3.3 -3.1 -0.2 2.4 4.6 5.2 3.0 2.2 1.5 1.0 0.9 0.9Revenue and grants 27.4 29.7 25.8 25.4 25.9 26.3 26.0 26.3 26.4 26.4 26.4 26.4Primary (noninterest) expenditure 24.1 26.6 25.6 27.7 30.6 31.6 29.0 28.5 27.9 27.4 27.2 27.3

Automatic debt dynamics 2/ -1.5 -2.5 -0.7 1.0 0.2 0.7 -1.3 -0.5 -1.5 -1.7 -1.6 -1.7Contribution from interest rate/growth differential 3/ -0.5 -3.0 -0.5 0.4 -0.1 0.8 -1.3 -0.6 -1.6 -1.8 -1.7 -1.7

Of which contribution from real interest rate 1.0 -0.3 1.7 2.0 2.2 2.2 1.2 1.1 1.1 0.9 1.0 0.9Of which contribution from real GDP growth -1.5 -2.7 -2.1 -1.6 -2.4 -1.4 -2.5 -1.7 -2.6 -2.7 -2.7 -2.7

Contribution from exchange rate depreciation 4/ -1.0 0.5 -0.3 0.7 0.3 0.0 0.0 0.1 0.1 0.0 0.0 0.0Other identified debt-creating flows -0.5 0.0 0.0 0.0 -0.7 -0.4 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2

Privatization receipts (negative) -0.5 0.0 0.0 0.0 -0.7 -0.4 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2Recognition of implicit or contingent liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Other (specify, e.g. bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Residual, including asset changes (2-3) 1.5 -0.6 0.8 -0.2 -0.8 0.1 -0.9 -0.9 -0.8 -0.7 -0.7 -0.2

Public sector debt-to-revenue ratio 1/ 195.5 159.2 182.5 198.6 207.0 225.5 231.1 230.6 226.0 219.8 213.5 209.1

Gross financing need 5/ 16.2 15.8 20.3 25.6 22.2 20.6 19.4 18.5 17.0 16.3 15.6 14.6in billions of U.S. dollars 12.2 14.0 18.4 23.3 22.0 19.9 20.1 20.2 19.7 20.2 20.7 20.7

Key Macroeconomic and Fiscal Assumptions Real GDP growth (in percent) 2.7 5.6 4.8 3.6 5.0 2.7 4.5 3.0 4.6 4.9 5.0 5.1Average nominal interest rate on public debt (in percent) 6/ 5.8 5.5 5.3 5.1 4.7 4.6 4.6 4.4 4.3 4.1 4.0 3.8Average real interest rate (nominal rate minus change in GDP deflator, in percent) 1.9 -0.3 3.8 4.4 4.7 4.2 2.2 2.1 2.0 1.8 2.0 1.9Nominal appreciation (increase in US dollar value of local currency, in percent) 9.6 -4.8 3.0 -5.9 -2.6 0.3 -0.3 -0.4 -0.3 -0.1 -0.2 -0.2Inflation rate (GDP deflator, in percent) 3.9 5.9 1.5 0.6 0.1 0.4 2.4 2.4 2.3 2.3 1.9 2.0Growth of real primary spending (deflated by GDP deflator, in percent) 3.9 16.7 0.8 12.2 15.7 6.1 -4.0 1.1 2.6 2.9 4.4 5.1Primary deficit -3.3 -3.1 -0.2 2.4 4.6 5.2 3.0 2.2 1.5 1.0 0.9 0.9

II. Stress Tests for Public Debt RatioA. Alternative Scenarios A1. Key variables are at their historical averages in 2012-2018 7/ 59.4 58.1 56.8 55.6 54.5 53.4 52.9A2. No policy change (constant primary balance) in 2012-2018 59.4 62.3 65.2 67.2 68.9 70.6 72.7B. Bound Tests B1. Real interest rate is at baseline plus one standard deviations 59.4 60.5 61.6 61.1 59.9 58.7 57.9B2. Real GDP growth is at baseline minus one-half standard deviation 59.4 60.7 62.2 62.2 61.8 61.5 61.9B3. Primary balance is at baseline minus one-half standard deviation 59.4 61.3 63.0 63.2 62.7 62.1 62.0B4. Combination of B1-B3 using one-quarter standard deviation shocks 59.4 61.1 62.8 62.8 62.2 61.5 61.2B5. One time 30 percent real depreciation in 2013 9/ 59.4 66.5 67.1 65.9 64.1 62.3 60.9B6. 10 percent of GDP increase in other debt-creating flows in 2013 59.4 60.0 60.6 59.6 58.0 56.3 55.2

Source: Government of Morocco and staff calculation and estimate 1/ Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used. 2/ Derived as [(r - p(1+g) - g + ae(1+r)]/(1+g+p+gp)) times previous period debt ratio, with r = interest rate; p = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar). 3/ The real interest rate contribution is derived from the denominator in footnote 2/ as r - π (1+g) and the real growth contribution as -g. 4/ The exchange rate contribution is derived from the numerator in footnote 2/ as ae(1+r). 5/ Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period. 6/ Derived as nominal interest expenditure divided by previous period debt stock. 7/ The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP. 8/ The implied change in other key variables under this scenario is discussed in the text. 9/ Real depreciation is defined as nominal depreciation (measured by percentage fall in dollar value of local currency) minus domestic inflation (based on GDP deflator). 10/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.

66

Table B: Morocco: External Financing requirements (in percent of GDP)

2012 2013 2014 2015 2016 2017 Financing Requirements 9.6 10.0 10.0 9.0 8.7 9.2 Current account deficit 10.5 8.3 7.1 6.1 5.5 5.1 Long term amortizations 2.5 2.3 2.2 2.2 2.2 2.8 Reserves Changes of Monetary Auth. -3.4 -0.6 0.7 0.7 1.1 1.3 Financing sources 9.6 10.0 10.0 9.0 8.7 9.2 Official capital grants 0.2 1.3 1.3 1.2 1.2 1.1 Private investment, (FDI+Portfollio) (net) 2.3 2.4 3.2 3.2 3.3 3.3 Long term Disbursements 6.7 6.4 5.6 4.7 4.4 4.9 Other capital flows 0.4 -0.1 -0.1 -0.1 -0.1 -0.1

67

ANNEX 4: FUND RELATIONS NOTE

The IMF Executive Board Completes the Second Review Under a PLL Arrangement for Morocco Press Release No. 13/290 July 31, 2013

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Morocco’s performance under an economic program supported by a two-year Precautionary Liquidity Line (PLL) arrangement and reaffirmed Morocco’s continued qualification to access PLL resources.

The PLL arrangement was approved on August 3, 2012 in an amount equivalent to SDR 4,117.4 million (about US$ 6.2 billion, 700 percent of quota, see Press Release No. 12/287). The access under the arrangement in the first year is equivalent to SDR 2,352.8 million (about US$3.6 billion, or 400 percent of quota), rising in the second year to the equivalent of SDR 4,117.4 million (about US$ 6.2 billion) cumulatively. The Executive Board concluded the first review on February 1, 2013.

The PLL arrangement will continue to support the authorities’ home-grown reform agenda aimed at achieving higher and more inclusive economic growth by providing a useful insurance against external shocks. The PLL was introduced to meet more flexibly the liquidity needs of member countries with sound economic fundamentals and strong record of policy implementation but with some remaining vulnerabilities.

The IMF’s Executive Board welcomed the authorities’ intention to continue treating the arrangement as precautionary.

Following the Board’s discussion, Ms. Nemat Shafik, Deputy Managing Director and Acting Chair, issued the following statement:

“The arrangement under the Fund’s Precautionary and Liquidity Line (PLL), which the authorities intend to continue to treat as precautionary, has provided Morocco with an insurance against external risks while supporting the authorities’ economic strategy.

“Following the deterioration in the fiscal and external accounts in 2012, the authorities have taken significant measures to reduce vulnerabilities, despite an unfavorable external environment and a challenging regional context. Continuing efforts to build consensus and move ahead with difficult but necessary reforms will be key for preserving macroeconomic stability while promoting higher and more inclusive growth.

“The authorities’ fiscal deficit target for 2013 of 5.5 percent of GDP remains consistent with their medium-term objective built on maintaining fiscal sustainability and supporting external adjustment. Close monitoring and firm control of spending will be needed through the rest of the year to ensure that this target is met. The planned tax reform should promote more equity and support competitiveness while generating adequate resources. Continued efforts to contain the wage and subsidy bills are important for creating space for better targeted social spending and higher capital expenditure. Recent actions to reduce subsidies are welcome in that regard, while moving ahead with a comprehensive subsidy reform will be

68

crucial to further reducing fiscal and external vulnerabilities. Furthermore, the early adoption of a new organic budget law will be important to ensure a strong, transparent and modern fiscal framework.

“Lower global commodity prices, rising exports in newly developed sectors and lower food imports have helped reduce the current account deficit, and, combined with strong capital inflows, stabilize reserves. Structural reforms to enhance competitiveness continue to be a priority to sustain these gains. Moving toward greater exchange rate flexibility supported by appropriate macroeconomic and structural policies would enhance external competitiveness and the economy’s ability to absorb shocks.”

IMF COMMUNICATIONS DEPARTMENT Public Affairs

Media Relations E-mail: publicaffairs@imf.orgE-mail: media@imf.org

Fax: 202-623-6220 Phone: 202-623-7100

69

ANNEX 5: COUNTRY AT A GLANCE

70

Morocco at a glance 3/14/13

M . East LowerKey D evelo pment Indicato rs & North middle

M orocco Africa income(2011)

Population, mid-year (millions) 32.3 331 2,519Surface area (thousand sq. km) 447 8,775 23,579Population growth (%) 1.1 1.7 1.5Urban population (% of to tal population) 57 58 39

GNI (Atlas method, US$ billions) 95.8 1,283 4,078GNI per capita (Atlas method, US$) 2,970 3,874 1,619GNI per capita (PPP, international $) 4,600 8,068 3,632

GDP growth (%) 5.0 4.3 6.9GDP per capita growth (%) 3.8 2.5 5.3

(mo st recent est imate, 2005–2011)

Poverty headcount ratio at $1.25 a day (PPP, %) 3 3 ..Poverty headcount ratio at $2.00 a day (PPP, %) 14 14 ..Life expectancy at birth (years) 73 72 65Infant mortality (per 1,000 live births) 32 27 50Child malnutrition (% of children under 5) .. 8 25

Adult literacy, male (% o f ages 15 and o lder) 69 82 80Adult literacy, female (% of ages 15 and o lder) 44 66 62Gross primary enro llment, male (% of age group) .. 106 110Gross primary enro llment, female (% of age group) .. 98 104

Access to an improved water source (% of population) 96 89 87Access to improved sanitation facilities (% o f population) 51 88 47

N et A id F lo ws 1980 1990 2000 2011 a

(US$ millions)Net ODA and official aid 1,161 1,241 434 994Top 3 donors (in 2010): France 135 217 155 254 European Union Institutions 12 29 117 223 Japan 4 111 103 121

Aid (% of GNI) 5.7 4.4 1.2 1.1Aid per capita (US$) 60 51 15 31

Lo ng-T erm Eco no mic T rends

Consumer prices (annual % change) 9.4 7.0 1.9 0.9GDP implicit deflator (annual % change) 15.2 7.8 -0.6 0.1

Exchange rate (annual average, local per US$) 3.9 8.2 10.6 8.1Terms of trade index (2000 = 100) 80 75 100 95

1980–90 1990–2000 2000–11

Population, mid-year (millions) 19.4 24.2 28.8 32.3 2.2 1.8 1.0GDP (US$ millions) 21,079 28,839 37,022 99,212 5.1 2.9 4.8

Agriculture 18.4 19.3 14.9 15.5 6.8 0.3 6.0Industry 29.8 30.4 29.1 30.2 2.4 3.0 3.7 M anufacturing 15.9 18.9 17.5 15.4 3.3 2.6 2.9Services 51.1 50.3 56.0 54.3 1.5 1.7 4.9

Househo ld final consumption expenditure 61.8 60.0 61.4 58.9 5.0 2.8 4.7General gov't final consumption expenditure 18.0 16.8 18.4 18.2 5.2 2.3 4.0Gross capital formation 28.5 28.7 25.5 36.0 2.3 3.4 7.8

Exports of goods and services 19.9 25.7 28.0 35.6 6.2 5.5 5.7Imports of goods and services 28.2 31.2 33.4 48.7 3.5 4.4 7.4Gross savings 22.1 28.3 24.3 27.9

Note: Figures in italics are for years other than those specified. 2011 data are preliminary. .. indicates data are not available.a. A id data are fo r 2010.

Development Economics, Development Data Group (DECDG).

(average annual growth %)

(% o f GDP)

10 5 0 5 10

0-4

15-19

30-34

45-49

60-64

75-79

percent of total population

Age distribution, 2010

Male Female

0

10

20

30

40

50

60

70

80

90

1990 1995 2000 2010

Morocco Middle East & North Af rica

Under-5 mortality rate (per 1,000)

-10

-5

0

5

10

15

95 05

GDP GDP per capita

Growth of GDP and GDP per capita (%)

71

Morocco

B alance o f P ayments and T rade 2000 2011

(US$ millions)Total merchandise exports (fob) 7,419 21,506Total merchandise imports (cif) 11,531 44,252Net trade in goods and services -2,085 -14,050

Current account balance -475 -7,986 as a % of GDP -1.3 -8.0

Workers' remittances and compensation of employees (receipts) 2,161 6,423

Reserves, including go ld 5,138 19,657

C entral Go vernment F inance

(% of GDP)Current revenue (including grants) 23.6 25.9

Tax revenue 21.7 23.4Current expenditure 23.4 26.8

T echno lo gy and Infrastructure 2000 2010Overall surplus/deficit -4.8 -6.9

Paved roads (% of to tal) 56.4 70.3Highest marginal tax rate (%) Fixed line and mobile phone Individual .. .. subscribers (per 100 people) 13 112

Corporate .. .. High technology exports (% of manufactured exports) 11.3 7.7

External D ebt and R eso urce F lo ws

Enviro nment(US$ millions)Total debt outstanding and disbursed 20,674 29,585 Agricultural land (% of land area) 69 67Total debt service 2,610 2,737 Forest area (% of land area) 12.7 12.7Debt relief (HIPC, M DRI) – – Terrestrial protected areas (% of land area) 1.5 1.5

Total debt (% of GDP) 55.8 31.6 Freshwater resources per capita (cu. meters) 985 917Total debt service (% of exports) 20.3 15.0 Freshwater withdrawal (billion cubic meters) .. ..

Foreign direct investment (net inflows) 470 3,178 CO2 emissions per capita (mt) 1.2 1.5Portfo lio equity (net inflows) 30 486

GDP per unit o f energy use (2005 PPP $ per kg of o il equivalent) 8.3 8.8

Energy use per capita (kg of o il equivalent) 356 477

Wo rld B ank Gro up po rt fo lio 2000 2010

(US$ millions)

IBRD Total debt outstanding and disbursed 2,837 2,468 Disbursements 138 271 Principal repayments 307 202 Interest payments 190 52

IDA Total debt outstanding and disbursed 27 13 Disbursements 0 0

P rivate Secto r D evelo pment 2000 2011 Total debt service 2 1

Time required to start a business (days) – 12 IFC (fiscal year)Cost to start a business (% of GNI per capita) – 15.8 Total disbursed and outstanding portfo lio 29 110Time required to register property (days) – 75 o f which IFC own account 29 110

Disbursements for IFC own account 1 2Ranked as a major constraint to business 2000 2010 Portfo lio sales, prepayments and (% of managers surveyed who agreed) repayments for IFC own account 7 11 Access to /cost o f financing .. 84.4 Tax rates .. 62.6 M IGA

Gross exposure – –Stock market capitalization (% of GDP) 29.4 76.2 New guarantees – –Bank capital to asset ratio (%) 9.8 8.4

Note: Figures in italics are for years other than those specified. 2011 data are preliminary. 3/14/13.. indicates data are not available. – indicates observation is not applicable.

Development Economics, Development Data Group (DECDG).

0 25 50 75 100

Control of corruption

Rule of law

Regulatory quality

Polit ical stability andabsence of violence

Voice and accountability

Country's percentile rank (0-100)higher values imply better ratings2010 2000

Governance indicators, 2000 and 2010

Source: Worldw ide Governance Indicators (www.govindicators.org)

IBRD, 2,327IDA, 12

IMF, 0

Other multi-lateral, 8,036

Bilateral, 7,530

Private, 6,942

Short-term, 1,800

Composition of total external debt, 2011

US$ millions

72

Millennium Development Goals Morocco

With selected targets to achieve between 1990 and 2015(estimate closest to date shown, +/- 2 years)

Go al 1: halve the rates fo r extreme po verty and malnutrit io n 1990 1995 2000 2010

Poverty headcount ratio at $1.25 a day (PPP, % of population) 2.5 .. 6.3 2.5 Poverty headcount ratio at national poverty line (% of population) 13.1 .. 15.3 8.8 Share of income or consumption to the poorest qunitile (%) 6.6 .. 6.3 6.5 Prevalence o f malnutrition (% of children under 5) 9.0 .. .. ..

Go al 2: ensure that children are able to co mplete primary scho o ling

Primary school enro llment (net, %) 58 72 79 91 Primary completion rate (% of relevant age group) 51 48 57 85 Secondary school enro llment (gross, %) 38 38 38 56 Youth literacy rate (% of people ages 15-24) 55 62 67 80

Go al 3: e liminate gender disparity in educat io n and empo wer wo men

Ratio of girls to boys in primary and secondary education (%) 67 72 80 87 Women employed in the nonagricultural sector (% of nonagricultural employment) .. .. 20 22 Proportion of seats held by women in national parliament (%) .. 1 1 11

Go al 4: reduce under-5 mo rtality by two -thirds

Under-5 mortality rate (per 1,000) 85 .. 47 38 Infant mortality rate (per 1,000 live births) 66 57 40 32 M easles immunization (proportion of one-year o lds immunized, %) 80 88 93 94

Go al 5: reduce maternal mo rtality by three-fo urths

M aternal mortality ratio (modeled estimate, per 100,000 live births) 332 228 228 132 Births attended by skilled health staff (% of to tal) 31 34 48 83 Contraceptive prevalence (% of women ages 15-49) 42 50 .. ..

Go al 6: halt and begin to reverse the spread o f H IV/ A ID S and o ther majo r diseases

Prevalence o f HIV (% of population ages 15-49) 0.1 0.1 0.1 0.1 Incidence of tuberculosis (per 100,000 people) 110 113 95 81 Tuberculosis case detection rate (%, all forms) 76 73 92 97

Go al 7: halve the pro po rt io n o f peo ple witho ut sustainable access to basic needs

Access to an improved water source (% of population) 75 .. 80 96 Access to improved sanitation facilities (% of population) 58 .. 68 51 Forest area (% of land area) 6.8 12.7 12.7 12.7 Terrestrial protected areas (% of land area) 1.2 1.5 1.5 1.5 CO2 emissions (metric tons per capita) 1.0 1.1 1.2 1.5 GDP per unit o f energy use (constant 2005 PPP $ per kg of o il equivalent) 9.7 8.2 8.3 8.8

Go al 8: develo p a glo bal partnership fo r develo pment

Telephone mainlines (per 100 people) 1.6 4.2 4.9 11.7 M obile phone subscribers (per 100 people) 0.0 0.1 8.1 100.1 Internet users (per 100 people) 0.0 0.0 0.7 49.0 Computer users (per 100 people) .. .. .. 50.9

Note: Figures in italics are for years other than those specified. .. indicates data are not available. 3/14/13

Development Economics, Development Data Group (DECDG).

M o ro cco

0

25

50

75

100

2000 2005 2010

Prim ary net enrollment ratio

Ratio of girls to boys in primary & secondary education

Education indicators (%)

0

20

40

60

80

100

120

2000 2005 2010

Fixed + m obi le subscribers Internet users

ICT indicators (per 100 people)

0

25

50

75

100

1990 1995 2000 2010

Morocco Middle East & North Af rica

Measles immunization (% of 1-year olds)

73

ANNEX 6: IMPLEMENTATION OF THE CORPORATE GOVERNANCE CODE IN 10 SOEs

74

‐ a multi‐year contract Yes

‐  Governance committee; if yes, number of 

meetings heldYes 

3

 ‐ risk mapping  No

‐ Online publication of updated financial 

statements and information about the 

composition and operations of governance 

bodies

No

‐ a multi‐year contract Yes

‐  Governance committee; if yes, number of 

meetings held

No

 ‐ risk mapping  Yes

‐ Online publication of updated financial 

statements and information about the 

composition and operations of governance 

No

‐ a multi‐year contract No

‐  Governance committee; if yes, number of 

meetings held

No

 ‐ risk mapping  No

‐ Online publication of updated financial 

statements and information about the 

composition and operations of governance 

bodies

No

‐ a multi‐year contract No

‐  Governance committee; if yes, number of 

meetings held

No

 ‐ risk mapping  No

‐ Online publication of updated financial 

statements and information about the 

composition and operations of governance 

bodies

No

‐ a multi‐year contract No

‐  Governance committee; if yes, number of 

meetings held

No

 ‐ risk mapping  No

‐ Online publication of updated financial 

statements and information about the 

composition and operations of governance 

No

‐ a multi‐year contract No

‐  Governance committee; if yes, number of 

meetings held

No

 ‐ risk mapping  No

‐ Online publication of updated financial 

statements and information about the 

composition and operations of governance 

b d

No

(1): before governance code for SOEs and Agencies / March 2012; (2): to be checked by the end of March 2015; (3): to be checked by the end of March 2016

(*) Permanent Committee derived from the Board of Directors 

Higher learning, scientific research, 

management training

‐ studies, construction, operation of 

railways;

‐ management of all activities directly or 

indirectly related to the National Railways 

Office.

‐ Governance assessment 

Creation, organization, applications for 

licenses, operation of all passenger, 

freight, or postal air traffic, as well as 

flights for the travel, tourism, and cruise 

industries. 

Regional Academy 

of Education and 

Training of Rabat 

Salé Zemmour Zaer 

(AREF)

Regional 

Agricultural 

Development Office 

of Doukkala

‐ Governance assessment Pre‐K, elementary, middle, and high school 

education

Moroccan National 

Airline‐Royal Air 

Maroc (RAM)

National Railways 

Office

University Hassan II ‐ 

Mohammedia

‐ Staff: 2728

‐ Revenue: 13.888 billion 

dirham in 2012

‐ Investments in 2012: 1.505 

billion dirham

‐ Staff: 8150

‐ Revenue: 3.755 billion 

dirham in 2012

‐ Investments in 2012: 6.021 

billion dirham

‐ Investments in 2011: 27 

million dirham

‐ Governance assessment 

‐ On April 9, 2013, the Board of 

Directors opted to create a small 

committee to draw up the governance 

improvement plan

‐ Governance assessment 

Oversight, management, and urban 

planning

Agricultural development, irrigation 

networks management, and agricultural 

enhancement

El Jadida Urban 

Agency

Public limited 

company 

(French: S.A.)

Public 

institution (non‐

profit)

Public 

institution (non‐

profit)

Public 

institution (non‐

profit)

Public 

institution (non‐

profit)

‐ Governance assessment 

‐ Governance improvement plan being 

drawn up 

‐ Governance assessment 

State‐owned enterprises and agencies selected for the second lo

an tranche – tentative

 list

‐ Investments in 2011: 609 

million dirham

‐ Enrollment: 511, 698

Staff: 462

Revenue: 144 million dirham 

in 2012

Staff: 49Public 

institution (non‐

profit)