AFRICAN DEVELOPMENT BANK

Reference No.: Language: English Distribution: Original: French Public Administration Reform Support Programme - Phase IV (PARAP IV) Country: Kingdom of Morocco APPRAISAL REPORT May 2010

Appraisal Team e E

Team Leader Team Members: Sector Director: Country Director: Division Manager:

Mr. E. DIARRA, Principal Financial Economist, OSGE.2 Mr. A. BA, Principal Economist, ORNB Mr. A. YAHIAOUI, Chief ICT Expert, OINF.3 Mr. M. DIOMANDE, Financial Management Officer, ORPF.2 Mr. W. RAIS, Financial Analyst, MAFO Mr. A. TARSIM, Consulting Economist, OSGE.2 Mr. C. NWAHBA, Consulting Economist, OSGE.2 Ms. R.Y. COFFI, Chief Procurement Coordinator, ORPF.1 Mr. G. NEGATU, Director, OSGE Mr. I. LOBE NDOUMBE, Director, ORNB Ms. M. KANGA, Division Manager, OSGE.2

Peer Review E

Mr. I. KOUSSOUBE, Chief Economist (ORWB) Mr. R. KANE, Chief Economist (CMFO) Mr. O. SOMALI, Consulting Economist (ORNB)

Table of Contents List of Tables - List of Boxes - List of Figures i List of Annexes - List of Technical Annexes i Fiscal Year - Currency Equivalents ii Acronyms and Abbreviations iii Loan Information Sheet iv Programme Summary v Programme Logical Framework vii I – THE PROPOSAL 1 II – COUNTRY AND PROGRAMME CONTEXT 1 2.1 Government’s Development Strategy and Medium-Term Reform Priorities 1 2.2 Recent Socio-economic Developments, Prospects, Constraints and Challenges 2 2.3 Status of Bank Portfolio 5

III – PROGRAMME JUSTIFICATION, KEY DESIGN ELEMENTS AND SUSTAINABILITY 5 3.1 Links with the CSP, Analytical Works Used in Programme Preparation and Prerequisites 5 3.2 Collaboration and Coordination with Other Donors 6 3.3 Outcomes and Lessons from Similar Operations 6 3.4 Relations with Other Bank Operations in the Country 7 3.5 The Bank’s Comparative Advantages and Value-Added 7 3.6 Compliance with Good Practice Principles Regarding Conditionalities 8 IV – THE PROPOSED PROGRAMME 8 4.1 Programme Goal and Objectives 8 4.2 Programme Components, Objectives and Expected Outcomes 9 4.3 Status of Implementation of Programme Reforms 19 4.4 Financing Requirements and Arrangements 20 4.5 Programme Beneficiaries 21 4.6 Impact on the Business Environment 21 4.7 Impact on Poverty and Gender 21 4.8 Environmental Impact 21 V – PROGRAMME IMPLEMENTATION, MONITORING AND EVALUATION 22 5.1 Implementation Arrangements 22 5.2 Monitoring and Evaluation Arrangements 22 VI – LEGAL DOCUMENTS AND AUTHORITY 22 6.1 Legal Documents 22 6.2 Conditions Precedent to Bank Group Intervention 22 6.3 Compliance with Bank Group Policies 23

VII – RISK MANAGEMENT 23 VIII – RECOMMENDATION 24 ____________________________________________________________________________________ This report was prepared by Mr. E. DIARRA, Principal Economist (OSGE.2) following a joint preparation mission with the World Bank and the European Union to Rabat in October 2009 and the Bank’s appraisal mission in April 2010. It also benefited from contributions by the Country Economist, ORPF and MAFO colleagues, as well as Consultants employed and exchanges with World Bank and European Union Economists. Questions on this report should be referred to Mr. G. NEGATU, Director, OSGE (Extension 2077) and Ms. M. KANGA, Division Manager, OSGE.2 (Extension 2251).

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List of Tables

List of Boxes

Box 1 Measures Precedent to PARSP IV Presentation to the Board of

Directors

List of Annexes

List of Technical Annexes

Table 1 Budget Balance and Financing Requirements 2010-2012 Table 2 Programme External Financing by Source

Annex 1 Letter of Development Policy Annex 2 Matrix of 2010-2011 Programme Measures Annex 3 Note on Relations Between the IMF and Morocco Annex 4 Trends in Key Macro-economic and Financial Indicators Annex 5 Conditions Precedent to Budget Support Annex 6 Comparative Matrix of Measures of the Four PARSP Phases Annex 7 Development Indicators Annex 8 Comparative Socio-economic Indicators

Annex 1 List of Analytical Works Annex 2 List of Ad hoc Reform Steering Committees Annex 3 List of Sector Strategies Developed by the Government of Morocco Annex 4 Descriptive Note on the Integrated Expenditure Management (IEM)

System Annex 5 Note on Wage Bill Trends in Morocco Annex 6 Position Paper on Moroccan 2013 Digital Strategy Annex 7 e-Procurement Descriptive Note Annex 8 Note on Morocco’s Corporate Competitiveness Support Policy

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Fiscal Year

January - December

Currency Equivalents (May 2010)

UA 1 = DH (Moroccan Dirham) 12.57 UA 1 = EUR (Euro) 1.14 UA 1 = USD (US Dollar) 1.51

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Acronyms and Abbreviations

ADB African Development Bank ADF African Development Fund BADR Computerized Customs Network Base BAM Bank Al-Maghrib (Central Bank of Morocco) CFAA Country Financial Accountability Assessment CSP Country Strategy Paper DEPTTI Department of Posts, Telecommunications and Information Technologies DH Moroccan Dirham EU European Union FDI Foreign Direct Investment FOMAP Public Administration Modernization Fund GDP Gross Domestic Product GoM Government of Morocco GPEEC Jobs, Staff and Skills Management Planning HRIS Human Resources Information System IEM Integrated Expenditure Management IGF General Inspectorate of Finance IGM General Inspectorate of Ministries IMF International Monetary Fund IMGE Integrated Management of Government Employees INDH National Human Development Initiative LOF Organic Finance Law MEC Modulated Expenditure Control MEF Ministry of Economy and Finance MET Ministry of Equipment and Transport MICNT Ministry of Industry, Trade and New Technologies MMSP Ministry of Public Sector Modernization MTEF Medium-Term Expenditure Framework PARSP Public Administration Reform Support Programme PEFA Public Expenditure and Financial Accountability PER Public Expenditure Review REC Strategic Staffing Framework TGR Trésorerie générale du Royaume (General Treasury) TOFE Table of Government Financial Operations TOFT Treasury Flow of Funds Table UA Unit of Account WB World Bank

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LOAN INFORMATION SHEET Client Information Sheet BORROWER: KINGDOM OF MOROCCO EXECUTING AGENCY: Ministry of Economy and Finance (Budget Department) Financing Plan

Source

Amount

Instrument

ADB

EUR 100 million

ADB Loan

World Bank EUR 73.7 million IBRD Loan European Union EUR 73 million Grant

Information on ADB Financing

Loan currency

Euro

Interest rate type: Floating base rate with a fixed rate option Base rate (floating) 6 months - EURIBORInterest rate margin 40 basis points (bp)Financial margin: Recalculated twice per annum (1 February and 1

August)Commitment charge NoneOther charges NoneDuration 20 years maximumGrace period 5 years maximum

Activities Date 1. Approval of Design Note 14 April 2010 2. Negotiation of Loan Agreement 31 May 20103. Board Presentation 30 June 20104. Effectiveness July 20105. Disbursement August 20106. Supervision March 20117. Completion Report October 2011

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PROGRAMME SUMMARY

Programme Overview 1. Programme Name : Public Administration Reform Support Programme - Phase IV

(PARSP IV) - Geographical coverage : Nationwide - Time frame : 12 months - Programme cost : Not applicable - Financing : EUR 100 million (ADB)

EUR 73.7 million (WB) EUR 73 million (EU)

- Operational instrument : General budget support - Sector : Economic and financial governance

2. The Bank loan will be disbursed in a single tranche. Because of the widening budget deficit in 2010 due particularly to the countercyclical policy conducted by the Government to cushion the effects of the global economic crisis, the proposed financial support of about EUR 100 million will help the Government to cover the budget deficit estimated in 2010 at EUR 2.67 billion or 4.5% of GDP, excluding privatization revenue. It will be disbursed in a single tranche in 2010.

Expected Programme Outcomes and Beneficiaries

3. The goal of PARSP IV is to promote strong economic growth and sustainable development, thus strengthening the competitiveness of the economy while ensuring medium-term macro-economic viability. Its specific objectives are to improve Government efficiency in budget and human resource management, consolidate and control the civil service wage bill and streamline administrative procedures by developing electronic Government.

4. The overall expected outcomes at the end of implementation of the Programme are: (i) consolidation of the macro-economic framework and control of inflation, budget deficit and wage bill; (ii) enhancement of Government efficiency in budget and human resource management; and (iii) streamlining of administrative procedures by strengthening e-Government.

5. The final beneficiary of the programme is the entire Moroccan population that will benefit from improved standard of living resulting from employment- and income-generating sustainable economic growth. The intermediate beneficiaries are Government services, households and private economic operators.

Needs Assessment and Relevance

6. The PARSP is an institutional reform implemented in successive phases that the Bank as well as other co-financiers (World Bank and European Union) have agreed to support. After Phase 3 which was successfully completed, Phase 4 which is PARSP IV will essentially help to complete the various reform segments and thus deepen the modernization of Moroccan public administration.

7. Because of the widening budget deficit in 2010 due particularly to the effects of the global economic crisis and the countercyclical policy conducted by the Government, the

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estimated EUR 100 million financial support to be granted will enable the Government to cover the budget deficit. Disbursement will be in a single tranche.

8. The proposed programme is relevant: the main conditions for the success of the programme have been met: sound programme ownership by the country; close coordination and risk sharing with co-financiers; fulfilment of general and technical prerequisites for this type of programme; compliance with good practice principles regarding conditionalities, including implementation of measures precedent to programme presentation to the Board of Directors; and design of a results-based monitoring/evaluation mechanism. The area of intervention of the PARSP IV, namely public administration, is relevant in relation to the Government’s Programme priorities reflected in the Letter of Development Policy and those of Morocco’s 2007 – 2011 CSP.

The Bank’s Value Added

9. The Bank is strongly committed to backing the public administration reform process in Morocco, with the support it provided to PARSP II and III. As a result, it has acquired valuable experience in this domain on which it capitalized in designing the PARSP IV. In addition, it has already financed about ten reform support operations in several sectors in Morocco (notably in the education, health, transport, drinking water and financial sectors). As such, it has in-depth knowledge of the various sectors of Moroccan administration enabling it to play an important role in designing and monitoring the implementation of PARSP IV. In this respect, it has been able to maintain a high-level quality dialogue with the authorities to better target reforms.

Institutional Development and Knowledge Acquisition

10. The PARSP IV will contribute to the institutional development of the public administration and private sector. Analytical work as well as the various draft instruments examined in formulating the programme helped to build up knowledge which was used to enhance the programme design.

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RESULTS-BASED LOGICAL FRAMEWORK HIERARCHY OF

OBJECTIVES EXPECTED OUTCOMES SCOPE PERFORMANCE INDICATORS

INDICATIVE TARGETS AND TIME FRAMES ASSUMPTIONS/RISKS

1. Goal Promote strong economic growth and sustainable development, thus strengthening the competitiveness of the economy while ensuring medium-term macro-economic viability

Impact: Strong economic growth and sustainable development

Beneficiaries: Moroccan population Private sector

Indicators: Average real GDP growth rate

Anticipated Long-term Developments – Time Frame Average annual growth rate increases from 4.2% over the 2005-2009 period to more than 5% over the 2010-2014 period

Assumptions Sustained macro-economic stability

Improvement of the business climate

Average investment rate

Average annual investment rate rises from 27% of GDP over the 2005-2009 period to above 30% over the 2010-2014 period

Control of inflation

Average inflation rate Source: Ministry of Economy and Finance (MEF); Bank Al-Maghrib (BAM)

Average inflation rate drops from 3% over the 2005-2009 period to 2.2% over the 2010-2014 period

2. Programme Objectives (A) Improve Government efficiency in budget resource management (B) Improve Government efficiency in human resource management (C) Consolidate and control the civil service wage bill (D) Enhance the efficiency

Effects (A) Sustainable budget deficit

Beneficiaries Government Households Private economic operators

Impact Indicators Overall budget deficit, excluding privatization Current expenditure/GDP ratio

Anticipated Medium-term Developments – Time Frame Reduction of budget deficit from 2.3% of GDP in 2009 to 2% in 2011 Current expenditure/GDP ratio decreases from 21.2% in 2009 to 20.7% in 2011

Assumptions Programme impact will be achieved Risks - Delay and weakness of

economic recovery in the Euro Zone due to the global economic crisis

- Impact of the vagaries of the weather on rural income and on domestic demand 

(B) Control of staff and skills Generalization of the use of planning tools in the human resource management process

Generalization of GPEEC tools within ministries in the human resource management process in 2011

(C) Control of the civil service wage bill

Wage bill/GDP ratio

Wage bill/GDP ratio stabilized in 2011 at its 2009

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HIERARCHY OF OBJECTIVES EXPECTED OUTCOMES SCOPE PERFORMANCE

INDICATORS INDICATIVE TARGETS

AND TIME FRAMES ASSUMPTIONS/RISKS

of public administrative services by streamlining procedures and developing e-Government

level (10.3%) Mitigative measures - Monitoring of the national

and international economic environment and implementation of actions within a public-private framework of understanding by the Strategic Intelligence Committee

- Monitoring of the macro-economic framework by the working group created for that purpose

- Mitigation of the impacts of the vagaries of the weather on the agricultural sector under the Green Morocco Plan 

(D) Streamlining and computerization of administrative procedures

Number of public services accessible online Source: MEF; MMSP and MICNT

Number of public services available online increases from 10 in 2009 to 13 in 2011

3. Inputs

AMOUNTS ADB EUR 100 million WB EUR 73.7 million EU EUR 73 million

Outputs (A) Implementation of measures to improve Government efficiency in budget resources management

Beneficiaries Moroccan population Private sector Public and para-public sectors

Households  

Output Indicators (A) See matrix of measures

Anticipated Medium-term Developments (A) See matrix of measures

Operational Assumption Sustained institutional capacity for implementation of reforms

(B) Implementation of measures to improve Government efficiency in human resource management

(B) See matrix of measures

(B) See matrix of measures

(C) Implementation of measures to consolidate and control the civil service wage bill

(C) See matrix of measures

(C) See matrix of measures

(D) Implementation of measures to streamline administrative procedures and develop e-Government

(D) See matrix of measures

(D) See matrix of measures

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REPORT AND RECOMMENDATION OF THE AFRICAN DEVELOPMENT BANK GROUP MANAGEMENT TO THE BOARD OF DIRECTORS CONCERNING A

PROPOSAL FOR THE GRANT OF A LOAN TO THE KINGDOM OF MOROCCO TO FINANCE THE PUBLIC ADMINISTRATION REFORM SUPPORT

PROGRAMME – PHASE IV I. THE PROPOSAL 1.1 This proposal concerns the grant of a EUR 100 million loan to the Kingdom of Morocco to finance the Public Administration Reform Support Programme - Phase IV (PARSP IV) in Morocco. It is a budget support to be implemented from June 2010 for a 12-month period ending on 30 June 2011. It is a response to the request submitted to the Bank in April 2010 by the Government and a follow-up to the series of three public administration reform support programmes backed by the Bank and other multilateral donors, namely the World Bank and the European Union. The PARSP IV is based on the strategic orientations of the Government’s medium-term development programme. Its design took into consideration the principles of the Paris Declaration on Aid Effectiveness, as well as good practice principles regarding conditionalities. It is in line with the Bank’s 2009-2011 Country Strategy Paper mid-term review orientations which place emphasis on strengthening the governance system and upgrading economic and corporate infrastructure. By supporting Government efforts in these areas, the Bank is promoting the improvement of public finance management and the business climate, thus contributing to creating an environment more conducive to the development of private sector activities and ensuring sustained and sustainable economic growth.

1.2 The preparation of the Programme in October 2009 and its appraisal in April 2010 were carried out in close collaboration with the World Bank and the European Union which are co-financiers of the programme. The PARSP IV is a follow-up to the reforms undertaken by the previous operations and should help to consolidate the results obtained and deepen the reform process initiated to modernize and enhance the efficiency of public administration. The Programme goal is to promote strong economic growth and sustainable development, thus strengthening the competitiveness of the economy while ensuring macro-economic viability. Its specific objectives are to improve Government efficiency in budget and human resource management, consolidate and control the civil service wage bill and streamline administrative procedures by developing e-Government. Its implementation should lead notably to: (i) strong growth with a 5% average annual growth rate over the 2010-2014 period as against 4.2% over the 2005-2009 period; (ii) revival of investment with a 30% average annual investment rate over the 2010-2014 period, compared to 27% over the 2005-2009 period; and (iii) greater control of inflation with an inflation rate which should drop from a 3% annual average over the 2005-2009 period to 2.2% over the 2010-2014 period.

II COUNTRY AND PROGRAMME CONTEXT

2.1 Government’s Development Strategy and Medium-Term Reform Priorities 2.1.1 In recent years, Morocco has undertaken far-reaching structural and sector reforms that contributed to laying the foundation for a modern economy that is open to the external world. The reforms, which covered various domains, were aimed particularly at consolidating macro-economic stability, strengthening public finance management, modernizing the financial sector and improving the business environment and the efficiency of public administration. The Government that emerged from the September 2007 legislative elections has reiterated its commitment to pursue the reforms while deepening their content

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under the Economic and Social Programme (ESP), the major orientations of which reflect a policy centred on growth, social proximity and human development.

2.1.2 The Government’s efforts under the ESP focused on modernizing the administration, strengthening fair taxation and implementing new sector strategies, particularly in agriculture, transport, energy, water, health, education and vocational training. These reforms are aimed at increasing public and private sector productivity. With the recent deterioration of the global economic environment, these strategic thrusts are even more topical and the Government intends to pursue their implementation by accelerating reforms which will be supported by the development of major worksites around structuring projects, particularly in the area of infrastructure, the modernization and upgrading of which are one of its major priorities.

2.2 Recent Socio-economic Developments, Prospects, Constraints and Challenges

Socio-economic context

2.2.1 The Moroccan economy has shown proof of some resilience despite an international environment marked by the propagation of the effects of the global economic crisis. On the whole, the fundamentals of the economy remained solid, owing to a stable macro-economic framework and reflecting the efforts made over preceding years to consolidate public finances and diversify the productive base of the economy. It is also worth noting that the establishment of a Strategic Intelligence Committee in February 2009 with sector and thematic working groups (macro-economy, tourism, remittances by Moroccans residing abroad (MRA), industry and phosphates) furthered the establishment of consultative and proactive mechanisms which contributed to reducing the effects of the economic crisis. The measures taken by the Committee prioritized several components, including job security, and enabled access by enterprises to bank financing, support to exports and training for operators of sectors most affected by the crisis.

2.2.2 In 2009, the GDP growth rate virtually stood at its 2008 level, that is 5.0% compared to 5.6%, as a result of the buoyancy of the primary sector whose growth rate is estimated to be 26%i. In contrast, non-farm activities, which are more vulnerable to the international environment and fluctuations in world demand for Moroccan products, showed a moderate 2.3% growth rate, well below the trend observed over the past five years. Domestic consumer demand also played a key role in growth, tapping from the spin-offs of the good crop year, the falling unemployment rate (9.1% at the end of the year) and Government’s efforts to support purchasing power especially by reducing income tax and raising salaries (+5%). The growing domestic demand was also attributable to a high increase in public investments which rose from DH 109 billion in 2008 to DH 135 billion in 2009 (+26%). The inflation rate dipped to nearly 1.8% in 2009, after a 3.9% increase in 2008 as a result of soaring world prices that year. The decline in inflation in 2009 was due to the fall in food prices from 7% in 2008 to 1%. i The figures relating to macro-economic data are those provided during the appraisal mission and should be

considered as provisional.

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2.2.3 The budget situation worsened in 2009, after excellent public finance performance in recent years, due particularly to an expansive policy to sustain growth. In 2008, the budget surplus stood at 1.6% of GDP, reflecting high tax revenue, the level of which helped to offset the sharp increase in grants expenditures resulting from skyrocketing world oil and food prices. However, in 2009, the public finance situation was characterized by a steep rise in capital spending (+22% compared to 2008) to sustain growth, even as tax revenue dropped by 9.1% due to the adjustment of the income tax rate schedule and the downturn in non-farm sectors. Public finance therefore showed a 2.3% deficit. However, this situation, coupled with the continuation of efforts to consolidate medium-term public finance sustainability through active debt management, enabled the Treasury to stabilize the debt ratio, rising from 47.3% of GDP in 2008 to 47.4% of GDP in 2009. Furthermore, the Moroccan economy suffered the impact of the significant decrease in foreign direct investments (FDI) in 2009 (-28.6% compared to 2008), after a sustained increase in such investments over the past five years (8% annual average).

2.2.4 In 2009, the sluggishness of Morocco’s exports due to the global recession, in particular in the Euro Zone, its major trading partner, had a strong negative impact on the country’s external position. Although the current account deficit improved slightly, it remained significant, declining from 5.2% in 2008 to 4.4 % of GDP in 2009, in reflection of the decrease in exports (-35%), tourist revenue (-8.8%) and remittances by Moroccans residing abroad (-9.2%). However, the 26.5% decrease in the value of imports in 2009 owing to falling commodity and food prices, particularly of petroleum products and wheat, offset the significant drop in exports. Gross reserves in months of imports therefore fell from 7.5 in 2008 to 6.9 in 2009. The Moroccan dirham has virtually remained stable for a year now both against the Euro (+0.55%) and the Dollar (-2.60%).

2.2.5 At the social front, Morocco has made progress in terms of human development, thanks to poverty reduction programmes and structural reforms in the health, education and vocational training sectors. The reforms supplement those undertaken within the framework of the National Human Development Initiative (INDH) which, since its launching in 2005, has created a dynamic that promotes the involvement of all players through the implementation of well-targeted poverty reduction projects. In particular, the projects target people with specific needs such as street children and vulnerable women. In this respect, the development of microcredit and income-generating activities has been prioritized as efficient instruments for combating poverty and exclusion. The emergence of a network of associations and the establishment of public structures responsible for promoting an inter-dependent

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economy have helped to provide an appropriate alternative for social development in Morocco. This mechanism has helped to reduce the poverty rate to 9% in 2008, compared to 14% in 2001.

2.2.6 However, although real progress has been made, much still has to be done to sustainably improve the relatively weak social indicators. This is particularly true for the illiteracy rate among the population aged 10 and above - which is 40% compared to the African average of 33.2% (this represents about 12 million illiterate people). In some cases, the illiteracy rate is above 60% in rural areas and 75% for rural women. In general, Morocco has attained some Millennium Development Goals (MDG) in human development and achieved a “creditable” attainment rate in others, which will be fully attained before 2015. The other challenge to be met involves creating conditions for strong and sustained growth to enable the Government to achieve the objective of reducing unemployment among young graduates from 23% in 2009 to 7% by 2012.

Prospects and Constraints 2.2.7 Morocco’s short- and medium-term economic prospects should improve gradually, although they are heavily dependent on external factors. Although sluggish, the expected growth in the Euro Zone should contribute to a gradual recovery of the country’s goods and services exports, as well as remittances by Moroccans residing abroad (the remittances constitute a key pillar of domestic demand). Continuation of fiscal efforts to stimulate growth through domestic demand will also have beneficial effects on non-agricultural GDP, the growth of which could stabilize at around 4% in the short term. This will be boosted by the ripple effect of the gradual recovery of the phosphates sector on economic activity and exports. In that regard, the external current account deficit should remain stable at about 4% in 2010 and 2011 while economic growth would stand at 3.2% in 2010 and then edge up to 4.5% in 2011.

2.2.8 However, it is obvious that the Moroccan economy is still plagued by major constraints due mainly to low competitiveness of its exports as well as their high concentration on European markets. Indeed, the deterioration of the current transactions balance from 2007, beyond changing international circumstances, poses a problem of loss of competitiveness, in particular in relation to competing countries of Eastern Europe. This situation raises major challenges that Morocco must address in order to strengthen its position as a growth pole and business platform. To that end, the country must pursue the sound macro-economic and fiscal policies undertaken in recent years in order to safeguard the productivity gains achieved. The Government’s commitment to accelerate structural reforms to support the implementation of sector strategies (infrastructure development, Industrial Emergence Pact, Green Morocco, etc.) will contribute to consolidating economic diversification and strengthening the country’s growth and export potential.

2.2.9 Concerning the business environment, Morocco’s Doing Business ranking has improved from the 130th position in 2009 to 128th in 2010, thanks especially to the creation of a private credit office to improve access to credit. Compared to other countries of the region, it occupies the 12th positionii. Furthermore, with a 4.1 competitiveness index, Morocco occupies the 5th position in the ranking of Africa Competitiveness Report 2009.

ii Doing Business in the Arab World 2010.

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2.3 Bank Portfolio Status

2.3.1 As at 30 March 2010, the Bank’s portfolio in Morocco comprises 17 operations for net commitments totalling EUR 1 389.6 million. It is dominated by the transport (31%), energy (29%) and water and sanitation (17%) sectors, which attests to the priority accorded under the CSP (2007-2011) to infrastructure, representing 77% of the amount of net commitments. At the end of March 2010, cumulative disbursements amounted to UA 615.25 million, i.e. 44.27% disbursement rate.

2.3.2 In February 2010, the Board considered the report on the review of the Bank’s portfolio in Morocco and was satisfied with its good performance rated at 2.6, an improvement over the preceding 2007 performance review rated at 2.4. Furthermore, the portfolio does not comprise any risky project. This result reflects the implementation of the recommendations of the 2007 review and the strengthening of dialogue between the Bank and Moroccan authorities. However, it should be pointed out that some operations are plagued by long delays in entry into force, the persistence of which may undermine the progress made in portfolio performance.

III. PROGRAMME JUSTIFICATION, KEY DESIGN ELEMENTS AND SUSTAINABILITY

3.1 Links with the CSP, Analytical Work Used in Programme Preparation and Pre-requisites

3.1.1 Links with the CSP: the PARSP IV is in keeping with the strategic orientations of the Government’s Programme which supports the enhancement of governance and the business environment. It is also in keeping with the orientations of the 2009-2011 country strategy mid-term review which places emphasis on strengthening the governance system and upgrading economic and corporate infrastructure. By supporting Government efforts in these areas, the Bank is contributing to creating an environment more conducive to the development of private sector activities and enhancement of corporate competitiveness.

3.1.2 Pre-requisites for implementing a budget support: in 2009, Morocco had a 4.20 CPIA and fulfilled the required general and technical conditions for budget support. In general, the country enjoys excellent political and economic stability and Government’s commitment to carry out reforms. On the economic front, Morocco’s performance in recent years has been remarkable and reflects the efforts made to improve the macro-economic framework and implement reforms geared towards enhancing competitiveness and diversifying the productive base. Technically, Morocco also meets the basic pre-requisites regarding the existence of a medium-term programme, a reliable public finance management system and proven institutional capacity (Annex 15).

3.1.3 At the fiduciary level, the reliability of low-risk financial management was confirmed in 2007 following a World Bank review of progress made in implementing the recommendations of the Country Financial Accountability Assessment (CFAA 2007). The Public Expenditure and Financial Accountability report (PEFA 2009) indicates that significant improvements have been made in Morocco in the internal control of Government services and bodies. Some weaknesses are still to be corrected, particularly in handling public procurement complaints and full use of open tendering for contracts above the fixed threshold of DH 200 000 (87% of contracts in 2006). The Country Procurement Assessment Review (CPAR 2008) which is an update of the 2005 report concluded that the overall public

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procurement risk remains low and that the reforms initiated under the PARSP regarding: (i) results-based budget management; (ii) the Medium-Term Expenditure Framework (MTEF); (iii) budget decentralization; (iv) expenditure control; and (v) strengthening of the public procurement system, etc. were conducted at a sustained pace and enhanced the efficiency and reliability of the country’s budget and accounting system despite their concurrency.

3.1.4 Furthermore, in March 2010, the international rating agency, Standard & Poor’s, upgraded Morocco’s rating to the “Investment grade” category for long- and short-term debt. The agency upgraded the rating of the sovereign credit of the foreign currency long-term debt from “BB+” to “BBB-” and that of the long-term local currency debt from “BBB” to “BBB+” with stable prospects. According to Standard & Poor’s, such upgrading of the quality of the Kingdom’s debt reflects strong political stability, good financial health and the commitment of the Moroccan authorities to pursue their reform programme.

3.1.5 Regarding institutional capacity, the Government in previous programmes demonstrated its capacity to mobilize development partners around programmes whose parameters it perfectly mastered, thus showing proof of capacity to own and coordinate such programmes. To manage and implement investment projects and reform programs, the Moroccan administration has adequate human managerial capacity and a well-structured administrative mechanism that enable it to perform its public service missions in a generally satisfactory manner. The Ministry of Economy and Finance, which is responsible for managing this programme, has high-level technical competences to successfully undertake and monitor/evaluate the planned reforms.

3.1.6 Analytical works: the results of analytical work recently undertaken by the Bank, the country itself and other external bodies and partners were used in designing the programme. These include the mid-term review of the 2009-2011 Country Strategy, IMF 2010 Article IV consultations and the 2009 Public Expenditure and Financial Accountability (PEFA 2009). Technical Annex I presents the detailed list of the analytical work.

3.2 Collaboration and Coordination with Other Donors

3.2.1 Collaboration and coordination with the World Bank and the European Union, co-financiers of PARSP IV, are in conformity with the orientations of the Paris Declaration on Aid Effectiveness as they jointly carried out programme identification and preparation missions, and prepared a joint matrix of reform measures. The programme was also designed in compliance with the other orientations of the Paris Declaration such as aid alignment on national priorities and use of country systems (allocation of resources directly to the national Budget).

3.3 Outcomes and Lessons from Similar Operations

3.3.1 The Bank has financed many budget support programmes in Morocco, including three Public Administration Reform Support Programmes (PARSP I, II, III), five Financial Sector Support Programmes (PASFI I to IV and PADESFI), the Medical Coverage Support Programme (Phases I and II) and more recently the Education System Emergency Plan Support Programme. The completion reports of most of these programmes established the country’s good performance in implementing the programmes.

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3.3.2 The implementation of various programmes funded by the Bank in Morocco helped to draw lessons, notably including consideration of difficulties associated with the fulfilment of disbursement conditions contingent on the passage of bills. In addition, the Government and programme partners should better coordinate measures and conditions implementation monitoring during programme execution. These main lessons were taken into account in designing the PARSP IV by emphasizing, among other things, the need to reduce the number and scope of Programme conditions presented to the Board of Directors.

3.3.3 The main lessons from implementing the previous PARSPs, documented in the different completion reports including the most recent one, namely the PARSP III report which was finalized and transmitted to the Board in 2010, revealed the importance of: (i) improving internal communication between Government services and the coordination of the different centres implementing programme components (Ministry of Economy and Finance, Ministry in charge of Public Sector Modernization, etc.) in order to better consolidate the reforms and further enhance their ownership; and (ii) supporting the reforms, within the context of the budget support, with additional technical assistance so as to further accelerate their implementation pace.

3.4 Relations with Other Bank Operations in the Country

3.4.1 The public administration reform is at the centre of the Government’s economic and social development programme since its implementation largely contributes to strengthening macro-economic stability and enhancing corporate competitiveness, thereby creating conditions for sustained growth that creates employment. Hence, PARSP IV is consistent with the other Bank portfolio operations in Morocco which, on the whole, place emphasis on upgrading infrastructure and structural reforms to promote an enabling environment for private sector development and ensure diversified growth. From that viewpoint, there is need to underline the complementarity between PARSP IV and the Financial Sector Modernization Support Programme (PADESFI) approved by the Board in December 2009. These two programmes build on each other, with objectives focusing on the enhancement of governance and improvement of the business climate. Lastly, the PARSP IV also builds on previous PARSP phases and endeavours to consolidate the achievements of reforms undertaken by seeking to: (i) promote a modern administration capable of contributing to enhancing the competitiveness of the national economy; (ii) improve public service quality; and (iii) streamline administrative procedures (Annexe 6). In so doing, the PARSP IV will help to improve the implementation by Government ministries and bodies of other projects financed by the Bank in Morocco.

3.5 The Bank’s Comparative Advantages and Value-Added

3.5.1 During the CSP mid-term review, the Moroccan authorities and the Bank agreed to strengthen their cooperation in the area of reforms, considering the Bank’s long experience in this area. This decision takes into consideration the Bank’s success in providing support to the different PARSP phases as well as its many operations in the form of reform support programmes in several sectors (education, health, transport, water, finance, etc.). On the basis of the experience acquired, the Bank has in-depth knowledge of the Moroccan administration, thus enabling it to play a key role in preparing and monitoring of the PARSP IV implementation. In this respect, it has been able to maintain high-level quality dialogue with the authorities to better target the reforms. The Bank has also emphasized the need for new intervention pillars particularly in e-Government. To that end, it has held discussions with the Government to identify the areas of technical assistance that the Bank could support in order

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to speed up and deepen the streamlining of administrative procedures which is an essential factor in enhancing the quality of public service delivery.

3.6 Compliance with Good Practice Principles Regarding Conditionalities

3.6.1 Good practice principles regarding conditionalities, notably those relating to ownership, coordinated accountability framework, adaptation of the framework to country context, selection of disbursement conditions for outcomes and predictability of financial support were taken into account in designing and formulating PARSP IV.

3.6.2 The Bank, the World Bank and the European Union – all supporting the PARSP IV - held sustained consultations during the different programme preparation and appraisal missions to strengthen synergy and consistency of their respective operations. An accountability framework, in this case a common matrix of measures and performance indicators, was put in place in a coordinated manner by the Government and various donors to harmonize disbursement conditions and modalities for assessing progress made under the programme. These consultation efforts are backed by strong country ownership of the programme, characterized by Government’s commitment to rise up to the challenges of modernizing Moroccan public administration.

IV. THE PROPOSED PROGRAMME

4.1 Programme Goal and Objectives

4.1.1 The goal of PARSP IV is to promote strong economic growth and sustainable development, thus strengthening the competitiveness of the economy while ensuring medium-term macro-economic viability. Its specific objectives are to improve Government efficiency in budget and human resource management, consolidate and control the civil service wage bill, and streamline administrative procedures by developing e-Government.

4.1.2 Faced with a rapidly growing wage bill burden in relation to budget resources (Technical Annex 5), the Government underlined the need for a drastic reform of public administration with the support of the international community. The Public Administration Reform Support Programme (PARSP) was prepared within this context in 2002 to remedy the three major dysfunctions of Moroccan public administration, namely: (i) lack of budget resource management tools for establishing multi-year results-based public expenditure programming; (ii) excessive concentration of services, decision-making powers and resources at the central level; and (iii) mismatch between human resources and the needs of the administration. This Programme therefore provided for the gradual implementation of reforms with the support of the Bank, the World Bank and the European Union.

4.1.3 The previous three PARSPs enabled Morocco to achieve significant outcomes in the modernizing its public administration. To remedy the lack of budget management forecasting tools and reduce the high level of concentration of decision-making powers, about ten ministries were provided with MTEFs, the practice of flexible budgeting was established and an increasing number of performance contracts were signed between some ministries and their decentralized services. The major effects of this measure were a capital expenditure commitment rate of about 97% in 2008 compared with 93.85% in 2003 and a gradual reduction of the share of the wage bill in GDP from 10.7% in 2007 to 10.3% in 2009. To better streamline Government human resource management, 22 ministries finalized their Strategic Staffing Frameworks (REC) and launched their Jobs, Staff and Skills Management

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Planning (GPEEC) frameworks. The introduction of a component under the last PARSP (PARSP III) devoted to administrative streamlining, through the development of e-Government, led, among other things, to the posting of all competitive bid solicitations of all ministries on the public procurement portal.

4.1.4 PARSP IV, which covers the 2010-2011 period (PARSP IV comes in the wake of PARSP I and II which focused on the implementation of reforms on an experimental basis in some ministries, and PARSP III that increased the number of target ministries and sustained the rate of reduction of the wage bill), is a continuation of the reforms undertaken by the previous operations and should help to consolidate their achievements and deepen the reform process.

4.2 Programme Components, Objectives and Expected Outcomes

4.2.1 PARSP IV comprises four main components: (A) improve Government efficiency in budget resource management; (B) improve Government efficiency in human resource management; (C) consolidate and control civil service wage bill; and (D) streamline administrative procedures and develop e-Government.

COMPONENT A: Improve Government Efficiency in the Budget Resource Management

4.2.2 This Programme component consists in putting in place modern budget management tools capable of enhancing the effectiveness of spending and based on transparency, flexibility and accountability. In this respect, the four reform thrusts retained seek to: (i) carry out multi-year expenditure programming to increasingly reflect medium-term sector policies and strategies; (ii) strengthen the autonomy and empowerment of sector ministries and their respective decentralized services so as to enhance, through closer proximity between the Government and users of public services, the effectiveness of spending both in its design and execution phases; (iii) ensure better budget implementation and monitoring/evaluation by introducing results-based budgetary instruments and procedures and strengthening performance control; (iv) create a new public finance legal framework by adopting a new organic finance law which takes into consideration the new results-based budget management reforms.

Sub-component A.1: Greater visibility of policies and their medium-term budgetary implications, placing budget allocation decisions in a multi-year framework

4.2.3 Initial context and justification: the major problem in this area was the lack of budget management tools for multi-year results-based public expenditure programming.

4.2.4 Responses and achievements of previous PARSPs: the solution to this problem has been to use medium-term expenditure frameworks (MTEFs) at both the global and sector levels. In this regard, the set objective is to adopt a globalized MTEF prepared on the basis MTEFs of ministries, inter-sector priorities and financial requirements fixed in the Treasury Funds Flow Table (TOFT). To that end, the Government has decided on a twofold priority: the establishment in the different ministries of sector MTEFs based on their respective sector strategies and the preparation of three-year-rolling TOFTs. Actions implemented under the previous PARSPs focused on: (i) the preparation and dissemination of a procedures manual

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serving as a methodological guide for sector MTEF preparation; (ii) the preparation of 2008-2010 MTEFs by nine ministries; and (iii) the preparation of a 2008-2010 TOFT (Annex 6).

4.2.5 Challenges to be addressed: regarding MTEFs, the main challenges are: (i) their extension to all eligible ministries and the eventual preparation of a consolidated MTEF; (ii) enhancement of the MTEF quality through more accurate consideration of the relevant sector strategies and further reinforcement of MTEF consistency with the TOFT; and (iii) defining the MTEF preparation schedule to ensure readiness at the start of the finance bill preparation, instead of preparing both at the same time. For its part, the TOFT remains essentially a tool within the Ministry of Economy and Finance whereas its dissemination to ministries with an MTEF would give them, at the start of the preparation of their MTEFs, better visibility of the resources that they could have over the three-year period.

4.2.6 Actions planned under PARSP IV: two main actions are planned under PARSP IV. The first concerns the preparation of the 2009-2011 TOFT. The second involves the preparation of the 2010-2012 MTEFs for five additional ministries, with the assistance of an ad hoc working group. This will raise the number of ministries with an MTEF to fourteen. At the same time, the Government intends to pursue its efforts to extend MTEFs to all eligible ministries and to better incorporate MTEFs into sector strategies, while enhancing their consistency with the TOFT and the finance bill preparation schedule.

4.2.7 Expected outcomes: multi-year public expenditure forecasting will be incorporated into the finance bill preparation process. Consequently, budget allocations will be more effective because they are multi-year and based on targeted multi-year fiscal objectives of ministries (the objectives themselves are based on sector strategies) (Technical Annex 3).

Sub-component A.2: Strengthening the responsibility of decentralized services in budget programming and execution, with focus on results and accountability

4.2.8 Initial context and justification: the excessive concentration of services, decision-making powers and resources at the central level was a major impediment to the smooth functioning of public administration.

4.2.9 Responses and achievements of previous PARSPs: the responses provided by the PARSP focused on two main thrusts: (i) generalization of flexible budgeting together with performance indicators; and (ii) increased empowerment of decentralized services in budget management. The issue is to grant, through the flexible budgeting principle, greater budget management autonomy to ministries as well as their decentralized services. Based on a higher level of aggregation of capital expenditures and recurrent expenditure (excluding salaries) under a budget chapter, flexible budgeting enables the ministry to effect budget resource reallocations within a group of items without the prior authorization of the Ministry of Economy and Finance. However, such flexibility granted to the ministry is accompanied with accountability because the latter is obliged to produce performance indicators which will be subsequently audited. In terms of achievements of the previous PARAPs, it is worth noting that flexible budgeting was extended gradually to all eligible ministries. Regarding the increased empowerment of decentralized services, the set objective is to enhance the operational efficiency of regional and provincial decentralized services in both budget preparation and execution in order not only to enhance access to public services but also the quality of such services. To that end, the Government, under the previous PARSPs,

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demonstrated its will to make decentralization a priority through the signing of an MTEF circular which improves and streamlines credit decentralization procedures.

4.2.10 Challenges to be addressed: the main challenge is to translate into concrete actions the will to ensure decentralization through, among others: (i) a broad-based contractualization approach between ministries and their respective decentralized services; and (ii) the development and implementation of a decentralization strategy.

4.2.11 Actions planned under PARSP IV: as part of contractualization, the Government has encouraged the signing of performance contracts between ministries and their respective decentralized services. In this respect, it undertook to sign a minimum of three pilot performance contracts for the Ministry of Education and the Ministry of Health. With regard to the decentralization strategy, the Government had provided for two major actions: (i) development of a decentralization strategy and adoption of a decentralization manual; and (ii) development and implementation of decentralization master plans in five ministries.

However, in January 2010, His Majesty the King of Morocco set up an advisory commission to develop a new decentralization/regionalization strategy before end 2010. The development of this strategy should be based on the following fundamental principles: (i) the preservation of the unity of the State, nation and territory; (ii) the setting up of solidarity mechanisms to strengthen complementarity and inter-regional cohesion; (iii) the equitable and harmonious distribution of powers and resources to promote effective co-existence between local authorities, the Government and the authorities concerned; and (iv) the adoption of large-scale decentralization. Accordingly, this new strategy not only addresses the concerns of the Government’s initial draft decentralization strategy but also clearly transcends those concerns. Consequently, the implementation of the initial strategy was suspended pending the finalization of the new one. Concerning flexible budgeting, the measure retained under PARSP IV is to: (i) extend flexible budgeting to all eligible ministries. Regarding decentralization, the measure retained is to: (ii) sign a minimum of three performance contracts between the Ministries of Education and Health and their respective decentralized services.

4.2.12 Expected outcomes: flexible budgeting and deepening of budget decentralization through the signing of performance contracts between ministries and their respective decentralized services should not only help to increase the budget execution rate but also improve the efficiency of public services provided owing to effective consideration of local realities and greater proximity to users. In this respect, the share of flexible investment credits in the total credits of eligible ministries is expected to increase from 96% in 2009 to 99% in 2011, thus raising the rate of execution of public investment spending from 73.8% in 2009 to 75% in 2011.

Sub-component A.3: Improving the performance of ministries through the introduction of internal auditing, evaluation and performance control

4.2.13 Initial context and justification: the actions included in this sub-component seek to address two main concerns: (i) long delays in the payment of expenditures; and (ii) absence or poor control of the performance of ministries within the framework of the new approach to decentralized and results-based budget management. Indeed, the flexibility introduced through the generalization of flexible budgeting and contractualization via the signing of performance contracts between ministries and their decentralized regional and provincial services is expected to speed up expenditure execution. Similarly, given that flexibility

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includes the definition of performance indicators, it was necessary to control the status of implementation of such indicators.

4.2.14 Responses and achievements of previous PARSPs: to reduce delays in expenditure payment, the key response consists in the gradual replacement of the traditional a priori (ex-ante) expenditure control system by an a posteriori (ex-post) expenditure control system. In this regard, procedures manuals relating to: (i) public procurement control; and (ii) commitment accounting have already been prepared and disseminated. Similarly, a study on public expenditure control was finalized with a view to issuing a decree instituting a new public expenditure control system. To strengthen performance auditing, a public sector performance audit manual that complies with international auditing standards (IAS) was adopted in December 2006. On the basis of this manual, IGF and 32 IGM inspectors were trained in performance auditing.

4.2.15 Challenges to be addressed: with regard to expenditure control, the aim is to implement a new system based on a posteriori control through modulated expenditure control (MEC). The challenge with regard to performance control is to extend performance audits to all eligible ministries, while enhancing the quality of such audits and the capacity of IGMs.

4.2.16 Actions planned under PARSP IV: with regard to expenditure control, the Programme measure is to: (i) issue a decree relating to public expenditure control. The degree of a priori control to be entrusted to ministries depends on their individual capacity to play their new role as authorizing bodies. In this regard, the Government has, through IGF, undertaken to evaluate the capacity of all ministries to determine the degree of a priori control to be entrusted to them. Regarding performance auditing, the response is to institutionalize performance audits and entrust the task to the General Inspectorate of Finance (IGF). The second Programme measure is to: (ii) sign a minimum of four partnership agreements between IGF and IGMs to improve their capacity in performance auditing. Thus, on the basis of such capacity and in a bid to evaluate the performance of ministries, the Government undertook to: (iii) carry out performance audits in at least 20 ministries and to present them in a summary report. Furthermore, the Programme intends to (iv): apply a new accounting plan through the issuing of a decree to amend and supplement Royal Decree No. 330-66 of 10 Moharrem 1387 (21 April 1967) to lay down general public accounting regulations. Lastly, the Programme seeks to: (v) operationalize the integrated expenditure management (IEM) system (Technical Annex 4). This new system will serve as a platform for the rapid monitoring of expenditure processing between sector ministries and the Ministry of Economy and Finance, as well as between central and decentralized services.

4.2.17 Expected outcomes: the main expected outcome is a reduction of average capital investment payment time frames from 4.2 days in 2009 (6.7 days in 2008) to 3 days in 2011. Similarly, from the qualitative standpoint, the reforms are expected to: (i) strengthen results-based budget management; and (ii) improve the reliability of accounting information and hence transparency in budget execution.

Sub-component A.4: Reforming the organic finance law (LOF)

4.2.18 Initial context and justification: the different budget reforms implemented (MTEF, flexible budgeting, decentralization, performance evaluation and audits, etc.) call for the setting up of a legal public finance framework that includes the different changes made. The reform of the finance law falls within this framework.

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4.2.19 Responses and achievements of previous PARSPs: the Government has put in place a platform for reflection on the reform of the finance law.

4.2.20 Challenges to be addressed: the main challenge concerns the formulation of the new finance law based on best international practices and the strengthening of Parliament’s powers over the authorization and monitoring of budget execution.

4.2.21 Actions planned under PARSP IV: the Government intends to apply international benchmarking on recent developments in best practices for amending the finance law. Pending the finalization of the new decentralization/regionalization strategy demanded by His Majesty the King of Morocco, it is necessary to suspend the preparation of the new finance law so that it can take the said strategy into account.

4.2.22 Expected outcomes: the platform for reflection put in place will serve as a basis for the preparation of the new finance law.

COMPONENT B: Improving Government Efficiency in Human Resource Management

4.2.23 This Programme component concerns the design of modern human resource management tools to enhance the efficiency of the structure as well as the career management system of the Moroccan civil service. In this respect, the two reform thrusts retained under this programme seek to: (i) reformulate the human resource management system by furthering forecasting and placing competence and performance at the heart of the new mechanism; and (ii) promote professional development in the civil service.

Sub-component B.1: Preparation of the new human resource management system 4.2.24 Initial context and justification: one of the main dysfunctions of the Moroccan civil service was the mismatch between human resources and the real needs of the administration. Job classification, which is based on special rules and regulations (70 in total), introduced a major discrepancy between the post held and the job description of the post. Thus, promotion within this management system which is based on grades is not determined by performance or merit. Likewise, the proliferation of special rules and regulations impedes mobility and fuels competition between the different corps for salary increases. As a result, the specific salary increases granted to different corps in the form of benefits have significantly increased the wage bill which attained 11.7% of GDP in 2005.

4.2.25 Responses and achievements of previous PARSPs: to completely overhaul the system, the Government’s response focused on four key thrusts: (i) introduction of Jobs, Staff and Skills Management Planning (GPEEC) within the human resource management system; (ii) implementation of a new job classification system; (iii) setting up of a new remuneration system; and (iv) harmonization of computerized human resource management systems (HRIS) of Government services through the implementation of an e-HR programme.

- Jobs, Staff and Skills Management Planning (GPEEC). This system has a dual significance because it seeks to: (i) substitute the notion of job with that of grade by assigning a profile to each post and, in so doing, helps to classify jobs under a common nomenclature; and (ii) adopt human resource management planning. To that end, strategic staffing frameworks (RECs) have already been prepared for eight ministries (MEF, MMSP, Agriculture, General Affairs, Infrastructure, National Education, Water and Forestry Resources, Justice, National Security and Health) which represent more than 80% of the entire

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civil service in terms of job diversity and staff. The GPEEC was also launched in these pilot ministries that had completed their RECs.

- Job classification. The introduction of RECs helps to implement a new system based on job families. To that end, a study on the classification of jobs under a common nomenclature was launched.

- New remuneration system. The aim is to implement a new remuneration system based on the new job classification. In the current remuneration system, the structure of the wage bill (basic salary and benefits) is dominated by benefits which, in some cases, attain 70% of the salary. The new system will help to prevent distortions introduced through salary increases resulting from the granting of benefits to different corps. Thus, it will help to check growing and uncontrolled salary increases and ensure better wage bill predictability. In this respect, the Government has initiated a study on the development of a new remuneration system based on a new job classification (the Government has recruited a consulting firm to carry out the study).

- e-HR Programme for the harmonization of the human resource management systems (HRIS) of Government services. The computerization of the human resource management (HRM) system is essential for better staffing and staff mobility control. However, some ministries use manual management systems while those with computerized management systems use software packages that differ from one ministry to another. Therefore, it is necessary to computerize human resource management in all ministries and harmonize the computer systems used to better connect them. Doing so will provide the administration with a coherent and integrated visibility of its staffing. In this respect, the Government has carried out a study on existing HRISs in ministries and launched a study on the development of a common framework for the harmonization of HRISs.

4.2.26 Challenges to be addressed: these mainly involve: (i) extending jobs and skills management planning to all ministries; (ii) finalizing ongoing studies; and (iii) implementing the recommendations of the studies.

4.2.27 Actions planned under PARSP IV: regarding jobs and skills management planning, the Government plans to: (i) complete RECs in all eligible ministries; (ii) generalize GPEECs in these ministries; and (iii) develop evaluation tools and establish evaluation indicators based on RECs. Concerning job classification and the new remuneration system, the aim will be to complete: (i) the study on job classification under a common nomenclature; and (ii) the first two phases of the study on the new remuneration system (Diagnosis of Current Situation and Technical Adjustments), on the basis of which the design of scenarios for a new remuneration system will be launched. Regarding the e-HR Programme, the Government intends to: (i) finalize the study on the development of a common database and implement the database; and (ii) launch a feasibility study on a public administration human resource information centre.

4.2.28 Expected outcomes: in qualitative terms, the main outcomes of the reforms introduced will include: (i) improved mobility and transparency in human resource management in public administration; (ii) a more transparent and equitable remuneration system; and (iii) greater and broader visibility of staffing and salaries at Government level. In quantitative terms, the common job classification nomenclature will cover 90% of eligible civil servants before end 2010.

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Sub-component B.2: Introduction of continuous training

4.2.29 Initial context and justification: before the implementation of the PARSP, continuous training in the civil service was provided in a disorderly manner and characterized by the absence of a clear guideline. Within the context of the new human resource management system put in place, in particular GPEECs and the new promotion, mobility and redeployment system, continuous training is considered an important tool for improving public administration performance through more effective tailoring of training to specific needs that have been identified. Thus, there is need to: (i) develop training plans; and (ii) allocate more resources for training. In addition, the professional development plan is an integral part of GPEEC tools.

4.2.30 Responses and achievements of previous PARSPs: in 2005, the Government Council issued a decree to organize the continuous training of civil servants and State employees on the basis of which a professional development strategy was formulated. Therefore, the Government has increased the resources earmarked for professional development, which accounted for 0.5% of the wage bill in 2007, to 1% as from 2009.

4.2.31 Challenges to be addressed: these include adopting a professional development strategy in line with the decree issued by the Government Council.

4.2.32 Actions planned under PARSP IV: (i) adoption of the professional development strategy by the Public Service Commission; and (ii) preparation of professional development plans by all eligible ministries in line with the strategy.

4.2.33 Expected outcomes: all ministries should have put a professional development plan in place before 2010. This should help to increase: (i) the proportion of civil servants who have received training from 42% in 2009 to 50% in 2011; and (ii) the annual average number of training days per civil servant from 2 days in 2009 to 3 days in 2011.

COMPONENT C: Consolidation and control of the civil service wage bill

4.2.34 The civil service wage bill in Morocco attained high proportions of GDP in the mid-2000s following a steady increase since the early 1990s. In 2005, it represented 11.7% of GDP, one of the highest rates in the world. This wage bill is one of the factors that explain the widening Government budget deficit. To reduce this structural deficit, it was necessary to control Government recurrent expenditure and wage bill. Against that backdrop, the Government embarked on the elimination of major sources of budget rigidity by: (a) implementing the Early Retirement Programme (ERP) in 2005; (b) streamlining the number of civil servants by eliminating vacancies and limiting the creation of new posts; and (c) modernizing human resource management (Technical Annex 5).

Sub-component C.1: Strengthening monitoring and control of the wage bill

4.2.35 Initial context and justification: to enhance the monitoring and control of the civil service wage bill, it was necessary to allow sector ministries to manage their own staff according to their HRM decisions. One Government priority was to develop an accurate wage bill forecasting model to reduce discrepancies between the wage bill included in the budget and the one implemented.

4.2.36 Responses and achievements of previous PARSPs: first, an early retirement programme was implemented in 2005. After the successful implementation of this programme, MEF set up a committee to monitor wage bill trends and design a model to be

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used for wage bill forecasting for the period 2005 – 2008. These measures helped to gradually reduce the share of the wage bill in GDP from 11.7% in 2005 to 10.3% in 2009.

4.2.37 Challenges to be addressed: in the medium-term, the consolidation of gains in the reduction of the wage bill, particularly through the setting of budget ceilings on the salary allocations of various ministries under the finance law.

4.2.38 Actions planned under PARSP IV: the Government has undertaken to prepare and disseminate monthly monitoring reports on wage bill trends and its determining factors per ministry.

4.2.39 Expected outcomes: better wage bill control to stabilize it at 10.3% of GDP in the medium term.

Sub-component C.2: Introduction of best practices in monitoring, forecasting and managing remuneration allocations by ministries

4.2.40 Initial context and justification: the introduction of HRM best practices related to the control of remuneration allocations is essential in ensuring results-based budgeting and strengthening efforts made to control wage bill increases.

4.2.41 Responses and achievements of previous PARSPs: the aim is to limit the number of new jobs created at most to the number of retirements (excluding early retirements). Following the implementation of the Early Retirement Programme, a draft decree was issued prohibiting recruitment of staff into the lower grades (1 to 4) of the civil service, the purpose being to outsourcing jobs in these grades. Furthermore, a circular issued by MEF set up a group responsible for preparing and implementing measures aimed at improved monitoring and forecasting of the wage bill, and the gradual introduction of best practices in remuneration allocation management in ministries.

4.2.42 Challenges to be addressed: the Government’s main challenge is to achieve its medium-term objective of stabilizing the wage bill around 10.3% of GDP and to improve the match between public administration staffing and needs.

4.2.43 Actions planned under PARSP IV: the issuance by MEF of a circular generalizing the extension of best practices in managing remuneration allocations to all eligible ministries.

4.2.44 Expected outcomes: reduction in the average period for regularizing the status of civil servants recruited from 18 months in 2008 to 4 months in 2011 and an expected greater number of ministries involved in controlling their wage bill and managing their remuneration allocations.

COMPONENT D: Streamlining of administrative procedures and e-Government

4.2.45 The reform on the streamlining of administrative procedures and development of e-Government (e-Gov) falls within a global vision pursued by the Moroccan Government since 2005 to develop an information society. The reform, supported by the Bank since PARSP III, has led to the adoption of a comprehensive and coherent strategy entitled Maroc Numeric 2013 (Moroccan Digital Strategy 2013) (Technical Annex 6), approved in October 2009 by His Majesty the King. This Programme component comprises three sub-components: (i) horizontal sub-component - setting up an institutional framework through the improvement of governance and leadership with regard to e-Government; (ii) vertical sub-component -

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streamlining procedures and improving public services through e-Government; and (iii) crosscutting sub-component - outsourcing of some information technology functions and strengthening the coherence of public administration information systems.

Sub-component D.1: Improving governance and leadership in e-Government

4.2.46 Initial context and justification: the implementation of e-Government which proposes simplified and digital services involves all Moroccan public administrative entities. Thus, it is necessary to establish an institutional mechanism to help enhance the coordination of various projects and coherence of modernization policies. The absence of such a mechanism might have hindered the implementation of e-Government due to the overlapping of functions and duplication of efforts.

4.2.47 Responses and achievements of previous PARSPs: support for streamlining administrative procedures and e-Government started with PARSP III. During this phase of the Programme, a reflection on the establishment of a general institutional framework for the successful implementation of this reform was initiated.

4.2.48 Challenges to be addressed: Morocco has already made significant progress in streamlining administrative procedures and improving public services through e-Government. However, the need to steer these projects in a coherent and centralized manner is critical to the overall establishment of the Moroccan Digital Strategy 2013.

4.2.49 Actions planned under PARSP IV: the programme seeks to improve governance and leadership in e-Government through the establishment of an institutional framework to help support and guide the development of an information society and e-Government. This will be achieved through the issuance of a decree to establish the National Council for Information Technologies and Digital Economy by end 2010.

4.2.50 Expected outcomes: the new institutional framework piloted by the National Committee for New Technologies will be the flagship of the reform and implementation of the Moroccan Digital Strategy 2013, ensuring clarity and optimum coordination. It would help to accelerate the operationalization of electronic public services. The number of online transactional public services will attain 13 in 2011. These will include services for the population, enterprises and the State. The centralization of project management will help to save huge sums through the pooling of resources and positive externalities generated, thanks to shared experiences and best practices in project implementation.

Sub-component D.2: Streamlining procedures and improving public services through e-Government

4.2.51 Initial context and justification: to support the continuity of public administration reforms, Morocco envisaged a new phase of second generation reforms to provide electronic public services. These services will help to modernize the administration, reduce costs and improve public services provided to businesses.

4.2.52 Responses and achievements of previous PARSPs: within the framework of the second vertical Sub-component D.2 of the Programme, the Government of Morocco identified two projects which benefited from the support of the Bank and other development partners under PARSP III. These include the setting up of a new computerized customs procedure management system and the launching of an online public procurement management portal. Therefore, the PARSP III helped to launch the quality audit of the Automated Customs

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Network Base (BADR) prior to commissioning the system in January 2009 and extend the use of the online public procurement (e-procurement) portal to all ministries.

4.2.53 Challenges to be addressed: the BADR system was developed with the internal resources of MEF. Its quality audit and compliance with international standards guarantees its optimum performance. Furthermore, Morocco has successfully initiated reforms to introduce online procurement. The gradual deployment of the e-procurement portal should be sustained by extending the use of existing tools to other public buyers.

4.2.54 Actions planned under PARSP IV: PARSP IV will support the following reform measures: (i) operationalization of BADR by stabilizing the system and certifying its computer code; and (ii) extension of the use of the online public procurement (e-procurement) portal (Technical Annex 7) by: (ii-a) setting up a public procurement database for all ministries; (ii-b) extending the use of the existing online public procurement portal tools (publication of bid invitations, downloading of bidding documents and terms of reference, and publication of results) to at least 25% of public establishments under State control as well as to 80% of local authorities by end 2010; and (ii-c) finalization of an action plan for online competitive bidding and operationalization of e-bidding before the end of 2011.

4.2.55 Expected outcomes: by Programme completion in 2011, the BADR system will enable operators (transit companies, exporters, importers, transport companies, civil servants, etc.) to carry out all customs transactions from customs declaration to goods issue online and electronically. This would help to significantly reduce the period for completing customs operations as well as the management costs borne by the State. This modern system will also help to strengthen Morocco’s regional integration through trade promotion. For its part, the e-procurement portal will make bidding documents, terms of reference and publication of procurement results of ministries, central services and decentralized services available online. This will help to enhance transparency in public procurement management and achieve substantial management gains.

Sub-component D.3: Outsourcing of Government services and public-private partnerships in the area of e-Government

4.2.56 Initial context and justification: the development of electronic public services (e-Gov) has necessitated the implementation of diagonal support tools to ensure consistency between different information systems on which such electronic services are based. Accordingly, coordinated approaches to the outsourcing of services involving the private sector as well as a common basis for the interoperability of the systems constitute necessary tools for sustaining the development of such services. If it is based on public-private partnerships, the outsourcing of some computer functions also helps to lessen financial and administrative pressure for the provision of services. Similarly, a coherent interoperability framework is necessary for a coordinated and integrated deployment of e-Government services. Standards are needed to provide clear orientations, avoid duplication and reduce development costs through the sharing of certain electronic services on common technical platforms.

4.2.57 Responses and achievements of previous PARSPs: during the design of PARSP III, it was agreed with the Government of Morocco to launch a study on the outsourcing of some MEF information technology functions and to validate the terms of reference of a study on the standardization and interoperability of public administration information systems. In view of the institutional change brought about by the introduction of a new governance

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structure for e-Government steered by MICNT, the conduct of the first study has been postponed. However, MICNT maintains its commitment to support the outsourcing approach and the forging of partnerships with the private sector in the implementation of the Moroccan Digital Strategy 2013.

4.2.58 Challenges to be addressed: the current challenge faced by the Government of Morocco is to harmonize the different electronic public service projects and define approaches to be used to ensure the rapid and effective implementation of the strategy by 2013. The completion of the study on the outsourcing of information technology functions and the one on the standardization and interoperability of public administration information systems and implementation of their conclusions and recommendations will help to address this challenge.

4.2.59 Actions planned under PARSP IV: the Programme plans to implement the following measures: (i) outsourcing of some MEF information technology functions by launching the implementation of the conclusions of the study on outsourcing some MEF information technology functions; and (ii) implementation of the technological norms and standards recommended by the study on standardization and interoperability within the framework of online services.

4.2.60 Expected outcomes: online transactional public service systems are expected to be harmonized by the end of the Programme in 2011.

4.2.61 The Government of Morocco has identified 15 priority online services in the action plan to operationalize the Morocco Digital Strategy 2013. To assist the Government of Morocco in this initiative, the Bank will provide financial and technical support for the implementation of these services.

4.3 Status of Implementation of Programme Reforms

4.3.1 Since the launching of PARSP in 2002, the Government and the Bank have maintained dialogue on public administration reform. Accordingly, they have, through successive reform programmes (PARSP II, PARSP III), established a long-term partnership based on shared goals and mutual commitments. In this regard, the Government has continued to demonstrate its firm will to implement the different public administration reform measures. Concerning PARSP IV, the subject of this proposal, the Government has, within the framework of its partnership and ongoing dialogue with the Bank and other partners concerned (World Bank and European Union), embarked on the implementation of the key measures of the Programme. This confirms its commitment and determination to pursue the implementation of planned reforms. In this respect, the key measures already taken by the Government include: (i) the signing of a decree relating to the control of public spending, which institutes the modulated expenditure control system; (ii) the operationalization of the integrated expenditure management (IEM) system; (iii) the adoption by the Public Service Commission of a professional development strategy whose implementation will sharpen the skills of civil servants; and (iv) the dissemination, by the Ministry of Economy and Finance, of monthly reports on wage bill trends and its determining factors per ministry. This will help to strengthen the monitoring and control of wage bill trends. Thus, the implementation of the Programme by the Government is at a very advanced stage.

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4.3.2 Based on the foregoing and in a bid to further accelerate the Programme implementation, the Bank and the Government have agreed that the following measures, which are essential for the successful modernization of Morocco’s public administration, be taken prior to presentation of the programme to the Bank’s Board of Directors.

Box 1: Measures Precedent to PARSP IV Presentation to the Board of Directors

Measure 1: Signing of at least three (3) performance contracts between the Ministries of Education and Health and their respective decentralized services (§4.2.11);

Measure 2: Conduct of performance audits in at least 20 ministries and their presentation in a summary report (§ 4.2.16);

Measure 3: Issuance of a decree to amend and supplement the Royal Decree of 21 April 1967 to lay down public accounting regulations (§4.2.16) ;

Measure 4: Finalization of the study on job classification under a common nomenclature (§ 4.2.27); Measure 5: Issuance of a decree to set up a National Council for Information Technologies and the Digital

Economy (§ 4.2.49)

4.4 Financing Requirements and Arrangements

4.4.1 Table 1 below presents the financing requirements of the Treasury of the Kingdom of Morocco. According to forecasts, these requirements stand at about DH 25.5 billion, or about EUR 2.3 billion, in 2010. They will be covered by domestic and external resources. The external resource requirements are about DH 10.2 billion, or EUR 925 million. These external financing requirements should be covered by external drawings on investment project and reform programme loans. This Bank loan, which totals EUR 100 million, represents 10.8% of external financing requirements in 2010.

Table 1: Budget Balance and Financing Requirements, 2010-2012 (in DH billion)

Headings 2010 2011 2012 TOTALTotal revenue (excluding Hassan II Fund ) of which: 188.5 202.9 219.8 611.2

- Tax revenue 169.2 182.2 197.3 548.7 - Non-tax revenue (excluding privatizations and Hassan II

Fund) 12.1 12.2 13.1 37.4

Net expenditures and loans (excluding Hassan II Fund) of which:

222.9 233.9 249.4 706.2

- Current expenditures 157.2 165.7 177.6 500.5 - Capital expenditures 46.5 47.5 49.3 143.3 - Other current primary expenditures 42.8 46.7 50.3 139.8

Overall balance (excluding Hassan II Fund commitments) -34.4 -31.0 -29.6 -95.0 - Grants 2.9 2.9 2.9 8.7 - Variation of arrears 0.0 0.0 0.0 0.0 - Other revenue 6.0 0.0 0.0 6.0

Financing (= - overall balance, cash basis) 25.5 28.1 26.7 80.3 - Domestic financing 13.8 24.3 25.7 63.8 - External financing 10.2 6.5 3.9 20.6

Source: Government of Morocco, IMF - Article IV (February 2010) and staff estimates (April 2010)

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4.4.2 The contributions of donors to cover external financing requirements in 2010 under PARSP IV are presented in Table 2 below.

Table 2: Programme External Financing by Source Source Amount of financing

in Euro million in DH billion African Development Bank 100.00 1.11 World Bank 73.7 0.82 European Union 73.00 0.81 Total 246.7 2.74

4.5 Programme Beneficiaries

4.5.1 The final beneficiary of the programme is the entire Moroccan population that will benefit from improved standard of living resulting from job- and income-generating sustainable economic growth. The intermediate beneficiaries are Government services, households and private economic operators.

4.6 Impact on the Business Environment

4.6.1 By improving public finance management and the administration’s competences as well as streamlining administrative procedures, the Programme will contribute to enhancing the business environment and boosting investment. In that regard, it will support Government’s efforts to implement sector strategies (infrastructure development, Industrial Emergence Pact, Green Morocco Plan, etc.) which will contribute to consolidating economic diversification and strengthening the country’s growth and export potential (Technical Annex 8).

4.7 Impact on Poverty and Gender

4.7.1 The Programme's impact on the business environment creates a growth dynamic in a stable macro-economic framework, with inflation under control. This can enhance wealth and employment creation that will benefit the entire population, including the most vulnerable groups. In addition, through administrative and budget decentralization as well as enhanced competencies of the administration, the Programme will improve access to and quality of public services provided to the population, particularly those living outside urban areas.

4.7.2 Morocco has made significant strides in gender equity and equality in many sectors. Thus, the gender approach has already been integrated in sector policies and gender-responsive budgeting (GRB) is applied by ministries. This is also reflected in the increased representation of women in the labour market; in particular, public administration achieved a 25.7% feminization rate in 2009, up from 23.8% in 2005. Furthermore, training cycles were conducted in 2010 with the support of the Canadian International Development Agency, to sensitize human resource managers on gender issues.

4.8 Environmental Impact 4.8.1 The Programme is a budget support operation. It will have no environmental impact and is classified under Category III.

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V. PROGRAMME IMPLEMENTATION, MONITORING AND EVALUATION

5.1 Implementation Arrangements 5.1.1 Institution in charge: Programme implementation will be monitored by the Ministry of Economy and Finance (Budget Department). This Ministry satisfactorily implemented the previous PARSPs (PARSP I, II and III). The other State institutions involved have the material resources and qualified human resources to ensure the Programme’s implementation. The institution in charge will also coordinate the different ad hoc committees to monitor reform thrusts involving other ministries (Technical Annex 2).

5.1.2 Disbursements: The EUR 100 million loan will be disbursed in a single tranche, subject to fulfilment by the Borrower of the relevant general and specific conditions as mentioned in § 6.2 below. At the request of the Borrower, the Bank will disburse the funds into a designated Treasury account opened at Bank Al-Maghrib and acceptable to the Bank. The Bank, the World Bank and the European Union have undertaken to align their support with the 2010 and 2011 budgetary cycles.

5.1.3 Procurement of goods and services: since the Programme is a budget support, its implementation does not directly raise issues of goods and services procurement.

5.1.4 Auditing: The General Inspectorate of Finance will carry out the programme performance audit and submit the audit report to the Bank.

5.2 Monitoring and Evaluation Arrangements

5.2.1 Monitoring and evaluation of outcomes: the macro-economic monitoring framework and the agreed matrix of measures will be the common monitoring and evaluation frameworks of PARSP IV (Annexes 2 and 4). The Ministry of Economy and Finance will collect data, coordinate monitoring and evaluation and place the information at the disposal of the Bank. A supervision mission will be carried out jointly with the World Bank and the European Union during the programme implementation period to evaluate the progress made on the basis of the output and impact indicators of the matrix of measures appended to this report. At the end of the programme, a completion report will be prepared jointly with the Government.

VI. LEGAL DOCUMENTS AND AUTHORITY

6.1 Legal Documents

6.1.1 The legal document that will be used for the programme is the Loan Agreement. The parties to this Agreement are the African Development Bank and the Government of Morocco.

6.2 Conditions Precedent to Bank Group Intervention

A. Conditions precedent to the presentation of the programme to the Board of Directors

6.2.1 On the basis of dialogue with the Government, it was agreed that the Government will implement measures precedent to the presentation of the programme to the Bank’s Board of Directors. These conditions are indicated in Box 2 (§ 4.3.1).

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B. Conditions precedent to loan effectiveness

6.2.2 Loan effectiveness shall be subject to fulfilment of the conditions stipulated in Section 12.1 of the General Conditions Applicable to Loan Agreements.

C. Conditions precedent to disbursements

6.2.3 The disbursement of the single tranche of EUR 100 million shall be subject to fulfilment of the condition precedent to disbursement indicated below:

a. Transmit to the Bank evidence of the existence of a Treasury Account opened at Bank Al-Maghrib (Central Bank of Morocco) intended to receive the loan resources (§ 5.1.2).

6.3 Compliance with Bank Group Policies 6.3.1 The objectives of PARSP IV are in line with the orientations of the Bank’s Medium-Term Strategy (2008-2012) and strategic orientations on governance (GAP, 2008). It also complies with the Directives on Development Budget Support Loans/Grants (ADB, 2004). No exception is requested as concerns these Directives in this proposal.

VII. RISK MANAGEMENT

7.1.1 Two main risks could impede the attainment of PARSP IV objectives.

7.1.2 The first risk arises from the uncertainties that continue to affect the agenda and effective recovery of the economies of the Euro Zone which is Morocco's main trading partner. In fact, the persistent crisis in this zone could jeopardize prospects for the consolidation of growth in Morocco in view of its close links with it (export of goods and services, direct foreign investments, remittances by Moroccans living abroad, etc.). However, this risk could be mitigated by Government's commitment to support growth by deepening reforms and implementing major structuring projects, as well as by the decision to extend up to August 2010 all the measures taken in 2009 by the Strategic Intelligence Committee to limit the effects of the global economic crisis (job security, easing of the access of enterprises to bank financing and export support, etc.). Thus, the continuous mobilization of the Strategic Intelligence Committee will contribute to the improvement of vigilance to protect the country's growth and employment potential during the post-crisis period.

7.1.3 The second risk is linked to insufficient rainfall in view of the importance of the agricultural sector to the Moroccan economy which accounts for over 16% of GDP. In fact, despite its large quantity, the uneven distribution of rainfall over time and space in the course of the year could jeopardize the 2010 crop year. This can seriously affect rural income, thus deepening the poverty and vulnerability of the rural population. However, aware of the need to reduce the heavy dependence of the national economy on rain-fed crops, the Government accords high priority to the implementation of the Green Morocco Plan. One of the objectives of the Plan is to promote modern farming sustained by the private sector and oriented towards cropping systems that are less dependent on rainfall. The implementation of the Green Morocco Plan (initiated in 2009) can strengthen the resilience of the country’s economy to shocks induced by the effects of irregular rainfall.

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VIII. RECOMMENDATION

8.1 It is recommended that the Board of Directors approve an African Development Bank loan not exceeding EUR 100 million for the Government of the Kingdom of Morocco to finance the Public Administration Reform Support Programme Phase IV (PARSP IV), subject to fulfilment of the conditions set forth in this report.

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LETTER OF DEVELOPMENT POLICY

KINGDOM OF MOROCCO 4 MAY 2010 NOI 2789/E

THE PRESIDENT OF THE AFRICAN DEVELOPMENT BANK GROUP B.P: 323. 1002 TUNIS BELVEDERE

TUNISIA SUBJECT: Letter of Development Policy on the Public Service Reform Strategy

REFERENCE: My letter No. 2694/E of 8 April 2008 Mr President,

I have the honour to present the main actions and measures taken by the Government under the public service reform which is one of the priorities included in its programme presented to Parliament in 2007, with the technical and financial support of the World Bank, the European Union and the African Development Bank, as well as the general orientations of the action plan relating to the said reform in years to come.

The reform seeks to achieve the following main objectives:

► Introduce a modern administration that can help to strengthen the competitiveness of the national economy and the sustainable development of the country;

► Improve the quality of Government services by establishing local management, strengthening the decentralization process in line with progress made in the decentralization process, cost control and performance in public action;

► Simplify administrative procedures and develop e-Government to improve public services provided, and ensure integrity and transparency in relations between the Government and users.

I - Achievements

Since the launching of the Public Administration Reform Programme, significant progress has been made with respect to the implementation of the different components. These include:

1.1 Improving Government efficiency in budget resources management by:

Introducing multi-year budget programming through the implementation of a rolling medium-term expenditure framework (MTEF). This new mechanism is aimed at ensuring better predictability and flexibility in the allocation of public resources and better visibility in public expenditure changes and their accounting, with a view to controlling the budget deficit. In this respect, the following steps were taken:

► Preparation of a methodological manual for the preparation of the MTEF by an inter-ministerial committee and its testing by the pilot ministries;

► Dissemination of the said manual to all ministries through a circular from the Prime Minister;

► Organization of an MTEF theme day for all ministries to help them own the methodology developed for the said framework.

Thus to date, 10 ministries have prepared their sector MTEFs and 5 others have embarked on the preparation of their MTEFs, with the support of a consulting firm within the framework of a capacity building operation financed by a World Bank IDF loan.

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The deployment of a flexible budgeting mechanism which is a major pillar in the implementation of results-based management, improved performance and accountability: this mechanism is aimed notably at allowing managers greater flexibility in their budget allocations in exchange for their commitment to achieve pre-defined objectives measured by performance indicators and to be accountable for the progress made with respect to resources used.

Thanks to efforts made in this regard, at end-2009, flexible budgeting was extended to all eligible ministries. Furthermore, a set of performance indicators is established each year and included in the draft sector budgets submitted to parliament.

Strengthening administrative decentralization: this involves, in particular, developing real local management and bringing the administration closer to its users by reorganizing administrative structures and rehabilitating the role of decentralized services in the implementation of public policies. The efforts made in this regard concern notably:

► The publication of Decree No. 2-05-1369 of 2 December 2005 to lay down rules for the organization of ministries and for administrative decentralization, the implementation of which is likely to strengthen decentralization and support the contractualization of relations between central and decentralized services. Similarly, the decree provides for the preparation by ministries of administrative decentralization master plans, including notably functions to be transferred to decentralized services, human, material and financial resources allocated to decentralized services, and measures and time frames necessary for the implementation of the said plans;

► The implementation of the mechanism for the contractualization of relations between central and decentralized services, notably in the health (6 contracts), higher education (17 contracts) and agriculture (16 contracts) sectors.

The reform of public expenditure control aimed at introducing greater flexibility, fluidity and efficiency in public expenditure. In this respect, the main steps implemented focus on:

► The merger, at the beginning of 2006, of the General Directorate of Public Expenditure Commitments with the General Treasury (Trésorerie Générale du Royaume) to ensure a new sharing of responsibilities between different actors involved in public expenditure, shorten the control circuit and reduce its cost;

► The publication of Decree No. 2-07-1235 (4 November 2008) relating to public expenditure control which seeks to establish a new control method for modulating the level and degree of control of public expenditure according to the management capability of each commitment body. By 2012, all authorizing entities are expected to adhere to the said modulated control;

► The organization of awareness days and training sessions for actors involved in public expenditure to ensure the successful establishment of the modulated control of public expenditure;

► The building of capacity of authorizing entities through the launching of a forum on performance, bringing together the representatives of various authorizing entities to share international good practices relating to budget and public expenditure management.

The introduction of performance auditing through the conduct of joint audit missions between the General Inspectorate of Finance (IGF) and General Inspectorates of Ministries (IGM).

To this end, efforts made focus on:

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► The preparation of a performance audit manual that complies with international auditing standards and practices and is adapted to the context of Moroccan legislation and regulations;

► The implementation of performance auditing training for IGF and IGM inspectors using the said manual;

► The conduct of joint performance audit missions between IGF and IGMs in 22 ministries for the 2007 and 2008 fiscal years. These missions prepared a report summarizing the major findings and recommendations contained in the audit reports of the said 22 ministries.

The implementation of the Integrated Expenditure Management (IEM) System which seeks to simplify procedures to improve fluidity in the execution of public expenditure and the preparation of draft budget execution laws within the required deadlines. The year 2009 was marked by the digitization of the first level of the IEM system, which covers a high value-added area for the different actors involved in the public expenditure chain. Eleven pilot authorizing officers and their respective assistants, as well as the Budget Department and Treasuries of the said pilot ministries, had access to the services provided by this first level.

The initiation of reflection on the reform of the organic finance law aimed at consolidating achievements regarding budget reform and establishing the principles of the new results-based budget approach, and enhancing performance and accountability. Within the framework of this reflection, a reform platform detailing the different themes to be examined was prepared. Each of the themes was the subject of detailed reports.

2. Improving Government efficiency in human resource management

The generalization of job and skills management planning through:

► The implementation of strategic staffing frameworks (RECs) which are preferred tools for ensuring visibility in the short and medium term with respect to human resources, and enabling the qualitative and quantitative definition of job needs. Thus, at the end of 2009, 25 ministries had completed the preparation of their RECs;

► The preparation of the GPEEC methodological guide and its dissemination to central and decentralized services;

► The implementation of human resource management information systems;

► The modernization of human resource management tools by mobilizing financial support funds.

To that end, the Civil Service Modernization Fund (FOMAP) set up by the 2005 Finance Law contributed to the financing of 53 projects proposed by the different ministries and relating to civil service modernization operations focused primarily on the preparation of strategic staffing frameworks, the management planning of staff, jobs and skills (GPEEC) and the development of e-Government.

The institutionalization of professional development within Government services which now serves as a key instrument for filling the gaps highlighted by the staffing frameworks between the existing profiles in each entity and the skills required to perform the administration’s new missions. Thus, a national strategy for the professional development of civil servants and State employees was published in December 2009. It will serve as a basis for the preparation of professional development sector plans in all ministries.

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The conduct of the study on the classification of jobs under a common nomenclature, which aims to classify all civil service jobs in the administration under a common nomenclature, in order to better match human resources to employment needs. This study, which was completed in 2009, will help to promote merit and facilitate the harmonization and consolidating of statutes, mobility and redeployment of civil servants as well as the establishment of an equitable and transparent remuneration system. In this regard, seminars on job evaluation engineering and classification were organized with the contribution of international experts to initiate HRM officers in classification methods.

The conduct of the study on the design of a new remuneration system based on

the new job classification under a common nomenclature. This study seeks to establish a new attractive, equitable and transparent remuneration system that promotes the merit and performance of employees and actual effort made to achieve the outcomes set by the administration. The first phase of this study concerning the diagnosis and analysis of the current situation and the second phase relating to technical adjustment without additional cost regarding the wage bill were validated by the Steering Committee. The third phase concerning the development of the scenario retained for a remuneration system has been launched. 3. Controlling the wage bill

The main measures implemented within this context concern:

► The implementation of a voluntary retirement operation for civil servants which benefited about 39 000 civil servants, 69% of whom were more than 50 years old. This operation, which was the subject of an evaluation, resulted in a 7.6% reduction of civil service staff, a gain of more than 1 point in the share of the wage bill in GDP, the qualitative re-profiling of the civil service and the improvement of its level of supervision as well as its rejuvenation;

► The prohibition of recruitment into grades 1 to 4 while confirming casual staff and outsourcing some tasks performed by this category of staff;

► The limitation of recruitment into the civil service strictly to the needs of the priority sectors, notably education, health and security;

► The elimination of positions vacated by employees who have reached the mandatory retirement age;

► The monthly dissemination by the Ministry of Economy and Finance of a report on wage bill trends;

► The work done within the Wage Bill Monitoring Committee comprising five pilot ministries which helped to generalize best practices in budget item management to all ministries (Circular No. 189 of 30 November 2009), particularly: • Ownership of the wage bill forecasting methodology; • Reduction of the period for preparing staffing tables to be included in the

budget with a view to placing them at the disposal of authorizing officers in January of each year;

• Elimination of unfilled vacancies which would enable authorizing officers to better manage staffing tables included in the budget and thus contribute to controlling wage bill forecasts and implementation. This measure was adopted within the framework of the 2010 finance law.

Thus, the efforts made within this context have helped to reduce the wage bill burden in relation to GDP from 11.8% in 2005 to 10.3% in 2009, and its share in General Budget expenditure from about 49% in 2005 to 40% in 2009.

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3. Streamlining procedures and e-Government

The main actions implemented in this regard include:

► Preparation of the National Strategic Plan for Information and Communication Technologies 2009-2012 which seeks to make the telecommunications sector a factor in competitiveness and creation of value added for enterprises and the administration, with a view to greater openness and transparency;

► Publication of Decree No. 2.08.444 of 21 October 2009 to set up the National Council for Information Technologies and the Digital Economy in charge of coordinating and supervising national policies in this domain;

► Dissemination of Circular No. 17/2009 of 21 October 2009 from the Prime Minister setting up the Inter-ministerial e-Government Commission and sectoral commissions responsible for the implementation of e-Government projects;

► Extension of the public procurement portal to more than 30% of public establishments under State control and all local authorities. The action plan for online bidding which will be operational by end 2010 was finalized.

II. Main orientations

The main orientations concerning public administration reform for 2010 and the coming years aimed at accelerating and consolidating achievements made focus on the following three thrusts:

1. Inclusion of the different budget reform measures in the amendment of the organic finance law by pursuing reflection in 2010 prior to the preparation of a draft instrument to be submitted to Parliament on the following themes:

• Performance related to aspects of multi-year programming and results-based budget management;

• Accountability, regarding notably aspects of empowerment of managers around objectives measured by performance indicators, simplification of credit management procedures by authorizing officers, generalization of the contract-programme approach, transfer of staff management and personnel expenditure to the authorizing entities under which they fall;

• Transparency, regarding aspects relating to the improvement of the State budget structure and presentation, enhancement of the quality of information intended for Members of Parliament, rules to be included in the Government finance act to enhance public finance sustainability, schedule for the presentation and adoption of the finance law, deadline for the presentation and adoption of the amended finance law and the budget execution law;

• Attendant measures to ensure the successful ownership and implementation of the reform.

2. Strengthening administrative decentralization as a basis for further regionalization. The objectives of this thrust concern:

- Developing local management by putting in place necessary conditions for that purpose;

- Guaranteeing improved convergence of actions at the national level by coordinating the operations of various actors at the local level;

- Developing synergy at the local level through public-private partnership;

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- Establishing good governance at the national level by clarifying the responsibilities of the different actors at the local level.

3. Developing e-Government which is a key factor in improving the quality of services provided to users and ensuring greater access to public services at reduced cost.

Lastly, I wish to thank you for your support for the implementation of this important Moroccan public administration reform programme.

Yours sincerely,

Minister of Economy and Finance Salaheddine MEZOUAR

(Signed)

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MOROCCO – Public Administration Reform Support Programme - Phase IV (PARSP IV) Appraisal Report

MATRIX OF 2010-2011 PROGRAMME MEASURES Data sources: DS (*) Conditions precedent to Board Presentation

Objectives Actions Measures/Outputs Targeted Output Indicators Targeted Impact Indicators Data Sources

COMPONENT A: Improving Government efficiency in the management of budget resources A.1 Ensure greater visibility of policies and their medium-term budgetary implications, placing budget allocation decisions in a multi-year perspective

Preparation of a Treasury Resources/Application Table for the period 2009-2011

Preparation and presentation of a TOFT for 2009-2011

The 2009 – 2011 TOFT is prepared and presented before end 2010

Incorporation of multi-year public expenditure forecasting in the preparation of the draft finance law

DS: Document on the submission of the 2010 draft finance law to Parliament by MEF

Preparation of Medium-Term Expenditure Frameworks (MTEF) by more ministries

Preparation, with the assistance of an ad hoc working group, of five (5) additional MTEFs for the period 2010-2012, identifying the multi-year budget objectives of the ministries concerned

Fourteen sector MTEFs are prepared before end 2010

DS: List of MTEFs implemented

A.2 Strengthen the responsibility of decentralized services in budget programming and execution, with focus on results and accountability

Extension of flexible budgeting to eligible ministries

Extension of flexible budgeting to all eligible ministries

32 ministries have adopted flexible budgeting before end 2010

The share of flexible investment credits in the total credits of eligible ministries increases from 96% in 2009 to 99% in 2011 The rate of execution of public investment spending increases from 73.8% in 2009 to 75% in 2011

DS: List of ministries that have adopted flexible budgeting

Improvement and streamlining of credit decentralization procedures

(*) Signing of at least three (3) performance contracts between the Ministries of Education and Health and their respective decentralized services

At least three (3) pilot performance contracts signed between the Ministries of Education and Health and their respective decentralized services before end 2010

DS: MEF letter transmitting copies of signed performance contracts

A.3 Improve the performance of ministries through the introduction of internal auditing, evaluation and performance control

Introduction of a new public expenditure control system (modulated expenditure control)

Implementation through the issuance of a decree relating to public expenditure control

The decree relating to public expenditure control is issued before end 2010

The average period of payment of investment spending reduces from 4.2 days in 2009 (6.7 days in 2008) to 3 days in 2011

DS: Copy of Official Bulletin in which the decree relating to public expenditure control is published

Enhancement of the (*) Signing of at least four At least four (4) partnership DS: List of partnership

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Objectives Actions Measures/Outputs Targeted Output Indicators Targeted Impact Indicators Data Sources

capacity of IGMs by strengthening partnerships between IGF and IGMs

(4) partnership agreements between IGF and IGMs

agreements are signed between IGF and IGMs before end 2010

agreements signed between IGF and IGMs

Evaluation of the performance of ministries and dissemination of evaluation results

(*) Conduct of performance audits in at least 20 ministries and their presentation in a summary report

Twenty performance audit reports based on the 2007 and 2008 fiscal years of 20 ministries prepared and the summary report of these audits published before end 2010

DS: MEF letter transmitting the summary report of performance audits conducted in no less than 20 ministries, including the list of ministries audited

Application of the new public accounting plan

(*) Issuance of a decree to amend and supplement the Royal Decree of 21 April 1967 to lay down general public accounting rules and regulations

The decree to amend and supplement the Royal Decree of 21 April 1967 to lay down general public accounting rules and regulations is issued before end 2010

DS: MEF letter transmitting a copy of the Official Bulletin containing the decree to amend and supplement the Royal Decree of 21 April 1967 to lay down general public accounting rules and regulations

Implementation of IEM system

Operationalization of the IEM system

Operationalization of the IEM system before end 2010

Number of instruments implemented through the IEM system:

2009 2010 207 497 700 000

DS: List of ministries using the IEM system

A.4 Reform the organic finance law (LOF)

Establishment of a platform for reflection on the reform of the finance law (LOF)

Application of international benchmarking on recent developments in best practices for the reform of the finance law (LOF)

The platform for reflection on the reform of the finance law is put in place before end 2010

DS: Report of reflection on reform of the finance law (LOF)

COMPONENT B: Improving Government efficiency in human resource management B.1 Prepare the new human resource management system

Completion of strategic staffing frameworks (RECs) and launching of management planning of jobs and skills (GPEEC)

Completion of RECs in all eligible ministries Launching of GPEEC in all eligible ministries that have finalized their RECs Preparation of evaluation tools and establishment of

Number of eligible ministries that have finalized their RECs:

2006

2007

2008

2009

2010

4 6 20 32 32 Number of eligible ministries that have finalized their GPEECs:

Extension of GPEEC tools within ministries in the human resource management process (recruitment, professional development, mobility and evaluation)

DS: List of ministries that have finalized their RECs, GPEECs and evaluation tools

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Objectives Actions Measures/Outputs Targeted Output Indicators Targeted Impact Indicators Data Sources

evaluation indicators based on RECs

2008

2009

2010

3 10 32 The evaluation tools of eligible ministries (32) are established before end 2010

The common nomenclature covers 90% of eligible civil servants before end 2010

Job classification under a common nomenclature

(*) Completion of the study on job classification under a common nomenclature

The study on job classification is validated by the Steering Committee chaired by MMSP before the end of the 2010

DS: MEF letter transmitting the minutes of the meeting to validate the study by the MMSP

Establishment of a new system for the remuneration of civil servants based on job classification

Completion of the diagnosis, analysis of the existing situation and technical adjustments (Phase 1) and initiation of the design of scenarios (Phase 2) of a new remuneration system based on the new job classification system

The reports of the first two phases are validated by the Steering Committee chaired by MMSP before end 2010

DS: Report on the validation of the first two phases of the new remuneration system

Establishment of the e-HR Programme for the harmonization of HRISs of the public administration

Implementation of common database Launching of a feasibility study for a public administration human resource information centre

Number of eligible ministries with harmonized HRISs:

2008 2009 2010 2011 4 7 10 32

Holding of the first study launching meeting before end 2010

Full harmonization of HRISs in all eligible ministries in 2011

DS: Report on the validation of the two phases of the common database (list of administrative procedures) by MMSP

B.2 Introduce professional development

Development of a professional development strategy

Adoption by the Public Service Commission of a professional development strategy Formulation by eligible ministries of professional development programmes in line with the strategy

The professional development strategy is adopted and published in the Official Bulletin before end 2010 All eligible ministries have prepared plans for professional development in line with the strategy before end 2010

The percentage of civil servants that have received training rises from 42% in 2009 to 50% in 2011

Annual average number of training days per civil servant increases from 2 days in 2009 to 3 days in 2011

DS: Copy of Official Bulletin in which the professional development strategy is published

ANNEX 2 Page 4 / 5

Objectives Actions Measures/Outputs Targeted Output Indicators Targeted Impact Indicators Data Sources

COMPONENT C: Consolidation and control of Government wage bill C.1 Strengthen monitoring and control of the wage bill

Dissemination of reports on wage bill trends

Dissemination by MEF of monthly reports on wage bill trends and its determining factors by ministry

Monthly reports are disseminated before end 2010

The wage bill is stabilized in 2011 at its 2009 level at 10.3% of GDP Reduction of the average period for the regularization of the situation of civil servants from 18 months in 2007 to 4 months in 2011 regarding recruitment

DS: Copies of monthly reports on wage bill trends for a sample of five ministries for the first quarter of 2010

C.2 Introduce best practices in monitoring, forecasting and managing remuneration allocations by ministries

Extension of best practices in monitoring, forecasting and managing remuneration allocations to other ministries

Issuance by MEF of a circular to extend the application of best practices in managing remuneration allocations to all eligible ministries

The circular by MEF relating to best practices in managing remuneration allocations is adopted before end 2010

DS: Circular by MEF relating to the management of remuneration allocations

COMPONENT D: Streamlining procedures and e-Government D.1 Improve governance and leadership with respect to e-Government

Establishment of a credible comprehensive governance framework for the development of an information society and e-Government

(*) Issuance of a decree setting up a National Council for Information Technologies and the Digital Economy

The decree setting up a National Council for Information Technologies and the Digital Economy is issued before end 2010

The number of online transactional public services:

2009 2010 2011 8 10 13

DS: MEF letter transmitting a copy of the Official Bulletin containing the decree setting up a National Council for Information Technologies and the Digital Economy

D.2 Streamline procedures and improve public services through e-Government

Operationalization of the BADR customs declaration system

Stabilization of the BADR system and certification of the quality of its computer code

The BADR system is operational before end 2010

The proportion of customs procedures accessible online increases from 60% in 2008 to 90% in 2011

DS: Progress report of the Directorate of Customs and Indirect Taxes

Extension of the use of the online public contracts portal – “e-procurement”

Implementation of the online public procurement decision base for all ministries Extension of existing online procurement tools to at least 25% of public establishments subject to State control as well as to 80% of local authorities

The online public procurement decision base for all ministries is implemented before end 2010 25% of the public establishments subject to State control and 80% of local authorities have access to existing online public procurement tools (publication of bids, downloading of bid documents, terms of reference, publication of

All bidding documents, terms of reference and results of public procurements of ministries, central services and decentralized services are available online before end 2010

DS: Information document on the implementation of the public procurement decision base Decision of the Prime Minister on the use of the Moroccan public procurement portal

ANNEX 2 Page 5 / 5

Objectives Actions Measures/Outputs Targeted Output Indicators Targeted Impact Indicators Data Sources

Finalization of the action plan for online competitive bidding and its operationalization

results) before end 2010 The action plan for online competitive bidding is finalized and is operational before end 2011

Greater transparency in the management of public contracts and related management savings

Roadmap of online competitive bidding project

D.3 Outsource Government services and public-private partnerships in the area of e-Government

Outsourcing of some MEF information technology functions

Launching of the implementation of the conclusions of the study on outsourcing of some MEF information technology functions

The conclusions of the study are implemented before end 2011

DS: Report on the implementation of the conclusions of the study on outsourcing of some MEF information technology functions

Standardization and interoperability of public administration information systems

Implementation of technological norms and standards recommended by the study on standardization and interoperability in the context of online services

Technological norms and standards are implemented before end 2011

Harmonization of public systems for online transactional services and related management savings

DS: Report on the implementation of the norms and standards of the interoperability of public administration information systems

ANNEX 3 Page 1 / 3

NOTE ON RELATIONS BETWEEN THE IMF AND MOROCCO

INTERNATIONAL MONETARY FUND Public Information Notice

Public Information Notice (PIN) No. 10/19 February 16, 2010

International Monetary Fund 700 19th Street, NW Washington, D.C. 20431 USA

On January 25, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Morocco.iii

Background

Morocco’s strong starting position, reflecting macro-economic and structural reforms introduced over the last decade, has given Morocco greater room for manoeuvre in its policy response. The direct impact of the global crisis on Morocco has been limited, primarily affecting Morocco through real channels. Exports, tourism receipts, remittances, and foreign direct investment (FDI) have all declined this year, due primarily to the slowdown in Europe, although most recent data suggest that some flows are gradually improving. In particular, Morocco has low public debt and low inflation, and the financial system is sound, with little exposure to international markets. In this setting, domestic demand has been resilient. Moreover, Morocco is benefitting from an exceptional cereal harvest. As a result, overall gross domestic product (GDP) growth in 2009 is projected at around 5 percent.

The authorities responded quickly to the unfolding crisis and have been successful in maintaining confidence. In particular, the fiscal balance will shift from a small surplus in 2008 to a deficit of about 2½ percent of GDP in 2009 as the authorities proceed with already-planned fiscal reforms, a boost in public investment, and targeted support to key sectors. A drop in revenue, partly due to already planned fiscal reforms, was offset to a degree by a fall in subsidies due to lower world commodity prices. With inflationary pressures low, the central bank—Bank Al-Maghrib—likewise lowered its key policy rate by 25 basis points, and, to boost liquidity, gradually reduced reserve requirements from 15 to 8 percent in 2009. The stock market remains well below its highs in early-2008, but the fall in 2009 has been moderate. Continued sizable support from Morocco’s external partners has also served as a source of resilience.

In the financial sector, the rapid credit growth in recent years is expected to lead to a moderate increase in nonperforming loans (NPLs) and thus continued vigilance is needed. Credit growth has averaged 23 percent per year over the 2006–08 period, slowing to about 12 percent growth in 2009. At the same time, the share of NPLs to total loans has fallen sharply over the last five years. The real estate sector, which in some cities has seen a correction after a run-up in recent years, is a specific concern, although NPLs in the sector remain low and provisioning is high. The

iii Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually

every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.

ANNEX 3 Page 2 / 3

authorities continue to take steps to improve monitoring of the financial sector, including establishing a credit bureau, and planning to fully implement Basel II recommendations and raise the capital adequacy ratio to 12 percent for certain banking institutions, based on their risk profile.

The peg to the basket has served Morocco well. Staff analysis suggests that the exchange rate is broadly in line with its fundamentals. Other indicators, such as current account developments and movements in price-based indicators, point to a mild appreciation of the real exchange rate in 2009.

The authorities are deepening structural reforms to increase productivity, boost growth and improve social indicators, including reducing youth unemployment, which remains high. The authorities continue liberalizing trade and simplifying the tax regime and plan to reform the justice system, increase infrastructure investment, and strengthen support for industry, tourism, and energy. In addition, the Plan Vert (“Green Plan”), which aims to increase productivity in the agricultural sector, is moving ahead and more recently the Government launched a similar effort to expand the country's fishing sector. A number of reform efforts are underway in the education and health sectors, the success of which will be a key element of improving living standards and boosting Morocco’s potential growth while reducing unemployment.

The authorities plan to continue publishing all documents relating to the Article IV consultation.

Executive Board Assessment

Executive Directors observed that Morocco faced the global crisis from a strong position, reflecting in large part the range of macro-economic and structural reforms introduced over the last decade, and was well-positioned to respond to and weather the crisis. Directors also noted that Morocco’s financial system is sound, with limited exposure to international capital markets. Thus, the direct impact of the global crisis on Morocco has been mild, with the economy being affected mainly through real channels as a result of the slowdown in Europe.

Directors commended the authorities’ response to the worsened global outlook. A moderate loosening of fiscal and monetary policies, coupled with vigilant financial sector supervision, has supported confidence and domestic demand, while containing risks. These policies, together with an exceptional cereal crop, contributed to strong real GDP growth in 2009.

Directors stressed that the challenge for 2010 will be to continue efforts to sustain economic activity in the face of a weak external environment. They supported the authorities’ plan for a further temporary widening of the fiscal deficit, with spending increases focused appropriately on capital rather than current spending.

Directors stressed that maintaining macro-economic stability through sound fiscal policy—a notable achievement of recent years—will remain critical. They welcomed the authorities’ commitment to return to fiscal consolidation, which will be phased in gradually starting in 2011. This will be important to stabilize the public debt-to-GDP ratio, preserve low borrowing costs in the economy, and facilitate the implementation of monetary policy. Replacing the universal subsidy system gradually with a system targeting vulnerable populations would improve efficiency and reduce fiscal risks.

Directors noted that the strong bank credit growth of recent years has moderated. However, they cautioned that, after a sharp fall in recent years, nonperforming loans are likely to pick up somewhat given the economic slowdown. The authorities should remain vigilant and continue to

ANNEX 3 Page 3 / 3

pay close attention to the capital requirements of the banking system. Directors also welcomed the continuing implementation of Basel II.

Directors agreed that the current pegged exchange rate regime has served Morocco well. Many Directors considered that the authorities’ medium-term objective to move to a more flexible monetary and exchange rate regime could help the economy to adapt better to changes in the international environment. They considered that prerequisites for a move to inflation targeting are largely in place; the risk of imported inflation is now much less; and balance sheets in the economy have little exposure to exchange rate movements. However, many other Directors considered that the timing of a move to a more flexible monetary and exchange rate policy should be carefully assessed, and they supported the authorities’ caution in this regard.

Directors stressed that continued structural reforms remain critical to boost growth, enhance competitiveness, and help improve Morocco’s social indicators. The authorities should push forward with the ongoing and planned reforms, including improving the efficiency and composition of public spending and further simplifying the tax and trade regimes. Directors welcomed the envisaged structural reforms to increase productivity by improving the business environment and raising capital investment. Strengthening social services will be critical to reducing poverty and addressing the persistent problem of youth unemployment.

February 16, 2010

___________________________________________________________________

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

ANNEX 4

TRENDS IN KEY MACRO-ECONOMIC AND FINANCIAL INDICATORS 2007 2008 2009 2010

(est.) 2011 (est.)

2012 (est.)

(Annual percentage change) Output and Prices Real GDP (market prices) 2.7 5.6 5.0 3.2 4.5 5.0 Real non-agricultural GDP (market prices) 7.1 4.0 2.3 4.0 4.5 5.1 Consumer prices (period average) 2.0 3.9 1.8 2.2 2.6 2.6

(In percent of GDP) Investment and Savings Gross capital formation 32.5 36.3 34.3 35.0 35.1 35.4 Of which: Non-Government 29.2 33.2 30.8 31.2 31.5 32.0 Gross national savings 32.4 31.1 29.9 30.5 31.0 31.9 Of which: Non-Government 25.7 24.2 24.8 26.5 26.5 27.2

(In percent of GDP) Public Finances Revenue (including grants) 27.9 31.0 26.0 24.6 24.7 24.8 Expenditure 29.1 31.1 28.9 29.3 28.6 28.3 Fiscal balance (including grants) 0.4 1.6 -2.3 -4.4 -3.7 -3.3 Primary balance (including grants) 3.5 4.2 0.2 -1.8 -1.4 -1.0 Total Government debt 53.5 47.3 47.4 48.0 48.9 49.1 (Annual percentage change, unless otherwise indicated) Monetary Sector Credit to the private sector 29.1 23.4 12 10 - - Broad money 16.1 10.9 8 8 - - Velocity of broad money 1.0 1.0 1.0 1.0 - - Three-month treasury bill rate (period average, in percent)

3.6 3.5 - - - -

(In percent of GDP, unless otherwise indicated) External Sector Exports of goods (in USD, percentage change) 26.9 32.8 -35.0 7.4 9.3 10.4 Imports of goods (in USD, percentage change) 34.8 35.5 -26.5 9.1 6.8 6.7 Merchandise trade balance -18.7 -21.9 -17.8 -18.3 -17.9 -17.4 Current account (including official transfers) -0.1 -5.2 -4.4 -4.4 -4.2 -3.6 Foreign direct investment 2.9 2.3 0.8 2.5 2.3 2.4 Total external debt 23.7 20.6 23.0 24.5 25.0 24.7 Gross reserves in months of imports of goods and services

6.2 7.5 6.9 6.7 6.4 6.3

Memorandum Items Nominal GDP (in USD billion) 75.2 89.9 89.9 96.8 103.4 110.7 Unemployment rate (in percent) 9.8 9.6 9.1 - - - Local currency per USD (period average) 8.2 7.8 - - - -

Sources: Government of Morocco; IMF Article IV (February 2010) and Staff estimates

ANNEX 5

CONDITIONS PRECEDENT TO BUDGET SUPPORT

Conditions precedent Key points General conditions Political and economic stability Government’s commitment

- The Moroccan regime is a constitutional monarchy and the Institutions of the Kingdom are solid and stable. Political changes take place through free and fair elections, and civil society is very active. The economic situation is also stable. Even with the global financial crisis, the fundamentals of the economy have been preserved thanks to the adoption of appropriate fiscal measures (taxation, support to the prices of staples, etc.).

- The Government has in the past demonstrated its commitment to undertake structural reforms through the successful implementation of Public Administration Reform Support Programmes (PARSP I to III), Financial Sector Adjustment Programmes (PASFI I to IV), Financial Sector Development Support Programme (PADESFI) and Medical Costs Recovery Support Programmes (PARCOM I and II).

Technical conditions: 1. Existence of a well-designed

PRSP/NDP and efficient implementation mechanisms

2. Viability of the macro-economic framework

3. Existence of a solid partnership

between Morocco and donors

4. Existence of a solid partnership between donors

5. Satisfactory fiduciary review of the

public finance management system (PEFA, CPAR and Public Expenditure Review)

- The Government has a programme approved by Parliament in October 2007, defining the different actions to be taken in all sectors of economic and social activity of the country during the 2007-2012 legislature. This programme which seeks to deepen macro-economic and sector reforms to stimulate economic growth and enhance the economy’s capacity to resist external shocks is accompanied by a series of elaborate medium- and long-term sector strategies aimed at giving investors and various operators the necessary insight into the potentialities and development prospects of the sectors concerned (energy, agriculture, water, industry, phosphate, tourism, handicraft, maritime fishing, off-shoring, domestic trade and logistics).

- This viability is illustrated by the macro-economic and financial performance recorded in recent years (for the period 2004-2008, average economic growth rate of around 5%, inflation rate of about 2.5%, budget deficit contained at -2% of GDP and current account deficit of the balance of payments at -1.7% of GDP, and international reserves equivalent to over 8 months of goods imports).

- Multilateral and bilateral donors have provided constant and massive support to the implementation of the Government’s programme. Foreign direct investments have over the past five years averaged about 3% of GDP.

- The partnership between donors operating in Morocco is illustrated by joint operations between the ADB, the World Bank and the European Commission (PARSP, PASFI and now PADESFI).

- The results of PEFA, CFAA and CPAR surveys as well as the public expenditure review have been conclusive. The few weak spots noted in PEFA concerned some inadequacies in the system of processing of complaints related to public procurement and the fact that all contracts above DH 200 000 are not awarded through open tendering; the percentage of contracts awarded by open tendering (AOO) in 2006 is 87%. To correct these weaknesses, a reform of the complaints system and the procurement decree is underway.

ANNEX 6 Page 1 / 4

1

MOROCCO – Public Administration Reform Support Programme – Phase IV (PARSP IV)

COMPARATIVE MATRIX OF MEASURES OF THE FOUR PARSP PHASES

Objectives Measures Achieved PARSP I-II

Measures Achieved PARSP III PARSP IV Measures

COMPONENT A: Improving Government efficiency in the management of budget resourcesA.1 Ensure greater visibility of policies and their medium-term budgetary implications, placing budget allocation decisions in a multi-year framework

Set up of a committee to reflect on the issue of sustainability of the Economic and Social Development Plan (ESDP) through Circular issued by the Prime Minister as well as the link between the ESDP, MTEF and their variations within the context of the finance law.

Set up through Prime Ministerial circular of an Inter-Ministerial Committee responsible for defining the MTEF format and related procedures.

Preparation and presentation of a TOFT for 2008-2010. Preparation of sector MTEFs for a total of 9 ministries

Preparation and presentation of a TOFT for 2009-2011. Preparation, with the assistance of an ad hoc working group, of five (5) additional MTEFs for the period 2010-2012 identifying the multi-year budget objectives of the ministries concerned.

A.2 Strengthen the responsibility of decentralized services in budget programming and execution, with focus on results and accountability

Extension of flexible budgeting in decentralized services to 12 ministries from the 2005 finance law.

Extension of flexible budgeting to at least 30 ministries. Signing and dissemination of an MEF circular that improves the credit decentralization process by simplifying procedures

Extension of flexible budgeting to all eligible ministries. Signing of a minimum of three (3) pilot performance contracts between the Ministries of Education and Health and their respective decentralized services.

A.3 Improve the performance of ministries through the introduction of internal auditing, evaluation and performance control.

Preparation and dissemination by CGED of procedures manuals relating to: • Control of Government contracts; • Commitment accounting.

Preparation and validation of the performance audit manual in compliance with ISA standards

Completion of the study on public expenditure control

Preparation of 2006 performance audit reports and dissemination of a 2006 consolidated performance audit report, prepared by IGM/IGFs in at least 13 pilot ministries

Issuance of a Decree from the Prime Minister instituting a new public expenditure control system Conduct of performance audits in at least 20 ministries and their presentation in a summary report

ANNEX 6 Page 2 / 4

2

Objectives Measures Achieved PARSP I-II

Measures Achieved PARSP III PARSP IV Measures

Signing of at least 4 partnership agreements between IGF and IGMs Issuance of a decree to amend and supplement the Royal Decree of 21 April 1967 to lay down general public accounting regulations Operationalization of Integrated Expenditure Management (IEM)

A.4 Reform the Government Finance Act Preparation of a platform for reflection on the reform of the finance law (LOF)

Application of international benchmarking on recent developments in best practices for amending the finance law

COMPONENT B: Improving Government efficiency in human resource managementB.1 Prepare the new human resource management system B.1.1 Carry out Jobs, Staff and Skills Management Planning (GPEEC)

Completion of RECs in the Ministries of Agriculture and Infrastructure, start up of REC works in MEF and MMSP and launching of RECs in new ministries

Completion of RECs in at least 6 ministries in 2007 Launching of GPEEC in ministries that have completed their RECs

Completion of RECs in all eligible ministries Launching of GPEEC in all eligible ministries that have finalized their RECs Preparation of evaluation tools and development of evaluation indicators based on RECs

B.1.2 Job classification Preparation of an action plan relating to the harmonization of rules and regulations governing Government employment Preparation of decrees to harmonize rules and regulations

Launching of the study on job classification under a common nomenclature

Completion of the study on job classification under a common nomenclature

B.1.3 Remuneration Award of contract for the study on the preparation of a new remuneration system based on the new job classification

Completion of the diagnosis, analysis of present situation and technical adjustments (Phase I), and launching of the design of scenarios (Phase II) for a new remuneration system based on the new job classification

B.1.4 e-HR Programme for the harmonization of HRISs in public administration

Launching of an international call for expression of interest in the study to develop the e-HR Programme

Conduct of the study to develop the e-HR Programme

Implementation of the common database Launching of a feasibility study for a public

ANNEX 6 Page 3 / 4

3

Objectives Measures Achieved PARSP I-II

Measures Achieved PARSP III PARSP IV Measures

Launching of a study on the implementation of a common database for the harmonization of HRISs

administration human resource info centre

B.2 Reform of the current management system

Adoption by the Government Council of decrees relating to: • Evaluation of the performance of

civil servants • Promotion of civil servants

Tabling before Parliament of the law amending the general rules and regulations of the civil service on: • Redeployment • Placement on reserve • Secondment • Recruitment by contract • Access to the civil service through

public competitive examinations

B.3 Introduction of professional development

Adoption by the Government Council of the draft decree on professional development

Preparation of a professional development strategy for public administration

Adoption by the Public Service Commission of a professional development strategy Preparation by eligible ministries of professional development plans in line with the strategy

COMPONENT C: Consolidation and control of Government wage billC.1 Strengthen the monitoring and control of the wage bill

Preparation of the model used to forecast the wage bill for 2005-2008, specifying the assumptions and parameters used

Creation, by an MEF circular, of a committee responsible for quarterly monitoring of wage bill trends

Dissemination by MEF of a quarterly report on trends in the wage bill and its determining factors by ministry

C.2 Carry out the qualitative re-profiling of the civil service

Implementation of the early retirement programme

Adoption of the draft decree prohibiting recruitment into Grades 1 to 4

C.3 Introduce best practices in monitoring, forecasting and managing remuneration allocations by ministries, and stabilize the number of civil servants

Rollover to the 2005 draft finance law of the measure limiting the number of new jobs created at most to the number of retirements (excluding early retirements)

Creation, by MEF circular, of a group responsible for preparing and implementing measures to improve the monitoring and forecast of the wage bill, and gradual introduction in 4 ministries (Finance, Education, Health and

Issuance by MEF of a circular to extend the application of best practices in the management of remuneration allocations to eligible ministries

ANNEX 6 Page 4 / 4

4

Objectives Measures Achieved PARSP I-II

Measures Achieved PARSP III PARSP IV Measures

Housing) of best practices in the management of remuneration allocations

COMPONENT D: Streamlining of procedures and e-Government D.1 Improve governance and leadership with respect to e-Government

Preparation of a Prime Ministerial circular on a credible comprehensive governance framework for the development of an information society and e-Government

Issuance of a decree to set up a National Council for Information Technologies and the Digital Economy

D.2 Streamline procedures and improve public services through e-Government

D.2.1 Customs

Launching of the process to recruit a qualified audit firm in the BADR system to meet a level of requirement that complies with relevant international standards

Stabilization of the BADR system and certification of the quality of its computer code

D.2.2 e-Procurement (online public contracts)

Extension to all ministries of the online public contract portal (downloading of bids, terms of reference and results)

Implementation of public contracts decision database for all ministries Extension of existing online public contract tools to at least 25% of public establishments subject to State control as well as 80% of local authorities Completion of the online competitive bidding action plan and its operationalization

D.3 Outsourcing of public services and public-private partnerships in the area of e-Government

Launching of a study on the outsourcing of some MEF information technology functions Validation by MMSP of the terms of reference of a study on the standardization and interoperability of public administration information systems

Launching of the implementation of the conclusions of the study on the outsourcing of some MEF information technology functions Implementation of the technological norms and standards recommended by the study on standardization and interoperability within the context of online services

ANNEX 7 DEVELOPMENT INDICATORS

Social indicators Morocco

Africa Developing Countries 1990 2008 *

Area (000 Km²) 711 30 323 80 976 Total Population (million) 24.8 31.6 986 5 523 Annual Population Growth (%) 1.9 1.2 2.3 1.4

Life Expectancy at Birth – Total (years) 64 71 55 66 Infant Mortality Rate (per 1 000) 63.6 29.5 83.9 53.1 Physicians (per 100 000 people) … 55.6 39.6 78.0

Births Attended by Trained Health Personnel (%) … 62.6 51.2 59.0 Immunization Against Measles (% of children between 12- 23 months old) 79.0 95.0 83.1 81.0

Gross Enrolment Ratio Primary (%) 66.9 107.2 99.6 106.0 Ratio of Girls / Boys Primary (%) 69 90 92 100.0

Illiteracy Rate (%population >15 years) … 44.4 33.2 26.6 Access to Safe Water (% Population) 75.0 83.0 64.3 84.0 Access to Health Services (%Population) 52.0 72.0 37.6 53.0

Human Development Index (Rank among 179 countries) … 127 … … Human Poverty Index (HPI-1) (% population) … 31.8 38.7 … Macro-economic indicators 2000 2007 2008 2009** GNI Per Capita, Atlas Method (current USD) 1 190 2 250 … …

GDP (current USD) 37 060 75 116 88 642 89 847 Real GDP Growth Rate (annual %) 1.8 2.7 5.7 5.4 Real Per Capita GDP Growth Rate (annual %) 0.6 1.5 4.4 4.1 Gross Domestic Investment (%GDP) 25.5 32.5 36.1 35.0 Inflation (annual %) 1.9 2.2 3.9 2.9 Budget Balance (%GDP) -5.5 0.7 0.4 ..

Trade, External debt & Financial flows 2000 2007 2008 2009**

Exports Volume Growth (%) 3.3 22.8 24.7 7.9 Imports Volume Growth (%) 3.6 34.3 23.9 7.7 Terms of Trade Growth -7.4 -2.3 4.9 3.4 Trade Balance (USD million) -3 234 -14 500 -16 787 -13 802 Trade Balance (% GDP) -8.7 -19.2 -18.9 -15.4 Current Account Balance (USD million) - 476 - 600 -3 313 -1 768 Current Account Balance (% GDP) -1.3 -0.1 -5.6 -5.7 Debt Service (% exports) 32.4 9.9 8.1 5.6 Total External Debt (% GDP) 48.6 23.8 20.5 20.9 Net Total Financial Flows ( USD million ) 601 2 782 … … Net Official Development Assistance (USD million) 419 1 090 … … Net Direct Investments (USD million) 422 2 577 … …

External Reserves (months of imports of goods and services)

4.9 6.2 6.6 … Private sector and infrastructure development 2000 2006 2007 2008

Time Required to Start a Business (days) … 12 12 12 Investor Protection Index (0-10) … 3 3 3 Fixed Telephone Lines (per 1000 people) 49 41 77 … Mobile Phone Subscribers ( per 1000 people) 81 609 766 … Internet Users (000) 200.0 6 100.0 6 600.0 … Paved Roads (% of total roads) 56 … … …

Railways, Goods Transported (million ton-km) 4 576 … … … Source: ADB Statistics Department, based on national and international sources * Most recent year. Last update: March 2009 ** Forecast

ANNEX 8

Morocco COMPARATIVE SOCIO-ECONOMIC INDICATORS

Year Morocco Africa Developing Countries

Developed Countries

Basic Indicators

Area ( '000 Km²) 711 30 323 80 976 54 658 Total Population (million) 2008 31.6 986 5,523 1,229 Urban Population (% of Total) 2008 56.0 39.1 44.2 74.6 Population Density (per Km²) 2008 44.5 32.6 66.6 23.1 GNI per Capita (US $) 2008 2 580 1 428 2 405 38 579 Labour Force Participation - Total (%) 2008 36.6 42.3 45.6 54.6 Labour Force Participation - Female (%) 2008 24.8 41.1 39.7 44.9 Gender -Related Development Index Value 2005 0.621 0.482 0.694 0.911 Human Develop. Index (Rank among 182 countries) 2007 130 n.a. n.a. n.a. Popul. Living Below $ 1 a Day (% of Population) 2004 14.2 34.3 25.0 … Demographic Indicators Population Growth Rate - Total (%) 2008 1.2 2.3 1.4 0.3 Population Growth Rate - Urban (%) 2008 1.9 3.3 2.5 0.6

Population < 15 years (%) 2008 28.8 56.0 40.0 16.6 Population >= 65 years (%) 2008 5.3 4.5 3.3 15.6 Dependency Ratio (%) 2008 52.2 78.0 52.8 49,O Sex Ratio (per 100 female) 2008 96.6 100.7 96.7 106.0 Female Population 15-49 years (% of total population) 2008 28.5 48.5 53.3 47.2 Life Expectancy at Birth - Total (years) 2008 71.3 54.5 65.7 77.1 Life Expectancy at Birth - Female (years) 2008 73.6 55.5 67.6 80.6 Crude Birth Rate (per 1,000) 2008 20.4 35.8 22.2 11.2 Crude Death Rate (per 1,000) 2008 5.8 12.4 8.1 10.1 Infant Mortality Rate (per 1,000) 2008 29.9 83.9 51.4 6.3 Child Mortality Rate (per 1,000) 2008 35.4 134.5 77.4 7.9 Total Fertility Rate (per woman) 2008 2.4 4.6 2.7 1.6 Maternal Mortality Rate (per 100,000) 2004 227.0 683.0 450.0 9.0 Women Using Contraception (%) 2004 63.0 29.7 61.0 75.0 Health & Nutrition Indicators Physicians (per 100,000 people) 2004 55.6 39.6 78.0 287.0 Nurses (per 100,000 people)* 2004 88.9 120.4 98.0 782.0 Births attended by Trained Health Personnel (%) 2004 62.6 51.2 59.0 99.0 Access to Safe Water (% of Population) 2006 83.0 68.0 62.0 100.0 Access to Health Services (% of Population) 2005 … 61.7 80.0 100.0 Access to Sanitation (% of Population) 2006 72.0 37.6 53.0 100.0 Percent. of Adults (aged 15-49) Living with HIV/AIDS 2005 0.1 4.5 1.3 0.3 Incidence of Tuberculosis (per 100,000) 2005 0.1 315.8 275.0 19.0 Child Immunization Against Tuberculosis (%) 2007 96.0 83.0 89.0 99.0 Child Immunization Against Measles (%) 2007 95.0 83.1 81.0 93.0 Underweight Children (% of children under 5 years) 2004 10.2 25.2 27.0 0.1 Daily Calorie Supply per Capita 2004 3 158 2 436 2 675 3 285 Public Expenditure on Health (as % of GDP) 2005 1.9 2.4 1.8 6.3 Education Indicators Gross Enrolment Ratio (%) Primary School - Total 2007 107.2 99.6 106.0 101.0

Primary School - Female 2007 101.3 92.1 103.0 101.0 Secondary School - Total 2007 55.8 43.5 60.0 101.5 Secondary School - Female 2007 51.4 40.8 58.0 101.0 Primary School Female Teaching Staff (% of Total) 2007 47.2 47.5 51.0 82.0 Adult Illiteracy Rate - Total (%) 2007 44.4 38.0 21.0 1.0 Adult Illiteracy Rate - Male (%) 2007 31.3 29.0 15.0 1.0 Adult Illiteracy Rate - Female (%) 2007 56.8 47.0 27.0 1.0 Percentage of GDP Spent on Education 2006 5.5 4.5 3.9 5.9 Environmental Indicators Land Use (Arable Land as % of Total Land Area) 2007 18.1 6.0 9.9 11.6 Annual Rate of Deforestation (%) 2005 … 0.7 0.4 -0.2 Annual Rate of Reforestation (%) 2005 … 10.9 … … Per Capita CO2 Emissions (metric tons) 2007 1.3 1.0 1.9 12.3

Source ADB Statistics Department Database; World Bank: World Development Indicators; UNAIDS; UNSD; WHO, UNICEF, WRI, UNDP; Country Reports

Last update: October 2009

Note: n.a: Not Applicable; : Data Not Available.