VZCZCXRO4844
RR RUEHLMC
DE RUEHRB #0176/01 0340757
ZNR UUUUU ZZH
R 030757Z FEB 06
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 2642
INFO RUEHCL/AMCONSUL CASABLANCA 1154
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION 0008
RUEATRS/DEPTTREAS WASHDC

UNCLAS SECTION 01 OF 04 RABAT 000176 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR NEA/PI AND NEA/MAG 
STATE PASS TO USAID/JRAGLAND 
 
E.O. 12958: N/A 
TAGS: EAID ECON EFIN KMCA MO
SUBJECT: WORLD BANK PROGRAMS IN MOROCCO 
 
 
This cable is sensitive but unclassified - protect 
accordingly 
 
 ¶1.  (SBU) Summary.  The World Bank (WB) is one of the 
longest serving development assistance programs in Morocco 
and currently has 16 outstanding loans to the GOM worth a 
total of approximately $500 million.  It seeks to help 
modernize Moroccan institutions through technical analysis 
and lending programs.  Currently, areas of concentration are 
public administration, education, water resource management, 
economic growth, social housing, rural development and the 
financial sector.  The WB has established a good working 
relationship with the GOM and seeks to expand its 
coordination with other bi-lateral and multilateral donor 
organizations to increase efficiencies and reduce 
duplication.  Although WB cooperation with the USG has 
historically been low, Morocco's participation in the 
Millennium Challenge Account (MCA) could change this.  Key 
officers of the WB feel Morocco is moving in the right 
direction, however, they regret that implementation of WB 
programs has been very slow.  End summary. 
 
 ¶2.  (U) The WB establishes multi-year country assistance 
strategies (CAS) that allow it sufficient time to undertake 
the dozens of tasks it seeks to achieve during the period. 
The 2005-09 CAS seeks to build on the results of the 2001-04 
CAS and together mark a significant increase in WB 
programming in Morocco from historic levels.  The goal of 
the 2005-09 CAS is to help Morocco with its two main goals: 
1) accelerating job growth and sustainable economic growth, 
and 2) reducing poverty.  The 2005-09 CAS seeks to 
accomplish this through four key objectives.  First, improve 
general economic competitiveness and the investment climate 
by increasing the efficiency of public administration, 
ensuring macroeconomic stability, strengthening the 
financial sector, and increasing competitiveness in the 
agricultural sector.  Second, reduce the number of families 
living in slums by 60 percent, and increase access of the 
poor to basic services, social programs, economic 
opportunities and better housing.  Third, improve the 
quality of the educational system, improve access to 
education, and raise graduation rates.  Fourth, improve 
water management and access to water services and 
sanitation.  The WB feels the environment for reform has 
matured in Morocco as demonstrated by King Mohammed VI's 
National Initiative for Human Development (INDH) to improve 
social conditions. 
 
------------------- 
THE WORLD BANK PLAN 
------------------- 
 
¶3.  (U) The WB foresees lending $270 to $380 million per 
year to Morocco from 2005 to 2008 in support of projects 
related to its aforementioned four objectives.  While delays 
in programming and other changes make actual lending levels 
difficult to accurately measure, the WB's planned 
disbursements for 2005-08 are as follows: 
 
Year      Project Description           Loan Amount 
                                        (in millions) 
 
2005      Public Administration Reform I     $100 
          Basic Education Reform I           $ 80 
          Financial Sector                   $200 
                                        TOTAL     $380 
 
2006      Housing                            $100 
          Rural Water and Sanitation         $ 40 
          Public Administration Reform II    $100 
          Rural Roads                        $ 30 
                                        TOTAL     $270 
 
2007      Public Administration Reform III   $100 
          Education                          $100 
          Water Resource Management          $100 
                                        TOTAL          $300 
 
2008      Development Policy                 $100 
          Basic Education Reform II          $100 
          Urban Water and Sanitation         $100 
                                        TOTAL          $300 
 
This equals $1.25 billion in projected loans over four years 
in addition to technical analysis programs.  The WB feels 
its ability to offer technical analysis and appropriate 
levels of financing are its greatest advantage over typical 
donor organizations.  Major technical analysis programs 
 
RABAT 00000176  002 OF 004 
 
 
during the 2005-09 CAS will cover the fields of: education, 
pension reform, public administration reform, investment 
climate assessment, water management, health insurance, land 
titling, poverty alleviation, agricultural reform, housing, 
social analysis, environmental impact studies, and 
gender/labor markets.  Together these programs have a cost 
of approximately $2 million. 
 
-------- 
PROGRAMS 
-------- 
 
¶4.  (SBU) Macroeconomic stability is among the Public 
Administration Reform Loans' (PARL) key objectives.  The GOM 
seeks to reduce its budget deficit to 3 percent of GDP, 
control the state's contingent liabilities, and maintain 
inflation below 2.5 percent.  One of the chief constraints 
to this is a public wage bill that equaled 12.8 percent of 
GDP in 2004 and that the PARL seeks to reduce to 11 percent 
by 2009.  The WB's Country Manager, Ferid Belhaj, reported 
that the GOM has made good progress so far by lowering the 
rate to 12.1 percent in 2005, but this cost the GOM nearly 
$1 billion in severance packages and other costs.  Now, the 
GOM must be resolute not to fall prey to the typical problem 
of countries in this situation of bowing to public pressure 
to hire new employees to replace those who were laid off as 
a way of battling high unemployment.  The GOM estimated a 
4.5 percent budget deficit for 2005, but this does not 
include funds used in the Hassan II Fund for social 
programs.  According to the WB, the true deficit is closer 
to 7 percent.  By 2009, the WB hopes to reduce the budget 
deficit to 3.6 percent, but this will be difficult due to 
Morocco's narrow tax base and large contingent liabilities 
related to the pension system and specialized banks.  All 
three of these issues are addressed by the PARLs.  For the 
past several years, privatization receipts have helped cover 
the budget deficit.  However, with most major privatizations 
complete, these funds will not be as readily available in 
the future.  The current deficit level is unsustainable and 
if it is not reduced the WB's Senior Economist, Khalid 
Masserouri, fears interest rates will rise, thus 
discouraging foreign investment, hurting the GOM's 
credibility and crowding out funds for social programs. 
 
¶5.  (U) At the same time, the WB will try to increase the 
efficiency of Morocco's public administration.  The PARLs 
will be used to rationalize the current overly complex 
budget process, improve accountability, and increase 
transparency and efficiency of human resource management 
within all ministries.  They will also try to increase the 
competitiveness of the economy and employment opportunities 
(specifically by supporting small and medium enterprises), 
develop vocational training programs, improve the mobility 
of labor, and make improvements to infrastructure.  The WB 
envisions improving the field of land titling, increasing 
employers' flexibility in hiring and laying off employees, 
expanding urban transport, promoting finance reform and 
decreasing the processing time for imports and exports to 
promote trade.  At the same time, the WB will try to 
stimulate growth in the agriculture sector by promoting land 
and investment reforms; improving competitiveness, quality 
and vertical integration of the cereals, vegetable, olive, 
citrus and livestock sectors; and promoting the means for 
drought insurance.  The WB is partnering with the European 
Union (EU), the IMF, the African Development Bank (AFDB), 
and others to promote these changes. 
 
¶6.  (U) The second major objective of the WB is to increase 
access to basic services for the poor.  The WB will offer 
several loans related to low income housing, sewage and 
water treatment, health management, social development, and 
rural road construction during CAS 2005-09.  Key programs 
will include the following.  The supply of social housing 
units is forecast to more than double to 100,000 units by 
¶2007.  Reforms will be enacted in the urban planning code, 
real-estate tax law and house rental sector.  Health 
insurance coverage for the poor is targeted to increase 
from 15 percent of the population in 2004 to 50 percent in 
2009, and access to rural roads to increase by 20 percent 
by 2008.  The WB will partner with the EU, the World Health 
Organization, AFDB, and French bilateral cooperation in 
this endeavor. 
 
¶7.  (U) The WB's third key objective is educational 
assistance.   Programs for the CAS 2005-09 will seek to 
increase the level of girls' elementary school attendance 
from 89 percent in 2004 to 97 percent in 2008, and rural 
middle school attendance from nine percent in 2004 to 40 
 
RABAT 00000176  003 OF 004 
 
 
percent in 2008.  Concerning both genders, the WB programs 
aim to increase primary school completion rates from 64 
percent in 2004 to 87 percent in 2008 and middle school 
from 54 percent in 2004 to 71 percent in 2008.  Other WB 
programs will increase the number of rural communities that 
have access to middle school instruction, close the gender 
gap in literacy, provide increased levels of education 
sector management training, and adopt results-based 
budgeting by 2009.  In the field of secondary school, the 
WB will offer programs to increase the number of 
"professionally qualified" people entering the job market 
from the current level of 20 percent to 50 percent in 2009; 
and increase the employment rate of vocational training 
graduates from 55 percent to 75 percent by 2009.  Other 
programs will seek to boost the private sector's 
involvement in higher education and strengthen 
universities' financial autonomy.  The Canadian 
International Development Agency (CIDA) is a major partner 
in this cause. 
 
¶8.  (U) The final major objective of CAS 2005-09 programming 
involves water-related issues.  The WB will work to 
rationalize the water pricing system to cover normal 
exploitation and maintenance costs; improve collection rates 
for irrigation, extraction and discharge fees; improve the 
supply of water sanitation for poor urban and peri-urban 
neighborhoods; reach a good water quality rating from 70 
percent of water quality measuring stations; and establish a 
new tariff and performance regulation system by 2009. 
Currently, insufficient coordination is hampering the sector 
as demand for water is increasing and the shortage of water 
is growing.  The WB programs aim to establish a National 
Water Savings plan by 2006, implement a national treatment 
strategy by 2007, implement autonomous sanitation strategies 
for rural zones by 2006, and define clear and realistic 
sectoral policy objectives for all actors by 2006.  Major 
partners include CIDA, the French Development Agency and the 
EU. 
 
----------------------- 
APPRISING THE SITUATION 
----------------------- 
 
¶9.  (SBU)  Belhaj noted that the GOM was "on the right 
track,"  but its record on implementation was poor.  He said 
numerous decrees related to water management had been 
adopted 10 years ago, but had still not been implemented. 
He noted bureaucratic problems within the GOM, which he said 
had very good senior managers, but weak mid-level managers. 
He also questioned how GOM decisions were made.  Belhaj 
added that Morocco must increase its level of economic 
growth considerably in order to reduce its high rate of 
unemployment, but current forecasts of 6 percent GDP growth 
were unrealistic with the current policies the GOM had in 
place.  He also strongly noted that economic growth must 
come from the private sector, but that Morocco's private 
sector was not sufficiently dynamic or entrepreneurial. 
Masserouri added that Morocco was one of the 10 worst 
countries in the world regarding the inflexibility of its 
labor market.  The inability of employers to lay off workers 
prevented them from hiring sufficiently large workforces to 
pursue new or temporary business opportunities.  He added 
that Morocco had the 20th highest personal income tax rate 
in the world, which served to stifle economic growth and 
encourage a thriving black market (estimated at 60 percent 
of GDP).  He also faulted the GOM's trade regime that 
continues to protect uncompetitive firms and allows numerous 
non-tariff barriers.  Finally, Masserouri said that the 
Moroccan economy lacks sufficient innovation, research and 
development, and IPR protection. 
 
--------------- 
LESSONS LEARNED 
--------------- 
 
¶10.  (SBU)  Looking back, the WB considers the CAS 2001-04 
to have been "moderately satisfactory," but that it had too 
many activities, was too fragmented, and did not link 
outcomes to measurable indicators.  It had planned to make 
18 loans during the period, but only nine were actually 
made.  In addition, slow implementation resulted in most 
projects being delayed 12 to 36 months.  Historically, 
cooperation between the WB and the USG has been low, but 
this could change as the WB seeks to increase coordination 
with other donors.  Currently, the WB is in discussions with 
the GOM regarding its possible participation in the INDH. 
Masseroui expects a large program to be announced in early 
2006 geared towards rural development projects much like the 
 
RABAT 00000176  004 OF 004 
 
 
GOM originally proposed for the Millennium Challenge 
Corporation (MCC).  In addition, Belhaj claimed that the 
INDH was based on the CAS 2005-09.  To what degree, if any, 
the MCC might cooperate with the WB has yet to be decided, 
but the two organizations have met to exchange information. 
The WB should serve as a good source of information for any 
USG assistance programs operating in Morocco such as USAID, 
the Middle East Partnership Initiative and the MCC. 
 
RILEY