RESTRICTED fILE COPY Report No. P-453 Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views.

INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

EXECUTIVE DIRECTORS

ON A Public Disclosure Authorized

PROPOSED DEVELOPMENT CREDIT

TO

THE KINGDOM OF

FOR AN EDUCATION PROJECT

Public Disclosure Authorized September 24, 1965 INTERNA.TIONAL DEVELOPPIENT ASSOCIATION

REPORT AND RECMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE KINGDOM OF MOROCCO FOR AN EDUCATION PROJECT

1. I submit herewith the following report and recommendation on a proposed development credit in various currencies equivalent to $11 million to the Kingdom of Morocco to help finance an education project.

PART I - HISTORICAL

2. In November 1964., the Government of Morocco submitted an applica- tion to Bank/IDA for a loan or credit for financial assistance in the and equipment of 21 schools offering general and special- ized education and training at the secondary level. The appraisal mission visited Morocco in March and April 1965.

3. Previous missions to Morocco concerned with education included a Unesco Educational Investments Programming Mission (1963) and a Bank Economic Survey Mission (1964): the relevant sections of their reports were available to the members of the appraisal mission.

4. The proposed credit would be the first operation of the Associa- tion in Morocco. In December 1962, the Bank made a $15 million loan (and IFC joined with a $1.5 million investment) to Morocco's Development Bank (BNDE). In August 1964 the Bank made a second loan to Morocco equivalent to $17.5 million to help carry out an agricultural development and program. As of August 31, 1965, the status of these loans was as follows:

(US $ millions) Year Borrpwer Purpose Amount Undisbursed Balance

1962 Banque Nationale Industry 15.0 9.3 de D6veloppement Economique

1964 Kingdom of Morocco 17.5 13.8 Total 32.5 23.1 of which has been repaid 0.5 Total outstanding 32.0

Amount Sold 0.1 of which repaid - 0.1

Net Amount Held by Bank 31.9 - 2 -

5. On September 10, negotiations were completed on a Bank loan equivalent to $10 million to the Caisse Nationale de Credit Agricole (CNCA). This loan will help finance an Agricultural Credit Project and is expected to be submitted to the Executive Directors for decision during the month of October 1965.

PART II - DESCRIPTION OF THE CREDIT

6. Borrower: Kingdom of Morocco

Amount: The equivalent in various currencies of US $11 million

Purpose: To help finance the construction and the equipment of 21 secondary schools located in various towns in Morocco.

Term and Amortization: 50 years with no amortization for the first 10 years. One-half of 1% of the principal amount wvould be repayable semi- annually for 10 years and, beginning March 15, 1986, 1-1/2% of the principal amount would be repayable semi-annually for 30 years.

Service Charge: 3/h of 1% per annum for the principal amount of the credit disbursed and out- standing.

Payment Dates: March 15 and September 15.

PART III - APPRAISAL OF THE PROPOSED CREDIT The Project

7. A report on the project, "Appraisal of an Education and Training Project in Morocco," (TO-487a) is attached.

8. Following independence in 1956 the Moroccan Government embarked on a policy of expanding primary education but expansion of secondary school enrollment did not start until 1960/61 and is still inadequate. In the public and private sectors there is a distinct shortage of trained man- power at this level. Furthermore, applicants for entry into the university are still small in number so that the field of selection con- tinues to be narrow. Lastly, highly paid expatriates still hold a high percentage of middle and high-level jobs. Government policy is gradually to replace expatriates by and this requires a rapid expansion of secondary education. The proposed project is directed to assist in meeting the aforementioned needs. - 3 -

9. The project, expected to be completed by 1968, will permit about 30,000 additional students to be enrolled in 21 schools of secondary education. This is about 30% of the total increase in secondary school enrollment envisaged in the Three-Year Plan (1965-67). Of the 30,000 students, 24,000 will be boys and 6,000 will be girls. Boarding accom- modation is included for 3,400 students, of whom a little over 900 will be girls. By 1968/69 when the project is fully implemented, the 21 schools will have about 12,000 students in the common first two years of study (observation classes), 6,700 students in the "short" course 2j and a total of 10,800 in the two cycles of the "long"course. 31 In the "short" course about 1,300 students will pursue training in agriculture, 600 in commerce, 500 in industrial training and 100 in feminine arts, together with 4,200 in general studies. In the second cycle of the long course, about 1,900 students will be specializing in science, 500 in mathematics, 300 in industrial arts and 100 in commerce. To these should be added about 3,800 students who will specialize in languages, history and other general subjects. Many of the second cycle students will proceed to universities.

10. The proposed project consists of the construction and the equipment of 21 multilateral secondary schools which provide basic education with alternative biases (e.g. arts, sciences, commerce, home economics, tech- nical, etc.) The total estimated cost is about DH 80.7 million, equi- valent to US$16.2 million. This cost is made up of about $2.4 million for sites, $1.1 million for site development works and $7.1 million for construction. Furniture, domestic appliances, science laboratories and workshop equipment and libraries take about $3.2 million while profession- al fees and contingencies account for about $2.4 million. The estimates and unit costs are reasonable.

11. The proposed IDA development credit of $11 million, or about two- thirds of the estimated total cost, will cover all the foreign exchange component, estimated at about 30% of the total cost of the project, and part of the local currency. IJith respect to the procurement of all goods

U Immediately following the primary school, partly to further the student's basic education and partly to provide diagnostic informa- tion concerning his choice of specialization. A four years' course primarily intended for less academically able students who should prepare for gainful employment by suitably planned courses of study or training. 2/ Designed for the more able students. It consists of a first cycle of general studies of 4 years' duration and a second cycle of 3 years of specialized studies (art, sciences, technical, commercial). Completion of the second cycle may lead to university study or its equivalent. - 4 -

and services it has been provided that civil works contracts in- volving an amount of $100, 000 equivalent or more and contracts for procurement of school equipment involving an amount of $30,000 equi- valent or more shall be awarded on the basis of international compe- titive bidding. It has also been agreed that individual contracts shall be of a size sufficiently large so as not to discourage po- tential bidders or to impede the effective carrying out of the project.

12. Additional teachers required to staff the 21 schools form part of the total number of teachers needed for the expansion of secondary edu- cation envisaged in the Moroccan Three-Year Plan. The supply of trained teachers will fall short of the need and emergency measures will have to be adopted - such as the employment of senior primary school teachers to staff the first two years of common study - until 1969/70 wihen the Advanced Teacher Training College output is able to meet the teacher need at this level.

13. The estimated annual cost of operating these schools after full implementation of the project will be approximately DH 25 million, which will not unduly burden the Budget.

The Economy

14. A report dated March 14, 1963, "The Economy of Morocco," (AF 7a) has been circulated to the Executive Directors. Subsequently, at the request of the Government, the Bank organized a General Survey Mission to Morocco. The Mission's draft report was sent to Morocco for comments and has recently been discussed with the Government. A short economic report entitled "Recent Economic Developments in Morocco," and drawing extensively upon the material contained in the Survey Mission's report, is attached hereto (Ref. AF 36).

15. With an average per capita income of about $170, Morocco is in a better position than many of its African neighbors. However, the country is experiencing a difficult period economically and socially. Population is rising by at least 3% annually, and now stands at about 13 million. Growth of output has averaged only about 2% annually since 1955, so that average per capita income has declined, reflecting the departure of rel- atively high income Europeans and leaving that of the Moroccan population little changed. Seventy percent of the labor force is engaged in sub- sistence type agriculture, and 80% of the population is still illiterate. There is considerable .

16. The slow growth of output since independence has been due in large part to a sharp drop in private investment which has been associated with the outflow of Europeans. The number of European settlers has de- clined from a peak of half a million in 1956 and 300,000 in 1960 to around 150,000 at present and there has been an almost continuous net outflow of private capital during the past decade. Another important - 5 -

factor in the slow growth rate has been stagnation in agricultural pro- duction for the domestic market, reflecting the slow rate of progress in traditional farming and a difficult natural environment.

17. The Government has made an effort to speed up growth through an expanded public sector development program, which helped to increase investment from a low of 7% of GNP in 1957 to an average of 12% in the past several years. But increasing resort to inflationary financing in 1961-64, declining expenditures in Morocco on the part of foreign governments, and accelerated private capital outflow led to the virtual exhaustion of foreign exchange reserves by late 1964. Since then the Government has taken important steps toward stabilizing the financial situation. There has also been a substantial increase in for- eign aid commitments. However, slow growth seems likely to continue over the next several years unless public investment efforts in agri- culture can produce faster results, and unless the exodus of skilled manpower and capital in the private sector can be slowed down or offset by increased internal savings and efforts to train Moroccans for the skills required by the economy.

18. Morocco is in a difficult transitional period. It has shown great willingness to take the measures which should ease this trans- ition. However, important uncertainties remain, especially with respect to the impact which the outflow of skills and capital will have on the pace of development. But there is little doubt that the burden of compensating for this outflow, while at the same time increas- ing investment to meet the needs of a rapidly increasing population, will be significantly larger than Mlorocco can support from its own re- sources. is not yet very burdensome (less than 5% of export earnings are presently required for debt ), and there is scope for further conventional borrowing. However, it would be unwise for Morocco to try to meet its full external capital requirements in this fashion, because of the uncertain outlook, and the threat of esca- lating debt service. Given these problems and given Morocco's recent record of performance under difficult circumstances, the country would appear eligible for some blend of IDA assistance.

PART IV - LEGAL INSTRUMENTS AND AUTHORITY

19. The draft Development Credit Agreement between the Kingdom of Morocco and the Association is being distributed separately to the Executive Directors; it conforms substantially to the pattern of agree- ments usually followed for projects of this type.

20. The Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement of the Association is also being distributed separately. - 6 -

PART V - COMPLIANCE WITH ARTICLES OF AGREEMENT

21. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association.

PART VI - RECOMMENDATION

22. I recommend that the Executive Directors adopt the following resolution:

RESOLVED:

THAT the Association shall grant a development credit to the Kingdom of Morocco in an amount in various currencies equivalent to eleven million dollars (US$ll,OOO,OOO), to mature on and prior to September 15, 2015, to bear a service charge at the rate of three-fourths of one percent (3/4 of 1%) per annum, and to be upon other terms and conditions substantially in accordance with the terms and conditions set forth in the form of Development Credit Agreement (Education Project) between the Kingdom of Morocco and the Association which has been presented to this meeting.

George D. 1.Toods President

Attachments September 24, 1965 Washington, D.C.