Document of The World Bank
FOR OFFICIAL USE ONLY Public Disclosure Authorized
Report No: P7589-MOR
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
PROGRAM DOCUMENT
FOR A
Public Disclosure Authorized PROPOSED ADJUSTMENT LOAN
Ir THE AMOUNT OF m.5 MILLION (us$ioo MILLION EQUIVALENT)
TO
THE KINGDOM OF MOROCCO
FOR A
PUBLIC ADMINISTRATION REFORM ADJUSTMENT LOAN Public Disclosure Authorized
June 4,2004
Social and Economic Development Group Middle East and North Africa Region
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group
Public Disclosure Authorized authorization. CURRENCY EQUIVALENTS (As ofMay 2004)
Currency Unit = MAD MAD 1 = US$O.lO US$l.OO =MAD 9.172
FISCAL YEAR January 1-December 3 1
ABBREVIATIONS AND ACRONYMS
CAS Country Assistance Strategy CED Expenditure Commitment Control (Contr6le des Engagements de Dkpenses) ESW Economic Sector Work EU European Union FDI Foreign Direct Investment GDP Gross Domestic Product IBRD International Bank for Reconstruction and Development IGF General Inspector ofFinance (inspection gknkrale des$nances) IGM Ministries’ General Inspectorates (inspection gkndrale des ministgres) IMF International Monetary Fund IT Information technologies MoF Ministry ofFinance MTEF Medium-Term Expenditure Framework OED Operations Evaluation Department PARL Public Administration Reform Adjustment Loan PER Public Expenditure Review PJD Parti de la Justice et du Dkveloppement PM Prime Minister SAL Structural Adjustment Loan TGR Kingdom’s General Treasurer (Trdsorerie G&nkraledu Royaume) USA United States ofAmerica VAT Value Added Tax
Vice-president: Christiaan Poortman Sector Director: Mustapha K. Nabli Country Director: Theodore Ahlers Task Team Leader: Pierre Demangel FOR OFFICIAL USE ONLY
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROGRAM DOCUMENT FOR A PROPOSED PUBLIC ADMINISTRATION REFORM ADJUSTMENT LOAN TO THE KINGDOM OF MOROCCO
TABLEOF CONTENTS
LOANAND PROGRAM SUMMARY ...... i I. COUNTRYAND ECONOMICCONTEXT ...... 1 A . Country Context ...... 1 B. Political and Economic Developments ...... 2 C. Public Sector and Governance Issues ...... 4 D. Medium-Term Macroeconomic Prospects and Fiscal Sustainability ...... 5 11 . THE GOVERNMENT’SREFORM PROGRAM...... 9 A . Objectives ofthe Program...... 9 B. Government’s Past Reform Activities ...... 10 C. The Government’s Present Reform Program...... 11 1. Improving the Eflciency ofBudget Management ...... 11 2 . Improving the Administration’s EfJiciency in Human Resource Management ...... 12 3 . Keeping the Wage Bill under Control ...... 14 111 . THE PROPOSED PUBLIC ADMINISTRATION REFORM ADJUSTMENTLOAN (PU) ...... 14 A . Loan Objectives and Description...... 14 B. Loan Rationale ...... 14 C . Earlier Bank Assistance and Lessons Learned...... 15 D. Institutional Arrangements with Government ...... 16 E. Coordination with other Donors ...... 16 F. Benefits and Risks...... 17
ANNEXES
Annex I: Letter of Development Policy Annex 11: Policy Matrix Annex 111: List ofMeasures Taken by the Borrower under the First Phase of the Program Annex IV: IMF Morocco-2004 Article IV Consultation .Summing Up Annex V: Morocco At A Glance Annex VI: Operations Portfolio Annex VII: Morocco PARL Task Team
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.
KINGDOM OF MOROCCO
PUBLIC ADMINISTRATION REFORM ADJUSTMENT LOAN (PAW Loan and Program Summary
Borrower: Kingdom ofMorocco
Amount: €82.5 million (USSlOO million equivalent)
Terms: Libor-based Fixed Spread Loan, commitment linked, annuity maturity type, repayable in 20 years, including five years ofgrace period.
Description: The objectives of the proposed program are to support the Government’s efforts to improve the effectiveness of public resource management, a key step for accelerated growth and poverty reduction. It includes: (i)improving the efficiency of budget expenditure by de-concentrating expenditures and accountability to enable greater flexibility to regional administrations, and by introducing performance budgeting and auditing; (ii)implementing a reform of the civil service based on enhancing efficiency and service quality; and (iii)ensuring a sustainable macro framework, by controlling inter alia the magnitude ofthe civil service payroll.
Based on an agreed set of public administration reforms, the Bank will provide resources to the Government. The proposed loan would be the first in a series of annual programmatic loans supporting the implementation of the reform program. The proposed loan would complement and strengthen the ongoing multi-year Economic and Sector Work (ESW) activity through which the Bank is providing the Government with advice, training and technical assistance as required in the areas of budgetary management and civil service. It is closely coordinated with the European Union: program content, conditions and trigger points are common to the two institutions.
Benefits: By addressing the key constraints affecting the effectiveness of public service delivery, the proposed operation would contribute to the key goals of private sector development and poverty reduction. By helping keep the wage bill under control, it will help ensure macroeconomic stability. It would help provide the practical budgetary framework necessary to implement the Government’s administrative decentralization orientation. From the Bank’s point of view, this operation would provide an example across the region ofhow to address these important issues.
i Risks: One important risk is that the Government would not be able to resist pressures to increase salaries for various categories of civil servants, and significantly undermine the improvement in the fiscal balance that allowed us to move to the base case CAS scenario. This risk is being mitigated by the reform program itself, combined with the reformist stamp of the Government. Another risk is that the implementation of the reforms would be stalled, as was the case in the past, because of the silo mentality in Government and opposition from interest groups. The risk is mitigated by the political coordination put in place by the new Cabinet to implement reforms, and also by the strategic policy dialogue pursued between Moroccan authorities and the Bank. Also, we are planning, along with key partners, extensive supervision of the implementation of the reforms, together with the knowledge sharing and technical assistance entailed by a continuation ofthe programmatic ESW operation.
Disbursements: The proposed Loan would be disbursed in one installment upon Loan effectiveness.
Project ID No: PO78565
Map: IBRD 3 1437
11 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROGRAM DOCUMENT FOR A PUBLIC ADMINISTRATION REFORM ADJUSTMENT LOAN TO THE KINGDOM OF MOROCCO
1. The proposed adjustment loan to the Kingdom of Morocco for €82.5 million (US$lOO million equivalent) will contribute to financing the Public Administration Reform Program. The objectives of the proposed loan are to support the Government’s efforts to improve the effectiveness of public resource management, a key step for accelerated growth and poverty reduction. They include: (i)improving the efficiency ofbudget expenditure by de-concentrating expenditures and accountability to enable greater flexibility to regional administrations, and by introducing performance budgeting and auditing; (ii)implementing a reform of the civil service based on enhancing efficiency and service quality; and (iii)ensuring a sustainable macro framework by controlling inter alia the magnitude of the civil service payroll. It is closely coordinated with the European Union (EU): program content, conditions and trigger points are common to the two institutions. The European Commission considers a support in the form of a Structural Adjustment Grant, with yearly tranches. The borrower has requested that the Loan be Libor-based Fixed Spread Loan, commitment linked, annuity maturity type, repayable in 20 years, including five years of grace period and would be disbursed in one installment upon effectiveness.
I. COUNTRY AND ECONOMICCONTEXT
A. Country Context
2. Countw Context. Morocco is a lower middle-income country with a population of about 31 million, and a gross national income per capita estimated at US$ 1400 in 2003. Agriculture retains a key role in the economy, with a share of Gross Domestic Product (GDP) lingering around 16 percent over the last twenty years, and employing some 40 percent of the labor force, compared to 25 percent and 35 percent for industry and services, respectively. The economy is relatively open with exports and imports amounting to about 69 percent ofGDP. Europe remains Morocco’s major trading partner, and important exports include phosphates and phosphate ‘ derivatives, textiles, food (fresh and processed), and tourism.
3, Economic and Social Trends. Economic growth was disappointing, averaging around 2 percent per year during the 1990s, and was characterized by high volatility originating from output swings in drought-stricken agriculture. Non-agncultural growth was less volatile, but averaging only some 3.1 percent during the period, reflecting stagnant private investment at some 13.5 percent of GDP, (22 percent for gross fixed investment, including public investment), and Morocco’s failure to take advantage of the growth in world trade during the 1990s. This same period witnessed the firming up of macro stability, with budget deficits averaging 3.5 percent of GDP, declining external debt, and inflation rates, underpinned by a fixed exchange rate, converging towards two percent by the end ofthe decade.
4. On the social front, although many indicators such as life expectancy, access to basic infrastructure such as water, roads and electricity, and school enrolment rates have improved steadily over the last few years, Morocco still has a way to go to reach comparable countries in terms of poverty, equity, health and education. Poverty rose from 13 to 19 percent of the population between 1991 and 1998 due to a series of droughts and very slow growth, with 75
1 percent of the country’s poor living in rural areas. Although more recent survey data are unavailable, World Bank projections indicate that poverty probably decreased to 12 - 15 percent by 2003 given the strong agricultural performance of the past few years. There are significant economic and social disparities both between and within rural and urban regions, and between men and women.
5. Fiscal policy and public expenditure management during this period both reflected and contributed to these mixed results. Budget management was primarily directed during this period at reducing and thereafter maintaining the fiscal deficit at a low level, with insufficient regard for the delivery of public services, in particular in rural areas. Budget execution was characterized by its rigidity, with the Ministry of Finance (MoF) using heavy and centralized control mechanisms to delay programs in order to ensure meeting deficit targets. The economic and political developments of the late 1990s, however, brought significant changes in development objectives and economic policies.
B. Political and Economic Developments
6. Political Developments. Over the last five years, a major democratic and political transition has been initiated in Morocco. In 1998, a well respected opposition leader was appointed Prime Minister (PM) after national elections: for the first time in independent Morocco’s history the opposition was allowed to become a majority and to rule. Following the death of King Hasan I1 in 1999, King Mohammed VI has further reinforced the trend towards political opening, focusing new initiatives on the pressing social issues facing the country, including education reform, women’s conditions, and further strengthening transparency in justice. Parliamentary elections were held in September 2002 and were widely considered to be the first free and fair elections in the country’s history. The elections involved 27 political parties and resulted in the strongest showings for the Union Socialiste des Forces Populaires (15.4 percent), Istiqlal (14.8 percent) and the islamist Parti de la Justice et du Ddveloppement (PJD 12.9 percent). Due to the strong performance of the PJD and the complicated coalition building necessary to form a majority Cabinet, the King exercised his constitutional rights and appointed the PM, Mr. Driss Jettou, former Minister of Interior. This appointment was perceived to be motivated by the desire to improve the efficiency of economic and structural reforms by having a technician rather than a politician lead the Cabinet. Mr. Jettou appointed a Cabinet that includes the main political parties, with the exception of the PJD, which now remains the principal political opposition. He also appointed a handful ofMinisters with close ties to the Palace to help steward reforms.
7. The Casablanca bombings of May 16, 2003 had a tremendous impact on the country, unleashing fears and putting into question the “Moroccan exception”: with the King being the “Commander of the Faithful”, Morocco was deemed immune from extremist ideologies. The result of these tragic events was to strengthen the King’s resolve to move forward with democracy while ensuring security, with the Government adopting both security and social measures (e.g. social housing, education) as top priorities, as evidenced by the 2004 budget law. Local elections were delayed a few months because of the May events, but took place successfully in September 2003. Given the post-May 16 ambiance, the PJD limited its candidates and thus enjoyed modest results in comparison with the parliamentary elections.
8. Recent Economic Developments. After being almost nil in 1999 and only one percent in 2000, real GDP registered growth rates of 6.3 percent in 2001, 3.2 percent in 2002 and 5.5 percent in 2003. The high growth rate during the past few years has been due largely to good agricultural performance, but also somewhat to improving non-agricultural growth. The
2 Government’s strategy has been to focus on a few high potential sectors, principally tourism, telecommunications and information technologies (IT), fisheries, and housing. Over the last few years, the targeted sectors have experienced strong growth: tourist amvals after the stagnation of the early 90s started to grow at around 20 percent, the IT sector was boosted by the introduction of competition and by privatization, and housing reached growth rates of around six percent per year. But these results were not enough to significantly increase total non-agricultural growth, and the authorities decided to also boost aggregate demand through expansionary fiscal policy.
9. During 1999-200 1, fiscal policy became markedly expansionary, as large privatization proceeds from the telecommunications sector allowed the authorities to increase the budget deficit to more than 6 percent of GDP without increasing public borrowing. The deterioration in public finance was explained primarily by a sharp increase in public expenditures, mostly current expenditures, in particular wages and salaries (see below). The increasing rigidity in the composition of expenditures, combined with the short-term nature of revenues, in particular privatization revenues, led to concerns about the medium-term sustainability of public finances.’ As a result of these concerns, the Bank has abstained from providing fast disbursing support to Morocco as indicated in the CAS low base case scenario.
10. In 2002, Morocco’s fiscal position began to strengthen. Structural fiscal indicators, including budgetary savings and the primary deficit, improved in 2002 as compared to both the 2001 outcome and the 2002 Budget Law. Similarly, the wage bill reversed its rising trend and declined in 2002 as a share of GDP for the first time since the mid-1990s. In addition, despite the failure to mobilize privatization revenues, the authorities were able to finance domestically the deficit in 2002 without recourse to accumulation of arrears or significantly straining domestic financial markets.
11. In 2003, the budget deficit appears to have deteriorated compared to that set in the Budget Law 2003 despite the improvement ofrevenues. The deterioration stemmed mainly from salary increases due to a renewed focus on security and the need to adequately compensate security and armed forces. In addition, as in several instances in the past civil service promotions which had been frozen to control the wage bill became long overdue and were finally granted under social pressure. The increase in the 2003 wage bill reflected arrears for teachers (MAD 1.6 billion), reinforcement of security personnel as a result ofMay 16 events (MAD 0.25 billion) and outlays for the unpaid salaries for the repatriated military personnel from Algeria (MAD 0.35 billion). The good news is that most of these salary expenditures will not appear in the future wage base as they were one-time expenditures. Medium-term fiscal trends are discussed in more detail below.
12. Other aspects ofeconomic performance in Morocco have also improved during 2002 and 2003. The external position is strong: the current account has been in surplus since 2001, due mainly to large foreign remittances and tourism inflows. External reserves have recently reached comfortable levels at 10 months ofimports. In addition, inflation is low and stable (despite some pressure of momentary high liquidity in the economy). Economic growth in 2003 is estimated above 5.5 percent, due to excellent rainfall during this period which would benefit households and businesses in both urban and rural areas. And the agenda of structural reforms planned over
1 Privatization revenues are currently expected to become marginal within the next three years. In addition, there was a temporary surge in other revenue in 1999-2000, but this was caused by one-off exceptional inflows, such as a fiscal amnesty or higher public enterprise profits and loan repayments. Current tax revenues as a proportion of the more stable non-agricultural GDP remained stable. Finally, tariff revenues are expected to decline by some two percent of GDP over the next five years as Morocco implements the last phase of the association agreement with the EU.
3 the medium term provides reason for cautious optimism regarding Morocco's prospects for sustainable growth. The International Monetary Fund (IMF) recently concluded its Article IV consultations with Morocco and issued an assessment ofrecent economic developments along the same lines as the one above (see Annex N).
C. Public Sector and Governance Issues
13. Public Administration Background. Morocco's system of public administration derives from France, from which it inherited the budget and treasury system, the administrative organization of territorial services, and the tenured civil service system. The budget system is characterized by strong Msase salarfale d4 lafonctlon pullllque en % du PIB (1997-1999) ex-ante compliance 12 controls. Ex-post auditing
10 is the role of the Cour des comptes (supreme audit 8 institution), a branch of 6 the judiciary. In addition to central services in 4 Rabat, most ministries
2 have branch offices at the regional and provincial n I 1 1, ...l..-l.
such as schools or health centers. Local governments exist at the regional, provincial and communal levels.
14. Civil servants are managed according to a corps system, with pay scales and grades specific to each corps. At about 600,000, or about 6 percent of the active population, the number ofcentral government civil servants does not seem excessive, by comparison to a sample of other countries. The wage bill, however, as a percentage ofGDP, is among the highest in the world. It reached 12.5 percent of GDP in 2001 and 12.7 percent in 2003, although it decreased to 12.2 percent in 2002. The main cause of the large wage bill is essentially the high compensation2 level. Indeed, if average compensation is expressed as a multiple ofper capita GDP, Morocco's is among the highest in the world.
15. Kev Public Sector Issues. Public sector management is characterized by: (i)excessive centralization, between the MoF and the other ministries on the one hand, and between Ministries headquarters in Rabat and their branch offices and service-providing units on the other; and (ii)a culture ofadministrative formalism.
16. Excessive centralization has resulted in slow program implementation, lack of cross- sector coordination, and insufficient participation from stakeholders. Centralized procedures for budget preparation and execution are cumbersome and have undermined efficiency in the use of public resources. Managers in the field, close to service beneficiaries, have little say on the use of budget resources, as well as on managing their own staff. The culture of centralism in Morocco applies not only to MoF expenditures procedures, but also to the way central ministries deal with the operations of their branch offices, or, more generally, to the way central government deals with its relations with local governments. Indeed, although 90 percent of civil servants (including teachers) work outside the capital, most of the decision malung and budget management takes place in Rabat.
Compensation includes salaries, bonuses and various cash benefits.
4 17. Civil service management is characterized by a tenure system, combined with a rigid system of promotion and salary increases. The system provides little incentives for good perfomance. Pay raise and promotions tend to be linked more to seniority and collective bargaining within each corps, than to performance. The skills mix, biased towards implementation rather than managerial or analytical profiles, does not serve well the needs of a modem administration. An opaque and fragmented compensation system, coupled with constraining regulations, has inhibited staff redeployment, impeded administrative decentralization, and prevented the effective use ofa merit-based compensation system.
18. The architecture ofthe civil service system and the growing numbers of staff have led to weaknesses in controlling the wage bill. Civil service statutes are regularly by-passed under social pressure. Recently, the Government has been granting “exceptional promotions” by which large groups of civil servants in a specific ministry or in a particular profession received un- statutory promotions, resulting in increases in salaries and bonuses. These promotions have led to a process of salary realignment across the civil service in order to preserve appropriate relative pay levels, and as a result from pressure from staff in ministries or corps whose salaries and bonuses had not yet been adjusted.
D. Medium-Term Macroeconomic Prospects and Fiscal Sustainability
19. As noted above, the large fiscal deficits of 1999-2001 financed mainly through privatization revenues, raise questions about the sustainability ofthe Government’s fiscal policy. Morocco managed to reduce central govemment public debt during the 1990s from a high of 89 percent ofGDP in 1993 to 74 percent in 1998. At the end of2002, however, central govemment direct debt was still more than 71 percent of GDP. Expressed otherwise, privatization proceeds have weakened fiscal discipline, and in particular have been used to finance large increases in the wage bill and other current expenditures. However, as privatization proceeds wind down over the medium-term, there is concern that public debt could rapidly increase as a share of GDP unless expansionary policies are corrected and revenues are consolidated.
20. Projections indicate that, assuming no change in overall policies, Morocco’s fiscal position remains unsustainable over the medium- to long-term. However, the increase in the debt to GDP ratio is gradual. Indeed, after an expected drop in 2003, the central govemment debt to GDP ratio starting in 2005 begins to rise gradually. By 2012, public debt would have risen to about 87 percent of GDP, a 16 point rise since 2002. The debt to GDP ratio time path results from the combination of a U shaped primary deficit, including privatization proceeds, and the assumed gradual increase in borrowing costs. In turn, the path over time of the primary deficit reflects several factors, including the availability ofprivatization revenue, the decline in trade tax revenues, and the slow fall in the wage bill as a share of GDP. In other words, while the measures implemented in 2002 and 2003 have had an impact, they are not enough to stabilize the debt dynamics.
21. Given these results, the authorities understand the need to implement further fiscal adjustment. The goals of such adjustment are not only to ensure debt sustainability in the medium- and long-term, but also to create some room in the budget for financing development priorities of the authorities (e.g. improved delivery of services in rural areas, improved housing conditions in urban settings) and for facing contingent liabilities. Preliminary estimates suggest that to maintain the debt to GDP ratio constant at its current level would imply an adjustment of 1.7 percentage points of GDP in average in the primary balance, while an adjustment of some 3 points of GDP would be required to create the necessary fiscal space and flexibility to manage unforeseen budgetary shocks. In its article IV consultations, the IMF recommended that Morocco brings its fiscal deficit below three percent ofGDP in the medium-term.
5 22. The Government has recently announced publicly its commitment to reduce the fiscal deficit to some 3 percentage points of GDP in the medium term. They confirmed this objective during multiple discussions held with joint missions of the Word Bank and the EU, including at negotiations of this proposed adjustment loan. They intend to do so through reductions in the fiscal deficit of some 0.5 percentage points annually. Achieving these savings will not be easy, given rigidities in expenditures and anticipated revenue losses both as a result of tariff dismantling and of fiscal exoneration schemes. The reform of the public sector, which is supported by this loan, aims, among others, at overcoming the main shortcomings on the expenditure side in order to allow for the achievement ofthe objectives set by the Government.
23. Hence, the Government aims at reducing the wage bill fkom 12.4 percent ofGDP, as set in the 2004 Budget Law to less than 11 percent in 2007. This would be achieved mainly through the implementation of an early retirement scheme over the next four years targeting of some 60,000 civil servants and the adoption of an improved civil servants statute that allow for an efficient management system of promotion and remuneration (see below). Efficiency of expenditures should eventually improve through de-concentration and results oriented budgeting - but significant expenditure savings on non-wage items will be difficult to achieve. The anticipated redesign ofthe compensation system may contribute to deficit reduction, though to a lesser extent, as part ofthe savings would be used in funding a safety for the poor affected by the proposed dismantling. The continued active debt management could also lead to small savings. Nevertheless, despite these actions on the expenditure side, the budget deficit target would not be reached in the medium term without other fiscal measures, essentially on the revenues side.
24. Indeed, Morocco has been strengthening its tax administration, as proven by the increase in elasticity oftax revenues to GDP over the past two years. Yet, some additional gains could be made by improving further tax administration and through changes in tax policy, e.g. by improving the tax structure and reducing or removing fiscal exemptions of doubtful social and economic value. These gains should be large enough to compensate for the loss of revenues due to trade liberalization, either under the ongoing implementation of the agreement with the EU or under the recent agreement with the United States of America (USA). The Government has identified the need to enlarge the tax base by removing exemptions and continuing to improve tax administration. Under this adjustment scenario, which the main assumptions and results are presented in Table I below, the ratio ofrevenues to GDP, not including privatization receipts, has been assumed to remain at the same level as in the Budget Law 2003.
6 Table 1. Fiscal sustainability -- Adjustment scenario
Assumptions 2002 2003 2004 2005 2006 2007 2012 Macro Real GDP growth 3.2% 5.5% 3.0% 3.8% 4.0% 4.5% 5.0% Interest rate (nominal) On domestic debt 7.5% 7.5% 6.8% 6.8% 6.8% 6.9% 8.2% On international debt 3.8% 3.3% 4.3% 4.4% 4.5% 4.5% 5.0% Inflation 0.6% 1.5% 2.0% 2.5% 2.5% 2.5% 2.5% Revenues Total Revenues (as % ofGDP) 24.7% 24.1% 24.0% 23.8% 23.8% 23.8% 23.8% Trade taxes (as YOof GDP) 3.1% 2.5% 2.3% 2.0% 1.8% 1.6% 1.0% Direct taxes (elasticity to GDP) 2.07 1.33 1.44 1.00 1.00 1.00 1.00 Privatization revenues (DH billions) 0.62 11.96 12.00 4.00 2.00 1.00 0.00 Expenditures Wage bill (growth rate) 1.2% 11.0% 2.7% 4.8% 1.0% 2.2% 4.5% Capital expenditures (as % ofGDP) 5.0% 4.7% 4.5% 4.5% 4.5% 4.5% 4.5% Other current exp. (as % of GDP) 6.2% 6.4% 6.1% 5.9% 6.2% 5.9% 5.3%
Fiscal sustainability (as YOof GDP) Expenditures Wage bill 12.2% 12.7% 12.4% 12.2% 11.5% 11.0% 9.2% Interest payments 4.4% 4.1% 4.0% 4.1% 4.1% 4.1% 4.0% Primary balance (incl. Priv and FHII) 0.2% 0.5% 0.8% -0.1% -0.1% 0.6% 3.1% net ofprivat. rev. and transfers to FH2 0.0% -1.0% -1.2% -0.6% -0.3% 0.5% 3.1% Budget deficit (commitment basis) excl. Priv -4.4% -6.4% -6.0% -5.0% -4.5% -3.7% -1.0% & incl. Transfers to FHII Structural Budget deficit * -4.4% -5.6% -4.8% -4.4% -4.1% -3.3% -1.0% Privatization revenues 0.2% 2.8% 2.7% 0.8% 0.4% 0.2% 0.0% Debt stock 71.3% 69.8% 69.4% 69.3% 69.4% 68.5% 56.8% (*) Lump-sum payments of early retirement scheme and transfers to FHII are excluded.
25. Under the assumptions described above, the Govemment projects that the budget deficit will follow a downward trend to reach a rate of less than 3.5 percent by 2007. The primary balance will shift from a deficit to a surplus starting in 2007 that will allow for a drop in central government total debt ratio from 69.8 percent in 2002 to 56.8 percent in 2012. The improvement of the budget structure and the easing of deficit financing will allow for more efficient budget management and improved targeting ofpublic expenditures towards priority programs. In order to meet these deficit objectives, the Government is planning to take measures both on the expenditure and revenue sides. This loan supports key actions to improve the efficiency of expenditures and reduce the wage bill. Regarding revenues, the Govemment is preparing a reform program with the assistance of the EU and the IMF that aims at consolidating revenues. The World Bank has encouraged the Government to go forward quickly in this direction to be able to adopt the first, even if preliminary measures, in the context ofthe 2005 budget.
26. To be able to monitor the implementation of its macroeconomic program, and based on the recent Article IV consultations, the Government, in collaboration with the staff of the Bank and the European Commission, has quantified its key macroeconomic targets. These targets take into account ongoing reforms (especially those regarding up-grading of the economy or “Mise a niveau”, including the foreign trade, financial sector, labor markets, and transport sectors), as well
7 as the public administration reform supported by the proposed loan, and the fiscal reform under preparation. The most important targets were selected as monitoring indicators that the Government and Bank staff will follow particularly closely to evaluate whether the macroeconomic framework remains satisfactory and are presented in Table 2.
Table 2. Follow-up indicators for the implementation of the Macroeconomic framework
Actual Estimation Projection 2001 2002 2003 2004 2005 2006 2007 Macroeconomic indicators Growth rates in % Real GDP 6.3 3.2 5.5 3.0 3.8 4.0 4.5 Exports ofgoods in current DH 2.3 7.1 -3.6 5.0 6.2 6.5 6.5 Inflation rate (GDP deflator) 1.8 0.6 1.5 2.0 2.5 2.5 2.5
In percent of GDP Gross investment 22.8 22.0 23.3 23.7 24.1 24.5 24.8 Current account balance 4.7 4.1 2.9 2.5 1.8 1.6 1.2 Official foreign reserves (Months ofimports) 8.8 8.9 9.9 9.7 + + +
Public finances (in % of GDP) Total revenues (*) 24.9 24.7 24.1 24.0 23.8 23.8 23.8 Of which fiscal revenues 21.9 22.0 21.4 21.3 21.6 21.6 21.6
Total expenditures (**) 31.7 29.6 29.6 28.9 28.5 28.2 27.4 Of which salaries 12.5 12.2 12.7 12.4 12.2 11.5 11.0 Of which investment (***) 5.7 5.0 4.7 4.5 4.5 4.5 4.5 Budget deficit (****) -6.2 -4.3 -5.1 -4.9 -4.7 -4.4 -3.6
Total direct debt stock 74.7 71.3 69.8 69.4 69.3 69.4 68.5 (*) Include VAT of Local Governments (Collectivitks Locales) and special accounts (Road Fund, Fonds routier, and Price subsidization, Soutien des prix), and exclude privatization revenues (**) Include transfers of VAT to Collectivitks Locales, Fonds routier and Soutien desprix, exclude transfers to Hasan I1Fund (Fonds Hassan Zr) and the balance of other special accounts (***) Include Fonds routier (****) Include the balance of other special accounts and exclude transfers to Fonds Hassan I1 (+) Maintain the level of official foreign reserves at more than 9 months of imports
27. Under the Government’s reformprogram, economic growth path would be slightly higher than that achieved during the last ten years. Hence, economic activity is expected to grow at a slightly more than 4 percent during 2005-2007, and reach 4.5 percent in 2007, mainly as a result of an increase in the growth rate of the non-agnculture sector to 4.4 percent on average during this time period. On the supply side, industry would be the driving force of growth (5 percent), with construction at 7.3 percent (social housing, public infrastructures and tourism facilities) and manufactures at 4.8 percent (electric and electronic goods, textiles) being two key sub-sectors. Tourism activities which are expected to grow at 5.3 percent would be another growth sector. On the demand side, growth will be driven by the recovery of exports and higher investment, both private and public. Real exports ofgoods and services would average 5.5 percent over the period, mainly owing to increased Euro area demand and enlarged market access (global free trade
8 agreement with the USA and more agriculture products exports with the EU). Regarding investment, gross investment rate would improve by 1.1 percentage points to reach 24.8 percent of GDP in 2007, with the private sector as the main investing actor. Public investment would be mainly implemented through the Hasan I1 Fund, which is expected to contribute to many infrastructure programs, in particular in tourism, basic infrastructure and social housing. The tighter fiscal stance is also expected to reduce potential crowding out ofprivate investment.
28. The monetary authorities are expected to carry out a sustainable pro-growth policy with money growth in line with that of nominal GDP. The momentary surge of excess liquidity generated by privatization receipts have been dealt with through the rise of reserve requirements from 10 percent in 2002 to 16.4 percent in September 2003. The higher reserve requirement is expected to help absorb the anticipated high privatization receipts in 2004, making the central bank management of liquidity less difficult. Consequently, inflation is expected to remain subdued at an average of2.5 percent over the projection period, aided by low imported inflation.
29. With regard to the extemal accounts, the current account is expected to be in surplus at about 1.5 percent of GDP on average during 2005-2007. This surplus, along with privatization receipts ofabout 1.8 percent ofGDP in average and other foreign direct investment (FDI)3,would ease external financing conditions. In addition, extemal financing would be further eased by expected inflows of concessional capital, mainly from the EU. All these factors would make external outstanding debt to fall from 38.9 percent of GDP in 2003 to 32.3 percent in 2007 and extemal financing is not expected to represent a constraint.
30. In conclusion, the Government’s macroeconomic framework is satisfactory. In 2004, inflationary pressures are low, the current account of the balance of payments is in surplus, and the Government has taken action to reduce the wage bill and prepare a program to stabilize public revenues. The actions supported by the current loan will reduce current expenditures, in particular the wage bill, over time while increasing the efficiency and impact of government programs. Combined with the revenue reform program under preparation, these actions will result in a sustainable reduction in the fiscal deficit and the public debt burden. The Govemment and Bank staff will monitor the implementation of the reform program on the basis of table 2 above and will consult with each other if the economy departs significantly from the projected path. The Government is committed to take actions as required to maintain the economy on a sustainable path.
11. THE GOVERNMENT’SREFORM PROGRAM
A. Objectives of the Program
3 1. While workmg on strategies to help energize growth and cope with persistent problems of unemployment, education outcomes and housing, the Govemment has identified public administration reform as a priority. Bureaucratic inertia, and the over-centralization of the administration are key hindrances to efforts to improve competitiveness and the business environment. The aim is to provide Morocco with a modern administration that can contribute to the competitiveness of the economy and to the sustainable development of the country while ensuring the viability of its macroeconomic framework. De-concentration (the delegation of power from Rabat to regional and provincial offices of the central govemment) is considered by Moroccan authorities as the centerpiece of efforts to bring budget decision-making and service
FDI would total some US$2.9 billion over 2004-2007, of which, US$2 billion due to privatization program and US$ 0.9 billion of other FDI
9 delivery control closer to the population. The Government has indicated its willingness to give the regona14 level a key role in de-concentration5.
32. The program’s objectives can be summarized as follows:
0 Improving the efficiency of budget expenditure by de-concentrating expenditures and accountability to enable greater flexibility to regional administrations, and by introducing performance budgeting and auditing.
0 Implementing a reform of the civil service based on enhancing efficiency and service quality. Ensuring a sustainable macro fkamework, by controlling inter alia the magnitude of the civil service payroll.
B. Government’s Past Reform Activities
33. In the second part of the 1990s, the Government has made several attempts at reforming public administration, in particular with support from the Bank and UNDP. The common thread of these past initiatives has been good diagnosis and the design of comprehensive reform programs, but also a failure to implement those programs successfully. Implementation has been undermined by lack of coordination between political decision makers and ministries, concerns with losing administrative and fiscal control, and excessively ambitious programs. A more recent Bank-supported participative PER (completed in 2002) has succeeded in overcoming some ofthe coordination problems by creating two inter-ministerial worlung groups on respectively budget reform and civil service management. Building on the lessons ofthese past attempts, and also on the first results of the PER, the Govemment has taken a prudent approach based on inter- ministerial coordination, wide consensus, and piloting reforms in selected ministries before generalized implementation.
34. On public expenditure management, the reform program expands on reforms initiated by various worlung groups, notably: i)legislation improving the formulation and execution of the budget by introducing performance-based budgeting, and increasing the accountability as well as the powers of spending ministries6; ii) draft legislation on the responsibilities of executive officers, government auditors and government accountants, aimed at rationalizing the expenditure circuit and reducing ex-ante expenditure controls; and iii)actions and legislation to strengthen ex- post auditing and control, including the introduction ofa bill in Parliament to create regional audit bodies (Cours des Comptes Rkgionales), and the preparation of a bill to strengthen the audit powers ofthe General Inspectorate ofFinance.
35. In order to prepare the various stakeholders for the changes to come in civil service management, the Government has prudently prepared over time studies of the key issues and
A region includes several provinces and prefectures (part of a big city). Provinces and prefectures have equivalent statuses. A “Royal letter” of January 2002 gives the regional Govemors (waZis) the main role in coordinating government services at the de-concentrated level. The same letter in particular makes the govemors responsible for Regional Investment Centers, de-concentrated one-stop windows to facilitate private investment. Such legislation includes the December 31, 2001 decree on aggregation of appropriations, the December 25, 2001 PM’s instruction (circulaire) regarding adaptation of planning and execution of the central government budget to de-concentration, and the December 31, 2001 decree about control of central government expenditure commitments.
10 reform options. Among those studies and reports should be mentioned: (i)a comprehensive study defining principles for civil service and administrative structures, launched in 1998; (ii)the “Frame of Reference” of December 2000, which included seven main areas and objectives of reform and was considered by the PM’s office as the framework for future civil service reform; (iii)the publication in 2000 by the Civil Service Ministry of “The Reform of Public Administration - Vision, Strategy and Action Plan”; and (iv) the constitution in 2001 by the PM’s office ofa Commission on Remuneration, which delivered its report in September 2002.
C. The Government’s Present Reform Program
36. Based on the results and lessons of these past efforts, the Govemment reform program has three components: a set of budget reforms aimed at improving the efficiency of public expenditure; a reform of civil service management; and measures to keep the wage bill at a sustainable level over the long run.
1. Improving the Efficiency of Budget Management
37. The Government will develop a medium-term expenditure framework (MTEF) in order to reinforce consistency between the macroeconomic framework and the sector strategies. Building on previous initiatives, the Government’s program for budget reform focuses on delegating responsibilities to field managers while introducing performance-related budgeting, and streamlining compliance controls while strengthening reporting and performance auditing and evaluation.
(i) Strengthening medium-term expenditure planning
38. The Government aims at establishing a three-year rolling public expenditure framework, containing both investment and recurrent expenditures, of an indicative nature and updated annually, ensuring a better medium-term visibility ofthe budgetary strategy both for the different ministerial departments and for the fiscal framework as a whole.7 The MTEF will be designed by a worhng group led by the planning department with representatives from Finance and three pilot line ministries. The objective of the group is to design a prototype and test it in 2005 with the pilot ministries, to evaluate results in 2006 and then extend the MTEF to the entire budget. The MTEF would thus evolve from a mostly macro exercise in 2003 and 2004 into a resource allocation mechanism fully involving sector ministries.
(ii)Delegating responsibilities to field managers while introducing performance- related budgeting
39. The Government has designed a new mechanism to give more flexibility to local managers in the implementation of their budgets in exchange for increased accountability for results, Regional and provincial branch office directors will enter into contracts with their ministry in which their operations are presented on a program-budget basis. The managers will be authorized to shift resources between line items within a same program, provided they commit to results, as measured by the program performance indicators. The Ministry of Health has already experimented the approach in 2003. Four other ministries - finance, planning, agriculture and fisheries -- have adopted the approach for the 2004 budget. The experience ofthe five pilots will be evaluated in 2005 and extended to a total of 12 ministries by 2006. At that time,
Currently the Government prepares a yearly budget only, whle a 5-years plan is prepared by the planning department. The plan deals only with capital expenditure and is not updated annually.
11 flexibility on the use offunds will be extended to all programs within each single unit or sub-unit, combining current and capital expenditure, with the exception ofpersonnel expenditures.
40. In order to delegate more powers and budget responsibility to branch office managers, the Govemment has launched a process to clarify the responsibilities and powers of the different levels of administration in each ministerial department. Firstly, a decree establishing common guide-lines for the organization of both central administration and de-concentrated units has been presented for adoption by the cabinet council. Secondly, line ministries will design detailed action plans to delegate budget and personnel management responsibilities to regional and provincial directors. These plans will be implemented once individually approved by a committee chaired by the PM.
(iii) Streamlining compliance controls while strengthening reporting and performance auditing and evaluation
41. Another key element of the reform program to increase budget flexibility and effectiveness is to gradually shift from ex-ante formal expenditure controls to ex-post performance evaluations. To this end, the Govemment will: (a) ease ex-ante compliance controls (on the basis ofthe reforms already introduced regarding the control ofexpenditure commitments as well as accounting) , (b) introduce selective rather than exhaustive control, and (c) introduce and develop performance auditing in the internal ministerial audit structures (Ministerial Inspectorates General or IGM).
42. The IGMs will have to significantly increase their capacity by developing their audit methodology and undergoing training in performance audit and public policy evaluation methods. This training effort will be spearheaded by the Inspector General ofFinance (inspection gd’ndrale des finances, IGF) who will develop a performance auditing manual, with the assistance of international experts, and “mentor” their ministerial counterparts. They will first launch joint audit exercises (in the ministries which were pilots for the program budget approach) in 2005. Starting in 2006, the IGMs will act independently.
43. To facilitate the improvement in auditing methods, the MoF is developing an integrated budgetary management system. The overall design of the system has been adopted and its development will take place in 2005. A pilot implementation is scheduled for 2006, to be evaluated and generalized in 2007.
2. Improving the Administration’s Efficiency in Human Resource Management
44. In order to prepare for the increase in Ministries’ management autonomy, de- concentration to branch offices, and to foster improvement in civil service efficiency, the reform program for human resource management aims at: (i)improving consistency between staffing and missions within ministries; (ii)increasing transparency and equity in evaluation, remuneration, and promotion; and (iii)rationalizing in-service training. The specific reform areas and measures supported under the proposed credit are as follows.
(i) Improve consistency between staffing and missions within ministries
45. Establishing a strategic staffing framework. The Govemment intends to define for each administration its human resource needs, including positions and skill profiles of staff. The framework will also analyze how each administration can meet these staff and skll needs, given current staffing, through continuous training, redeployment within and between administrations, and new recruitment. This activity is the comerstone of the civil service reform agenda since it
12 will make it possible to strengthen the career civil service system. It will help implement the new policies regarding recruitment, performance evaluation, promotion, restructuring, and de- concentration.
46. Work on this component of the reform program has already started with the staffing frameworks for the Ministries of Infrastructure and Agriculture. Based on this ongoing work as well as international experience, completing a staffing framework requires on average two years for a large ministry. The Government intends to launch staffing frameworks for twelve ministries, of which two in 2004, and complete eight of these by 2007. Based on existing analysis, the Government has forbidden recruitment at lower levels of shlls (scale levels 1 to 4) in order to accelerate the re-profiling ofthe Moroccan civil service.
47. Changing the legalhegulatory framework and procedures for recruitment and mobility within the civil service. This action will enact the principle of equal and transparent recruitment and, building on the strategic staffing results, will be based as much on shlls as on purely academic knowledge. To achieve this, recruitment will be competitive and authorized for positions defined not only in terms of shlls but also in terms of geographical location, that is to serve specific geographic needs of the administration. The legalhegulatory framework will be revised to allow fixed-term contracts designed to hire skills needed for a limited duration. Finally, a new law has been prepared, amending the law governing the general statutes ofthe civil service, and setting forth the procedures applying to redeployment, secondment and transfer of civil servants. Mobility between ministries and locations will help improve the adaptability and allocation ofhuman resources within the civil service. The Government has planned to create an employment database with a view to put in place an in-service e-employment market by 2005.
(ii) Rationalizing personnel management, while increasing efficiency in evaluation, remuneration, and promotion
48. The objective is to review the staff compensation and promotion systems, linking staff performance and career, with a view of promoting increased efficiency of public services. The new system would not only improve motivation and therefore the quality of service to the public, it will also be the basis for a simplified, unified and coherent compensation framework compatible with the objective of keeping control over wage and salary costs. By introducing flexibility in the system, it should help Government avoid social pressures for collective compensation increases.
49. The proposed reform would be based on the following principles: (i)reduction of civil service statutes from 70 to less than 20; (ii)integration of most bonuses and allowances into the base salary; (iii)broad-banding of the pay scale; (iv) greater transparency of remuneration; and (v) establishment of mechanisms that will ensure regular but moderate increases, linked with evaluation of performances. A decree to create a promotion system based on the agent’s performance given preset and agreed objectives has been prepared, and will be presented to Cabinet approval in 2004. The decree will also instate percentages for promotions that will help avoid accumulating candidates, therefore exceptional promotions. The implementation of the new remuneration system will require careful preparation, notably training, and the completion of the strategic staffing framework in the relevant ministry.
(iii)Rationalizing in-service training
50. In-service training will be an important support to implement the findings of strategic staffing studies. The current system already needs rationalization in order to make sure that training programs adequately address the needs of the administration as well as the professional
13 development objectives ofthe civil servants, and to unify some initiatives now dispersed between ministries. A decree is being prepared to organize the new system which should result in training plans in pilot ministries in 2005, for an evaluation ofthe experience in 2006.
3. Keeping the Wage Bill under Control
51. The need to control the unsustainable rise in the civil service wage bill is a central requirement ofthe reform program. In the medium-term, the major civil service reforms such as the pay and promotion reform, strategic staffing, and the culture of evaluation should significantly facilitate the management of the wage bill. In the short term, however, the Govemment has adopted a number ofmeasures that would keep the wage bill under control in the interim. Among them are an early retirement mechanism, and yearly quantitative measures on recruitment and promotion aimed at avoiding promotion bottlenecks experienced under the current extremely restrictive system.. The setting up of a voluntary early retirement mechanism has been studied by the MoF on the assumption of 20,000 to 60,000 departures. Given the required financial incentives, simulations show that the net budgetary savings will be modest in the very short term but would help in some administrative units in realigning the staff profile for improved efficiency. The progressive eradication of temporary positions will have a longer term impact, by erasing a cause of pressure for integration of these short-term (and low-skilled) employees into the permanent civil service. Finally, the authorities also plan to maintain the FY 2003 decision of zero net increase in the number of staff.
111. THE PROPOSED PUBLIC ADMINISTRATION REFORM ADJUSTMENTLOAN (Pa)
A. Loan Objectives and Description
52. The objectives of the proposed Public Administration Reform Adjustment Loan (PARL) are to support the Government’s efforts to improve the effectiveness of public resource management, a key step for accelerated growth and poverty reduction. As noted before, the program includes: (i)improving the efficiency of budget expenditure by de-concentrating expenditures and accountability and introducing performance budgeting and auditing; (ii) implementing a reform of the civil service; and (iii)ensuring a sustainable macro framework, by controlling inter alia the magnitude of the civil service payroll.
53. The proposed loan would be the first in a series ofannual programmatic loans supporting the implementation of the reform program. It is a one-tranche operation, since the key reform measures (see Annex Ill)have been met before Board presentation. A number ofmeasures have already been taken, such as passing the decree authorizing an early-retirement procedure for civil servants. Other key laws and decrees have already been prepared and their drafts circulated into the administrative and political approval circuit. Decisions on continuing financial support would be based annually on meeting triggers selected among the benchmarks as indicated in the action matrix covering 2003-2006 (see Annex IL Policy Matrix).
B. Loan Rationale
54. The Govemment’s program (as reflected in the Letter of Development Policy) provides for several multiyear programs on budgetary programming, implementation, and auditing, on civil service management and on aggregated fiscal management which will be monitored and evaluated on a rolling basis. The Letter of Development Policy (Annex I)highlights the key actions considered necessary to reach a critical threshold for this loan and the reforms and capacity building to be implemented during the coming year.
14 55. The proposed PARL would be the first in a series of annual programmatic loans sequenced according to Morocco’s budget cycle. The specific actions, as spelled-out in the 2003- 2006 matrix, will provide the trigger-points for the supervision ofthis Loan and the preparation of follow-on loans. Specific triggers for the preparation ofthe next loan have been identified in the matrix. The Government views this Loan as a tangible sign of the Bank’s endorsement of its reform program, giving credibility to its efforts and formalizing the Bank’s stamp of approval. This would help in overcoming the obstacles which have affected previous attempts at reform. The proposed loan would also provide budgetary support to the Government, helping fund the cost of civil service early retirement package and other reform measures, and avoiding excessive pressures in domestic financial markets.
56. For the Bank, the proposed loan provides the opportunity to address issues such as the effectiveness of government services and the sustainability of the fiscal framework which are crucial to the overall country assistance strategy. The PARL is consistent with the CAS base case scenario, and made possible by the progress in fiscal management experienced during 200 1-2003 and expected in the future. In particular, the combination of actions already implemented by the authorities and those to be implemented with the support ofthe proposed loan will ensure that the wage bill declines significantly over the medium-term. With regard to revenues, the government will pursue efforts at improving tax administration and tax policy so as to maintain revenues as a share of GDP at the 2003 level, a level that compares well with other middle income countries. Declines in the wage bill as a share ofGDP and revenue measures to maintain revenues constant as a share of GDP are both CAS triggers for fast disbursing adjustment lending. Finally, civil service reform is outstanding in many countries across the region such as Tunisia and Egypt, and a successful program in Morocco would have a large demonstration effect in the whole region.
C. Earlier Bank Assistance and Lessons Learned
57. A Public Administration Support Project was approved in the early 1990s as a US$23 million Technical Assistance project to support the implementation of the FY89 Structural Adjustment Loan (SAL). It covered tax administration, public expenditure programming, public debt management, and macroeconomic and external trade analysis. It was closed in FY96. The Operations Evaluation Department (OED) rated the outcomes as satisfactory, institutional development impact as moderate, and project sustainability as likely.
58. A Policy Reform Support Loan (PRES), a US$250 million SAL was approved in 1999 and closed in FY2000. It covered macroeconomic management, public sector reform, private sector development, and social sector reform. The public sector reform component covered improved budgetary procedures, streamlined management of expenditures, civil service and administrative reform to reduce the wage bill, and judicial reform. OED rated the outcome as moderately unsatisfactory, institutional development impact as modest, and sustainability as unlikely. Public sector reform was considered the less successful component, with the civil service wage bill growing to 12.5 percent of GDP in 2001. The overall program was deemed to have been too unfocussed to have a major impact in any ofthe areas covered.
59. Among the lessons learned, the Implementation Completion Report mentions the need for a tighter-knit, more carefully planned programmatic approach, with a clearer delineation of successive sequences of measures as triggers for subsequent operations, to find a mechanism to build more broad-based consensus, and possibly to add technical assistance in key areas such as civil services reform. It noted that excessive pressure was exerted on the staff in order to meet short deadlines, probably to the detriment ofa deeper and more substantive dialogue on the many important issues, as well as Government’s ownership ofthe reform agenda.
15 60. Reflecting on the lessons ofthe PRES, a participative PER was launched in 2001 with the objective of building ownership for reform among stakeholders. Two inter-sectoral worlung group on respectively public expenditures management and civil service reform worked for more than one year on reform proposals that could be adopted and implemented rapidly. Some oftheir proposals in the budget management area have been tumed into government decrees. The work by the working group on civil service reform has contributed to new laws in preparation. Moreover, the ownership building of the PER paved the way for a more fruitful dialogue on public administration reform conducted in the context ofa programmatic-ESW activity (P-ESW). This activity resulted in knowledge transfer, technical assistance, and consensus building. Knowledge transfer was provided in the areas of civil service reform, integrated budget and personnel management systems, performance auditing, program design and change management. A report on the civil service reform and change management strategies was delivered to the Govemment A seminar on performance budgeting for was carried-out in early 2004 in Rabat.
61. The proposed loan builds on the successes of the PER and the P-ESW, and takes into account the lessons from the PRES in the following ways. Firstly, the program is less ambitious, focusing on civil service reform and improving the effectiveness of public expenditures. Secondly, a programmatic approach has been adopted, with a sequence ofreforms scheduled over four years, including measures taken during 2003; yearly milestones are also triggers for subsequent one-year loans. Thirdly, consensus-building institutions have been put in place, such as the Supreme counsel of civil service, which includes representatives of trade-unions and the Government, and has to approve all draft legislation concerning civil service management. Finally, the need to provide technical assistance has been taken into account by continuing the P- ESW. It is expected that in subsequent years the P-ESW will continue to provide knowledge transfer suitable to the reform program, as requested by the authorities.
D. InstitutionalArrangements with Government
62. The proposed Loan would be disbursed in one installment upon Loan effectiveness. Procurement and disbursement arrangements will follow the simplified procedures for Structural Adjustment operations approved by the Board on February 1, 1996. Thus, disbursements will not be linked to specific purchases and there will be no procurement requirements. The local currency counterpart generated by the proposed Loan will be used to finance the Budget. If the proceeds ofthe Loan are used for ineligible purposes (i.e., to directly finance items imported from non-member countries, or to directly finance goods and services on the Bank’s standard negative list), JBRD will require the Borrower to either: (i)return that amount for use on eligible purchases; or (ii)refund the amount directly to IBRD, in which case IBRD will cancel an equivalent un-disbursed amount of the Loan. Although an audit of the use of funds may not be required, IBRD reserves the right to require audits at any time.
63. The Loan’s administration will be the responsibility of the Ministry of Finance. Coordination and monitoring ofthe implementation ofthe reform will be supported by the Inter- ministerial steering committee for the administrative reform, worlung through its permanent secretariat provided by the Ministry of Economic Affairs and General Affairs. This Committee was created in early 2003 by a decision ofthe PM.
E. Coordination with other Donors
64. At the request ofGovemment, this operation has been prepared jointly with the European Commission which participated in all missions and prepared joint aide-memoires with Bank staff. The matrix and list ofconditions and trigger points are common to the two institutions. The EU also participated in the negotiations, and endorsed the negotiations results. The European
16 Commission envisages a Structural Adjustment Grant, with yearly tranches articulated along the 2004-2006 matrix of actions, and with disbursement conditions coinciding generally with the yearly trigger-points ofthe Bank’s programmatic loan.
65. IMF staff have discussed the macro framework with Bank staff and are generally comfortable with the macro-framework underlying the proposed operation. An assessment letter has been provided to that effect.
F. Benefits and Risks
66. Benefits. By addressing the key constraints affecting the effectiveness ofpublic service delivery, the proposed operation would contribute to the key goals ofprivate sector development and poverty reduction. By helping keep the wage bill under control, it will help ensure macroeconomic stability. It would help provide the practical budgetary framework necessary to implement the Government’s administrative decentralization orientation. From the Bank’s point of view, this operation would provide an example across the region of how to address these important issues.
67. Risks. One important risk is that the Government would not be able to resist pressures to increase salaries for various categories of civil servants, and significantly undermine the improvement in the fiscal balance that allowed us to move to the base case CAS scenario. This risk is being mitigated by the reform program itself, combined with the reformist stamp of the new Government. Another risk is that the implementation ofthe reforms would be stalled, as was the case in the past, because of the silo mentality in Government and opposition from interest groups. The risk is mitigated by the political coordination put in place by the new Cabinet to implement reforms, and also by the strategic policy dialogue pursued between Moroccan authorities and the Bank. Also, we are planning, along with key partners, extensive supervision of the implementation of the reforms, together with the knowledge sharing and technical assistance entailed by a continuation ofthe programmatic ESW operation.
17 Royaume du Maroc
',Ii 5 /E - 4 1 MONSIEUR LE PRESIDENT DE LA BANQUE MONDIALE 1818 H Street .N.W Washington. D.C. 20433
-U.S. A-
Obiet : Lettre de politique de dkveloppement relative h la stratkgie de rkforme de I'administration publique.
Monsieur le Prisident,
La rkforme de I'Etat est devenue une exigence impkrative dans un contexte international marquk par I'ouverture des marchks, I'accklkration du processus de mondialisation des kchanges, la compktition des kconomies et I'expansion des nouvelles technologies de I'information et de la communication. Ces mutations de I'environnement international constituent des dkf is h relever h la fois par les kconomies des pays avancks et davantage encore par celles des pays en voie de dkveloppement. C'est dans cette perspective que le gouvernement marocain a engagk des rkformes profondes pour adapter les structures kconomiques et sociales du pays et son environnement institutionnel, juridique et administratif aux changements en cours et pour rkpondre aux besoins pressants du dkveloppement social et de la promotion de I'emploi. La modernisation de la gestion publique, et en particulier la rkforme de I'administration publique marocaine s'inscrivent dans ce mouvement de rkf ormes.
Dans ce cadre, le gouvernement s'est attach6 d'une part h mettre en place une administration dont iI veut rkformer les structures, simplifier les prockdures, renf orcer les performances et amkliorer la qualitk des prestations fournies en faveur du public et de I'entreprise et d'autre part h crker un environnement favorable h I'investissement par I'allkgement des contraintes rkglementaires la rkalisation les infrastructures physiques nkcessaires au dkroulement normal de I'activitk kconomique et la mise h niveau de I'kconomie et de I'entreprise pour en renforcer la compktitivitk. En effet, la rkforme de I'administration figure parmi les objectifs prioritaires retenus dans les dkclarations gouvernementales de Monsieur le Premier Ministre devant le Parlement. Les efforts entrepris h ce titre s'inscrivent dans le cadre de la stratkgie gouvernementale qui s'inspire des Hautes Orientations Royales pour faire de I'Administration un vecteur de dkveloppement intkgrk et ce conf ormkment au nouveau concept de I'autoritk. Cette stratkgie est de nature h fixer les grandes lignes d'une rdforme destinke h mettre en place une Administration plus performante rkpondant aux exigences d'efficacitk et de qualitk des prestations rendues aux usagers.
En outre, le gouvernement a adopt6 le pacte de bonne gestion appelk h servir de cadre de rkfkrence pour moraliser I'administration, rationaliser la gestion publique et renforcer la communication et I'ouverture de I'Administration sur son environnement tout en veillant h I'application des Hautes Orientations Royales relatives h la mise en place et 21 la consolidation de la dkconcentration, de la dkcentralisation et de la rkgionalisation.
I)-Objectifs de la stratigie de riforme administrative
La stratkgie retenue par le gouvernement pour la rkforme de I'Administration s'articule autour des principaux objectifs ci-aprks :
0 disposer d'une administration moderne qui puisse contribuer h la compktitivitk et au dkveloppement durable du pays tout en assurant la viabilitd h moyen terme de son cadre macro-kconomique. En effet, I'Administration est appelke h jouer un r81e moteur pour I'attraction des investissements et la facilitation de I'intervention du secteur privk h travers notamment I'assouplissement des prockdures et I'amklioration du climat de I'entreprise en relation avec la rkforme de la justice pour consolider davantage I'Etat de droit ;
0 assurer des prestations de meilleure qualitk et au moindre cofit. Dans ce cadre, I'Administration est appelke h renforcer I'eff icacitk de son intervention et rationaliser ses dkpenses h travers un dispositif budgktaire novateur bask, d'une part, sur la responsabilisation des gestionnaires en contrepartie de leur engagement sur la rkalisation d'objectifs prkdkf inis et I'kvaluation de leur rkalisation au regard des dkpenses exkcutkes et d'autre part, le dkveloppement du contr8le axk sur la performance et la reddition des comptes ;
0 dkvelopper et renforcer le processus de dkcentralisation et de dkconcentration nkcessaire h la mise en place d'une gestion de proximitk de la chose publique en phase avec les prkoccupations des populations, A ce titre, la dkconcentration constitue un principe f ondamental dans le processus d'organisation et de rkpartition des attributions entre les diffkrents services de I'administration ;
2 i 0 dkvelopper les outils du gouvernement en ligne en vue de favoriser I'acchs du public aux informations sur le budget et aux services administratifs ;
0 rkaffirmer le r61e stratkgique de la gestion des ressources humaines en tant que vecteur d'une administration moderne, ef f iciente, responsable et citoyenne consolidant leurs capacitts en vue de s'assumer comme force contributive dans la dynamique des rkformes. Les grands axes de cette politique dont la mise en Oeuvre assurera la mal'trise de la masse salariale se focaliseront autour de la recherche d'une meilleure adkquation entre profils et emplois dans le cadre d'une politique soutenable de gestion des ressources humaines bashe essentiellement sur la compktence et le mkrite, la responsabilisation accrue des gestionnaires pour amkliorer la performance de I'administration et la poursuite de I'amklioration des services aux citoyens.
Pour concrktiser ces objectifs, la rkforme de I'administration engagke par le Gouvernement comprend des actions structurelles et institutionnelles qui permettront d'amkliorer h moyen et long terme I'efficience de la fonction publique et des dkpenses publiques et contribueront ainsi aux efforts du gouvernement h mal'triser le dkficit budgktaire dans un cadre de stabilitk financitre h moyen terme. Cette rkforme comprend kgalement des mesures h court terme tendant h renforcer la viabilitk du cadre macrokconomique, notamment la mal'trise de la masse salariale.
If)- Les principaux axes de la strattgie de rtforme administrative et leur dkclinaison en actions et mesures h rhaliser h moyen terme.
Pour la rtalisation des objectifs prkcitks de la strattgie de rtforme, les axes prioritaires retenus portent sur :
- I'amklioration de I'efficacitk dans la programmation et I'exkcution du budget en tant qu'instrument essentiel h la disposition du gouvernement pour contribuer h la concrktisation de ses objectifs de dkveloppement kconomique et social et h la conduite de I'action de restructuration et d'assainissement du secteur public ;
- la modernisation des outils de gestion des ressources humaines et I'amklioration de I'efficacitk de I'action administrative.
2- 1)- Amtlioration de I'efficacit6 de I'administration dans la gestion budgttaire. Cette amklioration concerne les principales composantes du cycle de gestion du budget et vise notamment 21 renforcer les mCthodes de programmation budgktaire et accroTtre I'eff icacitk et la transparence dans I'exkcution et le contr6le de la dkpense.
3 2.1.1) Renforcement des mithodes de programmation
a)- L'amilioration de la programmation budgitaire:
Celle-ci repose sur I'klaboration d'un cadre de dkpense h moyen terme (CDMT) intkgrant et mettant en cohkrence le cadre macrokconomique et le cadre budgktaire, sur une base triennale glissante. Cet instrument permettra d'assurer une meilleure prkdictibilitk et f lexibilitk dans I'allocation des ressources publiques et une meilleure visibilitk tant interne que vis-h-vis des partenaires externes sur l'kvolution des dkpenses publiques et leur compatibilitk avec I'objectif de maTtrise du dkficit budgktaire.
En outre, une commission composke des dkpartements du Plan et de la Prkvision Economique, des Finances et de la Privatisation et de trois ministbres pilotes mknera une rkflexion pour proposer une approche de programmation et d'arbitrage intersectoriel permettant d'assurer la soutenabilitk du Plan de Dkveloppement Economique et Social au regard des possibilitks f inancibres de I'Etat en adkquation avec un cadre macrokconomique viable ainsi que le lien entre ledit Plan et le cadre de dkpense h moyen terme et leur dkclinaison dans le cadre de la loi de finances et ce, dans la perspective de :
- concilier entre, d'une part, les objectifs de dkveloppement sectoriel et les programmes de rkf orme engagks par le gouvernement et d'autre part, les impkratifs de prkservation des kquilibres fondamentaux et de maTtrise du dkf icit budgktaire ;
- donner une meilleure visibilitk aux dkpartements ministkriels en matibre de programmation budgktaire pluriannuelle et de leur fournir les outils et les instruments h mSme de contribuer h la mise en Oeuvre du dispositif de contractualisation des objectifs et des moyens dans un cadre budgktaire triennal. Ces instruments permettront de renforcer davantage le processus de dkconcentration des crkdits au prof it notamment des gestionnaires territoriaux et de confkrer h ces derniers plus de responsabilitk, de souplesse et d'autonomie dans la gestion des crkdits en vue de rkaliser les objectifs prkalablement fixks.
Cette approche, une fois validke, sera mise en Oeuvre au cours de I'annke 2005 h titre expkrimental au sein des dkpartements ministkriels pilotes sus-indiquks et puis sera gknkraliske aprbs kvaluation h I'ensemble des dkpartements ministkriels h partir de 2006. En tout ktat de cause, I'amklioration de la programmation budgktaire requiert le renforcement des capacitks de programmation des administrations selon des dkmarches participative et ascendante permettant la concrktisation des objectifs de dkveloppement sectoriel et leur dkclinaison en programmes et actions en tenant compte des possibilitks de financement de I'Etat et en
4 diversif iant, le cas kchkant, les possibilitks de f inancement desdits programmes et actions notamment par le recours au partenariat public/privk.
b)- La mise en place d'une gestion budgttaire axte sur les rtsultats et fond6e sur la responsabilisation des gestionnaires
La gestion axke sur les rksultats, rkpondant aux objectifs de dkconcentration, s'inscrit dans une dtmarche comprenant I'application du dispositif de la globalisation des crkdits, assortie de la contractualisation des relations entre les administrations centrales et leurs services dkconcentrks. Cette action de rkforme qui conduira h I'ktablissement des budgets programmes explicitant les rksultats attendus de I'action administrative mesurks par des indicateurs permettant de suivre les rkalisations tend, d'une part, h donner une plus grande souplesse aux gestionnaires budgktaires en contrepartie d'une plus large responsabilitk par I'exigence de rksultats et d'autre part, h rendre compte et kvaluer I'eff icacitk de la dkpense publique.
Ainsi, la globalisation des crkdits vise h octroyer aux services dkconcentrks plus de souplesse dans I'utilisation des crkdits qui leur sont dklkguks pour la rkalisation de programmes , projets ou actions homogtnes en contrepartie de leur engagement h rkaliser des objectifs prkdkfinis mesurks par des indicateurs de performance.
Le corollaire de cette dkmarche est le transfert de responsabilitk en direction des services dkconcentrks de facon h situer chaque type de dkcision au niveau pertinent pour sa meilleure adaptation aux besoins et une plus grande efficacitk des interventions. A cet effet, des schkmas directeurs de dkconcentration seront dkveloppks et mis en o2uvre progressivement par les dkpartements ministkriels.
Aprts la mise en oeuvre, h titre expkrimental du dispositif de globalisation au profit du ministare de la Santk et son application au profit de quatre autres dkpartements ministkriels (Agriculture, P&he maritime, Plan et Finances), iI est envisagk, en 2004, I'adhksion de 7 ministkres h ce dispositif. En outre, sur la base des rksultats d'kvaluation du dispositif de globalisation en 2005, ce dispositif sera gtnkralisk h tous les ministares et ktendu h I'article h partir de I'exercice budgktaire 2007.
Ces rkf ormes entraheront le renforcement de la programmation ascendante dans les diffkrents dkpartements ministkriels dans le cadre de la mise en oeuvre des << budgets-programmes triennaum, conclus entre I'administration centrale et ses services dkconcentrks, af in de mieux intkgrer les besoins exprimks au niveau local, et d'assurer davantage d'efficacitt de la dkpense publique.
5 2.1.2)- Efficaciti et transparence dans I'exicution et le contr6le de la dipense
La nouvelle orientation qui sous-tend la rkf orme de I'administration publique entraine I'accroissement de I'efficacitk et de la transparence dans I'exkcution et le contrSle de la dkpense publique et I'adaptation de la fonction de contrSle. Celle-ci doit nkcessairement viser I'allkgement du contr6le de conformitk et le renforcement du contrSle de gestion ax6 sur I'amklioration continue de la performance et la reddition des comptes. Cette kvolution du contrSle est dkveloppke selon une vision intkgrke favorisant la coordination entre les diffkrents acteurs dans la chaine de contrSle.
a)-L'accroissement de I'efficaciti et de la transparence du circuit de la dipense publique avec notamment:
- Le dkploiement d'un systkme de gestion intkgrke de la dkpense de I'Etat (GID), en vue de rationaliser et de simplifier davantage les prockdures d'exkcution de la dkpense publique h travers notamment I'klimination des saisies multiples des opkrations y affkrentes et I'adoption du principe de la saisie unique, d'accklkrer le traitement des actes qui sont liks h la dkpense, d'assurer la concordance 21 tout moment entre les comptabilitks des diffkrents intervenants et enf in accklkrer le processus d'klaboration des lois de rkglement.
- La recherche d'une meilleure formalisation des prockdures et d'une mutualisation de I'information au sein de la chahe de la dkpense (meilleure formation des services gestionnaires, rkdaction de manuels de prockdures) ;
- La recherche d'une transparence accrue de la dkpense par le dkveloppement de I'administration en ligne h travers notamment la rkalisation d'un site Internet dkdik h la commande publique pour centraliser I'information sur les appels d'offres et les rksultats d'attribution de marchks et I'amklioration de I'information relative h la programmation et 21 I'exkcution budgktaire communiquke aux citoyens. Cette mesure tend h renf orcer la transparence par la clarification des prockdures administratives et h assurer un meilleur accks h la commande publique, gtnkrateur de gains d'efficience et une meilleure information des citoyens sur le fonctionnement des services publics et le programme d'action des dkpartements ministkriels.
b)- L'amilioration de la performance et de la gouvernance par la reconfiguration de la cha7ne de contr6le.
La mise en Oeuvre d'une gestion orientke vers les rksultats nkcessite le dkveloppement au sein de I'Administration de la conception du contr6le de performance en relation avec tous les acteurs de la dkpense publique en vue de
6 rkaliser des audits en termes d'efficacitk et d'efficience de la dkpense publique.
Cette nouvelle vision requiert :
- I'allkgement progressif des prockdures de contrSle a priori rksultant des rtformes dkjh apportkes h I'exercice du contrSIe des engagements de dkpenses dont la mise en Oeuvre sera accompagnke par l'ktablissement de manuel de prockdures et I'organisation de programmes de formation ;
- le renforcement des capacitks d'audit de performance sur I'ensemble de la chahe de contrSle. Dans ce cadre, les Inspections Gknkrales des Ministkres avec I'appui de I'Inspection Gtnkrale des Finances prockderont, apr8s renforcement de leur capacitk, h I'audit de I'exkcution des budgets des administrations au regard des indicateurs de performance ;
- une meilleure coordination entre les organes de contrSleen termes d'kchange d'expkriences et d'information.
2.2)-L'amClioration de I'eff icacitC de I'administration dans la gestion des ressources humaines.
Le gouvernement du Maroc considkre que la rkforme administrative passe par la confirmation du rSle stratkgique de la gestion des ressources humaines en tant que pilier de toute la dynamique du changement prkconisk. A cet effet, la rkforme, rkpartie en des actions h court, moyen et long termes s'articulera autour des principaux axes ci-aprks dkf inis:
a)- La recherche d'une meilleure adhquation entre les profils des effectifs et les besoins exprimCs ou projetCs.
La gestion prCvisionnelle des ressources humaines : La mise en place des rkfkrentiels des emplois et des compktences, pour I'ensemble des dkpartements ministkriels, sera rkaliske, sous la responsabilitk du ministkre chargt de la modernisation des secteurs publics (MMSP), par des kquipes de projets au sein de chaque ministkre. Cette opkration sera rkaliske de facon progressive sur quatre ans h compter de 2004, h raison de quelques nouveaux ministkres par an de facon h couvrir 80% des effectifs globaux h partir de 2006. Cette opkration suppose I'existence d'une base de donndes des agents au sein des administrations concernkes, la prise en charge de la nomenclature des emplois dans I'administration par le MMSP h partir de 2004 de facon h suivre leur kvolution, ainsi que I'analyse f onctionnelle prtalable des structures des ministkres concernks. L'exploitation de cette analyse permettra de dkgager les
7 r r
compktences nkcessaires h I'occupation des postes de travail des ministkres, les postes et agents h redkployer, et, par la suite, d'identifier les comphtences que les titulaires de ces postes devront mai'triser.
La qualification des ressources humaines : Plusieurs mesures contribueront h rkaliser cet objectif, par I'adaptation du cadre juridique et du systkme de gestion du recrutement dans la fonction publique en 2003/2004. Elles conjugueront le respect de I'kgalitk d'accks h I'emploi public dans des conditions de transparence avec la recherche de profils ciblks permettant d'avoir des nouveaux agents adaptks h l'kvolution des missions de I'administration et le rehaussement de la qualification prof essionnelle. Le concours et la prksklection constitueront le mode normal de recrutement autorisk pour le personnel de I'Etat. Les modalitks y affkrentes seront organiskes en prkcisant les profils professionnels recherchks et les affectations gkographiques des nouveaux recrutks. Les emplois dans les kchelles 1 h 4 seront progressivement rksorbks par I'interdiction de tout nouveau recrutement dans ces catkgories. L'emploi d'occasionnels sera Cgalement klimink par I'absorption des employ& actuels dans la fonction publique et I'interdiction h partir de 2004 de tout nouveau recrutement sous ce rkgime. Enfin, la possibilitk de conclure des contrats h durke dkterminke pour permettre h I'administration de rkaliser des projets nkcessitant une expertise particulikre n'existant pas dans les eff ectifs actuels sera ouverte.
La mobiliti des ressources humaines : La mise en place des prockdures incitatives au redkploiement se justif ie par le choix strattgique de la dkconcentration et permet de corriger les dkskquilibres de la rkpartition spatiale et/ou sectorielle des effectifs sans avoir h prockder systkmatiquement h de nouveaux recrutements. Les simplifications des prockdures de dktachement en vue d'en faire un klkment opkrationnel h mEme de renforcer la mobilitk des fonctionnaires et de rkpondre aux besoins de I'administration et la mise en place de la prockdure novatrice de la << mise h disposition >> facilitent la mobilitk des fonctionnaires sans rkfkrence aux conditions spkcif iques de rkmunkration, vkritable frein h la mobilitk, participent de ce m8me processus. Une banque de donnkes sera crkke et sera disponible sur le site Internet du MMSP au plus tard au cours de 2005 afin d'ouvrir une bourse des emplois, permettant la mise en regard des postes ouverts et des personnels h re-dkployer.
b) L'amilioration de I'eff icaciti du systtme de promotion, d'ivaluation et de rimunkration dans un contexte de ma?trise de la masse salariale
Les mkcanismes de rkmunkration, de promotion et d'kvaluation au sein de la fonction publique constituent des klkments clks de motivation et d'eff icacitk dans un systkme davantage orientk sur la rkcompense de I'effort et de la performance. Les rkf krentiels des emplois et des compktences constituent un
8 des klkments fondamentaux de la construction du nouveau systkme de ' rkmunkration dans la fonction publique.
Pour faciliter la prise en compte des rksultats de ces rkfkrentiels, la simplification et I'harmonisation des statuts particuliers de la fonction publique seront nkcessaires. Ceux-ci seront agrkgks h partir de I'annke 2004 afin d'en rkduire le nombre et de faciliter la classification des emplois dans la nomenclature klaborke par le MMSP au fur et h mesure des rksultats des rkf krentiels.
L'achkvement de ces rkfkrentiels et la mise en adtquation des emplois et compktences qui doit en rksulter, par la mise en Oeuvre du redkploiement des fonctionnaires, constitue un prkalable h la refonte du systkme de rkmunkration.
Les travaux d'klaboration d'un nouveau systkme de rkmunkration seront lancks h partir de 2005 pour les familles d'emplois pour lesquelles les rkf krentiels des emplois et compktences seront disponibles.
Pour accro?tre la performance des cadres et des agents de la fonction publique une politique et des prockdures d'kvaluation du rendement seront mises sur pied en 2004/2005. Elles permettront en outre d'identifier les besoins de formation dans une perspective de mise h niveau des compktences, de favoriser la mobilitk, la promotion et kventuellement de rendre plus kquitable la dktermination des rkmunkrations. Elle contribuera aussi h accroTtre la motivation des agents en inskrant leur performance individuelle dans la performance de leur administration.
Parallklement, de nouvelles prockdures de promotion conciliant la motivation des agents et I'amklioration de l'efficacitk du service public seront mises en place. La principale novation en la matikre consiste h privilkgier la promotion par voie d'examens d'aptitude professionnelle et I'kvaluation systkmatique de la performance des agents, combink avec davantage de f luiditk par I'institution de quotas annuels. A partir de 2005, 22% des promouvables seront promus chaque annke, dont 11% seront choisis par moyen d'un examen d'aptitude professionnel et 11% par le moyen d'une &valuation de performance.
c) Dkveloppement de la politique de formation continue
La mise en place d'une politique cohkrente de formation continue reposera sur des schkmas ministkriels ktablis h partir d'une Ctude des besoins de formation continue des cadres et agents dans les mktiers communs. Elle deviendra un outil essentiel pour combler I'kcart entre les prof its existants et ceux nkcessaires pour relever les dkfis futurs relevks par les rkfkrentiels des emplois et des
9 compktences, accompagner la mobilitk fonctionnelle, faciliter les promotions, enrichir la carrikre des cadres et agents et de contribuer h la diffusion d'une culture de gestion par rksultats.
d) MaTtrise de la masse salariale
Des efforts ont ktk dkployks h partir de 2002 pour maitriser la masse salariale h travers notamment la limitation des crkations de postes budgktaires au nombre de dkparts h la retraite pour limite d'6ge. Cet effort sera poursuivi en 2004-2006. Les mesures structurelles dnumkrkes ci-dessus permettront une meilleure gestion de la masse salariale sur le long terme en accord avec des objectif s de dkveloppement des ressources humaines.
Le dispositif de prk-retraite envisagk, du fait de son impact structure1 et h terme, dkcoulant de la suppression des postes libkrks et de I'interdiction de recruter dans le secteur public du personnel mis en prk-retraite, aura un impact sur I'attknuation de la croissance de la masse salariale. II permettra aussi de renforcer le re-profilage de la fonction publique et d'amkliorer son efficacitk, en raison de la rkduction sklective du nombre de fonctionnaires, notamment ceux classks dans les kchelles basses et intermkdiaires.
111)- Modalitks de pilotage et de suivi de la mise en aeuvre du programme de &forme.
Le pilotage et le suivi de la mise en euvre de ce Programme de Rkforme de I'Administration Publique ont kt6 confiCs par Monsieur le Premier Ministre h une commission interministkrielle prksidke par Monsieur le ministre ddlkguk auprks du Premier Ministre chargk des Affaires Economiques, des Affaires GCnkrales et de la Mise h Niveau de I'Economie.
Cette commission qui regroupe des reprksentants des dkpartements ministkriels chargks de la Modernisation des Secteurs Publics, de I'Equipement et du Transport, de I'Agriculture, de I'Intkrieur, de la Santk et des Finances et de la Privatisation est chargke d'assurer le suivi et I'kvaluation de la rkalisation des actions retenues dans le cadre du programme de rkforme, de formuler les recommandations h mzme d'en maximiser les impacts pour faire de I'Administration un vdritable facteur de compdtitivitk et d'assurer la coordination avec les diffkrentes commissions interministkrielles institukes au niveau du Premier Ministre et chargkes de la conduite des autres actions de reiforme de I'administration publique.
10 < En outre et en vue d'assurer le suivi rkgulier de la rkalisation des actions retenues dans le cadre dudit programme, des reprksentants seront dksignks au niveau de chacun des dkpartements chargks de la Modernisation des Secteurs Publics, des Affaires Gknkrales et des Finances pour faire le point pkriodiquement sur I'ktat d'avancement de la mise en ceuvre desdites actions et prkparer des rapports d'ktape h la commission prkcitke.
Le gouvernement est conscient de la nkcessitd de rallier un consensus autour des objectifs et des modalitks de la &forme. A cet effet, iI entend klaborer, dans les meilleurs dklais, une stratkgie de communication et de << gestion du changement >> autour du programme de rkforme.
Tout en vous remerciant pour votre appui en vue de la rkalisation de cet important programme de rkforme de I' Administration Publique Marocaine, je vous prie de croire, Monsieur le Prisident, h I'expression de ma considkration distinguke.
11 ANNEX I Page 1 of 8
Kingdom ofMorocco
THE PRESIDENT OF THE WORLD BANK 1818 H Street NW Washington, DC 20433
Subject: Letter of Development Policy on strategic reform of the public administration
Dear Mr. President,
The reform ofthe State has become absolutely essential in an international context characterized by the opening of markets, the accelerating globalization of trade, competition between economies, and the spread ofnew information and communication technologies. These changes in the international environment constitute challenges not only for the more advanced countries but also, and to an even greater extent, to developing countries. It is from this perspective that the Moroccan government has undertaken in-depth reforms to adapt the country’s economic and social structures and its institutional, legal and administrative environment to the changes now underway and to meet the pressing needs for social development and employment creation. The modernization ofpublic sector management, and in particular the reform of the Moroccan public administration, are an integral part ofthis reformmovement.
The government is committed to establishing an administration in which structures are reformed, procedures are simplified, performance is enhanced, and the quality of services to the public and to business is improved. At the same time it seeks to create a favorable investment climate by easing administrative constraints, providing the physical infrastructure necessary to the normal conduct of economic activity, and enhancing the competitiveness of the country’s economy and businesses.
Administrative reform has indeed been cited as a priority objective in the Prime Minister’s policy statements to Parliament. Efforts undertaken in this regard are consistent with the government strategy indicated in the Royal Guidelines for making the administration a vector for integrated development, consistent with the new concept of authority. This strategy sets out the broad features of a reform intended to make public administration more responsive to the demands of efficiency and quality in providing services to users.
Moreover, the government has adopted a Good Management Pact that will serve as a frame of reference for improving ethics in government, rationalizing public management, strengthening communication and making government more open to its environment, while ensuring application of the Royal Guidelines for implementing and strengthening deconcentration, decentralization and regionalization. ANNEX I Page 2 of 8
I. Objectives of the administrative reform strategy
The strategy adopted by the government for reforming the public administration focuses on the following main objectives:
0 To provide a modem administration that can contribute to the country’s competitiveness and its sustainable development, while maintaining the viability of its macroeconomic framework over the medium term. The government is called upon to play a leading role in attracting investment and facilitating private sector activity, in particular by streamlining procedures, improving the business climate, and reforming the justice system in order to further consolidate the rule oflaw.
0 To ensure the provision ofservices of better quality and at lower cost. In this context, the govemment is called upon to make its interventions more efficient and to rationalize its expenditures through a new and innovative budget system based, on the one hand, on empowering managers while making them accountable for achieving predefined objectives, and evaluating the achievement of those objectives in light of actual expenditures, and on the other hand, on the development of performance and accountability controls.
0 To develop and reinforce the process of decentralization and deconcentration needed to bring public management closer to the people and ensure that it is in phase with their concerns. De-concentration therefore constitutes a fundamental principle in the organization and distribution of powers and responsibilities among the various departments and agencies of govemment.
0 To develop the tools ofe-government in order to enhance public access to information on the budget and to administrative services.
0 To reaffirm the strategic role of human resources management in achieving a modem, efficient, responsible and publicly accountable administration, so as to ensure that human resources have the capacity to contribute dynamically to the reform process. The main themes of this policy, the effect ofwhich will be to control the public payroll, will focus on achieving a better match between candidate profiles and job requirements, as part ofa sustainable policy ofhuman resources management based essentially on competence and merit, increased responsibility for managers in improving the administration’s performance, and further efforts to enhance the quality of public services.
To achieve these objectives, the administrative reform undertaken by the govemment includes structural and institutional steps that, over the medium and long term, will make the civil service and public expenditure more efficient and thereby contribute to the government’s efforts to control the budget deficit within a stable medium-term financial fi-amework. This reform also includes short-term measures to make the macroeconomic framework more sustainable, particularly by controlling the public payroll. ANNEXI Page 3 of 8
11. The main themes of the administrative reform strategy and actions and measures to implement them over the medium term
To achieve the above-cited objectives ofthe reform strategy, the government is giving priority to:
0 improving the efficiency ofits budget programming and execution as an essential tool for achieving its economic and social objectives and for pursuing the restructuring and reform ofthe public sector,
0 modemizing its human resources management tools and makmg public administration operationally more efficient.
2.1 Improving the efficiency of the government with respect to budget management
This improvement involves all the major components of the budget management cycle, with particular emphasis on strengthening budget programming methods and bringing greater efficiency and transparency to expenditure execution and control.
2.1.1. Strengthening programmingmethods
a) Improving budget programming
This measure calls for introducing a medium-term expenditure framework (MTEF) that will cover the macroeconomic framework and the budget framework in a coherent manner on a three- year rolling basis. This tool will allow for greater predictability and flexibility in the allocation of public resources, and greater visibility, both domestically and vis-a-vis external partners, in the trend ofpublic spending and its compatibility with the objectives ofcontrolling the budget deficit.
Moreover, a commission consisting of the Planning and Economic Forecasting Department, the Finance Department, and three pilot ministries, will consider and propose an approach to programming and inter-sectoral arbitration that will guarantee the sustainability of the Economic and Social Development Plan, with due regard to the government’s financial capacity and the maintenance of a viable macroeconomic framework, as well as the maintenance of the link between that plan and the medium-term expenditure framework, and their treatment in the budget law, with a view to:
0 Reconciling sectoral development objectives and the reform programs undertaken by the government with the imperatives of preserving a fundamental fiscal balance and controlling the budget deficit.
0 Giving greater visibility to ministerial departments in terms of multiyear budget programming, and equipping them with the necessary tools and instruments for implementing the new arrangement whereby they will enter into contracts to achieve their objectives -- with the means available to them -- within a three-year budget framework. These tools will further strengthen the process of de-concentrating appropriations to the benefit, in particular, of regional managers, who will be given greater responsibility, flexibility and autonomy in managing their appropriations so as to achieve the previously fixed objectives. A NNEX I Page 4 of 8
Once this approach is validated, it will be implemented in 2005 on an experimental basis in the pilot ministerial departments indicated above, and it will then be extended, after proper evaluation, to all ministerial departments as of2006.
In any case, improving budget programming will require greater programming capacity within administrations, based on participatory and bottom-up approaches for establishing sectoral development objectives and translating them into programs and activities, with due regard to the government’s financial possibilities, while diversifying, as necessary, the funding sources for those programs and activities, through public-private partnerships in particular. b) Introducing results-based budget management and making managers accountable
Results-based management, consistent with the objectives of de-concentration, will be introduced as part of an initiative that includes the provision of lump-sum appropriations, together with a contractual relationship between central administrations and their de-concentrated agencies. This reform, which will lead to the establishment of program budgets that explicitly spell out the expected results, measured by performance monitoring indicators, will give budget managers greater flexibility together with more responsibility for achieving results, and will also bring greater accountability to public expenditure and make it easier to evaluate its effectiveness.
The aim in providing lump-sum appropriations is to give de-concentrated agencies more flexibility in using their appropriations for programs, projects or similar activities, while at the same time committing them to achieve predefined objectives measured by specific performance indicators.
As a consequence of this approach, responsibility will be transferred to the de-concentrated agencies, with the result that decisions of every kind will be made at the level best suited to meeting actual needs and to ensuring effective interventions. To this end, de-concentration plans will be prepared for gradual implementation by ministerial departments.
Lump-sum appropriations were introduced on an experimental basis for the Ministry of Health, and are now being implemented in four other ministerial departments (Agriculture, Marine Fisheries, Planning, and Finance). It is planned to extend this arrangement to a total of seven ministries in the course of2004. The results ofthe arrangement will be evaluated in 2005, with a view to extending it to all ministries, and applying it in full as offiscal year 2007.
These reforms will reinforce bottom-up programming in the various ministerial departments, as part of the implementation of “three-year program budgets” negotiated between the central administration and the de-concentrated agencies, so as to take better account of the needs expressed at the local level and guarantee greater effectiveness in public spending.
2.1.2. Efficiency and transparency in expenditure execution and control
The new policy underlying the public administration reform aims to enhance the efficiency and transparency ofpublic expenditure execution and control and to reform the control function. This should necessarily lead to an easing of compliance controls and a strengthening of management controls, based on continuous improvement in performance and accountability. This shift in the Annex I Page 5 of 8 focus of control reflects an integrated approach to promoting coordination among the various players in the chain ofcontrol. a) Increasing the efficiency and transparency of the public expenditure cycle by:
0 Introducing a system of integrated government expenditure management (Gestion Intkgrke de la Dkpense, GID) designed to rationalize and further simplify public expenditure execution procedures by, for example, eliminating the multiple recording of transactions and adopting the principle of a single entry, speeding up the processing of expenditure documents, ensuring that there is consistency at all times between the accounts of the different players involved, and accelerating the process of preparing budget execution laws;
0 Finding a better way of formalizing procedures and sharing information throughout the expenditure circuit (better training for budget management units, preparation of procedural manuals);
0 Endeavoring to make expenditure more transparent by developing online government, for example, by setting up an Internet site dedicated to public procurement that will centralize information on bidding opportunities and contract awards, and improving the information provided to the public on budget programming and execution. This measure will reinforce transparency by clarifying administrative procedures, and will make public procurement more widely accessible, thereby achieving greater efficiency and providing the public with more information on government operations and achievements.
b) Improving performance and governance by reconfiguring the chain of control.
The introduction ofresults-based management means that the public administration will have to develop the concept of performance auditing for all officials involved in public expenditure, as a means of ensuring the effectiveness and efficiency of that expenditure.
This new approach requires:
0 The gradual streamlining of ex-ante control procedures: this will be achieved through reforms already made in the exercise of expenditure commitment control, and will be accompanied by the introduction of a procedural manual and training programs.
0 Reinforcing performance audit capacities for the entire chain of control. In this context, the General Inspection Offices of the Ministries, with the support of the General Inspector of Finance, will, once their capacity to do so has been reinforced, audit government budget execution against performance indicators.
0 Better coordination among control bodies, in terms of exchangmg experience and information. ANNEX I Page 4 of 8
2.2. Improving the effectiveness of the government's human resources management
The Government of Morocco considers it essential to confirm the strategic role of human resources management as the cornerstone of the entire process of change that its administrative reforms are designed to promote. Accordingly, the reforms call for actions over the short, medium and long terms, based on the following principles: a) Matching personnel profiles more closely with stated or anticipated needs
Forward-looking management of human resources. Standard benchmarks for jobs and skills will be introduced in all ministerial departments, under the authority ofthe Ministry for Public Sector Modernization (MMSP), by project teams established within each ministry. This operation will be implemented gradually over four years beginning in 2004, incorporating several new ministries each year, with the goal of covering 80 percent of civil servants by 2006. It calls for each administration to, develop a personnel database, and for the MMSP to assume responsibility for maintaining and monitoring the list of administrative positions as of 2004, as well as for preparing a prior functional analysis of ministerial structures. This analysis will be used for determining the slulls needed to fill positions in the ministries, for redeploying positions and employees, and for identifying the slulls that holders ofthose positions must have or acquire.
The upgrading of human resources. Several measures are planned for this purpose, in the context of reforms to the legal framework and the system for managing civil service recruitment in 2003/2004. The measures will combine strict respect for transparency and equality of access to public employment with the search for candidates whose profiles match the evolving needs ofthe administration and will contribute to raising the level of professional qualification in the civil service. Competition and pre-selection will be the normal authorized means of recruitment for government personnel. The recruitment process will provide for specifying the desired professional profile and the geographic assignment ofnew recruits. Positions at levels 1 to 4 will be gradually reduced through attrition, and any new recruitment in these categories will be prohibited. Temporary employment will also be phased out: such employees will be converted to regular civil service status, and further recruitment in this category will be prohibited as of 2004. Finally, departments will be allowed to negotiate fixed-term contracts for projects that require a specific expertise not available among existing staff.
Human resources mobility. The strategic move to de-concentration will require procedures to encourage redeployment and to correct imbalances in the geographic or sectoral distribution of staff, without systematic resort to new recruitment. The process also involves simplifying secondment procedures so that they can become an operational tool for reinforcing the mobility of civil servants and meeting administrative needs, together with an innovative "availability roster'' procedure that will allow employees to be re-assigned more readily without reference to specific pay conditions, which are a serious obstacle to mobility. A database will be created and made accessible at the MMSP web site in 2005, at latest, representing a kind of "job exchange" where notices ofvacancies and persons seehng redeployment can be posted. ANNEX I Page 7 of 8 b) Making the staff promotion, evaluation and remuneration system more efficient, as part of the policy to control the public payroll
Remuneration, promotion and evaluation mechanisms in the civil service are the key drivers of motivation and effectiveness in a system that will now place greater stress on rewarding effort and performance. Benchmark analyses for jobs and slulls are fundamental elements for building a new system ofremuneration in the civil service.
To make it easier to take the results of these benchmark analyses into account, the regulations governing the specific status of civil servants will have to be simplified and harmonized. These will be consolidated starting in 2004 in order to reduce the number and facilitate the classification ofjob categories in the list prepared by the MMSP, as these benchmark analyses are produced.
As a prerequisite for overhauling the remuneration system, these benchmark analyses will have to be finalized and, consistent with the results, employees will have to be redeployed in order to achieve the required match between jobs and skills.
The work ofpreparing the new remuneration system will begin in 2005, affecting those classes of positions for which benchmark analyses ofjobs and slulls are available.
To enhance the performance ofmanagers and officers in the civil service, performance evaluation policies and procedures will be implemented in 2004/2005. These will also make it possible to identify training needs for purposes of skills upgrading, in order to facilitate mobility and promotion, and, ultimately, to make salary determination more equitable. The evaluations will also help to motivate officers by linking their individual performance to the performance oftheir unit.
At the same time, new promotion procedures will be introduced to reconcile the need for motivation with the need to improve the efficiency of the civil service. The main innovation in this area will be to institute promotion on the basis of vocational aptitude tests and systematic performance appraisals, combined with steps to free up the current promotion process by establishing annual quotas. As of 2005, 22 percent of persons eligible for promotion will be promoted every year, half of them through a vocational aptitude test and half of them through a performance evaluation.
c) Development of the in-service training policy
A coherent policy for in-service training will be implemented, using individual plans for the various ministries prepared on the basis ofa study ofin-service training needs for employees and managers in the most common trades and professions. This policy will become an essential tool for filling the gap between existing personnel profiles and those that will be needed to meet the challenges identified by the job and skills benchmark analyses, to support functional mobility, to facilitate promotion, to enrich the career of officers and managers, and to help disseminate a culture ofmanagement by results. ANNEX I Page 8 of 8 d) Controlling the public payroll
Efforts have been underway since 2002 to control the public payroll through such measures as limiting the creation of budgeted positions to the number of employees reaching mandatory retirement age. These efforts will be pursued in 2004-2006. The structural measures described above will allow for better management of the public payroll over the long term, consistent with human resources development objectives.
The planned early retirement provision will have a structural impact over time, because vacant positions will be eliminated and people who have taken early retirement will be prohibited from recruitment in the public sector. That provision will therefore tend to reduce the growth of the payroll, and it will also assist in re-profiling the civil service and improving its efficiency, through a selective reduction in the number of civil servants, particularly those in the lower and intermediate categories.
111. ARRANGEMENTS FOR STEERING AND MONITORING THE REFORM PROGRAM
The Prime Minister has assigned responsibility for steering and monitoring this Public Administration Reform Program to a special inter-ministerial committee chaired by the minister reporting to the Prime Minister for Economic Affairs, General Affairs, and Upgrading of the Economy.
This committee, which will include representatives ofthe ministerial departments responsible for Modemization of the Public Sector, Infrastructure and Transport, Agnculture, the Interior, Health, and Finance and Privatization, will monitor and evaluate activities under the reform program and make recommendations for maximizing its impact, with a view to making the public administration a true catalyst for competitiveness and ensuring coordination with the various inter-ministerial committees, established by the Prime Minister, that are responsible for other components ofpublic administration reform.
Moreover, to ensure regular monitoring of activities under the program, representatives will be appointed from each of the departments responsible for Modemization of the Public Sector, General Affairs, and Finance to conduct a periodic assessment of the program’s implementation status, and to prepare progress reports for the committee referred to above.
The government is aware ofthe need to build a consensus around the objectives ofthe reform and the procedures for implementing it. For this purpose, it intends to prepare, as quickly as possible, a strategy for communication and for “managing change,” focused on the reform program.
Thank you, Mr. President, for your support for this important program to reform the Moroccan public administration.
I2 c i >C f : ! i e i : E C c
Ci C i t ; f i i i i ic t t i t t i
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ANNEXIII Page 1 of I
LIST OF MEASURESTAKEN BY THE BORROWERUNDER THE FIRSTPHASE OF THE PROGRAM
The Borrower has:
1. continued to maintain a satisfactory macroeconomic framework, consistent with the objectives of the Program, as determined on the basis of macroeconomic indicators agreed between the Borrower and the Bank; 2. established a medium-term expenditure framework (“cadre de dkpenses A moyen terme” or “CDMT”) for the period 2004-2006 including the evolution of public finance aggregates for said period and a study setting forth the options retained in the establishment of said framework; 3. (a) adopted the regulations (“arr6tks”) providing for the application to, respectively, five (5) ministries of the Borrower ofthe budget globalization process; and (b) identified the relevant performance indicators for each such ministry for the Borrower’s fiscal year 2004; 4. submitted to the Bank a study on the expected impact of the early retirement program for civil servants under scales 1 to 9; 5. published in its Official Gazette the decree setting forth the early retirement procedures for civil servants under scales 1 to 9; 6. disseminated the Prime Minister’s Circular setting forth the terms of reference and mandate of the Steering Committee in charge of developing and establishing the strategic staffing framework (“rkfkrentiel des emplois-compktences”) in the public administration; 7. adopted in its Council of Government a decree providing for the suppression of the grades and cadres ofcivil servants under scales 1 to 4; 8. disseminated the Pnme Minister’s Circular notifying the Borrower’s General Financial Comptroller (“Contr6le Gknkral des Engagements des Dkpenses”) of the prohibition regarding the recruitment of temporary staff within the public administration; 9. adopted in its Council of Government a draft law amending the Borrower’s Royal Decree (“Dahir”) No. 1-58-008 of February 24, 1958 governing the general statutes of the civil service (“Statut Genkral de la Fonction Publique”), and setting forth the procedures applying to redeployment, secondment and transfer of civil servants; 10. adopted in its Council of Government the legislative or regulatory framework setting forth the procedures governing the recruitment by the State of personnel on the basis of fixed-term contracts; 11. disseminated the Prime Minister’s Circular regarding the preparation ofmaster plans for de-concentration ofthe Borrower’s ministries; and 12. adopted in its Council ofGovernment a decree establishing a promotion scheme for civil servants. ANNEXIV Page I of 3
DOCUMENT OF INTERNATIONAL MONETARY FUND AND FOR OFFICIAL USE ONLY
suR/o4/45
May 7,2004
The Acting Chair’s Summing Up Morocco-2004 Article IV Consultation Executive Board Meeting 04/45-May 5,2004
Executive Directors agreed with the thrust of the staff appraisal. They commended the Moroccan authorities for maintaining macroeconomic stability and accelerating structural reforms in 2003. Inflation remained low, nonagricultural output accelerated, and foreign exchange reserves hlly covered the outstanding public and publicly guaranteed external debt. Despite a higher fiscal deficit, the debt-to-GDP ratio continued to decline and structural reforms progressed on several fronts. These developments contributed to improved market confidence in the Moroccan economy.
Directors emphasized that the key challenge facing Morocco is to achieve sustainable high rates of economic growth to reduce unemployment and poverty. They observed that higher growth in nonagricultural output will be essential to reduce the volatility of overall growth. To achieve higher growth in the context ofMorocco’s increasing integration into the world economy, Directors stressed the importance ofsupportive macroeconomic policies and accelerated structural reforms with a view to promoting private investment and increasing the productivity ofthe economy. They congratulated the authorities for measures being taken to assist the low-income population, noting that efforts to maintain social cohesion are an integral part ofthe sustainability ofstructural reforms.
Directors considered fiscal consolidation an essential element of the medium-term high-growth strategy, and welcomed the authorities’ intention to reduce the deficit over the medium term. Several Directors favored an early start to fiscal adjustment in order to provide room to absorb possible shocks along the way and to prevent expectations ofhigher taxes and interest rates that could constrain growth. Such a strategy would also enable a somewhat more ambitious reduction in the debt-to-GDP ratio. Other Directors, however, felt that front-loading the consolidation may not be necessary, provided that there is a clear and well- communicated commitment to adjustment. In this context, Directors welcomed the authorities’ intention to begin to strengthen the fiscal position in 2004. They noted that the increase in the fiscal deficit in 2003 stemmed in part from lower import tariff revenues as well as an increase in the wage bill and security-related spending. Therefore, they welcomed the continued freeze on net new hiring and the provision in the 2004 budget for an early retirement program to reduce the size ofthe civil service. Directors urged the authorities to step up tax collection and to move ahead in 2004 with the planned reform ofthe food subsidy system, while ensuring that an appropriate social safety net is in place.
Directors emphasized the importance of fiscal reforms for sustained reduction in the fiscal deficit and the debt-to-GDP ratio over the medium term. In particular, they urged the authorities to push ahead with their public administration and civil service reform plans in ANNEX 1 V Page 2 of 3 order to reduce the wage bill on a lasting basis, and to streamline expenditure in the context of their ongoing efforts to strengthen accountability in public management. A number of Directors supported the staffs inclusion ofthe Fonds Hassan I1 spending, which is excluded from the government budget, in the overall fiscal balance in view of its direct impact on economic activity and its implications for central government investment spending. Directors also welcomed the authorities’ plans to work on a broad-based tax policy and tax administration reform that will increase the efficiency of the tax system, reduce exemptions, and offset revenue losses stemming from the ongoing trade liberalization. Directors considered the authorities’ request for a fiscal Report On Standards and Codes to be a very positive step.
Directors agreed that the current monetary framework has served Morocco well. They noted that the nominal anchor provided by the peg of the dirham to a currency basket has contributed to keeping inflation low, and that there are no signs of an exchange rate misalignment. Nevertheless, they generally welcomed the authorities’ intention to review the desirability and operational modalities of alternative exchange rate regimes before further opening of the capital account. In this regard, several Directors emphasized that strengthening the fiscal position and the financial sector are a higher priority at the moment and, in any case, are pre-conditions for any eventual move to greater exchange rate flexibility as the economy becomes more integrated with international capital and goods and services markets.
Directors agreed with the structural reform priorities outlined by the authorities, which will complement fiscal reforms in promoting private sector activity and enhancing the productivity and competitiveness of the economy. Directors commended the authorities’ decision to lower import tariffs on a multilateral basis so as to minimize trade diversion and urged continued liberalization and simplification of the trade regime. They noted that the trade agreements with regional partners, the European Union, and the United States represent significant steps towards increased integration to the world economy that would help attract foreign investment and achieve improved efficiency and competitiveness.
Directors welcomed the importance given by the government to strengthening the financial sector and the progress made in implementing the recommendations of the Financial Sector Assessment Program. In particular, they supported the authorities’ intention to restructure troubled state-owned banks and strengthen non-bank financial institutions. They also welcomed plans to introduce new central bank and banking legislation in 2004 that would make it possible to hrther modernize the financial system and the monetary policy framework, and to strengthen the independence ofthe central bank. They welcomed the anti- terrorism legislation and the central bank’s directives on anti-money laundering. They recommended that the draft legislation on anti-money laundering, consistent with . international standards, be finalized expeditiously.
To promote private sector activity, Directors underscored the need to improve the business environment-in particular, to streamline administrative procedures, strengthen the judicial system, and implement the provisions of the new labor code. They also called for hrther improvements in governance and transparency, and a hrther withdrawal ofthe state ANNEX 1 V Page 3 of 3
from sectors that are in the private sector domain. They were encouraged by the efforts to improve the financial viability of the public enterprises, which would facilitate the ongoing privatization program. Directors welcomed recent actions taken to improve the financial position of the pension funds, and urged elaboration of a comprehensive plan to put the pension system on a sound footing.
Directors commended the authorities’ efforts to improve the statistical system. They encouraged the authorities to accelerate progress toward early subscription to the Special Data Dissemination Standard.
It is expected that the next Article N consultation with Morocco will be held on the standard 12-month cycle.
Fund contact: Mrs. Sena Eken or Mr. Abdourahmane Sarr ANNEX V Page 1 of 2
Morocco at a glance 5/17/04
M. East Lower- POVERTY and SOCIAL & North midd Ie - Morocco Africa income Development diamond' 2002 Population, mid-year (millions) 29.6 306 2.41 1 Life expectancy GNI per capita (Atlas method, US$) 1,170 2,070 1,390 GNI (Atlas method, US$ billions) 34.7 670 3,352 Average annual growth, 1996-02 T Population I%) 1.6 1.9 1.o GNI Gross Labor force (%) 2.4 2.9 1.2 per primary Most recent estimate (latest year available, 199642) capita nroilment Poverty (% of population below national poverty line) 19 Urban population (% of total POpUlatiOn) 57 58 49 Life expectancy at birth (years) 70 69 69 1 Infant mortality (per 1,000 live births) 39 37 30 Child malnutriiion (% of children under 5) 11 Access to improved water source Access to an improved water source (% of population) 80 88 81 lllaeracy (% of population age 75+1 49 35 13 Gross primary enrollment (% of school-age population) 109 95 111 -Morocco Male 98 111 Lower-middle-income group Female 90 110
KEY ECONOMIC RATIOS and LONG-TERM TRENDS I982 1992 2001 2002 Economic ratios' GDP (US$ billions) 15.4 28.5 33.9 36.1 28.2 23.2 22.9 22.7 Gross domestic investmeWGDP Trade Exports of goods and services/GDP 19.2 25.1 33.0 32.3 Gross domestic savings/GDP 13.3 13.1 12.9 13.5 - Gross national savings/GDP 17.8 18.3 20.9 21.7 Current account balancdGDP -12.3 -1.5 4.7 4.1 Interest paymentdGDP 4.3 8.1 2.7 3.0 Total debtlGDP 80.4 79.7 58.8 51.5 Total debt service/exports 44.8 40.6 17.3 23.9 1 Present value of debtlGDP Present value of debtlexports Indebtedness 1982-92 199242 2001 2002 200246 (average annual growth) GDP 4.2 3.0 6.3 3.2 3.9 GDP per capita 2.0 1.2 4.6 1.6 1.4 Lowerrniddle-income group Exports of goods and services 7.8 4.6 4.8 6.3 4.2
STRUCTURE of the ECONOMY
(% of GDP) Agriculture 15.3 15.4 Industry 31.9 32.3 31.0 30.3 Manufacturing 17.3 18.1 16.9 16.8 Services 52.8 52.3 53.5 53.6 Private consumption General government consumption 18.3 16.8 19.8 20.1 GDI *GDP Imports of goods and services 33.7 31.8 36.2 36.7 -
1982-92 199242 2001 2002 Growth of exports and imports (%) (average annual growth) I 5.3 2.0 27.6 5.6 25 Agriculture 20 Industry 3.2 3.6 5.0 2.7 15 Manufacturing 4.2 3.0 4.2 3.3 10 Services 4.3 2.9 2.8 2.9 5 0 Private consumption 4.3 2.9 5.9 4.6 5 General government consumption 3.8 3.8 12.6 -3.8 -10 Gross domestic investment 2.9 5.7 8.2 4.6 Imports of goods and services 5.9 5.9 8.2 5.6
Note: 2002 data are preliminary estimates. *The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. ANNEX V Page 2 of 2
Morocco ~
PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 Inflation (“h) Domestic prices (% change) 4T Consumer prices 10 5 5.7 0.6 28 Implicit GDP deflator 72 4.4 1.8 06 Government finance (% of GDP, includes current grants) Current revenue 17 6 26.2 24.9 24 7 57 98 53 w 01 Current budget balance -4.9 3.0 -1.1 01 -GDPdeflator +CPI Overall surpluddeficit -6 1 -2.3 -2.8 -42 1 “I
TRADE 1982 1992 2001 2002 Export and import levels (US$ mill.) (US$ millions) Total exports (fob) 2,043 5,024 7,137 7,839 Agriculture 50 1 1,053 1,477 1,648 12 wo I Phosphorus rock 572 307 373 364 10000 Manufactures 407 2,612 3,930 4,495 8,000 Total imports (cifJ 4,315 8.113 10,978 11,736 6 wo Food 580 895 1,358 1,389 4 000 Fuel and energy 1,173 1,124 1,935 1,834 2.000 Capital goods 953 2,019 2,027 2,264 0 96 57 98 59 00 01 Export price index (1995-700) 68 82 93 96 Exports imports Import price index (1995=100) 75 78 76 76 O2 Terms of trade (1995=100) 91 106 123 126 I I
BALANCE of PAYMENTS 1982 1992 2001 2002 Current account balance to GDP (Oh) (US$ millions) Exports of goods and services 2,969 7,134 11,166 12,199 ST Imports of goods and services 5,199 9,043 12,262 13,314 Resource balance -2,230 -1,909 -1,116 -1,115 Net income -650 -1,057 -833 -738 Net current transfers 981 2,533 3,555 3,330 Current account balance -1,899 -433 1,606 1,477 Financing items (net) 2,093 1,116 2,242 -839 Changes in net reserves -194 -683 -3,848 -538 Memo: Reserves including gold (US$ millions) 141 3,561 8,988 11,089 Conversion rate (DEC, local/US$) 60 8.5 11.3 11 0
EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) I Composition of 2002 debt (US0 mill.) Total debt outstanding and disbursed 12,401 22,674 19,944 18,601 IBRD 698 3,408 2,500 2,549 IDA 41 37 25 24 Total debt service 1,721 3,894 2,556 3,691 IBRD 89 518 452 412 IDA 1 1 2 2 Composition of net resource flows Official grants 163 182 172 Official creditors 726 471 -432 -726 Private creditors 804 49 62 -399 Foreign direct investment 80 387 2.877 558 Portfolio equity 0 31 22 19 E 6,209 World Bank program
Commitments 136 275 8 98 A - IBRD E ~ Bilateral
Disbursements 135 477 61 45 B - IDA D - Other multilateral F ~ Private Principal repayments 38 270 280 269 C ~ IMF G -Short-term Net flows 97 207 -220 -224 Interest payments 51 249 173 145 Net transfers 46 -42 -393 -369
Development Economics 511 7/04 ANNEX VI Page I of I
CAS Annex 88 -Morocco Operations Portfolio (IBRDIIDA and Grants) A3 of 04105l2004
IBRDflDA Told Disburs& (A\slwel 98 3 of which has been iapad 112 Tofd DlsburW (Uosed) 70.678 ofwhich hsu besn tepmd 5.220 9 Told hrburned (Actire + Clordl 7.1663 of which har been iapwd 5,232 1 Tog Undirbvrred (Ad>va) 221 9 Told Undirbvrred (Closed) 89 Totsi Undirbvrd (Achve t Closadl 230 8
Ad". P.0i.sb
OIldnal Amount In US$ Mllllons
Prc+l ID hlatNm. Fhsd bar IBRD IDA ORANT Cansel. Undlsb.
PO05519 LAKHDAR WATERSHED MG 1999 4 1 -18 PO05524 FESIMEDINA REHAB. S U 1999 14 44 76 PO05516 ASSET MANAGEMENT s s mo3 45 26 6 PO75808 ADULT LITERACY (ALPHA WROC) S S 2003 41 4.7 PO05525 HEALTH MANAGEMENT U s 1999 66 20 3 45 7 PO56978 IRRIGATION BASED COMMUNITY DEVT s U mol 32 57 31 4 POW918 LEGAL AND JUDICIAL DEVELOPMENT s U ZOW 53 3 PO48314 PROTECTEDAREASMANAGEMENT S s 2000 $05 10 86 PO43725 RAILWAY RESTR IPRIV s S 1997 85 447 49 2 30 POW124 RAINFED AGRICULTURE DEV s S 2003 26 8 28 5 04 PO65757 SUSTAINABLE COASTALTOURISM DEV s s mw 22 08 04 P073Wl SOCIAL DEVELOPMENT AGENCY u s 2002 5 69 1 02 PO05521 WATER RESOURCE MGMT s s 1998 20 33 83 11 5 PO05803 SEW I WATER REUSE I1 s s 1996 40 12 11 9 24 06 RwUlI 350 10.5 41 231.9 179.3 31.5 ANNEX vrr Page 1 of 1
MOROCCOPARL TASK TEAM
Country Director: Theodore Ahlers
Sector Manager: Pedro Alba
Country Manager: Ferid Belhaj
Task Team Leader: Pierre Demangel
Macroeconomics Team: Pedro Alba, Jennie Litvack, Khalid El Massnaoui
Public Finance Management Team: Kouassi Soman, Ian Davies (consultant, performance auditing and evaluation)
Civil Service Management Team: Catherine Laurent, Jacques Bourgault (consultant, civil service reform)
European Commission Team: Luca Oriani-Vieyra, Marco Berti, Martial Laurent
Senior Finance Officer: Hovsep Melkonian
Senior Counsel: Dominique Bichara
Financial Management Specialist: Meryem Benchemsi
Quality Reviewers: Allister Moon, Gary Reid
Task Sr. Program Assistant: Muna Abeid Salim
MAP SECTION