Document of f co. The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No. P-3413-MOR

REPORT AND RECONMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

Public Disclosure Authorized TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

IN AN AMOUNT EQUIVALENT TO US$30 MILLION

TO THE

KINGDOM OF MOROCCO

Public Disclosure Authorized FOR AN

OULMES-ROMMANI AGRICULTURAL DEVELOPMENT PROJECT

November 22, 1982 Public Disclosure Authorized

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. KINGDOM OF MOROCCO

CURRENCY EQUIVALENT

Currency Unit Dirham (DH) US$ DH 5.50 DH US$0.182

FISCAL YEAR

January 1 - December 31

GLOSSARY OF ABBREVIATIONS

CNCA National Agricultural Credit Bank (Caisse Nationale de Credit Agricole)

DPA Provincial Directorate of Agriculture (Direction Provinciale de l'Agriculture) INRA National Institute for Agricultural Research (Institut National de la Recherche Agricole) MARA Ministry of Agriculture (Ministere de l'Agriculture et de la R6forme Agraire) PMU Project Management Unit NPCC National Project Coordinating Committee PCC Provincial Coordinating Committee SMS Subject Matter Specialist FOR OFFICIALUSE ONLY

KINGDOMOF MOROCCO

Oulmes Rommani Agricultural Development Project Loan and Project Summary

Borrower; The Kingdom of Morocco

Amount: US$30 million including the capitalized front-end fee

Terms: 17 years, including four years of grace, at variable interest rates.

Project Objectives and Description: The project aims at improving the living standards of the predominantly rural population living within the administrative areas of Oulmes and Rommani in the Khemisset province through development of agriculture, livestock and forestry and through provision of better social and agricultural services. Livestock development operations would focus on animal health, genetic improvement and fodder production. The forestry component would include the establishment of forestry plantations and the introduction of better management and harvesting techniques. At the farm level, the project would introduce improved crop production techniques and encourage the use of modern inputs while altering the land-use system. The project does not face any unusual risks, but realization of the expected benefits depends on the acceptance by the beneficiaries of the proposed agricultural packages and on their willingness to accept the proposed range management and irrigation regulations. This risk is considered relatively small since similar measures have been successful in other projects in Morocco. The effect of a drought is an important risk which has been minimized through the introduction of drought-resistant crop varieties. Risks associated with delays in project implementation are considered small since steps have been taken to deal with the most recurrent causes for implementation delays.

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization Project Cost Estimates Local Foreign Total … …(US$ Million)------

Agricultural development 5.0 1.7 6.7 Livestock production and range management 4.7 2.7 7.4 Irrigation infrastructure 1.5 0.6 2.1 On-farm investments 5.1 2.0 7.1 Incremental inputs 6.2 4.1 10.3 Forest development 8.9 6.1 15.0 Research 1.9 0.8 2.7 Cadastral survey 2.0 1.2 3.2 Rural roads 3.0 2.7 5.7 Social infrastructure 4.4 2.6 7.0 School and health buildings 2.6 1.8 4.4 Studies, training and technical assistance 0.9 1.1 2.0

Total Base Cost 46.2 27.4 73.6

Physical contingencies 4.7 3.1 7.8 Price contingencies 16.1 7.5 23.6

Total Project Cost 67.0 38.0 105.0 1/

Front-end fee on Bank loan --- 0.5 0.5

Total Required Financing 67.0 38.5 105.5

Financing Plan Local Foreign Total

IBRD - 30.0 30.0 Government 52.0 - 52.0 CNCA (Nat. Agri. Cred. Bank) 4.8 8.5 13.3 Beneficiaries 10.2 - 10.2

Total 67.0 38.5 105.5 1/

Estimated disbursements: ------US$ Million------Fiscal year 1984 1985 1986 1987 1988 1989 1990

Annual 1.6 2.5 4.9 5.8 9.3 4.9 1.0 Cumulative 1.6 4.1 9.0 14.8 24.1 29.0 30.0

Economic Rate of Return: 14%

Appraisal Report: Staff Appraisal Report No.4065 dated November 12, 1982

1/ Includes $23.7 million for taxes. INTERNAT(IONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE KINGDOM OF MOROCCO FOR A OULMES-ROMMANI AGRICULTURAL DEVELOPMENT PROJECT

1. I submit the following report and recommendations on a proposed loan to the Government of Morocco for the equivalent of US$30 million, including the capitalized front-end fee, to help finance an Oulmes-Rommani Agricultural Development Project. The loan would have a term of 17 years, including 4 years of grace, at variable interest rates.

PART I - THE ECONOMY

2. A basic economic mission visited Morocco in November 1978, and updating missions in September and December 1979 and in May 1980. A report entitled "Morocco: Basic Economic Report" (3289-MOR) was distributed to the Executive Directors in December 1980. A mission to review Morocco's Public Sector Investment Program for 1981-85 was in the field in December 1981. Another economic mission on industrial incentives and export promotion was in Morocco in September 1982. Country and Economic Data Sheets are attached as Annex I.

Introduction

3. Compared with many developing countries, Morocco is well endowed with natural resources. Morocco has the world's largest and most easily recoverable phosphate reserves, which makes the phosphate sector a key export sector. Other minerals such as iron ore, manganese, lead and zinc are also exported, but in much smaller amounts. Coal and hydropower plants satisfy only a small part of the country's energy requirements, but Morocco has some uranium and oil shale resources which could become significant energy sources in the long term. There are moreover preliminary indications of natural gas reserves. Morocco has also a relatively good agricultural potential. In addition, Morocco's proximity to Europe has favored trade, tourism and labor migration with the EEC countries.

4. During the first 15 years after independence (1956), a conservative approach to economic policy predominated in Morocco, and GDP increased at an average rate of 4% a year in the 1960s. However, a relatively weak savings effort and conservative external borrowing policies permitted only a slow rise in the share of resources allocated to investment. Morocco thus entered the 1970s with no major financial imbalances, but a relatively limited growth capacity. Although some industrialization had taken place, over half of the labor force was employed in the relatively inefficient traditional agricultural sector, and primary products accounted for close to 90% of merchandise exports, with phosphates representing about a quarter of the total. -2

Economic Expansion in the mid-1970s

5. During the 1970s, economic policy became more ambitious, and the original 1973-77 Development Plan strategy stressed an intensified savings effort and development of exports. In 1974, with the sudden jump in phosphate prices, phosphate export earnings more than quadrupled, and although the petroleum import bill also quadrupled in 1974, the current account of the balance of payments remained in surplus. The plan's concern for exports and savings lost some of its urgency. The Government launched a massive public investment program which brought about a sharp acceleration in the rate of growth of the economy, and GDP grew at the rate of 6.7% per year between 1973-1977. The expansion of the investment program also led to a considerable increase in demand for imported goods and services, whose share in GDP doubled from 19% in 1972 to 37% in 1977.

6. The phosphate boom, however, was shortlived and phosphate exports started falling in both volume and value already by mid-1975. Phosphate prices continued to decline until 1980. Markets for other exports as well as for tourism and labor migration were also negatively affected by the world recession. Agricultural production and exports entered a period of prolonged stagnation and Morocco turned from a net exporter to a net importer of foodstuffs. As a result of all these factors, the growth of exports of goods and nonfactor services, which in constant prices had exceeded 8% a year in 1968-72, averaged only 1% a year in 1973-77.

7. Accelerated investment, growing public expenditures, and particularly increased defense spending in response to growing tensions in Western Sahara, created strong pressures on both the balance of payments and the Government budget. While investment jumped from about 15% of GDP in the early 1970s to 32% in 1977, gross domestic savings rose briefly from 15% of GDP in 1972 to 20% of GDP in 1974 thanks to phosphate receipts, but fell back to 10-12% in 1976-77. The large resource gap which emerged as early as 1975 rose to an unsustainable 20% of GDP in 1977 (in current prices). To help finance the gap, Morocco borrowed heavily from the international capital market, which led to rapid increases in external debt and the debt service burden. The debt service ratio rose from 5.6% of exports of goods and services in 1975 to 10.7% in 1977.

8. The Government's overall budget position also deteriorated considerably during the period 1973-77. While budgetary revenues increased rapidly as a result of the windfall phosphate profits in 1974 and 1975 and of the growth of import duties and taxes in following years (reaching 22% of GDP in 1977), the growth of expenditure far exceeded that of revenues. Budgetary outlays rose from 19% of GDP in 1972 to 39% in 1977. As a result, the Government's overall budget deficit increased sharply, reaching peaks of 18% of GDP in 1976 and 1977.

-Stabilization Program 1978-1980

9. In order to redress the rapidly deteriorating financial situation, the Moroccan Government in 1978 adopted a three-year stabilization program, characterized by a substantial retrenchment of investment and import levels. In 1978, the first year of the adjustment, public investment was cut back by nearly half in real terms and the growth of current budgetary expenditure held down to 3% (in real terms). These measures of fiscal restraint were combined with tight credit policies and stringent import controls. As a result, the overall budget deficit declined to about 10% of GDP and the external payments situation improved in 1978. Later, however, the stabilization program encountered a number of obstacles, including poor harvests, petroleum price increases and the rise in interest on the commercial debt. In addition, internal pressures led to some relaxation of the highly restrictive fiscal policy adopted in 1978. By 1980 both fiscal and external imbalances were still substantial: the resource gap (in current prices) remained at about 11% of GDP, and the ratio of the overall budget deficit to GDP at about 12%.

10. The reduction in the Government deficit during the 1978-80 period was achieved chiefly through cutbacks in the level of budgetary investments, which dropped from 27% of GDP in 1977 to 12% in 1980. The growth of current expenditure proved difficult to restrain because of the continuing need to maintain defense and social expenditures, the growing interest payments on the public debt and the rising cost of consumption subsidies. The latter tripled in 1979-80 reaching 2% of GDP, as price increases for subsidized staple food and petroleum products could not catch up with the rise in import costs for these products. Reflecting these pressures, the growth of current expenditure reached 27% in 1980 and their share of GDP represented 22%.

11. In the external sector, non-oil imports were reduced substantially and remained below the 1977 level in nominal terms due to a sharp reduction in capital goods imports (by about two-thirds in real terms between 1977 and 1980). Oil imports on the other hand increased 2.5 times in value due to price and volume increases. Export earnings improved in 1979 and received a significant boost from the recovery of phosphate prices in 1980. Thus, despite a large increase in the petroleum import bill and a rise in external debt interest payments, the current account deficit before grants was reduced from *1.8 billion, or 17% of GDP, in 1977 to about $1.4 billion, or 8% of GDP, in 1980.

12. The adverse impact of the stabilization program on employment has probably been substantial in contrast with the rapid rate of employment creation during 1973-77. On the whole, the policies followed since 1978 have had a high cost in terms of growth and employment and appear to have been only partly successful in their short-term stabilization objectives.

Recent Developments

13. In 1981, the economy was submitted again to strong external shocks: a substantial increase of imports of cereals, following a drought which reduced agricultural value added by about 23% in real terms; a large appreciation of the US dollar; and a rise in foreign interest rates, which further increased the cost of debt service. In addition, the financial cost of the Saharan conflict appears to have increased during the year. As a result of these factors, economic and financial performance worsened. Gross domestic product fell by 1.3% in real terms. Despite a 17% increase in current Treasury revenue, the overall Treasury deficit reached 14% of -4-

GDP in 1981, as current expenditures increased by 23%. The continuing pressure on the balance of payments from fast-rising debt service payments and growing oil import costs was intensified by the increase in cereal imports. Moreover, capital equipment imports began to rise again after three years of negative growth. As a consequence, the current account deficit reached $1.9 billion in 1981 (12.6% of GDP), and the debt service ratio 32.7% of goods and services.

Medium Term Prospects

14. The initial development strategy in the 1981-85 Plan period was to reach a high rate of GDP growth (6.5%), needed to obtain an acceleration of employment creation and a strengthening of Government programs for social and regional development. The Plan projection was, however, too ambitious and although the financial constraint should lessen somewhat in 1982 as the economy recovers from the 1981 drought, Morocco's external financial situation will remain difficult in 1982-85 and will continue to constrain GDP growth.

15. Bank projections for the 1981-85 Plan period are based on the assumption that exports of goods and non-factor services could grow by 5.8% in real terms, while imports of goods and non-factor services would be allowed to rise by no more than 0.5% p.a. in real terms, as the need for food imports is expected to diminish, the increase in capital goods and oil imports to slow down, and payments for military equipment to be lower. Moreover, the growth in investment expenditures would not exceed 3.1% p.a. in real terms. Given these assumptions, domestic savings could recover from the abnormally low 1981 level (7.8% of GDP) to reach 12.5 % of GDP in 1985, the resource gap would gradually decline from 13.3% of GDP in 1981 to 7.5% in 1985, while GDP could still grow at about 4.5% p.a. in real terms or just over 1% per capita.

16. The projected export growth would result from an increase (in real terms) of 6.6% in phosphate and phosphate based products and 9.5% p.a. in manufactured products between 1981-85. Such a performance would depend upon identification of new markets and could be accomplished only if high priority is given to export promotion. In the case of finished and intermediate products, the extent to which the projected increase in exports would materialize depends on the revision of incentives granted to exporters, the diversification of Moroccan exports towards non-traditional exports and new markets, and the appropriate level of the exchange rate.

17. A sustained reduction of the trade gap will be difficult to achieve unless growth of merchandise imports is drastically curtailed. This would require not only a higher increase in agricultural output so that the level of food imports would decline in real terms, but also an effective domestic pricing policy so as to limit the growth of oil import (assumed at 1.3% p.a.) from 1981 to 1985. It would require moreover a reduction of the capital goods imports growth to 1.8% p.a. in 1981-85 through cuts in Treasury civilian investment with respect to the level planned in the 1981-85 Plan, and a revision of the various investment codes so as to reduce financial incentives to import capital goods. 18. In view of the projected stagnation in per capita household incomes, any significant increase in domestic savings would mainly come from substantial improvements in Government savings performance. As part of the 1982 stand-by arrangement between Morocco and the IMF, several measures and reductions in real Government expenditures were implemented in 1982. Under this program, additional progress is to be made in formulating "development contracts" between selected public enterprises and their supervising ministries, so as to specify development objectives and clarify financial relationships between public enterprises and the Government. As a result of these measures, as well as increases in interest rates paid on savings accounts (by 1.5 percentage points in 1982) and other forms of savings, domestic savings generated by the public enterprise and household sectors could also rise in 1982-85.

19. Given the strong constraints on investment levels, the future rate of growth of the economy will depend to a large extent on the sectoral allocation and the efficiency of investment. In conformity with the Plan objectives, the Government should start fewer large capital-intensive projects and restrict the allocation of investments to priority subsectors. Priority is to be given to projects that are export oriented, less capital intensive and which use a greater proportion of domestic resources. In addition, particular attention will have to be paid by the Government to manpower planning and to the employment effect of investments in order to prevent unemployment from rising.

Social Development

20. Social expenditures have been at a high level in recent years, accounting for more than half of current outlays. However, social indicators still appear to be at a relatively low level in Morocco. The limited effectiveness of past social policies in reaching the lower income groups, especially in rural areas, is increasingly recognized as a major issue, and the strategy of the 1981-85 Development Plan emphasizes rural development in rainfed areas, where most of the poorest households in Morocco currently live, and the need to improve mechanisms for delivering services to meet basic needs at an affordable cost, especially in rural areas. An effort is also being made to increase the involvement of local communities in providing basic needs, particularly for low cost housing, water supply, sewerage and electrification. Although rapid results cannot be expected in any of these areas, implementation of these policies would help meet the needs of low-income groups, while holding down the budgetary cost of social programs.

External Debt and Debt Service

21. Morocco sharply increased external borrowings after 1974. Nearly all of the increase came from Arab and commercial sources. Morocco also drew on the IMF automatic credit facilities in early 1976, and obtained about $70 million in IMF compensatory financing in August 1978. In October 1980, the International Monetary Fund approved an extended arrangement for a three-year period in the amount of SDR 810 million in support of a medium term program of financial adjustment. This arrangement was interrupted in 1981 when it appeared that the assumptions and targets of the EFF program - 6 - were no longer possible. It was replaced in 1982 by a stand-by arrangement in the amount of SDR 281 million and purchase of SDR 236 million under the Compensatory Financing Facility. The 1982 financial program, which is being supported by the present standby arrangement, seeks to reduce the deficit in the current account of the balance of payments (excluding grants) to 10% of GDP and to decrease the overall Treasury deficit by one-third to 8% of GDP. Other major elements of the program include an upward revision of the interest rate structure, restraint in overall credit and monetary expansion, further trade liberalization, and progress with respect to both tax reform and reform of the state enterprises.

22. From the low levels of 1974-75, Morocco's external debt rose rapidly to $8.4 billion (disbursed only) by December 1981. Gross inflow of medium and long term capital reached $1.8 billion in 1981. Debt service amounted to $800 million in 1979, $1.2 billion in 1980 and $1.3 billion in 1981 (22%, 28%, and 32.7% respectively, of total exports of goods and services). Debt service rose considerably in 1980 due mainly to the steep rise in interest on commercial credits. As a result of recent and projected borrowings, debt service may be expected to average $1.8 billion annually during 1982-85. Because of the growing burden of debt service, external borrowing has become more restrictive and selective since 1978. If debt service is to stay manageable, the Government will have to continue this policy over the next few years while taking special measures to expand exports.

23. Loan commitments from multilateral and bilateral official sources to Morocco rose from $205 million in 1975 to $1368 million in 1978. In 1979-80 they have averaged $700-800 million a year (excluding grants). In 1981 they are estimated at $1759 million. Major sources of aid were France, Saudi Arabia, the UAE, the U.S., Germany and the Bank Group. At the end of 1981, the Bank Group's share in Morocco's outstanding and disbursed external public debt was 7.5%. The share of the Bank Group in debt service was 21% in 1976 and declined to 15% in 1977, and 7% in 1981. by 1985 the Bank Group's shares in debt outstanding and'in debt service are projected at about 10 and 11% respectively.

PART II - BANK GROUP OPERATIONS IN MOROCCO

24. Bank and IDA lending to Morocco has supported 58 projects, financing a total of $1,958.5 million (net of cancellations), of which $1,134.5 million has been lent since the beginning of FY1978. IDA credits, totalling $50 million, have been made available for five projects. A Third Window loan for $25 million for the third education project was approved in March 1976. IFC investments have amounted to $61.6 million ($42.7 million after cancellations, terminations, repayments and sales). Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of September 30, 1982, and notes on the execution of ongoing IBRD/IDA projects. In some cases delays in project implementation have been caused by management problems and budgetary constraints; however, overall performance in project execution is satisfactory, although disbursements lag behind other countries in the region. 25. Past Bank Group lending has been concentrated in the agricultural and industrial sectors, which have accounted for 28 per cent and 26 per cent, respectively of total commitments; the balance is represented by utilities (16 per cent), tourism (9 per cent), education (8 per cent), roads (6 per cent), energy (4 per cent) and urban development (3 per cent). The main objectives of Bank lending in previous years were to foster and strengthen development institutions and to increase productive capacity, in order to improve the balance of payments. While these objectives remain, Bank lending in recent years has increasingly focussed on supporting a number of policy objectives; to promote exports and other foreign-exchange earning activities; to reduce the growth of imports, particularly of food and energy; to lower unit costs for the delivery of basic services, widen their distribution among regions and increase access by lower-income groups; and to increase employment and improve income distribution.

26. Since FY75, lending in agriculture has emphasized improvement in the productivity of rainfed agriculture and livestock, whicb employ over 80 percent of the rural population, primarily small farmers. The Meknes and Fes-Karia-Tissa Agriculture Projects address this objective in the favorable cereal producing zone. The Loukkos, Middle Atlas and Forestry projects and the now proposed project extend support to less favorably endowed regions. Four lines of credit to Caisse Nationale de Credit Agricole (CNCA) have helped provide credit to farmers, and a fifth project is under preparation. Increased export earnings are expected to result from the Bank-supported project for vegetable marketing and production, as well as from a project currently under preparation to improve the efficiency of the coastal fishing industry.

27. Increased foreign exchange earnings or savings have been the key objectives of Bank projects in industry, mining and tourism and led to nine lines of credit to the Banque Nationale pour le Developpement Economique (BNDE) for industrial projects and four lines of credit to Credit Immobilier et H8telier (CIH) for tourism projects. A project to increase mineral export earnings and raise the incomes of small-scale miners in southeastern Morocco was approved by the Board in FY82. A project aimed at developing the electromechanical industry is being prepared.

28. Projects in basic infrastructure and services have concentrated on improving the efficiency of existing investments and extending services to rural and low-income urban groups. A second urban development project aims at supporting the Government's efforts to provide shelter, basic services and employment to low-income urban families. A third highway project supports the Government's road maintenance efforts and a fourth project now being prepared would continue this effort and improve rural access roads. A loan for village electrification is helping bring power to over a hundred small towns and villages, and a third water supply project is providing access to safe water in small towns and semi-rural areas. A project aimed at strengthening the Communal Infrastructure Fund's (FEC) capacity to support local communities is being prepared. - 8 -

29. Five education projects have focussed on secondary level technical education and teacher training, on expanding basic education in the rural areas and on ensuring a greater orientation in primary schooling towards practical training. A sector study is now under preparation which will constitute a basis for determining the orientation of future lending.

30. In order to reduce Morocco's dependence on oil imports, the Government has made considerable efforts to develop national resources, notably of gas and oil shale. These efforts are being supported by the Bank through a gas exploration project and an engineering project aimed at studying the viability of developing the country's oil shale resources. Additional projects for development of possible gas resources, as well as coal and hydropower, are under consideration.

31. Morocco's disbursement performance, although an improvement was registered in FY82, continues to lag behind the regional average. The disbursement shortfall is most acute for a few projects in new sectors, due mainly to institutional or project management problems. These cases are being closely monitored and implementation schedules have been established, specifying critical actions, in agreement with the Government. In the case of certain projects, notably in agriculture, water supply and highways, implementing agencies have been slow in submitting disbursement requests to the Ministry of Finance for transmittal to the Bank. We have drawn the Government's attention to the need to resolve this problem. Finally, the rate of disbursement has to some extent been affected by the appreciation of the dollar against other currencies.

PART III - THE AGRICULTURE SECTOR 1/

32. Agricultural Sector Background. About 60 percent of Morocco's population of 20 million lives in rural areas. Since 1970, population growth in the rural sector has averaged 1.8 percent per annum compared with 2.8 percent growth overall, reflecting rural-urban migration. In 1979, agriculture contributed about 13 percent of GDP, employed about 40 percent of the labor force, and accounted for about 33 percent of total exports -- a decline from figures for the early 1970s largely as a result of increased phosphate production and exports. Arable land covers some 6.7 million ha while a further 20 million ha cover semi-arid or mountain regions suitable for grazing and forestry. About 5.8 million ha are cultivated each year, with 4.6 million in cereals, 500,000 in pulses, 400,000 in fruit trees, 140,000 in vegetables, 60,000 in sugar beet, and the remainder in oilseeds, cotton and forage crops. Most of Morocco's rainfed areas are characterized by traditional agricultural practices which result in low crop yields and low livestock productivity. Permanent irrigation covers about 800,000 ha.

33. Since 1965 the value of agricultural output has grown on average by 2.4 percent per annum in constant prices, with wide annual fluctuations due to climatic variations. Growth was below the increase in demand for foodstuffs

1/ This part is substantially similar to Part III for Loan 2082-MOR - Middle Atlas Agricultural Development Project. caused by income and population growth. As a result, the value of food imports increased on an average of 21 percent annually, while the value of food exports grew at 6 percent per annum. Growth of output has been greatest for products for which the introduction of modern farming techniques has been made possible by adaptive research and appropriate extension efforts, and producer prices set at attractive levels: sugar beet, sugar cane, milk and vegetables. For other crops such as cereals and pulses the Government has not yet been successful in modernizing farming practices. Regarding forestry products, although cork and pulp are exported, industrial timber production only accounts for 25 percent of the domestic market.

34. The Government's objectives in agriculture are: (i) to restore a high degree of self-sufficiency in basic foodstuffs and optimize agriculture's contribution to the balance of payments by fostering export and import substituting production; and (ii) to reduce regional income disparities and improve living conditions of the poorer segments of the rural population by increasing their productivity and generating employment opportunities. In order to achieve these objectives, the Government recognizes the need to allocate a larger share of Government resources to support rainfed agriculture and extensive livestock activities. The investment program in agriculture under the Five-year Plan 1981-85 reflects this strategy, where agriculture is allocated 22 percent of total investments, against 18 percent in the 1978-1980 Plan. Within the sector, the share of large irrigation schemes falls from 61 to 40 percent, while that of rainfed agricultural development increases from 2 to 18 percent, of small-scale irrigation from 3 to 8 percent, of livestock development from 4 to 11 percent and of forestry from 4 to 8 percent. The proposed lending of the Caisse Nationale du Credit Agricole for 1981-82 amounts to DH 11 billion which also constitutes a substantial increase over previous years.

35. Agricultural Sector Issues. About 45 percent of farm families are close to or below the estimated absolute rural poverty threshold ($270 per capita in 1980). Despite a rise in the real average rural per capita income in recent years, there is evidence that population pressures have led to a decline in per capita income in mountain, forest, and arid areas. Over the last five years, and mostly through investments in hitherto neglected areas, the Government has increasingly sought to reach the rural poor through integrated agricultural projects.

36. Livestock is a major activity, contributing about 36 percent to agricultural GDP, for small farmers both as a source of protein and of income: about 63 percent of cattle and 46 percent of sheep are owned by the landless and farmers with less than 5 ha of land. Morocco has a long tradition of extensive livestock raising on range and forest lands totalling some 20 million ha, belonging to the State or collectively owned and grazed. It is estimated that these lands produce about one half of the feed units consumed. However, livestock yields are low and declining due to overgrazing, the absence of range management and poor animal husbandry. The Government has recognized the need to reverse these trends and to attach a higher priority to develop the potential of fodder production and management of grazing lands as well as improving the genetic breed and animal health and management. - 10 -

37. Morocco's natural forests are extensive, covering some 7.7 million ha. In addition to the timber and firewood they provide, these forests provide forage material that plays a major complementary role to the range in sustaining livestock. However, natural forests are being rapidly degraded as population pressures drive the local population to seek additional cultivable and grazing lands. On the other hand, productive forests are not being exploited to their potential, mainly for lack of management plans and investments, so Morocco has to import a substantial share of its domestic consumption of wood and wood products. The greater emphasis given to forestry investments under the Plan, and the sylvo-pastoral strategy tested under the proposed project, should help address these issues.

38. The present research and extension services constitute serious obstacle to agricultural development. Agricultural research has developed with little attention given to farm profitability and practical problems. Budget allocations have been low and research carried out in the various centers has been poorly coordinated. In order to improve coordination and execution of agricultural research, the Government recently created a National Institute for Agricultural Research (INRA), and in the last Plan increased allocations for research. As a first step to strengthen INRA and to define research policies and priorities, the Government is preparing a Research Master Plan with assistance from the Bank. Agricultural extension services are also inefficient, largely due to poor organization, training and experience, inadequate equipment and low staff morale. The project would endeavour to develop and test an extension approach to rainfed areas, including closer coordination between extension and research work, which could be used as a model in the Extension Master Plan presently also being prepared with Bank assistance. It is expected that both the Research and Extension Master Plans will be ready by the end of 1983.

39. Land distribution is relatively skewed: about 75 percent of farm families own 5 ha or less, accounting for 25 percent of agricultural land. These farms are for the most part below an economically viable size and suffer from excessive fragmentation: Morocco's 1.9 million farms are divided into 11.6 million parcels. Absentee landlords and tenancy arrangements afford tenants little security and consequently no incentive to improve the land. With few exceptions, tenants are also ineligible to receive agricultural credit. A number of land reform measures are currently under study or being carried out on an experimental basis, within the framework of Bank-supported operations and elsewhere. In this context, the Government attaches high priority to the execution of a national cadastral survey of all agricultural lands as a basis for a land register. A first tranche is being financed under the Bank-supported Loukkos project, and the proposed project would finance a tranche covering the project area. In the longer run, land tenure patterns will have to be rationalized to a greater degree and inheritance laws modified if substantial gains in productivity are to be achieved.

40. Bank Agricultural Sector Strategy. Over recent years, the Bank's strategy in the agricultural sector has supported the Government's objectives of increasing agricultural production wherever economically justified to meet - 11 - the food needs of the population while placing, for economic and social reasons, an increased emphasis on developing rainfed areas, where a large untapped potential exists. Support for irrigation, particularly for rehabilitation and development of small and medium scale irrigation infrastructure, is also envisaged. The Bank strategy also recognizes the need to continue supporting export-oriented projects and agricultural credit which finances a large percentage of directly productive farm investments.

41. Performance Under Previous Bank Financed Agricultural Projects. Bank Group lending for agriculture in Morocco began in 1965 and to date 16 projects have been undertaken and supported by $561.5 million in Bank/IDA funds ($24 million in IDA credits). They include five irrigation projects: Sidi Slimane (FY65), Sebou I (FY70), Souss Groundwater (FY75), and Doukkala I (FY76), all completed, and Doukkala II (FY77); four Agricultural Credit Projects (FY66, FY73, FY77 and FY79) three of which are completed; an Agroindustries and Flood Control Project (Sebou II, FY74); a Vegetable Production and Marketing Project (FY80); four Agricultural Development Projects focussing on rainfed agriculture in the Meknes (FY75), Fes-Karia-Tissa (FY78) Loukkos (FY80) and Middle Atlas (FY82) areas; and a Forestry Project (FY82). Project performance to date is generally satisfactory, although irrigation projects suffered initially from poor coordination between and within participating Ministries, which resulted in delays in construction and in acquisition of irrigation equipment. A major issue has been inadequate cost-recovery, but a recently announced phased increase in irrigation water charges by about 100 per cent should when fully implemented contribute to its satisfactory solution. A Performance Audit Report has been prepared for the Sebou I Project and a Completion Report for the Doukkala I Irrigation Project. In the case of Sebou I, the report stresses the project's success in institution building as well as in increasing production through the provision of adequate infrastructure. It also highlights the importance of successful extension, timely allocation of funds, and collection of water charges. In the case of Doukkala I, the project was successfully completed and the rate of return exceeded appraisal estimates. Both projects were also successful in eliminating land fragmentation, thus facilitating the introduction of improved cropping systems. Among rainfed agriculture projects, which are mostly still at an early stage of execution, implementation has also been satisfactory so far, with the exception of the Meknes Project which has encountered very substantial delays. The major issue has been difficulties in establishing the land consolidation and redistribution program, this being the first time these measures have been attempted in a rainfed area in Morocco. This has now been overcome and the implementation of the consolidation program is underway with substantial support of the population.

42. Performance audits have been prepared for the First, Second and Third Agricultural Credit Projects. The report on the first project attributed the project's mixed results principally to the Caisse Nationale de Credit Agricole's (CNCA) shortage of qualified staff and Government's interference in CNCA's operations. On the other hand, the most important achievement was the institutional development that took place. The Audit Report on the Second Agricultural Credit Project, estimated an economic rate of return to the project of about 20 percent as compared to an appraisal estimate - 12 -

of 18 percent. However, it noted that the return might have been higher had Morocco enjoyed a more effective national agricultural extension service. OED's report on the Third Agricultural Credit Project mainly noted CNCA's institutional progress and achievements.

43. Technical and institutional lessons learned from these projects have been taken into account in preparing the proposed project. The close involvement of Moroccan authorities in project preparation, the early nominations of key personnel, and the finalization of first year design and workplans should all contribute to reducing early delays in project implementation. Project management problems would be reduced by the dovetailing of project management structures into the existing structure of support services, the early involvement of local authorities in design and preparation work and the establishment of coordinating committees, which have proved useful in other World Bank-assisted rainfed projects.

PART IV - THE PROJECT

Background

44. The project, which was identified by a joint Bank-FAO/CP mission in 1979, aims at increasing productivity by developing rainfed crops, livestock and forestry production and improving social services in seven rural communes within the "cercles" (administrative units) of Oulmes and Rommani in the Khemisset province north-east of Rabat. The project area has relatively favorable ecological conditions and it is expected that the living standards of the predominantly rural population can be improved by strengthening agricultural support services and socio-economic infrastructure. The project was prepared by the Government in close cooperation with the FAO/CP and, after appraisal in March 1982, negotiations were held in Washington in October 1982. The Moroccan delegation was led by Mr. Siraj Sani of the Prime Minister's Office. A staff appraisal report (No.4065-MOR) is being circulated to the Executive Directors separately, and key events, as well as special conditions, are listed in Annex III.

45. The project area, which covers almost 330,000 ha, has altitudes ranging from 350m to 1,350m. The western and central areas are generally lower with undulating hills and rainfall varying between 300 and 550mm per year. The eastern part of the area is higher and cut in steep ravines, and the yearly precipitation varies between 700 and 96 0mm. Average summer temperatures go up to 40 degrees centigrade but temperatures in the higher areas can fall below freezing, thus limiting the vegetative period and precluding cultivation of irrigated crops during the winter months. Approximately half of the project area is covered by partly degraded cork and holm oak state forests and by some 4,000 ha of pine and eucalyptus plantations. About 40 per cent of the total area is agricultural land, mostly privately owned, on which the main crops are cereals and grain legumes. Livestock depends mainly on farm stubble and fallow grazing and fodder resources in the state forest. Surface water is limited and less than one half of one per cent of the cultivated land is irrigated. - 13 -

46. The population in the project area numbers about 118,000 people of which 100,000 are engaged in agriculture. The traditional farming system is based on cereal/fallow rotation with most farmers having livestock (goats, sheep, cattle). The area has some 11,500 farm holdings of which about 4,200 are small subsistence holdings of less than 4 ha and about 7,000 are small to medium size, between 5 and 30 ha. With an average family size of 5.5 people, there are more families in the area than farm-holdings and many small farmers supplement their incomes by working as laborers on larger farms. An important obstacle to increased productivity is, as in the rest of the country, that much of the privately owned land is heavily fragmented and unregistered.

47. Production in the area is low mainly due to the low level of support services. Poor seeds, inadequate supplies of fertilizer and generally poor soil preparation have led to low average cereal (1.0 ton per ha) and grain legume (0.8 ton per ha) yields. The more progressive farmers in the area, however, obtain more than double these yields. Livestock resources (300,000 sheep, 80,000 goats and 50,000 cattle) producing meat, milk and wool have an equally low productivity due to poor genetic potential, insufficient nutrition and inadequate health services and husbandry. Finally, the forest, which contains valuable supplies of cork, fuelwood, poles and sawlogs, is low yielding due to inadequate management and over-grazing.

Project Objectives

48. The main objective of the project is to improve the living standards of the predominantly rural population living in Oulmes and Rommani by increasing agricultural, livestock and forestry production and by providing better social and agricultural services. The project would also seek to increase round-wood production and to conserve the productive environment by reducing soil erosion.

49. The strategy proposed at the farm level envisages the introduction of relatively simple, known and locally tested improved crop production techniques, and the alteration of the land use system to reduce the surfaces left fallow and increase fodder production. Livestock development would concentrate on the introduction of animal health, genetic improvement and fodder production on the farm and the range. Forest production would be increased by introducing better harvesting and management techniques for natural forests as well as forest plantation.

Project Description

50. Crop development: The project would provide for increased crop production on some 80,000 ha of privately owned land by introducing technology improvements, including better soil management techniques and by providing agricultural inputs and credit for farm improvement. This effort would be backed up by an effort to reorganize and strengthen the extension services and applied research. Agricultural centers serving as focal points for provision of support services at the local level would be reinforced and equipment, vehicles and housing would be provided. Access to credit would be facilitated by: lending based on the farmers' earning capacity, as has been done in the Bank-supported Fez-Karia-Tissa project (rather than to their physical - 14 - assets); and expanding the Caisse Nationale de Credit Agricole's (CNCA) infrastructure in the project area, including the recruitment of additional loan officers and opening of new seasonal outlets. It is expected that the acreage under grain legumes would increase from 18,000 to 24,000 ha and on-farm production of fodder from 7,000 to 16,000 ha. The area under cereals is not expected to increase but improved productivity should lead to an increase in production by about 12 per cent. The project would also finance destoning of 2,000 ha and land improvement on another 2,000 ha presently covered by unpalatable shrubs, and provide for the development, rehabilitation and extension of eleven traditional irrigation perimeters. The irrigated area would be increased by about 600 ha.

51. Livestock development: Deficiencies in nutrition and animal husbandry are the main impediments to better productivity of livestock. The project would therefore develop fodder resources on the farm and on the forest range. At the farm level, the area under fodder crops would be increased and simple silage conservation techniques and hay treatment methods would be introduced. Measures for animal health and genetic improvement would include construction and staffing of five cattle and two horse-breeding centers, restocking of the Oulmes cattle breeding station, purchase of 500 sheep for genetic improvement, and the provision of 5 fixed and 3 mobile dips, drugs and equipment. Credit for purchase of feed concentrates, construction of sheep and cattle folds, and purchase of improved rams, ewes and milk cows would be made available by CNCA. Finally two milk collection centers would be constructed and the existing centers improved.

52. Forest development: About 8,000 ha of commercial plantations (pine and eucalyptus) would be established as would 4,000 ha of protection plantations (pine and other species) aimed at restoring forest cover. Soil protection and erosion control measures would be introduced on some 4,000 ha and include planting of trees, and soil engineering works. Fire control measures would include the establishment of 50 kms of firebreaks in natural forests, and the construction of three fire towers. Sylvopastoral operations aimed at increasing the quality and yields of timber cork and fodder would be undertaken on 12,000 ha of indigenous forest and bushland, divided into five separate blocks. Apart from thinning and pruning, these operations, essentially based on existing management plans, would include the development of the natural herbaceous forest cover, and the improvement of natural grasslands, through reseeding and fertilizing of the range, planting of forage shrub, as well as fencing. The success of this component depends almost entirely on the willingness of livestock owners to respect stocking rates and rotational grazing plans. It is therefore envisaged not only to prepare careful socio-economic studies for the five different blocks, but to ensure that formal agreement of the beneficiaries is obtained on all organizational and technical arrangements and that the beneficiaries have organized themselves in grazing associations before disbursements are authorized against any of the five blocks (Loan Agreement, Schedule 1, Part 4(c)). The study for the zone to be developed during the first year of the project is almost completed.

53. Infrastructure: The project would provide for some infrastructure improvement . Logging operations would be facilitated by the construction - 15 - of about 150 km of forest tracks and upgrading of 35 km of existing ones; access to isolated areas would be improved by the upgrading of 88 km of rural roads and the construction of a new 18 km road between Oulmes and Touiza. About 400 km of rural roads and 800 km of forest tracks would be maintained over the project period. To serve the herders and their animals, 61 water points would be constructed and water supply would be extended to 10 rural centers. The project would also finance the construction/ rehabilitation of 14 rural markets and some limited social infrastructure including health, sanitation, flood control and electrification works. Finally the project would finance the construction of 53 classrooms in seven primary schools in permanent material and the provision of 101 prefabricated classrooms, 33 teachers houses, furniture and classroom equipment. This component, which aims at supporting the long-term development of the project area, is covered by the Government's school building program.

54. Technical assistance and studies. The proposed project would finance 50 man-months of technical assistance including a range management expert who would assist with the early implementation of the forest range component (over 24 man-months); and short term expertise in; oak management and harvesting (4 man-months); monitoring and evaluation (2 man-months); and applied research, agriculture and extension (20 man-months). The project would also finance a 320,000 ha tranche of the national cadastral survey covering the project area, ground water resources studies and some project related preparatory studies.

Project Implementation

55. The project would, under the overall supervision of the Ministry of Agriculture and Agrarian Reform (MARA), be implemented by the Provincial Directorate of Agriculture (DPA) of Khemisset, except for the education component which would be carried out by the provincial delegation of the Ministry of Education, the road construction component which would be implemented by the Ministry of Equipment, and the health component which would be carried out by the Ministry of Health. The director of DPA would be project manager and he would be assisted by a Project Management Unit (PMU), which has already been established and which would be fully staffed by September 30, 1983 (Loan Agreement, Schedule 5, Part 2(a)). The PMU would inter alia include a deputy project manager, and six subject matter specialists (SMS) covering rainfed crop production, range and farm management, irrigation, training/extension, forage conservation and an agricultural economist responsible for monitoring and evaluation. The PMU would be responsible for day-to-day management, annual work programs, and coordinating local authorities in execution of works. The project would be implemented over five and a half years.

56. Project coordination would be ensured through a National Project Coordinating Committee (NPCC) to be chaired by the Secretary General of MARA, and include relevant services from within the MARA and other ministries, and organizations affected in the project such as CNCA and INRA. The NPCC would ensure cooperation between ministries, resolve arising issues, provide overall guidance on project orientation and approve annual work plans. Coordination at the provincial level would be done by the - 16 -

Provincial Coordinating Committee (PCC) chaired by the Governor of Khemisset with similar composition as the NPCC, in addition to which the local communal councils would be represented.

57. The key element for implementing the project would be the strengthening and reorganization of the extension services around a group of 180 pilot farmers to which the extension agents would provide integrated farm management advice regarding tillaging techniques, equipment, seeds and fertilizers. While assisting the pilot farmers, the extension workers would also establish close working relations with 30-40 farmers neighbouring a pilot farm. At full development, some 6,000 farmers should thus be directly or indirectly assisted. After an initial three-year experimental period, a review will be undertaken of the experiences gained and in the light of the work on the Extension Master Plan. The extension agents would be backstopped by senior extensionists, the SMS and reinforced agricultural centers. Irrigation extension advice on perimeter maintenance and water management would be extended to about 1000 ha of irrigated land by extension agents assisted by the irrigation SMS in the PMU. Mass extension would complement the on-farm extension, over the radio and through films and slide programs presented at the markets and in the agricultural centers. These presentations would be made by an extension agent supported by an audio-visual unit which would include an audio-visual technician and a graphic artist who would, after having been selected at the latest by September 30, 1983 (Loan Agreement, Schedule 5, Part 2(b)(i)) be sent for overseas training. The project specific applied research program would be carried out by INRA on the basis of proposals made by extension workers and established in cooperation with PMHU, and following consultation with the Bank (Loan Agreement, Section 3.03). Extension agents, assisted by research assistants, would eventually be responsible for disseminating the results. Training of extension agents would be carried out at the Tiflet Training Center where the agents would spend one year operating farms under the same technical, ecological and financial constraints as a typical farmer in the area. In-service refresher courses would also be provided throughout the project period. The yearly training programs would be determined after an excbange of views between the Government and the Bank (Loan Agreement, Section 3.04).

58. The forestry component would be implemented by the Provincial Forestry Services of the DPA according to existing management plans. For 100,000 ha of state forest land for which no plan has been prepared - since they do not have enough commercial or environmental values to justify the preparation of costly detailed inventories and survey work - simplified plans would be prepared based on existing data, quick reconnaissance work and the knowledge of existing forestry staff. The sylvopastoral component would be co-managed by the Provincial Forest and Livestock services through combined technical teams operating under authority of DPA (Loan Agreement, Schedule 5, Part 2(b)(iv)). The execution of these operations and training of national staff would be assisted through the employment of a range management expert for two years. This expert would take up his assignment no later than September 30, 1983 (Loan Agreement, Schedule 5, Part 2(b)(iii)). - 17 -

59. Other arrangements worth particular mention include expansion of CNCA's lending facilities in the area and modification of its lending criteria to facilitate access to adequate credit for small farmers. The implementation of the road and track rehabilitation programs would be carried out by PMU with the assistance of two road brigades. A road engineer would be recruited by September 30, 1983 to supervise the work of the brigades, which would be fully staffed by December 31, 1983 (Loan Agreement, Schedule 5, Part 2(b)(ii)). Construction of rural and forest roads and tracks would be awarded to private contractors.

Project Cost and Financing

60. Total project costs are detailed in the Loan and Project Summary and are estimated at DH 577.3 million ($105.0 million), of which 36 per cent or $38.0 million is in foreign exchange. Cost estimates include an estimated DH 131.9 million ($23.7 million) of taxes and duties or 23 per cent of total project costs. Estimates are based on actual prices obtained during appraisal and updated to end-1982 prices. Physical contingencies include 15 per cent for civil works and 10 per cent for equipment and operating costs. Price escalation has been estimated at 11 per cent for 1983, 9 per cent for 1984 and 8 per cent thereafter for local costs, and at 8 per cent in 1983, 7.5 per cent in 1984, 7 per cent in 1985 and 6 per cent thereafter for foreign costs. Contingencies amount to DH 172.6 million (031.4 million) or 30 per cent of total costs and 43 per cent of baseline costs. The average cost of consultants is estimated at $10,000 per man-month including international travel, subsistence and overheads.

61. The proposed Bank Loan of $30 million, including the capitalized front-end fee, would cover 50 per cent of project cost net of taxes and of on-farm investment costs since these are financed by credits provided by CNCA, which already benefits from external financing, including loans from the Bank, for this purpose. The Loan would be for 17 years with 4 years of grace at variable interest rates. Remaining project costs would be provided by the Government ($52.0 million), CNCA ($13.5 million) and the beneficiaries ($10.2 million).

62. Cost recovery. Several arrangements have been made for cost recovery. Under the forestry plantation component the overall cost recovery coefficient is 53 per cent. The Government will bear establishment, improvement and maintenance costs. Wood product sales proceeds would accrue to the local communes which, however, have to pay certain administrative fees amounting to some 8 per cent of the auction price to the Government. Furthermore, a 10 per cent ad valorem tax will be added on to the auction price and accrue to the National Forestry Fund. The local communes are expected to contribute to operation, maintenance, and investment costs for forest range improvement from their forest revenues and through the levying of annual grazing fees (Loan Agreement, Section 4.06). As regards the irrigated lands the beneficiaries would pay for all operations and maintenance costs as well as a portion of the investment costs (Loan Agreement, Section 4.05). To achieve this the beneficiaries would have to be organized into irrigation associations, and accept a cost recovery - 18 - formula acceptable to the Bank as a condition of disbursement for each irrigation perimeter (Loan Agreement, Schedule I, Part 4(b)). It is expected that the level of recovery of investment costs would be between 30 and 40 percent. This would be reasonable considering the poverty level of the beneficiaries.

Procurement and Disbursement

63. Procurement will be carried out over 5 and a half years and involve a large number of contracts. Contracts for construction of forest and rural roads exceeding $2 million as well as contracts for purchase of equipment and vehicles exceeding $200,000 would be awarded by ICB for an estimated total of $13.3 million. Equipment and vehicle contracts would be bulked to the extent practicable. Contracts for aerial photography and mapping for the cadastral survey valued at a total of $2.7 million would be awarded following ICB if the contracts exceed $300,000. Contracts for vehicles and equipment not exceeding $200,000 and contracts for aerial photography and mapping not exceeding $300,000 would be let following local competitive bidding. In aggregate, these contracts would not exceed $900,000 and t500,000, respectively. Civil works for forest plantations, destoning operations, social infrastructure, offices, houses and other buildings, breeding stations and milk collection centers would be spread out in space and time and would individually be too small to attract foreign contractors. All such contracts, totalling some $40 million, would be awarded following local competitive bidding in accordance with procedures acceptable to the Bank, as would contracts for forest and rural roads of less than $2 million. Sufficient local and foreign firms are established in Morocco to ensure adequate competition under local competitive bidding. Total value of contracts expected to be awarded following local competitive bidding is estimated at $50 million. Small project works, each not exceeding *100,000 and which may not even attract local enterprises, would be undertaken on force account. The total value of such works would not exceed $5 million. Contracts for50 man-months of technical assistance would be awarded in accordance with Bank guidelines for the use of consultants.

64. The Loan would be disbursed as follows:

(i) 45 per cent of total cost for all civil works;

(ii) 100 per cent of foreign expenditures and 65 per cent of local expenditures for vehicles and equipment;

(iii) 100 per cent of foreign expenditures and 60 per cent of local expenditures for consultants' services, training and the cadastral survey.

Retroactive financing not exceeding $1 million would be provided for preparatory studies, and other activities requiring immediate attention. - 19 -

65. Contract review. Bidding packages for works exceeding $300,000 and for goods and services exceeding $200,000, including the first two contracts relating to each of the various social infrastructure components, plantations, irrigation, road development and vehicles or equipment, would be subject to prior review by the Bank. This would result in 80 per cent coverage of contracts and the remainder would be subject to random review by the Bank after contract award.

66. Accounts, audits and reports. Existing financial control and audit of governmental bodies is undertaken by the Ministry of Finance in a systematic and satisfactory way. Inspectors from the Ministry of Finance may undertake random inspections particularly in case of force account operations. In addition, the Ministry of Finance would prepare yearly audit reports (Loan Agreement, Section 4.03) within 6 months after the end of the fiscal year which would include specific opinions on whether funds disbursed by the Bank on the basis of statements of expenditures have been used for intended purposes. To facilitate implementation and control, all government departments participating in the project would have their annual budgetary allocation specifically individualized in the finance law and appropriations program. Separate accounts would be maintained for related expenditures (Loan Agreement, Sections 4.02 and 4.03).

Environmental Impact

67. The project will have a beneficial impact on the environment. Areas selected for plantations and sylvopastoral operations are mostly in degraded and open areas exposed to uncontrolled grazing and erosion. Although not as effective as a well closed natural forest as a protection for the physical environment or as habitat for flora and fauna, these plantations and sylvopastoral improvements will improve soil conservation and water supplies and help reduce overcutting and further environmental degradation. The management plans to be developed will help identify areas of particular importance for flora and fauna.

Benefits, Justification and Risks

68. The project's impact on production will be substantial. Direct benefits should accrue to some 54,000 persons, based on the participation of 54 per cent of the farmers covering 66 per cent of the agricultural land, and who would enjoy a financial rate of return between 21 per cent and 41 per cent depending on the ecological zones and the size of the farm. Agricultural output would increase substantially, particularly for legumes, fodder and vegetables. Milk production would increase by 17 per cent and other meat and dairy products between 40 and 90 per cent. In addition, the project would create the equivalent of some 2,300 full-time jobs. Effective on-farm employment would increase from the present 46 per cent to 56 per cent. In addition, the implementation of the forestry component would require more than 5 million man-days over the project period. Finally, it is expected that the improved farm practices, in combination with easier access to credit and extension services, would have a long-term impact also on farmers not directly participating in the project. - 20 -

69. The overall economic rate of return (ERR) of the project is estimated at 14 per cent over a 35-year period. Benefits include the value of incremental crops, livestock and wood fiber production. The agricultural component has an estimated ERR of 15.5 per cent, the forest component 13 per cent, the soil conservation component 23 per cent and the irrigation component 48 per cent. Major long-term benefits of the project's soil protection and watershed management activities cannot be cuantified but include decrease of the sedimentation rate of river basins, reduction of losses due to flooding and decrease of the siltation rate of downstream reservoirs.

70. The project does not face any unusual risks. The effects of foreseeable droughts on crops and livestock production will be limited by the introduction of improved agricultural techniques and using drought resistant varieties and species. The most serious risk is that the project be delayed by 2 years in which case a sensitivity analysis indicates that ERR would fall to an unacceptable 9 per cent. A number of steps have been taken to reduce the risk: the project is relatively simple and the number of agencies involved is small; retroactive financing is being recommended for preparation and design of project related activities; the Governor of Khemisset will be directly involved in project implementation and supervision; and Moroccan staff, including the project manager and his deputy, have been involved in project preparation and are already in place. In addition, steps have been taken to ensure specific identification of project specific counterpart funds in the budget for 1983 and onwards. The risks of serious delays in project implementation are thus considered limited. Another risk is a lower than expected participation by the population in the project area, but project estimates are based on the very low assumption of 54 per cent, and there is little reason to assume a lower participation rate. Nevertheless, a sensitivity analysis indicates that ERR would remain at 12 per cent even if the farmers participation rate decreased by 20 per cent. The ERR would also fall to 10 per cent if the project experienced cost overrun of 20 per cent or a combination of a 10 per cent cost overrun and a 10 per cent reduced farmer participation, but this is, again, considered unlikely.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

71. The draft Loan Agreement between the Kingdom of Morocco and the Bank, and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank are being distributed separately to the Executive Directors separately.

72. Special conditions of the Loan are listed in Section III of Annex III. Special conditions of disbursement include: (i) expenditures for irrigation development on any of the 11 perimeters will only be authorized if users have been grouped in duly established associations and have agreed to the cost recovery provisions of Section 4.05 of the draft Loan Agreement; and (ii) expenditures for sylvo-pastoral development on any of the five - 21 - zones included in the project will only be authorized after appropriate organizational and technical arrangements have been elaborated and agreed upon and grazing associations have been established (Loan Agreement, Schedule 1, Part 4(b) and (c)).

73. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.

PART VI - RECOMMENDATIONS

74. I recommend that the Executive Directors approve the proposed loan.

A. W. Clausen President

Attachments

November 22, 1982 Washington, D.C. - 22 - ANNEX I Page 1 of 6

TABLE 3A MOROCCO - SOCIAL INDICATORS DATA SHEET

MOROCCO REPERNPICE GROUPS (WEIGHTED AVE4GES AREA (THOUSAND SQ. KM.) - MOST RECENT SSTIHATE) TOTAL 446.6/c MIDDLE INCOME AGRICULTURAL 202.2 /c MOST RECENT NORTH AFRICA & MIDDLE INCOME 1960 fb 1970 /b ESTIMATE /b MIDDLE EAST LATIN AMERICA 4 CARIBBEAN

GNP PER CAPITA (US$1 220.0 340.0 900.0 1253.6 1902.0

ENERGY CO7SUNMPTION PER CAPITA (KILOGRAMS OP COAL EQUIVALENT) 163.2 214.0 302.3 713.5 1259.9

POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUSANDS) 11626.0 14993.0 20182.0 URBANPOPULATION (PERCENT OF TOTAL) 29.3 34.6 40.6 47.3 65.7

POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 35.5 STATIONARY POPULATION (MILLIONS) 81.2 YEAR STATIONARY POPULATION IS REACHED 2090

POPULATION DENSITY PER SQ. EM. 26.0 33.6 43.8 35.8 35.2 PER SQ. RM. AGRICULTURAL LAND 61.1 75.0 96.6 420.9 92.5

POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 44.8 47.6 46.1 44.3 39.7 15-64 YRS. 52.6 48.3 50.7 52.4 56.1 65 YRS. AND ABOVE 2.6 4.2 3.2 3.3 4.2

POPULATION GROWTS RATE (PERCENT) TOTAL 2.6 2.5 3.0 2.8 2.4 URBAN 3.7 4.2 4.6 4.6 3.8

CRUDE BIRTH RATE (PER TNOUSAND) 51.8 47.3 44.9 41.2 31.4 CRUDE DEATS RATE (PER THOTSAND) 23.4 17.2 12.7 12.2 8.4 GROSS REPRODUCTION RATE 3.5 3.5 3.2 2.9 2.1 FAMILY PLANNING ACCEPTORS, ANNUAL (TEOUSANDS) .. 25.1 78.0j4 USERS (PERCENT OF MARRIED WOMEN) .. 1.0 5.4/d

FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 99.0 98.0 88.0 100.4 110.0

PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 100.8 103.0 106.5/e 108.5 108.4 PROTEINS (GRAMS PER DAY) 64.6 66.5 68.3/e 71.9 66.0 OF WHICHANIMAL AND PULSE 13.8 12.6 13.5/e 18.0 34.0

COILD (AGES 1-4) MORTALITY RATE 36.8 26.6 15.5 15.1 5.6

HFEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 46.7 51.7 56.5 56.9 64.2 INFANT MORTALITY RATE (PER THOUSAND) 160.5 136.3 107.2 104.3 64.2

ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL 30.6 51.0 55.0/d 59.1 65.6 URBAN 58.7 92.0 100.0/d 83.1 78.9 RURAL 19.0 28.0 25.0/d 39.8 43.9

ACCEES TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 29.0 .. .. 59.3 URBAN .. 75.0 .. .. 75.3 RORAL .. 4.0 .. .. 30.0

POPULATION PER PHYSICIAN 9406.1 12814.5 11037.4/d 4015.5 1617.3 POPULATION PER NL 0SINGPERSON .. 2742.2 1826.31e 1802.2 1063.5 POPULATION PER HOSPITAL BED TOTAL 625.6 664.3 773.6/e 641.7 477.4 URBAN .. 454.7 623.4/e 538.3 679.8 RURAL '' 5821.4 3089.6/e 2403.3 1903.4

ADMISSIONS PER HOSPITAL BED .. 15.5 17.9/e 25.5 27.3

HOUSING AVERAGE SIZE OF NOUNSEHQLD TOTAL 4.8 5.5 .. *- URBAN 4.3 4.9 RURAL 5.1 5.8

AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.2 2.4 URBAN 2.1 2.1 RURAL 2.3 2.6

ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. .. URBAN .. 68.4 65.0/e RURAL .. .. - 23 - ANNEX I Page 2 of 6

TABLE 3A MOROCCO- SOCIAL INDICATORSDATA SHEET

MOROCCO REFERENCE GROUPS (WEIGHTED AVE GES - MOST RECENT ESTIMATE)lf MIDDLE INCOME MOST RECENT NORTH AFRICA & MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b MIDDLE EAST LATIN AMERICA & CARIBBEAN

EDUCATION ADJUISTED ENROLLMENTRATIOS PRIMARY: TOTAL 47.0 52.0 75.0 88.7 104.3 NALE 67.0 67.0 93.0 104.5 106.4 FEMALE 27.0 36.0 56.0 72.0 103.3

SECONDARY: TOTAL 5.0 13.0 22.0 39.7 41.3 MALE 7.0 18.0 27.0 49.3 40.4 FEMALE 2.0 7.0 17.0 29.0 41.8

VOCATIONAL ENROL. (1 OF SECONDARY) 30.2 2.3 2.8 10.1 33.7

PUPIL-TEACHER RATIO PRIMARY 42.4 34.3 40.3 34.1 29.9 SECONDARY 6.3 20.4 21.0/f 23.7 16.7

ADULT LITERACY RATE (PERCENT) 13.8 21.4 28.0 43.3 79.1

CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 10.7 14.8 19.6/d 17.8 42.8 RADIO RECEIVERS PFR TH7OUSAND POPULATION 15.8 62.4 107.5 131.3 270.5 TV RECEIVERS PER THOUSAND POPULATION 0.4 11.6 38.4 44.1 107.7 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSANDPOPULATION 22.1 16.2 11.8 31.5 63.7 CINEMA ANNUALATTENDANCE PER CAPITA 2.0 .. 2.0/e 1.7 2.7

LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 3388.7 3945.2 5294.8 FEMALE (PERCENT) 10.0 14.2 15.8 10.6 24.4 AGRICULTURE (PERCENT) 62.0 57.0 52.0 42.4 31.3 INDUSTRY (PERCENT) 14.0 17.0 21.0 27.8 23.9

PARTICIPATION RATE (PERCENT) TOTAL 29.1 26.3 26.2 26.0 33.6 MALE 52.1 45.2 44.2 46.2 50.4 FEMALE 5.9 7.5 8.3 5.6 16.8

ECONOMIC DEPENDENCYRATIO 1.6 2.0 1.9 1.9 1.3

INCOME DISTRIBUTION RURAL .. .. 219.0/i

PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 18.0/g 20.0/g HIGHEST 20 PERCENT OF HOUSEHOLDS 43.3/g 49.0/g 7 LOWEST 20 PERCENT OF HOUSEHOLDS .0/g 4.0/R LOWEST 40 PERCENT OF HOUSEHOLDS 18.0/R 12.0/_ .

POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (USO PER CAPITA) URBAN 107.0 157.0 389.0 279,2 RURAL 66.0 101.0 238.0 178.6 184.1

ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 242.0 403.6 518.0 RURAL .. .. 257.0 285.6 371.1

ESTIMATED POPULATION BELOWABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN 51.0 38.0 28.0 22.1 RURAL 49.0 45.0 45.0 30.9

Not available Not applicable. NOTES

/a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform.

/b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1978 and 1980.

/c Excludes the ex-Spanish Sahara; /d 1976; le 1977; /f 1975; /g Consumption expenditures of households.

May, 1982 - 24 - ANNTEXI OP stts. atoPOPOrtPage 3 of 6

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MOROCCO - ECONOMIC INDICATORS

Amount f/ (million USt at Annual Growth Rates (7Z current prices) Actual Projected Indicator 1980 1977 1978 1979 1980 198le/ 1982 lQ83 1984 1985

NATIONAL ACCOUNTS Gross domestic product a/ 17820 6.0 2.2 4.8 3.6 -1.3 4.0 5.1 4.5 4.3 Agriculture 3229 -12.3 18.0 -1.7 6.2 -16.0 7.0 9.6 3.1 2.5 Industry 5752 8.0 0.9 7.7 -2.5 -0.5 3.7 4.6 5.4 5.1 Services 7762 8.5 4.0 5.1 6.4 3.4 3.7 4.3 4.3 4.3

Consumption 15770 5.3 4.2 5.8 2.5 2.2 1.3 4.2 3.5 3.6 Gross investment 4025 15.6 -25.9 1.3 -7.3 -3.6 6.5 -1.1 3.7 3.2 Exports of GNFS 3273 10.3 3.3 0.9 3.7 3.5 4.5 7.0 6.3 5.3 Imports of GNFS 5247 14.5 -17.4 3.3 -9.8 10.7 -i.9 -0.6 2.2 2.3

Gross national savings 2606 1.5 -15.4 3.2 6.0 -20.6 O.5 15.6 13.2 1.7

PRICES

GDP deflator (1969 = 100) . 172.0 186.5 200.2 218.4 241.2 Exchange rate (USt per DH) . .222 .240 .256 .294 .193

Share of GDP at M4arket Prices (x) Average Annual Tncrease (55 (at current pricesld/ (at constant 1969 prices) (at constant 1980 prices) 1960 1970 1975 l980 1985 1990 1960-70 1970-75 1975-80 1980-85 1985-90

Gross domestic product 4.0 4.9 5.6 3.7 5.1 Agriculture - 29.1 19.2 17.9 18.1 17.1 15.1 3.5 -5.4 4.5 2.9 2.5 Industry Ž/ 23.5 27.2 35.2 32.3 34.9 35.8 4.7 7.4 4.8 3.9 5.5 Services h/ 47.4 53.6 46.9 49.6 47.9 49.1 4.1 5.0 7.0 4.0 5.5

Consumption 89.2 85.5 85.5 88.5 87.7 84.0 4.1 5.0 6.4 3.0 4.2 Gross investment 10.3 18.5 25.4 22.6 20.0 20.0 8.0 13.0 -1.2 2.0 5.5 Exports GNFS 27.4 17.6 22.5 18.4 20.5 22.7 1.3 0.0 5.0 5.5 7.1 Imports GNFS 26.9 21.6 33.4 29.4 28.7 26.7 3.5 8.3 1.7 1.7 4.0

Gross national savings 11.0 14.8 19.3 14.6 14.5 17.9 3.5 15.3 -4.4 3.0 10.0

As S of GDP 1960 1970 1975 5980 1981

PU3LIC FINANCE Current revenues 16.5 16.1 23.3 21.6 23.3 Current expenditures 15.6 14.5 20.2 21.8 24.7 Surplus (+) or deficit (-) 0.9 1.6 3.1 -0.2 -l.4 Capital expenditure 3.8 5.7 12.2 12.4 12.6 Foreign financing .. l.3 3.7 5.6 9.3

1960-70 1970-75 1975-80 1980-85 1985-90

OTHER INDICATORS GNP growth rate (5) 4.0 6.0 5.2 3.4 5.1 GNP per capita growth rate (7) 1.6 3.1 1.8 -0.1 2.0 Energy consumption growth rate (x) 3.8 6.7 5.6 4.3 5.0

ICOR 3.09 3.0 4.1 6.2 3.9

Marginal savings r 9 te 0.10 0.38 -0.15 0.27 0.28 Import elasticityc! 0.95 1.84 0.13 0.95 0.78

a/ At market prices. b/ Share of GDP at factor cost beginning in 1985 and sectoral growth rates at factor cost beginning in 1980-85. c/ Goods only. d/ Projected years at constant 1980 prices. e/ Estimates. f/ 1977-1980 at 1969 prices, 1981-85 at 1980 prices. September 28, 1982 EMENA CP II-B ID 05808 P.1 - 26 -

Population 20.8 million (mid-1981) ANNEX I GNP Per Capita: US3 870 (1981) Page 5 of 6

MOROCCO - EXTERNALTRADE

Amount Indicator (million USI at Annual Growth Rates (%)1/ current prices) Actual Projected 1980 1975 1977 1978 1979 1980 1981 1982 1983 1984 1985

EXTERNALTRADE Merchandise exports (FOB) 2414 -21.9 10.7 5.3 1.8 5.1 1.0 4.0 7.8 6.7 5.1 Primary products 1823 -25.2 7.7 5.4 0.0 5.8 -8.1 1.2 3.4 3.8 3.5 Phosphate rock 765 -29.9 9.6 9.6 3.2 7.4 -5.4 0.0 3.0 5.0 4.0 Others 939 -22.3 6.5 2.8 -1.7 14.7 -10.0 2.1 3.7 2.9 3.1 Intermediate & manufactures 591 -1.4 23.8 5.0 7.1 2.8 27.4 9.8 16.3 11.8 7.6

Merchandise imports (CIF) 4283 21.2 14.4 -19.9 6.6 -7.1 9.3 -1.9 0.5 3.9 4.0 Food 720 37.8 0.4 8.6 2.2 3.4 32.5 -16.8 -0.9 2.1 4.5 Petroleum 1006 12.8 8.7 11.0 12.1 -11.9 10.8 0.0 -1.1 3.3 3.2 Machinery and equipment 805 51.7 26.7 -44.3 -3.2 -19.8 7.5 3.0 -2.5 4.0 2.9 Others 1752 4.0 13.0 -15.1 12.5 -5.2 -0.3 2.6 3.7 5.0 4.8

PRICES (1980 = 100) Export price index . 89.9 68.4 69.7 83.5 100.0 123.3 125.1 137.1 153.5 171.8 Import price index . 64.1 67.9 73.0 79.2 100.0 122.3 130.9 140.2 154.3 169.8 Terms of trade index . 140.3 100.7 95.5 105.4 100.0 100.8 95.6 97.8 99.5 101.2

Composition of Merchandise Trade (C) Average Annual Increase (%) (at current prices) (Constant 1969 prices) (Constant 1980 prices) 1960 1970 1975 1980 1985 1990 1960-70 1970-75 1975-80 1980-85 1985-90

Exports 2.0 -1.2 6.6 5.2 7.6 Primary products 89.5 89.4 86.9 74.4 60.5 49.1 .. -2.7 5.3 1.3 3.3 Intermediates & manu- 10.5 10.6 12.9 25.6 39.5 50.9 .. 8.1 12.1 14.0 13.0 factures Imports 4.0 9.1 0.7 2.4 4.0 Food 27.3 16.9 25.0 16.9 16.9 15.5 .. 14.0 3.0 0.7 2.4 Petroleum 7.4 5.5 10.8 23.6 23.6 22.4 .. 9.6 5.3 2.4 2.8 Machinery and equipment 6.7 24.1 24.0 18.9 18.7 19.2 .. 12.8 -7.0 2.4 4.5 Others 58.6 53.5 40.2 40.6 40.7 42.9 .. 5.5 2.9 3.3 5.1

Share of Trade with Share of Trade with Share of Trade with Industrial Countries (M) Developing Countries CE) Capital Surplus Oil Exporters (M) 1960 1970 1980 1960 1970 1980 1960 1970 1980

DIRECTION OF TRADE Exports 72.3 73.7 76.5 27.7 25.4 21.6 .. 0.9 1.9 Imports 76.7 74.9 72.9 23.3 25.1 8.3 .. .. 18.8

1/ 1977-1980 at 1969 prices, 1981-1985 at 1980 prices September 22, 1982 EMS,NACP TI-B ID 0180B p.2 - 27 -

Population 20.8 million (mid-1981) ANNEX I GNP Per Capita: US4 870 (1981) Page 6 of 6

MOROCCO- BALANCE OF PAYMENTS, EXTERNAL CAPITAL AND DEBT (million USE at current prices)

Indicator Actual Projected 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1990

BALANCE OF PAYMENTS Exports of goods and services 2288 2486 2955 3694 4364 4132 4087 4669 5401 6193 11297 Of which: Merchandise f.o.b. 1245 1283 1488 1938 2414 2283 2180 2575 3077 3618 7163

Imports of goods and services 3691 4364 4353 5268 5912 6095 5780 6276 6930 7734 12812 Of which: Merchandise f.o.b.2J 2305 2820 2628 3245 3770 3840 4054 4365 4994 5714 9856

Net current tranfers 47 52 50 44 128 102 - - - - - Current account balance -1355 -1826 -1348 -1530 -1420 -1861 -1692 -1607 -1529 -1541 -1515 Special grants 435 360 260 420 314 313 84 197 320 150 232 Current account balance after grants -920 -1466 -1088 -1110 -1106 -1548 -1609 -1410 -1209 -1391 -1283 Private capital 38 53 45 37 88 68 76 85 96 106 171 MLT loans (net) 838 1338 1109 946 971 1205 1071 1425 1371 1666 1359 Official ...... 1315 994 736 878 982 1092 Private ...... -110 77 689 493 684 267 Other capital 28 68 -73 73 -200 17 ...... Monetary movements-/ 16 6 8 53 247 258 462 -100 -258 -381 -263

International reserves 548 609 772 917 814 508 470 543 653 787 1635 Of which: Gold 82 104 154 360 415 278 278 278 278 278 278 Reserves as months imports 1.8 1.7 2.1 2.1 1.7 1.0 1.0 1.0 1.1 1.2 1.5

EXTERNAL CAPITAL AND DEBT c/ Gross disbursements 725 1787 1182 1405 1567 1807 Concessional loans 111 636 325 293 750 1089 DAC 63 109 91 76 96 138 OPEC 41 507 189 168 584 837 IDA 4 3 - - 1 2 Other 3 16 45 49 69 112 Non-concessional loans 614 1151 859 1113 818 718 Official export credits 22 27 2 2 12 128 IBRD 59 68 72 137 64 129 Other multilateral 2 6 53 7 13 86

Private 531 1050 732 967 729 375 Suppliers credits 10 171 10 8 16 6 Financial credits and bonds 521 879 722 957 713 368

External Debt Debt outstanding and disbursed 2330 4069 5123 6182 7097 8381 Official 1250 1975 2456 2833 3482 4865 Private 1080 2094 .2667 3349 3615 3515 Undisbursed debt 801 1024 2280 2337 2058 2901

Debt service Total service payments 162 264 547 798 1191 1340 Interest 66 148 252 410 618 738 Payments as % exports of G+S 7.2 10.7 18.7 21.8 28.0 32.7

Average interest rate on new loans (x) 7.7 6.8 7.0 8.2 8.1 8.4

Average maturity of new loans (years) 11.7 13.1 13.2 15.9 13.7 10.0

As % of Debt Outstanding at End of Most Recent Year (1980) Maturity structure of debt outstanding Maturities due within 5 years 56.8 Maturities due within 10 years 118.1

Interest structure of debt outstanding Interest due within first year 8.9 a/ c.i.f. for projected years. bi/Projected values include IMF credits. c/ Years 1976-80 from IBRD External Debt Reporting System, 1981 from the BOP statistics. There are sizeable discrepancies in some years between the external capital and debt service flows reported under the IBRD Debt System and those recorded in the official balance of payments statistics shown in the upper part of this table. October 14, 1982 EMENA CP IT-B 3 ID 0180B p. 28 -

ANNEX II Page 1 of 10

A. STATEMENTOF BANK LOANS AND IDA CREDITS (As of September 30, 1982) Loan or US$ Million Credit Amou-nt7less cancellations) Number Year Borrower Purpose Bank IDA Undisbursed

Twenty-four Loans Fully disbursed 617.4 Four Credits Fully disbursed 36.0

1018 1974 Kingdom of Morocco Agriculture 32.0 8.4 555 1975 Kingdom of Morocco Agriculture 14.0 11.1 1202 1976 Kingdom of Morocco Tourism 21.0 11.6 1220-T 1976 Kingdom of Morocco Education 25.0 16.5 1416 1977 Kingdom of Morocco Agriculture 41.0 30.5 1428 1977 BNDE DFC 35.6 2.5 S-7 1977 Kingdom of Morocco Engineering 1.5 0.5 1528 1978 Kingdom of Morocco Urban Development 18.0 15.2 1602 1978 Kingdom of Morocco Agriculture 65.0 59.1 1625 1978 Maroc-Phosphore Industry 50.0 5.9 1681 1979 Kingdom of Morocco Education 113.0 108.9 1687 1979 Kingdom of Morocco DFC (SSI) 25.0 12.8 1695 1979 Kingdom of Morocco Power 42.0 41.9 1704 1979 CNCA Agriculture 70.0 30.8 1724 1979 Kingdom of Morocco Water Supply 49.0 30.4 1757 1980 Kingdom of Morocco Agriculture 58.0 49.6 S-18 1980 BRPM Oil Exploration 50.0 20.7 1830 1980 Kingdom of Morocco Highway 62.0 53.8 1848 1980 Kingdom of Morocco Agriculture 34.0 32.2 1943 1981 CIH Tourism 100.0 70.9 1944 1981 Kingdom of Morocco Urban Development 36.0 36.0 2006 1982 Kingdom of Morocco Water Supply 87.0 87.0 20371/ 1982 BNDE DFC 70.0 70.0 20381/ 1982 Kingdom of Morocco DFC (SSI) 70.0 70.0 20821/ 1982 Kingdom of Morocco Agriculture 29.0 29.0 21091/ 1982 Kingdom of Morocco Mining 9.5 9.5 21102/ 1982 Kingdom of Morcco Forestry 27.5 27.5 21141/ 1982 ONAREP Oil Shale 20.0 20.0 2149!/ 1982 Kingdom of Morocco Education V 50.0 50.0

Total 1908.5 50.0 1010.4 of which has been repaid 239.4 1.2 Total now outstanding 1669.1 48.8

Amount Sold 20.1 of which has been repaid 17.7 2.4

Total now held by Bank and IDA 1666.7 48.8

Total undisbursed 999.5 11.1 1010.4

NOTE

1/ Not effective as of 9/30/82. However, since then the following loans have been declared effective: BNDE IX, Forestry.

B. STATEMENT OF IFC INVESTMENTS (As of September 30, 1982) US$ Million Loan Equity Total

1962/1978 BNDE Development Bank - 2.7 2.7 1966 CIL Canning Factory 0.9 0.5 1.4 1976 Marrakech Cement Cement Factory - 1.3 1.3 1977/1980 Temara Cement Cement Factory 4.7 3.6 8.3 1979 Agadir Cement * Cement Factory 12.5 2.2 14.7 1980 SOMIFER Copper Mining 13.0 2.3 15.3 1981/1983 Casablanca Cement Cement Factory 15.8 -2.1 17.9

Total Gross Commitments 46.9 14.7 61.6 Less cancellation, terminations, repayments and sales 15.4 3.5 18.9

Total commitments now held by IFC 31.5 11.2 42.7

Total Undisbursed 15.8 2.4 18.2

* Agadir Cement has been cancelled. - 29 -

ANNEX II Page 2 of 10

C. PROJECTS IN EXECUTION AS OF SEPTEMBER 30, 1982 1/

Ln. No. 1018 Sebou II Development Project; US$32.0 million of June 27, 1974; Date of Effectiveness: February 28, 1975; Closing Date: December 31, 1982.

The project as originally appraised was completed in November 1980, except for the procurement of sugarcane sprinkler and transport equipment. Funds have been virtually fully committed for the additional infrastructure works foreseen under an amendment to the Loan Agreement approved in July 1980. Disbursements have lagged behind implementation due to administrative delays by ORMVAG. Steps have been taken to reduce future delays.

Cr. No. 555 Meknes Agricultural Development Project; US$14.0 million of June 11, 1975; Date of Effectiveness: November 14, 1975; Closing Date: June 30, 1984.

After a 2-year initial delay, project implementation has picked up momentum. Major activities concerned with the land consolidation and redistribution program have been completed in one district and civil works (roads, destoning and irrigation rehabilitation) have been started in the remaining three districts. Progress is slower than expected, mainly because project implementation has proven more complex than anticipated, which has been aggravated by project management problems. However, the first results of the completed components are promising. Because of the initial delay and the complexity in implementation, the original closing date was extended by three years.

Ln. No. 1202 Bay of Agadir Tourism Project; US$21.0 million of February 27, 1976; Date of Effectiveness: October 29, 1976; Closing Date: December 31, 1981.

The project consists of infrastructure works and common facilities for a hotel/residential tourism development complex. Most infrastructure works were completed in December 1980, except for the construction of common facilities (representing some 20% of the total project costs). This delay is mainly due to institutional and project management problems. Project

1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. - 30 -

ANNEX II Page 3 of 10 completion is expected to be delayed by at least 18 months, and an extension of the closing date has been under consideration for a long time since it has been made contingent on the Government's agreement to an action program. The Government has now been advised that the Bank will cancel the balance of the loan on December 31, 1982 unless an action program has been agreed upon by that date.

Ln. No. 1220-T Third Education Project; US$25.0 million of March 18, 1976; Date of Effectiveness: October 1, 1976; Closing Date: September 1, 1982.

The project is designed to expand and improve primary and secondary education in rural areas and specialized training to meet manpower needs in education, agricultural extension, health and tourism. After an initial two-year delay, construction under the education and agriculture components is largely completed and funds are committed for the equipment and technical assistance components, but lengthy delays have been experienced in the implementation of the health and tourism components. Further extension of the closing date would depend on improvements in disbursement performance, which bas lagged due to administrative delays both in the Project Unit and the Ministry of Finance.

Ln. No. 1416 Doukkala II Irrigation Project. US$41.0 million of June 16, 1977; Date of Effectiveness: December 1, 1977; Closing Date: June 30, 1984.

The project aims at extending irrigation and related agricultural development in the Doukkala perimeter by 16,600 hectares; it also calls for provision of extension and credit services, and village infrastructure. The land consolidation program and the enlargement of the main canal are proceeding according to schedule. Implementation was slowed down due to budgetary constraints facing Morocco in 1980-81 which caused a delay of about two years. Project implementation has resumed vigorously under excellent project management.

Ln. No. 1428 Eighth BNDE Project; US$45.0 million of June 16, 1977; Date of Effectiveness: December 21, 1977; Closing Date: September 30, 1982.

The project is designed to meet part of the Banque Nationale de Developpement Economique's (BNDE) requirements for financing of the import component of industrial sub-projects, and of a small-scale industry pilot credit program ($5 million). The loan is fully committed, and the loan is expected to fully be disbursed before end 1982. BNDE's financial performance deteriorated sharply in 1981, but the trend should be reversed since a package of measures to rehabilitate BNDE financially and to strengthen the institution has recently been agreed upon. - 31 -

ANNEX II Page 4 of 10

Ln. No. S-7 Sewerage Engineering Project; US$1.5 million of August 30, 1977; Date of Effectiveness: August 18, 1978; Closing Date: October 31, 1982.

The project includes the preparation of a sewerage Master Plan for the Casablanca-Mohanmedia region and of a first phase project. It would assist Morocco in developing the design and planning criteria for urban sewer systems and strengthening the institutional and financial bases for the development of this sector. Project implementation was delayed by about 15 months, due to administrative and budgetary difficulties, but studies were launched in May 1980, and are now proceeding satisfactorily and an extension of the closing date is under consideration. The technical components of a possible project have been identified, but institutional problems have not yet been resolved.

Ln. No. 1528 Rabat Urban Development Project; US$18.0 million of March 31, 1978; Date of Effectiveness: November 21, 1978; Closing Date: March 31, 1983.

The project is designed to improve living conditions of the urban poor in Rabat. It includes upgrading of slum infrastructure and social services in three squatter areas with a total population of about 60,000; an experimental sites and services housing scheme; an employment generation program; and related technical assistance. After initial delays, project implementation has recently improved significantly. Infrastructure works are under way and housing improvement loans are being made. Relocation to sites and services areas is under progress and some enterprises have started operation in the industrial zone. Disbursements, however, remain low and the matter is under review with the Government.

Ln. No. 1602 Fes-Karia-Tissa Agriculture Project; US$65.0 million of September 6, 1978; Date of Effectiveness: February 18, 1979; Closing Date: June 30, 1986.

The project aims at (i) improving the standard of living of about 33,900 farm families in the Fes-Karia-Tissa region, and (ii) contributing to the growth of agricultural production and to a reduction in Moroccan dependence on imported food commodities. These aims would be achieved through a reorganization and strengthening of agricultural extension and soil conservation services, training, the provision of credit and infrastructure. Although somewhat delayed, implementation is proceeding satisfactorily, due to excellent project management and good interagency coordination. However, disbursements have lagged due to delays by the implementing agencies in submitting reimbursement requests to the Ministry of Finance. - 32 -

ANNEX II Page 5 of 10

Ln. No. 1625 Maroc Phosphore Expansion Project; US$50.0 million of October 27, 1978; Date of Effectiveness: March 23, 1979; Closing Date: June 30, 1982

The project consists of expansion of existing production facilities at Safi through (a) the erection, on the site of the existing Maroc Phosphore plant, of an additional unit and ancillary facilities to produce for export 165,000 tpy of phosphoric acid, and (b) the construction of sulphur melting and storing facilities as well as of new phosphoric acid concentration and storage facilities. Commercial operations have begun and the project will probably be completed on schedule. Maroc Phosphore's technical management appears satisfactory. The project account is being closed and an amount of about $5 million is expected to be cancelled.

Ln. No. 1681 Fourth Education Project; US$ll3.0 million on April 25, 1979; Date of Effectiveness: October 16, 1979; Closing Date: December 31, 1984.

The project consists of the construction, furnishing and equipping of 11 technical high schools, a technical teacher training college, two higher institutes of technology, an institute of applied engineering and an extension of Mohammedia Engineering College and associated technical assistance. Implementation was initially delayed; however, all major contracts have now been signed and disbursements are expected to accelerate.

Ln. No. 1687 Small Scale Industry Integrated Development Project; US'25.0 million of April 25, 1979; Date of Effectiveness: December 17, 1979; Closing Date: December 31, 1983.

The project consists of support for a Government program to assist small and labor intensive industries through technical, managerial and financial assistance. The loan is virtually fully committed, and earlier disbursement delays should be remedied subsequent to the recent introduction of simplified administrative procedures.

Ln. No. 1695 Village Electrification Project; US$42.0 million of May 22, 1979; Date of Effectiveness: April 30, 1980; Closing Date: June 30, 1984.

This project, which is the first stage of a 15-year village electrification program, would provide electricity to about 60,000 dwellings in more than 200 villages throughout the country. Problems of interministerial coordination and budgetary allocations delayed project start-up for about one year. Orders have now been placed for most of the equipment but no payments have yet been made. However, implementation is well under way and the project is expected to be completed according to schedule. - 33 -

ANNEX II Page 6 of 10

Ln. No. 1704 Fourth Agricultural Credit Project; US$70.0 million of May 23, 1979; Date of Effectiveness: December 5, 1979; Closing Date: June 30, 1983.

The project aims at increasing Morocco's agricultural production thereby improving the standard of living of about 475,000 of Morocco's farm families. The project covers most of the Caisse Nationale de Credit Agricole's (CNCA) medium- and long-term lending program and farm investment program through mid-1983. Cofinancing of $75 million is provided by IFAD and KfW. CNCA's on-lending as well as repayments were severely affected by the 1980-1981 drought, slowing disbursement of the Bank loan. To alleviate CNCA's short-term liquidity problems (due mainly to the drought), its lenders, including the Bank, have increased their disbursement percentages under their respective loans.

Ln. No. 1724 Second Water Supply Project; US$49.0 million of July 2, 1979; Date of Effectiveness: February 4, 1980; Closing Date: June 30, 1984.

The project is designed to improve access to safe water supplies for the population of the Mid-Atlantic Coast and the Greater Agadir area. It consists of: (i) the expansion of bulk water production and transmission facilities along the Mid-Atlantic Coast; (ii) the expansion of bulk water production and transmission facilities in Agadir; (iii) the establishment of a revolving fund to facilitate house connections for low income families; and (iv) studies on accounting and management systems. Administrative problems created some initial delays, but there is strong demand for the credit facilities for low-income house connections. The project is now proceeding satisfactorily and disbursements are expected to increase accordingly.

Ln. No. 1757 Vegetable Production and Marketing Project; US$58.0 million of November 15, 1979; Date of Effectiveness: April 17, 1980; Closing Date: June 30, 1984.

The project is the first phase of a long-term program for development of off-season vegetables for export. $5o.0million of the loan is to be on-lent for long and medium-term farm investments and incremental short-term production costs of vegetable quality control centers, for two small producer packing stations, and for seedling greenhouses benefitting about 8,000 farm families and creating seasonal employment. The balance of the loan would help finance infrastructure in the project area, and technical assistance. Implementation is proceeding satisfactorily. Overall production did not progress as scheduled due to two cold winters, but greenhouses, which have resisted frost fairly well, are gaining acceptance with the farmers and the prospects of rising production are promising. - 34 -

ANNEX II Page 7 of 10

Ln. No. S-18 Petroleum Exploration Project; US$50 million of May 19, 1980; Date of Effectiveness: October 24, 1980; Closing Date: December 31, 1983.

The project aims essentially at accelerating the Government's petroleum exploration and development program. It has recently been transferred from BRPM, the original Borrower, to the new petroleum development agency, the Office National de Recherches et d'Exploitations Petrolieres (ONAREP). The project also provides technical assistance in prospect evaluation, analysis of results of exploration, and exploration management. Drilling so far has shown encouraging results, particularly as regards natural gas prospects. Procurement problems have hampered project implementation and recruitment of consultants has proceeded very slowly. Administrative problems have also delayed disbursements.

Ln. No. 1830 Third Highway Project; US$62.0 million of May 19, 1980; Date of Effectiveness: September 29, 1980; Closing Date: June 30, 1984.

The project comprises (i) a three-and-a-half year time slice of the Government's pavement strengthening and preservation program; (ii) strengthening and management of the road maintenance program and (iii) technical assistance for the Ministry of Transportation to improve transportation planning and to study road maintenance. The pavement strengthening and maintenance activities are progressing satisfactorily. The hiring of consultants for technical assistance is behind schedule due to the slow preparation of the terms of reference. Disbursements have lagged due to delays in payment of contractors as well as transmittal of reimbursement requests to the Ministry of Finance.

Ln. No. 1848 Loukkos Rural Development Project; US$34.0 million of December 22, 1980; Date of Effectiveness; September 30, 1981; Closing Date: June 30, 1987.

The project should increase incomes and productivity of very poor subsistence farmers in the Loukkos Basin by reversing the declining trends caused by soil erosion and inappropriate farming practices. It consists of: (i) development and erosion control works on 15,000 steeply sloping hectares in Upper Loukkos; (ii) development of field crops and small irrigation improvements in Middle Loukkos; (iii) establishment and maintenance of pine plantations in the Izarene Forest; (iv) construction of roads and social service facilities in the Project area; and (v) execution of a cadastral survey on about 500,000 hectares of land. Once proven, the project implementation methodology could be widely replicated throughout Morocco's mountain and steppe land. Project implementation is progressing satisfactorily. - 35 -

ANNEX II Page 8 of 10

Ln. No. 1943 Fourth Hotel Development Project; US$100.0 million of February 5, 1981; Date of Effectiveness: April 9, 1981; Closing Date: December 31, 1985.

The project provides funds over a three year period to the Credit Immobilier et Hotelier (CIH), a Moroccan development bank specializing in the tourism and housing sectors, for the development of tourism hotels. It also includes studies for developing policies in the tourism sector and training of CIH staff in appraisal methodologies for tourism projects. Commitments and disbursements have been extremely rapid.

Ln. No. 1944 Second Urban Development Project; US$36.0 million of April 16, 1981; Date of Effectiveness: August 4, 1981; Closing Date: July 31, 1986.

The project consists of the provision of shelter, basic services and employment to low-income urban families through a program for slum upgrading, sites and services and provision of serviced land for small-scale industries, to be implemented in the cities of Meknes and Kenitra. Assistance is also provided to strengthen the municipal services of the project cities. Implementation is on schedule, due to the efficient coordination through the provincial Governors' offices, but some delays in approval of contracts by the Ministry of Finance have occurred.

Ln. No. 2006 Third Water Supply Project; US$87.0 million of September 28, 1981; Date of Effectiveness: March 15, 1982; Closing Date: December 31, 1986.

The project includes the construction of two regional water supply systems and the expansion and upgrading of the water supply facilities in about 32 small towns scattered throughout Morocco. It would also provide revolving funds to facilitate house connections for low income households, equipment, technical assistance, training and studies.

Ln. No. 2037 Ninth BNDE Project; US$70.0 million of November 3, 1981. Date of effectiveness: November 2, 1982. Closing Date: December 31, 1986.

The project would include a pilot component in the line of credit to BNDE, to finance export-oriented industrial sub-projects. The project also focusses on strengthening organizational aspects of BNDE in the field of project appraisal, portfolio monitoring and export promotion. - 36 -

ANNEX II Page 9 of 10

Ln. No. 2038 Small Scale Industry II Project; US$70.0 million of November 3, 1981; Not yet effective. Closing Date: June 30, 1986.

The project comprises (i) a line of credit to the Government to be relent to BNDE and commercial banks for relending to small scale industries (SSIs); (ii) financing of the foreign exchange costs of technical assistance provided by the Government to SSIs; and (iii) financing of studies relating to the structure of incentives for SSIs.

Ln. No. 2082 Middle Atlas - Central Area - Agriculture Development Project: US$29.0 million of March 5, 1982. Not yet effective. Closing Date: June 30, 1988.

The project consists of interrelated forestry, range and cropping land development to bring about production increases of meat, milk, fodder, cereals and wood, on about 600 ha. in central Morocco, as well as to raise income and employment among the target population.

Loan No. 2109 Small-Scale Mining Project: US$9.5 million of April 14, 1982. Not yet effective. Closing Date: December 31, 1988.

This pilot project would increase the productivity of small-scale lead and zinc mining operations through provision of equipment and facilities, as well as credit to miners, in a remote region of Morocco thus increasing exports and raising rural incomes. The project would also strengthen the financial, technical and administrative base of CADETAF, the implementing agency, and finance studies as a basis for future expansion of mining activities. Implementation is proceeding satisfactorily.

Loan No. 2110 Forestry Project: US$27.5 million of April 14, 1982. Date of effectiveness: October 28, 1982. Closing date: June 30, 1988.

The project consists of destumping about 30,000 ha of eucalyptus plantations and degraded oak and cork forests and replanting with eucalyptus, pine and acacia; upgrading and construction of forest and access roads; pasture improvement over 2,000 ha; and technical and institutional support. Project implementation has commenced satisfactorily.

Loan No. 2114 Oil Shale Engineering Project: US$20.0 million of April 14, 1982. Not yet effective. Closing date: September 30, 1986.

The engineering project would finance studies and the construction of a shale retorting test station to generate information and analysis on the characteristics of Moroccan oil shale resources and on the technical and economic viability of alternative options for their development. - 37 -

ANNEX II Page 10 of 10

Loan No. 2149 Fifth Education Project: US$50.0 million of November 5, 1982. Not yet effective. Closing date: March 31, 1988.

The project is designed to improve the effectiveness of primary education and support expanded science and mathematics teaching at the senior secondary level, through construction of four senior secondary teachers training colleges, 40 rural primary schools and the provision of teaching aids to about 700 primary schools. - 38 -

ANNEX III Page 1 of 2

KINGDOM OF MOROCCO

OULMES-ROMMANIAGRICULTURAL DEVELOPMENTPROJECT

SUPPLEMENTARYPROJECT DATA SHEET

Section I: Timetable of Key Events

(a) Project identification: May 1979

(b) Time taken by borrower to prepare project: 34 months

(c) Agencies responsible for project preparation: Government with help from FAO/CP.

(d) First Bank mission to review project: November 1981

(e) Departure of Appraisal Mission: March 1982

(f) Date of completion of negotiations: October 29, 1982

(g) Planned date of effectiveness: April 1983

Section II: Special Bank Implementation Action

None

Section III: Special Conditions

Disbursements

1. Disbursements would only be made against expenditures for (i) irrigation development on any of the 11 perimeters when users have been grouped into duly established associations and have agreed to an adequate cost-recovery formula (para. 62); and (ii) sylvo-pastoral development on any of the five zones when grazing associations have been established and appropriate organizational and technical arrangements have been elaborated and agreed upon (para. 52). - 39 -

ANNEX III Page 2 of 2

Other conditions

2. The PMU would be fully staffed by September 30, 1983 (para. 55); the audio-visual technician and graphic artist would be recruited by September 30, 1983 (para. 57); and road brigades would be fully staffed by December 31, 1983 (para. 59).

3. The yearly research program would be established following consultations with the Bank as would the yearly training program for extension workers (para. 57).

4. The sylvo-pastoral component would be co-managed by the Provincial Forest and Livestock services and supported by a range management expert to be recruited by September 30, 1983 (para. 58).

5. Local communes would contribute to investment, operation and maintenance costs for forest range improvement; and beneficiaries on the 11 irrigated perimeters would cover operation and maintenance costs as well as a portion of investment costs (para. 62).

6. Government authorities would individualize project-related budgetary allocations to facilitate project implementation and control (para. 66).

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