Document of The World Bank

FOR OFFICIAL USE ONLY

Report No. 32345-MA

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

PROGRAM DOCUMENT

FOR A PROPOSED

HOUSING SECTOR DEVELOPMENT POLICY LOAN

IN THE AMOUNT EQUIVALENT TO US$150 MILLION

TO

THE KINGDOM OF MOROCCO

June 1,2005

Finance, Private Sector and Infrastructure Department Maghreb Country Management Unit Middle East and North Africa Region

This document has a restricted distribution and may b e used by recipients on ly in the performance o f their off icial duties. I t s contents m a y not otherwise b e disclosed without W o r l d Bank authorization.

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iV1OROCCO - GOVERNMENT FISCAL YEAR January 1”- December 31”

CURRENCY EQUIVALENTS

AFD ANCFCC

ANHI

CAS C F A A CJFM

C M DEEP

D G C L

ERAC

F O G A R I M

GDP G O M HA0 HSDPL IBRD IMF LSDP M F P MHU

OPH SGG

SNEC

VAT VSB ZUN

(Exchange Rate Effective April 28,2005) Currency Unit = Moroccan Dirham (MAD)

MAD8.56 = U S $ I MAD 11.11 = Euro.1

Weights and Measures Metric System

ABBREVIATIONS AND ACRONYMS

Agence Franqaise de Dtveloppement (French Development Agency) Agence Nationa1e.de Conservation Fonciere, Cadastre et Cartogaphie (Land-titling,’Caa’$aster and Cartography National Agency) Agence Nationale de lutte contre 1’Habitat Insalubre (National Agency for the fight against Substandard Housing) Country Assistance Strategy Country Financial Accountabil ity Assessment Compagnie Immobiliere et Fonciere du Maroc (Real Estate and Land Development Corporation) Credit Immobil ier et Hatelier (Real Estate and Hotel Financing Bank) Direction des Entreprises Publiques et de la Privatisation (public Companies and Privatisation Directorate) Direct ion Generale des Collectivites Locales (Department o f Local Government) Etablissement Regional d’AmCnagement et de Construction (Regional Agency for Land Development and Construction) Fonds de Garantie pour les Menages a Revenus Modesties edor Irreguliers (Guarantee Fund for L o w or Irregular Income Households) Gross Domestic Product Government o f Morocco Hold ing d ’ h i n a g e m e n t AI Omrane (AI Omrane Development Holding) Housing Sector Development Pol icy Loan International Bank for Reconstruction and Development International Monetary Fund Letter o f Sector Development Pol icy M in i s t i r e des Finances et de la Privatisation (Ministry o f Finance) Min is t i re de 1’Habitat e t de I’Urbanisme (Ministry o f Housing and Urban Planning) Optrateurs Publics de 1’Habitat (Public Housing Operators) Secretariat General du Gouvemement (General Secretariat of the Govemment) Societe Nationale d’Equipement et de Construction (National Corporation for Infrastructure and Construction) Value Added Tax Vi l les sans Bidonvil les (Cities without slums) Zones d’urbanisation nouvelle (New urban development zones)

V ice President: Christiaan Portman Country Director: Theodore 0. Ahlers

Sector Managermirector: Hed i Larbmossein Razavi Task Team Leader: Anthony G. Big io

FOR OFFICIAL USE ONLY

KINGDOM OF MOROCCO HOUSING SECTOR DEVELOPMENT POLICY LOAN

TABLE OF CONTENTS

LOAN AND PROGRAM SUMMARY

I . INTRODUCTION ......................................................................................................................... 1

I1 . MACROECONOMIC FRAMEWORK ...................................................................................... 2

I11 . MOROCCO’S HOUSING SECTOR REFORM AGENDA 2003.2007 ................................... 5 A . Main housing sector issues ................................................................................................... 5

B . The government program for the housing sector ................................................................. 9

C . Reform implementation .................................................................................................... 15

I V . BANK SUPPORT TO THE GOVERNMENT’S HOUSING REFORMS ............................. 16 A . Objectives and Rationale ................................................................................................... 16

B . Links to the Country Assistance Strategy .......................................................................... 17

C . Relationship to other Bank operations ............................................................................... 17

D . Lessons leamed and analytical underpinnings ................................................................... 18

E . Collaboration with WIF and other Donors ......................................................................... 19

V . THE PROPOSED LOAN .............................................................................................................. 20 A . Loan structure and conditions ............................................................................................ 20

B . Disbursement ofthe f irst tranche ....................................................................................... 20

C . Disbursement ofthe second tranche .................................................................................. 22

D . Benefits .............................................................................................................................. 23

VI . OPERATION IMPLEMENTATION ....................................................................................... 23 A . B . Supervision ......................................................................................................................... 24

C . D . Fiduciary aspects ................................................................................................................ 25

E . Disbursement and auditing ................................................................................................. 25

F . Environmental aspects ........................................................................................................ 26

G . Risks and risk mitigation ................................................................................................... 26

Poverty and social impacts ................................................................................................ 23

Monitoring and evaluation ................................................................................................. 24

. .

This document has a restricted distr ibution and may be used by recipients only in the performance of their official duties . I t s contents may not be otherwise disclosed [without W o r l d Bank authorization .

V

ANNEX 1: LETTER OF SECTOR DEVELOPMENT POLICY ................................................... 29

ANNEX 2: POLICY MATRIX ........................................................................................................... 39

ANNEX 3: FUND RELATIONS NOTE ............................................................................................ 42

ANNEX 4: ESTIMATED VALUE OF PUBLIC SUBSIDIES TO THE HOUSING SECTOR ... 46

ANNEX 5: FLOWS OF PUBLIC SECTOR SUPPORT TO THE HOUSING SECTOR ............ 47

ANNEX 6: THE “VILLES SANS BIDONVILLES” PROGRAM .................................................. 48

ANNEX 7: MAIN PARAMETERS OF THE MORTGAGE GUARANTEE FUND FOR INFORMAL WORKERS (FOGARIM) ........................................................................ 50

ANNEX 8: MOROCCO AT A GLANCE .......................................................................................... 5 1

MAP IBRD #33450

The Morocco Housing Sector Development Policy Loan was prepared by a World Bank team consisting of: Anthony G. Bigio, Task Team Leader; Loic Chiquier, Lead Financial Specialist; David Le Blanc, Senior Urban Economist; Fatouma Toure Ibrahima, Financial Specialist; Kishor Uprety, Senior Legal Counsel; Claude Taffm, Bernard Worms, Franck Daphnis, Fouzi Mourji, housing finance consultants; Fathi Kraiem and Driss Benjelloun, housing sector consultants; Jacques Barbier, urban planning consultant; Joseph Comby, land titling consultant; and Thouria Nana-Sinkam, Language Program Assistant. Peer reviewers have been M i l a Freire, Regional Adviser, Urban Housing and Municipal Services, LCSFP, and Peter Ellis, Senior Urban Economist, SASEI. The team worked under the general guidance o f Hedi Larbi (Sector Manager), Ferid Belhaj (Country Manager), Emmanuel Forestier (Sector Director until January 2005), David Steel (Acting Sector Director until M a y 2005) and Ted Ahlers (Country Director).

vi

HOUSING SECTOR DEVELOPMENT POLICY LOAN PROGRAM SUMMARY

Borrower Government o f Morocco Implementing Agencies

Amount U S $ l 5 0 mi l l ion equivalent (euros)

Ministry o f Finance and Privatization and Ministry o f Housing and Urban Planning

Description

Benefits

Risks

Terms Tranching

Fixed spread loan, 20 years repayment, including 5 years grace. Two tranches, respectively o f US$90 mi l l ion and US$60 mill ion, the f i rst one to be disbursed after effectiveness and the second one between 18 and 24 months after effectiveness, fo l lowing the Bank’s review o f policy actions implemented in accordance with the loan agreement. The development objectives o f the Government’s housing sector program and o f the proposed loan are to: (i) strengthen the institutional, regulatory and fiscal environment for a well- functioning housing market and for the emergence o f market-based solutions to the country’s housing sector constraints and needs; and (ii) increase the access o f low-income and severely disadvantaged households to more affordable and higher quality housing. The loan would support the first objective through pol icy reforms and measures to: (a) modernize urban planning standards and regulations; (b) restructure and refocus public sector housing agencies and enterprises; and (c) rationalize and simplify real estate taxes and subsidies. The second objective would be supported by reforms and measures to: (a) expand urban slum upgrading and social housing programs through market-friendly approaches; (b) improve the efficiency o f the residential rental market; and (c) expand the access o f informal sector and low-income households to market-based housing finance. The benefits expected f rom this operation include: a) improved living conditions for the urban poor which would result f rom the progressive elimination o f existing slums and f rom increased supply o f low-cost housing; b) a more efficient use o f resources allocated to the public housing programs; c) an enhanced access to housing finance for the urban poor through guarantee funds and housing saving schemes; d) reduced cost o f land resulting f rom more cost effective planning regulations; e) better targeted public subsidies to the housing sector; and f) j o b creation resulting f rom increased construction activity. The main identified risks concern: coordination among the institutions involved; the pace o f implementation o f the slum upgrading program and o f the OPH (Public Housing Operators) restructuring; potential delays in the legislative reforms for the urban planning code, residential rental sector and real estate taxation and subsidies; and the absence o f land titling reform. Macroeconomic risk has been found not t o be critical to the success o f the reforms.

Operation ID Number P83746

KINGDOM OF MOROCCO HOUSING SECTOR DEVELOPMENT POLICY LOAN

I. INTRODUCTION

1. Demographic growth has tripled Morocco’s population since Independence in 1956, and is expected to continue at a 1.4 percent annual rate over the next decade. Demographic expansion has been accompanied by accelerated urbanization, whereby 55 percent o f the population resided in urban centers in 2004 compared to 29 percent in 1960. The percentage o f urban population i s expected to increase to 58 percent by 2010, putting additional pressure on the Govemment o f Morocco (GOM) to provide infrastructure, services, housing and jobs in urban areas.

2. Due to its economic and social role, the housing sector is considered a top priority by the Government. GOM places a high priority on improving the access to and affordability o f formal housing especially for the urban poor, in order to slow the growth o f slums and other informal housing. Demand i s estimated to be around 120,000 housing units per year and will expand in the future due to the demographic pressure and urbanization, whereas the annual supply o f formal housing units i s estimated to be about 90,000 units, most o f which i s currently not affordable by lower income groups. Given i ts share in the economy (8 percent o f GDP in 2002) and i ts high employment generation, the development o f an efficient housing market i s important for job creation and economic growth.

3. The Government’s primary objectives in the housing sector are to: (i) strengthen the institutional, regulatory and fiscal environment to create a well-functioning housing market and bring about market-based solutions for the country7s housing sector; and (ii) increase the access o f l ow income and disadvantaged households to more affordable and higher quality housing. To achieve the f i rs t objective, GOM has embarked on a program o f reforms to: (a) modernize urban planning standards and regulations; (b) restructure public sector housing agencies and enterprises involved in the delivery o f public housing programs; and (c) simplify real estate taxes and subsidies. To achieve the second objective, G O M plans to introduce reforms to: (a) expand urban slum upgrading and social housing programs through market-based approaches; (b) improve the efficiency o f the residential rental market; and (c) expand the access o f the informal sector and low- income households to market-based housing finance. By reducing current market distortions and promoting greater private sector provision o f housing and related services, these reforms are expected to lead to an increased supply, more efficient allocation and use o f government resources in the housing sector, and better housing opportunities for low income and severely disadvantaged households.

4. The proposed Housing Sector Development Policy Loan (HSDPL) has been requested by G O M to support the implementation ofpolicy reforms andprograms in the housing sector. The loan will assist the Govemment to design and implement the reforms. It i s consistent with the CAS and with the Bank’s assessment o f the current macroeconomic situation.

2

5.

6.

7.

8.

9.

An overall agreement has been reached with the Government on the scope of the reforms supported under the proposed operation. T h i s agreement i s supported by the Letter o f Sector Development Policy and the pol icy matrix, attached in Annexes 1 and 2, respectively. As agreed with the Government, the on going reform program i s expected to be fully implemented over the next 24 months (2005-2007). The scope o f the reforms has been structured in two stages according to their readiness for implementation.

The proposed loan of US$150 million equivalent will be disbursed in two tranches respectively of US$90 million and US$60 million equivalent. The f i rs t tranche i s expected to be disbursed after effectiveness. The second tranche i s expected to be disbursed 18 to 24 months after effectiveness, fo l lowing the Bank’s review and determination that pol icy actions undertaken are satisfactory and that they correspond to those specified in the loan agreement.

11. MACROECONOMIC FRAMEWORK

Over the past decade, Morocco has improved price stability, strengthened its external position and initiated an ambitious program of structural reform. Inf lat ion remains l o w and the external position i s at a comfortable level, supported by high and steady inf lows of remittances, tourism receipts and foreign direct investment. Structural changes are underway in many areas including trade facilitation, customs reform, financial sector liberalization, privatization o f telecommunications, agriculture and public sector modernization. The principal issues o f concern over the medium term are l o w growth and employment, and fiscal sustainability. Accelerating growth will require a renewed sense of urgency to correct fiscal imbalances and preserve stability and commitment in order to complete an agenda o f structural reforms that will increase the competitiveness of Moroccan businesses, at home and abroad. These reforms, including those to lower the fiscal deficit, are intended to increase investor confidence and increase economic growth in order to address poverty and respond to social pressure.

Morocco has implemented successful stabilization programs since the mid-1 990s and achieved low inflation rates by prudent fiscal, monetary and debt management. The combination o f prudent economic management with financial sector reform and successful privatization o f several state enterprises has attracted foreign direct investment. This, together with a strong and steady f l ow o f remittances and tourism receipts, has led to substantial banking liquidity and international reserves. The reserve position has more than doubled f rom 4.6 months o f imports in 2000 to 10 months o f imports in 2004. Workers’ remittances have contributed to increased national savings and successive current account surpluses since 2001.

Despite achievements, the fiscal position has slipped and is unsustainable in the medium term. The large budget deficit averaged 5.2 percent o f GDP in 2001-04. These deficits were financed by substantial proceeds f rom privatization and domestic borrowing. Large budget deficits came about mainly in response to a rising wage bill, representing about 13 percent o f GDP in 2004, some security-related spending fol lowing the Casablanca bombings in M a y 2003, some exceptional infrastructure investment financed by the Fonds Hassan II, and weaker revenue performance o n account o f selected import tar i f f reductions. In addition, important transfers were made to the pension system and two ail ing banks. Fiscal deficits o f this magnitude are unsustainable

3

over the medium term. In 2004, more than hal f o f the financing o f the fiscal deficit originated from privatization proceeds that are projected to rapidly phase out in 2006, making fiscal adjustment a top priority in 2005-06. T o preserve stability over the medium term, rapid and decisive action to increase revenue i s needed on several fkonts, as we l l as efforts to tackle budget rigidities, reverse expansionary payroll spending and address actual and contingent fiscal liabilities in the medium term. T h i s would also create enough fiscal space to cover investments in development priorities.

10. Fiscal and budgetary policies initiated by the Government aim at an improved management of publicfinances and in particular at reducing the budgetary deficit to a sustainable level. Fiscal pol icy aims essentially at simplifying and harmonizing the taxation system, at reinforcing competitiveness, and at improving the living standards o f the low-income population. As for the budgetary policy, i t aims at increasing the efficiency o f the use o f financial as wel l as human resources, and in particular at containing the wage bill, which i s one o f the reforms undertaken as part of the overall re form o f public administration with the support o f the Bank.

1 1. Despite fiscal concerns, an active debt management has helped reduce current debt payments and increase investor conjidence. An active debt management has reduced external debt and increased domestic debt. As a result, total external Government debt has steadily decreased f rom 34 percent o f GDP in 2000 to an estimated 16 percent in 2004, due to debt restructuring swaps for investment. In contrast, domestic debt increased from 42 to 5 1 percent o f GDP in the same period.

12. However, growth has been volatile and below potential. Indeed, the economy has achieved less than a 3.5 percent growth rate over the last decade, and a promising but sti l l insufficient 4.5 percent in 200 1-04. Growth remains dependent o n agriculture, although it represents only 15 percent o f GDP. The non-agricultural sector has continued to improve slowly and i s steadily growing at 3.2 percent, with dynamic contributions f rom the manufacturing and service sectors such as tourism and information technology. Lending interest rates, while declining, have been high, averaging more than 7 percent in real terms over the 1999-04 period and affecting credit and private investment. There i s l i t t le evidence that remittances are being intensively used for investment; most are for consumption. The impacts o f the Multi Fiber Agreement on industrial output and bad weather conditions are expected to slightly reduce growth in 2005.

13. Morocco has an opportunity to accelerate growth, increase employment and reduce poverty. T o begin with, the Government needs to build on the existing foundations o f macroeconomic stability (low inflation and a solid external position), and continue with a multi-pronged structural reform agenda to address fiscal imbalances, continue trade liberalization, open up the economy, expand the role o f the private sector and enhance i t s efficiency. Morocco needs also to address weaknesses in the financial sector and the pension regime, and liberalize the labor market. The exchange rate regime may also need to be adapted to the changing context, main ly in view o f further trade liberalization and in the prospect o f eventual capital account opening. This would make exchange rate pol icy an instrument to improve competitiveness and support growth.

14. The base case scenario foreseen under the current CAS (FY2006-2009) assumes a stable macroeconomic framework with modest growth and partial adjustment. This i s supported by a partial recovery o f medium-term fiscal sustainability, slightly higher savings ratios, and sustained export performance resulting f rom constant real exchange

4

rate and terms o f trade. These are coupled with sizeable remittances and tourism receipts, but declining current account surpluses. The extemal financing gap would be f i l led mainly by multilateral financing and foreign direct investment. Under this base case, the cumulated financing gap would be about US$15 bi l l ion during 2005-08, about the same amount considered for the previous CAS period. This decrease in financing needs corresponds to the lower amounts needed in the amortization profile, current account surpluses, and lower needs for reserve gains by Bank A1 Maghrib. Multilateral financing and foreign direct investment wil l play an increased role in filling the gap, as privatization proceeds and bilateral financing phases out.

T a b l e 1: Selected Macroeconomic Indicators Actual Est. Projected

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 ;rowth rates (in percent)

CAS 2001-04 forecast Real Consumption

Export Volume, GNFS

Import Volume, GNFS

GDP Deflator

Real GDP

Real Gross Domestic Investment

CAS 2001-04 forecast

CAS 2001-04 forecast

Latios to GDP Gross Investment

CAS 200144 forecast Gross National Savings Budget Deficit (-)*

CAS 2001-04 forecast Direct Public Debt

Extemal Current Balance

1.0 6.3 0.8 8.0 3.0 7.1 7.0 8.0 6.4 13.0 -0.8 4.0 -0.5 5.7 -2.8 5.5 1.5 1.8

23.6 22.9 24.5 24.7 22.2 27.6 -5.8 -6.3 -6.4 -7.7 75.6 74.7 -1.4 4.7

3.2 3.4 0.5 4.4 8.8 6.9 12.2 4.9 0.6

22.7 25.2 26.8 -4.6 -5.5 71.3 4.1

5.2 3.6 3.7 6.0 -3.6 5.7 15.6 5.6 0.0

23.8 25.4 27.4 -5.7 -4.3 69.3 3.6

3.5 3.8 3.4 5.0 2.7 5.8 3.5 5.9 2.5

24.2 25.6 25.5 -4.7 -3.5 66.7 1.3

3.0 3.8 4.0

2.8 3.7 4.1 4.6 5.0 5.4 6.3 5.5 5.3

6.4 5.9 6.5

2.5 2.5 2.5

24.4 24.6 24.8

26.1 26.2 26.0 -5.0 -4.7 -4.4

68.2 67.9 67.2 1.7 1.6 1.2

4.0 4.0

4.4 4.5 5.4 5.6 5.2 5.1

6.9 6.8

2.5 2.5

24.9 25.0

25.5 25.0 -4.0 -3.6

66.7 66.0 0.7 0.1

CAS 2001-04 forecast -1.6 -1.5 -1.1 -1.0 -1.0

Excluding privatization receipts and including Hassan N Fund expenditures.

5

111. MOROCCO’S HOUSING SECTOR REFORM AGENDA 2003-2007

A. MAIN HOUSING SECTOR ISSUES

15.

16.

17.

Out of a total population of 30 million, 18 million live in urban areas, and the urban population increased between 3percent and 4percentper year between 1960 and 2000. The number o f urban primary dwellings was estimated at around 3 mi l l ion in 2000. Sixty-two percent o f households own their dwellings, 28 percent are renters, and 10 percent have other tenure status. The formal housing stock represents 80 percent o f the total.

I n 2003 about 800,000 Moroccan households, or about 5m people and one third of the urban population, lived in sub-standard housing. This consisted of: a) housing units i l legally built but o f appropriate building quality, for 540,000 households; b) slum dwellings o f very poor quality sited o n un-serviced land, for 270,000 households, o f which 212,000 in urban areas; and c) units threatening collapse, mostly concentrated in historic urban cores, for 90,000 households. During the past 20 years, informal housing has developed at a faster pace than formal housing, in spite o f sustained government efforts, and slums have increased at a rate o f 4 percent per year.

The development o f slums and substandard housing has resulted fkom a dysfunctional housing market and inadequate public interventions. The main sector issues are br ief ly described as follows.

Land titling and registration

18. Land titling is regulated by a legislation passed in 1913 which has not been updated since. This legislation is both very cumbersome and costly. It ignores customary registers, and establishes ownership rights through a complicated system o f land surveys and public hearings. A heavy reliance o n court decisions to settle disputes causes serious delays. This time-consuming formal land registration process encourages land-owners to sell property using customary procedures, which leads to the creation o f more informal settlements. I t also encourages developers to start building before the land tit le i s obtained, often resulting in costly disputes and infkastructure constraints.

19. The scarcity and consequent high costs o f urban land are in part due to inadequate procedures set by the legislation, resulting in a dual land market involving formal and informal transactions. Property rights stemming fkom the customary system are found in 80 percent o f the urban areas, yet are not recognized by planning authorities or accepted as collateral by the banks. The status o f land owned by communities i s often unclear, which results in the freezing o f large tracts that could otherwise go on the urban land market. Off ic ia l titles for real property that a l low for legal transactions and collateralization are costly t o obtain and easily subject to disputes pr ior to their issuance.

Urban planning regulations

20. Urban planning and zoning practices are governed by several laws, decrees and ministerial instructions which lack coherence and impose heavy urban development costs. These regulations require the production o f c i ty master plans and detailed zoning plans, al l requiring lengthy official approvals. Master plans are val id for ten years and

6

cannot be amended during this period. Due to the long delays in their drafting and approval, they are often outdated by the time they are approved. Zoning plans are subject to complex approval procedures, and by law, subdivisions may only be planned if formal t it le deeds exist. In 1995, i t was estimated that land was held by developers for 9 years on average before zoning and subdivision plans could be fully approved and development projects could start.

2 1. Planning and construction regulations impose high land reserves and infrastructure standards and consequently low land use ratios. The norms defining land allocation for public facilities in urban development projects are high and tend not t o reflect the financial capacities o f the involved ministries. Since public agencies often do not have the resources to develop the land, large tracks remain unutilized. Road and infrastructure design also fo l low high standards, decreasing the efficiency o f land-use and increasing development costs. Regulations for social housing developments impose costly building standards. Building permits issued by Local Authorities in consultation with Urban Agencies are expensive, time consuming to obtain, and subordinated to the possession o f of f ic ia l t it le deeds. The economic consequences are a reduced formal market for urban land, high land development cost and land prices, and long delays between project design and delivery o f housing units. This process results in high prices o f formal housing and in effect encourages i l legal settlements.

Residential rental sector

22. Rental housing represents 28 percent of the housing stock. Seventy-three percent o f rental un i ts are self-constructed, and consist o f rooms or floors let to tenants by homeowners. Ninety percent o f landlords are households who directly manage the relationships with tenants, often with direct, non-written arrangements.

23. The current legal framework applying to the rental sector has constrained the market because of the perceived imbalances in favour of tenants. According to current legislation, rent increases are virtually impossible in the absence o f upgrading o f the dwell ing by the landlord, and recovery o f the dwell ing by the landlord for personal use i s strictly l imited by the law. Disputes about rent payments are lengthy and costly, which renders the sector unattractive to investors. Judiciary procedures are long and complicated, and court decisions ruling in favor o f landlords are not easily enforced. A s a consequence, rental supply has been decreasing and financial institutions have deserted the rental market, with the exception o f two companies, which are n o longer investing but s t i l l manage 38,000 public units in a state o f disrepair.

Housing finance and affordability o f housing products

24. The development of housing finance accelerated in 1999. Interest rates subsidies for mortgages provided by the state-owned housing bank, CIH, were extended to the other public and private banks, which rapidly began to compete in the mortgage market. A s a result, mortgage services increased and the outstanding mortgage amount grew f rom 3 percent o f GDP in the mid-nineties to about 7 percent o f GDP in 2004. Interest rates have been decreasing for the last 10 years. Mortgage rates fe l l f rom 12.5 percent in 1995 to about 8 percent in 2004. Loan-to-value ratios increased from 70 percent to 90 percent and even to 100 percent for certain groups.

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25.

26.

However, access to housing credit is limited by the lack of financial services and limited outreach of the banking system to low-income groups. Until 2004, mortgages were typically available only to households with regular (public or private sector) salaries. However, 40 percent o f the labor force i s employed in the informal sector, and hence were not eligible under the mortgage system. Wage earners are concentrated in the middle and higher income brackets. Therefore, a majority o f households located in the lower half are not perceived as solvent clients by banks. Only 40 percent o f Moroccan households hold a bank account.

I n addition to the problems of access to credit, formal houses built by developers are priced out of the reach of low-income households. In 2002, a household with a median monthly income o f MAD 5,000 and initial savings o f MAD 30,000 could afford a house worth MAD 200,000, assuming prevailing mortgage conditions. This amount was not even sufficient to acquire the cheapest formally produced unit in Casablanca and Rabat- Sale. As a result, i t i s estimated that more than 50 percent o f new construction i s self- construction (formal and informal). Moroccan households typically construct their homes one floor at a time, and generally without recourse to formal housing finance.

Housing subsidies

27. Subsidies to the housing sector are a drain on Morocco’s budget, costing about M A D 8 billion per year (1.9 percent of GDP). Most subsidies to the sector are in tax incentives to developers and households, estimated to cost around MAD 5 bi l l ion per year (1.2 percent o f GDP). Other important subsidies include: a) public land for social housing programs; b) the investment budget o f the Ministry o f Housing and Urban Planning; and c) interest rate subsidies on mortgages. Annex 4 presents the costs o f the housing subsidies estimated for 2002.

28. I n recent years, a series of tax incentives for social housing construction and the rapid growth of the mortgage market increased Government expenditure for the housing sector. To decrease the cost o f social housing un i ts (under MAD 200,000), developers were f irst exempted from VAT, then in 1999 from al l taxes and fees (Article 19). In 2002, revenue losses by the Government from these reductions amounted to about MAD 40,000 per unit constructed, or about 20 percent o f unit cost. Households were also allowed to deduct mortgage interest (and principal in some cases) from income tax, which led to further growth o f tax expenditures as the mortgage market grew rapidly.

29. Overall, subsidies appear to be insufficiently targeted. Available information suggests that most o f the tax re l ie f to households was not well-targeted and that some were clearly regressive (e.g. income tax deductions o f mortgage interest). The allocation o f subsidized public land has not exclusively benefited low-income groups. In 1998, it was estimated that only 24 percent o f land subsidies benefited households in the three lowest deciles o f the income distribution, in the form o f serviced land parcels. Interest rate subsidies on mortgages were not well targeted and de facto excluded households from the informal sector, usually the lower segment o f the income distribution. In 1995, 80 percent o f the beneficiaries o f subsidized loans who received a 2 percent rebate on the interest rate (called rkgime gdnkral) declared annual incomes above the sixth decile o f the income distribution. On the other hand, subsidies for loans to middle and low-cost units (rdgime spkcial) appear to have been better targeted, benefiting almost exclusively households in to the lower ha l f o f the income distribution. However, these subsidies were generally not

8

available to beneficiaries without regular wages (independent workers and workers o f the informal sector) because o f their lack o f access to credit.

30. Subsidies to developers have generated indirect positive effects. Large tax breaks for developers, which have generally been shown by international experience to be inefficient and poorly targeted, seem in this case to have contributed to the emergence o f a strong private construction industry in the last 10 years. They have given rise to fierce competition which has resulted in fall ing housing prices at the l o w end o f the formal market. The basic family unit in Casablanca, which sold for more than MAD 220,000 f ive years ago, i s now advertised between MAD 160,000 and 180,000. This price reduction due to competition has more than offset the amount o f the supplementary subsidies to developers, which suggests that the latter have not captured those subsidies.

Sector institutional setting

3 1. The responsibility for housing policies and low-income housing programs is shared by the Ministry of Housing and Urban Planning (MHU) and the Ministry of Finance and Privatization (MFP). The MHU, through the Direction de l'Habitat Social et des Affaires FonciGres (DHSAF), i s in charge o f the definit ion and oversight o f the social housing programs. The MFP i s responsible for direct housing subsidies, tax policies relevant t o the sector, and the management o f housing finance instruments. Under the oversight o f the MHU and the MFP, a group o f parastatal companies (Opdrateurs Publics de 1 'Habitat, OPH) i s in charge o f land servicing and implementation o f the social housing programs o f the MHU. The OPH have dominated the land servicing market whi le housing construction has been increasingly taken over by private developers.

32. The past performance of the OPH has been mixed. Some o f the OPH programs have been inefficient and have incurred recurrent losses. They have twice required injections o f public capital in seven years. Public land subsidies have been distributed through cross-subsidization within housing programs. Many regonal OPH, or Etablissements Regionam d 'Amtkagement et de Construction (ERAC), have produced serviced land plots and housing units that could not be sold or had to be sold below cost. The causes o f their unequal performances, as pointed out by an audit by the Ministry o f Finance in 1997, included lack o f governance and accountability mechanisms, absence o f a commercial policy, high reliance o n subsidies, overstaffing and deficient ski l l mix. In addition, the OPH had politically-supported access to credit f rom the publicly-owned C M which continued providing financing beyond reasonable limits.

33. I n the past, housing policies and programs have suffered from insuffcient coordination between and within ministries. Policy instruments were developed independently by institutions in charge o f different parts o f the system, and the oversight o f public programs was insufficient.

Public housing programs

34. Public housing programs combine the following approaches: (a) on-site slum upgrading; (b) provision o f services plots fo r beneficiaries who then build progressively; and (c) construction o f apartment blocks for s lum dwellers.

3 5. Beneficiaries have expressed mixed appreciation of social housing programs. Evaluation studies carried out by the MHU show that low-income groups appreciate

9

Government support in facilitating access to housing. However, their preferences have not always been reflected in the design o f Government programs. Serviced plots are the favored option, followed by in-situ restructuring (especially for the slums located in central urban areas), with apartment units a distant third. The studies also show that the programs often failed to take into account potential problems o f relocating slum dwellers in new neighborhoods. Loss o f social networks, distance from jobs, and lack o f services and o f public transport in the newly urbanized zones were the most pervasive problems encountered by the beneficiaries.

B. THE GOVERNMENT PROGRAM FOR THE HOUSING SECTOR

36. The program for the housing sector was defined at the outset of the new Jettou Government in November 2002, and has been implemented since. The new strategy i s largely driven by the Government’s willingness to let the private sector play the lead role in housing provision. The Government has refocused i t s efforts in order to improve the institutional and regulatory environment o f the housing sector and to expand i t s support to low-income households to promote more market driven interventions. The goal i s to produce 100,000 social housing units annually (including serviced land plots and housing units).

37. The Government’s primary objectives in the housing sector are: (i) to strengthen the institutional, regulatory and fiscal environment o f the housing market to provide incentives for market-based solutions for the country’s housing sector, and; (ii) to increase the access o f low-income and severely disadvantaged households to affordable and higher quality housing.

3 8. The Government’s program includes three strategic reform areas:

a) Reforming the legal framework o f urban planning to reduce the costs o f serviced land and to promote orderly urban development, creating a legal and fiscal environment for the rental market, and reforming real estate taxation and housing subsidies;

b) Designing and implementing a new approach to social housing involving a nationwide program o f slum upgrading and the development o f low-cost serviced or semi-serviced plots;

c) Improving access to housing finance for low-income groups, especially households with irregular or informal incomes.

Legal, regulatory and fiscal reforms

39. Urban planning; regulations. The thrust of this major reform is to simplifj current urban planning regulations in order to increase the efficiency of land utilization and hence reduce the cost of legally developed land. To this end, in 2004 the Government has initiated major reforms in three areas: a) strengthening control o f land development and reducing delays in the approval and processing o f urban planning documents (draft Law 04/04 submitted to Parliament); b) reducing land allocation standards for public facilities, and c) lowering construction standards for social housing units. The MHU estimates efficiency gains o f about 25 percent on land-use ratios and construction costs from the new framework.

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40. The draft legislation would institute tight control of land development and establish new procedures to accelerate the approval of urban development plans by the Governorates and building permits by Municipalities. It would also reduce from 10 to 5 years the time during which land reserves within residential developments should remain available for the construction o f public facilities. Finally, it would also introduce fines and penalties for the disregard o f urban planning regulations, aimed in particular at discouraging the creation o f new sub-standard informal settlements and slums.

41. The regulation on standards for land reserves for public facilities has been amended to optimize land use. This will be achieved by reducing areas reserved for public facilities, and facilitating the grouping o f public facilities within multi-purpose buildings. The MHU has completed a comprehensive study to determine the most appropriate standards in the context o f Morocco. After long consultations, new standards have been proposed and adopted in 2005.

42. Standards for social housing developments have also been reduced to achieve substantial cost reductions. N e w regulations have been issued by the Government in 2005 in order to improve the efficiency o f land-use within social housing developments and to reduce the construction standards o f the housing units in order to reduce the overall cost of the projects and to make the units more affordable to beneficiaries, whi le maintaining minimum criteria of health and safety.

43. Thefnal reform in this area will be the development and adoption of unifed and modern urban planning legislation. Whi le the aforementioned changes have been set within the current legal framework, the Govemment i s committed to unify and simplify the legislation (laws, decrees, instructions) which regulates urban planning, zoning and subdivisions and related administrative procedures within a new L a w (code d’urbanisme). The new code i s under development and i s expected to be adopted in 2007.

44. Rental sector. The aim of the reform is to achieve a better balanced distribution of rights between landlords and tenants in order to stimulate private and corporate investment in rental housing. Changes in the legal framework are needed in order to achieve greater f lexibil i ty in rent setting and to facilitate the recovery of dwellings by landlords. In parallel, the reform will a im at stimulating the emergence o f professional intermediaries in the rental market. To t h s end, the Govemment has launched a study to which a l l stakeholders will contribute to promote consensus building and ensure broad consultations. The outcome o f the consultations will result in the adoption o f new rental legislation in 2007.

45. Housing subsidies. The reform aims at reducing the cost of the housing subsidies and achieving better targeting to the low-income population. Budgetary expenditure o n interest rates subsidies had reached MAD 450 million in 2003. Due to the rapid expansion o f mortgage lending, expenditure i s l ikely to grow even more in the coming years. Facing tight fiscal constraints, the Govemment terminated interest subsidies for new loans in the 2004 Budget Law.

46. The Government had envisioned the replacement of the old interest rate subsidies system with a system of upfront subsidies to ownership, for which a project had been jo int ly prepared by the MFP and MKU with technical assistance f rom the Bank. However, whereas interest rates subsidies were eliminated in 2004, upfront subsidies

11

were no t adopted because o f potential abuses and perceived difficulties in managing such a system.

47. Real estate taxation and fiscal expenditure. These will need to be reformed to reduce market distortions, better target low-income households, and reduce the fiscal burden. The Government has already begun to reform o f the tax system at the national level, supported by the European Union (EU) and the IMF. Specific reforms o f the real estate tax system are expected to be developed and adopted in the next two years. Due to the complexity o f real estate taxation, an evaluation will be carried out by the MFP to priorit ize the changes to be made in the system, and to plan the timing o f implementation o f the reforms to avoid adverse effects o n the construction sector and on households. The study will be completed in 2006. Whi le the eventual impact o f the reforms o n tax revenues i s not presently known, there i s a consensus that substantial fiscal savings could be achieved by eliminating or reducing poor ly targeted tax cuts.

A new program for social housing

48.

49.

50.

51.

I n 2003, the Government introduced a new strategy to provide low-income groups with housing accommodation. The new approach i s based on: a) a nationwide program called Villes sans Bidonvilles (VSB, or Cities without Slums) to upgrade a l l existing urban slums by 2010; and b) a prevention policy, aimed at increasing the supply o f low-cost serviced or semi-serviced plots by the OPH by opening up large new residential areas in partnership with private developers, to be entrusted with the construction o f housing units.

The nationwide “Villes sans Bidonvilles” program aims at providing accommodation to the about 212,000 households living in urban slums across the country by 2010. This flagship program was formally submitted to the King in July 2004, and presented in October 2004 during a high-profile national conference organized by the MHU. The V S B program i s a city-based approach to s lum upgrading. All slums in a given urban area are included in an upgrading program, agreed to between the Ministry o f Housing and Urban Planning, the deconcentrated regional authorities o f Governorates, the Local Authorities or Municipalities, and the parastatal companies in charge o f i ts implementation. These agreements are defined by “city contracts” among the parties.

Slum and sub-standard housing prevention is based on facilitating the delivery of low- cost serviced or semi-sewiced land plots to low-income groups. Large new areas called “zones d ’urbanization nouvelle ” (ZUN) will be opened up to residential development. Contrary to past practices, the OPH will only be in charge o f land development, including off-site and on-site infrastructure, which will then be sold to developers o n a competitive basis to build housing units for low-income groups, or directly for individuals.

The VSB program sets ambitious targets for the Government, as it is expected to be fully implemented by 2010. I t encompasses a l l s lum upgrading projects that were on- going before 2004, covering about 68,000 households. By March 2005, 24 slum- upgrading ci ty contracts had been finalized for another 103,000 households. Similar c i ty contracts remain to be concluded in 2005 for another 41,000 households. The ci ty contracts are followed by agreements with the OPH for the implementation o f the projects. The MHU has estimated that by 2010 it will have upgraded al l slums existing in 2003. and sumlied i ts inhabitants with satisfactorv accommodation.

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52. The Government’s social housing program will require substantial financial resources and effective management capacity. About MAD 17 bi l l ion (US$2 bil l ion) are needed to implement the V S B program, which will require also about 5,200 hectares o f land. The public sector will provide around 30 percent o f the financial needs o f the V S B program, whi le the rest will be contributed by the beneficiaries themselves. The quantitative objectives assigned to the OPH as the companies in charge o f implementing the new programs are ambitious, in light o f their previous capacities and yearly outputs.

53. Therefore, the Government has taken steps to expedite the implementation of the program by mobilizing stable and substantial resources by: a) increasing the resources o f the Housing Solidarity Fund (FSH); b) mobil izing large tracts o f public land located around major cities, a significant part o f which will be transferred to VSB, and; c) restructuring o f the parastatal companies to improve their performance whi le relying o n the private sector for the construction o f low-cost housing units.

54. The FSH is a dedicated fund directly assigned to the MHU to finance social housing programs, in complement to the Ministry’s investment budget. The Fund is replenished from a dedicated tax o n cement, which was doubled to MAD 100 per ton in 2004. Given current cement sales, the tax i s expected to generate over MAD 1 bi l l ion per year. The revenues and uses o f the F S H are projected in Table 2, which also shows the yearly allocation o f budgetary resources (Budget G&n&ral de 1 ’Etat, BGE) to financing o f the various social housing programs, o f which V S B i s the largest. The GOM commitment to the rehabilitation of historic urban fabrics, or medinas and to the promotion of micro- credit for housing purposes should be also noted as recent and positive pol icy developments. These complement the projected investments to regularize i l legal residential developments that primarily require on-site infrastructure, and to create new and progressive urbanization zones to cater for new housing demand.

Table 2: FSH and BGE projected expenditures for social housing programs 2005 -2010

Source: Ministry o f Finance and Privatization, May 2005

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55. The Government has released large publicly owned land reserves to the Ministry of Housing. A f i rs t tranche o f 3,400 hectares was agreed upon in December 2003, and a second one, o f 5,000 hectares, was agreed upon in October 2004. This land will be used both for “Villes sans bidonvilles”, and for the creation o f ZUN to provide low-cost land development sites.

56. Recognizing that their management and organizational structure are inadequate to support the new program for social housing, the Government has launched the restructuring of the OPH. A new structure, Holding A1 Omrane (HAO), was established in 2004 to absorb the existing OPH, eliminate redundancies and overlaps among their missions, mandates and territorial coverage, consolidate their financial and human resources, and eliminate the outstanding deficits. The mandate o f Holding A1 Omrane i s to: a) increase the supply o f serviced land for social housing and new residential developments; b) promote partnerships with the private sector for the provision o f low- cost housing and upgrade o f sub-standard housing; and c) implement Government programs for slum upgrading in partnership with local governments and the private sector.

57. The restructuring of the housing sectorparastatal companies has begun in 2004. Three o f the ten parastatal companies (ANHI, SNEC and Attacharouk) have been merged to create the Holding d’AmCnagement A1 Omrane (HAO), and all o f the regional OPH have been recapitalized. Financial and institutional restructuring o f the remaining seven regional ERAC i s being studied in terms o f their regional coverage and o f their adaptation to the new mandate, limited to the provision o f on-site infrastructure and the implementation o f the social housing programs. The integration o f the ERAC into HA0 will be the final phase o f the restructuring of the parastatal companies, and GOM has recently approved the creation of two additional shareholding entities to expand the regional coverage o f HAO. The reform will include the implementation o f an adequate govemance and oversight structure, along with the upgrading o f accounting systems o f the OPH, improvement o f commercial practices and a new staffing strategy.

Housing Finance Reforms

58. HousinP Finance. The objective of the reform is to increase access tofinancing for low- income households. The reform consists o f three main components: a) establishment o f Mortgage Guarantee Funds; b) extension o f micro-finance services to housing; and c) establishment o f contractual savings schemes for housing.

59. Mortgage Guarantee Funds: The Government has altered its policy on housing credit to focus it on mortgage insurance targeted towards lower-income groups. Initially, the Government contemplated three funds: a) FOGALOGE Public, for employees o f the public sector; b) FOGALOGE PrivC, for employees o f the formal private sector; and c) FOGARIM, for households with irregular or informal sources o f income. So far, only FOGALOGE Public and FOGARIM have been created. The Government i s committed to capitalize FOGALOGE Public with up to DH 350 million. FOGARIM’s initial capitalization amounted to MDH 200 mil l ion drawn from the FSH, with a commitment from the MHU to release two more tranches o f capital o f DH 200 mil l ion in 2006 and 2008.

60. The creation of FOGARIM was intended to improve access to housingfinance for a broad segment of the urban population so far excluded from it. FOGARIM was created

14

in February 2004, and by May 2005, only 660 credits had been guaranteed. These low init ial figures ref lect the need for a trial period by the participating banks, as well as concerted promotion o f the new instrument to make links between banks, most o f which do not have familiarity with the low-income population o f the slum neighborhoods, and the target households, the majority o f whom are not accustomed to using bank services and know l i t t le about formal credit procedures. T h e main characteristics o f the Fund are described in Annex 7.

61. The slow start of the Mortgage Guarantee funds raises the issue of the adequacy of their design and marketing, as well as of demand and supply bottlenecks. An evaluation has located the main bottlenecks, and identified how the system can be improved. These are primarily related to the maximum monthly payment amount which needs to be increased, and to the possibility o f using FOGARIM-guaranteed credits for the acquisition o f parcels o f land, and not only o f complete housing units. A credit education program will also be undertaken by the MHU in collaboration with the participating banks, in order to disseminate knowledge o f the expanded access to formal housing credit and stimulate demand by those low-income beneficiaries o f the VSB program that are supposed to acquire new housing units requiring relatively high init ial payments.

62. Micro-finance for housing. The 2004 Budget Law opened the possibility for micro- finance institutions (MFI) to lend for housing, up to MDH 30,000 per household. Lending for housing had previously been excluded from MFI’s services, although consumption loans were sometimes used by households for home improvements. During 2004, the four largest MFIs began to develop pilot projects for this purpose, in order to assess costs and to be able to price this new business. In 2005, GOM agreed to allocate FSH resources to promote the accelerated intervention o f MFIs in the social housing sector, with the expectation o f reaching a significant number o f households in need o f financial support to build or rehabilitate their units.

63. Housing saving schemes: The Government has decided to introduce housing savings schemes linked to housing loans. As determined by the MFP, these schemes will be offered by interested banks. In the context o f the current mortgage market, the attractiveness o f such a system depends crucially on fiscal and/or budgetary incentives. Those will be designed to attract middle and low-income groups and to avoid large transfers o f savings from other types o f instruments. The corresponding tax expenditure or budget outlay would be financed by the reduction o f other fiscal advantages for homeowners, to avoid any net loss o f tax revenues. The introduction o f housing saving schemes i s scheduled for 2006. The parameters o f such a system will need to be defined, including the nature o f the financial incentives.

64. Overall, the sequencing of housing finance and housing subsidy reforms has been sub- optimal. The termination o f interest rate subsidies at the end o f 2003 caused an increase in the affordability gap, which could have been partly absorbed if housing saving schemes had been in place more readily. These will be operational as o f 2006. However, households’ ability to afford housing, which depends on the amount o f savings that are put into the system, will not have improved before 2009. In the short run, affordability has been negatively affected, while access to mortgages by informal workers has not been significantly increased, due to the slow start o f FOGARIM.

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C. REFORM IMPLEMENTATION

65. The years 2003 and 2004 saw importantprogress in the implementation of the housing sector reforms by the Government in the following areas: design and launching o f the social housing program; restructuring o f parastatal companies; urban planning and social housing construction regulation; housing subsidies; and housing finance systems. The main actions undertaken are summarized in the following table.

Table 3: Main housing sector policy reform actions taken by the Government in 2004

POLICY AREAS AND OBJECTIVES

Modernize urban planning standards and regulations

Restructuring and refocusing of the OPH

Rationalize and simplify housing subsidies

Urban slum upgrading and social housing programs

Expand access of informal sector and low-income households to housing finance

REFORM ACTIONS

Establishing land development control mechanisms and simplification o f approval processes (draft Law 04/04 under consideration by Parliament) Creation o f HA0 with the incorporation o f ANHI, SNEC and Attacharouk

Recapitalization o f 4 regional OPH in debt

Reimbursement o f the OPH debt to the C I H Termination o f interest rate subsidies on mortgages

Reinforcement o f FSH (Housing Solidarity Fund) endowed with substantial long-term resources

Definition o f strategic objectives and financing o f the national flagship slum upgrading program Villes sans Bidonvilles

Release o f large tracts o f public land for residential development and slum upgrading and prevention Establishment o f the Mortgage Guarantee Fund for the informal sector (FOGARIM)

Authorization o f micro-finance institutions (MFI) to lend for housing purposes, up to MDH 30.000/unit

DATE

4pri l2004

June 2004

July 2004

December 2004 January 2004 (Budget Law)

January 2004 (Budget Law)

September 2004

On-going since mid-2004

January 2004 (Budget Law)

January 2004 (Budget Law)

66. The main reforms to be brought to the final stage of implementation are the following: a) finalization o f OPH restructuring; b) development and adoption o f a unified urban planning regulation (code d’urbanisme); c) ensuring full and efficient utilization o f the recently created housing finance instruments; d) establishing housing saving schemes to

16

increase affordability; e) adoption o f new residential rental market legislation; and f ) rationalization o f real estate taxation.

IV. BANK SUPPORT TO THE GOVERNMENT’S HOUSING REFORMS

67. The Bank resumed its involvement in the housing sector with high-level meetings in Tangiers in February 2003 which defined the priorities for Bank assistance. Housing was selected as a priority area together with education, agriculture and public sector management. A Housing Sector Note, prepared by the Bank, was discussed with the Government, and technical assistance was provided on pr ior i ty pol icy reforms. Several recommendations made by the Bank were taken into account by the Government when reshaping i t s national housing policy. At the Dubai Annual Meetings in September 2003, GOM requested financial assistance in the form o f an adjustment operation to support the design and implementation o f the housing sector reforms.

68. The choice of the lending instrument is coherent with the role of the Bank in support of Government sector reforms. GOM has clearly indicated the preference for Bank adjustment support to large and complex sector reforms such as the Public Administration Reform. In the case o f the housing sector, investment lending to GOM i s being provided by other donors (see paragraphs 83-86) and GOM i s satisfied to have the Bank in a pol icy advisory and donor coordination role. As O.P. 8.60 became effective in late 2004, this operation, originally prepared as an Adjustment Loan, was processed as a Development Policy Loan instead.

69. During the preparation of the proposed operation, the Bank maintained an intense dialogue with the Government and other key stakeholders. In particular, the Bank provided support t o the MHU for the detailed preparation of the V S B slum upgrading program with the help o f specialized consultants. This enabled the MHU to develop a much improved V S B program document, complete with detailed estimates o n the land and financial needs, and to obtain greater credibility for this flagship program, resulting in international financial baclung. There was also intensive technical assistance o n housing finance and urban planning reform. The Bank also consulted widely with financial sector institutions o n the contents o f the housing finance reforms and with micro-credit associations which conveyed the expectations of the urban poor with regard to better access to credit and to affordable housing products.

A. OBJECTIVES AND RATIONALE

70. The development objective of the Government’s housing sector program and of the proposed Loan are to: (i) strengthen the institutional, regulatory and fiscal environment for a well-functioning housing market and for the emergence o f market-based solutions to the country’s housing sector constraints and needs ; and (ii) increase the access o f l o w income and severely disadvantaged households to more affordable and higher quality housing.

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71.

72.

The loan would support these objectives through policy reforms and measures to: (a) modernize urban planning standards and regulations; (b) restructure and refocus public sector housing agencies and enterprises; (c) rationalize and simplify real estate taxes and subsidies; (d) expand urban slum upgrading and social housing programs through market- friendly approaches; (e) improve the efficiency o f the residential rental market; and (f) expand the access o f informal sector and low-income households to market-based housing finance.

The rationale for Bank support stems from the importance of the housing crisis, the related social exclusion, and the threat they represent for Morocco. Bank support i s needed to help the Government guide the reform o f the pol icy environment for the housing sector and significantly expand the access o f the urban poor to decent housing. Support would continue and build upon the policy dialogue and advisory role the Bank has played in the housing sector over the past two decades, which started with lending and advisory activities in the 1980s, and has now led to a comprehensive approach to the housing sector. The Bank would contribute best practice expertise and world-wide experience in housing sector policies and housing finance systems to the design and implementation o f the reform program. The Loan would also provide a strong confidence-building signal t o the housing financial markets that should help assuage risks and enhance the willingness o f the donor community to support the reform program.

B. LINKS TO THE COUNTRY ASSISTANCE STRATEGY

73.

74.

The proposed operation is consistent with the CAS for FY 2006-2009 and supports its second strategic objective of providing improved access to quality services for the poorest and most marginalized parts of the population. It directly supports the CAS specific goal o f reducing slums and increasing access to affordable housing for the poorest segments o f the population. The CAS recognizes the threat t o social stability represented by marginalized and vulnerable communities, such as slum dwellers, and endorses the Government's priorities in this respect.

The proposed operation also supports the first strategic CAS objective of accelerating sustainable growth and job creation. Firstly, the improvement o f the market environment brought by the reform program will stimulate housing supply, resulting in j o b creation in the construction sector. Since the construction sector relies heavily o n unskilled labor, the project will contribute to unemployment reduction in this category o f the population. Secondly, the proposed H S D P L supports reduction and better targeting o f fiscal expenditures to the housing sector, which will help achieve higher growth to reduce poverty.

C. RELATIONSHIP TO OTHER BANK OPERATIONS

75. The Land Development Project with a total commitment o f US130 mi l l i on which was approved in 1993 and closed in 2000 with a satisfactory outcome had four main objectives: (a) provide serviced residential lots at affordable prices specifically targeted to squatter and low-income families; (b) provide medium-term financing to private sector developers for construction o f housing for low-income families; (c) foster the participation o f private sector banks in the housing finance sector; and (d) improve the

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76.

77.

78.

D.

79.

80.

housing finance sub-sector, housing subsidy policies, and the land delivery process. The proposed operation builds on the policy issues identified in that project and on the sector studies that i t supported.

The on-going Asset Management Reform Project supports improved efficiency in public expenditures and assists the Govemment in promoting reforms targeted towards: a) setting up a national asset management policy, under the purview o f the Ministry o f Finance's Direction des Domaines, which i s responsible for the transfer o f public land to the MHU; and b) building asset management systems for the Health, Education and Higher Education sectors. These Ministries are users o f land reserves in urban residential developments, and their improved abil ity t o plan and manage their assets will complement MHU efforts to increase the efficiency o f land reserves allocation for public facilities.

The on-going Technical Assistance to the Ministvy of Interiors and Local Authorities aims at supporting the reform o f local finances, and at strengthening the capacity o f the Direction Gdnkrale des Collectivith Locales (DGCL) to support municipalities in providing services to the communities. The reform o f local finances intersects with the planned reform o f housing fiscal policies, as some o f the taxations and exemptions for the housing and construction sector are under the control o f Local Authorities.

The on-going Public Administration Reform Loan i s addressing the modernization o f the State, and in particular aims to offset the current fiscal expenditures related to the wage bill, as wel l as to improve the management o f public sector companies l ike the OPH. The forthcoming Financial Sector Adjustment Loan which was prepared in parallel to the proposed operation addresses inter alia questions o f the functioning o f publicly-owned banks, including C M which plays an important role in the housing sector.

LESSONS LEARNED AND ANALYTICAL UNDERPINNINGS

Experience from previous operations shows that time and intensive coordination are required to reach consensus around the implementation of such programs of reforms. Lessons learned suggest that: a) to be effective, land development projects should involve municipalities and other local stakeholders and be integrated within broader local economic development programs; b) the t imely and successful implementation o f land development for low-income families o n a very large scale requires that the institutional and regulatory frameworks governing land use and the housing sector be already in place; and c) promoting commercial bank financing o f private developers as part o f a low- income housing project requires financial incentives for the banks to offer financing to low-income households. These lessons have been taken in to account by the new pro-poor GOM policies that are addressing the needs o f the low-income groups, such as the VSB program, Mortgage Guarantee Funds, and F S H allocations to social housing.

Lessons learned also relate to the quality ofpast public programs of social housing and slum upgrading. These have been characterized by incomplete understanding o f the target populations, inadequate monitoring o f the performance o f the OPH by the MFP and the MHU, and lack o f local participation both at the project and the municipal levels. The insufficient s u m l v o f affordable housing and o f control measures has caused a

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proliferation o f new slums even as GOM was upgrading the existing ones. Such lessons have been taken into account by the Govemment by involving local authorities in the VSB program, giving greater emphasis to beneficiary participation in the design and management o f the projects, and introducing measures to improve the efficiency o f the OPH. A deliberate effort at slum prevention i s also taking place with the creation o f new large-scale residential developments that reserve tracts o f urbanized land for the construction o f social housing.

81. The main analytical underpinnings to the proposed operation consist of: a) two comprehensive Bank-financed studies o f the housing sector in 1998 carried out under the Land Development Project; b) the Housing Sector Note prepared in 2002; c) the outputs o f the Bank’s technical assistance carried out in 2003; and d) the results o f the advisory work carried out in 2004 as part o f the preparation o f the proposed operation. This included a comparative evaluation o f slum upgrading programs in Morocco and Tunisia and a regional study o f housing practices in the MENA region, which provided useful guidance in the benchmarking o f the Moroccan program o f sector reforms. A review o f housing sector reform in comparator countries was also prepared at the request o f the Government, drawing significantly from recent experience in Eastern Europe and Latin America.

82. The Bank’s Poverty report published in September 2004 provided a detailed and spatial analysis o f poverty in Morocco, and helped to alter the perception o f poverty as a primarily rural concern. I t s findings demonstrated that with the shift o f the population toward the urban areas, significantly poor populations are also found in peri-urban and urban areas. The report provided a tool to the Government to improve the targeting o f poverty reduction, and incentives to assign more importance to issues o f sub-standard housing, water supply, education, health insurance, and to a policy o f “proximity” or community services. The Financial Sector Assessment Program report o f 2002 stressed that demand for urban housing continues to be high, and that banks finance only 20 percent o f total housing construction.

E. COLLABORATION WITH IMF AND OTHER DONORS

83.

84.

85.

The Bank has maintained close working contacts with the IMF and other donors that are assisting the Government in the housing sector in order to coordinate policy recommendations during preparation, seeking synergies among the respective operations, and avoiding overlaps.

The Bank is collaborating with the IMF and the EU on the overall reform of the tax system. The Government has received a commitment from the EU to an adjustment operation to support this reform, and the IMF will assist in the technical definition o f the new fiscal measures. The Bank will continue to closely monitor progress in this area, in order to support the in-depth review o f the real estate tax system to be carried out by G O M and to ensure that i ts recommendations on the reform o f housing subsidies and taxation will be aligned with the overall reform agenda supported by the IMF and the EU.

There has been close coordination with other donors involved in the sector. The analysis o f past slum upgrading programs and o f the on-going restructuring o f the OPH has benefited from the support o f Agence Franqaise de De‘veloppement (AFD) which, in

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November 2004, approved a Euro 50 mi l l ion loan to HA0 for the implementation o f part o f the V S B program. Similar coordination has been maintained with the European Investment bank (EIB), which in October 2004 approved a loan o f Euro 71 mi l l ion to HA0 for the construction o f off-site infrastructure for i t s land development and V S B operations. Dialogue i s on-going with the European Union (EU) team in charge o f the preparation o f a Euro 90 mil l ion grant to support the implementation o f the Government’s social housing program. This grant would also provide for the construction o f basic health and education infrashucture in proximity o f the upgraded slum neighborhoods, and targeted subsidies for those households that are unable to afford the V S B products.

86. During 2004, Cities Alliance, the Bank-managed multilateral program for slum upgrading, approved a grant of US$0.5m in support of the implementation of the VSB program. This technical assistance will provide the MHU with additional resources to: a) prepare a monitoring and evaluation framework; b) develop the community participation aspects o f the program; c) support the management unit for the V S B program within MHU; d) create a permanent mechanism for the monitoring o f sub-standard housing; and e) establish a national and international communication strategy for the program. The Bank has been instrumental in the formulation o f this proposal and would assist the MHU with i ts implementation in parallel t o the supervision o f the proposed operation.

V. THE PROPOSED LOAN

A. LOAN STRUCTURE AND CONDITIONS

87. An overall agreement has been reached with the Government on the design and implementation of the reforms supported under the proposed operation. T h i s agreement i s supported by the Policy Ma t r i x and by the Letter of Sector Development Policy, attached in Annexes 2 and 3. In agreement with the Government, the on-going reform program will be fully implemented in the next 24 months (mid-2005 to mid-2007). The scope o f the reforms has been structured in two sets according to their readiness for implementation.

88. I t is proposed that the loan of US$150 million equivalent be disbursed in two tranches, respectively of US$90 million and of US$60 million equivalent. The f i rs t tranche o f the loan is expected to be disbursed upon effectiveness, and based o n the pol icy measures already taken. The second tranche i s expected to be disbursed 18 to 24 months after effectiveness, fo l lowing the Bank’s review and determination that pol icy actions undertaken are satisfactory, and correspond to those specified in the L o a n Agreement.

B. DISBURSEMENT OF THE FIRST TRANCHE

89. The f irst set o f reforms which have been completed with the support of this operation during 2005 includes the fol lowing actions, which had been stipulated as conditions for Board presentation and disbursement o f the first tranche:

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(a) Approval of the detailed implementation plan for the slum upgrading program VSB: MHU has finalized and adopted an implementation plan dated M a y 2005 to address issues o f program management, program evaluation, environmental screening and monitor ing o f operations, community participation, forecasting o f land and financial resources requirements, and communication strategy. T h i s implementation plan also provides qualitative and quantitative indicators to be subsequently used by the MHU in the monitoring and evaluation o f the program’s performance.

(b) Promotion of access to credit within the VSBprogram: MHU has fully prepared a credit education program to facilitate access to mortgage credit in particular t o V S B households who will relocate into apartment units, to be init ially implemented over two years (from mid-2005 to mid-2007). The Committee in charge o f the FOGARIM guarantee fund will be responsible for the oversight o f the credit education program, which was finalized in M a y 2005.

(c) Formal creation of the Supervisory Board of the Holding AI Omrane: To improve the governance and management performance o f HAO, and because o f i t s size and complexity, the HA0 has been put under the surveillance o f a Supervisory Board, headed by the Prime Minister, and including six Ministers, with oversight functions over i t s Board o f Directors. This governance structure has been put in place in March 2005.

(d) Reimbursement of the debt of the OPH to CIH: T o prepare for their f inal restructuring, the regional parastatal construction companies ERAC have negotiated with the public bank CIH the final amount o f their outstanding accumulated debt arrears and interests and completed the reimbursement thereof (MAD 800m) in December 2004.

(e) Approval of the Circular on social housing planning and construction standards: Based o n technical studies carried out, a Circular has instructed the Urban Agencies, urban design f m s and architects o n the minimum requirements for the social housing developments and construction, in order to reduce their costs and to make them more affordable to the end users. The circular was issued by MHU in April 2005.

( f ) Approval of the Circular on the revised standards for public facilities in residential developments: MHU has finalized the new standards to be applied to the land requirements for public facilities, and has issued a Circular t o the Urban Agencies and to urban design f i r m s in charge o f the preparation and approval o f new urban development plans, in order to increase land-use ratios and decrease the cost o f the residential developments. The circular was issued in April 2005.

(g) Government decision to create the housing saving schemes: MFP has decided to create this new instrument aimed at improving access to housing credit by the poor and informal sector households striving to achieve access to social housing, and has also decided to provide the appropriate financial incentive to stimulate demand and encourage savings by households. This decision was reached in M a y 2005.

90. The fol lowing milestones were also accomplished pr ior to Board presentation: a) the studies for the reform o f the urban planning legslat ion were launched; b) the study o f the residential rental market was launched; c) terms o f reference fo r the study o n the impact o f tax subsidies o n the housing sector were defined and approved; and d) a report was produced by the Steering Committee o f FOGARIM in order to evaluate the Fund performance and propose necessary adjustments to i ts parameters to improve i ts

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performance. These activities are considered critical to ensure timely preparation o f the reforms under the second tranche.

C. DISBURSEMENT OF THE SECOND TRANCHE

91. The second set o f reforms to be completed with the support o f this operation during 2007 would include the following actions, which are stipulated as conditions for 2"d tranche disbursement:

(a) The achievement of qualitative and quantitative targets in the implementation of the VSBprogram: Based on the detailed implementation action plan that has been approved pr ior t o Board presentation, qualitative and quantitative targets to be reached by 2007 wil l include the delivery o f 30,000 units to program beneficiaries by the end o f 2006. The satisfactory implementation o f the VSB program wil l be monitored on the basis o f the reports o f i t s National Supervisory Committee.

(b) Satisfactory implementation of the final restructuring of the parastatal companies: Based o n technical work that has started in 2004, the Govemment wil l complete the restructuring o f the regional OPH and their integration within the Hold ing d' AmCnagement A1 Omrane, according to criteria of efficiency, professionalism, market responsiveness and financial viability. The progress and impact o f the restructuring wil l be measured on the basis o f the half-yearly reports to be produced by the HA0 independent Audit Committee.

(c) Approval of the new urban planning legislation: After broad consultation with the main stakeholders, and through the work o f an ad-hoc committee that has been established by the MHU in early 2005, the proposed l a w will be adopted by the Council o f Govemment

(d) Approval of new residential rental market legislation. On the basis o f the outcomes o f the studies and consultations being carried out as o f 2005, the Council o f Govemment will approve the new legislation regulating the residential rental sector, aimed at promoting the development o f a rental market.

(e) Adjustments to the charter of the F O G A R I M Housing Guarantee Fund. Based o n the results and recommendation o f the evaluation report, the Govemment wil l introduce appropriate changes to the parameters o f FOGARIM to improve i t s performance and accessibility in 2006, and in the f i rs t quarter o f 2007 will decide o n the opportunity o f introducing insurance premiums.

(f) Establishment of the housing saving schemes will take place with the introduction o f an appropriate financial incentive in the draft 2006 Budget Law. This in tum will enable banks to define and market their housing saving schemes as o f 2006.

(8) Implementation of the agreed reforms of the real estate tax system. On the basis o f the outcomes o f the study to be completed in 2005, recommendations for the reform o f real estate taxation will be included by the MFP in the draft Budget L a w o f 2007.

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D. BENEFITS

92. The overall benefits expected from this operation are related to the mitigation of the national housing crisis and of the social exclusion manifested in the slums. The Government i s committed to address these imbalances as part o f i ts policies to improve service delivery to the urban poor, and the Loan i s expected to provide support to a coherent implementation o f the necessary reforms and investments to achieve these goals.

93. The specific benefits expected from the implementation of the reforms and investments supported by this operation are the following: a) the improved living conditions o f the urban poor which would result f rom the progressive elimination o f the existing slums and from the increased supply o f low-cost housing; b) a more efficient use o f resources allocated to public housing programs; c) an enhanced access to housing finance for the urban poor through mechanisms o f guarantee funds and housing saving schemes; d) the reduced cost o f land resulting f rom more cost-effective planning regulations; e) better targeted public subsidies to the housing sector; and f) job creation resulting f rom increased construction activity.

VI. OPERATION IMPLEMENTATION

A. POVERTY AND SOCIAL IMPACTS

94. A Poverty and Social Impact Assessment (PSIA) is being carried out in parallel to project preparation. The PSIA has selectively focused o n some o f the key reforms in order to ascertain the l ikely responsiveness of: a) the V S B program to the needs and demands o f the slum dwellers; and b) the improved access to credit and o f housing saving schemes to the financial needs o f the low-income families from the informal sector. The PSIA i s being carried out f rom January to July 2005. I t s methodology comprises: a) a stakeholder analysis aimed at assessing the l ike ly degree o f support for the reform program by key stakeholders; b) an analysis o f the current shelter strategies o f the urban poor living in the slums; and c) f ie ld work in selected slums neighborhoods o f Agadir, Larache and Casablanca.

95. The PSIA is being carried out jointly by the Bank and the Ministry of Housing and Urban Planning. The research work results f rom the involvement o f intemational consultants and o f a Moroccan firm specialized in social analysis. A national workshop to discuss and validate the results o f the field work took place in M a y 2005 and highlighted the needs to ensure that the regional representations o f the MHU are fully equipped to assist beneficiary households and the OPH in the implementation o f the V S B program, and to reinforce the social support and credit education functions o f the program. These concerns are also addressed by the MHU in the V S B detailed implementation plan, and will be h r the r supported by the Cities Alliance technical assistance. Final results o f the PSIA study wil l be used as a reference for the detailed design o f the reform actions to be prepared and implemented in these areas. It i s expected that the results o f the PSIA wil l

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96.

97.

98.

C.

99.

be fully incorporated in the Government's actions between the disbursement o f the 1st and o f the 2nd tranche.

Preliminary results of the PSIA point to the need for special measures for those slum- dwellers who cannot afford even the subsidized housing, and to reinforce VSB participatory measures. Field work and literature point out the presence within the slums o f a significant percentage o f households (between 10 and 20 percent on average) that are too poor to take active financial part in the provision o f alternative subsidized shelter. The MHU i s in the process o f studying appropriate measures to accommodate these families in the VSB program, without compromising the principle o f partial cost recovery for the majority o f the beneficiaries. Specifically, i t i s negotiating with the EU for the allocation o f grant financing that would allow it to support these households with safety- net measures aimed at providing them with highly subsidized housing units.

B. SUPERVISION

developments at end o f 2006 as compared to end o f 2004. Some o f the reforms o f the

The MFP and the MHU will be the two ministries responsible for the overall implementation of the proposed operation and for reporting progress and coordinating actions among other concerned agencies. In particular, the MHU will be responsible for the implementation o f the reform actions pertaining to urban planning, restructuring of the OPH, implementation o f the VSB program, and reforming the residential rental sector. The MFP on the other hand will be responsible for the implementation o f the reform actions pertaining to the rationalization o f the real estate taxes and subsidies, the operation o f the guarantee fund FOGARIM, and the creation o f the housing saving schemes .

The Bank will supervise implementation and review progress to assist GOM in designing and implementing the sector reforms. The Bank will further and deepen the policy dialogue with the institutions involved in the implementation o f the program o f reform, and ensure the availability o f staff and specialists to advise the Govemment in all o f the policy and technical areas involved. Finally, coordination with other donors wil l be continued, to ensure synergies and avoid conflicting policy advice.

MONITORING AND EVALUATION

The outcomes of the housing sector policy reforms will be monitored according to the following indicators: (a) the number o f slum dweller households who gain access to housing units or land plots via the VSB program, which should reach 30,000 by the end o f 2006; (b) the number o f loans guaranteed by FOGARIM by the end o f 2005 and o f 2006 ; (c) the number o f housing saving accounts opened in 2006; (d) the improvement of the key financial ratios for HA0 and i ts subsidiaries at end o f 2006 as compared to end o f 2004; (e) the yearly number o f low-cost land plots and housing units produced and put on the market by private sectors developers; (f) the average decrease in the unit construction costs o f new social housing programs at end o f 2006 as compared to end o f 2004; and (g) the improvement in the land-use ratio in newly planned social housing

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second tranche, however, are expected to have an impact only in the medium term, and therefore cannot be monitored within the timeframe o f the HSDPL.

100. The selection of monitoring indicators has taken into account the tracking systems already in place at the MHU and the MFP, which will be each responsible for their monitoring. The impacts o f the reforms o f the urban planning legislation, o f the residential rental sector legislation, and o f the real estate taxes and subsidies will not be measured within the timeframe o f the implementation o f the proposed Loan. Prior to the disbursement o f the second tranche, and during 2007, a comprehensive effort o f measuring the outcomes o f the program o f reforms implemented under the Loan would be taking place by MFP and MHU, using baseline figures for the close o f 2004 and o f 2006. A mid-term evaluation o f the implementation o f the V S B program will be carried out by national and intemational consultants, as part o f the activities supported by the Cities Alliance technical assistance, which will enable the MHU to enhance i t s design and operational modalities.

D. FIDUCIARY ASPECTS

101. A Country Financial Accounting Assessment (CFAA) was conducted in 2003. The main conclusion o f the CFAA i s that the Moroccan public financial management system i s characterized by a good level o f transparency and accuracy and backed by a strong Ministry o f Finance (which has an extensive treasury network in the country).

102. The Moroccan public _financial management system is characterized by long implementation delays. The system o f control i s comprehensive (internal, external, ex ante, ex post) but requires further co-ordination and modemization in order to provide performance -based audit and added value. The integrated computerization o f the system i s on-going and expected to be effective in 2006. A number o f reforms are underway in the areas o f public sector integrated accounting information system, performance-based budgeting, decentralization and de-concentration, internal control and c i v i l service reform. These are expected to modernize and improve substantially the public sector management and i t s performance.

E. DISBURSEMENT AND AUDITING

103. The proposed loan will follow the Bank’s disbursement procedures for Development Policy Loans and will be disbursed in two installments. The f i rst wil l be disbursed upon loan effectiveness. The proceeds o f the second tranche will be deposited after a l l the conditions o f the second tranche release are met. Disbursement arrangements will fo l low the simplified procedures used for adjustment operations approved by the Board on February 1, 1996. Thus, disbursements will no t be l inked to specific purchases and there will be n o procurement requirements.

104. Once the loan is approved by the Board and becomes effective, the proceeds of the first tranche will be deposited by IBRD in an account designated by the Borrower and acceptable to the Bank at the Central Bank of Morocco (Bank AI Maghrib). The Borrower should ensure that upon the deposit o f the Loan into said account, an equivalent amount i s credited in the Borrower’s budget management system, in a manner acceptable

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to the Bank. The Borrower will report to the Bank o n the amounts deposited in the foreign currency account and credited to the budget management system. If the proceeds o f the loan are used for ineligible purposes as defined in the Loan Agreement, IBRD will require the Borrower to promptly refund an amount equal to the amount o f said payment to IBRD. Amounts refunded to the Bank upon such request shall be cancelled. The administration o f this loan wil l be the responsibility o f the Ministry o f Finance. Although an audit o f the use o f the hnds may not be required, IBRD reserves the right to require audits any time.

F. ENVIRONMENTAL ASPECTS

105. The Bank has determined that the proposed Loan would not have significant adverse environmental impacts. Based on the upstream National Environmental Act ion Plan conducted by the Moroccan Government and on the review by the Bank of the land use planning regulations and o f the Environmental Assessment system, i ts was concluded that the national environmental legislation i s essentially in place. Policies and procedures to ensure that appropriate environmental management mechanisms are applied to the operations under the national slum upgrading program wil l also be improved under the proposed Loan.

106. The VSB program will have a largely beneficial environmental impact via the upgrading of slum settlements. These settlements are often built o n marginal and fragile lands and ecosystems, are prone to floods and land-slides, and lack basic sanitation and waste management facilities. Their up-grading or replacement with planned developments and formal housing units will provide environmental relief. The Bank has determined that appropriate procedures are in place for the environmental screening o f the land to be made available to housing developments under the investment program o f the MHU, and that the OPH apply appropriate criteria to mitigate the environmental impact o f the new developments. These are reflected in the V S B detailed implementation plan.

G. R I S K S AND RISK MITIGATION

107. A general risk is that social and political opposition may weaken the Government’s resolve to pursue the macroeconomic reform program. T o mitigate this r isk, the macroeconomic framework will be monitored closely and the Government and the Bank will consult o n further actions if required to maintain the economy o n a sustainable path. Moreover, the implementation o f the housing sector reforms i s no t expected to be critically dependant o n macroeconomic stability. Mos t components o f the reform program are centered o n changes in the legal and regulatory framework and do not require significant public investments. Public investments required for the implementation o f the Government’s new social housing strategy have been allocated sufficient, stable and dedicated tax resources and are thus protected f rom macroeconomic shocks.

108. The Bank recognizes that a sector-wide approach to the reforms of the housing sector is relatively ambitious, and that therefore timely completion of reforms may be at risk. However, the natural synergies between the various areas for reform just i fy the proposed

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comprehensive approach. Risks related to the multiplicity o f institutions involved were identif ied early during project preparation, and on this basis the Secretary Generals o f the MFP and MHU have been appointed by their respective Ministers to coordinate the preparation and implementation o f the reform program. Ad hoc task forces involving stakeholders f rom the public and private sectors have been and will be set up as needed to develop and consult on sensitive reforms.

109. The implementation of the VSBprogram is at risk ofpossible delays due to slower than expected delivery of the housing units and to a slow take off of the housing finance reforms. The projected increase in OPH productivity could be reduced by the process o f organizational restructuring. The time required to introduce necessary improvements to the FOGARIM guarantee fund, to carry out the related credit education program, and for the operational set-up o f the housing saving schemes might also slow-down the improved access to credit and hence the implementation o f the V S B program. The VSB, however, i s enjoying great polit ical visibility and support f rom the highest authorities in the country. A National Supervision Committee has been created, chaired by the Prime Minister, and comprising the Ministers o f Housing and Urban Planning, o f Finance and Privatization, o f Justice, o f Interior and o f Social Development. A new Div is ion for the management o f the V S B program has been created by the MHU and has been already fully staffed. The technical support f rom Cities Alliance o n a comprehensive set o f issues related to program implementation will also be beneficial to advance the program as planned.

110. The restructuring of the OPH will present challenges and risks. At the central level, currently overstaffed HA0 will have to de-concentrate most o f i t s personnel t o the regional branches. At the regional level, the challenge wil l be integrating into one single efficient structure the regional branches o f HA0 with the local existing and independently managed OPH. This wil l not be easy, given that each company has had for years a different corporate culture, and that four regional OPH out o f seven have run up large deficits and have developed lower management, accounting and commercial standards. In addition, there are vested interests in maintaining the structure, management, staffing and coverage o f the current OPH, even if their merge should al low for large efficiency gains in technical, financial and commercial terms. To mitigate those risks, the MFP and the MHU will be closely supporting and monitoring the OPH restructuring, and the Bank will provide technical support as needed to address implementation issues as they may arise.

111. Possible resistance to and delays in the adoption of new legislation are likely. Second tranche conditions include three sensitive legislative measures: a) the new urban planning code; b) the new residential rental law; and c) the reform o f the real estate taxes and subsidies. Resistance from vested interests i s l ike ly to arise around each o f these subjects. T o mitigate this risk, a program o f active consensus building around the benefits o f the legislative and regulatory reforms supported by the Government will be implemented by the responsible authorities. A working group including a l l major stakeholders and assisted by a senior international consultant has been formed to prepare the new urban planning legislation, organize consultation forums and build consensus. F o r the residential rental sector reform, a Steering Committee composed o f representatives o f the main institutional stakeholders i s in charge o f supervising the ongoing study. Upon completion o f the study the MHU will organize a broadly publicized national event in order to disseminate i t s main recommendations The MFP has created a Steering Committee for the preparation o f the reform o f the real estate taxes and subsidies that will

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112.

operate according to equivalent lines, and align the reform proposals with the general fiscal reform envisaged.

The absence of the land titling reform from the reform package may be seen as a risk, given the importance of land titling in the current distortions of the urban land market. The decision o f the Government and the Bank not to include this reform under the proposed operation i s based o n the following considerations. First, land titling legislation i s not specific to the housing sector, but applies equally to agricultural, industrial and tourism activities, and as such necessitates investigations and the consensus o f various Ministries that are not involved with the proposed operation. Secondly, international experience shows that land titling reform projects are best handled separately as self- standing operations. Lastly, the large-scale release o f land by the State (see paragraph 55) should ensure that the VSB program in particular and social housing programs in general will not risk penury o f land in the medium term. The Agence Nationale de Consewation FonciBre, Cadastre et Cartographie (ANCFCC) has in the meanwhile initiated the process o f land titling reform with the drafting o f remedial legislation; this will be subject to technical and polit ical consultations, including with the MHU, in view o f i t s eventual approval.

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ANNEX 1: LETTER OF SECTOR DEVELOPMENT POLICY

ENGLISH TRANSLATION O F F R E N C H O R I G I N A L

Housing Sector Development Policy Loan

Mr. President,

The Government o f the Kingdom o f Morocco attaches a particular importance to the housing sector and to the improvement o f the housing conditions o f a l l categories o f the Moroccan population.

Accordingly, in 2003 the Government has launched a new strategy centered on a series o f ambitious reforms relating to the eradication o f a l l urban slums by 2010, the improvement o f the institutional and legal frameworks, and the reform o f the housing finance system.

Conscious o f the transversal character o f the sector, the Government has cast these reforms within a global and integrated medium term vision, taking into consideration the main constraints and stakes o f the housing sector, in order to ensure the success o f the new strategy o f the Government with respect to housing in general, and social housing in particular.

I- Characteristics of the Housing Sector

Morocco, with 30 mi l l ion inhabitants, a young population and a strong rate o f urbanization, faces important and growing housing demand. In the absence o f a sufficient and adapted formal housing production, this growing demand has caused a proliferation o f substandard housing, including slums which today shelter more than 210.000 households in urban areas. In addition, the rental sector remains insufficiently structured and has not developed on a satisfactory scale.

To counter this situation, important measures were taken by the Government for the housing sector, among which one can quote:

0 Direct interventions o f s l u m upgrading through the public housing companies. T o this end, these operators have benefited from transfers o f public land intended for the production o f subsidized serviced plots and housing units for l ow income households; The launch o f a national program o f construction o f 200.000 social housing units; Support to housing demand through budgetary subsidies in the form o f interest rate subsidies on mortgages and interest-free upfront loans to households; Support to social housing supply, in particular through important tax incentives.

0

0

0

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In spite o f undeniable successes, among which the development o f a strong private construction industry which allowed for a significant fal l in the price o f new housing during the last years, these measures have not obtained al l the expected results, and it appeared necessary to identify new instruments in order to ensure access to decent housing for all categories o f households, and in particular to the poorest.

11- Strategy of the Government for Housing and Land Planning

The new Strategy implemented from 2003 onwards, in partnership with public and private stakeholders, has the following main objectives:

Doubling the annual production o f social housing, with the objective o f producing 100,000 social units annually in the medium term, in order to meet the needs o f low-income populations previously excluded from access to formal housing products; Eradication o f s lums nationwide by 2010, through the combination o f an ambitious program o f slum upgrading in al l the cities involved, and o f a pol icy o f prevention allowing for the production o f low-cost serviced or semi-serviced plots representing a credible alternative to informal housing; Adaptation o f urban planning and i t s instruments to the needs o f urban development and contribution to the improvement o f cities and the promotion o f real estate investments; Dynamization o f the rental sector through the reform o f the legal framework governing it; Improvement o f access to housing finance for populations with modest and/or irregular incomes.

To achieve these goals, the Government has adopted a new strategy which is articulated around the following main directions requiring additional efforts:

the improvement o f the institutional framework, in particular for urban planning; the restructuring o f the public housing companies, in order to allow them to fulfill their missions with the necessary efficiency; the improvement o f the legal framework governing relations between landlords and tenants; the adoption o f measures facilitating access to credit o f populations with modest and/or irregular incomes; the rationalization o f the taxation o f the real estate sector.

To implement this strategy, various measures and actions were engaged in 2003 and 2004, and an important program o f reforms i s envisaged in the medium term.

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I. Actions engaged in 200312004 :

During the last two years, tangible progress was made in particular in the fol lowing areas:

Adoption o f a new approach to the fight against substandard housing: this approach builds upon past experience accumulated by Morocco in this field. On this basis, the Villes Sans Bidonvilles program (VSB) (Cities without slums) was devised and launched in 2004. Contracts have already been signed with many cities, reflecting the involvement o f local actors in the implementation o f the program. In the same way, intemal and extemal financial resources have been mobilized to engage the f i rs t operations o f the program.

Increase in the financial resources allocated to the sector: provisions were taken in order to secure and increase the resources o f the Housing Solidarity Fund (FSH), which more than doubled between 2003 and 2004. Multi-year programming o f the use o f the FSH resources has been put in place, in order to meet the financing needs o f the social housing programs.

Creation of the Mortgage Guarantee funds: to facilitate access to bank financing for populations with modest and/or irregular incomes, mortgage guarantee funds for social housing (FOGALOGE-PUBLIC for employees o f the public sector, and FOGARIM for households with modest and/or irregular incomes) were set up and capitalized with substantial budgetary resources, totaling MAD 550 mil l ion in 2004. A Steering Committee for these funds has been established, which includes the main public and private stakeholders.

Restructuring of the public housing companies (OPH): in order to improve the performance of the OPH, a new holding called Holding A1 Omrane (HAO) was created by merging ANHI, SNEC and ATTACHAROUK. Actions were taken to improve the financial standing of the ERAC for their subsequent subsidiarization within HAO. The main measures already taken in this direction in 2004 are the reimbursement o f the ERAC’s debt arrears vis-a-vis the C M , for an amount o f MAD 800 mil l ion; the recapitalization of the OPH for a total amount close to MAD 900 million, and the refocusing o f the activities o f a l l the OPH on missions o f land servicing and upgrading o f slums and substandard housing.

Mobilization of public land: the first tranche comprised 3,400 ha o f public domain, which have been made available to the OPH for servicing, before being sold to the private sector within the framework of public-private partnerships to carry out social housing programs.

Overhaul o f urban planning: measures were taken to dynamize and redirect the activities o f the Urban Agencies, to create one-stop shops and to simplify urban planning procedures, in particular through the definition o f exceptional procedures for projects having a substantial socio-economic and urban impact, and for the reduction o f approval

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delays for subdivision and building permits.

Support to and organization of the real estate professions: in order to reinforce the intervention capacities o f the private sector in the satisfaction o f housing demand, an innovative partnership was initiated between the public sector and sector professionals which was taken place with the institutionalization o f channels o f dialogue with the trade associations and the reinforcement o f actions o f training and technical and legal support.

2. Program of reforms in the medium term

Government action in the housing sector over the period 2005-2007 will be focused on the one hand o n the consolidation o f the reforms already undertaken, and o n the other hand on the implementation o f necessary complementary reforms and instruments in the fol lowing areas:

Implementation of the “Villes sans Bidonvilles” (VSB) program: after the adoption o f the VSB program, the Government action wil l focus on the instruments and mechanisms to be set up in order to ensure an effective implementation o f the program. Identified priority actions include:

0 The mobilization o f financial and land resources necessary to the program; 0 Launching a credit education program for the population eligible to housing units

within the VSB program; 0 The inclusion in the projects o f a component o f social support to households; 0 Setting up a monitoring and evaluation system allowing to learn lessons from past

projects and to improve public interventions in a sustained way; 0 The generalization o f the system o f monitoring and evaluation o f environmental

impacts used by HA0 to al l VSB projects.

Reform of urban planning policies: this reform relates in particular to: 0 The draft law 04/04 under review by the Parliament, which enacts various

provisions concerning housing and urban planning; 0 The norms for public facilities in urban development projects, intended to

rationalize the use o f land and to reduce the costs o f urban projects; 0 The adoption o f minimal occupancy standards allowing to substantially reduce the

costs o f construction o f social housing; 0 A new urban planning code to unify, rationalize and harmonize the legislation

goveming urban planning.

Restructuring of public housing companies: the restructuring o f the public housing companies wil l continue and relate to:

0 Refocusing the missions o f the Holding o n land servicing and upgrading of substandard housing;

0 Geographical redistribution and improvement o f the skills o f the personnel o f HAO, in order to ensure a better adequacy o f human resources with its missions;

0 Improving the financial soundness o f the Holding and i ts subsidiaries, in order to avoid any need for recapitalization by public funds in the future;

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0 Setting up an information system from the Holding towards the oversight authorities, allowing for a more effective supervision o f the actions o f the Holding involving public funds.

Dynamization of the residential rental sector: a study aiming at establishing a diagnosis o f the sector and proposing recommendations likely to boost the development of the sector has been launched. A draft law on the residential rental sector, aiming in particular at rebalancing the relation between landlords and tenants and at softening the conditions for revision o f the rents, will be prepared and wil l be the subject o f a broad information and communication campaign towards the sector’s stakeholders after his adoption by the Government.

Improvement of the performance of the Mortgage Guarantee funds: in order to study potential measures to improve the performance o f the mortgage guarantee funds (Fogaloge-Public and Fogarim), an evaluation report based on the f i rs t year o f operation o f the two funds wil l be drawn up by the Steering Committee. The recommendations therein will constitute the basis for adjustments to the implementation agreements and to production targets assigned to these funds.

Creation of a system of contractual savings for housing: a simple, sound and attractive product o f contract savings for housing wil l be set up. This important instrument aimed at improving household affordability will be supported by public financial incentives, which will be socially targeted.

Rationalization of the real estate taxation system: the real estate tax system will be overhauled in a manner consistent with the general reform o f the tax system currently ongoing, in order to reduce fiscal costs, to rationalize and simpli fy the system, and to improve the targeting and efficiency o f the tax expenditures in the sector. This reform will be based on the results o f a study evaluating the socio-economic impact o f real estate taxation. A Steering Committee wil l supervise the realization o f this study.

I thank you for your invaluable support to the realization o f this ambitious program.

Sincerely yours,

(signed)

The Minister o f Finance and Privatization

Fathallah Ouallalou

34

(French official version)

3 8 5 6 P&t de dbveloppement du secteur de I’habitat 8 - Lettre de pol ique stxtiwieile

L e gouvernement du Royaume du Mime accorde une importance particuli&re au secteur du logement et a l’ardlioration des conditions d’hhabitat pour l’ensemble des Marocains.

Ainsi, l e gouvemement a-t-il lanci! en 2003 une nowelle stratbgie axee sur una serie de reformes ambitieuses qui concement la &sorption des bidonvilles i l’horizon 2010, l’amdioration du cadre institutionnel et juridique et la r6Eorme du systtime de fimcement de. E’habitat

Conscient du d r e t ” a l du seoteur, le gouvmement a inscrit oes r4tbmes dam le cadre d’une vision globale et intew B moyea terme, prenant en cmrsidkmtion la grandes contnintes et enjeux du secteur et afin d’assurer le s u d s de la nouvelle strat6gie du Gouvemernent en mtih &habitat en gh&tal, et dkbitat social en particulier.

E Caract&istiques du Seeteur de I’fiabitat

Le Maroc, avec 30 millions &habitants, m e population jeune et M tawc d’urbanistion en forte croisssnce, fait face B un besoin important et croissant de logements. A &&ut d’une production hrmelle suffisante et *%e, ce besoin a occasionne une proWration de l’habitat insalubre dont notamment les bidonvilles qui aujourd‘hui abritent plus de 210.000 mhages en milieu urbain. Par ailleum, le secteur locatifreste peu stxucturk et ne %’est pas d6veloppk h une &belle satisfaisante.

pour parer B cette situation, des mesum importantes ont et4 prises par 1’Etat au pro& du secteur du logement dont on p u t citm :

0 Les intententions directes de rbsorption de l’habitat indubre B travers les opdrateum publics de. I’habitat. Ace titre, ces opkateurs ont bb&i i6 notamment d’un tmdert der tenains du domaine public dm&& & la production de lots et de logements ;i prix subventiomks pour la menages it faibles revenus ;

a L e lancement du programme national de construction de 200.000 logements ~ o ~ i a u x ; a Le soutian a la demande de fogements, via dcs aides budgktaircs matkidis&

notammmt par des ristoumes d’inttkh et des avances de l’Etat non productives d’int&& en fhvew des mhages;

0 L e soutien a I’ofke der logemmts sociaux ”mentpar le biais d’incitations 5scaIes importaates.

35

En depib d’indeniables succb, pami lesquels il &ut citer le dheloppement d’un fo f i secteur de la psomotion immobilidre privt5e qui a permis une baisse significative du prix des logemenis ne&.% lots des derdres annew, ces mesures n’ont pas pennis d’atteindre l’ensemble des rhsultats escomptds, et il est apparu ndcessaire &identifier de nouvaux instruments permettant d’assurer l’asocis A un logemnt decent a toUtes les catt5gories de manages et en pardculier aux plus dhunis.

II- Stmttlgie du GouvBmernent en matihe d’habitat et d’urbanisme

La nouvelle stratdgie mise en place a paair de 2003, en concertation avec les divers intervenants publics et privks, saest fix& c o m e principaux objectik

le doublement du rythme de production de l’habitat social, pour atteindre 100,000 unit& par m A moyen tarme, atin de rtspondre aux basoins des populations i revenus modestes exclues de l’acci?s a 1’ofEe formelle;

0 La r&orption des bidonvilles B l ’hhelie mitionale i l’horkon 2010, a c e h. la combhison d‘un anbitiewx programme: visant I’ensomble dm villes concernbas, et d’une politique de prhention pennettant la mise sur le march6 de prodtits & bas prix qui faomissent une altemafive attractive A l’habitat insalubre; L ’ a d ~ o n de l’urbanime st de sm outils aux besoins du diweloppement urbain et sa contribution dam la mise B niveau des villes et fa promotion de l’inve&issement immobifier ;

e La dymdsation du swteur l o d f B tmvers la rbfix“ du cadre Ikgd le 0 L‘atn6Eoration de I’accds au financement du logement pour les populations a revenus

modes- dou krkguliers.

Pow atte?indre a s object& le gowemement a adopt6 une nouvelle strat6gie qui s’articule autour dm principixux axes suivmts nkcessitant des effosts suppl4meataires:

0 L’mhliomtion du cadre insthtionnel, dont notamment la planifiwtion urbaine ; 0 La restructuratiw des op6” rs publics de l’tzabitrtt pour Ieur pmettn: d’assumr

leurs missions avec I’&cacit& &essaire ; 0 L’amhliaration du cadre 16gd r6gissaat les rappo- entre baillwrs et loc~taires ; 0 L’adoption de “ x e s facilitant I’aa8s au &dit des populations ii fevenus modestes

d a u irr4guliers ; 0 La rationalisatiun de h fiscal% du sffiteur.

Pour mener a bien cette strat&&, diversas mmuw et actions ont 6th engaghs en 2003 et 2004, et un progrcimme important de & o m a est p r h A moyen terme.

Durant les deux d e m i b s amhes, des aMlncBes tangibles ont dtd cnragistrees et concement notamment:

Adoption d’une nowelle approche pour la luttie contre I’hbitat insdubre: cette approche s’est bade sur Ia CapitalISation des eqxkiences cumulrseS par le hkoc dans ce domaine. Sur Eette base, le programme Villas sans bidonvilles (VSB) a 6 6 &labor6 et lance en 2004. Des antrats ont d&j& etk signes avec de nombreuses villes marqmt ainsi

36

I’implication des acteurs locaux dans la rkdisation de ce programme. De mike, des ressoufces hanci8res btemes et externes ont &6 mobilisdes pour engager les premibres opdrations du p r o p ” .

Renforcemmt des rwources finaneibwi aloudes au seeteur : des dispositions ofit ktk prises a h de peraniser et d’augmenter les ressources du Fonds Soiidaritd Habitat FSH] qui ont plus que doubl8 entre 2003 et 2004. Une programmation pluriannudle de i’emploi des mssources de ce hn& a 6~ etablie a€i i de &ire face am besoins de fmancement budgdtaire des programmes d’habitat social.

Crhtion des Fonds de garantie: pour faciliter l’acak. au fmancemsnt bancaim des populations 1 revenus modestes et/ou inegufiers, des fonds de garantie pour I’habitat social (Fogaloge-Public pour les salarib du secteur public et Fogarirn pour les populations B revems modestea etfou irreguliers) ont iM mis en pkca et dot& en ressources budg6.taires impoltantes d’un m c ” t global de 550 MDH en 2004. Un comitd de suivi de OBS fonds a &t4 instib4 et regoupe 10s prinoipux actem impliqufjs, privk et publics.

Resbucturation des organisme~ publics de I’babitat (0: pour ainhliorer la p ~ o r m a n m des OPH, il a 4td pmc8d6 a ia dation du Holding d’a“xgement AI Omrane (HAO) par la fbsion- absorption par I” de la SNEC et d’ATTACZ-fAROUf(, et A l’engagement d’actions d’assainissernent de la situation finanoi&re des ERAC en w e de leur filialisation au KQO. Les prinoipales meSures dhj1 prises dans oe SEXIS en 2004 sont I’apwment des mien% des ERAC vis-&-vis du CM pour un Iplontsnt de 800 millions de DH, h recapitalisation des OPH pour un montant global avokinant b s 9OOIMDN, et le

met de rhrpt ion de l’hhabitst insdubre*

Mobiliaration du foncier public : la premi4re tranche des terrains mobilisC a p o 6 sur 3,400 ha qui ont ktd m i s a la dbpoaition d a Organismes Publics de I’&bht pour les dnagex avant de les otsder au swtew p i v d dans un oadre partenarid pour rkliser des progmmes d’habitat social.

Mise 1 niveau de I%rbanisme : des masum ont 6t4 engag& pour dynamism st rBorienter les activith des Agences urbaines, crkr des guichets uniquss et simplifier les procrjdures d’urbdsms, ” m n t par la mise en place de proklures pour l’octroi de ddrogations au profit des projats aymt un imp& sooihnomique et urbanistique important, et pour la rkduction des dblais #approbation des autorisations dts iotissement et de construction.

&age de I’advitii de I’msemble des OPH sur des

L’cnfsldrememt et l’orgaaisation dm professions du seeteur de la promotion IlmmobWre: afin de renforcer les a q w i t 4 s d’intemntion du secteur privk dans la satisktion de l a dmande en logements, un pattenariat novamr a 6th hiti6 mtre 1’Etat et les profisssionn.ecls du secteur se matthklismt notamment B travers l’institutiormalisation de a a u x de oon~rtation avoc las associatiom prohsiomelles et Ie redorcement des d o n s de formation et d’mcsldrment tw;hnique et jwidique,

37

2. Programme de rHomes P moyen terne

L’action du Gouvemement en matihe d’habitat et d’urbanisme pour la pdriode 2005-2007 se f o d k e r a d’une part, sur la consolidation des rdfonnes de$ entreprises et d’autre part, sur la poursuite de la mise en place des r&omes et instruments complbentaires n4cessaires sc rapportant auux domaines suivanh:

Mise en owvre du programme c4 ViUm sans bidonvilles >) (VSB) : Apr& I’adoption du progrimme VSB, l’action gouvernementale se focalisera sur les instruments et dispositifs a mettre en place pour assurer une mise en m m e efficace du programme. Les actions prioritairs identif iks incluent :

0 La mobilisation des msoufces financihres et fonci&es nhcitfrssaires la r&lisrrtion du programme ;

0 L e lancement d’un programne de sensibilisation a f’acds au crddit b a n k @ pour la population Bligible awt logements du programme VSB ;

0 L’inclusion dans les projets d’sune composmte d’accompagnement s o d ; s la mise en place d*un sys t i ” de suivi et d’hduation pennetki t de tkm les

enseignernents des opbt ions passrjes et d’ambliorer en continu ies intewentions publiqum ;

0 La gdnkalisation A tous les projets VSB du syst4me d’hvaluation et de suivi de l’inrpact envi rommentd mis en ceum par le HAO.

La rafonte de la politigue d’u&n&tne : cette refonte porte notmum” SUT : 0 L e projet de loi 04/04 en c o w d’examen au Padement bdictant diverses dispositions

en m a t i h d’habitat et d’urbanisme ; 0 La grille d’&uipements publics destin6e B rationaliser l’utilisation du fbncier

urbanisable et it xeduire les ~otlts des projets urbains; 0 L’adoption de nonnes “ales d‘habitabiliti: permettant de &duke de m a n i h

importante les ooiits de construction des Iogements sociawr ; 0 Un nouveau code d’urbanisme pour unifier, r a t i o n h e r et harmonisor la legislation

rdgissant I’urbanisme.

~estntcatration des opiirabm publics de I’hsbitat: la rkirganisation des ophteurs publics de l’habitat au sein du HA0 se poursuiVra et portera sur :

L e receEltrage des missions du Holding sur l‘m6nagement fbncior et la rdsorption de l’hbitat insalubre;

0 L e reddploismsnt et la requalification du parsme1 du Holding pour m e meiileure adQuation des msources humaifies avw ses missions;

0 L’assakissement financier du Holding et de SBS filiales, pour &iter tout besoin de recapitalisation par des fonds publics I l’avenir ;

0 L a mise en place d’un systtime de rmont i ie d ’ b f m t i o n du Holding vers les auto&% de tutelte p m m t uno supemision plus &cacc des actions de service public du Hotding.

Dynantisation du secteur kcortif &identie9 : une Btude visakt B hblir un diagnostic du secteur et a proposer des recomandatians de nature h dynamism l e swteur a et4 lanc6e. Un projet de loi sur le locaEif r&identiel, visant notamrnent a rddquilibrer Ies rapports entre baifieurs et h a t a i m s et a assauplir fes conditions de &vision des Ioyers sera prbpan3 et fera

38

l’objet d’une large campape d’infonnation et de communication auprh des intervenants dans le secteur apds son adoption pax le gouvemement

L’am6lioration du fonctionnement des fonds de garantie : pour etudier les mesures d’amblioration des performances des fonds de garantie (Fogaloge-Public et Fogarim), un nipport d’evaluotion de la premib annee de fonctionnement des dcux fonds sera 6tabli par le Comite de suivi doni les rec0r”dations constitueront la base des ajusbinents n6cessaires aux conventions et aux objectifs de production assign& a ces fonds.

L a mise en place d’un systme d’6pargne logement : un produit simple, sQr et attractif d’bargne logement sera mk en place. Cet instrument important de solvabilisatim des mknages sera soutenu par une incitation fuanciere publique socialement cibl6e.

Rationalisation de la fmcaIil6 I“ob%&re : la fiscalit4 immobili&re fera l’objet d’une refonte qui s’inscrit daw l e cadre de la rkfonne g 4 n M e de la fiswlit.6, afln de r6duire les charges nems fiscales, rationaliser et simplifier le systdme et am61iorer le ciblage et l ’ef f iwith des dkpensas fisdes dam le secteur. Cette refonte sera bashe sur les rbsuItatF, d’une htude d’hvaluation de Pimpact sociohnomique de la & d i t 4 immobilii” Un comit4 de pilotage s u p ” la Misat ion de cette hdr?.‘

En vow remerciant de votre prr4Cieux appui pour la mise en aeuvre de cet ambitieux pmgmmne, je vous prie &mer, Monsieur le Prksident, I’expression de ma hum considBmtion.

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42

ANNEX 3: FUND RELATIONS NOTE

Morocco-Assessment Letter to the World Bank Economic Developments and Policies

M a y 27,2005

The information provided below draws on the 2005 Article IV consultation discussions that were recently held in Rabat. I t represents the Fund staf fs assessment o f macroeconomic conditions in 2004 and prospects in 2005* and focuses o n pol icy issues facing the authorities as they pursue the objective o f high sustainable rates o f growth to reduce poverty and unemployment.

I. RECENT ECONOMIC DEVELOPMENTS AND SHORT-TERM OUTLOOK

In 2004 macroeconomic and financial conditions remained stable and nonagricultural GDP growth picked up. While the overall GDP growth slowed down to 3.5 percent on account o f a decline in growth in the primary sector, nonagricultural GDP growth picked up to 4 percent because o f the dynamism in the tourism sector and recovery in mining and energy sectors. On the extemal side, the trade deficit widened with the decline in agricultural exports, the stagnation in exports o f textiles, and the increase in the petroleum import bill. Nevertheless, the current account remained in surplus at about 2.2 percent o f GDP reflecting the strong performance o f the tourism sector and the high level o f workers remittances. With increased direct investment and capital flows linked to privatization, gross official reserves amounted to $16.2 billion, equivalent to about 10 months o f imports o f goods and services and more than 100 percent o f extemal public debt at end-2004. The excess liquidity in the banking system, resulting from the balance o f payments surplus, contributed to a decline in interbank rates, which the central bank accommodated given the very l o w inf lat ion rate.

The fiscal deficit declined in 2004, but certain policies did not go in the direction of fiscal consolidation over the medium term. The budget deficit (including expenditures o f Hassan I1 and excluding privatization receipts) declined by 0.5 percentage point to 4.9percent o f GDP and was much lower than envisaged in the 2004 budget. This development reflected mainly the good revenue performance. Expenditures were higher than envisaged because o f increases in: (i) investment fol lowing an acceleration in the execution o f projects; (ii) the wage bill fol lowing new salary increases; and (iii) subsidies because the food subsidy reform was postponed and the petroleum price adjustment

’ The assessment i s based o n data available at the t ime o f consultation discussions. The authorities are currently in the process o f revising their growth estimates for 2004 and projections for 2005, which are no t expected to significantly affect the overall assessment.

Consultation is expected to take place within 3 months after the completion o f the discussions with the Authorities. Accordingly, t h s document does no t entail endorsement by the Fund’s Executive Board o f the assessment presented in it.

Consistent with the Fund’s surveillance procedures, Board consideration o f the 2005 Ar t ic le IV

43

mechanism was not implemented. With privatization receipts, public debt declined to 67 percent o f GDP.

The authorities continued their structural reform efforts in 2004. Among the most significant reforms were the liberalization o f air transport and audiovisual sectors, privatization, public enterprise restructuring, and trade liberalization. Multi lateral tariffs have been reduced to 10 percent for goods subject to a zero tari f f rate from Europe. Free trade agreements were signed with the United States and regional partners (Egypt, Jordan, Tunisia, and Turkey) to complement the Association Agreement with the European Union. The authorities continued to implement the recommendations o f the Financial Sector Assessment Program. Progress has been made in restructuring public banks, a new central bank law giving more autonomy to Bank Al-Maghreb has been passed, and a draft banking law was finalized and should be ratified in 2005. The authorities also initiated reform o f the public administration.

The decline in agricultural output, the increase in petroleum prices, and the lifting of textile quotas are affecting adversely the economic developments in 2005. The primary sector wil l contract sharply and agro industries will be adversely affected because o f adverse weather earlier this year. The growth in the manufacturing sector is l ikely to slow down, reflecting the difficulties in the textile sector in the face o f strong competition f rom abroad. The strong performance in tourism and construction sectors i s expected to continue. Consequently, overall GDP growth i s projected to decline to about 1.2 percent and nonagricultural GDP growth is expected to slow down to 3.4 percent. The external current account i s projected to register a small deficit because o f higher petroleum prices and the weak performance o f textile exports, but taking into account the privatization receipts already realized, the overall balance o f payments position should continue to register a surplus. With delayed implementation o f domestic petroleum prices adjustments, the impact o f higher international petroleum prices o n growth and inflation will be l imited and the budget wil l bear the subsidy cost.

The 2005 budget and current policies are expected to lead to a deterioration in the deficit to about 5.7 percent o f GDP, despite a continued favorable revenue performance. Expenditures are projected to increase significantly taking into account the repercussions o f wage payments resulting f rom the 2004 wage negotiations, the voluntary retirement program, the new universal health insurance program, the delay o f the food (wheat and sugar) subsidy reform, and the partial adjustment in mid-May o f domestic petroleum price^.^ The authorities intend to eliminate outstanding arrears, which have been used as a means to partly finance the petroleum subsidy. Large privatization receipts f rom the sale o f government shares in Maroc Telecom will again help finance the deficit. This wil l contain the debt-to-GDP ratio to 71 percent o f GDP, despite the recognition o f old pension hnd arrears (2.4 percent o f GDP). The fiscal stance and the debt level do not pose a risk to macroeconomic stability in the short term, but current policies are not sustainable.

Excluding the cost o f the early retirement program and other one-off wage related payments, the 2005 fiscal deficit i s projected at 4.7 percent o f GDP.

44

11. KEY CHALLENGES AND POLICY ISSUES

Morocco has maintained macroeconomic stability during the past decade, but growth remains volatile and insufficient to reduce poverty and unemployment. The variability o f growth results mainly from the volatility in cereal production. The resulting income and consumption volatility does not foster investment, particularly in the rural areas. In recent years, the growth of nonagricultural output has become more resilient to agricultural output shocks, a s i g n of a closer link with a more stable external demand and of an intemal demand more independent o f income in rural areas.

In the context of ongoing trade liberalization, the nonagricultural sector i s subjected to increasing competition. This situation necessitates an acceleration o f efforts to improve Morocco’s competitiveness in terms o f costs and productivity. International competition also necessitates reforms that would permit domestic demand to play its role as an engine o f growth. Indeed, in the past few years domestic demand was the primary source o f Morocco’s growth, while exports o f goods have lost their dynamism.

In the above described context, and with the objective of achieving sustained high rates of growth (above 5percent) to reduce poverty and unemployment: (i) macroeconomic stability should be maintained and the fiscal deficit should be put o n a sustainable path; (ii) structural reforms should be accelerated to render the business environment intemationally competitive; and (iii) a gradual transition to a flexible exchange rate regime would be advisable.

Over the medium term, the authorities’ objective of reducing the deficit to about 3 percent o f GDP remains. The achievement o f this objective and its compatibility with a high growth scenario will require: (i) a reform o f the tax system that wil l widen the tax base and allow a reduction in tax rates; (ii) a containment o f salary increases, which affect private sector wages and the competitiveness o f Moroccan producers, and a reduction in the wage bill to GDP ratio, which will enhance the f lexibi l i ty o f the budget, including to dampen income and consumption volatilities; (iii) an overhaul o f the food subsidy system and its replacement by targeted support to vulnerable groups, which should lead to a diversification o f agricultural production and a more stable income and consumption levels in rural areas; and (iv) the implementation o f the petroleum price adjustment mechanism, which will release resources to be channeled to more productive investments. To these ends, the authorities intend to reduce exemptions and widen the tax base starting in 2006, gradually reduce food subsidies over a three year period, implement the petroleum price adjustment formula, contain the increase in the wage bill to 2-3 percent per year, and make the public administration more efficient and transparent.

The authorities have a broad-based structural reform agenda to increase productivity and promote private sector activity as wel l as to facilitate Morocco’s increasing integration with the rest o f the world. They are also keen o n achieving regional economic integration.

45

The authorities intend to reform the remaining transport sectors and port and airport services to improve the competitiveness o f Moroccan enterprises. They also intend to continue their trade liberalization, privatization, and public enterprise restructuring programs. Financial sector reform wil l also continue, notably in the areas o f payment systems, banking supervision, accounting and auditing, and the restructuring o f public financial institutions. Other priority areas include the removal o f structural constraints to enhance the availability and reduce the cost o f credit to small- and medium-sized enterprises, and more broadly the reform o f the judicial system and the implementation o f the new labor code to better support private sector activity.

The current exchange rate system has served Morocco well. Nevertheless, the authorities are reviewing the pros and cons o f alternative exchange rate regimes in the context o f Morocco’s increasing integration into the wor ld economy, taking into account the characteristics o f the Moroccan economy as wel l as their h t u r e pol icy intentions. They are open to the idea o f a possible gradual move to a flexible exchange rate regime. in support o f their growth objectives.

The Moroccan authorities are well aware of the challenges ahead. They are committed to undertaking structural reforms and reducing the fiscal deficit to promote private sector activity, make the economy more competitive, and create conditions for high and sustainable growth. In that context, the IMF looks forward to continuing to support Morocco’s efforts through the provision o f technical assistance and policy advice.

46

Category

ANNEX 4: ESTIMATED VALUE OF PUBLIC SUBSIDIES TO THE HOUSING SECTOR

Provision Subsidy Amount

Fiscal Expenditures Registration Fees

VAT

Reduced rate : 2.5 percent instead o f 5 percent for dwellings 1,092 with value under MAD 350,000 Reduced rate : 1.25 percent instead o f 5 percent for 336 dwellings with value under MAD 180,000 No VAT on self-construction 338 No VAT on social housing (area < 100 m2 and value , 200,000 MAD)

Income Tax

177

Exemption of VAT on interests for mortgages Deduction of mortgage interests from taxable income Exemption for new units for 3 years

Deduction of mortgage interests and cauital from taxable

67 610 48

9 43 8

Provision of 3 percent of fiscal benefit

Taxe Urbaine

Taxe d’kdilite Article 19 (differential cost)*

- .

Tax on Capital Gains

~

Tax base cut by 75 percent for homeowners 228 100 12

1,110 300

Exemption for new units for the first 5 years Exemption for social housing for all the duration of the loan Tax base cut by 75 percent for homeowners Construction of social housing units exempt form all taxes and duties (national and local)

income, for wage earners buying social dwellings (Value <

after 5 years possession Exemption of the first sale of social unit (area < 100 m2 and value < 200.000 MAD)

n.a.

Total Direct Subsidies Mortgage Guarantee Funds Housing Ministry Investment

5,180

85 550

Capitalization from the State, yearly value Investment expenditures for slum upgrading and infrastructure

Interest rate subsidies on mortgages Exchange rate risks

Total Land subsidies

Grand Total

Still applies to loans originated until 2004 400

20

2,055 800

8,035

Treasury covers the exchange rate risk on loans serving to

Provision of public land to public developers at prices below

finance social housing programs

market

* The differential cost i s calculated with reference to preexisting fiscal provisions for social housing, which are already accounted for in other rows of the table.

Source : World Bank calculations based on MFP and MHU data for the year 2002 ( May 2005).

47

ANNEX 5: FLOWS OF PUBLIC SECTOR SUPPORT TO THE HOUSING SECTOR

Private Developers

L-l Government ,

(Construction Parastatals)

L Ministry of Housing Ministry of

--_. --_ ---_ Finance --__ Capita,izes Resources from FSH

I Provision of Public --.. and investment Capitalizes Budget

Programs of Ministry Mortgage Mortgage of Housing Guarantee Guarantee

Ville sans bidonvilles Fund - Civil Fund - Informal Tax Breaks

I Freeland Servants sector households

-- -- I

1 Other Banks CIH I Guaranteed 1 mort_gages 1 1 m:i:ies 1

Legend vk Self-construction - no access to housing finance

Access to mortgage

48

Commenced before 2004

Engaged in 2004

Af ter 2004

Total ~

ANNEX 6: THE “VILLES S A N S BIDONVILLES” PROGRAM

Intervention modes (number o f households)

In-site Fully Semi-serviced Fully Total upgrading serviced lots lots finished

housing u n i t s

16,834 34,930 1,306 15,211 68,290

20,873 26,555 1,584 13,148 62,460

24,792 12,553 28,757 15,768 81,870

62,508 74,038 31,647 44,127 212,320

29 % 35 % 15 Yo 21 Yo 100 Yo

~

The VSB program i s centered on a city-based approach to slum upgrading, whereby a l l slums in a given urban area are included in an upgrading program, agreed to between the Ministry o f Housing and Urban Planning, the regional authorities, the Municipalities, and the parastatal companies in charge o f its physical implementation. Each o f these entities i s supposed to carry out a specific ro le and to contribute to the implementation o f the program. Such roles are defined by “city contracts” among the parties.

In quantitative terms, the program sets ambitious targets for the Government, as i t expects to be fully implemented between 2004 and 2010. However, the program encompasses a l l slum upgrading projects implemented by its parastatal companies that were on-going before 2004, covering about 68,000 households. During 2004, c i ty contracts and agreements with parastatal companies were concluded for slum eradication operations for another 62,000 households. Similar c i ty contracts and operational agreements remain to be concluded as o f 2005 for another 82,000 households.

Upgrading modalities included in the V S B program include: a) o n site upgrading, or restructuring o f the slum neighborhood with the provision o f roads, drainage and water supply, public lighting and electricity networks ; b) production o f fully or partially serviced plots o n urban land located where possible in the vicinity o f the slum to be removed; and c) construction o f housing units in apartment buildings. The following table presents the main characteristics of the V S B program in terms o f modes o f intervention.

The amount o f land needed to implement the program has been estimated to about 5,180 ha by the MHU, based on the importance o f the different modes o f intervention. Of the 70 cities covered by the program, 35 are concerned by the transfers o f lands f rom the public domain, out o f which 19 show public land availability in excess o f the slum eradication needs, and 16 show an

49

allocation sufficient for ha l f o f the program needs. However, “City contracts” are signed only when a l l land needs for the program have been met.

As for the mobilization o f financial resources, the MHU has estimated the budget envelope o f the VSB program at about MDH 17 billion, o f which about one third, or about MDH 5.4 billion, would be covered by State subsidies. The other two thirds o f the program costs, or about MDH 11.6 bil l ion, will have to be recovered from program beneficiaries. In general the Ministry o f Housing and Urban Planning wil l be the only public contributor t o the program, whi le the municipalities may contribute land, if available, and also have to commit to preventing the formation o f new slums in their jurisdiction. The following table presents the main features o f the VSB program in terms o f financing and land needs.

Costs. financing and subsidies

50

ANNEX 7: MAIN PARAMETERS OF THE MORTGAGE GUARANTEE FUND FOR INFORMAL WORKERS (FOGAIUM)

The main parameters o f the Fund for informal households, FOGARIM, are the following:

1) Only Banks are eligible (not other financial institutions such as micro-credit institutions). 2) The maximum value o f housing units i s set to MDH 200,000. 3) Eligible loans are: f ixed rate and fixed payment, with maximum payments below MDH

1,000 (about USSlOO) per month. Maximum Loan-to-value ratio (LTV) can reach 100 percent. The specific LTV amount i s l e f t to the discretion of banks.

4) The Fund covers 70 percent o f the credit risk (principal balance at the date o f default).

The Fund i s not conceived as an insurance tool, at least at start-up. Specifically, neither banks nor households pay any actuarial premium for each loan they guarantee. In light o f the experience f rom similar public mortgage guarantee products implemented in other countries, the fo l lowing remarks can be made o n the parameters o f FOGARIM:

0

0

0

The 100 percent LTV ceiling i s too r i s k y according to any international experience for this targeted group, even if banks may individually set up their own lower limits. The proportion o f credit risk covered (70 percent) i s relatively high by international standards, which could cause moral hazard problems to be managed. The absence o f charged actuarial premiums makes the Fund distinct from an sustainable insurance device, at the risk o f being perceived as a subsidy product, giving insufficient incentives to banks to assess credit risk correctly. The proposed steps for further re-capitalization by the F S H do not appear justif ied by the expected scale o f development. The proposed limitation to fixed rate loans may create interest rate risks to some lenders, at least in the future as the problem i s not perceived as a barrier now. The fixed repayment schedules combined with the cap of monthly repayment could be a problem for some categories o f households having seasonal or irregular incomes. Non-bank housing lenders and micro-credit lending for housing are not covered. The inclusion o f micro-credit institutions within the umbrella o f FOGARM could facilitate the connection between the banks and the informal populations.

0

0

M o r e generally, the official target population o f the Fund has not even access to a bank account yet. Banks will start by focusing on “high income” informal categories (grocers, taxi drivers, etc.) which they know. Extensions to lower income groups o f the informal population, if it happens, can only be gradual and slow. Thus, the major part o f the beneficiaries o f the V S B program will not “naturally” be reached by FOGARIM. T o mitigate this risk, a specific credit education component was put in place within the V S B program. I t wil l target the beneficiary households which are going to be relocated in finished housing units and will need credit to buy those units.

Another reason for FOGARIM’s slow talung o f f during i ts f i rs t year o f operation was the poor availability to potential lenders o f information related to the projected deliveries o f VSB housing units and to the creditworthiness o f the population to be financed with the FOGAFUM guarantees.

5 1

Morocco at a glance POVERTY and SOCIAL

Morocco 2003 Population, mid-year (millions) GNI per capita (Atlas method, Us$) GNI (Atlas method, US$ billions)

Average annual growth, 1997-03

PoDulation (%) Labor force (%)

Most recent estimate (latest year available, 1997-03) Povelty (% of population below national poverty line) Urban population (% of total population) Life expectancy at birth (years) Infant mortaliw (per 1,000 live births) Child malnutrition (% of children under 5) Access to an improved water source (% of population) Illiteracy (% ofpopulation age 15+) Gross primary enrollment (% of school-age population)

Male Female

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

GDP (US$ billions) Gross domestic investmenffGDP Exports of goods and serviceslGDP Gross domestic savingslGDP Gross national savingdGDP

Current account balancdGDP Interest paymenUGDP Total debffGDP Total debt service/exports Present value of debtlGDP Present value of debtlexports

(average annual growth) GDP GDP per capita Exports of goods and seivices

1983

13.9 24.0 21.3 16.1 20.0

-6.5 4.3

93.5 39.8

1983-93 199343

3.6 3.2 1.7 1.5 7.7 5.4

30.1 1,300 39.0

I .6 2.9

19 57 70 37

1 80 48

112

1993

26.9 22.4 26.0 17.0 21.6

-1.9 4.8

82.2 36.3

2002

3.2 1.6 6.5

M. East 8 North

Africa

306 2,070

670

1.9 2.9

58 69 37

88 35 95 98 90

2002

36.1 22.7

19.4 26.6

4.1 3.0

51.0 24.0 47.2

110.3

2003

5.2 3.7 -5.0

33.8

Lower- middle- income

2,411 1,390 3,352

1 .o 1.2

49 69 30 11 61 13

111 111 110

2003

43.7 23.8 32.3 19.7 27.4

3.6 4.2

43.0 26.5

200307

3.5 2.4 5.1

Development diamond'

I Life expectancy

~ T GNI Gross per primary capita nrollment

Access to improved water source

Morocco - - - Lower-middle-income group

Economic ratios.

Trade

T

Indebtedness

Morocco - -- Lower-middle-income orouD

STRUCTURE of the ECONOMY

(% of GDP) Agriculture Industry

Services

Private consumption General govemment consumption Imports of goods and services

Manufacturing

(avenge annual growth) Agriculture industry

Services

Private consumption General government consumption Gross domestic Investment Imports of goods and services

Manufacturing

1983

15.2 33.2 18.4 51.6

67.1 16.8 30.3

1983-93

3.4 3.1 3.9 4.3

3.7 4.8 3.1 6.6

1993

14.6 32.2 17.9 52.9

65.0 18.0 32.0

1993-03

2.4 3.7 3.2 3.2

1.8 3.6 5.4 4.7

2002

16.1 30.3 16.8 53.6

60.5 20.1 36.9

2002

5.6 2.7 3.3 2.9

3.0 4.6 3.3 7.4

2003

16.8 29.6 16.6 53.6

59.3 21 .o 36.4

2003

18.0 3.3 3.8 3.9

3.1 6.0

10.7 10.0

Growth of investment and GDP (%)

Growth of exports and imports (X)

l5 T I

Note: 2003 data are preliminary estimates. The diamonds show four key indicators in the country (in bold) compared with its incomeqroup average. If data are missing, the diamond will be incomplete.

52

5

4

3 2

I b

1

-2 1

’RICES and GOVERNMENT FINANCE

5 ” 5 ? k p k e 5

:onsumer prices nplicit GDP deflator

olwefjassesf /.&ace !:r’rdiiiF hvbde-c M(rr&p&s)

hrrent budget balance lverall deficit (incl. Privatisation and FH II)

!::‘&W)

hrrQnt lQvQnUQ

wlo privatization receipts

, 1

j t I

i

rRADE

‘1 “&%-Lq ’otal exports (fob] Agriculture Phosphorus rock ManUfaCtUrQS

rota1 imports [cif) Food Fuel and energy Capital goods

lxport price index (M:w? mport price index (M=kX?t rerms of trade (M:Kr?)

3ALANCE of PAYMENTS

“?@ Ixports of goods and services mports of goods and services +source balance

Uet income Uet current transfers

Zurrent account balance

%“icing items (net] Zhanges in net reserves

##mu.. 3QSQrVQS including gold fl&$,73#Co%y) Zonversion rate (XChs&X$t

1983

6.2 7.3

16.6 4.7 .7.0 -7.0

1983

2,058 524 468 419

3,599 534 988 683

67 73 91

1983

2.966 4,223 -1,257

-620 977

-901

827 74

-45 7.1

EXTERNAL DEBT and RESOURCE FLOWS 1983

13,038 IBRD 821 IDA 42

Total debt SQIViCQ 1,550 IBRD 112 IDA 1

Official grants 55

(LW,73#Co%:) Total debt outstanding and disbursed

zomposition of net resource flows

Official creditors 469 Private ClQditOrS 179 Foreign direct investment 46 Portfolio equity 0

World Bank program Commitments 308 DiSbUrSemQntS 176 Principal repayments 51 Net flOWS 125 Interest payments 61 Net transfers 63

1993

5.2 3.5

26.5 2.8

-2.4 -2.4

1993

4.922 982 260

2,710 7,576

978 957

1.946

78 79 99

1993

6.986 8.594 -1.608

-1,208 2,295

-521

805 -284

3,900 9.3

1993

22.105 3,559

36

3,325 552

2

309 232

29 491 24

809 377 294

83 260 -177

2002

2.8 0.6

24.T 0.1

-4.4 -4.6

2002

7.839 1,648

364 4.495 11,833 1,374 1,831

2.379

96 77

125

2002

12.199 13,314 -1,115

-738 3,330

1,477

-839 -638

10,896 11.0

2002

18,404 2,549

24

3.707 412

2

163

-401 558

19

98 45

269 -224 145

-369

-738

2003

1.2 0.0

24.4 -0.9 -2.8 -5.6

2003

8,762 1.825 362

5,236 14,212

1.194 2,212 3,131

109 86

126

2003

14,236 15,953 -1,717

-790 4.098

1.592

52 .1.643

14,578 9.6

2003

18.795 2.719

23

4,835 431

2

-789 -343

2,437 11

54 143 307

126 -164

-290

Inflation ( x ] I 3

2

1

b

I

9 t 99 00 b1 02 b3

-GDP deflator -CPI

Eiport and import levels [US$ mill.)

Exports Imports

I Current account balance to GDP [%I

a i

I I

0: 1.853 A: p.33

Ii E: 5,333

A . IBRD E. Bilateral B . IDA 0 - Other multilateral F. Private C - IMF G - Short-term

DQvQlOpmQnt Economics

Jebel TJebel Toubkaloubkal(4,165 m) (4,165 m)

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OuezzaneOuezzane

Ain BiniAin BiniMatharMathar

TaourirtTaourirt

BouBouâârfarfa

BerrechidBerrechid

DemnateDemnate

ZagoraZagora

IfniIfni

Tarfaya

AzrouAzrou

TTéétouantouan

AzilalAzilal

TaounateTaounate

FFèèss

MeknMeknèèss

IfraneIfrane

KhemissetKhemisset

Beni MellalBeni Mellal

KhenifraKhenifra

MarrakechMarrakech

ChechaoueneChechaouene

SettatSettat

TazaTaza

Ben SlimaneBen Slimane

KhouribgaKhouribga

El Kelaa El Kelaa des Srarhnades Srarhna

BoulemaneBoulemane

NadorNador

OujdaOujda

FiguigFiguig

Tan-TanTan-Tan

TiznitTiznitTataTata

OuarzazateOuarzazate

ErrachidiaErrachidia

SidiSidiKacemKacem

ChichaouaChichaoua TahannaoutTahannaout

TaroudanntTaroudannt

GoulimineGoulimine

Oued Zem

Larache

Ouezzane

Ain BiniMathar

Taourirt

Bouârfa

Berrechid

Sale

Demnate

Zagora

Ifni

Azrou

Al Hoceima

Tétouan

El Jadida

Essaouira

Kenitra

Safi

Tangier

Azilal

Taounate

Fès

Meknès

Ifrane

Khemisset

Beni Mellal

Khenifra

Marrakech

Chechaouene

Settat

Taza

Ben Slimane

Khouribga

El Kelaa des Srarhna

Boulemane

Nador

Oujda

Figuig

Casablanca

Agadir

Tan-Tan

TiznitTata

Ouarzazate

Errachidia

SidiKacem

Chichaoua Tahannaout

Taroudannt

Goulimine

RABAT

A L G E R I A

A L G E R I A

SPAIN

Oued Draa

Oued

Draa

Oued Tennsift

O

ued Er Rbi a

Oue

dM

oulo uy

a

Oued

Sebour

Oued Souss

ATLANTIC

OCEAN

Medi terranean Sea

To Algiers

To El Bayadh

To Tindouf

To Tindouf

Mi d

d l eA

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A n t iA t l a

s M t

At

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A PP R O X I MA

T EB O U N D A R YJebel Toubkal

(4,165 m)

35°N

10°W 5°W 0°

5°W

0°

30°N

35°N

30°N

MOROCCO

0 50 100 150

0 50 100 150 Miles

200 Kilometers

IBRD 33450

NO

VEM

BER 2004

MOROCCOSELECTED CITIES AND TOWNS

PROVINCE OR PREFECTURE CAPITALS*

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

PROVINCE OR PREFECTURE BOUNDARIES

INTERNATIONAL BOUNDARIES

INTERNATIONAL BOUNDARIES (Approximate)

*Province or Prefecture names are the same their capitals.

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endorsemen t or a c c e p t a n c e o f s u c h boundaries.