financial sector development support project phase iii ......ua 1 = 12.60 moroccan dirham (mad) ua 1...
TRANSCRIPT
AFRICAN DEVELOPMENT BANK
Financial Sector Development Support Project – Phase III
Country: Kingdom of Morocco
APPRAISAL REPORT
OFSD/OSGE DEPARTMENTS
September 2014
Translated Document
Table of contents
LIST OF TABLES – LIST OF BOXES i
LIST OF ANNEXES i
FISCAL YEAR – CURRENCY EQUIVALENTS i
ACRONYMS AND ABBREVIATIONS ii
LOAN INFORMATION iii
PROGRAMME SUMMARY iv
PROGRAMME LOGICAL FRAMEWORK vii
I – THE PROPOSAL 1
II – COUNTRY AND PROGRAMME CONTEXT 1
2.1 Recent Socioeconomic Development, Prospects and Constraints 1
2.2 Government’s Development Strategy and Medium-term Priority Reforms 4
2.3 Status of Bank Group Portfolio 5
III – RATIONALE, KEY DESIGN ELEMENTS AND SUSTAINABILITY 5
3.1 Linkages with CSP, Assessment of Country Readiness and Underlying Analytical Elements 5
3.2 Donor Collaboration and Coordination 7
3.3 Outcomes and Lessons from Similar Completed or On-going Operations 7
3.4 Linkages with Other Bank Operations 7
3.5 Bank’s Comparative Advantages 8
3.6 Application of Best Practice Principles on Conditionality 8
IV – PROPOSED PROGRAMME 8
4.1 Programme Objectives 8
4.2 Programme Pillars and Components, and Expected Outcomes 8
4.3 Financing Requirements and Arrangements 13
4.4 Programme Beneficiaries 14
4.5 Impact on Gender 14
4.6 Impact on the Environment 14
4.7 Impact of the Business Environment 15
V – IMPLEMENTATION, MONITORING AND EVALUATION 15
5.1 Implementation Arrangements 15
5.2 Monitoring and Evaluation Arrangements 16
VI – LEGAL INSTRUMENTS AND LEGAL AUTHORITY 16
6.1 Legal Instruments 16
6.2 Conditions Precedent to Bank Group Intervention 16
6.3 Compliance with Bank Group Policies 17
VII – RISK MANAGEMENT 17
VIII – RECOMMENDATION 17
_________________________________________________________________________________ This report was prepared by Mr. E. DIARRA, Principal Financial Economist, OFSD/MAFO and Mr. A. TARSIM, Senior
Economist, OSGE, following missions to Rabat in October 2013 and April 2014. It also benefited from contributions by experts
in ORNA, MAFO and ORPF Departments, two financial sector specialists (consultants), as well as exchanges with technical
and financial partners.
List of Tables
List of Boxes
Box 1: PBO General and Technical Conditions
Box 2: Measures Precedent to PADESFI-III Presentation to the Board of Directors
List of Annexes
Fiscal Year
January - December
Currently Equivalents
(April 2014)
UA 1 = 12.60 Moroccan Dirham (MAD)
UA 1 = 1.12 Euro (EUR)
UA 1 = 1.55 US Dollars (USD)
Table 1 Budgetary Balance and Financing Needs
Annex 1 Letter of Development Policy
Annex 2 Programme Matrix of Measures
Annex 3 : Note on Relations with the IMF
ii
Acronyms and Abbreviations
ACAPS : Insurance and Social Welfare Supervisory Authority
AfDB : African Development Bank
AMC : Microcredit Associations
AMMC : Moroccan Capital Markets Authority
BAM : Bank Al Maghrib (Central Bank of Morocco)
BCP : Banque Centrale Populaire
BNDE : Banque Nationale pour le Développement Économique
bp : basis point
CAM : Crédit Agricole du Maroc
CCG : Central Guarantee Fund
CDG : Deposit and Management Fund
CDVM : Securities Ethics Board
CEC : Credit Institutions Committee
CFC : Casablanca Finance City
CIF : Cost Insurance and Freight
CIH : Housing and Hotel Credit Fund
CMI : Interbank e-Money Centre
CNCA : National Agricultural Credit Fund
COMOFIM : Morocco Monetary and Financial Code
CPIA : Country Policy and Institutional Assessment
CSP : Country Strategy Paper
DAPS : Directorate of Insurance and Social Security
E-gov : E-government
EU : European Union
FCPR : Venture Capital Mutual Investment Fund
FDI : Foreign Direct Investment
FOGARIM : Real Estate Mortgage Guarantee Fund
FSAP : Financial Sector Assessment Programme
GDP : Gross Domestic Product
GFCF : Gross Fixed Capital Formation
IGF : Auditor General’s Office
IMF : International Monetary Fund
INDH : National Human Development Initiative
IPO : Initial Public Offering
IVT : Treasury Securities Dealer
LOF : Organic Law on Finance
MAD : Dirham
MAROCLEAR: Central Securities Depository
MEF : Ministry of Economy and Finance
MIC : Middle Income Country
MRE : Moroccans Resident Abroad
OPCR : Venture Capital Investment Agencies
iii
OPCVM : Transferrable Securities Investment Agencies
PADESFI : Financial Sector Development Support Programme
PARAP : Public Administration Reform Support Programme
PARCOUM : Medical Coverage Reform Support Programme
PASFI : Financial Sector Support Programme
PEA : Equity Savings Plan
PEE : Education Savings Plan
PEL : Housing Savings Plan
PFI : Public Financial Institutions
RC : Risk Capital
SBVC : Casablanca Stock Exchange
SICAV : Société d’Investissement à Capital Variable (Venture Capital
Investment)
SME : Small- and Medium-sized Enterprises
UA : Unit of Account
VAT : Value-Added Tax
VSB : Cities without Slums
VSE : Very Small Enterprise
VSME : Very Small- and Medium-Sized Enterprises
iv
LOAN INFORMATION Client Information
BORROWER KINGDOM OF MOROCCO
EXECUTING AGENCY: Ministry of Economy and Finance
(Treasury and External Finance
Directorate)
Financing Plan
Source
Amount
Instrument
AfDB
EUR 100 million
AfDB loan
Information on the AfDB Financing
Loan currency
Euro
Interest rate type: Floating base rate with a free-fixing
option Base rate (floating) 6-month Euribor
Contractual margin 60 basis points (bps)
Lending margin : Bank lending margin in relation to the 6-
month Euribor. This margin is revised
every year on 1 January and 1 July. Commitment fee In the event of disbursement delays
compared with the initial schedule
(specified in the loan agreement), a
commission of 25 bps per annum will be
applicable to the undisbursed amounts.
This fee will increase by 25 bps every six
months up to a maximum of 75 bps per
annum. Other charges None
Tenor 20 years maximum
Grace period 5 years maximum
Activities Date
1. Identification and preparation October 2013
2. Concept Note approval 15 March 2014
3. Loan agreement negotiation September 2014
4. Board presentation October 2014
5. Effectiveness October 2014
6. Disbursement October 2014
7. Supervision December 2014
8. Supervision March 2015
9. Completion report June 2015
v
PROGRAMME SUMMARY
Programme Overview
1. Programme Name: Financial Sector Development Support Programme – Phase III
(PADESFI - III)
- Geographic coverage: Nationwide
- Overall duration: 12 months
- Programme cost: Not applicable
- Financing: EUR 100 million (AfDB)
- Programme type: Sector budget support
2. PADESFI III is an extension of PADESFI I and II approved by the Bank in 2009 and 2011.
The outcomes of the previous programmes were positive (Technical Annex 3), notably with the
increase in the population’s banking access rate from 35% in 2008 to 57% in 2012, and a doubling
of credit to SMEs/VSEs over the same period. Furthermore, these outcomes were obtained within
a healthier financial governance context, especially with a reduction in the risk portfolio in both the
banking and micro-credit sectors. Thanks to the considerable progress in implementing reforms, the
loan for this programme will be disbursed in a single tranche.
Expected Programme Outcomes and Beneficiaries
3. PADESFI-III’s goal is to create the required conditions for inclusive economic growth by
consolidating the financial sector and fostering broader financial inclusion. Its specific objective is
to strengthen financial sector development, particularly by improving access of the population and
enterprises to financial services, deepening the sector and strengthening its governance.
4. The overall expected outcomes following programme implementation are: (i)
improvement of the population’s access to financial services; (ii) improvement of access of
enterprises, especially VSMEs, to financing; (iii) strengthening of the financial sector governance
mechanism; and (iv) deepening of the capital market. Compared to the two previous programmes,
PADESFI-III specifically targets greater financial inclusion of the most vulnerable population
segments (youths and women) and SMEs/VSEs operating in regions outside the Casablanca – Rabat
axis.
5. The programme’s end beneficiaries are the Moroccan people as a whole. The programme
will especially benefit the key intermediate stakeholders namely: (i) the private sector, especially
SMEs/VSEs which, thanks to reforms to be implemented, will have easier access to financial
services to foster their growth; and (ii) households as economic agents, particularly youths and
women, whose bank use rate will further improve as a result of greater coverage of the national
territory by the banking networks, in addition to easier access to loans and other financial payment
and transfer services. This facilitation of access to financial services, particularly for SMEs, VSEs
and households, will help to generate income and create jobs for these population segments and
categories, thereby encouraging more inclusive growth.
Needs Assessment and Relevance
6. The programme is necessary for the following main reasons: (i) Morocco’s effort to
promote inclusive growth calls for the pursuit and better targeting of financial inclusion for the
benefit of the population and businesses, since financial inclusion is one of the key vectors of socio-
economic inclusion; (ii) the double need to diversify and improve Morocco’s economic
competitiveness requires the mobilisation of considerable resources to finance the required
vi
investments, on a sound basis; (iii) the turbulence of the international financial system calls for
greater vigilance in financial sector governance through the implementation of credible norms and
standards that could prevent systemic crises and maintain financial stability; and (iv) it is still
necessary to continue the process to rehabilitate and deepen the financial sector in light of the
national and international socio-economic context, and the related challenges. Moreover, since the
Moroccan banking system is the country’s main source of economic financing, it is imperative to
further diversify the financial system by strengthening other system segments, for instance the
capital markets.
7. Therefore, the programme specifically aims to accelerate reforms in the Moroccan
financial sector. It focuses on the challenges that the government plans to address, as soon as
possible, with a view to consolidating and amplifying the achievements of the first two phases of
the programme. In this regard, it specifically tackles challenges related to the financial inclusion of
VSMEs, women, youths and rural dwellers.
8. The programme adopted is relevant. The main conditions of success of the programme
have been fulfilled: proper ownership of the programme by the country; fulfilment of the general
and technical prerequisites for this type of programme; compliance with good practice principles
for the application of conditionality, including the implementation of measures precedent to
submission of the programme to the Board of Directors; and design of a results-based monitoring
and evaluation mechanism. PADESFI’s area of intervention, namely the financial sector, is relevant
to the priorities of the government’s programme as reflected in the Letter of Development Policy,
and to those of CSP 2012–2016 for Morocco.
Bank’s Value Added
9. With about ten years of experience in financial sector reforms in Morocco following the
series of four financial sector adjustment programmes and the two previous financial sector
development support programmes, the Bank has drawn relevant lessons that it has put to good use
in formulating PADESFI-III. Moreover, to amplify the outcomes of previous programmes, the Bank
financed, using MIC grants, four institutional support projects currently in the implementation
phase, respectively on: (i) strengthening financial markets supervision; (ii) improving the national
guarantee system; (iii) preparing the Moroccan Monetary and Financial Code; and (iv) modernising
the organisational framework of the “Debt” Pole of the Treasury Directorate. Within the PADESFI-
III framework, the Bank will also support other projects to be financed with MIC grants, with a
view to generating a considerable leverage effect in terms of outcomes and impacts. In so doing, it
will bring substantial value added to this programme.
Institution and Knowledge Building
10. PADESFI-III will contribute to institution building of the public administration and
private sector, including associations. Studies and draft texts examined while formulating this
programme contribute to knowledge building. The same applies to the sharing of experience
acquired in other countries.
vii
RESULTS-BASED LOGICAL FRAMEWORK Country and Programme Name: Morocco – Financial Sector Development Support Programme – Phase III (PADESFI-III)
Programme Objective: Contribute to creating the necessary conditions for inclusive economic growth. Its specific objective
is to strengthen financial sector development.
RESULTS CHAIN
PERFORMANCE INDICATORS
MEANS OF
VERIFICATION
RISKS/MITIGATION
MEASURES Indicators (including ISC)
Baseline
Situation in
2012
2015 Target
IMP
AC
T
The financial sector is
developed and contributes to economic
financing
Average real GDP growth
rate
2.7% 4.8% Reports of the
Ministry of Economy and
Finance (MEF);
Bank Al-Maghrib (BAM)
Proportion of private sector credit compared with total
credit to the economy
53% 55%
OU
TP
UT
1. Improved access by
the population to
financial services
Increase in the number of
students using the
“Enseignement Plus”
banking service
Number of “Mobile Banking” subscribers
Proportion of micro-credit extended to women
Bank use rate
73
0
49%
57%
110 (i.e. a 50%
increase in 2015
compared to 2012)
150 000
55%
62%
CCG Reports
MEF/ABB Report
BAM Report
MEF/BAM
Risk
- An unfavourable
international economic
situation hampering the
achievement of the
expected programme impacts
Mitigation Measure
- Budgetary Watch Committee
- Committee to
coordinate the supervisory bodies of
the financial sector for
overall sector systemic risks
2. Easier access to financing for VSEs and
SMEs
Number of women benefiting from the ILAYKI
guarantee product
0 175 CCG Report and/or MEF data
3. The financial sector
governance mechanism is strengthened
Proportion of bank-held non-
performing loans
5% (6.6% as of
end July-2014)
5.5% (after a 6.6%
increase as of end-July 2014)
BAM Reports
4. The capital market is
deepened
Stock market capitalisation
(in MAD billion)
MAD 445
billion
A minimum
stabilisation to the
tune of MAD 450
billion
CDVM Report
OU
TC
OM
ES
COMPONENT 1. IMPROVE THE POPULATION’S ACCESS TO FINANCIAL SERVICES Risk
Wavering government’s determination to
implement reforms
Mitigation Measures
The authorities have
expressed a high
commitment to implement structural
reforms in the
financial sector
1. a – Improve the
population’s access to financial services
Bank use by students on
scholarship through the launching of the “MINHATY
Card” product by Al-Barid
Bank (ABB)
Product non-
existent
The “MINHATY
Card” is launched by ABB before end-
2014
MEF/ABB Report
Improved access of the
population to financial
services nationwide
following the launching
of the “Mobile Banking”
product by (ABB)
Product non-existent
The “Mobile
Banking” product
is launched by
ABB before end-
2014.
MEF/ABB Report
Establishment of the Moroccan Financial
Education Foundation
Adoption of the financial
education action plan by the
Foundation
Financial education action
not coordinated
The Foundation is set up before end-
2014
Action plan adopted
before end-2014
Report of the Moroccan
Financial
Education Foundation
1.b – Strengthen the micro-credit sector
Launching of the study to
upgrade the microfinance institutional environment
Study non-
existent
Call for Expression
of Interest for the study to upgrade the
microfinance
institutional environment in
Morocco is launched
by the Ministry of Economy and
Finance before end-
2014
MEF’s letter
attesting to the Call for
Expression of
Interest to conduct the study
COMPONENT 2. IMPROVE ACCESS TO FINANCING FOR VSES AND SMES
viii
RESULTS CHAIN
PERFORMANCE INDICATORS
MEANS OF
VERIFICATION
RISKS/MITIGATION
MEASURES Indicators (including ISC)
Baseline
Situation in
2012
2015 Target
2. a – Improve
VSE/SME access to credit
Introduction of an
“ILAYKI” guarantee
product dedicated to women entrepreneurs
No credit
guarantee product
dedicated to
women
ILAYKI product set
up before end-2014
CCG and MEF
report
Launching of guarantee
products targeting export-
oriented enterprises
No guarantee
product
dedicated to export-oriented
SMEs
Products set up
before end-2014
CCG and MEF
report
2.b – Develop guarantee activity at the
regional level
Extension of guarantee activity at the regional level
by opening new CCG
business centres in other cities of the Kingdom
2 regional centres
At least six business centres operational
by end-2015
CCG and MEF report
COMPONENT 3. STRENGTHEN THE FINANCIAL SECTOR GOVERNANCE MECHANISM
3. a – Strengthen the capital markets
supervision mechanism
Adoption of text (s) on the composition of the AMMC
Board of Directors and of
the Order extending AMMC’s prerogatives in
terms of authorisations
Law passed and implemented
Text (s) on composition of the
AMMC Board of
Directors and edict listing the functions
requiring
authorisation signed before end-2015
MEF report
3. b – Strengthen
banking system stability
Adoption of the Banking
Law by the Cabinet
The former Law dates back to
2006
Draft law passed
before end-2014
MEF report
COMPONENT 4. DEEPEN THE CAPITAL MARKETS
4. a – Diversify
financial instruments
Draft law on covered bonds
adopted by the Cabinet
Instrument non-
existent in the market
Draft law adopted
before end-2015
MEF report
Draft law on OPCIs adopted by the Cabinet.
Instrument non-existent in the
market
Draft law adopted before end-2014
MEF report
4. b – Boost the capital market
Adoption by the Cabinet of the draft law amending the
Stock Exchange Act aimed
at introducing sub-funds dedicated to Mutual Funds
and SMEs
Adoption by the Cabinet
of the draft law modifying
Law 41-05 concerning
venture capital mutual
investment bodies
The current law does not allow
for the
introduction of new sub-funds
to respond to
sector needs
The current law
excludes certain
types of
enterprises from
venture capital
classification
Draft law adopted before end-2015
Draft law adopted
before end-2014
MEF report
Financing: AfDB loan of EUR 100 million
1
MANAGEMENT’S REPORT AND RECOMMENDATION TO THE BOARD OF
DIRECTORS CONCERNING A LOAN PROPOSAL TO THE KINGDOM OF
MOROCCO FOR THE FINANCIAL SECTOR DEVELOPMENT SUPPORT
PROGRAMME – PHASE III
I. THE PROPOSAL
1.1. Management hereby submits the following recommendation concerning a EUR
100 million loan to the Kingdom of Morocco to finance the third phase of the Financial
Sector Development Support Programme (PADESFI-III). This is a sector budget support to
be implemented for a 12-month period ending 31 December 2015. It is a continuation of the
two previous phases of the programme implemented in 2009 and 2011, respectively, the
achievements of which it intends to consolidate and deepen. The operation is also a continuation
of the series of four financial sector adjustment programmes that the Bank and other multilateral
donors, particularly the World Bank and European Union, have supported. PADESFI-III is
based on the strategic orientations of government’s medium-term development programme. Its
design has taken into account the principles of the Paris Declaration on Aid Effectiveness and
those of good practice principles for the application of conditionality. It also complies with the
Bank’s strategy for Morocco
1.2. PADESFI-III aims to help create the requisite conditions for inclusive economic growth.
It is intended to consolidate and deepen the reforms already initiated under PADESFI-I and
PADESFI-II, by means of the same four main thrusts: (i) improvement of the population’s
access to financial services; (ii) improvement of access to financing for businesses; (iii)
strengthening of the financial sector governance mechanism; and (iv) deepening of capital
markets. The range of measures supported by the programme is presented in the reform matrix
(Annex 2).
II. COUNTRY AND PROGRAMME CONTEXT
2.1 Recent Socio-economic Developments, Prospects, Constraints and Challenges
Recent Political, Macro-economic and Social Trends
2.1.1. Morocco has made considerable progress in terms of political liberalisation and
installation of a solid democratic base. In this regard, it continues to enjoy a high level of
political stability. On the one hand, the constitutional reform largely approved during the 1 July
2011 referendum helped to consolidate the principle of balance of power and to deepen the
democratic process; on the other, the formation of a new coalition government on 10 October
2013 guaranteed continuity after the end of the first coalition government. The mission of the
new government is to build a consensus on difficult reforms (subsidies, pension) to allow for
more rapid progress in the preparation of economic policy.
2.1.2. On the macro-economic front, Morocco has demonstrated resilience and recorded
good performance with an annual growth rate averaging 4% yearly over the 2010 – 2013
period, despite a very difficult international and regional context. Within the framework of
the second Precautionary and Liquidity Line (PLL) with Morocco dated July 2014, the IMF
underscored that “the authorities have taken significant measures to reduce vulnerabilities…and
strengthen the resilience of the economy." This economic performance is mostly attributable to
sound macro-economic policies, sustained structural reforms and sector strategies geared
towards accelerating the diversification and transformation of the Moroccan economy. Hence,
after a relatively difficult 2012, the macro-economic outcomes improved overall in 2013 and
the growth rate stood at 4.4%, compared to 2.7% in 2012, despite a slowdown in world growth.
Furthermore, thanks to a prudent monetary policy, inflation remained low between 2010 and
2
2012 (1.3%), rising only slightly up to 1.9% in 2013, despite the increase in the prices of some
subsidized energy products. These rates are generally in line with Bank Al-Maghrib projections.
For 2014-2015, inflation will remain low at around 2.5%.
2.1.3. As regards public finances, Morocco’s budgetary framework remains sustainable,
despite external and internal shocks. After a net deterioration of the budgetary balance in
2011 and 2012 (-6% and -7% of GDP), the strong commitment of the authorities to re-balance
public finances was confirmed by the reduction of the budget deficit down to 5.5% in 2013.
This improvement is largely the result of measures taken by the authorities in mid-2012 and in
2013 to reduce expenditures on subsidies and salaries, and address budget vulnerabilities. To
that end, the authorities are determined to pursue the reduction of the budget deficit to 5.1% of
GDP in 2014 and 3.6% of GDP between now and 2013.
2.1.4. Furthermore, despite being weakened by the impact of successive crises, Morocco’s
external position remains strong and viable in the medium term. After a deterioration of the
current account deficit in 2011 and 2012 (-8% and -9.7% of GDP, respectively), the current
account balance rebounded in 2013. The current deficit dropped to 7.6% of GDP. International
reserves also rose in 2013 and for more than a year remained above 4 months of imports (4.3
months) after the 16.7% and 10.7% decline recorded end-2012 and end-2011, in that order. This
performance is partly attributable to sustained foreign investment (an increase of nearly 23.4%
in 2013 compared to 2012) and access to international bond markets that helped to mobilise
USD 750 million under favourable conditions. It is also due to the impact of falling imports,
the good performance of emerging sector-related exports (aeronautics and automobile), as well
as the stability of tourism receipts and remittances from Moroccans abroad.
2.1.5. On the social front, Morocco’s recent development performance is characterized
by the positive outcomes of the key social indicators (several Millennium Development
Goals achieved before 2015) and by considerable challenges. According to latest data from
the survey of household living conditions, the poverty rate fell from 21% in 1985 to 6.2% in
2011, with the sharpest drop recorded in the rural area (from 26.8% to 10% over the same
period). The water and sanitation access rates increased both in urban and rural areas (100% in
2011 for the former; from 70% in 2005 to 92% in 2011 for the latter). The electricity access
rate is also high and the electrification plan appears to have produced the expected results. Thus,
the rural electrification rate stood at 98.1% in 2012 (compared to 22% in 1996). According to
the latest Human Development Report (2013), Morocco occupies the 130th position (out of 186
countries), with a Human Development Index (HDI) of 0.592. Morocco’s position has remained
unchanged since 2012 and analysis confirms that education is still a major constraint to
improving the country’s human development. Despite the huge budgetary resources allocated
to the social sectors (above 50%) and efforts by the government, development outcomes in
areas such as education remain below expectations, with regional disparities and gender
imbalances.
2.1.6. With Morocco’s strong performance and renewed overall growth, the national
unemployment rate remains below 10%. However, youth unemployment continues to be a
challenge (in 2013, the national unemployment rate stood at 9.2%, with unemployment among
youths aged 15 to 24 at 16.3%, among graduates at 16.3% and among persons without formal
qualification at 4.5%). The labour market faces several weaknesses, particularly the inadequate
number of jobs generated by the economic growth, the mismatch between training and labour
market needs, and the limited scope of active employment promotion programmes.
2.1.7. In a risk-prone environment, Morocco’s growth prospects are favourable and the
GDP should grow by 5% in 2015, despite a deceleration in 2014 (3.5% growth rate) due to
insufficient rainfall during the last three months of 2013. Budget and external deficits will
continue to decline in 2014 (5.1% and 6.8%, respectively). This performance is attributable to
the tireless pursuit of reforms aimed at re-balancing the budgetary and external accounts,
3
strengthening competitiveness and ensuring more vigorous and job-generating growth. In this
regard, Morocco’s efforts to improve the business climate and attract direct foreign investment
have borne fruit. The business climate has improved significantly in recent years. According to
the latest Doing Business 2014 report, the country moved up 8 positions in the annual
classification – from 95th to 87th.
2.1.8. In light of the challenges brought about by the current context, the government is
strongly engaged in a structural reform process to strengthen competitiveness, speed up
diversification, modernise the productive base and facilitate integration in the global
economy. In that connection and as underscored by the diagnosis of Morocco’s growth being
prepared by the Bank and the country’s authorities, there is need to deepen reforms with a view
to enhancing the business climate and transparency, improving the functioning of the labour
market to attract foreign direct investment and promoting a strong growth in employment. It is
also urgent to speed up justice, fiscal and pension scheme reforms, reform the Organic Law on
the Finance Act and concretize advanced regionalisation. Lastly, to boost growth and
employment, it is also imperative to achieve broader financial inclusion that would specifically
grant greater access to credit to small- and medium-sized enterprises.
Financial Sector: Current Situation and Challenges
2.1.9. Morocco’s financial sector is among the most efficient on the continent. In terms of
absolute size, the financial sector in Morocco ranks third in Africa after South Africa and
Algeria. In relative terms (private credit/GDP), it is second after South Africa. Moreover, it
shows a good level of stability as emphasized in the latest IMF Article IV Staff Consultation
Report: "a rather prudent business model and relative insulation from the Eurozone debt crisis
have helped the financial sector remain systemically sound." The banking sector remains the
backbone of the Moroccan financial system, with total assets (Morocco activity) of MAD 1,096
billion, that is 125% of GDP in 2013, up by 5.3% compared to 2012. However, growth
deceleration in the sector at the domestic level was offset by strong performance internationally
largely because of the dynamism of groups such as the Attijariwafa Bank and the Banque
Marocaine du Commerce Extérieur (BMCE), which displayed strong international results
particularly in Africa.
2.1.10. Despite the relative increase in the loss ratio, the banking system remains generally
solid, profitable and adequately capitalized. Outstanding credit to the economy grew at the end
of 2013 by 3.2% against 5.4% in 2012, under the combined effect of domestic demand decline
and a more selective credit policy adopted by banks. For its part, the level of non-performing
loans has registered a one-point increase to level at 5.9%, relative to the previous year.
However, the provisioning rate remains at a satisfactory level (64%), the same as bank
capitalization with a 13.3% solvency ratio. Profitability remains relatively sound, with a 1%
rate of return on assets and a return on equity of 10.6%. Furthermore, the liquidity crunch that
beset the banking sector has been successfully addressed by BAM, which systematically met
all the financing needs of banks without any increase in its key interest rate (3%).
2.1.11. Implementation of the reforms planned under the first two phases of PADESFI
contributed to strengthen the resilience of the financial sector, its consolidation and
deepening. In this regard, one of the significant outcomes is increased access to financial
services owing mainly to the substantial growth in banking (60% in 2013 against 35% in 2008)
and greater spatial coverage (5 711 branches and 5 893 ATMs).
2.1.12. However, there are lingering challenges regarding the financing of certain segments
such as VSEs and access to finance and basic banking services for people on low or irregular
income, youths, women entrepreneurs and rural households. In this respect, the findings of
the Third Review Under the PLL Arrangement with the IMF notes that: "Broader financial
inclusion, including greater access to credit for small- and medium-sized enterprises, is also
4
needed to foster higher growth and boost employment.” Similarly, the lack of financial culture
among the population must be addressed if financial inclusion is to be further fostered. The
territorial dimension of financial inclusion is also a challenge to be overcome to allow better
access for households and rural VSEs to financial services. PADESFI-III has listed all these
weaknesses as reform priorities that the Moroccan government must address to promote
inclusive growth that will benefit the majority of the population. To this end, compared to the
previous two, this programme intends to further address the challenges of the most vulnerable
groups: women, youths and rural dwellers.
2.2 Government’s Development Strategy and Medium-term Priority Reforms
2.2.1. The government’s Economic and Social Programme for 2012-2016 aims to further
build a strong, multi-sector and multi-regional, competitive, and wealth- and employment-
generating economy in the medium term. Three main focus areas of this strategy stand out,
namely: (i) consolidating the territorial and regional dimension of development; (ii) improving
the competitiveness of the economy by promoting good governance and a business climate
conducive to fair competition; and (iii) actively assisting the productive sector through support
to investment policy, particularly for small- and medium-sized enterprises. The more equitable
distribution of the fruits of growth is also an important dimension of this strategy. The
implementation of this policy should primarily help to achieve, by 2016, a global growth rate
of 5.5%; contain the inflation rate at 2%; lower the unemployment rate to 8%; and increase
savings and investment, while controlling the budget deficit and the balance-of-payments
current account.
2.2.2. The economic and social programme implemented by the government basically aims
at preserving financial and macroeconomic stability. In this regard, the budget deficit will be
gradually reduced from 7.3% of GDP in 2012 to 3.6% in 2016. To achieve this, the government
plans to strengthen public resource management governance as well as implement a policy to
rationalize expenditure and improve revenue mobilization. Flaws in external balances will also
be comprehensively addressed, as part of an integrated approach aimed at removing barriers to
investment and competitiveness.
2.2.3. Regarding the financial sector, the main targets set by the government as part of this
programme are to: (i) improve financial inclusion particularly by strengthening the
microfinance sector and facilitating access by VSMEs to financing, and boosting the capital
market; and (ii) strengthen the supervision mechanism and financial stability of the financial
sector. By focusing on the same priorities, PADESFI-III, with its objectives and components,
addresses government concerns which also include other interests such as gender, youths as
well as regional balance and development. The Letter of Development Policy in Annex 1 of
this Report provides further details on these priorities.
2.3 Status of Bank Group Portfolio
The Bank’s active portfolio in Morocco comprises 33 on-going operations for a net
commitment of approximately UA 1.78 billion. Loans total UA 1.77 billion (99.7%) and cover
15 projects and programmes, with an average amount per operation of roughly UA 111 million.
The structure of the active portfolio reflects a high concentration of Bank interventions in
infrastructure, which represents nearly 90% of the commitments, particularly in energy and
transport (56% of commitments). One operation (Marrakech Water Supply Project) is currently
in the PPP category since March 2014 and is the subject of close attention to move it out of said
category. The portfolio also includes two non-sovereign operations totalling UA 177 million.
The overall performance of the Bank’s portfolio remains satisfactory, with an average score of
2.53 out of 3 in 2014. This score has been stable since 2012.
5
III. RATIONALE, KEY DESIGN ELEMENTS AND SUSTAINABILITY
3.1 Linkages with CSP, Assessment of Country Readiness and Underlying Analytical
Elements
3.1.1. Linkages with the CSP: PADESFI-III is fully consistent with the government’s 2012-
2016 Programme, which aims to further deepen economic and sector reforms to enhance
competitiveness and engender strong and sustainable, solidarity-based and employment-
generating growth. Furthermore, by helping to improve the business environment, PADESFI-
III is in line with some of Morocco’s sector strategies, in particular the new industrial strategy
and the business climate improvement action plan, the latter of which focuses on improving
access to financing for SME/VSE, among others.
3.1.2. Additionally, PADESFI-III is consistent with the guidelines of the 2012-2016 Country
Strategy and those of the Bank’s governance strategy. By supporting government’s efforts to
improve financial sector governance and financial inclusion of the population and businesses,
in particular SMEs/VSEs, the programme ties in with the first pillar of the CSP aimed at
strengthening governance and social inclusion. It is also in line with the Governance Strategic
Framework and Action Plan (GAP II), which focuses on improving the business environment.
It should be noted that PADESFI-III is listed in the CSP 2012-2016 under projects planned for
2014. Furthermore, the programme is consistent with the guidelines of the Bank’s Ten-Year
Strategy (2013-2022), particularly those relating to private sector development and financial
sector governance strengthening. The programme also aligns with the guidelines of the new
financial sector development strategy currently under preparation, which builds on financial
inclusion and the development of capital markets with the strengthening of governance as a
cross-cutting thrust. Lastly, by including specific products to promote women’s
entrepreneurship and the financial inclusion of youths, especially students, PADESFI-III
addresses the priorities of the Bank’s Gender Strategy (support for women’s economic
empowerment).
3.1.3. Assessment of country readiness and compliance with the Bank’s safeguard policy:
Morocco fulfils the pre-conditions both generally and technically to benefit from the budget
support instrument. In general, the country enjoys political and economic stability and the
government’s commitment to carry out reforms has been consistently demonstrated. In
economic terms, Morocco’s performance has been sound in recent years, reflecting efforts to
stabilize the macroeconomic framework and the implementation of reforms focused on
strengthening competitiveness, diversifying the productive base of the economy, social
inclusion and regional development. Moreover, in the Bank’s internal rating scale, Morocco is
rated in the "Very Low Risk" category with a stable outlook.
6
Box 1 - PBO General and Technical Conditions
Criteria Remarks on Current Situation
Government’s
determination to
fight poverty
The government’s programme for the period 2012-2016, approved by Parliament in January
2012, aims to further deepen economic and sector reforms in order to strengthen
competitiveness and engender strong and sustainable, inclusive and employment-generating
growth. To this end, the programme builds on: (i) governance improvement, (ii) the fight
against speculation, monopolies and rent-seeking; (iii) the enhancement of administrative
effectiveness (iv) business climate improvement; (v) support for investment and
strengthening of the territorial and regional dimension of development; and (vi) support for
small- and medium-sized enterprises. The implementation of these actions will help to
significantly promote employment and ensure equitable distribution of the fruits of growth.
Macroeconomic
stability
Macroeconomic stability is illustrated by the performance recorded over the past few years
in an environment marked by a prolonged slowdown in the international economy. Despite
the drop in the growth rate from 5% in 2011 to 2.7% in 2012 essentially due to the sharp
decline in the agricultural sector, growth increased on average from 3.8% over the 1999-2005
period to 4.6% over that of 2006-2012, thanks to the deepening and implementation of
coherent macroeconomic and sector policies, and sustained structural reforms. The
government’s willingness to tackle the thorny issue of compensation charges has recently
resulted in measures indexing petroleum products, thanks to which the budget deficit
declined from 7.3% in 2012 to 5.5% in 2013. The success of Morocco’s outing on the
international capital market in 20131 after that recorded in 2012 as well as the renewal in
2013 of the Facility extended by the IMF attest to confidence in the economic and social
reform process, therefore to the Kingdom’s favourable economic and social prospects. The
IMF Article IV consultations and the third review of the PLL point to an overall improvement
in the performance of the Moroccan economy in 2013 compared to 2012 despite the adverse
global and regional economic environment. Fitch Ratings in November 2013 confirmed the
"Investment grade" rating assigned to Morocco with a stable outlook. S&P recently raised its
rating to "Investment grade". The ratings also reflect the progress made by the country both
economically and politically.
Satisfactory
evaluation of
fiduciary risk
Results of the PEFA, CFAA and CPAR assessments and the public expenditure review were
satisfactory. On the fiduciary level, the reliability of financial management is characterized
by a low level of risk, as confirmed by the Bank’s fiduciary assessment. The Public
Expenditure and Financial Accountability (PEFA 2009) report indicates that significant
improvements have been made in Morocco in the area of internal control by governments
and public agencies. Analytical review of the public procurement system (CPAR 2008),
which is an update of the 2005 report, concluded that the overall public procurement risk is
low. The exercise concluded that despite their simultaneity, the reforms within the PARAP
framework in the area of: (i) results-based budgeting; (ii) Medium-Term Expenditure
Framework (MTEF); (iii) fiscal devolution; (iv) expenditure control; and (v) strengthening
of the public procurement system, etc., were conducted at a steady pace and have increased
the efficiency and reliability of the country’s budget and accounting system. To overcome
weaknesses in public procurement, a new procurement code largely addressing such
weaknesses was adopted in 2013; this reform featured in PARGEF I approved by the Bank
in 2012. The effectiveness on 1 January 2014 of the new decree 2-12-349 of 30 March 2013
on public procurement introduced major innovations, including the simplification and
clarification of procedures, and improvement of complaints and redress mechanisms. Based
on these improvements, Morocco is the first country to sign an agreement with the Bank for
use of the country public procurement system in Bank operations.
Political stability
The Moroccan system is a constitutional monarchy and the institutions of the Kingdom are
strong and stable. Political changes take place through free and fair elections, and civil society
is very active. The recent constitutional revision and peaceful and successful political
transition following elections confirm the Kingdom’s stability.
Harmonisation
Support from multilateral and bilateral donors to the implementation of the government
programme has been constant. Furthermore, partnership between donors operating in
Morocco remains strong and this strength is illustrated in the area of economic and financial
governance through several joint operations between AfDB, the World Bank and the
European Commission (PARL, PASFI, PADESFI).
1 22 May 2013 Issue: (i) USD 500 million (4.25% coupon, 10-year maturity, issue price 100.263%); (ii) USD 250 million (5.50% coupon,
30-year maturity, issue price 99.032%).
7
3.1.4. Analytical work: PADESFI-III’s design was informed by the results of analytical
work conducted recently both at the Bank and in the country itself and other agencies and
external partners (Technical Annex 13). It is worth noting the work on financial inclusion in
Africa as well as Morocco’s growth diagnosis conducted by the Bank, the study on the national
guarantee system undertaken by the government and the report on the Financial Sector
Assessment Programme by the IMF and the World Bank in 20082, to mention but a few.
Specifically, the growth diagnosis conducted by the Bank highlights the need to revitalize the
capital market.
3.2 Donor Collaboration and Coordination
In general, all economic and financial governance programmes (PARL, PARGEF,
PADESFI) have been conducted with other co-financiers, including the World Bank and the
European Union, in accordance with the guidelines of the Paris Declaration on Aid Effectiveness,
in particular by supporting similar reforms on the basis of a joint matrix of measures. Under
PADESFI-III, collaboration with the World Bank, co-financier in the previous phases, is still
required even if, for reasons related to the respective schedules of the two institutions and the
slippage owing to the difference in their fiscal years, the WB is not involved in this operation.
Thus, the World Bank approved the first phase of the programme to support the development of
the capital market and SME financing to the tune of USD 300 million in March 2014. This
programme aims essentially to deepen capital markets and improve SME financing while
strengthening financial sector governance. Parallel financing from the World Bank as well as the
programme objectives it supports attests to full synergy between the two programmes financed by
the World Bank and AfDB. In addition, the Moroccan authorities, through the Treasury and
External Finance Directorate, ensure harmonization of various donor activities.
3.3 Outcomes and Lessons from Similar Operations
The Bank has financed several budget support programmes in Morocco. The
completion reports prepared for these programmes point to the country’s good performance in
implementing such operations and strong ownership by the authorities of the measures agreed
upon therein. The main difficulty identified relates to the duration of the process of approving legal
instruments, due mainly to the political will to conduct reforms in a participatory manner with all
stakeholders. PADESFI-III’s design gave particular consideration to this lesson, especially in
terms of reforms identification and sequencing. This approach ensures their effective
implementation at the earliest possible time. Similarly, to improve financial inclusion, previous
programmes have contributed to the development of new products whose mechanisms need to be
understood by the population whereas the latter, in their vast majority, has a weak financial culture.
This underscores the importance of the financial education component included in PADESFI-III.
3.4 Linkages with Other Bank Operations
By strengthening the financial sector in its economic financing role, PADESFI-III is a
medium to support the activities of other operations that the Bank is implementing in Morocco. In
addition, the proposed programme, which aims to strengthen governance and deepen the financial
sector, is a suitable framework for creating an enabling environment for business climate
improvement. As such, its impact will consolidate the public administration’s governance
achievements (PARL and PARGEF). Furthermore, by helping to improve the financial inclusion
of the population (especially the poor, youths and women) and SMEs/VSEs, PADESFI-III will
complement and enhance the impact of the Bank's other operations in the areas of social inclusion
(case in particular of ABB, whose counters are used for PARCOUM’s RAMED product), the fight
against poverty and risk coverage (case of agricultural insurance of the Green Morocco Plan
Support Programme, a key instrument for promoting green growth in Morocco). Similarly, the
four institutional support operations mentioned in the paragraph below will facilitate the attainment
of PADESFI-III’s objectives. Lastly, regarding the capital markets component, the programme is
2 The detailed list of such analytical work appears in the technical annex.
8
fully consistent with the AFMI (Africa Financial Markets Initiative) project currently being
prepared, the Casablanca Stock Exchange being one of the venues selected for the preparation of
the African Financial Markets Index.
3.5 Bank’s Comparative Advantages
The experience garnered by the Bank in the area of support to financial sector reforms in
Morocco since PASFI (1997-2002) and the new generation of reforms initiated in 2009 as part of
PADESFI, has helped to establish strong partnership relations with the Moroccan authorities.
Moreover, the two phases of PADESFI (PADESFI I and II) successfully implemented in 2009 and
2011 enjoyed significant leverage through four institutional support operations financed by MIC-
TAF grants, intended respectively to: (i) enhance the quality of capital markets monitoring; (ii)
improve the information and risk management framework of the national guarantee system; (iii)
provide better visibility to the regulatory and legislative framework for the sector through
preparation of the Moroccan Monetary and Financial Code; and (iv) enhance the effectiveness of
the Treasury debt institutional management framework. These actions conducted in the context of
high-quality dialogue with the government propelled the Bank to the rank of lead donor in
Morocco’s financial sector. In terms of its value added within the PADESFI-III framework, the
Bank plans to support the authorities in: (i) building the capacity of microcredit associations; (ii)
improving financial culture; (iii) building capacity in regulating insurance and pensions; (iv) the
joint listing of shares on the Casablanca Stock Exchange and WAEMU Regional Stock Exchange
(BRVM); and (v) improving women's entrepreneurship through the proposed establishment of a
Women’s Investment Fund. These institutional support operations are related to PADESFI-III
reforms and should be financed from MIC-TAF resources.
3.6 Application of Best Practice Principles on Conditionality
Best practice principles on conditionality, especially those related to ownership, the
coordinated accountability framework, adaptation of this framework to the context, choice of
disbursement conditions for results and predictability of financial support have been taken into
account in the design and preparation of PADESFI-III.
IV. PROPOSED PROGRAMME
4.1 Programme Goal and Objectives
The goal of PADESFI-III is to help create the conditions for sustained economic
and inclusive growth in Morocco. Its specific objective is to strengthen financial sector
development by deepening and consolidating the achievements of PADESFI-I and
PADESFI-II. Its operational objectives are to: (i) improve the population’s access to financial
services; (ii) facilitate access to financing for businesses; (iii) strengthen financial sector
governance; and (iv) deepen the capital market.
4.2 Programme Components, Objectives and Expected Outcomes
COMPONENT 1: IMPROVE THE POPULATION’S ACCESS TO FINANCIAL
SERVICES
4.2.1. Reforms under this component aim to further target the population on the
sidelines of the financial system. In this regard, they consist mainly in: (i) fostering access to
financial services for persons on the fringes of the traditional banking system especially youths,
women and rural dwellers, by promoting financial education and developing new products
adapted to them, among others; and (ii) strengthening the microfinance sector, particularly by
improving the institutional environment.
9
Sub-component 1.a: Improve the Population’s Access to Financial Services
4.2.2. PADESFI I & II achievements: reforms undertaken since 2009 under the first two
phases of the programme were devoted to: (i) the establishment of the Postal Bank - Al Barid
Bank (ABB) - one of whose key missions is to facilitate household access to financial services,
thanks to which the use of banking services has risen by nearly 10 points; and (ii) the
introduction of financial products that promote access by the poor to social housing. At end-
December 2013, the number of accounts opened by customers in ABB stood at 5 926 371 and
its network had 1 827 branches. In addition, in 2013, the housing loans stock amounted to MAD
529 million for 1 662 households - barely two years after it was launched. Furthermore, the
involvement of the Caisse Centrale de Garantie [Central Guarantee Fund] (CCG) in financing
housing for populations covered by the "Cities without Slums" programmes has helped to
increase the number of beneficiaries to 97 600 up from 63 000 two years earlier, with a credit
volume of MAD 16 386 million.
4.2.3. Challenges: The inclusion process is progressing satisfactorily. However, it could be
further enhanced by promoting greater access to financial services for under-served populations
such as youths, women and rural dwellers. To this end, a range of products more tailored to the
needs of this category of clients should be put in place, particularly in terms of payment and
financially-accessible savings. This offer should also be supported by a financial education
programme designed to enable users of financial services to understand the requirements for,
and pricing of, various financial products available to them, as well as the associated rights and
risks.
4.2.4. Programme measures: measures retained under PADESFI-III concern the: (i)
revision of the format of the "Enseignement Plus" product, marketed by banks with the
guarantee of CCG, to better meet the needs of students of private higher education institutions
and schools; (ii) extension of the "MINHATY" credit card launched by ABB to all scholarship
students; (iii) launch of the Mobile Banking service by ABB (condition precedent to Board
presentation); (iv) measures to ensure the financial viability of the "Damane Assakane" Fund
and better risk hedging; (v) introduction of the "Employee Savings Plan" for mobilizing long-
term savings; and (vi) adoption of a Financial Education Action Plan (condition precedent to
Board presentation).
4.2.5. Expected outcomes: it is expected that the implementation of PADESFI-III measures
will translate into: (i) a 50% increase in the number of students receiving Enseignement Plus
credit in 2015 compared to 2012; (ii) access by all scholarship students to the MINHATY credit
card by end-2014; (iii) an increase in the number of housing loans with "Damane Assakane"
guarantee from 97 600 in 2012 to 150 000 at end-2015; (iv) the number of savers joining the
new “Employee Savings Plan” reaches 1 000 by end-2015; (v) subscription to the Mobile
Banking service by 150 000 clients by end-2015; and (vi) the number of beneficiaries of
financial education programmes reaches 10 000 by end-2015.
Sub-component 1b: Strengthening the Microcredit Sector
4.2.6. PADESFI I & II achievements: the set priority of the first two phases of the
programme was to support the monetary authorities to rehabilitate the microfinance sector. The
restructuring measures taken translated into the pooling of Microcredit Associations (CMA)
and the establishment of prudential standards to strengthen governance, internal control and
rules of classification, as well as provisioning of non-performing loans. The Credit Bureau was
also established and AMCs put under obligation to register with the Bureau. Consequently, the
portfolio at risk at 30 days fell from 9% in 2009 to 6.74% at end-December 2013. The number
of beneficiaries by end-December 2013, stood at 821 246 including 451 686 women (55% of
the beneficiaries). Total credit stock at the same date stood at MAD 4 877 million. The primary
beneficiaries are micro-enterprises, which received 93% of this stock, with one-third thereof
distributed in rural areas.
10
4.2.7. Challenges: on-going actions to reorganize the sector and adopt the new national
strategy place the microfinance sector on a path of recovery, in a manner that would give new
impetus to AMC activities and sustain income generation. To support these developments, there
is an urgent need for a comprehensive reflection on the strategic direction of the sector. This
underscores the need to conduct a study to better inform decision-making on the institutional
development of the sector.
4.2.8. Programme measures: the measure included in PADESFI-III focuses on the launch
of a study to improve the microfinance institutional environment. The study will lay down
future broad strategic directions that should energize the microcredit sector and put it on a sound
and sustainable footing.
4.2.9. Expected outcomes: improvement of the microfinance institutional environment.
COMPONENT 2: IMPROVE ACCESS TO FINANCING FOR VSEs/SMEs
4.2.10. To improve access to financing, the reforms planned under PADESFI-III aim to:
(i) further improve access to credit for VSEs/SMEs; and (ii) develop the guarantee activity
at the regional level to strengthen ties between the CCG and businesses located outside
major urban industrial centres, especially Casablanca. The reforms undertaken under the
first two phases of the programme particularly helped to revitalize the national guarantee system
to facilitate access to finance for VSMEs and to promote the mobilization of savings by
boosting guarantee activity, strengthening the regulatory framework and establishing a public-
private investment fund. The priority assigned to the third phase of the programme consists in
improving the financing of VSMEs, through the promotion of women’s entrepreneurship,
support to export-oriented companies, diversification of the financing products offered and
transfer of business.
Sub-component 2.a: Improve VSME Access to Credit
4.2.11. PADESFI I & II achievements: in terms of outcome of the action initiated to promote
VSMEs during the first two phases of the programme, the volume of CCG commitments in
favour of VSME exceeded MAD 2.5 billion for 2 050 beneficiaries.
4.2.12. Challenges: notwithstanding the satisfactory results noted, some target groups such as
women entrepreneurs deserve particular attention, as do the needs relating to certain specific
operations: (i) promotion of women’s entrepreneurship, including the provision of financial
products suited to that clientele and under favourable terms; (ii) support to export-oriented
enterprises, notably SMEs seeking to position themselves on foreign markets; and (iii)
broadening the scope of CCG intervention to include new activities corresponding to the
clients’ demands, such as lease financing, and facilitating the transfer of business.
4.2.13. Programme measures: measures under the third phase comprise: (i) the launching
of a guarantee product dedicated to women’s entrepreneurship, known as ILAYKI (condition
precedent to Board presentation); (ii) the launching of three new guarantee products that target
export-oriented enterprises (“Mezzanine Export” for investment financing, “Damane Export”
for operations financing, and the “Export Market Guarantee” to enhance access to international
markets); (iii) the inclusion of lease financing in the range of special investment guarantee
products (Damane Express, Damane Crea and Damane Dev); and (iv) the establishment of a
product dedicated to the transfer of business (“Damane Transmission”).
4.2.14. Expected outcomes: The results expected for 2015 comprise: (i) an increase in the
number of start-ups promoted by women (using ILAYKI) from 75 in 2013 to 175 in 2015; (ii)
total amount of loans co-financed under the “Mezzanine Export” facility attaining MAD 110
million, with MAD 400 million for the two other export-dedicated products; and (iii)
achievement of a cumulative volume of MAD 55 million in loans to finance the transfer of
business ("Damane Transmission").
11
Sub-component 2b: Develop Guarantee Activity
4.2.15. PADESFI I & II achievements: actions initiated during the first two phases of the
program helped to boost and consolidate the CCG’s role as exclusive player in the
implementation of the national guarantee system. The Bank supported CGG throughout the
implementation of its strategic plan for 2009/2012. Therefore, CCG was able to expand its
activities into new areas and reach new client segments, diversify the financial products it had
on offer and adapt its services to clients’ needs, while modernizing and reorganizing its
management methods. As a result, at end-December 2013, the volume of bank loans guaranteed
by CCG had doubled in comparison to 2010, reaching MAD 10.2 billion.
4.2.16. Challenges: to accelerate and strengthen its drive, CCG must build on the
achievements of the first two PADESFI phases and put in place a new, more ambitious strategic
plan for the 2013/2016 period. The two major thrusts of the development plan relate to the
provision of products and the modernization of the institution. For the first aspect, the challenge
consists in consolidating and expanding the supply of guarantees dedicated to VSMEs,
supporting export enterprises and strengthening the supply of products intended for youths and
women, especially in rural areas. The second aspect concerns modernizing the institution's
management and its organization, as well as strengthening its risk management policy. The
adoption of a close customer relations policy (network strengthening) and improved
communication will also enhance CCG’s visibility.
4.2.17. Programme measures: measures proposed under this programme highlight the
strategic and regional dimensions of guarantee activities, with: (i) the adoption of the national
guarantee system strategy for the 2013-2016 period; and (ii) the opening of new CCG business
centres in the regions.
4.2.18 Expected outcomes: adoption and implementation of the new development plan for
the 2013/2016 period and CCG opening at least two regional centres before end-2015.
COMPONENT 3: STRENGTHEN FINANCIAL SECTOR GOVERNANCE AND
STABILITY
4.2.19. To strengthen the mechanisms for financial sector governance and stability,
PADESFI III reforms will aim at: (i) reinforcing the financial market supervision systems; and
(ii) increasing banking sector stability. With particular reference to the financial markets, since
the previous phases of the programme laid the foundation for new regulatory and control
frameworks that meet international standards through the adoption of new laws by the
government, this third phase will continue the institutional process to adopt these draft laws.
Sub-Component 3.a: Strengthen Capital Market Supervision and Control
4.2.20. PADESFI I and II achievements: the bill concerning the establishment of the
Moroccan Capital Market Authority (Autorité Marocaine du Marché des Capitaux -AMMC)
was drafted and submitted to the Cabinet. This instrument establishes the institution's
independence from the executive authorities and empowers it to conduct its mission, allowing
for convergence towards optimal international standards. The legislation concerning the
AMMC has been transmitted to Parliament.
4.2.21. Challenges: the actual challenge lies in continuing the institutional process for the
establishment of AMMC and the adoption of the new law by Parliament. Given the
government’s ambitious plans to make Casablanca an international hub, the establishment of
this regulating body is expected to strengthen its independence vis-à-vis the Executive and
politicians in general, and send out a strong signal to fully secure investor confidence.
12
4.2.22. Programme measures: the key measures include: (i) appointment of members of the
AMMC Board of Directors; and (ii) extension of AMMC’s prerogatives in respect of certain
functions carried out by agencies that it oversees.
4.2.23. Expected outcomes: the text(s) regarding the composition of the AMMC Board of
Directors and the decree on the list of functions requiring authorization should be signed before
end-2015.
Sub-component 3.b: Increase Banking Sector Stability
4.2.24. PADESFI I & II achievements: aware of the issues raised and challenges posed with
regard to financial stability, the government is endeavouring to put in place an appropriate
institutional framework. In this regard, the institutional process to review BAM statutes and the
banking law was initiated under PADESFI-II.
4.2.25. Challenges: one of the main challenges concerns pursuing the institutional process of
examining the bills on BAM statutes and the banking law up to their adoption by Parliament.
Under the financial stability component, macro-prudential oversight should be strengthened
through the establishment of a systemic risk coordination and monitoring committee. Similarly,
the launching of the second credit bureau should improve information on credit applicants'
solvency, lower costs and raise the standard of services provided by these establishments by
introducing additional services with high value-added.
4.2.26. Programme measures: priorities identified under PADESFI-III include two actions,
namely: (i) adoption by the Cabinet of the new banking bill before end-2014, to enhance the
solidity and stability of the banking sector by establishing a framework for macro-prudential
monitoring and management of systemic crises, strengthening prudential regulations and
supervision of financial conglomerates (condition precedent to Board presentation); and (ii)
launching of a second “credit bureau” so as to extend the services provided by these
establishments to include rating, while encouraging competition to reduce costs and improve
service quality.
4.2.27. Expected outcomes: the main outcome expected from this sub-component is the
lowering of the rate of outstanding debts held by banks from 6.6% at end-July 2014 to 5.5% at
end-2015.
COMPONENT 4: DEEPEN CAPITAL MARKETS
4.2.28. To deepen the capital markets, PADESFI-III reforms seek to: (i) diversify the
financial instruments; and (ii) revitalize the capital markets. This phase of the programme
will mainly pursue the institutional process of examining new texts that govern specific
financial operations and instruments.
Sub-component 4-a: Diversify Financial Instruments
4.2.29. PADESFI I & II achievements: the key reforms conducted under PADESFI I and II
to diversify financial instruments and strengthen financial market efficiency involved initiation
or continuation of the institutional process to adopt certain texts on financial operations or
instruments.
4.2.30. Challenges: the introduction of somewhat complex innovative products requires the
application of stricter regulations and provisions, notably in terms of operations control and
sanctioning of offenders, to ensure market security and integrity for these instruments.
13
4.2.31. Programme measures: the government envisages the following measures: (i)
adoption by the Cabinet of the bill on covered bonds before end-2015; (ii) preparation and
submission of the draft general regulations of the financial instruments futures market clearing
house (Stock market, Maroclear, AMMC and BAM) to stakeholders before 2014; and (iii)
adoption of the bill governing the property investment mutual funds (organismes de placement
collectif en immobilier -OPCI) by the Cabinet before end-2015.
4.2.32. Expected outcomes: the inception of OPCIs will enable investors to access new asset
categories in a more flexible manner and at less cost than in direct investment. The text on
covered bonds will broaden the scope of financial innovation by enabling issuers to obtain
financing on more favourable terms than the classic corporate funding. Investors could further
refine their capital allocation.
Sub-component 4-b: Revitalize Financial Markets
4.2.33. PADESFI I & II achievements: the key reforms conducted under PADESFI I and II
to boost the capital markets mainly consisted in launching and pursuing the institutional process
for adoption of certain texts.
4.2.34. Challenges: the reforms envisaged are very ambitious. The real challenge for the
Moroccan authorities is to step up the pace of reforms.
4.2.35. Programme measures: The measures under this sub-component consist in: (i) signing
the market agreement for the listing of foreign securities at the Casablanca Stock Exchange, (ii)
Cabinet’s adoption of the draft amendment to the law governing the stock market; (iii) Cabinet’s
adoption of the decree enforcing the law on Initial Public Offering; (iv) Cabinet’s adoption of
the decree enforcing Law 33-06 concerning debt securitisation; (v) signing by the Minister of
Economy and Finance of the decree approving the model securities lending agreement; and (vi)
Cabinet’s adoption of the bill modifying Law 41.05 governing venture capital investment
agencies (condition precedent to Board presentation).
4.2.36. Expected outcomes: the targeted measures should lead to: (i) at the least, the
stabilization of market capitalization in 2015 at its 2013 level of MAD 450 billion; and (ii) an
increase in the volume of venture capital investment from MAD 307 Million in 2012 to MAD
1 500 Million in 2015, i.e. an increase of 63%.
4.2.37. Status of implementation of programme reforms: following dialogue with the
government, it undertook to put in place a set of measures prior to presentation of the
programme to the Bank Group Board of Directors. These measures have been selected based
on their status and their structuring potential. Under the circumstances, it should be possible to
carry them out before presentation of the programme to the Board. These measures are shown
in Box 2 below:
Box 2: Measures Precedent to PADESFI-III Presentation to the Board of Directors
Measure 1: Launching of a mobile banking product by Al Barid Bank (ABB)
Measure 2. Adoption of a financial education action plan
Measure 3: Introduction of the "ILAYKI" guarantee product designed for women entrepreneurs
Measure 4: Cabinet’s adoption of the draft banking law
Measure 5: Cabinet’s adoption of the bill modifying Law 41-05 on venture capital agencies.
4.3 Financing Requirements and Arrangements
The estimated financing needs of the Treasury of Morocco for the 2014 period
represent approximately MAD 46.5 billion (MAD -57.1, excluding grants), i.e. EUR 4.14
billion (see table below). These needs will be covered by Morocco's own resources and external
funding. The external resource needs are estimated at MAD 15.4 billion, equivalent to EUR
1.37 billion. These external financing needs are expected to be covered by drawdowns on
external loans granted for investment projects and reform programmes. The proposed Bank
14
loan of EUR 100 million represents about 8.24% of the external financing needs for the 2014
period.
Table 1
Morocco: Budgetary Balance and Financing Needs (in MAD billion)
Chapters 2014
Total revenue (excluding Hassan II Fund), of which: 258.4
Tax Revenue 211.3
Non-tax revenue (grant 10.6 ) 47.1
Net expenditure and loans (excluding Hassan II Fund), of which 315.5
Current expenditure (including 15.4 of transfers to agencies and partly used for
capital expenditure)
262.2
Capital expenditure 53.5
Overall balance (commitment basis, excluding Hassan II Fund) -57.1
Arrears variation 0
Other revenue 0
Funding Requirements -46.5
Domestic financing 31.1
External financing 15.4
4.4 Programme Beneficiaries
4.4.1. The programme’s end beneficiaries are the Moroccan people as a whole. Their
living conditions will improve when the conditions for sustainable and inclusive economic
growth would have been fulfilled. Furthermore, especially from the standpoint of youths and
women, the programme will also have key intermediate beneficiaries, namely: (i) the private sector,
especially SMEs/VSEs which, thanks to reforms to be implemented, will have easier access to
financial services to foster their growth; and (ii) households as economic agents, particularly youths
and women, whose bank use rate will further improve as a result of greater coverage of the national
territory by the banking networks, in addition to easier access to loans. Thus, such improved
financial inclusion, particularly for SMEs, VSEs and households, not just generally but also in terms
of geographic coverage, will help to generate income and create jobs for these population segments
and categories, thereby encouraging more inclusive growth.
4.4.2. This population, especially the women, will in addition benefit from improved access
to microcredit3. The private and parapublic sectors will also benefit from the programme
through facilitated access to financing, owing to the availability of long-term resources on the
financial market.
4.5.. Impact on Gender
One of PADESFI-III’s objectives is to promote women's entrepreneurship, notably
through the special guarantee product known as ILAYKI. Thanks to this specific product, it is
expected that 175 women promoters will benefit from financing by the end of the programme.
In addition, the strengthening of the microcredit sector through improved governance of the
associations concerned and the formulation of a strategic vision for development of this sector,
will enable microcredit beneficiaries, mostly women, to finance small productive projects in
the agriculture and handicraft sectors, most often in the rural areas.
4.6 Impact on the Environment
The programme involves budgetary support exclusively in the financial sector. It
will have no environmental impact and is thus rated in Category III.
3 This sector has enabled the creation of over 2 000 direct permanent jobs and tens of thousands of indirect jobs since its establishment.
15
4.7 Impact on the Business Environment
By focusing on the improvement of SME/VSE access to financing, the modernization
of the guarantee system and enhanced supervision of the banking and insurance sectors and the
financial market, PADESFI-III will aid the development of an environment that is conducive
to private sector activity. Facilitating the access of SMEs/VSEs to financing is all the more
important as their priorities include sector strategies such as the industrial strategy and the
business climate improvement action plan. Moreover, the development of the capital market
and the promotion of the Casablanca Finance City project will help to attract new investments
and strengthen the activities of institutions with regional outreach.
V. IMPLEMENTATION, MONITORING AND EVALUATION
5.1 Implementation Arrangements
5.1.1. Institution in charge: the Ministry of Economy and Finance (Treasury and
External Finances Directorate) will steer PADESFI-III’s implementation. This Ministry
satisfactorily implemented the two preceding phases of PADESFI as well as the past Financial
Sector Support Programme. The institution in charge will mobilize other stakeholders to
implement the reforms. In a nutshell, a participatory and gradual approach has been selected
both for programme design and implementation, i.e. each given reform project will involve: (i)
extensive consultations with the stakeholders (BAM, banks, microcredit associations, DAPS,
insurance companies, CDVM, financial market actors, property development companies,
professional associations, etc.) to define the key thrusts of the reform project; (ii) preparation
and submission of relevant documents to project stakeholders (cf. Matrix of Measures in Annex
2); (iii) posting of the project on the government website for consultation by the public; and (iv)
an adoption process.
5.1.2. Financial management: owing to the nature of the operation, the resources will be
used in keeping with national public finance regulations. The Ministry of Economy and
Finance will be responsible for the administrative, financial and accounting management of
said resources. It will ensure that all public institutions and corporations (EPP) and the financial
sector bodies involved in this Bank operation are allocated their projected budget lines or other
appropriations (Special Treasury Accounts) as entered in the 2014 Finance Act. The entire
public expenditure network will be utilized. The risk assessment conducted by the Bank’s
fiduciary services is consistent with both the March 2011 Guidelines on the “Fiduciary Risk
Management Framework relating to the AfDB’s Reform-Support Operations” and the March
2012 Policy Document. It allows the Bank to consider implementation of PADESFI III. Indeed,
considering the most recent analysis on public finance management, procurement and
corruption, the level of the initial country fiduciary risk is moderate. This level of risk could be
further lowered to a low residual level to enhance the effectiveness of this budget support
operation, bearing in mind the reforms implemented over the past years and those in the
pipeline, which are geared towards the promulgation of Organic Law n°130-13 on the Finance
Act. The sector risk, which is assessed based on the supervision and control exercised by the
Public Corporations and Privatization Directorate (DEPP) on public institutions and
corporations (EPP), remains low thanks to the effective application of the different types of
control, including graduated control. Furthermore, in view of the current operation, the 2014
Finance Act clearly highlights, in its overall budget draft, Article 8500 paragraphs 21 and 22
on revenue, and Article 0000 paragraphs 10, 60 and 80 on expenditure.
5.1.3. Disbursements: considering the continuous dialogue and the progress attained in
implementing the agreed reforms as captured in the conditions precedent, the EUR 100 million
loan will be disbursed in a single tranche, subject to the Borrower’s fulfilment of the
general and specific conditions related thereto and stipulated in paragraph 6.2 herebelow.
16
At the Borrower’s request, the Bank will disburse the agreed amount, in foreign exchange, into
a Central Bank of Morocco (Bank Al Maghrib) account, which will subsequently credit the
Single Treasury Account (CUT) with the local currency equivalent of the amount received. The
Bank’s disbursement will be made under the 2014 fiscal year. Within 30 days following the
disbursement, MEF will submit to the donor a letter confirming the transfer and specifying that
the total amount of the loan has been received. This letter will be accompanied by notices on
the operations carried out by Bank Al Maghrib. The flow of funds (including currency exchange
and the duration of the transfer) will conform to the standard procedures governing public
finance.
5.1.4. Procurement of goods and services: given that this is a budget support programme,
its implementation does not raise any direct issues relating to the procurement of goods and
services.
5.1.5. Audits: internal audit: the internal auditing of PADESFI-III will be based on the
national ex-post internal auditing carried out by the Auditor General’s Office (Inspection
Générale des Finances – IGF), pursuant to its mandate. The IGF will conduct a special audit
of AfDB financial flows and support; it will also audit performance in terms of fulfilment of
conditions precedent PADESFI-III disbursement. The IGF’s report on the special audit of the
financial flows and performance will be submitted to the Bank within six months of the end of
the 2014 fiscal year. External audit: considering that loan resources are fungible with the State
budget, the external audit of PADESFI-III resource utilization will be covered during
consideration of the 2014 Budget Reconciliation Act by the Audit Bench of the Moroccan Court
of Public Finance Accounts. The report of the Court of Public Finance Accounts (declaration
of consistency) will be published within the timeframe stipulated in the organic law.
5.2 Monitoring and Evaluation Arrangements
The agreed macro-economic monitoring and matrix of measures framework will be
the PADESFI-III common monitoring/evaluation frameworks (Annex 2). MEF will be in
charge of data collection as well as monitoring/evaluation coordination, and will make the
information available to the Bank. In this regard, MEF will produce quarterly reports with a
view to providing more comprehensive information on the status of programme
implementation. Supervision missions will be conducted during the programme
implementation period to evaluate the implementation status. At the end of the programme, a
completion report will be prepared jointly with the government.
VI. LEGAL INSTRUMENTS AND LEGAL AUTHORITY
6.1 Legal Instruments
The Loan Agreement is the legal instrument that will be used for this programme. The
two parties to this agreement are the African Development Bank and the Government of the
Kingdom of Morocco.
6.2 Conditions Precedent to Bank Group Intervention
6.2.1. Conditions Precedent to Presentation of the Programme to the Board
During dialogue with the government, it was agreed that the government will fulfil the
conditions precedent prior to presentation of the programme to the Bank Board of Directors.
These conditions precedent are presented in Box 2 under paragraph 4.2.37.
17
6.2.2. Conditions Precedent to Loan Effectiveness
The effectiveness of the loan shall be subject to fulfilment of the conditions stipulated
in Section 12.1 of the General Conditions Applicable to Loan Agreements.
6.2.3. Conditions Precedent to Disbursement
The disbursement of the loan in a single tranche of EUR 100 million shall be subject to
fulfilment of the conditions precedent below:
Forward to the Bank evidence of the opening of a Treasury Account in Bank-al-
Maghrib (Central Bank of Morocco) acceptable to the Bank, which will receive the
loan resources (§ 5.1.3).
6.3 Compliance with Bank Group Policies
The core Bank Group directives and other guidelines applicable under this programme
are as follows: (i) Directives on Programme-Based Operations (2012); and (iii) Directives on
Financial Product Pricing Flexibility for MICs (2009). No waiver for any of these directives is
requested under this programme.
VII. RISK MANAGEMENT
7.1. The main risks to the attainment of the programme results could be linked to: (i)
an adverse international economic context; and (ii) a wavering of government’s determination
to implement the reforms.
7.2. To mitigate the risk stemming from an adverse international economic context, two
important structures have been set up: (i) the Budget Watch Committee, tasked with ensuring
efficient budget implementation; and (ii) the Committee to coordinate the supervisory bodies
of the financial sector, charged with preventing the overall systemic risks of the financial sector.
7.3. With respect to the risk of wavering of government’s determination to implement
the reforms, high-level authorities have reaffirmed their commitment to implement financial
sector structural reforms. This strong commitment and ownership by the government were
largely demonstrated during past programmes.
VIII. RECOMMENDATION
It is recommended that the Board of Directors approve an African Development Bank
loan not exceeding EUR 100 million in favour of the Government of the Kingdom of Morocco
for financing the Financial Sector Development Support Programme – Phase III (PADESFI-
III).
ANNEX I
Page 1/4
LETTER OF DEVELOPMENT POLICY
v
To
The President of the
African Development Bank
Subject: Letter of Development Policy on the Financial Sector Development Support Project
Mr President,
The Kingdom of Morocco has during the past two decades resolutely embarked on a
financial sector modernization process to support and sustain economic and social
development. The outcomes have been mainly the improvement of financial inclusion and
access to finance for Small- and Medium-Sized Enterprises (SMEs), reinforcement of the
capital market’s role in financing the economy and consolidation of the financial sector
control and supervision framework to ensure its solidity, durability and stability. These
reforms have helped to build a modern financial sector with the main financial instruments
and market institutions, and a strong institutional investor base.
The government will continue efforts to modernize and develop the financial sector and go
further in this process by leveraging achievements. We hope that the African Development
Bank will again support us in this new phase of reforms as was done successfully in the
previous financial sector development programmes.
The new government programme on the modernization of the financial sector has the
following main objectives:
1- Improving the population’s access to financial services for better financial
inclusion;
2- Strengthening financing solutions for small- and medium-sized enterprises,
which are an important source of sustainable socio-economic development
and wealth and employment creation;
3- Developing the supervision and risk monitoring framework to ensure balance
between expanding access to financing and financial stability objectives;
4- Further deepening the capital market by broadening the range of instruments
and investors such that the financial sector can play its full role in savings
mobilization and its optimal allocation to finance investment and the
economy.
KINGDOM OF MOROCCO
MINISTRY OF ECONOMY AND FINANCE
THE MINISTER
المملكة المغربية
الوزير
ANNEX I
Page 2/4
These objectives have been translated into the following four pillars of the proposed
development programme for support by the African Development Bank:
Pillar 1: Improve the Population’s Access to Financial Services
One of the priorities of public policy is to build an inclusive financial system that offers a
full range of financial services to a large population, in particular for individuals. The
measures planned under this framework are mainly of two types:
Improving the population’s access to financing and financial services: this
measure has several sub-components, chief among which are (i) reviewing
the format of the "Enseignement Plus" product to better meet the needs of
students of private higher education institutions and schools; (ii) optimizing
the financial viability and risk management of the "Damane Assakane" Fund;
and (iii) establishing the Employee Savings Plan for mobilizing long-term
savings.
Strengthening the microcredit sector by improving the institutional
microfinance environment.
Pillar 2: Improve Access to Financing for VSEs/SMEs
Although access by enterprises to financing, especially for SMEs, has been significantly
improved with successive financial sector reforms that have helped to diversify financing
sources, strengthen the national guarantee system and improve financial reporting, the
government intends to continue the reform process. As such, it is worthwhile to mention
the development of the "ILAYKI" guarantee product dedicated to women entrepreneurs. In
addition and in line with the government’s strategy, the Board of Directors of the Central
Guarantee Fund (CCG) adopted this institution’s 2013-2016 development plan, which can
be broken down into the following guidelines:
The introduction of new products specifically to support export-oriented
companies consistent with their life cycle needs, namely: (i) the "Mezzanine
Export" product to encourage investment in export promotion, through co-
financing between banks and the Central Guarantee Fund; (ii) the "Damane
Export" product to support the cash flow of export-oriented companies; and
(iii) export markets security to enhance access to international markets;
The consolidation of generic guarantee for VSMEs by integrating leasing and
transfer financing in its offer of products.
Pillar 3: Strengthen the Governance Mechanism and Financial Sector Stability
Strengthening of the financial sector governance mechanism is one of the objectives of the
sector’s modernization process. Achieving this goal requires reinforcing the independence
and powers of intervention of control authorities. Thus, at the level of the capital market,
the law on the Moroccan Capital Market Authority (AMMC) was enacted early 2013. This
law enshrines the independence of the authority responsible for supervising the capital
market and invests it with broad powers, in particular the control of all sections and
stakeholders of the capital market. These powers also extend to the empowerment of
persons with certain sensitive functions within organizations under the control of this
authority. The independence of the AMMC is a key element of the capital market reform
ANNEX I
Page 3/4
and the revision of its governance method and composition of its Board of Directors hinges
primarily on the promulgation of the Organic Law on the appointment to senior level
positions, and that includes AMMC and ACAPS among strategic institutions, pursuant to
which Chairpersons are appointed by the Council of Ministers. In this framework, the draft
organic law was adopted by the Cabinet on 5 February 2014.
Pillar 4: Deepen the Financial Markets
Recognizing the financial market’s role in financing the economy and promoting sector
policies geared towards the development of the key strategic economic sectors, the public
authorities have launched a new generation of reforms aimed at diversify financial
instruments in a more efficient and secure environment with modern market infrastructure.
The end objective is to position ourselves as a regional financial hub in the service of
Africa’s development.
This is the basis for the drafting of the bill on covered bonds that will enable operators to
invest in better guaranteed securities and mobilize long-term funds on concessional terms
for operations in favour of housing in particular, but also of the local administrations. This
product affords banks access to alternative resources to refinance their long-term lending
and optimize their asset/liability management, while providing institutional investors
access to sound, long-term placements.
In the same spirit, the draft law governing the real estate mutual investment agencies
(organismes de placement collectif en immobilier -OPCI) aims to mobilize savings,
especially on a long-term basis, to be channelled especially into financing professional real
estate.
The government has further prepared a bill on the OPCI offering solutions for equity
financing and quasi-equity financing operations of enterprises in general, and SMEs in
particular. This draft law is expected to result mainly in: expansion of the scope of
application of the law to cover all capital investment activities, enhanced security of the
system and increased investor protection, improvement of the financial techniques utilized
and promotion of foreign capital investment.
Another relevant reform relates to the bill laying the foundation for a regulated financial
instruments futures market that affords Moroccan enterprises more effective risk coverage.
This draft law provides for the establishment of a clearing mechanism with central
counterparty, to secure the transactions. Draft general regulations setting out the rules of
operation of the clearing house have been prepared and transmitted to the market
institutions and supervisors, for comment.
To improve financial market liquidity, the government has also devoted efforts to the
formulation of a legislative framework for securities lending. To enact this law, the
framework agreement that specifies the obligations of parties involved and sets out the
technical modalities for these operations has been drafted in consultation with the market
actors and approved by decree.
It is our conviction that these new products will stimulate the financial markets and give
new impetus to the financial sector. However, it is indispensable to modernize the
legislative framework pertaining to the stock markets so as to create new markets that
favour the emergence of new channels of growth, for example through the emergence of a
ANNEX I
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new alternative market dedicated to SMEs and compartments for the rating of the shares
issued by mutual investment funds. To that end, a bill to modify the existing stock markets
law has been prepared and is under discussion with the Secretary-General of the
government.
To enable the Casablanca Stock Exchange to serve as a relay channel for the international
financial supply as well as the national and regional demand, the possibility of rating
foreign securities has been introduced. Such rating should allow national and foreign
investors opportunities for investment in companies whose development will advance the
region’s development potential.
This principle of having foreign securities rated by the Stock Exchange is actualized in the
stock market bill. Moreover, and in order to give this project the required visibility and
guarantee the sound implementation of the actions and measures required for its
concretization, a draft market convention consolidating the commitments of all
stakeholders (State, market authorities and enterprises) has been prepared for signature.
Lastly, I wish to inform you that the process of reforms undertaken in our country in 1993
was crowned by the adoption, in 2010, of the text relating to Casablanca Finance City
(CFC), which seeks to create a financial space to position the city of Casablanca as a
regional finance center.
These, Mr. President, are the broad outlines of this new phase of the ongoing process of
financial sector reform and modernization.
I thank you for your invaluable support for the implementation of this ambitious
programme, and I ask you to accept, Mr. President, the assurances of my highest
consideration.
Mr. Donald KABERUKA President of the African Development Bank Angle des trois rues: Avenue du Ghana, Rue Pierre de Coubertin, Rue Hedi Nouira – BP 323 – 1002 Tunis Belvédère - Tunisia –
ANNEX II
Page 1/7
MOROCCO - Financial Sector Development Support Programme III – PADESFI-III
MEASUREMENT MATRIX
(MEASURING PADESFI I & II FOR INFORMATION PURPOSES)
Data Sources: DS; Institutions Responsible: IR
(**) Measures precedent to presentation of PADESFI III to the Board of Directors
Sub-
Component
PADESFI I
(2009-2010)
PADESFI II
(December 2011 -
2012)
PADESFI III
Single Tranche
Targeted Output
Indicators
Targeted Impact
Indicators
Data Sources and
Institutions Responsible
Component 1 - IMPROVING ACCESS TO FINANCIAL SERVICES FOR THE POPULATION
1. A –
IMPROVE THE
POPULATION’S
ACCESS TO
BANKING
SERVICES
Granting of postal
bank status by Bank-
Al-Maghrib
Commencement of
operations by the
Postal Bank
Launch of "mortgage
loan" by Al-Barid Bank
(Postal Bank)
Bank use by scholarship students through the
launching of "MINHATY Card" by Al-Barid
Bank (ABB)
Launch of "MINHATY
Card" by ABB by end-
2014.
The number of
" MINHATY" bank
cards distributed by
ABB will reach
300,000 at end-2014
DS: Letter from the
Ministry of Economy and
Finance forwarding a copy
of the ABB
correspondence attesting
to the launch of the
product
IR: MEF / ABB
Improve access to credit for students to finance
their education by reviewing the configuration "
Enseignement Plus” product
Signing of the rider
amending the State / CCG
Agreement on
management of the
"Enseignement Plus"
Guarantee Fund
The number of
students who
receive the
"Enseignement
Plus" loan increases
by 25% between
2013 and 2015
DS: Letter from the
Ministry of Economy and
Finance forwarding a copy
of the rider amending the
State / CCG agreement on
management of the
"Enseignement Plus"
Guarantee Fund
IR: MEF / CCG
Amendment of the
agreement linking the
State to the "Central
Guarantee Fund"
(Caisse Centrale de
Garantie) and the
“Damane Assakane"
fund establishing a
product specific to the
targeted population
through the “Cities
without Slums”
programme.
Optimize financial viability and risk
management of the "Damane Assakane" Fund.
Signing of the rider
amending the State / CCG
Agreement on "Damane
Assakane" Fund by end-
June 2014.
The number of
mortgage loans
guaranteed by the
"Damane Assakane"
Fund increases from
97,600 in 2012 to
134,000 in 2014
DS: Letter from the
Ministry of Economy and
Finance forwarding a copy
of the rider amending the
State / CCG Agreement on
the management of the
"Damane Assakane"
Guarantee Fund.
IR: MEF/CCG
ANNEX II
Page 2/7
Sub-
Component
PADESFI I
(2009-2010)
PADESFI II
(December 2011 -
2012)
PADESFI III
Single Tranche
Targeted Output
Indicators
Targeted Impact
Indicators
Data Sources and
Institutions Responsible
Adoption of the Decrees
of the Minister of
Economy and Finance
on the:
- Housing Savings Plan
- Education Savings
Plan
- Equity Savings Plan
(PEA),
Establish an Employee Savings Plan to mobilize
long-term savings through the adoption of the
Decree of the Minister of Economy and Finance
on the Employee Savings Plan
Signing by the Minister of
Economy and Finance of
the Decree defining the
features and parameters
of the Employee Savings
Plan by end-2014.
The number of
savers signing up to
the new savings plan
reaches 1,000 by
end-2015.
DS: Letter from the
Ministry of Economy and
Finance forwarding a copy
of the Decree of the
Minister of Economy and
Finance on the Employee
Savings Plan.
IR: MEF
Launch of "Mobile Banking" by Al Barid
Bank (ABB) to improve access to financial
services throughout the country for the
population
(**)
Launch of "Mobile
Banking" by ABB by end-
2014.
The number of
Mobile Banking
subscribers reaches
150 000 at end-
2015.
SD: Letter from the
Ministry of Economy and
Finance with a copy of the
Al Barid Bank letter
confirming the launch of
"Mobile Banking".
IR: MEF/ ABB
Promote financial literacy through the creation
of the Moroccan Financial Literacy Foundation.
Creation of the Moroccan
Financial Literacy
Foundation by end-2014.
The number of
beneficiaries of
financial literacy
programmes reaches
100 000 at end-
2015.
DS: Letter from the
Ministry of Economy and
Finance forwarding a copy
of the minutes of the first
meeting of the Board of
Directors of the
foundation attesting to the
creation of the foundation.
IR: BAM / MEF
Adopt the Financial Literacy Action Plan.
(**)
Adoption of the Financial
Literacy Action Plan by
the Board of Directors of
the Foundation by end-
2014.
SD: Letter from the
Ministry of Economy and
Finance, forwarding a
copy of the minutes of the
meeting of the Board of
Directors of the
Foundation adopting the
Action Plan.
IR: BAM/ MEF
1 B -
STRENGTHEN
THE MICRO-
Adoption by monetary
authorities of
regulations on the
Transmission of the
draft law amending the
Launch of a study to upgrade the micro-finance
institutional environment
Launch of the call for
expressions of interest for
the study on upgrading the
DS: Letter from the
Ministry of Economy and
Finance forwarding the
ANNEX II
Page 3/7
Sub-
Component
PADESFI I
(2009-2010)
PADESFI II
(December 2011 -
2012)
PADESFI III
Single Tranche
Targeted Output
Indicators
Targeted Impact
Indicators
Data Sources and
Institutions Responsible
CREDIT
SECTOR
classification and
provisioning of non-
performing loans of
micro-credit
associations.
Introduction of
regulations governing
risk management and
internal control of
micro-credit
associations by the
monetary authorities
Law 18-97 on Micro-
credit to Parliament
Completion of the study
on the development
strategy for the micro-
credit sector
Signing of membership
contracts at the micro-
credit associations
Credit Bureau
representing 90% of the
sector's outstanding
credit
micro-finance
institutional environment
in Morocco by the
Ministry of Economy and
Finance by end-2014.
attestation of the launch of
the Call for Expression of
Interest in the study.
IR: MEF/DAAG
Component 2 - IMPROVE ACCESS TO FINANCE FOR VSES/ SMES
2. A - IMPROVE
ACCESS TO
CREDIT FOR
VSES/ SMES
Appointment of a new
Board of Directors of
the Central Guarantee
Fund which includes
private sector
representatives and an
Audit Committee.
Adoption of a
guarantee products
offering in line with
business life-cycle
needs and opening of
two Central
Guarantee Fund
regional offices
Launch of a new
guarantee product for
VSMEs
Promote women’s entrepreneurship through
the creation of a guarantee product called
"ILAYKI" dedicated to women
entrepreneurs.
(**)
Creation of "ILAYKI" by
end-2014.
The number of start-
ups promoted by
women since the
creation of ILAYKI
reaches 175 at end-
2015.
DS: Letter from the
Ministry of Economy and
Finance forwarding the
brief outlining the
features of ILYAKI.
IR: MEF/CCG
Adopt a guarantee products offering for export-
oriented companies in line with their life cycle
needs through the launch of the following
products:
i) "Mezzanine Export" to encourage export-
oriented investment through co-financing
between banks and the Central Guarantee Fund;
(ii) "Damane Export" to support the cash flow of
export-oriented companies;
(iii) Bonding of export markets to increase
access to international markets.
Creation of guarantee
products for export-
oriented companies by
end-2014.
The cumulative
volume of loans
financed under
"Mezanine Export"
reaches MAD 110
million at end-2015.
The cumulative
volume of "Damane
Export" credit and
bonding reaches
MAD 400 million at
end-2015
DS: Letter from the
Ministry of Economy and
Finance forwarding the
briefs outlining the
features of each product.
IR: MEF /CCG
Include "lease financing" in the guarantee
products offerings dedicated to investment
(Damane Express, Damane Crea and Damane
Dév).
Inclusion of lease
financing in guarantee
products offerings
dedicated to investment
by end-April 2015.
DS: Letter from the
Ministry of Economy and
Finance ’s letter
approving the cooperation
agreement between the
ANNEX II
Page 4/7
Sub-
Component
PADESFI I
(2009-2010)
PADESFI II
(December 2011 -
2012)
PADESFI III
Single Tranche
Targeted Output
Indicators
Targeted Impact
Indicators
Data Sources and
Institutions Responsible
CCG and financing
companies offering lease
financing
IR/ MEF/CCG
Facilitate the transfer of business by creating
"Damane Transmission".
Inclusion of "Damane
Transmission" in the SME
Guarantee Fund product
offering by end-June 2015.
Total of potential
credits granted by
banks to finance the
"Damane
Transmission"
reaches MAD 55
million at end-2015.
DS: Letter from the
Ministry of Economy and
Finance forwarding a copy
of the rider amending the
State / CCG agreement on
the management of the
SME Guarantee Fund.
IR: MEF/CCG
B 2 - DEVELOP
GUARANTEE
ACTIVITIES AT
THE REGIONAL
LEVEL
Expand guarantees at the regional level through
the opening of new CCG business centres in
other cities of the Kingdom
Total number of
operational business
centre reaches at least six
at end-2015.
DS: MEF’s letter attesting
to the opening of CCG
business centres
RI : MEF / CCG
Component 3 - STRENGTHEN THE FINANCIAL SECTOR GOVERNANCE MECHANISM
3 A -
STRENGTHEN
THE CAPITAL
MARKET
SUPERVISION
MECHANISM
Submission of a draft
law on the Capital
Market Authority to
the General
Secretariat of the
government
Transmission of the
draft law on the
Moroccan Capital
Market Authority
(AMMC) to Parliament
Designate the composition of the AMMC Board
of Directors
Text (s) on the
composition of the AMMC
Board of Directors signed
by end-2015
DS: Letter from the
Ministry of Economy and
Finance forwarding a copy
of the signed text (s) on the
composition of the
AMMC Board of
Directors.
IR: MEF
Expand the powers of the AMMC with regard to
the authorization of certain functions within
organizations subject to control.
The decree establishing
the list of duties requiring
authorization is signed by
the Minister of Economy
and Finance by end-2015.
DS: Letter from the
Ministry of Economy and
Finance forwarding a copy
of the decree establishing
the list of duties requiring
authorization
IR: MEF
ANNEX II
Page 5/7
Sub-
Component
PADESFI I
(2009-2010)
PADESFI II
(December 2011 -
2012)
PADESFI III
Single Tranche
Targeted Output
Indicators
Targeted Impact
Indicators
Data Sources and
Institutions Responsible
3 B - ENHANCE
THE BANKING
SECTOR'S
STABILITY
Submission of the draft
law amending BAM
statute to the General
Secretariat of the
government
Transmission of the
draft banking law to the
General Secretariat of
the government
Launch of monetary and
financial codification
Strengthen the soundness and stability of the
banking sector through a new banking law
providing for the creation of a macro-
prudential supervision and systemic crises
management framework, strengthen
prudential regulation and supervise financial
conglomerates (**)
The banking bill is
adopted by the Cabinet by
end-2014.
The rate of non-
performing loans
held by banks is
limited to a
maximum of 5.5%
at end-2015
DS: Letter from the
Ministry of Economy and
Finance forwarding the
report from the Cabinet
that adopted the bill on
credit institutions and
similar bodies.
IR: MEF
Credit Bureau
conducting at least
one reporting test with
respondents
Commencement of
Credit Bureau
operations
Launch of a second credit bureau to increase the
services provided by credit rating agencies while
promoting competition to reduce costs and
improve service quality.
The Central Bank (BAM)
announces the selection of
the operator that will be
authorized to manage the
second credit bureau by
end-2014.
DS: Letter from the
Ministry of Economy and
Finance forwarding
BAM's confirmation of
the choice of the operator.
IR: MEF/BAM
Component 4 - DEEPEN CAPITAL MARKETS
4. A -
DIVERSIFY
FINANCIAL
INSTRUMENTS
Preparation and
transmission of the bill
on covered bonds to
stakeholders.
Transmission of the bill
on covered bonds to the
General Secretariat of
the government
Promote the mobilization of long-term and low
cost resources by creating a legislative and
regulatory framework for covered bonds
The bill on covered bonds
is adopted by the Cabinet
by end-2015.
DS: Letter from the
Ministry of Economy and
Finance forwarding the
report of the Cabinet that
adopted the bill on
covered bonds.
IR: MEF
Adoption of a bill on
the financial
instruments futures
market by the Cabinet
Preparation and
transmission of the draft
General Regulation of
the futures market
Ensure the efficient commencement of the
futures market by setting missions and modes of
operation of the clearing house
The proposed general
regulation of the futures
market clearing house is
prepared and forwarded
to stakeholders (Stock
DS: Letter from the
Ministry of Economy and
Finance’s attesting to the
forwarding of the draft
ANNEX II
Page 6/7
Sub-
Component
PADESFI I
(2009-2010)
PADESFI II
(December 2011 -
2012)
PADESFI III
Single Tranche
Targeted Output
Indicators
Targeted Impact
Indicators
Data Sources and
Institutions Responsible
management company
to stakeholders
Exchange, Maroclear,
AMMC and BAM) by end-
2014.
general regulation to
stakeholders.
IR: MEF
Preparation and
submission of a
proposed legislative
framework for property
investment mutual
funds (OPCI) to the
stakeholders
Promote the mobilization of long-term resources
for financing real estate by setting up the OPCI
legislative and regulatory framework
The bill on OPCIs adopted
by the Cabinet by end-
2015.
DS: Letter from the
Ministry of Economy and
Finance forwarding the
report of the Cabinet that
adopted the bill on OPCIs
IR: MEF
4. B - BOOST
THE CAPITAL
MARKET
Adoption of the decree
enforcing Law No. 44-
10 on the Status of
Casablanca Finance
City (CFC) by the
Cabinet
List of foreign securities on the Casablanca
Stock Exchange
Market convention on the
listing of foreign securities
on the Casablanca Stock
Exchange is signed by
end-2014.
DS: Letter from the
Ministry of Economy and
Finance forwarding the a
copy of the market
convention.
IR: MEF
Submission of a bill
amending and
supplementing the
Dahir on the Stock
Exchange to the
General Secretariat of
the government
Adoption of the bill
amending the Law on
the Stock Exchange
by Cabinet
Preparation and
transmission of the draft
statute on the Stock
Exchange to
stakeholders
Create compartments specifically dedicated to
mutual funds and SMEs on the Casablanca Stock
Exchange
The bill amending the Law
on the Stock Exchange is
adopted by the Cabinet by
end-April 2015.
At least a
stabilization of
market
capitalization in
2014 to its 2013
level of MAD 450
billion
DS: Letter from the
Ministry of Economy and
Finance forwarding the
report of the Cabinet that
adopted the bill on the
Stock Exchange.
IR: MEF
Transmission of Bill
No. 54-08 on the Initial
Public Offering (IPO) to
the General Secretariat
of the government
Presentation of the IPO
bill to the Cabinet
Enhance transparency in financial transactions
and protect depositors and investors by adopting
the decree enforcing the law on IPOs
The decree to implement
the law on IPO which
defines the powers of the
Minister of Economy and
Finance is adopted by the
Cabinet by end-2014.
DS: Letter from the
Ministry of Economy and
Finance forwarding the
report of the Cabinet
adopting the decree.
IR: MEF
ANNEX II
Page 7/7
Sub-
Component
PADESFI I
(2009-2010)
PADESFI II
(December 2011 -
2012)
PADESFI III
Single Tranche
Targeted Output
Indicators
Targeted Impact
Indicators
Data Sources and
Institutions Responsible
Strengthen prudential regulations, controls and
conditions under which the FPCT conducts
securitization transactions.
The decree enforcing Law
No. 33-06 on debt
securitization is adopted
by the Cabinet by end-
2014.
DS: Letter from the
Ministry of Economy and
Finance forwarding the
report of the Cabinet
adopting the decree
enforcing Law No. 33-06
on debt securitization.
IR: MEF
Adoption of the Bill
on security lending
transactions by the
Cabinet
Developing a standard
securities lending
agreement template
Accelerate the operationalization of the law on
securities lending aimed at diversifying financial
instruments and strengthening financial market
liquidity.
The decree on the
approval of the securities
lending agreement
template is signed by the
Minister of Economy and
Finance by end-2014.
DS: Letter from the
Ministry of Economy and
Finance forwarding a copy
of the Decree signed by
the Minister of Economy
and Finance.
RI: MEF
Government
commitment to the
establishment of an
Public-Private
Investment Fund
Effective contribution
of the State to the
Public-Private
Investment Fund
Transmission of the bill
amending Law No. 41-
05 on venture capital
institutions to the
General Secretariat of
the government
Promote and enhance transparency in
venture capital operations by adopting the
bill amending Law No. 41-05 on venture
capital institutions (**)
The bill amending Law
No. 41-05 on venture
capital institutions is
adopted by the Cabinet by
end-2014.
DS: Letter from the
Ministry of Economy and
Finance forwarding the
report of the Cabinet
adopting the bill.
IR: MEF
ANNEXE III
Page 1/1
NOTE ON RELATIONS WITH THE IMF
Press Release No. 14/368 (28 July 2014) – International Monetary Fund
IMF Executive Board Approves US$5-Billion Arrangement for Morocco Under the
Precautionary and Liquidity Line
The Executive Board of the International Monetary Fund (IMF) today approved a new 24-month arrangement
for Morocco under the Precautionary and Liquidity Line (PLL) in an amount equivalent to SDR 3.2351 billion
(about US$5 billion, or 550 percent of Morocco’s quota at the IMF). The access under the arrangement in the
first year will be equivalent to SDR 2.941 billion (about US$4.5 billion, 500 percent of quota), rising in the
second year to a cumulative US$5.0 billion. Morocco’s first 2-year PLL arrangement was approved on August
2, 2012.
The Moroccan authorities have stated that they intend to treat the arrangement as precautionary, as they have
done with the 2012 PLL, and do not intend to draw under the arrangement unless Morocco experiences actual
balance of payments needs from a significant deterioration of external conditions.
The PLL arrangement will allow the authorities to pursue their homegrown reform agenda aimed at achieving
rapid and more inclusive economic growth while providing them with useful insurance against external shocks.
The PLL was introduced in 2011 to meet more flexibly the liquidity needs of member countries with sound
economic fundamentals and strong records of policy implementation but with some remaining vulnerabilities.
Following the Executive Board discussion on Morocco, Mr. Noayuki Shinohara, IMF Deputy Managing
Director and Acting Chairman of the Board, made the following statement:
“Morocco’s sound economic fundamentals and overall strong record of policy implementation have contributed
to a solid macroeconomic performance in recent years. Despite a difficult external environment, the authorities
made important strides in reducing vulnerabilities, rebuilding policy space and addressing medium-term
challenges over the course of the first arrangement supported by a PLL. They have been consolidating
Morocco’s fiscal position while pursuing an agenda of structural reforms to address vulnerabilities, strengthen
competitiveness, and promote higher and more inclusive growth. The significant progress made in reforming
the subsidy system is particularly commendable.
“The external environment remains subject to significant downside risks. In particular, protracted and slower–
than-expected growth in Europe than currently projected, heightened financial market volatility, or a surge in
oil prices resulting from geopolitical tensions could significantly affect the Moroccan economy. In this context,
the successor PLL arrangement will continue to provide insurance to support the authorities’ economic policies.
“The authorities are committed to further reducing fiscal and external vulnerabilities while laying the
foundations for higher and more inclusive growth. To achieve these goals, it will be important to control
expenditure as well as advance major reforms, including those of subsidies, pension and the tax system. The
timely adoption of a new organic budget law will be essential in order to strengthen and modernize the budget
framework. Moving toward a more flexible exchange rate regime, in coordination with other macroeconomic
policies would also help support competitiveness and enhance the economy’s capacity to absorb shocks.
Advancing structural reforms to improve the business climate, the judicial system, access to finance, and the
labor market will be crucial to achieving higher growth and employment,” Mr. Shinohara said.
Morocco has been a member of the IMF since 1958 and has a quota of SDR588.2 million (about US$903.4
million).