Document of L-

The World flank

FOR OFFICIAL USE ONLY

Report No. P-3461-MOR

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

IN AN AMOUNT EQUIVALENT TO US$60.0 MILLION

TO

CREDIT IMMOBILIER ET HOTELIER

WITH THE GUARANTEE OF KINGDOM OF MOROCCO

FOR A

HOUSING DEVELOPMENT PROJECT

February 16, 1983

This document has a restricted distribution and may be uLsed by recipients only in the perfermance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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KINGDOM OF MOROCCO

CURRENCY EQUIVALENT

Currency Unit - Dirham (DH)US$l = DH6.00DHI = US$o.17

FISCAL YEAR

January 1 - December 31

GLOSSARY OF ABBREVIATIONS

BNDE = Banque Nationale pour le Developpement EconomiqueCDG = Caisse de Dep8t et de GestionCIH = Credit Immobilier et HotelierERAC = Etablissements Regionaux d'Amenagement et de ConstructionMHAT = Ministere de l'Habitat et de l'Am6nagement du Territoire

FOR OFFICIAL USE ONLY

KINGDOM OF MOROCCO

HOUSING DEVELOPlENT PROJECT

LOAN AND PROJECT SUMMARY

Borrower: Credit Immobilier et Hotelier (CIH)

Guarantor: Kingdom of Morocco

Amount: US$60.0 million equivalent, including the capitalizedfront-end fee

Terms: Amortization in 17 years, including four years of grace,at the standard variable interest rate.

On-lending Terms: About $59.0 million will be on-lent by CIH to developersfor housing construction and land development for threeyears, and to individual households for self-constructionfor a maximum 25 years at the prevailing interest rate of14%. The Government would bear the foreign exchange riskon the loan but CIH would bear the risk of fluctuations ofthe interest rate of the Bank loan.

ProjectDescription: The project is designed to (a) increase the housing stock

serving low-income groups in Morocco; (b) assist CIH inits efforts to encourage both private and publicdevelopers to produce low income housing; and (c) developCIH's appraisal ability in this field. To achieve theseobjectives the project would finance construction oflow-cost housing schemes for subsequent sale of housingunits targeted at the selected income group through CIHand a technical assistance program to CIH. The directbenefits from the project would be the provision of about13,000 new housing units affordable to households in thelower half of the urban income distribution, with monthlyincomes below $330. About 40% of these units wouldbenefit population with incomes below the urban povertythreshold, about $170 per household per month. Theproject would also promote home ownership as a means ofmobilizing individual savings and help to reducegovernment subsidy in the housing sector through increasedinterest rates. Project risks related to reaching targetpopulation and CIH's financial viability are acceptable.The eligibility criteria and the monitoring procedures aredesigned to ensure that housing schemes constructed underthe project are targeted to low-income groups. Variousfinancial assurances are also designed to protect CIH'sfinancial viability.

This document has a restricted distribution and may be ljsed by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

EstimatedDisbursements:

Bank FY 1983 1984 1985 1986 1987 1988 1989----------------- US$ Million-----------------

Annual 0.8 12.0 17.5 18.5 7.2 3.2 0.8Cumulative 0.8 12.8 30.3 48.8 56.0 59.2 60.0

Staff AppraisalReport: No. 4151-MOR dated February 8, 1983.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRDTO THE EXECUTIVE DIRECTORS ON A PROPOSED LOANIN AN AMOUNT EQUIVALENT TO US!6O.0 MILLION

TO CREDIT IMMOBIL]ER ET HOTELIERWITH THE GUARANTEE OF KINGDOM OF MOROCCO

FOR A HOUSING DEVELOPMENT PROJECT

1. I submit the following report and recommendation on a proposed loanto Credit Immobilier et H8telier (CIH), with the guarantee of the Kingdom ofMorocco, for the equivalent of US$60.0 million including the capitalizedfront-end fee, to help finance a first housing development project. The loanwould have a term of 17 years, including 4 years of grace, at the standardvariable interest rate. About $59 million of the proceeds of the loan wouldbe onlent to developers for housing const:ruction and land development forthree years, and to individual households for self-construction for 25 years,with an interest rate of 14% per annum.

PART I - THE ECONOMY 1/

2. A basic economic mission visited Morocco in November 1978, andupdating missions in September and December 1979 and in May 1980. A reportentitled "Morocco: Basic Economic Report" (3289-MOR) was distributed to theExecutive Directors in December 1980. A report on Morocco's Public SectorInvestment Program for 1981-85 is expected to be distributed to the Boardshortly. An economic mission on industr:ial incentives and export promotionwas in Morocco in September 1982. Country and Economic Data Sheets areattached as Annex I.

Introduction

3. Compared with many developing countries, Morocco is well endowed withnatural resources. Morocco has the world's largest and most easilyrecoverable phosphate reserves, which makes the phosphate sector a key exportsector. Other minerals such as iron ore, manganese, lead and zinc are alsoexported, but in much smaller amounts. Coal and hydropower plants satisfyonly a small part of the country's energy requirements, but Morocco has someuranium and oil shale resources which could become significant energy sourcesin the long term. There are moreover preliminary indications of natural gasreserves. Morocco has also a relatively good agricultural potential. In

* addition, Morocco's proximity to Europe has favored trade, tourism and labormigration with the EEC countries.

1/ Parts I and II are essentially the same as in the Oulmes-RommaniAgricultural Development Project (Report No. P-3413-MOR of November 22,1982).

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

Economic Expansion in the Mid-1970s

5. During the 1970s, economic policy became more ambitious, and theoriginal 1973-77 Development Plan strategy stressed an intensified savingseffort and development of exports. In 1974, with the sudden jump in phosphateprices, phosphate export earnings more than quadrupled, and although thepetroleum import bill also quadrupled in 1974, the current account of thebalance of payments remained in surplus. The Plan's concern for exports andsavings lost some of its urgency. The Government launched a massive publicinvestment program which brought about a sharp acceleration in the rate ofgrowth of the economy, and GDP grew at the rate of 6.7% per year between1973-1977. The expansion of the investment program also led to a considerableincrease in demand for imported goods and services, whose share in GDP doubledfrom 19% in 1972 to 37% in 1977.

6 ~ The phosphate boom, however, was shortlived and phosphate exportsstarited falling in both volume and value as early as mid-1975. Phosphatepricess continued to decline until 1980. Markets for other exports as well asfor tourism and labor migration were also negatively affected by the worldrecession. Agricultural production and exports entered a period of prolongedstagnation and Morocco turned from a net exporter to a net importer offoodstuffs. As a result of all these factors, the growth of exports of goodsand nonfactor services, which in constant prices had exceeded 8% a year in1968--72, averaged only 1% a year in 1973-77.

7. Accelerated investment, growing public expenditures, and particularlyincreased defense spending in response to growing tensions in the WesternSahara, created strong pressures on both the balance of payments and theGovernment budget. While investment jumped from about 15% of GDP in the early1970ss to 32% in 1977, gross domestic savings rose briefly from 15% of GDP in1972 to 20% of GDP in 1974 thanks to phosphate receipts, but fell back to10-12% in 1976-77. The large resource gap which emerged as early as 1975 roseto an unsustainable 20% of GDP in 1977 (in current prices). To help financethe gap, Morocco borrowed heavily from the international capital market, whichled to rapid increases in external debt and the debt service burden. The debtservice ratio rose from 5.6% of exports of goods and services in 1975 to 10.7%in 1977.

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8. The Government's overall budget position also deterioratedconsiderably during the period 1973-77. lWhile budgetary revenues increasedrapidly as a result of the windfall phosphate profits in 1974 and 1975 and ofthe growth of import duties and taxes in Eollowing years (reaching 22% of GDPin 1977), the growth of expenditure far exceeded that of revenues. Budgetaryoutlays rose from 19% of GDP in 1972 to 39% in 1977. As a result, theGovernment's overall budget deficit increased sharply, reaching peaks of 18%of GDP in 1976 and 1977.

Stabilization Program 1978-1980

9. In order to redress the rapidly deteriorating financial situation,the Moroccan Government in 1978 adopted a three-year stabilization program,characterized by a substantial retrenchmenit of investment and import levels.In 1978, the first year of the adjustment, public investment was cut back bynearly half in real terms and the growth of current budgetary expenditure helddown to 3% (in real terms). These measures of fiscal restraint were combinedwith tight credit policies and stringent import controls. As a result, theoverall budget deficit declined to about 1O% of GDP and the external paymentssituation improved in 1978. Later, however, the stabilization programencountered a number of obstacles, including poor harvests, petroleum priceincreases and the rise in interest on the commercial debt. In addition,internal pressures led to some relaxation of the highly restrictive fiscalpolicy adopted in 1978. By 1980 both fiscal and external imbalances werestill substantial: the resource gap (in current prices) remained at about 11%of GDP, and the ratio of the overall budget deficit to GDP at about 12%.

10. The reduction in the Government deficit during the 1978-80 period wasachieved chiefly through cutbacks in the Level of budgetary investments, whichdropped from 27% of GDP in 1977 to 12% in 1980. The growth of currentexpenditure proved difficult to restrain because of the continuing need tomaintain defense and social expenditures, the growing interest payments on thepublic debt and the rising cost of consumption subsidies. The latter tripledin 1979-80 reaching 2% of GDP, as price increases for subsidized staple foodand petroleum products could not catch up with the rise in import costs forthese products. Reflecting these pressures, the growth of current expenditurereached 27% in 1980 and their share of GDI' represented 22%.

11. In the external sector, non-oil i.mports were reduced substantiallyand remained below the 1977 level in nominal terms due to a sharp reduction incapital goods imports (by about two-thirds in real terms between 1977 and1980). Oil imports on the other hand increased 2.5 times in value due toprice and volume increases. Export earnings improved in 1979 and received asignificant boost from the recovery of phosphate prices in 1980. Thus,despite a large increase in the petroleum import bill and a rise in externaldebt interest payments, the current account deficit before grants was reducedfrom $1.8 billion, or 17% of GDP, in 1977 to about $1.4 billion, or 8% of GDP,in 1980.

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

Recent Developments

13. In 1981, the economy was subjected to strong external shocks: asubstantial increase of imports of cereals, following a drought which reducedagricultural value added by about 23% in real terms; a large appreciation ofthe US dollar; and a rise in foreign interest rates, which further increasedthe cost of debt service. As a result of these factors, economic andfinancial performance worsened. Gross domestic product fell by 1.3% in realterms, the Treasury deficit reached 14% of GDP in 1981, and the currentaccount deficit reached $1.9 billion in 1981 (12.6% of GDP). Economicactivity improved in 1982 as agricultural production recovered thanks to agood lharvest, but phosphate prices weakened. adversely affecting exportearnings. GDP is estimated to have increased by 5 to 6% in real terms but theexternal payments situation has not improved significantly. The budgetarysituation improved somewhat as a result of a combination of tax increases andexpenditure restraining the measures adopted in the framework of a stand-byagreement reached with the IMF in April 1982, but the Treasury deficit remainshigh.

Medium Term Prospects

14. The initial development strategy in the 1981-85 Plan period was toreach a high rate of GDP growth (6.5%), needed to obtain an acceleration ofemployment creation and a strengthening of Government programs for social andregional development. The Plan projection was, however, too ambitious andalthough the financial constraint lessened somewhat in 1982 as the economyrecovers from the 1981 drought, Morocco's external financial situation willremain difficult in 1982-85 and will continue to constrain GDP growth.

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

16. The projected export growth would result from an increase (in realterms) of 6.6% in phosphate and phosphate based products and 9.5% p.a. in

manufactured products between 1981-85. Such a performance would depend uponidentification of new markets and could be accomplished only if high priorityis given to export promotion. In the case of finished and intermediateproducts, the extent to which the projected increase in exports wouldmaterialize depends on the revision of incentives granted to exporters, thediversification of Moroccan exports towards non-traditional exports and newmarkets, and the appropriate level of the exchange rate.

17. A sustained reduction of the trade gap will be difficult to achieveunless growth of merchandise imports is drastically curtailed. This wouldrequire not only a higher increase in agricultural output so that the level offood imports would decline in real terms, but also an effective domesticpricing policy so as to limit the growth of petroleum imports (assumed at 1.3%p.a.) from 1981 to 1985. It would require moreover a reduction of the capitalgoods imports growth to 1.8% p.a. in 1981--85 through cuts in Treasury civilianinvestment with respect to the level planned in the 1981-85 Plan, and arevision of the various investment codes so as to reduce financial incentivesto imported capital goods.

18. In view of the projected stagnation in per capita household incomes,any significant increase in domestic savings would mainly come fromsubstantial improvements in Government savings performance. As part of the1982 stand-by arrangement between Morocco and the IMF, several measures andreductions in real Government expenditures were implemented in 1982. TheBank's projections assume that progress will continue in this area.

19. Given the strong constraints on [nvestment levels, the future rate ofgrowth of the economy will depend to a large extent on the sectoral allocationand the efficiency of investment. In conEormity with the Plan objectives, theGovernment should start fewer large capital-intensive projects and restrictthe allocation of investments to priority subsectors. Priority is to begiven to projects that are export oriented, less capital intensive and whichuse a greater proportion of domestic resources. In addition, particularattention will have to be paid by the Gov,srnment to manpower planning and tothe employment effect of investments in order to prevent unemployment fromrising.

Social Development

20. Social expenditures have been at a high level in recent years,accounting for more than half of current outlays. However, social indicatorsstill appear to be at a relatively low level in Morocco. The limitedeffectiveness of past social policies in reaching the lower income groups,especially in rural areas, is increasingly recognized as a major issue, andthe strategy of the 1981-85 Development Plan emphasizes rural development inrainfed areas, where most of the poorest households in Morocco currently live,and the need to improve mechanisms for delivering services to meet basic needsat an affordable cost, especially in rural areas. An effort is also beingmade to increase the involvement of local communities in meeting basic

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needs, particularly for low cost housing, water supply, sewerage andelectrification. Although rapid results cannot be expected in any of theseareas, implementation of these policies would help meet the needs oflow-income groups, while holding down the budgetary cost of social programs.

External Debt and Debt Service

21e Morocco sharply increased external borrowings after 1974. Nearly allof the increase came from Arab and commercial sources. Morocco also drew onthe IMF automatic credit facilities in early 1976, and obtained about $70million in IMF compensatory financing in August 1978. In October 1980, theIMF approved an extended arrangement for a three-year period in the amount ofSDR 810 million in support of a medium term program of financial adjustment.This arrangement was interrupted in 1981 when it appeared that the assumptionsand targets of the EFF program were no longer possible. It was replaced in1982 by a stand-by arrangement in the amount of SDR 281 million and purchaseof SDR 236 million under the Compensatory Financing Facility. The 1982financial program, which was supported by the standby arrangement now drawingto a close, sought to reduce the deficit in the current account of the balanceof payments (excluding grants) to 10% of GDP and to decrease the overallTreasury deficit by one-third-to 8% of GDP. Other major elements of theprogram included an upward revision of the interest rate structure, restraintin overall credit and monetary expansion, further trade liberalization, andprogress with respect to both tax reform and reform of the state enterprises.PreLiminary data indicates that the targets under the standby for end-1982were met. The performance criteria of the program were observed and Moroccowas able to make the last drawing under the standby arrangement in February1983. Discussions are underway of a possible further standby arrangement for198-3/84.

22. From the low levels of 1974-75, Morocco's external debt rose rapidlyto $8.4 billion (disbursed only) by December 1981. Gross inflow of medium andlong term capital reached $1.8 billion in 1981. Debt service amounted to $1.2billion in 1980, $1.3 billion in 1981 and $1.5 billion in 1982 (27%, 31% and35% respectively, of total exports of goods and services). As a result ofrecent and projected borrowings, debt service may be expected to average $1.8billion annually during 1982-85. Because of the growing burden of debtservice, external borrowing has become more restrictive and selective since1978. If debt service is to stay manageable, the Government will have tocontinue this policy over the next few years while taking special measures toexpand exports.

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

PART II - BANK GROUP OPERATIONS IN MOROCCO

24. Bank and IDA lending to Morocco has supported 58 projects, financinga total of $l,988.5 million (net of cancellations), of which 1,164.5 millionhas been lent since the beginning of FY1978. IDA credits, totalling$50 million, have been made available for five projects and a Third Windowloan for $25 million has been made for an education project. IFC investmentshave amounted to $61.6 million ($42.7 million after cancellations,terminations, repayments and sales). Annex II contains a summary statement ofBank loans, IDA credits and IFC investments and notes on the execution ofongoing IBRD/IDA projects as of September 30, 1982. Overall performance inproject execution is satisfactory, although in some cases, delays in projectimplementation have been caused by management problems and budgetaryconstraints.

25. Past Bank Group lending has beer, concentrated in the agricultural andindustrial sectors, which have accounted for 28 percent and 26 percent,respectively of total commitments; the balance is represented by utilities (16percent), tourism (9 percent), education (8 percent), roads (6 percent),energy (4 percent) and urban development (3 percent). The main objectives ofBank lending in previous years were to foster and strengthen developmentinstitutions and to increase productive capacity, in order to improve thebalance of payments. While these objectives remain, Bank lending now alsofocuses on supporting a number of other policy objectives: to contribute tothe reduction of the Treasury deficits; t:o lower unit costs for the deliveryof basic services, widen their distributi.on among regions and increase accessby lower-income groups; and to increase employment and improve incomedistribution.

26. Since FY75, lending in agriculture has emphasized improvement in theproductivity of rainfed agriculture and Livestock, which employ over 80percent of the rural population, primarily small farmers. The Meknes andFes-Karia-Tissa Agriculture Projects address this objective in the favorablecereal producing zone. The Loukkos, Middle Atlas, Forestry and Oulmes-Rommaniprojects extend support to less favorably endowed regions. Four lines ofcredit to Caisse Nationale de Credit Agricole (CNCA) have helped providecredit to farmers, and a fifth project is under preparation. Increasedexport earnings are expected to result from the Bank-supported project forVegetable Marketing and Production, as well as from a project currently underpreparation to improve the efficiency of the coastal fishing industry. Thescope of future lending is likely to be expanded to include projects aimed atimproving input supply and marketing nationwide.

27. Increased foreign exchange earnings or savings have also been the keyobjectives of Bank projects in industry, mining and tourism and led to ninelines of credit to the Banque Nationale pour le D4veloppement Economique(BNDE) for industrial projects and four lines of credit to Credit Immobilieret H8telier (CIH) for tourism projects. A project to increase mineral exportearnings and raise the incomes of small-scale miners in southeastern Moroccowas approved by the Board in FY82.

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28. Projects in basic infrastructure and services have concentrated onimproving the efficiency of existing investments and extending services torural and low-income urban groups. A second urban development project aims atsupporting the Government's efforts to provide shelter, basic services andemployment to low-income urban families. A third highway project supports theGovernment's road maintenance efforts and a fourth project now being preparedwould continue this effort and improve rural access roads. A loan for villageelectrification is helping bring power to over a hundred small towns andvillages, and a third water supply project is providing access to safe waterin small towns and semi-rural areas. A project aimed at strengthening theCommunal Infrastructure Fund's (FEC) capacity to support local communities isbeing prepared.

29. Five education projects have focused on secondary level technicaleducation and teacher training, on expanding basic education in the ruralareas and on ensuring a greater orientation in primary schooling towardspractical training. Further lending will be focussed on vocational trainingand on primary education.

30. In order to reduce Morocco's dependence on oil imports, theGovernment has made considerable efforts to develop national resources,notably of gas and oil shale. These efforts are being supported by the Bankthrough a gas exploration project and an engineering project aimed at studyingthe viability of developing the country's oil shale resources. Additionalprojects for further gas exploration, as well as coal and hydropowerdevelopment, are being studied.

31. Morocco's disbursement performance improved in FY82. Disbursementshortfalls are, however, still being experienced, particularly for a fewprojects in new sectors, due mainly to institutional or project managementproblems. These cases are being closely monitored and implementationschedules have been established specifying critical actions, in agreement withthe Government. In some projects, implementing agencies have been slow insubmitting disbursement requests to the Ministry of Finance for transmittal tothe Bank, but the Government has recently taken effective measures to resolvethis problem. The rate of disbursement has also been affected by theappreciation of the dollar against other currencies.

PART III - THE HOUSING SECTOR

32. Morocco's urban population has increased rapidly over the past twodecades, expanding from 29% of the total population in 1960 to about 44% in1981, or at an annual growth rate of more than 5%. Basic infrastructure andservices in the urban areas are seriously deficient. About half the urbanhouseholds are without water connections, 45% without sanitary installationsand nearly a third without electricity. This rapid urban expansion, coupledwith deficient infrastructure and services, has resulted in a widespreadformation of slum areas and illegal housing development and an acute housing

shortage. The Government has estimated that about 700,000 units are requiredat present to meet the present backlog of demand, and another 90,000 each yearafterwards to respond to urban growth. However, due to the limited capacityof both public and private sectors in the housing industry and the lack ofadequate housing finance, the current level of output is only about 45,000 to50,000 units per year. As a result, housing conditions during the last decadehave progressively deteriorated with 40% of the housing stock either aged orlacking basic sanitary facilities and 20% consisting of shacks. The housingshortage has particularly affected low income groups. It is estimated thatabout 30% of the urban population is living in squatter areas, and that 30 to40% of the squatter population has income below the urban poverty threshold of$170 per household per month.

33. In spite of the Government's efforts to contain rural emigration, itis projected that the urban centers will grow twice as rapidly as the ruralareas over the next twenty years, having an additional 600,000 urban dwellerseach year, and accounting for more than half of the country's inhabitants inthe year 2000. To cope with this growth, the Moroccan authorities will haveto direct their efforts to two main areas: (a) development of serviced landfor housing; and (b) mobilization of additional public and private resourcesin the production of housing.

Sector Issues

34. Land Development. One of the major constraints to housingconstruction by both public and private sectors has been the lack of servicedlots. Yet, large tracts of urban land, most publicly owned, lie vacant,although both the law and agencies needed to develop them exist. Theproduction of serviced lots, in particular for low-moderate cost housing, hasbeen primarily entrusted to the Ministry of Housing and Urban Development(MHAT) which established a special fund in 1973 for this purpose. About113,000 lots have been produced, which satisfied approximately 10% of thetotal demand for serviced land. The shortfall is mainly due to financialconstraints, as MHAT relies heavily on beneficiaries' advances to start andcomplete construction and on limited revolving funds of DH 6 million providedby the Government. Furthermore, as a Government Ministry, MHAT cannot raisefunds independently, and it has been unable to pursue its goal effectivelywith limited resources. The role of the private sector in this domain hasbeen insignificant partly due to the lack: of land subdivisions for plotdevelopment and partly due to inadequate financing. The Government is awareof these shortcomings, and plans to step up its own production of servicedland and at the same time to encourage the participation of private developers.

35. Housing and Construction Policies. About-90% of housing units areconstructed by the private sector. A substantial part of these units (about

* 30% of the housing stock) are illegal set:tlements which consist of housesbuilt by individuals on undeveloped land,, without construction permits and inthe absence of a development plan agreed upon by the administration. They areinefficiently spread out and therefore costly to service. Legal privatehousing construction is mainly carried ouit by contractors who have, untilrecently, mainly catered to high income clientele. With the erosion of thehousing market for high priced units due to the more difficult economic

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situation, contractors are increasingly turning to the middle incomeclientele, and a few are specializing in building low income housing units,though on a small scale. The production of low income housing has beenconstrained by inadequate financing for both construction of such units andmortgage loans to the buyers. Legal private housing construction is now beingencouraged by the Government as a way to control the spread of illegalsettlements and to meet housing needs. To this end, the Government enactedlegislation (April 8, 1981) which provides for various tax exemptions such asproperty tax, corporate profit tax and sales tax to individuals and companieswhich build or acquire housing units for their own use, for sale and forrent. The response to this legislation has been positive as demonstrated bythe substantial increase in construction loans for housing requested fromCredit Immobilier et Hotelier (CIH), a financial institution responsible forhousing finance, in 1981-82.

36. Public housing production is mainly carried out by MHAT and bysemi-autonomous regional construction agencies referred to as "EtablissementsRegionaux d'Amenagement et de Construction" (ERACs). MHAT's activity in urbanareas focusses on the production of core housing units of about 30 m2

located on serviced plots not exceeding 100 m2. The beneficiaries areexpected to acquire the units on a lease-purchase basis and to complete theconstruction according to their needs and affordability. Because of thelimited number of units actually produced (about 19,000 since the inception ofthe program in early 1970s) and the fact that many were used to accommodatefamilies made homeless by emergencies, the program had little impact onresolving the housing needs of the poor. Moreover, the program is notfinancially sustainable since it relies exclusively on the Government budgetfor its financing, and does not provide for clearly set cost recoveryprocedures. The ERACs were established in 1974 with one agency in each of theseven economic regions of the country. They are technically coordinated by acentral office of MHAT and their programs and budgets approved by the Ministryof Finance. ERACs are charged with providing low income housing. Their scopeof operation, about 16,000 units since 1974, was limited due to managerial andfinancial constraints which now have largely been overcome. The costs ofhousing units produced by these agencies have escalated sharply, mainly as aresult of increasing construction standards. Typical ERAC units currentlycost more than $16,700 and are becoming less affordable to the target group.At the same time, the market for housing units above that price is eroding.The Government has recently instructed ERACs to lower the standards and tofocus on the delivery of low cost housing units to low income groups.

37. Housing Finance. The housing system in Morocco rests on themobilization of public, private and institutional savings. The Governmentbudget provides equity and loan funds to public agencies operating in thehousing sector as well as interest rate subsidies to the beneficiaries ofvarious housing programs. The commercial banks mobilize private savings, asmall part of which is converted into housing finance. Since March 1982,however, commercial banks have been required to earmark 1.5% of their depositsfor housing finance either directly or by buying medium and long termsecurities issued by CIH. In 1973, a number of commercial banks started

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contractual saving schemes under which savers had the right to borrow atmultiple of their deposits for financing housing. To date, these programshave had limited impact because the low interest rate on deposits and theshort repayment period (5 to 6 years) were considered unattractive by thepotential clientele. They have now virtually ceased to operate.Institutional savings are mobilized in the form of medium to long termsecurities subscribed to mainly by the Caisse de Dep8t et de Gestion (CDG), apublic sector financial institution, and insurance companies. CIH, the onlvinstitution specialized in long-term housing mortgages, is the major borroweron this market. In 1981, CIH alone issued $54.8 million worth of long termbonds, or 28.4% of all issues. The volume of institutional savings availablefor long-term finance is, however, limited since its principal sources such aspension funds, insurance company reserves and social security funds have heavvrecurrent commitments and depend for their growth on the relatively smallnumber of salaried Moroccans. In recent years, mortgage financing in Moroccoaccounted for only an average of 15% of the total vearlv capital investment inthe housing sector and benefited mostlv high income groups. In 1981, theGovernment decided to redirect a large part of funds for housing finance tolow income groups. CIH has been designated by the Government to spearheadthis new policy. This major shift in resource allocation is conducive to theparticipation of the private sector in crnstructing low cost, low incomehousing units (paragraph 35) and complements the Government instructions toERACs to focus on the production of such units (paragraph 36).

38. Interest Rates for Housing Loans. The Government determines interestrate ceilings on deposits and loans and these apply to all institutionalcredits in Morocco. Interest rates charged by lending institutions forconstruction and mortgage loans are pegged at a nominal level of 14%, wellabove the projected inflation rate for Morocco (9% in 1983 and 1984 and 7.5%thereafter). The effective rates for mortgage loans, however, depend on thereal estate value and the level of incomes, and range between 6% and 14%. Thelowest rates, referred to as r6gime sp6c:Lal apply to housing units valuingbelow $21,700 and to beneficiaries with incomes below $420. The other ratesare referred to as regime g6neral. The Government subsidizes the differencebetween the nominal and effective rates and the amount is paid directly to thelending institutions. Although the cost of such subsidy has been relativelysmall in the past (less than $1.0 million in 1982), the expansion of lendingfor low income housing units may increase the amount of subsidysignificantly. The Government is aware of the problem, and has decided tochange interest rates for housing loans before end February 1983 as follows:

Real Estate Value ($)in 1982 prices Old Level (x) New Level (%)

Regime specialLess than 16,700 6-7 6-7

16,700 - 21,700 6-7 7-8

Regime generalLess than 33,330 8 10

33,330 - 50,000 10 12Above 50,000 14 14

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39. Unless the Bank agrees otherwise, the new structure of interest rateswould be maintained throughout the commitment period of the project (GuaranteeAgreement, Section 3.04). On the assumption that the long-term market rate ofinterest in Morocco would be 12%, the change in interest rates would resultin: (i) a greater degree of cross subsidization between the highest andlowest: income categories; and (ii) a reduction of the amount of subsidies by35% over the period 1983-86. In addition, the weighted average effectiveintertest rate for all CIH's housing activities would amount to about 13%,substantially higher than the long-term rate of inflation in Morocco. ByMarch 31, 1985, CIH would evaluate the impact of interest rate subsidy as wellas the tax relief package (paragraph 35) in the housing sector, and theresullts will be discussed between CIH, the Government and the Bank (LoanAgreement, Section 4.12). The Government has informed the Bank that it wouldbe prepared to envisage further modification of both CIH's nominal andeffective interest rates for new mortgage loans in light of the cost ofsubsidies and of its financial situation.

The Bank's Experience in the Sector

40. In support of the Government's efforts to provide shelter, basicservices and employment to low income urban families, the Bank financed twourban development projects (FY78 and FY81) in the cities of Rabat, Kenitra andMeknes. These two projects provide infrastructure and shelters in slumquartiers, along with commercial and community facilities in selected areas.About 60,000 and 100,000 low income people are expected to benefit from thefirst and second projects, respectively.

41. The first project was instrumental in redirecting the Governmentpolicy from systematic demolition of slum areas to upgrading settlements whenappropriate. Equally important, the project introduced low cost upgrading andshelter components which ensured affordability to the lowest income groups andincorporated cost recovery. Initial project performance was unsatisfactorybut substantial improvement has recently occurred. The major problems liewith the complexity of the institutional arrangements, the lack ofcoordination between various executing agencies as well as their limitedimplementation capacities, and slow payments to contractors which have led tosubstantial delays in project execution. Also, lengthy land acquisitionprocedures delayed cost recovery, although where land title has beenestablished, performance has been satisfactory. The second project has builton the experience of the first one. It provides for a simpler institutionalarrangement for project execution and the implementation capacity of projectauthorities is reinforced when warranted. Its exectution is proceedingsatisfactorily, but disbursements are slow due to lengthy administrativeprocedures.

42. In an effort to diversify Bank lending in the urban sector, the Bankcarried out a sector survey in June 1981 to review the overall strategy aswell as to identify new areas for lending. The report called for the

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continuation of Bank support for slum upgrading operations as they are costeffective in serving housing needs of the lowest income groups at limitedcosts to the Government. At the same time, the Bank could also achieve farreaching results in promoting the construction of low-cost housing for lowincome groups by channelling its funds, subject to rigorous eligibilitycriteria, to a well established and effective financial institution such asCIH. This approach is the cornerstone of the proposed project.

PART IV - THE PROJECT

Project Concept and Background

43. The project would continue the Bank's support for the provision of

housing to low income groups in Morocco. To this end, the project would makefinancing available to both public and private developers engaged in theconstruction of such units. Repayments of these loans after three years wouldthen be used by CIH to finance mortgage loans of selected target households.They are dispersed throughout Morocco, and their monthly incomes are in thelower half of the urban income distribution curve. By addressing the housingneeds of this group, the project would help to alleviate the pressure on thedevelopment of illegal settlements, thus reducing the needs for future costlyservicing of such areas (paragraph 35).

44. In the present Moroccan economic setting, the timing for such aproject is particularly appropriate. The market for highly priced housingunits is eroding and private developers are willing to move into the low costhousing market which has hardly been tapped (paragraph 35). By promotinghomeownership, the project also contributes to private savings in thecountry. Furthermore, through an increase in interest rates for housing(paragraph 38), the project would have a favorable budgetary impact as itseeks to reduce subsidy in the housing sector. Lastly, the reallocation offunds available for housing finance by CIH from high income to low incomegroups (paragraph 37) would not only result in a net addition of housingstock, but would also be conducive to the replicability of the proposedproject in the future.

45. The project was identified in September 1981 and prepared by the CIHstaff. It was appraised in June 1982. Negotiations were held in Washingtonin January 1983; the leader of the Moroccan negotiating team was Mr. OthmaneSlimani, President Director General of CIH. The main features of this projectare outlined in the Loan and Project Summary at the beginning of this report;a Supplementary Project Data Sheet (Annex III) is also attached. A StaffAppraisal Report (No.-4151-MOR) is being circulated separately to theExecutive Directors.

Project Description

46. The project would consist of (a) a line of credit (LOC) to CIH ofabout $59.0 million for financing low income housing schemes meeting technicaland economic criteria acceptable to the Bank; and (b) technical assistance toCIH to help develop its capability in appraising low-cost housing schemes and

in advising private and public developers on all aspects of low cost housingdesign.

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47. About $56.0 million of the LOC would finance construction loans toprivate and public developers to build a mix of housing unit types, rangingfrom core units (unfinished, including one to two rooms, whose completion isleft to the initiative of the owners) to walk up apartment buildings; of thisamount at least 25% would be earmarked for financing core units (LoanAgreement, Section 2.02 (a) (i)). The remainder of the LOC (33.0 million)would be used to finance individual housing construction and plot developmentloans. To be eligible for Bank financing, these schemes would have to meetthe following criteria (Loan Agreement, Schedule 5, Part A): (a) pricecriteria: the maximum selling price of these units should not exceed $5,300for the least expensive type (core units) and $13,300 for the most expensive(walk up apartment), anid the maximum selling price of developed plots shouldnot exceed $30 per square meter. These prices would be adjusted on January 31of each year to account for inflation; (b) technical criteria: in addition toCIH's technical requirements which are satisfactory, these schemes would haveto meet criteria regarding land use efficiency, maximum size of the units andbuilding structure and design; (c) economic criteria: all schemes whose costsexceed $500,000 should have an economic rate of return at least equal to 12%,which is the estimated opportunity cost of capital; and (d) financialcriteria: all schemes whose costs exceed $500,000 should have a financialrate of return at least equal to 14%, which is the statutory on-lending rateof CIH. Upon completion of the construction schemes (usually 3 years), exceptfor the individual housing construction loans, the loans would be converted tomortgage loans to potential buyers of the newly constructed housing units.This use of funds is a key incentive to developers to produce low incomehousing units. Therefore, CIH would include a clause in contracts with theeligible developers that their potential clientele will benefit from CIHfinancing, provided such clientele meets the eligibility criteria (LoanAgreement, Schedule 5, Part B 3(a)). The beneficiaries would be selected onthe basis of monthly income of not more than $330 which would be reviewedannually and adjusted, if necessary, upon mutual agreements between the Bankand CIH (Loan Agreement, Schedule 5, Part C). Other selection criteriarelated to ownership are already enforced and are satisfactory to the Bank.The income ceiling and ownership criteria would minimize the risk ofspeculation.

48. The technical assistance program would focus on: (i) the developmentof a land use model; (ii) the establishment of a computerized data informationsystem, including the provision of computer equipment, which would allow CIH'sstaff to store and retrieve information on previous and proposed schemes; and(iii) a study to be completed by July 1985 (Loan Agreement, Schedule 2) on theresidential building construction sector. CIH would utilize consultingservices to help develop the computer system (20 man/months) at a cost of$9,250 per man-month and to execute the study (12 man/months) at a cost of$12,500 per man-month, including fees, subsistence and travel. These expertswould be selected according to the Bank guidelines; they would be hired notlater than October 31, 1983; and their qualifications and experience would besatisfactory to the Bank (Loan Agreement, Section 3.02).

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Project Financial Features

49. Financing Plan. The proposed $63 million loan would be made directlyto CIH at standard Bank terms and conditions for Morocco (17 years maturity,including four years of grace and variable interest rate). About $54.8million would cover the foreign exchange component and about $4.2 millionwould cover local cost of the construction costs of housing schemes and landdevelopment. The remainder $1.0 million would cover the foreign cost oftechnical assistance component ($0.6 million) and the front-end fee($0.4 million). As the development of core units (below $5,300) is arelatively new experience to private developers, they might be reluctant to

participate actively in the production of such units. The financing of localcosts would allow the disbursements of Bank funds up to 50% of CIH's loans forhousing developments by private developers with at least 50% of housing unitsare core unit types (paragraph 52). This, together with CIH's customarycontribution from its own resources, would help finance nearly the entireconstruction cost (exclusive of land) of such developments. Since it isexpensive for developers to obtain bridge financing (usually at 17% fromcommercial banks), this measure would provide an appropriate incentive.Annual reviews would be carried out by the Bank and CIH to assess theachievement of project objectives (including this incentive) and to determinecorrective measures, if warranted (Loan Agreement, Section 3.05 (b)). As theloan would represent only 10% of CIH's total borrowing over the 1983-86period, CIH would absorb fluctuations of the Bank variable interest rate. TheGovernment, however, would bear the foreign exchange risk (GuaranteeAgreement, Section 3.02). CIH would repay the Bank loan on the basis of afixed amortization schedule. However, to avoid rollover of Bank funds foractivities outside the objectives of the project, CIH would be required torepay the Bank the repayments by the developers which are not used formortgage loans to eligible beneficiaries to purchase the constructed units bythe same developers within five years of the date of the contract providingfor construction loans (Loan Agreement, Section 2.10).

50. On-Lending Arrangements. Out of the proceeds of the proposed loan,$59 million would be on-lent at 14% with maturity periods of 3 years forconstruction and land development loans and 25 years for individualconstruction loans. Mortgage loans would have maturity periods of up to 25years at an interest rate of 6% for unit3 in a housing complex and 7% forindividually constructed units (paragraph 38).

51. Procurement and Disbursement. The proposed loan would finance civilworks and it is unlikely that any individual contract would exceed $1.5million. As contracts would be small and scattered in space and time, theywould not be suitable for international competitive bidding. Publicdevelopers would be subjected to Government procurement practices which allowfor local competitive bidding and are satisfactory to the Bank. Furthermore,CIH requires that these contracts be reviewed by independent architectural andengineering consultants. Private developers tend to execute the constructioneither themselves or througb a variety of small contractors. They are

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required to go through a licensed architectural firm to oversee properexecution of construction and CIH scrutinizes their procurement practicesclosely. CIH's staff has acquired considerable experience in localconstruction and cost estimates and procurement practices and are able toeffectively scrutinize cost estimates, invoices and other supporting documentsprovided by the developers and their contractors. CIH's procurement practicesare satisfactory and therefore would be applied under the project. Computerequipment included in the technical assistance component (paragraph 48) wouldbe procured under a contract with the supplier of existing computing equipmentunder terms and conditions acceptable to the Bank (Loan Agreement, Section3.03 (b)).

52. Loan proceeds would be disbursed as following: (i) 35% of CIH's loansfor low-cost housing construction and land development, or 50% of suchfinancing if the schemes are sponsored by private developers and include atleast 50% of core units (paragraph 49), and (ii) 100% of foreign expendituresand 75% of local expenditures for technical assistance component.Disbursements on construction loans to developers would be fully documented.Disbursements on all other loans will be made on the basis of statement ofexpenditures. Documentation for expenditures under statement of expenditureswill be retained by CIH for auditing by CIH's auditors and for reviewing byBank representatives. All schemes would be committed by June 30, 1986 anddisbursements are expected to be completed by December 31, 1989 (LoanAgreement, Sections 2.03 (c) and 2.04). CIH's accounting and internal controlprocedures are adequate. CIH's financial accounts have been regularly auditedby an independent auditor acceptable to the Bank. The quality of CIH's auditis satisfactory.

The Institution: Credit Immobilier and Hotelier (CIH)

53. Organization. The Credit Immobilier et H8telier (CIH) was founded in1920 as a mortgage bank specializing in housing finance. Since 1960 it hasalso been practically the sole institutional source of long-term financing fortourism projects in Morocco. CIH operates out of headquarters in Casablancaand has 18 regional branches. Though it is subject to corporate law, publicinstitutions own a controlling majority of its capital and account for 11 ofCIH's 15 board members. The ownership structure is as follows: Caisse deD4pot et de Gestion owns 30 percent of CIH's capital and holds bearer sharesas proxy for another 25 percent; 12 insurance companies own 20 percent;commerc:ial banks, 15 percent; and Banque du Maroc (the central bank), 10percent.

54. The full Board only meets two or three times a year on major policyissues and has delegated many of its powers to an Executive Committeeconsisting of 6 board members which meets monthly. The Committee examines andapproves all tourism loan proposals and all housing loans of more than DH150,000; a Management Committee and branch offices approve smaller housingloans. CIH's President Director General chairs the Board and the Executiveand Management Committees. He is assisted by a Deputy Director General, aGeneral Secretary and three Department Directors, for Credit, Finance and

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Commercialization. There are five main divisions under these departments:

Studies, Project Evaluation, Identification, Loan Management and Finance.CIH's professional staff numbered 340 in 1982 and is of generally goodquality. The Bank has extended four lines of credit to CIH in the past for atotal of $148.7 million for hotel construction. CIH has generally exceededexpectations regarding institutional and operational performance.

55. CIH follows sound and conservative financial policies: its Statementof Policies provides notably that projects financed by CIH must befinancially, technically and economically viable; that loans must be securedby adequate guarantees; and that CIH will provide its clients with technicalassistance over the whole project cycle. The Statement also restricts CIH'sequity investments. CIH has agreed not to modify its Statement of Policieswithout prior consultation with the Bank under the Fourth Loan to the CreditImmobilier et H8telier (No. 1943-MOR). In addition, CIH would limit itsfinancial exposure in any single housing project to 20% of its equity andreserves, except if a full guarantee from the Government or any institutionacceptable to the Bank covers CIH's credit risk (Loan Agreement, Section 4.10).

56. Procedures. CIH has developed over its 50 years of experience inhousing projects a sophisticated set of information on building constructioncosts and standards and a good knowledge on the housing markets throughout thecountry. It is against this background that housing projects are evaluated.Developers or individuals requesting CIH financial assistance submit a reportcovering the technical, legal, financial and commercial aspects of theproposed scheme. CIH's staff first evaluate the credentials of thedevelopers, mainly their financial status, experience in similar schemes, andthe various guarantees and collaterals they are offering to back up therequested loan. The scheme would be appraised by CIH staff who would makerecommendations on the amount, maturity, and special conditions to be metbefore the loan can be approved. The appraisal report would be reviewed by aTechnical Committee made up of heads of the principal departments (Finance,Credit, Marketing and Legal), who would then make recommendations for approvalor rejection of the loan to the Executive! or Management Committee. CIH canfinance up to 80% of the total (including land) estimated cost of projects bydevelopers for a period of three years. Financing for mortgage loans can beup to 90% of the total costs with a grace period of three to six months.CIH's appraisals of housing schemes are of high quality but somewhat weak oneconomic aspects. Recently, however, as a result of discussions with Bankmissions, CIH appraisers have paid more attention to the economic analysis ofschemes and devoted more time to discuss with and advise developers andindividuals on scheme concept and design. As this would be the first sectoralloan to CIH in housing, all housing schemes benefiting from construction loansprovided under the project would be reviewed and approved by the Bank.Schemes benefiting from either individuaL construction loans or landdevelopment loans would be small, and they would be reviewed a posteriori(Loan Agreement, Section 2.02 (a) and (b)).

57. After scheme approval, the proceeds of loans are made available inthree tranches to individuals, and in four tranches to developers. Funds aredisbursed only following a first field inspection by CIH's technical division

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which ensures that the portion of the investment to be financed with theborrowers' equity has been completed. Suhsequent inspections ensure that eachCIH loan tranche has been utilized in accordance with the loan contract andthe appraisal report. In case of non compliance by the borrowers (developersor individual households) with the agreed project design, disbursements can besuspended until the issue is resolved to the satisfaction of CIH. Aftercompletion of the construction phase and the sale of units, the CreditDepartment makes random checks to ensure that they are being used forresidential purpose only and they are totally occupied by the individualborrowers. In case of a breach of the above rules, CIH requests the borrowerto (i) reimburse CIH for all interest subsidies received which will bereturned to the Government and (ii) pay CIH the statutory on-lending rate onthe principal of the loan still outstanding. Since CIH's housing portfolioincludes about 40,000 housing loans, there is no assurance that each loanbeneficiary will be audited, but CIH's follow-up procedures serve as adeterrent and few violations have been so far reported.

58. Operations: Past and Projected. During the period 1979-81, CIHapproved housing loans totalling $207.2 million which financed about 13,728units, most of them in medium and high price ranges. The number of housingunits financed by CIH peaked in 1979, but decreased sharply in 1980. Themarket was reactivated in 1981 due to the publication of the housinginvestment code which includes a tax relief package (paragraph 35) and theattention to the financing of low cost housing. Preliminary data from 1982indicates that the upturn is of durable nature. During the same period, CIHapproved hotel and other loans totalling $93.2 million. Since 1979, CIHstopped new equity investments and has initiated a systematic disinvestmenteffort by either selling or provisioning them, particularly in companiesexperiencing technical difficulties or financial losses.

59. CIH's total annual lending operations are projected to increase from$125 million (on an approval basis) in 1981 to about $263 million in 1986.Disbursements are expected to increase from abouit $97 million in 1981 to $249in 1986. During the commitment period of the proposed project (mid-1983 -mid-1986), total approvals would increase by 22% per year and totaldisbursements by 26% per year. Most of this increase in activity, which CIH'scurrent institutional set-up can manage, would entail a significant shift awayfrom hotel lending towards housing lending, especially low-cost housing wherelending would jump from virtually nothing to $40-50 million annually.

60. To match the expansion in activities, CIH would have to considerablyintensify its efforts to mobilize resources, both domestic and external. Itis projected that a resource gap (on approval basis) of about $529 millionwould have to be filled over 1982-86. Although the yearly amounts to beborrowed from local institutions have not been finalized, Caisse de Depot etde Gestion, Banque du Maroc and Banque Centrale Populaire have beentraditional lenders to CIH, and thus, CIH should not have difficulties inmeeting its resource needs. Given however, the limited absorptive capacity ofthe domestic financial market, CIH may have to borrow on international markets

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(generally at variable interest rates anc up to 7 years maturity) for anestimated amount of $13.5 million, in addition to the Bank loan. It isprojected that CIH's borrowings at variable rates on the international marketswould amount to less than 12% of total medium and long-term debts until 1986.CIH would take all appropriate actions satisfactory to the Bank to protectitself from the risk of loss resulting from variations in interest rate (LoanAgreement, Section 4.08). CIH's financirng plan for the period 1983-86 hasbeen agreed upon during negotiations. At: the end of 1981, the averagematurity of resources was 7.9 years compared to 5.6 years for loans. Becauseof CIH's new focus on low cost housing lending which has a maturity up to 25years, this margin will likely narrow. CIH is required to ensure adequatematching of borrowing and lending funds (Loan Agreement, Section 4.09).Furthermore, as CIH is required to meet the minimum debt-service coverageratio and a maximum debt-equity ratio (paragraph 62), the matching of fundswill be closely monitored and corrective measures will be taken expeditiously.

61. Since CIH is the only institution permitted to finance long-termmortgage loans, it also finances mortgages in resettlement schemes. Thenature of this type of operation may involve a greater than usual risk ofnon-repayment of mortgage loans. To protect CIH's creditworthiness, anassurance has been obtained that CIH will not provide loans for resettlementschemes unless such loans are guaranteed by the Government (Loan Agreement,Section 4.07 (a)). However, in practice, actual recovery of outstanding loansunder such guarantee could take time and meanwhile CIH's liquidity positioncould be affected. For this reason, in addition to the above assurance, CIHwill take all necessary steps to avoid arrears on resettlement loans, and iffor reasons beyond its control, such arrears exceed 8%, the Government willpromptly pay CIH at its requests any amount necessary to keep arrears onresettlement loans below 8% (Loan Agreement, Section 4.07 (b), GuaranteeAgreement, Section 3.05).

62. Financial Performance. CIH's f:Lnancial performance has been goodbetween 1977-1981, especially in the prof-itability area. The return on equityhas reached 10.5% in 1981 compared to 6.7% in 1977, and CIH enjoyed a spreadof 4.3 points in 1981, an increase of 80% over 1977. At the end of 1981 CIH'sliquidity position was sound, with a current ratio of 1.5. Also CIH'sdebt-equity ratio of 10.8:1, and debt-service ratio of 1.2 at the end of 1981met the limit of 13.8:1 and 1.0 respectively agreed upon under the Fourth CIHloan. These limits would also apply under the project (Loan Agreement,Sections 4.04, 4.05). As of December 31, 1981, arrears on housing loansamounted to about 6% of housing loans oul:standing; generally less than a yearold. These arrears present no special r:isk as they are adequately covered byCIH's mortgage securities. Arrears on hotel loans amounted to 19.5% inDecember 1982. Agreements on an action plan have been reached with theGovernment and CIH to reduce arrears to 10.5% by December 31, 1983. Throughthe supervision of the ongoing Fourth Loan to CIH (paragraph 55), theexecution of such plan will be monitored and appropriate measures will beundertaken to further reduce the level o:t arrears. CIH is expected tomaintain the bealthy profitability it has shown since 1980. In 1984, thereturn on equity is projected to reach 30.7%.

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Benefits and Risks

63. The direct benefit of this project would be an increase of hoUsingstock in Morocco by 13,000 new units targeted at urban population whose incomeis at the lower half of the urban income distribution curve. About 37% ofthese units are expected to benefit households below the urban povertythreshlold of $170 per month. Furthermore, by linking the provisioo ofconstruction loans to the provision of mortgage loans, and by increasing CII'sparticipation in the financing of low cost schemes sponsored by privatedevelcpers, the project would encourage the private sector to move into theconstruction of low income housing, which has until now been monopolized bypublic agencies with resource, management and manpower constraints. Finally,technical assistance to CIH would further reinforce its project appraisalcapacity and the responsibility of providing advice to developers on allaspects of low cost construction design.

64. The estimated economic rate of return (ERR) for four schemes whosecosts are known with some accuracy vary between 18% and 20%. Although theminimum requirement for the economic viability of these schemes is fixed at12%, it is expected that ERRs of most schemes would be well above this cutoffrate as indicated by housing units with similar standards produced under thetwo Bank financed urban projects (paragraph 40).

65. There are three main risks associated with the project. The firstrisk is related to the possibility that CIH would finance mostly the schemesin the high price range allowed by the eligibility criteria. This risk wouldbe reduced by (i) the requirement of 25% of the construction loans todevelopers to be earmarked for core units (paragraph 47); (ii) the incentivesto private developers to construct these units (paragraph 49); and (iii) themonitoring procedure on the objectives of the project (paragraph 49).Secondly, there is some risk related to reaching the target population. Thisrisk would be reduced by the provision of the beneficiaries eligibilitycriteria (paragraph 47) and CIH's other practices to minimize speculation(paragraphs 47 and 57). Lastly, there is a financial risk for CIH infinancing the resettlement schemes, where it is more probable that thebeneficiaries would be reluctant to repay the mortgage loans (paragraph 61).This risk would be reduced by the Government's guarantee to the financing ofsuch schemes and the limit of arrears on outstanding resettlement loans. Itis further reduced by the existing legislation and practices which allow CIHto foretclose on delinquent mortgages.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

66. The draft Loan Agreement between the Bank and the Credit Immobilieret Hbtelier, the draft Guarantee Agreement between the Kingdom of Morocco andthe Bank, and the Report of the Committee provided for in Article IIISection 4 (iii) of the Articles of Agreement are being distributed to theExecutive Directors separately. The special features of the project which arereferred to in this text are listed in Section III of Annex III of thisreport.

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67. I am satisfied that the proposed loan would comply with the Articlesof Agreement of the Bank.

PART VI - RECOMMENDATION

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

A.W. ClausenPresident

Attachments

February 16, 1983Washington, D.C.

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TABLE 3AMOROCCO - SOCIAL INDICATORS DATA SHEET

MOROCCO REFERENCE GROUPS (WEIGHTED AVE%AGESAREA (THOCSAND SQ. KM.) - HOST RECENT ESTIMATE)-A

TOTAL 446.6/c MIDDLE INCOMEACrROICLTURRl. 202.2 /c MOST RECENT NORTH AFRICA & MIDDLE INCOME

1960 lb L970 lb ESTIMATE lb MEnDLE EAST LATIN AMERICA & CARIBBEAN

CNR PER CAPITA (US$) 220.0 340.0 900.0 1253.6 1902.0

FFERCEY CONSUMPTION PER CAPITA(KELLOGRAMS OF COAL EQUIVALENT) 163.2 214.0 302.3 713.5 1259.9

p;p(HATION AND VITAL STATISTICSPOPFUIATION, MID-YEAR (THOUSANDS) 11626.0 14993.0 20182.0lR6AN POPUILATION (PERCENT OF TOTAL) 29.3 34.6 40.6 47.3 65.7

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

POP"LATION DENSITYPER SQ. 1KM. 26.0 33.6 43.8 35.8 35.2PER SR. YH. AGRICULTURAL LAND 61.1 75.0 96.6 420.9 92.5

POPULATION AGE STRUCTURE (PERCENT)0l-14 YER. 44.8 47.6 46.1 44.3 39.7

LS-64 YRS. 52.6 48.3 50.7 52.4 56.165 YRS. AND ABOEE 2.6 4.2 3.2 3.3 4.2

POPULATION CROATH RATE (PERCENT)TO-TAl 2.6 2.5 3.0 2.8 2.4URBAN 3.7 4.2 4.6 4.6 3.8

CROUE BSRTS RATE (PER THOUSAND) 51.8 47.3 44.9 41.2 31.4CRUDE DrATH RATE (PER THOUSAND) 23.4 17.2 12.7 12.2 8.4

CROSS REPRODUCTION RATE 3.5 3.5 3.2 2.9 2.1FAMILY PLANNING

A CUEPTORS, ANNEIAL (THOUSANDS) .. 25.1 78.0/d

USERS (PERCENT OF MARRIED WOMEN) .. 1.0 5.4/d

FOOD ARND NUTRITIONINDUr OF FOOD PRODUCTIONPER CAPITA (1969-71-100) 99.0 98.0 88.0 100.4 110.0

PER CAPITA SUPPLY OFCALORIES (PERCENT OF

REQUIREKENTS) 100.8 103.0 106.5/e 108.5 108.4PROTEINS (GRAMIS PER DAY) 64.6 66.5 68.3/e 71.9 66.0(PF WHICH ANIMAL AND PULSE 13.8 12.6 13.5/e 18.0 34.0

CHILE (ACES 1-4) MORTALITY RATE 36.8 26.6 15.5 15.1 5.6

HEALTHLIFE EXPECTANCY AT BIRTH (YEARS) 46.7 51.7 56.5 56.9 64.2INFANT MORTALITY

RATE (PER THOUSAND) 160.5 136.3 107.2 104.3 64.2

ACCESR TO SAFP lATER (PERCENT OFPOPULATION)I

TOTAL 30.6 51.0 55.0/d 59.1 65.6URBAN 58.7 92.0 100.0/d 83.1 78.9RURAL 19.0 28.0 25.0/d 39.8 43.9

ACCES' U)) FXCRURTA DISPOSAL (PERCENT

OF POPULATION)TOTAL .. 29.0 .. ,, 59.3rRBAN .. 75.0 .. .. 75.3R('RAL .. 4.0 .. .. 30.0

POPUlATION PER PHYSICIAN 9406.1 12814.5 11037.4/d 4015.5 1617.3ROPUI.ATION PER NURSING PERSON .. 2742.2 1R26.3/e 1802.2 1063.5POTULATION PER HOSPITAL. SEE

TOTAL 625.6 664.3 773.6/e 641.7 477.4URBA1 .. 454.7 623.4/e 538.3 679.8RURAL .. 5B21.4 3089.6/e 2403.3 1903.4

ADOIISYEONS PFR HOSPITAL SEE .. 15.5 17.9/e 25.5 27.3

HOUSINGAvFRArF SIZE OF ROITSEHOLE

TOTAL. 4,8 5.5 .. . ."RRAlN 4.3 4.9RURAL 5.1 5.8

AVERACF N(rNBER OF PERSONS PER ROOM1TOTAL 2.2 2.4URBAN 2.1 2.1

RURAL 2.3 2.6

ACcESS 'TO ELECTRICITY (PERCENT

OP DPIELLINCS)

TOTAL .. ..IRBAN .. 68.4 65.0.RURAl. .. .. .

- 23 - ANNEX IPage 2 of 6

TABLE 3AMOROCCO - SOCIAL INDICATORS DATA SHEET

MOROCCO RFFERENCE GROUPS (WEIGHTED AVECAES- MOST RECENT ESTINATE)

MIDDLE INCOMEMOST RECENT NORTH AFRICA & MIDDLE INCOME

1960 /b 1970 /b ESTIMATE ,'b MIDDLE EAST LATIN AMERICA & CARIBBEAN

EDUCATIONADJUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 47.0 52.0 75.0 88.7 104.3MALE 67.0 67.0 93.0 104.5 106.4FEMALE 27.0 36.0 56.0 72.0 103.3

SECONDARY: TOTAL 5.0 13.0 22.0 39.7 41.3MALE 7.0 18.0 21.0 49.3 40.4FEMALE 2.0 7.0 17.0 29.0 41.8

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

PUPIL-TFACHER RATIOPRIMARY 42.4 34.3 40.3 34.1 29.9SECONDARY 6.3 20.4 21.D/f 23.7 16.7

ADULT LITERACY RATE (PERCENT) 13.8 21.4 28.0 43.3 79.1

CONSUMPTIONPASSENGER CARS PER THOUSAND

POPULATION 10.7 14.8 19.6/d 17.8 42.8RADIO RECEIVERS PER THOUSAND

POPULATION 45.8 62.4 107.5 131.3 270.5TV RECEIVERS PER THOUISAND

POPULATION 0.4 11.6 38.4 44.1 107.7NEWSPAPER ("DAILY GENERALINTEREST") CIRCULATION PERTHOUSAND POPULATION 22.1 16.2 11.8 31.5 63.7CINEMA ANNUAL ATTENDANCE PER CAPITA Z.0 .. 2.0/e 1.7 2.7

LABOR FORCETOTAL LABOR FORCE (THOUSANDS) 3388.7 3945.2 5294.8

FEMALE (PERCENT) 10.0 14.2 15.8 10.6 24.4AGRICULTURE (PERCENT) 62.0 57.0 52.0 42.4 31.3INDUSTRY (PERCENT) 14.0 17.0 21.0 27.8 23.9

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

ECONOMIC DEPENDENCY RATIO 1.6 2.0 1.9 1.9 1.3

INCOME DISTRIBUTIONRURAL .. .. 219.0/1

PERCENT OF PRIVATE INCOMERECEIVED BY

HIGHEST 5 PERCENT OF HOUSEHOLDS 18.-0& 20.0 ..HIGHEST 20 PERCENT OF HOUSEHOLDS 43.3/g 49.0/1LOWEST 20 PERCENT OF HOUSEHOLDS

7.0_/ 4.0/

LOWEST 40 PERCENT OF HOVSEHOLDS 18.0/R 12.0_/g

POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (USS PER CAPITA)

URBAN 107.0 157.0 389.0 279.2RURAL 66.0 101.0 238.0 178.6 184.1

ESTIMATED RELATIVE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN .. .. 242.0 403.6 518.0RURAL .. .. 257.0 285.6 371.1

ESTIMATED POPULATION BELO1W ABSOLUTEPOVERTY INCOME LEVEL (PERCENT)

URBAN 51.0 38.0 28.0 22.1RURAL 49.0 45.0 45.0 30.9

Not availableNot applicable.

NOTES

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

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

/c Excludes the ex-Spanish Sahara; /d 1976; /e 1977; If 1975; ,S Consunption expenditures of households.

May, 1982

-24- ~~~~~ANNEX IOEFPlttTlO5iS 1OF SOCIAL IMOICArORSPR e 3 0 C .

tne.'- A4t both Cho oats at, dra- Er-IPote eerlyjudg.d Cht. cc cio Ieln n reiale ii shol ale4 usC noted that t- Y -y tottrcts-:nationally bcon barsile . I th. ako tzdnrdLed efIi- tion. arid connepte u.ad iy difr.n. contIe incolctn Itedar. Th JOr arC noetbelne.. .c.ft toL d..cr Lb. order ofeaiug . idicate tren d., andchr4 t -ecrtai sejor ditff . .

thenfrnn rop ar .1 tees coun.trygopoChe ejCh `-ty 00 1d ( co.ntr .too etc soe-h. high.r average L..ne thee the cutr -rooftouio conty(eteefa 'ih IncoMa Ol itooreo gru eher M'iddle [non North Africa an Middle ee E. I`s:, chof.n..hagtintocutoalotihtes. n tt vu roy at ts veseor ppoeto neihtad ant hmeIc cans for each Indic tored ettoen ny attnnajr ty o th cootteeL.najrop See data for that CIndicator. Since the covrg of.. Coutre a-n ihe tiuin tare depede on teoei yi Ja-

one In..canor etete engt, he. country end reference gr- Pe.

SREA (,ho..ee.d aq.ket. nultIoeroeitled - tote Sianb,, anI oa oua c .t0T-tl- Total -croace are cogJriect is-d area and inland ntr 1919 date. IIIen ndrteI dinded b hei epcieOse , optlcoOar tcoItore I- Let lts of ar icoltral oreosd teporariy or .permanenty a-ilabLe In. .ed prtoete geerl :p eO tall ese hoepitat -tOyeforcrpe pate. ektad kitchen .aret or t Its alIce; 1919 4ena. htbiLteion1 Centers I. Moeptisfa ar neotIret -teIeil, -ttildto a -Is.etn. phyexiua. itbleeoerrnd _np int ca fy oceitIS pi APTPER ff- SPpe cpie ctimte d crroseetet r ce,'afOlf ar ae otto lde. nrl oeitle boesrIC.lOehelt

-uae1 yie- oneso ahdaedrdMn ts do184 -asisl 1960. an edis cetr Ia pasnnl tfe y hsttobtn1910. -4d 1980 daa..d,.icl eeitn.vts e.d.ifey e.tc.) ebyc fe npaIn rvENERGI 111. TION M ~~~~~~~~:APITA 4.1~daion sod provide a IL:isid rage of esdic foi Ile For _otat-

intL gaet o,sur en s aia P S, 91,O and 1919 ener. opeiLt.f bhp.a:, esL Icond crIb vder tote.

fros hoepitele dittOd. byCh tie.'usro beAn.?cOPtLA'Ildb ADD ltrAL STATISTlCS

Total Poralsetc.. tud-f.ar (thcue.... )-ie. ijoly 1; 1960, 1410. and HOUSING19

Urban- rua inoevrof toso) 1 RotL 10 f -r..otoa oucto i bouseheii,i-;d cnit fagopo nfiut hr Ici quatersdIfferen datit: .one.of -r boo res ay affent eaaiii f date and their, eato eeLs. A hoarder orldger say or -y nott Inclded Ivamavg ctttniee 1960.1910,..nd 1980 date. the ho..senhld fereairte upee

Lnaoto ivo-s 2000 - Cort.. populotian proetonbr asdo 18 e of prosprre neioin aertrni" Fcaildcol es ntotal population by ege and se- aethi enelty an. etilit ae.dnloa epoiey telneacasvoesen tatreProdeceon pareetorsfor maety roe ners o be Ini 555 - ooopied pats.

Ing lIfe soetnya birth voresing Ithcoara per cepit nom cee ofetr1 t Lpercent.of..nonEl).-.total urban. a-d rurl-level and feelf epec ... c erabililatgatI15 er . hePar- Con-nional daIine it eecriit...Ii.vstrtrSaetere forleni trt also " 1 havsihre levels ass_Ig Aeloslf tci.I , uben. and rurl seligs-eP.. sinely.

edfrItyLI rende for proleoros purpoa..e. EDCAi.utoNfrlntRtoSnocionoryviulan ion-Ina stationar popu.ies io Aeeisv 9 vnciceP dmr E.Chci - toa,mlC odfrae-Icecta1 eI adyolth Ilrvfee s qaltoth eah et.an os thCaehnutun e- ifolso o LI gsa tePiar ee as rerIc ntgef.-reyIonaveoetn. hn sacioo nl Ste(tttinneeoe In e nsayotel-g ppl,tr_.vr.lylclje.hlde... 11ty oieen lvlo ui etfyouc o rt,aetec.gnrtonyee-a d(ee ordfern-egtso ;h,r roa in o.. t 0evtepace lbelf tai ly- Th ettioaryporuat oo lceeas ounrie eb cnierel evoa ionenrl lnt ay ecen 10 ret-nea iee. n ieysi f bspo ete ceeneieic f h pyuaco Iv-,osy oti r belts-& itanet-etft dB tolae

Peovon -Mdya pouain"e' qaeY.ee 0 vcantc Y--ca .iua I j ..o.en dpercentff .. e..noaroh i - Iocaicv P irnnln

only 196. 170 ed 119 det.Ch -PTorY-i -teacher ra p.jI ti. in. .. od. net crdat .. Tne ePt,_"t errlle i

fretpopuatio far1950--Ad,..(Ib...-I d, ...od-y191V...Mb-P.riaioncott ae foerveo I ne ave rairis fubnpp-_dt2lTlatunafor195-90 160-0. vd 810do.Poesner ore(ne thnend oruatinl Pesegercar coerce Cto

-,rLat.o;190 1960. 290,ed 1980 daa.b.... eneerlpulcpe hceP"f""'ato;re uesatIresRerouta gaei. rgstte f(ogPee easesM-L9I- Ill beeJinI inete r- eer i vetLIe end. Idv years 1 ofte reitrta ofd rodeofa oelrrtacle eidi-eeeprsns rsnta-ee ui a-noensrcafc;OeefrrcntyasmynececeproelinI Irn rete; osnolip line-yer average evdio8 I Ibid. 190. and 150. east cuntries aolished IicenednCt

leeiv Pfvvie - Soertre.Caro tasndT anlvarfcaotsT onnr (tar thoeav ror-4Ilaiv - dIV rs .e..r fo.b.Acd ttof i_ih-nvncfv device. , une vrnsoIndnlfebypann program. C NS efeiOpoi e huadpaoaii;enbs n cne teecrPeoRvPooiP-.er..ece.o.mr.ldsen Preteef aredi vunCtead- vyer (ePeg.,etIn fT etnC nefetseen yf chil-nearing ag AI .. I nests abeose Pberth-.....dnl devices to ' eereCh-rculotio (ear ....ee . .o....t.v .- Shn th oettci

j 1e fFodPonto pr6r0 (99leOb oe f e aiI arsooadCl dj C Re canne ut 'hnn e..r CarPnePertLn eArI - ,. tes on .ieaierot

eaer hihat eileadyoneovtLat I. .cofe.nte PI e add.Agese rdcieo eeoh coiner is Cae nCO 0CPar cpitaearpi of elonie aeceni f rh. t.. monef- lio ptdifry area -fa.ce en oslpd a nldnthaeis,atdoa t.

qcnils. edi od rcsig Idea--. dbe.) Eddsrbtn. eor-Aniotr nrai - atr are n frig oety ueo nconeh note .esidtd- pPD. aedoC pyioalilnegPfrnac at- lice - ereeseoltta-abrfoc;h90.110.d..0 oeFoLtY e hs ..t . Cesdalgnntnmee hsent , body enigma I.. aeIdsr rren Ieda fero be si Ins oercia.enasan Cet hinlion-ine fpplta.adalntgt re o ae at. "I. .en deri iny Y-asr- ndge ee p-erte.inoeg ofttl en frsIosnl ei 915 910neb91 en,I.-O 97 o 1880 dens. TPe cnt tepe f rten etesre dy -Prnsn oeee o ervein Prnoleln RtsIptnne -tne. si, ndfeeeIdPrtcierteo

ards.- or.ne.hn.h..f. ga ftnlpeni n l rs fin siae r fees. national-eaortae.F.ldPvd h,orn, 96-- 11 e11 gn.h the tota Lab,,,forte

ricdreeniendrie IsroeprdyIbi-S19Sod11dos ICOM otnt-g AtutoP6oPi.P. Y.hId ae -i eusn (pr hnend deea dah.pe hasodinPrcntg.o.rloi eLe.bthI cash and had) -Il tehene ivn- h

teie at Id.ir .. Errs .i _fe abe ;190 186106S and0 .1980 0 dieee.BO FofRhveehl..fRaL;. ... t IfTtY1 ,& TA -If i h...SOOPSn.I.lyc,,

or, birth 2v9l00. 1915 .and 1990 Sate. o ..r.d ebndi irnepreteg nib cans~Idlth.. caution

of age pe thausan live biths; 296,P197,se 19C00 det.. bsols .pvet 19rce197 ledrn9i datrt.mv. en e c hcadn

ost ofpeople(natal orbae an r hraL 10- ei d.res fCb .acces to oafs aLsforoabfle.Ilrarr eppl (Irioes Ree foic gsao nrae u natsntd OtmedtlniePvryIaeLvl(t e altionnoArr eae" cbasta rtepIetd aeas. ptg.adAeuoyenOlo urieitvepvryIna ee s n-brfo n ae e aptpscnep Lfthi eascn paoaina enrierd pulcoten v of the- counry. . Chelvl) derived from1: the0rore-Evoaainretsodoenloctednonmaretha 20 sesesfro a ave mapbe oya cih ajoeeneforbiggr cat f lvtl inbrbn Edee

h-oenit e tt;nd55 to ort OlnolLeonofcrM lle-oa. rm,a oa husecet of peopl (total u 4n sad , total) egneb ocre'PCepsed

- Popottteti ivided y viskn of pectinlo phyci fiovoel d and I Soia DaIta cia toociane.tt.itfie fre aeiCel nhl .. an L P.ie, it lanai. iOre, Aaalysi and . friricin Deatn

P"-Porelanto re Resa Per 0Son-Poe Yno diid d by0v.ee ofpP Iiio ayIImae ndfeai14aeasores aeeinee veres pre'tnoe torsos arinursing eaail iatiee.~~~~~~~~~~~~~~~~~~~~~

25 -

Population 20.8 million (mid-1981) ANNEX IGNP Per Capita: US$ 870 (1981) Page 4 of 6

MOROCCO - ECONOMIC INDICATORS

Amount f/(million US$ at Annual Growth Rates ()-current prices) Actu,al Projected

Indicator 1980 1977 1978 197!t 1980 1981e/ 1982 1983 1984 1985

NATIONAL ACCOUNTSGross domestic product a/ 17820 6.0 2.2 4.3 3.6 -1.3 4.0 5.1 4.5 4.3

Agriculture 3229 -12.3 18.0 -1.1 6.2 -23.0 7.0 9.6 3.1 2.5Industry 5752 8.0 -0.9 7.7 -2.5 -0.5 3.7 4.6 5.4 5.1Services 7762 8.5 4.0 5.1 6.4 3.4 3.7 4.3 4.3 4.3

Consumption 15770 5.3 4.2 5.8 2.5 2.2 1.3 4.2 3.5 3.6Gross investment 4025 15.6 -25.9 1.3 -7.3 -3.6 6.5 -1.1 3.7 3.2Exports of GNFS 3273 10.3 3.3 0.9 3.7 3.5 4.5 7.0 6.3 5.3Imports of GNFS 5247 14.5 -17.4 3.3 -9.8 10.7 -1.9 -0.6 2.2 2.3

Gross national savings 2606 1.5 -15.4 3.2 6.0 -20.6 9.5 15.6 13.2 1.7

PRICES

GDP deflator (1969 = 100) . 172.0 186.5 200.2 218.4 241.2Exchange rate (US$ per DH) . .222 .240 .256 .254 .193

Share of GDP at Market Prices (Z) Average Annual Increase (2)(at current prices)d/ (at constant 1969 prices) (at constant 1980 prices)

1960 1970 1975 1980 1985 1990 1960-70 1970-75 1975-80 1980-85 1985-90

Gross domestic product 4.0 4.6 5.1 3.7 5.1Agriculture _/ 29.1 19.2 17.9 18.1 17.1 15.1 3.5 -2.1 3.8 2.5 2.5Industry b/ 23.5 27.2 35.2 32.3 34.9 35.8 4.7 7.1 4.2 3.9 5.5Services b' 47.4 53.6 46.9 49.6 47.9 49.1 4.1 5.5 5.9 4.0 5.5

Consumption 89.2 85.5 85.5 88.5 87.7 84.0 4.1 4.8 5.8 3.0 4.2Gross investment 10.3 18.5 25.4 22.6 20.0 20.0 8.0 9.3 -2.8 2.0 5.1Exports GNFS 27.4 17.6 22.5 18.4 20.5 22.7 1.3 2.1 4.9 5.5 7.1Imports GNFS 26.9 21.6 33.4 29.4 28.7 26.7 3.5 8.1 0.5 1.7 4.0

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

As Z of GD?1960 1970 L975 1980 1981

PUBLIC FINANCECurrent revenues 16.5 16.1 73.3 21.6 23.3Current expenditures 15.6 14.5 20.2 21.8 24.7Surplus (+) or deficit C-) 0.9 1.6 3.1 -0.2 -1.4Capital expenditure 3.8 5.7 12.2 12.4 12.6Foreign financing .. 1.3 3.7 5.6 9.3

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

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

ICOR 3.09 3.0 4.1 6.2 3.9Marginal savings rate 0.10 0.38 -0.15 0.27 0.28

* Import elasticityS/ 0.95 1.84 0.13 0.95 0.78

a/ At market prices.b/ Share of GDP at factor coat beginning in 1985 and sectoral growttl rates at factor cost beginning in 1980-85.c/ Goods only.d/ Projected years at constant 1980 prices.e/ Estimates.f/ 1977-1980 at 1969 prices, 1981-85 at 1980 prices.

January 27, 1983EMENA CP II-BID 0180B P.1

-26 -

Population 20.8 million (mid-1981) ANNEX IGNP Per Capita: US$ 870 (1981) Page 5 of 6

MOROCCO - EXTERNAL TRADE

AmountIndicator (million US at Annual Growth Rates (%)1/

current prices) Actual Projected1980 1975 1977 1978 1979 1980 1981 1982 1983 1984 1985

EXTERNAL TRADEMerchandise exports (FOB) 2414 -21.9 10.7 5.3 1.8 5.1 1.0 4.0 7.8 6.7 5.1

Primary products 1823 -25.2 7.7 5.4 0.0 5.8 -8.1 1.2 3.4 3.8 3.5Phosphate rock 765 -29.9 9.6 9.6 3.2 7.4 -5.4 0.0 3.0 5.0 4.0Others 939 -22.3 6.5 2.8 -1.7 14.7 -10.0 2.1 3.7 2.9 3.1

Intermediate & manufactures 591 -1.4 23.8 5.0 7.1 2.8 27.4 9.8 16.3 11.8 7.6

Merchandise imports (CIF) 4283 21.2 14.4 -19.9 6.6 -7.1 9.3 -1.9 0.5 3.9 4.0Food 720 37.8 0.4 8.6 2.2 3.4 32.5 -16.8 -0.9 2.1 4.5Petroleum 1006 12.8 8.7 11.0 12.1 -11,9 10.8 0.0 -1.1 3.3 3.2Machinery and equipment 805 51.7 26.7 -44.3 -3.2 -19.8 7.5 3.0 -2.5 4.0 2.9Others 1752 4.0 13.0 -15.1 12.5 -5.2 -0.3 2.6 3.7 5.0 4.8

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

Composition of Merchandise Trade (X) Average Annual Increase (%)(at current prices) (Constant 1969 prices) (Constant 1980 prices)

1960 1970 1975 1980 1985 1990 1960-70 1970-75 1975-80 1980-85 1985-90

Exports 2.0 -1.2 6.6 5.2 7.6Primary products 89.5 89.4 86.9 74.4 60.5 49.1 .. -2.7 5.3 1.3 3.3Interm,ediates & manu- 10.5 10.6 12.9 25.6 39.5 50.9 .. 8.1 12.1 14.0 13.0

facturestmports 4.0 9.1 0.7 2.4 4.0

Food 27.3 16.9 25.0 16.9 16.9 15.5 .. 14.0 3.0 0.7 2.4Petroleum 7.4 5.5 10.8 23.6 23.6 22.4 .. 9.6 5.3 2.4 2.8Machinery and equipment 6.7 24.1 24.0 18.9 18.7 19.2 .. 12.8 -7.0 2.4 4.5Others 58.6 53.5 40.2 40.6 40.7 42.9 .. 5.5 2.9 3.3 5.1

Share of Trade with Share of Trade with Share of Trade withIndustrial Countries (%) Developing Countries (%) Capital Surplus Oil Exporters (%)1960 1970 1980 1960 1970 1980 1960 1970 1980

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

1/ 1975-1980 at 1969 prices, 1981-1985 at 1980 prices September 22, 1982EMENA CP II-BID 0180B p.

2

- 27 -

Population 20.8 million (mid-1981) ANNEX I

GNP Per Capita: USt 870 (1981) Page 6 of 6

MOROCCO - BALANCE OF PAYKENTS, EXTERNAL CAPITAL AND DEBT(million US$ at current prices)

Indicator Actual Projected1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1990

BALANCE OF PAYMENTSExports of goods and services 2288 2486 2955 3694 4364 4132 4087 4669 5401 6193 11297

Of which: Merchandise f.o.b. 1245 1283 1488 1938 2414 2283 2180 2575 3077 3618 7163

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

Net current tranfers 47 52 50 44 128 102 - - - - -Current account balance -1355 -1826 -1348 -1530 -1420 -1861 -1692 -1607 -1529 -1541 -1515Special grants 435 360 260 420 314 313 84 197 320 150 232Current account balance after grants -920 -1466 -1088 -1110 -1106 -1548 -1609 -1410 -1209 -1391 -1283Private capital 38 53 45 37 88 68 76 85 96 106 171

MLT loans (net) 838 1338 1109 946 971 1205 1071 1425 1371 1666 1359

Official .. .. .. .. .. 1315 994 736 878 982 1092Private .. .. .. .. .. -110 77 689 493 684 267

Other capital 28 68 -13 73 -200 17 .. ..

Monetary movements_/ 16 6 8 53 247 258 462 -100 -258 -381 -263

International reserves 548 609 772 917 814 508 470 543 653 787 1635Of which: Gold 82 104 154 360 415 278 278 278 278 278 278

Reserves as months imports 1.8 1.7 2.1 2.1 1.7 1.0 1.0 1.0 1.1 1.2 1.5

EXTERNAL CAPITAL AND DEBT c/

Gross disbursements 725 1787 1182 1405 1567 1807Concessional loans 111 636 325 293 750 1089

DAC 63 109 91 76 96 138OPEC 41 507 189 168 584 8371DA 4 3 - - 1 2

Other 3 16 45 49 69 112Non-concessional loans 614 1151 859 1113 818 718

Official export credits 22 27 2 2 12 128IBRD 59 68 72 137 64 129Other multilateral 2 6 53 7 13 86

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

External DebtDebt outstanding and disbursed 2330 4069 5123 6182 7097 8381

Official 1250 1975 2456 2833 3482 4865Private 1080 2094 2667 3349 3615 3515

Undisbursed debt 801 1024 2280 2337 2058 2901

Debt serviceTotal service payments 162 264 547 798 1191 1340

Interest 66 148 252 410 618 738Payments as % exports of G+S 7.2 10.7 18.7 21.8 27.0 31.3

Average interest rate on new loans (Z) 7.7 6.8 7.0 8.2 8.1 8.5

Average maturity of new loans (years) 11.7 13.1 13.2 15.9 13.7 8.0

As Z of Debt Outstanding at End of Most Recent Year (1980)Maturity structure of debt outstanding

Maturities due within 5 years 47.9haturitLes due within 10 years 88.0

Interest structure of debt outstandingInterest due within first year 7.3

a/ c.i.f. for projected years.b/ Projected values include 1MF credits.cl Years 1976-80 from IBRD External Debt Reporting System, 1981 from the BOP statistics. There are sizeable discrepancies in some years

between the external capital and debt service flows reported under the IBR; Debt System and those recorded in the official balance ofpayments statistics shown in the upper part of this table.

d/ Excluding debt service on IMF loans.January 27, 1983EMENA CP II-BID 0180B p.3

- 28 -

ANNEX IIPage I of 10

A. STATEMENT OF BANK LOANS AND IDA CREDITS(As of September 30, 1982) al

Loan or US0 MillionCredit Amount (less cancellations)Number Year Borrower Purpose Bank IDA Undisbursed

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

1018 1974 Kingdom of Morocco Agriculture 32.0 8.4555 1975 Kingdom of Morocco Agriculture 14.0 11.11202 1976 Kingdom of Morocco Tourism 21.0 11.6i220-T 1976 Kingdom of Morocco Education 25.0 14.61416 1977 Kingdom of Morocco Agriculture 41.0 30.51428 i977 BNDE DFC 35.6 2.5S-7 1977 Kingdom of Morocco Engineering 1.5 0.51528 1978 Kingdom of Morocco Urban Development 18.0 15.21602 1978 Kingdom of Morocco Agriculture 65.0 59.11625 1978 Maroc-Phosphore Industry 50.0 5.91681 1979 Kingdom of Morocco Education 113.0 108.91687 1979 Kingdom of Morocco DFC (SSI) 25.0 12.81695 1979 Kingdom of Morocco Power 42.0 41.91704 1979 CNCA Agriculture 70.0 30.81724 1979 Kingdom of Morocco Water Supply 49.0 30.41757 1980 Kingdom of Morocco Agriculture 58.0 49.6S-18 1980 BRPM Oil Exploration 50.0 20.7lboJU 1980 Kingdom of Morocco Highway 62.0 53.8io48 1980 Kingdom ot Morocco Agriculture 34.0 32.21943 1981 CIH Tourism 100.0 7C.91944 1981 Kingdom of Morocco Urban Development 36.0 36.0006 1982 Kingdom of Morocco Water Supply 87.0 87.0

20371/ 1982 BNDE DFC 70.0 70.020381! 1982 Kingdom of Morocco DFC (SSI) 70.0 70.020821/ 1982 Kingdom of Morocco Agriculture 29.0 29.021091/ 1982 Kingdom of Morocco Mining 9.5 9.521101/ 1982 Kingdom of Morcco Forestry 27.5 27.521141/ 1982 ONAREP Oil Shale 20.0 20.021491/ 1982 Kingdom of Morocco Education V 50.0 50.0

Total 1908.5 50.0 1010.4of which has been repaid 239.4 1.2

Total now outstanding 1669.1 48.8

Amount Sold 20.1of which has been repaid 17.7 2.4

T'otal now held by Bank and IDA 1666.7 48.8

Total undisbursed 999.3 11.1 1010.4

NOli

a/ Does not include the Oulmes Rommani Agriculture Development Project, loan of 330 million,approveu December 14, 1982.

1/ Not etfective as of 9/30/82. However, since then the following loans have been declaredeffective; BNDE IX, Forestry, Small-Scale Mining, Middle Atlas Agricultural Development.

B. STATEMENT OF IFC INVESTMENTS(As of September 30, 1982)

US3 MillionLoan Equity Total

1962/1978 BNDE Development Bank - 2.7 2.71966t CIL Canning Factory 0.9 0.5 1.41976 Marrakech Cement Cement Factory - 1.3 1.31977/1980 Temara Cement Cement Factory 4.7 3.6 8.31979 Agadir Cement * Cement Factory 12.5 2.2 14.71980 SOMIFER Copper Mining 13.0 2.3 15.31981/1983 Casablanca Cement Cement Factory 15.8 -2.1 17.9

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

Total commitments now held by IFL 31.5 11.2 42.7

Total Undisbursed 15.8 2.4 18.2

* Agadir Cement has been cancelled.

- 29 -

ANNEX IIPage 2 of 10

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

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

The project as originally appraised was completed in November 1980.Funds have been fully committed for the additional infrastructure works andequipment provided for under an amendment to the Loan Agreement approved inJuly 1980. Final disbursements are expected by end-March, 1983 and unusedfunds will be cancelled.

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

After a 2-year initial delay, project implementation has picked upmomentum. Major activities concerned with the land consolidation andredistribution program have been completed in one district and civil works(roads, destoning and irrigation rehabilitation) have been started in theremaining three districts. Progress is slower than expected, mainly becauseproject implementation has proven more complex than anticipated, which hasbeen aggravated by project management prcblems. However, the first results ofthe completed components are promising. Because of the initial delay and thecomplexity in implementation, the origin.-l closing date was extended by threeyears.

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

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

1/ These notes are designed to inform the Executive Directors regardingthe progress of projects in execution, and in particular to reportany problems which are being ercountered, and the action being takento remedy them. They should be: read in this sense, and with theunderstanding that they do not purport to present a balancedevaluation of strengths and weaknesses in project execution.

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ANNEX IIPage 3 of 10

completion is expected to be delayed by at least 18 months, and an extensionof the closing date has been under consideration for a long time since it hasbeen made contingent on the Government's agreement to an action program. TheGovernment has now been advised that the Bank will cancel the balance of theloan on December 31, 1982 unless an action program has been agreed upon bythat date.

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

The project is designed to expand and improve primary and secondaryeducation in rural areas and specialized training to meet manpower needs ineducation, agricultural extension, health and tourism. After an initialtwo-year delay, construction under the education and agriculture components islargely completed and funds are committed for the equipment and technicalassistance components, but lengthy delays have been experienced in theimplementation of the health and tourism components. Further extension of theclosing date is being considered and will depend on improvements indisbursement performance, which has lagged due to administrative delays bothin the Project Unit and the Ministry of Finance.

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

The project aims at extending irrigation and related agriculturaldevelopment in the Doukkala perimeter by 16,600 hectares; it also calls forprovision of extension and credit services, and village infrastructure. Theland consolidation program and the enlargement of the main canal areproceeding according to schedule. Implementation was slowed down due tobudgetary constraints facing Morocco in 1980-81 which caused a delay of abouttwo years. Project implementation has resumed vigorously under excellentproject management.

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

The project is designed to meet part of the Banque Nationale deDeveloppement Economique's (BNDE) requirements for financing of the importcomponent of industrial sub-projects, and of a small-scale industry pilotcredit program ($5 million). The loan is fully committed, and the loan isexpected to fully be disbursed before end 1982. BNDE's financial performancedeteriorated sharply in 1981, but the trend should be reversed since a packageof measures to rehabilitate BNDE financially and to strengthen the institutionhas recently been agreed upon.

- 31 -

ANNEX IIPage 4 of 10

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

The project includes the preparation of a sewerage Master Plan forthe Casablanca-Mohammedia region and of a first phase project. It wouldassist Morocco in developing the design ar,d planning criteria for urban sewersystems and strengthening the institutiona;l and financial bases for thedevelopment of this sector. Project imple!mentation was delayed by about 15months, due to administrative and budgetary difficulties, but studies werelaunched in May 1980, and are now proceeding satisfactorily and an extensionof the closing date is under consideration. The technical components of apossible project have been identified, but: institutional problems have not yetbeen resolved.

Ln. No. 1528 Rabat Urban Developmen: Project; US$18.0 million ofMarch 31, 1978; Date o- Effectiveness: November 21, 1978;Closing Date: March 31, 1983.

The project is designed to improve living conditions of the urbanpoor in Rabat. It includes upgrading of slum infrastructure and socialservices in tbree squatter areas with a total population of about 60,000; anexperimental sites and services housing scheme; an employment generationprogram; and related technical assistance. After initial delays, projectimplementation has recently improved significantly. Infrastructure works areunder way and housing improvement loans are being made. Relocation to sitesand services areas is under progress and some enterprises have startedoperation in the industrial zone. Disbursements, however, remain low and thematter is under review with the Government.

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

The project aims at (i) improving the standard of living of about33,900 farm families in the Fes-Karia-Tissa region, and (ii) contributing tothe growth of agricultural production and to a reduction in Moroccandependence on imported food commodities. These aims would be achieved througha reorganization and strengthening of agricultural extension and soilconservation services, training, the provision of credit and infrastructure.Although somewhat delayed, implementation is proceeding satisfactorily, due toexcellent project management and good interagency coordination. However,disbursements have lagged due to delays by the implementing agencies insubmitting reimbursement requests to the Ministry of Finance.

- 32 -

ANNEX IIPage 5 of 10

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

The project consists of expansion of existing production facilitiesat Safi through (a) the erection, on the site of the existing Maroc Phosphoreplant, of an additional unit and ancillary facilities to produce for export165,000 tpy of pbosphoric acid, and (b) the construction of sulphur meltingand storing facilities as well as of new phosphoric acid concentration andstorage facilities. Commercial operations have begun and the project willprobably be completed on schedule. Maroc Phosphore's technical managementappears satisfactory. The project account is being closed and an amount ofabout $5 million is expected to be cancelled.

Ln. No. 1681 Fourth Education Project; US$113.0 million on April 25,1979; Date of Effectiveness: October 16, 1979; ClosingDate: December 31, 1984.

The project consists of the construction, furnishing and equipping of11 technical high scbools, a technical teacher training college, two higherinstituites of technology, an institute of applied engineering and an extensionof Mohammedia Engineering College and associated technical assistance.Implementation was initially delayed; however, all major contracts have nowbeen signed and disbursements are expected to accelerate.

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

The project consists of support for a Government program to assistsmall and labor intensive industries through technical, managerial andfinancial assistance. The loan is virtually fully committed, and earlierdisbursement delays should be remedied subsequent to the recent introductionof simplified administrative procedures.

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

This project, which is the first stage of a 15-year villageelectriiication program, would provide electricity to about 60,000 dwellingsin more than 200 villages throughout the country. Problems ofinterministerial coordination and budgetary allocations delayed projectstart-up for about one year. Orders have now been placed for most of theequipment but no payments have yet been made. However, implementation is wellunder waly and the project is expected to be completed according to schedule.

- 33 -

ANNEX IIPage 6 of 10

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

J

The project aims at increasing Morocco's agricultural productionthereby improving the standard of living of about 475,000 of Morocco's farmfamilies. The project covers most of the Caisse Nationale de Cr6ditAgricole's (CNCA) medium- and long-term lending program and farm investmentprogram through mid-1983. Cofinancing of $75 million is provided by IFAD andKfW. CNCA's on-lending as well as repayments were severely affected by the

1980-1981 drought, slowing disbursement of the Bank loan. To alleviate CNCA'ssbort-term liquidity problems (due mainly to the drought), its lenders,

including the Bank, have increased their disbursement percentages under theirrespective loans.

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

The project is designed to improve access to safe water supplies forthe population of the Mid-Atlantic Coast and the Greater Agadir area. Itconsists of: (i) the expansion of bulk water production and transmissionfacilities along the Mid-Atlantic Coast; (ii) the expansion of bulk waterproduction and transmission facilities in Agadir; (iii) the establishment of arevolving fund to facilitate house connections for low income families; and(iv) studies on accounting and management systems. Administrative problemscreated some initial delays, but there is strong demand for the creditfacilities for low-income house connections. The project is now proceedingsatisfactorily and disbursements are expected to increase accordingly.

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

The project is the first phase of a long-term program for developmentof off-season vegetables for export. $50.0 million of the loan is to beon-lent for long and medium-term farm investments and incremental short-termproduction costs of vegetable quality control centers, for two small producerpacking stations, and for seedling greenhouses benefitting about 8,000 farmfamilies and creating seasonal employment. The balance of the loan would helpfinance infrastructure in the project area, and technical assistance.Implementation is proceeding satisfactorily. Overall production did notprogress as scheduled due to two cold winters, but greenhouses, which haveresisted frost fairly well, are gaining acceptance with the farmers and theprospects of rising production are promising.

- 34 -

ANNEX IIPage 7 of 10

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

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

Ln. No. 1830 Third Highway Project; US$62.0 million of May 19, 1980;Date of Effectiveness: September 29, 1980; Closing Date:June 30, 19-84.

The project comprises (i) a three-and-a-half year time slice of theGovernment's pavement strengthening and preservation program; (ii)strengthening and management of the road maintenance program and (iii)technical assistance for the Ministry of Transportation to improvetransportation planning and to study road maintenance. The pavementstrengthening and maintenance activities are progressing satisfactorily. Thehiring of consultants for technical assistance is behind schedule due to theslow preparation of the terms of reference. Disbursements have lagged due todelays in payment of contractors as well as transmittal of reimbursementrequests to the Ministry of Finance.

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

The project should increase incomes and productivity of very poorsubsistence farmers in the Loukkos Basin by reversing the declining trendscaused by soil erosion and inappropriate farming practices. It consists of:(i) development and erosion control works on 15,000 steeply sloping hectaresin Upper Loukkos; (ii) development of field crops and small irrigationimprovements in Middle Loukkos; (iii) establishment and maintenance of pineplantations in the Izarene Forest; (iv) construction of roads and socialservice facilities in the Project area; and (v) execution of a cadastralsurvey on about 500,000 hectares of land. Once proven, the projectimplementation methodology could be widely replicated throughout Morocco'smountain and steppe land. Project implementation is progressingsatisfactorily.

- 35 -

ANNEX IIPage 8 of 10

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

The project provides funds over a three year period to the CreditImmobilier et H8telier (CIH), a Moroccan development bank specializing in thetourism and housing sectors, for the development of tourism hotels. It alsoincludes studies for developing policies irn the tourism sector and training ofCIH staff in appraisal methodologies for tourism projects. Commitments anddisbursements have been extremely rapid.

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

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

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

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

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

The project would include a pilot component in the line of credit toBNDE, to finance export-oriented indust:rial sub-projects. The project alsofocusses on strengthening organizational aspects of BNDE in the field ofproject appraisal, portfolio monitoring and export promotion.

- 36 -

ANNEX IIPage 9 of 10

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

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

Ln. No. 2082 Middle Atlas - Central Area - Agriculture DevelopmentProject: US$29.0 million of March 5, 1982. Not yeteffective. Closing Date; June 30, 1988.

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

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

This pilot project would increase the productivity of small-scalelead and zinc mining operations through provision of equipment and facilities,as well as credit to miners, in a remote region of Morocco thus increasingexports and raising rural incomes. The project would also strengtben thefinancial, technical and administrative base of CADETAF, the implementingagency, and finance studies as a basis for future expansion of miningactivities. Implementation is proceeding satisfactorily.

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

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

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

The engineering project would finance studies and the construction ofa shale retorting test station to generate information and analysis on thecharacteristics of Moroccan oil sbale resources and on the technical andeconomic viability of alternative options for their development.

- 37 -

ANNEX IIPage 10 of 10

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

The project is designed to improve the effectiveness of primaryeducation and support expanded science and mathematics teaching at the seniorsecondary level, through construction of four senior secondary teacherstraining colleges, 40 rural primary schools and the provision of teaching aidsto about 700 primary schools.

- 38 -

ANNEX IIIPage 1 of 2

KINGDOM OF MOROCCO

HOUSING DEVELOPMENT PROJECTSUPPLEMENTARY PROJECT DATA SHEET

Section I: Timetable of Key Events

(a) Project identification: September 1981

(b) Time taken by borrower to prepare project: 8 months

(c) Agencies responsible for project preparation: Credit Immobilier etH8telier (CIH)

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

(e) Date of departure of Appraisal Mission; June 1982

(f) Date of completion of negotiations: January 13, 1983

(g) Planned date of effectiveness: July 1983

Section II: Special Bank Implementation Action

None.

Section III: Special Conditions

1. New interest rate structure would be maintained throughout thecommitment period of the project, and by March 31, 1985, CIH wouldevaluate and discuss with the Government and the Bank the impact ofinterest rate subsidy and the tax relief package in the housingsector (para. 39).

2. Construction, land development, and mortgage loans would be subjectto agreed eligibility criteria; the loan contracts between CIH anddevelopers would include a covenant ensuring CIH refinancing ofdevelopers' newly built housing units (para. 47).

- 39

ANNEX IIIPage 2 of 2

3. Annual reviews would be carried out between the Bank and CIH toassess the acbievement of project objectives; CIH would be requiredto repay the Bank the repayments by developers which are not usedfor mortgage loans within five years of the date of contract(para. 49).

4. CIH's financial exposure in any single housing project would belimited to 20% of its equity and reserves (para. 55).

5. CIH would take appropriate actions satisfactory to the Bank toprotect itself against the risk of loss resulting from interestrate fluctuations (para. 60).

6. CIH's loans to resettlement schernes would be guaranteed; and theGovernment would pay CIH at its request to keep arrears onresettlement schemes below 8% (para. 61).

7. CIH'S debt-equity ratio and debt service ratio would remain witbinthe limits of 13.8:1 and 1.0, res;pectively (para. 62).

I

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