Document of The World Bank FOR OFFICIAL USE ONLY Report No. 58010-MA INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROGRAM DOCUMENT ON A PROPOSED DEVELOPMENT POLICY LOAN IN THE AMOUNT OF EURO 100 MILLION (US$136.7 million equivalent) TO THE KINGDOM OF MOROCCO IN SUPPORT OF THE URBAN TRANSPORT SECTOR February 14, 2011 Sustainable Development Department Middle East and North Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. MOROCCO GOVERNMENT FISCAL YEAR January 1 ­ December 31 CURRENCY EQUIVALENTS (Exchange Rate Effective as of January 31, 2010) Currency Unit Moroccan Dirham US$1.00 = MAD 8.2 WEIGHTS AND MEASURES Metric System ABBREVIATION AND ACRONYMS AFD Agence Française de Développement ANAPEC Agence Nationale de Promotion de l'Emploi et des Compétences EIB European Investment Bank CDG Caisse de Dépôts et Gestion CNDU Commission Nationale des Déplacements Urbains CPS Country Partnership Strategy CFAA Country Financial Accountability Assessment DGCL Direction Générale des Collectivités Locales DPL Development Policy Loan FEC Fonds d'Equipement Communal GDP Gross Domestic Product GHG Green House Gas IBRD International Bank for Reconstruction and Development ICR Implementation Completion Report IFC International Finance Corporation IMF International Monetary Fund JSAN Joint Staff Advisory Note LDP Letter of Development Policy MOF Ministry of Finance MOI Ministry of Interior OFPPT Office de la Formation Professionnelle et de la Promotion du Travail PEFA Public Expenditure and Financial Accountability PER Public Expenditure Review PFM Public Finance Management PPP Public Private Partnerships Vice President: Shamshad Akhtar Country Director: Simon Gray Sector Director: Laszlo Lovei Sector Manager: Patricia Veevers-Carter Task Team Leader: Jean-Charles Crochet KINGDOM OF MOROCCO URBAN TRANSPORT SECTOR DEVELOPMENT POLICY LOAN TABLE OF CONTENTS Page No. LOAN AND PROGRAM SUMMARY .................................................................................................................. i I. INTRODUCTION ................................................................................................................................... 1 II. COUNTRY CONTEXT .......................................................................................................................... 2 A. MACROECONOMIC ACHIEVEMENTS OVER THE LAST DECADE ...................................... 2 B. RECENT ECONOMIC DEVELOPMENTS IN MOROCCO .......................................................... 5 C. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY ............................................ 8 III. THE GOVERNMENT'S PROGRAM AND PARTICIPATORY PROCESSES .................................. 11 A. URBAN TRANSPORT SECTOR ISSUES .................................................................................... 11 B. THE GOVERNMENT'S PROGRAM ........................................................................................... 15 C. CONSULTATION AND PARTICIPATORY PROCESSES ......................................................... 19 IV. BANK SUPPORT TO THE GOVERNMENT'S PROGRAM.............................................................. 20 A. LINK TO CPS ............................................................................................................................. 20 B. COLLABORATION WITH IMF AND OTHER DONORS ...................................................... 20 C. RELATIONSHIP TO OTHER BANK OPERATIONS .............................................................. 21 D. LESSONS LEARNED ................................................................................................................ 21 E. ANALYTICAL UNDERPINNINGS .......................................................................................... 22 V. THE PROPOSED MOROCCO URBAN TRANSPORT SECTOR DPL ............................................. 23 A. OPERATION DESCRIPTION ................................................................................................... 23 B. POLICY AREAS ........................................................................................................................ 24 VI. OPERATION IMPLEMENTATION .................................................................................................... 27 A. POVERTY AND SOCIAL IMPACTS.............................................................................. 27 B. ENVIRONMENTAL ASPECTS....................................................................................... 28 C. IMPLEMENTATION, MONITORING, AND EVALUATION....................................... 29 D. FIDUCIARY ASPECTS AND DISBURSEMENTS ........................................................ 29 ANNEX 1: LETTER OF SECTOR DEVELOPMENT POLICY ...................................................................... 33 ANNEX 2: OPERATION POLICY MATRIX .................................................................................................. 55 ANNEX 3: MOROCCO - PUBLIC DEBT SUSTAINABILITY AND EXTERNAL FINANCING REQUIREMENTS ............................................................................................................................................. 59 ANNEX 4: MOROCCO AT A GLANCE ......................................................................................................... 60 MAP: IBRD 33450R2 This Loan was prepared by a World Bank team consisting of Jean-Charles Crochet (Task Team Leader and Senior Transport Economist), Ziad Nakat (Transport Specialist), Paul Noumba Um (Lead Economist), Anas Abou El Mikias (Senior Financial Management Specialist), Stefano Paternostro (Lead Economist), Khalid El Massnaoui (Senior Economist), Gaël Grégoire (Environmental Specialist), Andrea Liverani (Social Development Specialist), Eavan O'Halloran (Senior Country Officer), Jean-Charles de Daruvar (Senior Counsel), Hassine Hedda (Finance Officer), O.P. Agarwal (Senior Transport Specialist and Peer Reviewer), Aurelio Menendez (Sector Manager and Peer Reviewer), Sally Burningham (Operations Adviser and Peer Reviewer), Fatiha Amar (Program Assistant), and Khadija Sebbata (Program Assistant). The team worked under the guidance of Simon Gray (Country Director), Laszlo Lovei (Sector Director), and Jonathan Walters (Regional Strategy and Programs Director). LOAN AND PROGRAM SUMMARY KINGDOM OF MOROCCO URBAN TRANSPORT SECTOR DEVELOPMENT POLICY LOAN Borrower Kingdom of Morocco Implementing Agency Ministry of Interior Financing Data The loan amount is Euro 100 million. The main loan terms are as follows: variable spread over LIBOR, 28 years maturity including 5.5 years grace period, Euro denominated, and tailored repayment schedule. Operation Type The proposed operation is a single-tranche DPL Main Policy Areas Governance of the urban transport sector Efficiency and supply of urban transport services and infrastructure Environmental and social sustainability Key Outcome Indicators Governance: (i) Efficient planning and management of the urban transport sector in the Casablanca agglomeration. (ii) Effective coordination of policies and programs among the main Government departments involved in the urban transport sector. (iii) Effective Central Government support provided to local authorities on urban transport issues. (iv) Sufficient urban transport expertise available in the cities that have carried out or launched the preparation of municipal urban strategies and priority investment plans. Efficiency and supply of urban transport services and infrastructure: (i) Improved quality and quantity of bus services in the agglomerations of Rabat-Sale-Temara and Casablanca. (ii) The procurement process for outsourcing public transport services is in line with international best practice. (iii) Government financial support allocated to those urban transport investment projects with superior economic and social returns. Environmental and social sustainability: (i) Effective vehicle inspection and monitoring systems in place. (ii) Accessibility for persons with limited mobility mainstreamed in urban transport projects and awareness of accessibility issues increased. Program Development The development objective of the proposed DPL is to improve the Objective and efficiency of urban transport in Morocco's large cities through: (i) Contribution to CPS better governance of the sector; (ii) increased performance and supply of urban transport services and infrastructure; and (iii) higher environmental and social sector sustainability. The proposed single- tranche DPL would support the Government's urban transport i reform program and accelerate its implementation. It would focus on key institutional and regulatory measures as well as the implementation of the Government's reform program in main cities, primarily Casablanca and Rabat. The CPS is designed to help Government achieve its medium term priority objectives in a flexible and responsive way. It is organized around three main pillars. The first concentrates on activities that encourage growth, competitiveness and employment, including fostering macro-economic stability and promoting private sector development as engine of growth. The second pillar supports the improvement in access to, and quality of, public services, including the development of institutions and management systems. The third pillar aims at ensuring that Morocco's development can be sustainable and addresses natural resources and climate change challenges. In addition, the CPS places a strong emphasis on the governance agenda which is to be mainstreamed across the Bank program. The proposed Urban Transport DPL would contribute to these three strategic pillars by: (i) reducing transport costs and improving the mobility of people and goods, therefore improving competitiveness, and creating the proper framework for employment and growth stimulating investments; (ii) improving the quality and efficiency of urban transport services, particularly through more effective institutions; and (iii) improving sustainable development and mitigating GHG emissions. The proposed DPL would also contribute to important cross cutting developments supported by the CPS, including especially for strengthening governance, public private partnerships, and local governments' capability. Risks and Risk The proposed DPL faces low to moderate risks in terms of Mitigation macroeconomic stability, commitment and continuation of reforms, implementation capacity, and regulatory capture. Possible deterioration of macroeconomic stability. Sound macroeconomic and fiscal policies, as well as efforts to improve sector productivity and competitiveness, put Morocco in a good position to maneuver with less damage through the global crisis, while benefitting from the recovery of the world economy. The fiscal framework is robust to downside risk in the medium term. The balance of payments financing requirements do not constitute a serious concern. Commitment and continuation of reforms. The DPL includes several measures which require continued commitment in implementation in order to achieve their intended objectives over the medium term. To promote such commitment, the DPL emphasized the creation or strengthening of institutions to monitor and support implementation of the measures as well as to carry the broader reform agenda defined in the government strategy for the sector. These institutions are the National Commission for Urban Transport and the urban transport division of the Ministry of Interior. In addition, the clear assignment of responsibilities to the Ministry of ii Equipment and Transport for the vehicle inspection system and to the Ministry of Social Development, Family, and Solidarity for the promotion of accessibility is expected to strengthen accountability in these two policy areas. Implementation capacity risks. Local governments have an essential role in the implementation and follow up of urban transport reforms but lack the necessary technical and financial capacity. The proposed DPL includes measures to be implemented by the central government, which reinforce the capacity of local governments, including especially training programs and the establishment of a dedicated and qualified transport authority in Casablanca to manage urban transport. In addition, the Ministry of Interior is providing substantial financial support to the municipalities to undertake the necessary studies and to acquire the technical expertise that they need. Regulatory Capture. The public private partnership model adopted for bus services in most Moroccan cities involves the selection of a single bus private operator for the entire urban area. There are strong advantages to this approach, but there is a risk that the management of these PPPs may be suboptimal and the reforms of bus services may not produce the expected results. This risk is mitigated through the clear definition of contractual obligations and governance arrangements. In addition, there is substantial capacity within the Ministry of Interior, notably in the Directorate of State-owned Companies and Concessions, to oversee PPP implementation and take action in case of unsatisfactory performance. Operation ID P115659 iii PROGRAM DOCUMENT KINGDOM OF MOROCCO URBAN TRANSPORT SECTOR DEVELOPMENT POLICY LOAN I. INTRODUCTION 1. As part of the World Bank's program in Morocco outlined in the Country Partnership Strategy (FY10-FY13 CPS), this Program Document proposes an Urban Transport Sector Development Policy Loan (DPL) for an amount of Euro 100 million. The operation aims at strengthening the efficiency of the urban transport sector mainly through institutional and regulatory reforms and the clarification of the Government's strategic priorities. It supports key aspects of the Government's reform program for the sector. 2. The growth of cities and the accompanying social and economic changes are essential features of Morocco's current development process. The urban population is 17.7 million today (about 55% of the total population) and it is projected to grow to 27 million in 2025 (70% of the population). At the same time, the spatial structure of the cities is changing significantly. With the relocation of many economic activities outside the city centers, the population's demand for lower density residential areas, and the greater autonomy of younger households, Moroccan cities are spreading rapidly. This, together with the increase in motorization and societal changes such as women's growing participation in labor markets, has had drastic consequences on the demand for urban transport. For example, trip rates have increased from about 1.6 per person per day to 2.9 in Casablanca between 1975 and 2004 (a total of 10.5 million daily trips in 2004 compared to 3.3 million in 1975). Trips have also become much longer. This has put enormous pressure on the urban transport systems of Morocco's main cities. 3. These systems are ill suited, however, to handle rapidly increasing demand. Indeed, as will be explained later in this Program Document, Morocco's urban transport sector was characterized until recently by major institutional, regulatory, and operational weaknesses, a shortage of human resources, and a lack of long term strategic vision at the local level. As a result, public transport systems perform poorly and are not responsive to the changing demands of the population. The road infrastructure and the management of traffic are also lagging behind, and congestion is increasing fast, particularly in Casablanca, the economic capital, where it is now perceived as a threat to the city's competitiveness and economic growth prospects. Air quality has deteriorated sharply, in great part due to transport, and some key social needs are not adequately addressed. 4. Improving urban transport has become a key priority for Morocco's central and local governments. The Government has thus embarked on a broad program of activities aimed at systematically addressing sector issues, particularly the structural issues that are at the core of the current inefficiencies. This program focuses on three main goals: (i) improving the sector's governance; (ii) improving the efficiency and increasing the supply of urban transport services and infrastructure; and (iii) improving the sector's environmental and social sustainability. This program was designed with support from the Bank, which, at Government's request, has been involved in the sector since 2006 through an in-depth relationship focused on technical support, assistance in capacity building, and transferring best practices and lessons of experience from other middle income countries. 1 5. Bank support to the urban transport sector in Morocco has been provided in close coordination with international partners, including especially the Agence Française de Développement (AFD) and the European Investment Bank (EIB) which are currently providing financial and technical assistance to the sector. II. COUNTRY CONTEXT1 A. MACROECONOMIC ACHIEVEMENTS OVER THE LAST DECADE 6. Morocco carried out sound macroeconomic policies and continued to sustain momentum of structural reforms. As a result, the growth pattern shifted to a higher level averaging 5.1 percent over 2001-09, almost double of the average rate of the 1990s (2.8 percent). The good growth performance allowed the Gross Domestic Product (GDP) per capita to almost double over the last decade to reach US$2,890 in 2009. Furthermore, sound fiscal policies led to the consolidation of public finances, allowing the budget to run surpluses in 2007 and 2008 (averaging 0.3 percent of GDP) and to withstand well in 2009 the impact of the global crisis, with a manageable budget deficit of 2.2 percent of GDP. The Government adopted a prudent debt strategy and debt of the Treasury steadily declined to 46.9 percent of GDP in 2009 from 62 percent in 2005. In addition, the monetary authorities pursued appropriate monetary policy geared toward maintaining low and stable inflation (an average 2.2 percent since 2005) and enhanced financial sector supervision. Furthermore, the country sought to deepen its integration into the world economy through the signing of many Free Trade Agreements (FTAs) culminating with the recent Advanced Status awarded by the EU. Overall, these efforts have led to a stable macroeconomic stance, stronger public finances, and a sound financial sector. On the basis of these achievements, Morocco gained investment grade rating in 2007 from Fitch, which was confirmed again in 2009. In March 2010, it received the Investment grade again from Standard & Poor (BBB- with stable outlook) which further reinforced the confidence of investors, both domestic and foreign. 7. With the involvement of the Figure 1. Rising investment, in percent of GDP private sector, Morocco designed and is 45.0 7.0 implementing specific sector strategies to increase investment and employment 40.0 6.0 in sectors of the economy with high 35.0 5.0 growth potential. Thus, investment in 30.0 these sectors has increased, 25.0 4.0 strengthening the fundamentals of the 20.0 3.0 economy. While gross investment hovered around 25 percent of GDP on 15.0 2.0 average in the 1990s, it increased 10.0 rapidly in the 2000s, to reach an 5.0 1.0 outstanding rate of 36 percent of GDP in 0.0 0.0 2009 with strong participation of the 2004 2005 2006 2007 2008 2009 private sector and State-Owned Enterprises (a share of 64 percent of the Private & SOEs Households Public Administration total) (Figure 1). High Foreign Direct Changes in stock FDI (right axis) Investments (FDI) inflows (an average 4.5 percent of GDP over the last five Source: Moroccan Government and Staff estimates. years) also contributed to reinforce gross investment. These higher investment rates geared to dynamic sectors led to improved diversification and growth potential of the Moroccan economy, and 1 Unless otherwise indicated, all estimations and projections of economic indicators are those of the World Bank. All historical data are those of the government. 2 reduced volatility.2 Higher investment also improved the employment situation with the number of jobless shrinking to 9.1 percent in 2009, although efforts are necessary to further reduce unemployment among young people, especially those with a university degree. 8. Reforms triggered positive changes in the Moroccan economic structure but manufacturing is losing momentum. The structure of production changed in favor of services with both primary and secondary sectors' shares in GDP declining over time. The shrinking of the secondary sector's share is mainly due to falling manufacturing which has steadily declined over the last two decades, denoting a weakness of the productive tissue that reduces its productive capacity and hinders its long term growth and development. This weakness stems from the slow structural transformation in the manufacturing sector, which also explains the modest results of Moroccan exports. The latter continue to be concentrated around relatively undiversified, low knowledge, low value-added, traditional products. As a consequence, exports do not fully benefit from trade dynamics of Morocco's trade partners and thus have been unable to fulfill their potential for contributing to growth and job creation. Figure 2. Growth shifted to higher path and Figure 3. Unemployment declined is less volatile and less dependent on (in percent) agriculture (in percent) 14.0 80.0 25% 40% 11.0 60.0 20% 32% 8.0 40.0 5.0 20.0 15% 24% 2.0 0.0 10% 16% -1.0 -20.0 5% 8% -4.0 -40.0 -7.0 -60.0 0% 0% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 National (Left axis) Urban (Left axis) GDP Agriculture output (right axis) Poly. (GDP) Urban Youth (right axis) Urban Women (right axis) Figure 4. External position is solid with Figure 5. Public Finances have improved vulnerability in trade (in percent of GDP) before the global crisis (in percent of GDP) 14% 35% 10 32 12% 30% 8 10% 22 8% 6 25% 6% 4 12 20% 4% 2 2 2% 15% 0% 0 -8 -2% 10% -2 -4% -18 5% -4 -6% -8% 0% -6 -28 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1990 1991 1994 1995 1996 1997 1998 1999 2002 2003 2004 2005 2006 2007 2010 1992 1993 2000 2001 2008 2009 Budget deficit Wages & salaries Current account balance Net reserves in months of GNFS Foreign direct investments, Gross Trade Balance (right axis) Consumer subsidies Total revenues (Right Axis) 2 The standard deviation of growth rates in the 2000s is three and half times less than in the 1990s. 3 Figure 6. Inflation remains subdued (in percent Figure 7. Central Government debt is declining and sustainable (in percent of GDP) 8.0 80.0% 7.0 70.0% 6.0 60.0% 5.0 4.0 50.0% 3.0 40.0% 2.0 30.0% 1.0 0.0 20.0% -1.0 10.0% -2.0 0.0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 CPI Food Non-Food Foreign Domestic Total Source: Moroccan Government and Staff estimates. Table 1. Selected Macroeconomic Indicators (in percent of GDP) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Est. I. National Accounts Gross Investment 26.1 25.9 27.4 29.1 28.8 29.4 32.5 38.1 36.0 35.7 Gross National Savings 30.4 29.6 30.5 30.8 30.7 31.6 32.4 32.9 31.0 31.7 Government Investment (Nat. Acc.) 2.6 2.2 2.1 2.1 1.9 2.1 2.3 2.7 3.1 2.6 Private Investment (incl. SOEs) 23.6 23.7 25.3 27.0 26.9 27.4 30.2 35.4 32.8 33.1 Of which SOEs 4.4 4.8 4.9 5.6 6.1 7.1 8.0 9.6 11.5 14.3 II. Central Government Finances Total revenues 22.4 22.1 21.6 22.2 23.8 25.1 27.4 29.7 25.9 23.8 Tax revenue 20.4 20.4 19.8 20.0 21.7 22.2 24.9 27.4 23.4 22.1 Current Expenditure. Of which 21.9 20.6 20.6 20.8 24.1 21.5 21.7 22.8 20.7 21.1 Wages 11.3 10.9 11.2 11.2 11.7 10.9 10.7 10.2 10.2 10.3 Capital Expenditure 5.1 4.5 4.1 4.2 3.9 4.1 4.6 5.5 6.3 5.1 Global Balance -5.7 -4.1 -4.4 -4.0 -5.2 -2.0 0.2 0.4 -2.2 -4.2 III. Balance of Payments Imports GNFS 32.6 32.9 32.0 34.8 38.2 39.8 46.0 52.1 40.7 42.8 Exports GNFS 29.6 30.2 28.6 29.2 31.6 33.1 36.2 37.6 28.8 32.6 Trade Balance -10.3 -9.9 -10.9 -13.9 -17.0 -18.3 -22.3 -24.7 -20.8 -21.0 Tourism receipts 6.8 6.5 6.5 6.9 7.8 9.1 9.5 8.1 7.2 7.5 Workers' remittances 8.6 7.1 7.2 7.4 7.7 8.3 8.9 7.7 6.8 7.1 Current Account Balance 4.3 3.7 3.2 1.7 1.9 2.2 -0.1 -5.2 -5.0 -4.0 Foreign Direct Investment, net 7.6 1.4 4.9 1.9 5.0 4.6 6.2 4.1 2.8 2.0 Reserves, net (months of GNFS imp.) 8.8 9.1 10.0 9.9 9.9 10.0 8.8 6.6 7.6 7.6 IV. Indicators of Credit Capacity of CG Public Debt of CG 67.1 63.7 60.8 58.2 62.1 57.3 53.5 47.3 46.9 48.2 Total interest payments/Tax revenues 21.6 19.1 18.4 17.4 15.2 14.5 12.6 9.7 10.1 10.3 Memo: Country's external debt stock/GDP 49.8 44.5 36.5 29.6 27.2 27.1 27.3 23.4 24.7 25.8 Consumer price (%, yearly average) 0.6 2.8 1.2 1.5 1.0 3.3 2.0 3.7 1.2 0.9 GDP Growth (%) 7.6 3.3 6.3 4.8 3.0 7.8 2.7 5.6 4.9 3.5 Non Agriculture GDP growth (%) 5.7 3.2 3.6 4.7 5.6 5.4 6.5 4.2 1.4 6.1 Unemployment (%) 12.5 11.6 11.6 11.0 11.2 9.7 9.8 9.6 9.1 9.0 Source: Moroccan Government and staff estimates. 4 B. RECENT ECONOMIC DEVELOPMENTS IN MOROCCO 9. In the context of the global economic crisis, growth performance in Morocco has been good. Economic growth in 2009 reached 4.9 percent following a growth rate of 5.6 percent in 2008. This performance is mainly due to an exceptionally good agricultural output, which gained 30.6 percent benefiting from a favorable climate. This shows that agricultural variations due to weather conditions still affect GDP growth, albeit with less intensity than in the past. Growth of the non- agricultural GDP slowed down to a much lower rate than projected due to the negative impact of the global crisis. It edged down to 1.4 percent over 2009 compared to 4.2 percent registered the previous year and it is mostly explained by a slow-down or decline of most of the activities, especially manufacturing and tourism. 10. Data from the first three quarters of 2010 show that the economy is recovering from the effects of the global economic slowdown that started in late 2008. Non-agricultural GDP gained 5.4 percent in the first quarter of 2010 and stabilized at around 4.8 percent in the second and third quarters. It is expected that growth momentum of the non-agricultural activities would continue through the end of the year. However, total GDP growth is estimated to be around 3-3.5 percent for the whole year owing to a lower, although good harvest this year compared to the exceptional one of last year, translating into an estimated negative growth of the agricultural output (down 8 percent). Furthermore, there are no apparent signs that the recent sovereign debt crisis of Greece and Ireland and the subsequent restrictive policies of some European countries have had any major impact on exports or capital inflows. 11. The Government has implemented a stimulus package to support the income of the population and help the most affected sectors (Box 1). The income support package is mostly benefiting the low income employees. It includes an increase of 10 percent in the wages of civil servants at the lower end of the salary scale and the Minimum Wage for private sector employees. The wage increase was implemented in two steps, the first increase of 5 percent in July 2008 and the second one in July 2009. In addition, effective January 2009, the marginal income tax rate was cut from 42 percent to 40 percent and further to 38 percent in January 2010. At the same time the upper end of the exempt income bracket was extended. In addition to the measures aiming to preserve employment, direct support measures for affected firms included financial relief (guarantees on loans; rescheduling of debt; help with export insurance) as well as subsidies for training and marketing. Economic stimulus was also provided through some monetary easing. The total budgetary gross cost of the stimulus package has been estimated by the government at MAD21 billion3 (over the 2008-2010 period) or 2.7 percent of 2010 GDP, and as such does not pose a risk to the medium term sustainability of public finances. 3 Because of their structural nature, the extra subsidies for food and petroleum products (MAD 7 billion) generated by higher world prices of cereals and fuels are not included in the stimulus package. 5 Box 1: Fiscal Stimulus packages and Outcomes The Government has implemented several measures to help affected firms cope with the decline of external demand. Early in 2009, the Government set up a high level Council for Strategic Monitoring (CSM), comprising concerned ministers as well as representatives of the private and banking sectors, to follow developments related to the ongoing global crisis. The CSM targeted the export sectors hit by the effects of the global crisis for support through the following measures that would expire at the end of 2010: Social component: budgetary support to help firms in the payment of their contribution to employees' social benefits Financial component: public guarantees for financing roll-over funds of firms and for rescheduling of their debt service Commercial component: budgetary support for the prospection and marketing costs abroad, and preferential conditions for export insurance Training component: Budgetary support for training and logistics Subsequently specific support programs have been designed for tourism and remittances and investment of Moroccan workers residing abroad. Data as of June 2010 show that 70 percent of the demand for support concerned social benefits relief and was requested by 443 firms, of which 398 firms operating in the textiles sector and the remaining firms in automotive equipment and electronics. At the same time, 129 firms benefited from loan guarantees (of which most are operating in the textiles sector), and 134 firms benefited from training, of which 111 firms from the textiles sector and 20 from automotive equipment. Measures to help low income households were already started in 2008 and included in the 2009 and 2010 Budget Laws. For the most part, they consisted of tax relief and wage increases for selected groups as well as an increase in social expenditures by relevant government departments. These measures, along with a much higher public investment program in place for 2009 and confirmed for 2010, kept domestic demand high as reflected in the rising credit to consumption, equipment and real estate (see below). Specific measures included the following: The marginal income tax was cut from 42 percent to 38 percent, and the upper limit of the tax-exempt bracket was increased by 25 percent; Salaries of civil servants at the lower end of the pay scale were increased by 10 percent (5 percent in July 2008 and 5 percent in July 2009); For private sector employees, the minimum wage was raised by 10 percent (5 percent in July 2008 and 5 percent in July 2009); and Minimum pension payments were increased by 20 percent and family allowances by 33 percent. Economic stimulus was also provided through monetary easing. Reserve requirements for banks were cut in steps from 15 to 8 percent over 2009, and further to 6 percent effective April 1st, 2010. The Central Bank also cut its policy rate by 25 basis-points in March 2009 translating into a policy rate of 3.25 percent. 12. Public finances continue to be well managed despite the impact of the global crisis on the budget. The steady reform efforts of expenditure and tax management and sound active debt management over the last few years have been critical in maintaining public finances on a sustainable path. These reforms translated into better control of the Government's consumption, enhanced tax collection, and declining public debt. In this context, the budget deficit was limited to 2.2 percent of GDP in 2009 despite decreasing revenues impacted by the reduction of corporate and personal tax rates, the slow-down of economic activities ensuing the global crisis and the introduction of the stimulus package. This manageable deficit follows a good performance of public finances that were in slight surplus in 2007 (0.2 percent of GDP) and in 2008 (0.4 percent of GDP), which is remarkable given the impact on the budget of high subsidies following the food and fuel crisis. 6 13. Recent data on budget execution over the first 10 months of 2010 show that the annualized budget deficit would be contained to less than 4 percent of GDP. The budget deficit is mainly explained by soaring food and fuel subsidies (up 135.6 percent) caused by increasing world prices. The deficit, however, may have been even larger without efforts to improve revenue collection that helped fiscal revenues to gain 2.3 percent despite the impact of the global crisis and the effects of the stimulus package. It is clear that subsidies still represent a heavy burden on the budget and thus constitute a potential risk factor for sustainability in case of serious exogenous shocks such as very high world prices of fuels and food items or severe drought. Nevertheless, public finance stance remains sustainable due to the sound macroeconomic policies and accompanying sectoral measures the Government is undertaking to mitigate the effect of such shocks. Indeed, the Government continued to improve tax administration and collection and contain recurrent expenditures (up only 2.3 percent), of which the wage bill. It launched a medium term plan to reform the subsidy system along an ambitious program aiming at enhancing the productivity of the agricultural sector and insulating it from the uncertainties of the climate conditions. In addition, the Government is implementing better targeted social programs such as conditional cash transfer program and a scaled up non-contributory health insurance scheme for the poor (RAMED). The stable macroeconomic stance and the continued reform momentum have allowed Morocco to successfully issue Euro 1 billion of bonds in the international market end September 2010, at relatively low interest rate (4.5 percent), with a risk premium of 200 basis points, showing the confidence of international investors for the positive economic prospects of Morocco. 14. Sound fiscal management helped further reduce the Treasury's debt. Reflecting the good performance of public finances and sound active debt management, the debt stock of the central Government declined to 46.9 percent of GDP in 2009, down by almost a half percentage point compared to the previous year (and by more than 6.5 percentage points relative to 2007). The decline is explained by a decrease in that of domestic debt, which fell by 1.2 percentage points to reach 36.2 percent of GDP, while foreign debt slightly increased by 0.8 percentage point of GDP (representing 10.7 percent of GDP) reflecting the Government's debt strategy to improve the share of external debt in total public debt, contributing in this way to the reinforcement of the external reserves of the country. 15. The Government and the central bank showed continued commitment to fighting inflation. Helped by prudent monetary policies, protected domestic markets from increasing world food and fuel prices and ample domestic food supply inflation was low over the first 11 months of 2010 (up 0.8 percent). This inflation rate is less than that of 2009 (1.2 percent) the same period and much less than that of 2008 (3.7 percent). Both food and non-food inflation have been low (1 and 0.9 percent respectively). 16. The external position remains solid with signs of improvements of the current account. For the first time since the 1980s, the current account ran large deficits in 2008 (5.2 percent of GDP) and 2009 (5 percent of GDP). The latest data show that current account deficit improved to an estimated 4 percent of GDP over the first 11 months of 2010. Current account deficits followed comfortable surpluses over the period 2001-06 (average surplus of 2.8 percent of GDP) and a quasi-balance in 2007 (a deficit of 0.1 percent of GDP). The improvement of the current account is principally explained by buoyant exports and the recovery in workers' remittances and tourism receipts following the on-going recovery of world economy. Over the first 11 months of 2010, exports of goods increased by 26.7 percent (while imports gained only 12.9 percent), remittances by 7.8 percent and tourism receipts by 7.3 percent. Consequently, after declining by US$ 5.3 billion (or down 21.4 percent) at end June 2010 (y/y), net foreign reserves started to steadily improve over the last months reducing the loss to US$ 2.3 billion by end November 2010, reaching US$ 22.4 billion, which represent 6.9 months of imports, down from 7.6 months in 2009. In parallel to the improvement of the international commerce, operations which have allowed an increase in the level of foreign reserves include the Euro 7 1 billion international bond issue by the Government at the end of September 2010, the recent selling of 40 percent of Medi-Telecom for Euro 640 million, and the increased share of foreign financing of the budget. 17. The recent economic events revealed once again the weaknesses inherent in the Moroccan trade structure. The trade deficit deteriorated to 24.7 percent of GDP in 2008, up from 22.3 percent of GDP in 2007 (and only 11 percent in 2000). It improved in 2009 as imports declined by more than exports in nominal terms (20.8 percent of GDP). The latest data show the trade deficit further improved to 19.4 percent of GDP by end November 2010. The high trade deficit is mainly a volume effect rather than a price effect because Morocco actually benefited from positive terms of trade movement: while the price of oil and food imports increased, so did the price of key Moroccan exports such as phosphate products and agri-food. The poor performance of exports reflects their low diversification and lack of competitiveness. This explains largely why Moroccan exports were not able to benefit fully from the many FTAs it signed over the last decade such as those with the EU, the USA, and Turkey. 18. Monetary and exchange rate policies remained appropriate. In 2008, the central bank (BAM) resorted to raising the cost of money (plus 25 basis points in September 2008) to contain soaring credit and inflation, while it relaxed its policy to enhance liquidity in the face of the global crisis. As liquidity tightened and inflationary pressures started to ease over the second half of 2008 through 2009, BAM relaxed gradually the money reserve rate reducing it from 15 to 12 percent January 2009, and then to 10 percent July 2009. BAM decided to further cut the money reserve rate to 8 percent in October 2009 and to 6 percent starting April 2010 to ease the pressure on liquidity and thereby allowing Banks to be able to cope with the new money demands while contributing to keeping interest rates close to the BAM's policy rate. It has also cut its policy rate by 25 basis points in March 2009 to reach 3.25 percent. Despite these relaxed policies, money supply slowed to 5.5 percent (y/y) by end November 2010, compared to an average 14.5 percent over 2005-2008. Although credit for equipment soared at 18 percent, total credit to the private sector slowed down (up 11 percent) driven by reduced growth in credit for consumption (up 7.7 percent), construction (up 9.6 percent), and for working capital (up 5.7 percent). At the same time, the stock of non-performing loans increased by 8.2 percent (y/y) , but their share in total credit to the economy has been on a downward trend over time (from 4.9 percent in November 2009 to 4.8 percent November 2010). In recent years the exchange rate remained in line with macroeconomic fundamentals with no signs of misalignment. C. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY 19. Sound macroeconomic and fiscal policies, as well as efforts to improve sector productivity and competitiveness, put Morocco in a position to maneuver with less damage through the moderate effects of the global crisis, while being in a position to benefit from the recovery of the world economy (Table 2). The decision of the Government to continue its reform efforts and revamp its sector strategies along the targeted and short term sector fiscal stimulus should allow the Moroccan economy to expect good prospects over the medium term. Meanwhile, economic growth is estimated to be between 3-3.5 percent in 2010 mostly owing to the recovery of the non-agricultural sector benefiting from dynamic activities such as construction, finance services, telecommunication, and tourism. 8 Table 2. Base-line Medium Term Macroeconomic Indicators Est. Projections 2008 2009 2010 2011 2012 2013 Growth Rates in percent Real GDP 5.6 4.9 3.5 4.4 5.1 5.2 Real private consumption 6.0 4.0 3.8 3.6 5.0 4.2 Real Gross Domestic Investment 12.8 4.4 4.2 4.9 5.3 5.5 Export Volume (GNFS) 7.2 1.9 7.4 6.0 7.0 7.7 Import Volume (GNFS) 12.2 12.2 4.7 4.9 6.5 6.2 GDP deflator 5.9 1.8 2.0 2.0 2.0 1.9 Ratios to GDP Gross Domestic Investment 38.1 36.0 35.7 35.8 35.9 36.0 Fiscal Balance 0.4 -2.2 -4.2 -3.6 -3.4 -3.2 Central Government Debt 47.3 46.9 48.2 47.9 47.2 46.4 of which foreign 9.9 10.7 12.1 13.1 13.2 13.2 Current Account balance -5.2 -5.0 -4.0 -3.2 -2.7 -2.1 FDI, gross 2.3 0.9 2.0 3.1 3.4 4.6 External Debt (public and private) 23.4 24.7 25.8 26.6 26.0 24.4 Source: Moroccan Government and Staff estimates 20. Growth prospects in the medium term are positive.4 It is assumed that the Government will sustain the reform momentum of the last few years, achieve the ambitious public investment programs it devised, and continue to implement the main sector strategies it launched, thus consolidating further economic diversification, growth potential, and domestic demand, and it is also assumed that the world economy will slowly recover from the current crisis to allow the on-going export promotion strategies to achieve their targets and contribute to growth. Under these conditions, growth rates will improve from the moderate 3.5 percent estimated for 20105 to around 5.2 percent in 2013. Should the underlying sources of growth assumed above be slow to materialize, growth prospects would have to be adjusted downward. Moreover, there is a potential risk that even pre-crisis growth levels might not be sustainable over the medium term if internal demand remains the key driver of growth. 21. Sound macroeconomic policies will help contain inflation at low levels. Inflation edged down to 1 percent only in 2009, mainly driven by ample food supply and to a lesser extent by declining prices of imported food items, and should remain subdued at around 2 percent thereafter. As the Moroccan agriculture sector meets domestic demand for most of basic food commodities and even allows to export many food items, its inflation rate is only slightly affected by international food price fluctuations. In addition, subsidies for staple food and energy prices ­ while clearly having an impact on the budget ­ contribute to a stable inflation rate. 22. After a temporary higher estimated deficit in 2010, the fiscal stance should remain sound over the medium term, with fiscal deficits around the targeted threshold of 3 percent of GDP, benefiting from the ongoing fiscal reform and more targeted social programs, as well as a better- controlled wage bill. The budget deficit is expected to edge up to 4.2 percent of GDP in 2010 before gradually dropping to 3.2 percent by 2013. Reaching this outcome implies maintaining momentum of the ongoing tax reform to broaden the tax base, improve the efficiency of the VAT, strengthen tax administration, and remove unproductive tax exemptions in order to reduce the high tax expenditures. These measures would offset the negative impact of the reduced top rates on corporate and personal income taxes. Under these assumptions, revenues are projected to stabilize at around 25 percent of GDP. On the expenditure side, the consolidation of public finances relies on four critical measures: 4 IMF (2010), Morocco: 2009 Article IV Consultation--Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Morocco 5 The low growth in 2010 is mainly explained by normal agricultural output translating into a negative growth rate for agriculture after an outstanding growth in 2009. 9 deepening of fiscal reform, achievement of oil and food consumption subsidies reform, continued tight control of the wage bill evolution, and an active debt management. Under these conditions, public debt will slightly increase in 2010 48.2 percent of GDP before following a downward trend to decline to less than 46.5 percent of GDP in 2013. Table 3. Morocco: Financing Requirements of the Treasury (in percent of GDP) Est. Projections 2008 2009 2010 2011 2012 2013 Financing required 9.3 10.8 11.8 10.9 10.8 10.5 Budget deficit (+) -0.4 2.2 4.2 3.6 3.4 3.2 Amortization 9.7 8.6 7.6 7.4 7.4 7.3 Domestic 8.3 7.8 6.8 6.5 6.4 6.3 External 1.4 0.8 0.8 0.9 1.1 1.0 Total Financing available 9.3 10.8 11.8 10.9 10.8 10.5 Domestic financing 6.6 7.1 7.0 7.8 8.3 8.3 External disbursement 1.7 2.1 3.6 1.6 1.4 1.1 Others (Privatization, capital grants, CST*) 1.0 1.6 1.2 1.5 1.2 1.1 Source: Moroccan Government and staff estimates. (*) CST: Comptes Spéciaux du Trésor 23. The financing needs stemming from the higher budget deficit in 2010 and declining deficits over the medium term are easily financed through domestic market as well as from increased drawings on external loans (Table 3). In this context, domestic financing would remain the main source, although external financing would improve its contribution. Indeed, since 2006, net external financing reversed its long negative trend and became positive, reflecting the Government's strategy to slightly change the debt composition in favor of external borrowing. This financing strategy would ease the pressure on domestic financial markets and prevent any crowding out of the private sector's investment now that the money market is less liquid than in previous years. At the same time it is consistent with the intention to maintain a comfortable level of foreign reserves. 24. The Government's debt strategy is to diversify financing sources and take on a greater proportion of external financing. Three main factors underpin the decision of the Government to reinforce its external sources, especially multilateral and concessional. The first is linked to Morocco's public debt maturity structure. The maturity of public debt has fallen in recent years and will fall further given that the Government mostly financed its needs through issuing T-bills of up to 1 year in the domestic market. The main reason behind this choice is to avoid affecting long-term floating rates for Banks' domestic lending to the private sector, especially housing credit, as they are indexed to primary market rates on long-term securities (10 and 15 year bonds).6 The second relates to the higher balance of payments needs although the level of foreign reserves remains relatively comfortable. The third is due to the current higher borrowing requirements of the Budget, in a context of tightening liquidity of the domestic financial markets after a long period of an over-liquid money market. Consequently, additional external lending is consistent with prudent debt management which fosters improved terms of debt, while maintaining a comfortable level of foreign reserves and at the same time avoids pressure on domestic financial markets. In September 2010 Morocco successfully completed a ten year bond issue for one Billion Euros against a total demand of over 2.2 Billion, further attesting international markets confidence in Morocco's sound macroeconomic stability. 25. A comprehensive public debt sustainability analysis shows that the fiscal framework is robust to downside risk in the medium term (see Annex 3). Public debt under the two main shocks proved sustainable over the medium term.7 Under alternative scenarios, six other shocks to the baseline scenario are simulated,8 and public debt sustainability is preserved in all of them. Under these 6 However, since early this year, credit with variable interest rates is no longer linked to the rate of long-term treasury bonds. 7 The two main shocks are A1: Key variables are at their historical averages; and A2: No policy change (constant primary balance). 8 See Annex 3 for their description. 10 shocks, public debt would slightly increase in 2010 and, for a few simulations in 2011 as well, before steadily declining over the medium term. 26. The external position is expected to remain sustainable over the medium term. The current account deficit is estimated to have improved in 2010 (4 percent of GDP) and would continue its slight downward trend over the medium term to edge down to 2.1 percent of GDP in 2013, as the impact of reforms and sector strategies take hold. Indeed, the balance of payments is expected to progressively improve, with lower trade and current account deficits, which would benefit from improved export potentials and a recovery of tourism activities and workers' remittances. This scenario assumes that Morocco would reap the fruits of its continued reform efforts, its sound macroeconomic and fiscal policies, and targeted sector strategies that entail higher public investments, which would translate into higher private investments, including FDI, and progressive gains in competitiveness of its exports, including tourism. In this context, external debt is expected to follow an inverted U path reaching a maximum at 26.6 percent of GDP in 2011 from 24.7 percent of GDP in 2009 before steadily dropping to 24.4 percent by 2013 while net foreign reserves will stay at an average of 6.5 months of imports. 27. Balance of payments financing requirements do not constitute a serious concern given the sound economic fundamentals, the country's low external debt stock, and the ample foreign reserves. As the current account deficits are projected to steadily improve in the medium term, there are no constraints on financing them through multilateral and bilateral credit lines along other private capital flows, including FDI. The latter is expected to gradually improve, attracted by an improved business environment and the opportunities offered by important structural projects and the devised privatization program of the country. 28. The moderate effects of the global crisis on the Moroccan economy have been mitigated by the good economic fundamentals resulting from sound macroeconomic policies carried out over the last years and by the response of the Government through the stimulus package to mitigate these effects on the population and businesses alike. The stimulus package has allowed supporting investors' confidence and domestic demand while reducing risks. The Government's commitment to maintain momentum of reform effort supports robust prospects of investment, growth, and employment. III. THE GOVERNMENT'S PROGRAM AND PARTICIPATORY PROCESSES A. URBAN TRANSPORT SECTOR ISSUES 29. There is a consensus among stakeholders that Morocco's urban transport sector does not serve its population and economy as well as it should. Inadequate supply of public transport services is one of the main symptoms of this poor performance. Indeed, the supply of bus services in Morocco's main cities is equivalent to roughly one third of the supply in most middle income countries in Latin America and East Asia. As a result, inefficient taxi services have filled the gap left by buses, and private transport modes (mainly cars) are increasing fast. For poor people, walking is the main mode of transport, which heavily constrains their access to jobs and public services. The other main symptom is the growing congestion of the urban road network. In Casablanca, Morocco's largest city, studies carried out in 2004 have shown that close to 60% of the primary street network was highly congested. Congestion was also projected to double from 2004 to 2019 if present trends continued, and the average speed of public transport vehicles and cars was expected to be reduced by 40% and 20% respectively. Congestion affects people, commerce and manufacturing, and all aspects of economic and social life. It is a threat to the productivity of Moroccan cities. 11 30. There are many structural weaknesses that explain this situation. These weaknesses are often interrelated and their joint effects are greater than the sum of all. They are described below around the three main themes of the Government reform program for the sector: (i) institutional weaknesses, (ii) inefficiencies in the provision of urban transport services and infrastructure, and (iii) lack of environmental and social sustainability. Institutional weaknesses 31. In the urban transport sector, there is limited institutional capacity in Morocco whether in central or local governments, for policy making or implementation, and in the fields of planning, public transport or traffic management. Perhaps the most serious weakness is the lack of effective institutions in most large Moroccan cities for monitoring and evaluating the performance and development of urban transport and formulating and implementing government actions. Although many actors are involved, including especially the municipalities, the other local governments (provinces and regions), and the de-concentrated services of the central government (first of all, but not exclusively, the Governors' offices ­ the Wilayas ­ and the urban development agencies), their responsibilities are fragmented and there are many gaps as well as overlaps. According to the main legal text, the Charte Communale (Law 78-00), the municipalities are in charge of urban transport. Yet, these have limited human and institutional capability and financial resources, and, until the Charte Communale was amended by Law 17-08 of February 18, 2009, there were no practical mechanisms to take account of the fact that urban areas, and therefore urban transport issues, often spanned the territories of several municipalities. Provinces and Regions are in principle responsible for filling some of this vacuum, especially for infrastructure development, but they have neither the capability nor the resources to do so. In addition, a major weakness for the long term is that there is in practice little coordination between urban transport development and the broader planning and investment decisions related to urban development and land use. 32. Linked to this are the limited knowledge at local level of the population's needs and use of urban transport and the near absence of comprehensive multimodal planning of urban transport. Only a few large urban areas (including especially Casablanca and Marrakech) have well developed urban transport master plans and knowledge through which decision makers can elaborate strategies and take economically sensible decisions. In the case of Casablanca, the master plan prepared in 2004- 06, has provided a wealth of information, clearly evidenced the gaps in both services and infrastructure, and provided the impetus for beginning to address a looming crisis. In most other cities, there is no consensus on the sector's development strategy and limited factual knowledge of sector issues and investment needs. 33. Lack of financing for the sector has also been a problem for many years. A recent study carried out by the Bank has shown that, in the recent past, total public expenditures on urban transport infrastructure have been of the order of one third of what they should have been for adequately meeting the urban transport demand of the population, particularly in the metropolitan areas of Casablanca and Rabat-Sale-Temara. The main reasons for this have been for a long time the limited fiscal resources of local governments and the absence of a structured process for funding urban transport investments out of the national budget. 34. The central government's capability in the sector also needs strengthening. Although the importance of urban transport issues has been recognized at senior level, there was no structure until recently to coordinate the strategies and activities of the several ministries involved in the sector, particularly the Ministry of Interior (MI), the Ministry of Equipment and Transport (MET), the Ministry of Housing and Urban Development (MHUD), and the Ministry of Economy and Finance (MEF). There was also limited capability for the Central Government to monitor progress in the sector and design and implement financial and technical support programs for the local authorities. 12 35. Finally, underlying most weaknesses in the sector is the shortage of human resources. The number of Moroccan experts in urban transport, whether this is in government service, among the national consultants, in the universities, or among politicians and civil society, is extremely small given the size and sophistication of the country. Opportunities for education and continuous learning are also few. There is in particular no system for collecting and disseminating national or international knowledge in the sector, sharing experiences, and building a common approach to the sector. Inefficiencies in the provision of urban transport services and infrastructure 36. In Moroccan cities, the bus system is not the backbone of urban transport services, as it is in most large cities in middle income countries. The number of buses in proportion to the population is usually a third of what it is in comparable cities of most middle income countries. The bus networks have also not been adjusted appropriately to follow the growth of the cities and vast areas are not well served. The quality of service, particularly the speed, frequency, and reliability of schedules, is not satisfactory. The design of bus routes is also not always geared to the demand of the population nor does it allow profitability for the operators. To a large extent because of these deficiencies in the bus system, the collective taxis have developed beyond the economic logic. Indeed, about half of public transport is provided by taxis in most large Moroccan cities, often on high density routes where bus services would achieve lower marginal costs and avoid the congestion and environmental externalities which taxis generate. As a corollary, also, private transport by car is steadily gaining modal share, which is the root cause of increasing traffic congestion. 37. In all but one of the ten largest cities, bus services are provided by private operators. Yet, the framework for private provision of public transport services needs strengthening. Since 2006, it has been governed by the law on the provision of public services (Law 54.05). This law is well conceived but some of its key implementing regulations were not issued for a long time and some are still under preparation. This particularly concerned the procedures for selection of operators, the standard contracts, and the processes for contract supervision and management. The current practice is also to use only net cost contracts which shift all commercial risks to the operators and limit their willingness to invest, particularly in the absence of a level playing field in the competition between buses and collective taxis. The basic fare policy in all cities is that the private operators should fully recover costs from their revenues. Despite this, fares are generally low (about US$0.5 equivalent for most trips in Casablanca for example) mainly because costs are well contained. However, the contracts impose public service obligations (especially lower fares for students and school children) which are compensated by an internal cross subsidy from the full fare paying passengers. This pragmatic approach makes full fares higher than necessary and distorts the competition between buses and collective taxis. Furthermore, most current public transport contracts in Moroccan cities were procured before Law 54.05 and are applied within a weak legal framework, usually without effective contractual stipulations on service quality nor any effective supervision by the public authorities. 38. There are weaknesses in most cities in the lay out and management of the urban road network, in the way traffic is organized and regulated, and in parking policies. Although Moroccan cities, outside their historical core, often benefit from large avenues, the urban road networks are usually not well structured: the functions of urban roads are not differentiated and few axes are designed to handle heavy traffic demand. There are no proper urban infrastructure asset management tools to prioritize maintenance interventions on the urban road network. Meanwhile, traffic management is in its infancy in Morocco. Traffic flows are not well organized and the operation of intersections, whether signalized or not, is often inefficient. Usually, also, priority has been given to car traffic and thus the facilities for pedestrians and bicyclists are lacking. Together, including motorcyclists, they account for 75% of the fatalities in urban traffic accidents. In addition, there are no facilities, including bus priority schemes, which would ensure speedy and reliable bus services 13 through the congested parts of the road network. Finally, parking is not managed to optimize the use of public space nor to provide a pricing disincentive to the use of private cars. Lack of environmental and social sustainability 39. The rapid motorization, aging vehicle fleet, and growing transport demand is undermining the environmentally sustainable growth of the sector. Morocco's motorization rate is growing at the rate of 4 to 5% yearly, starting from a moderate baseline currently estimated at about 2.6 million registered vehicles (about 85 vehicles/1000 habitants). This has already created significant congestion in major cities as noted above, with the related energy inefficiencies and poor air quality. Annual transport sector CO2 emissions are about 6.5 million Tons, or about 80 Kg/thousand US$ of GDP, much lower than most similar middle income countries but growing at more than 5% yearly. There are indications that the majority of these emissions are generated in urban areas with Casablanca accounting for close to 30% of all CO2 emissions. A study on air quality carried out in 2008 by the Ministry of Equipment and Transport has also shown that, in most areas in Casablanca, the concentration of NO2 and SO2 on major road corridors is much higher than European norms and peak pollution is worrisome, with averages close to the levels usually requiring public notification. An aging vehicle fleet (the average age is about 15 years) is further exacerbating the problem. It is therefore clear that the existing model for urban transport development raises serious sustainability concerns, and that alternative modes of public transport should be encouraged. 40. Recent efforts to improve gasoline and diesel quality as well as to modernize vehicle inspection practices and define emission norms for vehicles need to be pursued in order to reduce the sector's negative environmental impacts. It was estimated that about 420,000 tons of gasoline and 2.2 million tons of diesel were consumed in 2007 in the transport sector in Morocco. Historically, gasoline and diesel have been of very poor quality; an estimated 30 to 40 % of consumed gasoline in 2007 was leaded, while a very high percentage (about 95 %) of consumed diesel had more than 10,000 ppm of Sulphur, largely above the international norms. The Government banned leaded gasoline in 2009 and imposed strict norms on the diesel used in the transport sector (including a maximum Sulphur content of 50 ppm). Fuel prices in Morocco are among the highest in the MENA region. The gasoline price is about US$1.35/liter and thus includes a substantial net tax. The diesel price, at about US$0.9/liter is slightly above the cost recovery level. 41. Until recently, vehicle inspection centers used outdated methods, and controls were performed manually, which provided a wide margin for technical and human error. This resulted in poor inspection quality and made it impossible for the Ministry of Transport to properly monitor and control the quality and roadworthiness of the vehicle fleet. However, since 2007, the Ministry of Transport has defined new and modern mandatory technical inspections procedures for all inspection centers in Morocco, and concessioned two international firms (Dekra and SGS) and a national operator to open new inspection centers. These firms were also charged to introduce modern operational and technical inspection practices to existing centers. The new procedures require better equipment and facilities and skilled staff. They also use a securitized electronic information system which reduces human interference and the likelihood of fraud. The Ministry of Equipment and Transport is also determined to define norms on emissions; it is currently studying options, in consultation with the Ministry of Industry, to gradually introduce emissions norms for vehicle types, particularly EURO 4 norms for both imported and locally assembled vehicles. 42. There is insufficient attention to social issues, particularly accessibility, in the planning and implementation of urban transport policies. The current design and construction of urban infrastructure - such as sidewalks, pedestrian crossings, or bus stops - as well as the provision of public transport services, lack basic accessibility features. Accessible urban infrastructure and public transportation is essential for facilitating the mobility of a significant portion of the urban population, notably the disabled, elderly, children, and pregnant women. Given the relatively long life of urban 14 transport systems, it is important to gradually incorporate accessibility in the design and construction of new systems to avoid future costly retrofits. Accessibility related features, such as ramps and clear signs and signals, can be provided at relatively low additional costs. Existing urbanism and construction codes seldom include provisions on the accessibility of persons with disabilities, and in the event few provisions exist, they are rarely understood or implemented. B. THE GOVERNMENT'S PROGRAM 43. The Government has become very much aware in the past few years of the interconnected weaknesses which are at the root of Morocco's urban transport sector's poor performance and of the measures that are necessary to address such weaknesses. A vigorous debate has taken place on these questions since 2006, to which the Bank has contributed significantly. This debate has taken place not only in the sector context but also as part of the Government's on-going broader review of urban development policies and processes. Urban transport was for example a major theme of the National Urban Development Symposium opened by H.M. the King Mohammed VI in January 2007 and has remained since then a key part of the urban sector agenda. As noted in Section III. C and IV. E below, the Government has also organized numerous events (often with Bank assistance) to debate urban transport policies in recent years. These have been reported in the media, sometimes to a wide audience. The most important event was the January 2008 Skhirat international conference, which brought together most of the sector's stakeholders, not only elected officials, senior staff, and technical experts from local and central governments, including three ministers, many governors, and mayors, but also transport specialists from academia and consulting firms, transport operators, international donors, and civil society participants. 44. On this basis, the Government has put together a sector development strategy and a program of priority actions for reforming the sector. Because of the way these were conceived, they are fully owned by all Government entities concerned. The program is organized under three main pillars: (i) improving the sector's governance; (ii) improving the efficiency and developing the supply of urban transport services and infrastructure; and (iii) improving the environmental and social sustainability of urban transport. It is comprehensive, based on international experience, excellent in scope and content, and well balanced in the sense that it includes challenging longer term objectives and concrete short to medium term actions to fulfill the objectives. Notable among the program's goals is the Government's intent to reduce economic disparities and improve citizens' access to the job market and to public services through better public transport. Through the scope and coherence of its recent actions, the Government has shown that it was fully committed to the reforms. This program is described in the Letter of Sector Development Policy (Annex 1) and discussed below. Improving the sector's governance 45. Establishment of an appropriate institutional framework in each large Moroccan urban area. The establishment of urban transport planning and management agencies for each large urban area is a cornerstone of the Government's program. These agencies would be responsible for preparation and monitoring of the cities' multimodal urban transport strategies, selection of investment priorities, organization and management of public transport, and traffic management and parking. They would comprise both a decision making body at the political level and a technical structure. The recent amendments to the Charte Communale have provided legal options to the local governments to set up these agencies and have strengthened the role of the Ministry of Interior in inducing them to move ahead. The administrative structure of urban areas which, as in the case of Casablanca, may comprise many separate municipalities as well as prefectures and provinces is a recognized factor in this. An urban transport planning and management agency was recently created for the Casablanca metropolitan area through a convention between the local and central governments. Discussions are underway, to establish similar agencies in Morocco's other large urban areas, particularly the Rabat- Sale-Temara agglomeration. The Casablanca agency has now become operational and should be a 15 model for others to follow. The Central Government has also expressed its intention to provide human and financial resources to the agencies to help them get established and function efficiently. It is already doing this in several large urban areas (such as Casablanca and Marrakesh). In parallel, the urban development agencies (the organizations in charge, under the authority of the Central Government, of preparing urban planning documents and regulating land use in each urban area) have become much more conscious of the links between urban development and urban transport. 46. Preparation and adoption of efficient and coherent multi-modal strategies for urban transport in each large urban area. The Government's program includes actions so that each large urban area can have in the near future a sound multimodal urban transport strategy and priority investment plan. The Ministry of Interior has set up a USD12 million fund to help finance the preparation of these strategies and plans by consultants. As a complement and in order to generate momentum, the National Fund for Municipal Development (Fonds d'Equipement Communal - FEC) has also financed diagnostic studies for six cities including some of Morocco's largest. Furthermore, the Ministry of Interior intends to sign a convention with each municipality benefiting from the above fund in order to specify the quality criteria for the strategies and investment plans and the processes for coordination and review. 47. Establishment of an appropriate institutional framework at the national level to initiate and coordinate Government actions in the urban transport sector. The role to be played by the Central Government in the development of the urban transport sector has been emphasized in the Government's program. The Ministry of Interior (MOI) which has responsibility to support and monitor the activities of the local governments, has thus established a National Commission for Urban Transport (CNDU) including the Ministries of Economy and Finance, Equipment and Transport, and Housing and urban Development. The responsibilities of the CNDU are to (i) coordinate the strategies of the participating ministries so far as they have an impact on urban transport and prepare specific measures to be taken at the central level to promote the sector; (ii) review proposals submitted by local governments for financial support by the national budget; and (iii) monitor progress in the implementation of the Government's program for urban transport. In addition, the MOI has established an urban transport division within the General Directorate of Local Governments (Direction Générale des Collectivités Locales - DGCL) to provide technical assistance to local governments, build capacity, manage MOI's support programs, and monitor and evaluate sector development. This division, which has recently become operational, will fulfill the secretariat function to the CNDU. Through the Value Added Tax account which it manages, the MOI has the financial means to support capacity building within the local governments. 48. Widespread and multi-level development of national expertise in the urban transport sector. Development of human resources is also high on the Government's agenda. In the short term, the Government's program has focused on the training of a group of about fifty urban transport specialists who will be the lead technical persons in the main cities and participate actively in the preparation of the multimodal urban transport strategies. These will form the core group of national experts, who are expected to share a common vision and approach for the sector. A first training program was carried out in 2008 for this group under French Aid funding and with a significant contribution from the Bank. This program was replicated in 2010 under full Government funding. Beyond these short term actions, the Government intends to develop and carry out a broad five-year training program in urban transport including continuous education for the staff of local governments, training of local elected officials, and high level programs in a few universities and engineering schools. Funding for local governments capacity building has been and is expected to continue being a high priority for the Ministry of Interior. In addition, an action plan would be implemented to establish a continuous learning process and a community of practice for urban transport staff through sharing of experiences, dissemination of international best practices, and encouraging networking. 16 Improving the efficiency and increasing the supply of urban transport services and infrastructure 49. Promotion of public transport. The Government has recognized the key role of public transport and the need to ensure that it efficiently serves the population's demand in volume as well as in quality and contributes to making urban transport more climate friendly. For this, the Government's program includes the promotion of technical, organizational and regulatory measures as well as investments which will develop capacity and supply of services ensure that costs are consistent with the customers' ability to pay, and improve coordination between various public transport modes. In the largest urban areas, the creation of mass transit systems will be promoted, depending on the economic and social justification of such systems. 50. Restructuring of bus services and operators' contracts. Within this general policy of promoting public transport, the Government is committed to improve the performance of bus systems and, in particular, to help municipalities restructure bus services and operators' contracts wherever and whenever needed. In most cities, the policy is for bus services to be provided by a single private bus operator under a competitively procured concession contract. Competition is thus for the market rather than in the market, which is consistent with international best practices. Law 54.05 provides a suitable legal framework for this and existing concessions will be gradually reorganized to conform to such a framework. The supply of bus services will also be determined by contract in coherence with the multimodal urban transport master plans. The Ministry of Interior has developed a strong knowledge and in-depth experience in the provision of public services through public private partnerships. It has the technical and financial capability to assist municipalities in the restructuring of bus systems and operators. 51. The recent reorganization of bus services in Rabat-Sale-Temara under a single new concession awarded to an international operator and the restructuring of the bus system and bus operators in Casablanca have been major undertakings in these regards. These have been carried out jointly by the Ministry of Interior and the concerned local governments. They have been conceived in a comprehensive way involving technical and operational measures, investments in rolling stock and infrastructure, contractual aspects, social measures, and financial measures. 52. Improvement of the regulatory and institutional framework for public private partnerships. In the broad context of improving the provision of public services (not only public transport), the Government will address the remaining gaps in the legal framework established by Law 54.05. An implementing regulation has already been issued to clarify the procedures to select private service providers and the main stipulations of concession contracts. The next steps will be (i) to develop model contracts, which reflect the experience gained in recent years, and (ii) to improve the procedures for management and supervision of such contracts by local authorities as well as develop their capability to do so. 53. Funding of urban transport services and infrastructure. Increased funding volume and better resource allocation mechanisms are also being put in place for urban transport services and infrastructure out of the national budget. As part of a process of rationalization of public investments by municipalities, multisectoral investment plans (plans de remise à niveau) were approved in most large cities in the past few years, which usually include a large component for urban road infrastructure and for better use of public space. These plans are financed by local governments and, in a large part, by central Government agencies, including through the earmarked grants to local governments based on the Value Added Tax. In the future, it is expected that a greater part of these plans will be funding public transport improvements. In addition, the Ministry of Finance has accepted the principle that large essential urban transport infrastructure investments would partly be financed by the national budget on a case by case basis depending on the socio-economic impact of such projects. 17 In this context, very large allocations have already been approved for the construction of light rail transit lines in Rabat-Sale and Casablanca. Finally, the FEC is gearing up for increased lending to the urban transport sector. 54. In order to rationalize the allocation of funding to municipalities, ensure that priority is given to well planned and carefully justified investments, and incentivize municipalities to develop the institutional and strategic framework for urban transport as described in paragraphs 45 and 46 above, the Government has defined eligibility criteria for the investments that will benefit from funding from the national budget in the future. These criteria include the prior preparation of multimodal urban transport master plans, the adoption of medium term priority investment programs and related financing plans, and the strengthening of urban transport management at the local level. Priority will also be given to projects that have high social impacts and a positive effect on the environment. 55. A fund with an annual allocation of about US$25 million has also been created within the national budget to encourage bus operators to (i) renew their bus fleets and reduce gas emissions, and (ii) improve the quality of services particularly those provided on the routes most used by students and school children. The Government's program includes the annual renewal of this fund in coming years. 56. Improvement of traffic management, parking, and road asset management. The Government's program aims at developing the capacity and expertise at the local level to adequately organize and manage traffic, parking as well as road assets in the context of sound multimodal urban transport strategies. The Government also intends to reinforce the role and capacity of the traffic police. For these purposes, the Government has prepared a five-year priority action plan, elaborated through consultations between the relevant ministries and several municipalities. Improving the environmental and social sustainability of urban transport 57. Increase of the supply of "green" transportation. The Ministries of Finance and Interior, and local public authorities, are making significant investments in alternative public transport modes such as the light rail transit lines in Casablanca and Rabat-Sale. Other clean transport systems are also considered. Some could be supported by the Clean Technology Fund, such as a Bus Rapid Transit system and/or suburban railways for Casablanca. 58. Reduction of the negative impact of urban transport on air quality and GHG emissions. The Government has already taken measures to improve gasoline and diesel quality as noted in Section III A. above. It is also continuing forcefully the inspection centers' reforms by fully implementing the new operating procedures based on a securitized information system, opening new inspection centers at various locations in Morocco, and ensuring proper control and monitoring of the inspection centers. All operators, particularly public transport operators, will be submitted to these inspections. In addition, the Government's program calls on revising existing emission thresholds for vehicles in use and defining emissions norms for vehicle types. These measures will encourage more efficient and better maintained vehicles and contribute much to reducing emissions of pollutants and GHG. Finally, the Government intends to expand its on-going incentive program to promote taxi fleet renewal which includes a high financial incentive for scraping old high emitting vehicles, as well as roll over its support to urban bus operators for the purchase of energy efficient, low emission, vehicles. 59. Contribution of urban transport to social integration. Morocco has signed and ratified the United Nations Convention on the Rights of People with Disabilities (CRPD), which has clear requirements regarding accessibility (Article 9). The Government is also keen on improving urban road safety, particularly pedestrians' safety, and improving accessibility can contribute to these efforts. In this context, the Government's program includes establishing the necessary institutional and regulatory framework for dealing with accessibility issues, providing adequate technical tools to 18 stakeholders, particularly the municipalities, and raising awareness of all concerned. The Government will also define accessibility criteria, and implement pilot accessibility projects in cities in Morocco. C. CONSULTATION AND PARTICIPATORY PROCESSES 60. The preparation of the Government reform program for the sector has included numerous consultations with stakeholders, including particularly the governments of most large cities and also academics, researchers, consultants, transport operators, and civil society organizations. The 2008 Skhirat conference, which represented a key step in the formulation of the Government strategy, was attended by about 300 participants with a wide diversity of interests, expertise, and constituencies. Since then, other symposia have provided opportunities for stakeholders to debate urban transport sector issues and priorities. This was the case in particular of the 2009 Agadir seminar on decentralized cooperation and the 2010 Africités conference in Marrakesh. The preparation of urban transport master plans in Casablanca, Rabat-Sale-Temara, and Marrakesh has also included extensive user surveys which have provided a wealth of information, generally differentiated by social background, on the way people use urban transport, their expenditures, their needs, and their desire for improvement. Surveys in Casablanca have especially emphasized the poor performance of public transport. 61. Recently, the Government has also held consultations at more detailed, topic specific, levels. A national conference held in Marrakesh in April 2010 discussed issues and solutions to improve the accessibility of persons with limited mobility. It included a large group of representatives from central and local governments and civil society. A workshop was also organized in July 2010 by the Ministry of Interior with representatives from all the cities that are undertaking urban transport master plans in order to share knowledge and experience. Furthermore, a working group with participants from large cities and concerned ministries was established to debate the specific problems related to traffic and parking, including air quality. Finally, as part of the reorganization of bus services in Rabat-Sale- Temara, consultations were held with representatives from the personnel of the former bus operators. 62. The Bank not only participated in the above Government-led process as appropriate, but also collected much useful information on the topics of this DPL through consultations which it organized itself. This was in particular the case during the preparation of the Poverty and Social Impact Analysis as well as the recent study of gender and urban transport in Casablanca. In both studies, focus group discussions were held with a variety of urban transport users. In the second study, user surveys were also carried out with a sample of about eight hundred persons. In addition, during the preparation of the DPL, the Bank team has met with locally elected officials in 2009-10, in several of Morocco's larger cities (Casablanca, Rabat, Sale, Marrakesh, Tangiers, and Fes). It has also held focus group discussions during the appraisal mission with civil society representatives as well as academics, consultants, and researchers. At a broader level, the consultation process carried out during the preparation of the Morocco Country Partnership Strategy (CPS) highlighted several areas relevant for this operation. Improved governance was seen for example as a necessary entry point to improve the efficiency and transparency of public action particularly for enhanced service delivery. Improving urban transport was noted informally as a key service to access better education and jobs. 63. Consultations have helped shape the Government's program as well as select the priority measures supported by the DPL. They have in particular highlighted the importance of strengthening the institutional framework at local level as well as the technical tools at the disposal of local authorities since most key operational and investment decisions are taken by them. However, consultations have also shown the need and local demand for strong central Government support for improving institutional performance and for financing investments. The Government's program, as well as the DPL, takes account of this. Consultations have also shown a deep general concern for public transport on which many citizens are fully dependent for access to work and public services, and the importance of improving public transport performance. This is a key part of the Government's 19 program and the DPL. Consultations have, in addition, reinforced the authorities' understanding that road congestion and unsatisfactory air quality are key issues for citizens because of their direct impact on the quality of life as well as on economic activities such as tourism. Some measures in these domains, sometimes started before the formulation of the Government's program and the DPL, have been incorporated. Finally, consultations with relevant NGOs have shown that much remains to be done for addressing the needs of persons with reduced mobility, which has been the main driver in preparing the corresponding component of the Government's program and the DPL. IV. BANK SUPPORT TO THE GOVERNMENT'S PROGRAM A. LINK TO CPS 64. The proposed DPL is outlined in the FY10-13 CPS discussed by the Board in January 2010. The CPS is designed to help Government achieve its medium term priority objectives in a flexible and responsive way. It is organized around three main pillars. The first concentrates on activities that encourage growth, competitiveness and employment, including fostering macro-economic stability and promoting private sector development as engine of growth. The second pillar supports the improvement in access to, and quality of, public services, including the development of institutions and management systems. The third pillar aims at ensuring that Morocco's development can be sustainable and addresses natural resources and climate change challenges. In addition, the CPS places a strong emphasis on the governance agenda which is to be mainstreamed across the Bank program. The CPS refers to the proposed Urban Transport DPL and indicates that it would contribute to these three strategic pillars by: (i) reducing transport costs and improving the mobility of people and goods, therefore improving competitiveness, and creating the proper framework for employment and growth stimulating investments; (ii) improving the quality and efficiency of urban transport services, particularly through more effective institutions; and (iii) improving sustainable development and mitigating GHG emissions. The proposed DPL would also contribute to important cross cutting reforms such as local governments' development, governance, and public private partnerships. 65. Together with the recent DPLs in the solid waste management sector, this proposed DPL is part of a growing relationship between the Bank and the Government in the area of decentralization. Indeed, rebalancing the relationships between central and local authorities has become a key objective in Morocco, which the population strongly supports. This is especially important for a public service like urban transport which has an immediate and highly visible impact on the population's quality of life and the efficiency of businesses. The Government sector reform program goes a long way towards strengthening the capabilities of local authorities and providing adequate regulatory framework and technical tools at the local level. The Bank analytical work has shown that these steps are the most essential to make decentralization successful. B. COLLABORATION WITH IMF AND OTHER DONORS 66. The World Bank and the IMF maintain close collaboration in Morocco. Regular contacts between the IMF and World Bank country teams are customary, with discussions focused on the respective work programs, country priorities, recent developments and prospects, and reflecting the growing weight of DPLs in the Bank's Morocco portfolio. Collaboration between the Fund and the Bank has been seamless, with general understanding on the division of labor and a shared assessment of the critical macroeconomic challenges facing the country. 67. The Fund participates in Bank project review meetings where relevant. Similarly, Bank staff contributed to the IMF's 2009 Article IV consultation mission to Morocco. The ongoing analytical work being carried out by the Fund team, which was welcomed by the Bank counterparts, focuses on the medium-term outlook for public finances in Morocco and the macroeconomic 20 implications of the global financial crisis and economic downturn. Morocco's most recent Article IV consultations were discussed in the IMF's Board and concluded on January 25, 2010. 68. The proposed DPL operation was prepared in consultation with donors active in Morocco's Urban Transport sector. The Bank team has held consultations in particular with representatives of the EU, AFD, EIB, GTZ, and KFW to ensure full coordination with ongoing donor supported activities and to share insights on reform priorities and constraints. There is a consensus in the donor community that reforms are needed in the urban transport sector, including especially improved institutional and regulatory framework, and the reinforcement of local capacity. The AFD and the EIB currently have specific activities in the sector mainly through the funding of the light rail transit line in Rabat-Sale and technical assistance. The Bank team has closely coordinated with them. In addition, information has been exchanged with several French municipalities who currently provide technical support to some of the largest Moroccan cities through decentralized cooperation arrangements. C. RELATIONSHIP TO OTHER BANK OPERATIONS 69. The Bank has a history of successful engagement in Morocco's transport sector. The Bank, in particular, has assisted the Government in its successful reforms of the ports and railways sectors through investment projects in these sectors as well as analytical and advisory services. There is now a renewed dialogue in these sectors. The Bank also maintains its support to the Government's extensive rural roads program and has a continuous engagement in the road sector. The Bank's engagement in urban transport in Morocco commenced in 2006, based on a request from the Ministry of the Interior for analytical support. Details of this in-depth support, which led to the Government's request for the Urban Transport DPL program, are provided in section IV. E. below. In addition, the Bank is involved in climate change and energy efficiency in the transport sector, with a strong link to urban transport, including in particular a potential operation supported by the Clean Technology Fund. IFC has also been engaged in the urban transport sector through supporting private concessionaires of bus services. 70. Morocco has engaged in a series of sectoral DPLs in the Water, Energy, Public Administration, Finance, Education and Solid Waste sectors in recent years and an Agriculture sector DPL is proposed for Board consideration at the same time as this Urban Transport sector DPL. Consistent approaches have been adopted in all these DPLs recognizing the need to improve the legal and institutional framework and to ensure a proper coherence and coordination of the reform agenda. The recent Solid Waste DPLs I (March 2009) and II (December 2010) are particularly relevant to the proposed DPL since they are similarly focused on increasing the scale, efficiency, and sustainability of an essential public infrastructure service. The design of the proposed DPL has been closely linked with that of the Solid Waste DPLs. It shares the same approach in terms of strengthening the role of the Central Government as well as the framework under which the local governments and private operators operate. D. LESSONS LEARNED 71. The design of the Program takes into account the experience gained from the above mentioned sectoral DPLs in Morocco, as well as infrastructure DPLs implemented in other countries. Main lessons learned are summarized below. 72. Government commitment to the program is essential. Experience has shown that successful DPLs ensured this commitment from the start through close cooperation with the implementing agencies in project design. Moroccan counterparts generally have the knowhow to prepare and carry out large investments. On the contrary, improving policy and regulatory frameworks, with the required institutional and capacity building, is still seen as a difficult task. In this regard, the Government 21 values the DPL instrument because it provides crucial support to these institutional and reform issues. The Bank experience in supporting wide ranging sectoral reforms particularly in similar middle income countries' is also perceived as a good value added. 73. Consensus building among stakeholders, particularly the various Government agencies, is crucial. Most DPLs include reforms that involve various stakeholders in different ministries and government agencies at national and local levels. Ensuring the buy-in and cooperation of the various stakeholders is therefore essential for the smooth implementation and the success of the proposed reforms. The experience to date with DPLs in Morocco has shown that the Bank can play a catalyst role in fostering coordination among stakeholders, and the Bank's involvement helps ensure that key government agencies, at central and local levels, cooperate effectively to carry out sector reforms. 74. The financial and technical capacity of local governments to implement reforms. In Morocco as in most countries, local governments have an essential role in the implementation and follow up of urban transport reforms, yet they lack the necessary technical and financial capacity to support these complex reforms. The proposed DPL includes measures, to be implemented by the central government, which reinforce the capacity of local governments. Such measures include training, technical assistance, and institutional building. 75. Stability of the implementation unit staff is important. Bank experience also shows that continuity and comprehensiveness of the reform process, which is particularly important in the case of complex institutional reforms, can be unsatisfactory due to frequent changes of the team in charge of implementation. The impact of staff changes is lessened, however, when goals are clearly defined and there are arrangements for monitoring progress. 76. It is important to assist in reform implementation through close supervision, continuous monitoring and evaluation of sector reform, and continued high-level dialogue. As is the case in most countries, sector reforms are a complex and evolving subject, and in many cases occurring over a long period. While DPLs support specific reform actions and ensure their implementation, the success of these actions in meeting their objectives require continuous follow up. In addition, the overall success of reforms in transforming a sector depends on actions often beyond the DPL reach and scope, yet complimentary to it. Therefore, achieving comprehensive sectoral reforms require continuous high level engagement and policy dialogue with key stakeholders. E. ANALYTICAL UNDERPINNINGS 77. Significant analytical work has been produced in urban transport within the context of the Bank AAA program, which raised the visibility and highlighted the importance of urban transport in Morocco. As part of this work, sectoral notes were prepared, including five thematic diagnostic reports on urban transport (2006), a study on urban transport financing systems (2007), and a review of investment options for Casablanca (2008). Several workshops and high level seminars were also organized with strong support from the precursor to the Marseilles Center for Mediterranean Integration, notably the Skhirat international conference with participation from most stakeholders. In addition, technical visits for Moroccan experts and decision makers were organized to Tunisia (2007), France (2008), and Brazil (2008). All these efforts culminated in the preparation and wide dissemination of the Bank's Morocco Urban Transport Strategy Note (April 2008). This report, together with studies carried out by the Government, notably the Casablanca and Rabat urban transport master plans and the sector diagnostics for seven large or medium size cities, provided the analytical basis for the Government program and the DPL. Recently, the Bank has also carried out AAA work on transport and climate change, focusing on the formulation of concrete measures to increase the energy efficiency of vehicles and to adapt the road and railway sectors to extreme climate events, the frequency of which is expected to increase much as average temperatures rise. Finally, the 22 Bank has prepared a review of disability and urban transport, which supported the related component of the DPL, as well as an analysis of gender and urban transport in Casablanca, which provided a base line information on this subject, including specific proposals to make urban transport better serve the specific needs of women. 78. Additional analytical and advisory assistance will be required to facilitate the implementation of the proposed reforms. Past work has helped establish a good understanding of the key sector issues and the economic and social benefits of the reforms. However, implementation of these reforms, particularly the strengthening of institutions, the development of management and information systems, and the preparation of technical reference or guidance documents will require considerable assistance and knowledge transfer. This should be provided in close coordination and with support from other donors. V. THE PROPOSED MOROCCO URBAN TRANSPORT SECTOR DPL A. OPERATION DESCRIPTION 79. The proposed DPL has been designed to provide budget and technical support for the implementation of the Government's program for the reform of the urban transport sector. Its higher-level objective is to improve the efficiency of urban transport in large cities, ultimately promoting economic growth, social development, and quality of life in a sustainable way for Morocco's urban citizens. The proposed DPL would be a single tranche operation. It has been developed with the Government in close coordination with its comprehensive reform program so as to provide full ownership of process, actions and outcomes, and ensure that it is anchored in a satisfactory medium term change framework. It is focused on (i) actions which address essential structural weaknesses in the sector particularly in its institutional framework, (ii) key implementation measures, particularly in the country's two largest urban areas, Casablanca and Rabat-Sale-Temara, and (iii) the clarification and adoption of strategies in a key new subject, the accessibility of persons with reduced mobility. The loan would be Euro 100 million. No co-financing by other donors has been identified although there is scope to integrate other development partners in support of the DPL's objectives through capacity building and investment funding at local level. 80. The proposed DPL is part of the broad involvement of the Bank in Morocco's urban transport sector. This involvement, which is tailored to the Government's priorities, includes technical support in the design of specific sector reforms, knowledge transfer, particularly on best practices in Middle Income Countries, assisting in the rebalancing of central-local governments relationships, helping coordinate sector reforms with the far reaching reforms that the Government has started to undertake in the area of climate change and intends to deepen, and introducing new promising technologies, particularly to improve public transport and reduce emissions of GHG. The support will be provided in coordination with other international partners through any suitable instrument, including SILs or further DPLs. The Bank will continue to be responsive to the central and local governments' priorities and conceive its support in a long term perspective. 81. The prior actions for the DPL, their relationship with the main pillars and detailed activities of the Government reform program, and their expected results and indicators are described in the Operation Policy Matrix provided in Annex 2. These prior actions are also summarized in the box below and their importance explained in the following section on Policy Areas. 23 Box 2: Key Prior Actions for DPL Prior Action 1. The Casablanca urban transport planning and management agency has become fully operational through (i) the adoption of a priority work plan and an adequate budget by its Board of Directors, (ii) the recruitment of technical experts, and (iii) the launching of comprehensive studies of bus network restructuring and traffic management. Prior Action 2. The Minister of Interior has issued a Circular (Circulaire) dated October 14, 2010, establishing the National Commission on Urban Transport (CNDU). Prior Action 3. The Urban Transport Division of the General Directorate of Local Governments of the Ministry of Interior has become fully operational through: (i) the adoption of a priority work plan by the Director of Programming and Equipment of such Directorate; and (ii) the recruitment of technical experts. Prior Action 4. The Ministry of Interior has carried out a training program for a core group of managers in the urban transport sector. Prior Action 5. The contract between the concerned municipalities of the agglomeration of Rabat-Sale-Temara and the new operator of bus services, Stareo, has become effective on October 29, 2009. Prior Action 6. The following measures have been taken for restructuring the provision of bus services in the agglomeration of Casablanca: (i) signature of a convention between the municipality of Casablanca and the new operator of bus services, M'dina Bus, for the provision of a 200 million Dirham subsidy for the purchase of new buses and the implementation of a staff reduction plan; (ii) approval of a change in the capital structure of M'dina Bus; (iii) approval of an investment convention between the State and M'dina Bus; and (iv) issuance to the previous bus operators of a notice that their contracts were terminated. Prior Action 7. The Ministry of Interior has issued an order (Arrêté) on August 25, 2010, setting forth the selection process for public services concessionaires in accordance with Law 54.05 dated February 16, 2006, and the main stipulations of the concession contracts. Prior Action 8. The Ministry of Interior has issued a Circular (Circulaire) dated November 4, 2010, defining the eligibility criteria for State funding of urban transport investment projects. Prior Action 9. The Ministry of Equipment and Transport has completed the restructuring of the vehicle inspection centers through the following measures: (i) signature of a contract with a third national operator providing support to the existing inspection centers; (ii) establishment of an automated electronic process for preparing the vehicle technical inspection reports; and (iii) award of a contract to a firm for auditing the vehicle inspection centers. Prior Action 10. The Ministry of Social Development, Family and Solidarity in consultation with relevant ministries, has adopted an action plan to improve the accessibility to urban transport of persons with limited mobility, and organized a national seminar to raise awareness and disseminate the action plan. B. POLICY AREAS Improving the Governance of the Urban Transport Sector 82. Prior action 1. The Casablanca urban transport planning and management agency has become fully operational. A sound work program and adequate 2010 budget were approved by the agency's board of directors in February 2010. A core group of urban transport experts was also recruited and started work in August 2010. In addition, a large scale study of bus network restructuring for the agglomeration was launched in October 2010 and another essential study of traffic management in January 2011. Until these measures were taken, the Casablanca urban transport and planning and management agency, which was created in July 2008, had not had the human resources, the clear sense of priority, nor the analytical tools which it needed in order to be effective. The experience of most large cities in middle income countries which have been successful in tackling their urban transport issues is that an effective planning and management agency is essential. This is confirmed by the Bank's own experience. 24 83. Prior action 2. The Minister of Interior has issued a Circular (Circulaire) dated October 14, 2010, establishing the National Commission for Urban Transport (CNDU). This new institution, with membership at department director's level, will have several functions which are important for sound development of the urban transport sector in Morocco. It will notably ensure that the strategies of the main ministries involved in the sector are consistent and complementary. It will also provide a technical forum to review rapidly and in a uniform and collegial manner the investment projects proposed by local governments for financing contributions from the national budget. Finally it will monitor progress in the development of the sector over time. The CNDU will therefore ensure that the Central Government plays an effective role in supporting local authorities in their day to day activities in the sector. 84. Prior action 3. The Urban Transport Division of the DGCL has become fully operational. Staff have been nominated to the division's main management positions and a priority work plan has been adopted which adequately covers all the subject matters in which the division should be involved. The division has now become the technical focal point for Central Government action in the sector and the complement of the CNDU, which it will support at technical level. It has demonstrated its usefulness in the recent past by managing Government programs in the sector, particularly the fund for preparation of urban transport master plans, by reviewing large investment proposals in Casablanca and Rabat-Sale-Temara, by launching a coordinated action plan for improving traffic management, and by being the central point for collection and dissemination of information in the sector. 85. Prior action 4. The Ministry of Interior has carried out a training program for a core group of managers in the urban transport sector. This training program has taken place from February to October 2010 and included about thirty persons from 9 cities. It consisted of five seminars given by local and international experts in urban transport policies and planning, public transport, traffic management, and parking management. One main goal was to pass on to Moroccans experts the lessons of experience from successful cities in middle income countries. This program replicated a similar program carried out in 2008 with Bank and AFD support. In total about fifty five persons have been trained through these two programs. This is a core group of managers who now share a basic competence in the sector, a common approach, and a pool of information. This is important to ensure the quality of the master plans soon to be produced in many large cities as well as the stability and consistency of actions taken later. There is also indication that this group is beginning to function as a network and a professional practice. Improving the efficiency and increasing the supply of urban transport services and infrastructure 86. Prior action 5. The contract with Stareo, the new bus service operator in Rabat-Sale- Temara, has become effective on October 29, 2009. Services by the previous informal operators were discontinued and the new operator started to provide bus service immediately. An investment convention was also signed between the new operator and the Government to allow rolling stock investment to proceed on a large and accelerated scale. The transition to this drastically new organization proved difficult, mostly because it started before sufficient buses and facilities were available and faced strong opposition from the previous operators. This reform implements a sound legal and institutional framework for bus services in the second largest urban area of Morocco, with quality service standards, an adequate management and supervisory system, and processes that ensure operational flexibility in the future. 87. Prior action 6. Key measures have been taken for restructuring the provision of bus services in the agglomeration of Casablanca. The plan involved numerous steps, the most important of which were changes in the capital structure of Mdina bus with a major role being taken by the National Investment Bank (Caisse de Dépôts et de Gestion ­ CDG), notification to the previous concessionaires 25 of the termination of their services, approval by the municipality of Casablanca and the Ministry of Interior of a US$25 million grant for bus fleet renewal and staff reduction in Mdina Bus, and the signature of an investment convention between Mdina Bus and the Government for the purchase of a large amount of new buses. The changes ensure that all bus services in the Casablanca agglomeration will be supplied under the legal framework of Law 54.05, placed under only one management and supervisory structure, and provided by a strengthened operator with appropriate financial capability. It also resolves the issues that had been left pending since the publicly-owned operator was discontinued in 2004. As in Rabat-Sale-Temara, the expected result is better service for the population, including especially those living in lower income and peri-urban settlements, sound management and supervision, and consistency between future supply and demand. 88. Prior action 7. The Minister of Interior has issued an order (Arrêté) on August 25, 2010, setting forth the selection process for public services concessionaires in accordance with Law 54.05 dated February 16, 2006, and the main stipulations of the concession contracts. This order specifies in particular the procedures for bidding, bid evaluation, and contract award. It also specifies the main clauses of concession contracts. The preparation of this regulation necessitated a long coordination process between all ministerial departments involved. The quality of the final text reflects the strong experience and understanding of public private partnerships in Morocco. The impact, which will be evidenced mostly on the long term, will be fair, fully competitive, and transparent selection of private providers of public transport services. 89. Prior action 8. The Ministry of Interior has issued a Circular (Circulaire) dated November 4, 2010, defining the eligibility criteria for State funding of urban transport investment projects. These criteria are summarized in paragraph 54 above. They provide a strong incentive to municipalities to develop their institutional capacity, to put in place multimodal sector strategies and priority investment programs, and to conceive their investments within the context of the strategies. Thus, they reflect the key institutional points of the Government's reform program for the sector. They will ensure that Government financial assistance is focused on most effective projects. Improving the Environmental and Social Sustainability of Urban Transport 90. Prior action 9. The Ministry of Equipment and Transport has completed the restructuring of the vehicle inspection centers. This restructuring involved implementation of the new inspection procedures described in Section III. B. These substantially reduce the likelihood of fraud by: (i) directly and automatically reporting the recorded measures from inspection equipment to secured and standardized electronic sheets, and (ii) directly and electronically communicating the results of the inspections from the various centers to the Ministry of Transport from where the bar-coded electronic sheets are issued. As a result, the quality of vehicle inspections has improved drastically and the Ministry of Equipment and Transport is able to properly monitor the roadworthiness of vehicles and their emissions of pollutants and GHG. Ultimately, the outcome will be a much safer and cleaner vehicle fleet. 91. Prior action 10. The Ministry of Social Development, Family and Solidarity in consultation with relevant ministries, has adopted an action plan to improve the accessibility of people with limited mobility and organized a national seminar to raise awareness and disseminate the action plan. The national conference on accessibility in urban transport took place in Marrakesh in April 2010, for senior government officials and civil society. During this conference, the draft action plan was presented. Morocco is the first country in the MENA region to begin to systematically address issues of accessibility in urban transport and give high visibility to this subject. The expected outcome is easier and safer movement for persons with limited mobility, thereby increasing empowerment and opportunities for them. There has also been progress in the implementation of some measures of the action plan, notably awareness raising and the preparation of guidance notes. 26 VI. OPERATION IMPLEMENTATION A. POVERTY AND SOCIAL IMPACTS 92. A Poverty and Social Impact Analysis was carried out to assess the potential social impacts of this operation. The PSIA concluded that the reforms supported by the DPL are largely positive for the marginalized populations of urban centers. In particular, low revenue groups in peri-urban areas in need of efficient and cost contained public transport services, as well as individuals with accessibility needs, stand to benefit from the reforms. 93. Four reform areas supported by the Government's sector reform program and the DPL generate positive impacts on marginalized groups. These are the following: With the emergence of specialized urban transport planning and management agencies in large urban areas, urban transport planning will be much better based on full consideration of the needs of groups lacking private transport opportunities. This will include the amelioration and/or extension of affordable transport options, especially in public transport. With the restructuring of bus systems in Rabat-Sale-Temara and Casablanca and better contractual relationships between local authorities and bus operators, public transport services, on which many low to middle income citizens depend, will be improved in quantity and quality. A cross-sectoral approach to accessibility issues will be introduced, as well as norms and standards for accessibility inspired by international best practices. Norms and standards to improve air quality, which will benefit groups living in congested urban areas, will also be introduced. In addition, public transport fares, which are already low compared to other middle income countries, are not expected to increase in the restructuring process because of the large efficiency gains that such restructuring will generate. 94. The main negative impact of the reform concerns job losses deriving from restructuring of bus systems in Rabat and Casablanca, which entails the discontinuation of private bus operators' services following the transfer of bus operations to a single operator in each city. The problem was more of a concern in Rabat, where roughly 630 people were involved, due to limited job opportunities, particularly outside the sector, as well as a relatively hasty restructuring process which offered little adjustment time to potentially affected individuals. In Casablanca, the problem was less serious due to a strong labor market and more job opportunities, as well as a more gradual restructuring process. 95. Morocco has systems in place to address job losses due to restructuring processes similar to the one at hand. According to Morocco's legislation, open ended labor contracts can be terminated by the employer against retrenchments payments (indemnités), calculated based on the workers' years of service (article 52 of the labor code). Workers have the right to sue and seek compensation in the courts when their rights are infringed. Additionally, Morocco has active employment dedicated agencies delivering professional re-training and re-skilling programs to jobless workers subject to retrenchments following sector restructuring. Both the National Agency for the Employment and Skills Promotion (ANAPEC) and the Office for Professional Training and Labor Promotion (OFPPT) deliver reconversion and re-insertion training programs with the goal of facilitating the match between supply and demand in the job market. Both agencies were involved in the restructuring of bus systems in Rabat-Sale-Temara ensuring in particular that employees of the former bus operators acquire skills 27 necessary to perform well in the more sophisticated and demanding workplace set up by the new operator. 96. For both cities, the Bank has explored, together with the Government, local authorities, and labor market agencies, potential mitigation options. In Rabat, the authorities have resorted to a set of measures from including staff re-hiring clauses in the contract of the new operator to a Social Aid package targeting those not benefiting from rehiring. In Casablanca, local authorities, together with the ANAPEC are devising a training program which will provide re-skilling and labor demand-offer matching services to job seekers. As the Moroccan economy develops, demand for transport services is growing faster than GDP, as it does in most middle income countries. Labor demand in the sector thus remains high. Re-skilling is therefore the key instrument to ensure employment of those affected by the restructuring. B. ENVIRONMENTAL ASPECTS 97. Over the last decade, Morocco has achieved significant progress in developing its institutional and legal framework in the area of environmental protection. The State Secretariat (in charge of Water and Environment), within the Ministry of Mines, Energy, Water and Environment (MMEWE), has become a full-fledged environmental administration. Morocco has also developed a comprehensive environmental strategy in 1995, the National Environmental and Sustainable Development Strategy, with four main priorities: water protection, waste reduction and its management, water quality improvement and soil protection. This strategy, which was complemented in 2003 by Law 11.03 for the Protection and Promotion of the Environment and Law 13.03 for the Reduction of Air Pollution, is expected to be updated soon. In addition, the Government has enacted, also in 2003, Law No 12-03 defining the requirements for Environmental Impact Assessments (EIAs) and creating a national committee within the MMEWE for the review and oversight of EIAs. Furthermore, the Government Council recently enacted two decrees related to the establishment of the national and regional EIA committees as well as a decree for public consultation and disclosure. Additional measures are also being taken to support the strengthening of the Moroccan environmental institutions and legal systems, with the support of various donors and international development agencies, notably GTZ. All these developments contribute to reinforcing the environmental protection framework in Morocco, both at national and local level, and installing the necessary legal and institutional capacity to manage the environmental effects of the proposed urban transport reforms. 98. As per OP 8.60, the Bank determined whether specific country policies supported by the operation are likely to cause significant effects on the country's environment, forests, and other natural resources. To this end, an assessment of the potential environmental impacts of the reforms under the proposed DPL was conducted in early 2010 and concluded that these reforms will have significant positive effects on the environment and very little negative effects. This mainly comes from the development of the necessary institutional and regulatory framework for sound management of urban transport. As a result, it will enhance the efficiency of urban transport services and infrastructure, develop public transport, reduce congestion, ensure that vehicles are in better technical condition, and therefore substantially improve air quality in major cities. These positive effects, moderate to high, include a reduction in green house gas (GHG) emissions, and a decrease of those pollutants' emissions with negative health effects (sulfur dioxide, nitrogen oxides, particulate matter, carbon monoxide, total hydrocarbons and ozone). Also, as these improvements are based on improved regulations and institutional capability, their positive effects are likely to be sustained over the long term. 28 99. It is estimated that the DPL measures would reduce GHG emissions by about 400,000 Tons/year. These reductions will primarily result from the implementation of the vehicle inspection centers' reforms (GHG emissions reduction of about 350,000 Tons/year) and the restructuring of bus operations in Rabat and Casablanca (GHG emissions reduction of about 50,000 Tons/year in accordance with a very conservative methodology). Vehicle inspection centers' reforms will improve the quality and regularity of vehicle inspections, which will in turn lead to an improved maintenance and operations of the existing vehicle fleet in Morocco, and an improved quality of imported second- hand vehicles. Meanwhile, the restructuring of bus services will improve buses' technical quality and efficiency of operations. Both measures will have a large effect on fuel efficiency and GHG emissions. 100. The existing legal and institutional framework for environmental protection, both at national and local level, as mentioned above, provides assurance that potential negative effects of urban transport infrastructure investments and works will be properly mitigated. The Government has also shown its commitment to reinforce environmental protection in the sector, and its urban transport strategy and reform program include actions to further improve the management of environmental impacts through the strengthening of local and national capacities to undertake environmental impact assessments (EIAs) and implement environmental management plans (EMPs) in the sector. It should be noted in any case that specific infrastructure investments are not connected directly with the reforms under the DPL. The DPL measures were tailored as specific and targeted upstream actions at policy level. C. IMPLEMENTATION, MONITORING, AND EVALUATION 101. As the ministerial department in charge of monitoring and supporting the activities of the local governments in Morocco, the Ministry of Interior has overall leadership for the formulation of the Government program for urban transport and follow-up of its implementation. It has been and will continue to be the focal point for this DPL and will have responsibility for monitoring progress. Within this overall context, the newly created CNDU will play an important role to help coordinate the strategies and activities of the various ministries involved in the urban transport sector and to provide a high level technical forum where the progress of the reform program will be assessed and corrective actions will be reviewed. The CNDU includes representatives from the key concerned ministries. 102. The detailed technical implementation of the reforms and follow up of the actions already undertaken as part of this DPL will be done by the units with related expertise such as the Directorates of the Ministry of Interior in charge of State-owned companies and Concessions, and Training. The newly created urban transport division within the Ministry of Interior will provide for the day-to-day coordination and overall monitoring of the reforms. This division will also provide technical support to the CNDU. 103. Supervision missions will allow the Bank to continue providing policy advice and technical support to the departments and units involved in the implementation of the sector's reform program. An ICR will be prepared six months after the closing date of the proposed operation. The closing date of the proposed DPL is December 31, 2011. D. FIDUCIARY ASPECTS AND DISBURSEMENTS 104. A Public Expenditure and Financial Accountability (PEFA) assessment was undertaken in 2009 jointly by the European Commission and the Bank. The PEFA report has confirmed substantial progress in Public Finance Management (PFM) reforms in Morocco. The results, based on the PEFA ratings, indicate in particular that Morocco has an overall credible, comprehensive, and transparent budget. The PFM system also supports the achievement of aggregate fiscal discipline, strategic allocation of resources and efficient service delivery. The main strengths of the Moroccan PFM are the 29 following aspects: (i) credible and transparent budget, (ii) transparency of taxpayer obligations and liabilities, (iii) timeliness and regularity of Government's banks' accounts reconciliation, (iv) accurate and timely in-year budget reports covering expenditures at both commitment and payment stages, and (iv) strong cash and debt management. The main challenges of the Morocco PFM relate to: (i) improvement of the budget classification, since despite the level of detail, accuracy, and reliability, it does not yet allow for reliable direct tracking of program-related spending being financed under priority programs; (ii) timeliness of annual statements which are submitted for external audit 15 months after the end of the fiscal year, (iii) the limited extent of legislative scrutiny of external audit reports, and (iv) the frequency and scope of audit rated average and the follow-up of audit recommendations. The Government is committed to addressing these challenges, and, in order to do so, has introduced measures to: (i) move to a performance based budgeting framework, (ii) develop a Medium Term Expenditure Framework (MTEF) to assist in fiscal sustainability, (iii) modernize its accounting and internal audit framework, and (iv)improve revenue management. The 2009 PEFA is also contributing to the Government's reform process by providing information on the extent to which reforms are yielding improved performance. In conclusion, the strength of Morocco's PFM system and the Government's commitment to reform, taken together, are, in the Bank's view, adequate to support this DPL. 105. Foreign exchange. No safeguard assessment of the Central Bank (Bank Al-Maghrib) was conducted by the IMF. However, the Central Bank is audited on a yearly basis with the audit report being disclosed publicly. These audits did not indicate any weaknesses in the control environment and the external auditor certified the 2009 financial statements. 106. With reference to the flow of funds, the proposed loan will follow the Bank's disbursement procedures for development policy support. Once the loan is approved by the Bank's Board and becomes effective, the proceeds of the loan will be disbursed in compliance with the stipulated release conditions as defined in the Development Loan Agreement and in a single instalment. The flow of funds (including foreign currency exchange) is subject to standard public financial processes The Government budget is comprehensive, unified and subject to centralized Treasury account. Loan proceeds will be deposited in a government dedicated account at the Central Bank and the equivalent of the funds in local currency will be transferred to the Treasury current account being the Government budget account. The Ministry of Finance will then furnish to the Bank a confirmation of this transfer, advising that the total sum of the loan has been received in an account that forms part of the country's official foreign exchange reserves and credited to the account used to finance budget expenditures. 107. Disbursement and Audit. The loan proceeds will be deposited by the Bank in a dedicated account opened by the Borrower and acceptable to the Bank at the Central Bank of Morocco (Bank Al Maghrib), upon submission of a signed withdrawal application. The Borrower should ensure that upon the deposit of loan proceeds into said account, an equivalent amount, in the local currency, is credited to the Treasury current account at the Central Bank. The Borrower will report to the Bank on the amounts deposited in the foreign currency account and credited to the budget management system. If the proceeds of the loan are used for ineligible purposes as defined in the Development Loan Agreement, the Bank will require the Borrower to promptly upon notice refund an amount equal to the amount of said payment to the Bank. Amounts refunded to the Bank upon such request shall be cancelled. The loan proceeds will be administered by the Ministry of Finance CBM MOF Budget World Bank Euro Dedicated MD Budget Morocco PFM Bank Account Account at CBM System 30 108. Although an audit of the use of the funds may not be required, the Bank reserves the right to ask for a transaction audit. This audit, when asked for, will cover the accuracy of the transactions i.e., receipts and payments of the dedicated account, including accuracy of exchange rate conversions; confirming that the dedicated account was used only for the purposes of the operation where no other amounts have been deposited into the account. Also the auditor will have to obtain confirmation from corresponding bank(s) involved in the funds flow regarding the transaction. The time period for submission of the audit report to the Bank is 6 months from the date a request for such audit is issued. E. RISKS AND RISK MITIGATION 109. Possible deterioration of macroeconomic stability. As explained in Chapter II above, the macroeconomic risk, particularly that of deterioration of fiscal balance and current account in the medium term as a result of internal or external shocks, is manageable. Indeed, sound macroeconomic and fiscal policies, as well as efforts to improve sector productivity and competitiveness, put Morocco in a good position to maneuver with less damage through the global crisis as well as other potential shocks, while benefitting from the recovery of the world economy. Inflation is expected to be contained at low levels. After a temporary higher estimated deficit in 2010, the fiscal stance is expected to remain sound over the medium term. The financing needs, stemming from the higher budget deficit in 2010 and the declining deficits over the medium term, are also expected to be easily financed through the domestic market as well as from increased drawings on external loans. A comprehensive public debt sustainability analysis shows that the fiscal framework is robust to downside risk in the medium term. The balance of payments financing requirements do not constitute a serious concern given the sound economic fundamentals, the country's low external debt stock, and the ample foreign reserves. 110. Commitment and continuation of reforms. The DPL program includes several measures which require continued commitment in implementation in order to achieve their intended objectives. Examples of these measures are the eligibility criteria for state funding of urban transport investment projects and the promotion of the accessibility of people with limited mobility. Since this a single tranche operation, it offers little opportunity to reinforce the continuation of such measures in the near future. In order to mitigate these risks, the DPL program emphasized the creation or strengthening of the necessary institutions to monitor and support the continued implementation of the measures as well as to carry the broader reform agenda defined in the government strategy for the sector. First, the National Commission for Urban Transport will be responsible for the coordination, review, and evaluation of the urban transport reform program and the implementation of the Government strategy. Second, the urban transport division in the Ministry of Interior will be in charge of day-to-day follow up and management of the reforms. In addition, the clear assignment of responsibilities to the Ministry of Transport for the vehicle inspection system and to the Ministry of Social Development for the promotion of accessibility is expected to strengthen accountability in these two policy areas. 111. Implementation capacity risks, particularly at local level. Local governments have an essential role in the implementation and follow up of urban transport reforms; meanwhile they lack the necessary technical and financial capacity to support these complex reforms. The proposed DPL includes measures, to be implemented by the central government, which reinforce the capacity of local governments. Training programs have been initiated to create the necessary knowledge and expertise in urban transport at local level. A dedicated and qualified transport authority has been created in Casablanca to manage urban transport. Its success would encourage the creation of similar authorities in other major cities in Morocco, an objective of the government strategy for the sector. In addition, and as part of its leadership role in the sector, the Ministry of Interior is providing substantial financial support to the municipalities to undertake the necessary studies, particularly the urban transport master plans, and to acquire the technical expertise that they need. 31 112. Regulatory capture. The public private partnership model adopted for bus services in most Moroccan cities involves the selection of a single bus operator for the entire urban area. There are strong advantages to this approach, in particular a greater simplicity of contract procurement and management and the potential to attract large, sophisticated, international public transport operators. As shown by the experience of other countries and sectors, there is a risk in this model, however, that the divide between operators and regulators become blurry, particularly if unexpected difficulties arise and there is pressure for short term solutions. As a result, the management of PPPs would be suboptimal and the reforms of bus services may not produce the expected results. This risk is mitigated in several ways. First, the contractual obligations of bus operators in Rabat-Sale- Temara and Casablanca are clearly defined by contract. Second, the governance arrangements stipulated in Law 54.05 for these contracts are clear and implemented with support from the central government. 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"' ., ." -t,,, '" ''''' do -"""," '" ,'~ . ~."- 44 THE MINISTER OF THE INTERIOR MR. ROBERT ZOELLICK PRESIDENT OF THE WORLD BANK Washington, DC 20433 United States of America Subject: Support for the National Urban Transport Strategy through a Development Policy Loan Dear Sir: In a context of economic growth and development, Morocco's urban transport sector is facing major challenges in meeting the growing demand of citizens for public transport and improved mobility in cities. In recent years, changes in the economic and social spheres, urban growth, and increasing urban sprawl have greatly contributed to the increased travel demand of individuals. However, the management of the sector and the supply of public transport are not able to take account of these changes and meet the expectations of citizens. Cognizant of the importance of the sector, the State has formulated a National Urban Transport Strategy, with the assistance of the World Bank and in collaboration with all stakeholders, which sets forth a priority action program, a copy of which is attached. This program outlines the measures adopted as part of this strategy and the priority actions that the State is committed to adopting in the metropolitan areas and big cities in support of the work of local governments, with the aim of: 1. Strengthening the institutional framework and the capacity of local governments in view to the planning and management of urban transport; 2. Development of public transport infrastructure and services in order to facilitate mobility; 3. Improving road, traffic, and parking management as well as making optimum use of public space in order to reduce congestion and dissuade people from using private cars; 4. Incorporating the social considerations of urban transport into development programs with the aim of facilitating and generalizing access by all citizens to the job market and services; and 5. Promoting projects that yield positive effects on the environment, with the aim of curbing energy consumption and improving the air quality. It should be noted that a number of the activities set forth in the National Urban Transport Strategy are already in progress. These relate to strengthening the institutional framework and governance of the sector at both the central and local levels and improving transport services, in particular by: o Establishing a National Urban Transport Commission; o Creating a Division for Urban Transport and Travel in the Ministry of the Interior; o Establishing and strengthening the entity to organize urban transport in the Casablanca metropolitan area; o Building the capacity of local governments and organizing a training program for the senior staff of these governments; o Developing key public transport projects on a separate right of way and restructuring the bus systems in the Rabat-Salé-Témara and Casablanca metropolitan areas; 45 o Adopting a framework related to the prerequisites to be met by cities in order to receive State financial support for key public transport projects; o Strengthening public-private partnership and procedures for selecting concessionaires for public services; o Implementing an updated system for the technical inspection of vehicles; and o Adopting an action plan to expand accessibility for persons with limited mobility. In light of the foregoing, I would be grateful, Mr. President, if you would support this strategy through a Development Policy Loan to upgrade the sector and continue reforms, with a view to achieving sustainable development. I would like to thank you for the World Bank's interest in the development of the sector and to express the hope that its support will continue under modes that we would be happy to define at an opportune time. Very truly yours, 46 ATTACHMENT TO THE LETTER OF SECTOR DEVELOPMENT POLICY KINGDOM OF MOROCCO PRIORITY ACTION PROGRAM FOR THE URBAN TRANSPORT SECTOR The urban transport public service has been plagued by numerous dysfunctions for several decades, is failing to meet the needs of citizens and of the country's economy, and is having a negative impact on the environment. Dysfunctions are reflected in a supply shortfall, poor quality of service, road management problems, and traffic problems, which are exacerbated by the weak institutional, organizational, planning, and above all, financing framework. To address this situation, and in the context of its policy to support local governments with the upgrading of the sector, the State has formulated a National Urban Transport Strategy, based on a participatory approach, and has identified short- and medium-term priority actions. The purpose of this document is to present the main thrusts of this strategy and related activities. I. SITUATION IN THE URBAN TRANSPORT SECTOR A very sharp increase in mobility and demand for urban public transport For several decades, Morocco has been experiencing a continuing process of urbanization. Currently, 55 percent of the Moroccan population lives in cities. This sharp increase, along with more fast-paced activities, economic development, significant societal shifts, and the greater presence of women in the labor market, has led to a sharp increase in urban travel and public transport needs. In Casablanca (the only city with complete urban mobility data), the total number of trips taken has more than tripled since 1975. The process of rapid urbanization will continue and 70 percent of the Moroccan population will live in urban areas by 2025, which will be home to 27 million residents compared to the current 17 million. Added to this accelerated pace of urbanization is the phenomenon of significant urban sprawl resulting from the development of business activities and housing needs. These changes are considerably lengthening commutes, which require the use of various means of motorized travel. Greater use of vehicles and a sharp increase in congestion The number of cars in circulation increased by 36 percent between 1993 and 2003. Apart from walking, travel in urban areas takes place mainly in private cars and taxis (two-thirds of motorized travel in Casablanca). This is a relatively high rate compared to other metropolitan areas around the world. For this reason, rush hour travel conditions in urban areas are often difficult. In Casablanca, the Urban Transport Master Plan has revealed that more than one-third of the intersections analyzed are currently very heavily congested. In addition, many factors point to a considerable increase in the rate of vehicle ownership. In Casablanca, the number of cars is increasing annually by roughly 4.5 percent on average and is projected to increase by roughly 50 percent between 2010 and 2020, a trend which, absent any action, points to greater congestion. In the other major metropolitan areas, the road network could reach saturation point in the near future. Owing to this congestion, traffic needs to be much better organized and managed and public transport needs to be significantly expanded. A shortage of public transport Public transport is not well developed. The number of buses per capita fell from 1 per 3,000 residents in 1990 to 1 per 4,000 residents in the 2000s. This rate is clearly lower than the rate observed in other metropolitan areas in the Middle East, North Africa, or Latin America, for example. The bus transport system in Morocco is not meeting the travel needs of the population. The network does not cover all the urban areas, trips are not frequent, and buses do not have special priority lanes on urban roads. All 47 these factors make for longer commutes. For purposes of illustration, the share of public transport (by bus) accounts for only 14 percent of all travel in Casablanca and a mere 4 percent in Marrakesh. On a global level, it has been observed that an extensive and efficient public urban transport system is essential, given that private cars cannot, under any circumstances, cover all or even a significant portion of travel needs. Furthermore, the regulatory framework for delegated management and the capacity of local governments for planning and managing contracts with private operators need to be strengthened. Inadequate planning and a weak institutional framework While a host of actors are involved in urban transport activities, their capacity to effect change in the sector remains limited. Furthermore, there is no single institution responsible for each metropolitan area that can formulate and monitor implementation of an urban transport strategy and organize and manage public and other modes of transport in an integrated manner. Modern urban transport problems are complex and interconnected and cover an ever-expanding urban area. In addition, urban transport requires greater public intervention than it did in the past and applies to a wide array of interventions (multimodal strategy, planning, organization, public-private partnership, traffic management, investment policy, etc.). For this reason, a consensus therefore exists that urban transport requires institutional organization and technical expertise as well as ongoing funding commensurate with the challenges faced. These deficiencies are stifling urban activity, economic development, as well as access to jobs, education, and health and are a source of tremendous air pollution and greenhouse gas emissions. As is the case with many metropolitan areas around the world, urban congestion and longer commutes are having significant and negative effects on urban activity and the economic development of metropolitan areas. The shortage of public buses is exacerbating this congestion and reducing access by urban dwellers to jobs, education, and health. For the low-income population group, walking is therefore the main means of getting around. Furthermore, traffic, congestion, and aging automobiles (15 years on average) constitute the main sources of air pollution in urban areas. Congestion in Casablanca has doubled or even tripled NO2 and SO2 concentrations along the main arteries. Levels are so elevated that they are affecting the health of nearby residents. Lastly, traffic is also a significant source of greenhouse gas emissions, which are responsible for climate change. In fact, Morocco's annual levels of CO2 from the transport sector stands at 6.5 million metric tons, most of which is generated in urban areas (70 percent). The current urban transport model is therefore unsustainable and must be reformed. Formulating a National Urban Transport Strategy using a participatory approach Given the importance of urban transport to making cities more competitive and improving the quality of life of citizens and cognizant of the major progress needed in the sector, the State has adopted a participatory approach in order to mobilize all stakeholders, formulate a national strategy, and identify priority actions. Urban transport was an important topic at the First National Meeting of Local Governments held in Agadir in 2006 on city development. The public authorities have also organized numerous meetings to review the sector's policies. These meetings culminated with the First Regional Workshop on Urban Transport in the Mediterranean Region in January 2008, the theme of which was The Quality of Life and Competitiveness of Cities: A Challenge for the Public Authorities. The analyses conducted and discussions held have made it possible for the Government to establish, under the aegis of the Ministry of the Interior, which is responsible for local governments, a short- and medium-term priority action program that is presented in this document. Launching the implementation process: some activities related to the National Urban Transport Strategy have already been launched These activities include: Establishment, within a contractual framework, of an entity to organize urban travel and transport in Casablanca in July 2008; 48 Provision of assistance to the metropolitan areas of Casablanca and Rabat-Salé to establish companies to execute tramway projects (Casa-Transports and Tramway de Rabat-Salé companies); Provision of financial assistance to the Casablanca tramway project totaling DH 6.4 billion and for the Rabat-Salé tramway project, as part of the development of the Bouregreg valley, the projected cost of which is DH 4 billion; Institution of financial incentives to promote and expand the use of planning tools. Starting in 2008, the General Directorate of Local Governments (Direction Générale des Collectivités Locales DGCL) allocated DH 100 million to fund up to 50 percent of urban transport studies, with a cap of DH 10 million. The initial beneficiary cities are Marrakesh, Oujda, Safi, El Jadida, Fez, Kenitra, Nador, Agadir, and Settat (urban transport projects are already taking place in Casablanca, Rabat, and Tétouan); Establishment of a DH 400 million fund since 2007 to assist with transport sector reforms. DH 200 million has been set aside for urban transport, DH 150 million of which is earmarked for transport by bus and DH 50 million for the improvement of the taxi sector and, more specifically, for upgrading the fleet; Professionalization of public transport service management through delegated management arrangements in Casablanca since 2004 and, more recently, in Rabat and Agadir; and Building local government capacity through the creation of a DGCL Division for Urban Transport and Travel in the Ministry of the Interior and the launching in 2008 of an urban transport training program for senior staff in local governments and the central and territorial administration. This program is continuing in 2010. II- STATE PRIORITY ACTION PROGRAM FOR THE URBAN TRANSPORT SECTOR The State has established the following medium-term objectives for the urban transport sector: Improved governance of the sector in each metropolitan area and at the central level, in order to allow (i) the local governments to provide a complete, integrated, and effective response; and (ii) the State to perform its role in promoting, supervising, providing support to local governments, providing leadership, and monitoring sector reform. Improvement and development of public transport services and infrastructure through (i) priority development of public transport, essential for improving and facilitating mobility, curbing demand for travel by private car, and reducing the sector's impact on the environment; and (ii) improved road, traffic, and parking management in order to make better use of public space and ease congestion. Better integration of the social and environmental considerations of urban transport through the reduction of the negative impact of urban transport vehicles on air quality and greenhouse gas emissions and through a more effective contribution from the sector to ensuring increased access by citizens to the job market and services and a reduction in social disparities. 49 (A) Improved governance of the urban transport sector In order to meet this objective, the State will, in the medium term, invest local governments with the full authority to define and implement a socially and economically effective multimodal urban transport strategy, organize an efficient and accessible public transport network, optimize the use of public space and roads for all users, plan investments, promote public-private partnerships, and monitor and evaluate the results of these actions. At this level, the State is expected to strengthen the regulatory, legal, and institutional framework governing the authority of local governments and overseeing the sector, support and assist local governments in their efforts to put in place urban transport services and infrastructure, assume a leadership role, and develop the sector at all levels and evaluate its progress. To that end, the State will implement the following short- and medium-term priority actions. Action A1: The implementation, in each metropolitan area, of an adequate institutional and organizational framework to plan urban transport, organize public transport in an integrated manner, and manage roads, traffic, and parking. The State will help establish, first in Casablanca and then in Rabat-Salé-Témara, an efficient entity to organize urban transport, which has been tasked with the aforementioned responsibilities. The State will also promote, in each of the other major metropolitan areas, the establishment of a structure with sufficient technical capacity to perform the aforementioned responsibilities, in order to enable the local governments and central departments involved to make decisions in a collaborative manner. To enable these structures to get their operations off the ground and function effectively, the State will provide them with human, material, and financial resources commensurate with their responsibilities. A regulatory framework for urban transport will be prepared and will seek primarily to (i) define and mandate the process for urban transport planning and the integrated organization of urban transport systems in line with urban planning; (ii) identify, for each type of metropolitan area, the local public institution (local government, group of local governments, group of metropolitan areas, or a specific structure) that will serve as the entity for the integrated organization of urban transport for the metropolitan area; and (iii) establish the policymaking process to ensure the participation of local and national donors and main stakeholders in major decisions. Action A2: The preparation and adoption of an effective and coherent multimodal urban transport strategy for each major metropolitan area. In particular, the State will contribute to the financing of the Urban Transport Plans (including medium-term priority investment programs) in all major metropolitan areas in Morocco, and provide them with the necessary support to develop and implement these plans. Updating of the Urban Transport Plans for Casablanca and Tangier. Launch of the preparation of the Urban Transport Plans in the other metropolitan areas that wish to have one. Adoption of quality and validation criteria in the Urban Transport Plans, thereby underscoring the importance of the multimodal analysis of the strategies, regulatory tools, and incentives, as well as the relevance of social objectives, economic priorities, and financial choices. 50 Action A3: The establishment of a national framework to support local governments, coordinate State actions, promote development, monitor and evaluate the urban transport sector, compile and disseminate best practices, provide leadership, and implement the current action program. To achieve this objective, the Ministry of the Interior established a division for urban transport and travel in the Office for Planning and Facilities, which is tasked with preparing, providing support to, and managing these various functions in coordination with the other central units that have a role to play owing to their mandate. This division will be equipped with the human and financial resources required to carry out its mandate and will adopt a medium-term action plan (including the development of an information and benchmarking system for the sector and the annual preparation of an assessment of the sector's progress). The State will establish a National Urban Transport Commission under the aegis of the Ministry of the Interior, which will be responsible for, inter alia, (i) coordinating the sectoral policies of the ministerial departments involved in urban transport, with a view to ensuring policy coherence and convergence; (ii) reviewing the various action programs submitted by the local governments involved and requiring financial support from the State; and (iii) monitoring the implementation of the action plans arising from the strategy. Action A4: Strengthening of the technical and managerial capacities of local governments, the State, and the private sector in the area of urban transport. In the short term, priority is accorded to the training of a core group of approximately 50 experts from the major metropolitan areas and the State, who are directly involved in the preparation and implementation of multimodal urban transport strategies. To that end, a series of seminars based on international experiences, covering all aspects of planning, public transport system operations, and traffic management is being put in place. In the medium term, a five-year program will be developed and launched and will cover (i) initial and continuing training for urban transport specialists in mid-sized cities and major metropolitan areas; and (ii) awareness building among the relevant local elected officials. In this context, a structure for continuing training, as well as training programs in universities and engineering schools, will be put in place, with a view to redressing the shortage of senior officials in the sector in five years. The Ministry of the Interior will also facilitate the establishment of a network of national experts and the implementation of a process for knowledge capitalization, sharing experiences, and disseminating data and best practices in the sector, including the biennial organization of a national conference on urban transport. (B) Improvement and development of urban transport services and infrastructure To achieve this second objective, the State will promote the establishment, in big and mid- sized cities, of a structured, reliable, and economical public transport system that has been tailored to meet the travel needs of users and is commensurate with their purchasing power. In this context, the respective roles of the various operators (in particular, of buses and collective taxis) will be organized by the authorities in a way that maximizes complementarity and modal integration. Physical improvements such as bus lanes, dedicated bus roads, and priority at intersections will be made in order to help minimize, as much as possible, the effects of congestion on the capacitor public transport network. Given their economic and social viability, the State is according priority to the modernization and development of efficient bus networks in metropolitan areas. In addition, with respect to the Casablanca and Rabat-Salé-Témara metropolitan areas and to a number of big cities, the State will encourage the development of an additional mass transit system: a capacitor bus system operating on dedicated bus roads, tramways, or rail transport, based on economic and social viability. 51 Pursuant to the budget law, the provision of a budget envelope allocated annually to the fund to assist with transport sector reform, with the aim of encouraging public and private urban transport operators to: o Upgrade the dilapidated bus fleet in order to reduce pollution levels and comply with environmental protection standards; o Adopt training plans for drivers, in partnership with the OFPPT (Professional Training and Employment Promotion Office) or other relevant organizations; o Improve the quality of the service provided in terms of the reliability, cleanliness, and safety of the buses. Improved road, traffic, and parking management is also one of the State's top priorities, aimed at reducing the high level of congestion and facilitating the equitable and economical use of public space by all users. Lastly, the State will continue to help finance highly economically and socially viable public investment operations where these investments are likely to provide national benefits. To that end, the State will assist local governments with the implementation of the following short- and medium-term priority actions: Action B1: The development of bus systems in the major metropolitan areas, the improvement of their performance, and the restructuring of the networks and public transport. In the short term, the preparation and adoption of plans to improve the efficiency, quality, and financial sustainability of bus services for the Casablanca and Rabat-Salé-Témara metropolitan areas, and the implementation of these plans with the signing of an amended contract with the operator in the Casablanca metropolitan area and a contract with a single operator for the Rabat-Salé-Témara metropolitan area. In the medium term, the preparation and adoption of these plans to improve bus services and the signing of amended or new delegated management contracts for public services for the major metropolitan areas. Action B2: Improvement of the regulatory framework and procedures for the concessioning of urban public transport. Regulatory provisions under Law 54.04 on the concessioning of public services will be adopted to improve procurement procedures for selection of concessionaires by the public service in order to guarantee competition, economic efficiency, transparency in the selection, and drafting of standard contracts that incorporate national and international experience in this area. Effective procedures for monitoring and overseeing public transport operators and managing delegated contracts and concession agreements will also be put in place. Action B3: Improved road, traffic, and parking management. Adoption and implementation of an action plan for road, traffic, and parking management. This action plan will include in particular (i) the establishment of traffic and parking management units in all big cities; (ii) the preparation of standard guides and specifications for traffic plans, the operation of intersections and traffic circles, and parking management; (iii) the implementation of road standards and a monitoring system; (iv) practical measures for managing demand for private vehicle transport; and (v) capacity building of the police force to enable it to perform its role in these areas. Establishment and launch, as part of the Urban Transport Plans for the biggest metropolitan areas, of the implementation process for traffic plans, the parking policy, and road improvements, aimed at improving all traffic flow and ensuring more equitable sharing of the roads between public transport (buses) and active transportation. 52 Action B4: The State's contribution to the financing of urban transport infrastructure. The State will continue to make a significant contribution to the financing of priority urban transport infrastructure in big cities. The State will also establish conditions for its contribution to this financing based on the following: (i) a preliminary urban transport planning process that is consistent with the quality criteria outlined in A2 above; (ii) the proposed investments for State financing of public transport, the road network, or improvements to public spaces are highly economically and socially viable; and (iii) State financing in this sector is equitable, justified, and in line with national priorities. Eligibility criteria for State financing of infrastructure projects will be defined in a circular outlining the prerequisites to be met by communes in order to receive State financial support. The State will contribute to the financing of urban transport projects proposed by local governments on a case-by-case basis depending on the level of priority of these projects and the extent of their socioeconomic impact. More generally, the State will analyze the procedures for creating an institutional, regulatory, and financial environment aimed at promoting private investment in the form of public-private partnerships in the urban transport sector and will adopt the measures needed to implement the recommendations. (C) Better integration of the social and environmental considerations of urban transport Through the commitment made under multilateral and bilateral acts and agreements, Morocco has for several years demonstrated its desire to integrate the pillars of sustainable development into its national policy. The State's general policy declaration, which was submitted to Parliament in October 2007, reaffirmed the importance of combating social exclusion. At the international level, Morocco undertook to improve access for persons with limited mobility by signing and ratifying the United Nations Convention on the Rights of Persons with Disabilities. In addition, in accordance with the Copenhagen Declaration, the State is seeking, in the medium term, to reduce the negative impact of urban transport on air quality and greenhouse gas (GHG) emissions and ensure a more effective contribution by urban transport to social integration. To that end, the State will implement the following priority actions in the short and medium term: Action C1: The reduction of the negative impact of urban transport on air quality and GHG emissions. Implement an updated system for the technical inspection of vehicles and establish a network for all inspection stations. Ensure that inspection stations test for compliance with the vehicle emission limits stipulated in the decree of January 28, 1998 establishing emission limits for vehicles in circulation. Ensure the gradual tightening of emission limits set forth in the decree of January 28, 1998, with a view to making them more binding. Implement specific actions to enable urban transport operators to submit their vehicles for regular technical inspections. Define and adopt mandatory restricting standards for emissions from the various types of new vehicles available on the Moroccan market. Improve and continue with incentives for upgrading the taxi fleet. Continue measures aimed at upgrading the bus fleet. It bears noting as well that the improvement and development of the urban public transport system, for which the measures were outlined above in (B), constitutes an important component for reducing the impact of transport, in terms of air pollution and greenhouse gas emissions, through a modal shift from private vehicle use to alternative public transportation. 53 Action C2: Contribution by urban transport to social integration issues. Adoption of an action plan to improve access for persons with limited mobility, aimed at providing them with sufficient capacity to move about, and the organization of an awareness- building workshop on access by persons with limited mobility. Adoption of minimum criteria for access applicable to public transport. Support to local governments with the implementation of pilot actions to improve access by persons with limited mobility. It should be noted that the policy promoting the improvement and development of urban public transport (bus) described above in (B) helps increase the mobility of poor and fragile populations whose households are often located on city outskirts. This policy therefore promotes their access to jobs, education, and health services, thus contributing to improved social integration. In addition, a more equitable sharing of roads, which was also discussed above in (B) and benefits pedestrians, among others, is likely to improve, to some extent, road safety for pedestrians who are more vulnerable to accidents. Action C3: Reduction of the negative impact of investments, operations, and reforms of the sector on the environment, the population, and poverty. Capacity building at the central and local levels to evaluate the impact of projects and sector reforms on the environment, poverty, and the society in general. Implementation of equitable and transparent support and mitigation plans, once significant negative environmental and social effects are identified. If a public bus transport concessionaire is replaced, a strategy will be defined to support the personnel from the former concessionaire in their job transition. 54 ANNEX 2: OPERATION POLICY MATRIX Strategic Policy Areas and Key Prior Actions for DPL Expected Results and Indicators (by December Main Program Objectives 31, 2011) A. Improving the governance of the urban transport sector Establishment of an 1. The Casablanca urban transport planning and Efficient planning, coordination, and management appropriate institutional management agency has become fully operational through of the urban transport sector in the Casablanca framework in each large (i) the adoption of a priority work plan and an adequate agglomeration. Moroccan agglomeration. budget by its Board of Directors, (ii) the recruitment of Indicator: There is a clear plan shared by all technical experts, and (iii) the launching of comprehensive stakeholders for the restructuring of the bus route studies of bus network restructuring and traffic network of the agglomeration and this plan is well management. coordinated with the development of all other modes of transport. Baseline: no plan Target: substantial completion 55 Establishment of an 2. The Minister of Interior has issued a Circular Effective coordination of policies and programs appropriate national (Circulaire) dated October 14, 2010, establishing the among the main Government departments involved institutional framework to National Commission on Urban Transport (CNDU). in the urban transport sector. initiate and coordinate Indicator: The CNDU meets at least twice a year to Government actions in the coordinate, monitor and evaluate government urban transport sector. actions in the urban transport sector. Baseline: none Target: two 3. The Urban Transport Division of the General Effective Central Government support provided to Directorate of Local Governments of the Ministry of local authorities on urban transport issues. Interior has become fully operational through: (i) the Indicator: Conventions have been signed by the adoption of a priority work plan by the Director of Ministry of Interior and local governments to assist Programming and Equipment of such Directorate; and (ii) them, including with funding, for the preparation of the recruitment of technical experts. municipal urban strategies and priority investment plans Baseline: none Target: three large cities Widespread and multi-level 4. The Ministry of Interior has carried out a training Sufficient urban transport expertise available in the development of national program for a core group of managers in the urban cities that have carried out or launched the expertise in the urban transport sector. preparation of their urban transport strategies and transport sector. priority investment plans. Indicator: Number of trained experts and number of cities which benefited from the training program Baseline: None Target: 32 experts and 9 cities 56 B. Improving the efficiency and increasing the supply of urban transport services and infrastructure Restructuring of bus services 5. The contract between the concerned municipalities of Improved quality and quantity of bus services in the and operators' contracts. the agglomeration of Rabat-Sale-Temara and the new agglomerations of Rabat-Sale-Temara and operator of bus services, Stareo, has become effective on Casablanca October 29, 2009. Indicators: 6. The following measures have been taken for Number of passenger seat-km supplied by Stareo restructuring the provision of bus services in the and M'dina Bus. agglomeration of Casablanca: (i) signature of a convention Baseline: Rabat-Sale-Temara : 0; Casablanca: 1.9 between the municipality of Casablanca and the new billion operator of bus services, M'dina Bus, for the provision of Target: Rabat-Sale-Temara: 2.0 billion; Casablanca: a 200 million Dirham subsidy for the purchase of new 2.6 billion buses and the implementation of a staff reduction plan; (ii) approval of a change in the capital structure of M'dina Bus; (iii) approval of an investment convention between the State and M'dina Bus; and (iv) issuance to the previous bus operators of a notice that their contracts were terminated. Improvement of the regulatory 7. The Minister of Interior has issued an order (Arrêté) The procurement process for concessioning public and institutional framework dated August 25 , 2010, setting forth the selection process transport services is in line with international best for public private partnerships. for public services concessionaires in accordance with practice. Law 54.05, dated February 16, 2006, and the main stipulations of the concession contracts. Indicator: The selection of future public transport operators in large cities is fully competitive and transparent. Baseline: NA Target: All 57 Funding of urban transport 8. The Minister of Interior has issued a Circular Government financial support is allocated to those services and infrastructure. (Circulaire) dated November 4, 2010, defining the urban transport investment projects with superior eligibility criteria for State funding of urban transport economic and social returns. investment projects Indicator: Percentage of the number of projects accepted for State funding which comply with the adopted eligibility criteria. Baseline: 0 Target: 75% C. Improving the environmental and social sustainability of urban transport Improving air quality in large 9. The Ministry of Equipment and Transport has Effective vehicle inspection and monitoring systems agglomerations. completed the restructuring of the vehicle inspection are in place. centers through the following measures: (i) signature of a contract with a third national operator providing support to Indicator: number of visits for vehicle inspection, the existing inspection centers; (ii) establishment of an the report of which has been issued through the automated electronic process for preparing the vehicle automated electronic process technical inspection reports; and (iii) award of a contract Baseline: 1,100,000 to a firm for auditing the vehicle inspection centers. Target: 1,700,000 Improving accessibility for 10. The Ministry of Social Development, Family and Accessibility for persons with limited mobility has persons with limited mobility. Solidarity, in consultation with relevant ministries, has been mainstreamed in urban transport projects and adopted an action plan to improve the accessibility to awareness has increased. urban transport of persons with limited mobility, and organized a national seminar to raise awareness and Indicator: number of cities which have included an disseminate the action plan. accessibility component in their rehabilitation or improvement urban transport infrastructure projects. Baseline: 0 Target: 2 58 ANNEX 3: MOROCCO - PUBLIC DEBT SUSTAINABILITY AND EXTERNAL FINANCING REQUIREMENTS (% OF GDP) Fiscal Sustainability Analysis Fiscal Sustainability Analysis Public Debt in Main Scenarios (1) Public Debt in Alternative Scenarios (2) 50.0 54.0 48.0 52.0 46.0 50.0 44.0 42.0 48.0 40.0 46.0 38.0 44.0 36.0 42.0 34.0 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 Base Line Key Variables at their Historical Averages No Policy Change B1 B2 B3 B4 B5 B6 Morocco: External Financing needs 2008 2009 2010 2011 2012 2013 Financing Requirements 8.2 6.8 5.9 4.2 3.8 3.7 Current account deficit 5.2 5.0 4.0 3.2 2.7 2.1 Long term amortizations 3.9 2.0 1.9 2.0 2.2 2.1 Reserves Changes of Monetary Auth. -0.9 -0.2 0.0 -1.0 -1.1 -0.5 Financing sources 8.2 6.8 5.9 4.2 3.8 3.7 Official capital grants 1.3 0.4 0.5 0.4 0.4 0.4 Private investment, (FDI+Portfolio) (net) 2.1 1.0 0.1 0.8 1.1 1.5 Long term Disbursements 5.1 3.9 5.2 2.9 2.4 1.9 Other capital flows (incl. errors and omissions in 08- 09) -0.3 1.6 0.0 0.0 -0.1 -0.1 Source: Moroccan Government and staff estimates (1) The two main scenarios are A1. Key variables are at their historical averages; and A2. No policy change (constant primary balance). (2) The other scenarios are: B1. Real interest rate is at baseline plus one standard deviation; B2. Real GDP growth is at baseline minus one- half standard deviation; B3. Primary balance is at baseline minus one-half standard deviation; B4. Combination of B1-B3 using one-quarter standard deviation; B5. One-off 30 percent real depreciation in 2010; B6. Increase in other debt-creating flows in 2010 of 10 percent of GDP. Standard deviations for B1-B6 are calculated over the last ten years. 59 ANNEX 4: MOROCCO AT A GLANCE Morocco at a glance 6/1 9/1 0 M . East Lo wer Ke y D e v e lo pm e nt Indic a t o rs & No rth middle M o ro cco A frica inco me Age distribution, 2008 (2009) Male Female P o pulatio n, mid-year (millio ns) 31.6 325 3,703 75-79 Surface area (tho usand sq. km) 447 8,778 32,309 60-64 P o pulatio n gro wth (%) 1.2 1.8 1.1 Urban po pulatio n (% o f to tal po pulatio n) 57 57 41 45-49 30-34 GNI (A tlas metho d, US$ billio ns) 86.4 1,053 7,675 15-19 GNI per capita (A tlas metho d, US$ ) 2,730 3,237 2,073 GNI per capita (P P P , internatio nal $ ) 4,190 7,350 4,593 0-4 6 4 2 0 2 4 6 GDP gro wth (%) 4.9 5.5 7.4 percent of total population GDP per capita gro wth (%) 3.7 3.7 6.1 ( m o s t re c e nt e s t im a t e , 2 0 0 3 ­ 2 0 0 9 ) .25 P o verty headco unt ratio at $ 1 a day (P P P , %) 3 4 .. Under-5 mortality rate (per 1,000) P o verty headco unt ratio at $ 2.00 a day (P P P , %) 14 17 .. Life expectancy at birth (years) 73 71 68 90 Infant mo rtality (per 1,000 live births) 32 29 45 80 Child malnutritio n (% o f children under 5) 10 12 25 70 60 5 A dult literacy, male (% o f ages 1 and o lder) 69 82 87 50 5 A dult literacy, female (% o f ages 1 and o lder) 44 65 73 40 Gro ss primary enro llment, male (% o f age gro up) .. 107 101 30 Gro ss primary enro llment, female (% o f age gro up) .. 104 106 20 10 0 A ccess to an impro ved water so urce (% o f po pulatio n) 96 88 86 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) 79 74 52 1990 1995 2000 2007 Morocco Middle East & North Africa a N e t A id F lo ws 19 8 0 19 9 0 2000 2009 (US$ millio ns) Net ODA and o fficial aid 899 1,048 419 ,21 1 7 Growth of GDP and GDP per capita (%) To p 3 do no rs (in 2008): Euro pean Co mmissio n 12 29 171 484 15 France 135 217 155 163 10 Spain 0 33 -1 1 17 5 A id (% o f GNI) 4.9 3.7 1.2 1.5 0 A id per capita (US$ ) 46 43 1 5 39 -5 Lo ng- T e rm E c o no m ic T re nds -10 95 05 Co nsumer prices (annual % change) 9.4 7.0 1.9 1.0 GDP implicit deflato r (annual % change) 15.2 -57.0 -0.6 1.8 GDP GDP per capita Exchange rate (annual average, lo cal per US$ ) 3.9 8.2 10.6 8.0 Terms o f trade index (2000 = 100) 80 75 100 1 18 19 8 0 ­ 9 0 19 9 0 ­ 2 0 0 0 2 0 0 0 ­ 0 9 (average annual gro wth %) P o pulatio n, mid-year (millio ns) 19.4 24.2 28.5 31.6 2.2 1.6 1.2 GDP (US$ millio ns)* 18,821 28,839 37,022 92,086 3.9 2.9 5.0 (% o f GDP ) A griculture & Fishing* 20.0 19.3 14.9 16.4 3.8 0.3 5.8 Industry* 33.6 30.4 29.1 28.5 3.2 3.0 4.1 M anufacturing* 18.3 18.9 17.5 15.9 4.3 2.6 3.1 Services* 46.4 50.3 56.0 55.1 4.3 2.9 5.1 Ho useho ld final co nsumptio n expenditure 68.7 60.0 61.4 57.0 3.6 2.8 4.7 General go v't final co nsumptio n expenditure 18.3 16.8 18.4 18.0 1.9 2.3 3.8 Gro ss capital fo rmatio n 22.2 28.7 25.5 36.0 4.4 3.4 8.9 Expo rts o f go o ds and services 17.4 25.7 28.0 28.6 12.1 5.5 6.4 Impo rts o f go o ds and services 26.7 31.2 33.4 39.5 8.8 4.4 8.3 Gro ss savings 18.6 28.3 24.3 31.0 No te: Figures in italics are fo r years o ther than tho se specified. 2009 data are preliminary. Gro up data are thro ugh 2008. .. indicates data are no t available. a. A id data are fo r 2008. (*) The new series o f GDP started in 1 998 Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 60 Morocco B a la nc e o f P a ym e nt s a nd T ra de 2000 2009 Governance indicators, 2000 and 2008 (US$ millio ns) To tal merchandise expo rts (fo b) 7,41 9 13,843 To tal merchandise impo rts (cif) 1 ,531 1 32,786 Voice and accountability Net trade in go o ds and services -2,085 -10,868 Political stability Current acco unt balance -475 -4,551 Regulatory quality as a % o f GDP -1.3 -4.9 Rule of law Wo rkers' remittances and co mpensatio n o f emplo yees (receipts) 2,161 6,895 Control of corruption Reserves, including go ld 5,138 24,094 0 25 50 75 100 2008 C e nt ra l G o v e rnm e nt F ina nc e Country's percentile rank (0-100) 2000 higher values imply better ratings (% o f GDP ) Source: Kaufmann-Kraay-Mastruzzi, World Bank Current revenue (including grants) 23.6 25.9 Tax revenue 21.7 23.4 Current expenditure 23.4 23.0 T e c hno lo gy a nd Inf ra s t ruc t ure 2000 2008 Overall surplus/deficit -4.8 -2.2 P aved ro ads (% o f to tal) 56.4 62.0 Highest marginal tax rate (%) Fixed line and mo bile pho ne Individual 45 38 00 subscribers (per 1 peo ple) 13 82 Co rpo rate 35 30 High techno lo gy expo rts (% o f manufactured expo rts) 1 1 .3 8.8 E xt e rna l D e bt a nd R e s o urc e F lo ws E nv iro nm e nt (US$ millio ns) To tal debt o utstanding and disbursed 20,674 21,842 A gricultural land (% o f land area) 69 67 To tal debt service 2,610 2,594 Fo rest area (% o f land area) 12.7 .. Debt relief (HIP C, M DRI) ­ ­ Terrestrial pro tected areas (% o f surface area) .. 1.2 To tal debt (% o f GDP ) 55.8 23.7 Freshwater reso urces per capita (cu. meters) 983 918 To tal debt service (% o f expo rts) 20.3 7.8 Freshwater withdrawal (billio n cubic meters) 12.6 .. Fo reign direct investment (net inflo ws) 260 2,514 CO2 emissio ns per capita (mt) 1.2 1.5 P o rtfo lio equity (net inflo ws) 30 520 GDP per unit o f energy use (2005 P P P $ per kg o f o il equivalent) 8.3 8.3 Composition of total external debt, 2009 Energy use per capita (kg o f o il equivalent) 355 460 Short-term, 1,631 IDA, IBRD, 2,378 14 IMF, 0 Wo rld B a nk G ro up po rt f o lio 2000 2008 Private, 4,626 Other multi- (US$ millio ns) lateral, 6,492 IB RD To tal debt o utstanding and disbursed 2,837 2,540 Disbursements 138 242 P rincipal repayments 307 262 Bilateral, 6,701 Interest payments 190 125 US$ millions IDA To tal debt o utstanding and disbursed 27 16 Disbursements 0 0 P riv a t e S e c t o r D e v e lo pm e nt 2000 2009 To tal debt service 2 1 Time required to start a business (days) ­ 12 IFC (fiscal year) Co st to start a business (% o f GNI per capita) ­ 16.1 To tal disbursed and o utstanding po rtfo lio 29 153 Time required to register pro perty (days) ­ 47 o f which IFC o wn acco unt 29 153 Disbursements fo r IFC o wn acco unt 1 145 Ranked as a majo r co nstraint to business 2000 2008 P o rtfo lio sales, prepayments and (% o f managers surveyed who agreed) repayments fo r IFC o wn acco unt 7 0 A ccess to /co st o f financing .. 84.4 Tax rates .. 62.6 M IGA Gro ss expo sure ­ ­ Sto ck market capitalizatio n (% o f GDP ) 29.4 79.9 New guarantees ­ ­ B ank capital to asset ratio (%) 9.8 7.3 No te: Figures in italics are fo r years o ther than tho se specified. 2008 data are preliminary. 6/1 9/1 0 .. indicates data are no t available. ­ indicates o bservatio n is no t applicable. Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 61 Millennium Development Goals Morocco With selected targets to achieve b etween 1990 and 2015 (estimate clo sest to date sho wn, +/- 2 years) M o ro c c o G o a l 1: ha lv e t he ra t e s f o r e xt re m e po v e rt y a nd m a lnut rit io n 19 9 0 19 9 5 2000 2008 .25 P o verty headco unt ratio at $ 1 a day (P P P , % o f po pulatio n) 2.5 .. 6.3 2.5 P o verty headco unt ratio at natio nal po verty line (% o f po pulatio n) 13.1 .. 15.3 8.8 Share o f inco me o r co nsumptio n to the po o rest qunitile (%) 6.6 .. 6.3 6.5 P revalence o f malnutritio n (% o f children under 5) 9.0 .. .. 10.2 G o a l 2 : e ns ure t ha t c hildre n a re a ble t o c o m ple t e prim a ry s c ho o ling P rimary scho o l enro llment (net, %) 58 72 79 87 P rimary co mpletio n rate (% o f relevant age gro up) 51 48 57 81 Seco ndary scho o l enro llment (gro ss, %) 38 38 38 56 Yo uth literacy rate (% o f peo ple ages 1 5-24) 55 62 67 76 G o a l 3 : e lim ina t e ge nde r dis pa rit y in e duc a t io n a nd e m po we r wo m e n Ratio o f girls to bo ys in primary and seco ndary educatio n (%) 67 72 80 86 Wo men emplo yed in the no nagricultural secto r (% o f no nagricultural emplo yment) .. .. 20 19 P ro po rtio n o f seats held by wo men in natio nal parliament (%) .. 1 1 11 G o a l 4 : re duc e unde r- 5 m o rt a lit y by t wo - t hirds Under-5 mo rtality rate (per 1 ,000) 85 .. 47 38 Infant mo rtality rate (per 1,000 live births) 66 57 40 32 M easles immunizatio n (pro po rtio n o f o ne-year o lds immunized, %) 80 88 93 94 G o a l 5 : re duc e m a t e rna l m o rt a lit y by t hre e - f o urt hs M aternal mo rtality ratio (mo deled estimate, per 1 00,000 live births) 332 228 228 227 B irths attended by skilled health staff (% o f to tal) 31 34 48 59 Co ntraceptive prevalence (% o f wo men ages 1 5-49) 39 42 45 63 G o a l 6 : ha lt a nd be gin t o re v e rs e t he s pre a d o f H IV / A ID S a nd o t he r m a jo r dis e a s e s P revalence o f HIV (% o f po pulatio n ages 1 5-49) .. 0.1 0.1 0.1 Incidence o f tuberculo sis (per 100,000 peo ple) 1 10 1 13 95 88 Tuberculo sis case detectio n rate (%, all fo rms) 75 74 75 73 G o a l 7 : ha lv e t he pro po rt io n o f pe o ple wit ho ut s us t a ina ble a c c e s s t o ba s ic ne e ds A ccess to an impro ved water so urce (% o f po pulatio n) 75 .. 80 93 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) 58 .. 68 79 Fo rest area (% o f to tal land area) 6.8 12.7 12.7 .. Terrestrial pro tected areas (% o f surface area) .. .. .. 1.2 CO2 emissio ns (metric to ns per capita) 0.9 1.1 1.2 1.5 GDP per unit o f energy use (co nstant 2005 P P P $ per kg o f o il equivalent) 9.7 8.2 8.3 8.3 G o a l 8 : de v e lo p a glo ba l pa rt ne rs hip f o r de v e lo pm e nt 00 Telepho ne mainlines (per 1 peo ple) 1.6 4.2 4.9 9.5 00 M o bile pho ne subscribers (per 1 peo ple) 0.0 0.1 8.1 72.2 00 Internet users (per 1 peo ple) 0.0 0.0 0.7 33.0 00 P erso nal co mputers (per 1 peo ple) .. 0.3 1.2 5.7 Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 100 people) olds) 100 100 90 80 75 70 75 60 50 50 50 40 25 30 25 20 0 10 2000 2002 2004 2006 2008 0 0 1990 1995 2000 2007 2000 2002 2004 2006 2008 Primary net enrollment ratio Morocco Middle East & North Africa Fixed + mobile subscribers Internet users Ratio of girls to boys in primary & secondary education No te: Figures in italics are fo r years o ther than tho se specified. .. indicates data are no t available. 6/1 9/1 0 Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 62 10°W 5°W 0° M ed it e rra ne a n Se a Tanger Tétouan TANGER- Al Hoceima To Algiers Nador 35°N ÉTOUAN TÉTOUAN Larache Chechaouene ya u MOROCCO lo 35°N Oujda ou Ouezzane M GHARB- ed Ou CHRARDA- Taounate TAZA-AL HOCEIMA- ÉNI BÉNI HSSEN Taourirt Oued TAOUNATE Sebour nitra Kénitra ts. Sidi Taza Sale Kacem Fès Ain Bini s M RABAT RABAT- Mathar Mekn Meknès GRAND CASABLANCA SALÉ- SALÉ- Khemisset tla Casablanca ZEMMOUR- Ifrane Ben Slimane ZAËR A Azrou ÈS-BOULEMANE FÈS-BOULEMANE Boulemane El Jadida l s e Berrechid d id i n ORIENTAL To Settat Khouribga El Bayadh Oued Zem M t a CHAOUIA- Khenifra DOUKKALA- Bouârfa OUARDIGHA AT L ANT I C ABDA MEKNÈS- MEKNÈS- n Figuig ue TAFILALET u O d Er ni Béni Mellal Safi Rb ia o O CE A N El Kelaa des Srarhna TADLA-AZILAL M Oued Tennsift Azilal s Errachidia a Marrakech Demnate l To 0° Essaouira Chichaoua Tahannaout t Tindouf MARRAKECH- TENSIFT- A EL HAOUZ Jebel Toubkal (4,165 m) SOUSS-MASSA-DRÂA SOUSS-MASSA-DRÂA Ouarzazate O D AR Y M OROCCO UN u ed s us Dr So Oued BO Zagora a Mts. â Agadir SELECTED CITIES AND TOWNS Taroudannt as Atl T 30°N REGION CAPITALS E nti A 30°N XIM NATIONAL CAPITAL A Tata A PP R O Tiznit RIVERS GUELMIM-ES MAIN ROADS Ifni SEMARA This map was produced by the Map Design Unit of The RAILROADS World Bank. The boundaries, colors, denominations and 0 50 100 150 200 Kilometers REGION BOUNDARIES any other information shown IBRD 33450R2 on this map do not imply, on Guelmim the part of The World Bank INTERNATIONAL BOUNDARIES Group, any judgment on the 0 50 100 150 Miles INTERNATIONAL BOUNDARIES MAY 2009 Draâ legal status of any territory, or any endorsement or Tan-Tan Oued (Approximate) acceptance of such To boundaries. 5°W Tindouf