Translated Document

AFRICAN DEVELOPMENT BANK

MOROCCO

MOROCCO: FINANCIAL STABILITY AND INCLUSION STRENGTHENING SUPPORT

PROGRAMME (PARSIF)

APPRAISAL REPORT

OFSD DEPARTMENT

June 2016

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TABLE OF CONTENTS

ACRONYMS AND ABBREVIATIONS ......................................................................................... i PROGRAMME INFORMATION .................................................................................................. iii LOAN INFORMATION ................................................................................................................ iii EXECUTIVE SUMMARY ............................................................................................................ iv OUTPUTS FRAMEWORK............................................................................................................. v

I. INTRODUCTION: THE PROPOSAL .................................................................................... 1

II. COUNTRY CONTEXT.......................................................................................................... 1 2.1. Political Situation and Governance Context ........................................................................... 1 2.2. Recent Economic Trends, Macro-economic and Fiscal Analysis ............................................ 2 2.3. Economic Competitiveness .................................................................................................. 3 2.4. Public Finance Management ................................................................................................ 3 2.5. Inclusive Growth, Poverty Situation and Social Context ......................................................... 3 2.6. Financial System, Constraints and Challenges ....................................................................... 4

III. GOVERNMENT’S DEVELOPMENT PROGRAMME .......................................................... 5 3.1. Government’s Medium-Term Development Strategy and Reform Priorities ............................ 5 3.2 Obstacles to Implementation of the National Development Programme .................................. 5 3.3. Consultation and Participation .......................................................................................... 6

IV. SUPPORT FOR GOVERNMENT STRATEGY ..................................................................... 6

4.1. Linkages with the Bank’s Strategy ........................................................................................ 6 4.2. Compliance with Eligibility Criteria ...................................................................................... 7 4.3. Collaboration and Coordination with Other Partners ........................................................ 7

4.4. Linkages with Other Bank Operations ................................................................................... 7 4.5. Analytical Work Underpinning the Operation ........................................................................ 9

V. THE PROGRAMME .............................................................................................................. 9 5.1. Programme Aim and Objective ............................................................................................ 9 5.2. Programme Components ................................................................................................... 9

5.3. Policy Dialogue ................................................................................................................. 15 5.4. Loan Conditions .............................................................................................................. 15

5.5. Financing Needs and Mechanisms .................................................................................. 15

VI. IMPLEMENTATION ........................................................................................................... 16 6.1. Programme Beneficiaries ................................................................................................... 16 6.2. Expected Impact on Gender, the Poor and Vulnerable Groups .............................................. 16 6.3. Impact on the Environment and Climate Change ................................................................. 17 6.4. Impact on Other Areas ....................................................................................................... 17 6.5. Implementation, Monitoring and Evaluation ........................................................................ 17 6.6. Financial Management, Disbursement and Procurement ...................................................... 17

VII. LEGAL INSTRUMENTS AND AUTHORITY..................................................................... 19 7.1. Legal Instruments .............................................................................................................. 19 7.2. Conditions Associated with the Bank’s Intervention............................................................. 19 7.3. Compliance with Bank Group Policies ................................................................................ 19

VIII. RISK MANAGEMENT........................................................................................................ 19

IX. RECOMMENDATION ........................................................................................................ 19

CURRENCY EQUIVALENTS

May 2016

UA 1 = 13.63 Moroccan Dirham (MAD)

UA 1 = 1.24 Euro (EUR)

UA 1 = 1.42 US Dollars (USD)

FISCAL YEAR

1 January – 31 December

i

ACRONYMS AND ABBREVIATIONS

ACAPS

AEO

AMMC

AMDI

Insurance and Social Welfare Control Authority

African Economic Outlook

Morocco Capital Market Authority

Morocco Investment Development Agency

ANPME National Small- and Medium-Sized Enterprises Development Agency

AfDB African Development Bank

BAM Bank Al-Maghrib (Central Bank of Morocco)

BRVM

CAM

CCG

CDVM

WAMU Regional Stock Exchange

Crédit Agricole du Maroc

Central Guarantee Fund

Council for the Code of Ethics in Securities

CFAA

CFRA

CGEM

Country Financial Accountability and Assessment

Country Financial Risk Assessment

General Confederation of Moroccan Enterprises

CIMR

CMR

CNCP

Moroccan Inter-professional Pension Fund

Moroccan Pension Fund

National Public Procurement Commission

CNEA National Business Environment Committee

CNRA

CNSS

CPAR

CPIA

CSP

DAPS

DB

National Pension and Insurance Fund

National Social Security Fund

Country Procurement Assessment Report

Country Policy and Institutional Assessment

Country Strategy Paper

Directorate of Insurance and Social Welfare

Budget Directorate

DGEPP General Directorate of Public Enterprises and Privatization

DGI General Directorate of Taxes

DS Data Source

DTFE Directorate of Treasury and External Finance

EBRD

ECOWAS

EEP

European Bank for Reconstruction and Development

Economic Community of West African States

Public Establishments and Enterprises

EU

FDI

European Union

Foreign Direct Investment

FSAP

FSP

GDP

Financial Sector Assessment Program

Prudential Stabilization Fund

Gross Domestic Product

GFCF Gross Fixed Capital Formation

IMF International Monetary Fund

IGF General Inspectorate of Finance

IOSCO International Organization of Securities Commissions

IR Institutions Responsible

KSI Key Sector Indicator

LOLF

MAD/Dh

Organic Law on the Budget Act

Moroccan Dirham

ii

MAFO

MCC

AfDB Field Office in Morocco

Millennium Challenge Corporation

MEF Ministry of Economy and Finance

MENA Middle East and North Africa

MICIEN Ministry of Industry, Commerce, Investment and Digital Economy

OPCC

PACEM

Collective Capital Investment Agencies

Economic Competitiveness Support Programme

PADESFI Financial Sector Development Support Programme

PAGPS

PAPMV

PARAP

Social Protection Governance Support Programme

Green Morocco Plan Support Programme

Public Administration Reform Support Programme

PARGEF Economic and Financial Governance Revitalization Support Programme

PARSIF Financial Stability and Inclusion Strengthening Support Programme

PASFI

PBO

Financial Sector Structural Adjustment Programme

Programme-based Operation

PEFA Public Expenditure and Financial Accountability

PMV Green Morocco Plan

PPP Public-Private Partnership

RCAR

SDR

SFDA

SGG

SNIF

TAF/MIC

TEF

TGR

Collective Retirement Benefits Scheme

Special Drawing Rights

Société de Financement du Développement Agricole (Agricultural Development

Financing Company)

General Government Secretariat

Société Nationale d’Inclusion Financière (National Financial Inclusion Company)

Technical Assistance Fund for Middle Income Countries

Tamwil El Fellah

General Treasury of the Kingdom

TMIC

TPF

UA

USD

VAT

Maximum Conventional Interest Rate

Technical and Financial Partner

Unit of Account

United States Dollar

Value Added Tax

MSME Micro-, Small- and Medium-Sized Enterprise

WACMIC

WAMU

WB

WEF

West African Capital Markets Integration Council

West Africa Monetary Union

World Bank

World Economic Forum

iii

PROGRAMME INFORMATION

INSTRUMENT: Sector Budget Support

PBO DESIGN MODEL: Stand-alone Programme-based Support Operation

LOAN INFORMATION

Client Information

BORROWER: Kingdom of Morocco

EXECUTING AGENCY: Ministry of Economy and Finance

Directorate of Treasury and External Financing (DTFE)

Financing Plan

Source Amount (UA) Amount (USD) Instrument

AfDB

110.6 million

157 million

Loan

TOTAL COST 110.6 million 157 million

Key AfDB Financing Information

Loan currency US dollar

Type of interest * Floating base rate with a free fixing option

Base rate (floating) 6-month LIBOR Contractual margin 60 basis points (bps) Funding margin: The Bank’s borrowing cost relative to 6-month LIBOR.

This margin is reviewed every 1st February and 1st

August. Commitment fee In case of slippage on the initial disbursement schedule

indicated in the loan agreement, a commission of 25

bps per year shall be applied to undisbursed amounts.

Such commission shall be increased by 25 bps every

six months, up to a maximum of 75 bps per year. Other fees None Tenor 20 years

Grace period 5 years

Average maturity 12.75 years

Maturity premium 0%

Implementation Schedule – Main Milestones (expected)

Appraisal April 2016

Programme approval July 2016

Effectiveness July 2016

Disbursement August 2016

First supervision January 2017

Second supervision July 2017

Completion December 2017

Closing date December 2017

iv

EXECUTIVE SUMMARY

Programme Overview

Programme Title: Financial Stability and Inclusion Strengthening Support Programme (PARSIF).

Overall Implementation Schedule: Sector Budget Support – Stand-alone Programme-based Support Operation – 2016/2017

Programme Cost: UA 110.6 million (USD 157 million)

Programme Outputs

The expected programme outputs include: (i) strengthening resilience and inclusion in the insurance and pension sectors; and (ii) strengthening the stability of the banking sector and capital

markets, while deepening their inclusive role. The main programme beneficiaries are: (i) current and future pensioners who not only will benefit from sustainable and solvent pension schemes

that will enable them to regularly collect their pension, but will also enjoy a minimum adjusted income and easier access to pension services; (ii) self-employed persons who henceforth will have

a pension scheme and, generally, economic agents with the possibility of selling or accessing insurance products more easily; (iii) the private sector through facilitation of access to financing,

thanks to the diversification of financial products and revitalization of institutional investors (insurance companies and pension funds), thus improving the availability of long-term resources on

the financial market; (iv) smallholders and young agricultural entrepreneurs in innovative MSMEs, whose access to financing will be facilitated, thanks to the institution of innovative financing

mechanisms; and (v) households, whose access to financial services will be further improved through consolidation of public action in terms of financial inclusion.

Alignment on Bank Priorities

PARSIF is aligned to the Bank’s CSP 2012-2016 for Morocco. It also takes into account two priorities defined by the Bank in the Ten-Year Strategy (2013-2022), namely governance and private

sector development. Furthermore, it contributes to the implementation of the Bank’s High 5s, especially four of the five: (i) support agricultural development (smallholder financing); (ii) impetus

for industrialization (deepening of capital markets to mobilize long-term resources and financing of innovative MSMEs); (iii) improve the people’s quality of life (financial inclusion of the

population, in general, and of pensioner, in particular, better social security for the self-employed through access to a pension system and financing of young entrepreneurs); (iv) strengthen regional

integration (integration of the Casablanca Stock Exchange with ECOWAS stock exchanges). The programme also plugs into the Bank’s Financial Sector Development Strategy (2014-2019),

which seeks to improve access to targeted and reliable financial services, with specific attention to the most underprivileged, and to strengthen the financial markets in order to foster an enabling

environment for the deployment of a broad range of products and services. Through this strategy, the Bank also aims to preserve the stability of the country’s financial system by strengthening

institutional supervision to ensure financial stability and compliance with national and international regulations.

Needs Assessment and

Justification

The programme is necessary to: (i) pursue and accelerate reforms undertaken since the early nineties, especially through the previous PADESFI programmes initiated in 2009; (ii) strengthen

the role of the insurance and pension sectors in improving the people’s quality of life and financing the economy, in their capacity as institutional investors; (iii) reinforce banking sector and

capital market stability; and (iv) consolidate inclusion in the banking sector, especially for MSMEs, young entrepreneurs and farmers.

Harmonization

Collaboration and coordination with the Technical and Financial Partners (TFPs) are in line with the guidelines of the Paris Declaration on Aid Effectiveness through joint missions and

preparation of joint matrices of measures for co-financed budget support operations. Given the separate programming of interventions by different partners, it has become necessary to adopt

a parallel programme approach for other programmes, such as PARSIF. In this regard, sustained dialogue with the World Bank allowed for the harmonization of reform measures in common

areas of intervention, notably the financial sector stability component and particularly the viability of pension schemes.

Bank’s Value Added

In terms of value added, the Bank supports targeted operations in strategic areas such as the financial sector (PARSIF), competitiveness (PACEM), agriculture (PAPMV), social security

(PAGPS currently scheduled for Board presentation), or infrastructure (energy, drinking water and sanitation, transport). PARSIF and these operations are mutually complementary, thus

helping to amplify their respective impacts notably on competitiveness, agricultural financing and social welfare. This constitutes a vector of support for the activities of other ongoing or

future (PAGPS) Bank operations in Morocco. The Bank’s value added is enhanced through a holistic approach, leading to reforms support operations backed in parallel by targeted and

complementary sector investment projects.

Contributions to Gender

Equality and Women’s

Empowerment

PARSIF targets crosscutting reforms that will concern both women and men. However, two key levers supported under this programme will contribute to reduce gender inequalities, while

backing women’s economic empowerment, namely: gender mainstreaming in financial sector governance to promote women’s participation in the Boards of Directors of enterprises in the sector,

and enhancement of smallholders’ access to credit. Moreover, the financial inclusion strategy being prepared will devote a major component to women’s access to financial services.

Policy Dialogue and Related

Technical Assistance

This operation is crucial to consolidate dialogue (already of top quality) with the authorities on the diagnostic of constraints to growth and reforms supported under the three PADESFI phases,

particularly in terms of improving the financing of the Moroccan economy to address the challenges of competitiveness and emergence. Dialogue will be backed by technical assistance operations,

particularly by supporting the preparation of a financial inclusion strategy and consolidating the macro-prudential supervision framework that brings together authorities in charge of controlling

banks, insurance companies and capital markets, to ensure the stability of the financial sector. Dialogue should be sustained in terms of facilitating access to credit for smallholders, in conjunction

with the Green Morocco Plan Support Programme, and improving the people’s quality of life, in conjunction with PAGPS. Policy dialogue is also conducted within the framework of enhanced

coordination mechanisms with other development partners.

v

OUTPUTS FRAMEWORK

Country and Programme Title: Financial Stability and Inclusion Strengthening Support Programme (PARSIF)

Programme Objective: Contribute to create conditions for strong and inclusive economic growth by strengthening financial sector stability and inclusion

PERFORMANCE INDICATORS MEANS OF

VERIFICATION

RISKS/MITIGATION

MEASURES Indicators (including

KSI) Baseline Situation Target

IMP

AC

T

Enhanced

contribution of the

financial sector to

private sector

development and the

people’s enhancement

Share of credit to the

private sector

Bank penetration rate

91% in 2015

64% in 2015

93% in 2018

70% in 2018

MEF and Bank Al-

Maghrib data

OU

TP

UT

S

Improved stability

and inclusion in the

insurance and

pension sectors

Insurance sector claims rate 72.5% in 2015 70% in 2017 ACAPS data Risk

Effects of exogenous

shocks due to an

unfavourable international

economic environment

Mitigation measures

Gradual opening beyond

the European Union

(main partner), on

economic zones with greater growth potential

(Africa, Russia, China,

India, etc.).

Financial Stability

Committee (BAM, AMMC, ACAPS) to

prevent systemic risks in

the financial sector.

Precautionary and

Liquidity Line (PLL) for an amount equivalent to

SDR 3.2351 billion, to

give the country fiscal

space and external

flexibility, and which

should be renewed for 2 years from 30 July 2016

following ongoing

discussions with the IMF

Insurance sector penetration rate

3.1% in 2015 (premiums compared to

GDP)

3.3% in 2017 ACAPS data

CMR technical deficit MAD 3 billion Maximum MAD 3.14

billion (instead of

MAD 9.13 billion

without parametric

reform)

ACAPS data

CMR reserves MAD 85.20 billion At least MAD 81.15

billion (instead of

MAD 74.38 billion without parametric

reform)

ACAPS data

Pension sector coverage

rate

36% in 2015

(subscribers compared

to the active population)

40% in 2017 ACAPS data

Enhanced stability

and inclusion in the

banking sector and

the capital markets

Share of credit to MSMEs 36% in 2015 40% in 2017 Bank Al-Maghrib

data

Number of MSMEs with access to the Start-up Fund

to be established

0 in 2015 At least 50 MSMEs in 2017

CCG/DTFE data

Market capitalization to

GDP

52% in 2015 55% in 2017 DTFE/ Casablanca

Stock Exchange

data

Volume of SFDA credit to

smallholders

MAD 640 million Doubling: MAD 1.2

billion in 2017

DTFE/CAM data

Number of smallholders

with access to credit

through the SFDA

52 000 in 2015, of

which 1 500 women

(2.9%)

80 000 in 2017 (i.e. a

54% increase), of

which at least 3 000

women (3.75%)

DTFE/CAM data

Volume of card payments MAD 16.3 billion MAD 19.5 billion in

2017

BAM data

OU

TC

OM

ES

Component I – Strengthening of the stability and role of the insurance and pension sectors in private sector development,

and the improvement of the people’s quality of life

Risks

Weakening political will

to implement programme measures due to other

political priorities.

Unforeseen changes in climatic conditions,

which dictate

agricultural sector performance, and hence

GDP growth.

Mitigation measures

High level commitment

to implement the reforms, since the

outcomes expected of

PARSIF are at the very heart of the

Government’s

Programme. Moreover, the reforms were the

subject of serious

dialogue with various

stakeholders.

Strong commitment of

the Moroccan authorities to diversify the economy

Sub-Component I.1 – Strengthen the stability of the insurance and pension sectors

Strengthen the

governance,

transparency and prudential rules of

the framework

governing the

insurance sector

Amendment of Law No. 17-

99 on the Insurance Code to

strengthen the governance, transparency and

compliance with prudential

rules in the insurance sector,

and integration of Takaful

insurance (Islamic

insurance)

The framework

governing the insurance

sector does not sufficiently reflect

trends in international

prudential norms, nor

does it integrate Islamic

financing

The draft law

amending Law No.

17-99 on the Insurance Code is

adopted by the

Council of

Government before

end-June 2016

Minutes of the

Council of

Government’s meeting

Strengthen the

viability of the civil

servants pension scheme

Amendment of Law No.

011.71 to strengthen the

viability of the civil servants pension scheme

through integration of

parametric reform

(contribution, annuity,

base)

Current parameters do

not guarantee the

sustainability of the scheme

The draft law

amending Law No.

011.71 of 30 December 1971 is

adopted by the

Council of

Government before

end-June 2016

Minutes of the

Council of

Government’s meeting

Amendment of Law No.

012.71 to strengthen the

civil servants pension

scheme by increasing the age limit for departure on

retirement

The 60-year retirement

age does not guarantee

the viability of the

scheme

The draft law

amending Law No.

012.71 of 30

December 1971 is adopted by the

Council of

Government before

end-June 2016

Minutes of the

Council of

Government’s

meeting

Sub-Component I.2 – Strengthening of inclusion in the insurance and pension sectors

Broaden access to the

pension scheme and

Adoption by the Council of

Government of draft Law

Non-existence of a

special pension scheme

The draft law

establishing a special

Minutes of the

Council of

vi

insurance services No. 99-15 establishing a pension scheme for

professional categories, the

self-employed and non-

salaried individuals who are

self-employed

for the self-employed pension scheme for the self-employed is

adopted by the

Council of

Government before

end-2016

Government’s meeting

so as not only to reduce dependence on the

agricultural sector but

also to modernize agriculture with a view to

limiting its dependence

on rainfall through the implementation of the

Green Morocco Plan

backed by the Bank.

Adoption by the Council of Government of draft Law

No. 17-99 on the Insurance

Code (Vol. IV) extending

the distribution of insurance

products to remote online

sale by financing

companies, and extension

of the list of insurance products marketed by banks

Limited distribution The draft law amending Law No.

17-99 on the

Insurance Code is

adopted by the

Council of

Government before

end-2016

Minutes of the Council of

Government’s

meeting

Improve the quality

of life of pensioners

Adoption by the Council of

Government of the draft law

modifying and

supplementing the Dahir

(Royal Decree) on Law No.

1.77.216 of 4 October 1977

establishing a Collective

Pension Allocation Scheme to increase the minimum

pension threshold from

MAD 1 000 to 1 500 (*)

MAD 1 000 minimum

pension

The draft law

amending Law No.

1.77. 216 of 4

October 1977

establishing the

Collective Pension

Allocation Scheme is

adopted by the Council of

Government before

end-2016

Minutes of the

Council of

Government’s

meeting

Broadening of the CMR

geographic coverage to

include regions of the Kingdom and introduction

of e-CMR online services to

CMR affiliates.

Limited coverage

network

The coverage network

is broadened

MEF’s letter

Adoption by the CMR

Board of Directors of a

resolution supporting the

extension of banking

facilities to the remaining “un-banked” section of

pensioners under the civil

servants pension scheme

An "un-banked"

segment of CMR

pensioners

The resolution

supporting the

extension of banking

facilities to the

remaining “un-banked” segment of

pensioners is taken by

the CMR Board of

Directors before end-

2016

Copy of the CMR

Board’s resolution

Component II – Strengthening of the stability and role of the banking sector and capital markets in private sector

development, and improvement of the people’s quality of life

Sub-Component II.1 – Strengthen the stability of the banking sector and capital markets

Strengthen the

capital market

supervision

mechanism

Adoption of an Order of

the Minister of Economy

and Finance on the General

Regulations of the AMMC

Past regulations of the

CDVM

Order of the Minister

of Economy and

Finance on the

General Regulations of the AMMC issued

before end-2016

MEF Order

Appointment of members

of the AMMC Sanctions

Board

Members of the

Sanctions Board not

appointed

Members of the

Sanctions Board are

appointed before end-

2016

Minutes of the

AMMC Board of

Directors

AMMC concludes its

appraisal with regard to the

principles and objectives of

the IOSCO

Previous appraisal The AMMC appraisal

based on IOSCO

principles and

objectives is conducted before end-

2016

AMMC report

Improve gender

mainstreaming in the

financial sector

governance

mechanism

Issuance of an AMMC

Circular to integrate the

gender component in the

annual reports of listed

companies

No mainstreaming of the

gender component in the

annual reports of listed

companies

The AMMC circular

on the annual reports

of companies listed is

issued before end-

2016

AMMC circular

Issuance of a BAM Circular

on independent directors, which includes respect of

gender parity by

independent directors of

banking and financial

establishments

No parity The BAM circular on

independent directors of banking

establishments is

issued before end-

2016

BAM circular

Strengthen financial

sector stability

Issuance by BAM of a

Directive on information

required by credit

establishments when processing group-based

counterpart credit dossiers

No Directive The BAM Directive

on information

required by credit

establishments when processing group-

based counterpart

credit dossiers is

BAM Directive

vii

issued before end-2016

Adoption by the Council of

Government of the draft law

modifying the Law on the

Status of Bank Al-Maghrib,

with a view to strengthening

BAM’s prerogatives to

ensure financial stability

through the provision of emergency liquidity

Need to strengthen the

financial stability

prerogatives with regard

to the provision of

emergency liquidity by

BAM

The law on BAM’s

Status is adopted

before end-2016

Minutes of the

Council of

Government’s

meeting adopting

the draft law on

BAM’s Status

Adoption of the draft law on

stock security

No specific framework

on stock security

The draft law on

reform of the stock

security system is

adopted by the

Council of

Government before

end-2016

Minutes of the

Council of

Government’s

meeting adopting

the draft law on

stock security

Diversify financial

instruments

Adoption of a Decree

enforcing Law No. 18-14 on Collective Capital

Investment Agencies

(OPCC) to allow for

investments in small and

nascent businesses

Narrow framework The Decree enforcing

Law No.18-14 on Collective Capital

Investment Agencies

(OPCC) is adopted by

the Council of

Government before

end-2016

MEF report

Issuance by BAM of a

circular on establishment of

a framework governing participatory finance

products

No specific framework Issuance of the BAM

Circular on

participatory finance products

BAM circular

Revitalize the capital

markets

Construction of a yield

curve based on the e-listing

of Treasury Bills on the

Bloomberg platform of the

Treasury.

No Bloomberg-based

yield curve

The yield curve is

established

MEF

Transmission to SGG of the

draft law amending Law

No. 45-12 on stock lending to improve the rules

governing stock lending

activity, especially by

opening it to non-residents

Narrow stock lending

framework

The draft law

amending Law No.

45-12 on stock lending is prepared and

forwarded to the SGG

before end-2016

MEF report

Accession of the

Casablanca Stock Exchange

as associate member of the

West African Capital

Markets Integration Council (WACMIC) to

strengthen the integration of

African capital markets

Low integration between

the Casablanca Stock

Exchange and

ECOWAS stock

exchanges

The accession of the

Casablanca Stock

Exchange as associate

member of the West

African Capital Markets Integration

Council (WACMIC)

is effective before

end-2016

Casablanca Stock

Exchange report

Sub-Component II.2 – Strengthening of inclusion in the banking sector and the capital markets

Establish a strategic

framework on

financial inclusion

Establishment of a

governance structure to

prepare and monitor the implementation of the

national financial inclusion

strategy

No governance structure The governance

structure is set up

before end-2016

DS: Letter of the

Ministry of

Economy and Finance

IR: MEF

Validation of the national

financial inclusion strategy

No strategy The national financial

inclusion strategy is

validated before end-2017

MEF and BAM

report

Improve the supply

of financing to

innovative MSMEs,

youths and farmers

Establishment of a start-up

fund for young

entrepreneurs and

innovative start-ups under

CCG management

Absence of a dedicated

vehicle backed by the

State

The start-up fund

management

agreement is signed

between the State and

CCG before end-June

2016

MEF report

Addendum amending the

agreement between the

State/CAM concerning the Prudential Stabilization

Fund (FSP) to improve

access to farmers’ financing

by lifting constraint on the

required ratio between

investment credit and

operating credit, within the

"Tamwil El Fellah" framework

Limited farm financing

product

Signature of the

addendum amending

the agreement between the

State/CAM in

connection with the

Prudential

Stabilization Fund

(FSP) before end-June

2016

MEF report

Issuance of an Order of the

Ministry of Economy and

Finance on the revision of

Limited flexibility The Order revising the

framework for

calculating the

MEF Order

viii

I.

the framework for calculating the maximum

conventional interest rate

(TMIC) to introduce more

flexibility

maximum conventional interest

rate (TMIC) is issued

Facilitate access to

mobile financial

services

Issuance by BAM of the

circular on payment

services in application of

Banking Law 103.12

No specific frameworks

compliant with the new

Banking Law

Circulars on payment

establishments and

payment services are

issued by BAM before

end-2016

BAM circulars

Launching of the national mobile payments solution

No national solution The national mobile payments solution is

launched before end-

2017

BAM report

Key activities:

- Signature of the loan agreement and fulfilment of conditions agreed during the appraisal

- Implementation of reforms

Financing:

ADB loan (USD 157 million)

Single tranche in 2016

1

I. INTRODUCTION: THE PROPOSAL

1.1. Management hereby submits the following proposal to grant a loan of USD 157 million,

equivalent to 110.6 million Units of Account, to the Kingdom of Morocco, to finance the Financial

Stability and Inclusion Strengthening Support Programme (PARSIF). PARSIF is a sector budget

operation to back the implementation of reforms to support stability and inclusion in Morocco’s

financial sector. Scheduled for implementation over the 2016-2017 period, the programme follows on

the heels of three previous PADESFI phases successfully implemented in 2009, 2011 and 2014,

respectively, the achievements of which it plans to consolidate and deepen. PARSIF is based on the

strategic orientations of the Government’s medium-term development programme (2012-2016) and the

Bank’s CSP for Morocco (2012-2016), currently in the completion phase. Its design incorporates

lessons drawn from previous budget support operations, the principles of the Paris Declaration on Aid

Effectiveness and good practice principles for the application of conditionality.

1.2. PARSIF’s final objective is to create enabling conditions for strengthening financial

sector stability and inclusion, with a view to improving the people’s quality of life by consolidating

and deepening PADESFI achievements. More specifically, the new programme aims to: (i) strengthen

the resilience of the insurance and pension sectors, and to deepen their inclusion; and (ii) consolidate

stability while deepening the inclusive role of the banking sector and the capital markets. Various

measures backed by the programme are described in the Matrix of Reforms (Annex 2).

1.3. The choice of a sector budget support disbursable in one tranche is doubly justified in the

national context. PARSIF will help to provide the Government with the financial resources needed to

enforce its policy and continue its reform efforts, in a budget deficit context. Moreover, in light of the

strong ownership by the Moroccan authorities and their capacity to implement financial sector reforms

as demonstrated by the quality of execution of the three previous PADESFIs, disbursement in one single

tranche will reduce the cost of transaction for both the Government and the Bank, while guaranteeing

Government’s strong commitment to implement reforms. The proposed operation will help to maintain

dialogue with the authorities on reforms scheduled for 2016-2017. Immediately following the adoption

of the new Strategic Development Plan by the Government that will emanate from the October 2016

elections and the preparation of a new Bank strategy for Morocco, a medium-term programme-based

approach could be pursued with the authorities.

II. COUNTRY CONTEXT

2.1. Political Situation and Governance Context

2.1.1. On the political front: Stable over several decades, the Moroccan political landscape was

not affected by the Arab Spring. The adoption of the new Constitution in 2011 opened the path to a

more open and democratic society, increased decentralization and modern institutions. Put briefly, it

consolidated the rule of law. The current coalition government headed by the Justice and Development

Party (PJD) continues to pursue the implementation of constitutional reforms, and strives to reduce the

budget deficit especially by making a conscious effort to end subsidies to energy products and pilot

structuring and sensitive reforms (for instance the reform of pension funds).

2.1.2. On the governance improvement front: Morocco initiated a series of comprehensive

reforms, simultaneously touching public sector management, access to information, overhaul of

the legal system and corruption control. In this regard, Morocco has made a headway in good

governance and corruption control (rated 88th in 2015 out of 175 countries, according to Transparency

International, and 16th out of 54 African countries according to the Mo Ibrahim Index).

2

2.2. Recent Economic Trends, Macro-economic and Fiscal Analysis

2.2.1. On the economic front, the Moroccan economy was marked by the pursuit and deepening of

structural and sector reforms undertaken since the early nineties. This helped to consolidate

achievements without compromising the stability of the fundamental balances. The macro-economic

reforms undertaken enabled the country to achieve strong and inclusive growth averaging 4.5% over

the 2004-2014 period, after recording 3.2% over the 1990-1999 period. In 2015, growth is estimated at

4.5% and partly reflects efforts made through the Green Morocco Plan. The agricultural sector accounts

for 12% of GDP and employs 40% of the active population (75% in the rural area). The sector’s good

performance in 2015 generated a strong knock-on effect on the rest of the economy. For its part, the

secondary sector, which represents an average 29.3% of VAT, continues its consolidation thanks to the

dynamism of Morocco’s new trade industries, especially automobile and aeronautics, despite the weaker

performance of the refinery sector following the suspension of SAMIR’s production from August 2015.

Lastly, the expansion of the tertiary sector continues, with it accounting for an increasingly large portion

of VAT (average 56.3%). The structural transformation of the productive fabric has led to the

emergence of new trades, thus contributing to job creation and export promotion, principally in

conjunction with the sustained consolidation of the financial sector, telecommunications and an

accelerated development of offshoring activities.

Table 1

Macro-economic Development

2014 2015(e) 2016(p) 2017(p)

GDP growth 2.4 4.5 1.8 (2.1*) 3.5 (5.2*)

Real GDP per capita growth rate 1.0 3.2 0.5 2.3

Inflation 0.4 1.6* 1.4 1.6 (2*)

Budget balance (GDP %) -4.9 -4.3 -3.5 (-3.6*) -3.0

Current account (GDP %) -5.7 -2* -0.7 (-1*) -0.9 (-0.8*)

Source: AEO 2016 – February 2016 (See Technical Annex 8); *DTFE data June 2016, if estimates differ

2.2.2. The Treasury debt stabilized at 63.4% of GDP in 2015, and is projected to fall gradually

to below 60% of GDP in the medium term. The debt structure remains favourable due to the fact that

three quarters of the debt stock is domestic and increased by 2.6% to stand at 47.9% of GDP. According

to their respective reports of August 2015 and February 2016, Bank Al-Maghrib and the IMF concluded

that the public debt is sustainable in the medium term. Furthermore, Standard & Poor’s maintained

Morocco’s sovereign note prospect at “stable” in April and October 2015; it also confirmed its long-

and short-term foreign exchange and local currency notes at "BBB-/A-3".

2.2.3. On the domestic front, after a steady deterioration between 2009 and 2012, the

commercial deficit reduced in 2013 and 2014 before falling to below 3% of GDP in 2015. This is

attributable to the expansion of exports from emerging industrial branches like automobile and

aeronautics, and the fall in oil prices. FDI increased by 8.6% in 2014, bringing their GFCF contribution

to 10.9% and the FDI stock to 47.3% of GDP. Thus, Morocco ranked 6th among FDI-recipient countries

in 2014.

2.2.4. Concerning monetary policy, Bank Al-Maghrib (BAM) reduced the prime rate in 2016

from 2.5% to 2.25%, the lowest ever. Furthermore, it reduced the minimum reserve ratio to 2%. Also,

the money supply growth rate rose from 3.1% in 2013 to 6.2% in 2014, but slowed slightly to 5.7% in

2015, reflecting a consolidation of net international reserves. Year-on-year, these reserves rose by

23.5% in 2015 to cover the equivalent of 6 months 24 days of import, thanks to the combined effect of

reducing commercial deficit, inflow of grants to the State and loans to public establishments. Lastly,

inflation remained low throughout 2015 at 1.6%, basically reflecting the fall in the prices of volatility-

prone food products.

3

2.2.5. The growth outlook is contingent on consolidating the bases of balanced economic

development, gradually restoring the macro-economic balances, accelerating the pace of structural

reforms, implementing regionalization and operationalizing the LOLF. On this basis, the real GDP

should rise by about 2% in 2016, due principally to the nearly 9% decline in the agricultural value added

after a 14% bound in 2015, and consolidation of the non-agricultural GDP growth at 3.5%, compared

to 3.4% in 2015.

2.3. Economic Competitiveness

2.3.1 The State plays a predominant role in supporting competitiveness and improving the

general conditions for exercising economic activity. The 2016 Doing Business report ranks Morocco

71st (87th in 2014), thus demonstrating the country’s dynamism in terms of facilitating business, and the

competitiveness of its economy. In the 2014 Index of Economic Freedom annual report, Morocco scored

76.2 on 100 under "Business Freedom", and is ranked 44th out of 185 countries.

2.4. Public Finance Management

2.4.1. As regards public finance, the Government in 2015 continued to pursue the restrictive budgetary

policy that it initiated in 2011, putting in place structural reforms to restore the macroeconomic balances.

Published in June 2015, the new Organic Law on the Budget Act (LOLF) will help to support regionalization

and administrative devolution, as well as strengthen legislative oversight on public finances through budget

control and public policy assessment. The target to attain a deficit of 4.3% of GDP by end-2015 was reached. At

the time of preparing the Budget Act in October 2015, the authorities announced the deficit target of 3.5% of

GDP for 2016. This downward trajectory is in line with the commitments made by Morocco within the context

of the second Precautionary and Liquidity Line extended by the IMF in 2014 (Annex 3), and remains within the

deficit target of 3% by 2017. The 2015 contraction of the budget deficit is mostly the result of the reduction in

overall expenditure, particularly following the abolition of subsidies on hydrocarbon products, excluding butane

gas. In 2015, the budget allocated to subsidies (principally some oil products) declined by 57.4%. Lastly, the

fiscal reform initiated in 2014 should be pursued in 2016, with a view to broadening the fiscal base.

2.5. Inclusive Growth, Poverty Situation and Social Context

2.5.1. At the social level, as at end-2014, more than 54% of government financing went to the

social sectors. Close attention is given to the targeting of vulnerable and underprivileged social

categories through the implementation of a number of programmes aimed at improving their living

conditions and reducing social inequalities. Moreover, the authorities continued to pursue efforts to

strengthen financial inclusion through the Moroccan Foundation for Financial Education, promoted by

PADESFI and hosted by Bank Al-Maghrib.

2.5.2. Poverty declined from 15.3% in 2001 to 6.2% in 2007, and remains predominantly rural

(8.95% compared to 1.1% in the urban area in 2014), the same as vulnerability (18.4% compared to

6.9% in 2014).

2.5.3. From the gender equality and women’s empowerment promotion viewpoint, the 2011

Constitution bestows full equality to men and women. This has led to the establishment of the "IKRAM"

Programme and the creation of several institutions devoted to gender issues. Lastly, since 2005, a

mandatory annex called “Gender-sensitive Budgeting” accompanies all draft Budget Acts.

2.5.4. Concerning the fight against unemployment, 1.37 million jobs were created in the past decade,

i.e. 137 000 job opportunities yearly. The services sector remains the main provider of employment in

Morocco, with an average annual share of 80%, in other words approximately one million jobs created

between 2004 and 2014. Consequently, the unemployment rate fell from 10.8% in 2004 to 9.9% in 2014

and 9.7% in 2015.

4

2.6. Financial System, Constraints and Challenges

2.6.1. With the Bank’s support, especially through the three phases of the Financial Sector

Development Support Programme (PADESFI) begun in 2009 (see TA2), Morocco’s financial sector

has successfully consolidated its rehabilitation, resilience and deepening. In this regard, the Moroccan

financial sector has made considerable progress on the path to reform and modernization. The legal and

institutional framework governing the Moroccan financial environment has significantly evolved

towards greater liberalisation, generating performance indicators deemed highly positive by the TFPs,

especially the IMF in the latest financial sector stability diagnostic (Financial Sector Stability

Programme – FSAP 2015).

2.6.2. The banking sector recorded a total balance of MAD 1.103 billion in 2015, i.e. 119% of

GDP and approximately 2/3 of the financial system (see TA3). The sector is dominated by five banks

which, on an unconsolidated basis, account for 79.5% of all assets in the sector.

2.6.3. The financial base of banks continued to be consolidated in 2015, with an average

solvency ratio of 13.9% and a core-capital ratio of 11.5%, calculated for the first time using Basel-

3 rules. These levels give banks a safety margin, thus enhancing their resilience. Furthermore, the new

short-term liquidity ratio derived from Basel-3 standards, averaged 130%, while bank liquid and current

assets were further consolidated at 13.3% of commitments. Despite the challenging environment, the

consolidation of the fundamentals of the banking system reflects efforts made to strengthen banking

practices in terms of risk management, and to constantly enhance the regulatory and supervision

framework, in line with international standards. After stagnating in 2013, the banks have recorded a 1%

net profit. Return on equity stood at 10.2%, and return on assets at 1%. Due to the decline in economic

activity linked to the international economic gloom especially in some sectors (real estate, for instance),

bad debt continued to increase to stand at 6.9% end-December 2014. However, provisions remained

adequate.

2.6.5. The insurance sector represents 9% of the financial sector and comprises 21 companies,

two of which are devoted to reinsurance. The sector’s consolidated capital has remained stable at

around MAD 5.5 billion (see TA5). The financial situation of the sector is comfortable, with improved

consolidated equity to written premium (107% of total written premium in 2014 compared to 112% in

2013). Net investments allocated to cover technical commitments represent 102% of technical

provisions. The insurance penetration rate rose from 3.14% in 2014 to 3.18% in 2015, thus placing

Morocco in second position in the Arab world. The sector’s activity remains profitable, with a net

income of MAD 2.9 billion in 2015.

2.6.6. The physiognomy of the Casablanca Stock Exchange remained practically unchanged

between 2014 and 2015 (see TA6). Seventy-five (75) companies are listed, for a market capitalization

of MAD 453 billion in 2015 compared to MAD 484 billion in 2014, i.e. a 6.43% decline. Two (2)

companies joined the Stock Exchange in 2015 and 1 in 2014; at the same time, 2 companies were

delisted in 2014 and another 2 in 2015. In 2015, activities in the secondary market picked up slightly

with a 0.45% increase in stock transactions (MAD 44.9 billion in 2015); 90% of these transactions were

on shares. The Casablanca Stock Exchange was the subject of major reforms (demutualization, foreign

currency listing, etc.), pending the implementation of the operational plan. Through the “Elite”

Programme launched recently, the Exchange plans to facilitate SME access to listing by having them

benefit from pre-float preparation, which is currently the most common approach at the international

level. The project to revamp the law governing the Stock Exchange pursues the same objective since it

aims to create an alternative exchange dedicated to SMEs and a chamber responsible for establishing

funds.

5

2.6.7. The Moroccan pension system is characterized by the co-existence of several pension

schemes, each different from the others in terms of legal status, management method, resources

and service modalities (see TA4). Principally, the system comprises three mandatory public schemes

(the CMR, the CNSS and the RCAR) and a voluntary supplementary scheme (CIMR) managed by the

private sector. The analysis of the trend of each scheme reveals contrasting tendencies. The

demographic ratio for the CNSS remains relatively high, at around 8.3 contributors to one beneficiary,

compared to 2.7 contributors for the CMR and 2.1 contributors for the RCAR. The deteriorating

demographic ratio has generated an imbalance between the expenditure and resources of the different

schemes. Whereas the contributions of the different schemes is on steady decline, the expenditure level

has gradually increased. Consequently, the financial surplus of all the schemes has contracted since

2005. It is projected that for the CMR, this will turn to a deficit from 2022.

2.6.8. Therefore, the main challenge is to ensure that the population would be able to effectively draw

pension sustainably. In this regard, the key challenge concerns the viability of the different schemes and, in the

short term, the sustainability of the civil servants pension scheme which began to record a technical deficit in

2014 and whose reserves will be depleted from 2022, if no action is taken. PARSIF supports the parametric

reform being adopted, while also improving inclusion in the pension sector.

2.6.9. Concerning financial inclusion and despite the progress made, challenges remain in terms

of the financing of certain segments, especially micro enterprises, as well as access to financing and

basic banking services to persons with low or irregular income, youths, farmers and rural households.

To consolidate the achievements of previous Bank interventions in the financial sector, PARSIF

included in its Matrix of Measures actions aimed at strengthening financial sector resilience and

stability, and consolidating inclusion in the banking, microfinance and capital market sector.

2.6.10. Regarding governance, the main challenges generally concern the operationalization of

legislative texts enshrining the major reforms and continuous effort to adapt to evolving international

standards.

III. GOVERNMENT’S DEVELOPMENT PROGRAMME

3.1. Government’s Medium-Term Development Strategy and Reform Priorities

3.1.1. The Government’s Economic and Social Programme for the 2012-2016 period seeks to

consolidate the building of a balanced, cohesive, stable, united and prosperous society. At the

economic level, the Government’s programme aims, through its third pillar, to continue building a

strong, multi-sector, regionally diversified, and competitive national economy that generates wealth

and employment, as well as to adopt an economic policy that ensures equitable distribution of growth.

3.1.2. As regards the financial sector, the main objectives of the Government’s programme are to:

(i) improve financial inclusion, particularly by facilitating MSME access to financing and boosting the

capital market; and (ii) strengthen the supervision system and financial stability of the financial sector.

By supporting these same priorities, PARSIF, through its objectives and components, meets

Government’s concerns and addresses other centres of interests, especially the overhaul of pension plans

and revision of the insurance system, while mainstreaming the "gender" dimension, youths and

agricultural SME development. The Letter of Development Policy (Annex 1) provides further details

on Government priorities.

3.2 Obstacles to Implementation of the National Development Programme

3.2.1. Morocco needs to meet a major challenge – that of using its political stability, its

proximity to Europe, its investment attractiveness, and consolidation of its promising African

orientation - as growth drivers. These are strategic areas for firmly embarking on sustainable and

inclusive growth. The Moroccan economy has reached a turning point in strengthening its

6

competitiveness in high value-added export sectors. Thus, as regards industrialization of the country,

public support for improving mobilization of financing for the productive sectors has been reinforced

over the past few years through targeted and structural reforms. This effort needs to be further enhanced

to achieve the goal of providing financial instruments that meet the needs of the various economic

operators, while ensuring the stability of the financial sector. Furthermore, the agricultural sector in

Morocco contributes significantly to GDP and employment. Through the Green Morocco Plan,

Government policies are designed to encourage innovation and development of agricultural value

chains, as well as greater private sector involvement. To that end, a key strategic area concerns support

for investment in the sector and access to financing for farmers. The proactive Government policy in

this area will need to be further consolidated to meet the challenge of agricultural transformation. To

ensure a better quality of life for the population, the public authorities consider the inclusive aspect of

the financial sector as one of its priorities. Emphasis has been laid on support for sustainability of the

pension system, access to insurance, as well as financial inclusion for smallholders and all segments of

the population through structural reforms and budget allocations. Such efforts need donor support, as

reflected in this programme.

3.3. Consultation and Participation

3.3.1. To enhance ownership of reforms, it is necessary to establish dialogue and participation

frameworks for all citizens. During the PARSIF appraisal, there was wide consultation with

stakeholders, with emphasis on a participatory approach and the involvement of stakeholders and

beneficiaries throughout the process. These various actions in high-quality dialogue with the

Government helped to raise the Bank to the status of partner of choice in Morocco. The Bank’s Office

in Morocco and the Sector Department played a key role in conducting the dialogue.

IV. SUPPORT FOR GOVERNMENT STRATEGY

4.1. Linkages with the Bank’s Strategy

4.1.1. PARSIF complies with the guidelines of the Bank’s CSP for Morocco (2012-2016). It is

also included in the said CSP and is consistent with the guidelines of the Bank’s Ten-Year Strategy

(2013-2022), particularly those relating to private sector development and enhancement of governance

in the financial sector. Furthermore, the programme complies with the guidelines of the Bank’s

Financial Sector Development Strategy (2014-2019), which is anchored on financial inclusion and

deepening of capital markets. The programme will also contribute to the implementation of the Bank’s

five priorities, particularly support for agricultural development by improving farmers' access to

finance, promotion of industrialization by deepening the capital market to provide long-term financing

solutions, initiation of innovation, improvement of the quality of life of the population through better

financial inclusion and raising the minimum pension for retirees, facilitating access to financing for

young entrepreneurs, and strengthening the regional integration of ECOWAS and Moroccan capital

markets.

7

Table 2

Linkages with the PND, CSP and PARSIF

4.2. Compliance with Eligibility Criteria

4.2.1. Morocco fulfils the preconditions for the use of the budget support instrument (TA 1 and 8). The

country enjoys political and economic stability, and the Government’s commitment to conduct reforms has

consistently been demonstrated. At the economic level, Morocco's performance is satisfactory, thereby reflecting

efforts made to consolidate the macroeconomic framework and implement reforms aimed at strengthening

competitiveness and diversifying the productive base of the economy, social inclusion and regional development.

On the Bank’s internal rating scale, Morocco is ranked "Very Low Risk" with a "Stable Outlook". At the technical

level, Morocco also meets the fundamental prerequisites relating to the existence of a medium-term programme,

the public finance management system, and institutional capacity.

4.3. Collaboration and Coordination with Other Partners

4.3.1. Collaboration and coordination with TFPs meet the guidelines of the Paris Declaration on Aid

Effectiveness in jointly undertaking missions and developing a joint matrix of measures for budget support in

co-financing. Given the different schedules and slippages due to the different fiscal years of interventions of the

various partners, the parallel programme approach has been adopted for other programmes, such as PARSIF. In

the latter case, sustained dialogue, particularly with the World Bank has, in the absence of a joint matrix of

measures, helped to harmonize reform measures in common intervention areas, particularly the financial sector

stability component and sustainability of pension plans. The Bank’s Field Office in Morocco (MAFO) plays a

key role in strengthening dialogue with the Government and other TFPs.

4.4. Linkages with Other Bank Operations

4.4.1. The Bank is a leading development partner in Morocco. Its active portfolio in the country comprises

thirty-seven (37) ongoing operations for net commitments of about UA 1.71 billion. The loans amount to UA

1.61 billion (99.7%) for fourteen (14) projects and programmes with an average amount of approximately UA

142 million per operation. The portfolio covers seven (7) intervention sectors, with energy accounting for 45.5%

of the commitments and a strong concentration of interventions in infrastructure (96%). The other sectors are:

transport (21%), water and sanitation (13.1%), agriculture (8.1%), industry (9.2%), multi-sector operations

(4.1%), and the social sector (0.1%). The portfolio also includes two (2) non-sovereign operations (a loan to the

CSP 2012-2016 & 2015 Growth

Diagnostic

Government’s Economic and Social Programme

2012-2016

PARSIF’s Intervention Thrusts

Pillar I: Strengthen the unified

national identity

Pillar II: Consolidate the rule of

law, advanced regionalisation and

good governance

Pillar III: Put a competitive and

diversified economy in place

Pillar IV: Develop and implement

social programmes

Pillar V: Consolidate Morocco’s

international position

CSP Pillar I: Governance

=> Improve the

competitiveness of the economy

and create jobs; improve

efficient public resource

utilization

CSP Pillar II: Infrastructure

=> Essential factors of

production: water, energy and

transport.

Diagnostic :

Constraints :

=> Youth financing

=> Agricultural financing

=> Start-up funding

=> Financial inclusion

I. Pension and insurance

II. Banking sector and the

capital market

I.1. Viability of the pension

scheme and stability of

insurance

I.2. Extension of insurance

and pension coverage

I.3. Improvement of service

quality

II.1. Financial sector stability

II.2. Financial sector

inclusion

II.3. Agriculture, youth and

innovative business financing

Access to financing

8

Moroccan Phosphates Authority and equity participation in Argan Fund for Infrastructure Development) for a

total UA 177 million. The overall performance of the Bank's portfolio remains generally satisfactory, with an

average overall score of 2.46 on 3 in 2015. This score has been stable since 2012. Furthermore, the Bank closely

monitors the portfolio so as to anticipate implementation problems and take appropriate actions to ensure

compliance with the current guidelines. It should also be noted that, in addition to the Bank, Morocco's main

financial partners are: the World Bank (WB), the European Union (EU), the European Investment Bank (EIB)

and France, which all have an equivalent commitment level (about UA 1.5 to 1.8 billion).

4.4.2. PARSIF is a support vector for other Bank operations in Morocco. As such, its impact will

consolidate the gains achieved, particularly from previous phases of PADESFI which have improved the

financial inclusion of households and micro-businesses, as well as enhanced the governance framework of the

financial sector (TA2). In particular, compared to PADESFI, PARSIF seeks to boost institutional investors such

as insurance companies and pension funds so that they can play a greater role in financing the economy and

improving its inclusiveness. Furthermore, PARSIF supplements and increases the impact of other ongoing Bank

operations, particularly pension coverage for micro-entrepreneurs (or self-employed workers) whose status was

included in PACEM, and funding for smallholders – which also complements the two phases of the PMV support

programme. The same applies to PAGPS under preparation for 2016, particularly through the strengthening of

ACAPS which has supervisory authority over the Mandatory Health Insurance (AMO), and through

complementarity between pension schemes and AMO to improve the people’s quality of life. In general,

PARSIF’s impact on the business environment, particularly as regards funding, constitutes a support vector for

other Bank operations, as well as for reform and investment projects. Through these operations, the Bank seeks

greater complementarity and synergy. Lastly, at regional level, PARSIF and PAMSFI (Tunisia), prepared

simultaneously, contribute to strengthening and harmonizing Bank operations in financial sector development in

the North Region (ORNA).

4.4.3. Linkages with technical assistance projects: Like the PADESFI, PARSIF will benefit from

significant leverage effect through institutional support financed by TSF/MIC grants, by: (i) strengthening

financial market supervision and control; (ii) improving the national guarantee system information and risk

management framework; (iii) giving greater visibility to the regulatory and legislative framework of the sector

through preparation of the Moroccan Monetary and Financial Code; and (iv) enhancing the effectiveness of the

Treasury debt management institutional framework. As regards regional integration, PARSIF will also benefit

from the Bank's initiative to network African stock exchanges. These different actions for high-quality dialogue

with the Government helped to raise the Bank to the status of partner of choice in the financial sector in Morocco.

4.4.4. With respect to lessons learned from previous operations, the Bank has financed several budget

support programmes in Morocco, including the PADESFIs in which the country scored high in terms of good

implementation performance and strong ownership of agreed measures by the authorities. However, the reforms

are somewhat uncoordinated and should be included in a strategic framework that would give more visibility and

generate more impact, hence the PARSIF measure on developing a financial inclusion strategy. The importance

of a programme-based approach and the need for technical assistance and inter-sector approach for better synergy

of Bank operations should be retained as lessons. Lastly, mention should be made of the long delays attributable

to the political will to conduct the reforms within a participatory framework with all stakeholders. PARSIF’s

design took these lessons into account, retaining only structural measures that have reached an appropriate level

of maturity, and maintaining dialogue on all agreed reforms to ensure effective implementation.

9

Table 3

Lessons from Previous Bank Operations

Use the programme-based approach to consolidate reforms that

take time to implement, and allow policy makers to have good

visibility on the financial resources of Bank and TFP support.

PARSIF is carrying out some PADESFI flagship activities to consolidate

and deepen achievements, and ensure full implementation of the reforms.

Furthermore, in 2017, another programme could be designed using the

same approach.

Support the implementation of reforms through technical assistance

which, in particular, will allow for better understanding and

definition of some instruments or acceleration of reforms

implementation.

PARSIF will benefit from technical assistance through PADESFI, as

well as new technical assistance projects, particularly support for

financial stability and financial inclusion.

Importance of an inter-sector approach for complementarity and

synergy in Bank operations.

PARSIF includes financing support for farmers, and thus complements

PAPMV. This also applies to pension and improving the people’s quality

of life with PAGPS.

4.5. Analytical Work Underpinning the Operation

4.5.1 PARSIF’s appraisal benefited from the results of analytical work undertaken by the Bank and

the country itself, as well as other external agencies and partners. This mainly includes the Morocco Growth

Diagnostic/2014 undertaken by the Bank and the Report on the Financial Sector Stability Assessment

Programme (FSAP 2015). The table in TA 9 includes a list of the main analytical works.

V. THE PROGRAMME

5.1. Programme Aim and Objectives

5.1.1. PARSIF aims to help create conditions for strong economic and inclusive growth by

strengthening financial sector stability and inclusion. As part of the structural reforms undertaken for the past

twenty years and supported by several Bank programmes (PASFI and PADESFI), PARSIF seeks to consolidate

and deepen the key achievements of the programmes by integrating new priorities, particularly ensuring

sustainability of the pension sector and improving pensioners’ living conditions, as well as enhancing access to

financing for some farmers. In this regard, PARSIF’s specific objective is to strengthen the resilience and role of

the entire financial sector in private sector development and improvement of the people’s quality of life.

5.2. Programme Components

5.2.1. The programme is designed around two main pillars: (i) strengthen the capacity and role of

traditional institutional investors (pension funds and insurance companies) in financing the economy by

improving the sustainability of pension plans, and upgrade the insurance sector while improving inclusion in both

sectors, (ii) operationalize the reforms adopted over the past few years and strengthen banking and financial

market stability and inclusion, in line with the 2015 FSAP recommendations. Consequently, the programme

is divided into two components. The first component seeks to build the resilience and role of the insurance and

pension sectors in improving the quality of life of the population. For its part, the second component aims to

strengthen the stability and role of the banking and capital markets sector in improving the people’s quality of

life. The measures supported by the programme are outlined in the reforms matrix (Annex 2).

COMPONENT I: STRENGTHENING OF THE STABILITY AND ROLE OF THE INSURANCE

AND PENSION SECTORS IN PRIVATE SECTOR DEVELOPMENT AND THE IMPROVEMENT

OF THE PEOPLE’S QUALITY OF LIFE

5.2.2.0. The reforms under this component mainly seek to: (i) provide the population and private sector with

a more transparent and more open institutional and regulatory framework for insurance activities and

pension plans capable of providing sustainable coverage for their pensions; and (ii) improve the population’s

access to insurance products and the quality of pension services.

10

Sub-component 1.1: Strengthening the Stability of the Insurance and Pension Sectors

Problems and Constraints

5.2.2.1. The insurance sector is governed by a legal and institutional framework that is about fifteen years

old, and is therefore not fully aligned on current international standards as well as new products and distribution

mechanisms. Hence, there is need to overhaul the 2002 Insurance Code so as to strengthen sector governance,

and promote diversification and access to insurance products.

5.2.2.2. The pension sector shows a gradual deterioration of demographic ratios, which are the source of

persistent medium-term financial imbalance: insufficient contributions compared to steady increase in benefits.

The financial situation of the civilian pension scheme managed by CMR has recorded technical deficit since

2014, according to the actuarial study1 conducted by the Government; apart from CMR, the situation of other

pension funds will worsen further if the Government does not urgently take decisions and implement major

reforms to ensure sustainability and viability of pension plans, to enable them to continue providing pension

benefits to their retirees.

Recent Measures Taken by the Government

5.2.2.3. As regards the insurance sector, the Government has upgraded the legal and institutional

framework by strengthening prudential and governance rules, and introducing new products. To that end, the

Insurance Code will be revised. Similarly, the supervision and control of the sector was recently entrusted to an

independent authority with extensive powers, in line with international standards. Thus, the Insurance and Social

Welfare Control Authority (ACAPS) has been established, and its Chair appointed recently. In addition, the

ACAPS Board has held its first meeting to mark the effective start of the Authority’s activities.

5.2.2.4. With respect to the pension sector, a National Tripartite Commission (Government-Trade

Unions-Employers), chaired by the Head of Government, was established to reflect on a comprehensive

reform of the sector. The Commission approved a reform plan based on two pillars: (i) urgent parametric reform

of the civil servants pension plan governed by CMR to ensure its viability; and (ii) a two-pole pension system:

one public, comprising CMR and RCAR, and the other private comprising mainly the CNSS; each system will

have a mandatory basic plan and a supplementary plan.

Programme Activities

5.2.2.5. In the insurance sector, measures will be taken to strengthen the supervisory mechanism and the

framework governing the sector through the Council of Government’s adoption of the Bill amending and

supplementing Law No. 17-99 on the Insurance Code (condition precedent to Board presentation) to strengthen

governance, transparency and compliance with prudential rules in the insurance sector, as well as introduce

Islamic insurance.

5.2.2.6. As regards the pension sector, the programme seeks to reinforce the sustainability of pension

plans by implementing the following measures: (i) Council of Government’s adoption of the Bill amending and

supplementing Law No. 011.71 of 12 Kaâda 1391 (30 December 1971) (condition precedent to Board

presentation) to reinforce sustainability of the civil servants pension plan by implementing the parametric reform

(contributions, annuities, basis); (ii) Council of Government’s adoption of the Bill amending and supplementing

law No. 012.71 of 12 Kaâda 1391 (30 December 1971) (condition precedent to Board presentation) to reinforce

sustainability of the civil servants pension plan by raising the retirement age limit.

1 Reports of the Court of Auditors.

11

5.2.2.7. Expected outcomes: Implementation of the programme measures is expected to achieve the following

outcomes: (i) reduction in the loss ratio of the insurance sector from 72.5% in 2015 to 70% in 2017; (ii) technical

deficit of the CMR scheme limited to MAD 3.14 billion in 2017; and (iii) reserves of at least MAD 81.15 billion

in 2017.

Sub-component 1.2: Strengthening of Inclusion in the Insurance and Pension Sectors

Problems and Constraints

5.2.2.8. In the insurance sector, a Programme Contract prepared by all the stakeholders (Government

and private sector) was signed in 2011 mainly to expand coverage of the population and workers. In this regard,

special emphasis was laid on the importance of the insurance product diversification and distribution

components. The objective is to offer a greater variety of products and facilitate the population’s access to such

products. However, the diversification of insurance products and distribution channels can be efficient and

transparent only if conducted within a regulated framework. Therefore, one of the major challenges is to establish

a framework for new products and new distribution niches.

5.2.2.9. In the pension sector, all pension plans combined cover only 36% of the workforce. Consequently,

one of the major challenges is to significantly increase this proportion so as to improve the people’s quality of

life. For public sector retirees, the minimum pension does not exceed MAD 1 000. Furthermore, since retirees

constitute one of the most vulnerable segments of the population (fragile physical condition under the weight of

age and greater exposure to disease, income lower compared to that of workers, etc.), it is necessary to make

more efforts to improve their living conditions. In particular, everything should always be done reduce their

movement by ensuring their proximity to pension services (issuance of administrative documents, such as life

certificates, access to their pension, etc.).

Recent Measures Taken by the Government

5.2.2.10. The Government recently adopted the new status of “auto-entrepreneur”. This decision gives a

large part of the population, particularly self-employed persons, a legal status with greater access to the financial

system, including pension and other social benefits. Furthermore, as regards services provided to pensioners, the

various pension funds have taken action to improve the quality of their services, particularly by providing retirees

with access to banking services, offering consultation online or by telephone, and opening bank branches in the

interior. As part of the move to revise the Insurance Code, the Government also intends to open new windows

for the distribution of insurance products.

Programme Activities

5.2.2.11. To expand access to the pension system and insurance services, the programme provides for

implementation of the following actions: (i) Council of Government’s adoption of the Bill establishing a pension

plan for professional categories, as well as self-employed and non-employed persons engaged in a liberal activity,

(ii) Council of Government’s adoption of the Bill amending Law No. 17-99 on the Insurance Code (Book IV) to

expand the distribution of insurance products to the distance selling system by finance companies, and extend

the list of products sold by banks.

5.2.2.12. To improve the living conditions of pensioners, the programme provides for the implementation of

the following measures: (i) Council of Government’s adoption of the Bill amending and supplementing Dahir

No. 1.77.216 of 4 October 1977 to create a group pension benefit plan so as to increase the minimum pension

threshold from MAD 1,000 to MAD 1,500; (ii) expansion of the CMR geographic coverage network and

introduction of e-CMR online services for members; (iii) CMR Board’s adoption of a resolution to support the

provision of banking services to civil servants pensioners without access to such services.

12

5.2.2.13. Expected outcomes: Activities proposed are expected to achieve the following outcomes: (i) increase

in the insurance penetration rate from 3.1% in 2015 to 3.3% in 2017; and (ii) improvement in the pension

coverage rate from 36% in 2015 to 40% in 2017.

COMPONENT II: STRENGTHENING THE STABILITY AND ROLE OF THE BANKING

SECTOR AND CAPITAL MARKETS IN PRIVATE SECTOR DEVELOPMENT AND THE

IMPROVEMENT OF THE PEOPLE’S QUALITY OF LIFE

5.2.3.0. The reforms under this component mainly seek to: (i) provide the population and the private sector with

an institutional and regulatory framework for banking activities, as well as more transparent and more open

capital markets; and (ii) improve access by the population and companies to financial services offered by the

banking sector and capital markets.

Sub-component 2.1: Strengthening the Stability of Banking Sector and Capital Markets

Problems and Constraints

5.2.3.1. Given the multiplicity and volume of reforms over the past few years, all backed by the Bank,

many laws have been adopted. However, their operationalization (decrees, orders) is not fully effective, hence it

is impossible to implement them. Furthermore, in light of the conclusions of the 2015 FSAP and the need to

adapt to constantly evolving international standards, particularly as regards risk management and prevention, as

well as respond to new needs at the national level to improve financing of the economy within a more conducive

business environment, it is necessary that further reforms be undertaken. Lastly, some new challenges -

particularly in the area of gender and regional integration - must be appropriately addressed. With respect to

gender, a study conducted by the Bank has demonstrated the importance of women's representation on the boards

of directors of companies. Therefore, it is important to take this into account in financial sector reforms.

Recent Measures Taken by the Government

introduced major provisions, particularly with regard to the supervision of financial conglomerates, participatory

finance, as well as coordination and monitoring of systemic risks with the establishment of a committee (a

federating collegial body) for that purpose, in addition to financial system regulators and the Ministry of Economy

and Finance, which is responsible mainly for detecting systemic risks and coordinating crisis resolution measures.

Operationalization of this law is underway. The reform of the status of the Bank of Morocco (BAM), which is

being adopted, should give the Central Bank the primary responsibility for macro-prudential supervision. In light

of the FSAP recommendations, it also became necessary to increase BAM’s financial stability prerogatives with

respect to the provision of emergency liquidity. To enhance the quality of banking and financial institution

governance, BAM has introduced the obligation for institutions to have two independent members on their

boards of directors. This marks a major progress in terms of compliance with gender equality for such boards.

Lastly, to improve the efficiency of credit activity, reflection has been initiated by the National Business

Environment Committee (CNEA), with support from the IFC, EBRD and FMA, to reform the chattel securities

system by improving the transparency of its legal framework and creditors’ visibility, and setting up a share

pledge register based on a computerized platform.

5.2.3.3. As concerns the capital market, the law establishing the Morocco Capital Market Authority

(AMMC) was published in the Official Gazette, and its Chair recently appointed. However, full

operationalization of the Authority’s new prerogatives as stipulated in the law in particular requires the adoption

of the Order approving the general regulations of the Authority. The new law on capital investment has been

adopted, but its implementing decree must be issued before it becomes operational. Currently, the securities

lending activity is still limited to residents. It should be opened to non-residents in line with international practice,

hence the need to amend the relevant Bill. Although the Treasury actively manages its debt, the yield curve is

based on fairly staggered transactions, which reduces its reliability. Now that the Treasury has a trading room

with an e-listing system, the quality of the yield curve is expected to improve.

13

5.2.3.4. With respect to regional integration, Morocco has achieved a breakthrough into the financial

sector in Sub-Saharan Africa. Regarding capital markets, a Cooperation Memorandum was signed recently

between the Casablanca Stock Exchange and the WAMU Regional Stock Exchange (BRVM). A working group

bringing together the key players of the two stock exchanges (regulators, stock exchanges, central securities

depositories, securities companies) was also set up. However, this measure can be truly effective only if it is part

of a more formal institutional framework. In this regard and at a higher level, the Casablanca Stock Exchange

plans to join the West African Capital Markets Integration Council (WACMIC), which brings together all

ECOWAS stock exchanges and seeks to create a regional financial market in ECOWAS.

Programme Activities

5.2.3.5. To strengthen the capital market supervision system, the programme provides for implementation

of the following actions: (i) adoption of a decree by the Minister of Economy and Finance on AMMC General

Regulations; (ii) appointment of members of the AMMC Sanctions Board; and (iii) AMMC concludes its

assessment in line with IOSCO principles and objectives.

5.2.3.6. To improve gender mainstreaming in the financial sector governance system, the programme

envisages the following measures: (i) issue an AMMC Circular to mainstream gender in the annual reports of

listed companies; and (ii) issue a BAM Circular on independent executive directors, which includes compliance

with gender parity for independent board members of banks and financial institutions.

5.2.3.7. To enhance the stability of the banking sector, the programme provides for the following actions: (i)

BAM’s issuance of a Directive on information to be required by credit institutions for consideration of group-

based counterpart credit dossiers; (ii) Council of Government’s adoption of the Bill amending the law on the

status of Bank Al-Maghrib, to strengthen the financial stability prerogatives for BAM’s provision of emergency

liquidity; and (iii) Council of Government’s adoption of the Bill on chattel securities.

5.2.3.8. To diversify the financial instruments, the programme envisages the following measures: (i)

adoption of the decree implementing Law No. 18-14 on OPCC to modernize the investment capital and venture

capital framework so as to facilitate investments in small and new businesses; (ii) issuance, by the BAM, of a

Circular on the specifications of participatory finance products and arrangements for their presentation to

customers.

5.2.3.9. To boost the capital market, the programme intends to implement the following actions: (i) build a

yield curve based on e-listing of treasury bills on the Treasury’s Bloomberg platform; (ii) forward to the SGG

the Bill amending Law No. 45-12 on securities lending so as to improve the rules governing such activities,

mainly by opening it to non-residents; (iii) the Casablanca Stock Exchange’s associate membership in

WACMIC, to strengthen the integration of African capital markets.

5.2.3.10. Expected outcomes: (i) increase in the proportion of credit to micro-businesses from 36% in 2015 to

40% in 2017; and (ii) increase in the market capitalization/GDP ratio from 52% in 2015 to 55% in 2017.

Sub-component 2.2: Strengthening of Inclusion in the Banking Sector and Capital Markets

Problems and Constraints

5.2.3.11. Morocco has made significant progress in financial inclusion, thanks to reforms that led to the creation

of the Postal Bank and the Central Guarantee Fund. The Bank has supported these reforms through the three

PADESFI phases. The bank penetration rate recorded a sharp increase from 35% in 2009 to 64% in 2014, and

the number of MSMEs benefiting from GCC guarantee rose significantly by 518% from 328 in 2010 to 2,027 in

2014. Specific guarantee products for MSMEs have been put in place, including MSMEs run by women. Special

efforts have also been made towards financial education with the creation of the Financial Education Foundation,

which rolled out an induction programme for financial services.

14

5.2.3.12. However, challenges persist, particularly as regards the financing of companies that are being

established and of some sectors, such as agriculture, especially smallholdings. Similarly, the rigidity of the

maximum conventional interest rate limits access to credit for some small businesses. The flow of a significant

amount of cash amounting to MAD 400 billion in the economy is also a burden with a fairly high cost, hence the

need for modernization of payment systems to encourage the use of mobile financial services. Lastly, although

Morocco has achieved significant results in terms of financial inclusion, the initiatives behind these good results

remain uncoordinated and require consolidation, hence the need for a real national financial inclusion strategy.

Recent Measures Taken by the Government

5.2.3.13. The Government and BAM are fully aware of these issues, and have launched initiatives to address

them. As regards agricultural financing, the Government has established a Prudential Stabilization Fund (FSP)

to guarantee up to MAD 100,000 SFDA loans (see TA7) to farmers who have no access to micro-credit (amount

too high) or conventional bank financing (amount too small) with a 80/20 ratio between investment loans and

operating loans. However, this allocation ratio has proved to be disadvantageous for smallholders who rather

need operating credit, hence the need to remove the allocation ratio and leave a 100% open mechanism for

investment and operation. With respect to the financing of business start-ups, the Government is currently

preparing a project to create a start-up fund that will be managed by CCG. Regarding payment systems, BAM

intends to operationalize the provisions of the recent Banking Law on payment institutions and payment services,

as soon as possible. Similarly, it has also initiated reflection on the development of a national mobile payments

solution. To have an overall and more coherent view of financial inclusion, the Government, in collaboration

with BAM, has initiated reflection on the preparation of a National Financial Inclusion Strategy (SNIF), thereby

also meeting one of the 2015 FSAP recommendations.

Programme Activities

5.2.3.14. Regarding the establishment of a financial inclusion strategic framework, the programme provides

for implementation of the following measures: (i) establishment of a governance structure for preparing and

monitoring the implementation of the National Financial Inclusion Strategy (SNIF); and (ii) validation of the

National Financial Inclusion Strategy.

5.2.3.15. To improve financing supply to innovative MSMEs, young entrepreneurs and farmers, the

programme provides for implementation of the following measures: (i) establishment of a start-up fund for young

entrepreneurs and innovative start-ups to be managed by the Central Guarantee Fund (condition precedent to

Board presentation); (ii) amendment of the State/CAM Agreement on the Prudential Stabilization Fund (FSP)

to improve access to financing for farmers by raising the required allocation ratio between the investment credit

and the operating credit under "Tamwil El Fellah" (condition precedent to Board presentation); and (iii) issuance

of an Order by the Minister of Economy and Finance on the revision of the framework for calculating the

maximum conventional interest rate so as to make it more flexible.

5.2.3.16. To facilitate access to mobile financial services, the programme provides for implementation of the

following measures: (i) BAM’s issuance of a Circular on payment institutions and a Circular on payment

services, pursuant to Banking Law No. 103.12 establishing a framework governing payment institutions; and (ii)

launching of a national mobile payments solution.

5.2.3.17. Expected outcomes: Implementation of the programme is expected to achieve the following

outcomes: (i) increase, by at least 54%, in the number of smallholders with access to credit through SFDA (from

52,000 in 2015 to 80,000 in 2017) and doubling of the number of women smallholders (from 1,500 women in

2015 to at least 3,000 women in 2017); (iii) doubling of the volume of SFDA credit to farmers from MAD 640

million in 2015 to MAD 1.2 billion; (iii) at least fifty (50) MSMEs have access to the Start-up Fund resources in

2017; and (iv) increase in the volume of bank card payments from MAD 16.3 billion in 2015 to MAD 19.5

billion in 2017, i.e. by 20%.

15

5.3. Policy Dialogue

This operation is crucial to strengthen dialogue with the authorities on the diagnosis of constraints to

growth and reforms supported in the three PADESFI phases, particularly in terms of improving the

financing of the Moroccan economy in order to meet the challenges of competitiveness and transformation.

Dialogue will be supported by technical assistance operations, in particular support for the preparation of a

financial inclusion strategy and strengthening of financial sector stability. Dialogue with the Moroccan authorities

is being conducted in a transparent and consultative manner, in the same manner as the Bank’s other reform

support programmes. Furthermore, dialogue has already led to significant progress in improving access to

financing for all segments of the population, particularly women and young entrepreneurs. Dialogue will help to

facilitate access to credit for farmers, in coordination with the Green Morocco Plan Support Programme. Policy

dialogue is also conducted within the context of enhanced coordination mechanisms with other development

partners, particularly the World Bank.

5.4. Loan Conditions

5.4.1. Measures precedent: The programme appraisal missions and dialogue with the Government identified

measures precedent to submission of PARSIF to the Board. These measures were selected taking into account

their maturity level, the extensive dialogue on them, as well as their potential impact on the programme’s

medium- and long-term outcomes. The table below summarizes the measures.

Table 4

Measures Precedent Component Measures Precedent

Component I - Strengthening the role of the insurance and pension sectors in private sector development and the

improvement of the people’s quality of life

Measure 1 Council of Government’s adoption of the Bill amending and supplementing Law No. 17-99 on the Insurance

Code, to strengthen governance, transparency and compliance with prudential rules in the insurance sector,

and integration of Takaful insurance before end-June 2016

Measure 2 Council of Government’s adoption of the Bill amending and supplementing Law No. 011.71 of 30 December

1971 to strengthen the viability of the civil servants pension plan by carrying out parametric reform

(contributions, annuities, plate) before end of June 2016

Measure 3 Council of Government’s adoption of the Bill amending and supplementing Law No. 012.71 of 30 December

1971 to strengthen the viability of the civil servants pension plan by raising the retirement age limit before

end-June 2016

Component II - Strengthen the role of the banking sector and capital markets in private sector development and the

improvement of the people’s quality of life

Measure 4 Signing of the management agreement between the State and the Central Guarantee Fund on the

establishment of a start-up fund before end-June 2016

Measure 5 Amendment of the State/CAM agreement on the Prudential Stabilization Fund (FSP) to improve access to

financing for farmers by raising the required allocation ratio between investment loans and operating loans

under "Tamwil El Fellah" before end-June 2016

5.4.2. Application of good practice principles for the application of conditionality: In PARSIF’s design and

formulation and in accordance with the Bank's policy for Programme-Based Support Operations (PSO), the five

good practice principles on conditionality were observed: (i) ownership, given the fact that the programme is

designed with the active collaboration of the authorities; (ii) committed coordination between the TFPs; (iii)

alignment of Bank support arrangements on national priorities; (iv) reduced number of conditions precedent to

Board presentation; and lastly (v) alignment of Bank support on the country’s budget cycle, particularly for the

2016 fiscal year.

5.5. Financing Needs and Mechanisms

5.5.1. According to estimates by the authorities, the financing needs of the Treasury of the Kingdom of

Morocco for 2016 stand at approximately MAD 42.6 billion, i.e. about USD 4.4 billion (see table below).

These needs will be covered by Morocco’s own and external resources. The budget support proposed by the

Bank in 2016 (PARSIF and PAGPS, amounting to UA 165.2 million, and the PAPMV II for USD 55 million)

16

account for nearly 12.5% of the planned external financing needs for one fiscal year (6.8% for PARSIF, 3.4%

for PAGPS, and 2.4% for PAPMV II). Budget support also represents 38% of the balance of payments financing

needs for one year (20.6%, 10.2% and 7.2% for PARSIF, PAGPS and PAPMV II, respectively).

Table 5

Estimated Financing Needs and Sources (in million) 2016

Chapters MAD UA USD EUR

Total revenue and grants 222 155.5 16 293.1 23 092.7 20 251.4 comprising:non-tax revenue (incl. CCG grant and

non-budget support) 27 160.5 1 992.0 2 823.3 2 475.9

Total net expenditure and loans 264 773.7 19 418.8 27 522.8 24 136.4 comprising: public debt repayment 28 284.6 2 074.4 2 940.1 2 578.4 comprising: capital expenditure (*) 53 129.9 3 896.6 5 522.8 4 843.2 Total arrears 0.0 0.0 0.0 0.0 Special Treasury Account Balance 6 000.0 440.0 623.7 547.0 Overall Balance -36 618.2 -2 685.6 -3 806.4 -3 338.1 External financing (without AfDB budget support in

2015) 19 427.6 1 424.8 2 019.5 1 771.0

AfDB external financing (PARSIF) 1 508.0 110.6 156.8 137.5 AfDB external financing (PAGPS) 744.6 54.6 77.4 67.9 AfDB external financing (PAPMV II) 529.1 38.8 55.0 48.2 Domestic financing (net) 14 408.8 1 056.8 1 497.8 1 313.5 Financing 36 618.2 2 685.6 3 806.4 3 338.1 Residual financing gap 0.0 0.0 0.0 0.0

Source: 2016 (2016 Budget Act)

VI. IMPLEMENTATION

6.1. Programme Beneficiaries

6.1.1. The ultimate beneficiaries of the programme are the Moroccan population as a whole,

who will benefit from improvement of the quality of life likely to result from employment- and income-

generating inclusive economic growth. The main project beneficiaries will include: (i) current and future

pensioners, who will benefit from sustainable pension schemes allowing them to regularly collect their

pensions; (ii) self-employed workers, including those active in the informal sector, who will now access

coverage for their retirement; (iii) women, through their greater participation in the boards of directors

of banks and financial institutions as well as easier access to credit for women farmers (individuals or

cooperatives); (iv) the private and semi-public sectors, which will have more access to the resources of

sounder and more dynamic institutional investors (insurance companies and pension funds); (v) farmers,

who will have better access to credit - whatever the nature of their needs (operation or investment); and

(vi) young people, who will be able to better concretize their creativity through improved start-up

financing.

6.2. Expected Impact on Gender, the Poor and Vulnerable Groups

6.2.1 PARSIF supports the enhancement of financial sector inclusion to benefit gender, the

poor and vulnerable groups through : (i) better representation of women in the boards of directors of

banks and financial institutions; (ii) access to more targeted credit for farmers, especially women and

women's cooperatives; (iii) easier access of the population to insurance products; (iv) a more sustainable

coverage and more appropriate financial services for pensioners and pre-retirees, especially the self-

employed; (v) better access to financing for youths; and (vi) easier access to financial services through

the strengthening of regional networks and means of payment.

17

6.3. Impact on the Environment and Climate Change

6.3.1 In terms of climate change, PARSIF is not subject to the AfDB climate safeguards system. The

programme has no potential environmental and social impacts requiring subsequent safeguards

assessment. Thus, PARSIF has been classified under category 3 in accordance with the Bank's environmental

and social procedures.

6.4. Impact in Other Areas

6.4.1 By focusing on improving MSME access to financing, guarantee scheme/risk management

modernization, and enhanced financial sector governance, PARSIF will contribute to the development

of a private sector-friendly environment. Facilitation of MSME access to financing is all the more

important as sector-based strategies such as the industrial strategy and the business climate improvement

action plan have made it central to their priorities. Furthermore, the development of capital markets and

the strengthening of integration of the Casablanca Finance City with other centres, in particular those

of ECOWAS, will help to attract new investments and strengthen the activity of institutions operating

on a regional and, in particular, African level.

6.5. Implementation, Monitoring and Evaluation

6.5.1 The programme will be implemented by the Ministry of Economy and Finance through

the Directorate of Treasury and External Finance (DTFE). DTFE has satisfactorily implemented

previous programmes. It also has the capacity to mobilise the various parties involved to ensure better

coordination. It will ensure data collection as well as the coordination of monitoring and evaluation, and

will provide information to the Bank particularly through quarterly reports on the programme's

implementation and audit reports. Lastly, DTFE will forward to the Bank, evidence of fulfilment of

measures precedent as well as evidence on the single tranche disbursement. Supervision missions are

planned during programme implementation to assess progress. The Bank's Field Office will

continuously monitor the implementation of programme reforms. The macro-economic monitoring

framework and the measures matrix agreed will constitute PARSIF’s common monitoring and

evaluation frameworks. At the end of the programme, a completion report will be prepared.

6.6. Financial Management, Disbursement and Procurement

6.6.1. Country Fiduciary Risk Assessment (CFRA). The Country Fiduciary Risk Assessment (CFRA) was

updated in March 2016 during review of completion of Morocco's CSP 2012-2016. It concluded that the

country's overall fiduciary risk level is moderate owing, on the whole, to satisfactory public finance management

processes (three-year programming and budget preparation, budget execution control, management accounting

and reporting, internal audit, external review and audit). The outcomes of PEFA 2016, under preparation, are

expected to be validated and approved by the Government by end-June 2016 at the latest. The weaknesses

highlighted have enabled Morocco to fully engage the implementation of reforms of LOLF 130-13 (Organic

Law on the Budget Act) promulgated on 2 June 2015 (enactment and implementation of the principles and rules

concerning the financial equilibrium of the Budget Act and transparency of public finances, increased role of

Parliament in the budget debate and in the control of public finances, etc.). In view of compliance with their

various effectiveness dates, Morocco, by anticipation, has initiated and/or formalized a good number of the

reforms through statutory and implementing instruments, including the establishment of the PFM control

commission within Parliament.

18

6.6.2. Financial Sector Fiduciary Risk Assessment. The outcomes of the assessment indicate that overall,

arrangements for the administrative, financial and accounting management of public funds of the financial sector

(DAAG/MEF and EEP, in particular the Central Guarantee Fund and the Caisse Marocaine des Retraites –

Morocco Pension Fund) are in place and operational. In addition, all sector entities are systematically audited by

the IGF and their management controlled by the Court of Auditors. Therefore, the sector fiduciary risk level is

moderate.

6.6.3. Financial Management and Disbursement Arrangements. Owing to the nature of the operation

(sector programme financed with budget support), financial resources will be utilised according to national public

finance management rules. In this regard, the Ministry of Economy and Finance will be responsible for managing

the financial resources of the operation.

6.6.4. Disbursement. Budget support, in the form of a loan, will be disbursed in a single tranche to help cover

the current budget deficit, subject to the Borrower’s fulfilment of the general and specific conditions of the

operation. At the Borrower’s request, the Bank will disburse the amount agreed in foreign currency into an

account of the Central Bank of Morocco (Bank Al Maghrib), which will credit the Single Treasury Account

(CUT) with the equivalent of the funds received in local currency.

6.6.5. Accountability. Yearly, the Government submits the Audited Budget (“Loi de Règlement”) to

Parliament during the first quarter of year n + 2. The Audited Budget is accompanied by a report of the Court of

Auditors on implementation Budget Act and the general statement of compliance between the Kingdom's

management accounts and the general account.

6.6.5. Audit and supervision. PARSIF’s internal audit will be conducted by the IGF, which will carry out a

specific audit on the financial flows of the Bank's support and an audit of PARSIF’s performance. The deadline

for submission of the audit report to the Bank will be six months following the closure of the programme. Given

the moderate sector fiduciary risk level, this programme will be the subject of an annual fiduciary supervision.

6.6.6. Procurement. Since this is a sector budget support operation, the resources will be used to finance

procurements using the national public procurement system. It was necessary to assess the state of the system

and the level of risk associated with its use.

6.6.6.1 Assessment of the risk level for the procurement component of the Country Fiduciary Risk

Assessment (CFRA). When the operation was being prepared, the risk level of the procurement component of

Morocco's fiduciary risk level was updated and re-assessed. As indicated in the CFRA in annex, this risk level of

the procurement component was deemed moderate. The system is characterized by an acceptable level of

transparency and has a functional and reassuring control mechanism with a level of integrity which,

although progressing, requires further improvement.

6.6.6.2 Assessment of procurement practices in the financial sector. It follows from the information

collected from the sample2 of actors in the sector as well as from the various audit reports (including IGF and

Courts of Auditors) that no significant element relating to procurement warrants that the procurement component

of the financial sector fiduciary risk assessment be differentiated from the situation at the national level. However,

public institutions in the financial sector will make the necessary arrangements to fully comply with the regulatory

requirements by publishing the summary procurement audit reports on the public procurement portal. In view

of the foregoing and the details in annex (TA 1), the legal and regulatory public procurement framework,

the institutional framework as well as the fiduciary environment in Morocco, it can be concluded that the

resources of this operation will be used through procedures that are acceptable, clear, transparent and

subject to an effective and reassuring control mechanism.

2 Comprising the Ministry of Economy and Finance, CGC, AMMC (fmr. CDVM) CMR and the Exchange Office, etc.

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VII. LEGAL INSTRUMENTS AND AUTHORITY

7.1. Legal Instruments

7.1.1. The Bank (AfDB) will sign a loan agreement with the Kingdom of Morocco in the amount of UA

110.6 million or USD 157 million, for PARSIF’s implementation.

7.1.2. Conditions precedent to loan effectiveness. Loan effectiveness shall be subject to fulfilment of the

conditions stipulated in Section 12.1 of the General Conditions Applicable to Loan Agreements.

7.2. Conditions Associated with the Bank's Intervention

7.2.1. Conditions precedent to presentation of PARSIF to the Boards. By mutual agreement with the

Government at the time of programme appraisal, it was agreed that the conditions precedent indicated in point

5.3.3 (Table 4) would be fulfilled before presentation of the programme to the Bank's Board of Directors.

7.2.2. Conditions precedent to disbursement: The disbursement of the single tranche of the loan,

amounting to USD 157 million, shall be subject to fulfilment of the following condition:

Forward to the Bank evidence of the existence of a Treasury account opened with Bank Al Maghrib

acceptable to the Bank and intended to receive the loan resources.

7.3. Compliance with Bank Group Policies

7.3.1. PARSIF has been prepared in accordance with current Bank Group guidelines, especially the

Policy on Programme-based Operations.

VIII. RISK MANAGEMENT

8.1 The Government has taken the necessary measures in order to anticipate and respond quickly

and efficiently to the major risks that are likely to affect the achievement of PARSIF outcomes.

Table 6

Risks and Mitigation Measures Risks Mitigation Measures

(i) An unfavourable international

economic environment, particularly the

persistent slow-down in economic growth

in the Euro area, on which the Moroccan

economy greatly depends.

Gradual opening up, beyond the main EU partner, to economic zones with higher

growth potential (Africa, Russia, China, India, etc.)

Financial Stability Committee (BAM, AMMC, ACAPS) to prevent systemic risks in

the financial sector

IMF Precautionary and Liquidity Line (PLL) for an amount equivalent to SDR 3.2351

billion to restore the country's fiscal and external headroom, if necessary, and which

should be renewed for 2 years from 30 July 2016 following ongoing discussions with

the IMF.

(ii) A weakening political will to

implement PARSIF’s measures due to

other policy priorities at their expense.

High-level commitment to implement the reforms, given that PARSIF’s expected

outcomes are fully in sync with the Government's programme. Moreover, reforms

were the subject of serious dialogue with the various stakeholders.

(iii) Unpredictable changes in climatic

conditions, which affect the performance

of the agricultural sector and, therefore,

GDP growth.

Strong commitment by the Moroccan authorities not only to diversify to reduce the

economy’s dependence on agriculture, but also to modernise agriculture to reduce its

dependence on rainfall through implementation of the Bank-supported Green Morocco

Plan.

IX. RECOMMENDATION

In view of the foregoing, it is recommended that the Board of Directors approve a loan of USD 157 million to

the Kingdom of Morocco to finance the implementation of the Financial Stability and Inclusion Strengthening

Support Programme (PARSIF), for the purposes and according to the conditions set out in this report.

Annex 1:

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LETTER OF DEVELOPMENT POLICY

v

TO

The President

of the African Development Bank

Subject: Letter of Development Policy on the Financial Stability and Inclusion Strengthening Support Programme (PARSIF).

Mr. President,

During the past two decades, the Kingdom of Morocco has resolutely engaged the process to modernize its financial sector in order to support the country’s economic and social development. The outcomes have mostly included the improvement of financial inclusion and access to financing for small- and medium-sized enterprises (SMEs), strengthening of the role of the capital and financial market in financing the economy, and consolidating the financial sector control and supervision framework to ensure its robustness, durability and stability. These reforms have helped to build a modern financial sector complete with the main financial instruments and institutions of the market, and a solid base of institutional investors.

The Government desires to carry on financial sector modernisation and development efforts, and to reach a new milestone in this process by capitalizing on these achievements. It is our hope that the African Development Bank will again support us in this new phase of reforms as it did successfully during previous financial sector development programmes.

The new government financial sector modernisation programme has the following main objectives:

1- Strengthen the role of the insurance and pension sectors in improving the people’s quality of life;

2- Strengthen the role of the banking sector and capital markets in private sector development, and in improving the people’s quality of life.

These objectives have been reflected in the following two pillars of the development programme proposed for support by the African Development Bank.

KINGDOM OF MOROCCO

MINISTRY OF ECONOMY AND FINANCE

THE MINISTER

كة ل مم ية ال غرب م ال

ر وزي ال

Annex 1:

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Pillar 1: Strengthen the role of the insurance and pension sectors in improving the people’s quality

of life

The measures planned in this context are mainly twofold:

Strengthen the resilience of the insurance and pension sectors: this component includes several sub-components, particularly: (i) the operationalisation of the Insurance and Social Security Control Authority (ACAPS) mainly through the appointment of its Chairperson and adoption of its Rules of Procedure; (ii) the amendment of Law No. 17-99 relating to the insurance code, specifically to introduce Takaful insurance and to regulate the marketing aspect of insurance products; and (iii) reform of the civil servants pensions scheme managed by Caisse Marocaine des Retraites (Morocco Pension Fund) (CMR) to introduce a parametric reform of the scheme to strengthen its viability.

Insurance and pension sector inclusion, in particular through: (i) coverage of the self-employed by the National Social Security Fund (CNSS) by including them in the compulsory health insurance (AMO) and pension plan; and (ii) gradual increase in the minimum pension level for public sector retirees (CMR and RCAR) from MAD 1 000 to 1 500.

Pillar 2: Strengthen the role of the banking sector and capital markets in private sector development and in improving the people’s quality of life

Strengthening financial sector governance is one of the objectives of the sector's modernisation process. Achieving this goal requires strengthening the independence and powers of intervention of supervisory authorities. Thus, at the level of the capital market, the Law on the Moroccan Capital Market Authority (AMMC) was enacted in early 2013. This law enshrined the independence of the authority charged with capital market supervision and laid down wide powers, especially with regard to control of all capital market compartments and stakeholders. Operationalisation of the law on the AMMC was initiated with the adoption of the amendment to Organic Law No. 02-12 on the appointment to higher positions, thus elevating AMCC to the rank of strategic organization, just like ACAPS. In addition, full operationalisation of the AMMC Law also presupposes a review of the mode of governance of this Authority, which hinges on the appointment of its chairperson, the appointment of members of its Board of Directors and the adoption of its General Regulations.

In addition, and in order to consolidate the robustness and stability of the financial sector, the draft law on the status of Bank Al Maghrib, which is being finalized, strengthens the independence and governance of BAM and expands its mandate to cover financial stability. On a different level, the establishment of a new system governing chattel securities, aiming to promote a modern and flexible legal system, will allow for better use of the tangible and intangible movable assets of businesses as collateral to access more bank financing.

Cognisant of the role of capital markets in financing the economy and promoting sector policies geared towards the development of key strategic sectors of the economy, the Government has launched a new generation of reforms aiming to diversify financial instruments within a framework that is more efficient, secure and complete with modern market infrastructure.

It is against this backdrop that Law No. 18-14 relating to collective capital investment funds was recently adopted. This law aims to provide solutions for equity and quasi-equity financing for enterprises in general, and SMEs in particular. The main contributions of this law are the broadening of its scope to cover all private equity activities, greater security of the mechanism and enhancement of

Annex 1:

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investor protection, improved financial techniques and promotion of foreign investment in private equity. Enforcement of this law requires, primarily, the adoption of the Decree for its implementation.

In the same vein, establishing the framework governing participatory finance products introduced by the new banking law requires for its operationalisation in particular, the issuance by Bank Al Maghrib of a Circular on the specifications of participatory finance products and terms and conditions of their presentation to clients, bearing in mind that the tax provisions for these products were adopted under the 2016 Finance Law.

Also, and to boost the capital market, amending Law No. 45-12 relating to securities lending is necessary to improve the rules governing this activity with the objective specifically to improve the attractiveness of the Moroccan financial sector to foreign investors.

It is our conviction that these new products are likely to stimulate the capital market and give a new impetus to financial sector development.

In addition, financial inclusion, which aims to contribute to inclusive economic growth, has become a priority thrust of public intervention in the financial sector. In this regard, several measures are planned including mainly: (i) the establishment of a national financial inclusion strategy (SNIF); (ii) the implementation of a seed fund for young entrepreneurs and innovative start-ups; and (iii) the launch of a national mobile payments solution to further improve access to banking services at competitive rates, especially for populations hitherto excluded from the banking system.

Mr President, these are the main thrusts of this new milestone in the ongoing process of reform and modernisation of our financial sector.

Thank you for your valuable support in the implementation of this ambitious programme.

Yours faithfully,

To Mr Akinwumi A. ADESINA President of the African Development Bank CCIA Building - Plateau Avenue Jean Paul II 01 B.P.1387 – Abidjan 01 COTE D’IVOIRE

Annex 2:

Page 1/7

MATRIX OF PROGRAMME REFORM MEASURES 2016-2017

Sub/Componants Measures Targeted Output Indicators

Targeted Outcome

Indicators

Data Sources and Institutions

Responsible

Component I – Strengthening of the stability and role of the insurance and pension sectors in private sector development and in the improvement of the people’s quality of life

Sub-component I.1 – Strengthening of the stability of the insurance and pension sectors

STRENGTHEN

GOVERNANCE,

TRANSPARENCY AND THE

PRUDENTIAL RULES OF

THE FRAMEWORK

GOVERNING THE

INSURANCE SECTOR

Adoption by the Council of Government of the Bill amending and

supplementing Law No. 17-99 on the Insurance Code to strengthen governance, transparency and compliance with the prudential rules of the

insurance sector and integration of Takaful insurance (Islamic insurance)

(*)

Bill No. 59-13 amending and

supplementing Law No. 17-99 on the insurance code is adopted by the Council of

Government before end-June 2016

The claims rate in

the insurance sector drops from 72.5%

in 2015 to 70% in

2017

DS: Letter from the Ministry of

Economy and Finance forwarding the summary record of the Council of

Government having adopted the Bill

amending the insurance code.

IR MEF

ENHANCE THE

SUSTAINABILITY OF THE

CIVIL SERVANTS PENSION

PLAN

Adoption by the Council of Government of the draft law amending and supplementing Law No. 011.71 of 12 Kaâda 1391 (30 December 1971) to

strengthen the viability of the civil servants pension scheme through

integration of parametric reform (dues, annuities, base) (*)

Bill No. 71.14 is adopted by the Council of Government before end of June 2016

Technical deficit of the CMR scheme

limited to MAD

3.14 billion in 2017

Reserves of at least

MAD 81.15 million

in 2017

DS: Letter from the Ministry of Economy and Finance forwarding the

summary record of the Council of

Government having adopted Bill No. 71.14

IR MEF

Adoption by the Council of Government of the draft law amending and supplementing Law No. 012.71 of 12 Kaâda 1391 (30 December 1971) to

strengthen the viability of the civil servants pension scheme by raising the

retirement age (*)

Bill No. 72.14 is adopted by the Council of Government before end of June 2016

DS: Letter from the Ministry of Economy and Finance forwarding the

summary record of the Council of

Government having adopted Bill No. 71.14

IR MEF

Sub-component I.2 – Strengthening of inclusion in the insurance and pension sectors

EXPAND ACCESS TO THE

PENSION SYSTEM AND

INSURANCE SERVICES

Adoption by the Council of Government of Bill No. 99-15 establishing a pension scheme for categories of professionals, self-employed workers

and non-employed persons who are self-employed

Bill No. 99-15 is adopted by the Council of Government before end of June 2016

Rise in the

insurance

penetration rate

from 3.1% in 2015 to 3.3% in 2017.

DS: Letter from the Ministry of Economy and Finance forwarding the

summary record of the Council of

Government having adopted Bill No. 99-15

IR MEF Adoption by the Council of Government of the Bill amending Act No. 17-

99 on the insurance code (Book IV) to extend the distribution of insurance

products to distance, online selling, by financing companies and

extending the list of insurance products marketed by banks

Bill amending and supplementing Law No.

17-99 on the insurance code is adopted by

the Council of Government before end-

2016

DS: Letter from the Ministry of

Economy and Finance forwarding the

summary record of the Council of

Government having adopted the law amending Law No. 17-99

IR MEF

Annex 2:

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IMPROVE THE LIVING

CONDITIONS OF RETIREES

Adoption by the Council of Government of the Bill amending and

supplementing the Dahir relating to Law No. 1.77.216 of 4 October 1977 establishing the Collective Retirement Benefit Scheme to raise the

minimum pension from MAD 1 000 to 1 500

Bill No. 96-15 is adopted by the Council of

Government before end-2016

Rise in the pension

coverage rate from 36% in 2015 to

40% in 2017

DS: Letter from the Ministry of

Economy and Finance forwarding the summary record of the Council of

Government having adopted Bill No.

96-15 IR MEF

Extension of the CMR geographic coverage network to cover the regions

of the Kingdom and the introduction of online services (e-CMR) for CMR

affiliates

CMR has expanded its geographic coverage

and launched e-CMR services before end-

2017

DS: Letter from the Ministry of

Economy and Finance attesting to the

geographic extension and launch of e-CMR for all affiliates

IR MEF Adoption by the CMR Board of Directors of a resolution on support for

access to banking services for the remaining segment of retirees of the

civil servants pension plan without access to banking services

Resolution on support for access to banking

services for the remaining segment of

retirees without access to banking services

taken by the CMR Board of Directors before end-2016

DS: Letter from the Ministry of

Economy and Finance forwarding a

copy of the resolution of the CMR

Board on access to banking services for the remaining segment of retirees

without access to banking services (30

000) IR MEF

Component II - Strengthening of the stability and role of the banking sector and capital markets in private sector development and in the improvement of the people’s quality of life

Sub-component II.1 – Strengthening of the stability of the banking sector and capital markets

STRENGTHEN THE

CAPITAL MARKET

SUPERVISION MECHANISM

Adoption of an Order of the Minister of Economy and Finance on the General Regulations of AMMC

The Order of the Minister of Economy and Finance on the General Regulations of

AMMC is adopted before end-2016

Increase in market

capitalization relative to GDP

from 52% in 2015

to 55% in 2017

DS: Letter from the Ministry of Economy and Finance forwarding the

Order of the Minister of Economy and

Finance on the General Regulations of AMMC

IR MEF

Appointment of the members of the AMMC Sanctions Board Members of the AMMC Sanctions Board

are appointed before end-2016

DS: Letter of the MEF forwarding a

copy of the Decision of the MEF appointing the Chairperson of the

Sanctions Board and a copy of the

record of the AMCC Board of Directors on the appointment of the other

members

IR MEF

The AMMC concludes its assessment relative to the IOSCO objectives

and principles

Assessment of AMMC according to the

IOSCO principles and objectives is conducted before end-2016

DS: Letter of MEF attesting to conduct

of the assessment. IR MEF

Annex 2:

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IMPROVE GENDER

MAINSTREAMING IN THE

FINANCIAL SECTOR

GOVERNANCE MECHANISM

Issuance of an AMMC circular mainstreaming gender in the annual

reports of listed companies

The AMMC circular on annual reports of

listed companies is issued before end-2017

Increase in the

share of credit to MSMEs from 36%

in 2015 to 40% in

2017.

DS: Letter of MEF forwarding the

AMMC circular IR MEF

Issuance of a BAM circular on independent directors, that includes respect

for gender parity among independent directors of banking and financial institutions

The BAM circular on independent directors

of banking institutions is issued before end-2016

DS: Letter of MEF forwarding the BAM

circular IR MEF

STRENGTHEN THE

STABILITY OF THE

BANKING SECTOR

Issuance by BAM of a Directive on information to be required by credit

institutions within the framework of examination of group-based

counterpart credit dossiers

BAM Directive on information to be

required by credit institutions within the

framework of examination of group-based

counterpart credit dossiers end-2016

DS: Letter of MEF forwarding the BAM

Directive

IR: MEF

DIVERSIFY FINANCIAL

INSTRUMENTS

Adoption by the Council of Government of the draft law on the status of Bank Al Maghrib to strengthen the financial stability prerogatives

regarding BAM's emergency liquidity

Draft law on the status of Bank Al Maghrib is adopted by the Council of Government

before end-2017

DS: Letter from the Ministry of Economy and Finance forwarding the

summary record of the Council of

Government adopting the draft law on the status of Bank Al Maghrib

IR MEF

Adoption by the Council of Government of the draft law on chattel

securities

Draft law on reform of chattel securities is

adopted by the Council of Government before end-2017

DS: Letter from the Ministry of

Economy and Finance forwarding the summary record of the Council of

Government having adopted the Bill on

the reform of chattel securities. IR MEF

Adoption of the Decree implementing Law No. 18-14 on Collective

Capital Investment Agencies (OPCC) to modernise the framework for equity and venture capital, to allow investments in small and start-up

companies

The Decree implementing Law No. 18-14

on Collective Capital Investment Agencies (OPCC) is adopted by the Council of

Government before end-2016.

DS: Letter from the Ministry of

Economy and Finance forwarding the records of the Council of Government

having adopted the Decree

implementing Law No. 18-14 on Collective Capital Investment Agencies

(OPCC).

IR MEF

Issuance by BAM of the circular on the technical characteristics of participatory finance products and the terms and conditions of their

presentation to clients

Issuance of the BAM circular on participatory finance products before end-

2016

DS: Letter from the Ministry of Finance forwarding BAM circular on

participatory finance products

IR MEF

REVITALIZE THE

FINANCIAL MARKET

Construction of a yield curve based on e-listing for Treasury bonds on the

Treasury’s Bloomberg platform

A yield curve based on e-listing for

Treasury bonds on the Bloomberg platform

is available before end-2017

DS: Letter of the Ministry of Economy

and Finance attesting to the construction

of a yield curve IR MEF

Forwarding to the SGG of the draft law amending Law No. 45-12 on

securities lending to improve the rules governing the securities lending business, particularly by opening it to non-residents

The draft amendment of Law No. 45-12 on

securities lending is prepared and forwarded to SGG before end-2016

DS: Letter from the Ministry of

Economy and Finance attesting to transmission of the draft amendment of

Law No. 45-12 on securities lending.

IR MEF

Casablanca Stock Exchange’s associate membership in the West African Capital Markets Integration Council (WACMIC), to strengthen the

Casablanca Stock Exchange’s associate membership in the West African Capital

DS: Copy of WACMIC statement reporting membership of the Casablanca

Annex 2:

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integration of African capital markets Markets Integration Council (WACMIC) is

achieved before end-2016.

Stock Exchange in WACMIC

IR MEF

Sub-component II.1 - Strengthening inclusion in the banking sector and capital markets

DEVELOP A FINANCIAL

INCLUSION STRATEGIC

FRAMEWORK

Establishment of a governance structure to prepare and monitor the

implementation of the National Financial Inclusion Strategy (SNIF)

The governance structure for preparing and

monitoring the implementation of the

National Financial Inclusion Strategy is established before end-2016

Increase of at least

54% in the number

of smallholders farmers with access

to credit through

SFDA (from 52 000 in 2015 to at

least 80 000 in

2017) and doubling

of the number of

women

smallholders farmers (from 1500

in 2015 to at least 3

000 in 2017).

Doubling of the

volume of credit granted by SFDA

to smallholders

from MAD 640 million in 2015 to

at least MAD 1.2

billion in 2017

At least 50 MSMEs

have access to the

resources of the Fund for start-ups

in 2017

20% increase in

volume of card payments in 2017

relative to 2015

(from MAD 16.3 billion in 2015 to

MAD 19.5 billion

in 2017)

DS: Letter from the Ministry of

Economy and Finance attesting to the

establishment of a governance structure IR MEF

Validation of the national financial inclusion strategy The National Financial Inclusion Strategy is

validated before end-2017

DS: Letter from the Ministry of

Economy and Finance attesting to the

validation of SNIF IR MEF

IMPROVE THE OFFER OF

FINANCING TO

INNOVATIVE MSMES,

YOUTH AND FARMERS

Establishment of a fund for start-ups for young entrepreneurs and

innovative start-ups under management by the Caisse Centrale de Garantie (Central Guarantee Fund) (*)

The fund management agreement for start-

ups is signed between the State and the Caisse Centrale de Garantie before end-

June 2016

DS: Letter from the Ministry of

Economy and Finance forwarding the management agreement

IR MEF

Amendment to the State/CAM agreement on the Prudential Stabilization

Fund (FSP) to improve access to financing for farmers by removing the ratio constraint required between the investment credit and operating

credit, within the "Tamwil el fellah" framework (*)

Signing of the amendment to the

State/CAM agreement on the Prudential Stabilization Fund (FSP) before end-June

2016

DS: Letter from the Ministry of

Economy and Finance regarding the

amendment to the FSP agreement

IR MEF / CAM

Issuance of an Order of the Minister of Economy and Finance on the

revision of the framework for calculating the maximum conventional interest rate (TMIC) in order to introduce more flexibility

The Order on the revision of the TMIC is

issued by the Minister of Economy and Finance before end-2017

DS: Letter from the Ministry of

Economy and Finance forwarding the Order of the Minister of Economy and

Finance on the TMIC FACILITATE ACCESS TO

MOBILE FINANCIAL

SERVICES

Establishment of a framework governing payment institutions, through the issuance by BAM of the circular on payment institutions and the

circular on payment services in application of Banking Law No. 103.12

Circulars on payment establishments and payment services are issued by BAM before

end-2016

DS: Letter from the Ministry of Economy and Finance forwarding

copies of BAM circulars

IR MEF

Launching of national mobile payments solutions National mobile payments solution is launched before end-2017

DS: Letter of MEF attesting to launching of the national mobile payments solution

IR: MEF

Annexe 3

Page1/2

Notes on Relations with the IMF

IMF Executive Board Completes the Third Review of the Precautionary and Liquidity Line for

Morocco

Press Release No. 16/26

January 28, 2016

On January 27, 2016, the Executive Board of the International Monetary Fund (IMF) completed the

third and last review of Morocco’s economic performance under a program supported by a two-year

Precautionary and Liquidity Line (PLL) arrangement, and reaffirmed Morocco’s continued

qualification to access PLL resources.

The current two-year PLL arrangement in an amount equivalent to SDR 3.2351 billion (about US$5

billion at the time of approval or 550 percent of Morocco’s quota at the IMF) was approved by the

IMF’s Executive Board in July 2014. (See Press Release No. 14/368). The arrangement supports the

authorities’ program to rebuild fiscal and external buffers and promote higher and more inclusive

growth. It will expire in July 2016. Morocco’s first 24-month PLL arrangement was approved on August

3, 2012, with an access equivalent to 700 percent of the quota, and expired in July 2014.

The PLL arrangement has provided insurance against external risks. The Moroccan authorities are

treating the arrangement as precautionary, as they did with the 2012–14 PLL arrangement, and do not

intend to draw under the arrangement unless Morocco experiences actual balance of payments needs

from a significant deterioration of external conditions.

The PLL, which was introduced in 2011, provides financing to meet actual or potential balance of

payments needs of countries with sound policies, and is intended to serve as insurance or help resolve

crises under wide-ranging situations.

Following the Executive Board discussion on Morocco, Mr. Mitsuhiro Furusawa, IMF Deputy

Managing Director and Acting Chair of the Board, made the following statement:

“Morocco’s overall economic performance has continued to improve in 2015. Strong policy

implementation has helped reduce fiscal and external vulnerabilities and significant progress has been

achieved on reforms. In an environment that remains vulnerable to important downside risks, continued

efforts to move ahead with difficult but necessary reforms will be key for reducing the remaining

vulnerabilities while promoting higher and more inclusive growth.

“Fiscal developments have been positive and consistent with the authorities’ objective to reduce the

deficit to 4.3 percent of GDP in 2015. Substantial progress has been achieved on the subsidy reform,

while support to the most vulnerable has expanded. Now that the draft legislation on the public sector

pension reform has been approved by the Government, its timely adoption by parliament and

implementation will be key.

“Progress has also been made in upgrading the financial policy framework, including implementing

recent Financial Sector Assessment Program recommendations, in addition to implementing Basel III

norms and the new banking law. An important further step should be to finalize the new central bank

law in order to enhance its independence and extend its supervisory and resolution powers. Preparations

for a more flexible exchange rate regime, which will help preserve competitiveness and the economy’s

ability to absorb economic shocks, are progressing well.

Annexe 3

Page2/2

“Morocco’s external position has improved considerably, owing mainly to strong policies, rising

exports in newly developed sectors, lower oil prices, and robust FDI, with reserves reaching a

comfortable level. Structural reforms to improve the business climate and enhance competitiveness

continue to be a priority in order to build on those gains. The implementation of the National Strategy

for Employment will help address constraints in the labor market and reduce unemployment, especially

among the youth.

“The arrangement under the Fund’s Precautionary and Liquidity Line (PLL) remains on track. The PLL,

which the authorities continue to treat as precautionary, has provided Morocco with insurance against

external risks while supporting the authorities’ economic strategy.”