## 1. Infrastructure Spending Efficiency Gap

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### Introduction
- Morocco is scaling up investment infrastructure spending in 2024-2030 for an estimated 11.9 percent of 2024 GDP.
- Model simulations (IMF FSGM / MCDMOD calibration) indicate planned investment would raise productivity and long‑run real GDP, but effects are dampened by high import leakages and private investment crowding-out.
- Higher investment efficiency would raise growth without increasing debt; cost overruns would worsen debt dynamics with no additional output gains.
- Emphasis: strengthen public investment management and carefully manage fiscal risks.

### Past contributions of infrastructure to productivity growth
- Empirical approach:
  - Augmented production function for a panel of 95 countries over 1990-2023.
  - Principal component analysis (PCA) used to construct composite indices of infrastructure quantity and quality (electricity, roads, telecommunications, ports).
- Key empirical findings:
  - Improvements in composite indices accounted for roughly one-fifth of Morocco’s productivity growth since 2005, split nearly evenly between quantity and quality.
  - Sectoral contributions: telecommunications largest, followed by ports.
  - Infrastructure quantity and quality are positive and highly significant drivers of economic growth; combined index provides best model fit.
  - Cross-country evidence: 2025 IMF Fiscal Monitor estimates increasing infrastructure investment by 1 percent of GDP can raise output by about 2 percent in advanced economies and 4 percent in emerging market and developing economies over the long term.
- Sector-specific outcomes and gaps:
  - Electricity:
    - Generation capacity per 1,000 workers ~ half of middle income countries (2011-2023).
    - Generation capacity per 1,000 workers ~ a third of MENAP countries.
    - Electricity quality (share of output transmitted and distributed) has not kept pace with gains in generation capacity and access.
  - Roads:
    - Road density (km/km2) relatively low and broadly stable.
    - Road quality (share of paved roads) improved and is now broadly comparable with MENAP and investment‑grade peers.
  - Telecommunications:
    - Internet access expanded rapidly in late 2010s and now exceeds comparator averages.
    - Telecommunications quality (bandwidth/internet speed) continues to lag; 5G services became operational only in late 2025.
  - Ports:
    - Tanger Med Terminal 1 (2007) and Terminal 2 (2019) expanded capacity; now largest port by container capacity in the Mediterranean and Africa.
    - Container handling per 1,000 workers remains below regional averages, but Liner Shipping Connectivity Index improved.
- Public spending efficiency:
  - Morocco’s infrastructure spending efficiency gap narrowed substantially between 1980 and 2010 and compares favorably to emerging markets, with scope to improve toward the global efficiency frontier.

### Morocco’s 2024–2030 investment program and financing
- Program size and composition (total estimated 11.9 percent of 2024 GDP; MAD 190 billion):
  - Upgrading railways: 6.0 percent of GDP
  - Airports: 2.4 percent of GDP
  - Roads: 0.9 percent of GDP
  - Constructing and renovating stadiums: 2.2 percent of GDP
  - Enhancing urban and tourism infrastructure: 0.5 percent of GDP
- Financing by implementer and level:
  - State-owned enterprises (SOEs): 7.4 percent of GDP (concessional external financing, domestic loans and bonds, and own funds).
  - Subnational governments: 3.2 percent of GDP (bank loans).
  - Central government: 1.4 percent of GDP (within the budget).
  - Note: the 1.4 percent of GDP included in the central government budget is assumed financed 80 percent through domestic financing and 20 percent through external financing; in the FSGM this 1.4 percent is accommodated within the central government budget by reducing other spending.
- SOEs and public investment context:
  - In 2024, SOEs invested over 6 percent of GDP, compared to 5.8 percent by the Treasury (excluding sales of real estate assets).
  - Commercial SOEs invested: mining, energy, and water 3.4 percent of GDP; infrastructure and transport 0.8 percent of GDP; housing and territorial development 0.7 percent of GDP.

### Analytical framework and scenario transmission channels (FSGM / MCDMOD)
- Model: MCDMOD, Morocco-specific calibration of IMF’s Flexible System of Global Models (FSGM); multi-region dynamic general equilibrium model, annual frequency, forward-looking expectations.
- Captures:
  - Short-run Keynesian multiplier channels.
  - Long-run supply-side public capital productivity spillovers.
  - Interactions between fiscal policy, sovereign spreads, and private behavior.
- Results expressed as deviations from a no-investment scenario.
- Main transmission channels:
  - Crowding-out and structural crowding-in:
    - Near-term: public borrowing raises sovereign spreads, increasing real corporate interest rates and crowding out private investment.
    - Medium-term: private investment is crowded-in as public capital accumulation boosts productivity.
  - Import leakage:
    - Assumed μᴳ = 0.60 (60 percent of spending used for imports), so only 40 percent supports domestic output.
  - Productivity spillovers:
    - Public capital raises total factor productivity by entering private production function; supply-side effect dominates after construction and depends on investment efficiency.

### Key implications from model simulations and empirical results
- Planned investment expected to raise productivity and long‑run real GDP, but:
  - High import content (60 percent) reduces domestic output impact (only 40 percent domestic content).
  - Short-term financing pressures and sovereign spread effects can crowd out private investment before crowding‑in.
- Efficiency matters:
  - Higher investment efficiency can increase growth without raising public debt.
  - Cost overruns or weak implementation worsen debt dynamics without commensurate output gains.
- Policy emphasis:
  - Strengthen public investment management and institutional capacity to raise efficiency.
  - Carefully manage fiscal and contingent risks given sizable SOE and subnational financing roles.

*Source: IMF staff note “Infrastructure Spending Efficiency Gap” (March 5, 2026).*

### Model parameters, structural assumptions, and scenario design
- Key parameters and assumptions:
  - A 10 percent of GDP increase in public capital raises TFP by 2.9 percent.
  - μᴳ (Import content of investment): 0.60
  - Λ (Liquidity-constrained households): 0.65
  - Φᴳ (Okun coefficient): –0.50
  - Φᵖ (Unemployment persistence): 0.90
  - Γ (Phillips curve coefficient): 0.18
  - Σ (Sovereign risk sensitivity): 3.00
  - Δᴳ (Public capital depreciation rate): 0.04
  - Exchange rate regime: Managed float against EUR/USD basket
- Consolidated public sector includes central government, subnational governments, and SOEs.
- Total investment: 11.9 percent of 2024 GDP, phased over 7 years 2024-2030, with front‑loading (1.7 percent of GDP in 2024 declining to 1.2 percent of GDP by 2030).
- Two phases:
  - Phase I (2024–2030): construction, front-loaded, peaking 2026–2029, concluding 2030 to coincide with FIFA World Cup.
  - Phase II (post-2030): capital utilization and debt servicing; new investment stops; TFP gains drive growth; debt servicing costs met via user fees.
- Total financing mix (percent of GDP):
  - Domestic bank loans: 6.9 percent of GDP (of which 3.2 percent of GDP corresponds to regional borrowing).
  - Concessional external debt: 1.8 percent of GDP.
  - Domestic bonds and securitization: 1.1 percent of GDP.
  - SOE own funds: 0.8 percent of GDP.
  - Investment accommodated within central government budget by reducing other spending: 1.4 percent of GDP.
- Reinvestment: annual reinvestment starts in 2031 to offset 4 percent capital depreciation per year.
- Five scenarios simulated (deviations relative to no-investment scenario):
  - Scenario A: Baseline.
  - Scenario B: Higher public investment spending efficiency by +20 percent.
  - Scenario C: Lower public investment spending efficiency by −20 percent.
  - Scenario D: Cost Overruns by +30 percent (30 percent higher spending does not lead to higher output).
  - Scenario E: Tax Financing of 4.6 percent of GDP (raise consumption tax effective rates to generate 4.6 percent of GDP).

### Baseline scenario results (Scenario A)
- Growth and productivity:
  - Real GDP raised by 2 percent above the no-investment scenario by 2030.
  - From 2031 onward, productivity spillovers lift long-run output to about 3 percent above the no-investment scenario, primarily via higher TFP.
- Fiscal outcomes:
  - Annual public investment spending widens the fiscal deficit on average to about 1.2 percent of GDP in 2024-2030.
  - Public debt rises by 7–8 percent of GDP through 2030, then begins declining as debt amortization (covered via user-fees) and stronger growth improve the debt ratio.
- Private and external sector:
  - Private investment subdued near term due to crowding out; recovers over medium term as productivity gains materialize.
  - Real exchange rate depreciates due to supply expansion; nominal depreciation minimal under managed float.
  - High import content (μᴳ = 0.60) leads to widening current account deficit in 2024-2030; current account narrows after construction ends in 2031.
- Inflation and interest rates:
  - Inflation modestly rises ~0.1 percentage point short-lived, then falls below steady state until 2034 and stabilizes thereafter.
  - Higher public borrowing raises sovereign risk premium (Σ = 3.00), contributing to higher real corporate interest rates during construction, crowding out private investment through 2030.
  - From 2031, higher TFP improves private returns and raises real private investment.

### Alternative scenario outcomes — key comparative results
- Public investment spending efficiency:
  - Scenario B (+20% efficiency): raises long-run GDP to 3.5–4 percent above the no-investment scenario.
  - Scenario C (−20% efficiency): limits long-run GDP gains to 2.0–2.5 percent above the no-investment scenario.
  - In both B and C, debt peaks at 7–8 percent of GDP above the no-investment scenario.
- Cost overruns:
  - Scenario D (+30% cost overrun): pushes debt 2-3 percentage points of GDP above baseline (Scenario A) by 2034, with GDP gains similar to baseline.
- Tax financing:
  - Scenario E (raise consumption taxes to finance 4.6 percent of GDP): public sector debt is 3-4 percentage points of GDP lower than baseline (Scenario A).
  - Real consumption falls temporarily through 2027; by year 10 growth and investment recover as real interest rates decline.
  - Real GDP in Scenario E is higher than in baseline, partly because lower debt burden results in a lower risk premium.
- Comparative scenario insights:
  - Short-run (3-year) impacts similar across scenarios; medium- and long-term outcomes diverge.
  - Scenario B delivers strongest growth while keeping debt at baseline levels and produces highest crowding in of private investment.
  - Scenario C yields weaker growth for similar debt outcomes relative to baseline.
  - Scenario D results in highest debt and lowest returns; weakest private investment response.
  - Scenario E achieves slightly higher medium-term growth with less debt.

### Key channels, risks, and mechanisms
- Structural factors dampening impact:
  - High import leakage (μᴳ = 0.60), private investment crowding-out, and expectations of future taxation to meet debt servicing limit near-term gains.
- Cost overruns:
  - Especially harmful: raise debt with weak growth payoff.
- Assumption risk:
  - Model assumes user fees post-2030 sufficient to cover debt servicing and maintenance; failure would create fiscal pressures and contingent liabilities.

### Policy recommendations and implementation priorities
- Enhance public sector investment spending efficiency:
  - Strengthen public investment management to maximize GDP and promote higher private investment.
- Prevent cost overruns:
  - Tighten cost controls with independent validation, phased disbursements, and real-time tracking.
- Ensure maintenance:
  - Reinvest to offset depreciation; incorporate higher maintenance costs into budget to protect long-run growth.
- Monitor public debt:
  - Close monitoring and reporting of SOE and subregional debt; consolidated public sector debt may exceed central government statistics.
- Mitigate contingent liabilities:
  - Design user fee structures to at least cover debt servicing and maintenance costs.

### Conclusion
- Morocco’s infrastructure scale-up has significant long-term growth potential conditional on strong implementation.
- Efficient delivery within fiscal constraints could durably raise long-term productivity.
- Essential actions: strengthen public investment management, mitigate cost overrun risks, embed maintenance in the budget, and manage contingent liabilities.

*Source: IMF staff note “Infrastructure Spending Efficiency Gap” (March 5, 2026).*

---

### Health outcomes and system priorities
- Health outcomes:
  - Health-adjusted life expectancy (HALE) at birth: around 62.34 years (up from 60.69 years in 2000).
  - Infant mortality rate: fell from over 28 deaths per 1000 live births in 2010 to below 16 in 2023.
- System capacity constraints:
  - National average density of health workers (2021): 16.09 health workers per 10,000 inhabitants.
  - WHO minimum critical density: 23 medical professionals per 10,000 inhabitants; 45 to achieve SDGs.
  - Hospital bed capacity (2020): 7.3 beds per 10,000 inhabitants; desirable level cited: 20 beds per 10,000 inhabitants.
  - Regional disparities: some regions have only three medical doctors per 10,000 inhabitants.
- Health expenditures and efficiency:
  - Current health spending: around 5.7 percent of GDP.
  - Government health spending: 2.3 percent of GDP.
  - Out-of-pocket spending: around 43 percent of total current health spending (WHO recommended level: 25 percent).
  - Morocco’s estimated efficiency gap in health: around 0.27 (outcomes could be higher by about 27 percent with better efficiency given same public spending).
  - Public health investment: about a fifth of total public health spending; execution rate ~70 percent in recent years.
- Reform agenda and implementation priorities:
  - Universal health care coverage:
    - Unification under Compulsory Health Insurance (AMO).
    - Health insurance coverage increased from 42 percent in 2021 to 88 percent in 2025.
    - Remaining priorities: reach full coverage for informal/non-salaried workers and vulnerable groups; reduce out-of-pocket expenses and regional disparities.
  - Human resources:
    - NDM target: 45 health workers per 10,000 inhabitants by 2035.
    - 2022 Framework Law No. 06-22 and Law No. 33-21 to upgrade careers and incentivize foreign/Moroccan doctors abroad.
    - Expanded training capacity across medical and technical health institutes.
  - Infrastructure and digital health:
    - Modernize hospital infrastructure; expand university hospitals; rehabilitate primary care.
    - Launch integrated health information system and patient-level electronic medical records.
  - Governance and decentralization:
    - Independent High Authority for Health (HAS) to supervise health insurance and quality standards.
    - Territorial health networks (GSTs) to integrate services, plan regionally, and manage resources.
  - Implementation priorities:
    - Fully operationalize HAS; operationalize GSTs (one GST currently in place).
    - Strengthen data systems and unified interoperable health information with mandatory data‑sharing protocols.
    - Safeguard financial sustainability of mandatory health insurance via tighter expenditure control and diversified revenues.
    - Accelerate execution of investment budgets and deployment of health workers in underserved areas.

*Prepared by Asel Isakova (FAD); research assistance acknowledged from Hannah Brown (AFR), Nihal Haider (MCD), and World Bank experts.*

### Education and governance priorities (summary)
- Access and enrollment:
  - Gross primary enrollment: around 115–117 percent.
  - Secondary and tertiary gross enrollment increased by 27 and 34 percentage points of population from 2010 to 2024, respectively.
  - Preschool enrollment for children aged 4 to 5 has increased; preschool enrollment expected to reach 88 percent by 2026–27 and full universalization by 2028.
- Outcomes and challenges:
  - Education attainment low compared to MENA and EM peers.
  - Morocco scores at the bottom of PISA in science, mathematics, and reading; improvements in PIRLS and TIMSS.
  - Systemic challenges: regional inequities; skill mismatches; teacher constraints; governance and efficiency weaknesses; limited decentralization.
- Spending and efficiency:
  - Public expenditure on education: around 6 percent of GDP.
  - Education public spending efficiency gap (2024): roughly 37 percent.
  - Investment execution rate: around 70 percent in recent years.
- Ongoing reforms and objectives:
  - Education Strategic Vision 2015–2030; NDM; Education Roadmap 2022-26.
  - Expand access and equity; accelerate preschool; improve quality and relevance; scale up “Pioneer School” model (expected generalized in 2027–28).
  - Strengthen education infrastructure: construct ~200 new educational establishments per year; rehabilitate facilities; invest in digital equipment.
  - Reform student financial support: shift to direct financial transfers; improve boarding, catering, and school transport.
- Governance challenges and reform recommendations:
  - Constraints: limited financial autonomy of AREFs, complex approval processes, uneven capacity—especially in capital investment and infrastructure management.
  - Progress: integrated financial management information system (GID) deployed at AREFs since June 2025 to strengthen budget execution, transparency, and monitoring.
  - Recommended reforms:
    - Clarify roles and responsibilities across central, regional, and school levels.
    - Streamline procurement and approval processes.
    - Enhance technical capacity of regional education authorities (financial and infrastructure management).
    - Grant greater school-level autonomy linked to performance and accountability.
    - Improve data systems to link resources to learning outcomes.
- Expected outcome:
  - Governance reforms are essential to ensure increased public spending translates into gains in quality, equity, and efficiency.

*Source: IMF staff note “Infrastructure Spending Efficiency Gap” (March 5, 2026).*

### 1. Infrastructure Spending Efficiency Gap ___________________________________________ 5

### 1. Infrastructure Spending Efficiency Gap

### Introduction
- Morocco is scaling up investment infrastructure spending in 2024-2030 for an estimated 11.9 percent of 2024 GDP.
- Model simulations (IMF FSGM / MCDMOD calibration) indicate planned investment would raise productivity and long‑run real GDP, but effects are dampened by high import leakages and private investment crowding-out.
- Higher investment efficiency would raise growth without increasing debt; cost overruns would worsen debt dynamics with no additional output gains.
- The analysis underscores the importance of efficient public investment management and careful management of fiscal risks.

### Past contributions of infrastructure to productivity growth
- Empirical approach: augmented production function for a panel of 95 countries over 1990-2023 using principal component analysis (PCA) to construct composite indices of infrastructure quantity and quality (electricity, roads, telecommunications, ports).
- Key empirical findings:
  - Improvements in the composite indices of infrastructure quantity and quality have accounted for roughly one-fifth of Morocco’s productivity growth since 2005, with contributions split nearly evenly between quantity and quality improvements.
  - Sectoral contributions: telecommunications represent the largest contributor, followed by ports.
  - Infrastructure quantity and quality are positive and highly significant drivers of economic growth; the combined index provides the best model fit.
  - Cross-country evidence cited: the 2025 IMF Fiscal Monitor estimates that increasing infrastructure investment by 1 percent of GDP can raise output by about 2 percent in advanced economies and 4 percent in emerging market and developing economies over the long term.

- Sector-specific outcomes and gaps:
  - Electricity:
    - Generation capacity per 1,000 workers was about half of the average for middle income countries in the period 2011-2023.
    - Generation capacity per 1,000 workers was about a third of the average for the MENAP countries.
    - Electricity quality, measured by the share of output transmitted and distributed, has not kept pace with gains in generation capacity and access.
  - Roads:
    - Road density (length in km/km2 of land) has remained relatively low and broadly stable.
    - Road quality (share of paved roads) has continued to improve and is now broadly comparable with MENAP and investment‑grade peers.
  - Telecommunications:
    - Internet access expanded rapidly in the late 2010s and now exceeds comparator averages.
    - Telecommunications quality (bandwidth/ internet speed) continues to lag; 5G services became operational only in late 2025.
  - Ports:
    - Tanger Med Terminal 1 (2007) and Terminal 2 (2019) significantly expanded capacity.
    - Tanger Med is now the largest port by container capacity in the Mediterranean and Africa.
    - Container handling per 1,000 workers remains below regional averages, but port quality (Liner Shipping Connectivity Index) improved, reflecting better integration into global shipping networks.

- Public spending efficiency:
  - Public spending efficiency refers to how effectively governments convert expenditure into outcomes.
  - Morocco’s infrastructure spending efficiency gap narrowed substantially between 1980 and 2010 and compares favorably to emerging markets, with scope to improve toward the global efficiency frontier.

### Morocco’s 2024–2030 investment program and financing
- Program size and composition (total estimated 11.9 percent of 2024 GDP; MAD 190 billion):
  - Upgrading railways: 6.0 percent of GDP
  - Airports: 2.4 percent of GDP
  - Roads: 0.9 percent of GDP
  - Constructing and renovating stadiums: 2.2 percent of GDP
  - Enhancing urban and tourism infrastructure: 0.5 percent of GDP
- Financing by implementer and level:
  - State-owned enterprises (SOEs) would finance 7.4 percent of GDP of these investments (through concessional external financing, domestic loans and bonds, and own funds).
  - Subnational governments would cover 3.2 percent of GDP (through bank loans).
  - Central government would finance 1.4 percent of GDP (within the budget).
  - Note: the 1.4 percent of GDP included in the central government budget is assumed to be financed 80 percent through domestic financing and 20 percent through external financing; in the FSGM this 1.4 percent is accommodated within the central government budget by reducing other spending.
- Context on SOEs and public investment:
  - In 2024, SOEs invested over 6 percent of GDP, compared to 5.8 percent by the Treasury (excluding sales of real estate assets).
  - Commercial SOEs directed most investments to mining, energy, and water (3.4 percent of GDP), followed by infrastructure and transport (0.8 percent of GDP) and housing and territorial development (0.7 percent of GDP).

### Analytical framework and scenario transmission channels (FSGM / MCDMOD)
- Model: MCDMOD, the Morocco-specific calibration of the IMF’s Flexible System of Global Models (FSGM), a multi-region dynamic general equilibrium model operating at annual frequency with forward-looking expectations.
- The model captures:
  - Short-run aggregate demand effects via Keynesian multiplier channels.
  - Long-run supply-side effects via public capital productivity spillovers.
  - Interactions between fiscal policy, sovereign spreads, and private-sector behavior.
- Results are expressed as deviations from a no-investment scenario (steady state without the public investment shock).

- Main transmission channels in the simulations:
  - Crowding-out and structural crowding-in:
    - Near-term: public borrowing raises sovereign spreads, increasing real corporate interest rates and initially crowding out private investment.
    - Medium-term: private investment is crowded-in as public capital accumulates and boosts productivity, improving private returns.
  - Import leakage:
    - Given the nature of projects (high share of imported goods and equipment), it is assumed that 60 percent of spending would be used for imports; therefore only 40 percent of the spending would support domestic output, dampening the impact on output.
  - Productivity spillovers:
    - Public capital raises total factor productivity by entering the private production function; this supply-side effect becomes the dominant growth driver after construction and depends critically on government investment spending efficiency.

### Key implications from model simulations and empirical results
- Planned investment is expected to raise productivity and long‑run real GDP, but:
  - High import content (60 percent) significantly reduces domestic output impact (only 40 percent domestic content).
  - Short-term financing pressures and sovereign spread effects can crowd out private investment before crowding‑in materializes.
- Efficiency matters:
  - Higher investment efficiency can increase growth without raising public debt.
  - Cost overruns or weak implementation worsen debt dynamics without commensurate output gains.
- Policy emphasis:
  - Strengthening public investment management and institutional capacity to raise efficiency.
  - Careful fiscal and risk management given sizable SOE and subnational financing roles.

*Source: IMF staff note “Infrastructure Spending Efficiency Gap” (March 5, 2026).*

### 0.29 A 10 percent of GDP increase in public capital raises TFP by 2.9

### 0.29 A 10 percent of GDP increase in public capital raises TFP by 2.9 percent, the primary driver of medium-term GDP gains

### Model parameters and structural assumptions
- A 10 percent of GDP increase in public capital raises TFP by 2.9 percent.
- μᴳ (Import content of investment): 0.60 — 60 percent of infrastructure spending is imported, limiting demand multipliers.
- Λ (Liquidity-constrained households): 0.65 — 65 percent of households consume all current disposable income, amplifying fiscal multipliers.
- Φᴳ (Okun coefficient): –0.50 — A 1 percent output gap lowers the unemployment rate by 0.5 percentage points.
- Φᵖ (Unemployment persistence): 0.90 — High labor market persistence delays employment gains.
- Γ (Phillips curve coefficient): 0.18 — Core inflation reacts modestly to the output gap.
- Σ (Sovereign risk sensitivity): 3.00 — A 1 percent of GDP rise in debt raises the risk premium by 3 bps.
- Δᴳ (Public capital depreciation rate): 0.04 — Public capital depreciates at 4% annually consistent with long-lived transport infrastructure.
- Exchange rate regime: Managed float against EUR/USD basket; limits nominal exchange rate adjustment.
- Sources: IMF staff estimates based on Morocco-specific macroeconomic, fiscal, and financial data.

### Scenario design and financing
- Consolidated public sector: includes central government, subnational governments, and SOEs.
- Total investment: 11.9 percent of 2024 GDP, phased over 7 years 2024-2030, with some front-loading.
  - Simulation distribution note: higher public investment in earlier years (1.7 percent of GDP in 2024) and declining to 1.2 percent of GDP by 2030.
- Two phases:
  - Phase I (2024–2030): construction, with investment front-loaded in 2024–2025, peaking during 2026–2029, concluding in 2030 to coincide with the FIFA World Cup.
  - Phase II (post-2030): capital utilization and debt servicing; new investment stops, TFP gains from accumulated capital drive growth, and debt servicing costs are met via user fees on infrastructure.
- Total financing mix (percent of GDP):
  - Domestic bank loans: 6.9 percent of GDP (of which 3.2 percent of GDP corresponds to regional borrowing).
  - Concessional external debt: 1.8 percent of GDP.
  - Domestic bonds and securitization: 1.1 percent of GDP.
  - SOE own funds: 0.8 percent of GDP.
  - Investment accommodated within the existing central government budget by reducing other spending: 1.4 percent of GDP.
- Reinvestment: Annual reinvestment starts in 2031 to offset 4 percent capital depreciation per year.
- Five scenarios simulated (deviations reported relative to a no-investment scenario):
  - Scenario A: Baseline.
  - Scenario B: Higher public investment spending efficiency by +20 percent (TFP of private capital stock is 20 percent higher than baseline with same public investment).
  - Scenario C: Lower public investment spending efficiency by −20 percent (TFP 20 percent lower than baseline with same public investment).
  - Scenario D: Cost Overruns by +30 percent (30 percent higher investment spending does not lead to higher output).
  - Scenario E: Tax Financing of 4.6 percent of GDP (instead of regional borrowing and budget accommodation, raise consumption tax effective rates to generate 4.6 percent of GDP in tax revenues).

### Baseline scenario results (Scenario A)
- Growth and productivity:
  - The investment program raises real GDP by 2 percent above the no-investment scenario by 2030.
  - From 2031 onward, productivity spillovers lift long-run (and potential) output to about 3 percent above the no-investment scenario, primarily via higher TFP.
- Fiscal outcomes:
  - Annual public investment spending widens the fiscal deficit on average to about 1.2 percent of GDP in 2024-2030.
  - Public debt rises by 7–8 percent of GDP through 2030 but begins declining thereafter as debt amortization (covered via user-fees) and stronger growth improve the debt ratio.
- Private sector and external sector:
  - Private investment is subdued in the near term because of crowding out and recovers over the medium term as productivity gains take hold.
  - The real exchange rate depreciates due to the supply side expansion; nominal exchange rate depreciation is minimal under the managed float, so real depreciation translates to lower inflation in the near term.
  - High import content (μᴳ = 0.60) leads to a widening of the current account deficit in 2024-2030; the current account begins to narrow after construction ends in 2031 as exports make further gains.
- Inflation and interest rates:
  - Inflation sees a modest short-lived rise—about 0.1 percentage point—due to demand pressures, then falls below steady state until 2034 and stabilizes thereafter as supply effects are absorbed.
  - Higher public sector borrowing raises the sovereign risk premium (Σ = 3.00), contributing, along with lower inflation, to higher real corporate interest rates during the construction phase, crowding out private investment through 2030.
  - From 2031, higher TFP contributes to improved private returns and raises real private investment.

### Alternative scenario results — key comparative outcomes
- Public investment spending efficiency:
  - Scenario B (+20% efficiency): raises long-run GDP to 3.5–4 percent above the no-investment scenario.
  - Scenario C (−20% efficiency): limits long-run GDP gains to 2.0–2.5 percent above the no-investment scenario.
  - In both B and C, debt peaks at 7–8 percent of GDP above the no-investment scenario.
- Cost overruns:
  - Scenario D (+30% cost overrun): pushes debt 2-3 percentage points of GDP above the baseline (Scenario A) by 2034, with GDP gains similar to the baseline scenario.
- Tax financing:
  - Scenario E (raise consumption taxes to finance 4.6 percent of GDP): public sector debt is 3-4 percentage points of GDP lower than the baseline (Scenario A).
  - Real consumption falls temporarily through 2027 as higher taxes reduce disposable income, but by year 10 growth and investment recover as real interest rates decline.
  - Real GDP in Scenario E is higher than in baseline Scenario A, partly because the lower debt burden results in a lower risk premium.

*Sources: IMF staff FSGM (MCDMOD) simulations and IMF staff estimates based on Morocco-specific macroeconomic, fiscal, and financial data.*

### 18.      In terms of growth, the high public spending efficiency scenario outperforms the

### 1marea2026002-source-pdf - 18.      In terms of growth, the high public spending efficiency scenario outperforms the

### Scenario outcomes and comparative results
- Scenarios referenced: A = Baseline; B = Higher public investment spending efficiency (+20 percent); C = Lower public investment spending efficiency (−20 percent); D = Cost Overrun (+30 percent); E = Tax Financing (4.6 percent of GDP).
- Short-run impacts (3-year horizon) are similar across scenarios, but medium- and long-term outcomes diverge.
- Scenario B (high public spending efficiency):
  - Delivers the strongest growth while keeping debt at baseline levels.
  - Produces the highest crowding in of private investment.
- Scenario C (low efficiency):
  - Yields weaker growth for similar debt outcomes relative to the baseline.
- Scenario D (cost overruns):
  - Results in the highest debt and lowest returns.
  - Produces the weakest private investment response due to persistently high corporate borrowing costs.
- Scenario E (tax financing—raising consumption taxes to accommodate investment equal to 4.6 percent of GDP instead of reducing other spending):
  - Achieves growth slightly higher than in the baseline in the medium term, with less debt.

### Quantitative projections and model findings
- Model simulations show real GDP around 3 percent higher in the long run under the baseline.
- Long-term gains are driven by productivity spillovers from accumulated public capital; debt rises during construction before declining as growth strengthens.
- The Note on Figure 8: Left panels show a 3-year horizon; right panels show a 10-year horizon. Top panels Y-axis: public debt deviation from no-investment scenario (percent of GDP). Lower panels Y-axis: private investment deviation from no-investment scenario (percent).

### Key channels, risks, and mechanisms identified by the model
- Structural factors affect growth impact: near-term growth is supported by higher TFP, but dampened by high import leakages, private investment crowding-out, and expectations of future taxation to meet debt-servicing requirements.
- Cost overruns are especially harmful because they raise debt with a weak growth payoff.
- The model assumes user fees post-2030 are sufficient to cover debt servicing and maintenance costs; failure of that assumption would create significant fiscal pressures and contingent liabilities.

### Policy recommendations and implementation priorities
- Enhance public sector investment spending efficiency:
  - Strengthening public investment management supports greater public spending efficiency; higher efficiency maximizes GDP and promotes higher private investment in the long run.
- Prevent cost overruns:
  - Tighten cost controls with independent validation, phased disbursements, and real-time tracking.
- Ensure maintenance:
  - Reinvest to offset depreciation; higher maintenance costs need to be incorporated into the budget to protect long-run growth.
- Monitor public debt:
  - Close monitoring and reporting of SOE and subregional debt is critical because higher consolidated public sector debt may not be reflected in central government statistics.
- Mitigate contingent liabilities:
  - Adequately design user fee structures to at least cover debt servicing and maintenance costs to avoid materialization of contingent liabilities.

### Conclusion—growth potential conditional on implementation
- Morocco’s infrastructure scale-up presents significant long-term growth potential conditional on strong implementation.
- If delivered efficiently and within fiscal constraints, the large-scale investments planned for 2024–2030 could durably raise long-term productivity.
- Strengthening public investment management, mitigating cost overrun risks, embedding maintenance in the budget, and managing contingent liabilities are essential to safeguard the program’s fiscal sustainability and growth dividend.

*Sources: IMF staff FSGM (MCDMOD) simulations.*

### 1.      The health outcomes of the Moroccan population have improved over time and

### 1.      The health outcomes of the Moroccan population have improved over time and 

### Health outcomes: recent performance
- Health-adjusted life expectancy (HALE) at birth: around 62.34 years, up from 60.69 years in 2000.
- Infant mortality rate: fell from over 28 deaths per 1000 live births in 2010 to below 16 in 2023.
- Comparative assessment: HALE and infant mortality compare well to emerging markets (EM) and MENA peers; infant mortality is lower than in countries across the MENA region but slightly above the average observed in emerging market peers.
- Data sources cited: World Bank Development Indicators; World Health Organization.

### Health system capacity constraints
- National average density of health workers (2021): 16.09 health workers per 10,000 inhabitants.
- WHO minimum critical density: 23 medical professionals per 10,000 inhabitants; 45 to achieve Sustainable Development Goals (SDGs).
- Hospital bed capacity (2020): 7.3 beds per 10,000 inhabitants; desirable level cited: 20 beds per 10,000 inhabitants.
- Regional disparities: some regions have only three medical doctors per 10,000 inhabitants.
- Additional constraints identified:
  - Insufficient human and logistical resources with inadequate regional distribution.
  - Weaknesses in public healthcare provision and public-sector hospital infrastructure.
  - Challenges in redistribution to high-need areas and performance management for staff.
  - Irregular assessment of health facilities.
  - Limited availability and use of data for effective decision-making.
  - Low levels of patient satisfaction.
  - Disconnect between health financing arrangements and service delivery.
- Note: Figures on density of medical workers and hospital beds show latest available data which may vary by country (between 2018 and 2023). Regional data for Morocco is for 2021.

### Health expenditures, efficiency, and budget execution
- Current health spending: around 5.7 percent of GDP.
- Government health spending: 2.3 percent of GDP.
- Out-of-pocket spending: around 43 percent of total current health spending; WHO recommended level: 25 percent.
- Efficiency assessment:
  - Morocco’s estimated efficiency gap in health: around 0.27 (outcomes could be higher by about 27 percent with better efficiency given the same amount of public spending).
  - 2025 IMF Fiscal Monitor suggests spending efficiency in health is better in Morocco than in comparator countries in the MENA region and EMs.
- Public health investment: about a fifth of total public health spending is on investment, with an execution rate of only around 70 percent in recent years.
- Sources cited for figures: WHO, World Bank Development Indicators, IMF Fiscal Monitor (October 2025), national authorities, IMF staff calculations.

### Health sector reforms and implementation priorities
- Reform timeline and support:
  - Comprehensive social protection reform process launched in 2018; integrated in the New Development Model (NDM).
  - Implementation supported by multilateral partners, including the World Bank.
- Key reform areas and milestones:
  - Universal health care coverage:
    - Unification under Compulsory Health Insurance (Assurance Maladie Obligatoire, AMO).
    - Health insurance coverage increased from 42 percent of the population in 2021 to 88 percent in 2025.
    - Remaining priorities: reach full coverage (informal and non-salaried workers and vulnerable groups), reduce out-of-pocket expenses, reduce regional disparities.
  - Strengthening human resources:
    - NDM target: 45 health workers per 10,000 inhabitants by 2035 (consistent with WHO recommended level to achieve SDG).
    - 2022 Framework Law on the National Health System (Law No. 06-22) aims to upgrade and incentivize careers in public healthcare, including paying health workers based on performance and ensuring better complementarity with the private sector.
    - Law No. 33-21 on the practice of medicine introduces incentives to attract foreign doctors and Moroccan physicians residing abroad.
    - Expanded training capacity: increased enrollment in medical, pharmacy, and dental faculties; larger output from nursing and technical health institutes.
  - Infrastructure and digital health:
    - Investments to modernize hospital infrastructure, expand university hospital centers, rehabilitate primary care facilities.
    - Digital health initiatives: launch of an integrated health information system across public and private sectors; patient-level electronic medical records.
  - Governance and decentralization:
    - 2022 Framework Law established a fully independent High Authority for Health (Haute Autorité de la Santé, HAS) to supervise health insurance, define quality standards, and implement accreditation.
    - Creation of territorial health networks (Groupements Sanitaires Territoriaux, GSTs) to integrate primary care centers and hospitals, plan services via regional medical programs, manage resources with regional health maps, and assume governance, financing, and purchasing functions.
- Implementation and sustainability priorities (policy recommendations and operational needs):
  - Fully operationalize the HAS to carry out mandates on cost-effectiveness, quality assurance, and systemwide coordination.
  - Continue improvement in spending efficiency and strengthen governance institutions, including at regional levels.
  - Operationalize GSTs (one GST currently in place).
  - Strengthen data systems, including development of a unified and interoperable health information system with mandatory data‑sharing protocols to reduce fragmentation and improve fiscal risk management.
  - Safeguard financial sustainability of mandatory health insurance via tighter expenditure control, more diversified and robust revenue sources, and better anticipation of fiscal risks.
  - Support timely implementation with a clear communication strategy clarifying the AMO model, financing, co‑payment structure, and reimbursement rules to manage expectations and rebuild trust.
  - Accelerate execution of investment budgets and deployment of health workers, especially in underserved areas, to translate reforms into tangible and equitable improvements in service delivery.

### Education: key findings and reform agenda (summary of adjacent section)
- Access and enrollment:
  - Gross primary enrollment: around 115–117 percent.
  - Secondary and tertiary gross education enrollment increased by 27 and 34 percentage points of population from 2010 to 2024, respectively.
  - Preschool enrollment for children aged 4 to 5 has increased.
- Outcomes and challenges:
  - Education attainment remains low compared to MENA and EM peers (mean years of schooling and share completing upper secondary or some post‑secondary education).
  - Morocco scores at the bottom of international PISA assessments in science, mathematics, and reading, though improvements seen in PIRLS and TIMSS.
  - Identified systemic challenges: persistent regional inequities; skill mismatches with higher education concentrated in social sciences; teacher constraints (incentives, training, absenteeism); governance and efficiency weaknesses at regional, provincial and school levels; limited decentralization.
- Spending and efficiency:
  - Public expenditure on education: around 6 percent of GDP.
  - Education public spending efficiency gap (2024): roughly 37 percent (education outcomes could be 37 percent higher if resources used more efficiently).
  - Investment execution rate: around 70 percent in recent years, particularly low in higher education, scientific research and innovation.
- Ongoing reforms (Education Strategic Vision 2015–2030; NDM; Education Roadmap 2022-26):
  - Expand access and equity (preschool expansion, boarding/catering, school transport, targeted financial support).
  - Accelerate universal preschool education: enrollment expected to reach 88 percent by 2026–27, ahead of full universalization by 2028.
  - Improve quality and relevance: teacher training, assessment systems, updated curricula, vocational education modernization, promote STEM and innovation tracks.
  - Scale up “Pioneer School” model: expected to be fully generalized in 2027–28.
  - Strengthen education infrastructure: construct around 200 new educational establishments per year; rehabilitate facilities; invest in digital equipment and learning environments.
  - Reform student financial support: shift from in-kind assistance to direct financial transfers; improve boarding and catering services and expand school transport.

*Prepared by Asel Isakova (FAD); research assistance and inputs acknowledged from Hannah Brown (AFR), Nihal Haider (MCD), and World Bank experts.*

### 10.      To support effective implementation of the reforms, the authorities should strengthen

### 10.      To support effective implementation of the reforms, the authorities should strengthen

### Governance challenges and constraints
- Despite high spending and an ambitious reform agenda, weak governance arrangements and limited progress on decentralization continue to undermine their effectiveness.
- Regional Academies (AREFs) and schools operate with:
  - constrained financial autonomy;
  - complex approval processes; and
  - uneven capacity—particularly for capital investment and infrastructure management.
- Challenges are compounded by:
  - weak integration of regional and provincial planning into the budget framework;
  - limited alignment between territorial plans and performance contracts; and
  - the absence of systematic feedback loops to inform budget preparation.
- There is a need to improve coordination among key stakeholders and enhance capacity of AREFs, in particular, in what concerns financial governance and internal control.

### Recent progress
- There has been important progress in deploying an integrated financial management information system (GID) at AREFs level since June 2025, which:
  - represents a spending module and an integral part of the government’s financial management system; and
  - will help strengthen budget execution, transparency, and monitoring.

### Recommended governance reforms and implementation priorities
- Clarify roles and responsibilities across central, regional, and school levels.
- Streamline procurement and approval processes.
- Enhance technical capacity of regional education authorities (notably in financial and infrastructure management).
- Grant greater school level autonomy linked to performance and accountability.
- Improve data systems to systematically link resources to learning outcomes.

### Expected outcomes
- These governance reforms are essential to ensure that increased public spending translates into gains in quality, equity, and efficiency.

*MOROCCO INTERNATIONAL MONETARY FUND*

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_Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1marea2026002-source-pdf.pdf_