MOROCCO: Strengthening Municipal Finance Through Improved Creditworthiness, Better Performance Management and Tailored Urban Financing

Over the past several decades, Morocco has experienced a sustained urbanization trend— currently, 65 percent of the country’s population lives in urban areas and by 2050 seven out of 10 Moroccans will live in cities. Cities generate positive spillovers for both their surrounding metropolitan areas and the country at large: 60 percent of total employment stem from urban areas, they contribute 75 percent to GDP, and make up 80 percent of tax receipts.

Although the new constitution (adopted in 2011) provided a framework for improved local governance of public affairs through increased decentralization, Moroccan cities still face challenges delivering the infrastructure needed to accommodate the continued increase in urbanization. The investment required for urban infrastructure, equipment, and services in Moroccan cities is estimated at $33.6 billion between 2017–2027 with 69 percent ($2.33 billion per year) to be financed by urban municipalities themselves. In addition to limiting the investment capacity allowed by the generation of operating surpluses, cities’ untapped fiscal potential limits their capacity to attract commercial financing to address the municipal infrastructure gap.

In line with several World Bank projects and other donor engagements, PPIAF provided technical assistance through its SNTA program—requested by the Ministry of Urban Development—to strengthen municipal finance in Morocco through improving local revenue, better performance management, and developing tools for financing urban development. The activity helped develop two policy notes including one describing the best suited strategic approach to develop an information system for the administration of local taxes and a roadmap/policy note on options to develop tools for land value capture in the Moroccan context. A benchmark of local governance performance assessment system was also conducted as part of the technical assistance along with a study tour to Tunisia.

In the next 2–3 years, local tax reforms will take place informed by PPIAF’s work, which aim to achieve four outcomes: operationalizing the system for administering local taxes based on the strategic approach recommended in PPIAF’s policy note; enabling the government to proceed with municipal finance reform; having a pilot city develop a performance assessment system based on good international practice; and piloting a first municipal land value capture exercise.

Co-funded by the World Bank, PPIAF recently approved a second phase to help operationalize some of these recommendations including setting up Partnership Development Areas in selected pilot sites—including updating urban planning regulations to provide an enabling regulatory environment to implement them; developing policy reforms and change in practices; and land administration and regulatory reforms needed to implement land pooling.