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Morocco: IMF Executive Board Concludes 2020 Article Iv Consultation With Morocco

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Washington, DC: On December 18, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Morocco.

The prompt response of the Moroccan authorities has helped contain the fallout from the pandemic. Nonetheless, economic activity has slowed sharply in the first half of 2020 on account of the combined effect of the health crisis and the drought (that affected agricultural production). The economic slowdown has caused an increase in the unemployment rate to 12.7 percent in the third quarter of the year (from 9.4 percent last year) and has driven inflation lower so far in 2020.

With greater public sector spending financed by the private and public voluntary contributions to the Covid-19 Fund, the deterioration of the fiscal position has been mainly driven by the fall in tax revenues. The current account deficit has increased in 2020 due to lower tourism receipts. Still, the resilience of remittances and lower imports have contained Morocco’s external financing needs, and international reserves remain comfortably above last year’ levels also thanks to the purchase of the IMF precautionary liquidity line in April and the greater recourse to external financing.

Banks have so far weathered the recession relatively well, and credit has continued to increase in 2020, reflecting both the strong response of the central bank, that has improved liquidity conditions and cut interest rates, and the government’s guaranteed credit schemes.

IMF staff expects GDP growth to fall to 7.2 percent in 2020 and rebound next year to 4.5 percent, as the effects of the drought and pandemic wane and monetary and fiscal policy remain accommodative. The recovery of tourism and export receipts is expected to lead to a gradual improvement of the current account deficit. This outlook remains subject to exceptional uncertainty, with much of the risks around the baseline depending on the evolution of the pandemic and progress on the vaccine front in both Morocco and its trading partners.

Executive Board Assessment [2]

Executive Directors agreed with the thrust of the staff appraisal. Morocco has been hard hit by the global pandemic and suffered from a severe drought. They commended the authorities’ swift policy response that helped mitigate the social and economic impact of these shocks. Directors emphasized the exceptional uncertainty around the outlook and encouraged the authorities to continue supporting the economy until the recovery is well entrenched.

Directors agreed that fiscal policy has appropriately supported households and firms in the wake of the pandemic, aided by voluntary contributions to the COVID-19 Fund, and will need to continue sustaining the recovery in the short term. However, fiscal consolidation should resume as soon as the economy recovers from the pandemic. Directors encouraged the authorities to publish a medium-term fiscal framework that would show a credible commitment to put the public debt on a firmly downward trajectory, with further decisive reforms to improve tax policy and increase the efficiency of public spending.

Directors welcomed the exceptional measures adopted by Bank Al-Maghreb to smooth the impact of the pandemic on financial markets and the real economy. The monetary policy stance would need to remain accommodative until inflationary pressures reemerge. Directors welcomed recent progress in increasing exchange rate flexibility and called for completing the transition to the planned inflation targeting framework to strengthen monetary policy transmission. While the banking sector system has so far weathered the crisis relatively well, Directors recommended continued close monitoring of the impact of the crisis on bank asset quality, including through regular stress testing. They also called for accelerating efforts to strengthen the AML/CFT framework and to finalize the bank resolution framework.

Directors supported the authorities’ plan to overhaul the large state-owned enterprises sector to improve its efficiency and governance, and support private sector development. Given the large volume of credit guarantees granted during the crisis and renewed efforts to boost public-private partnerships, Directors called for strengthening the management and reporting of associated fiscal risks. While recognizing past progress, they welcomed continuous efforts to improve governance and modernize public sector administration and fight corruption.

Directors welcomed the authorities’ commitment to extend the social protection system to expand its coverage, make access to benefits more equitable, and improve targeting and efficiency of spending. Given the limited fiscal space, they underlined the need to ensure adequate long-term financing for such reforms. Directors also underscored the critical role of education reforms to build human capital and improve long-term productivity.

Directors noted that the decision to draw on the Precautionary and Liquidity Line (PLL) arrangement in April 2020 has helped ease external financing pressures and to maintain official reserves at an adequate level. They welcomed today’s announcement that the authorities intend to repurchase soon part of the amount purchased under the PLL arrangement. This may make post-program monitoring no longer necessary. Directors looked forward to continued close Fund engagement with the authorities.

Morocco: Selected Economic Indicators, 2017-25

Population: 35.587 million; 2019

Per capita GDP: $3,460; 2019

Quota: SDR 894.4 million

Poverty rate: 4.8 percent, 2014

Main exports: automobiles, phosphate and derivatives; 2018

Key export markets: France and Spain (37% of total trade), 2018

2017

2018

2019

2020

2021

2022

2023

2024

2025

Proj.

Proj.

Proj.

Proj.

Proj.

Proj.

Output

Real GDP growth (%)

4.2

3.1

2.5

-7.2

4.5

3.9

3.6

3.7

3.7

Real nonagricultural GDP growth (%)

3.1

3.1

3.7

-7.5

4.2

3.9

3.6

3.6

3.7

Employment

Unemployment (%)

10.2

9.8

9.2

12.5

10.5

9.7

9.1

8.7

8.5

Prices

Inflation (end of period)

1.7

0.1

1.0

0.2

0.8

1.2

1.6

1.8

2.0

Inflation (period average)

0.7

1.6

0.2

0.2

0.8

1.2

1.6

1.8

2.0

Central government finances

Revenue (% GDP) 1/

26.6

26.1

25.6

26.9

26.2

26.4

26.6

26.8

27.2

Expenditure (% GDP)

30.1

29.9

29.7

34.6

32.6

32.7

32.2

31.7

31.3

Fiscal balance (% GDP) 1/

-3.5

-3.7

-4.1

-7.7

-6.3

-6.2

-5.6

-4.8

-4.0

Primary balance

-2.0

-1.7

-1.8

-5.5

-3.9

-3.7

-2.8

-2.1

-1.2

Public debt (% GDP)

65.1

65.2

65.2

76.5

76.9

77.3

77.7

77.3

76.6

Money and credit

Base money

5.5

4.1

3.7

5.1

Broad money (% change)

5.5

4.1

3.7

5.1

3.6

3.8

4.1

4.2

4.3

Credit to the economy (% change) 2/

3.3

3.4

5.4

3.4

3.9

3.9

4.0

4.0

4.0

Velocity of broad money

0.8

0.8

0.8

0.7

Balance of payments

Current account excluding official transfers (% GDP)

-4.5

-5.6

-4.3

-6.7

-5.8

-5.1

-4.6

-4.5

-3.8

Current account including official transfers (% GDP)

-3.4

-5.3

-4.1

-6.0

-5.4

-4.8

-4.3

-4.4

-3.7

Exports of goods

(in U.S. dollars, percentage change)

12.8

14.5

0.2

-18.4

15.1

10.2

7.7

6.6

6.8

Imports of goods

(in U.S. dollars, percentage change)

7.8

13.5

-0.5

-18.0

14.4

7.4

6.0

6.2

6.3

Merchandise trade balance

-16.5

-17.2

-16.7

-14.6

-15.1

-14.8

-14.6

-14.6

-14.6

FDI (% GDP)

1.5

2.4

0.5

1.2

1.1

1.3

1.4

1.4