The International Monetary Fund has issued the following press release:
Washington, DC: An International Monetary Fund (IMF) staff team led by Roberto Cardarelli conducted virtual discussions with the Moroccan authorities on the 2021 Article IV Consultation from November 30 to December 10.
At the conclusion of the visit, Mr. Cardarelli issued the following statement:
“Thanks to a very successful vaccination campaign and the prompt response of the authorities, the health crisis has been placed under control and the Moroccan economy is rebounding. Economic activity has recovered most of the ground lost during the severe global recession of 2020, which hasn’t spared Morocco. This performance owes to continued fiscal and monetary stimulus, the rebound of exports, buoyant remittances, and the exceptional harvest after two years of drought. After shrinking 6.3 percent in 2020, GDP is forecast to grow by 6.3 percent in 2021, among the highest in the Middle East and North Africa region.
“The economic recovery is expected to continue over the next few years, although the pandemic will leave some scars. GDP growth is projected at around 3 percent in 2022, as agriculture output returns to average levels and non-agricultural activity continues to recover. Recent inflationary pressures have remained manageable and are expected to wane in the medium term, as cost pressures from global supply disruptions are reabsorbed. After last year’s sharp contraction, the current account deficit is projected to return this year to levels closer to before the pandemic and to stabilize around 3.5 percent of GDP over the medium term. Morocco emerges from the pandemic with a much stronger international reserve position. While this outlook remains subject to uncertainty, with much of the risks depending on the evolution of the pandemic, a fast and effective implementation of structural reforms should increase growth over the medium term.
“In 2021, despite the expected reduction of about 1 percent of GDP of the fiscal deficit, the fiscal policy stance has remained expansionary, with the acceleration of current spending (driven by higher public sector wage bills and social contributions) more than offsetting the increase in tax revenues in line with the economic recovery. The 2022 Budget foresees a slightly lower overall deficit as percent of GDP. In order to rebuild fiscal buffers and increase the resilience against future negative shocks, it would be appropriate to further reduce the overall fiscal deficit and bring the debt-to-GDP ratio closer to its pre-pandemic levels over the medium term. This will require both further changes to the tax system, to increase its coverage and progressivity in line with the principles contained in “Framework Law”, and continued efforts to rationalize and optimize public spending.
“Bank Al-Maghrib (BAM) kept its policy rates unchanged and maintained its wider liquidity provision to support the banking sector. Staff supports the accommodative monetary stance, especially as inflationary pressures remain contained and inflation expectations well anchored. The recent appreciation of the dirham and the uncertainty over the transitory or persistent nature of these pressures, provides a good opportunity for accelerating the transition to an inflation-targeting (IT) framework.
“Moroccan banks have weathered the crisis well, thanks to the prompt and exceptional support from BAM. Staff welcomes BAM’s decision to lift most of the prudential measures introduced to support the banking sector during the pandemic crisis. BAM should keep ensuring that banks continue provisioning against impaired loans, while accelerating the development of a distressed debt market together with other relevant authorities. In addition, the authorities should finalize the legal framework to strengthen the bank resolution framework.
“Staff welcome the authorities’ determination to implement the structural reforms proposed as part of the New Model of Development (NMD). These reforms have the potential to yield a stronger, more inclusive, and sustainable growth path for Morocco. In addition to the already ongoing reforms of social protection, state-owned enterprises (SOEs), and education system, the NMD’s proposed reforms would improve competition, strengthen Morocco’s competitiveness, encourage formality, and improve the trust in the public sector and judicial system. Given the large financing needs associated with these reforms, their uncertain timing of their impact on potential output, and the narrow fiscal space, it would be important to carefully design and sequence the reforms, on the basis of an adequate financing plan and a coherent and stable macroeconomic framework.
“The team would like to thank the Moroccan authorities and representatives of the public and private sectors and civil society with whom it had the opportunity to meet for their cooperation and productive discussions.”
Background information
Since 2012, Morocco benefited from four successive PLL arrangements with the IMF. On April 7, 2020, the Moroccan authorities purchased all available resources (about US$ 3 billion) under the Precautionary and Liquidity Line (PLL) arrangement (see Press Release No.20/138 ), to cope with the unprecedented shock of the COVID-19 pandemic. Since then, the authorities have repaid SDR 651 million in January, after tapping international markets. However, a close policy dialogue between the authorities and staff will be maintained.