Sunday 12, November 2017 by Matthew Amlôt

IMF Staff completes 2017 Article IV consultation and third review of the PLL Arrangement for Morocco

An International Monetary Fund (IMF) staff team led by Nicolas Blancher visited Morocco from October 25 to November 7, 2017 to conduct discussions with the Moroccan authorities on the 2017 Article IV consultation, as well as on the third review under the Precautionary and Liquidity Line (PLL) arrangement approved in July 2016.

At the conclusion of the visit, Mr. Blancher issued the following statement:

“In recent years, the Moroccan economy has benefited from the continuation of prudent macroeconomic policies and structural reforms. Improved fiscal management and diversification of the economy have strengthened its resilience. Much remains to be done, however, to achieve higher, sustainable, and more inclusive growth. Unemployment, particularly among young people, is close to 10 per cent. Significant structural reforms have been initiated, and it is necessary to accelerate their implementation in order to increase productivity gains and job creation, and to raise growth potential, in line with the government’s medium term objectives. Key priorities include improving the quality of the education system, the functioning of the labour market, increasing female labour force participation, and strengthen efforts to further improve the business environment.

Following last year’s drought, economic growth has picked up in 2017 and is expected to reach 4.4 per cent mostly driven by a significant rebound in agricultural activity while non-agricultural activity remains subdued. Inflation has declined further and credit growth is recovering. After the marked deterioration in 2016, the current account deficit is projected to improve in 2017 to 3.9 per cent of GDP, driven by strong export growth that will offset higher oil prices and sustained capital goods imports. International reserves are expected to remain comfortable, at about six months of imports. In 2018, growth is projected to slow due to a negative base effect of the agricultural sector and to reach 4.5 per cent over the medium term with the implementation of structural reforms. However, the outlook remains subject to significant domestic and external risks, including delays in implementing key reforms, weaker-than-expected growth in advanced and emerging market economies, world energy prices, geopolitical tensions in the region, and volatility in global financial markets.

On the fiscal side, the consolidation process continues. Developments as of end-September were broadly positive and in line with the authorities’ objective to reduce the fiscal deficit to 3.5 per cent of GDP in 2017. For 2018, the team welcomes the objective to further reduce the fiscal deficit to three per cent of GDP through revenue enhance measures and expenditure containment as indicated in the budget law submitted to Parliament. Over the medium term, a comprehensive tax reforms should continue to make the tax system more efficient and equitable and to support the authorities’ objective to place public debt firmly on a downward path and bring it to 60 per cent of GDP by 2021 compared to 64.3 per cent in 2017. These efforts would also provide more room to investment in infrastructure and human capital in support of growth and social programmes. The team supports ongoing efforts in fiscal decentralisation and emphasises the needs to ensure good governance, transparency, and fiscal discipline at the local level.

Staff supports the authorities’ intention to gradually transition to a more flexible exchange rate regime, which should support the economy’s ability to absorb external shocks, and raise competitiveness. With current conditions that continue to offer a window of opportunity to implement the transition in a gradual and orderly manner, starting the process as soon as possible would be appropriate.

The Moroccan financial sector is well capitalised, and the risks to financial stability remain limited. Nonperforming loans remain relatively high but they are closely monitored and are well provisioned. Staff welcomes the continued strengthening of regulatory limits to reduce credit concentration and the ongoing collaboration with cross-border supervisory bodies to contain risks related to Moroccan banks’ expansion in Africa. The team commends the authorities for the progress made in implementing the 2015 FSAP recommendations, and supports efforts aimed at increasing access to finance, in particular for small- and medium-sized enterprises. Furthermore, the team recommends the adoption, as soon as possible, of the new central bank law, which will strengthen its independence and its role in financial stability and financial inclusion.

The team would like to thank the Moroccan authorities and representatives of the private sector and the civil society with whom it had the opportunity to meet, for their cooperation and productive discussions.”