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Fitch confirms “BBB-” rating for Morocco with stable outlook

Fitch Rating maintained the “BBB-” rating for Morocco with a stable outlook, according to a newly released statement.

According to the US rating agency, Morocco’s “BBB-” score is supported by its macroeconomic stability, its comfortable foreign exchange reserves and its small share of foreign currency debt in the public debt. Nevertheless, the same source continues, these performances are affected by the weakness of the development and governance indicators, the high level of public debt and the fiscal and current account deficits (CAD). In this regard, Fitch forecasts that the public deficit will reach 3.7% of GDP (excluding privatization) in 2019 and 3.5% in 2020. This is why the government plans, in the medium term, to reduce the budget deficit by several means, including widening the tax base and strengthening the application of tax laws, limitation of the wage bill …

For net external debt, it will rise from 14.6% in 2017 to 17.2% of GDP in 2019.

In addition, the current account deficit is projected to rise from 5.4 percent in 2018 to 3.4 percent of GDP in 2020, reflecting lower average oil prices and strong growth in manufactured exports. In the same vein, Fitch reports that higher exports of phosphates and transportation equipment were offset by higher oil prices, sustained growth in high import investment and strong domestic demand. In addition, Fitch expects net net FDI inflows of 2% of GDP attracted by modernization of infrastructure, improvement of the business environment and incentives offered as part of the industrialization strategy. Fitch says, in this sense, that the government, to mitigate the effects of debt on the budget, to proceed with privatization. The goal is to increase revenues by 4% of GDP between 2019 and 2024.

Another point raised by the rating agency concerns the foreign exchange market. For her, exchange rate volatility remained moderate, despite Bank Al-Maghrib’s limited intervention in the markets. Fitch expects the authorities to take a cautious approach to further broaden the dirham’s trading bands, Fitch said, adding that foreign exchange reserves fell by 7 percent to 201.5 billion dollars in 2018, partly in This is due to the rise in direct foreign currency holdings by banks and the amortization of public external debt.

Fitch thus expects a comfortable reserve coverage ratio of five months of current account payments in 2019-2020, down 5.9 months in 2017. External margins of safety are reinforced by the recently renewed precautionary and liquidity line. of $ 2.97 billion with the IMF, they said.

Agriculture slows growth in 2019

Regarding economic growth, it is consistent with that of its counterparts and is expected to be broadly stable until 2020, according to the US agency. Unfavorable base effects in the agricultural sector are expected to slow GDP growth from 4.1% in 2017 to 3.2% in 2018 and 2.8% in 2019, before rising to 3.5% in 2020. Fitch also expects non-farm GDP to increase from 2.7% in 2017 to 3.5% in 2020. “Below-average rainfall during the current season and the projected slowdown in growth in the euro zone (destination of 60% of Moroccan exports) is shifting the risks around our forecasts,” said Fitch.

Nonagricultural growth has not accelerated despite investments averaging 30.5 percent of GDP over the last decade, highlighting deeply rooted bottlenecks limiting growth potential. The authorities continue to implement progressive growth-enhancing reforms, for example by reactivating the Competition Council, encouraging vocational training and implementing measures to reduce long payment delays in the economy and improve access to finance for small and medium-sized enterprises, says the US rating agency again.

In another part, Fitch estimates that inflationary pressures are well under control and average inflation should remain below 2.0% in 2019 and 2020. “BAM maintains an accommodative monetary policy with a stable key interest rate at a historic minimum of 2.25% since March 2016. The persistent restrictions on Moroccan investments abroad offer some autonomy to monetary policy despite the rigid exchange rate regime. The profitability, the financing and the liquidity of the banking sector are healthy”, they explained.

Fitch believes, however, that the sector’s capitalization is relatively low given the asset-related risks associated with the concentration of the loan portfolio, the level of nonperforming loans at 7.3% of gross loans, and the expansion of banks. abroad in weaker operational environments than Morocco.

Other weaknesses raised by Fitch, which suffers Morocco: low GDP per capita, a high unemployment rate among young people in urban areas, which is a source of social tensions, and strong differences within the government coalition. In this last point, Fitch expects the government to stay in place until the general election of 2021.

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