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The World Bank: Economic recovery in Morocco will be slow

Growth will not return to its pre-epidemic trend until 2022 at the earliest, with a high level of uncertainty. Despite this, Morocco must move from a mitigation phase to an adaptation phase, argues the WB.

The latter has just published its monitoring report on the economic situation in Morocco. For its economists, Morocco will go through a deep recession in 2020, mainly due to the Covid-19 epidemic, but also to difficulties in the agricultural sector due to poor rainfall.

3.4% growth in 2021

Morocco’s real GDP growth has been revised downwards compared to pre-epidemic forecasts, by 7.6 percentage points, or -4.0% in 2020, mainly due to the impact of the epidemic on non-agricultural growth (-4.2% in 2020).

In the medium term, growth will gradually recover, estimates the World Bank, with however a high degree of uncertainty regarding the pace and duration of this recovery because of several unknowns, including the discovery of treatments or vaccines against Covid- 19.

The economic recovery will be long, with growth only returning to pre-epidemic levels in 2022, at the earliest.

In 2021, the economy is likely to grow by 3.4%, predict WB economists, with agricultural production increasing thanks to more normal climatic conditions and slower growth in non-agricultural production, as the domestic economic activity will restart in parallel with the recovery of Morocco’s main European export markets.

Tourism, on the other hand, will recover at a slower pace as concern over new waves of infection will limit global demand, as will reduced household income and savings as a result of the recession, and the possible quarantines imposed on international arrivals, etc.

Growth is expected to average 3.8% in 2022–2024.

Treasury debt will represent 78% of GDP in 2022

The World Bank expects the epidemic to widen the budget deficit and worsen public debt in both 2020 and 2021.

Regarding tax revenues, especially from goods and services, customs taxes and income and profits, they will be lower than forecast for 2020 and 2021.

Considerable increases in charges are planned for 2020 due to additional spending on health, social protection, but also recovery.

This combination of automatic stabilizers and mitigation spending to protect households and businesses will widen the overall fiscal deficit (excluding proceeds from privatization) to 7.5 percent of GDP in 2020 (from a projected deficit of 3.7% before the epidemic).

Consequently, public debt will grow to reach 75.2% of GDP in 2020 (compared to 65% in 2019).

In the medium term, the budget deficit will gradually narrow to an average of 4.1% of GDP over the period 2020–2024, compared to the 3.3% forecast before the Covid-19 epidemic.

Central government debt will increase to 77.8% of GDP in 2022 as a result of the slow economic recovery from the shock of the Covid-19 epidemic, and gradually decline to 74.5% by 2025 through the resumption and acceleration of medium-term growth and reduction of budget deficits.

Foreign exchange reserves: 4.1 months of imports in 2020

Under the impact of the shock associated with Covid-19, the current account deficit will widen considerably in 2020, before declining in the medium term, predict the WB economists. It will drop from 4.1% of GDP in 2019 to 8.4% in 2020 with the sharp decline in export and tourism receipts, remittances and capital inflows. If energy imports decline amid low global oil prices, this will not fully offset the drop in revenues from exports and tourism.

From 2021, the current account deficit will decrease to 6.4% of GDP to gradually be absorbed over the rest of the forecast period while exports, tourism receipts, FDI and remittances will pick up again. the rise and that the export manufacturing sectors (in particular the automotive, electronics and chemicals) will expand their activity. Foreign direct investment will decline by 0.6% of GDP in 2020, also due to the shock of Covid-19, before recovering in the medium term to a level of around 2% of GDP.

In 2020, gross international reserves will contract temporarily, to account for 4.1 months of imports, before increasing to reach 4.9 months of imports by 2025.

Increase in internal and external financing needs

Budgetary and external financing therefore requires larger contributions, estimates the World Bank. However, as part of its macroeconomic management prior to the epidemic, Morocco had developed important protection mechanisms (for example, the IMF’s $ 3 billion precautionary and Liquidity line, which Morocco drew on at the start of the epidemic).

In 2020, gross public financing needs will reach 16.1% of GDP in 2020, an increase of 4.5 percentage points compared to pre-epidemic forecasts. As for those of external financing, they will amount to 11.4% of GDP, an amount about 5.6 PP higher than that forecast prior to the epidemic.

Morocco must move to an adaptation strategy

This outlook is subject to an unusual degree of risk, mainly on the downside, warns the World Bank.

Regarding the outlook, she believes that the main source of uncertainty and the extent of the crisis are linked to the possible discovery or on the contrary to the absence of an effective treatment or a vaccine against the Covid-19. If a vaccine is discovered late or if it proves impossible to develop it, as in the case of diseases such as Ebola and MERS, new waves of Covid-19 will occur, potentially under a more variant fatal, as was the case in 1918–1920 with the Spanish flu.

The global economic outlook will then be more dire with a negative impact on Morocco’s economic activity, we warn. Such a scenario, combined with a possible reduction in FDI and remittances, will have repercussions on the budget and current account balances as well as on the position of foreign currency reserves.

The epidemic is having a negative impact on the pace of public budget consolidation and, consequently, on gross financing needs and debt. If the disruption of global financial markets continued, access to finance and / or the increased cost of financing fiscal and external deficits would be hampered.

Finally, a reversal of the recent drop in world oil prices would have a negative impact on the fiscal and external accounts.

Finally, the World Bank believes that despite a risk of a prolonged epidemic, it is essential to move from a mitigation phase to an adaptation phase to ensure the resilience, inclusiveness and growth of the Moroccan economy. . Despite the likely volatility of the economic recovery phase, Morocco finds here the opportunity to build a more sustainable and resilient economy by developing an adaptation strategy similar to its approach on the environmental front.

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