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The World Bank: Severe recession in Morocco since 1995

Sudden shock, severe recession since 1995… These are the words used by the World Bank to demonstrate the impact produced by the coronavirus pandemic (Covid-19) and by the measures to stop activity taken to stop it in the Morocco. Despite the likely volatility of the economic recovery phase, the Kingdom has the opportunity to build a more sustainable and resilient economy, according to the Bretton Woods institution, which has just published its monitoring report on the economic situation in Morocco.

Over the past twenty years, Morocco has made considerable economic and social progress through significant public investment, structural reforms and measures to guarantee macroeconomic stability. However, the sudden shock of Covid-19 dragged the economy into an abrupt recession, the first since 1995. The labor market faces a shock of historic proportions, vulnerable workers, especially those in the informal sector, are particularly affected. Morocco’s twin deficits (budget and trade deficit) are expected to widen, but remain manageable. The government’s response to date has been swift and decisive. But, faced with the risk of a prolonged epidemic, it is essential to move from a mitigation phase to an adaptation phase to guarantee the resilience, inclusiveness and growth of the Moroccan economy. These are the main conclusions of the World Bank, which has just published its report on the monitoring of the economic situation in Morocco (July 2020), which is produced by the Middle East and North Africa (MENA) unit of the World Practice for Macroeconomics, Trade and Investment (MTI) of the Bretton Woods institution.

Indeed, according to the latter, the Moroccan economy should be doubly affected by internal and external economic shocks. “Real GDP is expected to contract by 4% in 2020 in the baseline scenario, which contrasts sharply with the 3.6% expansion expected before the epidemic. Few sectors have been spared, but the contraction is mainly due to a drop in the production of goods and services, a reduction in exports, a disruption of global value chains, as well as a decline in tourism due to travel restrictions and border closures. An extension of containment measures will have a negative short-term impact on real GDP growth,” notes the World Bank.

Businesses, for their part, have faced value chain disruptions, worker mobility, temporary closings and slowing global demand. “The combined negative effects have led to widespread job and income losses. Government assistance partially offset the loss for 19% of households,” said the Bretton Woods institution. According to its projections, despite the decline in imports, the current account deficit is expected to widen to 8.4% in 2020, reflecting a sharp decline in export and tourism receipts as well as transfers.

On the fiscal side, she notes, revenue will be lower than earlier forecast in 2020 and 2021, while spending is expected to increase in 2020 thanks to additional spending on health, social protection and other policy responses of Covid-19. As a result, the overall budget deficit is expected to widen to 7.5% of GDP in 2020, nearly 4 percentage points higher than expected before Covid-19. Public debt including external debt should also increase but remain sustainable.

Still, Morocco’s response to the coronavirus epidemic and the resulting crisis was “swift and decisive,” said the Washington-based institution. “The government’s proactive response enabled the country to avert a massive epidemic, saving lives,” they said. In addition to quickly closing the borders and strengthening the health system, Morocco has created a special fund to mitigate the economic impacts. Policy responses include compensating households affected by the pandemic, including (innovatively) those working in the informal sector, and preparing a revised finance law, the first in 30 years. “The pursuit of good policy measures, including the development of a clear roadmap for the lifting of containment measures, is essential to shorten and reduce the economic, social and health dip, and to accelerate the recovery”, recommends the World Bank which considers that the post-pandemic economic recovery is expected (with great uncertainty around these projections) to be prolonged, with growth not returning to the pre-pandemic trend until 2022. Indeed, World Bank economists believe that the high degree of uncertainty surrounding the pace of recovery is intrinsically linked to factors such as the discovery of effective treatments for Covid-19, as well as future actions by policymakers and developments in the global economy. The pace will also depend, according to these experts, on the behavior of households and businesses, which, given the extreme level of uncertainty, should take enormous precautions, which could be a major brake on private consumption and investment. “Faced with the risk of a prolonged pandemic, moving from a mitigation phase to an adaptation phase is the key to ensuring a resilient, inclusive and growing Moroccan economy. Despite the likely volatility of the economic recovery phase, Morocco has the opportunity to build a more sustainable and resilient economy by developing an adaptation strategy, similar to its approach on the environmental front”, concludes the World Bank.

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