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World Bank forecasts 1.3% growth in Morocco in 2022

According to the new World Bank report on monitoring the economic situation in Morocco, the economy will slow down sharply in 2022, with an expected growth rate of 1.3% in 2022 against 7.9% in 2021.

After a sustained recovery in 2021, the Moroccan economy has suffered this year from the effects of a severe drought, the slowdown in the global economy and the rise in global energy and food prices, recalls the World Bank in a press release.

According to the latest Monitoring Report on the economic situation in Morocco, the economic recovery is running dry, the economy will slow down sharply in 2022, with an expected growth rate of 1.3% against 7.9% in 2021.

The consequences of the drought, aggravated by the war in Ukraine, testify to Morocco’s exposure to climatic shocks and global shocks on commodity prices, adds the same source. The successive drought episodes for three of the last four years are a powerful reminder of the vulnerability of the Moroccan economy to the increasing irregularity of rainfall levels.

The new World Bank publication provides an analysis of the effects of droughts and water scarcity on Morocco’s macroeconomic situation, which is part of an upcoming report on climate and development issues in the country.

While low rainfall shocks have always been a factor of macroeconomic volatility in Morocco, droughts were generally followed by a strong recovery and did not impede robust and long-term agricultural gross domestic product (GDP) growth, notes the World Bank. However, with the increased frequency of poor rainy seasons, drought could become a structural challenge, seriously impacting the economy in the long term.

Structural water stress

Between 1960 and 2020, available renewable water resources decreased from 2,560 m3 to around 620 m3 per person per year and led the country into a situation of “structural water stress”. Over the same period, the Kingdom has built more than 120 large dams, multiplying by ten the water storage capacity, recalls the international institution.

The actual volume of water stored in the country’s major dams, however, has been declining for most of the past decade. And, during the last drought, the overall filling rate was only around 33%, threatening water security in some river basins and leading authorities to adopt emergency measures.

Morocco must therefore accompany its infrastructure development efforts with water demand management policies that encourage the sustainable, efficient and equitable use of water resources, recommends the World Bank.

“Morocco is one of the countries most affected by water stress in the world. Recent events have shown that technical solutions are no longer sufficient to protect the economy against climatic shocks and underline the need for complementary policies, such as those described in the New Development Model, which would take into account the true value of water resources and to encourage more efficient and more reasoned uses,” said Jesko Hentschel, World Bank operations director for the Maghreb and Malta, quoted in the press release.

These reforms include setting the price of water resources that have become scarcer at an appropriate value, developing efficient mechanisms for allocating water, for example by means of a system of tradable quotas, and producing and to publish precise and detailed data on water resources and their use.

Inflation is expected to reach 5.3% this year

The World Bank report also takes a close look at the consequences of rising inflation due to the war in Ukraine. Even if mitigated by subsidies, consumer price inflation is expected to accelerate to 5.3% this year from just 1.4% in 2021. This is likely to erode purchasing power of the poorest and most vulnerable households.

Aid to farmers and consumers through subsidies is driving up spending, while rising global energy and food prices and falling domestic grain production are driving up import needs. As a result, the budget deficit and the current account deficit are expected to reach 6.4% and 5.2% of GDP respectively in 2022, compared to 5.6% and 2.3% in 2021.

However, these macroeconomic risks are mitigated in a context marked by a comfortable level of foreign exchange reserves, relatively low real domestic interest rates, a solid public debt structure and good access to international financial markets.

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