The Moroccan economy is rebounding. The economic recovery is expected to continue over the next few years, although the COVID-19 pandemic will still leave some scars. The authorities have embarked on a wide range of structural reforms which should be supported by an adequate financing plan and a coherent and stable macroeconomic framework.
An International Monetary Fund (IMF) mission led by Roberto Cardarelli held virtual discussions with Moroccan authorities as part of the 2021 Article IV consultations, from November 30 to December 10. After the visit, Cardarelli issued the following statement: “Thanks to a very successful vaccination campaign and the rapid response of the authorities, the health crisis has been brought under control and the Moroccan economy is rebounding. Economic activity has recovered much of the ground lost during the severe global recession of 2020, which did not spare Morocco. This performance is due to the continuation of fiscal and monetary stimulus measures, the rebound in exports, the dynamism of remittances and the bumper harvest after two years of drought. After contracting 6.3% in 2020, GDP is expected to grow 6.3% in 2021, one of the highest rates in the Middle East and North Africa region.”
The economic recovery is expected to continue over the next few years, although the pandemic will leave some marks. GDP growth is expected to be around 3% in 2022, with agricultural production returning to average levels and non-agricultural activity continuing to recover. Recent inflationary pressures have remained manageable and are expected to ease over the medium term, as cost pressures from disruptions in global supply subside. After the sharp contraction of last year, the current account deficit this year is expected to return to levels closer to pre-pandemic levels and stabilize around 3.5% of GDP over the medium term. Morocco is emerging from the pandemic with a much stronger international reserve position. While this outlook remains uncertain, with much of the risk depending on the course of the pandemic, rapid and effective implementation of structural reforms is expected to increase growth over the medium term.
In 2021, despite the expected reduction of around 1% of GDP in the budget deficit, the stance of fiscal policy remained expansionary, the acceleration of current spending (under the effect of the increase in the wage bill in the sector of public and social contributions) more than offsetting the increase in tax revenues linked to the economic recovery. The 2022 budget forecasts a slightly lower overall deficit as a percentage of GDP. In order to rebuild fiscal buffers and increase resilience to future negative shocks, the overall fiscal deficit should be further reduced and the debt-to-GDP ratio brought closer to pre-pandemic levels in the medium term. This will require both further changes to the tax system, in order to increase its coverage and progressivity in accordance with the principles contained in the “framework law”, and continued efforts to rationalize and optimize public spending.
Bank Al-Maghrib (BAM) kept its key rates unchanged and continued to provide more liquidity to support the banking sector. Staff support the accommodative monetary stance, as inflationary pressures remain contained and inflation expectations entrenched. The recent appreciation of the dirham, and uncertainty over the transitory or persistent nature of these pressures, provide a good opportunity to accelerate the transition to an inflation targeting framework. Moroccan banks have weathered the crisis well, thanks to the rapid and exceptional support of BAM. Staff welcome BAM’s decision to lift most of the prudential measures introduced to support the banking sector during the pandemic crisis. BAM should continue to ensure that banks continue to provision bad loans, while accelerating the development of a bad debt market in collaboration with other relevant authorities. In addition, the authorities should finalize the legal framework aimed at strengthening the banking problem-solving mechanism.
IMF staff welcome the authorities’ determination to implement the structural reforms proposed under the New Development Model (NMD). These reforms have the potential to produce stronger, more inclusive and more sustainable for Morocco. In addition to the reforms already underway in social protection, public enterprises and the education system, the reforms proposed by the NMD would improve competition, strengthen Morocco’s competitiveness, encourage formality and improve confidence in the public sector and the system. judicial. Given the large financing needs associated with these reforms, the uncertainty over the timing of their impact on potential output, and the tight fiscal room for maneuver, it would be important to carefully design and sequence the reforms, on the basis of an adequate financing plan and a coherent and stable macroeconomic framework.