The Moroccan economy has recovered most of what it lost during the 2020 global crisis. Indeed, the International Monetary Fund distributed one of its recurring reports on February 9, 2022 with a singular touch of optimism on the health of economic activity in the country, back to almost the pre-crisis level. However, the institution qualifies by linking this dynamic to the pursuit of the planned reforms.
The IMF attributes the renewed dynamism of the national economy to several factors. “This performance is due to the continuation of budgetary and monetary stimulus measures, the rebound in exports, the dynamism of transfers from MREs and the exceptional harvest after two years of drought”, indicates the financial institution. After a decline of 6.3% in 2020, GDP is expected to grow by 6.3% in 2021, one of the highest rates in the Middle East and North Africa region. On the other hand, and although it has recovered most of the jobs lost in 2020, driven by the rebound in the activity rate, the level of unemployment is 11.8%. It remains above the pre-pandemic level. In its note, the IMF also mentions the resilience of Moroccan banks, stressing that they “resisted the crisis well, thanks to the rapid and exceptional support of Bank Al-Maghrib”.
For its part, GDP growth is expected to reach around 3% in 2022, with agricultural production returning to average levels and non-agricultural activity continuing to recover. Meanwhile, recent inflationary pressures have remained manageable and should ease over the medium term as cost pressures from global supply disruptions abate. After the sharp contraction of 2020, the current account deficit should return in 2021 to levels closer to pre-pandemic levels and stabilize around 3.5% of GDP in the medium term. Although this outlook is marked by uncertainties, particularly relating to the evolution of the pandemic, which is the main source of risk, the rapid and effective implementation of structural reforms should increase growth in the medium term.
A stronger way out of the crisis
The current account deficit is returning to levels closer to pre-pandemic levels, but Morocco emerged from the crisis with a much stronger international reserve position. For IMF experts, the increase in the public debt ratio would require a stricter fiscal policy than that currently envisaged. “IMF staff expects the fiscal deficit to decline very slowly over the medium term and the public debt-to-GDP ratio to stabilize at nearly 80 percent. If public debt remains sustainable, a faster fiscal consolidation process that would bring the debt-to-GDP ratio closer to pre-pandemic levels over the medium term would make Morocco less vulnerable to further negative shocks and free up more resources for private sector investments”, indicates the same source.
In this sense, fiscal policy should be anchored in a medium-term macro-fiscal framework, “credible and underpinned by a comprehensive reform of the tax system and a systematic review of public expenditure, complemented by a reform of the civil service to contain the payroll increase. Staff notes that lower fiscal deficits would allow monetary policy to remain accommodative for longer, assuming that inflationary pressures remain manageable. The same report points out that the recent rise in inflation is limited and should ease as pressures on imported costs due to supply-side “bottlenecks” and rising commodity prices raw materials become less relevant over time.
For the IMF, as long as these pressures do not affect domestic inflation expectations, Bank Al-Maghrib has leeway for a gradual normalization of monetary policy conditions, but should stand ready to tighten its position if the inflationary pressures are accelerating further.