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IMF: The exchange rate regime in Morocco

The mission of the International Monetary Fund (IMF) conducted talks in Morocco on the 2019 Article IV consultation and the first review of the Precautionary and Liquidity Line Agreement (PLL), approved in December 2018, fully supported, on Tuesday in Rabat, the intention of Morocco to gradually relax its exchange rate regime.

Speaking at a press briefing after the mission, carried out from 19 March to 3 April 2019, the head of the delegation, Nicolas Blancher, said that this reform should make the Moroccan economy “better even to absorb external shocks and preserve its competitiveness”, adding that “the current situation continues to offer a window of opportunity to progress in this transition in a gradual and orderly manner”.

“Morocco is reforming the exchange rate regime while being in a strong position. The transition is not done in pressure and it will better withstand exogenous shocks,” he said.

Indeed, foreign exchange reserves have remained at a comfortable level, equivalent to about five months of imports, said Blancher, adding that growth should stabilize in 2019, supported by a recovery in non-agricultural activity and then reach 4.5% in the medium term thanks to the continuation of structural reforms.

However, growth remains subject to business-related risks in advanced and emerging economies, global energy commodity prices, and volatility in global financial markets, he noted.

According to Mr. Blancher, the Moroccan economy continues to benefit from the pursuit of “prudent” macroeconomic policies and “structural” reforms, noting that in recent years, improved fiscal management and diversification of economy have made the latter “more resilient”.

While welcoming the Kingdom’s important structural reforms, the official emphasized the need to accelerate its implementation in order to increase productivity gains, create more jobs and increase growth potential, in line with medium-term objectives of the government.

On the fiscal side, the mission noted that the evolution at the end of December was in line with Morocco’s revised target of a fiscal deficit of 3.7% of GDP in 2018, recalling that for 2019, the authorities have objective of maintaining the budget deficit at this level, excluding privatization receipts.

In the medium term, the tax reform, which will be discussed in the framework of the National Tax Conference scheduled for next May, should continue to make the tax more efficient, fairer and more growth-friendly, while contributing Morocco’s goal of reducing the level of public debt to 60 percent of GDP, the mission said.

These efforts would generate additional margins and support productive investments in infrastructure and social protection, the mission concurred with the privatization plan and efforts to reorient the activities of public enterprises in their core businesses.

Mr. Blancher also welcomed the Kingdom’s reflections on a new development model, noting in this regard that the business climate continues to improve, notably through the activation of of the Competition Council and the implementation of a new financial inclusion strategy, which he believes will help promote competition and support the development of SMEs.

In addition, the mission encourages reforms aimed at strengthening the governance and effectiveness of the public sector and at fighting corruption, particularly with the adoption of the Access to Information Act and the publication of the first report on the implementation of the national anti-corruption strategy.

On another note, the mission encourages efforts by the Government to establish the Single Social Register, which, when implemented, will allow better targeting of social programs and effectively reduce social inequalities.

In December 2018, the IMF’s Executive Board approved a 24-month PLL agreement worth about $ 3 billion.

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