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Oil: Threat to foreign exchange reserves

At the pump, the price of fuel has gone up again in recent weeks. The reasons for this rise are the behavior of the price of oil that could flare up by geopolitical factors. Many experts fear the impact of tension between the United States and Iran.

In offset, consumers feel the rise in the price of black gold. From 55 dollars at the beginning of the year, a barrel of oil (Brent) is worth around 70 dollars now. At the Ministry of Finance, we follow closely the evolution of the black gold. “Macroeconomic equilibria are only one thread away. It is enough that the price of oil goes up to 80-90 dollars to weaken them,” suggested central directors.

The evolution of the price of oil is strongly linked to the international situation and the decisions of the American administration. The end of exemptions granted to importers of Iranian oil has boosted prices recently. But, the United States relies on their Gulf allies especially not to let prices slip.

On average, prices are close to the assumptions of the Finance Act. “Despite the latest increases, the price of a barrel remains at an acceptable level. We do not see any particular movement among importers in relation to the evolution of prices,” said a banker in a trading room.

The Moroccan economy remains very sensitive to the evolution of the price of oil. Hence the repeated renewal of the Precautionary and Liquidity Line. The last agreement dates back to December 2018 and is worth $ 3 billion over two years. Morocco subscribed to this insurance against external shocks in 2012.

At the time, the budget deficit had slipped and the compensation burden was heavy. The removal of subsidies on petroleum products has reduced the sensitivity of the budget to price fluctuations. On the other hand, an explosion in the energy bill could have serious consequences for foreign exchange reserves, especially if other sources of foreign exchange earnings (travel receipts, Moroccans Living Abroad transfers, foreign direct investment) do not insure.

In addition, more expensive oil will increase the production costs of companies using black gold and its derivatives as an input. It will not be neutral for the economy, even though companies have the ability to mitigate the effects of rising prices through hedging.

For now, the energy bill is under control. It remained stable at MAD 18 billion in the first quarter. Its evolution over the coming months and the behavior of the foreign exchange reserves could favor arbitrations in favor of a Treasury exit on the international market. Initially, a fundraising was planned at the beginning of the year.

But, the behavior of the public finances and the conditions of borrowing on the domestic market did not justify such an operation. The budget deficit stood at 3.8 billion dirhams in the first quarter against 9.8 billion dirhams at the same period last year.

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