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World Bank: Recession of 6.3% and budget deficit of 7.6% in Morocco

In its report released on Monday, the World Bank reviewed its outlook for Morocco. Thus, because of the pandemic and the effects of poor rainfall on the agricultural sector, the institution predicts that real GDP will contract by 6.3% in 2020 while extreme poverty will increase slightly.

Due to the double shock, internal and external, resulting from the Covid-19 crisis, the Moroccan economy is expected to experience a deep recession, its first since 1995, the World Bank estimated on Monday. In a report entitled “Trade together: towards a revival of the integration of the Middle East and North Africa region in the post-Covid era”, the institution recalled that the consolidation of Moroccan public finances has been interrupted given spending pressures and slowing economic activity.

Thus, “the reduction in remittances, tourism activities and FDI as well as the significant drop in exports have a negative impact on the position of external payments”, it is estimated, by providing for a gradual recovery in growth that “great uncertainty surrounds the pace and duration of the recovery”.

In its report, the financial institution recalls that the pandemic “hit the Moroccan economy in a context of weak economic growth, which is below potential and limited by low productivity”. As the period of disruption and containment was much longer (nearly three months) in the second quarter of 2020, economic output contracted significantly in the second quarter of 2020, falling 13.8% from an increase of 0.1% in the first quarter of 2020.

The World Bank describes manufacturing industries shrinking significantly by 6% in the first half of 2020, with many sectors shutting down in mid-March and a service sector shrinking considerably by 5% in the first half of 2020. The opportunity to also mention the worsening of unemployment, the fall in tourism receipts (-33.2%) and remittances from abroad (-8.1%) and the deficit in tax revenue of 8.3%, which widened the budget deficit.

An overall budget deficit of 7.6% of GDP

In this context, the World Bank predicts that Morocco’s real GDP will contract by 6.3% in 2020, mainly due to the Covid-19 pandemic, but also to the effects of poor rainfall on the agricultural sector. With the exception of public consumption, all components of aggregate demand are expected to decline considerably.

“In the medium term, the economic recovery is likely to be driven by a return to historic growth in agricultural production as the non-agricultural sector slowly rebounds in the wake of a gradual recovery in activity. The recovery of the tourism sector could be slower, as concerns about subsequent waves of Covid-19 and declining household incomes could dampen global demand in this sector”, the World Bank said.

In addition, “the current account deficit should widen to 9.9% of GDP in 2020, before decreasing in the medium term”, continues the report which recalls that “the external shock has led to a sharp decline in imports and exports, tourism receipts and remittances”. “Although imports (except food) are declining, this will not fully offset the decline in exports and tourism receipts,” warns the authors of the report.

On the budgetary front, the financial institution says it expects revenues to be “lower than forecast in 2020 and 2021, while spending is expected to increase in 2020 due to additional spending related to Covid-19 response measures”. As a result, “the overall budget deficit will widen to reach 7.6% of GDP in 2020” while the central government debt is expected to rise to 78.9% of GDP in 2022.

In addition, for the current year, “extreme poverty (international poverty line of $ 1.90 in PPP) will increase slightly, but will remain below 1%, while poverty measured with a threshold of 3, 2 dollars in PPP will increase by 1 percentage point in 2020 to reach 6.2%”.

The institution also predicts that the population’s vulnerability to poverty rate will drop from 24.4% to 27.5%. But “the planned increase in social spending with better targeting can accelerate the pace of poverty reduction,” the World Bank hopes.

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