On July 24, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the second review of Morocco’s economic performance under a program supported by a two-year Precautionary and Liquidity line (PLL) arrangement and the Ex Post Evaluation of exceptional access (EPE) under the 2012-14 PLL arrangement.
The current PLL arrangement was approved in July 2014. (See Press Release No. 14/368). Access under this arrangement in the second year is equivalent to SDR 3.2351 billion (US$5 billion, or 550 percent of Morocco’s quota at the IMF). Morocco’s first 24-month PLL arrangement was approved on August 3, 2012, with an access equivalent to 700 percent of the quota.
The PLL arrangement has provided insurance against external risks. The Moroccan authorities are treating the arrangement as precautionary, as they did with the 2012-14 PLL, and do not intend to draw under the arrangement unless Morocco experiences actual balance of payments needs from a significant deterioration of external conditions.
The PLL facility, which was introduced in 2011, provides financing to meet actual or potential balance of payments needs of countries with sound policies, and is intended to serve as insurance or help resolve crises under wide-ranging situations. Fund policy calls for an EPE within one year of the end of an arrangement with exceptional access.
Following the Executive Board discussion on Morocco, Mr. Min Zhu, IMF Deputy Managing Director and Acting Chair of the Board, made the following statement regarding the second review of the current arrangement:
“Morocco’s overall economic performance has been strong. Following a slowdown in 2014, growth is expected to pick up in 2015. Policy action has helped reduce fiscal and external vulnerabilities and significant progress has been achieved on reforms. In an environment that remains subject to important downside risks, sustaining the momentum will be important to reduce remaining vulnerabilities and achieve higher and more inclusive growth.
“The arrangement under the Fund’s Precautionary and Liquidity Line (PLL), which the authorities continue to treat as precautionary, has provided insurance against external risks. The program remains on track.
“Fiscal developments have been consistent with the authorities’ objective to reduce the deficit to 4.3 percent of GDP in 2015. Progress continued on the subsidy reform, while support to the most vulnerable has expanded. The recent adoption of a new organic budget strengthens the fiscal framework. The timely adoption of the pension reform will be key to ensure the viability of the system.
“Progress has also been made in upgrading the financial policy framework, including by moving to Basel III standards and implementing the new banking law. An important further step should be the timely adoption of a new central bank law. Ongoing work toward a more flexible exchange rate regime and a new monetary policy framework, in coordination with other macroeconomic and structural policies, is welcome.
“Morocco’s external position has continued to improve owing to strong export performance and lower oil prices. Further progress on structural reforms, including improving the business environment, governance, transparency and the job market will help strengthen competitiveness, growth and employment and enhance the economy’s resilience to shocks.”
Regarding the ex post evaluation of the first PLL arrangement, Executive Directors considered that the 2012–14 PLL arrangement appropriately provided temporary insurance against exogenous shocks and signaled Morocco’s sound economic fundamentals to meet potential balance-of-payments needs at a time of significant external risks. They agreed that the arrangement was consistent with the PLL qualification standards and requirements under the exceptional access policy, while commending the authorities for not drawing on the arrangement in spite of external economic headwinds. Directors concurred that the authorities’ policies helped reduce fiscal and external vulnerabilities, with subsidy reform as a major achievement. Directors noted that Morocco still faced a number of medium-term policy challenges at the end of the arrangement given external risks and remaining vulnerabilities. With the benefit of hindsight, Directors also noted some useful lessons learned with regard to program design and implementation.