Morocco: Selected Issues
Author: International Monetary Fund
Publication Date:
09 Jun 2004
eISBN:
9781451824735
ISBN:
9781451824735
Language:
English
Keywords:
ISCR; CR; Morocco; remittance; liberalization; trade creation; growth differential; debt equity swap; credibility vis-à-vis domestic; trade diversion; financing source; Real interest rates; Fiscal stance
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This Selected Issues paper analyzes the recent developments in the Moroccan economy and its policy challenges over the medium term. It assesses the sustainability of public debt in Morocco. The paper uses the analytical framework for assessing debt sustainability in emerging market countries endorsed by the IMF Executive Board and compares Morocco’s vulnerabilities with those of the average emerging market country. The paper also examines the effects on Morocco’s trade pattern of the ongoing integration with the European Union within the Barcelona process.

Abstract

This Selected Issues paper analyzes the recent developments in the Moroccan economy and its policy challenges over the medium term. It assesses the sustainability of public debt in Morocco. The paper uses the analytical framework for assessing debt sustainability in emerging market countries endorsed by the IMF Executive Board and compares Morocco’s vulnerabilities with those of the average emerging market country. The paper also examines the effects on Morocco’s trade pattern of the ongoing integration with the European Union within the Barcelona process.

Overview

1. This selected issues paper aims to contribute to the analyses of recent developments in the Moroccan economy and its policy challenges over the medium term.

2. Chapter I assesses the sustainability of public debt in Morocco. At 68 percent of GDP, government debt is a source of vulnerability and could constrain growth by breeding expectations of higher taxes and interest rates. The paper uses the analytical framework for assessing debt sustainability in emerging market countries endorsed by the Executive Board and compares Morocco’s vulnerabilities to those of the average emerging market country. The analysis is complemented by a review of the characteristics of government debt and the institutional framework for public debt management. The paper concludes that the characteristics of government debt compare favorably with those of an average emerging market country and that the current level of debt would appear sustainable judging by the average fiscal performance of the last 10 years. The fiscal position has however deteriorated in recent years and, unless improved, would put the debt-to-GDP ratio on an unsustainable path with no resilience to shocks. A front loaded fiscal adjustment aimed at reducing the debt-to-GDP ratio below 60 percent would enhance the countries’ credibility vis-à-vis domestic and foreign investors and would be an important component of a high growth strategy.

3. Chapter II studies the effects on Morocco’s trade pattern of the ongoing integration with the European Union (EU) within the Barcelona process—a key component of Morocco’s strategy to increase growth and reduce poverty over the medium term. Morocco is one of the first Mediterranean countries to have signed and implemented a bilateral Association Agreement with the European Union (AAEU), calling for a gradual elimination of tariffs on non-agricultural goods. Using a gravity model of bilateral trade, this chapter addresses three main questions: (i) has the Barcelona process resulted in trade creation vis-ð-vis the EU? (ii) is there any evidence of trade diversion? and (iii) is there any impact on intra-regional trade? The results indicate that Morocco has indeed benefited from trade creation with the EU, especially on the import side. Moreover, trade diversion does not appear to be a major concern, while the desired strengthening of intra-regional trade has yet to take hold. These results would encourage the Moroccan authorities to continue, or even accelerate, their integration efforts with the EU. While accompanying broader multilateral liberalization would be desirable, the apparent lack of trade diversion suggests that this is not a precondition to deepen integration with the EU.

4. Chapter III examines empirically the long-run relation between workers’ remittances and their various potential determinants. Transfers from Moroccans living abroad play an important role in the current strength of Morocco’s external position and have a significant impact on the conduct of monetary policy. Thus, any analysis of the long-term sustainability of Morocco’s external position requires a good understanding of the behavior of workers’ remittances and their long-run determinants. The findings of the empirical analysis suggest that altruism or solidarity, “attachment to homeland”, and economic growth in the countries where remittances originate could indeed be the main long-run determinants of workers’ remittances in Morocco. There is no evidence that portfolio diversification motives are significant among the long-run explanatory factors of providing workers’ remittances to the home country. These findings suggest that the risks of a sudden end or reversal of transfers from Moroccans living abroad are limited in a foreseeable future. The evidence also indicates that Morocco could further take advantage of its potential as an investment destination in general and for its citizens living abroad in particular. The acceleration of the authorities’ broad-based structural reform agenda would support the achievement of this goal.

I. Assessing The Sustainability of Public Debt in Morocco1

A. Summary

5. Morocco’s public debt has considerably decreased as a percentage of GDP in recent years. Although good fiscal performance contributed to the decline in total debt during most of the 1990s, privatization receipts accounted for most of the reduction as the fiscal position deteriorated starting in 2000.

6. The level and characteristics of Morocco’s public debt compare favorably with those of emerging market countries. Active debt management through debt equity swaps and substitution of domestic debt for external debt reduced the share of external debt by half over the last ten years. The share of external debt in total debt is low, external debt is mostly at low fixed interest rates with long maturities, and external reserves cover the totality of external public and publicly guaranteed debt. Debt management has been modernized, and domestic debt is reasonably diversified across maturities and investor bases. In the current environment of low inflation and significant financial deepening, the government should not experience difficulties meeting its financing needs at reasonable interest costs in the foreseeable future.

7. The recent developments in the fiscal position, if not reversed, would however put public debt on an unsustainable path The authorities’ baseline scenario assumes fiscal adjustment efforts in the medium term that would reduce the debt ratio to 64 percent of GDP by 2009. Stress tests along this adjustment path suggest that this target could be missed by a large margin should adverse shocks, such as severe droughts experienced in the past, reoccur.

8. Although Morocco’s debt profile is favorable, a front loaded fiscal adjustment would be desirable to further reduce the debt ratio. Such an adjustment aimed at reducing the debt ratio below 60 percent of GDP would increase the countries’ resiliency to shocks and further enhance its credibility vis-à-vis domestic and foreign investors. The resulting increase in confidence would be an essential component of a high growth strategy to reduce poverty and unemployment.

B. Introduction

9. A sustainable public debt is a key component of good macroeconomic management. A public debt that is too high negatively affects growth because it discourages private investment by breeding expectations of higher real interest rates and the associated debt service burden could lead to higher taxation and reduction of productive fiscal expenditures. Moreover, a high public debt reduces macroeconomic resiliency by limiting fiscal flexibility to respond to shocks. While it can be argued that high public debt incurred to finance expenditures that support private sector activity and growth is desirable, empirical evidence from emerging market countries suggests a negative correlation between government debt and growth. Economic theory also offers little practical guidance on the optimality of a given debt level because conclusions drawn are in most cases model dependent (IMF 2003a). For these reasons, an analysis of the implications of fiscal policies for debt sustainability is important for macroeconomic management.

10. To facilitate the comparability of public debt sustainability analyses and to emphasize their importance, the IMF Executive Board endorsed an analytical framework that standardized these exercises. 2 The analytical framework allows to spell out assumptions on key macroeconomic variables that affect debt dynamics (interest rate, growth, exchange rate, and primary fiscal balance) in a baseline medium-term fiscal scenario. The relative contribution of these variables for debt dynamics is then highlighted. The analytical framework calculates the primary balances that stabilize public debt ratios under alternative scenarios and allows to conduct stress tests on the key macroeconomic variables. Stress tests are calibrated on the historical volatility of the macroeconomic variables to highlight vulnerabilities. 3

11. The framework should however be supplemented by an analysis of a country’s specific characteristics that may have a bearing on the sustainability of its debt. This is because the sustainability of a given debt ratio varies from one country to another, and may depend on factors not captured by the key macroeconomic variables. These factors include the country’s debt management capacity, the characteristics of its debt stock and debt market, and other relevant macroeconomic strengths or vulnerabilities.

12. Reviewing the characteristics of emerging market countries, the IMF concluded in a recent study that their public debt ratio, at an average of 70 percent of GDP, was unsustainable. 4 In assessing the sustainability of that debt ratio, the study answered four basic questions: (i) Do primary fiscal balances under current fiscal policies allow to stabilize the countries’ public debt ratios?; (ii) Is there a positive correlation between the countries’ primary fiscal balances and public debt that suggests a track record of fiscal adjustment to keep public debt on a sustainable path?; (iii) Are the countries debt ratios excessive judging by the benchmark debt ratios implied by the real interest rates on public debt and by the primary fiscal balances and GDP growth rates the countries have been able to generate?; and (iv) Would the countries’ debt ratios exceed their sustainable levels in the event of plausible shocks based on experienced volatilities? In answering these questions, the study recognized that its results could not be generalized to all emerging market countries since their individual characteristics can vary significantly and the analysis is mostly backward looking.

13. The goal of this paper is to assess the sustainability of Morocco’s public debt in light of its specific characteristics and the methodology used in the IMF (2003a) study. Central government debt in Morocco represented 68 percent of GDP at end 2003 and is close to the average debt level of emerging market countries that the study assessed as unsustainable.

14. The paper is organized as follows. Section C describes the trends in Morocco’s public debt and fiscal performance over the last ten years. Using the IMF’s (2002) debt sustainability framework, the contributions of the key macroeconomic variables that affect debt dynamics are discussed. Section C also describes the main characteristics of Morocco’s public debt and the institutional framework for public debt management. Answers to the first three of the four questions discussed above are analyzed to assess the sustainability of the country’s debt. In this context, the characteristics of the Moroccan economy to those of the emerging market countries in the IMF (2003a) study are also compared. Section D discusses the implications for public debt of a baseline scenario that assumes fiscal consolidation efforts and those of an alternative scenario that assumes a continuation of the current fiscal policy stance. The implications for public debt of stress tests (the fourth question above) are used to draw final conclusions on the desirability to reduce Morocco’s public debt ratio. Section E concludes the paper.

C. Public Debt in Morocco

15. Public debt has declined significantly in recent years despite a worsening in the fiscal position. Between 1994 and 2003, total central government debt fell from 88 percent of GDP to 68 percent (Figure 1 and Table 1). The debt ratio however remained high for most of the period despite significant primary surpluses. This is because low agricultural output in drought years resulted in significantly positive real interest rate/growth differentials that offset the debt reducing contributions of primary surpluses. Interest expenditures, although declining, averaged 5 percent of GDP over the period contributing to the fiscal deficit which averaged 3.7 percent of GDP between 1994–99. Since 2000, the primary balance has been in deficit because expenditures financed by privatization receipts, particularly the wage bill, increased while revenues declined because of ongoing trade liberalization and new tax exemptions. While the fiscal position deteriorated, the public debt ratio continued to decline because of privatization receipts. Privatization receipts amounted to only 3.5 percent of GDP during 1994–98 compared to over 12 percent of GDP during 1999–2003.

Figure 1.
Figure 1.

Primary Balances and Central Government Debt, 1992–2003

Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A001

Source: Moroccan authorities and staff estimates.
Table 1.

Morocco: Public Sector Debt Sustainability Framework, 1994-2003

(In percent of GDP, unless otherwise indicated)

article image
Source: Moroccan Authorities and Fund Staff estimates

Public sector refers to central government total gross debt

Derived as [(r-π(1+g) - g + αε(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; α = share of foreign-currency denominated debt; and ε = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).

The real interest rate contribution is derived from the numerator in footnote 2/ as r - π (1+g) and the real growth contribution as -g.

The exchange rate contribution is derived from the numerator in footnote 2/ as αε(1+r).

Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.

Derived as nominal interest expenditure divided by previous period debt stock.

Commitment basis, excluding privatization, including Fonds Hassan II expenditures

16. External debt vulnerability also declined considerably in recent years (Figure 2). The share of external debt in total debt fell by more than half to only 27.1 percent between 1994 and 2003 reflecting the government’s policy of substituting domestic debt for foreign debt to pay off expensive debt and debt equity swap operations. 5 Most of the outstanding debt is owed to bilateral creditors and international organizations at low fixed interest rates with an average maturity of 11 years and at a diversified currency composition. The weighted average nominal interest rate on outstanding external debt was only 3.7 percent at end 2003. In addition, external reserves covered the totally of public and publicly guaranteed external debt at end 2003. 6 This makes Morocco virtually immune to the impact of exchange rate movements on its net external debt position (including foreign reserves assets). Furthermore, judging by the 35 percent of GDP threshold above which the risk of a debt crisis has been empirically observed (Reinhart, Rogoff, and Savastano, 2003), and the fact that external debt is mostly owed to official creditors, Morocco appears significantly less vulnerable on the external side.

Figure 2.
Figure 2.

Characteristics of External Debt, 2003

Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A001

Source: Moroccan authorities.

17. Characteristics of domestic public debt are favorable and reflect a modernized public debt management framework. Almost all the domestic debt consists of auctioned treasury bills that are spread over diversified maturities and investor bases (Figure 3 and Box 1), issued in local currency, and at fixed interest rates. The share of short term debt (less than 1 year) has on average been kept at 25 percent to minimize liquidity risk and the average maturity of outstanding debt was 4 years at end 2003. A significant share of domestic debt is held by a healthy commercial banking sector that enjoys a comfortable resource base with broad money exceeding 80 percent of GDP and reserves at the central bank equivalent to 10 percent of GDP. In this context of abundant liquidity and low inflation (1.2 percent in 2003), interest rates on domestic debt have remained moderate over the yield curve.

Figure 3.
Figure 3.

Characteristics of Domestic Debt

Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A001

Source: Moroccan authorities.

Morocco: Public Debt Management

Public debt management has been modernized. The institutional framework is clearly defined and debt management policies are transparent. Public debt management is the responsibility of the treasury and external finance department of the ministry of finance. Each year, the treasury announces its annual financing requirements and every month it announces the amounts to be raised on the auction market. Auction results are published and the treasury publishes annual reports on debt management.

The treasury department holds regular auctions and maintains presence in the market. Government securities of less than 1 year are auctioned every week, maturities ranging from 2 to 15 years are auctioned every month, and longer maturities every quarter. Investors are informed of the issuance schedule and cancellations are announced in advance. To stimulate the auction market, a primary dealer system has been put in place. Primary dealers may submit noncompetitive bids at auctions and are required to provide quotations to support the secondary market.

The secondary market remains thin, but efforts are being deployed to stimulate it. The treasury department introduced the technique of issuance by assimilation whereby new issues characteristics are identical to existing issues in order to increase market liquidity.

A risk management framework has also been put in place and the treasury actively manages its debt portfolio to lower borrowing costs while minimizing risks. A benchmark portfolio has been established for external debt including a currency composition, interest rate, and maturity structures. Efforts are deployed to repay expensive external debt and reduce its level through debt equity swaps and debt conversions. To take advantage of abundant liquidity in the domestic market, the treasury has also been substituting domestic debt for external debt. On domestic debt, it aims to keep short term debt below 25 percent to minimize liquidity risk and extend the duration of the portfolio. The treasury also attempts to align expenditure execution with revenue collection to smooth its financing needs. Information sharing with the central bank also takes place to facilitate the latter’s liquidity management.

Source: Guideline for Public Debt Management, Accompanying Document and Selected Case Studies. International Monetary Fund and World Bank 2003.

18. Notwithstanding its significant holdings of government paper, the banking system does not appear overly exposed to government debt (Figure 4). Moroccan banks use 80 percent of their deposits to grant loans to the private sector and public debt instruments account for about 20 percent of their portfolios. Nevertheless, bank credit to the private sector is equivalent to about 60 percent of GDP, a level comparable to other emerging market countries, although below the levels attained in the most developed countries.

Figure 4.
Figure 4.

Banking System Balance Sheet and International Comparison

Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A001

Source: Financial Sector Assessment Program (2002)

Developed countries, however, rely more on non-deposit funds. 7 These characteristics and the more than comfortable excess liquidity enjoyed by the banking system suggest that the government should not have difficulty meeting its financing needs in the foreseeable future at reasonable costs.

19. Morocco’s public debt appears more sustainable than that of the average emerging market country. Among the vulnerability factors for public debt highlighted in the IMF (2003a) study for these countries, Morocco seems to share only a similar debt ratio (Figure 5). These countries on average have higher debt to revenue ratios, higher shares of external debt in total debt, lower financial deepening (M3/GDP), and significantly more volatile fiscal revenues. The low coefficient of variation of fiscal revenue in particular implies a stable revenue base to service debt8, while the high financial deepening implies a larger domestic financing source.

Figure 5.
Figure 5.

Debt Vulnerability Factors In Emerging Market Countries

Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A001

Source: IMF (2003a) and staff estimates./1 Data are an average for 1998-2002. Defaulters refer to countries that have defaulted since 1998. For Morocco, data is for 2002 only.

20. Judging by the first three criteria identified in the introduction of the paper, however, the verdict on the sustainability of Morocco’s public debt is mixed. Morocco’s public debt ratio appears sustainable from the point of view of past fiscal performance, but not on the basis of current fiscal policies.

  • First, the average primary surplus, real GDP growth rate, and implicit real interest rate on public debt over the last ten years (see Table 1) suggest a sustainable debt level of 78 percent of GDP. 9 Relative to the actual debt ratio of 68 percent of GDP, this benchmark debt level does not suggest overborrowing and is comparable to the benchmark debt found in industrial countries (Figure 6). The overborrowing ratio (actual over benchmark debt) is below one (0.87), suggesting underborrowing. An equivalent calculation for emerging market countries suggests a public debt ratio equivalent to 2.5 times their benchmark debt level.

  • Second, econometric evidence shows a positive and significant relationship between the primary surplus and the public debt ratio suggesting that adjustment efforts have been made in the past to keep public debt on a sustainable path (Table 2). The coefficient for Morocco is significantly higher than that of the average emerging market country.

  • Third, however, on the basis of the average GDP growth rate and implicit real interest rates of the last 10 years (Table 1), the primary surplus that would stabilize the current public debt ratio would be at 0.6 percent of GDP compared to a primary deficit of 1.3 percent of GDP in 2003. A medium term scenario that assumes the continuation of current fiscal policies would therefore put the public debt on an unsustainable path.

Figure 6.
Figure 6.

Comparison of Overborrowing

Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A001

Source: IMF (2003a) and staff estimates.
Table 2.

Morocco: Fiscal Policy Reaction Function, 1990-2002 1/

(Dependent variable: primary surplus, percent of GDP)

article image

Equations have been estimated with Generalized Least Squares allowing for fixed effects and correcting for heteroskedasticity.

indicates significance at the 1 percent level. The full emerging market countries sample in (IMF, 2003a) has been used.

Emerging Market Economies in EMBI global index at beginning of 2002 plus Costa Rica, Indonedia, India, Israel, and Jordan.

Drought control is defined as years in which the value added in agriculture and overall GDP growth were negative.

D. The Need for Fiscal Adjustment in the Medium Term

21. The preceding analyses can be justifiably criticized on grounds that they are mostly backward looking. Indeed, to the extent a country can credibly commit to fiscal consolidation looking forward, past debt dynamics may no longer be relevant. Moroccan authorities have indicated their commitment to fiscal consolidation and are taking steps in this direction with the aim of reducing the deficit to 3 percent of GDP by 2009. Their medium term fiscal consolidation scenario is underpinned by: (i) tax reform to stabilize the revenue ratio as trade liberalization proceeds, and (ii) civil service reform to lower the wage bill. Along with wide ranging structural reforms, fiscal consolidation is expected to increase growth to 5 percent over the medium term. The authorities do not have a debt reduction objective, but this scenario would reduce the debt ratio to 64 percent of GDP by 2009. The implicit interest rate on debt is assumed to increase to its historical average of 6.5 percent over 2004–09, 0.5 percentage point higher than in 2002–03. Growth is projected at an average of 4.5 percent over 2004–09.

22. Adopting this forward looking approach shows that shocks could still put public debt on an unsustainable path (Table 3 and Figure 7). This is mainly because of the volatility of output growth. Stress tests on real GDP growth suggest that adverse shocks such as two consecutive years of severe drought could put the debt ratio on an unsustainable path above 100 percent of GDP. Although the assumption of the most extreme stress test on output growth overstates the risk (2 standard deviations of negative shocks on growth two consecutive years, and because output was more volatile in the past), the results nevertheless reinforce the view that public debt ratio should be further reduced. 10 Under the second most extreme scenario (one standard deviation tests on growth and interest rates), the debt ratio could increase to about 80 percent of GDP. This debt ratio is the maximum ratio past fiscal and growth performances suggest is sustainable, as indicated above, but reaching it could undermine investor confidence. In addition, the analysis does not take into account contingent liabilities such as those related to the actuarially unbalanced pension funds and weak public banks. 11

Table 3.

Morocco: Public Sector Debt Sustainability Framework, 2002-09

(In percent of GDP, unless otherwise indicated)

article image

Public sector refers to central government total gross debt

Derived as [(r-π(1+g) - g+αε(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and ε = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).

The real interest rate contribution is derived from the numerator in footnote 2/ as r - π (1+g) and the real growth contribution as -g.

The exchange rate contribution is derived from the numerator in footnote 2/ as αε(1+r).

Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.

Derived as nominal interest expenditure divided by previous period debt stock.

The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP.

In particular, the revenue ratio declines as trade liberalization proceeds and civil service reform is not undertaken

Real depreciation is defined as nominal depreciation (measured by percentage fall in dollar value of local currency) minus domestic inflation (based on GDP deflator).

Assumes that key variables (real GDP growth, real interest rate, and primary balance) remain at the level in percent of GDP/growth rate of the last projection year.

Figure 7.
Figure 7.

Debt to GDP Ratio Under Alternative Fiscal Scenarios

Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A001

Source: IMF staff estimates.1/ See Table 3 on Publlic Sector Debt Sustainability Framework for the definition of bound tests.

E. Conclusion

23. The paper suggests that a front loaded fiscal adjustment to reduce the debt below 60 percent in the medium term is desirable to provide Morocco with room to absorb shocks. Past fiscal performance and the characteristics of the public debt stock suggest that Morocco may sustain a higher debt level than the average emerging market country. Other characteristics of the Moroccan economy also compare favorably with other emerging market countries, notably, favorable external vulnerability indicators, low inflation, and low fiscal revenue volatility. However, the volatility of output growth has been high. In view of this, a lower level of debt would increase Morocco’s credibility vis-à-vis domestic and international investors in comparison to other emerging market countries.

APPENDIX I

Public Debt Dynamics Equation12

Debt dynamics are modeled by the following process:

dt+1−dt=1(1+g+π+gπ)(r⌢−π(1+g)−g+εα(1+r⌢))dt−pbt+1

where d is the debt-to-GDP ratio, pb is the primary balance, r is a weighted average of domestic and foreign interest rates, α is the share of foreign currency-denominated public debt, π is the change in the domestic GDP deflator, and g the real GDP growth rate. Changes in the exchange rate (local currency per U.S. dollar) are denoted by ε, with ε>0 indicating a depreciation of the local currency.

Based on the above equation, the framework separates between different channels that contribute to the evolution of the debt-to-GDP ratio (Tables 1 and 3 in the text)): the primary deficit (line 4) and the endogenous/automatic factors (line 7), which include the real interest rate, real GDP growth, and exchange rate movements. The contribution of the real interest rate to the evolution of the debt ratio is given by r⌢−π(1+g)(1+g+π+gπ)dt (line 9), the contribution of the real growth rate as −g(1+g+π+gπ)dt (line 10), and that of an exchange rate depreciation as εα(1+r⌢)(1+g+π+gπ)dt (line 11). The separation of the different factors allows an assessment of their relative importance for the evolution of the debt ratio. It also serve as the basis for stress tests, which include a baseline check, in which the key variables (such as real GDP growth) are assumed to be at their historical averages, and a number of temporary shocks to these variables (isolated and combined) based on historical averages and standard deviations. The results of these stress tests are summarized along with the baseline assumptions and projections in Table 3.

References

  • Chalk. N. and Hemming R. 2000. “Assessing Fiscal Sustainability in Theory and in Practice”. International Monetary Fund Working Paper WP/00/81.

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    • Export Citation

  • International Monetary Fund (2002) “Assessing sustainability”. SM/02/166

  • http://www.imf.org/external/np/pdr/sus/2002/eng/052802.htm

  • 2003a “Public Debt” in World Economic Outlook, September.

  • 2003b “Sustainability assessment—Review of Application and Methodological Refinements”. http://www.imf.org/external/np/pdr/sustain/2003/061003.htm.

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    • Export Citation

  • 2003c “Debt Sustainability in Low Income Countries—Toward a Forward Looking Strategy SM/03/185.

  • And World Bank, 2003. “Guidelines for Public Debt Management: Accompanying Document and Selected Case Studies”.

  • Reinhart C.M. Rogoff K.S Savastano et al 2003. “Debt intolerance. Brookings Papers on Economic Activity.

  • Treasury department, Morocco Ministry of Finance, 2003. «Rapport sur l’évolution de la dette intérieure en 2003».

  • Treasury department, Morocco Ministry of Finance, 2003. «Rapport sur la situation de la dette extérieure en 2003».

1

Prepared by Abdourahmane Sarr

2

IMF (2002).

3

Appendix I briefly explains the debt dynamics equation used in the framework.

5

The substitution of domestic debt for external debt partly explains the increase in gross financing needs observed in Table 1 in recent years.

6

Contingent claims on reserves are also limited. Foreign currency deposits and nonresident deposits convertible into foreign currency represent less than 1 percent of GDP. Short term external debt is only 6 percent of external debt.

7

This finding was highlighted by the background papers of the 2002 Financial Sector Assessment Program undertaken by the IMF and the World Bank.

8

Tax revenues are less volatile than output in Morocco, because the agricultural sector which is the main source of output volatility is not taxed.

9

With an average primary surplus at 0.7 percent, real GDP growth rate at 3.7 percent, and implicit real interest rate at 4.6 percent, and using d = p / (r-g) to calculate the benchmark debt where p is primary balance as a percentage of GDP, r is the real implicit interest rate on public debt, g is the real GDP growth rate, and d is the debt to GDP ratio.

10

The volatility of output growth is one of the main determinants of overborrowing in emerging market countries (IMF, 2003a).

11

See SM/04/121 (4/14/04).

12

Based on “Debt Sustainability Template, Guidance Note” November 8, 2002. Policy Development and Review Department, International Monetary Fund.

Same Series

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Cover IMF Staff Country Reports
Morocco: Selected Issues
Author: International Monetary Fund
Volume/Issue:
Volume 2004: Issue 164
Publisher:
International Monetary Fund
ISBN:
9781451824735
ISSN:
1934-7685
Pages:
71
DOI:
https://doi.org/10.5089/9781451824735.002

Primary Balances and Central Government Debt, 1992–2003

Characteristics of External Debt, 2003

Characteristics of Domestic Debt

Banking System Balance Sheet and International Comparison

Debt Vulnerability Factors In Emerging Market Countries

Comparison of Overborrowing

Debt to GDP Ratio Under Alternative Fiscal Scenarios