Abstract
The 2008 Article IV Consultation discusses the economic growth for Morocco, which has made major progress to strengthen the economy’s resilience to shocks. Sound macroeconomic policies combined with sustained structural reforms and the opportunities provided by globalization have resulted in a gradual improvement in living standards. Executive Directors considered that Morocco’s universal subsidy scheme is the most important policy issue facing the authorities. They shared the authorities’ assessment of the main upside risks to inflation, including possible second-round effects from higher imported prices and increased demand pressures.
1. This statement provides additional information that has become available since the circulation of the staff report. It does not change the thrust of the staff appraisal.
2. Inflation has picked up further. Year-on-year consumer price inflation stood at 4.7 percent at end-June, up from the end-April figure of 3.7 percent reported in the staff report. The recent boost in inflation has been driven primarily by higher prices for food items. Nonfood inflation remains low, registering an increase of 1.4 percent year-on-year at end- June. As highlighted in the staff report, higher inflation remains a risk to the outlook.
3. As envisaged in the staff report, the authorities adopted on July 1 a set of measures to mitigate partly the impact of high world commodity prices on the budget. Cuts in operating and travel expenditures for the administration are being implemented. In addition, consumer prices have been increased for gasoline, premium diesel, and industrial fuel by 10–17 percent (depending on the product). Subsidies for these items, however, have not been eliminated and the prices for regular diesel fuel and cooking gas—which represent the bulk of petroleum products consumed in Morocco—remain unchanged. Taken together, the expected savings from the July 1 measures total half a percent of GDP, and are consistent with the authorities’ budget deficit target of 3.5 percent of GDP.
4. The authorities also announced in early July several planned measures to strengthen financial sector supervision. In particular, they intend to make the insurance supervisor an autonomous entity, and will grant full independence to the capital market regulatory authority. These measures are in line with the recommendations of the Financial System Stability Assessment Update.