Morocco: Request for an Arrangement Under the Precautionary and Liquidity Line and Cancellation of the Current Arrangement

As the current Precautionary and Liquidity Line (PLL) arrangement comes to an end in July 2016, the authorities have requested a successor arrangement. They have not drawn on the past two arrangements and have successfully reduced fiscal and external vulnerabilities in recent years. In an external environment that remains vulnerable to important downside risks, a successor arrangement would continue to insure against external risks and support the authorities' policies to further strengthen the economy's resilience and promote higher and more inclusive growth.


As the current Precautionary and Liquidity Line (PLL) arrangement comes to an end in July 2016, the authorities have requested a successor arrangement. They have not drawn on the past two arrangements and have successfully reduced fiscal and external vulnerabilities in recent years. In an external environment that remains vulnerable to important downside risks, a successor arrangement would continue to insure against external risks and support the authorities' policies to further strengthen the economy's resilience and promote higher and more inclusive growth.


1. Macroeconomic conditions have continued to improve in recent years. Economic activity has been robust despite adverse external conditions, while inflation has remained low. The authorities have reduced domestic and external vulnerabilities through a gradual decline in fiscal and current account deficits and continued domestic reforms, including to raise potential growth, strengthen social safety nets, and reduce unemployment.

2. The authorities have successfully implemented key reforms with the support of two successive 24-month PLL arrangements. Morocco qualified for the first PLL arrangement in August 2012 in a context of uncertainty surrounding global oil prices and potentially weak growth in its European trading partners. The second PLL arrangement, due to expire at the end of July 2016, was approved in July 2014 with lower access, reflecting the strengthening of the economy and a lower balance of risks relative to the preceding PLL request. The authorities consider that the two arrangements have provided useful insurance against external risks, helped create policy space in a challenging external environment, anchored their reform program, and sent positive signals to market participants.

Morocco: Precautionary Arrangements

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Relative to Morocco’s old quota.

3. In light of the significant challenges and risks that remain, the authorities have requested a successor arrangement. Despite recent progress, much remains to be done to secure longer-term stability, raise growth potential, and further reduce poverty, unemployment, and inequality. In light of the success of the PLL arrangements since 2012, and in an external environment that remains subject to significant downward risks, they consider that a successor arrangement would continue to provide important insurance and support to their program to strengthen the economy’s resilience and foster higher and more inclusive growth.

Recent Developments and Outlook

4. The coalition led by the Justice and Development Party (PJD) strengthened its position in 2015. Regional and local elections took place in September 2015, the first since the 2011 constitution was adopted. The Islamist PJD won the most seats in regional councils and control of major cities. Its main rival, the Party of Authenticity and Modernity (PAM), won just over 19 percent of the seats. Parliamentary elections are scheduled for October 2016. Social tensions have increased recently, including in reaction to the pension reform proposal submitted to parliament.

5. Economic activity rebounded in 2015 but is expected to slow in 2016 (Figure 1). Growth reached 4.5 percent in 2015, benefiting from a very good agricultural season, while non-agricultural activity remained modest (3.5 percent), including in tourism and the traditional manufacturing sectors. Preliminary data for the first quarter of 2016 suggest that the non-agricultural sector grew at a rate of 2.5 percent (y-o-y), while agricultural activity contracted by 9.2 percent due to a severe drought, leading to overall growth of only 1.7 percent. The unemployment rate increased slightly from 9.9 percent in the first quarter of 2015 to 10 percent in the first quarter of 2016, while youth unemployment remains high at about 23 percent (Figure 3).

Figure 1.
Figure 1.

Morocco: Real and External Developments

Citation: IMF Staff Country Reports 2016, 265; 10.5089/9781475521825.002.A001

Sources: Moroccan authorities; and IMF staff estimates.
Figure 2.
Figure 2.

Morocco: Fiscal and Financial Market Developments

Citation: IMF Staff Country Reports 2016, 265; 10.5089/9781475521825.002.A001

Sources: Moroccan authorities; Bloomberg; and IMF staff estimates.
Figure 3.
Figure 3.

Morocco: Structural Reforms

Citation: IMF Staff Country Reports 2016, 265; 10.5089/9781475521825.002.A001

6. Fiscal developments through April 2016 have been positive (Figure 2). Despite lower-than-expected grants and lower tax collection, the authorities met their objective of an overall deficit of 4.4 percent of GDP in 2015 (against 4.9 percent in 2014), thanks to continued efforts to contain or reduce spending on wages, goods and services, and energy subsidies. The cyclically-adjusted primary deficit (excluding grants) also decreased compared to 2014 by about 1.9 percent of GDP. Preliminary data suggest that the fiscal deficit at the end of April 2016 was lower relative to the same period last year (2 against 2.5 percent) due to strong revenue performance, wage bill containment, and savings on subsidies, and despite higher expenditures on goods and services and accelerated capital spending.

7. Monetary policy has been accommodative in a context of low inflation and sluggish credit growth. After declining to 0.3 percent in January 2016 (y-o-y), headline inflation increased to 1.6 percent in April 2016 due to higher food prices following the drought. However, core inflation remained unchanged at 0.5 percent. Bank al-Maghrib (BAM) cut its key policy rate in March by 25 basis points to 2.25 percent, the first policy rate reduction since end-2014. Liquidity pressures have declined, benefiting from the improved foreign reserves position, and as reflected in decreased liquidity support from BAM between December 2015 and March 2016 and in gradual improvements in bank liquidity ratios. Nonetheless, bank lending grew only by 2.7 percent in April 2016 (y-o-y), due in particular to modest non-agricultural growth and lower imports.

8. Banks are well capitalized and profitable, but continued efforts to reduce nonperforming loans (NPL) and credit concentration risks are needed. At the end of 2015, banks’ capital adequacy ratios stood at 13.8 percent, well above Basel III requirements. Bank profitability has been stable despite low credit growth. The average NPL ratio continued to increase in March 2016, to 7.6 percent, due to weak non-agricultural activity, but provisioning levels are high. Large and concentrated bank exposures remain a significant source of risk identified in the 2015 Financial Sector Assessment Program (FSAP), although their size relative to bank Tier 1 capital decreased from 341 to 294 percent between 2014 and 2015.1

9. The external position has continued to improve, benefiting from low energy prices and reduced domestic imbalances. The current account deficit fell to 1.9 percent of GDP in 2015 (from 5.7 percent in 2014), driven by lower energy and food imports, and stronger automobile, phosphate and agriculture exports, which offset weaker tourism receipts. Foreign direct investment (FDI) remained steady. Reserves increased to $23 billion, equivalent to 6.5 months of imports, 93.5 percent of the Fund’s standard assessing reserve adequacy (ARA) metric, and 122 percent of the metric adjusted for capital controls. As a result, Morocco’s net international investment position (NIIP) improved by almost 11 percentage points in 2015, to about -60 percent of GDP.

10. Gradually increasing growth, low inflation, and stronger fiscal and external buffers are expected over the medium term:

  • Growth is expected to accelerate gradually to 4.9 percent in the medium term, subject to improved external conditions and steadfast reform implementation, further agricultural sector modernization, continued expansion of Moroccan firms into new markets and sectors (such as automobiles and aeronautics), improved access to credit, and higher capital investment, which are expected to improve Morocco’s position in global value chains.

  • Inflation should remain low at about 1.3 percent in 2016, against 1.6 percent in 2015, due to low commodity prices and slowing domestic demand. It is projected to stabilize around 2 percent over the medium term.

  • Fiscal consolidation. The overall fiscal deficit is expected to decline to 3.5 percent of GDP in 2016 and 3 percent of GDP in 2017, in line with projections at the time of the third review of the current PLL arrangement, and reflecting stronger tax revenues and moderate spending growth. Over the medium term, the authorities are determined to continue on the path of fiscal consolidation, aiming for a public debt to GDP ratio of about 60 percent by 2020, consistent with a fiscal deficit of about 2 percent.

  • The current account deficit is projected to contract further to 1.2 percent of GDP in 2016, due in particular to strong manufacturing exports and improved tourism receipts, remittances, and official transfers. Over the medium term, the trade balance should strengthen as higher value-added exports increase and energy prices remain moderate; with declining grant revenues, the current account deficit should stabilize at around 1.5 percent of GDP. FDI inflows are projected to remain robust at about 2.5 percent of GDP, helping to raise the reserves position to about 9 months of imports, 132 percent of the standard ARA metric, and 174 percent of the adjusted ARA metric by 2021.

11. Risks to the outlook remain elevated. On the domestic front, the general elections in 2016 could delay the implementation of reforms, particularly in key areas related to fiscal policy, such as pension and tax reforms. On the external front, geopolitical risks could increase oil price volatility and reduce tourism activity, potentially reversing some of the recent current account improvements; lower-than-expected growth in the euro area, stemming in particular from Brexit-related uncertainties, would slow economic activity through lower exports, tourism, FDI flows, and remittances, and exacerbate fiscal and external imbalances; and volatility in global financial markets could impact global growth and increase borrowing costs. On the upside, continued low commodity prices would help further narrow external imbalances.

Economic Policies

12. A new PLL arrangement would support the continuation of the authorities’ economic program, which aims to further reduce fiscal and external vulnerabilities, boost employment and growth, and make growth more inclusive. Addressing remaining vulnerabilities will entail a further reduction in the fiscal deficit and public debt, a build-up in reserves, strengthening of the fiscal framework, sound monetary and financial policies, and structural reforms to boost competitiveness, growth, and employment (see W-COM. attached).

A. Securing Fiscal Sustainability

13. The current fiscal policy stance is consistent with reducing the debt burden to 60 percent of GDP by 2020 without undermining growth (W-COM.-¶ 4). Continued consolidation is essential to ensure that even with shocks to the economy, public debt will remain sustainable, fiscal policy can play some counter-cyclical role, and pro-growth expenditures are preserved. While this year’s elections may lead to pressures for increased public spending, staff noted that it will be critical to meet the 2016 deficit objective of 3.5 percent of GDP, which assumes both strong revenue performance and expenditure control. The authorities confirmed their determination to reach this objective and to abide by the provisions of the new Organic Budget Law (OBL) in order to contain wage and current spending to budgeted levels.

14. Several reforms are needed to reduce the public deficit gradually to about 2 percent of GDP in the medium term (W-COM.-¶5-7). Determined policies and reforms to rein in public spending have been implemented in recent years, some of which will need to be pursued further, while consolidation will also have to rely on:

  • Tax reform. In line with recommendations from the 2013 national tax conference, the authorities are implementing reforms to make the tax system more equitable and better able to support competitiveness, including by further removing exemptions on large agricultural firms, simplifying the VAT, and better enforcing tax payments from self-employed and liberal professions. The authorities and staff agreed that expeditious implementation of these reforms (which could yield about 1.5–2 percent of GDP of additional revenues over the medium term) would help to absorb the expected decline in grant revenues starting in 2018. Staff noted that the recently-introduced corporate tax brackets could be distortive and should be replaced by a unified rate, but the authorities prefer to assess the impact of this reform before revisiting it.

  • Pension reform. The parametric reform of the main public pension fund would include an increased retirement age, higher contributions, and reduced benefits, and is critical for strengthening its sustainability.2 In January, the government sent to parliament a draft bill that has not yet been approved. Staff stressed the urgency of this reform, which has been delayed for some time, and is now expected to be effective in early 2017. Staff also encouraged the authorities to limit the potential fiscal cost of any accompanying measures (such as possible increases in the minimum pension). The authorities noted that the government is determined to adopt this reform this year despite opposition from labor unions.

  • Public wage containment. The authorities intend to keep the public payroll below 11.5 percent of GDP in the medium term, including by limiting the net creation of new positions and payment advances to a well-defined budget envelope (W-COM.-¶7). Staff supported this objective and also emphasized that a more comprehensive reform of the civil service would also help strengthen fiscal sustainability. The authorities noted that while some elements of such a broader reform have been considered, including the introduction of contractual employment, merit-based career progression, and greater personnel mobility, a fully-fledged medium-term reform strategy is not yet in place.

  • Subsidy reforms and social safety net. Fuel subsidies, which represented 5.5 percent of GDP in 2012, were drastically reduced to 1.2 percent of GDP in 2015, helped by the slump in oil prices. The full liberalization of fuel prices took place in 2015, and the authorities now plan to gradually reduce certain food subsidies (for wheat and sugar). Staff supported the authorities’ intention to secure social programs that better target the most vulnerable population groups.

15. Continued improvements to the fiscal policy framework will also be important to secure strong fiscal outcomes and increase the efficiency of public spending (W-COM.-¶8-9):

  • Organic Budget Law. The OBL adopted in 2015 is strengthening Morocco’s fiscal framework considerably. Most of its provisions entered into force in January 2016, including those pertaining to fiscal performance management and transparency, and parliamentary oversight and approval. The remaining provisions, including for triennial budget and programming, making ceilings on wage expenditure appropriations binding, and limiting the carryover of investment appropriations will be gradually introduced by 2020. Staff enquired about measures to address potential risks related to public enterprises (for which specific provisions are missing from the OBL), and the authorities indicated that the government would introduce a bill to reinforce the governance and oversight of public enterprises.

  • Fiscal decentralization. The authorities are shifting a range of political and administrative competencies, and increasingly public resources, to the regional level. The fraction of income tax revenues transferred to the regions increased from 1 to 2 percent in the 2016 budget, and will continue to increase progressively to reach 5 percent by 2020. In parallel, the responsibilities of the regions to allocate public resources will expand in a range of areas, such as education, health, housing, transport, and economic development. The organic law for the regions transposes the principles of the OBL at the local level, including by modernizing the institutional framework and reinforcing governance at the local level. Staff stressed that decentralization entails significant fiscal risks, including in light of limited implementation capacity at the local level, and requires establishing proper budgetary checks and balances at both the central and local levels. At this early stage in the implementation process, staff asked the authorities to provide by the end of 2016 detailed medium-term plans regarding the sequence of fiscal decentralization and specific measures to ensure sound public financial management, including those concerning local spending responsibilities, revenue arrangements, and debt controls, and, more broadly, the implementation of the organic law at the regional level. The authorities welcomed the possibility to receive Fund technical assistance (TA) in this area.

B. Transitioning to New Exchange Rate and Monetary Regimes

16. The authorities have decided to start moving toward a more flexible exchange rate and an inflation-targeting regime during the period of the requested arrangement (W-COM.-¶12). While not without risks in a global context of volatile financial conditions, staff and the authorities agree that the current situation is appropriate for a move. As noted during the 2015 Article IV consultation, the key preconditions for a successful move to more exchange rate flexibility are in place, thanks to the stronger fiscal and external buffers, alignment of the exchange rate with fundamentals, and resilience of the financial sector. The Fund is providing TA for the final preparations, and staff will now support the authorities with a consolidated roadmap including all TA recommendations on various operational aspects of the transition. This will help the authorities decide on key steps going forward, such as regarding the exchange rate band, foreign exchange intervention strategy, and inflation target.

17. The recent reduction in the monetary policy rate was appropriate, and securing effective monetary transmission will be increasingly important (W-COM.-¶10). Given low inflation, slow credit growth, and below-potential economic activity, lower policy rates should support credit and the economic recovery. However, several factors may limit the effectiveness of policy transmission and credit growth, including high credit concentration and constraints on the ability of small and medium enterprises (SMEs) to access credit. Staff noted that, if warranted by further declines in core inflation, an additional reduction of the policy rate may be needed, while efforts to address potential obstacles to credit growth that may hinder economy activity, particularly by promoting credit to SMEs, should continue.

C. Enhancing Financial Sector Stability

18. While NPL and credit concentration levels need to decrease, risks to financial stability are limited and the financial sector policy framework is being enhanced (W-COM.-¶11). Banks are well capitalized and profitable, and benefit from relatively stable deposit funding. However, NPLs are still increasing (albeit at a slower pace), and banks are exposed to higher-risk sub-Saharan African countries and remain vulnerable to large credit concentration risks. The authorities are taking a number of steps, consistent with recent FSAP recommendations:

  • The impact study on aligning loan classification and provisioning rules with the International Financial Reporting Standards (IFRS) is expected to be finalized soon.

  • Industrial and commercial groups are to prepare consolidated financial statements, which will help better manage banks’ concentration risks.

  • In light of the expanded BAM responsibilities and evolving bank risk profiles, BAM’s supervisory resources will be increased substantially between 2016 and 2017 (about 30 new expert staff), while cooperation and exchange of information with host authorities is intensifying.

  • The macroprudential policy framework is being strengthened, including with the forthcoming introduction of countercyclical capital buffers.

  • The preparation of recovery plans for domestic systemically-important banks (D-SIBs) is advancing, with new draft regulations and the creation of a new supervisory unit to conduct off-site D-SIB supervision.

  • The crisis management and bank resolution frameworks will improve, including through additional changes to the draft central bank law, which will strengthen the central bank’s independence, clarify its objectives, and enhance its supervisory and resolution powers.

D. Growth-Friendly and Inclusive Environment

19. The authorities are implementing reforms to improve the business environment and competitiveness, and raise Morocco’s growth potential (W-COM.-¶13). In recent years, the Doing Business and Global Competitiveness Report rankings have highlighted Morocco’s ongoing progress, but they have also flagged areas for improvement: corruption, an inefficient bureaucracy, an inadequately educated workforce, tax regulations, and restrictive labor regulations. Recent reforms have included the introduction of simpler and more transparent administrative procedures (in such areas as customs, property registration, and setting up a business); the adoption of a law that gives a Competition Council substantial powers to investigate and sanction non-competitive practices; and the launch in 2015 of a national strategy to fight corruption. Staff stressed the importance of appointing the Competition Council’s new members and taking action to reduce payment delays from the public to the private sector, which affect primarily SMEs.

20. High unemployment and low female labor force participation reflect in part poor education outcomes and labor market constraints (W-COM.-¶13). Improving the performance of Morocco’s education system and reducing skill mismatches on the labor market are key priorities. They require more efficient public spending and more consistent policies for teacher training, recruitment, deployment, and evaluation. The recently-introduced National Strategy for Employment should lead to specific reforms of labor regulation, taxation and minimum wage policy, which are significant constraints on job creation, especially for women and young people. According to a recent World Bank study, Morocco has restrictive fixed-term contract laws and firing regulations, a high minimum wage level relative to average worker’s productivity by international standards, and relatively high payroll tax levels.3

Assessment of Qualification

21. Staff’s assessment is that Morocco continues to qualify for a PLL arrangement. In line with the positive assessment of Morocco’s policies by the Executive Board during the 2015 Article IV consultation and the last PLL review, staff’s assessment is that Morocco meets the PLL qualification criteria.

A. General Assessment

22. Staff’s assessment is that Morocco’s economic fundamentals and institutional policy frameworks are sound, that the country is implementing, and has a track record of implementing, sound policies, and that it remains committed to doing so in the future.

  • Morocco’s economic performance has been strong (Box 1). Growth averaged 3.5 percent and inflation remained low (less than 2 percent) in 2012–15. In 2015, the fiscal and current account deficits declined to 4.4 and 1.9 percent of GDP, respectively. The banking system has remained stable. Over the medium term, economic growth is expected to increase steadily in a context of low inflation. Both public and external debts are sustainable.

  • The authorities have implemented sound policies. During the last PLL review, in January 2016, the Executive Board welcomed Morocco’s strong policy implementation, which helped reduce fiscal and external vulnerabilities, and the progress achieved on reforms despite external headwinds. Directors also highlighted progress in the two areas where Morocco did not significantly underperform during the last PLL arrangement: its external position was deemed to have improved considerably, with reserves reaching a comfortable level, owing to strong policies, rising exports in newly-developed sectors, and robust FDI, in addition to falling oil prices. On the fiscal side, the decline in the public deficit since 2012 was noted, together with the substantial progress achieved on subsidy reform and the strengthening of the social safety net.

  • The authorities remain committed to maintaining sound policies, including to reducing public debt to 60 percent of GDP by 2020, which will require bringing the fiscal deficit to about 2 percent of GDP. They also intend to pursue further structural reforms to raise potential growth and promote higher and more inclusive growth, including by improving competitiveness and the business environment, labor market reform, and investment in human capital.

  • Increasingly flexible policy and institutional frameworks allow the authorities to implement needed reforms in the face of shocks. On the fiscal front, the authorities took corrective action in the face of unforeseen declines in grant revenues in 2015, by quickly rationalizing expenditures. The implementation of the new OBL is enhancing budgetary procedures and practices. Indicators of a country’s ability to undertake countercyclical policy in the event of shocks show that Morocco performs well in the fiscal policy area.4 Morocco scores lower in the monetary policy area, but this indicator is less relevant for Morocco given its pegged exchange rate regime. Furthermore, BAM has a clear mandate for implementing monetary and exchange rate policies, and the authorities now intend to upgrade the monetary policy regime as part of a transition to greater exchange rate flexibility and inflation targeting.5 Lastly, Morocco is in the mid-range of the World Bank’s anti-corruption and government effectiveness ranking.

  • Overall, Morocco continues to meet the qualification criteria for a PLL arrangement, and staff is of the view that it now performs strongly in four out of the five PLL qualification areas (external position and market access, financial sector and supervision, monetary policy, and data adequacy), and does not substantially underperform in the other qualification area (fiscal policy). Morocco has sound economic and institutional policy frameworks, is implementing, and has a track record of implementing, sound policies, and remains committed to maintaining such policies in the future.

Morocco: Achievements under the Second PLL Arrangement

Morocco has made significant progress under the current PLL arrangement, with strong policy implementation and reform achievements. Vulnerabilities were reduced, especially on the external and fiscal side, although continued efforts to move ahead with difficult but necessary reforms will be key for further strengthening fiscal and external buffers and reducing remaining vulnerabilities.

The program was expected to strengthen macroeconomic stability and promote stronger and more job-rich growth, notably by reducing the fiscal and current account deficits and implementing domestic reforms. Growth was projected to reach 3.5 percent of GDP in 2014 and 4.7 percent in 2015. The fiscal target was set at 4.9 percent of GDP in 2014 and 4.3 percent of GDP in 2015, in line with the authorities’ objective of a budget deficit of 3 percent of GDP in the medium term. The current account deficit was projected to decrease to 6.8 percent in 2014 and 5.8 percent in 2015. Reserves were expected to increase to 4.5 months of imports in 2015. The macroeconomic scenario was supported by the following external assumptions and domestic reforms:

  • Euro zone GDP growth was projected to improve by 0.4 percent of GDP from 2014 to 2015. Oil prices were expected to fall from 107.9 in 2014 to 104.0 in 2015.

  • The authorities intended to advance major domestic reforms, including those of subsidies, pensions, and the tax system. The subsidy reform was expected to reach its medium-term target in 2015, as all subsidies would be eliminated, except for butane, sugar, and a limited volume of flour, with a combined cost of remaining subsidies at less than 3 percent of GDP. The authorities also intended to bring the public payroll below 11.5 percent of GDP in the medium term (from a projected 13 percent of GDP in 2014), including by limiting the net creation of new positions, salary advances, and promotions to a well-defined budget envelope. The authorities planned to increase potential growth, to improve competitiveness and boost employment creation by implementing structural reforms, including further improvement of the business climate and economic governance, adapting their active employment policies, and an industrial acceleration strategy to diversify exports.

Morocco: 2014 PLL vs. Current Macro Framework

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Sources: Moroccan authorities; and IMF staff estimates.

2014 PLL framework.

External and fiscal balances improved during the second PLL, owing to strong policies and export diversification and performance, falling oil prices, and domestic reform implementation. In 2014 and 2015, oil prices were $9 and $51.6 per barrel lower than forecast, respectively. This, together with sound policies and the implementation of subsidy reforms, led to improved current and fiscal deficits. The current account deficit decreased to 5.7 percent of GDP and 1.9 of GDP respectively in 2014 and 2015, instead of the expected 6.8 and 5.8 percent of GDP. Reserves remained resilient at 6.5 months of import at the end of 2015, two months higher than projected at the onset of the program. The fiscal deficit was consistent with targets at the time of the request of the PLL, decreasing to 4.4 percent of GDP in 2015 from 5.2 percent in 2013, as subsidy spending was further reduced and the wage bill was contained. A new Organic Budget Law was adopted in July 2015 to improve the budget framework.

However, public debt remains relatively high, growth was more modest than projected, and pension reform has yet to be implemented. While public debt was about 2 percent of GDP lower at the end of 2015 than projected at the onset of the program, it is still relatively high at 64.1 percent of GDP. It is, however, expected to decline to 60 percent in 2020. Real GDP growth in 2014 and 2015 was also below initial projections, partly due to a slowdown in tourism activity and a modest recovery in Europe. Pension reform, which is important to support medium-term fiscal consolidation and extend the sustainability of the pension system, has been delayed and is now scheduled to be implemented in early 2017. Finally, raising Morocco’s growth potential and reducing unemployment will require further progress on structural reforms.

B. Assessment of Specific Criteria

23. Morocco now performs strongly in four out of the five PLL qualification areas (external position and market access, financial sector and supervision, monetary policy, and data adequacy) and does not substantially underperform in the other area (fiscal policy). This marks an improvement since the third review of the current PLL arrangement, when Morocco was not assessed as performing strongly in the area of external position and market access. Indeed, staff’s assessment is that sharp improvements in Morocco’s current account position are not just the result of lower international oil prices, but also reflect a strong underlying current account position resulting from: (1) strong export diversification and performance in recent years (despite adverse conditions in its main trading partners); (2) the substantial reduction in domestic macroeconomic imbalances (such as on the fiscal front); and (3) the fact that international oil prices are now projected to remain at relatively low levels over the medium term.

External position and market access: Morocco performs strongly in the external position and market access area.

  • Criterion 1. Sustainable external position. The substantial decline in the current account deficit was due not only to the decline in international oil prices, but also to strong, more diversified export growth (despite adverse conditions in Morocco’s main trading partners), and to a substantial reduction in domestic macroeconomic imbalances.6 The non-oil trade deficit improved from 10.6 percent of GDP in 2012 to 7.6 percent in 2015. This favorable performance is expected to continue over the medium term as exports rise, boosted by increasing external demand and the expansion of newly developed, higher value-added export sectors, while import growth remains moderate in an environment of moderate commodity prices and a gradual shift to more renewable energy use. Together, these factors should make the current account more resilient to oil price shocks going forward. The real effective exchange rate is broadly in line with fundamentals based on the most recent external balance assessment (EBA).7 The external debt sustainability analysis provided by the 2015 Article IV shows that Morocco’s external debt has been rising but remains relatively low, at about 32.7 percent of GDP at the end of 2015. Furthermore, it is expected to decline to under 30 percent of GDP over the medium term, and to remain sustainable and robust to standard stress tests. Finally, the introduction of greater exchange rate flexibility would help enhance the economy’s competitiveness and capacity to absorb shocks.

  • Criterion 2—Capital account position dominated by private flows. Private capital flows constitute the largest share of the capital account (about 82 percent of total capital flows), of which FDI is the largest component. Access to international financial markets by nonfinancial corporations remains modest compared to other emerging markets, and private external debt is small (about 8.2 percent of total debt or 2.7 percent of GDP). Sovereign bond issuance and loans from development partners constitute the bulk of public capital flows.

  • Criterion 3—Track record of steady sovereign access to international capital markets at favorable terms. Morocco has recently been able to issue international bonds at favorable terms, aided by the global low interest rate environment. The government raised EUR 1 billion in June 2014, and the National Phosphate Company (OCP) issued a $1 billion Eurobond in April 2015. Each issuance benefited from low spreads and long maturities, reflecting the confidence placed in Morocco by market participants: sovereign spreads narrowed between 2011 and 2015, and the average maturity of public external debt has been extended to 8 years and 6 months currently (against 7 years and 4 months in 2009).

  • Criterion 4—A reserve position, which—notwithstanding potential BOP pressures that justify Fund assistance—remains relatively comfortable. Morocco’s strengthening international reserves are now comfortable by several metrics (Figure 5): 6.5 months of imports, ample coverage of short-term debt and broad money, 93.5 percent of the standard ARA metric, and 122 percent of the metric adjusted for capital controls at the end of 2015 (against 80 percent and 104 percent at the end of 2014, respectively).8 By 2021, reserves are expected to increase further to more than 9 months of imports, 132 percent of the standard ARA metric, and 174 percent of the metric adjusted for capital controls.

Figure 5.
Figure 5.
Figure 5.

Morocco: Reserve Coverage in an International Perspective, 2015 1/

Citation: IMF Staff Country Reports 2016, 265; 10.5089/9781475521825.002.A001

Sources: World Economic Outlook, Balance of Payments Statistics Database, and IMF staff estimates.1/ The assessing reserve adequacy (ARA) metric for emerging markets comprises four components reflecting potential balance of payment drains: (i) export income, (ii) broad money, (iii) short-term debt, and (iv) other liabilities. The weight for each component is based on the 10th percentile of observed outflows from emerging markets during exchange market pressure episodes, distinguishing between fixed and flexible exchange rate regimes.Sources: World Economic Outlook, and IMF staff estimates.

Fiscal policy: Morocco does not substantially underperform in the fiscal area.

  • Criterion 5—Sound public finance, including a sustainable public debt position. The authorities remain committed to a sustainable fiscal path and a track record of sound public finances. Consistent with their medium-term objectives to reduce public debt to 60 percent of GDP by 2020 (against 64.4 percent of GDP at present), which will require bringing the fiscal deficit to about 2 percent of GDP, the pace of fiscal adjustment and reform has picked up since the end of 2013. A deficit of 3.5 percent of GDP is projected in 2016. Following strong policy actions and reforms to rein in public spending in recent years, consolidation will need to be more reliant on structural tax measures, including because grant revenues are expected to decline after 2017. As part of the authorities’ plan to advance regionalization, fiscal decentralization has started and will need to be implemented carefully in order to preserve fiscal sustainability. Even though this should not raise risks in the short term, a clear medium term implementation plan should be established by the end of 2016 regarding the sequence of fiscal decentralization and measures to ensure sound public financial management at the regional level. This should include local spending responsibilities, revenue arrangements, and debt controls, and, more broadly, the implementation of the organic law for the regions. A draft law to reinforce the governance and oversight of public enterprises should also be introduced in the near term. The updated debt sustainability analysis shows public sector debt, which increased over the past three years due mainly to the levels of the primary deficit and higher-than-expected real interest rate/growth differential, to be sustainable and generally resilient to various shocks and vulnerabilities despite high gross financing needs, which are expected to decline due to a lengthening of average maturities.

Monetary policy: Morocco performs strongly in the monetary policy area.

  • Criterion 6—Low and stable inflation. Morocco continues to maintain low and stable inflation. Despite the March 2016 pickup in inflation to 1.8 percent (y-o-y) due mainly to higher food prices, inflation continues to be low and is expected to remain low in the medium term. Inflation expectations are well anchored, as reflected in BAM’s surveys. The authorities have decided to gradually introduce greater exchange rate flexibility and shift to inflation targeting during the period of the requested arrangement, which will allow the economy to better absorb external shocks. In staff's assessment, this transition is likely to proceed smoothly given that preconditions are largely in place and Morocco will move from a position of strength (due to the stronger fiscal and external buffers, resilience of the financial sector, and alignment of the exchange rate with fundamentals, as well as the absence of financial dollarization and current restrictions on capital outflows by residents).

Financial sector soundness and supervision: Morocco performs strongly in the financial sector area.

  • Criterion 7—Sound financial system and absence of solvency problems that may threaten systemic stability. Banks are well capitalized and profitable, benefiting from low operating costs, rising fee and commission income, and stable funding (mainly domestic deposits). NPLs are relatively high and continue to rise albeit at a slower pace, and concentration risks are significant, but banks are well provisioned and FSAP stress tests show the banking system could withstand severe adverse shocks associated with prolonged weak growth in advanced economies and greater global financial market volatility.

  • Criterion 8—Effective financial sector supervision. The 2015 FSAP concluded that bank supervision is effective and has improved, benefiting from increasing resources. The banking law adopted in November 2014 expands BAM’s regulatory and supervisory powers, and aims to improve cross-border supervision and tighten rules for consolidated risk management. The regulations to make it operational are advancing particularly in the area of banking regulation and oversight. Along with the implementation of stricter capital requirements, Morocco continues to strengthen banking supervision and is introducing macroprudential regulations. Supervision of Moroccan banks in sub-Saharan Africa is improving through strengthened coordination and exchange of information with supervisory agencies in host countries.

Data adequacy: Data provision and quality are fully adequate.

  • Criterion 9—Data transparency and integrity. Overall data quality continues to be adequate to conduct effective surveillance and program monitoring. Morocco subscribes to the Special Data Dissemination Standard. The authorities are committed to improving data quality and access.

C. PLL Approval Criteria

24. Morocco does not face any of the circumstances under which the Fund may not approve a PLL arrangement. Specifically: (1) as noted above, Morocco has access to international capital markets; (2) there is no need to undertake large macroeconomic or structural policy adjustment (neither the planned fiscal adjustment nor the expected external sector adjustment are large from an international perspective); (3) the public debt position is sustainable in the medium term; and (4) there are no widespread bank insolvencies.

PLL Arrangement Design

A. External Risks

25. In the baseline scenario, as a result of sound policies and fundamentals, Morocco does not face a financing gap. Gross external financing requirements are expected to amount to about $4.0 billion at the end of 2017 (Table 8), which should be financed primarily through net FDI inflows (about $2.6 billion) and medium- and long-term borrowing ($3.6 billion). Gross international reserves are projected to strengthen to about 110 percent of the ARA metric in the absence of external shocks by the end of 2017.

Table 8.

Morocco: External Financing Requirements, 2015–17

(Millions of dollars, unless otherwise specified)

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Source: IMF staff calculations.

The adverse scenario assumes: (1) an oil price shock of +$15/bb (2) a decrease in euro area growth by 1 percentage point; (3) a decline FDI and tourism receipts by 30 percent relative to the baseline; (4) a decline in portfolio flow s by 60 percent and an increase in borrowing costs by 100 bps.

Includes all other net financial flows, capital account balance and net errors and omissions.

The standard reserve adequacy metric is computed as 30 percent of short term debt (at a remaining maturity basis) + 20 percent of portfolio liabilities + 10 percent of broad money + 10 percent of exports.

The reserve adequacy metric adjusted for capital controls uses a 5 percent weight on broad money.

26. Nevertheless, the balance of payments position remains vulnerable to external shocks, justifying continued access under a PLL arrangement. Relative to the 2014 PLL arrangement, the nature of external risks that most significantly affect Morocco has shifted, as reflected in the April 2016 Global Risk Assessment Matrix (G-RAM) and the External Stress Index (Box 2). Whereas downside risks to oil prices have abated somewhat, the prospects of low euro area growth and heightened geopolitical and security risks have increased, and the materialization of these risks could reverse recent improvements and result in an external financing gap:

  • Geopolitical and security risks related to the Middle East and North Africa. These could trigger substantial rises in oil prices due to supply shocks, as well as declines in tourism activity and capital inflow disruptions, which could weaken Morocco’s current account position.

  • A protracted period of slower growth in Morocco’s euro area trading partners. As set out in the 2016 WEO, growth prospects have further weakened in advanced economies, including through potential spillbacks from a China slowdown. The impact would be through lower exports and tourism receipts, as well as reduced FDI and remittance inflows.

  • More volatile global financial conditions, particularly for emerging and frontier economies. Heightened investor risk aversion and uncertainty, compounded by an appreciating dollar, could trigger a flight to safe assets and a pullback of capital flows from emerging economies. Morocco would face a combination of higher borrowing costs in international markets (although the share of short-term external debt is low), and lower portfolio and other flows.

Morocco: External Stress Index

Background. The external sector index is an indicator of the evolution of the external environment faced by a particular country. Its use was mandated by the IMF Executive Board for Flexible Credit Line (FCL) and PLL countries at the time of the review of these instruments in June 2014.1/ The index is based on: (1) a consideration of the key external risks facing Morocco; (2) the selection of proxy variables capturing these risks; and (3) the choice of the weights to apply to each of these variables. The model was first developed at the time of the 2012 PLL request.

Risks. The main external risks for Morocco based on the April 2016 Global Risk Assessment Matrix (G-RAM), are: (1) a protracted period of slow growth in advanced economies, particularly in Morocco’s main trading partners, resulting in lower exports, FDI, tourism, and remittances; (2) heightened geopolitical risks resulting in higher oil prices and dislocations to capital flows and tourism receipts; and (3) a surge in global financial market volatility, resulting in higher borrowing costs and disruption to portfolio flows.

Proxy variables. (1) Lower exports, remittances, FDI, and tourism receipts from Europe are captured by growth in the euro area, Morocco’s main trading partner (representing more than 50 percent of trade, FDI, and remittances); (2) higher oil imports are captured by oil prices; and (3) the impact of global financial volatility on portfolio flows and borrowing costs are captured by the emerging markets volatility index (VXEEM).

Weights. A data-based approach was used to determine the weights for each variable. Weights for each proxy variable are estimated using the balance of payments and IIP data as a share of GDP. The weight on euro area growth (0.580) corresponds to the sum of exports, FDI, remittances, and tourism receipts from Europe, the weights on the VXEEM (0.095) correspond to the stocks of external debt and equity, and the weight on the change in oil price (0.324) corresponds to oil imports. The highest weights fall on euro area growth and the oil price (based on their relative contribution to items on the balance of payments/financing needs). The VXEEM has a much smaller weight reflecting the small size of portfolio flows in the financial account.

Baseline scenario. The baseline corresponds to the WEO projections for euro area growth and oil prices, while the VXEEM is consistent with VIX futures as of May 1, 2016. The graph suggests that at the current juncture, external economic stresses have declined relative to the 2014 request (solid lines). This is mainly driven by the decrease in the oil price path and the more favorable outlook for euro area growth.

Downside scenario. The downside scenario is broadly consistent with staff’s adverse scenario, and assumes euro area growth that is one percentage point lower than the baseline, a $15 increase in oil prices relative to the baseline, and an increase in the VXEEM by two standard deviations. The graph suggests that in a downside scenario, external economic stresses are more elevated than at the time of the last request (dotted lines).

Overall assessment. The external economic stress index for Morocco suggests that external pressures under the baseline have abated in recent years. However, the model does not include a proxy for geopolitical risk (given the difficulty in choosing such a variable). At present, this would suggest heightened stress.


Morocco - External Stress Index

Citation: IMF Staff Country Reports 2016, 265; 10.5089/9781475521825.002.A001

Source: IMF staff calcutations.
1/ See “The Review of The Flexible Credit Line, The Precautionary and Liquidity Line, And the Rapid Financing Instrument,” IMF Policy Paper, January 2014

B. Scenario Calibration and PLL Access

27. Staff’s assessment of potential balance of payments needs is based on an adverse scenario involving the realization of the key external risks discussed above, which is consistent with past crises and with recent Flexible Credit Line country cases (Figure 4). This scenario would entail significant impacts on the current account, including the trade balance (through exports and oil import costs, by about 5 percent of GDP), tourism receipts (3.6 percent of GDP), and remittances (0.6 percent of GDP), as well as on external financing flows, particularly FDI (1.5 percent of GDP) and portfolio flows (1.7 percent of GDP). The detailed calibration of this scenario is discussed in Box 3.

Figure 4.
Figure 4.

Morocco and Selected Countries: Comparing Adverse Scenarios

(Probability density)

Citation: IMF Staff Country Reports 2016, 265; 10.5089/9781475521825.002.A001

Source: Fund staff calculations.

Morocco: Adverse Scenario Calibration

The adverse scenario assumes the concurrent materialization of key downside risks to Morocco’s balance of payments. In line with the April 2016 Global Risk Assessment Matrix (G-RAM) and World Economic Outlook (WEO), the adverse scenario entails heightened security risks in the Middle East and North Africa that could disrupt capital flows and tourism receipts and generate an upward shock to oil prices, a growth slowdown in Morocco’s euro area trading partners, and tighter, more volatile financial conditions. The calibration of these shocks is in line with recent FCL country cases (Figure 4). The combined impact of these shocks would result in:

  • A net increase in the oil price by about $15. This includes: (1) an increase by $20 attributable to a negative shock to oil producers related to geopolitical risks; and (2) a decrease by $5 attributable to the spillover effects on commodity markets of weak euro area growth. This is broadly in line with the spring 2016 WEO medium-likelihood scenarios for Brent prices (relative to a baseline projection of $45.4 and $52.6 in 2016 and 2017, respectively). This would impact the current account through higher energy imports.

  • A decline in euro area trading partners’ growth by 1 percentage point, broadly consistent with the WEO downside scenario and a 1-standard deviation shock to 2005–14 growth. This would impact the current account through lower exports and remittances (based on estimated elasticities with euro area growth).

  • A net decline in tourism receipts by about 30 percent relative to the baseline, driven by a further decline in euro area growth (about one-quarter of the decline; based on the 2008–13 average historical response of tourism revenues to declines in euro area growth) and heightened geopolitical risks (three-quarters of the decline; consistent with empirical studies on the impact of security-related risks on tourism inflows).

  • A decline in FDI inflows by 30 percent and equity portfolio outflows of about 60 percent relative to the baseline. This is driven by both the decline in euro area growth and the increase in geopolitical risks.

  • An increase in interest rates by 100 basis points above the baseline, resulting from increased risk aversion given tighter global financial conditions and uncertainty stemming from geopolitical risks.

Comparison of Adverse Scenario Assumptions

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Impact of Shocks

(Millions of dollars)

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The financing gap is defined as the level of financial support needed to bring gross international reserves under the adverse scenario to 90 percent of the Fund’s ARA metric, about the level projected in the 2015 baseline. The above adverse scenario results are consistent with a potential financing need of about $3.556 billion by the end of 2017 (equivalent to a total access level of 280 percent of the new quota, or 426 percent of the old quota).

28. The resulting financing gap would justify a total access level of 280 percent of new quota (about $3.556 billion) by 2018 (text table). As noted, Morocco’s reserves have strengthened considerably in recent years (by $3.8 billion from the end of 2013). The impact of the adverse scenario would be absorbed through both: (1) a drawdown in reserves of about $10 billion, down to 90 percent of the Fund’s standard ARA metric, the same benchmark as under the current arrangement (equivalent to 120 percent of the adjusted ARA metric or 6.4 months of imports); and (2) supplementary PLL access of 280 percent of the new quota (about $3.556 billion), which is a lower access level than in the 2014 and 2012 PLL arrangements.

Size of Shocks and PLL Access

(Millions of dollars)

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C. Conditionality

29. The proposed successor arrangement would retain the conditionality structure of the current arrangement, namely quantitative indicative targets (ceilings) on the overall budget balance (including grants) and floors on net international reserves. Indicative targets would be adjusted based on the excess or shortfall in grants. In light of the authorities’ record in implementing appropriate actions in a timely manner, and in line with the current PLL arrangement, staff does not propose to set structural conditionality. All standard performance criteria (such as non-accumulation of external payment arrears) will apply.

D. Duration and Exit

30. The authorities have requested a two-year successor arrangement covering the period July 22, 2016-July 21, 2018. Accordingly, the current arrangement, which would expire on July 27, 2016, would be canceled upon approval of the requested arrangement. Staff believes that a two-year precautionary arrangement would indeed be appropriate, given that: (1) geopolitical and security risks, and, more broadly, volatile global financial conditions, are unlikely to improve markedly in the near term; and (2) a two-year period is necessary to address the remaining vulnerabilities and further strengthen macroeconomic buffers that would allow for a successful exit should external circumstances warrant it.

31. The projected improvements in Morocco’s external position and the declining PLL access relative to previous PLL arrangements signal strong prospects of an exit. Staff considers that the authorities’ policy package, as described below, will be instrumental in further reducing fiscal and external vulnerabilities and strengthening the economy’s resilience. Under the baseline scenario, by the end of the arrangement, the primary fiscal deficit would fall below the debt-stabilizing balance, and public debt would be put firmly on a downward path, while the current account deficit would be close to what would be expected for an emerging market country like Morocco, and reserves would have reached a comfortable level (about 117 percent of the Fund’s ARA metric). Prospects for an exit have therefore improved, and the authorities should communicate their exit strategy, in line with their expectation (W-COM.-¶15) that continued strengthening of the economy’s resilience should position Morocco well for exiting the PLL, if relevant global and regional external risks (for example, improved euro area growth prospects and lower geopolitical risks) subside.

Capacity to Repay the Fund

32. Morocco has no outstanding debt to the Fund. Full drawing under the proposed PLL arrangement—which the authorities intend to treat as precautionary—would bring Morocco’s outstanding use of General Resources Account (GRA) resources to an amount equivalent to SDR 2.504 billion.

33. Were the full amount available under the proposed PLL arrangement in the first year to be purchased in 2016:

  • Morocco’s total external debt would remain moderate, with Fund credit reaching about one-eighth of total external debt at its peak.

  • External debt service would increase over the medium term. Morocco’s projected debt service to the Fund would peak in 2018 at about 1.5 percent of GDP.

34. The proposed arrangement would represent manageable credit and liquidity risks to the Fund (see Table 10). This assessment is supported by the reduced access, which underscores the authorities’ intention to exit as external risks subside, and rigorous ex ante and focused ex post conditionality. In line with lower access, the one-year forward commitment capacity (FCC) of the Fund would decrease by about 0.8 percent to about SDR 223.3 billion (Fund finances as of June 16, 2016) upon expiration of the current PLL arrangement, and approval of its successor. The proposed access represents a small share of current total GRA commitments (1.7 percent), suggesting that the effect on the Fund’s liquidity would remain manageable. Should the authorities fully draw the proposed PLL arrangement, GRA credit to Morocco would be equivalent to about 5.3 percent of current GRA credit outstanding (as of June 16, 2016). This amount represents about 17.6 percent of the Fund’s precautionary balances for the end of the 2015 financial year. Peak charges would be equivalent to 15.8 times the current burden-sharing capacity given the low SDR interest rate environment and reliance on borrowed resources that do not contribute to burden-sharing capacity.9

Table 10.

Morocco: Impact on GRA Finances

(In millions of SDR unless otherwise indicated)

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Sources: Finance Department and IMF staff estimates.

The FCC measures the Fund's capacity to make new GRA commitments. It includes the liquidity effects of resources made available under borrowing and note purchase agreements.

Current FCC minus new access plus access under the expiring program adjusted for the NAB financed portion of the expiring commitment (about SDR 2,426 million) which is not available to finance new commitments.

Total GRA commitments are equal to credit outstanding plus undisbursed balances of current arrangements (excl. Morocco).

Based on current Fund credit oustanding plus full drawings under the proposed PLL.

Includes surcharges. Takes into account the loss in capacity due to nonpayment of burden sharing by members in arrears.

35. Safeguards Assessment. The 2015 safeguards policy review introduced, inter alia, a streamlining measure that no update assessment would be necessary if a safeguards assessment was completed 18 months prior to approval of a successor arrangement. The last assessment of the BAM was completed in January 2015, and therefore an update safeguards assessment is not required. However, monitoring of safeguards developments at the BAM will continue. The 2015 assessment found a robust safeguards framework with strong control mechanisms at the central bank. The BAM has implemented all but two recommendations from the last assessment: amending the BAM Law to strengthen the autonomy and governance arrangements and implementing International Financial Reporting Standards (IFRS). As noted, the authorities have indicated that a new central bank law will be drafted and submitted to parliament by the end of 2016. Following a feasibility study carried out by the BAM, with the assistance of an external consultant, the central bank maintained the current accounting standards, and instead increased the quality of financial statement disclosures to enhance transparency.

Staff Appraisal

36. The authorities have made significant strides in reducing fiscal and external vulnerabilities in recent years. Macroeconomic conditions have improved, with external imbalances declining substantially and fiscal consolidation advancing. The current program remains on track. Progress has been made in strengthening the policy and institutional frameworks, including the implementation of the new OBL, and ongoing improvements to financial sector regulation and supervision. The authorities are also moving decisively toward a more flexible exchange rate regime, which will help improve competitiveness and macroeconomic resilience.

37. Nevertheless, in an environment still subject to significant downside risks, sustaining the reform momentum will be essential. Building on recent achievements, sustaining the pace of reforms will help further reduce remaining vulnerabilities, and achieve higher and more inclusive growth. Following strong policy actions and reforms to rein in public spending in recent years, consolidation going forward would have to rely more on structural tax measures, including because grant revenues are expected to decline after 2017. Pension reform, which has been delayed for some time, is urgent and needs to be effective as expected in early 2017. Fiscal decentralization will need to be implemented carefully in order to preserve fiscal sustainability. Adopting the central bank law and continuing to implement FSAP recommendations will help strengthen the financial sector policy framework. The authorities should also build on recent efforts to improve the business climate, competitiveness and access to finance in order to increase potential growth, while decisive progress is needed to reduce persistently high unemployment levels, especially among the youth, and to increase the participation of women in the labor force.

38. Morocco continues to meet the PLL qualification criteria. The IMF Executive Board’s assessment during the 2015 Article IV consultation and the last PLL review was positive. Morocco’s economic fundamentals and institutional frameworks are sound. The country has a track record of—and is implementing—sound policies and adjusting to shocks, and remains committed to such policies in the future. Morocco performs strongly in four out of five areas of PLL qualification (external, monetary, financial, and data), and does not substantially underperform in the fiscal area.

39. The authorities’ policy package appropriately addresses short- and medium-term challenges. Staff considers that the program described in the authorities’ written communication is appropriate to continue reducing fiscal and external vulnerabilities, including by putting public and external debts on downward paths and by increasing reserves to a more comfortable level, while strengthening the foundation for higher and more inclusive growth.

40. Staff recommends the approval of a new two-year PLL arrangement of SDR 2.504 billion (280 percent of the quota, of which 140 percent would be available in the first year). Such access is consistent with the size of downside risks as evaluated in staff’s adverse scenario. It is less than that prescribed in the second arrangement, reflecting the strengthened resilience of the economy. Nonetheless, the phasing is appropriate to help insure against the possibility that several independent risks materialize at the same time despite a reduction in the insurance coverage from the existing level. The duration of two years is consistent with the possible persistence of external risks. The current arrangement will be cancelled upon approval of the new one.

41. Staff believes that the proposed successor PLL arrangement carries low risks to the Fund. The requested arrangement will have minimal impact on the Fund’s liquidity and, even though Morocco intends to treat the PLL as precautionary, GRA credit to Morocco would be low in the event of a full drawing by Morocco of available resources. In addition, risks would be further mitigated by Morocco’s relatively low external debt levels and debt service obligations.

Table 1.

Morocco: Selected Economic Indicators, 2012–21

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Sources: Moroccan authorities; and IMF staff estimates.

Refers to the macro framework for the 3rd review of the PLL arrangement in CR/16/38.

Revised macro framework, based on national accounts based in 2007 and BOP manual 6.

Includes credit to public enterprises.

Based on revised ARA weights.

Table 2.

Morocco: Budgetary Central Government Finance, 2012–21

(Billions of dirhams)

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Sources: Ministry of Economy and Finance; and IMF staff estimates.

Refers to the macro framework for the 3rd review of the PLL arrangement in CR/16/38.

Revised macro framework, based on national accounts based in 2007.

Includes capital transfers to public entities.

Table 3.

Morocco: Budgetary Central Government Finance, 2012–21

(Percent of GDP)

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Sources: Ministry of Economy and Finance; and IMF staff estimates.

Refers to the macro framework for the 3rd review of the PLL arrangement in CR/16/38.

Revised macro framework, based on national accounts based in 2007.

Includes capital transfers to public entities.