Morocco: First Review Under the Arrangement Under the Precautionary and Liquidity Line

First Review Under the Arrangement Under the Precautionary and Liquidity Line


First Review Under the Arrangement Under the Precautionary and Liquidity Line

Recent Developments and Performance Under the Program

1. The Executive Board approved a two-year precautionary and liquidity line (PLL) arrangement in July 2016 in the amount of SDR 2.504 billion (or 280 percent of quota), equivalent to US$3.556 billion. The arrangement supports the authorities’ program to rebuild fiscal and external buffers and promote higher and more inclusive growth. The 2016 Article IV consultation with Morocco was concluded on January 23, 2017. Executive Directors welcomed the authorities’ strong commitment to sound policies, and encouraged them to sustain their reform efforts to further reduce vulnerabilities and promote stronger job creation and more inclusive growth.

2. Following the October 2016 elections and a protracted transition, a new coalition government was appointed in early April 2017. On March 17, 2017, the King appointed a new Prime Minister, Saad-Eddine El Othmani, from the Islamist Justice and Development Party (PJD) that won the majority of seats in the October 2016 parliamentary elections. The new cabinet was appointed on April 5, 2017. Policy continuity is expected, as the new coalition consists mostly of the same political parties as in the previous government. The completion of the first review has been delayed beyond end-January due to the absence of a cabinet capable to advance bills in Parliament.

3. Macroeconomic conditions have improved in recent years, but higher and more inclusive growth is needed, including to reduce unemployment. The authorities have reduced domestic and external imbalances. Inflation remains low and inflation expectations are well-anchored. Progress has been made in upgrading the fiscal and financial policy frameworks, and structural reforms have helped improve the business environment and access to finance for small and medium-sized enterprises (SMEs). Nevertheless, external risks are still elevated and achieving higher and more inclusive growth will require continued strong policies and reforms.

4. Growth slowed significantly in 2016. Growth is estimated to have reached 1.1 percent, against 4.5 percent in 2015, due to a sharp slowdown in agriculture (given a negative base effect following record agricultural production in 2015 and a drought) and subdued non-agricultural activity. The unemployment rate decreased to 9.4 percent in 2016, from 9.7 percent in 2015, while youth unemployment increased to 22.5 percent in 2016 from 20.8 percent in 2015.

5. The external position remains strong despite a larger current account deficit than expected in 2016 (Box 1). The current account deficit is estimated to have reached 4.4 percent of GDP in 2016, more than that expected at the PLL request stage. This was due to stronger capital equipment and food imports, and to the impact of lower phosphate prices that offset otherwise robust export growth. Nevertheless, the current account has been strengthening from its level of 9.3 percent of GDP in 2012, due mainly to lower oil prices and strong export growth in emerging sectors, such as automobiles, while steady foreign direct investment (FDI) inflows (averaging 2.5 percent of GDP), international bond issuances, and trade credit supported the capital account. As a result, international reserves exceeded the end-September indicative target, and reached 6.6 months of imports or 99 percent of the standard IMF Assessing Reserve Adequacy (ARA) metric (129 percent when adjusted for capital controls) at the end of 2016.

6. Although the fiscal deficit was higher than projected at the end of 2016, data for the first quarter of 2017 show that fiscal performance is improving. The end-September 2016 indicative target under the PLL arrangement was met (deficit of 2.6 percent of GDP against an indicative target of 2.7 percent). For 2016 the latest estimate is that the deficit was 4.1 percent of GDP, almost the same level as in 2015, but higher than the authorities’ objective of 3.5 percent of GDP, and associated with an increase in the structural fiscal deficit. This outcome was primarily due to a revenue shortfall related to lower-than-expected growth and to accelerated VAT reimbursements (to ease SME financing constraints), while increased capital spending (to support growth) was offset by lower current spending. For the first quarter of 2017, preliminary data show strong tax revenue performance (9 percent increase y-o-y, despite much lower grant revenues than expected), at least partially recouping the shortfall observed in 2016, and leading to a fiscal deficit below the end-March program target.

Fiscal and External Data Revisions for end-2016

Data for end 2016, made available in late January, differ from estimates at the time of the 2016 Article IV consultation, which were based on end-September 2016 data. The key changes are a fiscal deficit of 4.1 percent of GDP in 2016 (against an estimated 3.5 percent), and a current account deficit of 4.4 percent of GDP (against an estimated 2.9 percent).

Fiscal deficit. The higher-than-expected fiscal deficit at end-2016 was the result of:

  • Tax revenue shortfalls, including lower-than-expected income tax revenues (especially after October 2016) and VAT revenues (partially explained by accelerated VAT reimbursements).

  • Higher capital spending due to stronger project execution in a low growth environment.

  • Higher subsidies, including to public transportation.

  • Significantly lower current spending, especially on wages, goods and services, and grants.

Fiscal Developments in 2016

(In percent of GDP)

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

External accounts. The higher-than-expected current account deficit was due to a larger-than-projected trade deficit, mainly caused by factors that are expected to be temporary:

  • Imports increased because of higher imports of capital goods (to support infrastructure projects) and food products (due to the drought).

  • Export growth slowed, reflecting weaker-than-expected phosphate prices, while non-phosphate exports remained robust.

  • Remittances and tourism receipts remained strong.

Overall, reserves continued to increase in 2016, reaching just under 100 percent of the ARA metric, due mostly to higher external borrowing by private sectors.

7. Monetary policy remains accommodative. Average inflation was about 1.6 percent in 2016. Since Bank-Al-Maghrib (BAM) reduced its policy rate to 2.25 percent in March 2016, lending rates have declined and credit growth has recovered to 4.2 percent by December 2016 (y-o-y), driven by household (mortgage and consumption) and investment lending. Real estate prices have declined gradually in recent years. Banks are well capitalized, but rising non-performing loans (NPLs), credit concentration risks, and rapid expansion in Sub-Saharan Africa (SSA) are sources of concern. Banks’ Tier 1 capital ratio stood at 13.7 percent in 2016. NPL ratios, at 7.5 percent at the end of 2016, are practically unchanged from 2015, and provisioning levels are comfortable. Large exposure risks persist despite stricter limits than Basel III. The expansion of Moroccan banks in SSA opens new channels of risk transmission given the riskier environment, but cross-border supervision continues to be strengthened.


Bank Lending Rates and Interest Margin


Citation: IMF Staff Country Reports 2017, 146; 10.5089/9781484303146.002.A001

Sources: Bank Al-Maghrib; and IMF staff estimates.

Contribution to Credit Growth

(Annual percent change)

Citation: IMF Staff Country Reports 2017, 146; 10.5089/9781484303146.002.A001

Sources: Bank Al-Maghrib; and IMF staff estimates.

8. Building on recent progress, reforms are expected to focus on the fiscal and financial policy frameworks, the exchange rate regime, and structural improvements to raise potential growth (Table 1):

  • Fiscal policy framework. Recent progress includes the implementation of the new organic budget law (OBL) and the adoption of the pension reform. Over the medium term, continued efforts are needed to reduce public debt to about 60 percent of GDP by 2020 and to increase fiscal buffers, including: accelerating tax reforms in line with recommendations from the 2013 national tax conference, including measures to boost VAT revenues and reduce tax exemptions (e.g., in the agricultural sector); better enforcing tax payments by the self-employed and liberal professions; ensuring sound public financial management at the local level as part of fiscal decentralization; pursuing comprehensive civil service reform; and enhancing financial oversight of state-owned enterprises (SOE).

  • Financial sector policy framework. The authorities continue to implement the 2015 FSAP recommendations, including by increasing supervisory capacity. The new central bank law, which will strengthen the central bank’s independence and clarify its role for financial stability, is expected to be approved by parliament in 2017.

  • Exchange rate regime. The authorities have entered the final preparatory phase for the introduction of greater exchange rate flexibility, which is expected to be gradual and to start by mid-2017. Staff is collaborating closely with the authorities on all key operational aspects of the transition.

  • Business environment, access to finance, and labor market. Progress has continued in these reform areas, including recently on property registration, setting up a business, and limiting payment delays in the public sector. The authorities are also pursuing reforms to improve access to finance, including by strengthening credit information systems and collateral frameworks. However, the authorities still need to appoint the members of the Competition Council. Progress is also needed on implementing the national strategy to fight corruption, and the national strategy for employment adopted in 2015 should now be followed by a specific action plan. Finally, improving the quality of education, adjusting labor market regulations, and increasing female labor force participation remain essential priorities to support job creation, particularly for the youth, and to promote more inclusive growth.

Reform Priorities and Implementation Under Successive PLL Arrangements 1/

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The previous two PLL arrangements with Morocco were during 2012–14 and 2014–16.

Note: Ongoing reforms are in italics.
Table 1.

Morocco: Selected Economic Indicators, 2012–22

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Sources: Moroccan authorities; and IMF staff estimates.

Refers to the macro framework for the 3rd PLL arrangement in CR/16/265.

Based on revised ARA weights.

Outlook and Risks

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

  • Growth is expected to rebound to 4.5 percent in 2017, reflecting a strong pick up in agricultural output (given a positive base effect following the 2016 drought) and a slow recovery of non-agricultural activity. Over the medium term, growth should stabilize at around 4.6 percent, subject to steadfast reform implementation, including agricultural sector modernization, and continued implementation of structural reforms to improve the business climate and boost productivity.

  • Inflation is expected to remain moderate at 1.1 percent in 2017 due to a decline in domestic food prices (following their sharp increase in 2016), in the context of an appropriately accommodative monetary policy. It is projected to stabilize around 2 percent over the medium term.

  • The current account deficit should narrow to about 3.3 percent of GDP in 2017, and remain in the 1.5–2 percent of GDP range thereafter. This would reflect: (i) continued export growth, including in the higher value-added emerging sectors and due to recovering phosphate prices; (ii) steady imports, with slowly rising oil prices, and continuing investment-related imports; and (iii) declining grant revenues. FDI inflows are projected to remain robust, helping to raise the reserves position to around 8 months of imports, or 119 percent of the standard ARA metric (157 percent of the adjusted metric) in the medium term.

  • The overall fiscal deficit is expected to decline to 3.5 percent of GDP in 2017 and to stabilize at 2.1 percent of GDP in the medium term, consistent with the authorities’ objective to reduce public debt to about 60 percent of GDP by 2020. The 2017 budget is expected to be approved during the April 2017 parliamentary session. The upward revision of the fiscal deficit in 2017 (0.5 percent of GDP higher) relative to the PLL request reflects a combination of lower revenues (1.4 percent of GDP, due mostly to a projected decline in various non-tax revenues, including interest income on treasury special accounts), lower current spending (1.1 percent), and higher capital spending (0.2 percent). The higher capital spending projection reflects the authorities’ intention to reduce public investment spending only gradually from their 2016 level, to protect the slow growth recovery in non-agricultural sectors. These revisions require a small adjustment to the end-September indicative target for the fiscal deficit (see below). Achieving the medium-term deficit objectives will require expeditious measures to enhance tax revenues (as noted above), continued efforts to contain current spending, and identifying contingency measures to cope with a possible grant revenue shortfall.

10. The balance of risks remains tilted to the downside. Weak growth in the euro area could slow economic activity through lower exports, tourism, FDI flows, and remittances, worsening fiscal and external imbalances; geopolitical risks could increase oil price volatility and reduce tourism activity and weaken investor confidence; tighter, more volatile financial conditions, global policy uncertainty, and a retreat from cross-border integration could impact global growth, increase borrowing costs, lead to reduced trade and capital flows, and weaken consumer and investor confidence more generally. On the upside, continued lower energy prices would help further narrow external and fiscal imbalances. Also, agricultural sector growth in 2017 may be stronger than expected, which could lead to improvements in fiscal revenues and in the public deficit for 2017.

External Stress Index

Background. The external sector index is an indicator of the evolution of the external environment faced by a 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: (i) a consideration of the key external risks facing Morocco; (ii) the selection of proxy variables capturing these risks; and (iii) 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.


Morocco: External Stress Index

Citation: IMF Staff Country Reports 2017, 146; 10.5089/9781484303146.002.A001

Sources: WEO; and IMF staff estimates.

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

Proxy variables. (i) 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); (ii) higher oil imports are captured by oil prices; and (iii) 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 weights are as of the PLL request stage. 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 smaller weight reflecting the small size of portfolio flows in the financial account.

Baseline scenario. The baseline corresponds to the April 2017 World Economic Outlook (WEO) projections for euro area growth and oil prices, while the VXEEM is consistent with volatility index (VIX) futures as of April 21, 2017. The graph suggests that at the current juncture, external economic stresses have marginally declined relative to the July 2016 request (solid lines). This reflects higher oil price path assumptions being largely offset by stronger EA growth and improved VXEEM index projections.

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 US$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 broadly comparable to those at the July 2016 request.

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 a relatively more heightened stress index.

1 See “The Review of the Flexible Credit Line, the Precautionary and Liquidity Line, and the Rapid Financing Instrument,” IMF Policy Paper, January 2014

Review of PLL Qualification

11. Staff’s assessment is that Morocco continues to qualify for a PLL arrangement. In line with the generally positive assessment of Morocco’s policies by the Executive Board during the 2016 Article IV consultation, and although additional information since then indicates that certain indicators for 2016 were not as strong as expected, staff’s assessment is that Morocco meets the PLL qualification criteria.

A. General Assessment

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

  • Macroeconomic developments are broadly positive. While fiscal developments in 2016 were less favorable than expected, this was due to slower growth and accelerated VAT reimbursements, which do not reflect major policy shortcomings. On the external front, reserves have further increased despite a higher than expected current account deficit (due in part to temporary factors). The banking system has remained stable. Over the medium term, economic growth is expected to gradually increase in a context of low inflation. Both public and external debts are sustainable.

  • The authorities have implemented sound policies. During the 2016 Article IV consultation in January, the Executive Board welcomed the authorities’ continued strong commitment to sound policies, and encouraged them to sustain their reform efforts to further reduce vulnerabilities and promote stronger job creation and more inclusive growth.

  • The authorities remain committed to maintaining sound policies.1 Public finances are expected to improve in 2017. This would reflect stronger economic growth, but also the new government’s commitment to maintain the key parameters introduced in the draft budget law (submitted to parliament last October but not yet adopted), and to take the necessary measures to meet the fiscal objectives (W-COM.-¶4). In the medium term, the new government also remains committed to reducing public debt to 60 percent of GDP by 2020, which will require bringing the fiscal deficit to about 2.1 percent of GDP. The authorities 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, and through increased 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 new OBL is enhancing budgetary procedures and practices, and was instrumental in maintaining current spending below budgeted levels in 2016. More broadly, the authorities met their fiscal objectives in recent years by taking swift corrective action in the face of unforeseen grant revenues shortfalls (except in 2016). During the transition to the new government, and pending the approval of the 2017 budget by parliament, public expenditures and revenue collection have been ruled by decrees passed by the Head of Government. 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.2 Morocco scores lower in the monetary policy area, but this indicator is less relevant for Morocco given its pegged exchange rate regime. Furthermore, Bank al-Maghrib (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 the transition to greater exchange rate flexibility and inflation targeting.3 Lastly, Morocco is in the mid-range of the World Bank’s anti-corruption and government effectiveness ranking.

13. Overall, Morocco continues to meet the qualification criteria for a PLL arrangement and to perform 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 (W-COM.-¶1).

B. Assessment of Specific Criteria

14. Morocco 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).

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

  • Criterion 1. Sustainable external position. The trade deficit has declined between 2012 and 2015, due to decreasing international oil prices and stronger, more diversified export growth, and the reduction in domestic macroeconomic imbalances. In 2016, the trade deficit widened due primarily to temporary factors related to infrastructure development, the drought, and weaker-than-expected phosphate prices. However, the structure of the current account has strengthened: emerging sectors now account for 33 percent of total exports, relative to 14 percent in 2000, and strong tourism and remittance receipts continue to support improvements in the current account. This pattern is expected to continue over the medium term as (i) exports rise, boosted by increasing external demand and the expansion of newer, higher value-added export sectors, while (ii) import growth remains moderate in an environment of moderate commodity prices and a gradual shift to more renewable energy use, and (iii) tourism receipts strengthen, tapping new markets. The real effective exchange rate is broadly in line with fundamentals based on the recent external balance assessments (EBA).4 The external debt sustainability analysis provided in the 2016 Article IV report shows that Morocco’s external debt has increased but remains relatively low, at about 33 percent of GDP at end-2016. Furthermore, it is expected to decline to about 25 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.


Real and Nominal Effective Exchange Rates, 2009-2017

(Index, 2010=100)

Citation: IMF Staff Country Reports 2017, 146; 10.5089/9781484303146.002.A001

Sources: IMF INS database. Estimates based on relative CPI.
  • Criterion 2—Capital account position dominated by private flows. Private capital flows constitute the largest share of the capital account (about 82 percent), and FDI is their largest component. Access to international financial markets by nonfinancial corporations remains modest compared to other emerging markets, and private external debt is small (about 11.1 percent of total debt or 3.9 percent of GDP). Loans from bilateral and 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 issued international bonds at favorable terms, aided by the global low interest rate environment, and plans to continue tapping into such markets periodically. The government raised EUR 1 billion in June 2014, and the National Phosphate Company (OCP) issued a US$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 2016, 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 international reserves are now comfortable by several metrics (Figure 5): nearly 7 months of imports, ample coverage of short-term debt and broad money, 99 percent of the standard ARA metric, and 129 percent of the metric adjusted for capital controls at the end of 2016 (against 95 percent and 124 percent at the end of 2015, respectively). By 2022, reserves are expected to increase further to about 8 months of imports, 118 percent of the standard ARA metric, and 156 percent of the metric adjusted for capital controls.

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. A deficit of 3.5 percent of GDP is projected in 2017 and the authorities aim to reduce public debt to 60 percent of GDP by 2020 (against 65.1 percent of GDP in 2016) (W-COM.-¶4), which will require bringing the fiscal deficit to about 2.1 percent of GDP in the medium term. Public debt is sustainable and resilient to various shocks and vulnerabilities despite high gross financing needs, which should decline due to a lengthening of average maturities (from 6 years and 6 months in 2014 to 7 years and 5 months in 2016). Following reforms to rein in public spending in recent years, future fiscal consolidation needs to rely more on accelerated tax reforms, building on a comprehensive approach to broaden the tax base, reduce exemptions, boost VAT revenues, and improve corporate taxation. Continued civil service reform will also help to generate long-term savings on public wage spending. Fiscal decentralization should ensure sound public financial management at the regional level and preserve fiscal sustainability. To that effect, the authorities have started to implement key institutional mechanisms and checks and balances, while expressing interest in Fund TA support. Finally, the draft law to reinforce the governance and oversight of SOEs should be submitted to parliament in the near-term.

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

  • Criterion 6—Low and stable inflation. Morocco maintains moderate and stable inflation, and this is expected to continue in the medium term, with inflation expectations being well anchored. As part of the transition to greater exchange rate flexibility, the authorities aim to gradually shift to an inflation targeting regime (W-COM.-¶12). This will allow the economy to better absorb external shocks. Staff and the authorities agree that this transition is likely to proceed smoothly given that pre-conditions are largely in place and Morocco will move from a position of strength, including: increased fiscal and external buffers; financial sector resilience; exchange rate alignment with fundamentals; limited FX risk exposures in the economy; and an estimated moderate pass-through of exchange rate movements to consumer prices.

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 have adequate capital buffers and benefit from stable funding (mainly non-remunerated deposits). NPLs have been rising since 2012 but remain moderate, credit concentration risks remain significant despite strict regulatory limits and declining aggregate exposure, and Moroccan banks’ expansion into Sub-Saharan Africa opens new channels of risk transmission. However, provisioning levels are high and increasing, and the 2015 FSAP stress tests showed that the banking system could withstand severe shocks associated with prolonged weak growth in advanced economies and greater global financial market volatility.

  • Criterion 8—Effective financial sector supervision. Bank supervision is effective and the 2015 FSAP recommendations to strengthen it further are being implemented. Along with the introduction of stricter capital and provisioning requirements, the authorities are enhancing the macroprudential policy framework. The oversight of Moroccan banks expanding into sub-Saharan Africa has been strengthened considerably, including in close collaboration with supervisory agencies in host countries (W-COM.-¶11).

Data adequacy: Data provision and quality are fully adequate.

  • Criterion 9—Data transparency and integrity. Overall data quality continues to be strong and 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.

Other Program Issues

15. The end-September 2016 quantitative indicative targets (IT) for the fiscal deficit and net international reserves (NIR) were met. In addition, the end-March 2017 fiscal deficit IT was met without adjustments, and with a substantial margin once the adjustor for grants is considered. However, the end-March 2017 NIR IT (set at the time of the PLL request) was missed by a margin of US$1.1 billion (or 4 percent of the adjusted target), reflecting the widening current account deficit since July 2016 (by nearly US$3 billion at end-2016).

16. The end-September 2017 IT for the fiscal deficit and NIR have been set. Specifically, the fiscal deficit IT accounts for the higher fiscal deficit expected in 2017 relative to the program request. The end-September 2017 NIR IT reflects a slower increase in reserve accumulation due to the impact of temporary factors in 2016-17 (such as higher capital equipment and food product imports) and to a higher path of oil prices relative to the PLL request stage. However, reserves are still expected to remain at comfortable levels.

17. Should Morocco draw on the entire amount available, it would have adequate capacity to repay the Fund, while credit and liquidity risks to the Fund would remain low (Table 7).5 Whereas the authorities continue to treat the PLL arrangement as precautionary, in the event of a drawdown, Fund obligations would represent only a small share of Morocco’s total external debt (a maximum of 8.1 percent over the projection period), debt service (21 percent), gross international reserves (13.4 percent), and exports (9.7 percent). In addition, the impact of the PLL arrangement on the Fund’s liquidity and potential exposure continues to be moderate. The commitment to Morocco is modest and the PLL arrangement reduces the Fund’s forward commitment capacity only marginally.

Table 2.

Morocco: Budgetary Central Government Finance, 2012–22

(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 PLL arrangement in CR/16/265.

Includes capital transfers to public entities.

Table 3.

Morocco: Budgetary Central Government Finance, 2012–22

(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 PLL arrangement in CR/16/265.

Includes capital transfers to public entities.

Table 4.

Morocco: Balance of Payments, 2012–22

(In billions of U.S. dollars, unless otherwise indicated)

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Sources: Ministry of Finance; Office des Changes ; and IMF staff estimates and projections.

Refers to the macro framework for the 3rd PLL arrangement in CR/16/265.

Based on WEO data for actual and projections.

Excluding the reserve position in the Fund.

Based on revised ARA weights.

Public and publicly guaranteed debt.