Annex I. Views of the Authorities
The Moroccan authorities thank Mr. Gregory and his team for an interesting and well-focused report on the Ex-Post Evaluation of the Precautionary and Liquidity Line (PLL) Arrangement approved on July 2014, and broadly agree with its main conclusions.
The report indicates that the 2012–14 PLL arrangement was aimed at supporting the authorities’ economic strategy geared at strengthening macroeconomic stability and promoting stronger and inclusive growth, by providing insurance against external risks.
The report also highlights the improvement of Morocco’s macroeconomic fundamentals under the 2014 PLL and the continued eligibility of Morocco to this facility.
The Moroccan authorities would like to make the following comments:
The report’s reference to over optimism in growth projections is not well founded. Indeed, to confirm this statement, there is a need for a comprehensive comparison of the exogenous assumptions (partners’ growth, commodity prices, including oil and phosphates, exchange rates, climate conditions) with actual developments. Moreover, non-agricultural growth decelerated during the PLL period, losing almost one percentage point compared to its pre-2013 trend, mainly due to the slowdown in domestic demand, notably investment. It would therefore have been desirable to shed more light on the various factors that contributed to this deceleration, in particular those relating to fiscal consolidation. This will be key to understanding the shortfall in growth and would also help us to set a path of fiscal consolidation in the medium term that is compatible with the objective of strengthening nonagricultural growth.
The report asserts that the external balance has strengthened considerably. However, competitiveness gains were assessed to be relatively modest by reference to the ratio of exports to GDP which remained virtually stable over the period. In this regard, it should be emphasized that competitiveness is a relative concept, as this ratio has declined for all competitors, especially since world trade has slowed considerably over the period. Moreover, this conclusion should be reconsidered insofar as the majority of competitiveness indicators have improved during this period, such as the volume index of world demand addressed to Morocco and the country’s absolute market share in world trade, while the exchange rate has remained broadly in line with fundamentals.
Staff analysis indicates that fiscal multipliers for Morocco are relatively small: the impact multiplier varies between 0.095 and 0.3, and the cumulative impact is estimated to be around 0.6. Overall, the analysis tends to suggest that well-designed fiscal consolidation (i.e., tilted to public consumption) would reduce public debt with limited contractionary effect on growth (See Box 2 in CR 16/35, 11/30/15).
Staff analysis suggests that a downturn of about 1 percent in Europe would decrease Morocco’s potential output by about 0.3 percent within the year, and by about 0.65 percent three years out. See Box 1 in “Morocco: Selected Issues” (CR/13/110, 05/08/13).
“Selected Decisions and Selected Documents of the IMF, Thirty-Eighth Issue, prepared by the Legal Department of the IMF
The nine underlying criteria are (1) a sustainable external position; (2) a capital account position dominated by private flows; (3) a track record of steady sovereign access to international capital markets at favorable terms; (4) a reserve position that is relatively comfortable when the PLL arrangement is requested on a precautionary basis; (5) sound public finances, including a sustainable public debt position; (6) low and stable inflation, in the context of a sound monetary and exchange rate policy framework; (7) sound financial system and the absence of solvency problems that may threaten systemic stability; (8) effective financial sector supervision; and (9) data transparency and integrity.
See “Morocco: 2013 Article IV Consultation” (CR/14/65, 3/6/2014). The staff report for the 2013 Article IV Consultation noted that the “exchange rate assessment continues to show some evidence of moderate overvaluation of the dirham, tough less than a year ago.”
Quota references are based on the size of quotas at the time of approval of the 2014 PLL arrangement.
IMF Policy Paper, January 2014.
In accordance with the PLL Decision at the time of the 2014 PLL request, access under one- to two-year PLL arrangements was capped at a cumulative 1000 percent of quota, net of scheduled PLL repurchases. An initial amount of up to 500 percent of quota could be made available upon approval for the first year, and the remaining amount made available at the beginning of the second year of the arrangement, subject to completion of relevant semi-annual reviews (Precautionary and Liquidity Line—Operational Guidance Note, June 2015).
Standard performance criteria are continuous performance criteria related to trade and exchange restrictions, bilateral payment agreements, multiple currency practices, and non-accumulation of external debt payment arrears.