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Author:
International Monetary Fund. Middle East and Central Asia Dept.
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Publication Date:
01 May 2024
eISBN:
9798400273551
Language:
English
Keywords:
confederation Generale des enterprises du Maroc; Policy discussion; Morocco's resilience; Morocco's progress; macroeconomic policy; Structural reforms
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MOROCCO

Abstract

MOROCCO

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MOROCCO

IMF Country Report No. 24/99

2024 ARTICLE IV CONSULTATION, REVIEW UNDER THE FLEXIBLE CREDIT LINE ARRANGEMENT, FIRST REVIEW UNDER THE RESILIENCE AND SUSTAINABILITY ARRANGEMENT, AND REPHASING OF ACCESS UNDER THE RESILIENCE AND SUSTAINABILITY FACILITY— PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR MOROCCO

May 2024

In the context of the 2024 Article IV Consultations, Review Under the Resilience and Sustainability Arrangement and Rephasing of Access Under the Resilience and Sustainability Facility for Morocco, the following documents have been released and are included in this package:

  • A Press Release including a statement by the Chair of the Executive Board.

  • The Staff Report prepared by a staff team of the IMF for the Executive Board's consideration on March 26, 2024, following discussions that ended on February 13, 2024, with the officials of Morocco on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on March 11, 2024.

  • An Informational Annex prepared by the IMF staff.

  • A Statement by the Executive Director for Morocco.

The IMF's transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities' policy intentions in published staff reports and other documents.

Copies of this report are available to the public from

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International Monetary Fund

Washington, D.C.

© 2024 International Monetary Fund

Press Release

PR24/132

IMF Executive Board Concludes 2024 Article IV Consultation, Mid-Term Review under Flexible Credit Line Arrangement, First Review under the Resilience and Sustainability Facility and Rephasing of Access under Resilience and Sustainability Facility with Morocco

FOR IMMEDIATE RELEASE

  • The IMF Executive Board concluded the 2024 Article IV consultation and approved the first review of Morocco’s Resilience and Sustainability Facility, and the review of Morocco’s qualification under the Flexible Credit Line.

  • The Moroccan economy continued to show resilience despite water scarcity, the September 2023 earthquake, and challenging external conditions. Real GDP growth is expected to gradually pick up to 3% percent over the next few years, boosted by the continued implementation of the structural reform agenda.

  • Rebuilding the fiscal buffers while implementing the structural reforms will be key to strengthen further Morocco’s resilience and prospects for higher and more inclusive growth.

Washington, DC - May 1, 2024: On March 26, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation,1 mid-term review under Flexible Credit Line Arrangement, first review under the Resilience and Sustainability Facility and Rephasing of access under Resilience and Sustainability Facility with Morocco.

The Moroccan economy continued to show resilience to negative shocks. Despite water scarcity, the September 2023 earthquake, and challenging external conditions, economic activity picked up to 3 percent in 2023 thanks to strong exports and a rebound of domestic demand. Notwithstanding the pickup in growth, unemployment rose to 13.3 percent at the end of 2023, mainly reflecting the impact of water scarcity on the agricultural sector. GDP growth is expected to gradually pick up to 3% percent over the next few years, boosted by the continued implementation of the structural reform agenda.

Inflation fell over the course of 2023, mainly as the impact of supply shocks faded. This justified BAM’s pausing the interest rate tightening cycle since June last year, after three consecutive increases from September 2022. The dirham continued to move within the fluctuation band of ±5 percent.

The current account deficit narrowed significantly. This reflects both a reduced trade deficit in goods (driven by the lower import prices of energy, raw and intermediate goods, and food items, as well as the robust performance of automotive and electronics exports), buoyant export of services (both tourism and non-tourism related), and the continued expansion of inward remittances.

The central government fiscal deficit improved more than envisaged in the 2023 Budget. The 2023 overall deficit closed at 4.4 percent of GDP, about 0.5 percent of GDP less than projected in the 2023 Budget. This reflects better-than-expected fiscal revenues (with non-tax revenues boosted by the Earthquake Fund) that more than offset higher-than-planned spending.

The implementation of the announced structural reform agenda has continued. The first two pillars of the generalization of the social protection system, i.e., the extension of compulsory basic health insurance and the introduction of cash transfers to poor families, have now been implemented. Further steps were taken to restructuring SOEs, operationalizing the Mohammed VI Investment Fund and new Charter of Investment, and reforming both education and health care systems.

Executive Board Assessment2

Executive Directors agreed with the thrust of the staff appraisal. They welcomed the resilience of the Moroccan economy to recent shocks and commended the authorities’ very strong macroeconomic policies and institutional frameworks, which supported the pick-up in growth and decline in inflation. Noting downside risks and high uncertainty surrounding the outlook, Directors emphasized the importance of continued prudent macro-economic policies and steadfast implementation of structural reforms to achieve a stronger, more resilient, and more inclusive growth.

Directors supported Bank Al-Maghrib’s (BAM) monetary policy stance and they concurred that further changes in policy rates should remain data-dependent. Resuming the central bank’s planned transition to an inflation-targeting framework by preparing for the removal of the peg as inflation continues to fall would also be important.

Directors concurred on the need to advance fiscal consolidation and agreed that the 2024 budget strikes the right balance between rebuilding fiscal buffers and financing structural reforms. They encouraged the authorities to consider further tax and spending measures to secure and possibly accelerate the planned reduction of public debt. Directors encouraged further strengthening the Medium-Term Fiscal Framework, including by reporting the budgetary implications of public private partnerships and the mobilization of government real assets, and to continue working on a new, debt-anchored, fiscal rule.

Directors welcomed Morocco’s progress in strengthening its financial supervisory and regulatory framework. They commended the authorities’ efforts in introducing capital surcharges, developing a secondary market for NPLs, improving the bank resolution framework, and preparing a green financial strategy. While systemic risks to the financial system appear to be limited, Directors emphasized the need to continue monitoring financial institutions’ balance sheet exposures, including to climate-related risks.

Directors commended the authorities’ strong commitment to implement structural reforms. The reform of the social protection, health, and education systems would improve fairness and quality of access and sustain human capital in the long run. The reforms of SOEs and the operationalization of the Mohammed VI Fund and the new Charter of Investment would stimulate private investment and create sustainable jobs. Continued efforts to reduce dependence on fossil fuels, address water scarcity, enhance governance, and tackle gender inequality are essential to bolster Morocco’s potential growth.

Directors were encouraged by the authorities’ progress on meeting the conditions of the RSF arrangement. They welcomed the ongoing work related to the national water program and the plans to achieve zero net emissions by 2050. Directors encouraged the timely implementation of the measure on higher VAT on fossil fuels, while mitigating its social impact. They underscored the importance of close collaboration with development partners.

Directors agreed that Morocco continues to meet the qualifications criteria for the FCL arrangement, given its very strong macroeconomic policies and institutional policy frameworks, and its commitment to continuing reforms.

It is expected that the next Article IV consultation with Morocco will be held on the standard 12-month cycle.

Morocco: Selected Economic Indicators, 2019-29

article image
Sources: Moroccan authorities; and Fund staff estimates. 1/ Include grants. 2/ Includes credit to public enterprises.

Title Page

MOROCCO

STAFF REPORT FOR THE 2024 ARTICLE IV CONSULTATION, REVIEW UNDER THE FLEXIBLE CREDIT LINE ARRANGEMENT, FIRST REVIEW UNDER THE RESILIENCE AND SUSTAINABILITY ARRANGEMENT, AND REPHASING OF ACCESS UNDER THE RESILIENCE AND SUSTAINABILITY FACILITY

March 11, 2024

EXECUTIVE SUMMARY

Context: The Moroccan economy once again showed resilience to negative shocks in 2023, as economic activity accelerated, inflation slowed, and the current account deficit narrowed despite headwinds from water scarcity (which caused a severe loss of jobs in the agricultural sector), the September 2023 earthquake, and lower growth in the Euro Area. The ambitious infrastructure plan announced by the authorities (including in water and energy sectors) is expected to boost investment and growth in the next few years, with the current account gradually converging towards the medium-term norm. The fiscal deficit in 2023 was below the level projected in the Budget and the authorities reiterated their commitment to a gradual fiscal consolidation over the next three years. Implementation of the structural reform agenda has continued, particularly regarding the overhaul of social protection, health care, and education systems.

Article IV Consultation: The discussions focused on the policies needed to secure the recent decline of inflation and advance with fiscal consolidation while financing the structural reforms needed to ensure that economic growth creates more jobs and becomes more inclusive. Accelerating the implementation of the State-Owned Enterprise (SOE) reform, the Mohammed VI Fund, and the new Charter of Investment is needed to boost private investment and reduce unemployment. The generalization of social protection and the overhaul of health care and education sectors would reduce inequalities, improve access and quality of services, and enhance human capital accumulation in the long run, while revamping active labor market policies can help against high unemployment in the short run. Improving water infrastructure is a priority to mitigate water scarcity, while continuing to liberalize the electricity market is needed to attract investment in renewable energy. Financing these reforms while rebuilding the fiscal space requires further efforts to extend the tax base and rationalize spending. Reporting the budgetary implication of the planned expansion of public-private investment projects and the mobilization of real government assets would reinforce confidence in the authorities' strong commitment to fiscal stability.

Flexible Credit Line (FCL): Staff assesses that Morocco continues to meet the qualification criteria for access to the FCL arrangement. Staff, therefore, recommends completion of the review under the FCL arrangement. The authorities intend to continue treating the FCL arrangement as precautionary and to gradually exit it, depending on the evolution of external risks.

Resilience and Sustainability Facility (RSF): The authorities have implemented four of the five reform measures scheduled for the first review of the RSF arrangement. The planned increase in the VAT on fossil fuels was not implemented and postponed to the third and final review, due to concerns about its impact on the population at a time of still high inflation (particularly of food items), the reform of subsidies on gas butane, and weak labor markets. The authorities also proposed to bring forward to the second review the reform measure on the changes to the legal framework for energy efficiency, given the progress in implementing it. Staff supports these proposals.

Approved By

Taline Koranchelian (MCD) Bjoern Rother (SPR)

The mission consisted of Roberto Cardarelli (head), Marzie Taheri Sanjani, Sahra Sakha (all MCD), Hector Perez-Saiz (SPR), and Hussein Bidawi (FAD). Hannah Brown, Vaishnavi Rupavatharam, Rodrigo Huguet, and Abigail Korman (all MCD) assisted with this report. The mission team met with the Ministries of Economy and Finance, Water and Equipment, Energy Transition and Sustainable Development, Health, Education, Interior; Bank Al-Maghrib; labor unions;, Agence Marocaine pour l'Efficacite Energetique (AMEE), Autorite Nationale de Regulation de l'electricite (ANRE), Caisse Nationale de Securite Sociale (CNSS), Confederation Generale des Enterprises du Maroc (CGEM), Office National de l'Electricite et de l'Eau (ONEE), and Instance Nationale de la Probite, de la Prevention et de la Lutte contre la Corruption (INPPLC); the Policy Center for the New South (PCNS); the European Bank for Reconstruction and Development (EBRD), European Union (EU), International Financial Corporation (IFC), and World Bank (WB). Mr. El Qorchi participated in most meetings. The mission was conducted during January 30th- February 15th , 2024, in Casablanca and Rabat, Morocco.

Contents

  • RECENT ECONOMIC DEVELOPMENTS

  • OUTLOOK AND RISKS

  • POLICY DISCUSSIONS

  • A. Fiscal Policy

  • B. Monetary Policy

  • C. Financial Policy

  • D. Structural Reforms for a More Inclusive Model of Development

  • E. Responding to Climate Change

  • FCL REVIEW OF QUALIFICATIONxs

  • THE RSF ARRANGEMENT

  • PROGRAM MODALITIES

  • STAFF APPRAISAL

  • BOXES

  • 1. Labor Market Developments

  • 2. The Generalization of Social Protection in Morocco

  • FIGURES

  • 1. Real Sector Developments

  • 2. External Developments

  • 3. Fiscal Developments

  • 4 Monetary and Financial Developments

  • TABLES

  • 1. Summary of Relevant Core Indicators for FCL Qualification Criteria

  • 2. Timeline of the RSF Reviews and Reform Measures Completion

  • 3. RSF Reform Measures

  • 4. Access and Phasing Under the RSF Arrangement

  • 5. Schedule of Disbursements and RMs Availability Dates Under the RSF

  • 6. Selected Economic Indicators, 2019-29

  • 7a. Budgetary Central Government Finance, 2019-29 (Billions of dirhams)

  • 7b. Budgetary Central Government Finance, 2019-29 (In percent of GDP)

  • 8. Balance of Payments, 2019-29

  • 9. Monetary Survey, 2018-2024

  • 10. Financial Soundness Indicators, 2017-2023

  • 11a. Indicators of Fund Credit - Adverse Scenario (GRA and RSF Arrangements)

  • 11b. Capacity to Repay Indicators Compared to GRA-Only Borrowing Countries, All Programs

  • ANNEXES

  • I. External Economic Stress Index

  • 11. External Sector Assessment

  • III. Risk Assessment Matrix

  • IV. Sovereign Risk and Debt Sustainability Assessment

  • V. External Debt Sustainability Analysis

  • APPENDIX

  • I. Letter of Intent

    • Attachment I. Memorandum of Economic and Financial Policies

1

Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2

At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summing up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.

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Cover IMF Staff Country Reports
Morocco: 2024 Article IV Consultation, Review Under the Flexible Credit Line Arrangement, First Review Under the Resilience and Sustainability Arrangement, and Rephasing of Access Under the Resilience and Sustainability Facility-Press Release; Staff Report; and Statement by the Executive Director for Morocco
Author:
International Monetary Fund. Middle East and Central Asia Dept.
Volume/Issue:
Volume 2024: Issue 099
Publisher:
International Monetary Fund
ISBN:
9798400273551
ISSN:
1934-7685
Pages:
97
DOI:
https://doi.org/10.5089/9798400273551.002