Public Information Notice: IMF Executive Board Concludes 2006 Article IV Consultation with Morocco

October 13, 2006

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

Public Information Notice (PIN) No. 06/115
October 13, 2006

On October 11, 2006, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Morocco.1


Macroeconomic conditions continue to strengthen and the 2006 outlook is favorable, with increased private sector confidence in the Moroccan economy. A bumper crop and continued strong activity in services and construction are ushering in a recovery, following a slowdown in growth in 2005 caused by unfavorable weather conditions. The external current account is expected to record its sixth consecutive surplus. Strong tourism receipts, workers' remittances and the recovery of textile exports will offset the upsurge in the energy bill. External reserves, at more than US$18 billion, continue to exceed the total stock of public external debt. Price pressures remain subdued, and recent evidence suggests that the dirham is not misaligned.

The fiscal position is improving but the ratio of public debt to GDP, though declining, remains high. Despite a buoyant revenue performance, the fiscal deficit is likely to be close to the 2006 budget target of 4.1 percent of GDP (down from 5.9 percent in 2005) because of continued expenditure pressures stemming mainly from oil and food subsidies (1.6 percent and 0.8 percent of GDP in 2005, respectively). The authorities have started to implement their medium-term fiscal consolidation strategy, which aims at reducing the fiscal deficit to 3 percent of GDP and bring the public-debt-to-GDP ratio below 60 percent. The successful 2005 voluntary early retirement scheme should help curb wage bill growth. Following the three increases that have taken place since 2005, the authorities plan on continuing to gradually align domestic prices of petroleum products with international prices. They are also designing a strategy to reduce the fiscal cost of food subsidies by better targeting them to the most vulnerable groups.

Monetary policy has adequately managed the excess liquidity conditions, and the central bank continues to strengthen the operational framework for monetary policy and its transparency.

Banking sector conditions have improved following significant write-offs of nonperforming loans and the near completion of the restructuring of two state-owned banks. The authorities have also taken steps to improve the availability, accuracy and transparency of financial information in order to strengthen financial intermediation.

Morocco has made considerable progress in trade liberalization; next steps include tackling remaining obstacles to trade and increasing trade in services.

Morocco subscribed to the Special Data Dissemination Standard in December 2005, and continues to improve the quality and dissemination of statistical data and increase the transparency of economic policy. The authorities published the recent staff mission statement and intend to publish the 2006 Article IV Staff Report.

Executive Board Assessment

Directors agreed with the thrust of the staff appraisal. They commended the authorities on their implementation of sound macroeconomic policies and structural reforms. Directors noted that, in recent years, these policies had supported the acceleration of non-agricultural growth in an environment characterized by low inflation and comfortable international reserves, and the steady rise of per capita income.

Directors viewed that, with macroeconomic conditions strengthening, short-term prospects are favorable. They shared the authorities' view that the current sound macroeconomic environment provides an opportunity to capitalize on recent achievements and advance the reform process in order to accelerate growth to levels that would support an increase in employment and a substantial reduction in poverty. To this end, Directors supported a strategy of medium-term fiscal consolidation, enhancing the efficiency of financial intermediation, and deepening Morocco's integration into the global economy.

Directors noted that fiscal consolidation should be the top policy priority. They agreed that Morocco's fiscal strategy for gradually reducing the deficit to 3 percent of GDP over the medium term is appropriate. Directors welcomed the ongoing reform of the tax system and noted that a simpler and more transparent tax system and strengthened administration would help broaden the tax base and increase revenue. While they congratulated the authorities on the success of the 2005 early retirement program for civil servants, Directors stressed that the credibility of the fiscal strategy will depend on the authorities' ability to curb wage bill growth and reduce the fiscal cost of oil and food subsidies. Directors urged the authorities to seize the opportunity of the 2007 budget to send a strong signal on their commitment to fiscal consolidation.

Directors supported the authorities' intention to prepare for a possible transition to a more flexible exchange rate regime. They welcomed the increased independence of the central bank, and the central bank's efforts to strengthen the monetary policy framework, with a view to possibly adopting inflation targeting in the medium term. In this context, Directors stressed the importance of further fiscal consolidation and development of money and exchange markets.

Directors commended the authorities for having taken measures to strengthen the financial sector, in line with the 2003 Financial Sector Stability Assessment, and welcomed the emphasis placed on improving the efficiency of financial intermediation. They found that the measures implemented by the central bank to improve the availability, accuracy, and transparency of financial information were helpful in this regard. Directors encouraged the authorities to develop further alternative financing instruments, such as stock and bond markets. They looked forward to the adoption of the draft anti-money laundering law that was submitted to parliament.

Directors welcomed Morocco's progress achieved in trade liberalization, including active participation in regional integration efforts, and supported the authorities' policies to further integration in the world economy. They agreed that appropriate next steps would be to tackle remaining obstacles to trade and increasing trade in services.

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

Table 1. Morocco: Selected Economic Indicators, 2001-07
(Quota: SDR 588.20 million)
(Population: 30.1 million; 2005)
(Per capita GDP: US$1,712; 2005)
(Poverty rate: 15 percent; 2004)
(Main exports: textiles, phosphates and derivatives; 2005)

2001 2002 2003 2004 2005 2006
Prel. Proj.




Output and Prices

(Annual percentage change)

Real GDP (market prices)

6.3 3.2 5.5 4.2 1.7 7.3

Nonagricultural Real GDP (market price)

3.6 2.8 3.5 4.7 5.2 5.1

Consumer prices (period average)

0.6 2.8 1.2 1.5 1.0 2.5

Investment and Saving

(In percent of GDP)

Gross capital formation

22.9 22.7 24.1 25.0 25.9 25.6

of which: Non-government

20.0 19.9 21.4 22.4 23.4 23.1

Gross national savings

27.6 26.8 27.7 27.0 27.8 26.8

of which: Non-government

27.3 25.0 26.6 25.3 28.1 24.7

Public Finances

(In percent of GDP)

Revenue (including grants)

25.1 25.1 24.8 25.7 27.7 26.8

Expenditure 1/

34.4 30.1 30.5 30.7 34.7 31.4

Budget balance (commitment basis, excl. privatization) 2/

-6.2 -4.7 -5.0 -4.6 -5.9 -4.1

Overall balance (cash basis, incl. privatization) 1/

-4.8 -4.1 -2.7 -1.7 -4.8 -2.7

Total government debt 3/

74.7 71.3 68.9 65.8 70.5 66.8

Monetary Sector

(Annual percentage change, unless otherwise indicated)

Credit to the private sector

4.0 3.8 8.3 7.2 13.1 7.5

Base money

22.7 5.0 13.6 12.1 9.2 8.2

Broad money

14.2 6.3 8.6 7.7 14.0 8.2

Velocity of broad money (level)

1.17 1.14 1.11 1.09 0.99 1.00

Three-month treasury bill rate (period average, in percent)

4.8 3.0 3.3 2.5 2.5 ...

External Sector

(In percent of GDP, unless otherwise indicated)

Exports of goods (in US$, percentage change)

-3.7 9.8 11.8 13.1 7.4 9.9

Imports of goods (in US$, percentage change)

-4.6 7.2 20.1 25.2 14.2 14.0

Merchandise trade balance

-8.9 -8.5 -9.9 -13.0 -15.7 -16.9

Current account balance excluding official transfers

4.7 3.8 3.4 1.7 1.5 0.9

Current account balance including official transfers

4.8 4.1 3.6 1.9 1.8 1.2

Foreign direct investment

8.0 1.3 5.3 1.7 3.8 2.2

Total external debt

48.0 40.1 35.1 30.8 29.0 26.1

Gross reserves (in US$ millions)

8,359.9 10,008.9 13,716 16,298 16,080 18,768

In months of next year imports of goods and services

7.5 7.5 8.3 8.7 7.5 7.9

Memorandum Items:

Nominal GDP (in US$ billions)

33.9 36.1 43.8 50.0 51.6 57.2

Unemployment rate (in percent) 4/

12.5 11.6 11.4 10.8 11.0 7.7

Net imports of petroleum products (in US$ millions)

1,282 1,167 963 1,639 2,701 3,590

Local currency per U.S. dollar (period average) 5/

11.30 11.02 9.57 8.87 8.86 ...

Real effective exchange rate (annual average, percentage change)

-4.1 -0.3 -1.0 -1.2 -1.7 ...

Sources: Moroccan authorities and Fund staff estimates and projections.

1/ Including Fonds Hassan II

2/ Excluding Fonds Hassan II

3/ It includes the net position vis à vis the Central Bank outside statutory advances.

4/ For 2006, as of end-June.

5/ For 2006, as of end-September.

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. 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.


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