Transcript of a conference call on the Morocco Article IV Consulations with Mark Lewis, IMF Mission Chief for Morocco

February 23, 2010

Washington, D.C.
Tuesday, February 23, 2010


MR. THOMSON: Good day, I am Alistair Thomson, the IMF press officer in Washington, D.C. Welcome to our press conference call today on the Morocco Article IV consultations. I am here in Washington with the IMF Mission Chief for Morocco, Mr. Mark Lewis. I will let him introduce himself and present the conclusions of the Morocco consultations. You will then have the opportunity to ask questions. Here is Mark Lewis.

MR. LEWIS: Thank you, Alistair. I am Mark Lewis, IMF Mission Chief for Morocco and I am here to speak to you about the conclusions of the Article IV consultations with Morocco. The consultations ended on January 25. You will find two documents in French on the IMF website, the first on the preliminary findings of the IMF mission, conducted in November 2009, and the second on the summary of the IMF Executive Board meeting, held on January 25, 2010. Finally, the staff report on the Article IV consultations, in English and in French, will be posted on the IMF website in the next few days. I will give a very brief synopsis of the situation followed by our analysis and perspectives, after which we will open the discussion for questions.

I will outline and underscore four to five topics. First, the impact of the crisis on Morocco was mitigated for several reasons including the fact that the economy and the macroeconomic situation were very sound before the crisis. The financial sector was certainly healthy and there were very few ties between Morocco’s financial sector and external financial markets. Secondly, the authorities’ proactive policies also helped cushion the impact of the crisis, in particular, fiscal and monetary policy and targeted interventions in the affected sectors. And weather conditions certainly helped produce a bumper harvest for the records, which shored up economic activity, consumption, and the population’s real income. Notwithstanding, some repercussions were felt through connections with Europe. Europe was hard hit by the crisis and Morocco was not totally spared from decreased exports, transfers, tourism revenue, and declining foreign direct investment.

Now, Morocco is emerging from the crisis and I will move on to discuss the future. I will start with the immediate future then continue with the medium term. First of all, what is the outlook for 2010? The economic recovery has begun in Europe, but it will be very slow and protracted. Unfortunately, even though we have begun to see signs of recovery, they are very tenuous. The impact on Morocco will be positive—in particular in terms of external demand—but very weak. In this context, we consider the policies announced by the Moroccan authorities to be well suited to the situation, in particular the 2010 budget, which anticipates a deficit of about 4.5 percent of GDP, an appropriate forecast given the situation. I will come back to this in my medium-term analysis. In the short run, as I was saying, the financial sector remains very sound and its connections to the foreign financial markets remain limited. Clearly, though, the financial sector should always be kept under a watchful eye.

What are the priorities for the medium term? In terms of macroeconomic stability, which Morocco attained a decade ago, the fiscal balance needs to be monitored and, as I said before, the 2010 budget, which anticipates a budget deficit of 4.5 percent of GDP, is appropriate for today’s situation. However, in the medium term, the fiscal deficit should be gradually brought down to its past level of less than three percent of GDP. This would stabilize the public debt to GDP ratio and maintain a sound, solid, and stable macroeconomic situation. The medium term always gives rise to the challenge of competitiveness, namely Morocco’s position vis-à-vis its competitors in the international goods and services markets, and the appropriate policies needed to face the challenges of such competition. Fiscal consolidation efforts are being sustained. Continued improvements are needed in tax policies, tax administration, and customs tariffs.

Still on the topic of fiscal affairs, efforts to improve the effectiveness of public expenditure must continue, to guarantee a good return on such expenditure, particularly on investment in physical and human capital. There is also a host of structural reforms, namely reforms in the sectors, to improve the business climate, agriculture, tourism, and energy, for example. Finally, with respect to medium-term priorities, there is always a need to bolster human development in the country. In recent years, Morocco has made much progress in reducing poverty and in improving the unemployment situation and social services, but more can always be done to support education and health with a view to reducing poverty and unemployment. I will stop here now. I thank you again and I am ready to take your questions.

JOURNALIST: Good day, Mr. Lewis. I had three questions, but you may have already answered two of them. The first was: How was Morocco able to cope with the international crisis and what attributes allowed it to rise to the challenge of that crisis? My second question was: What is your assessment of Morocco’s efforts to combat the crisis compared with other countries in the region, particularly in the Maghreb? And the third question was: What are your predictions concerning the economic and financial outlook for Morocco, in particular, and the Maghreb, in general, in the years ahead? Thank you.

MR. LEWIS: Ok, very good. Thank you. You are right. I have at least partially answered some aspects of your questions, but to respond to them in order, let me address the first question. What has made Morocco more resilient to the effects of the financial crisis? As I said before, the ties between the Moroccan financial sector and the international markets and foreign financial institutions are very limited. So, first of all, the balance sheets of financial institutions, corporations, and even households had no toxic assets, which precipitated the crisis to some degree in the developed countries. Next, Morocco did not have a problem seen in other regions; the banks held no foreign liabilities. This is a problem in other regions where banks have short-term foreign liabilities in foreign currencies, but this type of financing does not apply to Morocco. This was a real source of resilience and stability for the Moroccan financial system. Lastly, I spoke about liabilities and toxic assets. Well, Moroccan financial institutions really don’t have very many assets from external markets.

With respect to your second question, namely the response of the authorities compared with that of other countries, I mentioned earlier that we found the authorities’ policies to be proactive, appropriate, and very timely. In our opinion, this helped Morocco cushion the impact of the crisis. For example, on fiscalpolicy, the authorities continued to reduce taxes. This step was planned before the crisis. It was not exactly a direct response, but the authorities continued with these reforms. This measure truly helped buoy purchasing power, as did the increase in the salaries of workers in the first two wage brackets. Of course, the fiscal deficit rose relative to its 2007 and 2008 levels, when there was a surplus. The authorities did not fend off the fiscal impact of the crisis; they did not try to maintain the previous level or try to attain the 2008 surplus, for example. Indeed, the fiscal impact was felt in every country in the world affected by the crisis, Morocco included. The authorities were unable to prevent tax revenue from diminishing, which is normal when there is a decline in economic activity, and their policy was appropriate in the context. Of course, as I was saying, there were interventions targeting the affected sectors, which were very well targeted in our opinion, and this helped the sectors withstand the worst of the crisis.

Finally, how can we compare this with the other countries? In general, this was the right policy approach and it was timely because the authorities responded quickly. Economic activity and the affected sectors are monitored virtually on a daily basis. I think that, compared with other countries, these actions are, as we say, certainly appropriate and the best possible response to the crisis. In the rest of the Maghreb, the situation of each country was different, so I am reluctant to comment because in Tunisia, in Algeria, and in other countries, for example, the situation and the challenges are not quite the same. Each country has its own challenges and the appropriate policies are different.

Finally, future priorities... I think, in sum, for Morocco, in the medium term, these relate to economic stability, structural reforms, and challenges in the social sectors. I think that some of these issues are relevant to other countries of the region as well. I will stop there and take the next question. Thank you.

MR. THOMSON: If there are no more questions, we will wrap up now. Good day to everyone and thank you for participating in this conference.


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