Students in a classroom at a school in the Moroccan village of Taghzirt. Improving the efficiency of public spending on education can help boost growth in Morocco, says IMF (photo: Fadel Senna/AFP/Getty Images)

With IMF’s $3.47 Billion Liquidity Line, Morocco Can Build Upon Economic Progress

August 2, 2016

  • Morocco sees progress in reducing fiscal, external vulnerabilities
  • Successor program to help maintain economic stability, raise growth prospects
  • Tackling high youth unemployment, investing in human capital key priority

The IMF approved a two-year, $3.47 billion liquidity line for Morocco to support the country continue its economic reforms and further strengthen its growth prospects.

The arrangement is under the IMF’s Precautionary and Liquidity Line, which provides insurance against external shocks in light of heightened uncertainty worldwide. This will help the government to continue with their reform agenda aimed at promoting inclusive growth by addressing challenges such as high youth unemployment (about 21 percent in 2015), low female labor force participation, and boosting competitiveness, in a still adverse external environment.

Insurance against global instability

Coming off the two previous precautionary and liquidity arrangements—approved in 2012 and 2014—Morocco has implemented challenging reforms such as modernizing the budget framework, enacting energy subsidy reforms, strengthening the domestic financial sector, and most recently reforming the civil service pension system.

These efforts, as well as a more favorable external environment in recent years, have contributed to the substantial decline in domestic and external imbalances (see Chart). Yet, Morocco is still subject to potential external shocks such as a slowdown in the Euro area, increased volatility in the financial markets, and regional spillovers—such as heightened geopolitical risks that would lead to reduced tourism and increased oil price volatility—which could reverse some of the recent achievements.

The new liquidity line arrangement, therefore, can support the authorities’ efforts to further strengthen macroeconomic stability and economic resilience, even if these external shocks materialize.

Strong reform progress

Despite slow growth in the Euro Area—to which Morocco has close economic links—the country’s strong policies and domestic reforms, combined with favorable oil prices have helped steer the economy forward.

The authorities have implemented these key reforms:

  • Liberalizing fuel product prices
  • Expanding social programs targeting most vulnerable groups
  • Adopting a new organic budget law and banking law that will considerably strengthen its fiscal and financial sector policy frameworks

The authorities have also been working toward implementing civil service pension reform and finalizing a new central bank law aimed at strengthening its independence and transparency.

More broadly, the government has implemented important reforms to further diversify the economy. These efforts are now bearing fruit as reflected in the rapid emergence of new and higher valued added industries (automobile, aeronautics, and electronics), which now provide Morocco with more export revenues than traditional sectors such as agriculture or phosphates. The country has also further developed its tourism industry.

Increasing Morocco’s economic potential

Building on recent progress, Morocco can take further steps to boost its potential growth and make it more inclusive. These include:

  • Promoting private sector led growth, including fostering small and medium enterprises through better access to credit, ensuring healthy competition between companies, and greater governance and transparency.
  • Making the exchange rate more flexible to help absorb external shocks and preserve the country’s competitiveness in the global market.
  • Further develop and invest in human capital. This involves improving the efficiency of public spending in the education system and reducing skill mismatches through better teacher training, recruitment, deployment, and evaluation.
  • Implement labor market reforms and active labor market polices to address the high youth unemployment and low female labor force participation. 
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