Press Information Notice: IMF Concludes Article IV Consultation with Morocco

March 31, 1998

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board.

The IMF Executive Board on March 6, 1998 concluded the 1997 Article IV consultation1 with Morocco.


Morocco’s economic growth in the 1990s has been dampened by recurring droughts, and annual growth of the nonagricultural sector declined from 3.9 percent in 1979–90 to 2.8 percent in 1991–97. Following a record cereal crop leading to a 12 percent increase in real GDP in 1996, agricultural output suffered from adverse weather conditions in 1997 and total GDP contracted by 2.2 percent even though nonagricultural sectors expanded by about 3 percent. While unemployment declined in 1997, it still remains high at 16.6 percent.

Tight demand management contributed to reducing inflation further, from 3 percent in 1996 to 1 percent in 1997, consistent with maintaining a nominal exchange rate anchor. Interest rates declined with the rate on one-year treasury bills falling from 9 percent to 7 ½ percent. The stock market rose by 48 percent in 1997, largely unaffected by the recent turbulence in Asia. Privatization was a major success in 1997 (1.4 percent of GDP in receipts) and foreign direct investment exceeded expectations (3.5 percent of GDP).

In the fiscal year 1996/97 (July-June), the central government overall deficit (excluding privatization receipts) was reduced to 3.2 percent of GDP. Revenues reached 24.8 percent of GDP, substantially exceeding the objectives of the budget. Expenditure levels were lower than budgeted, reflecting lower capital outlays, interest payments and other nonwage current spending. However, the wage bill increased (by 0.3 percent of GDP) beyond the budgeted amount, reflecting the agreements reached by the government with employers and trade unions in the context of the "Social Dialogue" held during the summer of 1996.

In 1997, Morocco’s external current account deficit contracted to 1.1 percent of GDP, from 1.7 percent of GDP in 1996. Export volume picked up in 1997 (4.9 percent), driven in particular by phosphates and its derivatives, textiles and pharmaceuticals. In the capital account, direct foreign investment increased from US$0.4 billion to US$1.2 billion on the strength of an improved climate for private sector activity and the sale of public enterprises to foreign investors. These inflows enabled Morocco to raise its official reserves to US$4 billion (4.5 months of imports of goods and nonfactor services) and, together with an active debt management policy, to reduce the stock of its external debt as well as its average cost.

In recent years structural reforms have concentrated on improving the environment for stronger private sector-led growth, and addressing weaknesses in the social sectors. Particular emphasis was put on upgrading the judicial system, restructuring the financial sector, reorienting education toward basic instruction and higher enrollment, and simplifying the regulatory environment. The legal basis for private sector development was further strengthened by amendments to the corporate laws and bankruptcy procedures.

Executive Board Assessment

Executive Directors commended the Moroccan authorities for the progress made over the past two years in macroeconomic stabilization and in liberalizing the economy, despite the economic and social impact of the recurring droughts. Directors noted that the strong budget execution during 1996 and the 1996/97 fiscal year, and prudent monetary and exchange rate policies, had contributed to lowering price inflation to levels prevailing in advanced economies, strengthening the external position, rebuilding official reserves to comfortable levels, and reducing the external debt. Nevertheless, Directors observed that Morocco’s growth record in the 1990s had fallen short of expectations and remained below potential. Thus, Directors emphasized the importance of accelerating the pace of structural reforms, including in the social sphere, so as to strengthen social cohesion and further develop a qualified labor force.

Directors emphasized that fiscal consolidation should be given high priority in the short term as well as over the medium term. They considered that the projected widening in the budget deficit in 1997/98, due mostly to the salary increase that had been granted in 1996 as part of the "Social Dialogue," was not consistent with the need for stronger fiscal consolidation. They urged the authorities, starting with the 1998/99 budget, to strengthen their efforts to attain fiscal consolidation over the medium term so as to raise savings and achieve higher growth.Regulatory and tax administration reforms had produced strong results in the past fiscal year. However, in the period ahead, Directors encouraged the authorities to consider various expenditure measures, including steps to reduce Morocco’s government wage bill, civil service reform, and replacing food subsidies with better targeted assistance. Directors also noted that there was scope to increase revenues through indirect taxes, such as the value-added tax, as suggested by recent Fund technical assistance missions.

Directors agreed that the use of the exchange rate as a nominal anchor had been effective over the past few years in enforcing fiscal discipline, reducing inflation, and in encouraging the private sector to make sustained efforts at raising its productivity and competitiveness. While a few Directors saw merit in contemplating an early shift to a more flexible regime, most Directors agreed with the authorities’ view that adopting a more flexible arrangement at this time would be premature, as they felt that the necessary preconditions were not yet in place. Directors argued that the authorities should continue to aim at improving competitiveness, including through strengthened structural reforms and an increase in productivity. It was also emphasized that increasing exchange rate flexibility would require that a solid alternative mechanism for controlling inflation be in place. Directors generally agreed that the authorities should continue to closely monitor developments and the appropriateness of the exchange rate regime, taking into account the external position and the competitiveness of the economy.

Regarding structural reforms, Directors commended the authorities for the measures already undertaken, and specifically for addressing rigidities in the regulatory environment, establishing commercial courts, and simplifying judicial procedures. They also called for early action in completing the process of price liberalization, and increasing labor market flexibility through the adoption of a new labor code. This was seen as essential for reducing unemployment and undertaking the large-scale reallocation of resources necessary for Moroccan enterprises to enhance their competitiveness and reorient their production toward more dynamic markets. In this respect, a few directors cautioned the authorities about minimum wage trends, which may have negative employment effects.

Directors welcomed the measures taken to liberalize Morocco’s financial system and strengthen the prudential control of the banking system, which appears to be well prepared to play a more active role in the future. Directors encouraged the authorities to take further steps to encourage greater competition, pointing out the opportunities provided in this regard by the planned privatizations, as well as by the modernization of the national savings bank and the postal checking system. They also advocated continued efforts aimed at improving financial supervision.

Directors welcomed the authorities’ broad range of measures toward improving social conditions in Morocco, in particular the pragmatic approaches to raise school enrollment and to strengthen basic health services in rural areas. However, given the need to rapidly enhance Morocco’s human capital to sustain productivity growth, Directors urged the authorities toreform the education system and redouble their efforts at improving the skill mix and at raising the literacy rate so as to obtain dramatic results in a relatively short period of time.

Directors welcomed Morocco’s efforts to improve the quality and timeliness of economic and financial data, and to increase availability of these data to the broader public. Directors encouraged the authorities to continue these efforts, particularly in light of their intention to subscribe to the Special Data Dissemination Standard.

Morocco: Selected Economic Indicators

    1994 1995 1996 1997

Domestic economy   In percent
Change in Real GDP   10.4 -7.0 12.0 -2.2
Nonagricultural GDP   2.6 1.9 3.3 3.1
Unemployment rate   20.3 22.9 18.1 16.6
Change in consumer prices   5.1 6.1 3.0 1.0
External economy   In billions of U.S. dollars1
Exports f.o.b.   5.5 6.9 6.9 6.9
Imports f.o.b.   7.6 9.3 9.0 8.9
Private transfers   2.1 2.2 2.4 2.1
Current account balance   -0.7 -1.5 -0.6 -0.4
In percent of GDP   -2.4 -4.6 -1.7 -1.1
Direct investment   0.8 0.3 0.4 1.2
Public borrowing, net   -0.3 -0.2 -0.3 -0.7
Capital account balance   1.3 0.9 0.8 0.6
Gross official reserves   4.3 3.6 3.8 4.0
Financial variables   In percent of GDP1
Central government balance2   -3.9 -5.6 -3.7 -3.2
Central Government debt   82.4 83.1 75.4 78.5
of which external   48.8 46.9 40.8 39.4
Debt service ratio (in percent of exports of goods and nonfactor services)   32.6 31.8 28.2 25.4
Change in broad money (in percent)   10.2 7.0 6.6 8.2
Interest rate3   8.5 9.0 9.0 7.5

Sources: Data provided by the Moroccan authorities; and IMF staff estimates.

1Unless otherwise noted.
2Commitment basis, excluding privatization receipts, 1997 column refers to the 1996/97 fiscal year.
352-week treasury bills.

1Under 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 directors, and this summary is transmitted to the country's authorities. In this PIN, the main features of the Board's discussion are described.


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