IMF Executive Board Concludes 2007 Article IV Consultation with Morocco

Public Information Notice (PIN) No. 07/98
August, 9, 2007

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.

On August 3, 2007, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Morocco.1


Macroeconomic conditions remain strong. Average growth has reached 5.4 percent per year since 2001, 3.4 percentage points higher than in the 1990s, reflecting the ongoing diversification of the nonagricultural sector, and its increased resilience to shocks. As a result, real per-capita income is on the rise and the unemployment rate has started to decline. However, bad crop years still impact the overall economic performance, as evidenced by the growth deceleration in 2007.

The current account is expected to record its seventh consecutive surplus in 2007, thanks to strong remittances and tourism receipts. Increased foreign direct investment is also boosting reserves, which reached US$21 billion at end-May 2007, significantly higher than the stock of public external debt. In spite of a good export performance in 2006, trade in goods and services continues to result in a deficit. There are no indications that the exchange rate of the dirham is misaligned.

Inflation increased to 3.3 percent in 2006, reflecting strong domestic demand conditions and robust money growth. It subsequently slowed down during the first months of 2007 following the two-stage tightening of the monetary policy stance in 2006, also suggesting that the deceleration in overall growth may be dampening domestic demand pressures. However, money growth remains robust, driven by a pickup in credit to the economy and external inflows, and asset prices have been increasing. In this context, the central bank's prudent monetary stance remains appropriate.

The public finances situation has strengthened. The fiscal deficit reached 2.1 percent of GDP in 2006, and is expected to remain below 3 percent in the medium term. This good performance reflects both the strong collection of all major taxes, thanks to the widening of the tax base and the strengthening of tax administration, and the authorities' efforts to tackle the main sources of fiscal rigidities, including the wage bill.

Financial sector vulnerabilities have abated, with a drop in nonperforming loans and an increase in provisioning. The recent increase in credit to the private sector demonstrates the success of the authorities' efforts to enhance financial intermediation. Important progress has also been achieved in the area of financial supervision. In particular, starting from June 2007, banks are required to comply with Basel II prudential requirements.

The authorities intend to continue publishing all documents relating to the Article IV consultation.

Executive Board Assessment

Executive Directors agreed with the thrust of the staff appraisal. They welcomed Morocco's remarkable economic progress in recent years, which demonstrates the benefits of broad-based structural reforms. GDP growth has moved onto a higher trajectory, inflation has been contained, foreign direct investment has increased, and poverty and unemployment have been reduced significantly. Looking ahead, Directors considered that Morocco will need to sustain and possibly improve upon its strong performance to bring per capita income closer to that of emerging-market countries of the Organization for Economic Cooperation and Development (OECD) and further reduce unemployment and poverty.

Directors viewed Morocco's current policy mix as appropriate, and noted that inflation slowed in the first half of 2007. As the future path of inflation is subject to risks, it calls for continued vigilance on the part of the central bank. In particular, the rapid growth of credit to the private sector, the surge in foreign direct investment, and soaring asset prices could offset the dampening effect of this year's poor harvest on domestic demand and inflation. Resurgence of inflation would warrant a further tightening of monetary policy.

Directors commended the authorities for the recent improvement in the fiscal position, which has played a key role in buttressing private sector confidence. It is important that fiscal policy remains geared toward medium-term fiscal consolidation. Directors encouraged the authorities to press ahead with the implementation of their fiscal strategy, with a few Directors observing that a more ambitious fiscal adjustment could be appropriate in the current favorable environment. Reducing the public sector wage bill, reforming the oil and food subsidy system, and accelerating tax reform will be key to bring the government debt-to-GDP ratio closer to the average for emerging-market OECD countries.

Directors noted with satisfaction that financial sector soundness has improved. They welcomed the central bank's decision to require banks to comply with Basel II prudential requirements since June 2007.

Directors considered that Morocco's exchange rate policy is consistent with external stability, and that there are no indications that the dirham is misaligned. They supported the authorities' strategy of gradually opening the capital account, as well as the recently announced capital account liberalization measures, and they welcomed the authorities' request for Fund technical assistance in this area. Directors commended the central bank's ongoing efforts to improve its operational and forecasting capacity with a view to eventually adopting an inflation targeting framework.

Directors welcomed the progress achieved in the area of bilateral and regional trade liberalization. Further progress toward multilateral trade liberalization will be important to minimize trade diversion.

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

Morocco: Selected Economic Indicators, 2002-08 1/
(Quota: SDR 588.20 million)
(Population: 30.4 million; 2006)
(Per capita GDP: $2,165; 2006)
(Poverty rate: 15 percent; 2004)
(Main exports: textiles, phosphates; 2006)
          2006 2007 2008
  2002 2003 2004 2005 Prel. Proj. Proj.
  (Annual percentage change)

Output and prices


Real GDP

3.3 6.1 5.2 2.4 8.0 2.5 5.9

Nonagricultural Real GDP

2.8 4.3 4.7 4.8 5.2 5.5 5.7

Consumer prices (end of period)

1.4 1.8 0.5 2.1 3.2 2.5 2.0

Consumer prices (period average)

2.8 1.2 1.5 1.0 3.3 2.5 2.0
  (In percent of GDP)

Investment and saving


Gross capital formation

25.9 27.5 28.7 30.3 28.7 30.3 29.7

Of which: Nongovernment

23.2 24.8 26.1 27.8 26.1 27.7 27.1

Gross national savings

29.6 30.7 30.5 32.6 32.1 32.1 31.3

Of which: Nongovernment

28.0 29.6 28.9 33.0 28.4 28.8 27.5
  (In percent of GDP)

Public finances



22.4 21.8 22.8 24.4 25.7 24.6 24.2

Of which: Grants

0.3 0.1 0.3 0.5 0.4 0.4 0.3

Expenditure 2/

26.6 26.5 27.0 29.9 27.6 26.9 26.5

Budget balance (commitment basis and excluding grants) 3/

-4.2 -4.4 -4.1 -5.2 -2.1 -2.5 -2.4

Primary balance (including grants) 3/

0.0 -0.7 -0.3 -1.4 1.6 1.1 1.1

Total government debt 4/

64.9 62.0 59.9 63.7 58.2 58.0 55.6
  (Annual percentage change, unless otherwise indicated)

Monetary sector


Credit to the private sector

3.8 8.3 7.2 13.1 17.0 12.8 ...

Base money

5.0 13.6 12.1 9.2 16.3 12.4 ...

Broad money

6.3 8.6 7.7 14.0 17.2 12.4 ...

Velocity of broad money (level)

1.3 1.3 1.2 1.1 1.1 1.0 ...

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

3.0 3.3 2.5 2.5 2.6 ... ...
  ( In percent of GDP, unless otherwise indicated)

External sector


Exports of goods (in US$, percentage change)

9.8 11.8 13.1 13.0 13.4 13.6 10.5

Imports of goods (in US$, percentage change)

7.2 20.1 25.2 16.7 13.7 17.7 9.7

Merchandise trade balance

-7.6 -8.7 -11.5 -13.5 -13.8 -15.4 -15.4

Current account balance excluding official transfers

3.4 3.0 1.5 2.0 3.0 1.4 1.3

Current account balance including official transfers

3.6 3.2 1.7 2.4 3.4 1.8 1.5

Foreign direct investment

1.1 4.6 1.5 2.6 3.6 4.0 3.9

Total external debt

35.8 30.8 27.3 25.4 23.3 22.0 20.1

Gross reserves (in US$ millions)

10,009 13,716 16,298 16,080 19,977 23,616 26,118

In months of next year imports of goods and services

7.5 8.3 8.5 7.4 7.8 8.4 8.4

In percent of short-term external debt (on remaining maturity basis)

362.5 576.3 800.8 919.8 908.2 1,139.2 1,649.0

Memorandum items:


Nominal GDP (in US$ billions)

40.5 49.8 56.4 59.0 65.4 72.5 79.1

Unemployment rate (in percent)

11.6 11.4 10.8 11.1 9.7 ... ...

Net imports of petroleum products (in US$ millions)

1,167.0 963.2 1,639.5 2,701.3 2,861.9 3,122.4 3,636.6

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

11.0 9.6 8.9 8.9 8.8 ... ...

Real effective exchange rate (annual average, percentage change)

-0.3 -1.0 -1.2 -1.8 1.2 ... ...

Sources: Moroccan authorities; and Fund staff estimates and projections.
1/ Reflecting revised national account data.
2/ Excluding Fonds Hassan II.
3/ Excluding Fonds Hassan II and including the balance on special treasury accounts.
4/ Excludes the net position with the central bank outside statutory advances. Projections are based on the balance excluding Fonds Hassan II. Historical debt series have been revised upward to reflect the inclusion of twenty-year old liabilities to the central bank (1 percent of 2006 GDP).

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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