IMF Executive Board Concludes 2009 Article IV Consultation with Morocco

Public Information Notice (PIN) No. 10/19
February 16, 2010

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 January, 25, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Morocco.1


Morocco’s strong starting position, reflecting macroeconomic and structural reforms introduced over the last decade, has given Morocco greater room for maneuver in its policy response. The direct impact of the global crisis on Morocco has been limited, primarily affecting Morocco through real channels. Exports, tourism receipts, remittances, and foreign direct investment (FDI) have all declined this year, due primarily to the slowdown in Europe, although most recent data suggest that some flows are gradually improving. In particular, Morocco has low public debt and low inflation, and the financial system is sound, with little exposure to international markets. In this setting, domestic demand has been resilient. Moreover, Morocco is benefitting from an exceptional cereal harvest. As a result, overall gross domestic product (GDP) growth in 2009 is projected at around 5 percent.

The authorities responded quickly to the unfolding crisis and have been successful in maintaining confidence. In particular, the fiscal balance will shift from a small surplus in 2008 to a deficit of about 2½ percent of GDP in 2009 as the authorities proceed with already-planned fiscal reforms, a boost in public investment, and targeted support to key sectors. A drop in revenue, partly due to already planned fiscal reforms, was offset to a degree by a fall in subsidies due to lower world commodity prices. With inflationary pressures low, the central bank—Bank Al-Maghrib—likewise lowered its key policy rate by 25 basis points, and, to boost liquidity, gradually reduced reserve requirements from 15 to 8 percent in 2009. The stock market remains well below its highs in early-2008, but the fall in 2009 has been moderate. Continued sizable support from Morocco’s external partners has also served as a source of resilience.

In the financial sector, the rapid credit growth in recent years is expected to lead to a moderate increase in nonperforming loans (NPLs) and thus continued vigilance is needed. Credit growth has averaged 23 percent per year over the 2006–08 period, slowing to about 12 percent growth in 2009. At the same time, the share of NPLs to total loans has fallen sharply over the last five years. The real estate sector, which in some cities has seen a correction after a run-up in recent years, is a specific concern, although NPLs in the sector remain low and provisioning is high. The authorities continue to take steps to improve monitoring of the financial sector, including establishing a credit bureau, and planning to fully implement Basel II recommendations and raise the capital adequacy ratio to 12 percent for certain banking institutions, based on their risk profile.

The peg to the basket has served Morocco well. Staff analysis suggests that the exchange rate is broadly in line with its fundamentals. Other indicators, such as current account developments and movements in price-based indicators, point to a mild appreciation of the real exchange rate in 2009.

The authorities are deepening structural reforms to increase productivity, boost growth and improve social indicators, including reducing youth unemployment, which remains high. The authorities continue liberalizing trade and simplifying the tax regime and plan to reform the justice system, increase infrastructure investment, and strengthen support for industry, tourism, and energy. In addition, the Plan Vert (“Green Plan”), which aims to increase productivity in the agricultural sector, is moving ahead and more recently the government launched a similar effort to expand the country's fishing sector. A number of reform efforts are underway in the education and health sectors, the success of which will be a key element of improving living standards and boosting Morocco’s potential growth while reducing unemployment.

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

Executive Board Assessment

Executive Directors observed that Morocco faced the global crisis from a strong position, reflecting in large part the range of macroeconomic and structural reforms introduced over the last decade, and was well-positioned to respond to and weather the crisis. Directors also noted that Morocco’s financial system is sound, with limited exposure to international capital markets. Thus, the direct impact of the global crisis on Morocco has been mild, with the economy being affected mainly through real channels as a result of the slowdown in Europe.

Directors commended the authorities’ response to the worsened global outlook. A moderate loosening of fiscal and monetary policies, coupled with vigilant financial sector supervision, has supported confidence and domestic demand, while containing risks. These policies, together with an exceptional cereal crop, contributed to strong real GDP growth in 2009.

Directors stressed that the challenge for 2010 will be to continue efforts to sustain economic activity in the face of a weak external environment. They supported the authorities’ plan for a further temporary widening of the fiscal deficit, with spending increases focused appropriately on capital rather than current spending.

Directors stressed that maintaining macroeconomic stability through sound fiscal policy—a notable achievement of recent years—will remain critical. They welcomed the authorities’ commitment to return to fiscal consolidation, which will be phased in gradually starting in 2011. This will be important to stabilize the public debt-to-GDP ratio, preserve low borrowing costs in the economy, and facilitate the implementation of monetary policy. Replacing the universal subsidy system gradually with a system targeting vulnerable populations would improve efficiency and reduce fiscal risks.

Directors noted that the strong bank credit growth of recent years has moderated. However, they cautioned that, after a sharp fall in recent years, nonperforming loans are likely to pick up somewhat given the economic slowdown. The authorities should remain vigilant and continue to pay close attention to the capital requirements of the banking system. Directors also welcomed the continuing implementation of Basel II.

Directors agreed that the current pegged exchange rate regime has served Morocco well. Many Directors considered that the authorities’ medium-term objective to move to a more flexible monetary and exchange rate regime could help the economy to adapt better to changes in the international environment. They considered that prerequisites for a move to inflation targeting are largely in place; the risk of imported inflation is now much less; and balance sheets in the economy have little exposure to exchange rate movements. However, many other Directors considered that the timing of a move to a more flexible monetary and exchange rate policy should be carefully assessed, and they supported the authorities’ caution in this regard.

Directors stressed that continued structural reforms remain critical to boost growth, enhance competitiveness, and help improve Morocco’s social indicators. The authorities should push forward with the ongoing and planned reforms, including improving the efficiency and composition of public spending and further simplifying the tax and trade regimes. Directors welcomed the envisaged structural reforms to increase productivity by improving the business environment and raising capital investment. Strengthening social services will be critical to reducing poverty and addressing the persistent problem of youth unemployment.

Morocco: Selected Economic Indicators, 2004–10

              Prel.   Staff Proj.  
    2004 2005 2006 2007   2008   2009 2010  
    (Annual percentage change)  

Output and Prices


Real GDP (market price)

  4.8 3.0 7.8 2.7   5.6   5.0 3.2  

Real nonagricultural GDP (market price)

  4.9 5.8 5.5 7.1   4.0   2.3 4.0  

Consumer prices (end of period)

  0.5 2.1 3.3 2.0   4.2   1.8 2.2  

Consumer prices (period average)

  1.5 1.0 3.3 2.0   3.9   1.8 2.2  
  (In percent of GDP)  

Investment and Saving


Gross capital formation

  29.1 28.8 29.4 32.5   36.3   34.3 35.0  

Of which: Nongovernment

  26.4 26.3 26.5 29.2   33.2   30.8 31.2  

Gross national savings

  30.8 30.6 31.6 32.4   31.1   29.9 30.5  

Of which: Nongovernment

  29.3 30.8 27.5 25.7   24.2   24.8 26.5  
  (In percent of GDP)  

Public Finances


Revenue (including grants)

  22.6 24.3 25.7 27.9   31.0   26.0 24.6  


  27.0 30.3 28.0 29.1   31.1   28.9 29.3  

Budget balance (commitment basis, including Hassan II Fund and



  -4.5 -6.0 -1.9 0.4   1.6   -2.3 -4.4  

Primary balance (including grants)

  -1.0 -2.7 1.4 3.5   4.2   0.2 -1.8  

Total government debt

  59.4 63.1 58.1 53.5   47.3   47.4 48.0  
    (Annual percentage change, unless otherwise indicated)  

Monetary Sector


Credit to the private sector 1/

  7.2 13.1 17.0 29.1   23.4   12.0 10.0  

Broad money

  7.7 14.0 17.2 16.1   10.9   8.0 8.0  

Velocity of broad money

  1.2 1.1 1.1 1.0   1.0   1.0 1.0  

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

  2.4 2.5 2.6 3.6   3.5   ... ...  
  (In percent of GDP; unless otherwise indicated)  

External Sector


Exports of goods (in U.S. dollars, percentage change)

  13.1 7.9 11.4 26.9   32.8   -35.0 7.4  

Imports of goods (in U.S. dollars, percentage change)

  25.2 15.3 14.6 34.8   35.5   -26.5 9.1  

Merchandise trade balance

  -11.4 -13.8 -14.8 -18.7   -21.9   -17.8 -18.3  

Current account excluding official transfers

  1.5 1.4 1.8 -0.5   -6.5   -4.9 -4.7  

Current account including official transfers

  1.7 1.8 2.2 -0.1   -5.2   -4.4 -4.4  

Foreign direct investment

  1.5 2.7 3.1 2.9   2.3   0.8 2.5  

Total external debt

  29.1 24.2 23.9 23.7   20.6   23.0 24.5  

Gross reserves (in billions of U.S. dollars) 2/

  16.3 16.1 20.2 24.0   22.0   21.9 22.5  

In months of next year imports of goods and services

  8.6 7.4 7.0 6.2   7.5   6.9 6.7  

In percent of short-term external debt (on remaining

  776 912 1,002 1,310   1,760   1,570 1,618  

maturity basis)


Memorandum Items:


Nominal GDP (in billions of U.S. dollars)

  56.9 59.5 65.6 75.2   88.9   89.9 96.8  

Unemployment rate (in percent)

  10.8 11.1 9.7 9.8   9.6   ... ...  

Net imports of energy products (in billions of U.S. dollars)

  -3.0 -4.5 -5.1 -6.4   -9.2   -5.6 -7.1  

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

  8.9 8.9 8.8 8.2   7.8   ... ...  

Real effective exchange rate (annual average,


percentage change)


-1.2 -1.7 1.2 -0.4




... ...  

Sources: Moroccan authorities; and IMF staff estimates.
1/ Includes credit to public enterprises.
2/ As of 2009, reserves include the new SDR allocation.

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. An explanation of any qualifiers used in summings up can be found here:


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