Statement by IMF Deputy Managing Director Agustín Carstens at the Conclusion of his Visit to Morocco

Press Release No. 06/72
April 14, 2006

Mr. Agustín Carstens, Deputy Managing Director of the International Monetary Fund (IMF), made the following statement today in Rabat, Morocco:

"I would like to thank the Moroccan authorities for their warm hospitality. I have had fruitful meetings with Prime Minister Driss Jettou; Minister of Finance and Privatization Fathallah Oualalou; Central Bank Governor, Abdellatif Jouahri; the President of the Finance and Economic Development Commission of the Parliament Mustapha Hanine and representatives from the Moroccan business association.

"The steadfast implementation of an ambitious reform program has allowed Morocco to achieve macroeconomic stability. Inflation in Morocco is low, and the external position comfortable. Significant progress in the areas of price and trade liberalization, financial sector reform, and privatization has laid the foundations for robust economic growth. There are signs that these reforms are bearing fruit: economic activity has become more resilient to the fluctuations of agricultural production, investment and domestic demand are picking up, and productivity is on the rise.

"However, the high incidence of poverty and unemployment clearly demonstrate that this is not enough. I agreed with the authorities that a significant acceleration of growth is required in order to enable a more rapid job creation and improvement in the standard of living.. In this context, I welcome His Majesty King Mohammed VI's decision to put human development issues at the center of the government's policy agenda, as reflected by the National Human Development Initiative (Initiative Nationale pour le Développement Humain), launched in May 2005.

"Accelerating growth to levels compatible with poverty reduction and unemployment calls for a multi-pronged strategy. First, I discussed with the authorities the importance of continuing their efforts to reduce the fiscal deficit in order to boost private sector confidence, increase investment, provide the fiscal flexibility to be in a position to smoothen external shocks, fight poverty, and increase productive government expenditures. The authorities indicated that they intend to achieve fiscal consolidation through tax and civil service reforms, which they have started to implement, and through the progressive phasing out of petroleum and food subsidies. I congratulated the authorities on the success of the voluntary retirement program. I also welcomed the authorities' commitment to reinstall the automatic price-adjustment mechanism.

"Second, further trade liberalization is key to achieving Morocco's growth objective. The recent coming into effect of the free-trade agreement with the United States is an important step in this area. I encouraged the authorities to further reduce multilateral tariffs and simplify the trade regime, and praised their recent efforts to enhance regional economic cooperation. Establishing a large regional market will help countries realize their full trade potential and enhance their attractiveness to foreign investors. As stated by the Managing Director during the November 2005 conference on trade facilitation in the Maghreb held in Algiers, the Fund stands ready to help Maghreb countries in this endeavor.

"An efficient and healthy financial sector is another important pillar of Morocco's growth strategy. I commended the authorities for the recent strengthening of the legal, regulatory and supervisory framework of the financial industry. The increased autonomy of the central bank in the conduct of monetary policy and the broadening of its supervisory authority are important steps in the modernization of the financial sector. I welcomed the progress made toward the restructuring of the Crédit Immobilier et Hôtelier (CIH) and the Crédit Agricole du Maroc. We agreed that the financial reform package, which also includes strengthening credit risk assessment and financial reporting arrangements and modernizing the payments system, will remove significant hurdles to credit access, particularly for small and medium enterprises.

"I had a constructive exchange of views with the Moroccan business association. We concurred that improving the business climate is crucial to increasing investment and boosting the country's economic performance. We also had a productive discussion on the medium-term impact of the end of the Agreement on Textile and Clothing on the textile export sector, and on Morocco's strategy to improve the sector's competitiveness in the context of the Plan Émergence.

"Over the medium term, Morocco's ability to attain its growth and development objectives will hinge on the country's ability to harness the full potential of economic globalization. The current peg of the dirham has served the Moroccan economy well keeping inflation low. I also agree with the authorities that the current level of the exchange rate of the dirham remains appropriate, as shown by Morocco's strong balance-of-payment position. However, I share the authorities' assessment that over the medium tem moving gradually away from the current currency-basket peg of the dirham could enhance growth by favoring the integration into the international capital markets. I also agree that further fiscal consolidation and an acceleration of the pace of structural reforms are crucial to ensure a successful transition from the current exchange rate regime."



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