Statement by the IMF Mission of the 2007 Article IV Consultation with Morocco

Press Release No. 07/151
July 3, 2007

An International Monetary Fund (IMF) mission issued the following statement in Rabat at the conclusion of the 2007 Article IV staff consultation:

"An IMF mission headed by Mr. Domenico Fanizza has been in Rabat from May 31 to June 11, 2007 to conduct the regular consultations under the Article IV of the IMF Articles of Agreement, which requires an annual review of the economic policies of all IMF member countries. This review will conclude with the preparation of a report, which will be discussed for approval by the Executive Board of the IMF in August 2007.

"In line with the authorities' transparency policy, the preliminary conclusions of the mission as well as the final report on the consultation will be published on the IMF's website. They can be found, along with reports for previous years and other IMF publications on Morocco, at the following Internet address: www.imf.org/external/country/MAR/index.htm.

"The discussions focused as usual on economic policies as well as on the short- and medium-term economic outlook. The mission had fruitful discussions with Mr. Oualalou, Minister of Finance and Privatization, Mr. Boussaid, Minister of Public Sectors Modernization, Mr. Jouahri, Governor of Bank Al-Maghrib, as well as with the High Planning Commissioner, Mr. Lahlimi. IMF staff wish to express their deep appreciation to the Moroccan authorities for the excellent collaboration during the discussions, and for their availability and warm hospitality.

"The mission welcomed the excellent economic performance achieved in 2006. The steady increase in nonagricultural growth since 2003 reflects a diversification of growth sources. In contrast with its previous trend, average GDP growth has reached 5.4 percent per annum since 2001. These good results reflect the soundness of the authorities' macroeconomic management, and the favorable impact of reforms undertaken to increase the economy's overall productivity and its resilience to shocks.

"Developments during the first few months of 2007 seem to confirm that though still affected by climatic vagaries, overall growth is gradually becoming less dependent on agricultural production. This year's foreseeable contraction in agricultural production is expected to bring overall growth down from 8.1 percent in 2006 to 2.5 percent. However, nonagricultural growth would reach 5.5 percent in 2007, slightly up from 5.2 percent in 2006, driven mostly by the pickup in private investment. The external position would continue to strengthen, and official reserves remain substantially higher than the stock of external debt. Inflation would remain subdued, and the fiscal deficit contained well below 3 percent of GDP.

"The main objective of macroeconomic policies is to sustain and improve upon its good economic performance to bring the living conditions of the Moroccan population closer to the levels of emerging-market Organization for Economic Cooperation and Development (OECD) countries. Higher growth would also help further reduce unemployment, as the latter remains high in urban areas, particularly among young people. In this context, the discussions focused on four main strategic axes:

"Pressing ahead with medium-term fiscal consolidation, in order to bring the stock of public debt, as a percentage of GDP, closer to the level of emerging-market OECD countries. The favorable fiscal outlook for 2007 appears in line with this objective, thanks to continued strong performance of tax revenues and to the weak growth of current spending, and particularly of the wage bill. Keeping the cost of food and energy subsidies at or below the amount foreseen in the budget (1.7 percent of GDP) will also help meet the deficit objective.

"Maintaining low inflation despite the robust growth of domestic consumption and both domestic and foreign investment. Despite the slowdown in inflation during the first few months of 2007, Bank Al-Maghrib's (BAM) careful monitoring of inflation risks continues to be essential. Moreover, the strengthening of BAM's analytical and forecasting framework, as well as its efforts to enhance its communication strategy, will continue to heighten the transparency of monetary policy, and better anchor inflation expectations.

"Deepening of financial intermediation to ensure an efficient allocation of resources available to finance economic activity. The recent surge in credit to the private sector demonstrates the success of the authorities' policies in this area. At the same time, enhanced financial supervision will continue to strengthen the stability of the financial sector. In this respect, the substantial reduction in the banks' portfolio of nonperforming loans, whose share in total loans decreased from 15.7 percent in 2005 to 10.9 percent in 2006 (from 9.6 percent in 2005 to 7.4 percent in 2006 if one excluded public financial institutions) and increased provisioning are important steps forward.

"Deepening Morocco's integration to the global economy. Progress in the area of trade liberalization continues both on the bilateral and regional levels. Morocco's efforts to deepen economic integration in the Maghreb are encouraging. These liberalization efforts on the bilateral and regional levels should be complemented by progress in multilateral liberalization, in order to avoid the risk of trade diversion. By providing macroeconomic management with an additional degree of flexibility, a more flexible exchange rate regime would also facilitate Morocco's successful integration in the global economy."



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