Statement by an IMF Staff Mission to Morocco

Press Release No. 08/135
June 10, 2008

An International Monetary Fund (IMF) mission led by Mr. Mark Lewis visited Rabat from May 19-30, 2008, to conduct the consultation discussions under Article IV of the IMF Articles of Agreement.

At the end of the mission, the IMF issued the following statement today:

"In the context of the 2008 Article IV consultation discussions, the mission reviewed recent economic developments and the authorities' strategy for accelerating economic growth and improving income and employment. The mission met with senior government officials, the central bank, as well as representatives from the parliament, the private sector, and labor unions.

Recent economic developments have been encouraging and demonstrate the resilience of the Moroccan economy. Nonagricultural GDP growth was 5½ percent in 2007, even if overall real GDP growth slowed to 2.2 percent due to a sharp contraction in the cereal production. Consumer price inflation, which increased to 3.7 percent at end-April 2008 (year-on-year), remains relatively low, reflecting in part the lack of adjustment to administered prices since early 2007. The balance of payments is sound, and the budget was close to balance in 2007, against a deficit of 2 percent of GDP registered in 2006.

Important progress has been realized in recent years in achieving macroeconomic stability, resistance of the economy to shocks, and strengthening of the public finance position. However, the spike in the world prices of petroleum and other commodities has significantly increased the cost of subsidies. The strong improvement in the budget position in recent years allows, in the short term, to absorb this increase in spending without compromising macroeconomic stability. The mission welcomes the intention of the authorities over the medium term to gradually transform the current system of subsidies by improving targeting to the poor.

The central bank has appropriately managed domestic demand. The inflation rate largely reflects the impact of exogenous factors, and the mission considers that the monetary policy stance is appropriate for the current situation. In the period to come, monetary policy decisions may be more difficult, and the mission notes the determination of the central bank to maintain price stability. The exchange rate regime, based on a peg of the dirham to a basket of the euro and dollar, has contributed to macroeconomic stability. Analytical work carried out by the mission suggests that level of the exchange rate is in line with its economic fundamentals.

The mission observed that the banking sector is sound and resilient to shocks. While the Moroccan financial sector has largely been untouched by the turbulence in international financial markets, it is important that the financial supervisory agencies pay close attention to the capacity of the sector to operate in a more volatile international environment.

Strong and sustained economic growth entails the continuation of reforms aimed at improving the productivity of the Moroccan economy. The continuation of sectoral reforms—notably in agriculture, energy, and internal trade—as well as education sector reform and the strengthening of infrastructure and social services, will play an important role in raising investment, output, and employment, and improving incomes of the Moroccan population."



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