Transcript

Transcript of a Conference Call on the Article IV Consultation with Morocco and First Review of the Precautionary Liquidity Line (PLL)

February 23, 2015

Jean-Francois, Mission Chief, Middle East and Central Asia Department.

Wafa Amr, Senior Communications Officer, Communications Department

MS. AMR: Good morning, everybody. Thank you for joining us this morning. This is a conference call on the Article IV Consultation with Morocco and the conclusion of the first review of the Precautionary Liquidity Line.

This conference call is on the record. Mr. Jean-Francois Dauphin, the mission chief for Morocco, will give a short presentation and then we will take your questions

MR. DAUPHIN: Good morning, everybody. Welcome on this press briefing on Morocco. I'm the mission chief for Morocco at the IMF, I'm going to start with a few remarks to give you the gist of the assessment that our executive board has just completed as part of its annual assessment of the Moroccan economy, as Ms. Amr just said, and also as part of the first review and our Precautionary and Liquidity Line that we have with Morocco.

And then, I'll take your questions and I'm happy to take them in French or in English and translate them if need be.

So, what are the key messages of this evaluation?

In an external environment that has remained difficult and notwithstanding the recent fall in oil prices, the authorities have made commendable efforts to maintain economic stability. In particular, they achieved a significant reduction in the fiscal and external deficits which, as you know, had both widened until 2012 when the economy was hit by a series of external shocks.

The reduction in the external deficit was due, in large part, to booming exports from newly developed sectors, including car industries and aeronautics and also later in the year, of course, by the fall in oil prices. International reserves have increased to about five months of imports.

The authorities moved ahead with an impressive reform of the subsidy system while they extended support to the most vulnerable through dedicated programs to facilitate access to health and education.

Now, looking ahead, we expect the Moroccan economy to strengthen. In 2015, economic growth is expected to rebound and reach about four-and-a-half percent. Inflation is expected to remain low, around one-and-a-half percent. And the fiscal deficit and external deficit should continue to narrow.

Still, much remains to be done to further reduce economic vulnerabilities and to foster higher growth, reduce unemployment and reduce inequalities. And this, in a context where external risk remains significant. These include the risk of long period of slow growth in Europe which, as you know, is Morocco's main trading partner, the risk of a renewed spike in world energy prices and the risk of a surge of global financial market volatility.

The task is not easy and requires a sustained implementation of reforms.

The fiscal deficit needs to be further reduced to make sure that the level of public debt goes down. The pension reform is challenging but it needs to be urgently implemented to ensure the viability of the system and to broaden its coverage, which is an important social goal.

Reforms to strengthen the competitiveness of the economy are also crucial. These are reforms to improve the business climate, foster greater access to credit for households and small and medium-sized enterprises, improve governance and transparency and invest in infrastructure and education.

A more flexible exchange rate regime would also help the economy better absorb shocks and support the diversification of economic links to new market. And in addition, there is a need to ensure that the labor market functions in a way that is conducive to private sector job creation.

The authorities' reform agenda aims to tackle those challenges.

For its part, the IMF continues to support this economic program through our policy advice, through technical assistance and, of course, through our credit line.

This credit line, the precautionary and liquidity line, basically serves as an insurance against external shocks. It amounts to about $5 billion US and it's really a precautionary instrument. The authorities have not drawn on it and do not intend to draw on it absent exceptionally severe external shocks.

I'm going to stop here and I'm happy to take your questions and have a conversation. Thank you.

QUESTIONER: What do you think about the improvement in the business environment in Morocco. MR. DAUPHIN: The business environment has improved quite a bit owing to the authorities' efforts in this area but there's more to be done.

Efforts in this area have been spearheaded by a National Committee which is chaired by the head of government. The result that we saw is that in the latest doing business indicators report by the World Bank, Morocco now ranks 71 among 189 countries which is an improvement compared to the previous ranking which was 87 based on a bit of a different methodology.

And this results from streamlining Moroccan procedures—essentially, cutting red tape. Now, more needs to be done in this area and in particular, more needs to be done to further improve transparency, competition and governance and address corruption. All of which has been identified as a key impediment to doing business in Morocco. Thank you.

QUESTIONER: I was wondering if you could speak a little more to the health of the banking sector in Morocco. This is in general, specifically in terms of access to financing for enterprises. And then, further about this upcoming banking law?

MR. DAUPHIN: The banking sector, as you know, is quite developed compared to the region as a whole. And overall it is sound. Its business model relies on domestic deposits for funding. And that has proven very helpful during the global financial crisis because it helped insulate Morocco from the global financial crisis. So the Moroccan banks were quite resilient during the world's turbulence in this area.

The banking sector is also quite deep compared to regional average. Access to finances is overall better than elsewhere in the region but it's better for bigger enterprises than for small and medium-size enterprises and households. Another interesting feature of the banking sector in Morocco is that there are a number of banks that have been expanding quite rapidly internationally and, in particular, in sub-Saharan Africa which brings about a lot of opportunities for Morocco as well as for the host countries. And it also comes with some supervisory challenges.

Bank al Maghrib has been quite proactive in addressing these challenges. As you yourself mentioned, there's a new banking law that was adopted by Parliament in November 2014 so which is in the process of being implemented. This law is to strengthen Bank al Maghrib's supervisory and regulatory powers. In particular, it also upgrades the macroprudential framework and it also provides the framework for the development of participatory banking that is also called Islamic financing.

Maybe one more thought to mention that, as you know, the IMF has a program which is called financial sector assessment program which is a program under which financial sectors of a country go into quite deep assessments. And Morocco will undergo such an assessment later in 2015.

QUESTIONER: This has been quite helpful. Let me think just one second. I mean, you've mentioned that more effort is needed to improve competitiveness, governance and reduce corruption and I was wondering if you could -- if you have specific points in terms of what kind of things should happen.

MR. DAUPHIN: The authorities have, you know, an agenda of reforms in this area spearheaded by the committee that I mentioned. And it's really about setting all the conditions for improving competition in the country, which is very important. And there are efforts made to reduce corruption including efforts to reform the judicial system. There's a whole reform of the judicial system that has been undertaken and that's important.

As I said earlier, reducing red tape is also crucial to improve the functioning of the bureaucracy in Morocco and make it more business friendly. And there are efforts done also in this area including with the tax administration. You may recall that in 2013, the authorities held a national tax conference. They called it Assises Nationales de la Fiscalité.

And that, one of the component of the action plan that came out of this conference was improving relations between the administration, the tax administration and taxpayers, in particular, companies. So that's also an area that's important.

QUESTIONER: And in terms of, sorry, one thing that sort of not directly raises this but I believe I think you were speaking -- hinted that point but you talked about the fact that there has been sort of growth in exports especially from industrial sector such as cars and aeronautics. Sort of, I was wondering if there are other sectors that you would like to point out in terms of opportunities going forward or sort of things that are moving that are interesting in that realm?

MR. DAUPHIN: You know, overall the Moroccan economy has quite a diversified economic base which is one of its strengths. You know, it has mineral resources. It has an agriculture that is getting more and more diversified and that's one of the area I would point to, to answer your QUESTION.

They have industries some of which were like, you know, traditional industries, for instance, in textiles and some newly developed. So you mentioned car industry. Indeed, aeronautics, that's another one but also I would point to electronics.

And then, there are services: the banking sector and telecomm sectors, in particular, are quite vibrant. I mentioned the fact that several Moroccan banks have expanded internationally quite a lot. And that's also worth noting.

So you have a very diversified base and you have sectors that are developing quite rapidly including as part of a strategy by the authorities to push such sectors. For instance, in agriculture there was a policy called Maroc Plan Vert. So it was a concerted effort to diversify and grow the agriculture sector and it's been quite successful as we see in the numbers for examples exports of citrus or other fruits that were not part of the exports in the agricultural sectors before and now are becoming quite important.

And then, the other sectors are good examples, aeronautics and car industries are also good examples of successful industrial policy that helped develop exports. And it's very striking in the numbers. I mean, exports have been booming in 2014 despite a difficult external environment and that was really pulled by these sectors.

QUESTIONER: Finally, you mentioned sort of a new framework for Islamic finance and I don't know much about it in terms of Morocco but how developed is that sort of financial sector? What are the ambitions of Morocco in terms of that?

MR. DAUPHIN: So far, the sector is not very developed because a full-fledged regulatory framework for it is being established now through the new banking law. You may also have seen recently that there's a board for Sharia-compliant financial products that is in the process of being set up. So I think right now the authorities are putting the conditions in place for the development of the sector that we will see, in terms of potential, I think this has to be tested a bit to see how big it can develop.

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CERTIFICATE OF NOTARY PUBLIC

I, Carleton J. Anderson, III do hereby certify that the forgoing electronic file when originally transmitted was reduced to text at my direction; that said transcript is a true record of the proceedings therein referenced; that I am neither counsel for, related to, nor employed by any of the parties to the action in which these proceedings were taken; and, furthermore, that I am neither a relative or employee of any attorney or counsel employed by the parties hereto, nor financially or otherwise interested in the outcome of this action.

Carleton J. Anderson, III

(Signature and Seal on File)

Notary Public in and for the Commonwealth of Virginia

Commission No. 351998

Expires: November 30, 2016