## 1marea2021001

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### Economic impact and outlook
- Morocco experienced a severe contraction of GDP in 2020 due to the global pandemic and a severe drought.
- Real GDP growth (staff expects / projections):
  - 2019: 2.5 percent
  - 2020: -7.2 percent (staff expects)
  - 2021: 4.5 percent (staff expects)
  - 2022: 3.9 percent
  - 2023: 3.6 percent
  - 2024: 3.7 percent
  - 2025: 3.7 percent
- Nonagricultural GDP growth:
  - 2019: 3.7 percent
  - 2020: -7.5 percent
  - 2021: 4.2 percent
- Exceptional uncertainty around the outlook; risks depend on the evolution of the pandemic and vaccine progress.

### Labor market and social impact
- Unemployment:
  - 2019: 9.2 percent
  - Q3 2020: 12.7 percent (from 9.4 percent last year)
  - 2020 (annual): 12.5 percent
  - 2021: 10.5 percent
  - 2022: 9.7 percent
  - 2023: 9.1 percent
  - 2024: 8.7 percent
  - 2025: 8.5 percent
- Poverty and vulnerability:
  - Poverty rate expected to increase to 6.6 percent in 2020 (from 4.8 percent in 2014)
  - Vulnerability to poverty expected to rise to 19.9 percent in 2020 (from 17.1 percent last year)
- Agricultural shock:
  - Production of cereals fell by 39 percent relative to last year.

### Inflation, monetary policy, and exchange rate
- Inflation (end of period):
  - 2019: 1.0 percent
  - 2020: 0.2 percent
  - 2021: 0.8 percent
  - 2022: 1.2 percent
  - 2023: 1.6 percent
  - 2024: 1.8 percent
  - 2025: 2.0 percent
- Inflation (period average):
  - 2019: 0.2 percent
  - 2020: 0.2 percent
  - 2021: 0.8 percent
  - 2022: 1.2 percent
  - 2023: 1.6 percent
  - 2024: 1.8 percent
  - 2025: 2.0 percent
- Bank Al-Maghrib (BAM) measures improved liquidity and cut interest rates; monetary stance should remain accommodative until inflationary pressures reemerge.
- Authorities increased exchange rate flexibility; recommendation to complete transition to planned inflation targeting (IT) framework to strengthen monetary policy transmission.

### Fiscal position and public debt
- Central government finances (percent of GDP):
  - Revenue (include grants): 2019: 25.6; 2020: 26.9; 2021: 26.2; 2022: 26.4; 2023: 26.6; 2024: 26.8; 2025: 27.2
  - Expenditure: 2019: 29.7; 2020: 34.6; 2021: 32.6; 2022: 32.7; 2023: 32.2; 2024: 31.7; 2025: 31.3
  - Fiscal balance: 2019: -4.1 percent of GDP; 2020: -7.7 percent of GDP; 2021: -6.3 percent of GDP; 2022: -6.2 percent of GDP; 2023: -5.6 percent of GDP; 2024: -4.8 percent of GDP; 2025: -4.0 percent of GDP
  - Primary balance: 2019: -1.8 percent of GDP; 2020: -5.5 percent of GDP; 2021: -3.9 percent of GDP; 2022: -3.7 percent of GDP; 2023: -2.8 percent of GDP; 2024: -2.1 percent of GDP; 2025: -1.2 percent of GDP
  - Public debt: 2019: 65.2 percent of GDP; 2020: 76.5 percent of GDP; 2021: 76.9 percent of GDP; 2022: 77.3 percent of GDP; 2023: 77.7 percent of GDP; 2024: 77.3 percent of GDP; 2025: 76.6 percent of GDP
- DSA highlights:
  - Central government debt-to-GDP ratio in 2020: 76.5 percent of GDP
  - Increase in public debt-to-GDP in 2020: 11.3 percent (relative to last year)
  - Gross financing needs for central government in 2020: about 17.5 percent of GDP
  - DSA baseline: debt stabilizes around 77½ percent of GDP until 2024, falling to 76½ percent by 2025
  - Debt benchmark: 70 percent of GDP; gross financing needs benchmark: 15 percent of GDP

### External position and reserves
- Current account (percent of GDP) excluding official transfers:
  - 2019: -4.3 percent
  - 2020: -6.7 percent
  - 2021: -5.8 percent
  - 2022: -5.1 percent
  - 2023: -4.6 percent
  - 2024: -4.5 percent
  - 2025: -3.8 percent
- Current account including official transfers:
  - 2019: -4.1 percent
  - 2020: -6.0 percent
  - 2021: -5.4 percent
  - 2022: -4.8 percent
  - 2023: -4.3 percent
  - 2024: -4.4 percent
  - 2025: -3.7 percent
- External buffers:
  - Gross reserves (months imports): 2019: 6.8; 2020: 7.3; 2021: 6.9; 2022: 6.7; 2023: 6.5; 2024: 6.3; 2025: 6.9
  - External debt (% GDP): 2019: 32.8 percent; 2020: 39.7 percent; 2021: 39.3 percent; 2022: 39.3 percent; 2023: 39.9 percent; 2024: 39.0 percent; 2025: 39.1 percent
  - Net imports of energy products (US$ billions): 2019: -7.9; 2020: -3.9; 2021: -5.0; 2022: -5.1; 2023: -5.2; 2024: -5.6; 2025: -5.9
  - Nominal GDP (US$ billions): 2019: 119.7; 2020: 113.0; 2021: 124.2; 2022: 131.1; 2023: 138.2; 2024: 145.7; 2025: 153.8
- External financing notes:
  - Current account deficit increased in 2020 due to lower tourism receipts.
  - Remittances resilient and lower imports contained external financing needs.
  - International reserves remain comfortably above last year’s levels, aided by purchase of the IMF PLL in April and greater external financing.

### Crisis-response measures: fiscal, credit, and guarantees
- Targeted credit support:
  - Damane Relance launched in June to finance working capital at subsidized interest rates with sovereign guarantees.
  - Sovereign guarantee coverage: 95 percent for SMEs; 80-90 percent for larger firms up to a limit.
  - Repayment terms: 7 years with 2-year grace period under Damane Relance; interest-free loan to self-employed up to DH 15 thousand repayable over three years with one-year grace.
  - Banks provided loans worth 2.5 percent of GDP under Damane Relance to 25 thousand firms.
  - Total government guarantees under schemes: 3.7 percent of GDP at end-October 2020.
- Mohammed VI Investment Fund:
  - Endowment DH 15 billion (about 1.5 percent of GDP) with target to attract DH 30 billion private funding.
- Fiscal impact and public finances:
  - As of October, tax revenues about 8 percent below same period last year.
  - 2020 Supplementary Budget: tax revenues expected to be 3½ percent of GDP lower relative to initial budget.
  - Overall fiscal deficit for 2020 expected to reach -7¾ percent of GDP (versus 3¾ percent in initial budget).
  - Debt-to-GDP ratio increasing by about 11 percentage points at end-2020.
  - For 2021, overall fiscal deficit expected to fall to 6.3 percent of GDP; spending to increase by about 0.5 percent of GDP for extension of public medical insurance.
  - Medium-term: overall fiscal deficit expected to fall gradually to 4.8 percent of GDP by 2024; mobilization of real estate assets about 4½ percent of GDP between 2021 and 2024; privatization receipts about 1⅓ percent of GDP.

### Financial sector resilience, credit, and risks
- Credit to the economy (% change):
  - 2019: 5.4
  - 2020: 3.4
  - 2021: 3.9
  - 2022: 3.9
  - 2023: 4.0
  - 2024: 4.0
  - 2025: 4.0
- Banking sector performance:
  - Liquidity provision by the central bank increased; policy rate cut by total 75 bps since March to 1.5 percent (policy rate cut figures: 25 bps in March and 50 bps in June to 1.5 percent cited elsewhere).
  - BAM’s balance sheet grew by almost 27 percent since February 2020, reaching 39 percent of GDP.
  - Average lending rates fell to 4.3 percent on average in 2020 Q3 from 5.1 percent a year ago.
  - Nonperforming loans (NPLs) increased to 8½ percent of total loans as of October.
  - Largest banks substantially raised provisioning levels.
- Directors’ recommendations:
  - Close monitoring of bank asset quality, regular stress testing, strengthen AML/CFT framework, finalize bank resolution framework.
  - Accelerate efforts to strengthen supervisory capacity and complete FSAP recommendations.

### Policy recommendations and structural reforms
- Fiscal policy:
  - Directors agreed fiscal policy appropriately supported households and firms; should continue sustaining recovery in the short term.
  - Fiscal consolidation should resume as soon as the economy recovers; staff recommends starting consolidation in 2022 under baseline.
  - Publish a medium-term fiscal framework with credible commitment to put public debt on a firmly downward trajectory.
  - Decisive tax reforms and increased efficiency of public spending recommended; comprehensive tax reform could increase revenues by between 1½ and 2 percent of GDP over medium term.
- Monetary policy:
  - Maintain accommodative stance until inflationary pressures reemerge.
  - Complete transition to inflation targeting (IT) with more flexible exchange rate to improve policy transmission; complementary safeguards recommended (capital controls persistence, FX intervention rule).
  - If at effective lower bound, consider unconventional measures (including government asset purchase program) within IT framework to lower long-end yields.
- Sovereign guarantees, SOEs, and PPPs:
  - Closely monitor growing sovereign credit guarantees (crisis-related guarantees to be transferred to new financial institution under BAM supervision).
  - Publish regular statements disclosing guarantees and contingent support to SOEs; set up DEPP unit to monitor fiscal risks.
  - Strengthen PPP governance: set global annual envelope for new PPPs and add annex listing projects and costs.
- Social protection, health, and education:
  - Extend mandatory medical insurance (AMO) to RAMED and self-employed starting 2021; 2021 cost partly offset by one-off solidarity contribution of 0.4 percent of GDP; permanent funding sources needed.
  - Harmonize social assistance into single family-allowance scheme from 2023 based on unified social registry expected in 2022; fund through reallocation and gradual elimination of gas subsidy (about 1 percent of GDP).
  - Continue education reform (Education Act 2019) to universalize pre-primary education by 2025, enhance teacher formation, redesign curricula prioritizing STEM and early reading.
- Public administration and governance:
  - Reduce number of special budgetary funds by integrating within a unified pluriannual budget process.
  - Continue anti-corruption strategy; ensure bill on illicit enrichment aligns with international standards; publish beneficial ownership for procurement.
  - Digitalize public administration and implement laws to simplify procedures and create unified internet portal.
- SOE reform and privatization:
  - Two draft laws to refocus SOE business models, corporatize commercial SOEs, create National Agency for valorization and strategic management of SOEs, and monitor performance.
  - Resume privatization program and mobilize strategic investment fund to support productive activity.

### Outlook, scenarios, and contingency planning
- Baseline projection:
  - Growth expected to contract by 7.2 percent in 2020.
  - Agricultural output falling by 5 percent and non-agricultural output falling by 7½ percent.
  - Economic activity accelerates to 4½ percent in 2021 under assumptions: average weather, health crisis resolution in second half of next year, continued policy support.
  - Inflation projected to increase to 0.8 percent in 2021.
  - Current account deficit projected to widen to 6 percent of GDP in 2020 (other estimates show around 4.2 percent in 2020 depending on statement).
- Medium-term:
  - GDP expected to return to pre-crisis levels by 2022 but remain below pre-crisis trend.
  - Potential growth expected to reach around 3½ percent by 2025 with structural reforms.
  - Current account deficit expected to improve gradually to an estimated norm of 3¾ percent of GDP by 2025.
- Downside scenario:
  - Subtracts about 3 percentage points from GDP growth next year (from 4½ percent baseline to 1½ percent).
  - Additional fiscal stimulus of about 1 percent of GDP would limit damage and protect vulnerable groups.
  - Public debt would peak at about 82 percent of GDP in downside scenario absent policy action.
  - Combined policy responses (fiscal consolidation measures, further rate cuts, a more depreciated Dirham under IT, BAM purchases of Treasury bonds) would offset about half of the negative shock in staff’s model and help converge inflation to long-term target of 2 percent.

### Key statistics (selected) and projections
- Population: 35.587 million
- 2019 Per capita GDP: $3,460
- Quota: SDR 894.4 million
- Poverty rate: 4.8 percent, 2014
- Main exports (2018): automobiles, phosphate and derivatives
- Key export markets: France and Spain (37% of total trade), 2018
- COVID-19 epidemiological counts:
  - As of December 2: 364,190 confirmed cases, with 5,985 deaths
  - As of December 10: 391,529 confirmed cases, with 6,492 deaths
  - Later updated: over 403,600 infection cases (about 1,111.4 per 100,000 inhabitants) and over 6,700 deaths
- Local currency per U.S. dollar (period average): 2019: 9.6; 2020: 9.5; 2021: 9.1; 2022: 9.0; 2023: 9.0; 2024: 9.0; 2025: 9.0
- Selected monetary and fiscal memoranda:
  - BAM policy rate: 1.5 percent
  - BAM potential refinancing to banks tripled to DH450 billion (about 47 percent of GDP)
  - Emergency fund for COVID-19 raised about 3 percent of GDP
  - Recovery plan to inject about 12 percent of GDP
  - State guarantees granted under various schemes amounted to 5 percent of GDP (other places cite 3.7 percent at end-October 2020)
  - International bond issuance: US$ 3 billion on December 8, 2020 (0.75bn 7-year at 2.375 percent; 1bn 12-year at 3 percent; 1.25bn 30-year at 4 percent); orders reached USD 13 billion
  - Gross official reserves: series show increase to US$ 32.0 billion in November and projections above 7 months of imports

### Financial sector reforms and FSAP follow-up (status highlights)
- Progress on FSAP recommendations in areas including on-site supervision capacity, IFRS9 implementation, recovery & resolution plans, macroprudential oversight, and payment systems modernization.
- Ongoing items: calibration of D-SIB surcharge, data extensions for risk mapping, legal framework changes for resolution, deposit insurance and FMIs improvements, and efforts to strengthen AML/CFT supervision.

*IMF staff report excerpt; Source: MOROCCO — STAFF REPORT FOR THE 2020 ARTICLE IV CONSULTATION (excerpt).*

### 12.7 percent in the third quarter of the year (from 9.4 percent last year) and has driven

### 1marea2021001 - 12.7 percent in the third quarter of the year (from 9.4 percent last year) and has driven

### Economic impact and outlook
- Morocco was hit by the global pandemic and a severe drought, causing a severe contraction of GDP in 2020.
- Real GDP growth:
  - 2019: 2.5 percent
  - 2020: -7.2 percent (staff expects)
  - 2021: 4.5 percent (staff expects)
  - 2022: 3.9 percent
  - 2023: 3.6 percent
  - 2024: 3.7 percent
  - 2025: 3.7 percent
- Nonagricultural GDP growth:
  - 2019: 3.7 percent
  - 2020: -7.5 percent
  - 2021: 4.2 percent
- Exceptional uncertainty around the outlook, with risks dependent on the evolution of the pandemic and vaccine progress in Morocco and trading partners.

### Labor market and social impact
- Unemployment:
  - 2019: 9.2 percent
  - Q3 2020: 12.7 percent (from 9.4 percent last year)
  - 2020 (annual): 12.5 percent
  - 2021: 10.5 percent
  - 2022: 9.7 percent
  - 2023: 9.1 percent
  - 2024: 8.7 percent
  - 2025: 8.5 percent
- Poverty and vulnerability:
  - Poverty rate expected to increase to 6.6 percent in 2020 (from 4.8 percent in 2014)
  - Vulnerability to poverty expected to rise to 19.9 percent in 2020 (from 17.1 percent last year)
- Agricultural shock:
  - Production of cereals fell by 39 percent relative to last year.

### Inflation, monetary policy, and exchange rate
- Inflation (end of period):
  - 2019: 1.0 percent
  - 2020: 0.2 percent
  - 2021: 0.8 percent
  - 2022: 1.2 percent
  - 2023: 1.6 percent
  - 2024: 1.8 percent
  - 2025: 2.0 percent
- Inflation (period average):
  - 2019: 0.2 percent
  - 2020: 0.2 percent
  - 2021: 0.8 percent
  - 2022: 1.2 percent
  - 2023: 1.6 percent
  - 2024: 1.8 percent
  - 2025: 2.0 percent
- Bank Al-Maghrib measures improved liquidity conditions and cut interest rates; monetary stance should remain accommodative until inflationary pressures reemerge.
- Authorities have increased exchange rate flexibility; completion of transition to the planned inflation targeting (IT) framework recommended to strengthen monetary policy transmission.

### Fiscal and external positions
- Central government finances (percent of GDP):
  - Revenue (include grants):
    - 2019: 25.6
    - 2020: 26.9
    - 2021: 26.2
    - 2022: 26.4
    - 2023: 26.6
    - 2024: 26.8
    - 2025: 27.2
  - Expenditure:
    - 2019: 29.7
    - 2020: 34.6
    - 2021: 32.6
    - 2022: 32.7
    - 2023: 32.2
    - 2024: 31.7
    - 2025: 31.3
  - Fiscal balance:
    - 2019: -4.1 percent of GDP
    - 2020: -7.7 percent of GDP
    - 2021: -6.3 percent of GDP
    - 2022: -6.2 percent of GDP
    - 2023: -5.6 percent of GDP
    - 2024: -4.8 percent of GDP
    - 2025: -4.0 percent of GDP
  - Primary balance:
    - 2019: -1.8 percent of GDP
    - 2020: -5.5 percent of GDP
    - 2021: -3.9 percent of GDP
    - 2022: -3.7 percent of GDP
    - 2023: -2.8 percent of GDP
    - 2024: -2.1 percent of GDP
    - 2025: -1.2 percent of GDP
  - Public debt:
    - 2019: 65.2 percent of GDP
    - 2020: 76.5 percent of GDP
    - 2021: 76.9 percent of GDP
    - 2022: 77.3 percent of GDP
    - 2023: 77.7 percent of GDP
    - 2024: 77.3 percent of GDP
    - 2025: 76.6 percent of GDP
- Current account (percent of GDP):
  - Excluding official transfers:
    - 2019: -4.3 percent
    - 2020: -6.7 percent
    - 2021: -5.8 percent
    - 2022: -5.1 percent
    - 2023: -4.6 percent
    - 2024: -4.5 percent
    - 2025: -3.8 percent
  - Including official transfers:
    - 2019: -4.1 percent
    - 2020: -6.0 percent
    - 2021: -5.4 percent
    - 2022: -4.8 percent
    - 2023: -4.3 percent
    - 2024: -4.4 percent
    - 2025: -3.7 percent
- External buffers:
  - Gross reserves (months imports):
    - 2019: 6.8
    - 2020: 7.3
    - 2021: 6.9
    - 2022: 6.7
    - 2023: 6.5
    - 2024: 6.3
    - 2025: 6.9
  - External debt (% GDP):
    - 2019: 32.8 percent
    - 2020: 39.7 percent
    - 2021: 39.3 percent
    - 2022: 39.3 percent
    - 2023: 39.9 percent
    - 2024: 39.0 percent
    - 2025: 39.1 percent
  - Net imports of energy products (in billions of U.S. dollars):
    - 2019: -7.9
    - 2020: -3.9
    - 2021: -5.0
    - 2022: -5.1
    - 2023: -5.2
    - 2024: -5.6
    - 2025: -5.9
  - Nominal GDP (in billions of U.S. dollars):
    - 2019: 119.7
    - 2020: 113.0
    - 2021: 124.2
    - 2022: 131.1
    - 2023: 138.2
    - 2024: 145.7
    - 2025: 153.8
- External financing:
  - Current account deficit increased in 2020 due to lower tourism receipts.
  - Resilience of remittances and lower imports have contained external financing needs.
  - International reserves remain comfortably above last year’s levels, aided by the purchase of the IMF precautionary liquidity line in April and greater recourse to external financing.

### Financial sector and credit
- Credit to the economy (% change):
  - 2019: 5.4
  - 2020: 3.4
  - 2021: 3.9
  - 2022: 3.9
  - 2023: 4.0
  - 2024: 4.0
  - 2025: 4.0
- Banking sector has weathered the recession relatively well; credit has continued to increase in 2020 due to:
  - Central bank actions improving liquidity and cutting interest rates.
  - Government guaranteed credit schemes.
- Directors recommended continued close monitoring of bank asset quality, including regular stress testing, and accelerating efforts to strengthen the AML/CFT framework and finalize the bank resolution framework.

### Policy response and recommendations
- Authorities’ fiscal response:
  - Greater public sector spending financed by private and public voluntary contributions to the COVID-19 Fund.
  - Fall in tax revenues was the main driver of fiscal deterioration.
  - Directors agreed fiscal policy appropriately supported households and firms and should continue sustaining recovery in the short term.
  - Fiscal consolidation should resume as soon as the economy recovers.
  - Directors encouraged publishing a medium-term fiscal framework showing a credible commitment to put public debt on a firmly downward trajectory, with decisive tax reforms and increased efficiency of public spending.
- Monetary policy:
  - Exceptional measures by Bank Al-Maghrib were welcomed to smooth pandemic impacts.
  - Monetary stance should remain accommodative until inflationary pressures reemerge.
  - Complete transition to the planned inflation targeting framework to strengthen transmission.
- Structural and governance reforms:
  - Support for authorities’ plan to overhaul large State-Owned Enterprises (SOEs) to improve efficiency and governance and support private sector development.
  - Strengthen management and reporting of fiscal risks from credit guarantees and public-private partnerships.
  - Continue improving governance, modernizing public sector administration, and fighting corruption.
  - Extend social protection coverage, improve targeting and efficiency of spending, and ensure adequate long-term financing for these reforms.
  - Continue education reforms to build human capital and improve long-term productivity.
  - Increase domestic competition, improve digitalization of public administration, and implement the anti-corruption strategy.
- External engagement:
  - Decision to draw on the Precautionary and Liquidity Line (PLL) in April 2020 helped ease external financing pressures and maintain reserves.
  - Authorities intend to repurchase soon part of the amount purchased under the PLL arrangement; this may make post-program monitoring no longer necessary.
  - Managing Director recommends initiation of Post-Program Monitoring (PPM) given outstanding credit to the IMF expected to remain above the SDR 1.5 billion threshold until early 2024.

### Key statistics (selected)
- Population: 35.587 million
- 2019 Per capita GDP: $3,460
- Quota: SDR 894.4 million
- Poverty rate: 4.8 percent, 2014
- Main exports (2018): automobiles, phosphate and derivatives
- Key export markets: France and Spain (37% of total trade), 2018
- As of December 2, Morocco had experienced 364,190 confirmed COVID-19 cases, with 5,985 deaths.
- Local currency per U.S. dollar (period average):
  - 2019: 9.6
  - 2020: 9.5
  - 2021: 9.1
  - 2022: 9.0
  - 2023: 9.0
  - 2024: 9.0
  - 2025: 9.0

*Source: MOROCCO — STAFF REPORT FOR THE 2020 ARTICLE IV CONSULTATION (excerpt).*

### 1.6 percent of GDP to some 50 thousand SMEs at subsidized interest rates and with sovereign

### 1marea2021001 - 1.6 percent of GDP to some 50 thousand SMEs at subsidized interest rates and with sovereign

### Crisis-response measures: targeted credit support and guarantees
- Post-crisis facility (Damane Relance) launched in June to finance working capital needs at subsidized interest rate, with sovereign guarantees to strengthen risk sharing.
- Sovereign guarantee coverage:
  - 95 percent of the loans to SMEs.
  - 80-90 percent for larger firms, up to a limit.
- Repayment terms for facilities:
  - Firms have 7 years to repay with a 2-year grace period under Damane Relance.
  - Interest-free loan to self-employed up to DH 15 thousand with a repayment period of three years and a grace period of one year.
- Take-up and fiscal footprint:
  - Banks have provided loans worth 2.5 percent of GDP under Damane Relance, to 25 thousand firms.
  - Total government guarantees granted under these various schemes amount to 3.7 percent of GDP at end-October 2020.
- Mohammed VI Investment Fund:
  - Endowed with DH 15 billion (about 1.5 percent of GDP).
  - Target to attract private funding of DH 30 billion.

### Accommodative monetary and macroprudential stance
- Policy rate and liquidity actions:
  - Central bank cut the policy rate by 75 bps since March, to 1.5 percent.
  - Increased liquidity provision to the banking sector by more than 50 percent by: i) expanding the range of collateral accepted for repos (to include public and private debt instruments), ii) lengthening refinancing operations, and ii) providing FX swaps to domestic banks; and fully eliminated reserve requirements for banks.
  - BAM’s balance sheet has grown by almost 27 percent since February 2020, reaching 39 percent of GDP.
  - Authorities broadened the dirham’s fluctuation band to +/- 5 percent (from +/- 2.5 percent) in March.
- Macroprudential measures:
  - Banks authorized to go below the 100 percent liquidity coverage ratio.
  - Provisioning requirements suspended for loans benefiting from a temporary payment moratorium.
  - Capital conservation buffer reduced by 50 bps for one year.
  - BAM called on banks to suspend dividend payments.
  - Moroccan insurance supervisor relaxed some provisioning requirements to reduce non-bank financial risks.

### External sector developments and reserves
- Exports and tourism:
  - Strong contraction in goods exports in the first 10 months of 2020, mainly in automobile, aeronautic, and textiles (decline bottomed out in Q3).
  - Tourism receipts about -60 percent in the first 10 months of the year relative to same period in 2019.
- External financing and reserves:
  - Increase in external borrowing including purchase of US$ 3 billion under the IMF PLL arrangement, loans from bilateral and multilateral IFIs, and issuance of Eurobonds for a total of €1 billion.
  - These and relatively resilient net FDI have prevented a decline in international reserves.
  - Contraction of the trade deficit and pegging of the dirham to a basket contributed to a small appreciation of the dirham so far in 2020 (of about 2½ in real terms as of September).

### Fiscal impact and public finances
- Revenue and deficit:
  - As of October, tax revenues were about 8 percent below the same period last year (particularly value-added tax, VAT).
  - Based on the 2020 Supplementary Budget, tax revenues in 2020 are expected to be 3½ percent of GDP lower relative to the initial budget.
  - Overall fiscal deficit for 2020 is expected to reach -7¾ percent of GDP (versus 3¾ percent of GDP in the initial budget).
  - Debt-to-GDP ratio increasing by about 11 percentage points of GDP at end-2020.
- Budget composition and measures:
  - Increase in spending largely offset by private sector contribution to the COVID-19 Fund and some savings in other current spending (including in subsidies due to lower energy prices).
  - For 2021, overall fiscal deficit expected to fall to 6.3 percent of GDP, maintaining the fiscal stimulus injected in 2020.
  - Spending expected to increase by about 0.5 percent of GDP because of the extension of the public medical insurance scheme to self-employed and low-income people.
  - Over the medium term, overall fiscal deficit expected to fall gradually to 4.8 percent of GDP by 2024.
  - Mobilization of government real estate assets of about 4½ percent of GDP between 2021 and 2024; privatization receipts of about 1⅓ percent of GDP will reduce financing needs.
  - Debt-to-GDP ratio expected to remain at around 77 percent, and gross financing needs at around 17 percent of GDP, over the next four years.

### Financial sector resilience and risks
- Banking conditions:
  - Liquidity provision to the banking sector almost doubled in response to the pandemic.
  - Short-term market interest rates declined to around 1.5 percent.
  - Average lending rates fell to 4.3 percent on average in 2020 Q3 from 5.1 percent a year ago.
  - Banking credit continued to grow in 2020, mainly reflecting subsidized credit to firms; consumer and real estate loans have fallen.
  - Bank deposits have grown with a shift from term to demand deposits.
- Asset quality and provisioning:
  - Nonperforming loans (NPLs) increased to 8½ percent of total loans as of October.
  - Largest banks have substantially raised their provisioning levels.
- Risks:
  - Higher NPLs may constrain banks’ ability to provide credit, further aggravating the decline in investment and raising concerns about the funding of government financing needs.
  - Materialization of contingent liabilities from sovereign credit guarantees (particularly to SOEs) could lead to rising concerns about debt sustainability.

### Outlook, scenarios, and policy responses
- Baseline projection:
  - Growth expected to contract by 7.2 percent in 2020.
  - Agricultural output falling by 5 percent and non-agricultural output falling by 7½ percent.
  - Economic activity accelerates to 4½ percent in 2021 under assumptions: i) average weather conditions for the next harvest, ii) resolution of the health crisis in the second half of next year, and iii) continued support from monetary and fiscal policy.
  - Inflation projected to increase to 0.8 percent in 2021.
  - Current account deficit projected to widen to 6 percent of GDP in 2020.
- Medium-term:
  - GDP expected to return to pre-crisis levels by 2022, but remain below pre-crisis trend over the medium term.
  - Potential growth expected to reach around 3½ percent by 2025 with continued structural reforms.
  - Current account deficit expected to improve gradually to its estimated norm of 3¾ percent of GDP by 2025.
- Downside scenario and simulated policy response:
  - Downside scenario subtracts about 3 percentage points to GDP growth next year (from 4½ percent baseline to 1½ percent).
  - Additional fiscal stimulus of about 1 percent of GDP would limit additional damage and minimize impact on the most vulnerable.
  - Public debt would peak at about 82 percent of GDP in the downside scenario absent policy action.
  - Combined policy options to mitigate the shock:
    - Compression of non-essential current spending and measures to raise fiscal revenues.
    - Further cuts of the policy rate.
    - A more depreciated Dirham under an inflation targeting (IT) monetary policy framework.
    - BAM purchases of Treasury bonds in secondary markets.
  - In staff’s model, the combined fiscal and monetary policy responses would offset about half of the impact of the negative shock on GDP growth, allow faster closure of the output gap and contribute to a quicker convergence of inflation to a long-term target of 2 percent.

### Policy discussions and recommendations
- Fiscal strategy and timing:
  - Fiscal response in 2020 viewed as appropriate; measures estimated to have contributed to growth by about 0.6 percent.
  - With overall fiscal deficit at 7.7 percent of GDP and debt-to-GDP ratio about 76.5 percent, Morocco’s fiscal space is at risk.
  - Staff recommends starting fiscal consolidation in 2022 when the recovery is established, targeting public debt around 70 percent of GDP by 2025 and aiming to return to debt anchor of 60 percent of GDP over the longer term.
  - A slower-than-expected recovery would call for a slower adjustment.
- Medium-term fiscal framework:
  - A credible medium-term fiscal framework should be published in Budget documents, showing a clear and transparent path to a lower public debt-to-GDP ratio over the next five years and listing key revenue and spending measures.
  - More details needed on plans to raise revenues through government real estate mobilization and privatization program.
- Revenue and spending reforms:
  - Introduce a unified tax and social contribution regime for small artisans and retailers (already a step forward).
  - A comprehensive tax reform could increase tax revenues by between 1½ and 2 percent of GDP over the medium term.
  - Additional measures: improvements in tax administration, introduction of a carbon tax and a succession tax above certain thresholds, gradual civil service reform, digitalization of public services, and introduction of a unified social registry to rationalize public spending.
- Sovereign guarantees, SOEs, and PPPs:
  - Growing size of sovereign credit guarantees requires close monitoring.
  - Authorities are changing guarantee management:
    - Crisis-related guarantees will be transferred to a new financial institution under BAM supervision, which will absorb the first layer of losses.
    - Stock of sovereign guarantees to SOEs before the crisis will be managed by a new special budgetary fund; any triggering would directly impact the budget.
  - Fiscal risks related to SOEs need more systematic identification and assessment.
  - Approval of a draft law on governance and financial control of SOEs could strengthen Ministry of Finance oversight.
  - PPP framework:
    - New PPP law makes legal framework more flexible (including exonerating projects below a certain threshold from ex-ante assessment and simplifying procedures for unsolicited proposals and direct awarding).
    - Staff recommends strengthening institutional capacity to evaluate, monitor and transparently report the fiscal implications of PPPs for the budget.

*1marea2021001 - 1.6 percent of GDP to some 50 thousand SMEs at subsidized interest rates and with sovereign*

### 18.      Reducing the number of special budgetary funds would enhance the transparency and

### 18.      Reducing the number of special budgetary funds would enhance the transparency and

### Special budgetary funds — findings and implications
- Special budgetary funds (Comptes Speciaux du Trésor) are earmarked for specific objectives and their endowment is insulated from the yearly budget allocation process.
- They have been used to finance investment projects, manage SOE guarantees, and fund the extension of social protection and the education reform to ensure continuity and predictability.
- Risks and drawbacks:
  - Could fragment policymaking and implementation.
  - Could cloud public understanding of fiscal operations and dilute accountability.
- Recommendation:
  - Integrate these funds within a unified and comprehensive pluriannual budget process to ensure greater consistency with the government’s broader macro, fiscal, and social objectives.

### Fiscal risks, public debt, and authorities’ views
- Stabilization of the public debt-to-GDP ratio until 2024 is intended to support the recovery.
- Authorities note the Organic Budget Law (OBL) already introduced pluriannual budgeting and that special budgetary funds are an integral part of the Budget process with operations obeying budgetary rules.
- OBL features:
  - Imposes stringent conditions for the creation of special funds.
  - Foresees suppression of funds after 3 years of inactivity.
- Public debt reporting:
  - Authorities plan to start publishing data on public debt at a general government level; doing so would lower public debt to 56.4 percent of GDP in 2019.
- Sovereign guarantees and SOE debt:
  - Authorities view fiscal risks from activation of sovereign guarantees to SOEs debt as very limited, noting no guarantee has been activated since the 1980s.

### Contingent liabilities and SOE-related fiscal risks
- Recent government credit guarantee schemes in response to the crisis imply new contingent liabilities of up to about 6.5 percent of GDP.
- SOE debt situation (end-2019):
  - Debt of commercial SOEs was high at about 25 percent of GDP.
  - About 11 percent of GDP explicitly guaranteed by the sovereign (mainly external debt).
  - Debt and guarantees concentrated in a few large SOEs, including ONEE, ONCF, and ADM.
- Suggested improvements:
  - Set up a unit within DEPP to monitor and analyze fiscal risks (at least for the largest SOEs), assess the probability of contingent liabilities materializing, and prepare mitigation measures.
  - Publish a regular statement fully disclosing all forms of guarantees and contingent support to SOEs and related fiscal risks.
  - Improve PPP project governance by strengthening coordination, setting a global annual envelope for new PPPs within the budget, and adding an annex to the annual budget listing chosen projects, selection criteria, and updating the stock and costs of existing PPPs.

### Monetary policy — assessment and recommendations
- Current stance:
  - Monetary policy conditions are appropriately accommodative and should remain so until inflationary pressures resurface.
  - The real policy rate is slightly below staff’s estimated range for the neutral interest rate (1.5–2.5 percent).
  - Both staff and BAM anticipate that inflation will remain below 2 percent for the next few years.
- Policy implications:
  - Large estimated output gap and downside risks suggest room for further easing in the near term.
  - Complementary measures: provide liquidity to the banking sector and boost domestic credit, including through BAM funding-for-lending schemes targeting SMEs.
  - To increase impact of funding-for-lending schemes, consider relaxing/removing some restrictions on eligible borrowers and loan volumes, and providing funding to banks ex-ante.
- Transition to inflation targeting (IT) and exchange rate flexibility:
  - Pandemic confirmed benefits of finalizing transition to an IT framework with a more flexible exchange rate.
  - Stable financial conditions and BAM’s high international reserves present an opportunity to accelerate transition.
  - Complementary safeguards: persistence of capital controls and adoption of a foreign exchange market intervention rule to guard against excessive volatility.
- Unconventional measures:
  - If BAM reaches the effective lower bound, unconventional measures (including a government asset purchase program (APP)) may be needed to stimulate the economy and bring inflation closer to the medium-term goal of 2 percent.
  - An APP would be effective only in an IT regime with more flexible exchange rates and could lower the long end of the yield curve, sustaining investment and indirectly reducing government borrowing costs.
- Authorities’ views:
  - BAM has eased its monetary policy stance and intends to keep it accommodative.
  - BAM satisfies all demand from banks for funding-for-lending and reports no rationing.
  - Preparations for adopting an IT framework are well on track; authorities remain committed to complete the transition at the opportune time.
  - Authorities note potential limits to gains from more flexible exchange rates given pandemic effects on Morocco’s main trading partners.

### Financial stability — resilience, vulnerabilities, and supervisory reforms
- Banking sector resilience:
  - Banks relatively resilient amid the pandemic, supported by sound initial capital and liquidity positions and BAM’s response (regulatory forbearance and liquidity support).
- Risks:
  - Expiration of moratoria could lead to deterioration of bank credit portfolios.
  - Moratoria details: expired in June and involved about 10 percent of bank credit, of which 25 percent are currently experiencing some delay in repayment but are not still qualified as NPLs.
- BAM measures and recommendations:
  - Requested banks to increase provisioning levels and suspend dividend distribution this year.
  - Perform frequent stress tests and recalibrate credit risk models to capture emerging vulnerabilities.
  - Range of feasible measures if stress emerges includes further relaxation of countercyclical buffers, new requests to retain dividends, bank-specific measures, recapitalization, and liquidation of non-viable and risky assets.
- Supervisory and regulatory framework improvements:
  - Continue progress aligned with 2015 FSAP recommendations.
  - Finalize the bank resolution framework by designating a resolution authority, defining clear triggers, and expanding resolution tools.
  - Assess risks from concentrated credit exposures and improve oversight of Moroccan banks expanding abroad, requiring effective cross-border crisis management frameworks and cooperation with host countries.
  - Strengthen AML/CFT supervision and preventive measures to ensure stability of correspondent banking relationships.
  - Authorities encouraged to step up efforts to address AML/CFT weaknesses to prevent listing by the Financial Action Task Force in February 2021.
- Authorities’ views:
  - Monitoring bank balance sheets closely; updating macro stress test exercise with recent forecasts and more extreme adverse scenarios.
  - Parliament is considering a draft amendment of the AML/CFT law to regulate adoption of financial sanctions.
  - BAM continues to monitor correspondent banking relationships.

### Post COVID-19 structural reform agenda — social protection and health
- Health system findings:
  - Morocco’s health care system remains highly fragmented with disparities across income groups and regions despite progress in mortality reduction and life expectancy.
- Extension of mandatory medical insurance:
  - Starting from 2021, authorities plan to include mandatory insurance (AMO) for those covered under RAMED and the self-employed, giving all Moroccans access to the same standard health care services.
  - Self-employed will start paying contributions; RAMED beneficiaries will have option to use public and private facilities and be reimbursed.
  - Financial sustainability concern: cost in 2021 partly offset by a one-off solidarity contribution of 0.4 percent of GDP from firms and individuals above a threshold; more permanent funding sources needed.
  - Need to improve efficiency of health spending, including through digitalization of medical records.

### Social safety net reform and subsidies
- Current system:
  - More than 100 social programs, highly fragmented.
  - Universal subsidies to gas, sugar and flour amount to about 1¼ percent of GDP and are quite regressive.
- Reform measures:
  - Harmonize current social assistance programs into a single family-allowance scheme starting from 2023.
  - Target transfers based on the unified social registry expected to become operational in 2022.
  - Fund scheme through reallocation of current transfers and gradual elimination of the gas subsidy (about 1 percent of GDP).
- Recent successful experience:
  - Cash transfers to households in the informal sector in the current year demonstrate potential for deep restructuring.

### Labor market, education, and human capital reforms
- Labor market:
  - Pandemic impact on employment and labor force participation calls for measures to improve labor market efficiency to prevent skill loss and support worker reallocation across sectors.
  - Authorities plan to relax criteria for receiving unemployment insurance starting from 2023.
  - Suggested additional measures: expand active labor market policies (job search assistance, career guidance, training, entrepreneurship); target hard-hit groups like women and young people.
  - Ongoing vocational system overhaul launched in 2019 to strengthen initial and continued education and training with regional fine-tuning and greater private sector involvement.
- Education reforms:
  - Remaining challenges: low net preschool enrollment rates, elevated high school dropout rates, low quality of learning, unequal opportunities across income groups and regions.
  - Education Act passed in 2019 aims to address issues; important to regularly monitor performance-based indicators included in the reform.
  - Education Act main objectives include universalize pre-primary education by 2025, enhance teachers’ formation and assessment, redesign curricula at all levels prioritizing STEM and early reading at primary levels, and diversify and improve education supply to reduce regional disparities.

### SOE reform and private sector development
- Rationale:
  - SOEs’ marginal contribution to growth and employment has been falling; many lack clearly defined core missions and have weakened economic performance and financial positions.
- Planned legal and institutional reforms:
  - Two draft laws: first to refocus SOE business models by eliminating non-essential SOEs, merging those in same sector, and corporatizing commercial SOEs to strengthen governance; second to create a National Agency for valorization and strategic management of SOEs and continuous performance monitoring.
- Expected benefits:
  - More efficient use of public resources, improved SOE governance, reduced dependence on the budget, and leveled playing field for market participants.
  - Apply same rules to SOE commercial activities as private firms to strengthen equity and boost private sector development.
- Competition and market structure:
  - Operationalization of the Competition Council is important to tackle dominant positions of incumbent operators (mostly SOEs) in network industries and oligopolistic positions in key sectors.

### Governance and anti-corruption measures
- National anti-corruption strategy:
  - Implementation should continue; authorities estimate economic costs of corruption of up to 5-7 percent of GDP.
  - National Agency for the prevention and fight against corruption (INPPLC) published a first annual report in 2019, highlighting coordination role despite limited resources and developing operational framework.
- Legal and transparency measures:
  - Ensure bill on illicit enrichment aligns with international standards and conventions.
  - Make information on beneficial ownership of legal entities awarded procurement contracts publicly available to increase transparency, including for emergency spending.
  - Provide greater investigative powers to INPPLC and strengthen cooperation between authorities to ensure effective confiscation of corruption proceeds and dissuasive sanctions.

### Public administration reform and digitalization
- National Plan for reform of public administration accelerated in response to the pandemic.
- Recent and pending legislation:
  - Law on simplification of administrative procedures (adopted in February, awaiting implementation) to improve public service delivery.
  - Bill on digitalization of public administration approved by Parliament to introduce a unified internet portal for citizens and centralize data from registries (population, justice, land and property).
  - Draft bill under discussion to set rules of good governance for public administrations and introduce a National Observatory to monitor efficiency and quality of public services.
- Expected outcomes:
  - Approval and implementation of these bills would better tailor public service delivery to citizens’ needs, improve transparency, and facilitate efficiency gains across public administration.

*IMF staff report excerpt.*

### 36.      The authorities highlighted Morocco’s strong track record in reforms implementation

### 36.      The authorities highlighted Morocco’s strong track record in reforms implementation

### Authorities’ reform agenda and implementation
- Authorities emphasized a strong track record in reforms implementation and confidence that ongoing and new reforms will contribute to stronger and more inclusive growth.
- The royal commission for the new model of development is expected to give new impetus to the reform agenda (its final report is expected to be released at the beginning of 2021).
- Reform of the social protection system will take place over five years, allowing time to assess progress and budgetary impact and to fine tune design and implementation.
- On SOE reform, one objective is to divest from sectors and activities that can be handled by the private sector; resumption of the privatization program is expected to help boost private sector development.
- The 2019 education Act introduces specific contract programs (with intermediate targets and performance criteria) signed by all parties involved (including ministries and local authorities), differing from previous national strategies.
- Continued progress has been noted in fighting corruption.

### Staff appraisal — growth, pandemic impact, and projections
- The pandemic is expected to exert a toll on the Moroccan economy.
- GDP is expected to fall by about 7 percent in 2020.
- Staff expects GDP growth to rebound next year to 4½ percent as the effects of the drought and pandemic dissipate, but there are considerable downside risks around this baseline.
- The pandemic is likely to have persistent effects on output, but continued implementation of the structural reform agenda is expected to boost potential growth in the medium and long term.
- Both fiscal and current account deficits are projected to widen on the back of lower tax revenues and tourism receipts, respectively.
- Morocco’s international reserves remain above last year’s level, thanks to the greater recourse to external financing and the purchase of the IMF PLL arrangement in April.

### Fiscal policy and medium-term framework
- Fiscal stance has been eased appropriately; fiscal consolidation should start once the recovery is well established and a medium-term fiscal framework should be adopted.
- Authorities plan to support the recovery in 2021, mainly through investment and the reform of the social protection and education systems.
- Fiscal consolidation should resume in 2022, when the recovery will start in earnest under baseline projections; a slower-than-expected recovery would call for delaying fiscal adjustment.
- Publishing a medium-term fiscal framework with a clear and transparent path to a lower public debt ratio is needed to provide credibility about the authorities’ commitment to fiscal stability while safeguarding space in the short run.
- Decisive medium-term reforms required to rebuild fiscal buffers while financing the announced extension of the social protection system and education reform include:
  - additional measures to extend the tax base and increase the progressivity of the tax system,
  - further efforts to rationalize spending,
  - resumption of the authorities’ privatization program.

### Monetary policy and financial sector
- Monetary conditions are accommodative and there is room for further easing.
- BAM has taken exceptional measures this year to mitigate the impact of the pandemic on the real economy and maintain the smooth functioning of financial markets.
- Monetary conditions should remain accommodative until there are signs that inflation has begun to increase, and BAM should be ready to use all policy tools available if downside risks materialize.
- Finalizing the transition to an IT framework with greater exchange rate flexibility would help the Moroccan economy better absorb effects of further external shocks.
- Morocco’s financial sector has weathered the crisis well, but continued active surveillance is needed given uncertainty about the effect of the crisis on asset quality.

### Social protection and education reforms
- Staff supports the extension of the social protection system and encourages continued implementation of the education reform.
- A comprehensive reform of the social protection system has become more urgent after the pandemic.
- Extension of health care insurance to all Moroccans would eliminate fragmentation and inequality in access.
- Harmonization of all current social assistance programs into a single family-allowance under the unified social registry would improve efficiency and targeting.
- Continued implementation of the education reform is essential to address remaining shortcomings and improve human capital.
- These reforms require careful design, implementation, and appropriate financing, considering their complexity, remaining uncertainties on their scope and effects, and limited fiscal space.

### State-owned enterprises (SOEs) reform
- Reforming SOEs could catalyze more efficient use of public resources and private sector development.
- Need to refocus SOEs on core mandates by liquidating those whose mission is no longer essential or that operate without an economic or social return.
- Introduction of a national agency with clear objectives and powers, and professional and experienced management, should allow a more coordinated and strategic approach to the role of SOEs, while continuing to assess and monitor fiscal implications arising from state participation in the economy.
- Reform should promote transformative changes in corporate governance and management of individual SOEs.
- Reform should be accompanied by measures addressing SOEs’ dominant position in a few key sectors and should level the playing field for all market participants.

### Governance and public administration
- Continued efforts are needed to improve governance across interconnected areas, including:
  - better assessing, monitoring and reporting fiscal costs and risks associated with sovereign credit guarantees and PPPs,
  - implementing public administration reform through digitalization, simplification of procedures, and more systematic monitoring of performances and quality of services,
  - continuing implementation of the national strategy against corruption.
- Combined effects of these measures would improve efficiency and productivity of public administration, strengthen citizens’ trust in government, and enhance the business environment for the private sector.

*IMF staff appraisal (paragraphs 36–42).*

### 43.      The Managing Director recommends the initiation of post-program monitoring. The

### 1marea2021001 - 43.      The Managing Director recommends the initiation of post-program monitoring. The

### Post-Program Monitoring and Consultations
- The Managing Director recommends the initiation of post-program monitoring.
- The first PPM Board discussion is envisaged by mid-2021.
- The next Article IV consultation with Morocco is expected to be conducted on the standard 12-month cycle.

### Real Sector Developments
- Economic activity fell sharply in Q2 and Q3 2020.
- Declines driven by:
  - Investment and private consumption (which bottomed out in Q2).
- Recession effects:
  - Raising unemployment—driven by lower employment and despite a lower participation rate.
  - Keeping inflation contained, although with some pressure from food prices since August.
- Indicators suggesting gradual recovery:
  - Capacity utilization and cement sales are rebounding.
  - Weaker household confidence and industry new orders expectations suggest the recovery will be gradual.
- Table / Chart indicators and selected values:
  - GDP growth, Seasonally Adjusted (percent change, y-o-y): historical series shown including 2007-Q1 through 2020-Q3.
  - Real Private Consumption and Investment (percent change, y-o-y): series through 2020-Q3.
  - Capacity Utilization and Cement Sales (Percent change): indices from Oct-15 to Oct-20.
  - Change in Unemployment Rate and Contributions from Employment and Participation (percentage points, y-o-y): series 2019Q2–2020Q3.
  - Inflation (Percent change): overall (average), overall (y-o-y), core (y-o-y) series Oct-14–Oct-20.
  - Household and Industry Confidence Surveys (Indices): Oct-15–Oct-20.

### External Developments
- Trade and sectoral developments:
  - Both goods exports and imports fell in 2020; the trade balance has improved so far in 2020 compared to last year.
  - Exports fell but show signs of recovery, particularly automotive and textile sectors.
  - Imports fell across the board, except for food (reflecting loss in domestic agricultural production).
- Travel and transfers:
  - Tourism revenues have collapsed.
  - Remittances have been resilient.
- Capital flows:
  - Net FDI have been resilient, as the decline of Moroccan investment abroad more than offset lower inward FDIs.
  - Portfolio flows experienced a sharp decline at the onset of the pandemic but recovered recently (particularly bonds).
- Selected series and values:
  - Net FDI (mil Dirhams, year-to-date): 2019 vs 2020 monthly series.
  - ETFs/Mutual Funds Flows (mil USD): equity and bonds series.
  - Goods Imports and Goods Exports (growth rate, y-o-y): sectoral breakdown across Apr-18 to Oct-20.
  - Trade Balance (mil Dirhams): monthly series for 2019 and 2020.
  - Tourism Revenues and Remittances (growth rate, y-o-y): series Apr-19 to Oct-20.

### Fiscal Developments
- Fiscal outcomes and composition:
  - The overall fiscal deficit was about DH 10 billion larger in the first 10 months of 2020 compared to last year.
  - The deep recession affected tax revenues, in particular from VAT.
  - Public expenditure increased in 2020 reflecting higher health spending and transfers to stabilize the economy.
  - Increase in discretionary spending was financed by private and public sector contributions to the COVID-19 fund.
- Public debt and financing:
  - Public debt and gross financing needs are expected to increase notably in 2020.
  - After increasing in March 2020, sovereign spreads have fallen to close to historical averages in November.
- COVID-19 Fund distribution (in percent of GDP):
  - Health expenditure -0.2%
  - Jobs protection to formal employees and informal workers 1.7%
  - Recapitalization of the Caisse Centrale de Garantie -0.5%
  - Reallocated spending (incl. to transfers) -1%
- Key fiscal series and values:
  - Central government debt and gross financing needs (in percent of GDP): series 2012–2020.
  - Overall Fiscal Balance (mil Dirhams, year-to-date): 2019 vs 2020 monthly series.
  - Public Expenditure (percent change, y-o-y) by component Jan-20 to Oct-20.
  - Tax Revenue (percent change, y-o-y) by tax type Jan-20 to Oct-20.
  - CDS Spreads (in basis points): Morocco 5Y CDS Spread and JP Morgan EMBI Global Spread, series 1-Jun-18 to 1-Dec-20.

### Monetary and Financial Sector Developments
- Bank Al-Maghrib (BAM) policy response:
  - BAM expanded its liquidity provisions to accommodate greater demand.
  - BAM widened the DH band to ±5 percent in March, allowing a notable depreciation at the onset of the pandemic.
  - BAM cut policy rates, passed through to lending rates and, to a smaller extent, deposit rates.
  - These actions, together with government credit guarantee schemes, helped sustain credit, mainly for working capital.
- Banking sector indicators and trends:
  - Deposits have kept growing with a significant shift from term and saving accounts to sight deposits.
  - Non-performing loans (NPLs) have increased by 1 percent of total loans as of October 2020:
    - Households NPL increase: 1.1 (percentage points? as reported)
    - Private non-financial firms NPL increase: 0.7 (as reported)
- Selected series and values:
  - Foreign exchange interbank rate (Fluctuation band is at +/-5, Currency basket = 0): series around 1-Dec-19 to Dec-20.
  - BAM's Monetary Interventions (In Billions, DH): 7-day Advances, Long-term Guaranteed Loans, Long-term Repurchase Agreements series Jan-20 to Dec-20.
  - Bank Lending Rates and Interest Margin (Percent): series 2009–2020; as of Q3 2020.
  - Banking Credit Growth (growth rate, y-o-y) by loan type Jan-20–Oct-20.
  - Bank Deposits (in Billions, DH): Sight Deposits, Term Deposits, Savings Account Aug-12–Oct-20.
  - Distribution of Non-Performing Loans (in Billions, DH) and NPL as a % of total loans by sector, as of October 2020.

### Selected Economic Projections and Key Indicators (Table 1 highlights)
- Output and Prices (annual percent change unless noted):
  - Real GDP: Pre-COVID 1.1; 2019 4.2; 2020 3.1; 2020 (proj?) 2.5; 2021 3.7; 2022 -7.2; 2023 4.5; 2024 3.9; 2025 3.6; 2026 3.7 (as published in table series).
  - Real agriculture GDP: -13.7; 15.2; 3.7; -5.8; 3.3; -5.0; 7.0; 3.9; 4.0; 4.1; 4.2 (series as listed).
  - Real non-agriculture GDP: 3.0; 2.9; 3.1; 3.5; 3.7; -7.5; 4.2; 3.9; 3.6; 3.6; 3.7.
  - Consumer prices (end of period): 1.7; 1.7; 0.2; 1.1; 1.2; 0.2; 0.8; 1.2; 1.6; 1.8; 2.0.
  - Unemployment rate (in percent): 9.9; 10.2; 9.5; 9.2 (series truncated in source).
- Investment and Saving:
  - Gross capital formation: 32.4; 32.6; 33.4; 32.2; 32.9; 28.1; 28.5; 28.9; 29.4; 29.5; 29.6.
- Public Finances (in percent of GDP):
  - Revenue: 26.1; 26.6; 26.1; 25.6; 26.2; 26.9; 26.2; 26.4; 26.6; 27.2.
  - Expenditure: 30.5; 30.1; 29.9; 29.7; 29.9; 34.6; 32.6; 32.6; 32.2; 31.7; 31.3.
  - Budget balance: -4.5; -3.5; -3.7; -4.1; -3.8; -7.7; -6.3; -6.2; -5.6; -4.8; -4.0.
  - Primary balance (excluding grants): -2.7; -2.0; -1.7; -1.8; -1.6; -5.5; -3.9; -3.7; -2.8; -2.1; -1.2.
  - Total government debt: 64.9; 65.1; 65.2; 65.0; 65.7; 76.5; 76.9; 77.3; 77.7; 77.3; 76.6.
- External Sector highlights:
  - Exports of goods and services (in U.S. dollars, percentage change): 3.3; 12.7; 11.6; 1.8; 6.9; -23.8; 18.1; 9.4; 7.3; 6.1; 7.4.
  - Imports of goods and services (in U.S. dollars, percentage change): 9.5; 9.3; 12.2; -1.0; 3.3; -15.2; 13.3; 6.9; 5.5; 5.7; 5.9.
  - Current account excluding official transfers (percent of GDP): -5.0; -4.5; -5.6; -4.3; -4.2; -6.7; -5.8; -5.1; -4.6; -4.5; -3.8.
  - Gross reserves (in billions of U.S. dollars): 25.1; 26.2; 24.4; 26.4; 25.8; 32.0; 32.3; 33.1; 33.8; 35.2; 38.8.
  - In months of next year imports of goods and services: 6.1; 5.7; 5.3; 6.8; 5.0; 7.3; 6.9; 6.7; 6.5; 6.3; 6.9.

### Budgetary Central Government Finance (selected figures)
- Revenue and taxes (Billions of dirhams):
  - Revenue: 264.0 (2019); 282.4 (2020); 289.8 (2021); 295.2 (2022); 288.8 (2023); 296.2 (2024); 313.0 (2025); 331.7 (2026); 351.9 (2027); 377.1 (2028) — series as published.
  - Taxes: 216.9 (2019); 232.1 (2020); 242.5 (2021); 246.9 (2022); 216.1 (2023); 235.3 (2024); 252.1 (2025); 267.8 (2026); 284.7 (2027); 306.2 (2028).
  - Taxes on income, profits, and capital gains: 83.7; 93.3; 95.5; 97.8; 90.2; 88.0; 90.8; 96.5; 102.6; 111.2.
- Expenditure and balances (Billions of dirhams):
  - Expense: 251.6 (2019); 261.6 (2020); 273.2 (2021); 290.0 (2022); 318.4 (2023); 313.3 (2024); 325.4 (2025); 333.1 (2026); 343.2 (2027); 356.5 (2028).
  - Primary balance: -18.3; -10.1; -14.1; -17.7; -54.9; -42.7; -42.5; -33.6; -25.4; -15.5.
  - Overall balance: -45.4; -37.1; -41.4; -47.1; -82.7; -71.4; -74.0; -69.9; -63.4; -55.5.
  - GDP (billions dirhams): 1,013.2 (2019); 1,063.0 (2020); 1,108.5 (2021); 1,151.2 (2022); 1,073.4 (2023); 1,128.6 (2024); 1,185.1 (2025); 1,245.3 (2026); 1,311.3 (2027); 1,383.9 (2028).

### Balance of Payments (selected projections)
- Current account (billions of US dollars):
  - Current account: -4.2 (2019); -3.7 (2020); -6.2 (2021); -4.9 (2022); -6.8 (2023); -6.8 (2024); -6.3 (2025); -6.0 (2026); -6.4 (2027); -5.7 (2028).
- Trade and services:
  - Trade balance: -17.6; -18.0; -20.3; -20.0; -16.5; -18.7; -19.5; -20.2; -21.3; -22.5.
  - Exports, f.o.b.: 19.1; 21.5; 24.6; 24.7; 20.1; 23.2; 25.5; 27.5; 29.3; 31.3.
  - Imports, f.o.b.: -36.7; -39.5; -44.9; -44.7; -36.6; -41.9; -45.0; -47.7; -50.6; -53.8.
  - Services and tourism receipts: Services 6.9; 7.5; 8.1; 9.2; 3.5; 5.6; 6.4; 7.2; 7.8; 9.0. Tourism receipts 6.5; 7.4; 7.8; 8.2; 2.6; 4.4; 4.8; 5.3; 5.6; 6.4.
- Financial account and reserves:
  - Financial account: 6.4; 2.0; 3.9; 5.4; 7.9; 6.6; 7.0; 7.4; 9.3; 10.1.
  - Gross official reserves (billions US$): 25.1; 26.2; 24.4; 26.4; 32.0; 32.3; 33.1; 33.8; 35.2; 38.8.
  - In months of prospective imports of GNFS: 6.1; 5.7; 5.3; 6.8; 7.3; 6.9; 6.7; 6.5; 6.3; 6.9.

### Monetary Aggregates (Table 5 highlights)
- Broad money (Billions of dirhams): 1,202.4 (2016); 1,269.1 (2017); 1,320.6 (2018); 1,370.5 (2019); 1,439.6 (2020-proj).
- Money components (Billions of dirhams), 2020-proj:
  - Currency outside banks: 303.6
  - Demand deposits: 697.2
  - Quasi money: 395.2
- Claims to the economy (Billions of dirhams): 957.6 (2016); 989.5 (2017); 1,022.9 (2018); 1,078.5 (2019); 1,115.0 (2020-proj).
- Growth rates (annual percentage change):
  - Net foreign assets: 7.4; 8.5; -4.6; 3.8; 3.8.
  - Net domestic assets: 4.0; 4.8; 6.3; 5.0; 7.5.
  - Broad money growth: 4.7; 5.5; 4.1; 3.8; 5.1.
- Memorandum:
  - Claims to economy/GDP (in percent): 94.5; 93.1; 92.3; 93.7; 103.9.
  - Claims to economy/nonagricultural GDP (in percent): 106.1; 104.9; 103.9; 105.5; 117.5.

### Financial Soundness Indicators (selected)
- Regulatory capital to risk-weighted assets: 13.7; 13.7; 14.2; 13.7; 13.8; 14.0; 14.7; 15.1; 15.6 (series across years; 2020 labeled na for some).
- Nonperforming Loans (NPLs) to total loans: 7.7; 7.7; 7.6; 7.5; 7.5; 7.5; 7.3; 7.5; 7.5; 7.9 (series across Jun/Dec observations).
- Specific provisions to NPLs: 67.0; 67.0; 69.0; 70.0; 71.0; 70.0; 69.1; 69.3; 69.3; 67.6.
- Return on assets (ROA): 1.1; 1.1; 1.1; 1.1; 0.9; 1.1; 0.9; 1.1; 0.9; na.
- Liquidity:
  - Liquid assets to total assets: 13.0; 13.0; 14.5; 11.8; 13.7; 12.9; 12.2; 12.8; 14.0; 14.6.

### Capacity to Repay Indicators (Table 7 highlights)
- GRA credit outstanding (SDR million): 0.0; 0.0; 2,150.8; 2,150.8; 2,150.8; 1,613.1; 537.7; 0.0 (2018–2025 series).
- In percent of quota: 0.00; 0.0; 240.5; 240.5; 240.5; 180.4; 60.1; 0.0.
- Debt and debt service ratios (selected):
  - Total external debt (percent of GDP): 32.0; 32.8; 42.4; 41.7; 41.6; 41.5; 39.5; 39.1 (2018–2025 series).
  - Total external debt service (percent): 2.7; 2.7; 2.8; 2.7; 2.5; 2.9; 3.2; 2.6.
- Memorandum items:
  - Nominal GDP (US$, billions): 118.1; 119.7; 113.0; 124.2; 131.1; 138.2; 145.7; 153.8.
  - Gross international reserves (US$, billions): 24.4; 26.4; 32.0; 32.3; 33.1; 33.8; 35.2; 36.1.

### FSAP Key Recommendations—Status as of October 2020 (selected)
- Banking Regulation and Oversight:
  - Address banking supervisor’s capacity constraints; strengthen on-site supervision capacity.
    - Priority: I
    - Implementation Status: In progress. Internal reorganization implemented and increase of effectives to respond to on site supervision.
  - Review loan classification and provisioning rules on a solo basis; conduct an impact study for implementing IFRS9 in coordination with tax authorities.
    - Priority: NT
    - Implementation Status: On a consolidated basis, IFRS 9 was adopted by Moroccan banks on January 1, 2018. BAM conducted impact studies and adopted a transitional arrangement for prudential impact on regulatory capital in line with Basel Committee provisions. On a solo basis, loan classification and provisioning rules have been finalized and should be published after validation by the National Council of Accountancy.
  - Advance recovery & resolution plans; more frequent comprehensive assessments for SIFIs.
    - Priority: I/NT
    - Implementation Status: The R&R circular was examined by the CEC in July 2017 and communicated to banks. Following BAM circular in Q3 2017, three systemic banks submitted first recovery plans in Q4 2018. Remaining banks submitted first recovery plans in 2020.
- Macroprudential Oversight:
  - Amend laws governing regulators for capital markets, and insurance and pensions to include financial stability objective.
    - Priority: I/NT
    - Implementation Status: In progress. Legal framework addressing overlap among various regulatory bodies being designed. Work expected to finalize by 2022.
  - Implementation of countercyclical capital buffer (CCB); expand data coverage for the risk map; include more targeted sectoral instruments.
    - Priority: NT
    - Implementation Status: Risk mapping reviewed in first semester 2017 with six risk pillars; new pillar for payment systems and market infrastructures introduced. Work underway to introduce FinTech, cyber risk, and green finance risks. Data coverage extended but further work remains, including improvements in samples monitoring non-financial firms (from 1,684 to 72,100 public and private non-financial enterprises), real estate risk data collection from Property Registry Agency, and household sector borrower sample improved from 182,471 to more than 400,000 borrowers. Ongoing work aims to set a dedicated survey.
  - Implementation of new specific macroprudential instruments; capital overload for systemically important banks:
    - The methodology for identification of Domestic Systemically Important Banks (D-SIB) and calibration approach of capital surcharge was put in place and approved by the financial stability committee in December (year implied in source).

*Source: IMF staff estimates and Moroccan national authorities as presented in the provided chapter.*

### 2017. Already identified the three largest systemic banks. Calibration still in

### 1marea2021001 - 2017. Already identified the three largest systemic banks. Calibration still in

### External sector — overall assessment and trajectory
- Overall Assessment: The external position of Morocco in 2019 was assessed to be broadly in line with the level implied by fundamentals and desirable policies.
- Pandemic effects and medium-term outlook:
  - The pandemic shock worsened the CA deficit in 2020; recovery, gradual fiscal consolidation, and structural reforms are expected to improve Morocco’s external position in the medium term.
  - Risks: The pandemic could have greater and longer lasting effects on trade trends and policies, adding uncertainty to the assessment.

### Foreign assets and liabilities: position and projections
- Background:
  - After deteriorating sharply between 2005 and 2012 (by around 30 percentage points of GDP, on the back of an increased in foreign liabilities, mainly FDIs), Morocco’s Net International Investment Position (NIIP) has remained relatively stable at about -65 percent of GDP over 2013–19.
  - Staff projects this position to deteriorate to about -75 percent of GDP in 2020, on the back of the worsening of the CA deficit.
  - In staff baseline, Morocco’s NIIP is projected to decline to around -79 percent of GDP through the medium term, reflecting continued (though lower) current account deficits.
- Assessment:
  - Morocco should be able to sustain the worse net debtor position after the pandemic, assuming the CA deficit will narrow as the effects of the pandemic wanes, structural reforms continue to be implemented (increasing Morocco’s attractiveness for FDI) and the fiscal position improves (reducing the dependence on external debt).
- Key 2019 position (percent of GDP):
  - NIIP: -67.1
  - Gross Assets: 35.5
  - Res. Assets: 22.2
  - Gross Liab.: 102.6
  - Debt Liab.: 46.6

### Current account: developments and assessment
- Background:
  - After improving by 7 pps of GDP between 2012-2015, Morocco’s CA weakened somewhat, reaching -4.1 percent of GDP in 2019 driven by higher imports of capital goods and weaker export growth.
  - The pandemic is expected to widen the CA deficit in 2020 to - 6.0 percent of GDP, mainly reflecting the fall of tourism revenues.
  - Over the medium term, the CA is expected to gradually return to about -3¾ percent of GDP, thanks to the recovery of tourism and automotive sectors, and the positive impact of structural reforms on private sector competitiveness and savings (with fiscal consolidation also sustaining national savings).
- Assessment (EBA model based on 2019 data):
  - Cyclically adjusted CA: –4½ percent of GDP.
  - Cyclically adjusted CA “norm”: -3¾ percent of GDP.
  - Implied CA gap: -0.8 percent of GDP.
  - Policy gaps contributing: 2.1 percent of GDP (mainly because of looser fiscal policy and stricter capital control policies than the rest of the world).
  - Unexplained residual: -2.9 percent of GDP (may reflect structural factors not included in the model, such as labor market rigidities and barriers to entry for firms).

### Real Effective Exchange Rate (REER)
- Background:
  - The REER has been on a modest appreciating trend since 2012 (at the end of 2019 was about 5 percent stronger than in mid-2012), reflecting the nominal appreciation of the Dirham (pegged to a basket including the Euro and US Dollar).
  - So far in 2020, the REER has appreciated by about 2½ percent.
- Assessment:
  - Based on the EBA current account assessment, the REER was slightly overvalued (by about 3 percent) in 2019.
  - The external sustainability (ES) approach for 2019 suggests that a somewhat stronger REER (by about 2 percent) would be consistent with a NIIP-stabilizing current account balance.

### Capital and financial accounts: flows and policy measures
- Background:
  - Morocco’s CA deficit tends to be financed mainly by external borrowing (including trade credit) and net FDI inflows.
  - In 2019:
    - Net FDI flow decelerated but remained positive at USD 0.6 billion.
    - Other net investment and portfolio flows accelerated to USD 3.7 billion and USD 1.2 billion respectively.
  - The pandemic has resulted in a sharp contraction of FDIs into Morocco, but resident direct investment abroad has fallen at an even greater pace, so that net FDIs have remained relatively stable so far in the year.
  - In the medium term, inward FDIs are expected to increase as manufacturing, tourism, and real estate sectors recover from the pandemic and benefit from pro-private sector reforms. Net portfolio flows are expected to pick up also, reflecting a greater recourse to international bond markets from both public and private sectors.
- Assessment:
  - Fiscal consolidation and continued structural reforms that increase attractiveness of key tradable sectors should limit vulnerabilities.
  - Risks are also limited by the remaining capital account controls and the favorable structure of external debt (particularly its long maturity).

### FX intervention and reserves
- Background:
  - Morocco’s exchange rate is pegged to a basket including the Euro and the US dollar, with weights of 60 percent and 40 percent, respectively.
  - The currency can fluctuate within a band that was widened to +-5 percent at the onset of the pandemic.
  - After Morocco purchased the whole amount available under the IMF PLL arrangement in April, reserves increased to US$ 26.4 billion and reached about US$ 32 billion in November.
  - Staff expects reserves to increase gradually over the medium term, as the external position improves.
  - Reserve coverage is expected to remain above 80 percent of the standard reserve adequacy metric over the whole forecasting horizon.
- Assessment:
  - Morocco’s reserves are adequate.
  - The decision to widen the band around the peg in March allowed the currency to depreciate at the peak of external financing tensions in March and April and helped safeguard the level of reserves.
  - Moving to an IT monetary policy framework with a more flexible exchange rate would reduce the need for reserve holdings over the medium term, outside a budget that would fund FX interventions in case of excessive market volatility.

### Risk Assessment Matrix — key risks, likelihood, impact, and policy responses
- Global Risks
  - Prolonged Covid-19 pandemic
    - Relative Likelihood: High
    - Expected Impact: High
    - Policy Response:
      - Fiscal: allow automatic stabilizers, extend support to affected firms and workers (including cash transfers, tax deferments and credit facilities), reduce less essential spending and/or raise further revenues (through voluntary contributions or progressive forms of taxation), adopt a clear and transparent medium-term fiscal framework.
      - Monetary: some space to cut policy rates but once reached the effective lower bound BAM could explore QE measures, including scaling up funding-for-lending schemes and (within an IT framework) buying Treasury bonds in secondary markets.
      - Financial sector: reinforce emergency liquidity provisions, further relax capital buffers, provide viable banks with longer timeframes for restoring minimum solvency, stand ready to provide additional guarantees on bank liabilities, create fiscal space to provide capital to systemically important banks.
  - A faster resolution of the Covid-19 pandemic
    - Relative Likelihood: Low
    - Expected Impact: High/ Medium
    - Policy Response: Cautiously accelerate the phasing out of the pandemic’s rescue measures to rebuild policy buffers.
  - Intensified geopolitical tensions and security risks
    - Relative Likelihood: High
    - Expected Impact: High
    - Policy Response:
      - Accelerate transition to an inflation targeting framework with a flexible exchange rate regime.
      - Maintain involvement in key global value chains and work with trading partners to avoid trade-distorting measures.
      - Implement structural reforms to support international competitiveness and productivity.
  - Oversupply and volatility in the oil market
    - Relative Likelihood: Medium
    - Expected Impact: Medium
    - Policy Response: Accelerate effort to reduce dependence on imported energy, boosting the supply of renewable sources.
- Domestic Risks
  - Fiscal slippages or greater than expected fiscal contingent liabilities
    - Relative Likelihood: Medium
    - Expected Impact: High
    - Policy Response:
      - Increase transparency on public sector contingent liabilities.
      - Implement a more decisive and comprehensive tax reform.
      - Increase efforts to contain current spending and improve efficiency.
      - Adopt a credible medium-term fiscal framework.
      - Rationalization of SOEs.
      - Changes to the pension system that reinforce its financial sustainability.
  - Slower than expected pace of structural reforms
    - Relative Likelihood: Medium
    - Expected Impact: Medium
    - Policy Response:
      - Advance toward a new model of economic development that promotes sustainable and inclusive growth.
      - Build strong consensus on reforms needed to support social welfare, reduce vulnerabilities, and foster a more inclusive growth.
  - Widespread social discontent
    - Relative Likelihood: High
    - Expected Impact: High
    - Policy Response:
      - Reintroduce or extend measures taken under the pandemic (including wage subsidies, cash transfers to informal households, tax and contributions exemptions and postponements).
      - Accelerate structural reforms to improve inclusive growth.
      - Gradually strengthen the social protection system, improve quality of education, boost active labor market policies.

### Financial sector reforms and FSAP recommendations (selected status items as of October 2020)
- Systemic banks and conglomerates:
  - 2017: Already identified the three largest systemic banks. Calibration still in process for identifying the systemic largest conglomerates.
  - LTV Cap: data requirements are being introduced to collect data for calculating LTV. IMF technical assistance took place in late April 2019.
- Emergency Liquidity Assistance (ELA)
  - Recommendation: Strengthen BAM’s recapitalization process; review its profit distribution mechanism.
  - Priority: NT
  - Implementation Status: The alternative chosen was to include a state guaranty scheme in case of solvency problem, which was included in the new BAM law. The new central bank law (Dahir n° 1-19-82 on June 21, 2019; published in the Official Gazette of November 21, 2019) legally establishes the framework governing provision of emergency liquidity by Bank Al-Maghrib. Emergency liquidity assistance will be limited to solvent institutions facing liquidity problems; if liquidity problems degenerate into solvency problems, BAM may extend liquidity under exceptional circumstances but would be covered by the State guarantee.
- Early intervention / bank resolution framework
  - Recommendation: Define objectives of banking resolution; incorporate “the least-cost principle”.
  - Priority: III
  - Implementation Status: In progress. Technical work finalized in 2019, particularly on legal framework changes (Banking and BAM laws, and other laws such as the one on collateral of movable assets). Draft amendment should be introduced in the adoption process.
  - Other items (priority I/NT): Formalize hierarchy of creditors’ claims; introduce bail-in powers; designate explicit bank resolution authority; limit its legal liabilities — all marked I/NT and in progress.
- Deposit Insurance
  - Recommendation: Grant DGF a priority over uninsured depositors and general creditors.
  - Priority: NT
  - Implementation Status: The new law on movable assets does not include a priority to the DGF. The only privilege granted is on the funds transferred to banks.
- Financial Market Infrastructures
  - Recommendation: Implement guarantee scheme and default handling procedures for securities transactions.
  - Priority: I
  - Implementation Status: In progress. A new legal framework (Loi sur le Marche à Terme) providing more flexibility and lower costs in use of collateral was transmitted in 2018 and will be discussed in the Government’s Council in 2020. Part of market supervision reform to create the compensation chamber and extend its scope.
  - Strengthen BAM’s oversight of payment systems (NT): In progress. Mobile solution launched in November 2018. Draft law on payment systems proposes supervision at BAM and expansion to mobile payment systems operated by telecoms.
  - Publish all policies applicable to FMIs and the disclosure framework of the SRBM (NT): in status list.
- Securities Market Regulation and Oversight
  - Apply consistent regulations and supervision to all participants in securities markets (NT): In progress as part of revision of legal framework for capital markets. The Security Exchange Law (2017) includes provisions now being regulated.
  - Improve valuation of government securities and review valuation rules of mutual funds (NT): In progress. Yield curve is being revised with TA assistance; valuation rules to be introduced in a comprehensive reform of mutual funds being finalized.
- Financial inclusion
  - Improve credit bureau data quality; expand data providers to non-financial institutions (I/NT): In progress. Second credit bureau since November 2017. New services introduced including enterprise scoring and portfolio surveillance, use of alternative data such as utility bill payment information. Data quality remains a work in progress, particularly non-financial data. BAM is creating the national register on movable assets for making the new law operational.
  - Review blanket ceiling on lending rates (NT): Partially done. Micro-credit institutions do not have a ceiling on interest rates and their average rates are higher than banks whose ceilings are revised annually (average interest rates in banks are 13% vs. 18% in micro credit institutions). Interest rate ceilings for micro-credit in banks need to better reflect levels of risks and costs. At the end of 2018, the micro-credit law was modified to increase the ceiling for credits to micro-enterprises from DH 50,000 a DH 150,000.

### Public Debt Sustainability Analysis (DSA) — summary
- The Covid-19 crisis is expected to have significantly increased the central government debt-to-GDP ratio and gross financing needs in 2020.
- Staff assessment: Morocco’s public sector debt remains sustainable under baseline assumptions:
  - Recovery of economic activity in 2021.
  - Gradual fiscal consolidation over the medium term.
  - Continued low interest rates.
  - Implementation of structural reforms that boost growth potential.
- Vulnerabilities and risks:
  - The worse starting position points to increased vulnerabilities to the various shocks considered under the DSA.
  - High gross financing needs and sizeable contingent liabilities from both sovereign guaranteed credit to SOEs and unfunded pension schemes reinforce the importance of a cautious approach to fiscal policy and a steadfast commitment to reforms.

*Source: IMF staff summaries and assessments as presented in the provided content unit.*

### 1.      This DSA covers central government debt. Specifically, it analyses the debt of the Treasury

### 1.      This DSA covers central government debt. Specifically, it analyses the debt of the Treasury

### Coverage and scope
- Covers central government debt of the Treasury (both domestic and external).
- Excludes sovereign guarantees (mainly of external debt to SOEs).
- Authorities have started to produce general government data, with technical assistance from the Fund.
- Under future general government accounting, public debt perimeter would include:
  - the Treasury,
  - extrabudgetary central government (e.g. public non-profit enterprises),
  - local entities,
  - pension funds,
  - social welfare organizations.
- Authorities are planning to start publishing these statistics soon.

### Overall conclusion
- The post Covid-19 DSA conclusion: Morocco’s central government debt remains sustainable.
- Key debt-profile characteristics that limit vulnerabilities:
  - relatively long maturity: weighted average maturity of about 7.5 year;
  - relatively low share denominated in FX: about 25 percent;
  - investor base made mostly of local investors, many of whom are long-term investors.
- Morocco has maintained steady access to international capital markets at favorable terms over the last 10 years, and more recently after the health crisis.
- EMBG spread: after increasing to 400 bps in March, it fell and in November was close to the last 10-year average of 220 bps.
- A gradual process of fiscal adjustment, and continued implementation of structural reforms, should help the debt-to GDP ratio return on a downward trajectory over the medium term.

### Debt level, drivers, and benchmarks (2020)
- Central government debt-to-GDP ratio in 2020: 76.5 percent of GDP.
- Increase in public debt-to-GDP in 2020: 11.3 percent (relative to last year).
- Main drivers of the 2020 increase:
  - greater primary deficit: 5.1 percent;
  - worse real interest rate/growth differential: 7.3 percent.
- Gross financing needs for the central government in 2020: about 17.5 percent of GDP (from 13 percent of GDP in the original budget).
- Debt level and gross financing needs are just above empirically determined risk benchmarks:
  - debt benchmark: 70 percent of GDP;
  - gross financing needs benchmark: 15 percent of GDP.

### Baseline projections and fiscal path
- Under staff baseline:
  - central government debt-to-GDP ratio is expected to stabilize at around 77½ percent of GDP until 2024, before falling to 76½ percent by 2025.
  - Projected fiscal consolidation: about 4.2 percent of GDP improvement in the primary deficit (excluding grant) over the next five years.
  - Privatization receipts expected: about 1.3 percent of GDP in 2021-24.
  - Sustained growth recovery also contributes to debt reduction.

### Realism of baseline assumptions
- DSA’s realism tool: projected fiscal consolidation efforts are well in line with cross-country experiences and with previous Moroccan episodes (e.g., 2012-17).
- Growth forecasts: associated with lower median forecast errors; Morocco has experienced few recessions.
- Inflation forecast errors: could be larger than those of peer countries (e.g., during 2014−16) due to Morocco's lower inflation.

### Financing needs and funding sources
- Higher gross financing needs in 2020 expected to be covered by:
  - greater issuances of Treasury bills in domestic markets;
  - access to international markets (with EUR 1 billion issued in Q3);
  - greater access to external borrowing from bilateral and multilateral institutions (for about 3 percent of GDP).
- In staff baseline, financing needs are projected to exceed the 15 percent benchmark until 2024, gradually falling to about 14 percent of GDP in 2025.
- Factors supporting decline in financing needs and stability of debt service:
  - envisaged reduction of the primary deficit;
  - relatively stable cost of debt as domestic and international interest rates are projected to remain low for a few years;
  - improved debt management to maintain a long average maturity;
  - a significant share of external borrowing remaining on concessional basis.

### Sensitivity to shocks and vulnerabilities
- Starting from a worse initial position in 2020, Morocco’s public debt sensitivity to shocks in the near term has increased relative to last year.
- Under various shocks (to real GDP growth or to the primary balance), the debt level remains well above the 70 percent of GDP benchmark for emerging markets, although it resumes a downward path in the medium term.
- Profile vulnerabilities are mostly moderate:
  - short-term debt represented about 8.2 percent of GDP at end-2019 (a very small part of total debt).
- Relevant indicators (except bond spread over U.S. bonds, and change in short-term debt) exceed the lower early-warning benchmarks but do not exceed the upper risk assessment benchmarks.

*IMF staff DSA on Morocco central government debt (excerpts).*

### 8.      Contingent risks from systemic SOEs require close monitoring. SOE debt explicitly

### 8.      Contingent risks from systemic SOEs require close monitoring. SOE debt explicitly

### Contingent liabilities and exposures
- SOE debt explicitly guaranteed by the Treasury was about 11 percent of GDP at end 2019 (mainly external debt).
- Credit guaranteed schemes launched by the government in response to the health crisis imply new contingent liabilities that could add up to about 6.5 percent of GDP.
- Contingent liabilities from guaranteed credit to SOEs and subsidized credit schemes under the COVID-19 crisis could represent an additional vulnerability to a slower-than-expected economic recovery.
- Contingent liabilities from unfunded public pension schemes also represent a risk.
- Note on recognition: the central government debt includes Treasury bonds that are held by the social security administration (by about 10 percentage points of GDP), so at least in part such liabilities are already recognized explicitly in the analysis.

### Fiscal and debt implications
- These contingent liabilities increase downside fiscal risks and could worsen fiscal sustainability if realized.
- The note emphasizes the need to:
  - resume a gradual path of fiscal consolidation in the context of a renewed commitment to structural reforms, and
  - carefully manage the maturity profile of public debt.

### Key statistics and projections (as presented)
- SOE debt explicitly guaranteed by the Treasury: about 11 percent of GDP (end 2019).
- Potential additional contingent liabilities from credit-guarantee and subsidized schemes: about 6.5 percent of GDP.
- Treasury bonds held by the social security administration included in central government debt: about 10 percentage points of GDP.

### Policy recommendations and monitoring priorities
- Closely monitor contingent risks from systemic SOEs and credit-guarantee/subsidized credit schemes.
- Strengthen surveillance and disclosure of contingent liabilities, including:
  - full recognition and reporting of guarantees and government-supported credit facilities;
  - assessment of pension-related contingent liabilities from unfunded public pension schemes.
- Pursue gradual fiscal consolidation tied to structural reforms to reduce vulnerability to slower-than-expected recovery.
- Manage the maturity profile of public debt to mitigate rollover and financing risks.

*Source: IMF staff.*

### 1.      This statement provides additional information that has become available since the

### 1marea2021001 - 1.      This statement provides additional information that has become available since the

### Update and scope
- Provides additional information since the Staff Report circulated to the Executive Board on December 4, 2020; the information does not alter the thrust of the staff appraisal.
- Staff Report baseline assumes a resolution of the pandemic in 2021; recent vaccine developments suggest upside risks to staff projections for GDP growth next year.

### Covid-19 vaccination and epidemiological numbers
- Morocco has pre-ordered about 30 million Covid-19 vaccine doses from AstraZeneca and Sinopharm and is developing partnerships to manufacture Covid-19 vaccines in Moroccan laboratories.
- Vaccination goal: cover 80 percent of the Moroccan population over 18 years old (about 25 million people) over a 3-month period; starting date not yet determined.
- Authorities preparing a large-scale vaccination campaign free of charge for 25 million people over the age of 18; plan spans over a 12-week period.
- Epidemiological figures reported in the statement:
  - As of December 10: 391,529 confirmed cases of Covid-19, with 6,492 deaths.
  - Later updated: over 403,600 infection cases (about 1,111.4 per 100,000 inhabitants) and over 6,700 deaths.

### Fiscal policy, 2021 Budget, and support measures
- Parliament adopted the 2021 Budget with amendments increasing the overall deficit for next year.
- 2021 Budget in final configuration envisages a fiscal deficit at 6.5 percent of GDP (against 6.3 percent in the draft Budget law and Staff Report).
- Key tax and fiscal measures:
  - Employees who regain employment after losing jobs between March and September 2020 will be exempted from income taxes for 12 months; exemption capped at a monthly salary of 10,000 dirhams (about US$ 1,000).
  - All interest payments on government securities issued in 2021 will be exempt from income taxation.
  - 2021 budget allocates 3,500 additional positions to health and education sectors.
  - Health sector budget increased by MAD3 billion in addition to the MAD19 billion (about 2 percent of GDP) appropriated in the 2020 budget.
  - To promote youth employment, 2021 budget extends income tax exemptions to companies offering open-ended contracts to under 35 cohorts for 36 months.
- Consolidation and financing:
  - Authorities intend to start fiscal consolidation in 2022.
  - Government will continue using innovative financing schemes, active management of government portfolio, and privatization to finance budget spending.
  - Public debt increased in 2020 by over 11 percentage points but is described as remaining sustainable by staff.
- Emergency support and social protection:
  - Special fund for the COVID-19 pandemic raised about 3 percent of GDP.
  - Monthly allowances granted to employees enrolled in social security who were partially or totally out of work.
  - Allowances and credit-maturity extensions for vulnerable households; loan maturity extensions ranged from three to four months.
  - State guarantee schemes established; about 80,000 MSMEs benefited from guaranteed loans at subsidized rates under “Damane Oxygen” and “Damane Recovery”.
  - Government guarantees granted under various schemes amounted to 5 percent of GDP.
  - Recovery plan (economic recovery and employment pact) to inject about 12 percent of GDP into the economy.
  - Plan to “generalize” social protection over a five-year horizon beginning with universal mandatory medical coverage in January 2021.
  - Solidarity contribution to be levied in 2021 on individuals earning an annual after-tax income exceeding MAD240,000 and companies with annual net profits higher than MAD5 million.
  - Further reforms starting 2023-24 to include family allowances (cash transfers), compensation for unemployment, and generalized pension systems for active individuals.

### Monetary and financial policy
- Bank Al-Maghrib (BAM) actions and stance:
  - On December 15, 2020, BAM kept its main policy rate unchanged at 1.5 percent and considers current stance as adequately accommodative.
  - Earlier in the crisis, BAM cut the policy rate by 25 bps in March and 50 bps in June to 1. 5 percent.
  - Reserve requirement reduced to zero from 2 percent.
  - Expanded list of eligible assets for refinancing collateral, tripling potential refinancing by banks to DH450 billion (about 47 percent of GDP).
  - BAM requested banks to suspend the distribution of dividends for the 2019 exercise and asked banks to conduct a second stress test by end-2020 assuming a stronger shock.
- BAM projections cited in the statement (as presented):
  - "GDP growth is projected at -6.6 percent for 2021, 4.7 percent in 2021 and 3.5 percent in 2022."
  - Inflation projected to increase from 0.7 percent in 2020-2021 to 1.3 percent in 2022.
  - 2020 current account deficit forecasted at 4.2 percent of GDP, close to last year’s ratio.

### International issuance and reserves
- Morocco issued three USD-denominated bonds for a total of US$ 3 billion on December 8, 2020:
  - 7-year bond: US$ 0.75 billion, coupon rate 2.375 percent, spread 175 bps.
  - 12-year bond: US$ 1 billion, coupon rate 3 percent, spread 200 bps.
  - 30-year bond: US$ 1.25 billion, coupon rate 4 percent, spread 261 bps.
- Strong international investor participation with orders reaching USD 13 billion.
- Issuance aimed to pre-finance next year’s needs and take advantage of favorable market conditions.
- Drawing on the PLL, bilateral and multilateral borrowings and two successful international bond issuances enabled international reserves to be at a comfortable level above 7 months of imports.

### Economic impact, performance, and outlook
- Pandemic and drought effects:
  - Pandemic hit an economy already weakened by drought for a second consecutive year.
  - Based on a survey by the High Commission of Planning in early April 2020, around 60 percent of total enterprises temporarily or permanently shut down.
  - Unemployment rate rose to 12.7 percent in Q3 2020 from 9.4 percent in Q3 2019.
  - Poverty and vulnerability to poverty are expected to rise.
- Sectoral impact and signs of recovery:
  - Key sectors hit in 2020: tourism, construction, and transports.
  - Preliminary indicators show visible signs of recovery in Q3 in several sectors; production capacity in a few sectors reached January levels.
  - Exports rose across sectors partially reversing the decline in Q2.
  - Remittances recorded a 1.7 percent increase in 2020 compared to 2019.
  - Despite sharp drop in tourism revenue, current account deficit expected to hover around 4.2 percent in 2020, equivalent to its 2019 level.
- Fiscal outcomes:
  - Fiscal deficit estimated at 7.5 percent in 2020; projected to narrow to 6.5 percent of GDP in 2021.

### Structural reforms and modernization agenda
- Public sector role and development model:
  - A royal commission tasked with formulating a new development model expected to submit final report in early 2021.
  - Authorities committed to reforms to promote inclusive growth, improve productivity, diversify the economy, and build a business-enabling environment.
- Health and education:
  - Far-reaching health measures: public health reform as a priority including developing medical infrastructure and training health-care professionals.
  - Education reform strategy finalized on three pillars: equal opportunities, quality, and good governance; covers all education levels with clear performance indicators and implementation plans.
- SOE reform, privatization, and investment fund:
  - Ongoing reform of SOEs includes creating a national agency for strategic management of government portfolio and monitoring public institutions.
  - Plans to convert some entities into public limited companies, merge others, liquidate nonviable ones, and divest activities suitable for the private sector.
  - A list of eligible SOEs for privatization identified; divestments scheduled for 2021.
  - A strategic investment fund to mobilize high leverage funding from institutional investors and international partners to support productive activity and accompany large project financing in both private and public sectors.
- Public administration and anti-corruption:
  - Draft laws under discussion to improve public administration performance and efficiency, simplify procedures, and develop e-administration and digitalization.
  - Progress in fighting corruption with high-profile cases prosecuted, senior officials sentenced, properties confiscated, and misused funds restituted.

### Key statistics and figures (as stated)
- Vaccine pre-orders: about 30 million doses.
- Vaccination target: 80 percent of population over 18 (about 25 million people) over a 3-month period; campaign for 25 million people over 12 weeks.
- Epidemiological counts: 391,529 cases and 6,492 deaths (as of December 10); over 403,600 cases (about 1,111.4 per 100,000) and over 6,700 deaths (later figure).
- Budget and fiscal: 2021 deficit 6.5 percent of GDP (6.3 percent in draft); 2020 deficit estimated 7.5 percent; public debt increased by over 11 percentage points.
- Tax and benefit thresholds: exemption cap monthly salary 10,000 dirhams (about US$ 1,000); solidarity contribution thresholds MAD240,000 (individuals), MAD5 million (companies).
- Health budget additions: MAD3 billion plus MAD19 billion (about 2 percent of GDP) in 2020.
- Emergency fund raised about 3 percent of GDP.
- State guarantees under schemes amounted to 5 percent of GDP.
- Recovery plan to inject about 12 percent of GDP.
- BAM policy rate: 1.5 percent; earlier cuts by 25 bps and 50 bps to 1. 5 percent; reserve requirement reduced from 2 percent to zero.
- Potential bank refinancing: DH450 billion (about 47 percent of GDP).
- Bond issuance: US$ 3 billion total (US$ 0.75 billion 7-year at 2.375 percent, US$ 1 billion 12-year at 3 percent, US$ 1.25 billion 30-year at 4 percent); orders reached USD 13 billion.
- Remittances: 1.7 percent increase in 2020 compared to 2019.
- Current account deficit: around 4.2 percent in 2020.
- International reserves: above 7 months of imports.
- Inflation projection: increase from 0.7 percent in 2020-2021 to 1.3 percent in 2022.
- BAM projection text as presented: "GDP growth is projected at -6.6 percent for 2021, 4.7 percent in 2021 and 3.5 percent in 2022."

### Concluding policy orientation
- Authorities emphasize timely and commensurate response to the pandemic, securing vaccines, and designing a free, large-scale vaccination campaign.
- Recovery strategy focuses on implementing tax and subsidy reforms, enhancing public investment and PPPs, overhauling SOE governance, and privatization to support recovery.
- Authorities consider accelerated reforms and recent sectoral signs of recovery as justification for more optimistic economic projections.

*Statement by Mr. El Qorchi on Morocco, December 18, 2020*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1marea2021001.pdf_