## 1marea2024002-print-pdf

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---

### Executive summary — recent developments and context
- Agricultural output: expected below-average agricultural harvest in 2024 of 33 million quintals of cereals (compared to a pre-COVID average of 75 million).
- Non-agricultural activity: remained robust; domestic demand strengthening with consumption supported by rebound of disposable income and investment boosted by infrastructure projects.
- Labor market:
  - Unemployment rose to 13.1 percent by Q2 2024, up from 12.4 percent a year ago, despite a decline in labor force participation.
- External and reserves:
  - Current account deficit for 2024:H1 stood at about -0.6 percent of GDP (against -0.5 percent in the firth half of the previous year).
  - International reserves stable at the comfortable level of 124 percent of the adjusted ARA metric (5.4 months of next year’s imports) in September 2024.
- Exchange rate and prices:
  - Exchange rate appreciated in 2024 and was close to the middle of the fluctuation band as of early October; REER has depreciated slightly so far in 2024.
  - Headline inflation fell to 0.8 percent in September 2024 (y/y); core inflation has remained at below 2½ percent on average since March 2024.
  - Two-year-ahead inflation expectations fell to 2.2 percent in Q3 2024.
- Monetary policy:
  - Bank Al-Maghrib (BAM) cut the policy rate by 25 bps in June 2024 to 2.75 percent and left it unchanged in September 2024.
  - Real ex-ante policy rate is close to staff estimates of the neutral rate.
- Fiscal and revenues:
  - Tax revenues in the first eight months of 2024 about 12 percent higher than the same period last year (mostly CIT, PIT and VAT); non-tax revenues increased by about half.
  - Identified revenue windfall of about 1.8 percent of GDP was largely spent on additional public sector wages (0.4 percent of GDP), transfers to ONEE (0.25 percent of GDP), and support to RAM (0.2 percent of GDP).
  - Authorities announced increase of the threshold for exemption from PIT and a reduction in the top marginal rate from 38 to 37 percent starting from 2025 (estimated cost of 0.3 percent of GDP).
  - Staff recommended saving future revenue windfalls and adopting new policy measures to secure/reduce public debt from 69.5 percent of GDP in 2023 to 66.4 percent in 2027.
- Financial sector:
  - Credit growth for machinery and equipment accelerated to 6.6 percent y/y in August 2024 from 4.1 percent in 2023.
  - Banks’ return on equity improved to 8 percent as of December 2023 from 6.9 percent in the previous year.
  - Nonperforming loan (NPL) ratios increased: non-financial private firms to 12.7 percent in August 2024 (from 12.2 percent in early 2023); households to 10.9 percent (from 10 percent in early 2023).

### Outlook and risks
- Growth projections:
  - 2024: 2.6 percent
  - 2025: 3.7 percent
  - Medium-term rate: 3½ percent
- Forecast assumptions:
  - Return to average harvest conditions implying rebound of agricultural production in 2025 and stabilization around 2.5 percent growth for agriculture over the medium term.
  - Non-agricultural growth projected around 3½ percent.
- Inflation and external:
  - Headline CPI inflation projected at 2.1 percent (y/y) by end-2025, accounting for gradual removal of gas butane subsidies.
  - Current account deficit expected to widen gradually towards an estimated norm of around 3 percent of GDP as domestic demand and imports increase.
- Risks:
  - Downside: further droughts and reduced agricultural production; escalation of geopolitical tensions affecting external demand.
  - Upside: more successful structural reforms and higher multiplier from infrastructure plans.

### RSF second review — completion, substitutions, and staff position
- Implementation:
  - All RSF reform measures targeted for this review have been implemented.
- RM10 substitution:
  - Authorities requested replacing RM10 (increase VAT on fossil fuels) with a new measure (RM17) because of concerns about impact on consumers amid high food prices, weak labor markets, and ongoing social protection reform.
  - Proposed replacement (RM17) raises excise duties on coal and three other highly polluting products, and removes excise exemptions for coal and HFO.
  - Staff simulations (IMF-World Bank CPAT model calibrated to Morocco) show RM17 has an impact on GHG emissions comparable to RM10; staff supports the replacement, concluding it does not weaken the RSF arrangement.
- Disbursement recommendation:
  - Staff supports the disbursement of SDR 312.5 million under the RSF based on completion of reform measures 5, 6, 7, 14, and 15.

### RSF reform implementation highlights (selected RMs)
- RM5 — Electricity market liberalization implementation:
  - Laws and decrees: Law 48-15, Law 40-19, Law 82-21 adopted/modified; three implementation decrees approved (including Decree implementing article 37 of Law 48-15 approved December 2023; Decrees implementing articles 16 and 18 of Law 82-21 approved September 2024).
  - Additional decrees in progress to specify grid connection conditions for auto-producers.
- RM6 — Electricity market regulatory framework:
  - ANRE published quality indicators of the national transmission grid (document prepared by ONEE) and the “Code of Good Conduct” for the Transmission System Operator (TSO) in September 2024.
  - ONEE to communicate quality targets to ANRE by November 30 each year; report quarterly on actual values and annually on previous year’s indicators.
- RM7 — Energy efficiency:
  - MTEDD and Ministry of Industry and Commerce adopted decrees introducing labeling and MEPS for refrigerators, air conditioning units, and electric engines; draft decree on lighting products prepared.
  - Estimated energy savings for targeted products: between 8 and 14 percent of the energy consumed by those products.
  - Decree on ESCOs adopted in September.
  - AMEE draft decree to lower mandatory audit thresholds:
    - Industrial sector threshold reduced from 1,500 toe to 800 toe, increasing firms subject to yearly audits from around 100 to at least 500.
    - Service sector threshold reduced from 500 to 200 toe, increasing targeted firms from around 100 to at least 350.
- RM14 and RM15 — Greening the financial system and environmental-impact assessment requirements: implemented (details in full report).

### Climate Finance Development Strategy 2030 — targets, governance, and pillars
- Climate mitigation and adaptation targets:
  - Unconditional target: reduce GHG emissions by 18.3 percent by 2030 compared to business-as-usual.
  - Conditional target: reduce GHG emissions by 45.5 percent by 2030 compared to business-as-usual.
  - LT-LEDS envisages RE share in installed electricity capacity of 52 percent by 2030; reach 96 percent of electricity generated from RE by 2050; eliminate coal-fired power generation by 2040.
  - Status indicators: at end-August 2024 RE accounted for 44.3 percent of installed electricity capacity; in 2021 RE accounted for about 21 percent of electricity production.
- Strategy objective and financing ambition:
  - Mobilize private climate finance of about USD 4.5 billion per year for the coming five years.
  - Current private sector contribution 25–30 percent; strategy target to increase private sector contribution to 50 percent.
- Governance system:
  - Steering committee (decision-making, monitoring), sectoral council, advisory board (IFIs, academics, NGOs), project management task force, and working groups.
- Strategy structure and initial measures:
  - Three pillars and nine strategic axes.
  - Pillar 1 (Integrated Market Solutions): identify attractive climate projects; enhance transparency (platform aggregating climate projects); expand green financial instruments including framework for green sovereign bonds.
  - Pillar 2 (Key Accelerators): demand-side risk-sharing mechanisms (blended finance); supply-side incentives and regulatory measures; require reporting of green asset ratios; set green investment targets.
  - Pillar 3 (Key Fundamentals): strengthen climate risk management and disclosures in line with TCFD or ISSB; accelerate green financial taxonomy; capacity building; promote climate-friendly sectoral policies.

### Damane Istitmar environmental requirements and details
- Timeline and thresholds:
  - Starting Q4:2024 until Q1:2027, firms requesting public financial support under Damane Istitmar must submit environmental-impact questionnaire.
  - Applies to investments in construction, transport, agriculture, certain manufacturing exceeding DH20 million (about USD 2 million).
  - From Q1:2027, requirement extends to other sectors, threshold lowers to DH15 million (about USD 1.5 million).
  - From 2030 onward, requirement generalized to all sectors, threshold DH10 million (about USD 1 million), questionnaire replaced by full environmental impact study.
- Scheme features:
  - Managed by Tamwilcom, guarantees up to 70 percent for bank loans above DH 1 million (about USD 100k) with ceiling DH 30 million (about USD 3 million) per company.
  - Equity contributions up to 30 percent of the investment and technical assistance by Maroc PME.
  - 2020 activity: 229 private investment projects supported, total investment DH 2.8 billion (about USD 280 million).
- Questionnaire dimensions used to build climate-change risk index:
  - Environmental impact (existence of environmental impact study and mitigation measures), energy consumption, water consumption management, and GHG emissions.

### Fiscal policy stance and recommendations
- Fiscal performance:
  - Fiscal deficit in year to August 2024 slightly lower than same period last year.
  - Authorities announced PIT threshold increase and top rate reduction to 37 percent in 2025 (cost 0.3 percent of GDP).
- Staff recommendations:
  - Save future revenue windfalls and adopt policy measures to secure and possibly accelerate planned reduction in public debt to 66.4 percent of GDP by 2027.

### RM17 (replacement of RM10) — design and emissions impact
- RM17 measures:
  - Increase excise taxes on coal and heavy fuel oil (HFO); remove excise exemptions on coal and HFO currently granted to ONEE and its concessionaries; increase excise on bitumen and lubricating oils.
  - Planned increases effective from 2025; proposed effective date from 1 January 2025 in MEF drafting.
- Rationale:
  - VAT increase on fossil fuels (RM10) would hurt households’ disposable income given high unemployment, elevated food prices, and social protection reform; RM17 considered less regressive while sending decarbonization price signal.
- CPAT model simulations (IMF-WB CPAT calibrated to Morocco):
  - RM10 scenario: VAT on fossil fuels increases gradually from 10 to 20 percent over 10 years; price elasticities: -0.4 for gasoline, -0.3 for diesel and other oil products; induced reduction of GHG emissions relative to business-as-usual of 0.7 percent by 2030.
  - RM17 scenario:
    - Full elimination of excise exemptions for coal and HFO and increase in their rates in 2025.
    - Excise on coal increased from 64.8 DH per ton in 2025 to 124.8 DH per ton.
    - Excise on HFO increased from 182.4 to 242.4 DH per ton.
    - Price elasticity of demand for coal (-0.3) applies only to the 20 percent of coal generation done directly by ONEE (80 percent covered by long-term PPAs).
    - Existing coal plants depreciated at 2.5 percent a year (40-year useful life); no new coal plants assumed; no increase in electricity tariffs assumed.
  - Simulation result: RM10 and RM17 have comparable impact on GHG emissions by 2030.
    - RM17 estimated to lead to reduction of GHG emissions in 2030 of 0.9 percent with respect to business-as-usual.
    - Staff assessment: impact in 2030 of RM17 would be about 12 percent greater than that of a gradual 10-year increase of VAT rates on fossil fuels from 10 to 20 percent (RM10).

### Gas butane subsidy removal (RM11) and compensatory transfers (RM12)
- Actions and effects:
  - Price of gas butane increased by 10 Dirhams (25 percent) in May 2024; similar increase expected in 2025; elimination of subsidy envisaged under RM11.
  - CPAT simulations: elimination of the subsidy would reduce GHG emissions by 5 percent relative to baseline.
  - Distributional effects:
    - Removal of gas butane subsidy is regressive (larger share of consumption for poorest households).
    - Targeted unconditional cash transfers to the 6 poorest deciles under Aide Social Directe (RM12) more than compensate negative impact on consumption of targeted population.
    - Combined effect of RM11 and RM12 is progressive, with poorest deciles benefiting relatively more.

### Carbon tax progress (RM9) and banking disclosures (RM16)
- RM9 — Carbon tax:
  - Customs Administration preparing design document with technical assistance from World Bank and GIZ.
  - Preparatory actions for 2026 Budget: assessment of carbon component of current taxes and associated carbon prices; amendment of law 12-06 to make IMANOR a national reference for issuing carbon content certificates; technical training of Customs personnel.
- RM16 — Banking supervision and climate disclosures:
  - BAM published a report (with World Bank, AFD, Global Risk Financing Facility) showing climate change could cause significant damage to Morocco’s banking sector.
  - World Bank providing technical assistance to BAM to develop supervisory guidance on climate-related financial disclosures in line with ISSB and reporting of climate risks.
  - Initial draft expected in October to launch consultation with banks; review and finalization planned for February 2025.
  - BAM to publish, by February 2025, supervisory guidelines on disclosure and reporting by banks regarding climate risks, based on ISSB guidelines, and guidance on collecting/reporting large borrower exposures to main climate risks.

### Implementation modalities, phasing, and RSF context
- Third and final review:
  - Scheduled for early next year; will conclude Morocco’s RSF arrangement with implementation of a high number of key measures.
  - Seven measures expected to be implemented by mid-February 2025 account for about 49 percent of Morocco’s quota.
- RSF access and disbursements:
  - Review 1 (24-Feb): Quota 28% SDR 250.0.
  - Review 2 (24-Sep): Quota 35% SDR 312.5.
  - Review 3 (25-Feb): Quota 49% SDR 437.5.
  - Total: 16 RMs; 112% total access; SDR 1000.
  - Actual disbursement in connection with 1st review was SDR 250 million since RM10 not implemented and SDR 62.5 million associated with RM10 was not disbursed.
  - If RM17 replacing RM10 is approved and implemented in the context of the 3rd review, the disbursement of SDR 62.5 million will be made in addition to the disbursement of SDR 375 million scheduled for the 3rd review at Program Inception, bringing the total for the third review to SDR 437.5 million.
  - Each RM associated with 6.99% and SDR 62.5 for completion of corresponding RSF review of reform measures implementation.

### Implementation risks and staff assessment
- Risk assessment:
  - Risks to RSF-supported reforms assessed to be limited.
  - Moderating factors: Morocco’s very strong fundamentals and institutional policy frameworks; sustained track records of implementing very strong policies; continued commitment to maintaining such policies; approval of a Flexible Credit Line (FCL) arrangement in April 2023.
  - FCL review in March 2024 showed Morocco continues to meet FCL qualification criteria; Board concluded mid-term review of FCL in March 2024.
- Staff observations on RM10 replacement:
  - RM10 could not be implemented; replacement RM17 increases excises on highly polluting products with a comparable GHG impact.
  - Reducing electricity sector’s high dependency on coal will take time due to long-term PPAs; excise increases send a price signal aligned with plan to exit coal by 2040.
  - Staff supports replacement and considers it preserves overall strength of RSF arrangement.

### Macro developments and projections — selected figures
- Real sector:
  - Real GDP grew at 2.4 percent in 2024:H1.
  - Real GDP projections (annual):
    - 2023: 3.4
    - 2024: 2.6
    - 2025: 3.7
    - 2026: 3.5
    - 2027: 3.5
    - 2028: 3.5
    - 2029: 3.5
- Labor:
  - Unemployment 2024:Q2 at 13.1 percent.
- External and trade (selected):
  - Exports (2024): 38.8 (billions of U.S. dollars).
  - Imports (2024): 65.6 (billions of U.S. dollars).
  - Balance of payments: Current account (2024): -1.5 (percent of GDP, Table 7 row).
- Fiscal projections (selected):
  - Budget balance (percent of GDP):
    - 2023: -4.4
    - 2024: -4.3
    - 2025: -3.8
    - 2026: -3.3
    - 2027: -3.1
    - 2028: -2.9
    - 2029: -2.9
  - Central government debt (percent of GDP):
    - 2023: 69.5
    - 2024: 69.1
    - 2025: 68.3
    - 2026: 67.2
    - 2027: 66.4
    - 2028: 65.6
    - 2029: 65.0
  - Revenues and expenditures (2024, percent of GDP):
    - Revenue (2024): 28.7 percent of GDP.
    - Expense (2024): 28.2 percent of GDP.
- Monetary and financial:
  - BAM policy: stayed put in September 2024 following the 25bps cut in June.
  - Claims to the economy (percent change, 2024): 4.5.
  - Broad money (annual percent change, 2024): 5.0.
  - Financial soundness indicators (Dec 2023, selected):
    - Regulatory capital to risk-weighted assets: 15.5 percent.
    - NPLs to total loans: 8.5 percent.
    - Specific provisions to NPLs: 67.5 percent.
    - Liquid assets to total assets: 14.6 percent.
    - Deposits to loans: 104.8 percent.

### External sector assessment — key messages
- Overall assessment:
  - Morocco’s external position in 2023 stronger than level implied by medium-term fundamentals and desirable policies.
  - CA deficit narrowed to around 0.6 percent of GDP in 2023 (from 3.6 percent in 2022); expected to converge to about 3.0 percent of GDP over the medium term as investment and consumption rise.
- NIIP and reserves:
  - NIIP improved by about 10 percentage points of GDP to about 54 percent in 2023 after peaking at 63 percent of GDP; projected to stabilize around that level.
  - Key 2023 NIIP indicators (percent of GDP):
    - NIIP: -54.1
    - Gross Assets: 38.6
    - Reserve Assets: 24.6
    - Gross Liabilities: 92.7
    - Gross External Debt: 46.8
  - Reserves: US$36.3 billion in 2023 (around 125 percent of the ARA metric adjusted for capital controls); assessed adequate.
- REER assessment:
  - REER relatively stable over last decade; appreciated by about 4 percent in 2023 relative to 2022 but about half of that appreciation reversed by May 2024.
  - Applying CA elasticity to REER of 0.38 and CA gap of 2.9 percent of GDP, REER assessed to be undervalued in 2023 by 7.7 percent (range 6.3 to 8.9 percent).
- Financing and flows (selected figures, in Billions of U.S. dollars unless otherwise specified):
  - Current account balance entries:
    - 2023: -0.9
    - 2024: -2.3
    - 2025: -3.2
    - 2026: -4.3
  - (in percent of GDP):
    - 2023: -0.6%
    - 2024: -1.5%
    - 2025: -1.9%
    - 2026: -2.4%
  - Financial account, net (without RSF):
    - 2023: 1.7
    - 2024: 3.5
    - 2025: 4.5
    - 2026: 6.4
  - Financial account, net (with RSF):
    - 2023: 1.7
    - 2024: 4.2
    - 2025: 5.1
    - 2026: 6.4
  - Direct investment, net:
    - 2023: 0.3
    - 2024: 1.5
    - 2025: 1.8
    - 2026: 2.1
  - Portfolio investment, net:
    - 2023: 2.4
    - 2024: 0.4
    - 2025: 2.1
    - 2026: 1.6
  - Overall balance (1):
    - 2023: 2.0
    - 2024: 1.1
    - 2025: 1.2
    - 2026: 2.1
  - Change in gross official reserves (increase: -, without RSF) (2):
    - 2023: -2.0
    - 2024: -1.1
    - 2025: -1.2
    - 2026: -2.1
  - Financing gap (1+2) (in percent of GDP):
    - 2023: 0.0%
    - 2024: 0.0%
    - 2025: 0.0%
    - 2026: 0.0%
  - RSF disbursement:
    - 2023: 0.0
    - 2024: 0.8
    - 2025: 0.6
    - 2026: 0.0
  - Change in official reserves (increase: -, with RSF):
    - 2023: -2.0
    - 2024: -1.9
    - 2025: -1.8
    - 2026: -2.1

### Implementation priorities and remaining measures (third review)
- Remaining measures expected to:
  - Significantly contribute to liberalization of electricity sector.
  - Further green Morocco’s tax system.
  - Address climate-change related risks on long-term fiscal position and financial sector.
  - Reinforce protection of groundwater resources.
- Selected RMs and status (dates and review numbers as in source):
  - RM1, RM2, RM4, RM8, RM9, RM16, RM17 among those with Review: 3 and various implementation statuses; several measures already implemented (RM3, RM5, RM6, RM7, RM11, RM12, RM13, RM14, RM15).
- RSF access and phasing summary:
  - Program Inception total SDR 1000; per-review quotas and revised numbers as noted above.
  - Several RMs marked Implemented; RM10 explicitly Not yet implemented and replaced by proposed RM17.

### Water, energy, and disaster-risk priorities in Letter of Intent and appendices
- Water:
  - National Program for Drinking Water Supply and Irrigation 2020-2027 (PNAEPI) estimated cost: US$14 billion.
  - Desalination targets: produce 1 billion m3 by 2030 (in Climate Finance section) and 1.3 billion m3 by 2030 in other sections (both figures appear in source content).
  - Existing desalination plants: 12; planned new plants: 8.
  - Strategic study on cost of water launched by MEE in November 2023; RM1 tasks to submit study and adopt decrees.
- Energy:
  - National Energy Strategy 2009–2030 objective: reach 52 percent of installed capacity in renewable energy by 2030.
  - Share of RE in national energy mix increased from 38 percent in 2022 to almost 45 percent in October 2024.
  - 2023–2027 Electricity Infrastructure Plan includes conversion of oil-fired gas turbines to natural gas by 2027.
  - Transmission reinforcement target: transmit 3,000 MW over 1,600 km of wind power.
  - Green hydrogen “Moroccan offer” launched March 2024.
- Disaster coverage:
  - Amendment to decree 2-18-785 (application of Law 110-14) approved in February 2024 to improve catastrophic event coverage and transfer of risks to international reinsurance markets.

### Institutional commitment, coordination, and IMF engagement
- Government commits to pursue the reform program, consult IMF prior to any revision of reform measures, and provide IMF information on progress.
- Mission and approvals:
  - Date on document: October 25, 2024.
  - Mission conducted September 9–13, 2024, in Casablanca and Rabat, Morocco.
  - Approved by Taline Koranchelian (MCD) and Geremia Palomba (SPR).
  - Mission team led by Roberto Cardarelli and included staff from MCD, SPR, and FAD; accompanied by Mr. El Qorchi (OED).
- Letter of Intent signed by Nadia Fettah, Minister of Economy and Finance, and Abdellatif Jouahri, Governor of Bank Al-Maghrib.

*Source: EXECUTIVE SUMMARY and related chapters of 1marea2024002-print-pdf (Morocco IMF report), October 25, 2024.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Recent economic developments and context
- Agricultural output suffers from yet another drought; expected below-average agricultural harvest in 2024 of 33 million quintals of cereals (compared to a pre-COVID average of 75 million).
- Non-agricultural output has remained robust; domestic demand is strengthening with consumption supported by a rebound of disposable income and investment boosted by infrastructure projects.
- Unemployment rose to 13.1 percent by Q2 2024, up from 12.4 percent a year ago, despite a decline in labor force participation.
- The current account deficit for 2024:H1 stood at about -0.6 percent of GDP (against -0.5 percent in the firth half of the previous year).
- International reserves were stable at the comfortable level of 124 percent of the adjusted ARA metric (5.4 months of next year’s imports) in September 2024.
- The exchange rate appreciated in 2024 and was close to the middle of the fluctuation band as of early October; the REER has depreciated slightly so far in 2024.
- Headline inflation fell to 0.8 percent in September 2024 (y/y); core inflation has remained at below 2½ percent on average since March 2024.
- Bank Al-Maghrib (BAM) cut the policy rate by 25 bps in June 2024 to 2.75 percent and left it unchanged in September 2024.
- Two-year-ahead inflation expectations fell to 2.2 percent in Q3 2024; the real ex-ante policy rate is close to staff estimates of the neutral rate.
- Tax revenues in the first eight months of 2024 were about 12 percent higher than the same period last year (mostly CIT, PIT and VAT); non-tax revenues increased by about half.
- Identified revenue windfall of about 1.8 percent of GDP was largely spent on: additional public sector wages (0.4 percent of GDP), transfers to ONEE (0.25 percent of GDP), and support to RAM (0.2 percent of GDP).
- Authorities announced an increase of the threshold for exemption from PIT and a reduction in the top marginal rate from 38 to 37 percent starting from 2025 (estimated cost of 0.3 percent of GDP).
- Staff recommended saving future revenue windfalls and adopting new policy measures to secure/reduce public debt from 69.5 percent of GDP in 2023 to 66.4 percent in 2027.
- Credit growth for machinery and equipment accelerated to 6.6 percent y/y in August 2024 from 4.1 percent in 2023.
- Banks’ return on equity improved to 8 percent as of December 2023 from 6.9 percent in the previous year.
- Nonperforming loan ratios increased: non-financial private firms to 12.7 percent in August 2024 (from 12.2 percent in early 2023); households to 10.9 percent (from 10 percent in early 2023).

### Outlook and risks
- Growth projections:
  - 2024: 2.6 percent
  - 2025: 3.7 percent
  - Medium-term rate: 3½ percent
- Forecast assumptions: return to average harvest conditions implying a rebound of agricultural production in 2025 and stabilization around 2.5 percent growth for agriculture over the medium term; non-agricultural growth projected around 3½ percent.
- Headline CPI inflation projected at 2.1 percent (y/y) by end-2025, accounting for the gradual removal of gas butane subsidies.
- Current account deficit expected to widen gradually towards an estimated norm of around 3 percent of GDP as domestic demand and imports increase.
- Risks: downside from further droughts and reduced agricultural production, escalation of geopolitical tensions affecting external demand; upside from more successful structural reforms and higher multiplier from infrastructure plans.

### Resilience and Sustainability Facility (RSF) — second review and measures
- All RSF reform measures targeted for this review have been implemented.
- Authorities requested replacing RM10 (initially scheduled for the first review and postponed to the third) with a new measure due to concerns about the impact of increasing the VAT on fossil fuels on consumers amid high food prices, weak labor markets, and ongoing social protection reform.
- The proposed replacement measure would raise excise duties on coal and three other highly polluting products.
- Rationale: Morocco’s still heavy reliance on coal for electricity production makes a higher excise on coal an important price signal of commitment to meet NDC targets.
- Staff simulations using the IMF-World Bank model CPAT show the new measure has an impact on greenhouse gases (GHG) emissions comparable to that of RM10.
- Staff conclusion: replacing RM10 with the new measure does not weaken the overall strength of Morocco’s RSF arrangement; staff supports the proposal.

### RSF reform implementation highlights (selected RMs)
- RM5 — Implementing legislation on electricity market liberalization:
  - Several laws approved: Law 48-15 (regulation of electricity sector and creation of ANRE), Law 40-19 (opened up RE production to private sector, modifying Law 13-09), Law 82-21 (auto-production of electricity).
  - Government Council approved three implementation decrees:
    - Decree implementing article 37 of Law 48-15 (approved December 2023) sets contribution threshold to ANRE for dispute resolution committee, supporting ANRE financial independence.
    - Decree implementing article 16 of Law 82-21 (approved September 2024) establishes procedures for issuance/management/monitoring of certificates of origin for electricity from RE sources.
    - Decree implementing article 18 of Law 82-21 (approved September 2024) sets technical specification of smart meters for auto-producers connected to the medium voltage distribution network.
  - Additional decrees in progress include those implementing article 11 of Law 48-15 and articles 4, 6, and 7 of Law 82-21 to specify grid connection conditions for auto-producers.
- RM6 — Improving electricity market regulatory framework:
  - ANRE published quality indicators of the national transmission grid (document prepared by ONEE) and the “Code of Good Conduct” for the Transmission System Operator (TSO) in September 2024.
  - ONEE to communicate quality targets to ANRE by November 30 each year and be notified of approval by January 31 of the following year; ONEE will report quarterly on actual values and annually on the previous year’s indicators.
- RM7 — Improving energy efficiency:
  - MTEDD and Ministry of Industry and Commerce adopted in September decrees introducing labeling and minimum energy performance standards (MEPS) for refrigerators, air conditioning units, and electric engines; a draft decree on lighting products prepared.
  - Estimated energy savings for targeted products: between 8 and 14 percent of the energy consumed by those products.
  - Decree on ESCOs adopted in September, defining conditions and requirements to create and operate Energy Service Companies.
  - AMEE prepared draft decree to lower mandatory audit thresholds:
    - Industrial sector threshold reduced from 1,500 toe to 800 toe, increasing firms subject to yearly audits from around 100 to at least 500.
    - Service sector threshold reduced from 500 to 200 toe, increasing targeted firms from around 100 to at least 350.
- Greening the financial system: RM14 and RM15 noted as part of RSF measures (implementation details appear in the full report).

### Fiscal policy and recommended stance
- Fiscal deficit in the year to August 2024 slightly lower than same period last year.
- Authorities’ announced fiscal measures include PIT threshold increase and top rate reduction to 37 percent in 2025 (cost 0.3 percent of GDP).
- Staff recommendation: save future revenue windfalls and adopt policy measures to secure and possibly accelerate planned reduction in public debt to 66.4 percent of GDP by 2027.

### Mission and approvals
- Date on document: October 25, 2024.
- Mission conducted during September 9–13, 2024, in Casablanca and Rabat, Morocco.
- Approved by Taline Koranchelian (MCD) and Geremia Palomba (SPR).
- Mission team led by Roberto Cardarelli and included staff from MCD, SPR, and FAD; accompanied by Mr. El Qorchi (OED).

*Source: EXECUTIVE SUMMARY of 1marea2024002-print-pdf (Morocco IMF report), October 25, 2024.*

### 14.      The authorities published a Climate Finance Development Strategy 2030, in line with

### 14. The authorities published a Climate Finance Development Strategy 2030, in line with RM14.

### Climate mitigation and adaptation targets
- Unconditional target: reduce greenhouse gas emissions (GHG) by 18.3 percent by 2030 compared to the business-as-usual scenario.
- Conditional target: reduce GHG by 45.5 percent by 2030 compared to the business-as-usual scenario.
- Draft Long-Term Low Emissions Development Strategy (LT-LEDS) envisages:
  - Increase share of renewable energy (RE) in installed electricity capacity to 52 percent by 2030.
  - Reach 96 percent of electricity generated from RE by 2050.
  - Eliminate coal-fired power generation by 2040.
- Status indicators:
  - At end-August 2024, RE accounted for 44.3 percent of installed electricity capacity.
  - In 2021, RE accounted for about 21 percent of electricity production.

### Climate Finance Development Strategy 2030 — overall aim and governance
- Objective: mobilize private climate finance of about USD 4.5 billion per year for the coming five years to achieve Morocco’s climate mitigation and adaptation targets.
- Current climate financing flows: public sector provides the bulk; private sector contribution is only 25-30 percent.
- Strategy target: increase private sector contribution to 50 percent.
- New governance system components:
  - Steering committee: decision-making, monitoring, updating strategy; members from financial sector regulatory authorities and Ministry of Economy and Finance.
  - Sectoral council: ensure consistency with sectoral decarbonization plans and policy/regulatory developments.
  - Advisory board: IFIs, academics, NGOs providing external expert advice.
  - Project management task force: coordinates administrative bodies and stakeholders, monitors projects, produces progress reports.
  - Working groups: implement measures.

### Strategy pillars, strategic axes, and initial measures
- Structure: three intervention pillars and nine strategic axes, with initial measures and provisional timelines.
- First pillar — Integrated Market Solutions:
  - Facilitate identification of attractive climate projects by assessing profitability and GHG impact.
  - Enhance transparency around supply and demand of climate finance, including a platform aggregating climate projects seeking private finance.
  - Expand range of green financial instruments, including developing a framework for green sovereign bonds.
- Second pillar — Key Accelerators:
  - Demand-side: develop innovative risk-sharing mechanisms (e.g., blended finance) to improve attractiveness of large-scale adaptation projects.
  - Supply-side: introduce incentives and regulatory measures to reduce administrative and transaction costs; require reporting of green asset ratios by financial sector operators; set green investment targets for public and private players.
- Third pillar — Key Fundamentals:
  - Strengthen climate risk management within the financial sector, including requiring all operators to regularly publish climate-related risk information in line with international standards such as TCFD or ISSB (in line with RM16).
  - Accelerate adoption of a green financial taxonomy (high priority, underway with World Bank and French Development Agency support).
  - Enhance capacity building among financial sector regulators and private players on climate finance and climate risk management.
  - Promote climate-friendly sectoral policies.

### Environmental requirements for subsidized financing (Damane Istitmar scheme)
- Implementation timeline and thresholds:
  - Starting Q4:2024 until Q1:2027, firms requesting public financial support under “Damane Istitmar” must submit a questionnaire on environmental impact.
  - Applies to investments in sectors (construction, transport, agriculture, certain manufacturing) exceeding DH20 million (about USD 2 million).
  - From Q1:2027, requirement extends to other sectors and threshold lowers to DH15 million (about USD 1.5 million).
  - From 2030 onward, requirement generalized to all sectors, threshold set at DH10 million (about USD 1 million), and questionnaire replaced by a full environmental impact study.
- Scheme details:
  - Managed by Tamwilcom, provides guarantees up to 70 percent to bank loans above DH 1 million (about USD 100k) with a ceiling of DH 30 million (about USD 3 million) per company.
  - Firms can receive equity contributions (up to 30 percent of the investment) and technical assistance by Maroc PME.
  - In 2020, 229 private investment projects were supported under this scheme, total investment DH 2.8 billion (about USD 280 million).
- Questionnaire dimensions (used to build a climate-change related risk index: high, medium, low):
  - Environmental impact (existence of environmental impact study and measures to address climate-related risks).
  - Energy consumption.
  - Water consumption management.
  - Emissions of GHG.

### Fiscal measures to decarbonize electricity (replacement of RM10 with RM17)
- Authorities requested replacing RM10 (increase VAT on fossil fuels) with a new measure (RM17) to:
  - Increase excise taxes on coal and heavy fuel oil (HFO).
  - Remove excise exemptions on coal and HFO currently granted to ONEE and its concessionaries.
  - Increase excise on bitumen and lubricating oils.
  - Planned increases effective from 2025.
- Rationale:
  - Authorities argued raising VAT on fossil fuels would hurt households’ disposable income given high unemployment, elevated food prices, and ongoing social protection reform.
- Expected short-term impact:
  - Morocco’s electricity sector remains heavily coal-reliant: coal accounts for about 40 percent of power generation capacity.
  - About 80 percent of coal-generated electricity comes from independent providers with long-term contracts expiring after 2040.
  - Rigidity of coal-based production limits short-term dependence reduction on coal; excise increases serve as a price signal reinforcing decarbonization commitment.

### Emissions impact — comparison RM10 vs RM17 (CPAT model)
- Model: IMF-WB CPAT calibrated to Morocco.
- RM10 scenario:
  - VAT on fossil fuels assumed to increase gradually from 10 to 20 percent over 10 years.
  - Price elasticity assumptions: -0.4 for gasoline, -0.3 for diesel and other oil products.
  - Induced reduction of GHG emissions relative to business-as-usual of 0.7 percent by 2030.
- RM17 scenario assumptions:
  - Full elimination of excise exemptions for coal and HFO and increase in their rates in 2025.
  - Excise on coal increased from 64.8 DH per ton in 2025 to 124.8 DH per ton.
  - Excise on HFO increased from 182.4 to 242.4 DH per ton.
  - Price elasticity of demand for coal (-0.3) applies only to the 20 percent of coal generation done directly by ONEE (to capture 80 percent covered by long-term PPAs).
  - Existing coal plants depreciated at 2.5 percent a year (assumes 40-year useful life); no new coal plants assumed in baseline or higher excise scenarios; no increase in electricity tariffs assumed.
- Simulation result:
  - RM10 and RM17 have a comparable impact on GHG emissions by 2030.
  - Higher excises on coal (RM17) estimated to lead to a reduction of GHG emissions in 2030 of 0.9 percent with respect to a business-as-usual scenario.
  - Staff assessment: impact in 2030 of RM17 would be about 12 percent greater than that of a gradual 10-year increase of VAT rates on fossil fuels from 10 to 20 percent (as envisaged under RM10).

### Gas butane subsidy removal (RM11) and compensatory transfers (RM12)
- Policy actions and impacts:
  - Price of gas butane increased by 10 Dirhams (25 percent) in May 2024.
  - A similar increase is expected in 2025; elimination of the subsidy on gas butane envisaged under RM11.
  - CPAT simulations: elimination of the subsidy would reduce GHG emissions by 5 percent relative to baseline.
  - Distributional effects:
    - Removal of gas butane subsidy is regressive (gas butane represents a larger share of consumption for the poorest households).
    - Targeted and unconditional cash transfers to the 6 poorest deciles under Aide Social Directe (as envisaged under RM12) more than compensate the negative impact on consumption of the targeted population.
    - Combined effect of RM11 and RM12 is progressive, with the poorest deciles benefiting relatively more.

### Carbon tax progress (RM9)
- Customs Administration preparing design document for a carbon tax with technical assistance from the World Bank and GIZ.
- Preparatory efforts for inclusion in the 2026 Budget include:
  - Assessment of the carbon component of current taxes and associated carbon prices.
  - Amendment of law 12-06 to make Institut Marocain de Normalisation (IMANOR) a national reference for issuing carbon content certificates.
  - Technical training of Customs personnel responsible for operationalizing the tax.

### Banking supervision and climate-related disclosures (RM16)
- Bank Al-Maghrib (BAM) progress:
  - BAM published a report, jointly with World Bank, AFD, and Global Risk Financing Facility, showing climate change could cause significant damage to Morocco’s banking sector.
  - World Bank providing technical assistance to BAM to develop supervisory guidance on climate-related financial disclosures in line with ISSB standards and on reporting of climate risks (RM16).
  - An initial draft expected in October to launch consultation with banks; review and finalization planned for February 2025.

### Implementation modalities and RSF context
- The third and final review scheduled for early next year will conclude Morocco’s RSF arrangement with implementation of a high number of key measures.
- Seven measures expected to be implemented by mid-February 2025 account for about 49 percent of Morocco’s quota.
- Some measures will advance electricity market reform (publication of tariffs RE producers pay to access medium voltage distribution grid; unbundling ONEE’s financial production and transmission accounts toward evolution into Morocco’s Transmission System Operator and development of a competitive wholesale electricity production market).
- Morocco’s capacity to repay the Fund remains adequate in the medium to long run; RSF financing continues to be used for direct budget support and will reinforce gross reserves.

*Source: IMF staff summary of Morocco chapter on Climate Finance Development Strategy 2030 and related reform measures.*

### 24.      Risks to the implementation

### 24.      Risks to the implementation

### Assessment of implementation risks
- Risks to the implementation of RSF-supported reforms are assessed to be limited.
- Risks are moderated by:
  - Morocco’s very strong fundamentals and institutional policy frameworks.
  - Sustained track records of implementing very strong policies.
  - Continued commitment to maintaining such policies in the future.
  - The approval of a Flexible Credit Line (FCL) arrangement in April 2023.
- The authorities could not implement RM10 (initially scheduled for the first review and postponed to the third review) and proposed to replace it with an increase in the excise on a few highly polluting products estimated to have a similar impact in terms of GHG emission reduction.

### FCL status and policy track record
- The FCL review in March 2024 showed that Morocco continues to meet the FCL qualification criteria.
- The Staff Report argued that Morocco continued to display a sustained track record of implementing very strong policies.
- The Board concluded the mid-term review of the FCL in March 2024 (IMF Country Report No. 24/99). The qualification assessment remains valid through the end of the FCL arrangement.

### Morocco: Financing gap and sources of financing (selected figures)
- Current account balance:
  - 2023: -0.9
  - 2024: -2.3
  - 2025: -3.2
  - 2026: -4.3
- (in percent of GDP):
  - 2023: -0.6%
  - 2024: -1.5%
  - 2025: -1.9%
  - 2026: -2.4%
- Balance of goods and services:
  - 2023: -12.0
  - 2024: -12.8
  - 2025: -14.1
  - 2026: -15.5
- Balance on primary income:
  - 2023: -2.1
  - 2024: -3.0
  - 2025: -3.0
  - 2026: -3.1
- Balance on secondary income:
  - 2023: 13.2
  - 2024: 13.5
  - 2025: 13.8
  - 2026: 14.2
- Capital account, net:
  - 2023: 0.0
  - 2024: 0.0
  - 2025: 0.0
  - 2026: 0.0
- Financial account, net (without RSF):
  - 2023: 1.7
  - 2024: 3.5
  - 2025: 4.5
  - 2026: 6.4
- Financial account, net (with RSF):
  - 2023: 1.7
  - 2024: 4.2
  - 2025: 5.1
  - 2026: 6.4
- Direct investment, net:
  - 2023: 0.3
  - 2024: 1.5
  - 2025: 1.8
  - 2026: 2.1
- Portfolio investment, net:
  - 2023: 2.4
  - 2024: 0.4
  - 2025: 2.1
  - 2026: 1.6
- Other investment, net (without RSF):
  - 2023: -0.9
  - 2024: 1.6
  - 2025: 0.6
  - 2026: 2.7
- Errors and Omissions:
  - 2023: 1.3
  - 2024: 0.0
  - 2025: 0.0
  - 2026: 0.0
- Overall balance (1):
  - 2023: 2.0
  - 2024: 1.1
  - 2025: 1.2
  - 2026: 2.1
- Change in gross official reserves (increase: -, without RSF) (2):
  - 2023: -2.0
  - 2024: -1.1
  - 2025: -1.2
  - 2026: -2.1
- Financing gap (1+2):
  - 2023: 0.0
  - 2024: 0.0
  - 2025: 0.0
  - 2026: 0.0
- (in percent of GDP):
  - 2023: 0.0%
  - 2024: 0.0%
  - 2025: 0.0%
  - 2026: 0.0%
- RSF disbursement:
  - 2023: 0.0
  - 2024: 0.8
  - 2025: 0.6
  - 2026: 0.0
- Change in official reserves (increase: -, with RSF):
  - 2023: -2.0
  - 2024: -1.9
  - 2025: -1.8
  - 2026: -2.1

(All figures are in Billions of U.S. dollars, unless otherwise specified)

### RSF arrangement progress and policy substitution
- The RSF arrangement is on track and its measures are expected to contribute significantly to Morocco’s green transition.
- All measures for this review were implemented.
- These measures contribute to the arrangement’s objectives:
  - Boost private investment into renewable energy by advancing liberalization of Morocco’s electricity market.
  - Improve energy efficiency.
  - Support the greening of the financial system.

### Replacement of RM10 with RM17 (excise increase on polluting products)
- Staff supports replacing measure RM10 with a new measure (RM17) that increases excises on coal and other highly polluting products.
- Authorities’ rationale:
  - Implementing RM10 (increase the VAT on fossil fuels) is hard in the current economic context because it would hurt disposable income while scars from recent shocks remain tangible.
  - Requested replacement with a measure that increases excises on coal and other highly polluting products.
- Staff observations:
  - Reducing the electricity sector’s high dependency on coal will take time because a large share of coal-generated electricity is produced by private companies with long-term contracts with ONEE.
  - Increasing the excise on coal will send a price signal consistent with the authorities’ announced plan to exit from coal by 2040.
  - Staff simulations show the potential contribution of the new measure to GHG emission reduction is comparable to that of RM10.
  - The replacement of RM10 with the new measure would preserve the overall strength of the RSF arrangement.

### Board consultation and disbursement recommendation
- Staff supports the authorities’ request for completion of the Board consultation under the second review of the RSF arrangement.
- Staff supports the disbursement of SDR 312.5 million under the RSF based on the completion of the reform measures 5, 6, 7, 14, and 15.

*Source: Ministry of Finance; Office des Changes; and IMF staff estimates and projections.*

### 29.      Staff encourages the authorities to continue their efforts to ensure that the remaining

### 29. Staff encourages the authorities to continue their efforts to ensure that the remaining measures for the third and final review will be implemented timely

### Implementation priorities and expected impacts
- Remaining measures are expected to:
  - Significantly contribute to the liberalization of Morocco’s electricity sector.
  - Further green Morocco’s tax system.
  - Address climate-change related risks on the country’s long-term fiscal position and financial sector.
  - Reinforce the protection of the country’s dwindling groundwater resources.

### RSF reform measures — selected measures, dates, and implementation status
- RM1 (25-Feb): Ministry of Infrastructure and Water to submit a study assessing the actual cost of water and present cost-recovery principles; adopt two ministerial decrees implementing Water Law (36-15) (protection and prohibition perimeters; immediate/close/distant protection perimeters). Review: 3.
- RM2 (25-Feb): ANRE to approve ONEE proposal on unbundling transmission financial accounts. Review: 3.
- RM3 (24-Feb): ANRE to publish tariffs for utilization of the national electricity transmission network and system service fees (by Oct 2023) and the capacity of the grid to receive electricity from renewable sources. Status: Implemented. Review: 1.
- RM4 (25-Feb): ANRE to publish tariffs for access of RE producers to the medium voltage electricity distribution network. Review: 3.
- RM5 (24-Sep): Ministry of Energy Transition and Sustainable Development to adopt ministerial decrees to implement electricity sector legislation (laws 48-15, 40-19, and 82-21). Status: Implemented. Review: 2.
- RM6 (24-Sep): ANRE to approve and publish quality indicators for the national transmission grid and the code of good conduct for the Transmission System Operator. Status: Implemented. Review: 2.
- RM7 (24-Sep): Ministry of Energy Transition and Sustainable Development to complete the legal framework for energy efficiency via multiple ministerial decrees and regulatory texts. Status: Implemented. Review: 2.
- RM8 (25-Feb): Ministry of Economy and Finance to publish, starting with the Document de programmation budgétaire triennale accompanying the 2025 Budget Law, an analysis of debt sustainability that includes the impact of climate change, with Fund technical assistance. Review: 3.
- RM9 (25-Feb): Ministry of Economy and Finance to produce and start adopting a design document for the introduction of a carbon tax, in line with International Financial Institutions’ recommendations and in consultation with the Ministry of Energy Transition and Sustainable Development. Review: 3.
- RM10 (24-Feb): Ministry of Economy and Finance to introduce in the 2024 Budget Law a reform that gradually eliminates the existing brown tax expenditure by increasing the tax rate on polluting fuels products. Review: 1. Status: Not implemented and replaced by RM17.
- RM11 (24-Feb): Ministerial decree to gradually eliminate subsidies on gas butane starting from 2024. Status: Implemented. Review: 1.
- RM12 (24-Feb): Mitigation of RM11 impact by expanding cash transfers under the new Unified Social Registry and helping farmers replace gas butane with solar pumps for small-field irrigation. Status: Implemented. Review: 1.
- RM13 (24-Feb): Complete legal framework for coverage against natural-disaster risks by amending the decree for application of Law No. 110-14. Status: Implemented. Review: 1.
- RM14 (24-Sep): Ministry of Economy and Finance, BAM, and capital market and insurance regulators to adopt and publish a National Climate Finance Strategy. Status: Implemented. Review: 2.
- RM15 (24-Sep): Advance greening the national support system for access to financing by implementing environmental-impact assessment requirements for funded projects above a threshold. Status: Implemented. Review: 2.
- RM16 (25-Feb): BAM to issue supervisory guidelines on disclosure and reporting for banks in relation to climate risks, based on ISSB guidance, and issue guidance on collecting/reporting large borrower exposures to major climate risks. Review: 3.
- RM17 (25-Feb): Ministry of Economy and Finance to introduce in the 2025 Budget Law a measure that, starting from 1 January 2025, eliminates all existing tax exemptions on the excise duties for coal and heavy fuel oil and increases excise duties on coal and 3 additional polluting petroleum products (bitumen, heavy fuel oil and lubricating oils) for all producers to the level set in the MEFP. Review: 3. Status: Proposed (replaces RM10).

### RSF access, phasing, and disbursements (key figures)
- Access and phasing (Table 3):
  - Review 1 (24-Feb): Number of RMs per Review (Program Inception) 5; Number of RMs per Review (Revised) 4; Quota 28% SDR 250.0.
  - Review 2 (24-Sep): Number of RMs per Review (Program Inception) 5; Number of RMs per Review (Revised) 5; Quota 35% SDR 312.5.
  - Review 3 (25-Feb): Number of RMs per Review (Program Inception) 6; Number of RMs per Review (Revised) 7; Quota 49% SDR 437.5.
  - Total: 16 RMs; 16 RMs (revised); 112% total access; SDR 1000.
- Disbursement clarifications:
  - The actual disbursement in connection with the 1st review was SDR 250 million since RM10 initially scheduled for the 1st review was not implemented and SDR 62.5 million associated with RM10 was not disbursed.
  - If RM17 replacing RM10 is approved and implemented in the context of the 3rd review, as currently expected, the disbursement of SDR 62.5 million will be made in addition to the disbursement of SDR 375 million scheduled for the 3rd review at Program Inception, bringing the total for the third review to SDR 437.5 million.
- Disbursement schedule (Table 4):
  - Each RM is associated with 6.99% and SDR 62.5 for completion of the corresponding RSF review of reform measures implementation.
  - Several RMs are listed as Implemented (RM3, RM5, RM6, RM7, RM11, RM12, RM13, RM14, RM15) while RM10 is explicitly noted as Not yet implemented. Total: 112% SDR 1000.

### Macro developments and projections — real sector, labor, and external
- Real sector:
  - Real GDP grew at 2.4 percent in 2024:H1.
  - Real GDP projections (Table 5, annual):
    - 2023: 3.4
    - 2024: 2.6
    - 2025: 3.7
    - 2026: 3.5
    - 2027: 3.5
    - 2028: 3.5
    - 2029: 3.5
- Labor:
  - Unemployment remained high in 2024:Q2 at 13.1 percent.
- External:
  - Export growth was stronger than import growth in the first eight months of the year.
  - Tourism revenues and remittances remained strong in 2024.
  - Net FDI improved in the first 8 months of the year.
  - Balance of payments (Table 7, percent of GDP):
    - Current account (2024): -1.5 (Table 7 reports current account -1.5 for 2024 in percent of GDP row).
  - Exports and imports (Table 7, U.S. dollars, selected entries):
    - Exports (2024): 38.8 (billions of U.S. dollars).
    - Imports (2024): 65.6 (billions of U.S. dollars).

### Fiscal stance and projections
- Fiscal performance (Table 5 and Table 6b):
  - Budget balance (percent of GDP, Table 5 row "Budget balance"):
    - 2023: -4.4
    - 2024: -4.3
    - 2025: -3.8
    - 2026: -3.3
    - 2027: -3.1
    - 2028: -2.9
    - 2029: -2.9
  - Central government debt (percent of GDP, Table 5):
    - 2023: 69.5
    - 2024: 69.1
    - 2025: 68.3
    - 2026: 67.2
    - 2027: 66.4
    - 2028: 65.6
    - 2029: 65.0
  - The 2024 Budget envisages a gradual reduction of the fiscal impulse, public debt-to-GDP ratio, and gross financing needs.
  - Revenues and expenditures (Table 6b, percent of GDP, 2024):
    - Revenue (2024): 28.7 percent of GDP.
    - Expense (2024): 28.2 percent of GDP.

### Monetary and financial conditions
- Policy and exchange rate:
  - BAM stayed put in September, following the 25bps cut in June.
  - The dirham has appreciated in 2024 and was close to the middle of the band in late October.
- Credit and banking sector:
  - Growth of overall credit has slowed in 2024, while lending to non-financial private firms for machinery and equipment has accelerated.
  - Nonperforming loans (NPLs) for non-financial firms and households have increased since end 2022.
  - Banks’ holdings of Treasuries have fallen from the peak in 2023 but remain above pre-pandemic levels.
- Monetary aggregates (Table 8):
  - Claims to the economy (percent change, 2024): 4.5.
  - Broad money (annual percent change, 2024): 5.0.

### Financial soundness and vulnerabilities
- Financial Soundness Indicators (Table 9, selected):
  - Regulatory capital to risk-weighted assets (Dec 2023): 15.5 percent.
  - Nonperforming Loans (NPLs) to total loans (Dec 2023): 8.5 percent.
  - Specific provisions to NPLs (Dec 2023): 67.5 percent.
  - Liquid assets to total assets (Dec 2023): 14.6 percent.
  - Deposits to loans (Dec 2023): 104.8 percent.

*Source: IMF staff (content unit: 1marea2024002-print-pdf).*

### Annex I. External Sector Assessment

### Annex I. External Sector Assessment

### Overall assessment and policy responses
- Overall assessment:
  - Morocco’s external position in 2023 was stronger than the level implied by medium-term fundamentals and desirable policies.
  - The narrowing of the CA deficit in 2023 reflected a lower goods trade deficit (due to lower imports, especially of energy, and strong exports of automotive goods), increasing tourism revenues, and resilient remittances.
  - As private demand accelerates, the CA deficit is expected to gradually converge to the estimated medium-term norm of around 3 percent.
- Policy responses:
  - The planned gradual fiscal consolidation should help contain the increase of the CA deficit from the low level in 2023.
  - Structural reforms may imply higher imports (and greater external financing needs) as they boost private sector investment but are also expected to attract FDIs and support exports of goods and services by improving Moroccan firms’ competitiveness.

### Foreign asset and liability position and trajectory
- Background and trajectory:
  - After peaking at 63 percent of GDP, Morocco’s Net International Investment Position (NIIP) improved by about 10 percentage points of GDP to about 54 percent in 2023 and is projected to stabilize around that level over the medium term.
- Assessment:
  - Morocco’s NIIP financing vulnerabilities appear moderate.
  - Over the medium term, Morocco should be able to sustain its net debtor position, amid implementation of structural reforms (that should increase Morocco’s attractiveness for FDIs) and fiscal consolidation (that should reduce the dependence on external debt).
- Key 2023 NIIP indicators (percent of GDP):
  - NIIP: -54.1
  - Gross Assets: 38.6
  - Reserve Assets: 24.6
  - Gross Liabilities: 92.7
  - Gross External Debt: 46.8

### Current account (CA): developments, outlook, and assessment
- 2023 developments and outlook:
  - In 2023, the CA deficit narrowed to around 0.6 percent of GDP, from 3.6 percent in 2022, as lower energy prices and relatively weak domestic demand reduced imports, while exports of goods and services (particularly automotive and tourism) and remittances surprised on the upside.
  - The deficit is expected to gradually increase to about 3.0 percent of GDP over the medium term as stronger investment and consumption boost imports, despite continued robust performance of both tourism and remittances.
- Assessment using EBA model (2023, percent of GDP):
  - CA: -0.6
  - Cyclical Contributions: -0.3
  - Cyclically Adjusted CA: -0.3
  - Cyclically Adjusted CA Norm: -3.2
  - Total Gap: 2.9
  - The EBA model estimated a cyclically adjusted CA deficit of 0.3 percent of GDP compared with an estimated cyclically adjusted CA norm of -3.2 percent of GDP, with a standard error of 0.5 percent of GDP. The resulting CA gap of 2.9 percent of GDP (with a range of -3.4 to 2.4 percent) includes identified policy gaps of 1.3 percent of GDP and an unexplained residual of 1.6 percent of GDP.

### Real exchange rate (REER)
- Background:
  - The REER has been relatively stable over the last decade.
  - In 2023 the REER appreciated by about 4 percent relative to 2022, reflecting a nominal appreciation of the Dirham, but as of May 2024 about half of that appreciation has been reversed.
- Assessment:
  - Applying an elasticity of the CA to REER of 0.38 and consistent with the estimated CA gap of 2.9 percent of GDP, the REER was assessed to be undervalued in 2023 by 7.7 percent (with a range of 6.3 to 8.9 percent).

### Capital and financial accounts: flows and policy measures
- Background:
  - Morocco’s CA deficit is mainly financed by net FDI inflows and external borrowing.
  - In 2023, net FDI inflows slowed due to unfavorable external conditions, while external borrowing benefited from the March bond issuance on international markets.
- Assessment and outlook:
  - In the medium term, progress in structural reforms—particularly those aimed at developing the private sector, accelerating the transition to renewable energy, and increasing water resources—are expected to support FDI inflows.
  - Greater private investment will likely require continued reliance on external borrowing, although there will be less crowding-out from the government due to the gradual process of fiscal consolidation.
  - The risks of capital flow reversal are limited by remaining capital account controls on residents and the structure of external debt (85 percent of which has long maturity).

### FX intervention and reserves level
- Background:
  - Morocco’s exchange rate is pegged to a basket including the euro and the US dollar (60 and 40 percent weights, respectively) and can fluctuate within ±5 percent band around this central parity.
  - FX reserves are about US$10 billion above the pre-pandemic level, reflecting the purchase under the PLL arrangement in April 2020, the issuance of US$ denominated bonds in 2020 and 2023 (by about US$3 billion), the 2021 SDR allocation, and BAM purchase of FX in the market in 2021.
- Assessment and projections:
  - At around 125 percent of the ARA metric (adjusted for capital controls) the level of reserves at US$36.3 billion in 2023 is assessed to be adequate.
  - Staff projects reserves to stabilize around this ratio over the forecast horizon, as greater FDI and external borrowing will finance the gradual increase of the CA deficit and repayment of the PLL in 2024 and 2025.
  - Moving to an IT monetary policy regime with a more flexible ER would reduce the need for reserve holdings outside a budget that could fund FX interventions in case of excessive market volatility.

*Source: Annex I. External Sector Assessment (from the provided IMF content).*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Context, shocks, and policy stance
- Recent external environment marked by "profound upheavals", persistent geopolitical tensions, and "multiplication of conflicts."
- Domestic shocks include the Al Haouz earthquake, successive years of drought, increasing water stress, and "heavy flooding in many regions of the South and East."
- Government reports "considerable resilience" of the Moroccan economy, supported by ambitious sectoral policies, structural reforms, targeted situational support for vulnerable groups and sectors, and consolidation of the budgetary framework and macroeconomic balances.
- Morocco emphasizes an early commitment to sustainable development through: Framework Law n°99.12 (2014) and the National Strategy for Sustainable Development by the year 2030 (2017); additional strategies and programs are underway or being set up.

### Resilience and Sustainability Facility (RSF) objectives and recent implementation
- RSF arrangement described as an "accelerator" for reforms focused on:
  - i) preserving water resources and valuing them at their fair price;
  - ii) overhauling the electricity sector to increase renewable energy share and reduce fossil fuel dependence;
  - iii) greening the financial system, channeling private investment to environmentally-friendly activities, and improving climate transparency and communication;
  - iv) strengthening coverage systems against natural disasters.
- The first series of RSF reform measures implemented in February 2024. The second-review measures have been implemented within the planned timeframe and include:
  - Strengthening the legal framework for energy efficiency and the electricity sector, its regulation, and transparency via adoption of key legal texts.
  - Introduction of requirements to assess environmental impacts of investment projects benefiting from public guarantees and exceeding a threshold.
  - Drafting and publication of a climate finance development strategy by the year 2030, implemented by the Ministry of the Economy and Finance (MEF), Bank Al-Maghrib (BAM), and capital market and insurance regulators; the strategy "estimates the financing gap and defines the levers" to mobilize private financing for Morocco’s green transition.

### Fiscal/tax reform decision (environmental taxation timing and adjustment)
- Government proposes replacing the planned VAT increase on polluting petroleum products (RM10, planned for February 2025) with a different measure to protect vulnerable populations while pursuing climate objectives.
- New proposed reform measure (to be introduced in the 2025 budget law by MEF):
  - Eliminate, as of January 1, 2025, all existing tax exemptions linked to the domestic consumption tax (TIC) on coal and heavy fuel oil.
  - Adjust the TIC on coal and on 3 polluting petroleum products: bitumen, heavy fuel oil and lubricating oils.
  - Measures to be implemented "in accordance with the terms and conditions set out in the attached Memorandum of Economic and Financial Policies (MEFP)."
- Government frames the measure as a signal to energy producers and large-consuming firms to accelerate transition to sustainable energy sources, while aiming to "preserve the purchasing power of households."

### Water strategy, investments, and regulatory steps
- Morocco prioritizes water; draft National Water Plan (PNE) envisages major investments from 2020 to 2050 to bridge supply-demand gaps.
- National Program for Drinking Water Supply and Irrigation 2020-2027 (PNAEPI) estimated cost: US$14 billion.
- Targets and projects:
  - Seawater desalination projects using renewable energy sources with a target of 1 billion m3 by the year 2030.
  - Construction of dams and interconnection projects between waterworks systems to secure drinking water.
  - Demand management measures: saving and reusing water (drinking, industrial, irrigation), boosting rural drinking water supplies, wastewater reuse, plus communication and awareness strategies.
- Pricing and governance work:
  - Strategic study on the cost of water launched by the Ministry of Infrastructure and Water (MEE) in November 2023; study to be submitted to the Interministerial Water Commission and analyze pricing trends (RM1, February 2025).
  - Two decrees implementing Law 36-15 on water planned (RM1, February 2025):
    - Decree on delimiting safeguard and prohibition perimeters and granting authorizations and concessions within these perimeters.
    - Decree on criteria and procedures for delimiting close or distant protection perimeters and regulating prohibited or regulated acts within those perimeters.

### Climate ambition and financing needs
- Nationally Determined Contribution (NDC) revised in 2021 targets a GHG emissions reduction of 45.5 percent by the year 2030.
- Estimated financing requirement to meet the target: US$78.8 billion.
- RSF, alongside other donors (notably the World Bank), is expected to support implementation of energy and climate strategies and UNFCCC commitments.

### Energy sector targets, reforms, and timelines
- National Energy Strategy 2009–2030 objectives:
  - Reach 52 percent of installed capacity in renewable energy by the year 2030.
- Recent progress and baselines:
  - Share of renewable energy within the national energy mix: "almost 45 percent in October 2024," compared with "38 percent by the end of 2022."
- Natural gas role and infrastructure roadmap:
  - Increase share of natural gas as an energy transition fuel.
  - Conversion of oil-fired gas turbines at Kenitra and Mohammedia to natural gas planned by 2027 (part of 2023–2027 Electricity Infrastructure Plan).
  - Memorandum of understanding signed in March 2024 to coordinate a program to develop infrastructure for importing, storage, regasification, and transportation of liquefied natural gas; roadmap covers short, medium, long term and includes pipeline development and completion of the Nigeria-Morocco Gas Pipeline project.
- Transmission network reinforcement target:
  - Transmit 3,000 MW over 1,600 km of wind power from southern to central Morocco.
- Green hydrogen development:
  - "Moroccan offer" launched in March 2024, covering the entire value chain; Head of Government issued a circular in March 2024 for implementation.

### Electricity market restructuring and regulatory actions
- Key structural reforms to attract private investment and implement the energy strategy include:
  - Separation (unbundling) of ONEE's generation, transmission, and distribution activities; creation of a national power system operator pursuant to Law 48.15.
    - ANRE to examine and approve ONEE's proposal to unbundle transmission-related financial accounts (RM2, February 2025).
  - Distribution reform via creation of Regional Multiservice Companies (SRMs) with exclusive rights to distribute electricity, drinking water and liquid sanitation to optimize investment and operating costs and secure supplies.
    - Law 83.21 on creation of SRMs adopted on July 13, 2023.
    - Implementing decrees for Article 2 (list of regions) and Article 14 (transfer of ONEE assets) adopted by the Government Council on February 1, 2024.
    - Ministry of the Interior (MI) decree on the standard management contract published in the Official Bulletin in May 2024.
    - Four SRMs set up in the first phase: Casablanca-Settat, Marrakech-Safi, Souss-Massa, and Oriental; second-phase SRMs (Tangier-Tétouan-Al Hoceima, Fès-Meknès, Rabat-Salé-Kenitra, Béni Mellal-Khénifra) are underway.
  - Strong private-sector involvement in electricity generation contingent on tariff-setting regulatory progress.
    - ANRE (created in 2021 by Laws 82-21 and 40-19) published:
      - Tariff for utilization of the national electricity transmission network and tariff for system services for the period 2024-2026 (RM3, February 2024).
      - Capacity of the national electricity grid to receive renewable energy for the period 2024–2028 (RM3, February 2024).
    - ANRE will publish tariff(s) for access by renewable energy producers to the medium-voltage distribution network (RM4, February 2025).
- Implementation of electricity-sector legislation and regulatory texts:
  - Government Council approved three draft texts (RM5, September 2024):
    - Decree implementing Article 37 of Law 48-15 (regulation and creation of ANRE); approved on December 25, 2023; sets threshold for contribution of parties who refer disputes to ANRE.
    - Decree applying Article 18 of Law no. 82-21 (electricity self-generation); approved on September 12, 2024; sets out smart meter functionalities enabling remote access to information on power drawn from and injected into the national grid.
    - Decree establishing conditions for granting a "certificate of origin" for electrical energy from renewable sources and the competent authority for issuance; approved on September 12, 2024; implements Article 6(b) of Law 13.09 and Article 16 of Law 82.21.
  - Additional draft decrees have been prepared and are expected to be approved shortly.
  - Effective implementation items:
    - ANRE and ONEE to approve and publish quality indicators for the national transmission system (Article 12 of Law 48.15), updated regularly (RM6, September 2024).
    - Transmission System Operator's code of conduct (Article 13 of Law 48.15) to be established.

### Institutional commitment, transparency, and IMF engagement
- Government commits to continue reform program implementation and to consult the IMF prior to any revision of reform measures in the MEFP, "in accordance with the Fund's policies."
- Government will continue to provide the IMF information on progress in implementing measures and achieving objectives.
- Government authorizes the IMF to publish this letter, its attachments and the evaluation report relating to the RSF arrangement.
- Letter signed by:
  - Nadia Fettah, Minister of Economy and Finance
  - Abdellatif Jouahri, Governor of Bank Al-Maghrib

*Source: Appendix I. Letter of Intent; Attachment I. Memorandum of Economic and Financial Policies.*

### 7.      Morocco's development dynamic, sustained by major reforms completed or underway in all

### 7.      Morocco's development dynamic, sustained by major reforms completed or underway in all

### Energy efficiency and regulatory framework
- Morocco has made energy efficiency a priority with the ambition of improving energy efficiency by 20 percent by the year 2030.
- Legislative and regulatory measures completed or underway:
  - Completion of the legislative framework relating to energy efficiency (Law 47-09) with adoption of ministerial decrees specifying labelling and minimum energy efficiency standards for three energy-intensive products: electric motors, air conditioners and refrigerators.
  - A similar decree has been prepared for lighting products, following the same procedure.
  - The draft decree on energy service companies (ESCOs) was adopted by the Government Council on September 12, 2024, to provide a framework and promote energy performance contracts.
  - A draft amending decree has been prepared to lower the energy consumption threshold associated with the mandatory audit, with the aim of increasing the proportion of entities subject to it (RM7, initially scheduled for February 2025 and brought forward to September 2024).

### Public finances, climate risk integration, and climate budget tagging
- The Ministry of the Economy and Finance (MEF) will regularly publish, starting with the three-year budget programming accompanying the 2025 budget law, and with IMF technical assistance, a debt sustainability analysis that will integrate the impact of climate change (RM8, February 2025).
- Climate budget tagging will be used to better identify, assess, and monitor climate-related public programs and expenditure to optimize resources and determine financing needs to reach climate objectives.
- As part of the Green Budget Transition Program financed by the Agence Française de Développement (AFD) with World Bank support, a first "climate-tagged budget" should be implemented in 2025.

### Carbon tax roadmap and preparatory actions
- The government is committed to developing and progressively adopting a roadmap for the introduction of a carbon tax (RM9, February 2025).
- Roadmap aims and sequencing:
  - Stage 1: Analyze the current situation, including an assessment of the effectiveness of the existing environmental tax measures.
  - Stage 2: Identify prerequisites for adoption of a carbon tax, define its scope (which could concern the 5 sectors covered by the European Carbon Border Adjustment Mechanism or CBAM) and its level.
- Technical support and methodologies: work will use international best practices, simulations and modeling of macroeconomic and microeconomic impacts with technical support from the WB and GIZ.
- Initial essential actions for implementation:
  1. Measurement of the current price of carbon, with assistance from GIZ.
  2. Approval by the government of the draft amendment to Law 12-06 on the standardization, certification, and accreditation of the Institut Marocain de Normalisation (IMANOR) to give it the role of monitoring emissions.
  3. Development of a training plan for customs officers responsible for monitoring and implementing the carbon tax.

### Environmental tax reforms, subsidy phase-out, and mitigation measures
- Examples of existing green tax incentives:
  - Exemption of electric and hybrid motor vehicles from the proportional stamp duty payable at registration and from the special annual vehicle tax (TSAV).
  - Reduced VAT rate (10 percent) for solar panels and solar water heaters.
  - Introduction of a TIC on energy-intensive equipment.
- Fuel subsidy policy:
  - Fuel subsidies were eliminated in 2013, except for the butane gas subsidy, which the government intends to phase out gradually.
  - In February 2024, the MEF amended decree no. 1242-16 to ratify the increase in butane gas prices over three years, starting in May 2024 (RM11, February 2024).
  - Mitigation measures to offset impacts on vulnerable populations and farmers:
    - Extension of cash transfers under the new Unified Social Register, starting from December 2023.
    - Support to farmers to replace butane gas with solar pumps for irrigation of small fields via an agreement between the MEF and the Ministry of Agriculture (RM12, February 2024).
- Given social protection reform underway and economic uncertainties, the measure concerning the increase in VAT on polluting petroleum products (RM10, scheduled for February 2025) was proposed to be replaced to reconcile vulnerability protection and climate objectives.

### 2025 excise tax adjustments (new reform measure RM17)
- MEF proposed measure to be introduced in the 2025 budget law, effective January 1, 2025:
  - Eliminate all existing tax exemptions linked to the domestic consumption tax (TIC) on coal and heavy fuel oil.
  - Adjust TIC on coal and 3 polluting petroleum products in 2025 as follows:
    - For coal: from 6.48 to 12.48 MAD/100kg in 2025;
    - For heavy fuel oil: from 18.24 to 24.24 MAD/100kg in 2025;
    - For bitumen: from 45 to 51 MAD/100kg in 2025;
    - For lubricating oils: from 228 to 234 MAD/100kg in 2025.
- Policy intent: to signal to energy producers and large consumers of polluting products to accelerate transition to clean energy sources, preserving household purchasing power while renewable supply is insufficient to redirect consumption via price effects.

### Trade policy, tariffs, and product classification
- MEF will draw up and approve a list to better distinguish climate-friendly from polluting products in the World Customs Organization (WCO) Harmonized System (HS).
- Climate-sensitive tariff policy changes will be introduced into the budget law based on this list, identifying and classifying products by environmental impact to promote or discourage cross-border movement as aligned with environmental objectives.
- The government will ensure proposed tariff adjustments comply with World Trade Organization (WTO) rules.

### Natural disaster risk coverage reform
- Morocco's two-pronged coverage scheme (established 2020):
  1. Insurance component covering bodily injury and damage to insured properties (real estate, commerce, industry).
  2. Allocation component through the Fonds de solidarité contre les événements catastrophiques (FSEC) guaranteeing uninsured individuals a minimum right to compensation.
- In February 2024, the Government Council approved the draft amendment to decree 2-18-785 of April 29, 2019 for the application of Law 110-14, instituting a system of coverage against catastrophic events (RM13, February 2024).
  - Amendment defined time clauses for catastrophic events by event type in line with international best practice to improve transfer of risks to international reinsurance markets.

### Greening the financial sector and mobilizing private climate finance
- Since 2016 stakeholders (MEF, Bank Al-Maghrib (BAM), AMMC, ACAPS) have worked on greening the financial system and aligning the financial sector with sustainable development challenges.
- BAM actions and standards:
  - Publication in 2021 of the directive on the management of financial risks related to climate change and the environment, drawing on NGFS, Basel Committee principles, and TCFD recommendations.
  - BAM has been a member of NGFS since 2018.
  - BAM carried out the 1er climate risk assessment exercise for the Moroccan banking sector with World Bank support in 2022.
- AMMC actions: guidelines for development of a framework for green and sustainable bond issuance enabling several national green bond issuances.
- International cooperation: MEF joined the International Platform on Sustainable Finance in 2019 and the Coalition of Finance Ministers for Climate Change in 2022.
- New strategy for climate finance up to 2030 (developed with WB support):
  - Assessment findings: climate finance flows predominantly from public sector; private sector contribution only 25 to 30 percent; financing mainly focused on mitigation.
  - Target: increase private sector share to 50 percent of overall climate financing.
  - Estimated potential attractiveness for private sector financing: US$4.5 billion per year between 2025 and 2030.
  - Strategy organized around three intervention pillars and nine strategic axis, with an adapted governance framework involving public and private stakeholders (RM14, September 2024).
- Public guarantee and green screening reforms via TAMWILCOM and Damane Istitmar:
  - New requirements for assessing environmental impact of investment projects benefiting from public guarantees above a certain threshold (RM15, September 2024).
  - As of September 2024, applications for bank loans of more than MAD 20 million in targeted sectors will include a questionnaire to assess environmental footprint; threshold will be gradually lowered to MAD 10 million and sectors broadened to all sectors over time.
  - Coverage for “green projects” and “green business models” increased from 60 percent to 70 percent and cap increased from MAD 30 million to MAD 40 million from the second quarter of 2024.

### Green finance tools, taxonomy, sovereign green bonds, and supervisory guidance
- Ongoing and planned initiatives:
  - Development of a national green financial taxonomy with WB support and coordination between MEF, BAM, AMMC, ACAPS and other stakeholders; a guideline note defining milestones was drawn up and a mission in October 2024 examined European taxonomy rollout for interoperability lessons.
  - Definition of a framework for sovereign green bond issues, with WB support, to facilitate possible issuance on international capital markets in a second stage.
  - BAM to publish, by February 2025, supervisory guidelines on disclosure and reporting by banks regarding climate risks, based on ISSB guidelines, and bank-specific directives on compiling and reporting large borrowers' exposures to main climate risks (RM16).
    - With WB support, benchmarks and minimum requirements were defined, adopting a flexible approach allowing progressive alignment with Basel standards, initially covering TCFD underlying S1 and S2 standards and integrating applicable ISSB elements.
    - A 2022 memorandum between BAM, GPBM and EBRD aims to converge Moroccan banks' climate risk management with the 2021 regulatory directive and international best practices.

### Coordination and oversight
- An Interministerial committee, comprising representatives of all stakeholders, was established by the MEF to coordinate and monitor implementation of the reform measures under the RSF arrangement.

*Source: 1marea2024002-print-pdf - 7.      Morocco's development dynamic, sustained by major reforms completed or underway in all*

### 1.      Adverse climate conditions are resulting in a large contraction of the

### Adverse climate conditions are resulting in a large contraction of the agricultural sector

### Agricultural impacts and labor market
- High temperatures and low precipitation resulted in a 43 percent contraction of cereal production in the 2023-24 campaign.
- Agricultural sector value added declined by 5 percent during the first quarter of 2024.
- The agricultural contraction contributed to the loss of 141,000 jobs in rural areas (second quarter 2024, YOY).

### Government policies and commitments: climate change adaptation
- No updates since last assessment letter.

### Government policies and commitments: climate change mitigation and LT-LEDS
- Morocco has prepared a Long-Term Low Emission Development Strategy (LT-LEDS) presented at COP28 that explores a pathway to reach net zero emissions in 2050.
- Authorities are working on a macroeconomic modelling exercise to understand the economy-wide impacts of implementing the LT-LEDS.
- The LT-LEDS is pending finalization and has not been officially endorsed by the Moroccan government.

### Other challenges and institutional issues
- No updates since last assessment letter.

### World Bank engagement in climate change (selected instruments and support)
- Climate-Support to Nationally Determined Contributions (NDC) PforR (P178763):
  - Supports government to maximize public funding for measures to be included in updated NDCs (to be submitted at COP 30).
  - Helps align NDCs with fiscal and economic priorities in the annual Budget.
  - Prepares for a future emission of sovereign Green/Sustainable bonds.
  - Supports implementation of the “Helsinki Principles” for fiscal planning, budgeting, public investment management and procurement to accelerate the climate transition.
- Rapid Response Option (RRO):
  - Morocco expressed immediate interest during the April 2024 Spring Meetings.
  - The RRO omnibus amendment was signed in May 2024, making Morocco the first country in the MENA region to embed RRO in their portfolio.
  - The World Bank is identifying whether to prepare a Contingent Emergency Response Project (CERP) and/or Development Policy Financing with a Catastrophe Deferred Drawdown Option (DPF Cat -DDO) to allow repurposing of up to 10 percent undisbursed balances in IPF and PforR operations per year for crisis response.
- Green Finance Strategy:
  - World Bank provided extensive technical assistance during preparation.
  - World Bank supports preparation of a green finance taxonomy to be delivered by the end of 2025.

### Economic background and macro indicators (selected figures)
- Growth in 2024 continued, driven by the strong performance of the nonagricultural sector.
- Inflation:
  - Expected to decline to 1.3 percent at the end of the year (versus 6.1 percent in 2023).
  - Headline inflation fell to 0.8 percent in September 2024.
  - Core inflation has remained on average below 2 ½ percent since March.
- Fiscal and external:
  - Fiscal deficit was slightly lower in August compared to the previous year owing to an increase in both tax and nontax revenues.
  - Public debt is pursuing its downward path.
  - Current account deficit remained low, aided by strong aerospace and automotive exports and recovery of phosphates and derivatives exports.
  - Tourism, remittances, and FDI rebounded; international reserves remained stable.

### Water sector actions and targets
- Interlinked water and energy reforms; seawater desalination and reuse of treated wastewater are energy intensive.
- Existing desalination plants: 12.
- Planned new desalination plants: 8.
- Desalination target: produce 1.3 billion cubic meters of fresh water from desalination by 2030.
- Additional measures: reuse of treated wastewater, construction of dams, interconnection projects to secure drinking water supplies.
- 2023 project: water highway from the water-rich north-western basin to a dam supplying Rabat and Casablanca; extension underway towards Al Massira dam (supplying Casablanca and Marrakesh).
- Policy consideration: water demand management, including introduction of prices that reflect the real value of water.
- Study launched end-2023 to identify actual cost of water by component and by source, review current management and governance, and analyze future trends in water pricing.

### Energy sector strategy and targets
- Share of renewable energy sources in national energy mix increased from 38 percent in 2022 to almost 45 percent in October 2024.
- Goal: reach 52 percent of installed capacity in renewable energy by 2030.
- Actions:
  - Expand solar power plants and wind farms.
  - Develop gas infrastructure and increase share of natural gas as an energy transition fuel.
  - 2023–2027 Electricity Infrastructure Plan: conversion of oil-fired gas turbines in the Center West to natural gas by 2027 to reduce coal and fuel oil shares.
  - High voltage transmission: 3,000 MW over 1,600 km to transmit renewables from southern region to center.
  - Engage in green hydrogen production and promote private investment in the sector.
- Energy efficiency:
  - Target to improve energy efficiency by 20 percent by the year 2030.
  - Legislative actions: adoption of ministerial decrees specifying labelling and minimum energy efficiency standards for electric motors, air conditioners, and refrigerators.

### Resilience and Sustainability Facility (RSF): implementation and impact
- RSF has supported reforms in:
  - Water: preservation of resources and determination of fair price.
  - Electricity: overhaul to increase renewables and reduce fossil fuel dependence.
  - Private investment: channeling resources to environment-friendly activities.
  - Disaster coverage: strengthening protections against natural disasters.
- Reform measures (RMs) implemented within planned timeframe during the second review:
  - RM5: Implementing Legislation on the Electricity Market Liberalization.
  - RM6: Improving the Electricity Market Regulatory Framework.
  - RM7: Improving Energy Efficiency.
  - RM14 and RM15: Greening the Financial System.
- Specific measures included adoption of legal texts for operationalization of approved laws; introduction of environmental impact assessment requirements for investment projects benefiting from public guarantees and exceeding a certain threshold; drafting and publication of a climate finance development strategy by 2030 to estimate financing gaps and accelerate private financing mobilization.
- Revision of environmental taxation timing:
  - Authorities proposed replacing the measure to increase VAT on polluting petroleum products (RM10, planned for February 2025) with a new reform measure effective January 1, 2025.
  - New measure will eliminate all existing tax exemptions linked to the domestic consumption tax (TIC) on coal and heavy fuel oil.
  - The new measure will also adjust this tax on coal and on 3 polluting petroleum products (bitumen, heavy fuel oil, and lubricating oils).
  - Staff estimate the positive impact of the new measure to be higher than that of RM10 as it will lead to a reduction of GHG emissions in 2030.
  - The measure is consistent with Morocco’s decarbonization strategy and aims to encourage energy producers and large consumers of polluting products to accelerate transition to sustainable energy, particularly after adoption of the Law on self-generation of electricity.
  - The approach aims to preserve household purchasing power where renewable supply does not yet allow redirection of consumption toward clean energy through price effects.

### Conclusion and authorities’ stance
- Moroccan authorities view the RSF as a catalyst to advance climate and environmental strategy and a framework to accelerate reforms.
- Authorities commit to pursuing the reform program in sustainable development and to working closely with the Fund to achieve RSF goals.

*Source: IMF staff report content provided in the supplied PDF chapter/section.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1marea2024002-print-pdf.pdf_