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### Executive summary — context and main messages
- Real GDP growth slowed to 3.2 percent in 2024 after accelerating in 2023; average growth in the first three quarters of 2024 was 3.1 percent.
- Fifth drought in six years reduced cereal production to 31 million quintals (long-term average: 70 million).
- Domestic demand remained robust through Q3 2024: consumption supported by lower inflation and fiscal support; investment benefited from start of an infrastructure cycle.
- Labor market: unemployment 13.3 percent in Q4 2024 (up from 13.0 percent a year earlier; pre-COVID average 9 percent); job losses concentrated in agriculture.
- External: current account deficit increased to 1.1 percent of estimated GDP for 2024 (from 0.5 percent in 2023) for the first three quarters of 2024; international reserves USD 37.2 billion in December 2024 (120 percent of the estimated adjusted ARA metric for 2024).
- Fiscal: 2024 fiscal deficit 4.1 percent of GDP, 0.2 percent of GDP below target; tax revenues 2.2 percent of GDP higher than in the Budget due to tax reforms.
- Structural agenda: ongoing reforms, new strategy to boost employment; priorities include water and renewable energy investment, regulatory improvements, and tariff reforms to mitigate water scarcity and encourage renewable energy investment.

### Recent economic developments — selected findings and exact figures
- Real sector:
  - Real GDP: 3.2 percent in 2024; 3.1 percent average in first three quarters of 2024; 3.4 percent in 2023.
  - Cereal production 2024: 31 million quintals (long-term average: 70 million).
- Labor market:
  - Unemployment: 13.3 percent in Q4 2024; 13.0 percent a year earlier; pre-COVID average 9 percent.
- Inflation and monetary policy:
  - Headline inflation: 0.7 percent (y/y) in December 2024.
  - Core inflation: below 2½ percent on average since March 2024.
  - BAM policy rate: lowered by 25 bps twice (June and December) to 2½ percent.
  - Two-year-ahead inflation expectations: 2.3 percent in Q4:2024.
- External sector:
  - Current account deficit: 1.1 percent of estimated GDP for 2024 (first three quarters).
  - International reserves: USD 37.2 billion in December 2024.
  - Real effective exchange rate: appreciated about 2.6 percent above end-2023 levels.
- Fiscal outcomes and public finances:
  - Tax revenues: 2.2 percent of GDP higher than in the Budget.
  - Higher current spending: 0.6 percent of GDP (mainly gas butane subsidies and wages).
  - Greater capital spending: 1.2 percent of GDP (water, health, education).
  - 2024 fiscal deficit: 4.1 percent of GDP (0.2 percent of GDP below target).
  - 2025 Budget reforms: raises PIT exemption threshold; lowers marginal PIT top rate from 38 percent to 37 percent; exempts basic pensions (50 percent in 2025 and fully in 2026).
- Financial sector:
  - Banks’ ROE: 12 percent in September 2024 (from 9.8 percent a year earlier).
  - NPLs increased by 2.5 percent y/y in December 2024.
    - Households’ NPL ratio: 10.8 percent in December 2024.
    - NPL ratio for nonfinancial private firms: 12.5 percent in December 2024.
  - About MAD 60 billion of loans in 2020 under state-guaranteed programs; as of November 2024 about 14 percent showed repayment difficulties (6 percent unpaid debt and 8 percent overdue), adding about MAD 4.7 billion to NPLs (about 1 percentage point of the NPL ratio for nonfinancial private firms).

### Outlook and central projections (exact values)
- Growth:
  - Real GDP: 3.2 percent in 2024; projected to accelerate to 3.9 percent in 2025.
  - Medium term: staff’s estimated potential pace of 3½ percent (assuming normalization of agricultural production).
- Inflation:
  - Headline CPI inflation projected at 2.1 percent (y/y) by end-2025 as volatile food prices normalize and gas butane subsidy removal continues.
- External balances:
  - Current account deficit expected to return to estimated norm of 3 percent of GDP over the medium term.
  - Newly announced greenfield FDI projects concentrated about 73 percent in industrial, electronic, and electronic machinery sectors.
- Investment:
  - Investment expected to become a major contributor to growth; high import content of investment to deteriorate trade balance.
- Risks (selected):
  - Climate-related shocks (droughts) = major downside risk.
  - Implementation risks around Investment Charter projects and PPPs; need to monitor fiscal risks from new PPPs.

### Fiscal policy — 2025 Budget, debt trajectory, and staff recommendations
- Fiscal path and drivers:
  - Fiscal deficit projected to decrease from 4.1 percent in 2024 to 3.3 percent in 2027 (in line with MTFF / PBT).
  - Expected spending reductions: lower gas butane subsidies (about 1 percent of GDP) and lower capital spending (about 2.25 percent of GDP).
  - Offsetting increases: transfers about 1 percent of GDP; non-tax revenues decline about 1.7 percent of GDP.
- Debt projections and assessment:
  - Central government debt: closed 2024 at 70 percent of GDP (slightly lower than 70.3 percent envisaged in last Budget).
  - Baseline: debt to about 67 percent in 2027 and about 65 percent by 2030.
  - Staff view: pace and prudent debt management ensure sustainability with high probability; sovereign stress risk moderate.
- Staff recommendations to accelerate consolidation (three channels with exact estimates where provided):
  1. Saving part of tax revenue windfall:
     - Tax reform could generate greater-than-expected revenues of about 3 percent of GDP by 2026 (compared to 2024 Budget).
     - Despite windfall, higher spending (public wages 1 percent of GDP; subsidies ½ percent of GDP; transfers 1 percent of GDP; lower non-tax revenues around ½ percent of GDP) offset gains.
  2. Implement structural revenue-increasing measures:
     - Compress tax expenditure by about 2 percent of GDP (including about ½ percent from raising VAT on fossil fuels).
     - Implement an economy-wide carbon tax.
     - Enhance tax collection via digitalization and risk-based compliance.
     - Reduce informality and accelerate privatization program.
  3. Structural spending rationalization:
     - Accelerate phasing out gas butane subsidies.
     - Rationalize social programs via Unified Social Registry (RSU).
     - Strengthen public finance management and reduce Special Treasury Accounts.
     - Implement broad civil service reform emphasizing productivity.

- PIT reform effects (exact figures from Box 1):
  - Reform increases taxpayers exempt from PIT from 70 to 80 percent.
  - Reform reduces effective PIT revenue by 0.3 percent of GDP in 2025.
  - PIT revenue during 2018–2023 averaged 3.7 percent of GDP.
  - Reform increases tax credits for dependents from 360 to 500 MAD.
  - Estimated decrease in PIT revenue: 5.2 billion MAD (0.3 percent of GDP), about 10 percent of PIT revenue.
  - Staff analysis: post-tax income Gini falls by less than 1 percent.

- Transfers to SOEs:
  - Transfers increased from 1.1 percent of GDP in 2020 to 3.4 percent in 2024.
  - Ongoing reforms: Organic Budget Law amendment and SOE restructuring/privatization.

- PPPs and fiscal transparency:
  - Recommendation: reinforce institutional capacity to evaluate, monitor, and transparently report budget implications and fiscal risks of PPPs; include PPPs in PBT.

### RSF review — implementation status and key measures (exact RM statuses and figures)
- Of seven measures scheduled for the third and final review, six were met; the unmet measure was RM9 (carbon tax design).
- Completion of six implemented measures supports:
  - Addressing water scarcity (RM1 implemented).
  - Electricity sector reform and RE production (RM2, RM3, RM4 implemented).
  - Integrating climate risks into the Budget (RM8 implemented).
  - Greening the financial system (RM16 implemented).
- RM9 (carbon tax design): not met — authorities postponed final design to conduct more analysis and consultations.
- RM17 (replacement of RM10) implemented: 2025 Budget Law eliminated exemptions and increased excise duties on coal and three polluting petroleum products effective January 1, 2025; authorities estimate fiscal impact for 2025 at around MAD 1.4 billion (US$ 140 million).
- RSF disbursement implication:
  - Completion of six reform measures implies disbursement of SDR 375 million under RSF arrangement.
  - Detailed disbursement schedule items include multiple SDR 62.5 million tranches; total access for third review at Program Inception reported as SDR 437.5 million (interpretation in source text on RM10/RM17 replacement and disbursement sequencing).

### Carbon pricing, CGE results, and decarbonization impacts (exact estimates)
- CGE model simulations (RSF contribution to decarbonization and macro effects):
  - Removal of gas butane subsidies (RM11) and increased excise taxes on coal and heavy fuel oil (RM17) would:
    - Increase renewable-based energy share by 6.1 pps.
    - Reduce Morocco’s emissions by about 16 percent compared to baseline by 2030.
    - Increase GDP to about 0.8 percent above baseline in 2030.
  - Carbon tax needed in isolation to meet Morocco’s conditional NDC objective: $82/tCO2 (small negative impact of 0.05 percent on GDP).
  - With other RSF RMs, required tax rate reduced to $36/tCO2.
  - Combined measures could increase GDP by about 0.5 percent above baseline.
  - EU ETS scenario: in joint Morocco-EU ETS with joint carbon price about $180/tCO2, Morocco could receive ETS payments of around $8 billion and increase GDP by more than 3 percent relative to baseline by 2030.

### Monetary policy, exchange rate, and financial sector reform
- Monetary stance and recommendations:
  - Current stance appropriate; real ex-ante policy rate estimated 0.2 percent (below staff’s natural rate range of between 0.5 and 1 percent).
  - With output gap near zero and inflation around 2 percent over next two years, broadly neutral stance appropriate; future changes should be data dependent.
  - Recommendation: continue transition to an inflation targeting (IT) regime by removing the peg and allowing greater exchange rate flexibility to strengthen policy transmission and private sector development.
- Financial regulation and supervision:
  - BAM completed SREP deployment; new NSFR and ILAAP regulatory texts adopted December 2024.
  - IMF technical assistance underway to finalize ILAAP review guide and train supervisors; implementation expected by early 2026.
  - NPL market: draft law to introduce NPL secondary market should be fast-tracked; complementary measures include out-of-court collection improvements, faster judicial recovery, and digitized market.
  - BAM plan to broaden NPL definition via draft revision of circular 19/G to include “sensitive claims” and align restructured claims with international standards; phased implementation recommended with impact assessment before timeline decision.
  - Concentration risk: lending to largest borrowers about 3 times Tier 1 regulatory capital as of June 2024; BAM defines “large” exposure at 5 percent of Tier 1 capital (vs Basel 10 percent); interim measures include stress tests and, when SREP fully deployed, consider Pillar 2 capital surcharge.

### Electricity market reform — progress and remaining needs (exact figures)
- Renewable energy share: 45.3 percent of total installed capacity in 2024 (objective 52 percent to be reached before 2030).
- Measures enacted/underway:
  - SRMs introduced; ONEE financial account unbundling under RSF; transfers of RE production assets from ONEE to MASEN expected completed in 2025.
  - ANRE published distribution tariffs for private RE producers; transport and system service tariffs increased enacted for 2025: 4.5 percent; transport and distribution tariffs valid until February 2027.
- Remaining needs:
  - Approve implementation decrees that liberalize electricity market.
  - Invest in transport, interconnections, and storage to increase grid reliability and flexibility.

### Water policy and PNAEPI — priorities and tariff implications (exact figures)
- PNAEPI 2020–2027 estimated cost: $14 billion USD.
- PNAEPI priorities: dams, major water transfers, desalination leveraging renewable energy, efficiency in industrial and tourism sectors, water distribution improvements, localized irrigation systems.
- Strategic study on cost of water (RM1) submitted February 2025; average dams filling-rate at 30 percent; study found large regional cost differences and need to revisit agricultural water tariffs and introduce “contract de nappe” with quota-based groundwater fees.

### External sector assessment — balances, NIIP, reserves (exact values)
- 2024 external position: moderately stronger than level implied by fundamentals per IMF EBA model.
- NIIP: -52.7 percent of GDP (2024).
- Reserve Assets: 24.4 percent of GDP (international reserves US$ 37.2 billion as of December 27, 2024).
- Gross External Debt: 46.1 percent of GDP (2024).
- Current account:
  - CA 2024: -1.5 percent of GDP (estimated; source gives alternate 1.1 percent in earlier section for first three quarters).
  - CA expected to converge to about 3 percent of GDP over medium term.
- REER assessment:
  - December 2024 REER 2.6 percent higher than December 2023.
  - Applying elasticity 0.37 and CA gap 2 percent of GDP, REER assessed undervalued in 2024 by 5.4 percent (range 4.1 to 6.8 percent).

### Risk matrix — selected high-likelihood/high-impact items and policy responses
- Domestic high-likelihood/high-impact:
  - Severe drought reducing agricultural production: Relative Likelihood: High; Expected Impact: High.
    - Policy: accelerate climate adaptation reforms, infrastructure to increase water supply, new water tariff framework; targeted short-term fiscal support to vulnerable.
- External high-likelihood:
  - Deepening geo-economic fragmentation and trade policy shocks: Relative Likelihood: High; Expected Impact: Medium.
    - Policy: maintain involvement in key GVCs, accelerate structural reforms to support competitiveness.
- Other risks and recommended policy responses included in staff assessment (monetary, fiscal, and structural measures as previously summarized).

### Social protection, pensions, and governance highlights (exact figures)
- AMO health insurance reform extended coverage to about 3½ million previously excluded; about one quarter of Moroccans do not have access to AMO two years after launch.
- Pension funds: three largest civilian public pension funds projected to deplete reserves between 2030 and 2051; unfunded liabilities estimated at 131.6 percent of GDP.
- Staff recommendations: consider consolidating pension funds into two schemes; assess feasibility of basic noncontributory pension for elderly below RSU threshold.

### Staff appraisal — consolidated policy recommendations (bulleted)
- Fiscal:
  - Save at least part of tax windfall from past reforms (estimated about 3 percent of GDP by 2026).
  - Strengthen MTFF and fiscal framework: quantify costs of new policy measures, PPP fiscal risks, and transparently report Investment Charter project implementation.
  - Accelerate phasing out of gas butane subsidies and rationalize transfers to SOEs.
- Monetary and FX:
  - Maintain data-dependent, broadly neutral policy stance; proceed with transition to IT and greater exchange rate flexibility while deepening hedging markets and legal frameworks for close-out netting.
- Financial sector:
  - Finalize SREP deployment; broaden NPL definition with phased implementation; fast-track NPL secondary market law; strengthen concentration risk oversight.
- Structural and labor market:
  - Redirect ALMPs to regional needs and low-education youth; promote private sector and SME growth via Investment Charter incentives, CRIs, M6 Fund operationalization, and supplier ecosystem development.
- Climate and energy:
  - Continue RSF measures implementation; advance water tariff reform; continue electricity market liberalization and grid investment; pursue carbon tax design with further analysis and stakeholder consultations.

*International Monetary Fund staff summary of Morocco policy discussions and 2025 Budget assessment (excerpts).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context and Main Messages
- After accelerating in 2023, GDP growth slowed to 3.2 percent in 2024, as another drought curtailed agricultural production.
- Domestic demand remained robust in the first three quarters of 2024, with consumption boosted by lower inflation and fiscal support, and investment benefiting from the start of an infrastructure building cycle.
- Labor market conditions remained weak, due to significant job losses in the agricultural sector and low labor force participation.
- Positive trends in tourism, remittances, and manufacturing exports muted the effect of stronger demand on the current account deficit.
- The gradual fiscal consolidation continued as expected; the 2025 Budget reiterated the authorities’ commitment to reduce the government debt ratio over the medium term.
- Authorities continued with their structural reform agenda and announced a new strategy to boost employment.
- Changing climate conditions are a serious risk to the economic outlook but present opportunities in the water and renewable energy sectors; priorities include improving infrastructure, the regulatory framework, and changing tariff systems to mitigate water scarcity and encourage renewable energy investment.

### Article IV Consultation — Fiscal and Structural Focus
- Discussions focused on the pace and quality of fiscal consolidation.
- Despite higher spending for sustaining disposable income and financing structural reforms, the fiscal deficit was lower than expected for the second consecutive year, thanks to tax reforms that widened the tax base.
- Recommendation: save at least part of the revenue windfall to quickly rebuild fiscal buffers used during the pandemic.
- Recommendation: the medium-term fiscal framework should include more details on the cost of new policy measures, including faster-than-projected implementation of investment projects under the new Investment Charter and fiscal risks from new PPPs.
- Higher unemployment linked to job displacement in agriculture calls for a new strategy to sustainably boost jobs, including:
  - Reforms to promote the private sector and facilitate SME growth.
  - More targeted financial and technical assistance to SMEs, including via the Investment Charter, reform of Regional Investment Centers, and operationalization of the Mohammed VI Fund.

### Resilience and Sustainability Facility (RSF) Review
- Of the seven measures scheduled for the third and final review, six were met.
- The met measures supported efforts to:
  - address water scarcity,
  - reform the electricity sector and boost renewable energy production,
  - better integrate climate risks into the Budget,
  - further green the financial system.
- The unmet measure was RM9: producing and start enacting a design document to introduce a carbon tax.
  - Authorities postponed RM9 to undertake a more accurate analysis of the design and potential impact of a carbon tax and to conduct further consultations with stakeholders.

### Recent Economic Developments (selected findings)
- Real GDP:
  - Economic activity grew at an average of 3.1 percent in the first three quarters of 2024 (after accelerating by 3.4 percent in 2023).
  - The fifth drought in six years reduced cereal production to 31 million quintals (long-term average: 70 million).
- Labor market:
  - Unemployment at 13.3 percent in Q4 2024, up from 13.0 percent a year ago, and above the pre-COVID average of 9 percent.
  - Job losses concentrated in the agricultural sector.
- Inflation and monetary policy:
  - Headline inflation fell to 0.7 percent (y/y) in December 2024.
  - Core inflation remained below 2½ percent on average since March 2024.
  - Bank Al-Maghrib (BAM) lowered the policy rate by 25 bps twice (June and December), bringing it to 2½ percent.
  - Two-year-ahead inflation expectations were 2.3 percent in Q4:2024.
- External sector:
  - Current account deficit increased to 1.1 percent of the estimated GDP for 2024 (from 0.5 percent in 2023) for the first three quarters of 2024.
  - Net FDI flows rose from last year’s low levels.
  - International reserves reached USD 37.2 billion in December 2024 (120 percent of the estimated adjusted ARA metric for 2024).
  - The exchange rate appreciated in 2024, about 2.6 percent above end-2023 levels in real effective terms.
- Fiscal outcomes:
  - Tax revenues were 2.2 percent of GDP higher than in the Budget due to tax reforms.
  - Higher current spending (0.6 percent of GDP—mainly gas butane subsidies and wages) and greater capital spending (1.2 percent of GDP—investment in water, health, education) largely offset revenue gains.
  - 2024 fiscal deficit was 4.1 percent of GDP, 0.2 percent of GDP below the target.
  - The 2025 Budget confirmed gradual deficit reduction over 2025–2027 and introduced a personal income tax reform that raises the exemption threshold, lowers the marginal tax rate on the highest bracket (from 38 percent to 37 percent), revises tax brackets to reduce the effective tax rate, and exempts basic pensions (50 percent in 2025 and fully in 2026).
- Financial sector:
  - Credit to nonfinancial private companies slowed in 2024; loans for machinery and equipment accelerated.
  - Household loans picked up somewhat in H2 2024.
  - Banks’ ROE improved to 12 percent in September 2024 (from 9.8 percent a year earlier).
  - Deposits: current and savings account deposits are about 80 percent of all deposits.
  - NPLs increased by 2.5 percent y/y in December 2024, mainly driven by the household sector.
    - Households’ NPL ratio: 10.8 percent in December 2024 (around 10 percent in early 2023).
    - NPL ratio for nonfinancial private firms: 12.5 percent in December 2024 (around 12 percent in early 2023).
  - About 60 billion dirhams of loans were extended in 2020 under state-guaranteed credit programs; as of November 2024, about 14 percent showed repayment difficulties (6 percent had unpaid debt and 8 percent were overdue), adding about 4.7 billion dirhams to NPLs (about 1 percentage point of the NPL ratio for nonfinancial private firms).
- Structural reforms and investment:
  - Investment Charter:
    - National Investment Commission approved public support for 191 private investment projects (70 percent Moroccan firms) with projected total value MAD 323 billion.
    - Legislation on Regional Investment Centers (CRIs) amended to allow direct approval of financial support for projects between MAD 50 and 250 million.
  - Mohammed VI Investment Fund (MVI Fund):
    - Finalized setup of 14 thematic investment funds covering industry, agriculture, tourism, transport.
    - Funds will provide equity totaling MAD 18.5 billion (US$ 1.9 billion or 1¼ of GDP) over the next 5 to 10 years; MAD 14 billion provided by private investors and the rest by the MVI Fund.
  - SOE reform:
    - June 2024 Council of Ministers approved strategic directions; ANGSPE prepared a state shareholding policy and action plan; plan approved by interministerial committee and government council.

### Outlook and Risks
- Growth projections:
  - Real GDP: 3.2 percent in 2024; projected to accelerate to 3.9 percent in 2025.
  - Medium term: assuming normalization of agricultural production, GDP projected to grow at staff’s estimated potential pace of 3½ percent.
- Inflation and subsidies:
  - Headline CPI inflation projected at 2.1 percent (y/y) by end-2025 as volatile food prices normalize and gradual removal of gas butane subsidies continues.
- Investment and external balances:
  - Investment expected to become a major contributor to growth, reflecting infrastructure plans in water, energy, and transport (mainly based on PPPs) and increased private and SOE investments amid reforms, Investment Charter implementation, and full operationalization of the Mohammed VI Fund.
  - Given high import content of investment, the trade balance is expected to deteriorate and the current account deficit to return to the estimated norm of 3 percent of GDP over the medium term.
  - Wider deficit to be financed in part by higher FDIs; newly announced greenfield FDI projects concentrated about 73 percent in industrial, electronic, and electronic machinery sectors.
- Risks:
  - Climate-related shocks (droughts) remain a major downside risk.
  - Implementation risks around the timing and scale of Investment Charter projects and PPPs.
  - Need to monitor fiscal risks from new PPPs and costs of new policy measures.

*IMF mission conducted January 27–February 7, 2025; Executive Summary dated February 28, 2025.*

### 8.      Risks to the growth outlook are broadly balanced (Annex II). Domestically, further

### 8.      Risks to the growth outlook are broadly balanced (Annex II)

### Macro risks and outlook
- Domestic downside risks:
  - Further episodes of drought and reduced agricultural production could significantly depress economic activity despite authorities’ efforts to increase water availability for irrigation.
- Domestic upside risks:
  - A faster-than-expected acceleration of private investment could push growth above potential over the short term, with attendant risks to the current account deficit, inflationary pressures, and government spending.
- External risks and opportunities:
  - Increased geopolitical tensions and a compression of global trade (escalation of tariffs and other trade barriers) could reduce external demand, increase commodity price volatility, and weigh on Morocco’s exports.
  - Over the medium to longer term, Morocco’s geographical location as a bridge between Europe and Sub-Saharan Africa could allow the country to benefit from diversion of trade flows and reshuffling of global supply chains, especially if structural reforms continue to improve capacity to attract FDI and enhance competitiveness.

### Authorities’ views on growth and inflation
- Growth forecasts by authorities:
  - 4.6 percent this year.
  - About 4.1 percent in the outer years (medium term).
  - Expected drivers: significant increase in domestic demand—consumption boosted by social transfers and continued strong remittances; investment from major projects in water, transport, and health sectors.
  - Expected raise in potential growth to about 4 percent over the forecast horizon.
- Event-driven expectations:
  - Hosting the African Soccer Cup in 2025 and the World Soccer Cup in 2030 expected to boost construction and tourism, job creation, and reduce unemployment.
- Agricultural outlook:
  - Authorities consider agricultural output for 2025 not yet compromised due to exceptional rainfall in the southeastern regions during early Q4:2024 and regular rainfall since January.
- Inflation expectations:
  - Low inflation in 2024 seen as temporary, driven by volatile food items.
  - Authorities expect inflation to normalize to about 2 percent in 2025–2026.

### Policy discussions — overarching messages
- Fiscal consolidation:
  - Current gradual pace reduces debt-to-GDP over the medium term; accelerating consolidation would strengthen fiscal buffers and help return to pre-COVID debt ratio.
  - Options to accelerate consolidation include partially saving revenue windfalls from recent tax reforms and adopting structural measures to increase tax revenues and rationalize spending.
- Monetary policy stance:
  - Current neutral stance is appropriate and should be maintained; future changes should be data dependent.
- Labor market:
  - Sharp deterioration in labor market conditions calls for a comprehensive strategy to boost job creation, prioritizing private sector development and growth of small and medium-sized firms.

### A. Fiscal policy — 2025 Budget and projections
- Fiscal balance and drivers:
  - Fiscal deficit projected to decrease from 4.1 percent in 2024 to 3.3 percent in 2027 (in line with the previous year’s MTFF / Programmation Budgétaire Triennale, PBT).
  - Improvement reflects:
    - Reduction in spending driven by lower subsidies on gas butane (about 1 percent of GDP).
    - Lower capital spending (about 2.25 percent of GDP) aligned with New Model of Development objective to reduce public sector share of national investment from two-thirds to one-third.
  - These cuts more than compensate for increases in:
    - Transfers (about 1 percent of GDP), primarily higher transfers of tax revenues to municipalities and current transfers to SOEs and other public agencies.
    - Significant decline in non-tax revenues (about 1.7 percent of GDP) due to lower SOE dividends and reduced revenues from sales of central government real estate assets (financements innovants).
- Debt trajectory:
  - Central government debt expected to have closed 2024 at 70 percent of GDP (slightly lower than the 70.3 percent envisaged in the last Budget).
  - Baseline projects debt to decline to about 67 percent in 2027 and to about 65 percent by 2030, in line with the 2025 PBT.
  - Staff view: this pace and continued prudent debt management would ensure central government debt remains sustainable with high probability and the risk of sovereign stress remains moderate.
- Staff recommendation to accelerate consolidation via three channels:
  1. Saving at least part of any tax revenue windfall:
     - Successful tax reform could generate greater-than-expected revenues of about 3 percent of GDP by 2026 (compared to the 2024 Budget).
     - Despite the windfall, the fiscal deficit trajectory unchanged because of higher spending: public wages (1 percent of GDP), subsidies (½ percent of GDP, due to higher gas butane prices), transfers (1 percent of GDP), and lower nontax revenues (around ½ percent of GDP).
     - Staff encouraged saving at least part of further revenue windfall from past reforms.
  2. Implementing structural revenue-increasing measures:
     - Further compression of tax expenditure (about 2 percent of GDP, including about ½ percent from raising VAT on fossil fuels).
     - An economy-wide carbon tax.
     - Enhanced tax collection via continued digitalization of revenue administration and adopting a risk-based compliance approach.
     - Efforts to reduce informality to expand the tax base and increase revenues.
     - Accelerating the privatization program to provide below-the-line financing for faster debt reduction.
  3. Structural measures to rationalize spending:
     - Accelerating phasing out of subsidies on gas butane.
     - Further rationalizing social programs via broader application of the Unified Social Registry (RSU).
     - Strengthening public finance management (including continued reduction of Special Treasury Accounts).
     - Implementing a broad-based civil service reform emphasizing productivity over seniority.
- Transfers to SOEs:
  - Transfers to SOEs increased from 1.1 percent of GDP in 2020 to 3.4 percent in 2024.
  - Much of the increase reflects transfers to commercial SOEs (ONEE, ONCF, RAM); current transfers represent about half of total transfers.
  - Two ongoing reforms to reduce SOE budgetary weight:
    - Reform of the Organic Budget Law to bring some noncommercial SOEs within Budget Law perimeter, introduce binding expenditure ceilings, and increase parliamentary oversight.
    - SOE reform to restructure poorly profitable SOEs and accelerate privatization of nonstrategic entities.
- PPPs and fiscal transparency:
  - Amendment of the PPP law (2020) introduces a National Commission to approve a PPP project pipeline consistent with national PPP strategy.
  - Staff recommendation: reinforce institutional capacity to evaluate, monitor, and transparently report budget implications and fiscal risks of PPPs (add to PBT list of Commission-approved projects; update stock of existing PPPs; estimate costs and fiscal risks; include PPPs in PBT).
- PIT reform effects (Box 1 summary):
  - Reform increases share of taxpayers exempt from PIT from 70 to 80 percent and reduces effective tax rate for remaining taxpayers.
  - Higher exemptions and larger brackets imply lower revenue by 0.3 percent of GDP in 2025.
  - PIT revenue during 2018–2023 averaged 3.7 percent of GDP.
  - Reform increases tax credits for dependents from 360 to 500 MAD.
  - Estimated decrease in PIT revenue of 5.2 billion MAD (0.3 percent of GDP), about 10 percent of PIT revenue.
  - Staff analysis: reform yields very modest reduction in income inequality (post-tax income Gini falls by less than 1 percent); largest tax burden reduction among middle to upper brackets (between 80,000 and 100,000 MAD per year, and above).
  - Staff recommended a thorough assessment of recent reforms’ effects (subsidy reductions, healthcare insurance generalization, conditional cash transfers Aide Sociale Directe, PIT changes) on progressivity and formalization incentives.
- Fiscal framework improvements:
  - Authorities improved PBT by adding assessment of fiscal risks from climate change.
  - Further improvements needed: add cost of new policy measures; more comprehensive quantitative assessment of fiscal costs/risks from PPPs, credit guarantees, and unfunded pension liabilities; transparent reporting of budgetary impact of the new Investment Charter.
  - Ongoing reform of Organic Budget Law should make PBT integral to Budget process (add as Annex) and introduce a fiscal rule based on medium-term debt anchor.
  - Staff caution: fiscal rule parameters (debt target level, buffer size, horizon, escape clauses, monitoring/compliance) should not be included in the annual Budget as this could weaken credibility.

### Authorities’ views on fiscal trade-offs
- Authorities broadly agreed with staff but stressed:
  - Spending windfalls were used to buffer shocks on the population (inflation spike, weaker labor market due to droughts).
  - Conclusion of “Dialogue Social” in 2024 reduces future spending needs.
  - Higher spending also reflects acceleration in structural projects: education and health reforms; water, energy, and transportation infrastructure.
  - Commitment to measures to increase revenues, rationalize current expenditures, and improve investment efficiency.
  - Reforms of public administration remuneration: link salaries to job and skills benchmarks; merit-based advancements/promotions; limit creation of budgetary positions to effective needs; encourage mobility and redeployment.
  - SOE reform expected to increase efficiency through rationalization of transfers and improved contribution to State budget.
  - Use of potential additional revenues will reflect trade-off between fiscal consolidation and supporting growth in medium and long term.

### B. Monetary policy
- Recent policy actions:
  - BAM cut rates in June and December 2024.
- Policy stance and recommendations:
  - Careful pace of policy rate cuts has been appropriate; future changes should remain data dependent.
  - Real ex-ante policy rate is 0.2 percent, modestly below staff’s range of estimates for the natural rate (between 0.5 and 1 percent); significant uncertainty exists around natural rate estimates.
  - With estimated output gap projected close to zero and inflation expected to remain around 2 percent over the next two years, a broadly neutral monetary policy stance remains appropriate.
  - As inflation stabilizes at low levels, BAM should continue transition to an inflation targeting (IT) regime to:
    - Cushion the economy from real external shocks while keeping exchange rate aligned with fundamentals.
    - Strengthen monetary policy transmission.
    - Contribute to Morocco’s private sector development.
  - Progress made by BAM: improved functioning and liquidity of FX markets, refined macro-forecasting tools, adapted communication strategies.
  - Staff assessment: REER currently undervalued, consistent with Morocco’s external position in 2024 being moderately stronger than medium-term fundamentals and desirable policies (Annex I).
  - Authorities’ view on IT transition:
    - Agreed transition should be data-dependent.
    - Noted removal of the peg could increase exchange rate volatility; SMEs and other agents need preparedness and hedging strategies.
    - Emphasized need to deepen FX and interest rate hedging markets, adopt draft law enabling close-out netting to mitigate credit exposure, and set appropriate tax framework for hedging instruments.

*Source: IMF staff summary of Morocco policy discussions and 2025 Budget assessment (excerpts).*

### 21.      Staff welcomed BAM’s progress in aligning its regulatory and supervisory framework

### 21.      Staff welcomed BAM’s progress in aligning its regulatory and supervisory framework

### Progress on regulatory and supervisory framework
- In 2024, BAM completed the deployment of the Supervisory Review and Evaluation Process (SREP) and presented the results of the first SREP exercise to a broader panel of evaluated banks.
- The new process is expected to come into effect by 2027.
- As part of the completion of the Basel III alignment, BAM adopted regulatory texts in December 2024 concerning the Net Stable Funding Ratio (NSFR) and the Liquidity Adequacy Assessment Process (ILAAP) to ensure that banks maintain adequate and high-quality liquidity buffers, even during prolonged periods of stress.
- A technical note on the operational aspects is being prepared and will be communicated to the banks.
- An IMF technical assistance mission is currently underway to assist BAM in finalizing the ILAAP report review guide and training supervisors accordingly, with implementation expected to start by   early 2026.

### Non-performing loans (NPLs) and secondary market
- A successful introduction of a secondary market for NPLs could materially improve banks’ asset quality and free up liquidity.
- The draft law to introduce this market should be fast-tracked for approval; it is only the first step towards an effective NPL market.
- Initiatives to reinforce the effectiveness of the NPL market include:
  - Facilitating pre-judicial asset recovery by enhancing out-of-court collection procedures.
  - Speeding up judicial recovery by accelerating processing of legal cases.
  - Developing a digitized market to promote transparency and fluidity in transactions.
- These measures would guarantee a stable legal framework for investors and increase efficiency, making the NPL market more attractive.
- BAM has stepped up efforts to curb further increases in NPLs:
  - BAM’s plan to broaden the definition of NPLs through the draft revision of circular 19/G expands the definition to include a new classification called sensitive claims.
  - The revision aligns the definition of restructured claims with international standards and introduces more stringent provisioning rules for them.
  - A phased implementation of these changes, in line with development of the NPL secondary market, would ensure a smooth transition.
  - BAM plans to conduct an impact assessment study before deciding on a timeline for implementation.

### Concentration risk and interim measures
- As of June 2024, lending to the largest borrowers was about 3 times Tier 1 regulatory capital, indicating a relatively high level of concentration.
- BAM defines as “large” the exposure of a bank to a single counterparty or to a group of connected counterparties that is equal to or above 5 percent of its Tier 1 capital. This is more conservative than the Basel framework (10 percent).
- Interim measures recommended until full adoption of SREP:
  - Conduct stress tests based on concentration risk scenarios to identify vulnerabilities and formulate risk management strategies.
  - With full deployment of SREP, consider a Pillar 2 capital surcharge for banks not sufficiently hedging against concentration risk.
  - Encourage greater use of syndicated loans to help diversify banks’ asset portfolios (a regulatory text is currently under preparation).

### Financial Sector Assessment (FSAP)
- Staff welcomed the authorities’ request for a Financial Sector Assessment (FSAP) to update the 2015 financial sector recommendations.
- The assessment should provide a comprehensive analysis of Morocco’s financial system, highlight strengths and potential vulnerabilities, and offer policy recommendations to strengthen financial stability.
- The FSAP is expected to coincide with the upcoming Article IV mission in the first quarter of 2026.

### Authorities’ views on banking sector resilience and reforms
- Authorities stressed that the banking sector remains resilient.
- On NPLs:
  - They believe implementation of the revised circular 19/G will help better identify risks and maximize chances of loan recovery.
  - BAM is assessing the impact of its implementation on banks; the assessment will inform the timing of introduction.
  - Good progress has been made in developing a new secondary market for NPLs, with remaining issues on the tax treatment of provisioning and modalities for writing off overdue receivables. The draft law was finalized and integrated in the process of adoption.
- On risk mitigation and limits:
  - Under guidance of BAM, Moroccan banks adopted in 2008 a code of ethics committing them to maintain Loan-to-Value (LTV) ratios on lending below 100 percent.
  - While concentration risk is relatively high, it remains well below the levels of a decade ago.
  - The limit of 20 percent of equity applied to credit exposures to a single borrower is more stringent than international standards (25 percent limit).
  - Concentration risk is addressed within the ICAAP framework; with SREP deployment, a Pillar 2 capital surcharge could be introduced.

### Structural reforms for a more inclusive development model
- Labor market and active labor market policies (ALMP):
  - Over the last five years, the agricultural sector has lost about 700,000 jobs, which have only been partially absorbed by the service sector.
  - Improving ALMPs could help absorb labor displaced from agriculture in the short run.
  - Current programs mainly target first-time young job seekers with diplomas; a more integrated approach is needed to coordinate national and local players, target regional labor market needs, and emphasize retraining and upskilling for youth without diplomas in rural areas.
  - The forthcoming reform of the unemployment scheme could consider extending unemployment benefits to all workers (formal and informal) losing a job (for a limited period, conditional to income being below a certain RSU scoring, and linked to participation in up-/re-skilling programs).

- Private sector and SME development:
  - Expected acceleration of investment in coming years relates to big projects in water, electricity, automotive, and transport infrastructure, many involving public-private partnerships and SOE participation, and supported by the new Investment Charter.
  - The M6 Fund is now operational, creating opportunities for access to private equity and senior debt.
  - Sustainable creation of high-quality, formal jobs requires greater contribution from private SMEs; despite past reforms, SMEs still struggle to grow and compete.
  - Measures to encourage SME growth include:
    - Strengthening support for SMEs under the new Investment Charter by approving regulatory texts that define the scheme dedicated to micro and SMEs (with projects of less than MAD 50 million or $5 million).
    - Staff welcomed reform of regional investment centers (CRIs) allowing them to directly approve financial support for smaller investment projects (below MAD 250 million or $25 million).
    - Complement financing of SMEs’ investment projects with technical assistance in project development and execution.
    - CRIs could play a more active role in helping SMEs structure investment plans and create a pipeline for thematic funds under the M6 Fund.
    - Promote ecosystems of local SMEs that serve as suppliers to large firms (including SOEs).
  - Ensure SOE reform pursues market neutrality:
    - Break SOEs’ monopolistic positions in key sectors, eliminate special tax and regulatory regimes, and limit state participation to strategic cases justified by cost-benefit analysis.
    - Staff supported reform of the privatization law prepared by ANGSPE that allows the Agency and Ministries to propose sales of public assets beyond the government list presented to Parliament with the annual Budget Law and facilitates privatization processes.

- Business environment improvements:
  - Progress includes simplifying and digitalizing procedures; Morocco is assessed favorably in the 2024 World Bank Business Ready Report for business entry, business location, international trade, and financial services.
  - Remaining areas for improvement:
    - Improve employers’ flexibility in managing their workforce by adapting the labor code.
    - Reduce the cost and time of resolving commercial disputes and strengthen operational efficiency of insolvency proceedings.
    - Thoroughly review tax system, labor code, and regulatory framework aspects that incentivize firms to remain small or informal.

### Governance, competition, corruption, and legal reforms
- Corruption:
  - The Instance Nationale de la Probité, de la Prévention et de la Lutte contre la Corruption has worked on a new anti-corruption strategy building on the Anti-Corruption Authority’s evaluation and diagnostic in 2024.
  - The strategy aims to identify a roadmap with objectives on public administration–citizen relations, sanctions, education and sensitization, transparency in business practices, and digitalization.
  - Submission to parliament of the penal procedure code in January 2025 is expected to be followed by legislation on a new penal code later in the year.
  - Significant progress requires further legislative improvements, particularly introducing new legislation on:
    - illicit enrichment,
    - conflicts of interest,
    - protection of whistleblowers,
    - asset declaration for public officials.
- Anti-competitive practices:
  - Morocco’s Competition Council issued 16 decisions on cases of economic concentrations in 2024, including measures to impose more competition in electronic payment and energy distribution.
  - The council published three Opinions investigating competition in key markets, including electricity and fruits and vegetables markets.
  - The fruits and vegetables study emphasizes modifying legislation to shorten the distribution chain between production and consumption to reduce rents and distortions in price fixation; updating the law to liberalize wholesale and retail distribution would help address increases in food price levels after recent shocks.

### Social protection, pensions, and water scarcity
- Health insurance reform:
  - Reform of Morocco’s health insurance scheme (AMO) extended coverage to about 3½ million Moroccans previously excluded.
  - About one quarter of Moroccans do not have access to AMO two years after launch, either because they are not registered or have not started paying contributions.
  - Low take-up among non-salaried workers may reflect seasonal income volatility (particularly farmers), scarcity of health care facilities in rural areas, and high out-of-pocket expenditure for private health care.
  - Linking free health care qualification to employment status can have distortive effects on incentives to work.
  - Staff welcomes establishment of the new Agence Nationale de Soutien Sociale to assess and monitor Aide Sociale Directe at a regional level and evaluate inclusion/exclusion biases.
  - A thorough assessment of long-term financial viability of the reform is warranted.
- Pension system:
  - The three largest civilian public pension funds are projected to deplete their reserves between 2030 and 2051, with unfunded liabilities estimated at 131.6 percent of GDP.
  - Authorities are working on reform to consolidate existing pension funds around two schemes (public and private), both with a first pillar (defined-benefit pension linked to the minimum wage) and a second pillar (contributions converted into a pension based on a point system).
  - Non-salaried workers would be required to pay contributions (based on the same structure under the new AMO) converted to a final pension via a point system.
  - The low take-up of healthcare for informal workers raises doubts that a large fraction of about 5 million non-salaried workers will opt into the new pension system.
  - If the objective is to ensure all elderly Moroccans have a pension, introducing a basic, noncontributory pension for those in retirement age with income below a certain RSU threshold may be preferable.
- Water scarcity and PNAEPI 2020–2027:
  - In 2024 authorities stepped up response through the Programme National pour l’Approvisionnement en Eau Potable et l’Irrigation (PNAEPI) 2020–2027.
  - PNAEPI priorities: construction of dams in high rainfall areas, completion of major water transfer projects between hydraulic basins, commissioning of desalination plants leveraging renewable energy, strengthen water management through savings in industrial and tourism sectors, improve water distribution efficiency, and conversion to localized irrigation systems.
  - Effective water management requires updating water tariff structure to align with actual cost of water.
  - The study submitted to the Water Interministerial Commission, part of the RSF arrangement, revealed large differences in cost of water across the country, especially for irrigation purposes, pointing to need to revisit tariffs for water used in the agricultural sector from reservoirs and groundwater.
  - Forthcoming legislation on the “contract de nappe” begins to address this by introducing different fees for usage of groundwater resources above a predetermined quota.

_Excerpt from IMF staff report chapter: "Staff welcomed BAM’s progress in aligning its regulatory and supervisory framework."_

### 31.      Good progress has been made in reforming the electricity market, but more is needed

### 31.      Good progress has been made in reforming the electricity market, but more is needed

### Electricity market reform: progress and remaining needs
- Share of renewable energy (RE) in total installed capacity: 45.3 percent in 2024 (objective of 52 percent will be reached before 2030).
- Structural and institutional measures enacted or underway aimed at redesigning ONEE’s role and opening production to private RE operators:
  - Introduction of Sociétés Régionales Multi-Services (SRMs) as regional utility distributors.
  - Unbundling of ONEE’s financial accounts under the RSF programs.
  - Transfers of RE production assets from ONEE to MASEN envisaged in the legislation and expected to be completed in 2025.
- Remaining actions required to secure private sector participation and full market liberalization:
  - Further clarification of the regulatory framework, including approving all implementation decrees of the existing legislation that liberalizes the electricity market.
  - Strengthening reliability and flexibility of the electricity grid through investments in transportation, interconnections, and storage capacity.

### Authorities’ views on labor, social protection, and governance
- Authorities reiterated strong commitment to the reform agenda and are preparing a roadmap to boost employment with concrete and targeted measures.
- Priorities to improve employment programs:
  - Improve effectiveness of employment programs, focusing on rural employment, programs for non-graduates, and apprenticeship training.
  - Better link education and training to labor market needs due to labor scarcity in some sectors.
- Social protection and health coverage:
  - Reforms of the social protection system have expanded coverage and ensured better targeting of the most vulnerable; now time to assess implementation, improve efficiency, and seek better integration with other reforms (including pensions).
  - A study is underway on the generalization of the AMO to ensure attractiveness and financial viability.
- Anti-corruption and public service digitalization:
  - Continue building consensus and raising awareness; sectoral policies include a specific anti-corruption dimension, with emphasis on digitalization of public services to reduce corruption risks.
- Water tariffication:
  - Authorities intend to work on tariffication of water now that they have a clearer picture of costs involved.

### RSF reform measures implemented (summary of review)
- Overall: All but one of the reform measures (RM) scheduled for this review have been implemented; RM9 (carbon tax design) not met.
- RM1 (water cost study and Water Law decrees):
  - Study assessing actual cost of water and options for cost recovery submitted to the Water Interministerial Commission.
  - Two decrees of the Water Law No. 36-15 adopted by the Government Council on February 6, 2025:
    - First decree: conditions/methods for determining conservation perimeters and prohibition perimeters for groundwater use.
    - Second decree: criteria/methods for determining protection perimeters around groundwater resources for potable water and regulation of activities within them.
- RM2 (ONEE account separation):
  - ANRE approved ONEE’s proposal on separation of financial accounts for production, transmission, and distribution (consistent with Article 53 of Law 48-15).
  - Short-term: increased transparency on costs of each activity to facilitate tariff setting and sector regulation.
  - Longer-term: step toward separating ONEE into different legal entities and transforming it into an independent Transport System Operator (TSO).
- RM4 (distribution tariffs for private RE producers):
  - ANRE published tariffs private RE producers will pay to use the medium voltage distribution network.
  - Tariffs set at same level nationwide to guarantee cost recovery for SRMs while ensuring competitive prices for private producers.
  - Transport tariffs (published in February 2024 under RM3) and distribution tariffs valid until February 2027; subject to revision then and likely to differentiate by region.
  - Note: transport, service system and distribution tariffs will be adjusted for inflation on March 1, 2026. The enacted increase on the transport and service system tariffs for 2025 was 4.5 percent.
- RM8 (climate-inclusive debt sustainability analysis):
  - Ministry of Economy and Finance started producing an analysis of debt sustainability including climate change impact in the PBT 2025–2027 accompanying the 2025 Budget Law.
  - Under the most extreme temperature scenario, higher temperatures would reduce productivity and fiscal revenues, causing:
    - Fiscal balance to fall by 0.3 pps of GDP by 2050 compared to baseline.
    - Debt-to-GDP ratio to increase by 2.1 pps by 2050 compared to baseline.
- RM16 (BAM directives on climate-related financial risks):
  - January 2025: BAM issued two directives following best-practice assessment and consultation with credit institutions:
    - First directive: standards for disclosure and reporting of climate-related financial risks per ISSB guidance.
    - Second directive: requirements for collection/reporting of data on large borrowers' exposure to physical and transition risks; banks to use data to assess large borrowers’ measures and periodically report to BAM.
    - Compliance required within 24 months (48 months for foreign subsidiaries).
- RM17 (excise duties on coal and polluting petroleum products):
  - 2025 Budget Law included changes to excise duties on coal and three additional polluting petroleum products (bitumen, heavy fuel oil, and base oils) for all producers to the level set in the MEFP for the 2nd Review of the RSF and eliminated all exemptions, effective January 1, 2025.
  - Authorities estimate fiscal impact for 2025 at around MAD 1.4 billion (US$ 140 million).

### Carbon tax, RM9, and decarbonization findings
- RM9 (carbon tax design) not met: authorities began preparatory steps but postponed final design document to allow further analysis and consultations.
  - Steps taken:
    - Preparation of a study on effectiveness of existing environmental tax measures with GIZ technical support.
    - February 2025 decree designating Institut Marocain de Normalisation (IMANOR) as agency to issue carbon content certificates.
    - Development of training programs for Customs Administration personnel to operationalize carbon tax.
- Box 3: CGE model simulations on RSF contribution to decarbonization and macro effects:
  - Removal of subsidies on gas butane (RM11) and increase in excise taxes on coal and heavy fuel oil (RM17) would:
    - Increase the share of renewable-based energy in the energy mix by 6.1 pps.
    - Reduce Morocco’s emissions by about 16 percent compared to the baseline by 2030.
    - Increase GDP to about 0.8 percent above the baseline in 2030 due to more efficient resource allocation and redistribution of fiscal revenues to households.
  - Carbon tax estimates and impacts:
    - Carbon tax needed in isolation to fulfill Morocco’s conditional NDC objective: $82/tCO2, with a small negative impact of 0.05 percent on GDP.
    - Other RSF decarbonization RMs would reduce the required tax rate to $36/tCO2.
    - Taken together, the measures could increase GDP by about 0.5 percent above the baseline (allocative efficiency gains and redistribution of revenues as lump sums to households).
  - EU Emission Trading System (ETS) scenario:
    - In a joint Morocco-EU ETS with joint carbon price about $180/tCO2, Morocco could receive ETS payments of around $8 billion.
    - Such ETS participation could increase Morocco’s GDP by more than 3 percent relative to the baseline by 2030.

### RSF financing and Fund repayment capacity
- Morocco’s capacity to repay the Fund remains adequate in the medium to long run.
- Projected peaks under an adverse scenario where the current FCL is fully drawn in 2025:
  - Outstanding Fund credit projected to peak at 4 percent of GDP or 9 percent of exports (of goods and services) in 2025.
  - Fund obligations projected to peak at 1.2 percent of GDP in 2029.
- RSF financing will continue to be used for direct budget support and reinforce gross reserves.

### Staff appraisal: macro and fiscal outlook, policy recommendations
- Growth and risks:
  - Economic activity set to accelerate in 2025, driven by strong domestic demand.
  - Investment boosted by new infrastructure plans in water, energy, and transportation.
  - Consumption benefits from lower inflation and tax and social protection reforms.
  - Stronger growth will boost imports and widen the current account deficit despite strength in exports, tourism, and remittances.
  - Projections subject to high uncertainty given drought risk and geopolitical tensions.
  - Faster-than-expected investment implementation is an upside growth risk but could push current account deficit and inflation above baseline and add to government spending pressures.
- Fiscal consolidation and buffers:
  - Fiscal deficit in 2024 was 4.1 percent of GDP compared to expected 4.3 percent, for the second consecutive year lower than budgeted amid stronger-than-expected revenues and higher-than-expected spending.
  - 2025 Budget confirms gradual fiscal consolidation to lower the debt ratio in the medium term.
  - Recommendation: Save at least part of the tax windfall from past reforms (estimated at 3 percent of GDP by 2026) to rebuild fiscal buffers to pre-pandemic levels.
  - Additional revenue and spending measures: further compression of tax expenditures, an economy-wide carbon tax, more efforts to reduce informality, accelerate phasing out of subsidies, broaden Unified Social Registry application, reform public wage system, and reduce transfers to SOEs.
- Fiscal framework strengthening:
  - Staff welcomes progress in strengthening the fiscal framework and adoption of a new fiscal rule.
  - The MTFF has begun covering climate change risks (an RSF measure); further improvements could include quantifying costs of new policy measures and more comprehensive quantitative assessment of fiscal risks.
  - Recommendation: Transparently report projected implementation of private sector investment projects under the new Investment Charter and PPPs in the PBT to contain fiscal risks and monitor/report them timely.
  - Ongoing reform of the Organic Budget Law makes the MTFF more integral and introduces a new fiscal rule based on a medium-term debt anchor.
  - Important that parameters of the new rule be defined outside the annual budget to reinforce credibility and better anchor expectations around future fiscal policies.

*International Monetary Fund staff summary of chapter content.*

### 43.      The current monetary policy stance is appropriate. The real ex-ante policy rate is

### 1marea2025001-print-pdf - 43.      The current monetary policy stance is appropriate. The real ex-ante policy rate is

### Monetary policy stance and exchange rate regime
- The current monetary policy stance is appropriate; the real ex-ante policy rate is estimated to be close to the natural rate.
- An estimated output gap close to zero and inflation expectations anchored at around 2 percent justify a neutral stance.
- Elevated uncertainty surrounding these estimates and the economic outlook supports a cautious, data-dependent approach to future policy decisions.
- As inflation stabilizes, BAM should proceed with its transition to an IT regime by removing the peg around the dirham and allowing greater exchange rate flexibility.
  - Expected benefits: cushion the economy from real external shocks, keep the exchange rate in line with fundamentals, strengthen monetary policy transmission, and contribute to Morocco’s private sector development.

### Financial sector regulation and supervision
- Staff welcomes BAM’s progress in aligning its regulatory and supervisory framework with international standards.
- Recommendations to strengthen financial system resilience:
  - Continue efforts to strengthen resilience against emerging risks.
  - Introduce a successful secondary market for NPLs to materially improve banks’ asset quality and free up liquidity.
  - Broaden over time the definition of NPLs to cover new classification criteria for sensitive claims and introduce more stringent provisioning rules to enhance risk management.
  - Consider measures to mitigate concentration risk until full adoption of the SREP.

### Labor market and private sector development
- Boosting job creation requires a multifaceted strategy.
  - The increase in unemployment relative to the pre-COVID years mainly reflects the loss of jobs in the agricultural sector, only partially absorbed by the services sector.
  - Active labor market policies (ALMP) should be redirected to meet specific regional requirements and emphasize youth without diplomas in rural areas.
  - Meaningful job creation requires continued efforts to boost the private sector, with a special focus on SMEs:
    - Extend to SMEs the incentives of the new Investment Charter.
    - Better target financial and technical assistance to SMEs at the local level by CRIs.
    - Further efforts to build networks of local suppliers to large firms (including SOEs).
    - Remove regulatory and legislative distortions that hinder firms’ growth and job creation.
    - Reduce the State’s presence in non-strategic sectors of the Moroccan economy.

### Governance, competition, and anti-corruption
- Continued progress in fighting corruption and improving market competition would benefit private sector development.
  - The Competition Council has sanctioned anticompetitive practices and published studies on sectors such as electricity and food distribution.
  - Implementing recommended legislative changes would improve competition and remove distortions in these sectors.
  - The Anti-Corruption Authority is developing a new strategy and building consensus, but more progress is needed in the legislative framework, particularly by introducing new legislation on:
    - illicit enrichment;
    - conflicts of interest;
    - protections for whistleblowers; and
    - asset declaration for public officials.

### Water management and renewable energy (RE) sector reforms
- Authorities have begun implementing an ambitious plan to produce and redistribute water to alleviate agricultural sector water needs and avoid rationing potable water.
- The study on the cost of water (a reform measure under the RSF arrangement) should lay the groundwork for changing tariff structures to better reflect actual mobilization, transportation, and distribution costs.
- Electricity sector reforms continued:
  - Creation of regional companies responsible for distributing electricity and water.
  - Implementation of measures under the RSF.
  - Transition to a production sector open to competition among private RE producers will require further progress in defining the regulatory framework and improving the grid’s capacity to absorb RE-based electricity.

### RSF arrangement progress and reform measures
- Six of the seven remaining measures under the RSF arrangement were met; the authorities decided to postpone the design and initial implementation of a carbon tax.
- Completion of these six reform measures implies the disbursement of SDR 375 million under the RSF arrangement.
- Staff encourages authorities to continue work on the design and implementation of the carbon tax.
- Morocco has a good track record of following IMF policy advice; many recommendations from past AIV consultations were implemented and aligned with the New Model of Development report and Morocco’s RSF commitments.
- The next Article IV consultation with Morocco is expected to be conducted on the standard 12-month cycle.

### RSF reform measures status highlights (selected exact items)
- RM1: Study assessing actual cost of water and tariff-setting methodology; adopt two ministerial decrees for Water Law (36-15) — Availability Date 25-Feb; Review 3; Status: Implemented.
- RM3: ANRE will publish tariffs for utilization of national electricity transmission network and system service fees (by Oct 2023) and the capacity of the grid to receive electricity from renewable sources — Availability Date 24-Feb; Review 1; Status: Implemented.
- RM9: Ministry of Economy and Finance to produce and start adopting a design document for introduction of a carbon tax — Availability Date 25-Feb; Review 3; Status: Not implemented.
- RM10: Introduce in the 2024 Budget Law a reform to gradually eliminate existing brown tax expenditure by increasing tax rate on polluting fuels products — Availability Date 24-Feb; Review 1; Status: Not implemented and replaced by RM17.
- RM11: Issue a ministerial decree to gradually eliminate subsidies on gas butane, starting from 2024 — Availability Date 24-Feb; Review 1; Status: Implemented.
- RM17: Introduced 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 base oils) for all producers to the level set in the MEFP — Availability Date 25-Feb; Review 3; Status: Implemented.

### RSF access and phasing exact figures
- Review 1 (Availability Date 24-Feb): Number of RMs per Review (Program Inception) 5; Number of RMs per Review (Revised) 4; Quota 28%; SDR (Million) 250.0.
- Review 2 (Availability Date 24-Sep): Number of RMs per Review (Program Inception) 5; Number of RMs per Review (Revised) 5; Quota 35%; SDR (Million) 312.5.
- Review 3 (Availability Date 25-Feb): Number of RMs per Review (Program Inception) 6; Number of RMs per Review (Revised) 7; Quota 49%; SDR (Million) 437.5.
- Total: 16 RMs, 16 RMs (Revised), 112% Quota, SDR 1000.
- Note on disbursements (staff explanation in source): The actual disbursement for the 1st review was SDR 250 million since RM10 initially scheduled for the 1st review was not implemented and the associated SDR 62.5 million was not disbursed. With RM17 replacing RM10 and its implementation in the context of the 3rd review, the disbursement of SDR 62.5 million will be in addition to the disbursement of SDR 375 million scheduled for the 3rd review at Program Inception, bringing the total access for the third review to SDR 437.5 million.

*International Monetary Fund — Excerpt from Morocco Article IV Consultation and RSF review materials.*

### 62.5 million.

### Table 4. Morocco:  Schedule of Disbursements and RMs Availability Dates Under the RSF

### RSF Disbursement Schedule and Availability
- Morocco's quota in millions of SDRs: 894.4
- Total 105% 937.5
- Disbursement schedule (each entry lists: number — date — percent — amount — implementation status — condition):
  - 1 — 25-Feb — 6.99% — 62.5 — Implemented — Completion of RSF review of reform measures 1 implementation
  - 2 — 25-Feb — 6.99% — 62.5 — Implemented — Completion of RSF review of reform measures 2 implementation
  - 3 — 24-Feb — 6.99% — 62.5 — Implemented — Completion of RSF review of reform measures 3 implementation
  - 4 — 25-Feb — 6.99% — 62.5 — Implemented — Completion of RSF review of reform measures 4 implementation
  - 5 — 24-Sep — 6.99% — 62.5 — Implemented — Completion of RSF review of reform measures 5 implementation
  - 6 — 24-Sep — 6.99% — 62.5 — Implemented — Completion of RSF review of reform measures 6 implementation
  - 7 — 24-Sep — 6.99% — 62.5 — Implemented — Completion of RSF review of reform measures 7 implementation
  - 8 — 25-Feb — 6.99% — 62.5 — Implemented — Completion of RSF review of reform measures 8 implementation
  - 9 — 25-Feb — 6.99% — 62.5 — Not implemented — Completion of RSF review of reform measures 9 implementation
  - 10 — 24-Feb — 6.99% — 62.5 — Not yet implemented — Completion of RSF review of reform measures 10 implementation
  - 11 — 24-Feb — 6.99% — 62.5 — Implemented — Completion of RSF review of reform measures 11 implementation
  - 12 — 24-Feb — 6.99% — 62.5 — Implemented — Completion of RSF review of reform measures 12 implementation
  - 13 — 24-Feb — 6.99% — 62.5 — Implemented — Completion of RSF review of reform measures 13 implementation
  - 14 — 24-Sep — 6.99% — 62.5 — Implemented — Completion of RSF review of reform measures 14 implementation
  - 15 — 24-Sep — 6.99% — 62.5 — Implemented — Completion of RSF review of reform measures 15 implementation
  - 16 — 25-Feb — 6.99% — 62.5 — Implemented — Completion of RSF review of reform measures 16 implementation
  - 17 — 25-Feb — 6.99% — 62.5 — Implemented — Completion of RSF review of reform measures 17 implementation
- Note: RSF disbursement appears in fiscal tables as an item (see budget tables).

*Source: IMF staff estimates.*

### Real Sector Developments (Figure 1)
- Real GDP grew at 3.1 percent on average in the first three quarters of 2024.
- Growth occurred despite the negative contribution of the agricultural sector.
- Domestic demand strengthened for both consumption and investment.
- Unemployment remained high in 2024: Q4 at 13.3 percent.
- Business sentiment and capacity utilization have rebounded from the pandemic lows.
- Household confidence remains weak.
- Charts and series shown: Real GDP Growth (Percentage change, y-o-y, seasonally adjusted), Sectoral Contribution to Real GDP Growth (Percentage points, y-o-y), Demand Contribution to Real GDP Growth (Percentage change, y-o-y, seasonally adjusted), Business Outlook (12-month moving average, percentage), Consumer Confidence Index (Neutral=100), Aggregate Labor Market Indicator (Seasonally adjusted).

### 2024/2025 Agricultural Season (Figure 2)
- The 2024/2025 agricultural season has been uneven, with average rainfall in some central regions like Fez-Meknes and clear deficits in others, notably in the south, including Marrakech-Safi.
- Average temperatures across the country have been unseasonably elevated, raising concerns that cereal production may not recover from its historic lows of 2023/2024 harvest.
- The average dams filling-rate is at 30 percent.
- More rainfall is needed to ease dry conditions in several regions where agriculture is mostly rainfed.
- Charts and series shown: Cumulative Precipitation (Fez-Meknes and Marrakech-Safi, Mm), Water Stock in Dams (Percentage of total capacity), Cereal Production (Million quintals), Agricultural Stress Index (Percentage of cropland affected by severe drought from start of season, second 10 days of February 2025).

### External Developments (Figure 3)
- Exports and imports have grown at a similar pace in the first eleven months of the year.
- Imports of capital, intermediate and consumer goods picked up, compensating for decline in energy.
- Export growth was supported by automobile, aerospace, and phosphates and its derivatives.
- Tourism revenues continued to increase (Cumulative, Bil. Dirhams).
- Remittances increased (Cumulative, Bil. Dirhams).
- Net FDIs increased in 2024 (Net FDI, Cumulative, Bil. Dirhams).
- Charts and series shown: Goods Trade (Growth rate, y-o-y), Goods Imports by category (Growth rate, y-o-y), Goods Exports by sector (Growth rate, y-o-y), Tourism Revenues, Net FDI, Remittances.

### Fiscal Developments (Figure 4; Tables 6a and 6b)
- The overall fiscal deficit in 2024 was lower than it was in the last year, driven by very strong revenue performance.
- Increased revenues were almost entirely spent, mostly on social benefits and capital spending.
- Authorities continued removing the fiscal stimulus injected for the pandemic, albeit at a slower pace.
- Government debt has peaked in 2022 and is expected to fall gradually in the medium term.
- Sovereign spreads continued to fall in 2024 and early 2025.
- Selected numerical highlights (Table 6a, Billions of dirhams):
  - Revenue 2024: 465.0
  - Revenue 2025: 498.7
  - Expense 2024: 433.7
  - Expense 2025: 486.2
  - Primary balance 2024: -28.7
  - Overall balance 2024: -62.6
  - RSF disbursement (Table 6a memorandum): 0.0 (2020–2024) then 7.4 (2025) 4.8 (2026) 0.0 thereafter as shown
  - Central Government Debt (Billions): 2024: 1,016.7; 2025: 1,081.6; 2026: 1,131.8; 2030: 1,416.3
  - GDP (Billions Dirham): 2024: 1,463.4; 2025: 1,544.5; 2026: 1,641.8; 2030: 2,175.4
- Selected fiscal ratios (Table 6b, Percent of GDP):
  - Revenue 2024: 30.1 percent; Revenue 2025: 30.4 percent
  - Expense 2024: 28.1 percent; Expense 2025: 29.6 percent
  - Primary balance 2024: -1.9 percent of GDP; Overall balance 2024: -4.1 percent of GDP
  - Central Government Debt 2024: 69.5 percent of GDP; 2025: 70.0 percent of GDP; 2030: 65.1 percent of GDP
- Memo: Total investment (including capital transfers) 2024: 127.4 (Billions dirhams); 2025: 120.6.

### Monetary and Financial Developments (Figure 5; Table 9)
- Bank Al-Maghrib (BAM) cut the policy rate by 25 bps in June and December 2024.
- The dirham appreciated in 2024 and into early 2025, falling slightly below the middle of the band.
- Growth of overall credit slowed in 2024, while lending to nonfinancial private firms for machinery and equipment accelerated.
- NPL ratios for nonfinancial firms and households have increased since end 2022.
- Banks’ holdings of Treasuries have fallen from the peak in 2023.
- Selected financial soundness indicators (Table 9, Percent unless otherwise indicated):
  - Regulatory capital to risk-weighted assets: 15.1 (2024 Jun) through 15.6 (Dec entries); series shown.
  - Nonperforming Loans (NPLs) to total loans: 7.5 (2019) … 8.7 (Dec-24)
  - Specific provisions to NPLs: 69.3 (2019) … 68.2 (Dec-24)
  - Return on assets (ROA): varied, e.g., 1.1 (2019) … 1.1 (Dec-24)
  - Deposits to loans: 102.2 … 107.9 (series entries)
  - Banks: Treasury Bonds as share of Assets (series shown).
- Inflation expectations and policy rate series referenced (Q4-2024).

### Selected Indicators and Scenarios
- Table 5: Selected Economic Indicators, 2020–30 (sources: Bank Al-Maghrib; Ministry of Economy and Finance; Office des Changes; HCP; and IMF staff estimates) — tables and time series presented in the chapter.
- Table 7: Balance of Payments, 2020–30 (In billions of U.S. dollars) — sources: Ministry of Finance; Office des Changes; and IMF staff estimates and projections.
- Table 8: Monetary Survey, 2020–2025 (sources: Bank Al-Maghrib; and IMF staff estimates).
- Table 10: Indicators of Fund Credit – Adverse Scenario (GRA and RSF arrangements) (In millions of SDRs, unless otherwise indicated). Note: Morocco belongs to the RST interest Group C. Based on the RST rate of interest of 4.105 percent as of February 20th, 2025. An adverse scenario where the FCL is drawn in 2025 is assumed.

*Source: IMF staff estimates.*

### Annex I. External Sector Assessment

### Annex I. External Sector Assessment

### Overall Assessment
- Morocco’s external position in 2024 was estimated to be moderately stronger than the level implied by medium-term fundamentals and desirable policies based on IMF’s EBA current account (CA) model.
- The current account deficit is estimated to have widened somewhat in 2024 but remained small on the back of strong goods exports, tourism revenue, and remittances.
- The CA deficit is expected to widen gradually and converge to around 3 percent of GDP in the medium term.

### Potential Policy Responses
- Structural reforms to boost private sector investment: expected to boost imports but also increase FDI inflows and external competitiveness.
- Continued fiscal discipline: important for containing the increase of the current account deficit.
- Planned transition to an inflation targeting framework and a more flexible exchange rate regime: should enhance protection against external shocks.

### Foreign Asset and Liability Position and Trajectory
- Background and 2024 levels (percent of GDP):
  - NIIP: -52.7
  - Gross Assets: 38.5
  - Reserve Assets: 24.4
  - Gross Liabilities: 91.2
  - Gross External Debt: 46.1
- Composition:
  - Foreign assets (38.5 percent of GDP) were mostly international reserves (24.4 percent of GDP) and other investment (6.8 percent of GDP).
  - Foreign liabilities (91.2 percent of GDP) were mostly direct investment (46.1 percent of GDP) and other investment (35.1 percent of GDP).
- Projection:
  - NIIP is projected to stabilize over the medium term to around -50 percent of GDP.
- Assessment:
  - Morocco’s NIIP is sustainable; planned structural reforms to boost private sector investment are expected to increase financing needs but also improve FDI inflows, exports, and output growth.
  - Financing vulnerabilities appear moderate, as foreign direct investment accounts for about half of the liabilities.

### Current Account
- 2024 and near-term projections:
  - CA in 2024: -1.5 percent of GDP (estimated to have widened from 0.6 percent in 2023).
  - CA expected to gradually increase to about 3 percent of GDP over the medium term.
  - CA in 2025 expected to increase to about 2 percent of GDP as trade balance worsens.
- EBA model assessment (2024):
  - Cyclically adjusted CA: -1.3 percent of GDP
  - Cyclically adjusted CA norm: -3.3 percent of GDP
  - Standard error: 0.5 percent of GDP
  - Staff CA gap: 2 percent of GDP (range of 1.5 to 2.5 percent), composed of:
    - Identified policy gaps: 0.8 percent of GDP
    - Unexplained residual: 1.2 percent of GDP
- Cyclical contributions:
  - Contribution labeled: -0.2 (as provided)

### Real Exchange Rate (REER)
- Background:
  - In December 2024, the REER was 2.6 percent higher than December 2023, reflecting the appreciation of the NEER (4.9 percent) that was not entirely offset by lower inflation relative to trading partners.
- Assessment:
  - Applying an elasticity of the CA to REER of 0.37 and consistent with the estimated CA gap of 2 percent of GDP, the REER was assessed to be undervalued in 2024 by 5.4 percent (with a range of 4.1 to 6.8 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 2024, net FDI inflows rebounded partially after a dip in 2023.
  - External borrowing benefited from the state-owned enterprise OCP’s bond issuance in international markets.
- Medium-term outlook and assessment:
  - Progress in structural reforms (developing private sector, accelerating renewable energy transition, increasing water resources) expected to support FDI inflows.
  - Greater private investment will likely require continued reliance on external borrowing, with limited crowding-out from the government due to fiscal consolidation.
  - Risks of capital flow reversal limited by remaining capital account controls on residents and the structure of external public debt:
    - Average remaining repayment term for external public debt (including central government and public enterprises) was 8 years and 7 months in 2023.

### FX Intervention and Reserves Level
- Exchange rate arrangement:
  - 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.
- Reserves (US$):
  - FX reserves in 2024: US$37.2 billion (as of December 27)
  - FX reserves in 2023: US$36.3 billion
  - Change drivers: slight increase in 2024 as the central government repaid some of the PLL but didn’t issue bonds in international markets in 2024.
- Assessment:
  - Reserves in 2024 estimated at 120 percent of the ARA metric (adjusted for capital controls) and assessed to be adequate.
  - Staff projects reserves to remain around 120 percent of the adjusted ARA metric over the medium term, as greater FDI and external borrowing will continue to finance the gradual increase of the CA deficit and repayment of the PLL in 2025.
  - Moving to an IT monetary policy regime with a more flexible exchange rate regime would reduce the need for reserve holdings outside a budget that could fund FX interventions in case of excessive market volatility.

### Risk Assessment Matrix — Conjunctural, Structural, and Domestic Risks (Selected Highlights)
- Risk definitions: “low” indicates probability below 10 percent, “medium” between 10 and 30 percent, and “high” between 30 and 50 percent (staff subjective assessment).
- Conjunctural Risks:
  - Regional conflicts
    - Relative Likelihood: Medium
    - Expected Impact: Small
    - Policy Responses:
      - Fiscal: protect most vulnerable with well-targeted, temporary, and budget-neutral cash transfers using the Unified Social Registry.
      - Monetary: central bank should stand ready to ease monetary and credit conditions while containing inflation pressures.
  - Commodity price volatility
    - Relative Likelihood: Medium
    - Expected Impact: High
    - Policy Responses:
      - Monetary: may need to increase policy rates to keep inflation expectations anchored; consider extending the band or letting the dirham float more freely under an IT regime.
      - Fiscal: protect vulnerable with well-targeted, temporary, budget-neutral cash transfers; limit recourse to subsidies and remove over time.
  - Tighter financial conditions
    - Relative Likelihood: Medium
    - Expected Impact: Small
    - Policy Responses:
      - Central bank may need to respond with higher policy interest rates; FX purchases can be used to temporarily accommodate appreciation pressure.
      - Consider further extending the band or letting the dirham float more freely under an IT regime.
  - Trade policy and investment shocks
    - Relative Likelihood: High
    - Expected Impact: Medium
    - Policy Responses:
      - Maintain involvement in key global value chains and work with trading partners to avoid distortionary measures.
      - Accelerate structural reforms to support international competitiveness and productivity.
- Structural Risks:
  - Deepening geo-economic fragmentation
    - Relative Likelihood: High
    - Expected Impact: Medium
    - Policy Responses:
      - Maintain involvement in global value chains and accelerate structural reforms to support competitiveness and productivity.
- Domestic Risks:
  - A more severe drought reduces agricultural production
    - Relative Likelihood: High
    - Expected Impact: High
    - Context and vulnerabilities:
      - Morocco experienced another drought in 2024, the fourth dry rain season in the last five years.
      - Agriculture: about 10 percent of value added and a quarter of goods exports; about one-third of workforce active in this sector.
      - Food prices represent about 40 percent of the CPI basket.
    - Policy Responses:
      - Accelerate macro-critical reforms for climate adaptation, including infrastructure plan to increase water supply and new tariff framework reflecting water scarcity.
      - Targeted, short-term fiscal support for most vulnerable segments (e.g., rural population).
  - Faster than projected implementation of announced investment projects
    - Relative Likelihood: Low
    - Expected Impact: High
    - Scenario:
      - Full materialization in next five years of investment projects for which public support approved under the new Investment Charter (estimated at 20 percent of GDP) and faster implementation under new PPPs framework could overheat the economy.
    - Policy Responses:
      - Monetary policy: respond with higher policy rates to anchor inflation expectations.
      - Fiscal policy: maintain fiscal consolidation, rationalize spending, and increase revenues to absorb higher spending pressures.

### Sovereign Risk and Debt Sustainability Assessment (SRDSA)
- Overall assessment:
  - Morocco’s debt is assessed to be sustainable with high probability; risk of sovereign stress is assessed to be moderate.
  - Debt-to-GDP projected to decline gradually in the medium term to 65.1 percent of GDP in 2030, reflecting announced path of fiscal consolidation.
  - Ongoing mitigation efforts: strengthen medium-term fiscal framework and reform pension system.
- Coverage:
  - SRDSA covers central government debt (domestic and external).
- Background and 2024 developments:
  - Central government debt ratio:
    - 2023: 69.5 percent
    - 2024: 70 percent
  - Drivers of increase:
    - Low nominal GDP growth: 5.5 percent
    - Real growth decelerated from 3.4 to 3.2 percent
    - Inflation in GDP deflator decelerated from 6.4 to 2.3 percent
    - Lower primary fiscal deficit: 1.9 percent of GDP (compared to 2.3 percent in 2023)
  - Gross financing needs:
    - 2023: 19.8 percent of GDP
    - 2024: 13.2 percent of GDP (driven by lower amortization needs)
- Baseline projections:
  - Central government debt expected to decrease gradually to 65.1 percent of GDP by 2030 in line with the Medium-Term Fiscal Framework in the 2025 Budget.
  - Gross financing needs expected to stay around 11 percent of GDP in 2025 and stabilize at around 10 percent in the medium term.
  - Government interest payments expected to be stable in the medium term.
- Medium-term risks:
  - Assessed as moderate based on the debt fanchart module and gross financing needs (GFN) module.
  - Debt fanchart index indicates moderate risk; baseline debt trajectory is downward with fanchart width narrower than peer median.
  - Contingent liability stress test: substantial increase in GFN if contingent liabilities from local government debt and central government guarantees (about 13 percent of GDP) materialize.
  - Policy measures to contain risks: reinforce MTFF, strengthen fiscal risk analysis, implement a fiscal rule anchored on public debt; faster debt reduction would provide stronger protection.
- Long-term risks:
  - Assessed as moderate, reflecting climate change and sustainability risks in public pension and health care systems amid demographic change.
  - Importance of reforms in water infrastructure, health care, and pension systems underscored.
- Sustainability conclusion:
  - Debt assessed sustainable with high probability, conditional on implementation of announced fiscal adjustment.
  - Debt-to-GDP ratio expected to decrease in the medium term and GFN remain manageable.
  - Debt profile characteristics limiting vulnerabilities: relatively long maturity and low share of FX denominated debt.

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

### Annex III. Figure 8. Morocco: Demographics: Pensions

### Annex III. Figure 8. Morocco: Demographics: Pensions

### External debt dynamics and scenarios
- External debt is expected to have fallen from 48.2 percent of GDP in 2023 to 45.3 percent in 2024, as the current account deficit remained low, and the central government paid back some of the PLL.
- External debt is expected to stabilize to around 46 percent in the medium term.
- In the shock scenarios for growth, current account, and combined shocks, external debt increases to about 50 percent of GDP in the medium term.
- In the unlikely scenario of a 30 percent currency depreciation, external debt increases to about 70 percent.

### External debt sustainability framework (methodology highlights)
- Debt evolution derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms; g = real GDP growth rate; e = nominal appreciation (increase in dollar value of domestic currency); and a = share of domestic-currency denominated debt in total external debt.
- Contribution from price and exchange rate changes defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock; increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).
- Projections include the impact of price and exchange rate changes.
- External financing requirement defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.
- Key variables for projections include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
- Long-run, constant balance stabilizes the debt ratio assuming key variables remain at their levels of the last projection year.

### Bound tests and shock assumptions
- Shaded areas in the bound tests represent actual data.
- Individual shocks are permanent one-half standard deviation shocks.
- Historical scenarios use ten-year historical averages to project debt dynamics five years ahead.
- Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.
- One-time real depreciation of 30 percent occurs in 2024 in the specified scenario.

### Data adequacy and quality
- Rationale: Data provided to the Fund is adequate for surveillance. Areas could be strengthened, including coverage of government operations; these shortcomings have not impeded staff's surveillance efforts and data remains adequate for surveillance.
- Ongoing initiatives: expanding coverage of fiscal data to the general government with technical assistance support from STA, scheduled for FY 2026.
- Changes since last Article IV consultation: Publication of the 2024 General Census of Population and Housing and making disaggregated CPI data more timely available (at the 4-digit level).
- Corrective actions and capacity development priorities:
  - Redesigning the national employment survey to incorporate latest recommendations of the International Conference of Labor Statisticians; overhaul underway with implementation scheduled for 2026.
  - Enriching national accounts by updating the base year to 2022, distinguishing between private and public investment, and incorporating latest estimation of the informal sector.
- Use of data in Article IV: Staff does not use any data and/or estimates in the staff report in lieu of official statistics.
- Other data gaps: Not applicable.
- Data adequacy assessment summary (heatmap-style descriptors preserved as presented):
  - The data provided to the Fund are adequate for surveillance.
  - The data provided to the Fund have some shortcomings but are broadly adequate for surveillance.
  - The data provided to the Fund have some shortcomings that somewhat hamper surveillance.
  - The data provided to the Fund have serious shortcomings that significantly hamper surveillance.

### Data Standards and common indicators
- Morocco subscribes to the Special Data Dissemination Standard (SDDS) since December 2005 and publishes data on its National Summary Data Page.
- The latest SDDS Annual Observance Report is available on the Dissemination Standards Bulletin Board (https://dsbb.imf.org/).
- Table of common indicators (as of February 14, 2025) and frequency/timeliness coding: ("D") daily; ("W") weekly or with a lag of no more than one week after the reference date; ("M") monthly or with lag of no more than one month after the reference date; ("Q") quarterly or with lag of no more than one quarter after the reference date; ("A") annual; ("SA") semiannual; ("I") irregular; ("NA") not available or not applicable; and ("NLT") not later than.

### Implementation status of 2024 Article IV main recommendations
- Fiscal consolidation over the medium term: Fiscal consolidation continued at a more gradual pace than advised by staff. Several tax reforms were implemented (extending tax withholding to VAT and PIT and reducing CIT exemptions) and resulted in greater-than-expected tax revenues. There is still room to rationalize current spending and accelerate fiscal consolidation.
- Reinforce the medium-term fiscal framework: The MTFF was strengthened by adding an assessment of fiscal risks from climate change, but further improvements are needed, including adding the cost of new policy measures and quantitative assessment of fiscal risks from PPPs.
- Introduce a new fiscal rule based on a medium-term debt anchor: The authorities are introducing a new fiscal rule in the context of the new Loi Organique de Finance.
- Maintain current monetary policy stance until upside inflation risks subside: As headline inflation continued to fall and risks subsided, the central bank cut rates twice in 2024, bringing the monetary policy stance to broadly neutral.
- Resume transition to an inflation targeting regime and liberalize the exchange rate: In preparation for transition to IT and to deepen hedging markets, the central bank introduced in February 2025 a term interbank market for foreign exchange swaps and overnight index swaps.
- Accelerate approval of the state’s shareholding policy to advance SOE reform: The state’s shareholding policy has been approved, as well as an action plan for its implementation.
- Prioritize anti-corruption and related legal reforms: Legislation on a new penal code is expected later this year following submission of the penal procedure code to parliament in January 2025. Whistleblower protection legislation is in draft law stage to be submitted to parliament, and conflict of interest legislation is in drafting stage. Progress on the bill on illicit enrichment and reinforcement of asset declaration law is still pending.
- Harmonize and consolidate active labor market policies: Authorities announced a new roadmap to boost employment that includes consolidation and better targeting of Active Labor Market programs.
- Update the water tariff framework to address water scarcity: A study assessing the actual cost of water and presenting options for cost recovery was submitted to the Water Interministerial Commission in early 2025; it could inform a new methodology for water tariffication.

### Resilience and Sustainability Facility (RSF) and reform progress (from Letter of Intent)
- Morocco completed fifteen of the sixteen planned reform measures (RMs) on schedule, after replacing original RM10 with RM17.
- Six RMs scheduled under the third and final review of the RSF were implemented in February 2025, including abolition (in the 2025 Budget Law) of the exemption from the domestic consumption tax, as well as the increase in this tax, for several polluting products, such as coal.
- Energy sector reforms: ANRE published tariffs for the use of medium-voltage distribution networks and approved ONEE's proposal to separate production, transmission, and distribution financial accounts.
- Water sector reforms: A strategic study evaluating the true cost of all water uses by component and sources was presented to the National Water Commission; two decrees implementing water law (36-15) aimed at preserving groundwater resources were approved by the Government Council.
- Banking sector climate steps: Bank Al-Maghrib published two guidelines to strengthen banking sector communication and transparency on climate risks.
- Fiscal risk analysis: With IMF technical support, an analysis of long-term fiscal risks linked to global warming has been incorporated into the PBT 2025–2027.
- Carbon tax design: Government decided to devote more time to finalizing the design document planned under RM9; impact analysis of a carbon tax prepared with GIZ; training plan for customs officers in place; IMANOR entrusted with monitoring GHG emissions under draft amendment to the law on standardization, certification, and accreditation approved by the Government Council in February 2025.
- RSF implementation summary: Six of the seven measures initially planned for the final review were implemented; RM9 work actively pursued.

*Source: 1marea2025001-print-pdf - Annex III. Figure 8. Morocco: Demographics: Pensions*

### 1.  Morocco is highly exposed to the risks associated with climate change and natural disasters,

### 1.  Morocco is highly exposed to the risks associated with climate change and natural disasters,

### Climate exposure and national strategy
- Morocco is highly exposed to climate and natural disaster risks: mainly drought, water stress, floods, and earthquakes.
- Over the past 15 years Morocco has implemented structural projects to adapt and mitigate environmental constraints.
- National Sustainable Development Strategy (SNDD) aims for a greener, more inclusive economy by 2030 and to align with international commitments (Kyoto Protocol 1998, Paris Agreement 2016).
- In 2021 a process to overhaul the SNDD was launched to ensure greater convergence toward the Sustainable Development Goals (SDGs) and implementation of the New Development Model (NMD); a draft of the new strategy for 2035 was prepared using a participatory approach and to be validated by the National Commission for Sustainable Development (CNDD).

### National climate ambitions and financing
- Revised National Determined Contribution (NDC) in 2021 target: reduce greenhouse gas (GHG) emissions by 45.5 percent by 2030.
- Estimated financing required to achieve this target: 78.8 billion USD.
- The RSF agreement is expected to help implement energy and climate strategies and complement financing from other donors, notably the World Bank (WB).

### Water sector priorities, plans, and measures
- Addressing water scarcity is a priority.
- Draft National Water Plan (PNE) envisages major investments over 2020–2050 to bridge supply and demand gaps.
- National Program for Drinking Water Supply and Irrigation (PNAEPI) 2020–2027 estimated cost: 14 billion USD.
- Planned measures include construction of dams, development of seawater desalination using renewable energies with a target of 1 billion m3 by 2030, reinforcement and interconnection of hydraulic systems, water saving and reuse, boosting rural drinking water supplies, reusing wastewater, and a communication strategy to rationalize water demand.
- February 2025 strategic study on the cost of water (RM1) submitted to the National Water Commission assessed actual cost of water (CAPEX-OPEX) by component and source, highlighted regional cost disparities and failures in cost recovery, and proposed improvements to water pricing and cost recovery.

### Groundwater protection and legal/regulatory measures
- Government Council adopted two decrees in February 2025 implementing Law 36-15 on water (RM1):
  - Decree 1: conditions and procedures for delimiting safeguard and prohibition perimeters and for granting authorizations and concessions within these perimeters.
  - Decree 2: criteria and procedures for delimiting close or remote protection perimeters and the installations, works, and actions that may be prohibited or regulated within these perimeters.

### Energy sector strategy, targets, and infrastructure
- National Energy Strategy 2009–2030 aims to reduce dependence on fossil fuels and reach 52 percent of installed renewable energy capacity by 2030.
- Renewable energy share in national energy mix: increased to over 45 percent by the end of 2024, compared with 38 percent in 2022.
- 2023–2027 Electricity Equipment Plan: convert Kenitra and Mohammedia oil-fired gas turbines to natural gas by 2027.
- Memorandum of understanding in March 2024 to develop infrastructure for importing, storing, re-gasifying, and transporting liquefied natural gas; three-phase roadmap including pipelines and the Nigeria-Morocco Gas Pipeline project.
- Transmission reinforcement to transport wind power: 3,000 MW over 1,600 Km.
- Master plan for electricity transmission 2024–2029 total estimated investment: 27.5 billion dirhams (i.e., an annual average of around 4.58 billion dirhams, compared with less than 1 billion dirhams annually during the period 2009-2022).
- Development of green hydrogen through operationalization of "Morocco's offer"; circular issued March 2024.

### Electricity market restructuring and regulatory reforms
- Separation of ONEE's generation, transmission, and distribution activities to improve transparency and open market competition; ANRE approved ONEE's proposal for separation of transmission-related financial accounts in February 2025 (MR2).
- Distribution reform: creation of Sociétés Régionales Multiservices (SRM) with exclusive regional rights for electricity, drinking water, and liquid sanitation; Law 83.21 passed July 13, 2023; decrees for Article 2 and Article 14 approved February 2024; Ministry of the Interior model management contract decree published May 2024. Four SRMs created in first phase (Casablanca-Settat, Marrakech-Safi, Souss-Massa, Oriental); second phase underway for Tangier-Tétouan-Al Hoceima, Fès-Meknès, Rabat-Salé-Kenitra and Béni Mellal-Khénifra.
- Measures to ensure private-sector involvement include regulatory process for setting service tariffs; ANRE published tariffs for using the national electricity transmission network and tariff for system services for 2024–2026, and capacity to accommodate renewable energies for 2024–2028 (RM3, February 2024).
- ANRE set and published the tariff for using medium-voltage distribution networks for 2025–2027 (RM4, February 2025).
- Legislation governing the electricity sector: Laws 48-15, 40-19 and 82-21; Government Council approved three draft texts until September 2024:
  - Decree implementing Article 37 of Law 48-15 on sector regulation and ANRE (approved December 2023).
  - Smart meter decree implementing Article 18 of Law 82-21 on electricity self-generation (approved September 2024).
  - Decree establishing conditions for granting a "certificate of origin" for electrical energy from renewable sources (approved September 2024).
- Additional draft decrees prepared for technical requirements for connection and access to medium-voltage networks (Law 48-15), access to distribution network (Law 40-19), and application of Articles 3–6 of Law 82-21.
- ANRE and ONEE published quality indicators and the Transmission System Operator's code of conduct as per Art 12 and Art 13 of Law 48.15 (RM6, September 2024).

### Energy efficiency and standards
- Energy efficiency target: improve energy efficiency by 20 percent by 2030.
- Legislative and regulatory actions: completion of framework Law 47-09 with ministerial decrees for labelling and minimum energy efficiency standards for electric motors, air conditioners, and refrigerators; similar decree prepared for lighting products.
- Decree on energy service companies (ESCOs) adopted September 2024, promoting energy performance contracts.
- Draft amending decree to lower energy consumption threshold for mandatory audit prepared to increase entities subject to audits (RM7), initially scheduled for February 2025 and brought forward to September 2024.

### Public finance, fiscal risks, and climate budgeting
- Ministry of Economy and Finance (MEF) included a section on long-term risks associated with global warming, including impact on debt, in the three-year budget programming document accompanying draft Finance law (PLF) 2025, using the Q-Craft tool and IMF technical assistance.
- Document enriched by analysis of the impact of climate shocks on debt sustainability (RM8, February 2025).
- Green Budget Transition Program financed by Agence Française de Développement (AFD) with WB support: Morocco plans to carry out Climate Budget Tagging in 2025 to better identify, assess, and monitor climate-related public spending.

### Carbon pricing and environmental tax reforms
- Plan under Article 7 of Framework Law No. 69-19 on tax reform: introduce a carbon tax to meet environmental strategy objectives and reduce GHG emissions.
- Government decided to devote more time to finalize the carbon tax design (RM9) to continue stakeholder consultations and meet prerequisites for effective implementation; steps already taken:
  - Analysis of status quo (stock taking of existing environmental tax measures).
  - Identification of prerequisites for carbon tax adoption.
  - Simulation and modeling exercises of carbon tax impact with technical support from GIZ and the WB.
  - Training plan for customs officers.
  - Responsibility for monitoring GHG emissions assigned to Institut Marocain de Normalisation (IMANOR) as part of amendment to law on standardization, certification, and accreditation approved February 2025.

### Existing environmental tax measures and subsidy reform
- Measures already adopted:
  - Exemption of electric and hybrid vehicles from proportional stamp duty on first registration and annual special vehicle tax (TSAV).
  - Reduced VAT rate of 10 percent for photovoltaic panels and solar water heaters.
  - Introduction of a domestic consumption tax (TIC) on energy-intensive equipment.
- Fuel subsidies eliminated in 2013 except butane gas subsidy, which is being phased out gradually.
- February 2024: MEF amended decree no. 1242-16 to formalize a three-year price increase for butane gas starting May 2024 (RM11, February 2024).
- Accompanying mitigation measures for vulnerable groups:
  - Extension of cash transfers under the new unified social register starting December 2023.
  - Support for farmers to replace butane gas with solar pumps for small-field irrigation through an agreement between MEF and Ministry of Agriculture (RM12, February 2024).

*Source: 1marea2025001-print-pdf - 1.  Morocco is highly exposed to the risks associated with climate change and natural disasters,*

### 13. Thus, in view of the major reforms already undertaken by the government in a difficult

### Morocco: climate, fiscal, and financial sector measures (excerpts)

### VAT/TIC and price signals on polluting fuels
- 2025 Budget Law eliminated, as of January 1, 2025, all existing tax exemptions related to the domestic consumption tax (TIC) on coal and heavy fuel oil, and adjusted this tax on coal and 3 polluting petroleum products (bitumen, heavy fuel oil and lubricating oils), as follows:
  - For coal: from 6.48 to 12.48 dhss/100kg in;
  - For heavy fuel oil: from 18.24 to 24.24 dhss/100kg in 2025;
  - For bitumen: from 45 to 51 dhs/100kg in 2025;
  - For lubricating oils: from 228 to 234 dhs/100kg in 2025.
- The increase in TIC replaced a planned VAT increase on polluting petroleum products (RM10, scheduled for February 2025) that had been substituted in 2024 to reconcile protection of the most vulnerable and climate objectives.
- Policy intent:
  - Send a strong signal to energy producers and large consumers to accelerate transition to clean energy, particularly after adoption of Law 82-21 on self-generation of electricity.
  - Preserve household purchasing power where renewable supply does not yet permit price-driven reorientation of consumption.

### Climate-sensitive tariff adjustments and product classification
- MEF intends to prepare and approve a list that distinguishes climate-friendly from polluting products in the Harmonized System (HS) of the World Customs Organization (WCO).
- Planned actions:
  - Introduce climate-sensitive tariff policy changes into the Finance Act based on the product list.
  - Identify and classify products according to environmental impact to promote or discourage cross-border circulation.
  - Ensure proposed tariff adjustments comply with World Trade Organization (WTO) rules.

### Natural disaster coverage and risk transfer (FSEC and legal changes)
- Morocco’s two-pronged coverage scheme (since 2020):
  - An insurance component covering bodily injury and insured property (residence, commerce, industry, etc.).
  - An allocation component via the Fonds de solidarité contre les événements catastrophiques (FSEC) guaranteeing uninsured individuals a minimum right to compensation after catastrophic events.
- In February 2024, Government Council approved draft amendment to Decree 2-18-785 of April 29, 2019 (application of Law 110-14) presented by MEF (RM13, February 2024).
  - The amendment defines a time clause for catastrophic events by type, aligning with international best practices and improving conditions for transferring risk to the international reinsurance market.

### Greening the financial system and climate finance roadmap (2016 onwards)
- Since 2016 (COP22), MEF, BAM, AMMC, ACAPS and others pursued a climate finance roadmap to align the financial sector with sustainable development challenges.
- BAM measures:
  - Began integrating climate change into its missions to strengthen resilience and stability of the banking sector, promote green finance, and reduce environmental footprint.
  - Published in 2021 a directive on the management of financial risks linked to climate change and the environment, drawing on NGFS, Basel Committee principles, and TCFD recommendations.
  - BAM has been a member of NGFS since 2018.
- AMMC actions:
  - Issued guidelines for green and sustainable bond issuance; enabled several green bond issuances by national players.
- International engagement:
  - MEF joined the International Platform on Sustainable Finance in 2019 and the Coalition of Finance Ministers for Climate Change in 2022.

### 2030 Climate Finance Development Strategy (RM14, September 2024)
- Developed by MEF, BAM, AMMC and ACAPS with WB support to accelerate green transition of Moroccan financial sector.
- Diagnostic findings:
  - Climate finance flows mainly come from the public sector, with only 25 percent to 30 percent from the private sector and a preponderance of mitigation measures.
- Strategy goals and estimates:
  - Built around 3 pillars comprising 9 strategic areas to mobilize private climate financing and reach the target of 50 percent of climate financing.
  - Based on investment needs in Morocco’s GHG reduction strategies up to 2030, estimated private sector financing potential needed: $4.5 billion per year between 2025 and 2030.
- Governance and operationalization:
  - Steering committee composed of MEF, BAM, AMMC, ACAPS and extended to MTEDD, GPBM, A MIC, and Fédération Marocaine des Assurances.
  - A Project Management Office (PMO) taskforce to be appointed by the steering committee.
  - Roadmap finalized and workshops launched for discussion and awareness; drafting of steering committee rules of procedure underway.

### Public guarantees and greening of lending (TAMWILCOM / Damane Istitmar)
- MEF, through TAMWILCOM, introduced environmental impact assessment requirements for projects benefiting from public guarantees above specified thresholds (RM15, September 2024).
- Damane Istitmar operationalization (validated September 2024):
  - From 2024, bank loan applications over 20 million dirhams (MDH) in construction and public works, agriculture, land transport, rubber and plastics and chemical industries must include an environmental footprint questionnaire.
  - Eligibility threshold to be gradually lowered according to a predetermined timetable to 10 MDH and sector coverage to be broadened to all sectors.
  - From second quarter of 2024, guaranteed quota increased from 60 percent to 70 percent and ceilings increased from 30 MDH to 40 MDH for "green projects" and "green business models".
- Expected effects:
  - Encourage Moroccan banks to integrate environmental considerations, incentivize companies to assess environmental impact, and use the State as catalyst to channel financing to green investments.

### Banking guidelines, disclosure, and climate risk management (BAM, January 2025)
- With WB support, BAM issued two guidelines for banks (RM16, February 2025):
  1. Guideline on communication of financial risks linked to climate change, based on ISSB guidelines.
     - Entry into force: 24 months after signature for scopes 1 and 2.
     - Scope 3 entry into force: 36 months after signature (48 months for subsidiaries).
     - Scopes defined: scope 1 (direct GHG emissions from combustible energy sources owned or controlled by the bank), scope 2 (indirect GHG emissions from energy sources purchased or acquired and consumed by the bank), scope 3 (indirect GHG emissions from the 15 sectoral categories defined in the Greenhouse Protocol Corporate Value Chain (scope 3) Accounting and Reporting Standard).
  2. Guideline on collection and reporting of information on exposure of major borrowers to financial climate risks.
     - Roll-out plan required from date of signature; planned entry into force 24 months later (48 months for subsidiaries).
- Related initiatives:
  - 2022 memorandum between BAM, GPBM and EBRD to converge Moroccan banks’ climate risk management with the 2021 regulatory directive and international best practices.
  - 2022 first climate risk assessment exercise for the Moroccan banking sector (with WB support).

### National green taxonomy and sovereign green bond framework
- Commitments:
  - Develop a national green financial taxonomy with WB technical assistance, coordinated between MEF, BAM, AMMC, ACAPS and other stakeholders.
    - A scoping note defined milestones; October 2024 mission examined European Taxonomy deployment and interoperability options.
  - Define a framework for sovereign green bond issuances with WB support to facilitate possible future issuances on the international market.
    - An inter-ministerial committee was set up in November 2024 and its work launched in February 2025.

*Source: Extracted from the provided IMF chapter/section PDF content.*

### 22. An inter-ministerial committee, comprising representatives of all stakeholders, has been set

### 1marea2025001-print-pdf - 22. An inter-ministerial committee, comprising representatives of all stakeholders, has been set up by the MEF to coordinate and monitor the implementation of reform measures under the RSF agreement.

### Reform measures under the RSF (Attachment I, Table 1)
- The document lists RM #1–#17 with completion dates, review counts, and implementation status for Morocco’s reform measures under the RSF.
- Selected reform measures and statuses:
  - RM1: Ministry of Equipment and Water to submit a study assessing the real cost of water and present principle of cost recovery; adopt two decrees implementing the Water Act (36-15) to reinforce protection of groundwater resources (decree on protection and prohibition perimeters and decree on immediate, close or remote protection perimeters). Completion date: February-25. Reviews: 3. Status: Implemented.
  - RM2: Agence Nationale de Régulation de l'Electricité to approve ONE's proposal to unbundle its transmission financial accounts. Completion date: February-25. Reviews: 3. Status: Implemented.
  - RM3: National Electricity Regulatory Agency to publish tariffs for use of the national electricity transmission network and system service charges (by October 2023), and the network’s capacity to receive electricity from renewable sources. Completion date: February-24. Reviews: 1. Status: Implemented.
  - RM4: ANRE to publish tariffs for access by renewable energy producers to the medium-voltage electricity distribution network. Completion date: February-25. Reviews: 3. Status: Implemented.
  - RM5: Ministry of Energy Transition and Sustainable Development to progressively adopt legal texts needed to fully implement electricity sector legislation (Laws 48-15, 40-19 and 82-21). Completion date: September-24. Reviews: 2. Status: Implemented.
  - RM6: ANRE to approve and publish quality indicators for the national transmission system and the transmission system operator's code of conduct. Completion date: September-24. Reviews: 2. Status: Implemented.
  - RM7: Ministry of Energy Transition and Sustainable Development to complete legal framework for energy efficiency via ministerial decrees, ESCOs draft decree, and lowering energy audit threshold. Completion date: September-24. Reviews: 2. Status: Completed (from initial implementation date of February 2025).
  - RM8: MEF to regularly publish, starting with the three-year budget programming document accompanying the 2025 Budget Law, an analysis of debt sustainability that will include the impact of climate change, with IMF technical assistance. Completion date: February-25. Reviews: 3. Status: Implemented.
  - RM9: MEF to produce and begin adopting a concept paper for the introduction of a carbon tax, in line with international financial institutions' recommendations, in consultation with MTEDD. Completion date: February-25. Reviews: 3. Status: Not implemented.
  - RM10: MEF to introduce in the 2024 Budget Law a reform phasing out existing brown tax expenditures by increasing the tax rate on polluting petroleum products. Completion date: February-25. Reviews: 3. Status: Not implemented and replaced by RM17.
  - RM11: MEF to issue a ministerial decree phasing out subsidies on butane gas, starting in 2024. Completion date: February-24. Reviews: 1. Status: Implemented.
  - RM12: MEF to mitigate RM10 impact by extending cash transfers under the new unified social register and helping farmers replace butane with solar pumps. Completion date: February-24. Reviews: 1. Status: Implemented.
  - RM13: MEF to complete legal framework for coverage against natural disasters by amending decree for Law 110-14. Completion date: February-24. Reviews: 1. Status: Implemented.
  - RM14: MEF, Bank Al-Maghrib and regulators to adopt and publish a national climate finance strategy estimating financing potential and improving climate risk management in the financial sector. Completion date: September-24. Reviews: 2. Status: Implemented.
  - RM15: Ministry of Economy to green national support for access to finance by introducing environmental impact assessment requirements for projects financed above a threshold. Completion date: September-24. Reviews: 2. Status: Implemented.
  - RM16: Bank Al-Maghrib to issue supervisory guidelines on disclosure and reporting of climate risks to banks, based on ISSB guidance, and specific guidance on large borrowers’ exposures to climate risks. Completion date: February-25. Reviews: 3. Status: Implemented.
  - RM17: MEF to introduce in the 2025 Budget Law elimination, as of January 1st 2025, of all existing tax exemptions linked to the domestic consumption tax (TIC) on coal and heavy fuel oil, and adjust this tax on coal and on 3 polluting petroleum products (bitumen, heavy fuel oil and lubricating oils), according to level set in the MPEF. Completion date: February-25. Reviews: 3. Status: Implemented in replacement of RM10.

### Institutional coordination and governance
- An inter-ministerial committee, comprising representatives of all stakeholders, has been set up by the MEF to coordinate and monitor implementation of reform measures under the RSF agreement.

### Relations with the Fund — key financial and institutional figures
- Membership status: Joined: April 25, 1958; Article VIII.
- General Resources Account:
  - Quota: 894.40 (SDR Million) 100.00 %Quota
  - IMF's Holdings of Currency (Holdings Rate): 1,013.64 (SDR Million) 113.33 %Quota
  - Reserve Tranche Position: 150.08 (SDR Million) 16.78 %Quota
- SDR Department:
  - Net cumulative allocation: 1,418.66 (SDR Million) 100.00 %Allocation
  - Holdings: 1,430.15 (SDR Million) 100.81 %Allocation
- Outstanding Purchases and Loans:
  - Precautionary and Liquidity Line: 268.85 (SDR Million) 30.06 %Quota
  - RSF Arrangements: 562.50 (SDR Million) 62.89 %Quota
- Latest financial commitments — Arrangements (Date of Expiration / Amount Approved / Amount Drawn):
  - FCL: Apr 03, 2023 / Apr 02, 2025 / 3,726.20 (SDR Million) / 0.00 (SDR Million)
  - RSF: Sep 28, 2023 / Apr 02, 2025 / 1,000.00 (SDR Million) / 562.50 (SDR Million)
  - PLL: Dec 17, 2018 / Apr 07, 2020 / 2,150.80 (SDR Million) / 2,150.80 (SDR Million)
- Overdue Obligations and Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs):
  - Forthcoming 2025: Principal 268.85 (SDR Million)
  - Charges/Interest: 29.49 (2025), 23.45 (2026), 23.45 (2027), 23.46 (2028), 23.44 (2029)
  - Total: 298.34 (2025), 23.45 (2026), 23.45 (2027), 23.46 (2028), 23.44 (2029)
- Exchange rate and regime:
  - Morocco’s exchange rate system: pegged exchange rate within horizontal bands; dirham’s fluctuation band broadened to ±5 percent on March 6, 2020 (from ±2.5 percent).
  - Basket weights: Euro 60 percent, US dollar 40 percent.
  - Capital controls: currently in place but in process of being loosened (examples provided).
  - As of January 31, 2025, the USD/dirham exchange rate was USD 1=DH 10.0377.
- Article IV:
  - Morocco is on the standard 12-month cycle.
  - Last Article IV concluded by the Executive Board on March 26, 2024.
  - Discussions for the 2025 consultation were held during January 27–February 7, 2025.

### Technical assistance, safeguards, and financial sector support
- Extensive technical assistance engagements listed across METAC, MCM, STA, FAD, and others with specific TA start and end dates (examples include METAC workshops, MCM monetary operations TA, STA national accounts, and ongoing FAD PFM-Fiscal Risks through 15 December 2026).
- FSAP update: latest performed in April 2015; findings discussed in October/November 2015 Article IV mission and by the Board on December 14, 2015; continued progress to upgrade the financial sector policy framework in line with 2015 FSAP recommendations.
- Safeguard assessment (2019): found strong safeguards at the central bank; steps to enhance financial reporting transparency and transition to IFRS are ongoing.
- Resident Representative: None.

### Climate vulnerability, impacts, and World Bank engagement (World Bank assessment letter for RSF)
- Climate and water stress indicators:
  - Share of territory under dry conditions (SPI): decreased from 96 percent in December 2023 to 60 percent in December 2024.
  - Historical average SPI share between 1981 and 2019: approximately 30 percent.
  - Dam filling rates: increased from 23 to 27.8 percent over the past year.
  - Agricultural employment impacts: 137 thousand job losses in 2024.
  - Localized floods caused at least 22 casualties in recent months despite overall dry conditions.
- Government climate policy and institutional arrangements:
  - Revision of the Nationally Determined Contribution (NDC 3.0) launched December 10, 2024; led by MTEDD with significant MEF contribution to align climate commitment and budget programming.
  - Long-Term Low Emission Development Strategy (LT-LEDS) finalized.
  - Government operationalizing a “whole of government” approach to strengthen coordination between MTEDD and MEF and to engage other line ministries.
- World Bank adjustments and priorities:
  - Morocco’s CPF has been adjusted to support climate transition following CCDR recommendations.
  - Third pillar of CPF articulated around objectives: (i) improving access to sustainable water resources; (ii) strengthening resilience to Climate shocks and Mitigation; (iii) promoting a “whole of government” approach to climate change.
  - Various World Bank operations and technical assistance programs are active or under preparation to contribute to these objectives.

*Source: 1marea2025001-print-pdf - 22. An inter-ministerial committee, comprising representatives of all stakeholders, has been set up by the MEF to coordinate and monitor the implementation of reform measures under the RSF agreement.*

### 7.      The Climate Support to Nationally Determined Contribution (NDC) Program-for-

### 7.      The Climate Support to Nationally Determined Contribution (NDC) Program-for-Results (PforR) is implementing satisfactorily (P178763).

### Implementation status and institutional coordination
- The program has been 18 months in implementation and already delivers results on the ground, enhancing the resilience of vulnerable ecosystems and people and fostering better coordination on the climate agenda in line with the “whole of government” approach.
- MEF is fully involved in the revision of the NDC, which will ensure that prioritized measures -unconditional- will be appropriately funded for the 3 first years of the NDC.
- MEF is working on the alignment of the upcoming NDC to medium-term budgeting.
- A new interministerial committee has been created to prepare for the emission of Sovereign Green Bonds.
- The Morocco Public Sector Performance program (ENNAJAA) PforR is accompanying the MEF in putting in place climate budget tagging (P181679).

### Support to budget policy alignment and Climate Budget Tagging (CBT)
- The World Bank has developed a holistic approach to public financial management and climate change in Morocco via operational involvement and the set-up of the Climate Unit within the MEF.
- Deployment priorities: Climate Budget Tagging (CBT) and NDC alignment.
- A draft methodology for CBT has been drafted and an interministerial committee (including 5 departments which will pilot it) has been set-up.
- Testing and timeline:
  - The methodology will be first tested out in February/March 2025.
  - Adjustments will follow for a circular to be issued in April 2025, paving the way for piloting.
- Technical assistance from the World Bank to set the basis for NDC alignment began in January 2025.

### Agri-food transformation and resilience (World Bank PforR)
- The World Bank approved a new US$250 million PforR in December 2024 (P181587) to support transformation of agri-food systems, aimed at increasing resilience to climate change and strengthening food safety and quality.
- Program components include support for:
  - Reform of the agricultural insurance system to make it sustainable amid increasingly recurrent droughts.
  - Support for the conservation agriculture program to adapt the cereal sector to climate change and mitigate it.
  - Reforms in production of resilient seeds, subsidies for selected seeds and machinery, extension services, and training programs.

### Water security and resilience (US$350 million PforR)
- The US$ 350 million Water Security and Resilience in Morocco PforR, approved in July 2023 (P179192), supports the government’s emergency program for Potable Water Supply and Irrigation (PNAEPI).
- Objectives and activities:
  - Address climate change impacts on securing drinking water and irrigation.
  - Strengthen institutional framework for managing water resources through preparation and adoption of the National Water Plan (PNE).
  - Enhance performance of River Basin Agencies for regional integrated water resources management.
  - Improve data and knowledge for robust investment planning and decision-support systems, including contingency preparedness for extreme hydroclimatic events.
  - Improve understanding and management of strategic groundwater resources.
  - Support Morocco's emissions reduction targets in the NDC through investments in rehabilitation of wastewater treatment for reuse and energy efficiency gains from reducing water loss in distribution networks.

### Banking supervision, climate disclosures, and RSF linkages
- The World Bank provided technical assistance to Bank Al-Maghrib's Banking Supervision Directorate for issuance of two directives on:
  - (i) climate disclosures, and
  - (ii) reporting for large exposures to climate risks.
- Both directives were adopted on January 24, 2025, and are to be reviewed by the IMF in the context of the RSF (Reform Measure 16) to confirm the corresponding disbursement.

### Statement by Moroccan authorities and macroeconomic context (selected findings)
- Growth:
  - Growth reached 3.3 percent in 2024 notwithstanding water stress and drought impacts.
  - GDP growth is expected to exceed 4 percent from 2025 driven by non-agricultural sectors.
- Inflation and monetary policy:
  - Inflation decreased to 0.9 percent in 2024 from 6.6 percent in 2022.
  - Two-year-ahead inflation expectations were estimated at 2.3 percent in the fourth quarter of 2024.
  - Bank Al Maghrib (BAM) lowered the policy rate twice by 25 bps in June and December 2024.
- External sector:
  - Current account deficit limited to 1.5 percent of GDP in 2024 following 0.6 percent in 2023.
  - International reserves cover more than 5 months of imports and reach 120 percent of the adjusted ARA metric.
- Fiscal performance and debt:
  - Fiscal deficit stood at 3.9 percent of GDP in 2024, compared to 4.4 percent in 2023 and 7.1 percent in 2020.
  - Tax revenues increased by 2.2 percent in 2024 due to recent tax reforms.
  - 2025 budget targets a fiscal deficit of 3.5 percent of GDP in 2025 and 3 percent from 2026.
  - Central government debt remained at nearly 70 percent of GDP, lower than the 70.3 percent envisaged in the 2024 budget and down from 72.2 percent of GDP in 2020.
  - Debt ratio is expected to gradually decline to about 67 percent in 2027 and to about 65 percent by 2030.
- Structural and social reforms:
  - Priorities include generalization of social protection using the unified social register, ambitious reforms in health and education, enhancing private sector role and job creation, reforming SOEs, and digital transformation under Digital 2030.
- Climate and energy achievements:
  - Share of renewable energy in total installed capacity reached 45.3 percent in 2024; objective of 52 percent before 2030 deemed achievable.
  - Reforms: introduction of regional multiservice companies, unbundling of ONEE financial accounts, planned transfer in 2025 of renewable energy production assets from ONEE to the Moroccan Agency of Sustainable Energy.
  - Water measures: dams, seawater desalination using renewable energies, reinforcement of interconnection of hydraulic systems, demand management (saving and reusing water), boosting rural drinking water supplies, wastewater reuse, and a communication strategy to rationalize water demand.
- RSF implementation status:
  - Morocco completed fifteen of the sixteen planned reform measures on schedule.
  - First series of RMs implemented in February and second series in September 2024; six additional RMs under the third and final review were implemented in February 2025.
  - Reforms implemented include abolition (in the 2025 Budget Law) of the exemption from the domestic consumption tax and an increase in this tax for several polluting products such as coal.
- Energy and water legal/regulatory advances:
  - ANRE published tariffs for the use of medium-voltage distribution networks and approved ONEE’s proposal to separate production, transmission, and distribution financial accounts.
  - Strategic study on the true cost of mobilization, production, and transport of water was carried out and presented to the National Water Commission.
  - Two decrees implementing the water law (36-15) aimed at preserving underground water resources were approved by the Government Council.
- Climate risk and fiscal analysis:
  - BAM published two new guidelines to strengthen banking sector communication and transparency on climate risks, aligned with international standards.
  - With IMF technical support, an analysis of the long-term fiscal risks linked to global warming has been incorporated into the PBT 2025-27.

### Carbon tax design and preparatory measures
- The Government decided to devote more time to finalizing the design document planned under RM9 to pursue consultations and ensure necessary conditions for successful implementation.
- Actions already taken toward introducing a carbon tax:
  - Analysis of the current state of environmental taxation and identification of prerequisites for adoption of a carbon tax.
  - Simulation and modelling exercises on the impact of the carbon tax on the Moroccan economy.
  - A training plan for customs officers has been conducted.
  - Responsibility for monitoring greenhouse gas (GHG) emissions entrusted to the Moroccan Institute for Normalization (IMANOR) as part of the amendment to the law on standardization, certification, and accreditation approved by the Government Council in February 2025.

*Source: Statement by Mr. Mohammed El Qorchi on Morocco, March 17, 2025; associated program descriptions and implementation notes contained in the provided chapter text.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1marea2025001-print-pdf.pdf_