## EXECUTIVE SUMMARY

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---

### Context
- Real GDP growth accelerated to 4.8 percent in 2025Q1:Q3, supported by a rebound in agricultural output and a surge in large-scale infrastructure projects.
- Inflation remained low, allowing Bank Al-Maghrib to maintain a neutral policy stance after earlier rate cuts.
- The current account widened moderately as imports rose with investment, partly offset by buoyant tourism.
- Revenue overperformance was used for additional spending on investment and transfers and a slightly faster than expected reduction in the overall fiscal deficit to 3.5 percent of GDP.
- Structural reforms advancing in health, education, and employment; preparations for large international events (including the 2030 FIFA World Cup) and S&P upgrade to investment grade noted.

### Article IV Consultation — Main Policy Messages
- Raise fiscal revenues and reduce unproductive spending to create space for priority social spending and possibly accelerate debt reduction.
- Scale up public infrastructure spending while carefully managing potential risks and investing in human capital.
- Maintain a data-dependent, broadly neutral monetary policy stance.
- Continue transition to greater exchange rate flexibility and an inflation-targeting framework, with clear communication on sequencing and priorities.
- Align regulatory and supervisory frameworks with international standards and enhance resilience as investment scales up.
- Boost sustainable job creation through a more dynamic private sector, improved labor market responsiveness, and continued SOE reforms to ensure market neutrality.

### Flexible Credit Line (FCL) Review
- Staff assesses Morocco continues to meet qualification criteria for the FCL arrangement and recommends completion of the review.
- Authorities intend to maintain the current level of access at this review and treat the FCL arrangement as precautionary while planning a gradual exit depending on external risks and drought risk.
- FCL specifics:
  - Two-year FCL approved on April 2, 2025, for SDR 3.45 billion (386 percent of quota, US$4.7 billion).
  - If fully drawn in 2026, outstanding Fund credit would peak at 3 percent of GDP or 8 percent of exports of goods and services in 2026; obligations to the Fund would peak in 2030 at 2.4 percent of exports of goods and services and 4 percent of gross international reserves.

### Recent Economic Developments — Key Findings
- Sectoral drivers: strong agriculture, construction, and services; tourism performed strongly (Africa Cup of Nations end-2025).
- Agriculture: agricultural value-added recovered with improved rainfall and higher cereal yields.
- Inflation and monetary policy:
  - Headline inflation was -0.3 percent (y/y) in December 2025.
  - BAM held its policy rate steady at 2.25 percent since June 2025, after three rate cuts totaling 75 basis points over the previous year.
- External sector:
  - Current account deficit widened to 1.7 percent of GDP in 2025Q1:Q3 (from 0.7 percent in 2024Q1:Q3).
  - International reserves reached USD 48.6 billion (134.2 percent of the adjusted ARA metric) at end-2025.
  - Financial account: rebound in net FDI and public sector Eurobond issuances totaling USD 3.9 billion.
- Fiscal developments:
  - Tax revenues reached 24.6 percent of GDP (1.4 percentage points higher than budgeted).
  - Public investment accelerated by 1.6 percent of GDP; higher transfers to SOEs of 0.6 percent of GDP.
  - Overall fiscal deficit declined to 3.5 percent of GDP (budget anticipated 3.8 percent).
- Financial sector:
  - Credit increased by 8 percent y/y in December 2025.
  - Provisioning at 68 percent.
  - New NPLs increased by 3.1 percent; aggregate NPL ratio declined to 8 percent (from 8.4 percent a year earlier).

### Outlook and Projections
- Growth:
  - Real GDP growth estimated at 4.9 percent for 2025 and projected at 4.9 percent for 2026.
  - Medium-term projection: real GDP growth at 4 percent, assuming normalized agricultural production and continued infrastructure investment.
- Inflation:
  - Projected to rise gradually toward 2 percent by mid-2027, with inflation expectations anchored at 2 percent.
- Current account:
  - Expected to gradually widen to 3.4 percent of GDP in 2029 before narrowing towards the estimated norm of 3.3 percent of GDP in 2031.
- Reserves:
  - International reserves expected to remain adequate, above the IMF’s adjusted ARA metric.
- Investment and trade:
  - Investment push expected to raise potential output via higher capital stock and greater productivity; wider deficit financed in part by higher FDI including new greenfield projects.

### Risks — Downside and Upside
- Downside risks:
  - High external uncertainty and geopolitical tensions increasing commodity price volatility.
  - Exposure to Euro Area slowdown reducing exports and FDI inflows.
  - Weaker-than-expected gains from public infrastructure investment could depress growth and employment.
  - Risk of drought remains significant.
- Upside risks:
  - Faster-than-expected private investment could raise productivity and growth, subject to managing risks related to a wider current account deficit, higher inflation, and government spending pressures.
  - Morocco’s role as a bridge between Europe, Africa, and the Middle East may yield benefits from GVC reshuffling if competitiveness is enhanced.

### Policy Priorities and Recommendations
- Fiscal policy:
  - Raise fiscal revenues and reduce unproductive spending; save part of any revenue overperformance to strengthen fiscal buffers.
  - Carefully manage scaling up of public infrastructure spending; complement with human capital investment.
- Monetary and exchange rate policy:
  - Maintain a data-dependent, broadly neutral monetary policy stance.
  - Continue transition toward greater exchange rate flexibility and an inflation-targeting framework with clear sequencing and priorities.
- Financial sector:
  - Continue aligning regulatory and supervisory frameworks with international standards; enhance resilience as investment scales up.
- Structural reforms and labor market:
  - Boost sustainable job creation via a more dynamic private sector, improved labor market responsiveness, and continued SOE reforms.
- Human capital and services:
  - Accelerate implementation of health, education, and social protection strategies; improve spending efficiency and public investment monitoring.

### Sensitivity Analysis and Contingency Framework (2026–2027 scenario)
- Scenario assumptions: worsening global conditions (higher oil prices, Euro Area slowdown, tighter financing) combined with domestic drought.
- External effects:
  - Imports increase due to terms-of-trade shock; exports contract with lower external demand.
  - Current account deficit would widen by about 2.7 percent of GDP.
  - Using the IMF FSGM coefficient: CA deficit widens by about 0.5 percentage points of GDP for every USD 10/barrel increase in oil prices.
  - Oil price assumption in sensitivity analysis: USD 80/barrel compared to USD 67 in the baseline.
- Real GDP impact:
  - Real GDP growth would be 1.9 percentage points lower in 2026-2027 (percentage points deviation from the baseline).
- Fiscal and debt impact:
  - Automatic stabilizers would increase the fiscal deficit on average by 0.2 percent of GDP per year.
  - Public debt would worsen by 1.6 percent of GDP by 2027 (percentage points deviation from the baseline).
- Monetary and financing responses:
  - If inflation expectations remain anchored, some monetary easing could support activity.
  - Financing gap could be met through limited reserve use and FCL drawings before fiscal consolidation resumes.
  - International reserves at end-2025: 134.2 percent of the adjusted ARA metric (compared to 121.9 percent projected in the FCL request).

### Fiscal Policy: Overview and Projections
- 2025 overall fiscal deficit: 3.5 percent of GDP (below pre-COVID level of 3.8 percent in 2019).
- MTFF projections:
  - Overall fiscal deficit to narrow to 3.4 percent of GDP in 2026 and to 3.3 percent of GDP by 2028.
  - Central government debt to GDP projected to decline from 67.1 percent at end-2025 to 60.8 percent by 2031 (compared to 60 percent pre-COVID).
- Risk assessment:
  - SR-DSF assessment: central government debt sustainable with high probability; contingent liability shock of 16.5 percent of GDP incorporated.
- Revenue and tax administration:
  - Tax revenues: 24.6 percent of GDP in 2025 (increase of 4.3 percent of GDP since 2021).
  - Projections: tax revenues to moderate to 24.5 percent in 2026 and stabilize at 24.4 percent over the medium term.
  - Revenue mobilization options: extension of withholding, reduction in tax expenditures, higher excises on tobacco, improved property taxation, progress on carbon tax design, leverage digitalization.

### Expenditure, Social Spending, and Prioritization
- Primary spending path expected to decline from 28.8 percent of GDP in 2025 to 28.5 percent in 2028.
- Space preserved for education and health spending.
- Real estate asset sales:
  - Expected decline in resources from sales from 2.3 percent of GDP in 2025 to zero by 2028; staff recommended detailing these operations in the MTFF and accounting for rental commitments in asset‑liability management.
- Social spending in 2026 budget: allocated 10.9 percent of GDP to Direct Social Assistance Program, health, education, and housing support (0.8 percent of GDP higher than in 2025).
- Healthcare coverage: increased from 42 percent in 2021 to 88 percent in 2025.

### Public Investment Acceleration: Scale, Financing, and Risks
- Connectivity and tourism infrastructure investments during 2024-2030:
  - Estimated MAD190 billion or 11.9 percent of 2024 GDP (data as of January 2026).
- Financing by level of government (share of 2024 GDP):
  - SOEs: 7.4 percent of GDP.
  - Subnational governments: 3.2 percent of GDP.
  - Central government: 1.4 percent of GDP (within the budget).
- Financing by source (percent shares noted):
  - External financing, 2.1, 18%
  - Domestic bank loans, 6.4, 53%
  - Domestic bonds and securitization, 2.1, 18%
  - SOE own funds, 1.4, 11%
- Investment by project type (percent shares noted):
  - Rail (ONCF), 6.0, 50%
  - Airports (ONDA), 2.4, 20%
  - Stadiums (SONARGES), 2.2, 19%
  - Highways (ADM), 0.9, 7%
  - Urban improvement, 0.5, 4%
- Identified risks:
  - Fiscal: higher public sector/SOE debt and debt service; contingent liabilities if user fees do not cover costs.
  - Economic: low public investment efficiency could crowd out private sector or create macro pressures.
  - Financial: banks’ aggregate exposure to the public sector 25 percent of total assets at end-2025; additional bank financing estimated at 6.4 percent of 2024 GDP (8.7 percent of bank credit); concentration risks: large exposures 2.8 times Tier 1 capital as of June 2025.
- Staff recommendations:
  - Identify, quantify, and monitor project and portfolio risks across SOEs and structured financing.
  - Ensure strict oversight and report infrastructure spending in the MTFF.
  - Advance SOE reforms and implement a digital platform for public investment linked to budget execution and the MTFF.

### Model Simulations and Efficiency Considerations (Box 1)
- Public investment program simulated: 11.9 percent of 2024 GDP during 2024–2030.
- Key findings:
  - Program delivers medium-term GDP gains as public capital raises productivity and crowds in private investment.
  - Impact dampened by high import content, temporary crowding-out, and expectations of future taxation.
  - Higher spending efficiency amplifies long-term growth and private investment without increasing debt.
  - Cost overruns can raise public debt substantially without improving output.
  - Well-designed user fees essential to contain contingent liabilities.

### Institutional and Fiscal Framework Improvements
- Staff supported revised Organic Budget Law introducing a fiscal rule based on a medium-term debt anchor.
- Authorities to establish procedures for setting targets, convergence period, and escape clause via executive regulations; numerical targets to be specified in the MTFF.
- Staff recommends prompt finalization of legal framework and greater specificity on invoking escape clause, accountability, and operational targets.

### Public Financial Management (PFM), PPPs, and SOEs
- Fiscal risk analysis in the MTFF being strengthened, particularly for SOEs and PPPs.
- Staff calls for systematic assessment and reporting of PPP and SOE commitments and contingent liabilities integrated into the MTFF.
- SOE facts and recommendations:
  - Commercial SOEs hold assets equivalent to 105 percent of GDP.
  - Staff recommends identifying and transparently compensating quasi‑fiscal activities, accelerating corporatization of 15 commercial public entities, finalizing privatization framework, and phasing out preferential treatment of SOEs.
  - ONEE reform: completion of electricity distribution reform into 12 Regional Multiservice Companies and faster implementation of ONEE’s restructuring.

### Monetary Policy — Stance, Transmission, and Recommendations
- Staff view: neutral monetary policy stance appropriate; policy decisions should remain data dependent.
- BAM maintained policy rate at 2.25 percent since June 2025 after cumulative cuts of 75 basis points.
- Real ex-ante policy rate broadly in line with staff estimates of the neutral rate; inflation projected to rise toward 2 percent by mid-2027.
- Transmission improvements since 2018: wider exchange-rate band, price-stability mandate (2019), enhanced communication.
- Empirical impulse responses:
  - A one-percentage point contractionary shock reduces output by 0.3 percent after 7 quarters (compared with 0.1 percent pre-reform).
  - The same shock lowers prices by 0.12 percent after 8 quarters (compared with 0.05 percent pre-reform).
- Channels and impediments:
  - Interest rate channel most active; deposit-rate pass‑through about 60 percent within 1–2 quarters.
  - Credit channel partial; exchange-rate channel stronger post-reform; asset price channel weak; expectations channel modest.
  - Structural impediments: bank-based intermediation, shallow capital markets, sticky prices (food and administered share ~40% of CPI), prevalence of fixed-rate and support lending schemes.
- Staff cautioned dual-anchor risks if announcing an inflation target while maintaining exchange-rate band; recommended temporariness, clear communication, and eventual removal of the exchange-rate band to fully reap IT benefits.
- BAM signaled intention to announce an inflation target (potentially in 2027) while maintaining the exchange rate band unchanged.

### Financial Sector — Supervisory Reforms and Systemic Risks
- Progress:
  - SREP deployment progressing; Pillar II capital requirements activation expected by 2027.
  - NSFR and ILAAP operationalization underway; first NSFR reports submitted in March 2025; ILAAP submissions expected by mid-2026.
  - Draft law regulating crypto‑assets submitted for consultation in October 2025; adoption expected in 2026.
- NPL reforms and market:
  - Circular 1/W/2025 strengthens forward-looking risk management and introduces a “sensitive” debt category; phased implementation enters into force in January 2027.
  - Draft law establishing NPL secondary market finalized and transmitted for legislative adoption; staff supports reducing write-off period from five to three years.
- Macroprudential recommendations:
  - 2024 new housing loan originations average LTV about 84 percent; 41 percent at LTVs 90–100 percent; about 8 percent above 100 percent—supporting binding LTV caps and stronger collateral valuation.
  - Develop borrower-level database by end-2026; enhance Basel CCyB calibration and consider a releasable, positive-neutral CCyB.

### Asset Quality, Pension Risks, and Governance
- Asset quality and NPL reforms:
  - Phased implementation of Circular 1/W/2025 and NPL market law to support timely loss recognition and market liquidity.
- Pension system:
  - Three largest civilian public pension funds have unfunded liabilities of 131.6 percent of GDP.
  - Without reform, one fund’s reserves deplete in 2031; annual budget subsidies estimated at 0.1 percent of GDP in 2031 rising to 0.6 percent of GDP by 2037.
  - Staff emphasized urgency of pension reform.
- Anti‑corruption and governance:
  - National Strategy for the Fight Against Corruption (SNLCC) 2015-2025 concluded; staff encouraged prompt design of new anti‑corruption strategy and progress on pending legislative reforms (illicit enrichment, conflicts of interest, whistleblower protection, asset declaration).

### Labor Market, Private Sector, and Job Plan 2030
- Labor market challenges:
  - 2025 unemployment rate reached 13 percent; youth unemployment and long-term unemployment elevated (Annex IX stats).
  - Structural constraints: agricultural transformation, large public sector footprint, limited SME financing, skills mismatches, barriers to female employment, public sector wage premium.
- Job Plan 2030 (launched February 2025):
  - Target: reduce unemployment to 9 percent by 2030.
  - Components: leverage public investment pipeline, support private investment via Investment Charter, scale up job-placement programs, revamp TVET, promote rural employment.
- SME and private-sector support:
  - Investment Charter projects totaling 24 percent of GDP approved; fiscal costs in 2025 of 0.2 percent of GDP.
  - Mohammed VI Investment Fund (FM6I), TAMWILCOM, and new Charter for Very Small Enterprises support SMEs.
  - Staff recommends monitoring employment outcomes, reducing regulatory hurdles, and promoting market neutrality.

### External Sector Assessment and Annex Highlights
- NIIP improved from -43.4 percent of GDP in 2024 to -42.7 percent in 2025; foreign assets 40.1 percent of GDP in 2025; foreign liabilities 82.8 percent of GDP in 2025.
- 2025 CA deficit estimated at -2.1 percent of GDP (EBA model cyclically adjusted CA -2.2 percent; CA norm -3.2 percent; staff CA gap 1 percent of GDP).
- REER in 2025 slightly appreciated ~2 percent vs 2024; assessed REER undervaluation 2.7 percent (range 1.4 to 4.1 percent) applying CA elasticity 0.37.
- Reserves: end-2025 FX reserves US$48.6 billion; 134.2 percent of the adjusted ARA metric; assessed adequate.

### Risk Assessment Matrix and Medium-Term Risks
- Main risks include geopolitical tensions, protectionism, commodity price volatility, severe drought, and weaker-than-expected infrastructure returns.
- Medium-term risks assessed as Moderate:
  - Debt fanchart width: 28.3 (percent of GDP)
  - Probability of debt non-stabilization: 18.1 (percent)
  - Terminal debt-to-GDP: 39.0
  - Debt fanchart index (DFI): 1.4 (Risk signal: Moderate)
  - Average baseline GFN: 10.4 (percent of GDP)
  - GFN financeability index (GFI): 10.9 (Risk signal: Moderate)
  - Initial banks' claims on the general government: 18.6 (pct bank assets)
  - Change in banks' claims in stress: 3.9 (pct banks' assets)
  - Prob. of missed crisis, 2026-2031: 18.2 percent; Prob. of false alarms: 39.8 percent
- Contingent liability shock used in stress test: 16.5 percent of GDP.

### Implementation and Follow-up
- Staff recommends:
  - Save part of revenue overperformance; accelerate fiscal consolidation and revenue mobilization (withholding extensions, tax expenditure rationalization, carbon tax consideration).
  - Strengthen MTFF, finalize fiscal rule, quantify and disclose fiscal risks, finalize PPP framework.
  - Continue monetary transition to inflation targeting with clearly communicated sequencing and temporary dual-anchor precautions.
  - Expedite SOE reforms, NPL market legislation, pension reform, and PFM enhancements.
- Next Article IV consultation expected on the standard 12-month cycle.

*IMF Executive Summary — Morocco, March 5, 2026.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- Real GDP growth accelerated to 4.8 percent in 2025Q1:Q3, supported by a rebound in agricultural output and a surge in large-scale infrastructure projects.
- Inflation remained low, allowing Bank Al-Maghrib to maintain a neutral policy stance after earlier rate cuts.
- The current account widened moderately as imports rose with investment, partly offset by buoyant tourism.
- Revenue overperformance was used for additional spending on investment and transfers and a slightly faster than expected reduction in the overall fiscal deficit to 3.5 percent of GDP.
- Structural reforms are advancing in key areas; implementation of health, education, and employment strategies is being accelerated.
- Morocco’s hosting of large international events (including the 2030 FIFA World Cup) and the upgrade to investment grade by S&P reflect strong investor confidence and open new opportunities for growth.

### Article IV Consultation — Main Policy Messages
- Focus on continued efforts to raise fiscal revenues and reduce unproductive spending to create space for priority social spending and possibly accelerate debt reduction.
- Scaling up public infrastructure spending is likely to support growth and increase productivity but calls for careful management of potential risks and greater investment in human capital.
- The current broadly neutral monetary policy stance is appropriate; future decisions should remain data dependent.
- Bank Al-Maghrib (BAM) is encouraged to continue the transition to greater exchange rate flexibility and an inflation-targeting framework, with clear communication on sequencing and priorities between policy objectives.
- BAM’s continued alignment of the regulatory and supervisory framework with international standards is welcome, with measures to enhance resilience as investment scales up.
- Boosting sustainable job creation requires a more dynamic private sector, improved responsiveness of the labor market, and continued reforms of state-owned enterprises to ensure market neutrality between the public and private sectors.

### Flexible Credit Line (FCL) Review
- Staff assesses that Morocco continues to meet the qualification criteria for access to the FCL arrangement.
- Staff recommends completion of the review under the FCL arrangement.
- While international reserves are higher, the authorities intend to maintain the current level of access at this review considering high uncertainty and elevated external risks, in addition to the risk of drought.
- The authorities intend to continue treating the FCL arrangement as precautionary and to gradually exit it, depending on the evolution of external risks.

### Recent Economic Developments — Key Findings
- Sectoral drivers: Strong agriculture, construction, and services boosted activity; tourism performed strongly, helped by hosting the Africa Cup of Nations at end-2025.
- Agriculture: Agricultural value-added recovered following improved rainfall and higher cereal yields.
- Inflation and monetary policy:
  - Headline inflation was -0.3 percent (y/y) in December 2025.
  - BAM held its policy rate steady at 2.25 percent since June 2025, following three rate cuts totaling 75 basis points over the previous year.
- External sector:
  - The current account deficit widened to 1.7 percent of GDP in 2025Q1:Q3, compared to 0.7 percent in 2024Q1:Q3.
  - International reserves reached USD 48.6 billion (134.2 percent of the adjusted ARA metric) at end-2025.
  - Financial account: rebound in net FDI and public sector Eurobond issuances totaling USD 3.9 billion.
- Fiscal developments:
  - Tax revenues reached 24.6 percent of GDP (1.4 percentage points higher than budgeted).
  - Public investment accelerated by 1.6 percent of GDP; higher transfers to SOEs of 0.6 percent of GDP.
  - The overall fiscal deficit declined to 3.5 percent of GDP, compared to 3.8 percent of GDP anticipated in the budget.
- Financial sector:
  - Credit increased by 8 percent y/y in December 2025.
  - Provisioning at 68 percent.
  - New NPLs increased by 3.1 percent; aggregate NPL ratio declined to 8 percent (from 8.4 percent a year earlier).

### Outlook and Projections
- Growth:
  - Real GDP growth is estimated at 4.9 percent for 2025 and projected at 4.9 percent for 2026.
  - Over the medium term, real GDP growth is projected at 4 percent, assuming normalized agricultural production and continued infrastructure investment.
- Inflation:
  - Inflation is projected to rise gradually toward 2 percent by mid-2027, with inflation expectations anchored at 2 percent.
- Current account:
  - Expected to gradually widen to 3.4 percent of GDP in 2029 before narrowing towards the estimated norm of 3.3 percent of GDP in 2031.
- Reserves:
  - International reserves are expected to remain adequate, above the IMF’s adjusted ARA metric.
- Investment and trade:
  - Investment push expected to raise potential output through a higher capital stock and greater productivity.
  - Wider deficit would be financed in part by higher FDI, including new greenfield projects as Morocco enhances GVC integration.

### Risks — Downside and Upside
- Downside risks:
  - High external uncertainty and geopolitical tensions could increase commodity price volatility, affecting the current account, inflation, and growth.
  - Exposure to Euro Area slowdown could reduce exports and FDI inflows.
  - Weaker than expected economic gains from public infrastructure investment could result in subdued growth and employment; persistent high unemployment could lead to social pressures.
  - Morocco remains exposed to the risk of drought.
- Upside risks:
  - A faster-than-expected increase in private investment could raise productivity and growth, subject to careful management of risks related to a wider current account deficit, higher inflation, and government spending pressures.
  - Over the medium to longer term, Morocco’s potential as a bridge between Europe, Africa, and the Middle East may allow benefits from GVC reshuffling if competitiveness is enhanced.

### Policy Priorities and Recommendations
- Fiscal policy:
  - Raise fiscal revenues and reduce unproductive spending to create fiscal space for priority social spending and possibly accelerate debt reduction.
  - Carefully manage the scaling up of public infrastructure spending, with attention to risks and complementary investment in human capital.
- Monetary and exchange rate policy:
  - Maintain a data-dependent, broadly neutral monetary policy stance.
  - Continue transition toward greater exchange rate flexibility and an inflation-targeting framework, with clear communication on sequencing and priorities.
- Financial sector:
  - Continue aligning regulatory and supervisory frameworks with international standards and enhance resilience as investment scales up.
- Structural reforms and labor market:
  - Boost sustainable job creation via a more dynamic private sector, improved labor market responsiveness, and continued SOE reforms to ensure market neutrality.
- Human capital and services:
  - Continue reforms to improve access, quality, and efficiency in health, education, and social protection services.

*IMF Executive Summary — Morocco, March 5, 2026.*

### 11.      Given heightened uncertainty, the authorities should prepare to deploy contingency

### 11.      Given heightened uncertainty, the authorities should prepare to deploy contingency measures if adverse risks materialize.

### Sensitivity analysis and contingency framework
- Scenario assumptions for 2026-2027: worsening of global economic conditions (including higher oil prices, a Euro Area slowdown, and tighter financing conditions) combined with domestic drought (see Annex II).
- External effects:
  - Imports would increase due to the terms-of-trade shock.
  - Exports would contract due to lower external demand.
  - The resulting wider current account deficit would widen by about 2.7 percent of GDP.
  - Compared to the baseline, using the coefficient from the IMF FSGM for Morocco, the current account deficit would widen by about 0.5 percentage points of GDP for every USD 10/barrel increase in oil prices.
- Real GDP impact:
  - Real GDP growth would be 1.9 percentage points lower in 2026-2027 (percentage points deviation from the baseline).
- Fiscal and debt impact:
  - Allowing automatic stabilizers to function would increase the fiscal deficit on average by 0.2 percent of GDP per year.
  - Public debt would worsen by 1.6 percent of GDP by 2027 (percentage points deviation from the baseline).
- Monetary and financing responses:
  - If inflation expectations remain anchored, some monetary easing could support activity.
  - A financing gap would emerge and could be met through limited reserve use and FCL drawings, before fiscal consolidation resumes as growth recovers.
  - Higher level of international reserves at end-2025: 134.2 percent of the adjusted ARA metric (compared to 121.9 percent projected in the FCL request).
- Oil price assumption in sensitivity analysis:
  - Oil prices of USD 80/barrel compared to USD 67 in the baseline.

### Authorities’ views and macro outlook
- Authorities broadly shared staff’s views on risks, with a more optimistic growth outlook.
- Authorities’ assessment:
  - Growth driven by robust domestic demand, supported by infrastructure investment.
  - Upgraded near-term growth forecast reflecting impact of exceptional rainfall on agricultural output.
  - Noted exceptional job creation in 2025 and improving labor market dynamics outside agriculture; unemployment remains elevated.
  - Expected inflation to normalize to about 2 percent in 2027.
  - More favorable assessment of the current account outlook and considered the risk of overheating to be contained.
  - Highlighted desalination investment as key to increasing resilience and viewed external risks, particularly from the euro area, as contained.
- Policy guidance summary:
  - Continue gradually rebuilding fiscal buffers while making more room for priority social spending.
  - Further raise fiscal revenues and reduce unproductive spending.
  - Invest in human capital and carefully manage risks to fully reap benefits of accelerating public infrastructure.
  - Monetary policy stance remains appropriately neutral and should stay data-dependent.
  - Continue transition to greater exchange rate flexibility and an inflation targeting regime, with clear sequencing and priority communication.
  - Reforms to support a more dynamic private sector, improve labor market responsiveness, and promote market neutrality between public and private sectors to support sustainable job creation.

### Fiscal policy: overview and projections
- 2025 overall fiscal deficit: 3.5 percent of GDP (now below pre-COVID level of 3.8 percent of GDP in 2019).
- MTFF projections:
  - Overall fiscal deficit to narrow to 3.4 percent of GDP in 2026.
  - Overall fiscal deficit to narrow to 3.3 percent of GDP by 2028.
  - Central government debt to GDP projected to decline from 67.1 percent at end-2025 to 60.8 percent by 2031 (compared to 60 percent pre-COVID).
- Risk assessment:
  - SR-DSF assessment indicates central government debt remains sustainable with high probability; risk of sovereign stress remains moderate.
  - Assessment incorporates a contingent liability shock of 16.5 percent of GDP (compared to 12.4 percent of GDP in the 2025 SR-DSF) to account for scaling up of infrastructure spending.
- Staff recommendation:
  - Save at least part of any revenue overperformance to further strengthen fiscal buffers.

### Revenue measures and tax administration
- Tax revenues: 24.6 percent of GDP in 2025, an increase of 4.3 percent of GDP since 2021.
- Projections:
  - Tax revenues to GDP projected to moderate marginally to 24.5 percent in 2026.
  - Stabilize at 24.4 percent over the medium term.
- Drivers of revenue gains:
  - Revenue administration reforms: full digitalization of tax and customs declarations and payments, tax administration reforms documented in the 2025 TADAT, and tax withholding.
- Further revenue mobilization options encouraged by staff:
  - Gradual extension of tax withholding to increase number of taxpayers and foster self-assessment.
  - Ongoing reduction in tax expenditures.
  - Higher excises on tobacco and improved property taxation of real estate assets.
  - Progress in design and implementation of a carbon tax (RSF reform measure pending).
  - Leverage digitalization to reach new taxpayers and strengthen core tax administration functions (improving integrity of the taxpayer registry, enhancing VAT refund mechanism, reducing tax arrears).

### Expenditure, social spending, and prioritization
- Primary spending path:
  - Expected to decline from 28.8 percent of GDP in 2025 to 28.5 percent of GDP in 2028 (driven by expenditure-rationalization, reduction of subsidies, lower transfers to SOEs, improved targeting of social benefits).
- Space preserved for education and health spending.
- Real estate asset sales:
  - Expected decline in resources from real estate asset sales from 2.3 percent of GDP in 2025 to zero by 2028.
  - These sales entail long-term budgetary commitments related to rental payments that can increase budget rigidity.
  - Staff recommended providing greater detail of these operations in the MTFF and taking into account their cost in asset-liability management strategy.
- Social spending in the 2026 budget:
  - Allocated 10.9 percent of GDP to the Direct Social Assistance Program, health, education, and housing support (0.8 percent of GDP higher than in 2025).
- Healthcare coverage progress:
  - General healthcare insurance coverage increased from 42 percent of the population in 2021 to 88 percent in 2025, with continued efforts to reach full coverage.
- Staff calls:
  - Accelerate implementation of authorities’ strategies on health and education.
  - Improve spending efficiency, prioritization, selection, and monitoring of public investment projects to improve execution and outcomes.

### Public investment acceleration: scale, financing, and risks
- Connectivity and tourism infrastructure investments during 2024-2030:
  - Estimated MAD190 billion or 11.9 percent of 2024 GDP (includes railways, roads, airports; stadiums; urban and tourism infrastructure).
  - Data as of January 2026.
- Financing by level of government (share of 2024 GDP):
  - SOEs would finance 7.4 percent of GDP of these investments (through concessional external financing, domestic loans and bonds, and own funds).
  - Subnational governments would cover 3.2 percent of GDP (through bank loans).
  - Central government would finance 1.4 percent of GDP (within the budget).
- Financing by source (percent shares noted):
  - External financing, 2.1, 18%
  - Domestic bank loans, 6.4, 53%
  - Domestic bonds and securitization, 2.1, 18%
  - SOE own funds, 1.4, 11%
- Investment by project type (percent shares noted):
  - Rail (ONCF), 6.0, 50%
  - Airports (ONDA), 2.4, 20%
  - Stadiums (SONARGES), 2.2, 19%
  - Highways (ADM), 0.9, 7%
  - Urban improvement, 0.5, 4%
- Identified risks from large investment projects and off-budget financing:
  - Fiscal risks: higher public sector (including SOEs) debt and debt service; unanticipated higher costs; contingent liabilities if user fees do not fully cover debt servicing and maintenance; structured financing mechanisms could impact central government revenues and expenditure (for instance lower royalties or higher future commitments).
  - Economic risks: if low public investment spending efficiency undercuts growth, crowding out of private sector, or macroeconomic pressures emerge; having investment expenditure and financing mostly outside central government budget could weaken fiscal policy effectiveness.
  - Financial sector risks: banks’ aggregate exposure to the public sector 25 percent of total assets at end-2025; additional bank financing for large-scale projects through 2030 estimated at 6.4 percent of 2024 GDP, or 8.7 percent of bank credit; concentration risks elevated—on- and off-balance-sheet commitments classified as large exposures (exceeding 5 percent of own funds) amounted to 2.8 times Tier 1 capital as of June 2025.
- Staff recommendations to mitigate risks:
  - Identify, quantify, and monitor main risks and contingent liabilities of individual projects and the consolidated portfolio across SOEs and structured financing mechanisms.
  - Implement mitigation measures as needed.
  - Ensure strict oversight of all infrastructure spending and financing, report overall infrastructure spending amounts and profile over time in the MTFF to assess macroeconomic impact.
  - Concerted progress on ongoing SOE reforms and reporting on fiscal risks (including those related to structured financing mechanisms) in the MTFF.
  - Implement new digital platform for public investment projects linked to budget execution modules and the MTFF to support better planning, execution and monitoring.

### Model simulations and efficiency considerations (Box 1)
- Public investment program simulated: 11.9 percent of 2024 GDP public investment during 2024–2030.
- Key simulation findings:
  - Program delivers meaningful medium-term GDP gains as higher public capital raises productivity and eventually crowds in private investment.
  - Impact on growth is dampened by high import content, temporary crowding-out of the private sector, and expectations of future taxation to meet debt servicing costs.
  - Higher spending efficiency significantly amplifies long-term growth and private investment, without increasing debt.
  - Cost overruns can raise public debt substantially without improving output.
  - Well-designed user fees are essential to contain contingent liabilities.
- Comparative and model details:
  - Charts compare long-term macroeconomic impact (10 years out) of alternative scenarios using IMF’s Flexible System of Global Models (FSGM).
  - Infrastructure efficiency gap: Morocco vs EMDE, 1980–2023 (0–1, lower = better) shown in accompanying analysis.
  - Scenario labels used in simulations: Scenario A: Baseline; Scenario B: High public investment spending efficiency; Scenario C: Low public investment spending efficiency; Scenario D: Cost overruns; Scenario E: Tax financing.

### Institutional and fiscal framework improvements
- Staff supported revised Organic Budget Law to introduce a new fiscal rule based on a medium-term debt anchor.
- Authorities’ implementation plans:
  - Procedures for setting the target, defining convergence period, and triggering the escape clause to be established through executive regulations.
  - Numerical targets to be specified in the MTFF.
- Staff recommendations:
  - Prompt finalization of the legal framework and implementation of the rule.
  - Greater specificity regarding procedures for invoking the escape clause, accountability mechanisms, and operation targets.

*Source: IMF staff calculations.*

### 18.      Staff encouraged further progress in strengthening public financial management

### 18.      Staff encouraged further progress in strengthening public financial management

### Public Financial Management (PFM) — findings and recommendations
- The fiscal risk analysis in the MTFF is being strengthened, particularly of SOEs and public‑private partnerships (PPPs).
- Staff emphasized the fiscal risk analysis should include the impact of SOE structured financing mechanisms on central government revenues and expenditure.
- Staff welcomed the new PFM framework aimed at reinforcing:
  - budget performance,
  - transparency,
  - sustainability,
  - promoting inclusion in areas such as climate, gender, and territorial development.
- Staff called for concerted progress in:
  - preparing consolidated general government financial statistics,
  - adopting GFSM2014.

### PPPs and SOE-related fiscal risks
- PPPs: currently only a reduced number are in operation (mainly in water desalination) but are expected to have an increasing role in delivering infrastructure investment over the medium term (including energy, agriculture, water).
- Staff highlighted the need to:
  - implement the new PPP framework,
  - systematically assess and report on commitments and potential contingent liabilities,
  - integrate PPP and SOE risks into the MTFF.
- Staff emphasized attention to the impact of structured financing mechanisms used by SOEs on central government revenues and expenditure.

### Authorities’ views on fiscal policy and PFM
- Authorities broadly agreed with staff’s views and reaffirmed strong commitment to fiscal discipline and further reducing public debt.
- They welcomed staff’s assessment of strong fiscal performance, attributing it in part to recent tax reforms.
- Authorities noted recent increase in spending mainly reflected acceleration of priority structural projects—particularly in education and health—and scaled‑up infrastructure investment in water, energy, and transportation.
- Authorities’ stated objectives for higher capital spending:
  - address long‑standing social and infrastructure gaps,
  - support medium‑term growth and resilience.
- Authorities reiterated commitment to:
  - further strengthening revenue mobilization,
  - rationalizing current spending,
  - improving the efficiency and quality of public investment,
  - ensuring spending is aligned with effective and measurable public policy outcomes.
- Authorities emphasized that expanding and modernizing social protection both strengthens social cohesion and supports economic formalization and competitiveness.
- On PFM enhancements, authorities indicated:
  - provisions for prioritization of public investment projects were introduced in draft amendments to the Organic Budget Law,
  - investment project business plans are based on realistic revenue-generation capacities of SOEs.
- On fiscal space and asset sales:
  - While committed to continue rebuilding fiscal buffers, the use of any additional fiscal space would reflect a careful balance between further fiscal consolidation and the need to support growth in the medium and long term.
  - Resources mobilized through real estate asset sales have helped support social and infrastructure policies while preserving debt sustainability.
  - Reliance on these mechanisms will be gradually reduced and fully phased out by 2028, supported by continued progress in revenue mobilization, sustained control of current expenditures, and further improvements in public investment efficiency.
- Authorities noted commitment to advancing the preparation of general government financial statistics.

### Monetary policy — stance, transmission, and recommendations
- Staff view: the neutral monetary policy stance is appropriate; future policy rate decisions should continue to be data dependent.
- BAM maintained the policy rate steady since June 2025 to assess earlier rate cuts amid heightened external uncertainty and projected pickup in economic activity supported by accelerated public investment.
- The real ex-ante policy rate is broadly in line with staff estimates of the neutral rate.
- Inflation is projected to rise gradually to around 2 percent by mid-2027; the broadly neutral policy stance remains appropriate.
- Policy adjustments should continue to be guided by developments in actual inflation and inflation expectations.
- Staff analysis finds monetary policy transmission has improved since 2018, coinciding with:
  - widening of the exchange-rate band,
  - legal adoption of price stability as the primary objective in 2019,
  - enhancements in BAM’s communication practices.
- Staff encouraged BAM to continue transition to greater exchange rate flexibility and an inflation targeting (IT) framework, with clear communication on sequencing and priorities between policy objectives.
- Preparatory steps noted:
  - improved functioning and liquidity of FX markets,
  - refined macro-forecasting tools,
  - adapted communication strategies,
  - introduction of interbank FX swaps and overnight index swaps.
- BAM signaled intention to announce an inflation target (potentially in 2027) while maintaining the exchange rate band unchanged.
- Staff cautioned that having two nominal anchors at the same time raises the risk of policy conflicts and recommended:
  - ensuring the dual-anchor approach is temporary,
  - clearly communicating priorities between policy objectives,
  - removing the exchange-rate band remains preferable to fully reap benefits of a full-fledged inflation targeting framework.
- Staff noted Morocco is well placed to advance toward greater exchange rate flexibility given:
  - the low inflation environment,
  - well-anchored inflation expectations,
  - comfortable level of international reserves,
  - backing of the FCL.

### Monetary policy transmission — empirical findings (Box 2)
- Reforms considered: price-stability mandate (2019), widening exchange-rate fluctuation band (2018 and 2020), enhanced central bank communication.
- Empirical results (local projections) show monetary policy transmission strengthened post-reform (2018Q1 to 2025Q3) versus pre-reform (2007Q1-2017Q4), but remains:
  - relatively slower for output,
  - more muted for inflation compared with other emerging markets.
- Specific impulse responses:
  - A one-percentage point contractionary shock reduces output by 0.3 percent after 7 quarters (compared with 0.1 percent pre-reform).
  - The same shock lowers prices by 0.12 percent after 8 quarters (compared with 0.05 percent pre-reform).
- Channel analysis:
  - Interest rate channel: most active; deposit-rate pass‑through is partial (about 60 percent within 1– 2 quarters).
  - Credit channel: partial — effects more evident for short‑term and services‑sector credit; medium- and long‑term agricultural and manufacturing credit show muted responses.
  - Exchange‑rate channel: stronger post-reform; NEER and MAD/EUR appreciate meaningfully following policy tightening.
  - Asset price channel: weak — no statistically significant reaction of equity prices detected.
  - Expectations channel: modest — inflation expectations decline very gradually, often following adjustments in actual inflation.
- Structural impediments to transmission: bank-based financial intermediation, shallow capital markets, sticky prices (large food and administered share of CPI), prevalence of fixed-rates and support lending schemes.

### Authorities’ views on monetary policy
- Authorities shared staff’s assessment and emphasized future policy decisions will remain data dependent.
- Authorities reaffirmed commitment to a careful and sequenced move toward an IT framework and greater exchange rate flexibility, underpinned by BAM’s track record and operational enhancements.
- They view announcing an inflation target while maintaining the exchange rate band unchanged as an intermediate step to enhance operational flexibility and clarify prioritization of price stability while allowing market participants time to prepare.
- Sequencing to be accompanied by efforts to deepen FX market liquidity and hedging instruments, including:
  - operationalization of close‑out netting,
  - establishment of an appropriate tax framework for hedging instruments.
- Authorities considered tensions from dual nominal objectives manageable and noted mitigation from capital flow management measures, solid fundamentals, comfortable reserve buffers, and the FCL.
- Authorities stressed importance of progress on operational readiness, market development, and communication, and indicated they will clearly communicate sequencing and prioritization, monitor market conditions, and adjust pace of reforms in line with market readiness and macroeconomic developments.

### Financial policy — supervisory reforms and systemic risks
- BAM continues to strengthen regulatory and supervisory framework in line with international standards.
- Progress and expectations:
  - Deployment of Supervisory Review and Evaluation Process (SREP) progressing with successive assessment cycles completed.
  - Activation of Pillar II capital requirements expected by 2027.
  - Operationalization of the Net Stable Funding Ratio (NSFR) and the Internal Liquidity Adequacy Assessment Process (ILAAP) is underway:
    - banks submitted first NSFR reports in March 2025,
    - ILAAP submissions are expected by mid-2026.
  - Draft law regulating crypto‑assets submitted for public consultation in October 2025; adoption expected in 2026.
- While systemic risks are limited, priority remains strengthening resilience to emerging risks:
  - Banks’ increased public‑sector financing and associated concentration risks warrant enhanced monitoring as public investment is scaled up through SOEs.
  - Increased use of special purpose vehicles (SPVs) or other structured‑finance entities in bank financing of public sector infrastructure can complicate identification of ultimate borrower and obscure risk correlations; staff recommended continuing a look‑through approach in large‑exposure metrics and stress tests, explicitly recognizing guaranteed portions and enhancing disclosure.
  - Staff supported BAM’s careful sequencing of NPL reforms and encouraged fast-tracking operationalization of the NPL secondary market to safeguard asset quality while supporting new lending.
    - Early market infrastructure emerging, including first NPL securitization in 2023.
    - Scaling up requires swift adoption of pending law establishing the secondary NPL market, completion of implementing regulations, and associated tax measures.
    - Staff supported reducing the write-off period from five to three years to remove disincentives to timely loss recognition and support market liquidity.
    - Staff commended Circular 1/W/2025 for strengthening forward-looking risk management and improving timeliness of loss recognition by introducing a “sensitive” debt category, aligning restructured exposures treatment with international standards, and establishing minimum provisioning floors.
    - Circular’s phased implementation enters into force in January 2027 with different transition windows for selected criteria.
  - Macroprudential recommendations:
    - 2024 new housing loan originations had an average loan-to-value (LTV) ratio of about 84 percent, with 41 percent of new loans originated at LTVs of 90–100 percent, and about 8 percent above 100 percent — supporting the case for binding LTV caps and stronger collateral valuation standards.
    - The 2008 ethics code provides guidance to keep LTV ratios below 100 percent, indicating scope to formalize and calibrate borrower-based tools using improved data.
    - Staff recommended introducing binding LTV caps calibrated at more conservative levels, supported by robust collateral valuation standards.
    - Staff welcomed authorities’ efforts to develop a comprehensive borrower-level database to be completed by end-2026 to address data gaps and support more granular calibration of LTV limits and improve debt-service-to-income metrics.
    - Staff welcomed BAM’s plan to enhance calibration of the Basel countercyclical capital buffer (CCyB), notably by considering additional risk indicators alongside its reference parameter (the credit-to‑GDP gap).
    - Staff considered adopting a releasable, positive-neutral CCyB (PN CCyB) in normal times would help build buffers that can be released in periods of stress; authorities should ensure banks maintain excess voluntary capital buffers or sufficient profitability to accommodate buffer build-up, with an appropriate phase-in, before PN CCyB requirements become binding.

### Financial Sector Assessment Program (FSAP) and authorities’ views on financial stability
- A new FSAP is tentatively scheduled to be launched in FY2027 to update the 2015 financial sector recommendations and provide a comprehensive review in light of planned scaling up of public investments.
- Authorities stressed the banking sector remains resilient, underpinned by strong capital, liquidity and profitability buffers.
- Authorities emphasized exposure to the public sector and large infrastructure projects remains manageable and subject to close supervisory oversight:
  - large projects predominantly financed through long-term, syndicated and structured arrangements that distribute risks across institutions and over time,
  - projects benefit from prudential treatment aligned with Basel standards and regular supervisory monitoring,
  - concentration risks largely reflect the economy’s structure (predominance of large corporates alongside a fragmented SME sector) and are governed by the regulatory large exposure limit.

*Source: IMF staff and Moroccan authorities as presented in the cited IMF chapter.*

### 29.      Regarding asset quality and NPL reforms, the authorities reiterated their commitment

### Regarding asset quality and NPL reforms, the authorities reiterated their commitment

### Asset quality, NPL reforms, and supervisory measures
- Authorities aim to safeguard banks’ balance sheets while supporting credit provision.
- Phased implementation schedule of Circular 1/W/2025, supported by multiple impact studies and supervisory guidance, is intended to ensure a smooth transition while reinforcing forward-looking risk management.
- Draft law establishing the NPL secondary market has been finalized and transmitted for inclusion in the legislative adoption process.
- Ongoing efforts to strengthen judicial recovery through an inter-institutional framework with the Ministry of Justice.
- Discussions with the tax authorities to align the tax treatment of provisions with prudential rules.

### Macroprudential policy and financial stability roadmap
- Credit growth remains moderate and broadly aligned with economic activity.
- Work to implement the LTV is underway.
- Authorities adopted a 2026–30 financial stability roadmap, which plans to reinforce the macroprudential toolkit.
- Enhancements under consideration:
  - Strengthen the credit-to -GDP based CCyB framework with a broader risk dashboard incorporating a wider set of indicators.
  - Assess the suitability of a PN CCyB for Morocco.

### Structural reforms: summary and priorities
- Sustainable job creation requires reforms to encourage a more dynamic private sector and improve labor market responsiveness.
- Structural factors contributing to labor market weaknesses include: structural transformation of the agriculture sector, a large public sector footprint, insufficient private-sector dynamism, limited SME access to financing, skills mismatches, barriers to female employment, high reservation wages for some segments of the workforce, and labor market rigidities (including related to part-time jobs).

### Private-sector dynamism and SME support
- Investment Charter provides direct subsidies and tax exemptions for private investment projects in priority sectors (including SMEs and startups) subject to minimum investment and employment outcomes.
  - So far, projects totaling 24 percent of GDP have been approved, with fiscal costs in 2025 of 0.2 percent of GDP.
- Mohammed VI Investment Fund (FM6I) supports private investment through private equity, venture capital, and project finance, including for SMEs and startups.
- Public credit guarantor TAMWILCOM provides partial public guarantees to ease SME credit risk.
- New Charter for Very Small Enterprises, launched in December 2025, introduces a unified “Small Business” scoring system and leverages BAM’s preferential refinancing mechanisms.
- Staff recommendations: closely monitor employment outcomes, continue reducing regulatory and administrative hurdles, and promote market neutrality between public and private sectors.

### Job Plan 2030 and labor-market measures
- Job Plan 2030, launched in February 2025, addresses high unemployment, weak SME job creation, and low participation rates, focusing on youth and women.
- Plan components: leverage public investment pipeline (temporary and permanent jobs mainly in construction, logistics, and tourism), support private sector investment (including through the Investment Charter), scale up and unify job-placement programs, revamp TVETs and the skills-matching framework, and promote rural employment.
- Staff welcomed stronger coordination across national and local levels, closer private-sector collaboration in program design, expanded internships, and expanded support for youth without diplomas.
- Complementary reforms needed: align education and TVET with labor market needs and modernize the labor code to improve worker conditions and employers’ flexibility.

### SOE performance, governance, and fiscal risks
- Commercial SOEs hold assets equivalent to 105 percent of GDP.
- Many SOEs receive government transfers and privileged treatment; several major SOEs exhibit financial vulnerabilities that could pressure the budget via higher transfers, capitalization needs, or contingent liabilities.
- Staff recommendations:
  - Identify, quantify, and transparently compensate quasi‑fiscal activities to safeguard financial viability and support cost‑recovery objectives.
  - Accelerate transformation of 15 commercial public entities into corporations to facilitate resource and cost optimization, improve service delivery, and gradually open to private investors.
  - Swiftly finalize reform of the privatization framework to clarify rules for changes in state ownership and establish criteria for selecting companies to be privatized.
  - Limit state intervention to cases justified by clear public interest and rigorous cost‑benefit analysis; eliminate preferential treatment of SOEs versus private entities; improve SOE performance to phase out budget transfers.
- Fiscal risk monitoring and oversight:
  - Strengthen coordination between ANGSPE and the Ministry of Finance.
  - At the individual SOE level, comprehensively monitor all types of financing and future commitments.
  - At the portfolio level, obtain visibility into how structured financing mechanisms affect SOE balance sheets and fiscal risks.
  - Clarify framework for program contracts, especially transparent remuneration of public‑service obligations.
  - Quantify and disclose contingent liabilities relating to SOEs in the fiscal risk annex of the MTFF (including risks from structured financing mechanisms).
- ONEE reform:
  - Completion of electricity distribution reform through creation of 12 Regional Multiservice Companies to clarify roles and responsibilities.
  - Faster implementation of ONEE’s restructuring plans needed to increase transparency in cost allocation, facilitate tariff setting for cost recovery, ease sector regulation, and support fairer access to the electricity network.

### Pension system sustainability
- The three largest civilian public pension funds have overall unfunded liabilities of 131.6 percent of GDP.
- Without reform, the reserves of one pension fund will deplete in 2031, and others subsequently.
- Once reserves are depleted, schemes would require annual budget subsidies estimated at 0.1 percent of GDP in 2031 and rising to 0.6 percent of GDP by 2037.
- Stakeholder discussions are in early stages; technical work is ongoing on a detailed diagnostic of each pension fund.
- Staff emphasized the urgency of implementing pension reform to address projected unfunded pension liabilities and ensure fiscal sustainability.

### Anti‑corruption, market competition, and governance
- The National Strategy for the Fight Against Corruption (SNLCC) 2015-2025 has concluded; its implementation is being assessed by INPPLC.
- Staff encouraged prompt design and implementation of a new anti‑corruption strategy and continued implementation of the 2023 public procurement reforms.
- Competition Council actions to prevent anti‑competitive practices and a cooperation agreement with INPPLC to address collusion risks were welcomed.
- Staff urged progress on pending legislative reforms: illicit enrichment, conflicts of interest, protection of whistleblowers, and asset declaration of public officials.

### Authorities’ views
- Authorities agreed that high youth unemployment reflects structural constraints requiring stronger private-sector dynamism and better skills matching.
- Emphasized operational focus of Job Plan 2030 and ANAPEC’s expanded role in integrating training, job intermediation, and employer partnerships.
- Pointed to recent non-agricultural job gains as evidence of structural transformation underway.
- Reaffirmed commitment to strengthening SOE corporate governance (board professionalization, independent directors, specialized committees, enhanced managerial accountability) and noted progress under the PAE.
- Indicated intention to strengthen fiscal-risk analysis and disclosure in the MTFF and that SOEs make limited use of public guarantees.
- Reaffirmed commitment to strengthening transparency and accountability and that forthcoming anti‑corruption strategy will build on the 2015–2025 assessment.

### FCL qualification review and macro‑financial indicators
- Staff assesses that Morocco continues to meet all the FCL qualification criteria.
- Key assessments and figures:
  - External position: 2025 External Balance Assessment concluded Morocco’s external position in 2025 is moderately stronger than the level implied by medium-term fundamentals and desirable policies.
  - External debt projected to stabilize around 43 percent of GDP in the medium term.
  - Capital account: Private capital flows averaged 51 percent of total flows in 2023-2025.
  - Sovereign market access: In 2025, public issuances in international markets reached USD 3.9 billion on favorable terms, including USD 1.75 billion issued by OCP; sovereign bond spreads were at 115 basis points in mid-January 2026.
  - Market access continuity: Public sector raised USD 9.9 billion (more than 8 times Morocco’s IMF quota) over 2021-2025.
  - Reserves: End-2025, reserves were at 102.8 percent of the unadjusted ARA metric and 134.2 percent of the adjusted ARA metric (the latter averaging 128.2 percent in 2023-2025). Reserves never fell below 80 percent of the adjusted or unadjusted ARA metric in 2021-2025.
  - Public debt and fiscal position: Central government debt declined to 67.1 percent of GDP in 2025. Staff assesses debt as sustainable with high probability.
  - Inflation and monetary policy: Inflation averaged 3.2 percent in 2021-2025; inflation expectations remain anchored at around 2 percent. BAM has maintained a broadly neutral monetary policy stance.
  - Financial system soundness: Systemic risks remain limited; no solvency or recapitalization concerns. Banks’ Tier 1 capital ratio and liquidity buffers are well above regulatory minimums. NPLs are relatively high, but provisioning is comfortable. Regular stress tests by BAM confirm system resilience.
  - Supervision and data: Effective financial sector supervision; BAM advancing SREP implementation. Data quality adequate for surveillance; Morocco performs well on SDDS requirements.
  - Institutional strength: Strong commitment to macroeconomic stability; MTFF strengthened; latest PEFA confirms strong public financial management performance. Areas for improvement: quantify risks in the MTFF, implement a new fiscal rule, and further enhance public investment management.
  - Track record: All relevant core indicators were met in each of the past five years, supporting continued FCL qualification.

*Source: IMF staff summary of Morocco Article IV Consultation and related assessments.*

### 38.      The authorities intend to continue treating the FCL arrangement as precautionary and

### The authorities intend to continue treating the FCL arrangement as precautionary and to gradually exit it, depending on the evolution of external risks.

### FCL arrangement status and access
- Morocco’s two-year FCL arrangement was approved on April 2, 2025, for SDR 3.45 billion (386 percent of quota, US$4.7 billion).
- The authorities intend to maintain the current level of access at this review considering high uncertainty and elevated external risks, in addition to the risk of drought.
- The FCL has served as an important precautionary buffer, helping the authorities to pursue very strong macroeconomic policies and ambitious structural reforms amid new adverse shocks.
- Updated estimates show that the external stress index weakened in the baseline and remains significant in the downside scenario (similar to the FCL request) (Annex II).

### Capacity to repay and program modalities
- Morocco’s capacity to repay the Fund remains adequate in the medium to long run.
- Under the adverse scenario where the FCL is assumed to be fully drawn in 2026:
  - Obligations to the Fund would peak in 2030 at 2.4 percent of exports of goods and services and 4 percent of gross international reserves.
  - Outstanding Fund credit would peak at 3 percent of GDP or 8 percent of exports of goods and services in 2026.

### Safeguards and audit
- Safeguards procedures were completed for Morocco’s 2025 FCL arrangement with no significant issues identified.
- Deloitte Morocco issued an unmodified audit opinion on the BAM’s 2024 financial statements, which were published on the BAM’s website on a timely basis.

### Macroeconomic outlook and risks
- Real GDP growth projections:
  - 4.9 percent in 2026.
  - 4 percent over the medium-term, assuming normalized agricultural production and continued public and private infrastructure investment.
- Inflation projected at 2 percent over the forecast horizon.
- Main external risks: global uncertainty and geopolitical tensions, commodity price volatility, higher trade barriers, global supply chain disruptions, and potential Euro Area slowdown.
- Main domestic risk: weaker than expected economic gains from public infrastructure investment leading to subdued growth and employment.
- If downside risks materialize, available policy space, including the FCL, would help the economy adjust smoothly.

### Fiscal performance, buffers, and recommendations
- Staff welcomes strong revenue performance and gradual rebuilding of fiscal buffers; encourages saving at least part of any revenue overperformance.
- Revenue outturns were exceptional, mainly reflecting improvements in revenue administration; this facilitated a smaller than anticipated fiscal deficit despite higher than budgeted spending on public investment and SOE transfers.
- The 2026 budget and MTFF are consistent with a gradual reduction in debt to GDP to 60.8 percent by 2031, compared to 60 percent pre-COVID.
- Recommendations to create fiscal space and accelerate debt reduction:
  - Gradual extension of withholding.
  - Further rationalization of tax expenditures.
  - Introduction of a carbon tax.
  - Prioritization of current and capital expenditure.
  - Continued gradual reduction of subsidies.
  - SOE reforms to rationalize expenditure and reduce contingent liabilities.
  - Pension reform to ensure sustainability of the pension system.

### Fiscal framework and public financial management (PFM)
- Adoption and implementation of a new fiscal rule would strengthen the fiscal framework; staff encourages prompt finalization of the legal framework and greater specificity on the escape clause, accountability mechanisms, and operation targets.
- PFM enhancements recommended:
  - Greater quantification of fiscal risks in the MTFF.
  - Finalization of the PPP framework.
  - Further improvements in public investment management.

### Public investment, human capital, and risk management
- Accelerated public infrastructure spending raises productivity but requires further investments in human capital and careful risk management to fully reap benefits.
- Critical actions:
  - Identify, quantify, and monitor fiscal risks and contingent liabilities of individual projects and the consolidated portfolio.
  - Implement mitigation measures as needed.
  - Maintain central government oversight of infrastructure spending.
  - Monitor concentration risks in the financial sector.
  - Accelerate implementation of health and education strategies and improve spending efficiency.

### Monetary policy and exchange rate framework
- Current neutral monetary policy stance is appropriate; future decisions should remain data dependent given the real ex-ante policy rate broadly in line with staff’s estimates of the neutral rate.
- Staff encourages the transition to greater exchange rate flexibility and a full-fledged inflation targeting framework.
  - For the proposed intermediate step (announcing an inflation target while maintaining the exchange rate band unchanged), staff recommends the dual-anchor approach be temporary and priorities be clearly communicated.
  - Removing the exchange-rate band remains preferable to fully reap the benefits of a full-fledged inflation targeting framework.

### Financial sector resilience and structural reforms
- Systemic risks are limited but strengthening resilience to emerging risks remains a priority.
  - Monitor banks’ increased public sector financing and concentration risks as public investment scales up.
  - Continue carefully sequenced NPL reform to strengthen forward-looking risk management and timeliness of loss recognition.
  - Expedite the NPL secondary-market law and advance its operational underpinnings to improve asset quality.
  - Further strengthen the macroprudential framework to ensure sustainable credit growth with well-managed risks.

### Labor market, private sector, and governance
- Sustainable job creation requires:
  - Stronger private-sector dynamism.
  - Reducing the large state footprint.
  - Improved labor market responsiveness.
- Recommended actions:
  - Prompt implementation of Job Plan 2030.
  - Education reforms to address skills mismatches.
  - Modernization of the labor code to improve worker conditions and employers’ flexibility.
  - Expand private sector access to financing and targeted support to SMEs and startups.
  - Progress on anti-corruption and competition reforms, and strengthen legislative frameworks on illicit enrichment, conflicts of interest, whistleblower protection, and asset declaration.

### State-owned enterprises (SOEs)
- SOE reform is essential to reduce fiscal risks and promote private sector development.
  - Step up implementation of the 2024 State Shareholding Policy.
  - Swift finalization of the privatization framework to identify sectors for private participation.
  - Phase out preferential treatment of SOEs to promote market neutrality.
  - Strengthen assessment, monitoring, and management of SOE fiscal risks, including contingent liabilities.
  - Restructuring of ONEE’s business model, including review of the tariffication system to ensure cost recovery, remains a priority.

### Qualification and staff recommendation
- Staff’s view: Morocco continues to meet the qualification criteria for the FCL arrangement.
  - Morocco has very strong macroeconomic policies and institutional policy frameworks as well as very strong economic fundamentals.
  - Authorities have a very strong track record of policy implementation and reiterated commitment to maintaining very strong policies.
  - Staff considers that maintaining the current level of access at this review while continuing to treat the arrangement as precautionary remains appropriate and recommends completion of the FCL review.

*Source: National authorities and IMF staff estimates.*

### 53.      The next Article IV consultation with Morocco is expected to be conducted on the

### The next Article IV consultation with Morocco is expected to be conducted on the standard 12-month cycle.

### Socioeconomic indicators
- GDP per capita (PPP; 2021 international dollar*) has been increasing steadily (figure headline).
- Human Development Index (Index, 0-1) has improved significantly and is approaching the MENA average (figure headline).
- Life expectancy and infant mortality show significant improvement (figure headline).
- Adult literacy rate has risen sharply, though remains below the MENA average (figure headline).
- School enrollment has climbed considerably, helping to close the gap with respect to MENA and EM averages (figure headline).
- Inequality remains elevated (Gini index**) (figure headline).
- Sources cited: World Bank Development Indicators, HCP, UNDP, UNDESA, World Economic Outlook, IMF staff calculations.
- Notes: *MENA uses median value of MENA countries; EM uses average of emerging market countries; **MENA uses average value from 2000 instead of 2001.

### Real sector developments
- Real GDP grew at 4.8 percent on average in 2025Q1:Q3.
- Domestic demand accelerated on the back of a surge in infrastructure investment (figure headline).
- Demand contributions shown for Private Consumption, Public Consumption, Investment, Net Exports to GDP growth (figure content).
- Household confidence is recovering gradually while business sentiment is still declining (Consumer Confidence Index Neutral=100; Business Outlook 12-month moving average).
- The total unemployment rate remains elevated; youth unemployment remains historically high (Aggregate Labor Market Indicator; Unemployment Rate series).

### Agricultural sector and weather outcomes
- Precipitation improved markedly in Dec-Jan across the country, offsetting earlier deficits and bringing cumulative rainfall above seasonal norms in key regions such as Fez-Meknes (Cumulative Precipitation: Fez-Meknes).
- Rainfall closed earlier deficits in typically drier southern areas, including Marrakech-Safi (Cumulative Precipitation: Marrakech-Safi).
- Agricultural Stress Index (ASI) points to a broad easing of water stress across most regions following recent rainfall improvement.
- Dam storage increased sharply following the exceptional rainfall, with average filling rates close to recent highs, significantly improving irrigation buffers (Water Stock in Dams: Percentage of total capacity).
- Nowcasting models suggest improved rainfall and water availability will result in higher agriculture production (Agricultural GVA Nowcasting Estimates (2025Q4)).
- Expectations are of a solid recovery in cereal production after two below-average seasons (Cereal Production, Million quintals).
- Sources: ERA5, Département de l’Eau, FAO, ONICL, and IMF staff calculations.
- FAO ASI note: reported at dekadal (10-day) frequency; monthly plotting uses third dekad as proxy; analyses use original dekadal ASI.

### External developments
- Import growth in 2025 remained strong and export growth gradually recovered from the drop earlier in the year (Goods Trade YTD, Growth rate, y-o-y).
- Weak automotives exports, especially in 2025H1, reflected lower European demand for non-electric vehicles (EU: New Passenger Cars Annual percentage change).
- Import growth was driven by consumer and capital goods, while energy imports were lower (Goods Imports breakdown: Food Products, Raw Products, Energy Products, Finished Consumer Goods, Intermediate Products, Capital Goods).
- Tourism revenues were stronger (Tourism Revenues YTD, % of GDP).
- Remittances softened (Remittances YTD, % of GDP).
- Net FDI flows rebounded from the past two years (Net FDI YTD, % of GDP).
- Sources: Office des Changes and Haver.

### Fiscal developments
- Revenue to GDP has continued rising in 2025, supported by growth in the collection of corporate taxes and VAT, and exceeding the initial projections (Tax Revenue and Grants, Percent of GDP).
- Spending to GDP in 2025 was also higher than budgeted due to higher transfers to SOEs and public investment (Government Spending, Percent of GDP).
- The overall deficit declined from 3.8 percent of GDP in 2024 to 3.5 percent of GDP in 2025, supported by strong revenue performance despite higher spending (Government Budget Deficit, Percent of GDP).
- Budget financing remained balanced between external and domestic sources (Government Budget Financing, Percent of GDP).
- Public debt continued to decline supported by a favorable interest rate-growth differential, a stronger dirham, and continued fiscal policy efforts (Public Debt, Percent of GDP).
- Sovereign spreads have continued to fall, at a faster rate than the EMBI (Weighted Average Spread, Bps).
- Sources: National Authorities; Haver, Bloomberg L.P.; IMF Sovereign Debt Monitor; and IMF staff calculations.

### Monetary and financial developments
- Bank Al-Maghrib (BAM) held rates steady since June, following three rate cuts totaling 75 bps between June 2024 and March 2025.
- The dirham appreciated in 2025, trading near the strong end of the band since April (Exchange Rate Fluctuation Band: Lower bound, Upper bound, Central Rate Dhs/US$).
- Yields on government securities declined following the easing cycle (Government Bond Yields, Percent).
- Lending rates declined but less so for SMEs and individuals (Bank Lending Rates and Policy Rate, Percent; Policy rate (LHS) Overall lending Individuals SMEs Large firms).
- Inflation expectations remained anchored around 2 percent (Inflation Expectations, Percent).
- Stock and real estate prices have increased in recent quarters amid improved growth momentum (Stock and Real Estate Prices: Casablanca All Share Index; Residential real estate prices Q1 2006 = 100).
- Sources: Bank Al-Maghrib, Haver, and IMF staff calculations.

### Banking sector developments
- Credit growth strengthened in 2025, supported by large infrastructure projects and lower interest rates (Bank Credit series).
- Lending to the public sector picked up since early 2025, outpacing credit growth to other sectors, but its share remains modest, accounting for less than 10 percent of total bank credit (Bank Credit by Institutional Sector; Shares in total).
- Credit to private nonfinancial firms strengthened in 2025 H2, driven by robust growth in financing for machinery and equipment despite weak working capital lending (Bank Credit to Private Nonfinancial Firms breakdown: Working Capital, Equipment, Real Estate, Others).
- NPL ratio for non-financial firms has declined recently in line with accelerating credit growth, while that of households has remained elevated (Nonperforming Loans, Percent).
- Banks’ exposure to the public sector stands at about 25 percent of assets, largely concentrated in government securities, with an additional exposure of around 5 percent to public-sector-linked financial entities (Banks’ Exposure to Public and Public Sector-Linked Entities, Percent of claims as share of total banks’ assets).
- Sources: Bank Al-Maghrib, Haver, and IMF staff calculations.
- Note: “Other” credit exposure increase since mid‑2023 largely driven by OPCIs.

### Health and education sectors
- Moroccan government spends around 5 percent of GDP on education, higher than the average for EMs (Government Expenditure on Education, Total, 2023 Percent of GDP).
- Health spending is around 2 percent of GDP, below the average for EMs (Domestic General Government Health Expenditure, 2022 Percent of GDP).
- Morocco’s public spending efficiency gap in education is higher than EMs; efficiency gap in health is lower than in EMs (Public Spending Efficiency Gap: Education and Health, 2024, scale 0-1).
- Select education outcomes suggest Moroccan students underperform compared to EM peers (Mean PISA Score, 2022 average of mathematics, reading, and science).
- Select health outcomes are closer to the average of EM peers (Healthy Life Expectancy at Birth, 2021 Years).
- Sources: World Bank Development Indicators, OECD, WHO, IMF Fiscal Monitor, October 2025.

### Leveraging non-traditional data and nowcasting: Agriculture, Tourism, and Unemployment
- Agricultural sector:
  - High volatility of agricultural sector GDP points to the need for a sectoral nowcasting model.
  - Satellite imagery provides early alerts of drought and tracks cropland stress and recovery (Agricultural Stress Index, NDVI correlation with cereal production r -0.83).
  - Several satellite indicators show moderate to high correlation with agriculture’s value added, supporting use as timely proxies.
  - Machine learning models (random forest with 1SE) capture non-linearities and provide timely insights, identifying trends and turning points up to 5 months before official data becomes available (Agriculture GVA Nowcasting Results; in-sample and out-of-sample).
  - Note: Nowcasting analysis based on forthcoming IMF Working Paper (Hamed, 2026).
- Tourism:
  - Official tourism arrivals and receipts are published with a 1-month lag.
  - STA’s Passenger Capacity Index from FlightRadar24 shows strong co-movement with official tourism arrivals and is available with a 1-week lag.
  - Google Trends searches for travel-related topics co-move with tourism receipts; Google Trends and STA’s Passenger Capacity Index enable nowcasting tourism revenues up to 1 month before official data (Tourism Revenues Nowcasting).
- Unemployment:
  - Google Trends searches related to job hunting, job platforms, and unemployment support provide timely signals of labor-market conditions.
  - Google Trends data is used to nowcast the unemployment rate up to 4 months before official data becomes available (Unemployment Rate Nowcasting).
- Sources: FAO, NASA, ECMWF, FlightRadar24, Google Trends, and IMF staff calculations.

### Key fiscal and macro aggregates (selected table highlights)
- Overall deficit: declined from 3.8 percent of GDP in 2024 to 3.5 percent of GDP in 2025 (figure text; Table 2b).
- Primary balance (Table 2a headline): series show primary balances and overall balances across 2021–2031 (Table 2a and 2b present detailed figures and percent-of-GDP series).
- Central Government Debt: Table 2a headline shows central government debt levels in currency units and Table 2b shows central government debt as percent of GDP across projections (detailed numeric series in tables).
- Balance of Payments, Monetary Survey, Financial Soundness Indicators, and Indicators of Fund Credit (Adverse Scenario) are presented in Tables 3–6 with source and methodological notes (tables provide detailed numeric series and scenario assumptions).

*Source: IMF staff compilation from the referenced figures, tables, and notes in the provided document.*

### Annex I. External Sector Assessment

### Annex I. External Sector Assessment

### Overall assessment
- Morocco’s external position in 2025 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 2025 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 may imply greater imports but can also increase FDI inflows and increase competitiveness.
- Continued fiscal discipline would be important for containing the increase of the current account deficit.
- The planned transition to an inflation targeting framework and a flexible exchange rate regime should enhance protection against external shocks.

### Foreign asset and liability position and trajectory
- Background and levels (percent of GDP):
  - NIIP improved from - 43.4 percent of GDP in 2024 to -42.7 percent in 2025 and is estimated to remain at 42.5 percent in 2026.
  - Foreign assets: 40.1 percent of GDP in 2025 (mostly international reserves 26 percent of GDP and other investments 6 percent of GDP).
  - Foreign liabilities: 82.8 percent of GDP in 2025 (mostly direct investment 38.7 percent of GDP and other investment 32.1 percent of GDP).
  - NIIP is projected to stabilize over the medium term around -45.5 percent of GDP.
- Assessment:
  - Morocco’s NIIP is sustainable.
  - Planned structural reforms 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.
- Key 2025 figures (percent of GDP):
  - NIIP: -42.7
  - Gross Assets: 40.1
  - Reserve Assets: 26
  - Gross Liabilities: 82.8
  - Gross External Debt: 45.1

### Current account
- Background and projections:
  - 2025 CA deficit is estimated to have widened to 2.1 percent of GDP, from 1.2 percent in 2024.
  - The deficit is expected to gradually increase to 3.5 percent of GDP in 2029 (due to an acceleration of public infrastructure projects) and then settle at about 3.4 percent of GDP over the medium term as stronger private sector investment and consumption boost imports, despite continued robust performance of both tourism revenues and remittances.
- Assessment and model estimates (2025, percent of GDP):
  - EBA model estimated a cyclically adjusted CA deficit of 2.2 percent of GDP.
  - Estimated cyclically adjusted CA norm: -3.2 percent of GDP.
  - Standard error: 0.5 percent of GDP.
  - Resulting staff CA gap: 1 percent of GDP (with a range of 0.5 to 1.5 percent).
  - Identified policy gaps: 3.1 percent of GDP (contributions from private credit, fiscal balance, and capital controls).
  - Unexplained residual: -2.1 percent of GDP.
- Additional 2025 figures (percent of GDP):
  - CA: -2.3
  - Cycl. Contributions: -0.1
  - Cycl. Adjusted CA: -2.2
  - Cycl. Adjusted CA Norm: -3.2
  - Total Gap: 1

### Real exchange rate (REER)
- Background:
  - In 2025, the REER is slightly appreciated by about 2 percent relative to 2024, reflecting the appreciation of the NEER (3.6 percent) that is not entirely offset by the lower inflation relative to trading partners.
- Assessment:
  - Consistent with the estimated CA gap of 1 percent of GDP and applying an elasticity of the CA to REER of 0.37, the REER is assessed to be undervalued in 2025 by 2.7 percent (with a range of 1.4 to 4.1 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 were estimated to have rebounded after a dip in 2023.
  - External borrowing has benefited from the state-owned enterprise OCP’s bond issuance in international markets.
- Assessment:
  - Progress in structural reforms—particularly those aimed at developing the private sector, accelerating the transition to renewable energy, and increasing water resources—are expected to support FDI inflows.
  - Greater private investment will likely require continued reliance on external borrowing.
  - Risks of capital flow reversal are limited by remaining capital account controls on residents and the structure of external public debt (including central government and public enterprises) whose average remaining repayment term was 9 years in 2024.

### FX intervention and reserves level
- Background:
  - Morocco’s exchange rate is pegged to a basket including the Euro and the US Dollar (60 and 40 percent weights, respectively) and can fluctuate within ±5 percent band around this central parity.
  - FX reserves at end 2025 are US$48.6 billion, increasing from US$37.1 billion in 2024.
  - The increase followed public sector issuance of US$3.9 billion bonds in international markets in 2025, including US$1.75 billion issued by OCP.
  - Additionally, the depreciation of the dollar against the euro, and the rise in gold price contributed to the increase of reserves in dollar terms.
- Assessment:
  - At around an estimated 134.2 percent of the ARA metric (adjusted for capital controls), the level of reserves in 2025 is assessed to be adequate.
  - Staff projects reserves to remain around 123 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.
  - 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.

---

### Annex II. External Economic Stress Index (EESI) — key points
- Concept:
  - The EESI is a composite indicator of vulnerability related to external shocks based on: (i) key external risks facing Morocco, (ii) proxy variables capturing these risks, and (iii) choice of weights applied to each variable.
- Main external risks:
  - (i) Economic downturn in advanced economies, particularly the euro area, leading to a decline in exports, FDIs, tourism, and remittances.
  - (ii) Rising commodity prices, particularly food and energy imports.
  - (iii) Tightening of global financial conditions, reducing volume and increasing cost of external financing.
- Proxy variables:
  - Decline in exports, FDIs, tourism and remittances captured by decline of real GDP growth in the euro area.
  - Rise in commodity import prices captured by increase in global oil prices.
  - Tighter global financial conditions captured by change of the US 10-year Treasury yield.
- Weights (standardized):
  - Euro area growth: 0.69
  - Change in global oil prices: 0.23
  - Change in US 10-year Treasury yield: 0.08
  - These weights correspond to impacts estimated using the IMF’s Flexible System of Global Models (FSGM).
- Baseline scenario:
  - Follows October 2025 WEO projections for Eurozone growth and oil prices; change in US 10-year Treasury yield consistent with GAS assumptions as of October 2025.
  - EESI suggests external economic stress has weakened in the past year (-0.29) compared to the time of the 2025 FCL request (+0.26), driven mainly by the lower growth in the main trading partners in the Euro Area.
  - The EESI is expected to strengthen moderately in 2026 and 2027 (+0.05 on average), reflecting projections of a slightly better euro area growth outlook and lower global oil prices.
- Downside scenario assumptions:
  - Decline in real GDP growth in the euro area of 2.0 and 2.4 percentage points below the baseline in 2026 and 2027, respectively (based on October 2025 WEO adverse scenario and further stressed by 1 standard deviation).
  - Oil prices assumed to be around 20 percent higher than the baseline in 2026 and 2027 (85th percentile of confidence interval around the central projection for oil prices).
  - US 10-year Treasury yield assumed to increase by two standard deviations above the baseline.
  - Under this downside scenario, external pressures would be severe and persist for the remainder of the FCL, similar to projections at the time of the 2025 FCL request.

### Annex III. Risk Assessment Matrix — selected risks, likelihoods, impacts, and policy responses
- Geopolitical tensions and intensification of conflicts
  - Relative likelihood: High
  - Expected impact: Low (disruptions in trade and FDI will negatively impact economic activity; diversification could soften spillovers)
  - Policy responses:
    - Fiscal: protect vulnerable segments with well-targeted, temporary, and budget-neutral cash transfers using the Unified Social Registry.
    - Monetary: central bank stand ready to ease monetary and credit conditions while ensuring inflation pressures remain contained.
- Protectionism and trade disruptions
  - Relative likelihood: High
  - Expected impact: Medium (vulnerability to higher trade barriers and supply chain disruptions, especially via Euro Area slowdown)
  - Policy responses:
    - Maintain involvement in key global value chains and work with trading partners to avoid distortive measures.
    - Accelerate structural reforms to support international competitiveness and productivity.
- Commodity price volatility
  - Relative likelihood: High
  - Expected impact: High (higher commodity prices could push headline inflation higher and drag down growth)
  - Policy responses:
    - Central bank may need to raise policy rates and consider adjustments to the dirham’s exchange rate band under an inflation-targeting regime.
    - Fiscal policy should protect vulnerable populations via targeted, temporary, budget-neutral cash transfers, while limiting and gradually phasing out subsidies and sector-specific financial support.
- Severe drought reducing agricultural production
  - Relative likelihood: High
  - Expected impact: Medium (agriculture ~10 percent of value added, ~25 percent of goods exports, ~1/3 of workforce; CPI very sensitive to food prices ~40 percent of CPI basket)
  - Policy responses:
    - Accelerate implementation of macro-critical reforms for climate adaptation, increase water supply via infrastructure plan, and set ground for a tariff framework reflecting water scarcity.
    - Consider targeted short-term fiscal support for vulnerable segments, like the rural population.
- Weaker than expected gains from public infrastructure investment implementation
  - Relative likelihood: Low
  - Expected impact: Medium (weaker growth and debt dynamics; potential social pressures if employment gains underdeliver)
  - Policy responses:
    - Improve public investment management and public investment efficiency.
- Faster than projected private investment implementation
  - Relative likelihood: Medium
  - Expected impact: Medium (upside to growth but risk of overheating, higher inflation, wider current account deficit, increased fiscal pressures and contingent liabilities)
  - Policy responses:
    - Maintain fiscal discipline, rationalize spending, increase revenues.
    - Monetary policy to respond with higher policy rates to keep inflation expectations anchored.

### Annex IV. Sovereign risk and debt sustainability assessment — key points
- 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 is projected to decline gradually in the medium term to around 61 percent of GDP in 2031, reflecting the announced path of fiscal consolidation.
  - Ongoing efforts to mitigate medium- and long-term risks include strengthening the medium-term fiscal framework and reforming the pension system.
- Coverage:
  - SRDSA covers central government debt (domestic and external).
- Background levels and drivers:
  - Central government debt: 71.4 percent of GDP in 2022; 67.7 percent in 2024; 67.1 in 2025.
  - 2025 decrease driven by high nominal GDP growth (6.9 percent), real growth accelerating to 4.9 percent, GDP deflator growth 1.9 percent, and a lower primary fiscal deficit (1.1 percent of GDP).
  - Gross financing needs decreased from 13.6 percent in 2024 to 12.2 percent of GDP in 2025.
- Baseline projections and assumptions:
  - Under the baseline, central government debt expected to decrease gradually to around 61 percent of GDP by 2031 (compared to 65 percent in the last Article IV consultation), in line with the Medium-Term Fiscal Framework published as part of the 2026 Budget.
  - Gross financing needs expected to decrease to 9.5 percent of GDP in 2026 and stabilize at around 11 percent in the medium term.
  - Government interest payments expected to be stable in the medium term.
  - The initial REER undervaluation of 2.7 in 2025 is assumed to unwind gradually by 2031.

*International Monetary Fund — Annex I. External Sector Assessment (extracted content).*

### 4.      Medium-term risks. Medium-term risks are assessed to be moderate, based on the debt

### 4. Medium-term risks

### Medium-term risk assessment — overall finding
- Medium-term risks are assessed to be moderate, based on the debt fanchart module and the gross financing needs (GFN) module.
- Debt fanchart index—measuring medium-term solvency risks—indicates a moderate risk.
- GFN financeability index also indicates a moderate risk, with GFN stabilizing in the stress scenario.
- The contingent liability stress test indicates a path of gross financing needs substantially above the baseline for the medium term when contingent liabilities materialize from local entities, central government-guaranteed domestic debt, and external debt of public establishments and enterprises.
- Medium-term fiscal framework improvements (continued reinforcement of the MTFF, strengthening fiscal risk analysis, and implementation of a fiscal rule anchored on public debt) will help contain medium-term risks.

### Key statistics and indicators (exact values preserved)
- Debt fanchart width: 28.3 (percent of GDP)
- Probability of debt non-stabilization: 18.1 (percent)
- Terminal debt-to-GDP: 39.0
- Debt fanchart index (DFI): 1.4 (Risk signal: Moderate)
- Average baseline GFN: 10.4 (percent of GDP)
- Initial banks' claims on the general government: 18.6 (pct bank assets)
- Change in banks' claims in stress: 3.9 (pct banks' assets)
- GFN financeability index (GFI): 10.9 (Risk signal: Moderate)
- Medium-term index: between the high and low risk thresholds (final assessment: Moderate)
- Prob. of missed crisis, 2026-2031, if stress not predicted: 18.2 pct.
- Prob. of false alarms, 2026-2031, if stress predicted: 39.8 pct.

### Contingent liabilities (shock and composition)
- Contingent liability shock used in stress test: 16.5 percent of GDP (compared to 12.4 percent of GDP in the 2025 AIV).
- Shock incorporates:
  - New external SOE debt of around MAD 29 billion.
  - New domestic debt of regions of around MAD 50.8 billion linked to scaling up of infrastructure.
  - Earlier domestic guaranteed debt of regions: MAD 30 billion.
  - Earlier domestic guaranteed SOE debt: MAD 56 billion.
  - External guaranteed SOE debt: MAD 116 billion.
- Mitigating features of contingent liabilities: almost two thirds of debt is domestic; external SOE debt has long maturities and favorable interest rates; SOE external debt is fully hedged through 2030.

### Debt coverage and disclosure notes
- Consolidated general government financial statistics are not yet readily available; authorities are preparing consolidated statistics (to include the Treasury, extrabudgetary central government (non-profit public establishments), local entities, and retirement and social security organizations) with IMF technical assistance.
- The authorities produce consolidated general government debt statistics that exclude SOEs, consistent with their exclusion from the government sector in the national accounts.
- In 2024, general government debt was 63.9 percent of GDP, about 3.8 percentage points lower than central government debt, as non-profit public establishments and retirement and social security organizations hold some central government debt.

### Sustainability and baseline debt trajectory (exact projected path)
- Debt is assessed to be sustainable with high probability.
- Public debt (percent of GDP) — baseline sequence shown:
  - 2025: 67.1
  - 2026: 65.7
  - 2027: 64.7
  - 2028: 63.6
  - 2029: 62.5
  - 2030: 61.6
  - 2031: 60.8
  - 2032: 60.1
  - 2033: 59.4
  - 2034: 58.8
  - 2035: 58.3
- Debt is expected to continuously decline over the medium term to around 61 percent of GDP by 2031, conditional on implementation of the announced fiscal deficit path that is assessed as feasible.
- Contributing factors to declining debt: narrowing of primary deficit, sustained real GDP growth, stable economic conditions, relatively long debt maturities, and low share of FX-denominated debt.

### Stress-test results and interpretation
- The contingent liability stress test shows gross financing needs substantially above the baseline in the medium term if contingent liabilities materialize.
- Contingent liabilities have not been called in recent years and are judged to have a low likelihood of materializing; this supports retaining the “Moderate” medium-term risk rating.
- Mitigating factors highlighted by staff: long maturities, favorable interest rates, and fully hedged exchange-rate risk on SOE external debt through 2030.

### Policy implications and recommendations (as described)
- Continue fiscal consolidation and fiscal reforms to contain solvency risks.
- Reinforce the Medium-Term Fiscal Framework (MTFF) and strengthen fiscal risk analysis.
- Implement a fiscal rule anchored on public debt.
- Continue comprehensive reforms in water infrastructure, health care, pension systems, and in the water and energy sectors to mitigate medium- and long-term risks.

*Source: Fund staff.*

### Annex IV. Figure 7. Morocco: Long-Term Risk Assessment: Large Amortization

### Annex IV. Figure 7. Morocco: Long-Term Risk Assessment: Large Amortization

### Long-term amortization module: key findings
- The long-term amortization module does not trigger an overall risk indication.
- Scenario behavior:
  - GFN-to-GDP and debt-to-GDP projection increase in the scenario using historical 10-year average.
  - GFN-to-GDP and debt-to-GDP projection decline steadily in the scenario assuming constant t+5 values for debt drivers.
- Medium-term extrapolation: debt stabilizes with a stabilizing primary balance assumption.

### Projections and indicators shown
- Variables shown and compared across scenarios include:
  - GFN-to-GDP ratio
  - Amortization-to-GDP ratio
  - Amortization
- Projection vintages referenced:
  - Long run projection
  - Projection
  - Baseline with t+5
  - Baseline with t+5 and DSPB
  - Historical 10-year average

### Demographics — Pensions: findings and mechanics
- Pension module customization:
  - Uses benefits, contributions, technical balance, overall balance, and reserve projections for three major pension funds (CMR-RPC, CNSS, RCAR-RG) from the Supervisory Authority of Insurance and Social Welfare.
  - Once a fund runs out of reserves, its overall deficit is added to the central government's financing needs.
- Time horizons and reported figures:
  - Projection horizons shown: 30 years, 50 years, Until 2100.
  - (pp of GDP per year) reported: 0.4% 0.5% 0.5%
- Indicators presented:
  - Pension Financing Needs
  - Total Benefits Paid
  - GFN-to-GDP Ratio
  - Total Public Debt-to-GDP Ratio
- Policy implication highlighted:
  - Permanent adjustment needed in the pension system to keep pension assets positive (timing and magnitude illustrated in charts).
- Additional charted values (illustrative ranges shown):
  - Permanent adjustment axis: 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2%
  - Total benefits paid (per cent of GDP) axis: 0% 1% 2% 3% 4% 5%

### Demographics — Health
- Module coverage:
  - Healthcare sub-module projects financing needs driven by demographic changes and excess cost growth (ECG) in the healthcare sector.
- Policy context:
  - Authorities are working on an ambitious reform of the health care system to ensure quality care and financial sustainability.
- Scenarios shown:
  - Baseline: Extension of fifth projection year
  - Health (Demographics)
  - Health (Demographics + ECG)
- Indicators presented:
  - GFN-to-GDP Ratio
  - Total Public Debt-to-GDP Ratio

### Climate change — Adaptation and Mitigation
- Adaptation:
  - Customized scenario uses the adaptation costs estimated in 2022 World Bank Country Climate and Development Report.
  - Ongoing reforms (as part of the RSF) and other future comprehensive reforms in the water and energy sectors will reduce Morocco's vulnerabilities to climate-related risks.
  - Scenarios shown: Baseline: Extension of fifth projection year; With climate adaptation (standardized scenario); With climate adaptation (customized scenario).
- Mitigation:
  - Customized scenario assumption: government bears 15% of the mitigation costs estimated in 2022 World Bank Country Climate and Development Report; private sector covers the other 85% of mitigation costs.
  - Reforms in the regulatory framework of the energy sector are expected to help attract private investment for clean energy.
  - Scenarios shown: Baseline: Extension of fifth projection year; With climate mitigation (standardized scenario); With climate mitigation (customized scenario).
- Indicators presented:
  - GFN-to-GDP Ratio
  - Total Public Debt-to-GDP Ratio

### External debt dynamics — headline figures
- External debt trajectory and scenario outcomes:
  - External debt increased from 42.6 percent of GDP in 2024 to 45.1 percent in 2025.
  - External debt is expected to stabilize at around 43 percent of GDP in the medium term.
  - In combined shocks to growth, current account, and interest rates, external debt increases to about 47 percent of GDP in the medium term.
  - In the unlikely scenario of a 30 percent currency depreciation, external debt increases to about 64 percent of GDP.
- External Debt Sustainability Framework: Annex V includes a Table (2021–2031) and Bound Tests detailing shock assumptions and methodology notes.

### Infrastructure acceleration (2024–2030): scope, financing, and macro effects
- Program size and context:
  - Staff baseline adds an infrastructure investment program in connectivity and tourism totaling MAD 190.3 billion over 2024–2030 (11.9 percent of 2024 GDP).
  - The program supports Morocco’s 2021 New Development Model and preparations linked to hosting the 2030 FIFA World Cup.
- Sectoral composition (share of 2024 GDP):
  - Railways: 6 percent of GDP (including a high-speed train and regional commuter network)
  - Airports: 2.4 percent of GDP (new Casablanca terminal and modernization of 5 other airports)
  - Stadiums: 2.2 percent of GDP (construction of an Olympic stadium and 3 new stadiums and renovation of 6 stadiums)
  - Roads: 0.9 percent of GDP (new highways and freeway junction transformations)
  - Urban and tourism infrastructure in six host cities: 0.5 percent of GDP
- Other multi-year investments excluded from the above figure:
  - Ports, dams and digital transformation: about 1.7 percent of 2024 GDP (financed through the central government budget)
  - Water desalination plants: about 2.3 percent of GDP (to be implemented through PPPs)
  - Energy transition projects: about 2.8 percent of GDP (to be implemented through PPPs)
- Financing by entity and instruments:
  - SOEs will finance about two-thirds of the investment (7.4 percent of GDP).
  - SOE financing mix:
    - Official concessional external loans: 1.8 percent of GDP (with explicit central government guarantees)
    - Domestic consortium loans, bond issuances, and securitization: 4.2 percent of GDP
    - Own funds: 1.4 percent of GDP
    - Associated debt servicing costs expected to be covered through user fees.
    - FX hedging in place for external debt service through 2030 (exchange rate risk limited).
  - Subnational governments:
    - Regions financing: 3.2 percent of GDP (regional commuter network)
    - Host cities financing: 0.2 percent of GDP (urban and tourism infrastructure)
    - Regions have secured a 25-year consortium loan to be repaid from the regions' share of national VAT revenues.
  - Central government:
    - Direct financing for portions of rail, urban infrastructure, and stadium projects: 1.4 percent of GDP.
    - This amount is incorporated in the investment pipeline, budget projections, and MTFF.
    - Expected government financing mix: 20 percent external financing and 80 percent domestic financing.
- Growth impact and macro assumptions:
  - Projected increase in real GDP growth relative to the previous AIV baseline:
    - About 1 percentage point in the near term.
    - ½ percentage point in the medium term.
  - Near-term impact calibrated using a conservative public investment short-term multiplier of 0.2–0.3.
  - Key structural assumptions: high import content assumed at about 70 percent; trade openness; economy operating close to potential.
  - Output gap expectations: average 0.2 percentage points over the forecast horizon with a short-lived peak of 0.4 percentage points in 2027.
- Infrastructure spending efficiency:
  - 2025 Fiscal Monitor shows Morocco’s efficiency gap narrowed substantially between 1980 and 2010.
  - Morocco’s infrastructure spending efficiency compares favorably to emerging markets, with scope to further improve and move closer to the global efficiency frontier.
- Inflation implications:
  - Impact on inflation expected to be modest due to:
    - Modest and temporary positive output gap.
    - Large share of food items in the CPI basket (around 40 percent) limiting the marginal effect of the output gap on overall inflation.
  - Recent inflation context: inflation averaging 0.8 percent in 2025 compared to 2 percent in the last Article IV.

*Source: Annex figures and text as presented in the provided IMF content unit.*

### 9.      Balance of payments. The infrastructure

### 9.      Balance of payments. The infrastructure

### Balance of payments impact
- The infrastructure investment program would contribute to a moderate widening of the current account balance in the near term due to higher imports—particularly capital goods (by over US$ 15 billion between 2025 and 2030) and services (by US$ 8 billion) compared to the last Article IV.
- These import-driven pressures would be partly offset by the gradual increase in tourism receipts as these investments contribute to attracting more visitors (higher by US$ 15 billion relative to the AIV forecasts).
- The associated larger financial account would be financed through:
  - lower FDI outflows—with an observed reduction in 2025 in the outflows of transport equipment manufacture and financial services; and
  - a modest increase in public external loans and issuances.

### Debt sustainability
- The SR-DSF covers the central government; contingent liabilities from SOE debt are captured through the contingent liability shock.
- Calibration of the contingent liability shock was increased by the new SOE external debt (MAD 29 billion) and new domestic debt of regions (MAD 50.8 billion), which brings the total shock to 16.5 percent of GDP.
- Factors mitigating contingent liability risks:
  - long maturities and favorable interest rates of SOE external loans;
  - debt servicing obligations on SOE external debt have been hedged against exchange rate risk through 2030.
- Note on contingent liabilities: The SR-DSF includes as contingent liabilities all government-guaranteed debt. There is no clear evidence of high probability that contingencies would materialize, and no history of government guarantees for SOE debt being called.

### Financial sector implications
- Scaling up of infrastructure projects led to an upward revision of average credit growth to 5.7 percent, compared to 4.2 percent in the last Article IV.
- Direct bank financing of these projects includes about 6.4 percent of 2024 GDP (8.7 percent of total bank credit), along with some spillovers to private sector credit.
- Risks of crowding out the private sector are expected to be limited because:
  - strong liquidity positions and capital buffers in the banking system;
  - the long-term consortium loan structure that spreads exposure across institutions and over time;
  - the relatively modest share of the additional infrastructure financing in total bank portfolios.
- Systemic concentration risks:
  - While the consortium structure should limit impact on individual bank balance sheets, the overall concentration risk of the banking system as a whole—which is already high at 2.8 times Tier 1 capital—is likely to rise.

### Annex VIII — Implementation of the 2025 Article IV: Main recommendations and status (selected)
- Accelerate fiscal consolidation by saving part of the revenue windfall, increasing structural revenues (including continued tax expenditure compression and carbon pricing), and rationalizing current spending.
  - Outcome: The overall fiscal deficit continued to decline in 2025. Tax revenues reached 24.6 percent of GDP, 1.4 percent of GDP higher than budgeted. Most of the revenue overperformance was used for additional spending on investment and transfers to SOEs. Implementation of a carbon tax is still under consideration.
- Strengthen the Medium‑Term Fiscal Framework (MTFF), including full costing of new policy measures and more comprehensive assessment of fiscal risks (PPPs, guarantees, unfunded pensions).
  - Outcome: MTFF was strengthened by incorporating climate‑related fiscal risks. Further progress needed on systematic fiscal‑risk quantification and disclosure, particularly regarding SOEs, PPPs, contingent liabilities, and quasi‑fiscal activities.
- Adopt a new fiscal rule anchored in a medium‑term debt target outside the annual budget.
  - Outcome: Reform of the Organic Budget Law is progressing and includes a new debt‑anchor‑based fiscal rule. Parameters of the rule are not yet finalized.
- Maintain a data‑dependent monetary policy stance.
  - Outcome: BAM appropriately cut the policy rate once in 2025 as headline inflation continued to fall and upside risks subsided, bringing the monetary policy stance to broadly neutral.
- Continue the transition toward inflation targeting (IT), including preparing to remove the exchange rate peg as inflation stabilizes.
  - Outcome: Preparations for IT continue, including improvements to FX and interest‑rate hedging markets. No changes have been made to the exchange rate band.
- Advance financial sector reforms, including creation of a secondary market for NPLs, broadening the definition of NPLs, strengthening provisioning, and mitigating concentration risk until SREP is fully implemented.
  - Outcome: Draft law establishing an NPL secondary market finalized and transmitted for inclusion in the legislative adoption process; reforms to NPL definitions and provisioning formalized through Circular 1/W/2025, with phased implementation starting in 2027. Concentration risks are monitored and constrained by large exposure limits until SREP fully implemented, including Pillar II capital requirements, by 2027.
- Strengthen governance, including accelerating anti‑corruption reforms (illicit enrichment, conflict of interest, whistleblower protection, asset declaration) and improving market competition.
  - Outcome: Amendments made to the Code of Criminal Procedure. Further progress needed on adoption and implementation of key laws on illicit enrichment, conflict‑of‑interest rules, whistleblower protection, and asset declaration.
- Redirect Active Labor Market Policies (ALMPs) to better address structural unemployment and agricultural job displacement and implement a comprehensive employment strategy—especially for youth and rural workers.
  - Outcome: The Job Plan 2030 was launched in February 2025. Implementation is ongoing; complementary education and labor‑market reforms are needed to address skills gaps and employer flexibility.
- Boost private‑sector development, especially SMEs, by extending Investment Charter incentives, strengthening CRIs’ role, improving SME financing and technical support, removing regulatory barriers to firm growth, and advancing SOE reform and privatization.
  - Outcome: Continued rollout of the Investment Charter; CRIs empowered to approve smaller projects; operationalization of the thematic funds of the Mohammed VI Investment Fund. SOE reforms are advancing; further progress needed to improve SOE performance and governance and reduce barriers hindering SME growth and market competition.

### Annex IX — Youth unemployment: key findings and policy directions
- Key labor market statistics and trends:
  - In 2025, the unemployment rate reached 13 percent, with over 64.8 percent of the unemployed jobless for at least 12 months.
  - According to the 2024 Labor Force Survey, the youth unemployment rate (ages 15–24) reached 36.8 percent in 2024, up from 25 percent in 2019.
    - It stood at 31.9 percent for young men and 50.2 percent for young women.
  - The ratio of youth to overall unemployment rose from about 2.7 to 2.9.
  - In 2025Q3, 25.2 percent of youth aged 15–24 were classified as Not in Education, Employment, or Training (NEET), above the MENA average of 21.5 percent and 19.2 percent in emerging markets.
    - Gender disparity in NEET: 37.3 percent of young women are NEET, compared with 13.5 percent of young men.
  - In 2024, the unemployment rate among university graduates reached 25.7 percent, compared to 5.2 percent for individuals with no qualifications.
    - 70.4 percent of unemployed individuals with higher education have never worked, compared to 16.6 percent among those without qualifications.
    - Long-term unemployment: 73.7 percent of unemployed graduates jobless for over 12 months, versus 36.4 percent among those without qualifications.
- Structural factors behind youth unemployment:
  - Structural transformation of agriculture and recurrent drought:
    - Agriculture employs 25.4 percent of Morocco’s total workforce, rising to 60.2 percent in rural areas.
    - Employment changes 2019–2025 (Annex IX. Table 1):
      - Agriculture: 2019 Employment 3.6 (millions); 2025 Employment 2.8 (millions); 2019-2025 (cumulative change, thousands) -809; Share of gross value added (percent of 2024 total) 11; Share of employment (percent of 2025 total) 26.
      - Industry: 2019 Employment 1.3 (millions); 2025 Employment 1.4 (millions); 2019-2025 (cumulative change, thousands) 90; Share of gross value added 13; Share of employment 13.
      - Construction: 2019 Employment 1.1 (millions); 2025 Employment 1.3 (millions); 2019-2025 (cumulative change, thousands) 170; Share of gross value added 6; Share of employment 12.
      - Services: 2019 Employment 4.9 (millions); 2025 Employment 5.4 (millions); 2019-2025 (cumulative change, thousands) 523; Share of gross value added 59; Share of employment 50.
      - Total: 2019 Employment 10.9 (millions); 2025 Employment 10.9 (millions); 2019-2025 (cumulative change, thousands) -25.9; Share of gross value added 89; Share of employment 100.
  - Insufficient private‑sector dynamism:
    - Firms employing fewer than 10 people account for an estimated 97 percent of non-agriculture for-profit firms and about 54 percent of employment among such firms.
    - Regulatory constraints—licensing, land access, labor regulations—and regulatory fragmentation raise entry and scaling costs. Presence of SOEs in certain sectors may hinder competitive neutrality and private investment.
  - Lack of access to finance for SMEs:
    - In 2023 only 22 percent of firms reported having a bank loan, and about 77 percent of fixed investment was self-financed.
    - Credit allocation to SMEs affected by information asymmetries, limited movable collateral frameworks, elevated SME non-performing loans, and scarce equity financing for startups.
  - Skills mismatches:
    - Over 30 percent of formal firms report an inadequately educated workforce as a major constraint.
    - Coexistence of graduate unemployment and reported skill shortages suggests qualitative mismatches and insufficient work-based learning pathways.
  - Public sector wage premium and high reservation wages:
    - The public sector employs 12 percent of the urban labor force and absorbs over 40 percent of graduates in high-skilled occupations.
    - Public wages estimated to be two to three times higher than private wages.
  - Barriers to female employment:
    - Limited access to affordable childcare, concerns over safety of public transportation, and lack of flexible work arrangements.
- Job Plan 2030 (launched February 2025) objectives and components:
  - Target: reduce unemployment to 9 percent by 2030.
  - Plan axes and allocations:
    - Private sector investment: expand incentives under the Investment Charter to smaller-scale projects and streamline regulations, with an allocation of MAD 12 billion in 2025.
    - Human capital and work placement: expand subsidy and training schemes to reach 400,000-500,000 beneficiaries annually.
    - Rural and agricultural labor: safeguard farm jobs (maintain cereal cultivation) and launch a digital platform for seasonal work.
    - Female and youth inclusion: invest in safer public transport and expanded access to childcare; combat school dropout through "second-chance" schools and excellence centers.
    - TVET and skills reform: modernize TVET, align technical diplomas with professional licenses, and build bridges between vocational and academic tracks.
- Policy directions to support implementation:
  - Enhance private sector dynamism: ensure financial and technical instruments (Investment Charter, Mohammed IV Investment Fund, TAMWILCOM, new Charter for MSMEs) facilitate firm entry and growth; strengthen access to finance; reduce regulatory barriers; monitor and report employment outcomes.
  - Improve skills matching and labor market responsiveness: promote partnerships between TVET and private sector; strengthen work-based learning; improve targeting and coordination across education, labor, and social policies; modernize the labor code for flexibility.
  - Level the playing field between public and private sectors: enhance competitive neutrality; limit state intervention to cases justified by clear public interest and rigorous cost-benefit analysis; remove preferential tax and regulatory treatment for SOEs; improve SOE performance to phase out budget transfers.
  - Improve agriculture resilience: address water scarcity and reduce reliance on rainfed agriculture.
  - Strengthen monitoring and evaluation: disaggregate performance data by gender, age, education level, and region; implement systematic impact evaluations for major programs.

*Source: IMF staff compilation from the provided chapter content.*

### Annex X. Revenue Impact of Recent Tax Policy and Revenue

### Annex X. Revenue Impact of Recent Tax Policy and Revenue Administration Reforms

### Overview: recent revenue performance
- Revenue growth between 2021 and 2025 amounted to an increase of 4.3 percent of GDP.
- Administrative reforms regarding VAT and corporate income tax account for most of the impact on revenues.
- Withholding tax has had a significant impact over the past two years.
- An important factor in success has been a consensual, inclusive, and consultative process around tax reforms.

### Compliance challenges and taxpayer structure
- Large corporate entities: overwhelmingly compliant on registration, filing, and payment; scope to improve correct reporting.
- Many medium and small entities remain in a grey zone, posing the main challenge for the tax administration.
- All small and medium taxpayers are registered with TIN and often interact with the formal sector (suppliers to large firms, importers controlled by customs, public contracts, payments from third parties, etc.), facilitating digital tracing.
- Annex X. Figure 1 (number of small taxpayers, by turnover/regime):
  - > 50 M: 5,803
  - 10 M to 50 M: 17,099
  - 2 M to 10 M: 42,104
  - < 2 M: 322,217
  - Individuals with business income: 75,573
  - Auto-entrepreneur: 469,820
  - Contribution Professionnelle Unique: 256,721

- Observed avoidance practices among small businesses include:
  1. Supplying VATable goods/services to compliant VAT-registered taxpayers without declaring the transaction and retaining VAT as extra profit.
  2. Using fake invoices from registered but bogus entities to increase VAT credits.
  3. Replacing employees with many “Auto-entrepreneurs” to avoid wage taxes and social charges while maintaining health coverage.
  4. Not declaring or late-declaring real estate transactions.
  5. Providing medical or legal services against undeclared cash payments.

### Digitalization, data management, and how they counter avoidance
- Full digitalization of taxpayer filing: Tax Department (2017) and Customs (2019).
- Key digital/data-enabled controls:
  - Electronic VAT filings require supplier identification with TIN and monthly transaction totals, enabling identification of suppliers who never file or under-report.
  - Mandatory registration of transactions with Auto-entrepreneurs (both parties’ TINs), allowing identification of economic employer-employee relationships.
  - Access to property transactions data from the Agence Nationale de la Conservation Foncière enables rapid identification and taxation of property transactions via withholding by notaries.
  - Non-doctors can incorporate medical clinics; many doctors paid by clinics or public health insurance, enabling withholding on doctors’ honorariums.
- Large-scale data gathering strengthens the administration’s ability to reconstitute turnovers and broaden the base.

### Recent tax policy and administration measures (high-level chronology and selected measures)
- Reforms anchored in the 2019 National Tax Conference; framework law Loi-cadre 69-19 approved in 2021 emphasized efficiency, simplicity, base broadening, and modern tax administration.
- Selected measures (bolded in source are data- or withholding-related); headline items by year:
  - 2021: Creation of the Contribution Professionelle Unique; blacklisting of suppliers emitting non-conform or fake invoices.
  - 2022: Cash payments > 20,000 MAD bear a 6% fine; tax-deductible cash transactions limited to 5000 MAD per day (or 50,000 MAD per month) per supplier.
  - 2023:
    - CIT rates unified to three rates: 20% (taxable income < 100 M MAD), 35% (> 100 M MAD), 40% for banks and insurance.
    - IS withholding at source of 5% on payments to corporations from State, regional entities, SOEs for fees, commissions, brokerage, and similar payments.
    - Withholdings and filing obligations extended to rental income, buyback of contributions/premiums related to retirement insurance, professional fees, revenue from agriculture over 5 M MAD.
    - Withholding of 30% on Auto-entrepreneurs working for same client > 80,000 MAD.
    - Tax Department obtains capacity to access information from other public sector organizations.
  - 2024:
    - VAT rates standardized to two rates (10% and 20%) over three years.
    - Repatriation of unregistered foreign assets subject to a 5% tax (contribution libératoire).
    - Optional reverse charge system for transactions with non-VAT, or exempt suppliers.
    - 100% VAT withholding by VAT-registered clients on VAT-registered suppliers of equipment goods and works who cannot show tax compliance in past 6 months.
    - 75% VAT withholding by state, territorial govt, public establishments and SOEs (100% if supplier cannot show past 6 months’ compliance).
    - Framework for self-identification and reporting of non-resident suppliers of online services to VAT non-registered taxpayers.
    - Introduction of solidarity principle holding managers personally responsible for collected VAT not paid to the treasury.
    - All property registration acts subject to withholding of all due taxes by the notary.
  - 2025:
    - PIT schedule changes result in an across-the-board tax decrease; tax credits for dependents increased from 360 to 500 MAD (and to 600 in 2026, max 6 dependents).
    - New regime for rental revenue through final withholding at source of 20 percent.
    - Withholding at source of 30% on gains from lotteries and gaming.
    - Obligation to use electronic payments to pay for customs duties.
  - 2026 (selected forward measures):
    - Extension of withholding at source of VAT and IS (5%) to services by specific payers and phased turnover thresholds (500 M MAD from July 2026 / 350 M MAD in 2027 / 200 M MAD from 2028).
    - Obligation to pay taxes on property transactions within 30 days.
    - Extension of reverse charging to recycling of industrial scraps.

### Revenue impact estimates and decomposition
- PIT reforms cost 7.3 billion MAD (0.5 percent of GDP).
- Tax on repatriated foreign cash assets yielded 6.5 billion MAD (0.4 percent of GDP), with most effect in December 2024 and January 2025.
- PIT control for a large taxpayer yielded 1.9 billion MAD (0.1 percent of GDP).
- VAT withholding (starting July 2024) accounted for 6.7 billion MAD (0.4 percent of GDP) in 2025.
- CIT and PIT withholding (rental income, etc.) accounted for 2.1 and 1.1 billion MAD respectively (together 0.2 percent of GDP) in 2025.
- Comparing 2015–2019 and 2021–2025 and applying 2015–2019 “tax elasticities” to 2021–2025 growth: an estimated 2.5 percent of the 4.3 percent of GDP revenue increase is unexplained by economic growth and can be imputed to reforms.
- Table excerpted metrics (source formatting preserved):
  - CIT: Tax 2015 = 41,506.0; Tax 2019 = 52,103.0; 2019/2015 = 1.26; Tax 2021 = 47,144.0; Expected 2025 = 68,783.0; Tax 2025 = 27,878.0; Unexplained / GDP (%) = 1.6
  - VAT: Tax 2015 = 74,637.0; Tax 2019 = 87,841.1; 2019/2015 = 1.18; Tax 2021 = 93,421.8; Expected 2025 = 127,789.3; Tax 2025 = 16,128.5; Unexplained / GDP (%) = 0.9
  - GDP: 2015 = 1,078,119.0; 2019 = 1,239,836.0; 2019/2015 = 1.15; 2021 = 1,276,563.0; 2025 = 1,706,249.8; 2025/2021 = 1.34
  - (Note: table calculations use the formula in source: (Tax 2019 to 2015 ratio) / (GDP 2019 to 2015 ratio) X GDP (2025 to 2021 ratio) X Tax 2021; Unexplained = Tax 2025 - Expected 2025.)

### Interpretations and emerging conclusions
- Most of the recent revenue gain appears to be a permanent increase in the revenue level rather than a transient spike.
- Digitalization has been central to improving control of the tax base and enabling VAT and CIT withholding; withholding is accompanied by data collection (TIN, transaction amounts), supporting base expansion and tighter control.
- Improved compliance and data capabilities increased the administration’s ability to reconstitute turnovers, especially affecting taxpayers with partly informal turnovers.
- The decrease in the CIT rate to 20 percent has mitigated some effects of improved compliance.
- While withholding provides a practical way to integrate many small taxpayers into the tax system at relatively low administrative cost, it is a short-term solution and should be used to foster self-assessment given its high conformity costs for taxpayers.
- So far, there is little evidence of common adverse side-effects of withholding, notably regarding VAT credits, although the extension of withholding from July 2026 raises concerns.

### Policy-relevant lessons and institutional factors
- The consensual, inclusive, and consultative reform process (National Tax Conference, Loi-cadre 69-19, Conseil Économique, Social et Environmental) contributed to legitimacy, visibility, and political support for reforms.
- Framework laws and institutional checks (e.g., Cour des Comptes) provide bureaucratic and political protection and pressure for implementation.
- Constitutional references to the ability-to-pay principle (art. 39) provide additional guidance for tax reforms.

*Prepared by Patrick Petit (FAD).*

### Annex X. Figure 3.  Morocco: The Impact of

### Annex X. Figure 3.  Morocco: The Impact of Tax Reform on Revenue Growth 2021–2025

### Overview and context
- Sources: National authorities, and IMF staff calculations.
- Chart context: Tax Revenue (2021) → Tax Revenue (2025) with components CIT, VAT, Other taxes; Share of GDP (%) and decomposition into Tax revenue, Impact of growth, Impact of reforms, Other.

### Exposure channels from the Middle East conflict (staff supplementary assessment)
- Energy:
  - Energy imports amounted to 6.3 percent of GDP in 2025.
  - Morocco imports refined petroleum products (one quarter from GCC countries), natural gas (mainly from the United States and Spain), and coal (mainly from the United States).
  - Electricity generation reliance: coal 60 percent, petroleum products 13 percent, renewable energy 27 percent.
- Phosphates and fertilizers:
  - Phosphates and derived products amounted to 5.8 percent of GDP in 2025.
  - Higher international fertilizer prices could raise export receipts but would be partly offset by increased costs of imported inputs (including ammonia and sulfur) and supply-chain disruptions.
- Food:
  - Food imports amounted to 5.5 percent of GDP in 2025.
  - Composition of food imports (shares of total food imports): wheat 14.5 percent, sugar 7.1 percent, corn 6.7 percent.
  - Food exports (including fresh fruits and vegetables) amounted to 4.8 percent of GDP in 2025.
- Tourism, remittances, and FDI:
  - Tourism receipts about 7 percent of GDP in 2024, originating mostly from Europe; the Middle East represented only 0.3 percent of GDP.
  - Remittances amounted to 7.2 percent of GDP in 2025; Europe accounted for about two‑thirds and GCC countries less than 20 percent (about 1.3 percent of GDP).
  - FDI inflows were 3.3 percent of GDP in 2025, mainly from France (27 percent of total in 2023), the UAE (17 percent), and Spain (9 percent).

### Updated scenario assumptions and macro impacts
- Global price assumptions:
  - Revised Brent oil prices of about USD 80 per barrel in 2026, compared to USD 67 in the Staff Report (SR) baseline.
  - Updated scenario assumes automatic fiscal stabilizers operate and does not incorporate additional policy responses by authorities.
- External and current account impacts:
  - Higher international fuel and food prices in 2026 (by about 20 percent and 3 percent respectively, compared to the SR baseline) would widen the current account deficit by USD 1.4 billion or 0.9 percentage points of GDP compared to the SR baseline.
  - The larger energy and food import bill is 1.8 percent of GDP.
  - Offsetting items: higher export receipts from phosphates and fertilizers 0.6 percent of GDP; higher food export receipts 0.3 percent of GDP.
  - Services surplus would fall by 0.1 percent of GDP reflecting fewer tourists from the Middle East.
  - Remittances would fall by 0.1 percent of GDP reflecting lower inflows from the Middle East.
  - Net effect: deterioration in the current account smaller than the mechanical increase in the energy import bill alone due to compressed non‑energy imports and some exchange rate depreciation improving competitiveness.
- External financing and capital flows:
  - About 20 percent of the central government’s gross financing needs in 2026 are in foreign currency (1.9 percent of GDP).
  - Around two‑thirds of external public debt—including SOEs—is from official multilateral and bilateral creditors.
  - Short‑term amortizations (≤1 year) amounted to 6 percent of total external debt in 2025.
  - Staff projects Morocco’s net FDI to decline by 0.3 percent of GDP in 2026 compared to the SR baseline.
  - Morocco’s relatively closed capital account is expected to dampen transmission of global financial shocks by containing capital flow volatility.
- Inflation and prices:
  - Retail gasoline and diesel prices fully liberalized since December 2015.
  - Higher international food and fuel prices would raise inflation by about 0.5 percentage points in 2026 compared to the SR baseline, through direct and indirect channels.
  - Pass-through to inflation from possible dirham depreciation is expected to be modest.
- Fiscal impact:
  - Central government overall fiscal deficit expected to widen by about 0.05 percent of GDP in 2026 compared to the SR baseline.
  - Spending pressures amounting to 0.3 percent of GDP related to higher cost of subsidies (butane gas, basic food staples), transfers to SOEs providing public services at fixed tariffs (electricity, some transportation), and social spending (cash transfers).
  - Higher energy import values and dirham depreciation would raise VAT and excise revenues by about 0.26 percent of GDP.
  - Key tax heads (income taxes and VAT outside of fuel) expected to remain broadly flat as a percentage of GDP.

*Prepared by The Middle East and Central Asia Department (in consultation with other departments); Supplement dated March 17, 2026.*

### 0.25 percent of GDP compared to the SR baseline. Central government debt would rise by

### Morocco: Potential Impact of the Ongoing Conflict in the Middle East

### Macroeconomic impact (updated scenario vs SR baseline)
- Real GDP growth: 2026 SR Baseline 4.9; 2026 Updated Scenario 4.4; 2026 SR Adverse Sensitivity Analysis 3.3. Difference 2026 Updated Scenario and SR Baseline -0.5; Difference 2026 Updated Scenario and SR Adverse Sensitivity Analysis +1.1.
- Inflation (p.a. percent): 2026 SR Baseline 1.2; 2026 Updated Scenario 1.6; Difference Updated Scenario and SR Baseline +0.5; Difference Updated Scenario and SR Adverse Sensitivity Analysis 0.0.
- Fiscal balance (percent of GDP): 2026 SR Baseline -3.4; 2026 Updated Scenario -3.4; 2026 SR Adverse Sensitivity Analysis -3.6. Difference 2026 Updated Scenario and SR Baseline -0.05; Difference 2026 Updated Scenario and SR Adverse Sensitivity Analysis +0.15.
- Central government debt (percent of GDP): 2026 SR Baseline 65.7; 2026 Updated Scenario 65.9; 2026 SR Adverse Sensitivity Analysis 67.1. Difference 2026 Updated Scenario and SR Baseline +0.1; Difference 2026 Updated Scenario and SR Adverse Sensitivity Analysis -1.2.
- Current account balance (percent of GDP): 2026 SR Baseline -2.5; 2026 Updated Scenario -3.3; 2026 SR Adverse Sensitivity Analysis -5.2. Difference 2026 Updated Scenario and SR Baseline -0.9; Difference 2026 Updated Scenario and SR Adverse Sensitivity Analysis +1.9.
- Current account balance (billions of US dollars): 2026 SR Baseline -4.9; 2026 Updated Scenario -6.4; 2026 SR Adverse Sensitivity Analysis -9.8. Difference 2026 Updated Scenario and SR Baseline -1.5; Difference 2026 Updated Scenario and SR Adverse Sensitivity Analysis +3.4.
- Gross reserves (billions of US dollars): 2025 est. 48.6; 2026 Updated Scenario 49.4; 2026 SR Adverse Sensitivity Analysis 52.6. Table notes: Gross reserves (percent of the adjusted ARA metric) 2025 est. 134.2; 2026 Updated Scenario 127.4; 2026 SR Baseline 133.1. Difference Updated Scenario and SR Baseline -5.8 (percent of the adjusted ARA metric).

### Staff assessment of shock transmission and channels
- Growth channel: "Higher energy prices and greater uncertainty would deteriorate the terms of trade, erode households’ real disposable income and consumption, and reduce private investment. This would weaken real GDP growth in 2026 by 0.5 percentage points compared to the SR baseline."
- Fiscal channel: Central government debt would rise by 0.1 percent of GDP in 2026 compared to the SR baseline.
- External channel: Current account and reserves are sensitive; current account deteriorates (see figures above) and gross reserves buffer remains sizable but declines in adjusted ARA percent.

### Policy buffers, qualification, and policy guidance
- FCL qualification: "Staff assesses that Morocco continues to meet the qualification criteria for the Flexible Credit Line (FCL) arrangement."
- Exchange rate and reserves:
  - Exchange rate band total width: 10 percent.
  - International reserves: USD 48.6 billion at end‑2025, equal to 134.2 percent of the adjusted metric at end‑2025 (compared to 121.9 percent projected in the FCL request).
  - Possible access to the FCL constitutes additional buffer.
- Fiscal policy recommendations:
  - Allow automatic stabilizers to function.
  - Protect the most vulnerable through targeted and temporary cash transfers—using the Unified Social Registry.
  - Limit and gradually phase out subsidies and sector-specific financial support.
- Monetary policy guidance:
  - Response depends on persistence of shock and whether it feeds into core inflation and inflation expectations.
  - If inflation expectations were to rise, Bank Al-Maghrib may need to raise policy rates to keep inflation expectations anchored.

### Exposure to energy, trade, and remittance channels
- Energy imports:
  - Electricity generation still relies on imported coal and petroleum products despite rise in renewables.
  - Price index weighted by fuel shares in electricity production: Coal 81.8%, Gas 13.5%, Fuel 4.7% (Index, 2025=100).
- Sources:
  - About a quarter of petroleum product imports are sourced from GCC countries.
  - Morocco imports coal mainly from the United States.
- Transport and logistics:
  - Since 2019, about 5 percent of cargo capacity destined for Morocco originated from GCC countries; less than 5 percent of outbound capacity was destined for GCC countries.
- External private inflows:
  - GCC is the second source of remittances to Morocco after Europe.
  - FDI inflows mainly from France, the UAE, and Spain, which account for 53 percent of the total.
- Sovereign spreads and travel exposure:
  - "Morocco’s direct travel exposure to air disruptions in the zone of conflict is limited."
  - "Morocco’s sovereign spreads remain contained."

### Selected medium-term indicators and outlook (highlights from Table 2)
- Population: 36.8 million; 2024.
- Nominal GDP (billions of U.S. dollars): 2024 160; 2025 183; 2026 194; 2027 212; 2028 227; 2029 245; 2030 263; 2031 284.
- Real GDP growth (annual percent change): 2024 3.8; 2025 4.9; 2026 4.4; 2027 4.5; 2028 4.5; 2029 4.4; 2030 4.1; 2031 4.0.
- Inflation (period average): 2024 0.9; 2025 0.8; 2026 1.6; 2027 1.6; 2028 2.0; 2029 2.0; 2030 2.0; 2031 2.0.
- Central government finances (percent of GDP):
  - Revenue: 2024 26.9; 2025 27.7; 2026 28.1; 2027 27.6.
  - Expenditure: 2024 30.9; 2025 31.3; 2026 31.5; 2027 30.9.
  - Fiscal balance: 2024 -3.9; 2025 -3.5; 2026 -3.4; 2027 -3.3.
  - Budgetary central government debt: 2024 67.7; 2025 67.1; 2026 65.9; 2027 64.8.
- External sector and reserves:
  - Current account including official transfers (percent of GDP): 2024 -1.2; 2025 -2.1; 2026 -3.3; 2027 -3.0.
  - Gross reserves (months of imports): 2024 4.8; 2025 5.6; 2026 5.3; 2027 5.2.
  - Net imports of energy products (in billions of U.S. dollars): 2024 -11.4; 2025 -11.5; 2026 -14.9; 2027 -14.5.

### Structural reforms, social policy, and financial sector resilience
- Structural priorities:
  - Continue reforms to strengthen private-sector dynamism, address skill mismatches, and support job creation (youth and women).
  - Support private investment via the New Investment Charter and the Mohammed VI Fund.
  - SOE reform: establishment of ANGSPE, performance contracts, restructuring, and corporatization of commercial SOEs.
- Social protection:
  - Budgetary allocations for social assistance, health, education, and housing increased in the 2026 budget by 0.8 percent of GDP.
  - Health insurance coverage reached 88 percent of the population in 2025.
- Financial sector resilience:
  - Banking sector remains sound, liquid, profitable, well capitalized.
  - Strengthening through regular stress testing, enhanced resolution frameworks, higher capital buffers for systemically important banks, rollout of SREP, NSFR, and ILAAP.
  - Draft law establishing an NPL secondary market submitted for legislative adoption.

### Authorities’ statement (summary of Mr. Mohamed El Qorchi)
- Authorities thank mission team and broadly concur with staff’s assessment of policy priorities.
- Economic background: 2025 growth around 5 percent driven by agricultural recovery, non-agricultural activity, infrastructure investment, and tourism; unemployment 13 percent.
- Macroeconomic stance: Bank Al-Maghrib kept policy rate at 2.25 percent after cumulative cuts of 75 basis points; commitment to move toward an inflation targeting framework while maintaining the exchange rate band.
- Fiscal stance: overall deficit 3.5 percent of GDP in 2025; central government debt declined to 67.1 percent of GDP; authorities committed to revenue mobilization, expenditure rationalization, public investment efficiency, and a medium-term debt-anchored fiscal rule.
- Closing: Morocco maintains strong macroeconomic management, meets FCL qualification criteria, and commits to inclusive, job-rich, and greener growth.

*IMF staff estimates and statements as of March 15, 2026 (source content).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1marea2026001-source-pdf.pdf_