## Assessing the Impact of Structural Reforms on Potential Output: The Case of Morocco

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### Introduction and objectives
- Morocco experienced a deceleration of GDP growth after the mid-2000s, slowing output convergence to OECD countries.
- Paper objectives:
  - Assess how Morocco’s potential output growth evolved over the past two decades and how it was affected by the pandemic.
  - Quantify potential effects of Morocco’s structural reform agenda on potential output in the medium to long term.
- Methods employed:
  - Multivariate filtering (MVF) techniques to estimate potential output and NAIRU.
  - Local projection method à la Jordà (2005) to estimate reform multipliers using structural indicators in emerging market and developing economies.
  - Distance-to-frontier approach comparing Morocco to the average OECD country across governance, education, social protection, health, and product market competition.
  - Cobb-Douglas production function and the IMF’s Flexible System of Global Models (FSGM) for long-term impact estimation.

### Key quantitative findings on potential output and drivers
- Estimated trends and levels:
  - Potential output growth averaged about 4.5 percent between 2000 and 2007.
  - Potential output growth slowed to about 3 percent right before the pandemic.
- Contribution of labor inputs:
  - Contribution of trend employment to potential growth declined from 1.6 percentage points between 2000 and 2007 to about 0.3 in 2018–19.
  - Trend labor force participation rate declined by about 6 percentage points.
  - NAIRU estimates declined from about 13.3 percent in 2000 to about 10.2 percent in 2019.
- Contribution of capital:
  - Capital accumulation contribution fell from 2¼ percentage points in the early 2000s to about 1.5 percentage points in 2018–19.
  - Investment-to-GDP ratio rose between 2000 and 2007 and stabilized slightly below 30 percent thereafter.
  - Growth rate of capital productivity (GDP-to-capital ratio) has been on a downward trend over the past two decades.
- Contribution of total factor productivity (TFP):
  - TFP contribution rose from 0.8 percentage points in 2000–07 to 1.1 percent in 2018–19.
  - TFP is treated as a residual and may capture changes in hours worked, labor quality, and capital utilization.

### Impact of the pandemic on potential output (2020–2022)
- Potential output contraction:
  - Potential output is estimated to have contracted by about 0.5 percent in 2020.
- Channel magnitudes in 2020:
  - Contribution of capital accumulation to potential growth dropped from 1.5 percentage points in 2019 to 1 percentage point in 2020.
  - Contribution of labor to potential output growth fell slightly by 0.1 percentage point in 2020 (potential employment growth remained broadly unchanged at 0.5 percent in 2020).
  - Contribution of TFP to potential output growth fell from 1 percentage point in 2018–19 to about –2 percentage points in 2020.
- 2021–22 developments:
  - Potential output growth rose to about 1 percent in 2021–22.
  - Drivers of the 2021–22 rise: capital accumulation (contribution up by about 0.2 percentage point) and labor input (contribution up by about 0.5 percentage point).
  - TFP continued to contract in 2021–22 with a contribution of about –1 percentage point.

### Morocco’s post–COVID-19 structural reform agenda (areas and notable measures)
- Social protection and health sector:
  - Reform started in 2020 to extend health care coverage and improve efficiency/targeting of social safety nets.
  - Decrees in 2021 and 2022 to include self-employed individuals (about 11 million Moroccans) into a new mandatory insurance health care scheme.
  - Individuals previously benefiting from free health care will have the option of using both public and private health care starting from 2023.
  - Comprehensive overhaul of the health care system began in 2022: reorganize supply around new regional health care centers, build new hospitals, recruit additional medical personnel with remuneration linked to productivity, introduce protocols favoring family doctors and local practices, and greater digitalization.
  - Social protection reforms envisage extension of conditional cash transfers (family allowances), pensions (to self-employed people), unemployment insurance, and the introduction of a unified social registry that assigns each household a “standard of living” score to determine eligibility for social programs.
- Education:
  - 2019 Education Act: start universal preschool education; enhance teachers’ formation and assessment; redesign curricula prioritizing STEM and early reading.
  - 2022 four-year roadmap objectives:
    - Reduce by one-third the drop-out rate in primary education.
    - Increase by one-third the number of students with basic skills at the end of primary school.
    - Double the number of students who benefit from extracurricular activities.
  - Achieving objectives requires more investment in school infrastructure and human capital (recruiting, training, and payment of teachers).
- Product market reforms:
  - Reform of the SOE sector: create a national agency for valorization, strategic management, and monitoring of Moroccan SOEs.
  - Objectives: eliminate SOEs with nonessential missions, merge SOEs operating in the same sector, corporatize SOEs with commercial activities to strengthen governance.
  - Complementary measures: operationalization of the Mohammed VI Fund, a new charter of investment, strengthening competition and consumer protection frameworks.
- Governance:
  - Progress in the fight against corruption: National Authority for Probity, Prevention, and the Fight Against Corruption (INPPLC) endowed with means and legal framework; appointment of INPPLC’s secretary general and board members in late 2022.
  - Ongoing efforts to strengthen penal procedural code, reinforce whistleblower legislation, and introduce preventive anticorruption measures.
- Gender gaps and related measures:
  - Female labor force participation rate was 21 percent in 2021.
  - Initiative to increase preschool enrollment from the current 70 percent to 100 percent by 2028 to support women’s labor market participation.
  - Bank Al-Maghrib regulations issued in 2022 require credit institutions to:
    - Take the gender dimension into account in strategic orientations.
    - Integrate gender into financing and investment strategies.
    - Design banking products and services for women, including entrepreneurs, and dedicate refinancing mechanisms such as Gender Bonds.
  - The New Development Model proposes to double women’s labor force participation rate.

### Quantified potential gains from reforms (scenarios and ranges)
- If reforms reduced by half the current gaps relative to the average OECD country in the next 15 years:
  - Morocco’s potential output level could increase by between 5 percent and 10 percent.
- The magnitude and timing of gains depend on the timing and effectiveness of reform implementation.

### Methodological notes and reform multiplier estimation
- MVF estimation uses data from 1990 to 2019; pandemic-related break in 2020 led to freezing pre-2020 potential output estimates and extending the sample beyond 2021 using projections until 2023 from the October 2021 World Economic Outlook.
- Production function used: Cobb-Douglas Yt = At * L̅t^α * Kt^(1−α), where At is trend TFP (residual), Kt is capital stock, L̅t is potential employment.
- Potential employment L̅t = (1 − Ut) * Wt * LFRPt, where Ut is NAIRU, Wt is working-age population, and LFRPt is trend labor force participation rate.
- Potential growth decomposition: ∆ln(Yt) = ∆ln(At) + α∆ln(Lt) + (1 − α)∆ln(Kt).
- Local projections à la Jordà (2005) used to estimate average impact of structural reforms (reform multipliers) across emerging market and developing economies.
- Distance-to-frontier approach used to assess Morocco’s gaps relative to the average OECD country across governance, education, social protection, health, and product market competition.
- Reform multiplier estimation:
  - Sample: 155 emerging and developing economies over the period 1980-2021.
  - Structural indicators standardized to vary between 0 and 100; simple average used as index; principal component analysis used as robustness check.
  - Local projection regression: 푦푖,푡+푘 − 푦푖,푡−1 = 훼푖 + 휆푡 + 훽푘푆푅푖,푡 + 휃푋푖,푡 + 휀푖,푡 with inference using confidence bands at a 10 percent level; standard errors clustered at the country level.
  - Definition of a major reform shock: an annual change in the structural reform index above two standard deviations of the distribution.

### Reform multiplier empirical findings (average emerging and developing economy)
- Timing and comparative effects:
  - Reforms have sizeable positive effects on output; magnitude increases over time.
  - Governance reforms tend to pay off quickly and have the largest effects on output.
  - Education reform, social protection and health reforms, and product market deregulation have broadly comparable quantitative effects.
- Quantitative point estimates at six-year horizon:
  - Governance: increases output by about 2½ percent after six years.
  - Education: increases output by about 1½ percent after six years.
  - Social protection and health: increases output by about 1½ percent after six years.
  - Product market deregulation: increases output by about 1½ percent after six years.
- Employment and investment (six-year horizon) — supplementary results:
  - Social protection and health, product market, and governance increase employment by about 0.2 percent to 0.4 percent.
  - Governance reform increases investment by 4.7 percent; education, social protection and health, and product market effects on investment are broadly comparable.

### Assessing Morocco’s structural gaps (distance-to-frontier vs OECD average)
- Gap calculation: 푆퐺푖 = (푆푅푖∗ − 푆푅푖)/푆푅푖∗ where 푆푅푖 is Morocco’s index and 푆푅푖∗ is OECD average.
- Key quantified gaps (relative to OECD average):
  - Governance: Morocco’s score is about 40 percent lower than the OECD average.
  - Education: Morocco’s score is about 35 percent below the OECD average.
  - Social protection and health: about 40 percent lower than the OECD average.
  - Product market competition: about 10 percent lower than the OECD average.
  - Female labor force participation (FLFP): Morocco’s FLFP is only about two-fifths of the average OECD level.

### Production-function mapping and reform scenarios (15-year horizon)
- Production function mapping:
  - 푌 = 퐴 퐿훼 퐾1−훼 with effective labor input 퐿 = 푤 * 푝 * 푒 (w = working-age population, p = labor force participation rate, e = employment rate).
  - Governance, education, social protection and health, and product market reforms → impact TFP (퐴).
  - Reforms to boost women’s participation → increase 푝.
  - Output impact of reform i: 푅퐼푖 = 훽̂푘 × ((푆푅푖∗ − 푆푅푖)/푆푅푖∗); timeline for assessment: after 15 years.
- Scenario results (production-function, 15-year cumulative):
  - Medium-success scenario (close half the distance to OECD average):
    - FLFP increases to about 34 percent (from about 22 percent in 2022).
    - Result: real GDP increases by about 5 percent over 15 years on a cumulative basis.
  - Low-success scenario (close 10 percent of the gap):
    - FLFP increases to 25 percent over 15 years.
    - Result: level of output increases by about 1 percent over 15 years on a cumulative basis.
  - High-success scenario (close 80 percent of the gap over 10 years; score about 20 percent above OECD average after 15 years):
    - FLFP increases to about 50 percent over 15 years.
    - Result: output could increase cumulatively by about 12 percent over 15 years.

### Model-based (FSGM) simulation setup, assumptions, and results
- Model and calibration:
  - IMF’s Flexible System of Global Models (FSGM), Middle East and Central Asia Department Model module.
  - Reforms mapped as shocks to TFP and to aggregate labor force participation.
  - Medium scenario calibrated: governance reform modeled as TFP shock of 0.5 percent over 15 years; education reform as TFP increase of 0.2 percent over 15 years; overall package (excluding gender) boosts TFP by about 1.1 percent after 15 years.
  - Labor force participation increase in medium scenario: about 6 percentage points; upper bound 13 percentage points; lower bound 1 percentage point.
- Fiscal financing assumptions:
  - Option 1 (Budget-neutral): additional spending offset by decrease in other public expenditures (lump-sum transfers adjust to keep structural deficit unchanged).
  - Option 2 (Debt financing): additional spending financed with public debt; structural deficit increases and lump-sum transfers adjust to cover higher debt-service costs; each unit increase in public debt-to-GDP increases sovereign risk premium by 3 basis points.
- Model-based results — key findings:
  - TFP shock magnitude from reforms (per scenario):
    - High-success scenario: about 2.7 percent permanent TFP shock.
    - Low-success scenario: about 0.2 percent permanent TFP shock.
  - Output gains (budget-neutral financing, cumulative over 15 years):
    - Range from 2.3 percent to 22 percent; medium-success scenario ≈ 10 percent cumulative increase.
  - Output gains (debt-financing scenario, cumulative over 15 years):
    - Range from 0.5 percent to 20 percent; medium-success scenario ≈ 8¼ percent cumulative increase.
  - Gender-gap reduction:
    - Increasing FLFP delivers the largest payoffs in medium to long term; cumulative output gains over 15 years are twice as large as those produced by individual other reforms.
  - Short- versus long-term under debt financing:
    - Short term: higher public spending can boost private consumption and output via multiplier effects.
    - Long term: higher borrowing costs crowd out private investment, depress capital stock, and partially offset productivity-induced output gains.

### Key policy implications and recommendations
- Prioritize reforms that boost labor force participation, especially by closing the gender gap in labor market outcomes.
- Implement structural reforms that raise productivity to offset pandemic-induced TFP declines.
- Consider fiscal design of reform financing (budget neutral versus debt financed) as it affects macroeconomic outcomes.
- Gender and inclusion policy package items:
  - i) promoting work flexibility solutions for women in the workplace, including extending flexible work in public and private institutions and paternity leave.
  - ii) implementing large-scale solutions for affordable childcare and mobility.
  - iii) strengthening education, training, support, and financing mechanisms for Moroccan women.
  - iv) aligning the entire legal system with the constitutional principle of equal rights and parity.
  - v) increasing awareness of gender equality, by rethinking the representations of the female model in school curricula and in the media, including through communication campaigns on gender parity, and the participation of women in work and in the economic and social development of the country.

*Source: IMF Working Paper — Assessing the Impact of Structural Reforms on Potential Output: The Case of Morocco (WP/2023/222).*

### References .............................................................................................................

### Assessing the Impact of Structural Reforms on Potential Output: The Case of Morocco

### Introduction and objectives
- Morocco experienced a deceleration of GDP growth after the mid-2000s, slowing output convergence to OECD countries.
- Paper objectives:
  - Assess how Morocco’s potential output growth evolved over the past two decades and how it was affected by the pandemic.
  - Quantify potential effects of Morocco’s structural reform agenda on potential output in the medium to long term.
- Methods employed:
  - Multivariate filtering (MVF) techniques to estimate potential output and NAIRU.
  - Local projection method à la Jordà (2005) to estimate reform multipliers using structural indicators in emerging market and developing economies.
  - Distance-to-frontier approach comparing Morocco to the average OECD country across governance, education, social protection, health, and product market competition.
  - Cobb-Douglas production function and the IMF’s Flexible System of Global Models (FSGM) for long-term impact estimation.

### Key quantitative findings on potential output and drivers
- Estimated trends and levels:
  - Potential output growth averaged about 4.5 percent between 2000 and 2007.
  - Potential output growth slowed to about 3 percent right before the pandemic.
- Contribution of labor inputs:
  - Contribution of trend employment to potential growth declined from 1.6 percentage points between 2000 and 2007 to about 0.3 in 2018–19.
  - Trend labor force participation rate declined by about 6 percentage points (period not explicitly restated).
  - NAIRU estimates declined from about 13.3 percent in 2000 to about 10.2 percent in 2019.
- Contribution of capital:
  - Capital accumulation contribution fell from 2¼ percentage points in the early 2000s to about 1.5 percentage points in 2018–19.
  - Investment-to-GDP ratio rose between 2000 and 2007 and stabilized slightly below 30 percent thereafter.
  - Growth rate of capital productivity (GDP-to-capital ratio) has been on a downward trend over the past two decades.
- Contribution of total factor productivity (TFP):
  - TFP contribution rose from 0.8 percentage points in 2000–07 to 1.1 percent in 2018–19.
  - TFP is treated as a residual and may capture changes in hours worked, labor quality, and capital utilization.

### Impact of the pandemic on potential output (2020–2022)
- Potential output contraction:
  - Potential output is estimated to have contracted by about 0.5 percent in 2020.
- Channel magnitudes in 2020:
  - Contribution of capital accumulation to potential growth dropped from 1.5 percentage points in 2019 to 1 percentage point in 2020.
  - Contribution of labor to potential output growth fell slightly by 0.1 percentage point in 2020 (potential employment growth remained broadly unchanged at 0.5 percent in 2020).
  - Contribution of TFP to potential output growth fell from 1 percentage point in 2018–19 to about –2 percentage points in 2020.
- 2021–22 developments:
  - Potential output growth rose to about 1 percent in 2021–22.
  - Drivers of the 2021–22 rise: capital accumulation (contribution up by about 0.2 percentage point) and labor input (contribution up by about 0.5 percentage point).
  - TFP continued to contract in 2021–22 with a contribution of about –1 percentage point.

### Morocco’s post–COVID-19 structural reform agenda (areas and notable measures)
- Social protection and health sector:
  - Reform started in 2020 to extend health care coverage and improve efficiency/targeting of social safety nets.
  - Decrees in 2021 and 2022 to include self-employed individuals (about 11 million Moroccans) into a new mandatory insurance health care scheme.
  - Individuals previously benefiting from free health care will have the option of using both public and private health care starting from 2023.
  - Comprehensive overhaul of the health care system began in 2022: reorganize supply around new regional health care centers, build new hospitals, recruit additional medical personnel with remuneration linked to productivity, introduce protocols favoring family doctors and local practices, and greater digitalization.
  - Social protection reforms envisage extension of conditional cash transfers (family allowances), pensions (to self-employed people), unemployment insurance, and the introduction of a unified social registry that assigns each household a “standard of living” score to determine eligibility for social programs.
- Education:
  - 2019 Education Act: start universal preschool education; enhance teachers’ formation and assessment; redesign curricula prioritizing STEM and early reading.
  - 2022 four-year roadmap objectives:
    - Reduce by one-third the drop-out rate in primary education.
    - Increase by one-third the number of students with basic skills at the end of primary school.
    - Double the number of students who benefit from extracurricular activities.
  - Achieving objectives requires more investment in school infrastructure and human capital (recruiting, training, and payment of teachers).
- Product market reforms:
  - Reform of the SOE sector: create a national agency for valorization, strategic management, and monitoring of Moroccan SOEs.
  - Objectives: eliminate SOEs with nonessential missions, merge SOEs operating in the same sector, corporatize SOEs with commercial activities to strengthen governance.
  - Complementary measures: operationalization of the Mohammed VI Fund, a new charter of investment, strengthening competition and consumer protection frameworks.
- Governance:
  - Progress in the fight against corruption: National Authority for Probity, Prevention, and the Fight Against Corruption (INPPLC) endowed with means and legal framework; appointment of INPPLC’s secretary general and board members in late 2022.
  - Ongoing efforts to strengthen penal procedural code, reinforce whistleblower legislation, and introduce preventive anticorruption measures.
- Gender gaps and related measures:
  - Female labor force participation rate was 21 percent in 2021.
  - Initiative to increase preschool enrollment from the current 70 percent to 100 percent by 2028 to support women’s labor market participation.
  - Bank Al-Maghrib regulations issued in 2022 require credit institutions to:
    - Take the gender dimension into account in strategic orientations.
    - Integrate gender into financing and investment strategies.
    - Design banking products and services for women, including entrepreneurs, and dedicate refinancing mechanisms such as Gender Bonds.
  - The New Development Model proposes to double women’s labor force participation rate (target stated; implementation details not included in supplied content).

### Quantified potential gains from reforms (scenarios and ranges)
- If reforms reduced by half the current gaps relative to the average OECD country in the next 15 years:
  - Morocco’s potential output level could increase by between 5 percent and 10 percent.
- The magnitude and timing of gains depend on the timing and effectiveness of reform implementation.

### Methodological notes (as described)
- MVF estimation uses data from 1990 to 2019; pandemic-related break in 2020 led to freezing pre-2020 potential output estimates and extending the sample beyond 2021 using projections until 2023 from the October 2021 World Economic Outlook.
- Production function used: Cobb-Douglas Yt = At * L̅t^α * Kt^(1−α), where At is trend TFP (residual), Kt is capital stock, L̅t is potential employment.
- Potential employment L̅t = (1 − Ut) * Wt * LFRPt, where Ut is NAIRU, Wt is working-age population, and LFRPt is trend labor force participation rate.
- Potential growth decomposition: ∆ln(Yt) = ∆ln(At) + α∆ln(Lt) + (1 − α)∆ln(Kt).
- Local projections à la Jordà (2005) used to estimate average impact of structural reforms (reform multipliers) across emerging market and developing economies.
- Distance-to-frontier approach used to assess Morocco’s gaps relative to the average OECD country across governance, education, social protection, health, and product market competition.

*IMF Working Paper: Assessing the Impact of Structural Reforms on Potential Output: The Case of Morocco*

### 2035. These include i) promoting work flexibility solutions for women in the workplace, including

### wpiea2023222-print-pdf - 2035. These include i) promoting work flexibility solutions for women in the workplace, including

### Gender and inclusion policy recommendations
- Policy package items listed:
  - i) promoting work flexibility solutions for women in the workplace, including extending flexible work in public and private institutions and paternity leave
  - ii) implementing large-scale solutions for affordable childcare and mobility
  - iii) strengthening education, training, support, and financing mechanisms for Moroccan women
  - iv) aligning the entire legal system with the constitutional principle of equal rights and parity
  - v) increasing awareness of gender equality, by rethinking the representations of the female model in school curricula and in the media, including through communication campaigns on gender parity, and the participation of women in work and in the economic and social development of the country

### Estimating the reform multipliers — approach
- Sample and period:
  - 155 emerging and developing economies over the period 1980-2021
- Methodology:
  - Local projection method (Jordà, 2005) following IMF (2019)
  - Structural indicators built from sub-indicators standardized to vary between 0 and 100; simple average used as index
  - Principal component analysis used as robustness check (first component comparable)
- Structural areas covered:
  - Governance: average of six Worldwide Governance Indicators: (1) control of corruption, (2) political stability and absence of violence, (3) rule of law, (4) government effectiveness, (5) regulatory quality, and (6) voice and accountability
  - Education: seven variables: (1) gross pre-primary enrollment ratio, (2) gross primary enrollment ratio, (3) primary completion rate, (4) out-of-school rate for children of primary school age, (5) lower secondary completion rate, (6) average years of schooling, and (7) adult literacy rate
  - Social protection and health: seven variables: (1) neonatal mortality rate, (2) infant mortality rate, (3) life expectancy at birth, (4) universal health service coverage, (5) the number of physicians per thousand people, (6) the number of nurses and midwives per thousand people, and (7) the number of hospital beds per thousand people
  - Product market competition: three variables: (1) the extent of market dominance, (2) administrative requirements, and (3) bureaucracy costs

### Local projection specification and inference
- Local projection regression form (notation preserved from source):
  - 푦푖,푡+푘 − 푦푖,푡−1 = 훼푖 + 휆푡 + 훽푘푆푅푖,푡 + 휃푋푖,푡 + 휀푖,푡
  - 푦푖,푡 is the log of output; k = 0,1,2,...6; 훼푖 and 휆푡 are country and time fixed effects; 푆푅푖,푡 is change in structural reform index; 푋푖,푡 includes lags of dependent variable, past economic growth, and past reforms
- Inference:
  - Impulse responses computed from estimated 훽̂푘 for k = 0,...,6
  - Confidence bands at a 10 percent level of significance; standard errors clustered at the country level
- Definition used for a major reform shock:
  - An annual change in the structural reform index above two standard deviations of the distribution

### Reform multiplier empirical findings (average emerging and developing economy)
- Timing and comparative effects:
  - Reforms have sizeable positive effects on output; magnitude increases over time
  - Governance reforms tend to pay off quickly and have the largest effects on output
  - Education reform, social protection and health reforms, and product market deregulation have broadly comparable quantitative effects
- Quantitative point estimates at six-year horizon:
  - Governance: increases output by about 2½ percent after six years
  - Education: increases output by about 1½ percent after six years
  - Social protection and health: increases output by about 1½ percent after six years
  - Product market deregulation: increases output by about 1½ percent after six years
- Employment and investment (six-year horizon) — supplementary results:
  - Social protection and health, product market, and governance increase employment by about 0.2 percent to 0.4 percent
  - Governance reform increases investment by 4.7 percent; education, social protection and health, and product market effects on investment are broadly comparable

### Assessing Morocco’s structural gaps (distance-to-frontier vs OECD average)
- Gap calculation:
  - Structural gap 푆퐺푖 = (푆푅푖∗ − 푆푅푖)/푆푅푖∗ where 푆푅푖 is Morocco’s index and 푆푅푖∗ is OECD average
- Key quantified gaps (relative to OECD average):
  - Governance: Morocco’s score is about 40 percent lower than the OECD average (driven by control of corruption and voice and accountability)
  - Education: Morocco’s score is about 35 percent below the OECD average (driven by low pre-primary and primary enrolments, lower secondary completion, and average years of schooling)
  - Social protection and health: about 40 percent lower than the OECD average (driven by availability of physicians, nurses, and hospital beds)
  - Product market competition: about 10 percent lower than the OECD average (explained by market dominance in corporate sector)
  - Female labor force participation (FLFP): Morocco’s FLFP is only about two-fifths of the average OECD level

### Production function mapping of reform impacts
- Production function used:
  - 푌 = 퐴 퐿훼 퐾1−훼
  - Effective labor input: 퐿 = 푤 ∗ 푝 ∗ 푒 where 푤 is working-age population, 푝 is labor force participation rate, and 푒 is employment rate
- Mapping:
  - Governance, education, social protection and health, and product market reforms → impact TFP (퐴)
  - Reforms to boost women’s participation → increase 푝 (aggregate labor force participation rate)
- Output impact of reform i:
  - 푅퐼푖 = 훽̂푘 × ((푆푅푖∗ − 푆푅푖)/푆푅푖∗)
  - Timeline for assessment: after 15 years

### Reform scenarios and production-function results (15-year horizon)
- Medium-success scenario:
  - Reforms close half of the distance to OECD average over 15 years
  - FLFP increases to about 34 percent (from about 22 percent in 2022)
  - Result: real GDP increases by about 5 percent over 15 years on a cumulative basis
- Low-success scenario:
  - Reforms close 10 percent of the gap with OECD over 15 years
  - FLFP increases to 25 percent over 15 years
  - Result: level of output increases by about 1 percent over 15 years on a cumulative basis
- High-success scenario:
  - Reforms close 80 percent of Morocco’s gap over 10 years (score about 20 percent above OECD average after 15 years)
  - FLFP increases to about 50 percent over 15 years
  - Result: output could increase cumulatively by about 12 percent over 15 years

### Model-based (FSGM) simulation setup and assumptions
- Model used:
  - IMF’s Flexible System of Global Models (FSGM), Middle East and Central Asia Department Model module
- Key modeling features:
  - Potential output: Cobb-Douglas with trend TFP, steady-state labor force, NAIRU, and capital stock
  - Reforms mapped as shocks to TFP and to aggregate labor force participation
  - Medium scenario calibrated: governance reform modeled as TFP shock of 0.5 percent over 15 years; education reform as TFP increase of 0.2 percent over 15 years; overall package (excluding gender) boosts TFP by about 1.1 percent after 15 years
  - Labor force participation increase in medium scenario: about 6 percentage points; upper bound 13 percentage points; lower bound 1 percentage point
- Fiscal financing assumptions for reforms:
  - Option 1 (Budget-neutral): additional spending offset by decrease in other public expenditures (lump-sum transfers adjust to keep structural deficit unchanged)
  - Option 2 (Debt financing): additional spending financed with public debt; structural deficit increases and lump-sum transfers adjust to cover higher debt-service costs; each unit increase in public debt-to-GDP increases sovereign risk premium by 3 basis points

### Model-based results — key findings
- TFP shock magnitude from reforms (per scenario):
  - High-success scenario: about 2.7 percent permanent TFP shock
  - Low-success scenario: about 0.2 percent permanent TFP shock
- Output gains (budget-neutral financing, cumulative over 15 years):
  - Range from 2.3 percent to 22 percent; medium-success scenario ≈ 10 percent cumulative increase
- Output gains (debt-financing scenario, cumulative over 15 years):
  - Range from 0.5 percent to 20 percent; medium-success scenario ≈ 8¼ percent cumulative increase
- Gender-gap reduction:
  - Increasing FLFP delivers the largest payoffs in medium to long term; cumulative output gains over 15 years are twice as large as those produced by individual other reforms
- Short- versus long-term under debt financing:
  - Short term: higher public spending can boost private consumption and output via multiplier effects
  - Long term: higher borrowing costs crowd out private investment, depress capital stock, and partially offset productivity-induced output gains

*Source: Authors’ calculations (IMF Working Paper text provided).*

### 1. Real GDP: Effects of Reforms –Budget Neutral

### 1. Real GDP: Effects of Reforms –Budget Neutral

### Key findings on growth drivers and shocks
- Morocco experienced a downward trend in growth prospects over the last two decades.
- The downward secular trend in potential growth since the mid-2000s was primarily driven by:
  - the decline of labor force participation, and
  - a higher NAIRU.
- The pandemic affected the supply side mainly via its impact on total factor productivity (TFP).

### Quantified impacts of the announced structural reform agenda
- Time horizon considered: next 15 years.
- Under the production function approach:
  - If these reforms were to halve Morocco’s current structural gaps relative to the average OECD country over the next 15 years, Morocco’s real output could increase by about 5 percent at the end of this period under a “medium success” scenario.
- Model-based simulations:
  - If reforms are budget neutral, they could improve output by 10 percent under the same assumptions about their effectiveness (medium success).

### Role of gender gap and labor force participation
- Given the relatively larger starting gap in FLFP, reforms that would reduce the gender gap in Morocco’s labor market are particularly critical.
- Reducing the gender gap accounts for about three-fourths of the overall output gain in the long term.

### Scenario framing and model notes
- Scenarios referenced include medium-, high-, and low-success reform scenarios (figures denote medium line with upper and lower shaded areas for high- and low-success).
- Comparisons consider budget-neutral implementation and deficit/debt-financed implementations (figures illustrate both “Reforms (Budget Neutral)” and “Reforms (Deficit Financed)” outcomes).

### Policy implications (implied by findings)
- Prioritize reforms that boost labor force participation, especially by closing the gender gap in labor market outcomes.
- Implement structural reforms that raise productivity to offset pandemic-induced TFP declines.
- Consider fiscal design of reform financing (budget neutral versus debt financed) as it affects macroeconomic outcomes.

*Source: Assessing the Impact of Structural Reforms on Potential Output: The Case of Morocco — IMF Working Paper No. WP/2023/222*

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_Source: https://www.imf.org/-/media/files/publications/wp/2023/english/wpiea2023222-print-pdf.pdf_