IMF Staff Completes 2016 Article IV Consultation and First Review of the Precautionary and Liquidity Line Mission to Morocco

IMF News, December 1, 2016

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Canonical URL: IMF Staff Completes 2016 Article IV Consultation and First Review of the Precautionary and Liquidity Line Mission to Morocco

IMF staff team led by Nicolas Blancher visited Morocco from November 16 to December 1, 2016.
Purpose: 2016 Article IV consultation and first review under the Precautionary and Liquidity Line (PLL) arrangement approved in July 2016.
Statement conveys preliminary findings of IMF staff; views are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.

2016 growth: projected to slow to between 1.5 and 2 percent due to a bad cereal harvest and relatively low activity in the nonagricultural sector.
2017 growth: projected to accelerate to about 4.4 percent as agriculture recovers and nonagricultural performance strengthens.
Medium-term growth: expected to stabilize at around 4.5 percent with implementation of ongoing reforms.
Current account: deficit should increase slightly to 2.9 percent of GDP, driven by higher imports of capital goods and food and the decline in phosphate prices, despite dynamism of new export sectors.
International reserves: reached the equivalent of 6.8 months of imports, taking into account foreign direct investment inflows.
Inflation and credit growth: remain moderate.

2016 fiscal performance: developments as of end of September are in line with the deficit target of 3.5 percent of GDP in 2016.
2017 draft budget: provides for a deficit of 3 percent of GDP; IMF staff welcome recent public pension reform and improvements in public finances in the draft budget.
Medium-term fiscal strategy: step up reforms to make the tax system more efficient and equitable by broadening the tax base and combating tax evasion to create more room for investments in infrastructure, health, education, and social protection and to reduce public debt.
Fiscal decentralization: need to ensure good governance, transparency, and fiscal discipline at the local level to contain associated risks.

Key priorities to raise potential growth and inclusion:
- Improve the quality of the education system.
- Improve the functioning of the labor market.
- Increase female labor force participation.
- Continue efforts to further improve the business environment.
Emphasis on accelerating implementation of significant structural reforms to increase productivity gains and job creation, particularly to address high unemployment among young people.

Financial sector: well capitalized; risks to financial stability remain limited.
Nonperforming loans: increasing but well provisioned.
Remaining vulnerabilities and recommended actions:
- Continue to reduce credit concentration.
- Pay special attention to risks related to Moroccan banks’ expansion in Africa.
- Strengthen bank supervision and cross-border collaboration.
- Rapid adoption of the new central bank law to strengthen central bank independence and its role in financial stability.
- Support efforts to increase access to finance, in particular for small- and medium-sized enterprises.
Progress: authorities commended for progress made in implementing FSAP recommendations.

IMF staff support the government’s intention to begin a gradual transition toward a more flexible exchange rate regime and inflation targeting.
Expected benefits: preserve competitiveness, reinforce capacity to absorb external shocks, and facilitate integration in the global economy.
IMF staff continue to work with the authorities toward finalizing their roadmap for this transition.

Main risks to outlook:
- Growth in advanced and emerging market economies.
- World energy prices.
- Geopolitical tensions in the region.
- Volatility in global financial markets.
Policy recommendations:
- Accelerate implementation of structural reforms listed above.
- Step up tax reforms to broaden the base and combat evasion.
- Ensure good governance and fiscal discipline at the local level during decentralization.
- Strengthen banking supervision and cross-border collaboration, and adopt the new central bank law rapidly.
- Continue efforts to increase access to finance for SMEs.