IMF Executive Board Concludes 2019 Article IV Consultation with Morocco
IMF News, July 16, 2019
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- Published: July 16, 2019
Economic activity and prices
- Real GDP growth reached 3 percent in 2018.
- Economic activity weakened in 2018 due to lower growth in the agricultural and tertiary sectors.
- Headline inflation reached 1.9 percent in 2018, in part due to higher food prices.
- Unemployment rate remains close to 10 percent and is particularly high among the youth.
Fiscal developments
- Fiscal consolidation slowed in 2018.
- Fiscal deficit stabilized at 3.7 percent of GDP in 2018, driven by:
- Strong VAT revenues and wage bill containment, which partially offset lower corporate taxes and grants, and higher butane subsidies.
- Public finance indicators (selected):
- Revenue: 28.0, 26.0, 26.6, 26.2 (percent of GDP; table headings imply these correspond to earlier years).
- Expenditure: 32.9, 30.7, 30.5, 29.8, 29.9 (percent of GDP; as reported in table).
- Budget balance: -5.1, -4.8, -4.2, -4.5, -3.5, -3.7 (percent of GDP).
- Primary balance, excluding grants: -3.2, -3.6, -1.9, -2.7, -2.0, -1.7, -1.5 (percent of GDP).
- Cyclically-adjusted primary balance, excl. grants: -3.3, -1.6, -2.5, -1.4, -1.3 (percent of GDP).
- Total government debt: 61.7, 63.3, 63.7, 64.9, 65.1 (percent of GDP).
External sector
- Current account deficit widened to 5.4 percent of GDP in 2018 due to:
- Higher imports of energy and capital goods.
- Lower remittances, official grants, and tourism receipts.
- Despite the wider current account deficit, net FDI increased substantially to 2.5 percent of GDP.
- International reserves dropped to US$24.4 billion but remained about 5.2 months of imports.
- External sector indicators (selected):
- Exports of goods, in U.S. dollars, percentage change: 7.4, 9.2, -6.8, 2.4, 12.8, 14.3, 6.6 (annual percent changes listed in table).
- Imports of goods, in U.S. dollars, percentage change: -17.9, 10.1, 7.8, 13.3 (annual percent changes listed in table).
- Merchandise trade balance: -20.5, -18.7, -14.5, -17.1, -16.4, -15.8 (percent of GDP).
- Current account excluding official transfers: -8.3, -7.6, -2.6, -5.0, -5.8, -4.4 (percent of GDP).
- Current account including official transfers: -5.9, -2.1, -4.0, -3.4, -5.4 (percent of GDP).
- Total external debt: 30.2, 31.0, 33.4, 33.7, 34.5, 31.1, 32.7 (percent of GDP).
- Gross reserves, in billions of U.S. dollars: 18.8, 20.3, 22.8, 24.4.
- In months of next year imports of goods and services: 4.6, 6.0, 6.1.
- Net imports of energy products, in billions of U.S. dollars: -12.2, -11.0, -5.6, -7.2, -8.8, -7.9.
Financial sector and banking
- Bank capitalization is adequate; risks to financial stability are limited.
- Nonperforming loans remain relatively high but are well provisioned.
- Regulatory measures being strengthened to reduce credit concentration and enhance cross-border supervisory collaboration related to Moroccan banks’ expansion in Africa.
- Directors noted the need to address weaknesses in the AML/CFT framework.
- Adoption of the central bank law and a more risk-based, forward-looking supervisory framework were recommended to further improve financial sector soundness.
- A comprehensive financial inclusion strategy was recently adopted to better address financing needs of underserved groups and small and medium-sized enterprises.
Outlook and risks
- Morocco’s medium-term prospects remain favorable, with growth expected to reach 4.5 percent by 2024.
- Downside risks include:
- Delays in reform implementation.
- Lower growth in key partner countries (particularly the euro area).
- Higher oil prices.
- Geopolitical risks.
- Volatile financial conditions.
- Upside factors include:
- Lower international oil prices could strengthen economic resilience.
- Increased regional integration in the Maghreb region could be an added source of medium-term growth.
Executive Board assessment and policy recommendations
- Directors commended authorities for sound macroeconomic policies and acceleration in reforms that improved resilience and diversification.
- Directors called for continued commitment to sustain sound policies to reach higher and more inclusive growth.
- Fiscal policy:
- Continue fiscal consolidation to preserve debt sustainability while safeguarding priority investment and social spending in the medium term.
- Continue control of public wage spending.
- Implement comprehensive tax reform informed by the May 2019 national tax conference to achieve greater equity and simplicity.
- Improve efficiency and governance of the public sector via civil service reform, careful fiscal decentralization, strengthened state-owned enterprise oversight, and better targeting of social spending.
- Monetary and exchange rate policy:
- Accommodative monetary policy remains appropriate given moderate inflation and subdued economic and credit growth.
- Continue transition to greater exchange rate flexibility in a carefully sequenced and well-communicated manner to help absorb external shocks and remain competitive.
- Structural and labor market policies:
- Sustain pace of structural reforms to move toward a more private-sector-led and inclusive growth model while reducing inequalities and protecting the most vulnerable.
- Revamp labor market policies and implement education reforms to create job opportunities, especially for women and youth.
- Continue efforts to strengthen governance and fight corruption.
- Financial sector:
- Remain vigilant given increasing complexity and cross-border expansion of the banking sector.
- Continue to improve AML/CFT framework and adopt central bank law and improved supervisory frameworks.
Selected economic indicators (high-level points from table)
- Real primary GDP: 17.2, -2.2, 11.9, -13.7, 15.4, 3.9, 0.1 (annual percentage changes as listed).
- Real non-primary GDP: 2.9, 3.4, 3.7, 3.1, 2.8 (annual percentage changes as listed).
- Consumer prices, end of period: 0.4, 1.6, 0.6, 1.8, 1.9 (percent).
- Consumer prices, period average: 1.5, 0.7 (percent; as listed).
- Gross capital formation: 34.7, 32.5, 30.8, 32.6, 33.2, 34.0 (percent of GDP).
- Nongovernment share of gross capital formation: 29.6, 27.2, 25.3, 26.9, 27.1, 27.8, 29.0 (percent of GDP).
- Gross national savings: 27.0, 26.5, 28.8, 28.4, 28.9, 30.0, 25.5 (percent of GDP).
- Claims to the economy (annual percentage change): 5.9, 3.3, 5.2.
- Broad money (annual percentage change): 6.2, 5.7, 4.7, 5.5, 4.0.
- Velocity of broad money: 0.9, 0.8.
- Exports/imports percentage changes and other external indicators reported in table (see External sector bullets above).
- Memorandum items:
- Nominal GDP, in billions of U.S. dollars: 106.8, 110.1, 101.2, 103.3, 109.7, 118.6, 120.7.
- Unemployment rate, in percent: 9.9, 9.7, 10.2, 9.8.
- Population, millions: 33.8, 34.1, 34.9, 35.2.
- Local currency per U.S. dollar, period average: 8.4, 9.4.
- Real effective exchange rate, annual average, percentage change: 1.7, -0.3, 2.1, -0.4.
IMF Communications Department, July 16, 2019
