IMF Staff Completes 2020 Article IV Mission with Morocco

IMF News, November 2, 2020

Source details

Canonical URL: IMF Staff Completes 2020 Article IV Mission with Morocco

Other formats

Bibliographic details

Published: November 2, 2020

Mission summary

IMF staff team led by Roberto Cardarelli conducted a remote mission from October 19 to November 2, 2020 in the context of the 2020 Article IV consultation with Morocco.
Press release notes that staff views are preliminary and do not necessarily represent the views of the IMF’s Executive Board; staff will prepare a report for the IMF's Executive Board subject to management approval.
Mission expresses solidarity with Moroccans affected by the health crisis and thanks Moroccan authorities and representatives of the public and private sectors and civil society for cooperation.

Macroeconomic outlook and scenarios

Combined effect of the drought and the pandemic is expected to cause contraction of GDP in 2020 between 6 and 7 percent, depending on the evolution of the health crisis.
IMF staff expects GDP growth to rebound next year to 4.5 percent as the effects of the drought and pandemic wane.
Staff notes considerable downside risks around the 4.5 percent baseline projection.
Unemployment rate expected to spike in 2020.
Fiscal and external deficits are expected to widen in 2020, driven by lower tax revenues and tourism receipts.
Resilience of remittances and lower imports have contained Morocco’s external financing needs.
International reserves remain comfortably above last year’s levels, helped by the purchase of the IMF precautionary liquidity line in April and greater recourse to external financing.

Fiscal policy assessment and recommendations

Fiscal policy stance has been eased appropriately in 2020.
Measures implemented in 2020 include wage subsidies, cash transfers to households in the informal sector, and extension of credit to firms; these measures sustained domestic demand, protected the most vulnerable, and supported the productive system.
The 2021 Budget continues to support the recovery through investment impulses and announced reforms of the social protection system.
Staff agrees the process of fiscal consolidation should be gradual and begin only once the economic recovery becomes well anchored.
Staff recommends starting to reduce the public-debt-to GDP ratio from 2022 under its baseline projections; a slower-than-expected recovery would call for a delayed fiscal adjustment.
Policy measures to rebuild fiscal buffers and finance expanded social protection:
- Extend the tax base and increase the progressivity of the tax system.
- Further public administration reforms to rationalize spending.
- Proceed with the authorities’ privatization program.

Monetary policy and financial sector

Bank al-Maghrib (BAM) has taken decisive actions to mitigate the pandemic’s impact on the real economy and the financial sector.
Staff supports the accommodative monetary stance, which should be maintained until there are signs that inflation has begun to increase.
BAM envisages using all policy tools available to avoid further economic damage if downside risks materialize.
Greater exchange rate flexibility would benefit the Moroccan economy by helping preserve international reserves and international competitiveness through better absorption of external shocks.
Banks have been relatively resilient amid the pandemic due to relatively sound initial capital and liquidity positions and BAM’s strong response.
Staff welcomes BAM’s decision to ask banks for increased provisioning and to suspend the distribution of dividends in 2020 to build buffers against potential deterioration in banks’ credit portfolios.
BAM is actively monitoring asset quality and coordinating with the Ministry of Finance to finalize a resolution framework to reinforce the authorities’ toolkit.

Structural reforms and social protection

Advancing the structural reform agenda is essential to solidify the recovery and achieve stronger, resilient, and more inclusive growth.
Staff congratulates authorities’ decisive efforts to expand social assistance in 2020 and stresses that a comprehensive reform of the social protection system is more urgent after the pandemic.
Specific structural and social recommendations supported by staff:
- Extend health care insurance to all Moroccans to increase access to higher quality services.
- Harmonize current social assistance programs under a unified social registry to improve efficiency and targeting.
- Reform state-owned enterprises to create conditions for a more efficient public sector and boost private sector development.
- Continue preparing the legal framework for digitalization of the public administration and simplification of procedures.
- Implement education reform, including overhaul of the vocational and professional formation system.
- Improve governance and fight corruption.

Background information

Since 2012, Morocco benefited from four successive PLL arrangements with the IMF.
On April 7, 2020, the Moroccan authorities purchased all available resources (about US$ 3 billion) under the Precautionary and Liquidity Line (PLL) arrangement.

IMF Staff press release — November 2, 2020.

References

Press Release No. 20/138](https://www.imf.org/en/News/Articles/2020/04/08/pr20138-morocco-draws-funds-available-under-precautionary-liquidity-line-covid19-pandemic)

https://www.imf.org/en/home