IMF Staff Completes 2022 Article IV Mission to Morocco

IMF News, November 4, 2022

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IMF staff team led by Roberto Cardarelli conducted discussions in Rabat on the 2022 Article IV Consultation from October 24 to November 4.
Press release date: November 4, 2022.
Press Release No. 22/371.

Morocco experienced a confluence of negative shocks in 2022:
- Drought impacted agricultural production.
- Terms-of-trade shocks from Russia’s invasion of Ukraine fueled inflation and reduced purchasing power.
- Recovery of tourism, strong remittances, and resilient exports partially offset these shocks.

GDP growth is projected at around 1¼ percent in 2022.
Current account deficit is expected to widen to around 4¼ percent of GDP in 2022.
Assuming a gradual improvement of external conditions and an average agricultural season:
- Growth should accelerate to around 3 percent in 2023.
- External deficit should narrow to around 3½ percent of GDP in 2023.
Inflation:
- Inflationary pressures have become more widespread over the course of 2022.
- Ensuring a return of inflation to close to 2 percent by 2024 will likely require further increases in policy rates.

Bank Al-Maghrib (BAM) has tightened monetary policy, with a policy rate increase in September.
The 2023 Budget:
- Government decision to publish its three-year budget plans is welcomed.
- The 2023 Budget balances rebuilding fiscal buffers, mitigating social and economic impacts of recent shocks, and financing structural reforms.
- Envisages continued reduction of the deficit to closer to pre-pandemic levels.
- Focuses on mitigating impact of shocks and financing reforms in social protection, health, and education systems.
- Proposes changes in corporate and personal income taxation to reduce tax burden on smaller and medium size firms and employees, while increasing overall progressivity of the tax system and expanding the tax base.
- Announced VAT and civil service reforms, reform of SOEs, further improvement in tax administration, and rationalization of spending, including better targeting of social spending through the introduction of the Unified Social Registry, are expected to create more fiscal space and allow a faster reduction of public debt in the medium term.

Given high uncertainty and tighter macroeconomic policies, accelerate structural reforms that:
- Extend social protection (noting a large share of the self-employed have yet to join the new healthcare and pension contributory system).
- Stimulate private sector investment (steps include operationalization of the Mohammed VI Fund and implementation of the new Charter of Investment).
- Reform state-owned enterprises (SOEs).
- Implement announced VAT and civil service reforms and further improve tax administration.
- Strengthen health and education systems to improve access, efficiency, and quality of services.
- Liberalize the electricity market to accelerate the transition to renewable energy.
- Address increasing scarcity of water resources.
Monetary policy: further increases in policy rates are likely needed to anchor inflation expectations and ensure return of inflation to close to 2 percent by 2024.

IMF team held discussions with senior officials of the government of Morocco, Bank Al-Maghrib, and representatives of the public and private sectors.
The IMF team expressed gratitude to Moroccan authorities and stakeholders for their hospitality and candid and productive discussions.

IMF Communications Department — Press Release No. 22/371, November 4, 2022.