The arrangement is under the IMF’s Precautionary and
Liquidity Line, which provides insurance against external shocks in light of
heightened uncertainty worldwide. This will help the government to continue with
their reform agenda aimed at promoting inclusive growth by addressing challenges
such as high youth unemployment (about 21 percent in 2015), low female labor
force participation, and boosting competitiveness, in a still adverse external
environment.
Insurance against global instability
Coming off the two previous precautionary
and liquidity arrangements—approved in 2012 and 2014—Morocco has
implemented challenging reforms such as modernizing the budget framework,
enacting energy subsidy reforms, strengthening the domestic financial sector,
and most recently reforming the civil service pension system.
These efforts, as well as a more favorable external environment in recent
years, have contributed to the substantial decline in domestic and external
imbalances (see Chart). Yet, Morocco is still subject to potential external
shocks such as a slowdown in the Euro area, increased volatility in the
financial markets, and regional spillovers—such as heightened geopolitical risks
that would lead to reduced tourism and increased oil price volatility—which
could reverse some of the recent achievements.
The new liquidity line arrangement, therefore, can support the authorities’
efforts to further strengthen macroeconomic stability and economic resilience,
even if these external shocks materialize.
Strong reform progress
Despite slow growth in the Euro Area—to which Morocco has close economic
links—the country’s strong policies and domestic reforms, combined with
favorable oil prices have helped steer the economy forward.
The authorities have implemented these key reforms:
- Liberalizing fuel product prices
- Expanding social programs targeting most vulnerable groups
- Adopting a new organic budget law and banking law that will
considerably strengthen its fiscal and financial sector policy frameworks
The authorities have also been working toward implementing civil service
pension reform and finalizing a new central bank law aimed at strengthening its
independence and transparency.
More broadly, the government has implemented important reforms to further
diversify the economy. These efforts are now bearing fruit as reflected in the
rapid emergence of new and higher valued added industries (automobile,
aeronautics, and electronics), which now provide Morocco with more export
revenues than traditional sectors such as agriculture or phosphates. The country
has also further developed its tourism industry.
Increasing Morocco’s economic potential
Building on recent progress, Morocco can take further steps to boost its
potential growth and make it more inclusive. These include:
- Promoting private sector led growth, including fostering small and medium
enterprises through better access to credit, ensuring healthy competition
between companies, and greater governance and transparency.
- Making the exchange rate more flexible to help absorb external shocks and
preserve the country’s competitiveness in the global market.
- Further develop and invest in human capital. This involves improving the
efficiency of public spending in the education system and reducing skill
mismatches through better teacher training, recruitment, deployment, and
evaluation.
- Implement labor market reforms and active labor market polices to address
the high youth unemployment and low female labor force participation.
