Press Release No. 19/102

IMF Staff Completes 2019 Article IV Consultation and First Review of the Precautionary and Liquidity Line (PLL) Arrangement with Morocco

April 2, 2019

• Improved fiscal management and economic diversification have strengthened the resilience of Morocco’s economy, yet unemployment remains high, especially among the youth.
• The business environment continues to improve, which will help to promote competition and support the development of SMEs.
• The IMF team encourage reforms aimed at strengthening the governance and efficiency of the public sector and combating corruption.

An International Monetary Fund (IMF) staff team led by Nicolas Blancher visited Morocco from March 19 to April 3, 2019 to conduct discussions with the Moroccan authorities on the 2019 Article IV consultation as well as the first review of the Precautionary and Liquidity Line (PLL) arrangement approved in December 2018.

At the conclusion of the visit, Mr. Blancher issued the following statement:

“The Moroccan economy continues to benefit from the prudent macroeconomic policies and structural reforms that have been pursued. In recent years, improved fiscal management and economic diversification have strengthened the resilience of the economy. However, unemployment remains high, particularly among young people, and it is crucial to achieve higher, sustainable and more inclusive growth. Significant structural reforms have been initiated, and their implementation should be stepped up in order to increase productivity gains, create jobs, and raise growth potential, in line with the government’s medium-term objectives. Key priorities include improving the quality of the education system, the functioning of the labor market, female labor force participation, and the business environment.

“Economic growth reached 3 percent in 2018, while inflation rose to 1.9 percent and growth of credit held steady at 3.3 percent. After a slight decline in 2017, the external current account deficit rose to 5.4 percent of GDP in 2018, owing primarily to higher oil prices and grant revenue shortfalls, despite strong export growth. International reserves remained comfortable at about five months of imports. Growth should stabilize in 2019, supported by the recovery of non-agricultural activity, to reach 4.5 percent over the medium term with the implementation of the structural reforms. However, the outlook remains subject to risks related to lower growth in advanced and emerging economies, world energy prices, and volatility in the global financial markets.

“On the fiscal side, developments as of end-December were in line with the authorities’ revised fiscal deficit target of 3.7 percent of GDP in 2018. The team notes that the authorities aim to maintain the deficit, excluding privatization proceeds, at this level in 2019. In the medium term, the tax reform, which will be discussed in national consultations in May, should continue to make the tax system more efficient, equitable, and supportive of economic growth and the authorities’ objective of bringing the public debt to 60 percent of GDP. These efforts would also provide more fiscal space and support productive investment in infrastructure and social safety nets. The team supports the privatization plan and efforts to refocus public enterprises on their core business. It welcomes the progress made with fiscal decentralization, while emphasizing the need to ensure good governance, transparency, and fiscal discipline at the local level.

“Staff fully supports the authorities’ intention to gradually transition to a more flexible exchange rate regime, which should improve the economy’s ability to absorb external shocks and maintain its competitiveness. The current conditions continue to offer a window of opportunity to advance this transition in a gradual and orderly manner.

“The financial sector is well capitalized, and the risks to financial stability remain limited. Nonperforming loans are still relatively high, but they have declined and are well provisioned. Staff encourages the authorities to continue to reduce credit concentration and, through ongoing collaboration with supervisory bodies in the host countries, limit the risks related to the expansion of Moroccan banks in Africa. The team also supports the efforts of the authorities to reduce the risks related to money laundering. More generally, the team commends the authorities for the progress made in implementing the 2015 FSAP recommendations, and recommends the adoption, as soon as possible, of the new central bank law, which will strengthen its independence and its role in financial stability.

“The mission welcomes the discussions under way to define a new growth model for Morocco. The business environment continues to improve, particularly with the activation of the Competition Council and the implementation of a new financial inclusion strategy, which will help promote competition and support the development of SMEs. The mission encourages reforms aimed at strengthening the governance and efficiency of the public sector and combatting corruption , particularly through the adoption of the law on access to information and the publication of the first report on implementation of the national anti-corruption strategy. Finally, better targeting of social programs will be necessary to improve their impact and reduce social inequalities. To this end, staff supports the government’s efforts to establish a single social registry.”

“The team would like to thank the Moroccan authorities and representatives of the public and private sectors and civil society with whom it had the opportunity to meet for their cooperation and productive discussions.”

Background information

The IMF Executive Board approved a 24-month arrangement under the Precautionary Liquidity Line (PLL) in an amount equivalent to about US$3 billion (240 percent of Morocco’s quota) in December 2018 (see Press Release No.18/477).