Press Release No. 19/459

IMF Executive Board Completes the Second Review Under the Precautionary and Liquidity Line Arrangement for Morocco

December 13, 2019

• The authorities are committed to further reduce fiscal and external vulnerabilities, while strengthening the foundations for higher and more inclusive growth.
• Building on recent progress in improving the business environment, sustained reforms are needed to raise potential growth and reduce high unemployment, especially among the youth, increase female labor participation, and reduce regional disparities.
• Reforms of education, governance, and the labor market should contribute to more private sector-led growth and job creation.

On December 13, 2019, the Executive Board of the International Monetary Fund (IMF) completed the second review under the Precautionary and Liquidity Line (PLL) Arrangement for Morocco. The two-year arrangement supports the authorities’ policies to strengthen the economy’s resilience and promote higher and more inclusive growth. The Moroccan authorities have not drawn on the arrangement and continue to treat it as precautionary.

The PLL arrangement for Morocco in the amount equivalent to SDR 2.1508 billion (about US$3 billion) was approved by the IMF’s Executive Board on December 17, 2018 (See Press release No. 18/477). It will expire on December 16, 2020.

Following the Executive Board’s discussion, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, said:

“Morocco has made significant strides in strengthening the resilience of its economy in recent years. In 2019, economic activity has weakened due to a contraction in agricultural output, while inflation remains low. The external position is expected to improve only modestly, and fiscal consolidation has slowed down due in part to weaker-than-expected tax revenues and increased public wage spending.

“Looking ahead, growth is expected to accelerate gradually over the medium term. However, the outlook remains subject to downside risks, including potential delays in reform implementation and the external environment. In this context, the PLL arrangement continues to provide valuable insurance against external risks and support the authorities’ economic policies.

“The authorities are committed to sustaining sound policies. The government’s economic program remains in line with key reforms agreed under the PLL arrangement, including to further reduce fiscal and external vulnerabilities, while strengthening the foundations for higher and more inclusive growth.

“In light of the slowdown in fiscal consolidation, stepped up tax reforms and contained wage bill are needed to lower the public debt-to-GDP ratio while securing priority investment and social spending in the medium term. A decisive and comprehensive tax reform should aim to secure adequate revenues while bringing about greater equity and simplicity of the tax system. In addition, further improvements are needed in the efficiency and governance of the public sector, careful implementation of fiscal decentralization, strengthened state-owned enterprise oversight, and better targeting of social spending.

“The transition to greater exchange rate flexibility initiated last year would enhance the economy’s capacity to absorb shocks and preserve its external competitiveness. The current favorable economic environment continues to provide a window of opportunity to conduct this reform in a sequenced and well-communicated manner. Following the adoption of the central bank law, addressing weaknesses in the AML/CFT framework, and continuing to make the supervisory framework more risk-based and forward-looking will help further improve financial sector soundness.

“Building on recent progress in improving the business environment, sustained reforms are needed to raise potential growth and reduce high unemployment, especially among the youth, increase female labor participation, and reduce regional disparities. Reforms of education, governance, and the labor market should also contribute to more private sector-led growth and job creation.”