Press Release No. 20/329

IMF Staff Completes 2020 Article IV Mission with Morocco

November 2, 2020

• The prompt response of the authorities has helped contain the economic and social impact of the health crisis. Still, like many other economies in the world, Morocco’s economy is expected to experience a deep recession this year.
• IMF staff expects GDP growth to rebound next year to 4.5 percent as the effects of the drought and pandemic wane, but considerable downside risks remain.
• Morocco has taken decisive efforts to expand social assistance this year. IMF staff agrees that a comprehensive reform of the social protection system will be more urgent after the pandemic.

Washington, DC: An International Monetary Fund (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.

At the conclusion of the mission, Mr. Cardarelli issued the following statement:

“Despite the prompt response of the authorities, the global pandemic has not spared Morocco and exerted a heavy toll on its population, as in many other countries in the world. The IMF mission would like to express its solidarity with all Moroccans who have been impacted by the health crisis, and to those who have worked incessantly at all levels of society to help their fellow citizens cope with its consequences.  

“The 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, as well as a spike in unemployment rate. The fiscal and external deficits are expected to widen, on the back of lower tax revenues and tourism receipts, respectively. Still, the resilience of remittances and lower imports have contained Morocco’s external financing needs, and international reserves remain comfortably above last year’ levels also thanks to the purchase of the IMF precautionary liquidity line in April (see Press Release No. 20/138) and the greater recourse to external financing. IMF staff expects GDP growth to rebound next year to 4.5 percent as the effects of the drought and pandemic wane, but there are considerable downside risks around this baseline projection.

“The fiscal policy stance has been eased appropriately in 2020. Tax revenues have fallen sharply, and spending measures have been put in place to minimize the economic and social impact of the crisis. Among these measures, wage subsidies, cash transfers to households in the informal sector, and the extension of credit to firms, have sustained domestic demand, protected the most vulnerable, and supported the productive system. The 2021 Budget continues to support the recovery over the next few years, mainly through the impulse to investment and the reforms of the social protection system announced by the authorities. Staff welcomes the authorities’ plans to support the recovery in 2021. It also agrees with the authorities that the process of fiscal consolidation should be gradual and begin only once the economic recovery becomes well anchored. While acknowledging the exceptional uncertainty over the timing and pace of the recovery, staff recommends starting to reduce the public-debt-to GDP ratio from 2022 under its baseline projections. A slower-than-expected economic recovery on the other hand would call for a delayed fiscal adjustment. Measures to extend the tax base and increase the progressivity of the tax system, further public administration reforms to rationalize spending, and the authorities’ privatization program would help rebuild the fiscal buffers while financing the extension of social protection programs.

“Bank al-Maghrib (BAM) has taken decisive actions to mitigate the impact of the pandemic 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 to use all policy tools available to avoid further economic damage, if downside risks were to materialize. Greater exchange rate flexibility would benefit the Moroccan economy by helping preserve international reserves and international competitiveness, through better absorbing the effects of external shocks. The authorities are continuing to work to ensure that the transition to a new phase of the monetary policy regime will occur smoothly and at the right moment.

“Banks have been relatively resilient amid the pandemic, helped by relatively sound initial capital and liquidity positions and the strong response by BAM. Staff welcomes BAM decision to ask banks for increased provisioning and for suspending the distribution of dividends this year to build buffers against a potential deterioration of banks’ credit portfolio soon. BAM continues its active monitoring of the impact of the crisis on asset quality, while also making further progress in coordination with the Ministry of Finance to finalize the resolution framework and so reinforce the authorities’ toolkit.

“Advancing on the structural reform agenda is essential to solidify the recovery from the pandemic and achieve stronger, resilient, and more inclusive growth, one that improves the standard of living for all Moroccans. Staff congratulates the authorities’ decisive efforts to expand social assistance this year and agrees that a comprehensive reform of the social protection system has become more urgent after the pandemic. The extension of health care insurance to all Moroccans would contribute to increase access to higher quality services, while the harmonization of all current social assistance programs under a unified social registry would improve efficiency and targeting. The mission also supports the announced reform of state-owned enterprises, that should create the conditions for a more efficient public sector and boost private sector development. Finally, the mission appreciates recent progress in preparing the legal framework for the digitalization of the public administration and the simplification of its procedures, implementing the education reform, including the overhaul of the vocational and professional formation system, improving governance and fighting corruption.

“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

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 (see Press Release No.20/138). This was the first time the authorities drew on funds available under the PLL, to cope with the unprecedented shock of the COVID-19 pandemic.