Press Release No. 22/371

IMF Staff Completes 2022 Article IV Mission to Morocco

November 4, 2022

• Global shocks and the drought have slowed the Moroccan economy this year, but growth is expected to recover in 2023 albeit in a very uncertain international environment.
• Continued prudent macroeconomic policies will remain key for Morocco's resilience. The 2023 Budget balances between rebuilding fiscal buffers, mitigating the social and economic impact of recent shocks, and financing structural reforms. Containing inflation pressures will likely require further normalization of monetary policy conditions.
• Given the high uncertainty and tighter macro-economic policies, it is essential to accelerate structural reforms, notably those that extend social protection, stimulate private sector investment, and address the challenges posed by climate change.

Washington, DC: An International Monetary Fund (IMF) staff team led by Roberto Cardarelli conducted discussions with the Moroccan authorities in Rabat on the 2022 Article IV Consultation from October 24 to November 4.

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

“The Moroccan economy has experienced a confluence of negative shocks in 2022 that have halted the rapid rebound after the pandemic. The drought impacted agricultural production, while the terms-of-trade shocks from Russia’s invasion of Ukraine fueled inflation and reduced purchasing power. The recovery of tourism, strong remittances, and resilient exports have partially offset these shocks. GDP growth is projected at around 1¼ percent in 2022 and the current account deficit is expected to widen to around 4¼ percent of GDP. Assuming a gradual improvement of external conditions and an average agricultural season, growth should accelerate to around 3 percent next year and the external deficit should narrow to around 3½ percent of GDP, but exceptional uncertainty clouds the outlook.

“Although caused by global supply and commodity price shocks, inflationary pressures have become more widespread over the course of this year. Accordingly, BAM has appropriately tightened monetary policy in September. While we expect inflation to start falling next year, driven by the projected decrease in global commodity prices, ensuring a return of inflation to close to 2 percent by 2024 will likely require further increases in policy rates, to further anchor inflation expectations.

“We welcome the Moroccan government decision to publish its three-year budget plans as part of the 2023 Budget, which envisages continued reduction of the deficit to closer to pre-pandemic levels. The 2023 Budget also rightly focus on mitigating the impact of recent shocks and financing much-needed reforms in the social protection, health, and education systems. Changes in corporate and personal income taxation are designed to reduce the tax burden on smaller and medium size firms and employees, while increasing the overall progressivity of the tax system and expanding the tax base. The announced VAT and civil service reforms, the 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, should create more fiscal space and allow a faster reduction of public debt in the medium term .

“Strengthening the resilience of Morocco’s economy amid limited fiscal and monetary policy space and exceptional uncertainty calls for accelerating structural reforms. Significant progress has been achieved in expanding social protection, although a large share of the self-employed have yet to join the new healthcare and pension contributory system. Far-reaching reforms in health and education systems should improve access, efficiency, and quality of services. Recent steps to reform SOEs, together with the operationalization of the Mohammed VI Fund and the implementation of the new Charter of Investment should help stimulate private investment. Progress in liberalizing the electricity market should accelerate the transition to renewable energy, while much remains to be done to address the increasing scarcity of water resources.

“The IMF team held discussions with senior officials of the government of Morocco, Bank Al-Maghrib, as well as representatives of the public and private sectors. The team wishes to express its gratitude to the Moroccan authorities and other stakeholders for their hospitality and candid and productive discussions.”