Morocco: Second Review Under the Arrangement Under the Precautionary and Liquidity Line-Staff Report; Press Release; and Statement by the Executive Director for Morocco

IMF Staff Country Reports, July 30, 2015

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The economy is recovering and the outlook is favorable but still subject to significant risks.
After slowing to below 2½ percent in 2014, growth is expected to be close to 5 percent in 2015, boosted by a strong agricultural output and a gradual acceleration of activity in other sectors.
Fiscal policy is on track to achieve the annual deficit objective of 4.3 percent of GDP.
The external position has improved rapidly, benefiting from lower oil prices and strong export performance.
Inflation remains low.
More remains to be done to reduce unemployment, especially among the youth.
Assuming steadfast implementation of reforms, growth should gradually accelerate over the medium term.
The outlook is subject to downside risks from:
- structurally weak growth in key advanced economies,
- tighter or more volatile global financial conditions,
- increased volatility of energy prices.

Growth trajectory:
- below 2½ percent in 2014,
- close to 5 percent in 2015 (driven by agricultural output and gradual acceleration in other sectors).
Inflation: remains low (no numeric inflation rate provided in source).
Unemployment: remains a challenge, especially among youth (no numeric unemployment rate provided in source).

Fiscal stance:
- Fiscal policy is on track to achieve the annual deficit objective of 4.3 percent of GDP.
Budget framework:
- Adoption of the new organic budget law in May 2015 cited as a crucial step in improving the fiscal framework.
Subsidies and social spending:
- Significant progress in reforming the subsidy system, reducing its costs and associated fiscal risks.
- Social programs on health and education were expanded.
Pensions:
- Timely reform of the pension system is needed to ensure its viability while extending its coverage.

External position:
- Improved rapidly, benefiting from lower oil prices and strong export performance.
Financial policy framework:
- Progress has been made in upgrading the financial policy framework.
External risks:
- Vulnerability to global financial volatility and energy price volatility.

Key reform areas and progress:
- Subsidy reform: significant progress made.
- Social programs: expansion in health and education.
- Fiscal governance: new organic budget law (May 2015).
- Financial sector: upgrades to the financial policy framework.
Recommended sustained efforts:
- Improve the business environment.
- Enhance competition, governance, and transparency.
- Improve functioning of the job market.
- Improve quality of education and vocational training.
Objective: foster higher and more inclusive growth, increase competitiveness, growth, and employment.

Program performance:
- The program remains on track.
- Both March 2015 quantitative indicative targets were met comfortably.
PLL qualification:
- Morocco continues to meet the PLL qualification criteria.
- Morocco continues to perform strongly in three out of the five PLL qualification areas, while not substantially underperforming in the fiscal and external areas.
Staff recommendation:
- Staff recommends the completion of the second review under the arrangement.