MOROCCO: Economic growth outlook faces downside risks

RABAT (Capital Markets in Africa) – The Institute of International Finance projected Morocco’s real GDP growth rate to decelerate from 3% in 2018 to 2.3% in 2019, mainly due to a 2% contraction in the agricultural sector’s activity. In parallel, it forecast non-agricultural growth to accelerate from 2.9% in 2018 to 3.1% in 2019. It considered that downside risks to the growth outlook include volatile weather conditions, as well as lower economic growth in Europe, Morocco’s main trading partner, which could weigh on the country’s exports, tourism, remittances and foreign direct investment (FDI) inflows. It added that a more flexible exchange rate would help improve the country’s competitiveness and strengthen the economy’s resilience to external shocks. It considered that continued structural reforms and the ongoing expansion of Moroccan firms into new markets, including in Francophone Africa, could gradually increase the growth rate from about 3% in 2020 to 4% by 2025. In parallel, the IIF expected Morocco’s fiscal deficit to narrow from 3.7% of GDP in 2018 to 3.1% of GDP in 2019 and to 2.9% of GDP in 2020, supported by the sale of the government’s 8% share in Maroc Telecom to local investors. It anticipated the public debt level to decline from 65.3% of GDP at end-2018 to 62.6% of GDP at the end of 2020.

Further, the IIF forecast the current account deficit to narrow from 5.5% of GDP in 2018 to 4.7% of GDP in 2019 and 4.1% of GDP in 2020, driven by a lower oil import bill and persistently strong export growth. It anticipated that a further increase in non-resident capital inflows could more than offset the current account deficit, which would lead to a gradual increase in official reserves from $23.6bn at end-2018 to $23.8bn at the end of 2019 and $24.3bn at end-2020, or 4.8 months of imports. Also, it forecast FDI inflows at 2.6% of GDP in 2019, given that the country remains attractive to foreign investors amid a stable political environment and progress in reforms. It added that the authorities are expected to receive a concessional loan of $237m from the Arab Fund for Economic and Social Development, and to issue $1.2bn in Eurobonds in each of 2019 and 2020. As such, it projected the external debt level to rise from 43.7% of GDP at end-2018 to 44.9% of GDP by end-2020.