Morocco’s outlook improves, external risks remain

The International Monetary Fund projected Morocco’s real GDP growth to rebound to 4.4% in 2015 from 2.9% in 2014, supported by improved external demand, strengthened domestic confidence and normalized agricultural output. It expected real GDP growth to average more than 5% annually over the medium term, reflecting the ongoing modernization of the agriculture sector, the continued expansion of Moroccan firms in new markets, the growing importance of newly developed sectors, as well as higher investment in infrastructure and human capital. It forecast the inflation rate to average 1.5% in 2015 and to stabilize at 2% over the medium term.

The Fund indicated that downside risks have receded but remain substantial. First, it said that a protracted period of slow growth in Europe would affect the economy through exports receipts, FDI and remittance inflows. Second, it indicated that an increase in global energy prices would widen Morocco’s current account deficit. Third, it pointed out that a sudden surge in global financial market volatility would increase interest rates and raise the cost of financing, and would indirectly affect external demand and FDI inflows. The IMF welcomed the authorities’ progress in fiscal consolidation, such as the removal of subsidies on liquid petroleum products. It forecast the fiscal deficit to narrow from 4.9% of GDP in 2014 to 4.3% of GDP in 2015, and for the public debt level to peak at 68% of GDP in 2015.

The Fund anticipated that Morocco’s external position would benefit from the growth in newly-developed export sectors and lower global oil prices. It forecast the current account deficit to narrow from 5.8% of GDP in 2014 to about 3.3% of GDP in each of 2015 and 2016. It expected foreign currency reserves to rise from $20.4bn or 5.3 months of imports cover in 2014 to $23.2bn or 5.6 months of imports in 2015. It projected the external debt level at 32.9% of GDP in 2015 and expected it to stabilize around this level over the medium term. However, it cautioned that a 30% exchange rate depreciation or a shock to the non-interest current account would result in a significant increase in the external debt level.