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IMF Executive Board Completes Third Review Under the PLL Arrangement with Morocco and Concludes 2013 Article IV Consultation

Posted by African Press International on February 4, 2014

RABAT, Morocco, February 2, 2014/African Press Organization (APO)/ – On January 31, 2014, the Executive Board of the International Monetary Fund (IMF) completed the third review of Morocco’s economic performance under a program supported by a 24-month Precautionary and Liquidity Line (PLL) arrangement and concluded the 2013 Article IV consultation with Morocco.1

The PLL arrangement was approved on August 3, 2012 in an amount equivalent to SDR 4.12 billion (about US$6.2 billion or 700 percent of Morocco’s quota), (See Press Release No. 12/287). The Executive Board concluded the second review on July 31, 2013. The authorities are treating the arrangement as precautionary..

The PLL arrangement continues to support the authorities’ home-grown reform agenda aimed at achieving higher and more inclusive economic growth by providing an insurance against external shocks. The PLL was introduced to meet more flexibly the liquidity needs of member countries with sound economic fundamentals and strong record of policy implementation but with some remaining vulnerabilities.

Following the Board discussion of the review, Ms. Nemat Shafik, Deputy Managing Director, and Acting Chair made the following statement:

“Notwithstanding the continued unfavorable external environment and challenging domestic conditions, Morocco’s macroeconomic performance improved in 2013, supported by strong policy commitment and implementation, as well as the insurance provided by the PLL. Important measures taken by the authorities helped reduce fiscal and external vulnerabilities and strengthen the economy’s resilience. Given significant downside risks and persistently high unemployment, the economic outlook will depend on the sustained delivery of policy and structural reforms designed to continue rebuilding policy buffers and promote higher and more inclusive growth.

“The substantial reduction in energy subsidies achieved in 2013, along with increased social assistance to the most vulnerable, helped strengthen the fiscal accounts and reduce underlying fiscal vulnerabilities. Looking ahead, continued strengthening of public finances will require a reorientation of revenue and spending to better support growth and inclusiveness, along with the passage of a new organic budget law that incorporates best practices with respect to fiscal discipline, coverage and expenditure control.

“Sustaining the recent gains in improving Morocco’s external position hinges on measures to support its external competitiveness. Structural reforms in this area are a priority. More flexibility in the exchange rate regime, in close coordination with other macroeconomic policies, would also help and would increase the economy’s resilience to external shocks.

“Further reforms are needed to strengthen the business climate, transparency, and the judiciary system and to improve the functioning of the labor market in order to attract foreign direct investment and promote strong job growth. Broader financial inclusion including greater access to credit for small and medium-sized enterprises is also needed to foster higher growth and boost employment.”

The Executive Board also concluded the 2013 Article IV consultation with Morocco.

The Moroccan economy has weathered the recent unfavorable regional and global economic context relatively well. GDP growth is expected to have reached about 4.5 percent in 2013 on the back of an exceptional agricultural season. Growth in other sectors has been dragged down by the effects of the European crisis, but is expected to rebound in 2014 for an overall growth rate of around 4 percent. Inflation is well under control, while the financial sector remains sound. The 2013 current account deficit was reduced and international reserves have been stable above four months of imports for more than a year, thanks in part to sustained foreign investment and access to international bond markets at favorable terms. Lower international oil prices and policy actions helped reduce the fiscal deficit from 7.3 percent of GDP in 2012 to 5.4 percent in 2013.

Executive Board Assessment2

Executive Directors commended the economy’s resilience in the face of significant external shocks and challenging domestic conditions, and welcomed recent measures that successfully helped reduce fiscal and external vulnerabilities. Noting Morocco’s high unemployment rate and the downside risks to the outlook, Directors advised sustaining reforms to continue rebuilding policy buffers and promote higher and more inclusive growth.

Directors supported efforts to strengthen the public finances and support both fiscal and external sustainability. They welcomed the reduction of energy subsidies in 2013 while increasing social protection to the most vulnerable, and encouraged the authorities to sustain such efforts. They advised that revenue and spending should be reoriented to better support growth and inclusiveness in 2014 and beyond, through reforms aimed at broadening the tax base, reviewing tax incentives and exemptions, reforming the VAT system, moderating the public wage bill, and reforming the pension system.

Directors welcomed the adoption by the Council of Ministers of the new Organic Budget Law as a step toward the establishment of a modern and improved fiscal framework. They called for strengthening the provisions of the draft law pertaining to fiscal discipline, coverage and expenditure control, in line with international best practice, and looked forward to the law’s timely approval ahead of the preparation of the 2015 finance law.

Directors underscored that consolidation of Morocco’s external position hinges on improving its external competitiveness. They stressed the critical importance of structural reforms in this area. They noted that a move toward a more flexible exchange rate regime, in coordination with other macroeconomic policies, would also help and would increase the economy’s resilience to external shocks. In this regard, Directors welcomed the Fund’s provision of technical assistance to the Bank Al-Maghrib (BAM) to help prepare for a smooth transition to more exchange rate flexibility. They recommended further reforms to strengthen the business climate, transparency, and the judiciary system and to improve the functioning of the labor market in order to attract private investment and promote strong job growth.

Directors supported BAM’s efforts to strengthen banking supervision and regulatory arrangements, including gradual adherence to the Basel III norms, as well as closer monitoring of the banking sector’s international expansion. They underscored the importance of financial deepening and increased access to credit for small and medium-sized enterprises for fostering sustained growth.

Morocco: Selected Economic Indicators, 2012 – 17

PLL1/ Rev.2/Proj. 2012 2013    2014    2015    2016    2017

(Annual percentage change)

Output and Prices

Real GDP  2.7    5.1    4.5    3.9    4.9    5.2    5.4

Real primary GDP

-7.2    13.6    17.0    -1.0    4.5    4.5    5.0

Real non-primary GDP  4.6    3.7    2.4    4.8    5.0    5.3    5.5

Consumer prices (end of period) 2.6    2.3    0.4    2.5    2.5    2.5    2.5

Consumer prices (period average) 1.3    2.3    1.9    2.5    2.5    2.5    2.5

(In percent of GDP)

Investment and Saving

Gross capital formation 35.3    34.3    34.7    35.3    35.3    35.4    35.5

Of which: Nongovernment  29.7    30.0    29.5    30.7    29.9    29.9    30.1

Gross national savings

25.6    27.1    27.2    28.8    29.7    30.6    31.3

Of which: Nongovernment

25.9    26.8    25.9    27.6    26.8    26.9    27.0

(In percent of GDP) Public Finances

Revenue  28.7    27.5    27.9    27.4    28.1    28.1    28.2

Expenditure  36.1    33.0    33.4    32.4    32.4    31.7    31.2

Budget balance  -7.3    -5.5    -5.4    -4.9    -4.3    -3.6    -3.0

Primary balance (excluding grants) -5.0    -4.0    -3.6    -2.8    -2.7    -1.9    -1.4

Cyclically-adjusted primary balance (excl. grants)  -4.7    …    -3.4    -3.3    -2.6    -1.9    -1.4

Total government debt

60.2    61.8    61.7    62.5    62.4    61.5    60.1

(Annual percentage change; unless otherwise indicated)

Monetary Sector

Credit to the private sector 3/ 4.8    6.1    3.6    5.6    6.2    6.9    6.9

Base money -0.5    11.5    9.8    4.6    5.5    6.5    6.0

Broad money 4.5    5.5    3.9    4.6    5.5    6.5    6.0

Velocity of broad money 0.8    0.8    0.9    0.9    0.9    0.9    0.9

Three-month treasury bill rate (period average, in percent)

3.2    …    …    …    …    …    …

(In percent of GDP; unless otherwise indicated)

External Sector

Exports of goods (in U.S. dollars, percentage change)

-0.8    3.3    1.8    9.1    7.3    7.0    6.3

Imports of goods (in U.S. dollars, percentage change)

1.6    0.7    0.7    6.8    5.2    5.1    5.2

Merchandise trade balance -20.9    -18.7    -19.0    -18.1    -17.1    -16.2    -15.6

Current account excluding official transfers -10.0    -8.2    -8.0    -7.5    -6.7    -5.7    -5.2

Current account including official transfers -9.7    -7.2    -7.4    -6.5    -5.7    -4.8    -4.2

Foreign direct investment 2.4    3.2    2.9    2.9    3.0    3.1    3.1

Total external debt 29.8    31.3    30.9    31.5    31.6    30.6    29.2

Gross reserves (in billions of U.S. dollars) 17.5    18.7    19.3    20.0    21.1    22.4    23.7

In months of next year imports of goods and services 4.2    4.3    4.3    4.3    4.3    4.3    4.3

In percent of short-term external debt (on remaining 1251.8    1332.0    1374.5    1427.1    1508.7    1601.2    1691.2

maturity basis)

Memorandum Items:

Nominal GDP (in billions of U.S. dollars) 96.1    104.8    105.5    115.1    125.1    136.0    146.7

Unemployment rate (in percent) 9.0    8.9    8.9    …    …    …    …

Population (millions) 32.5    32.9    32.9    33.2    33.5    33.8    34.2

Net imports of energy products (in billions of U.S. dollars) -12.4    -11.6    -12.2    -13.0    -12.9    -12.9    -12.9

Local currency per U.S. dollar (period average) 8.6    …    8.4    …    …    …    …

Real effective exchange rate (annual average, percentage change) -1.0    …    0.1    …    …    …    …

Sources: Moroccan authorities; and IMF staff estimates.

1/ Refers to the macro framework for the 2nd review in EBS/13/96.

2/ Revised macro framework.

3/ Includes credit to public enterprises.

1 Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here:


International Monetary Fund (IMF)

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