20220208-IMF-Morocco_2021_Article_IV_Consultation-Press_Release_and_Staff_Report_61页_2mb

Morocco: 2021 Article IV Consultation Summary

Core Content

The 2021 Article IV consultation with Morocco, conducted by the IMF, assessed the country's economic recovery from the severe 2020 recession and outlined policy challenges and structural reforms needed for sustainable growth. The consultation concluded on a lapse-of-time basis on February 2, 2022, following discussions with Moroccan officials in late 2021. The report highlights the resilience of the Moroccan economy, the role of fiscal and monetary stimulus, and the importance of structural reforms in the context of the New Model of Development (NMD).

Main Policy Challenges

• Balancing Recovery and Reforms: Morocco must balance sustaining economic recovery, financing structural reforms, and reducing public debt.
• Fiscal Consolidation: A faster fiscal consolidation is needed than originally planned due to the earlier-than-expected closure of the output gap and the risk of crowding out private investment.
• Monetary Policy: The accommodative monetary stance is appropriate as long as inflation expectations are anchored, but the central bank (BAM) needs to transition to an inflation-targeting regime with a more flexible exchange rate.
• Financial Stability: Banks have maintained regulatory capital ratios above minimum requirements and improved liquidity, but nonperforming loans (NPLs) have increased due to pandemic-related stress.

Key Structural Reforms

• Social Protection System: Expanding the social protection system will improve coverage and quality of health care services and strengthen the social safety net.
• Unified Social Registry: Full implementation will enhance inclusiveness and efficiency in social programs.
• State-Owned Enterprises (SOEs): Reforming SOEs will reduce their financial burden on the budget and promote market neutrality and private sector development.
• Tax Reform: A comprehensive tax reform is needed to broaden the tax base, improve progressivity, and explore new taxes such as a carbon tax or wealth taxation.
• Government Spending Review: Rationalizing and prioritizing government expenditure will be essential to support fiscal sustainability.
• New Model of Development (NMD): The NMD report provides a roadmap for improving competitiveness, governance, human capital, and social inclusion.

Economic Outlook and Risks

• GDP Growth: Forecasts show GDP growth at 6.3% in 2021, recovering from a 6.3% contraction in 2020. Growth is expected to stabilize at around 3% in 2022 and gradually increase in the medium term if reforms are implemented effectively.
• Inflation: Inflationary pressures have remained manageable, with headline inflation at 1.9% in 2021 and expected to fall to 1.3% in 2022. The central bank has the space to gradually normalize monetary policy unless inflation accelerates.
• Current Account Deficit: The current account deficit is projected to widen to 3.0% of GDP in 2021 and 3.2% in 2022, although Morocco has a stronger international reserve position post-pandemic.
• Uncertainties: The outlook is subject to significant uncertainty, primarily due to the evolution of the pandemic and the pace and effectiveness of structural reforms.

Macroeconomic Indicators (2017–2026)

Key Economic Factors

• Agricultural Recovery: An exceptional harvest following two years of drought boosted agricultural output.
• Remittances: Remittances remained buoyant, contributing to economic recovery.
• Exchange Rate: The dirham appreciated to the lower end of the fluctuation band, partly due to excess foreign currency supply and the central bank's intervention to stabilize it.
• Investment and Credit: Private investment and credit growth are expected to be modest, with firms still recovering from pandemic-related debt and lower retained earnings.

Authorities' Views

• The Moroccan authorities broadly agree with the IMF's assessment of near-term growth but are more optimistic about medium-term potential growth.
• They project GDP growth at 6.4% in 2021 and 3.2% in 2022, in line with IMF forecasts.
• They expect structural reforms to have a strong and positive impact on potential growth, particularly with the implementation of the NMD and the Mohammed VI Investment Fund.

Conclusion

The IMF recommends a faster fiscal consolidation to reduce public debt, a transition to an inflation-targeting framework, and careful sequencing of structural reforms. These measures are critical to ensuring a more resilient, inclusive, and sustainable growth path for Morocco. The success of the reforms will depend on their effective implementation, adequate financing, and alignment with a coherent macroeconomic framework.