Africa > North Africa > Morocco > Morocco delays currency reform amid speculation

Morocco: Morocco delays currency reform amid speculation

2017/08/28

Morocco’s long-awaited initial phase of liberalising its currency was postponed following speculation on its fall prompted a drop in the country’s foreign reserves.

The government delayed moving to a flexible exchange rate, a key International Monetary Fund-backed reform to liberalise Morocco’s economy, a spokesman said on July 7, citing the need for further studies.

During a news conference in late June with the central bank governor and finance minister, the central bank invited journalists to attend the announcement. Later it delayed the announcement a “few days,” without saying why.

“The delay can have a lot of explanations. Initial of all, we are in a situation in which there is doubt about the political and economic climate that is affecting the investment sentiment,” analyst Rachid Aourraz said in reference to political unrest in the Rif region.

The Rif region has been the scene of protests since last October at the same time as fishmonger Mouhcine Fikri was crushed inside a rubbish truck in Al Hoceima as he apparently tried to turmoil the seizure and destruction of hundreds of kilograms of swordfish, which are not allowed to be caught in autumn.

Fikri’s death sparked the emergence of a grass-roots movement called Al-Hirak al-Shaabi, led by Nasser Zefzafi, demanding social justice, jobs and health care for Al Hoceima.

The government’s response to the Rif crisis was slow, prompting Moroccan King Mohammed VI to assign the interior and finance ministers to conduct investigations into the national’s failure to execute a development programme, signed in October 2015, aimed at developing various sectors in the region.

Authorities since 2007 have been mulling a switch to a floating exchange rate regime, which would involve several steps.

The central bank said it would implement a gradual and orderly transition to a additional flexible exchange rate regime in the second half of 2017, allowing the various market participants to entirely adapt to the change.

In April 2015, the central bank moved towards a additional flexible dirham by reducing the euro’s weighting in the currency basket to 60% from 80% and raising the US dollar’s weighting to 40% from 20%.

That peg is to be eased to allow the dirham to trade in a narrow range. The peg would be gradually expanded until it is fully removed within a few years, depending on market response.

However, pessimistic economic operators cited Turkey and Egypt in warning of the risks that may arise during the transition.

Moroccan banks speculated on the fall of the dirham’s price ahead of the announcement, causing a $4.4 billion drop in foreign currency reserves in two months. Finance Minister Mohamed Boussaid said the country still has six months of reserves.

Central Bank Governor Abdellatif Jouahri blamed financial operators and banks for using the reform to speculate against the dirham.

“I had the presidents of banks on the phone. I told them that I am not happy because my word was questioned while I worked in a transparent way,” an angry Jouahri said.

“I think Moroccan banks invest¬ed in the major foreign currencies (euro and US dollar) because they simply saw they were going to make profits behind the dirham’s fall following its liberalisation and do not trust the current economic climate,” said Aourraz, a researcher at the Arab Centre for Scientific Research and Human Studies.

To stem the panic in the market, the central bank stopped serving banks with foreign exchanges.

Jouahri said $4.4 billion had been drained from foreign currency reserves “without necessarily any economic justification.”

“Moroccans will feel the pinch once the dirham falls against the dollar and euro because our imports will be dearer, which will in turn push up inflation,” said Aourraz. “The mishandling of this transition process will definitely have a negative impact on investor sentiment and major stakeholders.”

Related Articles
  • Moroccan agricultural exports get boost from World Bank

    2018/01/16 Morocco was the major fruit and vegetable exporter towards Spain in 2017, the association of Spanish agricultural producers said Tuesday. Last year Moroccan fruit and vegetable exports to Spain grew by 36% over 2016, reaching a price of 462 million euros. And the sector is to get new impetus following the recent approval by the World Bank of a 200 million dollar loan to strengthen the agrifood price chain.
  • Meeting in Bari on typical Mediterranean products

    2018/01/16 Tibio-Med aims to study the typical products of the Mediterranean region and promote and protect local specialities in the nations along the southern shore. The two-day event on Monday and Tuesday has been funded by the ministry for agriculture and coordinated by the Institute for Services for the Agricultural and Food Market (ISMEA) and is taking place at the Mediterranean Agronomic Institute (CIHEAM) in Bari.
  • Why a proper record of birds in Africa is so important – for Europe

    2018/01/13 Most of Europe’s birds chief south each year around September to escape the northern winter. Some species only migrate as far south as southern Europe. But most cross the Mediterranean Sea to Africa. And a lot of species cross the Sahara Desert to destinations in West Africa such as Nigeria and in East Africa, such as Kenya. Some travel as far south as South Africa. These European birds are diligently monitored. Each April, during the breeding season in the early part of the northern summer, teams of citizen scientists in most European nations gather vast amounts of data on the distribution and densities of breeding – for almost each bird species. Thousands of citizen scientists are involved. They diligently generate the data in their leisure time.
  • Toothless Pan-African Parliament could have meaningful powers

    2018/01/13 The Pan-African Parliament was established by the African Union in 2004. Since again it has not passed a single law. That’s because it’s based on a Protocol that gives it only an advisory role. The parliament can gather data and discuss it, but can’t make binding regulations to change anything. Its limited “consultative and advisory powers” hamper the African Union’s ability to achieve a prosperous and peaceful Africa as envisioned in its Schedule 2063. Is there any point, again, in having this parliament? The 2001 Protocol envisaged that a conference would be organised to “review the operation and effectiveness” of the protocol five years next the establishment of the Parliament, which was 2009. This provision gave rise to the view that such a conference would explore the possibility of granting the Parliament meaningful legislative powers. But no such review has been carried out so far.
  • The EU-Africa summit is now the AU-EU summit. Why the upgrade matters

    2018/01/13 African and European heads of government gathered last week in Abidjan, Côte d'Ivoire, for their 5th summit since 2000. For the initial time, the African Union (AU) rather than “Africa”, officially appears as the European Union’s partner. While plenty has been discussed about youth, migration, security and governance less is being said about the shift from an EU-Africa to an AU-EU summit. Is this just a case of semantics? Next all, the AU has been the key organiser of these triennial summits since they started in 2000. Or are there larger implications? We think there are. The AU-EU summit coincided with the January 2017 statement on the reform of the African Union prepared by Rwandan President Paul Kagame. The statement recommends rationalising “Africa’s” a lot of international partnerships by having the continental body take the lead. This means that the previous, current and next AU chairpersons, plus the AU Commission chairperson and the chairperson of the Regional Economic Communities, would represent the AU, rather than all its member states.