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Morocco: IMF Executive Board Concludes 2011 Article IV Consultation with Morocco


 IMF Executive Board Concludes 2011 Article IV Consultation with Morocco  

November 3, 2011


Thanks to several years of sound macroeconomic policies and political reforms, Morocco was well equipped to address the 2008 international crisis and to respond to the social demands that have emerged during the Arab Spring. In this challenging environment, Morocco has performed well economically and has seen its social indicators improve.

Despite the slow recovery in the Euro zone—Morocco’s main trading partner—overall GDP is expected to grow between 4½–5 %, one of the highest in the region, reflecting sustained growth in the nonagricultural sector—including the tourism sector—and a rebound in agricultural output. Unemployment is stable at about 9 %, but urban and youth unemployment remains high. In 2011, a fall in domestic food prices—resulting from the higher local supply of food—as well as the existing subsidies, which prevented inflationary pressures stemming from higher international prices, are expected to help limit the increase in the average inflation to around 1½ %.

During the fiscal year 2011 and following domestic unrest, the authorities have increased public spending in some areas. Maintaining prices for certain food products and fuel unchanged in the context of rising international commodity prices, will require spending on food and fuel subsidies of about 5½ % of GDP in 2011, considerably in excess of the 2.1 % of GDP estimated in the 2011 budget. In addition, all civil service wages were increased by a nominal amount of about US$75, which is expected to increase the wage bill by 0.2 % of GDP to 10.7 % of GDP. At the same time, the authorities took significant offsetting measures, which will help containing the budget deficit at around 5.7 % of GDP. The authorities are preparing to implement fiscal consolidation measures starting in 2012 to bring the deficit down to 3 % of GDP in the medium term, which would bring the total public debt to about 50 % of GDP in the medium term.

The external balance has slightly deteriorated due to a terms-of-trade shock. The current account deficit may increase to about 5 % of GDP at end-2011. Although Moroccan exports, including phosphate and its derivatives, have performed well, and transfers from Moroccans living abroad and tourism receipts—despite the terroristic attack in Marrakesh on April 28—have grown, this may not completely offset the increase in imports caused by rising international food and oil prices. Gross international reserves are expected to decline slightly at end-2011, while remaining comfortable, at above 5 months of imports of goods and services.

Morocco’s financial sector has made considerable headway, but it would need to mobilize additional resources to support financial development and adequate credit growth. The capital adequacy ratio of the system had risen to 12.3 % at end-2010, up from 11.8 % in 2009, and NPLs steadily declined from 6.1 % of total loans in 2008 to 4.8 % in 2010. However, credit quality appears to have slipped since 2009 as indicated by the increase in the cost of risk in 2009-2010 and a slight increase in NPL ratio during the first five months of 2011. Efforts to strengthen core capital will continue.

The authorities are continuing their efforts to implement an ambitious program of structural reforms to enhance productivity. In this context, the authorities have set a committee to enhance the business environment to continuously attract FDI.

Executive Board Assessment

Executive Directors commended the authorities for their sound macroeconomic policies and structural and political reforms that have helped Morocco weather the global crisis and respond to pressing social needs. Looking ahead, Directors noted that significant challenges remain, including the uncertain economic outlook in Europe and the region, the need for fiscal consolidation in the face of large popular demands, and the urgency to implement an ambitious agenda to boost employment and inclusive growth. Rebuilding policy buffers and accelerating reforms are critical to strengthen the economy’s resilience to shocks and lay a solid foundation for sustained growth over the medium term.

Directors stressed that containing and reorienting public expenditure, particularly by reforming the generalized subsidies system, will be key to ensuring medium-term fiscal sustainability. A well-targeted subsidy system would be less costly and better support the most needy segment of the population. Directors encouraged further efforts to strengthen revenue collection by broadening the tax base and improving tax administration, and commended the authorities for securing the mobilization of a greater share of domestic savings to provide additional resources to the financial sector.

Directors noted that moving to a flexible exchange rate would strengthen the central bank’s monetary policy framework and enhance policy flexibility and together with structural reforms could help competitiveness going forward. They agreed with the authorities that the timing should be carefully considered and coordinated with other macroeconomic policies and necessary preparatory measures, so as to preserve medium-term fiscal sustainability and financial stability.

Directors stressed the critical importance of boosting growth to help reduce unemployment and improve living standards. They encouraged the authorities to press ahead with the ongoing and planned structural reforms, including by improving the efficiency and composition of public spending. Directors agreed that further efforts are required to improve governance, the business climate, and trade integration at the regional and global levels, and to strengthen human capital to increase private investment and continue to attract FDI. Further reforms to increase labor market flexibility and contain hiring costs also remain important to reduce youth unemployment.

Morocco: Selected Economic Indicators, 2009–11

Prel. Staff Proj.

  2009 2010 2011
  (Annual percentage change)

Output and Prices


Real GDP (market price)

4.8 3.7 4.6

Real nonagricultural GDP (market price)

1.2 4.5 5.0

Consumer prices (end of period)

-1.6 2.2 2.0

Consumer prices (period average)

0.9 1.0 1.5
  (In percent of GDP)

Investment and Saving


Gross capital formation

35.6 35.1 35.0

Of which: Nongovernment

31.9 32.0 31.8

Gross national savings

30.2 30.8 29.8

Of which: Nongovernment

25.1 27.5 28.1

Public Finances


Revenue 1/

27.2 25.1 25.6


29.4 29.7 31.3

Budget balance

-2.2 -4.6 -5.7

Primary balance

0.0 -2.4 -3.6

Total government debt

47.9 51.1 54.2
  (Annual percentage change, unless otherwise indicated)

Monetary Sector


Credit to the private sector 2/

10.4 7.4 6.2

Broad money

7.0 4.8 4.2

Velocity of broad money

0.8 0.8 0.9

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

3.3 3.4 ...
  (In percent of GDP, unless otherwise indicated)

External Sector


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

-30.2 25.3 25.6

Excl. phosphates and derivatives

-12.5 13.3 23.8

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

-23.4 7.7 24.6

Excl. energy

-21.6 4.5 21.4

Merchandise trade balance

-17.9 -16.5 -18.3

Current account excluding official transfers

-5.9 -4.6 -5.9

Current account including official transfers

-5.4 -4.3 -5.2

Foreign direct investment

1.6 0.8 1.0

Total external debt

23.3 24.6 24.8

Gross reserves (in billions of U.S. dollars) 3/

23.6 23.6 23.4

In months of next year imports of goods and services

7.1 5.8 5.5

In percent of short-term external debt (on remaining maturity basis)

1,793 1,538 1,521

Memorandum Items:


Nominal GDP (in billions of U.S. dollars)

90.9 90.8 101.8

Unemployment rate (in percent)

9.1 9.1 ...

Net imports of energy products (in billions of U.S. dollars)

-6.7 -8.1 -11.0

Local currency per U.S. dollar (period average)

8.1 8.4 ...

Real effective exchange rate (annual average,


percentage change)

1.9 -4.1

Sources: Moroccan authorities; and IMF staff estimates.

1/ Includes changes in the balance of other special treasury accounts.

2/ includes credit to public enterprises.

3/ As of 2009, reserves include the new SDR allocation.

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