IMF commands macroeconomic stability in Morocco
Morocco, Economics, 8/4/2001

The International Monetary Fund commended macroeconomic stability in Morocco, as evidenced by the comfortable external position and the maintenance of inflation at industrial countries' level, despite adverse internal and external conditions.

The IMF, in its report on 2001 consultation with Morocco, says despite adverse weather conditions and terms of trade developments, Moroccan authorities have managed to achieve economic stability and maintain inflation at industrial countries levels. This performance was ascribed to the last five years' economic reforms that are beginning to yield tangible results as witnessed by increasing productivity, expansion in tourism, and higher foreign direct investment. The IMF Board of Directors also welcomed the authorities' increased emphasis on improving social conditions as well as their efforts to improve governance and transparency in the management of public resources.

The report explains that two successive years of severe drought have entailed a second year of economic stagnation in 2000. As agricultural production contracted by 17%, GDP real growth was limited to 0.3% (after -0.7% in 1999), the report notes adding after external reserves reached US$4.8 billion at end-2000, they are expected to reach at least US$6 billion (the equivalent of 5.5 months of imports) by end-2001, as a result of the privatization proceeds of Maroc Telecom.

Of Morocco's monetary policy, the IMF says after Bank Al-Maghrib (BAM) loosened monetary policy starting from end-2000 in response to the tightening in bank liquidity stemming from the accumulation of budgetary arrears, broad money grew by 8.4% in 2000, 1.5 points above the upper limit of the target range set by BAM. The accommodating stance of monetary policy continued during the first quarter of 2001 with a reduction in BAM's benchmark interest rates in March, the IMF remarked.

After a decade of fixing the nominal exchange rate against a currency basket, during which there was a significant appreciation of the real exchange rate, the authorities modified the basket to better reflect the growing importance of the euro area in Morocco's trade accompanied by a 5% average depreciation of the dirham on April 25, 2001.

Directors agreed that the relaxation of both fiscal and monetary policies in 2001 presents limited risks for macroeconomic stability in the near term. Noting the recent monetary easing, they emphasized that Morocco's central bank should be ready to tighten monetary policy in response to any sign of inflationary pressures.

Meanwhile, the rural infrastructure programs (electricity, drinking water, and roads) have accelerated; a social fund has been established to address pressing poverty needs; and a program that helps disadvantaged women and children has been reformed. Better labor market intermediation has been established through the New National Agency for Employment. The Royal Commission for Educational Reform has launched a program to reach universal primary education by 2003. Trade liberalization has progressed as planned in the context of the Association Agreement with the European Union, with a 25% reduction in tariffs on some industrial and processed agricultural products. The government has also started to take actions to improve governance, including the reform of public procurement and customs administration, and a code of conduct for civil servants.

Economic prospects have brightened during the first quarter of 2001 with the privatization of 35% of Maroc Telecom for US$2.1 billion (6% of GDP). This privatization process was open and transparent, and the price obtained substantially exceeded expectations, considering the downturn in the world telecommunication market.

Better rainfall-although unevenly distributed-should lead to a 25% increase in agricultural output in 2001 with favorable spillovers on other sectors. Real GDP growth is projected at 6% in 2001. Nonagricultural output is expected to increase by 3.8% driven by construction activity, telecommunications, and tourism, which has benefited from the government's efforts to attract foreign investors and tour operators. Inflation should increase to 3% in 2001, largely on account of the April 2001 devaluation of the Dirham. The fiscal deficit is now projected to reach 7.2% of GDP (on a commitment basis and excluding privatization proceeds). The external current account balance should improve slightly.

Directors highlighted the continued strong performance of Morocco's private banks as well as the recent progress in strengthening banking supervision and extending prudential requirements to the specialized public banks.

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