IMF praises Morocco's economic reforms
Morocco, Economics, 5/12/2003

The International Monetary Fund praised Morocco's success in achieving macroeconomic stability over the last decade, heralding optimistic economic perspectives in the Kingdom.

Under Article IV consultation with Morocco, the IMF says on Friday "the fixed exchange rate provided an anchor for the economy, monetary policy was prudent and fiscal policy was mostly adequate." "Inflation has remained at levels consistent with that of partner countries, the current account has turned into a surplus while foreign exchange reserves reached eight months of imports at the end of 2001."

However, the IMF notes, Morocco's growth performance has not been strong enough to reduce poverty and has been volatile due to the impact of recurrent drought conditions on agricultural output, resulting in high unemployment rates and indicating that social indicators still need significant improvement. The report also notes that economic conditions improved in 2002, despite a less favorable international environment which was marked by a decline in tourism and external demand. "Real GDP growth reached 4.5% reflecting a further rise in agricultural output and somewhat higher growth in the non-agricultural sector. The external position strengthened further with an increase in foreign exchange reserves to the equivalent of 9.4 months of imports, external debts indicators improved markedly while inflation remained subdued." Fiscal deficit (excluding privatization receipts and including Hassan II fund expenditures) dropped significantly to 4.5% of GDP from 5.8% of GDP in 2001 and against a budget target of 6.8% of GDP, as the government debt-to-GDP ratio continued to decline, the IMF further says.

The Fund ascribes improved business confidence and brightened economic outlook to commitment made by the government which came to power following September 2002 elections to revive economic reforms. It further forecasts that thanks to improved business confidence and more favorable weather conditions since late 2002, the ongoing economic revival could gain momentum and speed up growth in 2003 to 5.5%.

It also expects the external current account surplus to narrow, reflecting higher imports linked to a recovery in private investment. For 2003, the IMF predicts proceeds from privatization to help external reserves to remain close to nine months of imports, money growth to reach 7% and inflation to fall to about 2% and continued fiscal consolidation to result in a 2003 fiscal outcome better than in 2002.

The report also says the IMF executive directors have commended the Moroccan authorities for this positive performance and supported the new government resolve to accelerate the pace of structural reform and private sector development in a context of continued macro-economic stability and fiscal consolidation. Government's pledge to continue public sector and judiciary reform, strengthen governance, improve the business environment and reform the labor market and the trade and financial sectors were also welcomed by the IMF.

The government was advised to build on recent progress by taking further actions to achieve a durable strengthening of Morocco's fiscal position and lead to a reduction of the fiscal deficit to about 4% of GDP in 2003 and to below 3% of GDP over the medium term, consistent with a further substantial decline in the public-to-GDP ratio.

Directors also welcomed the Moroccan authorities' decision to broadly stabilize the number of civil servants in 2003 and encouraged them to carry on with a comprehensive civil service reform that will allow a further reduction of the wage bill over the medium term.

Likewise, the IMF recommends reducing food subsidies, while ensuring that an adequate safety net is put in place to alleviate the impact on the poor. Directors note that the country's financial system is unlikely to be a source of risk in the short term and that the commercial banks are in a reasonably good position to withstand adverse shocks. Morocco was urged to press ahead with plans to deepen financial sector reforms, in particular in the area of banking supervision for which the IMF is providing technical assistance.

Bank Al-Maghrib, Morocco's central bank, was also recommended for skilful monetary management which by mopping up excess liquidity, has been instrumental in keeping inflation at a low level.

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