Standard And Poor's Revises Morocco's foreign currency outlook from stable to positive
Morocco, Economics, 3/9/2004

Standard And Poor's Ratings Services said this Monday it has revised its foreign currency outlook on Morocco to positive from stable.

"The revised foreign currency outlook reflects the strong improvement in Morocco's external liquidity, as well as an acceleration in structural reforms," said Standard And Poor's credit analyst Luc Marchand.

Morocco's external position has been improving significantly in the past three years, thanks notably to a decrease in public sector external debt, sustained inflows of nonresident Moroccan remittances and privatization receipts, and the stabilization of the government's net borrowing requirement.

External liquidity has improved to a level that compares very favorably with peers. Central bank reserves in 2004 are expected to cover 930% of the total gross external financing gap, compared with 105% for the 'BB' median. The level of external liquidity is expected to be preserved thanks to a continuation of strong remittance inflows and economic recovery in the Eurozone, which is Morocco's main trading partner and main source of tourist receipts. Morocco's public sector is expected to record a net external asset position of 18% of current account receipts in 2004, compared with a net debt position of 32% for the 'BB' median.

The government has accelerated reforms that will reduce or partly offset key constraints on its credit standing, such as high (albeit gradually decreasing) fiscal deficits and debt, a narrow economic base, and high unemployment. Most notably, reforms are targeting the restructuring of public sector entities, economic liberalization, and measures to curb public expenditures. These reforms will permit a strengthening of fiscal consolidation and an acceleration of growth. As a result, the general government deficit is expected to decrease to about 4.0% of GDP in 2004, compared with 4.3% in 2003. The general government debt burden is expected to continue decreasing, to 73.7% of GDP in 2004, from 82.6% in 2000.

Recent successes in privatization, economic liberalization, and increased labor flexibility (through the adoption of a new labor code) should enable Morocco to maintain its external competitiveness. This remains crucial in order to balance increased competition from the EU (with which Morocco has signed an Association Agreement) and from the U.S. (with which Morocco has concluded a free trade agreement).

The ratings on Morocco are also supported by its relatively stable political environment, which is undergoing liberalization, and by prudent monetary policy.

The positive foreign currency outlook reflects the prospects for a further decrease in public external debt, improved public sector expenditure control, and faster public sector reforms, which will accelerate fiscal consolidation and growth prospects. The expected loss of tax revenues due to the implementation of the EU Association Agreement will need to be offset by equivalent spending cuts (notably to fixed expenditures), improved tax collection, reduced subsidies, and accelerated privatization. Standard And Poor's expects these policies to reduce the debt burden in the next few years. An upgrade is possible if proposed reforms significantly increase growth prospects and effectively reduce the still high proportion of fixed expenditures in the budget-in particular, the wage bill.

Previous Stories:
  Morocco signs documents related to Eurobond issue   (7/9/2003)
  Standard And Poor raises ratings outlook for Morocco to stable   (2/26/2003)
  Standard Poor's Rating Company visit Morocco   (7/12/2001)

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