On December 13, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation with Morocco.1
Following last year’s drought, economic growth has picked up in 2017 and is expected to reach 4.4 percent, mostly driven by a significant rebound in agricultural activity while non-agricultural activity remains subdued. The unemployment rate increased to 10.6 percent in Q3 2017 (year- on-year) while youth unemployment remains high at 29.3 percent. Headline inflation (year-on- year) is expected to decline to 0.6 percent in 2017, reflecting lower food prices.
Following a marked deterioration in 2016, the current account deficit is projected to improve in 2017 to 3.9 percent of GDP. This primarily reflects Morocco’s global environment, particularly the stronger recovery in Europe, and strong export growth (6.5 percent), mostly due to the good performance of food product and phosphate and derivatives exports. International reserves are expected to remain comfortable, at about six months of imports.
On the fiscal side, the consolidation process continues and developments as of end-October 2017 were broadly positive. Tax revenues performed better than projected, but grant revenues were lower than anticipated. Public spending on wages and interest payments was below expectations and capital expenditures decelerated (by 2 percent year-on-year).
Banks are well capitalized, and the risks to financial stability are limited. Nonperforming loans remain relatively high but they are closely monitored and are well provisioned. Regulatory limits to reduce credit concentration as well as collaboration with cross-border supervisory bodies to contain risks related to Moroccan banks’ expansion in Africa are being strengthened. Morocco’s medium-term prospects remain favorable, with growth expected to reach 4.5 percent by 2021. However, risks remain elevated, and relate mainly to growth in advanced and emerging countries, geopolitical tensions in the region, world energy prices, and global financial market volatility. Stronger medium-term growth will hinge on continued implementation of comprehensive reforms regarding labor market efficiency, access to finance, quality of education, public spending efficiency, and further improvements to the business environment. Strengthening the social safety nets system will also be crucial to achieve more inclusive growth.