Several years of sound macroeconomic policies and political reforms left Morocco well-equipped to address the 2008 international crisis and to respond to pressing social demands. In this challenging environment, Morocco has performed well economically and has seen its social indicators improve.
Growth prospects: Despite the slow recovery in the Euro zone—Morocco’s main trading partner—overall GDP is expected to grow between 4½–5 percent owing to good agricultural production and the strong performance of the nonagricultural sector, particularly services and domestic consumption. Unemployment is about 9 percent, but urban and youth unemployment remains high. The major medium-term challenge is to achieve high real GDP growth rates to reduce unemployment and improve living standards. Slow growth in Europe could affect economic activity and worsen prospects.
Resuming fiscal consolidation: Prudent policies in previous years provided a financial margin to deal with the international crisis and its aftermath. In 2011, the authorities addressed social demands by increasing public sector wages and keeping fuel and certain food prices stable through large subsidies. While there is fiscal space in the short run for spending to support the political reform process and ensure social cohesion, starting in 2012 Morocco would need to adopt significant fiscal measures, particularly reforming the generalized subsidies scheme, to ensure medium-term sustainability. While implementing the subsidy reform will be politically difficult, the government is committed to improving the targeting of subsidies, reducing their cost to 3 percent of GDP, and reducing public wages to 10 percent of GDP over the medium term.
Continuing financial sector development: The financial sector has reached a significant size, but further domestic resource mobilization is needed to support credit growth. With the budget financed domestically, there may be some risk of crowding out. The authorities have taken significant measures to encourage higher financial intermediation, savings, and new financial products. The funding of Moroccan banks, which includes funding for foreign subsidiaries, mainly relies on Moroccan deposits in Dirhams, which would help to mitigate risks associated with tighter liquidity in the Euro money market.
Improving productivity: Deepening structural reforms is essential to sustaining Morocco’s productivity. The government has launched reforms to improve the business environment and social indicators to boost potential growth while reducing unemployment.
Morocco: 2011 Article IV Consultation. Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director.
December 02, 2011. Country Report No. 11/341
December 02, 2011. Country Report No. 11/341
