Fitch Ratings maintains Morocco’s BB+ grade, expecting further monetary policy tightening

American rating agency Fitch Ratings has confirmed Morocco’s long-term foreign currency issuer default rating to BB+ with a “stable” perspective.

In a note published on Friday, Fitch points out that Morocco’s “BB+” ratings are supported by a moderate share of foreign currency debt in public debt, strong support from official creditors, and a history of macroeconomic stability, reflected in relatively low inflation and GDP volatility before the pandemic.

According to the US agency, “these assets are offset by weak development and governance indicators, high public debt and larger budget and current deficits (CADs) than those of peers.”

The agency forecasts a slowdown in growth to 1.1% in 2022, “due to the worst drought in decades, the sharp contraction in agricultural production, inflation affecting consumption and the unfavorable international environment in terms of raw material prices and rising interest rates.”

Fitch also notes that tourism is recovering sharply and the manufacturing sectors continue to show solid performance, however, believing that the growth prospects for 2023 “will remain difficult for Morocco due to our anticipation of a recession in the euro area (-0.1%), weakening export prospects.”

The New York-based agency expects growth by 2.8% in 2023 with the recovery of agriculture, before rising to 3.2% in 2024, reflecting the relaxation of food and energy prices and the rebound in the industrial and tourism sectors.

“The growth prospects depend on the normalization of agriculture and the level of precipitation, and the lower risks stem from a prolonged war in Ukraine, the maintenance of high energy prices and supply disruptions, the erosion of household purchasing power and a prolonged economic slowdown among Morocco’s trading partners,” explains the US agency.

In addition, Fitch Ratings expects inflation to average 6.2% this year before falling to 2.2% in 2024 as pressures on global commodity markets subside.

“The upside risks remain significant in the event of a prolonged shock of commodity prices, poor domestic agricultural production due to a persistent rainfall deficit and wage pressures,” notes the same source.