IMF encourages Morocco’s recovery efforts, paints positive future for domestic economy

The International Monetary Fund (IMF) approved of the Moroccan government’s crisis management, saying that the 2023 Finance Bill is on the right track to support domestic economy after successive shocks.

Published on Tuesday, January 24, the IMF’s annual report on Morocco paint an overall positive assessment, with underlining satisfaction for what’s to come.

In this report, the IMF expresses its satisfaction for Morocco’s “very vigorous political response that mitigated the social and economic impact of the recent negative shocks.”

The IMF experts welcome the tightening of monetary policy in 2022, and support further increases in key interest rates if necessary to contain inflationary pressures.

They also encourage Morocco’s central bank to continue the transition to an inflation targeting framework once inflation has decreased and the current uncertainty has dissipated.

With regard to fiscal policy, the IMF said that “the 2023 budget strikes a balance between the need to reduce the deficit, mitigate the social and economic impact of shocks and finance structural reforms.”

The IMF added that the Kingdom must deploy new tax measures to accelerate the reduction of public debt, and replenish budgetary reserves.

In terms of improving the financial monitoring and regulatory framework, the IMF welcomes Morocco’s progress, and authorities’ implementation of the action plan designed with the FATF, “which should support progress towards the exit from the FATF grey list.”

The IMF report stress the necessity to continue to monitor financial institutions’ balance sheet exposures, including climate-related risks, even though systemic risks to the financial system seem limited.

The report also cites several government reforms as positive initiatives that would further improve living conditions and economic prospects.

“Social protection, health and education would improve fairness and quality of access, better target spending and support human capital in the long term,” says the IMF.

According to the international financial institution, “public business reforms and other initiatives to stimulate private investment would also stimulate private sector growth.”

To support Morocco’s potential growth, the IMF stresses that “continuous efforts to reduce dependence on fossil fuels, remedy water scarcity and reduce gender inequalities are all essential.”

The IMF estimates that GDP growth in 2023 is expected to accelerate to 3%, on the basis of the data it received.

This would be a direct result of a rebound in agricultural production and its positive impact on the rest of the economy.

Inflation is expected to gradually decrease to about 4%, as the shock of rising commodity prices gradually dissipates, and the national monetary orientation returns to normal.

The current account deficit is expected to narrow to about 3% of GDP in the medium term, stimulated by structural reforms.

The IMF notes that the projections are subject to unusually high uncertainty, mainly due to a worsening of global conditions and greater repercussions of the Russia-Ukraine conflict, as the world slowly recovers from the pandemic.