Fitch Ratings has affirmed Morocco’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB+’ with a Stable Outlook. The ratings reflect Morocco’s sound macroeconomic policies and institutional framework that has supported resilience to shocks.
Morocco’s favorable debt composition, official creditor support, and comfortable external liquidity buffer are the reasons behind the sound macroeconomic policies. However, the weak development and governance indicators, high public debt, and budget deficit larger than peers are the main constraints on Morocco’s rating.
Agriculture output volatility also highlights Morocco’s vulnerability to the climate. Economic growth slowed in 2022 to 1.2% from 7.9% in 2021 due to a severe drought.
Fitch forecasts GDP growth to recover in 2023 to 3% supported by better agricultural output.
However, the downside risks stem from high inflation, monetary policy tightening, slowdown in key trading partners, and weather patterns. Inflation peaked at 10.1% yoy in February, driven by food inflation (+20.1% yoy), due to shortages in local supply.
Bank-Al-Maghrib has increased its policy rate by 150bp to 3% since September 2022, and further interest rate hikes are expected in 2023.
The government’s fiscal consolidation plan aims to increase spending by 4% of GDP by 2025 on improving health, social protection, and education. Fitch forecasts the CG deficit to fall from 5.1% of GDP in 2022 to 4.9% of GDP in 2023 and 4.4% in 2024.
Fitch forecast a rise in CG debt in 2023 to 70.5% of GDP and 71.4% in 2024, from 69.8% in 2022.
However, fiscal financing flexibility is underpinned by access to a large domestic investor base and strong official creditor support.
In addition, 76% of CG debt was dirham-denominated at the end of 2022, reducing exchange rate risks. Morocco’s current account deficit is forecast to narrow from 3.4% of GDP in 2022 to 3.2% and 2.8% of GDP in 2023 and 2024, respectively, reflecting an easing of commodity prices and a better harvest lowering the import bill and the tourism recovery continuing. Net external debt increased to 23.3% of GDP at the end of 2022, from 19.3% end-2021.
Fitch forecasts the ratio to increase further to 26.7% in 2024.
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