An International Monetary Fund (IMF) staff team led by Jean-François Dauphin visited Morocco from May 28 to June 5, 2015 to conduct discussions with the authorities on the second review of economic performance under the Precautionary and Liquidity Line (PLL) arrangement approved by the IMF Executive Board in July 2014. The authorities have not drawn on the PLL and intend to keep the arrangement as precautionary, unless Morocco experiences actual balance of payments needs from a significant deterioration of external conditions.

At the conclusion of the mission, Mr. Dauphin issued the following statement:

“The economy is recovering and macroeconomic prospects are favorable but remain subject to important external risks. After slowing in 2014, growth is expected around 5 percent in 2015, bolstered by a good agricultural output and a gradual acceleration of activity in other sectors. The external position has improved, benefiting from lower oil prices and the strong performance of exports from newly developed industries. The external current account deficit narrowed to 5.6 percent of GDP in 2014 and is expected to further decrease to around 3 percent of GDP in 2015. International reserves have continued to strengthen. The fiscal deficit has further contracted, owing in particular to measures taken by the government to reduce public expenditures. Public debt rose but, at about 65 percent of GDP, remains sustainable. Inflation remains low at about 1.5 percent year-on-year. However, significant efforts remain to be made to reduce unemployment, particularly among the youth.

“Over the medium term, growth should continue to accelerate, subject to an improvement in external conditions and the implementation of reforms. The risks of a protracted period of slow growth in advanced economies, a resurgence of higher energy prices, or increased market volatility remain significant and call for continued efforts to strengthen the resilience of the economy.

“The reduction in external and fiscal vulnerabilities over the past two years was supported by strong policy action and reforms. Significant progress was made in reforming the subsidy system, thereby reducing its costs and associated fiscal risks. At the same time, social programs on health and education were expanded. The adoption of a new organic budget law in May 2015 is an important step in improving the fiscal framework. In the same way, timely implementation of the pension reform is needed to ensure the viability of the system while extending its coverage.

“The monetary policy stance remains appropriate. The recent rebalancing of the weights of the euro and dollar in the basket to which the dirham is pegged is in line with the current structure of Morocco’s external flows. Giving more flexibility to the exchange rate regime, in coordination with other macroeconomic policies, would further support the authorities’ strategy to diversify export products and markets and help the economy better absorb shocks. Sustained efforts to improve the business environment, transparency, competition and governance are also needed to further improve competitiveness, foster stronger and more job-rich growth, and reduce poverty.

“The financial sector remains sound and resilient, benefiting from a strong regulatory and supervisory framework. Although rising, nonperforming loans remain low and well provisioned. The authorities’ efforts to continue improving the financial policy framework is welcome. After the adoption of a new banking law in November 2014, the mission looks forward to the adoption of a revised central bank law.

“The mission thanks the authorities for their cooperation and productive discussions.”

Background information:

The IMF Executive Board approved a 24-month arrangement under the Precautionary and Liquidity Line in an amount equivalent to about US$5 billion (550 percent of Morocco’s quota) in July 2014 (See Press Release No. 14/368). It concluded the first review of the arrangement on February 6, 2015 (Press Release No. 15/39).