Press Release No. 15/66

Press Release: IMF Executive Board Concludes 2014 Article IV Consultation with Morocco

February 23, 2015

On February 6, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the 2014 Article IV consultation.¹

Morocco has made important strides in maintaining macroeconomic stability in a difficult environment, but challenges remain to reduce fiscal and external vulnerabilities, strengthen growth, create jobs and tackle poverty. Growth slowed in 2014 as a result of a contraction in agricultural activity following an exceptional 2013 crop and weak demand from Europe.

However, growth is expected to rebound in 2015 to about 4.4 percent and remain robust in the medium term as external demand and domestic confidence strengthen. Inflation has remained low and the financial sector remains sound. The 2014 current account deficit narrowed to an estimated 5.8 percent of GDP due to booming exports from newly developed sectors and lower oil prices. International reserves increased to above 5 months of imports. The 2014 fiscal deficit was also reduced to 4.9 percent of GDP.

Executive Board Assessment²

Executive Directors commended the authorities for their strong policy actions which have reduced economic vulnerabilities. Fiscal and current account deficits have declined and international reserves have increased. However, Directors noted that Morocco’s economy still faces significant risks given the challenging external environment. They encouraged the authorities to continue with an appropriate policy mix and reforms to consolidate the gains thus far, further build external and fiscal buffers, reduce unemployment, and promote higher and more inclusive growth.

Directors welcomed the progress made in fiscal consolidation. They commended the impressive reduction in subsidies, in particular the removal of subsidies on all liquid petroleum products. To further reduce fiscal vulnerabilities and create space for the much needed growth-enhancing investment and social spending, Directors encouraged the authorities to rationalize and better target remaining subsidies to reduce budgetary costs while protecting the most vulnerable.

Directors underscored the need for continued fiscal consolidation to put debt firmly on a downward path and to address vulnerabilities arising from the large public and external financing needs. They commended the progress made in adopting the new organic budget law, which is expected to strengthen and modernize the fiscal framework by enhancing its efficiency, improving financial control and increasing transparency. They called for the timely implementation of this law, once concerns from the Constitutional Council have been addressed. Directors stressed the urgency to reform the pension system. They also highlighted the need to further reform the tax system.

Directors agreed that monetary policy has been appropriate. Noting the improving macroeconomic situation, they supported transitioning to a more flexible exchange rate regime, in coordination with other macroeconomic policies, as it would foster trade and financial flows diversification while helping preserve competitiveness and better insulating the economy against shocks. Directors welcomed Bank Al-Maghrib’s (BAM) efforts to strengthen the financial supervisory and regulatory framework to ensure continued financial sector soundness. They commended the BAM’s proactive efforts to tackle the supervisory and other challenges linked to the international expansion of Moroccan banks and agreed that the forthcoming central bank law would strengthen the BAM’s supervision and crisis resolution abilities. Directors looked forward to the upcoming FSAP update as it would provide an opportunity for a comprehensive assessment of the financial system.

Directors emphasized that structural reforms remain critical for reducing unemployment, diversifying the economy, and promoting higher and more inclusive growth, including by improving the business environment and strengthening competitiveness. Directors called for further action on enhancing transparency and governance, streamlining administrative procedure, and addressing corruption. Continued efforts toward reforming the labor market, increasing the efficiency of spending on education and vocational training, and raising female participation remain important going forward.