Highlights

Fitch Confirms Morocco at : 07/11/2012

Fitch Confirms Morocco at

Fitch Ratings has confirmed Morocco`s Long-term foreign currency Issuer Default Rating (IDR) at "BBB", with a stable outlook.  

Fitch also announced in press release, issued Wednesday, that it confirms a " Long-term local currency IDR at "BBB", and Short-term foreign currency IDR at "F3", affirming Morocco`s Country Ceiling at "BBB".

According to Fitch, Morocco`s "BBB" rating is supported by a strong macroeconomic performance, as evidenced by low inflation, sustained GDP growth and general government debt (39% of GDP) in line with rating peers.

"Recent success in managing the political transition has underlined Morocco`s political stability. Economic dependence on Europe (60% of current account receipts, 80% of foreign tourists and remittances and 50% of exports in 2011) and on oil imports contributed to higher fiscal and current account deficits in 2011 and represent significant downside risks", Fitch said.

However, Fitch expects these "twin deficits" to begin narrowing this year, supported by recent and prospective measures to reduce fuel subsidies, and supporting the Stable Outlook.

Real GDP growth remained strong at 5% in 2011, supported by accommodative economic policies and structural reforms, and despite economic difficulties affecting Morocco`s main economic partners in the Eurozone.

Growth has slowed in 2012 due to a decline in agricultural output, but non-agricultural growth remained at 4.2% in Q212. Assuming a rebound in agriculture, and some recovery in the Eurozone, Fitch expects GDP growth to recover to 5% by 2014, in line with performance in the previous decade, supported by new investment projects. Fitch recalled that Morocco has obtained an IMF Precautionary and Liquidity Line (PLL) worth USD6.2bn (1.4 months of CXP) over two years. The authorities do not intend to use the credit line and see it as insurance against a potential extreme scenario.

The central government deficit increased markedly to 6.2% of GDP in 2011 after 4.7% in 2010, primarily reflecting the increased subsidy bill (6.1% of GDP) as a result of higher oil prices. The authorities have started to reform the universal subsidy system (caisse de compensation) and administered oil prices were increased by 16% in June 2012.

Fitch projects the budget deficit to decline gradually (4.8% of GDP in 2013 from 5.5% in 2012) in line with the recently announced budget and in the medium term as the subsidy reform progresses. General government debt would stay in line with rating peers at the 2014 horizon.

It also stresses that Morocco has been the most successful country in the region in responding to popular demand for change following the Arab Spring.