Mission of the IMF under Article IV of its Statutes for the year 2016 and the 1st review of the (PLL) agreement : 02/12/2016

Mission of the IMF under Article IV of its Statutes for the year 2016 and the 1st review of the (PLL) agreement

As part of the annual consultations for the year 2016 under Article IV and the 1st review of the Precautionary and Liquidity Line (LPL), a mission of the International Monetary Fund (IMF), led by Mr. Nicolas Blancher, visited our country from November 16th to December 1st , 2016.

Discussions focused mainly on developments and prospects of the Moroccan economy and on strengthening its resilience and growth potential.

At the end of this mission, the IMF published a press release in which it welcomed the good performance of the Moroccan economy and the relevance of the implemented policies and structural reforms in terms of budget control, Economy and strengthening its resilience.

"In recent years, the Moroccan economy has benefited from continued prudent macroeconomic management and structural reforms, as well as favorable oil price developments. Progress in fiscal control and the diversification of the economy strengthened its resilience.

Nevertheless, much is to be done to achieve higher, sustainable and better shared growth. Unemployment, especially among young people, remains high. Significant structural reforms were initiated and it is necessary to accelerate their implementation in order to increase production efficiencies, job creation and the potential for economic growth. Priorities include improving the quality of the education system, the functioning of the labor market and the participation rate of women, and further accelerating efforts to improve the business climate.

In 2016, the Moroccan economy growth rate is expected to slow to between 1.5% and 2% due to a poor cereal crop and the relative weakness of non-agricultural activity. Inflation and credit growth remain moderate. The external current account deficit is expected to increase slightly to 2.9% of GDP, notably as a result of higher imports of capital goods and food products and lower phosphate prices despite the new industrial sectors dynamism. Taking into account the inflow of foreign investment, international reserves were around 6.8 months of imports.

By 2017, growth should accelerate to around 4.4% thanks to the agricultural recovery and better performance of non-agricultural activities. It is expected to stabilize at around 4.5% in the medium term, on the basis of the implementation of the ongoing reforms. However, the risks related to growth in advanced and emerging economies, global energy prices, geopolitical tensions in the region and volatility in global financial markets remain significant.

On the fiscal level, the trend up to the end of September is in line with the deficit target of 3.5% of GDP for 2016. The mission welcomes the recent reform of the public sector pension plan, as well as the improvement of the public finances provided in the finance bill 2017, with a deficit of 3% of GDP. In the medium term, reforms concerning making the tax system more efficient and equitable should be accelerated, including broadening the tax base and fighting fraud. These efforts would support investment in infrastructure, health, education and social protection, and reduce public debt. Indeed, even if the debt is sustainable and able to face various shocks, its reduction will increase fiscal flexibility. Moreover, the management of the risks linked to budgetary decentralization will require good governance, transparency and budgetary discipline in local and regional authorities and the mission supports ongoing efforts in this field.

We support the government's intention to initiate a gradual shift to a more flexible exchange rate regime and an inflation targeting framework. Such a regime will promote integration into the global economy by preserving competitiveness and enhancing the resistance to external shocks. We continue to work with the authorities to finalize their roadmap for this transition.

The Moroccan financial sector is well capitalized and the risks to financial stability remain limited. Overdue receivables have increased but are well provisioned. It would also be advisable to continue to reduce the concentration of credit and to pay particular attention to the risks associated with the expansion of Moroccan banks in Africa. In this regard, the strengthening of banking supervision and cross-border collaboration is welcome and the mission welcomes the progress made in implementing the outcomes of the FSAP (financial sector assessment program). The mission also continues to support efforts to increase access to credit, especially for small and medium-sized enterprises. Finally, the mission recommends the rapid adoption of the new law on the statutes of the central bank, which will strengthen its independence and its role in financial stability.

​ The mission thanks the Moroccan authorities and representatives of the private sector and civil society for their cooperation and productive discussions. "