Morocco’s financial status might seem concerning at first glance due to high inflation and a tough international context, but experts believe there’s less cause for concern than it appears.
Capital Economics, a London-based think tank, suggests that the country’s commitment to reforms and its unique debt structure mitigate some of the concerns.
Despite facing challenges like a widening budget deficit and a high debt-to-GDP ratio, Morocco’s economic future looks promising due to the government’s dedication to making structural changes, according to the recently released briefing by Capital Economics.
The Moroccan government revealed that the budget deficit between January and July had risen to nearly $3 billion, marking a 14.5% yearly increase.
The global pandemic and the Russian-Ukrainian conflict, like in other emerging markets, have impacted Morocco’s economy.
Morocco is also grappling with the worst drought in four decades, affecting agricultural production and food supply.
Inflation hit 6.6% in 2022, the highest since 1992, and the economy’s growth dropped from 8% in 2021 to 1.3% in 2022.
The public debt-to-GDP ratio rose from 69.5% in 2021 to 71.5% in 2022. However, the composition of this debt is less risky than it might appear initially.
Around 25% of the total outstanding central government debt is in foreign currency, and most upcoming debt repayments will be in local currency.
Furthermore, the average maturity of public debt is 6.5 years, offering some protection against sudden interest rate fluctuations.
Capital Economics predicts that the public debt-to-GDP ratio could decrease to 67% by 2027 if the Moroccan government implements a modest fiscal squeeze of 1.5% over the next few years.
Unlike some of its neighbors, Morocco’s officials seem willing and capable of undertaking fiscal reform without major political obstacles.
Capital Economics mentioned several reform policies the government plans to implement, including consolidating VAT rates, introducing a carbon tax, and making changes to tax exemptions on real estate and state-owned enterprises.
Capital Economics believes that with the mentioned reforms and the recent assistance program from the International Monetary Fund (IMF), Morocco’s debt ratio and budget deficit will likely improve.
The Moroccan government aims for an economic growth rate of 3.6% in 2024, up from the projected 3.3% this year, assuming agricultural recovery and improved exports.