Since its appointment in April, 2017, Morocco’s government coalition led by the Justice and Development Party (PJD) has moved along with rolling out the pro-poor reforms initiated under the previous government, focusing mainly on social protection programs, job creation and reducing economic disparities across the country.
Over the summer, two major Royal speeches (Throne day and 65th anniversary of the King and people’s revolution) have put out a clear road map for the government to act on major development challenges, namely improving targeting of poor households, unleashing private sector potential to generate jobs and enhancing education sector outcomes. Another major announcement was the reinstating of compulsory military service for young men and women for the first time since 2006, a move seen by observers as an attempt to equip Moroccan youth with patriotic and disciplinary values.
In September, the King chaired two major events, one related to the education reform announcing ambitious numerical targets to improve sector performance, and one related to the launch of the 3rd phase of the National Initiative for Human Development (INDH). The new phase (2019-2023), with an overall financing envelope of MAD 18 billion, will focus on building the human capital and enhancing youth inclusion.
On the cabinet front, a small government reshuffle was operated late August, appointing the new minister of Economy and finance, Mohamed Benchaaboun, and merging the water department with the Transport ministry. The suppression of the water secretariat, held by junior coalition partner, PPS (Party for Progress and Socialism), has caused swirls that may gauge the future of the current coalition.
On the economic front, Morocco’s economic growth remains sluggish in 2018 despite unexpected positive growth of cereal production. GDP growth decelerated from 3.5 percent in the first quarter of 2017 to 3.2 in the same period of 2018. On the supply side, the economic slowdown is mainly due to the sharp decline of agricultural value-added growth from 14.8 percent in 2017-Q1 to 2.5 percent in 2018-Q1, which is only partially compensated by otherwise good performance of non-agriculture activities.
The latter increased by 3.4 percent (vs. 2 percent only in 2017-Q1), mainly driven by the combined rebound of secondary and tertiary activities. The increase has been particularly marked in extractive industry due to the continued upturn of phosphate production and exports. On the demand side, growth has been mainly supported by private consumption and investment. Inflation increased but has been kept under 2 percent reflecting the continued prudent monetary policy. The overall unemployment rate declined to 9.1 percent in 2018-Q2 but remained high among the urban young (23.1 percent) and educated (16.5 percent).
The pace of Morocco’s fiscal deficit reduction has decelerated in 2018 compared to the indicative target of the 2018 Budget Law. The fiscal deficit during the first half of 2018 is estimated at 3.3 percent of GDP against an indicative target of 3 percent of GDP. There was an increase in public expenditures in the form of higher public investment (capital spending increased by 6 percent). On the revenue side, direct taxes fell by 3.7 percent (at end June), in particular due to falling corporate taxes, which have been on a downward trend since 2012. At the same time, the central government debt is expected to stabilize around 65 percent of GDP.
The current account deficit slightly widened to nearly 4.3 percent of GDP even though export performance has been recovering. In the first half of 2018, preliminary data indicate that imports increased substantially (10.2 percent), mainly driven by higher energy prices. The rise of imports overshadowed a healthy turnaround of exports stemming from the good performance of automotive and phosphates exports (+19.2 percent and +16.7 percent, respectively). Consequently, the trade deficit continues to widen (up 3.7 percent) reflecting weak export competitiveness and higher prices of imported energy. Tourism receipts and remittances remained strong, rising by 15.2 and 8.6 percent respectively, while net FDI flows fell by 29.7 percent. Under these conditions, net international reserves amounted to 227.6 billion dirhams, the equivalent of 5.3 months of imports of goods and services.
Over the medium term, economic performance is expected to improve subject to pursuing fiscal adjustment and deepening reforms. Morocco’s challenges include boosting productivity spillovers from high public investment for higher private sector-driven and inclusive growth, generating jobs for the young.
With a return to normal rainfall conditions, agriculture GDP is projected to slowdown in 2019, thus dragging down overall GDP growth to 2.9 percent. Yet, non-agricultural GDP is expected to sustain its performance driven by more dynamic manufacturing and services sectors, which will be the key growth drivers, with the former continuing to benefit from substantial foreign investments into automotive industries.
The current account deficit is expected to slightly improve in 2019, driven by sustained export growth, tourism receipts and remittances, which will offset increasing energy imports. This improvement is also related to Morocco’s global environment, particularly the stronger recovery in Europe, and strong export growth of high-value added industries. External financing requirements will remain a moderate concern, given the relatively low external debt and Morocco’s investment grade ratings on international markets. The fiscal deficit is expected to decline to the target of 3 percent of GDP in 2019-2021.
Last Updated: Oct 01, 2018