After over 6 months of political stalemate following the October legislative elections, the new government coalition led by the Justice and Development Party (PJD) has been officially appointed on April 5th, 2017. This comes after His Majesty the King, Mohammed VI decided to appoint Saadeddine El Othmani, in replacement of the former Head of government, Abdelilah Benkirane, to lead the negotiations and form a new government.
A broad coalition formed by six parties composes the new alliance, including the left-wing Party of Progress and Socialism (PPS), the liberal National Rally of Independents (NRI) and the conservative Popular Movement (PM) - all three were part of the previous coalition - as well as the liberal Constitutional Union (CU) and the left-wing Socialist Union of Popular Forces (SUPF). The new coalition has a comfortable majority equating to a total of 240 seats from the 395 in the House of Representatives.
The new government should announce a new program to pursue the macro-economic and constitutional reforms, upgrade social services and promote job creation. On local governance, the country has engaged in a broad regionalization agenda that will be further implemented by the new government to focus on local development constraints and turn regions into growth drivers.
The vagaries of the weather continue to drive Morocco’s economic growth. After a record cereal production in 2015, Morocco was affected by a severe drought in 2016. Agriculture production, which still represents almost 15 percent of Morocco’s GDP, contracted by around 10 percent and dragged the overall GDP growth down to 1.1 percent in 2016. Despite large public investment efforts in recent years, nonagricultural growth remained sluggish around 3 percent. With an exchange rate pegged to a basket of euro and U.S. dollar, inflation remained below 2 percent. While the unemployment rate slightly decreased to 9.4 percent, it masked a protracted decline in the labor force participation, which is now well below 50 percent. The government estimates that extreme poverty has been eradicated and the poverty rate (at the national poverty line) was halved to 4.8 percent in 2014.
The pursuit of prudent macroeconomic policies has helped reduce external and fiscal imbalances in recent years. The completion of the subsidy reforms initiated in 2014 coupled with a solid fiscal management and financial oversight contributed to further reducing the fiscal deficit to an estimated 3.9 percent of GDP in 2016 and to stabilizing the public debt at around 66 percent of GDP. Improvements in the government investment-saving balance and the fall in international oil prices led to a significant reduction in the external current account in recent years; which was only reversed in 2016 as a result of the effects of an accommodative monetary policy and a recovery in investment lending to the private sector. The healthy export growth of Morocco’s new industries, especially in the automobile and aeronautic global value chains, could not compensate for the fall in the international prices of phosphate, a traditional sector that still represents close to 18 percent of total exports. Furthermore, the import content of the new value chains remains large in the absence of a larger pool of competitive local suppliers. Tourism and remittances revenues have rebounded in 2016 to represent together a solid 12.5 percent of GDP, offsetting lower-than expected official grants from GCC countries. With continued sizeable FDI inflows, Morocco’s foreign exchange reserves strengthened further to reach 6.4 months of imports of goods and services at end-2016.
With good rainfalls since the fall of 2016, GDP growth is projected to bounce back to 3.8 percent in 2017. The cereal crop is expected above its historical average and agricultural GDP to grow by close to 10 percent. Non-agricultural GDP is also projected to rise slightly above its recent trend due to the agriculture spillover effect and the raising confidence of both consumers and producers. However, these positive developments are unlikely to translate immediately into major improvements in labor market outcomes.
The ongoing delays in forming the new government following the October 2016 legislative elections are slowing the reform momentum. A draft 2017 budget law that contemplates a further reduction in the fiscal deficit to 3 percent of GDP is nevertheless being implemented. The projected increase in international oil prices will contribute to deteriorating the current account but the external financing requirements will remain a moderate concern given Morocco’s relatively low external debt and access to international markets. Furthermore, the second two-year PLL arrangement from the IMF will continue to serve as insurance against external risks.
Last Updated: Apr 05, 2017