Morocco engaged in a program of wide-ranging reforms with the adoption of a new Constitution in 2011, which laid the foundations for a more open and democratic society, a more modern state with law and institutions, greater separation of powers, and increased decentralization. The country’s current coalition government is led by moderate Islamist party, PJD (Party for Justice and Development), and composed of four parties. The government is continuing to roll out the last pending constitutional reforms and pursue promised subsidy, pension, and capital market reforms.
On local governance, as the country engages regionalization, the country held regional and local elections in September 2015 that defined a new local political map where two major political players emerged: the ruling PJD and opposition party PAM (Party for Authenticity and Modernity). While the latter is close to the Moroccan kingdom and has dominated the leadership of the country’s regions (5 out of 12 of them), the PJD is the clear winner in terms of the management of Morocco’s largest cities. This new division of political powers is likely to redefine the government coalition that will emerge from the October 2016 legislative elections.
After a good performance in 2015, the Moroccan economy is decelerating in 2016. Economic activity slowed to 1.4% in the second quarter as a result of a 12.1% contraction in agricultural production, while growth outside the agriculture sector remained sluggish at around 2.5%. Inflation has remained muted at under 2%, reflecting prudent monetary policy and the fall in international commodity prices.
With the successful liberalization of petroleum prices (gasoline and diesel) and other fiscal consolidation efforts that have been made since 2013, Morocco’s fiscal deficit has been on a downward trajectory and its external current account has improved significantly. Based on performance since the beginning of 2016, Morocco is expected to reduce its fiscal deficit to 3.5% of GDP. This would be the result of strong revenue performance and the continued reduction in consumption subsidies. Morocco should thus be able to stabilize its central government debt at around 64% of GDP. On the external front, the trade deficit narrowed down in recent years as a result of fiscal consolidation efforts and the emergence of Morocco’s new industries, especially automobiles. The current account deficit should not exceed 1.5% of GDP for 2016, and Morocco’s international reserves reached US$24.9 billion—the equivalent of 7.3 months’ worth of imports at end-June 2016.
Morocco’s respectable per-capita income growth in recent years has contributed to eliminating extreme poverty and significantly reducing poverty, although disparities persist and employment remains low. While the poverty rate declined from 8.9% in 2007 to 4.2% in 2014, nearly 19% of the rural population are still living in poverty or are vulnerable.
At around 47% in the second quarter of 2016, the employment rate is low and dropping, and the type of new jobs being created are generally informal and precarious. While overall unemployment has remained broadly stable at around 9% in recent years, the rate among urban youth is much higher, increasing to 38.8% by June 2016.
Over the medium-term, Morocco should be able to accelerate its economic growth rate while maintaining macro-economic stability. The strong performance of newly developed industries (automobile, aeronautics, and electronics) and the expansion of Moroccan companies into West Africa are creating the conditions for Morocco to boost its global value chains. However, economic prospects and its medium-term macroeconomic stability depend on the pursuit of sound macroeconomic policies and the deepening of structural reforms aimed at accelerating productivity, reducing youth unemployment, increasing female labor force participation, and reducing further poverty and inequalities. Assuming the full implementation of a comprehensive reforms following the fall 2016 parliamentary elections, growth could accelerate toward 4% over the medium-term, with inflation kept at around 2%.
Last Updated: Sep 30, 2016