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Morocco’s Economic Outlook- October 2016


Poor harvests have weighed on growth during 2016, but activity is expected to rebound in 2017. Thanks to sustained fiscal consolidation since 2013 and the fall in oil prices, the twin deficits have declined and exchange reserves increased. Over the medium term, promoting stronger private-sector led growth and job creation, narrowing inequalities and increasing shared prosperity remain paramount challenges.

Outlook

In the short term, Morocco’s GDP growth should slow down to 1.5% in 2016 as the full impact of the fall 2015 drought unwinds. Agricultural GDP is projected to contract by 9.5% in 2016 before rebounding by 8.9% in 2017. Non-agricultural GDP growth is expected to hover around 3% in the absence of more decisive structural reforms. In line with the government’s commitment, the fiscal deficit should be further reduced to 3% of GDP in 2017, which should also feature an enhanced central and local Governments' budget design and implementation for better public service delivery and efficiency consistent with the new Organic Budget Law. The current account deficit is projected to narrow further to 1.5% of GDP in 2016 as international oil prices remain low. External financing requirements will remain a moderate concern, given the relatively low external debt, financial support from the GCC countries, and Morocco’s investment grade ratings on international markets. In July 2016, the IMF approved a new two-year arrangement for Morocco under the Precautionary and Liquidity Line, which will continue to serve as insurance against external shocks.

Over the medium term, Morocco should be able to accelerate its economic growth while maintaining macroeconomic stability. The strong performance of the newly developed industries (automobile, aeronautics and electronics) and the expansion of Moroccan companies in Western Africa are potentially creating the conditions for Morocco to boost its position in global value chains. However, economic prospects and the consolidation of its macroeconomic stability gains over the medium term depend on the pursuit of sound macroeconomic policies and the deepening of structural reforms aiming at accelerating productivity gains, reducing youth unemployment, increasing female labor force participation, and reducing further poverty and inequalities. Assuming the full implementation of a comprehensive reform agenda following the autumn 2016 parliamentary elections, growth could accelerate toward 4% over the medium term, with inflation kept around 2%.

The spatial inequalities are likely to persist in the absence of targeted policies that address the multitude of challenges faced in the lagging regions of the country.

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