Morocco has undergone a sharp deceleration due to domestic and international shocks – a drought and high commodity prices. Real Gross domestic product (GDP) growth plummeted from 7.9 to an estimated 1.2 percent between 2021 and 2022. These shocks triggered supply-driven inflationary pressures that have broadened, pushing core inflation to 8.5 percent in February 2023 and disproportionately affecting poorer households. The authorities’ anti-inflationary measures have included untargeted subsidies, regulated prices, and a moderate monetary tightening. This policy package has put significant pressure on public finances. However, the dynamism of tax and non-tax revenues allowed for a reduction in the budget deficit (from 5.5 percent of GDP to 5.1 percent of GDP), and the debt-to-GDP ratio increased only moderately in 2022 (from 68.9 to 69.4).
Ongoing reforms should allow for a more cost-effective and equitable response to future shocks. These reforms focus primarily on the social sectors as the authorities are determined to improve key public services both in terms of access and quality. After universalizing access to the national health insurance scheme, a targeted cash transfer program is planned for 2023. Private sector reforms are also underway with the recent appointment of the head of the Mohammed VI Fund for Investment (M6FI) and the new agency for state participation in SOEs (State-Owned Enterprises) - APE. In addition, following the approval of a new Investment Charter, the government is in the process of approving new regulations for private investment, and the ongoing tax reform is gradually eliminating some of the distortions that characterize the current system.
Morocco is heavily exposed to climatic shocks, which remain a major source of macroeconomic volatility. The government has traditionally coped with water scarcity through dams and irrigation investments. But the latest drought has coincided with historically low water reserves, severely reducing water availability for irrigation. The government is accelerating desalination projects while exploring options to improve water valuation and rationalize demand.
Last Updated: May 30, 2023
