After King Mohammed VI’s July 2019 call for a government reshuffle—adapted to meet his country’s pressing development challenges—in the second half of 2019, Saad Dine El Othmani, the head of Morocco’s government, presented a new cabinet line-up composed of 23 portfolios, streamlined from the 39 in the previous government. In it, the Party for Justice and Development (PJD) leading the coalition has seven cabinet posts, while the liberal National Rally for Independents (RNI) led by Aziz Akhannouch has four, strategic portfolios, including Agriculture, Economy/Finance, and Industry. The Party for Progress and Socialism (PPS) withdrew from the coalition the week before the government was formed in October 2019 and most of other government members have a technocratic background.
Members of the Commission for the New Development Model led by former Interior Minister, Chakib Benmoussa, were appointed by the King in December 2019. The Commission has been conducting extensive consultations across Morocco to gather feedback and recommendations on development bottlenecks and suggested pathways to reform. Its task is to develop a comprehensive roadmap to deliver to the King by June 2020, with a new vision for Morocco’s future.
To tackle youth unemployment, King Mohammed VI has urged the Moroccan banking and financial sectors to develop solutions to facilitate youth entrepreneurship and open up access to finance. The Intelaka initiative was launched in February 2020, offering a new generation of guarantees and financing products for young entrepreneurs and very small enterprises. A $625 million Trust Fund has been set up to finance the initiative, spanning three years and financed equally by the government and the banking sector.
The Covid-19 epidemic has triggered a number of radical, preemptive measures to counter its progress. In March 2020, Morocco closed its land and maritime borders and suspended all international passenger flights to and from its airports. Other measures were taken to limit social interactions. An economic watch committee, chaired by the Minister of Economy, was set up to evaluate the impact of Covid-19 on the economy and adopt mitigating measures to support the segments of the economy affected. King Mohammed VI ordered the creation of a fund of 10 billion dirham ($1 billion) to upgrade health infrastructure, support vulnerable households and help crisis-hiteconomic sectors.
To help Morocco cope with the effects of the COVID-19 pandemic, the World Bank proceeded with the restructuring of a US$275 million Disaster Risk Management Development Policy Loan with a Catastrophe Deferred Drawdown Option (Cat DDO). The restructuring adds a health-related trigger mechanism to the operation to allow immediate funding under to address emergency measures.
Morocco’s economic growth has been on a downward trend for the last two years. Indeed, GDP growth decelerated sharply in 2019 to 2.3 percent, down from 3 percent in 2018. This slowdown was mainly driven by the contraction of agricultural output by 5.4 percent and modest non-agricultural GDP growth (3.3 percent in 2019 versus 3 percent in 2017). On the demand side, private consumption contributed the most to growth, boosted by higher salaries and low inflation. The contribution of net exports remained negative, reflecting the low competitiveness of exports and their dependence on energy imports. Thanks to prudent monetary policies and declining import prices, inflation has remained low and controlled under 2 percent. The unemployment rate remains elevated at 9.2 percent—and is significantly higher among women and youth—while labor force participation has been experiencing a protracted decline to below 46 percent.
Following five years of strong fiscal consolidation efforts, the fiscal deficit widened anew in 2019 to an estimated 4.1 percent of GDP, driven mainly by lower than forecasted corporate tax revenue and grants from the GCC, and by increased spending on goods, services and capital expenditures. The proceeds from privatization allowed the reduction of the government’s financing needs to 3.6 percent of GDP in 2019. Consequently, the central government debt-to-GDP ratio has slightly increased to 65.7 percent.
The Covid-19 pandemic outbreak and the effects of drought are expected to impact the Moroccan economy negatively in the medium-term, with the economy also expected to suffer a recession this year, the first in more than two decades. Real GDP is expected to recede by 1.7 percent in 2020. The country’s economic outlook remains subject to significant downside risks, including a longer, more severe epidemic.
The country’s current account expenditure/balance returned to narrowing its trajectory, after widening to 5.5 percent of GDP in 2018. Preliminary figures at end-2019 reveal that exports grew by 4.2 percent, primarily driven by an increase in automotive and aeronautics exports. This increase was also reflected in a rise of equipment imports, because of growing public and private sector investment. Despite a drop in remittances and in net foreign direct investment, the performance of tourism receipts (7.7 percent) and a reduction in energy imports (minus 7.2 percent, given the decline in oil prices) have supported the decline in the current account deficit to 4.6 percent of GDP in 2019. The exchange rate remains stable following the 2018 widening of the exchange rate band from ±0.3 to ±2.5, which has contributed to improving the economy’s shock absorption capacity.
Growth is projected to accelerate gradually over the medium term, mainly driven by more dynamic secondary and tertiary activities. Its outlook is subject to significant risks, however. External risks include weaker growth in the Euro area, geopolitical risks in the region, and the uncertain global trade and capital flow policy environments, as well as potential disruptions to tourism and trade, at least temporarily in light of the recent spread of the corona virus. Domestically, the main risks are clustered around delays in structural and financial sector reforms, including critical tax system reforms which could adversely affect fiscal space and heighten social tensions, thereby affecting growth and external balances. Conversely, lower international oil and butane gas prices could support an attenuation of macroeconomic imbalances, whereas greater regional integration could contribute to medium-term growth.
Last Updated: May 01, 2020