Since its appointment in April, 2017, Morocco’s government coalition led by the Justice and Development Party (PJD) has moved along with rolling out the pro-poor reforms initiated under the previous government, focusing mainly on social protection programs, job creation and reducing economic disparities across the country.
Following up on Royal guidance, the government is currently working to develop a new Development model for the country based on enhanced education and vocational training programs and bolder policies to boost job creation and promote inclusive growth through a modernized Social protection system.
On the cabinet front, the 6-party government coalition is gradually showing signs of lack of cohesion ahead of the critical 2021 legislative elections. Recurrent social crisis, namely with the recent contractual teachers’ strike movement, are putting pressure on the government to ensure proper social services and promote equitable development. The coming months will determine whether the implementation of the planned new Development model will cement government’s position around a strategic development agenda that will set the country to meet its ambitions of inclusive growth and deep economic transformation.
On the economic front, Real GDP growth slowed down in 2018 to an estimated 3 percent compared to 4.1 percent in 2017, owing to the decline of agricultural value-added growth, which was only partially compensated by otherwise good performance of nonagricultural activities. Mining activities contributed the most to growth apart from agriculture, mostly driven by phosphates production and exports. The unemployment rate slightly decreased to 9.8 percent, yet it masked a protracted decline in the labor force participation, which dropped by 0.5 percentage point to 46.2 percent. With an exchange rate pegged to a basket of euro and U.S. dollar, inflation remained below 2 percent.
Fiscal deficit fell short of the authorities’ target, which did not allow to generate the envisaged savings in the context of low growth. On the revenue side, measures to improve tax collection through extension of the tax base, harmonization of tax rates, and efforts to fight tax evasion compensated for the impact of weaker economic activity on tax revenue. On the expenditure side, rising global energy prices led to higher subsidy outlays. Overall, fiscal deficit stood at 3.6 percent of GDP, the same level as in 2017, and the public debt ratio has been stable at around 65 percent of GDP.
The external position remains solid, despite the recent deterioration of the current account due to the impact of higher prices of imported energy. Consistent with the government’s fiscal tightening measures, the current account deficit has fallen considerably since 2012, but the trade deficit has risen reflecting lack of competitiveness and increasing energy dependence. The decline in oil prices since mid-2014 contributed to a reduction in the current account deficit to 3.6 percent of GDP in 2017. However, despite the turnaround of exports, the decrease was reversed in 2018, and the deficit estimated to have grown to 4.3 percent of GDP. At the same time, net FDI flow increased by 25.9 percent and tourism receipts increased by 1.5 percent, while remittances declined by 1.7 percent.
Over the medium term, economic performance is expected to improve enabled by sound fiscal and monetary policies, more consistent sector strategies, and an improved investment environment, all of which are aimed at supporting gradual competitiveness gains. While growth is expected to drop to 2.9 percent in 2019 due to low projected increase of agricultural output after two exceptional years, growth will stabilize around an average of 3.6 percent over the medium term. The overall fiscal deficit is expected to converge to 3 percent of GDP by 2021, resulting in a downward path for public debt ratio, provided that the government maintains its current path of fiscal consolidation and improves the efficiency of public investment. External public financing requirements are a moderate concern, given the relatively low public external debt and Morocco’s investment-grade ratings on international markets. Regarding external imbalances, the current account deficit is expected to stay below 4 percent of GDP due to growth of exports, tourism receipts and remittances, which will offset increasing energy import costs.
Last Updated: Apr 01, 2019