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Stéphane ALBY Team : Country risk +33(0)1 42 98 02 04

stephane.alby@bnpparibas.com

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Economist : Africa, French-speaking countries

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His or Her Analyses

Morocco : Solid fundamentals to cope with the shock

The Moroccan economy will see significant consequences from the coronavirus pandemic. Tourism has been at a standstill since March and will remain so until May at the earliest. The automotive sector and remittances from the Moroccan diaspora will also be hit by the crisis in Europe. However, and provided that the situation improves in the second half of the year, Morocco should be able to avoid recession. Macroeconomic fundamentals are solid and the country will benefit from a substantial fall in oil imports. Moreover, the authorities have reacted swiftly to dampen the shock.

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Morocco : The tourism slump, a threat for the economy

Tourism is the main transmission channel of the Covid-19 pandemic to the Moroccan economy. Activity has been at a standstill since March and will remain so until May, at least. The losses will be significant in a sector that contributes to more than 8% of GDP, which is the highest level in the region. On a more positive note, two-thirds of the tourist season comes from June onwards, which might coincide with the easing of restrictions on travel in some countries even if the recovery of the activity would be gradual. The slump in tourism activity will weigh on growth and external accounts. The sector accounts for 15% of current account receipts. However, external stability does not look under threat. Forex reserves are comfortable and external debt is moderate. The fall in global oil prices should also help to keep current account deficit below 5% of GDP. Lastly, Morocco could draw on the IMF’s Precautionary and Liquidity Line if necessary.

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Global : From the CFA Franc to the Eco, a smooth transition

CFA Franc of eight West-African countries will face major changes in 2020. Beyond the change of name, governance will be modified. However, fundamentals remains and several hurdles will have to be overcome before to see further reforms.

Emerging Countries : Birth of the eco: essentially a symbolic change

The end of the CFA franc and its replacement with the eco scheduled for next June address the legitimate desire of WAEMU member countries to manage what is already their single currency. Governance of the currency regime will change as the French Treasury pulls out of WAEMU entities, although it will still serve as the lender of last resort. Though the euro peg will limit monetary policy’s independence, it is necessary to shore up the macroeconomic stability of WAEMU, which is still fragile.

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Algeria : Economic transition, the other challenge

With anaemic growth, strong pressure on hydrocarbon revenue and substantial twin deficits, the macroeconomic situation is worrying. For the time being, forex reserves remain at comfortable levels but the speed and scale of their contraction is a major source of vulnerability over the short to medium term. Meanwhile, although certain decisions suggest a change of tack in the government’s position after years of economic protectionism, this progress is still too hesitant given the challenges. It is also of limited effectiveness whilst the business climate has not yet stabilised.

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Morocco : Satisfactory performance

Between difficulties in Europe and a poor agricultural harvest, Morocco faces numerous headwinds. Growth slowed in 2019 for the second consecutive year. Yet domestic demand remains robust, bolstered among other factors by low inflation and an accommodating monetary policy. The authorities are also counting on major privatisation proceeds to soften fiscal consolidation without worsening public debt. Above all, the ongoing development of the automobile industry raises hopes for a rebound in GDP growth in 2020, while lower oil imports should help to reduce the current account deficit.

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Tunisia : Tunisia: Sluggish economic growth

The government’s 2019 budget growth target of 3.1% is clearly out of reach. Indeed, real GDP growth stood at only 1.1% during the first six months of the year. Except tourism and to a lesser extent agriculture, most sectors have stalled, or even contracted (industry). Headwinds will remain powerful in the coming months, starting with the subdued demand from European countries. Despite signs of inflation stabilization, the monetary environment will also remain restrictive amid strong pressure on external accounts. Above all, uncertainties linked to presidential and parliamentary elections scheduled in September-October will continue to weigh on the business climate and thus investment. The economic recovery expected in 2020 will greatly rely on a steadfast implementation of reforms. The task is huge.

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Nigeria : Nigeria: convalescent

The sub-Saharan Africa’s largest economy is having hard time to recover. External rebalancing has showed some progress. But imports remain well below pre-crisis levels. In addition, the rebuilding of FX reserves is being accompanied by increased financial vulnerability, which puts pressure on monetary policy as the authorities give the priority to exchange rate stability. Weak public finances are an additional constraint. In the short term, and despite its strong potential, the economy is expected to grow more slowly than the population. As well as improving macroeconomic stability, the authorities will have to address the deep-seated factors that are holding back the economy as a whole.

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Tunisia : A fragile stabilisation

The Tunisian economy has begun to show signs of stabilisation. Inflation is falling, exchange rate pressures are easing and the government finally managed to uphold its commitment to fiscal consolidation in 2018. Yet the country’s prospects are still very fragile. Although the support of international donors is reassuring, the persistence of major external imbalances exposes the economy to shocks. Bank liquidity is already under pressure due to the tightening of monetary policy, and the high level of public debt calls for further reduction in budget deficits that could be hard to achieve. Above all, economic growth is still sluggish.

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Tunisia : Tunisia : the inflation trap

Inflation reached in 2018 all-time high, at more than 7%. Consequently, the central bank tightened its monetary policy. But weaknesses of the banking system limit the room for manoeuvre while persisting downward pressures of the dinar against the euro should continue to fuel inflation in coming months.

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