Conjoncture

Morocco: confident despite challenges

Eco Conjoncture n°5 // June 2021  
economic-research.bnpparibas.com  
1
MOROCCO: CONFIDENT DESPITE CHALLENGES  
The Covid-19 pandemic has had a significant impact on the Moroccan economy. After an unprecedented 6.3% decline in GDP  
in 2020, the first signs of a recovery are still fragile, even though vaccination campaigns are progressing in both Morocco  
and Europe, by far the country’s biggest trading partner. This is mainly due to the sluggishness of the tourism industry. It  
is thus vital that the authorities continue to provide support this year. Despite the rise in public debt, fiscal consolidation  
is unlikely to start before 2022. The rating agencies S&P and Fitch have downgraded the country to speculative grade. For  
the moment, however, macroeconomic stability is not a major source of concern. But tight fiscal manoeuvring room could  
become problematic in years to come. It seems to be more crucial than ever to intensify reforms given that the slowdown  
in growth and its feeble job content was already a source of concern before the crisis.  
The year 2020 was challenging. Caught in the grips of a severe while the 12.2% decline in imports of goods and services helped offset  
recession, Morocco’s sovereign rating was also downgraded by rating the 14.3% decline in exports. All in all, foreign trade made a slightly  
agencies based on the sharp rise in government debt. Morocco is in positive contribution to growth (0.2 points).  
speculative grade, even though international institutions like the IMF  
According to the High Commission of Planning, the economy swung  
consider that the authorities’ response to the pandemic’s shock was  
back into growth, up 0.7% year-on-year in Q1, thanks to a very strong  
both justified and adequate. They have already mobilised resources  
contribution from the agricultural sector (+13%). The primary sector  
equivalent to more than 6% of GDP, which is higher than the regional  
accounts for 10-12% of GDP, so its dynamics has a big influence on  
norm (chart 1). The recovery plan is also ambitious at 11% of GDP.  
overall growth. In contrast, non-agricultural value added continued to  
Comprised largely of state-backed loans (60% of the total), it also calls  
contract in Q1, down 1% year-on-year, which underscores the fragility  
for the setting up of a strategic investment fund (4% of GDP) with two  
of the upcoming rebound.  
key objectives: launching major investment projects, essentially in the  
The deteriorated labour market situation continued to strain household  
form of public-private partnerships, and providing capital to firms.  
confidence despite an improvement in Q1 2021 (chart 6). Although  
More importantly, efforts to contain the pandemic are paying off. The  
the participation rate returned to pre-crisis levels (45.5%), the  
spread of the virus has declined again after peaking in year-end 2020  
(
chart 2), and Morocco was one of the first to roll out a vaccination  
campaign very early on. Nearly a quarter of the population has already  
received at least one dose of the vaccine. Morocco stands out favourably  
compared to its peers, although it still faces a long road ahead to reach  
herd immunity. This explains why numerous restrictions are still in  
place despite recent moves to lift them (chart 3). Above all, tourist  
season looks bad this year after the sector’s collapse in 2020. Despite  
a bumper agricultural harvest, the Moroccan economy is unlikely to  
return to pre-pandemic levels before 2022. Looking beyond the short-  
term risks, the crisis has also underlined some structural fragilities  
that need to be adressed. Although the announcement of several  
reforms was a welcome step in the right direction, it will be even more  
important to implement them at a time when the government must  
consolidate public finances. In the short term, however, the authorities  
will continue to have comfortable fiscal and monetary manoeuvring  
room.  
FISCAL SUPPORT (% OF GDP)  
Budget support  
Bahrein  
Equity, loans and guarantees  
Morocco  
Tunisia  
Saudi Arabia  
Jordania  
UAE  
Egypt  
Koweit  
Qatar  
Algeria  
0
1
2
3
4
5
6
7
CHART 1  
SOURCE: IMF  
A gradual economic rebound  
COVID-19 INFECTION RATES, DAILY NEW CASES  
Visible scars  
Morocco is one of the countries of the Middle East and North Africa  
7
-day moving average, in million  
(
MENA) region that the pandemic has hit hardest. GDP growth  
300  
plummeted by 6.3% in 2020. There were multiple shocks. In addition  
to a long, precocious lockdown, the economy was undermined by  
the collapse of tourism activity and the decline in European demand  
Algeria  
Egypt  
Morocco  
Tunisia  
250  
2
00  
50  
(
which accounts for about 70% of exports). To make matters worse,  
agriculture was also hit by unfavourable weather conditions. Unlike  
previous bouts of recession, there was a general drop-off in activity in  
1
2
8
020, with both agricultural and non-agricultural GDP contracting by  
.6% and 6%, respectively (chart 4).  
100  
50  
All the components of private demand contracted in 2020 (chart 5),  
especially household consumption (-4.1%) and investment (-9%).  
Despite the good resilience of public administrations consumption,  
the downturn in domestic demand slashed GDP growth by 6.5 points  
0
Apr-20  
Jun-20  
Aug-20  
Oct-20  
Dec-20  
Feb-21  
Apr-21  
Jun-21  
CHART 2  
SOURCE: JOHNS HOPKINS UNIVERSITY  
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STRINGECY INDEX  
HOUSEHOLDS CONFIDENCE INDEX  
1
00 = strictest response  
1
00  
%
0
9
8
9
8
7
6
5
4
3
2
1
0
0
0
0
0
0
0
0
0
0
8
86  
8
4
2
Long-term average  
8
80  
7
7
7
8
6
4
Algérie  
Egypte  
Maroc  
Tunisie  
72  
70  
68  
66  
64  
62  
60  
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021  
CHART 3  
CHART 6  
SOURCE: HCP  
SOURCE: OXFORD UNIVERSITY  
HISTORIAL EPISODES OF ECONOMIC CONTRACTION  
LABOR MARKET INDICATORS  
2019Q4  
%
GDP  
Non-agricultural GDP  
Agricultural GDP (RHS)  
%
8
50  
2021Q1  
40  
45  
6
4
2
0
30  
40  
20  
35  
30  
10  
25  
20  
15  
10  
5
0
0
-
-
-
-
2
4
6
8
-10  
-20  
-30  
-40  
-50  
Activity rate  
Unemployment rateUnemployment rate:Unemployment rate:  
Urban Rural  
-
10  
1
987  
1992  
1993  
1995  
1997  
2020  
CHART 7  
SOURCE: HCP  
CHART 4  
SOURCE: HCP  
CONTRIBUTION TO REAL GDP GROWTH ( % POINT)  
EXPORTS AT END APRIL (MAD MN)  
Consumption  
Net trade  
Investment  
GDP  
-19.6%  
Variation 2019-2021  
Aeronautics  
Textile  
10  
-
2021  
8
-
14.6%  
2020  
6
4
2
0
2
4
6
8
2
019  
+
14,5%  
Phosphates & derivatives  
Agro-food  
-
0.4%  
-
-
-
-
+
4.6%  
Automobile  
2
010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020  
0
5000 10000 15000 20000 25000 30000 35000  
SOURCE : OFFICE DES CHANGES  
CHART 5  
SOURCE : HCP  
CHART 8  
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EXPORTS AND TOURISM RECEIPTS (MAD BN)  
MONETARY INTERVENTIONS (MAD BN)  
1
40  
20  
1
2-month moving sum  
Advance to 7 days  
Long-term guaranteed loan  
Long-term pension delivered  
Currency Swap  
90  
80  
70  
60  
50  
40  
30  
20  
10  
0
300  
280  
1
2
2
2
2
1
1
1
60  
40  
20  
00  
80  
60  
40  
100  
8
0
0
6
40  
20  
0
Tourist receipts  
Exports (RHS)  
120  
100  
2
010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021  
2017  
2018  
2019  
2020  
2021  
SOURCE: CENTRAL BANK  
CHART 9  
SOURCE: OFFICE DES CHANGES  
CHART 10  
unemployment rate is still 2.3 points higher (chart 7), notably in the  
5-to-24 age group (32.5% in Q1 2021, +4.5 points) and among women  
17.5%, +4 points). All in all, more than 220,000 people have lost their  
jobs since Q4 2019 due to the consequences of the pandemic and the  
poor farm harvest. The turnaround in consumption is likely to be slow  
and gradual despite several rather supportive factors (low inflation,  
resilience remittances from the Moroccan diaspora), while investment  
is still showing no signs of recovering, as illustrated by the ongoing  
decline in bank lending for capital goods (-4% at the end of April 2021).  
1
(
BANKING LOANS CONTRIBUTION TO GROWTH (% POINT)  
Other loans  
Consumer loans  
Real estate loans  
Equipment loans  
Debtor accounts and overdraft facilities  
Total  
8
7
6
5
4
3
2
1
0
1
On the sectoral side, despite a net rebound in exports of automobiles and  
phosphate in the first four months of the year, numerous manufacturing  
industries continue to be hard hit, especially in aeronautics as well as  
textiles, albeit to a lesser extent (chart 8). Exports have returned to pre-  
crisis levels. In contrast, tourism revenues were still down 67% in April  
-
-2  
-
3
2
021 (chart 9). It is a key sector of the Moroccan economy, accounting  
2
015  
2016  
2017  
2018  
2019  
2020  
2021  
directly for 7% of GDP with numerous indirect effects on the economy,  
notably in transport. The combined drop-off in value added in these  
two sectors explains nearly 40% of the recession in 2020. Although the  
health situation in Europe is improving, hopes are not high for a strong  
rally this year, even though the Moroccan diaspora makes up a big  
portion of non-resident tourists (45% of the total), which should serve  
as a buffer. The central bank expects tourism revenues to increase by  
only 5% in 2021, but then hopes the situation will virtually return to  
normal by 2022.  
CHART 11  
SOURCE: CENTRAL BANK  
INFLATION Y/Y GROWTH  
Key policy rate  
Inflation  
Core-inflation  
3.0  
2.5  
2.0  
1.5  
1.0  
0.5  
0.0  
Monetary policy will remain accommodating  
Under this environment, economic policy will continue to play a key  
role. In addition to fiscal measures comprised essentially of state-  
backed loans, the monetary authorities were particularly responsive in  
2
020 to limit the shock. Although the Moroccan central bank refused  
to intervene directly to finance the Treasury, it did cut its key policy  
rate by 75 basis points to an all-time low of 1.5%. It also stepped up  
liquidity injections in the banking sector by broadening the line of  
eligible collateral and extending its refinancing operations (chart 10).  
Combined with the temporary easing of regulatory requirements, these  
measures helped support bank lending, notably through subsidised  
-
-
0.5  
1.0  
2015  
2016  
2017  
2018  
2019  
2020  
2021  
CHART 12  
SOURCE: HCP, CENTRAL BANK  
loan mechanisms to address corporate cash flow needs. Liquidity loans Transmission of monetary policy to the economy seems thus effec-  
have accounted for nearly half of the increase in loans outstanding tive and is expected to remain so. Inflationary pressures are limited  
since March 2020 (chart 11), while consumer and capital loans have (chart 12). The consumer price index rose only 1.4% in April despite the  
declined. Corporate borrowing conditions are still favourable with an surge in prices for imported commodities. Core inflation was still below  
1
%. With a slightly positive real policy rate, the central bank still has  
average lending rate of 4.5% in Q1 2021, down from 4.9% in Q4 2019.  
some leeway to maintain an accommodating bias in the months ahead.  
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base effect (2020 harvests were especially poor) and good weather  
conditions. Excluding agriculture, growth is unlikely to exceed 4%  
due to the difficult recovery in the tourism sector, the deep impact  
of deteriorating household financial situation on consumption, and  
the lack of visibility over private investment, even though the risks  
associated with the spread of the pandemic are diminishing thanks to  
the advance of vaccination campaigns in Europe and Morocco.  
Cyclical and structural constraints  
Despiteafavourablemonetaryenvironmentandthegrowingimportance  
of public investment via the launch of the strategic investment fund,  
the Moroccan economy will not return to its pre-pandemic level before  
2
022. GDP growth is expected to rise by 5.3% in 2021, thanks largely to  
a strong rebound in agricultural production, bolstered by a favourable  
The crisis has also revealed numerous structural weaknesses. The  
country successfully developed industrial clusters in recent years  
thanks to the implantation of international groups, especially in the  
automotive sector (now the biggest source of exports). As a result,  
Morocco has also become more dependent on external demand and is  
more vulnerable to exogenous shocks. Moreover, these new industries  
have had rather limited spill over effects on the rest of the economy.  
In particular, the job content of growth was poor even before the crisis.  
Since 2010, the Moroccan economy has created only 69,000 jobs a  
year on average (excluding 2020), compared to a 2000-2009 average  
of 144,000 jobs. There are several reasons behind this development.  
EXPORTS WORLD MARKET SHARES (%)  
Tunisia  
2000  
2010  
2019  
Morocco  
Egypt  
Bulgaria  
Romania  
South Africa  
Turkey  
First, Morocco’s integration in global supply chains is progressing  
but is still insufficient (chart 13), despite the country’s undeniable  
strengths (quality infrastructure, close proximity to Europe). Second,  
the Moroccan economy suffers from low productivity. Among its main  
competitors, Turkey is closest in terms of investment over the past ten  
years, but its average annual growth is 2.5 points higher than Morocco’s  
Poland  
0.0  
0.2  
0.4  
0.6  
0.8  
1.0  
1.2  
1.4  
1.6  
CHART 13  
SOURCE: WTO  
(
chart 14). Accumulation of capital is still largely dominated by the  
construction and public works sector despite a recent shift towards  
industry, (chart 15). This reflects the government’s determined efforts  
to improve infrastructure. Yet this cannot be seen in the overall growth  
of the economy.  
GROWTH AND INVESTMENT RATE  
0 %  
2010-2019  
Investment rate  
GDP growth (RHS)  
% 7  
4
3
3
2
2
1
1
Increasing the country’s growth potential – which is estimated at about  
5
0
5
0
5
0
5
0
6
5
4
3
2
1
0
3
.5% – is not the only challenge that must be met. The economy also  
must become more resilient and inclusive. The Moroccan authorities  
are well aware of this, as illustrated by the project to extend  
healthcare coverage to all Moroccans starting this year (currently 40%  
of the population is not covered). The extension of coverage will be  
rounded out by a complete overhaul of the social welfare protection  
system, which is highly segmented and poorly targeted. This reform  
will be spread over 5 years. The announced reform of state-owned  
companies is also a step in the right direction. It aims to increase their  
effectiveness through in-depth restructuring of their business model.  
Egypt  
South Poland Bulgaria Tunisia Romania Turkey Morocco  
Africa  
CHART 14  
SOURCE: IMF The government might also rely on the work of the special commission  
on the new development model implemented in late 2019. The  
recently published report identifies most of the constraints, especially  
productivity issues. Yet it will take a long time to overcome some of  
these constraints, especially the poor level of human capital. In 2020, a  
little over half of the active labour force had no diplomas, and Morocco  
lags far behind its competitors in terms of learning.  
STRUCTURE OF GFCF  
Agriculture  
Construction and public works  
Industry  
Services  
%
60  
50  
40  
30  
20  
10  
0
Public finances deteriorate sharply but are still ma-  
nageable  
Fiscal shock  
Like many countries, the deterioration of public finances was sharp  
in 2020, to the point that Morocco had to approve a supplementary  
budget law for the first time since 1990. Initially forecast at 3.7% of  
2
010 2011 2012 2013 2014 2015 2016 2017 2018 2019  
GDP, the fiscal deficit ended up swelling to 7.7% of GDP, mainly due  
to the 7% decline in fiscal revenue. The shock was partially offset by  
significant public and private sector contributions to the Covid fund.  
CHART 15  
SOURCE: HCP  
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Only a third of the MAD 34.6 bn (3.2% of GDP) was funded by the According to the IMF, the pace of fiscal consolidation is credible,  
budget. Current spending was also controlled fairly tightly (+3.4%), although it calls for vigilance, especially given the high level of state-  
thanks to savings on energy subsidies among others. Moreover, the backed loans granted by the authorities. These loans could exceed  
1
9% increase in public investment can be attributed almost exclusively 10% of GDP by the end of 2021, and do not include the guarantees  
to the government’s MAD 15 bn allocation to the strategic investment already granted to state-owned companies (11% of GDP at year-end  
fund, which aims to fuel the recovery. In other words, this spending has 2019, comprised essentially of external debt). Budgetary transfers to  
not been disbursed yet. Excluding this contribution, capital expenditure commercial state-owned companies are generally contained (0.4% of  
would have held steady at a high level of 6.6% of GDP.  
GDP in 2019) and the proposed reforms targeting these companies  
should improve their governance and effectiveness. Even so, they pose  
a risk for the public finance trajectory through their massive investment  
Government debt rose sharply, up 12 points to 77% of GDP at year-  
end 2020. Debt will continue to rise for at least the next two years  
(
18% of total investment between 2015 and 2019). Yet the government  
(
chart 16) to culminate at 82% of GDP.  
will no longer have the same manoeuvring room if it has to face up to  
a second shock.  
Reduction of the budget deficit is unlikely to really get underway  
before 2022, assuming there is a tangible economic recovery. In 2021,  
spending will remain high, especially public investment (6% of GDP).  
The extension of the social welfare system should generate an extra  
Favourable financing conditions and debt profile  
The deterioration of the public accounts is still manageable thanks  
to favourable financing conditions. Despite significant issuance on  
domestic debt market in 2020, the yield on Treasury notes has never  
been so low. In the meantime, the authorities did not have much  
trouble raising funds in the international markets, with two issues in  
September and December for EUR 1 bn and USD 3 bn, respectively.  
With an apparent cost of debt of only 4%, Morocco managed to contain  
the interest payment at less than 12% of government revenue, which  
is one of the lowest ratio among the region’s oil-importing economies.  
0
.8 points of GDP, while revenues will continue to be squeezed by the  
impact of the crisis. Although revenues will be higher than in 2020,  
they will still be 6% lower than in 2019. Despite the expected growth  
rebound, the fiscal deficit is expected to reach 6.6% of GDP in 2021  
before gradually narrowing thereafter, to 4.6% of GDP in 2024, thanks  
to cutbacks in the public sector wage bill and improved tax receipts.  
To reduce its borrowing needs, the government is also counting on  
proceeds from privatisations, estimated at about 1.3% of GDP for the  
period 2021-2024.  
FISCAL AND DEBT INDICATORS (% OF GDP)  
SOVEREIGN SPREADS (BASIS POINT)  
-
10  
85  
80  
75  
70  
65  
60  
55  
50  
45  
40  
35  
7
6
5
4
3
2
00  
00  
00  
00  
00  
00  
Budget balance  
Central government debt (RHS)  
-9  
-8  
-7  
-6  
-5  
-4  
-3  
-2  
-1  
0
100  
0
Morocco  
Emerging South Africa  
countries  
Turkey  
Egypt  
Tunisia  
2
010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021f 2022f  
CHART 16  
SOURCE: MINEFI, BNP PARIBAS  
CHART 18  
SOURCE: JP MORGAN  
YIELD CURVE  
STRUCTURE OF CENTRAL GOVERNMENT DEBT  
%
Bondholders &  
Commercial  
banks  
4
4
4
3
3
3
3
3
2
2
2
2
2
1
1
1
1
1
.4  
.2  
.0  
.8  
.6  
.4  
.2  
.0  
.8  
.6  
.4  
.2  
.0  
.8  
.6  
.4  
.2  
.0  
Dec 19  
Dec 20  
March 21  
Official  
creditors  
1
5%  
9
%
13  
26  
52  
2 years 5 years 10 years 15 years 20 years 30 years  
SOURCE: CENTRAL BANK  
weeks weeks weeks  
Domestic  
6%  
7
CHART 17  
CHART 19  
SOURCE: MINEFI  
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Moreover, the yield curve continued to decline in the first quarter  
(
chart 17). In addition to an accommodating monetary policy bias,  
FOREX RESERVES  
the government also benefited from a large, captive base of local  
investors, many of which are positioned in long-term maturities. The  
loss of its “investment grade” status does not seem to have worsened  
the Kingdom’s borrowing conditions in international financial markets  
either. After peaking at 400 basis points in March 2020, Morocco’s  
sovereign spread has fallen back to the moderate pre-crisis level of  
35  
10  
9
8
7
6
5
4
3
2
1
0
In USD bn  
In months of importation of G&S (RHS)  
30  
25  
20  
15  
10  
5
0
2
00 basis points (chart 18).  
The structure of the debt is also favourable. With 76% of the government  
debt denominated in MAD (chart 19), debt is moderately exposed to  
exchange rate risk. Furthermore, 61% of debt in foreign currency was  
denominated in euros and 34% in US dollars at end-2020, which is  
close to the current basket used for the dirham (60% EUR and 40%  
USD). The debt profile is also characterised by a rather long average  
maturity (7.5 years), domestic debt is at fixed rate, and more than 60%  
of external debt is still held by official creditors despite higher recourse  
to international financial markets in recent years. On the whole, the  
debt trajectory is not very sensitive to external shocks, excluding those  
affecting growth and the primary deficit. The low stock of Eurobonds  
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020  
CHART 20  
SOURCE: CENTRAL BANK  
EXTERNAL ACCOUNTS (% OF GDP)  
(
8% of GDP), and more generally the Treasury’s external debt (18.4%  
1
2
0
8
6
4
2
0
of GDP), also provides the authorities with some leeway in case of a  
liquidity squeeze in the domestic market. This could become necessary  
if the persistently high financing needs were to weigh on private sector  
investment (crowding-out effect), even though this scenario is not very  
likely in the short term. Moreover, Morocco still enjoys solid support  
from international donors.  
Current account deficit  
Net FDI  
1
Solid external position  
Comfortable liquidity buffer  
Despite the deterioration in public finances, the country’s external  
stability does not seem threatened. By drawing fully on a USD 3 bn  
IMF precautionary and liquidity line in early April 2020, the authorities  
successfully sought to protect the economy from any potential  
pressures. Combined with the massive mobilisation of external  
borrowing by the Treasury (Eurobond issues, loans from bi- and multi-  
lateral institutions), this helped rebuild the forex reserves to a very  
comfortable level. At year-end 2020, they reached USD 33.7 bn, the  
equivalent of 9 months of imports of goods and services (chart 20).  
2
010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021f 2022f  
CHART 21  
SOURCE: CENTRAL BANK  
EXTERNAL DEBT BY MATURITY (% OF GDP)  
60  
50  
40  
30  
20  
10  
0
ST  
MLT  
Moreover, the impact on the external accounts of the slump in tourism  
revenue was not as severe as expected, because it was partially offset  
by the resilience of remittances by the Moroccan diaspora (12-15% of  
current revenue), up 5% compared to 2019. Imports contracted more  
sharply than exports, down 14.1% and 7.5%, respectively, which also  
helped substantially reduce the trade deficit. With the exception of  
food products, all of the main import items declined sharply due to  
sluggish domestic demand. The decline in oil prices was also a big  
help. All in all, the current account deficit narrowed to only 1.5% of  
GDP, compared to 4.1% in 2019 and an average of 3.9% of GDP in the  
five years prior to the crisis (chart 21). At the end of April 2021, the  
trade deficit continued to reduce by 4.2% thanks to the rebound in  
exports (+22.3% YoY) which recovered much more rapidly than imports  
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021f 2022f  
CHART 22  
SOURCE: MINEFI  
(
+10.7% YoY) despite the sharp upturn in oil prices.  
Although this dynamic is likely to deteriorate in the months ahead due remain. First, tourism revenues are expected to continue to fall short  
to the expected recovery of demand in tandem with the start-up of of the 2019 level by 3.5 points of GDP in 2021, and the magnitude  
major infrastructure projects, the current account deficit should remain of which the sector will rebound as of 2022 is uncertain. Second, the  
moderate, at less than 4% of GDP in 2021-2022. Pockets of fragility good resilience of remittances by Moroccan residents living abroad  
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7
(
essentially in Europe) could erode, even though the diaspora has an  
undeniably strong sense of solidarity.  
NOMINAL EXCHANGE RATE  
Yet the Moroccan economy also has some solid fundamentals for  
attracting capital. After hitting a low of 0.5% of GDP in 2019, net flows  
of foreign direct investment (FDI) picked up somewhat in 2020 despite  
the crisis, to 1.1% of GDP. Although this is still far below the 2010-  
1
0.5  
MAD/USD  
Min band  
Max band  
10  
2
015 average of 2.4% of GDP, when major industrial projects were  
being implemented, the robust dynamism of manufacturing sector at  
world level, including in Europe, will have positive repercussions for  
the Moroccan economy. Even using conservative assumptions, given  
the pandemic’s uncertain impact on the real estate sector (the second  
biggest FDI recipient after industry), net FDI flows could swell to 1.3%  
of GDP in 2021 and 1.5% in 2022, which is more than a third of the  
current account deficit. Moreover, even if the external debt swells to  
just under 60% of GDP, 90% have a long maturity (chart 22), and given  
Morocco’s good access to international financial markets and strong  
support from donor funds, covering the financing gap should not pose  
difficulties.  
9
.5  
9
8.5  
Jan-20 Mar-20 May-20 Jul-20  
Sep-20 Nov-20 Jan-21 Mar-21 May-21  
SOURCE: CENTRAL BANK  
CHART 23  
Foreign currency regime: greater but controlled  
flexibility  
REAL EFFECTIVE AND NOMINAL EXCHANGE RATES  
The solidity of Morocco’s external position is also reflected in the  
strength of the dirham (MAD). In March 2020, the monetary authorities  
widened the fluctuation band of MAD to +/-5% (vs +/-2.5% previously),  
which allowed the Moroccan currency to adjust to the pandemic’s  
initial shock before strengthening again thereafter (chart 24) thanks  
to swelling forex reserves and a the contraction in trade deficit. For  
several months, the dirham has even been trending towards its upper  
range, highlighting the upside pressure against the US dollar, although  
this should ease given the expected deterioration of Morocco’s external  
accounts.  
2
010=100  
120  
15  
110  
05  
100  
REER  
NEER  
1
1
95  
90  
85  
According to the IMF, the time is ripe to go ahead with a greater  
flexibility of the exchange regime. The prerequisites are in place: low,  
tightly controlled inflation, a moderate external debt, and comfortable  
forex reserves. The monetary authorities, in contrast, feel there is an  
urgent need to wait. Without calling into question the benefits of such  
a reform, the current environment seems to be too unstable to enter a  
new phase in the transition towards a more flexible foreign exchange  
regime. After all, the long-term stability of the real effective exchange  
rate (chart 24) does not seem to suggest a misalignment of the dirham  
relative to its economic fundamentals, especially inflation, which helps  
offset the slow appreciation of the nominal effective exchange rate  
REER: average 2006-2019  
NEER 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021  
CHART 24  
SOURCE: IMF  
NON-PERFORMING LOANS  
9
8
7
0
0
0
9
8
7
6
5
4
3
MAD bn  
In % of total outstandings (RHS)  
(
+0.7% a year on average since 2010).  
Banking sector: resilient despite pressures  
60  
50  
40  
The banking sector has been resilient so far thanks to an initially robust  
position and measures implemented by the monetary authorities. Even  
so, the pandemic triggered a severe shock, as illustrated by the 14.5%  
increase in non-performing loans at year-end 2020 (chart 25). The  
deterioration was sharpest among household, with NPL up 18.2%, but  
corporate delinquencies also jumped 12.3%. On a positive note, this  
deteriorating trend has stabilised since the beginning of the year.  
Moreover, the moratorium on debt repayments ended in June 2020,  
which means the deterioration in asset quality should already be  
reflected in part in bank balance sheets.  
3
2
1
0
0
0
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 avr-21  
CHART 25  
SOURCE: CENTRAL BANK  
Even so, caution is still needed. At 8.6% in April 2021, the doubtful loan loan mechanisms designed to support corporate liquidity. Banks are  
ratio is already high. In addition, the recovery is still fragile and credit especially vulnerable because 37% of corporate loans were allocated  
supply during the crisis was essentially driven by various state-backed to SME in 2019, which is by far the most fragile segment. Given the  
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8
downside pressure on interest margins (chart 26), a big increase in  
defaults would have a harmful impact on the sector’s profitability after  
*
****  
a difficult year in 2020. According to Moody’s, cumulative net benefits The impact of the Covid-19 pandemic created a severe shock that  
for the four biggest Moroccan banks (65% of loans outstanding at has left its marks on Morocco’s socio-economic environment. While  
year-end 2020) plummeted by more than 50% last year despite the progress of vaccination campaigns raises hopes that the crisis will  
international diversification of their activities. In 2019, a quarter of their end in 2022, the authorities cannot rely solely on fiscal and monetary  
consolidated assets were from international subsidiaries, essentially in stimulus measures to fuel the recovery. The economy also needs new  
Sub-Saharan Africa, where the crisis was not as severe. Yet prospects reforms to be implemented in order to become more resilient and  
in this region are also fragile due to delays in rolling out vaccination generate more jobs.  
campaigns. In other words, this is another source of vulnerability.  
On the positive side, macroeconomic risks are low in the short term.  
Withcapitaladequacyratiosexceedingprudentialstandards(regulatory Debt is definitely swelling, but its structure is still favourable, and  
capita ratio of 15.6% and Tier-1 capital of 11.5% at year-end 2019), favourable financing conditions limit refinancing risks. Other strengths  
buffers seem, however, robust enough to cope with the rise in credit include the solidity of Morocco’s financial sector, comfortable  
risk. At 68% in June 2020, the provisioning rate is also considered to FX reserves, and strong support from foreign partners. Above all, the  
be adequate, and the funding profile is solid. Two thirds of the banking Moroccan authorities are aware of the economy’s weaknesses (low  
system’s liabilities stem from customer deposits, which have not been productivity, etc.). In the past, they have demonstrated their capacity  
undermined by the crisis. Up 5% in 2020, deposits cover 104% of lending to undertake bold reforms. The emergence of industrial clusters,  
to the economy. The relatively big presence of foreign banks (16% of especially in the automotive sector, is a good illustration. At a time  
assets) can be seen also as another supportive factor for the stability when the global economy is being completely reconfigured, Morocco  
of the banking system. In the past, parent banks have not hesitated can participate in this movement thanks to some of its undeniable  
to support the liquidity of their subsidiaries, and even to make capital comparative advantages. But alongside the big international and  
injections. Above all, the monetary authorities have demonstrated their national groups, it needs to develop a more competitive network of  
ability to help banks during the crisis and it is highly probable that they Moroccan corporate to ensure that the benefits are spread throughout  
will continue to do so if new tensions were to emerge.  
the economy as a whole.  
Completed on 8 June 2021  
stephane.alby@bnpparibas.com  
INTEREST MARGINS  
Lending rate  
Deposit rate  
%
7
6
5
4
3
2
1
0
Lending-deposit rate spreads  
2
010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021  
CHART 26  
SOURCE: CENTRAL BANK  
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