Emerging

Satisfactory performance

th  
21  
EcoEmerging// 4 quarter 2019  
economic-research.bnpparibas.com  
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.  
Growth slows but is still robust  
1-Forecasts  
The economic slowdown continues. GDP growth dropped to 3% in  
018 from 4.2% in 2017, and according to the latest HCP figures,  
will reach 2.7% at best this year. Between difficulties in Europe and  
a poor agricultural harvest, the Moroccan economy faces numerous  
headwinds. Yet the overall picture is much more nuanced than it  
might seem, raising hopes for a rebound in activity as of 2020.  
2017  
4.2  
2018 2019e 2020e  
2
Real GDP growth (%)  
3.0  
1.8  
2.7  
0.6  
3.5  
1.1  
Inflation (CPI, year average, %)  
Central. Gov. balance / GDP (%)  
Central. Gov. debt/ GDP (%)  
Currentaccountbalance / GDP (%)  
External debt/ GDP (%)  
0.7  
-3.6  
-3.7  
-4.0  
-3.8  
65.1  
-3.6  
65.3  
-5.5  
65.9  
-5.1  
65.5  
-4.1  
47.1  
44.4  
24.5  
46.5  
25.0  
46.7  
26.1  
The slowing down in the economic activity during the first six  
months of the year can be attributed primarily to the 3% contraction  
in agricultural value added, which accounts for a significant share of  
GDP (11%). For the rest of the economy, the dynamics is rather  
encouraging. Non-agricultural GDP growth also slowed to 3.2% y/y  
in Q2, compared to 3.6% in Q1. But this is still robust compared to  
the 2016-2018 average of 2.9%. Most of the sectors vulnerable to  
the European cycle, including tourism and manufacturing, have  
proven to be fairly resilient so far. Moreover, two new major projects  
have just been completed, the Tangier port expansion and the start-  
up of the Peugeot plant in Kénitra. As the plant is ramped up in  
26.2  
Forex reserves (USD bn)  
Forex reserves, in months ofimports  
Exchange rate USDMAD (year end)  
6.4  
9.4  
5.3  
9.6  
5.3  
9.6  
5.4  
9.5  
e: BNP Paribas Group Economic Research estimates and forecasts  
2- Sector contribution to growth  
Agricultural value added (pp)  
Non-agricultural GDP (pp)  
7
GDP (y/y, %)  
2020, the increase in automobile production should provide a new  
6
5
4
3
impulse to what has become a strategic industry, although its pace  
has been slowing recently. Automobile exports increased only 2.2%  
since the beginning of the year, after more than doubling between  
2
013 and 2018.  
2
Robust domestic demand will also be a key supportive factor.  
Household consumption is buoyant (+3.8% y/y in the first 6 months  
of the year) and should continue going strong thanks to extremely  
low inflation  less than 1% since end-2018  and the boost from  
the 10% increase in the private sector minimum wage. Low  
inflationary pressures also give the central bank some extra  
manoeuvring room. With a key policy rate of only 2.25% and a  
mandatory reserve rate recently cut to 2%, monetary policy is  
already accommodating. The status quo is likely to persist even  
though with the real interest rate at a positive 1.5%, there is still  
room for further cuts if necessary. In any case, financial conditions  
will remain favourable for households and corporates. The weighted  
average interest rate on lending to the economy hit a low of 4.98%  
in Q2. Budgetary execution during the first 8 months of the year also  
demonstrates the authorities’ determination to stimulate the  
economy.  
1
0
-1  
-2  
-3  
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019  
Source: HCP, BNP Paribas  
This would make the Moroccan economy one of the top performers  
in the region. Given the country’s development needs, however, this  
is still not enough. At 8.5%, the unemployment rate is chronically  
high, as is the proportion of the population excluded from the labour  
market (the employment rate is only 42%). Yet the economy  
continued to create jobs in H1 2019 despite the massive destruction  
of farm sector jobs, which highlights again the solidity of Morocco’s  
economic performances despite a deteriorating international  
environment.  
With non-agricultural GDP growth of 3.4% and assuming a normal  
agricultural harvest, economic growth could reach 3.5% in 2020. *  
th  
22  
EcoEmerging// 4 quarter 2019  
economic-research.bnpparibas.com  
Softer fiscal consolidation  
3- Public finance indicators  
After the major budget overruns reported in 2018, public finances  
deteriorated further in 2019. From January to August, the main  
budget components continued to rise, whether operating expenses  
Budget deficit (reversed scale), % of GDP  
Central government debt, % of GDP  
-8  
70  
(
+5.5%) or capital investment (+4.9%). Despite the rather good  
-7  
dynamisms of fiscal revenues excluding privatisation (+3.4%), the  
budget deficit widened again. It is expected to reach 4% of GDP in  
6
5
0
-6  
2
019, up from 3.7% in 2018 (and an initial target of 3%), before  
-5  
-4  
-3  
-2  
-1  
0
6
gradually narrowing again as of 2020.  
While the government has opted for a smoother fiscal consolidation  
programme, the situation generally seems to be under control. In  
terms of both revenues and spending, the main risk factors behind  
the 2018 budgetary slippages have since dissipated. Financial  
assistance from the Gulf countries is expected to be modest and the  
authorities have put in place a hedging strategy to insulate the  
budget against the volatility of oil prices: last year’s surge in oil  
prices resulted in a 26% overrun in the budget allocation for energy  
subsidies. The government is also planning to increase recourse on  
public-private partnerships to ease the pressure on the public  
accounts. Public investment, the second largest spending item  
behind public sector wages, is high at about 6% of GDP. Above all,  
the authorities are counting on privatisation proceeds of about 0.4%  
of GDP a year through 2021 to stabilize government debt at 65% of  
GDP. With the partial disposal of the government’s stake in Maroc  
Télécom in July, its 2019 target has already been met, and other  
privatisation operations have been identified.  
55  
50  
45  
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019p2020p  
Source: Ministry of Finance, BNP Paribas  
With the current account deficit estimated at 5.1% of GDP in 2019  
and 4.1% in 2020, compared to 5.5% in 2018, Morocco should  
easily cover its financing needs. Net flows of foreign direct  
investment (FDI) are robust at about 1.5-2.5% of GDP, and external  
debt is moderate at 44% of GDP. Buffers are also adequate.  
Foreign reserves cover more than 5 months of imports of goods and  
services, and Morocco benefits from a USD 3 billion precautionary  
credit line with the IMF through end-2020 to protect the economy  
against any balance of payment shocks. As with previous IMF  
programmes, the authorities are unlikely to draw on these funds.  
In any case, government debt does not seem to be a major source  
of risk. Unlike many emerging countries, Morocco has hardly called  
on the international financial markets. Two Eurobond issues are  
expected to be made in the short term. With a risk premium of 150  
basis points, they should be completed under good conditions,  
especially since the S&P rating agency has just revised outlook for  
Moroccan sovereign risk from negative to stable. Moreover, the debt  
profile will not change fundamentally, with 80% denominated in the  
local currency, and the government’s financing conditions have  
rarely been so advantageous, both in terms of interest rates and  
maturity. With an apparent cost of debt of only 4%, the government  
has comfortable manoeuvring room.  
Lastly, after the dirham’s fluctuation band was widened in January  
2018 to +/-2.5% on either side of reference parity (vs. +/-0.3%  
previously), the central bank almost never has to intervene in the  
forex exchange market, which reduces the pressure on external  
liquidity. MAD volatility has been extremely mild and is expected to  
remain so as the authorities proceed as cautiously as ever to  
introduce greater flexibility in the exchange rate regime.  
Solid external position  
The deterioration of the economic situation in Europe could strain  
the dynamics of Morocco’s external accounts, albeit without  
threatening its stability. With the exception of remittances from the  
Moroccan diaspora (-1.3% y/y), the main sources of hard currency  
were still on the rise in the first 8 months of the year, with exports  
and tourist revenues up 3.7% and 4.5%, respectively. Imports grew  
at a similar pace, however, so the trade deficit widened slightly, but  
the situation could improve in the months ahead thanks to an upturn  
in automobile sales. Automobiles already account for a quarter of  
Moroccan exports. In an unstable external environment, and while  
commodities (phosphates) still account for a large share of trade,  
the move towards higher value added exports strengthens the  
economy’s resilience. Downward pressure on oil prices (15-20% of  
imports) could also help improve the external accounts.  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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