Emerging

A delicate balancing act

Eco Emerging // 4th quarter 2020 (completed on 28 September 2020)  
economic-research.bnpparibas.com  
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MOROCCO  
A DELICATE BALANCING ACT  
Despite rapid support measures, the economy will not escape a severe recession this year. With the abrupt halting of  
tourism activity, the drop-off in exports to Europe and the collapse of domestic demand in Q2, GDP will contract by about  
6
%. Although there are high hopes that a good agricultural harvest will fuel a rebound in 2021, the recovery of non-  
agricultural activities will take time. In contrast, Morocco’s macroeconomic stability does not seem to be threatened.  
But growing pressure on public finances leaves the authorities very little manoeuvring room.  
As the spread of the virus has intensified again in recent weeks, the  
Moroccan authorities are still trying to strike the right balance between  
the health emergency and the economic crisis. The stimulus plan  
FORECASTS  
announced during King Mohammed VI’s speech illustrates this strategy.  
The announced stimulus is massive at MAD 120 bn (11% of GDP), but  
the way in which it will be implemented should help limit the impact  
on public finances. More than 60% of the plan consists of state-backed  
loans. Like for the Covid fund, private and institutional investors will  
cover two-thirds of the new investment fund (MAD 45 bn). Monetary  
policy support consists of the rapid mobilisation of conventional  
tools, but the central bank refuses to intervene directly to finance the  
Treasury. In an unstable environment, this determination to preserve  
macroeconomic stability is reassuring. Even so, the prospects of a  
growth rebound after the 2020 shock are still uncertain.  
2018  
3.1  
2019  
2.5  
2020e 2021e  
Real GDP growth (%)  
-5.8  
0.8  
4.6  
Inflation (CPI, year average, %)  
Central. Gov. balance / GDP (%)  
Central. Gov. debt / GDP (%)  
Current account balance / GDP (%)  
External debt / GDP (%)  
1.8  
0.2  
1.2  
-3.8  
65.2  
-5.5  
44.3  
22.6  
4.9  
-3.8  
65.0  
-4.1  
45.6  
25.3  
5.3  
-7.5  
76.1  
-6.8  
53.8  
27.0  
6.9  
-5.6  
78.0  
-5.9  
52.6  
25.4  
6.0  
Forex reserves (USD bn)  
A MARKED SLUMP IN ACTIVITY  
Already undermined by a 5% contraction in agricultural added value due  
to unfavourable weather conditions in Q1 2020, the Moroccan economy  
was then hit by a spectacular drop-off in Q2 GDP. According to the High  
Commission for Planning, GDP contracted 14.9% year-on-year (see  
chart 1). With the early introduction of lockdown measures, domestic  
demand collapsed: investment plummeted 17.4% y/y and household  
consumption declined 21.2%, despite extremely low inflation (which  
averaged 0.5% in the first seven months of the year). Furthermore,  
being dependent on the European market and having a large tourism  
sector, Morocco had to cope with a powerful external shock. Excluding  
oil refining, the manufacturing output index contracted 21.4% y/y in  
Q2, which can be largely attributed to the difficulties of export supply  
chains, and automobiles in particular (-57%). Value added in the  
Forex reserves, in months of imports  
Exchange rate USDMAD (year end)  
9.6  
9.6  
9.5  
9.3  
e: ESTIMATES AND FORECAST  
TABLE 1  
SOURCE: BNP PARIBAS GROUP ECONOMIC RESEARCH  
ECONOMIC GROWTH  
YoY variation, %  
20  
Agriculture  
Non-agriculture  
GDP  
1
5
0
5
0
5
hotel and restaurants” sector plummeted 90%, slashing growth by 2.3  
1
percentage points. Despite the good performance of financial services,  
the tertiary sector (50% of GDP) felt by 14.9% in Q2.  
Although the second half is expected to see an improvement thanks to  
the lifting of lockdown measures since June, the full-year recession is  
bound to be severe at 5.8%. Moreover, the risks are on the downside, as  
illustrated by the lockdown measures that were recently reintroduced  
in Casablanca.  
-
-
10  
-15  
Yet the downturn could have been much worse without the authorities’  
rapid intervention. The central bank lowered its key rate from 1.5% from  
-20  
2015  
2016  
2017  
2018  
2019  
2020  
2
.25% prior to the crisis, and commercial banks are no longer required  
CHART 1  
SOURCE: HCP  
to make deposits as part of mandatory reserves. By implementing  
state-backed loans combined with the easing of provisioning rules  
in exchange for loan restructuring and extended loan payments, the non-performing corporate loans (+12% y/y compared to +17% for non-  
banks continue to support the economy. At the end of July, bank lending performing household loans at the end of July).  
was up 5.8% year-on-year, and this momentum was largely fuelled by  
greater needs for corporate cash flow. Nearly 60% of the increase in  
A SOLID EXTERNAL POSITION DESPITE TOURISM DEBACLE  
loans outstanding since March were for liquidity loans. Despite greater  
The authorities also acted prudently by drawing on the IMF’s entire  
pressure on bank liquidity, corporate borrowing conditions have  
USD 3 bn Precautionary and Liquidity Line (PLL) in early April. This  
improved (the average lending rate fell by 33 basis points to 4.58%  
operation swelled foreign reserves by 13% (see chart 2), which eased  
in the first six months of the year) and there has not been a surge in  
The bank  
for a changing  
world  
Eco Emerging // 4th quarter 2020 (completed on 28 September 2020)  
economic-research.bnpparibas.com  
2
4
the pressures emerging on the dirham (MAD). In March, the currency  
fluctuation band was widened to +/- 5% around a basket of currencies  
comprising 60% of euro and 40% of US dollar. Although MAD immediately  
depreciated by 5-6% against the two benchmark currencies, it has  
stabilised since April within the fluctuation band without any central  
bank intervention. With foreign reserves now covering more than seven  
months of imports, Morocco’s external position seems to be solid to  
face up to potential pressures.  
FOREX RESERVES  
Months of imports (RHS)  
USD bn  
3
0
8
8
7
6
5
4
3
2
1
2
26  
24  
22  
The expected shock has not materialised yet. Although the main  
sources of foreign currency plummeted in the first seven months of  
the year, with exports down 17% and tourism revenues down 44%,  
imports also contracted 17% under the double impact of the downturn  
in domestic demand and oil prices. Even excluding energy, the trade  
deficit shrank by 10%. Nonetheless, the trade balance is bound to  
deteriorate as demand picks up, and the shortfall in tourism revenues  
is expected to reach 4% of GDP. Remittances by the Moroccan diaspora  
have also been resilient, declining only 3.2%, but caution is needed  
here, too. The current account deficit is expected to near 7% of GDP in  
20  
18  
16  
14  
12  
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020  
CHART 2  
SOURCE: CENTRAL BANK, OFFICE DES CHANGES  
2
020. With foreign direct investment in a slump, the authorities have  
decided to tap again the international financial markets to make up for  
the financing needs not covered by the massive aid from international  
donor funds. As expected, the Eurobond issuance of EUR 1 bn has  
got a warm welcome by international investors. Despite a greater  
mobilisation of external financing, the external debt remains under  
control (54% of GDP in 2020).  
should help boost exports. More importantly, there are numerous  
doubts about the health of Morocco’s economic fabric.  
Emergency measures have certainly helped buffer the shock, but they  
will not prevent an upturn in business failures as the various support  
measures wind down. The central bank recently conducted a stress test  
in which the non-performing loan ratio was expected to rise to 9.9%  
at end-2020 and 10.8% at end-2021, compared to 7.6% in 2019 (and  
PUBLIC FINANCES: SWELLING DEBT IS STILL MANAGEABLE  
Public finances have come under significant pressure. In the first  
eight months of the year, fiscal and non-fiscal receipts contracted by  
8
% and 14%, respectively. Although spending was virtually flat thanks  
8
.2% in July 2020). The financial system’s stability is not in jeopardy,  
to cutbacks in energy subsidies and tighter control of investments,  
the budget deficit widened by 50% compared to August 2019, and an  
Amended Finance Bill had to be passed for the first time since 1990.  
but the monetary authorities have warned that a new stress test will  
be conducted by the end of the year to take into account an evolving  
situation. In other words, we cannot rule out an even sharper increase  
The deficit is now expected to reach 7.6% of GDP, up from an initial in the non-performing loan ratio. Household behaviour is another  
target of 3.8%, even though most of the stimulus plan was financed unknown. Although the rise in unemployment was relatively mild in  
through the MAD 33.7 bn Covid fund, two thirds of which is comprised Q2 (+1.8 points to 12.3%), especially in urban areas (+0.5 points), the  
of grants. Government debt is expected to increase by more than concomitant 10-point drop in the household confidence index to an  
1
0 points to 76% of GDP. There are also fiscal risks contingent on the all-time low seems to reflect a sharp deterioration in living conditions.  
financial situation of state-owned companies that have also been hit  
by the crisis. State-backed external debt amounted to 15.5% of GDP in  
One last unknown is the scope of the recovery plan. Growth dynamics  
were already modest before the economic shock of the pandemic,  
despite a high investment rate from both public and private sectors.  
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019, but this figure is not included in the scope of government debt.  
Nonetheless, the deterioration in Moroccan public finances is still ma- The effectiveness of public spending generally goes hand-in-hand with  
nageable since the government continues to benefit from favourable the implementation of structural reforms, but they can be postponed  
financing conditions. Despite significant issuance on domestic debt during times of hardship. In any case, the authorities will have very  
market since the beginning of the year, the yield on Treasury notes has little manoeuvring room as government debt begins to reach high (but  
never been so low, which should allow it to maintain the interest pay- still manageable) levels. The government’s determination to preserve  
ment at less than 13% of government revenue. Moreover, the structure the country’s investment grade status is also likely to encourage  
of the debt is not risky, with 78% denominated in MAD.  
moderation.  
Stéphane ALBY  
HAS THE 2021 RECOVERY ALREADY BEEN JEOPARDISED?  
stéphane.alby@bnpparibas.com  
It is hard to evaluate the rebound capacity of the Moroccan economy.  
Although there are hopes for a better agricultural harvest in 2021  
after two difficult years, non-agricultural activities are expected to  
turn around only gradually at best. According to the central bank’s  
latest estimates, tourism revenues could double in 2021 if the health  
crisis permits, but this would still be 60% below the 2019 level. It also  
seems very hypothetical that industrial activity could return to normal,  
although the upturn in automobile production at the new PSA plant  
The bank  
for a changing  
world  
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