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Financial Stability: Moroccan Economy is Recovering

Moroccan Banks Net MAD 10.8 billion in 2017

Rabat – The Moroccan economy is recovering, overcoming the deadlock recorded in 2016 according to the findings of the Systemic Risk Coordination and Oversight Committee (CCSRS), responsible for assessing systematic risks for the financial sector.

The CCSRS held its fifth meeting on June 23 at the headquarters of Bank Al-Maghrib in Rabat. An  analysis of the situation of Morocco’s financial system with regard to economic and financial trends, both observed and expected, allowed the Committee to draw  with several conclusions…

“Moderate Macroeconomic Risks”

For the CCSRS “macroeconomic risks have generally been at a moderate level,” meaning thatthe risk arising from Morocco’s external financial position remains limited with net international reserves covering more than six months of imports of goods and services, explained the Committee.

According to Bank Al-Maghrib, foreign exchange reserves can cover 6 months and 16 days of imports of goods and services. However this level has shown a slight decline, since in 2016, this indicator was pointing towards 6 months and 21 days. This decline was  driven mainly by the widening of the trade deficit, which decreased year-on-year by MAD 9.1 billion over the first five months of 2017.

At the national level, the CCSRS noted that the Moroccan economy was greatly affected by the poor performance of the agricultural sector and the persistent sluggishness of non-agricultural activities in 2016. Set at 4.5 percent in 2015, economic growth plunged to 1.6 percent in 2016.

In terms of macroeconomic prospects, the trend remains favorable in line with the expected strengthening of the world economy and the expected acceleration of national growth in 2017. This should be boosted mostly by the rebound in the agricultural sector and the gradual recovery of non-agricultural activities. All national and international institutions anticipate a growth rate of more than 4 percent.

The growth registered in sectors including the automotive ecosystem have somewhat recovered since the beginning of 2017, and should enable Morocco to reduce its budget deficit by 2018. The CCSRS has also reported a return to growth in terms of lending to nonfinancial corporations after a decline in 2015. Nonetheless, the Committee is alarmed by the rise in overdue debt rates, and delays in the payment of intercompany receivables have also increased, particularly for smaller companies.

SMEs in dire situation

A study conducted by Bank Al-Maghrib, which sampled 14,000 private and public nonfinancial companies, revealed that the deadlines for payment of intercompany receivables had once again been extended, in particular for small structures and certain sectors of activity.

In fact, the lengthening of payment deadlines is the main cause of mortality of SMEs. According to data from Inforisk, one in four SMEs will face a default risk within the next three years. The State and large enterprises are considered the worst payers.

On average, the payment period extends to ten months in transactions for private contracts and 12 months for public ones, leading to an urgent need to implement the reform of the legislative and regulatory framework for payment delays.

Published in the second half of 2016, Law No. 49-15, will come into force from September this year, and the committee is counting on this reform to alleviate the situation. A revision of internal payment procedures in public institutions will take place under an extension of law 92-00. The aim is to limit the payment period to a maximum of 90 days and to review the system for calculating late payment penalties.

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