Rabat - The highly anticipated press conference detailing the new frameworks of the exchange rate regime and its entry into force, which was scheduled for June 29, has been postponed while final adjustments are made to the reform.
Rabat – The highly anticipated press conference detailing the new frameworks of the exchange rate regime and its entry into force, which was scheduled for June 29, has been postponed while final adjustments are made to the reform.
The postponement of the press conference led by Minister of Economy and Finance, Mohamed Boussaid, and the Governor of Bank Al-Maghrib (BAM), Abdellatif Jouahri, was a big surprise for the public.
In a short email sent to the invited journalists, the Moroccan Central Bank stated that its announcement of the first phase of liberalizing the Moroccan currency was delayed for a “few days,” without giving further details.
The delay was apparently due to “technical adjustments” that should be made before explaining to the general public the underpinnings of the policy of exchange rate flexibility, explained a source close to the case.
Since the government announced its desire to set the dirham free by the start of 2016, speculations of a possible devaluation ran wild while the Moroccan financial scene went into a frenzy as commercial banks expected the worse from Bank Al Maghrib’s decision.
By mid-May, currency traders were overbooked covering requests from Moroccan companies, who were worried about the implementation of the floating dirham system and the potential ensuing money depreciation. During May-June alone, the rush on currency drained MAD 44 billion out of the central bank’s international reserves.
Several reasons could explain this “one step forward, two steps back” action of the Central Bank and the government. While the Moroccan economy has recently shown a slight recovery from the world global economic crisis due in particular to a return in growth of European countries and on a worldwide scale, it has been severely affected in recent years.
The slump has resulted in a rise in popular discontent and the need to revive public investment policy, to both develop employment and meet increasingly pressing social expectations.
The six-month government deadlock, which ended in mid-April 2017, affected the capacity of the state as the country’s largest investor and operator. Consequently, it is widely agreed that there is now an urgent need for economic recovery, especially from a “social” perspective.
Worsened by the problematic current situation of Al Hoceima, this new crisis is not expected to alter the public finances or even mishandle the macroeconomic balances, two factors that are of highest importance to the IMF and the World Bank, who were behind Morocco’s dirham liberalization decision.
However, as explained at length by the BAM services, these major balances – mainly Morocco’s secure foreign currency reserves – are very high up in the prerequisites required for the adoption and application of the reform on the flexibility of our national currency.
The hypothesis of a further deterioration of these balances due to the events taking place could therefore explain why the reform’s implementation has been postponed, one that has been ardently desired by Jouahri.
Another reason for the delay could be the situation of Morocco’s balance of payments and trade, which has recently been characterized by the deterioration of the country’s balances. In such a delicate context, switching to a flexible exchange regime, even a gradual one, raises numerous concerns.
While it is true that the expected GDP growth is forecast to be 4.5% 2017, higher than the 1.2% achieved in 2016, caution would require that BAM postpone this decision pending the improvement of the economic health of the Kingdom.
The mistrust of operators might also have played a key role in this delay. The skepticism of both commercial banks and traders was clearly manifested throughout June by untimely requests for coverage of the Moroccan dirham. This approach cost tens of billions of dollars in foreign currency in the space of twenty days, causing the spectacular and public ire of the Central Bank’s governor.
The speculations of the economic circles sparked a wave of panic raising fears about the potential of a devaluation of the dirham. Something that if in fact turns out to be true, could lead to the revival of inflation and thus, affect the purchasing power of popular households.
