Rabat – BMI Research, a Fitch Group company, is predicting that Morocco will move toward increased public investment and a gradual decrease in budget deficits.
The report reiterates BMI’s belief that “[…] the delayed formation of a government in Morocco in the ?rst months of 2017 will have virtually no impact on the country’s ?scal trajectory.”
According to BMI, Saad Eddine El Othmani’s coalition government is on track to continue the kingdom’s plans to shrink budget deficits and maintain its focus on public investment. The two-strategy plan is part of Morocco’s goal to become a manufacturing and exporting hub connecting Europe and Africa.
Real GDP Growth
BMI’s data reveals that Morocco’s real GDP growth will be lower than was forecasted in the 2017 budget, arriving at 4.3 percent instead of the anticipated 4.5 percent. As a consequence, BMI predicts that “the de?cit will be higher than the government’s objective of 3 percent of GDP for the year.”
The report predicts the budget deficit will diminish gradually over the next two years; 3.4 percent for 2017, followed by 3.1 percent by the end of 2018. The deficit stood at 3.7 percent at the end of 2016.
The predicted rise in Morocco’s economic activity also bodes well for government revenues, 80 percent of which comes from direct and indirect taxes. However, it is important to note that this revenue growth will be tempered by tax exemptions offered by the government to encourage growth in the manufacturing sector.
The Expenditure Story
BMI estimates that current efforts to limit expenditures will continue over the coming years, as evidenced by the 2017 budget hold on the public salary bill. Coupled with 2016’s pension reform in the public sector, which increased contributions and raised the retirement age, current spending will continue to be controlled.
Current capital expenditure commitments outlined in the 2017 budget include “[…] MAD3.7bn (EUR336mn) to the Industrial Acceleration Plan, MAD8.9bn (EUR808mn) to the Maroc Plan Vert supporting the agricultural sector and MAD11.7bn (EUR1,062mn) to the renewable energy sectors.”
Despite having the effect of slowing down deficit reduction, BMI views and the encouragement of investment in less developed areas of the kingdom to be beneficial in the long term.
Risk Will Remain Low
BMI further maintains their view that sovereign risk in Morocco will remain low. “We maintain our view that Morocco will easily ?nance its budget de?cits over the coming years, mostly through foreign assistance.”
Following the slump in oil prices, Gulf Cooperation Council grants . Other assistance came from multilateral financial groups. “Morocco and the IMF [International Monetary Fund] agreed on a USD3.5bn two-year Precautionary and Liquidity Line in July 2016 in order to support the country’s reform agenda. The second review of the agreement in July 2017 was very favourable, underpinning our view that the IMF would not hesitate to provide further assistance to the kingdom if needed.”
