The international report lauds Morocco’s monetary policy and predicts its success.
Rabat – Despite a significant increase in Morocco’s current account deficit (CAD) and external finances due to the COVID-19 pandemic, the country will overcome the challenges, predicts a recent report from American credit rating agency Fitch Ratings.
Morocco’s CAD represented 4.6% of its Gross Domestic Product (GDP) in 2019. The figure is more than four times higher than the global median of 0.9%, and is expected to grow even larger, according to the report.
The COVID-19 crisis will heavily impact Morocco’s tourism sector, said the report, recalling that the sector represents an important growth driver and foreign currency source. Tourism contributed an average of 6.7% of Morocco’s GDP between 2017 and 2019.
The effects of the coronavirus pandemic on global value chains could also affect Morocco’s automotive industry, predicted Fitch Ratings. The industry accounts for the largest share of Morocco’s exports, with automotive sales contributing 6% of the country’s GDP between 2017 and 2019.
The global decrease in economic growth could also weigh on other Moroccan exports, such as phosphates, which contribute to 4.4% of the country’s GDP, added the report.
Remittances from the Moroccan diaspora across the world, representing 6% of Morocco’s GDP, will also take a hit, according to the report, while the ongoing drought will impact agricultural exports.
On a more positive note, the drop in oil prices will reduce the strain on Morocco’s imports, said the report, as energy imports represent 6.9% of the country’s GDP. The decreasing demand on fuels due to the national lockdown will also reduce Morocco’s energy bill.
Despite the uncertainty surrounding the future of Morocco’s economy, the country has the potential to overcome the challenges of the COVID-19 crisis, mainly thanks to its willingness to adjust the flexibility of its exchange rate regime, assured Fitch Ratings.
Morocco’s central bank, Bank al-Maghrib, has broadened the Moroccan Dirham’s (MAD) band of fluctuation to 5%. The band widened from 0.3% in January 2018. The band will continue to widen so the MAD can transition into a fully flexible currency, in line with recommendations from the International Monetary Fund (IMF).
The flexibility would significantly enhance Morocco’s shock absorption capacity and enable Bank al-Maghrib to transition to an inflation-targeting monetary policy, according to the report.
Morocco’s external resilience is also supported by an ongoing $3 billion precautionary arrangement with the IMF, which the government has not used yet, revealed the document.
Finally, Morocco has a “comfortable” foreign exchange market reserve of $25.7 billion, according to the report. The reserve covers around five months of Morocco’s current account payments.