Despite Morocco's proactive response to the pandemic, the country still faces downside losses to the sovereign's credit profile.
Rabat – In light of the novel coronavirus crisis, the international rating agency Fitch Ratings has downgraded the Moroccan economy outlook from stable to negative.
The new revision follows Morocco’s “severe hit” from the coronavirus pandemic, which will cause the sharpest gross domestic product (GDP) contraction in 25 years, according to the agency.
Despite Morocco’s proactive response to face the negative shock of the pandemic, the country still faces downside losses to the sovereign’s credit profile.
Some of the hardest hit income sources in Morocco are remittances and tourism, and the Fitch predicts it will lead to a doubling of the Current Account Deficit (CAD) to 8.3% of GDP in 2020, from an already high level of 4% in 2019.
Morocco’s tourism industry has completely suspended all activity since mid-March, when the country decided to close all international air, land, and maritime routes.
Tourism is the second-largest contributor to Morocco’s economy, accounting for 11% of its GDP.
A study by the National Tourism Confederation (CNT) estimated Morocco will see a 39% drop in tourists and lose over $13.85 billion in tourism revenue between 2020 and 2022.
In order to cope with the sudden crisis, Morocco’s government council adopted Draft Bill 30.20 on April 30, setting measures to support the tourism sector.
However, the sharp fall in oil prices, a halt in import-intensive investment, and an increase in foreign grants will provide some relief, reported the rating company.
“We project the CAD to narrow to 5% of GDP in 2021, driven by a recovery in tourism and increased manufacturing export capacity,” added Fitch.
In total, the rating agency’s projections estimated that the impact on tax revenues will cause the deficit to widen to 7.2% of GDP in 2020 compared to 4% in 2019.
As a backup plan to face the negative repercussions of the crisis, Morocco decided for the first time to draw funds from the credit line the IMF made available in 2018.
The $3 billion credit also represents 3% of the country’s GDP.
The Moroccan move follows its recent removal of the limit on foreign borrowing, which aims to fulfill the country’s need for foreign currency, given the pandemic’s impact on several sectors.
Morocco’s GDP could contract by 4.5% in 2020, ending 22 years of continued growth, Fitch Ratings concluded.