Fitch Ratings reports serious concern over Morocco’s hard-hit GDP and alarming fiscal deficit following the COVID-19 lockdown.
Rabat – According to Fitch Ratings, a US-based international credit ratings agency, Morocco’s 2020 economy is expected to seriously deteriorate as a result of the COVID-19 crisis. The agency predicts the North African country will experience its largest fiscal deficit and GDP contraction in decades.
“We revised the Outlook on Morocco’s ratings to Negative from Stable in April, reflecting increased downside risks to the sovereign’s credit profile from the severe impact of pandemic on the economy and public and external finances,” reads the Fitch Ratings report.
A revised budget forecasts this year’s central government deficit to widen to 7.5% of the country’s GDP. This is double the initial budget target of 3.8% and the 2019 recorded deficit of 3.9%. According to the report, Morocco has not seen a budget deficit this high in at least three decades.
Fitch Ratings attributes the downward revision to a combination of a fall in tax revenues and other major contributors to Morocco’s GDP, such as tourism and foreign direct investment. Added to that is an increase in government spending related to the cost of combating the COVID-19 pandemic.
Central government debt is expected to rise to 72% of GDP in 2020, compared to 65% in 2019.
Government officials estimate 1.5% of GDP spending will go towards supporting the economic recovery necessary to bounce back to pre-pandemic ratings.
Fitch Ratings states, “The authorities estimate that each day of lockdown reduced GDP by around 0.1% and tax revenues by around 0.05% of GDP.”
“We view the government’s revised fiscal projections and underlying economic assumptions as broadly realistic and expect the authorities to strive to prevent further deterioration of the fiscal balance, in line with their long-standing adherence to prudent policies.”
However, concern over a second surge of COVID-19 cases and the threat of another lockdown leads experts to express mounting concern surrounding Morocco’s ability to prevent the further strain on the economy.
Fitch Ratings echoes the World Bank
The Fitch Ratings report is directly in line with a recent World Bank report on Morocco’s economy. The Bank stated that the COVID-19 shock is “abruptly pushing the economy into a severe recession, the first one since 1995.”
The World Bank also worried over the precarious state of Morocco’s economy and urged Morocco to reshape its socioeconomic landscape. The United Nations organization suggested the country move from mitigation techniques to finding ways to adapt to COVID-19.
“Faced with the risk of a protracted pandemic, moving from mitigation to an adaptation phase is key to ensuring a resilient, inclusive, and growing Moroccan economy,” noted the World Bank’s Morocco Economic Monitor report for July 2020.