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Rabat – Morocco will issue two foreign currency convertible bonds (FCCB) in 2020 and 2021 to address a dramatic drop in foreign currency inflow. Credit rating agency Fitch has rated the proposed euro bonds as “BBB-.”
This meaning Morocco retains its much-coveted investment grade rating. Morocco’s central bank, Bank Al Maghreb (BAM), expects its account deficits to stand at 6% of GDP amid an economic contraction of 6.3%.
In the meantime, Morocco will issue two new FCCB bond sales — one in 2020 and one in 2021. The upcoming Euro bond intends to help the country pay back a €1 billion bond that matures next month. In 2019, Morocco took advantage of low interest rates to issue its first bond since 2014. The 2019 bond was intended to create 20,000 jobs according to Moroccan Minister of Finance and Economy Mohamed Benchaaboun.
The pandemic has made the repayment of Euro bonds more difficult as less foreign currency flows into Morocco. Currency inflows have been severely impacted by the absence of foreign tourists bringing in foreign currency that can be used by Morocco to repay bonds in foreign denominations.
Foreign investors have become more reluctant to invest in the MENA region and the global south as a whole, and have been moving their investments to “safer” countries in the face of a likely global recession and debt crisis in the global south.
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These factors, combined with reduced exports due to the global health crisis, have resulted in Morocco having less foreign currency in its reserves. To resolve this issue, Morocco aims to postpone the problem by issuing a new bond sale that can be used to repay the maturing bond.
When tourism resumes and economic activity returns to normal, inflows of foreign currencies should then allow Morocco to repay the Euro bonds amid swelling foreign currency reserves. In addition, this approach makes it possible for Morocco not to endanger its important investment-grade rating that allows it to easily access foreign currency in the international market.
Tough times are ahead for the global south: National debts are set to swell and foreign currency reserves are likely to dwindle. The US and EU can issue bonds to their own citizens and currencies. In contrast, nations in the global south depend on foreign currency bonds that run the risk of being impacted by volatile fluctuations in currency rates.
