Rabat – Abdellatif Jouahri, the wali (governor) of Morocco’s central bank, Bank Al-Maghrib, is frustrated with Fitch Ratings’ downgrade of Morocco.
In October, the US credit rating agency downgraded Morocco’s default rating for long-term foreign currency bonds from BBB- to BB+. While Fitch said it considers Morocco’s outlook stable, the BB+ rating gave Morocco’s long-term foreign currency bonds a junk bond status.
The Fitch downgrade also cost Morocco its investment grade rating. The loss of the investment grade rating means Fitch considers that Morocco’s chances of defaulting on long-term foreign currency bonds have increased. Morocco’s dollar bonds spiraled, dropping 2.2 cents to reach a significant low of 121 cents on the dollar.
Fitch also forecast that Morocco is likely to widen its deficit from 4.1% of GDP to 7.9% amid the COVID-19 pandemic.
“We were very surprised by the degradation of Morocco’s rating,” Jouahri said. He emphasized that the agency had maintained Morocco’s investment grade rating less than six months prior.
To “suddenly change the position” six months later, “in a context where the whole world is going through an unprecedented crisis and especially on the eve of Morocco’s exit from the international financial market is neither professional nor ethical,” he continued.
Jouahri argued that if Fitch wants to downgrade a rating, it should not do so on the eve of a country issuing a bond on the international financial market.
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Still, Morocco was able to successfully issue a $3 billion bond on the international market in December, the central bank governor said, and “the market reacted very positively.”
He admitted that Morocco’s central bank had doubts about issuing the $3 billion bond because of the Fitch downgrade, the loss of the investment grade rating, and overall unfavorable conditions.
But, he said, “market conditions improved, probably linked to the announcement of vaccination operations.” In November, King Mohammed VI ordered a nationwide vaccination COVID-19 campaign to help Morocco continue its economic recovery. Morocco will first use the Chinese-made Sinopharm vaccine to inoculate front-line workers and high-risk populations.
Jouahri said Morocco strategically issued the bond on the international market at a time when there was excess liquidity in the markets. Morocco was thus able to benefit from favorable conditions in terms of rates and maturities despite the Fitch downgrade.
“This success was also seen at the level of demand. The volume requested by international investors was $13 billion,” Jouahri said, more than four times its total value, from 478 investors from the US, the UK, Europe, Asia, and the Middle East.
Morocco’s $3 billion bond came just over two months after it issued a €1 billion bond with two €500 million tranches. The economy ministry said the issuances were each a resounding success among international investors.
