Rabat – The impact of the September 8 earthquake on Morocco’s finances will lead to increased public spending, wider fiscal deficits, and higher debt in the short term, the rating agency Fitch has argued.
As Morocco invests significant resources in recovering from the devastating earthquake, argued the American rating agency, international aid and remittances could help alleviate some of the reconstruction costs and support the country’s external financial stability.
In the aftermath of the devastating earthquake, Morocco is now facing the challenges of rebuilding over 2,900 villages and providing assistance to 2.8 million people.
The Fitch report highlights that the earthquake’s impact on Morocco’s finances will lead to increased public spending, wider fiscal deficits, and higher debt in the short term.
However, the agency also anticipates that international assistance and remittances from Moroccans living abroad will help alleviate some of the reconstruction costs and support the country’s external financial stability.
The earthquake, which took a heavy human toll by claiming nearly 3,000 lives and leaving countless others injured and homeless, has prompted Moroccan authorities to unveil an ambitious reconstruction plan valued at approximately $11.7 billion.
The plan accounts for about 8.5% of Morocco’s GDP and is set to span five years. Approximately 30% of these funds are dedicated to immediate relief efforts, including emergency aid, housing reconstruction, infrastructure repairs, and the restoration of health and education facilities that were affected by the disaster.
The remaining funds are intended for social and economic development projects aimed at rehabilitating the impacted region.
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Financing for the reconstruction plan will come from a combination of on-budget spending by the government and a MAD 2 billion ($195 million) contribution from the state-run Hassan II Fund for economic and social development.
Before the earthquake, the government had been actively working to reduce the budget deficit, aiming for 4.5% of GDP in 2023 and 4% in 2024. However, Fitch Ratings had already forecasted slightly higher deficits of 4.9% and 4.4%, respectively, taking into account inflation pressures on government spending.
The agency’s latest report explains that the costs associated with the recovery efforts are expected to drive government spending even higher, resulting in larger deficits and increased debt compared to previous forecasts.
In an earlier report, published in April this year, Fitch Ratings noted that Morocco’s credit rating was constrained by its elevated public debt levels and a budget deficit that exceeded those of its peer countries.
Yet, the exact share of the reconstruction plan’s financial burden that the Moroccan government will bear remains uncertain, the report showed.
To support the funding of the plan, the government has established a fund that collects donations from citizens and local businesses, raising over MAD 10 billion or over $900 million so far.
In addition, some international assistance will be channeled through the reconstruction plan, although the precise amounts are yet to be determined.
In September, the International Monetary Fund (IMF) reached a staff-level agreement to provide Morocco with $1.3 billion in long-term financing for climate resilience, though this funding was not directly tied to the earthquake.
