Al-Haouz Province Suffered Over Half the Economic Damage from 2023 Earthquake

Doha – On September 8, 2023, a magnitude 7.0 earthquake struck Morocco’s Al-Haouz province, inflicting a heavy human toll and causing widespread physical damage. Nearly eight months later, a new research paper by a team of leading economists provides a detailed assessment of the earthquake’s economic impacts and analyzes the government’s ambitious five-year, MAD 120 billion ($11.7 billion) reconstruction plan.

Authored by Eduardo A. Haddad of the University of São Paulo, Karim El Aynaoui and Abdelaaziz Ait Ali of the Policy Center for the New South, and three other economists, the paper relies on a variety of data and analytical methods, including an inter-province input-output model, to assess the quake’s damage and simulate the recovery.

Published by the Policy Center for the New South, a Rabat-based think tank, the paper estimates that the Al-Haouz earthquake resulted in a 0.24% loss to Morocco’s GDP in 2023, equivalent to roughly MAD 3 billion. The hardest-hit regions saw much steeper declines, with economic activity dropping 10.2% in Al-Haouz province and 1.3% in the broader Marrakesh-Safi region.

Damages from the Al-Haouz disaster

“(This natural disaster) was more of a human tragedy with moderate economic losses, especially at the macroeconomic level,” the authors write. Nearly 3,000 lives were lost and over 4,600 people injured in the quake, which also destroyed or damaged nearly 60,000 buildings – mostly in Al-Haouz, Taroudant, Chichaoua and Ouarzazate provinces.

To quantify the economic damage, the researchers assumed that the government’s planned infrastructure spending in each affected province represents the actual loss of capital stock there. Running simulations on an economic model, they found that Al-Haouz alone accounted for 53% of the gross regional product (GRP) losses among the six most impacted provinces, totaling about MAD 1.2 billion. Taroudant suffered the next largest hit with a MAD 739 million decline in GRP.

The areas struck by the quake are predominantly mountainous and rural, with high rates of poverty. Even before the disaster, the multidimensional poverty rate across the affected zone was 18.5%, more than double the national average. The province of Azilal had the highest vulnerability rate at 25%, meaning many residents were at risk of falling into poverty from a socioeconomic shock.

“These disparities show the need to prioritize economic resilience, particularly in provinces with heightened vulnerability,” the report states. “Implementing targeted interventions, including social safety nets and economic protection policies, is crucial for effectively mitigating the associated risks.”

A funding plan moving forward

The MAD 120 billion recovery plan consists of two main components. The first allocates MAD 22 billion for short-term priorities between 2023-2025; 8 billion for emergency household aid and residential reconstruction, and 14 billion for rebuilding damaged infrastructure.

The second, larger component aims to promote economic development across the High Atlas region in the medium-term. However, the source of this MAD 98 billion funding is still uncertain, so the researchers modeled three financing scenarios. The first is sourcing 100% new money, such as from borrowing, the second; a 50/50 split between new money and reallocated investment, and the third; 100% reallocated investment from other regions’ budgets.

Assuming the government pursues the reallocation approach, the simulations suggest the full MAD 120 billion plan would boost national economic growth by just 0.03 percentage points per year, on average, from 2024-2028. However, the report notes, the High Atlas provinces would see substantial gains in GRP growth under any of the financing scenarios.

The earthquake’s impact on Moroccan markets

The researchers examined some high-frequency financial indicators to gauge the earthquake’s impact on markets. Despite an initial slump in tourism-related stocks, the Casablanca exchange swiftly rebounded, and overall trading volumes remained steady. Similarly, yields on treasury bills and the dirham exchange rate showed little volatility after the disaster.

“These developments confirm how resilient the Moroccan economy is, following successive domestic and global shocks,” the paper asserts. The authors credit the government’s fiscal reforms and commitment to debt sustainability for shoring up investor confidence. Morocco also secured access to a $5 billion Flexible Credit Line from the IMF as a buffer against future balance of payments strains.

For the reconstruction effort, the researchers emphasize the importance of tailoring strategies to each province’s specific needs. “Implementing targeted interventions, including social safety nets and economic protection policies, is crucial for effectively mitigating the associated risks,” they write.

An economy in rebound

While the disaster’s economic toll was less severe than its human costs, the authors stress that supporting the hardest-hit areas is both a moral imperative and sound economic policy.

“Natural disasters can have a significant impact on economic development,” they write, “while also leading to an influx of capital and new technologies, as well as financial support, during periods of post-disaster reconstruction, which may facilitate economic growth.” By focusing investment on the High Atlas region, the reconstruction plan has the potential to meaningfully reduce the development gap, if not close it entirely.

According to the report, Morocco has requested access to a Flexible Credit Line provided by the IMF, at an affordable cost which amounts to $5 billion.” The authors conclude that “This mechanism sends the right signal over the capacity of the Moroccan economy to absorb shocks affecting its balance of payments.”

The authors argue at the end that policymakers will need to balance efficiency and equity concerns when deciding how to allocate resources between the affected and unaffected regions. They suggest that prioritizing equity may be necessary in these circumstances, even if it comes at the cost of some economic efficiency.