Al-Haouz Earthquake Did Not Shake Investors’ Confidence in Morocco

Rabat – The September 8 earthquake did little to shake investor confidence in Morocco, says a recent report by the think tank Policy Center for the New South (PCNS).

The overall investor perception of Morocco remains positive despite the devastating earthquake that caused a significant human toll and material damage.

Natural disasters such as earthquakes often cripple a country’s capacity to issue relief funds through financial institutions.

“High social costs of the damages can imply a greater sovereign risk aversion among investors,” the report explains.

“Earthquakes can compromise fiscal trajectories, as investors perceive natural disasters as a negative shock that can put debt on an unsustainable path, and eventually trigger a sovereign default.”

In Morocco, however, the Market seemed “insensitive to the Natural Disaster The earthquake did not lead to a holding on of local investors subscribing to treasury bonds, and therefore financing costs remained unchanged.”

Shortly after the earthquake, Morocco was approved for a $5 billion Flexible Credit Line from the IMF.

In addition, the Casablanca stock exchange displayed no abnormal trends post-earthquake, aside from a brief dip in tourism-related stocks, which quickly recovered. Treasury bond interest rates and the exchange rate also remained stable, reflecting robust economic fundamentals.

The economic toll of the Al-Haouz earthquake

The epicenter of the devastating September 8 earthquake, Al-Haouz province, has borne the brunt of the economic fallout, with a staggering 10.2% loss in Gross Regional Product (GRP).

The direct costs of the earthquake, focusing primarily on infrastructure damage, were heavily concentrated in Al-Haouz, with neighboring provinces Taroudant and Chichaoua also significantly affected, the report maintains.

The 7-magnitude earthquake resulted in a profound tragedy for Morocco. Nearly 3000 lives were lost and 4661 individuals were injured, with 1139 identified as severe.

Beyond human casualties, the damage included substantial material damage. A total of 59,674 buildings collapsed, of which 32% were destroyed completely and 68% incurred partial damage.

The need for substantial reconstruction efforts has driven these losses as the region grapples with restoring its pre-earthquake capital stock, the report maintains.

On a national level, the indirect economic impact of the earthquake is profound. PCNS analysis concluded that Morocco’s GDP contracted by 0.24% in 2023, equating to approximately MAD 3 billion ($300 million).

The Marrakesh region’s economic activity declined by 1.3%, while the most affected province, Al-Haouz, suffered a dramatic 10.2% drop in GRP.

In response to the tragedy, the Moroccan government has launched an ambitious five-year reconstruction plan with a total allocation of MAD 120 billion ($12 billion).

The relief package was divided into two pillars. The country allocated MAD 22 billion ($2.2 billion) to emergency assistance and infrastructure rebuilding. Of this, MAD 8 billion ($800 million) was earmarked for household aid and financial assistance for housing. Another MAD 14 billion ($1.4 billion) was allocated to infrastructure rebuilding from 2023 to 2028.

The second pillar covered efforts aiming to stimulate economic activities in the High Atlas Region under a total budget of MAD 98 billion ($9.8 billion).

The think tank argues that the recovery plan’s first pillar is expected to yield a 0.1 percentage point increase in national growth and a significant 1.2 percentage point increase for the High Atlas provinces, including Al-Haouz, between 2024 and 2028.

The impact of the second pillar will vary based on different financing scenarios, ranging from a 0.4 percentage point increase with “new money” financing to a modest 0.03 percentage point increase with full investment reallocation – using funds that were merely channeled from existing state investments.