BAM Governor: Morocco Is Not Ready for New Phase of Exchange Rate Reform

Rabat – Morocco is not ready for the second phase of the flexible exchange rate form, said the Central Bank, Bank Al-Maghrib (BAM), Governor Abdellatif Jouahri on Tuesday.

Speaking during a press conference following BAM’s quarterly meeting, Jouahri said that Morocco will not move to the second phase of the flexible exchange rate reform “even at the insistence of the International Monetary Fund (IMF).”

“I will only recommend the transition to the new phase of the flexible exchange rate regime when I am convinced that the Moroccan economic fabric is ready for it,” he explained.

Morocco first transitioned from a fixed currency exchange rate for the dirham to a more flexible ±2.5% rate in 2018. A fixed exchange rate means that Morocco’s central bank had control over the rate of the dirham to other currencies, and could oversee macroeconomic stability.

The country’s move to adopt a flexible exchange rate is in line with the state strategy to liberalize the economy and make it more open. However, adopting a flexible exchange rate means a currency is highly exposed to fluctuating supply and demand.

Jouahri stressed that it is necessary to ensure budgetary sustainability in the medium term before moving to the next stage of the reform. He added that the country should have a flexible banking system, and should also improve the central bank’s ability to manage both exchange reserves and inflation targeting before moving forward with the reform.

“At the technical level, we have gained a deep understanding, since 2018, with the interbank market functioning perfectly,” he explained.

However, he remarked that moving to the next level “involves the training of actors, and this is where the difficulties lie.” He added that some actors are not yet ready for this transition, especially small and medium-sized enterprises (SMEs) and self-employed entrepreneurs.

In October 2022, Jouahri pointed out that Morocco’s economy is made up of 90% Very Small Businesses (VSBs) or micro-businesses, according to the Observatory for Small and Medium-Sized Businesses (SMEs). Additionally, he specified that “ only 9% of all businesses in Morocco (are) medium-sized, and 1% is made up of large businesses.”

Within this context, Jouahri concluded that “Morocco’s economy is not properly equipped for us to move to the next stage of fiscal reforms relating to making the exchange rate more flexible.”