Rabat – American rating firm Fitch has reaffirmed Morocco’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at “BB+” with a Stable Outlook.
IDR is a measure that reflects a country’s ability to meet its long-term financial commitments to creditors.
The rating reflects Morocco’s track record of sound macroeconomic policies, a resilient institutional framework, and a favorable debt composition, Fitch said in a new report.
However, the country faces strong headwinds, including a recent economic slowdown, high inflation, and a narrowing fiscal deficit.
According to Fitch, the country has demonstrated the ability to weather economic shocks, supported by a robust institutional framework and a moderate proportion of foreign-currency debt in the central government’s debt.
Official creditor support and ample external liquidity buffers equally add to the country’s credit strength.
Certain factors constrain the rating, however, such as weak development and governance indicators, high public debt, and a budget deficit that is larger than its peers.
In addition, Morocco’s economic vulnerability to climate-related factors, as seen in the volatility of agricultural output, poses ongoing challenges.
Underlying data behind the Fitch assessment
In 2022, Morocco’s economic growth decelerated to 1.2% from the previous year’s impressive 7.9% due to a severe drought that led to a 15% contraction in agricultural output.
For this year, Fitch projects a rebound in GDP growth to 3%, supported by improved agricultural performance.
Despite the positive outlook, the recovery remains dependent on favorable weather conditions, and the lower-than-expected rainfall and filling rate of dams in April 2023 posed threats to rain-fed agricultural prospects.
Inflation is also a lingering concern in Morocco, reaching a peak of 10.1% year-on-year in February 2023, primarily triggered by food inflation. Food prices surged by 20.1% year-on-year in the same month.
Other factors such as old weather, water scarcity, and high production costs affected agricultural output, leading to local supply shortages.
In response, Morocco took measures to stabilize domestic prices and ensure sufficient domestic supply, including temporary restrictions on vegetable exports, simplified VAT exemption procedures for agricultural inputs and food products, and planned additional subsidies for sugar beet farmers.
Inflation eased to 8% in March 2023, with food inflation at 16% year-on-year. Non-food prices also moderated to 3% year-on-year from 3% in February.
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