IMF deems 'encouraging' recent economic developments in Morocco

Recent economic developments in Morocco have been encouraging and demonstrate the resilience of the country's economy, according to the Washington-based International Monetary Fund (IMF).

Washington - Recent economic developments in Morocco have been encouraging and demonstrate the resilience of the country's economy, according to the Washington-based International Monetary Fund (IMF).
 
   Important progress has been realized in recent years in achieving macroeconomic stability, resistance of the economy to shocks, and strengthening of the public finance position, said a mission of the IMF led by Mr. Mark Lewis following a visit to Rabat, on May 19 through 30, 2008, to conduct the consultation discussions under Article IV of the IMF Articles of Agreement

   However, it noted that the spike in the world prices of petroleum and other commodities has significantly increased the cost of subsidies. The strong improvement in the budget position in recent years allows, in the short term, to absorb this increase in spending without compromising macroeconomic stability, according to the mission which welcomes the intention of the Moroccan authorities over the medium term to gradually transform the current system of subsidies by improving targeting to the poor.

     The mission which met with senior government officials, the central bank, as well as representatives from the parliament, the private sector, and labor unions, said that non-agricultural GDP growth was 5½ percent in 2007, even if overall real GDP growth slowed to 2.2 percent due to a sharp contraction in the cereal production. Consumer price inflation, which increased to 3.7 percent at end-April 2008 (year-on-year), remains relatively low, reflecting in part the lack of adjustment to administered prices since early 2007. The balance of payments is sound, and the budget was close to balance in 2007, against a deficit of 2 percent of GDP registered in 2006, the IMF mission added.

   Noting that the central bank has appropriately managed domestic demand, and that the inflation rate largely reflects the impact of exogenous factors, the mission considers that the monetary policy stance is appropriate for the current situation. In the period to come, monetary policy decisions may be more difficult, and the mission notes the determination of the central bank to maintain price stability. The exchange rate regime, based on a peg of the dirham to a basket of the euro and dollar, has contributed to macroeconomic stability. Analytical work carried out by the mission suggests that level of the exchange rate is in line with its economic fundamentals.

   The mission observed that the banking sector is sound and resilient to shocks. While the Moroccan financial sector has largely been untouched by the turbulence in international financial markets, it is important that the financial supervisory agencies pay close attention to the capacity of the sector to operate in a more volatile international environment, the mission underlined.

   "The continuation of sectoral reforms"notably in agriculture, energy, and internal trade"as well as education sector reform and the strengthening of infrastructure and social services, will play an important role in raising investment, output, and employment, and improving incomes of the Moroccan population.", the IMF concluded.

MAP