While the rest of North Africa is imploding, Morocco is quietly working through its challenges.
In a bold move, the cash-strapped country ended gasoline and fuel subsidies this month. While subsidies on wheat, sugar and cooking gas remain for the poorest, the subsidy cuts are vital for Morocco to meet its IMF-directed reforms.
The IMF had approved a 24-month arrangement for about USD 6 billion in August 2012 to help Morocco during a transitional period and unprecedented regional disturbances.
"We welcome the government's efforts to begin to reduce tax exemptions, particularly in the agricultural sector, and to reduce the cost of the subsidy system," the IMF said in a recent statement. "The reform of the pension system is also urgent to ensure its viability and preserve fiscal sustainability. It is also important to strengthen and modernize the fiscal framework through a new organic budget law."
Morocco is estimated to have posted a 5% growth last year and is set to see a 4% increase in GDP in 2014, the IMF estimates. The Moroccan finance minister Mohamed Boussaid expects 2014 growth to be around 4.2%.
Growth reached 4.5% year-on-year in the third quarter, although decidedly lower than the 5.1% achieved in the second quarter. This compares with 2.6% and 2.9% year-on-year in the third and second quarters of 2012, respectively. Increased external demand outlook and the improved performance by the agricultural sector could accelerate GDP growth in the fourth quarter to 5.3% year-on-year, compared with 2.3% year-on-year in Q4 12.
Barclays Capital, however, has a more muted growth outlook for the country.
"Looking to 2014, we think growth is likely to decelerate to 3.8% y/y from an estimated 4.8% y/y in 2013. First, agricultural growth is set to slow sharply as base effects dissipate," said Alia Moubayed, analyst at Barclays Capital. "Second, expectations of lower public spending could dampen domestic demand and are unlikely to be offset by a significant external demand pull in the short run given the still weak recovery in the euro area."
GROWTH DESPITE ODDS
Still, the economic growth is commendable given that the European Union, its largest economic partner, was in the throes of a recession for much of the year. The regional situation was also hairy with fellow North African countries Tunisia, Libya and Egypt facing domestic troubles.
"Prospects are much brighter for political stability in Morocco," said Fitch Ratings in a recent report. The ruling Justice and Development Party (JPD) recently showed its resilience through the smooth replacement of a junior coalition partner over disagreements on economic policy and a reform of the subsidy system did not trigger significant popular protests.
Fitch expects Moroccan growth to accelerate in the medium term, to 4.5% by 2015, consistent with a recovery in Morocco's two key trading partners in the Eurozone (France and Spain) and continued growing domestic demand.
"Foreign direct investments (forecast 3.2% of GDP by 2015) would also help support growth."
The country is also moving on other fronts. The authorities revived plans to list state-owned port operator Marsa Maroc in a bid to shed some government assets and spur privatization. The government also tabled a bill in parliament this month to regulate Islamic banks and sukuk issues. If approved, the law would allow the establishment of Islamic banks in the country of 32.5 million. The move will no doubt be closely watched by many Gulf Islamic banks eager to expand their offerings.
A NEW BUDGET
The Moroccan government has targeted a budget deficit of 4.9% of GDP in the new budget, and government officials hope to bring it down to 3.5% by 2016.
While public deficit reduction is crucial, there is still a need to focus on socio-economic indicators and invest in areas of infrastructure, health and education.
However, analysts warn that the new revenue measures outlined in the 2014 budget will likely have little effect, with revenue-to-GDP continuing to drift downwards due to growth deceleration and only gradual implementation of those measures over time.
In addition, Morocco's external financing will remain "challenging," according to Barclays. Morocco's trade deficit shrank to 2.8% compared to last year, although much of it was driven by reduced imports due to the economic slowdown. Imports declined by 2%, government data shows, with energy imports contracting 4%.
Meanwhile, tourism revenues eased to MAD 57.55 billion (USD7.04 billion) compared to MAD 57.83 billion a year earlier, while remittances from the 4.5 million Moroccans living abroad fell by 0.7% to MAD 58.36 billion.
However, foreign direct investment rose to MAD 40.16 billion in 2013 compared to MAD 32.09 billion in the previous year.
While FDI flows may improve further in 2014, the country will remain dependent on about USD 2.6 billion of bilateral and multilateral financing.
In late December, Morocco signed a USD 1.25 billion aid agreement with Qatar. The deal is part of USD 5 billion pledge by four Gulf states including Saudi Arabia, Kuwait and the UAE in 2012 to help Morocco fund infrastructure projects and prop up the economy in the face of rising social dissent.
Morocco is also reportedly set to receive USD 4 billion in loans from the World Bank over the next four year to finance different projects, according to a Reuters report.
Renewed optimism in Europe should also lift Morocco's prospects. And with Gulf and multilateral-institution aid pouring into the economy, the country is easily the most stable North African country with the brightest prospects.
© alifarabia.com 2014
