Fitch Ratings confirms Morocco’s ‘BB+’ rating

In its new rating, the International Rating Agency states that Morocco’s “BB+” rating is “backed by a favorable debt structure, which includes a moderate portion of foreign currencies in the total general government debt and support from official creditors; reasonably Convenient external liquidity buffer; and record macroeconomic stability, reflected in relatively low inflation and GDP volatility before the pandemic. »

These forces are balanced by weaker growth and governance indicators, higher public debt and larger budgets and current account deficits than comparable countries, Fitch explained in a note published this Friday, May 15.

hard blow to recovery

Fitch Ratings also suggests that GDP growth in 2021 contracted to 7.4%, after contracting 6.4% in 2020. For 2022, the rating agency forecast growth to slow to 1.1%, “due to the worst drought in decades, a contraction in agricultural production, and an unfavorable international environment”.

For 2023, it expects economic growth at 3% (to approach the “BB” projected at 3.5%). A recovery that will be driven by improving rainfall, recovery of the tourism sector and solid industrial performance.

Fitch also expects fiscal policy to remain liberal to support economic recovery. “The consequences of the conflict in Ukraine and prolonged disruptions in global supply chains represent the main downside risks to our growth prospects,” the international rating agency said.

public finance

Another element raised by Fitch: the central government deficit falling to 5.3% of GDP in 2021 compared to 7.5% in 2020. “Tax revenue has improved (up 9% compared to 2020), in line with strong economic activity,” says Fitch.

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However, the latter predicts that spending pressures related to social issues, coupled with fluctuating global commodity prices and drought, will weigh on public finances in 2022.

To mitigate the impact of rising prices, Fitch noted that the government would increase spending on subsidies for food, butane gas and transportation. Area.

According to this agency, subsidies are expected to represent 2.6% of GDP in 2021, compared to 2.6% of GDP in 2021. Part of this will be offset by an increase in VAT, import and tax revenues. companies due to high inflation.

Fitch also expects the public budget deficit to be 6.6% of GDP in 2022 and 6% in 2023, higher than the average “BB” forecast of 3.8% in 2023.

Slow implementation of NMD

Fitch recalls that the New Development Model (NMD) aims to increase public spending to 4% of GDP by 2025 to improve education and health, and expand social benefits. “This includes a comprehensive welfare system that will gradually increase annual spending as coverage expands, and new education and medical workers, representing a sustainable increase in spending,” says Fitch.

And that part of the cost will continue to be financed by additional revenue from subsidies reduction, a progressive compression of the wage bill, as well as the expansion and strong growth of the tax base.

Nevertheless, Fitch estimates that current spending will remain below target by 2025 due to the slow implementation of the NMD.

public debt

On the other hand, the same source suggests that the large budget deficit and economic slowdown will increase public debt to 79% of GDP in 2022 and 81.6% in 2023, compared to 74.2% in 2021.

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“However, fiscal financing flexibility is mitigated by fiscal financing risks from access to a large domestic investor base and strong support from official creditors (71.5% of external debt),” Fitch said.

In terms of foreign trade, the rating agency indicates that Moroccan phosphate exports will partially offset the increase in imports. And for good reason: Fertilizer prices have risen again in the face of global shortages as a result of sanctions imposed on Russia.

In contrast, Fitch expects tourism receipts to be higher in 2022, but below pre-pandemic levels.

On the other hand, it forecasts a $34.4 billion drop in Bank al-Maghrib’s reserves this year, “but will remain above five months of current outward payments”.

inflationary pressure

Fitch further noted that inflation averaged 1.4% in 2021. However, for 2022, it expects inflation to average 4.7% in 2022, reflecting growth in food, energy and transportation prices, before falling to 2.0% in 2023.

“In March, BAM decided to maintain its key rate at 1.5% to support the economy and mitigate the effects of an unfavorable international environment. If inflationary pressures persist, BAM could tighten monetary policy in 2022. Could be,” Fitch said.

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