Morocco has avoided the turmoil faced by its other North African neighbours, and has maintained a steady pace of growth with higher government spending.
But with a new government in the saddle, there needs to be a renewed effort to bring down persistent unemployment and attract foreign direct investment in an increasingly bleak global economic environment.
Morocco’s real GDP will defy global economic weakness and rise 4.6% this year and the next year and could well inch up to 6% in the medium term, according to the International Monetary Fund.
The IMF report comes at a time of great, if peaceful, transition in the North African country.
Unlike the mess in Libya, and messy changes in other North African countries such as Tunisia and Egypt, Morocco has undergone a revolution without a single bullet being fired.
New elections in the country have given credibility to King Mohammed VI’s commitment to bring change to the country and usher in a constitutional monarchy.
Parliamentary elections in Morocco were originally scheduled for 2012 but were pushed forward by one year following the adoption of a new constitution by referendum in July this year.
Election results indicate that the Islamist party, Justice and Development (PJD) garnered 107 seats out of a total of 395 (from 47 seats in the smaller previous chamber of 325). The Istiqlal (independence) Party of the current prime minister, which has headed a five-party coalition since 2007, won 60, and his Koutla coalition allies 57. The Gathering of Independents (RNI) of the current finance minister won 52 seats and eight allied parties got another 108.
Voter participation was 45.5% of the 13.5 million registered to vote, higher than in 2007 when participation reached only 37%.
In line with the provisions of the new constitution, the King named Abdelilah Benkirane, the leader of the PJD, as head of government on Nov. 29, and coalition talks are under way.
While some observers are skeptical as to how much power the king will cede to the government, Mohammed VI has been widely seen as an honest and sincere leader who has moved the country – if slowly – towards a more inclusive set up.
These political developments come at a time when the Moroccan economy has weathered recessionary environment in Europe, its biggest trading partners, and regional disturbances.
“Morocco has successfully met major challenges following the global crisis,” says the IMF in its Article IV report on the country.
“Thanks to several years of sound macroeconomic policies and political reforms, Morocco was well equipped to address the 2008 international crisis and to respond to the social demands that have emerged during the Arab Spring. In this challenging environment, Morocco has performed well economically and has seen its social indicators improve.”
As Tunisia, Libya and Egypt was burning, Moroccans also demanded greater social reforms and the government responded by pursuing significant constitutional and political reforms.
It also took a leaf out of the Gulf books by increasing spending on subsidies, wages and pensions.
The government is planning additional legislation to underpin new constitutional provisions, including measures to ensure fiscal sustainability, and — in consultation with the private sector– improve the business climate. Such policies are expected to support living standards while enhancing potential growth.
CONTINUED GROWTH
The IMF is clearly bullish on the Moroccan economy, and expects long term growth to reach 6% over the medium term.
“This will hinge on continued macroeconomic stability and the implementation of planned structural reforms,” says IMF.
“For this purpose, the authorities intend to bring the medium-term budget deficit down to around 3% of GDP, which should bring public debt to about 50% of GDP over the medium term. This should slow down the pace of imports, in particular of energy products and of consumer goods, which could help reduce the current account deficit to about 2½ percent of GDP and external debt to below 23% of GDP in 2016.”
Despite weak global economic conditions, Morocco has managed to increase exports by 26% in 2010, and are projected to grow at a similar pace in 2011, with non-phosphate related exports growing by 23%.
The Moroccan government expects tourism receipts and workers’ remittances to grow in 2011 by 13% and 11% respectively.
Inflation also remains contained at below 2% since early 2009, and rising international prices for certain commodities did not pass through, which also contributed to keep headline inflation low.
Overall deficit is expected to hit 5.4% – the highest in years. The authorities are
preparing to implement fiscal consolidation measures starting in 2012 to bring the deficit down to 3% of GDP in the medium term, which would bring the total public debt to about 50% of GDP in the medium term.
“In an effort to limit the fiscal impact of increased spending on subsidies, the authorities reduced non-priority recurrent spending in mid-2011 and limited transfers to public entities to what is needed for their investment program, while strengthening revenue collection,” said Mohammed Daïri, Alternate Executive Director for Morocco.
“As a result, the deficit in 2011 is expected to increase by only 1.1% of GDP compared to 2010, despite an increase in subsidies by 2.2% of GDP. Over the medium term, their objective is to limit the cost of the subsidy system, including targeted social transfers, to 3% of GDP, down from 5.7% in 2011.
The financial sector has also managed to maintain stability, with non-performing loans declining to 4.8% of total loans in 2010, compared to 15.7% in 2005 – a credible feat at a time when debt has spiralled out of control virtually across the world.
Building on this strength, the government is creating the Casablanca Financial Centre, together with a favourable tax treatment to promote it as an international and regional financial hub, says Dari. The hub will be promoted by a specially set up Moroccan Financial Board and will offer a range of tax breaks.
UNEMPLOYMENT CHALLENGES
Despite these flattering figures, unemployment especially among the youth remain high. It is important to note that Egypt, Libya and Tunisia were all posting healthy GDP figures but still saw their regimes fall as they failed to address joblessness.
Unemployment between the 17-24 set is as much as 18%, according to official data, and as much as 31% according to independent sources.
The IMF has proposed that the authorities should maintain structural reforms, including by improving the efficiency and composition of public spending.
More efforts are required to improve governance, the business climate, and trade integration at the regional and global levels, and to strengthen human capital to increase private investment and continue to attract FDI.
“Further reforms to increase labor market flexibility and contain hiring costs also remain important to reduce youth unemployment,” says the IMF.
Morocco seems to be the model of stability and political and economic reform in a region that could use with a few role models.
Morocco has also formally applied to be part of the Gulf Cooperation Council, which could have its own drawbacks and positives. While closer economic ties could usher in greater FDI flows, it could also result in greater political interference by the more conservative Gulf regimes.
The UAE, Qatar and Kuwait have already made overtures to lure Morocco, promising a $2.7-billion investment in tourism and other sectors, a day before the elections.
Of course, the problems with economic blocs have been highlighted recently by the debacle within the EU. Morocco’s oil-consuming economy differs greatly from oil-exporting Gulf states, and collectively they make many economic decisions that could negatively impact energy-dependent Morocco.
But while the idea of greater economic integrating was floated earlier in the year by regional monarchies of the Gulf, Morocco and Jordan, they seem to have cooled off, given the problems with the EU experiment.
Morocco should welcome greater economic ties with capital rich GCC, it may not be the right time to be formally enrolled in the economic bloc.
CONCLUSION
Given its neighbourhood, the Moroccan economy has done remarkably well, but clearly there is no room for complacency. The new Islamic government will need to demonstrate is capable of creating jobs – 300,000 to bring down persistent unemployment – and generate new investment opportunities especially after the Gulf and EU investment flows have tapered off.
© alifarabia.com 2011
