KEY RATING DRIVERS Morocco’s ‘BBB-‘ IDRs reflect the following key rating drivers: Resilience and Stability The affirmation of Morocco’s ratings reflects the country’s resilience during the years of transition following the Arab spring in early 2011. Political and social stability has helped maintain high GDP growth and foreign direct investment inflows. The combination of accommodative policies and a weak euro zone have led to a sharp deterioration in the current account and budget deficits and increased public and external debt since 2010. However, Fitch expects those negative trends to reverse in the medium term, supported by a political drive to implement reform and a gradual recovery in the euro zone. Narrowing Budget Deficit Fitch expects the deficit of the central government to narrow from the 2012 peak (7.6% of GDP), supported by reform in subsidies (launched in September 2013), lower oil prices and higher grants from Gulf Cooperation Council countries. After large budget overruns in 2012 (2.2% of GDP) reflecting the impact of rise in wages decided in 2011 and delayed investment, the agency expects strengthened control on public spending in line with the requirements of the new budget law. Fitch forecasts the deficit will gradually reduce to 4.4% of GDP by 2015. Stabilising Government Debt Fitch expects general government debt to peak in 2013, at 46.4% of GDP (from 33.4% in 2008) and to slowly decline thereafter, consistent with the path of deficit reduction, to 44.5% by 2015, only slightly above the BBB peers’ median (40% of GDP). Improved External Account Fitch expects the current account deficit to narrow, to 4.9% of GDP by 2015 from 10% in 2012 and an expected 7.8% in 2013, reflecting lower commodity prices, fiscal tightening (including the impact of the subsidy reform) and stronger external demand and remittances from Europe. Reserves Stable, Net External Debt Still Rising After a sharp decline, FX reserves have stabilised at 4.2 months of current account payments (CXP) since end-2012. Fitch expects FX will reach 4.3 months of CXP by 2015, supported by the narrowing in the current account deficit and continued strong foreign direct investments. Net external debt will continue to rise over the forecast horizon, to 33% of current account receipts (CXR) by 2015 from 26% in 2013 and -23% in 2009, primarily driven by the erosion of the sovereign net external creditor position. Steady GDP Growth Fitch expects non-agricultural growth to slow to 3.5% in 2013, from 4.5% in 2012, as a result of low external demand from the euro zone and tightened economic policies. Growth will accelerate in the medium term, to 4.5% by 2015, consistent with a recovery in Morocco’s two key trading partners in the euro zone (France and Spain) and continued growing domestic demand. Foreign direct investments (forecast 3.2% of GDP by 2015) would also help suppor growth.
RATING SENSITIVITIES
The Stable Outlook reflects Fitch’s assessment that upside and downside risks to the rating are currently well balanced. The main factors that individually or collectively might lead to rating action are as follows: -Positive: -A substantive reduction in Morocco’s twin deficits that materially reduces the vulnerability of the economy to shocks -In the longer term, improvements in social indicators (e.g. youth unemployment, poverty) in the context of entrenched political stability -Negative: -Insufficient fiscal consolidation to reduce the budget deficit -A weakening economic performance and sharply rising net external debt in the face of external shocks, such as weaker-than-expected euro zone performance or higher-than-expected oil prices -Social instability that would constrain the political scope for reform
KEY ASSUMPTIONS
The Stable Outlook anticipates a gradual narrowing of the budget and the current account deficits from the peak of 2012 that will allow public debt to stabilise and a gradual rebuilding of FX reserves. Fitch assumes continuing reform in a context of social stability, as recently illustrated by the partial adjustment of energy prices. Fitch assumes a gradual economic recovery in the euro zone, to 0.9% in 2014 and 1.3% in 2015 from -0.4% in 2013. Growth in France and Spain, the two key economic partners, is forecast at 0.9% in 2014 and 1.2% in 2015, up from 0.2% in 2013 (France) and 0.5% in 2014 and 1.1% in 2015 from -1.4% in 2013 (Spain). Fitch assumes oil prices will decline to USD100/barrel by 2015 from USD105/barrel in 2013. Contact: Primary Analyst Arnaud Louis Associate Director +44 20 3530 1539 Fitch Ratings Limited 30 North Colonnade London Secondary Analyst Eric Paget-Blanc Senior Director +33 1 44 29 91 33 Committee Chairperson Shelly Shetty Senior Director +1 212 908 0324 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.
