Current Program Status:
A 24-month Precautionary and Liquidity Line (PLL) in the amount of SDR 4.117 billion (about $6.21 billion, 700 percent of quota), approved by the Executive Board of the IMF on August 3, 2012.3
Background
Morocco has a track record of strong economic policies and solid economic performance, which has helped cushion the impact of the global crisis and respond to pressing social needs. But the country has recently been affected by drought, high international oil prices, domestic and regional social tensions, and a much weaker external environment.
Despite headwinds, real GDP growth accelerated from 3.7 percent in 2010 to about 5 percent in 2011, the highest rate in the Middle East and North Africa (MENA) region, while average inflation declined to below 1 percent, the lowest rate in MENA. However, higher oil prices led to a widening of the current account and fiscal deficits, the latter being largely driven by an increase in the subsidy bill.
These pressures persisted into 2012, prompting the authorities to take corrective measures, including significant increases in several domestic energy prices in early June as part of a broader agenda to improve the targeting and effectiveness of social protection and to ensure fiscal sustainability. These measures, combined with the recent decline in international oil prices, are expected to help contain fiscal and external pressures, and maintain international reserves at a comfortable level.
Role of the IMF
Despite these comprehensive policy measures and favorable macroeconomic prospects, Morocco faces external risks linked to uncertainties in the euro zone and possible oil price increases. To guard against potential exogenous shocks, Morocco asked for a credit line from the IMF under a 24-month PLL. This arrangement will provide Morocco with a useful insurance policy for meeting immediate financing needs should these risks materialize, strengthening market confidence and facilitating access to private capital markets. The authorities intend to treat the arrangement as precautionary.
The Challenges Ahead
The key challenges facing the authorities are to:
Ensure medium-term fiscal sustainability through making public spending more efficient (by modernizing regulations that govern public procurement, and ensuring better targeting and efficiency of the subsidy and social protection system) and boosting revenues (by broadening the tax base, improving collection, streamlining tax and property expenditures, and maintaining a climate conducive to private-sector activity, particularly for small and medium-sized enterprises).
Foster high and inclusive growth through structural and economic reforms aimed at enhancing potential growth and job creation through the resolute implementation of the authorities’ plan to address the needs of underdeveloped areas, improve economic governance by increasing transparency and accountability, strengthen ongoing active labor market programs, and complement subsidy reform with a better-targeted transfer mechanism and improved social protection.
Reduce external pressures and oil dependency by diversifying energy sources, through sizeable investments in renewable energies, and adopting a hedging strategy against oil price fluctuations.
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