Morocco: 2022 Article IV Consultation-Press Release and Staff Report

MOROCCO IMFCountryReportNo.23/42 January2023 2022ARTICLEIVCONSULTATION—PRESSRELEASEANDSTAFFREPORT UnderArticleIVoftheIMF’sArticlesofAgreement,theIMFholdsbilateraldiscussionswithmembers,usuallyeveryyear.Inthecontextofthe2022ArticleIVconsultationwithMorocco,thefollowingdocumentshavebeenreleasedandareincludedinthispackage: APressRelease. TheStaffReportpreparedbyastaffteamoftheIMFfortheExecutiveBoard’sconsiderationonJanuary17,2023,followingdiscussionsthatendedonNovember4,2022,withtheofficialsofMoroccooneconomicdevelopmentsandpolicies.Basedoninformationavailableatthetimeofthesediscussions,thestaffreportwascompletedonDecember16,2022. AnInformationalAnnexpreparedbytheIMFstaff. AStatementbytheIMFStaffRepresentative. TheIMF’stransparencypolicyallowsforthedeletionofmarket-sensitiveinformationandprematuredisclosureoftheauthorities’policyintentionsinpublishedstaffreportsandotherdocuments. Copiesofthisreportareavailabletothepublicfrom InternationalMonetaryFundPublicationServicesPOBox92780Washington,D.C.20090Telephone:(202)623-7430Fax:(202)623-7201 E-mail:publications@imf.orgWeb:http://www.imf.orgPrice:$18.00perprintedcopy InternationalMonetaryFundWashington,D.C. ©2023InternationalMonetaryFund PR23/27 IMFExecutiveBoardConcludes2022ArticleIVConsultationwithMorocco FORIMMEDIATERELEASE WashingtonDC-January17,2023:OnJanuary17,2023,theExecutiveBoardoftheInternationalMonetaryFund(IMF)concludedtheArticleIVconsultation1withMorocco. ThedroughtandeconomicfalloutfromRussia’swarinUkrainetookatollonMorocco’seconomyin2022,despitetheauthorities’verystrongpolicyresponse.Afterastrong7.9percentreboundin2021,economicactivityisexpectedtoslowto1¼percentthisyear,onaccountoftheslumpinagriculturaloutput,worseningexternalconditions,andreduceddisposableincome.Risingfoodandenergypricesfueledinflationarypressures,whichhavebecomemorebroad-based,withheadlineinflationexpectedtopeakat6.5percentonaveragein2022.Thenegativetermsoftradeshockfromhigherinternationalcommoditypriceswidenedthetradedeficitbutstrongtourismrevenuesandremittancespartlyoffsetthenegativeimpactonthecurrentaccount,andinternationalreservesremainatcomfortablelevels. Despitetheincreaseincurrentspendingfromhighersubsidiesandotherpolicymeasuresthatmitigatedtheeconomicimpactoftheshocks,theoverallfiscaldeficitisprojectedtofallin2022,Thisreflectsstrongperformanceofbothtax(mainlycorporateincomeandVAT)andnot-tax(dividendsfromSOEs)revenues.Thecentralgovernmentdebt-to-GDPratioisprojectedatabout69percentbyend2022,significantlybelowthelevelprojectedatthetimeofthe2021AIVStaffReport,mainlyowingtotheupwardrevisionofGDPfollowingthechangeinbaseyear. GDPgrowthisprojectedtoaccelerateto3percentin2023,mainlydrivenbythereboundinagriculturaloutputanditspositivespilloverstotherestoftheeconomy.Inflationisforecasttograduallydeclinetoabout4percentin2023,asthecommoditypriceshockgraduallydissipates,andthemonetarystancebecomeslessaccommodative.Thecurrentaccountdeficitisprojectedtonarrowtowardsitsnormofaround3percentofGDPinthemediumterm,boostedbystructuralreforms.Thebaselineprojectionsaresubjecttounusuallyhighuncertainty,mostlyrelatedtoaworseningofglobalconditionsandgreaterfalloutfromRussia’swarinUkraine. 1UnderArticleIVoftheIMF'sArticlesofAgreement,theIMFholdsbilateraldiscussionswithmembers,usuallyeveryyear.Astaffteamvisitsthecountry,collectseconomicandfinancialinformation,anddiscusseswithofficialsthecountry'seconomicdevelopmentsandpolicies.Onreturntoheadquarters,thestaffpreparesareport,whichformsthebasisfordiscussionbytheExecutiveBoard. 2 ExecutiveBoardAssessment2 ExecutiveDirectorsagreedwiththethrustofthestaffappraisal.Theycommendedtheauthoritiesfortheverystrongpolicyresponsethathasmitigatedthesocialandeconomicimpactoftherecentnegativeshocks.Whileriskstotheeconomicoutlookaretiltedtothedownside,continuedstrongpoliciesandarapidimplementationofreformswouldsupporteconomicactivitygoingforward.Lookingahead,theysupportedcontinuedstrongFundengagement. Directorswelcomedmonetarypolicytighteningin2022andsupportedadditionaldata-dependentpolicyrateincreasesasneededtocontaininflationarypressures.Directorsencouragedthecentralbanktocontinuethetransitiontoaninflation-targetingframeworkonceinflationdeclinesandthecurrentuncertaintydissipates. Directorssupportedthe2023Budget,whichstrikesabalancebetweentheneedstoreducethedeficit,mitigatethesocialandeconomicimpactofshocks,andfinancestructuralreforms.Theyconsideredthatfurthertaxandspendingmeasureswouldbeneededtoacceleratethereductionofpublicdebtandrebuildfiscalbuffers.Directorswelcomedthepublicationofthethree-yearfiscalplan,whichreinforcesMorocco’salreadystronginstitutionalfiscalframework.Goingforward,theintroductionofafiscalrulebasedonadebtanchorwouldfurtherenhancethecredibilityandtransparencyoffiscalpolicy. DirectorswelcomedMorocco’sprogressinimprovingitsfinancialsupervisoryandregulatoryframework.Theypraisedtheauthorities’completionoftheActionPlandesignedwithFATF,whichshouldsupportprogresstowardexitingtheFATFgreylist.Whilesystemicriskstothefinancialsystemappeartobelimited,Dir