Over the past two weeks, much has transpired in the working relationship between Morocco and the IMF. The results are largely favorable, which reflects well on Morocco’s efforts at fiscal and monetary reforms but also sets new targets that the country should meet if its progress is to be sustained.
One indicator of this two-edged sword of progress and the need for more reform is the announcement that Morocco will not seek to renew its Precautionary Liquidity Line (PLL) of credit that was just reviewed and pronounced a success by the IMF. Set at some $3.47 billion, it provided a safety net for the government if it needed to borrow funds to maintain liquidity if the economy imploded. The Moroccan Minister of Finance and Economy, Mohamed Boussaid, made the announcement that Morocco might pursue other arrangements with the IMF that better reflected the country’s improving fiscal profile. He credited the PLL and other IMF support with Morocco’s recent reforms including the recent liberalization of the foreign exchange regime as well as ending and reducing certain subsidies.
“Morocco has said that this facility has fulfilled its mission and that there is no utility in renewing it again as the macroeconomic framework and indicators are satisfactory,” he said in Marrakesh. “But this doesn’t mean the good relationship we have with the IMF shouldn’t continue.”
An immediate impact of the more flexible currency exchange rate, according to Moroccan Central Bank Governor Abdellatif Jouahri in an interview with Bloomberg is that the country is better poised to qualify for a flexible credit line, usually a sign of a strong economy.
According to Minister Boussaid, Morocco is “permanently ready” to capitalize on improving public finances and currency liberalization by returning to the international bond market, without specifying any timeline for such a step. “It’s possible this year, it’s possible to make it next year,” he said. “In any case, we will not be tapping the international markets to solely finance the treasury. It will also be an opportunity to tell a story showcasing what Morocco has achieved and to narrate a beautiful story of a country that is making progress.”
But the reforms are far from over. Next in line are additional subsidies that may pose more challenging for the government. According to Boussaid, “We will most probably start by lifting subsidies on sugar, in a gradual and selective fashion. Sugar subsidy benefits rich and poor, but it is bad for health,” he said. Morocco consumes about 1.2 million tons of sugar a year.
A related Reuters story, noted that there were a number of references to Morocco’s progress at a recent regional IMF conference held in Marrakech. One IMF senior official said that the recent currency reform will make the kingdom more attractive to investment and turn it into a financial hub for Africa. According to Jihad Azour, director of the IMF Middle East and Central Asia department, “It’s a reform that goes in the right direction and allows Morocco to be … more attractive for investors and to play its full role as regional financial center especially the with ambition of Morocco to service Africa in terms of financial services.”
IMF Managing Director Christine Lagarde went a step further at the meetings. In comments to reporters, she commended reforms undertaken by the Moroccan government as “very promising” and pledged to keep supporting the country in efforts to achieve inclusive growth. According to a report in Bloomberg, she noted that all the Arab countries must work harder to create jobs and provide better social services to counter “simmering public discontent.”
The article made reference to the continuing unrest in the north of Morocco as an example of the need for more investments to enable job creation, a position strongly supported by King Mohammed VI who has made it clear that the money is not lacking, but the steps to spend what has been allocated have been lacking, hence the widespread dismissal of officials who were responsible for the unrealized projects.
According to recently released IMF figures, “Unemployment in the Middle East and North Africa (MENA) region ranks among the highest in the world, with a jobless figure of more than 50 percent, largely due to the low participation of women in the workforce in conservative Arab countries.” Director Azour commented that “Rising social tensions and protests in several countries across the Middle East and North Africa are a clear indication that the aspirations of the people of the region, for opportunity, prosperity and equity, remain unfulfilled.”
Arab governments face many challenges in implementing reforms that have a direct impact on citizens, such as lifting subsidies, while simultaneously attracting domestic and international investments that build strong economies with higher-value jobs to grow the middle class. On the one hand, it is costly to maintain a basic quality of life for those affected by subsidy cuts while at the same time improving their lives through better and more health, education, and other social services. It is a herculean task, especially when factoring in the investments in infrastructure needed in many countries to enable sustained economic growth. In this regard, Morocco, with its diversified economy, extensive opportunities in new markets in Africa, and the stable role of the monarchy has the potential to reach its ambitious development goals.