Moody's denies that Morocco will suffer an economic recession and points to stable economy

The US firm praises the decisions taken by the Alawi government considered as key to the current growth of national GDP


Many banks in Morocco already pointed out that the country was going to enter a complicated economic process due to the current world situation with the war in Ukraine and the recent coronavirus crisis. Despite the poor outlook, the American company Moody's, a firm dedicated to economic ratings, has denied that the Kingdom will suffer a downturn and, instead, predicts that the economy will be stable. 

Moody's confirmed this in a press release. It indicates that Morocco will not suffer any kind of crisis and will be stable in the long term. This is because real GDP data reflects a clear recovery and is at pre-pandemic levels. 

The rating agency gives good news to a Morocco that feared the worst consequences of recent world events. Moody's points out that the good data stems from the Moroccan government's performance in maintaining its stability. The company has praised the measures put in place to prevent the crisis. Among them, the implementation of a gradual consolidation of the budget, another of the debt ratio and the creation of budgetary accounts in case of any inconvenience. 

Moody's rates Morocco as a country that "reflects the country's economic resilience". According to the firm, this is conveyed through the accumulation of foreign exchange reserves, which are capable of covering six months of imports by the end of 2021. Although the firm stresses that the Kingdom's credit profile remains higher on general government debt, when compared to the median of the other countries, which are rated Ba. 

El Banco Central de Marruecos
REUTERS/YOUSSEF BOUDLAL - The Central Bank of Morocco

"The local currency ceiling remains at Baa1, three notches above the sovereign rating, reflecting predictable institutions and low external vulnerability risk, offset by a large public sector footprint," the agency stresses in the note. 

This credit profile remains constrained by the levels of general government debt. This is because it is complicated by the contingent liability exposure of state-owned enterprises, which have debts of more than 18%. However, income levels are not improving and are relatively low for Moroccans.

This general government debt has increased with the passage of COVID-19. Data confirm that debt has risen by more than 10 points and by the end of 2021 has reached 75% of GDP compared to previous years. Moody's expects this debt to stabilise below 80% over the next three years.  

The answer to the fact that GDP is not so low is clear: Morocco has a government that has been able to cope with the activities and Aziz Akhannouch's good mandate is already being reflected. "After slowing to 2% in 2022 due to severe drought conditions and the negative economic impact of high inflation, Moody's expects average annual GDP growth to converge to between 3 and 3.5% by 2025," the Moody's paper says.

Aziz Akhannouch
PHOTO/FILE – Aziz Akhannouch

It also suggests that the government has been able to increase the capacity for fiscal consolidation at a time when the continued rise in food prices is creating a negative social climate. But even so, it has been able to ease the situation.

"The previously completed fuel subsidy reform allows the government to address rising energy prices in a targeted way. The continued focus on efficiency improvements in the state-owned enterprise sector and business environment reforms encourages private investment and supports growth potential, thereby building economic resilience," the US firm continues. 

In addition, the raters' projections highlight that, during 2022, 2023, and 2024, the deficit will stand at 6.3, 5.6 and 5.3 %, respectively. Through resilient revenues, public investment can be reduced. "Although Moody's expects Morocco's debt parameters to stabilise at levels close to current levels in the central scenario, a deterioration in fiscal strength remains the main risk to Morocco's credit profile," the agency says.