Fitch: Fresh IMF Agreement Will Support Further Moroccan Reform

Tue Jul 29, 2014 9:43am EDT

(The following statement was released by the rating agency) LONDON, July 29 (Fitch) Morocco's new two-year Precautionary Liquidity Line (PLL) from the IMF supports Fitch Ratings' assumption that the government will continue to pursue structural reforms and budget tightening. The two-year deal is worth USD5bn, or 4.4% of GDP. The existing two-year PLL, which ends next month, has been a key anchor for the authorities' reform agenda. As with the previous PLL (worth USD6.2bn), the authorities do not intend to draw the new facility, but it will provide a buffer against potential external shocks, such as a steep rise in oil prices. The renewal is a reflection of Morocco's performance under the previous programme, with subsidy reform enacted and wages and investment brought under tight control after rapid increases following the "Arab Spring". Expenditure measures helped cut the central government deficit to 5.4% of GDP last year from 7.3% in 2012 and we expect a further fall to 4.3% of GDP by 2015, although this could be affected if oil prices were higher than expected. Earlier this month, Economy and Finance Minister Mohammed Boussaid said implementation of the 2014 budget had so far proceeded "normally and according to plan" despite the downward revision of GDP growth forecasts to 3.5% from 4.2% in the initial budget. A new budget law (Loi organique des Finances) passed by parliament in July could help maintain fiscal consolidation by modernising the fiscal framework, for example by introducing multiyear, programme, and performance budgeting, and a binding ceiling for wages. Reforms to energy subsidies also helped Morocco's current account deficit to fall by 2pp of GDP in 2013, to 7.5%, alongside the strong performance of new export sectors and lower oil prices. We forecast further falls in the current account deficit thanks to further reform, and an improving external environment, including economic recovery in the eurozone continuing to boost exports, tourism receipts and FDI. In mid-July 2014 net international reserves at the central bank were USD21bn, up from USD19bn in early 2014 and USD18bn a year ago. This suggests an overall improvement in the external position. The EUR1bn Eurobond issuance by the sovereign in June 2014 has also helped strengthen foreign reserves. The Stable Outlook on the sovereign's 'BBB-' rating, affirmed in April, anticipates a further gradual reduction in the twin deficits, supported by continuing reforms. Our next scheduled sovereign ratings review is due on 24 October. Contact: Arnaud Louis Director Sovereigns +44 20 3530 1539 Fitch Ratings Ltd 30 North Colonnade London E14 5GN Mark Brown Senior Director Fitch Wire Secondary Analyst Name +44 20 3530 1588 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: Morocco here Morocco and Tunisia: Diverging Paths Since Arab Spring here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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