Morocco prepares for first stage of currency flexibility

RABAT (Reuters) - Morocco’s central bank is due to announce this week the date for the first phase of liberalising the dirham currency, an IMF-backed reform to strengthen the North African kingdom’s economy.

Most economists expect the currency transition to be smooth with foreign reserves solid, the dirham balanced and public finances improved by lower global oil prices that eased the cost of energy imports.

The central bank late last year said the first stages of a gradual move from currency controls to a flexible exchange rate would be implemented in the second half of 2017, along with other reforms like inflation targeting.

Central Bank Governor Abdellatif Jouahri has said he will release the start date by the end of June, but denied that floating the currency will be a devaluation, in a statement in response to market speculation before the announcement.

Foreign reserves have dropped $4.4 billion (3.45 billion pounds) in the last two months. Foreign exchange reserves are at 218.5 billion dirham (17.56 billion pounds), according to central bank data, 2.3 percent lower than a week ago and 10.8 percent below a year ago.


Morocco’s departure from a soft peg means “a more flexible regime to support gradual opening of the domestic economy,” Ales Bulir, an IMF researcher, said at a forum on the reform.

“Morocco has gone through 20 years to prepare for floating the currency,” he said, though he recognised the transition will create “new winners and losers.”

The dirham is fixed via a peg that is 60 percent weighted to the euro and 40 percent to the dollar. The first stage will ease that peg to allow the currency to trade in a narrow range, which will expand gradually over a few years.

How far the first stage will open the currency is unclear. Sources last year said trading fluctuation will widen by 2.5 percent each way, from 0.6 percent, expanding to fully remove the peg in a process that could take up to 15 years, depending on the market response.

In parallel, the central bank is expected to introduce hard currency interbank trading and would intervene on a regular basis using the foreign reserves to ensure liquidity.

Egypt abandoned its currency peg in November and shifted to a flexible exchange rate regime, a move that accompanied a $12-billion IMF loan. That sent the cost of living soaring as the Egyptian pound’s value halved.

But Morocco has done more than other North African countries to adopt economic reforms, curbing its deficit, ending fuel subsidies and freezing public sector hiring.

Still, the currency liberalisation is a major step and one the kingdom wants to adopt gradually, wary of unrest, like the riots over food prices that followed IMF-backed reforms in the 1980s.

Ratings agencies and the IMF have said Morocco’s gradual approach and economic fundamentals meant the dirham was unlikely to see any drastic fall.


After its board meeting, Morocco’s central bank revised its projection of foreign exchange reserves downward, but said reserves were at levels to cover six months of imports in 2017 and close to this level by the end of 2018.

Aleksander Berentsen, a University of Basel professor of economic theory, said Morocco’s macro-economic stability meant it was a good moment to liberalise the dirham and the central bank was in a position to adjust to changes.

“It’s a recipe for success,” Berentsen said.

Ahead of the announcement of the date for the first phase, traders were preparing to be ready by June 30, which some sources with knowledge of the process say is when the interbank market system will go live.

But anticipation over the flexible exchange rate has some currency traders in the Casablanca bourse concerned, especially over the transparency of public institutions and economic data.

“Our main concern is access to reliable macroeconomic data, and more generally, transparency,” said one trader.

Last month, Morocco’s foreign exchange regulator released its monthly trade deficit numbers nearly two weeks later than usual, in one case cited by traders.

“This is Morocco, we’re used to delays,” a trader said. “I don’t believe officials have done enough to explain to the general public why we’re doing this.”

Writing by Patrick Markey