Fitch Ratings confirmed Morocco’s rating at “BB+” with a stable outlook. This reflects the country’s sound macroeconomic policies, strong support from official creditors, favorable debt profile and comfortable cash reserves. (see our edition No. 6861 of 08/10/2024). These strengths are offset by lower development and governance indicators than its peers, high public debt and the economy’s exposure to adverse weather conditions.
According to forecasts, public debt should increase moderately to reach 70% of GDP in 2024. It would stabilize over the period 2025-2026 (2023: 69.5%). Despite the relatively high debt/GDP ratio, the American financial rating agency with an international vocation considers that refinancing and foreign exchange risks are contained. The current account deficit decreased to 0.6% of GDP in 2023 (2022: 3.7%). The fall in international prices has reduced the bill for energy imports.
In 2024, it is expected to increase slightly to 1.2% and would reach an average of 1.5% over the period 2025-2026. Because the services surplus is stabilizing and the trade deficit is widening moderately. According to forecasts, the trade deficit is expected to average 17.6% of GDP over the period 2024-2026 (2023: 17.4%). This is due to the expected consolidation of domestic demand and the improvement in export performance. Which will respectively stimulate imports of consumer products and intermediate goods.
On the other hand, the current account would benefit from the solid surplus in the services balance of 9% of GDP over the period 2024-2026. This is thanks to a solid performance of the tourism sector, as well as strong net current transfers (8.6% of GDP over the period 2024-2026) while remittance flows remain high, around 7.4 % of GDP.
Gradual budgetary consolidation
Fitch Ratings cites gradual fiscal consolidation. In 2023, the budget deficit narrowed to 4.3% of GDP (2022: 5.4%) due to lower subsidy spending resulting from lower international gas prices.
The budget deficit will further decrease to reach 4.1% with an average of 3.6% over the period 2025-2026. Taking into account the expected evolution of economic activity and the announced directions of the 2025 finance bill, the budget deficit should, according to Bank Al-Maghrib projections, stabilize at around 4.4% of GDP in 2024 before returning to 3.9% of GDP in 2025.
Regarding revenues, they will amount on average to 22% over the period 2024-2026 (2023: 22.2%), notes Fitch. “A timid performance of tax revenues being offset by an increasing use of innovative financing which is expected to reach around 2.1% between 2024-2026, compared to 1.7% in 2023. The government has used these mechanisms, which generally involve the sale and the leasing of state assets, to increase revenues since 2019″, it is indicated.
IMF, an additional margin of security
Overall, cash reserves remain strong. Morocco’s external resilience is based on $37.3 billion in foreign exchange reserves in August 2024. In 2023, the weak performance of FDI was partly offset by the issuance by the Sovereign of a Eurobond of 2, 5 billion dollars. In 2023, the IMF approved a two-year flexible credit line with Morocco for $5 billion. Which represents an additional margin of safety. Fitch Ratings expects foreign exchange reserves to remain strong, “benefiting from strong export earnings and a recovery in net FDI inflows.” Foreign exchange reserves are expected to represent on average 5.2 months of current external payments over the period 2024-2026 (2023: 5.6 months). Which is higher than the average “BB” median of 4.6 months.
The role of rating agencies
Financial rating agencies are private companies which assess the financial solvency risk of a company, a State, a local authority or a financial operation. The three main agencies (Moody’s, Standard and Poor’s, Fitch Ratings) are American. Their role is to measure the risk of non-repayment of debts presented by the borrower. To do this, they construct forecast financial scenarios and assess the probability that they will come true. For a sovereign state, this concerns both growth, its capacity to raise taxes and the predictable evolution of its expenditure taking into account its budgetary policy. Generally speaking, the higher the rating, the lower the risk. “AAA” ratings therefore correspond to good creditworthiness. “BBB” defines solvency, “CCC” indicates a very significant risk of non-reimbursement. Finally, the “D” rating reflects a situation of default by the borrower.
Fatim-Zahra TOHRY
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