The World Bank now expects an increase in gross domestic product (GDP) of 2.4% this year, for Morocco, against +3.1% initially forecast by the Institution last October. Which would represent a slowdown compared to last year. “In Morocco, we should have a rate of 2.4% in 2024, compared to 2.8% in 2023, due to the clear slowdown inagricultural activity, which is expected to decline by almost 3% in 2024 due to abnormally arid and hot climatic conditions which harm major crops”, estimates the Bretton Woods Institution, in its latest economic report, entitled “Conflicts and debt in the MENA region “. Please note that this report was produced before the significant rainfall recorded recently in the country.
According to this Briefing, GDP growth is expected to slow this year in almost all oil-importing countries in the MENA region. In these countries, average growth is expected to be 2.5% this year. This is less than the average for the entire MENA region estimated at +2.7% in 2024, boosted by oil exporting countries (+2.8%).
Furthermore, the report examines the economic impact of the conflict in the Middle East on the region, starting with Palestine. Economic activity in the Gaza Strip is almost at a standstill, with an 86% fall in GDP in the last quarter of 2023. The West Bank is plunged into a recession, affecting both the public and private sectors.
Neighboring countries such as Jordan and Egypt are more likely to be directly affected through channels such as tourism, energy products, budgetary pressures and foreign exchange earnings.
But what is most worrying, at the moment, is the growth of debt in the MENA region which is reducing the capacity of many countries to cope with shocks.
For the World Bank, the primary balance (difference between public revenue and expenditure) is a major factor in the evolution of the outstanding debt. Across the region, budget deficits have widened significantly since 2020, due to increased pandemic-related public spending on healthcare and support for economic activity, and lower revenues due to widespread confinements in response to Covid-19. Although primary deficits improved between 2021 and 2023, they remained above pre-pandemic levels in many cases. In particular, oil-importing countries have high debt levels. Moreover, they present limited prospects for deleveraging through growth or even inflation. This is largely due to extra-budgetary factors and the effect of exchange rate fluctuations on the value of foreign currency-denominated debt. According to the report, oil-importing countries in the MENA region have failed to reduce or bring debt under control, underscoring the importance of fiscal discipline to limit debt. For Morocco, unlike other oil-importing countries, the debt/GDP ratio decreased from 71.6% in 2022 to 70.6% in 2023.
In addition, the increase in the debt-to-GDP ratio also results from the revaluation of debt denominated in foreign currencies. For countries that had fixed exchange rates, they have experienced little or no exchange rate fluctuations over the past ten years. Thus, exchange rate revaluations had no effect on their debt/GDP ratios. On the other hand, for countries that have experienced exchange rate fluctuations, the share of debt denominated in foreign currencies is significant. In this context, Egypt and Tunisia were the most affected by revaluation effects.
Interest payments are a second factor that influences the evolution of public debt. MENA oil-importing countries have historically paid higher interest as a percentage of initial GDP than their oil-exporting counterparts. This is because oil importers have higher debt levels and there is an almost mechanical relationship between outstanding debt and interest payments.
The increase in interest payments results from the recent rise in interest rates in international markets amid a global monetary tightening, as well as observed changes in risk appetite, which were felt across country-specific risk premiums. For Morocco, the volume of interest paid remains under control and almost stable at 2.2% of GDP in 2023, compared to 7.6% for Egypt, 4.7% for Jordan and 3.3% for Tunisia.
Furthermore, inflation is supposed to lead to debt relief. But this is not the case for oil-importing countries in the MENA region. Each percentage point drop in their debt/GDP ratio due to inflation is almost completely offset by an increase in the outstanding nominal debt. This can therefore be explained to a large extent by exchange rate variations.
In contrast, for oil-exporting countries, inflation has generally been accompanied by an increase in oil revenues and a reduction in deficits. For these countries, the challenge today is to diversify the economy and sources of income, given structural changes in global oil markets and growing demand for renewable energy. “Overall, economies in the MENA region must undertake structural reforms, notably by improving transparency, in order to stimulate growth and ensure sustainable development,” recommends the World Bank.
