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Moody’s and S&P have maintained Morocco’s sovereign ratings at Ba1 and BB+/B respectively. So no changes for the moment and even less a return to the Investment grade so coveted by Morocco for two years.
S&P, no rating change, no report
For S&P, which is required to review sovereign ratings at least every six months on predetermined dates, its recent examination of the Moroccan case did not result in a change to the rating or a publication of a report because it considers that the main rating factors are unchanged.
This was the last review for 2024 according to the official S&P calendar.
Moody’s maintains the rating and explains itself
For Moody’s, maintaining the rating at Ba1 was followed by the publication of an explanatory note. She argues that “ On September 24, 2024, a rating committee was convened to discuss the rating of the Government of Morocco. The main points raised during the discussion were as follows: The economic fundamentals of the issuer, including its economic strength, have not changed significantly. The institutions and governance strength of the issuer have not changed significantly. The governance and/or management of the issuer have not changed significantly. The fiscal or financial strength of the issuer, including its debt profile, has not changed materially.”
As a result, the rating remained the same reflecting “ Morocco’s institutional strengths and strong external position, as well as low income levels and socio-economic challenges that limit the government’s fiscal consolidation strategy. The latter make it difficult for the authorities to begin deleveraging while responding to strong social demand and investment needs essential to the government’s political agenda and the development of the country, which, despite the progress made, remains behind compared to countries with a similar rating.
The stable outlook, in turn, reflects Moody’s expectation “that the government will continue economic and social reforms to improve the economy’s resilience to shocks while keeping the debt burden stable. We expect the government to continue its fiscal consolidation efforts in the face of spending pressure from social security reforms and a large pipeline of infrastructure projects as well as continued exposure to shocks, including those linked to climate.
Factors that could lead to an improvement or downgrade of the rating according to Moody’s
Economic reforms that raise income levels at a faster rate, increase formal job creation and reduce socio-economic disparities would have a positive influence on the rating, the agency said.
Higher trend growth in the non-agricultural sector would boost Morocco’s relatively low income levels. These improvements would open up greater opportunities for revenue generation and fiscal consolidation, which would likely lead to a downward trend in public debt.
A more marked and sustained increase in Moroccan public debt could put downward pressure on credit. This could be the result of a future shock or larger spending demands than currently planned, linked to large-scale infrastructure projects or ambitious social security reforms. The crystallization of contingent liability risks emanating from public companies or the banking sector would also weaken Morocco’s budgetary solidity and weigh on the rating.
A coveted investment grade
The financial microcosm and the Moroccan government await and hope for this return to investment grade.
In the cases of S&P and Moody’s, the current rating is the highest notch in the speculative category. Any improvement will mean a return to Investor grade.
The Finance Department has been working towards this rating for two years. Because it is an important factor that international investors take into consideration when pricing a country’s debt, and therefore a weighty argument in negotiations.
The improvement in the outlook for the S&P rating in March 2024, from “stable” to “positive”, was seen as an important step and a signal to regain the Investment Grade lost in 2021 following the successive crises of Covid and inflation.
At the start of 2024, S&P Global Ratings commented: “This perspective positive reflects our expectations that Morocco will build on its recent achievements in implementing socio-economic and budgetary reforms, paving the way for stronger and more inclusive growth and a reduction in budget deficits.
The agency then presented two scenarios:
- Positive scenario: Raise the notes on Morocco in the next 12 to 18 months if the government continues to implement structural reforms, leading to stronger economic growth and a broadening of the tax base, while budget deficits continue to decline.
- Negative scenario: Goodbye the prospects for stables if economic growth, fiscal consolidation or reform dynamics prove weaker than expected.
Editor’s note: this article was initially published on Thursday September 26 and was updated this Saturday September 28.
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