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Morocco Boosts Financial Defences in Face of Rising Volatility

The Executive Board of the International Monetary Fund (IMF) approved a two-year arrangement for Morocco under the Flexible Credit Line (FCL). The approved amount is equivalent to SDR 3.7262 billion (about US$ 5.0 billion, representing 417 percent of quota).

The two-year arrangement was requested by the Moroccan government last month as the kingdom faces financial challenges, the foremost of which is inflation.

The IMF’s decision comes days after Standard & Poor’s kept the country’s sovereign credit rating unchanged at BB+/B with a stable outlook, with the agency saying in a note that structural reforms were gradually paving the way towards a more inclusive economy.

Antoinette Sayeh, Deputy Managing Director and Acting Chairwoman, issued a statement following the Executive Board’s discussion on Morocco, saying that Morocco’s economy has demonstrated resilience in withstanding several negative shocks over the past three years, including two droughts, the pandemic and the repercussions of Russia’s war in Ukraine.

She attributed such resilience to Morocco’s strong macroeconomic policies and institutional framework and added that the Moroccan authorities remain committed to implementing the necessary structural reforms to achieve more robust, resilient, and inclusive economic growth. Additionally, they plan to restore policy margins and provide a comprehensive response to new shocks.

Yet despite resilience, Morocco remains vulnerable to global economic and financial instability, commodity price volatility, and recurrent droughts. In this connection, the FCL agreement is aimed at assisting the country  increase external buffers while providing additional protection against potential risks.

Sayeh noted that the authorities intend to use the FCL arrangement as a precautionary measure and plan to exit the agreement once the 24-month period is completed, depending on the evolving risks.

Since 2012, Morocco has benefited from four Precautionary and Liquidity Line (PLL) arrangements, each totalling about $3 billion, according to the IMF.

The first PLL was approved on August 3, 2012, followed by three additional approvals on July 28, 2014, July 22, 2016, and December 17, 2018.

The fourth PLL expired on April 7, 2020, when the authorities used all available resources to mitigate the social and economic impact of the COVID-19 pandemic and maintain an adequate level of official reserves to alleviate pressures on the balance of payments.

The agreement to a two-year arrangement comes after a 2022 fiscal year marked by rising inflation, that stood at 8.3% in December.

Price hikes in Morocco have accelerated, with an 8,9% inflation in January, driven by a surge in food prices. This came despite action by the government and the central bank to avert such a scenario.

The country is also suffering from a worsening trade deficit, which increased last February by about 17.8 percent, amid a rise in food and fuel prices due to the repercussions of the Russian-Ukrainian war and the slowdown in food supply chains.

In conjunction with the support provided by the IMF, the World Bank announced the approval of the third in a series of loans, this for  $450 million, to back Morocco’s reforms aimed at advancing financial and digital inclusion.

The World Bank noted that besides also encouraging digital entrepreneurs, its loans were aimed to boost access by individuals and businesses to digital infrastructure and services.

The bank pointed out that “44% of Moroccans today have access to a bank account versus 29% in 2017 and 30% use digital payments versus 17% in 2017.”

The infrastructure for digital payments has also expanded, with 19 active mobile payment providers now covering 31% of rural districts.

A number of challenges persists, however, the World Bank noted, citing the need to strengthen merchants’ use and acceptance of digital financial services. It explained that this third financing aims to consolidate these reforms.

“The Moroccan government has begun to operationalise the New Development Model (NDM) recommendations by digitising social protection programmes, supporting equity financing and non-banking instruments for innovative companies, and digitising public procurement for better access of SMEs to public contracts,” said Jesko Hentschel, Country Director for the Maghreb and Malta at the World Bank.

Morocco’s reforms include the creation of a new legal framework for microfinance institutions, as well as the setting in train of digital management and payments for Tayssir, the country’s largest cash transfer programme.

Speaking about the reforms, Caroline Cerruti, Senior Financial Sector Specialist, and Programme Co-Leader at the World Bank said they included “a new legal regime for microfinance institutions allowing them to take deposits and expand their outreach, and a new law on credit bureaus for processing non-financial data so that the unbanked people can get a history to access credit.”

Cerruti added, “The introduction of digital management and payments for Tayssir, provides subsidies to three million schoolchildren and helps in the establishment of the social protection reform.”

Last month, the World Bank approved an additional $250 million in financing for Morocco’s 2015-2030 education reform.

Source : Thearabweekly