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Join on Telegram Rabat – Moody’s Investors Service affirmed in their report on Friday Morocco’s Ba1 long-term issuer and senior unsecured debt ratings, maintaining a stable outlook despite persistent economic challenges.
The rating reflects the country’s institutional strengths, stable governance, and effective crisis management while acknowledging the ongoing socio-economic risks Morocco faces.
While the government has made impressive strides in economic reform and policy stability, obstacles such as low income levels and persistent disparities across regions and social groups hinder faster fiscal consolidation and development progress.
Institutional resilience and policy strengths
Morocco’s Ba1 rating reflects its ability to manage economic shocks, supported by a resilient institutional framework and effective governance. The country has consistently demonstrated its capacity to handle external crises through sound policy implementation.
“We expect the government to continue fiscal consolidation efforts in the face of spending pressure from social security reforms and an extensive pipeline of infrastructure projects as well as ongoing exposure to shocks, including those related to climate,” Moody’s report said.
Bank Al-Maghrib’s (BAM) macroeconomic and monetary policies, particularly its efforts to control inflation and gradually liberalize the foreign exchange rate since 2018, have been key to maintaining stability.
Last week, BAM’s council convened for its third quarterly meeting of 2024, where it examined the current national and international economic landscape alongside the bank’s medium-term macroeconomic projections.
BAM forecasted a slowdown in economic growth to 2.8% by the end of 2024, with a rebound to 4.4% expected in 2025.
Despite facing strenuous external pressures, Morocco’s measured approach to reforms, including foreign exchange liberalization, has fortified the credibility of its economic policies.
Fiscal policy has struck a careful balance by tackling social and external challenges while upholding fiscal discipline. In recent years, the government has prioritized reforms to boost social protection systems, improve education, and increase access to healthcare.
Managing debt and infrastructure needs
Moody projects that Morocco’s government debt will remain stable at around 65% of Gross Domestic Product (GDP) in the coming years, reflecting the government’s strategy to manage public debt while addressing essential spending in health and social welfare.
The 2024 fiscal framework anticipates a 2.3% GDP increase in expenditures for healthcare and social security, which will be balanced by phasing out energy subsidies and enhancing revenue generation.
Meanwhile, Morocco plans to pursue public-private partnerships (PPPs) to ease the fiscal burden of infrastructure projects, including preparations for the 2030 FIFA World Cup and the 2025 Africa Cup of Nations (AFCON), as well as post-earthquake reconstruction and climate-related investments.
Despite these initiatives, Moody’s predicts a slight decline in the fiscal deficit, projecting a decrease from 4.2% of GDP in 2024 to 3.8% by 2026. However, the government’s medium-term objective of lowering the primary deficit to 0.6% by 2026 may take longer to achieve due to ongoing spending pressures from both recurrent expenses and large-scale projects.
Nevertheless, Morocco’s favorable borrowing costs and stable debt management practices are expected to support the maintenance of the country’s debt ratio at approximately 65% of GDP.
Credit constraints, environmental risks, and economic exposure
Morocco continues to face socio-economic hurdles, particularly concerning income inequality, unemployment, and unequal access to education and healthcare, which pose major constraints on the country’s credit profile.
The labor market is characterized by high informality, with youth unemployment at 27% and female workforce participation at just 19%, compared to 69% for men.
These issues impede the nation’s capacity for sustainable growth and higher income levels. Morocco’s income per capita in 2023, measured at $10,460 in purchasing power parity (PPP), was drastically lower than the median income of $27,316 for countries with similar credit ratings. Geographical disparities between urban and rural areas also further obstruct progress toward enhanced economic growth and job creation.
Morocco’s economy is acutely vulnerable to environmental risks, particularly water scarcity and climate change, which have posed challenges for nearly six years. The Ministry of Water and Equipment reported a 70% decline in rainfall in January compared to the 30-year average, while extreme summer temperatures reaching 50°C are depleting aquifers and threatening rivers.
In response, Morocco aims to produce 1.7 billion cubic meters of desalinated water annually by 2030 through approximately 30 plants, enough to provide drinking water for half the population.
Agriculture, which accounts for 10-15% of the country’s GDP and employs about 35% of the workforce, is especially affected by these environmental factors, with reliance on rain-fed practices heightening exposure to climate variability and resulting in erratic growth patterns.
Although the government has prioritized investments in climate resilience through renewable energy projects and water conservation initiatives, the implementation of these efforts has proved to be slow, and the environmental risks linked to climate change continue to impact the country’s economic performance and credit outlook.
Outlook and potential rating adjustments
Moody’s stable outlook translates to a balanced assessment of Morocco’s prospects, anticipating that the government will continue its pursuit of economic and social reforms while bolstering the country’s resilience to both domestic and external shocks.
However, there are downside risks, particularly if the government struggles to sustain fiscal consolidation amid rising spending pressures. Slower-than-expected progress in addressing socioeconomic disparities and boosting formal job creation could hinder future economic growth.
Large-scale infrastructure projects and ambitious social welfare reforms may strain public finances if not managed carefully, potentially resulting in increased government debt.
