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Country Report Morocco

Country Report


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The King’s popularity and astute tactics sheltered Morocco from the unrest seen with its peers. However, the cost was high as the resulting ‘subsidy bill’  pushed the fiscal and external imbalances to new records. Morocco’s capability to attract financing provides some comfort. 

AuthorsAlexandra Dumitru and Myrthe van der Stelt (trainee)

Strengths and weaknesses


A track record of prudent macroeconomic policies facilitates access to finance

Morocco ‘s track record of prudent macroeconomic policies enables the country to easily tap into local and international financial markets, and to obtain bilateral and international assistance.

The King acts as a stabilizing factor for political stability

Despite political tensions in the region, the monarchy remains popular and is having a stabilizing role as the ‘mediator’ between conflicting political parties and herewith influencing politics.


Large share of youths economically and politically excluded

45% of the population is aged 25 or below, but they are hardly represented in politics and cannot earn a living (youth unemployment 19%). This constitutes an environment prone to upheaval.

High vulnerability to external developments

Morocco’s tight commercial links with Europe render the country highly susceptible to developments in Europe and its fuel and food import dependency makes it highly vulnerable to commodity price volatility.

Key developments

1. The economic turmoil in Europe and drought take their toll on economic growth

Morocco has tight commercial ties with Europe, which represents the largest export partner and the main source of tourists (80%), remittances and investments. According to the IMF, a 2% downturn in Europe causes the Moroccan potential output to fall by 0.6% in the short term and 1.6% in the long term. In 2012, growth was sluggish at a decade low 2.4%, dragged down 1.4 percentage points by the external balance. Furthermore, growth was affected by drought which caused agricultural output to contract by 6%. With a 16% of economic activity and a 40% share of employment, agriculture plays a key role in economic activity and the contraction most probably also has affected private consumption which grew merely 2.5% (in comparison to 7.4% in 2011).

Figure 1: Growth rate reached a decade low
Figure 1: Growth rate reached a decade lowSource: EIU
Figure 2: Fiscal deficit breaks records
Figure 2: Fiscal deficit breaks recordsSource: EIU

Moving forward, the large fiscal deficit and the upward inflation pressures caused by recent energy price hikes constrain the government’s room for stimulating the sluggish economy through either fiscal or monetary policy. However, favorable weather forecasts support a 3.3% growth outlook for 2013 and a global economic recovery would bring the growth rate back to a robust 5% in the period 2014-2017. A matter of concern with respect to growth perspectives is the fact that excessive recurrent spending in recent years has impaired the governments options in investing in the economy.

2. A soaring fiscal deficit comfortably financed domestically

In 2012, Morocco’s fiscal deficit broke historical records, reaching 8.3% of GDP. Since 2011, the Moroccan government engaged in excessive spending in an attempt to contain the social unrest sparked by the Arab Spring. The large food and fuel subsidy bill (6% of GDP in 2012, three times the average before 2011) and an increasing wage bill weighed heavily on the fiscal deficit, pushing the public debt to a high 74% of GDP (from 65% of GDP in 2011). The shortfall has mainly been financed from domestically issued government debt. The easy access to domestic funds provides some comfort. It is also positive that some subsidies were reduced, but reforming the current model is crucial as it is deemed unsustainable. However, since the necessary reforms are harsh, the room given by the availability of finance could be used for a gradual implementation to avoid political backlash.

3. Aggravating external imbalances

Morocco’s import dependency (96% of the fuel demand and 40% of the wheat demand in 2011 were imported) combined with a surge of the prices of relevant commodities caused the current account deficit to soar to 9.8% of GDP in 2012. The widening began in 2008 when the economic crisis in Europe affected exports, services and remittances. In 2012, Morocco was forced to draw on its FX reserves to defend its pegged currency, resulting in a 28% drop (from 2010) of the reserves to USD 16.4bn or 4.6 months of imports. Finance for this balance of payments (bop) gap has readily been available. The IMF extended a USD 6.2bn precautionary credit line (yet unused), a USD 2.5bn credit from the Gulf was obtained and a USD 1.5bn maiden international bond issuance was oversubscribed. The availability of finance, in combination with a low external debt (34% of GDP) give the Moroccan government time to tackle the bop gap. There are plans to reduce import dependency through energy mix diversification and to increase the value of exports by climbing up the phosphates value chain. However, the subsidy bill will continue to result in excessive imports, so reforms in that area are crucial. 

4. Morocco, an Arab country in transition

Two years after the beginning of the Arab Spring, political reforms have made progress in Morocco. Even though Arab Countries in Transition – like Morocco - are characterized by intense political instability, this has been limited in Morocco. The new constitution of July 2011 - which has prevented an Arab Spring in Morocco - does give the elected government considerably more power on paper than in the past. Although, for the first time, an advice of the King on a political issue has been ignored in May 2013, in reality little has changed. Announced reforms have not yet been put into practice, and human rights provisions from the constitution have not translated into improved practices. The uncertainty surrounding the reform progress enlarges the chance for unrest and ambiguities among society. The latest development shows that the King - rather than reinforcing the greater powers and freedoms of political parties - looks set to strengthen the influence of the monarchy. On the one hand this can result in more centralized stability, but on the other hand it can also destabilize the parliament system. 

Factsheet of Morocco
National facts of MoroccoSource: EIU, CIA World Factbook, UN, World Economic Forum, Transparency International, Reporters Without Borders, World Bank, World Economic Forum.

Background information

In Morocco, services is the largest sector (53% of GDP) and tourism represents an important FX earner and source of employment. Industrial activity (32% of GDP) is dominated by the textiles and clothing industry targeting European markets.  Morocco is also the largest phosphate producer in the world (37% of total reserves that are found in only four countries), which makes it a vital trade partner for Europe. In the past decade, Morocco not only performed well economically but also made considerable progress on reducing poverty. Social development was supported through national programs for access to water, energy and transportation. Despite this, Morocco still lags behind when it comes to social development (see indicators) and is confronted with issues such as widespread illiteracy (55% in 2008) and gender inequality. Freedom of speech is also a problem as critics of the King, government and Islam can face criminal charges. Historically, the King was named commander of the faithful and seen as a descendant of the prophet Mohammed. It is estimated that over 10% of the Moroccans lives abroad, mainly in Europe and especially France. These Moroccans are not allowed by the King to give up their Moroccan nationality. This large expatriate population is economically important, as it is a major source of remittances and tourism. Therefore, they are continuously involved in the country’s economic reforms. Morocco faces an ongoing conflict with Algeria about sovereignty in Western Sahara. UN peace keeping resolutions are used to manage this conflict and little change is expected for the near future since a new peacekeeping resolution has been adopted on April 25th 2013.

Economic indicators of Morocco
Economic indicators of MoroccoSource: EIU
Alexandra Dumitru
RaboResearch Global Economics & Markets Rabobank KEO
+31 30 21 60441

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