IMF approves $2.97 billion liquidity line for Morocco

The International Monetary Fund approved a $2.97 billion (Dh10.9bn) liquidity facility for Morocco to help the North African country reduce its fiscal deficit and mitigate the risk of external shocks to its economy.

The two-year Precautionary and Liquidity Line (PLL) arrangement will allow Morocco to access $1.73bn of the total sum in the first year, the IMF said in a statement on Monday. The lender praised Morocco's progress in implementing economic reforms using the previous three PLL deals.

"A successor Precautionary and Liquidity Line arrangement with the fund will provide valuable insurance against external risks, and support the authorities’ policies aimed at further reducing fiscal and external vulnerabilities and promoting higher and more inclusive growth," said Mitsuhiro Furusawa, IMF deputy managing director and acting chair of the executive board.

Morocco had secured three credit lines from the IMF worth $6.2bn in 2012, about $5bn in 2014 and $3.5bn in 2016. The PLL is intended for countries with relatively good economic policies who face balance of payments needs because of external factors outside their control such as a rise in oil prices. As of March 2018, only the Republic of Macedonia and Morocco had used this type of IMF programme.

The rise in global oil and gas prices this year strained Morocco's budget, however the government has managed to reduce its fiscal and external vulnerabilities, according to the lender.

Morocco's spending on subsidies will increase to 18bn Moroccan dirhams in 2019, up by 5bn dirhams from this year, as the government continues to subsidise cooking gas, sugar and wheat, according to Reuters. The 2019 draft budget expects to curb the budget deficit to 3.3 per cent, down from 3.8 per cent this year.

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"The new PLL arrangement will provide insurance against external shocks and support the authorities’ efforts to further strengthen the economy’s resilience and promote higher and more inclusive growth," the lender said.

Morocco has made "significant strides" in its fiscal consolidation, reducing external imbalances, introducing a more flexible exchange rate regime and an improved business environment, the IMF said.

"Growth remained robust in 2018 and is expected to accelerate gradually over the medium term, subject to improved external conditions and steadfast reform implementation," Mr Furusawa said.

The economy is forecast to accelerate 3.2 per cent in 2019, down from 3.6 per cent this year, while inflation is estimated to be below 2 per cent, according to data released by the government of Morocco.

Despite the progress, the country's outlook depends on external risks including heightened geopolitical risks, slow growth in Morocco’s main trading partners and global financial market volatility, Mr Furusawa said.

The IMF called for further fiscal consolidation to reduce the ratio of public debt to the GDP in the medium term while securing investment and focusing on social spending.

Morocco should target tax and civil service reforms and strengthen oversight of state-owned enterprises, the IMF said.

A more flexible exchange rate will also help the economy absorb external shocks and remain competitive.

Reforms in education, governance, the labour market, and continued improvement in the business environment will be "essential" for growth, reducing high unemployment level and increase women's participation in the workforce, the IMF said.