Download the Country Brief (PDF) During the last 30 years, Morocco has embarked on a gradual but solid program of human development and political liberalization. Since the 1970s, gross national income per person more than quadrupled from $550 to $2,770. The average life expectancy has increased from 55 years in 1970 to 72.5 in 2007. During the same period, the average number of births per woman has seen a dramatic decline from 6.3 to 2.3 while the number of children dying before age one has dropped from 115 to 38 (per 100,000 live births). Substantial educational improvements during the past 30 years include a primary school net enrollment increase from 47 to 93.5 percent in 2007. Access to safe water is expanding particularly rapidly with quasi-universal access to potable water in urban areas where 83 percent of households are connected to reliable network service and the rest rely on standpipes and vendors. Morocco has made particularly strong economic progress since 2001 with growth rates averaging around 5 percent, a progressive diversification of the economy and solid macro-economic management. This has allowed it to bring about a decrease in the overall poverty rate from 15.3 percent in 2000/01 to 9 percent in 2006/07. Morocco benefits from a dynamic civil society and private sector, and a capable Government with a clear vision. It is fully committed to greater regional integration, particularly with Europe where it holds “Advanced Association Status” with the European Union. Investors’ confidence has increased substantially in response to the reforms in the investment climate which have been supported by the Bank among others. In particular FDI has increased, reaching $4.5 billion or 6 percent of GDP in 2007 (the global financial crisis has had an impact on this however with FDI expected to decline by 20 percent in 2008). Unemployment rates are falling constantly and are now at a 30-year low, although they do still remain high at around 9 percent. These features, together with a relatively good base of human and physical capital and a critical geographic position at the mouth of the Mediterranean, have positioned Morocco well on the international stage to achieve stronger growth and development and derive greater benefits from integration and globalization. Despite progress, Morocco still confronts formidable challenges, which include vulnerability to shocks (natural and economic); inadequate social indicators relative to the country’s income level; high unemployment, especially among youth; and increasing pressure on natural resources, especially water, which is exacerbated by climate change. Large segments of the population remain socially and economically marginalized and, notwithstanding the considerable reduction of absolute poverty, economic vulnerability remains widespread. Health indicators – especially for women and children – are well below what they should be with an especially high incidence of maternal mortality (227 for 100,000 live births in 2003) and child malnutrition (estimated at one in five children). The speed with which primary education has been generalized has not been accompanied by a similar progress in education yields: access to primary education is almost universal yet only two-thirds of children aged 6-11 complete primary school. Although Morocco is a strong reformer in the area of private sector development, the pace of structural change of the economy remains slow and the private sector is still not fully convinced of the credibility of reforms, the effectiveness of policies and their equal enforcement across the board. Consolidating development achievements will necessitate sustained and faster growth which itself will hinge on improving competitiveness. So far, Morocco has pursued a strategy of selective market opening through bilateral agreements which have allowed it to grasp some of the opportunities offered by global markets. But its overall trade regime retains a fundamental anti-export bias compounded by the fixed exchange regime. To reap more benefits of globalization, Morocco will need to step up its efforts on reforming the trade regime and opening the domestically-focused services sectors to competition. Moroccan agriculture remains one of the least productive in the region, employing about half of the labor force but contributing just 16 percent to GDP. The challenge is to move up the value-chain in agricultural production and reform the sector through phasing out the ineffective subsidy system and protection of cereal production. Finally, the role of the secondary and tertiary sectors will need to expand in order to bring about the much sought-after employment creation. This calls for further sophistication, identification of production niches where competitiveness can be pursued and a transformation of the economy to a more knowledge-based one. Ensuring common prosperity is a major policy imperative which calls for the pursuit of a growth strategy that is both poverty-reducing and equity-enhancing. Reducing unemployment is key to closing the gap between the prosperous elements of the country and the poor and disadvantaged ones. Current rates of growth are insufficient to absorb the growing labor demand produced by Morocco’s demographic transition, the diminishing role of agriculture in absorbing labor and the social transformations which have led to a more active role of women in the job market. The government has intensified its efforts at building efficient social safety nets and social insurance schemes in the past years but ineffective redistribution mechanisms, volatile food and energy prices and natural disasters still threaten the livelihoods of the poor and vulnerable. Morocco is also confronted by a poor endowment of natural resources which is being further threatened by the negative impacts from climate change. Water scarcity is the most urgent issue in this regard – Morocco already faces insufficient water resources to meet current needs and climate change will impose further constraints. This is exacerbated by poor water use in agriculture and weak water sector institutions. The country is heavily dependent on energy imports (97%) and lacks the needed investments to maximize the vast potential offered by solar and wind energy sources. Government Program The Government has set out a clear path for its development goals and has embarked on a wide-ranging economic and social reform program. This program is intended to continue and improve the good performance in growth rates with stepped-up efforts in strengthening governance, improving the business climate and ensuring greater prioritization and implementation of reform efforts. In assuming the throne in 1999, King Mohammed VI set out a vision of rapid growth, poverty eradication and better social conditions. Since then, successive governments have articulated this vision by identifying the sectoral and structural constraints based on sound analysis, developing a set of sector strategies and allocating public funding to strategic priorities. The result is an ambitious program of political, economic and social reforms, whose effects are starting to be visible today. Recent Economic Developments The impact of the on-going global crisis on the Moroccan economy is mixed. On the one hand, thanks to continued sound macroeconomic policies and sustained structural reforms the macroeconomic stance of Morocco remains stable, public finances are strong, the financial sector is sound, and the economy is more resilient to shocks. As a result, growth rates are relatively good (3.7 percent in the first quarter of 2009), inflation has come down to 2.2 percent from 3.9 percent last year, unemployment is declining (down to 9 percent from 9.6 percent), and public finances are sustainable with budget surpluses in 2008 and in the first half of 2009 and declining public debt (45 percent of GDP end-June 2009). Growth is expected to rise to 4.5 percent in the second quarter of 2009 due to a good harvest and a firming of domestic demand. On the other hand, the global crisis revealed vulnerabilities in the structure of exports that lack diversification and competitiveness, and in the subsidy system, which is costly, untargeted, and inefficient. The recent steep decline of exports (down by 28 percent compared to same period in 2008) led to a worsening trade balance. Exacerbated by declining tourism receipts (down by 14.4 percent) and workers’ remittances (down by 12.5 percent), the current account balance turned into a worrisome deficit (5.4 percent of GDP) after surpluses achieved between 2001-06. However, the external position remains manageable, with comfortable foreign reserves. A balanced export-led strategy is critical to enhance growth potential and strengthen external position while reforming the subsidy system would improve equity and consolidate public finances. The prospects for 2009 as a whole remain optimistic because of recent signs of recovery in external demand (mainly textiles and phosphate products) and rising agricultural output. Overall, the growth rate is expected to average about 4.5-5 percent for the entire year. Inflation should stay low at around 2.5 percent while unemployment should stabilize at 9 percent. The current account deficit will widen to around 6 percent of GDP as capital inflows, tourism receipts and workers’ remittances continue to decline moderately. The budget deficit is expected to edge up to 3 percent of GDP as the fall in subsidies will not offset expected revenue losses and rising investment outlays (up 25 percent) envisaged in the Budget Law 2009. As a result, public debt is expected to return to its end-2008 level of 47 percent of GDP. Government has implemented several measures to help affected firms cope with the decline of external demand. These measures comprise the following: (i) Provide guarantees for up to 65 percent for working capital loans; (ii) Finance up to 80 percent of costs of promotion campaigns and market surveys; (iii) Extend insurance risk coverage for exports; (iv) Facilitate rescheduling the repayment of long term debt; (v) Ease regulations affecting imports covered by the temporary admission scheme; (vi) Provide training and logistics in partnership with business associations; and (vii) Ease regulations pertaining to the payment of social insurance by employers in eligible cases (applying to firms that have had a 20 percent loss but continue to retain employees). To date, the results of the support program for businesses were mixed. The government identified some 1,098 firms that were badly hit by the global crisis, of which 906 were operating in the textile and clothing sectors, 115 in leather industries, and 65 in the automotive sector. However, only 632 firms applied for support and only 525 were fully eligible. It is possible that the low rate of take-up is due to the fact that only formal sector firms who are in compliance with social security regulations have been considered eligible whereas many affected firms operate in the informal sector. Economic stimulus was also provided through monetary easing. During the nine months from October 2008 to July 2009, reserve requirements for banks were cut in steps from 15 percent to 10 percent. The Central Bank, however, kept its policy rate unchanged to contain inflationary pressures. In this context, credit to the private sector continued to grow over the first half of 2009 (up 15 percent, y-o-y), mostly driven by credit to consumption (up 24 percent), equipment (up 23.8 percent), and real estate (19.4 percent). Prospects for 2010 are relatively good. The Budget Law 2010 under preparation projects a moderate growth rate of 3.2 percent, mostly driven by the non-agricultural sector (up 4.1 percent) while agricultural output would decline after the outstanding result of 2008. Inflation is expected to remain under control, at around 2.5 percent, and unemployment should stay below 10 percent. The fiscal stance is projected to remain sustainable, with fiscal deficits remaining under the targeted threshold of 3 percent of GDP, and debt continuing to decline, benefiting from the ongoing fiscal and subsidy reforms, as well as a better-controlled wage bill. The current account is projected to slightly improve contingent on a slow, but steady recovery in Morocco’s main trading countries, especially Europe, which would allow a moderate recovery in exports, workers’ remittances, tourism, and possibly FDIs. World Bank Partnership The World Bank has a broad engagement in Morocco that covers the full menu of activities for a well-performing middle-income country – lending, AAA, and a broad trust fund portfolio. The central tenet of the Bank’s partnership with Morocco is alignment on the country’s vision. Morocco is a sophisticated MIC with a clear understanding of the challenges ahead, a reform process underway in most sectors and a set of forward-thinking strategies already laid out. The partnership has solidified during the past few years based on an appreciation for the flexibility and responsiveness embedded in the Bank’s program which allowed the Bank to adapt its support in line with the rapidly evolving reform environment. This approach has led to an increase in the number and diversity of business requests and, more importantly, to requests for high-value, path-changing operations. The new Country Partnership Strategy (CPS) for FY10-13 is currently under development for delivery by December 2009. The partnership detailed in the CPS has evolved between the Government and the Bank over the past two previous CAS cycles and is based on clear principles and rules of engagement that have emerged. The Bank and the Government have agreed on three pillars: (1) Growth, employment, competitiveness; (2) Services to citizens; and (3) Development sustainability in a changing climate. Continued flexibility is emphasized and the program will seek to provide support with the potential for path-changing, long-run impact. The Government has expressed strong preference for development policy lending (DPLs). Specific areas where the Government has recently requested Bank assistance include financial sector reform, urban transport, judicial reform, trade and commerce, climate change adaptation and mitigation, and support to the agricultural strategy “Green Plan”. These requests build on a broad engagement already by the Bank in areas such as public administration reform, transport, energy, solid waste management, water and sanitation. The Bank’s program is defined by its focus on DPL support across medium-term reform programs with different phases of IBRD lending. There are already sectors where the Bank has previously delivered DPLs such as public administration, solid waste and energy and where our continued engagement is requested. Moreover, there are several DPLs under preparation in sectors where the Government has more recently invited the Bank to be a partner - financial sector, urban transport, and education. A third category of DPLs is in those sectors where we have previously provided support – water, housing – and where future DPL engagement is still to be confirmed. Finally, we have initiated constructive dialogue in sectors such as trade and commerce, skills development and employment, health and agricultural development where we also expect to get official requests for DPL support. As of September 1, 2009, the Bank’s portfolio in Morocco consisted of 7 investment operations and one DPL in Solid Waste for a total net commitment of US$566.47 million. Total disbursements to date in the on-going portfolio have reached US$166.4 million with the DPL for Solid Waste ($132.7 million) pending disbursement in the coming weeks. The disbursement ratio in FY09 at 21.4 percent is slightly higher than the Bank’s average. There is just one problem project for Agricultural Development which is currently being restructured. The Bank’s current investment portfolio includes the National Initiative for Human Development (INDH) which is supported by a SWAp Bank loan of US$100 million approved in December 2006. There has been considerable progress in implementation, but many weaknesses remain: participatory methods have not yet taken hold on the ground, more infrastructure projects are materializing than Income Generating Activities, capacity building programs are limited, and the M&E system is not fully functional. The second disbursement of $20 millions, due on March 31, 2008, has not happened yet. The project is now in problem status and the on-going mid-term evaluation will endeavor to monitor and accompany carefully the implementation challenge. There is a robust FY10 investment lending pipeline. The Oum Er Rbia Irrigation project ($70m), under preparation for FY10 delivery, will pioneer implementation of the National Plan for Conservation of Irrigation Water, while seeking higher irrigation productivity, assistance to manage lower water availability and control groundwater extraction. The Government has requested additional financing of approximately $85 million to the Rural Roads program that will be delivered in the coming months. The Oum Er Rbia Sanitation project ($40m) will aim to improve sewerage services and municipal pollution control in urban centers of the Oum Er rbia river basin. Finally, the Urban and Rural Water Supply project ($150 million) will support the Government’s efforts to increase access to potable water in rural areas and strengthen water supply capacity to meet growing urban and rural demands. IFC: Between FY05 and FY09, IFC achieved a complete turnaround of its investment and advisory activities in the country, reaching record levels of commitments, establishing important partnerships with the government and restoring its own confidence in the Moroccan market. In FYO8, IFC' s investment activities picked up significantly with over US$240 million committed, up from US$23 million in FY07 and US$4 million in FY06. Commitments were distributed through six projects in a large span of sectors - commercial banks, microfinance, wastewater local public utilities, investment funds for SMEs and property development in low-income housing. On the advisory side, IFC established key partnerships with government entities such as with the Ministry of Justice on commercial mediation; the Casablanca Regional Investment Center on business simplification; and with the Central Bank on the credit bureau project. These projects aim at strengthening the business environment for the private sector in Morocco. For FY09/FY10, IFC is considering several investments in key sectors such as the insurance, microfinance, ports, power, urban transport and manufacturing sectors. Further, IFC is engaged in early stage discussions with leading Moroccan banks to promote south-south investments in Sub-Saharan Africa. MIGA does not have any outstanding exposure in Morocco and has not received any requests to provide guarantee coverage for inbound investment during FY09. September 2009 For more information, please contact:
In Washington: Najat Yamouri, nyamouri@worldbank.org |
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