Discovering Morocco’s 2023 Economic Surge: 3.4% Growth, $139M Viaduct, Rate Cuts, Fiscal Deficit Reduction, and $25M Water Investment

In 2023, Morocco’s economy exhibited remarkable resilience and strength, standing tall amidst a global landscape fraught with challenges such as inflation, drought, and a devastating earthquake. This impressive performance was outlined in a comprehensive report presented to King Mohammed VI on Monday, underscoring the country’s ability to navigate and overcome formidable obstacles.

Central Bank Governor Abdellatif Jouahri meticulously detailed the nation’s economic achievements during a high-profile meeting with the King at the Royal Palace in Tetouan. Despite the myriad of difficulties facing the Moroccan economy, Jouahri highlighted a series of commendable metrics that paint a picture of resilience and strategic growth. The Moroccan economy managed to achieve a robust growth rate of 3.4%, a testament to its underlying strength and adaptability. Moreover, the nation saw a significant decline in inflation, which had surged to a peak of 10.1% in February but was brought down to an annual average of 6.1%. This reduction in inflation is a clear indicator of effective economic management and policy implementation.

One of the notable accomplishments was the narrowing of the current account deficit to a mere 0.6% of GDP, reflecting a balanced approach to economic management and international trade. However, Jouahri did not shy away from addressing the persistent challenges, particularly in the labor market. The country faced the daunting task of job losses amounting to 157,000, with the agricultural sector bearing the brunt of these losses. This sector, crucial to Morocco’s economy and livelihoods, continued to grapple with the adverse effects of drought and other environmental challenges.

In response to the earthquake’s economic repercussions, Jouahri emphasized the government’s swift and proactive efforts to establish a special fund dedicated to disaster management. This initiative underscores the nation’s commitment to rapid recovery and support for affected communities. Additionally, the governor highlighted Morocco’s progress in fiscal consolidation, noting that the budget deficit had been successfully reduced to 4.4% of GDP. This reduction is a clear indicator of the government’s prudent fiscal policies and efforts to ensure long-term economic stability.

Morocco’s strategic geographical location, coupled with its ongoing reforms, has significantly enhanced its status as a stable and attractive investment destination. Jouahri underscored that these factors have not only fortified the economy but also attracted substantial international attention. This growing global influence was vividly demonstrated when Morocco hosted the prestigious annual meetings of the World Bank and International Monetary Fund last October. Hosting such significant events underscores Morocco’s rising prominence on the global economic stage and its role as a key player in international economic discussions.

Looking ahead, Jouahri meticulously outlined the key challenges and opportunities that lie on the horizon for Morocco. He stressed the paramount importance of social dialogue, highlighting the need for inclusive and constructive discussions to address social and economic issues. Comprehensive pension reform was also identified as a critical area requiring attention to ensure the long-term sustainability of social security systems. Transitioning to a green economy was emphasized as both a necessity and an opportunity, with the potential to drive sustainable growth and environmental stewardship.

The governor also highlighted the urgent need for enhancing digital infrastructure, which is pivotal for modern economic development. A robust digital infrastructure will support innovation, efficiency, and competitiveness across various sectors. In this context, fostering a supportive environment for fintech innovation was seen as essential, given the transformative potential of financial technology in driving economic inclusion and growth.

To achieve these ambitious goals, Jouahri emphasized the critical role of public-private partnerships. Collaborations between the government and private sector are crucial for leveraging resources, expertise, and innovation. Additionally, increased foreign investment was identified as a vital component of Morocco’s economic strategy, bringing in capital, technology, and market access that are essential for sustained growth.

Maintaining macroeconomic stability emerged as a central theme in Jouahri’s address. This involves a careful balance of fiscal and monetary policies to ensure economic resilience and prevent volatility. Investing in human capital was underscored as a long-term strategy for economic prosperity. By enhancing education, skills development, and health, Morocco can build a workforce capable of driving innovation and productivity.

Improving the business environment was another key priority, aimed at creating a conducive atmosphere for entrepreneurship and investment. This includes regulatory reforms, infrastructure development, and policies that foster competitiveness and ease of doing business.

In summary, Morocco’s economic performance in 2023 is a testament to its resilience, strategic planning, and proactive governance. Despite significant challenges, the country has demonstrated its capacity to achieve growth, reduce inflation, and attract investment. Looking forward, the path to sustained economic prosperity lies in addressing structural challenges, fostering innovation, and leveraging strategic partnerships. Governor Abdellatif Jouahri’s detailed presentation not only highlighted past achievements but also charted a clear and ambitious roadmap for Morocco’s future, emphasizing stability, inclusiveness, and sustainable growth as the pillars of its economic strategy.

Morocco Begins $139M Viaduct Construction in Laayoune

Nizar Baraka, Morocco’s Minister of Equipment and Water, inaugurated the construction of the nation’s most extensive and longest road viaduct, a landmark development that signifies a major leap forward in Morocco’s infrastructural capabilities. This grand viaduct, which will span over Oued Sakia El Hamra near the Laayoune bypass, is poised to become a vital artery for transportation and economic activity in the region. The project, demanding a significant investment of MAD 1.38 billion (approximately $139 million), underscores the Moroccan government’s unwavering commitment to regional development and connectivity.

The viaduct is a cornerstone of the ambitious Tiznit-Dakhla expressway project, a comprehensive infrastructure initiative designed to transform transportation in southwestern Morocco. Stretching 1,648 meters in length and 21.4 meters in width, the viaduct will be constructed over a period of 40 months. This extensive timeline reflects the project’s complexity and the meticulous planning required to ensure its successful completion.

The inauguration of the viaduct construction is a testament to Morocco’s dedication to overcoming geographical and environmental challenges. Situated in a region prone to flooding, the viaduct is engineered to mitigate traffic interruptions caused by natural disasters, thereby enhancing road safety and ensuring consistent, reliable transportation routes. This strategic infrastructure project is not merely about building a road; it’s about building resilience and sustainability into the nation’s transportation network.

In his press statement, Minister Nizar Baraka emphasized the project’s uniqueness, highlighting it as the largest viaduct ever undertaken in Morocco. He praised the collaborative efforts of Moroccan companies, both local and national, who have been entrusted with the construction of various segments of the Tiznit-Dakhla expressway, including this pivotal viaduct. This partnership is a clear indication of the Moroccan government’s confidence in domestic expertise and the capability of national firms to deliver on such large-scale projects.

The construction launch, which serendipitously coincided with the 25th anniversary of Throne Day, was marked by detailed presentations on the Tiznit-Dakhla expressway project’s progress. This expressway is not just another road; it represents a monumental stride in Morocco’s infrastructure development, aiming to boost economic growth and regional integration. With a completion rate of over 97%, the project includes 980 kilometers of expressway and 15 major structures, all of which are now operational and open to traffic. This impressive progress reflects the efficiency and dedication of all parties involved in the project.

The Tiznit-Guelmim section of the expressway, spanning 114 kilometers, represents an investment of MAD 2 billion ($200 million) and is currently 87% complete. This section illustrates the intricate and expansive nature of the project, showcasing how strategic investments are transforming regional connectivity. The Guelmim-Laayoune segment, a more extensive stretch covering 441 kilometers and requiring a significant investment of MAD 6 billion ($600 million), has been completed and opened to traffic. This milestone signifies a major advancement in linking key economic zones and facilitating the flow of goods and people across the region.

Furthermore, the Laayoune-Dakhla section, covering 500 kilometers with an investment of MAD 1 billion ($100 million), has been successfully finished. The completion of this segment marks the culmination of years of planning and construction, resulting in a continuous and efficient expressway that enhances the region’s economic landscape. These developments are not just about creating infrastructure; they are about creating opportunities, fostering economic growth, and improving the quality of life for the people in these regions.

Minister Baraka highlighted the broader implications of these infrastructural advancements, stressing that the viaduct and the expressway are integral to Morocco’s strategic vision of becoming a regional hub for commerce and transportation. The viaduct, in particular, is expected to play a crucial role in reducing environmental impacts, improving safety, and enhancing the overall efficiency of the transportation network. This project is designed to address immediate logistical needs while also considering long-term sustainability and resilience.

The Tiznit-Dakhla expressway project also reflects Morocco’s commitment to leveraging its strategic location for economic development. Positioned at the crossroads of Europe, Africa, and the Atlantic, Morocco is uniquely placed to serve as a gateway for trade and investment. The expressway will facilitate smoother and faster transportation of goods, thereby enhancing trade efficiency and economic integration with neighboring regions and beyond.

The construction of the viaduct and the expressway is a clear demonstration of the Moroccan government’s forward-thinking approach to infrastructure development. By investing heavily in such projects, Morocco is not only addressing current transportation needs but also laying the groundwork for future growth and development. These projects are part of a broader strategy to modernize the country’s infrastructure, enhance its economic competitiveness, and improve the living standards of its citizens.

In summary, the inauguration of the longest road viaduct in Morocco by Minister Nizar Baraka is a landmark event in the country’s ongoing infrastructure development journey. The substantial investments, the strategic planning, and the collaboration with Moroccan companies all underscore the nation’s commitment to building a resilient, efficient, and sustainable transportation network. The Tiznit-Dakhla expressway project, nearing its completion, is a testament to Morocco’s vision of enhanced connectivity, economic growth, and regional integration. The viaduct, as a critical component of this project, symbolizes Morocco’s dedication to overcoming challenges and building a prosperous future for its people.

Fitch: Morocco’s Fiscal Deficit to Shrink to 3.4% by 2026

According to a recent report from Fitch Ratings, Morocco is poised to make modest yet significant strides in reducing its fiscal deficit over the coming years. The credit rating agency forecasts that the North African country’s fiscal deficit will decline to 3.4% of GDP by 2026, down from 4.3% in 2023. This anticipated reduction is the result of ongoing fiscal consolidation efforts by the Moroccan government, aimed at achieving more sustainable financial management.

A fiscal deficit occurs when a government’s total expenditures exceed its total revenues, excluding borrowings, within a given fiscal year. This scenario indicates that the government is spending more money than it is earning from taxes and other revenue sources, necessitating borrowing to bridge the gap. The Fitch report underscores the Moroccan government’s commitment to narrowing this gap through prudent fiscal policies.

One of the primary drivers behind the projected fiscal deficit reduction is a planned decrease in government spending. According to Fitch, total expenditure is expected to average 25.7% of GDP from 2024 to 2026, compared to 26.4% in 2023. This decrease is partly attributed to lower capital expenditures as Morocco moves beyond the immediate reconstruction costs following the devastating earthquake in 2023. Additionally, subsidy spending is forecasted to drop by about 1.2 percentage points of GDP as the country scales back on subsidizing gas canisters.

In a significant policy shift, the Moroccan government raised prices for subsidized butane gas cylinders by 25% in May 2024. This move is part of a broader strategy to roll back subsidies on gas, sugar, and wheat. However, Fitch cautions that the success of this subsidy reduction plan hinges on avoiding further external shocks that could pressure the government to maintain or even increase subsidies, potentially derailing fiscal consolidation efforts.

While expenditure on subsidies is set to decline, spending on social benefits is projected to rise by approximately 1.4 percentage points of GDP on average over the next three years. This increase reflects the government’s initiatives to expand social safety nets, including the introduction of unemployment benefits for self-employed and non-salaried workers. Additionally, a new family allowance scheme was introduced in late 2023, and the compulsory basic health insurance system has been broadened since 2022.

On the revenue side, Fitch expects Morocco’s total revenue to average 21.9% of GDP between 2024 and 2026, slightly down from 22.2% in 2023. Tax revenue, in particular, is anticipated to fall by around 0.5 percentage points of GDP from 2023 levels. Planned reforms to streamline corporate income tax and value-added tax rates are not expected to significantly boost revenue in the short term, as higher rates in some areas will be counterbalanced by lower rates in others.

To mitigate potential revenue shortfalls, Morocco plans to increase its reliance on innovative financing mechanisms, such as the sale and lease-back of state assets. These methods are projected to contribute around 2.1% of GDP to government revenues from 2024 to 2026, up from an average of 1.0% between 2019 and 2023. However, Fitch warns that these mechanisms are generally one-off in nature and may not provide a sustainable long-term solution.

Fitch Ratings also notes that a significant and sustained reduction in Morocco’s general government debt-to-GDP ratio could lead to positive rating actions. The agency’s current baseline scenario sees this ratio falling marginally to 69.7% by 2026, from 70.2% in 2024. Although this remains higher than the median of 55% for countries in the ‘BB’ rating category, it reflects a gradual improvement in Morocco’s fiscal health.

The Moroccan government has set even more ambitious targets than Fitch’s projections, aiming to reduce the fiscal deficit to 3% of GDP by 2026. Achieving this goal could accelerate positive outcomes, especially if social spending is lower than expected, tax reforms enhance revenue collection, or economic growth surpasses the projected average of 3.3% for 2024-2026. Such progress would not only improve Morocco’s fiscal position but also enhance its attractiveness to investors and international partners.

In summary, while Morocco faces significant challenges in achieving long-term fiscal improvements, the government’s ongoing efforts to reduce the fiscal deficit and manage expenditures more effectively are noteworthy. By balancing subsidy reductions with increased social spending and exploring innovative financing solutions, Morocco is taking important steps towards sustainable financial management. The path ahead requires continued diligence and adaptability to ensure that fiscal consolidation efforts lead to lasting economic stability and growth.

Fitch: Morocco’s Central Bank Plans 2024 Rate Cuts

According to Fitch Solutions, Morocco’s central bank, Bank Al-Maghrib (BAM), is poised to continue a series of strategic policy rate cuts throughout the latter half of 2024. This anticipated adjustment in monetary policy is a reflection of Morocco’s unique economic landscape, setting it apart from other North African countries such as Algeria, Egypt, and Tunisia, which are expected to maintain their current rates amidst persistent inflation concerns.

The latest comprehensive report from Fitch Solutions projects a significant cumulative reduction of Morocco’s key interest rate by 50 basis points (bps) by the close of 2024. This follows an earlier rate cut implemented in June, demonstrating BAM’s proactive approach to monetary easing. Specifically, the central bank is expected to implement two additional 25 bps cuts in September and December, ultimately bringing the key rate down to a historic low of 2.25% by year-end.

This forecast is underpinned by Morocco’s strikingly low inflation rate, which had dropped to 1.8% year-on-year by June 2024. This marked reduction from the double-digit inflation rates of the previous year signifies a dramatic turnaround in the country’s economic conditions. Despite the Moroccan government’s decision to reduce subsidies on butane gas—a move initially projected to exert upward pressure on consumer prices—inflation has remained consistently below the 2.0% threshold. This favorable inflation environment has afforded BAM the necessary leeway to pursue a more accommodative monetary policy without risking macroeconomic stability.

The series of planned rate cuts form a critical component of Morocco’s broader economic strategy aimed at stimulating growth, enhancing employment, and boosting competitiveness. By reducing borrowing costs, BAM aims to inject vitality into the economy, making credit more accessible to both businesses and consumers. This accessibility is expected to drive increased investment and consumption, which are pivotal for sustaining economic growth.

Lowering the policy rate is also a strategic move to alleviate the government’s debt servicing costs. With lower interest rates, the cost of servicing existing debt decreases, freeing up fiscal resources that can be redirected towards other vital sectors of the economy, such as infrastructure, education, and healthcare. This not only enhances the overall economic environment but also improves the quality of life for Moroccan citizens.

Fitch Solutions’ report anticipates that inflation will remain low, hovering around 1.9% into 2025. This stable and low inflation outlook is crucial for sustaining the central bank’s accommodative stance. The continued reduction in policy rates is predicated on this favorable inflation trajectory, ensuring that the monetary easing does not lead to overheating or other destabilizing economic conditions.

An additional factor influencing BAM’s decision-making process is the need to maintain a favorable interest rate differential with major global economies, particularly those governed by the European Central Bank (ECB) and the US Federal Reserve. Morocco’s managed currency peg to the Euro necessitates a careful balancing act in terms of interest rate policies to ensure economic stability and competitiveness on the international stage. By strategically lowering its policy rates, BAM aims to maintain this delicate balance, ensuring that Morocco remains an attractive destination for international investors.

The impact of these rate cuts extends beyond mere economic metrics. By making borrowing cheaper, BAM is fostering an environment conducive to entrepreneurship and innovation. Lower interest rates reduce the cost of capital for businesses, enabling them to invest in new projects, expand operations, and create jobs. This, in turn, stimulates economic activity across various sectors, from manufacturing and services to agriculture and technology.

Moreover, the reduced borrowing costs are expected to benefit consumers by making loans for housing, education, and other personal needs more affordable. This can lead to an increase in consumer spending, further driving economic growth. The ripple effects of these rate cuts are anticipated to permeate through the economy, creating a virtuous cycle of growth, investment, and employment.

The broader economic implications of BAM’s policy adjustments are profound. By adopting a proactive and accommodative monetary policy, Morocco is positioning itself as a resilient and dynamic economy capable of weathering global economic uncertainties. The central bank’s strategic rate cuts are not just a response to current economic conditions but also a forward-looking measure aimed at securing long-term economic stability and growth.

In conclusion, BAM’s anticipated rate cuts throughout the second half of 2024 represent a calculated and strategic response to Morocco’s evolving economic landscape. The central bank’s decision to lower policy rates is rooted in a comprehensive understanding of the country’s inflation dynamics, fiscal needs, and global economic context. By reducing borrowing costs, BAM aims to stimulate economic activity, enhance competitiveness, and ensure sustainable growth. This approach underscores the central bank’s commitment to fostering a stable, dynamic, and inclusive economic environment, setting the stage for Morocco’s continued prosperity and development in the years to come.

Dakhla Invests $25M in Water Projects for Throne Day

The southern Moroccan city of Dakhla has embarked on a substantial initiative to enhance its potable water supply and wastewater management systems, mobilizing nearly MAD 250 million (approximately $25 million) for these critical projects. This investment was officially announced during a ceremony held to commemorate the 25th anniversary of Throne Day.

During the ceremony, King Mohammed VI delivered a notable speech, highlighting the transformative impact of water desalination plants on Morocco’s southern provinces, with a particular focus on Dakhla. These plants have been instrumental in driving both economic and social progress in the region, a fact that the King underscored in his address.

King Mohammed VI expressed his strong support for expanding the Dakhla desalination plant and increasing the production capacity of similar facilities across the country. He emphasized the region’s significant potential for clean energy production, which is crucial for supporting the growing demands of agriculture, tourism, and industry. More importantly, he highlighted the need for advancements in water management to ensure sustainable development throughout Morocco.

On the same day, Ali Khalil, the Wali of the Dakhla-Oued Eddahab region and Governor of the Oued Eddahab province, alongside notable figures such as Mohamed Boubekri, the Regional Director of the Sahara Provinces at the National Office of Electricity and Potable Water (ONEE) – Water Branch, and Khalid Zouhari, the General Director of the Dakhla Development and Planning Company, officially inaugurated two major projects aimed at improving the city’s water infrastructure.

The first project, with an investment exceeding MAD 72.32 million, focuses on rehabilitating the potable water distribution network. This project includes refurbishing 79 kilometers of water pipelines and upgrading 7,323 connections. The goal is to enhance network efficiency and significantly reduce water loss. Scheduled for completion within eight months, this project is a collaborative effort involving the Dakhla Wilaya, the Regional Council, the Municipal Council, the Provincial Council of Oued Eddahab, ONEE’s Water Branch, and the Dakhla Development and Planning Company.

The second initiative addresses the need for improved wastewater management across several neighborhoods, including Al Massira, Al Wakala, Oum Tounssi, Al Amal, and El Kassam. With a budget of over MAD 112.35 million and an expected completion time of seven months, this project involves the installation of 53 kilometers of sewerage channels and 2,150 new connections. This substantial upgrade aims to enhance sanitation and environmental health in these areas.

In addition to these projects, the Wali and his delegation reviewed another crucial initiative to bolster the city’s potable water supply. This effort, which has a budget of MAD 64 million and is over 90% complete, is led by ONEE’s Water Branch in partnership with the regional Wilaya and the Dakhla municipality. It involves installing and connecting two new wells and renewing a 19-kilometer water supply pipeline that links a 1,000-cubic-meter reservoir in Taourta to a 500-cubic-meter reservoir in the Nahda neighborhood. Furthermore, a new semi-buried reservoir with a 1,500-cubic-meter capacity will be constructed in the same area.

These comprehensive projects are set to make a significant impact on addressing Morocco’s potable water deficit. They pave the way for a sustainable water supply, which will be further supported by a new shared desalination plant currently under construction and scheduled to be operational by the end of 2025. This plant is expected to meet both agricultural and potable water needs, contributing to long-term water security in the region.

In his Throne Day address, King Mohammed VI underscored the critical importance of water conservation, framing it as a “national responsibility” that requires the collective effort of all Moroccans. He declared, “Preserving water is a national responsibility that concerns all institutions and all stakeholders. It is also every citizen’s solemn duty.” This call to action highlights the broader commitment to sustainable water management and the role of every individual in safeguarding this vital resource.