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S&P retains Morocco's rating, but revises its outlook downwards



           


Automobile exports were 33% lower than those of 2019 during the same period (photo: F.Dubessy)
Automobile exports were 33% lower than those of 2019 during the same period (photo: F.Dubessy)

MOROCCO. The rating agency S&P confirmed on Friday, October 2, 2020, the "BBB-/A3" rating of long and short-term sovereign credit in foreign and local currency of Morocco but revised downwards its outlook from "stable" to "negative".

This change indicates that the rating could be downgraded in the next twenty-four months.

It justifies this decision by "the serious repercussions of Covid-19 on external and domestic demand". In particular, S&P cites disruptions in global supply chains in commodity and raw material markets. Restrictions on international travel also weigh heavily. Investments and especially exports are expected to collapse in 2020 according to the rating agency.
Exports of the main sources of growth in the non-agricultural sector (automotive, aeronautics, electronics) were respectively 33%, 18% and 5% lower than those of the same period in 2019.

S&P forecasts a contraction of the country's real GDP probably of 5.5% in 2020. It should then gradually recover with growth of around 4.2% in 2021 and 2022, provided that an effective treatment or vaccine against the pandemic is available in 2021. The budget deficit is projected to widen to around 7.7% of GDP in 2020 (against a revised target of 7.5% in August 2020) and net public debt will increase to 65.9% of GDP in 2020.

A package of measures adopted
According to the agency, "the current account deficit will widen to 6.4% of GDP this year before strengthening only slowly in 2021-2023, which will increase the gross external financing needs of the economy".

Morocco has announced a series of measures, including wage subsidies and loan holidays for employees and financial support for households working in the informal sector, as well as corporate tax exemptions, loans and social contributions for small and medium-sized enterprises. These measures were initially planned to last until the end of June, but have been extended until the end of December 2020 in the tourism sector. They are financed by a special fund of around 3% of GDP with tax-deductible contributions from the public and private sectors. The government has accelerated payments to its private sector suppliers - following the reduction of its payment terms to suppliers in 2019 - and to public enterprises, and has settled its payment arrears with the private sector. At the same time, the central bank adopted measures to address the increasing liquidity risks in the light of the sudden halt in economic activity.

S&P praises the Moroccan strategy

In August 2020, an economic recovery plan of 120 billion dirhams (€11 billion) was launched to guarantee credits to companies and finance a new Strategic Investment Fund. It will be used to finance projects, notably through public-private partnerships, but will also help to recapitalise companies to support their development. At the same time, Morocco's 2020 budget includes the creation of a Business Financing Support Fund for economic development. Endowed with 8 billion dirhams (734 M€) over three years - of which 3 billion dirhams (275 M€) by the State, 3 billion by the banking sector and 2 billion (184 M€) by the Hassan II Fund -, it will target young graduates, VSEs and export-oriented companies.

"We believe that once the effects of the pandemic begin to subside, the change in the underlying economic structure of the country will continue and will benefit the prospects for growth and economic stability. This change will be supported by the resumption of foreign direct investment (FDI) and a more resilient agricultural sector, both of which are supported by the government's strategy to promote private sector activity and limit or, in some sectors, reduce the role of government in the economy," S&P experts note.

The agency further stresses that "Morocco has largely demonstrated political and social stability, especially after the Arab Spring. This has been achieved through constitutional reforms, increased public spending aimed at economic development and a reduction in economic inequalities in less developed regions".

 


Frédéric Dubessy


Monday, October 5th 2020



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