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Morocco: A Model Running Out Of Steam

ByBNP Paribas
AuthorPhilippe d'Arvisenet
Published 05/19/2013, 07:25 AM
Updated 03/09/2019, 08:30 AM

In a region swept by numerous upheavals since the Arab Spring erupted in 2011, Morocco stands apart for its relative stability.

From a political perspective, although the kingdom was hit by social unrest, King Mohammed VI’s legitimacy was never really disputed. Pressures were rapidly reduced by stepping up social measures and opening up the political process.

From an economic perspective, Morocco also stands out for the resilience of its fairly high growt rate fuelled by a robust domestic demand. The main explanations are a solid banking sector, low inflation and limited exposure to external financing.

Yet external imbalances and budget deficits have widened dramatically, particularly over the past two years, as the energy bill has soared and sources of hard currency have dropped off due to the eurozone crisis (exports, tourism revenues, and remittances from the Moroccan diaspora). Looking beyond cyclical factors, the deterioration of these twin deficits raises questions about Morocco’s growth model. To restore the viability of public finances, it will be necessary to reform the system of price subsidies, a mechanism that until now has helped to soften inflationary pressures. Politically, this is a highly sensitive issue, but it is the price the authorities will have to pay to avoid undermining solvency.

Improving the external competitiveness of the manufacturing sector and creating an institutional framework propitious for the development of the private sector are other major challenges for lifting the Moroccan economy back onto the path of stronger growth and curbing chronic unemployment, notably among youth.

BY Stéphane ALBY

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