Fitch Affirms Morocco at ‘BB+ with Stable Outlook
Fitch Ratings has affirmed Morocco’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB+’ with a Stable Outlook. According to the rating note, Morocco’s ‘BB+’ ratings reflect the country’s sound macroeconomic policies, strong official creditor support, favourable debt profile and comfortable liquidity buffers.
These strengths are balanced by lower development and governance indicators compared with peers, high government debt and the economy’s exposure to adverse weather conditions, the rating agency said.
In 2023, Morocco’s economy grew by 3.4% from 1.5% in 2022, driven by strong non-agricultural sector performance and a rebound in agricultural output following a sharp contraction in 2022.
Fitch anticipates growth to slow to 3.0%, in 2024 as limited rainfall stunts agricultural production.
“We expect growth to average 3.5% over 2025-2026 on the back of normalising agricultural output and sustained non-agricultural sector performance. We expect strong external demand to provide tailwinds to tourism and the automotive industry, while the government’s homeownership policies bolster the construction sector”.
Last year, the central government (CG) deficit narrowed to 4.3% of GDP versus 5.4% in 2022 owing to a decline in subsidy spending as a result of lower international gas prices.
The ratings analysts forecast the budget deficit would further edge down to 4.1% and average 3.6% over 2025-2026, compared with a ‘BB’ median forecast of 3.6% in 2024 and 2.6% over 2025-2026.
Fitch analysts expect revenue to average 22.0% over 2024-2026 as lacklustre performance in tax revenue is offset by increasing recourse to so-called “innovative financings” to around 2.1% over 2024-2026 from 1.7% in 2023.
The government has used these mechanisms, which generally involve the sale and lease-back of state assets, to enhance revenue since 2019, the rating note added.
“We anticipate expenditure to average 25.7% of GDP over 2024-2026 owing to lower capex of about 6.3% over 2024-2026 due to on-budget reconstruction costs associated with the 2023 earthquake decrease”.
In the rating note, Fitch analysts also forecast subsidy spending to decline to an average 0.8% of GDP over 2024-2026 as the gradual scaling down of price support on butane gas is implemented.
“We expect spending on social benefits to surge to 2.3% of GDP, reflecting the implementation of plans to extend unemployment benefits”.
On debt, analysts are expecting government debt to moderately increase to 70.0% of GDP in 2024 and stabilise over 2025-2026
Despite the comparatively high debt-to-GDP ratio, Fitch estimated refinancing and exchange rate risks are contained.
Last year, government debt stock was mostly long- and medium-term instruments (88.2% of total debt stock), with fixed interest rates (88.4%) and dirham-denominated (72.3%).
The external debt stock is predominantly concessional, with multilateral and bilateral debt representing 52.4% and 13.5% of external debt stock, respectively.
Morocco’s current account deficit (CAD) declined to 0.6% of GDP in 2023 from 3.7% a year earlier, as lower international prices slashed the energy import bill.
In 2024, Fitch said it forecasted the current account deficit to edge up to 1.2% and average 1.5% over 2025-2026, as the services surplus stabilises and the trade deficit moderately widens.
“We forecast the trade deficit to average 17.6% of GDP over 2024-2026 driven by expected consolidation of domestic demand and the improving performance of exports, which will boost imports of consumer products and intermediate goods, respectively.
“We expect the current account to benefit from the strong service balance surplus of 9.0% of GDP over 2024-2026, on the back of a solid tourism sector performance, as well as strong net current transfers as remittances inflows remain high at around 7.4% of GDP over 2024-2026”.
Net foreign and direct investment (FDI) inflows reached 0.2% of GDP in 2023, their lowest level in three decades, due to unfavourable external conditions.
Fitch Ratings expect net FDI to rebound to 0.8% in 2024, on the back of strong investment inflow in the automotive sector. Morocco is set to benefit from China’s supply chain regionalisation as the latter faces US and EU import restrictions.
Morocco’s external resilience is underpinned by USD37.3 billion of foreign reserves as of August 2024. In 2023, the weak FDI performance was partly offset by the sovereign’s issuance of a USD2.5 billion Eurobond. In 2023, the IMF approved a two-year flexible credit line with Morocco forUSD5.0 billion, which represents an additional buffer.
“We forecast foreign reserves to remain robust, benefiting from strong export receipts and recovering net FDI inflow”.
Fitch Ratings analysts also expect foreign reserves to average 5.2 months of current external payments over 2024-2026, higher than the average ‘BB’ median of 4.6 months. #Fitch Affirms Morocco at ‘BB+ with Stable Outlook
