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Morocco: Year in Review 2011

Morocco's economy continued to perform strongly in the third quarter of 2011, with GDP growth slightly lower than in previous quarters but still strongly outpacing its European neighbours to the north. Inflation was also down on recent months to very low levels.

The International Monetary Fund (IMF) has forecast further healthy expansion in 2012, saying that average GDP growth could reach as much as 6% in the medium term. The leading party in the country's new coalition government, the Justice and Development Party (PJD), is targeting 7% growth. Challenges for 2012 include tackling the country's rising subsidy bill and fiscal deficit (which the PJD hopes to do in part by widening the tax base) and keeping growth on track in the face of economic problems in the EU, Morocco's largest trading partner.

The Moroccan High Planning Commission estimates economic growth in the third quarter of 2011 stood at 4.1%, slightly below the first and second quarters when growth stood at 4.9% and 4.2%, respectively. The fall in growth reflected a comparative slowdown in the non-agricultural economy, which the commission estimated to have fallen from an expansion of 4.7% in the first quarter to 4.2% in the second and third quarters, and in the mining and tourism industries in particular.

There are also signs of a second consecutive quarterly contraction in the construction and public works sector, though based on survey results the High Planning Commission expects a steady end to the year for the industry. Moroccan GDP growth in 2011, which the IMF expects to be among the region's highest at 4.5-5%, was helped by plentiful rainfall that boosted the 2010-11 agricultural season. Moroccan agriculture accounts for between 13% and 17% of GDP and remains highly dependent on rainfall, which can therefore have a significant impact on overall economic growth. The Moroccan Finance Ministry also expects GDP growth for 2011 as a whole to be roughly 5%.

The strong agricultural season has also helped push down inflation by reducing the need for food imports at a time of high global food prices. This helped reduced the annual inflation rate from a peak of 2.2% in August to 0.8% in September and a loss of 0.4% in October. The High Planning Commission expects inflation to stand at 1.1% for the year as a whole, while the IMF expects a slightly higher rate of around 1.5%. Unemployment levels increased slightly in the third quarter to 9.1%, compared to 8.7% in the previous quarter and 9% in the same period of 2010.

The IMF currently predicts 2012 GDP growth should be about 4.5-5%, the same as 2011. Early indications for the 2011-12 agricultural seasons are promising, with rainfall levels in September to November slightly below those of the same period in the previous year but still above the 30-year average. However, much will depend on the level and timing of rainfall in early 2012.

According to the IMF's latest Article IV Consultation Staff report on Morocco, published in December, the domestic economy has performed well since the 2008 financial crisis, something it attributes to "several years of sound macroeconomic policies and political reforms", though it notes the slowdown in Europe - by far Morocco's most important export and tourism source market - could negatively affect further growth prospects.

It also said there was room in the government budget for wage increases and additional spending in order to maintain subsidies for basic goods at a time of high oil prices. The report further called on the government to take steps towards a more targeted subsidy regime in 2012, noting increased spending could expand the budget deficit to as much as 6% of GDP.

Tackling the deficit is a top priority for Morocco's new government, formed in the wake of the PJD's election victory on November 25. Abdelilah Benkirane, the new prime minister, said shortly after the elections that the PJD intended to adopt the budget being worked on by the outgoing administration, albeit with several changes. The party aims to eventually increase average annual GDP growth to 7%, lower the national unemployment rate by 2% and reduce the budget deficit to 3% of GDP. In order to achieve the latter target, the party aims to reform the country's subsidy system and to widen the tax base by, for example, raising taxes on luxury goods and empty properties.

It also hopes the tax raise on empty properties will discourage real estate speculation and encourage more efficient housing allocation. In order to strengthen small businesses, the party intends to reduce some other taxes, such as those on small farmers and very small enterprises, and aims to attract more private investment in large-scale development projects by removing bureaucratic impediments.

With such ambitious structural plans underway, Morocco is well placed to ride out 2012, continuing the growth it saw in 2011 and avoiding the threat of a slowdown from Europe.

© Oxford Business Group 2012