IMF report card gives Morocco thumbs up – for now



IMF report card shows challenges to sustained economic growth in Morocco

While there is a great deal of common wisdom about what the Arab governments need to do to more effectively participate in the global economy, there is much less certainty about how to get there. With no magic formula to follow, there is growing attention to the role of multilateral institutions in supporting progressive policies. For example, as Morocco continues to move forward with its economic reform agenda, the Executive Board of the International Monetary Fund (IMF) completed its first review of Morocco’s performance required under a two-year Precautionary Liquidity Line (PLL) arrangement. Agreed last August, the PLL arrangement makes available approximately $6.3 billion over two years to support the government’s program of economic reforms. The PLL provides access to liquidity against external shocks such as decreases in exports caused by shrinking markets in Europe or factors such as an excessive jump in imported energy prices.
The IMF recognizes that some form of fiscal backup is needed by countries with sound economic fundamentals and a history of moving on reforms so that their efforts continue despite factors beyond their short and medium term control. So the PLL is not a handout or a subsidy; it is meant to facilitate the government’s capacity to continue to make the needed hard decisions that will strengthen the Moroccan economy over the long run.
In its statement following the Board meeting, Ms. Nemat Shafik, Deputy Managing Director and Acting Chair, commented on the report. She praised Morocco’s “overall sound macroeconomic policies” and noted that the “worsening of the external environment and a below-average harvest” were threatening further progress.
The PLL brings into sharp relief the conundrum facing Arab governments attempting to respond to popular demands to increase jobs, broaden subsidies, and reduce barriers to accessing markets through government intervention. As Mohsin Khan pointed out in his article last week, the temptation to implement short term fixes through government employment programs, increased general subsidies, and protectionist measures end up mortgaging the country’s future fiscal health. And this is what Morocco is trying to avoid. By attacking subsidies over a four year period, and using the PLL as a safety net to avoid excessive borrowing and budgetary imbalances, the government is hoping to achieve “stronger and more inclusive growth.”
Ms. Shafik mentioned that “The arrangement…has provided Morocco with an insurance against external risks and supported the authorities’ economic strategy.” This gives the government breathing room to “move ahead with the reforms of the general subsidy system and the pension system and to better target social protection.”
Nemat Shafik is no stranger to the dislocations that accompany deep economic reforms. As the youngest ever vice–president of the World Bank and a member of the senior management team at the International Finance Corporation, she has spent several decades promoting reform policies that include “Efforts to strengthen competitiveness and better equip the economy to respond to external shocks…” She strongly emphasizes the role of the private sector and notes that “The planned fiscal consolidation and structural reforms, such as those to improve the business climate and professional training, will help underpin external sustainability.” I have always been impressed with Nemat’s wisdom and clarity, and Morocco will clearly benefit from the IMF’s support and sound advice.
One of the outcomes of the Arab uprisings is the challenge of facilitating growth without compromising the future solvency of the country. While the Gulf countries have the resources to weather short and medium term challenges, countries such as Morocco face strong domestic pressure against painful changes that affect their citizens even if they can bankrupt the country. So the PLL tests Morocco’s commitment by providing short and medium term support to facilitate the long term health of the economy. It is a partnership worth applauding and supporting.