MODERATE BUT SOLID GROWTH

After suffering heavily from imported inflation and unfavorable weather conditions for agriculture, economic growth should recover in 2023 thanks to a favorable base effect, particularly in agriculture. High rainfall in the winter of 2022-23 could remove downside risks to yields. High harvests in this sector (representing 30% of the population and 12% of GDP) would support consumption in rural areas. Purchasing power was boosted in September 2022 after a 5% increase in the minimum wage and a 10% increase for agricultural workers.

Coface forecasts a neutral contribution of foreign trade to growth in 2023. On the one hand, thanks to investment, Morocco should continue to gain markets in the automotive and textile industries. The value of phosphate exports should continue to be driven by high fertilizer prices. The rebound in tourism will continue after the suspension of the last health measures in 2022. However, there are risks of a slowdown on the side of European partners. On the other hand, inflation should still weigh on the fuel import bill in 2023.

Investments continue to be directed towards infrastructures, while local companies, hampered by soaring costs, are cautious: the EBRD announced a new loan of 100 million euros in December 2022 to complete the deep water port construction of Nador West Med on the Mediterranean coast. The government seeks to channel investment through the Mohammed VI Fund and a 2021-2025 Industrialisation Acceleration Plan. Following discovery of new gas reserves on the Atlantic coast (Anchois 2), UK group Chariot and the National Office of Electricity and Drinking Water signed a 10-year supply agreement in December 2022. Therefore, the resources would primarily serve local needs to eliminate imports of liquefied natural gas from Spain and Algerian gas. The Anchors 1 and 2 fields could be brought on stream by 2025. Moreover, Stellantis has announced EUR 300 million in investments to double production capacity at its plant in Kenitra.

TWIN DEFICITS UNDER CONTROL

The public deficit is likely to remain high in 2023. The government is not expected to consolidate public finances with a budget based on more optimistic assumptions than the consensus. Exceptional aid measures linked to COVID-19 and inflation are expected to decline, with commodity prices generally falling. Public investment will remain high, especially in healthcare, infrastructure, and education. The revaluation of civil servants’ salaries and the interest burden will weigh structurally on expenditure, which will rise faster in 2023 than before the pandemic. From 2023 onwards, reducing the number of corporate tax brackets should help increase revenues from large groups and minimize tax evasion. Some 75% of public debt is issued in local currency and, as such, should stabilize in the short term, with no apparent difficulties expected to finance it.

The current account deficit deteriorated considerably in 2022, with a sharp increase in the trade deficit linked to hydrocarbons (~20% of net imports), cereals, and oils (~15%), albeit offset by fertilizers (~12% of net exports). The maintenance of crude oil prices at around USD 90 per barrel and a drop in phosphate prices will harm external balances. The surplus of secondary income associated with expatriate remittances (~5% of GDP) should decline in 2023 due to the economic slowdown in Europe. The rest of the balance of services should be supported by a more substantial recovery in tourism (+92% of entries in 2022). The dinar has depreciated against the dollar (-20% in 2022), reflecting a relatively accommodating monetary policy (the rate at 2.5% in December 2022). This financial independence demonstrates the confidence of investors, both institutional and private (FDI).

CONTINUITY OF THE REGIME THROUGH POLITICAL TURNAROUNDS

Between gestures of openness and influence on the political scene, the King can rely on a center-right coalition resulting from the legislative elections of October 2021, which resulted in the defeat of the PJD Islamists who entered the government in 2011. The change marked the disenchantment with business corruption in public life. The Hirak Rif movement led to tighter surveillance and protest crackdowns in 2017. The enthusiasm around the “Lions of the Atlas,” Morocco’s national soccer team, marked a short grace period in an inflationary episode that hit the working classes hard. Aggravated by the difficult economic situation, poverty pushes people to emigrate to Europe, where a large diaspora already lives.

Continuing his traditional alliance policy with the United States and Europe, Mohammed VI has maintained (unpopular) ties with Israel to develop a defense industry. On the back of this support, the kingdom has considerably increased its military spending since 2021 due to the break in relations with Algeria. Strengthened by numbers due to compulsory military service since 2019, the Moroccan army is unlikely to slacken pressure on the Polisario Front independent movement supported by Algiers nor encourage attempts to negotiate a solution. The fruit of long-standing cooperation and close links between liberal elites and France was damaged by a unilateral visa restriction from the end of 2021 to the end of 2022. Taking advantage of the relative withdrawal of French companies in West Africa, Moroccan investors are recovering market share, particularly in banking, and are riding the wave of proactive diplomacy.