Fitch said it has affirmed Morocco's long-term foreign and local currency Issuer Default Ratings (IDRs) at BBB- and BBB respectively on political resiliency to the regional turmoil and economic stability. The outlook is stable.
The issue ratings on Morocco's senior unsecured foreign and local currency bonds were also affirmed at BBB- and BBB respectively.
The ratings affirmation reflects its resilience during the years of transition following the ‘Arab Spring’ in early 2011, Fitch underscored. GDP growth has also remained strong despite a challenging external and domestic environment. Fitch noted that accommodative public policies have boosted government and external debt ratios but the trend will unwind, supported by both the political drive to implement reforms and a gradual recovery in the euro zone.
Morocco’s central government and the current account shrank by 2 pps in 2013 to 5.4% and 7.5% of GDP respectively, Fitch estimated. This was due to reforms on energy subsidies, strong performance of new export industries and lower oil prices. The twin deficits will gradually narrow as reforms continue and the external environment improves, according to Fitch.
The ratings agency also tackled Morocco’s public debt dynamics, saying that on a general government consolidated basis, public debt peaked to 46.6% of GDP in 2013 (versus 40% for the BBB median). But the ratio should stabilise at this level in 2014 before declining thereafter. The main risks to Morocco’s debt dynamics are slower-than-expected fiscal consolidation and GDP growth.
Fitch was also upbeat on the GDP growth that quickened to 4.8% in 2013 from 2.7% a year earlier on a weather-related sharp rebound in agricultural output (+20%) despite a slowdown in non-agricultural output (to 3.1% in 2013 from 4.5% in 2012).
GDP growth will remain above 4% in the medium term as the non-agricultural sector strengthens on expected stronger European demand (Europe accounts for 60% of current account receipts (CXR), 80% of foreign tourists and remittances and 50% of exports) and domestic demand, Fitch forecasts.
The new coalition government will push forward with reforms and budget tightening in line with the recent announcement of further cuts in energy subsidies, Fitch noted. The IMF programme, started in August 2012, has provided not only a precautionary credit line (USD 6.2bn) but also a strong anchor for reform, Fitch underscored. Potential continuing IMF involvement after the current programme ends in August 2014 should support the reform agenda, Fitch added.
Morocco’s stable ratings outlook reflects Fitch's assessment that upside and downside risks to the ratings are
currently well balanced. The outlook is underpinned by a substantive narrowing in Morocco's twin deficits that materially reduces the vulnerability of the economy to shocks and improvements in social indicators (youth unemployment, poverty) amid entrenched political stability.
The outlook, however, is dented by insufficient fiscal consolidation to narrow the budget deficit, a weakening economic performance and sharply rising net external debt in the face of external shocks. The latter include weaker-than-expected euro zone performance or higher-than-expected oil prices. Social instability could also constrain the political scope for reform in Morocco, Fitch said.
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