Fitch affirms Morocco’s BBB- sovereign ratings on political stability, outlook stable

By bne IntelliNews November 6, 2013

Fitch has affirmed Morocco's long-term foreign and local currency Issuer Default Ratings (IDRs) at BBB- and BBB, respectively, due to the country’s resilience to the regional turmoil and political and social stability. The outlook on the long-term IDRs are stable.

The issue ratings on Morocco's senior, unsecured foreign and local currency bonds are also affirmed at BBB- and BBB respectively.

The affirmation of Morocco's ratings reflects the country's resilience during the years of transition following the Arab spring in early 2011, Fitch said. Political and social stability has supported high GDP growth and foreign direct investment inflows into Morocco. Accommodative policies, coupled with the EU economic woes, have weighed on Morocco’s current account and budget deficits and increased public and external debt since 2010, Fitch underscored. Such negative parameters, however, will reverse in the medium term, supported by a political will to implement reform and a gradual recovery in the Eurozone area.

Morocco’s budget deficit will narrow from the peak 7.6% of GDP recorded in 2012, helped by reform in subsidies (launched in September 2013), lower oil prices and higher grants from the GCC, Fitch said. The budget deficit will gradually shrink to 4.4% of GDP by 2015, the ratings agency forecasts.

As to the general government debt, it will rise to 46.3% of GDP in 2013 from 33.4% in 2008 and retreat to 44.5% by 2015 in line with the path of deficit reduction, Fitch noted. The reading, however, will remain above the BBB peers' median (40% of GDP), according to Fitch.

Fitch also expects the current account deficit to narrow to 4.9% of GDP by 2015 from 10.0% in 2012 and 7.8% forecast for 2013. This will be due to lower commodity prices, fiscal tightening (including the impact of the subsidy reform) and stronger external demand and remittances from Europe.

Morocco’s external position is also improving as FX reserves have stabilised at 4.2 months of current account payments (CXP) since end-2012. Fitch expects FX reserves will reach 4.3 months of CXP by 2015, underpinned by the narrowing current account deficit and continued strong foreign direct investments. Net external debt, however, will continue to rise over the forecast horizon, to 33% of current account receipts (CXR) by 2015 from 26% in 2013, primarily driven by the erosion of the sovereign net external creditor position, Fitch said.

Morocco’s non-agricultural growth will slow to 3.5% in 2013 from 4.5% in 2012 on lower EU demand and tightened economic policies, Fitch said. Growth, however, will accelerate to 4.5% by 2015, helped by the recovery in Morocco's two key EU trading partners, France and Spain, and growing domestic demand. Foreign direct investments (to reach 3.2% of GDP by 2015) will also help support growth, according to Fitch.

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