Morocco’s credit profile reflects move towards value-added exports and fiscal progress

RABAT (Capital Markets in Africa) – Morocco’s (Ba1 positive) credit strengths reflects a structural shift towards higher value-added export industries and fiscal improvements which could lead to stronger non-agricultural growth and a stabilization and gradual reduction in public sector debt, Moody’s Investors Service said in a report published last Friday.

The main constraints on Morocco’s rating are relatively low GDP per capita, a volatile growth pattern and a relatively high, but affordable, debt-to-GDP ratio. A weak labour market and skills mismatches limit the country’s competitiveness and constrain potential growth.

The report, “Government of Morocco — Ba1 Positive, Annual credit analysis”, is now available on www.moodys.com. Moody’s subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.

“Morocco is strategically positioned within global value chains in the automotive and aviation sectors and as a trade hub between Europe and Africa,” said Elisa Parisi-Capone, a Moody’s Vice President — Senior Analyst and the report’s author. “This is mirrored by the banking system’s expansion across Africa, and is supported by an upgrade of transport infrastructure.”

“The gradual foreign-exchange rate liberalization introduced in early 2017 supports a gradual improvement in competitiveness.”

Moody’s expects Morocco’s real GDP growth to decelerate this year to 3.2% from 4.0% in 2017, partially offset by a further acceleration in non-agricultural growth to 3.0% from 2.7% in 2017.

Non-agricultural growth will continue to be driven by the services sector and the phosphate mining industry. Last year was a record year for tourism, with arrivals exceeding 11 million for the first time.

Morocco’s moderate fiscal strength reflects the relatively high but affordable central government debt stock, which Moody’s expects will peak at 65.4% of GDP in 2018. The country’s relatively low foreign-currency exposure – at 22% of central government debt – mitigates the deterioration in its debt metrics by almost 20 percentage points of GDP from 2009 to 2017.

Upward rating pressure would stem from increased evidence that the country’s budgetary performance will be sufficiently robust to firmly place the central government debt ratio on a downward path, combined with a stabilization of debt guarantees from state-owned enterprises. Maintaining the reform momentum amid sporadic protests would also be credit positive.

Downward rating pressure could emerge if the Moroccan government proved unable to control the deficit, the debt burden and debt guarantees. Increased tensions with the Western Sahara territory would also be credit negative, as would an unforeseen deterioration in the external accounts due to a sharp and sustained spike in oil prices or as a result of the transition to a flexible exchange rate system.