Morocco: Second Review under the Precautionary and Liquidity Line

Macroeconomic conditions deteriorated in 2012. Growth slowed to 2.7 percent from5 percent in 2011. Both the external and fiscal deficits widened significantly, to10 percent and 7.6 percent of GDP, respectively. The 2012 fiscal outcome entailed asignificant slippage from the authorities' target and exposed vulnerabilities in thebudget framework. Core inflation has remained low while the unemployment rateremained about 9 percent.

The short-term outlook is improving. A bumper crop will likely push growth in 2013above 5 percent, although nonprimary GDP growth is decelerating. Both the fiscal andexternal positions have been improving so far in 2013, partly reflecting lowerinternational commodity prices. Reserves have been stable at about four months ofimports for more than half a year, supported by strong capital inflows. Both indicativetargets at end-April (net international reserves (NIR) and fiscal deficit) were met. Thecurrent account deficit is expected to continue contracting while the governmentpursues its fiscal consolidation efforts.

The authorities have taken important measures to reduce fiscal and externalvulnerabilities. The authorities took the 2012 fiscal slippage seriously and respondedwith significant actions to strengthen their fiscal framework and reduce the impact ofworld commodity price fluctuations on the budget. In particular, they adopted amechanism to index the prices of most subsidized energy products to internationalprices, a welcome step toward the much-needed comprehensive subsidy reform. Theyare committed to achieving a fiscal deficit of 5.5 percent of GDP in 2013.