MACRO-ECONOMY IN MOROCCO

Introduction :

Morocco is facing a rapidly changing international economic environment, characterized by a high mobility of capital and a migration of the global growth engines towards Asia. This international context creates complex challenges and imposes high demands on the quality and responsiveness of the country’s economic policy. Basically, these challenges exist because Morocco’s capacity for innovation and productivity is still insufficient to meet competition from the most dynamic economies, while its price competitiveness is not strong enough to face labor-intensive activities from countries old and new, especially in Asia with significant unskilled low cost labor resources. In other words, the Moroccan economy may be squeezed between the low-revenue rapidly growing countries with an abundant and inexpensive labor, and the other larger middle-income countries that are able to innovate quickly enough to move to the top of the world technology frontier, which is defined by the most developed countries.

This report’s perspective is that in order to avoid this “moderate growth trap” between the most innovative and competitive countries and those countries with strong competitiveness due to low labor costs, Morocco must rethink and reformulate its growth and employment strategy.

The report is organized as follows. Part I provides an overview of the main objectives of macroeconomic policy in Morocco .Part II provides the different types of macroeconomic policies in Morocco .Also, Monetary and fiscal policies and their effect on the economy of Morocco are presented in Part III. And finally, trade off between economic growth and the trade balance will be analyzed in Part IV. 

Part 1: Main objectives of macroeconomic policies in Morocco.

Morocco has experienced rapid growth during the first decade of this century. Between the periods 1990-1999, 2000-2009 and 2010- 2013, the annual gross domestic product (GDP) growth rate rose on average from 3.2% to 4.7% and 3.9%, respectively. In a context where macroeconomic stability was maintained, and the business environment has improved, the country has pursued a strategy that is fundamentally based on the expansion of domestic demand, particularly in public investment. This strategy has had undeniably positive effects on both economic and human development. It has allowed the country to grow at a rate close to its potential rate, to improve access to basic infrastructure services (water, electricity and roads, especially in rural areas), to increase the life expectancy of its citizens, and to reduce poverty and vulnerability despite persistent unemployment while keeping inflation at relatively low levels.

While this growth strategy has proven to be beneficial for the country in many respects, a number of indicators suggest that it has reached its limits. The perspective taken in this report is that fundamental changes in the international environment, which Morocco has to confront, make it necessary to rethink and reformulate this policy.

Morocco’s macroeconomic policy framework has served the country well in the past, but it must now evolve to address several issues related to the process of financial globalization and greater trade openness of the economy, which expose the country to more volatilities, with significant risk for national impact. To avoid destabilizing effects, the current framework needs to evolve to allow a timely response to external shocks and to mitigate cyclical fluctuations around the economy’s trend growth rate. To achieve this goal, the scope of instruments used by the Central Bank should be expanded to include a new set of macro prudential tools to manage risk from the financial sector. These instruments should be articulated and coordinated with the traditional imperatives of banking supervision and monetary policy which itself must show greater flexibility in the movements of key policy rates.

In terms of fiscal policy, discretionary wide scale tax adjustments on taxation, rising fiscal imbalances, and low capacity to meet the challenges of changing economic conditions, have helped reduce the predictability of the macroeconomic management framework and destabilized the expectations of economic agents, eroding their confidence in the future.

These challenges are not insurmountable. By adopting a new integrated and ambitious strategy to promote growth and employment, Morocco could better leverage the new international environment. In this report’s perspective, this strategy should be based on three pillars:

1) Foster a short-term boost in competitiveness by adopting a number of measures to reduce production costs in labor- intensive sectors, and pursue quality improvement efforts in this labor pool.

2) Promote private activity in productive sectors that will help the country to accelerate its transition to the top of the world technology frontier and compete in international markets for technology and skilled labor-intensive goods and services, while improving its position in global value chains.

3) Rethink the role the state should play in facilitating this transition, particularly in terms of incentives for private agents to invest, the type of public services that would increase the productivity of private inputs in strategic activities sectors, and in terms of support for a regional integration strategy.

Part 2: Different types of macroeconomic policies in Morocco.

1. Phosphate sector :

The phosphate sector has experienced a profound transformation in recent years. Overall, the transformation is the result of having taken into account the nature and changes in the international environment in which this sector operates and the consequent adaptation of the strategy to maximize the sector’s position.

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The results were conclusive: the trans- formation has resulted in a containment of the sector’s downward trend affecting the GDP and country exports (Figure 43), and on this basis, enabled the implementation of a comprehensive long-term strategy based on substantial investments to increase production capacity, thereby enabling the best possible use of Moroccan phosphates.

1. Manufacturing sector :

In Morocco, industrial policy has taken the form of establishing “industrial platforms” to welcome foreign groups. To facilitate the transfer of technology, skills and management, and thus develop sustainable diversification of the poles across the country, mechanisms and incentives have been developed to strengthen ties with local subcontractors –OEMs working either alone or in collaboration with foreign companies.

The key question for Morocco’s industrial sector especially manufacturing is to know how to better integrate into global value chains and compete in international markets.

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