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Economic Information
Overview


Sound macroeconomic management has given Morocco a commendable record of internal and external stability.
During the past three years, inflation stabilized at under 3 percent, the external current account deficit remained below 1 percent of GDP, and official reserves strengthened. However, continued reliance on drought-sensitive crops in the context of larger-than-usual fluctuations in rainfall
has induced considerable volatility in output, and average growth in the nonagricultural sectors has hovered around 3 percent in the 1990s, a level insufficient to reduce the high rate of unemployment (19 percent in urban areas).

In 1998, a recovery in agricultural production allowed Morocco's GDP to grow by 6.3 percent. Growth was also sustained by favorable terms of trade, strong tourism receipts, and a resurgence of private investment, reflecting confidence in the new government. The budget deficit for fiscal year 1998/1999, excluding privatization, was maintained at around 3.5 percent of GDP. However, increases in expenditure stemming from earlier wage commitments and a desire to upgrade social spending were not matched by increases in recurrent revenue.

Consequently, the deficit target was achieved through exceptional revenue measures, including a tax amnesty and higher dividend payments obtained from a few state enterprises. Continued low inflation allowed for a further reduction of interest rates. Bank Al Maghrib intervention rate, which had been set at 6 percent in February 1998, was reduced to 5.5 percent in March 1999. At the end of 1998, the rate on 52-week treasury bills had declined below 7 percent (around 4 percent in real terms). The banking system is being further strengthened by a number of actions aimed at restructuring the agriculture and real estate/tourism banks. Positive terms of trade developments (with phosphate prices increasing against a decline in both oil and cereal prices) and strong exports receipts helped offset the surge in imports, linked to the pick-up of investment.

Even though foreign direct investment declined well below the exceptional inflows of 1997, together with other private capital inflows they were sufficient to finance the low current account deficit and net repayment of public external debt. In addition, they permitted to increase official reserves to US$4.4 billion, covering 4.5 months of imports of goods and nonfactor services.

Prudent external borrowing and active debt management policy succeeded in reducing Morocco's external debt burden, including through refinancing and early repayment of expensive loans and debt-equity swaps.

Structural reforms advanced on several fronts.
On the judicial front, the establishment of six commercial courts and their efficient functioning helped establish a more effective legal framework for resolving business conflicts, thus improving the environment for private sector investors.

Simplified procedures and a substantial reduction in the time needed to complete custom operations positively affected trade transactions. However, progress in privatization was slowed down by the expiration of the previous privatization law. The new law establishes a more permanent legal basis and an expanded scope for privatization.

Also, two important issues, more flexible labor legislation and the ineffective generalized food subsidy system, have not yet been resolved. On the other hand, progress was being made in liberalizing prices and road transportation and in expanding rural infrastructure and improving access to the poor of education and health services



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