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).
|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
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
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
THE OTHER 'FIRST'