Previous Quarterly Editions
Expropriation Risk: 47 49 49 48 ►Political Violence Risk:51 51 51 49 ▼Terrorism Risk:46 44 44 42 ►Exchange Transfer and Trade Sanction Risk: 55 55 63 55 ▼Sovereign Default Risk:65 65 65 65 ►
TREND ▼
Protest intensity to date* 2022 2023 Medium MediumUnrest risk in 2024**Cost of living: HighAnti-austerity: Medium
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
Morocco’s gross public debt rose sharply during the COVID-19 pandemic, reaching 72% of GDP, compared with an average of about 60% in the previous five years. The increase reflected both extra government spending on social welfare and the fall in nominal GDP.
As the economy has recovered, the debt ratio has dipped below 70% of GDP. The debt is sustainable for a number of reasons. One is a relatively low foreign currency share in public debt — about 25% — although the bulk of new borrowing in 2023 will be from foreign investors. The second is long maturities of six to seven years on average and relatively low interest rates; the central bank has raised its base rate, but only to 3%. Third, there is a solid base of domestic institutional investors, with almost 80% of the debt held by banks, insurance companies and pension funds.
Morocco does not face a public debt crisis. Nevertheless, the government is looking to bring debt down to about the pre-pandemic level, to provide some room for maneuver in the event of further economic shocks.
The economy is vulnerable to climate effects. Droughts have become more frequent in recent decades, interspersed by damaging floods. The recent earthquake in the Atlas Mountains south of Marrakesh provided a reminder of the risk of natural disasters, although in this case, most of the damage was sustained by remote rural communities.
The Russian war in Ukraine has also had a negative impact through pushing up food and energy costs. Having averaged about 1% during the previous 10 years, inflation started to climb in late 2021, and it reached 10.1% year on year in February 2023, including food inflation of 20.1%. The inflation rate eased to about 5% in July and August, but rising oil prices since then could push it up once more.
The government’s draft budget for 2024 envisages the overall deficit coming down from about 4.5% of GDP in 2023 to 4%, with the economy growing by 3.7%, compared with 3.4% in 2022. The government has set targets for inflation of 3.4% in 2024 and 2% in 2025. The fiscal consolidation is aimed primarily at lowering the public debt level.
This has provoked pushback from trade unions, which are calling for increases in the minimum wage and for cuts in income tax (in particular the top rate of 38%) and more exemptions from value-added tax. The budget targets may need to be revised to take account of extra spending associated with reconstruction after the earthquake.
Other elements in the debt reduction strategy include pension reform and further cuts to subsidies, both of which could trigger popular protests. The normal retirement age is to be raised to 65 from 63, having already gone up from 60. Subsidies on wheat, sugar and cooking gas are to be phased out by 2025, with the savings to be allocated to increasing and extending the reach
TREND ►
Morocco has successfully courted foreign investment for years, including incentives such as preferential taxes and special investment zones. Foreign investors are typically induced to establish partnerships with interests connected to the palace.
There are no restrictions on companies divesting and selling their stakes to third parties. The government is enacting reforms to simplify the corporate tax regime, in phases up to 2026. This includes applying a standard rate of 20%, rising to 35% for annual earnings of over 100 million Moroccan dirhams (about US$9.65 million).
Businesses can run into difficulties during periods of political tension between their home government and Morocco, usually over the Western Sahara sovereignty controversy; however, disputes that have arisen between the Moroccan authorities and foreign investors have tended to be based on commercial rather than political issues.
Western Sahara is the main source of political violence. Tensions have risen, including as Morocco has increased its diplomatic efforts to resolve the sovereignty issue in its favor and deployed troops within a buffer zone along the Mauritania border.
Also problematic was a deal struck in December 2020 by the then Trump administration in the United States, to recognize Morocco’s claims over Western Sahara in exchange for Morocco establishing diplomatic relations with Israel. Staffan De Mistura, who was appointed as the U.N. envoy on Western Sahara in 2021, is working to organize a fresh round of talks on resolving the issue, with the participation of Morocco, the Polisario liberation front and Algeria.
The dispute is a major source of tension between Morocco and Algeria, but the risk of this escalating into conflict is low, despite occasional belligerent rhetoric from both sides. Morocco has recently taken steps to bolster its military preparedness for any conflict through requesting US$524 million worth of weapons from the United States, including 18 High Mobility Artillery Rocket Systems (often termed HIMARS).
Within Morocco, sporadic popular protests against corruption, police brutality and deprivation have occurred. The king has also been criticized for his prolonged absences from Morocco. He made a rare public appearance after the earthquake in September 2023, which left more than 3,000 people dead and hundreds of thousands homeless, but it took him more than a day to respond to the disaster. This has raised questions about a political system that is so heavily reliant on a remote monarch for important decisions; however, the risk of an insurrection against the monarchy remains low.
Morocco was one of the main sources in North Africa of fighters who joined Islamic State (IS) in Syria in 2013 to 2017. An estimated 3,000 Moroccans joined IS, most coming from areas in the north known for Islamist militancy. There have been concerns that many of these fighters would return to Morocco and become involved in terrorist activity; however, there have been only a handful instances of Islamist terrorism in Morocco since Al-Qaida carried out a major assault in 2003, and the risk of terrorism remains low. This is partly because of setbacks for IS and Al-Qaida but also because of effective Moroccan intelligence services.
There are no significant restrictions on exchange transfers in Morocco. There are no significant restrictions on exchange transfers in Morocco. Access to foreign exchange through the banking system is straightforward, although the central bank does maintain some capital controls.
The exchange rate is pegged to a basket weighted 60% to the euro and 40% to the U.S. dollar. The band within which the rate may fluctuate was widened to 2.5% in 2018 and to 5% in March 2020. The International Monetary Fund (IMF) repeatedly urges Morocco to shift to a more flexible system. The central bank has agreed in principle, but there appears to be a residual reluctance to give up control.
Once inflation eases, the central bank may consider widening the exchange rate band. The central bank has made relatively light use of its monetary tools to dampen inflation, raising its base rate by 50 basis points to 2.5% in December 2022 and to 3% in March 2023.
The risk of trade sanctions applies mainly to goods exported from Western Sahara. The European Court of Justice is involved in prolonged deliberations over a Polisario suit against the European Union, including exports from the territory and its waters in its trade preference accords.
Morocco’s total external debt stands at about 44% of GDP, of which public debt is just under 30% of GDP, according to the IMF. The public debt includes a stock of about US$13 billion in sovereign bonds. Positive market sentiment of Morocco’s default risk was reflected in the strong response to the most recent sovereign issue in March 2023, raising US$2.5 billion.
The total public debt service cost is a manageable 2% to 3% of GDP over the next five years. Morocco has a solid buffer of foreign exchange reserves, sufficient to cover about six months of imports, and its position has been further reinforced by a US$5 billion flexible credit line from the IMF, approved in April. Sovereign default risk is low.
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of family allowances and to financing universal healthcare insurance.
Rising food and fuel costs have recently prompted sporadic protest demonstrations. Most of them have been organized by trade unions and other civic agencies, and there has been little sign of mass spontaneous protests or of a revival of the Hirak protest movement that started in the north in 2016.
This has provoked pushback from trade unions, which are calling for increases in the minimum wage and for cuts in income tax (in particular the top rate of 38%) and more exemptions from value-added tax. The budget targets may need
to be revised to take account of extra spending associated with reconstruction after the earthquake.
Other elements in the debt reduction strategy include pension reform and further cuts to subsidies, both of which could trigger popular protests. The normal retirement age is to be raised to 65 from 63, having already gone up from 60. Subsidies on wheat, sugar and cooking gas are to be phased out by 2025, with the savings to be allocated to increasing and extending the reach of family allowances and to financing universal healthcare insurance.
Rising food and fuel costs have recently prompted sporadic protest demonstrations. Most of them have been organized by trade unions and other civic agencies,
and there has been little sign of mass spontaneous protests or of a revival of the Hirak protest movement that started in the north in 2016.
