Previous Quarterly Editions
Expropriation Risk: 45 48 47 49 ▲Political Violence Risk:57 57 51 51 ►Terrorism Risk:50 48 46 44 ▼Exchange Transfer and Trade Sanction Risk: 55 55 55 55 ►Sovereign Default Risk:57 47 65 65 ►
TREND ►
Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Cost of living : Medium Very HighAll protest: Low Medium
Cost-of-living protest risk in 2023*Wage protest: LowFood/fuel policy protests: 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 calculations, see the introductory essay.
Inflation has reached historically high levels, driven by the impact of the Russia/Ukraine crisis on prices of imported fuel and cereals, exacerbated by a severe drought in the 2021-22 winter season, as well as by a spell of freezing weather in early 2023. Inflation has not been as severe in Morocco as it was in some other regional countries, and the government increased subsidies and social benefit measures to effectively mitigate its effects on vulnerable sections of the population.
Having averaged about 1% during the previous ten years, inflation started to climb in late 2021, reaching 10.1% (year-on-year) in January 2023, including food inflation of 20.1%. The exchange rate witnessed a relatively modest depreciation during 2022, thanks to Morocco’s strong external payments position, helping to shield consumers from imported inflation. The Moroccan dirham fell by about 11% against the U.S. dollar and by 6% against the euro.
In common with many other countries in the region, Morocco has sought financial support from the IMF. However, the facility that Morocco has requested – a two-year, 5-billion-dollar, flexible credit line – does not carry any conditions for its disbursement. This means that the IMF is satisfied with the direction of Moroccan government economic policy, also stating its approval for the measures Morocco is taking to extend its social protection systems.
The government managed to reduce the fiscal deficit to about 5.3% of GDP in 2022 (compared with 5.9% in 2021 and 7.1% in 2020), despite increased outlays on food and fuel subsidies. This was largely thanks to increased tax and dividend revenue (notably from OCP, the state-controlled phosphate company). This dynamic also reflected lower investment spending.
Subsidies on wheat, sugar, and cooking gas will be phased out by 2025, with the savings allocated to increasing and extending the reach of family allowances and to financing universal healthcare insurance. Rising food and fuel costs have 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.
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 MAD100 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 arising 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 favour and deployed troops within a buffer zone along the Mauritania border. Also problematic was a deal struck in December 2020 by the Trump administration in the U.S. to recognise Morocco’s claims over Western Sahara in exchange for Morocco establishing diplomatic relations with Israel. Staffan de Mistura, who was appointed as the new UN 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 bolstered its military preparedness for any conflict through requesting USD524 million worth of weapons from the U.S., including 18 high mobility artillery rocket systems (often termed ‘HIMARS’).
Within Morocco, there have been sporadic popular protests against corruption, police brutality, and deprivation. Disaffection continues to bubble in Morocco’s large informal sector. The authorities’ fears of destabilizing protests are reflected in a highly oppressive system of surveillance and tight media controls. The issue of relations with Israel has become more divisive with the advent of a new hard-line Israeli government and the increase in violence in the West Bank. In March, King Mohammed VI sharply rebuked the leader of the Islamist Justice and Development Party, Abdelilah Benkirane, for accusing the government of defending the “Zionist entity”, in Benkirane’s words.Terrorism Risk
TREND ▼
Morocco was one of the main sources in North Africa of fighters joining Islamic State (IS) in Syria in 2013-17. An estimated 3,000 Moroccans joined IS, most coming from areas in the north known for Islamist militancy. There have been concerns 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-Qaeda carried out a major assault in 2003 and the risk of terrorism remains low. This is partly because of setbacks for IS and Al-Qaeda but also effective Moroccan intelligence services.
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 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 debt increased due to the COVID-19 pandemic, but it is not particularly burdensome by regional standards, and the risk of sovereign default is low thanks to historically high reserves. Gross public debt rose to 72% of GDP in 2020, from about 60% in recent years, while external debt has climbed from about 45% of GDP to 54%. This was partly driven by sharp contraction of GDP and, at the end of 2022, public debt falling to 69% of GDP and external debt to 41%.
In March, Morocco approached the international bond market for the first time in three years, raising USD2.5 billion in two equal tranches, one of five years and the other ten years. Investors in Moroccan bonds will be reassured by the positive response from the IMF to the government’s request for the USD5 billion flexible credit line, which is likely to be approved formally in April. Since 2012, Morocco has had access to a series of precautionary and liquidity lines (PLLs) from the IMF. Unlike the new credit facility, the PLL is conditional on policy reviews. Morocco only drew on the PLL once, borrowing USD3 billion at the start of the pandemic.
In 2022, Morocco’s import costs rose by 40% because of higher food and fuel prices. However, exports also increased by 29%, with phosphate and fertilizer sales rising by 44% and automotive sales up 33%. There was also a threefold increase in tourism revenue, which rose above the pre-pandemic level, and remittances rose by 16%. Morocco’s foreign exchange reserves stood at about USD32 billion at the end of 2022, sufficient to cover almost six months’ of imports.
Return to contents Next Chapter
