This rating reflects the good health of its macroeconomic policies but remains offset by development and governance indicators below those of its peers, high public debt, and exposure of the economy to unfavorable climatic conditions.
Fitch Ratings has affirmed Morocco’s long-term foreign currency issuer default rating at ‘BB+’ with a stable outlook.
This rating reflects its sound macroeconomic policies, solid support from official creditors, favorable debt profile, and comfortable liquidity reserves. However, these strengths are offset by development and governance indicators that are below those of its peers, high public debt, and the economy’s exposure to adverse weather conditions.
In 2023, the Moroccan economy grew by 3.4% compared to 1.5% in 2022, driven by the good performance of the non-agricultural sector and a rebound in agricultural production. Fitch forecasts a slowdown in growth to 3% in 2024, as limited rainfall slows agricultural production. “We expect average growth of 3.5% over 2025-2026, driven by a return to normal in agricultural production and the sustained performance of the non-agricultural sector. We expect strong external demand to support tourism and the automotive industry, while the government’s homeownership incentive policies will support the construction sector,” Fitch said in its latest report.
At the same time, the budget deficit narrowed to 4.3% of GDP (5.4% in 2022), due to a decline in subsidy spending resulting from lower international gas prices. Thus, Fitch forecasts a further decline to 4.1%, with an average of 3.6% over 2025-2026, compared to a median forecast of ‘BB’ of 3.6% in 2024 and 2.6%.
On the revenue side, “We are counting on an average increase of 22% over the period 2024-2026, accompanied by increased recourse to innovative financing of around 2.1% over the period 2024-2026, compared to 1.7% in 2023,” adds the rating agency.
For spending, Fitch expects an average of 25.7% of GDP over the same horizon, due to a decline in capital expenditure of around 6.3% following the Al-Haouz reconstruction costs planned in the budget.
Furthermore, public debt will have to increase moderately to reach 70% of GDP in 2024 and will stabilize over the period 2025-2026. This represents a level significantly above the median “BB” forecast of 52.7% for 2024 and 51.9% on average.
Despite a relatively high debt-to-GDP ratio, “refinancing and exchange rate risks are contained. At end-2023, outstanding public debt consisted mainly of long- and medium-term instruments (88.2% of total outstanding debt), at fixed interest rates (88.4%), and denominated in dirhams (72.3%). Outstanding external debt is mainly concessional, with multilateral and bilateral debt representing 52.4% and 13.5% of outstanding external debt, respectively,” Fitch Ratings points out.
Regarding the current account, the agency expects a strong surplus in the balance of services of 9% of GDP between 2024 and 2026, thanks to the solid performance of the tourism sector, as well as strong net current transfers (8.6% of GDP forecast), with remittance flows remaining high, around 7.4% of GDP.
In contrast, foreign and direct investment will reverse the trend. Indeed, net inflows reached 0.2% of GDP in 2023, their lowest level in three decades, due to unfavorable external conditions. They are expected to rebound to 0.8% in 2024, thanks to the automotive sector. Morocco is expected to benefit from the regionalization of China’s supply chain, as the latter faces import restrictions imposed by the United States and the EU.
Foreign exchange reserves will remain strong, benefiting from export earnings and a recovery in net FDI inflows. “They are expected to average 5.2 months over 2024-2026, which is higher than the average “BB” median of 4.6 months,” Fitch concludes.
Finally, political stability has been preserved in Morocco over the past decade amid recurring unrest in the Middle East and North Africa. That said, the country continues to face the problem of unemployment among urban youth.
