Macroeconomic risks remain moderate overall in an international environment marked by uncertainties, according to Morocco’s Central Bank (Bank Al-Maghrib)."In an international environment marked by uncertainties (persisting trade and geopolitical tensions, rising protectionism, Brexit concerns, markets volatility) macroeconomic risks remain moderate overall," said the Bank in a statement issued after the eighth meeting of the Coordination and Systemic Risk Monitoring Committee (CSRMC), held last December in Rabat.

With respect to external accounts, the Committee, which analyzed the risk mapping of the financial system, stressed that the current account deficit, after widening in 2018 to 4.4 percent of GDP, is expected to gradually ease over the forecast horizon and net international reserves would continue to provide more than 5 months of imports of goods and services. Domestically, economic growth would slow down in 2018 to 3.3 percent from 4.1 percent in 2017, due to deceleration in agricultural value added and the slow recovery of nonagricultural activities, which have not yet reached their pre-crisis growth levels, according to the statement.

Concerning public finance, the fiscal deficit is expected to widen in 2018 to 3.7 percent of GDP and to continue, based on Bank Al-Maghrib’s forecasts, to evolve around this level in the medium term. The Bank noted that in a context of slow recovery of non-agricultural activities, bank credit to the nonfinancial sector continued its deceleration, particularly for loans allocated to Non-financial Corporations (NFC), both private and public. The rate of NFC’s nonperforming loans, albeit slightly lower, remains high.

Morocco Banks developed and Insurance industry is stronger

Nonetheless, the same source added, the banking sector managed to achieve a rise in the net result during the first half of 2018, covering mainly an increase of the net banking income coupled with an improvement in the balance of non-operating income.

In addition, banks continue to generate solvency ratios above the regulatory minimum requirements and have proved resilient to stress tests simulating deterioration in macroeconomic conditions. However, they remain exposed to concentration and interest rate risks, which, for their part, are subject to a special monitoring. Regarding the insurance industry, it continues to be strong, the statement pointed out, adding that from a prudential perspective, the coverage rates of technical liabilities by investments of insurance and reinsurance companies remain above the minimum regulatory requirements.

Moreover, the sector continues to post a solvency margin, to cover the underwriting risk, well above the regulatory minimum required, according to the same source, noting that nevertheless, the transition towards the risk-based solvency regime, in implementation of the latest amendment to the Insurance Code, will probably lead to a significant reduction in the surpluses of this margin.

The parametric reform of the Civilian Pension Scheme has led to balanced pricing for the future rights of affiliates, said Bank Al-Maghrib, stressing the importance of identifying the appropriate solutions to the problem of deficits of this scheme stemming from its significant commitments in respect of past rights. Concerning the other retirement schemes, no significant change in the depletion dates of the reserves was noted in the carried-out projections.

Furthermore, capital markets, while remaining stable overall, were marked in particular by the issuing of the first sovereign Sukuk in addition to a “social and green” bond. The private debt market was characterized by a 43 percent increase in issuances, amounting to 48 billion dirhams at end September 2018.

Morocco interest rates remained low and affected other sectors

In addition, interest rate levels remained low overall and stable in money and bond markets, said the Bank, adding that mutual funds’ net assets reached 438.5 billion at end-November, up 5.4 percent compared to end-2017, with subscriptions targeting the "medium and long-term bonds" category, in a context of a bear stock market. Indeed, the stock exchange posted a fall in its MASI and MADEX indexes by 11.7 percent and 12.1 percent respectively at end-October 2018, after reaching a positive peak respectively at 7.2 percent and 7 percent in March 9, 2018.

The decline affected most sectors, particularly real estate, the Central Bank underlined. In this regard, the annualized 20-day volatility of the MASI index increased significantly in the second half of 2018 but remains, however, limited to a range between 6.6 percent and 11.2 percent. The issuance volume, characterized by a return of IPO’s, slightly improved in 2018 to around 2 billion dirhams.

During this meeting, the Committee took stock of the inter-authority roadmap for strengthening financial stability for the period 2016-2018 and approved the new roadmap for 2019-2021, the statement said. In addition, the Committee reviewed the progress made by the financial sector relating to combatting money laundering and terrorist financing in light of the proceedings of the 28th MENAFATF Plenary Meeting, held on November 24-29, 2018.

Morocco's Net International Reserves Down 4.6%

Morocco's net international reserves amounted to 228.2 billion dirhams until December 21, 2018, recording a 4.6% year-on-year decrease, Morocco's central bank (Bank Al-Maghrib) said. During the week of December 20-26, Bank Al-Maghrib injected 65.3 billion dirhams. As for the interbank rate, it has remained at 2.27%, the source added in a press release. During the same period, the Dirham appreciated by 0.12% against the Euro and by 0.06% against the Dollar.

IMF Executive Board Approves US$3 billion for Morocco under Precautionary and Liquidity Line

The Executive Board of the International Monetary Fund (IMF) approved on Monday a two-year arrangement for Morocco under the Precautionary and Liquidity Line (PLL) for about US$ 3 billion, the Department of Treasury and External Finance (DTFE) at the ministry of Economy and Finance said. “Despite a sharp pick up in global oil prices, the Moroccan authorities have reduced fiscal and external vulnerabilities and implemented important reforms with the support of three consecutive 24-month PLL arrangements,” the IMF said in a press release.

The new PLL arrangement will provide insurance against external shocks and support the authorities’ efforts to further strengthen the economy’s resilience and promote higher and more inclusive growth. According to the DTFE, the new arrangement will help support Morocco’s economic strategy as well as reforms aimed at promoting growth, fighting youth unemployment, reducing spatial and social disparities and strengthening the confidence of partners and foreign investors.

“Morocco has made significant strides in reducing domestic vulnerabilities in recent years. Growth remained robust in 2018 and is expected to accelerate gradually over the medium term, subject to improved external conditions and steadfast reform implementation,” said Mitsuhiro Furusawa, IMF deputy managing director and acting chair of the executive board. “External imbalances have declined substantially, fiscal consolidation has progressed, and the policy and institutional frameworks have been strengthened, including through the implementation of the recent Organic Budget Law, stronger financial sector oversight, a more flexible exchange rate regime, and an improved business environment,” he pointed out.

The PLL was introduced in 2011 to meet more flexibly the liquidity needs of member countries with sound economic fundamentals and strong records of policy implementation but with some remaining vulnerabilities.