Fitch Affirms Morocco’s BB+ Credit Rating, Citing Economic Stability Despite Challenges

Morocco’s BB+ rating is the result of the macroeconomic stability reflected in inflation and the decline in GDP due to the pandemic, a medium share of foreign currency (FC) debt and adequate external liquidity. However, these advantages are balanced by weak development and governance indicators, higher GG debt, significant budget deficits and current account (CAD) deficits. The central government (CG) budget deficit, for its part, reached 7.7% of GDP in 2020 instead of 4.1% in 2019.

In addition, the security measures put in place against the pandemic have led to a remarkable drop in revenues while current expenditures have risen in order to mitigate the impact of the crisis. Moreover, 2.2% of GDP was granted to the authorities as subsidies from national and international contributors to a Covid-19 fund. At the same time, plans to develop the provision of social services and to expand social services will keep the CG deficit at 7.1% of GDP in 2021 and 5.8% in 2022.

Significant budget deficits will lead to a rise in public debt despite the economic recovery, Fitch Ratings said, forecasting that GG debt will reach 68.8% of GDP in 2021 and 70.5% in 2022, above the "BB" envisaged for 59.1% in 2022. As for the debt, it will be stable from 2023. Moreover, the impact of the health crisis will still affect the already weak finances of some public companies. Not to mention the deterioration of the asset quality of the banking sector, without the risks of bank solvency being high.

The agency expects a rebound in imports this year, as domestic demand for final and intermediate goods resumes. Foreign exchange reserves could support 7.5 months of external payments between 2021 and 2022, the rating agency predicts, noting that with a regression of the impacts of the health crisis and an improvement in rainfall this year, GDP could reach 4.8%. In addition, effective cooperation with the private sector will be needed for an economic recovery.