Fitch Affirms Morocco’s ’BB+’ Rating, Citing Economic Resilience and Challenges

Morocco’s "BB+" ratings are supported by several factors, including sound macroeconomic policies that enhance resilience to shocks, significant official creditor support, a favorable debt composition and comfortable liquidity reserves, Fitch notes in a note published on Friday, noting however that these favorable factors are offset by development and governance indicators below those of peer countries, a high budget deficit and public debt, as well as the country’s vulnerability to adverse weather conditions.

According to the American agency, the economic impact of the powerful and devastating September 8 earthquake that ravaged western Morocco will be limited in 2023, as these regions do not host key industrial activity centers such as the automotive industry. However, it is not excluded that the earthquake will disrupt the recovery of tourism - without major impact -, as revenues were already above the pre-Covid-19 pandemic level: 71.4 billion dirhams at the end of August, up 32.5% year-on-year.

Fitch forecasts a budget deficit of 5% of GDP in 2023, compared to 5.2% in 2022. "We expect the deficit to decline to 4.8% of GDP in 2024 and to 4% in 2025, above the "BB" median forecast of 3.2%, but significant risks weigh on the gradual fiscal consolidation scenario," the American agency notes. King Mohammed VI has launched a 120 billion DH program over 5 years for the reconstruction of the areas affected by the September 8 earthquake.

"We assume that the government will bear part of the cost of reconstruction, reflected in higher investment spending, through budgetary expenditures, but the pace of implementation remains uncertain," Fitch Rating estimates, also noting that these reconstruction efforts could increase the challenges related to the implementation of the new development model, which aims to increase social spending by 4% of GDP by 2025 to improve education and health and extend social benefits.

Regarding inflation, the American agency specifies that it peaked at 10.1% in February before falling to 5% in August, due to temporary export restrictions and lower energy prices. "We forecast average inflation of 5.8% in 2023 and a decline to 2.4% in 2025, below the projected median of 3.4% (BB), as energy prices and inflation expectations decline and agricultural production improves," it envisions.