Country risk: A new economic study affirms Morocco's resilience to the pandemic

Although the Covid-19 crisis had significant economic repercussions at the national level, Morocco was able, thanks to its strategy and the new measures taken, to overcome the challenge and take a big step towards the recovery of its sectors and for this, Allianz Trade has maintained its overall rating at “B3” in its latest report, even though it represents one of the countries at risk in terms of business defaults.

In a new economic study on the analysis of country risks concerning unpaid companies, risks due to conditions or events of force majeure beyond the control of companies, Allianz Trade assesses the countries concerned, including Morocco, and notes according to specific criteria, namely macroeconomic imbalances, the business environment, political stability and commercial and financial risks. The country rating is a mid-term assessment ranging from AA to D (highest risk).

With regard to Morocco, whose rating granted by the group is “B3” in Q4 2022, signifying a country at risk of considerable non-payment, the analysis highlighted the impact of the Covid-19 crisis on the tourism sector, remittance activities and merchandise exports (automotive, aeronautics and electronics). She adds the strict application of containment and social distancing measures which dampened domestic demand, noting that GDP was cut by -6.3% in 2020, reflecting weak agricultural production, following a second consecutive year of severe drought , as well as historic drops in tourism and manufacturing activity.

Allianz thus estimated a rebound in the Moroccan economy of +4.6% in 2021 and +3.8% in 2022 and specified that the improvement in cereal harvests, new infrastructure projects and the expansion of manufacturing and mining sectors will be the main drivers of growth. She points out that industrial production in Morocco has recovered faster than that of services in 2021, with the phosphate and automotive sectors benefiting from sustained global demand. On the other hand, the textile and aerospace sectors are lagging behind, still hampered by the lasting effects of the crisis.

As for the national health system, the study indicates that Morocco is well equipped to in the face of growing infections and new waves of the pandemic and that despite significant organizational and logistical challenges, the kingdom has implemented large-scale vaccination campaigns against the Covid-19 virus achieving more success than most of its regional neighbours.

During the pandemic, Moroccan authorities adopted an arsenal of measures to mitigate the impact of the economic shock on households and businesses. Yet, despite the financial support, the crisis has wreaked havoc on incomes, especially in the informal sector (21% of GDP), while the official unemployment rate reached 12.5% ​​in the first quarter of 2021, unemployment among youth (36% in 2019) is likely to have jumped above 40% after the pandemic, the report claims.

Regarding the political stability of the Kingdom, Allianz indicated that structural and macroeconomic policy reforms have improved the country’s attractiveness for foreign investors. The central bank of Morocco has successfully undertaken the gradual flexibilization of the exchange rate regime, i.e. a widening of the exchange band by 5% since 2018. Morocco has successfully issued two sovereign bond issues on international markets in 2020, despite the tightening of financing conditions for emerging economies.

The study recalled that its foreign exchange reserves increased by 26.6% in 2020, reaching almost 30% of GDP and covering more than seven months of imports. The current account proved more resilient than initially expected, with a deficit of 3% of GDP in 2020 compared to 4.1% of GDP a year earlier. ” We believe that the current account deficit will remain contained below -4% of GDP in 2021 and 2022. Rising oil and energy prices should offset the recovery of exports in the manufacturing and mining sectors. FDI inflows are expected to remain stable while remittances (6% of GDP in 2017-2020) are expected to increase significantly in 2021 to support Morocco’s external liquidity buffers“, estimates Allianz Trade.

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