Despite twin deficits – that of the current account and the State Budget – which risk exploding, the Kingdom maintains its rating (B) with the credit insurer Coface and its sovereign rating with S&P Global. But for how long ?
Even if this will not restore purchasing power to households who are facing a level of inflation not seen for more than 25 years, the fact that the country risk ratings remain stable is an indication that the Moroccan economy is resisting, better than we could have feared a storm such as it had never experienced in recent years: too sluggish growth (1%) due to an expected fall in cereal harvests and the blaze in world energy prices which increases the inflationary fever of all goods and services. All this combined with geopolitical uncertainties fueled by the invasion of Ukraine.
In the Coface country risk map, updated on Tuesday June 21, Morocco maintains its rating (B) which summarizes the risk of non-payment by companies and the State. The same goes for the assessment of the business environment, which remains in category A4, the last scale of the first division despite everything.
In both cases, these ratings place the national economy among the good students of the continent, very few countries in Africa, except a handful, including Mauritius and Rwanda, displaying this rating. This resistance is also reflected in the sovereign rating of the Kingdom that the agency S&P Global published at the end of April. The Treasury keeps its BB+ rating with a stable outlook a year after losing its investment grade, triple B.
This means that unless there is an unforeseen event with colossal consequences or a short-term cataclysm, the financing conditions of the Treasury should not change, including those of all the entities attached to it. These are those over which it exercises effective control, in particular public enterprises, administrations and local authorities for which the State acts as guarantor in the event that they turn to the market for financing.
With the government having confirmed new Treasury outflows on the international market, posting a BB+ is an asset in a context of rising interest rates and an appreciation of the dollar which are affecting the cost of debt .
The analysts at S&P Global, like those at Coface, all point to a structural threat: the twin deficits of the budget and the current account, the holes in which clearly appear as weaknesses. Over the last ten years (2012 to 2021), the deficit excluding privatization has always been above 3.5% with a foreseeable peak (due to budgetary measures to support the economy) at 7.7% of GDP .
This year, it is expected to be more than 6% of GDP against 6% in 2021 (source: Ministry of Finance). According to the rating agency S&P Global, the current account and budget deficits would reach, respectively, 4.4% and 6% of GDP in 2022. Except in 2004 and 2005, the current account has been in chronic deficit for around thirty years.
The weight of incompressible imports of energy products (oil, gas and coal) is such that it neutralizes the effect of the rise in power of exports from the automobile industry and remittances by Moroccans living abroad, of which more than 9 billion dollars this year. S&P Global warns: “the stable outlook for Morocco reflects our expectation of further economic and fiscal reforms accompanied by robust growth”.
For this last point, it is missed! The GDP will register only a small 1% of growth, according to the projections of the Central Bank (see our edition of Wednesday June 22). In the downside scenario, the rating agency ensures that it could lower the sovereign rating of the Treasury if the budget deficit slips from its forecasts and if the external imbalances widen even more. Because that would require a sharp increase in the financing needs of the economy.
Treasury and current account deficits are expected to narrow from 2023 due to easing price pressure and accelerating growth. Although the implementation of structural reforms is likely to prevent budget deficits from narrowing significantly in the short term, it underpins fiscal consolidation in the medium and long term, conclude, optimistically, analysts at S&P Global.
Coface’s eye on external accounts
The current account deficit deteriorated in 2021 following an increase in the trade deficit. Indeed, while the sharp rise in oil prices (12.5% of imports being hydrocarbons) and stronger domestic demand increased the import bill (21% allocated to capital goods and machinery) , the rise in manufacturing exports could not offset the weak recovery in services exports, weighed down by the tourism sector, which is still recovering.
After a modest recovery in 2021, tourism receipts should continue to rebound in 2022, helping to improve the surplus in the balance of services. However, the trade deficit will continue to weigh on the current account deficit, resulting in an almost unchanged balance in 2022. The surplus in the secondary income balance will continue to be fueled by remittances from the diaspora.
The European recovery will favor the repatriation of capital and therefore the widening of the balance of primary incomes. External financing needs will be met by foreign exchange reserves, still representing more than six months of import cover, and the resumption of FDI…
Abashi Shamamba / ECO Inspirations