Exit of the Treasury abroad: Morocco is testing the ground and negotiating a flexible line of credit with the IMF

Exit of the Treasury abroad: Morocco is testing the ground and negotiating a flexible line of credit with the IMF

The monetary authorities of the Kingdom have launched contacts with advisory banks to assess the conditions of loans on the world markets, indicated Abdellatif Jouahri, wali of Bank Al-Maghrib (BAM), this Tuesday, June 21, 2022 in Rabat. Discussions are also underway with the IMF for a Flexible Credit Line (LCM).

Will the Treasury make its international exit to raise debt in foreign currencies, as provided for in the 2022 finance law, up to 40 billion dirhams?

During his post-BAM advisory press briefing, this Tuesday, June 21, Abdellatif Jouahri revealed new elements on this subject, indicating in particular that “discussions between the Treasury and the advisory banks are already underway”, to test the waters. with international investors, assess the conditions of loans on the world markets and see how the risk premium of Morocco evolves in the current conditions.

These conditions, the Wali of Bank Al-Maghrib did not fail to recall, will not be as favorable as during the previous exit from the Treasury in 2020. The tightening of monetary policies in the world will indeed “impact the conditions under which the Treasury will borrow,” he explained. Thus, the borrowing States will see the cost of money go up, in the wake of the rise in rates operated by the major central banks, in particular the FED. A configuration that is likely to increase the debt burden and weigh on budgetary balances.

In this context, he continued, “it will be up to the government and the Ministry of Finance to judge whether or not it is appropriate to carry out an exit, or not, on the international markets”, knowing that an “important deadline” of $1.5 billion is to be repaid in December.

And to add: “the Treasury always has the possibility, for its budgetary needs, of resorting to drawing from the LPL (Precautionary and Liquidity Line) which has not yet been used. The statutes of the IMF and Bank AL-Maghrib allow it”.

It should be recalled on this point that on April 7, 2020, following the shock caused by the outbreak of the health crisis, Morocco had drawn down the LPL for an amount equivalent to nearly 3 billion dollars. Part of this 3 billion dollars (nearly a billion dollars) had been repaid early in December 2020.

Abdellatif Jouahri also recalled that of the 40 billion in foreign currency debt provided for by the 2022 finance law, approximately 15 to 20 billion dirhams will be mobilized from multilateral development institutions (such as the World Bank, the African Development Bank, the Arab Monetary Fund, etc.). The rest (ie 20 to 25 billion dirhams) must be mobilized via the international financial markets.

Negotiations with the IMF for an FCL

Along with discussions with advisory banks to prepare for a possible exit, Morocco and the IMF are speeding up negotiations so that the Kingdom can benefit from a flexible line of credit (LCM), a financing mechanism known for its flexibility and which, unlike to the Precautionary and Liquidity Line (PLL), provides eligible countries with immediate access to a large amount of IMF resources without continued conditionality.

“The amount of access to IMF resources is not capped and the need for financing is assessed on a case-by-case basis,” reads a fact sheet on the IMF’s website.

“The annual meetings of the IMF and the World Bank, scheduled for next October in Washington, will be an opportunity to take stock of this LCM”, concluded the wali of BAM.

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