After the shock of the health crisis, Morocco, like other economies around the world, is now suffering from the effects of the Russian-Ukrainian conflict. What monetary and budgetary policy should be adopted in the face of the rise in the inflation rate and the decline in growth? The point with the director of studies of the IMF, Pierre-Olivier Gourinchas.
The outbreak of conflict in Ukraine has clouded the outlook for the global economy, as there was hope for an eventual return to growth following the easing of health restrictions. In this unprecedented situation, Morocco is no exception, with an unprecedented level of inflation, at more than 5% and growth at 1% in the most optimistic scenarios.
Met in the context of his visit to Morocco on the occasion of a high-level conference organized by Bank Al-Maghrib in partnership with the International Monetary Fund (IMF), on June 23 and 24, 2022, in Rabat, under the theme of “a transformational recovery: seizing the opportunities of the crisis”, the director of studies of the IMF, Pierre-Olivier Gourinchas assures that the world economy should slow down during this year, while inflation should remain at low levels. high levels, leading to a tightening of monetary policies in a large number of countries.
As for the risk of an entry into recession, the director of studies of the IMF wants to be reassuring, but calls for vigilance. While he believes it is still early to look into this scenario, the effects of the Russian-Ukrainian conflict could continue to weigh heavily on the economy for months to come. “For the moment this is not our central scenario, we are talking about a slowdown, but not necessarily a recession of the world economy, however we must keep in mind a certain number of risk factors”, underlines t- -he.
“On the one hand we could have a further escalation of sanctions and the war in Ukraine, which would put pressure on energy and food prices, we can also have more persistent and higher inflationary dynamics, which would require an even stronger recovery and an even greater tightening of monetary policies with a negative effect on growth”, explains Pierre-Olivier Gourinchas.
Imported inflation in Morocco? Yes, but…
Faced with the unprecedented economic context and despite the rise in inflation, Bank Al-Maghrib decided to maintain the key rate at 1.5%, according to the Wali of the central bank, since inflation in Morocco is imported and caused by factors of external origin, which cannot be controlled, it is therefore wiser to support growth in order to help the economy emerge from the crisis.
Asked about the monetary policy to adopt in this situation, Pierre-Olivier Gourinchas explained that even if the recovery of monetary policy will lead to a slowdown in growth, it is necessary to tighten monetary policy to stabilize prices. “This stabilization is important because it will help growth thereafter: a monetary stable environment is an environment conducive to growth, financial stability also helps the financing of public accounts”, he specifies.
With regard more specifically to the case of Morocco and imported inflation, the director of studies of the IMF adds a nuance: “for emerging countries which initially see part of their inflation linked to the depreciation of their currency (this is not the case of Morocco, Editor’s note) or a rise in the prices of imported materials such as energy and foodstuffs, we may want to not intervene thinking that these factors are not controllable and that we will have to wait that the economic situation is stabilizing, except that we have observed in a certain number of countries over the past 12 months that this inflation dynamic, which begins with raw materials, then spreads to the rest of the economy and becomes a much broader inflation, which is high and which requires the intervention of the banks to control it”.
Beyond monetary policy, Pierre Olivier Gourinchas believes that it is necessary for “countries that can afford it” to adopt a budgetary policy in favor of supporting the purchasing power of households and the industrial fabric in order to boost growth.
“The increase in the price of energy first impacts households with the lowest incomes and this translates into a loss of purchasing power and an impoverishment of the population. It is appropriate in this case that governments, through their fiscal policy, support these categories. There are also situations where certain industries may find themselves in difficulty because they depend on a supply which becomes more expensive. Since we don’t necessarily want to lose part of the industrial fabric, there can also be support mechanisms on the business side. However, these measures must be well targeted and temporary,” he stresses.