Fitch: Moroccan economy faces inflation and drought risks

Morocco has been awarded a ‘BB+’ rating with a stable outlook by Fitch agency, thanks to the country’s sound macroeconomic policies, favorable debt composition, and comfortable external liquidity buffer. Despite a slowdown in economic growth to 1.2% in 2022 due to a severe drought, Fitch predicts a recovery to 3% in 2023 supported by better agricultural output.

By 2024, economic growth is expected to increase to 3.2% driven by the industrial sectors, although risks from high inflation and drought, monetary policy tightening, slowdown in key trading partners, and weather patterns remain. Inflation peaked at 10.1% in February due to food inflation, but has since eased to 8.2% in March.

Morocco has taken measures to stabilize domestic prices, such as restricting vegetable exports and simplifying procedures for VAT exemptions on agricultural inputs and food products.

Since September 2022, the Moroccan central bank (Bank-Al-Maghrib) has increased its policy rate by 150bp to 3%, and Fitch expects further interest rate hikes in 2023 to help reduce inflation to 5.0%. However, inflation is predicted to rise to 3.7% in 2024 due to the removal of gas subsidies.