The International Monetary Fund (IMF) has released a report on Morocco’s request for a Flexible Credit Line (FCL) arrangement. According to the report, Morocco’s economy has been impacted by another severe drought and spillovers from Russia’s invasion of Ukraine, which have slowed growth and raised inflation in 2022. Despite this, the authorities’ policy response has been very strong, and they have accelerated the implementation of structural reforms to make growth stronger, more resilient, and more inclusive.
However, the report notes that downside risks to Morocco’s economic outlook remain elevated, primarily due to the external environment and the impact of climate change. A greater-than-expected fallout from Russia’s war in Ukraine could lower external demand, increase commodity price volatility, and tighten external financial conditions. In addition, Morocco’s economy is vulnerable to recurrent droughts, which could slow the implementation of structural reforms and hinder the planned transition to a new model of development.
Given these challenges, the authorities have requested a two-year FCL arrangement in the amount of $5 billion (about 417% of quota) that will be used as precautionary to address plausible tail risks. The IMF staff supports the authorities’ request, and the authorities are committed to an exit strategy at the end of the period, the evolution of risks permitting.
The proposed commitment would have a manageable impact on the Fund’s liquidity position, according to the report. An informal meeting to consult with the Executive Board on a possible FCL arrangement for Morocco was held on March 6, 2023. The FCL would provide Morocco with a safety net and support the country’s efforts to preserve macroeconomic stability and protect the most vulnerable from the impact of shocks.