Earthquake does not jeopardise recovery
Following lacklustre economic growth in 2022 due to poor cereal harvests, activity accelerated slightly in 2023 with a modest recovery in the agricultural sector, which is dependent on climatic phenomena. On 8 September 2023, the northern slopes of the Haut-Atlas mountain range was hit by an earthquake that measured 6.8 on the Richter scale, around 75 km south-west of Marrakech, the country's main tourist city. The earthquake occurred in a region with little industry, limited infrastructure and a reliance on subsistence farming. The economic impact will therefore depend primarily on the response of tourism, which posted record results in the first half of 2023. During that period, Morocco welcomed 6.5 million tourists, an increase of 92% compared to 2022 and 21% compared to the same pre-Covid 2019 period. Some cancellations followed the disaster, but the medium- and long-term economic repercussions should be limited. The airports remained open and intact, and the city of Marrakech was relatively unscathed, with the exception of the Medina and the Mellah. Outside the city, it is possible that the itinerant trips planned in the mountainous area affected will be replaced by trips to other regions of Morocco, which will lessen the short-term impact on tourism. The sector will therefore be able to generate significant revenues in 2023 and 2024. Reconstruction efforts will support growth in 2024, as well as the expansion of Morocco's share of the global phosphate market, with Morocco holding 70% of the world's reserves. In June 2023, the government announced its intention to triple investment in renewable energies over the period 2023-2027, compared with 2009-2022, with the aim of developing the national electricity grid (licensing, green hydrogen production, wind power projects) and securing water resources (desalination plants). In 2024, the manufacturing sector will continue to develop and support growth, via higher value-added exports in the automotive, aeronautical and textile sectors. Consumption will be sustained by tourist flows and remittances from expatriates, but will continue to be held back by still very high food prices. As the country embarks on reconstruction, the Central Bank (Bank Al-Maghrib) is likely to suspend the monetary tightening process that was due to be applied in 2023, and maintain its rate at 3% in order to cope with inflation, which will continue to fall.
Budgetary pressure eased by international aid
The 2023 budget target of reducing the public deficit to pre-Covid levels (around 3% of GDP) by 2026 has been compromised by the earthquake. The tax reforms introduced in 2023 and 2024 will help mitigate the impact of the earthquake, in particular by improving the corporate tax system through the gradual elimination of the variability of the standard rate at 20% by 2026. In 2024, food and energy subsidies will be replaced by targeted family allowances to ensure better management of public spending. Nevertheless, these fiscal consolidation efforts will not be enough to prevent the budget deficit from widening in 2023 and 2024, compared with 2022. The government has announced a reconstruction plan, budgeted at 11.7 billion US dollars, or 8.5% of GDP, which will be spread over five years. It will be financed by an increase in budget spending and a contribution of two billion dirhams ($194 million) from the Hassan II Fund for Economic and Social Development. In addition, international aid will ease budgetary pressure in the form of solidarity funds, loans and multilateral donations. Morocco can count on the $5 billion flexible credit line granted by the IMF in April 2023 to help finance its deficit. To this can be added a $1.3 billion loan, granted by the Fund on 28 September 2023 for a period of 18 months to help Morocco cope with climate-related disasters. As a result, the public debt burden will increase very slightly in 2023 and stabilise in 2024, with an external share of 42% of GDP.
The earthquake has not prevented the current account deficit from narrowing slowly in 2023. The increase in imports, linked to reconstruction efforts, has been offset by the rise in remittances from the diaspora and international aid. In 2024, tourism receipts will continue to boost the services surplus. Nevertheless, the increase in the trade deficit will slightly widen the current account deficit. Exports will increase with the production of phosphate and the automotive sector, as well as the expansion of the port of Tangiers. However, the rise in imports will be slightly greater, due to infrastructure projects, persistently high world commodity prices and reconstruction. This deficit will continue to be financed mainly by concessional external borrowing and direct investment abroad.
Political stability, despite widespread frustration over the high cost of living
Prime Minister Aziz Akhannouch, in power since 2021, heads the Rassemblement National des Indépendants (RNI), the majority party in a centre-right coalition. The next scheduled election is be for the House of Representatives, the lower house of Parliament, and will not take place until September 2026. The country, which is politically stable, faced growing discontent from its citizens in 2023 over high unemployment (12%) and the high cost of living due to recurrent droughts that affect harvests. The earthquake killed 3,000 people and left more than 15,000 homeless. The budget plan unveiled by the government will be devoted to emergency aid and reconstruction, and to the social and economic development of the affected region (70% of the amount). The aim is to encourage economic activity and open up isolated mountain areas.
In 2024, tensions with the Polisario Front and Algeria will continue to focus on the Western Sahara. Israel recognised Moroccan sovereignty over this territory in July 2023, and Spain recognised the Moroccan autonomy plan in 2022. The first decision is part of an unpopular rapprochement between the two countries, along with the United States, on defence issues, the other in the context of migratory movements between the two shores.