Risk drivers and outlook

For the last few years the Moroccan economy has recorded robust growth and has outperformed most other oil-importing countries in the region. Growth has averaged 3.6% in the years since 2011, as shown in graph 1. This growth rate is expected to continue in the coming years. Since 2011, Morocco has made a relatively important political transition and in terms of economic policy the government has focused on implementing a number of important reforms aimed at consolidating public finances. Additionally, Morocco has implemented a large infrastructure programme, which has led to the development of a new port and the construction of new airports and a high-speed railway. However, even though this has supported GDP growth and the reforms have led to macroeconomic stability and a significant improvement in the business environment, some deeper-lying issues have not been resolved. Recurring protests since 2016 have been symptomatic of this. For Morocco the protests pose a significant challenge given that the underlying reasons are not easy to resolve and the ongoing protests risk leading to increased political instability. Additionally, they create uncertainty for investors and thereby risk undermining the government’s economic policy aimed at trying to attract more investment.

Facts & figures


  • Robust growth, outward-looking strategy
  • Macroeconomic situation stabilised
  • Strong fiscal consolidation
  • Strong improvement of business environment


  • Recurring protests
  • Uneven economic growth, stronger in larger cities
  • Education system needs reform

Head of State

  • Mohammed VI

Head of Government

  • Saadeddine Othmani


  • 35.7 million

GDP (in 2017)

  • USD 109.3 bn

Income per capita

  • USD 2,863

Income group

  • Lower middle income

Country risk assessment


  • Growth has remained robust given the limited fallout over the Arab Spring.
  • Significant economic reforms and fiscal consolidation support macroeconomic stability.
  • Political transition has expanded the role of political parties and the government, but the main political power resides with the palace.
  • Recurring protests since 2016 pose a risk to political stability and are symptomatic of structural political and economic issues.
  • Outward-looking strategy should support further economic development.

Recurring political turmoil

In general these protests are directed towards the high corruption perception, the high unemployment rate, police violence and delays in investment projects in the poorer regions. In general, the protesters are demanding more voice and accountability in government. The protests have been strongest in the poorer and underserved regions of the country such as the northern Rif region, where they started in 2016 and from where they have spread to other areas of the country like the north-eastern town of Jerada. But at the same time, the government has also faced protests from trade unions in the larger cities over high living costs, the widespread corruption perception and the deterioration of social conditions. The government initially responded by promising long-term reforms and cracking down on the protests and the media reporting on the protests. In October 2017, the King intervened and after a report by the ‘cour des comptes’ on the situation in the Rif region, several high-level officials were dismissed. The aim was to send a clear message of stronger accountability in the public service. Since April 2018, the protests have shifted to a widely followed boycott campaign – launched through social media – against higher living costs. The campaign targets three brands that are market leaders in the dairy (Danone), mineral water (Sidi Ali) and fuel distribution (Afriquia) markets. Two of these companies are associated with prominent Moroccan politicians and members of the government. The Afriquia fuel stations, for example, are part of the Akwa Group, whose CEO is Agriculture Minister Aziz Akhannouch, one of the richest men in Morocco. Danone has reported a 35% decrease in sales in the third quarter of 2018 as a result of the boycott, which represents a significant impact. The increased protests have put pressure on Morocco’s political violence rating, which is currently still in category 3/7. However, an escalation of the protests remains unlikely.

A weak coalition government but a strong King

The current political turbulence is now at a high level since the 2011 protests in the country. During the Arab Spring protests were relatively limited in Morocco, especially compared to Tunisia and Egypt, where they led to the removal from power of the then presidents. The monarchy initially responded hesitantly to the protests led by the February 20 Movement in those countries but then announced a constitutional reform process that led to a new constitution being approved. The new constitution established a constitutional monarchy and the King thus devolved some powers to the government. Nevertheless, even with the implementation of the new constitution, the real political power still resides firmly with the monarch. This was apparent, for example, when the King intervened in the formation of the current government. 

Currently, Morocco is being governed by a weak coalition between the Islamist Justice and Development Party (PJD) and five other parties. This government was formed after a six-month deadlock. The PJD won the elections in October 2016 but given that in the Moroccan political system no party can win an outright majority, it needed a coalition partner. However, the other political parties were only willing to join the coalition together. The National Rally of Independents (RNI) party insisted on including the Socialist Union of Popular Forces (USFP) in the coalition. In mid-March 2017, Morocco’s Monarch intervened and fired Benkirane. His successor, Saadeddine Othmani, was quickly able to form a government, giving the indication that he would not oppose the USFP joining the coalition in order to end the political gridlock.

The PJD has played a key role in Moroccan politics since winning the 2011 elections by obtaining 107 out of 395 seats. It headed the government and Benkirane, then head of the PJD party, became Prime Minister. While he was in office, significant reforms were introduced such as a reduction of energy subsidies and a reform of the pension system. Through these measures the government was able to implement significant fiscal consolidation. However, at the same time the government failed to deliver on its election promise to reduce corruption. The period after 2011 reflects a significant transition in Moroccan politics with the implementation of the constitutional reforms and the associated expansion of the role of the government and political parties. Before, the political parties had never exercised any significant powers separate from the palace. Although the PJD still had to carefully balance its relationship with the palace, it was able to have a strong influence on the Kingdom’s economic and political policy and thereby implement the reforms it had envisaged. The new government has followed an economic policy that has broadly been in line with the previous government’s policy and continued the reforms initiated under Benkirane.

Need for economic reforms

The reforms were triggered by the need to improve public finances. Since 2009, the public deficit had risen for 4 consecutive years, peaking in 2012, when it reached 7.2% of GDP on the back of an increasingly high public wage bill, increased subsidy payments and higher interest payments. As a result, the public debt level rose to 56.5% of GDP. Since then the public deficit has been reduced, albeit at a slow pace. In 2017 the overall fiscal deficit was still 3.6% of GDP. Together with the deterioration of public finances, Morocco’s external balance deteriorated due to the current-account deficit rising to almost 9.5% of GDP by the end of 2012. Because only around 30% of the current-account deficit could be funded through FDI, the external debt level rose, although it remained at a relatively low level. Nevertheless, the deterioration of the economic situation significantly increased pressure on Credendo’s medium- to long-term political risk rating, which currently remains in category 3/7. For Morocco the two main sources of non-manufacturing current-account receipts are private transfers and tourism receipts. Additionally, Morocco is a net oil importer. Fluctuations in the oil price and in tourism and private transfer flows will thus continue to have an impact on the external balance. Besides the pressure on the medium- to long-term political risk outlook, this period was associated with additional pressure on the short-term liquidity position for two reasons. First of all, the share of short-term debt rose. While short-term debt as a share of current-account receipts was below 10% in 2009, it rose in subsequent years to nearly 25% by the end of 2017. Secondly, Morocco’s foreign-exchange reserves were under pressure: while reserves covered more than 7 months of imports in 2009, they fell to 4 months of import coverage by the end of 2012. Since then they have been rising again and at the end of August 2018 they covered an estimated 4.8 months of import. Nevertheless, while this has led to increased pressure on the short-term political risk rating, the classification has remained unchanged in category 2/7, reflecting Morocco’s still robust liquidity position. The economic reforms were implemented under the guidance of an IMF programme. In 2016 the Kingdom agreed on a two-year USD 3.6 bn precautionary liquidity line (PLL) – the third consecutive PLL programme – which ended in July 2018 and was treated as purely precautionary. 

One of the most significant reforms initiated by the government was the abolition of energy subsidies. Past subsidy cuts had triggered significant protests. Back in 1965 a sharp rise in the price of sugar triggered massive rioting in Casablanca and led to the suspension of parliament and a state of emergency being imposed. This situation repeated itself in 1981 and again in 1984. More recently, in 2007, widespread protests and riots were triggered when bread prices were increased by 30%. This led to more than 300 people being injured and the price rise was later reversed. The current subsidy cut, however, was implemented together with a clear communication strategy with all members of government highlighting the importance of the measure. For example, they focused on the fact that the fuel subsidies mainly benefited companies, given that only 15% of the funds went towards households. Additionally, to make the measures easier to accept, social safety nets were extended. By 2014, petrol and industrial fuel subsidies and subsequently subsidies on diesel were eliminated. This made Morocco one of the few countries (together with Jordan) in the MENA region to completely abolish fuel subsidies. A reduction in food subsidies was planned in Morocco but this has been postponed in view of the recurring protests. The abolition of energy subsidies freed up much-needed fiscal space in the government budget. As can be seen in graph 2, the government spent more than 5% of GDP on subsidies in 2011 and this was reduced to 1.4% of GDP by the end of 2017. 

Under the current government, Morocco started another significant reform, namely the process of reforming its exchange-rate system. While the dirham remained pegged against a basket in which the euro had a weight of 60% and the US dollar a weight of 40%, the government widened the band in which the currency could trade against the basket from 0.3 to 2.5% on either side of the reference price. While the band was widened, the dirham nevertheless remained stable throughout the rest of the year. The liberalisation was launched in coordination with the IMF, and should be seen as a first step in an expected full liberalisation of the exchange rate. Seeing that Morocco is in the exceptional situation of starting a currency reform at a moment when the economy is in a stable position, it will take time to implement a further liberalisation. This time is necessary, given that the government’s biggest fear is that a rapid depreciation of the currency would push up inflation and could therefore stir up further protests. The liberalisation of the exchange rate is a positive development given that a more flexible exchange rate will serve as a buffer against external shocks and will make the economy more competitive.

While economic reforms have been central in the government’s policy, further challenges lie ahead, as reflected in the protests. The protests in Morocco have mainly been taking place in the poorer regions such as the northern Rif region, as protesters complain about the lack of investment programmes in these regions. The protests are therefore touching on a sensitive issue in Morocco, which is that access to basic services such as healthcare, education, transport and even drinking water varies widely from one region to another. Some of the poorer regions of Morocco, such as the eastern region of Drâa-Tafilalet, significantly lag behind other regions in terms of access to healthcare and drinking water. This unevenness in public services is something that we also see in other countries in the MENA region such as Jordan and Tunisia. More generally we see that economic growth has mainly benefited the larger cities along the coastline. The impact of this can be seen in the basic development statistics such as illiteracy rates, which are around 60% higher in rural areas. In the border region, there are also strong complaints about the lack of jobs and economic development. The fact that the Moroccan/Algerian border remains closed plays a role in this, considering the lack of trade. Another issue remains the quality of Morocco’s education system. While progress has been made through the implementation of reforms, some challenges remain. World Bank data shows how Morocco is being outperformed by comparative countries in terms of literacy and enrolment rates. This is particularly the case in rural areas. The improvement made since the 1990’s in terms of education has mainly happened in the larger cities; net enrolment rates in secondary education are, for example, significantly lower in rural areas, particularly among girls.

The need for reforms in the education system has been one of many factors driving the high unemployment rate in Morocco. It is estimated that 9% of the total labour force is unemployed, but among the labour force younger than 24 it reaches 22%. This remains one of the largest sources of public discontent also because it has not decreased in recent years. In this sense Morocco is not an exception in the region, as can be seen in graph 3. The education system plays an important role in this given that Moroccan companies often complain that there is a mismatch between the skills students learn during their education and the skills companies need. Nevertheless, it is positive to note that while in other countries such as Tunisia and Saudi Arabia, governments have expanded public employment as a way of dealing with the high unemployment rate and as a response to the social pressures triggered by the Arab Spring, Morocco has resisted these trends and public expenditure on wages as a share of GDP remained constant over the period 2011-17, as can be seen in graph 4. Nevertheless, IMF data shows that public-sector employees in Morocco earn on average 100% more compared to private-sector employees.

The boycott campaign that started in April highlights another fundamental issue in the Moroccan economy: the lack of competition in the domestic market. This remains a structural issue in the Kingdom’s economy given that state dominance in certain sectors, together with entrenched interests, is challenging free competition. The companies that are boycotted are, for example, considered to be in sectors dominated by oligopolies. Protesters claim that companies have a strong influence over the government, which is thereby failing to promote competition, and this is leading to higher prices for basic goods. The lack of a strong independent competition authority and the fact that Morocco ranks poorly on the corruption perception index (81st place in the 2017 Transparency International Corruption Perceptions Index) plays a role in this. However, while the boycott campaign has highlighted this issue in Morocco, this is also something that affects a number of other countries in the region such as Algeria and Egypt.

At the same time it is important to note that when the business environment in Morocco is assessed we see that neighbouring countries are outperformed. Overall Morocco ranks 69th out of 190 countries in the 2018 World Bank Ease of Doing Business index while countries such as Egypt (128th place) and Algeria (166th place) rank significantly lower. This position reflects the significant improvements that were made under the last two governments given that in 2011 Morocco was ranked in 114th place. Looking at the subcomponents of the World Bank Ease of Doing Business index we see that there remains significant room for improvement in terms of ‘getting credit’, ‘resolving insolvency’ and ‘registering property’. At the same time Morocco scores among the 25 best countries in terms of ‘dealing with construction permits’ and ‘paying taxes’. Compared to 2011, government reforms have improved Morocco’s ranking in terms of ease of paying taxes by 99 places.

Outward-looking vision as a driver of GDP growth

In order to increase GDP growth, it has been an essential strategy of the Moroccan Government to attract more foreign investors and increase exports with a higher added value. This strategy has been a success, given that since 2000, Morocco’s manufacturing exports have experienced strong growth, averaging 8.3% each year. Since 2012, there has been a strong shift towards automobiles and other high-tech goods, while the importance of more traditional export products such as textiles has decreased. This has been driven by the industrial clusters around Casablanca and Tangiers that have been focusing on an export-oriented automotive and aeronautics industry. As a result of this, the share of medium- and high-tech products in total manufactured exports has increased from 20% in 2000 to above 50% today. In order to support its export strategy, significant infrastructure investments have been made, such as the development of the Tanger-Med Port terminals which, besides a port, also include a large industrial zone where a number of international companies are located. While Europe has remained by far the main export destination, Morocco has actively been working on expanding its economic connection with the African continent. This has been done primarily through strong FDI investments in the continent (85% of Moroccan FDI is directed towards Africa). Secondly, the share of total exports towards Sub-Saharan Africa has risen steadily since the early 2000s and in addition we see that Morocco’s financial sector is expanding its role in Africa, an expansion that will be supported by the liberalisation of the currency.

Analyst: Jan-Pieter Laleman – jp.laleman@credendo.com