After almost six months of political deadlock, Saaddine El-Otamani from the Islamist Justice and Development Party (PJD) succeeded in forming a government together with five other parties. His predecessor, Abdelilah Benkirane (PJD), had failed to do so due to the National Rally of Independents (RNI) party’s insistence on including the Socialist Union of Popular Forces (USFP) in the coalition. Benkirane had resisted because he was afraid that this would weaken the PJD’s position in government. Mid-March, Morocco’s monarch intervened and fired Benkirane. His successor had already made clear that he would not oppose to the USFP joining the coalition in order to end the political gridlock. The new prime minister stated that the focus of his government would be on fighting corruption, reducing unemployment, and improving the quality of government services, education and health care. The failure to form a government for almost six months prevented the passage of a new government budget that should have passed by the end of 2016.

Impact on country risk

Since its coming into power in 2011, the PJD has been implementing a number of structural economic reforms. They have for example implemented a policy of strong fiscal consolidation which reduced the fiscal deficit from 7.3% of GDP in 2012 to 3.5% of GDP in 2016. This has been done through policies aimed at reforming government subsidies, reforming the tax system and freezing government hiring. Further economic reforms are needed, however. The IMF judges the main obstacles to higher growth in Morocco to be the quality of education, skill mismatches, the business environment and the functioning of the labour market. The need for reforms is reflected in the relatively high unemployment rate. This reached around 10% in the last few years, but especially youth unemployment is high, namely 21.8% in 2016. This together with the high corruption rate (in 2016, Morocco ranked 90th out of 176 countries in the transparency international corruption perception list) has led to increased social tensions in the country in the last few years. Recent protests in February 2017 after the death of a fisherman are a symptom of this. While reforms of the education system are expected, some other reforms will prove to be very difficult to push through. For example, the country needs more competition in the domestic sector. Yet, the latter is often tied to the monarch and his inner circle. The new government is unlikely to be able to change this status quo given that real political powers in the country still firmly reside with the royal court. Credendo therefore predicts the pace of reforms under the new government to be limited.

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