current account deficit, it is estimated to MOROCCO have declined to 4 percent of GDP in 2017 Recent developments (compared with 4.4 percent in 2016). The trade deficit widened by 2.8 percent de- Following a sharp slowdown in 2016, real spite the surge in phosphates exports. In GDP growth rate reached 4 percent in fact, exports picked up by 9.4 percent, Table 1 2017 2017 (from 1.2 percent in 2016), boosted by while imports increased by 6.4 percent P o pulatio n, millio n 35.7 a strong rebound in agricultural output. (from a larger base), reflecting a sharp rise GDP , current US$ billio n 110.2 Driven by better than average cereal pro- in oil prices. Tourism receipts and re- GDP per capita, current US$ 3083 duction, the agricultural sector has experi- mittances remained steady. Natio nal po verty line a 4.8 enced a strong recovery, with a growth Morocco’s Central Bank finally adopted Gini co efficient a 39.5 rate of 15.1 percent. However, non- the reform towards a more flexible ex- b 114.7 agricultural GDP remained sluggish at change regime, allowing the currency to Scho o l enro llment, primary (% gro ss) b around 2.8 percent. Mining activities con- fluctuate within a wider band of ± 2.5 per- Life expectancy at birth, years 75.5 tributed the most to growth outside agri- cent, compared with the previous band of Source: WDI, M acro Poverty Outlook, and official data. culture, mostly driven by the recovery in 0.3 percent. The reform was delayed given Notes: (a) M ost recent value (2014). phosphates. Inflation remained low at 0.7 expectations that it would start last July, (b) M ost recent WDI value (2015) percent. Unemployment remained on an but the government appears to have upward trend, rising from 9.9 in 2016 to strong ownership of the reform since its 10.2 percent in 2017, especially prevalent introduction in mid-January 2018. Two among the young and the educated, as reasons could explain this shift: first, the well as women (26.5 percent 17.9 percent shock absorption capacity of the economy Economic growth has recovered in 2017, and 14.7 percent respectively), reflecting had been weak, particularly given current the weak capacity of the economy to gen- constraints on fiscal space, and exchange while non-agricultural activity remained erate inclusive growth. International pov- rate flexibility will help; secondly, the subdued, reflecting an economy, which erty estimates for Morocco are expected to uncertainty in which the global economy the production still depends on rain-fed be available in June 2018. Results based on is evolving which involves strong external agriculture. Thanks to prudent fiscal poli- the national poverty line indicate a sharp risks and again more ability to adjust. decline in poverty between 2001 and 2014. While this reform could increase vulnera- cy, the fiscal deficit was reduced to 3.5 Poverty was at 15.3% in 2001 and declined bility to increases in the price of imported percent of GDP. Although, Morocco’s to 8.9% in 2007 before dropping to 4.8% in goods, the benefits of greater competitive- current account deficit declined, the trade 2014. ness and less exposure to other forms of deficit widened due to high energy prices. The fiscal deficit declined in 2017, while economic shock would more than out- Job creation has improved, but unemploy- the slight improvement of exports was not weigh the costs of the move. In addition, enough to reduce the trade deficit as im- this reform will allow the country to be ment remained high especially for the ports increased. Thanks to prudent fiscal better-positioned for a flexible credit line young. Over the medium term, the chal- policy, the fiscal deficit was reduced to 3.5 arrangement with the IMF. lenges include broadening the middle percent of GDP in 2017 and the central class and catalyzing the private sector. government debt ratio has been stabilized at around 65.1 percent. Regarding the FIGURE 1 Morocco / Morocco’s twin deficits FIGURE 2 Morocco / Young, women, educated Sources: Ministry of economy and finance, World Bank staff estimates. Source: High-Commission of Planning. MPO 1 Apr 18 tinued fiscal consolidation, flexibly man- ate high unemployment among the young Outlook aged exchange rate regime and to the im- plementation of structural reforms in key and educated. With the working age pop- ulation increasing by 300,000 a year, job areas such as education and the labor creation, at 129,000 per year, has been GDP growth is projected to decline to 3 market in order to reduce unemployment, insufficient. Youth unemployment is twice percent in 2018. Cereal production is pro- especially among the young, improve the the rate of total population. This rate jected to return to its historical average business environment, and enhance hu- among urban youth has been worsening and non-agricultural GDP growth is ex- man capital for higher and inclusive since the financial crisis, growing from pected to remain around 3 percent in the growth. 31.3 percent in 2010 to 41 percent in 2016. absence of more decisive structural re- Furthermore, unemployment spells tend forms. to be long: more than 70 percent are un- The fiscal deficit is expected to decline to 3.3 percent of GDP in 2018 in line with the Risks and challenges employed for more than a year, and this share is higher among those with tertiary government’s commitment to bring down education. the deficit to 3 percent of GDP by 2019- Morocco’s growth model shows signs of The persistence of vulnerabilities and the 2021 and to reduce public debt to 60 per- weaknesses as it is confronted with a se- lack of inclusion remain the main chal- cent of GDP by 2021. To achieve this tar- ries of sustainability issues that risk, with lenges for Morocco’s economy. These are get, it would be appropriate for the gov- varying degrees of intensity, impeding closely related to the lack of inclusive and ernment to ensure a comprehensive tax further progress. The economic model contestable market institutions, public reform including measures to reduce tax based on domestic demand, especially governance, human capital formation, and exemptions, lower corporate tax rates, and public investment, risks petering out with- opportunities for productive jobs or entre- better enforce tax payments by the self- out a significant increase in investment preneurship in urban areas. Climate employed and liberal professions and spillovers and productivity. Growth in the change adaptation is increasingly urgent, improved public investment management. past two decades has been mainly based and will require policy reforms and in- In line with this fiscal consolidation and on public capital accumulation, sometimes vestment. oil price projections, the current account through FDI joint ventures with SOEs, deficit is projected to remain below 4.5 that will be difficult to maintain without percent of GDP in 2018. higher total factor productivity gains in Over the medium term, Morocco’s eco- the future. This calls for a shift toward a nomic outlook should improve provided more export-led model, where the private the government remains committed to sector is playing a greater role as an en- implement deep and comprehensive re- gine of growth and employment. forms. The outlook remains linked to con- Slow job creation and entry barriers gener- TABLE 2 Morocco / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2015 2016 2017 e 2018 f 2019 f 2020 f Real GDP growth, at constant market prices 4.5 1.2 4.0 3.0 3.5 3.7 Private Consumption 2.3 3.4 4.0 3.1 3.7 3.4 Government Consumption 2.4 2.1 0.8 1.7 1.3 1.1 Gross Fixed Capital Investment 0.2 9.3 3.4 3.9 4.4 4.6 Exports, Goods and Services 5.5 5.1 8.8 6.1 7.3 7.5 Imports, Goods and Services -1.1 15.4 5.9 5.6 5.1 5.6 Real GDP growth, at constant factor prices 3.2 0.0 4.4 2.3 4.5 3.8 Agriculture 11.6 -11.3 13.6 -1.8 10.5 3.6 Industry 1.8 1.2 2.9 2.9 3.1 3.3 Services 1.7 2.7 2.7 3.1 3.6 4.1 Inflation (Consumer Price Index) 1.6 1.6 0.7 1.5 1.2 1.2 Current Account Balance (% of GDP) -2.1 -4.4 -4.0 -4.2 -4.4 -4.5 Fiscal Balance (% of GDP) -4.2 -4.0 -3.5 -3.3 -3.0 -3.0 Debt (% of GDP) 63.7 64.7 65.1 65.0 65.0 65.0 Primary Balance (% of GDP) -1.4 -1.3 -1.0 -1.0 -0.7 -1.0 So urce: Wo rld B ank, P o verty & Equity and M acro eco no mics, Trade & Investment Glo bal P ractices. No tes: e = estimate, f = fo recast. MPO 2 Apr 18 MPO 3 Apr 18