MOROCCO ECONOMIC MONITOR Building Momentum for Reform Spring 2021 Middle East and North Africa Region Morocco Economic Monitor Building Momentum for Reform With a Special Focus on COVID-19, Inequality, and Jobs in Morocco June 2021 MOROCCO ECONOM MONITO Middle East and North Africa Region From R © 2021 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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TABLE OF CONTENTS Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Resume Synthétique . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi ‫ امللخص التنفيذي‬. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii 1.  Recent Economic Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Morocco’s Successful Epidemiological Containment and Vaccination Campaign . . . . . . . . . . . . . . . . . . . . . . 1 An Uneven Economic Recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Large Fiscal Impacts, but a Resilient External Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Monetary and Financial Sector Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2. Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Morocco’s Reform Momentum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Special Focus: COVID-19, Inequality, and Jobs in Morocco . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 The Unequal Effects of COVID-19: Evidence from Across the Globe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 Distributional Impact of the COVID-19 Pandemic in Morocco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Long-Term Trends in Morocco’s Labor Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 The Way Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Data Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 Selected Recent World Bank Publications on Morocco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 iii List of Figures Figure 1 After a hard second Wave, Morocco has successfully contained the spread of the pandemic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Figure 2 The beginning of the vaccination campaign was a success, but it has lost pace due to delivery constraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 3 The various components of production and demand Are unevenly contributing to the recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 4 Morocco’s 2020 recession was comparatively large . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Figure 5 Morocco’s budget deficit and public debt Have increased less markedly than in neighboring Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 6 Despite the increase in public debt, markets perceive that Morocco’s sovereign risk remains Contained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 7 The various components of the current account Are recovering unevenly, and external Buffers Have been bolstered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 8 Absence of exchange rate and price pressures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Figure 9 The cumulative output loss caused by the crisis Is expected to be large . . . . . . . . . . . . . . . . . . . . .13 Figure 10 Employment status after confinement of workers who stopped working, by quintiles . . . . . . . . . .21 Figure 11 Annual change in working-age population and employment, 2001–2019 . . . . . . . . . . . . . . . . . . . . 23 Figure 12 Employment elasticities and dependency ratio over time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 Figure 13 Labor status of the population in Morocco, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 Figure 14 The profile of the inactive population, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Figure 15 Formal and informal wageworkers over time (a) and the profile of informal Wageworkers in 2019 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Figure 16 Labor status of the population in Morocco, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Figure 17 Educational attainment of working-age population by labor force status, 2010 and 2018 . . . . . . 27 Figure 18 Variation of workers by sector in 2000 and 2019. b) Sectoral distribution of workers by region in 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 List of Tables Table 1 Morocco: Selected Economic Indicators, 2018–2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 Table 2 Morocco: Key fiscal indicators 2015-2022 (in percent of GDP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 List of Boxes Box 1 Second COVID-19 enterprise follow up survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Box 2 Covid-19 impact on tourism sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Box 3 Microsimulation analysis of the COVID-19 effects on the blue economy . . . . . . . . . . . . . . . . . . . . .22 iv MOROCCO ECONOMIC MONITOR – BUILDING MOMENTUM FOR REFORM ACRONYMS BAM Bank Al-Maghrib IOM International Organization for Migration CAB Current Account Balance LPI Logistics Performance Index CPI Consumer Price Index MENA Middle East North Africa CCG Caisse Centrale de Garantie (Central MoF Ministry of Finance Guarantee Agency) MSME Micro Small Medium Enterprises COVID Coronavirus Disease NGO Non-Government Organization DSA Debt Sustainability Analysis NPLs Non-Performing Loans DB Doing Business PP Percentage Point EMDEs Emerging Market Developing Economies PPE Personal Protective Equipment EU European Union PPP Public-Private Partnership FDI Foreign Direct Investment SNGFE Société Nationale de Garantie et de GCC Gulf Cooperation Council Financement de l´Entreprise GDP Gross Domestic Product SOEs State-Owned Enterprises GoM Government of Morocco WBG World Bank Group HDI Human Development Index WDI World Development Indicators ICT Information and Communications WGI Worldwide Governance Indicators Technology v PREFACE T he Morocco Economic Monitor is a semi- and Eric Le Borgne (Practice Manager, MTI). The annual report from the World Bank economic team is grateful for the comments, helpful inputs team on recent economic developments and received from colleagues, in particular, Matina Deen economic policies. This report presents our current on the impact of the crisis on the corporate sector, outlook for Morocco given the recent COVID-19 and Gabriel Sensenbrenner (EFI Program Leader, developments. Its coverage ranges from the macro- Maghreb), as well as senior staff from the Ministry economy to business environment and private sector of Finance. Special thanks to Muna Salim (Senior development. It is intended for a wide audience, Program Assistant, MTI) for her administrative including policy makers, business leaders, financial support. market participants, and the community of analysts The findings, interpretations, and conclusions and professionals engaged in Morocco. expressed in this Monitor are those of World Bank The Morocco Economic Monitor is a product staff and do not necessarily reflect the views of the of the Middle East and North Africa (MENA) unit in Executive Board of the World Bank or the govern- the Macroeconomics, Trade & Investment (MTI) ments they represent. For information about the World Global Practice in the World Bank Group. The report Bank and its activities in Morocco, please visit www. was prepared by Javier Diaz-Cassou, Amina Iraqi, worldbank.org/en/country/morocco (English), www. Federica Alfani and Vasco Molini. The present edition worldbank.org/ar/country/morocco (Arabic), or www. of this report has been prepared with data available banquemondiale.org/fr/country/morocco (French). until May 30th 2021. For questions and comments on the content of this The report was prepared under the direction of publication, please contact Javier Diaz Cassou (jdi- Jesko Hentschel (Country Director for the Maghreb), azcassou@worldbank.org). vii EXECUTIVE SUMMARY M orocco stands out as a country that enabled to enter markets, grow and create jobs; (ii) a has seized the COVID-19 crisis as an more dynamic private sector could make a better use opportunity to launch an ambitious of the large stock of physical capital accumulated over program of transformative reforms. After its past decades, thus increasing the growth dividend of initial efforts to mitigate the immediate effects of the existing infrastructure, which so far has disappointed; pandemic on households and firms, the authorities (iii) accelerating the pace of human capital formation have launched various policies to correct long- could enable more Moroccan citizens to realize their standing inequities and overcome some of the productivity potential, which would contribute to structural bottlenecks that have constrained the raise living standards and accelerate the growth of performance of the Moroccan economy in the recent aggregate output. past. This reform program has the following pillars: In the shorter-term, however, the recovery (i) the creation of a Strategic Investment Fund (the from the crisis could be gradual and uneven. Mohammed VI Fund) to support the private sector; Although activity picked up in the second half of (ii) the overhaul of the social protection framework the year, 2020 closed with the largest economic to boost human capital; (iii) the restructuring of recession on record. We project real GDP growth to Morocco’s large network of State Owned Enterprises. rebound to 4.6 percent in 2021, supported by the In addition, the government has recently unveiled strong performance of the agricultural sector and the terms of a new development model that places by a partial recovery of the secondary and tertiary significant emphasis on human development and sectors. In this baseline scenario, real GDP will not gender equity, and on the need to reinvigorate recent return to its pre-pandemic level until 2022, and the efforts to incentivize private entrepreneurship and cumulative output loss caused by the crisis will be boost competitiveness. large. Moreover, the balance of risks remains tilted If successfully implemented, these reforms to the downside given the global spread of new and could lead to a stronger and more equitable more infectious coronavirus variants, the supply growth path. There are various channels through constraints that are affecting Morocco´s vaccination which the reform impetus described above could campaign, and the macro-financial vulnerabilities increase the growth potential of the Moroccan triggered by the crisis. economy: (i) by increasing market contestability, The large and unequal socio-economic levelling the playing field, and streamlining the role of impact of the crisis were partly mitigated by the the SOE sector in the economy, more firms would be extensive cash transfer programs rolled out during ix the lockdown period. In Morocco as elsewhere, However, these measures were temporary poorer segments of the population have been more in nature, and a more structural approach will be exposed to the health and economic consequences needed to ensure that the benefits of the post- of the pandemic. As a result, the incidence of poverty COVID recovery will be evenly distributed. The has increased after several years of sustained social Kingdom already announced a sweeping reform of the progress and is not expected to return to pre-pandemic social protection system, including the universalization levels until 2023. A peculiarity of the Moroccan case, of health insurance and family allowances. The long- however, is that the mitigation measures adopted term challenges that characterize Morocco’s labor by the authorities have successfully cushioned the markets will also need to be addressed, namely, its income reduction that a large proportion of poorer insufficient capacity to create new jobs even when the households (both formal and informal) would have economy is growing, high inactivity especially among otherwise undergone, thus avoiding a significantly the young and the female population, and slowly larger increase in poverty. declining levels of informality. x MOROCCO ECONOMIC MONITOR – BUILDING MOMENTUM FOR REFORM RESUME SYNTHÉTIQUE L e Maroc se distingue comme étant un pays publiques dans l’économie, un nombre croissant qui a su profiter de la crise du COVID-19 d´entreprises privées pourrait accéder aux marchés, pour en faire une opportunité de lancer un croître et créer des emplois; (ii) un secteur privé plus ambitieux programme de réformes transforma- dynamique pourrait faire un meilleur usage du large trices. Après ses premiers efforts pour atténuer les stock de capital physique accumulé au cours des effets immédiats de la pandémie sur les ménages et dernières décennies, augmentant ainsi les gains en les entreprises, les autorités ont lancé diverses po- termes de croissance des infrastructures existantes, litiques pour corriger des inégalités de longue date dont la performance a été jusqu’à présent décevante; et surmonter certains obstacles structurels qui ont (iii) accélérer le rythme de formation du capital hu- limité par le passé la performance de l’économie main pourrait permettre à plus grand nombre de ci- marocaine. Ce programme de réformes repose sur toyens marocains de réaliser leur potentiel de produc- les piliers suivants : (i) la création d’un Fonds d’inves- tivité, ce qui contribuerait à relever le niveau de vie et tissement stratégique (le Fonds Mohammed VI) pour à accélérer la croissance économique. soutenir le secteur privé ; (ii) la refonte du cadre de Cependant, à plus court terme, la reprise protection sociale pour dynamiser le capital humain économique pourrait être progressive et ; (iii) la restructuration du vaste réseau d’entreprises irrégulière. Bien que l’activité ait repris au second publiques marocaines. En outre, le gouvernement a semestre, l’année 2020 s’est clôturée avec la plus dévoilé les termes d’un nouveau modèle qui met l’ac- grande récession économique jamais enregistrée. cent sur le développement humain et l’équité entre Nous prévoyons que la croissance du PIB réel les sexes, tout en redynamisant les efforts récents rebondira à 4,6 pour cent en 2021, soutenue par la pour encourager l’entrepreneuriat privé et stimuler la bonne performance du secteur agricole et par une compétitivité. reprise partielle des secteurs secondaire et tertiaire. Si leur mise en œuvre est réussie, ces ré- Dans ce scénario de référence, le PIB réel ne formes pourraient déboucher sur une trajec- reviendrait à son niveau d’avant la pandémie qu’en toire de croissance plus forte et plus équitable. 2022 et la perte cumulative de production causée Il existe différents canaux par lesquels les réformes par la crise serait importante. De plus, la balance des décrites ci-dessus pourraient augmenter le potentiel risques à la baisse demeure prépondérante compte de croissance de l’économie marocaine: (i) en aug- tenu de la propagation mondiale de nouveaux variants mentant la contestabilité du marché, en renforçant la de coronavirus plus infectieux, des contraintes concurrence et en rationalisant le rôle des entreprises d’approvisionnement qui affectent la campagne de xi vaccination du Maroc et des vulnérabilités macro- aurait autrement subi, évitant ainsi une augmentation financières déclenchées par la crise. beaucoup plus importante de la pauvreté. L’impact socio-économique important et Cependant, ces mesures ayant été de na- inégal de la crise a été en partie atténué par les ture temporaire, une approche plus structurelle vastes programmes de transferts monétaires mis serait nécessaire pour garantir que les avan- en place pendant la période du confinement. tages de la reprise post-COVID soient plus uni- Au Maroc comme ailleurs, les catégories de la formément répartis. Le Royaume a déjà annoncé population les plus pauvres ont été plus exposées une réforme en profondeur du système de protection aux conséquences sanitaires et économiques de la sociale, y compris la généralisation de l’assurance pandémie. Par conséquent, l’incidence de la pauvreté maladie et des allocations familiales. Néanmoins, a augmenté après plusieurs années de progrès les défis à long terme qui caractérisent le marché du social soutenu et ne devrait revenir aux niveaux travail au Maroc doivent être relevés, à savoir sa ca- d’avant la pandémie qu’en 2023. Une particularité pacité insuffisante pour créer de nouveaux emplois du cas marocain est, cependant, que les mesures même lorsque l’économie est en croissance, une d’atténuation adoptées par les autorités ont réussi à forte inactivité, en particulier parmi les jeunes et la amortir la réduction des revenus qu’une grande partie population féminine, et l´insuffisante baisse des ni- des ménages (formels et informels) les plus pauvres veaux d’informalité. xii MOROCCO ECONOMIC MONITOR – BUILDING MOMENTUM FOR REFORM ‫الملخص التنفيذي‬ ‫منو إجاميل الناتج املحيل الحقيقي إىل ‪ 4.6‬يف عام ‪ ،2021‬مدعو ً‬ ‫ما باألداء‬ ‫برز املغرب كدولة استغلت أزمة فريوس كورونا كفرصة إلطالق برنامج‬ ‫الجيد للقطاع الزراعي واالنتعاش الجزيئ يف القطاعني الثانوي والثالث‪.‬‬ ‫طموح لإلصالحات التحويلية‪ .‬بعد بذل الجهود األوىل للتخفيف من‬ ‫يف ظل هذا السيناريو األسايس‪ ،‬لن يعود الناتج املحيل اإلجاميل الحقيقي‬ ‫اآلثار املبارشة للوباء عىل األرس والرشكات‪ ،‬أطلقت السلطات سياسات‬ ‫إىل مستوى ما قبل الجائحة حتى عام ‪ 2022‬وستكون الخسارة الرتاكمية‬ ‫مختلفة لتصحيح التفاوتات طويلة األمد والتغلب عىل بعض العقبات‬ ‫لإلنتاج الناجمة عن األزمة كبرية‪ .‬باإلضافة إىل ذلك‪ ،‬ال تزال مخاطر الجانب‬ ‫الهيكلية التي حدت من أداء االقتصاد املغريب يف املايض‪ .‬يقوم برنامج‬ ‫را لالنتشار العاملي ملتغريات فريوس كورونا الجديدة‬ ‫السلبي مرجح ً‬ ‫ة نظ ً‬ ‫اإلصالح هذا عىل الركائز التالية‪ )1( :‬إنشاء صندوق استثامري اسرتاتيجي‬ ‫واألكرث عدوى‪ ،‬قيود العرض التي تؤثر عىل حملة التطعيم يف املغرب‬ ‫(صندوق محمد السادس) لدعم القطاع الخاص‪ )2( .‬إصالح إطار الحامية‬ ‫ونقاط الضعف عىل صعيد االقتصاد الكيل والصعيد املايل التي سببتها‬ ‫االجتامعية لتعزيز رأس املال البرشي؛ (‪ )3‬إعادة هيكلة الشبكة الواسعة‬ ‫األزمة‪.‬‬ ‫للمؤسسات العمومية املغربية‪ .‬باإلضافة إىل ذلك‪ ،‬فإن الحكومة عىل‬ ‫وشك الكشف عن رشوط منوذج التنمية الجديد الذي ينبغي أن يركز عىل‬ ‫تم تخفيف جزئ ً‬ ‫يا األثر االجتامعي واالقتصادي الكبري وغري املتكافئ لألزمة‬ ‫التنمية البرشية‪ ،‬املساواة بني الجنسني وإعادة تنشيط الجهود لتشجيع‬ ‫من خالل برامج التحويالت النقدية الكبرية التي تم وضعها خالل فرتة‬ ‫مبارشة األعامل الحرة وتحفيز التنافسية‪.‬‬ ‫ا العزل‪ .‬يف املغرب كام يف بلدان أخرى‪ ،.‬كانت الفئات األشد فقرا ً من‬ ‫السكان أكرث تعرضاً للعواقب الصحية واالقتصادية للوباء‪ .‬ونتيجة لذلك‪،‬‬ ‫قد تؤدي هذه اإلصالحات إىل مسار منو أقوى وأكرث إنصافًا إذا نجح‬ ‫زاد معدل انتشار الفقر بعد عدة سنوات من التقدم االجتامعي املستمر‪،‬‬ ‫تنفيذها‪ .‬هناك قنوات مختلفة ميكن من خاللها أن يؤدي الدافع‬ ‫وال يُتوقع أن يعود إىل مستويات ما قبل الجائحة حتى عام ‪ .2023‬ومع‬ ‫لإلصالحات املوصوفة أعاله إىل زيادة إمكانات النمو لالقتصاد املغريب‪)1( :‬‬ ‫ذلك‪ ،‬فإن خصوصية الحالة املغربية هي أن تدابري التخفيف التي اتخذتها‬ ‫من خالل زيادة التنافس يف السوق‪ ،‬من خالل إتاحة فرص متكافئة لجميع‬ ‫السلطات نجحت يف التخفيف من انخفاض الدخل الذي كان سيشهده‬ ‫فعاليات السوق ومن خالل ترشيد دور املؤسسات العمومية يف االقتصاد‬ ‫جزء كبري من أفقر األرس (الرسمية وغري الرسمية)‪ ،‬وبالتايل تجنب زيادة‬ ‫املغريب‪ ،‬ميكن ملزيد من الرشكات الوصول إىل األسواق والنمو وخلق فرص‬ ‫أكرب يف الفقر‪.‬‬ ‫العمل؛ (‪ )2‬ميكن لقطاع خاص أكرث ديناميكية أن يستخدم بشكل أفضل‬ ‫املخزون الكبري من رأس املال املادي املرتاكم عىل مدى العقود املاضية‪،‬‬ ‫ومع ذلك‪ ،‬كانت هذه التدابري مؤقتة بطبيعتها ‪ ،‬وستكون هناك حاجة‬ ‫وبالتايل زيادة املكاسب من حيث منو البنية التحتية‪ ،‬والتي كانت مخيبة‬ ‫إىل نهج أكرث هيكلية لضامن توزيع متساوي لفوائد االنتعاش االقتصادي‪.‬‬ ‫لآلمال حتى اآلن؛ (‪ )3‬ميكن أن يسمح ترسيع وترية تكوين رأس املال‬ ‫أعلنت اململكة بالفعل عن إصالح معمق لنظام الحامية االجتامعية‪ ،‬مبا‬ ‫البرشي ملزيد من املواطنني املغاربة بتحقيق إمكاناتهم اإلنتاجية‪ ،‬مام‬ ‫يف ذلك تعميم التأمني الصحي و االستحقاقات األرسية‪ .‬يجب معالجة‬ ‫سيساعد عىل رفع مستويات املعيشة وترسيع منو اإلنتاج الكيل‪.‬‬ ‫التحديات طويلة املدى التي متيز سوق العمل يف املغرب‪ ،‬وهي عدم‬ ‫كفاية قدرته عىل خلق وظائف جديدة حتى مع منو االقتصاد‪ ،‬عدم‬ ‫ومع ذلك‪ ،‬قد يكون االنتعاش االقتصادي تدريجيًا وغري منتظم عىل املدى‬ ‫النشاط خصوصا يف صفوف النساء والشباب‪ ،‬واالنخفاض التدريجي يف‬ ‫القصري‪ .‬عىل الرغم من انتعاش النشاط يف النصف الثاين من العام‪ ،‬إال أن‬ ‫مستويات التوظيف غريرسمية‪.‬‬ ‫سنة ‪ 2020‬عرفت أكرب ركود اقتصادي عىل اإلطالق‪ .‬نتوقع أن ينتعش‬ ‫‪xiii‬‬ 1 RECENT ECONOMIC DEVELOPMENTS1 T he Moroccan economy is exhibiting some to contain the spread of the pandemic. Partly be- encouraging trends, sustained by a marked cause of the stringent social distancing measures ad- improvement in the epidemiological situation, opted by the authorities during a 12 week-long lock- the successful beginning of the vaccination campaign, down, the first wave of the pandemic was relatively mild the strong performance of certain export-oriented sectors (Figure 1).2 However, cases began to pick up soon after and, to a lesser extent, a rise in private consumption. the deconfinement was launched in mid-June, and the However, the recovery is far from complete, and year second wave of the pandemic ended up taking a heavier 2020 closed with the largest contraction of real GDP toll than the first one.3 In December 2020 the epidemio- on record. Moreover, recent surveys indicate that the logical situation reached a turning point, as the number corporate sector is still struggling and the stock of of cases began to decline markedly. By February and nonperforming loans (NPLs) is on the rise, which may March, the emergency was brought under control, and delay the recovery of private investment. Despite the government’s prudent fiscal response to the shock, 1 The present edition of this report was prepared with data the debt-to-GDP ratio increased markedly in 2020. In available until May 30th 2021. turn, the evolution of Morocco’s external position has 2 In stark contrast with Morocco’s northern neighbors, the been strengthened by a partial recovery of exports, a number of confirmed cases rose moderately during the sharp contraction of imports, an increase in workers’ first wave, from 617 in March to 4,423 in April and 7,807 remittances and maintained access to external finance. in May. In terms of infections and deaths, Morocco was among the best performers in the MENA region, and In the current context of below potential economic compared favorably even with Australia and South Korea. activity, price pressures remain subdued despite an 3 Confirmed contagions increased gradually from an expansionary monetary policy stance. average of 784 new daily cases in the last week of July and reached a peak of 6,195 new daily cases in November 12th. The number of new infections started to decline in Morocco’s Successful Epidemiological December, with on average 2,672 new daily cases in that Containment and Vaccination month, 1,031 cases in January, 446 in February, and 401 Campaign in March. The number of deaths followed suit with an average of 25 daily COVID-19 related fatalities in August, After a sharp increase in COVID-19 cases between 35 in September, 48 in October, 71 in November, 49 in September and November, Morocco has managed December, 28 in January, 12 in February and 6 in March. 1 FIGURE 1 • After a hard second Wave, Morocco has successfully contained the spread of the pandemic Cumulative confirmed COVID-19 cases per million people Cumulative confirmed COVID-19 deaths per million people The number of confirmed cases is lower than the number of actual Limited testing and challenges in the attribution of the cause of death cases; the main reason for that is limited testing. means that the number of confirmed deaths may not be an accurate 120,000 count of the true number of deaths from COVID-19. 100,000 2,000 1,800 80,000 1,600 1,400 60,000 1,200 1,000 40,000 800 600 20,000 400 200 0 0 Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 United States European Union Jordan United States European Union Jordan United Kingdom Tunisia Libya United Kingdom Tunisia Libya Morocco Algeria South Korea Morocco Algeria South Korea Australia Australia Source: Johns Hopkins University CSSE COVID-19 Data. new COVID-19 variants seem to be posing less of a chal- Morocco delivered an average of about 0.1 daily doses lenge in Morocco than in other countries. The progres- per 100 people. The pace of the campaign picked up sive reintroduction of travel restrictions (at the time of afterward, surpassing 0.5 doses daily per 100 people writing, international flights are suspended with 54 coun- in mid-March (more than 200,000 inoculations per tries, including most of the European Union) may con- day). As of May 15, 2021, Morocco has administered tribute to explain the slow spread of these new variants. 10.6 million doses, or about 29.3 doses per 100 Morocco has launched an ambitious inhabitants (Figure 2). This places the Kingdom in the vaccination campaign. On January 28, 2021, the first position in Africa, the fourth in the MENA region authorities initiated a nationwide vaccination program (after the United Arab Emirates, Bahrein, and Qatar), aimed at covering 80 percent of the adult population and in the 16th position globally. (around 25 million citizens) within the first Semester However, Morocco´s vaccination campaign of 2021. For that purpose, the country announced the confronts delivery constraints. India´s decision to purchase of a sufficient number of vaccines to inoculate suspend exports has affected the countries that were its entire eligible population, mostly from Sinopharm more reliant on the doses produced by the Serum and AstraZeneca, in addition to Morocco’s allocation Institute of India, including Morocco. In addition, the from COVAX Advanced Market Commitment. The Kingdom has received less doses of the Sinopharm country has so far received close to 18 million doses vaccine than originally anticipated. These delivery from AstraZeneca (Covishield) and Sinopharm. The delays reduced the pace of the vaccination campaign, groups targeted by the first phase of the vaccination which dropped to 0.1 doses per 100 inhabitants in mid- campaign are health professionals over the age of 40, April. However, the recent arrival of new doses from public authorities, the Royal Armed Forces, teachers Sinpharm has enabled the authorities to reaccelerate over 45 and people over 75 in the most affected areas. the vaccination campaign, and the government On February 23, 2021, the campaign was expanded to has launched additional procurement processes to include all the population above the age of 60, as well diversify their supply base, with negotiations going on as individuals with comorbidities, and on May 8th it was with the producers of the Sputnik V and the Johnson further extended to the population above the age of 50.. and Johnson vaccines. In any case, these events The vaccination campaign has so far been a serve as a reminder that, despite the highly effective success. From January 29, 2021 to February 9, 2021, logistical arrangements that have been put in place, 2 MOROCCO ECONOMIC MONITOR – BUILDING MOMENTUM FOR REFORM FIGURE 2 • The beginning of the vaccination campaign was a success, but it has lost pace due to delivery constraints COVID-19 vaccine doses administered per 100 people Daily COVID-19 vaccine doses administered per 100 people Total number of vaccination doses administered per 100 people in the Shown is the rolling 7-day average per 100 people in the total total population. This is counted as a single dose, and may not equal population. This is counted as a single dose, and may not equal the the total number of people vaccinated, depending on the specific dose total number of people vaccinated, depending on the specific dose regime (e.g. people receive multiple doses). regime (e.g. people receive multiple doses) 100 0.8 80 0.7 60 0.6 40 0.5 20 0.4 0 0.3 12/17/20 12/24/20 12/31/20 1/7/21 1/14/21 1/21/21 1/28/21 2/4/21 2/11/21 2/18/21 2/25/21 3/4/21 3/11/21 3/18/21 3/25/21 4/1/21 4/8/21 4/15/21 4/22/21 4/29/21 5/6/21 5/13/21 5/20/21 5/27/21 0.2 0.1 0 1/29/21 2/5/21 2/12/21 2/19/21 2/26/21 3/5/21 3/12/21 3/19/21 3/26/21 4/2/21 4/9/21 4/16/21 4/23/21 4/30/21 5/7/21 5/14/21 5/21/21 5/28/21 Algeria European Union Morocco Tunisia United Kingdom United States Source: Official data collated by Our World Data. the ultimate success of Morocco´s vaccination coincides with the lockdown, real GDP fell by an un- campaign also hinges upon factors that are beyond precedented 15.1 percent y-o-y. On the production the control of the authorities. side, the decline was more pronounced in the sec- ondary sector (–17.3 percent y-o-y), driven by the underperformance of the manufacturing industry An Uneven Economic Recovery (–22 percent), mechanical, metallurgical and elec- trical industries (–53.6 percent), textiles and leather The COVID-19 shock triggered the most abrupt (–46.7 percent). In turn, the tertiary sector contracted economic contraction since records began. by 14.9 percent of GDP y-o-y, with a particularly se- During the second quarter of 2020, which broadly vere impact for activities related with tourism, such FIGURE 3 • The various components of production and demand are unevenly contributing to the recovery Consumption, year on year Consumption, quarter on quarter 10% 15% 5% 10% 0% 5% 0% –5% –5% –10% –10% –15% –15% –20% –20% 2018:1 2018:2 2018:3 2018:4 2019:1 2019:2 2019:3 2019:4 2020:1 2020:2 2020:3 2020:4 2018:1 2018:2 2018:3 2018:4 2019:1 2019:2 2019:3 2019:4 2020:1 2020:2 2020:3 2020:4 Private Consumption Public Consumption Private Consumption Public Consumption Gross Capital Formation Net Exports Gross Capital Formation Net Exports GDP GDP (continued on next page) Recent Economic Developments1 3 FIGURE 3 • The various components of production and demand are unevenly contributing to the recovery (continued) Production, year on year Production, quarter on quarter 5% 15% 10% 0% 5% –5% 0% –10% –5% –10% –15% –15% –20% –20% 2018:1 2018:2 2018:3 2018:4 2019:1 2019:2 2019:3 2019:4 2020:1 2020:2 2020:3 2020:4 2018:1 2018:2 2018:3 2018:4 2019:1 2019:2 2019:3 2019:4 2020:1 2020:2 2020:3 2020:4 Primary Sector Secondary Sector Primary Sector Secondary Sector Tertiary Sector GDP Tertiary Sector GDP Source: HCP. as hotels and restaurants (–90 percent) or transport This partial recovery was insufficient to avoid (–55.7 percent). Finally, the primary sector contract- a comparatively large overall contraction of GDP in ed by 8.2 percent y-o-y, mostly because of the com- 2020. Despite the encouraging trends observed in the pounding effect of a severe drought on agricultural second semester, real GDP declined by 7.1 percent last production. On the demand side, private consump- year.4 From an international perspective, Morocco´s tion and investment dropped by 21.2 and 11 percent recession was milder than that of the European respectively, which was partially compensated by a Union, advanced economies and Latin American and 5.8 percent increase in government consumption. Caribbean economies, but larger than that estimated Economic activity has recovered some for the world economy as a whole, for the MENA region dynamism during the second semester, driven and for Sub-Saharan Africa (Figure 4). There are various primarily by external demand. The performance factors that contribute to explain the comparatively large of the secondary sector was particularly robust magnitude of the Moroccan recession including: (i) the (+15.4 percent q-o-q in the third quarter and aforementioned underperformance of the agricultural +10.1 percent in the fourth), followed by the tertiary sector in a year of drought (the production of cereals sector (+9.1 percent and +1.9 percent). The primary fell by 39 percent); (ii) a stringent confinement that sector, instead, continued its slide during the second succeeded in controlling the pandemic, but implied half of the year (-1.6 percent q-o-q in the third quarter a sudden stop for several economic activities; (iii) the and –3.4 percent in the fourth) owing to the poor impact that the disruption of global value chains had for performance of agricultural production. On the Morocco´s emerging manufacturing sectors during the demand side, the recovery has been driven primarily early stages of the pandemic, and the deep recessions by exports, which expanded by 31.4 percent q-o-q on undergone by southern European countries, the most the third quarter (+5.1 percent in the fourth), and to a relevant markets for the Kingdom’s exports; (iv) the lesser extent by private consumption (+12.9 percent q-o-q in the third quarter and +7.2 percent in the fourth 4 On the production side, the primary sector contracted quarter). Despite the resiliency of public investment, by 7 percent (mostly unrelated to COVID), the secondary sector by 5.6 percent and the tertiary sector by 5.6%. gross capital formation has been less dynamic On the demand side, private consumption declined by (especially during the third quarter, with a +3.3 percent 8.7 percent, gross capital formation by 8.6 percent, net expansion q-o-q), and public consumption declined exports of goods and services by 1.3 percent, while during the second semester. public consumption increased by 4.4 percent. 4 MOROCCO ECONOMIC MONITOR – BUILDING MOMENTUM FOR REFORM Morocco’s 2020 recession was comparatively large FIGURE 4 •  Real GDP Growth in 2020 (%) Real GDP Growth (q-o-q) 20% MENA developing oil importers 15% EMDEs 10% MENA developing oil exporters 5% 0% SSA –5% MENA –10% MENA GCC –15% Advanced economies –20% 2019-Q1 2019-Q2 2019-Q3 2019-Q4 2020-Q1 2020-Q2 2020-Q3 2020-Q4 Algeria LAC Morocco Euro Area France Germany Italy Tunisia European Union Spain Morocco –10 –5 0 United States Source: World Bank MPO (April 2021) and OECD Stats. relatively large weight of the Moroccan tourism sector, Follow Up Survey). Indeed, according to the latest whose revenues have been particularly affected by crisis. HCP survey, almost 50 percent of Moroccan firms The private sector has not yet recovered from the shock. The decisive government response 5 As was discussed in detail in the previous edition of this to the crisis has so far avoided the wave of corporate report (Fall, 2020), the Moroccan government put in place bankruptcies that could have otherwise taken various measures to help the formal private sector weather place.5 However, the various surveys that are being the crisis, including the deferral of corporate income tax and social contribution payments, direct transfers to conducted to monitor the situation of the corporate employees, public credit guarantees to support firms´ sector still paint a challenging picture (see Box 1 working capital, an expansionary monetary policy and for the results of the second World Bank Enterprise liquidity injections to the banking system. BOX 1. SECOND COVID-19 ENTERPRISE FOLLOW UP SURVEY The World Bank Group has conducted three consecutive surveys that help monitor the impact of COVID-19 on a representative sample of firms in the Moroccan formal private economy: one just prior to the pandemic outbreak (December 2019), one in July-August 2020, and a last one in February 2021. The results of the second survey were analyzed in detail in the Fall edition of Morocco´s Economic Monitor. This box summarizes the key trends observed in the last survey, conducted nearly a year after the first case of COVID-19 was detected in Morocco. The second follow-up survey confirms that Moroccan formal firms continue to bear the full brunt of the crisis: the share of respondents declaring to have permanently closed their operations has increased from 6 to 10 percent since the first follow-up survey conducted over the summer; 86 percent of firms report to be experiencing a decline in demand for their products (82 percent in the previous survey); 92 percent of firms have seen a deterioration in their liquidity situation, against 72 percent in the previous survey. In addition, the share of firms reporting a decline in their turnover has fallen slightly, although it remains overwhelming: 86 percent, compared to 87 percent in August 2020. On a more positive note, the average contraction in respondent firms´ turnover has decreased from 47 to 39 percent. Overall, small- and medium-size firms report worse indicators than larger companies, suggesting that the impact of the crisis continues to be unequally distributed also in the corporate sector. The new survey confirms that, at least in the formal sector, Moroccan firms have tended to adjust along the intensive margin of labor utilization rather than resorting to permanent layoffs of employees. Indeed, while 54 percent of respondents declare to have reduced the numbers of hours worked in their firms (50 percent in the previous follow up survey), their permanent full-time workforce has declined by only 3 percent (5 percent in August 2020). Another relevant trend is the substantial increase in the number of firms that reported receiving some form of governmental support: 37 percent in February 2021, against 20 percent in August 2020. The most common form of governmental support has been wage subsidies, followed by tax relief and direct transfers. Interestingly, despite their worsening liquidity situation, few respondents consider that a facilitated access to new credit is among the forms of public support that their firm needs most at this juncture of the crisis. Recent Economic Developments1 5 are concerned about their future solvency, more was put forward in the aftermath of the global and than 16 percent of companies were in permanent or Euro area crises was appropriately discontinued. temporary shutdown at the end of 2020, 40 percent Indeed, soon after the pandemic outbreak, the of companies completely lack cash buffers, and authorities made space for additional expenditures 8 percent have reserves allowing them to hold for less (mostly targeted to the health sector and to cash than a month.6 This complex scenario has hindered the transfers in favor of formal and informal workers) recovery of private investment, which could constrain while accommodating the impact of the collapse in future economic growth, providing a solid justification economic activity on tax revenue collection (which for the government’s effort to deploy the Mohammed contracted by 6.5 percent in 2020). As a result, in VI Fund (see next chapter for more details). Among 2020 the overall deficit increased to 7.7 percent of the indicators that illustrate this sluggish recovery GDP from 3.6 percent of GDP in 2019. An increase of private investment are: (i) the evolution of capital of that magnitude in the fiscal deficit, however, goods´ imports, which contracted by 13.6 percent compares favorably with all the other northern African in 2020, and in January-February 2021 were still economies, with the average for the MENA region, 6.9 percent below their level of these same two and is far below that observed in most advanced months of 2020 (source: Office des Changes); (ii) the economies (Figure 5). This reflects the prudent fiscal evolution of banks´ investment loans to private firms, approach that has been prioritized by the authorities, which continue to decline in the last quarter of 2020 and the mobilization of contributions from banks, and in January 2021 in spite of the overall expansion wealthy individuals, private firms and SOEs to the of credit to the private sector, which is being driven extrabudgetary special COVID-19 fund that has primarily by liquidity loans (Source: Bank Al-Maghrib) covered the cost of upgrading the health system and The crisis is also leading to a temporary supporting households.7 increase in poverty and vulnerability. As will be The recession and the large fiscal deficit discussed in more detail in the Special Focus of this have led to a marked increase in the debt-to- report, the socioeconomic impact of the pandemic is GDP ratio. Central government debt increased large, persistent, and unequally distributed. According from 65.4 percent in 2019 to 77.7 percent of GDP in to the latest World Bank estimates (Macro Poverty 2020 (Figure 5).8 The authorities have continued to Outlook, April 2021), the crisis may have pushed more rely primarily on the domestic debt market to cover than half a million additional Moroccan citizens below its financing needs, with issuances that averaged the US$3.2 PPP poverty line in 2020, increasing the 12.7 billion MAD per month throughout 2020 (almost poverty rate from 5.8 percent to 7.1 percent and the 14.1 percent of GDP cumulatively). As a result, the vulnerability rate from 26.1 to 29.6 percent, after several domestic debt ratio has increased by 7.9 percentage years of sustained social progress in the country. As points of GDP. The central government has also gone will be discussed in the Special Focus of this report, at great length to mobilize credit from multilateral this increase in poverty would have been higher hadn’t institutions and international financial markets, leading it been for the cash transfer programs to formal and to a net increase in external debt for an amount of informal workers that were put in place by the authorities during the lockdown period. 6 HCP: Effets du Covid-19 sur l’activité des entreprises – 3ème enquête -Janvier 2021 Large Fiscal Impacts, but a Resilient 7 The special COVID-19 Fund amounted to about 3.1 External Position percent of GDP, and the contribution from the central government amounted to close to 1 percent of GDP. 8 Morocco’s consolidated general government debt at the Faced with the pandemic’s health, social, and end of 2019 stood at 56.4 percent of GDP (56 percent of economic impact, the government launched a GDP in 2018 and 54.1 percent of GDP in 2017), almost targeted counter-cyclical policy. With the onset of 10 percentage points lower than the central government the pandemic, the fiscal consolidation process that debt-to-GDP ratio. 6 MOROCCO ECONOMIC MONITOR – BUILDING MOMENTUM FOR REFORM Morocco’s budget deficit and public debt have increased less markedly than in neighboring FIGURE 5 •  countries Fiscal Deficit (% of GDP) ! Public Debt (% of GDP) 142 –16.4 104.3 102.3 –11.5 –11.3 91.8 87.2 –9.9 –9.6 –10 –9.4 –9.5 77.7 77 –7.7 –7.5 –7.7 –6.6 –4.2 59.7 51.4 –3.6 –3.6 –3.6 –3.1 –2.9 –1.6 –3 MENA developing oil exporters Italy Morocco France MENA developing oil importers Spain MENA MENA developing oil importers Italy Tunisia France Morocc o Tunisia MENA developing oil exporters MENA GCC MENA GCC Spain Algeria Algeria 2019 2020 2019 2020 Source: World Bank MPO (April 2021), World Bank MENA Economic Update (April 2021), IMF. 5 percent of GDP. SOEs add an additional 16 percent October 2020 and April 2021, Morocco is no longer of GDP to Morocco’s public external debt (most of rated investment grade by any of the three major which is guaranteed by the sovereign), although, as agencies. So far, however, these downgrades have had opposed to the central government’s debt, the value little impact on sovereign spreads (EMBIG) or on the of these obligations decreased in 2020. price of Credit Default Swaps (Figure 6). Furthermore, Despite recent credit rating downgrades, Morocco’s December US$3 billion sovereign bond the sovereign has retained significant access issuance was a success, and like September’s to international financial markets. After Fitch’s €1 billion issuance, it was largely oversubscribed and and Standard and Poor´s negative rating actions in carried moderate coupons. Despite the increase in public debt, markets perceive that Morocco’s sovereign risk remains FIGURE 6 •  contained (% of GDP) EMBI and CDS Prices 450 450 77.7 400 400 350 350 63.4 63.7 64.9 65.1 65.2 64.9 250 250 61.7 58.5 200 200 49.2 50.4 50.6 51.7 50.7 150 47.1 47.9 150 100 100 50 50 0 0 19.1 Dec-31-19 Jan-31-20 Feb-29-20 Mar-31-20 Ap r-30-20 May-31-2 0 Jun-30-20 Jul-31-20 Aug-31-20 Sep-30-20 Oct-31-20 Nov-30-20 Dec-31-20 Jan-31-21 Feb-28-21 Mar-31-21 14.6 15.5 14.5 14.5 14.5 13.5 14.2 2013 2014 2015 2016 2017 2018 2019 2020 EMBI Global Diversified (lhs) CDS 5Y (USD) External Domestic Central Government Debt CDS 10Y (USD) Source: World Bank MPO (April 2021) and Macrobond. Note: the EMBI spread compares the return of Moroccan international bonds with those of comparable US Treasury securities. CDSs are a financial derivative that allows investors to offset credit risk, and their price indicates perceived risks of default. Recent Economic Developments1 7 FIGURE 7 • The various components of the current account are recovering unevenly, and external buffers have been bolstered 15 30 Gross Official Reserves (MAD billion) 10 5 10 400 0 (y-o-y %) (y-o-y %) –10 300 –5 –10 –30 200 –15 –50 100 –20 –25 –70 0 January February March April May June July August September October November December Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Remittances Exports Imports Tourism Revenues (RHS) 2020 2019 Source: Office des Changes. Morocco´s external position has been Line (PLL) arrangement with the IMF (approximately more resilient than originally anticipated. Despite US$3 billion). In the aftermath of that disbursement, the COVID-19 shock, the current account deficit is reserves continued to edge upwards, reaching estimated to have closed 2020 with a deficit of just almost 30 percent of GDP by year-end (more 1.5 percent of GDP, down from 3.7 percent of GDP than 7.5 months of imports, up from 5.4 months of in 2019. During the first stage of the pandemic, a imports at the beginning of 2020) and US$35 billion plummeting external and domestic demand quickly at the end of January 2021(Figure 7). The increase affected all components of the current account, and in reserves was made possible by the better than in particular exports, the value of which declined by anticipated performance of the current account, large almost 25 percent between the second quarter of 2019 multilateral disbursements, two successful sovereign and the same period of 2020. However, Morocco’s bond issuances in international financial markets and exports of goods began to recover in the second half of relatively resilient net foreign direct investment (FDI) the year, limiting the annual contraction to 7.6 percent, flows. As a result, the government decided to bring although tourism revenues have remained depressed forward the partial repayment of the IMF´s PLL for (Figure 7). The recovery of imports has picked up at an amount of close to US$ 936 million, a repurchase a much slower pace, posting an overall decline of that was made effective on January 8th, 2021. 14 percent for goods and 31.4 percent for services in 2020. Workers’ remittances increased by 5 percent in 2020, reaching an unprecedented 6.4 percent of Monetary and Financial Sector GDP, which has contributed to ease the impact of the Developments crisis not only on households but also on the balance Morocco’s resilient external position has translated of payments (Figure 7).9 into an absence of exchange rate pressures. After an initial decline following the As part of a transition towards an inflation targeting onset of the pandemic, the stock of foreign monetary framework (discontinued in the context of the exchange reserves recovered. During the first pandemic), the central bank has relaxed its exchange weeks of the pandemic, international reserves fell rate peg to the euro and the US dollar, with the by 4 percent (from US$26.4 billion on March 6, 2020 to US$25.3 billion on March 20, 2020). This trend was reversed when Morocco purchased all 9 For a qualitative review of workers’ remittances in available resources under its Precautionary Liquidity Morocco, wee World Bank (2021). 8 MOROCCO ECONOMIC MONITOR – BUILDING MOMENTUM FOR REFORM Absence of exchange rate and price pressures FIGURE 8 •  Nominal Exchange Rate (MAD/$) Consumer Price Index (CPI) 10.5 4 10.0 3 9.5 2 % (y-o-y) 9.0 1 0 8.5 –1 8.0 Feb-Mid Mar-Mid Apr-Mid May-Mid June-Mid Jul-Mid Jul-28 Aug-Mid Sep-1 Sep-22 Sep-25 Oct-8 Oct-13 Oct-27 Nov-10 Nov-25 Dec-9 Jan-13 Jan-27 Feb-10 Feb-24 Mar-10 Mar-24 Apr-7 –2 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mid-day Fixing (MAD/$) Min Band (MAD/$) Max Band (MAD/$) Food Prices Non Food Prices CPI Source: Bank Al.Maghrib and HCP. Note: a fall in the nominal exchange rate as defined in this graph (Moroccan dirham to US$) implies an appreciation. widening of the band from ±0.3 percent to ±2.5 percent (BAM) has recently announced that, for the time in January 2018 and to ±5 percent in March 2020. being, its policy interest rate will remain unchanged This move was put to the test during the COVID-19 at 1.5 percent, its historical low (both in nominal and crisis. Like other emerging market currencies, during in real terms) after the two cuts adopted in 2020 (25 the weeks that followed the onset of the pandemic, basis points in March 2020 and 50 basis points in the dirham depreciated against both the euro and June). Early in the crisis, BAM also expanded the the US dollar, helping to absorb the external shock. scope of its refinancing operations, the scale of which However, that trend was later reversed as markets increased by close to 60 percent between March started differentiating country risks with the dirham and August. Since the end of last year, however, the appreciating against the dollar and being relatively average size of BAM´s refinancing operations has stable vis-à-vis the euro (Figure 8). The absence turned downwards, evidencing a decline in banks´ of exchange rate pressures, along with the above liquidity needs linked to a deceleration in the demand mentioned strong and favorable access to international for cash (which, according to BAM’s latest projections, capital markets, are signs of market confidence in the is only temporary) and to a drop in banks´ net foreign resilience and prospects of the Moroccan economy. exchange position. In the current context of weak economic So far, the banking system has weathered activity, price pressures remain subdued. The the crisis relatively well. Short-term interbank rates Consumer Price Index rose by just 0.3 percent (y-o-y) have declined to around 1.5 percent in line with at the end of February 2021, driven by a fall in food recent policy rate cuts, and average lending rates prices since December (Figure 8). Non-food inflation hovered around 4.3 percent in the fourth quarter of has increased slightly, primarily because of the recent 2020 (down from 4.9 percent a year before). Together evolution of energy prices, reaching 0.9 percent in with the various guarantees in place, this reduction February. However, this level of inflation is still below in lending rates has helped sustain banking credit, that of February 2020 (1.1 percent). Core inflation which has continued to expand in 2020, mostly in the remains low and has not surpassed 0.5 percent in the form of liquidity loans. Bank deposits have also grown last four months. since the start of the crisis, with a shift from term to Monetary policy is accommodative, and the demand deposits, reflecting increased preference central bank has increased its capacity to inject for liquidity. It is worth noting that the authorities liquidity into the financial system. Bank Al Maghrib have recently enacted the reform of the CCG, which Recent Economic Developments1 9 has been transformed into a public limited company 2019 to 8.4 percent at the end of 2020, to which the under the full supervision of the central bank: the largest banks have responded with a substantial Société Nationale de Garantie et de Financement de increase in their provisioning levels. According to l’Entreprise (SNGFE). This reform is aimed at ensuring stress tests carried out by the Central Bank, NPLs greater independence and improved management. By could surpass 10 percent of credit in 2021. placing all guarantees on the SNGFE balance sheet rather than on the government´s balance sheet, this change will incentivize risk-based decision making on the part of the new entity regarding the issuance and 10 The reform assigns four layers of risk coverage for management of guarantees.10 any losses generated from the guarantees: (a) annual transfers from the Treasury, which will define/limit the However, the COVID-19 pandemic is amount of guarantees that can be provided by SNGFE; causing a deterioration of the quality of bank´s (b) a security fund to be created by the SNGFE; (c) equity credit portfolio. The ratio of non-performing loans capital of SNGFE; and (d), as a last resort, the state (NPLs) has increased from 7.6 percent in December guarantee. 10 MOROCCO ECONOMIC MONITOR – BUILDING MOMENTUM FOR REFORM 2 OUTLOOK A fter its initial efforts to mitigate the impact of previously detailed (Morocco Economic Monitor, the pandemic on households and firms, the Fall 2020), following Morocco’s deconfinement, Moroccan government is seizing the opportunity the authorities announced the launch of a reform to engage in an ambitious reform process that is aimed program with the following pillars: (i) the creation of a at laying the foundations of a new development model. Strategic Investment Fund (the Mohammed VI Fund) Over the medium-term, the successful implementation to support the capitalization of the private sector and of these reforms could lead to a stronger and more the acceleration of the PPP program; (ii) the overhaul equitable growth path. In the shorter-term, however, the of the social protection framework to boost human recovery is likely to be gradual and uneven. We project capital; (iii) the restructuring of Morocco’s large real GDP to grow by 4.6 percent in 2021, sustained network of State Owned Enterprises. by the strong performance of the agricultural sector A Law and a Decree have been passed to following two consecutive years of drought, and by establish the Mohammed VI Fund in the form of the successful initial rollout of Morocco´s vaccination a limited company (société anonyme). Although campaign. However, this expansion would be insufficient some of its specific governance arrangements are still to return to pre-pandemic levels of economic activity, being defined, the choice of such a corporate structure poverty and vulnerability this year, and our central is aimed at securing that the new institution will meet outlook is still subject to substantial uncertainty given high transparency and accountability standards, the spread of new Coronavirus variants, challenges increasing its attractiveness for potential investors. in procuring additional vaccines, and the risk of new The Fund is set to receive seed capital from the central restrictions in Morocco or elsewhere. Furthermore, the government (an already budgeted 15 billion MAD, COVID-19 crisis is increasing Morocco’s macro-financial close to US$1.66 billion) and aims to raise up to US$3.3 vulnerabilities, which warrant close monitoring. billion from public and private institutional investors, and from Development Finance Institutions (DFIs). It will Morocco’s Reform Momentum function as a fund-of-funds structured to pursue various objectives. In the shorter-term, and in collaboration with As we enter the second year of the pandemic, the SNGFE (former CCG) and the banking system, it the Moroccan government has articulated an will provide quasi-equity to struggling SMEs in need ambitious agenda of transformative reforms. As of financial restructuring, thus functioning as another 11 backstop against the wave of corporate insolvencies leverage synergies, and the public establishments that that the COVID-19 shock could still trigger. Once the are deemed no longer necessary will be eliminated to Fund is fully operational, and in collaboration with private create fiscal space. In this way, Morocco is about to managers selected through a competitive process and adopt a model that has already been tested in various organized along thematic lines, the Mohammed VI advanced economies to maximize the economic, Fund will directly inject equity into private firms deemed financial, and social profitability of public firms. to have a high growth potential. Finally, the Fund will Morocco is among the countries that could also include an infrastructure component focused on benefit the most from the ratification of the PPPs, mobilizing resources to support the development African Continental Free Trade Area (AfCFTA). of a pipeline of bankable projects, and providing long- Although Morocco has yet to ratify the agreement, the term financing for some of these projects. government remains fully committed to participate in The first phase of an ambitious social the AfCFTA. According to recent estimates, by 2035 protection reform is also underway. This reform the successful implementation of AfCFTA could will be articulated in two phases. During the first one increase Morocco’s real income by up to 8 percent (2021–2022), it will concentrate on the universalization (World Bank, 2020a). Moreover, Morocco would be of the health insurance system (Assurance Maladie among the countries that would benefit the most from Obligatoire – AMO) and on increasing access to a faster growth of intra-AfCFTA exports. existing cash transfer programs (family allowances). In addition to the reforms that have already During the second stage (2023–2024), the reform been initiated, the government has recently will concentrate on the old age pension scheme and unveiled the terms of a new development model on the expansion of unemployment benefits to a that will guide public policies in the years to larger share of the formal labor force. The Framework come. Even before the pandemic outbreak, declining Law that sets the reform in motion has already been economic growth, slow job creation and persistent approved by the House of Representatives, the initial social and spatial inequalities prompted His Majesty focus of which will be to expand the coverage of AMO the King Mohammed VI to call for the elaboration of a to an estimated 11 million traders, artisans, farmers, new development model. For that purpose, a high-level liberal professions and their families by 2021, and to commission has worked for over a year, conducting incorporate another 11 million of poor and vulnerable deliberations with a participatory approach that has citizens currently covered by the non-contributory included several stakeholders from the public and the Régime d´Assistance Médicale (RAMED) by 2022. private sectors and from civil society. The much-awaited In addition, the government will soon begin to report produced by this commission has recently been gradually expand the scope of family allowances to made public, providing a policy roadmap that could cover all children, and not only those of the formally shape Morocco’s future. It proposes four transformation employed, as was the case until recently. According axes aimed at doubling per capita GDP by year 2035: to the authorities, this overhaul of the social protection (i) boosting entrepreneurship and competitiveness framework will cost 51 billion MAD (US$5.7 billion) to transition towards a productive and diversified per year, 23 billion of which will be provided through economy capable of generating value-added and good budget allocations from the central government, and quality jobs; (ii) improving the quality of education and 28 billion from contributory payments. health services to boost human capital; (iii) reducing Two laws are currently under preparation to gender disparities, promoting the participation of the reorganize Morocco’s network of SOEs. A central youth in society, and securing a minimum level of social element of this reform will be the creation of a new state protection; (iv) deepening the decentralization process holding agency that will implement the government’s and empowering regions to promote development at policy for the state-owned corporate sector and oversee the local level. The specific content of the proposed those entities that function under a commercial logic. reforms will be analyzed in detail in a future edition of Moreover, SOEs’ assets will be regrouped by sector to the Morocco Economic Monitor. 12 MOROCCO ECONOMIC MONITOR – BUILDING MOMENTUM FOR REFORM In sum, the policy changes that the COVID- After two consecutive years of drought, 19 pandemic is helping to crystalize could preliminary data suggest that the 2020/21 place Morocco on a stronger and more equita- agricultural season will be strong. Abundant ble growth path. The Kingdom stands out as one of rainfall in recent months have led to a substantial the countries of the world that is seizing this crisis as revision of the forecasted production of Morocco’s an opportunity to remove some of the structural con- main crops: according to the Ministry of Agriculture, straints that had negatively affected its socioeconom- the production of cereals could almost triple, while ic performance in recent years. However, whether this a 29 percent increase is expected for citruses, a 14 reform package has the expected results will depend percent increase for olives and a 4 percent increase on its successful implementation and on the oppor- for dates. As a result, agricultural value added is now tunities that the post-pandemic international econom- expected to increase by 13.5 percent in 2021. ic landscape will create for a country with Morocco’s Economic activity is not expected to characteristics. recover to pre-pandemic levels until 2022, and the ultimate cumulative output loss associated with the COVID-19 crisis will be large. Only in 2022 Outlook is real GDP projected to return to the level of 2019 (Figure 9). However, even for that year, we estimate a We project real GDP growth to accelerate to negative output gap of more than 7 percent of GDP. 4.6 percent in 2021. In this baseline scenario, Cumulatively (2020 to 2022), the output loss obtained agricultural output surpasses historical trends; the by comparing our pre- and post-COVID projections vaccine is progressively rolled-out; monetary policy amount to more than US$34 billion. In this context remains accommodative; the fiscal consolidation of partial recovery and negative output gap, inflation process is gradual, with a moderate reduction in the is expected to pick up only moderately, reaching deficit taking place already in 2021. The recovery of 1.1 percent in 2021. This lack of significant price the manufacturing and services sectors is expected pressures should enable the central bank to maintain to be gradual (3.4 and 3.1 percent value added an accommodative stance until the recovery is well growth respectively), initially constrained by the recent entrenched. slowdown in Morocco´s trading partners and by a Our central projection, however, is still protracted return of international tourism. subject to high uncertainty, and the balance of FIGURE 9 • The cumulative output loss caused by the crisis is expected to be large Index (Real GDP 2019 = 100) Percent Difference in Real GDP Levels 113 2% Pre-Covid 0% 110 growth outlook –2% 107 –4% 104 –6% –8% 101 –10% 98 –12% 2018 2019 2020 2021 2022 95 Post-Covid growth outlook Deviation from pre-COVID Projection 92 Deviation from 2019 Real GDP 2018 2019 2020 2021 2022 Source: World Bank staff. Outlook 13 risks remains tilted to the downside. The favorable poverty to decrease by 0.5 percentage point and reach epidemiological trends observed in Morocco over 6.6 percent. In turn, the percentage of the population recent months continue to be at risk given that some “vulnerable” to fall into poverty is expected to slowly of the new coronavirus variants that have emerged decrease in 2021 to about 28.4 from 29.6 in 2020. globally are more contagious and lethal. In fact, the These trends are expected to continue through 2022 global spread of these strains has already prompted and 2023, but poverty and vulnerability indicators may the adoption of new containment measures in not return to the pre-Covid-19 situation until 2023. Morocco and in most of its main trading partners, the The budget deficit is expected to fall maintenance and/or intensification of which could gradually, helping to stabilize the debt-to-GDP have an impact on economic activity. Moreover, the ratio and to place it on a downward path over world still faces the risk that some of the new variants the medium term. The 2021 budget law already that are emerging may exhibit a greater resistance envisages a moderate reduction in the deficit, which to the vaccines, which would call for a substantial we expected to reach 6.7 percent of GDP this year. revision of the current strategy to confront the Over the medium term, the fiscal deficit is expected to pandemic. Even if that scenario does not materialize, continue declining gradually as tax revenues recover India’s decision to ban exports has already slowed and government spending stabilizes. These changes down the Moroccan vaccination campaign, raising would allow the debt-to-GDP ratio to stabilize below doubts about whether the government will succeed 79 percent of GDP and to begin declining by 2024. in immunizing a large share of the population within The current account deficit is expected to the first semester. In this highly uncertain and risky increase, but to stabilize below 4 percent of GDP. context, the economic recovery is likely to be uneven. After the sharp contraction registered in 2020, imports Over the medium-term, we expect real are expected to increase in 2021 in the context of the GDP growth to exceed its pre-pandemic trend recovery of domestic demand and of rising energy as potential output is boosted thanks to ongoing prices. Certain exports are expected to return to pre- reforms. There are various channels through which the pandemic levels (automobiles) or to maintain their reform impetus described above could increase the recent expansion (agro-industry); in contrast, the growth potential of the Moroccan economy. First, by recovery of tourism revenues is likely to be protracted increasing market contestability, levelling the playing (see box 2 for an overview of the situation in the tourism field, and streamlining the role of the SOE sector in sector). Remittances are expected to stabilize in 2021 the economy, more firms would be expected to enter after the above-trend increase observed in 2020. As markets, grow, and create jobs (IFC, 2019). Second, a a result, the current account deficit is projected to more dynamic private sector could make a better use increase from 1.5 percent of GDP in 2020 to 3.5 percent of the large stock of physical capital accumulated over of GDP in 2021 and 3.9 percent of GDP in 2022. past decades, thus increasing the growth dividend of Morocco should retain comfortable external existing infrastructure, which so far has disappointed buffers. Foreign exchange reserves have markedly (HCP, 2016). Third, accelerating the pace of human increased since the beginning of the pandemic and are capital formation could enable more Moroccan expected to remain above 30 percent of GDP in 2021 citizens to realize their productivity potential, which and beyond. In addition, the government maintains a would contribute to accelerate the growth of aggregate solid engagement with multilateral lenders. Following output (World Bank, 2020).11 However, anticipating the December´s successful sovereign issuance, the magnitude and pace of the growth-enhancing effects of these reforms, which will depend on their successful 11 Morocco´s Human Capital Index (HCI) currently stands implementation, is a difficult task. at 0.5, implying that it is estimated that, under the status In 2021, poverty is expected to decline but quo, children born today will be only half as productive not to return to the pre-crisis level. As a result of the as they would have been had they enjoyed access to economic expansion forecasted for 2021, we expect complete education and full health (World Bank, 2020b). 14 MOROCCO ECONOMIC MONITOR – BUILDING MOMENTUM FOR REFORM BOX 2. COVID-19 IMPACT ON TOURISM SECTOR Morocco’s tourism sector has exhibited strong growth since it was Significant decline of tourist arrivals and of identified as a strategic sector in the early 2000s: it directly contributes tourism receipts to 11 percent of GDP, 17 percent of the workforce and 19 percent of the exports of goods and services. Between 2002 and 2019, foreign 8 10 tourists’ arrivals tripled, rising from 2.2 million people to 7 million 7 people. The key source markets are France, with nearly 1.7 million 8 6 tourists and 16 percent of total arrivals every year, Spain (7 percent), 5 USD billion followed by the United Kingdom (4 percent), and Germany and Italy 6 Million 4 (about 3 percent). Moroccans living aboard (MLA) constituted nearly 4 half of all international tourists between 2012 and 2019, with arrivals 3 increasing by an average of 4 percent per year over this period. 2 2 1 The tourism sector has suffered heavily from the effects of the health 0 0 crisis and the restrictive measures put in place by the authorities to 2012 2013 2014 2015 2016 2017 2018 2019 2020 contain the Covid-19 pandemic. Indeed, the sector experienced a rapid and sharp fall in foreign tourists’ arrivals and a surge in job Foreign Tourists MLA Tourism Receipts (rhs) losses, putting many SMEs at risk. The suspension of all international passenger flights and maritime links on March 15, 2020 and the declaration of a state of health emergency in the country resulted Source: Ministry of Tourism, Handicrafts, Air Transport and Social Economy. Note: MLA refers to Moroccans Living Abroad. in an almost total shutdown of tourism activity. Tourism revenues dropped by about 56 percent in 2020 and had negative spillovers to the food and accommodation and transportation, among other Domestic tourism has been more resilient sectors. These three sectors represent over 41 percent of total tourist expenditures and were the first to experience the shock: food 30 and accommodation value added declined by 54.8 percent and 25 transport by 27.4 percent. 20 The fall in hotel nights spent during the first wave of the pandemic Million was the most pronounced, and only slightly higher for foreign 15 travelers than for domestic consumers. During the summer 2020 10 season, the authorities announced various measures to reopen borders gradually, requiring tourists to obtain both a serological and 5 PCR test to 48 hours before the flight. Although the sector recovered 0 some ground, tourism is still far from a return to pre-pandemic 2012 2013 2014 2015 2016 2017 2018 2019 2020 levels. As was the case in many other countries, cross-border travel was affected much more strongly than domestic tourism. A new Non-resident Domestic Total Nights Spent relaxation of rules was announced, in October 1, with the extension of the duration of the results to 72 hours instead of the 48 hours with elimination of the serological tests. However, cross-borders tourists Source: Ministry of Tourism, Handicrafts, Air Transport and Social Economy. fell by 79.8 percent in Q4–20, due to the decline of 92 percent for foreign tourists and 59 percent for MLA. Nights spent fell by 82.6 percent, resulting in a reduction of 94 percent for non-residents tourists and 52.3 percent for residents. In 2020, tourist arrivals fell by 78.5 percent compared to a gain of 5.2 percent in 2019 and overnight stays fell by 72.4 percent compared to growth of 5.1 percent in 2019. The current pandemic could have long-lasting effects on international tourism. Tourists may become more cautious about travelling abroad. Moreover, new variants of the virus may still pose a threat for quite some time, further increasing reluctance to international travel. On the other hand, although the resumption of foreign tourists’ travel may be slow, home-bound travel of Moroccans living abroad may recover faster once travel regulations allow. Given that the average stay of Moroccan tourists is much longer than that of foreign tourists (17 days vs. 8 days on average), migrants returns could cushion the impact of the crisis on tourism revenues this year. However, the tourism industry, in particular hotels and airlines, might not see a recovery for some time. central bank partially anticipated the repayment of the outbreak. Presumably, this would facilitate the request Precautionary Liquidity Line (PLL) with the IMF, which for another contingent facility with the IMF, although no was drawn right after the beginning of the pandemic concrete announcements have been made in that regard. Outlook 15 Challenges amounted to 3.7 percent of GDP, and the recovery plan envisages a further increase up to close to The pandemic has increased Morocco´s macro- 6.5 percent of GDP. In addition, the stock of SOE debt financial vulnerabilities. Among the risks that guaranteed by the central government stands at more are becoming more apparent at this stage of the than 15 percent of GDP, and most of it is denominated crisis are the following: (i) an already high debt-to- in foreign currency, exposing borrowers that lack GDP ratio that could increase further if some of the a natural hedge to currency risk. In recent months, contingent liabilities (credit guarantees to corporate however, the government has initiated various reforms credit) that have been accumulated as one of the that should reinforce its fiscal risk management pillars of the recovery strategy come to materialize; framework. Firstly, as mentioned already, the former (ii) an international financing environment that Central Guarantee Fund has been transformed into a could become more challenging for emerging and limited financial company supervised by the central developing economies in a context of rising US bank, a scheme that is designed to enable the new Treasury yields; (iii) an ongoing increase in the stock entity to manage and potentially absorb a first layer of of non-performing loans that could intensify if the risk associated with the corporate credit guarantees. economic recovery does not gather pace or if the Second, the ongoing restructuring of SOEs should public credit guarantees that have been put in place improve their financial management, hence helping to begin to be downscaled. Although these challenges reduce the probability of loan defaults in that sector. are significant and need to be closely monitored, Another mitigating factor is that SOEs guaranteed this section identifies various mitigating factors and debt is mostly contracted on concessional terms. emphasizes that, as part of the ongoing reforms, the Covering Morocco’s fiscal financing needs Moroccan authorities are taking appropriate actions could become more challenging in a context to contain macro-financial risks. of rising global yields. Public gross financing Morocco has a comparatively high level of needs reached 20.1 percent of GDP in 2020 and, debt but a well-balanced portfolio. At 77.7 percent, even in a scenario of gradual fiscal consolidation, Morocco’s debt-to-GDP ratio is significantly above the government may need to mobilize more than the median for the world economy (61.7 percent of 16.5 percent of GDP per year on average between GDP), for low-income economies (63.8 percent of 2021 and 2024. So far, the authorities have had ample GDP) and for high-income economies (63.8 percent space to cover financing needs of that magnitude at of GDP). Still, in terms of debt-to-GDP, the Kingdom moderate costs thanks to the depth of Morocco’s compares favorably with most oil importers within the debt markets and a large pool of domestic savings, MENA region. Of particular relevance is the fact that an accommodative monetary policy that has reduced exchange rate and interest rate risks are mitigated by domestic yields, and abundant liquidity in international a solid debt profile, with a large share of obligations financial markets. This is best illustrated in the denominated in domestic currency (75.4 percent successful US$3 billion bond issued in December in December 2020) and contracted with a maturity 2020, with a 2.375 percent coupon for the seven-year of more than five years at fixed rates. In addition, maturity tranche; 3 percent for the 12-year maturity the average cost of foreign currency denominated tranche; and 4 percent for the 30-year maturity debt has fallen substantially over recent years, and tranche. Global yields, however, could increase in currently stands at a historical low of 2.5 percent. anticipation of a rise in inflation associated with the The rising stock of contingent liabilities ultra-loose monetary and fiscal stance of advanced constitutes an additional source of fiscal risk. The economies, a trend that was already observed in materialization of the public guarantees to corporate March 2021, but which has receded in recent weeks. If credit that the government has extended to respond the rise in global yields was to resume, capital outflows to the crisis could lead to a further deterioration of the from emerging markets and developing economies fiscal outlook. As of October 2020, these guarantees could be triggered, creating a more challenging 16 MOROCCO ECONOMIC MONITOR – BUILDING MOMENTUM FOR REFORM environment for Morocco to tap international markets. beyond its already high current levels. Although As a result, the government may have to increase its Moroccan banks´ capital and liquidity buffers are reliance on domestic debt issuances, which could still large enough to absorb losses of this magnitude, crowd out private investment and thus affect the pace a further deterioration of their credit portfolio could of the recovery. impair credit to the private sector, which would also The liquidity squeeze facing the private adversely affect the pace of the post-COVID recovery. sector could still result in widespread loan In this context, the central bank is exploring options to defaults and may erode banks’ capital position. accelerate the resolution of NPLs through the creation Through the credit guarantee programs and the of a secondary market for distressed loans. central bank’s refinancing efforts, the Moroccan authorities have taken decisive action to prevent the liquidity shock triggered by the pandemic from turning into a solvency crisis. However, a majority of Moroccan firms still report to be facing a worsening 12 As mentioned in Box 1, 92 percent of respondents to liquidity situation,12 and the crisis is aggravating the second wave of the Enterprise Survey declare to have witnessed a deterioration in their liquidity situation the late payment problem, which was already a since the month of August 2020. In addition, a survey major constraint for smaller companies before the conducted by HCP in January indicates that 40 percent pandemic outbreak.13 Furthermore, recent empirical of firms lack cash buffers, 26 percent of company evidence suggests that, following economic crises, managers consider that they face a severe risk of insolvencies’ build-up is a lengthy process that may insolvency, and an additional 25% report to be facing a take several quarters to peak (Muro, 2021). In addition, moderate risk of insolvency (HCP, 2021a). 13 According to the General Confederation of Moroccan close to a third of households report to be resorting to Companies, since the beginning of the crisis, the average debt in order to cope with the loss of income caused length of payment delays between firms has increased by the crisis (HCP, 2021b). In this context, the stock as much as 52 days, a problem that is particularly of non-performing loans is likely to continue rising pronounced for smaller companies. Outlook 17 SPECIAL FOCUS: COVID-19, INEQUALITY, AND JOBS IN MOROCCO B eyond the aggregate effects of the COVID-19 The Unequal Effects of COVID-19: pandemic, it is becoming clearer that the Evidence from Across the Globe economic consequences of the crisis are being unequally distributed. This is mostly due to Poor and vulnerable citizens are more exposed the disproportionately large labor market impacts to the health risks posed by the COVID-19 that the pandemic is having on the poorer segments pandemic. Among the risk-enhancing factors of the population in Morocco and in many other that disproportionately affect this segment of the emerging and developing economies. A peculiarity population, the following stand out in particular: (i) poor of the Moroccan case is that the policy response people are more likely to live in cramped conditions, to the crisis has been effective at cushioning the with worse options for e.g. regular handwashing and income reduction that a large proportion of poorer the purchase of masks; (ii) they are also more likely to households would have suffered in the absence live in multi-generational households, increasing the of the widespread emergency cash transfers transmission risks to vulnerable elderly who cannot that were rolled out during the lockdown period. be isolated from interactions with others in their However, these measures were temporary in nature, homes; (iii) when they work, poor individuals are more and a more structural approach will be needed likely to be engaged in client facing activities, and are to ensure that the benefits of the post-COVID less likely to receive adequate protective equipment; recovery will be evenly distributed. The sweeping (iv) low income segments of the population tend to social protection and health insurance reforms the have more underlying health conditions, evidenced Kingdom is embarking on are responding to such by a sharp gradient in life expectancy by wealth, which necessity. Further, the long-term challenges that makes them more susceptible to becoming severely characterize Morocco’s labor markets may need ill with COVID;14 (v) they also have less access to to be addressed, namely, its insufficient capacity to create new jobs even when the economy is growing, 14 In the USA for instance, the richest American men live high inactivity especially among the young and the 12 years longer than the poorest men, while the richest female population, and slowly declining levels of American women live 10 years longer than the poorest informality. women (Isaacs and Choudhury, 2017). 19 treatment, and for many the cost of consultations Early evidence suggests that COVID-19 with medical doctors and expenses for treatment are is also exacerbating inequality in the MENA beyond their financial means.15 region. Since the onset of the pandemic, various The poor and vulnerable tend to be employed statistical agencies (including Djibouti, Egypt, Iraq, in sectors that have been more affected by the Libya, Morocco, Palestine, Saudi Arabia, Tunisia, and pandemic. Although it is estimated that, globally, one in Yemen) have begun collecting data to assess the five jobs can be performed from home, this proportion socioeconomic impacts of COVID-19 on households.16 falls to one in 26 jobs in low income countries (Sanchez Its results indicate that the widespread impacts of the at al., 2020). Within countries, the ability to telework pandemic amplify pre-existing inequalities between rich is correlated with income, as white-collar jobs are and poor countries and between haves and have-nots more suited to be done from home, and as wealthier within countries (Sanchez-Paramo and Narayan, 2020). households tend to have better internet connectivity. In A good example is that of Tunisia, where five rounds addition, poorer individuals are less likely to work in the of phone interviews have been conducted between public sector, which has been better able to avoid lay- April and October 2020, allowing us to track the impact offs and salary reductions. By contrast, they tend to be of the pandemic, controlling for different household engaged in activities where social distancing is hard to characteristics. Among the factors that are correlated be observed, and therefore more likely to have been with a higher probability of respondents having declared paralyzed by lockdowns and social distancing measures a deterioration in their living standards are the following: (such as construction, labor-intensive manufacturing, (i) belonging to poorer households; (ii) having a lower or small retail). Finally, given their greater propensity degree of education; (iii) being younger; (iv) being to be employed informally, poor individuals are more unemployed, self-employed or being a non-wage likely to be uninsured, and hence less protected against worker with lower than usual, or no business income at economic, health, or life-cycle shocks. all (for more details, see Alfani et al., 2021). The results The COVID-19 pandemic is also increasing reported for Tunisia are representative of the trends gender disparities. It has been estimated that, observed elsewhere in the region. globally, the percentage of employed women working The mitigation measures put forward in the in sectors that have been severely hit by the pandemic region have generally been insufficient to avoid is higher than that of men: 40 percent vs. 37 percent significant increases in poverty. The phone surveys (Madgavkar et al., 2020; UN Women, 2020). conducted in MENA suggest that a low proportion of Furthermore, whilst more men than women appear to poorer households have benefited from cash transfer be dying of COVID-19, women are exposed to a higher programs (as will be seen later, Morocco has been a risk of infection because they make up to 70 percent remarkable exception in that regard). This reflects the of the health workforce (Boniol et al., 2019). high prevalence of labor informality among this segment Past experiences also show that pandemics of the population, which in many cases has precluded should be expected to increase poverty and access to existing benefit schemes. Consequently, the inequality, but the scale of the disruptions caused by COVID-19 is unprecedented. The literature 15 Even in countries where medical care is freely provided, shows that SARS, MERS, H1N1, Ebola or Zika had one observes that COVID has become a disease of adverse effects on poverty and inequality (Barro et al., the poor. In the UK for instance, the Office for National 2020; Furceri et al., 2020; Ma et al., 2020). What is Statistics (ONS) shows that those living in the most different about COVID is the scale of the pandemic deprived neighborhoods have been more than twice as and hence its impact. According to recent projections, likely to die from COVID as those in the least deprived. 16 The findings of some of these surveys can be found in extreme poverty could increase across the globe due the World Bank´s COVID-19 High Frequency Survey to COVID-19 by at least 119 million people. Moreover, Global Dashboard. https://www.worldbank.org/en/data/ income inequality is expected to rise in low-income interactive/2020/11/11/covid-19-high-frequency-monito and emerging countries alike. ring-dashboard. 20 MOROCCO ECONOMIC MONITOR – BUILDING MOMENTUM FOR REFORM fractions of households reporting to be food insecure Employment status after FIGURE 10 •  have reached dramatic levels in some countries: in confinement of workers who stopped working, by quintiles Palestine as many as 42 percent of households report to be consuming less food, a proportion that reaches 100 9.1 6.8 6.3 16.6 12.0 26 percent in Djibouti and 16 percent in Tunisia. In 90 80 Iraq, almost half of interviewed households adopted at 70 51.7 49.8 51.9 least one negative coping strategy (such as the sale 60 53.2 56.3 of assets) to ensure that the family has enough to eat. 50 40 30 20 39.0 41.5 43.9 30.2 31.7 Distributional Impact of the 10 COVID-19 Pandemic in Morocco 0 1st Quintile 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile Returned to Work Still on Temporary Layoff The confinement had a severe impact on Unemployed or Inactive Morocco´s labor market. The Haut Commissariat du Plan (Morocco’s statistical institute, HCP) conducted Source: HCP-2020, first and second COVID-19 panels. two surveys to monitor the economic impact of the lockdown on households, one in April and another one in June 2020. These surveys show that 66 percent of be negatively correlated with socioeconomic status, employed workers had to interrupt their activity during reaching 67 percent for the bottom two quintiles, the confinement period, a proportion that reaches against 32 percent for the top quintile. 74 percent in the case of self-employed workers and Wealthier individuals are more likely to have 84 percent for those employed in the construction sector. returned to work after the end of the confinement This was mainly the result of temporary layoffs and of period. As of June 24, 2020, more than half of Moroccan the suspension of business activities, although fear of employed workers (53 percent) were still on layoff, while contamination also played a part, especially for people 36 percent had resumed their activity, and 11 percent with chronic diseases, for women and for the elderly. were either looking for a new job or inactive. However, Morocco is not an exception, and the impact these proportions hide significant variation along social of the confinement was harsher for the most status, rising progressively from 30.2 for workers in the vulnerable segments of the population. Indeed, 1st quintile up to 43.9 percent for respondents in the 72 percent of the respondents to the surveys that had to 5th quintile (Figure 10). In addition, urban workers were stop their activity belonged to the poorest 40 percent, more likely to resume their activity than rural workers whereas slightly less than half of the wealthier 20 (39 percent vs. 31 percent), a result that may also be percent of respondents found themselves in that due to the drought. The sector of activity also mattered, situation. Remote working was much more common as 44 percent of workers in the manufacturing sectors among senior executives (61 percent either full time reported having returned to their jobs, against 41 or alternate with on-site work) than for other categories percent in trade, 34 percent in services, 33 percent in of workers, and especially for the self-employed, construction and just 32 percent in agriculture. only 10 percent of which could opt for that option. The cash transfer programs put forward Close to 62 percent of employed workers reported to by the government became a crucial source of have suffered a decrease in their income. However, support, especially for households with lower whereas 74 percent of employed workers belonging incomes.17 About 30 percent of the working-age to the poorest 20 percent were in that situation, only 44 percent of those belonging to the wealthiest 20 17 The Moroccan authorities have gone at unprecedented percent reported declining incomes. Unsurprisingly, length to financially assist Moroccan households during the scale of average falls in income also appears to the 14-week confinement period. Formal workers Special Focus: COVID-19, inequality, and jobs in Morocco 21 BOX 3. MICROSIMULATION ANALYSIS OF THE COVID-19 EFFECTS ON THE BLUE ECONOMY The analysis presented in this box quantifies the socioeconomic effects of COVID-19 on workers in the fishery and blue tourism sectors in Morocco, two strategic sectors that have exhibited significant growth rates in pre-COVID times. Indeed, Morocco has a long coastline on the Mediterranean and the Atlantic, which constitutes a marine economic zone. The fishing and blue tourism sectors employ more than 1 million people and contribute to more than 10 percent of national GDP. Fishing and fish processing activities account for about 3 percent of national GDP, with a significant share of workers operating informal. To estimate the effects produced by the lockdown, the analysis presented here also accounts for the policy mitigation measures implemented by the government during the early stages of the pandemic. It uses data collected by a labor force survey conducted in 2018 that is representative of the Moroccan population, and the information on the public response to the crisis was obtained from different sources. These data were used to carry out a microsimulation that quantifies the impact of COVID-19 on poverty and employment outcomes. The results of the microsimulation confirm that the early phase of the pandemic had a massive impact on tourism, while the fishery sector suffered somewhat milder effects. More specifically, almost 13 percent of fishermen lost their jobs, against 76 percent for workers in the blue tourism sector. The effects of the pandemic on incomes and poverty, however, were mitigated by Morocco’s compensation programs. In the absence of those compensation schemes, the effects of COVID-19 would have been a 39 percent reduction of per capita expenditures for fishermen and 49 percent for blue tourism employees. Owing to the cash transfers, the reduction in per capita expenditures was limited to just 19 and 33 percent, respectively. Moreover, without the governmental compensation program, 26 percentage points of additional fishers and 34 percent of blue tourism workers would have fallen below the USD 5.5 a day poverty line. Owing to the compensation program, that increase was limited to 14 percent in the case of fishermen and to 19 percent for blue tourism employees. population requested one or another form of assistance, vulnerability would have increased from 7.3 percent which 73 percent of claimants obtained (22.4 percent to 16.7 percent, and the Gini index from 38.5 to 44.4 of the total working-age population, almost 6 million in- (HCP, 2021c). However, as a result these programs, dividuals).18 Evidencing the cushioning effect of these the poverty and vulnerability rates increased only programs, public aid compensated for an average mildly (to 2.5 and 8.9 percent respectively), while of 35 percent of lost income. Moreover, the share of the GINI index barely moved. This conclusion about workers that received some form of government sup- the mitigating effects of cash transfer programs is port decreases with their level of income, reaching 27 consistent with the results of recent microsimulations percent in the lowest quintile against only 13 percent conducted by the World Bank in the specific context for the top quintile. Workers in the construction and of the Blue Economy (Box 3). trade sectors (60 and 51 percent respectively) were far more likely to benefit from the government´s support than workers in the agriculture and services sector Long-Term Trends in Morocco’s Labor (36 and 33 percent respectively). On the other hand, Markets women appear to have been less likely to benefit from Morocco´s labor markets present some long- these programs (10 percent, against 35 percent for standing challenges that may hinder the inclu- men), and the relative scale of the transfers that they siveness of the post-COVID economic recovery. received was also lower (20 percent of lost income, against 39 percent for men). The government’s policies in time of COVID-19 have avoided a much larger increase in (affiliated to social security) affected by the pandemic poverty than would have otherwise materialized. received a monthly transfer of 2,000 MAD (US$ 223), Using a novel household income survey, HCP has and informal workers received a monthly transfer of 800–1,200 MAD (US$89–134) depending on their estimated that, hadn´t it been for emergency cash household size. transfer programs, the poverty rate (national poverty 18 The Tadamon COVID programs aimed to compensate line) would have increased from 1.7 percent in 2019 informal workers for the impact of COVID. Total to 11.7 percent during the confinement period, while beneficiaries were almost 4.5 million. 22 MOROCCO ECONOMIC MONITOR – BUILDING MOMENTUM FOR REFORM Although the emergency measures adopted by the au- Annual change in working-age FIGURE 11 •  thorities proved to be highly effective at cushioning the population and employment, 2001–2019 effects of the pandemic on the more disadvantaged segments of the Moroccan population, their tempo- 500,000 rary nature implies that a more structural approach will 400,000 be needed to ensure that the benefits of the recovery 300,000 will be equitably shared. For that purpose, the ongoing 200,000 reform of the social protection framework that the au- 100,000 thorities are putting forward is an important step. But 0 to increase shared prosperity, the Moroccan economy –100,000 also needs to generate more and better jobs than in the recent past. This section summarizes the key mes- –200,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 sages of a recent joint HCP-World Bank report on the main issues and challenges facing Morocco´s labor Increase in the Employed Population Gap markets (HCP – World Bank, 2021). Increase in the Working-age Population Average Gap Despite its sustained growth over the past Source: HCP – World Bank, 2021. decades, the Moroccan economy has failed to generate enough jobs to absorb the increase in the working-age population. While the working-age population expanded on average by about 372,000 2017) can be analyzed computing output employ- individuals annually between 2001 and 2019, the ment elasticities.19 The elasticity of employment to economy was able to create an average of 112 growth for the aggregate economy was 0.27 between thousand additional jobs per year—leaving an average 2000 and 2018 (figure 12). The results also show that annual jobs shortfall of 262,000. This difference growth in economic output has resulted in less ad- worsened from 227 thousand between 2001 and ditional employment since 2010 than in the decade 2009 to 300 thousand between 2010 and 2019 before: 0.12 percent increase in employment for an (figure 11). In this context, the contained evolution additional one percent increase in output against 0.37 of the unemployment rate, which has evolved in the prior to 2010. Differences by sector are quite marked, 8–12 percent range since the financial crisis, is partly with construction and services generating more jobs the result of a relatively low labor force participation per additional unit of output growth than the rest of the rate, as 54 percent of the working age population was economy, while agriculture is a particular case, given classified as inactive in 2019. Various factors explain that it exhibits a 0.27 percent decrease in employment the inability of the labor market to absorb the working- per one percent increase in output (2010–2018). age population, and the employment challenge can Growth in labor productivity reflects high be seen from two different angles: one related to the capital accumulation, but not greater economic shortage of jobs needed to satisfy the labor supply, efficiency. Over the 2000–14 period, physical capital and the other concerning the poor quality of the jobs accounted for 60 percent of Morocco’s growth that are being created. The elements that contribute (Chaffour 2018). This has reflected high investment, to these challenges are high population growth, with an important share coming from the public sector. low employment intensity of economic activity, slow improvement in the efficiency in the use of production inputs, and the slow pace of structural change. 19 Employment elasticity is the percentage change in the number of employed persons in an economy or region Morocco’s economic growth is not employ- associated with a percentage change in economic ment-intensive, a problem that seems to have ag- output, measured by gross domestic product. Here gravated with time. The so-called “jobs-poor” growth elasticities are calculated using a multivariate log-linear that characterizes the Moroccan economy (Dadush, regression model Kapsos (2005). Special Focus: COVID-19, inequality, and jobs in Morocco 23 FIGURE 12 • Employment elasticities and dependency ratio over time Employment Elasticities Dependency Ratio Over Time 1.0 120 0.8 100 0.6 80 0.4 0.2 60 0 40 –0.2 20 –0.4 Aggregate Agriculture Industry Construction Services 0 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 2000–2009 2010–2018 2000–2018 Source: United Nations, World Population Prospects, 2019 Notes: (i) dependency ratio is an age-population ratio of those not typically in the labor force (0–14 and 65+ years old) to those in working age (15–64); (ii) elasticity over the 2000–2009- and 2010–2018 periods, and between 2000 and 2018 has been generated using a multivariate log-linear regression model following Kapsos (2005). However, this capital accumulation has not generated absorb the young that enter the working force, which high growth. Indeed, HCP (2016b) showed that capital is not occurring in Morocco. investments in Morocco have decreasing efficiency Inactivity rates are high and rising. Evidencing and marginal returns. Efficiency gains are therefore this challenge, the category of the inactive accounted key to creating growth opportunities and employment, for about 9 million people in 2000, and have since then especially good jobs. Moreover, three factors can increased to about 14 million in 2019 (Figure 13).20 explain the weak link between capital accumulation and Rather than declining -as one would expect due to the efficiency in the country: the accumulated capital is “low increasing levels of education-, female inactivity has quality”, it has not been efficiently allocated to potentially increased over the last decades, turning Morocco into dynamic sectors, and labor force skills have not been one the world´s worst performers in terms of female adequate to fully exploit the capital (Abbad, 2018). labor force participation (FLFP), currently at about Morocco’s demographic situation consti- 22 percent, which represents a significant waste and tutes an underutilized economic opportunity for underutilization of human capital, especially given the country. Its dependency ratio (share of the total the costly educational investments that Morocco has population either under 15 or over 65 compared to made in recent years. The distribution of the inactive is the working age population) has decreased markedly rather uniform across regions. As at national level, the between 1970 and 2010. Furthermore, it is expected vast majority of the inactive are women living in urban to remain at a low level for the next couple of decades. areas, and, rather interestingly, in all regions women This has been largely due to a sharp decline in the account for up to 76 percent of all the inactive. The fertility rate from 7 children per woman in 1960 to most common profile—urban women—is particularly about 2.2 in 2014 (HCP, 2016). As a result, there is present in both the most populous (Casablanca-Settat) both a slowdown in the growth of the overall popula- and least populated region (southern regions), where tion and a change in the structure of the population. it accounts for about 61 percent of the local inactive in Such an increase in the working-age population has both regions. On the other hand, in the relatively poorer the potential to boost economic growth, the so-called “demographic window of opportunity”. However, for 20 The inactive are those who are neither employed in any a favorable demographic structure to result in faster economic activity nor looking for a job (i.e., housemakers, economic growth, enough jobs need to be created to students, retired and other inactive). 24 MOROCCO ECONOMIC MONITOR – BUILDING MOMENTUM FOR REFORM FIGURE 13 • Labor status of the population in Morocco, 2019 Informal Wage Workers 2,999,946 5,495,258 54.6% Public 50.1% 891 945 Formal 35.9% Self-employed 2,483,879 Employed 45.2% Private 10,974,819 3,801,941 1 571 667 90.8% 34.6% 63.3% Active Unemployed Family Working Population 1,107,004 Workers Age 12,081,824 9.2% 1,609,350 Population 45.8% 14.7% 26,359,386 Total 74.1% At School Population 3,367,326 2019 Inactive Non-working Population 23.6% 35,586,595 Age 14,227,562 Population 54.2% Out of School 9,227,209 10,910,236 25.9% 76.4% Source: HCP – World Bank, 2021. FIGURE 14 • The profile of the inactive population, 2019 Souss-Massa Drâa-Tafilalet Marrakech-Safi Urban 12.8% 55.0% Casablanca-Settat Béni Mellal-Khénifra Rabat-Salé-Kénitra 4.3% Fès-Meknès Oriental Rural 27,8% Tanger-Tétouan-Al Hoceïma Régions du Sud 0 10 20 30 40 50 60 70 80 90 100 0% 10% 20% 30% 40% 50% 60% 70% 80% Male-Urban Male-Rural Men Women Female-Urban Female-Rural Source: HCP – World Bank, 2021. and more rural Drâa-Tafilalet region, women living in social health insurance scheme (Figure 15).21 Informal rural areas account for 42 of the inactive population. wageworkers tend to be men with lower levels of Informality has declined but continues to education. The informal population is split almost be widespread. Between 2000 and 2019 the number of formal wageworkers has increased by 1.3 million individuals. However, a majority of Moroccan workers 21 In 2002, the Moroccan government launched a series (almost 3 million in 2019, or 54.6 percent of employees) of health financing reforms to establish universal health continue not to pay taxes on their incomes, do not coverage through a subsidized social health insurance scheme. Under the so-called Régime d’assistance have regular contracts and, most importantly, do not Médicale (RAMED), the poor make no contributions, the contribute to a pension scheme or are covered by a vulnerable make small contributions, and all others are health insurance unless they are part of the publicly covered by nonsubsidized mandatory health insurance financed Régime d’Assistance Médicale (RAMED), a schemes (Assurance Maladie Obligatoire, AMO). Special Focus: COVID-19, inequality, and jobs in Morocco 25 Formal and informal wageworkers over time (a) and the profile of informal wageworkers in FIGURE 15 •  2019 (b) a. b. 80 70 67.2 13.7 60 54.6 50 45.2 8.7 40.9 40 32.8 30 20 36.7 10 0 2010 2019 Formal Informal Male-Urban Male-Rural Female-Urban Female-Rural Source: HCP – World Bank, 2021. evenly between urban and rural areas (49.6 and attendance rate is now relatively high with 80 percent 50.4 percent of total respectively). However, given the of 15-year-old women and 95 percent of 15-year-old urbanization process that has taken place in Morocco men in school, gender differences start to manifest (64 percent of its population now live in urban centers), soon thereafter. In 2019, most young men continued this implies that the incidence of informality is much through secondary school, about 10–15 percent higher in rural areas. The formalization process has started working, and only a small percentage became been more intense among low skilled workers than “not in education, employment, or training” (NEET). highly skilled ones, suggesting that a majority of the Figure 16 illustrates a different picture for young new formal wageworkers have found jobs in low value- women, with high shares either continuing schooling added services and manufacturing sectors. or becoming NEET as age increases. In addition, Differences in the labor market status of school enrollment appears to decline much faster men and women begin early in life and amplify for women than for men: at the age of 18, about with age. Although the early secondary education 60 percent of women were still in school compared FIGURE 16 • Labor status of the population in Morocco, 2019 Male Female 100 100 80 80 60 60 40 40 20 20 0 0 15 16 17 18 19 20 21 22 23 24 15 16 17 18 19 20 21 22 23 24 Age Age NEET School Only Self, Non-ag NEET School Only Self, Non-ag Self, Ag Wage, Non-ag Wage, Ag Self, Ag Wage, Non-ag Wage, Ag Source: HCP – World Bank, 2021. 26 MOROCCO ECONOMIC MONITOR – BUILDING MOMENTUM FOR REFORM to 80 percent of men. Moreover, about 22 percent of Educational attainment of working- FIGURE 17 •  24-year-old men were NEET in 2019 compared to more age population by labor force status, 2010 and 2018 than 70 percent of women—a very large difference that points to severe retrenchment for women (Alfani Level of Education by Status et al. 2020). 60% 51% The universalization of schooling is leading 47% 50% 44% 44% 43% 42% 41% to an improvement in educational attainment. 38% 36% 40% 34% For the past two decades, the share of working 27% 26% age population people with only lower education 30% 22% 17% has declined substantially, which is resulting in a 20% 12% 11% 10% 10% 9% more educated workforce. As a result, the average 9% 8% 10% 6% 5% 3% length of schooling for the Moroccan population 0% reached 5.6 years in 2019—6.6 years for men and Employed Unemployed Inactive Employed Unemployed Inactive 4.7 years for women (UNDP 2020, HDI). Despite this progress, about 78 percent of the employed had either no schooling or only primary education in 2018 2010 2018 (figure 17). Only 12 percent had secondary education, None Primary Secondary Higher and just 10 percent had postsecondary education. But the employability of postsecondary Source: HCP – World Bank, 2021. graduates represents a major source of concern. Surprisingly, highly educated individuals exhibit poor labor market outcomes. In 2018, working age trends are observed among self-employed workers. population with postsecondary education accounted These tendencies, however, hide important regional for 26 percent of the unemployed, while the share of differences in the evolving sectoral composition the employed population with higher education was of the labor market. The share of the labor force in 10 percent, decreasing to 5 percent in the case of the the construction sector is particularly high in low- inactive. These results can be partly explained by the populated provinces (e.g., Drâa-Tafilalet and Oriental), limited creation of higher-skilled jobs in Morocco given while service workers concentrate mostly in densely the slow growth of higher-value-added sectors of the populated areas (e.g., Casablanca-Settat and Rabat- economy. However, the situation also raises questions Salé-Kénitra). The presence of service workers is about whether the skills acquired in postsecondary particularly high in tourist destinations, such as in the education match employers’ needs. Agadir province (61 percent of workers are service The labor force has tended to move workers), Marrakech (65 percent), Fès (60 percent), towards the low productivity services and the and in the two growth poles of Casablanca construction sector, suggesting that structural (66 percent) and Rabat (81 percent). transformation of the Moroccan economy has been slow. Between 2000 and 2019, the total number of Moroccan wageworkers increased by more than The Way Forward 2.1 million, of which 1.3 million found employment in services. Another sector that gained weight during In conclusion, Morocco needs to tackle a set this period was the construction sector, as opposed of specific challenges if the labor market is to to the agriculture sector, whose participation in drive development and economic growth, while total employment barely changed over the past two generating opportunities for everyone. After the decades, and of the industry sector, whose relative launch of the Jobs report we have summarized above, weight declined, evidencing the slow pace of structural the World Bank, in collaboration with Moroccan think transformation in the Moroccan economy. Similar tanks and the HCP, will carry out focused research Special Focus: COVID-19, inequality, and jobs in Morocco 27 Variation of workers by sector in 2000 and 2019. b) Sectoral distribution of workers by FIGURE 18 •  region in 2019 Souss-Massa Services Self-employed Drâa-Tafilalet Construction Marrakech-Safi Industry Casablanca-Settat Béni Mellal-Khénifra Agriculture Rabat-Salé-Kénitra Fès-Meknès Services Oriental Wage Workers Construction Tanger-Tétouan-Al Hoceïma Industry Régions du Sud Agriculture 0 10 20 30 40 50 60 70 80 90 100 Percent 0% 10% 20% 30% 40% 50% 60% Agriculture Industry 2000 2019 Construction Services Source: HCP – World Bank, 2021. to provide evidence that will inform policy makers in share of services have also been slow compared to addressing these labor market challenges. Data will comparator countries, and a large share of workers be an essential input into that analysis and the chapter remain engaged in informal services. identifies the data requirements and the current data There is significant scope for further gaps. It is important to highlight that the policy analysis expanding the benefits of formalization, especially we carry out will also be informed by experiences in in some sectors. Despite gains in formalization, most countries that have faced similar challenges to those of the working population remains in the informal identified in this report for Morocco. sector, and such workers or the self-employed do not Four key challenges have been identified have access to regular contracts, pension schemes, or as crucial elements to improve the performance good and reliable health insurance. The fundamental of the Moroccan labor market: (i) accelerating reform of the social protection and health insurance structural transformation to create more and better system that is currently beginning will expand health jobs in higher-productivity sectors; (ii) encouraging insurance and family allowance coverage also to formalization and improving the quality of jobs; those working in the informal sector, a very important (iii) increasing female labor force participation step. But the persistent informality in some parts of (FLFP) and connecting women to better jobs; and the economy is likely a reflection of low productivity. (iv) supporting youth in their transition from education Increasing productivity and formalization, which could to the labor market and lower the large numbers of also have an important impact on tax revenues, should youth not working. remain an important goal for the Moroccan economy. A slow structural transformation process The labor market has not been inclusive, has hampered the creation of more, better, and with women placed at a particular disadvantage. inclusive jobs. Successful development experiences Morocco’s female labor force participation (FLFP) that result in strong job creation have been driven by was close to 22 percent in 2019, which is low even a process of structural change, where resources shift within the Middle East and North Africa (MENA) over time from less productive to more productive region. Moreover, this is a problem that has worsened sectors and activities. Morocco has experienced some despite an ongoing improvement in women’s access structural transformation, but the process has been to education. In addition, many of the women who do slow relative to that of comparator countries. Workers work are in low-quality jobs. The exclusion of women have shifted out of agriculture but without industrial from full participation in the labor market signals jobs to absorb them. Meanwhile, increases in the the need to address a variety of factors, including 28 MOROCCO ECONOMIC MONITOR – BUILDING MOMENTUM FOR REFORM persistent social norms, that may limit their work The recently disclosed new development options. model outlines some core elements for a more The young are the other larger population job-inclusive economic growth path. Such job- group with significant difficulties to enter the centric development model includes a renewed labor market. Though literacy levels have been focus on human development and the building of improving, about one-third of youth are not in relevant skills of the young population, a significant education, employment, or training (NEET). The NEET increase of women participating in the labor market, phenomenon has left a large number of discouraged a dynamization of the private sector by boosting young workers, which can hamper their long-term competition and competitiveness, a concerted effort ability to acquire skills and contribute to the economy. to use financial and digital technologies to reach At the same time, unemployment is very high for well- more households and firms, as well as a review of educated youth, which has concerning consequences existing labor market institutions to facilitate job entry for the economy and social inclusion in the future. and transitions. Special Focus: COVID-19, inequality, and jobs in Morocco 29 REFERENCES Abbad, Taoufik. 2017. Capital Accumulation and analysis of 104 countries. Working paper 1. Productivity Gains in Morocco. Rabat: OCP Geneva: World Health Organization. Policy Center, Policy Brief 17/24. Chauffour, Jean-Pierre. 2018. 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World Bank. 32 MOROCCO ECONOMIC MONITOR – BUILDING MOMENTUM FOR REFORM DATA APPENDIX TABLE 1 • Morocco: Selected Economic Indicators, 2018–2024 Estimated Projected 2018 2019 2020 2021 2022 2023 2024 Real Economy (annual percent change, unless otherwise indicated) Real GDP 3.1 2.5 –7.1 4.6 3.4 3.7 3.8 Agricultural GDP 3.7 –5.8 –8.0 13.5 2.0 3.6 3.6 Non-Agricultural GDP 3.1 3.5 –7.0 3.3 3.7 3.8 4.0 Industry 3.0 3.5 –5.6 3.4 3.6 3.7 3.7 Services 3.1 3.8 –7.4 3.0 3.7 3.9 4.1 Private Consumption 3.4 1.8 –8.7 3.9 4.3 4.5 4.5 Government Consumption 2.7 4.7 4.4 5.6 4.7 4.5 4.0 Gross Fixed Capital Investment 1.2 1.0 –8.6 5.5 5.7 5.9 6.1 Exports, Goods and Services 6.0 5.5 –14.8 7.6 6.3 7.5 8.0 Imports, Goods and Services 7.4 3.3 –11.5 6.3 7.9 8.4 8.5 Unemployment rate (ILO definition, 9.5 9.2 11.9 — — — — in percent) Inflation (average CPI, in percent) 1.6 0.2 0.7 1.1 1.4 1.7 1.9 Fiscal Accounts (in percent of GDP) Expenditures 27.2 27.9 31.9 30.1 30.1 29.5 28.9 Revenues, including all grants 23.5 24.3 24.2 23.7 23.8 24.5 24.7 Budget Balance (excl. privatization) –3.8 –4.1 –7.7 –6.7 –6.6 –5.2 –4.3 (continued on next page) 33 TABLE 1 • Morocco: Selected Economic Indicators, 2018–2024 (continued) Estimated Projected 2018 2019 2020 2021 2022 2023 2024 Central Government Debt 65.2 64.9 77.7 78.0 78.5 78.7 78.3 Selected Monetary Accounts (annual percent change, unless otherwise indicated) Broad Money 4.1 3.8 — — — — — Interest (key policy interest rate) 2.25 2.25 1.5 — — — — Balance of Payments (in percent of GDP, unless otherwise indicated) Current Account balance –5.5 –3.7 –1.5 –3.5 –3.9 –3.8 –3.6 Imports, Goods and Services –46.9 –45.2 –41.0 –42.6 –43.8 –44.1 –43.9 Exports, Goods and Services 36.6 36.8 33.2 34.5 35.3 36.2 37.1 Net Direct Investment 2.4 0.7 1.1 1.0 1.1 1.1 1.2 Gross official reserves (bln US$, eop) 24.9 26.4 33.7 35.3 36.3 37.4 38.3 In months of imports 5.3 6.9 7.5 7.2 7.1 7.1 6.9 Exchange rate (average) 9.4 9.6 9.5 — — — — Memo items Nominal GDP (in billion dirhams) 1,108 1,151 1,072 1,131 1,186 1,251 1,324 GDP per capita (in current US$) 3,348 3,370 3,007 3,329 3,490 3,640 3,809 Source: Moroccan authorities and World Bank staff estimates. Note: CPI = Consumer Price Index; ILO = International Labor Organization; ; … — = Not available. 34 MOROCCO ECONOMIC MONITOR – BUILDING MOMENTUM FOR REFORM TABLE 2 • Morocco: Key fiscal indicators 2015-2022 (in percent of GDP) Estimated Projected 2018 2019 2020 2021 2022 2023 2024 Total Revenues 23.5 24.3 24.2 23.7 23.8 24.5 24.7 Tax Revenues 21.2 20.8 20.8 19.4 19.5 20.2 20.4 Grants (GCC) 0.3 0.1 0.2 0.1 0.0 0.0 0.0 Other revenues (including Privatization Proceeds) 2.0 3.4 3.3 4.2 4.3 4.3 4.3 Total Expenditures 27.2 27.9 31.9 30.1 30.1 29.5 28.9 Compensation of employees 9.6 11.1 12.5 12.4 12.5 11.8 11.3 Use of goods and services and grants 8.0 7.0 7.6 8.0 8.0 8.1 8.1 Subsidies 1.6 1.4 1.3 1.2 1.0 0.9 0.8 Interest payments 2.5 2.3 2.7 2.7 2.7 2.7 2.6 Other expenses (incl. capital expenditures) 5.6 6.1 7.9 5.8 5.9 6.0 6.0 Overall Balance (excl. privatization) –3.8 –4.1 –7.7 –6.7 –6.6 –5.2 –4.3 Primary balance (excl. privatization) –1.3 –1.8 –5.0 –4.1 –3.9 –2.6 –1.7 Overall Balance (incl. privatization) –3.8 –3.6 –7.7 –6.4 –6.3 –5.0 –4.1 Arrears 0.3 –0.4 1.4 — — — — Government Financing –3.5 –4.0 6.3 6.4 6.3 5.0 4.1 External (net) –0.2 1.5 4.0 2.7 1.2 2.0 1.0 Domestic (net) 3.6 2.5 2.3 3.7 5.1 3.1 3.1 Central Government Debt Stock 65.2 64.9 77.7 78.0 78.5 78.7 78.3 External (net) 13.5 14.2 19.1 18.1 16.2 16.6 16.6 Domestic (net) 51.7 50.7 58.5 59.9 62.2 62.1 61.8 Memorandum Items: SOE’s & Public Establishments’ Debt Stock 25.2 25.4 of which: external debt 16.1 15.5 Source: Moroccan authorities and World Bank staff estimates. Note: External and domestic debt definition is defined on a currency-based classification. DATA APPENDIX 35 SELECTED RECENT WORLD BANK PUBLICATIONS ON MOROCCO (for an exhaustive list, please go to: https://www.worldbank.org/en/country/morocco) Once NEET, Always NEET ? A Synthetic Panel Approach to Analyze the Moroccan Labor Market May 2020 Policy Research Working Paper Morocco Economic Update – Spring 2020 April 2020 Brief Water Scarcity in Morocco: Analysis of Key Water Challenges Jan. 2020 Report Morocco – Supporting the Design of Performance-Based Contracts to Improve Results in Education Dec. 2019 Brief Polarization and Its Discontents: Morocco before and after the Arab Spring Oct. 2019 Policy Research Working Paper Doing Business 2020: Comparing Business Regulation in 190 Economies - Economy Profile of Morocco Oct. 2019 Doing Business Morocco Economic Update – Fall 2019 Oct. 2019 Brief The Moroccan New Keynesian Phillips Curve: A Structural Econometric Analysis Sept. 2019 Policy Research Working Paper Lessons from Power Sector Reforms: The Case of Morocco August 2019 Policy Research Working Paper Leveraging Urbanization to Promote a New Growth Model While Reducing Territorial Disparities in Morocco: June 2019 Publication Urban and Regional Development Policy Note Morocco: Systematic Country Diagnostic (‫ العربية‬, English, French) June 2019 SCD Creating Markets in Morocco a Second Generation of Reforms: Boosting Private Sector Growth, Job Creation June 2019 CPSD and Skills Upgrading Morocco’s Growth and Employment Prospects: Public Policies to Avoid the Middle-Income Trap March 2019 Policy Research Working Paper Gender Gaps in the Labor Market and Economic Growth Dec. 2018 Policy Research Working Paper Doing Business 2019: Training for Reform - Morocco Oct. 2018 Doing Business Climate Variability, Drought, and Drought Management in Morocco’s Agricultural Sector Oct. 2018 Working Paper The optimal mix of pricing and infrastructure expansions to alleviate traffic congestion and in-bus crowding June 2018 Policy Research Working Paper in grand Casablanca Maroc – Pour une Nouvelle Stratégie de Mise en Œuvre et de Gouvernance de l’Urbanisme et de May 2018 Working Paper l’Aménagement Urbain : Défis, Contraintes et Leviers d’Action (French) Morocco 2040 – Emerging by Investing in Intangible Capital, Country Economic Memorandum (‫ العربية‬, Oct. 2017 CEM English; French) 37 1818 H Street, NW Washington, DC 20433