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Morocco Country Risk Report Q1 2016

Morocco Country Risk Report Q1 2016

Core Views

Despite not possessing hydrocarbon wealth, the Moroccan economy will remain a relative outperformer in North Africa over the medium term. Investor interest in the country as an export-oriented manufacturing hub for the European market and increasingly to West Africa, as well as its relative security compared with the rest of the Middle East and North Africa (MENA) region, will bode well for Morocco's underlying growth momentum in the next few years.

Morocco's foreign policy will remain stable over the coming years, aimed at strengthening its relationship with the EU and the Gulf Cooperation Council and looking to West Africa for trade and investment opportunities. The Western Sahara issue will remain at the forefront of Rabat's foreign policy agenda, and we do not see any significant progress taking place on this issue in the near future.

Morocco will outperform in the MENA region in 2015 and 2016 on the back of a good harvest, improvements in the external sector and a strong investment outlook. We forecast real GDP growth to reach 4.8% over 2015 and 3.8% in 2016, significantly up from 2.4% in 2014.

The gradual coming on stream of new energy sources over the next five years – as part of the National Energy Plan 2020 – will reduce pressure on Morocco's current account and boost the country's attractiveness for foreign investors. This structural evolution will benefit the country's economic growth over the next decade.

Average annual inflation in Morocco will pick up to 1.9% in 2015, from 0.4% in 2014, amid rising food prices and stronger economic growth.

This will allow the Central Bank to maintain its current benchmark interest rate at 2.50% throughout the year.


Executive Summary
Core Views
Key Risks
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Local Elections Pave Way For Renewed PJD Victory In 2016
The Justice and Development Party's strong results in Morocco's local elections will pave the way for another plurality victory in the
September 2016 legislative ballot, with relatively high economic growth and low unemployment over the coming quarters further
strengthening Prime Minister Abdelilah Benkirane's position ahead of the vote.
TABLE: POLITICAL OVERVIEW
TABLE: SEPTEMBER 2015 REGIONAL AND MUNICIPAL ELECTION RESULTS
Long-Term Political Outlook
Challenges For The Coming Decade: Scenarios For Change
The ongoing political and economic reforms undertaken by the government in recent years underpin our view that Morocco possesses
one of the most stable political climates in the region. However, high economic disparities in the country and rising corruption could lead
to social unrest of the type that spread across the Arab world in 2011. In addition, the lure of radical militancy will continue to appear as
a way out for young people, as the significant number of Moroccan nationals fighting with radical jihadist group Islamic State in Iraq and
Syria attests.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Navigating Through 2016 Slowdown
Morocco's economic growth will slow in 2016 as agricultural output reverts to the mean following a record-high harvest in 2015,
impacting private consumption and headline growth. Nevertheless, the country will remain on track towards economic diversification,
attracting high levels of foreign direct investment as it benefits from its relative security, favourable geographic location and the
government's pro-investment stance.
GDP By Expenditure Outlook
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Monetary Policy
Minor Rate Hike In 2016
There will be limited changes in Morocco's monetary policy stance over the coming quarters, as low inflation, weak credit growth and
worries surrounding the resilience of economic activity lead the central bank to only marginally hike rates in H116. We forecast Bank
Al-Maghrib's policy rate to stand at 2.75% at the end of 2016, compared with 2.50% at the end of 2015.
TABLE: MONETARY POLICY
Fiscal Policy And Public Debt Outlook
Subdued Growth, Elections Slowing Down Fiscal Improvements
Morocco's fiscal deficit will continue to narrow in 2016, albeit at a slower pace than in 2015. Most of the subsidy reform has already
been carried out, the Moroccan government will hold back on austerity measures because of parliamentary elections being held in late
2016, and slower economic growth will impact revenue streams.
TABLE: FISCAL POLICY
TABLE: SELECT 2016 FORECASTS
Chapter 3: 10-Year Forecast
The Moroccan Economy To 2024
Diversified Economic Base Underpins Bright Future
An increasingly diversified economic base, an attractive geographical position and strong investments in tourism and energy infrastructure are major positives underpinning Morocco's long-term economic growth trajectory. Nevertheless, we caution that several issues, such as persistently high unemployment and poverty, combined with shortcomings in the quality of education, if not addressed properly, could pose serious threats to our positive long-term view.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK
Education
TABLE: MIDDLE EAST AND NORTH AFRICA - EDUCATION RISK
TABLE: GRADUATES FROM MOROCCAN UNIVERSITIES BY SUBJECT
Government Intervention
TABLE: MIDDLE EAST AND NORTH AFRICA - GOVERNMENT INTERVENTION RISK
TABLE: MOROCCO INCOME TAX LEVELS
Chapter 5:BMI Global Macro Outlook
Global Outlook
Exit The Dragon
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %

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