Morocco’s current account deficit is expected to shrink in 2022, following an expansion in 2021 to 3.7 per cent of GDP from 1.4 per cent of GDP in 2020, according to Fitch Solutions.

With rising prices of oil, metals and food leads to a wider-than-expected deficit in Q4 2021, as imports outweigh strong growth in exports. In 2022, the current account deficit will dive downwards to 2.6 per cent of GDP as exports regain momentum.

In addition to the surge in exports, tourism receipts are expected to reach pre-Covid levels before 2023. Fitch still expects rising tourism receipts will be the main driver behind the narrowing of Morocco’s external deficit in 2022.

Goods trade deficit is also expected to reach 16.6 per cent of GDP in 2022, however, this would be contained by the growth in goods exports, due to the easing of the current global supply-chain disruptions.

This is anticipated as the country will capitalise on the improvement in global supply-chain dynamics to offset easing commodity prices and to meet strong demand for Moroccan manufacturing products, Fitch said.

“We believe that remittance inflows will remain strong, supporting the positive trend in the secondary income in 2022 and contributing to the improvement of Morocco’s overall external position.”
Fitch Solutions

Remittance flows from Moroccans abroad averaged MAD 1.2 billion per quarter, peaking at MAD 25.2 billion in Q2 2021. This is considerably higher than the pre-pandemic quarterly average of MAD 15.3 billion over the last ten years.

Flow of Remittances to Increase in 2022

According to Fitch Solutions, the increased flow of remittance, although buoyed by the travel restrictions imposed due to COVID in 2020 is expected to continue unabated as Moroccan expatriates shy away from carrying hard cash.

“This, together with improving economic activity in key source markets, such as France, Spain and Italy will contribute to steady inflows of foreign receipts, expanding the secondary income from 8.0% of GDP to 8.3% of GDP.”
Fitch Solutions

However, there exists limited risks to Morocco’s external position over the medium term, as the country’s foreign reserves continue to cover six months of imports, Fitch said.

Morocco’s assertive foreign policy appears to have cooled down donors sentiment towards Rabat in the first half of the year, leading to a low level of capital inflows, Fitch said. As a result, “we think that authorities will draw down from forex reserves to cover their external financing needs this year.

Forex reserves declined from USD36.0 billion (9 months of import cover) at end-2020 to USD35.6 billion in October, and we expect them to further decrease to USD34.9 billion (7 months of import cover) by the end of 2021.

However, moving forward, it is anticipated that the positive momentum due to the launch of the Mohammed VI fund will attract foreign direct investments over the medium term. This will in turn increase inflows of foreign currency from the recovery in tourism

Considering these issues, Morocco’s history of access to funding from the International Monetary Fund and multilateral development banks, should increase the country’s ability to weather external shocks, Fitch said.