Earthquake has not jeopardised recovery
Following lacklustre economic growth in 2022 due to poor cereal harvests, activity accelerated in 2023 thanks to a rebound in tourism, despite the earthquake. On 8 September 2023, the northern slopes of the Haut-Atlas Mountain range were hit by an earthquake that measured 6.8 on the Richter scale, around 75 km south-west of Marrakech, the country's main tourist city. The earthquake occurred in a region which relies on subsistence farming and has little industry and limited infrastructure. Consequently, the economic impact has been very slight, especially since tourism has not been affected. The sector posted record results in 2023 and saw Morocco welcome 14.5 million tourists, an increase of 32% compared to 2022 and 11.5% compared to the pre-Covid year of 2019. This trend is set to carry on in 2024, thereby supporting economic growth given the fact that tourism accounts for 7% of the GDP. Reconstruction efforts will also shore up growth, as well as the expansion of Morocco's share of the global phosphate market as Morocco holds 70% of the world's reserves. In June 2023, the government announced its intention to triple investment in renewable energies over the period 2023-2027, compared with 2009-2022, with the aim of developing the national electricity grid (licensing, green hydrogen production, wind power projects) and securing water resources (desalination plants). In 2024, the manufacturing sector will continue to develop and support growth, via higher value-added exports in the automotive, aeronautical and textile sectors. However, risks are tilted to the downside as the country remains highly vulnerable to drought, which has impacted agriculture. The 2023-2024 season has already been heavily penalised by low rainfall and water shortages, and drought could continue into 2024. Consumption will be sustained by tourist flows, public support, and expatriate remittances. However, it will continue to be held back by persistently high food prices and the sluggish agricultural performance, since the sector employs one-third of the population. As the country embarks on reconstruction, the central bank (Bank Al-Maghrib) is likely to suspend the monetary tightening process that was applied in 2023 and maintain its rate at 3% to cope with inflation, which will continue to fall.
Budgetary pressure eased by international aid
The 2023 budget target of reducing the public deficit to pre-Covid levels (around 3% of GDP) by 2026 has been compromised by the earthquake. The tax reforms introduced in 2023 and 2024 will help mitigate the impact of the earthquake, by improving the corporate tax system through the gradual elimination of the variable standard rate at 20% by 2026. In 2024, food and energy subsidies will be replaced by targeted family allowances to ensure better management of public spending. Nevertheless, these fiscal consolidation efforts will not be enough to prevent the budget deficit from widening in 2024, compared with 2022 and 2023. The government has announced a reconstruction plan, budgeted at USD 11.7 billion, or 8.5% of GDP, which will be spread over five years. It will be financed by an increase in budget spending and a contribution of two billion dirhams (USD 194 million) from the Hassan II Fund for Economic and Social Development. In addition, international aid will ease budgetary pressure in the form of solidarity funds, loans, and multilateral donations. Morocco can count on the USD 5 billion flexible credit line granted by the IMF in April 2023 to help finance its deficit on top of which is a USD 1.3 billion loan granted by the Fund on 28 September 2023 for a period of 18 months to help Morocco cope with climate-related disasters. As a result, the public debt burden will increase slightly in 2024, with an external share of 42% of GDP.
The earthquake did not prevent the current account deficit from narrowing in 2023. The increase in imports associated with reconstruction efforts has been offset by the rise in remittances from the diaspora and international aid. In 2024, tourism receipts will continue to boost the services surplus. Nevertheless, the increase in the trade deficit will slightly widen the current account deficit. Exports will increase with the production of phosphate and the automotive sector, as well as the expansion of the port of Tangiers. However, the rise in imports will be slightly greate, due to infrastructure projects, persistently high world commodity prices and reconstruction. This deficit will continue to be financed mainly by concessional external borrowing and foreign direct investment.
Political stability despite widespread frustration over the high cost of living
Prime Minister Aziz Akhannouch, in power since 2021, heads the Rassemblement National des Indépendants (RNI), the majority party in a centre-right coalition. The next scheduled election for the House of Representatives, the lower house of Parliament, is not expected to take place until September 2026. The country, which is politically stable, faced growing discontent from its citizens in 2023 over high unemployment (12%) and the high cost of living due to recurrent droughts that affect harvests. The earthquake killed 3,000 people and left more than 15,000 homeless. The supplementary budget plan is devoted to emergency aid and reconstruction, and to the social and economic development of the affected region (70% of the amount). The aim is to encourage economic activity and open isolated mountain areas.
In 2024, Western Sahara will be the source of ongoing tensions with the Polisario Front and Algeria. Israel recognised Moroccan sovereignty over this territory in July 2023, and Spain recognised the Moroccan autonomy plan in 2022. The first decision is part of an unpopular rapprochement between the two countries, along with the US, on defence issues, while the other deals with migratory movements between the two shores.