IMF Urges Morocco to Liberalize Dirham Exchange Rate

The International Monetary Fund (IMF) has once again urged Morocco to continue liberalizing the currency exchange rate, coinciding with the slowdown in inflation, which recorded 6.1% at the end of last year and is expected to reach 2% in the coming years.

The Kingdom began liberalizing its currency exchange rate in 2018, adopting a fluctuation range of 2.5% up and down, instead of 0.3% as before.

In 2020, this range was expanded to 5%, in connection with a basket of currencies that includes the euro, which has a weight of 60%, and the dollar, which has a weight of 40%.

Meantime, U.S. Dollar to Moroccan Dirham recorded 10.073 MAD.

Roberto Cardarelli, head of the IMF mission to Morocco, said in a remote press conference, Wednesday, that “with the decline in inflation, we believe that it is a good period for the central bank to return to its project that was launched years ago, by moving to a different monetary system,” adding: “There is more room for the exchange rate to float to absorb shocks in the real economy and target inflation well.”

The lending financial institution has been insisting on moving forward with the liberalization of the dirham exchange rate over the past years, but the Moroccan authorities have been waiting to prepare the economic and social environment to keep pace with this step, as stated by Abdellatif Jouahri, Governor of the Central Bank of Morocco, in a previous interview with Bloomberg Al-Sharq.

The country's economic growth is expected to accelerate to 3.5% in the medium term, supported by expected investments in the water and energy infrastructure sectors, and preparations to host the 2030 World Cup alongside Spain and Portugal, according to Cardarelli following the completion of the 2024 Article IV consultations with the Moroccan authorities.

Morocco has reduced its growth expectations for the current year to 3.2%, with the country suffering from the effects of successive drought seasons and the effects of the losses it incurred due to the Corona pandemic, according to the High Commission for Planning, the government body in charge of statistics. While the Kingdom's government budget targets growth of 3.7% this year.

Moreover, IMF assessments indicate that the country's official reserves are at a "comfortable level", and the external situation has become better, with the current account deficit declining, and the mission said in its report that "this good news will support the resilience of the economy."

Morocco is expected to receive the first loan disbursements worth $1.3 billion to support resilience and sustainability next March, after it was approved by the Fund’s management last September, to confront the repercussions of climate change.

Roberto Cardarelli said, in response to Al-Sharq’s question, “There are 16 measures that must be implemented by Morocco to obtain funds at $80 million for each measure, during three periods, March and October of this year, and the last part in next February.”

The new loan will help “Morocco address climate fragility, enhance its resilience to climate change, seize decarbonization opportunities, prepare for natural disasters, and enhance financing for sustainable development,” according to the Fund.

The 18-month loan coincides with a special agreement for a flexible credit line approved in April last year worth $5 billion for two years, which Morocco can use whenever it faces a shock affecting the economy.

The head of the mission said: “There are five measures required this year, and we are discussing with the authorities to see if they are implemented. Then we will go to the Executive Board of the Fund at the end of March to decide to disburse the money whenever the measures are implemented, the money will be disbursed.”