MOROCCO MACROECONOMIC UPDATE

UNCLAS CASABLANCA 000236 SIPDIS SIPDIS STATE FOR NEA/PI AND NEA/MAG E.O. 12958: N/A TAGS: ECON EFIN EIND ELAB ETRD MO SUBJECT: MOROCCO MACROECONOMIC UPDATE ¶1. (U) SUMMARY: Official Government of Morocco (GOM) figures confirm positive yet low economic growth in ¶2005. GOM officials cite high energy prices, an adverse agricultural season and unfavorable developments in the textiles sector as contributing to restrained economic growth. Unexpectedly, GOM officials anticipate posting a current account surplus in 2005 (earlier figures forecast the first current account deficit in four years). However, the surplus will likely be small, reflecting Morocco's worsening trade deficit. Non-trade elements of the services and private transfer accounts of the Balance of Payments (i.e. tourism and remittances),continue to save the day, compensating for Morocco's visible trade balance. Imports increased significantly in 2005 driven by high oil prices while exports failed to keep pace, despite strong performance in the phosphates sector. Foreign Direct Investment (FDI) increased 70.8% over 2004 to reach almost US $3 billion in 2005, driven by increased investment in telecommunications and tourism. Inflation remained steady at 1%, despite higher oil prices triggering rising consumer prices in the transport sector. Lastly, unemployment continues to rise, notwithstanding the creation of a quarter million new jobs in 2005. END SUMMARY. Positive Growth Rate, But Still Sluggish ¶2. (U) GOM Minister of Finance and Privatization (MOF) Fathallah Oualalou announced 1.8% economic growth for 2005 and forecast 5.4% growth for 2006. While attributing subdued 2005 economic growth to adverse agricultural conditions, Oualalou credited strong performance in non-agricultural sectors (which registered 4.4% growth) with ensuring overall positive growth for the year. However, the final figure is still well under the GOM's target of 3% growth for ¶2005. Sectors that performed particularly well include mining, petroleum refining, and tourism. Public Finance ¶3. (SBU) Improvement in overall tax receipts contributed to increased government revenue, which registered US $14 billion in 2005, an increase of 12%. Expenses increased nearly US $2 billion (20% over 2004). Domestic debt increased significantly, reaching US $29 billion or 56.1% of GDP, up from 50.5% in 2004. Foreign debt fell to US 12.4 billion, or 25% of GDP from US $14 billion, 26% of GDP, in 2004, consistent �0A;with GOM strategy to transfer expensive foreign debt to relatively cheaper domestic alternatives. Some local observers, however, are alarmed at the increasingly level of domestic debt arguing it cannot be rationalized by foreign to domestic debt transfers. Total debt stands at over US $40 billion, representing over 75% of GDP. The government budget deficit registered 4.2% of GDP in 2005(or 5.7% excluding privatization receipts). Oualalou credited increases in revenue to strong performance of direct tax receipts, including corporate receipts (up 22% from 2004) and income tax receipts which increased 16%. Total revenue from direct taxes increased 18.8% in 2005, a figure Oualalou describes as "remarkable". Current Account Surplus (Just Barely) ¶4. (U) Morocco will register a current account surplus in 2005, albeit a small one, continuing a trend of four consecutive years of current account surpluses(2004, $1.1 billion, 2003, $1.6 billion, 2002, $638 million, 2001, $3.8 billion). Earlier GOM figures suggested Morocco might register a current account deficit for 2005 and final figures confirming the surplus are still pending. Preliminary 2005 BOP figures still confirm a worsening of Morocco's Balance of Trade (BOT) with tourism and remittances continuing to compensate for Morocco's negative balance of trade in goods. Tourism Performs Well ¶5. (U) Tourism receipts increased 18% in 2005, totaling US $4.7 billion and representing a 40.9% increase over the average tourism receipts received between 2000 and 2004. In December 2005 alone, tourism receipts registered 22% higher than December 2004. Morocco received more than 5.8 million tourists in 2005, of which almost 2.8 million were Moroccan ex- patriats. Among foreign nationals, France led in total number of tourists (1.3 million visitors representing a 15% increase from 2004),while Germany had the highest percentage increase from the previous year (29% in 2005, totaling 1.9 thousand visitors). GOM 2005 figures indicate a 16% increase in hotel stays and an improved average hotel occupancy rate of 47% compared to 43% in 2004. Remittances Stronger Still ¶6. (U) Remittances from Moroccans living abroad totaled to more than US $4.5 billion in 2005, an increase of 8.2% compared to 2004 and an increase of 23.8% over the average received during the past five years. (Between 2000 and 2004, remittances receipts average US $3.8 billion, equivalent to almost 10% of GDP.) Along with tourism receipts, remittances have traditionally been critical to compensating for Morocco's trade deficit and maintaining foreign exchange reserves. Foreign Direct Investment and Foreign Reserves ¶7. (U) Foreign Direct Investment (FDI) increased 70.8% over 2004 to reach almost US $3 billion in 2005, led by investments in telecommunications and tourism, the latter driven by Gulf Arab investors such as the United Arab Emirates (UAE). Comparatively, FDI receipts averaged US $2 billion between 2000 and 2004. FDI registered its highest performance since the record setting figures of 2001. Foreign reserves increased 10.3% to stand at nearly US $17 billion, equivalent to 11.3 months of imports. In 2004, foreign reserves stood at $15.2 billion equivalent to almost 12 months of imports. Exports and Imports ¶8. (U) Morocco's 2005 imports increased 13% over 2004 to reach over US $20 billion. GOM officials attribute much of the increase to a 64.7% increase in fuel imports. Import figures excluding fuel registered a 7.7% increase, and 2005 fuel imports are 32.8% higher than the average over the past five years. Among other increases, finished goods rose +4.9%, semi-finished goods +6.3% and foodstuffs +13.3%. Significant increases in importation of rental cars (+28.8%) and industrial vehicles (+33.3%) were also recorded. ¶9. (U) Total exports increased 5.5% to reach US $10.5 billion led by increased export of phosphates and derivative products (+16.1%),while exports excluding phosphate figures increased 3.5%. With the notable exceptions of consumer products (-4.7%) and capital equipment (-12%),most product categories registered increases, including foodstuffs (+16.3%),energy (+19.8%),and raw materials (+20%). However exports were still outpaced by increased imports, resulting in a net negative balance of trade in goods. The cover rate of exports to imports declined from 55.7% to 52% in 2005. Oil and Inflation ¶10. (U) Escalating oil prices continued to hamper Morocco's macroeconomic performance throughout 2005, with oil imports reaching US $2.7 billion, a 64.7% increase from 2004. Morocco depends on energy imports and subsidizes retail fuel prices through a mechanism known as the "Compensation Fund". GOM initially assumed an average price of $35 a barrel for the 2005 budget. The unyielding ascent of international prices put the country's Compensation Fund in severe deficit and pressured the GOM to raise fuel prices three times in 2005. ¶11. (U) GOM recently negotiated a payment schedule with the Association of Oil Distributors to close the deficit of the Compensation Fund. Oil industry contacts describe the agreement as "acceptable"; however, they also commented that the GOM 2006 budget assumption of US $60 a barrel, while "more realistic" than 2005, is still "a bit optimistic". With oil prices continuing to rise, Oualalou recently announced GOM's intention to index fuel prices to international markets, but details on the implementation are still pending. ¶12. (U) GOM's cost of living index grew 1% in 2005, down from a 1.5% rise in 2004. Consumer inflation has remained below 2% for six of the last eight years. However, rising fuel prices have been felt acutely in the transport sector, and continue to raise inflationary concerns. Unemployment Increasing ¶13. (U) GOM fourth quarter 2005 unemployment figures reached 11.5%, up from 10.4% during the same period in ¶2004. GOM figures estimate 1.2 million unemployed among the active population, up from 1.1 million in 2004 (a 15% increase). Urban unemployment increased to 19.4% from 18.0% while rural unemployment increased to 3.6% from 2.5%. Groups most affected by rising unemployment include urban females (up to 25.8% from 23%) and rural men (up to 3.6% from 2.5%). 13.8% of urban adults aged 35 to 44 are unemployed (up from 9.6%) along with 5.7% of the active rural population aged 15 to 24 (up from 3.9%). GOM announced creation of 258,000 new jobs in 2005, although the number was not enough to absorb new entrants. ¶14. (U) The following is a brief summary of significant economic statistics for Morocco covering the past five years: GDP Growth (%) 2000 1.0 2001 6.3 2002 3.2 2003 5.1 2004 4.5 2005 1.8 GDP per Capita (US$) 2000 1200.6 2001 1219.8 2002 1273.5 2003 1517.8 2004 1710.0 2005 1708.0 (estimated) Exports (m US$) 2000 6952.0 2001 7136.8 2002 7839.0 2003 8771.0 2004 9736.0 2005 10444.4 Imports (m US$) 2000 11513.3 2001 11034.1 2002 11833.3 2003 14559.9 2004 17617.0 2005 20089.9 Private Consumption (US$) 2000 785.5 2001 771.3 2002 799.3 2003 935.5 2004 1070.0 2005 NA GREENE