MOROCCO MACROECONOMIC UPDATE JUNE 2006

UNCLAS CASABLANCA 000850

SIPDIS

SIPDIS

STATE FOR NEA/PI AND NEA/MAG

E.O. 12958: N/A
TAGS: ECON EFIN EIND ELAB ETRD EAGR MO
SUBJECT: MOROCCO MACROECONOMIC UPDATE JUNE 2006



1. Summary: The Centre Marocain de Conjoncture (CMC),an
independent Moroccan research center, forecasts a 7.1 percent growth
rate for the Moroccan economy in 2006, up significantly from
Government of Morocco (GOM) forecasts of 5.4 percent earlier this
year. The increase is attributed to an especially good year for
agriculture, with cereal harvests registering record numbers.
Tourism and remittances receipts performed strongly in the first
part of 2006, continuing to compensate for a weakening balance of
trade as exports receipts failed to keep pace with increasing
imports driven by rising fuel prices. In addition, Foreign Direct
Investment (FDI) receipts registered a sharp reduction in the first
four months of 2006 as compared to previous years, largely
attributed to the GOM's slow-down in privatizations. Meanwhile,
unemployment fell below 10 percent for the first time in 35 years,
although the figures remain controversial among labor and business
leaders. End Summary.

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Strong Agriculture-Driven Growth For 2006
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2. CMC forecasts a 7.1 percent growth rate for Morocco in 2006, up
substantially from the GOM's own forecasts earlier this year of 5.4
percent. CMC attributed increased 2006 economic growth to an
especially good agriculture season with cereal harvests registering
record numbers. Non-agricultural GDP remained stable at 4 percent
for first quarter 2006, with strong performance in the energy,
construction and public works sectors. The disparity between
agriculture and non-agriculture growth rates suggests continued
economic dependence on agriculture despite recent GOM efforts to
promote diversification. As such, if 7.1 percent growth in 2006 is
indeed realized it will be an impressive increase from 1.8 percent
growth registered in 2005 (a drought year) and represent the highest
Moroccan GDP growth rate in eight years.

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Morocco Stays Attractive to Tourists
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3. Tourism receipts increased 18.2 percent through the end of April
2006, to reach US $1.15 billion, while hotels registered an 18
percent increase in overnight stays, 9 percent higher than over the
same period in 2006. The increase in overnight stays benefited all
of Morocco's principal tourist destinations with Meknes (60
percent),Essaouria (46 percent) and Oujda (27 percent) registering
the largest increases. Hotel occupancy rates have also increased to
an average of 60 percent in the first four months of 2006 compared
to 52 percent over the same period in 2005. Among foreign
nationals, France continues to lead in total number of tourists;
however the United Kingdom witnessed the largest increase with 45
percent more tourists in the first four months of 2006 compared to

2005. Morocco's total tourism receipts are 48 percent higher than
in the first quarter of 2006 compared to the average received during
same period over the past five years.

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Remittances Keep Coming
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4. Remittances from Moroccans living abroad increased to more than
US $1.6 billion at the end of April 2006, up 13.8 percent from the
same period in 2005 and an increase of 28.8 percent over the average
received during the past five years. (Note: Between 2000 and 2004,
remittances receipts averaged US $3.8 billion, equivalent to almost
10 percent of GDP.) Along with tourism receipts, remittances have
traditionally been of critical importance in compensating for
Morocco's trade deficit and maintaining foreign exchange reserves.

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Foreign Direct Investment and Foreign Reserves
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5. Foreign Direct Investment (FDI) decreased 58.9 percent in the
first four months of 2006 compared to a year earlier and 49.9
percent lower than the average received during the same period
between 2001 and 2005. The drop in FDI can be mostly attributed to
a reduction in state-owned privatization receipts. By 2005, 70
entities (44 companies and 26 hotels) had been either totally or
partially privatized. The GOM has announced plans to resume
privatization of several existing state-owned entities before the
end of 2006. FDI receipts averaged US $2 billion between 2000 and

2004. By April 2006, foreign reserves increased 4.2 percent, or the
equivalent of 11.3 months of imports, compared to the end of April

2005.

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Imports
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6. Morocco's 2006 imports increased 10.1 percent by the end of
April over the same time period in 2005. GOM officials continue to
attribute the increase to a corresponding 10.1 percent increase in
fuel imports which represented 89.2 percent of the total increase in
imports. Among other significant increases, capital equipment rose
11.1 percent and semi-finished goods increased 7.9 percent.

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Exports
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7. For the period of January to April 2006, total exports increased
8.7 percent compared to 2005 and surpassed US $4 billion.
Phosphates and derivative products led this growth with an increase
of 37.4 percent. Exports excluding phosphate products increased 3.8
percent. Several product categories registered increases, including
consumer products (31.2 percent),semi-finished goods (30 percent),
finished goods (9 percent) and raw materials (13.7 percent). However
exports were still outpaced by increased imports, resulting in a net
negative balance of trade in goods.

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Unemployment Falling?
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8. Official GOM figures released by the Moroccan High Planning
Commission (HPC) register an unexpected drop in the unemployment
rate. HCP figures for the first four months of 2006 showed an
unemployment rate of 9.8 percent, compared to 11.3 percent for the
same period in 2005, the first time unemployment has fallen below 10
percent in almost 35 years. HPC figures also claim that urban
unemployment fell to 15.4 percent from 19.2 percent. Local labor
leaders and business contacts expressed strong skepticism of these
figures however, and told Emboffs that actual unemployment in
Morocco is significantly higher.


9. The HCP also released first quarter 2006 figures showing a 2.4
percent increase in Morocco's cost of living compared to the same
period in 2005. The increase was felt most acutely in Agadir (3.1
percent),Fez (3.1 percent) and Oujda (2.8 percent),and less so in
Tetouane (1.8 percent) and Rabat (1.8 percent).

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Devaluation Still Debated
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10. Pressure continues to build for the GOM to devalue (or even
float) the Moroccan dirham, which many financial experts argue is
grossly overvalued. Proponents of devaluation (principally
exporters and international financial institutions) argue that
Morocco's weakening balance of trade and deteriorating competitive
performance in some key sectors (i.e. textiles) demands rapid GOM
intervention. Opponents respond that despite a weakening balance of
trade, the current account remains in surplus (thanks to tourism and
remittance receipts). Furthermore, devaluation could significantly
raise the cost of imports (in particular fuel) adversely affecting
GOM debt and raising inflationary concerns. The GOM continues to
debate the issue, and a flurry of articles have appeared in the
press recently, however GOM and private sector contacts tell Emboffs
that a decision to devalue or float the Moroccan dirham is not
expected anytime soon.


11. The following is a brief summary of significant economic
statistics for Morocco covering the past five years:

GDP Growth (percent)
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