Identifier
Created
Classification
Origin
09RABAT284
2009-04-06 14:51:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Rabat
Cable title:  

WIDENING BALANCE OF PAYMENTS DEFICIT SPARKS CONCERN

Tags:  ETRD EFIN ECON MO 
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VZCZCXYZ0007
RR RUEHWEB

DE RUEHRB #0284/01 0961451
ZNR UUUUU ZZH
R 061451Z APR 09
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 9917
INFO RUCNMGH/MAGHREB COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
UNCLAS RABAT 000284 

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ETRD EFIN ECON MO
SUBJECT: WIDENING BALANCE OF PAYMENTS DEFICIT SPARKS CONCERN

REF: A. 08 RABAT 893

B. 08 RABAT 853

C. 08 RABAT 254

D. 09 RABAT 190

E. 09 RABAT 276

UNCLAS RABAT 000284

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ETRD EFIN ECON MO
SUBJECT: WIDENING BALANCE OF PAYMENTS DEFICIT SPARKS CONCERN

REF: A. 08 RABAT 893

B. 08 RABAT 853

C. 08 RABAT 254

D. 09 RABAT 190

E. 09 RABAT 276


1. (U) Summary: Last year's sudden swing into the red of
Morocco's balance of payments has sparked increasing concern
that the country's international position remains its key
vulnerability in confronting the world economic downturn.
After years of surplus and a narrow deficit (0.1 percent of
GDP) in 2007, the current account deficit grew to 4.8 percent
of GDP in 2008, as declining remittances, investment flows,
and tourism revenues could not counterbalance the country's
structural commercial deficit. Analysts are divided on what
the future holds, with some holding out hope that declining
commodity prices will improve the situation, but Morocco's
weakening international position has led to intensification
of efforts to remedy the woes that beset the country's export
sector (Ref B). End Summary.

--------------
CURRENT ACCOUNT IN THE RED
--------------


2. (U) In their recent public comments, Moroccan public
officials have underlined the strong position from which
Morocco confronts the international financial crisis. They
concede, however, that the one chink in its armor is its
burgeoning balance of payments deficit, which reached 4.8
percent in 2008. The country has enjoyed a surplus or near
balance since 2001, but in fact the positive figures
concealed increasing weakness in the country's trade balance,
as imports repeatedly outstripped exports and ultimately left
the country with an export/import coverage ratio of less than
50 percent. "It was easy to overlook the problem," National
Export Council Noureddine Omary told us in a recent meeting,
"when tourism income, remittances, and investment took up the
slack." Now, however, those elements are also under pressure
as a result of the international conjuncture, and Morocco
faces the prospect of balance of payments deficits into the
future, unless its export offer can be made more competitive.



3. (SBU) The recent release by the Moroccan Treasury of
balance of payments statistics for 2008 highlights the
increasing imbalance in Morocco's economic interaction with
the world, an issue that has prompted much discussion and
soul searching regarding the country's efforts to liberalize

its trading relations with the EU, U.S., and others (Ref E
reports on a recent analysis of the impact of the free trade
push, commissioned by Morocco's influential General
Confederation of Moroccan Enterprises (CGEM)). While
Moroccan exports and imports grew by a similar percentage in
2008 (24.3 percent and 23.9 percent respectively),imports
did so from a much larger base, rising by USD 8 billion, more
than double the USD 3.9 billion increase in exports. More
worrisome for Morocco, virtually the entire increase in
exports came from phosphates and phosphate derivatives.
Other exports were essentially flat, increasing only 1.2
percent.

--------------
OTHER SECTORS NO LONGER TAKE UP THE SLACK
--------------


4. (SBU) Morocco has long had a structural trade deficit, so
the shortfall is not surprising. What sparks concern now is
not just that imports continue to outpace exports by a
significant margin, but that the flows that have historically
counterbalanced it are all under threat from the
international economic downturn. In recent years, the trade
deficit has been covered by remittances and services
(primarily tourism) income. Both have waned as the crisis
has hit home in Europe, the source of 90 percent of Morocco's
tourists and the home of 90 percent of its expatriates.
Tourism receipts fell 3.5 percent to USD 7.3 billion in 2008,
while remittances from Moroccans abroad fell 2.4 percent to
USD 6.9 billion. The overall balance of payments deficit
thus increased to 4.8 percent of GDP. Foreign investment
also tumbled by 23.3 percent to USD 4.1 billion, still above
the average for the last five years, but not sufficient to
permit Morocco to maintain its foreign reserves, which
slipped by USD 826 million to USD 23.4 billion, the
equivalent of only 6.2 months of imports. In his public
presentation of Morocco's economic situation in mid-March, as
in a meeting with us earlier this month, Treasury Director
Chorfi noted that while overall he alternates between "quiet
confidence" and "preoccupation" about Morocco's situation, it
is Morocco's international position that he believes
constitutes the country's principal vulnerability.


5. (SBU) A number of our contacts are quick to nuance this
concern, however. As a contact in the financial community
reminded us last fall, unlike those countries in Eastern
Europe and elsewhere that were reliant on international
financing, Morocco has largely financed itself. Foreign
direct investment expanded dramatically in recent years, but
in a sense was the icing on the cake, and was not critical to
financing either the central government or the country's
balance of payments. Others argue too that the way in which
terms of trade are evolving as a result of the crisis will
work in Morocco's favor. Karim El Aynaoui, the Bank
Al-Maghrib's Director of Studies, downplayed concern about
the balance of payments at a conference last month, pointing
out that more than a third of the increase in imports in 2008
stemmed from soaring global energy and food prices. He
conceded that both imports and exports will decline as a
result of the crisis, but argued that the "base effect" will
work in Morocco's favor, precisely because imports are so
large. If both exports and imports decline 10 percent as a
result of the crisis, as he anticipates, the country's trade
deficit will decline by a similar percentage.

--------------
EXPORT WEAKNESSES
--------------


6. (SBU) Skeptics, however, point to the fact that Moroccan
exports may be even more vulnerable than imports to the
changing terms of trade. They note that phosphate exports
grew in value last year by 130 percent or USD 3.7 billion, on
the base of a declining absolute volume. Given that
phosphate prices have fallen sharply this year, they warn
that the decline in exports may actually outstrip that of
imports, and not improve the trade balance. Others note too
that the headline export figure for Morocco is misleading, in
that much of the total consists of goods that were imported
for final processing. The portion of Moroccan exports that
actually reflects value added in Morocco, Nezha Lahrichi,
head of the Moroccan Export Insurance Company (SMAEX)
recently suggested, is only 30 percent of the official USD
19.9 billion figure.


7. (SBU) Recently released statistics from the Office of
Exchanges for the first two months of 2009 are mixed, but
hint that the more pessimistic vision may ultimately be
closer to the mark. The export decline outpaced the decline
in imports (31.8 to 15.6 percent). The base effect left the
trade deficit virtually unchanged from last year, but the
import/export coverage ratio slipped dramatically from 49.7
to 40.2 percent. For the two months, tourist receipts and
remittances continued their slide, declining 14.2 and 16.1
percent respectively. Investment income was off 48.3 percent
in January, but made up that shortfall in February, totaling
USD 840 million for the two months, up 16.1 percent over

2008. (Note: Notwithstanding this positive news, a number of
high profile projects are under threat, and the GOM base case
scenario assumes a significant drop in investment for the
year. End note.)


8. (SBU) The mixed picture has focused attention in the
Government of Morocco not just on the conjunctural effects of
the current international slowdown, but on the overall
failure of the government's export strategy. Morocco's new
"Maroc Export" strategy addresses the trade promotion side of
the equation, but as observers from Noureddine Omary of the
CNCE to Roving Ambassador and former Trade Minister Hassan
Abouyoub point out, the larger problem is Morocco's failure
to accompany the free trade push with strategies to develop
either promising export-oriented sectors or "national
champions" that could lead the outward push. Abouyoub argues
that free trade agreements "cannot provide miraculous
remedies to underlying dysfunctionalities in the economy,"
and that the benefit Morocco gained from its earlier
structural reforms before 1995 is now largely eroded. As a
result, the economy is largely dependent on internal demand
and investment, with the external sector dragging down GDP
rather than contributing to it.


9. (SBU) Comment: If the diagnosis is clear, appropriate
remedies remain elusive. Refs B and D reported on the
Moroccan government's initial steps to address shortcomings
in its export promotion efforts, but experts concede that
while this is a part of the solution, it is far from the most
important one. Marrying promotion to appropriate sectoral
reforms and incentives is even more critical. The Government
of Morocco is only now tackling this challenge with the
second phase of the Emergence Program, an initiative for
industrial development aimed at supporting and increasing the
global competitiveness of key export sectors, including
automobile and aeronautics, offshoring, and textiles. End
Comment.


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Jackson