Identifier
Created
Classification
Origin
09RABAT642
2009-07-23 14:33:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Rabat
Cable title:
EFFECTS OF RECESSION STARTING TO APPEAR IN MOROCCO
how-toVZCZCXRO4691 PP RUEHTRO DE RUEHRB #0642/01 2041433 ZNR UUUUU ZZH P 231433Z JUL 09 ZDK FM AMEMBASSY RABAT TO RUEHC/SECSTATE WASHDC PRIORITY 0494 INFO RUCNMGH/MAGHREB COLLECTIVE RUEATRS/DEPT OF TREASURY WASHDC RUCPDOC/DEPT OF COMMERCE WASHDC
UNCLAS SECTION 01 OF 03 RABAT 000642
SIPDIS
SENSITIVE
STATE FOR NEA/MAG AND EEB/IFD/ODF
E.O. 12958: N/A
TAGS: ECON ETRD EFIN EINV MO
SUBJECT: EFFECTS OF RECESSION STARTING TO APPEAR IN MOROCCO
REF: A. RABAT 0284
B. RABAT 0171
RABAT 00000642 001.3 OF 003
UNCLAS SECTION 01 OF 03 RABAT 000642
SIPDIS
SENSITIVE
STATE FOR NEA/MAG AND EEB/IFD/ODF
E.O. 12958: N/A
TAGS: ECON ETRD EFIN EINV MO
SUBJECT: EFFECTS OF RECESSION STARTING TO APPEAR IN MOROCCO
REF: A. RABAT 0284
B. RABAT 0171
RABAT 00000642 001.3 OF 003
1. (SBU) Summary: The lingering global recession continues
progressively to affect economic growth forecasts for
Morocco, as well as the balance of payments and current
economic activity. A flurry of reports, prognostications and
evaluations in late June and early July describes the Kingdom
as resisting economic contraction thus far, but feeling
increasing strain from declining exports, remittances and
tourism. New official predictions have shaved 2009's
economic growth estimate to 5.3 percent from 6.7 percent, and
some observers are turning pessimistic about prospects for
2010. However, the finance sector is sanguine about Moroccan
banks' continued immunity to the financial turmoil that has
afflicted other countries, and banking sector observers are
optimistic about the country's economic prognosis. Morocco's
most acute vulnerability would appear to be its thinning
foreign reserves margin, but the central bank believes the
current level of reserves will see Morocco through the
economic downturn. End Summary.
--------------
Lower Growth Predictions, Again
--------------
2. (SBU) Morocco's High Planning Commission (HCP) released
on June 24 its latest prediction of 5.3 percent GDP growth
for 2009, down from HCP's early 2009 estimate of 6.7 percent
growth (although other entities, such as Morocco's Ministry
of Economy and Finance, had predicted growth between 5 and 6
percent since the beginning of 2009). The HCP estimates that
agricultural GDP will increase by 25 percent, but non-farm
growth will reach only 2.3 percent. The 2010 outlook also
fell, to 2.3 percent, including 3.9 percent non-farm growth
and a drop of 5 percent in agriculture after this year's
boom. Preliminary statistics for the first quarter of 2009
indicate that annualized growth reached only 3.7 percent,
driven by 26.8 percent agricultural growth. Non-agricultural
GDP growth was limited to 0.6 percent, its lowest level in
years. On July 22, Minister of Economy and Finance
Salaheddine Mezouar told G-20 Ambassadors and Charges that he
predicted at least 5 percent GDP growth, inflation under 2
percent and a budget deficit equivalent to less than 2.5
percent of GDP for 2009.
3. (U) The Centre Marocain de Conjoncture (CMC),an economic
think tank, released on July 15 the results of a survey of
Moroccan businesses, concluding that businesses are starting
to feel the effects of the economic slowdown. Seventy-one
percent of the 90 respondents, including major companies and
federations of businesses (representative of close to
two-thirds of Morocco's economy),had experienced a decline
in business since January, with 45 percent indicating a
decline greater than 10 percent. Only 36 percent expected
their own business to improve in 2010 compared to 2009. In
response, businesses plan to reduce their investment (43
percent of respondents),reduce operational costs (35
percent),and extend credit to consumers to facilitate
purchases (35 percent). Although only 15 percent expected to
reduce their workforce, fully 81 percent anticipate a freeze
on adding new positions for the duration of the "crisis," a
worrying sign in a country that, according to recent
government reports, needs to create 400,000 jobs per year to
absorb population growth.
--------------
Bankers Relatively Optimistic
--------------
4. (SBU) Despite the flurry of lower economic indicators,
Morocco's leading banks say they are not yet concerned about
the country's economic prospects. Mohamed Bennani,
Administrator-Director General of the Moroccan Bank of
External Commerce (BMCE),told EconOffs on July 1 that his
bank's outlook for its own business and Moroccan economic
growth is still optimistic. Morocco will be able to absorb
the current declines in tourism receipts, export earnings,
and remittances from overseas workers, he predicted. Bennani
admitted, however, that continued global economic weakness
through 2010 would have more severe repercussions for overall
growth. He asserted that the banking sector is well-placed
to ride out two to three more years of economic hardship due
to healthy portfolios, the high level of capital reserves of
banks, and relatively low exposure to the sectors suffering
most from the economic crisis (such as textile exporters).
5. (SBU) Abdeljaouad Doss Bennani, Deputy Director General
RABAT 00000642 002 OF 003
of Attijariwafa Bank, argued that Morocco's intermediate
level of development also provides support to sustained GDP
growth. He observed that domestic consumption, far more
significant in Morocco's GDP than exports, is driven by the
rising standard of living and growing household incomes of
Moroccans, and the average Moroccan household is still in the
process of acquiring modern amenities and products. Thus,
while economic slowdown in advanced economies tends to
self-reinforce as consumers put off replacing their
possessions, Moroccan consumers are for the most part
purchasing these goods for the first time -- cars, washing
machines, microwave ovens, and so forth. These first-time
buyers are less likely to defer acquisition of these goods
due to recession than those who would be replacing or
upgrading existing goods. Bennani asserted that this
internal demand has driven Morocco's economy for the past
decade, and will continue to facilitate growth despite the
weakness in other sectors.
--------------
Foreign Exchange Concerns
--------------
6. (SBU) Of increasing concern to observers is the widening
current accounts deficit, which the HCP forecasts growing to
6.4 percent of national GDP in 2010 (from 5.2 percent in
2008). Morocco had actually enjoyed a current accounts
surplus until 2007, but that swiftly reversed into a large
deficit in 2008, due to high petroleum import costs (Ref A).
Some economists are concerned that the healthy continued
internal demand highlighted by Attijarawafa's Bennani could
aggravate the deficit in goods and services, as consumers
continue purchasing imports, while Morocco's exports suffer
from weakening demand abroad. Karim el Aynaoui, Director of
Economics and International Relations at the Bank al Maghrib
(BAM - Morocco's central bank),told EconOff on July 22 that
figures for the first five months of 2009 indicate that the
trade deficit is diminishing compared to 2008, primarily
because of lower prices for imported oil and cereals.
Exports declined relatively more than imports as a percentage
of last year's value (exports dropping by 29 percent compared
to only 18 percent decline in imports),but the deficit has
in fact narrowed (by 4 percent) because the starting value of
imported goods was nearly twice that of exports.
7. (SBU) The gain in the balance of trade in goods is offset
by a lower surplus in services (especially in tourism
revenues) and over 15 percent decline in remittances from
Moroccans working abroad. (Note: Consulate General
Casablanca will report on remittances septel. End Note.)
Foreign investment, which plays an important role in
Morocco's capital accounts balance, also has shown some
weakness in 2009, particularly as investors rethink projects
in previously booming sectors such as high-end lodging. For
the first quarter of 2009, foreign investment in Morocco is
down 12 percent compared to 2008. Transfers from Moroccan
workers abroad have also declined approximately 15 percent in
2009, and earnings in the tourism industry have dropped by 20
percent since last year.
8. (SBU) Despite these weaker inflows, and contrary to the
HCP forecasts, el Aynaoui predicts that the overall current
account deficit will remain unchanged in 2009. The central
bank's foreign currency reserves slipped to approximately USD
22.7 billion by the end of 2008, equivalent to 6.2 months of
import coverage, from an average of 8.8 months in 2001 -
2007. However, el Aynaoui pointed out, as imports have
dropped in 2009, the import coverage has inched back up to
close to 7 months, despite a further decline in reserves to
around USD 21.8 billion.
9. (SBU) Economist Ahmed Laaboudi of the CMC speculated that
the Ministry of Economy and Finance may resort to borrowing
on international markets to replenish Morocco's foreign
currency reserves if they continue to shrink. Increasing the
amount of external debt after years of assiduous efforts to
bring the level down to the current USD 18 billion (around 21
percent of GDP) would be a bitter pill for the Ministry to
swallow, he observed. El Aynaoui, in contrast, dismissed
concerns about the kingdom's foreign reserves as unfounded
media hype. He asserted that five or six months of import
coverage appears to be sufficient for Morocco's needs,
pointing out that Morocco has very low exposure to foreign
exchange rate risks: most of its external debt is of
long-term maturity and amounts to only 10 percent of GDP. He
emphasized that even combined public and private external
debt amounts to only 26 percent of GDP.
RABAT 00000642 003 OF 003
10. (SBU) The perceived risk from the shrinking foreign
reserves has led to media speculation that the Kingdom may
devalue the dirham, which the newsweekly Maroc Hebdo
suggested was overvalued by up to 15 percent against the
pound and, more importantly, five to 25 percent against the
currencies of export competitors such as Egypt, Tunisia and
Turkey. Laaboudi told EconOff on July 14 that the Ministry
of Economy and Finance "would like to devalue" the currency
to shore up the balance of payments but is unlikely to do so
given the inflation risks of such an action, and the
possibility that higher costs of imported manufacturing
inputs would erase the export competitiveness gains that
devaluation could bring. El Aynaoui also dismissed the
possibility of a currency devaluation, citing the risks to
Morocco's painstakingly established international credibility
in its exchange regime. He pointed out that Morocco's export
markets are experiencing such depressed demand that the
competitive edge gained from a currency devaluation would be
marginal.
-------------- --------------
Boosting Liquidity in Anticipation of Lower Deposits
-------------- --------------
11. (SBU) BAM lowered banks' reserve requirements from 12
percent to 10 percent on July 1, citing a "structural
liquidity deficit." El Aynaoui explained that the higher
reserve requirements (up to 16.5 percent in 2007) had been
implemented to manage a period of "excess capital," when Arab
states had directed large capital flows to Morocco, and
Morocco still enjoyed a large current account surplus. The
phased reduction in the reserve requirement since then is a
normal response to the end of those circumstances, he
emphasized. BMCE's Bennani opined that Moroccan banks'
liquidity was sufficient even before the reduction of reserve
requirements, but the central bank action was taken to ensure
a liquidity pool going forward as lower remittances and
tourism receipts reduce the traditional level of banking
deposits. Additionally, the central government's
anticipation of lower fiscal receipts this year will
necessitate a return to government borrowing on the local
market after two years of budgetary surpluses. The BAM's
move to increase liquidity is "forward-leaning," Bennani
explained, and brings Moroccan banks closer to, but still
more conservative than, worldwide norms for reserve margins.
-------------- --------------
Comment: No Panic, but Time for Structural Reforms
-------------- --------------
12. (SBU) As a Ministry of Economy and Finance official
observed to EconOff, Morocco has the dubious privilege of
worrying about possible future effects of the recession,
unlike many of its neighbors who are worrying about real
current effects. Tourism Minister Mohamed Boussaid,
questioned about official growth predictions at a recent
public event, pointed out that many countries would be eager
to be debating whether growth would come in at 5 versus 6
percent. Nonetheless, the country's situation is fragile,
and this year's comfortable growth prediction is principally
a gift of favorable weather to agriculture. The government
and private sector are trying to address Morocco's structural
deficiencies, highlighted by the worldwide recession, by
boosting the competitiveness and productivity of Moroccan
businesses and exports (Ref B),but these plans will take
years to show results in the balance of payments and GDP
growth statistics. Morocco's best hope of emerging unscathed
from the current crisis is a speedy recovery elsewhere in the
world, especially Europe. The only other way to increase
next year's growth seems to be another record rainy season.
End Comment.
*****************************************
Visit Embassy Rabat's Classified Website;
http://www.intelink.sgov.gov/wiki/Portal:Moro cco
*****************************************
Jackson
SIPDIS
SENSITIVE
STATE FOR NEA/MAG AND EEB/IFD/ODF
E.O. 12958: N/A
TAGS: ECON ETRD EFIN EINV MO
SUBJECT: EFFECTS OF RECESSION STARTING TO APPEAR IN MOROCCO
REF: A. RABAT 0284
B. RABAT 0171
RABAT 00000642 001.3 OF 003
1. (SBU) Summary: The lingering global recession continues
progressively to affect economic growth forecasts for
Morocco, as well as the balance of payments and current
economic activity. A flurry of reports, prognostications and
evaluations in late June and early July describes the Kingdom
as resisting economic contraction thus far, but feeling
increasing strain from declining exports, remittances and
tourism. New official predictions have shaved 2009's
economic growth estimate to 5.3 percent from 6.7 percent, and
some observers are turning pessimistic about prospects for
2010. However, the finance sector is sanguine about Moroccan
banks' continued immunity to the financial turmoil that has
afflicted other countries, and banking sector observers are
optimistic about the country's economic prognosis. Morocco's
most acute vulnerability would appear to be its thinning
foreign reserves margin, but the central bank believes the
current level of reserves will see Morocco through the
economic downturn. End Summary.
--------------
Lower Growth Predictions, Again
--------------
2. (SBU) Morocco's High Planning Commission (HCP) released
on June 24 its latest prediction of 5.3 percent GDP growth
for 2009, down from HCP's early 2009 estimate of 6.7 percent
growth (although other entities, such as Morocco's Ministry
of Economy and Finance, had predicted growth between 5 and 6
percent since the beginning of 2009). The HCP estimates that
agricultural GDP will increase by 25 percent, but non-farm
growth will reach only 2.3 percent. The 2010 outlook also
fell, to 2.3 percent, including 3.9 percent non-farm growth
and a drop of 5 percent in agriculture after this year's
boom. Preliminary statistics for the first quarter of 2009
indicate that annualized growth reached only 3.7 percent,
driven by 26.8 percent agricultural growth. Non-agricultural
GDP growth was limited to 0.6 percent, its lowest level in
years. On July 22, Minister of Economy and Finance
Salaheddine Mezouar told G-20 Ambassadors and Charges that he
predicted at least 5 percent GDP growth, inflation under 2
percent and a budget deficit equivalent to less than 2.5
percent of GDP for 2009.
3. (U) The Centre Marocain de Conjoncture (CMC),an economic
think tank, released on July 15 the results of a survey of
Moroccan businesses, concluding that businesses are starting
to feel the effects of the economic slowdown. Seventy-one
percent of the 90 respondents, including major companies and
federations of businesses (representative of close to
two-thirds of Morocco's economy),had experienced a decline
in business since January, with 45 percent indicating a
decline greater than 10 percent. Only 36 percent expected
their own business to improve in 2010 compared to 2009. In
response, businesses plan to reduce their investment (43
percent of respondents),reduce operational costs (35
percent),and extend credit to consumers to facilitate
purchases (35 percent). Although only 15 percent expected to
reduce their workforce, fully 81 percent anticipate a freeze
on adding new positions for the duration of the "crisis," a
worrying sign in a country that, according to recent
government reports, needs to create 400,000 jobs per year to
absorb population growth.
--------------
Bankers Relatively Optimistic
--------------
4. (SBU) Despite the flurry of lower economic indicators,
Morocco's leading banks say they are not yet concerned about
the country's economic prospects. Mohamed Bennani,
Administrator-Director General of the Moroccan Bank of
External Commerce (BMCE),told EconOffs on July 1 that his
bank's outlook for its own business and Moroccan economic
growth is still optimistic. Morocco will be able to absorb
the current declines in tourism receipts, export earnings,
and remittances from overseas workers, he predicted. Bennani
admitted, however, that continued global economic weakness
through 2010 would have more severe repercussions for overall
growth. He asserted that the banking sector is well-placed
to ride out two to three more years of economic hardship due
to healthy portfolios, the high level of capital reserves of
banks, and relatively low exposure to the sectors suffering
most from the economic crisis (such as textile exporters).
5. (SBU) Abdeljaouad Doss Bennani, Deputy Director General
RABAT 00000642 002 OF 003
of Attijariwafa Bank, argued that Morocco's intermediate
level of development also provides support to sustained GDP
growth. He observed that domestic consumption, far more
significant in Morocco's GDP than exports, is driven by the
rising standard of living and growing household incomes of
Moroccans, and the average Moroccan household is still in the
process of acquiring modern amenities and products. Thus,
while economic slowdown in advanced economies tends to
self-reinforce as consumers put off replacing their
possessions, Moroccan consumers are for the most part
purchasing these goods for the first time -- cars, washing
machines, microwave ovens, and so forth. These first-time
buyers are less likely to defer acquisition of these goods
due to recession than those who would be replacing or
upgrading existing goods. Bennani asserted that this
internal demand has driven Morocco's economy for the past
decade, and will continue to facilitate growth despite the
weakness in other sectors.
--------------
Foreign Exchange Concerns
--------------
6. (SBU) Of increasing concern to observers is the widening
current accounts deficit, which the HCP forecasts growing to
6.4 percent of national GDP in 2010 (from 5.2 percent in
2008). Morocco had actually enjoyed a current accounts
surplus until 2007, but that swiftly reversed into a large
deficit in 2008, due to high petroleum import costs (Ref A).
Some economists are concerned that the healthy continued
internal demand highlighted by Attijarawafa's Bennani could
aggravate the deficit in goods and services, as consumers
continue purchasing imports, while Morocco's exports suffer
from weakening demand abroad. Karim el Aynaoui, Director of
Economics and International Relations at the Bank al Maghrib
(BAM - Morocco's central bank),told EconOff on July 22 that
figures for the first five months of 2009 indicate that the
trade deficit is diminishing compared to 2008, primarily
because of lower prices for imported oil and cereals.
Exports declined relatively more than imports as a percentage
of last year's value (exports dropping by 29 percent compared
to only 18 percent decline in imports),but the deficit has
in fact narrowed (by 4 percent) because the starting value of
imported goods was nearly twice that of exports.
7. (SBU) The gain in the balance of trade in goods is offset
by a lower surplus in services (especially in tourism
revenues) and over 15 percent decline in remittances from
Moroccans working abroad. (Note: Consulate General
Casablanca will report on remittances septel. End Note.)
Foreign investment, which plays an important role in
Morocco's capital accounts balance, also has shown some
weakness in 2009, particularly as investors rethink projects
in previously booming sectors such as high-end lodging. For
the first quarter of 2009, foreign investment in Morocco is
down 12 percent compared to 2008. Transfers from Moroccan
workers abroad have also declined approximately 15 percent in
2009, and earnings in the tourism industry have dropped by 20
percent since last year.
8. (SBU) Despite these weaker inflows, and contrary to the
HCP forecasts, el Aynaoui predicts that the overall current
account deficit will remain unchanged in 2009. The central
bank's foreign currency reserves slipped to approximately USD
22.7 billion by the end of 2008, equivalent to 6.2 months of
import coverage, from an average of 8.8 months in 2001 -
2007. However, el Aynaoui pointed out, as imports have
dropped in 2009, the import coverage has inched back up to
close to 7 months, despite a further decline in reserves to
around USD 21.8 billion.
9. (SBU) Economist Ahmed Laaboudi of the CMC speculated that
the Ministry of Economy and Finance may resort to borrowing
on international markets to replenish Morocco's foreign
currency reserves if they continue to shrink. Increasing the
amount of external debt after years of assiduous efforts to
bring the level down to the current USD 18 billion (around 21
percent of GDP) would be a bitter pill for the Ministry to
swallow, he observed. El Aynaoui, in contrast, dismissed
concerns about the kingdom's foreign reserves as unfounded
media hype. He asserted that five or six months of import
coverage appears to be sufficient for Morocco's needs,
pointing out that Morocco has very low exposure to foreign
exchange rate risks: most of its external debt is of
long-term maturity and amounts to only 10 percent of GDP. He
emphasized that even combined public and private external
debt amounts to only 26 percent of GDP.
RABAT 00000642 003 OF 003
10. (SBU) The perceived risk from the shrinking foreign
reserves has led to media speculation that the Kingdom may
devalue the dirham, which the newsweekly Maroc Hebdo
suggested was overvalued by up to 15 percent against the
pound and, more importantly, five to 25 percent against the
currencies of export competitors such as Egypt, Tunisia and
Turkey. Laaboudi told EconOff on July 14 that the Ministry
of Economy and Finance "would like to devalue" the currency
to shore up the balance of payments but is unlikely to do so
given the inflation risks of such an action, and the
possibility that higher costs of imported manufacturing
inputs would erase the export competitiveness gains that
devaluation could bring. El Aynaoui also dismissed the
possibility of a currency devaluation, citing the risks to
Morocco's painstakingly established international credibility
in its exchange regime. He pointed out that Morocco's export
markets are experiencing such depressed demand that the
competitive edge gained from a currency devaluation would be
marginal.
-------------- --------------
Boosting Liquidity in Anticipation of Lower Deposits
-------------- --------------
11. (SBU) BAM lowered banks' reserve requirements from 12
percent to 10 percent on July 1, citing a "structural
liquidity deficit." El Aynaoui explained that the higher
reserve requirements (up to 16.5 percent in 2007) had been
implemented to manage a period of "excess capital," when Arab
states had directed large capital flows to Morocco, and
Morocco still enjoyed a large current account surplus. The
phased reduction in the reserve requirement since then is a
normal response to the end of those circumstances, he
emphasized. BMCE's Bennani opined that Moroccan banks'
liquidity was sufficient even before the reduction of reserve
requirements, but the central bank action was taken to ensure
a liquidity pool going forward as lower remittances and
tourism receipts reduce the traditional level of banking
deposits. Additionally, the central government's
anticipation of lower fiscal receipts this year will
necessitate a return to government borrowing on the local
market after two years of budgetary surpluses. The BAM's
move to increase liquidity is "forward-leaning," Bennani
explained, and brings Moroccan banks closer to, but still
more conservative than, worldwide norms for reserve margins.
-------------- --------------
Comment: No Panic, but Time for Structural Reforms
-------------- --------------
12. (SBU) As a Ministry of Economy and Finance official
observed to EconOff, Morocco has the dubious privilege of
worrying about possible future effects of the recession,
unlike many of its neighbors who are worrying about real
current effects. Tourism Minister Mohamed Boussaid,
questioned about official growth predictions at a recent
public event, pointed out that many countries would be eager
to be debating whether growth would come in at 5 versus 6
percent. Nonetheless, the country's situation is fragile,
and this year's comfortable growth prediction is principally
a gift of favorable weather to agriculture. The government
and private sector are trying to address Morocco's structural
deficiencies, highlighted by the worldwide recession, by
boosting the competitiveness and productivity of Moroccan
businesses and exports (Ref B),but these plans will take
years to show results in the balance of payments and GDP
growth statistics. Morocco's best hope of emerging unscathed
from the current crisis is a speedy recovery elsewhere in the
world, especially Europe. The only other way to increase
next year's growth seems to be another record rainy season.
End Comment.
*****************************************
Visit Embassy Rabat's Classified Website;
http://www.intelink.sgov.gov/wiki/Portal:Moro cco
*****************************************
Jackson