In 2021, public debt stood at 69.5% of GDP, rising to 71.6% in 2022 and projected to reach 72% in 2023. Despite this continuous increase, an international bond issuance in the coming months is not ruled out. This was announced recently by the Minister of Economy and Finance, Nadia Fettah, during an interview with Bloomberg, on the sidelines of her participation in the annual joint meetings of Arab financial institutions.
« The improvement in public finances protects the kingdom, but it doesn’t mean that we are not considering a return to international financing (…) We are constantly monitoring international markets… We will decide in due course based on market conditions, » clarified the Kingdom’s finance minister. However, would another international issuance be economically viable?
Reduce pressure
In an interview with TelQuel, economist and exchange rate policy specialist Omar Bakkou argues that taking on debt is « necessary » and « inevitable » in the current economic situation. An international treasury bond issuance would primarily help alleviate pressure on the domestic market, which has suffered from several years of low growth leading to a decrease in domestic savings.
According to the latest data from the High Commission for Planning (HCP), national savings represented 26.8% of GDP in 2023, down from 26.9% the previous year. This decline is attributed to a 6% slowdown in final national consumption, compared to an 8.3% increase recorded the previous year. « If the government borrows excessively from the domestic market, there will be fewer funds available for private investors, which could hinder economic growth and the financing of economic projects, » explains Omar Bakkou.
Scheduled in the 2024 Finance Law, this bond issuance is not expected to exceed 6 billion dollars. It is also aimed at bolstering Morocco’s foreign exchange reserves, which have remained at a comfortable level for several years. As of the end of March 2024, Bank Al-Maghrib’s official reserve assets reached 362 billion dirhams, equivalent to 5 months and 10 days of goods and services imports.
« If we add the state reserves, which already exceed the minimum threshold of three months, along with the optional reserves available from the IMF (including the $5 billion Flexible Credit Line for which Morocco has been eligible since April 2023), as well as funds to be raised from the external market, Morocco has ample resources to strengthen its foreign exchange reserves and cover its needs extensively, » argues Omar Bakkou.
Restart the engine
Ahmed Azirar, economist and research director at the Moroccan Institute of Strategic Intelligence (IMIS), echoes a similar sentiment: leveraging external debt should facilitate a return to economic growth, finance social safety nets, and develop necessary infrastructure for organizing the 2030 World Cup. These monumental projects demand substantial resources.
According to government estimates, expanding social protection (including medical coverage and direct assistance) is projected to cost approximately 40 billion dirhams by 2026. Funding will come from state resources (20 billion dirhams), tax revenues from the solidarity contribution (6 billion), surplus from the National Mutual Aid Fund (9 billion), and reallocation of funds from previous aid programs. Additionally, the gradual reform of subsidy reductions, starting with the revision of butane gas prices on May 1st, is expected to generate an additional 12 billion dirhams over time to finance these initiatives.
On another front, a study conducted by Sogécapital Gestion, a subsidiary of Société Générale Maroc Group, estimates that 52 billion dirhams will be required to finance the organization of the FIFA World Cup. This budget includes 17 billion dirhams for stadium construction and renovation, 8 billion dirhams for training center costs, 17 billion dirhams for transportation and infrastructure, and 10 billion dirhams for general organizational expenses.
Subject to conditions
However, Ahmed Azirar emphasizes the necessity of directing debt towards financing projects with high transformative impact, lest the country fall into a spiral of financial dependency. He underscores that these funds should be used to support an initial phase aimed at stimulating growth and ensuring future self-sufficiency of social initiatives through citizen contributions.
“Economic development cannot happen without improving the social conditions of citizens.”
This would also enable the private sector to take the lead in creating wealth in the medium and long term. « These funds must not be directed towards consumption needs. Debt should serve as a lever for creating value and especially jobs, especially since the unemployment rate continues to rise. We also need to improve our education and healthcare systems, as everything is interconnected. Economic development cannot happen without improving the social conditions of citizens, » insists Ahmed Azirar.
The Treasury’s last venture into the international financial market dates back to March 2023, when Morocco issued a bond totaling $2.5 billion, split into two tranches of $1.25 billion each. The first tranche, with a five-year term, had an interest rate of 5.95%, while the second tranche had an interest rate of 6.50% with a maturity of 10.5 years.
This year, Morocco stands to benefit from an improved image in international financial markets. On March 29th, the American agency Standard & Poor’s (S&P) maintained Morocco’s BB+/B rating but upgraded its outlook from « stable » to « positive. » This rating assesses the country’s financial solvency and reflects its ability to repay its debt, thereby reducing the risk associated with purchasing bonds issued by the state, and subsequently lowering the interest rates.
Written by Safae Hadri, edited in English by Eric Nielson
