According to a World Bank report on international debt published on December 3, Morocco’s external debt increased significantly in 2023, reaching $69.27 billion, equivalent to 50% of the gross domestic product (GDP), and representing 110% of the country’s annual export earnings.
TelQuel: What are the main economic risks associated with the rapid evolution of Morocco’s external debt, particularly in terms of sustainability and exposure to foreign currency fluctuations?
Nabil Adel: Debt, by its very nature, presents several risks. The first is the risk of default, which occurs when the debt level becomes so high that the country can no longer meet its repayments.
« Debt cost us around 35 billion dirhams in 2024, a sum up 10% over the first 10 months of the year »
The second is the cost of debt. Currently, the debt cost us around 35 billion dirhams in 2024, a sum up 10% over the first 10 months of the year due to rising interest rates. This makes it a significant budgetary burden, absorbing resources that could be allocated to other investments.
Thirdly, we need to ask ourselves what this debt is financing. If it is used to cover budget deficits without generating economic growth, we arrive at a situation where the interest rate on the debt exceeds the rate of economic growth, making the stock of debt grow every year. This brings us back to the original risk of default.
How would you assess the current structure of Morocco’s foreign debt portfolio, in particular the strong presence of multilateral creditors compared with private and bilateral creditors?
It’s basically the same thing. To illustrate, it’s as if you had a debt of 2 million dirhams: whether it’s granted by one bank or several organizations, it’s still a debt with maturities and interest rates. What matters is the repayment capacity and, above all, whether this debt has financed value-creating projects. The distinction between multilateral, private or bilateral creditors is only relevant if the cost of the debt varies significantly depending on the lender. If this is not the case, debt remains a financial commitment that must be honored.
« The dependence of growth rates on climatic hazards limits the capacity of debt to generate wealth »
However, it has to be said that this is a very uncomfortable situation for Morocco. Economic growth rates remain largely dependent on the vagaries of the weather, particularly rainfall. This dependence limits the ability of debt to generate wealth. On the contrary, debt servicing weighs down our budget. The proof is in the ever-increasing debt-to-GDP ratio. If debt had helped create wealth, this ratio would have fallen. Today, the data clearly show that the debt-to-GDP ratio continues to climb, reflecting a debt contracted to finance non-productive spending, without creating economic value.
To what extent is the growing burden of foreign debt affecting Morocco’s ability to finance its social priorities and strategic investments?
Debt necessarily reduces budgetary leeway. For example, if the State has a budget of 100 million dirhams, and spends 40 million on debt servicing, it has 60 million left over for operating, investment and social expenditure. The higher the debt service, the more it limits the ability to finance other priorities. That said, debt in itself is neither good nor bad. It all depends on what it’s used to finance.
« If Morocco uses its borrowings to cover deficits without investing in wealth-generating projects, debt becomes a growing burden »
Let’s take the example of an apartment bought on credit: you pay a monthly instalment of 4,000 dirhams, whereas you previously paid 6,000 dirhams in rent. This saves you 2,000 dirhams a month, and as your income increases, the relative weight of the debt decreases. On the other hand, if you take out a loan to finance non-productive expenses, such as leisure activities, you end up with interest charges and no additional income. In this case, the ratio of debt service to income only increases.
The same reasoning applies to a country: if Morocco uses its borrowings to cover deficits without investing in wealth-generating projects, the debt becomes a growing burden. What counts is whether the debt generates economic growth in excess of its cost. If growth exceeds the interest rate, the stock of debt will fall. If not, it will continue to grow.
Written by ElMehdi El Azhary. Edited in English by S.E.
