The International Monetary Fund (IMF) on Friday approved loans to Morocco and Jordan after they were hit by costlier energy bills, economic restraints from regional instability and an escalating euro zone crisis.
The IMF approved a $6.2 billion precautionary line of credit for Morocco over two years, which it said the government would treat as “insurance” in case economic conditions deteriorate and it faced sudden financing needs.
The IMF board also approved a $2 billion loan to Jordan, announced last month. Jordan's finances were hurt by regional protests and supply disruptions from Egypt forced it to switch from gas to more expensive oil for power generation.
IMF Managing Director Christine Lagarde said Morocco’s economic policies have contributed to strong growth, low inflation and a resilient banking sector. But the country has been hard hit by a decline in trade from the euro zone.
“High oil prices have contributed to a build-up of fiscal and external pressures,” Lagarde said. “The authorities have already taken action to address these vulnerabilities, and are committed to maintaining sound policies.”
Lagarde said Jordan “is facing external and fiscal challenges stemming largely from exogenous shocks to its energy sector.”
“These shocks have put pressure on the external accounts, pushed up the deficits of the central government and the public electricity company, and exposed structural weaknesses in fiscal and energy policies.”
Jordan’s economic growth slowed to 3 percent year-on-year in the first quarter of this year due to sluggish private sector growth. Turmoil from the Arab Spring in neighboring countries including Syria and Egypt have also cast a shadow over investment, while ramped up social spending to quell unrest has further strained public finances.
In Rabat, Morocco said the IMF credit should give comfort to foreign lenders, investors and rating agencies, and allow it to tap international capital markets at favorable borrowing terms.
Chronic liquidity shortage
In a statement carried by the state-run MAP news agency, the finance ministry said the economy “remains vulnerable to external shocks mostly linked to a worsening recession in the euro zone and a new surge” in commodity prices.
Morocco’s fiscal and current account deficits surged last year to their highest levels in many years and analysts are worried about Rabat's ability to quickly reverse the trend.
While the Moroccan currency is not convertible, the rise in those deficits exacerbated a chronic shortage in liquidity in a domestic market that is the state’s biggest creditor.
After bad weather hit its agricultural sector, the North African country is now bracing for higher food import costs after drought slashed its farming output. Its foreign currency reserves barely cover four months of import needs.
The rise in the budget deficit followed a series of handouts, which included public sector wage hikes and higher spending on subsidies last year aimed at containing a spillover from Arab Spring revolts.
Authorities have promised to start reducing spending on subsidies, costs of which amounted to roughly the budget deficit last year, but indicated the process may take until 2016.
IMF mission chief to Morocco, Dominique Guillaume, said the country’s international reserves were still at a “comfortable level” and their decline was due to seasonal factors.
He said tourism revenues and migrant remittances usually pick up in the second half of the year, when several bilateral loans also come due to the government.
“We really don’t see there is a balance of payment need for Morocco at this stage,” Guillaume added.
The Washington-based IMF said Morocco had already taken steps in June to reform subsidies, which will lead to higher fuel prices.
“We are quite confident that they have a broad set of measures on both the revenue and spending side to reduce the deficit to 3 percent over the next few years and strengthen fiscal sustainability,” Guillaume added.