The Policy Center for the New South draws a preliminary assessment of Covid-19 impact on the Moroccan economy

The Policy Center for the New South jointly with the Faculty of Governance, Economics and Social Sciences (FGSES) of Mohammed VI Polytechnic University published a Covid-19 pandemic impact assessment on the Kingdom's economy.  "Impacts of Covid-19 on the Moroccan economy: a first assessment", the Policy Paper co-authored by a number of economists including Policy Center’s President, Karim El Aynaoui, reviews the state of the Moroccan economy in 2020, a year dominated by both lockdown and drought.  The analysis reveals impacts, which transcend economic considerations on one hand, and highlights opportunities and outlook for recovery at national, continental and international levels, on the other.

The Moroccan economy faced an extremely challenging and complex year in 2020. The Covid-19 induced crisis was singular, multi-channel and fundamentally different from previous ones, distorting the productive system in a dual shock of supply and demand, exacerbated by a crisis of confidence.  As 2020 draws to a close, it is crucial to draw up a preliminary, comprehensive assessment of crisis repercussions, to better recognize economic policy challenges and stakes for the years to come, in the face of presumably severe economic consequences.  Accordingly, a variety of approaches were used to derive approximate impact magnitudes from the crisis on economic activity and macroeconomic and social balances.

Analyses by Policy Center economists Abdelaaziz Ait Ali, Karim El Aynaoui, Badr Mandri, and FGSES professor-researcher Fayçal El Hossainiagree on crisis magnitude, suggesting a severe 7% contraction of economic activity primarily driven by lockdown measures and a drastic decline in foreign demand.  Regional shock dispersion is uneven and indicates greater exposure of regions with large informal sectors, weak public sector participation and predominant tourism and manufacturing activities. Thus, the greatest economic losses are expected to come from the regions of Casablanca-Settat, Tangier-Tetouan-Al-Hoceima and Marrakech-Safi, while the least impacted regions, potentially, are Dakhla-Oued Ed-dahab, Guelmim-Oued Noun and Laâyoune Sakia el-Hamra.

Simulations were conducted on domestic social and macroeconomic equilibria under this economic crisis scenario.  At the social level, the deep recession is expected to have a greater impact on more vulnerable social classes, tipping an estimated 1 million people into poverty and another 900 thousand or so below the vulnerability line.  Morocco's domestic and external macroeconomic balances are projected to be severely strained in 2020, with twin deficits ranging between 6 percent and 8 percent of GDP.  Domestically, worsening fiscal deficits reflect a foreseeable decline in tax revenues rather than a proactive increase in fiscal expenditures.  Support measures to the most severely hit economic agents drew on a Covid-19 Special Fund, financed to the tune of 3% of GDP.  On the trade balance front, current accounts are estimated to have suffered considerably from the "Sudden Stop" in tourism revenues and deep contraction in exports of goods and other services.  Adjustments in imports and the resilience of Moroccan diaspora remittances, however, seem to have considerably alleviated pressures on foreign exchange reserves.  Exceptional recourse to external financing more than offset foreign exchange deficits, leading to higher reserve asset levels, to the point of marginal nominal Dirham appreciation against the anchor basket.

Economic decision-makers are thus caught between restoring accounting equilibrium on the one hand, and triggering expansionary policies to reinvigorate economic recovery on the other.  This paper suggests that authorities activate all available fiscal and monetary levers, including a widening of Dirham fluctuation bands, in anticipation of foreign exchange reserve pressures.  Against this backdrop, successive potential vaccine announcements and anticipated vaccination campaigns in Morocco and partner countries bode well for the recovery of the Moroccan economy and the gradual dispelling of economic and health uncertainties.  That notwithstanding, meeting the challenges of recovery and a return to normalcy are not the only post-Covid-19 era public policy tests, as new global trends are at work, calling for appropriate, localized, and visionary public policies.