Morocco Pledges to Partly Repay $3 Billion IMF Credit Early

Morocco is already planning to repurchase part of its Precautionary and Liquidity Line (PLL) arrangement with the IMF.

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Rabat – In a show of economic strength, Morocco has pledged to “soon” start repurchasing part of the $3 billion that the IMF made available in April. The unexpected news appears to be a sign that Morocco’s economy is recovering despite concerns from US credit rating agencies. 

A statement released earlier today indicated that Moroccan officials met with the Executive Board of the IMF on December 18 for an Article IV consultation. Such a consultation requires a country visit from IMF officials to discuss national policies and evaluate economic and financial developments. Following such a meeting, the IMF board publishes its subsequent report, which in Morocco’s case was released today.

Unexpected pledge

The press release covered the IMF’s assessment of Morocco’s economic and financial performance in trying times dominated by drought and a global health crisis. The report did however make the remarkable statement that Morocco is already planning to repurchase part of its Precautionary and Liquidity Line (PLL) arrangement with the IMF.

The PLL arrangement is a $3 billion credit line which the IMF made available to Morocco in April. It aimed to help ease international financing pressures and maintain reserves. The giant credit line would normally have required “post-program monitoring,” but Morocco’s surprise pledge meant this is likely no longer necessary.

“The kingdom’s economy may have seen off the worst effects of the pandemic and an acute drought,” Bloomberg said of Morocco’s unexpected pledge. It is still unclear how much Morocco aims to repurchase, yet Bloomberg cited Moroccan reports stating that Morocco would repurchase $1 billion.

Show of strength

Morocco’s foreign currency holdings are currently around $30.5 billion, meaning that “repaying the IMF won’t be a problem,” according to Mark Bohlund, a senior credit analyst at REDD Intelligence.

The noteworthy pledge comes after an “aggressive downgrade” of Morocco’s credit rating by US credit ratings agencies in October. 

Three for-profit US ratings agencies continue to hold the fate of a number of emerging nations’ economies in their hands, despite repeated evidence of corruption and mismanagement. Fitch Ratings on October 23 downgraded Morocco’s default rating to “junk bond,” making it harder for the country to raise funds internationally.

Read also: Credit Rating Firms Worsen Africa’s Economic Crisis, Damage Morocco

Fitch’s downgrade sent Morocco’s dollar bonds tumbling as its ratings create a “self-fulfilling prophecy.” When a ratings agency downgrades a country for perceived difficulties to repay loans, it effectively makes it more difficult for the country to repay loans.

As far as Morocco is concerned, its pledge today will again show the country’s commitment to repay lenders. In addition, the move upgrades Morocco’s reliability and presents it as a responsible partner for international creditors, despite gloomy predictions from US ratings agencies.

Positive assessment

The IMF board’s assessment concluded that Moroccan authorities had responded promptly to the pandemic, helping to “contain the fallout.” 

But the IMF press release also elaborated on the difficult year Morocco has faced due to the pandemic and another year of severe droughts. The board detailed Morocco’s key economic challenges, including the 12.7% unemployment rate which has risen from 9.4% at the same time last year.

Similarly, the IMF highlighted the difficult balance that Morocco has faced during a year of crisis. With revenues from tourism and tax down, the North African country had to push for strong public spending to limit the spread of COVID-19. While Morocco’s current account deficit has increased, a resilient flow of remittances and a decrease in imports have kept the deficit under control.

According to the IMF, Morocco’s “international reserves remain comfortably above last year’ levels also thanks to the purchase of the IMF precautionary liquidity line in April and the greater recourse to external financing.” Additionally, banks and credit availability in Morocco have weathered the storm, reflecting the “strong response of the central bank.”

Strong recovery

The IMF expects GDP growth to fall to %7.2 in 2020, it forecasts a rapid rebound to 4.5% in 2021. This recovery is expected to be driven by the waning effects of drought and COVID-19 and the recovery of tourism and exports. These forecasts still depend on a successful vaccination campaign and the general evolution of the pandemic.

Meanwhile, the IMF’s executive board commended Morocco for it’s “swift policy response” in the early phases of the COVID-19 pandemic. These measures staved off severe social and economic impacts caused by the pandemic and droughts. 

The IMF recommends that Morocco continue on its path of support and stimulus as the reality of the COVID-19 crisis means much remains unclear about the country’s future outlook. The fund’s board of directors urged Morocco to maintain the recovery by continuing fiscal policies that have “appropriately supported households and firms in the wake of the pandemic.” 

The IMF finally recommended that Morocco prepare a plan to cut its debt as soon as the crisis wanes. 

This recommendation had apparently been considered in Rabat already, given that Moroccan officials pledged to soon repurchase part of the $3 billion Precautionary and Liquidity Line arrangement with the IMF.