Fitch Ratings - Fitch Ratings has affirmed Morocco's Long-term foreign and local currency Issuer Default Ratings at 'BBB-' and 'BBB', respectively. The Outlooks are Stable. The issue ratings on Morocco's senior unsecured foreign and local currency bonds have also been affirmed at 'BBB-' and 'BBB' respectively. The Country Ceiling has been affirmed at 'BBB' and the Short-term foreign currency IDR at 'F3'.
KEY RATING DRIVERS
Morocco's 'BBB-' rating is supported by its macro and political stability, which have helped attract FDI and implement structural reforms. GDP growth was resilient through the 2011/2012 political transition and despite low external demand from the eurozone. Following a marked deterioration in the budget and current account deficits in 2012, government and net external debt have increased sharply, at levels above its peers' median. However Morocco has embarked in an ambitious path of reforms that has led to a gradual tightening in the twin deficits and will help rebuild policy buffers. Structural indicators are weaker than peers.
Morocco's 'BBB-' IDRs also reflect the following key rating drivers:
Fitch expects the current account deficit will decline to 3.9% of GDP in 2015, from 5.6% in 2014 and 9.8% in 2012, primarily driven by a lower energy bill (10.2% of GDP in 2014 after 12.8% of GDP in 2012 and 7.4% expected in 2015) and growth in new industrial exports (+27% cars in 2014). This is helping rebuild official foreign reserves, to USD20.4bn in 2014 from USD17.5bn in 2012. Net external debt will reach a peak in 2015 at 11.3% of GDP, and start declining thereafter, reversing the trend of recent years.
Fitch expects the central government deficit will be 4.3% of GDP in 2015 from 4.9% in 2014 and 7.0% in 2012 thanks to the completion of the reform of energy subsidies. The cost of subsidies will be 2.4% of GDP in 2015 from 6.6% of GDP in 2012. State investment will remain above 5% of GDP, reflecting the focus on infrastructure. The new financial law (Loi Organique des Finances) to be adopted in 2015 will strengthen the budget's framework and includes a rule to limit the increase in net debt to investment.
General government debt on a consolidated basis was 49.2% of GDP in 2014, higher than the 'BBB' peers' median (41%) following a marked deficit-related increase in recent years. Fitch expects government debt to gradually decline to 43% by 2018, assuming real GDP growth between 4% and 5% and a gradual tightening in the primary balance deficit.
GDP grew 3% in 2014, after 4.4% in 2013, driven by non-agricultural sectors (+3.6%), including new exporting industries (cars and aeronautics). The slowdown reflected weak agriculture (13% of GDP, -1.3% in 2014) and continued lacklustre performance in Europe (80% of foreign tourism, 64% of exports and 72% of remittances). In 2015, Fitch expects GDP will grow by 4.3%, supported by the recovery in Europe, higher agriculture output and continued development of new industry, as it is a key policy priority.
Local elections will take place in September 2015 and general elections will follow in 2016. Fitch expects the electoral period to be smooth, reflecting Morocco's political and social stability. However, the dynamics of reform could be affected.
Structural indicators are generally weaker than similarly rated peers. UN Human Development index scores are weak, and GDP per capita is lower than the peers' median. Governance indicators and the business environment are also weaker than peers despite some recent improvement (Ease of Doing Business ranking by the World Bank improved to 71 in 2015 from 87 in 2014).
RATING SENSITIVITIES
The Stable Outlook reflects Fitch's assessment that upside and downside risks to the rating are currently well-balanced.
The main factors that may, individually or collectively, lead to positive rating action are as follows:
-Continued fiscal consolidation and reduction in the government debt burden.
-Higher growth trajectory that facilitates an increase in per capita income level and an improvement in social indicators.
The main factors that may, individually or collectively, lead to negative rating action are as follows:
-Inability to narrow the fiscal deficit that undermines the government's debt dynamics.
-A weakening economic performance.
-A reverse in the current trend of declining current account deficit and falling foreign reserves leading to a sharp rise in net external debt.
-Social instability constraining the political scope for reform.
KEY ASSUMPTIONS
The Stable Outlook anticipates a gradual narrowing of the budget and the current account deficits from the peak of 2012 that will allow public debt to stabilise and a gradual rebuilding of FX reserves.
Fitch assumes continuing reform in a context of social and political stability.
Fitch assumes a gradual economic recovery in the eurozone, to 1.4% in 2015 and 1.7% in 2016 from 0.8% in 2014.
Fitch assumes oil prices to decline to USD65 in 2015, from USD99 in 2014 and will increase to USD75 in 2016.
