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RR RUEHWEB

DE RUEHRB #0853/01 2551425
ZNR UUUUU ZZH
R 111425Z SEP 08
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 9096
INFO RUEHAS/AMEMBASSY ALGIERS 4889
RUEHMD/AMEMBASSY MADRID 6047
RUEHNK/AMEMBASSY NOUAKCHOTT 3807
RUEHTU/AMEMBASSY TUNIS 9713
RUEHCL/AMCONSUL CASABLANCA 4296

UNCLAS RABAT 000853 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EAGR MO
SUBJECT: MOROCCAN ECONOMY HOLDING UP WELL TO CREDIT AND 
INFLATION CONCERNS, BUT TRADE DEFICIT SPARKS WORRIES 
 
This message is sensitive but unclassified.  Please handle 
accordingly. 
 
¶1. (SBU) Summary: Recent data from the Ministry of Finance, 
Bank Al-Maghrib, and High Planning Commission highlight the 
Moroccan economy's resilience in the face of the 
international credit crisis and the surge in international 
commodity prices.  The country is on track to meet its growth 
and deficit targets, and unemployment has fallen to 9.1 
percent, its lowest level in years.  Alarms are being raised, 
however, about the country's deteriorating international 
position: continued weak performance by Moroccan exports 
raise the prospect that the balance of payments will soon 
slip into the red.  The growing problem led the Moroccan 
government this week to convene an interministerial 
commission to aid the Ministry of External Commerce in 
devising a strategy to encourage Moroccan exports.  End 
Summary. 
 
--------------------------------- 
MOSTLY GOOD NEWS, EXCEPT ON TRADE 
--------------------------------- 
 
¶2. (U) A flurry of economic reports over the last month 
highlighted again the fact that except for a slight uptick in 
inflation and a widening of the country's trade deficit, 
Morocco continues to hold up well in the face of the twin 
shocks of the credit crisis and commodity price pressures. 
Positive results were registered in growth (7 percent in the 
first quarter, leading the Ministry of Finance to retain its 
6.8 percent target for the year), unemployment (9.1 percent, 
down from 9.6 percent a quarter earlier), investment (1.69 
billion USD in the first five months of the year) and the 
budget (where a 31.5 percent surge in tax revenue has 
balanced a 178 percent increase in subsidy spending).  Only 
on inflation and trade were the results mixed: prices at the 
end of July were up 5.1 percent over their level a year 
earlier, with food products increasing 9.1 percent over the 
period.  The High Planning Commission and Bank al-Maghrib 
continue to predict that inflation will moderate by the end 
of the year, though they anticipate it will exceed last 
year's 2 percent and likely the 3.3 percent registered in 
¶2006. 
 
¶3. (U) On the trade front, however, little relief appears to 
be on the horizon.   Updated trade figures through the end of 
July show that imports increased by nearly 28 percent over 
last year, easily eclipsing the 18 percent growth registered 
by Moroccan exports.  The country's overall trade deficit 
thus rose 72.8 percent from 3.56 billion USD to 6.17 billion 
USD.  The export figures actually overstate the health of 
most Moroccan exports, since virtually the entire increase 
came from exports of phosphates, which more than doubled. 
Non-phosphate exports were essentially flat. 
 
---------------- 
A CALL TO ACTION 
---------------- 
 
¶4. (SBU) The increasing trade deficit has prompted increased 
concern in both the Moroccan government and international 
economic institutions.  Visiting IMF Director General 
Dominique Strauss-Kahn encouraged the government to address 
both the country's trade balance and the system of 
generalized subsidies when he visited in July.  Prime 
Minister El-Fassi subsequently moved to set up a special 
interministerial commission to consider the issue.  That body 
met on September 9, and Trade Minister Abdellatif Maazouz 
subsequently urged patience.  He noted that a new action plan 
to address the growing deficit has been elaborated, but 
judged that it will not bear fruit before 2010.  Much of the 
problem, he argued, is conjunctural, and stems from the 
increased cost of the energy and agricultural inputs on which 
Morocco depends.  Maazouz outlined a strategy that includes a 
strategic action plan to encourage exports, focused on tying 
export promotion to the government's other strategies, such 
as the "Emergence" plan for industry.  Other measures that 
have yet spelled out in detail include enhanced regulation of 
imports, increased economic oversight, and modernization of 
Morocco's operational framework and regulatory provisions for 
international commerce. 
 
¶5. (SBU) Notwithstanding increased alarm in Morocco's 
economic press about the trade imbalance, not all of our 
contacts are concerned.  Ahmed Laaboudi, head economist at 
the Centre Marocain de Conjuncture, a leading think tank, 
played down the issue when we saw him last month.  While 
 
admitting that the balance is not ideal, he argued that 
"Morocco can handle it even at its current level," thanks to 
continued strong tourism receipts and unexpectedly high 
remittances from Moroccans residing abroad.  Such transfers, 
he noted, have "boomed beyond what we expected." 
 
¶6. (SBU) Where our contacts are critical is of the failure of 
successive governments to adopt an integrated export 
promotion strategy to accompany its pursuit of free trade 
with partners including the United States, the European 
Union, Turkey, Egypt, and Jordan, among others.  Former 
Minister of Finance Mohammed Berrada told us earlier this 
summer that the combination of free trade, lack of an export 
strategy, and simultaneous encouragement of domestic 
consumption as an engine of economic growth has created the 
present imbalance, with negative consequences for Moroccan 
producers.  The flood of cheap imports, particularly from 
China, he argued, has distorted the market.  He pointed to 
the row of warehouses adjacent to his family textile company 
and to the Casablanca port, noting that all have now been 
rented by merchants who import cheap Chinese goods.  "We are 
unable to compete," he said.  While details have yet to 
emerge, Maazouz's announcement appears to be an initial 
attempt to address such criticisms. 
 
¶7. (SBU) Comment: Morocco's balance of payments narrowed last 
year, as for the first time in five years transfers from 
Moroccans abroad were not sufficient to make up the deficit 
in good and services.  The country continues to enjoy a 
healthy inflow of direct and portfolio investment, however, 
so it will not soon face a financing crisis or pressure on 
the dirham.  Clearly though, achieving Morocco's goal of 
annual growth near 7 percent over the next five years will 
require the external sector to be a contributor, rather than 
a drag on GDP.  Finding a way to widen what Maazouz himself 
admits is a "limited export offer" will thus be critical 
going forward.  End Comment. 
 
 
***************************************** 
Visit Embassy Rabat's Classified Website; 
http://www.state.sgov.gov/p/nea/rabat 
***************************************** 
 
Riley