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PP RUEHTRO
DE RUEHRB #0642/01 2041433
ZNR UUUUU ZZH
P 231433Z JUL 09 ZDK
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 0494
INFO RUCNMGH/MAGHREB COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 RABAT 000642 
 
SIPDIS 
SENSITIVE 
 
STATE FOR NEA/MAG AND EEB/IFD/ODF 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN EINV MO
SUBJECT: EFFECTS OF RECESSION STARTING TO APPEAR IN MOROCCO 
 
REF: A. RABAT 0284 
     ¶B. RABAT 0171 
 
RABAT 00000642  001.3 OF 003 
 
 
¶1.  (SBU) Summary: The lingering global recession continues 
progressively to affect economic growth forecasts for 
Morocco, as well as the balance of payments and current 
economic activity.  A flurry of reports, prognostications and 
evaluations in late June and early July describes the Kingdom 
as resisting economic contraction thus far, but feeling 
increasing strain from declining exports, remittances and 
tourism.  New official predictions have shaved 2009's 
economic growth estimate to 5.3 percent from 6.7 percent, and 
some observers are turning pessimistic about prospects for 
¶2010.  However, the finance sector is sanguine about Moroccan 
banks' continued immunity to the financial turmoil that has 
afflicted other countries, and banking sector observers are 
optimistic about the country's economic prognosis.  Morocco's 
most acute vulnerability would appear to be its thinning 
foreign reserves margin, but the central bank believes the 
current level of reserves will see Morocco through the 
economic downturn.  End Summary. 
 
------------------------------- 
Lower Growth Predictions, Again 
------------------------------- 
 
¶2.  (SBU) Morocco's High Planning Commission (HCP) released 
on June 24 its latest prediction of 5.3 percent GDP growth 
for 2009, down from HCP's early 2009 estimate of 6.7 percent 
growth (although other entities, such as Morocco's Ministry 
of Economy and Finance, had predicted growth between 5 and 6 
percent since the beginning of 2009).  The HCP estimates that 
agricultural GDP will increase by 25 percent, but non-farm 
growth will reach only 2.3 percent.  The 2010 outlook also 
fell, to 2.3 percent, including 3.9 percent non-farm growth 
and a drop of 5 percent in agriculture after this year's 
boom.  Preliminary statistics for the first quarter of 2009 
indicate that annualized growth reached only 3.7 percent, 
driven by 26.8 percent agricultural growth.  Non-agricultural 
GDP growth was limited to 0.6 percent, its lowest level in 
years.  On July 22, Minister of Economy and Finance 
Salaheddine Mezouar told G-20 Ambassadors and Charges that he 
predicted at least 5 percent GDP growth, inflation under 2 
percent and a budget deficit equivalent to less than 2.5 
percent of GDP for 2009. 
 
¶3.  (U) The Centre Marocain de Conjoncture (CMC), an economic 
think tank, released on July 15 the results of a survey of 
Moroccan businesses, concluding that businesses are starting 
to feel the effects of the economic slowdown.  Seventy-one 
percent of the 90 respondents, including major companies and 
federations of businesses (representative of close to 
two-thirds of Morocco's economy), had experienced a decline 
in business since January, with 45 percent indicating a 
decline greater than 10 percent.  Only 36 percent expected 
their own business to improve in 2010 compared to 2009.  In 
response, businesses plan to reduce their investment (43 
percent of respondents), reduce operational costs (35 
percent), and extend credit to consumers to facilitate 
purchases (35 percent).  Although only 15 percent expected to 
reduce their workforce, fully 81 percent anticipate a freeze 
on adding new positions for the duration of the "crisis," a 
worrying sign in a country that, according to recent 
government reports, needs to create 400,000 jobs per year to 
absorb population growth. 
 
----------------------------- 
Bankers Relatively Optimistic 
----------------------------- 
 
¶4.  (SBU) Despite the flurry of lower economic indicators, 
Morocco's leading banks say they are not yet concerned about 
the country's economic prospects.  Mohamed Bennani, 
Administrator-Director General of the Moroccan Bank of 
External Commerce (BMCE), told EconOffs on July 1 that his 
bank's outlook for its own business and Moroccan economic 
growth is still optimistic.  Morocco will be able to absorb 
the current declines in tourism receipts, export earnings, 
and remittances from overseas workers, he predicted.  Bennani 
admitted, however, that continued global economic weakness 
through 2010 would have more severe repercussions for overall 
growth.  He asserted that the banking sector is well-placed 
to ride out two to three more years of economic hardship due 
to healthy portfolios, the high level of capital reserves of 
banks, and relatively low exposure to the sectors suffering 
most from the economic crisis (such as textile exporters). 
 
¶5.  (SBU) Abdeljaouad Doss Bennani, Deputy Director General 
 
RABAT 00000642  002 OF 003 
 
 
of Attijariwafa Bank, argued that Morocco's intermediate 
level of development also provides support to sustained GDP 
growth.  He observed that domestic consumption, far more 
significant in Morocco's GDP than exports, is driven by the 
rising standard of living and growing household incomes of 
Moroccans, and the average Moroccan household is still in the 
process of acquiring modern amenities and products.  Thus, 
while economic slowdown in advanced economies tends to 
self-reinforce as consumers put off replacing their 
possessions, Moroccan consumers are for the most part 
purchasing these goods for the first time -- cars, washing 
machines, microwave ovens, and so forth.  These first-time 
buyers are less likely to defer acquisition of these goods 
due to recession than those who would be replacing or 
upgrading existing goods.  Bennani asserted that this 
internal demand has driven Morocco's economy for the past 
decade, and will continue to facilitate growth despite the 
weakness in other sectors. 
 
------------------------- 
Foreign Exchange Concerns 
------------------------- 
 
¶6.  (SBU) Of increasing concern to observers is the widening 
current accounts deficit, which the HCP forecasts growing to 
6.4 percent of national GDP in 2010 (from 5.2 percent in 
2008).  Morocco had actually enjoyed a current accounts 
surplus until 2007, but that swiftly reversed into a large 
deficit in 2008, due to high petroleum import costs (Ref A). 
Some economists are concerned that the healthy continued 
internal demand highlighted by Attijarawafa's Bennani could 
aggravate the deficit in goods and services, as consumers 
continue purchasing imports, while Morocco's exports suffer 
from weakening demand abroad.  Karim el Aynaoui, Director of 
Economics and International Relations at the Bank al Maghrib 
(BAM - Morocco's central bank), told EconOff on July 22 that 
figures for the first five months of 2009 indicate that the 
trade deficit is diminishing compared to 2008, primarily 
because of lower prices for imported oil and cereals. 
Exports declined relatively more than imports as a percentage 
of last year's value (exports dropping by 29 percent compared 
to only 18 percent decline in imports), but the deficit has 
in fact narrowed (by 4 percent) because the starting value of 
imported goods was nearly twice that of exports. 
 
¶7.  (SBU) The gain in the balance of trade in goods is offset 
by a lower surplus in services (especially in tourism 
revenues) and over 15 percent decline in remittances from 
Moroccans working abroad.  (Note:  Consulate General 
Casablanca will report on remittances septel.  End Note.) 
Foreign investment, which plays an important role in 
Morocco's capital accounts balance, also has shown some 
weakness in 2009, particularly as investors rethink projects 
in previously booming sectors such as high-end lodging.  For 
the first quarter of 2009, foreign investment in Morocco is 
down 12 percent compared to 2008.  Transfers from Moroccan 
workers abroad have also declined approximately 15 percent in 
2009, and earnings in the tourism industry have dropped by 20 
percent since last year. 
 
¶8.  (SBU) Despite these weaker inflows, and contrary to the 
HCP forecasts, el Aynaoui predicts that the overall current 
account deficit will remain unchanged in 2009.  The central 
bank's foreign currency reserves slipped to approximately USD 
22.7 billion by the end of 2008, equivalent to 6.2 months of 
import coverage, from an average of 8.8 months in 2001 - 
¶2007.  However, el Aynaoui pointed out, as imports have 
dropped in 2009, the import coverage has inched back up to 
close to 7 months, despite a further decline in reserves to 
around USD 21.8 billion. 
 
¶9.  (SBU) Economist Ahmed Laaboudi of the CMC speculated that 
the Ministry of Economy and Finance may resort to borrowing 
on international markets to replenish Morocco's foreign 
currency reserves if they continue to shrink.  Increasing the 
amount of external debt after years of assiduous efforts to 
bring the level down to the current USD 18 billion (around 21 
percent of GDP) would be a bitter pill for the Ministry to 
swallow, he observed.  El Aynaoui, in contrast, dismissed 
concerns about the kingdom's foreign reserves as unfounded 
media hype.  He asserted that five or six months of import 
coverage appears to be sufficient for Morocco's needs, 
pointing out that Morocco has very low exposure to foreign 
exchange rate risks:  most of its external debt is of 
long-term maturity and amounts to only 10 percent of GDP.  He 
emphasized that even combined public and private external 
debt amounts to only 26 percent of GDP. 
 
 
RABAT 00000642  003 OF 003 
 
 
¶10.  (SBU) The perceived risk from the shrinking foreign 
reserves has led to media speculation that the Kingdom may 
devalue the dirham, which the newsweekly Maroc Hebdo 
suggested was overvalued by up to 15 percent against the 
pound and, more importantly, five to 25 percent against the 
currencies of export competitors such as Egypt, Tunisia and 
Turkey.   Laaboudi told EconOff on July 14 that the Ministry 
of Economy and Finance "would like to devalue" the currency 
to shore up the balance of payments but is unlikely to do so 
given the inflation risks of such an action, and the 
possibility that higher costs of imported manufacturing 
inputs would erase the export competitiveness gains that 
devaluation could bring.  El Aynaoui also dismissed the 
possibility of a currency devaluation, citing the risks to 
Morocco's painstakingly established international credibility 
in its exchange regime.  He pointed out that Morocco's export 
markets are experiencing such depressed demand that the 
competitive edge gained from a currency devaluation would be 
marginal. 
 
--------------------------------------------- ------- 
Boosting Liquidity in Anticipation of Lower Deposits 
--------------------------------------------- ------- 
 
¶11.  (SBU) BAM lowered banks' reserve requirements from 12 
percent to 10 percent on July 1, citing a "structural 
liquidity deficit."  El Aynaoui explained that the higher 
reserve requirements (up to 16.5 percent in 2007) had been 
implemented to manage a period of "excess capital," when Arab 
states had directed large capital flows to Morocco, and 
Morocco still enjoyed a large current account surplus.  The 
phased reduction in the reserve requirement since then is a 
normal response to the end of those circumstances, he 
emphasized.  BMCE's Bennani opined that Moroccan banks' 
liquidity was sufficient even before the reduction of reserve 
requirements, but the central bank action was taken to ensure 
a liquidity pool going forward as lower remittances and 
tourism receipts reduce the traditional level of banking 
deposits.  Additionally, the central government's 
anticipation of lower fiscal receipts this year will 
necessitate a return to government borrowing on the local 
market after two years of budgetary surpluses.  The BAM's 
move to increase liquidity is "forward-leaning," Bennani 
explained, and brings Moroccan banks closer to, but still 
more conservative than, worldwide norms for reserve margins. 
 
--------------------------------------------- ----- 
Comment: No Panic, but Time for Structural Reforms 
--------------------------------------------- ----- 
 
¶12.  (SBU) As a Ministry of Economy and Finance official 
observed to EconOff, Morocco has the dubious privilege of 
worrying about possible future effects of the recession, 
unlike many of its neighbors who are worrying about real 
current effects.  Tourism Minister Mohamed Boussaid, 
questioned about official growth predictions at a recent 
public event, pointed out that many countries would be eager 
to be debating whether growth would come in at 5 versus 6 
percent.  Nonetheless, the country's situation is fragile, 
and this year's comfortable growth prediction is principally 
a gift of favorable weather to agriculture.  The government 
and private sector are trying to address Morocco's structural 
deficiencies, highlighted by the worldwide recession, by 
boosting the competitiveness and productivity of Moroccan 
businesses and exports (Ref B), but these plans will take 
years to show results in the balance of payments and GDP 
growth statistics.  Morocco's best hope of emerging unscathed 
from the current crisis is a speedy recovery elsewhere in the 
world, especially Europe.  The only other way to increase 
next year's growth seems to be another record rainy season. 
End Comment. 
 
 
***************************************** 
Visit Embassy Rabat's Classified Website; 
http://www.intelink.sgov.gov/wiki/Portal:Moro cco 
***************************************** 
 
Jackson