Capital Intelligence (CI) has affirmed Morocco's long- and short-term foreign currency ratings at BB and B, respectively. The rating agency also assigned a long-term local currency rating of BBB- and a short-term local currency rating of A3 to the sovereign. The outlook is stable, according to a press release.
Morocco's improving external solvency, comfortable external liquidity, and commitment to structural reform are exerting upward pressure on its ratings. However, its ratings continue to be constrained by fiscal weakness and a high, though slowly declining, government debt burden.
Public and publicly guaranteed external debt, which constitutes the overwhelming majority of Morocco’s total external debt, is estimated to have declined to a moderate 77.1 percent of current account receipts in 2003 from 87.5 percent in 2002. Favourable balance of payments developments in 2001-03 have contributed to the build up of official foreign assets and reduced public sector net external debt to just two percent of current account receipts.
International liquidity is high and provides the country with a strong last line of defence against external shocks emanating in the near term. Official reserve coverage of estimated external debt falling due within a year exceeded 500 percent at the end-2003.
Total government debt, excluding state guaranteed debt, has fallen from 80 percent of gross domestic product (GDP) in 2000 to around 70 percent in 2003, thanks partly to the availability of non-debt budget deficit financing – particularly privatisation proceeds – declining interest rates and generally favourable GDP growth performance.
Nonetheless, the government debt ratio remains comparatively high and is likely to decrease slowly at best over the medium term. Morocco has yet to convincingly tackle its structural budget deficit and spending rigidities are significant, with wage and interest payments alone accounting for about 72 percent of current spending and consuming over 67 percent of budget revenues in 2002-03.
Moreover, the country's social and infrastructure needs combined with contingent liabilities in public sector institutions point to significant spending pressures in the years ahead. At the same time, privatisation will gradually diminish as a financing option, implying greater recourse to debt issuance unless fiscal reforms are implemented to lower the path of the budget deficit.
Morocco's structural problems are well known and include substantial GDP growth volatility, due in part to the economy's disproportionate exposure to agriculture, and high rates of unemployment and poverty. While these factors also serve to constrain Morocco's ratings, CI notes that the country's association agreement with the EU and likely free trade agreement with the US should ensure that progress with structural reforms continues to be made. This raises the prospect of improving creditworthiness over the medium term. — (menareport.com)
© 2004 Mena Report (www.menareport.com)
