According to a new report from BMI Research, a Fitch Group company, rising energy imports will at most have only a tempering effect on the kingdom’s current account status.

“Morocco’s current account deficit widened to 4.4% of GDP in 2016, up from 2.1% of GDP in 2015, amid rapidly rising imports and sluggish exports. We now forecast the current account deficit to shrink to 3.5% of GDP in 2017 and 3.3% in 2018, benefiting from the recovery of key exports sectors,” reads the report.

Sector-Wide Export Growth

Export growth is rising in Morocco. BMI attributes this growth to strong government support and an improving macroeconomic outlook among eurozone trading partners.

“The all-important phosphate sector has been on a positive trajectory since the start of the year, with exports expanding by 8.5% y-o-y over January-May 2017. While we expect prices to remain relatively subdued over the coming years, investment by state-owned company Office Cherifien Phosphates (OCP) will support production growth and exports.”

The auto sector is also predicted to stay on a steady growth track owing to Morocco’s position as a “destination of choice for foreign auto companies.” The report, however, points out that over the first few months of 2017, growth has been modest.

Spain and France accounted for 45 percent of Morocco’s total exports in 2016 and, while this is not expected to change for the current year, Morocco’s strategic expansion into Sub-Saharan Africa is predicted to play a key role in future export growth.

Regarding Imports

BMI is predicting import growth to remain “robust” over the coming years, despite a recovering agricultural sector decreasing the need for food imports. This is expected to lessen the effect of high energy imports but not affect import growth adversely.

“Morocco is a net energy importer, with energy accounting for close to 25% of Morocco’s import bill in 2014. Therefore, the country has been a net beneficiary from the slump in oil prices since H214. As oil prices recover, demand for energy imports will also pick up.”

The report explains that the government’s plan to introduce renewable energy sources will effectively diminish the need for energy imports but cautioned this will take years to manifest itself.

Risks to External Stability?

BMI’s research indicates that the risks to external stability will remain low for the foreseeable future. They attribute this to Morocco’s continued strategy of nurturing foreign investment in the auto, aeronautic, energy, and tourism sectors, and the continued implementation of business-friendly reforms.

“Morocco can also rely on strong remittances infows. In 2016, the balance of current transfers (remittances account for the bulk of it) came in at 7.9% of GDP, and we expect more gains over the coming years. At a time when Morocco is planning to gradually move towards a flexible exchange rate regime, strong ?nancing capacities support our view for a positive transition.”

By Constance Renton

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