Morocco has begun to relax restrictions on transferring money abroad which were imposed following an earlier flight of capital in the wake of a wave of bad debts which hit the banking sector.
To some extent this problem has now been addressed, and the banking sector has been strengthened by extensive reforms with the result that non-performing loans currently stand at 6.5% of total loans as compared with 19% in 2004. Moroccan banks are now generally well-provisioned and have little in the way of foreign exposure on either the asset or the liability side, minimizing the transmission of risks from global financial markets to the real economy, and making the banking system resilient to shocks.
Moreover, the authorities continue to improve supervision with a view to monitoring risks more closely as the economy opens up. As as result, the IMF have stressed that the recent turbulence in the global banking system has not disrupted Morocco's plan to integrate further into financial markets by opening the capital account and moving towards a more flexible exchange rate.
Morocco has in fact been the North African pioneer in the area of financial sector reform - which it began to significantly implement from the mid 1980s. Prior to such reforms, the financial sector was strictly regulated through administered interest rates and direct credit. Morocco's financial sector reforms to date have involved the elimination of credit controls, deregulation of interest rates, easing of entry into the financial services industry, development of capital markets, increased prudential regulation and supervision, and liberalization of international capital flows.
More recent developments have been the near elimination of the so-called “specialized banks,”: government institutions set up to provide directed credit to key sectors of the economy. Such banks turned out to be a major drag on the private financial sector, boosting risk and raising costs, lowering returns to private banks, reducing their supply of credit, and raising the cost of credit for the private sector. These institutions have largely been merged and transferred into the private sector.
Two other recent developments which are worthy of note are:
(1) The preparation of a new set of national accounts using the 1993 UN national accounts system, with the base year being updated from 1980 to 1998. The IMF in a preliminary analysis of the new series point out that:
The nominal GDP for 2006 turned out to be 14 percent above its level in the previous series. The change comes mainly from an upward revision of the value added of the tertiary sector.
The share of the primary sector in real GDP is roughly unchanged in 2006 (14 percent
of GDP), and the 5 percentage point decrease in the share of the secondary sector (25 percent of GDP) has been offset by the equivalent increase in that of the tertiary sector.
Some will see in this new version of the accounts only an attempt to "rig" the numbers. Such a view would be a big mistake. The more rcent the base year for the time series the less distorted the data. So this move towards a recent base year and towards an international standard for national accounts is to be generally welcomed, as is the general upgrading of the "Haut Plan" statistics site.
But there is still a lot to be done, as it is important quarterly data for the national accounts are soon available (these things are not state secrets, to be quietly hidden away) and we also need reliable monthly data for industrial output, retail sales,etc. The better the quality of the statistical data the easier it is to attract investors, especially if your economy is growing rapidly.
(2) The role of the central bank. Bank Al-Maghrib (BAM)was given a new legal status in February 2006, and its autonomy reinforced. At the time the IMF said the following:
Bank Al-Maghrib (BAM) has made significant progress in the implementation of FSAP recommendations to strengthen banking supervision and improve banks’ risk management practices. The imminent promulgation of the new central bank and banking laws will further enhance the supervisory power and autonomy of BAM. To this end, steps have been taken to strengthen banking supervision capacity in BAM and it started to withdraw from both the capital and management of credit institutions. Progress was also made in the restructuring of specialized banks. The Crédit Immobilier et Hotelier is currently seeking an international partner and the Crédit Agricole du Maroc will no longer finance quasi fiscal operations. The authorities indicated that they will not extend their exemptions from prudential regulations beyond June 2007. The staff recommended that all banks be brought to compliance with prudential regulations as early as possible, if necessary by new capital injections. The authorities intend to continue their efforts to implement FSAP recommendations. The World Bank is preparing a financial sector adjustment loan to accompany those efforts. 2005 Article IV Consultation - Staff Report, November 2005
In its most recent Article IV Consultation report (July 2008) the IMF said the following:
BAM is committed to maintaining a prudent monetary stance. In line with the mandate conferred by its new statutes, which granted BAM its autonomy, the central bank’s main objective in 2007 is to continue to keep inflation under control.
That is to say that while nothing in this life is perfect, the BAM has been making significant progress towards the achievment of an autonomous status since the promulgation of its new charter in 2006, and is taking its new responsibilities seriously. Rome, it should be pointed out, was not built in a day.
Obstacles to Financial Sector Development:
The financial system, though robust, has to take on excessive quantities of low risk-low return government debt at the expense of riskier, but more productive private sector lending. This “crowding–out” of private sector investment reduces the profitability and growth incentives of the financial sector.
Another fiscal barrier to financial sector development is the extremely high tax burden (tax receipts were 3% of GDP higher in 2007 than in 2006 ). Such a high tax rate reduces rates of return and saving and investment incentives.
Other financial sectors are weaker than the banking sector, especially insurance and security markets, and in the opinion of the IMF the low level of efficacy of the legal and judicial systems is an impediment to the development of the financial sector.
With the government forecasting annual economic growth of 6.3 percent in coming years, policymakers have decided Morocco's economy is robust enough to accelerate a move to a more flexible dirham and opening of capital accounts. The Moroccan currency is currently pegged with reference to other major world currencies, and especially the euro. Central Bank Governor Abdellatif Jouahri said in March a more flexible dirham, originally planned for 2010 at the earliest, could be brought forward despite the uncertain outlook caused by the U.S. subprime mortgage crisis.
Moroccan banks are not exposed to the kind of products at the heart of the subprime crisis and are in a strong position after years of improving results, bank officials say. The central bank has shifted to an independent, regulatory role in recent years with a focus on inflation targeting and the government plans further financial sector reforms. Economy and Finance Minister Salaheddine Mezouar said recently that the government also wanted to make the financial market regulator CDVM entirely independent and permit private investors to own 15 percent of once struggling state-controlled lender Credit Agricole du Maroc and its peer Banque Centrale Populaire.
Bank officials are confident Morocco's banks are now strong enough to compete with foreign players. With their coffer full following a domestic lending boom, Morocco's top private sector banks Attijariwafabank and BMCE Bank have broadened their horizons by applying for banking licences and acquiring lenders in other African countries.
This picture of a robust and dynamic financial sector needs to be tempered by the opinion of credit rating agency Standard & Poor's who last February put Morocco in Group 8 of its Banking Industry Country Risk Assessments (Group 1 represents the lowest risk and 10 the highest). S&P pointed to risks to Morocco's banks from what it called rapid and untested credit growth, geographic expansion and cyclicality in the economy.
Central bank officials have described the rating as unfair since, they argue, Morocco's reliance on cyclical farming has been declining, while household consumer and mortgage debt is low by world standards and they consider that banks are not overstretching themselves by expanding abroad.