Why Morocco is riskier than investment grade


Jeremy Weltman
Published on:

The country is enjoying better economic fortunes, but a persistent fiscal deficit, large debt burden and political risks cannot be ignored.


Bone of contention: Most experts are optimistic about Morocco’s economy,
but recognize its delicate political environment

Two of the rating agencies have consistently taken the view Morocco is a borrower exceeding the minimum requirements required to be rated investment grade.

While Moody’s has consistently disagreed, both Fitch and Standard & Poor’s assign the sovereign a stable BBB- rating.

To an extent this confidence is unsurprising.

Fitch, in its latest review, states: “Morocco's ratings are supported by macro stability, a track record of prudent economic policies and a budget deficit below the 'BBB' category median.”

On pure macroeconomics it has a point. Tourism is increasing, mainly due to stronger growth in Europe, and the agricultural sector is rebounding.

For 2017, the IMF now forecasts 4.8% real GDP growth, raised from 4.4% previously, alongside a reduced inflation rate of 0.9%.

The rating agency nevertheless adds, rather cautiously: “These factors are balanced against weak development and governance indicators, and high general government debt and current-account deficits relative to peer medians.”

Highlighting risks

These are considerations factored into Euromoney’s country risk survey collating the qualitative opinions of experts on a range of key indicators, which generates a risk score of 46.46 from a maximum 100 points, and a global ranking of 73rd from 186 countries surveyed.

That means Morocco is nestled in the fourth of five tiered categories, broadly equivalent to a B- to BB+ sub-investment credit rating, and is only just above Sri Lanka and Serbia, both of which are rated sub-investment grade.

The margins are fine ones. The borrower is four points from tier three (investment grade), but after its score improved through 2014 and 2015, more recently it has returned to a declining trend (unlike Serbia, which is still improving):


Foreign-exchange reserves coverage of around six months of imports is ample, exports are diversified and solid support for the monarchy maintaining stability is still contributing to enthusiasm for bond issuance.

However, this downplays the risks.

Economic growth is expected to soften next year, there are still twin budget and current-account deficits, a debt burden amounting to 64% of GDP and a stubbornly high unemployment rate of just above 9%, which is larger when fully accounting for unregistered workers.

Political considerations

And there are political problems to figure, highlighted by the year-old Hirak Rif movement, a peaceful protest in northern Morocco, which has been met by harsh government repression and the jailing of activists, raising the fear of even greater instability.

Most experts taking part in Euromoney’s survey are optimistic about the economy, but still harbour concerns, recognizing the delicate political environment, the vulnerability to a cyclical downturn in global trade, or a terrorist atrocity affecting tourism, directly affecting government revenue.

Several have mentioned the huge delays in forming the government and the top-down pressures to spend more to foster the social peace.

Macroafricaintel chief economist Rafiq Raji got in touch with ECR to say: “The economic growth outlook has brightened, but continued tensions in the Rif region are a key risk.”

Other survey experts mention in confidence the deep governance and institutional frailties in a country such as Morocco, which is weighing on political risk indicators.

Furthermore, the resulting coalition is fragmented and vulnerable to instability, highlighting the polarized nature of the political environment.

In October, the sacking of several ministers in parties supporting the dominant Justice and Development Party by King Mohammed VI of Morocco in response to their poor performance in government has opened new wounds, signalling a possible fracturing and reformulation of the coalition.

All of which implies the risks of investing in Morocco are being overlooked in the search for higher-yielding assets.

This article was originally published by ECR. To find out more, register for a free trial at Euromoney Country Risk.