Riyadh, Asharq Al-Awsat—Far at the western end of the Arab world, Morocco has appeared relatively politically safe and stable since the start of the Arab uprisings in 2011, and recently despite the turmoil raging in nearby countries such as Libya. However, the economic ramifications of the global economic slowdown have not bypassed the North African kingdom. The country’s lucrative agriculture industry, which accounts for 15 percent of the economy, has been hit by adverse conditions in recent years, as well as by decreasing receipts from a cash-strapped Eurozone—the Kingdom’s biggest trading partner—and increasing European restrictions on non-EU agricultural imports. At the beginning of the year, growth slipped sharply to a paltry 2.5 percent, accompanied by the flammable cocktail of rising inflation and unemployment and a widening budget deficit.
But signs suggest a turnaround on the horizon. In a surprising development in recent years, the country has positioned itself as a regional hub for aerospace manufacture, building an aeronautical manufacturing region now used by over 100 global companies such as aerospace giant Boeing. The country also successfully slashed a number of crippling state subsidies, reducing its total bill from 35 billion Moroccan dirhams (4 billion US dollars) to 23 billion dirhams (2.6 billion dollars). This is a move which has garnered praise from the IMF, with which the North African kingdom signed an agreement to secure a 6.2-billion-dollar line of credit, which will also pave open the way for further funding.
Asharq Al-Awsat spoke with Morocco’s finance minister, Mohamed Boussaid, about the country’s recent economic struggles, and what it has done to position itself to secure a more positive economic performance in the coming period, as well as the changing landscape of its foreign trade relations.
Asharq Al-Awsat: Just over a year ago Morocco’s finances were in disarray, with high budget and trade deficits, as well as a steep drop in foreign currency reserves. What is the situation now?
Mohamed Boussaid: The situation is steadily improving. This year we are expecting growth of 3.5 percent, with an inflation rate of 0.7 percent; we are very much in control of inflation at the moment. In addition, the unemployment rate has steadied at around 9.3 percent . . . The budget deficit has been falling continuously: it was 7.3 percent in 2012, 5.2 percent in 2013, and is expected to stand at 4.9 percent by the end of the year. The country’s budget for the new [2014/2015] financial year was drafted on the basis of keeping the deficit at around 4.3 percent. Ensuring financial stability, the core of our plan for achieving growth in our country, is accompanied by efforts to . . . encourage public and private investment and to help develop cooperation between the private and public sectors. Of course, all this is due to the subsidy reforms which we started about a year ago . . What is important and essential is for us to continue [to attract] investment and create more job opportunities in order to bring down unemployment, which many countries in the region suffer from, and for us to continue with the reforms we started two years ago . . . and to improve the business environment.
Q: In terms of foreign currency reserves, what are the levels right now, compared with international standards, and what steps will you take to raise them?
Our foreign currency reserves did reach a worryingly low level, equivalent to four months of imports . . . [but] our balance of trade has improved by 5 percent this year, in addition to exporting companies in our country performing very well this year, with car exports jumping 31 percent, while exports for our aerospace industry jumped 22 percent. Even our textiles sector, which is a traditional one in our country, grew its exports by 2 percent. This exceptional performance by our exporting sectors improved our balance of trade and improved the ratio of exports to imports from 48 percent to 51 percent, a rise of three percentage points. All of this had a positive effect on our foreign currency reserves, which has now jumped from being sufficient to cover four months of imports, to five months, an improvement we consider considerable and important.
Q: To what extent have the countries of the Gulf Cooperation Council (GCC) helped Morocco weather the recent storms, and do you think there will be a shift in trade relations away from Morocco’s traditional main trading partner the EU to the GCC in the future in light of the former’s current economic difficulties?
With regards to cooperation with the GCC and its leaders, it is a historic, brotherly relationship supported by His Majesty the King [Mohammed VI of Morocco], and which is fruitful and remains ongoing. As you know, we are currently receiving aid from these countries, which will last for five years, to fund essential requirements . . . in order to develop bilateral trade in areas such as the agricultural sector, where there is currently [healthy] demand from these countries for our agricultural produce, and there are also plans for setting up shipping routes to these countries to transport our exports there, whether from the agricultural or textiles sectors.
I think Morocco was able to withstand the shocks of the [global financial] crisis of 2008 for two specific reasons. First, the diversity of our economy in terms of sectors, since Morocco does not just depend on agriculture, no matter how developed the sector is, for we also depend on the service sector and on industries new to Morocco such as car manufacturing and aerospace . . . We are also looking to implement a new strategy, making available 3 billion dirhams [343 million dollars] to develop our manufacturing industries.
[Second], economic diversity [should be] accompanied by geographical diversity in terms of cooperation and trade [partners]. In addition to our partners the EU and the United States, there also exist moves—and this is a well-known fact—to develop trade relations with the countries of the GCC and also sub-Saharan Africa. This geographical diversity [in terms of trading partners] helped us and is helping us to weather the storms of global economic turbulence.
Q: What are the main, essential features of the new 2014/2015 budget, and will the government continue with the austerity measure which it has begun?
The government has not until now enacted any austerity measures. Of course, we are looking to re-balance our economy, but not through austerity. Instead, we are striving to control the budget through reforms to the areas I mentioned [earlier] such as subsidies on essential resources, as well as developing different modes of income, whether fiscal or otherwise. I don’t believe the [2014/2015] budget will use austerity; it is a realistic budget which focuses on priorities. Proof that it is not an “austerity budget” is that there will be no rise in taxes nor any cuts in social security provisions. It is a realistic budget which aims at . . . economic and social development in our country using innovative methods to return stability to our economy.
Q: In terms of Morocco’s foreign debts, will you be seeking more loans in order to pay them off, or has this particular strategy had its day now?
First of all, the debt is related to the budget deficit. So long as the deficit rises, so will the debt and the need to seek [financial] assistance. I [therefore] think that the direction taken by the Finance Ministry to reduce the deficit will also help in turn reduce the debt and the need for assistance, and this is what we have noticed from looking at this year’s figures. Now [tackling] Morocco’s debt and its loans are all part of an all-inclusive set of policies. In terms of foreign debt, there is of course currently financial assistance from global institutions Morocco is a part of such as the World Bank, the European Bank for Reconstruction and Development, the African Development Bank, as well as foreign money markets, and this has helped us a great deal this year/
Obviously next year as I’ve already said we will need less funds for the treasury since the deficit will be lower, but we will continue nonetheless with our current policy which we have been adopting for years—that is, a cautious policy of seeking assistance from a variety of different areas in order to diversify our sources of funding, in terms of its type and the particular foreign currency we are being offered, and taking into account short-, medium- and long-term considerations. These are policies which have proven their worth over the last years and we will therefore endeavor to continue to use them.
This is an abridged version of an interview originally conducted in Arabic.