S&P Global Ratings has reaffirmed Morocco’s foreign and local currency credit ratings at BB+, while maintaining a positive outlook, according to its latest report.
The decision reflects confidence in the country’s ongoing fiscal and socioeconomic reforms aimed at spurring growth and reducing public debt.
Foreign and local currency credit ratings measure a country’s ability to meet its financial obligations in either foreign or domestic currencies.
The BB+ rating reflects the resilience of Morocco’s economy despite recent headwinds, including a weak agricultural season and chronic water shortages, which have weighed on the agriculture sector.
However, the country’s diversified economic base, led by robust performances in tourism, automotive, aerospace, and phosphates, continues to provide a strong foundation for growth.
Positive Outlook
S&P maintains that the positive outlook is driven by expectations that Morocco will continue its trajectory of reforms. Key measures include reducing subsidies on commodities such as butane gas, wheat, and sugar.
The measure looks to reallocate resources towards social programs, including the expansion of healthcare coverage.
The report also noted Morocco’s progress in simplifying its tax system, specifically through VAT reforms, which seek to formalize business activity and boost revenues.
Should these reforms translate into stronger economic growth and further budgetary improvements, S&P signaled that Morocco could be in line for a credit rating upgrade within the next 12 months.
Ongoing Risks
Despite the positive outlook, S&P cautioned that Morocco remains exposed to external risks, particularly its dependence on rainfall. Agriculture, which contributes around 10% of GDP and 30% of employment, remains a vulnerable sector, heavily reliant on favorable weather conditions.
Public debt also remains a concern. S&P forecasts that Morocco’s government debt will remain elevated at around 65% of GDP through 2027, with budget deficits gradually shrinking. The deficit is projected to narrow from 4.4% of GDP in 2023 to 4.2% in 2024, reaching 3% by 2027.
Foreign Investment and inflation
Morocco’s reform efforts are yielding results in terms of foreign direct investment (FDI). FDI inflows surged by 51.6% in the first half of 2024, driven by initiatives to attract more private investment.
The government is working to boost private investment to account for two-thirds of total investment by 2035, up from the current one-third.
Meanwhile, Inflation is expected to take a downward trajectory, with S&P forecasting a drop to 1.5% in 2024 from 6.1% in 2023.
The drop is supported by the central bank’s monetary policy, which included a 25 basis point cut to its benchmark interest rate in June 2024.
S&P views Morocco’s monetary policy framework as stable, despite the challenges posed by its currency pegged to a euro-dollar basket.