Morocco should push PFM reform further, says IMF

3 Feb 14

Morocco needs to build on the progress it has made on public financial management reform by repositioning its revenue and spending to better support economic growth and inclusiveness, the International Monetary Fund has said

By Judith Ugwumadu | 3 February 2014

Following its third review of Morocco’s economic performance under the Precautionary and Liquidity Line, the IMF said important measures had been taken to reduce the north African country’s fiscal vulnerabilities and to give the economy greater resilience.

‘Looking ahead, continued strengthening of public finances will require a reorientation of revenue and spending to better support growth and inclusiveness, along with the passage of a new Organic Budget Law that incorporates best practices with respect to fiscal discipline, coverage and expenditure control,’ said Nemat Shafik, IMF deputy managing director and acting chair.

Recommended changes to be implemented this year and beyond included broadening the tax base, a review of tax incentives and exemptions, moderating the public sector wage bill and pension reform, the IMF said.

Morocco’s Organic Budget Law was welcomed as a step towards a modern and improved fiscal framework, but the IMF said its provisions on fiscal discipline, coverage and expenditure control should be strengthened in line with international best practice.

Shafik added that Morocco needed to further improve its external competitiveness.

‘More flexibility in the exchange rate regime, in close coordination with other macroeconomic policies, would also help and would increase the economy’s resilience to external shocks,’ she said.

‘Further reforms are needed to strengthen the business climate, transparency, and the judiciary system and to improve the functioning of the labour market in order to attract foreign direct investment and promote strong job growth.’

The IMF’s Precautionary and Liquidity Line was introduced to meet the liquidity needs of member countries with sound economic fundamentals and strong record of policy implementation but with some remaining vulnerabilities.

The 24-month, $6.2bn programme, which was approved in 2012, was intended to support Morocco’s home-grown reforms to achieve higher and more inclusive economic growth by providing an insurance against external shocks. This saw Morocco’s economy grow by 4.5% last year.