By Ahmed Eljechtimi
RABAT, July 16 (Reuters) – The International Monetary Fund (IMF) reiterated on Tuesday its call on Morocco to move towards a greater exchange rate flexibility with a view to strengthening the economyâ€™s resilience to external shocks and boosting competitiveness.
In January 2018, Morocco widened the band in which the dirham trades against hard currencies to 2.5 percent either side of a reference price from the previous 0.3 percent.
â€œThe initial phase of the transition to further exchange rate flexibility has been successful, and current conditions remain favorable for a continuation of this reform for preventive purposes, as it will help the economy absorb potential external shocks and preserve its external competitiveness,â€ said the IMF in a country report on economic and financial developments.
Authorities told the IMF the next phase in the dirham float will be launched when economic conditions permit.
The central bank has not intervened in the foreign exchange market since March 2018.
â€œThe banking sector system is sound and resilient,â€ said the IMF, while stressing the need to remain vigilant given the increasing complexity and cross-border expansion of Moroccan banks, which combined with further exchange rate flexibility, could introduce new risk factors.
The IMF also called on authorities “to continue fiscal consolidation to preserve debt sustainability, while safeguarding priority investment and social spending in the medium term.â€
Special emphasis was also placed on the need to fight corruption, reduce inequalities, revamp labor market policies and implement education reforms to help create job opportunities, especially for women and youth.
Unemployment stands at 10% in Morocco with one in four young people unemployed, according to official figures.
The planning agency expects growth to slow to 2.7% in 2019 from 3% in 2018 before picking up to 3.4% in 2020 as the economy continues to be affected by agricultural output and triggered by domestic demand.
Morocco has a “favourable” medium-term growth outlook of 4.5% by 2024 which, however, remains subject to domestic and external risks including oil prices, reform implementation, growth in key partner countries and geopolitical risks. “Lower international oil prices could help further strengthen the economyâ€™s resilience and increased regional integration in the Maghreb region could become an added source of medium term growth for Morocco,” IMF said. (Reporting by Ahmed Eljechtimi; Editing by Cynthia Osterman)