Standard & Poor's Ratings Services said today it raised its long-term foreign currency sovereign credit rating on
the Kingdom of Morocco to 'BB+' from 'BB', on an improved external position and the government's ongoing economic reform efforts. At the same time, the 'BBB' long-term local currency, 'B' short-term foreign currency, and 'A-3' short-term local currency ratings were affirmed. The outlook is stable.
"The upgrade is supported by robust external indicators, including high external liquidity and a public sector net external asset position," said Standard & Poor's credit analyst Luc Marchand. "The ratings are also supported
by strong official commitment to economic reform, in particular, efforts to downsize the public sector, to ensure long-term fiscal consolidation and greater economic diversification."
The ratings on Morocco remain constrained by a high debt burden, a narrow economic base, and low per capita income, partially offset by good growth prospects. Morocco's external position has improved significantly in the past three years, and this trend is expected to continue as sustained strong remittances from expatriate Moroccans and growing demand from the Eurozone--Morocco's main trading partner and source of tourism--boost foreign currency inflows.
Morocco's total gross external financing needs compare favorably with other 'BB' sovereigns, at a relatively low 69% of current account receipts (CARs) and foreign exchange reserves in 2005. The general government deficit is expected at about 3.0% of GDP in 2005, compared with 2.0% the previous year. The rise in the deficit is mainly due to one-off expenditures, as a consequence of higher oil prices and the initial cost of a newly implemented early retirement plan for government employees.
As a result, the general government debt burden is expected to increase slowly for two years to 74.6% of GDP in 2006, from 71.8% of GDP in 2004. Beyond 2006, however, the current structural measures (notably improved tax collection, reduced subsidies, and the early retirement scheme) are expected to strengthen long-term fiscal consolidation, allowing the deficit and debt levels to trend downward again.
The stable outlook on Morocco reflects the balance between an improved external position, better public sector expenditure control, and a satisfactory pace of public sector reform on the one hand, against the challenge of addressing the high debt burden, narrow economic base, and low per capita income on the other hand.
"The rating outlook on Morocco could improve in the future, if the government makes significant progress in addressing these serious long-term issues," said Mr. Marchand. "Conversely, the rating could come under pressure
if the pace of reform falters, or if government finances or the external position deteriorate significantly."