LONDON – A strong economic rebound in 2021 has allowed Morocco to recover most of the output and job losses caused by the COVID-19 crisis, but growth in Morocco is expected to slow to 1.1% in 2022 in drought, according to the World Bank’s latest MENA Economic Update.
However, the report says real GDP was still 6.4% below the pre-pandemic trend; potential growth has been declining since the early 2010s; volatile rainfall increasingly affects the economy; and the combined effect of drought, rising international food and energy prices due to the war in Ukraine and the lasting impact of the COVID-19 pandemic may leave socio-economic scars s is not treated well.
Morocco’s GDP growth rebounded to 7.4% in 2021 after contracting 6.3% in 2020.
The World Bank report says this rebound was driven by a bumper cereal harvest after two consecutive years of drought, strong exports and remittances, supportive macroeconomic policies and significant progress in COVID-19 vaccinations. .
Annual inflation remained contained at 1.4% on average, but pressures on imported costs emerged towards the end of 2021, while the consumer price index recorded an annual increase of 3.6% in February 2022.
These inflationary pressures are linked to the new shocks that the Moroccan economy is currently facing: another severe drought and soaring energy and commodity prices, also fueled by the war in Ukraine, he added.
The report predicts that growth in Morocco will slow to 1.1% in 2022 due to drought which will cause agricultural production to fall by 17.3%.
The economy should be driven by a still solid but moderate industrial performance and a faster recovery in tourism. Ongoing reforms should increase potential growth over the medium term.
The budgetary impact of the health and social protection reform and the postponement of the reform of liquefied petroleum gas and flour subsidies will slow the consolidation of the budgetary deficit (6.2% of GDP in 2022). Public debt should stabilize below 80% of GDP. The current account deficit is expected to widen to 5.5% of GDP due to the rising energy and food import bill.
This outlook is subject to various downside risks. The war in Ukraine is increasing global commodity prices, which, combined with the drought, could increase Morocco’s import bill and government subsidies, impacting the current account and fiscal balance. A weaker recovery could put further pressure on the debt servicing capacity of households and businesses. Inflationary pressures could force the central bank to raise rates, which, together with changes in the monetary stance of advanced economies, would tighten financing conditions for the public and private sectors.
Rising prices and falling farm incomes are expected to slow the post-COVID-19 normalization of socio-economic conditions. Poverty and extreme poverty are expected to stagnate at best in 2022 and will not return to pre-COVID-19 levels until 2023. Given inflationary pressures, particularly for food and energy products, as well as the effects of the severe drought, measures to support the most vulnerable as well as the planned wider social dialogue will be important steps for the government to take.