Summary:KEY ISSUES Context. The Moroccan authorities have taken strong policy actions to reduce the vulnerabilities of the economy, but important challenges remain to strengthen growth, reduce unemployment, and tackle poverty. Real GDP growth slowed in 2014, hampered by negative agricultural output growth and the impact of weak external demand, but economic activity is showing signs of recovery. Inflation has remained low. The fiscal deficit was reduced as planned; and the external current account deficit is narrowing, leading to a buildup of international reserves. Nevertheless, vulnerabilities remain in the external and fiscal sectors. The financial system remains sound. Outlook and risks. Subject to steadfast implementation of reforms, and assuming a continued recovery of external demand, real GDP growth is projected to increase, starting in 2015, and to stabilize over the medium term in the 5-5½ percent range. Inflation is expected to remain low at about 2 percent. The external position should continue to improve. While the medium-term outlook is favorable and risks have decreased, they remain substantial, particularly because of Morocco’s strong ties to the euro zone, which make it vulnerable to a protracted period of slow growth in that region. Policy discussions. Morocco has made important strides in maintaining macroeconomic stability in a difficult environment; nonetheless, more efforts are needed to reduce external and fiscal vulnerabilities, achieve higher and more inclusive growth, and further reduce poverty. The period ahead provides an opportunity to consolidate gains in macroeconomic stabilization and “aim higher and try harder” to build a better future; hence, the discussions focused on: (i) the appropriate policy mix to continue rebuilding policy buffers; (ii) the adaptation of the policy framework to strengthen the economy’s resilience and adaptability; and (iii) fiscal, business environment, and labor market structural reforms to boost the country’s potential beyond the pre-crisis level.
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