The Amended Finance Bill is one of several initiatives taken by the Moroccan government to fight the economic impact of COVID-19. While the bill has all the ingredients to ensure gradual recovery of economic activity, the future of the Moroccan economy will depend on a number of internal and external factors.
As governments all over the world rush to slow the spread of the COVID-19 pandemic and the economic repercussions that come with it, countries that depend on tourism, exports, and FDI are being hit the hardest.
In Morocco, some of the sectors that showed signs of vulnerability right from the word go are tourism, transportation, SMEs, and logistics. This makes sense because the Moroccan economy is heavily dependent on European markets for FDI, exports, tourism, and automobiles, especially on the demand side. Data from May 2020 shows that car exports have declined by 90% YoY and both tourism revenues and FDI are down 70% YoY. The textile industry is facing a similar fate, with revenues down by 74%.
In light of these numbers, a baseline scenario shows that real GDP would suffer a 1.5% drop in 2020, marking the first recession to hit Morocco in more than two decades. On the fiscal side, the COVID-19 pandemic will impact the pace of fiscal consolidation, which in turn will affect gross financing and debt.
According to recent data from the Moroccan government, due to COVID-19-related social and economic spending and lower tax revenues, particularly corporate taxes, the overall fiscal deficit is expected to touch 6% of GDP in 2020 and government debt is predicted to peak at 75.3% of GDP, up from 65% in 2019.
These latest figures are a far cry from what was anticipated in the 2020 Finance Bill, which was proposed and passed in 4Q2019. This has prompted the government to take several initiatives to ease the economic and social impacts of the crisis. The most important step that the government has taken in this regard is making amendments to the 2020 Finance Bill itself.
Dubbed the Amended Finance Bill (PLFR) for 2020, the new bill was presented to King Mohammed VI on July 7 by the Minister of Economy Mohamed Benchaí¢boun and adopted by the Moroccan Government Council on July 9. The PLFR sets the growth rate for 2020 at -5%, as opposed to the 3.7% stated in the initial Finance Bill, and the projected budget deficit at 7.5% of GDP instead of 3.5%, with a MAD40 billion decline in budget revenues.
During a joint session of the two Houses of Parliament, Mohamed Benchaí¢boun said that the bill takes the economic repercussions of the coronavirus into account and “provides for appropriate support mechanisms for the gradual recovery of economic activity and the preservation of jobs, while improving the efficiency of the administration on the back of the gradual recovery of economic activity, the preservation of jobs, and the implementation of administrative reforms.”
Additionally, the PLFR calls for the establishment of sectoral resolutions to restart the economy and allocates MAD5 billion to accompany businesses in their relaunch period, including public enterprises. In fact, the bill puts special emphasis on supporting national enterprises and helping them gradually resume their activities. The sector-specific measures are aimed at supporting the adoption of a set of guarantee mechanisms to finance credits for the benefit of public and private enterprises.
Under the PLFR, private and public companies can benefit from loans with a maximum interest rate of 3.5%, a reimbursement period of seven years, and a two-year grace period. The Central Guarantee Fund (CCG) will guarantee 80-90% of the loans for most business and up to 95% for micro-sized businesses.
In order to better accelerate the economy, the bill also allocates an additional MAD15 billion for public investments, increasing the 2020 budget for public investments to MAD86 billion. And in terms of job preservation, the bill guarantees safety for 80% of employees registered under the National Social Security Fund as well as those working in hard-hit sectors such as tourism, automotive, and transport. Finally, regarding administrative reforms, the bill aims to simplify and digitalize administrative procedures and generalize digital payments.
The PLFR will surely help the government deal with unprecedented and daunting challenges in the short and medium terms, but more needs to be done to solve the underlying challenges being faced by the informal and agriculture sectors. Moreover, given how the coronavirus has impacted supply chains, now is the right time for all stakeholders to group together and help Morocco assume a bigger role in regional and global supply chains.
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