MOST LIKELY REGIMES AND THEIR PROBABILITIES
18-Month: Mohamed 75%
Five-Year: Mohamed 70%
FORECASTS OF RISK TO INTERNATIONAL BUSINESS
   Turmoil Financial Transfer Direct Investment Export
Market
18-Month: Moderate B- B B-
Five-Year: Moderate B- B B

( ) Indicates change in rating.                                   * Indicates forecast of a new regime.

KEY ECONOMIC FORECASTS
Years Real GDP Growth
%
Inflation
%
Current Account ($bn)
2009-2013(AVG) 4.1 1.2 -6.96
2014(F) 3.1 0.9 -8.10
2015-2019(F) 4.9 2.6 -4.80

Successes Marred by Familiar Strains

The political alliance of Prime Minister Abdelilah Benkirane’s Islamist PJD and the pro-monarchy RNI remains fragile, and the unity of the governing coalition will continue to be strained by public protests over spending cuts and structural reforms intended to address fiscal deficiencies and bolster economic competitiveness. Tense relations both within the governing coalition and between elected officials and the inner circle of King Mohamed will pose risks for investors in what otherwise is a fairly attractive emerging market.

Morocco’s yield potential is underlined by the success of a 10-year sovereign bond listing in mid-June worth $1.3 billion, the country’s first Eurobond debt placement since a similar-sized deal came to market in 2010. Finance Minister Mohamed Boussaid was quick to talk up the frothy demand and comparatively low coupon as endorsements of the government’s reforms. In reality, improved market conditions were a major factor for the listing being oversubscribed, as was the positive effect on sentiment of Morocco’s engagement with the IMF.

Ongoing talks with the IMF are expected to produce a new precautionary line of credit amounting to about two-thirds of the $6.2 billion three-year deal agreed in 2012, and the Fund’s stamp of approval will bolster the confidence of other creditors. However, investors may still view Morocco’s medium-term prospects warily, given the background politics, the potential for miscalculation in the macroeconomic assumptions, and the prevalence of labor-led demonstrations over a range of grievances, prominent among them the high unemployment rate, particularly among the urban youth population that serves as a recruiting ground for radical groups.

Participants in anti-austerity protests that erupted in April numbered some 10,000, and concessions made under pressure from King Mohamed to quiet the disturbances have reminded officials of the risks inherent in their efforts to dismantle an expensive program of state subsidies and the weaknesses of a revised constitution that was hurriedly drafted in the wake of the uprising in 2011. Such a toxic mix could yet see a return to the political strife born from hardship and repression of advocates of more far-reaching political reform, especially if the Islamist and pro-palace forces fail to establish a stronger bond at the top.

Economic Forecasts for the Three Alternative Regimes

 

Mohamed

Military

Fundamentalists

  Growth(%) Inflation(%) CACC($bn) Growth(%) Inflation(%) CACC($bn) Growth(%) Inflation(%) CACC($bn)
2014 3.1 0.9 -8.10 2.0 1.7 -8.90 0.6 2.9 -9.70
2015-2019 4.9 2.6 -4.80 2.5 5.8 -7.90 1.2 10.1 -8.80

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