Morocco to widen dirham currency band when conditions permit

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Morocco will further widen the band within which it allows its currency to fluctuate when economic conditions permit, the International Monetary Fund said in a report on Thursday, quoting Moroccan officials.

The IMF recommended greater exchange-rate flexibility “without unnecessary delay”. Morocco gave no date for the change.

A finance ministry official confirmed the authenticity of the comments.

In January 2018, Morocco widened the band in which the dirham trades against hard currencies to 2.5 percent either side of a reference price from the previous 0.3 percent. It said then the band would widen further.

The dirham remained stable in a basket in which the euro has a weight of 60 percent and the dollar 40 percent.

“The authorities intend to move to the next phase of this reform for preventative purposes as soon as economic conditions allow them to do so,” Central Bank Governor Abdellatif Jouahri and Finance Minister Mohamed Benchaaboun said in a letter included in the IMF report.

The transition should help the economy better absorb external shocks, preserve its competitiveness, and support its diversification, said the letter to IMF chief Christine Lagarde.

Jouahri said last September the foreign exchange interbank market was functioning well and the central bank didn’t need to intervene to support the dirham.

Earlier, he said it was too early to speak of a next phase in dirham liberalization as an initial currency float phase might last up to five years.

The move to a more liberal exchange rate requires making Morocco’s exports more competitive and loosening import regulations, bankers say.

In an economy driven by domestic demand, Morocco’s trade deficit rose by 8 percent to 204 billion dirhams ($21.36 billion) year-on-year in 2018. Foreign exchange reserves fell 5.2 percent to 229 billion dirhams as of Jan. 9, enough to cover about five months of imports.

The IMF also recommended in its report tax reform, public wage restraint and fiscal decentralization, in addition to reducing unemployment and improving efficiency of social spending.

In December, the IMF approved about $2.97 billion in a Precautionary and Liquidity Line (PLL) to help Morocco ward off external economic shocks. The two-year arrangement will also help lower the ratio of public debt to gross domestic product.

Morocco’s total public debt is expected to rise to 82.5 percent of GDP in 2019 from 82.2 percent in 2018. The treasury’s debt is forecast to reach 66.1 percent of GDP in 2019, up from 65.8 percent last year.

Morocco’s economy is expected to grow 2.9 percent this year from 3 percent last year, the planning agency has said.

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