Morocco mulls flexible currency exchange system

Analysts said many factors are causing Moroccan monetary authorities to delay floating the dirham.
Sunday 17/11/2019
A dealer counts Moroccan dirhams at a currency exchange in Casablanca. (Reuters)
Risk of fluctuations. A dealer counts Moroccan dirhams at a currency exchange in Casablanca. (Reuters)

RABAT - There is a growing debate in Morocco about the government's slow implementation of the dirham floating programme and its delay in relying on a more flexible currency exchange system to avoid economic shocks under unfavourable global conditions.

This debate coincided with growing International Monetary Fund (IMF) pressure on the Moroccan government to liberalise exchange rates, a move the IMF sees as necessary to promote economic growth in Morocco.

Analysts said many factors are causing Moroccan authorities to delay floating the dirham.

Abdel Latif Jouahri, governor of the Bank Al-Maghib, Morocco’s central bank, told the annual meeting of the World Bank and the International Monetary Fund in Washington that Morocco has been working since last year to expand dirham circulation by adopting a more flexible exchange rate to reform the financial system.

The government’s actions are an attempt to boost competitiveness of the Moroccan economy and protect it from external shocks but unfavourable global economic conditions prompted the central bank to abandon ​full liberalisation of the dirham.

The IMF wants to accelerate liberalisation of the dirham to strengthen and open the economy. It described the delay in liberalisation as futile.

Financial expert Abdullatif Berrouhou said full liberalisation of the dirham would place Morocco’s economy in unprecedented confrontation with economic and financial fluctuations locally and internationally.

The Moroccan central bank’s plans involve gradual steps over several years to prepare the country’s economy for full liberalisation and the abandonment of intervening in fixing exchange rates.

Berrouhou said Morocco is at the beginning of immunising the local economy and its foreign exchange reserves are sufficient to face sudden fluctuations.

The IMF pointed out that floating the dirham would boost the development of small and medium-sized businesses (SMEs), which account for 90% of the businesses in Morocco, and help create jobs and income for the poor and middle class.

Last year, Rabat introduced a new phase of the gradual transition from a fixed to a flexible exchange system by allowing the dirham to fluctuate over a 5% range compared to 0.3% previously.

Jouahri said Morocco “plans to move from managing its currency to a monetary policy aimed at countering inflation, in which interest rates would be adjusted periodically so supply and demand determine the value of the dirham.”

He pointed out that following the first phase of reforms adopted last year, Morocco would keep the dirham pegged to the euro and the US dollar by 60% and 40%, respectively.

The IMF recommended budgetary discipline to progress in the reform steps to ensure that SMEs are adapting to last year’s reforms.

Jouahri said salaries were the main reason for the budget deficit but economist Arbi Habashi said the deficit is mainly because of “tax concessions, tax evasion, high unproductive expenses and a growing informal sector.”

Morocco is working to avert the economic turmoil experienced by neighbouring countries as it struggles to meet growing social demands while facing a slow demand for its products in its main markets in Europe.

The latest forecast put Morocco's economic growth at 2.7% of GDP this year, lower than the forecasted 3%.