Flexible credit line: What risks does Morocco run according to the IMF?

If Morocco decides to use this mechanism, it will be the sixth largest borrower under the GRA Account (General Resources Account) loans based on current agreements. A continuing review for eligibility and compliance with the MCL will be conducted 12 months after approval of this line.

After the approval of the Board of Directors of the International Monetary Fund (IMF), on April 3, 2023, the flexible loan (LCM) for 5 billion dollars in two years in favor of Morocco, in a 74-page report dedicated to this financial instrument, which is part of the IMF’s non-concessional loans, the company returned to this action in detail. The company follows the economic situation in Morocco very closely, especially after the 2022 advisory mission and the various visits of its managers and teams over the past two years.

According to the IMF, the Kingdom has solid foundations and therefore fulfills the necessary conditions to benefit from this FCL due to its economic policies, institutional structures and economic fundamentals and commitment to maintain these policies in the future.

According to the report in question, various assessments by IMF committees and the impact and risks of FCL include – the IMF flexible credit line will have a manageable impact on the liquidity of credit facility funds. Confirmation (FCC) . In this sense, the LCM granted to Morocco is equivalent to a liquidity of 2.3% of this fund, the amount of which has increased from 160.5 to 156.8 billion Special Drawing Rights (SDR) on February 20, 2023.

The arrears will be 3.8% of the GRA loan By the end of February 2023
For the IMF, which examined Morocco’s request in an informal session before verification by its Board of Directors, the agreement on the Flexible Line of Credit (LCM) in favor of Morocco involves modest risks, although exposure has increased.

As a reminder, last month, Morocco officially requested this precautionary mechanism through a two-year agreement under the LCM within the framework of four successive agreements on the Precautionary and Liquidity Line (PLL).

To date, five countries have used the LCM (Chile, Colombia, Mexico, Peru and Poland). None of them have received their line of credit yet. If Morocco decides to use this mechanism, as of February 20, the General Resources Account (GRA) refers to approximately 3.8% of the total outstanding credit. 2023, an increase of 16.8% over the IMF’s current precautionary balances.

Therefore, the use of this line would make Morocco the sixth largest GRA borrower based on current arrangements, while the repayment capacity of the fund would be sufficient and the revenue risk could be dealt with.

The IMF refers to the loan Initially 5% of GDP
In such a scenario, Morocco’s external debt would be 43.7% of GDP and public external debt would be 29.5% of GDP. It may be slightly lower than these levels in the medium term. Furthermore, Morocco’s outstanding balance on this tax is 11.4% of total external debt and 16.9% of public external debt.

IMF debt was initially 5% of GDP and 28.1% of Morocco’s total international reserves. External debt servicing will increase to 4.25% of GDP by 2024, but will gradually decline over the medium term. According to projections, Morocco’s debt service to the IMF will be 1.5% of GDP in 2027.

According to the IMF’s External Debt Sustainability Analysis, after reaching 54.1% of GDP during the pandemic in 2020, it rose to 45.4% in 2021 and is expected to remain close to pre-Covid-19 levels at 43%. . If Morocco experiences a 30% depreciation of its exchange rate, the most severe shock, the ratio of external debt to GDP will fall to 40%. Also, if there is a shock to the current account, the external debt/GDP ratio will rise to 47%.

Yasin Saber / ECO Inspirations

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