Morocco’s political landscape has been relatively stable in past decades and evolved smoothly through the Arab Spring. Morocco engaged in a program of wide-ranging reforms with the adoption of a new Constitution in 2011, which set the basis for a more open and democratic society, a more modern state of law and institutions and increased decentralization. The current coalition government, led by moderate Islamist party, PJD (Party for Justice and Development), is continuing to roll out constitutional reforms and taking bold steps to reduce the fiscal deficit, namely through the phasing out of fossil fuel subsidies.
On the economic front, Morocco had a mixed economic performance in 2014. Economic growth decelerated from 4.4 percent in 2013 to an estimated 2.6 percent as a result of a decline in agricultural output due to insufficient rainfall and a lackluster growth performance outside agriculture, especially manufacturing. Unemployment worsened to almost 10 percent while inflation reached its lowest rate on record at 0.4 percent thanks to a prudent monetary policy and afall in international commodity prices.
Progress toward fiscal consolidation and improvement in external indicators underscored Morocco’s commitment to preserve macroeconomic stability. In 2014, the consolidation of public finance was confirmed with the pursuit of the fuel subsidy reform initiated in 2013 and measures to rein in recurrent expenditures. As a result, the budget deficit decreased from 5.4 percent in 2013 to 5 percent of GDP.
Morocco’s economic outlook hinges on the pursuit of sound macroeconomic policies and an acceleration of structural reforms. This year, growth will benefit from a good rainfall season and the sharp decline in international oil prices. GDP is projected to grow by 4.6 percent. The 2015 Budget Law confirmed the Government's resolution to solidify the tax base, rein in expenditures and launch the reforms of the pension system.
The recent adoption of the Organic Budget Law should enhance central and local governments' budget design and implementation for better public service delivery and efficiency over the medium term. To improve further the investment climate, the Government announced its intention to proceed with justice reform, improve access to financing, especially for the SMEs, and address access to land constraints. Assuming full implementation of these reforms, including the commitment to reduce the budget deficit to 3 percent of GDP by 2017, growth should pick up to around 5 percent over the medium term, with inflation kept below 2 percent.