Given the current situation, Morocco will use for the first time the precautionary and liquidity line (LPL) of the International Monetary Fund (IMF). The country will borrow an amount of $3 billion from the IMF. The objective is to deal with the consequences of the coronavirus pandemic.
This unprecedented drawdown is “repayable over five years, with a grace period of three years,” said in a statement the kingdom’s central bank, Bank Al-Maghrib. Its mobilization occurs “within the framework of the agreement under the LPL concluded with the IMF in 2012 and renewed for the third time in December 2018, for a period of two years, with the intention of using it as insurance against extreme shocks,” the bank said.
The LPL is an instrument designed “to provide insurance or help resolve crises in a wide range of situations,” the IMF also said on its website. Meanwhile, Morocco has received a $275 million loan from the World Bank for disaster risk management.
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The economic impact of the new corona crisis in Morocco
In any case, the International Monetary Fund’s LPL system serves as a guarantee for economically fragile countries to reassure international markets. Beneficiary countries often do not need to activate these sums. The kingdom decided to use it at a time when “the COVID-19 pandemic, of unprecedented magnitude, suggests a global economic recession much deeper than that of 2009”, which will consequently impact the local economy, Bank Al-Maghrib argued.
This recourse “will help mitigate the impact of this crisis on our economy and maintain our foreign exchange reserves at an adequate level.” This sum will be “allocated mainly to finance the balance of payments and will not impact the public debt, which is a first in our financial transactions with the IMF,” the Moroccan institution added.
Mitigating the impact of the crisis
Morocco, which on Wednesday, April 8th, had a total of 1,242 officially reported cases and 91 deaths, has taken drastic measures to limit the spread of COVID-19. At the same time, aid for affected businesses, employees and informal workers has been put in place, through a special fund supplied by public companies and private donations. A draft decree-law adopted on Monday, April 6th, authorizes the government to exceed the limit of external financing provided for in the 2020 finance law in order to ensure its foreign exchange needs.
A key sector of the Moroccan economy, the tourism sector will be greatly affected. This comes at a time when the risk of drought was already worrying the kingdom, which is heavily dependent on its agriculture.
The High Commissioner for Planning (HCP), the Moroccan statistical agency, said on Wednesday, April 8th, it expects a 1.8% decline in GDP in the second quarter, instead of the 2.1% initially forecast before the pandemic. However, the country can count on increasing fruit and vegetable exports as a labor shortage caused by the coronavirus has hit agricultural production in southern Europe.
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First published in LePoint AFrique, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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