IMF/Credit Line: Buffer against external shocks

Morocco finally joins the small circle of countries that benefit from the Flexible Credit Line (FCL) of the International Monetary Fund. The decision was made on Monday, April 03. Designed for crisis prevention, the IMF’s two-year arrangement is for an amount of around US $5 billion, i.e. 417% of the country’s quota.

More precisely, the amount from which Morocco benefits is equivalent to 3.7262 billion SDRs. In principle, this facility is granted to countries whose economic fundamentals are sound. The qualification process is based on the verification of several principles. This is the case of sound economic fundamentals and institutional policy frameworks, as well as a sustained track record of implementing strong policies and continued commitment to maintain such policies in the future. The eligibility criteria taken into account by the IMF relate, among other things, to a sustainable external position, a capital account position dominated by private flows, and a track record of steady sovereign access to international capital markets at favorable terms. Added to this are sound public finances, including a sustainable public debt position (absence of solvency problems which could threaten the stability of the system). This IMF agreement will therefore allow Morocco, which has just left the FATF gray list, to strengthen its external reserves. This is an insurance or even a precautionary mechanism against external shocks and pressures on the balance of payments. This “buffer” will enable the country to cope with any deterioration in the international environment and its impacts. This is the case, among other things, of the volatility of the price of oil and food products. As underlined by the IMF, « the Moroccan economy remains vulnerable to a worsening of the global economic and financial environment, higher commodity price volatility, and recurrent droughts». In any case, the Moroccan Government wishes to maintain the course of reforms while preserving the economy against shocks. The advantage of this new line is that it allows its recipients to draw on the credit line at any time. “The arrangement will enhance Morocco’s external buffers and provide insurance against plausible tail risks on a temporary basis. The authorities stated their intention to treat the arrangement as precautionary”, underlines the international institution at the end of its Board of Directors. Antoinette Sayeh, Deputy Managing Director of the IMF and Acting Chair, noted that “Morocco’s very strong macroeconomics policies and institutional framework have allowed its economy to remain resilient to the multiple negative shock that have occurred over the past three years , including the pandemic, two droughts, and the spillovers from Russia’s war in Ukraine”. For her, the Moroccan authorities remain determined to restore leeway in terms of economic policy, to provide a comprehensive response to new shocks and to continue the implementation of the vast structural reforms necessary to make economic growth stronger, more resilient, and more inclusive.

Khadija MASMOUDI