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Analyst
Sinan Lu
Lusinan@dagongcredit.com
Sovereign Credit Rating
Local
currency/outlook BBB+/stable
Foreign
currency/outlook BBB+/stable
Rating time October, 2010
Rationale
Dagong assigns “BBB+” on both local and foreign currency sovereign credit
ratings for Kingdom of Morocco (“Morocco”), which is based on a comprehensive
analysis on Morocco’s financing requirements and its debt repayment risks.
In the last 5 years, Morocco’s total debt burden and annual debt repayment
obligation have declined significantly due to the improvement of fiscal
conditions and the sustained economic growth. By the end of 2009, central
government’s debt outstanding was around 345.18 billion Dirham, about 47.1% of
the GDP,, which is the medium level in Africa. The ratio of local and foreign
currency debt to GDP was 36.4% and 10.7% respectively. The average debt maturity
is relatively longer due to the low percentage of short term debt. The ratio of
annual interest payment to GDP also declined, approximately 2.4% in 2009. It is
expected that the government will continue its expanding fiscal policies in
2010, the same as last year, in order to stimulate economic growth. Dagong
expects that government’s financing requirements will reach 15.0% of the GDP,
and central government’s outstanding debt will increase to 48.5% of the GDP in
2010.
Morocco’s debt repayment risks are shown as follows:
The development
strategy is made based on the actual condition of the nation, and their policies
are relatively consistent and stable. The government’s sound governance over the
nation, together with increasingly improved domestic security status and
international relationship is conducive to the implementation of development
strategy.
Morocco is a relatively small and primary economy. Although it is less
vulnerable to the financial crisis, the economy remains fragile because it
highly depends on agriculture and EU economy, and the unemployment issue is
unchangeable in a long term.
Morocco’s financial sector is improving, and suffered less from the financial
crisis. However, the growth of domestic credit is delayed after the crisis, and
the SMEs have difficulty in financing for a long time, which might both impose
negative impact on economy growth.
The fiscal balance has ameliorated over time. Although the fiscal balance
deteriorated after crisis, its deficit is still relatively small compared with
the average level in Africa. In addition, the government showed strong capacity
of financing in the domestic market with a comparatively low cost, ensuring
capital support on local currency debt repayment.
The surplus of current account for years inflates Morocco’s external reserve,
so as to strengthen the guarantee for external debt. The impressive capability
in external financing is a plus for the foreign currency debt repayment.
Outlook
Given the decline of agricultural output and sluggish recovery of EU
economies, Morocco’s economy growth is expected to be slower in the short term,
and the improvement of current account balance is limited. In addition, the
fiscal condition will be deteriorated due to the expanding fiscal policies.
However, the solid governance over the nation is fundamental to accelerate the
reform in economic structure, financial sector and fiscal discipline, which is
conducive to increase the economic growth potential and improve its ability to
resist against the strike in the future. The government is expected to modify
its expanding policies since 2011 along with the steady economic recovery. And
then, the government’s fiscal status will be better. accordingly, Dagong assigns
stable outlook to Morocco government’s local and foreign currency sovereign
credit ratings in the coming 1~2 years.
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