the World Bank foresees the continuation of a restrictive monetary policy

She is tough and tough. The fight once morest inflation promises to be long and the road to a solution is strewn with obstacles. Despite the efforts made by both the government and the Central Bank to reduce the extent of inflation, the Kingdom’s strategy has several shortcomings. This is the observation of the World Bank, whose director for the Maghreb and Malta, Jesko Hentschel, granted an interview with “Asharq Business” in which he expressed his opinion on Morocco’s management of inflation.

According to the World Bank expert, the Moroccan government has taken compensatory measures intended to mitigate the effects of inflation on poor households. However, the government strategy, from his point of view, remains limited as long as the wealthy classes benefit from the subsidized products more than the low-income disadvantaged classes.

In reality, the government has obviously increased the budget allocated to the compensation of basic necessities. The budget of the Compensation Fund, it should be remembered, increased to 42 billion dirhams in 2022, an increase of 92% compared to 2021. Gas, sugar, wheat and electricity remain the main compensated products.

To remedy the current shortcomings of the compensation system, the government is preparing to abandon it by introducing, in 2024, direct aid for needy households. This will be made possible by the establishment of the Unified Social Register, which the World Bank has helped to finance. This measure is expected to increase inflation in 2024, following the decline expected this year. According to BAM’s forecast, the general price level is expected to decline to 2.4% in 2023.

Reading Hentschel’s statements, we understand that the World Bank believes that Morocco should pursue a less accommodating monetary policy than in previous years. Bank-Al-Maghrib, it should be remembered, increased the key rate twice, to place it at 2.5%. This is a necessity, according to the expert, to cope with the consequences of the economic slowdown. Indeed, the desire to revive the Moroccan economy comes up once morest an unfavorable international situation, marked by the uncertainty hanging over the European Union, which remains the main partner of the Kingdom, and its first source of external demand. (The EU receives 60% of Moroccan exports).

Hentshel thinks that the possible slowdown in the European economy might have an impact on growth in Morocco, especially at the level of non-agricultural GDP. According to its forecasts, it may fall slightly in 2023 under the effect of rising interest rates and inflation on demand.

Basically, the government forecasts a growth rate of 4% in 2023, while the World Bank sticks to the assumption of 3%, since it takes into consideration the effect of the tightening of monetary policy.

The bet is made on private investment, which should be boosted by the new Investment Charter which contains incentive measures such as sectoral and territorial bonuses. To which are added the advantages of the Mohammed VI Fund for Investment, the purpose of which is to support the capitalization of companies working in strategic projects. These two projects are supported by the World Bank.

Let us recall, in this respect, that Morocco wants to push the private sector to invest more to replace the State which remains the main investor in Morocco. The Kingdom aims to increase the private sector’s share of overall investment to 50% in 2026 and then to two-thirds by 2035. An ambitious, achievable and necessary objective”, in the eyes of Jesko Hentschel.