| Summary: | EXECUTIVE SUMMARY The Executive Board approved in July 2014 a two-year precautionary and liquidity line (PLL) arrangement in the amount of SDR 3.2351 billion (550 percent of quota). In a context of lower but still substantial risks, the arrangement provides insurance against external risks while supporting the authorities' program, which aims at further reducing fiscal and external vulnerabilities and fostering higher and more inclusive growth. The authorities continue to treat the arrangement as precautionary. The economy is rebalancing, despite a slowdown in activity. After a bumper crop in 2013, agricultural growth contracted in 2014 while weak activity in manufacturing and construction hampered non-agricultural growth in the first half of 2014. The fiscal and external deficits have narrowed from their 2012 peaks, helped by policy action, the emergence of new export sectors, and the recent decline in international oil prices. Inflation remains low, while unemployment inched up close to 10 percent. Growth is expected to recover in 2015, but the outlook remains subject to important downside risks. Significant progress was made in implementing the reform agenda. In particular, the authorities eliminated the remaining subsidies on diesel and decided to fully liberalize the price-setting mechanism of all liquid petroleum products. A new organic budget law, which will strengthen and modernize the budget framework, was adopted in November 2014, but the Constitutional Council subsequently invalidated some provisions, partly for procedural reasons. The government intends to address the Council's comments in time for the law to start being implemented in 2016 as scheduled. A new banking law was adopted, which broadens the regulatory and supervisory role of Bank Al Maghrib (BAM). The program remains broadly on track and Morocco continues to meet the qualification criteria for a PLL. The fiscal end-September indicative target was missed by 0.7 percent of GDP, mainly reflecting lower net VAT receipts and a frontloading of transfers to public institutions. Nevertheless, the end-year fiscal deficit objective was met thanks to a pick-up in revenue and higher external grants. The net international reserves (NIR) indicative target at end-September was comfortably met. Morocco continues to perform strongly in three out of the five PLL qualification areas while not substantially underperforming in the fiscal and external areas. Staff recommends the completion of the first review under the PLL arrangement.
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