OECD Economic Surveys: Morocco 2024

Executive Summary

Morocco’s robust recovery continues, despite the earthquake and droughts

Growth has rebounded from the pandemic and the energy crisis, despite the 2023 earthquake and droughts. Morocco has embarked on major reforms to encourage investment and to enhance social protection, but a stronger convergence path will be needed to achieve the vision in the New Development Model.

Economic activity continues to recover, driven by consumption, investment, and robust export performance. Strong investment is being driven by high capacity utilisation and will be spurred by government incentives under the new Charte de l’Investissement. Inflation has declined as food prices have moderated, creating room to ease policy interest rates in June 2024. Financial risks appear under control due to robust bank capital buffers and adequate provisioning, though non-performing loans are elevated.

Morocco has benefitted from a stable macroeconomic regime. The deficit is narrowing following the pandemic and energy crisis and the government debt ratio is around 70% of GDP. Active fiscal policy helped manage recent shocks to the economy, but the deficit is now narrowing as the economy recovers and with significant but broadly offsetting measures on both spending and taxation. Existing plans to reduce the deficit to 3% by 2026 should be implemented. A new fiscal rule should be based on a medium-term debt target and an expenditure rule to help manage future spending pressures.

Reforms have extended health insurance coverage and social assistance, replacing some energy subsidies. This will improve the lives of many Moroccans, while making social support more effective.

To finance reforms and broaden the tax base, informality needs to be reduced and specific revenues could be increased. Improving incentives in the tax-benefit system by lowering contribution rates for lower-income earners, moving transactions online and strengthening tax enforcement would bring in additional revenue, allowing for reductions in some rates. Royalties from mining and dividends from state-owned enterprises are currently low. Additional revenues could be raised from taxes on emissions.

The range of high-quality, timely statistics and data is low compared to international best practices, which complicates the implementation of well-designed policies. The statistical system should be re-organised and investment made to improve the availability of timely and high-quality statistics.

Figure 1. Growth should be strengthened

3-year change in GDP at market prices

Source: World Bank World Development Indicators database.

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Table 1. The economy is gaining momentum

	2022	2023	2024	2025
Real GDP at market prices (annual percentage change)	1.5	3.4	3.5	4.0
Consumer price index (% change)	6.6	6.1	2.3	2.0
Central government budget balance (% of GDP)	-5.4	-4.3	-4.0	-3.5
Central government gross debt (% of GDP)	71.5	69.5	68.9	68.2
Current account balance (% of GDP)	-3.6	-0.6	-2.5	-2.9

Source: OECD Economic Outlook 115 database and updates.

Further policy measures would support efforts to boost productivity

Labour productivity has been increasing and FDI flows have been strong, but domestic private investment is low, and Moroccan firms face obstacles in performing better.

Morocco’s labour productivity gap with the global efficiency frontier remains large, although it has narrowed. Multinationals in a few sectors drive manufacturing productivity, but linkages with the local economy could be strengthened. Local value-added remains focused on less sophisticated activities. Moroccan firms are internationally competitive in a decreasing number of products and export less high-tech, though more medium-high-tech goods than in the past. Widespread informality and small firm sizes set back productivity growth.

Investment by the public sector and state-owned enterprises (SOEs) has been strong, and the new Charte de l’Investissement aims to raise private investment through subsidies and measures to improve business conditions. While infrastructure is relatively good, capital formation has been dominated by the public sector and investment efficiency has been low. Public sector investment should be better targeted and managed. New incentives and supporting measures, such as providing land and improving the business climate, aim to raise private investment. Ensuring that incentives are balanced between new and established sectors would help broaden the industrial base.

Efforts have been made to improve the business climate. The Competition Council has been strengthened. SOEs play a significant role in the economy and their governance could be further strengthened in line with on-going reforms to ensure a level playing field.

The anti-corruption framework has been strengthened, but more can be done. Firms report bribes adding to transaction costs in interactions with the public administration. Continuing efforts to tackle corruption and making further progress to move transactions online would reduce the scope for corruption.

Innovation activity and spending are low and the take-up of digital technologies by Moroccan firms and workers is slow. Ensuring continuing competitive internet access, greater consumer protection in e-commerce and targeted digital training for workers would help to make the most of new digital opportunities. Developing better support for innovation would help create new business opportunities.

Skills and educational outcomes should be reinforced to support a more productive economy. Basic literacy and numeracy skills have improved, but educational outcomes remain relatively weak and many young people still leave school at an early age. A major reform to the school system is underway to improve teaching. A workplace-based vocational and more market-oriented tertiary education would better prepare young people for the labour market and improve the match of supply to skills needs.

Figure 2. The labour productivity gap is large

Percentage gap with respect to the USA in GDP per person employed, 2022

Note: In constant 2017 PPP $.

Source: OECD calculations based on World Bank World Development Indicators database.

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More high-quality formal jobs and higher participation would raise living standards

Morocco’s young population is an asset, but the labour market suffers from informality, high youth unemployment and low female employment. Emigration is significant.

Major reforms are under way to extend social insurance and tackle widespread informality that leads to low wages, poor-quality jobs and weak skills. Informal firms and employment are particularly common in low-skilled and more rural settings. Past reforms formalised some activities by recognising self-employment and entrepreneurs. On-going reforms extend social assistance and health insurance, alongside registration with a new social register, which could be linked with the employment agency to facilitate transition to work and improve matching. An integrated approach is needed to improve incentives for workers and businesses to formalise and strengthen enforcement and sanctions over time. Lowering social contribution rates for low-income workers, taking into account the impact on formalisation when setting the minimum wage and easing strict employment protection legislation would help.

There is scope to better integrate women and young people in the labour market. The participation rate of women is low and has been declining. A range of measures including better access to finance, reducing discrimination and tackling gender stereotypes would help strengthen women’s role in the labour market. Extending subsidised childcare to children of younger ages would help women to work. Youth unemployment is high, including for new graduates. Streamlining the range of active labour market policies and strengthening activation requirements would help young people to find work.

Figure 3. Informality is widespread

Share of informal employment

Note: See Chapter 3 for full notes.

Source: ILO Labour Force Statistics; Haut-Commissariat au Plan.

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Figure 4. Most women and youth are inactive

Labour force participation rates

Note: Labour force divided by population groups.

Source: ILO Labour Force Survey.

 

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Stronger climate policies are needed, including to deal with water stress

Morocco has made an ambitious commitment to reduce carbon emissions by 45% by 2030 compared to 2010 and to net zero by 2050, benefiting from the country’s potential for renewables-based generation. However, the country is vulnerable to climate change and already faces significant water stress.

While Morocco currently has fairly low per capita emissions, these would rise significantly in a business-as-usual scenario as the economy grows. The government should implement the climate transition measures set out in the net zero to 2050 strategy. A broad-based approach to carbon pricing and taxation, backed by regulations and supports at sectoral level as needed, would help deliver the climate transition in an efficient way, including by raising taxes on motor fuels over time.

Water, which is largely consumed by agriculture, is increasingly scarce as average rainfall has declined and will be challenged further as urbanisation and industry develops. Hydrological tensions are exacerbated by the low price of water for users. Alongside existing efforts to improve the infrastructure, water prices should be revised to reflect the cost of providing it and its scarcity, while taking into account social impacts.

Figure 5. Water scarcity is a growing concern

Renewable freshwater resources per capita

Source: World Bank World Development Indicators database.

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MAIN FINDINGS	KEY RECOMMENDATIONS
Managing fiscal reforms while maintaining macroeconomic stability
Inflation has eased but remains sensitive to food and energy prices.	Continue the gradual move towards an inflation targeting framework and resume preparations towards a more flexible exchange rate regime.
The budget balance is improving as temporary support measures are withdrawn with broadly offsetting revenue and expenditure measures.	Implement existing fiscal plans to 2026 to modestly narrow the deficit. Replace the golden rule with a medium-term debt target and consider an expenditure rule to help keep the public finances on track.
Personal income tax and social security receipts are low.	Strengthen tax administration and enforcement and continue to move payments online to increase formalisation.
Revenues from resources royalties are relatively low and dividends from state-owned enterprises (SOEs) are low.	Collect higher royalties from companies exploiting mineral deposits and set SOE dividend rates in a predictable way and at a higher level.
Improving data collection, compilation and dissemination
Limited availability of a broad range of high-quality, timely statistics and data in line with international best practices constrains the design and implementation of many government policies.	Centralise data collection more effectively through a national institution and increase investment to improve data collection and dissemination.
Lifting growth through productivity-enhancing reforms
Educational attainment levels and skills in the population are improving but remain relatively low. Vocational training is still seen as weak despite the government’s training levy.	Expand work-based vocational training and boost the number of apprenticeships. Step up training programmes in literacy and basic skills.
The government and SOE share of investment is relatively high, while private investment has been low and overall investment efficiency has been weak.	Target government investment to areas where the social returns are high and increase the use of cost-benefit analysis.
While FDI drives the industrial sector, there is a need to broaden the range of activities and the sophistication of exports. The Charte de l’Investissement aims at boosting private investment.	Subject incentives extended under the Charte de l’Investissement to thorough evaluation. Ensure that supports are appropriately balanced between new and established industries.
Land ownership is complex and not all land is registered in the formal system.	Complete the system of land registration to reduce legal risks and improve availability.
SOEs play a significant role and several deliver public goods and services, while conducting profit-seeking activities.	Continue to separate commercial and non-commercial activities of SOEs and compensate non-commercial activities on competitive terms.
Many sectors are dominated by a few large firms and there is a lack of effective competition. Investigations into anti-competitive practices and behaviour have been increasing from a low level.	Continue to increase enforcement of competition policy.
Digitalisation appears less advanced than in regional peer countries.	Keep internet costs affordable, strengthen consumer protection in e-commerce and offer targeted subsidised digital training for workers.
Innovation and research are relatively low.	Raise public support for innovation and develop the innovation system.
Creating more and better jobs
A major extension of social protection is underway, but informality remains widespread, leaving many in poor-quality jobs.	Implement the ongoing social protection reforms, while reducing employer contribution rates for those on low wages. Strengthen enforcement of social contribution payments and increase the number of labour market inspectors.
Employment protection is rigid, leading to a heavy burden on employers, lower labour demand and higher informality.	Increase the flexibility of permanent and temporary labour market contracts.
Unemployment is high, especially for youth, and many jobless youth are not in education or training (NEET).	Take into account the adverse impact on formalisation incentives when setting the minimum wage. Consolidate the many Active Labour Market Programmes (ALMPs), strengthen activation measures and the role of the employment agency.
Standardised test scores are relatively low, many people still leave school at a young age and grade repetition is common. A major school reform is underway.	Implement the on-going school reform and replace grade repetition with extra help for pupils falling behind.
Women face a number of challenges in the labour market and female labour force participation is low. Free childcare is available from age 4.	Step up initiatives to strengthen the labour market integration of women, including better access to finance, reducing discrimination and tackling gender stereotypes. Improve availability of free childcare and extend it to younger children for working women.
Tackling corruption
While the anti-corruption framework has been strengthened, businesses report bribes for government services.	Continue to pursue efforts to reduce corruption, including the process of moving interactions with the government online.
Addressing water scarcity and the climate transition
Morocco has an ambitious target to reduce emissions by 45.5% by 2030 relative to 2010 and to net zero by 2050.	Implement the measures to reduce carbon emissions set out in the net zero strategy.
Morocco is considering implementing a carbon tax.	Establish a broad-based approach to carbon pricing and taxation, backed by regulations and supports at sectoral level as needed.
There have been repeated droughts and freshwater resources are under pressures from growing demand, while usage fees are low.	Gradually raise water withdrawal fees to a rate to cover the full supply costs of water recovery, while managing any social impact.