To deal with the Covid-19 pandemic, Morocco has made essential decisions on the health front but with significant economic costs. The most drastic being the closure of all its borders to the transport of people.
This resulted in the total cessation of tourist activity in all its components. Beyond the impact on operators in this sector and the jobs they provide, this shutdown will impact Morocco’s balance of payments and therefore our foreign exchange reserves.
The threat is all the greater because in addition to tourism, other sectors that provide foreign currency for Morocco are bearing the brunt of the effects of the crisis on a national and global scale.
The main foreign exchange revenues for Morocco are generally:
– automotive exports (77.1 billion dirhams in 2019), agricultural and agri-food exports (60.8 billion dirhams), phosphates and derivatives (48.9 billion dirhams), textiles (37 billion dirhams)
– tourist revenue (78.7 billion dirhams)
– MRE transfers (64.9 billion dirhams)
– FDI (18.2 billion dirhams).
All these sectors are today, if not at a standstill, at least strongly affected by the national and international context.
There have been zero tourists since Morocco decided to close all its air routes due to Covid-19 until further notice.
Due to the spread of the pandemic in Morocco, with 170 cases declared to date, and disruptions in the supply chain, the powerhouses of the automotive industry, Renault and PSA, were forced to suspend production. In addition, the sector which has become the country’s leading exporter will have a difficult year for exports given the situation in customer markets, particularly in Europe.
For the same reasons, other sectors, such as textiles and leather, are also waiting or expecting a bad year.
No significant impact yet on the balance of payments
FDI, whose flow was already down by 46.8% in 2019, is not expected to recover in the short term, given the global situation. Regarding MRE transfers, reliable sources tell Médias24 “that flows are declining” because of the situation in Europe, the new epicenter of the Covid-19 pandemic.
These developments show, unequivocally, that foreign exchange receipts will record a definite decline. But what impact on our balance of payments? “The crisis has not yet had a significant impact on the balance of payments. Its effects will be visible in the next two to three months,” explains an informed source.
This is what this other senior official in the Administration confirms. « Payments are made for imports and exports, between 90 and 120 days, the current flows for collection or disbursement are made normally. But it is at the level of operations carried out today and which will be settled in 90 days or 120 days that there will be an impact. The problem will therefore arise in at least three months », we are told.
The impact will therefore be delayed. It is the import operations carried out during the month of March which risk posing a problem because on the other hand there will not be enough foreign currency receipts to cover the deadlines which will fall during the next 90 to 120 days. Isn’t it wise to limit foreign exchange outflows and avoid superfluous or non-essential imports?
« No restrictions at the moment on currencies, we are constantly monitoring developments. What there is currently is psychological pressure and vigilance », reports a reliable source.
This is also what another informed source confirms to us: « There are indisputable facts, namely the drop in foreign exchange receipts, although for MRE receipts it is questionable because the transfers are still there. We are following the evolution of the situation very closely to see at what pace the decline is occurring and we are feeding the government and the monitoring committee with the data so that they can make the necessary decisions », we she confides.
The interbank currency market, “normal” for the moment
What about the interbank currency market? Are trading rooms feeling pressure? Recall that Morocco began the second phase of exchange flexibility on Monday March 9 by widening the fluctuation band of the dirham, from +or- 2.5% to +or- 5%. Médias24 surveyed two trading rooms on the market.
« We have no particular event at the moment. There is a slight pressure but we are not in a situation of extreme stress, » explains one of our sources. “Exchange conditions are fair to slightly negative. The central bank is there to ensure liquidity if necessary. It is especially exports that are lacking a little,” she continues.
An opinion that is not shared in the profession. “We have not received a note from the exchange office to restrict operations. But there is little liquidity on the market,” explains this other manager in a trading room. “Some banks prioritize their clients, for example oil companies or large industrialists first, then what remains is served to others with very wide ranges. The situation will become more and more tense,” he warns.
The banks had become autonomous and manage their liquidity on the national or international interbank market without any intervention from Bank Al-Maghrib, the last intervention of which dates back 2 years. But their foreign exchange positions are slightly in deficit even in times of normal activity. With this looming crisis, Bank Al Maghrib will certainly have to intervene again and therefore draw on reserves to meet the demand for foreign currency.
More than 240 billion DH in foreign currency reserves
In a response to questions from Médias24 after the last meeting of Bank Al Maghrib, Governor Abdellatif Jouahri expressed concern.
« We should first remember that the current level of foreign exchange reserves is adequate and makes it possible to cover the equivalent of more than 5 months of imports of goods and services. That said, developments linked to the Covid-19 pandemic are occurring very quickly, unfortunately in a worrying sense. This creates strong uncertainty, and it is difficult to predict how the situation will evolve over the coming weeks, » he declared.
« We are in the process of identifying different scenarios and actions that could mitigate their impact, including all the possibilities we have to strengthen our foreign exchange reserves cushion. »
The outstanding net international reserves stood at 245.6 billion dirhams at the end of 2019, the equivalent of 5 months and 12 days of imports of goods and services. These reserves risk being heavily used to meet Morocco’s payment commitments.
Jouahri refrained from specifying « the possibilities » available to Morocco to strengthen the reserve base.
The drop in the energy bill as a counterbalance
For an expert, what makes decision-making difficult for our managers, “is that it is difficult to make forecasts. No one can really say how things may evolve. We are facing an event that has never been tested, we cannot do analyzes or have probabilities on the repercussions that this could have,” he explains to us.
« It’s an event of unprecedented scale, it’s really complicated. We don’t yet know how the sectors will react. We of course anticipate that there will be a drop in the various sections for both export and import. »
For this expert on the foreign exchange market, certainly export operations will decline, impacting foreign currency receipts, but import operations will also have to decline. “It’s true that exports, tourism and MRE revenues will decline, but on the other hand we will not continue to consume in the same way. Given that there is less demand and disruptions among foreign producers, Moroccan operators will import less which will lead to fewer foreign currency outflows,” he analyzes.
« You should also know that the drop in foreign exchange earnings will be counterbalanced by the fall in the energy bill. We had a hypothesis for the price of oil at 60 dollars per barrel, we are today at 26 dollars, » he adds. Indeed, international prices have collapsed and if they continue this trend, the energy bill will be less steep than in previous years.
LPL as a last resort
For our expert, we cannot know whether Bank Al Maghrib will be forced to draw on reserves. « We cannot see it at the moment. It is impossible to predict on the basis of two or three weeks of crisis. It is not yet significant. Furthermore, you should know that the bulk of the currency comes in during the summer. If the currency does not come in during the summer, yes that will perhaps be problematic and will impact the level of foreign exchange reserves. At that time, the Moroccan state could resort to other mechanisms to reconstitute its external assets. »
The mechanisms that our expert speaks about and which echo the “possibilities for strengthening the foreign exchange reserves cushion” mentioned by the governor of the central bank are of two types: another sovereign exit on the international market or the IMF’s precautionary and liquidity line.
In November 2019, Morocco marked its return to the international financial market by raising one billion euros over 12 years with exceptionally advantageous conditions.
A second lifting is planned for 2020. Is the current context suitable for this? An expert on the international financial market remains skeptical. « We are in an unprecedented situation. We have not seen a sovereign issue for a while (all countries combined). Investors are not there. Hence the absence of issues. This market depends a lot on investor morale which is closely linked to confidence. Today, there is a lot of wait-and-see attitude, even aversion. »
Morocco therefore remains with its last card: the precautionary and liquidity line (LPL). In December 2018, Morocco renewed its LPL for the fourth time over two years for an amount of 2.1508 billion SDR (approximately $2.97 billion, or 240% of the country’s quota).
The LPL is not a loan, it is a precautionary line granted by the IMF to countries that cannot use the IMF’s flexible credit line (LCM) due to certain vulnerability factors. The LPL “makes it possible to provide financing to meet the actual or potential balance of payments needs of countries that pursue good economic policies. It was designed to serve as insurance or to help deal with crises, in a wide range of situations,” explains the IMF on its site.
Could the LPL therefore be used to reduce the shock to the Moroccan economy? “This is the very essence and objective of the LPL. It’s like insurance, if you have an accident you simply use it. That’s exactly its role, to be activated when there are problems,” explains our expert.
Morocco therefore has, thanks to the LPL, a foreign currency reserve of nearly 30 billion DH which could be mobilized at any time to replenish foreign exchange reserves and come to the aid of the State budget.
Using it will depend on several factors that are currently uncertain: the evolution of the health crisis, the evolution of Moroccan imports, the evolution of international prices of raw materials, the evolution of the European economy,…
source; medias24.com
