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Cablegate: Moroccan Economy Holding Up Well to Credit And

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RR RUEHWEB

DE RUEHRB #0853/01 2551425
ZNR UUUUU ZZH
R 111425Z SEP 08
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 9096
INFO RUEHAS/AMEMBASSY ALGIERS 4889
RUEHMD/AMEMBASSY MADRID 6047
RUEHNK/AMEMBASSY NOUAKCHOTT 3807
RUEHTU/AMEMBASSY TUNIS 9713
RUEHCL/AMCONSUL CASABLANCA 4296

UNCLAS RABAT 000853

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ECON ETRD EAGR MO
SUBJECT: MOROCCAN ECONOMY HOLDING UP WELL TO CREDIT AND
INFLATION CONCERNS, BUT TRADE DEFICIT SPARKS WORRIES

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accordingly.

1. (SBU) Summary: Recent data from the Ministry of Finance,
Bank Al-Maghrib, and High Planning Commission highlight the
Moroccan economy's resilience in the face of the
international credit crisis and the surge in international
commodity prices. The country is on track to meet its growth
and deficit targets, and unemployment has fallen to 9.1
percent, its lowest level in years. Alarms are being raised,
however, about the country's deteriorating international
position: continued weak performance by Moroccan exports
raise the prospect that the balance of payments will soon
slip into the red. The growing problem led the Moroccan
government this week to convene an interministerial
commission to aid the Ministry of External Commerce in
devising a strategy to encourage Moroccan exports. End
Summary.

---------------------------------
MOSTLY GOOD NEWS, EXCEPT ON TRADE
---------------------------------

2. (U) A flurry of economic reports over the last month
highlighted again the fact that except for a slight uptick in
inflation and a widening of the country's trade deficit,
Morocco continues to hold up well in the face of the twin
shocks of the credit crisis and commodity price pressures.
Positive results were registered in growth (7 percent in the
first quarter, leading the Ministry of Finance to retain its
6.8 percent target for the year), unemployment (9.1 percent,
down from 9.6 percent a quarter earlier), investment (1.69
billion USD in the first five months of the year) and the
budget (where a 31.5 percent surge in tax revenue has
balanced a 178 percent increase in subsidy spending). Only
on inflation and trade were the results mixed: prices at the
end of July were up 5.1 percent over their level a year
earlier, with food products increasing 9.1 percent over the
period. The High Planning Commission and Bank al-Maghrib
continue to predict that inflation will moderate by the end
of the year, though they anticipate it will exceed last
year's 2 percent and likely the 3.3 percent registered in
2006.

3. (U) On the trade front, however, little relief appears to
be on the horizon. Updated trade figures through the end of
July show that imports increased by nearly 28 percent over
last year, easily eclipsing the 18 percent growth registered
by Moroccan exports. The country's overall trade deficit
thus rose 72.8 percent from 3.56 billion USD to 6.17 billion
USD. The export figures actually overstate the health of
most Moroccan exports, since virtually the entire increase
came from exports of phosphates, which more than doubled.
Non-phosphate exports were essentially flat.

----------------
A CALL TO ACTION
----------------

4. (SBU) The increasing trade deficit has prompted increased
concern in both the Moroccan government and international
economic institutions. Visiting IMF Director General
Dominique Strauss-Kahn encouraged the government to address
both the country's trade balance and the system of
generalized subsidies when he visited in July. Prime
Minister El-Fassi subsequently moved to set up a special
interministerial commission to consider the issue. That body
met on September 9, and Trade Minister Abdellatif Maazouz
subsequently urged patience. He noted that a new action plan
to address the growing deficit has been elaborated, but
judged that it will not bear fruit before 2010. Much of the
problem, he argued, is conjunctural, and stems from the
increased cost of the energy and agricultural inputs on which
Morocco depends. Maazouz outlined a strategy that includes a
strategic action plan to encourage exports, focused on tying
export promotion to the government's other strategies, such
as the "Emergence" plan for industry. Other measures that
have yet spelled out in detail include enhanced regulation of
imports, increased economic oversight, and modernization of
Morocco's operational framework and regulatory provisions for
international commerce.

5. (SBU) Notwithstanding increased alarm in Morocco's
economic press about the trade imbalance, not all of our
contacts are concerned. Ahmed Laaboudi, head economist at
the Centre Marocain de Conjuncture, a leading think tank,
played down the issue when we saw him last month. While

admitting that the balance is not ideal, he argued that
"Morocco can handle it even at its current level," thanks to
continued strong tourism receipts and unexpectedly high
remittances from Moroccans residing abroad. Such transfers,
he noted, have "boomed beyond what we expected."

6. (SBU) Where our contacts are critical is of the failure of
successive governments to adopt an integrated export
promotion strategy to accompany its pursuit of free trade
with partners including the United States, the European
Union, Turkey, Egypt, and Jordan, among others. Former
Minister of Finance Mohammed Berrada told us earlier this
summer that the combination of free trade, lack of an export
strategy, and simultaneous encouragement of domestic
consumption as an engine of economic growth has created the
present imbalance, with negative consequences for Moroccan
producers. The flood of cheap imports, particularly from
China, he argued, has distorted the market. He pointed to
the row of warehouses adjacent to his family textile company
and to the Casablanca port, noting that all have now been
rented by merchants who import cheap Chinese goods. "We are
unable to compete," he said. While details have yet to
emerge, Maazouz's announcement appears to be an initial
attempt to address such criticisms.

7. (SBU) Comment: Morocco's balance of payments narrowed last
year, as for the first time in five years transfers from
Moroccans abroad were not sufficient to make up the deficit
in good and services. The country continues to enjoy a
healthy inflow of direct and portfolio investment, however,
so it will not soon face a financing crisis or pressure on
the dirham. Clearly though, achieving Morocco's goal of
annual growth near 7 percent over the next five years will
require the external sector to be a contributor, rather than
a drag on GDP. Finding a way to widen what Maazouz himself
admits is a "limited export offer" will thus be critical
going forward. End Comment.


*****************************************
Visit Embassy Rabat's Classified Website;
http://www.state.sgov.gov/p/nea/rabat
*****************************************

Riley

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