Hot spots: Morocco.(hot spots)

Despite persistent official efforts to diversify the economy, the country remains heavily dependent on agriculture. So, as Morocco last year harvested the best grain crop in a decade, real GDP grew by as much as 8.1%. This performance looks unlikely to be repeated in the current year, but the outlook for industry is quite bright as garment producers have apparently overcome with fair ease the repercussions from the expiration of the Multifibre Agreement and stepped-up competition from Asian producers, and as many multinationals are taking advantage of back-office and call-center operations offered by ever more Moroccan business parks.

Inflation increased to 3.3% last year, reflecting strong demand and robust monetary growth. It slowed in the early months of this year, however, to 2.1% in January-July, following a two-stage tightening of monetary policy. We expect a consumer price rise of only about 2.5% for 2007 as a whole, assuming that the Central Bank will keep the monetary reins fairly tight in the face of still-strong liquidity growth and rising asset prices. While the time of big privatizations is over, public finances are improving thanks to more efficient tax collection and a streamlined state payroll.

Unemployment is officially said to have declined to around 10% currently from 14% in 1999, but in some parts of the country it still ranges up to 20%. Around 40% of the population continues to live in poverty, despite recurring job creation drives by the authorities. Poverty and high joblessness still provide a fertile breeding ground for radical Islamism (q.v., below). On the other hand, the vulnerabilities in the financial sector have eased a great deal with a significant drop in non-performing loans and an increase in provisioning. The sharp rise in credit extension to the private sector attests to the success the authorities have had with their efforts to improve financial intermediation. Since June this year, Moroccan banks have been obligated to comply with the prudential requirements of Basel-II.

Although exports have been growing strongly, at a clip of more than 13% annually in recent years, the foreign trade deficit has remained large, and this will continue to be the case for the foreseeable future. Thanks to strong remittances from expatriates, however, and good tourism receipts, the current-account BoP will this year register its seventh annual surplus in a row. The foreign trade deficit grew by 22% to USD 7.01 billion in the first half of this year, but the current-account BoP surplus surged by 72%. Increased inflows of foreign investment will also continue to boost official international reserves, which hit $22 billion at the end of June and are likely to amount to more than $23 billion by the close of 2007. At that level, they will substantially exceed the public foreign debt.

In elections on September 7, which drew a miserably low turnout of only 37% of the electorate because voters have become thoroughly disillusioned with exercises setting up toothless parliaments by choosing among the same array of minority parties battling it out for shares in a Cabinet approved by the King, the conservative Istiqlal (Independence) party won the most seats and was, thus, ...