Morocco’s fiscal deficit will decline to 3.4% of GDP by 2026, down from 4.3% in 2023, the global credit rating agency Fitch Ratings projected in a recent publication.
The agency anticipates a slight decline in the general government debt-to-GDP ratio over the same period. However, it cautions that achieving additional fiscal consolidation may be challenging without an improvement in tax revenue.
Expenditure is projected to average 25.7% of GDP from 2024 to 2026, a decrease from 26.4% in 2023.
Capital expenditure is projected to decline by 1.3 percentage points (pp) due to reduced costs resulting from the 2023 earthquake.
Subsidy spending is forecasted to decrease by 1.2 pp of GDP as the government continues to reduce subsidies for butane gas, sugar, and wheat.
The latest projections suggest that social benefits spending will increase by 1.4 pp of GDP, influenced by expanded unemployment benefits and new family allowances.
Fitch forecasts that revenue will average 21.9% of GDP from 2024 to 2026, a modest decline from the 22.2% seen in 2023. Tax revenue is expected to drop by approximately 0.5 pp of GDP.
The government is targeting an increase in revenue from “innovative financing” sources to 2.1% of GDP from 1.0% in 2019. These financings have been instrumental in driving revenue growth since their adoption in 2019, Fitch reported.
Fitch indicated that a significant reduction in the debt-to-GDP ratio could lead to a positive change in Morocco’s credit rating. However, the agency’s forecasts are more conservative than the government’s goal of reducing the deficit to 3% of GDP by 2026. Faster progress may occur if social spending is lower, tax reforms are more effective, or economic growth exceeds forecasts.
Fitch observed that a notable and prolonged reduction in the debt-to-GDP ratio could result in a favorable rating action for Morocco.
The Agency’s current forecast anticipates a gradual decline in the debt ratio to 69.7% of GDP by 2026 from 70.2% in 2024.
“Our forecasts for the budget deficit are more conservative than the government’s targets, which aim to reduce it to 3% of GDP by 2026,” Fitch’s report concluded.