Garamilo: Morocco Needs More Exchange Rate Flexibility and Innovative Financing Not Counted as Debt
Laura Garamilo, head of the IMF expert mission, urged Morocco to continue transitioning towards greater exchange rate flexibility, while adopting inflation targeting as the cornerstone of monetary policy. She emphasized the importance of clear communication regarding the reform schedule and prioritizing economic policies.
Garamilo’s statements came during a press conference in Rabat, following the conclusion of the mission’s consultations that lasted from January 29 to February 11. She confirmed that government debt “remains sustainable” and that the risks of sovereign pressures are “moderate,” which provides a fiscal margin for medium-term action.
Regarding innovative financing, Garamilo clarified that it is not included in central government debt statistics according to the Fund, considering it an important tool for reducing the budget deficit, even though it will not continue at the same level until 2028. She noted that these resources have contributed to financing social and investment sectors, helping to maintain public financial balances.
On pension system reforms, the mission head stressed the necessity of ensuring the sustainability of the pension system, confirming that the Fund is closely monitoring ongoing discussions among various stakeholders, deeming reform in this area a priority for future balance.
Additionally, the official highlighted that Morocco has managed to overcome this year’s drought risks due to recent rainfall, after drought was among the main anticipated risks at the start of the consultations. She pointed out that the kingdom is enhancing its ability to adapt to climate change through water desalination projects and other proactive measures.
Garamilo also noted the growth in tax revenues in recent years, indicating that this reflects the impact of reforms related to value-added tax and corporate tax, as well as efforts in digitalization and financial reform. She called for ongoing reductions in unnecessary tax expenditures to ensure the sustainability of gains.
She affirmed that there is fiscal space that can be directed towards the education and health sectors, highlighting the need to accelerate public institution reforms and relieve pressure on financial transfers directed to them, while continuing to gradually and systematically reduce subsidies.
Regarding the labor market, Garamilo considered unemployment, particularly among youth, to remain a major challenge, emphasizing the importance of strengthening the private sector’s role, facilitating access to financing, and improving skills alignment with labor market needs, while acknowledging initiatives supporting small and medium enterprises and bridging the skills gap.
The mission head warned of external risks, primarily the potential slowdown of the Eurozone economy, Morocco’s main trading partner, and the impact this may have on exports and foreign investments, in addition to fluctuations in commodity prices, especially oil.
She concluded by reaffirming that Morocco continues to make progress towards sustainable growth and enhancing financial governance, stressing the importance of continuing structural reforms to ensure robust and inclusive growth in the coming years.
