Morocco: Request for An Arrangement Under the Precautionary and Liquidity Line and Cancellation of the Current Arrangement-Staff Report; Press Release and Statement by the Executive Director for Morocco

EXECUTIVE SUMMARYMorocco's economic track record was challenged in recent years by a series ofexogenous shocks, to which the authorities responded vigorously. Facing a difficultinternational environment, the authorities adopted, with the support of the Fund'sPrecautionary and Liquidity Line (PLL), a policy program aimed at restoring fiscal andexternal buffers while strengthening competitiveness and promoting higher and moreinclusive growth. The program remained broadly on track and the authorities did notdraw on the PLL.The outlook is improving but remains subject to significant downside risks. Growthwill slow in 2014, but it is expected to accelerate over the medium term owing tostructural reforms and improved global conditions. However, this outlook remainssubject to major external risks. A protracted period of slower growth in Europe, a surgein global financial market volatility linked to the exit from unconventional monetarypolicies in large advanced economies, and higher oil prices resulting from geopoliticaltensions could significantly degrade the balance of payments.The authorities are requesting a two-year successor PLL arrangement with a loweraccess (550 percent of quota) than the first arrangement. The current PLL hasprovided useful insurance against external risks while anchoring the authorities' reformagenda and sending positive signals to markets. Given significant global risks, asuccessor arrangement, which the authorities intend to treat as precautionary, wouldcontinue to support their policies. The lower access reflects the strengthening of theeconomy in the past two years as well as a balance of risks lower than two years ago.Staff considers that Morocco continues to qualify for a PLL arrangement andrecommends the approval of the authorities' request. The proposed arrangementcarries low risks to the Fund and would have minimal impact on the Fund's liquiditywere the authorities to draw on the full amount available. The authorities' policypackage provides reasonable prospects of exit at the end of this arrangement if externalcircumstances warrant.