London, 11 February 2013 -- Moody's Investors Service has today changed the outlook on Morocco's
Ba1 government bond rating to negative from stable. The Ba1 rating
itself was affirmed.
The key drivers of the decision to change the outlook to negative are
as follows:
(1) The significant deterioration in the government's fiscal metrics,
as reflected in rising budget deficits since 2011. This is due
to the country's decision to increase public-sector wages and let
the subsidy bill rise in response to rising oil prices so as to maintain
social peace. Moody's expects the deficit to have remained
significant in 2012. As a consequence, the public debt ratio,
which had been on a declining path until 2009, is now increasing
again.
(2) Very large external deficits and high external funding requirements.
Moody's estimates that the current account deficit amounted to close
to 10% of GDP in 2012 and also is likely to remain at an elevated
level in 2013, compared with a broadly balanced current account
as recently as 2007. While the Precautionary and Liquidity Line
-- granted by the International Monetary Fund (IMF) in July
2012 -- provides some comfort as it can contribute a substantial
share of the required external financing, Morocco's external
funding requirements are large at around 10% of GDP.
Moody's has today also lowered Morocco's local-currency
bond and deposit ceiling to Baa1 from A3. The foreign-currency
bond and deposit ceilings were affirmed at Baa2/P-2 and Ba2/NP,
respectively.
RATIONALE FOR NEGATIVE OUTLOOK
The first driver of Moody's decision to change the outlook on Morocco's
sovereign rating to negative is the deterioration in the government's
fiscal metrics, which has been mainly driven by the authorities'
decision to accommodate the sharp increase in oil and other commodity
prices by maintaining widespread subsidies on oil and basic food commodities.
While the government has acknowledged the need for substantive reform
to the system, it has so far implemented only two minor steps to
reduce its large subsidy bill (amounting to around 6% of GDP versus
an average of 2%-2.5% of GDP in the decade
up to 2011): raising administered fuel prices in June 2012 and reducing
some agricultural subsidies in September last year. More recently,
the authorities have indicated that they will implement substantive reforms
to better target subsidies in the course of 2013. With oil prices
only expected to stabilise near 2012 levels in 2013, timely implementation
of these measures will be needed if the country's public finances
are to get back on a sustainable path and avoid a further rise in the
public debt ratio.
The second driver of today's outlook change is the rapid rise in
Morocco's external vulnerability, again mainly driven by the
rising oil price as oil products account for around 23% of total
imports. In addition, exports of both goods and services
(as well as remittances from abroad) are negatively affected by the slowdown
in Morocco's key EU trading partners, which will be only partly
compensated by stronger export growth to other regions. To finance
the external deficit, Morocco has drawn extensively on its foreign-exchange
reserves, which have declined to USD 15.8 billion as of year-end
2012 (liquid foreign currency reserves, excl. gold) or less
than four months of import cover (goods & services). Given
the continued high current account deficit, external funding needs
will remain high at around 10% of GDP. The IMF line (if
fully used) would cover around 60% of the funding needs.
In addition, Morocco recently received a first tranche of financial
aid from several Arab states, amounting to around 2.5%
of GDP. Still, the funding requirements are large and require
sustained foreign direct investment inflows and a further build-up
of external debt. External-debt indicators are not out of
line with similarly rated peers, but are worsening rapidly.
RATIONALE FOR UNCHANGED Ba1 RATING
Despite the above challenges, Moody's has maintained Morocco's
government bond rating at Ba1 to reflect the following key considerations:
(1) The Moroccan authorities have established a positive track record
of consistent, stability-oriented economic policies over
the past decade. Inflation has been low and stable for many years
now and the authorities have long pursued policies to improve social indicators
for the population at large. The political situation in Morocco
is more stable than elsewhere in the region.
(2) While the fiscal and external credit metrics have been deteriorating,
they are not out of line with Morocco's closest peers.
(3) The availability of IMF funding under the Precautionary and Liquidity
Line significantly reduces the risk of a balance of payments crisis.
In addition to providing an insurance against unfavourable external financing
developments, Moody's considers that the IMF's involvement
will also act as an external policy anchor.
WHAT COULD CHANGE THE RATING DOWN/UP
Risks to Morocco's Ba1 sovereign rating are mainly skewed to the
downside, as reflected in the negative outlook. In particular,
the failure of the government to follow through with its announcements
regarding subsidy and public pension reforms would likely lead to a negative
rating action. A much deeper and longer-lasting recession
in Europe that has knock-on effects for Morocco's growth
perspectives and external accounts would also exert downward pressure
on the rating as could a sharp escalation of social and political tensions,
with a negative impact on the authorities' ability to deliver on
fiscal and economic reforms.
Moody's would return Morocco's rating outlook back to stable
if the government implements measures to arrest the deterioration in the
public finances. Upside rating potential would also develop if
the authorities succeed in achieving budgetary results that would reverse
the rising trend in the debt ratio. Also, higher economic
growth rates through increasing competitiveness and a stronger external
position would be needed for an investment-grade rating.
The principal methodology used in this rating was Sovereign Bond Ratings
published in September 2008. Please see the Credit Policy page
on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
This rated entity or its agent(s) did not participate in the rating process.
Moody's was not provided, for purposes of the rating,
access to books, records and other relevant internal documents of
the rated entity.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Kathrin Muehlbronner
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Bart Oosterveld
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's changes outlook on Morocco's Ba1 rating to negative from stable
