Morocco: Third Review Under the Two-Year Precautionary and Liquidity Line-Staff Report; Press Release; and Statement by the Executive Director for Morocco

EXECUTIVE SUMMARYThe Executive Board approved in August 2012 a two-year precautionary andliquidity line (PLL) arrangement in the amount of SDR 4.1 billion (700 percent of quota). The PLL provides insurance against external risks while supporting the authorities' program aimed at reducing fiscal and external vulnerabilities and fostering higher and more inclusive growth. The second review was completed on July 31, 2013. The authorities have treated the PLL as precautionary.Overall, macroeconomic performance improved in 2013, but the outlook hinges on the sustained delivery of reforms. After a difficult 2012, a return to a more favorable environment and policy action helped reduce fiscal and external imbalances in 2013, while growth picked up, boosted by a strong rebound in the primary sector. Growth in 2014 could reach about 4 percent, but the economy remains vulnerable to a fragile international environment. Continued improvement in economic conditions depends on the sustained implementation of reforms to further reduce vulnerabilities, strengthen competitiveness, and foster stronger and more inclusive growth.The program remains broadly on track, and Morocco continues to meet the PLL qualification criteria. Both the fiscal and external deficits were reduced from their 2012 highs. Although the fiscal deficit indicative target at end-October was missed, the authorities' end-year objective was met. The NIR indicative target at end-October was met with a comfortable margin. Morocco continues to perform strongly in three out of the five areas in which PLL qualification is assessed (financial sector and supervision, monetary policy, and data adequacy) while not substantially underperforming in the two other areas (fiscal policy, and external position and market access). Staff thereforerecommends the completion of the third review under the PLL.