Rebounding Morocco should now make fiscal consolidation a top priority

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Morocco has started to reap the benefits of its reform efforts, but raising living standards to the level observed in other emerging economies still constitutes a challenge. Macroeconomic conditions continue to strengthen and the 2006 outlook is favorable.

A bumper wheat crop and strong activity in services and construction are ushering in a recovery, following a slowdown in growth caused by bad weather in 2005. Inflation remains low.

In its annual review of the economy, the IMF said the external current account is expected to record its sixth consecutive surplus, thanks to strong tourism and workers' remittances. At more than $18 billion, external reserves exceed the total stock of public external debt. Morocco's fiscal position is improving, but the ratio of public debt to GDP, though declining, remains high.

Despite a buoyant revenue performance, the fiscal deficit is likely to be close to the 2006 budget target of 4.1 percent of GDP (down from 5.9 percent in 2005) because of expenditure pressures related to oil and food subsidies. With the objective to reduce the fiscal deficit to 3 percent of GDP and the publicdebt- to-GDP ratio below 60 percent by 2009, the Moroccan authorities have started to curb wage bill growth through an early retirement scheme. They also plan to continue to...

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