Removal from FATF grey list boosts Moroccan economy and confidence

Moody's had given Morocco a sovereign credit rating of Ba1 with a stable outlook for debt issued in national and foreign currencies, which denotes the risk on loans held by its banks. The rating is used as a reference to determine debt interest ceiling and wider financing terms.

Fitch rated Morocco at BB+, the same rating set by Standard & Poor's (S&P), which is preparing to issue a new rating for Morocco that could bring it back to investment-grade status — a position it previously lost after a decline in its financial situation following its placement on the grey list. Investment grade status is granted to every economy that ranks between AAA and BBB according to international standards.

Return to international markets

Rabat did not wait long to return to international financial markets. The day after the FATF decision, a Moroccan delegation headed to New York, Boston, and London to put forward investment opportunities in the country's first Eurobonds issued since before Covid-19.

The issuance attracted over $11 billion from banks, financial institutions, and sovereign funds from four continents.  

Moroccan Finance Minister Nadia Fettah Alaoui said she was happy with the roadshow, which was held at a time of global transformation, scarcity of funds due the crisis and high inflation that has prompted central banks to hike interest rates, pushing up the cost of borrowing. For the first time in decades, Morocco is borrowing at a rate that is two percentage points higher than usual.

The budget deficit, which exceeds five per cent of Morocco's gross domestic product, as well as pressure on commercial banks and the need to finance private sector projects and investment — forced the government to tap international financial markets to relieve the domestic market and diversify funding sources needed to plug the budget deficit.

Morocco needs to pump about 93 billion dirhams ($9 billion) into its financial market to respond to individual and corporate loan requests, according to estimates by BMCE Capital Research. This follows the rise in interest rates to 2.5% by the Central Bank to curb inflation, which hit 8.8% in January.

The possibility that Morocco will have to turn to the International Monetary Fund cannot be ruled out.

The Central Bank expects international agencies to improve Morocco's rating soon, raising it to investment grade, thanks to its successful issuance of sovereign loan facilities in the global market and its unanimous removal from the grey list. This is reinforced by the implementation of a new liberal investment law that is in line with a private sector investment plan worth $50 billion.

France obstructing Morocco investment

Historically, France was the European country that supported Morocco the most during economic crises. But it has now become the main obstacle to Morocco's efforts to attract investment and foreign financing, seeing it as a competitor within African markets.

Morocco now has 27 bank branches across sub-Saharan Africa, Egypt and Tunisia. The three banks operating the branches – Banque Populaire, Attijariwafa Bank, and Bank of Africa – were behind more than a third of all financial and banking transactions in Africa in 2022, according to the African Development Bank in Côte d'Ivoire.  

France blames its financial decline in Africa on the dominance of Moroccan banks. That is why Paris is submitting a draft law to the EU that would apply to the seven Moroccan bank branches in Europe.

They would face the same working conditions in place for British banks after Brexit. It argues that the banks generate surplus value to a country outside the EU, although it is a privileged partner of the bloc.

France does not conceal its anxiety over the expansion of Moroccan banks within its borders and in other European countries, including Belgium, Italy, Spain, and the Netherlands. In addition, the Moroccan community in Europe is estimated at five million, as well as the sub-Saharan community which relies more on Moroccan banks to transfer money.

Moroccan remittances reached $10 billion last year, represented 8% of GDP, and plugged half of the trade deficit. The remittances, representing a share of the deposits in the local banking system, help maintain the value of the dirham, and enhance foreign reserves, which are estimated at about $36 billion.

France worries that these remittances, plus remittances from other expatriate communities using Moroccan banks, coupled with tourism activity and air transport between the two continents, could turn Morocco into a central financial hub that countries like China or Britain can use to marginalise European banks.

Silent crisis

Olivér Várhelyi, the European commissioner for neighbourhood and enlargement, said the EU relies on Morocco in its relationship with Africa and the southern Mediterranean region. He added that the North African country remains an old and critical partner, especially in these difficult global circumstances.

Multiple analysts believe there is a silent crisis between Rabat and Paris over the Western Sahara, economic issues and investment in Africa, but this is not necessarily the case for the rest of Europe.

Much of the EU is racing to jump on promising investment opportunities in Morocco and other parts of the region and the continent, covering renewable energy and raw materials. This was evident in a recent visit by Austrian Chancellor Karl Nehammer to Rabat.

Observers do not rule out that a source of tension between Rabat and Paris may stem from the improvement in relations between Morocco, the US and Israel under the Abraham Accords.

Many believe that the problem between France and Africa runs deeper and is more sensitive, rooted in the historical exploitation of the continent's resources while its people perish in the deserts and seas.

During President Emmanuel Macron's recent visit to Gabon, Angola, and the Democratic Republic of the Congo in the first week of March, the French leader found himself persona non grata at more than one location.

For the first time, a president of France was verbally attacked and had his national flag torn to pieces in lands that the country once considered its personal reserves for everything from oil and diamonds to gold and wood. But that was yesterday's world.