Morocco April 2017

Central bank to liberalise dirham & issue sukuk bond by third quarter

Bank al Maghrib (BaM) (central bank) governor Abdellatif Jouahri announces that the BaM plans to start to liberalise the exchange rate of the Moroccan dirham by June 2017 and will also issue an Islamic-compliant sukuk bond in the same time frame.

Bank Al-Maghrib (BaM) (central bank) governor Abdellatif Jouahri told finance ministers from Gulf states on 18 April that the BaM plans to start to liberalise the dirham by June 2017 and would also issue an Islamic-compliant sukuk bond in the same time frame. Morocco is pushing the timetable for complex economic liberalisation reforms in order to maintain a positive relationship with donors including the IMF and international investors. Jouahri said that the plans, which the BaM drew up in 2016 to move to a 5% fluctuation in exchange rate against major currencies, would start by June. Currently the BaM controls the exchange rate based on a 60% weighting against the euro and a 40% rating against the dollar. The BaM plans to introduce a fully flexible exchange rate gradually with the full process taking up to 15 years. Finance minister Mohamed Boussaid confirmed on 18 April that the BaM is able to start the new flexible rate from June, and hinted that the bank would wait for a strong moment for the dirham to introduce it. Boussaid also confirmed that the BaM and the government would release a locally denominated sukuk before June. The BaM said in late 2016 that the government would release it in the first half of 2017 (see ARC Briefing Morocco January 2017). Boussaid said that Morocco would not release an internationally denominated sukuk in the immediate future.

“Morocco is in a strong position to issue debt, particularly on the Islamic markets where its close relationship with the Gulf states will translate into high investor confidence… keeping it in dirhams allows the government greater control of the product, which broader investors will watch closely, and will draw further international funds into the country.”1

The BaM had planned to introduce the first exchange rate flexibility before the end of 2016, and analysts in Morocco believed that the delays to forming a government after the October 2016 elections would delay this process further. The same concerns applied to the sukuk bond, which many commentators also believed the government would push until the latter half of 2017. A local analyst commented that this reflects the concerns of the incoming administration not to lose momentum on fiscal reforms:

“Boussaid is eager to continue his programme of liberalisation, and the palace is right behind him … the BaM and finance ministry have been working to prepare the ground for months, or this would not be possible…this shows the new regime will be economically liberal despite the more leftist elements in the coalition.” 2

The BAM is taking centre stage in the government’s economic policy, putting in place further reforms to continue attracting investment to Morocco. The dirham stands to gain on the open currency market in the current political and economic situation. However, if markets lose confidence, the safety net of controlled exchange is no longer there. Both the BaM and the markets will watch the fluctuations as the controls are phased out. The locally denominated sukuk is another demonstration for the markets and investors that Morocco is a safe and profitable centre of sharia-compliant finance in North Africa. Currently, other regional players lag behind Morocco. If the locally denominated sukuk is a success, it is likely the government will issue an internationally denominated one in the medium term.

1. [Source, emerging markets analyst, Casablanca]

2. [Source, investment analyst, Casablanca]

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