Morocco’s dirham has been stable against major currencies since the central bank introduced a more flexible exchange rate in reforms recommended by the International Monetary Fund to liberalise the country’s economy.
Bank Al-Maghrib — Morocco’s central bank — widened the band in which the dirham can be exchanged against hard currencies to 2.5% on both sides of a reference price, against 0.3% previously.
Lotfi Abourizk, a professor at the Hassan II Faculty of Law and Economics in Casablanca, said the new system would be supervised by Bank Al-Maghrib, which assured it would not cease intervention on the foreign exchange market “to ensure its liquidity.”
“This transition to a more flexible exchange rate regime will, therefore, not represent any major risk neither for the macroeconomic level nor for the operators. It is just a fluctuation determined within a band,” said Abourizk.
The foreign exchange market has been relatively calm since the policy was introduced January 15. There has been relatively little speculative trading unlike last July when speculation on the dirham’s fall prompted a huge drop in the central bank’s foreign reserves, forcing it to postpone the move to a flexible exchange rate.
The Finance Ministry kept news of the change quiet until late January 12 — the eve of the weekend — to avoid speculation.
In April 2015, the central bank moved towards a more flexible dirham by reducing the euro’s weighting in the currency basket to 60% from 80% and doubling the US dollar’s weighting to 40%.
The peg will be eased to allow the dirham to trade in a narrow range, which will be gradually expanded with a view to fully removing the peg in a few years, depending on the market response.
Morocco has enough foreign exchange reserves, covering almost six months of imports, to allow a smooth transition, Bank Al- Maghrib said.
The new system seeks to boost competitiveness of Morocco’s exports and protect its foreign exchange reserves but there is concern it will backfire and increase prices of imported goods.
“Moroccans’ fear is legitimate because any decrease in the dirham will affect the imported goods besides local products that use imported raw materials, which will, in turn, raise the prices,” said El Mehdi Fakir, a strategy and risk management consultant.
“In both the medium and long terms, Morocco’s economy could get stronger if the country starts producing the goods that are becoming dearer to import,” said Fakir.
The Groupement des Petroliers du Maroc (GPM) cautiously welcomed the new system as the petrol prices were likely to rise. GPM Chairman Adil Ziadi warned the flexibility would generate significant additional costs that would put operators in the oil sectors at risk.
Since imports of petroleum products are denominated in US dollars, any fluctuation — even minimal — between the purchase and settlement of transactions may expose Moroccan traders.
“As much as we will benefit from exports, so will the opposite in terms of imports. This is a major disadvantage in view of the nature of what we import: technology and energy. This will result in the undeniable price rise of these products and, by extension, the cost of living,” said Abourizk.
The trade deficit increased 2.6% in 2017 compared with 2016, reaching $20.5 billion, the foreign exchange regulator said.
The worsening of the deficit was driven by a 6.3% rise in imports to more than $47 billion from a year before mainly due to increases in energy bills and industrial goods, exchange regulator statistics stated.
Abourizk warned a depreciation of the dirham could risk inflation on imported products such as oil.
“A depreciation of the dirham would also lead to an increase in the weight of foreign debt denominated in foreign currencies,” he said.
Saad Guerraoui is a regular contributor to The Arab Weekly on Maghreb issues.