Morocco delays currency reform amid speculation

Banks speculated on the fall of the dirham’s value, triggering a $4.4 billion drop in foreign currency reserves in two months.

Ready for reform. Morocco’s Central Bank Governor Abdellatif Jouahri speaking to the media in Rabat. (Reuters)


2017/07/16 Issue: 115 Page: 19


The Arab Weekly
Saad Guerraoui



Casablanca - Morocco’s long-await­ed first phase of lib­eralising its currency was postponed fol­lowing speculation on its fall prompted a drop in the country’s foreign reserves.

The government delayed mov­ing to a flexible exchange rate, a key International Monetary Fund-backed reform to liberalise Moroc­co’s economy, a spokesman said on July 7, citing the need for further studies.

During a news conference in late June with the central bank gov­ernor and finance minister, the central bank invited journalists to attend the announcement. Later it delayed the announcement a “few days,” without saying why.

“The delay can have many expla­nations. First of all, we are in a situ­ation in which there is doubt about the political and economic climate that is affecting the investment sentiment,” analyst Rachid Aourraz said in reference to political unrest in the Rif region.

The Rif region has been the scene of protests since last October when fishmonger Mouhcine Fikri was crushed inside a rubbish truck in Al Hoceima as he apparently tried to protest the seizure and destruction of hundreds of kilograms of sword­fish, which are not allowed to be caught in autumn.

Fikri’s death sparked the emer­gence of a grass-roots movement called Al-Hirak al-Shaabi, led by Nasser Zefzafi, demanding social justice, jobs and health care for Al Hoceima.

The government’s response to the Rif crisis was slow, prompt­ing Moroccan King Mohammed VI to assign the interior and finance ministers to conduct investigations into the state’s failure to execute a development programme, signed in October 2015, aimed at develop­ing various sectors in the region.

Authorities since 2007 have been mulling a switch to a floating ex­change rate regime, which would involve several steps.

The central bank said it would implement a gradual and orderly transition to a more flexible ex­change rate regime in the second half of 2017, allowing the various market participants to effectively adapt to the change.

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 raising the US dol­lar’s weighting to 40% from 20%.

That peg is to be eased to allow the dirham to trade in a narrow range. The peg would be gradually expanded until it is fully removed within a few years, depending on market response.

However, pessimistic economic operators cited Turkey and Egypt in warning of the risks that may arise during the transition.

Moroccan banks speculated on the fall of the dirham’s value ahead of the announcement, causing a $4.4 billion drop in foreign curren­cy reserves in two months. Finance Minister Mohamed Boussaid said the country still has six months of reserves.

Central Bank Governor Abdellatif Jouahri blamed financial operators and banks for using the reform to speculate against the dirham.

“I had the presidents of banks on the phone. I told them that I am not happy because my word was ques­tioned while I worked in a transpar­ent way,” an angry Jouahri said.

“I think Moroccan banks invest­ed in the main foreign currencies (euro and US dollar) because they simply saw they were going to make profits behind the dirham’s fall following its liberalisation and do not trust the current economic climate,” said Aourraz, a researcher at the Arab Centre for Scientific Re­search and Human Studies.

To stem the panic in the market, the central bank stopped serving banks with foreign exchanges.

Jouahri said $4.4 billion had been drained from foreign curren­cy reserves “without necessarily any economic justification.”

“Moroccans will feel the pinch once the dirham falls against the dollar and euro because our im­ports will be dearer, which will in turn push up inflation,” said Aour­raz. “The mishandling of this tran­sition process will definitely have a negative impact on investor senti­ment and major stakeholders.”


Saad Guerraoui is a regular contributor to The Arab Weekly on Maghreb issues.


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