Its harms outweigh its benefits.. This is how the depreciation of the euro affects the Moroccan economy

Rabat - 

Trade with the European Union accounts for about 60% of Morocco's foreign exchange, making Morocco the first partner of the European Union in the southern Mediterranean.

The single European currency "the euro" witnessed an unprecedented decline compared to the US dollar, and this European economic, political and financial reality preoccupies the world, with possible effects on the future of Europe and its partners.

Morocco is expected to witness a double impact of the low euro and dollar rise on its economy, as the energy bill aggravates the trade deficit and shrinks export revenues in euro and expatriate remittances, and importers benefit from it.

Effects and others discussed by Al Jazeera Net with 3 experts and analysts specializing in international finance and public finance;

Analyst and financial advisor Al-Tayeb Eas, Professor of International Finance Abu Al-Gawad Kamal, and international expert Professor of Finance and Institutional Economics Saeed Youssef.

What are the advantages of the current situation and the repercussions of the decline in the euro in general?

According to the economic analyzes that keep pace with the current situation, the European economy is the most affected by the effects of the war in Ukraine as a result of its strong link to Russian energy products.

Financial expert Saeed Youssef says that the Russian-Ukrainian war was the point that overflowed the cup, because the European economy suffers from fragility after Corona, in contrast to the strength of the American economy, in addition to the high rate of inflation that led to the devaluation of the currency.

Al-Tayeb Aissa believes that the first beneficiary of the movement of currencies (the decline of the euro and the rise of the dollar) is America, considering that the real competitor to America is a united, structured and strong Europe.

Ais believes that the European crisis is in its infancy and that the fall and winter of Europe will be harsh.

In the same context, Ayes explains that raising interest rates in the United States will lead to more capital flight towards America, thus increasing pressure on the euro in favor of the dollar and increasing global demand for the dollar.

The High Commission for Planning expected, in the newly issued "Situational and Forward Looking Budget" bulletin for the years 2022 and 2023, that the unfavorable prospects for European economic growth lead to a decline in investor confidence in the European currency, "the euro", and thus cause a drop in its value.

The delegate said that raising the main interest rate in the United States of America will lead to a decline in the value of the European currency, and thus exacerbate the energy bill, increase the costs of companies and the deterioration of the purchasing power of families, and estimated the depreciation of the euro against the dollar from 1.18 in 2021 to 1.07 in 2022 and 2023.

Kristalina Georgieva, Managing Director of the International Monetary Fund, said, “The outlook remains fraught with a great deal of uncertainty. For example, the possibility that increased disruptions in natural gas supplies to Europe could push many economies into recession and trigger a global energy crisis ( …) Conditions will be harsh in 2022, and perhaps even harsher in 2023, as the risks of a recession increase.”

How does the decline of the euro against the rise of the dollar affect Moroccan trade exchanges (exports and imports)?

The value of trade exchanges between Morocco and the European Union amounted to about 35 billion euros, at the end of 2020, of which 15 billion were Moroccan exports to the union.

Trade exchanges approached $50 billion in 2018 (before the Corona pandemic).

Al-Tayeb Ais believes that the decline of the euro in exchange for the rise of the dollar has a negative impact on Morocco from two sides: “We buy with dollars and export with euros.” The economic and financial consultant says that most of the imported basic materials are denominated in dollars (gas, oil, table oil, wheat, coffee) in exchange for the exports that Most of them are heading towards Europe, which, according to Aïss, results in "a decrease in export revenues, a weak competitiveness of Moroccan products, and a rise in the dollar-denominated import bill."

For his part, Professor of Economics and Finance Kamal Abu Al-Jawad asserts that the biggest impact will be on the energy bill, including the effect on the trade balance deficit.

According to data from the Moroccan Exchange Office, the energy bill amounted to 54.64 billion dirhams (a dollar equals about 10 dirhams) at the end of last May, driven by the rise in gas and fuel supplies, with an increase of 14.02 billion dirhams.

Morocco's trade deficit reached 91.04 billion dirhams during the first four months of the current year.

The trade deficit formed "negative 15.6%" of the GDP in 2021, and is expected to worsen to reach minus 17.9% for the GDP in 2022, according to the data of the High Commission for Planning.

Said Youssef regrets that Morocco has not benefited from the free trade agreement with the United States (a deficit in favor of the United States), and its exports remain, as a whole, destined for the European Union.

On the positive side, Abu Al-Jawad pointed to the strengthening of dollar-denominated export revenues to the limits of 40%, such as phosphates (exports of phosphate and its derivatives doubled and amounted to 36.14 billion dirhams at the end of April 2022, compared to 18.19 billion dirhams during the same period last year).

He pointed out that Moroccan importers from Europe will benefit from the depreciation of the euro as well.

How does the depreciation of the European currency affect tourism and remittances from expats in Morocco?

According to the financial analysts with whom Al Jazeera Net spoke, the Moroccan tourism offer will be affected by the decline in the euro as a result of the decrease in purchasing power in the European Union, which in turn affects the demand directed to Morocco, and the speakers estimated that the competitiveness of the tourism offer will decrease in view of the exchange rate of the dirham.

The Moroccan Ministry of Tourism had recorded an increase in the number of arrivals by more than one million and 140 thousand tourists during June 2022, which translates to an increase of 5% compared to 2019 (levels before the pandemic).

As for the remittances of Moroccan expatriates residing abroad, they are subject, according to the intervenors, to the value of the local currency exchange in both the euro and the dollar, and given that the majority of the Moroccan community is located in Europe, it is expected that the value of remittances will be negatively affected due to the decline in the euro.

According to the Exchange Office, remittances from Moroccans living abroad exceeded 30.56 billion dirhams in April 2022.

Is there an impact of the dynamics of the euro/dollar dual currency on the public budget and debt in Morocco?

Saeed Youssef explains to Al Jazeera Net that the import in its entirety is in dollars;

It will affect the currency portfolio in Morocco and thus the debt ratio.

The gross public debt rate is 82.5% of GDP.

Since the majority of Moroccan debt is denominated in dollars, related to donors, and fixed in predetermined contracts and periods, Kamal Abul-Jawad calls for a proactive study to know the movement of the currency and prepare for its fluctuations.

Abu El-Gawad raises the problem of pressure on balances due to the high bill for energy materials (outside oil) on the public budget through the increase in clearance credits (Morocco supports flour, butane gas and sugar), in addition to the impact of the price of gas and industrial fuel on the productivity of companies.

The Moroccan government had adopted a draft decree to allocate an additional 16 billion dirhams to continue supporting the expenses of the clearing fund.

On the other hand, El-Tayeb Aissa reports that there is an improvement in customs revenues, which may contribute, on the other hand, to alleviating pressure on the public budget.

How is the purchasing power of the Moroccan citizen affected by the dynamics of the euro/dollar binary?

Ayas, Said Youssef, and Abu Al-Jawad, in their analysis of the impact of the decline of the euro and the rise of the dollar on the Moroccan citizen, assert that the rise in imported goods in dollars will exacerbate imported inflation, which will burden the citizen, especially the fixed-income and daily-workers, and will further impoverish the poor.

The High Commission for Planning says that Moroccan economic growth is affected by the repercussions of the "unfavorable" international environment, as a result of the decline in external demand and the rise in inflation.

She adds that household consumption will be affected by the strong rise in energy prices, which will lead to an increase in the prices of other basic products, and thus the purchasing power of households will decrease by about 1.5% in 2022 instead of increasing by 1.1% as an annual growth rate for the period 2015-2019.

While the unemployment rate is expected to stabilize at 12.2% in 2022.

According to the expectations of the High Commission for Planning, economic growth will decline in its pace, as it will stabilize in the range of 1.3% compared to 7.9% in 2021, while the inflation rate - measured by the implicit index of gross domestic product - will increase by 4.9% instead of 3.2% in 2021 and 0 1% in 2020.

What are the expected scenarios and can Morocco come out a winner?

Kamal Abu al-Jawad believes that Morocco can reduce the budget deficit and work on the search for new resources. Abu al-Jawad suggests reactivating the Samir petroleum refining plant to absorb some pressure on the energy bill.

For his part, El-Tayeb Ais expects the war to continue temporarily, and believes that solutions exist at the global geopolitical level, and calls on Morocco to anticipate the shock of the European crisis, which is expected to be severe, according to his description, through good management and reducing bureaucracy to encourage greater investment, attract capital, and strengthen the economic fabric through industrialization. In addition to working on renewable energies, and accelerating the works of the gas pipeline between Nigeria and Morocco to Europe.

Ais believes that Morocco and the countries of the southern Mediterranean can come out with a winner if they deal with more efficiency and studied proactiveness.

As for Saeed Youssef, he talked about the consensus scenario to stop the war and restore the European economy to health.

He believes that Germany and France have the potential to make the union come out with minimal losses from this crisis, noting that if the war continues, the polarity between America, Russia and China will increase, and the biggest loser will be the European Union.

Regarding Morocco, Said Youssef says that it is necessary to work on diversifying markets and directing exports towards America, and to benefit from the free trade agreement with America, Turkey and others.

Ays concludes by saying that "when analyzing point by point, there are pros and cons, but the decline of the euro in this way against the dollar is a precedent, and that the Moroccan economy in general, given its geographical location and its dealings with the European Union in light of the crisis, will often face the negative impact."