Moody's: Low oil prices and energy subsidy reform help strengthen Morocco's public and external finances

Morocco's (Ba1 stable) government balance sheet is set to strengthen in 2016-17 as the country benefits from lower energy spending following the drop in oil prices, says Moody's Investors Service in a report published recently.

Moody's report, entitled "Government of Morocco -- Annual Credit Analysis," is available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release. The rating agency's report is an update to the markets and does not constitute a rating action.

"Lower oil prices have softened the impact of the government's energy subsidy reforms. We forecast this will lead to structural improvements in the government's fiscal and external accounts, as well as create additional room for capital expenditures," says Elisa Parisi-Capone, an Assistant Vice President -- Analyst at Moody's.

"We also expect foreign direct investment inflows to remain strong in the next 18 months. Morocco's stable environment and favourable economic growth prospects make it an appealing destination for investment, particularly in services, newer export industries and alternative energy."

In Moody's view, the harnessing of significant renewable domestic energy resources is credit positive from an environmental sustainability perspective. At the same time, it permanently reduces Morocco's balance of payment sensitivity to higher energy prices.

Morocco's GDP-per-capita remains constrained as compared to peers at the same rating level, and the relatively high share of agriculture value added in total GDP at about 15% fuels growth volatility. However, the government is focused on increasing manufacturing as a share of the economy to 23% of GDP by 2020, from 16% in 2012. It also aims to expand its export-base and to position Casablanca as a financial services hub in the region.

Moody's notes Morocco's relatively high, but affordable, government debt level, which it expects to peak at about 65% of GDP this year. However, Morocco's low exposure to foreign-currency debt partly mitigates the previous deterioration in its debt metrics, somewhat insulating the country from global financial market volatility.

Domestic political risk is contained, although geopolitical tensions in the region have increased in recent months, according to Moody's.