Morocco better placed than South Africa to meet future economic challenges

by MMC
0 comment

Download the Scope Ratings report

Morocco (rated by Scope Ratings BB+/Stable outlook) faces milder credit problems than South Africa (BB/Stable Outlook), driven by economic growth above potential, a healthier budgetary situation and better prospects for reform. This explains the one-notch difference between the long-term ratings of Morocco and those of South Africa. Scoping assessments South Africa downgraded in October 2023.

Emerging economies such as Morocco and South Africa face four main challenges – socio-economic, monetary, fiscal and external – amid global economic uncertainty.

Four main challenges – socio-economic, monetary, fiscal and external

Priorities for the two non-investment grade borrowers (Figure 1), notably the return to stronger, sustainable and more inclusive economic growth, essential to combat poverty and inequalities.

It is also important to control inflation, in particular by reducing exposure to commodity price volatility. The same goes for rebuilding budgetary reserves and controlling public deficits while limiting the increase in public debt in a context of higher borrowing rates today. Finally, countries must strengthen the resilience of their external sector to cope with future economic shocks.

Although the two countries have similarities in terms of economic profiles, manufacturing industries and natural resources, Morocco’s stronger per capita output growth and flattening public debt trajectory reflect credit strength .

Figure 1. Morocco outperforms South Africa on most key economic and social indicators

Source: Scope Notes

Source: Scope Notes

Morocco’s progress in reforms and cooperation with the IMF are assets

Morocco’s greater progress in reforms also helps to offset its difficulties in defining monetary policy and managing its exchange rate. Morocco’s close cooperation with the IMF, both financially and technically, also constitutes a major asset in terms of credit.

Furthermore, South Africa performs well on inflation targeting and exchange rate flexibility. However, the country faces considerable political uncertainties, in addition to infrastructure deficits, notably with the state-owned electricity company Eskom, and governance problems, particularly regarding corruption, which keeps growth well below of its potential. The outcome of this year’s elections will determine the pace of reforms in South Africa.

For a look at all of today’s economic events, check out our economic calendar.

Thomas Gillet is Director of Sovereign and Public Sector Ratings at Scope Ratings GmbH. Dennis ShenChairman of the Macroeconomic Council of Scope Ratings, and Thibault Vasséformer associate director at Scope Ratings, co-authored the full report.

This article was originally published on FX Empire

More from FXEMPIRE:

You may also like

Leave a Comment

afriqaa (1)

The news website dedicated to showcasing Africa news is a valuable platform that offers a diverse and comprehensive look into the continent’s latest developments. Covering everything from politics and economics to culture and wildlife conservation

u00a92022 All Right Reserved. Designed and Developed by PenciDesign