IMF approves $1.32 billion resilience loan for Morocco

New lending facility funds will help the country address climate change and boost its preparedness against natural disasters

Chefchaouen in Morocco. The 6.8-magnitude quake on September 8 was the country's worst in more than 60 years. AFP

The International Monetary Fund’s executive board on Thursday approved a $1.3 billion package for Morocco under its Resilience and Sustainability Facility, after a recent earthquake killed about 3,000 people in the North African country.

The 18-month arrangement will "help Morocco address climate vulnerabilities, bolster its resilience against climate change, and seize the opportunities from decarbonisation", the Washington-based lender said.

It will also help Morocco to strengthen preparedness for natural catastrophes and stimulate financing for sustainable development, it added.

The 6.8-magnitude quake on September 8 was the country's deadliest in more than 60 years.

Morocco plans to spend $11.7 billion in a post-earthquake reconstruction programme over the next five years, the Royal Palace said on September 20.

The amount approved by the IMF is equivalent to special drawing rights worth one billion, which is equivalent to 112 per cent of Morocco’s quota, the lender said.

SDRs are an international reserve asset created by the IMF to supplement the official reserves of its member countries. They are not a currency, but rather a potential claim on the freely usable currencies of IMF members that can boost a country’s available liquidity.

A basket of currencies that includes the US dollar, euro, Chinese yuan, Japanese yen and the British pound, define SDRs. They are distributed to countries in proportion to their quota shares in the IMF.

“The RSF will help Morocco boost investment in renewable energy, increase energy efficiency, strengthen resilience against natural disasters, green its financial sector, and tackle water scarcity,” said Kenji Okamura, the IMF’s deputy managing director .

“It will also help bolster Morocco’s external stability by reducing its dependence on imported energy and helping attract foreign direct investment.”

The RSF is the IMF’s first facility to provide long-term affordable financing to help countries deal with structural challenges such as climate change and pandemics. It was launched in April 2022.

It seeks to raise $45 billion for the funding facility to help member nations deal with longer-term structural challenges that pose macroeconomic risks, including climate change and pandemics.

The IMF’s executive board approved the establishment of the RSF to complement the fund's other lending platforms: the General Resources Account and the Poverty Reduction and Growth Trust.

The trust provides financing with a 20-year maturity and a 10.5‑year grace period. It will provide policy support and affordable longer maturity financing to help build resilience against long-term risks to the stability of balance of payments of member countries. It allows economically stronger IMF members to channel their SDRs to help vulnerable countries.

The RSF arrangement would coincide with the remaining 18 months under the flexible credit line (FCL) arrangement approved in April, the IMF said on Thursday.

The lender had approved a $5 billion FCL for Morocco to boost its external buffers, provide insurance against possible risks and prevent crises.

The IMF’s FCL facility is designed to meet the demand for crisis-prevention and crisis-mitigation lending for countries with strong policy frameworks and track records in economic performance, according to the fund’s website.

It aims to provide financial support to help these countries meet actual or potential balance of payments needs and boost market confidence during a period of heightened risks.

Damages arising from the earthquake that hit Morocco could be as high as 8 per cent of the country’s gross domestic product, according to the latest estimates from the US Geological Survey.

That would be about $10.7 billion, based on the North African country’s 2022 GDP estimate of $134.18 billion, according to data from the World Bank.

Morocco’s economy has already contracted because of domestic and international shocks including a drought and high commodity prices, the World Bank said.

The country’s real GDP growth plummeted to an estimated 1.2 per cent between 2021 and 2022, from 7.9 per cent, “pushing core inflation to 8.5 per cent in February 2023 and disproportionately affecting poorer households”, the World Bank said in May.

Tourism represents 7 per cent of Moroccan economic activity, employing more than half a million people, according to Mordor Intelligence.

Morocco had accessed four of the IMF’s precautionary and liquidity line arrangements, each amounting to about $3 billion, in 2012, 2014, 2016 and 2018.

The fourth expired in April 2020 when Moroccan authorities tapped into all the available resources under the arrangement to limit the social and economic impact of the Covid-19 pandemic and to maintain an adequate level of official reserves.