Économie et Finance

A more flexible currency exchange system for the dirham: Please Mr Jouahri, continue the fight!

le 4 octobre 2017


What a pity that the Government Council has put an ‘end’ (temporarily?) to reforming the foreign exchange market and the introduction of a more flexible currency exchange system for the dirham!

More importantly, the Head of the Government did not provide any convincing explanation about this choice when interviewed on the two national television channels, minimising Bank Al-Maghrib’s hard work by referring to the Central Bank’s role as one of providing ‘support’!

What is also regrettable is that the two journalists who interviewed him did not ask Dr Saad Eddine El Othmani to provide any justification for his decision and outline our country’s economic strategy.

It is not normal that such a major reform of the exchange rate regime is reduced to a simple yes or no by public officials!

In fact, while it is clear that the decision to undertake this volte-face was due to politicking, it is worth taking a look at the two years of preparatory work put in by Bank Al-Maghrib.

The battle to meet prerequisite criteria

First, its Governor, Mr. Abdellatif Jouahri, engaged our country in long and important deliberations with the IMF on the need to liberalise the Moroccan economy and address the fundamental contradiction between having an open economy and a system of foreign exchange controls.

However, the Central Bank also took meticulous care to measure the risks, particularly in the event of financial and economic shocks.

Furthermore, the BAM Governor never ‘went it alone’. It was after full concertation with Mr Mohamed Boussaid, the Minister of the Economy and Finance, that the decision was taken to initiate the reforms that are inevitable over the long term.

A period of at least two years was spent in making preparations, with the IMF’s support.

In this first phase, starting from scratch, Bank Al-Maghrib again played the role of incubator. It worked on the pre-requisites that were necessary for transitioning from a controlled to a flexible exchange rate regime.

The initial focus was on bolstering the country’s economic fundamentals by gradually reducing the budget deficit and bringing down the ordinary deficit completely.

Emphasis was also placed on reducing the government debt-to-GDP ratio, restructuring public debt and reducing its burden on the State, while juggling with external and internal debt.

It was also important to keep a close eye on the country’s external balance of payments by ensuring that our foreign currency reserves covered at least 6 months of imports, which is a real challenge for a country like Morocco where imports are structurally high.

And with the industrial transformation of the Moroccan economy currently underway, it was important to boost exports over the long term while taking advantage of lower prices to reduce hydrocarbon imports as these take a heavy toll on the trade balance.

Lastly, with these pre-requisites met, BAM will be in a position to set a medium-term inflation rate target based on which the value of the dirham may be allowed to fluctuate within a pre-determined band.

In order to ensure credibility in inflation targeting, BAM had to build accurate economic databases to be able to identify any inflationary spikes by monitoring household consumption and the prices of foodstuffs and any other widely consumed goods so as to measure trends in both internal and imported inflation and be able to control it by fine-tuning monetary policy.

Major watershed

As it stands, the preparatory phase of exchange rate reform is considered to be complete and Morocco is ready to embrace this watershed by transitioning to a fully open economy, which will have undeniably measurable advantages.

Protecting the Moroccan economy from external shocks is therefore one of the main aims of these exchange rate reforms. And God alone knows how many shocks have impacted and set back our economy.

And there is no doubt that only astute minds understand to what extent the economy is still vulnerable to financial and economic crises, commodity prices (particularly but not only oil prices) and our country’s ability to raise finance on international capital markets.

This is why we must not abandon the exchange rate reforms so meticulously prepared by BAM over the past two years. There is no doubt that we will regret it when next faced with the tiniest of shocks!

Let’s hope that Mr Jouahri will not give up so easily.

He and Mr Boussaid understand the cost of implementing exchange rate reform in terms of time, budgetary reform, and economic efforts. They must not step back from the giant leap forward that our country has made!

And Bank Al-Maghrib, which brought about changes in the banking legislation to support commercial banks in Africa while ensuring their financial solidity, oversaw the creation of a support fund for micro-businesses and endeavoured to ensure easy and smooth access to bank finance, cannot be reduced to playing a bit-part role.

On the contrary, the Central Bank has been an incubator and an important agent in bringing about the fundamental reforms in this country’s economy and finances!

For all these reasons, the exchange rate reforms, devised and prepared by Mr Jouahri and his staff, must be carried out.

BAM has relentlessly organised roadshows for export trade organisations and other economic agents that will be affected by these reforms to raise awareness about every conceivable aspect of a flexible exchange rate mechanism.

The fact that some have not understood anything at all and that others have been ill advised by brokerage firms which have coerced them into forex hedging, must be considered part and parcel of the learning process.

What is important is that our Dirham becomes a currency which, little by little, begins to fluctuate within a band that is managed by BAM and the Foreign Exchange Bureau, so as to anchor the Moroccan economy more firmly in the vast globalized economy.

Therefore, please Mr Jouahri, don’t give up, continue the fight. Moroccans will be grateful to you!

Afifa Dassouli

Original article : https://lnt.ma/flexibilite-dirham-de-grace-m-jouahri-continuez-combat/