Moroccan Economy

Morocco’s economic freedom score is 59.6, making its economy the 90th freest in the 2013 Index. Its score is 0.6 point worse than last year, with large declines in the control of public spending and trade freedom that outweigh gains in investment freedom and labor freedom. Morocco scores about the world average and is ranked 9th out of 15 countries in the Middle East/North Africa region.

Morocco’s steady improvement in economic freedom has come to a halt. Critical development challenges include lingering widespread corruption and relatively high government spending. Budget deficits continue, and public debt has surpassed 50 percent of GDP. Undermining ongoing anti-corruption efforts, the judicial system remains inefficient and vulnerable to political influence.

By and large, Morocco has taken steps to integrate its economy into the global marketplace. The economy performs relatively well in investment freedom and business freedom. Procedures for conducting a business have become streamlined, and foreign investment is generally welcome in many sectors, although the investment regime needs more transparency to spur dynamic growth.

BACKGROUND

Morocco, a constitutional monarchy with an elected parliament, has been a key Western ally in the struggle against Islamist extremism. King Mohammed VI responded to popular calls for democracy and protests against corruption and high food prices by authorizing a commission to propose amendments to the constitution. Those amendments, designed to increase the power and independence of the prime minister, as well as protections for human rights, were approved in a July 2011 referendum. The Justice and Development Party won a plurality in the November 2011 parliamentary elections and became the first Islamist party to lead a Moroccan government, although the king, who is the chief executive, retains significant power. Morocco has a large tourism industry and a growing manufacturing sector, but agriculture accounts for about 20 percent of GDP and employs roughly 40 percent of the labor force.

RULE OF LAWVIEW METHODOLOGY

Property Rights40.0 

Freedom From Corruption 34.0

Private ownership is permitted in all sectors except for a few, like phosphate mining, that are reserved for the state. With few exceptions, private entities may freely establish, acquire, and dispose of interests in business enterprises. The judiciary is influenced by the king, and adjudication of cases can be slow. A new government that took office in 2012 pledged to make the fight against corruption one of its key priorities.

LIMITED GOVERNMENTVIEW METHODOLOGY

Government Spending64.3

Fiscal Freedom71.4

The top income tax rate is 38 percent, and the top corporate tax rate is 30 percent. Other taxes include a value-added tax (VAT) and a gift tax. The overall tax burden equals 22.8 percent of GDP. Government spending has increased to 34.5 percent of total domestic output. The budget has been in deficit, and public debt has climbed to over 50 percent of GDP. High youth unemployment has prompted increased government spending to create jobs.

REGULATORY EFFICIENCYVIEW METHODOLOGY

Business Freedom76.4

Labor Freedom30.1

Monetary Freedom78.9

Procedures for setting up private enterprises have been further streamlined. Launching a business takes six procedures and 12 days, and no minimum capital is required. However, the cost of completing licensing requirements is still over twice the level of average annual income. Labor market rigidity continues to discourage dynamic job growth. Monetary stability has been maintained with relatively modest inflation.

OPEN MARKETS VIEW METHODOLOGY

Trade Freedom70.8

Investment Freedom70.0

Financial Freedom60.0

The trade-weighted average tariff rate is 7.1 percent, and inefficient customs procedures further increase the cost of trade. Foreign investment is welcome, but sector restrictions continue, particularly in areas where the state maintains a monopoly. The financial sector is fairly well developed in comparison to other economies in the region, with banking intermediation increasing gradually. Credit costs remain relatively high.

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