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Morocco PM says government needs more studies on currency reform

Morocco’s surprise delay in announcing its proposed currency liberalization came only because the government needed “further studies” of the plan, Prime Minister Saadeddine El Othmani said, dismissing speculation that it ran into significant problems.

Last week, Morocco’s central bank postponed for “a few days” its planned announcement of the first phase of liberalizing the dirham, a key reform backed by the International Monetary Fund. The central back gave no reason for the delay.

In a weekend interview on Morocco’s two public television channels, Othmani said he met with Finance Minister Mohammed Boussaid and central bank Governor Abdellatif Jouahri to discuss the move to a flexible currency regime and “the decision will be made at the right time.”

The dirham’s value is now fixed by a peg that is weighted 60 percent to the euro and 40 percent to the dollar. The first stage of reform will let the currency trade in a narrow range, which will widen over the course of up to 15 years.

The apparent delay left traders worried about the progress of the liberalization. Morocco has advanced more than its North African neighbors in fiscal reforms, but like Egypt, Tunisia and Algeria, it is wary of unrest from currency shifts or cuts in state subsidies on fuel and basic foods.

According to one source with knowledge of the process, the delay was caused by “last-minute fine tuning,” although neither the central bank nor the government has said exactly how long the announcement will be delayed.

“What is proposed is a move to 5 percent margin,” the prime minister said, confirming a previous Reuters report that trading fluctuation will widen to 2.5 percent each way. “It’s not a floating of the dirham, but it’s just a degree of flexibility in the price of the currency,” he said.

Trading fluctuations are now only about 0.6 percent.

Othmani also denied reports one reason for the delay was a depletion of foreign reserves by $4.4 billion in the last two months. All Moroccan institutions involved in the process would need to agree about moving to a flexible regime in “order to protect the purchasing power of the Moroccan citizen,” he said.

Othmani also said the government had decided to reform the currency. The central bank’s role was making preparations and “taking the necessary precautions, approving the procedures.”

“It has the tools to intervene in the appropriate time to maintain the trading margin. This is the general context,” Othmani said of the central bank.

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