Macroeconomic indicators pointing in a positive direction
This is an extremely rare situation that we are witnessing. For the Moroccan economy, the stars are aligning. The aggregates are quite attractive in this FY 2025, and the economic outlook is particularly promising. It is rare to observe a quasi-unanimous orientation of the indicators:
- In terms of growth, GDP shows an unprecedented increase of 5.0%, with very reassuring sectoral indicators such as Agriculture (dam filling rate of 42.5%), Industry (Capacity Utilization Rate of 79%), Tourism (nearly 19,8 million arrivals) as well as the energy bill (barrel price sustainably below 60 $/bbl).
- As regards to the budgetary situation, ordinary revenues have achieved over the past 4 years an average increase of nearly MAD +30 Bn, the subsidy expense no longer constitutes a burden (1.0% of GDP), and investment is reaching record levels. Finally, the fiscal deficit and indebtedness continue a downward trend.
- On the monetary front, inflation is expected to settle at 0.8% in 2025. Outstanding loans are accelerating their growth to +6.2%, while the non-performing loans ratio stood at 8.7% in November, stable compared with the previous year.
- To conclude, the business climate is quite favorable, with major breakthroughs on the diplomatic front, a renewed “Investment Grade” rating, and a successful demonstration of the country’s ability to deliver large-scale projects and to organize major events in line with international standards.
In this report, we present a review of the main aggregates of the FA 2026. We highlight the evolution of public sector commitments in both operating and investment terms. Overall, we seek to show the extent to which this FA takes advantage of this particularly favorable environment.
A conservative growth assumption... supported by rainfall
It was customary to challenge optimism regarding the growth assumption in the construction of the FA in Morocco. The main subject of debate was often the agricultural component, in which the Ministry of Finance projects a “normative” harvest based on an average of previous years’ crop. Meanwhile, forecasts attempt to update these assumptions based on recent rainfall data, in a context of 7 consecutive years of drought.
In this year 2026, the scenario seems to be repeating itself but this time, Morocco is experiencing unprecedented rainfall levels, bringing the dam filling rate to 42.5% as at January 5th, with a volume of 7,123 MM3, representing a year-on-year increase of 48.9%. All indications suggest that this year, cereal production could outperform the 70 million quintals assumption set out in the FA.
Thus, we believe that the FA 2026 growth assumption of +4.6%, although not deviating from the +4.4% consensus, is quite realistic, or even conservative in view of the favorable weather conditions for agriculture. Crop Value Added would therefore record an increase of +7.9%, while Non-Crop Value Added would grow by +4.0%.
On the Demand side, and in a context of continued major structuring projects, Gross Fixed Capital Formation would drive growth with an increase of +6.6%. Gross Investment is supported by the rebound in FDI of +40% in 2025 following +55% in 2024, by Equipment loans (+16.8% at the end of November), which is reflected in imports of Capital Goods (+16.7%).
Household consumption continues to support growth
Household consumption would increase by +3.7%, taking into account very moderate inflation expected at +1.3% in 2026E after +0.8% in 2025A according to Bank Al-Maghrib, and a still favorable trend in workers remittances and in Consumer loans of +1.6% and +4.6% at the end of November, respectively.
Finally, the easing of the energy bill in connection with the expected downward trend in oil prices should be somewhat offset by the decline in Demand addressed to phosphates. Overall, External Demand is expected to slow slightly in 2026E to +2.3%.
Furthermore, the Tertiary sector remains the leading contributor to economic growth due to its weight and its performance, which is marked by consistency. According to the assumptions of the FA 2026, Services are expected to post an increase of +4.2% after +4.1% in the FA 2025.
Realistic and cautious macroeconomic assumptions
For this FY 2026, we consider that the growth assumption is quite realistic, or even conservative, due to the rainfall parameter as discussed above.
As for the remaining assumptions, we are comfortable with the likelihood of their materialization. This makes the projection of non-crop Value Added growth of +4.0% entirely plausible in our view. This projection takes into account the following assumption :
- An oil price of 65 $/bbl: Currently trading at a level below 58 $, the oil price is settling at low levels under the effect of weak Demand and a geopolitical context pointing to the continuation of excess supply;
- A EUR/USD parity of 1.17: Currently at 1.18, the median of forecasts established by AGR stands at 1.19. The narrowing of the interest rate differential between the United States and the Euro Area would explain the upward forecasts for EUR/USD over the short and medium terms;
- An increase in foreign Demand of +2.3% (+3.6% excluding phosphates): This acceleration in growth (compared with +1.8% in the 2025 FA) would be explained by the strengthening of Demand from the main partners, namely France and Spain.
Overall, the Moroccan economy is expected to consolidate this new growth level close to the +5% threshold, confirming a momentum well above the long-term growth level, which stands at around +3.5%.
Revenues are reassuring...with nevertheless, a high operating cost
Strong and steady growth in revenues…
Since 2022, Ordinary revenues have continued to grow at a sustained pace, with an average annual increase superior to MAD +30 Bn. The FA 2026 carries this momentum forward and shows an increase of MAD +38 Bn in these revenues, to MAD 433 Bn. This trend remains broadly sound and is driven, at the level of Tax revenues, by (1) economic growth, (2) the gradual implementation of VAT, CIT and IT reforms, (3) the reduction of tax exemptions, which now represent only 2% of GDP, and (4) collection efforts carried out by the Tax Administration.
Conversely, Non-Tax revenues are down by MAD -9 Bn, while maintaining a solid level of MAD 63 Bn. Revenues from public enterprises and establishments predominate with a share of 44%, while financing mechanisms see their share decline to 32% from 49% in the previous year, i.e. a contribution of MAD 20 Bn compared with a budget of MAD 35 Bn a year earlier.
…With budgetary commitments which are just as high…
Operating expenditures are evolving at an equally rapid pace. On the one hand, the wage bill is increasing sharply by MAD +15 Bn to MAD 195 Bn, after a rise of MAD +13 Bn in 2024. This stems from enrollments (+37k) as well as salary increases, notably a +4% rise for civil servants and a net monthly increase of MAD 1,500 for teachers. The share of the Wage bill thus stands at 10.7% of GDP.
On the other hand, the Treasury continues to achieve savings on Subsidy expense. These decline by MAD -3 Bn to MAD 14 Bn, thus accounting for only 0.8% of GDP. This level is to be compared with the peak of 6.8% of GDP in 2012. This is explained by the decline in energy prices and an advanced process of dismantling the subsidy system. As a reminder, the new phase of dismantling the gas subsidy, scheduled for Jan-26, has been postponed.
…and a genuine determination to maintain the pace of investment
The increase in the public investment budget by MAD +40 Bn to MAD 380 Bn illustrates Morocco’s unwavering commitment to pursuing its structuring projects. The bulk of these investments is carried by the general budget and the public enterprises. A significant share (60%) of these investments will take place in the three Regions of Casablanca-Settat, Rabat-Salé-Kénitra and Marrakech-Safi. In this respect, infrastructure, territorial development, water, and basic social services are expected to represent priority areas.
Fiscal balances maintained
At this stage, it is important to assess the extent to which the significant increase in revenues contributes to the consolidation of budgetary balances. Previously, we observed that the operation of the public sector was becoming increasingly resource-consuming, while pursuing a proactive investment policy. That said, this is not at the expense of the budgetary balance, which is improving, albeit slightly, from one year to the next. Indeed, the ordinary balance is expected to increase by MAD +12 Bn in 2026E, which would allow to fund 46% of Treasury investment, compared with 39% under the FA 2025. Our conclusion is as follows: as long as revenues maintain this upward trend, the Treasury succeeds in meeting the dual challenge of satisfying growing operating and investment needs, while slightly consolidating fiscal balances.
The fiscal deficit is expected to reach the target of 3% of GDP in 2026E. This performance stems more from the effect of GDP growth (denominator) than from a significant contraction of the budget balance. This configuration is entirely natural in an economy pursuing a quasi-expansionary fiscal policy.
After being almost stable in 2025, Treasury indebtedness is expected to decline by nearly -150 BPS to 65.9%. Morocco thus demonstrates its determination to maintain control over the outstanding debt, well below the 70% level, i.e. the debt tolerance threshold for emerging countries.
Despite this decline in the debt ratio, the Treasury is expected to contend with a combined increase in the outstanding amount and the unit cost of debt. This increase, which is fully in line with the global trend, is explained by the rise in the average cost of external debt and the increase in variable interest rates.
