Morocco not to devalue dirham again

Morocco yesterday said it would not devalue its local currency again arguing that a five-per cent devaluation of the dirham in April had achieved the intended positive effect on exchange rates.

"The evolution of economic indicators cannot in any way justify a move affecting the parity of the dirham," the finance ministry said in a published statement.

Reacting to press speculations of a second devaluation, the ministry said tourism receipts and remittances by Moroccan expatriates posted strong rises, foreign currency reserves were at an unprecedented 88 billion dirhams ($7.8 billion) and inflation was at "less than 1.5 per cent" at the end of June.

The budget deficit should be at 3.0 per cent of the $36-billion gross domestic product (GDP) in 2001 and current account deficit will fall by 30 per cent to 1.0 per cent of GDP in 2001, it said.

However, recent official data showed that exports in the first half of 2001 fell 3.4 per cent from their level a year earlier resulting in an 8.1 per cent increase in trade deficit.

Around two thirds of Moroccan exports are directed to the European Union. Bank Al-Maghrib (Central Bank) devalued the dirham in April to around 11.5 dirhams to the U.S. dollar from 10.88 dirhams.

The move, the first in 11 years, was far below the minimum 10 per cent exporters were expecting to make up for the dirham's appreciation against European currencies since 1996.

"It has not covered the huge gap created by the appreciation of the dirham. The current rates encourage more imports," said Mohamed Lahlou, chairman of the clothing industry association AMITH, a sector contributing to one-third of Moroccan exports.

"We should return to the normal level of the dirham's exchange rates and this would imply a devaluation of 11-12 per cent," Lahlou told Reuters.

David Mann, treasury economist at Standard Chartered bank in London, said a "10-per cent devaluation would allow Morocco to recover lost competitiveness which started in 1997".