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Morocco’s central bank boss believes in a strong dirham

In depth
This article is part of the dossier: The governors of Africa’s Central Banks

By El Mehdi Berrada, in Casablanca
Posted on Thursday, 20 August 2020 09:48

The governor of the Moroccan central bank, Bank Al-Maghrib, weathered the turmoil of the 1980s. This experience and his longevity are assets when it comes to addressing the COVID-19 crisis as we find out in this fifth part of our series.

This is part 5 of a series.

Before the crisis began, speculation was rife over a likely change of guard at the top of Bank Al-Maghrib (BAM) involving the replacement of Abdellatif Jouahri, the bank’s immovable governor since 2003.

This past December, he himself raised doubts about his future saying: “The list of members will be submitted to the king prior to the upcoming board meeting in March 2020. […] I can’t say if I’m for or against a new term as governor. It’s not up to me.”

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Ultimately, on 14 March – 12 days after Morocco reported its first case of COVID-19 – he was confirmed for another term, at almost 81 years of age. What’s more, the central bank’s new statutes, which have been in effect since July 2019, accord him financial and administrative independence.

The governor is the sole arbiter of the bank’s policy, meaning the government cannot impose anything on him. Although many people seem to be delighted with the new changes, others were hoping for more, especially given the current crisis.

Deliberate decisions and directness

“The tasks assigned to the central bank are very limited in scope and restricted to maintaining price stability,” says Tarik El Malki, an economics professor and researcher as well as director of the ISCAE Rabat business school and analyst at the Moroccan economics observatory Centre marocain de conjoncture (CMC).

He adds that neither financing the country’s economic development nor ensuring its full employment and economic growth are considered to be the prerogative of the central bank. El Malki would like currency to be a driver used in combination with other tools to further the country’s economic development.

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In any event, on 17 March, Jouahri chaired another central bank board meeting to address the crisis looming over Morocco’s economy. A brief press conference is typically held after each board meeting, but it was cancelled this time around due to the pandemic. The business community had highly anticipated this “major oral test” the difficult governor, a master of doublespeak, was set to face.

On that day, the only decision the board took was to lower the central bank policy rate by 25 basis points and the benchmark rate by 2%, four years after the last drop, in order to support economic activity. Jouahri, known for his “conservatism” when it comes to the country’s macroeconomic and financial equilibrium, had refused to revise this interest rate prior to December 2019. In his view, nothing justified its revision and banks also needed to play the game.

However, when taking into consideration the devastating impact of the current health crisis and the negative impact on growth that climate change will also certainly have, El Malki welcomes the lower policy rate.

“Nevertheless, as important as these measures are, especially during this time of crisis, I think that they are short term, meaning they address the current economic emergency; but they shouldn’t obscure the need to re-examine other economic policy levers at the structural level, particularly the country’s monetary policy,” says the economist.

Staying true to principles

The action BAM has taken since the beginning of the crisis has been scrutinised by all sides. Despite criticism, quite a few observers acknowledge that the central bank and its governor have stayed true to their principles.

On 30 March, the financial institution “opened the floodgates” to banks. Credit institutions saw their refinancing capacity increase three-fold so that they could provide loans to households and businesses. Moroccan geoeconomics professor and researcher Nabil Adel, who has had reservations about some of BAM’s decisions in the past, thinks this measure was more effective than injecting a massive amount of liquidity into the economy.

The final recommendation – not directive – Jouahri communicated to credit institutions, asking them to suspend their dividend payments in respect of 2019, is aimed at preserving their equity.

“This measure will allow the central bank to support the country’s economic fabric during this difficult period without having to wield the sword of Damocles of compliance over their heads,” Adel explains.

A central figure in the banking system for almost 60 years now, Jouahri is familiar with the inner workings of the government and acts with extreme caution.

Recently, he was criticised by High Commissioner for Planning, Ahmed Lahlimi Alami, because he insisted on maintaining inflation at low levels. The central bank governor immediately defended himself, highlighting the complexity of the equation and the need to ensure equilibrium in other areas.

Standing up to criticism

“Jouahri [finance minister from 1981 to 1986] was the one who managed the structural adjustment plan that the IMF and the World Bank imposed on us in 1983, when he was in charge of the country’s finances. It was a very difficult period for everyone, but he was able to stand up to criticism,” says a former bank official who declined to be named.

The firm hand of the central bank’s authority goes back to the era when Morocco was insolvent. This painful memory for the kingdom is no doubt something the governor does not want to see repeat itself.

Over the course of his career, Jouahri has been exposed to every facet of Morocco’s financial sector. He began working at the central bank at the age of 23 and stayed there for 16 years before joining the government formed by Ahmed Osman, who took him under his wing and entrusted him with reforming state-owned companies.

Next, he was appointed finance minister for a five-year term under governments led by Maati Bouabid and Mohammed Karim Lamrani. Once his term was up, he was given the keys to BMCE Bank, which he made fully operational again leading up to its privatisation in 1995. After a brief stint as head of the Moroccan Interprofessional Retirement Fund (Caisse interprofessionnelle marocaine de retraite – CIMR), he was chosen by King Mohammed VI to run the central bank in 2003.

Since his arrival at the helm of BAM, one of his achievements includes helping Moroccan banks expand in sub-Saharan Africa. Another triumph to his name is the successful implementation of a more flexible exchange rate for the dirham in January 2018. On March 6 2020, the currency band was widened from ±2.5% to ±5%.

While some economists feel the liberalisation of foreign exchange policy has been excessively slow, in the governor’s view it is sufficiently flexible and calibrated: “In addition to contributing to the development of Morocco’s foreign exchange market, liberalisation will also strengthen the economy’s resilience and its ability to withstand external shocks inherent to the current crisis induced by the COVID-19 pandemic.”

For part 1: BCEAO governor Koné: Unfazed by controversy and quick to innovate  

For part 2: CBN’s Emefiele: ‘The Nigerian situation is a challenging one’ says analyst

For part 3: BCAS’s Tolli: Can he help stop a CFA franc devaluation? 

For part 4: Nigeria’s Central Bank: Tries too hard and fails to meet core responsibilities

Also in this in Depth:

BCEAO governor Koné: Unfazed by controversy and quick to innovate

The governor of the Central Bank of West African States (BCEAO) focuses his efforts on “serving the region’s economies” and is unmoved by controversy. In the first part of our series on the governors running the Central Banks of Africa during a time of crisis, we take a look at Tiémoko Meyliet Koné.

CBN’s Emefiele: ‘The Nigerian situation is a challenging one’ says analyst

In the second part of our series on the governors running the Central Banks of West Africa, we take a look at Nigeria's Godwin Emefiele.

BCAS’s Tolli: Can he help stop a CFA franc devaluation?

Facing off against oil lobbies and unhappy finance ministers, this central banker for a group of countries in Central Africa has many challenges ahead. In the third part of our series on the governors running central banks, we take a look at Abbas Mahamat Tolli, the governor of the Bank of Central African States (BCAS).

Nigeria’s Central Bank: Tries too hard and fails to meet core responsibilities

Due to the COVID-19 pandemic and sharp fall in crude oil prices, economies around the world slowed down, with recessions expected almost everywhere. The year 2020 has been unprecedented. In the fourth part of our series on the Central Banks of Africa, we look at the lack of planning on the part of the Central Bank of Nigeria and the federal government.

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