Banking and Economic Development in Morocco

Tatom, John (2005): Banking and Economic Development in Morocco.

Abstract

In Morocco, as elsewhere, banking is the principal financial sector it has the potential to contribute the most or to most severely retard economic development. But the banking industry’s potential performance is constrained by the monetary policies of the central bank. This paper reviews some major factors favoring a strong banking industry that boosts development, as well as the major obstacles that have or continue to face the industry and the economy. The Moroccan central bank, Bank al’Magrib, has been very successful in providing a strong financial environment for the nation. Within this environment, indeed, perhaps because of it, the nation’s banking sector is performing very well. One of the main recent achievements has been the near elimination of so-called “specialized banks,” government institutions set up to provide directed credit to key sectors of the economy. These banks were a major drag on the private financial sector, boosting risk and raising costs, lowering returns to private banks and reducing the their supply of credit and raising the cost of credit for the private sector. These institutions have largely been merged into private firms and their special status eliminated. Fiscal policy continues to remain a major barrier to private capital formation and bank lending. Unfortunately government policy continues to favor running large budget deficits, continuing the waste of scarce national resources. In addition, very high marginal tax rates kick in at very low levels of income, penalizing saving and investment and risk-taking activity.

• Item Type: MPRA Paper
• Institution: Networks Financial Institute at Indiana State University
• Language: English
• Keywords: banking; budget deficit; exchange rates; inflation; development
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance; G - Financial Economics > G2 - Financial Institutions and Services

References

El Aynaoui, Karim, “Le Financement: Politique Monetaire et Systemes d’Incitation,” Paper presented at the conference: “The Moroccan Financial System and Economic Opportunities,” Casablanca, Morocco, September 19, 2005.

International Monetary Fund, “Morocco: Financial System Stability Assessment,” IMF Country Report 03/212, July 2003.