By Marc Jones
LONDON, Oct 23 (Reuters) - Fitch cut Morocco's credit rating to 'junk' on Friday, blaming the coronavirus for savaging the north African country's finances.
The one-notch cut to BB+ from BBB- is a painful one for the government as it means that two of three main agencies now grade it in a higher-risk category that can lead to higher borrowing costs.
"The authorities aim to limit the deterioration in public finances but a persistent impact from the pandemic on the budget and plans to expand social services amid an upsurge in unemployment will complicate debt-stabilisation efforts," Fitch said.
Moody's has never classed Morocco as investment-grade in over two decades, while S&P has it on the lowest rung of investment-grade, though it too put Morocco on a downgrade warning this month.
A steep fall in tax revenues will cause a sizeable deterioration in Morocco's fiscal deficit, which Fitch forecasts to widen to 7.9% of GDP in 2020 from 4.1% last year.
A jump in social spending after the government announced plans for universal benefits, plus the likelihood that tax revenues will only recover slowly, is set keep that deficit at around 6.5% of GDP next year and push the debt-to-GDP ratio to nearly 70%, compared to 56% in 2019, Fitch said.
"The pandemic shock will aggravate financial vulnerabilities of some state-owned enterprises (SOEs), possibly triggering the crystallisation of contingent liabilities," Fitch added.
As well as the COVID crisis, which has seen crucial tourism revenues collapse by over 80%, Morocco has also suffered two years of drought. The economy is set to see a record 6.5% contraction this year before a 5% bounce next year, Fitch said. (Reporting by Marc Jones; Editing by Kevin Liffey)