Morocco plans to ease its current exchange rate regime starting in 2026, marking a return to gradual currency reform efforts that were postponed due to the economic fallout from the COVID-19 pandemic. The announcement came from Abdellatif Jouahri, Governor of Morocco’s central bank, Bank Al-Maghrib, during his attendance at the International Monetary Fund (IMF) and World Bank annual meetings in Washington.
This planned transition will involve progressively allowing the Moroccan dirham to float more freely, away from its current managed peg to a currency basket comprising the Euro and the U.S. dollar. The step represents a substantial shift in Morocco’s economic policy, intending to align with broader economic reforms and to bolster resilience against external economic shocks.
“The central bank is technically ready, and we’ve also ensured that banks across Morocco are prepared for the move,” Jouahri stated in his interview with Bloomberg News, underscoring Morocco’s readiness to resume its economic modernization strategy, which was initially set into motion in 2018.
The North African nation initially embarked on its journey toward a flexible exchange rate regime five years ago, in 2018. However, the unforeseen challenges of the pandemic, including significant drops in tourism and GDP growth rates, brought these reforms to a halt. With tourism as a major contributor to Morocco’s economy, the country faced considerable financial strain as travel restrictions crippled the sector, forcing authorities to prioritize immediate economic stabilization over long-term reform.
Morocco’s economy has also been hampered by a series of domestic and international challenges. Among these have been recurring droughts that impact the agricultural sector, dwindling financial support from the traditionally allied Gulf Arab states, and rising energy costs—all of which have heightened the urgency for a more resilient and self-sustaining financial system.
The renewed focus on currency flexibility aims to address some of these vulnerabilities by allowing the dirham to respond more dynamically to market forces. This shift could potentially strengthen Morocco’s economic standing in the region and help it adapt to global economic fluctuations, which can often adversely impact developing nations with fixed or tightly managed exchange rates.
Governor Jouahri emphasized that the reform process would be gradual and controlled, with the dirham’s shift toward a market-determined exchange rate occurring in stages. This gradual approach reflects a cautious strategy to prevent market shocks and to allow smaller businesses—key contributors to Morocco’s GDP—to adapt. Jouahri underscored the need for patience and “stewardship” in supporting these firms, which may face challenges in adapting to currency fluctuations if the transition occurs too rapidly.
The gradual liberalization plan is structured to give Morocco’s central bank the ability to manage the pace of change according to economic conditions. Analysts view this as a prudent approach, especially in a region where currency volatility could impact economic stability and investment. However, Jouahri remains confident that the technical readiness of the central bank and banks across Morocco will facilitate a smooth transition.
Moving to a more flexible currency model holds several potential benefits for Morocco:
- Increased Economic Resilience: A market-determined currency can respond better to global economic shifts, potentially enhancing Morocco’s ability to manage crises.
- Encouragement of Foreign Investment: A more flexible currency is often seen as a marker of economic modernization, which can make Morocco more attractive to foreign investors who seek assurance of a responsive and adaptable financial system.
- Trade Competitiveness: A free-floating currency may improve Morocco’s export competitiveness, as the dirham would adjust to demand and supply dynamics, potentially making Moroccan goods more affordable abroad.
- Financial Stability in the Face of Adversity: With Morocco facing challenges such as the reduced financial support from Gulf countries and rising energy prices, a flexible exchange rate could provide an internal mechanism for balancing out some of the economic strain.
However, the transition will not be without risks. The dirham’s exposure to market forces could lead to increased volatility, which may strain businesses, particularly those that operate on thin margins and are unprepared for sudden changes in exchange rates.
In addition to the transition to a floating exchange rate, Morocco’s central bank is actively working on developing a currency swap market, which it plans to launch next year. This initiative forms part of a broader agenda to establish derivatives trading in Morocco, a move that could provide businesses with tools to hedge against currency risks.
The establishment of a currency swap market is likely to be a key element in Morocco’s economic strategy as it moves toward currency liberalization. Derivatives trading would enable Moroccan businesses to protect themselves against exchange rate fluctuations, offering a crucial buffer for smaller firms that are more susceptible to volatility.
Governor Jouahri acknowledged that many Moroccan companies, particularly small and medium-sized enterprises (SMEs), lack experience in managing currency exposure. By developing the necessary financial infrastructure, including derivatives markets, the central bank hopes to equip these firms with the tools to mitigate potential risks associated with a free-floating dirham.
In light of Morocco’s financing needs and as part of its broader economic reform plan, Jouahri also announced that the country is considering issuing at least $1 billion in eurobonds by early 2025. While the government sees this as an important step in its funding strategy, Jouahri emphasized the importance of timing due to current global economic uncertainties.
“It’s probably wise to wait until early next year,” he stated, pointing to concerns surrounding the upcoming U.S. presidential election and potential shifts in Middle East policy, which could influence global financial markets.
The decision to issue eurobonds is consistent with Morocco’s strategy to tap into international capital markets and reduce its dependence on external assistance. Eurobonds offer a means of diversifying financial sources and attracting foreign investment, providing a lifeline for Morocco as it navigates both internal and external economic challenges.
While Morocco’s return to currency reform is widely regarded as a positive step, the country faces significant hurdles. Economic growth remains vulnerable to factors beyond the government’s control, such as adverse weather patterns affecting agriculture, Morocco’s most critical sector. Additionally, geopolitical factors, including the regional tensions and the global energy market’s unpredictability, contribute to an uncertain economic environment.
Another pressing concern is the social impact of economic reforms. The transition to a floating currency could lead to short-term inflationary pressures, potentially affecting the cost of living. With Morocco’s poverty rate at around 16%, even slight increases in prices could have significant social implications. Balancing these reforms with measures to protect the most vulnerable segments of society will be critical for Morocco’s policymakers.
Moreover, with rising energy costs and reduced financial support from Gulf allies, Morocco’s budget has come under strain, prompting concerns about fiscal stability. While the central bank is equipped to handle the technical aspects of currency reform, the broader economic framework will need to be resilient enough to withstand potential disruptions.
Looking ahead, Morocco’s planned currency reforms and other financial initiatives reflect the kingdom’s ambition to modernize its economy and strengthen its position as a stable investment destination in North Africa. The gradual loosening of the dirham’s exchange rate could bring long-term benefits, including enhanced economic resilience, a boost in investor confidence, and improved trade competitiveness.
For Morocco, however, the success of this transition will ultimately depend on the government’s ability to implement reforms in a balanced and adaptive manner. The plan to bolster financial markets with currency swaps and derivatives trading indicates an awareness of the risks and a commitment to preparing businesses for a more flexible exchange rate environment.
As Morocco prepares for a new economic chapter in 2026, the eyes of investors and economists worldwide will be on the country’s progress. The kingdom’s path toward a free-floating dirham serves as a model for other emerging economies navigating similar transitions. If successful, Morocco’s carefully calibrated approach could reinforce its role as a stable economic hub in a region characterized by uncertainty and economic fluctuations.
