Energy Prices Will Continue To Affect Morocco’s Trade Balance

January 25, 2022
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Rabat – Higher energy prices will continue to widen Morocco’s trading deficit as the volume of energy imports maintains an upwards trajectory, according to Fitch, an American rating firm.

In a new report on energy prices in the MENA region, the American rating agency explained that Morocco’s green-sourced electricity is projected to offset the cost of fluctuating hydrocarbon prices.

Fitch projects that rising energy prices will continue to weigh down on the trade deficit of MENA oil-importing countries, dragging foreign currency reserves down as well.

Despite the prospect of decreasing energy prices over the upcoming three years, the rating agency sets the risk of energy prices on the upside.

Oil prices will maintain the same level as 2021, averaging $70 in 2022, Fitch reported, adding that the prices will take a downward trajectory in 2023-2004.

Some MENA oil-importing countries have already decided to cut subsidies on electricity to mitigate the effect of rising energy prices on foreign currency reserves, as governments usually resort to foreign currency reserves to absorb the fluctuating energy prices. 

Fitch suggests, however, that such measures are politically sensitive as they can potentially spark social unrest and political instability.

Energy prices took an upward trajectory with the COVID-19 outbreak, reaching $86 per barrel, the highest value recorded since a mix of conflict-induced production disruptions and Iran sanctions sent oil prices skyrocketing in 2014.

Morocco was not immune to the trend. At the end of November, Morocco’s central bank reported that despite the rising volume of exports underpinned by the country’s growing industrial sector, the trade gap continued to be affected by soaring energy prices.

A spike in demand in economies with high vaccination rates, as well as low supply and labor shortage in under-vaccinated producing regions have all contributed to the rise in energy prices.