The outlook change to stable reflects the recovery in real GDP to pre-pandemic levels and Morocco's crisis management capacity demonstrated during the pandemic, the US benchmark agency wrote in a new analysis.

"The improved governance track record underpins Moody's expectation that the government will be able to implement gradual fiscal consolidation that stabilizes the debt ratio and fiscal accounts, while maintaining social stability in the face of Morocco's exposure to the food and energy price shock" triggered by the war in Ukraine, it added.

According to Moody's, the Ba1 rating affirmation reflects Morocco's economic resilience and the build-up of significant foreign exchange reserves covering over six months of imports at the end of 2021, providing a buffer to absorb the impact of the global commodity price shock.

"The credit profile is constrained by higher general government debt levels than the median of Ba-rated sovereigns, Morocco's exposure to contingent liabilities stemming from state-owned enterprises (SOEs), comparatively low-income levels, and relatively subdued trend growth," the agency said.

Morocco's country ceilings remain unchanged, noted Moody's, adding that the local currency ceiling remains at Baa1, three notches above the sovereign rating, reflecting predictable institutions and low external vulnerability risk, balanced by a large public sector footprint.

The foreign currency ceiling at Baa2, one notch below the local currency ceiling, reflects relatively modest transfer and convertibility risks notwithstanding the existence of capital controls, it added.

Supported by the government's targeted investment and income support measures implemented during the pandemic, real GDP recovered to pre-pandemic levels at the end of 2021, buttressing economic resiliency.

After slowing to 2% in 2022 due to severe drought conditions and the adverse economic impact of high inflation, Moody's expects average annual GDP growth to converge to 3-3.5% by 2025.

"The track record of coherent macroeconomic policies implemented in recent years and during the pandemic is reflected in improving government effectiveness indicators recorded in the Worldwide Governance Indicators, which support Moody's assessment of Morocco's improving governance profile."

The government's crisis management capacity demonstrated during the pandemic is reflected in the relatively high coronavirus vaccination rates achieved compared to regional peers, the implementation of digital tools to extend support to households in the informal sector, and the focus on strengthening the social safety net, the agency concluded.