ANNUAL REPORT PRESENTED TO HIS MAJESTY THE KING 2012 ANNUAL REPORT PRESENTED TO HIS MAJESTY THE KING 2012 u GOVERNOR Mr Abdellatif JOUAHRI u DIRECTOR GENERAL Mr Abdellatif FAOUZI u GOVERNMENT REPRESENTATIVE Mr Khalid SAFIR u BANK BOARD The Governor The Director General Mr Abdellatif BELMADANI Mr Mohammed BENAMOUR Mrs Miriem BENSALAH CHAQROUN Mr Bassim JAI-HOKIMI Mr Mustapha MOUSSAOUI Mrs Faouzia ZAABOUL R E P O R T ON THE FINANCIAL YEAR 2012 PRESENTED TO HIS MAJESTY THE KING BY MR ABDELLATIF JOUAHRI GOVERNOR OF BANK AL-MAGHRIB Your Majesty, In application of Article 57 of Law No. 76-03 on the Statutes of Bank Al-Maghrib promulgated by Royal Decree No. 1-05-38 of Shawwal 20, 1426 (November 23, 2005), I have the honor to present to Your Majesty the report of the year 2012, the fifty-four year of the bank of issue. BANK AL-MAGHRIB - ANNUAL REPORT - 2011 Summary INTRODUCTION ...................................................................................................................................................i-vi PART 1: ECONOMIC, MONETARY AND FINANCIAL SITUATION 1.1 International environment ............................................................................................ 3 1.2 National output ......................................................................................................... 28 1.3 Labor market ............................................................................................................... 41 1.4 Domestic demand ....................................................................................................... 49 1.5 Economic and financial flows ..................................................................................... 54 1.6 Inflation ...................................................................................................................... 57 1.7 Balance of payments .................................................................................................. 67 1.8 Public finance ............................................................................................................. 78 1.9 Monetary policy .......................................................................................................... 89 1.10 Money and credit ................................................................................................... 100 1.11 Asset markets ..........................................................................................................119 PART 2: BANK ACTIVITIES 2.1 Governance ..............................................................................................................134 2.2 Bank missions .......................................................................................................... 148 2.3 Resources and work environment ............................................................................163 2.4 Communication and cooperation ..............................................................................172 PART 3: FINANCIAL STATEMENTS OF BANK AL-MAGHRIB 3.1 Bank balance sheet ................................................................................................... 183 3.2 Profit and loss account ............................................................................................ 190 3.3 Annexes to accounts ................................................................................................. 197 3.4 Information on the balance sheet items ................................................................... 200 3.5 Information on off-balance sheet items ................................................................... 205 3.6 Notes on profit and loss statement items ................................................................. 206 3.7 Statutory audit report .............................................................................................. 211 3.8 Approval by the Bank Board ..................................................................................... 213 STATISTICAL APPENDICES ......................................................................................................................... 215 TABLE OF CONTENTS ..................................................................................................................................... 275 BANK AL-MAGHRIB - ANNUAL REPORT - 2012 Your Majesty, The year 2012 proved to be particularly difficult for the global economy, as the lingering effects of the 2009 crisis caused growth to slow down to 3.2 percent, from 4 percent in 2011. In the developed countries, the economy expanded by a mere 1.2 percent, reflecting in particular a contraction in the euro area in conjunction with the worsening effects of the sovereign debt crisis in peripheral countries and their spread to core countries. However, Japan and, to a lesser extent, the United States stood out, as their respective economies improved relatively compared to 2011. In the emerging and developing countries, GDP growth decelerated to 5.1 percent because of the lower demand from advanced economies and the restrictive policies mostly adopted by the major emerging countries, including China, India and Brazil. This weakening of activity significantly affected labor markets. Despite the multiple reforms and support measures undertaken by several developed countries, the unemployment rate remained elevated, mainly in the euro area where it reached 11.4 percent, with a record high of 25 percent in Spain. Given its scale and scope, youth unemployment in particular remained the major concern for governments and the cause of protest movements in many countries. In commodity markets, prices trended downward, while remaining broadly high. However, oil prices increased slightly, mainly due to heightened geopolitical tensions in the Middle East. Coupled with weaker demand, this development led price pressures to ease, with an inflation rate falling to 2 percent in developed countries. In emerging and developing economies, this rate, albeit declining, was around 6 percent. These economic conditions clearly weighed on global trade, whose growth slowed down to 2.5 percent. They also impacted the global flows of foreign direct investment, down 18.3 percent, particularly in developed countries. Despite such a situation, stock markets broadly trended upward, indicating the decoupling of the financial sector from the real economy. Investors were likely reassured by the continued accommodative policies of central banks and the fiscal austerity measures as well as the support programs for crisis-hit countries to which international institutions contributed. Amid this challenging environment, the role of central banks became stronger, as they increasingly resorted to accommodative measures in their policies and realigned their objectives to focus more on economic growth and employment. The recessionary effects of the international economic situation, combined with unfavorable weather conditions, negatively impacted domestic growth, which slowed down to 2.7 percent from 5 percent a year earlier. Only the tertiary sector kept momentum, driven primarily by the i BANK AL-MAGHRIB - ANNUAL REPORT - 2012 performance of the “post and telecommunications” industry. The increase of the secondary sector’s value added decelerated sharply, dragged down by the slowdown in industrial and construction activities. The latter, in particular, began to show signs of weakness after a sustained activity and significant contribution to job creation for several years. Domestic demand, the traditional locomotive for growth, increased by 3 percent. It was driven by a further expansionary fiscal policy, especially by keeping investment at a high level, and a relative preservation of the purchasing power on the back of the continuation of the subsidy system, the various adjustments of pay systems and schemes, and the moderate inflation trend. Labor market worsened significantly, with almost no net job creation, a situation never seen since 1999, as the minimum record was 42,000 jobs in 2005. Alongside this deterioration, the participation rate fell, potentially reflecting the withdrawal of a part of discouraged workers from the market, which caused the unemployment rate to stabilize at 9 percent. Boosted by the buoyant trade activities in recent years, the services sector became in 2012 the first job-providing sector ahead of agriculture. As regards external accounts, the current account again deteriorated in 2012. Due to the economic downturn in the euro area and the lower prices for phosphate derivatives, export growth slowed to 5.5 percent, albeit with a strong expansion of the automotive industry. Meanwhile, though decelerating, the increase in imports was relatively faster, particularly owing to a higher energy bill, causing the trade deficit to widen from 22.8 percent to 24.3 percent of GDP. Travel receipts and remittances of Moroccans living abroad, which usually contribute to mitigating the impact of this deficit on the current account, showed declines of 1.7 percent and 3.8 percent, respectively, partly in conjunction with lower income and higher unemployment in the euro area. Therefore, the current account deficit widened to 10 percent of GDP from 8 percent last year and 5.1 percent on average between 2008 and 2010, further jeopardizing the external sustainability of our economy. These developments led to a new contraction in net foreign exchange reserves, which represented at end-2012 a little more than 4 months of goods and services’ imports. The