RABAT: Morocco's government has been right to favour local borrowing over foreign debt because it makes the economy more robust and develops local financial markets, a senior IMF official said.

The government has sold more bonds and treasury bills to Moroccan investors in recent years while cutting its overall borrowing to reduce exchange rate risks and take advantage of a drop in domestic lending rates after banking sector reforms.

"This is a good trend because it helps develop a very important component of capital markets locally which is the public debt market," said the deputy managing director of the IMF, Murilo Portugal.

"It is also important because ... this reduces the overall level of vulnerabilities of the economy in relation to shifts in market sentiment, as there is this home bias of domestic investors," he said during a conference on central bank inflation targeting.

Morocco's overall public borrowing has declined to 71.1 per cent of gross domestic product in 2005 from 86pc 12 years ago. The government now aims to cut both internal and foreign debt.

Last month, credit rating agency Standard & Poor's revised its outlook on Morocco to "positive" from "stable" on strong prospects for economic growth, the current account surplus and cuts in government debt.

Cuts in the public sector payroll and rising tax revenue due to economic growth are boosting state finances.

Investment in the North African country of 30 million has grown thanks partly to state-backed infrastructure projects including a new port, motorways, social housing programmes and a rural electrification drive.

"From what I gather in terms of my discussions here with the authorities, this will also be a good year and this process of fiscal consolidation is going to continue," Portugal said.

He also urged the government to continue and accelerate economic reforms, such as replacing subsidies on energy and food with targeted spending on vulnerable groups and reducing the maximum marginal income tax rate to even out the tax burden and accelerate investment and growth.

Source Gulf daily news