According to a recent study by Bank Al-Maghrib (BAM), the central bank of Morocco, public financing has a significant crowding-out effect on credit to the private sector. The study, published in July 2026, estimates that for each increase of 1% of GDP in public debt, credit to the private sector decreases by approximately 0.3%.
The analysis, based on data from 2000 to 2024, highlights that increased government borrowing raises interest rates and reduces the availability of funds for private investment. This effect is particularly pronounced in Morocco, where the banking sector is the primary source of financing for both the public and private sectors.
BAM Governor Abdellatif Jouahri emphasized the need for fiscal consolidation to mitigate this crowding-out effect. He stated that reducing the public deficit and debt would free up resources for the private sector, which is essential for economic growth and job creation.
The study also notes that the crowding-out effect varies across sectors, with small and medium-sized enterprises (SMEs) being the most affected. SMEs often rely heavily on bank credit and have limited access to alternative financing sources, making them vulnerable to reductions in credit availability.
BAM recommends that the government implement structural reforms to improve the efficiency of public spending and enhance the business environment. These measures, combined with prudent fiscal policy, could help reduce the crowding-out effect and support private sector development.
