Morocco's reforms are paying off but the country needs step up the pace of economic growth to deal with poverty and unemployment, according to the International Monetary Fund.

The IMF praised Morocco for achieving "macro-economic stability" even though it has been suffering from drought.

Rainfall shortages have pushed up Morocco's budget deficit for two years in a row.

Morocco's growth is likely to be 6% this year and inflation - at 3% - is being maintained "at industrial countries' level", the US-based agency said in its annual review of the country.

Budget risk

It warned that the government must act to prevent the budget deficit getting bigger before the position becomes "unsustainable".

It welcomed a deficit target of 3% of gross domestic product (GDP) for 2002.

This would represent a considerable cut from the current deficit level, which the IMF forecast will increase to 7.2% of GDP this year from 6.5% in 2000.

Textiles and tourism

Non-agricultural output is expected to improve by 3.8% this year, driven by construction, telecommunications and tourism.

Scores of European textile companies have relocated to Morocco.

The economy also got a boost from the $2.1bn privatisation of Maroc Telecom during the first quarter of 2001.

The privatisation process was "open and transparent" and surprisingly profitable, given the downturn in the world telecommunication market, the IMF said.

Better rainfall

The outlook for the key agricultural sector is also brighter.

"Better rainfall... should lead to a 25% increase in agricultural output in 2001 with favourable spillovers on other sectors," the IMF said.

Over 60% of Morocco's exports go to EU markets. Its major exports include citrus fruits.

Europe provides most of Morocco's tourists, remittances and loans.

Morocco is bidding to join the EU and last year it began implementing an EU Association accord which paves the way for tariff-free trade between the two areas by 2012.

Morocco wants to see free movement of labour added to the accord, to accompany the free movement in goods.