(MENAFN) Morocco has been downgraded to just a notch above the 'junk' status by Standard & Poor's rating agency because of Europe's financial crisis, a high deficit and lagging reforms, AP reported.
S&P affirmed its BBB- credit rating for the North African country, with a negative outlook hinting a possible downgrade in the future.
If Morocco were to sink to a junk bond rating, it could make it harder and more expensive to borrow on international markets and scare away foreign investors.
Morocco has a budget deficit this year of 7 percent of GDP, as its economy was heavily hit by a poor harvest and debt crisis hurting its main European trading partners.
Furthermore, the government was forced to widen spending to avert social unrest brought on by the 2011 pro-democracy protests throughout the Arab world.
The International Monetary Fund (IMF) has granted Morocco a USD6.2 billion precautionary credit line in August to help Morocco cope with fluctuating energy prices and the effects of Europe's economic troubles.
In exchange, the government promised to reform the pension system and a costly program of state subsidies for energy and staples.
S&P said that Morocco's ratings would stabilize at the current levels if the government succeeded in reducing deficits and lowering external debt ratios, all while maintain political and social stability.