I was thinking: Bank Al Maghrib issues a monthly digest on economic conjecture, A good reading I enjoy. Unfortunately, I don’t get the opportunity to share my own thoughts of their findings. Plus it’s going to be more up-to-date than other posts I like to write on economics.
The report is undeniably optimistic about an array of indicators, mainly economic growth (all things considered, it is quite understandable, given the main thrust is simply to produce more and more goods and services to lift us up from poverty) but also the current account and balance of commerce deficits. Growth at Q4 2010 was about 3% (at annual rate). If the Moroccan economy managed an annual 3% over just one-quarter, then forecasts for the remaining quarters, ceteris paribus, are likely to yield some good numbers too. However, when one takes a look at the February 2010 issue, numbers are not so good: There was a growth of 5.2% at that time (compared to 2009) so this is hardly a feat. Worse, the actual growth is 0.5 basis point short. Tiny numbers, but when averages are computed, it amounts to almost one GDP basis point. For an economy that boasted its resilience in times of global crisis and recession, these numbers are not encouraging at all.
There are however, others things one can cheer: current account deficit abated, and –Ô Joy, Ô rapture unforeseen– exports increased more rapidly that imports. In a sense, I begin to understand why the Office des Changes relaxed some of its legislation on hard currency dealings. Indeed, exports increased by 30.8%, while imports expanded only 13.3% (which means Q1 2011 terms of trade are improving, especially when compared on a year-on-year basis) as reported: “Au terme de l’année 2010, le déficit commercial s’est élevé à 151,3 milliards de dirhams, en stabilité par rapport à la même période de l’année précédente, contre une diminution de 11,4% une année auparavant.” But that is mainly due to the jump in price commodities like Phosphates (l’augmentation des exportations résulte notamment de l’accroissement de 96,6% des ventes de phosphates et dérivés.) [p.18] Besides, for the first quarter, the flow of FDIs was higher compared to 2009 the low-ebb, but it actually decreased in 2010 (about a 11.8% decrease).
All in all, the appreciation of terms of trades is not due to volume, but rather to the sky-rocketing commodity prices, especially Phosphates. Other indicators are either stable or in the red. The good news is that the terms of trades (as well as the Exports/Imports ratio) are closing in to the last decade’s average. Again, Phosphate industry was the main item sustaining the 3% GDP growth.
But apart from that, numbers are not really encouraging. Though one should refrain from painting the situation black, it must be pointed out besides that public finances are haemorrhaging compensation expenses (the now-famous government decision to subsidize further strategic commodities), at times of scarce liquidity. On a different issue, the Moroccan government is frantically raising cash to keep itself afloat. Consider the regular communiques published every time the finance ministry raises cash: in the first two months of 2011, 28 interventions were needed (by comparison, 13 adjudications were settled in Q1 2010) It is obvious that on top of difficult financial situation, a further strain of 15 billion can only damage the state of public finances. It is worth mentioning that government GDP growth was almost in line with GDP growth, which means that even this scheduled intervention will not be of great use. Indeed, if government expenditure was to sustain growth, and even though it increased by 3.4%, its net contribution was merely 0.4 basis point, a low figure that proves how inefficient economic stimulus policies are in pushing for higher growth (it is worth mentioning that a 3% growth is well below the decade average, or the potential output).
The digest reports a budget deficit of MAD 30.1 Billion, i.e. about 4% of GDP. As pointed out, the main reason for such deficit is: “Ce résultat reflète une quasi-stabilité des recettes ordinaires, avec une légère reprise des recettes fiscales et une baisse des recettes non fiscales, ainsi que l’accroissement des dépenses, tiré notamment par l’augmentation des charges au titre de la subvention des prix.” It is quite strange that, in times of economic stringency (not necessarily crisis, but quite difficult times) fiscal receipts remained stable. And what is usually referred to as non-fiscal revenues designates to peripheral and accessory receipts (about MAD 12.6 Billion ) a marginal amount compared to the fiscal revenues.
It is also strange to not that, while income tax (corporates and individuals) remained stable or decreased (in terms of income tax, there was a drop of 4.4%, thanks to the tax breaks minister Mezouar introduced for the upper bracket of income-earners) revenues from VAT increased as consumption increased too.
Bearing in mind that domestic consumption saved the day in 2009 in terms of economic growth, it is a rather harsh punishment on households (especially those with higher propensity to consumption, i.e. the less well-off ones), at a time the government is boating about ‘supporting purchasing power’ (basically, taking away what has been given with subsidies). It is even more alarming to note that while current expenditure increased by 12.6% over the last quarter, public investment increased only by a modest 1.6%, which leaves investment with a lower percentage in expenditure budget.
The figures displayed on the report are worrying, not for their levels (although some will sooner or later develop into insoluble problems if not dealt with) but because of their volatility, especially on indicators like inflation.
There is at least on commendable thing about the adjustment program (not necessarily offsetting the painful social and economic downsides of it) and it is the durable taming of inflation in Morocco. And as pointed out: ‘La poursuite de la modération des pressions émanant de la demande […] interne […] et la lenteur de la transmission du renchérissement […] vers les prix domestiques, continuent de maintenir l’inflation globale à un niveau relativement modéré.‘ And core inflation is even lower (an order of magnitude of 0.9% compared to total inflation of 2.2%).
What authorities (monetary or government) failed to tame -or at least contain- is mainly the volatility of a range of products: consumption goods, essentially. one might argue that authorities cannot tame total inflation. And yet, for all the efforts in subsidizing the very products whose volatility is large, it just proves how ineffective this policy proves to be.
On the other hand, volatility is not that important; as the graph shows, it remains well below unstable levels (at best,a maximum of 4%). But again, the levels themselves do not matter, their volatility, the deviation from the annual average is quite disturbing. Under the assumption that the very goods the government subsidizes are the ones with the highest levels of inflation as well as the highest levels of volatility, the deduced outcome can only point out to the inefficiency of such policy. It is also worth mentioning that since the Caisse de Compensation dries up at August, the true indicators of inflation show up for a month or two (the real level of total inflation in august is about 3%) and whatever gains from lower inflation, these are not enough to justify billions paid in subsidy.
This however is not Bank Al Maghrib’s opinion (they hardly venture one on such indicators) but as far as I am concerned, the price paid with a chronic CdC deficit for subsidizing food and fuel is not worth paying, in view of the insufficient results in inflation, purchasing power or simply in income and consumption distribution.
When I read or listen to the official -and not so official- stuff pouring out of media and web outlets, I feel lucky. Lucky to be born and raised in the circumstances that made me what I am. Before the 20/02 row (over the pro-democracy demonstrations in Morocco) I always felt I had no right to take the moral high ground; After all, a middle class, cosmopolitan, (a bit, just a bit) clannish or cliquish, left-wing-y schoolboy is certainly not fit to claim moral superiority over those who happen to disagree with my opinions.
Whatever my academic achievements (including those pertaining to political history and sociology) I have no right to impose on my opponents my ideas. On the other hand, logic, buttressed with documented argument, should, in my Cartesian mind, make the difference in a high-brow debate.
But This February 20th came along. To be honest, I didn’t think much of the expected demonstration (but then again, that was more out of laziness, especially with bad weather forecast) but the cardinal item of their grievances, a constitutional reform, was very close to my mind and to my heart. But then again, I spoke to, and chatted with acquaintances of mine about this. I noticed many changed their profile picture on Facebook to that of His Majesty’s picture. I was a little bemused, but then I thought ‘These guys are into weird fetishism. But hey, that’s their life‘. Not long afterwards, I received emails (spam, really) and messages urging Moroccans to ‘Rally behind our beloved King Mohammed VI Allah Y Nessrou‘. I keep receiving invitations to events I can’t even stand reading. The cup was bare. And this was not entirely on internet; even off-line conversations with some Moroccan classmates on campus were puzzling. I knew they had no interest and no knowledge of Moroccan politics, but surely stupidity can’t reach these proportions?
I also think I have proven record of enthusiasm for debate. But there are two thing I can’t stand in a debate on Moroccan politics, the first is when people start faking post-1956 history: Green March, fine. King Mohammed VI is a nice monarch, yeah, why not. But Moroccan history of 1.200 years, or fairy-tales about how Hassan II was a good man, or claims we remain insular to all changes in the region, that I can’t stand. It drives me ape. The second thing is about the economic argument: ‘we are improving’. And the worse thing is that such statements are coming from people with little or no knowledge of economics. And even if they did have some knowledge of economics, the numbers they’re so keen on posting and summoning are meaningless when not put together with other figures thy don’t know about, or don’t want to. And whenever I go ballistic on these things, I almost immediately feel contrite afterwards, I should be open to debate. But then, I remember the days of my former high school Geography teacher used to say: “a debate cannot happen if one side is not up to it“.
So yes. I am sorry, but many people are not packing up enough to keep up with sensible debate, like that pokerface soon-to-be ex-minister for sports, Moncef Belkhayat (and that just gives an alarming glimpse to the kind of politicians supposedly leading our country, and worse, supposedly voted for democratically). This kind of people, the ones that flock to read and take for granted Big Brother’s, Robin Des Blogs‘ and Hmida’s half-witted posts, are the very people who can feel quite content with Manichean, simplistic ersatz thinking.
I have to admit my anger. And it’s out of disappointment really, because in my everyday life, especially with Moroccans I’d meet for the first time, I’d either try to hide or tone down my political opinions, or try -or to be seen to try- to have some understanding to opposite or divergent views, all of this just to keep social contacts I can usually dispense with. I am angry with young Moroccans that had the opportunity to get good education, to follow up their baccalaureate with higher education in the best schools, in Morocco and abroad; And yet, for all their academic records, they utterly fail to put two logical arguments together in order to make the case for ‘Al Maghrib Ya3mal‘ or some similar gobeshit. I understand that Civic Education can have everlasting damages, but come on!
I am also angry because it is most likely that my reader would agree with me, or share my angst (alternatively, they might be looking for entries about Dita Von Teese, as my blog statistics show…). Not that I hold anything against fellow nihilists (salt of the earth, these people) but because I genuinely try to hear the other side’s argument, and so do a lot of fellow nihilists. I’d even try to reach out and be less polarizing on many issues, including constitutional changes. Nothing. Zilch. I don’t think they would reciprocate. I’d love to receive a comment, or an email saying: ‘Sorry, I don’t agree with the following points you made on such or such post, and here’s why’. I’d truly respect that. Is it out of intellectual laziness? Or is it rather because of an intellectual inability to think complex issues as they are? If it turns out to be true, that proves my point: Reality can be distorted to please their half-backed weltanschauung. I try my best to be faithful to Edgar Morin‘s quote: ‘always apprehend things in their complexity’. It seems would-be thinkers cannot.
I can also provide a counter-argument to the expected reply: ‘You don’t abide by the democratic rules. Those very rules you claim to be defending’. Yes and No. Yes, because I surprise myself into considering the technicalities of a random sterilisation, just so as to control ‘la connerie‘ genes (the French word carries my anger more emphatically, I think).
No, because contrary to what one might think, democracy is actually the dictatorship of the well-informed. The underlying assumption of democratic institutions and practises, just like all other positivist inventions, requires citizens to be fully aware of all past elements and compute them in their decision-making process, before they take a stand on a particular issue.
The wet pants I knew from secondary, high, prep schools and university (and many of them are still very average) that rise up and claim that ‘demonstrations are bad’ or ‘constitutional reforms? parliamentary monarchy? Vade Retro, soulless republican !’ When asked about the constitution, 9 times out of 10, they didn’t go beyond the preamble.
It’s high time I took up a hobby, because it is unbearable to stand Moroccan politics, squeezed between childish pseudo-patriotism from ignorant intellectual toddlers, and the frustrating debate on policy-making issues.
I should apologize. screaming words of abuse, justified or not, and these are better kept locked away. I should apologize for the burst of anger and ranting, but, as a friend dubbed it: ‘it’s worse than Stockholm syndrome, it’s Hassan II syndrome’. I’d agree; I didn’t know individuals can go to such length in masochism.
One word: grow up. [and don’t take this seriously. I have gone off the rails, nothing to worry about]
What a bold question! Well, I assume it is. Because the following will sound pretty strange from a self-confessed left-wing radical, who belongs to a political side that is known to be keen on supporting the unemployed, and in the Moroccan case, very close to the unemployed graduate movement. Therefore, do allow me to put in a disclaimer: I absolutely feel sympathy towards the unemployed movement, but I disagree with their almost fetishist obsession with jobs in the civil service. Indeed, constitutional rights allow for any citizen to apply for a job in the public sector. However, this right is narrowed down by the law, then by administrative regulations. It seems that even the idea of an entrance exam is too much for the most extreme of them to bear.
Now that this matter is settled, let us turn to the idea itself; Why would Morocco need an unemployed benefits program? First, because the bulk of our unemployed population is not voluntary on the dole. They are genuinely looking for a job, and for many of them, the underground economy is providing for their living. Benefits, when properly designed and applied would allow them to live in dignity, and look for proper jobs. The way I see it, the benefits are there not to disturb some market mechanisms that are yet to be defined and enforced, but to set the standards for better labour-management relationship, and for the public authorities to encourage individuals to move from underground to legal, ‘official’ economy.
Let us first consider the figures on unemployment and inflation. The relationship is considered to be cardinal in mainstream academia. The well-known NAIRU (non accelerating inflation rate of unemployment) is a good start for us to estimate how deep involuntary unemployment is, and thus provide the public authorities with the financial means to deal with it.
When one considers the relatively recent historical series on inflation and unemployment, one is surprised to notice that there was a surprisingly effective effort put into taming inflation (and Morocco can pride itself to be in a full deflation mode without much damage to growth) while policies, when carried out, look despairingly ineffective in view of the near stable level of unemployment. The question remains: why does unemployment remain that high? In a precedent post, I mentioned data that ruled out any serious effect minimum wage might have. There is also little, if no evidence pointing to relationship between labour legislation and unemployment. If anything, it is favourable to the management, especially in the important economic sectors like textile, Telecom services and other outsourced services. I should elaborate on that later on.
When simple econometric computations are run on unemployment and inflation, results look a bit inconclusive. Indeed, the Moroccan Philips Curve does not look like the theoretical one, and if anything, any correlation is too low and too insignificant to be of use. Though it might be too early to tell, there seems to be no direct link between anti-inflationary policies and unemployment. It does however deny policy makers from such argument.
They failed in addressing the problem because they did not devise the proper policies, not because of the so-called necessary trade-off between inflation and unemployment. To their credit, it must be pointed out that a particular sub-population was not fully cooperative; in fact, it was adamant in its claim for public service recruitment.
Moving on. The current level of unemployment can be reduced. Why so? Because even with sketchy econometric models, there is a way to compute the level of unemployed people that can be put to jobs. If I may direct the reader’s attention to a post I wrote on estimating the output gap for the Moroccan economy, the computations reached the conclusion that, as late as 2009, the Moroccan factory is producing below its productive capacity. The terms of the equation are simple: because output gap is negative, the economy can take on more labour so as to lift-up real GDP until the potential GDP is reached. We know the existing level of labour stock, we know exactly (well, with a confidence interval of 95%) how much labour adds to GDP, there remains only to compute how much is needed from the unemployed to bridge that gap in labour force. Estimates are such that an additional 5 basis points to the workforce –ceteris paribus, mainly the capital stock- are needed to bridge the output gap, and certainly much more if capital stock was expanded too. 5% looks a lot (that is, after all, about 53% of the unemployment rate) but then again, because convergence process (the so-called catching-up) with potential output takes time, it remains quite a reasonable target. In absolute terms, that means some 482.000 people would find new jobs. Before I go any further, I must apologize for the sketchy figures, which is mainly due to the data (and my own limited knowledge on the particular field of labour economics)
Now that we know the current level of unemployment can be cured up to 5%, why bother about introducing benefits for those on the dole? First because, just like other vulnerable populations, the public authorities rely on family and tribal solidarity to look after the special needs, the divorcées, the underdogs and the misfits. The large-scale shift in values, the rising individualism (whatever has been said on the matter, RDH surveys can testify) all these changes that are breaking -or already did so- the traditional mould so many people long for (and you know what they are called? reactionaries, that right) and so there’s a need to implement nation-wide programs, like the employment or support benefits. The targeted population, following the HCP figures, would be as follows: about 700.000 unemployed with little or no qualification, not so much a burden on the nation, considering benefits are usually lower than the minimum wage;
Now, I don’t have much time, nor data to elaborate on how these benefits should be defined (and I think legislation here plays a critical role) but under the assumption of average benefits of MAD 1100 per month per individual is not only workable, but provides invaluable teachings in order to expand the program and protect the left-behind, while encouraging them to fight back and return to work. Incidentally, the whole annual cost for such a scheme is approximately MAD 7 Billion, that is 13% of a wealth tax levy on the millionaires in Morocco (at the low rate of 40%). So in essence, a benefit scheme is perfectly workable, so long as it works as it serves a two-fold objective: first, as a temporary stipend for those unemployed (that would include training costs, job lookout, etc…) and as the nation’s solidarity with those definitely unable to contribute to society.
I should like to devote a piece on how these benefits should be designed so as to encourage rather than subdue work, but there it is: it is high time we grabbed the bull by the horn and start a debate on how efficient benefits schemes should be. Their introduction is now beyond debate, it is a necessity.