A Change is Coming Your Way
This is a sponsored post: yesterday, Capdema students and young active Moroccans abroad have organized a Democafé in Paris, Rabat, Ifrane, Lyon, Nice and Montreal on the upcoming general elections scheduled for November 25th. A Great debate, very engaging audience and certainly many new faces all of which only confirm my optimism for what might very well be the second greatest generation in Morocco.
And so the debate on elections goes on, livelier than ever. I would like to coalesce two of my favourite subjects, Politics and Economic Policy, into one blog post, if I may. In my opinion, the next government will have to sort out a swelling Compensation Fund, an unfair taxation system, a galloping bureaucracy, with the implications that unpopular policies will have to be implemented. Incidentally, I have been apprised of another reason with the Democratic/Radical left engaged in boycotting next elections: the idea is, the next government is very likely to collapse before us, partly because the crisis -upcoming or current- will force its disintegration, and force the regime to resort to the last card on the table, a genuine democratic reform. I wish that was possible (but without the crisis bit, obviously) but the thing is, we need a strong, homogeneous government to carry out these policies, because otherwise it is going to be the same set of targets: Belkhayate, Baddou and Abbas El Fassi, for all their perceived weaknesses and corruption, are not really answerable to the people, first off because they need not to account for before parliament, and second because government coalition is too stretched on the ideological spectrum to afford a United We Stand, genuine collective responsibility. Amazing though it may be, El Fassi Government, originally predicted to fall within months or few years, held forth and completed a 4-years tenure with minor adjustments.
The economic policies I was referring to are not those bombastic lines displayed on makassib.ma I am referring to the disturbing Article IV presented before IMF in September, and the willingness displayed by finance minister Mezouar to carry on a 10% budget cut. I am trying to figure out how: if indeed the 10% cuts are aimed at unnecessary expenditures, then all the talks about good government ever since DVD have been idle, and bureaucracy, rather than dying away, is back and well and alive. That’s almost MAD 30Bn off the book…
The 2010 Bank Al Maghrib annual report has been released a week ago: as usual, a great deal of effort has been put in assessing the “Mood of the Nation’s Economy”. Governor Jouahri has been quick to point out that government debt has grown to alarming levels:
“Cette évolution s’est traduite, malgré le léger redressement des recettes fiscales, par un creusement du déficit hors privatisation, passé de 2,2% à 4,6% du PIB ainsi que par une rupture de la tendance baissière du ratio de la dette publique directe qui s’est établi à 50,3% au lieu de 47,1% du PIB. […]
L’exercice budgétaire de l’année 2010 a été essentiellement caractérisé par une accélération du rythme de progression des dépenses, accompagnée d’une modification notable de leur structure. En effet, les dépenses de compensation ont plus que doublé d’une année à l’autre, sous l’effet du renchérissement des matières premières, portant à 7% le taux de progression des dépenses ordinaires, contre une baisse de 3,5% en 2009. En revanche, dans un contexte de consolidation de la croissance non agricole, les dépenses d’investissement du Trésor ont marqué une quasi-stabilité après quatre années de hausse rapide.” (pages 5 & 87)
Not that we are back to the dark years of 1980s, but he has worried that compensation expenses and the increase in public sector manpower might further the strain on public finances, and subsequently, the economy as a whole. More interesting though, the report introduces a new tool in its motley of charts, a tool I believe might give us good indications on what we might not know. (I recommend a great read on the model, as delineated in the 2007 annual Monetary Report, pages 27-29)
The fan-chart computes expected levels of inflation over a pre-specified time frame. Because these projections are not fixed, the modernised variables are randomized such that expected inflation has such and such confidence probability to be within the boundaries of specific levels. Now, I trust BAM economists to be highly competent and dedicated to their tasks, but I would very much like to know the effective impact of government debt on their computations; it is a given to consider government debt -especially domestic debt market- to push inflation upwards. The intuitive argument being,the Moroccan government has to pay back its debt with some nominal (face-value) interest rate. But, they can get away with it by “printing money”, or even if they don’t, the expenditure would take care of it, for instance by increasing public service payroll at a rate higher than, say, GDP Growth, the famous “Too Much Money Chasing Too Few Goods” line. But expected inflation remains very stable around 2%. I would argue that no inflation rate at such (low) level can be achieved without a drastic halving of public deficits (as Debt-to-GDP ratio remains within acceptable limits)
A left-wing government would go “tax & spend”: close tax loopholes, re-institute -if they can- the agricultural tax and the 42% marginal income tax, institute a wealth tax on millionaires, cut VAT and Corporate tax deductions for real-estate developers, etc. all of which can expand considerably government receipts for 2-3years, enough to payback debt and bring it within acceptable limits, while avoiding unnecessary social unrest. A right-wing government would go “slash & burn”: keep the tax loopholes or go further in alleviating the tax burden on corporates and individuals, while cutting public expenditure, compensation fund or other. Government pay-check could also be balanced, but to the risk of social unrest, food riots, and social resentment going berserk. The next finance minister will have to be a bold wizard to conciliate seemingly contradictory economics.
And so, the need for a strong government coalition is not only in the interest of Haves, but the Have-nots would also benefit from clear-cut decisions: either their last safety net will fall and they shall stand up to a fairer income distribution (a message the Feb20 movement can carry on pretty well) or benefit from a change from within designed to bridge income and wealth gaps. In any case, a weak coalition will just keep on postponing the inevitable: on minimum wage, on income inequality, on healthcare coverage, on employment, pussyfooting is not in the interest of anyone. I would welcome a homogeneous right-wing government coalition -very similar to that of the Mâati Bouabid government in 1979- as long as they have a free hand to implement their policies, because we will then engage in a policy debate. With a weak coalition, disharmonious voices within a fragile ship would deflect public awareness from what the government does, to what petty politics goes inside it. Grown up politics, and genuine care for those who will bear the brunt of any economic crisis do dictate embracing the idea of strong government, so as to level up both the playing field and civic awareness.
More than ever, “it’s the Economy, Stupid” rules all, and parties with convincing messages across the economic topics can carry sympathy and votes with the electorate.