The Moorish Wanderer

Trim That Budget – Says IMF to Morocco

Posted in Flash News, Moroccan Politics & Economics, Morocco, Read & Heard, Tiny bit of Politics by Zouhair ABH on November 5, 2011

November 3th, IMF concludes its Article IV consultations with Moroccan officials, and its recommendations ought to be taken seriously by all competing parties and coalitions when preparing their economic programs. That holds particularly true for Finance Minister and A8 Alliance coalition leader Salahedine Mezouar: there is going to be serious government budget slimming down. I have posted on the issue time and again, but it seems budget cuts do not find favours with the mainstream media.

The public communiqué states that:

Despite the slow recovery in the Euro zone—Morocco’s main trading partner—overall GDP is expected to grow between 4½–5 percent, one of the highest in the region, reflecting sustained growth in the nonagricultural sector—including the tourism sector—and a rebound in agricultural output.

So all these nice electoral promises about a 6-7 or even 8% GDP growth fly right out of the window. Unless USFP, PJD and A8 are granted a “manna from heaven” like in those tutorials I have to solve as a grad student. But I deal with abstract, theoretical model, they, the likely members of the next government coalition, cannot afford to be cavalier with GDP projections.

GDP growth Histogram vs generated Normal Distribution proxy (with R)

Plus these projections are in line with the potential GDP, the half-a-century average (that shapes very nicely in terms and so the best thing the domestic economy can hope for during the next 5 years is to hold steady at those levels; Because the prospect isn’t all bright and sunny for the economy.

Executive Directors commended the authorities for their sound macroeconomic policies and structural and political reforms that have helped Morocco weather the global crisis and respond to pressing social needs. Looking ahead, Directors noted that significant challenges remain, including the uncertain economic outlook in Europe and the region, the need for fiscal consolidation in the face of large popular demands, and the urgency to implement an ambitious agenda to boost employment and inclusive growth.

The sound macroeconomic policies, up to a point, have proven to deliver tangible results. Unfortunately, these kudos are not the Finance Ministry’s fiscal policy, and might be restricted to a 4-years trend in bringing down the public debt. On the other hand, the Central Bank has done a pretty good job in containing inflation below 2%, and at the same time provide adequate regulations and scrutiny on the financial sector.

What would, on the other hand, contradict Minister Mezouar’s record is the IMF’s insistence on inclusive growth. That means growth alone isn’t enough to alleviate inequalities and income gap; something that our officials have yet to grasp -and tend to ignore in a triumphalist communiqué published the same day. M. Mezouar can go all the way up to 7%, it will not solve this country’s economic and social problems if the growth gains aren’t distributed so as to benefit the many and not the happy, wealthy few. He ought to reconsider his supply-side fiscal policy for instance…

But the spooky thing is yet to come: starting from 2012, government departments will have to undergo a budget adjustment process. That’s euphemism for budget cuts:

Maintaining prices for certain food products and fuel unchanged in the context of rising international commodity prices, will require spending on food and fuel subsidies of about 5½ percent of GDP in 2011, considerably in excess of the 2.1 percent of GDP estimated in the 2011 budget. In addition, all civil service wages were increased by a nominal amount of about US$75, which is expected to increase the wage bill by 0.2 percent of GDP to 10.7 percent of GDP. At the same time, the authorities took significant offsetting measures, which will help containing the budget deficit at around 5.7 percent of GDP. The authorities are preparing to implement fiscal consolidation measures starting in 2012 to bring the deficit down to 3 percent of GDP in the medium term, which would bring the total public debt to about 50 percent of GDP in the medium term.

Cutting the deficit from 5.7% to 3% GDP is a simple question of arithmetics, a problem facilitated by the refusal on behalf of almost all parties to commit to any tax increase, or at least to put an end to an array of moratoriums on various items like the Agritax (theoretically due to expire on December 2013) in financial terms, budget adjustment means 20Bn will have to be saved somewhere, and this figure is dangerously close to the 10% budget cut agreed upon three months earlier:

“8. After containing fiscal expansion in 2011, the authorities are preparing to implement fiscal consolidation measures starting in 2012. The authorities intend to pursue a fiscal consolidation plan to bring the deficit down to 3 percent of GDP in the medium term, which would be in line with a debt to GDP ratio converging to about 50 percent of GDP. In addition, Article 77 of the new constitution and the draft organic budget law for 2012 outline the principle of safeguarding fiscal stability. In the absence of corrective measures, the budget deficit could reach 6½-7½ percent of GDP and consequently public debt will continue to rise. […]

IMF Headquarters, Washington, DC.

IMF Headquarters -Image via Wikipedia

Given the importance of demonstrating the government’s determination to maintain fiscal sustainability, the mission believes that there is little room for further measures to increase government expenditure. Revenue efforts were intensified and higher than budgeted revenue were collected at end June 2011 –mainly from indirect taxes. These efforts should continue in the second half of the year and should enhance revenue collection by 1 percent of GDP compared to the 2011 budget. Consequently, total revenues are expected to remain almost unchanged compared to 2010, at around 25 percent of GDP. On the expenditure side, all budget entities have been requested to economize 10 percent of their budget allocations for some nonessential current expenditure items.”

fiscal consolidation means slowing down government expenditure and paying back the debt at a higher rate. So when A8 Alliance proposes the biggest government budget increase since 1976, they are at best disingenuous, and mainstream media does not seem to report on these discrepancies, especially when one knows that A8 leader Salaheddine Mezouar is the outgoing Finance Minister.Bringing down public deficit to 5.7% GDP means those 20-30Bn will have to be cut somewhere: Education budget, High-Speed train, Military purchases?

Though our financial solvency is not at stake, the apparent cavalier attitude to national debt displayed by the minister in his draft 2012 Bill and his dismissal for the need for structural fiscal reforms make one wonder: can he be trusted to lead the next government?

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