The Moorish Wanderer

Get Some! Get Some! Comments on the 2012 Budget Bill

Posted in Dismal Economics, Flash News, Morocco, Read & Heard by Zouhair ABH on March 15, 2012

And finally, the Finance Ministry has gone to Parliament House with the new budget. Ministers Nizar Baraka (PI) and Driss Azami Idrissi (PJD) have both taken turns to deliver their Budget Statement before parliament, and though I did not listen to it live, but from the figures I came across, I can predict a few things and/or comment on others;

[Exclusively, you will find on this link the Budget Bill].

A raw assessment for this new budget is that the fresh whiff of new government has been squashed by the hard, cold reality of, well, old government; on all the major investment plans, on fiscal policy, on the whole business of government, this new coalition has proven to be conservative in its choices, à contre-temps with the defiant and hopeful tone set by Head of Government Abdelilah Benkirane. So this not an earth-shattering budget, it is simply business as usual.

The budget goes 346Bn dirhams, that is 44.3% of GDP, for a 5% deficit. There is no way the government will reach the 3% deficit limit they have pledged to in their manifesto. Istiqlal and PJD have lost in terms of fiscal responsibility; in absolute and relative terms, a similar level of deficit dates back to 2001: 34Bn deficit, 8% GDP. But 2001 was the light at the end of the tunnel, and privatization revenues turned the deficit into a small surplus of 500 Million dirhams. This year is full of uncertainty, even the language both ministers adopted in their respective statement was cautious: spendings are there to guarantee social balances; the truth is, the sole development policy any government in the past two decades has ever implemented was to make sure growth was high; when the cycle is expansionary, that is of no particular problem; but now that we are heading toward a mild downturn, there is pressure to keep people happy, and the fact no major changes have been introduced in taxation paints quite a picture: the trade-off obviously favours the immediate present to the expenses of future stability.

Bad news for PJD: current expenditure has been projected for 187Bn, 16Bn up from the initial 171Bn appropriated in the initial Budget bill. For the life of me I can’t figure out where the 16Bn came from, and I for one would not hesitate to draw an interesting parallel between the gung-ho, austere approach PJD ministers boast on newspapers, about how they will squash unnecessary expenses; I particularly enjoyed digging up some Lahcen Daoudi quotes:

Well, the biggest increase in expenses has been without a doubt on current expenditure: 23.8% in paywage, stationary requisitions and other administrative expenses, while public investment increased only 11.3% year-on-year, quite a first step coming from a government bent on showing their toughness on waste and unnecessary bureaucracy. The 2012 fiscal year has blown PJD’s economic credibility right out of the gate, in my opinion.

What worries me though is not the budget breakdown per categories of expenses; According to the figures Minister Azami laid before Parliament, there is no substantial increase -and by that, I mean at least a dozen Billions- in fiscal receipts, and I surmise from the figures Public Borrowing Requirements will jump from an initial 61Bn to 65Bn, while repayments will remain unchanged, some 42Bn including interests. Not only has the government failed to keep its word on the 3% deficit limit, it has planned to over-borrow this year. For sure, domestic debt alleviates the danger of default and wards off potential threats on Morocco’s foreign currency reserves, but only up to a point; let us not forget that liquidities are drying up; such a large increase in PSBR will inevitably push yields higher – a scenario a lot of businesses and individuals dread; as a matter of fact, the generous fiscal exemptions this government and the governments before are providing Real Estate developers might turn against them and kill off an essential component of economic growth in Morocco.

And finally, there’s a disturbing news embedded in the Budget statement: it projects  2.5% inflation rate for 2012. To go from 1.1% inflation in 2011 to 2.5% in 2012 shows that subsidies, the Compensation Fund in fact, can do only so much, before the harsh reality of facts catches up with a well-meaning government: subsidies do not work; the measures proposed by the government do not work, and the inflation rate testifies to that matter: the Compensation Fund does not reward hard-working families by protecting their purchasing power, it secures established businesses good and generous rents; 2.5% is a moderate rate of inflation however, but I would very much like to hear Ministers Baraka, Azami or Boulif spin it to justify a 40Bn boondoggle that benefits only the 1.3 Million wealthiest households.

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