The Moorish Wanderer

Projet de Loi de Finances 2012 – Chiffres Clefs

Posted in Dismal Economics, Flash News by Zouhair ABH on March 15, 2012

Le Projet a été défendu aujourd’hui devant le parlement; voici en exclusivité les grandes lignes du PLF 2012

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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.

When Fiscal Conservatism can Actually Do Better

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on March 11, 2012

The level of prices in Morocco is perhaps the most important economic issue that can rally Moroccans around; Debt doesn’t seem to matter much, nor does the deficit. Even taxes do not seem to matter much. Since no particular (and reliable) polls are being carried out, I take it media coverage of these issues speaks for itself: public opinion does not seem to care about public debt and deficit, and public policy ensures level of prices are low, a good indicator of how priorities are ranked with a relatively popular government: stabilize prices at all costs.

By now, the major aspects of the new 2012 Budget have been made public: a big push in social sectors, education, health, housing and industrial relations, not to mention the appropriation for the Compensation Fund – around 40 Billion dirhams, and the deficit does not seem to be a priority, the trade-off in public debt and fiscal receipts has been pretty clear and favour immediate stabilization. It seems to me – but I might be mistaken- there is no Budget Policy for the next 5 years, only a year-to-year management of public finances. Sure, CST funds and Budget-allocated Public investment do contribute one way or the other to some long-term vision, but I doubt the government has fully endorsed, or even grasped the implications of, the spirit of past investment plans, like Plan Maroc Vert, Haleutis or the High-Speed train.

BKAM Core inflation doesn't take into account some elements that might be blamed for a rise in inflation

Though the government has pledged to spend its way to stabilize prices, it seems they have already overlooked the impact of their policies on future inflation as well as on the prospects of growth itself. Inflation is going to be a problem later on, perhaps sooner than what they might expect; so far, latest reports on inflation (core and total) state the following:

Selon le Haut commissariat au plan (HCP), l’Indice des prix à la consommation (IPC) a enregistré une hausse mensuelle de 0,2% en janvier 2012, après le recul de 0,5% observé en décembre dernier. Cette évolution reflète principalement l’accroissement des prix des produits alimentaires volatils de 0,9% après les baisses successives enregistrées durant les trois mois précédents. La progression des prix de cette catégorie tient à celle des prix des volailles et lapin et des légumes frais de 1,3% et 2,1% respectivement, qui a plus que compensé la baisse des prix des poissons et des fruits. Pour leur part, les prix des produits réglementés ont connu une légère hausse de 0,1%. Abstraction faite des prix des produits volatils et de ceux réglementés, l’inflation sous-jacente de Bank Al-Maghrib (BAM) ressort en hausse de 0,1% après 0,2% le mois précédent.

En glissement annuel, l’inflation s’est établie à 0,9% en janvier, inchangée par rapport à décembre 2011. Cette évolution résulte essentiellement de la poursuite de la baisse des prix des produits alimentaires volatils (-1,3% au lieu de -1,4%). Pour sa part, l’inflation sous-jacente est ressortie à 1,6%, après 1,7% en décembre.

The efforts put in stabilizing prices have brought overall inflation down, it is effectively a deflation of sorts: food prices are notoriously volatile, and the methodology makes sure they are not taken into account in core inflation computation. Bank Al Maghrib puts the 2012 trend for core inflation at 1.6%; yet HCP projects:

Concernant l’évolution de l’inflation, l’accélération attendue de la demande intérieure, associée à la persistance de la hausse des prix à l’importation, exercerait, en dépit du niveau élevé des dépenses de compensation, une légère pression sur les prix intérieurs.

L’inflation, mesurée par le prix implicite du PIB, passerait de 1,6% en 2011 à 2,5% en 2012.

that is to say, GDP deflator will rise moderately above BKAM’s core inflation 2%, which will amount to the same thing, since the last decade observed a 1.9% average GDP Deflator inflation rate, and BKAM policy rates haven’t change significantly on that period, and were much more responsive to GDP deflator fluctuations than they have been to regular ICV/IPC inflation rate. And so by postponing inflation shocks with subsidies, the budget only makes it harder to sustain future, compounded inflationary pressures that will come mainly from the crowding-out effect.

Bank Al Maghrib has only two alternatives: either support government policy and intervene a lot more on monetary markets to supplement flailing M3 and make up for the effect of government bond issues on available liquidities: as of late February 2012, the amount of liquidities BKAM serves amounted on average to 29.75 Bn dirhams, up to 238Bn since January 2012. up from 67Bn served last year at the same time by the Central Bank, an average intervention of a little less of 10Bn.

BKAM is more responsive to Deflator than the regular ICV rate. (1998 does not take into account a 50bps hike in policy rates from 5% to 5.5% then back to 5%)

My point is, government expenditure to stabilize prices will backfire, and I argue the price to pay for an inflation freeze on food prices is not worth it, since it also takes deviates liquidities from potential growth, and it pressures the Central Bank in going in with a hike in interest rates to sustain its other equally important target: sustain the Dirham’s value and manage foreign currency reserves.

Since I am getting more and more alarmist about this whole business, how come no major rating agency has produced a document about it so far? How come S&P didn’t change its outlook on Morocco? Last time they published any Moroccan-related news was July 2011, and the Outlook was Stable – and thus unlikely to change. So from a financial standpoint, the debt is manageable, not because Morocco’s economic prospects are going to improve, but because as far as its capabilities to mobilize foreign resources go, Morocco can count on generous creditors. And there goes the historic lesson: Morocco got into trouble in the early 1980s because it has borrowed too much from abroad. Foreign debt now stands at around 20% GDP; perhaps that level is considered to be sustainable; as long as the dices roll, take your chances, domestic debt doesn’t matter, does it?

Why fiscal conservatism, then?

Well, why not? It’s all a matter of trade-off, that is, a political decision that favours delaying deficit reduction and bringing debt under control because it values immediate price stability. I guess a 40Bn expenditure in compensation fund that benefits at least 75% to the top 20% affluent households. A subsidy that is likely to worsen trade deficit and weaken the level of foreign reserves accordingly. It looks as though as long as Morocco is assured of generous foreign financing -from the Gulf or the EU- its public finances aren’t much of a problem. On the other hand, if the assumption the business cycle has reached its peak holds, then it is dangerous to pursue the foreign debt path; it looks as though Real Estate is likely to be the main growth booster, and foreign, ‘hot money’ inflows do not mix well with tangible asset acquisition.

Budget rebalancing means the following: yes, overall inflation will rise moderately within the 2% BKAM target rate, and probably so would unemployment, but not above the 9% limit; but capping PSBR and spending would allow available liquidities to be channelled into private expenditure, thus boosting economic growth. Simultaneously, fiscal policy has to be rebalanced in favour of less indirect taxes and broader tax base; this means many of the existing loopholes, temporary and permanent exemptions and moratorium would be closed or ended, or at least directed in favour of actual contributors to growth: small and innovative businesses, agricultural cooperatives, higher education and research. What this government is doing is basically the worse of two worlds: social spending with no immediate repercussions on growth (domestic expenditure has a lower contribution to growth when heavily subsidized, and improving the livelihoods of 400,000 public servants out of a workforce of 11,8 Million people isn’t really going to make it happen) rolling up large deficits and mounting debt that crowd out liquidities.

Lower The Age Vote to 16 – Why It Could Bolster Turnout over the Long Run

Posted in Intikhabates-Elections, Moroccan History & Sociology, Morocco, Read & Heard by Zouhair ABH on March 8, 2012

Vote at 16. Why not?

I guess the first counter-argument goes on how critical these new electors can be on the overall turnout. What if in spite of this new enfranchised population, turnout was still low? Well, we can always run the numbers and prove that an election does not need to carry more than 51% of total votes to be popular. I posted on it a couple of months ago, but we can go over it once more: the present system both restricts and allows for an absolute majority with fewer votes.

Computations assume full turnout, full registration of all Moroccan adults per HCP estimates.

The total number of adult Moroccans for 2012 is about 22 Million individuals;  assuming all of them are registered, it can be easily proved a political organization (a coalition or a single party) can carry 198 seats with less than 11 Million votes. Indeed, there are about 55,700 votes per seat, and 22.7% of these seats are just a projection of local ballots. But then again, one has to take into account the 6% threshold to qualify for a public refund; that leaves the total actual vote to 52,300:1. Furthermore, since 41% of slots opened on all 92 districts carry 3 seats, hence carrying an average 3.3 seats per district, the total number of seats actually needed to carry 2 seats out of 3 opened on 92 districts in absolute majority is 55%, with the final result of 28,700 votes, thus bring the theoretical number of votes required to carry an absolute majority to 4.4 Million votes. And that assumes a 100% turn-out and no rejected or blank ballots. In the final analysis, it doesn’t take 11 Million votes to get an absolute majority at the House of Representatives-and thus control parliament, not even half of it; overall, 20% of all Moroccan adults can do it, democratically and in spite of all the gerrymandering one might think of.The figure of course, decreases commensurately quicker as the turnout declines, since the actual electorate is computed on the basis of voter turnout, i.e. on an already smaller slate of decisive voters – it is worth pointing out that many adults cannot vote by law or by deprivation of right: military, auxiliary police force members, current and prison inmates and so on.

In fact, the computations hold even as the current district boundaries allow for significant discrepancies between allocated seats and its demographic size: Tan-Tan has a population of 70,000 including 40,000 adults and gets 2 seats. Mohammedia has 3 seats even though is has a population of 321,000 including 200,000 adults. Mohammedia has one additional seat even though its adult population is five time that of Tan-Tan. Obviously,  a candidate in the former needs only 18,000 votes to gain a slot, 37,000 to carry both. A Mohammedia candidate needs to carry 62,000 for one seat, and 188,000 for their ballot list to carry the whole district. Volatility around the nationwide 28,700 mean does not, however, preclude, at least on paper, the possibility of one party, or a smaller pre-electoral coalition, to carry an absolute majority at Parliament House.

If 20% of all Moroccan adults alone, under the assumption of full turnout, can provide enough votes for a strong majority, there is little to fear from expanding the size of this electorate. In fact, it brings 1.8 Million additional voters, and as it may please sceptics, their relative weight will tend to decrease, from 7.56% of the new total electorate in 2012, to 6.7% of the potential 2016 electorate, an annual average demographic decline of  0.9%. It is quite obvious that their immediate impact in terms of a first-time ‘protest vote’ is quite harmless, since their weight is dangerously close to the 6% threshold. Unless they can mobilize more enthusiastically and make up for a low turnout from other demographic populations. And the whole idea gambled upon is to boost turnout over the years young 16 years-old go to polling stations. Studies show the younger generation is keener to get involved in civic activities, and lower the mandatory age for voting rights can influence this civic enthusiasm to political activism.

Are political parties interested in disenfranchising electors? It seems not. As a matter of fact, they would fight it with all the energy their special interests can summon; most parties do not have active youth organizations, and those who do are often at loggerheads with youthful rivals to an otherwise political gerontocracy. Yet it would serve a lot the political mainstream to mobilize young people very early on; they can build on some strong support that can carry them across elections, a readily available stock of grass-roots activists, and perhaps more ambitiously, to hand-pick early on potential leaders – that is when our political leaders finally come to the conclusion they are not immortals, and their heirs need not be systematically with biological ties.

While 16 years-old can be allowed to vote, can they also stand as candidates? Well, if the case for the voting right gets its point across to the public opinion, I suppose there is little to prevent it as well. After all, the books of law do not explain why the age of 18 was arbitrarily selected, do they?

Is anyone thinking about 2016?

Posted in Moroccan Politics & Economics, Morocco, Read & Heard, The Wanderer by Zouhair ABH on March 5, 2012

It seems not. A year seems to be a long time in Moroccan politics, and all across the political spectrum, politicians and activists do not seem to take a step back an look at the big picture, even the most experienced and respected of those.

Winners and Losers, but ultimately losers for failing to provide Moroccans with a vision.

Fouad Abdelmoumni, a respected Human Rights activists and a father-figure (of sorts) with the Feb20 movement, expressed short-sightedness in his analysis regarding the future of this government. He claims:

Enfin, les prochaines semaines nous montreront si ce gouvernement est conscient qu’il joue sa survie, celle d’un parti majeur et celle du pays. La crise va bientôt peser de tout son poids, et le Maroc n’a que le choix d’en sortir par le haut, à travers la démocratie, l’effort et les solutions courageuses, sous peine de sombrer à plus ou moins brève échéance dans les frustrations et la confrontation. Il convient surtout de ne pas oublier que les anciens expédients par lesquels le Maroc a pu tenir (répression, corruption, division des opposants, monopole de l’information…) sont révolus, et que la rue ne manquera pas de demander des comptes dès la fin de la “période de grâce” du gouvernement.

And I suspect many activists are thinking the same thing: that PJD-led government coalition, just like the Constitutional Referendum and Parliamentary Elections are a patch to contain the growing social resentment against repression, nepotism and the like. That may be true, but still, it does not absolve the movement -and the Moroccan left- from building a truly comprehensive pro-democracy platform, or at least to provide clear-cut, unambiguous set of principles to which a majority of Moroccans can relate to.

The mainstream political spectrum also seems to be lacking their own political Weltanschauung: can anyone state precisely how USFP, or PAM, or UC stand on specific issues as well as broad principles? In fact, screw broad principles, as they bear little meaning in Moroccan politics: PAM defines itself as a left-leaning party with a former CDG Sovereign fund CEO and technocrat Mustapha Bakkouri, and USFP, a member of the Socialist Internationale, has been a lifelong partner of conservative and crypto-islamist Istiqlal within the Historic Koutla, now a junior partner with the PJD-led government. As for the government, the mere fact a coalition is in cahoots until 2016 makes it sure no viable strategy is devised anywhere near 2016; in fact, it is very likely to be “2016 and bust”.

Since principles bear little significance to party politics in Morocco, only precise, comprehensive sets of policy agenda can be useful in defining the dividing lines of Moroccan politics. As for how parties view themselves in the next couple of years, mum’s the word; and I suspect this is due to their refusal to commit to a long-term vision. And there are basically two ways to go to explain it: lack of vision or excessive caution. Either way, it does not serve the public well.

What’s a vision for 2016? And Isn’t the date itself an example of political short-sightedness? Indeed. But the centrepiece of representative democracy is the rough-and-tumble of political campaigning induced by elections. And these usually trigger timely commitments from representatives and political leaders – perhaps we should consider elections every two years: 4 years of a full parliament intertwined with 4 years of local/regional elections.

Until they can come up with a comprehensive -and I insist on that term COMPREHENSIVE- agenda in all areas of pubic policy, they will have to focus on specific issues, preferably away from identity and culture stuff, like… the veil for instance; I’d rather prefer the public discourse go: “They will tax you back to the stone ages” vs “Tax breaks for the rich, additional burden for the middle classes”