The Worst of Trickle-down, or Zombie Keynesianism?
There is enough evidence to state that more than ever, big government is alive and kicking in Morocco, and not in a nice way; it has indeed broken with a 30-years trend in 2010; this means that some additional 5.8 Bn have been spent above the 50-years long trend, accruing to the 20Bn-worth exponential break that started 3 years ago. 5Bn might not be a lot relative to the Budget -1.67%- but it does account for 4% of government expenditure in real terms, so the matching resources accounted for in the Budget as a whole.
So here we are with a government who has not broken with the fateful decision to increase dramatically government expenditure in 2010; this is, quite simply, Zombie Keynesianism: the government puts on (some) welfare programs, increases recruitment 40%, and comes up with an effective 21Bn package expenditure no government has prepared for but yet finds itself actually spending it. Most importantly however, the Compensation Fund takes a large bite out of government expenditure – the World Bank Open-Data defines it as:
“General government final consumption expenditure (formerly general government consumption) includes all government current expenditures for purchases of goods and services (including compensation of employees). It also includes most expenditures on national defence and security, but excludes government military expenditures that are part of government capital formation. Data are in current local currency.”
And considering the available data on that subject, the negative effects of the present course of action are just as equally showing on the short as well as the long run: depending on how the economy fares in 2013, the combined effects of the generous increases in public service payroll and the Compensation Fund will deteriorate an already compromised Budget Balance, and later on, the government will have to increases taxes, or cut spending, or both.
It seems this moment the government is trying for some shadow stimulus package, and it shows: the latest Treasury monthly survey points out the structure of Government Budget has been markedly altered compared to that of 2011: the Budget represents only 14.6% compared to the 23.2% in 2011 (and there goes the government’s boasting about the 188Mds committed to investment) while payroll and subsidies increased their contribution from 36.7%, 12.1% to 41.2%, 18.2%, respectively. And contrary to the government’s claim, the Compensation Fund does not benefit the middle class as much as a few wealthy households.
Les dépenses du budget général ont atteint 68,3 MMDH à fin mars 2012, en légère hausse de 0,8% par rapport à leur niveau à fin mars 2011, qui s’explique par une augmentation de 17,6% des dépenses de fonctionnement conjuguée à une baisse de l’investissement et des charges de la dette budgétisée1 de 34,2% et de 11,1%
So basically the government has put a lot of money to stabilize prices -but at the same time transfers generous sums back to the privileged few- and to recruit many more civil servants – that might not be needed or do not have what it takes- the result is indeed a stimulus package, and it might as well be working by providing the boost for GDP growth, but it will not last long, and the benefits of such an overkill are not that obvious.
|σ |σj/σy |Corr(y,j)| ----------+--------+-------+---------- Y_GDP |0,08030 |1 |1 | ----------+--------+-------+---------+ Con |0,07013 |0,87339|0,82150 | ----------+--------+-------+---------+ Investment|0,24127 |3,00463|0,83690 | ----------+--------+-------+---------+ Government|0,22035 |2,74415|0,49970 | --------------------------------------
The table above shows some evidence that government expenditure does not necessarily influence GDP the way other aggregates do, and the effects can be random indeed: government expenditure is just as volatile as the most volatile aggregate in an economy (Investment) yet it is also the least correlated to GDP. The only way that generous increase in government expenditure can pick up growth is through the subsidy to household consumption. In an ideal world, the Finance Ministry would provide us with a technical note to explain and illustrate the model they are using to forecast growth, and more importantly, the contribution to growth per aggregate. One thing is sure though, the present increase in expenditure doesn’t help, and the boomerang effect will be painful.