# The Moorish Wanderer

## Inflation And Unemployment Conundrum

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on June 26, 2012

As I was browsing through my bookmarks, I bumped into that blogpost on the Citizen’s Watchdog, on unemployment and growth in Morocco. Just as he rightly pointed out, growth does not generate employment in Morocco. Or, to be precise, there is no direct correlation between growth in output and unemployment. Because the causal effect has to be investigated beyond the regular correlation device at hand. My interest in this post extends a little beyond mere output growth and unemployment; it looks into the other ingredient in the mix: inflation. And if I may add a fourth component, expected volatility.

perhaps a more suitable arrangement of Okun’s law can shed better light on the unemployment in Morocco.

The standard Philips curve (with or without the NAIRU rate) nor Okun’s law apply in Morocco, at any point of history, that is. Remember that Morocco has come a long way in fighting inflation. The second graph shows a steady decline in 10 and 15-years average in CPI inflation, a year-to-year decrease of .3% since 1989. However, the other end of the bargain has not come out exactly the way policy-makers would hope it would: unemployment has not dropped until the late 1990s, and for all the straight growth figures since 1999, an average GDP growth of 4.3% resulted only in a cut of 4 points in unemployment, even as the size of the labour force increased only 1,7 Million over the last decade. This means the economy grows only so much to post vacancies to new labour force, and only marginal openings to on incumbent unemployed. Obviously, we should be expecting some comprehensive study from the Labour ministry, but as far as aggregate data shows, I would bet growth in Morocco creates enough jobs for the new labour force only, and higher levels of growth do not automatically expand to tap into the unemployed population. Besides, Bank Al Maghrib did not provide a clear evidence as to how Okun’s law can apply to Morocco: their 2009 annual report stated the obvious with  (statistically) insignificant regression line drawn through a cloud pairs of GDP growth and unemployment rate (p.47) On the other hand, when one looks at lagged aggregates and their historical volatilities, the picture becomes perhaps a little clearer.

I would however direct the reader’s attention to the more intricate relationship between output, inflation and unemployment: in fact, I contend it is wrong to compare a long-term aggregate variable -unemployment- to the more cyclical aggregates that are GDP and inflation. By now, we can safely assume much of Morocco’s unemployment is structural for many reasons, among others labour legislation and collective bargaining mechanism designs. Again, some study has to show if the unions are helping, or if workers are protected in their rights. So, annual unemployment rate should not be compared to annual CPI or growth: respective correlations over 1976-2010 are -.194 and -.079, too weak a result to tell any meaningful story. On the other hand, when annual unemployment is compared to say, the 10-year growth GDP, correlation is much strong (-.47) and equally the 15 years average CPI inflation observes tighter correlation with unemployment (.608) which tells a story: an effective policy designed to fight unemployment cannot expect to yield immediate results. In that the current government can be reasonably excused if they fail to cut unemployment to 7% by 2016 as they promised. On the other hand, a steady policy aimed at keeping both inflation and growth within the long-term figures do contribute more effectively seem to do better in bringing down unemployment.

The “Great Moderation” of the early 2000s shows a steady decline in unemployment, but at a lower rated compared to inflation and output volatility

In fact, two elements seem to display large correlations with unemployment: 3-years average output volatility and 15-years average inflation are both tightly linked to unemployment: lower medium-term output volatility and long-term inflation rate. The relationship is initially described in linear terms such $u_t = \alpha.CPI_{15y} + \beta.\Delta_{3y_t} + \bar{u} + \epsilon_t$ where $\alpha \in ]0,1[$ is a weighting parameter for inflation on unemployment, and $\beta$ the premium put on GDP volatility, and $\bar{u}$ the NAIRU. At a 95% confidence, the formula above provides good indications the benefit of cutting GDP volatility: every 1% subtracted from GDP volatility with respect to the 3-year average yields a 2.01% decrease in unemployment. Admittedly, it is very hard to control GDP volatility over 3 years, but if the right policies are devised, a sustained decreasing output volatility all the way to 2016 can bring unemployment as low as 7.2%, and 6% by 2021, i.e. Morocco’s full employment. In that respect, it is not the level of output growth that matters, but rather how stable it is with respect to medium term targets. (incidentally, estimated values for $\alpha$ and $\beta$ are respectively .41 and 2.01 (The formula itself can be adapted to encompass target levels similar to the Taylor rule) (results are pretty much the same) but this is a body of evidence reliable enough to observe that stability in output and inflation, more than higher levels of growth can help to bring down unemployment. We thus consider more institutional arrangements to reduce volatility, chiefly by reducing uncertainty, which calls for large institutional transparency in setting official targets, for instance.

These computations suffer three major shortcomings: first, they do not account for all the cyclical fluctuations in the considered aggregates; because only annual data is available to me, the analysis undoubtedly misses out on quarterly fluctuations especially (perhaps primarily) on inflation. Second, the formula downplays a pretty significant correlation between long-term inflation and GDP volatility, which indicates some additional endogenous effects that remain to be capture in a more specific model; Third, employment dynamics are significantly different in the agricultural sector, which may value output stability differently.

These caveat however would not fundamentally contradict the initial assertion behind these figures: economic stability both in expected inflation and output serves Morocco better than high levels of growth.

## Who Vote(d) Progressive in Morocco?

I have recently come across some detailed figures on this website, most importantly the complete set of results from the 2011 legislative elections per province, and I wonder how they got hold of these (apparently Attajdid newspaper published them in full)

the story behind those figures is damning to the left: they have lost their historical stronghold a long time ago, and I can recall one statistical evidence that provides a sad indictment to the sorry state of progressive politics in Morocco: in 2007, USFP candidates garnered 2301 votes in Aïn Chok. In 2011, they managed to pull 2304, even as turnout jumped from 22,125 to 41,195. There is a large probability the same people turned out to vote USFP, even as parties like PJD and MP doubled their respective votes from respectively 7,493 and 3,067 to 20,849 and 6,579. This is from a city where UNFP and the progressive parties before 1997 usually carried 37% of the votes, an average of 86,000 votes per election since 1963. In 2011, the total votes in Casablanca for all competing left-wing parties was around 29,500 (6.1% for the Casablanca metropolitan area) an abysmal performance matched only by the 1977 elections, when neither USFP, PPS or UNFP/UMT managed to carry a seat there.

Historically however, the total score of popular vote garnered by all progressive-affiliated political parties is very close to PJD’s feat: PJD carried 22.8% of the popular vote, some 1,080,914 votes, and all left-wing political parties carried on average 1,135,281 votes. It would be interesting to identify those areas that have voted (or still vote) progressive since 1963. Perhaps the evidence shown later would confirm the urgent need to unify all of these political parties into one big tent. The chief benefit of a broad coalition is electoral maths: one party, or at least one cohesive coalition means the perverse effect of the Moroccan ballot system would be alleviated somewhat: two competing left-wing candidates are cancelling each others out. In 2007, the vote was split evenly between USFP and the PSU-PADS-CNI alliance in Essaouira: though both got a seat each, their combined 17,540 votes (out of 66,740) could have most likely carried a third seat from the 4 slots. In 1997, the aggregate progressive vote in Marrakesh was second only to Istiqlal, leaving behind RNI (73,777) and MP (50,800) but because it was fragmented between USFP, PPS and OADP, their electoral performance didn’t amount to much.

There is one instance where electoral cooperation produced impressive results: in 1993, USFP and Istiqlal stood with joint candidates, a strategy that yielded Koutla‘s highest performance ever since it was first formed in 1970: 36.2% with scores as high as 79% in Mohammedia, Essaouira (61.26%) and Alhuceimas (58.1%) Casablanca and Rabat-Salé averaged 56% of popular votes.

Perhaps my definition of ‘progressive’ is too biased: after all, it fails to account for the extra-parliamentary opposition, all those political parties with definite views on the parliamentary system (including PSU since February 2011). But I guess the best analogy to describe the state of the Moroccan left is that of the informal sector: the activity is out there, but because it operates beyond the legal framework, the correct appraisal of the sector’s contribution to legal GDP becomes difficult, if not impossible to perform. Left-wing parties operating outside the mainstream political competition (the electoral process, so to speak) contribute to the Moroccan political life, but because they refuse to submit to the only viable performance indicator around, i.e. elections, they do not influence mainstream politics. Polling is not a thriving business in Morocco yet, so general elections since 1963 are so far the only correct indicator as to how popular progressive and liberal ideas are with the Moroccan electorate. Official figures, electoral official figures in particular are hotly gainsaid by many in the opposition, and in many instances, their accusations are founded. This is an inevitable caveat: to talk about Moroccan elections in a serious fashion is to use official figures, and these are not always accurate. Still, in the absence of an alternative, one has to make do.

the progressive vote “migrates” away from large metropolitan districts to smaller, more rural seats (even a couple in the Sahara) especially since 1993

UNFP/USFP, FFD, PPS, PSD, CNI, PT, PADS, OADP/GSU/PSU, PS, PGVM are all left-wing parties (with explicit references to values of socialism or progress in their respective denominations) with a history of electoral campaigning and for most of them, at least one gained seat since their foundation. Together, they have held between 19.6% and 22.5% of parliamentary seats and 22.8% of popular votes since 1963. Nonetheless, the geographical distribution of their parliamentary caucus has changed a lot over the years. True, the Casablanca-Rabat-Agadir formed much of the middle-class stronghold upon which parties like UNFP, then USFP built their political strength, but there are other places where support has been random: Alhuceimas is the best example of a “swing province”: in 1963, no vote were cast in favour of UNFP, even as USFP and PPS carried about 25% of the votes in 1977, and 22% of all the votes went progressive in 2007, only to swing dramatically to other allegiances in 2011, with only 11.8% of the votes going to USFP, PPS and other competing political parties.

In many instances, the fact that up to 5 competing left-wing candidates are fighting each other off over 3 slots makes it a pyrrhic victory to however emerges. Sidi Bennour is a great example of how a united left can prevail: in 2007, the Democratic Alliance (PSU/PADS/CNI) garnered 10,559 votes, about as much as USFP as one can see:

SIDI BENNOUR OULED FREJ (226,379 voters)
======================================================
------------------------------------------------------
Constitutional Union                 7,990  10.5    -
Independence Party                   9,737  12.8    1
National-Democrat Party - Covenant  10,006  13.1    1
National Rally of Independents       3,305  04.3    -
Party of Progress and Socialism      4,804  06.3    -
Popular Movement                     9,700  12.7    -
Socialist Party                      4,292  05.6    -
Socialist Union of Popular Forces   10,297  13.5    1
Others                               5,534  07.3    -
------------------------------------------------------
Total                               76,224          4

and yet if both USFP and PSU/PADS/CNI managed to stand with one common list, they would have carried the third seat away from Istiqlal. Another interesting feature of the Sidi Bennour district is the turnout, down 10,670 from 2007 (76,224) to 2011 (65,554). Boycott, in that particular case showed clearly as those  AGD voters preferred not to go to the polling stations. There are 4 seats opened for the left down there simply because they can mobilise around 20,000 voters out of a 193,000. Obviously, they do not have the Rhamna juggernaut at their disposal: in 2007, the so-called independents under Fouad Ali Himma’s leadership carried all 3 seats for the Rhamna district with a whooping majority of 41,265 to a total number of voters around 56,755, a super-majority of 35,187.

regional contribution to historical average: populous regions still contribute more

I mentioned earlier that the historical trend in voting pattern bore depressing features. There are however signs of potential comeback: first, the aggregate vote in urban rings shows as a strong second or third. There is great potential however in smaller cities: Essaouira, Sidi Bennour of course, and other districts usually concentrated in Marrakech-Tensift-Haouz and Souss-Massa. The aggregate vote shows more than often potentially an additional seat should all progressive candidates stood on coalition platforms. In parliamentary arithmetics, that translates into a dozen additional seats from marginals (including PJD’s) and around 5 more with the national ballot automatic transmission effect.

A Koutla of the left can be achieved, and from what I have seen since 1997, there are around 30 districts (meaning, around 45 seats) where at least one party does not carry enough votes to cross the legal threshold for campaign reimbursement. A rational strategy would be to strike a deal in coordinating their choice of candidates, if indeed these parties cannot agree on a ready-made coalition platform.

But then again, as long as the old rivalries persist among all components of the Moroccan left, there is little hope a strong progressive parliamentary party will emerge and present itself as a viable alternative to the Makhzen as well as the PJD.

## Mean-Tested Compensation Fund and Regional differences

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on June 18, 2012

I have reached a certain level of my graduate life where I need to sort out my writings: less of free-style blog-posts, and more serious, academic papers. I guess from now on I might be less inclined to argue forcefully on economic issues, and the reader can make up their mind as to the need to present such and such argument for such and such claim.

Last post was about a simple and relatively inexpensive scheme designed to induce a mechanism design such that only those households below the median income to genuinely benefit from the subsidy, so as to avoid an excessive compensation whose actual beneficiaries are those at the top. The idea is to look at the median consumption, subsidize it, and provide a commensurate cash relief to any household claiming it. Hopefully, the wealthiest would back away from the scheme, since that would mean a drastic reduction in their consumption habits, and each would pay the true relative price of their consumption bundle.

This post deals with the finer details of such program; the idea is to identify regional means of consumption, hopefully their median consumption, and from then on apply the same method nationwide; the argument behind the region-based discrimination is obviously is its cost-efficiency: a nationwide median understates the discrepancies between regions, just as a mean does – you might understand it as an average median, which brings equal problems in terms of mechanism design strategy-proofness. And based on the figures provided by HCP, we do observe a great deal of discrepancies, which signals to a lower cost for cash-relief.

According to HCP’s “Comptes régionaux PIB régional et dépenses de consommation afinale des ménages“, Grand Casablanca and Rabat regions account for 35% of total GDP, but only 26.4%. The 9% discrepancy captures what might be construed as a typical illustration of Keynes’ consumption function: richer households tend to consume less relative to their output, and they are likely to devote less of their new income when it grows (the so-called marginal propensity of consumption) But still, two regions out of 16 account for the fifth of household consumption in Morocco means a reasonable claim can be made as to the distribution of actual recipient of the Compensation Fund subsidies. As a matter of fact, the subsidies goes to the wealthiest households in metropolitan areas, whose relative consumption to household is significantly lower compared to nationwide figures; in absolute terms though, the average Casawi household consumes twice as much as their opposite number in Taza or Alhuceimas.

Regional distribution of actual subsidy provided by the median-based cash relief scheme. Poorer regions tend to benefit above the 20% nationwide relief. (big up for Kingstoune and the neat SVG master map)

The median regional household consumption is in the neighbour of 93,760 dirhams per annum, with extreme values as high as 139,810 in Rabat-Salé-Zemmour and as low as 72,460 dirhams per household in the Gharb.

The scheme would provide cash relief on the basis of the regional median household, with those below the median benefiting up to 2,700 dirhams in excess, precisely because they can claim higher levels than their actual consumption, a significant enhancement for their purchasing power.

On the other hand, those above the median would have to sacrifice more than 25,000 dirhams of consumption to be eligible for that cash-relief scheme, something that represents a net loss of 21% of their current consumption. The arbitrage left to the upper households is pretty straight forward: either accept to lose 21% of their current consumption immediately, or accept to pay a higher price gradually.

On the basis of a 60% population eligible for the cash-relief system, the net cost for the Compensation Fund would be valued at around 25,5Bn dirhams, 400 Million dirhams less than the nationwide-based median consumption bundle. This is the best evidence yet that local standards are best in determining the weighted-average median consumption bundle on the basis of which households are eligible for the cash relief scheme. These figures are based on 2011 estimates, which explains the discrepancies with respect to the figures put up in the latest post, since these are 2010 estimates. This means that the cost of the Subsidy fund can be maintained constant in real terms, i.e. relative to inflation, but also with respect to the nationwide GNI growth.

## Food and Consumption Subsidy: Below the Median

Posted in Dismal Economics, Flash News, Moroccan Politics & Economics, Morocco by Zouhair ABH on June 9, 2012

I did not watch our Head of Government’s performance on TV. But I guess by now, the Moroccan public will take a keen interest in the essential mechanism of economic interactions. Mr Benkirane’s favourite catchphrase “God’s Will” might not be as helpful as he makes out.

A strong negative correlation between Consumption and Net Exports, compounded by the strong contribution of the former to GDP growth

First off, the graph opposite just shows the insanity and how unsustainable the subsidies are: Moroccan has a structural deficit in its trade balance, and the compensation fund does not subsidize household consumption, but chiefly subsidizing the trade deficit. As such, the Moroccan government’s hands are tied: if they decide to reform radically the compensation fund, or address the problem of trade balance and balance of payments, this would mean doing away with a reliable source of growth -household consumption- and a lucrative source of fiscal receipts.

Household consumption is a curse no longer in disguise: the weaker foreign demand for Moroccan exports from the Eurozone, the stronger our economy will have to rely on domestic consumption, the heavier the weight of subsidies on public finances, with a paradoxical effect on government receipts, but only up to a point.

The idea is thus to achieve a three-fold objective:

First, reform the compensation fund in an effort to address the structural weaknesses of the Budget.

Second, direct relief to households genuinely in need for it.

Third, balance domestic consumption so as to make Exports a viable substitution in terms of growth contribution.

The Iranian example provided by fellow blogger Omar El Hayani is too inflationary, and I am afraid his computations were a bit far-off base: suffice to say these computations should be done at the household level (400 dirhams per person allowance does not sound to be a viable program at any rate). A household-based direct subsidy in form of cash relief ought to perform better, with a nation-wide benchmark.

The idea is simple enough to avoid the ritual pitfalls of ‘Institutional Shortcomings’ (codeword for government corruption) by applying a small device from Game Theory properties: the subsidy is computed on the basis of a composite basket of goods a median household usually spends money on. The advantage of such a mechanism is that all those households below the Median would automatically benefit from it, regardless of their declared type of consumption. As for the better off households above the median, they have the choice between keeping on with their existing patterns of consumption -and charged more for it- or reduce their consumption absolute levels so as to match the subsidized median basket eligible for the cash relief, which results in a reduction in their consumption in absolute value. This is a win-win outcome: poorer households observe their purchasing power is stable or improving, and the wealthier Moroccans are given the opportunity to pay the true price of their consumption.

This model has the advantage of deflecting inflation away from the vulnerable households: lest we forget, about a third of household consumption in Morocco is concentred in the hands of 10% wealthiest households, these are the ones benefiting from the current system of subsidies, and these are the ones behind any sizeable inflationary shock.

Consider HCP’s households survey in 2000-2001: The average share of income devoted to food consumption established itself around 41%. The figure itself, when compared to the median share of consumption (47%) shows how skewed household consumption is in favour of the wealthiest, even though these consume only a little more than 30% of their disposable income.

Per these findings, the benchmark a household consist of 6 individuals, most likely to be 4 over time, with an annual gross income of 76,940 dirhams (2010 estimates).

Their annual consumption establishes itself around 36,100 dirhams per annum. If these are subsidized at 20%, the total cost for the Compensation Fund would be established around 25.89 Bn dirhams per year, in real terms. The median household is subsidized at 20%, the poorer 10% at around 42% of their consumption, and the real subsidy percentage would be closer to 25%, which only confirms how this particular scheme helps those who really need it.

## Austerity and the New Engines of Growth

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Tiny bit of Politics by Zouhair ABH on June 3, 2012

Paul Krugman on Chris Matthews‘ Hardball argued forcefully in favour of a larger fiscal stimulus package

How come the Moroccan mainstream media doesn’t provide comparable levels of debate? Surely Ministers Nizar Baraka and Driss Azami El Idrissi, or even the parliamentary leadership (Said Khairoun, Chairman of the Permanent Parliamentary Committee on Public Finances) can afford to go on TV or the radio and be scrutinized on more than just platitude (I doubt Milouda Hazib, senior ranking PAM member in the same committee fully grasps the implications of the marginal income tax rate. Mr Technocrat himself, Ahmed Reda Chami seems to be more interested in pandering in view of the next USFP convention than actually doing his job as a member of the said parliamentary committee)  The Finances ministry uploaded not long ago a useful compendium of new fiscal measures, but as far as I can tell, no mainstream journalist has had the interest of writing a paper on how effective the revenue enhancement in car stamps and duties have on reducing car use and, indirectly on oil consumption. Government officials go on with the business of making the Budget bill, the elected representatives supposed to scrutinize them do not seem to be interested in the policy implication of these decisions, and the fourth estate is far behind on this particular piece of news.

That decision to lift moderately oil subsidy on industrial and car fuel is not a sign of the government coming to their senses regarding the compensation fund, it is merely a half-measure designed to curtail the runaway cost of the said fund. At best, the deficit will remain within the 5% projected for 2012, otherwise that decision will hurt significantly growth, paradoxically even more so if a more radical scheme was introduced with the idea of replacing fuel-inefficient vehicles.

Suffice to say there are about 2.001.458 cars and other vehicles in Morocco (2009 figures) and 74.4% of these are more than 6 years-old (2008 figures) more than half have more than 10 years of service. Older car models tend to consume more, and these are usually (mainly) driven by less well-off Moroccan households and businesses. In effect, the decision to increase diesel and fuel by about 14% overnight will hurt a majority while the better off minority will not adjust their behaviour and continue to take full advantage of an indiscriminate and ultimately unfair subsidy system.

I am drifting here… Paul Krugman makes a very good case for the stimulus package, and warns austerity measures would plunge the US economy into a recession similar to that experienced by Spain, Portugal and many other countries in Europe. And yet Morocco is experiencing increasingly dangerous economic hardships, a piling public debt, a sluggish growth in M3 aggregate, and finally, that problem no one in Morocco can actually address, the abysmal trade deficit. a research paper by the IMF points out to the effects of European economic fluctuations on Morocco’s growth, and their conclusions are daunting: the recover in the Eurozone will be slow, and almost certainly not pulled by domestic consumption:

Our analysis confirms the important role played by the European Union for the Moroccan and Tunisian economies. We note, however, that this close tie might also represent a challenge for the future.

For the two countries, enhancing competitiveness and diversifying trade flows is essential for sustaining future growth.

This means Morocco’s foreign demand is unlikely to improve over the next couple of years, and with it, any possibility of growth around the government’s objective of 5.5% average by 2016. The best of best scenario (net) exports can do is to give a modes 1.5 percentage point to growth, which is way below what the economy needs to reach the vicinity of 5% to 5.5%.

Morocco’s growth is therefore left to domestic consumption and government expenditure. This is a particular recipe for disaster: on the one hand, any consumption-led growth means about 30% of household consumption will be insured by a wealthy few less than 600,000 households, and these people are  very hungry for transportation, luxury and imported goods. To these top-tier consumers, one needs to take into accounts the demand pressure implied by the aspiring middle-class, the various increases in public sector payroll. As for government expenditure, assuming our elected officials are taking their pledge to bring the deficit back under 3% GDP seriously, an expansionary budget cannot go one forever, as the pressure on rates, barely alleviated by Bank Al Maghrib’s decision to cut rates 25bps, is going to eventually penalize the private sector, if it is not already the case.

GDP Growth and two components’ contribution to growth: Household Consumption and Government Expenditure.

So Morocco and its public finances are between a rock and a hard place: on the one hand, any Keynesian-like stimulus program is unlikely to restore Morocco’s economic stability, and might well turn out to be a bad temporary fix, whose price are high borrowings now and higher taxes next; on the other hand, growth cannot be fuelled by domestic demand indefinitely because it will result in deteriorating Morocco’s terms of exchange and trigger a run on the currency. That is where cutting the budget comes in: to rebalance the engines of growth.

Government expenditure and Household consumption have contributed an average of .72 and 1.52 percentage points respectively of the 3.58% average growth over the 1992-2010 period. Their contribution goes higher in the last decade with respectively .79 and 2.31 percentage points for an average growth of 4.64% since 2000. An austerity program, that is, discretionary cuts in government expenditure mean a reduction of the budget’s contribution in growth, and in the short term results in a small contraction of GDP, with an undetermined time lag for agents in the economy to adjust themselves, and then growth goes on.

The picture is quite clear as to why government expenditure has to be halved: the Moroccan economy cannot sustain itself with high levels of of consumption and government spending; there are arbitrages to be made, and these come to the expenses of two other equally important national accounting aggregates, Investment (Gross Capital Formation) and Exports (Trade Balance): Y = C + G + I + NX

Cutting the budget by means of restraining public service payroll with growth rate well below inflation rate (since 1992, payroll increased 6.6% on annual average, while CPI inflation rate established itself around 2.6% over the same period of time) is necessary because the available resources have to be used somewhere else. It is a bit of a vicious circle: high public payroll means high household consumption and higher imports, which in turns means high receipts from VAT – these make out 21% of total fiscal receipts, and the trend is upward since 2004. Obviously, the government cannot just agree to kill a lucrative source of income for the sake of economic stability, but the fact of the matter is, the economy badly needs it.

We will have to agree to the unbearable fact that we cannot secure anything near 5% by 2016. Growth has been the magic wand to solve, or at least hide Morocco’s deep structural and social problems: trickle-down effects from income inequality were relied upon to improve (marginally) the condition of poorer households, and government jobs were there to appease unions and the unemployed graduates. On the other hand, other engines of growth have been neglected: Investment makes up for 1.5 percentage point of GDP growth since 1960,  2.38 points since 2000. Same goes for Gross Exports, with 2.19 percentage points as well. High consumption and higher government expenditure means higher imports, with the immediate effect of penalizing promising prospect for the Moroccan economy.

Investment and Exports: the first is just a matter of corporate interest in buying assets, the second needs to adjust to the end of an era: the Europeans are no longer a good trading partner.