The Moorish Wanderer

Ne Jamais Présenter de Programme Gouvernemental Déchiffrable sur Une Feuille de Calcul

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on October 29, 2012

(dixit Joshua Lyman, de la série ‘The West Wing‘)

Il m’a fallu un peu de temps avant de compiler correctement ces chiffres, et pour cause: l’objectif avoué du Gouvernement à réduire le déficit à moins de 3% en 2016, couplé avec une croissance moyenne attendue de 5.5% pour les cinq prochaines années me semblait tellement fantaisiste, tellement optimiste au vu des limites de l’appareil productif de l’économie marocaine et de la détérioration de la conjoncture économique, mondiale et en particulier chez l’Union Européenne. Le tableau suivant reprend les projections des postes les plus importants en Milliards de dirhams

    |        |       |       | Pression|Charge   |       |      |       |
 Y  |  PIB   |Deficit|  CdC  | Fiscale |Fiscale  |  TVA  |  IR  |  IS   |Emprunts
----+--------+-------+-------+---------+---------+-------+------+-------+--------
2012|  813,21|  -49,6|  46,53| 149,04  |37.397,87| 53,457|28,959| 41,543| 84,979
2013|  848,18|  -45,0|  47,88| 156,48  |38.170,02| 56,726|32,947| 42,538| 85,896
2014|  905,46|  -40,7|  49,27| 165,70  |39.314,39| 62,851|35,273| 47,989| 86,823
2015|  966,60|  -35,8|  50,70| 176,89  |40.793,33| 67,664|37,974| 51,664| 87,760
2016| 1031,88|  -29,9|  52,17| 188,83  |42.352,61| 72,802|40,858| 55,587| 88,707

Mais non, le projet de Loi de Finances pour 2013 semble passer outre ces contraintes exogènes, et table sur une croissance de 4.5% (proche des 4.3% initialement prévus par le FMI) ce qui suppose une croissance proche des 6.6% pour les années 2014-2016. Pour une fois, je préfère publier les données brutes plutôt que de les mettre en graphe, car il me semble nécessaire d’avoir un ordre de grandeur en tête, plutôt qu’une tendance illustrée. A noter que ces chiffres sont calculés avec l’hypothèse farfelue que notre gouvernement préfèrera s’installer dans le status-quo douillet plutôt que de s’attaquer à un vrai plan de consolidation fiscale de contrôle des dépenses de fonctionnement, et un relèvement des recettes fiscales, notamment en abolissant les différents traitements spéciaux, et en élargissant l’assiette.

Quelques mots peut-être sur le calcul de ces chiffres:

– PIB: le calcul se fait sur la base du taux de croissance moyen prévu pour la période 2012-2016. Plus particulièrement, les taux de croissance pour la période 2014-2016 sont calculés sur la base du résidu nécessaire à cumuler pour obtenir une moyenne géométrique de 5.5% de croissance par an

– Déficit: calculé sur la base des projections prévues dans le document officiel présenté au FMI pendant l’été dernier, en prélude à l’attribution au Maroc d’un soutien face à ses difficultés de balance de paiement, le PLL.

– Caisse de Compensation (CdC) : une hypothèse avancée sur la base de réformes cosmétiques, qui se traduiraient par une dépense cumulée de 200 Milliards sur la période 2013-2016, soit une croissance annuelle moyenne de près de 3% des dépenses de la Caisse de Compensation – en ligne avec la croissance de la consommation finale des ménages.

– Pression Fiscale: L’intuition économique serait de retenir les impôts distortionnaires (ce qui exclut des recettes fiscales les taxes celles relatives aux droits de timbre et d’enregistrement) essentiellement la TVA (TIC inclue) l’Impôt sur le Revenu et l’Impôt sur les Sociétés – soit une pression fiscale moyenne de 18.3% du PIB

– Charge Fiscale: la charge fiscale est calculée sur une base de contribuables agrégés en unité de ménage urbain dont le revenu est supérieur à 30,000 dirhams annuels.

– Emprunts: calculés sur la base du PLF 2013 et en accord avec la projection de déficit, et sur la base de la progression des dépenses de fonctionnement.

Advertisements

Budget Bill 2013: Beyond the Figures

Posted in Dismal Economics, Flash News, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on October 29, 2012

The #twittoma is having fun with the Royal Palace’s and Parliament’s respective budgets. Strange indeed, given the fact that the cumulative variation in the budget of all three (genuine) branches of government in Morocco (Palace, HoG and Parliament) has actually been a cut of 582,000 dirhams. Besides, the cumulative weight of these institutions amounts to less than 1% of the total Budget expense projected for 2013. Way to go on the sense of priorities, comrades. Better worry about the future burden of over-borrowing.

Compiled from the 2012 and 2013 Budget bills

Same goes for the journalists (Nadia Salah wrote the most awful editorial about the deficit, wrapped into bizarre comparison of poverty levels in France and Morocco[pdf]) with the recurring themes: yes, nothing has been done about the various loopholes special interest and lobbies – a total of projected tax exemptions of 36Bn (up 4Bn from 2012) and yet no word about the truly terrifying prospect facing the Moroccan economy 5 years down the road: a glaring failure to address the deficit, and the mounting public debt. A quick look at the balance sheet shows the weak policy decision to levy some additional revenues from a so-called ‘Solidarity Contribution’ (an idea in principle and projected revenues already put into motion by the El Fassi government) has nothing to do with any willingness to deal with the deficit, but rather to cater to the PJD populist streak; the government needs to look as if they are doing something, raising taxes with no sizeable impact is something, therefore we should do it. as Sir Humphrey Appleby so elegantly put it, this is akin to say “all dogs have four legs, my cat has four legs, therefore my cat is a dog“.

A comprehensive deficit-reduction plan in Morocco needs to both cut expenditure and raise revenues; and if anything, there is a whole range of sectors that benefit (hello big wealthy farmers) from exemption that amount to 10% of all Budget expenditure, and there are at least 21Bn worth of food and goods’ subsidies that go to the wrong people. These are the amounts that should be put forward, not some 2-3Bn fiscal revenues that do not make up even for the tax cuts circa 2007-2008. Under this government’s watch, domestic public debt increased 11% in less than one year – in real terms, this means 8,860 dirhams per taxpayer household of taxes to be paid later, on top of existing ones. And the amount of money set for 2013 will keep up the trend. The mainstream media (or the social media, to that matter) did not seem to care for the abnormally low figure for Budget deficit.

November-December 2012 could register levels of domestic debt as high as 360Bn dirhams

Why so? The government is expecting a massive appropriation for public service borrowings, up 20Bn from last year. In fact, the latest September figure from the Treasury’s monthly survey point out to a total borrowed amount of 85Bn. This is what we should be focused on.

Look at the graph on borrowing requirements – these borrowings need to be paid for later – and most of these have maturities between 1 and 5 years, so no that far away from 2016. Strangely enough, the government’s deficit-reduction plan seems to be based on the overly optimistic assumption expenditure will grow at somewhat constant rates – including debt service. Let us not forget this government as a whole (the political coalition as well as the unelected officials) have laid out a plan in our name before the IMF. It hinges on a strong recovery starting from 2013, and going all the way to 2016, allowing them to solve Morocco’s structural weakness on subsidies and trade balance, alongside minimal fiscal consolidation.

One last word perhaps on the preserved fiscal status quo: the Confédération Générale des Entreprises du Maroc (CGEM) has focused on the tax revenues side as though taxes buried businesses, and advocates some sort of supply-side economics.

I would argue a genuine supply-side economics needs to care more about the crowding out effect – that’s dozen of billions of liquidities SMEs will be denied, think about that, Mrs Bensalah.

Elections, Vote Spread and District Representation

Posted in Intikhabates-Elections, Moroccan History & Sociology, Morocco, Read & Heard by Zouhair ABH on October 19, 2012

The post was going to be about yet another (boring) summary of parliamentary politics, supplemented perhaps with equally boring statistics about why opposition parties find it so though to get a majority, regardless of institutional motives. My assumption about the whole thing in Moroccan politics is that institutional barriers – corruption, gerrymandering the historical tampering of the Ministry of Interior in each and every election up to, say 2002, are secondary to statistical realities.

First off, consider the number of invalidated ballots between 1963 and 2011, both in absolute terms and relative to valid ballots. It went from 3.67% in 1963, to 24.4% in 2011. The last Tangier By-election produced a little over 26% of invalidated ballots. Nonetheless, I for one would buy into the ‘nihilist’ viewpoint on turnout and invalidated ballots: by every measure of vote dispersion, these have proven to be potential vote winners, ‘King-makers’ as a matter of fact.

Multipartism hurts strong majorities: between 1997 and 2007, spread votes (the percentage of invalidated ballots relative to votes’ dispersion normalised to the number of competing parties) increased significantly, and could have been higher if more political parties participated in the 2011 Elections.

Let me explain: in all the ballot systems the Moroccan elections tried over the past half a century, the common element was for a candidate (or a list of candidates) to get most votes, but also to make their margin is large enough. Roughly speaking, Block Vote, Party Block Vote and Proportional Representation are conditioned on four factors: the winning majority, the margin with respect to the second candidate, the minor’s performance, i.e. the closest contender to the electoral threshold, and finally the number of competing candidates.

The two last factors seem contradictory, but in most districts, the cumulative share of ultra-minor parties (those with less than 6% of the total vote) is close to or larger than the candidate list with a plurality of votes. To sum up, the politics of legislative elections between large and small parties is that of a zero-sum game. Every vote cast in favour of small candidate lists tend to increase voter dispersion, and deprive larger, national parties from getting a seat on the margin, especially so when the competing lists have some ideological affinities.

Consider the first general election of 1963: Invalidated votes could have bridged about a third of aggregate dispersion of electoral votes.

In 5 provinces, these votes could have decided between the contenders, meaning the election was close enough for the invalidated ballots to matter: these provinces accounted for 31 seats out of 144 in the new Parliament, and could have delivered an absolute majority to a UNFP-Istiqlal coalition, or indeed consolidate FDIC’s own plurality. And there goes my argument: aside from gerrymandering, voter intimidation and disenfranchisement, the surest way to ‘control’ the outcome of an election at the local level remains more effective, more discrete and less controversial than any other strategy to manipulate elections. After all, representatives of Interior are registrars in all polling stations, and depending on the district, they have the final say as to how a ballot should be examined. If anything, there goes hard proof of election meddling: exceptionally high percentages of invalidated votes can be reasonably considered to be an indicator.

There is an ever more insidious way to manipulate elections, and it has shown its effectiveness in 2002: there were about 26 parties competing for 295 seats on local ballot, and as a result, the dispersion of votes increased, rendering invalidated votes even more important in determining the winner of a closely (and bitterly, like the Rabat 2007 Election) contested election. The 2002 Election outcome was perhaps the best argument for election reforms. Speaking of which, I have found some interesting results as to how the number of seats should be allocated, given some nation-wide indicators.

It is pretty much a given to allocate the most populated districts with the largest number of seats. Yet there are some instances where small districts get about the same number of seats than those in metropolitan areas. Consider Azilal and El-Jadida districts: both have been allocated 6 seats each, yet El Jadida has twice as many registered voters. Same goes for Oued-Dahab (registered population: 19,000) with two seats, same as Tata (registered population: 60,000). So the proposed idea is to get rid of arbitrary distribution of seats, and instead use the nation-wide distribution to get a standard figure per seat: 43,000 votes per seat (plus or minus 139 votes). Assuming a fixed minimum number of seats per district (there are about 16 districts out of 92 with a registered population of less than 43,000) the number of representatives elected on local ballot can be brought down to 282 or 289 (depending on the minimum number of seats)

 Local  |Votes/|Min |Max |Spread|Seats|
 Ballot |Seat  |Seat|Seat|Votes |Total|
--------+------+----+----+------+-----|
Existing|43,847|  2 |  9 |18,626| 305 |
--------+------+----+----+------+-----|
Option 1|43,391|  1 | 10 | 139  | 282 |
--------+------+----+----+------+-----|
Option 2|43,391|  2 | 10 | 139  | 289 |
--------------------------------------

In electoral terms, this means 34 seats are going to be deflated to 16, so as to get near-commensurate representation.

As it happens, these changes have a net neutral effect on the largest parties’ electoral advantages – this is particularly true given the fact that most gains are centered around the Souss-Massa, Tansift-Haouz and Doukkala regions, all of which have a relatively homogeneous representation in Parliament (most of the big political parties have at least one representative from their districts) yet the changes operated prior to the general election last year were modest.

As one looks upon the districts with most losses, those in the South for instance, their over-representation is tightly linked to their turnout: Taounate had a 45% turnout and Azilal a little under 70%. As for the Southern districts, their average turnout was around 62%. So this is perhaps the internal logic to the distribution of seats per district: those regions with higher turnouts tend to be allocated disproportionately larger number of seats, even as their populations (registered or otherwise) are smaller than nationwide means. A rational politician (and Istiqlal, USFP and RNI have been quite clever at this) do their best to control these districts – because they get seats with a minimal number of votes.

There are 55 seats eliminated from 38 districts, and 32 seats added to 22 districts.

The Roof is On Fire, Keep Calm and Carry On

The season of Budget Bill is upon us. and from what I can surmise, the planning staff at the Finances ministry is dead set on using the 5.5% growth for 2012-2016, and the target for reducing budget deficit to 3% of GDP by 2016 is maintained nonetheless.

I posted a short blog on how unreallistic these figures are, in the face of gloomy global, conjecture (even more gloomy as the IMF cut its global growth projection last week) pressure on Morocco’s foreign exchange reserves and the urge to cut the subsidies.

year|   Deficit  | Deficit| Deficit 
    |(Bn dirhams)| % GDP  |Reduction
----+------------+--------+---------
2012|   -49,6    |  -6,1% |  +4.9
2013|   -45,1    |  -5,3% |  +4.7
2014|   -40,7    |  -4,5% |  +4.2
2015|   -35,8    |  -3,7% |  +5.1
2016|   -29,9    |  -2,9% |  +5.8

The short communiqué on the MINEFI website points out projected growth for 2012 is 4.5% (close to IMF’s 4.3% prediction 3 months ago) and 4.8% deficit. There is a small difference between that figure and the 5.3% budget deficit for 2013 mentioned in the IMF report – which means there is margin for the government in its intent to implement this dramatic deficit reduction plan; It is dramatic, because a deficit-cutting plan from 6.1% to 4.8% means there are 11.03Bn net cuts in the budget – which in turns means larger revenues and/or expenses adjustments.

And here is the clincher: There are going to be 24,000 new openings in public service payroll – and since most of these are going into relatively high-paying jobs – in fact, they are most likely to be centered around the median entry public service salary (about 7,000 a month) 2Bn in additional expenses.

So there it is: a tax increase is unavoidable -in fact, desirable, provided discretionary loopholes are closed, though it is not certain Mr Benkirane has the guts to take on the special interests benefitting from the status-quo, and so are the cuts to subsidies.

PS: IMF seems to have considerably upgraded Morocco’s outlook on GDP growth to… 5.5% (up from the previous 4.3%) strange.

 

Standard and Poor’s, Hatchet Man?

Posted in Dismal Economics, Flash News, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on October 13, 2012

So it it true then. In itself, the outlook switch to ‘Negative’ is not such a bad piece of news, although it gives reason to worry about the future. If anything, I would have expected S&P to be a bit more Johnny on the Spot.

 

Let us first read the actual words S&P used to explain its outlook update (because it is only an outlook update, not a downgrade, mind you)

– We are affirming our investment-grade long- and short-term foreign and local currency sovereign credit ratings on Morocco at ‘BBB-/A-3’ and ‘BBB/A-2’, respectively.
– We expect economic reforms, and particularly petroleum subsidy cuts, to diminish Morocco’s external and fiscal deficits.
– We are revising the outlook to negative from stable. This reflects our view that the Moroccan authorities are finding it more challenging to reduce the vulnerabilities created by the twin deficits in the context of a difficult external environment, while maintaining Morocco’s traditional political and social stability.
– The negative outlook reflects our view that we could lower the ratings if the fiscal and current account deficits do not narrow significantly, if social pressures escalate and impair reform progress, or if economic performance is materially harmed by a weakening external economic environment.

S&P worries are just as justified as those of, the IMF when the PLL was extended to Morocco: the current account and budget deficit have significantly deteriorated during year, and as a result fiscal consolidation is to be expected.

The report is quite interesting in fact: beyond the inevitable media tension over the outlook update (and all the ensuing misunderstandings) S&P’s assessment is fascinating as to how the current government can or will deal with these issues. First off, they seem to challenge the Moroccan position as to the promises made before the IMF:

The total subsidy bill was equivalent to a substantial 6% of GDP in 2011. The government began to reduce untargeted fuel subsidies in mid-2012, but will need to take more steps to restore Morocco’s traditional fiscal stability.  While the government has expressed its intent to press ahead with further subsidy reform, we believe this will be politically contentious and could undermine social cohesion, leading to further delays. We also note that, to date, no concrete timetable for reforms has been laid out.

Does it mean we should kiss goodbye to the 2016 target of less than 3% deficit to GDP? The report does not say. It is painfully clear however the efforts on behalf of our government to trim the Compensation Fund do not look credible, precisely because they refused to communicate any precise timetable as to how the subsidies will be cut. It seems IMF has been for once overly optimistic as to Morocco’s future economic performance.

Much more concerning is S&P’s pessimistic analysis of future growth: while it is expected exports would benefit from a structural boost (provided by FDIs flowing into Morocco during the past decade) growth is also expected to be weak, with all ensuing political risks. In fact, the report lays out quite explicitly the doomsday scenario:

We expect the progress of political and economic reforms, and the authorities’ ongoing efforts to contain consumer price inflation, to limit popular unrest  to sporadic outbursts. However, if unemployment remains stubbornly high, living costs spike, or political reforms disappoint popular expectations,  there is a risk of sustained and large-scale unrest that could also lead to a downgrade.

This outlook update will most certainly have a negative impact on the expected new dollar-denominated bond issue. Remember the good news on March 2010, when the Moroccan sovereign debt got its Investment-Grade label, a testimony to a decade-long period of fiscal conservatism and discipline. The yields on the 2017 Eurobond have decreased 110bps in less than one month, and spreads to benchmark yields contracted 50bps. If it was not for the global uncertainty triggered by the Arab Spring, the yields would have stayed below 4.5% – is was the coupon attached to the 2010 issue; on the other hand, Moroccan sovereign spreads during the first 6 months in 2011 rose moderately, which means the yield increase is of a systemic nature.

the yield could have stabilized itself below the 4.5% if it was not for the high level of uncertainty during the first half of 2011

The impact of this piece of news can be verified in the next couple of days on the other Eurobond; If its price goes below 99.3 in less than a week, it would not only confirm the sensitiveness of the 2020 Eurobond to country-specific market news, but would also allow to make some predictions as to the expected coupon for the next bond issue, and these point to a figure close to 5.4% than it is to the 4.53% embedded in the Bond issue two years ago.

News can go both ways: there has been indeed a positive impact on Morocco’s foreign debt when it was upgraded to Investment Grade in 2010- and subsequently allowed for a second bond issue at a relatively low 4.53% coupon. Nonetheless, given the pressure on public finances, the government has little choice but to go to international markets for a third bond issue, handicapped with this S&P new assessment.

Note: the S&P report can be read below

FRANKFURT (Standard & Poor’s) Oct. 11, 2012–Standard & Poor’s Ratings Services today affirmed its long- and short-term foreign currency sovereign credit ratings on the Kingdom of Morocco at ‘BBB-/A-3’ and its long- and  short-term local currency ratings at ‘BBB/A-2’. The transfer and  convertibility assessment for Morocco remains ‘BBB+’. At the same time, we  revised our outlook on Morocco to negative from stable.

The ratings on Morocco are supported by its macroeconomic management approach,  which has traditionally focused on achieving stability. This has contributed  to strong economic growth relative to peers, low consumer price inflation,  relatively low external leverage, and moderate government debt levels. The  ratings are constrained by comparatively low prosperity (relative to similarly rated peers) and by social pressures, which we believe have increased since the Arab Spring, but remain much lower than in neighboring countries.

The general government balance had been broadly balanced during the past  decade. However, deficits rose to over 4% of GDP in 2011 and this year as spending, especially on fuel subsidies, has increased and driven the primary  balance deeper into deficit. We expect that cuts in subsidies will see a  primary surplus return in 2013 and the net general government debt peak at an estimated 41% of GDP in 2012.

The total subsidy bill was equivalent to a substantial 6% of GDP in 2011. The government began to reduce untargeted fuel subsidies in mid-2012, but will need to take more steps to restore Morocco’s traditional fiscal stability.
While the government has expressed its intent to press ahead with further  subsidy reform, we believe this will be politically contentious and could  undermine social cohesion, leading to further delays. We also note that, to  date, no concrete timetable for reforms has been laid out. Higher global oil  prices–while currently not expected by Standard & Poor’s–could also impair  progress, as could weak economic performance in European export markets and sources of trade, investment, remittances, and tourists.

Morocco’s external financing needs used to be contained due to low external debt and a current account close to balance or in surplus. Since the onset of the global financial crisis, however, the current account deficit has risen  fast, reaching by our estimate an average of over 7.5% of GDP during 2011-2013, partly fuelled by rising oil prices and a poor harvest in 2012.

Morocco’s narrow net external debt ratio has therefore quickly deteriorated. As recently as the middle of last decade the Moroccan economy was a net creditor, by that measure, of more than 20% of current account receipts (CARs). By contrast, we forecast a net debtor position of 28% in 2012.

Although official foreign exchange reserves have fallen sharply from their peak, we estimate immediate gross external financing needs at a still-moderate 93% of CARs plus usable reserves (in 2012) and expect them to stabilize at around 100% by the middle of the decade (from less than 70% before 2007). Immediate refinancing risks are further mitigated by an IMF precautionary liquidity line equivalent to $6.2 billion.

We also recognize that past FDI (averaging about 2% of GDP during the last decade) will likely improve export performance. Nevertheless, we believe that economic rebalancing over the medium term will remain difficult and may lead to lower GDP growth, which could heighten risks to political and social