The Moorish Wanderer

Breaking (Old) News: More Details on the IMF-Morocco PLL Deal

Posted in Dismal Economics, Flash News, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on August 8, 2012

Here’s some exclusive information for the readers. I should say first I am amazed by how the IMF took the trouble to answer my emails (and calls) about the Precautionary Liquidity Line (PLL) deal Morocco has benefited from; I mean, they usually deal with professional journalists. Still and all, it is humbling when the IMF takes the time to lay things out.

The exclusive information isn’t quite so: you can find all the details on the IMF’s website, but as far as I can tell, the Moroccan press corps did not report on the main talking points discussed during that press call conference.

“The program for Morocco is a 24-month PLL as we call it, a precautionary and liquidity line, in the amount of SDR 4,117 million, which is just over $6 billion; $6.2 billion to be precise.  This is a financing buffer, or a sort of insurance against potential external shocks.”

The consensus within the IMF seems to be clear as far as Morocco is concerned: strong macroeconomic fundamentals, low inflation and sound banking system. Our weakness, after all, is exogeneous: Morocco’s main trading partner, the European Union, is experiencing serious economic problems, and these reflect badly on Morocco’s trade balance. As for the PLL scheme itself, this is not some PAS-like conditioned loan/help: it is admittedly the IMF’s first use of that policy tool, and obviously, the conditons attached to it are not necessarily ‘standard issue’ deregulation programs the institution is known for. If anything, Morocco and Jordan are de facto guinea pigs for a new mindset within the IMF; they were at pains to stress its novelty, and in Morocco’s case, it is supposed to act as an insurance. Anyone with an insurance policy knows that whatever the outcome, the insured agent pays its fee and a premium computed on the basis of a risk profile. Is 3% low enough a premium for a country with a proven record of sound macroeconomic policy? I don’t know. Our government seems to think so, and so does the IMF. The expected rebound in 2013 will tell if both have been right or wrong.

Weak correlation in Forex reserves and M3 aggregate. The steady drain since early 2011 of an overall 48Bn dirhams did not affect growth of M3, though it has slowed down a bit.

the institution’s experts believe Morocco does not face a particular dire problem in its balance of payments. The graph shows the sustained drain in BKAM’s foreign reserves did not actually harm the monetary base, and if anything, we are back to levels observed in 2005.

There is only a subtle hint the Moroccan government has pledged some fiscal consolidation (read: austerity measures) and the IMF believes it has proven its bona fide in that respect by increasing the price of gasoline to the pump. Brace yourselves taxpayers and others, there are several measures to be expected in terms of revenue enhancement (tax increases) and spending cuts. It seems MM. Baraka and Azami’s pledge to bring back government budget deficit back below 3% of GDP by 2016 has some credibility, though from my own back-of-the-envelope computations, this is likely to entail as much as 30Bn dirhams in either sides of the balance sheet and/or a mixture of those.

The final point touched upon was the Subsidy Fund. As they see it , the IMF believes it is high time the Moroccan government got rid of it in favour of a more targeted (shall we say discriminate in a positive sense) to those who really need it. Unfortunately for both our government and the institution, there is an unrealistic expectation that a broad consensus is needed to reform the fund. The government pledges to engage with civil society and other economic partners, but really, when a business benefits from a rent-like dominant position, why trade valuable profits for hazardous competition?

This sums it up actually: the PLL is not conditioned on explicit terms. In fact, the IMF wants to promote it as a helping hand to good economies with sound policy-making. But there are, as we shall put it mildly, expectations the Benkirane government has to meet: fiscal consolidation (which we really need at this point)  and a far-reaching reform of subsidies in Morocco. No word however on the likelihood of Morocco’s problem worsening or transforming into a real balance of payment crisis. I guess someone in Washington is really optimistic about our economy.

(the complete transcript of the press conference call is available on this weblink)

‘Plan Maroc Vert’ – Grand Dams Redux?

Morocco’s Godwin Law evolves usually around the Big Dams built during the late 1960s and 1970s to burnish the economic legacy of King Hassan II.

La politique des barrages lancée par Feu Sa Majesté le Roi Hassan II dès 1967 traduit la pertinence des choix stratégiques opérés en matière de développement économique et social et de valorisation des potentialités agricoles du pays à travers le développement de l’irrigation.

(Rapport Cinquentenaire – Ressources en eau et bassins versants du Maroc : 50 ans de développement)

It also serves as the opening gambit for the strategy to justify nowadays’ “Grands Chantiers” policy. Let me go on the record to state my complete adherence to a policy designed to improve and expand public infrastructure with large public investment. There is nothing wrong with it, quite the contrary. However, the snag with the Grands Chantiers is essentially institutional: I suppose the benevolent authority only goes as far in its benevolence as its own interest lies in the mechanism design it enforce. Unfortunately, there is ample evidence that a benevolent authority in Morocco doesn’t exist: once a player gets to set the rules, these are bound to be bent to their advantages.

But this does not fall within the purview of my post today; I have had a bit of a difficulty to gather data on the matter, but here it is. In a nutshell, I am interested in the dynamics of Agricultural and Non-Agricultural GDP per effective worker since 1955. The (big) Dams have been built with the ostentatious purpose of improving agricultural output by storing and distributing water. As one might assume, such investment should have led to an increased productivity per agricultural worker: after all, production in that particular subject is subject to diminishing returns (because of the fixed stock of land) and improving the use of a vital input should, at least on paper, increase productivity per worker over time. I am no expert in agricultural economics, but there are some properties one can observe across all productive sectors: building the dams should have a positive impact on productivity per worker; otherwise, why bother spending billions of Dirhams?

Base year 1955: Non agricultural output per worker increased 7 folds. Agricultural output per worker only doubled.

To compute productivity per worker means to first split total labour force and output into agricultural and non-agricultural, and compute their respective ratios (which is no easy task since HCP does not provide data on 1955-1959) and then plot their annual growth with 1955 as base year. Output per worker radically diverges right from the early years, from 1958 to be precise.

By 2011, the gap increased to the point where an agricultural worker has to work 5 times as much to match the output produced by their non-agricultural opposite number. Not only that, but agriculture in Morocco did not improve its productivity since it has stagnated; it has exhibited an average real productivity growth rate of 1,23% versus 3,71% for the other sector. In that respect at least, dams did not do very well.

Perhaps a case can be made as to the way I have computed agricultural productivity; after all, if rural population exhibits higher demographic growth, the ratio is flawed since rural labour market is a lot more homogeneous than national or urban markets, and hence demographic growth is akin to annual growth in the labour force. If anything, rural population has proven to increase at significantly lower levels compared to nationwide and urban growth. So this precludes a demographic caveat: productivity in Morocco’s rural fields is lagging, even as the whole economy grew and made use of technological change. So, did the dams do well? To check if these have been useful, we would expect a gradual cut in output volatility. After all, much of output fluctuations (especially in Morocco) is due to rain forecast (although that particular argument is bound to be discussed too) and the dams were there precisely to alleviate the randomness of rain seasons.

Before 1967, logged agricultural output per worker was around 9.14% and gradually increases to 10.68% for an average volatility around 10.21% an empirical evidence strong enough to conclude that agricultural output grew more volatile after the dams were built. Though there is no proof of definite correlation between both events, it is safe to say that these public investments failed to achieve their initial aim. If anything, the dams and the agricultural policy pursued since then hurts the vast majority of the Moroccan farmers. The quantitative impact of these policies remains to be published by the relevant authorities.

In that respect, agricultural GDP has been a drag on the aggregate growth, because it has failed to go beyond their structural diminishing returns. It has been a drag because in the final analysis, aggregate productivity is closer to that of rural sectors, which implies disproportionate concentration of technology in one sector and deprive the other actual weakens the sum of both. In that sense, to improve GDP growth means bigger technological changes in rural output per worker.

Plan Maroc Vert has made it clear their main action allocates 80% of its funds to the top 20% already modern, mechanized and export-oriented agribusiness industries (). This concentration in technology is similar to the failed experiences carried out ever since 1958, because it will confirm strong incumbents and at the same time submit smaller farmers permanently.