The Moorish Wanderer

How Will the Budget Look Like in 2016 and Beyond?

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on April 14, 2012

166 Votes in favour, 49 against and 15 abstentions. Is this opposition going to fill the void left by PJD? Very unlikely.

On the news front, Finance Minister is hellbent on keeping his pledge to bring the deficit down to 3% of GDP by 2016, and maintains his sunny forecast for an average growth of 5.5% over the 2012-2016 legislature. Fair enough, these projections are going to be put to the test eventually. There is enough data out there to check whether this figures are likely to compute, or if the minister’s overly-optimistic projections are going to fall flat. Mister Sunny-side got it wrong, and no one calls him on his bluff.

First off, I would like to point out that the Finance Ministry does not seem to be bothered with the lack of year-on-year quantitative targets: a responsible government, one led by an economist no less, should put out a projection of future indicators, such as the deficit and the national debt. Perhaps the minist er and his whipping boy do not want to get caught if their projections do not fit reality, and perhaps these two have spent too much time at the ministry to see the woods from the trees (both Baraka and Idrissi were officials with the MINEFI)

Dreamy Scenario: 5.5% growth rate, 3% Deficit GDP over 2012-2016

First off, an average of 5.5% GDP growth over 2012-2016 means the Moroccan economy has to deliver about 6% over the next three years (2013-2016) a tall order, given its past performance as well as the constraints on the long-term trend. Nonetheless, the counter-argument in favour of a 6% continuous growth all the way to 2016 could be made by predicting a strong recovery in Europe. But then again, the uncertainty surrounding that is so dense that it would be wise to preclude any strong contribution from exports to growth in the near future.

to bring the deficit back to 3% by 2016, the Budget will have to borrow a lot. (fiscal receipts are defined here as primary taxes)

A 5.5% average growth puts GDP to 1.02Tn dirhams (congratulations Mr Benkirane!) means the government can go up to 198Bn in primary fiscal receipts. However, that means Brothers Baraka & Idrissi thought of a comprehensive fiscal reform scheme – a doubtful endeavour, especially on an election year. However, a more realistic assumption is that some modest reform boosts primary (Hauser) fiscal pressure up at around 18% means some 183Bn can be levied by 2016, an average of 170Bn over 2013-2016.

The idea the deficit would be brought under control -i.e. below 3%- by 2016 finds some justification in the light of available data; assuming the deficit takes an AR(1) the following form: d_{t}=\alpha*d_{t-1}+\beta +\varepsilon _{t} the average points out to a sustainable deficit of 2.2% relative to GDP, i.e. 21Bn on average over the next 4 years. This means either a freeze on discretionary spendings (paywage, essentially) which amounts to a spending cut (in real terms, paywage would actually fall) or a commensurate increase in borrowings to match inflationary pressures and make up for the shortfall in fiscal receipts. According to MINEFI figures, almost half the civil service payroll is below the average income, i.e. between 60,000 and 70,000 dirhams per annum.

Accordingly, and keeping in mind the projection for inflation in 2012 is likely to go up to 2.5%, there will be an automatic increase in almost half of the total public payroll to match it up, not to mention the fact that there are some 100,000 civil servants that are likely to retire by 2012, and many -if not all- of them will be replaced, which means the frantic pace of recruitment will most likely be maintained all the way to 2016, i.e. an incremental increase of 2% per annum.

This ties the hands of the government over another hot potato: this scenario assumes the Compensation Fund does not distribute more than 56Bn in subsidies on average over the next 5 years, an overly optimistic assumption, one that contradict the very initial claim made by the Minister: a 5.5% growth on average means that more and more wealthy households will consume goods, prompting a disproportionate increase in subsidies and resources allocated to the Fund.

This sunny projection by the minister’s own figures for 2016 shows the inherent contradiction of the government’s policies, as well as the hidden cost for the lack of reforms:

Likely Scenario: 5% growth over 2013 – the lowest possible deficit (but not 3%)

And I would say the smart money is on that one: there is no way the economy can recover straight from the present sluggish prospect and deliver a steady 6% a year all the way to 2016. The closest 3-years performance in recent economic history is 5.7%, observed in 2001-2003, and that was during an expansionary cycle.

In truth, the government will miss the 3% cut-off. and more likely than not, by a relatively large number, possibly as high as 7%. Indeed, the combined effect of high borrowings, high payroll and the increasing cost of compensation. Lest we forget, compensation grows at a higher rate than GDP growth – and the price of oil is a key component.

One thing is sure though: this government cannot deliver a 5.5% average growth rate, much less a 3% deficit by 2016.

Was 2011 as Rosy as N. Baraka Makes out?

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

A press conference was held a week ago in Rabat, during which Finance Minister Nizar Baraka and his Budget liaison Driss Azami presented journalists with their primary findings on Morocco’s economic performances for 2011.

I would like to start off with the conference’s closing statement:


Après plusieurs années de politiques macroéconomiques et de réformes politiques avisées, le Maroc a disposé des marges de manoeuvres nécessaires pour affronter la crise internationale de 2009 et répondre aux demandes sociales qui se sont exprimées lors du Printemps arabe en 2011.

Dans cette conjoncture difficile, le Maroc a enregistré de bonnes performances économiques ainsi qu’une amélioration de ses indicateurs sociaux.

The steady decrease in absolute and relative public Debt was eroded in 2007 and post-2007 gains were wiped out

But did it? While it is understood Morocco has engaged in structural macroeconomic reforms, it seems the presentation exaggerates the effects of these reforms; In fact, the only viable policy to display efficiency was the steady decrease in Debt relative to GDP, a sound policy scrupulously carried out for almost 20 years. This has allowed for discretionary spendings and borrowings in the last two years, but this is hardly a victory.

In fact, the euphemism used to justify the obtained ‘room for manoeuvre’ hardly provides a disguise for the response to social demands; the Compensation Fund was short of some 18Bn, and a matter of ‘national interest’ was invoked to wrestle executive control over the money. For reference, 18Bn dirhams represents:

* 96% of total domestic VAT receipts

* 90% of total foreign borrowings accounted for in the 2012 Budget Bill

* 71% of total income tax receipts

* 8% of total receipts for the Budget.

* 40% of the projected deficit for 2012.

that amount of money was appropriated with no parliamentary oversight, since the ‘national interest’ motive allows MINEFI officials to go ahead with it. Macroeconomic reforms have failed in that respect to make sure money is properly appropriated, I would argue.

And there goes another policy mistake: while the last government aggressively supported the compensation fund, it has also taken away some of its subsidies by means of VAT receipts; the presentation reports the stunning figure of 6% VAT receipts relative to GDP, about the same amount spent on compensation: 48Bn dirhams giveth and taketh away – with perhaps some snide trickle-down effects that harm purchasing power and middle class wealth. Even more disturbing is the fact that Income tax receipts have decreased after the 2008 tax code reform, and that is mainly due to the scrapping of the 42% marginal rate. Ironically, the presentation boasts:

Une hausse des dépenses ordinaires sous l‘effet de l’aggravation de la charge de la compensation et des mesures prises dans le cadre du dialogue social.

“dialogue social” indeed…

There are many hidden facts in this seemingly triumphalist communiqué, perhaps most importantly the claim that inflation was ‘tamed’, to an average of 1.8% between 1996 and 2011, compared to 6.2% between 1990 and 1995. Be that as it may, but the claim overlooks the recent change in CPI computations – the new ICV-based inflation index has been computed with a relatively inflationary base year (2006) and core inflation tends to disparage the volatility effect on households’ purchasing power. The minister couldn’t have picked a worse indicator, even with a break down analysis per category. non-food inflation rate of 0.6% increase with a 3.3% base inflation year does not tell much about the government’s policy towards price control. For the record, this is not the first time minister Nizar Baraka has stumbled over figures, mind you.

Moroccan Exception: supposedly "skilled" labour suffers from higher unemployment.

Unemployment has not improved much as well:


since it is an established fact that unemployment in Morocco falls heavier on graduates and young individuals. And there goes one particular aspect of the ‘Moroccan Exception’: economic theory stipulates unemployment should be lower among those with labour skill, usually signalled with a degree; But the sorry state of Morocco’s basic and higher education creates a perverse state whereby universities tend to produce unemployed graduates – who usually consider public sectors jobs as rightfully theirs and refuse, for those keen to challenge common sense, point-blank to work somewhere else.

The trouble is, opposition and government alike are bound to uphold that rosy picture. At one point or the other in the selected time frame (1990-2011) each and every major political party has been associated with government, or sanctioned these policies (including MPDC-turned-PJD in 1997 for a while) and a strange consensus is strongly established to defend a common record, hence denying it any particular scrutiny.

“Can I Have a Minute Time-out?” – “No, You Can’t”

BBC Radio 4 – Today In Parliament, November 7th 2011

Let me adapt it to the Moroccan context: a top official at the Direction des Impôts is heard by the Public Finances parliamentary committee on some tax agreements between his department and a large holding in Morocco. The tax agreement allowed the company to avoid paying a large amount of corporate taxes. The official, reluctant to provide straightforward answers to the Representatives members of the said committee, is compelled to take an oath and then provide answers; the official asks for a moment to make a decision, but they are denied by committee members irritated by the official’s stonewalling. (this is a purely fictional story, that goes without saying)

Don’t laugh, the present framework allows parliament to hear officials. But only on a non-compulsory basis.

Of all the branches of government, parliament, both chambers in fact, is something of an unloved, ugly duckling: understaffed, under-financed and allocated only residual powers. The budget bill is mostly designed by Finance Ministry officials, members of parliament can only attach amendments, and some constitutional requirements actual deny parliament any say in a budget bill their member would find too contentious or controversial to even halt the process and get with the ministry to re-write it. The record of parliamentary misbehaviour of filibuster-like amendments could be an impairment to the business of running a country, but they are, as far as I can tell, the people’s representatives, and this is a very convenient way to veil the discrepancies in liaison between government and parliament. But this is another story.

The background story is simple as it gets: parliament is the boss of government -because the latter needs to be confirmed by the former- government ministers are the bosses of civil services, so nothing legal prevents officials from appearing before parliament to testify when Representatives see it fit. But it is not. The statutory civil service code specifically places officials under the authority of governmental purview:

الباب ثاني: تنظيم الوظيفة العمومية

فصل 8: تحتوي مهمة المصلحة المكلفة بالوظيفة العمومية بوجه خاص و تحت إمرة السلطة الحكومية

And that goes on with Articles 9-12; at no point parliamentary oversight is mentioned; civil service officials are answerable to their ministers, to the Civil Service Department and the Finance Ministry. So unlike that senior lawyer with HMRC questioned by the Westminster Parliamentary Committee of Public Accounts, no high official in Morocco is actually answerable to parliament, only to their respective ministers.

Can parliamentarians change something? Sure they can. The government can introduce an organic bill for their supporters to vote on, placing the civil service under joint authority of government and parliament. Even consider some appointments that need to be processed by representatives before these officials get into office. This move prompts the following questions: why would the government do that? how would they circumvent the juggernaut that is the General Secretary of Government office, and finally, will the civil service abide by it once it is implemented?

– Why would the Government Do It? it actually serves a purpose: PJD is the senior partner in this unique brand of government coalition; their caucus has a new intake of enthusiastic representatives, and because there is a certain amount of internal democracy running down its structure, they will be a difficult conference to manage, if no substantial bone is thrown to them; this could actually be it: allow parliamentarians to quiz officials, score good media points by championing the everyday citizen against the discretionary powers of the civil services (and more often than not, the abuses of officials at every level) as for government ministers, that keeps their officials on a tight leash: they toe the line.

– How would the Government circumvent the GSG office? It is known a lot of bills have not been en acted because the GSG blocked them for one reason or the other; writing legislative language is usually the official line.

This is why the Minister Of State without a portfolio needs to get down to business: he is the one with no definitive job description, so he needs to get a team of lawyers or insiders -which might not be as difficult as it seems- and tail the GSG every change he gets, so as to speed up the process. The objective is to make sure among the dozen of Organic Bills needed to pass are speedily processed.

– Will the Civil Service abide by the new regulations? the mutual fear of being demoted, fingered, losing their job, whatever. A top official is answerable to parliament and to their minister. If they do well, their minister could actually stand up to them.

Everybody wins: parliamentarians get an extra load of work that will tie them to the House of Representatives, ministers have an external threat they can use against reluctant officials in their departments, and these civil servants can actually strengthen their relationship with their ‘master’. And the best part, the public actually gets to benefit from it, either because this would lead to a reduction in administrative discretion and abuse.

House Of Representatives - With Commons' Powers.

Liquidity Drain, Public Debt and Stock Exchange Annus Horribilis

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on January 12, 2012

– 13%: almost MAD 60Bn value wiped off the books over 2011 in the Casablanca Stock Exchange. In the same time, Bank Al Maghrib had to deliver liquidities up to 130Bn over the same period of time, when the finance ministry looked for liquidity up to 73Bn. (but I am told the glamour of public finances has been overtaken by the recent news of freed Rapper Moad L7a9ed. It takes all sorts, I suppose)

significant correlation between BKAMs's Open Market (at 7-days) and MASI's daily changes: -.88

I argue that the distended domestic debt has already harmed the economy, first by distorting liquidity needs, and second by affecting the stock exchange in a negative way. To be sure, the levels of liquidity captured by the domestic debt are not overwhelming resources on liquidity markets (we are talking about almost 870Bn in M3 aggregate, 12 times the total annual borrowings) but they do exercise a negative effect on available liquidity, and thus on induced growth.

From then on, there is recursive effect: fewer liquidity resources drive stock exchange markets down, their yield go down accordingly, but since public domestic debt delivers a fixed interest on its bills, investors gradually shift their liquidity allocation, pushing yields on the stock exchange further down.An effect similar to what economists call a crowding out effect; it seems the level of domestic public debt, that is, the amount of liquidities captured by the treasury to finance expenses and the deficit are such that they have contributed significantly to MASI’s bad performance.

Assuming MASI’s represents a significant private sector valuation, it only right to ask: was domestic public debt important enough to afford a -13% nose-dive in the stock exchange?

First off, let us consider how much the treasury managed to levy last year. This is important because the main indicator of investors’ preferences, the required yield on treasury bills and short-term bonds, has changed to some extent over the year: comparing 2010 to 2011. Why is it important? Because once the weighted-average interest rate on public debt reaches a certain level, Bank Al Maghrib is bound to intervene by ‘punishing’ the treasury with higher policy interest rates: to be sure, liquidity will shrink even more -perhaps with a mini-depression in interest rates-sensitive sectors- but that would also push debt yields higher, and thus compelling the budget to deleverage.

This is only a pre-emptive threat: Bank Al Maghrib nor the Finance Ministry would go to such lengths, and that is why some (credible) reduction in domestic public debt is needed to inject back liquidities in private markets.

This is how the story goes: The budget needs to be financed, and tax revenues can sometimes fall short, either because businesses and private individuals did not pay them in time, enjoyed exemptions or decided to go before the court. But government payroll needs to be maintained, bills have to be paid, and to do so implies money needs to be borrowed. And that’s what the treasury does: last year, there was a weekly auction for T-bills of different maturities (usually less than 2 years) at an average amount of 1.8Bn, a total of 73.6Bn. It is worth to point out that the 2011 budget provided for only 33.6Bn, and that means some 40Bn have been over-borrowed. It even tops projected borrowings for the shadow 2012 Budget bill by 12Bn What does it tell about how the budget was managed last year? If it was regular working individuals, that would have meant an additional MAD 3.390 borrowing per worker, or 6.500 per household. I doubt commercial banks can allow so easily for such an overdraft, especially when the average interest rate is around 3.5%.

This is a free ride behaviour no particular expenses can justify: the money was primarily used to pay the exponential increase in Compensation Fund resources, a White Elephant that profits mainly to the wealthiest households, by the ministry’s own admission:

[…] Ceci dit, le système de compensation en vigueur fournit un soutien uniforme pour le maintien des prix abstraction faite du revenu des consommateurs. Il en résulte que les subventions versées bénéficient davantage aux riches qu’aux pauvres. (Presentation Note, 2012 Budget Bill, page.62)

The steady increase in public debt is matched very closely by CSE market capitalization

The excessive borrowings on domestic debt markets have had their effect on available liquidities: in 2011, available M3 aggregate broke a decade-long trend: a contraction of 250Bn. The reason behind the decrease is multifarious, but the magnitude of such a contraction compels to ask to what extent does the 40Bn excess borrowings account for it?

But let us now look at the maturities; surely a good point can be made about these borrowings, as a convenient way to finance investment and other expenses that have a good -if not immediate- impact on the economy. It seems that most of the maturities range from 3 weeks to one year, hardly a suitable maturity for investment for growth.

One last point perhaps, one that would conclude the various points raised early, and could be a matter of concern: projected paybacks for 2011 reached about the same amount of borrowings, i.e. 73Bn. But among those are 3 Billion of interest; the composite interest paid on the domestic debt for 2011 was about 4.1%. It is almost one basis point above the nominal yield for all short-term bills issued last year. The crowding-out effect has already taken place, and Bank Al Maghrib might not have to push interest rates higher: the cost of borrowing alone will compel the government to slow down, then reverse its borrowings policy.

Smoke Screen: A U-Turn ahead

Posted in Dismal Economics, Flash News, Moroccan Politics & Economics, Morocco, Tiny bit of Politics by Zouhair ABH on December 8, 2011

El Himma and Znagui appointed advisers to the King, some murky constitutional points have been discussed with the appointment of ambassadors, but not enough attention has been paid to an interview given to Al Massae newspaper by Najib Boulif – quite interesting a read for anyone interested to know what the PJD-led government has in store for taxpayers; and it is not pretty. He was a brilliant debater on public finances issues, and he would do an excellent government official, at the Finance Ministry perhaps.

To his credit, Prof. Boulif (a PJD leader and prominent Parliamentary member) recognized quite candidly that his party’s manifesto will have to be adjusted:

 من المفيد التقديم لهذا الحوار ببعض العموميات، المتعلقة أساسا بكون البرنامج الانتخابي للعدالة والتنمية هو برنامج تقدمنا به للحصول على أصوات الناخبين، وهذا البرنامج الآن من المفروض أن يطرأ عليه بعض التغيير لملاءمته مع برامج الأحزاب الحليفة التي ستشكل الحكومة المقبلة، بمعنى أن برنامجا جديدا سيخرج للوجود، وسيكون أرضية عملية للتصريح الحكومي المقبل.

True. Insofar the macroeconomic performances are quite uncorrelated with the possible permutations in government coalitions, GDP growth projections are not subject to what PJD or Istiqlal (or MP) have promised: 7% as promised by PJD, turned out to be not an average, but, in his own words, “7% growth is a target set by [our] party for the last year in the next legislature i.e. 2016”. Their pledge to increase GNI by 40% however,has flown out of the window now that PJD has reneged on the projections of an average 7% growth; the relationship between GNI and GDP is so obvious that whatever differences in value that might arise on a 5-years period are negligible enough to concentrate on the essential link between high GDP growth and high GNI (even per capita)

GNI and GDP go hand in hand; for PJD to increase GNI, they need to allow GDP to grow at commensurate proportions

So his party’s pledge to increase GNI per capita 40% by 2016 is severely handicapped once he admits the 7% GDP growth is not an average for the next 5 years, but rather an upper bound for what is realistically more around 5%.

More concerning however, is what seems to be a U-turn on the 3% deficit PJD said they would abide by; Boulif walked back on that pledge by saying that it was not ‘sacred’ and would rank second to more pressing targets:

– ما هي الآليات التي ستعتمدون عليها للتحكم في الميزانية في حدود 3 في المائة؟

> من الناحية النظرية، ليست نسبة 3 في المائة أمرا «مقدسا»، ولست من المدافعين عن الأرثدوكسية المالية في هذا الجانب. فإذا كنتم تقصدون نسبة العجز في سؤالكم، فعلى المغاربة أن يعرفوا أن الخصاص الاجتماعي كبير في البلد، وأنه في هذه السنوات المقبلة يجب أن نرفع من مستوى البنيات التحتية الاجتماعية الضرورية، سواء على صعيد الصحة أو المرافق الاجتماعية أو مستوى عيش السكان، إضافة إلى ضرورة فتح أوراش تنموية كبيرة تكون قاطرة للانبثاق الاقتصادي الطموح

Sure, Morocco needs far-reaching structural reforms, but by belittling their commitment to the 3% limit, PJD admits implicitly it will not implement all of the reforms it vows to carry out in their manifesto: rather, they prefer to be a short-term nanny state, and not take on the big subsidies and generous exemptions every budget has in store for real estate developers, big farmers and others enjoying rent-like activities or near-monopolies. It is sad indeed that Rep. Boulif did not put forward any scheduled plan to reform the compensation fund in this interview; he was evasive enough about the outgoing government’s aborted project to set up a 2Bn ‘solidarity fund’ (a fig leaf for the proposed amount really) but did not provide quantitative targets in terms of tax reforms or levied receipts per tax class. I’d prefer not to mention the public debt, first because the re-elected member of parliament for Tangiers didn’t mention it, and second because it is a ticking time-bomb ready to blow in less than 5 years’ time if the next finance minister doesn’t do something about it.

The same evasiveness was displayed when asked about how the next government will raise Morocco’s competitiveness: though his answers were indeed aimed at improving Morocco’s performances in terms of balance trade and payment, but for all the rhetoric about  “improving the domestic economy”, there is a lack of clear policy about how to improve productivity -this, I believe, is what Rep. Boulif might have had in mind- other than provide small businesses with a preferential status for public procurement; and somehow, this failure to put forward precise policies to increase productivity sheds a great deal of doubt on how the next government will get growth rate to the level of 7% – without triggering inflation significantly above BAM’s target rate of 2%.

In addition to what remains very clumsy explanations of what they should do, PJD’s Economist-in-Chief did not care to provide more details about what they will do for middle classes; the question was asked, and here’s his reply:

> لقد اعتبرنا الطبقة المتوسطة ضمان الاستقرار والنمو والتنمية بالمغرب، ولتطويرها اعتمدنا عدة مقاربات، منها ما هو مباشر ومنها ما هو غير مباشر. وبالتالي سنعمد إلى مراجعة فعالة لمنظومة الأجور وفق نظام الأجر العادل والضامن للحد الأدنى للعيش الكريم (الرفع من الحد الأدنى للأجور والمعاشات، السلم المتحرك، التأمين على البطالة)، وربط التعويض على المعاش المترتب عن حوادث الشغل في الوظيفة العمومية بالأجرة والأقدمية عوض الاعتماد على نظام 100 نقطة الأولى من الرقم الاستدلالي، وذلك على غرار ما هو معمول به في القطاع الخاص. كما سنرفق هذه الإجراءات بتنزيل مقتضيات حماية المستهلك ودعم الجمعيات العاملة في القطاع، وتطوير برامج الحماية الاجتماعية في ظل تنامي الفقر والهشاشة، وإنشاء بيت الزكاة وإصدار قانون منظم له مع إخضاعه للمحاسبة العمومية، وضبط وسائل إعادة التوزيع من الفوارق الاجتماعية، وإرساء نظام تدبير عقلاني للأوقاف، وتعزيز دورها في نظام التضامن ورفع دور الرقابة البرلمانية، مع إصلاح صندوق المقاصة بتطوير نظام الاستفادة منه ليقتصر على الفئات المستحقة، وتعزيز موارده بضرائب تضامنية…

And he is right in that a strong and large middle class base is the best way to insure stability and a certain equality in income distribution; but in his view however, achievement of such goal is restricted only to those working in the public sector -presumably, a USFP-turned PJD constituency- he seeks to defend and protect their relatively stable and safe income; but again, he fails to provide comprehensive policies other than placebos: on consumer protection, social security and other equally important issues, though these rank secondary to the crux matter of increase median incomes in real terms, instead of letting them slip behind GNI growth and the more affluent.

There’s a lot to go on about, but my opinion of that interview is that PJD has had quite a harsh reality check. The petulant Head Of Government-elect Abdelilah Benkirane will have a hard time trying to boost the economy as his party experts already go on to tell the press that they have no magic wand; For those first-time PJD voters in the business community, I am afraid the disillusion will be somewhat painful: the new government is as unlikely to take on tough structural reform as their predecessors failed or refused to do so. The first test, as Rep. Boulif put it, is the compensation fund reform: if nothing is done by the end of 2012, then whatever PJD will say and spin about its economic message will be unable to cover their utter incompetence on economic issues.