# The Moorish Wanderer

## The Big Picture – Part 1

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on April 28, 2012

Congratulations are in order: two days ago the Finances Ministry has answered a tweet of mine, on their website, no less!

Well, the answer wasn’t interesting beyond the usual, though I would give them credit for taking the trouble; Still and all, we are a long way from making the Open Data government project worthy of what a democracy should and can aspire to. This has little to do with my own political views: unless data is made available to everyone, there is no way one can tell how official figures are computed, or how institutions like HCP, MINEFI or Bank Al Maghrib differ in the assessment they offer on growth perspective. Their methodology differs, and so do their aims; but as long as they do not unveil the working models they make theirs, the only image they project is that of opacity, if not outright incompetence.

Take HCP’s state-of-the-art PRESIMO forecast model: it was developed under joint supervision of HCP and French office for statistics INSEE. A rather comprehensive model delineated in detailed but not unnecessary fashion, yet lacks the one feature that could have made it reliable: the data it uses, it seems, dates back to the 1980s. The amount of data – or rather its sample size baffles me: are we about to use predictions from less than 60 quarters? If so, I guess my own doodling is worthy too!

Le modèle est réestimé sur les données de la comptabilité nationale (base 1998) et diffère substantiellement de sa première version élaborée, en 2005, sur les données (base 1980). Les nouvelles données des comptes nationaux ont remet en cause la spécification empirique de certains comportements. La vie normale de ce modèle macro-économétrique implique, donc, des changements plus ou moins fréquents de ses spécifications.

Consider for instance the shares of capital, labour and random productivity factors in GDP growth $Y_t=A_t K_t^\alpha L_t^\beta$ and when log-linearized, growth is then broken down into capital and labour growth contribution, and a TFP process whose properties will be described later on.
$y_t=a_t+ \alpha k_t+ \beta l_t + \epsilon_t$

The following computations argue the fact that the Moroccan economy displays remarkable patterns in inputs’ contributions in generating output. I am using to that effect a relatively simple yet powerful tool to explain it; as usual, data from pre-1960 can be found and downloaded on PWT website;

. reg gdp w_h capital
Source |       SS       df       MS              Number of obs =      57
-------------+------------------------------           F(  2,    54) = 3449.00
Model |  107.473871     2  53.7369353           Prob > F      =  0.0000
Residual |  .841343008    54  .015580426           R-squared     =  0.9922
Total |  108.315214    56  1.93420024           Root MSE      =  .12482
------------------------------------------------------------------------------
gdp |      Coef.   Std. Err.      t    P>|t|     [95% Conf. Interval]
-------------+----------------------------------------------------------------
w_h |   .6972258   .0757027     9.21   0.000     .5454511    .8490005
capital |   .3417366   .0381563     8.96   0.000     .2652378    .4182353
_cons |  -1.923755   .6722611    -2.86   0.006    -3.271558   -.5759528
------------------------------------------------------------------------------

The model fits perfectly; we can indeed observe that:

– Labour contributes about one-third to output, while Capital has a little over two-thirds (and that can be explained by changes in capital stock that will be accounted for later on)

– The aggregate output function is very close to the standard CRS Cobb-Douglas every undergraduate economics student is familiar with;

Total Factor Productivity is a zero-mean process that will be described later on, and though it seems not to be significant (check the Confidence Interval) it falls in line with the theoretical model; it is also quite interesting to check any correlation between TFP and both factors of production. And so the baseline model for Morocco’s output can be described as follows:

$y_t=a_t+ .341 k_t+ .697 l_t + \epsilon_t$
$\epsilon_t\rightharpoonup N(0;.015)$

(Coefficients’ standard deviations can be read on the table above)

Several caveat arise however:

– The absence of inventories: through no fault of my own, there is no way -to my knowledge- to find inventory turnout recorded in Moroccan economic data since 1955 – or perhaps the data isn’t released to the public domain; either way, the absence of data on inventories does allow to consider the present results to be strong;

For $\partial s_t$ inventory annual turnout, a more ‘realistic’ formula would be:  $y_t=a_t+ \alpha k_t+ \beta l_t + \partial s_t + \epsilon_t$

– The “educated guess” of Capital depreciation, initial value of Capital: recall the following National Accounting equality: $k_{t+1}=(1-\delta)k_t+ i_t$ Investment can be equated to the Gross Capital Formation, and the real depreciation rate is not officially reported it seems. On the other hand, looking at some of the largest non-financial institutions listed on Casablanca Stock Exchange, actual depreciation rate computed from their financial statements do point out to a figure around 3-5% of total assets (including intangibles)

## Debt And Default : The International Markets On Moroccan Foreign Debt

Do you remember that €1Bn eurobond borrowing the outgoing Finances Minister S. Mezouar had managed to land early September 2010? well, the yield has increased some 33% in just a little more than a year, thus placing the lower bracket to the effective future rate of borrowing abroad to a little less than 6%. and the pricing value is going down with little prospects for recovery. For a budget set on borrowing a lot more abroad to sustain its expenditure, this is a bit of a bad news: 6% is not daunting as a yield for the treasury to pay back, but it will certainly put a strain on public finances and mortgage the future.

A 10% decrease over the depicted period, including regular 15% drop when coupons are paid off

Regarding the bond itself, the yield is not going to change: 4.5% to be paid every October 5th all the way to 2020 and then set to pay back in fine the €1Bn initial borrowing. However, if the government needs to go back to Debt Capital Markets to issue additional bonds, they will certainly not get to issue them at 4.5%. And so far, these bonds need to yield a lot more to keep up: the 4.5% have been issued on a par value of 1000 for a €45 coupon; but because they have been issued at a discount – meaning, an investor need not pay the nominal value, but a little less, so as to make the bond more attractive- their yield to maturity should decrease as each day gets the bond issue closer to a payment date or its maturity. Sadly enough, this is not the case: the steep decrease in bond price up to the early 2011 was DCM beliefs that Morocco’s foreign debt sustainability was not strong enough to earn the 4.5% coupon rate.

Supposing the next government decides at this very moment to issue another bond on international Debt Markets (DCM) they will have to provide investors with at least 6% yield- a penalty to be paid for  because the present debt stock -foreign and domestic- is to high and most of bugdet expenditure goes into subsidies and pay-wage.

Who’s fault is it? The context for foreign debt issuance needs to be recounted beforehand: the last time Morocco went on DCM was June 2007, where it has levied 500 Mln and is in the process of being paid, and in excellent terms for investors; meaning, the last time Morocco borrowed abroad, it has done so with a reasonable coupon, and the required yield remained in line with it. In other terms, the previous bond issue has been a success, so why not the next one?

I do not believe the increase in required yield to maturity is the sole result of global economic downturn, or related to sovereign debt crisis. The yield to maturity on the Morocco “Eurobond 2017” issue has picked up very quickly and recovered from 2009, and from then on sustained a robust premium price above the nominal value. The fact that the Eurobond 2020 cannot replicate these performances and dropped its value in the early days of its issue is tale-telling: investors doubt the Moroccan government will put the money to good use, both to Morocco and to themselves. In that sense, those high officials at the Ministry of Finance (as well as outgoing minister Salaheddine Mezouar) have failed in providing value for money.

I’d suggest this money has been squandered and could endanger not only Morocco’s freshly earned Investment Grade statuts, but the sustainability of its public finances. The coupon in itself certainly puts a strain: during the last couple of years, the treasury serviced MAD 2.1Bn in foreign debt and ceteris paribus, the 2020 Eurobond represents 74% of the average MAD 680Mln in paid interest since 2009. Though it is only 11.3% of all paid interest (foreign and domestic) the coupon drains a lot out of the country’s unstable foreign reserves, at times when they will be needed to sustain imports and the Dirham exchange rate.

From 4.5% to 6%... in less than 1 year. Discounted Bonds are supposed to have a decreasing yield to maturity, not the opposite.

Government responsibility weights in heavily when it comes to the guarantees it was supposed to provide so as to insure value for money: what do we know of the expenditure the €1Bn was supposed to fund? Is it invested or just used to pay for compensation, pay-wage and other non-productive expenditure? Shouldn’t the Caisse de Dépôt et Gestion (CDG) sovereign fund be involved in managing the receipts? Will the next government find the money intact and invest it wisely? These are questions that will most certainly be left unanswered thanks to the institutional swamps of political irresponsibility and governmental weaknesses.

In order to address these issues, the next government needs to assure investors they can deliver. The most straightforward policy to do so is to raise taxes. Relative to GDP, direct fiscal pressure for 2010 was only 8.73% and total fiscal pressure 19%. There will be a need for a more balanced approach to the fiscal distribution. Alternatively, but not exclusively so, the same policy will be needed to reduce expenditure. Given that the budget appropriation for the compensation fund has inflated over the last year, the much promised -but never implemented- reform of CdC will have to be carried on; the boil has to be lanced, either with unpopular measures to the average/median household, or with a vicious fighting with the establishment; a ‘caring’ government with a popular mandate is supposed to choose the latter.

I am being only too pessimistic about it. Then again, I don’t have access to a Bloomberg or Reuters terminal to get all the facts. But from what I can see (and get) surely there is a lot of goodwill to prove on behalf of the Moroccan authorities to reassure investors about how serious they are in providing all resources and pay back the debt, because the best we can hope for -and afford- next time the Finances Ministry decides to borrow abroad is going to be 6%, and that is generous.

Note: a couple of things to go over for the layman to find their way with the different concepts invoked earlier on, I used Robert W. Kolb ‘Investments’ (ISBN  0-673-38364-4) as a reference:

Discounted Bonds: a bond with a nominal value of 100 issued at 99.64 is a discounted bond. The idea is to attract investors, who will then pay a lower price for the nominal value, and cash-in the coupons as well. Premium and Par Bonds pay respectively higher or exact nominal price

Bond Prices vary inversely with interest rates: the standard bond pricing formula goes as follows:

the coupon is fixed with the issuance date. Prices and yields vary with respect to an array of variables, among others time and perceived risk; a higher perceived risk of default will lead investors to required a lower price -meaning, a lot less than the nominal 100 per bond, and thus increase the yield to maturity.

The Price of a Discounted Bond should increase over time: because it has been issued with a discount to investors, the bond price should theoretically converge to its par value; the 2020 Eurobond clearly does not converge to 100 – but rather to its Market-perceived true value, 90. The textbook explanation is that since the discount is only there to encourage investors to buy the issue, its true (nominal) value needs to be discovered along the time-line and after the first couple of coupons have been paid for.

## 5 Questions to Mr Mezouar

RNI official twitter feed posted a couple of days ago:

Le parti RNI vous remercie pour vos feedback sur FB,Twitter & Youtube, nous reviendrons vers vous semaine prochaine avec une vidéo de réponse.

So be it. I have some questions to ask to the Minister and RNI leader, especially on his record on government fiscal policy and management. Some aspects of the economy eluding his purview, and my questions shall concentrate on three broad areas: debt, public deficit and government budget policy itself.

### Question 1: Total Debt & Its sustainability

According to his own ministry’s figure, the current stock of public debt for 2011 Q3 stands at MAD 397,976 Bn, that is 51% of GDP. The number in itself is not meaningful unless put in its context;

Between 2010 and 2011, public stock debt grew 10%, and broke a 4-years trend of stablized growth in borrowings

Ever since Mr Mezouar took office after the 2007 elections, the average annual growth of public growth was 2.23%, i.e. a 9% increase over his tenure, of which the 2010-2011 contributed about 10.76%, thus taking us back to 2005 levels in public borrowings.

Now, the question is: in the event he is returning to office, as a finance minister or otherwise, will he continue increasing public debt stock, or will he engage policies in deflating it and increasing debt service to bring the debt ratio below Bank Al Maghrib‘s target of 50.8% for 2016?

The issue of debt is quite important to the Moroccan taxpayers: first, because an increase in debt stock is a burden on future generations, especially when there is no investment with commensurate yields to benefit those generations. Second, because the current projections for foreign-held debt are on the upward trend, thus putting a strain on our foreign reserves, and cast doubts over the economy’s solvency. The question of foreign debt is even more important, considering the long-term projections on the global economy, there is great doubt we can refinance ourselves at the same favourable conditions we have enjoyed on September 2010.

### Question 2: Budget Cuts & Expenses containment

The Minister’s streak for orthodox economics showed on various policies discussed in the next scheduled questions; but under the minister’s watch, government spendings doubled over the last 4 years (while GDP grew 21% over the same period) the budget’s spendings on compensation tripled from MAD 16Bn to 48Bn.

Now, it is understood these accelerated increases in expenses mean some changes have to be enacted within the budget structure. He had a meeting with the IMF on July this year, and committed to some budget cuts, defined as 10% of non-essential expenditures across all departments. Now, assuming he remains in office, will he pledge not to cut expenses blindly across departments, and if he is set on doing so, will he pledge not to cut expenditure from Education, Health and Law & Order, as well as commit to increases in real terms?

The cuts are necessary because of the swelling budget, especially on the compensation fund; but a uniform cut implied in this official document will inevitably hurt those departments and front-line services critical to the Moroccan citizens, and the minister would do well not to lock himself in ideological entrenchments on that matter.

### Question 3: Potential Receipts and Fiscal Policy

Ever since he took office at the Finance ministry, Mr Mezouar has been cutting taxes across the board; but his 2008 tax reforms on income by lowering the marginal tax from 42% to 38% has been ideologically motivated; furthermore, under his watch, the tax loopholes and exemptions increased 40% from 21Bn to 29Bn, even though deficit has been steadily deepening from the one time he managed to balance the budget in 2007 and 2008, from a MAD 3Bn surplus to a 35Bn deficit in 2010.

The top 10% pay as much effective taxes as the second bottom 10%

Following the income distribution and income tax contribution per decile, it seems this government’s policy is not to allow the middle class to flourish and expand; indeed, they seem to be paying the highest effective rates; that was the case before the 2008 tax code reform, it is even more so when the marginal rate was lowered. In these times of economic hardship and government tight budget management, wouldn’t be fair and straightforward a policy to increase taxes on the upper 10% of the population? My question on that topic is twofold: first, are there obvious benefits to his income tax cut, if there are, can he produce compelling evidence about it? and second, will he favour tax increases on the wealthy instead of borrowing to make up for the shortfall in receipts?

### Question 4: Compensation Fund and Fairness

The compensation fund stands now at MAD 48Bn. The idea behind this fund is to subsidy food and other strategic goods, so as to preserve the working classes’ purchasing power and standards of living from deteriorating, especially with volatile commodity prices on the world market. But unfortunately, it has been pointed out that these subsidies benefit the rich. The argument is rather simple to buttress this claim: these subsidies are indiscriminate of income, so they have to benefit those with higher consumption levels in absolute value: the top 10% outspend the bottom 10% at a ratio of 3 to 1.Their annual spending in butter, edible oil and other subsidized goods are equally higher, and thus capture more subsidies.

Consider edible oil, perhaps the most recognized candidate good for subsidy: the bottom 10% tend to consume, on average MAD 600, while the top 10% spend 2,000. Since the subsidy is uniform across the board, it is clear the top 10% benefit more, to the tune of MAD 8,000 per household (assuming the real price is subsidized at 80%) on their annual consumption of edible oil.

My question is as follows: will he consider seriously the phasing out of the compensation fund, and establish gradually a serious program in using 3-months futures and options to buy commodities at moderate prices on the global commodity markets, and will he consider (again, seriously) the study of food-stamps-like programs so as to target those who need these subsidies?

### Question 5: Open Data and Parliamentary Oversight

As a likely head of government, Mr Mezouar will have to follow the budget-making process on another level with broader responsibilities on setting the tone for many policies encompassed in the budget. Since we are now officially operating under a (supposedly) true constitutional monarchy setting, he will have to work directly with both the majority and minority caucuses to get the votes on his budgets. On the other hand, those of us who care about these issues would like to have free and easy access to the data needed to put the budget together; My last question is twofold: first, would he consider setting up an open data program describing in detail the contributions of each class of taxpayer (whether individual or business) to the various classes of receipts, and would he provide parliamentary caucuses with actual power over shaping the budget, instead of just allowing them to attach modest amendments?

These Tweeps, Facebookers and Bloggers you have referred to in your video have asnwered your call, Mr Mezouar: I am asking these questions; I’d like some answers on them.

## 600,000 Beamte Und Ein Befehl

Let us consider one particular aspect of the now stated policy of the Finance Ministry, i.e. its commitment to “all budget entities have been requested to economize 10 percent of their budget allocations for some non-essential current expenditure items”. Now, either ministerial departments will cut 10% of their non essential expenses – in which case total savings will amount, at best, to a few hundred millions- or, all departmental bodies will have to cut 10% of their total current expenditure, with cuts justified as such. This scenario means a package of MAD 22 Bn cuts uniformly distributed across ministries, a bad policy, government-wise, since the largest (and most important) departments will be hit harder: Education, Health and Law & Order. 600,000 public servants are therefore held at gunpoint by that one order: “cut 10%”.

The caring government

The cuts are scheduled to target current expenditure, which means civil service pay-wage, purchases of hardware (non-investment hardware) and other current expenses like electricity bills and rent for instance. But let us not be deluded on that point: current expenses are mainly made up of pay-wage, and depending on ministries, these can make up to 94% of total current expenses (Education) but each department has its own ratio, and a non-commensurable cut across departments will inevitably cause great harm to those employing large staff. Whether on believes in small government in Morocco or not, there will be few dissenting voices regarding the reduction of teachers and police force members, just to achieve MAD 4,1Bn savings.

Of course, clerical and non-essential staff could be laid off, though this means a renewed struggle with “Ghost civil servants“, a fight long lost even before it has begun. So this not a cost-killing operation, but a genuine austerity plan: the blind plan, the size of cuts and the timing, all these elements point out to a difficult 2012 Budget bill and years of near-stagnation ahead. But let us first consider the impact of that 10% cut on human resources, indeed, 600,000 civil servants (from local and central services) will no doubt see their pay frozen, or cut. And contrary to the Intilaka program enacted in 2006, 39,000 departures are not going to be enough to balance the books (as a matter of fact, it makes up only 3/4 of expected savings on wages).

Now, a 10% cut on the 6 largest departments -Education, Interior, Health, Justice, Finances and Equipment departments account for 89,6% of total workforce, means that some 51,800 positions will have to be economized one way or the other. Unless each department manages to strike a deal with unions to cut wages some MAD 7,000 per annum per civil servant -that saves some MAD 4.2 Bn in salaries, i.e. two-thirds of targeted costs. But then again, this modus operandi assumes Unions and government will be reasonable in their negotiations to freeze pay over the next couple of years, but that is very unlikely, given the sad history of horse-trading between both parties. The other alternative is to exhort civil servants to retire well ahead before the 65 years-old limit, thus minimizing payroll. The remaining third alternative, and unless things get very desperate, might not be considered: in short, make people redundant with limited or no pay.

Early retirement is a good policy: regulations specify that any civil servant willing to retire early will receive a reduced part of their wage, until they reach 65. Now, considering that a large chunk of workforce is 50-ish years old, the 15 years gap can be used to reach the average 7,000 annual pay cut target. But the point is, these retired schoolteachers, policemen and attorneys will not be working for the public sector any more, thus inflicting great damage upon public service, a damage it could do without. What is worse, these cuts/early retirement cannot, yet again, be uniformly distributed. The trouble is, large-staffed department will bear the brunt of cuts not because they are the ones with the largest bureaucracies, but because it is the nature of their operations: you need to take on more teachers to keep teacher/pupils ratio low, healthcare officers and workers to reach similar ratios, more policemen to insure neighbourhoods are quiet… the error of an indiscriminate budget cut is that it overlooks such details, and end up hurting essential, front-line services.

Quadruple whammy (sectors make up for 3/4 of job losses)

Could things be  done some other way? it seems not. cutting wages accounts for a third of overall planned cuts. Other than that, departments will need to cancel orders on hardware. There is no way only secondary expenses will be cut; eventually essential services will be on the ministry’s sights. Under the assumption of uniform distribution of total pay wage per department, teachers and Education staff, for instance, receive MAD 11,000 a month -not an unreasonable mean, considering the ageing structure of the teachers’ corps. Healthcare workers are slightly better off, with an average monthly wage of MAD 12,000. Staff from the interior, finally, receive 6,000 monthly on average. Hardly high-income earners indeed.

Now, in his briefing before the Cabinet, minister Mezouar:

a mis l’accent sur la nécessité de préserver les acquis relatifs aux équilibres macroéconomiques et de garantir les conditions de poursuite de l’élan de développement que connaît le pays.

and that means, the stated policy of his budget cut is not to harm public service. That also means, he needs to be more specific about the 10% cut, and exempt departments from what is a sure blow to the standards of their services to Moroccan users. If the ministry is serious about putting together a stimulus package – especially in these trying economic times- then it should consider carefully the budget cuts it is planning, for fear it might take the country to recession, rather than stabilizing macroeconomic balances.

Budget cuts are not pure evil: it is a given that government debt is too large, and its foreign-held, short-term maturity weighs a great deal on the dwindling foreign reserves. Cutting expenses -as well as raising receipts- is the way to go. But instead of targeting blindly departments, the government needs to put into practise its pledge to engage in “structural reforms”, i.e. to end up exemption and fiscal niches that benefit only to the wealthiest.

the VAT and Income Tax reforms need, in effect, to be seriously considered in that spirit. As for expenses,  the Audit Court has pointed out numerous dysfunctional items within the public sector and that saves up capital and expenses over the years. Then, dysfunctional payroll regulations can be addressed as well.

But I digress. The minister obviously knows his job better than I do.

## Fiscal Policy? What Fiscal Policy?

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Tiny bit of Politics by Zouhair ABH on July 3, 2011

Sometimes, reading the budget from top to bottom does not tell much about the policy the government of the day is set on pursuing. So other documents come in handy, like the fiscal expenses report attached to the budget law; It shows how articulate government policy is in its effort to stir the economic variables deemed to be important in a certain direction, so as to achieve a certain policy objective. It might be interesting to have a look to these figures, because it is a cause of concern for me: it seems the Finance Ministry cannot make up their mind on the proper policies, especially on fiscal policies, and end up every year squeezing its receipts, and not in a good way.

Caring Government.

Assuming that the broad ideological objective is to relieve Moroccan taxpayers (households and businesses alike) from the burden of excessive taxation, and that such policy is bound to increase welfare among the communities and the economy as whole, the least Finance Minister Salahedine Mezouar and his staff can do is to make sure there would be some sort of equitable effect across classes and sources of revenues. Though the supply-side economics can be beneficial -up to a point- these policies have unfortunately been damaging, rather than healing income dispersion and discrepancies. It seems budget policy -at least since 2003- is to hope for high growth figures, so as to reduce income inequality. The 2007 tax cuts are an even more obvious faith in an economic growth robust and long enough so as to reduce poverty and income dispersion, indeed, HCP study “La croissance est-elle pro-pauvres au Maroc ?” (2009) reports:

“Il en résulte un indice de croissance pro-pauvres inférieur à l’unité (0,930) et un taux de croissance d’équivalent pauvreté de 44,7% inférieur, de son côté, au taux de croissance observé (48,0%). Rappelons que lorsque l’indice de croissance pro-pauvres est compris entre 0 et 1, les riches bénéficient plus que proportionnellement de la croissance que les pauvres. C’est exactement ce qui s’est passé entre 1985 et 2007″. (p.2)

Suffice to say that what holds for extreme levels of poverty is particularly true when it comes to the difficulty, for the real middle class in Morocco (and the lower, working classes too) to benefit this growth. That supply-side economics of his makes the 2002 and 2007 governments more pro-Business than ever, but with no obvious positive effects on the vast majority of ordinary Moroccans.

The 2011 Budget bill has passed a deficit of MAD 12.13 Bn, a rather modest figure when compared to earlier deficits (but already topped by the unexpected increases in expenses, mainly on subsidies and wages) though it hides some policy decisions that do not seem to be very sound, or if they were, are quite ideological and socially very divisive. Among others, there were MAD 4.2 Bn income tax cuts in 2010 (and an effective MAD 7.6 Bn) only half of which benefited to middle and lower-class households; These cuts are not economically beneficial to the majority, especially when those economic sectors that benefit from these tax cuts (whether on income tax or others) are not productive: over the last couple of years, certain fiscal measures have been taken to boost real estate in Morocco. In 2010, real estate tax deduction amounted to MAD 4.438 Bn that is 15% of all the MAD 29.8 Bn tax cuts plan in 2010 (scheduled for the 2011 Budget) The 39 measures that enabled these cuts benefited only up to MAD 1.3 Bn in social housing (while other cuts benefit to the well-off) while the rest goes in the pockets of property and real estate developers, large housing owners and corporations. The problem does not reside in these categories benefiting from these tax cuts, the real problem is the hypocrisy surrounding the social housing project. This is but one instance of the amateurish at best -if not outright carelessness on the government’s behalf- in assessing the effects of implemented policies.

Jobs for the boys. An annual MAD 10Bn goes into rich pockets

On average from 2003 to 2011, tax cuts and loopholes amounted to MAD 21.75 Bn; Real Estate and Agriculture get an average share of 30% of these measures, while education gets at most MAD 100 Million while the financial sector receives on average a Billion a year. The trend of this concentrated distribution increases markedly with 2007.

As for Agriculture, it is understood the sector employs a large workforce -thus requiring a particular social policy designed to insure the balances in this potentially volatile part of Morocco are left untouched (a left-wing government would try to improve them in favour of the peasants against the cambradores) governments since 2006 have been cutting taxes on agriculture at increasingly higher paces, from a MAD 1Bn exemption in 2003 to MAD 4 Bn.

But then again, doesn’t this square with the idea that government taxation should not fall on this fragile sector? Of course it does, unless these measures were actually helping the affluent farmers, those who can afford dozens of thousands acres of land, mechanized techniques and large markets, both abroad and domestically. As for the small peasant with a few dozens of acres, these tax breaks mean nothing. On the other hand, tax breaks can also be applied, so as to improve the domestic purchasing power (at least, that’s the official argument behind these cuts) it seems that the Finance Ministry has fully assimilated the supply-side economics, since their tax policy also believes in a trickle-down economy, whereby a decrease in costs (and in this particular case, VAT taxes) can generate a lower price for consumers. While this argument might hold -when buttressed with some serious econometric computations, we in Morocco do not observe this, and the starkest example is that of subsidies: indeed, edible oil, sugar, milk and other strategic commodities are subsidised, and yet manufacturing companies are recording high levels of profit, and prices are not always low.

Consider the 32 measures targeting Agriculture and Fishery sectors:

Exonération à l’intérieur et à l’importation d’engins et filets de pêche destinés aux professionnels de la pêche maritime. Art.92 (I-3°);123

Exonération à l’intérieur et à l’importation des engrais. Art.92 (I-4°);123

Exonération à l’intérieur et à l’importation de matériels destinés à usage exclusivement agricole. Art.92(I- 5°);123

Exonération des ventes aux compagnies de navigation, aux pêcheurs professionnels et aux armateurs de la pêche de produits destinés à être incorporés dans les bâtiments de mer. Art.92(I-34°)

Application du taux réduit de 7% avec droit à déduction sur les aliments destinés à l’alimentation du bétail et des animaux de basse-cour. Art.99(1°); 121

Exonération à l’importation des bateaux de tout tonnage servant à la pêche maritime, les engins et filets de pêche, les rogues de morues et appâts destinés aux bateaux pêcheurs ainsi que les appareils aéronautiques destinés aux armateurs et aux professionnels de la pêche en haute mer et utilisés exclusivement pour le repérage des bancs de poissons. Art.123(9°)

Exonération à l’importation des Animaux vivants de race pure des espèces équidés, bovine et ovine ainsi que les caprins, les camélidés, les autruches et les oeufs à couver des autruches. Art.123(12°)

And the list goes on. It seems these tax breaks are very much subsidizing imports of specific items the vast majority of farmers and fishermen cannot afford. Of course, there are some commendable measures to be recorded, like those:

Exonération de la vente des dattes conditionnées produites au Maroc ainsi que les raisins secs et les figues sèches. Art.91(I-A-4°)

Exonération de l’huile d’olive et des sousproduits de la trituration des olives fabriqués par des unités artisanales. Art.91(I-A-7°)

Application du taux de 14% sur le beurre à l’exclusion du beurre de fabrication artisanale. Art.99(3-a°);121

But that’s about it. And these amount to very little in terms of fiscal expenses, compared to the potential gains when imports taxes are applied to the item delineated above. The same can be said of the fiat exemption until 2014 of the whole Agricultural output from any taxation; such a measure, while seemingly populist and caring, benefits mainly to the wealthy farmers, and adds up to the double-exemption this population benefits from: tax exemption when importing these items the Budget bill considers vital for farming, tax exemption on exports -their main market- and finally, tax exemption on income they derive from these businesses.

Bumpy road ahead: Morocco's CDS is taking up a few dozen bps

The list of strange and unjust exemption is long; suffice to say that this unsound fiscal policy, added to the debt the Moroccan government is taking on to defuse social discontentment, do not allow for optimistic outlook. On financial markets, the Kingdom’s CDS Debt -a good measurement has climbed some 50 basis points up since the beginning of 2011, and is now at the same level it was during the 2009, while it almost doubled over one year. It is also worth mentioning that the fundamentals of Moroccan debt are not the ones to worry about, nor the current level of CDS (compared to other countries like Greece or Ireland) but rather the discrepancies between terms: while all maturities move across time in the same direction, the shorter maturities seem to be more sensitive than the longer ones. It does vindicate the idea that somehow, fiscal and debt policies do not seem to be motivated by any kind of long-term strategy, but the one to prevail, even at the price of abysmal budgeting and subsequent austerity plans.

Best of luck to the next Finance Minister. Oualalou’s and Mezouar’s respective legacies are a tribute to a pro-wealthy policies… and to the present potential mess lurking in the shadows and ready to burst off. Great show Ministers, you have done very well.