The Moorish Wanderer

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.

[Sneak Peek] 2012 Budget Bill

Posted in Dismal Economics, Flash News, Moroccan Politics & Economics, Morocco, Tiny bit of Politics by Zouhair ABH on November 4, 2011

Early October 2011, The budget bill has (finally) been delivered to the representatives at parliament house to debate, amend and vote on. Not surprisingly, the budget has been so consensual the next government will most certainly not reconvene to introduce a rectification bill next session. As for the first draft that has been hurriedly withdrawn, we will never know its content (perhaps we will, but later. Much later)

Figures out of a 325Bn budget

In general terms, this is not a bad bill. In the sense that it does not depart from the previous more or less successful attempts in reigning in budget deficit in the region of 3% GDP, the bill brings a moderate 20Bn net borrowings requirement package, in line with the previous bills.

But behind seemingly “business as usual” figures hide the harsh truth of financial mismanagement; we can expect the service debt to go up in the next couple of years from the current 42Bn to match the 400Bn stock of debt, courtesy to that courageous decision to avoid social unrest with the most simplistic policies a government can come up with, i.e. increasing subsidies on strategic goods – the compensation fund was indeed the main reason why the 2011 deficit worsened from 13Bn to almost 34Bn.

We can also expect pay-wage to rise at a higher trend, thanks to the additional 25,000 new civil servants positions provisioned for in this draft bill. Ironically though, a third of it goes to the Interior Ministry – in fairness, about the same number of positions have been created for the Education department as well. Whatever the expected benefits of having extra local civil servants -or more importantly, more teachers in the classrooms- the drain of civil service pay-wage will keep on increasing, and there is a simple explanation to that: whenever a group of productive civil servants (teachers, police force members, local functionaries, doctors, etc.) are recruited, another batch of bureaucratic staff is recruited as well.

Humphrey Appleby's shopping list - Budget Bill 2012

For every collected dirham in government receipts, 38 cents goes to pay civil servants alone. Even more concerning is how one can easily equate government receipts from income taxes (28.5 Bn) to the interest on paid debt (20.2 Bn) and these numbers have been going for some time now. The trouble is, it is not like the government’s hands are tied and cannot raise more revenues out of the taxpayers (corporations or otherwise).

The fiscal exonerations report points out a maintained yearly increase of 7.63%, and thus broke through the symbolic ceiling of 30Bn tax deductions, exonerations, loopholes and credit that would more than make up for the deficit. Real-Estate developers still make up the bulk of tax deductions recipients, to the tune of almost 5.5Bn (a 22% increase from the 4.4Bn offered last year) while other sectors that would benefit from these deductions and generate some income, like Tourism, Automotive and Chemical industries do not enjoy a third of what RE tycoons get in terms of VAT and Corporate tax breaks.

It seems the spirit embodied in these deductions is to slow down the growth rate of fiscal receipts (currently at 9.8% for a projected 5% real GDP growth) and that’s where a dangerous contradiction lies: the 2012 exonerations reverse VAT deduction from 13.7Bn in 2011 to 13.2Bn 2012 even though domestic consumption still contributes around 1 percentage point to GDP growth. If indeed the tax deductions were geared toward sustaining growth, then investment and exports are the ones needing the deductions, and real-estate development doesn’t account for its 5.5Bn compared to 3Bn for exports for instance.

On a lighter note: the Moroccan taxpayers are the proud recipients of 10,000 receipts from trials and experimental farms managed by the Agriculture ministry; and PJD caucus will have a field day with the Alcohol taxes receipts to increase them from the 1.1Bn, i.e. 0.3% of total Budget to whatever level they set to both satisfy their Moral Crusade (sorry, Jihad) against that devilish beverage, and at the same time destroy a domestic industry and compel consumers to chose contrebande or imported products.