# The Moorish Wanderer

## 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 ## The Yield Conundrum Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on August 22, 2012 I have been going on and on about Morocco’s public debt for quite some time, and I must confess some degree of bad faith in all devoted blogposts. And then, as usual, twitter-conversations have guided my interest; Nadia Lmlili and Ahmed Benchemsi kindly suggested to devote a simple piece about the public debt, and esteemed fellow blogger, Anas Filali and I clashed over the impact of public debt on households, more specifically on the younger generation: he argued inflation and uncertainty need to be accounted for, I fired back it was a blatant sign of economic illiteracy to suggest so, since interest rates already bear that (coming from an assumed PhD candidate, and an MBA graduate, it is rather hilarious) I have now the opportunity to address both issues; please bear with me on some details because it may get technical at points, nonetheless, I shall do my best to bring simplicity to bear. The yield on public debt is in simple terms the interest paid on the bonds issued by the treasury. Governments everywhere do not fund themselves exclusively with taxes and other duties paid for by taxpayers; they also borrow money, with different maturities: sometimes, ministerial departments need money to pay for routine expenses, such as paywage; when long-term investments are carried out, adequate financing sources are sought. Is it a good or a bad thing? Economists do not always agree on the subject, but there is good evidence to suggest public debt is actually a net wealth; As far as Morocco is concerned, what I find backs the idea that government intervention (through taxation and borrowing) tends to affect favourably investment fluctuation (that is, the mere existence of government expenditure/taxation brings investment volatility to significantly lower levels). Let us therefore posit from now on public debt is, in principle, a good thing. What might then be argued is: “how much public debt is good a thing?”. For emerging economies, the figure of Public Debt/GDP ratio of 60% is considered to be acceptable; for a small, outward-oriented economy that is Morocco, debt, foreign or domestic, cannot be indefinite, and thus the proposed threshold is a good benchmark. I would argue the public and the mainstream journalists do not bother with such indicators. I mean, from what I read in the newspapers, economic-oriented pieces are either literary comments of official documents, or usually inaccurate interpretations of these figures.the recent PLL deal with the IMF, as well as the eminent new bond issue for 1Bn dollars pushed public finances and debt front and centre. Unfortunately, journalists and bloggers alike were too quick to summon the painful memories of the 1980-era of structural adjustments and hardcore austerity. I wish my voice would carry more weight and say: stop the frenzy, we are not there yet, and the road is long enough to adjust with moderate austerity costs. I said I was implicitly telling half-truths about the debt in Morocco because I focused only on absolute values, namely the debt stock and annual PSBR (Public Service Borrowing Requirements) and I was too quick to forget the useful teachings of E. Fama and the general equilibrium models. My primary mistake was not to look closely at interest rates paid on these borrowings and the piled debt. In my defence, theses figures are not easy to come by, and their span in time is limited to the 1990s, so I shall make due with what is available – namely the synthetic yield per maturity listed on Bank Al Maghrib website. Let me describe what I want to do by first describing the Fama-Arrow-Debreu theory applied to interest rates: these are supposed to embed every kind of information pertaining to its class asset; the yield on public debt is supposed to signal, among others, the robustness of Morocco’s public finances, the expected return from the projects the money is spent on, the credibility of the treasury to pay back the debt when it matures, and expected inflation when such time arises. In my argument therefore, I assume the interest rate to be a perfect signal, in what is called the Weak form of Market Equilibrium; weak because it assumes no unforeseen events, and all available information is already taken into account. For those interested in reading about the theoretical argument, you can read this great paper by Fama. We now proceed with the basic idea in this blogpost: the monthly variations in estimated yields of various maturities reflect agent anticipation of risk and (potential) default; high yields do not mean intrinsic returns increased; in fact, long term interest rates remain very stable, but the risk premium varies following agents risk aversion vis-a-vis sovereign debt. Risk premium is exactly what we are talking about, as this captures all elements mentioned above many agents take into account when they go on the market and buy treasury bonds. That risk premium is difficult to assess, as far as the simple method to determine the yield curve goes – it can be deduced from empirical data, the difficult resides in assigning the proper model specification to it. Consider two maturities of 1 year and 5 years. On May 2001, their respective yields were 4.99% and 5.84%. You immediately notice the significant difference in yields, with the longer maturity paying off higher interest, precisely because the uncertainty attached to it is higher. After all, it is easier to forecast the state of government finances in the next two years than it is in the next 5 years. Also, inflation expectations are higher because prices will rise anyway. We could also link both maturities as follows: $(1+r_t) = \left(1 + \frac{r_t}{T}\right)^T$ this method, when applied to the example at hand, results are remarkably close:  | 1Y | 2Y | ---------------+------ Actual |4.99%|5.22%| ---------------+------ Synthetic|5.03%|5.06%| ---------------------- The differences should not arise, since rational investors are basically indifferent between 1-year and 5-years bonds. But, in real life, these investors have certain preferences (the so-called market segmentation theory) and from this simple example, it is obvious in May 2001, investors preferred more liquid debt -that is, short term 1 year yield, hence the lower yield. Conversely, these investors require a higher yield for 5-years bonds because of their preference for immediate liquidity. This is a great example to describe risk aversion. sudden dips in yields are due to the discrepancies in computations (spreads in risk premium) as many month were missing out. The dearth in data on standard maturities (say from 1 to 15 years) is a blessing in disguise, because it allows for a practical application of the fancy fairy theory to hard stock reality. As usual, results are ambiguous; we observe indeed the same phenomena described above occurs from time to time, with significant spreads with respect to close levels. For instance, much of 1995 gainsays this because theoretical levels are much lower (with differences as high as 2 percentage points) than those observed for available months. The 10-year bond required a yield of 10% in September 1995 (remember those were the days of post-PAS, fiscal consolidation and low growth) even though theoretical yields computed on the basis of 1-year debt, closer to 8.3%. Why so? As mentioned before, Moroccan investors are quite risk averse, and prefer to invest in more liquid debt, in this case, debt with maturities shorter than 1 year. Still and all, the constant fiscal conservatism observed over the past 20 years brought all yields down to historically low levels: my preferred benchmark, the 10-year bond yield, was cut down from almost 10.5% early 1995, to a little under 4.5% in 2012, that’s almost 2Bn dirhams saved on interest over the last 5 years. This is also true for other maturities (as shown on the graph); similar levels of high interest rates were observed during the 1980s, close to 8% for prime rates. This is why I do not share the alarmist reports on a new “PAS”: we are not nearly as bankrupt as we were back in the 1980s, inflation is not nearly half that of the past period, and domestic, let alone foreign debt is way below 1980s levels. That is why I confess my failure to report on that bit of news: compared to the 1980s and 1990s, present Morocco is a beacon of fiscal prudence and restraint, and have the yield curve to show for it. We are not out of the woods yet, unfortunately. The profligate expenditure on food subsidies and the post-Feb 20 generous upgrades in civil service paywage, unmatched with new fiscal receipts, and exacerbated by the 2007-2008 tax cuts, resulted in increased borrowings. The result has been swift: post-2007 10-years yield increased 500bps (or .5 percentage point) the same can be said of shorter maturities, so this is no sunspot easily brushed off. This generalized push on treasury yields upward has been observed in recent treasury surveys, and does not seem to bother that much policy-makers. In a sense, this was to be expected: the Banking sector is short of close to 50Bn dirhams in the past 18 months, and shrinking liquidities mean investors make choices and require moderately higher yields, including those of the public debt, not to mention the rapid increase in PSBR. In a perverted way, investors are willing to require a moderate increase in required yield for treasury debt to place their dwindling liquidities, rather than invest them back into a morose exchange. This is the conundrum: why would investors do that? I am afraid I cannot provide suitable answer on that one. Back to the public debt, the upward yield push in all maturities means these investors expect inflation to increase over the immediate and longer term, and their expectations are partly vindicated by the latest HCP and IMF projections. Let us not forget government finances benefited from the 15-years historically low inflation (observed elsewhere in the world but it is particularly true for Morocco) to switch gradually its debt structure to rely almost exclusively on domestic finances. In this particular sense, there is still quite comfortable room of manoeuvre for the government to keep piling the debt on before it even reaches 2002 levels – that is, 10y yields at 6%. But then again, one needs to account for the diminishing risk premium between 2000 and 2007, and its widening ever since. Are investors putting more risk premium on the benchmark maturity, or do they require less with respect to their liquidity preferences? Let us instead posit the risk premium is only the remaining term from the following equality, for some yield $r_t$ $r_t = R_p + r_0$ where $R_p$ is the risk premium and $r_0$ the long-term, risk-free historical return. Let us also assume this long-term guaranteed return is close to 1% (this is a fairly realistic assumption) then we observe it a good fit: indeed, while required risk premium has declined significantly over the past 20 years or so, the trend weakened and remained more or less flat since 2007, and remained around 4.5% for the benchmark maturity. I would suggest government talking points about the deficit carry little weight in prompting investors to bring bond yields back close to the 4%, because the measures proposed to match the objective of 5.3% deficit relative to GDP in 2013, and 3% by then end of 2016 are two impossible things to reconcile. The last remaining question, but not the least, is: “are public finances in trouble to warrant strong austerity?” undoubtedly, no. But these are equally unequivocal signs credible measures need to be taken to reduce the deficit amid shrinking liquidities and troubling signs from the current account and the currency reserve. But we are still far away from the so-called ‘cardiopulmonary arrest’. It is always difficult to convey cautionary tones, or even urge pre-emptive moderate austerity measures (from my own point of view, anyway) when both sides of the pond are screaming Armageddon. But the fact remains levels of debt stock are increasing at high speed, and though these do not translate immediately in increasing yields, it would be then a near impossible task not to pursue hardcore austerity to bring long-term yields back to 4.5%. It is even more disturbing to notice marginal spreads between short and long term maturities (less than 8bps between 1y and 10y yields recorded on July 2012). The matter of concern, in short, is not default risk; it is however that of a government increasingly unable to fund programs and investments because paid interest is higher each year are creeping on in. ## 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) ## Beware of an Old Man in a Hurry Posted in Dismal Economics, Flash News, Moroccan Politics & Economics, Morocco by Zouhair ABH on August 6, 2012 (by Francis Urquhart) So this is how it starts, one might think. Late in the evening Friday last, the news was that Morocco would go to IMF and get a line of credit to sustain its dwindling foreign exchange reserves (kudos for the clever timing) I have been following the print newspapers lately, and perhaps now I can understand why our top economic people at the government were banging on about how tight things are: it was prelude to the announcement (wonkish detail: I was told as a graduate student in mainstream economics that government works best when it refrains from making policy announcements suddenly. Obviously the MINEFI doesn’t concern itself with arcane economic theory, or any economic theory to that matter) The Executive Board of the International Monetary Fund (IMF) today approved a 24-month arrangement for Morocco under the Precautionary Liquidity Line (PLL) in an amount equivalent to SDR 4,117.4 million (about US$6.21 billion, 700 percent of quota). The access under the arrangement in the first year will be equivalent to SDR 2,352.8 million (about US$3.55 billion, 400 percent of quota), rising in the second year to cumulatively US$ 6.21 billion.

Obviously, there are many elements in the communiqué released by the IMF that are left unanswered, supposedly because Morocco’s macroeconomic fundamentals are relatively strong. But from what I can see, there is a price to this timely help, both in compounded interests and in policy recommendations (or shall we say, policy nudges) as far as the Precautionary Liquidity Line goes, the only explicit commitment required from Morocco is to ‘maintain sound policies in the future’, and in our case,

steady step back from the brink. (light blue line denotes debt as percentage of GDP, on left hand-side axis)

In short, I don’t think the terms will be as steep as those conditioned on the 1981-1983 Structural Adjustment Program. In the early 1980s, Morocco’s foreign debt was at resounding 107% of GDP. We have come a long way to bring it down to less than 25% in 2011. We are however experiencing comparable levels in balance of payments deficit and low currency reserves (not quite as much, but we are getting close to the 3-months floor level)

But let us first look at how much that PLL help will cost us in the near term. We shall draw a cumulative 700% of our Special Drawing Rights (SDR) quota. Obviously, we are paying for the credit line, and accrued interest has also to take into account various fees the IMF collects:

Commitment fee. Resources committed under all PLLs are subject to a commitment fee levied at the beginning of each 12 month period on amounts that could be drawn in the period (15 basis points for committed amounts up to 200 percent of quota, 30 basis points on committed amounts above 200 percent and up to 500 percent of quota). These fees are refunded if the amounts are borrowed during the course of the relevant period. As a result, if the country borrows the entire amount committed under a PLL, the commitment fee is fully refunded, while no refund is made under a precautionary PLL under which countries do not draw.

Lending rate. The lending rate is tied to the IMF’s market-related interest rate, known as the basic rate of charge, which is itself linked to the Special Drawing Rights (SDR) interest rate. Large loans carry a surcharge of 200 basis points, paid on the amount of credit outstanding above 300 percent of quota. If credit remains above 300 percent of quota after three years, this surcharge rises to 300 basis points, and is designed to discourage large and prolonged use of IMF resources.

Service charge. A service charge of 50 basis points is applied on each amount drawn.

So the government is playing us for fools when they try to reassure us the line is just ‘precautionary’ and very likely to be left untouched, because at the end of the day, the taxpayer is ultimately going to pay (and dearly) for it. Never mind the conditions attached on some pledge to reform the Compensation Fund, we might end up paying a lot more than a straight bond emission on the International Capital Markets. a little above 3% interest + fee over two years is a bit steep (although I am still waiting for a reply from the IMF on that subject)

No. What worries more is the much expected 2013 rebound: that fact the IMF anticipates a rather low 4.3% GDP growth next year, and a higher inflation (around 2.5%) means quite a lot: an inflationary effect is expected -perhaps from a botched reform of the Compensation Fund- and a recovery in MRE’s remittances and resurgent IDEs flowing back to Morocco. But what would happen if only good old domestic consumption from households and government expenditure managed that figure, and balance of payment kept its nosedive? What will our officials have in store for us?