Morocco saw a sharp rise in its fiscal deficit in the early years of this decade, which in turn pushed up debt levels. However, subsequent measures to stem spending and increase revenues brought the shortfall back under control and have seen debt levels stabilise. In 2019 the government is seeking to step up spending, in particular social spending in areas such as health and education, which will be funded by in part by privatisations, the introduction of new taxes, as well as increases in existing levies focused mainly on large companies.
Crisis Control
Morocco was spared the immediate effects of the global financial crisis of 2007-08 due in large part to the government’s expansionist budgetary policy. Continued investment – even when the overall climate of crisis had struck many of its economic partners – allowed solid growth rates to be maintained between 2008 and 2012. Government expenditure was also encouraged by the need to maintain social programmes in the context of regional upheaval brought about by the Arab Spring of 2011.
However, the consequence of increased spending saw a substantial erosion of the government’s fiscal position, with the budget deficit rising from 6.5% of GDP in 2011 to 7.2% in 2012. As such, reining this in became a critical government priority from 2013 onward, with moves made to reform Morocco’s large-scale subsidy system. Prominent among such measures were reforms to broaden the tax base and make it more equitable, agreed to at a national tax conference in 2013 and implemented in subsequent years. These efforts yielded a steady reduction in the kingdom’s budget deficit to 4% in 2016 and 3.5% in 2017, according to the Ministry of Economy and Finance. In December 2018 Abdellatif Jouahri, the governor of Bank Al Maghrib, Morocco’s central bank, estimated that figures for 2018 and 2019 would stand at 3.7% and 3.3%, respectively.
Much of the current deficit is a result of interest payments on existing debt, with the primary deficit, not including interest payments, standing at 1% of GDP in 2017. In its most recent Article IV consultation, the IMF called on the kingdom to further boost state income by addressing tax evasion and reducing exemptions.
Fuel Subsidies
Another key contribution involved reducing spending on subsidies, which ballooned to 4.2% of GDP in 2013 as a result of higher oil prices. Petrol and fuel oil allotments were abolished in 2014, followed by those for diesel the following year. The only fuel subsidies still in place as of February 2019 are for liquefied petroleum gas, which is viewed as an essential good due to its widespread use for cooking and heating. These actions brought subsidy spending down to 1.4% of GDP by 2016.
More recently, the authorities have been working to replace the subsidies with targeted social security programmes, though the IMF described the current social safety net as lacking a coherent strategy. A new social registry being implemented as part of the 2019 Finance Law should help to address this by allowing programmes to more accurately target poor Moroccans.
While there was concern that the elimination of these subsidies and subsequent price rise might generate social discontent, the reforms passed off relatively smoothly, facilitated by the sharp fall in oil prices in late 2014 and across 2015. However, the recovery in the price of oil across 2017 and most of 2018 prompted some protests by unions and the discussion of measures to reimpose fuel price caps in order to protect consumers. In July 2018 the government was actively planning to bring back price regulations; however, these appear to be based around capping fuel distributors’ profit margins rather than fuel prices. In February 2019 it was reported by Lahcen Daoudi, the minister of general affairs and governance, that the government would be imposing price caps on petrol and diesel in March.
Debt Dynamics
Equally worrisome at the beginning of the decade was the expanding public debt, which grew from 49% of GDP to 63.5% of GDP between 2010 and 2014, according to figures from the IMF. However thanks to the fiscal consolidation measures put in place, levels subsequently stabilised and held steady at between 63% and 65% of GDP until 2017. The fund estimated the figure to stand at 64.4% in 2018, with current government plans to reduce the level to below 60% of GDP by 2021. In recent years the government has raised all of its debt locally; however, in September 2018 the government announced that it planned to issue a sovereign bond on international markets in 2019, marking its first foray into global sphere since 2014. While the size of the loan has yet to be finalised, media reports at the time of the announcement stated that the issue would be worth at least €1bn.
New Budget
In late December 2018 Parliament adopted the state budget for the coming year based around anticipated GDP growth of 3.2%, a cereals harvest of 7m tonnes and gas prices of €650 per tonne. Overall spending will rise by 8.8%, to Dh443.4bn (€39.9bn). This includes an increase in current expenditures of 8.7% to Dh205.1bn (€18.4bn) and investment expenditures of Dh73.4bn (€6.6bn), up 7.5% on last year.
Investment spending as a share of GDP has been on the rise, from 5.5% in 2015 to an estimated 6.3% in 2019. Current expenditures will grow by an anticipated Dh5bn (€449.7m), or 38%, while increases in the value of subsidy spending will reach Dh18bn (€1.6bn), likely due to rises in oil and gas prices during much of 2018 – and thus the cost of gas subsidies. While the price of Brent crude slumped in the fourth quarter of 2018 from over $85 per barrel in October to just above $50 at year end, prices had recovered to $63 in the first month of 2019, suggesting that allocating sufficient room for subsidies spending was a prudent move. Revenues are anticipated to increase to Dh417.5bn (€37.5bn), up 7.2%, which together will give rise to a fiscal deficit anticipated at 3.3% of GDP.
Social Perks
Also prominent in the 2019 budget are hefty increases in social spending. This includes Dh68bn (€6.1bn) for education, an increase of Dh5.4bn (€485.7m) on the previous year, and Dh16.3bn (€1.5bn) for health care, up Dh1.6bn (€143.9m). Of the increases to education spending, Dh1.4bn (€125.9m) will be used to further the government’s goal of providing universal access to preschool children by 2027; Dh2.2bn (€197.9m) will go to the expansion of the Tayssir programme to ensure that children stay in school; and Dh1.47bn (€132.2m) will go toward meals and boarding.
The health sector will see state medical care coverage expand and health care provision improve with the construction of more primary care centres and mobile health services for use in rural areas.
New Revenue Streams
With funding from Gulf countries expected to fall from Dh4.8bn (€431.7m) in 2018 to Dh2bn (€179.9m) in 2019, the government has planned new revenue streams to meet its increased spending goals. In October 2018 officials announced that it intended to conduct several privatisations in 2019 to raise up to Dh6bn (€539.6m) in additional revenues. This will likely include selling shares in leading operator Maroc Telecom, in which the government currently has a 30% stake. The company was initially wholly state-owned until French firm Vivendi acquired a 51% controlling share in 2001, which Emirati firm Etisalat took over in 2014; a stake in the operator was also floated on the Casablanca Stock Exchange in 2004.
The authorities indicated that shares of the National Railways Agency (Office National des Chemins de Fer, ONCF) might also be put up for sale, but that the firm would have to be restructured beforehand. Meanwhile, in November 2018 the government announced that it intended to sell the Mamounia Hotel in Marrakech, which is majority-owned by the ONCF, as well as a power plant located near Tangier. Local press reported in October 2018 that the sale of the Mamounia alone could raise as much as Dh3bn (€269.8m).
Another avenue to shore up state coffers would see officials working to increase tax revenue. These include a so-called “solidarity tax”, which is expected to raise around Dh2bn (€179.9m) by placing a 2.5% levy on net profits that exceed Dh40bn (€3.6bn) at any one firm; a hike in tobacco taxes, which is expected to raise Dh1.2bn (€107.9m); and a new tax on sugary drinks.
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