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By Souhail Karam
CASABLANCA, Morocco(Reuters) – Morocco plans to reform its costly subsidies system before the end of June, as it seeks to pull key economic indicators out of the red and create employment, the minister in charge of the issue said on Tuesday.
The move would be one of the boldest reforms taken by a government led since January by Justice and Development, a moderate and former opposition Islamist party that won an election last year amid a resurgence of faith-based movements after the Arab Spring.
General Affairs and Governance Minister Najib Boulif said the reform “will take place within a month at the latest”, and that the government does not plan to make other major changes to spending in 2012.
“Our (spending) priorities for 2012 will not change. We will however reform the subsidies system, which should enable us to save a few billions (dirhams) this year,” Boulif said on the sidelines of a World Bank competitiveness conference.
“It (the reform) will make the subsidies system target-oriented and will lead to the creation of funds to address social issues as well as the adoption of concrete measures to stop subsidising sectors of the economy that do not need the state’s support,” Boulif said.
Morocco’s budget for 2012 imposed a new tax on firms and raised taxes on alcohol to help authorities develop poor areas and help quash discontent over social inequalities.
Officials in the government say over half the funds spent on subsidies go to the wealthiest fifth of the country’s 33-million population. Critics also say the subsidies system provides lifelines to monopolies, namely sugar refining.
Boulif could not say by how much subsidies would decline within a year once the reform is in place.
“If we implement the reform for the remaining six months (of 2012) we will be able to contain subsidies’ spending within the 42 billion dirhams that we budgeted for 2012,” he said. Last year, the government spent close to 50 billion dirhams on subsidies.
Morocco closed 2011 with budget and current account deficits of around 6 percent of its $100 billion GDP – which roughly equates to the amount of money it spent the same year to subsidize wheat, sugar and energy products.
While it hopes to keep the budget deficit at below 5 percent of GDP in 2012, Rabat’s economic indicators worsened further this year prompting Minister of Higher Education Lahcen Daoudi to warn earlier in May that Morocco “is on the brink of bankruptcy”.
The trade deficit rose 6 percent to 64 billion dirhams for the first four months of 2012 alone.
Morocco’s wheat and sugar import needs are expected to jump sharply after bad weather hurt agriculture while the unfolding crisis in the European Union – Morocco’s main trade partner and aid purveyor – is undermining exporters and tourism operators.
The central bank says that with the impact of the slowdown in the euro zone, the Moroccan economy will grow only by between 2 and 3 percent in 2012. The government predicts a 3.4 percent growth, below the 5-percent-plus it had initially forecast.
Boulif noted that tax receipts rose by 7 percent during the first four months of 2012, which may bode well for the government’s efforts to contain the budget deficit.
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