Morocco, long upheld as the stable, business-friendly exception to north Africa’s general economic stagnation and political tumult, has begun to rattle economists and its own elite with its deteriorating public finances.
The twin 28-storey, ivory-coloured towers that loom over Morocco’s commercial hub in the centre of Casablanca are testament to a decades-long reinvention that has transformed segments of the country into a sleek, modern economy integrated into the top rungs of global capitalism. But just a few kilometres away, vast slums such as Sidi Moumen fester with unemployment and rage, a telling counterpoint to the veneer of progress.
“As long as I’ve looked at Morocco, I’ve never seen such fiscal problems,” said Raza Agha, chief economist for the Middle East and Africa at VTB Capital in London.
To keep the social peace while creating jobs, Morocco maintains both the subsidies and a huge public sector payroll, at the same time as implementing business-friendly policies to attract foreign investment and spur local entrepreneurship.
“Morocco is dedicated to improving the climate for business,” Nizar Baraka, finance minister, said at a conference of the Long-Term Investors Club in Rabat last month. “We are modernising the financial sector and competitiveness has improved.”
But a double whammy of Europe’s sovereign debt crisis and the pressures of the Arab Spring have put an enormous strain on the country’s finances. Morocco has gone from running a budget surplus of 0.7 per cent of gross domestic product in 2008 to a deficit of 7.2 per cent last year.
Subsidies have ballooned from just under $500m in 2004 to $6.5bn, or about 8 per cent of GDP, in 2012. Meanwhile, public debt is about $67bn or 60 per cent of GDP, up from 48 per cent in 2008, much of this because of subsidy and state payroll costs.
“The public sector wage bill is unsustainable,” said Mr Khan. “But given the social challenges that the economy faces, it will be very difficult to cut employment or lower wages.”
Proposals to cut subsidies, place limits on wage growth and raise taxes have become mired in the same sort of political bickering and brinkmanship that has prevented reforms in Egypt. A novice government led by the moderate Islamist Justice and Development Party (PJD) is under pressure to implement such unpopular measures but has been reluctant to make any bold moves.
Exacerbating the problem is what some describe as showy but unproductive investment choices by the country’s monarchy.
“The rate of investment that we have should create growth,” said Najib Akesbi, an economist at the Hassan II Agronomy & Veterinary Institute in Rabat. “But most of the investment is in infrastructure such as highways, ports, big tourism hubs and a high-speed train. These are projects that don’t create jobs before or after, just during the construction.”
Experts say it is not too late for Morocco to turn itself round. Mr Baraka, the finance minister, said direct investment flows were up to $2bn in the first quarter of 2013. Communications minister Mustapha Khalfi, a leading member of the PJD, says foreign investment and tourism both edged up in the first quarter of this year, while bankruptcies have fallen to a few dozen and industrial strikes have decreased by 20 per cent.
Unlike Egypt, the Moroccan government managed to strike a $6.2bn aid deal with the International Monetary Fund while in 2011 wealthy Arabian peninsula monarchies launched a $5bn development fund to support unspecified projects in Morocco and Jordan.
Though the government has been reluctant to implement speedy reforms, it has raised some taxes and appeared to be preparing the public for more belt-tightening. “Fixing the subsidies is for the best of the people,” Abdelilah Benkirane, the PJD’s leader and prime minister, said in a speech at a party conference in Rabat last month. “We cannot wait until things fall apart.”
Financial Times
