U.S. Markets closed

Commission predicts slim times ahead for Morocco

Paul Schemm, Associated Press

RABAT, Morocco (AP) -- Morocco's growth rate will drop dramatically in 2014 partly due to cuts in public spending this year to rein in runaway budget deficits, the North African kingdom's planning commission said.

While the High Planning Commission's report released late Wednesday did estimate a decent growth rate of 4.6 percent in 2013, it predicted a slowdown to a 2.5 percent rate next year. It blamed the slowdown to an anticipated weak performance by the non-agricultural sector as a result of "the reduction in budgeted investments decided on in early 2013, weak global demand for Moroccan products, and a constriction of financing means for the economy."

Morocco's economy, which grew strongly for much of the past decade, has been hard hit by the economic crisis afflicting many of its main European trading partners and the rise in spending to defuse popular discontent during the 2011 Arab Spring demonstrations.

The budget deficit has soared, reaching 7.6 percent of the country's annual domestic product in 2012, in large part due to salary rises and a 10 percent increase in spending on subsidies for fuel, cooking gas, flour and sugar to $6.3 billion.

The Islamist-led government elected in 2011 on a reform platform has spent much of its term struggling to rein in spending and reform the system of subsidies and state pensions.

In April it announced it was suspending $1.7 billion of public investment in an effort to balance the budget.

Last month, its main coalition partner, the right-of-center Istiqlal party, announced its intention to quit the government, in part over the Islamists' plans to cut subsidies — a demand of the International Monetary Fund that last year extended Morocco a $6.2 billion precautionary line of credit partly on the condition that it would undertake these reforms. That's a promise Prime Minister Abdelilah Benkirane reiterated to a visiting delegation from the Fund last week.

However, the coalition has stuck together pending arbitration from the king.

The biggest hurdle is the plan, announced June 14, by Minister of General Affairs Najib Boulif to cut subsidy spending to around $5 billion after years of steady increases. He did not give any details about how these cuts would be achieved or whether this would be in the context of a long elusive comprehensive reform of the sector.

Lacking the oil resources of its neighbors Algeria and Libya, Morocco has struggled in the aftermath of the Arab Spring and the global economic crisis. The economy was further battered by a poor harvest in 2012 that sent growth plunging to 2.7 percent in 2012.

Cutting subsidies could further inflame social tensions in this country of 32 million that sees large gaps between rich and poor and where demonstrations over the high cost of living are common.

Central Bank Governor Abellatif Jouahri told journalists Tuesday that if subsidy spending is kept to $5 billion, as set down in the new budget, the deficit will drop to 5.5 percent of GDP in 2013 and Morocco would be able to maintain its foreign reserves at three months of imports through the rest of the year, thanks in part to the loans from the IMF and Gulf countries.

He cautioned however, that the current divided government would need to present a united front to carry out the necessary economic reforms.

"When there is a majority that works in serenity, it can only give a good message to economic operations," he said, referring to both domestic and international investors. "The problem is to have the political will to implement the reform."


Associated Press reporter Smail Bellaoualli contributed to this report.