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Morocco plans to cut spending next year

Rabat, October 19, 2013

Morocco plans to cut spending next year to help reduce its budget deficit, the state news agency said, citing a draft of the budget, but targets only limited cuts in subsidies despite pressure from the International Monetary Fund (IMF) to do more.
 
The draft sets a 2014 budget deficit target of 4.9 per cent of gross domestic product, down from an estimated 5.5 per cent this year.
 
Morocco is under pressure from the IMF and World Bank to cut spending and reform subsidies, taxation and its pension system. The demands are linked to a two-year, $6.2 billion precautionary credit line agreed by the IMF in 2012 for the cash-strapped kingdom.
 
The government started to cut subsidies earlier this year by partially indexing energy prices to global prices, but the news agency said subsidies next year would still total Dh35 billion ($4.2 billion), down from Dh42 billion in 2013.
 
The government has said it will turn to hedging prices if oil prices go beyond $120 a barrel but the IMF is urging it to replace the current subsidy system by focusing aid to the country's poorest.
 
The draft budget forecast the economy would grow 4.2 per cent next year, much higher than the planning agency's forecast of 2.5 per cent.
 
The North African kingdom is struggling to fix public finances that were hit by the euro zone crisis, Arab Spring revolts and drought.
 
The royal palace, however, is reluctant to cut subsidies, fearing it could trigger more unrest as cuts would hit the living standards of the majority of Moroccans used to subsidised oil, gas, sugar and wheat.
 
It does, however, plan tough reforms in the next year on taxation and pensions.
 
The draft budget showed that in a first step in tax reform, the government plans to expand the tax base by reforming value-added tax, but did not say how. It will also end a three-decade tax exemption for big agricultural businesses, the state news agency said.
 
Akhbar Alyawm daily, however, said only 400 farmers, who earn more than Dh35 million a year would be affected by the measure next year and would pay 15 per cent company tax based on 2014 income, while other sectors pay 30 per cent corporate tax.
 
Small and medium-sized farms will retain the exemption.
 
The government plans to spend Dh103 billion in wages, against Dh98 billion in 2013 and create 18,000 jobs in the public sector, down from 24,000 in 2013.
 
Moroccan governments tend to expand the public sector payroll to ease social pressures.
 
Morocco saw protests in 2011 demanding a fully-elected government as the Arab spring unfolded elsewhere in the Middle East.
 
Such protests have faded since King Mohamed allowed the Islamist Justice and Development party to lead the government after constitutional reforms gave more power to the elected government. But the king still retains the ultimate power.
 
Last September, when the government decided to raise energy prices, the opposition called for protests and described the decision as a dangerous step with unforeseeable consequences.
 
Last week, the king named new ministers from the centre-right RNI party to replace the former partner in the ruling Islamist-led coalition, which quit after disagreements partly over the sensitive reforms.-Reuters
 



Tags: Morocco | Spending |

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