Morocco’s subsidy bill is set to increase to 1.6 per cent of the country’s gross domestic product next year, rising from 1.5 per cent in 2018, as crude prices strengthen. Costs could rise further if the government decides to reintroduce a temporary cap on oil prices to counter excessive value fluctuations.
The Moroccan government is currently considering reintroducing the cap in the wake of its pressing social and economic problems, Moody’s Investors Service said on Tuesday.
Morocco's government, which is struggling to boost investments, appointed Mohamed Benchaaboun, a prominent banker, as the new economy and finance minister in August to deal with the country’s pressing social and economic problems. Rabat has presented the 2019 budget to the Parliament and has updated projections for the end of this year's budget execution.
The budget follows the broader guidelines set by King Mohammed VI earlier this year: re-orientation of social policies; reduction of inequalities among regions; and private investment incentives, including support for small- and medium-enterprises.
“The 2019 budget follows these principles and incorporates expanded spending for non-personnel goods and services, whereas the wage bill remains at 9.6 per cent of GDP, in line with the 2018 budget execution [projections],” Moody’s said in the report.
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On the revenue side, the government aims to increase its direct tax receipts which could result in a broadly unchanged deficit of 3.7 per cent of the GDP. The deficit does not include planned privatisation proceeds, expected to be about 0.4 per cent of the country’s economy, Moody’s noted.
The new fiscal projections imply a debt ratio of 66.3 per cent of Morocco’s GDP in 2018, up from 65.1 per cent in 2017, and a further increase to 67.3 per cent in 2020 and 2021. Guaranteed external debts from state-owned enterprises also remain elevated at about 17 per cent of GDP.
In the wake of mounting social, fiscal and external pressures - especially from higher oil prices - the government has requested the renewal of an IMF Precautionary and Liquidity Line following the expiration of the previous one in July 2018.
“The fiscal setback diminishes Morocco's prospects of a sustained downward path for its public sector debt to below 60 per cent, as previously agreed with the IMF, a credit negative" Moody's said.
