Saturday, July 12, 2008

The Fiscal Outlook In Morocco

According to the IMF: fiscal consolidation efforts of recent years—which brought the budget close to balance in 2007 (from 2% of GDP in 2006) have provided the fiscal space in the short term to absorb the impact of higher world prices for subsidized products without undermining macroeconomic stability. But in the medium term, Morocco should move towards better targeting of subsidies to minimize fiscal risks and ensure adequate financing.

Cost of the subsidies could double as a share of GDP this year to reach about 5% (IMF)

EIU: 2008 budget projects that the deficit will widen to 3.4% of GDP, an estimate that may be too optimistic given growth outlook. Despite better collection, spending will likely outpace revenues in 2008 given higher bills for security (up by 29%), social welfare (17.5%), subsidies (which have nearly doubled) and infrastructure. High global food and fuel prices will make it politically difficult to cut total subsidy spending and unions will push to increase wages.

Declining deficit is progressively being financed by domestic sources rather than revenue generated from privatization as it was earlier this decade(EDC)

Morocco has among the highest tax rates in the MENA region (Tatom)

World Bank: Improving tax collection would increase the growth orientation of fiscal policy. Morocco has a fairly high debt level which limits future borrowing but does not seem to be debt intolerant. tax burden may be a disincentive to private investment

government debt has fallen to 54% of GDP in 2007 from 81% in 1999 and 66% in 2004. fiscal positions, especially a declining public debt contributed to restrained inflation in 1999-2005 (Fanizza/Soderling)

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