Morocco’s former finance minister, Nizar Baraka, was praised by analysts for his country’s progress over the past year, despite unfavourable external and domestic conditions. Stability was one of the issues that experts said was an advantage for Morocco’s government, compared with others in the region – and then Baraka’s party, Istiqlal, went ahead and acted on threats to withdraw from the government coalition, and the minister resigned in August.
William Jackson, an emerging markets analyst with Capital Economics, says that cutting subsidies – which eat into government revenue, pushing budget deficits higher – is a problem in most of North Africa, but that Morocco “seems to be the most active and committed to do this” among the countries in the region. Unlike Egypt, Morocco has an accord with the IMF.
“Egypt has been talking about it for a long time, but actually very little has happened,” Jackson told Emerging Markets before Baraka’s resignation.
Angus Blair, president of the Signet Institute – a Cairo-based think-tank looking at business conditions in the Middle East and North Africa – recognized the Morocco finance minister for his hard work, as Baraka had to “do more with less”.
Last year, conditions deteriorated for Morocco’s economy. Growth slowed to 2.7% from 2011’s healthy 5%, and both deficits widened substantially. The country’s external deficit was 10%, and its budget deficit was 7.6% in 2012.
In August of last year, the IMF approved a precautionary and liquidity line (PLL) loan worth a total of $6.2 billion. In the second review of the accord, published in September this year, IMF experts said that economic growth was likely to outperform in 2013 due to a stronger agriculture sector.
“A bumper crop will likely push growth in 2013 above 5%, although non-primary GDP growth is decelerating,” the IMF staff said in the review. “Both the fiscal and external positions have been improving so far in 2013, partly reflecting lower international commodity prices.”
The IMF agreement, as well as recent support from the European Bank for Reconstruction and Development, will help the country, according to analysts. “Certainly engagement with international institutions helps, because it brings finance and it brings expertise,” says Jackson.
But Blair warns that this will most likely not be enough: “This is state capital; it’s not going to have a huge effect. What you need to do is stimulate private investment. They have some good investment in the car manufacturing business, some good investment in textiles, but they need more.”
The IMF said that last year Morocco recorded fiscal slippages because of overruns in wages, subsidies and capital transfers in December. This meant the budget deficit target for this year was raised to 5.5% of GDP from an initial 4.7%, and the IMF experts believe the new target is achievable. “The authorities took the 2012 fiscal slippage seriously and responded with significant actions to strengthen their fiscal framework and reduce the impact of world commodity price fluctuations on the budget,” IMF experts wrote in the second review. Much of this was achieved while Baraka was minister.
But analysts say the country’s complicated politics could mean the fiscal reforms will not advance as fast as hoped. The crucial issue remains the one of subsidies. On September 16, prices for diesel and petrol were raised by 8.4% and 4.8%, sparking some public demonstrations. “The domestic political/social backdrop could remain challenging,” Aga Raza, chief economist for the Middle East and Africa at VTB Capital, wrote in a recent market note.
“With one party already having left the coalition and a one-time fierce opponent of the [incumbent Party of Justice and Development] PJD now part of the coalition, the road to further fiscal reforms will be a difficult one. The latter is all the more true as elections are not scheduled till 2016,” Raza added.
Nizar Baraka was appointed president of Morocco’s Economic, Social and Environmental Council. Council representatives did not respond to requests for comment from Emerging Markets. —Antonia Oprita