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Salaheddine Mezouar’s fiscal stimulus has largely shielded Morocco from the global downturn Europe’s biggest financial crisis since the Great Depression, and still-shaky economic recovery, could easily have hurt Morocco’s growth these past two years. Reduced imports from the European Union, the chief market for Morocco’s exports, have created a huge challenge for its predominantly export-orientated industries and services. In total, exports fell 28% last year.
However, thanks to economy and finance minister Salaheddine Mezouar’s fiscal stimulus package, through corporate tax cuts and infrastructure spending, Morocco has been shielded from the global downturn. The country’s 4.9% expansion last year was “remarkable”, says Philippe Dauba-Pantanacce, a Dubai-based economist at Standard Chartered.
Government spending, the closed nature of the country’s financial system and two years of bumper grain harvests have helped to bolster domestic demand. The improvement in the country’s fiscal balance over the past decade has provided Mezouar with the ammunition to step up spending in infrastructure projects and anti-poverty programmes.
This year, the government plans to invest in a $4 billion wind energy programme and will embark on a drive to build 150,000 housing units a year until 2013 to reduce poverty and boost the construction sector.
These moves have come at a cost: the fiscal deficit will hit 4% this year, compared to 2.2% last year. Nevertheless, ratings agencies have largely shrugged off Morocco’s mounting debts. “The deficit has increased, but this is down to a targeted stimulus rather than a fiscal blow-out,” says Charles Seville, sovereign analyst at Fitch. And in March, Standard & Poor’s raised Moroccan debt up one notch to BBB-, an investment grade rating.
The biggest driver of government debt remains its subsidy programme, with fuel and food aid likely to soar to 23–24 billion dirhams from 13 billion dirhams last year. However, “it is noteworthy that even in a still challenging economic environment, Morocco has also tried to address some of its structural spending problems head on, such as reducing the amount of subsidies,” says Dauba-Pantanacce. Mezouar, a former industry and trade minister, has lowered the subsidized oil price, and has imposed an official limit to total subsidy claims at 2% of GDP, compared with an all-time high of 5% in 2008.
“It is encouraging that the government is moving to reduce its vulnerability to an oil price shock,” says Seville, citing the country’s improved creditworthiness. In a move to ease the fiscal burden, the government is poised to focus its subsidies at the 20% of the population who live below the poverty line.
The country has one of the highest illiteracy rates in the Middle East and North Africa, a deficiency that erodes the competitive edge of the labour force. Nevertheless, the government’s fiscal prudence in recent years, the quality of its spending, and astute stewardship of public institutions, has put the economy on a firm footing.
If, and when, Europe’s economic recovery gathers pace, Mezouar’s efforts to transform the kingdom into a competitive manufacturing and services economy with a long-term and skilled labour force may finally bear fruit.