Political Differences Threaten Moroccan Economy

Political differences between Morocco's ruling Justice and Development Party and its allies on how to reform government spending is threatening the Moroccan economy.

al-monitor Riot police charge toward unemployed graduate taking part in a demonstration about the lack of jobs, in Rabat, May 29, 2013.  Photo by REUTERS/Youssef Boudlal.

Topics covered

morocco, justice, international monetary fund, imf, arab

Jun 14, 2013

For two months, the Moroccan economy has been awaiting the outcome of the political crisis afflicting the governmental majority, which the Independence Party decided to withdraw from in response to how the Islamist Justice and Development Party (PJD) reformed some of the social funds, such as the compensation and retirement funds, to reduce the fiscal deficit.

Politicians have bitterly disagreed on economic and social reforms. The PJD wishes to divert some of the money in the compensation fund toward the poor directly and stop the subsidies on consumer goods. The PJD’s allies in the government have reservations about that move because it raises prices, inflation, interest rates and unemployment — thus hurting the middle class and threatening social cohesion.

A delegation from the International Monetary Fund (IMF) threatens to withdraw $6.2 billion in loan guarantees earmarked for Morocco if the Moroccan government doesn’t announce a schedule to reform the compensation fund, which will cost 50 billion dirhams ($6 billion) this year.

The IMF, which will issue a report on Morocco next month, said that the financial situation and the overall economy were worsened by the government’s inability to stop the financial waste caused by political differences.

Rabat is facing a budget deficit of approximately 7.5% of GDP, and a deficit in the balance of foreign payments of more than $20 billion due to higher international market prices for raw materials, energy and food.

Sources told Al-Hayat that if the IMF cancels its financial support, Morocco will greatly suffer in the international bond market. Over the past few months, Morocco has borrowed more than $2 billion that will be paid back over 30 years at very high interest rates (between 4% and 5%).

The Moroccan economy needs to borrow $6 to $8 billion annually to finance some development projects and pay for some economic and social obligations.

Statistics show that, in the year’s first quarter, there was a drop in industrial production, construction, real estate projects and major works. Some observers blamed the drop on the weak private investments and the political differences over reform.

It seems that the political forces do not exclude the possibility of early elections if no solution is reached in the government. The PJD wants to gain the support of the poor by using the compensation fund for that purpose, while the PJD’s opponents want reform to be objective and economically sound.

The Moroccan High Commission for Planning did a study that it presented at Oxford University. The study found that the 5% economic growth over the past years reduced the overall poverty rate but harmed the middle class, increased the gap between rich and poor, and increased the sense of poverty in the most dynamic cities. The report added: “New material and cultural needs have emerged, such as the need for basic services, quality education, social welfare, labor, equality and equal opportunities ... Those are some of the demands that, if unmet, may be a source of frustration for the new generation.”

About 10% of the population lives below the poverty line. Statistics estimate that 30% of the population is economically insecure (which means that moving down the social ladder is more likely than moving up).

Studies warn that stopping the subsidies on strategic commodities, such as energy and domestic gas, may worsen social inequalities and push many in middle classes to below the poverty line, thus increasing the dangers of popular anger at a time when the Arab Spring’s repercussions are still ongoing.

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