By Loubna Flah
By Loubna Flah
Casablanca – There are many reasons why Moroccans should consider the possibility of a lurking financial crisis or at least to attempt to debunk the myth that Morocco is totally immune from the reverberations of the global financial crisis whose epicenter is in Europe, Morocco’s largest trading partner.
In the midst of mitigations, it is important to consider the veracity of the figures advanced by government officials. But it is more interesting to examine the incongruence between their statements as the financial crisis worsens and its symptoms become more conspicuous.
The GDP faltering more than ever
During the PJD election campaign, the Head of government, Mr. Benkirane and the PJD members must have been either living in a utopian world or lacking any solid knowledge in macro economy and its dependence on a set of uncontrollable factors, to promise a GDP leap to 5,5%.
Faced with the compelling reality, Benkirane made another promise less surreal than the first one, but nonetheless hard to achieve for a country that relies heavily on the international market to supply 98% of its energy needs. In 2012, Mr. Benkirane asserted in his address to the House of Representatives that a projected growth of 3.4 % is expected in 2012.
In its World Economic Outlook, the IMF forecast a steep rise in inflation in Morocco despite the attempts to reduce the large trade deficit. The World Economic Outlook real GDP Growth Projections for the MENA region did not exceed 3.6 percent by April 2013
The IMF report outlined also the adverse outside factors that hinder the prospects for the Moroccan economy, namely sluggish global growth, the recession in Europe, high food and fuel prices and spillover from Syria.
The Social Reforms: To spend or not to spend this is the question
The current geopolitical context has a direct impact on the prospects of the national economy. The aura of uncertainty and skepticism surrounding the political and economic reforms makes the task even harder for the government. On one hand, responding to the masses’ demands for social equality and a betterment of living standards requires an increase in public spending and state subsidies. On the other hand, to face the growing budget deficit, the government has no alternative but to squeeze public spending.
Ironically, the fulfillment of the first strategy is likely to plunge the country in a state of bankruptcy, while the second option will fuel a dormant rebellion as it fails to meet the demands for which the PJD-led government was elected.
Is the government‘s reform plan facing a dead end?
It may be too late to raise this question. Morocco has already opted for austerity the day it asked for the IMF precautionary line. In 2012, the IMF approved the request of the Moroccan government to have a precautionary line of credit worth $ 6, 2 billion to prevent any general bankruptcy that would incapacitate the national economy.
It is no secret that the IMF financial policies towards indebted nations especially in the Third World no longer stir enthusiasm. History showed that the conditionality of its standby agreements led many countries into deep recessions, mainly because of the cuts it imposes on public spending. As a matter of fact, the austerity measures tend to undermine the indebted nations’ sovereignty, not to mention their impact on the quality of life.
The Moroccan government has already made the pledge to squeeze public spending. In the document submitted to the IMF (page 34/ table 1 entitled Morocco: Selected Economic Indicators), the Moroccan government promises to reduce public spending from 34. 4 % of the GDP in 2012 to 29. 5 % of the GDP by 2017.
But how can the government carry out social reforms in education, health and more importantly in employment without spending?
The liquidity Strain, the chronic ailment.
To add a layer of complexity to the Moroccan economic landscape, the banking sector continues to relapse in a liquidity crisis starting to feel like a chronic disease that can be controlled but not cured. Sources close to Bank Al Maghreb confirmed that the bank liquidity deficit increased from MAD 61 billion in June to 71 in July 2012.
In an attempt to ease the liquidity strain and to prevent a systemic crisis, Morocco’s central bank had repeatedly pumped massive liquidity in the banking system. With a lack of stable funds from depositors and other institutions, the commercial banks capacity to finance loans and other transactions has been severely impaired. If the liquidity crisis endures, commercial banks are more likely to face problems in responding to demands for money transfers and withdrawals.
But the liquidity shortage is back again to haunt the banking sector in Morocco, while the trade deficit shows no sign of slowing down. The liquidity deficit reached MAD 7, 6 Billion during the first quarter of the current year. Despite the precautionary measures undertaken by Morocco’s central bank, bank Al Maghreb, the commercial banks still need the injection of MAD 71, 7 billion to face cash depletion.
The crisis was initially engendered by a massive withdrawal of assets from the business circle. The panic prevailed among clients when the General Directorate for Taxes launched a large scale seizure operation on their bank accounts without a prior notice.
The prospects seem to go dimmer and dimmer for Moroccan economy. The Standard and Poor’s agency downgraded the economic rating of Morocco from stable to negative mainly due to high deficit exacerbated by inadequate reforms. Indeed despite the rise in Phosphates exports, the Moroccan government failed to put forward efficient measures to reduce the deficit.
The dependency on international markets for energy supply burdens further the trade balance and impedes considerably the autonomy of Moroccan industry. It is of note that Morocco imports 98% of its energy needs from the international market.
Dim Prospects, The Exit Please?
All the figures aforementioned paint a bleak forecast for the Moroccan economy. Yet, we should make a clear distinction between those uncontrollable elements that the decision makers themselves cannot alter immediately, including the energy needs and the volume of exports and those variables that are immediately affected by the sensibility of policies and strategies. Indeed, there is a pressing need for a long term plan that encompasses all actual factors.
Many economists consider that the expansion of the private sector is likely to stimulate the domestic market, create job opportunities and increase purchase power. Unfortunately, investors are still faced with a sclerotic bureaucratic system that dampens all their ambitions. Morocco needs a revolution in the way public services are delivered, especially for ambitious investors. There is a pressing need to put an end to the reams of paperwork piled for months on the desks of public servants.
But above all, the current economic juncture calls for a synergic collaboration between all stakeholders to elaborate a long term reform plan based on accurate figures extracted from reality and not from a utopia.
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