The report reveals that Morocco’s fiscal deficit will “shrink over 2018 and 2019, although more slowly than in recent years,” due to Morocco’s growing revenue, government subsidies, and public wage expenditures, which will soon improve the government’s fiscal position.
On the downside, the report anticipates that the government’s spending on several projects in line with Morocco’s five-year development vision may disrupt the country’s fiscal balance.
BMI, a member of the Fitch Group for macroeconomic, industry, and financial market analysis, also expects fiscal consolidation to slow as the government will miss its 2018 target of a budget deficit at just 3.0 percent of GDP. The government set the target to reduce its deficits of debt stock, but BMI predicts the budget deficit will come in at 3.3 percent of GDP in both 2018 and 2019, albeit down from 3.6 percent in 2017.
The report continues in an optimistic tone, stressing that the slowly shrinking fiscal deficit will decrease Morocco’s debt-to-GDP ratio.
With respect to the government’s revenue, BMI forecasts that it will experience continued growth over the upcoming quarters at 3.6 percent in 2018 and 3.2 percent in 2019, down from 5.2 percent in 2017 when it accelerated with strong GDP growth which widened the tax base.
The budget focused on business-friendly tax cuts instead of revenue-raising measures for 2018 and expectations for revenue growth have been lowered to 4.0 and 3.5 percent respectively in 2018 and 2019.
BMI points out that the government’s efforts to improve the fiscal balance through limited spending are paying off. Morocco slashed food and energy subsidies between 2012 and 2015, in addition to the implementing an organic budget law.
BMI insists that cutting the government wage bill “will strengthen budgetary monitoring and accountability” and “increase contractual employment.”
Despite the good news, BMI warns that increased spending will hinder fiscal consolidation and offset wage spending gains. Government spending on wages increased from 18.7 of its total spending in 2013 to 24.5 percent in 2017 and will continue at this rate in future years.
Not only that but also the government’s initiatives such as the green project dedicated to reducing “the impact of drought through innovative technology [provided] to small-scale farmers” will consume increased funds in 2018 and 2019.