A decade ago, Morocco began the process of liberalizing and reforming segments of the economy — a story that was familiar to many developing nations as state welfare budgets drew greater scrutiny.
Throughout decades, Moroccans have come to rely on the country’s renowned Compensation Fund (La Caisse de Compensation) — a popular subsidy program to dampen price shocks to key household commodities like butagas, sugar, and flour.
In 2022, the fund provided relief in the form of fuel subsidies for the transportation sector as oil prices rose. Part rainy day fund, part liquidity line, the fund began in the 1930s and was indeed generous, though not means-tested (need-based). An example: By mid-2022, the average unit subsidy available to citizens for a 12 kg tank of butane gas reached 100 Moroccan dirhams, or 71% of its actual price.
As the nation began to reform public sector finances and economic diversification accelerated, successive Moroccan governments reduced state subsidies, particularly on liquid fuels and butane gas. 2015 saw the discontinuation of liquid petroleum fuel subsidies, with the goal of shifting those fund savings to direct payments to low-income families.
A 2015 analysis of the compensation fund efficacy found that while lower-income Moroccans constitute about one-third of the total population, they received just 7% of the fuel subsidies; Over a third of fuel subsidies went to high-income Moroccan households, both urban and rural.
Changes were indeed needed, as the fuel subsidy cost represented approximately 4.5% of Morocco’s total GDP, a higher percentage than that of neighboring MENA nations. The fund expanded in scope in 2022 when fuel and transportation costs rose, and the nation subsequently provided subsidies for the transportation sector.
Today, administrative reform goes hand in hand with budget reform. Morocco’s economy is about 25% larger than it was in 2015, when parts of the Compensation Fund faced reform and cutbacks. Regional disparities in development and per capita income have persisted or grown in the past two decades, requiring a recalibration of state resources and state aid.
Morocco’s fading Compensation Fund shares similarities to US federal government block grants that were once en vogue. In the US case, they are money allocations from Congress or federal agencies to a local authority to pay for a range of public or social services, like affordable housing, job development and family/nutrition programs. Often, less accountability was paired with more flexibility.
New times, new policies
New trends in tax reform and welfare spending in the 1980s and 1990s saw new policies aimed at a devolution of government spending and policy authority to the individual states, a move away from the so-called Great Society programs that President Lyndon Johnson had championed in the mid-1960s. LBJ expanded healthcare programs, urban renewal projects, and job training programs that were largely guided by Washington. As a 2018 Politico Magazine analysis noted, “ … the architects of the Great Society were convinced that the means to a more just society was not cutting the pie into smaller slices so that everyone would enjoy an equal share, but baking a larger pie.” Concerns about budget deficits and troubling debt-to-GDP ratios came later, in Washington, Rabat, and elsewhere.
By 1982, President Ronald Reagan introduced the concept of a “New Federalism” whereby the federal government would relinquish more authority and autonomy to state and local governments. President Reagan wanted Congress to provide the “flexibility in the programs that State and local officials need and deserve.”
Decades of shifting federal tax policies have given individual families new opportunities to claim new government support while also creating more uncertainty for family finances. Under President George W. Bush, the Child Tax Credit (CTC) was increased from $500 to $1,000 per child in 2003. The credit was popular and made available to more low-income families at the time. In Donald Trump’s first term, the CTC was doubled to $2,000.
Within those first months in office, President Trump won passage of his “One Big Beautiful Bill”, legislation that increased the maximum Child Tax Credit from $2,000 per child to $2,200 per child for the 2025 tax year. Today, a vigorous debate in Congress is underway concerning the continuation of healthcare program subsidies (income-based tax credits) that millions of Americans now receive.
Moroccans, too, are unlikely to feel good about family budgets and social protection reform efforts until inflation is under greater control. In the US, the Brookings Institution recently noted the challenges facing family budgets: “For many families with children, the cost of necessities rose by as much as 25% during this [2020 to 2023] period, outpacing median income gains and likely leaving them worse off than in 2020.”
For Morocco, innovative tax policies, foreign investment, fading consumer inflation, and economic diversification should soften the post-pandemic post-Compensation Fund turbulence in 2026. Last year, Morocco’s non-agricultural GDP growth increased by 3.8 percent, an indicator that key employment sectors, such as manufacturing and tourism, are on solid ground.
Morocco’s advanced regionalization program also overlaps with macro social protection reinvention efforts that seek to empower city halls, regional officials, and yes, families across the entire nation.
Allowances, aid, and social protection
The unfolding campaign of direct aid to households and families is part of a broader social protection effort that is one part subsidy reform, one part support for at-risk families/individuals, and one part social investment to include vocational training for the young, unemployment compensation reform, and (importantly) compulsory health insurance (AMO) enrollment for all adult Moroccans, including the self-employed. This last initiative is unique and shares goals with the 2010 Affordable Care Act in the United States.
An advanced draft of finance legislation in Morocco’s parliament calls for an increase in monthly child allowances by 2026. Monthly allowances for the first three children will rise by amounts ranging from MAD 50 ($5) to MAD 100 ($10). For children in school or under the age of six, the direct aid support will increase from MAD 200 ($20) to MAD 300 ($30) for non-orphans, and from MAD 350 ($35) to MAD 400 ($40) for paternal orphans.
Compensation for children with disabilities rises from MAD 300 to MAD 400 for non-orphans and from MAD 450 ($45) to MAD 500 ($50) for paternal orphans. Aid for out-of-school youth will grow from MAD 150 ($15) to MAD 200 ($20) per month.
All together, spending on Morocco’s universal social protection projects will likely reach MAD 41.5 billion ($4 billion) in 2026, up 10 percent from 2025 as households receive aid. Morocco has also likely reached a critical threshold in 2025, having paired difficult administrative and spending reforms (subsidy reform) with social service reinvention (social protection reform). In June, the World Bank’s Board of Directors approved a $250 million financing package to support Morocco’s social protection reforms, including a new national unified social registry to better serve at-risk families and households.
A trimming of the Compensation Fund in Morocco is now accompanied, too, by a strengthening of financial support for uninsured (low-income) households affected by catastrophic events, such as the 2023 Al Haouz earthquake: The Solidarity Fund. It does not match the Compensation fund in size or scope, but it does represent a sustainable program for the mitigation of abject poverty as climate patterns shift and drought regions expand. The Solidarity Fund and the new unified social registry are works in progress, investments in identifying immediate need as opposed to guaranteeing open-ended support. This shift is certainly not without controversy.
From subsidy reform to evolving targeted tax credits, Moroccans and Americans may each discover new government support mechanisms that are both invigorating and perplexing. These new programs will also undoubtedly influence household budgets for years to come.
As a popular saying in Washington, DC goes: A billion here, a billion there, and pretty soon you’re talking about real money.
