DObviously, the start of the year is without respite for the government, which must manage several high-risk files. With limited financial resources and a large budget deficit, the Kingdom has to cope with both soaring commodity prices and drought. A real headache.
The State, which places the preservation of the purchasing power of citizens at the head of the orientations of the Finance Law in 2022, has indeed devoted an envelope of 16 billion DH to guarantee the stability of the prices of subsidized products (gas , sugar and soft wheat flour) through the Caisse de compensation. But it is clear that this endowment is far from sufficient to cushion the shock of rising prices. In February alone, the compensation charge increased by 80%.
As a reminder, the 2022 Budget was prepared on the basis of the assumptions of a cereal harvest of 80 million quintals and an average price of butane gas of 450 dollars/tonne. Today, a ton of butane gas is traded at 856 dollars, increased by the war in Ukraine. Moreover, Morocco is one of the African countries most exposed to the current crisis. He who imports more than 90% of his energy and half of his grain needs.
“Morocco is the major African economy most likely to suffer a significant negative shock from the war in Ukraine”, alerted Policy Center for the New South. The reasons given: Moroccan imports of oil, gas and coal were equivalent to 6.4% of GDP in 2019, regarding twice the shares of Egypt and South Africa. More so, Morocco is also a big importer of cereals. The cost of imported cereals as a percentage of GDP was 1.4% in 2019. Currently, due to the expected poor harvest in 2022, imports might be 50% higher, or three times higher than imports in 2021. In sum, “this means that the combined effect of higher oil and cereal prices, if prolonged, might cost Morocco between 1% and 2% of national income this year”.
Mainly as a result of the surge in commodity prices, Bank Al-Maghrib estimates that “the current account deficit would widen to 5.5% of GDP in 2022 (vs a forecast of 2.5% last December: editor’s note) following 2.6% in 2021, before returning to 3.7% in 2023 Imports would in fact increase by 14.9% in 2022, in line with the increase in the energy bill and the increase in the purchase of agricultural and food products and consumer goods.
In addition to the impact on Morocco’s external balance, soaring oil and food prices will add to the already high budget deficit, estimated at 6.5% of GDP this year, the think tank thinks. However, for Bank Al-Maghrib, “despite the significant increase in compensation expenditure for butane gas and wheat, the budget deficit should almost stabilize at 6.3% of GDP in 2022, in line with the Finance Law, thanks to a exceptional mobilization of resources, in particular through specific financing mechanisms and monopoly revenues”.
How to finance the announced budget extension?
To mitigate the effects of the crises on the citizens whose purchasing power is rolled and to avoid the birth of a popular discontent, the government, through the voice of its Budget Minister, Fouzi Lekjaa, announced to have to mobilize 15 billion DH , including 2 billion DH for the tourism sector. This does not take into account the subsidy dedicated to transport professionals.
Lekjaa, who wants at all costs to preserve macroeconomic balances, does not want to reduce investment (although permitted by law), nor move towards an amending Finance Law. How does he therefore intend to finance this additional hole in the budget, whose deficit for 2022 should exceed 72 billion DH?
Traditionally, the State has a range of possibilities to finance its budget deficit. The most classic being recourse to the domestic or international debt market. The second option is not currently indicated since the conditions on the international market have become tougher. We note that on the domestic market, the Treasury has already raised 42 billion dirhams at the end of February. There are also revenues from monopolies and state participations or even the use of innovative financing mechanisms, mainly through monetization of state assets that can be worth tens of billions of dirhams. Recall that through this mechanism, 12 billion DH will be raised to contribute to the general budget 2022.
During the Bank Al-Maghrib post-Council conference held on Tuesday, Abdellatif Jouahri, the wali, provided some details on how the government will finance its commodity price support program. “On the revenue side, two elements play a major role in favor of the government. First, there is innovative financing which was 12 billion DH in the LF 2022. They will be increased to 20 billion DH, i.e. 8 billion DH in additional revenue. At the same time, under the monopolies, the ministry added 4 billion DH (to the 13 billion DH of revenue already budgeted: editor’s note) notably through the OCP. These two elements will allow it to act at the level of compensation and to deal with its support policy.he says.
Therefore, he considers “that it does not need an amending Finance Law. These are also the elements that were brought to the Board of BAM for its assessment of the public deficit.. Ultimately, with limited leeway, the government is torn between the imperatives of budgetary discipline and a desire to reduce the effects of soaring commodity prices on citizens. A complex balancing act.
