RABAT: Morocco has become the latest victim of Europe’s debt crisis, as a slump in business with its main export partner and the costs of buying social peace amid Arab world uprisings are forcing the country to impose austerity measures in order to receive international financial assistance.
Long a model of relative prosperity in North Africa, Morocco had to seek help from the International Monetary Fund this month, winning a $6.2 billion precautionary credit line. The IMF says it offered the loan to help Morocco cope with fluctuating energy prices and the effects of Europe’s economic troubles.
In exchange, the government promised to reform the pension system and a costly program of state subsidies for energy and staples, according to a letter published on the IMF website this week.
Morocco’s state spending is at record highs, the deficit is soaring and its No. 1 trading partner – Europe – is flailing. The latest economic figures show that Europe is edging closer to recession, dragged down by the crippling debt problems of the 17 countries that use the euro. Europe’s stumbling economy is making it harder for other economies around the world to recover and policymakers are trying to reach agreement on more decisive action to deal with the debt crisis.
Morocco’s tourism income is down 6.9 percent so far this year compared to last. Remittances from Moroccans abroad are down 2.5 percent, according to government figures. A drought and bad harvest this year, along with high oil prices, hurt this country that depends largely on imported energy. State reserves are only enough to buy four months’ worth of imports – down from 11 months’ worth in 2005, according to the central bank.
Morocco’s government promises to “rationalize spending” and “optimize revenues,” the letter says. It includes measures such as linking public sector salaries to performance and improving tax collection.
Budget Minister Idriss Al Azami Al Idrissi tried to play down worries of major structural cuts.
The credit line “is a protection against unpredictable shocks from the international situation, and obtaining it proves the solidity of the national economy,” he said to The AP.
The government pledges to bring deficit to 3 percent of gross domestic product by 2016, compared to an expected 7 percent this year.
That will be a challenge.
Imposing spending cuts on a populace that saw nationwide protests last year poses social risks. After an uprising in Tunisia set off protests across the Arab world last year, Moroccans too took to the streets and demanded democratic reforms. King Mohammad VI called early elections and made changes to the constitution – and the government spent billions to raise public sector salaries and on subsidies for staples.
Then the eurozone debt crisis made things worse.
Economist Najib Akesbi says the IMF credit line is prompting long-needed structural reforms. Morocco’s revenues have been covering barely 60 percent of spending, he says.
“The trade deficit and the drop in transfers by Moroccans abroad and in tourism oblige Morocco to borrow on international markets,” he said, when in the past the country could rely on domestic sources to raise money.
He criticized recent policies of lowering taxes on business, seen as a sop to powerful special interests. “It’s a masochistic policy. Difficult times await Moroccans.”
After winning the IMF loan, Morocco announced it would seek $1 billion in a bond issue in September. The finance minister told AP that the country was tapping dollar bond markets for the first time because Europe’s markets look too risky.
“We chose the dollar because we feel that there is a depth on these markets, and the interest rates are more attractive at a moment when euro markets are preoccupied with the sovereign debt of eurozone countries,” Finance Minister Nizar Baraka said.
“Thanks to the IMF precautionary credit line, Morocco is well placed to obtain financing in good conditions,” he added.