Over the last decade, Moroccan poverty rates have declined by more than 40 percent, while poverty rates in Arab countries with comparable economies, like Egypt and Syria, have declined by only 6 and 11 percent, respectively. Carnegie’s Lahcen Achy discussed his recent study of poverty reduction in Morocco, examining the factors behind this achievement and what lessons other countries can learn.
How Morocco Reduced Poverty
Morocco, like Egypt and Syria, has seen a higher growth in its GDP over the last decade compared to the nineties. Unlike Egypt and Syria, however, its poverty rate has fallen significantly. Achy cited several factors that were critical in reducing Morocco’s poverty levels:
- Demographic Behavior: Demographic changes in Morocco, with a slowdown in population growth, have reduced pressure on household budgets, public investments, and labor markets, Achy argued. Morocco maintains similar GDP growth to Syria and Egypt, but with its population growing at a lower rate, Morocco enjoys a higher per capita GDP growth.
- Fiscal resources: Morocco began to reform its tax system in the 1980s by rationalizing exemptions and reinforcing tax administration, said Achy. These reforms led to higher tax compliance and significant improvement of tax revenues. Their share represents 24 percent of the GDP in Morocco compared to 15 and 11 percent in Egypt and Syria respectively.
- Credit Extension: The willingness of banks to extend credit to the private sector lifted credit constraints on firms and households and played a role in lowering Moroccan poverty. Achy compared the situation in Morocco to that of Syria where banks have only recently begun to extend credit to the private sector.
- Micro Credit Associations: Small loans have helped lift poor households and small firms out of poverty. Achy pointed out that 59 percent of microcredit loans in the Middle East and North African region are in Morocco, compared to Egypt’s 14 percent and only 1 percent in Syria. Furthermore, as many as 40 percent of Moroccan borrowers hail from rural areas, which are home to 70 percent of Moroccans who live in poverty.
- Remittances: Money transferred by Moroccans working abroad to their families and relatives constitutes a major factor in cutting poverty rates in Morocco. On average, each Moroccan emigrant sends the equivalent of $ 100 to his family each month. These transfers represent the equivalent of 8 percent of GDP, compared to 5 and less than 3 percent in Egypt and Syria respectively.
- Role of NGOs: Active involvement of NGOs in local development through a formal partnership with state and local governments contributed to Morocco’s poverty decline, Achy explained. Moroccan NGOs are allowed to receive funds from international donors, a practice not allowed in Syria or Egypt.
Impediments to Further Economic Improvement
In the last decade, about 1.7 million Moroccans moved out of poverty. Despite this achievement, a number of indicators point to the limits of the Morocco’s strategy to reduce poverty, Achy underlined.
- Poor Human Capital: Morocco’s illiteracy rate is high compared to both Egypt and Syria. Poor families are unable to educate their children and often push them prematurely into the labor market, Achy said.
- Inequality and Weak Redistribution: Although poverty declined substantially in Morocco, inequality remains persistent at a level much higher than it is in Egypt and Syria. Property taxes in Morocco are low and a number of subsidies and fiscal exemptions benefit urban and better off households rather than the poor, Achy explained.
- Poor Quality of Jobs: While new jobs have been created and helped in escaping poverty, many are temporary and found mostly in the informal sector with no social protection. These poor quality jobs don’t prevent those who moved out of poverty from sliding backwards.
A Long-Term Strategy
Morocco must review its approach to alleviate poverty if it hopes to make effective use of its strengths and reach a broader spectrum of its population. Achy argues that policy makers should aim for a long-term sustainable strategy built on three pillars:
- Improve Literacy Rates: Eradicating illiteracy needs to become a national priority. Morocco needs to build its human capital through appropriate adult literacy programs and provide incentives to poor families to educate their children.
- Reduce Inequality: Policy makers should reinforce income redistribution policies both by imposing higher taxes on property and better targeting public spending to the poor.
- Support the Creation of Quality Jobs: Policy makers should provide incentives for informal entrepreneurs to integrate into the formal and modern economy. This requires simplifying procedures of establishing formal businesses and easing access to credits, training programs, and information on market opportunities.