Morocco’s Economy: Poor Performance for 2012 and Deferred Reform

Lahcen Achy Op-Ed January 8, 2013 Al-Hayat

Summary

The year 2012 began optimistically in Morocco, with a new government and constitution coming into force. But 2012 did not live up to expectations, and major reforms are still needed.

Related Topics

Maghreb

Add a comment

The year 2012 began optimistically in Morocco, with a new constitution coming into force. Free and fair elections saw the victory of the Islamist Justice and Development Party (PJD) on a platform that included vows to crack down on corruption, eliminate economic rents, and, crucially, achieve economic growth that would benefit the country’s marginalized and disadvantaged groups. But 2012 did not live up to expectations. The year ended on a disappointing note, and reforms are still needed.

The Moroccan economy grew at a rate of 5 percent in 2011 and was projected to grow 4.8 percent last year in the government’s 2012 Public Finance Act. But according to the latest estimates, economic growth rates did not exceed 3 percent in 2012 because of a decline in agricultural production, especially grain production, which fell by 40 percent as a result of poor rainfall. The government’s budget deficit also deteriorated further and is expected to have fallen from 6 percent of GDP in 2011 to around 7 percent by the end of 2012.

Achy is an economist with expertise in development, institutional economics, trade, and labor and a focus on the Middle East and North Africa.

Lahcen Achy

Nonresident Senior Associate
Middle East Center

More from this author...

The current account deficit grew as well, peaking at around 10 percent of GDP in 2012. This was the result of continuously increasing prices for oil and consumer goods, the weak performance of Moroccan exports, and drops in tourism revenues and remittances from Moroccans living abroad.

These conditions resemble the Moroccan economy of the 1980s—an economic landscape that triggered austerity policies carried out under a structural adjustment program and that left bad memories in Moroccans’ minds.

It is not fair to blame the Justice and Development Party alone for the economy’s underperformance in 2012. This result is the direct outcome of decades of economic policies that were dependent on the distribution of rents and privileges to a minority of businessmen. This prevented the development of a diversified and competitive economy strong enough to withstand external upheavals.

Moreover, despite Morocco’s new constitution, the Justice and Development Party has faced numerous obstacles that prevented it from fully exercising its executive powers to fight the rentier economy and corruption. This is mainly a result of the strong direct and indirect interference that monarchical circles continue to exert in key decisionmaking processes.

And because the government is a coalition that includes three other parties—which all formed part of previous governments—the Justice and Development Party was not solely responsible for managing public affairs. Cooperation between the coalition government’s different camps was missing, but making reforms requires a cohesive government that can unite in the face of resistance from those who benefit from the status quo.

However, the Justice and Development Party is still accountable for the economy’s poor results in 2012, for two main reasons.

First, the party’s promises to the electorate were made despite its prior knowledge of the vulnerability of the Moroccan economy.

Second, the political and institutional obstacles to moving from a nepotistic, rent-based economy to one based on production and competition requires a strong and comprehensive approach, alternative policies, and new legislation. Trumpeting slogans and publicizing lists of those who benefit from rents and privileges under the current legislation is not enough to make a difference. Such an approach has diverted the government’s focus and may hinder the reform process.

The challenges facing the government in 2013 remain considerable. They include structural economic imbalances, the absence of real opportunities to reduce and reallocate public spending, and the limited financial resources available to the government, which relied on $1.5 billion in external loans during the last weeks of 2012.

Reforming the subsidy system for fuel and other consumer goods is another key issue that can no longer be postponed. In 2012, the subsidies budget exceeded $5 billion, accounting for a full 22 percent of the government’s overall budget—compared with just 16 percent for the government’s capital expenditures.

These challenges come in the midst of declining confidence among households and investors alike. Household confidence indicators saw a 9 percent drop during the third quarter of 2012 compared with the same period in 2011. This indicator is of paramount importance, as household consumption—which accounts for almost 60 percent of total demand in Morocco—has always been a key engine of economic growth.

On the investment front, the stock market index fell by 15 percent in 2012. Meanwhile, banking credit for private sector has declined over the past six months, following a significant increase of over 10 percent between 2010 and 2011.

In its 2013 Public Finance Act, the government forecast that the economy would grow 4.5 percent in 2013. But taken together, the facts of 2012 indicate that the current projection will prove to be overly optimistic.

This article was originally published in Al-Hayat in Arabic.

Comments

Email Updates

Follow the conversation—Sign up to receive email updates when comments are posted to this article. Fields marked with an asterisk (*) are required.

Screen Name Email Address* (Nevermind this field if you have CSS turned off)
Subscribe

Comment Policy

Report Abuse

Source: http://carnegie-mec.org/2013/01/08/morocco-s-economy-poor-performance-for-2012-and-deferred-reform/f32d

More from The Global Think Tank

Al Monitor

Are Rising Fuel Prices in Morocco True Reform, or Just Tinkering?

Summary Morocco, a country that imports 95 percent of its oil, implemented a fuel-subsidy system to combat high prices. This system, however, is riddled with problems that may lead to unrest in the country. More >

Al-Monitor

Morocco's Stalling Economy

Summary Due to the high cost of imports and a rent-seeking economy, Morocco is experiencing an economic slowdown that may lead to social tension. The government should remedy the situation by encouraging competition and investing in productive sectors. More >

Morocco: Can the Third Way Succeed?

Summary Real reform in Morocco remains more hope than reality. The king is firmly in control, and the only group capable of pressuring the monarchy is uninterested in politics. More >

October 10, 2012 Rabat

Morocco’s Growing Foreign Trade Deficit: Diagnosis and Policies

Summary Morocco’s foreign trade deficit has been worsening in recent years, with imports at twice the level of exports. The country’s trade deficit now accounts for 23 percent of GDP, a level unprecedented in Morocco’s recent history. More >

July 17, 2012 Rabat

State and Civil Society in Morocco: Assessing the Arab Spring Effect

Summary Civil society is one of the key pillars of democratic governance and countries aspiring for an inclusive and transparent political and economic process must empower civil society. More >

Twitter

@CarnegieMEC

In Fact

70%

of oil consumed in the United States

is for the transportation sector.

20%

of Chechnya’s pre-1994 population

has fled to different parts of the world.

58%

of oil consumed in China

was from foreign sources in 2012.

million cases pending

in India’s judicial system.

million people killed

in Cold War conflicts.

18%

of the U.S. economy

is consumed by healthcare.

$536

billion in goods and services

traded between the United States and China in 2012.

$100

billion in foreign investment and oil revenue

have been lost by Iran because of its nuclear program.

4700%

increase in China’s GDP per capita

between 1972 and today.

$11

billion have been spent

to complete the Bushehr nuclear reactor in Iran.

of Iran’s electricity needs

is all the Bushehr nuclear reactor provides.

new airports

are set to be built in China by 2015.

journalists

were imprisoned in Turkey as of August 2012 according to the OSCE.

67%

of the world's population

will reside in cities by 2050.

million Russian citizens

are considered “ethnic Muslims.”

Stay in the Know

Enter your email address in the field below to receive the latest Carnegie analysis in your inbox!

Carnegie Middle East Center

Regions

Countries

Suzanne Abourjeili

Lahcen Achy

Anas El Gomati

Muhammad Faour

Sami Moubayed

Paul Salem

Yezid Sayigh