The evolution of public debt in Morocco will depend on the evolution of the Moroccan economy, which will in turn depend on the extent of structural reforms and the extent to which public finances will be optimized to mobilize resources, affirmed the Policy Center for the New South (PCNS).
Morocco is on the verge of achieving an ambitious social transformation, through the generalization of social protection, a structural reform that could have a positive impact on the potential for economic growth, indicates the economist of the PCNS, Youssef El Jai, in his latest opinion piece.
Published as part of a workshop organized by the PCNS and the Economic Research Forum (ERF) under the theme “Stabilization and adjustment towards inclusive and sustainable policies in the MENA region: the Moroccan case study” bringing together economists and renowned Moroccan academics to debate the issue of the sustainability of public debt, the article in El Jai underlines that this reform in terms of social protection could have, in the short term, major repercussions on the future evolution of the ratio from public debt to GDP, while shifting to a higher growth regime.
He explains that several scenarios are possible. ” For example, based on the October 2022 World Economic Outlook, if inflation returns to normal and the agricultural sector recovers after two years of drought, GDP growth should return to its average. “, he explained, adding that afterwards “ some form of fiscal consolidation and debt reduction can be expected “.
But beyond this central scenario, continues El Jai, riskier scenarios are also possible, given the persistence of inflation in Morocco, and the possible return of the series of severe droughts over the next five to seven years. years, noting that such conditions would imply a slow adjustment or even an increase in the public debt-to-GDP ratio.
In detail, the economist specifies that in 2022, inflation has made a dazzling return, reaching an average of 6.6%. First driven by external factors, it began to spread to all sectors, and has now firmly established itself in the market and non-market sectors, with the food segment being strongly affected. Paradoxically, this inflationary episode was good news for public finances, he says.
Through its magnifying effect on the denominator, it inflated the expected increase in the public debt/GDP ratio. This has also led to an increase in tax revenue. As things stand, the public deficit reached 5.1% of GDP in 2022 according to the first estimates, whereas it was expected to be 5.9% according to the finance law.
However, tighter financing conditions led to higher yields. The yield curve has moved significantly upwards, says El Jai, with Bank Al Maghrib reacting to rising prices by raising its main rate by 100 basis points in 2022 to anchor expectations, and by 50 basis points in March 2023. In international markets, financing costs have also increased. Based on official projections, fiscal consolidation is expected to proceed at a slower pace over the next four years, in line with the three-year budget plan.