HomeEconomyWhen inflation exacerbates poverty in Morocco

When inflation exacerbates poverty in Morocco

After a strong post-COVID rebound, the Moroccan economy is feeling the impact of a series of supply shocks, both domestic and imported, including severe drought coupled with soaring commodity prices that fueled the ‘inflation. This is what emerges from the latest World Bank report.

In his report, titled “Morocco Facing Supply Shocks”, the WB estimates that Morocco’s economic growth should accelerate to 3.1% in 2023, thanks to a rebound in the primary sector. However, it is pointed out, downside risks persist due to geopolitical tensions, including the war in Ukraine, the deceleration of major eurozone trading partners and potential new weather shocks.

According to the report, real GDP growth fell from 7.9% in 2021 to 1.2% in 2022 (estimated), while the current account deficit increased from 2.3% to 4.1 % of GDP.

As in much of the world, the war in Ukraine, combined with the reorganization of global supply chains, has favored a sharp increase in the rate of inflation, with Moroccan annual inflation peaking at 8.3% at the end of the year. end of 2022, underlines the WB.

And it is precisely this inflation that has led to the rise in the poverty rate in Morocco, by 2.1 points last year, particularly in rural areas that have been most affected by the increase in poverty, since the rate went from 6.7% to 10.6%, in comparison with urban areas, which went from 1.2% to 2.2%.

The WB report indicates that inflation would have far exceeded the current level (+5.9 points) if the government had not maintained the system of subsidies, especially since goods and services represent 22% of the basket of Household consumption.

Poor, vulnerable and rural households suffer disproportionately from the impact of the inflationary surge. Alongside the general level of inflation, the dispersion of price developments that make up the CPI basket has increased significantly in recent months, which means that the inflationary surge is having heterogeneous effects on household welfare. according to the goods and services they consume”explain the authors of the report.

And to add: “Indeed, the calculations presented in this report show that annual inflation can be 30% higher for the poorest decile than for the richest decile. In addition, inflationary pressures could be more intense in rural areas, where poverty levels are also higher. These inflation differentials are mainly due to the impact of rising food prices, which represent the largest share of the consumption basket of the poorest households.“.

In this regard, the WB report argues that the Moroccan government has responded to the current supply shocks with a set of measures aimed at preserving the purchasing power of households through price subsidies which have been costly, considering that ” Morocco’s counter-cyclical response has been articulated mainly around the maintenance of pre-existing regulated prices and, to a lesser extent, through ad hoc financial support to various sectors of the economy, including transport, tourism, agriculture and agriculture. ‘breeding“.

But in general, the report notes that this set of measures contributed to preserving almost a quarter of the consumption basket from the inflationary surge, which required the mobilization of additional public expenditure for an amount of almost 2% of the GDP, mainly in the form of grants, noting that this approach has helped to avoid a more pronounced increase in poverty and vulnerability.

According to the same data, the cost of subsidies amounted to approximately 42 billion dirhams for butane gas, sugar and flour, 5 billion dirhams for the National Office of Electricity and Drinking Water ( ONEE), and 4.4 billion dirhams for professionals in the transport sector, which represents about 3.5% of gross domestic product (GDP).

In contrast, the report said that subsidies intended for price stability benefit most of the wealthiest families, because the current subsidy system benefits the most consumers, and not the most deserving, because it is untargeted and poorly oriented.

World Bank experts have pointed out that monetary policy is not the most effective tool to achieve price stability for products that dominate the consumption basket of poor households, especially in emerging and developing economies. , and that to achieve this objective, it must be complemented by other public policy tools.

In this sense, the WB recommends the use, in the future, of better targeted social protection instruments (such as cash transfers) which would constitute an efficient tool to mitigate the effects of these supply shocks.



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