Global Arab Network | Morocco: Urban Commune of Casablanca improving performance, decreasing debt

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Morocco: Urban Commune of Casablanca improving performance, decreasing debt

- Mokhtar Thabet

Thursday, 12 August 2010 17:08

Fitch Ratings has upgraded the Urban Commune of Casablanca's (UCC) National Long-term rating to 'A+(mar)' from 'A'. Fitch has also affirmed its Long-term foreign and local currency ratings at 'BB+' respectively. The Outlooks are Stable.

The upgrade reflects UCC's improving budgetary performance, decreasing debt levels, favorable socio-economic profile and strong central government oversight. The ratings also take into account insufficient financial information disclosure, limited budgetary planning and weak cash management.

The Stable Outlook is based on Fitch's expectation that UCC will maintain solid debt coverage ratios over the medium term. A further improvement of the budgetary performance, potentially through a reduction in tax arrears as a result of the fiscal reform implemented in 2008, could have a positive action on the ratings. Improvement of financial information disclosure, notably regarding the level of debt outstanding, could also benefit the ratings. A downgrade could be prompted by a change in the institutional framework weakening central government oversight, and/or an increase in debt and the debt-servicing burden.

All financial decisions including the budget and borrowings must be approved by both the Ministry of Domestic Affairs and the Ministry of Finance. Although UCC has raised loans from Spanish banks, Fond d'Equipement Communal (FEC), a government agency, is almost the sole lender to local governments.

Casablanca is Morocco's most populous city with an estimated 3.4 million inhabitants and its economic capital. Most of the largest companies and financial institutions in the country are headquartered in the city, allowing for a higher-than-average tax base. Casablanca's revenue structure is therefore largely tax-based, with taxes accounting for 67% of operating revenue in 2009, compared with an average of about 35% for Moroccan local governments.

UCC has limited budgetary flexibility. Staff costs accounted for 57.7% of operating revenue in 2009 while staff management suffers from a high level of absenteeism and low productivity. Flexibility on tax rates is poor and tax evasion is prevalent, resulting in significant arrears. The fiscal reform implemented in 2008 may help improve tax collection.

Partly due to the positive effect of the tax reform, the current balance accounted for 23.1% of current revenue in 2009, up from 15.6% in 2008. Since 2005, UCC has managed to fully self-finance its capital expenditure. Its surplus before debt variation accounted for a healthy 15% of total revenue in 2009. This allowed UCC to continue reducing its debt outstanding to an estimated MAD492m in 2009 from MAD546m in 2008. As a result, its debt payback ratio decreased to less than one year in 2009 from 1.7 years in 2008. However, Fitch considers that the self-financing capacity and debt coverage ratio may deteriorate slightly, given the current hefty capex programme.

UCC's responsibilities include water and electricity supply, public lighting, waste treatment, urban public transport and town planning. Some of its responsibilities have been outsourced to private companies through concession arrangements.

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