Global Arab Network | Robust non-agricultural GDP growth - Forecast for expansion in Morocco

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Robust non-agricultural GDP growth - Forecast for expansion in Morocco

Wednesday, 19 October 2011 00:12

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Global Arab Network - Strong non-agricultural growth in the first half of the year, combined with a bumper harvest, has improved Morocco’s growth outlook for 2011. Inflation remains low, despite having risen above expectations. Although a significant increase in the fiscal deficit is causing some concerns, the government is undertaking a number of measures to rein it in, Global Arab Network reports according to OBG.

Salaheddine Mezouar, the minister of economy and finances, revealed in August that Morocco had experienced robust non-agricultural GDP growth of 5.1% in the first six months of 2011, noting that the construction sector and export-oriented industries were doing particularly well, in spite of turmoil in the country’s largest destination markets.

The agricultural sector also looks set to support overall expansion thanks to a strong 2010-11 harvest. Production of the three major grains – hard wheat, soft wheat and barley – stood at 8.4m tonnes, up 12% from the previous harvest, thanks to a 7% increase in planted surface area and a 5% increase in yields that were boosted by abundant and well-timed rainfall. Industry is also performing well; output grew by 2.6% in the first quarter of the year over the same period in 2011.

A survey of industrial firms by the central bank, Bank Al Maghrib, found that output had increased in June and July, with 43% of firms surveyed reporting an increase in production versus just 26% who saw a fall in output. Exports for the year to the end of July grew by 19.5% year-on-year, to Dh99.5bn (€8.86bn), driven by increased sales abroad in the mining, metal and chemical industries, although they were slightly outpaced by imports, which rose by 20.2% to Dh206bn (€18.35bn).

Although inflation exceeded government forecasts in July, it nevertheless remained firmly under control, with consumer prices up 1.8% year-on-year. The increase was driven primarily by a 3.1% jump in food prices, which account for close to half of the consumer price basket. Inflation was up 0.6% on a monthly basis.

In the light of the economy’s strong performance in the first half of the year, Bank Al Maghrib was reported in early July to have raised its growth forecast range for 2011 by half a percentage point, from 4.5-5% to 5-5.5%. The country’s statistical body, the High Planning Commission (Haut Commissariat du Plan), also increased its more conservative estimate, from 4.6% to 4.8%.

The prospects for 2012 appear equally encouraging. The Ministry of Economy and Finance is basing the 2012 budget, currently in the process of being drafted, on forecast GDP growth of 4.7-5.2% (including non-agricultural growth of between 5% and 5.5%) and an annual inflation rate of 2%. It also assumes an average oil price of $100 per barrel.

However, the government faces a crucial fiscal challenge: the burgeoning budget deficit, which looks set to expand following significant public sector pay increases earlier this year and a hike in the cost of subsidies for basic goods on the back of commodity price increases and economic unrest elsewhere in North Africa.

In mid-August the minister of communications, Khalid Naciri, stated that the government subsidy fund stood at Dh48bn (€4.3bn), nearly three times the Dh17bn (€1.5bn) initially allocated this year and pushing up forecasts of the budget deficit for the year to around 5% of GDP, or 5.7%, according to recent International Monetary Fund (IMF) predictions. At the same time, trade liberalisation in the form of reduced tariffs is putting downward pressure on revenues. The IMF recently warned that failure to address the issue could see the deficit expand to 6.5-7.5% of GDP.

However, the government is aiming to reduce the budget deficit to 3% in the medium term. In addition to planning further privatisations, the government is reportedly considering creating new wealth and property taxes that would help offset the increased cost of subsidies for basic goods. It is also reducing transfers to public entities with budget surpluses and has asked government departments to reduce their budget allocations for some non-essential current expenditure items by 10%. The IMF expects such measures to reduce the annual deficit by 1% of GDP.

Efforts to improve tax administration and collection, which gave rise to higher-than-expected revenue at the end of June, should dent the deficit by a similar amount. The government also expects revenues from state-owned enterprises to increase thanks to the economic recovery and is planning to reduce the civil service wage bill in coming years, while the IMF has recommended that it reform value-added tax (VAT) to maintain or even raise VAT receipts. (OBG)

Global Arab Network

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