Cablegate: Morocco Economic Highlights: June 2008


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1. (SBU) Budget Healthy for Now: Moroccan budget officials
are confident that the country can meet this year's target of
a budget deficit of less than three percent of GDP,
notwithstanding pressures from subsidy and social spending.
They note that Morocco had an excellent year last year, with
an actual budget surplus, and that tax revenues have been
even stronger this year. In fact, Deputy Budget Director
Samir Tazi told us last week, Morocco realized 50 percent of
its projected 2008 revenue in the first four months of the
year alone. Morocco's tax on company profits led the way,
with an 85 percent increase in revenue over the same period
in 2007. Tazi noted that while some of the increase is due
to better tax enforcement, it largely reflects the very
healthy situation of the country's 50 largest corporations,
which continue to pay the bulk of the tax. Tazi pointed out
too that tax revenue has increased an average of 13 percent a
year since 2002, roughly 2.5 times the country's 5 percent
average growth rate, an indication that Moroccan statistics
may underestimate GDP. He conceded, however, that 2009 could
be more difficult, given both pressures stemming from
spending to subsidize basic commodities and the 16 billion
MAD in increased spending and tax cuts (over three years)
that the government promised in its recently concluded
"social dialogue" with Morocco's unions.

2. (SBU) But Petrol Arrears Spark Industry Concern: One
element of the subsidy issue that continues to spark special
concern, however, is the increasing arrears in government
reimbursements to the petroleum industry for subsidized
petroleum products. Such arrears reached 6 billion MAD at
the end of April, prompting a warning by the industry's
lobbying association that unless the government picked up the
reimbursement pace, there was a real risk of an interruption
in supply this summer. Since that time, the government has
increased its monthly payment to operators from 1 to 1.2
billion MAD, with the prospect of a future increase in
reimbursements to 1.5 billion MAD. Concerned companies note
that the daily finance charge they pay on the outstanding
amounts to 1.2 million MAD a day, and that their own lines of
credit are being exhausted. (Comment: Tazi and other
officials have confirmed press reports that the subsidy
system remains under intense study, and that the GOM is
working with the World Bank to reform it so it better targets
needy populations. Given public angst over increasing
prices, whether such a shift is politically possible in the
current environment remains an open question. End comment.)

3. (U) IMF Mission Praises Moroccan Performance: In a press
release following last month's Article IV consultations, the
IMF on June 10 praised Morocco's management of the economy,
hailing progress on macroeconomic stability and strengthening
public finances. It noted the challenge posed by the spike
in commodity prices, and judged that while the budget can
absorb the pressure in the short term, the government's
intention to reform the system to target the subsidies more
effectively is a "welcome" one. As in the past, the Mission
stressed the need for continuation of sectoral reforms to
improve productivity, pointing particularly to the need for
reform in the spheres of education and provision of social
services. While noting that Morocco's financial sector has
escaped fallout from the international credit crisis, it
urged continued vigilance in oversight to ensure this remains
the case.

4. (SBU) Sidi Ifni Riots Highlight Social Tension: Press
commentary has attributed last weekend's riot in the southern
fishing port of Sidi Ifni to local economic tensions rather
than national tensions over the rising cost of living. In
the incident, police forcibly broke up a demonstration that
had prevented trucks carrying sardine shipments from leaving
the port. There were unconfirmed press reports of
fatalities, which the Government of Morocco has denied. One
interesting and counterintuitive fact that has emerged in
press coverage of the incident, however, is that at 3.95
percent, the locality has one of the lowest poverty rates in
Morocco. The "Economiste" newspaper noted, however, that the
flip side of this picture is a high level of social
inequality in the area. The protracted blockade of the port
caused serious losses for local fishing interests: reports
indicate that as many as 700 tons of sardines were spoiled
when the refrigerated trucks containing them ran out of gas.
The local Maritime chamber denounced the "laxism" of
authorities for not maintaining order and preventing these
5. (U) Closing the Book on 2007: Updated figures on 2007
growth show a marginally better outcome than did initial
results. The High Planning Commission (HPC) announced that
growth totalled 2.7 percent for the year, instead of the 2.2
percent it initially reported. This modest growth (down from
7.8 percent in 2006) came in the face of a 20.8 percent
decline in value added from agriculture, as a result of the
year's disastrous harvest. HPC attributed the bulk of growth
to investment, noting that fixed capital formation rose by
14.3 percent, versus 9.7 percent the year before. Finance
Ministry officials remain optimistic that Morocco can achieve
growth of over 6 percent this year.

6. (U) Inflation Hits the Construction Sector: After food
and energy, construction materials have also embarked on an
inflationary spiral in Morocco. The National Federation of
Contractors (FNBTP) notes that Morocco's prices for
construction materials exceed those elsewhere in the Maghreb,
and that companies are suffering in the face of a 70 percent
increase in steel prices, and increasing cement prices, which
have seen cement manufacturers realize profit margins of
35-40 percent. Companies complain that continued Moroccan
tariffs and non-tariff barriers prevent them from importing
material from countries such as Turkey or Egypt,
notwithstanding the free trade agreements that exist with the
two countries.

7. (U) Trade Balance Slips: Though the IMF termed Morocco's
overall balance of payments "sound," the country's overall
trade deficit through the first four months of the year
nearly doubled, as imports surged by 27 percent and exports
only grew by 13.7 percent. The deficit stood at 27 billion
MAD, versus 13.9 billion MAD in the same period in 2007. The
coverage ratio remained below 50 percent for goods, or 75
percent with services included as well. Phosphates accounted
for the bulk of the increase in exports, while energy and
food imports led the way on the import side.

8. (U) Tourism: Moroccan tourism officials will gather this
weekend in Tetouan for their annual meeting against a
backdrop of concern that despite continued increases in
arrivals and nights spent in country, tourism receipts have
not kept pace. Instead, they slipped by 2.3 percent from
last year's total to just over 16 billion MAD. Analysts
attribute the decline to a fall in arrivals from France, and
to discounting in the face of competition from low-cost
competitors such as Tunisia and Turkey.

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