Despite enormous pressure on compensation charges, the government maintains the budget deficit forecast at 6.3% of GDP. No question either of an amending finance law. The Ministry of Finance is counting on a better return of tax revenue, the dividends that the large public companies will pay to the Treasury and the 20 billion DH of innovative financing.
Despite the uncertainties and inflationary pressures accentuated by the war in Ukraine, the governor of Bank Al-Maghrib, Abdellatif Jouahri, looked calm during the press briefing at the exit of the Monetary Policy Council last Tuesday. Not sure that by observing the curve of the Treasury debt and that of the budget deficit, the Minister of Finance displays the same serenity.
According to forecasts, the Budget deficit should stand at 6.3% of GDP this year before falling to 5.9% in 2023. A real miracle when you consider that the subsidies for flour and butane gas should exert unprecedented pressure on state finances, as a result of the explosion in the international prices of wheat and petroleum products.
At this stage, it is not necessary to consider an amending Finance Act, assures the Governor of the Central Bank, who recalls the government’s commitment. Raising money on the international market “when market conditions permit” and, if necessary, activating a new precautionary and liquidity line (LPL), a kind of overdraft with the IMF, remains also an option.
To partially finance the deficit (and avoid additional debt), the Ministry of the Budget is counting on a better income of taxes, dividends from large public companies and innovative financing, that is to say, the sale of state assets to institutional investors. The first “innovative financing” operation was carried out in 2019 on five university hospitals with the Caisse Marocaine des Retraites (CMR).
For this exercise, the Treasury hopes to garner 20 billion DH, but it has not yet specified the assets that will be affected by these arrangements. Given the pressure on compensation charges, it will take an incredible alignment of the planets before the budget deficit forecast (6.3% of GDP) is swept away.
In diplomatic terms, Bank Al-Maghrib does not say anything different: “In view of recent and forecast developments in the prices of energy and food products, compensation expenses for butane gas and wheat should experience a significant increase compared to forecasts for finance law.
Suffice to say that Jouahri does not believe in miracles. Each additional point of deficit means either more debt or more taxes. To finance the indebtedness of the Treasury, there are not thirty-six solutions: either by growth, from which one can hope for additional tax resources, or by increasing taxes or substantial savings on expenditure.
Treasury debt should continue to rise well above the 70% of GDP threshold, considered a warning for emerging countries. The Treasury debt ratio is expected to fall from 74.8% of GDP in 2021 to 76.1% in 2022 and 76.4% in 2023. Its domestic component would increase from 57.6% of GDP in 2021 to 58, 4% in 2022, then would increase to 58.7% in 2023.
External debt would increase from 17.2% of GDP in 2021 to 17.8% in 2022, before experiencing a slight easing to 17.6% of GDP in 2023. To return to the current level of increase in the debt of the Treasury, we have to go back to the years 2011 and 2012 when the direct debt of the State fell from 52.5% to 58.2% of GDP.
This outbreak of fever concerns the two compartments, the internal and external debt. The outstanding debt of the Treasury (as of December 31, 2021) represented 74.8% of GDP whereas, two years earlier, it was equivalent to 64.8% of national wealth. The spectacular increase of 10 points is certainly fueled by the widening of the deficit of the State budget, but also by the successive outflows of the Treasury on the international market.
The signature of Morocco remains a safe bet with investors. The downgrading of the sovereign debt rating by Standard & Poor’s had no impact on its financing conditions. At the end of 2020, Morocco raised $3 billion on the market with maturities of up to 30 years.
This three-tranche loan was carried out at much more favorable rates compared to most emerging countries which managed to return to the financial markets after the health crisis. The success of this loan of course illustrates the confidence of foreign investors in the political and economic resilience of Morocco at the end of the health crisis.
Admittedly, at nearly 75% of GDP, the public debt ratio remains high compared to the sustainability thresholds recommended by international bodies. But nothing to worry about, says an analyst. In the medium term, the sustainability of the Kingdom’s indebtedness is supported by favorable factors such as the moderate proportion of external debt and in foreign currencies (around 20%), a profile which favors long maturities (short-term debt at 10%) and international reserves at comfortable levels, points out an expert from the Allianz group.
Abashi Shamamba / ECO Inspirations