Morocco plans to cut spending next year to help reduce its budget deficit, the state news agency said, citing a draft of the budget, but targets only limited cuts in subsidies despite pressure from the IMF to do more. The draft sets a 2014 budget deficit target of 4.9 percent of gross domestic product, down from an estimated 5.5 percent this year.
Morocco is under pressure from the International Monetary Fund and the World Bank to cut spending and reform subsidies, taxation and its pension system. The demands are linked to a two-year, $6.2 billion precautionary credit line agreed by the IMF in 2012 for the cash-strapped kingdom. The government started to cut subsidies earlier this year by partially indexing energy prices to global prices, but the news agency said subsidies next year would still total 35 billion dirhams ($4.2 billion), down from 42 billion in 2013.
The government has said it will turn to hedging prices if oil prices go beyond $120 a barrel but the IMF is urging it to replace the current subsidy system by focusing aid to the country's poorest. The draft budget forecast the economy would grow 4.2 percent next year, much higher than the planning agency's forecast of 2.5 percent. The North African kingdom is struggling to fix public finances that were hit by the euro zone crisis, Arab Spring revolts and drought.
The royal palace, however, is reluctant to cut subsidies, fearing it could trigger more social unrest as cuts would hit the living standards of the majority of Moroccans used to subsidised oil, gas, sugar and wheat. It does, however, plan tough reforms in the next year on taxation and pensions. The draft budget showed that in a first step in tax reform, the government plans to expand the tax base by reforming value-added tax, but did not say how. It will also end a three-decade tax exemption for big agricultural businesses, the state news agency said.
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