Even the momentum experienced by a ruling monarchy that is over one thousand years old can be hampered by the intransigence of a looming regional crisis. Since the beginning of a Moroccan social movement on February 20, 2011, mass reforms have been advocated for on a regular basis, most of which are directed towards the administration’s mismanagement of the economy.
Protests against Prime Minister Benkirane’s government are scheduled on what essentially seems to be a weekly basis. Crowds of Moroccans, including the February 20 youth movement who began the struggle for wide reforms in early 2011, gather throughout the nation to call for wide-ranging reforms to the social order.
These include transforming the current allocation of expenditures that the government has made in attempting to kick start the nation’s economy. With slowed growth rates projected for the future, an expanding budget deficit, and almost a third of the youth without jobs, the state of the market seems to be sinking with every passing business cycle. The mass demonstrations, the latest of which was held last week in Rabat, will supposedly continue until King Mohammed VI and his authorities implement meaningful fiscal reforms.
Interestingly enough, a majority of the reforms that the people have been calling for have been discussed on a national level years before the protests even began. Within the past few years, practically the last decade, there have been significant strides towards opening up the investment market by alleviating regulations and liberalizing capital activity in key sectors of the economy. According to a report compiled by the Heritage Foundation, Morocco’s overall economic freedom has been experiencing an upward trend.
This past year, however, it has witnessed a decline in the general measure, fueled by a number of variables. Fiscal freedom, for example, is below the world average. Labor and trade freedom follow a similar pattern. All of these figures are indicators of the difficulties entrepreneurs and SMEs face when operating in the Arab nation, even though it has been estimated that they make up approximately 95% of Morocco’s private sector.
International development agencies have recently caught wind of these issues and others alike. By developing customized loan programs, they are consequently seeking to bolster the government’s finances with the intent of alleviating some of the pernicious regulatory barriers in the market. One such program is the World Bank’s recently approved First Economic Competitiveness Development Policy Loan, which was given the green light in mid-March.
According to the Bank’s press release, the $160 million loan will provide support towards existent reforms in Morocco’s private sector. These include improving some of the aforementioned measures from the economic freedom report, such as streamlining investment procedures and increasing transparency in trade transactions, which will augment trade freedom figures. A much-needed modification will also be the restructuring of business regulation reforms; the monetary cost of completing all licensing requirements for entrepreneurs comes out to more than twice the average annual income.
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The anticipated result for the program is to encourage an atmosphere of competition in the marketplace, which would theoretically lead to additional employment and increased economic growth. The implicit logic behind this is that if some form of alleviation from social pressures can be achieved for Benkirane’s administration, then the path to a stable democratic environment is less turbulent. Some parties, however, have not been as acquiescent to the idea of a broad fiscal overhaul.
The adjustments in some of Morocco’s subsidy and tax rates were met with dire opposition by national labor unions. Recent protests have centered on the administration’s intentions of increasing the transparency of the unions’ finances, which may open the door to further regulation, such as withholding the salaries of any members who participate in a labor strike. There are also plans to scale back vital subsidies that the nation’s lower social classes depend on, particularly fuel and food programs. Pensions will not go untouched either, even though modifications to the system could assist in alleviating the nation’s budget deficit, which according to Bank Al-Maghrib is expected to reach 5.5% of GDP this year.
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Regardless of these fiscal sacrifices, some sectors will experience a boost to their productivity; this will stem from additional loan programs such as the Social and Integrated Agriculture Project. Approved on the same day as the aforementioned loan package from the World Bank, the initiative will increase the technical capacity of marginalized farming areas throughout the nation. Morocco’s phosphate industry, a state-run staple of the economy, has also recently received a $150 million loan from the Islamic Development Bank, which seeks to fund construction activities and broad repairs to the industry’s facilities.
Prime Minister Benkirane’s administration is receiving significant financial support from abroad, and while the reforms may be essential for ensuring economic prosperity in the long run, many believe that the short-term costs have to be regulated. In the same economic freedom report used earlier, the Heritage Foundation found that Morocco’s rule of law measure is still below the world average. Unless the Islamist-led government can convince the populace that its battle against corruption is making progress, the potential benefits from these fiscal reforms are in danger of being nullified by further social unrest in the near future.
This article is part of Bassam's series on public finance in Middle Eastern countries. Don't miss his previous articles: