With the intent to cut down the country’s subsidies bill, Morocco will now base their gasoline and diesel prices on the price of oil within world markets, the Associate Press reported. Subsidies that have been made available to supplement the price of cooking gas, sugar and flour are contributing to a growing budget deficit.
According to the Associate Press, the government and the International Monetary Fund (IMF) both agree on the point that subsidies need to be reformed and reduced. The allocation of a six billion dollar loan, the report said, also depends on subsidy reduction.
“We have to maintain the costs of subsidies and limit their impact on the budget deficit,” government spokesman Mustapha Khalfi said in the report.
“During the implementation, we will have measures in place in order to support poor people and limit the negative impact of the decision,” he added, speaking about financial buffers that will prevent world markets pricing from overriding reasonable local gas prices.
While Morocco is classified as a lower-income nation, buying hydrocarbons from the world market then subsidizing them does not help to level the rising subsidy bill which reached $6.3 billion in 2012, the Associated Press reported. In addition to an increasing subsidy bill, government salaries and social spending — dispersed to curb 2011 democracy protests — has risen.
“The situation in the Middle East suggests that the price of oil will no doubt increase,” economist Said Saadi said. “The government unfortunately chose the simpler option while the real solution is to increase state budget resources through fiscal reform.”
In an effort to decrease the budget deficit from it’s 2012 standing of 7.6 percent of GDP to 5.5 percent, the government is working to trim subsidies and cut spending. Investments have also been frozen. According to the Associate Press, Morocco’s economy has earned a dent from the economic crisis plaguing Europe — the country’s largest trading partner.