Morocco says may launch subsidies reform in June

RABAT Sat Jan 5, 2013 2:50pm IST

RABAT (Reuters) - Morocco is prepared to start reforming its expensive system of subsidies for food and energy in June if a political decision to do so is taken, the minister in charge of the issue said.

State subsidies on food and energy shot up to 53 billion dirhams ($6.25 billion) in 2012 - 15 percent of total public spending - from 48.8 billion in 2011 and 29.8 billion in 2010, as the government spent heavily to ensure social peace in the wake of the Arab Spring uprisings elsewhere in the region.

In a step supported by the International Monetary Fund, the government now aims to repair its finances by reducing the subsidies and shifting the focus of spending to the poorest Moroccans.

The reform is politically sensitive in a country which saw street protests demanding democracy and better economic management in the wake of the Arab Spring.

The protests faded after the king introduced constitutional limits to his powers and allowed an Islamist party to form a cabinet after elections. The monarchy still plays a key role in decisions on major issues.

"Technically, the reform of the subsidies system is quite ready," general affairs and governance minister Mohamed Najib Boulif said in a statement carried by the state news agency late on Friday.

"Once talks are concluded and the political decision is taken, it will be launched," he added.

Morocco plans to replace the current subsidy system with monthly cash payments of 1,000 dirhams to as many as 2 million of the most needy families; if the reform goes ahead in full, this could reduce the annual bill to 24 billion dirhams.

Boulif said the reform would take around four years and could in itself eventually raise inflation, now officially running below 2 percent, to 7 percent.

"The risk of the reform is the impoverishment of the middle class," finance minister Nizar Baraka has said in a parliamentary debate.

Last August, the IMF approved a $6.2 billion precautionary line of credit for Morocco over two years while urging action to reform the subsidy system, although it did not formally tie the reform to the aid.

The cash-strapped country raised $1.5 billion with an international bond issue in early December, which lifted its foreign currency reserves to 146 billion dirhams - but they only cover about four months of import needs, which economists say is an uncomfortably low level.

Rabat aims to cut the state budget deficit to 4.8 percent of gross domestic product in 2013 from an estimated 6.0 percent last year. It is projecting GDP growth of 4.5 percent this year, after 3.4 percent in 2012.

(Editing by Andrew Torchia)

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