Strictness and Growth to Avoid Disaster
20 February 2013
Read by 2280 persons
One could argue that growth will return in 2013 and public finances will automatically recover. In fact, one should not expect the return of growth alone to restore our public finances.
The Moroccan economy is plunging into crisis. The trap risks closing on its potential if two fundamental orientations do not change its course: a policy of austerity in managing the budget deficit and a reform plan to put growth on stable tracks. Budgetary rigor and the revival of growth are not mutually exclusive. They are imposed as the two pillars of the same approach.
For years, public spending has been used for something other than what it is essentially for, namely investing in collective goods (health, education, infrastructure) and reviving activity when things go wrong. Public resources have been allocated primarily to operating expenses and to supporting the prices of basic products. The budget has always presented a deficit; the public finance policy has made the deficit structural and not just cyclical: even in periods of strong growth, it has not been able to tackle the rigidities of unproductive spending, while it is during periods of abundance that reserves are built up to face times of scarcity. Public policy has been used to postpone the solution to our problems.
Take the Compensation Fund: rather than managing the connection between international and national prices and programming a gradual disengagement, the State has even reversed the mechanism for indexing the prices of energy products. Take tax loopholes: the State has multiplied tax exemptions, allowances, aid and subsidized contracts, which are financially costly and not always economically efficient. Take another example, that of the markets for goods and services: rather than carrying out pro-competitive reforms, which remove barriers to entry, stimulate productivity and employment, the State has privileged the protection of rentiers and dominant positions in the markets. Public spending has served to manage the undesirable consequences of our immobilism, thus avoiding tackling their causes. But delaying the resolution of a structural problem does not solve it, it only amplifies it over time.
One could argue that in 2013 growth will return and public finances will automatically recover. In fact, one should not expect the return of growth alone to restore our public finances. One might claim that an austerity plan risks undermining growth. Nothing is less certain. Drawing a clear and ambitious trajectory of multi-year deficit reduction sends a credible signal to all economic actors.
More fundamentally, getting out of the crisis is not so much to be found in the cyclical impact of an austerity policy as in the reforms to come that Morocco will have to undertake to support strong long-term growth. We would be wrong, given the good agricultural year, which is not yet assured, to conclude that overall growth is firmly established. First of all, the increase in GDP is not, as we know, synonymous with an increase in well-being, even if the crisis reminds us how painful its decline can be. Two or three more points of GDP is certainly something compared to what we could have feared with a bad agricultural year, but this represents a few billion dirhams in self-consumption by rural households and in unremunerated rural women's activity. Secondly, the crisis we are experiencing is of such magnitude that, despite the prospects for good growth, its effects will still be far from erased. But above all, there are good reasons to doubt that the economic situation will continue to improve at a rate of 4-5% annual growth as long as our economy continues to suffer the effects of the crisis affecting our partners in the Old Continent.
The weight of deficits will only be truly alleviated by the return of sustainable growth, the main levers of which are in-depth reforms of the productive system and the governance of public policies. Let us remember, the recovery plans of 2008-2010 did not stop the downward spiral of the crisis and did not allow a sustainable restart of the economy! The national economy still bears the scars of the crisis of those years, with a high level of public deficits and unemployment that has at best stabilized. It is now faced with a spiral structured around four weaknesses that reinforce each other: the crisis of public finances, the fragility of external accounts, fluctuating and very average overall growth, and political turbulence caused by institutional shortcomings. These weaknesses are all present, and the aggravation of one of them could trigger a vicious cycle leading to a financial storm and an abrupt blockage of growth.
The lasting solution to the crisis lies not only in budgetary adjustments -however necessary they may be in the short term- nor in the adoption of austerity measures, but in reforms that support a new growth policy.
Larabi Jaïdi.
Lavieeco.com
Published on February 20, 2013.
Posted online on February 20, 2013.
The Moroccan economy is plunging into crisis. The trap risks closing on its potential if two fundamental orientations do not change its course: a policy of austerity in managing the budget deficit and a reform plan to put growth on stable tracks. Budgetary rigor and the revival of growth are not mutually exclusive. They are imposed as the two pillars of the same approach.
For years, public spending has been used for something other than what it is essentially for, namely investing in collective goods (health, education, infrastructure) and reviving activity when things go wrong. Public resources have been allocated primarily to operating expenses and to supporting the prices of basic products. The budget has always presented a deficit; the public finance policy has made the deficit structural and not just cyclical: even in periods of strong growth, it has not been able to tackle the rigidities of unproductive spending, while it is during periods of abundance that reserves are built up to face times of scarcity. Public policy has been used to postpone the solution to our problems.
Take the Compensation Fund: rather than managing the connection between international and national prices and programming a gradual disengagement, the State has even reversed the mechanism for indexing the prices of energy products. Take tax loopholes: the State has multiplied tax exemptions, allowances, aid and subsidized contracts, which are financially costly and not always economically efficient. Take another example, that of the markets for goods and services: rather than carrying out pro-competitive reforms, which remove barriers to entry, stimulate productivity and employment, the State has privileged the protection of rentiers and dominant positions in the markets. Public spending has served to manage the undesirable consequences of our immobilism, thus avoiding tackling their causes. But delaying the resolution of a structural problem does not solve it, it only amplifies it over time.
One could argue that in 2013 growth will return and public finances will automatically recover. In fact, one should not expect the return of growth alone to restore our public finances. One might claim that an austerity plan risks undermining growth. Nothing is less certain. Drawing a clear and ambitious trajectory of multi-year deficit reduction sends a credible signal to all economic actors.
More fundamentally, getting out of the crisis is not so much to be found in the cyclical impact of an austerity policy as in the reforms to come that Morocco will have to undertake to support strong long-term growth. We would be wrong, given the good agricultural year, which is not yet assured, to conclude that overall growth is firmly established. First of all, the increase in GDP is not, as we know, synonymous with an increase in well-being, even if the crisis reminds us how painful its decline can be. Two or three more points of GDP is certainly something compared to what we could have feared with a bad agricultural year, but this represents a few billion dirhams in self-consumption by rural households and in unremunerated rural women's activity. Secondly, the crisis we are experiencing is of such magnitude that, despite the prospects for good growth, its effects will still be far from erased. But above all, there are good reasons to doubt that the economic situation will continue to improve at a rate of 4-5% annual growth as long as our economy continues to suffer the effects of the crisis affecting our partners in the Old Continent.
The weight of deficits will only be truly alleviated by the return of sustainable growth, the main levers of which are in-depth reforms of the productive system and the governance of public policies. Let us remember, the recovery plans of 2008-2010 did not stop the downward spiral of the crisis and did not allow a sustainable restart of the economy! The national economy still bears the scars of the crisis of those years, with a high level of public deficits and unemployment that has at best stabilized. It is now faced with a spiral structured around four weaknesses that reinforce each other: the crisis of public finances, the fragility of external accounts, fluctuating and very average overall growth, and political turbulence caused by institutional shortcomings. These weaknesses are all present, and the aggravation of one of them could trigger a vicious cycle leading to a financial storm and an abrupt blockage of growth.
The lasting solution to the crisis lies not only in budgetary adjustments -however necessary they may be in the short term- nor in the adoption of austerity measures, but in reforms that support a new growth policy.
Larabi Jaïdi.
Lavieeco.com
Published on February 20, 2013.
Posted online on February 20, 2013.
