Morocco: necessity to Free Public Debt

New York  / Morocco Board News    Everyone has a cause pet: some like to defend unjustly detained individuals or women’s representation in parliament. I, on the other hand, am very much into public debt -among other things. And I feel that cause deserves its place under the media spot. Free the Debt - from discretionary governmental decision
 debt poses just a big a threat arbitrary arrests to individual and collective freedom; Hilarious, isn’t it? And yet, the principle remains the same.

First off, let us remember all that the most stable and recurrent source of government finance is taxes, collected from individuals on their wages and revenues; from businesses on their operating income and their sales. It is only because these individuals and corporations produce and consume that this government can pay for its expenditure, and display credible enough stream of future resources to borrow against. And yet the bureaucracy/taxpayer relationship bears too many similarities with Hegel’s master/slave: it is the taxpayer who pays and provides for government spendings, and yet the latter control and dominates the former.Government services are considered to be favours, dispensed to some privileged few, when they are a right that human rights organizations tend not to care much about; after all, these police truncheon are government property and taxpayers fund them, in a sense.

The way government budget is designed and prepared leaves very little maneuver for public scrutiny, i.e. from parliament or even citizens, individuals as well as public interest-oriented groups. unelected officials get to choose all essential elements crucial to the lawmaking process, and the elected members of the public, members of parliament house, especially those seating at the House of Representatives can only go as far as attach amendments to the budget bill in the hope that they can somehow influence an outcome they had no way to interfere with in the first place; finance ministry officials have at their ready disposal a host of experts and quite a lot of resources to fend off criticism and scrutiny; as I had the opportunity to point out, the legislative branch is the most underfunded, understaffed branch of government - and because of it, parliament cannot produce legislation on its own to exercise more scrutiny on public finances.

What has it got to do with the Public Debt? Quite a lot, as a matter of fact: the debt has to be paid back one way or the other; and unless the finance ministry engages in some sort of Ponzi Scheme, i.e.with new borrowings paying back coupons and interests on longer maturities, debt services are paid with taxpayers’ money. And whenever the treasury issues bonds on domestic and international debt markets, investors assess the Moroccan government’s solvency against their potential future receipts – from future taxes.

So taxpayers are basically the core security our governments stake whenever they have to go on markets to borrow some money; in that sense, all of these elements (and many others) weigh in the complex business of government debt: economic growth, productivity, demography, taxation and government efficiency.

Economic growth: as the size of GDP pie grows, so does the amount of pie devoted to government expenditure; assuming a baseline scenario of around 20% GDP with 5% annual growth, the next decade brings some 91Bn in revenues, 75Bn in real terms alone. The higher GDP growth is, the lower actual tax burden on individuals is, and the easier a government can borrow on markets, since they can always make up for debt service by increasing taxes marginally. The thing is, public debt isn’t much of a problem during times of high and sustainable growth, though public finances in United Kingdom now experience the downside effects of excessive optimism when it comes to projected receipts.

Growth isn’t just about immediate and future tax receipts; it also has to do with the potential to borrow money; it is always easier to borrow money when one’s debt-holders are optimistic about one’s future prospects. Morocco unfortunately did not have the opportunity to borrow during the rosy years, i.e. when the business cycles were on the upswing, since 2000 that is – and by the way, that might end sooner than one might think if the average growth for the next legislature does not stick to the 5% potential growth. During the upswing decade, the main fiscal policy item was to halve the debt to acceptable levels, a level of debt inherited from previous governments, that is. Not that it was bad policy, but there was nothing else on the table; debt policy had to be counter-cyclical; as a result, government finances could not have benefited from whatever leverage effect when the economy was recovering from the 1990s depression, and had to rely on privatization to make up for the budget shortfall.

stagnating productivity means no gains made to build on growth.

Productivity: productivity in Morocco is generally very stable. Bad news indeed, since growth through improvement of productivity. For sure Morocco is still an emerging economy -and by many accounts, has big trouble emerging, as it were-

productivity is important to the whole debt business, first because of workforce demographics, and second, because since the existing pool of resources is limited, the most straightforward policy to expand growth with no prejudice to inflationary targets or any negative impact on trade balance, is to improve productivity e.g. find some way to increase work efficiency, or any other measure that can increase wealth creation with the existing stock of inputs. These usually result in higher returns that would benefit in terms of tax receipts. Otherwise, fiscal pressure does not change, and in times of low growth, can actually harm private GDP.

Demography: 2009 is a cornerstone in pre-workforce labour demographics; the number of 15-17 is dropping ever since, from 1.95 Million to 1.76 Million by 2016. And by 2013, there will be as many active 18-59 as there are 60+ retired; this means the workforce has already begun to shrink; in fact, looking at data, the available pool of the total workforce is going down due to demographics, and it does at very different trends in rural and urban areas; but the point is, the tax receipts profile is likely to change dramatically, hence the need to rethink the way taxes and the debt are accumulated.

Government efficiency (in spending): in principle, debt is a financing vehicle for government spending just like any other. As a matter of fact, it can help stabilize fiscal pressure by providing indirect receipts and spread out the cost across time. But there is a need to find the right balance; contrary to corporate finances, Modigliani-Miller does not apply to government budgets: finance structure affects government performance, first because of its size, and second because it influences so many other macroeconomic aggregates, treasury and finance departments need to think carefully through these spending they plan (or usually don’t) cannot be financed indiscriminately with whatever available resources.

These are technicalities that might bore the general public. But hear this: the way our institutions are framed provides many unelected officials with discretionary powers over public finances, just like in the police and security forces. Public oversight is practically non-existent when it comes to the big money; there are even administrative principles for these things,  called “Principle of non-allocation“

    NON-AFFECTATION (PRINCIPE DE LA ) : principe selon lequel l’ensemble des recettes assure l’exécution de l’ensemble des dépenses.

So taxes and the debt are basically managed by unelected bureaucrats allocated with discretionary powers, but the ultimate liability lies with the Moroccan taxpayers. Taxation with no oversight is just as useless as taxation without representation.

Free the Public Debt; make government more accountable to the way it spends taxpayers money, whether taxes or borrowings. Put an end to arbitrary, bureaucratic control over the taxpayer’ money, and free the debt -and public finances- to be scrutinized by our representatives and citizens keen to make sure government provides good services for all of us.


Comments (9)  

0 #1 Macro? you mean the big store in Ain Sbaa?Tijani 2012-02-06 04:27
Unfortunately, the Moroccan society is not well versed in economics. let me rephrase that, The moroccan society is scared to discuss government matters. Thus, the average hmida does not get the concept of big government/smal l government, debt, taxes, interest rates, etc. So long as the prices of bread, sugar and oil are affordable, how and why have never crossed his mind.

Yes, the points you make about the rising debt are very legitimate and I wonder about how prepared the government will be the day it can no longer borrow its way out of trouble. I wonder how long these policies that rely on handout (ex-pats remittance, tourism) will prepare the country for future growth.
0 #2 COMMENT_TITLE_R E Morocco: necessity to Free Public Debt Morcelli 2012-02-06 05:17
Its' not the debt, it's poverty. Too many people unemployed and the majority of those employed are working odd jobs and therefore no taxes are paid, there are also those who make more and pay nothing.

I would not want to be one of those who try to fix the humongous failure that Morocco's economy is enduring.
Too many people, too little income, abundance of theft. The problem is un-surmountable in our lifetime.

I do appreciate that your article is now more mainstream. No graphs, pies, or videotapes :-)

0 #3 i agree with tijaniMOROCCAN GHOST 2012-02-06 06:28
this is just a glimpse of what's gonna happen once the euro crashes and believe me it will sooner or later then morocco's debt will sky rocket and it will be impossible for morocco to borrow money from europe or the world bank. take a look around you , they spent a lot of money to build hotels , casinos ,resorts and malls most of them are empty and suffer from low occupancy rates, so moroccans stay poor and enslave to the dependancy on the handout from the broke ass euro trash tourists and the double zeros from the persian gulf , don't talk to me about high unemployement, health care, social services, housing and so on
S Hassi
0 #4 COMMENT_TITLE_R E Morocco: necessity to Free Public Debt S Hassi 2012-02-07 02:40
Most of the time debts are not bad things , they can help build the economy ( for a small guy to buy a house etc ). But in Morocco's case the matter is otherwise , the gov borrowed heavy ( and still )for the sake of the few ( big casinos , big malls etc ) while the majority tax payers got very little in return!!! Our beloved King is the biggest businessman in Morocco but he never pays any taxes!!!! and still when one of his companies needs funding ( guess what, the govermnet borrows to expand his business!!!) . The majority is being taken for a free ride
0 #5 Moroccan Armageddon?Morcelli 2012-02-07 04:21
We can't blame the king for every misery. Yes he is not paying his fare share and he's taking more than he gives, but he's not alone in this. Everyone in Morocco why is supposed to pay, tries to evade responsibility.

Keep in mind that 28% of Moroccans live under poverty line, I think it's more like 80% if you ask me. Poor people don't pay and rich people don't pay either, the poor "middle class" is get hit badly from all sides.
The gog has no choice but to borrow and subsidize, The price of bread, sugar and oil has been the same since WW1.

Mohammed VI knows that if he raises the price of les matieres premieres he'll end up like Qaddafi, except that the Moroccan population is 6 times bigger and has a lot less money than Libya. Can you imagine the damage? it will be an Arab Armageddon not an Arab spring!
0 #6 Rain manSahrane 2012-02-07 09:41
Moroccans lived for thirty years under emergency law and they didn't know it. Moroccans lived in recession for 50 years and still
Moroccans are conditionned to blame it on the rain or the lack prove it the first order of business the prime minister started with is guess what?yes a rain prayer,as directed from no other than the holy king.
And expecting nothing else but a worst outcome ,there is a lot of blame to go around,the king and his regime is sucking the blood and the air out of the country while giving back the hot air ,and furthermore everything he touches is a disaster ,but his bank account.and the population is sleepwalking to a rude awakening.
Guellaoui, A
0 #7 PJD promissed 7%, then 5.5%. Finance Minister recently 4.5% Guellaoui, A 2012-02-07 10:12
Thank you Mr. Zouhir for addressing such important subject.
I hate to be pessimistic about Moroccan Economy but we are @@@@ especially when OCP; the biggest Company in Morocco borrows 200 Million Euro( less than a week ago)
Taxes are never a guaranteed source of revenue for Governments; If VAT is increased to a certain point, consumers might look for different alternative to avoid paying such taxes, or might even cut down from their consumption of the taxed item (If Moroccan citizens cut down their Sugar, Tea & Oil intake alone they will be lot healthier, richer)
Tax revenue will decrease dramatically If the Morocco’s grows slows considerably or contracts God forbid;
*) Bankruptcies: Hotels & businesses that rely on Tourism can no longer pay their taxes(it already started in Marackesh & Agadir). Hotels are even calling for government’s help in form of postponing debt payments or credits. 20% occupancies at best in Most of the hotels,
*)Employees layoffs will lower tax base which means less payroll revenue
*)in slow economic activity, businesses have less incentive to invest(machiner y, equipments, cars, trucks) therefore less Sales tax revenue for the government
*) LA RAM sold bunch of planes and closed many routes which means less airlines tickets sold(Tax is a big portion of ticket)
*) Agriculture : we can’t rely on this sector to save us this year. I just finished reading 2 articles; Farmers in Araych, Moulay Bouselham,Gherb , Agadir, Troudant lost everything this season due to lack of rain and the very cold weather.
*) Construction: was a driving motor during the last 10 years Not anymore. We know that less transaction (buy & sell) means less tax revenue.
*) Casa Blanca Stock Exchange(casino ): there was sharp decrease in transactions that will translate to less tax revenue on Capital Gain collected.
*) Investment in Highways & TGV will soon be a liability: less traffic for former & less tourists for the latter will not generate enough revenue to break even
*) Moroccan Consumers borrowed heavily during the last 10 years be it to purchase a house or a flat screen TV; Government can’t rely on them borrowing &consuming forever (we know what happened in 2007 here in US)
*) God forbid if Iran is attacked and Oil hit 150 dollars; Morocco already spends lot on Importing Oil, Wheat & Sugar
We all know what’s happening to PIIGS countries due to the debt they incurred for years; at least they have deep pockets such as Germany & ECB to save them.
As for Morocco may God help us since there are no Assets left to privatize. Chicken have come to roost and Greedy politicians sold everything during the last 20 years to finance their salaries and Villas.
man en blanc
0 #8 Don't mince words now guys!man en blanc 2012-02-08 02:06
Slow down please, I'm down to two Xanax pills! Wow! talk about Debbie Downers on steroids here!
I hate to admit it, but you are right. We are in deep doodoo. And the Ben Kiran government is no way equipped to save our wieners from the fire, beside, the King and the all-powerful inner circle still call the shots. Talk about a cruel and cynical comedy : We had a new CONstitution, a new Government, so we could end up exactly where we started!
Great! Now I am really depressed and the Xanax is gone, so I am migrating to the RAM topic, that should do the trick.
Moroccan Patriot
0 #9 We could summarize:Moroccan Patriot 2012-02-10 18:30
"No Taxation without representation" - This was the fighting cry of the American Revolution. They used this cry to get rid of their corrupt King.

Three hundred years later accross the Atlantic, some may say we are facing the same situation.

Transparency, equality, democracy, none of them mean anything until you deal with economics. The key, "No Taxation without Representation".

Before the govt. can take money from the citizenry they have to fullfill their unwritten contract to provide certain services to the citizenry. If these funds earned by the sweat of the worker are wasted on guards watching walls at Palaces, Gendarme turning their backs away from roads for hours at a time to protect a motorcade that may or may not come 5 hours down the line, or lavish living styles of those who give NOTHING back to the economy, how can the worker be expected to willingly give a percentage of their income to the state?

More importantly, Morocco's tax base excludes the rich and well connected. Some of the Richest people in Morocco pay ZERO taxes. The public sector is filled with useless govt. employees who get free cars, free gas and free housing - yet they pay no taxes on the bribes they get.

Once again, if you want people to stand up and take notice, go after the purse strings, "no taxation, without representation" = you want to spend our money, the people's money, well then the people need to have a say in how that money is spent.

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