Food subsidies push up Morocco budget deficit

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Morocco’s budget deficit in 2011 will be higher than previously forecast, at between 4.5 and 5 percent of GDP, because of the cost of increased government subsidies and public sector pay rises, the central bank said.

The deficit forecast excludes however the sale of state assets, a source of revenue the government has already started to tap to prevent a spillover of deficit under control without having to seek foreign credit.

Morocco, anxious to avoid the kind of unrest seen in other parts of the Arab world and worried about increases in global commodity prices, has in the past few months raised salaries and increased the funds allocated to subsidies, Reuters reports.

The government’s target for the deficit this year had been 3.5 percent of GDP, but central bank governor Abdelatif Jouahri told a news conference the figure would be closer to 5 percent.

That was, in part, due to a rise in subsidies on items such as wheat, fuel, cooking gas and sugar. The subsidies bill for this year will total 45 billion dirhams, up from a previous estimate of 35 billion dirhams, Jouahri said.

Jouahri also said the grain harvest would come in at 7.8 million tonnes, slightly better than last year but below the agriculture ministry’s forecast of 8.8 million tonnes.

Agriculture is one of Morocco’s biggest employers and the harvest is an important factor in determining the strength of economic growth.

INTEREST RATES UNCHANGED

While public finances are under greater pressure, the central bank said the broader economic picture was stable.

In a statement issued after a meeting of its monetary board, the bank said it had decided to keep its benchmark interest rate unchanged at 3.25 percent.

It revised its forecast for headline inflation in 2011 downwards to 1.4 percent, from the previous forecast of 2.1 percent. Jouahri said lower food prices as the reason for inflation easing off.

The bank also said it expected bank lending to grow by 8 percent by the end of this year, against annual growth of 6.8 percent in April.



Both overall gross domestic product and non-agricultural GDP were forecast to grow between 4.5 percent and 5.5 percent in 2011, the bank said in its statement. This was broadly in line with previous governemnt forecasts.