Morocco: Budget Cuts, Recession & Tax reforms

Let us consider one particular aspect of the now stated policy of the Finance Ministry, i.e. its commitment to “all budget entities have been requested to economize 10 percent of their budget allocations for some non-essential current expenditure items”. Now, either ministerial departments will cut 10% of their non essential expenses – in which case total savings will amount, at best, to a few hundred millions- or, all departmental bodies will have to cut 10% of their total current expenditure, with cuts justified as such. This scenario means a package of MAD 22 Bn cuts uniformly distributed across ministries, a bad policy, government-wise, since the largest (and most important) departments will be hit harder: Education, Health and Law & Order. 600,000 public servants are therefore held at gunpoint by that one order: “cut 10%”.

The caring government

The cuts are scheduled to target current expenditure, which means civil service pay-wage, purchases of hardware (non-investment hardware) and other current expenses like electricity bills and rent for instance. But let us not be deluded on that point: current expenses are mainly made up of pay-wage, and depending on ministries, these can make up to 94% of total current expenses (Education) but each department has its own ratio, and a non-commensurable cut across departments will inevitably cause great harm to those employing large staff. Whether on believes in small government in Morocco or not, there will be few dissenting voices regarding the reduction of teachers and police force members, just to achieve MAD 4,1Bn savings.

Of course, clerical and non-essential staff could be laid off, though this means a renewed struggle with “Ghost civil servants“, a fight long lost even before it has begun. So this not a cost-killing operation, but a genuine austerity plan: the blind plan, the size of cuts and the timing, all these elements point out to a difficult 2012 Budget bill and years of near-stagnation ahead. But let us first consider the impact of that 10% cut on human resources, indeed, 600,000 civil servants (from local and central services) will no doubt see their pay frozen, or cut. And contrary to the Intilaka program enacted in 2006, 39,000 departures are not going to be enough to balance the books (as a matter of fact, it makes up only 3/4 of expected savings on wages).

Now, a 10% cut on the 6 largest departments -Education, Interior, Health, Justice, Finances and Equipment departments account for 89,6% of total workforce, means that some 51,800 positions will have to be economized one way or the other. Unless each department manages to strike a deal with unions to cut wages some MAD 7,000 per annum per civil servant -that saves some MAD 4.2 Bn in salaries, i.e. two-thirds of targeted costs. But then again, this modus operandi assumes Unions and government will be reasonable in their negotiations to freeze pay over the next couple of years, but that is very unlikely, given the sad history of horse-trading between both parties. The other alternative is to exhort civil servants to retire well ahead before the 65 years-old limit, thus minimizing payroll. The remaining third alternative, and unless things get very desperate, might not be considered: in short, make people redundant with limited or no pay.

Early retirement is a good policy: regulations specify that any civil servant willing to retire early will receive a reduced part of their wage, until they reach 65. Now, considering that a large chunk of workforce is 50-ish years old, the 15 years gap can be used to reach the average 7,000 annual pay cut target. But the point is, these retired schoolteachers, policemen and attorneys will not be working for the public sector any more, thus inflicting great damage upon public service, a damage it could do without. What is worse, these cuts/early retirement cannot, yet again, be uniformly distributed. The trouble is, large-staffed department will bear the brunt of cuts not because they are the ones with the largest bureaucracies, but because it is the nature of their operations: you need to take on more teachers to keep teacher/pupils ratio low, healthcare officers and workers to reach similar ratios, more policemen to insure neighbourhoods are quiet… the error of an indiscriminate budget cut is that it overlooks such details, and end up hurting essential, front-line services.

Quadruple whammy (sectors make up for 3/4 of job losses)

Could things be  done some other way? it seems not. cutting wages accounts for a third of overall planned cuts. Other than that, departments will need to cancel orders on hardware. There is no way only secondary expenses will be cut; eventually essential services will be on the ministry’s sights. Under the assumption of uniform distribution of total pay wage per department, teachers and Education staff, for instance, receive MAD 11,000 a month -not an unreasonable mean, considering the ageing structure of the teachers’ corps. Healthcare workers are slightly better off, with an average monthly wage of MAD 12,000. Staff from the interior, finally, receive 6,000 monthly on average. Hardly high-income earners indeed.

Now, in his briefing before the Cabinet, minister Mezouar:

a mis l’accent sur la nécessité de préserver les acquis relatifs aux équilibres macroéconomiques et de garantir les conditions de poursuite de l’élan de développement que connaît le pays.

and that means, the stated policy of his budget cut is not to harm public service. That also means, he needs to be more specific about the 10% cut, and exempt departments from what is a sure blow to the standards of their services to Moroccan users. If the ministry is serious about putting together a stimulus package – especially in these trying economic times- then it should consider carefully the budget cuts it is planning, for fear it might take the country to recession, rather than stabilizing macroeconomic balances.

Budget cuts are not pure evil: it is a given that government debt is too large, and its foreign-held, short-term maturity weighs a great deal on the dwindling foreign reserves. Cutting expenses -as well as raising receipts- is the way to go. But instead of targeting blindly departments, the government needs to put into practise its pledge to engage in “structural reforms”, i.e. to end up exemption and fiscal niches that benefit only to the wealthiest.

the VAT and Income Tax reforms need, in effect, to be seriously considered in that spirit. As for expenses,  the Audit Court has pointed out numerous dysfunctional items within the public sector and that saves up capital and expenses over the years. Then, dysfunctional payroll regulations can be addressed as well.

But I digress. The minister obviously knows his job better than I do.


Comments (3)  

Noureddine Boutahar
0 #1 Cough upNoureddine Boutahar 2011-08-20 23:43
I am not an expert but the solution for me is easy: enforce tax law on powerful and rich fat cats, track down tax-evader taycoons, impose a wealth tax on the wealthy. Morocco is in the crossroads and these guys need to help save it to prove their patriotism because they (many of them, I mean) have been milking it for years non-stop and giving nothing in return.
0 #2 COMMENT_TITLE_R E Morocco: Budget Cuts, Recession & Tax reformsML 2011-08-22 03:28
Mr. Zouhir,
Unless one has a financial Expense report, one can only speculate.

Also, I don't see any problems laying off 10% of employees in each department inculding defence. I even think that Defence is where most if not all the cuts should happen except that Mezwar will not dare to touch it

Mezwar need to get rid of all palaces and its stuff... you have a great saving there.

Morocco buying f16 that sits by idle ...sell them is another saving (for the war mongers; morocco will never use those toys against polizario or algeria)

Mezawar/the king who ever in charge needs to get rid of all fleet of cars driven by Mekhzen employees (drivers, gas, maintenance etc)

Who ever is in charge can confiscate GRIMATs and lease them to those can pay(revenue can be used to help the poors instead of the billions wasted in subsidizing food)

Gov employees shouldn t be allowed to travel in drove overseas, they are useless wherever they go; few months ago almost 100 of them including mezwar stayed at the Plaza hotel for 3 days so mezwar can have a small closing ceremony at nasdaq, and also to sell Moroccan industries..... it was a shipping trip for the 100 of useless people who accompanied him

There are many ways to raise revenue and cut expensive. and laying off 10% of employees or cutting 10% of the payroll won't hurt the average joe a bit
0 #3 The govnmt should live within its means?Mouflon 2011-08-23 00:45
A simple formula that applies to all of us. If you cant afford it, don't buy it.
Ministre Mezouar:
1. Reform the tax code. chase evaders. collect taxes from the rich.
2. Cut expenses: I have a friend whose dad is "Ra iss al jama3a al karawiya of xxx" head of a Jama3a. He said with his own words: his dad has so many cars at his disposal and gas is not a problem... wow, are Saudis or what?

Basically, our government does not have a system of checks and balances. Why should a jama3a or its head have so many cars, why should the "wali" have all the living luxuries at our expense? why should the minister have an "S Class" for God sake??? and so many other expensive toys. An "S class", seriously, get out of here... if we were to look at the numbers, the government cannot even afford to buy them a donkey, but instead, let's jump from the donkey to a $120K car... nice!!
bunch of thiefs. Just milk Le Peuple. as long as you keep us illeterate, we will be your economic slaves.
So, next time we hear about another uprising in Morocco, let s not foul ourselves and act all surprised. People have nothing to eat in Morocco and it will get worse!!!! wake up government!

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