Policy Briefs

Morocco — Beyond Debt: Sustainable Pathways to Higher Growth

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No.

PB 123

Publisher

ERF

Date

November, 2023

Abstract
Author(s)

In a nutshell

A rising debt scenario poses significant dangers to the Moroccan economy’s long-term stability. This materializes in a situation where growth revenues will be doomed to finance the interest bill rather than productive investments, further reducing growth prospects and leaving future generations to bear the consequences of unsustainable fiscal policies.
As a primary measure, the government should capitalize on the significant potential for “efficient tax collection” to restore fiscal adjustment. Despite relatively high tax pressure, the actual revenue mobilization falls short of its full potential, mainly because of a limited fiscal base. It is crucial, however, that any reform adheres to the principles of equity, as the burden of taxation does not weigh evenly on economic agents. The equity dimension of the reform can yield potential benefits for the economy and enhance growth in the long term.
To create a favorable budgetary environment and strengthen fiscal management, adopting a fiscal rule may be an essential prerequisite for Morocco in the medium term. Such a reform will enhance the credibility of the fiscal framework, limit deviations from a sustainable debt path, and anchor economic agents’ expectations, paving the way for more effective fiscal policies and sustainable economic growth.
The prevailing belief is that achieving debt reduction objectives primarily stems from fostering economic growth. The Moroccan government should not rely solely on fiscal management measures; rather, it should focus on comprehensive growth-enhancing reforms, as outlined in the New Development Model Report. This national program could be the country’s main development roadmap to reach a higher growth path that would enable the country to grow out of debt.

This policy brief is an output of the project on “Stabilization and Adjustment in MENA”. The project has been managed under the auspices of the Economic Research Forum and Finance for Development Lab (FDL). ERF acknowledges the financial support of the International Development Research Centre (IDRC) for this project.