Economic Analysis - Focus On Public Investment And Gradual Deficit Reduction To Continue - SEPT 2017

BMI View: The rationalisation of current spending will continue under the new al-Othmani government in Morocco , which will result in a reduction of its budget deficits over the coming years. C ontinued emphasis on capital expenditures in order to support the country ' s transformation into a manufacturing and exporting hub will constrain the pace of deficit reduction, although it poses virtually no risk to the country ' s sovereign profile.

We maintain our view that the delayed formation of a government in Morocco in the first months of 2017 will have virtually no impact on the country's fiscal trajectory. The new government led by Prime Minister Saadeddine al-Othmani will continue to step up efforts to reduce the kingdom's fiscal vulnerabilities, while maintaining its emphasis on public investment in order to support the transformation of the economy into a manufacturing and exporting hub between Europe and Africa. As such, we forecast Morocco's budget deficit to shrink gradually over the coming years, to 3.4% of GDP in 2017 and 3.1% in 2018, down from an estimated 3.7% of GDP in 2016.

The uptick in economic activity in 2017 ( see ' Q1 GDP: On Track For A Strong Recovery In 2017 ' , July 5 2017) will have a favourable impact on government revenues, especially given that the government draws close to 80% of its revenues from direct and indirect taxes. That being said, our real GDP growth forecasts of 4.3% for 2017 is slightly below the 4.5% projected in the 2017 budget, underpinning our view that the deficit will be higher than the government's objective of 3.0% of GDP for the year. In addition, revenue growth will also remain constrained by the existence of various tax exemptions, especially for newly created industrial companies, as the government seeks to develop the manufacturing sector.

Gradual Deficit Reduction To Continue
Morocco - Budget Balance And Government Debt
e/f = BMI estimate/forecast. Source: Ministry of Finance, BMI

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