Economic Analysis - Pace Of Deficit Reduction To Decelerate In 2018 - APR 2018

BMI View: Morocco's fiscal deficit will narrow in the years ahead, albeit at a slower pace than in previous years. While strong economic growth will boost the country's tax take, a series of new tax exemptions and elevated capital spending ensure fiscal consolidation will occur only gradually.

We expect Morocco's fiscal deficit to continue to narrow in 2018, though the pace of consolidation will likely be more gradual than seen in recent years. Despite strong economic growth, total revenue growth will be somewhat subdued given the number of tax exemptions included in the 2018 budget. Meanwhile, although the government looks poised to restrain the growth of recurrent expenditures, capital spending will remain elevated, in line with the government's focus on improving infrastructure. This underpins our forecast for the fiscal deficit to come in at 3.3% of GDP in 2018. While representing an improvement on the estimated 3.5% shortfall recorded in 2017, this is still 0.3 percentage points larger than the government's own target of 3.0%. The gradual progress on fiscal consolidation underpins our view that, even despite strong growth, Morocco's debt-to-GDP is likely to narrow only slowly in the years ahead.

Growing Economy Will Boost Revenues

Revenues are set to continue expanding over 2018, though more gradually than in recent years. Robust economic growth - we forecast real GDP growth of 3.8% in 2018 - will offer tailwinds to receipts (see 'Positive Trajectory Still At Play Despite Modest 2018 Slowdown', 17 October). In 2017, revenue grew by an estimated 4.3% on the back of 2016 reforms that broadened the tax base and modernised tax administration. With tax earnings comprising well over 80% of total fiscal intakes, the strong economy will support revenue inflows ahead. We note, however, that the government's budget plans for 2018 focus primarily on new tax exemptions rather than revenue-raising measures, which will limit tax revenue growth.

High Capital Spending Putting Upward Pressure On Expenditure Growth

Deficit To See Slower-Than-Targeted Reduction
Morocco - Budget Balance, Total Revenue & Expenditure
e/f = BMI estimate/forecast. Source: BMI, National Sources

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