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RR RUEHWEB

DE RUEHRB #0546/01 1641338
ZNR UUUUU ZZH
R 121338Z JUN 08
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 8707
INFO RUEHAS/AMEMBASSY ALGIERS 4815
RUEHMD/AMEMBASSY MADRID 6001
RUEHNK/AMEMBASSY NOUAKCHOTT 3763
RUEHTU/AMEMBASSY TUNIS 9650
RUEHCL/AMCONSUL CASABLANCA 4146

UNCLAS RABAT 000546 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EAGR MO
SUBJECT: MOROCCO ECONOMIC HIGHLIGHTS: JUNE 2008 
 
This message is sensitive but unclassified.  Please handle 
accordingly. 
 
¶1.  (SBU) Budget Healthy for Now:  Moroccan budget officials 
are confident that the country can meet this year's target of 
a budget deficit of less than three percent of GDP, 
notwithstanding pressures from subsidy and social spending. 
They note that Morocco had an excellent year last year, with 
an actual budget surplus, and that tax revenues have been 
even stronger this year.  In fact, Deputy Budget Director 
Samir Tazi told us last week, Morocco realized 50 percent of 
its projected 2008 revenue in the first four months of the 
year alone.  Morocco's tax on company profits led the way, 
with an 85 percent increase in revenue over the same period 
in 2007.  Tazi noted that while some of the increase is due 
to better tax enforcement, it largely reflects the very 
healthy situation of the country's 50 largest corporations, 
which continue to pay the bulk of the tax.  Tazi pointed out 
too that tax revenue has increased an average of 13 percent a 
year since 2002, roughly 2.5 times the country's 5 percent 
average growth rate, an indication that Moroccan statistics 
may underestimate GDP.  He conceded, however, that 2009 could 
be more difficult, given both pressures stemming from 
spending to subsidize basic commodities and the 16 billion 
MAD in increased spending and tax cuts (over three years) 
that the government promised in its recently concluded 
"social dialogue" with Morocco's unions. 
 
¶2.  (SBU) But Petrol Arrears Spark Industry Concern:  One 
element of the subsidy issue that continues to spark special 
concern, however, is the increasing arrears in government 
reimbursements to the petroleum industry for subsidized 
petroleum products.  Such arrears reached 6 billion MAD at 
the end of April, prompting a warning by the industry's 
lobbying association that unless the government picked up the 
reimbursement pace, there was a real risk of an interruption 
in supply this summer.  Since that time, the government has 
increased its monthly payment to operators from 1 to 1.2 
billion MAD, with the prospect of a future increase in 
reimbursements to 1.5 billion MAD.  Concerned companies note 
that the daily finance charge they pay on the outstanding 
amounts to 1.2 million MAD a day, and that their own lines of 
credit are being exhausted.  (Comment: Tazi and other 
officials have confirmed press reports that the subsidy 
system remains under intense study, and that the GOM is 
working with the World Bank to reform it so it better targets 
needy populations.  Given public angst over increasing 
prices, whether such a shift is politically possible in the 
current environment remains an open question.  End comment.) 
 
¶3.  (U) IMF Mission Praises Moroccan Performance:  In a press 
release following last month's Article IV consultations, the 
IMF on June 10 praised Morocco's management of the economy, 
hailing progress on macroeconomic stability and strengthening 
public finances.  It noted the challenge posed by the spike 
in commodity prices, and judged that while the budget can 
absorb the pressure in the short term, the government's 
intention to reform the system to target the subsidies more 
effectively is a "welcome" one.  As in the past, the Mission 
stressed the need for continuation of sectoral reforms to 
improve productivity, pointing particularly to the need for 
reform in the spheres of education and provision of social 
services.  While noting that Morocco's financial sector has 
escaped fallout from the international credit crisis, it 
urged continued vigilance in oversight to ensure this remains 
the case. 
 
¶4.  (SBU) Sidi Ifni Riots Highlight Social Tension:  Press 
commentary has attributed last weekend's riot in the southern 
fishing port of Sidi Ifni to local economic tensions rather 
than national tensions over the rising cost of living.  In 
the incident, police forcibly broke up a demonstration that 
had prevented trucks carrying sardine shipments from leaving 
the port.  There were unconfirmed press reports of 
fatalities, which the Government of Morocco has denied.  One 
interesting and counterintuitive fact that has emerged in 
press coverage of the incident, however, is that at 3.95 
percent, the locality has one of the lowest poverty rates in 
Morocco.  The "Economiste" newspaper noted, however, that the 
flip side of this picture is a high level of social 
inequality in the area.  The protracted blockade of the port 
caused serious losses for local fishing interests:  reports 
indicate that as many as 700 tons of sardines were spoiled 
when the refrigerated trucks containing them ran out of gas. 
The local Maritime chamber denounced the "laxism" of 
authorities for not maintaining order and preventing these 
losses. 
¶5.  (U) Closing the Book on 2007:  Updated figures on 2007 
growth show a marginally better outcome than did initial 
results.  The High Planning Commission (HPC) announced that 
growth totalled 2.7 percent for the year, instead of the 2.2 
percent it initially reported.  This modest growth (down from 
7.8 percent in 2006) came in the face of a 20.8 percent 
decline in value added from agriculture, as a result of the 
year's disastrous harvest.  HPC attributed the bulk of growth 
to investment, noting that fixed capital formation rose by 
14.3 percent, versus 9.7 percent the year before.  Finance 
Ministry officials remain optimistic that Morocco can achieve 
growth of over 6 percent this year. 
 
¶6.  (U) Inflation Hits the Construction Sector:  After food 
and energy, construction materials have also embarked on an 
inflationary spiral in Morocco.  The National Federation of 
Contractors (FNBTP) notes that Morocco's prices for 
construction materials exceed those elsewhere in the Maghreb, 
and that companies are suffering in the face of a 70 percent 
increase in steel prices, and increasing cement prices, which 
have seen cement manufacturers realize profit margins of 
35-40 percent.  Companies complain that continued Moroccan 
tariffs and non-tariff barriers prevent them from importing 
material from countries such as Turkey or Egypt, 
notwithstanding the free trade agreements that exist with the 
two countries. 
 
¶7.  (U) Trade Balance Slips:  Though the IMF termed Morocco's 
overall balance of payments "sound," the country's overall 
trade deficit through the first four months of the year 
nearly doubled, as imports surged by 27 percent and exports 
only grew by 13.7 percent.  The deficit stood at 27 billion 
MAD, versus 13.9 billion MAD in the same period in 2007.  The 
coverage ratio remained below 50 percent for goods, or 75 
percent with services included as well.  Phosphates accounted 
for the bulk of the increase in exports, while energy and 
food imports led the way on the import side. 
 
¶8.  (U) Tourism:  Moroccan tourism officials will gather this 
weekend in Tetouan for their annual meeting against a 
backdrop of concern that despite continued increases in 
arrivals and nights spent in country, tourism receipts have 
not kept pace.  Instead, they slipped by 2.3 percent from 
last year's total to just over 16 billion MAD.  Analysts 
attribute the decline to a fall in arrivals from France, and 
to discounting in the face of competition from low-cost 
competitors such as Tunisia and Turkey. 
 
 
***************************************** 
Visit Embassy Rabat's Classified Website; 
http://www.state.sgov.gov/p/nea/rabat 
***************************************** 
 
Riley