Assessing The Impact Of Fuel Subsidy Reform
BMI View: The Moroccan government has implemented a fuel price indexation system, aimed at reducing the budgetary cost of future oil subsidies. We have made a number of revisions to our consumer price inflation and fiscal and current account forecasts, and now see largely downside risk to our 2014 real GDP growth outlook. We do not expect the government to backtrack on subsidy reform, despite popular anger against the move.
Following months of preparation, the Moroccan government began implementing a fuel price indexation system on September 16, aimed at reducing the budgetary cost of future oil subsidies. On the back of this, w e have made a number of revisions to our consumer price inflation and fiscal and current account forecasts, outlined in the table below. We leave our GDP growth forecasts unchanged for now, projecting the economy to expand in real terms by 4.1% and 3.0% in 2013 and 2014 respectively (with growth this year largely driven by the agricultural sector). However, the government's subsidy reform adds a clear source of downside pressure to household consumption, investment, and exports through the coming quarters , and the 2014 outlook looks particularly at risk .
We have long highlighted the urgency of energy subsidy re form for MENA net oil importers, which since the start of 2011 have remained acutely exposed to elevated global commodity prices, slower foreign capital inflows, elevated political instability, and growing demands for increased government spending (see 'Subsidy Reform: Is The Time Nigh?', January 25) . Over the last few weeks, the threat of a US-led air strike on Syria had pushed up global oil prices significantly, adding pressure on Morocco's government to implement immediate subsidy reform.
|Rapid Growth In Consumption|
|Morocco - Energy Use (kg of oil equivalent per capita) and Energy Imports as % of Total|