Morocco Islamist government faces first test: Rising prices, harsh drought
Morocco's new Islamist government, led by Prime Minister Abdelilah Benkirane, is facing dire economic times, caught between rising prices, slowing growth, and a harsh drought that has badly affected farming.
The nation's 33 million people also face high unemployment, a problem that has fanned social unrest, such as recent rioting in the northeastern town of Taza.
The Bank of Morocco last week lowered its estimate for growth this year to 3.0 percent, compared to 4.8 percent for 2011.
"This growth rate is the result of the international economic situation and the slowdown among partner countries, including in the European Union," Finance Minister Nizar Baraka said for his part.
He went on to warn that the country's budget would have to be revised.
France and Spain, whose economies are stagnating amid a spiralling debt crisis in the eurozone, are Morocco's two main trade partners.
Attracting foreign investment is also proving a challenge with both the EU and Gulf countries reducing exposure because of global economic uncertainty.
Morocco's public deficit last year reached 6.0 percent of gross domestic product, a record brought on in part by growing subsidies, notably on food, as the government sought to defuse a growing protest movement inspired by the Arab Spring.
A new government, headed by Islamists, took over late last year, but it too is now struggling in the face of financial woes.
"The government has been caught out by the size of the problem. Its euphoric (electoral) campaign gave rise to widespread expectations. Now, they have to pay the price," economist Driss Benali said.
The government is finding it has little room for manoeuvre.
The rise in oil prices has severely hit the country's trade balance which in February was 3.0 billion euros ($4.0 billion) in the red, a figure nearly 30 percent worse than that registered in February 2011.
And the import of cereals could more than double this year compared to last because of a bad drought that has hit farming, according to a recent government report.
Morocco might have to import more wheat in 2012-13 than ever before in half a century, the US Department of Agriculture said on March 20.
Wheat imports of 3.2 million tonnes in 2011-12 could rise to 5.0 million tonnes over the coming year.
Agriculture accounts for about 17 percent of Morocco's gross domestic product, and employs nearly 40 percent the population, according to official statistics.
To dampen growing protests last year, the state nearly doubled its spending on subsidies with these accounting now for nearly 20 percent of the government's budget.
And the drought has led to higher food prices, with oil prices expected soon to follow suit.
Morocco has no oil, but is the world's main phosphate producer. Tourism and money transfers from Moroccans abroad account for the two other high foreign currency earners.
In a bid to boost the economy, the central bank has just announced an 0.25 point drop in its base rate to 3.0 percent.
"The government has boosted expectations by buying social peace with some subsidies here, some pay increases there, and some broken promises. The cost is high," Benali said.
"It's an economic cycle crisis. While waiting for it to ease, the government must do more to fight corruption and the rentier economy," he added.
Morocco came in a lowly 85th place in Transparency International's annual global ranking of corruption in 2010, behind China, Brazil and Saudi Arabia.
Justice Minister Mustafa Ramid said this week that more than 4,000 cases of corruption came before Morocco's courts last year.