Morocco considers compensation fund reform

04/01/2008

In the face of rising oil prices and increasing demands, Morocco's government is considering an overhaul of its programme of subsidies on consumer goods.

By Sarah Touahri for Magharebia in Rabat – 04/01/08

[Getty Images] Subsidies on products such as flour have the greatest impact on the poor who depend on cheap bread for their meals.

Morocco's long-running compensation fund has come under fire from critics seeking to reduce government spending. The fund's operating budget has ballooned from 3 billion dirhams in 2002 to 20 billion for the current year, which led parliamentarians to press for reform during their discussions of the 2008 finance law.

The fund – first established in 1941 to make European products available in Morocco at reasonable prices – has evolved into a broad programme of subsidies on consumer goods and petroleum and gas. Advocates of the policy stress the universal benefits of subsidies, as they affect all citizens, both rich and poor. The relative value of such assistance, however, is greatest for the poorest citizens.

The compensation fund is becoming more and more of a burden on State finances. Economics professor Karim El Hafi told Magharebia the programme's current cost (20 billion dirhams) constitutes nearly two-thirds of Morocco's investment budget. "We need to revise the current compensation system to make [the fund] more effective, and in the medium term to introduce mechanisms which will bring direct assistance to citizens who are in need, because the cost of basic commodities is rising all the time," he said.

Parliamentarian Abdelhamid El Mernissi said Moroccans should not expect money to be available for the compensation fund over the coming year. "Looking to 2009, I think Moroccans have to understand that this institution cannot be milked endlessly for cash. We already know who is benefiting, but how to resolve their problem is quite a different matter. It requires serious thought."

The finance ministry has announced that in 2008 it will seriously consider an overhaul of the compensation fund, in order to improve performance for the poorest Moroccans.

The main thrust of the reform will concentrate on several aspects: control, intermediary organisation, revision of the tariff structure and re-organisation of the sectors involved. The government is currently laying the groundwork for a new compensation system; one that takes the experiences of other countries around the world and adapts them to Morocco's specific needs.

In the interests of reducing the fund's burden on the national budget, the government has told citizens to expect no additions to the list of subsidised products: petroleum, butane gas, sugar, sunflower oil and flour.