- Saíd El-Naggar
- Published Date:
- September 1987
As Mr. Hamdouch noted, analyzing Morocco’s adjustment policy is not easy because adjustment policy evaluation is broad and complex on one hand and needs the perspective of a period longer than three years on the other. But despite the difficulties inherent in the evaluation process and lack of required data, Mr. Hamdouch has pursued the mission.
As should be expected, the paper begins by reviewing the origins of the problem which inspired the Moroccan Government to undertake the adjustment program. The review is followed by an overview of the three-year transitional plan (1978–80) in which the Moroccan Government introduced measures, not policies, in response to the warning signals of the macroeconomic indicators in the final year of the previous plan (1973–77).
Negotiations between the Moroccan Government and the Fund for an adjustment program continued between July 1980 and June 1983. Since policies and measures introduced during that period were influenced by the adjustment program which was discussed, the paper distinguishes between a semiofficial program (covering the period 1981—83) and an official structural adjustment program supported by the Fund and the World Bank thereafter. A survey of objectives, targets, and instruments for both programs is followed by an examination of the results. Such surveys are, by nature, descriptive. Evaluation of the results virtually depended on combinations of 11 macroeconomic indicators for 1980–85, as seen in Table 1 of Mr. Hamdouch’s paper.
Apparently, the survey and the examination of the results up to 1985 left little scope for more analysis of the underlying causes.
Evaluation of the Results
The two major aims of the three-year transitional plan (1978—80) were to reduce the deficit of the current account of the balance of payments and to maintain investments at a level consistent with the objective of reducing unemployment. In line with these aims, gross domestic product (GDP) was projected to grow by 4.9 percent annually.
The general part of the semiofficial adjustment program’s major aims was to reduce the deficit of the public treasury, to improve the current account deficit (not to exceed 5 percent of GDP in 1983), and to achieve an average annual GDP growth rate of 4.5 percent, requiring an investment rate of 21 percent. The sectoral part of the program aimed at reorganizing the structure of agriculture, promoting export industries, reducing dependence on imported energy, and increasing the profitability of public enterprises.
The four targets of the general part of the official adjustment program were gradual reduction of the deficits of the public treasury (from 7 percent of GDP in 1983 to 6 percent, 3.6 percent, and 4 percent in 1984, 1985, and 1986, respectively) and the current account of the balance of payments (from 9 percent of GDP in 1983 to 7.5 percent, 6.5 percent, and 4 percent in 1984, 1985, and 1986, respectively), an average annual GDP growth rate of 3 percent, and reduction of the investment rate from 20 percent in 1983 to 16 percent in 1988.
The paper used two approaches for evaluating the results: One is normative (comparing the actual with the intended results), the other is historical (comparing the actual results with those on the eve of the relevant adjustment program). The reference year for the period 1981–83 was 1980, and for 1984–85, the reference year was 1983.
Mr. Hamdouch presented much economic data, but he refrained from passing judgment on the results of the 1978–80 transitional plan. Among the data that he presented: The actual average annual GDP growth rate fell slightly short of the target (4 percent versus 4.9 percent) but slipped much compared with the impressive 7.4 percent rate during the 1973–77 plan; the investment rate fell from 32.8 percent to 20 percent; the deficit of the current account declined from 17.7 percent of GDP to 7.8 percent; the deficit of the public treasury declined from 15.2 percent to 12.1 percent; the export/import ratio improved from 40.7 percent to 57.2 percent; but the debt service (percentage of exports of goods and services) worsened from 10.7 percent to 27.3 percent, between 1977 and 1980.
Though he pointed out that measures, and not policies, were behind the changes in those macroeconomic indicators, he abstained from analyzing whether those changes could have resulted independent of the measures applied.
Performance of the general part of the semiofficial adjustment program (1981–83) was mixed, whether compared with targets or performance in 1980.
GDP growth rate was 3.6 percent in 1980, but fell by 1.3 percent in 1981, achieved an impressive growth rate in 1982 (6.8 percent), but declined to a meager rate of 2.2 percent in 1983. Thus, GDP average annual growth rate over the three years was 2.6 percent, compared with the expected rate of 4.5 percent. The public treasury deficit worsened from 12.1 percent of GDP in 1980 to 16.7 percent, but declined to 11.6 percent in 1982 and to 8.5 percent in 1983. Thus, it significantly improved between 1980 and 1983 (12.1 percent versus 8.5 percent). The current account deficit worsened from 8 percent in 1980 to 12.5 percent and 12.7 percent in 1981 and 1982, respectively, but declined to 6.8 percent in 1983. Though it exceeded the 5 percent limit in 1983, it still improved compared with 1980. The export/import ratio declined from 57.4 percent in 1980, to 53.4 percent, and 47.9 percent in 1981 and 1982, respectively, but significantly increased to 57.5 percent in 1983. The annual increase of the cost of living increased from 9.4 percent in 1980 to 12.5 percent in 1981 but slowed down to 10.5 percent and 6.2 percent in 1982 and 1983, respectively. Despite the mixed outcome, Mr. Hamdouch rated performance below average. However, he avoided a critical review of the policies and measures behind that performance.
In reviewing and assessing performance during 1981–83, Mr. Hamdouch expressed some concern over fluctuations of some of the macroeconomic indicators. Fluctuations may be signals of bad performance. But under an ongoing adjustment, some caution may be warranted before arriving at such a conclusion. However, an important signal arising from the performance in 1983 ought not to have gone unnoticed. A general survey of the direction of change in the macroeconomic indicators would reveal that, contrary to their mixed directions in 1981 and 1982, all of them moved in the intended direction, albeit at various paces in 1983. The export/ import ratio, the deficits of the public treasury and the current account improved, the rate of domestic savings increased, the annual increase of the cost of living slowed down, the investment rate declined, and GDP rose. It would be instructive to know how these variables were correlated.
The results of the general part of the official adjustment program over 1984—85 also were mixed, whether compared with targets or the results of 1983.
The four major objectives of the general program were gradual reduction of the deficits of the public treasury, not including arrears (from 7 percent of GDP in 1983 to 6 percent, 3.6 percent, and 4 percent in 1984, 1985, and 1986, respectively) and the current account (from 9 percent of GDP in 1983 to 7.5 percent, 6.5 percent, and 4 percent in 1984, 1985, and 1986, respectively), reduction of the investment rate (from 20 percent in 1983 to 16 percent in 1988), and a GDP average annual growth rate of 3 percent.
The deficit of the public treasury exceeded the limit in 1984 and 1985, but it declined from 8.5 percent of GDP in 1983 to 7.1 percent in 1984, and increased to 8.9 percent in 1985. The deficit of the current account exceeded the limit in 1984, fell below it in 1985, worsened from 6.8 percent in 1983 to 8.4 percent in 1984, but improved to 6 percent in 1985.
In 1984, the export/import ratio, the current account deficit, the investment rate, the domestic saving rate, and the inflation rate moved contrary to the intended direction and only the public treasury deficit and GDP moved in the right direction. But in 1985, all of them, except the public treasury deficit, moved in the right direction.
Mr. Hamdouch concluded that the 1984—85 results do not show that the aims were achieved, whether viewed in relation to the intended targets or in relation to 1983. And later, in the conclusion, he confirmed that the results were weak. But, also in the conclusion, he noted that the appropriateness of the adjustment program is beyond doubt and that the 1983 adjustment program has reached its aims, though with some delays. The economic and social cost of the program is, and rightly so, the critical issue. Apparently “zero development” (no GDP per capita growth) has been the cost.
Unfortunately, there is no single criterion by which to measure and assess the true impact of adjustment policies and measures. Depending on the perspective, analysis of the same macroeconomic indicators may yield different results. If, for example, performance of both the semiofficial and the official adjustment programs is assessed on the basis of the trends of the same macroeconomic indicators during 1980–85, we would have a different assessment altogether. Of course, even the trend during 1980–85 is not without some pitfalls. Though useful for measuring overall economic performance and an aid for analysis of possible alternative paths of development and policy action, macroeconomic indicators ought not to be viewed in isolation when measuring and evaluating development performance. They ought to be considered in conjunction with broader development indicators. And this would make evaluation of the performance of adjustment programs more challenging.
It would have been more pertinent if we had been able to assess the real impact of the adjustment program by reference to what would have been the results in the absence of the program. This is most difficult, if at all possible.
Growth and Development
I was not sure whether growth and development are used to denote the same or different things until Mr. Hamdouch concluded, upon reviewing strengths and constraints of the adjustment program with a view to assessing its efficacy, that Morocco had witnessed a “zero development” rate, which was due to the adjustment policy since 1983 (or even 1980). GDP growth rate was 2.3 percent, 2.1 percent, and 4.3 percent in 1983, 1984, and 1985, respectively. The rate of population growth was 2.6 percent in 1983 and 1984. This means that GDP per capita declined both in 1983 and 1984. Assuming population growth rate remained 2.6 percent in 1985, then GDP per capita slightly improved, by 1.7 percent. Average GDP annual growth rate during 1983–85 was 2.9 percent. Then average GDP per capita annual increase was 0.3 percent, which would imply an almost stagnant standard of living. Yet, regardless of the implications of these revealing figures, growth is not development. A country may enjoy relatively high growth rates of income per capita without achieving any real development. In fact, examples of growth that may have retarded development abound. Development is usually accompanied by growth. But it is a complex societal process that results from the interaction of myriad economic, social, managerial, political, and cultural factors.
Investment and Growth
According to the author, the adjustment program of 1983 would have been considered positively had it not been for its economic and social cost. The fact that the program placed emphasis on external balances, rather than growth, had the effect of zero development and stagnation in the standard of living—especially for the poorest in Moroccan society. Rigid austerity measures to control growth of aggregate demand required reduction of investments. Consequently, the GDP growth rate slowed down. In the medium term, higher GDP growth rates would require, among other things, higher investment rates. Higher investment rates exceeding domestic resources available for investments would require external borrowing. It may be recalled that the origin of Morocco’s debt crisis goes back to a high investment rate in the 1973—77 plan which was only maintained by foreign loans to make up for unexpected shortfalls in phosphate revenues.
In principle, borrowing for financing investments required for development is appropriate. But how much to borrow is a basic policy decision. Under certain circumstances, borrowing could be excessive. However, as long as returns on investments are more than adequate to cover the costs of borrowing, the net contribution should be positive.
The author tries to outline the prospects for the Moroccan economy on the basis of changes in certain macroeconomic indicators, which have been used in evaluating the results of the adjustment program up to 1985. In his estimate, prospects for 1986 are expected to be better than 1985 for reasons independent of the adjustment programs. It is also expected that 1987 will witness balancing of the ordinary state budget and the current account.
A look at the composition of GDP would reveal that the Moroccan economy will be vulnerable to weather conditions. International prices of raw materials will also play an important role. Agriculture is critical, for though its contribution to GDP was only 18 percent, it employed about 41 percent of the labor force in 1985. Phosphates are the primary exports and will be vulnerable to fluctuation of the international markets. Thus, unless restructuring and adjustment policies and measures succeed in alleviating the vulnerability of the economy, major imbalances could easily develop in the future.
Mr. Hamdouch has pointed out that the Moroccan approach to planning is determined by the imperative to maintain a delicate balance between political feasibility on the one hand and economic and social development on the other.
Recent developments may require redirecting the course of the economy which has been maintained with no basic changes since independence in 1956 and devising a workable approach to planning consistent with the challenges facing the country. This may present a dilemma to the political system. Future prospects will depend, to a great extent, on how the dilemma will be resolved.