Abstract
Morocco has made substantial progress in increasing inclusive growth over the past decade, but additional efforts in terms of growth-enhancing structural reforms are needed. Preserving economic efficiency and fostering growth while strengthening inclusiveness remains a priority. This paper describes the fuel subsidy system in Morocco, introduces an organizing framework to illustrate the trade-offs involved in meeting various economic and social objectives when considering subsidy reform, and highlights some lessons from the international experience in implementing subsidy reforms that may be pertinent to the case of Morocco.
Inclusive Growth in Morocco: Stylised Facts and Policies1
A. Introduction
1. The social unrest in the Middle East, high unemployment in many advanced economies in the aftermath of the financial crisis, and the possible adverse impact of fiscal consolidation measures in a number of advanced and emerging economies, have renewed concerns about growth, job creation, and inclusiveness. Faced with these challenges, many governments have set for themselves the goal of “inclusive growth.”
2. Addressing inclusiveness in growth is not only important for redistributive purposes and to ensure social cohesion, but also because non-inclusiveness can have detrimental effects on economic activity and macroeconomic stability through a number of economic, social, and political channels such as: (i) wasted productive potential and a misallocation of resources, thus undermining long-term growth (Berg et al., 2011); (ii) reducing individuals’ ability to cope with risk; (iii) social conflicts (Campante and Chor, 2012); and (iv) directly increasing macroeconomic instability (Fitoussi and Sareceno, 2010; Kumhof and Ranciere, 2010).
3. While there is no consensus definition of inclusive growth, it has been variously defined by several institutions as reflecting a combination of the following elements: (i) a more equal distribution of income; (ii) a decrease in absolute poverty; (iii) the internalization of externalities in the measurement of economic growth; (iv) more equal opportunities, including access to basic services; and (v) a higher level of employment.
4. The aim of this work is to analyze inclusive growth in Morocco focusing on two broad dimensions: (i) achieving sustainable higher growth that will create and expand economic opportunities; (ii) ensuring broader access to these opportunities so that all members of society can benefit from growth. The first dimension is analyzed by focusing on economic growth and labor market opportunities. The second dimension is identified by focusing on a broad set of social indicators including inequality and poverty, and access to health, education and other basic services.
5. The paper is organized as follows: Section B describes Morocco’s growth performance over the past three decades,2 presents the main challenges, and describes the set of policies needed to foster growth. Section C presents a similar analysis for unemployment and labor market conditions, while Section D focuses on a broad set of inclusiveness indicators. Finally, Section E concludes summarizing the main policy implications of the analysis and discussing possible trade-offs.
B. Growth
Stylized facts
6. Morocco has recorded robust growth over the past three decades. Over the period 1980-2010, growth in Morocco averaged about 4 percent compared to 3½ percent in other emerging markets and developing economies (EMDEs). Peaks in activity—defined as annual growth rate over 5 percent – occurred in 1982, 1988, 1990, and 2005, while a severe downturn took place in 1992–93. Overall, three broad growth phases can be distinguished: (i) a period of moderate growth (about 3.9 percent per year) from 1980 to 1990; (ii) a period of growth deceleration between 1992 and 1999; and (iii) a period of growth acceleration since 2000, reflecting a pick-up in investment and productivity. This latest period has also been characterized by a marked reduction in growth volatility, as evidenced by a sharp decline in the standard deviation of the annual growth rates (Figures 1 and Table 1).
Real Nonagricultural GDP Growth, 1980-2010
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: Moroccan authorities.Real Nonagricultural GDP Growth, 1980-2010
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: Moroccan authorities.Real Nonagricultural GDP Growth, 1980-2010
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: Moroccan authorities.Average Growth, Quarterly Basis
Average Growth, Quarterly Basis
| Period | Average | Median | Std. Dev. |
|---|---|---|---|
| 1981–2010 | 3.89 | 3.96 | 1.68 |
| 1981–1990 | 3.89 | 3.64 | 1.78 |
| 1991–2000 | 3.19 | 3.61 | 1.47 |
| 2001–2010 | 4.60 | 4.78 | 1.64 |
Average Growth, Quarterly Basis
| Period | Average | Median | Std. Dev. |
|---|---|---|---|
| 1981–2010 | 3.89 | 3.96 | 1.68 |
| 1981–1990 | 3.89 | 3.64 | 1.78 |
| 1991–2000 | 3.19 | 3.61 | 1.47 |
| 2001–2010 | 4.60 | 4.78 | 1.64 |
7. Growth has been driven by capital accumulation and domestic demand. On the supply side, growth has been mostly driven by strong capital accumulation. Over the period 1980-2010, the contribution of capital accumulation has been close to 45 percent (Figure 2, Panel A). Labor has been the second factor providing the largest contribution (about 40 percent) while human capital and total factor productivity (TFP) accounted together for less than 15 percent. However, while the contribution of human capital has been rather constant, TFP’s contribution has markedly increased, reaching about 20 percent over the past decade. On the demand side, growth has been exclusively driven by domestic demand (consumption contributing to about 75 percent and investment to about 35 percent). In contrast, net exports have decreased during the past three decades (Figure 2, Panel B), resulting in a negative growth contribution of external demand (about -10 percent).
Morocco’s Growth Decomposition (1980-2010)
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: Moroccan authoritiesMorocco’s Growth Decomposition (1980-2010)
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: Moroccan authoritiesMorocco’s Growth Decomposition (1980-2010)
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: Moroccan authoritiesChallenges ahead
8. Growth has slowed down. Growth has decelerated in the most recent years due to the deterioration in the global economy since the start of the great recession in 2008. In addition, given the strong trade, remittance, and investment linkages with European countries, a protracted downturn in euro area countries is likely to have significant short- and medium-term effects on Morocco’s growth performance.
9. Higher growth is required for reducing unemployment. Despite significant gains in growth, employment and labor force participation rates have not increased substantially and remain relatively low compared to other emerging market economies, averaging 46.8 and 52.6 percent, respectively, during the period 2000–09 (Figure 3, Panel B and C). While unemployment has steadily declined over the past decade, youth unemployment remains very high at about 18 percent. Clearly, in addition to structural reforms aimed at improving the functioning of the labor market, higher growth will be required to absorb new entrants into the labor market and reduce unemployment.
Economic Growth Indicators—Kernel Density Charts
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: World Bank’s World Development Indicators.Note: Y-axis= Cross-country Kernel density estimates for an unbalanced sample of emerging market and developing economies; X-axis=variable; −−−−−Morocco.Economic Growth Indicators—Kernel Density Charts
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: World Bank’s World Development Indicators.Note: Y-axis= Cross-country Kernel density estimates for an unbalanced sample of emerging market and developing economies; X-axis=variable; −−−−−Morocco.Economic Growth Indicators—Kernel Density Charts
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: World Bank’s World Development Indicators.Note: Y-axis= Cross-country Kernel density estimates for an unbalanced sample of emerging market and developing economies; X-axis=variable; −−−−−Morocco.Policy recommendations
10. There is limited space for macroeconomic policy to boost domestic demand in the short term. First, the ability of fiscal policy to boost domestic demand in the short and medium term is constrained by the high fiscal deficit and the need to maintain fiscal sustainability in the medium term. Second, monetary stimulus is not warranted at this time, given that policy should guard against potential second-round effects on inflation of domestic energy price increases, external pressures, and given that the nonagricultural output gap is close to zero.
11. The urgency of the need for growth-enhancing structural reforms has increased in Morocco. The recent global crisis has had significant disruptive effects on most advanced economies, with GDP falling by over 3 percent on average in 2009. In addition, available empirical evidence points to sizeable permanent GDP losses from financial crises (Cerra and Saxena, 2008; Furceri and Mourougane, 2012). Given the strong trade, remittances, and investment linkages with European countries, a protracted downturn in euro area countries is likely to have significant short-and medium-term effects on Morocco’s growth performance. In particular, a downturn of magnitude of about 2 percent in Europe is found to decrease Morocco’s potential output by about 0.6 percent in the very short term (one year after the occurrence of the downturn), and by about 1.3 percent three years after (Box 1). Against this background, and given the limited space for macroeconomic policy to boost demand in the short term and the need for higher growth to reduce high (youth) unemployment, the urgency of growth-enhancing structural reforms has arguably increased.
12. Structural reforms could significantly boost Morocco’s potential growth. Potential gains from structural reforms could more than offset spillover effects from a protracted recession in euro area countries. The effect of structural reforms in individual policy areas ranges from 0.2 percentage point in the case of capital account liberalization reforms to 0.7 percentage point in the case of trade liberalization reforms. Large-scale reforms are likely to deliver even larger effects. Under an ambitious reform agenda, including financial sector reforms, a move toward greater capital account openness, further trade liberalization, and reforms of the product and labor markets, the overall potential growth gain might come close to 2½ percentage points (Box 2).3
Dynamic Effect of Downturns in European Countries on Morocco’s Growth
The recent global crisis has had significant disruptive effects on most advanced economies, with GDP falling by over 3 percent on average in 2009. In addition, available empirical evidence (Cerra and Saxena, 2008; Furceri and Mourougane, 2012) suggests that financial (banking and debt) crises may lead to sizeable and permanent GDP losses by: (i) increasing risk premia and lowering the incentive to invest in physical capital; (ii) raising long-term and structural unemployment via hysteresis effects; and (iii) reducing labor force participation (discouraged worker effect). Given the strong trade, remittances, and investment linkages with European countries, a protracted debt crisis in euro area countries may also reduce Morocco’ potential output.
The empirical strategy adopted to estimate the dynamic effect of downturns in European countries on Morocco’s growth follows the method proposed by Jorda (2005), which consists of estimating impulse response functions (IRFs) directly from local projections. In detail, for each future period k the following equation has been estimated on annual data:
where k = 1,…6, y is the (log) of output, Timet is a time trend, and βk measures the impact of European downturns on the change of (the log of) potential output for each future period k. The number of lags (l) has been chosen to be equal 2. IRFs are then obtained by plotting the estimated βk for k = 1, …6, with 95 percent confidence bands for the estimated IRFs computed using the standard deviations associated with the estimated coefficients βk.
Downturn dummies have been constructed using the Harding and Pagan (2002) methodology applied to quarterly GDP data for the European countries. This method identifies seven years in which European countries have been in a downturn: 1981–83, 1992–93, and 2008–09.
The results from estimating potential output using Equation (A1) are presented in Figure A1: they show that downturns in European countries have significant effects, reducing potential output up to four years after the occurrence of the downturns.
In particular, a downturn of magnitude of about 2 percent in Europe is found to decrease Morocco’s potential output by about 0.6 percent in the very short term (one year after the occurrence of the downturn), and by about 1.3 percent three years after (Figure A1).
The Effect of EU Downturns on Morocco Potential Output
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Note: dotted lines represent 95 percent confidence bands.The Effect of EU Downturns on Morocco Potential Output
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Note: dotted lines represent 95 percent confidence bands.The Effect of EU Downturns on Morocco Potential Output
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Note: dotted lines represent 95 percent confidence bands.Estimates of the Effect of Structural Reforms on Morocco’s Economic Growth
This box tries to quantify the possible magnitude of the impact of structural reforms on Morocco’ potential growth, by making use of existing empirical evidence on the links between structural policies and economic growth. Before turning to the analysis, however, it is important to highlight the limitations of this approach. First, the results are sensitive to the uncertainty associated with the estimates of the effect of structural policies on economic performance. Second, the analysis implicitly assumes that the estimated effects are homogenous across countries. Third, it assumes that it is possible to disentangle the effects of specific reforms, and abstracts from the complementarity of these reforms and the appropriate sequence of implementation. DESPITEhese caveats, we believe that this analysis could provide some indication of the need for growth-enhancing structural reforms in Morocco and the magnitude of the effects of such reforms.
The analysis relies on existing empirical evidence of the links between growth and the following indicators: (i) Domestic financial sector restrictions: the indicator includes measures of securities market and banking sector restrictions; (ii) Capital account restrictions: the index is based on a broad set of restrictions including, for example, controls on external borrowing between residents and nonresidents, as well as approval requirements for foreign direct investment (FDI);1 (iii) Current account restrictions: the indicator is measured along two dimensions: tariff restrictions, which measures average tariff rates; and a broader indicator of current account restrictions, which captures surrender requirements for export proceeds, and other items under Article VIII of the Articles of Agreement; (iv) Product market regulation (PMR): the indicator captures restrictions in the agricultural sector and in telecommunications and electricity markets; and (v) Labor market regulation: the index is a measure of employment protection legislation (EPL) (Aleksynska and Schindler, 2010). These indicators are standardized between zero and one, with higher values of the indicator implying lower restrictions (an exception is the EPL, for which a higher value indicates a more stringent labor market regulation).2
The effect of structural reforms on Morocco’s economic growth is computed by simulating a convergence of policy settings towards those prevailing in benchmark countries, identified as those with the lowest restrictions.3 In detail, the impact of structural reforms is simulated as:
where
Structural Policy Indicators
(Morocco vs. Benchmark Emerging Markets)
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Sources: IMF structural reform database; and author’s calculations.Structural Policy Indicators
(Morocco vs. Benchmark Emerging Markets)
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Sources: IMF structural reform database; and author’s calculations.Structural Policy Indicators
(Morocco vs. Benchmark Emerging Markets)
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Sources: IMF structural reform database; and author’s calculations.The results described in Furceri (2012) suggest that potential gains from structural reforms could be large for Morocco: (i) 0.3 percentage point from financial sector reforms; (ii) 0.2 percentage points from capital account reforms; (iii) 0.7 percentage point from current account reforms; (iv) 0.6 percentage point from product market reforms; (v) 0.5 percentage point from labor market reforms. Under an ambitious reform agenda, the overall potential growth gain from undertaking the full range of reforms described might come close to 2½ percentage points.
1/ The index represents a de jure measure of financial integration. According to this measure, the level of financial integration in Morocco corresponds to the first quartile of the distribution of the indicator. A similar finding is obtained also for the de facto measures of financial integration, as the one proposed by Lane and Milesi-Ferretti (2007).2/ These indicators are included in an extensive dataset, compiled by the IMF Research Department, that brings together information on a variety of structural reforms in different sectors over roughly the past 30 years, and which covers a cross-section of both industrial and developing countries.3/ The countries with the lowest level of restrictions are: Estonia and Latvia for domestic finance; Bolivia, Chile, Costa Rica, Cyprus, Ecuador, Estonia, Gambia, Hong Kong, Latvia, Lithuania, Malta, Paraguay, Peru, Singapore, the Slovak Republic, Uruguay, and Zambia for capital account; Bahrain, Estonia, Hong Kong, Saudi Arabia, and Singapore for current account; Bolivia, Colombia, Lithuania, Cote d’Ivoire, Mozambique, Russia, and Thailand for EPL; Brazil, El Salvador, Estonia, and Romania for product market.C. Unemployment
Stylized facts
13. Unemployment has considerably declined over the last decade. The overall unemployment rate in Morocco declined from 13.4 percent in 2000 to 9.1 percent in 2009, and has remained broadly constant since (Figure 4).
Unemployment and Youth Unemployment: Past Trends
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: Moroccan High Commissariat of Planning (HCP); and IMF staff estimates.Unemployment and Youth Unemployment: Past Trends
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: Moroccan High Commissariat of Planning (HCP); and IMF staff estimates.Unemployment and Youth Unemployment: Past Trends
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: Moroccan High Commissariat of Planning (HCP); and IMF staff estimates.Demographic factors have played an important role in affecting the dynamics of unemployment rates. Over the past three decades Morocco has undergone a rapid demographic transition to low fertility. Fertility rates have decreased steadily, from 4.8 percent in 1985 to 2.4 in 2007. As a result, population growth has declined from 2.2 percent to 1.2 percent over the same period. Participation rates have also declined during the past decade, generating fewer entrants into the labor market—on average, each year has recorded 123,000 new entrants into the labor market. In contrast, employment growth has been robust, averaging about 2 percent over the same period. In particular, about 164,000 jobs were created each year between 2000 and 2008, leading to an average yearly reduction of 40,000 unemployed.
Higher growth has contributed significantly to job creation. Average economic growth increased from about 3 percent in the 1990s to about 5 percent over the period 2000–08 (Table 1 and Section B), resulting in an increase in employment growth to about 2 percent per year over the same period. In other words, each percentage point of economic growth has generated about 0.4 percent growth in employment.
Job creation has occurred mainly in the services sector. Among the different sectors of economic activity, the services sector has absorbed the largest share of new entrants (84,000 jobs created each year), followed by industry (61,000) and agriculture (13,000).
14. Unemployment remains high among educated youth (Table 2). Despite the large gains in the overall rate of unemployment, it has not decreased with the same speed for all segments of the population, particularly for the youth. As a result, the ratio of youth unemployment to overall unemployment has steadily increased from about 1.5 in 2001 to more than 2 in 2011 (Figure 3).
Unemployment, 2011
Unemployment, 2011
| Unemployment | ||
| (Percent) | (Millions) | |
| Overall | 8.9 | 1.028 |
| Unemployment rural vs. urban areas | ||
| (Percent) | (Millions) | |
| Urban | 13.4 | 0.817 |
| Rural | 3.9 | 0.211 |
| Unemployment by Gender | ||
| (Percent) | (Millions) | |
| Male | 8.4 | 0.713 |
| Female | 10.2 | 0.211 |
| Unemployment by Age Groups | ||
| (Percent) | (Millions) | |
| 15–24 | 17.9 | 0.397 |
| 25–34 | 12.9 | 0.438 |
| 35–44 | 5.2 | 0.133 |
| 45–59 | 1.8 | 0.060 |
| Unemployment by Education | ||
| (Percent) | (Millions) | |
| No degree | 4.0 | 0.283 |
| Average degree | 15.4 | 0.528 |
| High degree | 19.4 | 0.216 |
| Unemployment by Duration | ||
| (Percent) | (Millions) | |
| 12 months + | 64.8 | 0.666 |
Unemployment, 2011
| Unemployment | ||
| (Percent) | (Millions) | |
| Overall | 8.9 | 1.028 |
| Unemployment rural vs. urban areas | ||
| (Percent) | (Millions) | |
| Urban | 13.4 | 0.817 |
| Rural | 3.9 | 0.211 |
| Unemployment by Gender | ||
| (Percent) | (Millions) | |
| Male | 8.4 | 0.713 |
| Female | 10.2 | 0.211 |
| Unemployment by Age Groups | ||
| (Percent) | (Millions) | |
| 15–24 | 17.9 | 0.397 |
| 25–34 | 12.9 | 0.438 |
| 35–44 | 5.2 | 0.133 |
| 45–59 | 1.8 | 0.060 |
| Unemployment by Education | ||
| (Percent) | (Millions) | |
| No degree | 4.0 | 0.283 |
| Average degree | 15.4 | 0.528 |
| High degree | 19.4 | 0.216 |
| Unemployment by Duration | ||
| (Percent) | (Millions) | |
| 12 months + | 64.8 | 0.666 |
First-time job seekers account for the largest share of unemployed youth. First time - job seekers account almost for 65 percent of total youth unemployed—compared to about 50 percent of total unemployed—with about 70 percent in cities and 50 percent in rural areas.
Youth unemployment is largely of a structural nature. About two-thirds of youth unemployed are without a job for at least one year. This rate is even higher for women and for people living in urban areas.
Unemployment among the educated is persistently high. At the national level, the unemployment rate ranges from 4.5 percent for workers with no degree to 16 percent for those with a diploma below the secondary level (niveau moyen), and to 18.1 percent for those of diploma for secondary studies or higher (niveau supérieur).
The persistent high rate of youth unemployment recorded over the past decade is mainly the result of a negative youth employment growth (-1.2 percent over the period 2000–10). Two complementary factors can explain the high rate of youth unemployment. First, young people are generally more educated than other job seekers and have higher expectations,4 which are not matched by the available opportunities in the market. Labor market mismatches have been driven by the inability of the economy to create highly skilled work, but also by the unbalanced distribution of students in scientific fields (e.g., only about 7 percent of post-secondary students are completing engineering programs), which generates an undersupply of the skills most needed by the private sector. Second, Morocco’s labor market is highly rigid and tends to obstruct the integration of outsider workers (Figure A2, Box 2).
Challenges ahead
15. Demographic factors will continue to play an important role in unemployment dynamics. The working age-population (15–64 years old) is expected to increase by 224 thousand each year between 2012 and 2020, with the largest increase for the age group 35–39. Similarly, labor force projections suggest that the active population 15–64 is expected to increase annually by about 148,000 over the same period. Among the different age groups, the labor force is expected to increase the most in the age group 30–39 and to decrease slightly in the age group 15–24. Given these trends, and assuming an average growth rate of about 5 percent, the overall unemployment rate could decline to about 8.5 percent by 2017 (Figure 5).
Unemployment and Youth Unemployment: Projected Future Trends
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: Moroccan High Commissariat of Planning (HCP); and IMF staff estimates.Unemployment and Youth Unemployment: Projected Future Trends
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: Moroccan High Commissariat of Planning (HCP); and IMF staff estimates.Unemployment and Youth Unemployment: Projected Future Trends
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: Moroccan High Commissariat of Planning (HCP); and IMF staff estimates.16. Higher economic growth might not necessarily be translated into higher youth employment growth. While overall employment has been responsive to changes in output, youth employment has steadily decreased in recent years despite sustained GDP growth rates. This suggests that higher economic growth might not necessarily translate into higher youth employment growth and in a significant reduction in youth unemployment. In particular, given the projected changes in youth labor force, youth unemployment is likely remain high in 2017 at a rate of about 15 percent (Figure 5).
Policy recommendations
17. A higher growth performance will be necessary but not sufficient to significantly reduce unemployment over the medium term. In the absence of structural reforms aimed at improving the responsiveness of labor market conditions to changes in economic activity, higher economic growth is likely to have only a modest impact on the overall rate of unemployment and negligible effects on youth unemployment. In this context, deepening structural policies aimed at improving the functioning of the labor market will be crucial. In particular:
Reforms aimed at reducing labor market rigidities (including search and hiring costs) will be essential to increasing labor demand over the medium term and to facilitating the integration of young outsider workers into the labor market.
Reforms aimed at improving the business climate and fostering product market competition will also be key to reducing unemployment over the medium term. In particular, lower barriers to entry curb market power and incumbents’ rents, and tend to reduce wage claims and close the gap between productivity and real wages. Moreover, stronger competition may reduce the bargaining positions of employers, and increase employment costs for higher wages. Reduced rent sharing would also decrease the time spent for searching for employment opportunities in high wage sectors.
18. Structural reforms may have significant effects in reducing unemployment, particularly among the youth. Recent empirical evidence suggests that large-scale reforms in labor and product markets may have sizeable effects in increasing the responsiveness of the labor market to changes in economic activity (Crivelli et al. 2012). In addition, as shown in the previous section, reforms in these areas may also increase Morocco’s potential growth. Simulation analysis based on these two effects suggests that labor and product market reform could reduce overall and youth unemployment over the medium term to 5 and 8 percent, respectively (Figure 5).5 However, while these policies will have an important role in reducing youth unemployment, the high level of unemployment among young graduates is also the result of mismatches between labor market demand and supply. In this context, strengthening current programs (such as the Taahil and the Moukawalati) and properly designing additional active labor market policies will improve the efficiency of the job matching process and by enhancing the skills of the unemployed. Finally, supporting enterprise development by improving infrastructure and ensuring that micro, small and medium-sized enterprises (MSMEs) have access to credit may have significant effects on youth employment.
D. Inclusiveness
Stylized facts
19. Poverty has considerably decreased over the past decade. The significant increase in growth recorded over the past decade has contributed to a marked reduction in poverty.6 In particular, over the period about 1.7 million of people have moved out of poverty, and the poverty rate has decreased by more than 40 percent. On the basis of the national poverty line, the share of the population that could be qualified as “poor” has decreased from about 16 percent in 1999 to less than 9 percent in 2008 (Table 5), and poverty gaps have also improved relative to other emerging market economies (Figure 6, Panel A). In addition, the reduction in poverty has been uniform between urban (about 50 percent) and rural areas (about 40 percent).
Poverty and Inequality Indicators—Kernel Density Charts
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: World Bank’s World Development Indicators.Note: Y-axis= Cross-country Kernel density estimates for an unbalanced sample of emerging market and developing economies; X-axis=variable; −−−−−−Morocco.Poverty and Inequality Indicators—Kernel Density Charts
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: World Bank’s World Development Indicators.Note: Y-axis= Cross-country Kernel density estimates for an unbalanced sample of emerging market and developing economies; X-axis=variable; −−−−−−Morocco.Poverty and Inequality Indicators—Kernel Density Charts
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: World Bank’s World Development Indicators.Note: Y-axis= Cross-country Kernel density estimates for an unbalanced sample of emerging market and developing economies; X-axis=variable; −−−−−−Morocco.Poverty Rate
(Percent)
Poverty Rate
(Percent)
| Area | 1990 | 1999 | 2001 | 2007 | 2008 | |
|---|---|---|---|---|---|---|
| Poverty rate based on | National | 13.1 | 16.2 | 15.3 | 8.9 | 8.8 |
| national poverty line | Urban | 7.6 | 9.5 | 7.6 | 4.8 | 4.7 |
| (percent) | Rural | 18.0 | 24.1 | 25.1 | 14.4 | 14.2 |
Poverty Rate
(Percent)
| Area | 1990 | 1999 | 2001 | 2007 | 2008 | |
|---|---|---|---|---|---|---|
| Poverty rate based on | National | 13.1 | 16.2 | 15.3 | 8.9 | 8.8 |
| national poverty line | Urban | 7.6 | 9.5 | 7.6 | 4.8 | 4.7 |
| (percent) | Rural | 18.0 | 24.1 | 25.1 | 14.4 | 14.2 |
GINI Coefficient
(Percent)
GINI Coefficient
(Percent)
| Area | 1991 | 1999 | 2001 | 2007 | |
|---|---|---|---|---|---|
| Gini coefficient | National | 39 | 39 | 41 | 41 |
| Urban | 38 | 38 | 39 | 41 | |
| Rural | 31 | 32 | 32 | 33 |
GINI Coefficient
(Percent)
| Area | 1991 | 1999 | 2001 | 2007 | |
|---|---|---|---|---|---|
| Gini coefficient | National | 39 | 39 | 41 | 41 |
| Urban | 38 | 38 | 39 | 41 | |
| Rural | 31 | 32 | 32 | 33 |
Adult Illiteracy Rate
(Percent)
Adult Illiteracy Rate
(Percent)
| Category | 1998 | 2004 | 2008 |
|---|---|---|---|
| Female | 66 | 60 | 57 |
| Male | 37 | 34 | 32 |
| Urban | 38 | 33 | 32 |
| Rural | 72 | 68 | 63 |
| National | 52 | 48 | 45 |
Adult Illiteracy Rate
(Percent)
| Category | 1998 | 2004 | 2008 |
|---|---|---|---|
| Female | 66 | 60 | 57 |
| Male | 37 | 34 | 32 |
| Urban | 38 | 33 | 32 |
| Rural | 72 | 68 | 63 |
| National | 52 | 48 | 45 |
20. Income inequality has slightly increased. The substantial decline in the poverty rate has not been matched by a similar improvement in inequality. Indeed, descriptive statistics of the GINI coefficient suggest that inequality has slightly increased over the past decade, even compared to other emerging market economies (Figure 6, Panel B) and remains persistently high in both urban and rural areas (Table 4). Similarly, the income share held by the poorest 20 percent of the population has not increased and remains relatively low (Figure 6, Panel C). High income inequality is also, in part, the result of an unequal distribution of assets and wealth. For example, data on the distribution of agricultural land indicate that the distribution of land is highly skewed towards the richest farmers.
21. Inequality in the access to health services remains high (Figure 7). While health outcome indicators such as life expectancy at birth and mortality rates have recorded a significant improvement over the past two decades (Figure 7), they remain highly inequitable. In particular, disparities in maternal and child health outcomes (including malnutrition) still persist between rural and urban regions, and between rich and poor. Similarly, the distribution of health services is highly skewed toward higher socioeconomic status and urbanized areas (Figure 8). Access to comprehensive health coverage is quite limited and mostly exclusive to urban areas; while 100 percent of the urban population lives at a distance of less than 5 kilometers from health care providers, more than 70 percent of the rural population lives at a distance of more than 5 kilometers from the closest health facility. Per capita health expenditure is low also compared to other countries in the region (in 2006, health care spending per capita in Morocco has was $114 compared to $154 in Tunisia and $238 in Jordan), and it is mainly supported by households’ out-of pocket payments (about 60 percent).
Health Indicators—Kernel Density Charts
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: World Development Indicators.Note: Y-axis= Cross-country Kernel density estimates for an unbalanced sample of emerging market and developing economies; X-axis=variable;−−−−−−Morocco.Health Indicators—Kernel Density Charts
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: World Development Indicators.Note: Y-axis= Cross-country Kernel density estimates for an unbalanced sample of emerging market and developing economies; X-axis=variable;−−−−−−Morocco.Health Indicators—Kernel Density Charts
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: World Development Indicators.Note: Y-axis= Cross-country Kernel density estimates for an unbalanced sample of emerging market and developing economies; X-axis=variable;−−−−−−Morocco.22. Educational outcomes have improved only slightly. The substantial increase in growth and reduction in the poverty rate has not been accompanied by a significant improvement in educational outcomes. At the national level, the adult literacy rate has increased only by 13 percentage points during the past decade—from 42 percent in 1998 to 55 percent in 2008—and it remains very low compared to other countries (Table 7 and Panel A of Figure 9). High illiteracy rates are recorded in particular for females (57 percent) and people living in rural areas (63 percent). The high illiteracy is mostly an elderly phenomenon, but literacy rates remain quite low also among the young. One of the driving factors of the improvement in literacy rates is the reduction in dropout rates from primary school, resulting in an increase in primary completion rates (Figure 9, Panel B). However, although primary completion has increased, enrollment rates in secondary school remain very low and have not significantly improved (Figure 9, Panel C).
Regional Inequality in Access to Health Services
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: Semlali, H. (2012), “Morocco Case Study: Health Care Environments in Morocco,” Global Health Workforce Alliance.Regional Inequality in Access to Health Services
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: Semlali, H. (2012), “Morocco Case Study: Health Care Environments in Morocco,” Global Health Workforce Alliance.Regional Inequality in Access to Health Services
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: Semlali, H. (2012), “Morocco Case Study: Health Care Environments in Morocco,” Global Health Workforce Alliance.
Education Indicators—Kernel Density Charts
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: World Bank’s World Development Indicators.Note: Y-axis= Cross-country Kernel density estimates for an unbalanced sample of emerging market and developing economies; X-axis=variable; −−−−−−Morocco.Education Indicators—Kernel Density Charts
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: World Bank’s World Development Indicators.Note: Y-axis= Cross-country Kernel density estimates for an unbalanced sample of emerging market and developing economies; X-axis=variable; −−−−−−Morocco.Education Indicators—Kernel Density Charts
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: World Bank’s World Development Indicators.Note: Y-axis= Cross-country Kernel density estimates for an unbalanced sample of emerging market and developing economies; X-axis=variable; −−−−−−Morocco.23. Access to infrastructure has considerably improved over the past two decades, owing to the launch of several programs. In particular, following the launch of the Programme d’Approvisionnement Groupé en Eau Potable des Populations Rurales in 1994, the share of rural population with access to drinkable water has increased from 14 percent in 1994 to more than 40 percent in 2009. Over the same period, the Programme d’Electrification Rurale Global has led to a significant increase in the country’s electrification rate, from 18 percent in 1995 to 84 percent in 2009. Similarly, in the ambit of the Programme National des Routes Rurales 1,000 kilometers of rural roads have been built, increasing the access rate from 36 percent in 1995 to 54 percent in 2005.
24. Gender inequality remains high, even compared to other countries in the region. According to the UNDP Gender Inequality Index—which reflects gender-based inequalities in three dimensions: (i) reproductive health; (ii) empowerment; and (iii) economic activity—Morocco ranked 104 out of 146 countries in gender inequality in 2011, and performs considerably worse than other countries in the region including Tunisia (45), Algeria (71) and Jordan (83) (Figure 10). The ratio of young literate females to males, despite a slight increase over the last decade, is still below 80 percent, and the participation of women in the labor force remains persistently at very low levels. In particular, during the period 2000–09 the ratio of labor force participation, females to males, averaged about 32 percent, lower than in other countries in the region such as Algeria (43 percent) and Tunisia (35 percent).
Gender Indicators—Kernel Density Charts
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: World Development Indicators.Note: Y-axis= Cross-country Kernel density estimates for an unbalanced sample of emerging market and developing economies; X-axis=variable;−−−−−Morocco.Gender Indicators—Kernel Density Charts
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: World Development Indicators.Note: Y-axis= Cross-country Kernel density estimates for an unbalanced sample of emerging market and developing economies; X-axis=variable;−−−−−Morocco.Gender Indicators—Kernel Density Charts
Citation: IMF Staff Country Reports 2013, 110; 10.5089/9781484340769.002.A001
Source: World Development Indicators.Note: Y-axis= Cross-country Kernel density estimates for an unbalanced sample of emerging market and developing economies; X-axis=variable;−−−−−Morocco.Policy recommendations
25. Morocco has made substantial progress in fostering inclusive growth over the past decade, but additional efforts are needed. Improvement in economic growth, health, and educational outcomes, easier access for basic infrastructure, and a marked reduction in poverty rates are tangible evidence of the progress made in the past decade. In this context, the launch of several programs, including the National Initiative for Human Development in 2005, had a significant contribution to ameliorating the conditions of poor and vulnerable groups. Despite this progress, however, additional efforts are needed to strengthen inclusiveness, particularly with the aim of reducing inequality in the distribution of income and wealth, to broaden health access, and to further improve educational outcomes.
Policies to reduce income inequality. Reducing income inequality would require strengthening redistribution policies. For this purpose, a reallocation of government spending would be needed to free resources for the social sector. The increase of the budgetary resources in the social sector could be obtained through reforming the current subsidy scheme, and redirecting savings from this reform to well-targeted social programs. Increasing social expenditure for disadvantaged groups would allow reducing inequality and sustaining demand in the short/medium-term. On the revenue side, cutting back tax expenditures, which mainly benefit high-income groups, would be beneficial for income equality and for long-term output. In addition, scaling back tax expenditure would reduce the complexity of the tax system, and thus improve tax compliance and lower collection costs. Shifting revenue toward progressive taxes could also have a positive impact on equality. However, there is likely to be a trade-off with growth objectives as personal and corporate income taxes are the most distortive. Improvement in the quality of productive spending, however, can reduce the severity of this trade-off. Finally, reducing inequality would also require policies aimed at broadening access to financial services.
Policy to reduce inequality in access to health services. The two reforms launched by the government in 2005 (the creation of the Assurance Maladie Obligatoire and the Regime d’Assistance Medicale) were important steps in reducing disparities of health access between income groups and between rural and urban areas. In order to enhance the potential effects of these reforms, an increase in the amount of public resources devoted to health care would be needed to expand the coverage, meet the population’s health demands, and broaden the scope of benefit packages. In addition, strengthening the efficiency of public and private spending would be needed to improve the quality and increase access to health services. Further intensifying partnerships with the private sector, non-governmental organizations, and local communities could also help reduce inter-regional inequities.
Policies to foster educational outcomes. Despite some improvement in educational outcomes, illiteracy rates and enrollment rates in secondary school are still low, especially in rural areas. To further increase basic schooling and equality in educational outcomes, factors that affect low school attendance of the poor and girls, such as indirect cost and access, need to be addressed. In particular, further efforts are needed to: (i) increase the budget allocation for educational spending, particularly toward basic schooling in rural areas; (ii) improve school facilities in rural areas; (iii) foster school autonomy; and (iv) reinforce cooperation with nongovernmental organizations and local communities. Policies aimed at improving the quality of and access to upper basic and secondary education, and increasing opportunity for continuing schooling, will also be key to increasing secondary enrollment rates and the skills of the future labor force.
E. Conclusions
26. Morocco has made substantial progress in increasing inclusive growth over the past decade, but additional efforts are needed. Morocco’s social indicators have improved over the past decade. Higher economic growth, lower unemployment, better health and educational outcomes, better access to basic infrastructure, and a marked reduction in poverty rates are tangible evidence of the progress made in fostering inclusive growth. Additional efforts are, however, needed to increase potential growth, improve educational outcomes, and to further reduce the still-high youth unemployment and the inequality in the distribution of income and access to health care, particularly across regions.
27. The urgency of growth-enhancing structural reforms has arguably increased in Morocco. Given the strong trade linkages with European countries, a protracted downturn in euro area countries is likely to have significant short- and medium-term effects on Morocco’s growth performance. Against this background, and given the limited space for macroeconomic policy to boost demand in the short term, the urgency of structural reforms in the area of trade and financial liberalization, and labor and product market has arguably increased in Morocco.
28. Potential job and growth gains from structural reforms could be large. Under an ambitious reform agenda, the overall potential growth gain from undertaking a full range of reforms might come close to 2½ percentage points. Similarly, labor and product market reforms may have sizeable effects in reducing overall and youth unemployment over the medium term to 5 and 8 percent, respectively.
29. While higher growth and employment are a prerequisite to reduce poverty and income inequality, strengthening social policies and increasing safety nets will be needed. Increasing budgetary resources for social spending in health and education are key to improving outcomes and reducing disparities in health and educational access between different income groups and between rural and urban areas.
30. Preserving economic efficiency and fostering growth while strengthening inclusiveness remains a priority. The increase of the budgetary resources for the social sector could be obtained through reform of the current subsidy scheme and redirecting savings from this reform to well-targeted social programs. On the revenue side, cutting back tax expenditures, which mainly benefit high-income groups, would be beneficial for income equality and for long-term GDP per capita. In addition, scaling back tax expenditure would reduce the complexity of the tax system and thus improve tax compliance and lower collection costs. Shifting revenue towards progressive taxes could also have a positive impact on equality; however, there is likely to be a trade-off with growth objectives as personal and corporate income taxes are the most distortive. Improvement in the quality of productive spending (including investment in infrastructure, health, and education), however, can reduce the severity of this trade-off. Finally, supporting enterprise development by improving infrastructure and ensuring that micro, small, and medium-sized enterprises have access to credit may have significant effects on generating employment, raising income, and reducing poverty and inequality.
References
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Prepared by Davide Furceri.
Throughout this paper, “growth” refers to the growth of nonagricultural output.
The analysis assumes that it is possible to disentangle the effects of specific reforms, and abstracts from the complementarity of these reforms and the appropriate sequence of implementation.
About 33 percent of highly educated first-time job seekers have a reservation salary higher than 3,300 Dirhams.
The effect of structural reforms on the responsiveness of Morocco’s labor market to changes in economic activity is computed by simulating a convergence of policy settings towards those prevailing in benchmark countries, where these are identified as those scoring the highest (lowest) value in the product (labor) market indicator. In detail, the impact of structural reforms is simulated as:
Estimates from the Moroccan High Commissariat of Planning (HCP) suggest that an increase of one percentage point in per capita growth may reduce poverty rates by about 3 percent.
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Prepared by Samah Mazraani (MCD) and Bruno Versailles (FAD). We thank Jean-Francois Dauphin, Carlo Sdralevich (both MCD), David Coady, and Vimal Thakoor (both FAD) for valuable comments and suggestions. Research assistance from Kadia Kebet and Anna Maripuu is gratefully acknowledged.
Throughout the paper, gross subsidy estimates are inclusive of taxes, i.e. they are calculated as the difference between actual retail prices and the prices implied by a price structure that includes taxes. Net subsidies, on the other hand, are calculated as gross subsidies minus taxes (see Table 1).
This paper focuses on consumer subsidies and their impact on the budget, and does not dwell on market structure and the supply side issues.
Food subsidies added another 7.8 billion dirham. In terms of budgetary impact, the total of 49.2 billion dirham (6.1 percent of GDP) was only marginally lower than the total public investment budget in 2011 (MEF, 2012b)
Goodwin et al. (2004) estimate a range of values for price elasticities between -0.25 and -0.64 based on a review of developed countries. We assume an elasticity of -0.5 for all fuel products.
This exercise is done for illustrative purposes only. To the extent that the 2013 budget envelope and medium-term target of 3 percent includes spending on the planned targeted cash transfers, the price adjustment required would be higher than illustrated here in order to generate the necessary saving to finance the cash transfers. In addition, it is assumed that food subsidies remain constant as a share of GDP at 0.7 percent.
On June 2, 2012, the prices of diesel, gasoline, and fuel oil were increased by 14, 20, and 27 percent respectively.
See paragraphs 18 and 19 of Morocco—Staff Report for the 2012 Article IV Consultation and First Review under the Two-Year Precautionary and Liquidity Line.
It is assumed that quarterly prices are flat in a given year, hence the price adjustment in July is always double that of January.
See for instance Kumhof and Muir (2012).
Other important long-run objectives would typically include improving energy efficiency and lowering energy consumption (Dudine et al., 2006), which the Moroccan authorities are pursuing through the development of renewable sources of energy such as solar power generation.
Baig et al (2007) give evidence that liberalized regimes tend to be more politically robust than automatic pricing formulas as it helps de-politicize product prices (see also Section E).
Countries such as Chile, Colombia, Malawi, Nigeria, Peru, Thailand and Vietnam, have used smoothing rules to avoid fully passing through sharp increases in world prices.
In the long term, substitution possibilities are considered high as higher-income households adjust their consumption to capture benefits of the lower rates.
