Morocco

Morocco’s public debt represents 71.4 per cent of the country’s GDP, mostly issued under domestic law (according to the latest IMF reports, three-quarters of Morocco’s debt is domestic). External debt, although it represents a small portion of the total public debt, has been growing since 2005, with a steep increase in 2020 due to the impacts of the Covid-19 pandemic. Most of the external debt is owed by Morocco to multilateral institutions, followed by international bondholders. According to the IMF, Morocco’s debt is sustainable, particularly due to the “gradual process of fiscal consolidation” adopted after the debt increase in 2020. Part of this fiscal consolidation has been achieved through the elimination of subsidies, particularly oil and other energy subsidies. Public expenditure has dropped from 34.14 per cent of GDP in 2020 to 32.71 per cent in 2023, and the IMF projects a further contraction by up to 30 per cent in 2026.

The dependency on energy imports, particularly oil and gas, and energy prices fluctuations are one of the main factors in Morocco’s financing needs and therefore indebtedness. In fact, this is also due to the process of privatisation of most of Morocco’s profitable public enterprises and liberalisation processes, including of the energy sector, in the 1980s, after a debt crisis. With the privatisation of the oil refining industry, Morocco’s government dependency on external energy sources increased substantially.

As a result of the phasing out of all energy subsidies, Morocco is planning to extend cash transfers by a reform of social protection, accessible to all citizens. Such a measure, together with public servant wage increases, will require additional resources, in a context of IMF prescribed fiscal consolidation. Furthermore, the high vulnerability of Morocco to climate change, particularly to intense and continuous drought, also poses a risk of increasing public debt. In fact, in 2023, the impacts of the third year of drought in a row, together with the reconstruction costs after the earthquake that hit the Atlas region in September 2023, affected, according to the IMF, the pace at which public debt was expected to fall. Water scarcity particularly affects agricultural production, damaging food exports and increasing dependency on food imports, affecting inflation by contributing to higher food prices. This disproportionately affects rural vulnerable households and women.

In the face of energy dependency and high climate change vulnerability, Morocco is increasing investment in energy transition, mostly through public private partnerships and multilateral lending. This strategy adds to the country’s public debt.

Morocco’s public debt represents 71.4 per cent of the country’s GDP, mostly issued under domestic law (according to the latest IMF reports, three-quarters of Morocco’s debt is domestic). External debt, although it represents a small portion of the total public debt, has been growing since 2005, with a steep increase in 2020 due to the impacts of the Covid-19 pandemic. Most of the external debt is owed by Morocco to multilateral institutions, followed by international bondholders. According to the IMF, Morocco’s debt is sustainable, particularly due to the “gradual process of fiscal consolidation” adopted after the debt increase in 2020. Part of this fiscal consolidation has been achieved through the elimination of subsidies, particularly oil and other energy subsidies. Public expenditure has dropped from 34.14 per cent of GDP in 2020 to 32.71 per cent in 2023, and the IMF projects a further contraction by up to 30 per cent in 2026.

The dependency on energy imports, particularly oil and gas, and energy prices fluctuations are one of the main factors in Morocco’s financing needs and therefore indebtedness. In fact, this is also due to the process of privatisation of most of Morocco’s profitable public enterprises and liberalisation processes, including of the energy sector, in the 1980s, after a debt crisis. With the privatisation of the oil refining industry, Morocco’s government dependency on external energy sources increased substantially.

As a result of the phasing out of all energy subsidies, Morocco is planning to extend cash transfers by a reform of social protection, accessible to all citizens. Such a measure, together with public servant wage increases, will require additional resources, in a context of IMF prescribed fiscal consolidation. Furthermore, the high vulnerability of Morocco to climate change, particularly to intense and continuous drought, also poses a risk of increasing public debt. In fact, in 2023, the impacts of the third year of drought in a row, together with the reconstruction costs after the earthquake that hit the Atlas region in September 2023, affected, according to the IMF, the pace at which public debt was expected to fall. Water scarcity particularly affects agricultural production, damaging food exports and increasing dependency on food imports, affecting inflation by contributing to higher food prices. This disproportionately affects rural vulnerable households and women.

In the face of energy dependency and high climate change vulnerability, Morocco is increasing investment in energy transition, mostly through public private partnerships and multilateral lending. This strategy adds to the country’s public debt.

In the fiscal year 2021, the tax revenue of Morocco amounted to 27.1 per cent of GDP, which is among the highest levels in Africa.

Morocco is currently considering introducing a carbon tax, one key reason for this being an EU policy framework known as the Carbon Border Adjustment Mechanism (CBAM). This mechanism, which will impose levies on a range of products imported into the EU on the basis of a calculation of their embedded carbon emissions, is politically controversial and raises concerns about trade discrimination as well as violation of some of the fundamental principles of the global climate agreements, including the principle of common but differentiated responsibilities and respective capabilities. The CBAM is expected to have major implications for Morocco.

In the report State of Tax Justice 2023, Tax Justice Network has estimated that cross-border tax abuse is costing Morocco a total of US$983 million annually, corresponding to over a third of the country’s health expenditures. Of this loss, it is estimated that US$920 million stems from corporate tax abuse and the remaining US$63 million from offshore wealth.

Morocco is a member of the Africa Group, which tabled the resolutions at the UN General Assembly in favour of setting up an intergovernmental UN tax process and negotiating a UN Framework Convention on Tax. When a new ad hoc committee was set up at the UN to develop draft Terms of Reference for the new UN Framework Convention on International Tax Cooperation, Morocco became a member of the Bureau of the process. In March 2024, Morocco also made a submission to the process which, among other things, stressed: “The Framework Convention should be designed to enable all countries to participate effectively in the development of rules and standards for international tax cooperation and should take into account the different needs, priorities and capacities of member states.”