Morocco: Central govt budget deficit reaches MAD 30.4bn, 46.8% of plan at end-Aug

• Deficit narrows by MAD 13bn y/y; revenue increase of MAD 33.5bn surpasses spending rise of MAD 20.6bn
• Revenue growth was broad-based in both tax and non-tax receipts
• Spending growth kept within plan but subsidies cost rise with higher fuel prices

The central government budget deficit reached MAD 30.4bn in Jan-Aug, according to the monthly report published by the finance ministry on Friday. The deficit was by MAD 13bn lower against the same period of 2021 and accounted for only 46.8% of the full-year target. The annual gap decrease came with the larger MAD 33.5bn y/y increase in total revenue which surpassed the MAD 20.6bn rise of expenditures, the finance ministry noted.

Budget revenues increase was rather broad-based as both tax and non-tax revenues rose by 19.8% and 33.3% y/y in Jan-Aug, respectively. Tax revenues accounted for 75.21% of the plan, while non-tax revenues were a bid behind reaching 65.1% of the full-year plan. Within tax revenues, corporate profit tax revenues surged by 51.4% y/y or MAD 13bn to MAD 38.2bn. Personal income tax revenues increased by 5.7% or MAD 1.8bn y/y. VAT receipts were up by 18.2% y/y to MAD 52.4bn. Domestic VAT receipts fell by MAD 1bn or 5.7% y/y mostly due to increase in VAT refunds to MAD 5.3bn in Jan-Aug 2022, compared to MAD 3.9bn in the same period of 2021. This was offset by VAT on imports that rose by 32.7% y/y to MAD 36.7bn as rising global prices pushed up import value. Taxes on consumption increased by 4.6% y/y to MAD 20.6bn as within them tax on tobacco rose 7% y/y to MAD 7.9bn.

The non-tax revenues reached MAD 23.4bn, up from MAD 17.6bn a year ago. The rise reflected MAD 7.1bn rise in income paid from public companies, including MAD 4bn from OCP Group, the world's largest phosphate mining and leading fertilizer company, MAD 2.2bn from the Agency of national land registry and MAD 0.5bn from the central bank. Other non-tax receipts reached MAD 16.3bn, up from MAD 5.4bn a year ago and reaching 96% of the annual target due to MAD 10.2bn payment for innovative financing, the finance ministry explained.

Regular expenses increased by 12.9% y/y and reached 73.5% of the annual target. The increase in spending on personnel and goods and services came in at 3.5% y/y and 4.6% y/y, respectively. Debt interest service costs went up by 4.2% y/y. Unsurprisingly, the bulk of the annual spending rise was on the back subsidies to butane gas prices and to transport professionals to protect them from the surge in fuel prices. The ministry thus updated its forecast and now expects full-year subsidy spending to reach MAD 33.8bn.

Morocco's finance ministry has slashed its 2022 GDP growth forecast to 1.5% against previous 3.2%. The revision came mostly as the government saw risk to household consumption from the rising prices. Grain harvest would also disappoint this year due to the drought. The government had to also update downwards its global growth forecast as international situation remains challenging due to the war in Ukraine, which has led to an increase in commodity prices and disruption of global supply chains, as well as an exacerbation of inflationary pressures. Despite the growth outlook downgrade the ministry kept unchanged its budget deficit target at 5.3% of GDP. The government said that strong revenue execution especially on the part of tax revenue would compensate the additional spending approved earlier this year. Still, budget metric will probably deteriorate slightly in September when the industry and services and agriculture minimum wage hike came into force.