Abstract
Under increasing budget pressure, Morocco carried out an extensive set of subsidy reforms in 2014 and is planning for further reforms for 2015–2017, which will eliminate most consumers’ subsidies. This paper evaluates (ex post) the 2014 reforms and simulates (ex ante) the impact on household welfare, poverty, and the government budget of the total elimination of subsidies. The paper considers food and energy subsidies and estimates direct and indirect effects using SUBSIM, a subsidies simulation model designed by the World Bank. It finds that the 2014 reforms have been a good mix of reforms from a distributional, welfare, poverty, and government budget perspectives. They are perhaps the most rational reforms undertaken in the Middle East and North Africa region in recent years. The analysis also finds further reforms costly for the poor and more complex from a political economy perspective, especially for liquefied petroleum gas.
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Notes
- 1.
Before 1941 there were six equalization funds to stabilize prices of sugar, steel, fuels, eggs, timber, and vegetables.
- 2.
Morocco was a protectorate of France until 1956.
- 3.
The main basic commodities targeted by the CDC during World War II include flour, bread, edible oil, charcoal, sugar, barley, corn, and milk.
- 4.
In the rest of the text, CDC will also be used to include the Office National Interprofessionnel des Cereales et des Legumineuses (ONICL). Created in 1973, the agency administers subsidies for soft wheat and flour.
- 5.
Note that the retail price for gasoline and diesel in 2013 were higher than the CIF border price. The difference is mostly explained by taxes. Therefore, subsidies are estimated net of taxes, which is a common practice. See, for example, IMF 2013.
- 6.
The elimination of subsidies on gasoline is based on the unit subsidies estimated by the government at the time of the January 2014 reform. It should be noted that the retail price for gasoline was higher than the import price (see Table 3.1) and that the difference is explained mostly by taxes on gasoline. Therefore, subsidies are estimated net of taxes, which is a common practice (IMF 2013). Also, the share of taxes in Morocco is lower than in countries like Italy or Germany where this share is well above 50% (OPEC 2014).
- 7.
Increasing block tariffs (IBT) apply when the tariff corresponding to a particular block affects only the latest block of consumption, while tariffs for the previous blocks of consumption apply to the previous blocks. Volume differentiated tariffs (VDT) apply when the tariffs corresponding to a particular block are applied to all quantities consumed up to that block.
- 8.
Note that the share of consumption in each block could also be used for weighting.
References
CDC (Caisse de Compensation). http://cc.gov.ma/.
HCP Morocco (High Commission for the Plan). www.hcp.ma.
IMF (International Monetary Fund). 2013. Energy subsidies reforms: lessons and implications. Washington, DC: International Monetary Fund.
Ministry of Economy and Finance. 2009–14. Notes de Conjonctures, 2009–2014, Direction du Trésor et des Finances Exterieures. Morocco.
OPEC (Organization of the Petroleum Exporting Countries). 2014. Who gets what from imported oil? www.opec.org, September.
Acknowledgements
The authors are grateful to Abdoul Gadiry-Barry for preparing the data and to Jean-Pierre Chauffour for useful comments on the final draft. All simulations have been carried out with SUBSIM (see www.subsim.org)
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Annex 3.1: Major historical landmarks of Morocco’s subsidy system
Annex 3.1: Major historical landmarks of Morocco’s subsidy system
Date | Measures/reforms |
|---|---|
Prior to 1941 | Six equalization funds (sugar, iron, fuel, eggs, wood, vegetables) |
1941 | Creation of the subsidy fund (Caisse de Compensation, CDC) |
1941 | Subsidies for flour, bread, edible oils, fats |
1942 | Subsidies for coal |
1944 | Subsidies for transportation of barley and corn |
1945 | Subsidies for sugar and canned milk, transportation of fresh milk |
1946 | Removal of subsidies for transportation of barley and corn Subsidies for farm equipment, seeds and fertilizers |
1947 | One-time subsidies for cotton cultivation for one year |
1948 | One-time subsidies for wheat seed for farmers |
1949 | One-time subsidies for legume seeds |
1949 | Decision to cancel the CDC; decision not applied. |
1952 | Introduction of a policy of encouraging milk production by subsidizing cooperatives |
1953 | Creation of edible oils equalization fund |
1955 | Subsidies for petroleum products Premiums paid to the freezing of lamb Subsidies for industries of textiles, glassware, weaponry, tanneries, cold storage |
January 1959 | Reimbursement of export costs carried by certain handicrafts: slippers, wool carpets, hand-made carpets |
1959 | Subsidies to cover operating deficits of North African coal company |
June 30, 1966 | Removal of subsidies to export of handicrafts |
1967 | Creation of the BARS (procurement office of the Sahara) to be responsible for the logistics of administering subsidies for oil, sugar, and flour for the Saharan provinces |
1971 | Removal of subsidies for operating imbalances of North African coal company |
August 1972 | Subsidies to butter |
September 1, 1973 | Subsidy to milk producers |
December 1, 1973 | Subsidies to edible oils |
1974 | Subsidies to fertilizers Subsidies to packaging of edible oils Subsidies to jet fuel for charters and to the national air companies (RAM) |
1975 | Removal of subsidies to industries |
April 28, 1975 | Subsidies to cement |
1977 | Subsidies to jet fuel intended for cargo flights to transport perishable goods |
1981 | Subsidies on a year of diesel used by farmers |
1982 | Removal of subsidies for butter |
1983 | Removal of subsidies for milk, except milk powder |
1986 | Liberalization of cement prices |
June 1989 | Suppression of subsidies for edible oil packaging |
July 1, 1990 | Liberalization of the fertilizer sector |
December 1994 | Suppression of subsidies to jet fuel for the RAM and air transport companies |
January 1995 | Introduction of a system of price indexation of petroleum products |
1999 | Introduction of a restitution system for sugar subsidies benefiting industries |
November 1, 2000 | Removal of subsidies for edible oils |
2000 | Suspension of the price indexation system for petroleum products |
August 8, 2005 | Suppression of subsidies allocated to jet fuel intended for cargo flights |
February 28, 2006 | Cancellation of the restitution system of sugar subsidies for industries of chocolate, biscuit, confectionery, ice cream, and milk derivatives, and factory-made pastries |
March 7, 2006 | Introduction of a lump-sum subsidy for raw sugar import |
August 1, 2006 | Suppression of subsidies to kerosene |
June 1, 2008 | Subsidies for diesel used by coastal fishing |
December 31, 2008 | Decrease in sugar refund rates for soft drink industries |
2008 | Subsidies to special fuel oil used in the generation of electricity by ONEE |
July 2011 | Subsidies for diesel used by high-sea fishing |
July 1, 2012 | Removal of subsidies of high-sea fishing |
January 1, 2014 | Subsidies to cover VAT on the cost of transportation of butane gas (LPG) |
September 16, 2013 | Resumption of the price indexation system for liquid petroleum products (gasoline, diesel 50 ppm, and industrial fuel oil) |
February 1, 2014 | Removal of subsidies to gasoline and industrial fuel oil |
February 16, 2014 | Progressive decrease each quarter of unit subsidy for diesel |
May 29, 2014 | Removal of subsidies for fuel oil used for generating electricity |
January 1, 2015 | Removal of subsidies to diesel |
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Verme, P., El-Massnaoui, K. (2017). An Evaluation of the 2014 Subsidy Reforms in Morocco and a Simulation of Further Reforms. In: Verme, P., Araar, A. (eds) The Quest for Subsidy Reforms in the Middle East and North Africa Region. Natural Resource Management and Policy, vol 42. Springer, Cham. https://doi.org/10.1007/978-3-319-52926-4_3
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DOI: https://doi.org/10.1007/978-3-319-52926-4_3
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