The Moroccan government announced that it will suspend 15 billion dirhams ($1.75 billion) of public investment to help balance an overstretched budget during the country's current economic crisis.
“This decision is part of the government efforts to balance public finances in the face of the difficulties of the current economic situation,” Communications Minister Mustapha Khalfi told the state news agency Thursday.
The country has been hit hard by the financial crisis in Europe - its chief trading and investment partner as well as a key source of remittances from workers living abroad.
Morocco's Islamist-led coalition government came to power in November 2011 on promises of creating jobs and fighting corruption but has spent most of its time in power struggling to rein in swelling public debt. The previous government spent heavily on public sector salaries to defuse the dissatisfaction accompanying the Arab Spring in 2011.
The Moroccan economy grew 2.4 percent in 2012 due to a poor harvest and the effect of Europe's economic crisis on the country's two key trading partners, Spain and France. This year's growth is estimated to be 4.3 percent. The central bank said March 27 that the budget deficit is a 5.5 percent of the country's gross domestic product.
Initial efforts by the Islamist Prime Minister Abdelilah Benkirane to reform subsidies on fuel and food staples, the key problem with the budget, ran into trouble with his coalition partners and the process has now been delayed pending a national dialogue.
Cutting public spending, however, could just prolong the country's crisis, warned economic Mohammed Said Saadi.
“This will have a negative effect on economic growth this year and the next, as well as on the private sector and the country's infrastructure,” said the former government minister. “The government had other choices to confront the economic crisis and budget deficit but unfortunately, it chose the simplest.”
Saadi said a more effective, yet politically difficult, approach, would have been to seek new reform streams such as creating a wealth tax, removing tax exemptions in agriculture or real estate and going after tax dodgers.