Morocco hikes fuel prices in bid to fix state finances

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Moroccan petrol prices jumped on Monday as the cash-strapped government began implementing a fuel price indexation system aimed at reining in oil subsidies and plugging a budget deficit, officials said.

The government is scrambling to limit the impact of oil price fluctuations on Morocco’s ailing public finances, with fuel subsidies weighing heavily on the budget of the North African country, which imports almost all its energy needs.

Under the controversial indexation system, the price of diesel surged 8.4 percent on Monday to 0.79 euros per liter, while petrol hit 1.14 euros per liter, representing a rise of 4.8 percent, a government official confirmed to AFP.

The move will increase the pressure on many ordinary Moroccans already struggling to make a living.

“I spend all day driving around and earning very little. Now it will be even more difficult,” said Mohcine, a taxi driver and father of two.

Under the new pricing system, the cost of petrol, diesel and fuel oil will be reviewed on a monthly basis, and if their value over a two month period changes by more than 2.5 percent, the retail price will be altered accordingly.

Fuel subsidies consume around 90 percent of the bloated state compensation fund, amounting to 55 billion dirhams ($6.6 billion) of public spending in 2012.

“If we didn’t have this expenditure, the budget deficit would be around 0.5 percent” of GDP, rather than the 7.3 percent that it reached in 2012, the minister in charge of subsidy reform, Najib Boulif, told reporters last week.

The current budget allocates 40 billion dirhams ($4.8 billion) to the compensation fund, with an oil reference price of $105 per barrel, but this also appears to have heavily underestimated subsidy costs for 2013, threatening another gaping deficit.

Morocco’s Islamist Prime Minister Abdelilah Benkirane last month approved the new price indexation system, which is a key aspect of the sensitive social reforms his government has been seeking to push through for months.

The government has insisted the system will be “limited”, not affecting all fuel prices, and has promised “accompanying and targeted support measures” to avoid a general price rise from extra transport costs.

The price of other basic goods subsidized by the public fund, including sugar, flour and cooking gas, will remain unchanged.

The government says it has set up insurance mechanisms to guard against oil prices rise above 115-120 dollars per barrel.

“The strength of this government is to take a decision that is not popular but must be taken,” Boulif said.

Morocco managed to defuse popular discontent that triggered Arab Spring protests in 2011 through a series of initiatives, including constitutional reforms, elections that brought the Islamist-led government to power and a generous public spending program.

The coalition government had previously hiked fuel prices, in June 2012, but the move failed to narrow Morocco’s budget deficit or fix its unaffordable subsidies system.

It has committed to limiting the deficit to 5.5 percent of GDP by the end of 2013.

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