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Morocco set for $4bn in loans, says World Bank source

Morocco gets more money but urged to reform subsidies

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Morocco is set to receive $4 billion in loans from the World Bank from 2014 to 2017 for government energy, infrastructure and other projects, a source from the World Bank said on Tuesday.

Under the deal, the bank will extend up to $1 billion each year to finance projects, in a sign of confidence in the North African kingdom's finances despite concerns over the pace of progress in tackling its budget deficit.

Morocco is under pressure from international lenders to push ahead with reforms to its fuel and food subsidies, for tighter control over its public wage bill and its state pension payments to help narrow the deficit.

"The approval of the deal by the World Bank Board of Directors is expected by early 2014," the source said.

Morocco received $600 million each year under a previous 2011-2013 agreement with the bank, but its government has asked for an increase in financial support from the bank.

Reforms to subsidies are politically sensitive as they increase living costs. A reform to fuel subsidies already helped split Morocco's ruling coalition and forced the royal palace to name new cabinet members as way to reassert control of the reform program.

Morocco started to partially index oil prices on the international market levels, and turned to hedging contracts to cover the difference if prices go beyond $120 per barrel as a way to curb fuel costs.

But the government has delayed the structural reform of subsidies, which will help focus spending on Morocco's poorest. Still, the 2014 budget includes plans for subsidy reductions of 35 billion dirhams ($4.2 billion) from a total of 42 billion dirhams in spending in 2013.

Analysts believe the establishment around King Mohamed is worried that the Islamist-leaning Justice and Development party, which heads the government, plans to push through more reforms that may provoke protests over higher costs.

"We are not sure Morocco would work out these reforms soon," the source said. "But it is not really a problem as the IMF, as well as the World Bank, are looking at Morocco as a mature country."

It is a tricky balance with international lenders demanding that Morocco do more to reduce deficits and limit public spending, which has risen as the palace seeks to calm the kind of popular discontent seen in the 2011 Arab Spring revolts.

Unlike its North African neighbors, Tunisia and Libya, where unrest ousted long-term autocratic leaders, Morocco managed to end protests in 2011 with a combination of social spending, harsh policing and constitutional reforms. But the palace is keen to avoid any renewed unrest.

In 2012, the IMF approved a $6.2 billion precautionary line of credit for Morocco over two years while urging reforms to the subsidy system, although it did not formally link the aid to any reform measures.

Morocco plans to cut its budget deficit to 4.9 percent of gross domestic product in 2014 from an estimated 5.5 percent in 2013.