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The macroeconomics of the public sector deficit : the case of Morocco

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  • Faini, Riccardo

Abstract

This paper tries to uncover the reasons underlying the performance of the Moroccan economy. The author argues that wage moderation and judicious monetary policies were instrumental in restraining inflation. With one brief exception in 1983, monetary authorities remained firmly committed to eschew any inflationary financing of the budget deficit. This strategy could only succeed however because of the wide ranging system of credit and monetary regulations which worked to channel domestic funds toward the Treasury at relatively low costs. The prospects for the continuation of such a strategy are not favourable however. As far as the growth performance is concerned, it appears that it can be attributed to an outstanding export response to the new trade regime on the one hand and a set of favourable supply shocks, including a string of recordagricultural harvests and the collapse of real oil prices, on the other. The paper studies the evolution of the budget and its different components and argues that the reluctance by Morocco's policy makers to monetize existing budget deficits is well explained by the sharply unfavourable trade-offs between higher monetization and inflation existing in Morocco. It analyzes the implications that continuing budgetary disequilibria has on investment and saving decisions and finds that such implications may be substantial, even though they may not work their way exclusively through traditional interest rates channels.

Suggested Citation

  • Faini, Riccardo, 1991. "The macroeconomics of the public sector deficit : the case of Morocco," Policy Research Working Paper Series 631, The World Bank.
    • Handle: RePEc:wbk:wbrwps:631
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    References listed on IDEAS

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    7. Nam, Sang-Woo, 1989. "What determines national savings? : a case study of Korea and the Philippines," Policy Research Working Paper Series 205, The World Bank.
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    Cited by:

    1. Clement Olalekan Olaniyi, 2020. "Application of Bootstrap Simulation and Asymmetric Causal Approach to Fiscal Deficit-Inflation Nexus," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 12(2), pages 123-140, May.
    2. Ifeanyi Onwuka, 2022. "Budget Deficit, Inflation and Economic Growth in Nigeria: An Empirical Analysis," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 8(1), pages 1-14, 03-2022.
    3. Thorne, Alfredo E. & Dastgheib, Azita, 1992. "Public sector debt, fiscal deficits, and economic adjustment : a comparative study of six EMENA countries," Policy Research Working Paper Series 840, The World Bank.

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