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

  • Faini, Riccardo

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.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 631.

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Date of creation: 31 Mar 1991
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Handle: RePEc:wbk:wbrwps:631
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  1. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  2. Alan S. Blinder, 1985. "Credit Rationing and Effective Supply Failures," NBER Working Papers 1619, National Bureau of Economic Research, Inc.
  3. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-39, May.
  4. Blinder, Alan S & Stiglitz, Joseph E, 1983. "Money, Credit Constraints, and Economic Activity," American Economic Review, American Economic Association, vol. 73(2), pages 297-302, May.
  5. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
  6. Haque, Nadeem U & Montiel, Peter, 1989. "Consumption in Developing Countries: Tests for Liquidity Constraintsand Finite Horizons," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 408-15, August.
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