Morocco expects stable fiscal deficit despite tax cuts in 2027

Morocco expects a steady fiscal deficit at 3% of GDP despite higher spending on social programmes and tax cuts, newly appointed Finance and Economy Minister Fouzi Lekjaa said on Friday.

The economy is expected to grow 3.7% in 2027, down from a forecast of 4.7% this year, assuming an average crop year, Lekjaa told members of parliament while presenting the 2027 draft budget.

Morocco announced a new government coalition last week following September 23 elections, placing priority on purchasing power, social services and youth employment.

The government's social policies in previous years have been weakened by an economic model that prioritised market forces over regulation, fostering monopolistic practices, rent-seeking and quick profits, Lekjaa said.

'Savage capitalism'

"Savage capitalism and neo-liberalism" have been at the heart of social tension, he said, urging a stronger role for the state in combating corruption, conflicts of interest and monopolies, while safeguarding food and energy sovereignty.

In total, the government plans to spend 62 billion dirhams ($6.3 billion) next year on measures aimed at improving social services, boosting purchasing power, and reducing inequalities, Lekjaa said.

The measures include reforming distribution channels for basic goods, promoting youth employment, and exempting salaries of less than 10,000 dirhams a month, which would account for 87% of all employees, from income tax, he said.

The package also includes pension increases, higher financial aid for needy families and electricity subsidies.

Defence expenditure

The health budget would rise 7% to 45.5 billion dirhams, while education spending would increase 4.6% to 121 billion dirhams, according to the draft budget.

The draft also authorises defence expenditure commitments of up to 190.5 billion dirhams.

Public debt is forecast to decline to 66.9% of GDP in 2027 from 67.5% this year, the budget document showed.

The government proposes raising to 40% the tax rate on profits above 100 million dirhams earned by fuel distribution companies, a sector previously sanctioned by competition authorities for anti-competitive practices.

Taxes on soft drinks and cigarettes increased

The draft budget increases excise taxes on soft drinks, alcoholic beverages, cigarettes and e-cigarettes.

The government's financing requirement is expected to fall 7.4% to 159 billion dirhams in 2027 as it seeks to balance domestic and external borrowing "depending on market conditions," according to the draft budget.