Morocco has had two principal assessments of its Fiscal Policy Transparency conducted. In 2005 by the International Monetary Fund (IMF) and in 2006 by Oxford Analytica (OA). In its 2006 report, OA maintained its "Enacted" rating from the previous year, but noted that the overall numerical rating had improved, due to better availability of information. In 2005, the IMF published a Report on the Observance of Standards and Codes, which viewed fiscal transparency in Morocco as generally guaranteed through a mixture of strict controls to ensure the correctness of expenditures, adequate legal safeguards, and fiscal and accounting standards that had improved in the recent past. The assessment noted room for improvement in various areas, however. Budget coverage and monitoring should be gradually expanded, government accounting should be reformed and modernized, financial reporting during budget execution should be improved, and fiscal risks should be better evaluated. Long-term reforms should aim at introducing performance-oriented public management and reducing the current emphasis on ex-ante controls. Instead, the focus should be on ex post evaluation and controls. According to the 2007 Article IV consultations with the IMF, the Moroccan authorities are developing a medium-term expenditure framework with a view to move to more performance-based budgeting, which should increase the predictability of fiscal policy in the process.

General Overview

In 2005, the International Monetary Fund (IMF) published a Report on the Observance of Standards and Codes (ROSC) on Fiscal Transparency in Morocco. The assessment notes that Morocco's fiscal management system is highly centralized and relies on strict controls to ensure the correctness of expenditures. In the view of the assessment, the system works to effectively steer budget performance and is adequately supported by legal safeguards. In November 1998, the organic budget law was comprehensively amended. This, in combination with the accompanying legal and regulatory provisions, has yielded significant progress regarding clarity of fiscal and accounting standards, access to financial information, control over the processes involved in preparing and executing expenditure, and the quality of financial data. The 2005 IMF assessment judges that, due to these developments, "fiscal transparency is largely guaranteed" (p. 1), but notes that, in order to meet international best practice, improvement is needed in a number of areas. Among the areas mentioned by the assessment are the gradual expansion of budget coverage and monitoring, reform and modernization of government accounting, improvement of financial reporting during execution of the budget law, and the evaluation of fiscal risks. Furthermore, long-term reforms should aim at introducing performance-oriented public management and reducing the current emphasis on ex ante controls, shifting the focus to ex post evaluation and controls.

Also generally positive is the Oxford Analytica (OA) 2006 Report on Fiscal Transparency in Morocco. OA maintained its "Enacted" rating from the previous year, but noted that the numerical overall rating for Morocco has improved due to better availability of information. OA noted that, since 2005, various reports (e.g. on Special Treasury Accounts and on public enterprises) have supplemented the annual Finance Law when it is presented to parliament. Also, starting in 2007, the Ministry of Finance (MoF) and the General Treasury of the Kingdom are compiling a consolidated budget including information from the central government, local authorities, public enterprises, and Special Treasury Accounts. Regarding the availability and quality of fiscal information, on December 15, 2005, Morocco became the 62nd subscriber to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS). However, Azzedine Akesbi's and Abdelatif Ngadi's "Open Budget Index 2006: Morocco" for the Open Budget Project (OBP) is more critical of Morocco's openness of fiscal operations. It rated Morocco's performance at a low 19%, the equivalent of providing its citizens with "Scant or no information." Morocco produces only three of the seven key documents tracked by the OBP (the Executive Budget Proposal, In-Year Report, and the Year-End Report), but makes those available to the public. The report noted many areas in need of improvement. Chief among these is the publication of a comprehensive mid-year review; the more timely release of year-end reports; the inclusion of more information in those reports, and the publication of an audit report of the budget.

In the IMF's 2006 Article IV Consultations with the Moroccan authorities, the parties agreed that fiscal consolidation remains the Moroccan government's top policy priority. The authorities have started implementing their medium-term fiscal strategy, and the debt-to- GDP ratio has declined. Looking forward, the IFM staff noted that the success and credibility of the fiscal consolidation strategy will depend on the authorities' ability to curb wage bill growth and reduce the fiscal cost of oil and food subsidies. Sizeable privatization flows and abundant liquidity have allowed Morocco to finance its past deficits with relative ease. The dwindling of potential sources of privatization proceeds and the still-high level of public debt require an acceleration of the consolidation effort. The authorities pointed out that they have started to implement their medium-term fiscal consolidation strategy, which relies on a mix of expenditure and revenue measures. On the expenditure side, their strategy rests on (1) reducing wage bill growth; (2) reducing the fiscal cost of energy subsidies by gradually adjusting domestic petroleum prices to international prices; (3) gradually replacing inefficient food subsidies with targeted support to vulnerable groups; and (4) switching to performance-based budgeting within a medium-term expenditure framework. On the revenue side, the objectives are to improve the transparency and efficiency of the tax system, particularly of the Value Added Tax (VAT), and to strengthen domestic revenue mobilization to offset revenue losses from continued trade liberalization. The authorities believe that sustainable expenditure savings are only possible if the overall efficiency of public spending improves. As a consequence, they have adopted a gradual approach to fiscal consolidation. By establishing a level-playing field and reducing distortions, the ongoing reform of the tax system should durably improve revenue collection. The 2006 IMF Consultations further noted that the authorities have started to simplify the tax system and increase its transparency by presenting the first report on tax expenditures with the 2006 budget and by publishing a tax procedure, together with a tax assessment and collection manual. The authorities are also preparing a medium-term plan to reduce the number of VAT rates, and started to broaden its base with the 2006 budget.

In the concluding statement to the 2007 Article IV Consultations, the IMF noted that early 2007 developments confirm that the fiscal deficit will stay below 3 percent of GDP for the second year in a row. According to the consultations, substantial improvements can be attributed to the strong collection of all major taxes, due to the widening of the tax base and the strengthening of tax administration via a reorganization of tax collection. Fiscal consolidation remains a medium-term objective. According to the consultations, the authorities want to achieve this via a comprehensive reform of the public administration and of the public expenditure management system; and by the increased predictability of fiscal policy through the development of the medium-term expenditure framework.

The Principles

Clarity of roles and responsibilities.

CP

OA, in its 2006 Fiscal Policy Transparency report, rated Morocco's compliance with this principle as "In Progress." The 2005 IMF ROSC notes that the National System of Accounts statistics defines the general government sector in accordance with the Government Financial Statistics Manual of 2001, but that general government activities "are not clearly defined, as fiscal data are only consolidated at the central government level" (p. 5). Furthermore, according to the 2006 OA report, the roles of the Ministry of the Interior (MoI) and the MoF have not been clearly defined in the past with respect to local finances. However, the OA report explains, a reform project for local finances - which has been prepared jointly by the MoF and the MoI and presented with the draft Finance Law for 2007 - aims at reducing the duplication of roles played by the two ministries. Furthermore, the new Banking Law and statutes of the Bank Al-Maghrib which came into force in February 2007 clarified the roles of the central bank and the MoF regarding monetary, exchange rate, financial, and credit policy.

The 2006 OA assessment further reports that the guidelines and procedures for the Budget Finance Law are defined in the 1998 Organic Law, its subsequent amendments, and other laws. These stipulate that the Finance Law has to be approved annually by parliament, and that only supplementary budgetary laws may be used to amend it during the course of the year. OA notes that many laws and decrees are published on the MoF website, which also makes information such as reports, procurement information, fiscal reforms, and macroeconomic statistics, as well as the text of the draft Finance Law for 2007, increasingly available to the public.

The 2005 IMF assessment asserted that "public expenditure management is governed by a clear legal and administrative framework, largely based on the French model's strict separation between officials with power to authorize payment and the public accountants. The rules are very largely observed" (p. 13). According to OA, the Finance Law of 2006 provided a number of key fiscal reforms, such as harmonizing the VAT, and a General Tax Code aimed at simplifying and harmonizing tax legislation. This Code has been approved by the lower house of Parliament - the Chambre des Représentants - and was expected to come into force in 2007. After some MoF operations had been decentralized as part of the ministry's Strategic Action Plan for 2001-2004, the monitoring local government expenditures has become more efficient, reports OA. In addition, the World Bank has assisted the government in the preparation of a medium-term expenditure program (Cadre de Dépenses a Moyen Terme - CDMT), which is scheduled to be linked to the annual Finance Law submitted by the MoF starting from 2008.

Open budget processes

EN

OA, in its 2006 Fiscal Policy Transparency report, rated Morocco's compliance with this principle as "Enacted." The 2005 IMF ROSC notes that the responsibility for budget preparation is assigned to the MoF, and "carried out according to clearly specified procedures that are very well understood and applied by the line ministries. Budget classifications comprise economic, functional, and administrative categories, and the nomenclature is essentially in line with international standards" (p. 20). Regarding clear objectives for fiscal policy against which fiscal performance can be measured, the OA report notes that they are "clearly laid out in connection with the presentation of the Finance Law" (p. 330). Specifically, the goals for key macroeconomic variables and more general policy targets are laid out in the document.

The Finance Law for the new budget and its related reports must be presented to parliament at least 70 days before the end of the current fiscal year, which is coterminous to the calendar year. The budget is presented in a format which separates the data by administrative, economic, and functional levels of government, and budgetary management. OA, in its 2006 report notes that, "a significant effort has been made by the government this year to improve presentation of the Finance Law, with very detailed information on budget revenues and expenditures" (p. 331) Further, procedures for the execution and the monitoring of the budget are set out in a number of laws, specifically in the Law for the Control of Expenditure Commitments and its amendments. Control over the execution is conducted by the General Inspectorate of Finances (Inspection Générale des Finances), the Accounts Chamber (the Cour des Comptes) and parliament. However, OA asserts in its 2006 report, this control is a major area of weakness. "The effectiveness of the extant control mechanisms is constrained, partly because of limited human resources, but primarily due to a lack of cooperation between different bodies charged with monitoring and control functions". (p. 331). The report does praise Morocco for the vast increase in the transparency and efficiency of its public procurement process however.

Public availability of information.

CP

In its 2006 Fiscal Policy Transparency report, OA rated Morocco's compliance with this principle as "In Progress." On December 15, 2005, Morocco became the 62nd subscriber to the IMF's Special Data Dissemination Standard (SDDS). The 2005 IMF ROSC notes that "the budget documentation covers all budgetary activities of central Government--with the exception of the social security systems and miscellaneous agencies of the central government --but the format used to present the breakdown of the budget detracts from its clarity and readability" (p. 17). OA, in its 2006 report, lists the annual budget with the Budget Presentation Note and the Finance Law and periodic reports from the MoF as the principal sources of dissemination of fiscal information by the government. Regarding the forward-looking character of the budget, OA reports that, until 2007, budget documentation only contained a one-year forecast of the principal macroeconomic indicators. However, as part of the CDMT, beginning in 2008, budgets are scheduled to contain three-year economic forecasts. This should make longer-term budget planning and fiscal sustainability analysis easier. Already, budget documentation provides aggregate documentation on central government operations for the previous three years and the current fiscal year. From 2008, the documentation is supposed to include estimates for upcoming years.

Independent assurances of integrity.

EN

In its 2006 Fiscal Policy Transparency report, OA rated Morocco's compliance with this principle as "Enacted." According to the 2006 IMF assessment, fiscal data are generally reliable and, in case of discrepancy between the forecasts for the principal fiscal aggregates and actual results, the discrepancy is shown and explained. However, this explanation is made only to parliament, not to the public. The OA assessment goes on to note that, "no statements are made about the accounting basis in the budget documentation or final account documents" (p. 32). The applied double-entry book-keeping system, while still reliable, no longer conforms to international standards, according to the IMF report. OA adds that the government is working to introduce changes that would lead to compliance with international standards, in parallel with the introduction of accrual accounting.

The independent oversight of public finances is the responsibility of the Accounts Chamber. According to the OA report, it has two main functions: "inspecting on an annual basis the accounts of the public accountants -- comptables publiques - and undertaking management audits of public entities" (p. 334). The Accounts Chamber may take action on its own or at the request of a ministry or other external organization. OA adds that accountability could be improved by strengthening the role of parliament with respect to oversight.