Desktop version

Home arrow Economics

  • Increase font
  • Decrease font

<<   CONTENTS   >>

Gradual Reform Efforts in the Levant and North Africa

Fear of incitement of a popular backlash has kept those mena countries that were largely unaffected by Arab Spring-style unrest cautious of energy pricing reform. In spite of remaining largely unaffected by street protests, in comparison with countries such as Egypt and Tunisia, Morocco and Jordan both rolled back reforms following the ousting of the Tunisian and Egyptian presidencies in 2011 and the outbreak of political protest across many other parts of the region. Both Morocco and Jordan are IMF debtors who, a few years previously, had initiated tentative reforms to reduce domestic energy subsidies. Jordan had, for instance, made several attempts to reform the domestic prices of food and energy—in 2008 its government announced a programme of domestic energy price liberalisation. However, the reform stalled and was reversed in January 2011, when the government decided to cut food and fuel prices in response to political protests seen in neighbouring countries. In an unexpected gesture of cross-regional solidarity between Arab monarchies, the wealthy GCC states extended an invitation to the kingdoms of Morocco and Jordan to join the Gulf Cooperation Council, and subsequently increased their level of assistance to both countries, in the form of advantageous loans and unconditional development aid. This helped both countries initially withstand calls from international lending organisations for further fiscal reforms (mees, 2011; mees, 2012a; MEES, 2013; mees, 2014e).

A year on from the Arab Spring, however, domestic energy subsidy reform was back on the agendas of several North African and Levantine energy importers. Jordan’s rapidly rising fuel imports—partly due to declining gas imports from Egypt, which has since been struggling to supply its own domestic market—subsequently contributed to a skyrocketing energy subsidy bill that eventually reached 40 per cent of total government spending. Faced with limited room for manoeuvre, the Jordanian government was forced to curb public spending significantly—including that on fuel subsidies—as part of a usd 2.05 billion standby arrangement with the IMF; one aim of this arrangement was to help the kingdom recover from the economic strains associated with the mass inflow of Syrian refugees, a result of the political crisis in neighbouring Syria (mees, 2012c). But Jordan’s reform efforts were not exclusively externally driven; the repercussions of the Arab Spring had made fiscal reforms practically unavoidable if political and economic stability were to be maintained. This was a small but significant turning point in the way in which many governments have since come to see energy subsidy reform.

Jordan’s November 2012 decision to gradually lift all petroleum product subsidies—later followed by the lifting of lpg and electricity subsidies—was painful, and faced considerable opposition both in parliament and on Amman’s streets. Street chants denouncing the Jordanian king led to a series of confrontations between protesters and the police. Having withstood this initial opposition, Jordan has since progressed with its reforms, following a gradual drying-up of popular opposition to them. The government’s response included a series of television and newspaper interviews underlining the government’s need to reduce the burden of subsidies, or otherwise ‘face catastrophe and insolvency’.[1] In an effort to mitigate the effects of fuel price increases on Jordanian families, the government announced that within a week of the reform poor Jordanian households (below an annual household income of usd 14,100 (Jordanian dinar (jod) 10,000)) would receive a direct cash handout of usd 99 (jod 70); in effect around 70 per cent of the population would receive cash transfers. Electricity tariffs for individual economic sectors and high-income households have been increased a further three times since May 2012—part of a strategy to ensure the return of the National Electric Power Company nepco, Jordan’s national electric power company, to cost recovery over the medium term.

The interim results of the reform have been largely positive; alongside other fiscal reforms, energy subsidy reforms helped reduce the Jordanian government’s deficit from 14.5 per cent of gdp in 2011 to around 8.3 per cent of gdp in 2014. As a result, Jordan’s access to lending from international capital markets has markedly improved (imf, 2014a).

Morocco decided to freeze energy prices in 2011 in spite of the high and rising level of global oil prices and the country’s dependence on imported energy for virtually all of its domestic energy needs. The move came largely as a direct response to popular protests in neighbouring North African countries and to—in small numbers and for a short period of time—protests on its own streets. This decision soon led to a rapidly ballooning energy subsidy bill. By the end of 2012, Morocco’s energy subsidy bill had become

... almost the size of the overall fiscal deficit, as much as spending on investment, and more than the spending on health and education combined.

IMF, 2014b, 16

An initial round of energy price rises reduced the cost of subsidies by nearly half to—still—around USD 4.1 billion, or 10 per cent of government spending in 2013 (mees, 2014f). Agreeing with the imf to reduce the fiscal burden of subsidies in return for a USD 6.2 billion imf Precautionary and Liquidity Line in August 2012, Morocco announced far-reaching domestic pricing reform for petroleum products between late 2013 and early 2014. Morocco’s case is interesting as it is one of the few mena countries that not only raised prices for domestic fuel products, but actually linked them on a permanent basis to international prices. Price adjustments are made twice monthly by the Ministry of General Affairs and Governance, independently from the ministries of Energy and of Electricity.[2]

In order to avoid any political backlash from this reform effort (having faced mass popular protests during the 1980s when it attempted to raise prices for basic foodstuffs), Morocco implemented a comprehensive and fairly well- orchestrated communication strategy to accompany the reform. This included public tv and radio discussions, newspaper articles, advertisements, and debates explaining in remarkable and easily understood detail the economic reasons for the reform of prices, the different reform steps, the reason for linking prices to a regularly reviewed international price index, and the multiple benefits of reform to society as a whole[3] [4] (including the availability of more money for investment elsewhere!8). The government also assured the population of what benefits would remain: electricity prices, already among the region’s highest, initially remained unchanged, but were increased in July 2014 (nearly a year after the indexation system was launched) as part of the government’s restructuring of the Office National de l’electricite (one); while lpg, used primarily as a cooking and heating fuel in Moroccan households, remains heavily subsidised.

The reform clearly targeted those people who, supposedly, could afford higher prices: industrial consumers, factories, and car drivers. Finally, the government emphasised that price indexation offered a fair deal on both sides: prices could increase, but would also fall when international prices decreased. The Moroccan reform effort was not met with a public outcry, and subsequently went largely unnoticed by international media. Key to enabling this notable success has been two consecutive governments that, despite varying party interests, were willing and able to build the necessary coalitions to enact the price increases, despite opposing views within their own ranks. The country’s moderate Islamic party, the Parti de la justice et du developpement (pjd), has notably been instrumental in rallying support for the reform, both within government and among the population. Morocco’s total subsidies—including food, which had peaked in 2012 at 6.6 per cent of gdp, fell to around 3.9 per cent of gdp in 2013 (Verme et al., 2014).

  • [1] Prime Minister Abd Allah al-Nusur said, ‘If the move [had been] delayed, we would havefaced a catastrophe and insolvency’. (mees, 2012c).
  • [2] For the law governing this arrangement, see Royaume du Maroc (2013).
  • [3] For an example of how the French-speaking urban middle classes were targeted, seeAgueniou (2013).
  • [4] A study of some past Moroccan publications aimed at younger audiences illustrates thegovernment’s line of argument. InJeune Afrique, Ahmed Lahlimi, head of Morocco’s HighPlanning Commission, cited the volume of petroleum product subsidies across severalNorth and sub-Saharan African countries, concluding ‘C’est effectivement problematiquecar cela represente autant d’investissements en moins pour le pays’. (Author’s translation:‘[“These amounts of expenditure on fuel subsidies”] are highly problematic since theyrepresent foregone investment’) (Ballong, 2010).
<<   CONTENTS   >>

Related topics