Morocco expects inflation to spike in 2012

Morocco\'s government expects inflation to more than double this year to as much as 2.5 per cent due mostly to higher global commodity prices and the effect of drought on supplies of locally produced foods. The minister in charge of the budget, Idriss Azami al-Idrissi, gave the inflation outlook in outlining the draft budget for 2012 before parliament. Inflation stood at 0.9 per cent in 2011. Azami did not explain the expected increase, but Najib Boulif, general affairs and governance minister, said it reflected commodity prices and food shortages. He told Reuters the 2.5 per cent estimate was fixed as a maximum forecast for inflation this year. \"We expect the cost of imports to increase in 2012, especially crude oil and grains,\" Boulif said. \"There is also the risk of an expected drop in supply of food products, such as vegetables.\" At 2.5 per cent, inflation would be 0.7 percentage point higher than its 10-year trend, said Zouhair Baghough, who blogs as the Moorish Wanderer on Moroccan economic issues. Rabat has been able to keep inflation under control in recent years mostly with the help of state subsidies for energy and food staples. But amid pro-democracy protests inspired by the Arab Spring revolts, the subsidies almost trebled from what was initially budgeted for 2011 to stand at $6 billion, or 6.3 per cent of Morroco\'s $95 billion economy. Baghough said the government\'s inflation forecast may indicate that it will seek to bring subsidies under control by reflecting increases in global commodity prices on prices of subsidised products more often than it had done in the past. \"Subsidies can\'t keep up with commodity prices, so yes [price] adjustments will have to take place; only the government won\'t admit it upfront,\" Baghough said. Azami said the budget predicts economic growth of 4.2 per cent and a budget deficit of 5 per cent, compared with around 5 per cent and 6.5 per cent in 2011, respectively. Officials told Reuters earlier this week that Morocco is considering trimming economic growth projections to 3.5 percent for this year because bad weather has hit the key agriculture sector. Strapped for cash, the government will impose this year a new tax on firms whose annual net profits exceed 200 million dirhams to help raise cash to develop the poorest areas amid brewing discontent over social inequalities. The budget minister, Idrissi, said 1.5 per cent of net profits of the targeted firms would be applied in 2012 to help raise 2 billion dirhams for a social solidarity fund. The fund was set up to alleviate the growing burden on public finances of subsidies and pave the way for their reform in the medium term, making sure resources benefit those who need them the most. The state also plans to raise cash for the fund by raising taxes on tobacco, Idrissi added. Al-Ahram