Morocco's budget faces growing pressure as social spending climbs, Bank Al-Maghrib warns

Morocco’s public finances are entering a tougher phase as rising social spending, climate challenges and long-term fiscal commitments put increasing pressure on the state budget, Bank Al-Maghrib warned in its 2025 annual report.

The bank said Morocco has strengthened its macroeconomic position over the past two years, with faster economic growth, lower inflation, a narrower budget deficit, lower Treasury debt and higher foreign exchange reserves. But it warned that keeping public finances on a sustainable path will become more difficult as spending commitments continue to grow.

One of the biggest concerns is the rapid increase in what the report describes as “non-discretionary” spending. Direct social aid, the expansion of universal social protection and the public sector wage bill are pushing mandatory government spending to high levels, creating growing pressure on the budget balance.

The central bank added that delays in pension reform have made the situation more challenging, warning that the financial balance of some pension schemes is now under threat.

The report points to the growing cost of responding to repeated economic and climate shocks. Since 2022, Morocco has repeatedly had to approve additional budget appropriations to deal with unforeseen events, highlighting what the central bank described as the increasing unpredictability of the country’s fiscal path.

While spending continues to rise, the report warns that future sources of revenue could become less reliable. Morocco has generated nearly MAD 150 billion through innovative financing mechanisms since 2019, but these measures are expected to end starting in 2028.

At the same time, the strong growth in tax revenues could slow if economic conditions deteriorate.

The bank also questioned how efficiently some public resources are being used. It noted that nearly MAD 18 billion was allocated to Morocco’s universal subsidy system in 2025, but said the program mainly benefits wealthier households rather than the most vulnerable.

It also highlighted that tax exemptions are expected to cost the state more than MAD 32 billion this year, adding that some are granted without rigorous evaluation or proper monitoring of their effectiveness.

To ease pressure on public finances, Bank Al-Maghrib called for regular spending reviews to identify savings and improve efficiency. It also urged the government to speed up reforms to the Organic Finance Law and establish a credible fiscal rule that clearly defines when exceptions can be made, saying this would strengthen budget discipline over the medium term.