Morocco to implement new gasoline pricing system

RABAT, Morocco (AP) Morocco will implement a new system of pricing gasoline and diesel by linking it to the price of oil on world markets in an effort to cut its bloated subsidies bill, the government spokesman said Thursday.

The North African kingdom is struggling with a ballooning budget deficit due in part to subsidies on gasoline, cooking gas, flour and sugar but any reform could spark possible social unrest.

The Islamist party leading the government after dominating elections following Arab Spring protests has made subsidy reform a priority, provoking a walkout by a junior coalition partner over the summer.

The government, however, has maintained that the subsidies have to be reformed, a position backed by the International Monetary Fund, which made a $6 billion loan last year contingent on reducing them.

"We have to maintain the costs of subsidies and limit their impact on the budget deficit," said government spokesman Mustapha Khalfi, adding that a date had not yet been fixed to start the new system.

He said that if the world price for oil rose, than the price at the pump would rise gradually as well, albeit within limits.

"During the implementation, we will have measures in place in order to support poor people and limit the negative impact of the decision," he said, adding that such safeguards will include keeping public transportation costs the same.

Unlike its oil-rich neighbors, Morocco buys its hydrocarbons on the world market and then heavily subsidizes them. A lower-income nation of 32 million, Morocco relies heavily on its subsidies, but the bill has gone up every year, soaring to $6.3 billion in 2012.

Coupled with government salary increases and increased social spending to defuse pro-democracy protests in 2011, the budget deficit soared to more than 7.6 percent of GDP in 2012.

The Islamist-led government has cut spending, frozen investments and now is cautiously trimming subsidies in effort to bring the deficit down to 5.5 percent in an economy already hurting from the economic crisis afflicting its main European trading partners.

"The situation in the Middle East suggests that the price of oil will no doubt increase," warned economist Said Saadi, who feared that the move would badly affect people's purchasing power. "The government unfortunately chose the simpler option while the real solution is to increase state budget resources through fiscal reform."

___

Associated Press writer Smail Bellaoualli contributed to this report.