Introduction

Since 20 May 2024, the Moroccan government has been dismantling what remains of the Compensation Fund (La Caisse de Compensation)¹Morocco's policy of subsidizing the prices of basic commodities is overseen by the Compensation Fund of the Ministry of Economy and Finance (specifically butane gas, sugar, and some consumer items in Morocco's southern provinces) and the National Office for Cereals and Grains (specifically flour and some oil crops). by partially reducing state subsidies on butane gas prices. This follows the removal of subsidies on liquid petroleum products since 2015 and is supposedly aimed at reallocating funds to support the financial sustainability of direct cash transfers to the poor, which are expected to have a budget of about $3 billion by 2026.

The government recognizes that the compensation system benefits the rich more than the poor. However, dismantling this system, which constitutes the last citadel of the Welfare State, would harm the living conditions of poor and middle-income groups, especially given the limited measures in place to address the negative repercussions of this reform, in light of fuel price liberalization, which has already weakened the purchasing power of low-income individuals.

This paper examines the narratives surrounding the abandonment of universal subsidies and the argumentative frameworks to justify the reform of the compensation system in Morocco while highlighting its economic and social implications. It also seeks to anticipate the effects of this structural shift on the balances of the social fabric, as it results in deepening the socio-economic disparities between beneficiaries and those adversely affected by the removal of financial support for basic commodities.

The Foundational Contexts of the Compensation System Reform: Between International and National Dynamics

Pressure from international financial institutions to steer the redistribution of public resources and wealth toward a de facto consecration of a minimal state (L'État minimal) has been building up since the structural adjustment decade (1983-1993). These efforts transformed the compensation system into a tool to support the plan to expand social safety nets.²أسماء علوي تايب، نظام المقاصة في المغرب، في "الدليل المغربي للاستراتيجية والعلاقات الدولية"، لارماتان ،2012، ص 625. This coincided with a period of intense privatization (1993-2007), during which several vital sectors were transferred to the private sector. In addition, donors used the context of the 2011 protests to impose their neoliberal vision of social policy,³Bessma Momani and Dustyn Lanz. Shifting: IMF policies since the Arab uprising, CIGI, policy brief, no. 34, 2014, p.4-3. calling for the replacement of the price subsidies system with targeted cash transfers. The deterioration of the country's financial situation further deepened its dependence on the partnership with the International Monetary Fund (IMF), which made access to the Precautionary and Liquidity Line conditional on reducing public spending as part of a set of antisocial reforms, led by the complete liberalization of prices.⁴Jihen Chandoul, et al. Uncovered: The Role of the IMF in Shrinking the Social Protection - Case Studies from Tunisia, Jordan and Morocco, Friedrich-Ebert-Stiftung, 2022, p122-123.

In a stark irony, the first arrangements to dismantle the Compensation Fund began under the government that emerged from the Arab Spring. The government of Abdelilah Benkirane (2012-2017) initiated the gradual dismantling of the fund in June 2012⁵Ruth Elisabeth Appel, Die Caisse de Compensation: Entstehung, Ziele und Effizienz des größten Subventionstopfs in Marokko, Konrad-Adenauer-Stiftung, 2015, p18. by partially removing subsidies on petroleum products, whose cost had risen from $412 million in 2002 to $5.7 billion in 2012. Nevertheless, compensation expenditures accounted for 51.% of GDP in 2013, compared to 1.7% in 2009, and their share of total public investment expenditures over the same period increased from 23.9% to 88.5%, as a result of the adopted policy alternatives detailed below.⁶ تقرير حول منظومة المقاصة بالمغرب، المجلس الأعلى للحسابات، 2014، ص 10. In this context, the neoliberal agenda accelerated with the launch of an indexation system in September 2013, under which the government committed to a cap on energy subsidies – ultimately leading to the full liberalization of fuel prices in December 2015.⁷Nisrine Nassiri, Compensation, libéralisation puis fixation? Revue des recherches et études juridiques, vol6., no.7 (2019), p296.

Under the influence of the donor community, which recommended that the elimination of commodity subsidies be accompanied by the strengthening of social safety nets for low-income populations, the government attempted to give the macroeconomic backdrop of the reform a "social tinge." The 2012 Finance Law pledged to launch the Social Cohesion Fund as a mechanism to finance targeted cash assistance for certain vulnerable groups such as widows, poor divorced women, and people with disabilities.⁸Carlo Sdralevich, et al. Subsidy Reform in the Middle East and North Africa. IMF, 2014, p45. Since 2018, Morocco has accepted assistance from the World Bank in designing the Unified Social Register (RSU), an information base to identify beneficiaries of direct social support. This system has been in place since December 2023, with the aim of granting monthly subsidies to every poor family with a numerical indicator that proves their eligibility. Amidst this effort, the government of Aziz Akhannouch (2021-2026) has embarked on a multi-year plan to liberalize gas prices starting in May 2024, aiming for full liberalization by 2026, with a budget allocated to targeted cash transfers. ⁹Rachid Boutaleb, Gaz Butane : Le Prix de la Bonbonne Passe à 50 DH. Challenge.ma, 2024/05/19. https://bit.ly/3QIuSol

Narratives and Counter-Narratives on the Compensation Fund Reform

By following the government's discourses, one can deduce the main features of the official narrative regarding the dismantling of the Compensation Fund. This narrative has been criticized by various stakeholders such as labor unions, and civil society associations, and in statements by broader social movements seeking to challenge the government's narrative:

• Reform as a cover for dismantling: Recognizing the centrality of the Compensation Fund in the societal imagination, the government pledged a fair reform that would ensure alignment between budgetary balance and social justice.¹⁰Mohamed Khayi, De la réforme de compensation à la généralisation du système de protection sociale, JISELTSC, vol1., no1. (2022). p3. The bet was placed on using the financial margins saved to address the structural imbalances of the public budget – consistent with IMF recommendations on austerity and "fiscal consolidation" – alongside successive promises to maintain the vital role of the Compensation Fund as a safety valve for social peace. However, these measures are part of an "unannounced" strategy to change the foundation of the state's social action from a rights-based approach to one based on poverty alleviation.
• An "unpopular" measure in the interest of "the people": Since 2011, official rhetoric has highlighted the understanding that reforming the Compensation Fund is unpopular and painful but is necessary to save the state budget.¹¹Naceureddine Elafrite and Benkirane Abdelilah, Confirmé: Réformes de la Caisse de Compensation et des Retraites. Medias24, 2013/06/11. https://tinyurl.com/2cxpdlxl This paternalistic narrative serves as a political backdrop for imposing a top-down reform without involving any of the social actors¹²زهير لخيار، صندوق المقاصة: مبررات الإلغاء، ضرورات الإبقاء، خطوات للالتقاء، المجلة المغربية للدراسات القانونية والاقتصادية، عدد 1-2، 2017، ص 14-15. while insisting on continuing to phase out the compensation system despite its adverse effects on the living conditions of vulnerable groups – ironically the groups that have long been cited as the primary motivation behind the reform, according to the discourse of the stakeholders.¹³Chawqui Lotfi, "Le Maroc à la recherche d'une révolution". Center Tricontinental, 2013/03/05. https://tinyurl.com/2y4sa782
• A social state with a neoliberal flavor: Articles 8 and 13 of Framework Law No. 09.21 on Social Protection stipulate that savings from the compensation reform will be used to universalize family allowances. Accordingly, the government has committed to allocating 20 billion dirhams from the subsidy savings to provide direct cash transfers to 7 million school-age children.¹⁴تقرير لجنة القطاعات الاجتماعية بمجلس النواب حول مشروع القانون رقم 09.21، 2021، ص 11. This means that former allocations for commodity subsidies now constitute only about 40% ($5 billion) of the annual financial envelope for social protection operations during the 2021-2025 period. However, this funding model holds potential risks, pushing social policy in a more neoliberal direction, shifting from universal schemes to selective interventions targeting a limited number of beneficiaries.
• Cutting social rents or legitimizing them: The government's narrative relies on official data suggesting that many undeserving individuals benefit from commodity subsidies. For instance, while the poor make up 34% of the population, they received only 7% of fuel subsidies, with 42% going to the wealthy.¹⁵Abdelhakim Qachar and Driss Mafamane, Réforme de la Caisse de compensation marocaine : Quelle approche à adopter?, Revue d'Évaluation et d'Anticipation des Politiques Publiques, no2. (2015), p.7. The same applies to gas: government data shows that the average citizen receives only 12% of the state’s gas subsidy. On the other hand, liberalizing these prices risks reproducing a rentier state due to the absence of effective mechanisms to curb speculation and monopolistic practices such as hoarding, and the absence of systems to accurately track global price movements and their impact on the domestic level.¹⁶التقرير التركيبي للمهمة الاستطلاعية حول أسعار بيع المحروقات السائلة للعموم وشروط المنافسة بعد قرار التحرير، لجنة المالية والتنمية الاقتصادية، مجلس النواب، 2018، ص 71. A good example of this is the obscene excess of profits – ranging from 6.5 and 7 billion dollars – earned by fuel distribution companies since the sector was liberalized in December 2015. ¹⁷محمد بن موسى: أرباح شركة أخنوش فاحشة في المحروقات والتحرير خطأ بنكيران الفادح، شبكة صوت المغرب، 15 مارس 2025، https://tinyurl.com/2b48gs9g

Initial Indicators of the Socio-Economic Impact of Energy Price Liberalization

According to official discourse, the liberalization of fuel prices was expected to significantly reduce the compensation bill, from 6.5% of GDP in 2012 to 1.4% in 2016. This anticipated fiscal gain whetted the government's appetite to liberalize the remaining subsidized items. Gas price liberalization is intended to redirect the resources saved (about $1.2 billion per year) toward reducing the budget deficit from 4% in 2024 to 3% in 2026. The prime minister argued that removing gas subsidies would ease the state's financial burden.¹⁸Youssef Seddi, Réforme de la compensation : le gouvernement a-t-il trouvé la bonne formule?, Fnh.ma, 11/23/2023. https://bit.ly/4i21d5m The share of the gas subsidy is approximately 4.5% of GDP, the highest among countries such as Egypt, India, Indonesia, and Tunisia, where the share ranges from 0.2% to 2.7%.¹⁹وزارة الاقتصاد والمالية، تقرير حول المقاصة، 2025، ص 42..

However, contrary to government assurances, international market fluctuations have contributed to maximizing the cost of the compensation bill, which is expected to reach $1.6 billion in 2025. This includes subsidies for butane gas ($1.06 billion), wheat ($151 million), and sugar ($400 million).²⁰Ibid, p. 59. The food subsidy bill alone has risen by 13.3% in 2024 compared to 2023. Additionally, subsidies allocated to road transport professionals to support the stabilization of transportation prices for people and goods, reached $156 million in 2024, an increase of 93% compared to the previous year.²¹Iliasse El Mesnaoui, PLF 2025: 16.5 MMDH consacrés au soutien des prix du gaz butane, du sucre et de la farine de blé tendre, 2m.ma. 2024/10/20. https://tinyurl.com/29y3e37n This has led stakeholders to view fuel liberalization as a failed policy. The National Union of the Road Transport Sector has called for replacing financial support with in-kind support, such as vouchers to alleviate the burden of rising prices, similar to systems in several European countries.²²Widad Benmoumen. Transportation professionals call for the adoption of professional gasoline to counter price fluctuations, Voice of Morocco, 10/22/2024. https://tinyurl.com/24wkh2tk

From a macroeconomic perspective, there is uncertainty about the fiscal return of price liberalization, given the volatility of macroeconomic indicators. The budget deficit has barely declined from 4.5% of GDP in 2015 to 4.3% in 2023.²³Banque Mondiale, Rapport de Suivi de la Situation Économique au Maroc, 2024, p8. Commodity price liberalization, which consumed a large portion of public spending, has not eased public debt, which stands at 69% of GDP in 2024, up from 58% in 2014.²⁴Dette nationale brute du Maroc par rapport au produit intérieur brut (PIB) de 2014 à 2028. Statista, https://tinyurl.com/27fq2dvu The limited economic gains compared to the reform risk results in further entrenching the neoliberal approach to social policy design, under pressure from donors to limit social safety nets to only the poorest segments of the population for austerity reasons.

Regardless of the reality of the fiscal impact of the reform, the dilemma is even more pronounced from a microeconomic perspective. Vulnerable households and small and medium-sized enterprises have been affected by the removal of subsidies.²⁵Hicham Saidi, L'effet de la Variation du Prix du Pétrole sur la Croissance économique au Maroc. Revue des Recherches en Droit, Économie et Gestion, N 18 (2022), p268. The government's commitment to the social allocation of funds saved through the "reform" remains insignificant. Since 2015, fuel price liberalization has saved at least $3.5 billion annually,²⁶التقرير التركيبي، مرجع سابق، ص 71. yet these revenues have not been sufficiently channeled toward expanding access to social safety nets for the most vulnerable groups. The universalization of social protection continues to falter, with tens of thousands of families denied the right to health coverage due to being classified outside the eligibility threshold by targeting algorithms²⁷Abdelhadi Halhouli. Universal Health Coverage in Morocco: From the Right to Treatment to Health Inequality, Arab Reform Initiative, 21 November 2024, p. 16. that prioritize budgetary calculations over human rights considerations. Furthermore, beneficiaries of free health insurance (AMO Tadamon) face significant barriers to access to care due to limited treatment availability and poor coverage of hospitalization and medication costs.

A similar situation affects social assistance programs. The financial return from the liberalization of butane gas prices was expected to help expand the base of households benefiting from the cash transfer system from four million to five million, and to increase its budget from $2.5 billion in 2024 to about $3 billion in 2026.²⁸Memorandum of Presentation of the Draft Finance Law for the year 2025, p. 35. Part of this funding comes from a forthcoming $250 million World Bank loan.²⁹عماد السعيدي، البنك الدولي يدرس تمويل إصلاح نظام الدعم الاجتماعي في المغرب بقرض قيمته 2.5 مليار درهم، الجريدة الاقتصادية دفاتور، 14 ماي 2025، https://tinyurl.com/yoyvs4x8 However, the actual contribution of direct cash transfers to improving the purchasing power of the poor remains questionable, given the small amounts granted, which are quickly eroded by waves of inflation. Moreover, vague targeting criteria have led to the exclusion of large numbers of poor households³⁰Annual Report of the Mediator of the Kingdom for the year 2023, pp. 93-92. which, according to some estimates, exceeds one million households due to the high numerical index used to determine eligibility for direct cash support.³¹معاذ بدحيح، إقصاء مليون مغربي من "دعم الفقراء" يُسائل تنزيل ورش الحماية الاجتماعية، صوت المغرب، 14 يونيو 2024. https://tinyurl.com/2d4ke9vy

The Prospects for Social Fabric Balance in Light of the Consequences of Dismantling the Compensation Fund

The gradual dismantling of the Compensation Fund is likely to disrupt the balance of the social fabric, as replacing financial support with cash subsidies does not seem to improve the effectiveness of redistributive policies. This is not only due to the circumstantial imbalances caused by price liberalization but also due to inherent flaws in the targeting methodology, which may further exacerbate the fragility of income redistribution and widen social gaps.³²Farah Al-Shami, Financing Universal Social Protection Systems in the Arab Region: What Alternatives to Debt and Austerity? Arab Reform Initiative, 10/10/11/2024, p. 27. https://ari26.arabregionhub.net/publication/financing-universal-social-protection-systems-in-the-arab-region-what-alternatives-to-debt-and-austerity/ While commodity subsidies are often seen as primarily benefiting wealthy groups, whose rentier benefits have long been used to justify the abandonment of the compensation system, preliminary statistics suggest that these groups' gains far outweigh their losses, as the undeserved energy subsidies they lose are quickly recouped, often exponentially, through increases in the final prices of goods. This occurs in the absence of any measures to protect the most vulnerable social groups and players.³³رأي مجلس المنافسة حول مشروع قرار الحكومة بشأن تسقيف هوامش ربح المحروقات السائلة، 2019، ص 14.

By contrast, vulnerable groups are not experiencing an improvement in their living conditions that corresponds to the financial return of the compensation reform. Their purchasing power continues to erode due to rising prices and stagnant wages, as seen in Algeria after it began phasing out universal subsidies for basic commodities. While targeted cash assistance may enable poor households to receive regular support to meet some of their needs, it falls short of securing the minimum income necessary for a decent living (dignity income). This is due not only to the low value of the assistance and the disregard for inflation but also to the shortcomings of the targeting methodology, which fails to reach all intended beneficiaries. International experience shows that direct cash transfers can be more exclusionary than commodity subsidies. For example, Mexico recorded a 70% exclusion error rate among vulnerable groups, and even Georgia, which the World Bank has long touted as a best practice, excluded 46% of the poorest 10% of the population.³⁴Stephen Kidd, Rethinking "Targeting" in International Development, Pathways' Perspectives, No. 11, 2013, p6..

As for the middle class, its socio-economic situation is deteriorating as a result of the dismantling of the compensation system. On one hand, they are forced to purchase basic commodities at market prices without the possibility of benefiting from any subsidies, which could push them toward the poverty threshold.³⁵Othman Makhoun, Social Protection Workshop: Can Morocco Overcome the Challenges? Arab Reform Initiative, 5 September 2023, https://ari26.arabregionhub.net/publication/moroccos-social-protection-programs-can-the-country-overcome-the-odds/ On the other hand, they lack a viable alternative that can compensate for this in the form of a minimum level of social security. Moreover, a significant portion of this class is now required to contribute to the financing of new social programs during the current transitional period of social security reforms, even though many of these reforms are in the right direction. These reforms include the introduction of additional tax burdens on the middle class, such as a social contribution on profits and income imposed on every employee or wage earner whose monthly salary equals or exceeds 20,000 dirhams at a limit of 1.5% of the net income.³⁶Abdel Rafie Zaanoun, Political and Technical Interdependencies in the Design of Morocco's Social Targeting System, Arab Reform Initiative, 20 September 2024. https://ari26.arabregionhub.net/publication/the-intersections-of-the-political-and-the-technical-in-the-design-of-moroccos-social-targeting-system/

The “missing middle”, which includes unorganized/ informal workers from the middle class, is particularly harmed due to their lack of registration with the Social Security Fund, which deprives them of health insurance and retirement pensions. At the same time, targeting algorithms exclude them from the cash transfers intended for the poor. Their situation has further worsened due to price liberalization. These government measures have largely overlooked the negative impact of fuel price liberalization on the informal sector, including agriculture, which is a strategic source of income and employment in Morocco. While the government claims that the gas subsidy reform targets the undeserving groups using it for professional purposes, the direct impact is felt by this group and by poor households, for whom cooking gas takes up a share of household expenditures, unlike wealthy households that rely more on electricity. Additionally, there are consequences for the economic behavior of the most disadvantaged populations who may resort to wood for heating, and small-scale farmers, many of whom have been forced to resort to using butane gas to escape the high cost of fuel.³⁷Anna Zinecker, et al. "Swap": Reformer l'appui au gaz butane pour investir dans le solaire au Maroc. IISD, 2018, pp. 10-11.

Conclusion

In sum, the social impact of the compensation system reform is weak. Nearly a decade after the full liberalization of fuel prices, doubts remain about the government’s willingness to channel the savings from the removal of commodity subsidies into protecting the purchasing power of the most vulnerable. Instead, the socio-economic reality reflects a deterioration in the living conditions of both the poor and the middle classes: the poor have become poorer, while the middle class is approaching poverty due to the absence of a developmental framework to support the purchasing power of those affected by the removal of subsidies. This is compounded by systemic flaws in direct transfer programs, which aim only to alleviate rather than eradicate poverty, and are often shaped by clientelistic policies that target a limited social base rather than comprehensive policies linked to fair tax reforms.

In general, the results of energy price liberalization indicate a failure. It has neither restored the macroeconomic balances necessary for public finance recovery nor stabilized the social fabric or reduced inequality. These effects are likely to be exacerbated in light of experiences from countries that adopted targeted cash transfers instead of generalized subsidies, despite comparative evidence showing that universal subsidies often benefit the poor more effectively. In light of this, the compensation system should be rehabilitated as a mechanism to stabilize the prices of basic commodities, based on a new perspective that balances between protecting the purchasing power of vulnerable groups with reducing financial waste. It must also be acknowledged that effective public support requires the design of comprehensive universal social policies aimed at addressing the root causes of social inequalities, rather than targeting their symptoms.