Towards a new social contract: Reforming energy subsidies in Morocco

By Georgeta Auktor
Submitted to Session P4746 (A new social contract for the MENA countries: Concepts, challenges and opportunities, 2017 Annual Meeting
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Energy subsidies have been at the core of the old social contract in the Middle East and North Africa (MENA), which pivots on the strategic redistribution of rents. But, growing evidence shows that energy subsidies have been disproportionally benefiting middle- and upper-income groups, have legitimized political regimes of a rentier and clientelistic nature, and have locked-in energy systems in unsustainable modes of generating electricity. As such, the subsidy regime created strong vested interests in the status-quo, limiting progress with reducing and better targeting subsidies. While reform requires complex policy interventions, its success is likely to contribute to framing a new social contract, based on: targeted benefits to those in need, improved communication between the state and societal groups (to identify needs, justify reform action, and identify measures to mitigate negative effects), and better coordination of policy interventions across sectors (social policy, energy and industrial policy). Together, these aspects of a new social contract are likely to contribute to improved stability as well as social, economic, and environmental sustainability.

For MENA countries dependent on energy imports, the reform of fossil-fuel subsidies poses particular challenges. Competing budgetary demands due to development imperatives call for urgency of reform, but vested interests prevent change. Understanding the conditions under which subsidies were instituted and maintained over time, as well as the dynamics around earlier attempts to reform is important for assessing the effectiveness of current efforts for reform.

In this context Morocco’s case is illustrative, as it currently imports more than 90% of its energy needs and has spent 5% of its GDP on subsidies. Due to budgetary concerns, energy security, and development pressures, Morocco recently showed commitment to reforming subsidies. Its decision to reform subsidies was supported by low oil prices and investments in renewables to diversity its energy mix. The reform success depends on government’s implementation capacity, mitigating negative effects on vulnerable population groups, building support coalitions to overcome vested interests, learning from previous reform attempts, and coordinating across various policy areas.

Using a political economy lens, this paper focuses on discovering the sources of resistance to reform, on identifying windows of opportunity for reducing subsidies, and assessing conditions for achieving reform durability. We argue that a successful reform of the energy subsidies is likely to create opportunities for a new social contract between the state and society based on a narrative that supports inclusive development and addresses energy security concerns.