no upward pressure on rates in 2022 (AGR) – site for stock market information, analysis and advice in financial investments

The deficit showed a slight improvement at the end of February 2022, despite the cost of compensation linked to the rise in gas prices. The need for the Treasury is down slightly over the same period without impacting prices, according to the latest monthly update from Attijari Global Research.

Attijari Global Research (AGR) provides an update on the evolution of the State budget at the end of February 2022, in a note entitled “Treasury: a budget deficit that resists the compensation charge”. In this note, the research company analyzes the evolution of the gross financing needs of the Treasury and its level of indebtedness.

Overall, it estimates that the deficit is improving, despite the compensation charge linked to the rise in gas prices.

In detail, the compensation charge increased by more than 80% at the end of February 2022. This development follows the upward trend in the price of butane gas internationally. This went from an average of $539/T at the end of February 2021 to more than $856/T at the end of February 2022.

The gas subsidy represents 70% of the total compensation charge. To remember that the government spokesperson underlined, during a press briefing held on February 24 that “the price of a large gas cylinder (on the market) is 40 DH, while its real price is 130 DH. The State subsidizes for 90 DH. The small bottle is subsidized up to 25 DH. The butane gas subsidy goes from 9 billion dirhams in 2020 to 14 billion dirhams this year”.

« Despite this surge in gas supply prices, the State manages to control its budget deficit. The latter thus stands at 10.5 billion dirhams at the end of February 2022, a reduction of 2.1 billion dirhams compared to the previous year”, underlines AGR.

And to explain: “Originally, a significant improvement in Treasury revenue compared to expenditure. This is the increase in indirect taxes, which contributes up to 69% to the recovery of State revenue. ICT and VAT were supported by the recovery of imports and the rebound of domestic consumption”.

“Consequently, ordinary revenue improved by +9.1% to 38.9 billion dirhams over the same period”.

In this context, the financing requirement widened to 19 billion dirhams at the end of February, ie by -5.6 billion dirhams, due to the reduction in the stock of pending operations by 8.5 billion dirhams.

AGR estimates that the gross financing requirement should amount to 138.9 billion dirhams by the end of 2022.

This estimate is based on the following:

– The remaining financing of the budget deficit as well as Treasury arrears, estimated by the LF 2022 at 53.6 billion dirhams;

– A cumulative balance of remaining Treasury receipts at the end of 2022 of 85.2 billion dirhams, including 67.2 billion dirhams on the domestic market and 18.0 billion dirhams on the external market.

“According to the LF 2022, the State treasurer should cover 37.8 billion dirhams of its gross financing requirement on the external market, i.e. a share of 27%. The remainder of 101.1 billion dirhams would be satisfied on the domestic market “, indicates the research company which anticipates that the need for gross domestic financing per month should amount to 10.1 billion dirhams.

“In our view, this level should not exert significant pressure on the primary yield curve,” she predicts.

No upward pressure on rates

At the end of February 2022, the Treasury’s financing requirement was 95% covered by recourse to the domestic market. Upward pressures on interest rates have nevertheless been contained. “The control of the budget deficit under the effect of the improvement in State revenue and the rationalization of investments, combined with the surplus situation of the State treasury contributed to containing the upward pressures on Rates during the T1-22”, explains Attijari.

External financing should cover nearly 30% of the Treasury’s net financing requirement in 2022, which amounts to 72.6 billion dirhams, according to the projections of the LF 2022.

Thus, Attijari believes that in “the absence of a new international fundraising, the execution rate for outdoor draws stands at only 6% in February 2022. These levies are estimated at 40 billion dirhams by the LF 2022, almost the same level as those provided for by the LF 2021”.

“In order to finance its growing deficit, the State has had to take out new loans to feed the stock of Treasury debt. Relative to GDP growth of 2.9% in 2022Ethe indebtedness of the Treasury should reach, according to our estimates, 79.7% in 2022E. The domestic component is estimated at 60.8% and the external component at 19%.

“The Treasury would already be indebted to the tune of 75.6% of GDP at the end of February 2022. Domestic debt should stand at 58.2% of GDP in February 2022E and the external debt ratio should ease from 17.8% at end-2021E to 17.3% in February 2022E “says the research company.

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