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Financing / Recovery: why is the “ticket printing machine” not possible?


The debate on the financing of public debt by the Central Bank, or what is pejoratively called “operating the printing press”, has resurfaced with the current crisis and the significant financial support deployed by the States to cushion its repercussions immediate.

According to this scheme, the Central Bank starts buying directly or indirectly, on the secondary market or through other economic agents, public securities issued by the Treasury. Can Morocco then afford such a practice? and at what price could it be done? Approached by the MAP, the economist Yasser Tamsamani sheds light on the advantages and risks of this policy.

In Morocco as elsewhere, monetary financing of the debt can have advantages:

– It is a response, on the one hand to urgent financing needs due to the crisis while any tax reform requires time, and on the other hand effective at a time when agents’ “preference for liquidity” the private sector grows as the economic horizon darkens;

– It allows control of the cost of debt with a possibility of transforming it into perpetual and free debt, which serves the constraint of sustainability of the Treasury debt;

– It indirectly encourages banks to engage more in financing the economy when some of the choices available to them for the investment of their funds elude them;

– It exerts downward pressure on interest rates because of a lower demand for liquidity on the market compared to a situation where the State refinances there;

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Monetary financing of public debt carrying the potential risk of exchange rate and inflation crisis:

On closer inspection, the monetary financing of public debt in Morocco is not a good idea.

– It seems to carry the potential risk of a currency crisis. Add to this another risk of inflation or even cumulative inflation, although this is not very likely in the current context.

– Being freed from any constraint of sustainability (that is to say, of having and being able to repay its debt), the increase in public debt to finance additional expenses, allow a reduction in taxes or to cope with any crisis, would become the easiest solution to implement, and therefore recurrent, for the reasons / advantages mentioned above, but also because it would be done without any sacrifice on the part of any economic agent in particular.

– For an unchanged elasticity of imports to public spending, the repeated use of this financing should end up depleting the foreign exchange reserves available to the authorities with a view to enforcing the parity of the dirham and throwing the country into an exchange crisis.

– In addition, in this scenario, monetary policy will be faced with the dilemma created by the desire to aim for two objectives with a single instrument. The two objectives are the financing of the Treasury and the defense of the external value of the national currency.

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– Using monetary financing in a fixed exchange rate regime (or intermediate as practiced in Morocco) amounts to putting the economy at risk of exchange rate crisis for unchanged national production.

– The second risk inherent in recurrent monetary financing and without controlling the use made of public debt relates to price dynamics. If inflation by production costs is not possible under the current conditions of the national economy, that which arises from the widening of the gap between supply and demand reflecting the scarcity of goods and services n is not to be ruled out in the event that the debt is used to finance operating expenses or final consumption.

– Likewise, the risk of inflation or even cumulative inflation may arise from a situation where confidence in the national currency would be shaken because of an expansion of easy money within the economy causing a loss of his value.

For all these reasons and in the absence of the necessary safeguards, this door to monetary financing should remain closed in the case of Morocco. Because once pressed, the chances of using it too frequently are very high.

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