Morocco could speed up the reduction of its budget deficit if low oil prices persist, analysts say.

The North African country’s budget was passed on 22 December based on the premise that oil would be priced at $103 a barrel.

With oil prices dipping below $50 a barrel in early January, Morocco, a net oil importer, will see its fuel bill decline and could use the surplus funds to improve its financial position.

Morocco has in the past spent a large portion of its budget subsidising the cost of fuel for its population.

“Clearly the recent trend in oil prices is positive for Morocco,” says Arnaud Louis, director, sovereign group, at ratings agency Fitch Ratings, based in London.

“But the effect on the budget depends on the government’s policy response and whether they will use the savings to reduce their deficit or increase spending on investment projects,” he adds.

Morocco’s current budget deficit stood at 7.4 per cent of GDP in 2012, falling to 5.5 per cent in 2013, according to figures from the Washington-based IMF. The Finance Bill 2015 targets a deficit of 4.3 per cent of GDP.

The budget also aims for 4.4 per cent growth, a balance of payments deficit of 6.7 per cent and the creation of 22,000 new jobs.

It is not known yet how the Moroccan government will capitalise on the declining oil price, if the low prices are sustained.

The government may consider increasing its planned spending on key investment projects in sectors such as infrastructure.

Increasing spending would be a popular move and could put the incumbent government in a good position ahead of this year’s local elections and next year’s general election.

Reducing the deficit is also a top priority for the country. “The Moroccans have shown their commitment to tackle the deficit in recent years,” says Louis.

Morocco has reduced its subsidy bill, spending 3.5 per cent of GDP in 2014 compared with 4.7 per cent in 2013.

By the end of 2015, all subsidies on energy products will have been stopped except on butane. These efforts have ensured the government’s budget is now less sensitive to oil price fluctuations.

Low oil prices will also place less pressure on the country’s external account.

“It allows for more manoeuvre and for the central bank to be more accommodative in is policies,” Louis says.

In December, the central bank cut its policy rates to 2.5 per cent from 2.75 per cent for the second time in three months, reflecting the growing confidence of the country in its economic growth prospects.