The forecast is the latest sign that North African governments are struggling to deal with the effects of rising food and fuel prices.

Rabat’s budget deficit will grow from 2.7 per cent of gross domestic product (GDP) in 2007 to 5.5 per cent this year, according to S&P’s Luc Marchand, an analyst for Morocco.

The government expected its 2008 deficit to be 2.4 per cent of GDP when it published the budget at the end of the year. The deficit will increase to MD32.9bn ($4.5bn) this year, from MD16.7bn in 2007, says Marchand.

Public finances are worse than expected because the economy is growing less quickly than the government anticipated.

“Everyone was expecting 7 per cent growth for this year, but I expect 5.5 per cent,” says Marchand. “There is a lot of foreign direct investment, and that is why Morocco still has 5.5 per cent growth.”

Slower growth can increase a budget deficit because the government collects less tax than expected.

Unlike other governments in North Africa and the Levant, Morocco has avoided making cuts to its subsidies to shore up public finances. However, Rabat is expected to limit inflation to just 5 per cent this year because of the continued commitment to its subsidy programme. The government forecast inflation of 2 per cent at the beginning of the year.

“The government have said it wants to commit to a very low inflation rate and to bear the cost of rising commodity prices in the budget,” says Marchand. “As a result, Egypt will have low inflation compared with its neighbours.”

Both Egypt and Jordan cut subsidies in the first half of the year, with Jordan removing subsidies entirely for petrol and diesel sold to the public.

As a result, Egypt and Jordan have both suffered higher than expected inflation. Prices are anticipated to rise by more than 20 per cent this year in Egypt, after hitting 19.7 per cent in May.

Morocco’s government holds billions of dirhams in a social security fund. If the fund’s assets are included, the budget deficit falls to 3.6 per cent of GDP, which is still a sharp fall on a surplus of 0.7 per cent in 2007.

Mirroring the problems among the larger North African economies, Tunisia’s budget deficit is also forecast to increase this year, rising from 3.5 per cent of GDP in 2007 to 4.7 per cent in 2008, according to Marchand.

Tunisia has allowed petrol and diesel prices to increase, although it still subsidises fuel. Inflation is forecast to be 5 per cent this year.

“Five per cent for Tunisia is higher than before,” says Marchand. “This kind of thing is likely to make the authorities react.”

Tunisia’s government says inflation will be 3 per cent for 2008.