taxation and the proceeds were used to support troubled sectors and stabilize prices of selected commodities.

The second oil shock would lead the CDC into a fragile financial situation resulting in increasing budget transfers to cover its deficits. In 1986, the government introduced specific taxes on imported petroleum products but the proceeds of these taxes were directly allocated to the state budget. This decision deprived the CDC from its most important source of revenues. From a financially autonomous instrument of equalization, the CDC turned into a subsidy fund relying mostly on the state budget. Nonetheless, the CDC was able to stabilize the burden on the budget over the period 1986-1994 thanks to the removal of subsidies on selected commodities in the context of the deregulation policies applied within the framework of the implementation of the structural adjustment programs of the 1980s.

Between the 1980s and mid-1990s, the government gradually proceeded with the liberalization of prices of a number of subsidized products, including milk, butter, fertilizers, cement, packaging of oils, and jet fuel. For the remaining products, the government decided to gradually reform subsidies through their partial liberalization and simplification before their full liberalization. Among food products, after the liberalization of the edible oils sector in November 2000, only flour and sugar remained subsidized. For petroleum products, a new pricing system was put in place in 2013 for gasoline, diesel, and fuel oil, allowing the transmission of international price changes to the domestic market. In 2014, the government removed subsidies for gasoline and fuel oil, followed by diesel. As of January 2015, subsidies are only limited to flour, sugar, and liquefied petroleum gas (LPG). Annex 1 presents the main measures and reforms of the subsidy system since its creation. The following sections describe in more detail reforms for different sets of products.

_Petroleum products._ The first substantial attempt to reform the subsidy system was launched in 1995 for liquid petroleum products, through the establishment of a price indexation system that linked domestic price changes to the fluctuations of corresponding quotations on the Rotterdam market. The system did not apply to LPG, for which the subsidy system continued to support fully its price differential. The fixing of prices for liquid petroleum products at the producers/importers level complied with the elements of the acquisition price structure set up in agreement with the main national refinery (SAMIR). The selling price to the public was revised monthly on the basis of the above acquisition price and in accordance with the structure of the sale price agreed upon with the distributors (Tables 1 and 2).<sup>6</sup> In parallel to the implementation of the indexation system, other measures were taken, mostly consisting of the replacement of import duties paid on crude oil by a consumption tax and the exemption from taxes for certain sectors heavily dependent on fuel energy, such as fishing activities, air and maritime transport, and electricity production.

**Table 1- Example of the Selling Price Structure of liquid petroleum products before the 2013 reform (MAD. per unit)**

|**Item**<br>**#**|**Items**|**MAD/Lite**<br>**r**|**MAD/Lite**<br>**r**|**MAD/t**<br>**m**|
|---|---|---|---|---|
|1|**FOB price**|5.90|6.64|4715.58|
|2|Transport|0.09|0.10|156.83|
|3|Port taxes|0.02|0.02|12.79|
|4|Access cost|0.12|0.14|104.30|
|5|Parafiscal tax|0.02|0.02|12.21|

6 Note that the retail price for gasoline and diesel in 2013 were higher than the CIF border price. The difference is mostly explained by taxes. Hence, subsidies are estimated net of taxes which is a common practice. See, for example, IMF (2013).

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