RABAT - Morocco expects its fiscal deficit to shrink to 3% in 2026 from 4% projected this year, as higher tax revenue offsets increased spending on social safety nets, budget minister Fouzi Lekjaa said.

Nearly a third of the country's households, or 3.9 million families, benefit from state-paid health insurance and direct cash handouts, Lekjaaa told members of parliament.

Spending on social protection programmes, wage hikes for civil servants and housing aid require an additional 90 billion dirhams ($9 billion) annually, Lekjaa said.

Higher tax revenue, thanks to increased corporate and value added taxes, helped fund social spending "as the government pursues fiscal consolidation", he said.

The government's revenue will increase to 461.3 billion dirhams from 364.6 billion dirhams expected this year, he said.

The government's ordinary revenue was up 17.5% in the first four months of 2024, compared with the same period a year earlier.

Morocco begun this month a gradual cut of cooking gas subsidies to further shrink its fiscal deficit.

Total spending on cooking gas, flour and sugar totalled 64 billion dirhams in 2022 and 2023.

The government offered an aid of 9 billion dirhams to the country's electricity utility, ONEE, in 2022 and 2023 to avert a spike in electricity tariffs, following high energy prices in the international market.

"Next week we will discuss a decree that will inject a further 4 billion dirhams in ONEE, in order to keep electricity prices stable," Lekjaa said.

Morocco depends on imported coal to produce most of its electricity, with renewable energy accounting for about 18% of its consumption.

The government expects its debt to GDP ratio to drop to less than 70% in 2026 from 71.1% in 2023, the minister said.

(Reporting by Ahmed Eljechtimi; Editing by Sriraj Kalluvila)