(MENAFN - AFP) Morocco's ruling Islamists are pushing ahead with much-needed reforms, notably of an unsustainable subsidies system and pension fund, to plug the hole in its budget, at the risk of alienating key supporters.A year after coming to power, the moderate Justice and Development Party (PJD) of Prime Minister Abdelilah Benkirane is battling sharp inflation and deteriorating public finances.Benkirane told parliament this week that the pension system was not working, that the pension fund had dipped into the red, and that it would not be viable by the end of the decade unless drastic measures were taken.With the number of people benefiting from the fund now outweighing contributions, the government's plan to raise the retirement age, from 60 to 67, is seen as the only way out."I will not abandon this reform... whatever the price to be paid," Benkirane insisted.Weighing more heavily than the problem of pensions, however, is the pressing issue of subsidy reform, described by the International Monetary Fund as "urgent" during a recent visit.The cost of subsidised fuel and staples such as bread and sugar has spiralled, lumbering the government with a bill that it simply cannot afford.In 2012, it swallowed up 50 billion dirhams (around 6.1 billion), compared with just 4 billion dirhams in 2002, representing 20 percent of the budget and six percent of Morocco's GDP.Current Economy Minister Nizar Baraka had said in a report as far back as 2009 that rationalising the system was "imperative, not to say urgent."The PJD has vowed targeted handouts to compensate the more vulnerable sections of society.But the planned reforms, amid sharp price increases (inflation stands at seven percent) and a gloomy economic outlook, remain potentially explosive.At the end of December, protests in Marrakesh against high water and electricity prices led to clashes with the security forces that left more than 50 of them wounded.Reforming the compensation fund, which subsidises fuel and other essential goods, "is to accept a social price first, which then becomes a political price," said Baudouin Dupret, head of the Jacques Berque research centre in Rabat."But they have no other choice, it is not tenable," added Dupret, who argued that the main question was the scope of the proposed reform.Several models have been proposed by the governance minister, Nabil Boulif, who is in charge of the file, guided by the idea of replacing the current system with direct aid to the disadvantaged members of society.Boulif has described this targeted aid as a "cornerstone" of the government's policy, and work in progress.The PJD came to power on the back of a historic election victory in November 2011 pledging to tackle widespread poverty, endemic corruption and a lop-sided economy, at a time of high hopes born of the Arab Spring.But it now faces the task of pushing through painful and increasingly urgent economic reforms from which it may struggle to emerge unscathed.Political analyst Mohammed Madani points out that, while the room for manoeuvre has narrowed, the PJD managed to "clean up" in Tangiers and Marrakesh by-elections last October, a few months after its initial fuel price hikes.By compensating for further price rises with a cheque to those who will be most affected, the government would be reaching out to its grassroots supporters, said one observer, requesting anonymity.