By Aziz El Yaakoubi
RABAT, May 20 (Reuters) - Morocco's junior government party is threatening to quit the coalition unless Islamist prime minister Abdelilah Benkirane moderates plans for sweeping cuts to subsidies on food and energy.
Increased subsidies have been part of Morocco's strategy to prevent popular discontent welling up into an uprising of the kind that has toppled rulers across north Africa, but the moderate Islamist PJD argues, along with the IMF, that they have become unsustainable.
State subsidies on food and energy shot up to 57 billion dirhams ($6.6 billion) in 2012 - 15 percent of total public spending - from 48.8 billion in 2011 and 29.8 billion in 2010.
Nevertheless, the conservative Istiqlal party, in a move that analysts said was likely to have the backing of the palace, the ultimate power in Morocco, said the PJD's reform plans were too radical.
"The PJD is ignoring our demands and trying to rule as if it controlled the whole government," party spokesman Adil Benhamza told Reuters on Monday. "If we get no answer we will quit the government."
In a step supported by the International Monetary Fund, the government aims to repair its finances by reducing subsidies on food and energy in favour of direct aid to the poorest Moroccans.
It has not put detailed numbers to its plans, but the political sensitivity of the matter has already pushed the measures back beyond the planned June start.
Nevertheless, the PJD has shown no sign of backing down.
"Subsidies burn up 57 billion Moroccan dirhams ($6.6 billion) - how is it possible that someone says that's a red line?" Prime Minister Abdelilah Benkirane told a PJD meeting on Sunday, adding that the state pension system also required reform.
"They attack us via their papers and TV, but the Moroccan people have chosen us, and voted for us," Benkirane said. "So we are the people."
Istiqlal, a major political force before losing an election to the PJD in 2011, said it favoured introducing bigger efficiency savings and import control measures.
"PJD wants to raise prices and hit the poorest, while we prefer to pick up some billions which are at the hands of speculators by controlling imports," Benhamza said.
"The government said it spent 57 billion dirham in subsidies last year, but it is not true. It recovers 23 billion in value added tax."
The political establishment around King Mohammed is anxious to avoid a drop in living standards and prevent a return to street protests for political and economic reforms that he managed to stifle in 2011 with social spending, harsh policing, and constitutional reforms that paved the way for the PJD to come to power.
Morocco's trade deficit rose to a record 197.2 billion dirhams ($23.6 billion) in 2012, while the budget deficit reached 2.2 pct of GDP in the first quarter of 2013.
Since King Mohammed retains decisive power, some analysts said the Istiqlal demands looked far from spontaneous.
"The Istiqlal (move) is not independent from the palace, which retains real power," said Omar Bendorou, a constitutional expert at the University of Rabat. "Maybe the palace wants to control the structural reforms and put the PJD under pressure." ($1 = 8.6438 Moroccan dirhams) (Reporting By Aziz El Yaakoubi; Editing by Kevin Liffey)