Budget 2011 also meets the commitment to remove some of the opacities about the Special Funds and integrate all these funds that were proliferating all over the place into the budget for better expenditure coordination, accountability and transparency.
The inflows and outflows of these special funds, that are given at Appendix I of the Programme-Based Budget Estimates 2011, allow us to uncover some of the creative accounting carried out over the past four years and arrive at the true budget deficit figures. The creative accounting (an American euphemism for "cooking the books" very popular with journalists endeavouring to cover up for their "friends" in corporations like Enron and others) and the creation of special funds originated with the IMF comments on the 2007/08 budget -- “The budget deficit target for this fiscal year is in reach, but the adjustment mix is unfavorable — almost half of the expenditure adjustment relates to lower capital expenditure.” That has been the whole story since: the underperformance in capital expenditure. All kinds of creative accounting were used to try to hide the poor implementation of infrastructure projects. With the over-taxation of the population, we did not have a revenue but a spending problem -- the low capital expenditure as from the first budget. Thus in 2007/08, 2008/09 and Jul-Dec 09 , Rs 3.1 billion, Rs 5.6 billion, Rs 2.5 billion respectively were transferred to the seven funds listed below. A total amount of Rs 11 billion was surreptitiously included in Budget estimates as expenditure, mostly capital expenditure. (We have not taken 2010 figures because it includes the ERCP.)
The inflows and outflows of these special funds, that are given at Appendix I of the Programme-Based Budget Estimates 2011, allow us to uncover some of the creative accounting carried out over the past four years and arrive at the true budget deficit figures. The creative accounting (an American euphemism for "cooking the books" very popular with journalists endeavouring to cover up for their "friends" in corporations like Enron and others) and the creation of special funds originated with the IMF comments on the 2007/08 budget -- “The budget deficit target for this fiscal year is in reach, but the adjustment mix is unfavorable — almost half of the expenditure adjustment relates to lower capital expenditure.” That has been the whole story since: the underperformance in capital expenditure. All kinds of creative accounting were used to try to hide the poor implementation of infrastructure projects. With the over-taxation of the population, we did not have a revenue but a spending problem -- the low capital expenditure as from the first budget. Thus in 2007/08, 2008/09 and Jul-Dec 09 , Rs 3.1 billion, Rs 5.6 billion, Rs 2.5 billion respectively were transferred to the seven funds listed below. A total amount of Rs 11 billion was surreptitiously included in Budget estimates as expenditure, mostly capital expenditure. (We have not taken 2010 figures because it includes the ERCP.)
For much less than such manipulation, one Finance minister was hounded by the mainstream press and the erstwhile opposition and had to resign. These shifty tricks that were carried over three budgets have had very serious economic consequences. The true picture was hidden from the population and more seriously it meant a total failure in the management of public finances, which had their implications on interest rates, the current account, exports, growth, and the level of public debt. The parking of Rs 11 billion in bank accounts has had a huge opportunity cost. At least if we had been drawing regularly from these funds we could have had some excuses for such poor fund management. The higher than actual budget deficit figures led to higher level of interest rates, higher debt servicing, higher burden on exporters, a higher current account deficit and lower growth. And these were the same people who were pointing fingers at the Governor of the Bank of Mauritius for maintaining a relatively high level of interest rate. And the Governor in the face of strong capital inflows was demanding more of fiscal restraint -- “Le gouverneur de la Bank of Mauritius (BoM), Rundheersing Bheenick, demande l’aide de l’Etat mauricien pour la maîtrise du flux de capitaux étrangers à court terme qui submergent le pays. A travers son budget, mais également à travers les institutions sous son contrôle, l’Etat est exhorté à faire un plus gros effort afin d’aider à annihiler les effets néfastes. »
It is beyond understanding why the fiscal space generated over these three budgets was allowed to lie lamely in bank accounts. It would have been more logical to show lower budget deficits and borrow from the market whenever there was a need for additional funds for the implementation of capital projects. What’s more mind-boggling and scandalous was that over the same period some Rs 45 billion of external borrowings (out of which only Rs 5 billion were utilised) were contracted, sometimes at unreasonable above-average market rates. Capital expenditure as a percentage of GDP, without the accounting gimmicks in the three budgets, barely exceeded an annual average of some 3%. Such a dismal investment performance choked off economic growth by limiting public investments in key sectors. The TINAs failed in fixing the flaws in the country’s hardware -- its physical environment and an efficient system for developing it. The signs are everywhere: in energy, transportation, ports, and telecommunication. If they were not competent to optimize the allocation of our resources (for e.g. the LRT could have started back in June 2008), undermining the economy’s medium- to long-term growth prospects, they could at least have allowed the population to enjoy the consequential benefits of lower budget deficits.
