Press Version: Budget 2012: Colourable Accounting

     The IMF in its two latest reports on the Mauritian Economy (Public Expenditure and Financial      Accountability (PEFA) Assessment and the 2011 Article IV Consultation—Staff Report) pointed fingers at some of the curious arithmetic in our budget numbers; it noted that the chronic underspending on the capital side was not allowed to flow through to the budget bottom line, resulting in smaller deficits. Government reappropriated the funds and transferred them to a set of special funds.

IMF did not go to the extent of qualifying it as colourable accounting but subtly advised us to adjust the overall deficit to include spending from special earmarked funds which are macroeconomically important. The recalculated deficit is shown in Table I. The IMF Staff welcomed the government’s intention to close most special funds in 2011 and to place these operations in the budget. This will reduce budgetary fragmentation and is likely to result in stronger expenditure controls.

Table I

% of GDP	2007/08	2008/09	2009
Budget deficit	-2.1	-1.8	-2.0
Capital spending	2.4	2.9	2.7

For Budget 2012 they were back at their old tortuous accounting ways, flouting the principles of sound public finances and the GFSM 2001 standards. They inflated the capital grants from Rs 1.1 billion in the estimates to Rs7.0 billion in the revised figures for 2011.


This explains the upward revision of the budget deficit estimated around 3% in August 2011 to 3.8% of GDP. The surplus funds were credited to the resuscitated Special Funds as shown in Table II:

Table II

Movements in Special Funds (Rs million)	2010	2011	2012
Receipts
Food Security Fund		25
Local Infrastructure Fund		250
Social Housing Infrastructure   Fund		1500
National Resilience Fund	2100	4200
Road Decongestion Program Fund	1000	500	1700
Payments
Maurice Ile Durable Fund	140	11	200
Human Resources, Knowledge & Arts  Development fund	5	172
Food Security Fund	14		49
Local Infrastructure Fund	553	502	261
Social Housing Infrastructure Fund	19		502
National Resilience Fund	941	1087	3275
Road Decongestion Program Fund	686	1730	2801
Total Fund Receipts	3100	6475	1700
Total Fund Payments	2568	3502	7088
Net Expenditure from Funds	532	2973	-5388
-As a % of GDP	0.2	0.9	-1.5

Adjusting for the transfers to the funds and the subsequent payments out of the

 funds results in a significantly lower budget deficit in 2011 and, as payments out of funds 

exceed transfers the budget deficit in 2012 is, therefore, considerably larger than 

reported, projected to reach 5.4 percent of GDP.

Table III

As a % of GDP	2010	2011(Revised)	2012
Total revenue & grants	21.8	21.3	21.7
Total revenue  (without grants)	21.2	20.5	20.8
Total revenue  (without special funds and grants and irregular items)	20.6	20.2	20.2
Tax revenue	18.4	18.1	18.3
Total Expense	22.3	22.4	22.3
Capital Spending	2.7	2.6	4.1
Budget Deficit	-3.2	-3.8	-3.8
Net lending/borrowing- Special funds	0.2	0.9	-1.5
Minus transfers to revenues from special funds	0.6	0.4	-
Consolidated Budget Deficit	--3.8	-3.3	-5.4

That’s not proper fiscal management, that’s irresponsible management. The Minister of Finance is right, these are ominous signs that trouble is in store. Revenue as a % of GDP has stagnated at 20% , tax revenue drops to 18%, current spending shows no improvement as a proportion of GDP whereas capital spending stayed at a dismal 2.7% of GDP as in previous years. These shifty tricks of parking special funds outside the budget to hide the ineffectiveness in implementing capital projects are havingserious economic consequences Such poor fiscal consolidation is not providing the country with the means to tackle its challenges and realise its ambition of a trillion rupees GDP economy by the 2020s. It is choking off growth by limiting public investments in key sectors at a time that the private sector finds it more profitable to invest in real estate activities. We are marking time and keep missing out targets while there is so much to catch up in terms of infrastructure priorities. 

( For example the expansion of the road network has to outpace the rate of addition to the existing fleet of vehicles if we are solely relying on it to reduce congestion.)Indeed, it is not responsible budgeting to show such generosity on capital gains tax, tax on dividends and interest rates, land transfer tax and the environmental fee without at the same time announcing any meaningful reforms to reduce expenses which stays at 22% of GDP. This is the time when prudence is the choice in carefully managing our infrastructure and productivity enhancement spending to relieve our bottlenecks while ensuring that the implementation of our policy priorities do not blow up the deficit to an unmanageable 5.4 % of GDP and a higher public debt figure in 2012