It will be foolhardy to read much into this universal acclaim for the
building up of this rainy fund, a recent addition to the special funds, has had
a cost. The 2011 Public Expenditure and Financial Accountability (PEFA)
Assessment report noted that “One of the
interesting features of the Mauritian budget over recent years has been the
government’s response to the underspending on the capital side. Rather than
allowing the underspends to flow through to the budget bottom line, resulting
in smaller deficits, the government has reappropriated the funds, and
transferred them to a set of special funds, which can subsequently spend the
money on specific items over a period years.” This transfer of funds to
special funds is some sort of colourable accounting not in accordance with the
GFSM 2001 standards. Actually they should be treated as below the line
financing items. Over Rs 15 billion or 4.2 percent of 2012 GDP have been
transferred to these funds .These surplus funds were unspent at the year-end. The
use of Special Funds to transfer spending from one year to the next, and from
one function to another outside of the Budget creates uncertainty, and
undermines the credibility of the Budget. Indeed, as shown in Table I the difference
between actual primary expenditure and the originally budgeted primary
expenditure (i.e., excluding debt service charges) has consistently been high
since 2008.
Table
I: Government Primary Budget & Actual Expenditure after adjusting for transfers to special
funds
2007-08
|
2008-09
|
2010
|
2011
|
|
Budget Original
|
47,774
|
59,721
|
70,235
|
72,879
|
Actual
|
49,454
|
52,017
|
64,165
|
66,967
|
difference
|
1,680
|
-7,704
|
-6,070
|
-5,912
|
% difference
|
3.5
|
-12.9
|
-8.6
|
-8.1
|
What Moody seems to
have missed out was that it was the chronic under spending in capital projects that
created the unequalled but unutilised special funds. The underperformance in
capital expenditure meant a low implementation capacity for many of the
projects announced in the Budget. Fiscal adjustment relied mainly on lower
capital expenditures at a time when the economy sorely needed to bridge the
infrastructure deficit. The economy continues to be constrained by skills
mismatch, supply-chains bottlenecks-–efficiency in port, airport, road
congestion, cost of energy and telecommunications- the need for diversification
of markets and products and lack of innovation and enterprise. The average
capital expenditure over the period 2006-11 (2.6%) fell short of that of period
2000-2005 (4.1%) by around 1.5% of GDP annually. This amounted to around Rs 21
billion of investment that were foregone over five years. The ability to
implement capital projects has picked up recently with the Project Monitoring
Unit at the PMO which is addressing some of the capacity constraints
within the public service and across sectors. As at May
2012, though on a purely cash basis, Government has spent less than Rs 2.7 billions
on out of a capital budget of Rs 14
billions, which amounts to only 19 % of the earmarked capital expenditure.
Table
II : Capital expenditure as a % of GDP
% of GDP
|
2007-08
|
2008-09
|
2010
|
2011
|
Capital Spending
|
1.7
|
2.0
|
2.7
|
2.7
|
There were also large
variations between announced and actual programme expenditure. Only for goods
and services additional expenditures were on average more than 100% above voted
expenditures and on a purely programme basis it was above 200%. Such variations
adversely affect the allocative efficiency of
the Budget. Perhaps this was what motivated Mr K. Li Kwong Wing to
question the Programme-Based
Budgeting ( PBB)-“Do we get value for money? Is there quality
control? What is the cost effectiveness of all these excess expenditures we are
called to approve? Are we making proper use of the management tool of
Programme-Based Budgeting and the Performance Management System which
supposedly has been installed at the Ministry of Finance by experts from the
World Bank? What’s the use of all these advisers from the World Bank and
consultants posted at the Ministry of Finance if there is no monitoring, no
control, no evaluation to meet these key performance indicators and targets?.”These comments we hope
will provide welcome visibility to an important topic like PBB whose
implementation has totally been bungled.
Besides the substantial contingency funds provided in the budget
process, which are effectively unallocated during the budget process and then
distributed as the year progresses, some of the variations may be explained by
the lack of proper linkages between the macroeconomic projections, fiscal
strategy and ministry level strategic plans. Moreover, as pointed out by the
PEFA Report, the ministries and departments are not provided enough time to
prepare meaningful budget submissions. “...the
quality of some of the submissions related to capital projects is inadequate as
a result of the need to meet budget deadlines. ...The setting of expenditure
ceilings for the budget circular however, receives limited policy inputs from
budgetary bodies, leading to relatively weak policy rationales behind the
ceilings, and weak acceptance of the ceilings by ministry policy makers ”
Arguing that “Government
has created the funds in case we need money like any prudent man would do”
is not sound economic logic. The availability of funds would not have been a
problem even without a Moody’s upgrade
of our Baa2 rating. It is beyond understanding that the fiscal
space generated over the past four budgets were allowed to lie lamely in bank
accounts ; we were marking time and keep missing out
targets while there were so much to catch up in terms of infrastructure priorities.
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 past five years 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. Thus the universal acclaim for the shifty
tricks of parking special funds outside the budget in idle bank accounts to
hide the ineffectiveness in implementing capital projects did miss out on its serious
economic consequences. In pure economics terms, it means an opportunity cost of
billions of rupees of projects foregone over five years reflecting the
inability of the Ministry of Finance to do anything beyond his core mission of fiscal-deficit
reduction at any cost- be it at the cost of structural reforms or
productivity-enhancing capital expenditures.
