In his reply to a PQ on the consolidated budget deficit inclusive of
Special Funds, the Minister of Finance has stated figures of -2% in 2011, -1.9%
in 2012 and -4% in 2013. However using the same methodology as applied by the
IMF in the 2011 Public Expenditure And Financial Accountability (PEFA)
Assessment report, the consolidated budget deficit works out to be -2.4 in
2011, -2.2 in 2012 and -4.6% in 2013, more or less the same figures as posted
by Martin Petri in his presentation at the 32nd Monetary Policy Committee
meeting on February 3 of this year. (His
presentation titled “Strengthening the Monetary Transmission Mechanism” is available on the Web site of
the Bank of Mauritius.) We have every reason to believe that our figures which
tally with that of the IMF are correct. (IMF’s: -2.1 % in 2012 and -4.5% in 2013)
Now the chickens
have come home to roost and the jackasses have nowhere to turn and wouldn't
know how to turn anyway because they have never tried to turn in the first
place. But we cannot delay any longer for we have reached a point of no return.
Now that we are having a salary revision every three years , we do not even have the luxury of waiting for a
declining wages to GDP ratio to restore
some respectability to the budget figures. There is an urgent need for
substantial fiscal consolidation to put our public finances back on a
sustainable path. This time, because of the personal efforts of the Financial
Secretary, we have been able to ward off a sovereign credit downgrade from Moody’s but continuous failure to meet our debt and
deficit reduction targets would inevitably lead to a downgrade that would hurt
the economy quite badly.
From Table I, we can see that
potentially concerning is the low growth in tax receipts, the high growth in
the government wage bill and the continuing upward trend on welfare benefits.
The budget falls short of sufficiently curbing the growth of the welfare state,
cutting wasteful expenditure by government departments and reforming the public
sector, especially the SOEs which are like albatrosses around the neck of
government draining public finances. The reform agenda seemed to have just
died. Most of the proposed reforms now
give every sign of being trapped in Samuel Beckett’s absurdist play,
Waiting for Godot.
The TINAs (There IS
No Alternative) and remnants have been kicking the can down the road, ducking
major decisions and it was just plain old statist thinking for the past
seven years. We did not really go
through the pains of restructuring- the painful changes involved in improving
competitiveness and ensuring cost-effectiveness in education, health care, the
public sector, social security and pensions.
At the first outcry, the TINAs backed down. They preferred the easy way
out-some few touches to the tax rates and some improvement to the investment
climate framework. The reduction in direct taxes was unaccompanied by efforts
to reduce wasteful expenditures and inefficient transfers; their fiscal
consolidation efforts did result however in budget deficits as low as 1.3 % of
GDP which was achieved by drastically slashing capital expenditures to an
average of only 2.6% of GDP over the period 2006-11. This drastic fiscal
adjustment generated surplus funds which Government re-appropriated and
transferred to a set of Special Funds that were left idle in bank accounts and
some of it were credited to some sort of “Resilience”, “Rainy” or ‘Build Mauritius“ funds . It was
plainly a case of missed opportunities in achieving the twin objectives of
sound public finances and economic growth/job creation.
We need to persist with fiscal consolidation and instead of hiding
behind figures that do not reflect the real budget deficit we need to come up with a package that can serve all of these
different purposes we’d like to serve,
which is grow the economy, create jobs , raise revenues, reduce expenditures
and bring down the budget deficit and debt. This underlines the need for a
comprehensive programme of fiscal reform that will include measures to (a) enhance tax and non-tax revenue, (b)
curtail current expenditure growth, (c) improve the productivity of public
expenditures and its quality by
reallocating towards areas that are more conducive to growth, in particular by
increasing the share of public expenditures on productive investment in
physical and human capital (d) restructure public sector undertakings,
including disinvestment and (e) improve
fiscal-monetary co-ordination It is also important to ensure that the economy is
able to absorb the deadweight effects of fiscal reform.
No significant budgetary and expenditure reforms are likely to succeed
unless a robust and functioning accounting, reporting, monitoring, evaluation
and implementation facilitator/delivering system is in place. And the second
step is to upgrade the system of evaluation of projects and programs which is
quite weak in many ministries. Evaluation generally takes the form of financial
audits. Few examples of engineering and quality control assessments for major
capital projects exist. Similarly, there are rare examples of cost
effectiveness studies. Attempting
performance audit without agreed performance benchmarks and proper systems to
record and track and evaluate performance is equally unlikely to be effective.
These are some of the basics that must be satisfied for the Proramme Based Budgeting
(PBB) to be effective- “real” performance and
policy-based budgeting - a PBB that secures delivery of government’s major domestic
policy priorities.
In the recent IMF working paper “ Inclusive
growth and the incidence of fiscal policy in Mauritius- Much progress, but more
could be done”, Antonio David and
Martin Petri recommend that “the Mauritian authorities could improve
the targeting of social protection expenditures........ In addition, it would
be useful to replace existing untargeted programs with a new absolute poverty
benefit based on objective targeting criteria. The more widespread use of
conditional cash-transfer schemes could also foster human capital accumulation
and help to address skills mismatches in the labor market in the longer term.
Pension reform, including a redesign of eligibility criteria for the basic
retirement pension, could also have a positive redistributive impact…..The authorities should continue to
pursue their efforts to reform the educational system focusing on primary and
secondary levels as well as technical and vocational training….. “
To conclude on a promising note, we can safely assert that at least on
the fiscal versus monetary front, we can expect a cease fire for a while. Until
the Ministry of Finance steers the public finances back to health, it’s going to be
difficult for it to keep pressing
the central bank to cut rates to boost
sagging growth.
