The budget
deficit for 2016-17 is estimated at 3.3% of GDP. The IMF has argued, on several occasions, as
in its 2011 Staff Report on Mauritius, that the deficit concept used by
Government is “not comprehensive, because it excludes spending by special
earmarked funds”. In its 2014 Staff
Report, the IMF again recommended “including
all extra budgetary funds in the budget to increase fiscal transparency and
better measure the fiscal stance”.
The deficit derived
by the IMF in its reports is an “overall consolidated fiscal deficit”, or a
“consolidated balance”, which is a combined deficit of the central government budget
and the deficit of special funds. For
example, in the latest 2015 report, the IMF estimated the overall consolidated
deficit for the 2015-16 budget at 3.8% of GDP (or Rs15.9 bn), by adding the
estimated central Government budget deficit of 3.3% (or Rs13.9 bn), to the estimated
deficit of 0.5% (or Rs2bn) on special funds. In line with IMF practice, the consolidated budget
deficit for the years 2014, 2014/15, and 2016/17 is shown in the table below:
SPECIAL and EXTRA
BUDGETARY FUNDS
(Rs bn)
2014 2015/16 2016/17
Actual Rev Est Budget
Revenue 1.1 2.6 2.2
Transfer from Govt 0.4 0 0
Petrol Levy 0.3 1.6 1.6
Other revenue 0.4 1.0 0.6
Total Expenditure 5.0 3.2 6.9
Transfer to Govt 0 2.2 2.0
Current and Capital Expenses 5.0
1.0 4.9
Deficit, Special Funds (SF) -3.9 -0.6 -4.7
% of GDP -1.0% -0.1% -1.1%
Budget Deficit, exc. SF -12.5 -14.9 -15.0
% of GDP -3.2% -3.5% -3.3%
Cons. Budget Deficit, inc SF -16.4 -15.5 -19.7
% of GDP -4.2% -3.6% -4.4%
The Minister of Finance stated in his
summing up of the debate on the 2016/17 budget that whereas some critics have
mentioned that the inclusion of special funds in the calculation of the budget
deficit would raise the deficit above 3.3% of GDP, “this is not the case at all”.
But, there is clearly a deficit of slightly over 1% of GDP on the
special funds, which include the National Resilience Fund and the Build
Mauritius Fund, for 2016/17. All figures
on special funds are sourced from Appendix D: Special and other Extra Budgetary
Funds, of the Budget Estimates, 2016-17.
The Minister of Finance further said that
the budget deficit would come down to 2.8% of GDP, if the surplus of the
special funds is “integrated” in the
budget. The special funds are showing a
deficit, not a surplus. What the Minister is referring to as a surplus is most
probably the surplus balance on special funds of Rs2.2 bn expected at end June
2017, representing 0.5% of GDP. If
transferred to the budget, i.e., the Consolidated Fund, it is presumed that the
budget deficit in 2016/17 would be reduced to Rs17.7 bn, down by 0.5 percentage
point from 3.3% to 2.8% of GDP.
This argumentation is right, provided the
Minister is talking only of the budget deficit, excluding special funds. But if
the special funds are “consolidated”
with the budget, then the argument is incorrect. A transfer or “integration” of the surplus balances of Rs2 bn to the budget will
indeed decrease the budget deficit, excluding special funds, by this
amount, but, on the other hand, also increase the deficit of special
funds by the same amount. The
consolidated deficit will be unchanged at Rs 19.7 bn, or 4.4% of GDP. A transfer from the special funds is
expenditure for the special funds, as well as revenue for the budget, and upon
consolidation of the special funds with the budget, these two entries cancel
each other.
This is perfectly rational. Surplus
balances of special funds cannot count as revenue upon consolidation with the
budget. Their drawdown only provides an alternative way of financing the
deficit. Transferring Rs 2 bn from the special funds to the budget only means
that debt financing needs for the consolidated deficit will be accordingly
reduced. Just as a household can draw on the balance of its bank savings
account to finance its revenue-expenditure deficit, without having to borrow
more. But the drawdown of the bank balance does not reduce the household
deficit, only the means of financing.
Budget Deficit in 2015/16 should be lower
by Rs 2bn, or 0.5% of GDP
The budget deficit for 2015-16 should be
reduced by Rs 2bn, which represents a budgetary capital grant to the Build Mauritius Fund, but is
however not included as revenue in the accounts of the BMF. Instead, the Statement of Government Accounts
of the 2016-17 Budget Estimates show a “loan
offset against grant” of Rs2 bn in the details of loan reimbursements in
2015/16. Govt has utilized the grant transfer to the BMF to reduce the loans
owed by the BMF to Govt.
The
BMF therefore does not have to record any grant revenue of Rs2 bn, or show any
transfer of Rs2 bn as loan repayment, because Govt has matched the capital
grant of Rs2 bn to the BMF by a BMF loan repayment of Rs2 bn, as an offsetting
book entry, in the budgetary accounts for 2015/16..
The
capital transfer of Rs2 bn to the BMF is
an artificial book entry
transfer just to inflate the budget deficit, not including special funds, to 3.5% in 2015/16, so
that the 2016/17 deficit can show an improvement to 3.3% of GDP. If this transfer were excluded from the
budgetary accounts, the budget deficit, not including
special funds, would show a
deterioration from 3.1% in 2015/16 to 3.3% in 2016/17.
