Public Sector Debt : Data Gaps

Published in Le Mauricien, 18 May 2018
Some years back during the heydays of the tandem Mansoor-Sithanen, when we were repeatedly highlighting the dubious accounting in the budgets, especially the Special Funds, the very people who were then in the opposition took up these arguments in their interventions and PQs at the National Assembly. At that time they seem to know better than the “Ministry of Finance, Moody’s, the World bank or the IMF”. 

      It was only after the Public Expenditure and Financial Accountability (PEFA) assessment of 2011 (to which I personally contributed but was removed from the final list of contributors to the Report)) that the IMF became really aware of the number and size of the funds outside the budget and started publishing an overall consolidated figure for the budget deficit - the consolidated budget balance which included the Special Funds. The  IMF then recommended that Mauritius fully integrates the special funds into the budget which would reduce budgetary fragmentation and facilitate more effective expenditure management. And it was only recently that the Special Funds were winded up and some Rs 6 billion were transferred to the Consolidated Fund and included in Budget 2017-18 as revenue.(*) .

        There are many cases in different countries, including Mauritius, where the data coverage is not complete. In these cases, the IMF usually recommends improvement through continuous training and assistance to strengthen statistical capacity.  For e.g for our Balance of payments , the IMF had advised that it  should increasingly improve coverage, frequency, and timeliness of data sources, with particular focus on the coverage of GBCs.  On Monetary statistics , we should expand coverage to Other Financial Companies . As for the Public Finance statistics, it had emphasised that we need to consolidate public sector statistics (general government, central bank, and SOEs) to better assess the true macro-fiscal stance and the public sector’s net worth. 

         

      From the above, it is clear that there is still room for improvement for our data coverage. According to the SDDS, the Public Sector Debt should include Central Government , Extra Budgetary Units, Social Security Funds (NPF/NSF) ,local Authorities , Public non financial corporations and public financial corporations controlled by General Government. Our data coverage of public sector and public sector debt have some gaps and are not fully compliant with international practice. In our coverage of public financial corporations and Public Sector Debt we have to include the SBM and the Maubank among others. 

What are the implications of these inclusions on Public Sector Debt (PSD)?

         We should not be using the excuse of data gaps to play around with the figures of PSD. The channelling of the Indian line of credit of USD 500 million, representing 3.7% of GDP, through a subsidiary of the State Bank of Mauritius, appears to be a convenient way to bypass Government and thus elude proper debt reporting. It is doubtful that this line of credit can be so summarily dissociated from Government, which have extended a guarantee for reimbursement. In the PUBLIC DEBT MANAGEMENT ACT it is clearly stipulated that any debt incurred by a public enterprise whether or not the loans are wholly or partly guaranteed by the Government shall constitute Public Sector Debt. Thus with consolidation and adjustment for gaps the PSD is likely to be higher than the 63% of GDP, registered as at March 2018.

(*)

It is not revenue: The GFS system defines Revenue as an increase in net worth resulting from a transaction. The increase in Net Worth happened in the previous fiscal year from a transaction and it was recorded in the Annex H (Net Worth) to the budget document as an increase in financial asset. Any transfer of funds merely changes the classification of these balances under financial assets it does not increase revenue.

Thus surplus balances of special funds cannot be counted as revenue upon consolidation with the budget. Their drawdown only provides an alternative way of financing the deficit. Transferring Rs 5.7 billion from the Special Funds to the budget only means that debt financing needs for the consolidated deficit will be accordingly reduced. Just as drawing on the savings balance does not enhance a household’s income, but only serves to finance its revenue-expenditure deficit, without having to borrow more.  The drawdown of the bank balance does not reduce the household deficit, only the means of financing.