Government has set up a COVID-19 Projects Development Fund with the objective of implementing an investment programme following the negative impact of the COVID-19 pandemic on the economy.
The likely contributors to this fund are Government, the Bank of Mauritius, the private sector including other generous donors. It is to be noted that any surplus money from the Fund will be tranfserred to the Consolidated Fund and when the Fund is wound up, its assets and liabilities shall accrue to the Consolidated Fund.
What is this new gimmick - another fund concocted outside the budget with the pretence of private sector involvement ? Do you see banks, pension funds etc. abandon the safety of govt bonds for this CFDF in current conditions-meaning a CPDF without government guarantees? What are the so-tempting returns on this fund that will be attracting the private investors? By the way the private sector is itself in dire straits, why would they bother to put money in such a fund ?
Is it not just a cover for BOM financing? BOM will contribute, probably from its internal reserves meaning a deficit financing by pure money creation. Another pretence is the attempt at blowing up the CPDF by including donations, grants and other receipts from any national or international organisation or development partners or other friendly countries or persons (Sobrinho perhaps) !!! A gimmick indeed as we all know that grants from international organisations normally go to the budget !!!
It is another special fund or off budget vehicle like the Build Mauritius Fund, or Metro Express for undertaking off budget expenditures. We are not against any such off-budget funds but these have to be consolidated with the budget to reduce budgetary fragmentation and facilitate more effective expenditure management and provide a true picture of the level of the budget deficit and the state of public finances .
In 2009 , Hon Pravind Jugnauth , member of the opposition, in his intervention in the NA on the 2010 budget, raised the issue of the off-budget special funds : “Au début de mon intervention j’avais parlé de fonds mirobolants, portant des noms ronflants, mis sur pied depuis 2008 …..Ces fonds, je l’ai souvent dit, M. le président, avaient été créés avec deux objectifs. Premièrement, pour masquer l’échec sur le capital investment et deuxièmement manipuler le déficit budgétaire.” As compared to the official figure of -4.5 % , he quoted a figure of -6.6 % as the real budget deficit ,inclusive of the off-budget funds.
But as Minister of Finance he chose to fall in line with his erring predecessors recreating the off-budget funds and going back on his words about ensuring greater transparency in fiscal management by closing the various off budget funds and transferring them to the Consolidated Fund.
It is equally important to remind our readers that such budgetary tricks have been tried quite far back in the past. Following the issuance of the Floating Rate Notes (FRN) in October 1995, Manraj/Sithanen created the off-budget National Infrastructure Development Fund (NIDF) and Statistics Mauritius , which was then under MEPD, started publishing two budget deficit figures, with and without the off-budget NIDF.
There is plenty of liquidity around. BOM is the last resort. We should not encourage this kind of financing because it is too risky - confidence and currency issues will arise. Instead, we should opt for increased govt borrowing, coupled with funding from international institutions , plus a SPV for private sector support, also funded by BOM if needed. Interest rates will remain low for years. As long as the nominal growth rate is higher than the interest rate, the high debt to GDP ratio will not be a major issue.
The CPDF is another conjuring trick in Govt’s catalogue of artful deceptions.
