The IMF World Economic Outlook (WEO) has published its updated projections for Mauritius in April 2022. And these projections are not good news at all !
Inflation is expected to rise to 8% at Dec 2022, on a year-to-year basis, and decline only gradually over the years to 3.4% in Dec 2027. The IMF GDP projections do not include the latest data available from Stats Mauritius. Hence inflation in 2022 is underestimated, and GDP in real terms is also likely to be lower than forecast, with the negative impact of higher inflation on real consumption.
The IMF WEO fiscal deficit for 2020-21 is estimated 10.9% of GDP, and is forecast to decline to 7.2% of GDP in 2021-22. It decreases progressively but gets back to pre-Covid levels of around 2% of GDP only in 2026/27.
Total expenditure in 2021-22 is held constant over 2020-21 and is contained to an increase only by Rs4 bn in 2022-23, despite high inflation. It then increases by about Rs18 bn in 2023-24 mainly due to the planned pensions hike, and grows again annually by about Rs8 bn in following years. From 31% of GDP, expenditure falls by 4 percentage points to stabilize around 27% of GDP, remaining higher than the pre-Covid expenditure level of 25% of GDP.
On the other hand, revenue rises by around Rs12 bn annually, and increases by 2 percentage points over the years to stabilize at 25% of GDP, higher than the pre-Covid revenue level of 23% of GDP. (contrary to what our private sector is saying that “L’environnement fiscal est « à la limite de l’acceptable »)
This projected fiscal scenario thus implies an adjustment plan that would raise revenue by 2 percentage points of GDP and reduce total expenditure by 4 percentage points of GDP.
This will require stronger taxation, and reining in non-pension current expenditures mainly, and capital expenditures to a lesser extent. Despite this adjustment scenario, public sector debt is not expected to fall below 93% of GDP even by 2027/28.
But, politically, any major degree of fiscal correction is unlikely to happen before the general elections likely to be held 2024 or 2025. It is more probable that govt will make some limited fiscal adjustments, while seeking to obtain exceptional foreign financing to tide over continuing high deficits.
Inflation however will continue to play havoc, and the economic and fiscal situation will be fraught with considerable uncertainty.
And in comparison, our projections are likely to be based solidly on hope, crossed fingers, cooked-up figures and fear.
( NOTE :The fiscal deficit derived in the IMF WEO measures the gap between revenue and expenditure of General Govt, which includes 1.Central Govt, 2. Local Govt, and 3. Non-financial public corporations. The deficit mentioned in the Budget and in the budget estimates is based on a different definition, which includes only fiscal operations of Budgetary Central Govt.
The fiscal deficit calculated by Statistics Mauritius is also of General Govt, but is much broader, comprising 1. Budgetary Central Govt, 2. Extra budgetary bodies including special funds, 3. Local Govt, and 4. Social Security Funds, namely the NPF and the NSF. The IMF Article IV consultation reports compute a fiscal deficit closer to the Govt Budget definition, but also include special funds, i.e., a consolidated budgetary Central Govt deficit. )
