Budget, 2021/22 and 2022/23 – Brief Comments
BUDGET 2021/22
Taxes and revenue have recovered fairly strongly, mainly on account of VAT, and also from taxes on income and profits. Capital spending has shown a shortfall of about a third of the budgeted estimate. Current expenses still exceed the budgeted estimate by about Rs4 bn. Some current expenses of Rs3.8 bn on Covid related wage and employment subsidies have also been made from special funds, instead of the budget. The budget deficit is at Rs25 bn, or 5% of GDP, as budgeted.
However, this budget deficit for 2021-22 needs to be adjusted as follows:
(a) Other revenue includes about Rs8 bn of income from quasi corporations, namely the CEB, MPA, FSC. According to the IMF Manual on Government Finance Statistics, this exceptional amount is not treated as revenue but as withdrawal of equity, and therefore implies a higher deficit by 1.6% of GDP.
(b) The bail-out costs of creditors of Air Mauritius financed by BoM for about Rs 12 bn, or 2.4% of GDP, have not been accounted in the budget. Govt exchanged its shares in Air Mauritius Holding for MIC/BoM financing of a total of Rs25 bn, but in the Govt accounts, only receipts from an equity sale of Rs13 bn are recorded. The balance of Rs12 bn representing expenses to bail out Air Mauritius creditors is not recorded in the budget. The equity sale is shown as net of these expenses, as a clear example of deceitful accounting. Including the Air Mauritius bail-out expenses, the deficit increases further by 2.4% of GDP.
(c) In 2021-22, an equity investment of Rs2.4 bn, or 0.5% of GDP, has been made in the National Property Fund, for investment in the National Insurance Company. This is a continued bail out of BAI insurance business, and these bail-out expenses are disguised as an equity investment. The budget deficit would be higher by 0.5% of GDP.
(d) The overall budget deficit after adjustment for income from quasi corporations, and bail out expenses of Air Mauritius and BAI, is therefore much higher at 9.5% of GDP (5.0+1.6+2.4+0.5).
(e) In 2021-22, the revenue and expenses of special funds were broadly balanced at around Rs14 bn. Despite huge budget transfers to special funds, the spending shortfall is sizeable, leading to a surplus balance of Rs36 bn at June 22.
BUDGET 2022-23:
For the following year 2022-23, expenses from special funds are budgeted at Rs23 bn, with revenue of only Rs4 bn, implying a deficit of Rs19 bn in special funds for 2022-23. This special funds deficit of Rs19 bn for 2022-23 will be additional to the official forecast budget deficit of Rs23 bn. The overall deficit, including special funds, will thus stand at 7.3% instead of the official figure of 4% of GDP.
The policy of rupee depreciation has helped to deflate the real value of the mounting public debt and raise more tax revenue on the inflated value of consumption. Of the additional Rs 22 bn of tax revenue estimated in 2022/23, Rs 7.3 bn will be collected from VAT; Rs 6.5 bn from income taxes; Rs 2.6 bn from excise duties and environment taxes and Rs 1.8 bn from taxes on specific services and gambling....It is a budget that collects billions in taxes but throws out only a few crumbs to the retired and those hard-working families who have seen their spending power melt away by hikes in inflation - a making of this government with its heavy money printing to finance its wastage,uncontrolled expenditures and prestige projects!
PUBLIC SECTOR DEBT (PSD)
(a) Public sector debt is estimated at 87% of GDP at June 2022. This figure however excludes an incorrect consolidation adjustment of Rs12 bn, and an SDR allocation of Rs8 bn, representing a total of 4% of GDP. The real PSD debt GDP ratio is 91%. The MIC/BoM equity transaction of R25 bn has provided Govt with financing to avoid borrowing and thus hold back on PSD. The consequences of such central bank financing will only aggravate depreciation and inflation pressures.
(b) The PSD budget estimate for June 23 is 78% of GDP. After adjusting for a consolidation item of Rs8bn and the SDR allocation of Rs 8 bn, the PSD debt GDP ratio would be 80.8%. The drop in the debt ratio between June 22 and June 23 is partly due to an over optimistic increase in real GDP of 8.5% in 2022/23, but also on account of high inflation. In effect, Govt is defaulting on its debt through inflation.
(c) To meet the official debt target of 78% of GDP, Govt must realize a huge equity sale of of Rs22 bn budgeted in 2022/23. A budgeted equity sale of Rs4 bn in 20/21 never happened. Govt could again tap on MIC/BoM financing by exchanging shares of state-owned companies like Sicom or Mts Telecom, and lead Mauritius into spiralling inflation. Without the proposed equity sale, PSD would another 3.5% of GDP higher, and stand at an elevated level of 85% of GDP in June 23.
CONCLUSION:
The fiscal deficit is an important indicator of the macro-economic situation, especially on account of its impact on the public debt, and also on the external current account of the balance of payments. The current levels of fiscal deficits are definitely too high to ensure public debt sustainability. The extent of fiscal consolidation is not sufficient to comfort the IMF and Moody’s that the public debt situation is not deteriorating further.
This budget has the wrong priorities and is totally out of touch with what this country needs. More trouble ahead; we will all have to pay back those huge debts through furher depreciation of the rupee, higher inflation and more taxes.
