(Published in L'express on 08/06/2023)
The budget, designed with the possibility of an election in mind and with its many giveaways to sway the voter, turned out to be a damp squib. There are no big reform signals to jumpstart the economy.
But by trying to convince voters that good times are just around the corner, it has left them unprepared for the hard choices that, sooner or later, we will have to confront.
The budget does not address the fundamental problems of the economy, and has failed on many fronts, such as
1. Raise economic growth, as the GDP is still below the 2019 level in real terms.
2. Counter inflation and stop the loss of purchasing power, which mainly affects disadvantaged families.
3.Reduce the Current Account deficit in order to stabilize the rupee and relieve the shortage of foreign exchange.
4. Combat the waste of public funds and control unproductive expenditure and
5.Restore confidence and stop the exodus of young professionals.
The budget reflects socialism à la Padayachy – the poor will be paying for the social measures through consumption taxes, VAT,( which increases from Rs 49.4 billion in 2022-23 to Rs 61.5 billion in 2023-24), the increased tax on alcohol and cigarettes, and will be taxed above all by high inflation. On the other hand, the rich will be paying less taxes while the middle classes are being squeezed by a more severe tax burden. It is socialism in the service of autocracy and plutocracy. ("The tax reform would cost the Government some Rs 5.3 billion in terms of revenue, including the amount foregone from the Solidarity Levy, which would have generated some Rs 3 billion in case it was maintained."). Our high income earners have been topping it up with champagne and sparkling wine and have even been sending complimentary bottles to their friends since Friday.
Alarming budget deficit figures: No, the budget deficit for 2022-23 and 2023-24 are not -3.9% and -2.9% respectively, it is much higher if we include the net expenditures from the special funds (IMF has repeatedly recommended that the Special Funds be integrated into the budget for better expenditure coordination, accountability and transparency) and the expenditures that have been disguised as loans or equity in WMA , the CWA and other loss-making parastatals.
Irresponsible budgeting: Again this year, there has been persistent substantial under-execution of investment spending at all levels of government, sacrificing capital for recurrent expenditure . Capital spending is a dismal 1.5% of GDP. The current level of fiscal deficits are definitely too high to ensure public debt sustainability. The extent of fiscal consolidation is not sufficient to comfort the rating agencies, the IMF, foreign observers and investors that the public debt situation is not deteriorating further.
GDP and Inflation: The 2022-23 GDP is estimated at Rs 614 billon, which represents an increase of 17.7% on the GDP of 22-21 (Rs522 billion). GDP for 23-24 is projected at Rs 722.9 billion, forecasting the same increase of 17.7% in nominal terms, notably with the same real growth of 8% and the same inflation of 9%.
It is too simplistic to predict the same increase in nominal GDP for two years in a row, but it is indeed an admission that inflation will remain high at 9%. Real growth will certainly be less in 2023-24, around 4%.
Inflating Debt away : Government has been able to inflate away its debt by ‘engineering' a higher inflation .The so-called reduction of the public debt/GDP ratio is the result of the substantial increase in nominal GDP due to higher inflation or GDP deflator. It is not the result of any efforts by the government.
If we calculate the increase in GDP in in real terms ( a 8% real GDP growth has been assumed in the medium term macroeconomic framework, fiscal strategy and debt management strategy for both FY 2022-23 and 2023-24 ), we will nullify the impact of the deflator and thus able to find out how the public debt ratio is faring over successive budgets without inflation.
The calculations show that without inflation, the public/debt to GDP ratio would have remained the same. Our Pada cannot thus boast about driving down the debt-to-GDP ratios. But unquestionably, the higher inflation is principally of his own making !
Conclusion :. The billions of rupees collected via inflation tax is being redistributed-giveaways here and there in bits and pieces without any coherence -hiding the fact that there is nothing about boosting the productive capacity of the economy, about sustaining the largesse of this government towards “protége zot ban”, the rich. The series of traditional small incentives, given here and there, that we have tried umpteen times in the past, cannot be taken seriously for a real impact. There are no big reform signals to jumpstart the economy. But by trying to convince voters that good times are just around the corner, it has left them unprepared for the hard choices that, sooner or later, we will have to confront.
