The three earlier budgets: Absence of reforms

Awaiting Budget 2018-19, it is interesting to have a cursory look at the main aggregates and policy orientations of the earlier budgets of this government which can give us an idea what to expect and not to expect from the forthcoming budget. We have refrained from restrictively comparing one budget to another but rather analyse a budget in terms of its targets, objectives, fiscal strategy and macroeconomic framework.

Budget 2015-16

Main aggregates

The medium term framework and fiscal strategy, outlined in Budget 2015-16, had projected a reduction in the consolidated budget deficit (inclusive of special funds) to -1.4 % of GDP in 2017-18. While revenue was expected to drop down to 20.1% of GDP and capital spending maintained at around 2.3 % of GDP, the fiscal consolidation estimates was based on a reduction in current expenditure from 21.9 % of GDP to 19.2 % of GDP in 2017-18. This was to be achieved through performance-based budgeting, introduction of  e-budgeting system, annual reports on the performance of Ministries/Departments and a re-revaluation of their projects and programmes. Typical bureaucratic blah, blah, blah that avoided mentioning any specific reform to raising productivity, improving the functioning of the labour market, strengthening the work ethics or any overhaul of the welfare state. The consolidated budget deficit was reduced to 3.1% of GDP by sizeable cutbacks in capital spending which registered a historically low figure of a dismal 1.6% of GDP. Budget 2015-16 failed miserably in attaining its main targets and in preparing the country for a better future.

Budget 2016-17

Main aggregates

The fiscal strategy of the 2016-17 budget was to enforce greater fiscal discipline and financial prudence and to “contain the rising trend in recurrent spending, and rationalize subsidies and social transfer programmes”. It aimed at doubling capital expenditures to 3.3% of GDP and allowing the overall deficit to worsen to -4.4% of GDP. The 3-year medium term framework projected a reduction in the budget deficit to-1.6% of GDP in 2018-19. Expenses would be cut sharply to 21.1% of GDP.  Social benefits would be pared down to 5% of GDP.  And employee compensation too would fall to under 6% of GDP. Unfortunately, as in the previous budget, the 3-year estimates were not credible more of back of an envelope stuff rather than a serious medium term plan to restore fiscal discipline. There was no fiscal adjustment or restructuring to contain the rise in current expenditure. Mounting social expenditures, increased employee compensation, arising from PRB and wage adjustments, and fresh recruitments caused the surge in current expenses, which rose at the same rate as GDP.  Again, the budget deficit was contained to 3.4% of GDP for 2016/17 by the drastic curtailment of consolidated capital spending, Budget 2016-17 failed in implementing the bold policy measures for the steep adjustments in public expenditures and for tapping other sources of revenue.

Budget 2017-18

Main aggregates

The whole storyline of budget 2017-18 was to transform Mauritius into an inclusive and high income economy by 2030 through an ambitious public investment programme and through further tax inducements for private real estate development. Measures “to enforce greater fiscal discipline and prudence”, including scaling back expenditure growth were expected to deliver a budget deficit (excluding off-budget spending) of 2.8% of GDP by 2019-20. But the current expenditure continued to surge driven by social spending and employee compensation while the budget deficit was restrained to around 3% of GDP by cutting back on capital spending which has affected our growth prospects.

But the fiscal deficit is underestimated by off-budget expenditures in state owned companies, (e.g for transport by Metro Express, or for the safe city project by Mauritius Telecom (MT)) and the off-budget spending financed by the Indian EXIM Bank line of credit, in state owned companies, which include Landscope Ltd, NHDC, Water Development Co., and CEB Green Energy Ltd. These off-budget expenditures are often wasteful and marred by implementation delays and are also affecting the credibility of the whole fiscal exercise. The integration of these off-budget expenditures to the official budget balances and the inclusion of the loans/line of credit in public debt are likely to yield much higher (consolidated) budget deficit and debt figures. The consolidated budget deficit, inclusive of off budget expenditures, which is expected to rise over time, could exceed 4% of GDP in coming years, if not in 2017-18.  Thus instead of the populist policies to woo Le Pep, we will have no choice but to implement a consistent programme of sectoral and welfare reforms. Painful fiscal adjustments will become inevitable in the coming years.