Dismantling & Redesigning the TINA Policies
Whatever little debate there was during the recent election, it centred mostly on the TINA (There Is No Alternative) policies; there was near unanimity against the neo-liberal and purely theoretical policies – the blind adherence to the Washington Consensus — that were tried on the populace. The entire Mauritian political spectrum, including our Party Malin and popular sentiment unsettled by TINA policies (with the exception of the TINA stooges in the press that have over the last five years tried to build the TINAs and their friends as the most brilliant and super competent economists that ever walked on Mauritian soil) had expressed their discontent in various ways.
That there were such overwhelming angst and anger was not surprising. We were made to believe that IMF/WB-cum-TINA economic model was the only way to “growth and prosperity” with its habitual theoretical prescription of a mix of painful fiscal austerity, tax reform, trade and labour market liberalization and privatization. These policies were expected to deliver a rising economic tide that could lift all boats but instead polarised the country between the haves and the have-nots. Anger, not wealth, has trickled down.
The TINAs had focused most of the radical reform effort on short term macro-stabilization that had redressed to some extent the economic situation and brought back the economy on track. But that was not enough for establishing a solid base for sustained economic growth and get the economy going again at full blast. To anchor the growth dynamics in more solid stuff, the medium- to long-term strategies and measures had to fall in line.
In each of the pillars of the reform programme, the short-term measures that were implemented were not supported by appropriate sector strategies. The structural reforms were missing. The economic issues in Mauritius were more sectoral than macroeconomic, and sector reforms were needed to generate productivity improvements in agriculture, industry, public utilities, health, education, etc. We were not providing ourselves with the means to realise our vision of becoming a more diversified services and knowledge-based economy.
Our neoliberal policies, analytically flawed when applied locally, have simply not delivered on our economic, social and environmental goals. The few touches to the tax rates and the improvement in the investment climate framework were not the reforms that would generate sustainable growth. The absence of substantive reforms and investment in the economic infrastructure during these past four years has affected the growth rates of the productive sectors. No additional meaningful pillar has been added to the economy to improve its competitive edge, such that our export sector continues to take refuge in their historically tested instrument — competitive depreciation. Growth had to be more broad-based to achieve the desired above-average growth rates and the continuing over reliance on few traditional pillars — like tourism and textile – has left us still vulnerable to current timid global economic recovery and its accompanying exogenous shocks.
There has been no spending on the retraining workers in the declining industries such that they acquire the required skills to become employable in new sectors. The Empowerment Programme has not delivered; it is just a paravent for the private sector, ensuring that their labour search costs are minimized and that their short-term labour needs are subsided by government.
The ex-Chairman of the Steering Committee on the Empowerment Programme did refer to the Programme as a palliative, for it cannot substitute for a bold programme of human capital formation that transcends short-termism and is supplemented by appropriate reforms in the education sector. It is in this sense that we mean that there are alternatives to the TINA. In such an alternative socio-economic model, it is the policies affecting the education system and the returns to human capital that are decisive in determining the outcome.
The Stimulus Package
When the crisis started hitting us last year, it took barely one week for the Minister of Finance to come to the rescue of the big bosses of the private sector and hold the hands of the weeping CEOs. The Stimulus Package had been criticized for not showing any clear intention to ensure commitments by the export sector to productivity enhancing measures. The measures — especially the debentures, equity, asset buy-back schemes — of the Stimulus Package only reflected the aim to keep the engine running until external demand picked up again.
In other words it only provided short-term liquidity to the failing big enterprises. It amounted to a transfer of wealth from the public purse to the private sector, bankers and parasitic enterprises and institutions – with absolutely no influence over what they do. This shortsighted strategy of an elaborate package of dole-outs that are palliatives at best has led us back to the same precarious situation with the present Euro crisis.
Real estate — an abomination rather than a new pillar
The new socioeconomic model of the TINAs reinforced our very distinctive development path. Mauritius had chosen a development option that squeezed the population per sq km, (presently some 611.24 persons per sq km and ranked 18th in the world in terms of population density) in order to release enough land that would be conducive for the exports of goods and services. Now, does it make any sense to keep on piling on top of one another while the ex-sugar owners and others speculate on that precious land and convert Mauritius into a real estate jungle peopled by outsiders without boosting our future export potential?
The sharing of the optimal rent (rent from land speculation) goes on with the difference that it has now become somewhat more inclusive on the margin. The IRS development pursued with increased determination by TINAs has been decried for its speculative and unproductive use of the country’s strategic land assets being sold to foreigners. Land prices have risen out of reach of most Mauritian households, while sugar barons extracted huge profits on their large property holdings, but contributed marginally to taxation. To add insult to injury, the middle classes were made to pay higher property taxes, the infamous NPRT.
Moreover, most of the capital inflows that go to the real sector, so-called FDI, are not being used presently to extend our production frontier, that is to boost future production of either goods or services but to strengthen our rupee. Can we afford to have a strong rupee now if it is not supported by increasing productivity in the export sectors and by adequate infrastructure — social and physical? The real effective exchange rate has been reported to have appreciated by some 13% over the past four years.
The Tax Effort
Along the lines of the usual IMF/WB prescriptions, the TINAs in their very first budget told us that there was no other way for fiscal consolidation and improved public sector efficiency but the introduction of a flat tax that replaced a progressive income tax system and a big bang programme-based budgeting system. We know now that the typical IMF one-size fits-all approach, that did not reflect the local expenditure and savings needs and incentives realities, has had deleterious effects on our savings rate and failed to consolidate fiscal revenue.
Fiscal revenue as a proportion of GDP has stagnated at 20% of GDP, despite the breast-thumping of our TINAwallahs. The Financial Reporting Council has not been of much help in ensuring that the corporate sector bears its fair burden of the tax and does not hide behind opaque accounting practices that shield the true extent of its profitability. The recent 2010 African Economic Outlook report on the tax effort across African countries classifies Mauritius together with Guinea and Madagascar as a low-tax effort country. Is this not a reflection of the largesse extended to the private sector in terms of reduced corporate taxation?
Failure of Big-Bang Programme-based budgeting
One of the other components of fiscal consolidation, namely Programme Based Budgeting that was implemented with a big-bang approach in 2007, against sound advice to proceed sequentially and gradually, had also recently received damning criticism from the Collaborative Africa Budget Reform Initiative (CABRI), an authority on budget reform. It was under the tenure at the present Minister of Finance that the foundation was laid for the present Programme Based Budgeting by starting, on a pilot basis, the Medium Term Expenditure Framework (MTEF). The Big-Bang approach, not anchored in local realities, is running the risk of remaining a pure administrative exercise and “has remained theoretical and looks good on bookshelves without any usefulness to solve practical issues. Instead of rushing in to impose the IMF-WB-EU dictated PBB, they should have listened to proper local advice that had advocated a gradual and decentralized approach.”
CABRI notes with concern that the “frequent changes made during implementation in terminology and concepts, and in establishing the programme structures for line ministries, and developing templates for the new budget format were a challenge to successful implementation, because they caused misunderstandings of what was required in terms of defining outcomes, outputs and performance indicators and undermined the confidence of line ministries in PBB. There is still a lack of clarity regarding definitions, which has resulted in inconsistencies in the way performance information is used in the PBB documentation.”
Moreover they draw our attention to the programmes of some ministries that are not aligned with their main objectives or functions. Ministries do not have strategic plans and that they cannot use the PBB as a strategic policy-based tool. There is no methodology for allocating direct and indirect costs to programmes and sub-programmes. CABRI strongly recommends some 7 to 8 measures that we will have to take to move from a mere theoretical PBB to one that “secures delivery of Government’s major domestic policy priorities” as pointed out by the VPM and new Minister of Finance (MOF) in a speech that one of his technicians was instructed to deliver at the CABRI meeting. The MOF also adds that “the PBB is the Government’s tool to enhance service delivery to the population who are becoming more and more demanding in terms of level and quality of service from public sector organizations and the final impact and outcome of programmes and policies for the advancement of the welfare of the country.”
The VPM, not of the “après moi le deluge” arrogance type, goes about his business quietly. He handles his responsibilities with flair and shows a sure hand in mastering the PBB complexities. He wants a PBB that delivers. “Successful reform,” he reminds us, “does not only require published targets but clear, specific definitions of success.” He brought a crucial nuance to whole issue by strengthening the PBB — where it is most likely to fail — with the setting up of a Delivery Unit that will secure delivery on major domestic policy priorities. This delivery unit will lead in building the overall capacity of government to speed up the budget reform process successfully by establishing a pragmatic, evidence-informed approach to policymaking and implementation.
The ball is set rolling in grounding the TINA policies in our local realities and, if need, be dismantling or redesigning them so that they deliver.