R. Chand

Titbits

The private sector « fait son cinéma »

R. CHAND

Mauritius drops three ranks in the World Bank’s Ease of Doing Business (EoDB) 2012 index, and this has suddenly awakened our private sector to the fact that we have been lagging behind on reforms. Now they have something to exhibit for the morosity in domestic and foreign investment.

(The assumed positive correlation between the EoDB index and FDI is doubtful; China (91th), India (132th), South Africa (35th) have no dearth of foreign investment.) The private sector lobby is already at work to get rid of the capital gains tax and other taxes introduced by the previous Minster of Finance.

 

 

The capital gains tax is killing the construction industry” is the private sector outcry. But the clamour on our side is that we have had enough of the ultra-liberal model of development based on IRS and shopping malls and all types of real estate speculations (including MedPoint, Jin Fei, Les Salines Project, etc.,) that is turning Mauritius into a concrete jungle. Should we be surprised that there is a slowdown in tourist arrivals? After more than a ten-hour long distance flight, our tourist expects to land in a lush green Mauritius, which is supposed to be “un plaisir”, but is met by a “Mauritius bétonné” especially the imposing old “boîte saumon” structure that sticks out as he/she passes by our cyber city.

The private sector approach has boiled down to one idea. “They want to cut taxes permanently to revive the economy and slash government spending to end the need for taxation. It’s an argument they have peddled and largely implemented for 30 years with poor and worsening results,” argues Jeffrey Sachs. “They claim without evidence that taxes and regulations are killing job creation, though many countries with much higher taxes and much stiffer corporate regulations have much higher employment than us.”

The truth is that it will take more spending – not in the form of haphazard stimulus packages — but in smart long-term public investments in education, infrastructure, productive sectors and human capital to get us out of our present mess.

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The Budget: Effets d’annonce

Before we tackle the new budget, it is worth it to go back to some of the past budgets. In his interview to Business Magazine of 26 October 2011, the Minister of Finance commented that « qu’il y a trop d’effets d’annonce dans le budget. 60% des mesures annoncées n’ont pas encore été mises en application et peut-être ne le seront jamais ». And that has been going on for the past five budgets. « Un budget n’est pas simplement un discours de bonnes intentions mais ce sont des projets qui peuvent être mis en œuvre ».

Yes Minister, only if the economic analysts in your ministry are allowed to play their role as economists in properly analysing the programmes embedded in a sectoral plan and linked to the priorities of a medium-term national plan. Pre-2006, there were less than 15 people working on the Budget and on the Medium-Term Expenditure Framework/Programme Based Budgeting (MTEF/PBB). With the merger of two ministries and the ex-Management Audit Bureau, there are some 55 economists, analysts and accountants working on the budget to produce “wish-lists”. Have we been allocating taxpayers’ money to budget officers for overtime, budget and responsibility allowances to generate fictional programmes and projects?

What is more serious is that some of these projects are being introduced in the budget without any analysis, discussion and proper evaluation and which, after a few years, turn out to be white elephants! Example: the “Village touristique” that the state is now looking for takers. We have thrown away the baby together with the bathtub, the reason being that the function of planning and analysis has totally disappeared with the merger. The budget exercise has become a mere number crunching exercise.

And now everything has gone haywire — incoherent bits and pieces that fail to provide the bigger picture — the strategic plans from which the programmes included in the budget are supposed to have been derived, the 3-year PBB indicators which are also supposed to be derived from the medium-term targets of the strategic plans of line ministries, the budget ceilings that assume a proper costing of our policies and programmes, the macroeconomic forecasts of a trillion economy based on a annual real growth rate of 7 %; the diversification of our tourism base with far-fetched tourism forecasts for the emerging market, etc!

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The PBB, again and again

The Program-Based Budget (PBB) is turning out to be another wish list. It has remained a theoretical tool and does not provide concrete and practical policies and programmes conducive to making Mauritius a growth-enhancing economy. The reason is that the PBB has been reduced to a mere arithmetical instrument over-focusing on expenditure control.

One of our local experienced top economist, well versed in PBB, has these incisive comments on the present implementation of the PBB: “I believe we have had the wrong approach to the PBB, from a strategic point of view and, consequently, its implementation has suffered. We have looked at PBB as a tool for efficiency and effectiveness of the budget, but only through indicators.

“The preparation of the PBB doc is seen as a stand-alone document, unrelated to the priorities of the country and the operations of the organization. The PBB is the publication of information on organizational policies and their implementation (deliverables of the organization), presented at a level of interest to Parliament (i.e. how the deliverables of the organisations will help us achieve our national outcomes).

“To culminate to this level, there are sub-levels. For e.g., the first step is the way work is done within the organization. Good policies and their implementation only result from proper analysis. Yet, there is low-level analysis/no analysis in the public sector. How many of us are output-oriented? Unless this is rectified, no PBB will be successful.

“Presentation of information in the form of PBB is the top level of the pyramid. Below this, there are the various levels of the organization at which planning and implementation should take place and also (very important) planning and implementation across organisations. The highest level of planning is to define the national outcomes. It is on these that we should report to Parliament.

“The next step is then to break these outcomes into sub-outcomes or outputs at the organizational level, and further down (as in a factor tree), until we reach the individual level. These linkages are missing. Until and unless we recognize these linkages and work on them consciously, PBB will not be effective. Moreover, monitoring and evaluation are important e.g. Public Expenditure Reviews. The sad thing is that in the public sector we have very few thinkers but a lot of loud speakers. And the few thinkers that remain will either stop thinking out of frustration or just leave for greener pastures where they can be recognized.”

Our local consultant seems to have more to say about the PBB than the plethora of foreign consultants recruited by the Ministry of Finance.

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Monitoring and Evaluation

In his examination of the Supplementary Appropriation Bill (2010) and the Estimates of Supplementary Expenditure in the National Assembly, Mr Pravind Jugnauth regrets “de n’avoir pas été en mesure d’introduire une monitoring unit au sein du ministère des Finances afin d’assurer que le gouvernement obtient value for money.”

The incumbent minister of Finance is proposing to have a budget implementation Unit « pour assurer la mise en œuvre et le suivi du budget ». We have often argued that the introduction of planning and analysis in strengthened sectoral teams would have allowed a more meaningful contribution to the budget exercise and a better follow-up with regard to budgetary measures, including the implementation of capital projects.

Indeed it would have given meaning to the merger and ensured that the Ministry of Finance is more than a pure accounting short-term number-crunching ministry.

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Integration of Budget and Planning

A stand-alone Planning unit was set up timidly without proper staffing at MOFED. It was doomed to fail, which then begs the question: Do they genuinely believe in the need for a re-actualisation of a National Long Term Perspective Study (NLTPS) for the country?

It is no surprise that the overall macro-economic framework including properly designed strategies to unlock growth potential, the sectoral needs in line with national priorities — food security, water and energy issues, economic diversification, the development of new economic pillars and the much-boasted economic diplomacy turned out to be purely amateurish and lacked in-depth analysis and planning that are captured in a long-term approach to transform Mauritius into a high productivity, high efficiency and high income economy.

It is our hope that the new Minister who wants action on the policy front will recognise that excessive preoccupation with short-term issues had led to the neglect of measures essential for sustainable long-term improvements in national welfare and will take action to reactivate the planning and policy function.

There is at present a general consensus to take stock and prepare a new National Long Term Perspective Study (NLTPS) for a better future — a NLTPS that will shape a vision of Mauritius for the next 20 years, the likely course of events, the main constraints and opportunities that will emerge, the linkages between sectors, resource availability and the key choices that have to be made. That will be a surer way of engaging all stakeholders and ensuring that the strategies and policy reforms envisaged are technically realistic, economically feasible and politically viable. There is no shortcut if the vision of “Mauritius 2030” is to be materialized.

R. CHAND

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