Audit and the Road Ahead

Editorial

The recent announcement by the new government of Mauritius regarding an audit of the country’s economy has raised significant questions about the fiscal health of the nation and the effectiveness of past economic policies. The necessity of such an audit, especially in light of the current state of public finances, implies that there may be more to the story than what the public has been led to believe. The fiscal health of Mauritius, including the levels of public debt, the fiscal deficit, and revenue generation, already provides a clear picture of the country’s economic situation. Public debt, which has reached a concerning level, combined with a persistent fiscal deficit, indicates that the economy is struggling to maintain fiscal discipline. Revenue generation, though it has improved in recent years, remains insufficient to cover the country’s growing expenditure. These indicators alone should suffice to provide a snapshot of the economy’s health.

However, while these metrics are valuable, an audit could offer a more detailed and nuanced understanding of the economic situation. An audit would likely uncover not only the raw figures but also the underlying causes behind the current fiscal challenges. It could reveal whether specific government policies or financial mismanagement contributed to unsustainable debt levels or whether unforeseen global economic conditions played a larger role. More importantly, an audit could help identify areas of inefficiency and corruption that may have been concealed by previous administrations.

There was widespread suspicion, particularly within the former Opposition, that the previous government may have concealed or downplayed the true state of the economy. The possibility of deliberate obfuscation is deeply troubling. In a democracy, transparency and accountability are supposed to be pillars of governance. However, as observed in many countries, governments sometimes underreport or manipulate economic data to maintain an illusion of stability, particularly during election periods. If the previous government did obscure the true state of the economy, it would signify not only a failure of leadership but also a betrayal of public trust. Should institutions responsible for economic oversight, such as Statistics Mauritius and the central bank, be found complicit in presenting a misleading picture of the economy, they too would bear responsibility. This is especially critical because the integrity and independence of institutions tasked with collecting and reporting economic data must remain beyond reproach to ensure public confidence in the information provided.

Excessive reliance on debt

One of the key factors contributing to the current economic situation is the excessive reliance on debt to fund government spending. The previous administration borrowed extensively to finance public infrastructure projects, social welfare programs, and electoral promises. While some of these projects may have been necessary, the absence of a sustainable repayment plan has led to ballooning public debt. Another contributing factor is the sluggish growth of the private sector. The Mauritian economy has historically depended on a few key industries, such as tourism, sugar, and textiles. However, the former government’s failure to diversify the economy or invest in new sectors has left the country vulnerable to external shocks, particularly the global downturn caused by the Covid-19 pandemic. The lack of innovation and investment in sectors such as technology, renewable energy, and manufacturing has exposed Mauritius to the whims of global markets. Additionally, high levels of inefficiency in public services have created economic distortions.

Looking ahead, one of the most pressing questions is how much fiscal space the government will have to implement necessary policy reforms without worsening the current economic challenges. Given the state of public finances, it is unlikely the government can undertake large-scale reforms without carefully considering their fiscal implications. The government may need to prioritize key reforms, particularly in education, healthcare, and infrastructure, while addressing the fiscal deficit. Some reforms may need to be delayed or scaled back to avoid further debt accumulation. However, implementing policies that stimulate private sector growth and reduce public sector inefficiency could create the necessary conditions for fiscal consolidation in the medium to long term. Additionally, while social welfare programs aim to support the vulnerable, the ineffective targeting of these programs means they often fail to reach those most in need. A more targeted and efficient social welfare system could alleviate some of the economic pressures.

The implementation of the 14th-month bonus, a key electoral promise by the ‘Alliance du Changement,’ presents a significant challenge. While it is a popular measure, the previous government notably avoided addressing the possibility of reducing petroleum product prices, a more tangible way to alleviate the cost of living. Implementing the 14th-month bonus may prove more difficult than anticipated, given the limited fiscal space. In the context of limited fiscal space, the government may need to explore progressive taxation to generate the necessary revenue. Progressive taxation would involve taxing higher income brackets at greater rates, ensuring that wealthier individuals and businesses contribute more to national coffers. This approach could help generate additional revenue while promoting greater social equity. However, implementing progressive taxation will require careful planning to avoid disincentivizing investment or driving businesses away.

Mobilizing revenue

Economist Vinaye Ancharaz, speaking to the Mauritius Times this week, noted, “There are other ways to mobilize revenue than reforming the income tax system. The impact of the reform on tax revenue, introduced in the 2023-24 Budget which introduced a dose of progressivity, needs to be studied before implementing further changes. Higher tax rates may not always yield increased tax revenues due to the so-called Laffer-curve effect.” The government will need to balance generating revenue with fostering an environment conducive to economic growth.

Regarding the disbursements made by the MIC to the so-called “distressed companies” following the Covid pandemic, little is known to date about the conditions attached to these “loans,” aside from the amounts allocated to individual companies. The government must ensure that these loans and other facilities are fully repaid, creating the fiscal space needed to fund its programs, particularly in priority areas.

On the other hand, improving the efficiency of public spending will be crucial for Mauritius’ long-term economic health. The government should focus on optimizing resource allocation, particularly in areas such as social welfare, infrastructure, and public services. Streamlining operations, cutting wasteful spending, and enhancing public service delivery could free up resources for more productive investments. Reviewing social welfare benefits, including pensions, may also be necessary to ensure they are targeted and effective. A more focused approach could ensure the most vulnerable receive the support they require. Stabilizing commodity prices, particularly for essentials like food and fuel, will also be a major challenge.

Finally, the government must effectively communicate its economic reforms and fiscal policies to the public. The road ahead will be challenging, and transparency about the obstacles and a clear commitment to addressing them will be crucial. The road ahead for Mauritius will not be easy. The government’s decision to conduct an economic audit is an essential step toward understanding the true state of the economy. However, it is only the beginning. Skilfully managing fiscal limitations, implementing necessary reforms, and maintaining open communication with the public will be vital to ensuring a sustainable and prosperous future for the country.

Mauritius Times ePaper Friday 6 December 2024