The Hidden Figures of Our Budgets

Economic Outlook 

By Rattan Khushiram

There is very little that differentiates one regime from another in terms of tortuous accounting practices in relation to the budget figures. We seem to have become past masters at conjuring budgetary tricks, and this has been going on under different regimes. Readers will recall that, following the issuance of the Floating Rate Notes (FRN) in October 1995, the Manraj-Sithanen team created the off-budget National Infrastructure Development Fund (NIDF). Statistics Mauritius, which was then under the Ministry of Economic Planning and Development, started publishing two budget deficit figures, with and without the off-budget NIDF. 

The curious arithmetic in relation to our budget numbers continued in earnest under the tandem Mansoor-Sithanen. The chronic underspending on the capital side of the Mansoor-Sithanen budgets was not allowed to flow through to the budget bottom-line, resulting in smaller deficits. Government appropriated the surplus funds and transferred them to a set of Special Funds. The spending from the Special Funds were not included in the calculation of the overall budget deficit. Though the Special Funds had existed since the 2007/08 and 2008/09 budgets, it was only in 2011, through the Public Expenditure and Financial Accountability (PEFA) assessment, that the IMF became aware of the off-budget funds and recommended that we fully integrate the Special Funds into the budget for better fiscal transparency and more effective expenditure management.

In his intervention in the National Assembly in 2009 on the 2010 budget, Hon Pravind Jugnauth, then sitting on opposition benches, raised the issue of the off-budget Special Funds: “Au début de mon intervention j’avais parlé de fonds mirobolants, portant des noms ronflants, mis sur pied depuis 2008… Ces fonds, je l’ai souvent dit, M. le président, avaient été créés avec deux objectifs. Premièrement, pour masquer l’échec sur le Capital Investment et deuxièmement pour manipuler le déficit budgétaire.”

But the colourable accounting practice of creating special earmarked funds outside the budget (which were not consolidated with the Budget) was not discontinued under Hon Jugnauth, the present Minister of Finance. On the contrary new funds have been created and all kinds of reasons were given for justifying the off-budgets expenditures.

But now more and more people are becoming aware of the dubious accounting in the budget figures. Many local accounting firms have highlighted the lack of transparency in the Budget and have demanded that these off-budget funds be integrated with the budget. In the 2019 IMF Art IV report, the IMF has included the special and other extra-budgetary funds in calculating the budget deficit which is shown in Table 2A and 2B of the report as the Consolidated Balance.

Unfortunately, the IMF has mixed up the figures, for e.g. for FY 2018-19, it has taken the figure of 9,320 for Net Acquisition of Non-Financial Assets instead of 11,446. We have reworked the IMF figures which come close to our own estimates of the consolidated budget deficit as shown below. These more comprehensive budget figures give a better idea of the fiscal stance and are an important input for policymakers in deciding on policies to strengthen macroeconomic resilience.

There is nothing objectionable per se in the setting up of Special Funds and public entities for justifiable purposes, as long as their transactions are consolidated with the budget for a proper recording and evaluation of the fiscal deficit and of public debt. A proper reporting of the budget balance will go a long way towards “enhancing fiscal transparency and bolster credibility,” comments the 2019 IMF Art IV report at Para 24.

* * *

The Ministry of Finance fudges again with the debt figures

Despite IMF concerns about transparency and openness in the reporting on public indebtedness, the Ministry of Finance continues with its juggling of the debt figures and has reverted back to net debt measures of public debt. We have got used to these gimmicks of the Ministry of Finance: when it cannot reach its debt target, it either moves the goalpost some more years further down the road or manipulates the Public Sector Debt figures (PSD).

A statutory debt target of 50% of GDP under the Public Debt Management Act 2008, based on a local definition, was missed in 2013, and a first amendment to the PDM Act postponed the debt deadline to Dec 2018. In a further amendment in June 2017, the local definition of public sector debt was replaced by a limited “international” definition, and the debt target was changed to 60% of GDP while the deadline was further postponed to end June 2021.

The public sector gross debt rather than net debt was established as the measure for the debt ceiling. The revised PSD is now a measure of gross debt liabilities, without any netting of cash balances as it was the case previously. The statutory PSD ceiling was therefore raised in the amended PDMA to 60% of GDP, to be met by 2021. For any one fiscal year, the statutory PSD ceiling was set at 65% of GDP.

In Dec 2018, PSD stood at 64.9% of GDP. However, a new adjustment item was added to the debt table, reducing PSD by Rs2.9 billion, or 0.6% of GDP. Without this adjustment, PSD would have exceeded 65% of GDP. This “consolidation adjustment” is an arbitrary concoction to underestimate the level of PSD.

Now, in a newly released statement, the Ministry of Finance has re-introduced net PSD figures (net of Cash Balances of non-Financial Public Sector Bodies). Why? Is it to create confusion in the minds of the people about the real debt situation by publishing different measures of debt – the gross and net public sector debt figures? In the context of the latest comments of the 2019 IMF Art IV report, we have to make sure that the integrity of our public debt reporting is shielded from such doubtful accounting practices.

* Published in print edition on 10 May 2019

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