Budget 2016-17: SAJ walking on a tightrope

The country is at crossroads as far as its economy is concerned, or so goes the mantra of successive governments. This time around however, the government has promised a second economic miracle, following the one which took place between 1982 and 1995. However, the Lepep Government is now having to deliver on that promise amid sluggish growth, high public indebtedness, growing income disparity, low investment levels, a perception of eroding purchasing power (mostly due to individual or household inflation rates which are unaccounted for in policy decisions) and low level of job creation. The backdrop is all set for the second Budget of the government led by Sir Anerood Jugnauth, known as being the architect of the first economic miracle. The current situation is such that the man who led the country through its transition to prosperity will have to present his government’s second Budget and lay the base for the coming of the “economic miracle” which formed the linchpin of his electoral campaign. How much room does he have to manoeuvre, is a recurring question to which experts have differing opinions. Nevertheless, the consensus is that government finances are in dire straits while challenges abound. The global economy is far from steaming ahead and the local one is feeling the pinch. Long-term visibility is poor – to be fair, it has been so since 2008 – and job creation has become the golden chalice of all countries with few finding the right formula. No later than this week, SAJ met with representatives of trade unions and SMEs. His message was clear and concise: “All proposals have to be realistic.” What does he mean by realistic? One possible interpretation could be that he has taken stock that the government, as an economic agent, has little control over fundamentals and relies on private initiatives, and external factors which are sometimes beyond its purview. For economist Eric Ng, the forthcoming Budget is the most awaited one by the private sector. “It is time for the prime minister to decide. Usually, the finance minister has to consult the PM before finalising any decision. All too often, both have diverging opinions and they need to reach a consensus. But in this case, the PM happens to be the finance minister. Hence, decision taking should be easier,” he says.

PUBLIC DEBT

According to Eric Ng, the situation regarding public debt has worsened in 2015, currently at around 64% of GDP. “Normally, public debt should be less than 60% of GDP. The finance minister must know how to scale-back public expenditure. The government must try to bring this figure below the 50% mark. The government can also raise taxes to rebalance its finances.” For Gérard Sanspeur, who has recently been appointed as Senior Advisor at the ministry of finance, the question should not focus on the amount of money being forked out by government, but rather, “how” is the money being spent. “Certainly, government expenditure is reaching a high level,” he says. “The spending is being directed towards improving the productive capacity of the economy, and will act as what is called an automatic stabiliser, generating growth and increasing government revenue.” Government is looking at a better management of current expenditure, and improving the quality of the public sector to ensure a rise in its productivity, he adds. According to economist Swadicq Nuthay, there is little room for manoeuvre. “What can be done with a Budget deficit which is higher than that of last year’s? Our debt keeps on spiralling. Government expenditure will be higher than tax revenues. It is a good thing that the STC has some retained earnings but we need to find out how to tap into those funds,” he says.

DISCRETIONARY SPENDING

Throughout the world, government finances can be broken down between mandatory expenditures (for items such as social security, wage bills and recurring expenses) which it cannot escape paying; and discretionary expenditure. The latter represents a lesser amount and is used to fund projects such as: consolidation of infrastructure, poverty alleviation, innovation and training. According to Gérard Sanspeur, these areas ensure long term success. The government is also devoting a lot of attention to emerging sectors, to give prospects to current and future generations. For Eric Ng, the government has to give significant consideration to social housing, training and empowerment of the low income families. Economist Swadicq Nuthay explains that recurrent expenditure has risen significantly with the hikes of old age pension, salary for public officers among others and this year’s PRB. “Given all these, I believe that there is little leeway left to the finance minister.”

Investments

In the previous Budget, major infrastructural projects were announced and a year later, they are yet to materialise. The gist of those projects were private sector initiatives mostly smart cities. Eric Ng explains that private investment is a must as this will allow the government to reduce its expenses and focus on improving the economy. To a certain extent, the success of policy measures are dependent on global conditions, says Gérard Sanspeur. “However, we cannot always shift the blame on external factors, when we have much to improve on our side as well.” The ease of doing business, economic and political stability, coherence in fiscal and monetary policy and a flexible labour market are sine qua non conditions to achieving set-objectives, according to him.