The IMF Staff Report Mirror

By S. Callikan

Governance, independence, credibility and accountability of our “institutions” are one area where the IMF has not beaten about the bush to express its concerns

IMF Staff Reports are, we understand, the result of fact-based assessments against a variety of national and sectoral socio-economic indicators, integrating inputs and responses from the authorities. They are obviously couched in diplomatic speak, even when their recommendations are of an earnest nature, not to be taken lightly or brushed aside by the top team at Finance and Economic Development, were they to be of such inclination.

So we, as ordinary citizens, have to probe beyond the plaudits, some of them real, some face-saving for the local respondents, particularly in an electoral year, to gauge the matters of concern to the IMF Staff audit team and higher quarters at the venerable institution. To independent observers and economists not concerned by buoyant government spin, for our private sector operatives, as for the Mauritian citizen generally, it is an opportunity to look into the mirror at the real performances, weaknesses, opportunities, challenges and threats facing our nation and its economic development over the recent past and into the medium-term future.

Governance, independence, credibility and accountability of our “institutions” are one area where the IMF has not beaten about the bush to express its concerns. They are forthright in bluntly re-stating an oft-repeated truism: “Strong and independent institutions are key to overcoming policy challenges…” before proceeding with their independent view of a governance system that is failing the country, a fact that has been growingly obvious to the majority of our citizens.

The Staff team of the august institution do make a perfunctory attempt to sweeten the blow by referring to the country’s previous record: “Mauritius has a track record of good governance and strong institutions..” but the disquiet remains immediately palpable behind the somewhat face-saving qualifier (“slight”): “recent years have seen a slight deterioration in some aspects of institutional quality indicators, including an increase in the perception of corruption.”

Where matters come to a head are in the urgency and importance of the recommendation that reads like an imperative, which authorities are free of course to disregard:

“Staff urged the authorities to maintain strong and independent institutions to remain an attractive investment and employment destination. Improving fiscal transparency and strengthening the AML/CFT framework could help to improve public perceptions regarding corruption.”

Reduced shock absorption capacity

If the authorities expected leniency from the IMF team on the level of public sector debt on the grounds that massive investments in infrastructure were needed, the assessment will have been a reality check. IMF notes that the policy of continued expansive spendings went against the greater fiscal discipline promised in the 2017/2018 budget, with the self-professed target of bringing down the debt to GDP ratio to 60% by the end of 2021 set to fly out of the window. Indeed, current government and IMF forecasts confirm that public debt is still climbing to 65.4 and 65.8% of GDP over this and the next financial year.

What may look more annoying to the IMF team, who are justifiably dismissive of government’s plea to extend the targets by another two years, is the fact that some external debts and liabilities entered upon by various State-owned or State-controlled enterprises are not fully taken on board in the above public debt estimates and targets. This has been of course the subject of continuous accusations by independent analysts and Opposition forces, estimating real total public sector debt and borrowings as a percentage of GDP well into the seventies.

This massive debt level, combined with a lacklustre economy which is faltering in various traditional sectors (agriculture, sugar, textiles and manufacturing, offshore financial services, now tourism) other than the construction industries, with the absence of contingency planning in those at risk sectors or coherent medium- and long-term planning for developments in new economic pillars other than real estate, are contributing to a widening gap in our current account deficit (from 4% of GDP in 2016 to 5.6% in 2017, and estimated to have widened further to 6.2% in 2018).

This deteriorating trade balance of goods is currently being offset by one-off generosity of friendly countries and a heavy dependency on real estate sales, but clearly this is neither a basis for serene future outlooks nor for the continued “borrow and spend spree”. Ordinary citizens like us could suspect that many of the planned massive spendings have minimalist hope to generate new growth, wealth creation or productive employment.

Mega spendings

The mega spendings of Rs 20 billion the new tramway, the near Rs 6 billion in the Cote d’Or multi-purpose sports complex, the Rs 19 billion in the 4000 webcams of the Safe City project, the Rs 7 billion injected to stave off bankruptcy at Maubank, the billions waylaid or lost at the State Bank, the two brand new Airbus-Neo planes added to Air Mauritius’ planned upgrades, the costly Air Corridor, the flagship Serenity film fiasco, the Africa Strategy, may all be part of the “modernity” narrative of government, but they may not impress the general public here in terms of new wealth and employment creation capacities.

While the IMF took a rather stern look over the purchase of the two brand new Airbus planes by Air Mauritius, it had less to say over the strange goings-on at the State’s flagship bank, the SBM, where billions are reportedly being waylaid in dubious loans and schemes in its relatively new regional forays. Other than to commend the Central Bank for adeptness in its regulatory role: “Banks have increased exposure to the region, and the BOM has strengthened cross-border supervision and cooperation with foreign supervisors.” Maybe the IMF Audit team will read anew their cursory analysis of our public banking sector with more than a wry smile.

In short, such massive debt levels to sustain public sector spendings, with a tepid economy in all traditional sectors and no new ones in the offing, with rapidly deteriorating current account deficits, “make the outlook particularly vulnerable to adverse growth, interest rate, and fiscal shocks.” Our open economy may not be on its knees but it is in a wobbly state. “Public investments to upgrade infrastructure have resulted in an elevated debt level and a growing external imbalance…” with reduced manoeuvring room leaving it susceptible to such international adverse shocks such as a sudden or sustained oil price hikes.

Although the IMF makes a variety of recommendations and urgent pleas to address the structural reforms, obviate the constraints hampering the country’s economic development, and bring a relatively unchecked public spending under tighter discipline, it seems to acknowledge that the government will be under pressure in an electoral year to respond effectively to what the situation warrants. The population knows that it is being called upon to foot the bill of public sector largesses and borrowings towards priorities that may not match their concerns and give them that sense of confidence either in the economic management competencies at higher levels or in the future more generally.

* Published in print edition on 10 May 2019