THIS WEEK, MPs will debate the 2016-17 Estimates, Government’s ‘real’ budget, and the tone and tenor may confirm the view that they constitute the road to the next general election.
The objective of a higher fiscal deficit contradicts what Government spent the last seven years trying to achieve: fiscal consolidation.
In the June 2015 Budget, the Minister of Finance said over the next three years Government would push its medium term economic agenda to achieve continued stabilisation and growth of the international reserves to an average of at least 20 weeks of import cover; a reinvigoration and deepening of economic growth to an annual average of between 2.5 to 3.5 per cent of GDP at a minimum and a reduction of the fiscal deficit to at least no greater than the rate of GDP growth by the end fiscal 2017, and near balance by 2020.
These Estimates say “the fiscal deficit is projected at $723.3 million or 7.8 per cent of GDP” for the coming fiscal year, ending in March 2017. This is not a reduction when compared to the current year, ending in just over two weeks and is projected to be 6.3 per cent of GDP.
In light of the dramatic departure from the objective announced by the minister about eight months ago, it is easy to conclude that Government has already abandoned its mission of fiscal consolidation that started as far back as 2009.
This reversal is mystifying, given that taxpayers were made to bear persistent increases to assist in meeting the much vaunted policy of fiscal consolidation, identified as the panacea for solving the fiscal problems and protecting the foreign reserves.
In its first term, Government was unwilling to cut spending as part of its fiscal consolidation and delayed the retrenchment of 3 000 public sector workers until after the 2013 general election.
Since then, it has been argued that the eventual mix of measures was still insufficient and attempts at further fiscal consolidation persisted. The mix included public enterprises being targeted to reduce spending through greater efficiencies and possible amalgamation.
Things have become so desperate that Government was prepared to damage its legacy in education in making university students pay part of their tuition cost. In addition, some health care services were targeted for the payment of fees.
In spite of the gamut of fiscal measures, the minister lamented in his June 2015 Budget: “However, the job is not yet done. We have to get the [fiscal] deficit down to more sustainable levels and we must capitalize on the foundation laid for economic growth.”
There is certainly no attempt to bring the deficit to sustainable levels in these Estimates.
The politics in the document is evident in the allocation for Independence celebrations and spending on capital projects.
The latter is part of a remarkable story. For the last seven years, Government, supported by its advisers, resisted any form of fiscal stimulus. There is now quite an appetite to invest in major hotels, alternative energy and urban expansion.
Such spending is at variance with a reduction in the fiscal deficit identified by Government in last year’s Budget as a major part of the economic agenda in the medium term.
The fiscal stimulus that Government is proposing is therefore inconsistent with its messaging over the last few years. Supported by its economic advisers, the message was one of protecting the foreign reserves.
This brings me to the stated objective of increasing the foreign reserves.
Notwithstanding the previous emphasis on fiscal consolidation, the protection of the reserves did not prevent them from falling over the years. In 2015, the decline stood out because of the performance in the tourism sector and the drop in oil prices. In the circumstances, one is left to wonder, what is the motivation behind the sudden and dramatic turnaround in the economic policies?
It is easy to see the politics, but to have so clearly defined the mission in June 2015 and to equally clearly change direction is incredible.
Perhaps the most damning objective announced by Government is to grow the economy by a minimum of 2.5 – 3.5 per cent per annum. Notwithstanding the favourable economic events in 2015, the economy is estimated to have grown by a paltry 0.5 per cent.
From a political perspective, Government could not have been happy with the outcome, and given its track record one could have anticipated that further fiscal consolidation was on the cards. But such thinking would be inconsistent with the political posturing that is apparent in the wake of Independence celebrations and the proximity to a general election.
It appears that Government has decided to abandon its major concerns about the economic indicators and focus on the politics of re-election.
Albert Brandford is an independent political correspondent. Email: [email protected]
