On 14 June 2021, the Bank of Mauritius (BoM) issued a stunning Public Notice to claim that an exceptional transfer of Rs28 bn to Govt in Aug-Sep 2020 is an “advance against future profits of the Bank distributable to Govt”, but does not however represent credit to Govt, and “hence will have no impact on public sector debt”.  The BoM also transferred Rs32 bn to Govt in Aug-Sep 2020 from its Special Reserve Fund (SRF), which includes realized and unrealized gains on its assets and liabilities.

What does the IMF Govt Finance Statistics Manual say about the treatment of this exceptional transfer in Govt accounts?  The BoM is a public financial corporation with Govt as its shareholder, and the Manual provides a broad definition of dividends, which includes the transfer of BoM profits to Govt :- “Distributions of profits by public corporations may take place irregularly and may not be explicitly labelled as dividends. Nevertheless, dividends include all distributions of profits by corporations to their shareholders or owners, by whatever name they are called, including profits of central banks transferred to Government.”  

The Manual further states that “. Any dividends declared greatly in excess of the recent level of dividends and earnings should be treated as withdrawal of owners’ equity from the public corporation.  This will be the case for distributions by public corporations to shareholders of proceeds from large and exceptional one-off payments based on accumulated reserves or holding gains. Determining whether dividends are in line with past practice is recommended for all corporations, including the central bank.”

The Manual makes clear that the exceptional transfer of Rs32 bn from the BoM to Govt should be treated as a withdrawal of Govt equity from the BoM, i.e., as a financial transaction to finance the Govt deficit, not as an item of Govt revenue.  Accordingly, the previous transfer of Rs18 bn to Govt from the BoM’s SRF in Dec 2019 was never included in Govt revenue, but shown as a financing item in Appendix E of the Budget Estimates.  And yet, the last Budget Estimates treats the BoM exceptional transfer of Rs32 bn as revenue, whereas it should be shown as a deficit financing item.

As regards the BoM transfer of Rs28 bn to be repaid from the BoM’s future distributable profits, the Manual is again very explicit on advance dividend payments:- “If evidence exists that interim dividends are not from the current period’s operating surplus, interim dividend payments should be recorded as a financial advance to the shareholder in transactions in financial assets and liabilities”.  Since the amount of Rs28 bn is equivalent to an interim dividend payment to be repaid from future profits of the BoM, it should not be recorded as Govt revenue, but as a financial transaction, namely an advance of BoM to Govt. 

The accounting treatment of BoM transfers to Govt is for Govt to determine in line with the IMF’s standards governing Government Finance Statistics, not the BoM.  Even if BoM were not so grossly wrong in declaring that an advance to Govt does not add to public debt, our central bank just succeeded to cast away its last remaining shred of independence.