In a recent interview to Business Magazine, the views expressed by the Minister of Finance again misrepresent the truth about the country’s debt situation, and mislead the public by treating the deterioration in the course of the economy with utmost complacency. It is time to stop living in a fool’s paradise and come to grips with the hard facts.

Fanciful debt comparison 

The Minister takes pride that Mauritius is among the countries with the largest fiscal response to the Covid pandemic, amounting to 32% of GDP, and seeks to play down this huge and unsustainable debt increase by a comparison to Moody’s Baa-rated peer countries. He states that these countries have witnessed a drastic increase in Govt debt ratios, reaching far higher than Mauritius, but mentions only two countries, namely, Italy and Spain. This is blatant misinformation. 

There are 17 Baa-rated countries by Moody’s, including Mauritius. From the latest IMF WEO Report, these 17 countries have Govt debt to GDP ratios ranging from 26% for Bulgaria to 150% for Italy. Spain is the third highest at 116%, after Portugal at 125%. Even after allowing for differences in the computation of debt data, the comparison of Mauritius with two of the most indebted countries is simply dishonest. 

Excluding the three Euro-area countries, the debt ratio of Mauritius is the highest of all the remaining 14 Moody’s Baa-rated peer countries, at 100% of GDP. India is next at 89%. Most of these 14 peer countries have refrained from excessively accommodative fiscal policies and managed to maintain their debt within sustainable bounds, averaging only 56% of GDP. 

This is the Minister’s second attempt at confusing the Mauritian public by making improper debt comparisons with other countries. He previously compared the elevated Mauritian debt level with Singapore and Japan and was taken to task for ignoring that Singapore does not borrow for budgetary purposes, and that Japan is not only among the world’s most indebted countries, but its debt sustainability risks are significantly offset by massive domestic saving and a strong financial position with huge foreign currency reserves. 

A more appropriate comparison is to the category of emerging markets and developing countries with an average debt GDP ratio of only 65%. As regards changes in the debt GDP ratio due to the Covid pandemic, the Mauritian increase of over 30% points should be compared with an increase of only 10% points for emerging markets and 19% for advanced countries. The global increase in the debt GDP ratio was 15% points on average, half as much as Mauritius. 

Reducing debt with BOM money 

Although the minister remains unapologetic about beating global records in inflating the public debt, he declares reassuringly that “L’heure est maintenant à la consolidation et à l’assainissement de nos finances publiques”. He previously used to minimize debt concerns, namely by misquoting a prominent French economist, and asserting that “Olivier Blanchard a expliqué de manière irréfutable qu’être obnubilé par la réduction de la dette publique est une erreur”. He nevertheless deserves to be commended for finally recognizing that there is nothing like a free lunch in economics, no gain without pain. 

But he then unfortunately messes up by claiming fictitious results from his newly discovered fiscal consolidation strategy, notably by boasting of a decrease of about 7% points in the Govt debt ratio from 87.2% in June 2021 to 80.9% in Dec 2021. The Minister is now focusing on Govt rather than public sector debt because it is a lower figure that pulls back the debt ratio from a critical 100% threshold. However, this drop in Govt debt is largely due to the increase in nominal GDP, not from fiscal adjustment. Even if Govt debt had remained the same between June and Dec 21, the debt to GDP ratio would be about 5% points lower in Dec 21, simply because of the recovery in nominal GDP from its Covid-depressed level. 

Between June and Dec 21, Govt incurred a budgetary deficit of Rs10.3 bn, with gross borrowing of Rs13 bn. Accordingly, debt should have been higher by this amount, or 2% of GDP, at Dec 21. Govt managed to avoid this increase in debt by resorting to money printing by the Bank of Mauritius (BoM) through the Mauritius Investment Corporation (MIC), officially named by the BoM as its “special purpose vehicle”. 

In December 2019, the BoM transferred Rs18 bn to Govt from its capital reserves, of which only about Rs7 bn was applied to prepay external debt and the rest used to finance the 2019-20 budget deficit. In the wake of the Covid pandemic, the BoM contributed Rs60 bn to Govt in Aug-Sep 2020 for budget support, of which 55 bn was later drawn from the BoM’s internal reserves, mainly representing foreign exchange gains from rupee depreciation. In Dec 21, an additional BoM contribution of Rs25 bn to Govt was artificially dressed up as a sale of 49% of Govt shareholding in Airports Holdings Ltd to MIC. 

Of this sum, an amount of Rs13 bn was used by Govt to prepay its debt to the National Pension Fund, thus avoiding an increase in debt from budgetary financing during June-Dec 21. The rest of the BoM contribution, or Rs12 bn, was used to refund the National Resilience Fund (NRF), an extra-budgetary fund. The NRF’s deposit balance of Rs12 bn was earlier utilized for an advance to Airports Holdings to finance the creditor bail-out of Air Mauritius. 

Without the BoM contribution of Rs25 bn, Govt debt would be higher by over 5% of GDP. Moreover, Govt debt in Dec 21 is also underestimated by not accounting for an IMF SDR allocation of Rs8.2 bn, as acknowledged in a footnote to the Finance Ministry’s published debt table. Including the SDR allocation would raise the debt GDP ratio further by close to 2% points in Dec 21. 

Without BoM money and accounting for the SDR allocation, the Govt debt ratio in Dec 21 would thus be unchanged compared with June 21, despite an improvement in GDP. The minister is duping the public by hyping up an engineered debt reduction, because the continued reliance on BoM monetary financing will further aggravate inflationary pressures.