When election spending is expected to cause a surge in public debt

As the election deadline approaches, public debt will become part of the political debate and will no doubt be a point of contention in the campaign. With this in mind, it tends to climb to alarming proportions from one year to the next. According to the latest statistics from the Ministry of Finance, it increased by more than Rs50 billion to Rs546 billion in the 12 months to June 2024. By the first half of 2024, the figure had increased by Rs46 billion.

However, the public debt has slightly decreased compared to the country’s GDP: 77.6% in June 2024, compared to 77.7% in December 2023 and 79.3% in September 2023. The reasons are as follows: GDP increased by Rs 659 billion in December 2023, which increased to Rs 673 billion and Rs 704 billion in March and June 2024, respectively, due to the economic contraction in 2020 after the Covid-19 pandemic.

However, economists point out that the GDP is artificially inflated due to money creation and new accounting methods, including primary income earned through global business companies. At Rs 546 billion, this is already a debt of Rs 420,000 per resident. This is enough to shock people, especially the young, considering the scale of the economic burden they will have to bear in the future; it also attracted criticism from economists and the opposition, who questioned the management of the public debt and its rising curve.

Economist Eric Ng’s observation is clear: “If during the 2014-2020 government, the public sector debt increased by nearly Rs 2 billion per month, now the debt in the second quarter of this year is Rs 7 billion per month. It is a lot. And the next PRB will further increase the public debt.” At this rate, especially in the days following the election, election measures will multiply. Back pay An expert who requested anonymity explained that based on the 12-month PRB payable in December 2025, we expect the debt ceiling to exceed Rs 60,000 crore by the end of the year.

Deferred taxes

This suggests that in the current context, it will be difficult to curb the outgoing regime’s voracious appetite for public spending. “Any increase in the debt has a direct impact on taxpayers because it’s a deferred tax they’ll have to pay in the future. The adjustment or raise they get today is really just a monetary illusion. It’s nothing more than a tax on inflation.”financial experts analyzed.

For other experts, the GDP figures in the billions are not strictly comparable due to the ongoing depreciation of the rupee. “A public debt of more than three quarters of GDP cannot be ignored. Everything must be done to stop this growth and reduce this ratio. But in the medium and long term, the only way to achieve this is to allocate all economic resources as much as possible in order to achieve a significant increase in GDP.they said.

At the moment, the Ministry of Finance, or more broadly the government, does not seem overly concerned about the level of public debt, believing it is in a declining phase. According to Minister Padayachi, it has fallen from 92% of GDP in June 2021 to nearly 77% today, while the fiscal pillar is determined by the International Monetary Fund at 80% of GDP. “With strong growth of 8.9% in 2022, 7% in 2023 and an estimated 6.5% this year, we aim to further reduce sovereign debt to pre-pandemic levels. We believe we can reduce public debt to 60% of GDP by 2030.he likes to point out. Its budget target for the end of fiscal year 2024-25 is 71.1% of GDP. This is far from convincing to insiders, given the various election measures announced both on and off the budget that should lead to the disappearance of the public debt.

However, given that the country has no mining or oil resources, we must still pay attention to and engage in the debate about the threshold of public debt. Some economists set this limit at 60% of GDP, while others believe that the country can take on more debt as long as it can repay the debt and the funds are invested in projects that can have a positive impact on economic growth. “High public debt ratios are not necessarily a bad thing in themselves. Good management of public debt can improve a country’s living standards, encourage people to spend more, and promote sustainable economic growth while generating more tax revenue.”, explains Imrith Ramtohul, a financial analyst.

Today, as in the past, it is easy to cite the examples of Japan or Dubai to remind us that the economic and social progress of these two countries would not have been possible if the debt ceiling had been limited to 60% of GDP. Moreover, many economists and other experts believe that if we included Mauritius’ public sector debt, its public sector debt would be well over 100% of GDP. Special Purpose Company Through it, countries provide guarantees for international loans.

Whether we like it or not, public debt remains a highly politicized economic indicator in Mauritius as elsewhere. It will fuel political debate as election campaigns approach.