Dear Editor,
The Parliamentary Opposition’s contribution on budget 2023 was incoherent and contradictory, specifically, on macroeconomic and public finance matters. The Opposition Leader in his closing debate proposed several alternative policies and initiatives. These alternatives included a number of initiatives Govern-ment is already pursuing (he just presented it in a different form), for example, community development initiatives. Provisions are in the 2023 budget for community development across the country.
The Opposition Leader advocated for a 50% increase in wages and salaries in the public services. It should be pointed out that the total employment cost for the public sector reflects an increase of $33.9 billion or 47.13%. At this rate it is safe to deduce that by 2025, cumulative salary increases for public servants will surpass 50% in the five-year’ period.
Other Opposition Members of Parliament (MPs) argued that Central Government’s fiscal deficit is indicative of a crisis in the making and that Government is borrowing excessively to service other debt. On the other hand, the Opposition’s proposal, if considered, would result in almost doubling current expenditure, reducing the capital side of the budget (to finance the current expenditure), which in turn delays critical capital investments to expand and diversify the economy.
If the Opposition is suggesting that Government use the Natural Resource Fund (NRF) to finance the current expenditure, this too is dangerous to the extent that if oil prices falls below a certain level, it will culminate in a spontaneous financial and economic disaster.
The Impact of Cost-of-Living Measures in the Budget
The budget contains several measures to combat cost-of-living. The total estimated cost of the COL measures implemented by the government in terms of direct cost to the treasury and foregone revenue to the treasury is approximately $89 billion. This represents 11.3% of the total budget, 28% of current revenue, and 43% of the NRF withdrawal to finance budget 2023. Effectively, these measures translate to $404,545 on an annualized basis per household using a estimated total household of 220,000 as per the 2012 national census data. Consequently, this demonstrates Government’s interventions to combat the COL.
Expansionary Monetary and Fiscal Policy and Mitigating Inflation
Government is pursuing expansionary fiscal and monetary policy framework to facilitate its accelerated development trajectory of the economy. In theory, expansionary policies are inflationary. From all indications Gov’t has managed to contain inflation while preventing the economy from overheating. It is precisely why government has been careful to not significantly increase the current expenditure side of the budget. In theory, substantial increases in current expenditures would drive inflationary pressures on consumption, which would be difficult to scale back because this include, for example, larger increases, as the Opposition is advocating for, in wages and salaries and social welfare programmes.
Conversely, to accelerate its development trajectory, there has been substantial increases in capital expenditure by over 400% cumulatively since FY 2020 with a yearly average increase of 102%. Capital expenditure and capital projects can easily be scaled back to contain any inflationary impact or overheating of the economy. One of the major challenges the Government has to confront is absorptive capacity. This speaks to the rate of implementation of projects coupled with the bureaucracy in the system. While this is a constraint to fast-paced development, it also works as an anchor by staving off any inflationary impact that leads to overheating.
Poverty Reduction, Investing for the Future through a Balanced Budget
The notion that the budget is void of a poverty reduction strategy and that it is not sufficiently balanced on the social side were not compelling. One of the key counter proposals by the Opposition, for example, is to distribute $300,000 of oil revenue per household.
They argued that the cost-of-living phenomenon may persist for the next three years (citing international agencies’ analysis). As illustrated earlier, the COL measures implemented by the Govern-ment translates to about $400,000 per household albeit indirectly, which is more than the Opposition’s proposal. Assuming that the Opposition proposal is an addition to the current COL measures, this translates to an added $66 billion on current expenditures or 8.4% of the budget, 32% of the NRF inflow to the budget and 21% of the current revenue. To make this possible Government would have to cut capital expenditure. The question is, which project would government have to cut to accommodate such a proposal?
Determining whether the Budget is a Balanced Budget?
With respect to the argument that the budget is not a balanced budget and not people centric, the proponents of this view failed to state and justify what are the determinants of a balanced budget and how is it that the budget is not people focused. In this regard, the author demonstrates how the budget is a people focused budget, under the term “investment for the future”, or, drawing upon the theme of the budget, “improving lives today, building prosperity for tomorrow.”
Sincerely,
Joel Bhagwandin
Financial & Economic Analyst
