IMF’s Fiscal Affairs Director, Vitor Gaspar stated during an interview on Wednesday to Reuters that “Governments must target fiscal support to vulnerable populations hit the hardest by rising energy and food prices and now, facing growing food insecurity as a result of Russia’s war in Ukraine”.
Higher food and energy prices have heightened the risks of social unrest, especially in low-income countries, which are already struggling with high debt levels after the COVID-19 pandemic and now, facing higher borrowing costs amid interest rate hikes, said the IMF in its latest report on global fiscal developments.
In Mauritius, this has already started when considering how the population is reacting in various regions of the country, for example, ‘Mannathan’ Vacoas, Camp Le Vieux and other places.
“Governments, acting in its special role to protect the vulnerable when things fall apart, goes a long way to keep social cohesion,” IMF Fiscal Affairs Director Vitor Gaspar told Reuters in an interview.
Gaspar said there was ample evidence that financial crises, pandemics, and volatile or surging prices could exacerbate divisions and strife, and fiscal policy had an important role to play in addressing such concerns.
“It is an absolute imperative for public policies everywhere to provide food security for all,” he said, arguing in favour of targeted, temporary measures, such as cash transfers instead of broader and generalized subsidies that could be costly.
Measures taken by many countries to limit the rise in domestic prices could also exacerbate global mismatches between supply and demand, driving prices even higher.
Gaspar said poor households spent up to 60% of their budgets on food as compared to just 10% for the average households in advanced economies.
However, many countries lack the spending power to fully address the latest crisis, after unprecedented outlays during the height of the COVID pandemic that drove global debt to $226 billion in 2020 – the largest one-year surge in debt since World War Two.
“We believe that the global debt risks are quite significant. They affect some countries in all country groups,” Gaspar said, pointing to high yield spreads on some emerging market debt that reflected growing market perception of risk.
The IMF said it expects global public debt to fall to 94.4% of gross domestic product in 2022 after peaking at 99.2% in 2020, stabilizing around 95% over the medium term. But that level is 11 percentage points higher than before the pandemic.
Gaspar said the IMF would continue to push for changes to ensure greater clarity about the Group of 20’s common framework debt restructuring process and quicker timelines, as well as a freeze in debt payments during negotiations, and comparable treatment of private and public creditors.
“The case for a global solution is very strong. And we are working hard to try to make it happen,” he said.
“It’s in the best interest of creditor countries, it’s in the best interest of debtor countries, and it is in the best interest of private creditors as well.”
In the Mauritian context, Mauritius’s public finances have experienced three distinct phases over the past 25 years, namely large fiscal deficits in the early 1980s, followed by a period of fiscal consolidation and discipline during the late 1980s and early 1990s, and finally, the re-emergence of fiscal imbalances from the second half of the 1990s to date. The authorities have shown a strong determination to prevent public finances from becoming a cause of macroeconomic instability. The deficits of the early 1980s were quickly reduced, and both the external debt and the overall government debt were maintained within very prudent bounds. While the rise of the public debt has become a source of concern in recent years, requiring the adoption of corrective actions, the limited size of the external debt is an important element of stability. However, the authorities should not be complacent, and should pursue steadfastly a policy of deficit reduction.
In recent years; Mauritius has embraced the objective of a green economy development path. A number of fiscal instruments for environmental protection and incentives for green investment are already in place. The Government and the Maurice Ile Durable (MID) Commission have also pioneered a number of environmental policy initiatives. The overall fiscal system is functioning well and revenues from environmentally-related taxes have been increasing. However, there remains potential to rationalize the system as a whole and to create further fiscal space in order to sustain green economic development. This study identifies areas with potential for improvement through the rationalization of current fiscal measures and the mobilization of further resources for innovation and investment. It sets out options for the reform of tax instruments applied to fuels used in electricity generation and transport, and identifies reforms to pricing policies pertaining to waste collection and domestic water.
As Gaspar said, there was ample evidence that financial crises, pandemics, and volatile or surging prices could exacerbate divisions and strife, and fiscal policy had an important role to play in addressing such concerns. The government of Mauritius had established a Covid-19 support program in terms of Fiscal support. For example, the Bank of Mauritius introduced a Special Relief Amount of Rs 5 billion through commercial banks to meet cash flow and working capital requirements of economic operators, which are being directly impacted by Covid-19, among others.
But recently, with an increase of Rs60 in the price of household gases (Gaz Menager); another increase in the price of petroleum gas (Diesel/Petrol), an increase in the prices of basic foods, Mauritius finds itself in such a situation where many households are having difficulties meeting their needs. With the coming annual budget, what will be the solution proposed by the Governing power?
