The revised figure of the budget deficit for the year 2003-2004 stands at Rs 9.15 billion which is slightly above target due to shortfalls in tax and non-tax revenues (delays in payments by parastatals and lower remittances of profits by the Bank of Mauritius). As a percentage of GDP, this represents a figure of 5.6%, which is slightly higher than the targeted figure of 5.5%. For the coming year 2004-2005, it is expected that the budget deficit will decrease marginally in absolute terms to reach Rs 9.08 billion. In relative terms, it will be brought down to 5% of GDP. It must be pointed out that the primary deficit which excludes interest payments, is expected to fall down to 1.2% for the year 2004-2005 from a level of 1.6% for the last year.

The financing of the budget deficit will be mainly from domestic sources, with the non-banking sector providing a significant share of the finances. In fact, in contrast to year 2003-2004, the non-banking sector is expected to contribute to as much as 49.5% of the domestic financing of the budget deficit. The Banking sector, on the other hand, will see its contribution to Government budget deficit financing decrease by 62.5% from Rs12 billion to Rs4.5 billion over the two periods 2003-2004 and 2004-2005. The pressure on banks to finance the budget deficit is thus transferred to non-bank institutions such as pensions funds and other institutional investors.

<B> Budget Revenue</B>

Total Recurrent revenue is projected to increase by 8.5% to reach Rs34.9 billion for the year 2004-2005. Both direct taxes and indirect taxes are expected to increase by 16.9% and 12.4% respectively. On the other hand, non-tax revenue is expected to decline by 33.5% to reach Rs2.2 billion.

<B>Budget Expenditure</B>

Total Government expenditure is projected to increase by 6.6% to reach Rs48.2 billion for the year 2004-2005. With capital expenditure observing only a marginal rise of 1.2%, the bulk of the rise in total expenditure stems from the recurrent expenditure, which is expected to increase by 7.9% to reach Rs39.6 billion for the year 2004-2005. Subsidies and current transfers will account for 40.7% of recurrent expenditure. Debt servicing will rise to Rs9.6 billion as compared to Rs8.8 billion in 2003-2004. It is expected that several factors will weigh heavily on the budget, namely the implementation of the second phase of the PRB report and the rising costs of the social welfare programmes. In this respect, Rs10.4 billion has been earmarked to go towards wages and salaries.

An analysis of expenditure allocated to ministries reveals that in terms of capital expenditures, the budgetary allocation to the following ministries has seen a dramatic fall: Tourism and Leisure (81%), Youth and Sports (77%) and Fisheries (64%). On the other hand, the Civil Service Affairs and Administrative Reforms, Ministry of Labour, Industrial Relations and Employment and Ministry of Commerce and Cooperatives have seen their capital expenditure allocation increase by approximately six, eleven and twelve times respectively for year 2004-2005. In terms of recurrent expenditure, apart from the Ministry of Youth and Sports which has seen a decline in its allocation (22.7%), the rest of the Ministries have seen increases in their recurrent budgetary allocations.

<B> Public Debt</B>

With an estimated figure of Rs109.9 billion at June 2004, the Public Sector Debt will have increased by 20.7% over the last two years. As a percentage of GDP, the level would have slightly increased from 66.2% in June 2002 to reach 66.7% in June 2004. It is worthwhile to point out that the percentage of Public Sector Debt out of GDP has been on the decline since June 2003 when it reached 68.7%.

In June 2002, the internal debt was about 2.5 times the external debt. In June 2004, the equivalent multiplier was 3.5 times, meaning a lesser reliance on external sources for debt financing. While it is comforting to note a decrease in external borrowings, care must be taken in order not to move towards an eventual crowding-out of bank credit for the productive sectors of the economy.

Also, the actual composition of the Public Debt comprises a significant proportion of loans with maturities of less than 2 years. With the incoming Loans Act, it is expected that the maturity terms of newly issued debts will be extended to a long-term basis. This should help to reduce to some extent the pressure on public debt servicing.

<I>Source: DCDM Budget Brief 2004-05</I>