How many swallows make a spring?

In the last weeks, the National Statistics Office published the data for the whole of 2001 with regard to public finance, meaning government revenue and expenditure, and the relative data for the first three months of this year. The data also provides comparative information for previous years, some even going back 10 years.

If one were to look at just the 2001 data, one may claim that this information is dated and that, given the slowdown in the local economy as a result of the slowdown in the international economy, trends that may have emerged would have been superseded by the developments of the first months of this year.

However, the fact that we also have the data for the first quarter of this year means that we can assess whether the trends in 2001 have continued into 2002 and whether these trends can last in the medium term. The spring I refer to in the title is the results achieved by the government in making the fiscal deficit sustainable, and the swallows are the indications provided by the data that such results are positive.

The implication of the question is that one cannot let go on the basis of what has been achieved to date, but one must continue to strive to bring the deficit to the target levels set by government at the end of 1998.

The top line data shows that the shortfall between ordinary revenue and total expenditure stood at Lm98.1 million at the end of 2001, practically at the same level as that of 2000 indicating that we could have reached a deficit level that, although being high and unsustainable, can be maintained unless we have some really stupid decisions.

It is also significantly lower than the levels registered in 1997 and 1998. It is, in effect, 36 per cent lower than that in 1998, that is the level that this government started off with.

One must also appreciate that in 2001, government finances suffered the full brunt of the new collective agreement in the public service, an impact that was not there in 1997 or 1998. Thus the results achieved become even more significant.

There is another factor that adds to the significance of the 2001 results. Revenue from grants in that year totalled Lm1.4 million, while in the previous four years they averaged at around Lm10 million annually.

The results for the first quarter of this year reflect a similar trend and therefore one would expect a similar outcome at the end of this year.

It is often claimed that one of the ways to reduce the fiscal deficit is through the government reducing its expenditure. Even here one notes positive trends in that actual total expenditure for the whole of 2001 was 94.6 per cent of budgeted total expenditure, while actual recurrent expenditure was 96.6 per cent of budgeted recurrent expenditure.

We can dissect the information a bit further and note that if one were to eliminate public debt servicing from total expenditure, one would get a picture that reflects more what happens in a particular year as public debt servicing is more a reflection of decisions taken in previous years - essentially, public debt servicing is an inherited cost.

When doing this, the picture one gets becomes even more positive. The shortfall between ordinary revenue and total expenditure less public debt servicing in 2001 was Lm26.7 million.

The relative figure for 2000 was Lm30.7 million, for 1999 it was Lm63.9 million and for 1998 it was Lm99.5 million. It was Lm86.5 million in 1997. This positive trend is again continued in the first quarter of 2002.

Another important aspect of the public sector deficit is the level of government debt. This is expected to increase for as long as government has a deficit in its yearly budget.

The NSO data also gives information on the level of government guaranteed debt. These are loans taken by public sector organisations or companies for which the government would have provided some form of guarantee to the lending banks.

In 1998, the level of government guaranteed debt stood at Lm491.8 million. At the end of 2001, it stood at Lm416.8 million. This is an indication that government is also seeking to reduce its commitments to banks in order to render the whole structure of public finances more sustainable.

The proverbial expression is that one swallow does not make a spring. However, we never get to know the number of swallows required to make a spring. I feel it is very much the same thing with this issue of the public sector deficit. We will never really know the level when it can be claimed that it has become sustainable.

This makes it even more critical to ensure that there is ample discussion on the subject that helps to obtain a deeper understanding rather than serving only to score political brownie points.