IMF Advocating CSG Reforms & Focus on Debt Reduction

As the presentation of the 2024-2025 budget approaches, certain recommendations from the International Monetary Fund (IMF) in its Article IV report may fuel debates among employees.

One such recommendation is the gradual and targeted phasing out of the Contribution Sociale Généralisée (CSG) income allowance scheme.

The IMF’s report, which spans 74 pages, is filled with tables and graphs. It is suggesting that the authorities should consider reforms to strengthen the sustainability of the pension system.

The institution proposed that the CSG be reformed to collect contributions from workers and provide benefits only to contributors.

This would involve maintaining the current level of pension benefits for individuals aged 65-75 years and those receiving the Basic Retirement Pension (BRP) until it reaches 20% of the average salary.

The lack of funds in the CSG, revealed by Finance Minister Renganaden Padayachy in October 2023, had raised concerns among trade unions and workers about the level of pension benefits for those retiring after 65 years.

The minister had assured that the Ministry of Social Security had already provisioned a Rs 8.5 billion increase in its budget for the fiscal year starting July 1, 2024, to finance the payment of CSG.

The IMF also recommended reforms to the universal pension system, including a gradual increase in the age of eligibility for BRP from 60 to 65 years, which could potentially lead to savings of around 1.4% of the Gross Domestic Product (GDP).

This would target benefits to a larger number of financially vulnerable older individuals.

Another finding is that public debt, which is expected to be reduced to around 65% of GDP by mid-2026, according to the Ministry of Finance, may be difficult to achieve by mid-2026, particularly due to its potential impact on growth.

The IMF suggested a more gradual reduction in public debt, aiming to reach 65% of the ratio of public debt to GDP by mid-2029, which could be more feasible and favorable to growth.

This objective could be achieved through measures that increase tax revenue (+1% of GDP) and reduce current expenditures (+1.3% of GDP).

As of March 31, public debt stood at Rs 524.7 billion, equivalent to 78.3% of GDP, exceeding the budget estimate of 71.5% of GDP (Rs 516.5 billion) at the end of the fiscal year 2023/24.

The IMF’s report reiterated its previous conclusions, including a projected growth rate of 4.9% in 2024, global inflation of 4.9% for the same period, a current account deficit of 4.5% of GDP, and the need for the Bank of Mauritius to rebuild its foreign reserves in order to better conduct its monetary policy and improve its resilience against potential shocks.

Source: l’Express