Economic Governance and Management Chapter 4 Supreme Court. If the case is not settled at this level, the last resort is the Privy Council. 522. 523. Finally, computerising financial administration has increased the speed of daily transfers of revenues to the Treasury and consolidated the efficiency of MRA services. The CRM noted that reforms introduced for financial administration have helped to improve the administration of financial operations, to introduce a more progressive system and to broaden the tax base. These measures have also led to rapid increases in revenues, to reduced arrears, to reduced fraud cases and have increased the volume of business (see table 4.6). They also seem to have boosted the confidence of taxpayers. 2003–2004 2004–2005 2005– 2006 2006–2007 2007–2008 33,657.8 36,050.2 39,219.6 42,168.8 53,221.6 32,718.6 35,381.5 38,185.9 47,831.4 a. Income tax b. Other taxes 2,473.8 3,127.2 3,632.3 4,912.9 c. Dividends 413.8 221.7 28.7 23.2 d. Grants 444.0 489.2 321.9 454.1 45,074.9 49,564.1 51,608.0 61,542.7 2. Total expenditure and net loans 204 42,567.3 Economic Governance and Management 2003–2004 2004–2005 2005– 2006 2006–2007 2007–2008 Total revenues and grants as a percentage of GDP at market prices 19.9 20.0 19.2 21.2 Total expenditures and net loans as a percentage of GDP at market prices 24.9 25.3 23.5 24.5 Debt interest payments on total expenditures 18.9 17.5 20.1 22.0 Domestic debt interest payments on total expenditures 18.3 16.9 19.5 21.4 Source: MOFEE. Table 4.6: Total Treasury operations (in millions of Rs) 1. Total revenues, including grants Chapter 4 Current expenditure 38,042.3 41,915.3 44,122.3 48,423.3 Capital expenditure 6,344.8 6,959.9 7,110.9 11,682.3 Net loans 687.8 688.9 374.9 1,437.1 3. Budget deficit -8,891.5 -9,024.7 -10,344.5 -9,439.2 -8,321.1 4. External financing (net) -486.4 484.1 -1,149.1 4,465.2 -239,6 5. Domestic financing (net) 9,377.9 8,540.6 11,493.6 4,974.0 8,560.7 a. Bank financing 13,870.0 5,560.7 4,583.1 -5,816.2 10,656.3 b. Nonbank financing -4,492.1 2,979.9 6,810.6 10,790.2 -2,095.6 Debt deficit ratio as a percentage of GDP at market prices 5.4 5.0 5.3 4.3 3.3 524. In fact, income and grants registered a rapid growth of 26.2 per cent in 2008 against a slight increase of 7.5 per cent in 2007. This is 21.2 per cent of GDP, compared with only 19.3 per cent in 2007. This increase is largely the result of income tax, which increased by 25.3 per cent, and taxes on goods and services that recorded a growth of 19.6 per cent. 525. With regard to debt management, the objectives of the reforms introduced by the government in 2006 were to consolidate the management of public finances and to promote rigour and prudence as the key principles underpinning public debt management. The government adopted a new law and strategic policy in 2008 to: (i) limit the acquisition of debt to investment transactions; and (ii) reduce gradually the ratio of the net value of public debt compared with GDP in order to reach a sustainable level. The strategy also seeks to correct the gaps identified by an IMF financial stability mission, whose report underscored the absence of an appropriate strategy, inadequate operational resources for the Public Debt Management Unit and lack of clarity about the relationship between the BoM and this unit. 526. The strategy gives clarity about the guidelines for managing foreign and domestic debt, including the debt of parastatals guaranteed by the government. It defines the performance indicators that must be used. By accumulating the entire public debt via the strategy, the government has strengthened the tools of fiscal discipline and those of macroeconomic policy. 205