Rebooting the Mauritian economy?

Our economic indicators are in the red and the country has performed worse than expected; the GDP in 2020 contracted by 14.9% against an initial forecast of 7%, our debt to GDP rocketed to 95%, whilst unemployment was contained with a marginal increase to 9.2% (March 2021).

The Minister of Finance, Economic Planning and Development (the ‘Minister’) presented the Budget with a view to reversing the current trend by boosting investment, shaping a new economic architecture and restoring confidence.

The Government voted for a Rs147bn COVID-19 war chest (4 th largest in the world) last year and has spent around Rs 25bn to date. In the initial year, the Minister indicated that the Government’s focus was on preserving jobs and limiting bankruptcies, but has this money been well spent?

A comparative analysis shows that the country lags against the benchmark countries. Mauritius committed to spend 34% of its GDP in terms of COVID-19 support compared to the UK (37%), Singapore (22%) and the US (14%).

The Government prioritised job security to better contain unemployment (9.2% versus 17%, initial forecast) but GDP took a hit and deteriorated more than planned. The effects of the extended lockdowns as well as border closure meant bigger downturns for the country.

Whilst job security may have been the priority, there is a need for a rethink. Growth is like an engine and, if the engine does not rev, the economy cannot absorb labour.

COVID-19 has been costly for governments with oversized roles to mitigate the impact of the pandemic and, with a larger public service, it will be harder to recalibrate the economy. The Budget forecasts a 5% budget deficit and this would be an achievement in the current climate.

With rising tax rates around the world, we commend the Minister for not adopting similar measures and relying on the buoyancy of the economy to boost collections. However, the Budget was a razor’s edge: balancing the burden on the population against the sacrifice required by the Government to build more resilience. 

The incremental burden on the population (refer to Figure 2) in the Budget is 34% (through increase in tax collections and social security contributions against prior year) whilst the Government made little sacrifice in containing recurrent public expenditure (decrease by 0.8%).

The role of the Government is set to expand with more institutions and the number of public servants will increase by 11% to over 61,000 employees. Unfortunately, additional burden is being put on the population in order to get us out of the COVID-19 hole. More could have been done to contain public expenditure.

Whilst the Budget continues to have a strong focus on infrastructure (flood management, dams, roads, etc.) and social projects (housing, community centres, sports complexes, etc.), some interesting measures were also introduced. As an island economy, we are dependent on foreign investments and the relaxation in residency/occupational permit rules, the introduction of new investment certificate schemes as well as international student incentives will restore some of the country’s attractiveness. Also, with SMEs generating over 50% of employment, stimulating growth through SMEs will be important to address the employment dilemma. Support measures such as 110% tax deduction on local SME products, grants, preferential loans, etc., in addition to increasing the minimum shelf space for local manufactured products to 40% will provide some boost to the sector. The diversification into renewable energy and biotech sectors are also steps in the right direction to build a greener and more sustainable economy.

The Government has an important role to play in facilitating the rebooting of the economy. The crisis exposed vulnerabilities in our public institutions, insufficient accountability and a need for more private sector engagement. Unfortunately, there is little in this Budget which aims to adapt the role of government for a post COVID-19 era in improving efficiency, productivity and capacity building, particularly in the ICT sector which could help transform Mauritius. Until the pandemic is brought under control, government intervention should remain flexible and supportive. With our limited budget, we need to prioritise initiatives and reduce wastage. We understand the need to build a more inclusive society but is now the right time to prioritise these sports complexes or community centres? This money could have been better spent.

Different industries will recover at different speeds and the Budget remains silent as to the way or speed in which the remaining Rs122bn (83%) (refer to Figure 3) of the war chest will be deployed. The Wage Assistance Scheme (‘WAS’) artificially curbed unemployment but, with some sectors such as tourism not expected to recover till 2024, we need to allow a ‘freer’ flow in the labour market, with more flexible labour laws, as the WAS to September 2021 is unlikely to be enough.

Overall, the government is pumping more money into the economy, but more is required to get ahead of the pandemic. Infrastructure and social projects remain too dominant. In the immediate term, we need to do more with less and, unfortunately, the Budget falls short of that.