Africa-Press – Mauritius. The economic consequences of the Russia-Ukraine conflict that began on 24 February are already very serious. Energy and commodity prices have surged, adding to inflationary pressures from supply chain disruptions and the rebound from the Covid‑19 pandemic.
Price shocks will have an impact worldwide, especially on poor households. Should the conflict escalate, the economic damage would be all the more devastating, stated the IMF one week after the war started on February 24.
Mauritius is already feeling the consequences of the war with potentially devastating social consequences, says Rama Sithanen, former Finance minister, in today’s interview.
‘We have just emerged from two very difficult years on lives and livelihood due to Covid-19. Our recovery is still moderate at best, uneven and fragile. Uncertainty, risks, volatility and instability unleashed by the war could severely damage Mauritius.
Besides proposing a number of economic measures, he comes up with the suggestion of a government of national unity, which he thinks could be ‘a good idea if it allows Mauritius to make the choices to avoid sliding into economic chaos similar to what we see in Sri Lanka today’…
Mauritius Times: After the economic havoc caused by the coronavirus, now concerns about a global recession have returned with what appears to be another long-lasing crisis – the war in Ukraine, opposing the western world to the Russians.
The UN’s trade and development body has downgraded its global economic growth projection for 2022 to 2.6% from 3.6%. Do you think we are indeed about to enter a global recession, and what would it mean for Mauritius?
Rama Sithanen:The Russian invasion could not have come at a worse time for the global economy. Many countries were struggling to recover from the impact of the Covid pandemic.
There was already high inflation, unmanageable debt anddeficit, and financial turbulence. The war has aggravated risks and instability that will reverberate across the world.
The adverse shock willshrink outputwhile inflation will surge with skyrocketing food, fuel and fertiliser prices. The scale and ferocity of the economic spilloverswill vary acrosscountries depending on their specific context and circumstances and on whether the war escalates.
Mauritius is already feeling the consequences of the war with potentially devastating social consequences. We have a very open economy that relies on exportsand imports of goods and services, on cross border investments and movement of people.
We have just emerged from two very difficult years on lives and livelihood due to Covid-19. Our recovery is still moderate at best, uneven and fragile.
Uncertainty, risks, volatility and instabilityunleashed by the warcould severely damage Mauritiusif there are disruptions in the supply chain of energy, food, fertilisers, and other inputs critical to our country.
* You would not expect in these circumstances for growth to rise to 6%, would you? Economic growth will falter while inflation will soar to double digits.
Energy prices will increase significantly, food costs will escalate and other inputs will surge. Rising interest rates in the US, the ban on export of some products and surging freight costs will coalesce to inflict more economic harm.
Financial markets and investment flows could work against us as there is a capital flight to safer asset classes. And to pour fuel on fire, the relentless depreciation of the rupee will destroy purchasing power.
It is an assault on the poor and the middle-income groups who will be further disadvantaged. This is the perfect storm threatening us. It is too early to fully grasp the full impact on growth.
It will obviously be lower than 6%. We will lose most tourists from Russia and Ukraine who are high spenders. There could be a severe trade shock. And an income effect from the falling purchasing power of many EU countries with adverse consequences on discretionary consumption and travel propensity.
Uncertainty and fear could also impact EPZ, ICT and global business. How big the plunge in output will depend on the duration and intensity of the war and the impact of economic and financial sanctions and their collateral damage on other countries.
After the huge contraction of almost 15% in GDP in 2020 and the likely growth of around only 4% in 2021, it will be almost a recession if growth were to decline to 3% in 2022. It means that we will take much more time to reach the level of 2019 GDP.
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