Africa-Press – Mauritius. Isn’t it too early to talk about a recovery in the post-Covid economy based on an increase in the sale of automobiles and banking transactions or even the level of tax revenues, as the minister recently did? finances ?
EricNg Ping Cheun: Indeed, I do not see any sign of the economy recovering at this point. The finance minister tried his hand at a public relations exercise, but he failed miserably, especially since he is not in his role.
In addition, he contradicted himself by saying in the same vein that 2020 will experience an economic contraction. How can there be an economic recovery in a year of contraction? Activities have resumed after national containment, but operators have fewer orders than before the outbreak of Covid-19.
Be serious. Our country does not produce automobiles, but imports them. However, imports reduce gross domestic product (GDP). However, this subtraction is offset by the fact that the sale of the imported product is recorded as consumption.
It is only the services around this sale that add value to the economy. Banking transactions, on the other hand, undoubtedly increase in monetary value because of the large injections of money into the banking system.
But economic growth is measured by an increase in the volume of production or expenditure. However, national production contracted by 32.5% in the second quarter of 2020, according to Statistics Mauritius.
In the same period, aggregate consumption fell by 34.2% in real terms. If VAT receipts increased, it would only be due to the effect of the sharp depreciation of the rupee on the prices of imported products, and not to an increased volume of local consumption.
In any case, total tax revenue in July-August 2020 is Rs 1.4 billion lower than the amount for July-August 2019. This means that the Mauritian economy is in decline.
* The lack of visibility, the uncertainty about the outlook, the macroeconomic parameters, the trend in interest rates: the combined effect of all these factors has meant that many of our businessmen have chosen to protect themselves by adopting an attitude of ‘wait and see’.
Are they wrong? It’s right for business people to be cautious in today’s economy. The economic situation, here and elsewhere, is not normal, our export markets are struggling to recover, supply chains are disrupted, our borders are only partially open, and the risks of a second wave of the coronavirus become clearer: these are real factors.
Even interest rates close to zero percent, which should have stimulated investment and consumption, cannot compensate for these structural handicaps. Accommodative monetary policies and expansionary fiscal policies will not change this.
It is dangerous to continue to revive the economy through public deficits and monetary creation, as the Mauritian authorities persist in doing. It must be said that the traditional private sector is favorable to such policies because they allow them to make money at the expense of taxpayers and the purchasing power of the common people.
It’s not hard for big business groups to scare an inexperienced finance minister and a politically weakened prime minister into getting what they demand.
I can understand that they want to protect their heritage, but it is unacceptable that they adopt a “wait and see” attitude towards their own weaknesses.
The crisis must be an opportunity for private companies to review their governance structure, their remuneration policy, their management style, in short their leadership capacity.
* What are your greatest concerns for the Mauritian economy at the moment despite all the effort and financial support from the Government to relaunch the recovery? And do you think the situation will actually deteriorate in the coming months, as they say?
What worries me a lot is that the government is just pumping billions of rupees into the economy and increasing its indebtedness without addressing the fundamental problems of the economy.
It takes the inflationary route of money creation without requiring efforts from the population. So he makes people believe that they can always count on public money as a solution.
He should have taken advantage of the exceptional Covid-19 crisis to inject new dynamism into the Mauritian economy. Without structural reforms, the economic situation will go from bad to worse.
Instead of attacking the productivity problem in the public service, we will recruit more than 1,700 people, which will increase the bureaucracy. Instead of making public services and regulatory bodies efficient, we continue to cram incompetent people into positions of responsibility.
Instead of rationalizing the old-age pension, we are increasing pension expenditure and making their financing more complicated. Instead of introducing competition into the airspace, we protect the national carrier even if it is to the detriment of export and import.
Instead of making labor laws more flexible, corporate restructuring is discouraged. * On the one hand, one of the only positive economic indicators currently is inflation hovering around 1.8% on average over the last 12 months, but the reality of supermarket prices is quite different.
On the other hand, the unemployment rate is on the rise, and the Monetary Policy Committee of the Bank of Mauritius says that “the outlook remains bleak”.
If the economic situation deteriorates in the coming months, what will be the consequences of such a deterioration on the standard of living of Mauritians and, consequently, on the social level?
The inflation rate appears low, but it is rising rapidly. It was 0.5% year-on-year last December, and will reach 2.8% next December, according to Statistics Mauritius.
This is still a 460% increase in the inflation rate! Milton Friedman said that the variability of the inflation rate is more of a problem than the level of the inflation rate.
When the rate changes too quickly, it confuses people and makes economic calculations difficult. In supermarkets, prices have climbed more sharply than official inflation rates suggest, due to hikes in excise duties, port fees and the depreciation of the rupee.
The collapse of the rupee leads to impoverishment of the population. Add to that massive job losses, and you have all the makings of a social explosion.
The unemployment rate already exceeded 10% last June. Companies that have benefited from the Wage Assistance Scheme cannot lay off workers until December 31, 2020.
But beyond this date, a wave of layoffs is to be feared, whether the Government renews this support plan or not. I am thinking in particular of the textile and tourism sectors. For the moment, the Government does not have a clear strategy to relaunch them in the face of a pandemic that will last.
* As Mauritius is an open economy, there are exogenous factors that have significantly hampered growth in tourism, manufacturing, construction, real estate and financial services.
According to the International Monetary Fund (IMF), the long ascent of the world economy to levels of activity, comparable to those before the pandemic, remains exposed to setbacks.
The recovery, it seems, won’t be anytime soon, and that’s not very reassuring for our economy, is it? It is a fact that the Mauritian economy depends on foreign markets to grow.
The export of goods and services represents almost 40% of our GDP. When the world economy sneezes, Mauritius is in a bind. In 2008, the global crisis was financial, indirectly impacting Mauritian growth, which weakened but remained positive, at 3.3% in 2009.
It was even better than 3.0% in 2019! In 2020, it is the real sectors of the economies that are affected, so the impact on Mauritius is direct. A global contraction of 4.4% is a great exogenous shock for our country, which is therefore experiencing negative growth of 14% this year.
Following the example of the world economy which will rebound by 5.2% according to the IMF, we expect the Mauritian economy to recover in 2021. This is not extraordinary in view of the effect of favorable statistical basis.
True economic growth is that which is generated by productivity gains, by private job creation or by investment in equipment and machinery rather than in construction work.
All in all, the level of GDP in 2021 will always be lower than in 2019. And yet, it is artificially inflated by the use of money printing. Prosperity is constituted by an increase in the volume, and not the monetary value, of national production.
* In these very uncertain conditions, unless the laboratories succeed in developing an effective vaccine against Covid-19, how are we going to deal with such a situation?
Until we find an effective vaccine, we must learn to live with the virus. Unfortunately, since the national lockdown, for six months, the government has failed to empower the population.
He adopted regulations that penalize non-compliance with wearing a mask in public, but he allowed laxity to reign. Personally, I have never seen a policeman arrest a recalcitrant.
It is a weak regime that does not know how to discipline people, except to fall into authoritarianism when it suits it. But a strong government must demonstrate authority.
In the event of a second wave of the epidemic, a responsible government cannot simply close borders and thereby suffocate the economy while creating money out of thin air.
Managing the country well means knowing how to manage all risks, not running away from them. It is also to govern with transparency, rigor and meritocracy.
It is up to the government to set an example before lecturing the population. And we don’t need more corruption scandals, freebies and nepotism to frustrate people, already stressed by the consequences of Covid-19 .
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* The Government has already injected billions of rupees to support private and self-employed workers, and also large companies in the sectors most affected by Covid-19. Do you see the Government having some financial leeway to do as much or more in the coming months?
You know, with the printing press and a central bank under government orders, it has unlimited financial leeway, being able to inject tens of billions of rupees into the economy every year.
In addition, in the absence of tax rules, there is no ceiling on public debt. The question is whether the government is mad enough to drive the country into bankruptcy.
I fear that he will be tempted by this option if it is the only condition for him to win the next general election. The introduction of the Generalized Social Contribution (CSG) is a perfect example.
In such a difficult context for private companies, the government still chooses to tax them more just to grant an old-age pension of Rs 13,500 in 2023.
However, he knows that the revenues of the CSG at current rates will not be sufficient to maintain retirement expenses in subsequent years. In the same vein, I would not be surprised if the partial compensation of wages is maintained beyond 2020.
The Minister of Finance firmly believes in consumption as an engine of growth, while the country imports a large part of what ‘he consumes. The government’s economic philosophy is to tax, spend, devalue and create money.
With the complicity of the Bank of Mauritius, fiscal irresponsibility has no limit. * Several voices have been raised to demand a break with the established order in terms of the economic model and general governance.
Also, this crisis has created new opportunities for changing our economic structures, or the consolidation of the role of the State as market regulator, the establishment of new management practices in the public and private sectors, and the establishment of of a more egalitarian society.
Do you think the country will be able to seize the opportunity to allow this break so essential to a national renewal? The current economic crisis is caused by a little virus, not market malfunction or free trade.
All over the world, it is the state that has decided to confine the population and, therefore, shut down the economy. This is what has thrown 150 million people into poverty, as the free market economy and globalization have greatly reduced the number of poor people in recent decades.
The state must ensure that markets are competitive, that market conditions are equal for all. If the state is to regulate the markets, it is to make them more efficient in their operation, and not to ensure illusory equality of results.
In order to encourage companies to innovate and invest in quality, markets must be open, not closed to an economic elite or protected from foreign competition.
Mauritius’s economic model based on openness to the world and collaboration between the State and the private sector has worked well. The problem is that private companies have become too dependent on the Government, which does not displease the latter.
We see this collusion especially in real estate development that the political power deliberately promotes with tax advantages. Dividends for shareholders versus political dividends in rural areas.
This is crony capitalism. * Exactly, there is a certain opacity in the aid granted by the State, through the Mauritius Investment Corporation (MIC), to some of our large companies.
It seems that the state would not have asked for anything in return (guaranteed job security, the acquisition of a stake in the capital of a company or the repayment of the aid).
Your opinion ? I protest against this opacity, because it is taxpayers’ money that is at stake. I wonder if the MIC has not struck a fool’s deal with these large private groups.
Why does the MIC have to wait until the end of its investment term (at the end of nine years) to convert bonds into stocks, when the borrower can repay all the principal at any time without penalty?
The coupon rate must be high enough to compensate for this factor unfavorable to the MIC. To use an analogy, would a bank accept a free repayment of a nine-year loan after only one year?
* In a recent interview, historian Jocelyn Chan Low told us that “if the country sinks into an economic and social crisis with spontaneous street protests, it will be extremely complicated to manage the country .
. An ideal solution is obviously to constitute a government of national unity… ”How do you react to that? The last three major street protests did not call for a government of national unity, but rather for the resignation of the government.
If the latter is not able to get the country out of an economic and social crisis, it has only to dissolve the National Assembly to regain a new democratic legitimacy and a new state of grace. He really needs it.
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