{"id":12767,"date":"2022-04-01T08:32:51","date_gmt":"2022-04-01T08:32:51","guid":{"rendered":"https:\/\/www.africa-press.net\/mauritius\/all-news\/after-the-spending-comes-the-reckoning"},"modified":"2022-04-01T12:25:12","modified_gmt":"2022-04-01T12:25:12","slug":"after-the-spending-comes-the-reckoning","status":"publish","type":"post","link":"https:\/\/www.africa-press.net\/mauritius\/all-news\/after-the-spending-comes-the-reckoning","title":{"rendered":"after the spending comes the reckoning"},"content":{"rendered":"

Africa-Press – Mauritius. <\/strong><\/span>Mauritius threw the kitchen sink at the Covid crisis. Now, it has to deal with the broken crockery. When the pandemic struck in early 2020, the government prioritised public health.<\/p>\n

The decision meant closing off from the world an island economy that is highly dependent on tourism. That left it with no choice but to pump in huge amounts of cash to keep businesses afloat.<\/p>\n

It did exactly that, spending 28 per cent of gross domestic product according to IMF estimates, comparable with many advanced countries. The Mauritian state supported wages for the employed and self-employed, especially in the devastated tourism and hospitality industries, at a cost of Rs18bn, or $400mn at present rates.<\/p>\n

A further Rs9bn went to national airline Air Mauritius after it fell into receivership in April 2020. Slimmed to half its previous number of planes, the airline is back up and running.<\/p>\n

To help pay for all this largesse, the central bank transferred Rs60bn to the government by issuing \u201cinstruments\u201d tied to rupee liquidity. It made available Rs80bn from foreign reserves for the Mauritius Investment Corporation, a subsidiary of the bank established in June 2020 to help pump money into struggling companies.<\/p>\n

In Mauritius\u2019 version of \u201ctoo big to fail\u201d, Harvesh Seegolam, central bank governor, explained that MIC funds would \u201cassist systemically large, important and viable companies\u201d that would otherwise struggle to meet their debt obligations and risk tipping the banking system into crisis.<\/p>\n

Even with the help of such unorthodox monetary policy \u2014 likened to turning the central bank into a \u201cmagical money tree\u201d by Rakesh Seesurn, head of risk at Port Louis-based AfrAsia Bank \u2014 conventional government spending still pushed the budget deficit in 2020 to 20 per cent of GDP.<\/p>\n

The economy contracted by 15 per cent that year and grew just 5 per cent in 2021. Unemployment rose from 6.7 per cent in 2019 to 9.2 per cent post-crisis. Last year, the IMF stressed that it was time to rein in what it called \u201cquasi-fiscal activities\u201d in the Mauritian economy.<\/p>\n

It recommended outlawing further such transfers and said the central bank should relinquish ownership of the MIC, which should be financed through the normal budget. This amounted to a warning that unorthodox policies, if extended, could erode both the central bank\u2019s independence and its credibility.<\/p>\n

Although stimulus should not be withdrawn too quickly, the IMF said, once the economy had \u201cfully emerged from the pandemic\u201d, fiscal consolidation would be required to stabilise public debt that has risen from 66 per cent of GDP before the crisis to nearly 100 per cent now.<\/p>\n

Sushil Khushiram, a former minister of financial services, has accused the authorities of populist spending that they cannot afford: \u201cChickens are now coming home to roost with all the macroeconomic indicators flashing red \u2014 unsustainable public debt, widening external deficit, continued rupee depreciation, worsening inflation and weak growth recovery.<\/p>\n

\u201d Rama Sithanen, a former finance minister for the opposition Labour party, is critical of aspects of the government\u2019s response, though he defends the basic strategy: \u201cWe were in a perfect storm, so they put in all the firepower in terms of fiscal policy, financial support, and monetary policy to mitigate the impact on the economy of the pandemic.<\/p>\n

\u201d He adds that this will now need to be unwound. The government says the stimulus was within its means.<\/p>\n

\u201cThere was so much spare cash in Mauritius that, basically, we mopped it up and put it back in,\u201d says Azim Currimjee, a former vice-president of the Economic Development Board of Mauritius, an investment promotion agency.<\/p>\n

\u201cMauritius is a stable country,\u201d adds Ken Poonoosamy, the EDB\u2019s chief executive.<\/p>\n

\u201cWe have probably been one of the few countries that over 30-40 years has had consecutive positive growth.<\/p>\n

There has never been a contraction in our GDP apart from during Covid. \u201d Still, the government will have to work hard to keep its macroeconomic fundamentals on an even keel. Moody\u2019s has Mauritius\u2019 long-term credit on a below-investment-grade rating of Baa2 with a negative outlook.<\/p>\n

It has also warned of further deterioration in debt metrics and rising inflationary pressures, a result of a sharply deteriorating rupee: from Rs32.5 to the dollar in March 2020 to Rs44 two years later.<\/p>\n

But there are signs that, as the economy opens up, Mauritius is clawing its way back to normality. The budget deficit more than halved to 8.6 per cent in 2021. It is expected to fall again to 5.6 per cent this year, says the IMF.<\/p>\n

Although the current account balance may widen further this year, to minus 15.6 per cent, it is projected to snap back to minus 6.8 per cent next year, as tourist and airline revenues normalise.<\/p>\n

Exports, including tourism income from hotel beds and airline seats, will benefit from a weaker rupee. A longer term fiscal problem could be looming, though. Mauritius has a median age of 38, comparable with Europe. Its fertility rate of 1.4 is well below the 2.1 needed to keep a population stable.<\/p>\n

As its workforce ages, plans for a more generous basic pension will bite, increasing government spending on pensions to more than 8 per cent of GDP in 2023\/24 against 4.5 per cent of GDP in 2018\/19, the IMF calculates.<\/p>\n

Such problems must be addressed, says Sithanen, through a combination of robust growth and fiscal prudence. \u201cIt\u2019s time that we managed our deficit . .. It\u2019s not sustainable.\u201d<\/p>\n

For More News And Analysis About Mauritius<\/a> Follow Africa-Press<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Africa-Press – Mauritius. Mauritius threw the kitchen sink at the Covid crisis. Now, it has to deal with the broken crockery. When the pandemic struck in early 2020, the government prioritised public health. The decision meant closing off from the world an island economy that is highly dependent on tourism. That left it with no […]<\/p>\n","protected":false},"author":84,"featured_media":12766,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2,5,8,16],"tags":[233,245,1363,241],"class_list":["post-12767","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-all-news","category-economy","category-homepage-english","category-twitter","tag-africa-press","tag-africa-press-mauritius","tag-businesses","tag-mauritius"],"yoast_head":"\nafter the spending comes the reckoning - Mauritius<\/title>\n<meta name=\"description\" content=\"Mauritius threw the kitchen sink at the Covid crisis. Now, it has to deal with the broken crockery. 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