Insights – Getting it over the line

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Context – going into the game

As World Cup 2018 takes centre stage, the Prime Minister, and Minister of Finance and Economic Development, Honourable, Pravind Jugnauth stoically delivered his third budget speech during the life of this parliament. More importantly though, his penultimate one before the country goes to the polls.

 The economic bet based on substantial governmental spending on infrastructure projects is yet to fully deliver on its promises of economic growth. In addition, the structural and sectoral challenges have been amplified by exogenous factors with oil price rebounding to 2014 levels, the unfolding of the OECD measures in terms of information disclosure and tax harmonisation, and the generally volatile global capital markets amidst statecentred politics and global power shifts.

Macro fundamentals – team performance so far

 GDP growth is expected to rise to 4.1% for 2018/19, a commendable performance as this would outperform the projected world output growth rate of 3.9%, investment rate is also expected to tick up at 18.4% compared to 17.6% for 2017/18. These remain below the benchmark (thus having only a marginal impact on job creation) with private sector investment remaining subdued. Inflation’s upward trend is expected to be reversed in 2018/19, down to 3.5% (despite rising commodity prices) from 4.3% in 2017/18.

Turning to public finance, the budget deficit has been contained at 3.2%, and expected to be unchanged in the coming fiscal year. Government revenue is expected to benefit from grants from foreign governments to the tune of MUR8.1bn (±US$240m). Capital expenditure of MUR15.7bn (±US$462m) is below the planned amount of MUR18.8bn (±US$553m), highlighting again successive governments’ challenges to efficiently deliver on capital projects. Public debt is estimated to decrease to 63.4 % of GDP in 2017/18 to reach 63.1%% in the next fiscal year, though still below the target of 60%.

The budget philosophy – strategy for the second half

This budget has the merit of being consistent with the previous two in terms of broad objectives, namely (a) improving the day to day of the population, (b) investing in infrastructure whilst protecting and enhancing the environment and (c) stimulating exports and further developing the agri-business sector. The proposed implementation of a legal framework for innovation, digitisation and fintech is welcome and hopefully a step in Mauritius transition to an innovation and knowledge based economy. The following specific measures are of particular interest:-

As part of continued adherence to the OECD initiatives, the regime of tax exempt category 2 business companies has been abolished (with grandfathering provisions) and effectively granting both domestic companies and category 1 business company (“GBC1”) an 80% partial tax exemption on specified sources of income, In addition, the level of economic activity carried out by the GBC 1 will have to be enhanced.

· The Africa strategy is reinforced via a five year tax holiday for Mauritian companies collaborating with the Mauritius Africa Fund for specific infrastructure developments.

· Policy to open the economy and country is maintained with subject to defined criteria being met, citizenship or passport will be granted against a contribution of $1,000,000 or $500,000 respectively to the Mauritius Sovereign Fund.

Conclusion – lifting the World Cup?

Delivering on the promise of markedly improving people’s lives is key to the perennity of any government. Lifting the World Cup, therefore to some extent, would depend on execution, even more so when growth is heavily reliant on public spending and then also, at times, the elusive hand of God. Let us hope that they get it over the line.

Safyr Utilis Ltd

Budget night

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Il a conclu son grand oral. Le Premier ministre, Pravind Jugnauth, qui a enfilé son manteau de ministre des Finances, a-t-il pu répondre aux attentes de la population et des acteurs économiques avec le Budget 2018-18 ? Eléments de réponse.

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