Eric Ng Ping Cheun: “We are becoming too dependent on foreign governments to balance our budget”

Avec le soutien de
Eric Ng Ping Cheun, economist and director of PluriConseil.

Eric Ng Ping Cheun, economist and director of PluriConseil.

Weekly speaks to Eric Ng Ping Cheun, economist and director of PluriConseil, about his views on the economic situation in the country. He talks about his concerns regarding the country’s borrowing, the impact of the renegotiated double taxation agreement with India on global business and the “grandiose” projects underway in the country. Finally, he gives his opinion on the new traffic legislation.

Last time we spoke, you painted a very dark picture of the economic situation in Mauritius. Have things brightened up since?

Not really. We are on economic auto-pilot. For 2018, we will not achieve the 4.0 per cent growth announced.

We will achieve 3.8%. Isn’t that close enough?

We set the objective of more than 4.0%. Every year, since 2015, the government has been repeating that they will achieve more than 4%. They have never achieved that. In the national accounts released recently in 2017, economic growth adjusted at basic prices was revised downwards to 3.8 instead of 3.9%.

Is it likely to get worse?

I think we will step below the 4% mark for 2019 again. There are big challenges ahead for global business and 2019 will be a difficult year for them.

Is that partly because of the renegotiation of the double taxation agreement (DTAA) with India?

Yes because on 1 April 2019, the two-year transition period will end and the agreement will come into full force.

What will the impact of that be exactly?

Well we will see less foreign investment into India through Mauritius. We have already seen Singapore emerge as the best route country and it has taken our position.

How worried is global business about this?

The operators are shouting from the rooftops. It’s more difficult for them to get business. They want time to adapt to the new business model, to try to tap the new African markets with new products.

What do they need to approach that new market?

If you are just a local company, it’s quite difficult. You will need international partners. You will not be able to compete alone, so businesses need time to seek international partners and recruit competent people. Things are becoming very difficult as the fiscal advantages are being eroded.

Will the situation get better or worse for global business?

There is a high risk that the situation will get worse. The problem also is that international banks in Mauritius are revisiting their strategy in Africa and in particular in Mauritius. Maybe they will leave the African continent because they don’t want to raise their capital exposure to Africa. HSBC and Habib Bank are already leaving the African continent and there won’t be many international banks on the continent in the near future.

In spite of this, the unemployment situation is improving, isn’t it?

The unemployment situation is improving because the activity rate is decreasing. There are more people going out of the market, retiring, than young people coming on the market. So the activity rate is decreasing. That is why it’s just a statistical effect.

Isn’t low unemployment a sign that the economy is doing well?

The private sector is not creating many jobs. The jobs are being created mostly in government…

Who cares as long as people are off the unemployment list?

When you have more public sector jobs, you have more expenses, more pensions to pay and eventually more debt.

Anything to worry about?

Of course we should be worried, particularly if the rupee loses its value and depreciates, because we have to repay our debts in US dollars. Right now that’s stable, but remember that the US Federal Reserve has increased rates at least six times since 2015 so the rupee will be less attractive compared to the US dollar. There are more increases in Fed rates on the cards, so either the rupee will depreciate or the Bank of Mauritius will raise interest rates, which will penalise investment. So I think we must be very cautious when borrowing from external sources.

Are we borrowing too much?

I think we are becoming too dependent on foreign governments to balance our budget. Not just through loans but through grants as well. This can have political implications.

What implications? Let’s spell those out.

When it comes to grants, you have less room to manoeuvre, to negotiate, for example, on the global business issue, the DTAA with India, even on Agalega or the free trade agreement with China. There is no free lunch in international politics.

If we did not factor in these grants, what would be our budget deficit?

It would be 4.5% of GDP. And then you will have to find the money on the domestic market, which will push up the domestic interest rate and the government will crowd out private investment. Savings will go to public projects rather than private sector projects.

Doesn’t the government realise this?

Politicians have a short-term view. Their horizon ends at the next election. They will go on a spending spree and will try to create a feel good factor through that. You have already noticed that they have started recruiting people in the public sector. What I fear, is that they will spend and spend and then let the next government worry about the ramifications of that.

If public debt is so bad and that’s affecting the way that we can negotiate with other countries on economic and sometimes sovereignty issues, why are the economists not sounding the alarm bells?

I am trying. I cannot speak for other economists. In this country, many professionals do not speak out because they don’t want to have problems in their jobs, particularly when this government has created the impression of being vindictive.

What about construction, there will be a flyover, an Olympic stadium and the Metro Express. Won’t this boost the economy?

In the construction industry we are expecting 9.5 per cent real growth in 2018. Last year, in 2017, it was 7.5%, a very good rate. But I don’t think that the construction industry has such a multiplier effect on the rest of the economy. The forecast is that we will remain below 4%.

Why does the construction sector have such a low impact on the overall economy?

Because for building, we import a lot of construction materials and machinery, workers... We import a lot, so it does not have that much of a multiplier effect.

We are on a slippery road. The Metro Express is bound to have cost overruns; we will have to borrow more. The Safe City too is being financed through loans guaranteed by the government. It is a dangerous situation! We were aiming for a deficit of GDP of 3%. Now, it’s around 3.2% but that’s only thanks to grants from foreign governments.  These grants represent 1.7% of our GDP.

One also sometimes wonders about the need for certain projects like the Olympic stadium at the cost of Rs1.2 billion. What do we need an Olympic stadium for?

(Laughs) Exactly! We have the Indian Ocean Island Games every five years and we will never host any Olympic games. Why such a big project? It does not make sense economically. I think this government wants to undertake grandiose projects to impress but nobody knows what’s behind the curtain. There is a lot of money flowing into the country. I hope the press and the opposition will press for transparency.

The new traffic regulations have been in force for a few days. A new way of making money or badly needed measures?

I think that these are desperate measures. The government made the terrible mistake of abolishing the penalty point system, they switched off the cameras for quite a few months and, for three years, sent the wrong signal. To try and make up for that, they’ve overreacted without a shred of a scientific study into the causes of accidents.

Speed and alcohol?

Only 1-2% of accidents are the result of alcohol and we don’t know how many are caused by speed. The real problem is that there is no respect for the Highway Code.

Aren’t these measures likely to make people respect the code?

Maybe for a little while but the old habits will come back. I think it’s a question of culture and education. We have to review the system of driving schools and educate the population. The measures the government has introduced are repressive and they will hit the middle class the hardest. Those who have the means will be able to hire a driver. The rest will pay the price of the government’s inaction, followed by a repressive reaction. Besides, why target only people who drink? This can also have an impact on the restaurant business.

Is it more important to have a good time than to spare people’s lives?

We should not look at only the two extremes. We are a liberal society; people want to go out and have a drink. Now, do you want to change the way we are living? It’s a question of individual freedom.

The new measures are saying you can drink a little…

The new measures are saying you should not drink at all. Twenty mg are the equivalent of half a glass of beer. They have gone from one extreme to another. This is extremism!

For more views and in-depth analysis of current issues, Weekly magazine (Price: Rs 25) or subscribe to Weekly for Rs110 a month. (Free delivery to your doorstep). Email us on: [email protected]

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