If you refer to the Bank of Mauritius’s monthly Statistical Bulletin for December 2019, you will find, in Table 58, for example, figures that should raise alarm bells about what has been happening and about what is coming.
There is no need to couch what follows into elaborate, convoluted language. We have been living beyond our means and, as a result, the rupee has been sliding against ALL currencies during 2019, including against the Kenyan shilling, the South African rand and the Indian rupee. If you could buy a United States dollar for Rs 34.861 on average in December 2018, it took Rs 36.978 to get one a year later (+6.1%). The same trend hit, to varying degrees, the British Sterling (+9.9%), the Euro (+3.6%), the Indian rupee (+5.5%), even the South African rand (+ 4.8%).
That is wonderful news, no doubt, for exporters who were looking for some solace in the wake of fresh labour laws, a minimum wage hike and the Portable pension scheme, which will all add to operating costs. As is usual, this will make a difference to the survival prospects of exporters who are borderline financially and globally help Mauritius look more competitive on foreign markets. However, as usual, there will be a cost to it in the form of imported inflation. You can bet your bottom that a 5% deterioration of exchange rates, say, will, eventually, work its way into retail prices. This should worry officialdom at least a bit because it will unravel one of the shining achievements of 2019, i.e. low inflation of 0.5% and at least in part erode the salary and pension hikes so generously consented to in the run up to November elections. The beneficiaries of those generosities cannot fail to notice the price hikes: they shop themselves and their purses are neither bottomless, nor elastic. On the other hand, this might help slow down consumption and reduce the trade imbalance (-Rs 124 billion or nearly 25% of GDP).
It is interesting to note that this rupee weakening actually built up the BoM reserves from which the government retrieved Rs 18 billion to repay debt but that it did not help government since the foreign debt being repaid by anticipation also got beefed up in the same proportion! Only what was left behind in the BoM balance sheet was perked up…
I suppose what needs to be repeated here is that there are definite limits to “easy” economic solutions. Depreciating the rupee has never been anything else but a palliative to mask the issue of an overpriced national currency that favours and sucks in imports at the expense of exports. Why overpriced? Because our economy is not doing all that well and has low productivity, and exchange rates should reflect that. Understand this: we do have efficient, innovative, world competitive companies in this country, but the problem is that we do not have enough of them and that, as a result, the country as a whole shows up as not very productive, burdened by the sloths. Overpricing the currency to favour consumption or depreciating it to save the forex earners is “easy”. Working hard, moulding our schools to perform much better, having a supportive bureaucracy, improving national productivity levels, cutting out waste and small-mindedness, favouring meritocracy rather than sycophancy, being transparent, telling the truth to, instead of mollycoddling, the population is “hard”.
Can we at least make a start by being a little more battle hardened in the face of “cyclones” and tropical downpours?