It is said that of all the forms of wisdom, hindsight is… the least merciful, the most unforgiving. Despite the window provided in his first budget to imprint a new vision given the unique context, the new Minister of Finance (MoF) stubbornly chose to continue with his predecessor’s brand of Keynesian medicine. That of joyous consumption, public spending and public investment with low multiplier effect abetted now by even hollower promises, window dressing, tax increases and dodgy financing methods.
As the paucity of his vision becomes plainer, the MoF must be rueing last year’s unique opportunity to restart and reshape the economy. It is this very missed opportunity that has led to the insipid document which has befuddled most observers.
The few positive and implementable measures (bagasse price, foreign skills, sanitary towels…) are far outweighed by the rest. Allow me a quick recap of the main ones as these have been well echoed here and elsewhere.
The Copy and Paste functions have been in over- drive from previous Budgets to this one. To name but a few: Green energy, Pharmaceutical industry, Digitalisation, Infrastructure spending, Civil Service College, etc.
The Growth forecast of 9% (as opposed to the IMF forecast before the second lockdown of 6.6% for 2021) seems to be at best wishful thinking based on the improbable arrival of 650,000 tourists in these uncertain times and the construction of drains!
Or indeed to give a booster vaccine to the highly optimistic projected revenue increase of Rs 42.2bn through additional tax revenue of 33% including VAT and corporate taxes of 41% and 45% respectively. And Rs 9.4bn from the raiding of the reserves of four public entities plus the levy of Rs2 per litre of fuel, the second increase in three months, to supposedly fund the vaccination programme.
Incidentally the two transfer from the Bank of Mauritus (BoM) amounting to Rs 60bn in 2020-21 have been surprisingly accounted as Revenue whereas in 2019- 20, the transfer of Rs 18bn in 2019-20 was treated as a Financing item.
The record transfer of Rs 40.2bn to Special Funds over 2020-22 perpetuates the cycle of opacity, enabling Government to fund (low) capital AND recurrent expenditure, and surreptitiously building substantial reserves outside the scrutiny of Parliament.
Adjusting for the above, the correct budget deficit would probably be up to three times higher than the published Rs49.5bn over the two years.
The alarming ratio of Public Sector Debt to GDP of 95% includes a record 25.9% foreign component this year. Of concern the planned increase in absolute numbers to Rs 500bn by 2024. Again neither the previous debts contracted through the SPV’s nor the Rs 28bn ‘‘advance(d) against future profits distributable to Government’’ (clearly a loan) from BoM have been included. Nor indeed the Rs 5.7bn damages to Betamax.
Whilst the budget annex glibly estimates the unemployment and inflation rates at 9.2% and 2.5% respectively, Mauritians are painfully aware of the real impact of the constant depreciation of our rupee and of job losses.
At the same time the Balance of Payments deficit continues its dangerous slide to Rs 21bn in 2020.
A complete disregard of the recent recommendations of the IMF and the World Bank regarding public finance management and the BoM transfers except for a mention of a forthcoming BoM bill. A clear lack of foresight given the risks of a trip to Washington soon.
As for the opaque MIC, as it moves further and further away from its original mission, investing on staggering terms and in lame ducks, the MoF informs us that it will now finance… water distribution. Let us hope that there is no siphoning!
New legislation to be introduced for the CSG probably following the averments of Business Mauritius in court regarding a required doubling up of employees’ contribution to meet Government’s promise of a Rs 4,500 pension increase by 2024.
As for measures to avoid a repetition of the Wakashio disaster, Anne ma sœur…
• Acting responsibly
Some of our structural challenges are well documented in the recent World Bank report aptly depicting us ‘‘through the eye of a perfect storm’’ https://documents. worldbank.org/en/publication/ documents-reports/document- detail/586691621628367648
This follows Moody’s downgrade of the country’s rating with a probable further downgrading in the offing which would be even more bad news for our banking and financial services sectors.
Whilst the MoF sets out his budget strategies of Recovery, Revival and Resilience, the nation expects just one eminently achievable approach from Government: Responsibility.
To act responsibly in restoring confidence, competitiveness and cohesion.
To stop overpromising and underdelivering.
• Restoring Confidence
Trust is a shy deer; once scared, it takes a long time to come back. It is not only investors but also the other stakeholders who must be able to trust the soundness of the system: stability of the currency, credibility of Government’s objectives and actions, and governance. Restoring confidence therefore implies credibility, transparency, predictability and strong institutions.
Whilst Government may not openly admit to the poor shape of the economy before the pandemic, its acknowledgement of our dire straits and its causes are key in order to move forward. And these will point to structural challenges and the undermining of our institutions. Over and above the avoidance of many of the recent scandals that have undermined our national credibility, strong institutions provide the checks and balances to restore much needed confidence.
• Rebuilding Competitiveness
As exports of our goods and services ebb away, Government has the responsibility to provide the framework to rebuild our rapidly fading competitiveness and to set the right priorities. Starting with the obvious: Corruption inhibits competitiveness and growth.
It also amazes me how we are unaware of the repercussions of what is happening around us during this pandemonium be it COVID-19, new trade agreements, G7 tax regimes, reflation, digitalisation, changes in supply chains and demographics, etc. As well as the indispensable changes in business models to survive and/or inject new dynamism.
Moving up the technological and productivity ladder, developing new growth engines or indeed changing sectoral business models will take time. Competitiveness can thus only be achieved with foresight and patience. It inevitably requires governments to favour a more long term approach instead of prioritising short term populist measures and prestige projects for electoral purposes.
• Reviving Cohesion
It is inevitable that the sanitary and economic challenges will put further pressure on the social front. As is, the decreasing purchasing power, reduction in income and the loss of jobs are already exacerbating the growing inequality and underlying social pressures.
We can learn from New Zealand’s emphasis on the collective well-being of all its citizens by prioritising employment and skills in tune with the market, poverty alleviation, reduction of inequality, sustainability and longer meaningful life expectancy. The much vaunted new normal can only succeed if we are able to harness the energy of the greatest number in society and provide them with opportunities in business hitherto denied to many of us. An enlightened leadership therefore has the duty to act responsibly to favour cohesion and competitiveness over division.
Whether we like it or not, the pain will come. I am afraid we are in stormy waters as contended in my previous article kindly published here (https://www. lexpress.mu/node/377958 ). A year has gone by and we are still drinking in the last chance saloon while the sailor on watch on the bridge, at best hoping for the best, keeps shouting “All izz well” .
As the band keeps playing, I hope that this is not music to our ears. Titanic or Wakashio?