[Blog] «Inoculate the economy with bold and surgical measures to restore growth, immunity and resilience»

“You have to take hold of the future or else the future will take hold of you.” Dr Patrick Dixon

Dr the Honourable RENGANADEN PADAYACHY, Minister of Finance, Economic Planning and Development,  delivered his budget speech for year 2020/2021 in an exceptional and unprecedented climate characterized by the prevalence of the Covid-19 pandemic which has seen almost half of the world population being confined to their homes while the globaleconomy has stalled, receding to a degree not witnessed throughout history either in terms of its contagious nature or unequalled quantum. 

The IMF prediction of a contraction of 3% of the world economy in 2020 is in tandem with the uncertainty surrounding the invigoration of all economies around the world through measures envisioned both individually and collectively in the propping up of critical growth sectors across the globe. The projected contraction for Mauritius is 11% for the current year and the different measures announced, if implemented successfully, should enable the country to embrace a return to normality or the “new normal” as coined by the Honourable Minister. The challenges are daunting and the tasks are gigantic indeed, especially where the veil of uncertainty allied with ambiguity is expected to hover around indeterminately and subsequently cloud our outlook for a return to normalcy.

The “Economy of Life” as the Honourable Minister would have it, rests on three maxims namely, Rolling out the ‘Plan de Relance de l’investissement et de l’économie’, Engaging in Major Structural Reforms, and Securing Sustainable and Inclusive Development. While major economies of the world, for instance, those in Europe, the US and Asian giants, have already adopted conservative stances of looking at the innards and are opposing resistance at completely opening up their economies due to the risk of conflagration of the Coronavirus, it remains to be seen how the country would fare in such a situation where nationalism and individualism are becoming the rule of the day in global trade and relations. The measures announced by the Minister of Finance somehow do also tread along those lines as one of the primary focus is towards protecting our local industries like construction, agriculture, manufacturing and the blue ocean economy. There is a tendency towards an import substitution strategy which would instill in the population the reflex of self-sustainability and enable SMEs to scale up their activities. Other important sectors like tourism and financial services are being awarded some proper attention given that they contribute a considerable share to GDP and employ a sizeable workforce. 

The allocation of Rs100Bn for boosting investment in the above sectors needs to be undertaken with caution, professionalism and responsibility. There is no indication whatsoever on the mode of financing in relation to whether these would be in the form of equity, quasi-equity or simply debt finance. As the saying goes, “nobody owes you a free lunch”, as such it remains to be seen to what extent enterprises which benefit from easing of their financial situation in whatever way from this Budget would be accountable and their performances monitored accordingly for the sake of using public finances.

The present Budget makes some hefty provisions on the social side with regards to pension which is seeing the establishment of a novel type of contributory scheme, namely the Contribution Sociale Généralisée (CSG) which is intended to ensure an additional guaranteed monthly income to citizens above the normal retirement age of 65 years old, leading to the repeal of the National Pension Fund. Although the general income tax rate remains untouched at 15%, Solidarity Levy of 5% for the excess amount of chargeable income plus dividends of a resident Mauritian earning citizen above Rs3M annually is being changed to 25%, thus suggesting an indicative rate of income tax of 40% for such relatively high income earners. A solidarity levy has also been introduced for corporates having gross income exceeding Rs500M with rates of 0.3% for insurance companies, financial institutions, service providers and property holding companies and 0.1% for other companies, with exemptions for companies operating in the tourism sector and those having a Global Business Licence. Those measures, while ensuring participation and empathy towards the poorer sections of the population, need to be carefully monitored and driven along judicious application of funds collected so that the right signal is sent to investors and potential workforce likely to consider Mauritius as a destination to do business.

As Oscar Wilde remarked, “The only thing I cannot resist is temptation”, the amount put at the disposal of the Government by the Bank of Mauritius is colossal and will remain in the history books as the only one time that the Central Bank had to resort to such a situation as an exceptional measure under exceptional circumstances to support the revival of the economy and cannot recur for obvious reasons linked to depreciation of our currency and inflationary deflagration. The philosophy of the Minister of Finance in his Budget speech is laudable in the sense that may be, we would never witness a Minister of Finance come forward again to adopt such bold measures and vaccinate the economy in order to prevent any further fallout and build the foundations for future renaissance. The aphorisms used by the Minister in his concluding remarks, namely, social justice, innovation, inclusiveness, sustainability and empathy carry strong meanings the import of which must, as a matter of solidarity, be embedded in every action taken with regard to the implementation of this Budget. 

Shamin A. Sookia, Managing Director, Perigeum Capital Ltd