No silver bullets, no shortcuts! The message of the Minister of Finance Dr Renganaden Padayachy was clear, the only way out of the COVID-19 induced economic crisis is rapid economic growth. The Minister announced measures to restructure the economy and prepare Mauritius for the future, but the underlying priority of the government for the 2021/2022 budget was to catch up, as fast as possible, on the estimated MUR 70 billion loss with the 15% contraction of the economy as a result of the COVID-19 pandemic.
The budget speech was made at a historic date. The 11th of June 2021 marks the 39th anniversary of the landmark electoral victory of 1982 led by Sir Anerood Jugnauth, who passed away only one week before. When he took over government, the country was in dire economic crisis, a situation that has been compared to the one we are currently going through.
Minister Padayachy’s budget aspires to address all key issues raised by analysts and economic observers. It purports to stabilize declining macroeconomic indicators, boost investments, develop new sectors of the economy, consolidate existing ones while shielding the most vulnerable sections of the population. On the outset, the Minister announced that measures to support employees and companies of the tourism industry will be extended until September. Corporate and income taxes have not been increased which constitute a major breather both for the population and investors.
Tourism, which is now at a standstill, accounts for a major part of the GDP contraction. The Minister of Finance made an important announcement about a phased easing of travel restrictions as from the 15th of July 2021. This is expected to kickstart tourism by capturing holiday traffic of the high season that typically starts in November. Government is relying on the optimistic scenario of recovering enough tourism volumes to achieve a targeted GDP growth of 9% for financial year 2021/2022.
Minister Padayachy claimed on the macroeconomics side that budget deficit will be contained at 5% of GDP, the public sector debt to GDP ratio will be reduced by around 4 percentage points to 91% with an objective to bring it down to less than 80% of GDP by the end of June 2025 and to 70% by the end of June 2030.
A series of measures have been earmarked to build trust and create a climate conducive to private investments. Highlights of these measures include the reduction of red tape, reduction in interest rates for business and bank moratoriums for businesses which have been challenged by the Covid-19 pandemic. He also announced extensive training programmes for the Mauritian youth in order to prepare the local workforce for an economic transition and for the evolving needs of the labour market.
Minister Padayachy announced the development of 2 new sectors, a pharmaceutical sector, namely for the production of Covid-19 vaccines, and the development of a proper green energy sector which should provide opportunities for investments and job creation. This complements several measures to boost agriculture and SMEs.
The budget provided for a package of MUR 65 billion for infrastructure projects that aims at improving the quality of life of Mauritians while at the same time serving as a stimulus for the economy.
The financial sector was an important focus area. To recall, it suffered important setbacks with the inclusion of Mauritius on the blacklist of the EU and the UK. The recent decision of G7 countries to set a global minimum for corporate taxes tends to suggest that low taxation regimes will no longer be of prominence in the value proposition of our financial sector. We will have to rely on our more sustainable assets like the expertise and resourcefulness of our people, Mauritius’s ease of doing business ratings as well as improved governance standards.
Measures announced to boost investors’ confidence pertain to the enhancement the AML-CFT legislative framework and its implementation. The minister recalled that legislations were amended in line with FATF recommendations. Financial Crimes Divisions have been set-up at the Supreme Court and the Intermediate Court with a view to ensuring that financial crime cases are dealt with expeditiously. The AML/CFT Core Group is being given legal force.
The Financial Crime Commission will be established for a more effective management in the fight against financial crime.
As it is about learning lessons from the past, it may be useful to come back to the ingredients of the economic miracle of the 80s. It is clear that good intentions are not enough. Successful implementation is key. It will depend on the sense of belief that people leading the transformational change would be able to create. Economic leadership trust and truly empowering the people chosen to lead the change is therefore a key success factor for of the 2021/2022 budget.
We believe that Mauritius has what it takes to make it happen.
For our part, we are determined to play our part as an important catalyst of business development with a renewed ambition to epitomise growth beyond borders.
JurisTax, let’s grow together!
by : JurisTax Team
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