[Blog] Budget 2022-23- JurisTax : “An equilibrium between social welfares and long-term economic sustainability”

Last year’s budget was triggered by a pandemic the world was not used to dealing with causing a protracted lockdown spanning 18 months which ate up to 32% of the GDP. The aftermaths of the pandemic coupled with the war in Ukraine and extreme climate conditions are having a significant impact on food production in the world. The economies of less developed countries are being particularly stretched. 

This is the backdrop against which the Minister of Finance, Dr Honourable Renganaden Padayachy led the preparation of the 2022-2023 Budget. Steering the economy out to safer grounds while doing justice to the social agenda has therefore become the paramount priority of economic policy. The Minister of Finance had to put on a balancing act and try to reconcile diverging objectives, the immediate needs of the population while ensuring longer term economic sustainability. 

The Bank of Mauritius expects inflation to be at 8.6% in 2022.  It seems that the Minister’s objective was to target support to the neediest, those of low, but also the middle-income group.  Measures announced include reduction of tax rates for middle income earners, construction of social houses, increased benefits for households on the social Register of Mauritius and a 20% increase in social aid.  One of the headline measures remains an increase of Rs 1,000 of the universal pension. 

In the next few days, we will be able to gauge the extent to which the Minister has been able to live to the expectations of the population. Hopes were high and the social measures announced by the Minister might be a relief.  

The current economic conjuncture highlighted one structural weakness that the government has addressed in the budget - Mauritius imports 75% of its food consumption. On the outset the Minister announced a Rs 3 billion allocation to boost agricultural production. In the weeks to come, it will be interesting to note how this budget implemented so as to reduce dependency on food imports. 

Moreover, the Financial Services Commission will revamp its framework to enable Re-Insurance companies to set up operations in Mauritius."

As most developing countries, following the massive investments in fighting the pandemic, Mauritius is left with little muscles to fight off the onslaughts of a compounded crisis. The country has known a 15% contraction in GDP in 2020/2021 followed by a modest 4.2% recovery in 2021/2022. Public debt, the Minister said was reduced from 96.1% to 87.4% of GDP. The budget forecasts that Foreign Direct investments will increase from Rs 15.4 billion to Rs. 20 billion during the current financial year. 

Hopes are now on tourism with the propensity of visitors to spend more and extending their stay in Mauritius. Minister Padayachy reiterated the target of 1 million tourists for the year, but more importantly tourism earnings should at least equal pre-covid levels in foreign currency terms. 

The government believes in the importance of the financial sector which showed resilience even when the economy was at a standstill. The budget makes an allowance for training the sector’s workforce. and the set-up of a Financial Crime Commission to ensure an effective coordination in the fight against financial crimes. 

Our jurisdiction used to rely on its fiscal advantage, but is now bound by the OECD Multilateral Convention to implement BEPS measures. The industry therefore has to continue the process of reinventing itself and think of other sources of competitive advantage. 

Among measures announced, the Bank of Mauritius together with the Bank of China will launch a regional Renminbi Clearing Centre this year.  Moreover, the Financial Services Commission will revamp its framework to enable Re-Insurance companies to set up operations in Mauritius.  Furthermore, on the occasion of the 55th anniversary of the Bank of Mauritius, a 5-Year Emerald Jubilee Bond will be issued at an annual interest rate of 4%.

The way forward is that the public sector and the private sector come together and agree on a long-term vision for the economic landscape and implement the roadmap to make it happen. 
We must give ourselves the means to achieve these ambitions. 

Kessen Ramalingum

CEO of JurisTax