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[Blog] Covid-19 is dictating unconventional measures

Surendra Appadoo

Covid-19 is dictating unconventional measures, a new set of disciplines and a true sense of patriotism or else the results will be chaotic and very painful.

As a caring observer and citizen of Mauritius living in London, I have always taken great interest in the socio-economic state of affairs of our beautiful island.  I always believe when writing an article in the local press, it is important that the content is understood by the mass population in a clear and simple language.  I am conscious some parts of this article are financially technical as I am also addressing to the team of people who have been entrusted the fate of our nation in managing the gravity of the current economic plight the nation is facing. Maintaining   honesty and transparency to the 1.3 million people living on this small island is a sine qua non condition for any caring government. 

As I said in my recent article of the 27th April published in Le Défi, Covid-19 is NOT the making of the 1.3 million inhabitants living and working in this island. For this reason, it is important that we don’t confuse ourselves with the financial crisis of 2008 and Covid-19.  It’s completely a different ball game. To even contemplating drawing a similarity to the current crisis would be absurd. The former was purely caused by complacency, greed  deregulation, recklessness and so many other factors  in the banking industry  which resulted in a credit crunch and the latter is a global health issue which has now been transformed into an  economic crisis  which is adversely affecting lives, livelihoods and  the real economy i.e. actual companies facing a sudden  revenue drought, key economic players had to  switch off the production line  and  jobs are disappearing  all  due to  fear and pain being inflicted  by this invisible killer virus  to innocent people who  , until early March 2020, were getting on with their lives and livelihoods. Covid-19 has wrecked all the socio-economic plans across all the spectrum of the Mauritian community and more so around the entire globe.

I have been watching debates in the parliament, reading newspapers columns and listening to local radio. I have come to the conclusion that we do have some genuine and true patriots who want to see our country’s revival from this economic meltdown due to no fault of our own. However, there is a still a section of our educated citizens not coming forward with constructive ideas, still practising party politic scoring tactic to the extreme and failing to practise what they have been preaching at the start of parliament session and on the Independence Day celebrationthe  ‘’ As One people and As  One nation’’ mantra with a view to give a helping hand to our motherland. It’s very wrong at this stage of our existence to criticise without any constructive proposals. It’s a fact that no governments since independence have had to face a pandemic and hence an economic crisis of this magnitude. During the 2008’s Financial crisis, people were not observing social distancing, they were not scared to meet people and factories were still operating and so on. This means to say that there is no exact comparison to be made and this rhetoric ‘’If it was me, I would have  done it this way‘’ cannot be entertained any more. If we can’t show patriotism at this testing time of our history, then one would wonder when would it be the right time to so.

With a serious and fatal health fear roaming in people’s mind across the globe particularly in Europe, our tourism industry, contributing circa Rs 64bn to the national GDP, has suffered a severe and fatal uppercut blow. The tourism industry is vast which includes our airline, car rental, hotels, food and beverages, restaurants, bars and cafes, tourist guides and tours, currency dealers, travel agents, tour operators, night clubs etc. In view of the dire economic situation looming ahead over the next 2 years, until an effective vaccine is found, any responsible and caring government must protect its citizens, assisting those in desperate needs with their basic groceries and maintaining law and order during this pandemic.

Even before Covid-19, Mauritius has been experiencing budget deficits year on year. With a circa 90% of its revenues being sourced from tax on goods and services and corporate profits, the sudden adverse hardship being caused by Covid- 19 will inevitably force any regime in power  to borrow in order to finance the country’s expenditure which is being planned for fiscal year 2020-21. We spend 75% of our expenditure on employee compensations, social benefits, grants etc. I believe it’s time to be very transparent with the government’s proposed expenditure and undertake a ‘’degraissage’’ across all the departments in the public sector and in the parastatal bodies. The socio-economic pain being inflicted by Covid-19 is dictating to any responsible governments around the globe to recourse to unconventional measures with a view to protect and feed the nation.

Following the transfer of Rs 18 bn from the Special Reserve Funds and the ‘’One-off contribution’’ of Rs 60 bn from the Bank of Mauritius (BOM), there has been some renewed interest in the BOM’s balance sheet during this health and hence economic crisis. The format and evolution of the central bank balance sheet is still unappreciated by many observers. The differences between the form and the frequency of publication of balance sheets by BOM do little to dispel this mystique. This is why over the past few months, we have had various debates in the interpretation of the ‘’ reserves’ item. I get that as an ex-BOM’s staff member. Nonetheless, the structure and evolution BOM’s balance sheet has become an arcane concept to many Mauritians and the economic crisis has further revived interest. 

Any funds disbursed from BOM to rescue the central government will involve actual cash flows simply because government’s expenditure is paid with actual bank transactions and this is why only realised gains which can fulfil this transactional process. It is important that when we refer to our ‘’Official International Reserve’’, we don’t denominate it in our local currency as it would include revalued element at the period’s exchange rate.  To gain a better understanding of how this Official reserve is evolving, it is advisable that we cross reference it to the foreign currency in which it has been invested. For instance, looking at BOM’s 2018-19 Annual Report the ‘’Official Reserve’’ stood at $7.2bn (Rs253bn). If we use current FX rate of Rs 40, we would erroneously assume that the reserve has grown to Rs 288 bn. This is pure notional gain as it will only provide extra rupee if the dollar reserve is exchanged for rupee at todays’ exchange rate. But in reality, we still have $7.2 bn invested overseas and we need USD for our imports and FX intervention and not the rupee. This official reserve is the real backbone of the nation which helps to building our country’s resilience against external shocks, strengthening BOM’s capital position and assisting BOM’s monetary operations. By using circa $1.5bn of that official reserve to rescue the government’s finance, it has weakened BOM’s Balance Sheet. There is no comparison to Quantitative Easing (QE) which is a mere asset swap. A strong balance sheet fulfils public confidence but as mentioned before, we are witnessing an unprecedented time of our history and these are exceptional measures which  are required to fill the massive revenues shortfalls   caused by the deep hole drilled to   our  tourism industry’s pot  and other key sectors of the economy. As a nation, let’s exceptionally endorse this method in view of this exceptional circumstances in the spirit of ‘’ As One people and As One nation’’. 

What matters now is how do we revive those economic sectors such as tourism, construction and trade with the Rs60bn received as a ‘’ One-off contribution’’ from BOM at its Balance Sheet’s expense. It’s imperative that our ministers set up a special unit, say, ‘’Reviving Economic Unit’’ with the main objective to:

  • Improve our export competitiveness.
  • Understand why some local firms are moving production to other cost-effective nations.
  • Improve our Net exports.
  • Attract more Foreign Direct Investment (FDI) in those key sectors of our economy.
  • Revamp the seafood sector, ‘’Economie bleue’’ and its export in large scale.

We need to craft a serious road map demonstrating to the nation of how Mauritius will recoup the circa $1.5bn which has left Bank of Mauritius’ balance sheet in May 2020. The only way it can be done isby improving and increasing our export sector and by putting the financial services at the apex of the nation’s agenda too i.e. those sectors which will generate FXreceipts. Definitely, those measures will generate FX in the next 18 months or so. Now that our population has taken a great interest in the affairs of the central bank, it would be a good idea that our central bank publishes a simplified version of the Balance Sheet on a weekly basis on its website as this financial statement plays a critical role in the functioning of the economy. Many central banks namely Bank of England, Bank of Canada, central banks of India, Australia, Argentina, Mexico, Turkey do publish weekly balance sheets. The population and the business community need to see the evolution of the ‘’Official International Reserve’’ on a weekly basis.  This reserve will be a barometer of our economy’s health and will demonstrate the resilience and effectiveness of the central bank in its intervention exercise in the FX market. BOM is like the nation’s trusted financial ‘’university’’, just like we trust Cambridge University Exams Board for our ‘O’ and ‘A’ results, hence its qualification is beyond question. BOM’s running of the country’s wealth should uphold high integrity at all time which in itself is a qualification to be respected.

With the setting up of the ‘’Mauritius Investment Corporation Ltd’’(MCI) by BOM, it is crucial that our central bank does not lose focus on its core mission that of (a) Inflation targeter and (b) Exchange rate targeter. This special purpose vehicle, MCI Ltd, should be completely independent of the central bank. MCI’s core mission is to revive the Mauritian economy particularly the tourism and manufacturing sectors which have been badly hit. Before it starts injecting hard earned nation’s wealth in the kitties of limited companies up and down the island, it would be a good idea to dedicate a specific website showing to the Mauritian public how they are going about distributing those funds which have been offloaded from BOM’s Balance Sheet. 

For illustration purposes, if we take the tourism sector as an example, I would expect that they define the tourism sector and to slot local companies into different category of the ‘’travel, leisure and hospitality ‘’ sector as depicted at table (A) below:

table a

From Table (A) above, MCI Ltd should list all companies in the Tourism sector which require financial assistance as per the suggested format. Mauritian public should know how the Rs 60bn(whether part or all) is being utilised and the names of companies seeking assistance.

Once MCI Ltd compile a list of companies under each banner of the tourism sector, it then carries out the following tests:

  • Cash Flow test
  • Balance Sheet test
  • Income statement test
  • Legal Action Test

Just as a doctor can learn a lot about a patient from an X-ray, MCI Ltd will get a sense of each company’s health from its Balance Sheet. It is crucial to carry out those tests before any rupee is disbursed.I suggest the following format as depicted at table (B) below:

table b

MCI Ltd should undertake the following tests for the last 3 years and right up to Feb 20 before the lockdown:

  • Debt to Equity Ratio
  • Return on Equity ratio
  • Current Asset ratio
  • Profit before tax (PBT)

The above 3 ratios and PBT   will reveal which of these companies were already struggling before the lockdown and why were they experiencing such alarming ratios. Once these tests are meticulously carried out, decisions to assist must be made based on those financial results. It’s wrong to throw good and hard-earned money after bad.  MCI Ltd should institute a robust Credit Committee with team of accountants with solid Balance Sheet experience to peel off those financial statements filed at the registrar of companies (Companies House in the UK). Decisions to assist should be purely on Balance Sheet ratios& PBT for the past 3 years. It is equally important that MCI Ltd consult the February 20’s management pack to understand the company’s performance and their rolling forecast both P&L and Cash flow. More importantly, by using the Current Asset ratio and bank balances as at Feb 20. MCI Ltd should also assist in determining ‘’Credit worthiness and Credit hungriness‘’ of each company in the above list.MCI should not advance to any mismanaged entities where directors have been milking them over the past 3 years. The hard-earned reserve should be judiciously utilised.

Effectively, MCI Ltd has been given the stewardship to manage the nation’s hard-earned reserves with a view to revive the tourism sector, manufacturing sector and other ailing sectors by applying those financial tests highlighted above. By fulfilling the role as the safe guardian of the Mauritian economy and by assisting genuine companies which would have performed well had we not had covid-19, MCI Ltd will help to preserve jobs and generate foreign currencies which in turn will  help to gradually replenishing the official reserve at the Bank of Mauritius once all sectors of the economy are in full swing. We should ensure that those viable companies are in a trading mode so that they can respond positively once international tourism picks up next year. Same approach can be replicated to manufacturing sector and other industries.

Lately, we have heard many of our fellow citizens  talking of ‘’Helicopter Money’’. This is where households are directly being targeted by the central bank by putting money in each household’s pocket. MCI Ltd can baptise this concept in a Mauritian way by encouraging more Mauritians to go for more stay cation by subsidising the ticket offer prices to all players in the tourism industry. This will entice a vast majority of the population visiting tourist attractions, dinning out, spending some nights in hotels, organising excursions etc.  All these will keep lubricating the wheels of the actors in the tourism industry, jobs will be protected, fishermen would be able to earn a decent living whilst supplying their catch to hotels, farmers would be able to sell their vegetables and fruits to hotels. While moving in this direction, the economy will be on its wheel and in motion and gradually gathering speed once lockdowns in Europe are removed and Europeans and other nationalities start travelling later this year or next.

As a nation and as a true patriot, we should all give our blessing to MCI Ltd to reinvigorate the Mauritian’s tourism and manufacturing sector. The success of this project will bring a feel-good factor to the nation. Our elected members in the national assembly should make the nation proud by coming up with constructive ideas when ‘debating’ in the parliament. Our MPs should refer to the following vowels: A, E, I, O and U. A for ‘’Available’’, E for ‘’Effective’’, I for ‘’Inspire’’, O for’’ One of us’’ and U for ‘’Upright’’.

MPs should refrain from talking with vehemence in the national assembly. Let’s show the  world that we are well educated and have taken exams from Cambridge university Exams Board for our ‘O ‘and’ A’ level exams and that many of us have had the privilege studying in the  UK,France , USA etc and we are very International , articulate and  a  bunch of parliamentarians who always put ‘’ Mauritius first’’. It does not make sense a small economy with a GDP circa $14.1bn, the nation does not even get to see our MPs performing at their best despite being lavishly remunerated and with all the perks. This can’t go on in this new world order. Post Covid-19 era dictates a paradigm shift in the way we have been conducting and behaving in the parliament and in managing the nation’s affairs.  The nation wants to see the "cream of the cream" in the parliament.  It would be good to see the members sitting on the opposition bench acting as a ‘’government in waiting’’ by advancing patriotic and convincing ideas and suggestions. Equally, it would make the nation proud to see all members behaving in an exemplary manner.

One would expect when our local MPs and Ministers travel and meet with officials in an international forum, they will bring those ideas and emulate good behaviours to our country. But unfortunately, the nation does not get to see that on TV and least during parliament sitting. The nation is worried about their children’s involvement in the Mauritian politics because it does not inspire respect and but instead demagogy. It is sad we can’t even have a dream in serving the country we all love because some of us do not tick all the boxes. They see political bickering, cheap politics, personal attacks in foul local lingo. The idea put forward by some people to conduct the parliamentary sessions in creole will be disastrous when we all know what we can expect of foul languages which will be spat at each other.   Despite we all hold an educational degree which we have all worked hard for but yet we are not giving that very asset ‘’ sa lettre de noblesse’’ by throwing unparliamentary languages and by performing in a very mediocre way. The lesson we should all learn from Covid-19 is that nobody has the monopoly of intelligence when one just looks at the number of people who have sadly died in the mighty USA due to a dysfunctional approach between states and the Federal government. The only way we can pass on the seed of success to our children, grandchildren and the next generation is to move away from the old fashion of doing politics. Those so called ‘’base’’ during election campaigns, ’Banderoles’’ which pollute the environment and cheap personal attacks should be confined to history. Politics embroiled in sectarian, castes, religion, race will never elevate Mauritius to the level of Singapore. Let’s use the social media just like we have been forced during the lockdown to advance ideas respectfully and intellectually. We will save million of rupees, there will be fewer social tensions and fights between political party supporters and political party will be less dependent from financial favours from the wealthy individuals and corporate barons. It is high time that we become a sophisticated country in terms of honesty and transparency with a new set of values when serving the nation.

It is important to remind ourselves that Mauritius does not belong to any section of the population. It belongs to the 1.3 million inhabitants. The state of Mauritius belongs to every citizen. A government is a team of individual who has been elected, for a specific period, by the nation and has been given the stewardship to run the nation’s affairs in the nation’s best interest. The welfare state such as free medical care, free schooling, pensions for the elderly etc are NOT the proprietary of any governments. Those are the nation’s wealth created by past and present generations. So, it is wrong for any government to claim credit for distributing the nation’s wealth to the citizens of Mauritius.  It’s time that we conduct politics and the affairs of the nation ‘’Autrement’’. We should stop leaders of religious associations poking their nose into politics and in the economic affairs of the nation. Religion is a belief system and should be practised privately.  The nation’s wellbeing is the affairs of everybody. We should ask ourselves how many covid-19 patients those leaders of those religious associations have cured during this pandemic. The answer is obvious. It’s time for a new breed of honest and sincere citizens start getting ready to manage the affairs of Mauritius. It’s time for a radical change in attitude and mentality. It’s heart breaking to see our flagship airline(Air Mauritius) in such a dire state, the second largest bank (SBM) making such a meagre profit and our country being dumped in the same league as that of Zimbabwe due to shortfalls in our regulatory systems.

Although we said we have inherited the Westminster model  of parliament but yet we don’t have select committees comprising of MPs of both sides of the House  to cross examine the Governor of the Bank of Mauritius, the CEO of FSC, ICAC, FIU, MBC and other important institution in managing the affairs of the nation. It’s time to institute the ‘’check and balance’’ platform thus observing good governance in our island. Our MPs should be kept busy in these select committees. These select committees should be broadcasted live on the national parliament TV channel. Our MPs are supposed to be our leaders of tomorrow and it is important that they roll up their sleeves and be exposed to the day to day affairs of those institutions listed above.

In the light of the above, this pandemic is teaching us all that business can’t be as usual. It’s time for a180 degrees shift. It’s time we produce our food requirements locally hence less pressure on FX to finance for imports. Until an effective vaccine is prescribed and lockdowns are not eased off and people are not confident taking up international travel, Mauritius will suffer from a shortage of FX and this is why it is important that we should seriously build up our ‘’Official International Reserve’’ thus allowing the nation to source its fuel, gas and essential capital equipment on the international market without disruptions. In the meantime, let’s re-invent ourselves and support our SMEs to produce locally but at a much better quality. Let’s promote ‘’Made in Moris’’ in all sectors of the economy. Our aim as a nation is to encourage spending on local products and services which will lubricate the economy and adding value to the national income. It’s time we embed patriotic values in all our behaviours and actions and to foster feel good factor to the nation.

‘’In the face of impossible odds, people who love this country can change it.’’

Barak Obama

Surendra (Suren) Appadoo


27th May 2020


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