Vishal Rughoobur : “We are quite far away from a second economic miracle”

December is known for its shopping mood and a surplus of money circulating around. Economist Vishal Rughoobur explains how excess of liquidity during these festive moods is quite beneficial for the country. In this same interview, he reveals that 2017 has been a positive year but still, we are far away from a second economic miracle.

There is a surplus of money circulating in the economy at present. Is the situation alarming?
No, the situation is not alarming. There is normally an increase in money supply at this time of the year given that employees, both in the private and public sectors, are paid their end of year bonuses.

While some people will save and invest, many of them spend the money lavishly. In this case, there will be definitely a surplus of money.  So, there is nothing abnormal, if we consider and compare the economic indices of previous months. We are in a festive mood and people will spend, as they possess more purchasing power.

What are the signs of this excess liquidity?
The excess money in circulation implies that consumers do not hesitate to buy and spend. This is often translated into an increase in demand, which in turn stimulates economic activity, growth and employment.

What are the impacts of this excess of liquidity?
There is a more positive impact. The population has received a considerable amount, that is almost twice their monthly salary. If they are spending it, the money is returning into the economy and there are more activities taking place.

It is the economy that is benefiting and there is growth. Besides, during this festive period, there are also creations of jobs. There is no negative impact, as presumed by certain people. It is more of a temporary, positive period. 

If the surplus keeps growing over a protracted period of time, will it be a major concern for the authorities?
The current surplus is characteristic of the end of year period and is expected to taper off. Another point to consider is to understand from where the money is coming from. The major source is end of year bonus. So obviously after this month, the situation will stabilise.

Generally, the real emerges whenever there is surplus of money in circulation and demand increases. In this situation, there is a pressure on the price and there is inflation. However, if a surplus money supply persists, the Central Bank can take appropriate measures to mop up any excess liquidity in the market.

Do you think excess money is a clear indicator of inflationary pressure?
Excess money in circulation can lead to ‘too much money chasing too few goods’, hence creating upward pressure on consumer prices. But in Mauritius, the main type of inflation is imported inflation.

Domestic prices tend to increase as prices of imported goods rise. In particular, the recent increase in the price of petroleum products is likely to have a bearing on consumer prices in the near future. 

Who should take the costs arising from mopping up excess liquidity?
Usually, it is the Central Bank that intervenes in such a situation. The Central Bank issues Treasury Bills and Government bonds. In periodical timeframe, the Central Bank recommends that the population, instead of spending their money or deposit in banks, can buy bonds or invest in Treasury Bills.  There is always a control by the Central Bank.

From a macroeconomic viewpoint, how has Mauritius performed in 2017?
The performance of the Mauritian economy was generally positive in 2017. Growth continued to improve and the downward trend in unemployment was confirmed. The economy should further strengthen in 2018 on the basis of the global economy remaining on track and on the domestic front, the start of major infrastructural projects and the continued recovery of private investment.

Do you still believe a second economic miracle can be achieved?
We are quite far away from a second economic miracle. The key ingredients for a quantum leap in economic transformation are clearly missing. To be able to achieve an economic miracle, we need to have a growth rate above 5%. Till now we are below 4%. For 2018, we are expecting to reach 4.4%.

The MCCI predicted a growth of around 4.4% for 2018. Is it attainable?
For the time being, 4.4% is the most optimistic prediction. The growth will depend on the developments that will occur next year. But at the same time, various occurrences can have an impact on the growth. For example, the recent hike in petrol price in Mauritius can have an impact. Moreover, we cannot also ignore world economy, which can directly put pressure on our economy.