No Match Found
The global economy remains fragile, although the outlook today is slightly more optimistic on the back of improved confidence, with some sectors surpassing pre-pandemic levels. Inflation remains persistently high but is projected to recede gradually in 2023 as global energy and food prices ease off. In recent years, a handout culture has emerged to support the population. However, these measures should be rebalanced as the economy recovers because, once instilled, these will be hard to take back.
Since the 2020 pandemic, the country has been steadily recovering from the plunge in GDP, and our economic indicators are rather impressive, with actual performance exceeding forecasts. Last year, the Mauritian economy grew by 8.7%, with the unemployment rate, and the gross public debt to GDP ratio now at 7.7% and 79% respectively. In comparison to the UK and Singapore, our GDP growth and debt level appear more favourable (refer to figure 1). However, the drivers underpinning growth as well as the utilisation of the debt facilities should also be considered. The Country’s growth depends on consumption, which in turn depends on imports, and this is unsustainable in the long run. Also, whilst Singapore has one of the world’s highest debt to GDP ratio, its productive assets far outweigh its debt level. It is critical that we strengthen our productive base and circular economy. The Budget does not go far enough to address these.
Looking ahead, economic growth remains surprisingly high, and the Government seeks to maintain the momentum of the economic recovery through import substitution, diversification and revitalising exports. Long-term, growth is however dependent on the capacity of the labour force, the quality of institutions and conducive macro policies. Unemployment is back down to nearly its pre-COVID level and, although there are some 43,000 unemployed, there is an acute skills shortage in key sectors. Also, operators continue to face institutional bottlenecks and delays in project implementation. The streamlining of work permits, 4 weeks approval deadline, reduced application threshold, etc, will further open the Country to skilled talents and help to alleviate some of the labour force challenges. In addition, the removal of the solidarity levy is welcome and, although our effective tax rate remains higher than some of our competing jurisdictions, this measure will help restore the Country’s attractiveness to foreign investors and expatriates.
The macro measures in the form of grants, subsidies, tax rebates and concessional financing to sectors such as agriculture and manufacturing will incentivise local production and support exports in the short term. However, more is needed in the long-term to drive productivity and efficiency to re-engineer the fabric of the economy towards a more sustainable model. The continued consolidation and promotion of the tourism, financial services and ICT sectors will build more resilience, but these are no game changer policies.
The positioning of the island as a carbon neutral and green certified destination offers interesting prospects but we await to see more in its realisation.
The heavy investments in the road and metro infrastructure in recent years have transformed inland mobility and, looking ahead, international connectivity remains challenging as shipping lines are deserting the island. Whilst the freight rebate scheme helps to reduce costs, the real problem of the inefficient port services is being overlooked; a more buoyant port can help reduce not only export cost but also imports to generate greater economic value.
The Budget continues to rely on Special Funds as a significant source of financing. During the pandemic, over Rs55bn were transferred to these Special Funds for the funding COVID-19 projects and other support schemes. However, implementation delays have resulted in underspending and Rs31bn remains available. Rs24bn is to be spent in this year’s programme (refer to figure 2), out of which 46% on infrastructure projects, 33% on assistance and support measures and 21% on sustainability. 57% of the infrastructure projects spending relates to social housing and these do not enhance our productive capacity while the Rs8bn on assistance and support measures have expenditure attributes, with little long-term productive value. In terms of sustainability, we welcome the spending on beach protection, landslide and flood management as these are essential to adapt to climate change and to preserve the Country’s natural capital. As a low carbon emitter, the Country should focus more on climate change adaptation measures rather than emission reduction in its pursuit for a more sustainable Mauritius.
Whilst the Budget contains a myriad of measures, it remains principally socialist in nature. The Government announced an array of socially geared projects such as the upgrading of sports complex, community centres, health facilities, etc as well as the introduction of various income support allowances. Further, the pension allowance will increase by a further Rs1,000 and over Rs65bn will be spent on social benefits in the coming year; this represents an increase of 16% compared to last year and of 38% since 2021. The burden of the welfare state keeps increasing.
Overall, given the current inflationary environment, some of the measures may be necessary to curtail the loss in purchasing power of the population but the emerging handout culture is worrying as social objectives triumph over economic priorities, and we eat into our future (refer to figure 3).
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