It’s been 18 months since this government is in power and we hope you do realise that this ‘2e miracle économique’ mantra of theirs has proven to be a big hoax. At our expense! Again! Sigh…
There is something about our ruling political class that should never be underestimated but always somehow is; and that is their capacity to narrate a beautiful story during a political campaign and fail to deliver on their promises once in power. We’ve been conned into believing that economic growth can be delivered with a wand but the reality of things is that the magician has been ushered away. Can the rabbit still emerge from the hat though?
The dark side of populism
5.7% was the expected growth rate for the financial year 2016/2017 that was targeted in the budget speech last year. 3.7% is the expected growth rate for 2016/2017, as suggested by the Bank of Mauritius at their ‘extraordinary’ Monetary Policy Committee last week. Even after factoring in the anticipated fallout from Brexit on the Mauritian export sector and a slowdown in the global economy, that is still a very significant miss. To us, this is an unambiguous economic and political failure of this government. So, it is in this context of betrayal that Pravind Jugnauth will present his budget tomorrow. Goodbye Miracle, Welcome Crisis?
When the Governor of the Central Bank pre-empts the Finance Minister and cuts interest rates by 40 basis points a week before the budget, it certainly does not send a very reassuring message, does it? The truth is that the Mauritian economy faces some very serious headwinds going forward, and this unfortunately comes at a time when the economy is not in the best of shapes to face those challenges. The worst part being that despite our local economy only muddling through in recent years, no concrete bold action has been undertaken to address the structural issues undermining our economy. Because let us not fool ourselves into thinking that this sudden turnaround of fortune has happened overnight; we’ve written and spoken at length since 2005 about the need for important economic reforms in  Mauritius as well as the need to address our fundamentally flawed economy but strictly nothing has been undertaken along those lines.
The debt ceiling conundrum
In recent months, members of cabinet have been complaining about the fact that the indebtedness of the country is nearing a critical threshold and that, as such, the government is unable to run major budget deficits without endangering the perceived creditworthiness of the state. While they have been quick to point an accusing finger at the previous regime, it is perhaps worth reminding them that the MSM has been part of all governments since 1983 except for two occasions and that the PMSD is cumulating its third successive mandate at the Government House. In other words, if the country is about to hit its debt ceiling, much of the blame can and should be directed at both the MSM and PMSD. It is also worth reflecting on how our country has found itself in such a predicament. I mean, if we look around the island, there’s little to suggest that we are a country which is living beyond our means; our road infrastructure is a shamble, our education system dates from another century, public buildings are mostly in a bad shape, the water and electricity networks are poorly maintained and the list goes on and on. So, how come we are so indebted?
 The answer behind about our level of public indebtedness is a twofold story as far as we are concerned. On the one side, you have the very light tax regime, a vestige of Sithanen’s ultra-liberal policies from 2005, which creates a significant shortfall in the public coffers and which has to be financed by debt and then of course, on the other side, you have a ruling political class more interested in being served than serving, more at ease in pocketing daily overseas travel per diems of above Rs 30,000 than eradicating absolute poverty, obsessed with amassing personal wealth as opposed to maximising public welfare and last but not least, remorseless about placing family and friends and their legendary incompetence at all levels of the public sector.
The necessity for bold structural reforms
Coming back to the budget, the challenge going forward for public economic policy is to be able to extirpate the economy from its current lacklustre situation without being able to count on ‘fiscal largesse’. In so many aspects, Mauritius is mimicking the trajectory of many advanced economies and when we assess the situation of those advanced economies today, there are ample reasons to worry. The economic system of the West was a well-oiled engine relying on debt, marketing and its ensuing consumerism culture to return above natural growth rates for its economy; with debt levels reaching a ceiling at governmental, corporate and even individual levels, the capitalist model is finding it really hard to find a second breath and will have to reinvent itself going forward if it wants to avert collapsing.
This reinvention necessarily needs to go through a major restructuring of the economic and societal mind-set. For example, an effective minimum wage would go a far way towards creating some much needed dynamism in the economy – those short-sighted enough to suggest that it will hurt the economy should replace their limited microeconomic lenses with macroeconomic ones. We need to move towards a more integrated society with significantly lower disparity of income – blatant inequality is a retarded mindset but is also a major burden on systemic economic efficiency. Recalling that economic growth is the product of the amount of money in circulation and its velocity within a given period of time, we can easily deduce that the value of annual economic output will be higher in an economy which is vibrant and where income is relatively equal than in an economy where income is highly unequal and velocity of money is relatively low. This hypothesis is even more likely when debt is absent or debt levels cannot be increased – a situation we find ourselves in right now…
No more debt?
Lastly, if we are to take on more debt, let it be to invest in projects that will increase the productive capacity of our economy, and not in projects whose incremental economic impact will be neutral or even negative. In this context, the Heritage City Project is a farce as, beyond being a concrete elephant that the government can boast about at the end of its mandate, there is little economic benefit to be derived from it. Such projects are more in line with the narcissism of early Roman rulers like Nero, Trajan and Vespasian than with any real societal welfare concern. Do you realise that Roshi Bhadain was pushing for a project whereby foreign powers would have owned our parliament and ministries until we bought them back from them?  Delusional! The ‘Métro Leger’ project, on the contrary, can be a real game changer for Mauritius as it will significantly improve connectivity and productivity while also providing a boost to economic activity when completed; synonymous with an increase in productive capacity, a requirement of effective indebtedness.
We have been hard done by our political class since Independence – history will remember them as being an intermediate ruling political class who were more inspired by monarchy than democracy. Their legacy to the next generations will be a mountain of debt, a flawed economic system and an absence of vision. Pravind Jugnauth gets to shape his legacy tomorrow. Can the prince deliver?