Economist and member of Rezistans ek Alternativ

A lot has been said in recent days about the decision of the government to have recourse to the Special Reserve Fund to repay part of the debt of the State held in foreign currency. The raging debate has mostly been about the implications of the central government raiding the reserves of the Bank of Mauritius for fiscal purposes and whether such a move in effect jeopardises the independence of the Central Bank. Having an independent Central Bank within a financial system is indeed a prerequisite for a resilient economy. To recall, most Central Banks around the world nowadays have a dual mandate of achieving sustainable growth and maintaining price stability within the economies they are overseeing. Any impediment to the fulfilment of such a mandate should ring the alarm bells and be ferociously opposed by all. So, is the decision to use the funds in the Special Reserve Fund an impediment to the mandate of the Bank of Mauritius and by extension an impediment to the sacrosanct independence of the Central Bank?

The answer lies in the definition of the term ‘independence’. If independence means that the central government should not, in any case, interfere in the operations of the Central Bank, then there may well be a case for impediment. However, given the fact that the Government of Mauritius is the sole shareholder of the Bank of Mauritius and that the BoM already transfers some 85% of its annual profitability to the Consolidated Fund of the central government, it will be hard to argue that such a notion of ‘independence’ is relevant. Will the repayment of a portion of foreign currency denominated debt from the Special Reserve Fund impede on the ability of the Bank of Mauritius to pursue its dual mandate of sustainable growth and price stability? That is worth pondering upon. Given the existing provision in the Bank of Mauritius Act for the State of Mauritius to issue debt to fund the Special Reserve Fund should the balance of the Fund be insufficient to cover any net unrealised losses in any financial year, the debate about the impediment created by the use of the Special Reserve Fund to repay foreign currency denominated debt appears futile.

Expertise in the field of economics and monetary policy…

If we really want to have an informed debate about the independence of the Central Bank of Mauritius, there are more interesting avenues to focus upon. Take for example the nomination of directors to the Board of the Monetary Policy Committee (MPC). In the United Kingdom, each member nominated to the Board of the Monetary Policy Committee needs to have expertise in the field of economics and monetary policy. In contrast, as per the Bank of Mauritius Act, anyone with recognised experience in the field of economics, banking, finance, business or law is eligible to sit on the MPC. As such, we have had entrepreneurs and lawyers being elected to the Board of the MPC as per the whims of the Prime Minister. In the United States, candidates endorsed by the President for a role on the board of the Federal Reserve require a vetting from the Senate before being nominated on the board. In the recent past, two individuals endorsed by President Trump were rejected by the Senate and hence could not become members of the US Federal Reserve. In Mauritius, it is up to the Prime Minister and the Minister of Finance to choose who shall sit on the Board of the MPC without any provision for checks and balances. Isn’t it revealing that over the last sixteen quarterly meetings of the MPC, starting 6th April 2015, the MPC has reached unanimous interest rate decisions on fourteen of those occasions? Have members of the MPC become rubber stamps for the Governor of the Bank of Mauritius? By comparison, on the sixteen quarterly meetings pre- 6th April 2015, unanimous decisions were reached on only six occasions, with the Governor of the Bank being on the minority side on many occasions.

Coming back to the issue of having recourse to the Special Reserve Fund for debt repayment, it is imperative that politicians and the media ask the right questions and address the real issues. Having an interview with a frustrated ex-Governor keen to settle his scores is hardly the way forward. The funds in the Special Reserve Fund can be thought of as the piggy bank of the Republic. With the Mauritian Rupee ever depreciating since independence, the gains from holding hard currencies and gold as part of the reserves of the Central Bank was somewhat of a silver lining which could be thought of as a safety net during troubled times. With Pravind Jugnauth reaching for the country’s piggy bank, we ought to have a reality check. Has any one of us ever gone for the contents of our piggy bank? Anyone who would have is certainly aware of the dire situation one would have found oneself in at that particular moment. You break the piggy bank when you do not have any other solution! It is kind of a measure of last resort. And that is the reality that we ought to wake up to. The ballooning debt metrics of our country has left us with no place to hide. How could we ever let that happen? How? Pravind Jugnauth might not be jeopardising the independence of our Central Bank but he is shattering our piggy bank. And this is even worse. For once the piggy bank is gone, vulnerability sets in. By repaying part of the debt with the country’s piggy bank, Pravind Jugnauth is only kicking the debt can down the road. He is merely postponing the day of reckoning. What will we do the next time? How will we repay the debt then? Will we have to sell the family’s jewels? Shall we have to privatise the port and the airport? Shall we have to lease some of the territory of Mauritius? Shall we relinquish part of our maritime territory?

Revenue generation

Hearing the parliamentary opposition denounce the sad state of affairs is pathetic. They all have a hand in the current situation and anyone thinking that any one of these parliamentary parties have the answer to our problems is well and truly delusional. The Finance Curse which has destroyed the society of Caribbean islands like Cayman Islands is at our doors. Light fiscal regimes can only weaken the sovereignty of nations which are dumb enough to embark on such irresponsible journeys. We get the impression that we have been debating in recent days over whether the use of ‘paracetamol’ instead of ‘panadol’ is an adequate remedy for a patient who has got debt cancer. We ought to focus instead on how to prevent the patient from entering a terminally ill stage. Debt arise as a result of overspending and/or limited revenues. For the State of Mauritius, it is a matter of both. While the elite-driven lobby has focused on the spending side of things in recent times with their relentless campaign to tackle the universal old age pension scheme, they have, for obvious reasons, systematically refused to address the revenue generation side of things. The Tax/GDP ratio for Mauritius stands at around 20% with the poor carrying most of the burden – indirect taxes make up 75% of fiscal revenues! In developed countries, including the likes of Germany, France and Nordic countries, the Tax/GDP ratio stands at above 40% with indirect taxes amounting to less than 50% of the fiscal mix. The low fiscal regime applied to the wealthy corporates and individuals is irresponsible and any decent policy shaper is aware of this. In addition to fueling an unsustainable debt spiral, it also results in a low-quality offering of public services including public education, public health and public infrastructure amongst others.

Mauritius badly needs a political revolution! The status-quo tables need to be overturned. None of the actual parliamentary political parties can offer that revolution, given their enslavement by the elite. One does not bite the hand that feeds one. So, we cannot expect those political parties that rely heavily on political donations from the private sector and wealthy individuals to come forward with policies that will go against the agenda of the elites. In light of this, the Mauritian population needs to decide whether it wants to sit at the same table as the elite when it comes to electoral choices. Or whether it wants to have its own agenda and its own table! For as long as the Mauritian dream will be to send our sons and daughters abroad after their studies to settle down and start a new life, this country will be heading for the doldrums!