Titbits: Budget 2013: The need for clarifications; Prospects for 2013; Monetary policy: what next ?; The recent NESC Report.

 Budget 2013: The need for clarifications

The summing up of Budget 2013 by the Minister of Finance (MOF) in the National Assembly left many of our queries unanswered, namely, on the size of the budget deficit, the special funds , the lack of overall coherence and the stop gap measures. It could have been an opportunity to discuss the economy, talking it up and be more precise on the measures planned to stem the downslide in growth. We expected strong signals that the policy paralysis that has gripped MOF is over, that important changes were going to be announced to counter some of the criticisms and which would have resulted in swifter policy execution. Instead we just got illusions wrapped in cheap rhetoric.

Budget 2013 : Thinking Small

It is unanimously acknowledged among economic analysts that  lacklustre Budget 2013 is devoid of a credible path of reform and the building blocks for realising a better future. We have been served the same recipe once more- the ones that have not offered a more cohesive explanation for the problems or any real solutions.  A coherent, credible and holistic plan for the long-term economic growth rate of the country is absent despite all the built up on the 10-year Economic and Social Transformation Plan (ESTP).

Titbits: Revving up economic growth; Budget 2013: A better use of Special Funds ; Indian Diaspora - Doing business together .

 Revving up economic growth

The latest forecast by some economic analysts of the real growth rate of the Mauritian economy settling down to a slow pace of 3.0 %  for 2012 points to a gradual collapse in our growth performance. It is lower than the 3.4 % posted by the Ministry of Finance which seems to have lost some credibility as their growth predictions have continued falling way off the actual figures. But the Mauritian growth has been going off track as its small open economy is being uncoomfotably exposed to the global meltdown. On 9 October, the IMF released its World Economic Outlook which painted a gloomy picture of the global economy.

Titbits: Overvaluation of the rupee !!!; Our proposals for Budget 2013; The PRB award: a futile exercise ; A strategic rethink of the tourism sector.

Overvaluation of the rupee !!!
Over the past three years in these very columns we have been highlighting the fact that the rupee (REER) was misaligned but at the same time we did point out that while the Bank of Mauritius( BOM) has obsessively focused on maintaining interest rates and stabilising the rupee to contain inflation, it has also alerted to the dangers of relying unduly on a falling rupee to stimulate economic activity.

Policy Paralysis

 Modified version published in L"express, 12 Oct 2012

Titbits: Policy Paralysis; Where are we with the NSTC?; Loosening monetary policy to revive growth !!!; Budgetary figures: Some Rs 10 billion in Special Funds; A financial services centre of substance.

Policy Paralysis

The world economy retains deep scars from the collapse of the western banking system in 2007-09.  Advanced economies’ debt crisis remains unresolved. These economies are in once-a- generation seminal process of deleveraging; debt reduction -- private as well as public -- still have years to run, acting as a drag on growth long into the future.  The emerging markets’ economies, the engine of global growth so far, are slowing down appreciably. Domestically the situation is not so desperate but the economy is obviously not in good shape.

The Supplementary Appropriation Bill: Some comments

The additional spending of Rs 6.1 billion in the 22 progarmmes of the PBB 2011 estimates had to be covered by a Supplementary Appropriation Bill.  In his intervention on the Bill the Minister of Finance reminds us that “ the bulk of the Rs 6.1 billion has been used to provide adequate financial resources for the National Resilience Plan. This is a rainy day fund totalling Rs7.3 billion at end December 2011, created in order for our country not to be caught unprepared with the continuing Euro zone crisis. This prudent measure of unequalled size in our history has received universal acclaim, and is one of the factors cited by the ratings agency Moody’s for our rating upgrade from Baa2 to Baa1.”

Titbits: Double-standards at the Ministry of Finance; Strengthening of Planning; Programme-Based Budgeting (PBB): Some Improvements; No need to shoot the messenger.

Double-standards at the Ministry of Finance

The 2011 Director of Audit’s Report shows that wastage and unnecessary expenditures have continued unabated. It is unacceptable that at a moment where everyone was bearing the brunt of the continuing global and the consequent local slowdown, the Ministry of Finance (MOF) was profligate with taxpayers’ money doling out some Rs 21 million rupees in overtime over the last three fiscal years

Titbits:The Mauritius-India Investment Route; MTPA-Greater accountability required; Moody's Investors Service upgrade !!!

The current visit of the Mauritian minister of foreign affairs to Delhi will set the stage for resuming talks on the Indian tax treaty in August.  Our negotiating position has been considerably weakened by the introduction of the General Anti-Avoidance Rules (GAAR) in the Indian budget earlier this year, and the draft GAAR guidelines issued last week have confirmed our worst fears of potential override of tax treaty provisions.

Titbits: The sliding rupee; A faltering tourism sector; Service to Mauritius and the Capacity Building programs .

The sliding rupee

It is now clear that the rupee is finally depreciating. During the last week, the US dollar weakened somewhat against the euro following the Spanish bank bailout and the Greek elections, but the US dollar has continued to strengthen vis à vis the rupee. Since the position of the Governor of the Bank of Mauritius (BOM) on preserving the rupee's value is well known, the possibility that the decision to depreciate has been forced upon the Bank by the appointees of the Ministry of Finance on the Monetary Policy Committee (MPC) cannot be ruled out.

Titbits: Opportunities missed; The monetary policy pause ; Innovation-led growth; Capital inflows.

From austerity to lower trend growth: Opportunities missed

 In the heat of debate that has followed the Central Bank Governor’s announcement of bold measures to correct the misalignment of the rupee, some of the arguments put forward by the Governor seemed to have been sidelined.  He has put the spotlight back on the lingering policy paralysis and structural constraints that are taking the rupee to lower levels. 

Titbits: Export competitiveness;The NSTC- Whose turf?; The Project Management and Delivery Unit ; Improving education outcomes; Reactivating the Indian Ocean Rim Association for Regional Cooperation

Export competitiveness

Competitiveness is an imperative, not an option in today’s global economy. For analyzing the competitiveness of the manufacturing sector, we have to examine the changes in Unit Labour Cost (ULC), that is, not only labour productivity growth but also the growth in the average compensation of employees. ULC measures the remuneration of labour per unit of output. 

Titbits:The National Strategic Transformation Commission; The Cost of Lower Public Debt to GDP Ratio; Managing Capital Inflows;Labour Market Reforms; MK rescued again and again!

The National Strategic Transformation Commission

After some six years of bumping into systemic dead ends, the Government Programme 2012-2015 took the bull by the horns by coming to the rescue of the economic management of the country. We have so far been having recourse to stopgap solutions and focussed mostly on short-term traditional macro-stabilization policies. But that is not enough for establishing a solid base for sustained economic growth and get the economy going again at full blast.

Titbits:India-Mauritius Tax Treaty; New Reforms Strategy in the Civil Service; Capital inflows and appreciation of the rupee; A University for the Mediocre

India-Mauritius Tax Treaty

The radical taxation proposals contained in the recent Indian budget have raised considerable alarm about the ability of Mauritius to maintain its pre-eminent role as an offshore location for investments into India. In response, the Mauritian Government has adopted a wait and see attitude, probably on the premise that the Indian Government will backtrack on the proposed tax changes in the presentation of the Finance Bill in the Indian Parliament during the last week of April, under the mounting weight of harsh international criticism of the retroactive nature of the tax amendments and of the sweeping taxation powers accruing under the tax avoidance rules.

Titbits: Offshore Financial Services - Time for a New Strategy?; Whatever happened to the Central Bank’s independence?; Mexa clamours for a Ministry of Planning; Overvaluation of the rupee.

Offshore Financial Services - Time for a New Strategy?(Published in L'Express)

Last week's tax proposals in India's 2012 Budget appear to be a definite game changer for the development of our offshore financial services. While investors from Mauritius will continue to be entitled to the benefits afforded by the provisions of the India-Mauritius Double Taxation Avoidance Agreement, especially to avoid taxation on capital gains incurred in India, the practical availability of such benefits will henceforth be subject to a host of bureaucratic impediments that go with the introduction of comprehensive General Anti Avoidance Rules (GAAR) in Indian Income tax legislation as from April 2013.

Titbits:Theatre of the Absurd: The Planning dialogue; Growth-oriented push; Public Enterprise Reform;The Quality of Tertiary Education

Theatre of the Absurd: The Planning dialogue

Trying to catch up on Development Planning after wasting some five years chasing short-term goals, the Ministry of Finance and Economic Development (MOFED) has embarked on an ambitious planning dialogue for a “Ten Year Economic and Social Transformation Plan” on a wrong note. The planning dialogue looks like a theatre of the absurd.

The strong rupee- refocusing the debate

The recent public debate on the strong rupee missed three essential points.

1. Large capital inflows: Firstly, the falling Euro only partly explains our appreciating exchange rate. As from 2007, the large capital inflows have more than offset the widening trade and current account deficits resulting in Balance Of Payments (BOP) surpluses. There has been a continuing build-up in foreign reserves and upward pressure on our Nominal and  Real Effective Exchange Rate (REER).

A case for demerging planning from MOFED

On  the MID project , food security, energy and water issues, industrial development policy and more recently the national debate on the reform of the CPE, the Minister of Finance had very little to contribute. On most of the issues of national importance they are totally absent - on their own web site, in board meetings,in meetings with line ministries, on the sectoral plans , with the IMF and World Bank and other consultants, you name it !!!