Titbits : Budget 2014 ; The Central Bank’s Macroprudential Measures; The Poverty Trap

Budget 2014 arouses at best mixed feelings. It attempts to give the impression that under a very difficult economic environment, the Minister of Finance has been able to walk a very tight rope to achieve fiscal consolidation and at the same time try to boost economic growth and improve living standards. It includes various measures which are positive and which we approve of. But the budget is also deceitful as it has concealed the negative aspects while highlighting the positive measures.

Titbits: MOFED: The merger Revisited ; The NAIRU Debate: Growth and Unemployment; Tackling the real estate bubble; The Budget: Prioritized expenditures

MOFED: The merger Revisited

Although the merger of the Ministry of Planning and Economic Development (MOFED) with the Ministry of Finance was announced in December 2003, efforts at an effective merger of the two cadres started in 2006. The whole idea about the merger emerged with the priorities set out in the 2000-01 New Economic Agenda.

The State of our Public Finances

If we want to comment on the state of our public finances, a cursory look at the budget balance as presented by the Ministry of Finance (MOF) is not enough. We need to go deeper.  First of all, we need to consolidate the figures;  the off budget funds-the Special Funds- will have to be integrated to the budget  to generate adjusted comprehensive fiscal aggregates.

Current Account Deficit: All is not well

(Published in Business Magazine No. 1009, 18-24 Sep 2013)
It has been quite some time that we have been chanting that "all is well", persisting with our business-as-usual attitude and ignoring the fact that the external current account deficit (CAD)  remains our biggest worry today – and  one of our most pressing macroeconomic challenges.  It is better that we start doing something about the CAD  before  the crisis comes knocking at the door.

Titbits: The inflation v/s Growth Debate ; The Right Policy Mix; Inflation Risks; Weak Monetary Transmission Mechanism; Effect of PRB awards on Inflation.

The Inflation v/s Growth Debate

As slipping growth accentuated recently, the Ministry of Finance (MOF) and the Bank of Mauritius (BOM) have found themselves increasingly at odds and the MOF looked to the Central Bank to reduce interest rates to provide a fillip to growth. The view that the MOF is for growth and that the Central Bank is obsessed with price stability is a simplification. Similarly, reference to policies of central banks across the planet and their “forward guidance” strategy to try to justify one’s pro-growth position is illogical and absurd

Titbits: The ESTP ; The Poverty Issue ; Cost-effective Social Transfers ? ; The Evil of Inflation and Inequality.

The Economic and Social Transformation Plan: a non-starter
(Published in MTimes and in L'express 01.09.2013)

We recently had the opportunity in the context of the seminar on the ‘Country Strategy Paper – Mauritius’, presented by the African Development Bank, to listen to the arguments of the Financial Secretary (FS) on the Economic and Social Transformation Plan (ESTP). It was in reply to the few well-chosen barbs of his earlier mentor, Mr R.Sithanen, with respect to the present state of policy paralysis, the absence of any meaningful reforms and the lack of development of opportunities for new sectors. The FS failed to convince us. After having held the country to ransom for seven years with its short-term incoherent and uncoordinated policies and undermining all attempts to set up an independent full-fledged planning unit, it is not the last-minute elbowing to pull out a summarily concocted 10-year plan -- the famous ESTP -- that will convince us that the Ministry of Finance (MOF) can carry out high level thinking, innovative policy making and planning.

Titbits : Tinkering at the edges; Fiddling with the HBS figures

Tinkering at the edges
(Published in L'Express August 2013)

As we go through another round of downward revision in our GDP growth rate, the easiest explanation for our lack of resilience is to blame the adverse conditions of the global economy -- the aftermath of the recession and the ongoing euro crisis that has affected growth across the world. The growth slowdown now deeply entrenched across most of the sectors of the Mauritian economy is merely a symptom of what ails Mauritius -- not the problem. A large part of the problem is the policy inertia on the domestic front.

PRB: Compensation for improved service delivery?

(Published in MTimes and in L'express 05 June 2013)

The Minister of Finance is saying that the Pay Research Bureau (PRB) will be costing us yearly some Rs 9000 per worker. This statement does not allow us to form an opinion as to whether the compensation of about Rs 5.6 billion rupees to the civil servants is justifiable; the PRB award is a combination of compensation for the loss of purchasing power and for the improvement in the productivity of the public sector worker .We have to examine the rewards of government workers vis- à -vis their output or their service delivery. So the discussion should not be focusing on what it costs to the economy or the taxpayer but whether the compensation to the civil servant relative to his improved productivity is excessive or not? Does he deserve it?

Titbits: A new dawn: fantasy or reality ; Ministry of Finance: A gradual demerger ; The Underground Economy; The socio-cultural rogues

  A new dawn: fantasy or reality

As we time travel to 2050 and beyond, the “big” small island unravels itself as a “model of sustainable growth that is equitably shared and with a high score in the Human Development Index. Relative poverty has disappeared. ….. The country that outshines all others on the world map stands out in term of facilities” -whether it is public transport or the Light Rail Transit , IT connectivity, trained workers and specialists or innovation and research . It also has a vibrant cultural and night life in world class cities that exhibit its wealth of diversity, its soulful art and trendy architecture, high urban living, choicest gastronomic offers and varied landscapes. ( “Born in 2013” in L’Express 50 ans avec le Pays- 27 April 2013”). Everyone can have his own views about the future. The future belongs to those who believe in the beauty of their dreams. You need to have the courage and conviction to walk the talk, regardless of the obstacles that will lay strewn in your path.

Titbits: A road map for the financial sector; As Growth putters !!! ; All authority and no responsibility;Teaching Entrepreneurship.

 

A road map for the financial sector

We have been overwhelmed recently by a volley of bold claims that Mauritius is establishing itself as a regional financial centre-a gateway to the emerging world or that is perfectly positioned between Africa and Asia to become a financial hub which can be counted on in the Indian Ocean region. Are we providing the financial sector the means to play this role ? A road map for the sector is long over due; we have been waiting for a reengineering and modernization of the sector since 2006 with aim of transforming it into a financial services sector that is characterized by speed and continuous innovation; a sector characterized by its increasing ability to leverage capital markets, specialized skills and technology to innovate and create new products, processes and services; these are the prerequisite to being a sustainable premier financial centre that has both width as well as depth.

Financial Regulation and Crime

Published in Le Mauricien, 11 April 2013

Following the blowup of a financial scam and the crackdown on unlicensed investment activities by the regulatory authorities concerned, namely the Bank of Mauritius and the Financial Services Commission, an interesting exchange of crossfire has taken place in the media, involving the ministry of finance, and the current and former BOM Governors.   The present BOM Governor was quick to direct his diagnosis towards legal and regulatory gaps, especially between the BOM and the FSC. The Ministry of Finance, for its part, felt it was premature to pin the blame on legal shortcomings, while the rumblings from Government appeared instead to reflect dissatisfaction with the FSC's role, rather than the BOM. A former BOM Governor authoritatively supported the notion of regulatory gaps, while another shot it down to pieces without any equivocation. 

Growth first !!!

From the minutes of the 29th Monetary Policy Committee (MPC) Meeting of the 11 March 2013 , it seems that we are being taken for a ride by both the Ministry of Finance (MOF) and the Bank of Mauritius (BOM). The fiscal policy/monetary policy regime influences the depth and duration of downturns and time for recovery. With growth clocked at an average annual growth of 3.5 % for the past five years, is it not  time to review the country’s growth strategies?- Growth must come up first.!!! To the Governor of the Reserve Bank of India, Dr Duvvuri Subbarao’s concern that a Central Bank must be responsive to the needs of the downtrodden,( in its  pursuit to rein in inflation) there is also  the argument that growth is the right potion to lift the poor out of poverty , be it directly through government programmes or indirectly through a trickle down. But how long will the general public accept low growth and its manifold impact?

Titbits: FDI: Best practice policies; Tourism: catering to our new customers; Opportunities missed; Mauritius as a Centre of Higher Learning: Challenges ahead.

 

FDI: Best practice policies

In 2011 around 80% of the inward Foreign Direct investment (FDI) went exclusively to the real estate, construction and accommodation sectors. In 2012 we do not think it differed much with the exception of an inward investment of Rs 3 billion from the Barclays Bank that rescued to some extent the FDI figure for the year. These are one-off investment; it does not in any way boost our export potential or enhance our productivity and flexibility. There is no transfer of technology or know-how or any multiplier effects on the economy especially for the IRS projects that are not integrated to the tourism industry. More recently there have been efforts at diversifying FDI inflows - a timely shift from concern about quantity flows to the quality of FDI . By quality we mean high-value added FDI or FDI that have positive linkages and spillovers effects for the domestic economy.

Titbits :CT Power and MID: The Vision ?; A Cacophony of Figures ;The National Strategic Transformation Commission (NSTC) revisited; Zone d’Education Prioritaire (ZEP): A different approach.

CT Power and MID: The Vision ?

After the all-out “bétonnage” of the island, the commercial centres, the IRS and the obsession with road construction without any concomitant reduction in road congestion, we can look now forward to be asphyxiated by higher levels of emissions from more coal-fired power plants which are likely to be greater than that from all cars, trucks and other forms of transportation combined. When thick dust and black soot start coating the fresh green of our majestic flamboyants, mangroves and sugarcane fields, they will be sounding the death knell of our idyllic island. It will no longer be “un plaisir”.

Titbits: Depreciation of the Rupee; Wrong timing - The trip to Maldives; Quality institutions make a difference; Tablets for Form IV -a Challenge; Disciplining the medium.

Depreciation of the Rupee.

The IMF report ‘Mauritius External Balances from a Long-Term Perspective – May 2012’ notes that “… using cross-country panel methodologies as well as single country time series techniques, we estimate that the Mauritian Rupee is mildly overvalued with respect to fundamentals. Nevertheless, there is significant uncertainty about the size of the overvaluation.” And recent data on real exchange rate show that between 2007 and 2011, the real effective exchange rate (REER) appreciated by 18%; in 2010 and 2011, it appreciated by 3.2% and 6.2% respectively.