Le PM not aware that GDP grew by 3.1% not 3.6% in 2019. !

On PM’s speech on the Budget 2020-21 at the National Assembly:

IF you get more and more institutions stuffed with incompetent loyalists, you not only end up being not "au kuran" about important things going on in the country but you also make a fool of yourself.

The 2019 growth rate:The PM in his intervention today, trying to ridicule the leader of the MMM, fell in the same trap that the "servient " Statistics Mauritius" was laying down to others in terms of its parsimony of figures in the latest National Accounts statistics.

Statistics Mauritius had published the National Accounts figures for the 4th Quarter 2019 . The GDP growth figure for 2019 at 3.1% is downplayed. And the only explanation for the lower growth figures for 2019 is this one line: “Gross Value Added (GVA) growth rate for 2019 is estimated at 3.1%." It seems Govt wanted to conceal the fact that the economy was going into free fall even before Covid.

Statistics Mauritius, supposedly an independent institution, is playing the obedient poodle. All the country’s institutions are engaged in a ferocious competition to demonstrate their obsequiousness and they end up fooling their master who is still believing that the growth rate for 2019 is 3.6%.

Printing money

This obsequiousness and the incompetence of his advisers are leading the PM to utter totally erroneous statements in the National Assembly. First is his statement, in trying to ward off criticisms of money printing, that many other countries are doing the same. His advisers seem to be confused about quantitative easing and our type of permanent injection of liquidity in the system by printing money. The grant of Rs 60 billion by the BOM to Government by crediting the Govt’s account at the central bank is the worst type of money creation, without any check and discipline.

The level of foreign reserves:

If it was only servility and incompetence, we would have understood , it goes even beyond that . They stooped so low as to play fast and loose with extracts from IMF Art IV 2019 Report. On this IMF observation “ While the stock of international reserves is within the advisable range, given the large and complex structure of the GBC sector, reserve buffers could be strengthened further.... ” they selectively chose the bits that support their point of view carefully omitting the remaining of the sentence.

Moreover, the IMF report also mentions that “ ……. Given the large size of the offshore sector, however, FX intervention policy should continue to opportunistically build reserves to further strengthen resilience.”

And the other omitted bits of the report include the following ……… “As noted in earlier staff assessments (Country Report 16/89), however, the large size and complex structure of the global business sector, and its strong linkage with the real sector, warrants stronger buffers against external shocks. In this respect, and considering the substantial overvaluation of the currency, further reserve accumulation may be desirable, while considering insurance mechanisms such as swap arrangements or credit lines with other central banks, alongside addressing the structural bottlenecks to boost competitiveness."

The fallacy on capital spending:

From 0% growth in 2016, the constrution sector has been growing at an average growth of 8.5% during the past three years and public investment had reached 5.4% of GDP in 2019. They had banked on the prestige projects to boost growth. On the contrary growth slowed down to 3.1% in 2019. 

Again, they are relying on capital spending to get the economy going again. But their whole narrative about the impact of capital spending on the economy contains some serious flaws. The first flaw is that the country does not have the sufficient absorptive capacity to carry out such an ambitious public sector investment programme. The second flaw is that the investment multiplier in the short run is not likely to be high because (1) more than 75% of the inputs will sourced from outside (with such high leakages we cannot expect a high investment multiplier) (2) most of the investment multipliers for urban infrastructure in Small Island Developing States (SIDS) tend to be low in the short term and lower than multipliers in the export or the manufacturing sector, and (3) especially in the case of SIDS, such investments tend to have temporary multipliers because they act more on the demand rather than the supply side and this leads to important leakages through imports. 

This government is employing a whole bunch of advisers to lie to us, via the PM, on the economy’s growth rate, on what other economies are doing to reboot their economies , on the desirable and recommended stock of international reserves, on the huge list of capital projects to uplift us back on the path of recovery.

5Kugan, Elisha and 3 others

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