Concrete and coherent alternatives that are both desirable and workable

Many of us have often proposed alternative strategies -see my “The chance of a real rethinking of our economy” published in l'express of the 13 Oct 2020. And recently P.Kugan of the ReA , V. Ancharaz of the MMM and the party Lalit have made enough of contributions for an alternative economic model for our economy to meet its future challenges- for e.g agro-processing, the ocean economy, renewable energy, the digital economy, land democratization, import substitution, food security, the fishing industry ,….while integrating environmental constraints etc. Many,however, are not convinced and there are still doubters. They are thus not convinced that these alternatives/proposals are better than what we have at present.

Our short economic history has been characterised by policy continuity based mostly on a model of export-led growth and a tax-centric economy. It is only recently that this ‘growth coalition” model between the family-dominated political elite and the island’s few families-dominated economic elite is being questioned .

It is a model of development that has been imposed upon us and many Mauritians no longer subscribe to it. It is a model that cannot extricate us from our current low-growth trap because it encourages private sector connivance with the public sector resulting in rent-seeking activities, restrictive markets and crony capitalism.

How can we talk about self-sufficiency in food when our strategic land assets are being sold to foreigners instead of being put to productive use? There is also no coherence in our policies for a more optimal utilization and sustainable use of land and other natural resources, the development of our coastal regions and protection of marine life, agro-industrial production for food security and a thriving fishing industry.

Another characteristic of this model is that its policies have remained too Eurocentric, and have thus been hampering our diversification strategies in markets and products. The tourism sector, our Africa and IT strategies are paying the price today. We are still trapped within the box of the old policies and the old ways of thinking.

Digital technology is moving at a fast rate often driven by the private sector, leading to doing things in new ways: more bottom-up, more plugged into outside networks and with a greater willingness to accept the risk of failure. But here our private sector is slow to move things up a gear. Where are the new emerging local and global digital services industries? Is our family-dominated private sector too conservative, too claustrophobic to open up to top IT firms from India, Korea, China and other Asian economies?

Another issue where the growth coalition fails us again is on the protection of our environment. Yes, it is true, as pointed out in a recent study of the World Bank, that a one percent increase in temperature lowers growth in the same year itself by 0.9 percentage points. But there seems to be some double standards on these climate change concerns. If I am not mistaken, it is our very private sector which was trying to negotiate a 20-year contract with its growth coalition partner, the Government, for electricity generation from coal, as it knows that bagasse may not be around for long. Who has been encroaching on our wetlands and public beaches and sending hooligans to tame down protestors?

Many Mauritians have become aware that we cannot continue to espouse a model where a sizeable proportion of our population is still struggling to make ends meet, inequality has continued to rise, youth unemployment stays high, women remain significantly less active in the labour market and economic growth is flowing disproportionately to the wealthy.

As pointed out by one of our regular economic and political commentators, we are in the process of fleshing out the main outlines and aspects of the alternative model. It will take shape in its own time; it’s much harder than being just a Bretton Woods’ poster boy ; but we are convinced that together we will be able to frame an improved model with such policies, programmes and strategies that would secure a more inclusive and resource-efficient economy and where the rising tide of economic growth lifts all boats, not just the super yachts. Let the doubters doubt, it will not stop us!

While our doubters do not have any doubt about the mismanagement of the economy which is very much linked to how the levers of the socio-economic model are manipulated by the ruling elite and its lackeys to their advantage, they seem to be in no man's land about the direct central bank lending to the government-the monetary deficit financing.

With widening fiscal needs, and limited finance to save lives and livelihoods, were there no alternatives to tapping the central bank for emergency funding ? -a type of unconventional financing to government which was jeopardizing the CB’s long-term effectiveness and undermining its commitment to contain inflation, “with potential longer-term costs for the most vulnerable segments of the population”.

Whenever we have hard choices and risks to the popularity of the incumbents in carrying out the required reforms, the economic elite, the intelligentsia and their newspeak, have always imposed upon us the tyranny of “no alternatives”. There is no alternative- the TINAs. We have been through this before, let us examine together whether there are concrete and coherent alternatives that are both desirable and workable-Alternatives which are actually far more resilient, sustainable and inclusive and far more oriented towards achieving quality growth.

Let us go first through the main elements of the mismanagement of the economy.

• First , they did not get their priorities right-that is a more focused prioritized investment expenditure in the economic heart of this country – science, engineering, ICT, technology and innovation –to become a high-skills, high-tech economy. Instead they were relying on untargeted and non-prioritised capital spending and higher consumption to get the economy going . But their whole narrative about the impact of capital spending on the economy contained some serious flaws. We have said enough about those prestige projects which were not priorities of the day.

• Second, they did not provide for more fiscal space to meet the priorities which will generate future productivity growth. Their populist policies had rattled an already fragile economy and brought it to the brink of a crisis. Their populist measures did deliver , not in terms of containing the elevated levels of the budget deficit or public debt or in getting the economy out of the trough , but in scoring quick wins at the last elections.

• Third, they had recourse to monetary deficit financing. Why was such financing so attractive to them, least bothered about the negative impact of accelerated depreciation, capital flight, and a hike in inflation? Because having already increased our debt to elevated levels by their irresponsible populist policies, such money-financing of the increased government spending suited then as it was not being paid for by issuance of new government debt to the public. Thus, it did not increase public debt. Why care about the consequences when it serves their purpose of continuing with the populist ideology that came to dominate the years preceding the last general elections and after.

• Fourth , the expansionary fiscal stance was not sustainable over the medium term. Our planned fiscal adjustment, as detailed out in the Medium Term Fiscal and Debt Management Strategy to meet the debt target, was too amateurish and it affected our policy credibility. Fundamental policy adjustments for fiscal consolidation and debt sustainability,through growth friendly revenue mobilisation, and curbs on recurrent expenditures was being postponed indefinitely

• Fifth, our exports were facing strong headwinds including a loss in competitiveness. We persisted with such short term remedies or giveaways like the 40% reduction in air freight costs to Europe and the Exchange Rate Support Scheme. Besides being distortionary, they were poor substitutes for structural reforms to address the emerging cost competitiveness challenges.

• Sixth, implementation capacity constraints within the public service and across sectors had not improved. The glaring instances of inadequacies in concept, design, execution and monitoring of projects, cost overruns, unforeseen delays, and the technical and legal proceedings that have far-reaching effects on projects, have continued year after year to mar the implementation of capital/infrastructure projects. And the is also need to upgrade the system of evaluation of projects and programs which is quite weak in many ministries. Evaluation generally takes the form of financial audits. Few examples of engineering and quality control assessments for major capital projects exist. Similarly, there are rare examples of cost effectiveness studies.

• Last, we are suffering from an ethical and governance deficit. Our trust in this government and most of the institutions that frame our society, captured by the cronies for their own profits, are being eroded. Instead of well-functioning, trustworthy and independent institutions adhering to the rule of law and more of social justice, we see a prevalence of hollowed institutions and state capture; and this had started undermining the country’s hopes for future growth and development. The backlisting of the financial sector , for example, has much to do with the non-existence of supervision of the non-financial sectors, especially of casinos, bookmakers and gambling activities, to combat money laundering. This only confirms the symbiotic relationship of the regime with the gambling industry and a gaming mogul and the gambling mafia which has already infiltrated our institutions. As part of the efforts to get us off the blacklist, a complete review and overhaul of ICAC and other law enforcement agencies is badly needed to boost the country’s effectiveness in tackling drug and financial crime

We are living beyond our means, but Instead of mending our profligate ways – our excessive social largesse via our populist measures- we used creative accounting devices to mask our fiscal and debt realities and activated the central bank’s printing press without any restraint. The regime’s dance party was coming to an end. The chickens had to come home to roost and the jackasses have nowhere to turn and wouldnʼt know how to turn anyway because they have never tried to turn in the first place.

What were the alternatives ?

In the grip of a severe crisis, as Covid-19 , we needed to provide short term financial support to keep businesses afloat, safeguard employment and provide assistance to retrenched employees and those most affected by economic hardship. Provisions had also to be made for emergency healthcare facilities to handle the sick and contain contagion. Thus, there was an urgent need to provide for a broad-based fiscal stimulus consistent with available fiscal space. But our elevated levels of the budget deficit and public debt constrained the scope for espousing as such a hefty fiscal stimulus.

Rather than going through the gymnastics of routing through the BoM to contain the increase in public debt, government should have financed its budgetary needs directly from the market while adopting a consitent and credible programme of urgent policy reforms showing its seriouness to carry out (in the medium term ) the necessary fiscal consolidation measures that would be generating enough of fiscal space to produce the savings required for additional Government spending.

What are these fiscal consolidation reforms that are being carried by most of the emerging market and sub-Saharan economies, that were continuously ignored by our policymakers?

• Domestic revenue mobilisation: increasing the progressivity and coverage of personal income taxes, increase the role of property and environmental and the introduction of new taxes like inheritance taxes, etc. We could also put in greater efforts to rope in the informal sector and tackle tax evasion and the illicit financial flows.

• Streamlining expenditures: curtailing current expenditure growth by cutting back on lower-priority items, better targeting of social spending and reforming the national pension system; prioritising public investment that are more conducive to growth, in particular by increasing the share of public expenditures on productive investment in human capital not neglecting technical and vocational training, increasing public investment efficiency and the quality of public procurement and reorienting recurrent expenditures towards expanding health care capacity and safety nets and restructuring of public sector undertakings, including disinvestment.

• Accompanying reforms:

implementing major productivity-driving measures aimed at promoting industrial competitiveness , encouraging innovation and creativity and directed at other key drivers of growth .

Reintroducing a functioning performance budgeting that secures delivery of government’s major domestic policy priorities. No significant budgetary and expenditure reforms are likely to succeed unless a robust and functioning accounting, reporting, monitoring, evaluation and implementation facilitator/delivering system is in place, including an upgrading of the system of evaluation of projects and programs

• Transparency and good governance and accountability: The persistent governance failures has aggravated public sentiment further against the political class. There are rising aspirations of citizens for better governance and greater accountability and transparency. We will have to address these issues more widely and broadly than ever before. Improving transparency and accountability can ensure that limited funds are helping the people who need it most. The latest damming Audit report shows how again and again that wastage and unnecessary expenditures have continued unabated. With the revival of performance budgeting there is an urgent need to prescribe , among others, a well- defined set of incentives, sanctions and penalties to ensure compliance-sanctions, institutional and personal, that are : (a) pre-specified, (b) commensurate to the offence and (c) non-discretionary . We’ll have to move to a higher plane of openness and trust, and, above all, a new sense of commitment to moral and ethical values. if we want to see progress, good governance has to be driven and nurtured. The good example must come from above.

• A credible macro-economic and fiscal framework; Our whole storyline of the budget, as detailed out in our medium term fiscal framework, of restoring fiscal discipline and debt sustainability must be convincing and credible -not the usual over-optimistic projections of planned fiscal consolidation which seem to have been drawn on the back of an envelope. And when we are not able to meet the debt target, we should not attempt at moving the goalpost some more years further down the road or manipulating the Public Sector Debt figures or even adopt a more convenient definition that will lower the Public Sector Debt figures, it affects the credibility of our targets and the whole fiscal exercise and vitiates our resolve for greater fiscal responsibility and discipline and compliance to accepted global standards of fiscal governance.

If we are willing to act more decisively and responsibly there is always a better alternative that gives us the means to face the economic realities and compels us to make the right but tough decisions in the trade off between short-term pain and long-term gain. It is a better option to peddling illusions and taking the country to its doom.

6Nalini Burn, Rajiv Khushiram and 4 others

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