(Published in l'express July 2021)
Our Marxist old boy , our Chairman of the MIC, a skilled orator and famed showman with his flashy costume, fights back trying to justify the role of the MIC , despite criticisms from different quarters including the IMF. He argues that
(a) many affected companies and jobs were saved by drawing from the foreign exchange reserves of the BoM rather than letting it lying in US Treasury Bills with yields at very low levels,
(b) the MIC's mandate allowed it to channel funds for building future capacity and that their primary focus was the Mauritius economy of care and love not what profits the MIC and
(c) the investment committee did its job very efficiently in saving the affected companies and giving them some breathing space.
On point (a) we would have earned more , given the rate at which the exchange rate is depreciating, by not dipping into the foreign reserves and our international reserves level, as per the IMF’s reserves adequacy metric, had reached the lower bound of the adequacy range.
If all the external liabilities of the offshore sector were included in the ARA (Assessment of Reserve Adequacy) metric to take full account of the liquidity risks associated with the foreign currency funding of banks, the reserves level would be too low . We had every reason to accumulate further reserves to build stronger buffers against external shocks, in view of the large size of the global business sector. The widening external balance, and deteriorating external competitiveness are also worrying. IMF had also recommended that we also adopt insurance mechanisms such as swap arrangements or credit lines by the Bank of Mauritius with other central banks to deal with large adverse financial shocks. There would thus have been a lesser need to have recourse to costly external borrowing-given the downward presure on our exchange rate, a direct result of our "unconventional monetary policy " or in more common parlance, our "helico money"!
On point (b), our flashy Chairman shrewdly distracts us from the main issue. The IMF never questioned our use of funds to save livelihoods but it believes that is for government not the Central bank to “ take on a much-enhanced activist role in the economy”. IMF even notes that “for an effective modern industrial policy, state support should be driven by a broader effort to address market failures that prevent new activities from emerging. " Such an agenda is not within the mandate or expertise of a Central Bank tasked with conducting independent monetary policy.
Our pedantic Chairman, does not even discuss why financing should not be provided through the budgetary process ? Why govt should not raise money from the market to fund MIC and especially, on why is it not preferable that credit resources be channeled to viable firms through banks, with Govt providing targeted credit guarantees as this would also mop up excess liquidity ?
On point (c), our ex- professor of the Oxford University and its board of Directors including the first and second Deputy Governors of BoM cannot be said to be more conversant with the nitty-gritty of specialised investments and projects than other institutions like commercial and development banks and investment management firms . He cannot be judge and party at the same time; his claim of having done a good job as per the MIC's mandate, we believe, would require quite some solid evidence which will need to be substantiated to be able to weigh heavily in the balance of public opinion.
This govt is not known for its transparency and accountability , we will wait with impatience for all the papers relating to the applications and examination by the Investment Committee which our Chairman has promised us will be available for public consultation.
Our theoretical Marxist Chairman does not care about the IMF and its views. This does not seem to be the opinion of many African countries who have recently approached IMF for financing, policy advice, capacity development, and debt relief.
Our neighbour Seychelles, has just signed a $107 million arrangement under the extended fund facility of the IMF to help support the country’s economic reform programme. The macroeconomic reform programme with the assistance of IMF was to primarily address the serious balance of payments and external debt difficulties. These are reflected in the latest Fitch Ratings, released in May 2021, where Seychelles was given a grade 'B' with a stable outlook.
No, your lordship, we cannot go by your advice, it’s a question of our economic survival, otherwise we will end up being rated junk status by Moody’s !! Indeed, IMF matters, because its country assessments influence decisions of investors and economic operators, as well as credit rating agencies. Another credit downgrade by Moodys will send our banks into junk status, which could spark capital flight and precipitate a financial crisis. We are too dependent on the offshore financial sector for our external financing needs.
Please note that Govt is aware of the importance of the views of IMF and Moodys, and the Ministry of Finance has just set up a committee, according to press reports, to handle all matters relating to Moodys ratings. Govt has expressed its broad agreement with the IMF’s main views, as indicated in the IMF Staff Report, except for the role of the MIC. Govt agrees to the need for fiscal consolidation and pension reform, a review of the monetary policy framework and greater exchange rate flexibility.
Well, Govt cares about many of IMF’s views, if not all. To adopt a more anti-IMF stand than Govt is akin to being more royalist than the king. His lordship should restrain himself from voicing extreme views that could have disastrous consequences for a small economy that is highly open and externally vulnerable.As long as there is no rethinking about the alternative to the present economic model, IMF dictates will prevail
