In his latest interview to Business Magazine, Payadachy exuberantly asserts that in the year of the "Tiger," “la confiance est là…2022 sera l’année de l’accélération de la reprise “. In Chinese mythology, the tiger was called upon by the Jade Emperor, the ruler of heaven, to exorcise the demons- the purging of evils.
But our Pada fails to live up to the mascot of this year - the tiger- in terms of showing courage, ferocity and fierceness in combating the evils of the depreciation of the rupee, soaring inflation and the gargantuan debt. In the interview, he skilfully skirts around these issues !!! Pada’s fantasy about building confidence in the economy - of rousing euphoria in the business community– is by ignoring or downplaying the problem; it will ultimately go away.
Some economists, having a contrarian view, are already pointing out that 2022 is more likely to be “ l’année de l’accélération de la depréciation de la roupie et de l’inflation”.
He is so carried away by the exuberance of the 6.6 % growth for 2022 that he makes some general assertions that are not convincing. Much of it is just hot air !
• The apparently high GDP growth rate for 2022 rests largely on the low baseline in the previous year and the contraction in 2020 has not been overcome.
• We need not be so jubilant about a growth of 6.6% , as we also need to keep in mind that even with such a growth rate this year, the size of economy will still below pre-pandemic levels. (95% of the 2019 GDP level in real terms)
• Rather than crow about the magnitude of the recovery which is usually expected to be high after a dip in growth, what we need to enquire is whether the data do offer signs of a durable or sustained recovery? There are still signs of concern as many of the crucial sectors have not bounced back (in real terms) to pre-Covid levels- Sugar cane, Manufacturing, Electricity, Construction, Wholesale and retail trade and Real estate. As for the tourism sector, we are still in the process of improving our air access; expenditure per tourist has not picked up as well as the length of stay; internationally, "as per the latest World Tourism Barometer issued by the United Nations World Tourism Organization, a majority of experts now expect international tourist arrivals to return to their 2019 levels only during the course of year 2024 or later”.
• Recovery is likely to be sustainable when the two drivers of growth, consumption and investment, are revving up considerably. (For instance, private consumption is very likely to lag its pre-covid-levels because of inflation, unemployment and the slow growth in household income already burdened by debt, which is quite discouraging.) We will need to assess the performance in the next two quarters to confirm if it's a sustained recovery.
• Our Pada persists with his Big Budget Bluff on public investment in innovation and new technologies and the ambitious projects like the Côte d’Or Data Technology Park , Pharmaceutical Industry etc, Govt was aiming at a public sector investment of about Rs50bn in 2021/22, the same as was targeted in 2018/19 and in 2019/20. The average implementation rate on public sector investments, according to Govt’s own budget figures is only slightly over half, or 55%. Thus it is likely to achieve only the same, almost constant, level of public sector investment as in previous years, i.e., about Rs25 bn , if not less, given the likely imposition of a reform programme by the IMF. With the recent hike in social transfers and the PRB award, public investment will again take a blow; the increase in recurrent spending will again be realized largely at the expense of capital spending. There will be no major increase in public sector investments in for 2021-22, nor for the ensuing fiscal years.
• The IMF in its Jan 2022 update of the “ World Economic Outlook, titled “Rising Caseloads, a Disrupted Recovery, and Higher Inflation .” warns us that “ supply chain disruptions, energy price volatility, and localized wage pressures mean uncertainty around inflation and policy paths is high. As advanced economies lift policy rates, risks to financial stability and emerging market and developing economies’ capital flows, currencies, and fiscal positions—especially with debt levels having increased significantly in the past two years—may emerge.” Thus, monetary policy in many countries will need to continue on a tightening path to curb inflation pressures, while fiscal policy—will have to operate with more limited space than earlier in the pandemic. Our CB will be left with no other option but to tighten monetary policy even if it means slowing down economic growth; with global central banks turning hawkish on interest rates, we will need to make sure BoM moves in step with them or risk seeing the rupee depreciate further against other currencies and
• Lastly, please note , that producer prices must certainly be higher than what Statistics Mauritius is currently factoring in for the GDP deflator, which means that the real output growth would be lower than 6.6%
Pada argues that “ nous avons mis sur la table 32 % du PIB. C’est la quatrième plus forte réponse mondiale à la crise, comme l’a justement souligné la Banque mondiale. Alors, à ceux qui n’ont de cesse que d’être dans la négativité, je les réfère aux propos de Mario Draghi : «Ce que nous faisons a un impact, même les mots, même les adjectifs. Et comprendre cet impact signifie avoir une grande responsabilité».
But what is even more interesting is what Pada doesn’t tell us- the severe but well-deserved rap on the knuckles from the IMF. He tries shrewdly to divert the issue to the level of our public debt. (Both the overall fiscal balance and burden of govt debt in relation to GDP is much higher in Mauritius than in peer countries in Sub Saharan Africa)
“Pour surmonter la crise, il est clair que nous n’avions pas d’autre choix que de laisser temporairement filer la dette. Les organisations internationales, que ce soit le FMI, la Banque mondiale ou l’OCDE, ont d’ailleurs plébiscité cette stratégie.’
Our Pada knows very well that was not the issue; you recall the exceptional Rs 60 billion of money creation by the BoM to finance the higher budget deficit .That was the issue-the monetary deficit financing -as opposed to Quantitative Easing(QE) by many countries-was met with disapproval from the IMF . The IMF considers such financing as a last-resort mechanism, when it is not possible to obtain enough financing from any other source. “Moreover, it should be on market terms, restricted in time, and with an explicit repayment plan over the medium term.” IMF had cautioned us.
Une grande responsabilité, vous dites ! Not even an iota ! He wove a whole web of deceit to dupe us all and to cover his trickery and irresponsibility. He bluffed us with his big scheme of raising funds -Rs 60 billion-from the market! The CB had even issued a communiqué promising to raise the funds through open-market operations. The changing explanations of the BoM about the financing of the transfer of Rs60 bn to Govt show his irresponsibility towards financial market operators by undermining the governance, independence, and credibility of a foremost institution like the Central Bank. Thus , in response to the pandemic and in coordination with BoM, our Pada was instrumental in deploying policies that led to a substantial deterioration of the BoM’s balance sheet and undermined its price-stability mandate going forward.
It is important for our Pada to show that the regime's weak leadership is not suffering from vision deficiency –“En tant que ministre des Finances, mon objectif premier est de défaire ces inégalités en procédant à un rééquilibrage à travers des réformes économiques structurantes, progressives et redistributives. Le tout pour impacter positivement la croissance économique.”
Instead of having an economic helmsman on board with a clear vision on the need of the hour, we are dealing with a MOF whose structural and inclusive policies could be summed up as "populist measures to score some quick wins". These populist measures did deliver , not in terms of structural reforms that would help to contain 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 and they continue to stick to the same economic philosophy believing that they could grow out of debt without structural reforms. He has even less of a clue as how to tackle his economic mess.
“There is no alternative to fiscal restraint for tackling the debt burden. Muddling through with populist policies to win elections will inevitably reach a foregone conclusion, as inflation takes hold, reducing purchasing power and the real value of debt along with pensions, weakening growth, and increasing poverty, inequality, and social instability.”
That’s the Pada’s way of “défaire ces inégalités”, he allows corporations to create the rules they play by, ending up subsidising them at taxpayers’ expense while the average Mauritian is mostly left to fend for himself or given a mere pittance . His irresponsible policies of financing the high budget deficits with transfers from the BoM, are inevitably resulting in runaway inflation and a sliding currency. Many of our citizens are now living close to the edge; food and fuel prices could become enormously destabilizing. If these prices keep soaring, food and fuel could indeed reshape our politics .
Our Pada concludes on a jubilant note that ” je me réjouis de voir que les résultats sont déjà là, et qu’ils sont même supérieurs à ce que nous nous étions fixés comme objectifs initiaux. Ainsi, la dette du gouvernement qui été de 87,2 % en juin 2021 est aujourd’hui de 80,9 %. C’est une diminution de près de 7 points de pourcentage en l’espace d’à peine 6 mois ! “
No, my dear Pada, you seem to have a problem at properly discerning complex issues; as pointed out by one of our top economists, “ even when a high public debt ratio is stabilised, the critical issue is whether it is sustainable, which depends on future outcomes on interest rates, growth rates and primary fiscal balances, as well as other debt-creating flows.” ….”But there are still limits to how high debt can go, and these limits are tighter in emerging markets”. A comparison with emerging market countries show a Govt debt to GDP ratio of 65% in 2021, against 90% for Mauritius. “Their debt ratio increased over the pre-Covid level by 10 percentage points, while the corresponding increase for Mauritius was 16 percentage points”.
There is no need for knee-jerk responses or any celebration for some few percentage points reduction in our debt level which is still too high. They have mortgaged our future with their incompetent economic management and irresponsible policies.
We are still far off the road to recovery; the road ahead is nothing less than arduous . New fears of further depreciation of the rupee, runaway inflation and the piling of debt now stalk the market which will continue to rub the sheen off the economy’s future prospects.
