Most of the proponents, with one exception, have pressed for the need to reduce the cost of living via cash grants and vouchers to the needy, to remove taxes on petroleum, lower the impact of the depreciation of the rupee, provide for more employment for the youth, for housing, .. but very little on how to achieve these without blowing up the budget deficit and debt levels further, sending us on a similar trajectory as that of some nations like Sri Lanka, Pakistan, Kenya, Maldives, Bangla Desh..that had to turn to the IMF and other governments for financial assistance.
Why ? Is it likely to be only a temporary reprieve ? Or are they just playing out the same old tricks of avoiding the “short term pains for long term gains “ issues. Indeed on the medium and long term measures , which are less controversial and less likely to affect their vote banks ,they were so eager to spawn a plethora of policy initiatives that will map out our course for the future – from measures to spur the traditional sectors , help it move up the value chain in the production of goods and services, increase the technological linkages in the economy ..etc .. and measures to encourage more investment in innovation, to reduce our import dependence and improve our Africa Strategy etc
Well done guys, these are indeed interesting suggestions – though it may lack coherence-that will no doubt help to boost our long term economic growth trajectory …
But can we afford some of these short term measures now, with our unsustainable levels of budget deficits and public debt ?
With an economy where
• govt expenditure have risen to some 33% of GDP, while Govt revenue has remained stable at around 24% of GDP.
• the current level of public debt is considered as elevated and unsustainable by Moody’s, the credit rating agency, and by the IMF.
• there is a pension financing gap given that Govt is committed to another substantial pension increase by 2023-24
• the Central bank is failing to tighten monetary conditions and conduct a more effective anti-inflationary policy.
• a further downgrading by Moody’s to Baa3 is possible in the wake of further debt deterioration. Such a downgrade will have serious implications for the stability of the banking sector, as most banks will inevitably be rated less than investment grade,
the only short-term meaningful reforms that our political figures are proposing are the Fiscal Responsibility Act and measures to control “le gaspillage et la mauvaise gestion”… Is this a joke ?
With the continued fiscal deficits, inflation is putting more pressure for social spending, and the scope for reducing recurrent expenditures other than social benefits and employee compensation is limited. The expansionary fiscal deficit is mirrored in a higher current account deficit which puts added downward pressure on the rupee. Fiscal consolidation through revenue measures and spending cuts is critical !
And there are increasing risks to a stabilization of public debt in view of the political difficulties in reining in public spending or increasing taxation, unless substantial foreign grant assistance can be obtained from friendly countries. And we all know that the absence of any fiscal correction measures will weigh negatively on next rating assessment- a downgrade by Moody’s could destabilize the financial sector, and lead to capital flight. Thus it cannot be ruled out that the uncertainties of the global economy as well as the rising vulnerabilities of the domestic social and political situation could well contribute to a collapse of market confidence, and eventually precipitate a foreign exchange crisis.
Are our political people not aware of these ? Do we have any other way out besides the implementation of politically painful measures, such as pension reforms and capital spending cuts ? Does it mean that they will also postpone fiscal consolidation by counting on more printed money, equity sales, and emergency grant assistance from friendly countries ? Why are they not being frank about the measures needed to restoring economic balance which rests on tough fiscal and monetary measures, and that Govt must resolve to change course and ensure that the country lives within its means.
Fortunately we have Mr Stephen GuA of ReA who is candid about the need to raise taxes and is openly critical about “notre système actuel qui favorise la vente d’actifs, dont des terres pour des projets immobiliers destinés aux étrangers, sans considération pour la souveraineté alimentaire, les réserves d’eau potable, la reforestation ou encore les besoins sociaux et agricoles.”
ReA has a holistic approach intent on build the strong macroeconomic and institutional underpinnings required for a new growth trajectory on the strong pillars of a caring economy, of the proper use of land for food sovereignty, ecological restoration, an integrated concept of housing, leisure and backyard gardening, organic agriculture, proper water management, the necessity of collectivizing lands , “le développement économique à travers la production utile” (not supportive of expensive infrastructure projects that do not produce major economic returns.)…and among others, the regional initiative of an Indian Ocean Solidarity and Cooperation Community, which will inevitably help our geographically proximate sub-regions of countries to more effectively deploy their factor endowments.
Gradually as the population see the certainties of their world fade away and the resulting inequality of economic outcomes strips away the democratic veil that hides the true workings of our model of development from the majority of citizens, the people of this country will realise that there are alternatives to our present model of development which is neither desirable nor workable.
Alternatives which are actually far more resilient, sustainable and inclusive, far more oriented towards achieving quality growth than the race to the bottom and far more targeted towards improving happiness and welfare indices rather than the Doing Business indicators. Under these alternative models, the “umuganda mauricien” , --THE CARING ECONOMY -is realizable. That is what inclusive economic and social strategies are all about.
