The Minister of Finance recently expressed an exuberant optimism about exports of goods and services of Rs292 bn in 2022 representing an increase of more than Rs80 bn over 2021. He also boasted of a real growth rate of 7.2% leading to a record GDP level of Rs550 bn in 2022, and crooned ecstatically of “un phénix qui renait de ses cendres”.
The minister is striving frantically, but ineptly, to portray a deceptive view of the state of the Mauritian economy. He chooses to focus on exports of goods and services, but fails to mention that imports of goods and services are estimated by Stats Mauritius at Rs350 bn in 2022, or about Rs90 bn higher than in 2021. The deficit in net exports of goods and services will thus deteriorate further by Rs10 bn to around Rs60 bn in 2022, representing over 10% of GDP.
The current account deficit, which is a broader measure comprising the net balance on goods and services, as well as on primary and secondary income, is estimated at over Rs75 bn, or a record high of 14% of GDP in 2022. Despite the tourism recovery, the estimated current account deficit of USD1.8 bn in 2022 is much higher than the pre-Covid figure of USD0.7 bn in 2019, mainly due to worsening terms of trade from higher food and energy import prices.
The deterioration in the country’s external position is putting heavy pressure on the foreign exchange market, despite informal exchange control measures to restrict forex supply. BoM net foreign reserves declined by USD2 bn over the year to around USD5 bn at end Oct 22, and the BoM had to intervene massively in November to ease forex pressures.
The widening gap between our export earnings and our forex needs for growth reflects a major economic vulnerability. Net export receipts in US dollars of export-oriented enterprises and of travel and tourism services are battling to recover to 2019 levels. There is no option but to restrain our consumption and investment needs while we seek to improve our export potential in the medium term. For a start, Govt must contain its propensity for non-priority and populist expenditures, and ensure fiscal and debt sustainability.
In 2022, GDP will amount to Rs550 bn in nominal terms, boosted by rising inflation. However, after allowing for inflation, GDP in real terms in 2022 is still at 95% of the pre-Covid GDP of 2019. In US dollar terms, GDP in nominal terms in 2022 is at only 85% of 2019 GDP. Relative to 2019, the economy is still struggling, and GDP will not recover fully to the pre-Covid level before 2023, in rupees, and before 2025, in US dollars.
Independent forecasts of GDP growth in 2022 range from 6.2% to 6.7%, lower than Stats Mauritius, while the IMF’s projection is even lower at 6.1%. Fundamental structural weaknesses limit the potential for raising GDP growth above 3% annually in the medium term, especially as the size of the population and the workforce are set on a declining trend.
An already sizeable number of Bangladeshi and other low-skilled foreign workers are employed in the country, while the private sector complains about labor scarcity, notably in the hospitality and in financial services. The youth unemployment rate stands at 25%, and the migration of young Mauritian professionals to more welcoming skies is turning into a mass exodus.
While the official unemployment rate has declined marginally, Stats Mauritius highlights the extent of labour underutilization, estimated at 204,300 in 2021, comprising the unemployed (48,400), the underemployed (141,000), and inactive but potential labor (14,900). Underutilized labor represents a fifth of the population above 16 years, and more than a third of the labor force.
More politically driven employment in a bloated and inefficient public sector is only increasing labour underutilization. Instead, an effective programme to equip underutilized labor with the requisite higher skills, as well as better pay and working conditions in the private sector, would be a far more productive use of fiscal resources.
Tourism recovery will lead the economy back to stable but weak growth, while foreign investment in real estate contributes poorly to raising productive capacity and sustaining high growth. The phoenix is not rising, but marooned in the throes of a moribund economy, soaring inflation in double digits, excessive fiscal deficits with public debt at 90% of GDP, crippling labor shortages, worsening external imbalances and a looming foreign exchange crisis. Mais, tout est pour le mieux dans le meilleur des mondes.
