Pada’s budgets never held out any vision of our future. Budget 2024-25, another one of his budgets that will not transform the economy into a fully-fledged resilient trillion economy. Pada’s budgets are not tailored to meet the demands of the 21st century, including sustainable growth. His budgets have not outlined a path to prosperity but to disaster and crisis.
In what sense has Pada's budgets failed to deliver?
This budget is no different than the others. The profligacy that we saw while battling the pandemic had continued with the same emphasis on monetising the fiscal deficit and with quasi -fiscal expenditures and on immediate gratification sacrificing the need for achieving the right balance and carrying out the required reforms with a long term vision to put back the economy on track and pave the way for more robust sustainable growth.
Indeed as pointed out by many commentators a budget of “bits and pieces” with incoherent and restrictive policies that are either unequal to the scale of our economic and fiscal challenge or, as with his poverty reduction measures that are being constantly undermined by the rising cost of living or with its climate change agenda , likely to do more harm than good.( namely the sand extraction for beach nourishment and the removal of levy on PET bottles...)
Rather than securing the productive base in the early budgets that would have allowed more room for welfarism in later budgets without putting at risk our livelihoods via inflation and accelerated depreciation of the rupee , his budgets have had a single-minded focus, the massive reliance on populist measures .
Most of the measures announced in successive budgets for the productive sectors were for the gallery and merely cosmetic. The technology parks , start-up incubators that would have catalysed innovation and entrepreneurship never materialised , neither the projects in the emerging fields of AI, biotechnology, nanotechnology and renewable energy. This budget has added a new one to the long list of failed hubs -International Fertility Hub(sic)
Now, an nth blueprint for the development of Mauritius as a Fintech hub is being announced. Same thing about the digital & the pharmaceutical sectors, the oyster farms …and now, better late than never, after having sold out our GBC sector in return for Indian grants and loans, we are waking up to the reality that we have to engage discussions with the Indian authorities for the development of our financial sector….. Their rhetoric far outruns their policies.
Let’s have a look at his economic track record on key parameters. Indeed, there are plenty of shades of grey.
1. The focus on welfare to alleviate constantly increasing hardship resulted in the scenario that investment in productive and new sectors never kicked off. They failed to leverage the rapid technological changes to further growth via new innovative sectors while respecting environmental imperatives for sustainable development. No new pillars of growth, new engines of growth, were created over the past ten years. There have been no innovative sectors emerging. They do talk a lot about new sectors, but they failed in making them visible! Nothing was done to help these sectors emerge through technological support, professionalisation, capacity building, funding and other means !
2. In 2014, the Manufacturing sector’s share of the Gross Value Added at current basic prices, was 15.4% . In 2024 it is 12.9%. The promise of enhancing manufacturing share to 25% remains a pipe dream . Our manufacturing industry continues to face many challenges , including the maze of regulations, high logistics costs, lack of support and finance, lack of innovation and skills …the ease of doing business has changed very little, it has improved only on paper.
3. Their populist policies have turned all sectors upside down ; the most affected are the SMEs and micro-entreprises. Many SMEs have already gone out of business, and some have been forced to close down. Many of the surviving ones , vital to achieving productive employment and decent work and contributing to human-centred, green and inclusive growth, are suffocating-they have had to bear higher salaries, higher CSG, PRGF, higher interest rate charges , higher energy and diesel costs, costly raw materials. Inflation and the depreciation of the rupee have brought the worst. There is no longer any visibility as to the future. Many of these enterprises have over the years contributed in building up profitable competitive niche markets for the country, now their survival is at stake.
4. The exodus of our youth and skilled labour force to greener pastures abroad continues unabated. This regime has failed in creating good quality well-paid jobs and the proper environment for the development of our youth . Govt economic policies are in fact driving an increasing number of young Mauritians to seek employment abroad where they can find jobs so that they can lead a life of dignity. The young want good jobs not doles ..
5. A lack of broad-based private investment for sustained growth ; why has our the private sector not been forthcoming with investment in new sectors/pillars ? Because this regime has privileged a model of development that is providing them with a more than reasonable rate of return on the low hanging fruits. Our model of development , spurred by this regime, has led us to the phenomenon of what one of our top economist has termed “the gentrification in Mauritius”. Smart cities, the gated communities, the new schemes for the silver economy, the new residential schemes offered to foreigners have been springing up like mushrooms, accentuated by the liberalisation of the property market ; the local population is being displaced , pauperised and becoming a foreigner in his own land . And add to that the liberalisation of the labour market encouraging the corporates and the tourism , ICT/BPO, .....sectors to have recourse to relatively cheaper foreign labour at the expense of a wholesome human capital formation programme for our local labour force accompanied by higher wages reflecting their higher productive potential.
6. Failure to boost growth of exports and diversify the exports basket ; the export of goods is expected to register a mere 0.8% growth in 2024 . In constant terms it is just Rs 67 bn compared to pre-pandemic level of Rs 77 bn . For the past ten years, we haven’t developed more products of global standards at competitive prices and explore new markets and we have not fully exploited the CECPAs and FTAs with trade -positive economies.
7. Addressing skill mismatches . Employability remains a big issue. Our HRD programme is a failure. One of the key-reasons is the lack of industry-relevant skills offered in the training programmes. A lack of govt efforts to supervise and intensify industry’s role in skilling. That’s why IMF had recommended regular consultations with the private sector to ensure that the policies and programs are fit-for-purpose- not the useless training programs …
8. A deeper analysis of the BoP shows that there are reasons for concern. The worrying factor is that if we exclude the GBC transactions, the overall BoP balances show a totally different picture with record levels of deficits and as a % of GDP the current account deficit shoots up to an unattainable level of 13% in 2023. Such a heavy dependence on a volatile GBC sector may have a direct impact not only on our BoP and reserves but also on our domestic financial sector. We are already seeing a reversal of the present monetary policy stance at the global level towards higher interest rates. The tightening of financial conditions would trigger significant capital outflows, especially in countries with elevated debt levels. Our level of reserves is not sufficient enough to provide a sizeable buffer to these potential external shocks.
9. Dipping GDP growth and manipulation of GDP figures: Our failure to engage in structural reforms has hampered our efforts at “securing resilient and sustainable long‑term growth “. It’s only in 2023 that we finally surpassed the real GDP of 2019. Growth in 2024 is expected to be around 4.9 percent and is expected to fall back to around 3.5 percent in the medium term, more in line with pre-pandemic growth.
Budget 2024-25 brags of a strong GDP growth rate of 7 percent in 2023 and 7% for fiscal year 2024-25. Our readers are now well aware of the manipulation of the GDP figures by boosting net exports of services by Rs90 bn in 2022 and 2023, and thus overestimating GDP though this sizeable GBC adjustment and reclassification in the BoP data have not been carried out by the BoM.
Please note that for fiscal year 2024-25, despite claims of bringing inflation to heel, they have assumed a deflator of 6.0 as compared to 6.5 for the previous fiscal year . They are not only cheating at the real level but also at the nominal level. Why ? Because a higher nominal GDP means a lower Public Sector Debt(PSD) to GDP ratio.
10. Last but not the least important are the elevated levels of budget deficits and the Public Sector Debt. The consolidated budget deficit, inclusive of the Special Funds and the off-budget expenditures being camouflaged as equity participation, is 7% for FY 2023-24 and 6% for FY 2024-25. As for FY 2024-25, it may be higher than that. If they have not hesitated to manipulate the GDP figures to show higher GDP growth and lower levels of PSD/GDP ratios, we have reasons to believe that the revenue figures are highly overestimated. Please note that exceptionally this year, MRA has not yet published its Annual Report which usually bears a forecast of the tax returns .....Strange isn't it!
The show was on, the magician was on stage wielding his magic stick doling out voters-pleasing packages accompanied by grandstanding speeches, the clamour, the applause and the” tap latab” from the cheerleaders and the fawning sycophants….We had to barge in ripping off the curtains and put an end to this whole money illusion . The PARTY IS OVER…our magician has to come to terms to the half-truths and doctored figures that he has been being peddling. It is only when the tide goes out that we can see who had no trousers on. Pada has been caught without trousers, caught fudging the budget deficits and GDP figures.
These figures do make plain the severe distress the economy has and will be be going through . The foundations of our future is being laid on unsustainable ground. Sooner or later, we will have to confront the hard choices that we have not prepared ourselves for. Or whether we like or not, Moody's will force it down our throat.
It will not be plain sailing for the new Govt to put our house in order, battered that it is by an irresponsible regime bent on populist policies for short-term gains.
Our politicians should be careful about competitive welfarism , the compensatory logic which offers a tantalising alternative to politicians who need to respond to voter needs. Do not take the voter for granted. They should not forget what we have witnessing recently- how voters have succeeded in holding the autocrats like Modi, Andrej Babiš, Viktor Orban, Erdogan, and Yoweri Museveni to account, showing that their desire for development - for an economy that delivers for ordinary people like them -can trump the welfare splurge, the lollipops of competitive welfarism. The competitive welfarism being practised by all parties is a race to the bottom for the country.
