The Governor of the Central Bank, at a ceremony marking the migration of ABCB Holdings to the official market of the Stock Exchange of Mauritius, was harking back again on the ‘extremely difficult’ monetary legacy left by the previous administration. He was referring to the printing of Rs 186 billion, divided between the government (Rs 93 billion), the Mauritius Investment Corporation (Rs 81 billion) and four state-owned companies (Rs 12 billion).
How ironic, Mr Governor, it seems that you have being given a taste of your own medicine by the very people you had advised to settle for ”helicopter money” while ensuring us that inflation would not be a problem. A valuable lesson ,Sir, for our technocrats who should have favoured hard facts and economic logic over careless unsound advice, be it from a LSE golden boy.
The Governor also mentioned that the measures taken have stabilised the rupee and claimed that there is still a backlog in foreign currency availability. Which backlog ?
There is a persistent shortage of foreign exchange despite the measures taken by the BoM regarding the operations of the foreign exchange market. While an increase in interest rates was needed, most of the BoM FX measures are perceived as hindrances to the good functioning of forex markets, leaning towards more exchange restrictions and impeding the free convertibility of the rupee.
Blaming the backlog for the chronic FX shortage is like missing the forest for the trees. Excess FX demand is the result of a structurally high and rising external current account deficit, standing at 4.6% of GDP in 2023, 6.4% in 2024, and expected to rise to 7% in 2025. The trade deficit, or the excess of imports over exports is the main driver of the external imbalance, and largely reflects the high fiscal deficit.
The BoM is misleading the population by creating a false impression that the rupee can be stabilized once the backlog is cleared. In the short term, forex scarcity will be resolved and the rupee stabilized only by reducing the demand for imports though appropriate fiscal tightening.
The chest-thumping about success in stabilizing the rupee vis a vis the US Dollar is not justified. The rupee appreciation against the US Dollar largely reflects US Dollar depreciation on global markets, as the US Dollar has been weakening since mid-January this year, by over 6.5% to date.
Yes, Governor, the shortage of FX is not the result of any backlog but of a present “log”-the persistent yawning current account deficit.
A Governor being more responsible than a politician -known for being a master crafter of the right sound bite-would not resort to deluding us with the false hope of having stabilised the rupee and deceitfully reassuring us that the shortage of FX is just temporary not the consequence of a structural deficit in the economy.
This is precisely what our Governor is guilty of- making false promises. This may be acceptable from a politician but not from a Governor intent to deceive by trying to weave a tangled web of fallacies around us with his so-called backlog in the availability of FX .
This is similar to the approach he took with the MIC ! with fallacies of so-called"confidentialités"
However, our Governor will undoubtedly explain why the government is proposing to investigate and audit IFCM, which has invested approximately Rs 4 billion, but not a proper, independent audit of the MIC, which has made private sector investments exceeding Rs 25 billion?
