This Friday, the Minister of Finance, Renganaden Padayachy will present the 2021-2022 budget for the country. This is the second budget in the wake of the health crisis. The world is going through some extremely difficult times, and it would require magic to present a budget for the country that will be accepted by the whole population.
The Mauritian economy is based on four pillars: tourism, textile, the financial sector, and the sugar industry. Tourism has been in a bad position from the start of the pandemic and with Air Mauritius under voluntary administration, one wonders how to attain the financial results pre-Covid without a national carrier.
The textile industry was already in a bad shape prior to Covid-19. Nowadays, with the negative impact of the pandemic and the sharp devaluation of the Mauritian rupee, this sector does not offer much competition in terms of the prices of raw materials and the freight expenses that are skyrocketing.
Financial services are at the center of the hurricane. Mauritius has been cited in several gray and blacklists. On top of that, our tax incentive no longer holds up with tax changes happening at the global level. It is rather difficult to see how Mauritius might regain its leading place in this sector.
It is quite a challenge to predict the country’s growth rate with this second confinement and our borders still being closed. Without significant growth, the important question is how to maintain social benefits. The heaviest scale on the balance is the old age pension. The World Bank is already advocating draconian and politically difficult measures to take. With the aging population, one wonders if the government of Pravind Jugnauth will be able to keep its electoral promises regarding the pension or if it will ultimately have to lower the universal pension age to 65.
Another major concern is the indebtedness of the country. As of December 31, the public debt included debts of the central government in the order of Rs 327 billion and Rs 34 billion for state enterprises, of which nearly Rs 30 billion has been guaranteed by the government. Public debt is likely to increase if we consider all the Special Purpose Vehicles launched by the government to finance projects such as Metro Express and Safe City.
And worse, we also have the threat of another downgrading by Moody’s, which would push the country into bankruptcy and force major banking institutions to sink into sub-investment grade.
Finally, this Friday, we hope that the Minister of Finance can find the solution. He must start cutting the crazy spending of the Mauritian state. We need projects that will lead to economic development and recovery, and not prestigious projects.
