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Tuesday, April 16, 2024

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Increased Interest Rates Impact Both The Investment Plans And Attractiveness Of The Country Says Business Mauritius

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Business Mauritius has submitted a Budget Memo to the Ministry of Finance, in which it calls for labor market reforms to restore competitiveness and reintegrate an inactive workforce into the productive economy.

It is said that a major concern facing the economy is the high inflation rate, which was estimated at 10.8 percent as at December 2022 before rising further to 11.3% for the 12-months ending February 2023. Looking ahead, inflationary pressures are set to remain sticky considering: (i) the hikes in prices of agricultural products following the bad weather conditions; (ii) the ripple effects of the rise in tariffs applicable to electricity consumption; and (iii) pressures on the currency which have been sustained in 2023. However, these upward pressures may be checked by the potential pass-through of a significant drop of approximately 25 percent in global commodity prices and 18 percent in energy prices1. Average inflation rate globally is also expected to follow a downward trend – from 8.8 percent in 2022 to 6.6 percent in 2023, and further to 4.3 percent in 2024 – whilst still being higher than pre-pandemic levels.

Regarding Interest rates, it is noted that the Bank of Mauritius has successively increased the key repo rate by a cumulative 265 basis points in 2022 to 4.5% so as to counter inflationary pressures.  Increased interest rates impact both the investment plans and attractiveness of the country. Recommendations are made regarding improving the competitiveness and attractiveness of the country in this budget memorandum.

With regard to the labour market, the unemployment rate dropped from 9.5 percent in the third quarter of 2021 to 7.5 percent for the same period in 2022. Unemployment remains high among the female and youth. Labour underutilisation, estimated at 40 percent, should also be of concern while operators in most sectors now need to resort to foreign labour.

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