2022-23 Budget Musings

The effect of the budget measures can be transient if government does not in parallel also rigorously ascertain that there are competent currency stabilizing measures in place, a more rigorous price control and price competition in the market

By Mrinal Roy

Finally, government has woken up to the urgent need to directly support the income of people to alleviate the increasing difficulties and hardships faced by them to make ends meet in a context of continuously escalating prices of food and basic existential needs and the sustained erosion of their purchasing power fuelled by the unchecked depreciation of the Rupee. The various measures proposed to raise the income of pensioners, the disabled and the vulnerable as well as government employees and the self employed, etc., will provide a welcome relief to consumers and allay the growing angst in the country.

However, the effect of these measures can be transient if government does not in parallel also rigorously ascertain that there are competent currency stabilizing measures in place, a more rigorous price control by the authorities and price competition in the market to protect consumers. This is crucial as any visit to diverse supermarkets shows that the prices of so many basic consumer goods such as cereals, milk, cooking oil, basic food items or sanitary products, etc., are uncannily similar.

In line with IMF directives, there were thankfully no exceptional transfers by the Bank of Mauritius to the government or opaque MIC funds to prop up the private sector and conglomerates for the 2022-23 budget. The Minister of Finance judiciously spoke of building back our depleted reserves. Finally, financial rigour seems to prevail after the IMF’s scathing indictment of such contested practices last year. What about accountability of those responsible and a transparent fact sheet on MIC funds and exceptional transfers received and used in the past year?

Drain on scarce resources

Despite committing an unprecedented Rs 11.7 billion over three years for a National Flood Management Programme last year to provide for effective drainage systems in identified flood prone areas, the 2022-23 Budget speech states that the people continued to face hardships due to major floods in different regions. An amount of Rs 3.8 billion is thus earmarked in 2022-23 to continue the National Flood Management Programme in an extremely long list of more than 100 locations spread over all the constituencies in the country and Rodrigues. This situation raises questions regarding technical expertise and understanding of the dynamics of water flow, engineering and design as well as workmanship and cost effectiveness of contractors. The country cannot afford to annually sink billions of Rupees of scarce public funds in drainage systems which repeatedly fail to resolve the problem of flooding.

The forecast of a growth rate of 8.5% is highly dependent on the performance of the tourism sector and a tourist arrival figure of 1.4 billion during the fiscal year and the yardstick of an additional growth rate of 0.6% per additional 100,000 tourists arrival. The vulnerability of an economic model highly dependent on the tourist industry and the construction and sale of high-end villas to foreigners was exposed in 2020 and 2021 during the Covid-19 pandemic. The crying lessons of an inordinately high dependence on these sectors have patently not been learnt.

Actual revenue

Despite strapped finances, the 2022-23 budget expenditure of Rs 172.9 billion is materially higher than the revised 2021-22 expenditure estimates of Rs 161,618 billion. The 2022-23 revenue estimate of Rs150 billion is also significantly higher than the revised 2021-22 revenue estimates of Rs136.485 billion. The budget hinges on actual budget revenue. It will determine the actual budget deficit at the end of the financial year.

* * *

Are sanctions backfiring?

Why should the developing countries and poor economies already reeling under the dire impact of the Covid-19 pandemic and climate change be now made to bear the brunt of a protracted war in Ukraine?

After more than 105 days of war in Ukraine, many burning questions are being raised by citizens in the US and the EU and people across the developing world who are the hapless collateral victims of the unending war, compelled to bear the brunt of rising food and energy prices and eroding purchasing power. Is the mano a mano between Ukraine, backed by the US, the EU and NATO countries, and Russia so highly charged that it is clouding rational thinking? Are the US, the EU countries and Ukraine so trapped in the daily spin doctoring of their war propaganda and narratives that they remain blind to the dire socio-economic impact of the prolonged war on their own citizens?

What is the logic of the EU voting a sixth package of sanctions on Russia when these cause energy and food prices in the EU to continue to soar, inflation to rise and recession to set in? Is the EU shooting itself in the foot? What is the rationale of the US and Europe sending tens of billions of dollars of advanced weaponry to Ukraine when this can only escalate and inordinately prolong the war, further increase the prices of food and energy causing tremendous hardships not only in the EU and the US but also to billions of people across the world and particularly in developing countries? Why should the developing countries and poor economies already reeling under the dire impact of the Covid-19 pandemic and climate change be now made to bear the brunt of a protracted war in Ukraine?

Inflation has reached 8.5% in US and is 8.1% in the Euro area. According to the IMF the war in Ukraine will ‘severely’ dent global recovery from Covid-19. It forecasts a global growth of 3.6% in 2022 and 2023.

Questionable gamble

The gamble of the US, the EU and NATO is to weaken and bring Russia on its knees through a prolonged war and more and more sanctions. After more than 105 days of war, this is far from happening. Instead, Russia has gained substantial territory including towns and cities in Donbas in south-eastern Ukraine. The prolonged war has caused tremendous destruction in Ukraine, more deaths and extreme hardships and distress to Ukrainians. It has also triggered a major humanitarian crisis as more than 14 million people have fled their homes and more than 4.8 million refugees have left Ukraine for Poland and other neighbouring countries, thus putting the capacity of these countries to cope with such a scale of refugees under extreme stress.

In contrast, despite the daily propaganda and rhetoric, the Russian rouble, after a significant loss in value in the wake of the initial wave of sanctions, has bounced back reaching a seven-year high and becoming, according to Bloomberg, the world’s best-performing currency in 2022. The Russian decision to demand that foreign buyers pay for the country’s natural gas in rouble or face an immediate embargo on supplies helped prop up the rouble.

Analysts say that three factors have been supporting the rouble namely ‘escalating oil prices due to sanctions, capital controls and a drop in dollar demand and excess foreign exchange liquidity due to high foreign exchange revenues from exports of oil and gas’. They add that ‘Russia has so far taken judicious decisions to withstand the effect of sanctions despite becoming more reliant on oil and gas as its main source of income’. However, the key question is whether the West will be able to weather its own sanctions.

Need for policy coherence

To make matters worse, the EU is looking for alternative supplies of highly polluting fossil fuels and coal to replace Russian energy from farther afield at a cost thus hiking oil prices and increasing its carbon footprint instead of using the opportunity to invest heavily in the production of green and renewable energy as well as new green energy technologies to significantly reduceits carbon emissions in line with COP26 commitments, to prevent the risk of a climate change disaster.

Every week, freak climate change events like flash floods and massive landslides, storms, extreme weather conditions including high temperatures, hail storms and thunderstorms in various countries across the world including Europe are a constant reminder that robust corrective actions have to be urgently takento address the potent climate change threats facing the world. There is therefore an imperative need for policy coherence.

Stopping the war

It is also high time for the silent caucus of developing countries who are not party to the war in Ukraine but whose people are bearing the brunt of rising energy and food prices and eroding purchasing power caused by the war to raise their voices against this proxy war of superpowers and demand that a peace deal be urgently negotiated by the two parties to put an end to the war. They should also ask for a similar scale of financial support to help mitigate the adverse impact of the war and the hardships endured by the people in their countries.

Mauritius Times ePaper Friday 10 June 2022

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