Budget 2019 -2020


By M.K.

A budget is important if it reflects the vision statement of the government and sets out a clear direction to achieve the goals set out in its three- to five-year development plan, as well as presents strategic thinking and concrete decisions to help the country face many of the short- to long-term economic challenges. These include measures to help the economy fight its way out of the prevailing difficult international environment.

How far does Budget 2019-20 meet these objectives? What are measures proposed to strengthen growth that has plateaued to less than 4%? Are the excessive budget deficits being brought under control?

Employment creation is too low, it is even negative in 2019, what is being proposed to boost employment and reduce youth unemployment rate which has peaked to 25% for those below 25 years? what are the short- to long-term policies to counter the threats to the main sectors of the economy-sugar, textile, tourism and financial services?

In 2019, net exports of goods and services are expected to reach an all-time high of 15% of GDP, how does the budget aim at balancing the external deficit between exports and imports, which is decisive for the stability and the future of the economy? The external deficit is related to the savings rate which reached an all-time low of 9.1% in 2018; what are the measures proposed to boost the savings rate?

We have so far avoided making hard choices. The reform agenda remains unfinished and critical constraints to economic development have become increasingly evident. How does this budget fare in terms of reform delivery – labour and pension reforms, sectoral reforms to generate productivity improvements…?

It is along these lines that Budget 2019-20 should be analyzed.

Unfortunately it does not reflect a responsible approach to ensure a better future for the country. It is a budget that comes down to a mere listing of projects, with ample voter-pleasing packages and handouts but without any strategic thinking and concrete measures to tackle many of the economic challenges facing the country.

It is fair enough to dole out sops ahead of the elections – a few freebies left and right so as to keep up support and project the image of pro-poor government, but this carries the risk of being censured as populists proffering simplistic solutions to complex socioeconomic ills. Although it could be argued that this is quite understandable in an electoral year, and the Government has not stretched things with respect to old-age pensions, as had been touted earlier, to the point of straining public finances, one would have hoped that it would have gone all the way for a genuine reform that would have put the pensioners on a secure footing while building up more fiscal space to tackle other social ills, including poverty alleviation.

There is nothing highly imaginative about re-engineering economic growth. The fact is that, in the absence of structures that would have made the economy resilient on its own if it had developed a broader base of production in past years, it is normal for the government to inject expenditures in public infrastructure of the sort to keep up economic activity. It is not being said that with investment, both public and private, having recorded negative rates of growth in past years, we should perk them up and the economy would automatically resume good growth again. The idea rather is that investment should be re-directed to activities where it will be more productive and better able to sustain itself without state support if not in the immediate, at least in the medium term.

It is not that we should go on expanding physical infrastructure, for instance; we might go for it only where it has the most potential to increase both production and employment sustainably. But in the absence of a proper planification and prioritization of capital projects that would have selected an appropriate mix of capital investment with the optimal economic return for the country, the strategy of boosting growth via massive public investment has unsurprisingly not delivered the expected results.

There are limits to this kind of action insofar as there are limits to the amount of debt governments can go on raising to fund expenditures in excess of the revenues they are able to raise. When reasonable parameters are exceeded in this respect, you’ll end up with cases like the Greek and Italian debt crises. This means that while you can hold out in the short-term by having recourse to substantial public expenditures, the long run will still require a solid re-engineering of the economy’s base of production and its external market outreach, for things not to get into serious imbalance at some time or other.

If existing domestic sectors of activity dependent on external markets will take time to recover their past rates of growth, the budget could help bring up in Mauritius new sectors of activity which can sustain themselves better than the rest. It means that we have to enlarge the economic base. This would be a more fitting response of the budget to our economic problem than doping, for example, underperforming exporters with “stimulus packages” as had been done in a recent past or occasional devaluation of the rupee. This might also involve going for a new wave of higher manufacturing than what we have already. It could also involve SMEs which are more actively supported than the hundreds of others amateurishly managed whose debts have had to be written off time and again by the DBM.

If the provision of financial services from Mauritius is gridlocked, for example, the budget could provide incentives for a new model to emerge, which the sector could adopt to go deeper and better sustain itself. This is how that fundamental work of breathing in new life in the economy can be addressed. The mere listing of a series of disconnected projects only serves as “effets d’annonces” without any hope of seriously laying the foundation and essential infrastructure for new pillars of growth or consolidating other existing engines of growth.

We could just as well have used the budget as the door-opener to a new class of empowered entrepreneurs, even if the scale at which they will operate at first will not be that big. The seeds of future production potential lie in decisions such as these. A lot of micro-analysis is involved in giving the economy the necessary impulse for turning it around to innovative activities and getting over hurdles which have manifested themselves already.

History has shown that the right investment in human resource development proved to be the chief mainstay of our economy for decades, without which economic diversification would not have taken place. Experience is showing that, in certain fields, we might have reached the end of the tether and can do no better.

There is a need here to transcend the established routine to become really creative once again. Every ministry, every department, every factory and every service activity can become the niche from which diverse innovations spring up and go out into the market. It appears that the current economic situation is asking us to harvest something beyond daily ritual.

Seeing the enormous challenges facing us, one of the budget’s major objectives could be to avoid creating structural imbalances, which will be difficult to fund in coming years. If the focus is placed instead on consolidating the apparatus of production and employment generation, that in itself would end up paying more generous dividends to the population at large than what can be gotten from temporary freebies, doles and hand-outs.

* Published in print edition on 14 June 2019

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