Budgeting for Permanent Economic Development



Yet another budget is being presented today. It is the third for the current government and the second presented by Xavier-Luc Duval, the Minister of Finance. Individuals are usually focussed at budget time to find out what are the specific benefits being tendered to them by the new set of measures in the budget.

Those in the private sector claim that the right mix of measures from the budget could reinvigorate their framework of operation. These are the expectations year-in-year-out of the different stakeholders.

On the side of the Ministers presenting the budget, the story appears to be one of new discoveries. Each time, when Ministers are not overthrowing decisions taken by their predecessors (the NRPT and tax on interest earned on savings deposits in 2011, the capital gains tax on immovable property in 2012), they come out with a spell of optimism that the future is being better taken care of than before.

The economic world is a dynamic system. Adapting to the changes that have taken place over the past year requires a review of measures already taken. This is the micro-management act inherent in all budgets. To the extent such micro-management removes obstacles to the normal flow of business under changed circumstances, there is a justification for the annual review of measures taken/to be taken to enhance the overall economic and social platform of the country during the budget exercise. This is what appears to be behind the expectations of individuals and the private sector at each budget session.

Since countries are much more integrated in the global economy than in the past, what happens in the rest of the world is relevant. The budget takes note of the international developments and adopts measures to boost local production in potentially desired directions in the light of those developments. Economists are however aware of the ups and downs of business cycles. There is nothing new in the repetitive occurrence of the economic cycle. Sometimes, as during the past few years, a rather prolonged recession has made all of us forget the equally prolonged span of growth which lasted during the two decades up to 2007 offering us the means to garner resources for the future.  A prolonged high growth phase has preceded the current downturn at the global level. The upturn in the preceding period doubled the average annual rate of growth of ‘emerging economies’ from 3.6% in the preceding two decades to 7.6% in the period 2003 to 2007. In 2007, the economies of all but three (Fiji, Republic of Congo and Zimbabwe) of the world’s 183 countries expanded with 114 of them growing at over 5% p.a.

What such up and down cycles show is that you will have an up if there is a down-cycle. Countries which understand this well gear themselves up to set down a more solid base on which to grow their economies even faster when the good times are back. They set down the basis on which to pick up more solid growth once the cycle goes into the upswing.

It must be said that we have done that kind of thing in Mauritius in the past. Had that not been the case, we would not have diversified and taken the winds in our sails when the tide on the global economy changed. Have we not expanded our schooling system in the past to accommodate increasing numbers as and when they have come up subsequently? Have we not increased the skill base for our professionals to support a wider, though not sufficiently deep and diversified, financial sector than what obtained before? Have we not created a manufacturing base in the economy where there was practically nothing in the past?

The difficulty is that with budgets coming in to do the trimming at the edges from year to year, it seems we have overlooked the necessity to lay down the foundation for a more sustained base. These involve structural changes which serve as a basis to usher in dimension into the economic enterprise of the country. Short of going adequately in this direction, entrepreneurs have reverted back to “rent-seeking” more than engaging in development of productive enterprises. It shows we have not cultivated enough on the more profound aspect.

While it is not the job of the government to operate those new directions, it is its job as facilitator to give direction by putting in place the right infrastructure and base. Once it has spotted what next is due to come up as new sectors of potential development within our reach, its job is to send out the right signals for entrepreneurs to embark on them. One can recall that when sugar was our main line of economic support, the government was under pressure each year to relax its requirements from that sector. However, once other sectors of activity implanted themselves successfully in Mauritius, tax preoccupations of the sugar sector were fully relegated to the past. Other issues caught up attention.

The budget is relevant in today’s world mainly to the extent it can evoke factors that will go into the making of the next economic portfolio of the country. If it does that and that alone, it will be easily excused for not rambling on for hours explaining how the external world would not be treating us kindly enough.

* Published in print edition on 9 November 2012

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