Budget 2013

Minister of Finance Xavier-Luc Duval will deliver the budget speech this afternoon. As usual, there are many queries regarding the orientation it might take.

It has been said that notwithstanding continuing economic growth at fairly moderate levels in past years, the budget will need to address emerging issues such as growing unemployment, a want of productive investment and rising prices.

Budgets have been more or less conservative as from 2006 with the introduction of measures such as the NRPT and tax on interest income. In 2010, it was realized that fiscal pressure on middle and lower classes had gone too far. This was the time when it was decided to reverse some of these drastic measures which had been adopted in the preceding years. More recently, came the PRB Report of 2012, followed by an Errors and Anomalies Report, both of which combined to increase public servants’ pay-packet generously by over Rs 5 billion. So important was the scale of the increase that the Minister of Finance himself took pains to explain how much more per head of population those salary increases would cost to the Exchequer.

It is not unusual for fiscal cycles to change from a regime of austerity to a more relaxed stance. In view of forthcoming events, such as general elections in 2015, speculation is rife that a more pro-poor fiscal policy slant might be given in today’s budget. Given the general economic circumstances, however, it does not matter how much fiscal policy eases down. More than fiscal easing, it would be doing a good turn to give the economy a clear medium- to long-term objective and muscle it to resist unexpected downsides to its growth momentum. That goes more in the direction of reconstruction than doing repairs.

We have seen certain domestic sectors of activity, such as construction, slow down. This was predictable in view of the fact that capital flows from outside into this area are not as large as they used to be. Some sort of liquidity tightening is taking place in the places outside from which the demand and funds used to flow in. As those economies will not suddenly grow at the brisk pace of the pre-crisis years, one cannot but wait for the situation to improve.

This is where expanding the scope of the economy by other means assumes priority. 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” or occasional devaluation of the rupee. Fundamental transformative work to overhaul the economy normally begins with the identification of producers who have scope to grow and thus to bridge the economic gap left behind by those who have not been doing well enough lately.

This might involve going for a new wave of higher manufacturing than what we have already. It could also involve SMEs which are more intelligently run 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 likely to be 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.

It is not being said that investment, both public and private, has been recording negative rates of growth in past years, so we should perk them up and the economy would automatically resume good growth again. No. 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. We may just as well use the budget as the door-opener to a new and brilliant 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.

The answer is to take our human resources beyond ordinary thresholds. Policy makers want to expand our economic scope by going out to the African region. We can do so if we gather the necessary skills for going out there and even beyond. Why would the region need our human resources if they have all that we have? The edge makes the difference. It is the edge Singaporeans have developed in this way that has made them so frequent visitors to advise us on so many things. If we want to establish a lasting foothold in Africa, we also need to build up that edge consciously.

Seeing the enormous challenges facing us, one of the budget’s major objectives could be to avoid creating structural imbalances, which it 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 8 November 2013