‘High inflation and inflationary pressures will become a major issue going forward’

Interview Rajeev Hasnah, Economist

* ‘We should keep on innovating and pursuing development projects such that we can reap the benefits when the opportunities are ripe… Walking the talk is key in this process’

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Rajeev Hasnah is a CFA® Charterholder, with degrees in Economics and Finance from the Warwick Business School and the University of Mauritius. He has a rich experience in financial and economic analysis as well as public policy and foreign affairs. He is currently the Group Head of Financial Planning and Analysis of the Harel Mallac Group and the President of the CFA Society Mauritius. Prior to these positions, Rajeev was the Chief Economist/Deputy Executive Director of the Competition Commission of Mauritius and a Commissioner at the COMESA Competition Commission. He has also acquired experience in macroeconomic analysis, economic forecasting, as well as corporate finance and investment management both in Mauritius and in the United Kingdom.

As such, he is well qualified and at a good vantage point to give his views on the economic situation. While conceding that the extreme measures to deal with the initial impact of the pandemic were necessary and did help, for the future he advocates fiscal discipline, manage the country’s finances more prudently and create opportunities for the youth so that they are less tempted to leave, as our fundamental fall back is our human resources.

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Mauritius Times: We are not yet out of the woods, and it’s not certain if the current wave of Covid-19 cases driven by the Delta and Omnicron variants could potentially be the last major wave in the world. What’s your reading of how well we are presently dealing with the current economic issues?

Rajeev Hasnah: We have to admit that the impact of the global pandemic has been very disruptive, especially in today’s globally connected world, and more so for Mauritius as we are a very open economy, given that we depend heavily for both our revenue generation and consumption needs on international trade. Every country had to go through a painful learning curve in dealing with this crisis and implementing extraordinary measures to deal with it.

Considering the importance of the tourism sector and our available resources, Mauritius has gone through this crisis fairly well. I may have a different opinion on the chosen strategy for the financing of the exceptional economic measures, but in the end the actions taken to protect livelihoods and avoid a systemic risk in our banking sector are commendable.

Unfortunately, the other economic woe that is taking shape is the spectre of consumer price inflation spiralling out of control. Added to the lacklustre growth in the country this is already proving very tricky and difficult to navigate through for our policymakers.

* How long do you think it will take us to get the economy back on a solid track?

In my opinion, the timing will coincide with that of the shift from the global pandemic to a global endemic, for a clean break with the Covid-19 pandemic, as we have all been hoping for, may not be on the table. This transition from pandemic to endemic would mean that movement of people and goods will not be hindered and disturbed as much as has been the case recently. Once this situation is entrenched globally, our growth trajectory will be on a strong footing. Still, I think that high inflation and inflationary pressures will become a major issue going forward.

* After the initial economic rescue measures implemented by the government with the onset of the pandemic with a view to protecting livelihoods and saving distressed companies, we’ll now have to ‘build back better’. What will it take to do that?

It has to be stated that not all economic sectors have been impacted similarly and while some have to be rebuilt, others are in a growth stage.

For those that will have to rebuild, we should note that they are emerging from this pandemic more indebted than previously and facing rising costs of doing business. I believe that they will have to go through a “balance sheet consolidation” process one way or the other by first catching up on the accumulated losses and then pave the way for a sustainable growth.

Still, it would be advisable to have a different mindset in this process with a focus on climatic and sustainability considerations, as climate change remains a major issue for our mere survival in the long term.

* In some countries where the health crisis is gradually abating, attention is now turning to preparing stimulus measures for triggering economic recovery. The very mention of a broader stimulus programme may raise eyebrows here in light of past experience with such packages and the recent controversies surrounding the disbursements of the MIC and the conditions thereof. But do you think that might be necessary here?

The key repo rate has been maintained at 1.85% despite mounting inflationary pressures; government finances are already stretched with the public debt to GDP ratio hovering around 100%; the balance sheet of the Bank of Mauritius is already reflecting the impact of money printing from last year’s policies; and the major infrastructural projects around the island are already on track.

It seems that the remaining policy tools to provide additional stimulus could come from giving more money to people to spend via a lower fiscal burden on companies and individuals. But this as well will undoubtedly put a lot of pressure on government finances, especially after the increase in social safety net related expenses of the recent years.

* We also heard from many economists at the onset of the pandemic last year about the need for a new economic paradigm so that we do not go back to the ‘old normal’. Even politicians also added their voice to that discourse, but we seem to be saddled with the same economic policies of the past two to three decades. Is it because politicians and the major economic operators seem to find comfort in the status quo?

The visual effect of change or disruption may be abrupt, but it is a fact that change takes time, and the efforts and dynamics happen in a rather silent manner. In the same manner, changing course, reinventing our economic model is not a feat that occurs overnight, but rather it starts with a new philosophy, mindset, and idea, which then needs to be implemented diligently and consistently before we can see the effects of the change or disruption.

I would say that we have adapted rather well in this “New Normal” of doing business, which can be summarised in terms of taking the necessary sanitary precautions to safeguard lives and having the grit, diligence, and patience in navigating in a highly uncertain economic environment, with no clear visibility in the medium- to long-term.

Even if we are forced to operate in a highly uncertain and volatile environment in the short-term, we should nevertheless keep on innovating and pursuing development projects such that we can reap the benefits when the opportunities are ripe, just as has been the case in the past for the development of all major economic sectors of the country.

Walking the talk is key in this process.

* What would you therefore expect a responsible government to be doing to improve matters in the medium and long terms? Are there also particular areas or issues which, in your view, require the government’s attention and which we would do well to attend to immediately rather than postponing a decision thereon?

It is the responsibility of the government, especially in today’s context to focus on the well-being of its citizens in the short term.

With regard to the medium- and long-term perspectives, in my opinion, the underlying fundamental objective should be to take decisions in a manner that enhances fiscal discipline and contains the depletion of our reserves such that the country is able to consolidate its balance sheet for the future on one hand, and on the other to keep on being the facilitator that it has historically been in assisting in the creation of value and employment generating sectors of economic activity.

It is true that dealing with the pandemic is taking an enormous amount of energy and money, but we should not lose our sight on the long-term sustainability of the Mauritian economy, which as you rightly said depends on decisions we take today.

* However, we are three years away from the next general elections, and one could expect the government to start doing what they usually do when elections are drawing nearer: put the money where the vote is, and nothing in terms of ground-breaking economic initiatives…

We can only hope that actions are taken in the long-term interests of the Mauritian economy and its people, even though the first two years of the current government’s mandate were spent in dealing with the effects of pandemic and having a key economic sector (tourism) not operating at its optimum capacity. This unfortunately required the intervention of the government in a significant manner to prevent the worst!

* Lots of our young people, whether skilled or unskilled and even professionals, are losing hope in the capacity of the economy and in the ability of politicians to initiate reforms that would eventually result in the creation of good paying jobs that will allow them to lead a reasonably comfortable life. The pandemic has made matters worse as regards cost of living or job opportunities… Many of them think emigration is the answer to their present worries. Are they wrong?

Though the ability for people to move globally is a welcoming and good for economic development, we have to be cautious at our end as the main resource Mauritius has is its people. With a declining and ageing population, the ability of generating and financing a sustainable growth in the future could be tricky and more difficult than it currently is.

If this general depressing trend amongst young aults is confirmed, then it would be quite alarming for the country. On the other hand, promoting the return of Mauritians to assist in developing the country further should be enhanced and the responsibility of the government is to ensure that the appropriate economic environment is available. For example, through ensuring better access to capital and markets and removing anti-competitive market distortions, which are the lynchpins of a successful development of new businesses and sectors of economic activity.

* At one time Lord Meghnad Desai was saying that the only way for the Mauritian economy to do a quantum leap is go the high-tech way, which is presently less capital intensive than manufacturing used to be. “Think of Mauritius as Estonia, or Finland, Latvia – countries with a small, highly educated population, and making huge investments in technology”. That’s the only way, he added. Would you concur with that view?

I would only add that we should have a targeted approach in developing and consolidating our core strengths such that we have a good diversification of our economy as well.

The global pandemic has shown clearly that it is highly important to have a good diversification of economic activities while focusing on our core competences. Hence, we should always look at steering and developing our economy on several core fronts by making the most of our core resources: our people.

Our educational system and curriculum should prepare the country to always be ready to seize emerging opportunities and make the most of them. The investment to reap future benefits starts now.

* In fact, going the high-tech way would indeed require a rethinking of our educational system as well as require from our local private sector initiating change away from its present focus on property development in IRS, Smart City projects. Does that sound to be a very tall order?

This is one way of looking at the matter. But let me ask this question: Did the development of IRS and Smart City projects over the years prevent the development of other sources of Foreign Direct Investments, and employment?

Each economic phase and cycle have their own development focus and needs. Our aim should be to identify the most rewarding activities to conduct and to create the right environment and resources for entrepreneurs to make the most of the opportunities.

The development of the global business sector, business process outsourcing, textile and tourism sectors, among others, have gone through this process.

It is a fact though that the economic activities that we can make the most of today should have already been in preparation at least 2- 5 years earlier. Creating a sustainable and remunerating sector requires the development of a whole ecosystem around it, which takes time to materialise.

* In the time remaining till the end of the present government’s mandate, what do you think could be some realistic, achievable goals?

The following could be considered:

• Implement a good fiscal discipline in the management of public funds.
• Take the right decisions for the educational system, especially in light of the recent disruptions.
• Review the financial burden and sustainability of the social safety nets. Or at least engage not to significantly increase these expenditures over the next 5 years.
• Devise policies to contain the impact of inflation on the economy.
• Have a focus on improving the image of the country internationally and facilitate further the ease of doing business in Mauritius.

* Published in print edition on 17 December 2021

Tags:Bank of Mauritius, COVID-19, Delta and Omnicron variants, Economic paradigm, Employment, Foreign Direct Investments, GDP, Global pandemic, Health crisis, Interview Rajeev Hasnah, IRS, Lord Meghnad Desai, Mauritian Economy, Mauritius, Mauritius Times, MIC, New Normal, Smart City, Tourism