“Ousting Jugnauth is necessary but not sufficient.

The current system also needs to be ousted”

Interview: Kugan Parapen, Economist

* ‘People do not see a future in Mauritius for themselves nor for their children. They have serious concerns. Worry we should’

* ‘The electorate is hungry for a real change and I do not see how a PTr-MMM-PMSD alliance actually delivers the profound change desired’

Kugan Parapen is forthcoming as usual in sharing his views concerning both the economic state of the country and the political necessity for change from an MSM government. The former should give real cause for worry as the electoral war-chest spending in the next budget is likely to leave the country high and dry with depleted reserves, persistent inflation and few new economic pillars. As for the necessity of political change at the next general elections, Resistans ek Alternativ has pleaded for a unified Opposition front and a real program of reform of the economy.

Mauritius Times: What’s more disquieting about the situation prevailing in the country presently? Is it politics and its habitual villains, or is it about the mis/management of the economy?

Kugan Parapen: In view of what is happening in the country, one would have to say both. In any case, both are intertwined and, to some extent, interdependent. However, while the political arm is hurting opposing forces, the failing economy is hurting everyone, both pro-government and pro-opposition camps. All in all, each and every citizen of our country has something to worry about at the moment and that certainly does not add up to a feel-good factor.

* More precisely, how do you see the Mauritian economy doing right now, and where will that lead us to?

If, as the Minister of Finance and his acolytes, we take a short-term view of the economy, then there are definitely a few reasons to be positive. Granted that Mauritius has had one of the strongest economic growth periods in its history, is that a sufficient reason for the Minister to indulge in such a pathetic self-glorifying act? Would a boxer who has been knocked out be ecstatic about the fact that he has been able to stand back on his feet? Or would he have been relieved?

By all accounts, Mauritius is slowly but surely getting back on its feet. It’s a relief, not an accomplishment! The strong economic rebound witnessed in recent months has to do with the recovery the country has experienced, especially since the tourism industry has reopened. Do you know that the country has still not fully recovered from the Covid-19 related shock? Indeed, the economic output in real terms (i.e., adjusted for inflation) is still below the peak we were at the beginning of 2020.

As per the June 2023 edition of the World Economic Prospects by the World Bank, global economic growth stood at 6.0% in 2021, and halved to 3.1% in 2022. The forecast for 2023 is only 2.1%. This clearly shows that the post-Covid-19 recovery growth rate is unsustainable. One might argue that the growth rate for Mauritius for 2022 was much higher than the global one and hence Mauritius might be going through some miraculous exceptionalism. The long-awaited economic miracle may be? Unfortunately, that is simply not going to be the case. We need to remember that social restrictions, especially the closure of the country’s aerial space, were in place for significantly longer in Mauritius than in most countries. As such, the economic recovery in Mauritius was unsynchronised and delayed.

Which brings us to the budget and Padayachy’s whimsical forecasts. While most international institutions forecast a return to trend growth as from the second half of 2023, the Minister of Finance is predicting the same rate of annual economic growth for the financial year 23/24. Could he be right?

We had warned that the MSM was building a political war chest when they raided the coffers of the Bank of Mauritius post-Covid 19. And that has indeed proven to be the case. A significant chunk of the funds transferred from the Central Bank to the central government have not yet been used and have now been earmarked in the last budget to be deployed for significant infrastructural undertakings by the government in the next twelve months. Interestingly, these funds are being deployed as we close in on the end of the mandate of the incumbent government.

While we do not expect the economic growth for the forthcoming year to be anywhere close to the projected rate by the Minister of Finance, we do see a case for growth to remain above trend in the next twelve months if the government manages to execute its projects in time. But the more interesting and pertinent question on our mind remains unanswered – what happens when the political war chest of the MSM is emptied?

While the 2014-2019 budgetary largesses of the MSM were financed by foreign countries, mostly India, the 2019-2024 ones have the footprint of the Bank of Mauritius all over it. What will be the immediate and long-term consequences, keeping in mind that Agalega and the renegation of the DTAA with India were the price the Republic paid for the 2014-2019 extravagance?

* What about the inflationary outlook? And what does it tell us about the future?

The inflationary outlook for Mauritius is less benign than the rest of the world. In other words, given the recent actions from both the Central Bank and the government, the country could have a long-term inflation overshoot and that is not good news at all. The thing about inflation is that once it becomes unanchored, it is very difficult to bring it back under control. And unfortunately, given the current respective monetary and fiscal stance adopted by the authorities, we see that the risks for inflationary overshoot are very much real.

From a monetary standpoint, we note that the Bank of Mauritius is adopting a rather nonchalant approach to inflation. While most central banks around the world have become very aggressive in their fight against inflation, the BoM seems to be taking a more relaxed approach. Granted the central bank has hiked interest rates in recent years, but this has been nowhere close to what other central banks have been doing, especially in the developing world.

The prevailing real interest rate in Mauritius is still deeply negative when economic theories posit that the real interest rate should be positive in inflationary times. Under the current situation, the value of all savings in the economy is being eroded and this, consequently, is fueling further economic activity. Is that how you bring inflation under control? No, unless you are a disciple of Erdogan-omics.

The Bank of Mauritius views inflationary pressures as being mostly imported and while this is partially true, it should not completely overlook the domestic side of things. If the economy overheats, you can be sure that inflationary pressures will radiate from domestic activities as well.

Talking of overheating, we certainly cannot overlook the role of the central government. The government is going all out when it comes to government spending. As we approach the end of the current governmental mandate, Padayachy has taken out his monetary bazookas – the funds usurped from the Bank of Mauritius. As the MSM splurges helicopter money in a bid to get re-elected, the monetisation of the BoM reserves will surely spur inflation even higher than most realise.

They are hosing the flames of inflation with helicopter money and negative interest rates. How do you think this is going to end?

* The rate of inflation has ebbed considerably in other Indian ocean islands, yet stays high in Mauritius. Isn’t our inflation also due in large part to the continuous depreciation of the Rupee against the dollar as chief import currency?

The depreciation of the Rupee has obviously played an important part in stoking inflationary pressures. However, while this was particularly true in the aftermath of the pandemic, when the Mauritian Rupee depreciated significantly over a short period of time, the same cannot be said over recent times.

The Rupee has somewhat stabilised, albeit at very low levels. As such, the base effect of the depreciation is behind us, and the depreciation of the Rupee has currently not much to do with inflationary trends. Should the Rupee depreciate further over coming months/years, then obviously it will contribute to a further erosion in the purchasing power of the local economy.

* Given the high rate of our currency depreciation, how does our economy rate in real terms when that depreciation is accounted for?

The economic growth numbers put forward by economists are usually always quoted in real terms, that is after adjusting for inflation. The impact of the currency depreciation is also already accounted for. For example, when the Rupee depreciates, the revenue of exploring companies operating in the Mauritian jurisdiction will be positively impacted as these companies earn in foreign currencies. A weaker local currency will hence boost revenue for these exporters as we should not forget that these companies report in local currency terms.

It has typically been implied that a weaker currency helps our economy – while this might have been valid in the past when sugar exports made up the bulk of our exports and our trade balance was positive, this is not the case anymore.

Given that we inevitably import more goods than we export (resulting in a recurrent current account deficit), it follows that a weaker currency has a net negative impact on the economy. However, the burden is far from shared. On the one hand, the exporters reap the benefits of increased revenues in local currency terms, while the consumers, who generally do not own any capital, are made worse off as the cost of imported products increases.

In the absence of local substitutes for many of the imported products/services, the expected rebalancing of the trade imbalance does not materialise and the trade deficit is, at best, unchanged. However, for a country like Mauritius, the terms of trade have significantly deteriorated over time and hence the trade deficit has ballooned, resulting in further erosion of the purchasing power.

One eye-opening exercise is to actually calculate the real growth rate of the Mauritian economy in a hard currency, for example in US Dollars or the Pound Sterling. Having done such an exercise, we have seen that the long-term growth rate of the country when measured in such terms is only around half of what it comes out to when measured in Mauritian Rupees. The notion of a Mauritian miracle gets very flimsy.

* There are also the issues of the liberalisation of the labour market, and the ongoing gentrification amid Smart Cities. What are your thoughts on those issues?

The so-called ‘Smart Cities’ were never mentioned in any political manifesto. Some may argue that they are private-led enterprises and that, as such, they did not need any popular ratification. That may be partly true, but let’s not forget that these new burgeoning cities are underpinned by major fiscal concessions and an increasingly lax immigration policy. Surely, in any democratic society, the people should have a say on the fiscal and immigration system they desire.

Many say the Budget Speech is only the trailer and that the real deal is the Finance Bill. This assertion has been proven right again. In a budget qualified as of socialist nature by the government, we are left with a very capitalist aftertaste after a careful assessment of the Finance Bill.

Padayachy should explain the socialist rationale behind the liberalisation of the labour market which will allow employers to recruit as many foreign workers as they wish at cut-throat prices because we fail to see how this is in the interest of the general population.

It would also be forthcoming for him to explain the lowered thresholds with respect to the allocation of residence and occupation permits. With respect to the occupation permit, the threshold has gone from USD 250,000 to USD 18,000. At this rate, it is only a matter of time before anyone can come and work or reside in Mauritius.

Let us not forget that Pravind Jugnauth wanted to commodify the citizenship of the Republic in the recent past. While his plan was thwarted after broad disapproval, the underlying philosophy behind the sale of the Mauritian passport is slowly and surely becoming a reality.

The country is undergoing one of its most important transformations. The medium- to long-term ramifications are multiple and will eventually run very deep. Invariably, it will be at the expense of the majority of Mauritians who will increasingly be priced out of the housing market and will experience a more and more onerous life under the tropics. Feel-good factor?

* There’s is increasing concern voiced by different commentators about the issue of “mass” emigration of our youth. There may not be available fairly reliable emigration statistics, but it’s certainly on the rise. Do we know the real reasons as to why more young people are going away? And should we be worried about that?

The youth are queuing up to leave the country. Agreed that many Mauritians consider themselves, as their forefathers, to have migration in their blood but the trend has accelerated in recent months.

The reasons mentioned are not necessarily the same when gathered first-hand but upon a more profound analysis, we find out that they do stem from the same cell. People do not see a future in Mauritius for themselves nor for their children. They have serious concerns about the path upon which the country has embarked – citing the breakdown of democratic fundamentals, the poor state of the economy and the increasingly fractured society. Worry we should. The writings are on the wall.

* As regards politics, we have a number of politicians who are under a cloud these days: there’s one awaiting a judgement of the Privy Council in the matter of an election appeal challenging his election in 2019 for alleged unlawful election promises, and the other who will have to go back for a retrial of his alleged money-laundering case before the Financial Crimes Division. That these two politicians should also be prospective prime ministerial candidates should be very disquieting, isn’t it?

Anyone should be allowed to stand as a candidate at an election as long as they are eligible to do so. So, I do not necessarily think that the fact that these two politicians stand for elections as prospective prime ministerial candidates is necessarily disquieting.

What I do find peculiar though is that significant sections of the population will support these two candidates in their quest to become the next Prime Minister no matter what. And this is where the real issue is. Achieving real change in such circumstances is quite a challenge.

* There’s more: there are also the cases of a former and a sitting minister as well as a PPS – the first allegedly involved in “forgery of private writing”, and the other one together with a PPS subjected to a private prosecution in relation to whatever happened at a Black Label stag Party. Both are presumed innocent, but what we are being given to witness in various instances is far removed from what governance indicators by international agencies tell us about how we are doing. What do you think?

Taken separately, each case has its particularities and intricacies. But taken collectively, they bear testimony to one of the worst, if not the worst, governments that have ever ruled independent Mauritius. It highlights the dangers of giving absolute power to one political party without appropriate checks and balances.

If we assess the different governments over the last twenty to thirty years, we will see that most of them were led by one dominant party – especially in terms of seats at the National Assembly. Such occurrences seem to provide a fertile breeding ground for all sorts of excesses by majority members. It is high time to rethink the balance of power.

* What’s your take on the new opposition alliance that has brought to date the Labour Party, the MMM and the PMSD together? Will that be sufficient to win the next elections?

Such an alliance would likely have walked over any election in the past, but my gut feel is that it will not garner enough adhesion as it stands this time around. The electorate is hungry for a real change and I do not see how a PTr-MMM-PMSD alliance actually delivers the profound change desired. It remains to be seen what they have to offer in terms of policy making but the electorate is today so divided that it is near impossible for this alliance to rally behind it the kind of support it would have done in the past.

This is why Rezistans ek Alternativ has called for a unified opposition front for the upcoming elections. The reasoning behind this proposal is two-fold. First and foremost, to oust Jugnauth and its MSM from power. And second, to deliver the profound democratic changes sought by the electorate. Ousting Jugnauth is necessary but not sufficient. The current system also needs to be ousted.

Mauritius Times ePaper Friday 28 July 2023

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