Some voices have already been heard and more questions are likely to be raised about what the Mauritius Investment Corporation (MIC), set up by the Bank of Mauritius as a Special Purpose Vehicle under its aegis with contributions of dozens of billions drawn from the Special Reserves of the Central Bank, has been up to as regards the disbursements of those huge funds to major, systemic “distressed companies” and the conditionalities attached thereto. These questions have become more pertinent in the wake of the impacts of the conflict in Ukraine on the global economy, still reeling from the disruptions and devastating consequences of the Covid pandemic, and is now feeling the effects of slower growth and faster inflation, whilst here consumers are already feeling the pinch as the continuing conflict has inflated the cost of petrol and other essential commodities, putting a further squeeze on their cost of living and fuelled apprehensions about food security in the months ahead. Matters were not made any easier with recent heavy periodic downpours which have caused a soaring rise in vegetable prices, increasing the pressures on family budgets.
The government had rightly stepped in during the Covid pandemic to make available an extensive financial package to support employees, save jobs and prevent economic collapse with payroll assistance to businesses and large corporations, but the view has also been expressed in many quarters that support to the corporate sector should not take precedence over the less well-off, the self-employed and a growing number of the middle class population feeling hard done by. Those whose socioeconomic circumstances have become more fragile than ever what with the effects of the pandemic, now compounded by the Ukraine conflict know, like all economists do, that VAT and fuel duties and taxes in particular, have a greater relative impact on their laminated budgets as they struggle to make ends meet. This can create a sense of unfairness, which reminders of pension and minimum wage increases awarded in 2019 may no longer quell.
We learn from the MIC’s website that Rs 44 billion have been disbursed as at February 2022. It is not clear whether those proper safeguards, as mentioned by Lord Desai, have been placed to ensure that public money is used judiciously and channelled towards the public interest. We recall that these public funds were primarily intended to create positive change, prevent collapse, support and rebuild systemic sectors/enterprises which bring value to the country, based on their longer-term importance to the people and the national economy. The transparency promised has been lackadaisical at best, with assistance announcements coming from listed groups and companies, rather than from the custodians of our national reserves and with the quasi removal of this vehicle (MIC) from Parliamentary queries. It is also not known what are the conditionalities that have been applied for the large disbursements of the MIC, given that details of the terms and conditions agreed with recipients have not been made public on the ground of confidentiality clauses binding the MIC to the beneficiaries, nor why such clauses were deemed necessary or acceptable by the authorities when public funds of such consequential amounts were being traded out. Neither is it known the extent of burden sharing, which should have been the fundamental guiding principle to bail out enterprises and that ought to have been applied by the MIC when it went out to save the big corporates, according to several noted independent economists, namely that:a) beneficiary companies that generously distributed non-taxable dividends to shareholders over the past 5-6 years should call on those large investors to contribute to a recapitalization of their companies; b) companies which are provided with soft loans and other forms of financial packages should not distribute dividends for as long as those loans and other facilities have not been fully repaid; c) part of the funds being allocated to those companies would be fully convertible into equity at some future time at the discretion of the State;d) beneficiary companies would not be allowed to proceed with any share buybacks for as long as they have not refunded loans and other facilities extended under the package; and e) the State should have board representation for as long as facilities have not been repaid. To these should be added an additional condition that these companies would not proceed with any involuntary redundancy of workers during the next twelve months.
What matters to the taxpayer and the consumer is that the right balance is struck when it comes to burden sharing, and that bailouts would only be envisaged as a last resort. But the government chose, as economist Eric Ng commented last week, to support failing companies at the cost of heavy public debt when it could have relied on the pandemic to justify structural reforms in public services, administrative procedures, governance of parastatal bodies, public procurement, the public pension system, price and wage mechanisms. he adds that ‘the new crisis born of the war in Ukraine will lead to even more state intervention in the economy, more economic interventionism, in the name of an excessive fear of mass layoffs. However, this is how our economy becomes less resilient without the crutches of the State, and how our banking sector is plagued by irresponsibility and moral hazard, knowing that it will always be supported by the Central Bank at any cost to the taxpayer. Therein lies the real systemic danger to our economy.’
We earnestly trust the pre-budget consultations being undertaken will help the Finance Minister and cadres take stock of the growing sense of unfairness and the impoverishment of many layers of society, address the transparency issues and consider some of the necessary mid-course corrections that the local and international context demand. To argue that government is running out of funds or of foreign exchange, sounds somewhat strange when all capital expenditures are running apace and little has yet been done to curb wastages that another future Audit Report will reveal. The trying and testing times should see us through in a collective and unified approach to safer shores, even if those look distant currently.
* Published in print edition on 18 March 2022
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