“Instead of trying to resolve the NPF issue, the CSG has compounded and aggravated the situation”

Interview: Rajeev Hasnah, Economist

* ‘ Those who argue that the CSG contributes to reducing inequalities cannot do so without admitting that the CSG is an additional tax
Many economists and observers alike will agree that there are better ways to reduce inequalities’

* ‘The Mauritian economy will have to be rescripted with a bold vision and a strong commitment.
We cannot afford delaying this process anymore and any longer’


Unannounced in any manifesto, the Contribution Sociale Généralisée (‘CSG’), is a taxation that was introduced to replace our contributory National Pension Fund system since September 2020 and has been the subject of much heated argument, made even more topical by the Minister of Finance’s recent announcement that some Rs 25 billion of funds received since the CSG’s introduction have been entirely used up for pensions and a variety of other government decided benefits.

We invited economist Rajeev Hasnah to explain and comment on the complex issues that may surround our pension system in a rapidly ageing population and more specifically, whether the CSG measures, which diverted private-sector funds from the NPF/NSF to government coffers to use for its own policies, were the appropriate answer to the pension conundrum. We also recall that for the private sector, both the employer and the employee contribute to the CSG whilst for the public sector, only the employer contributes.

Rajeev Hasnah has been also invited to give his personal take on the general economic situation, including the post-pandemic recovery, the rising cost of living, the public debt levels and the depreciation of the Rupee.


Mauritius Times: What do you make out of the controversy raised in the wake of the Minister of Finance’s statement that the funds contributed to the Contribution Sociale Généralisée have dried up? Was that foreseeable and would you say the CSG in its present form would be more viable than the earlier NPF?

Rajeev Hasnah: We should recall that the “Contribution Sociale Généralisée (CSG) has been a very controversial issue since its introduction and that actuaries, economists and other professionals in the investment field raised concerns about the viability of such a policy decision.

Back then it was already very clear that the introduction of the CSG entailed a paradigm shift in pension management for private sector employees as we moved from an accumulation of funds for future pension payments for private sector employees to an outright/disguised “tax” on employees in the private sector (small, medium and large companies alike).

In essence, the introduction of the CSG resulted in the government becoming the sole owner and decision taker of funds that would otherwise have been injected into a pension fund belonging to all those who contributed to the fund. The fund’s only mandate was to invest the collected funds for future pension distribution to its legitimate beneficiaries.

As such, the CSG transferred an otherwise “savings” (NPF contributions) that legally and legitimately belonged to employees of the private sector to an ongoing income for the government (just like any tax that it collects like the VAT, income tax or duties) for the latter to use as it deems necessary.

To illustrate this point, the value of the National Pension Fund (NPF) as at 30 September 2020, the year that the CSG was introduced, stood at Rs 139 billion. Two years later, as at 31 December 2022, the total value of the fund was Rs 138 billion since the money that was supposed to go into the NPF was taken over by the government in its Consolidated Fund.

Since the introduction of the CSG in 2020 and until 2023, the government collected around Rs 25.6 billion as additional revenues in its Consolidated Fund. If the CSG wasn’t implemented and taking into account the contribution made for the benefit of private sector employees, the value of the fund as at 31 December 2022 should have been at least Rs 159 billion. This would have been the case as the contribution made by private sector employees would have accumulated in the NPF, instead of going into the Consolidated Fund of the government as a CSG “disguised tax”.

In the NPF system, those who contributed to the funds remained the sole owners and future beneficiaries; in the CSG system, the government became the owner and decision taker of the funds collected.

* It has been suggested that raising the imposable rate for contributions to the NPF would have significantly mitigated the threat posed by an ageing population. Are we now in a better position to understand why the government pressed ahead with the introduction of the CSG despite wide-ranging political and trade union protests?

I believe that today, it is rather obvious to everyone that the sole aim of the introduction of the CSG seems to have been to increase the revenues of the government such that the latter could decide how to then distribute those funds aligned to its policy decisions.

Instead of the contributions by private sector employees being saved for future pension payments, this money has been made available to the government to use as it deems necessary.

* There is also the issue of private sector employees contributing their share to the CSG, whilst public officers’ contributions are paid up by the government. That’s blatantly inequitable — even if it could be proved that the CSG would be contributing to reducing inequalities in our society as argued by some economists. What’s your take on that?

Note that for public sector employees, it is the government who contributes on their behalf from the Consolidated Fund as expenses to the government’s Consolidated Fund as revenues, which the latter then uses as it deems necessary!

Those who argue that the CSG contributes to reducing inequalities cannot do so without admitting that the CSG is an additional tax paid by private sector employees only, as using taxation to resolve inequalities can only take place when we tax the haves, and we give it to the have-nots. With the CSG, we increased the “tax” burden on private sector employees only.

I know that many economists and observers alike will agree that there are better ways to reduce inequalities than transforming a monthly saving for pension during old age into a current income similar to taxes in the government coffers such that the government can utilise those funds as it deems necessary.

* There are contrasting viewpoints on the viability of both the CSG and the earlier NPF; both are predicated to become unaffordable in the long term in view of the smaller working population supporting an increasing number of old-age pensioners. What’s the solution then?

We cannot and should not compare the CSG with the NPF; the conclusions and recommendations to be made when doing so would prove to be erroneous.

For instance, the introduction of the CSG as a replacement to the NPF contribution has undoubtedly resulted in a significant deterioration in the financial viability and longevity of the NPF as a guarantee for future pension payments to those who contributed to the fund in the first place.

Since there doesn’t seem to have been any significant effort made to solve the pension issue at the core, just by maintaining the NPF as it was before but without the previous cap on contributions by private sector employees and employers would have at least improved the situation of the NPF. Note that prior to the introduction of the CSG there was a cap in the monthly contributions quantum by each private sector employee and employer.

With the CSG, we have worsened the pension issue as we transformed a savings for future payments into a revenue for the government to spend today, which has resulted in a complete halt of inflows of funds in the NPF. Instead of trying to resolve the NPF issue, the CSG has compounded and aggravated the situation; it would be good if actuaries could present the results of its impact on the NPF under the following three scenarios:

  1. CSG is not implemented and no change to the NPF.
  2. CSG is not implemented and remove the cap in the contribution rate in the NPF (as is the case with CSG).
  3. The current NPF situation post the CSG implementation.

I believe that this exercise will make it very clear how the pension situation has significantly worsened in Scenario 3 post implementation of the CSG.

* On the other hand, what’s your reading of how economic growth has fared over the past three years?

It is good news that in 2023, the economy will finally come back to its 2019 levels in terms of real Gross Domestic Product (GDP). We have to be careful not to assess economic growth in nominal GDP terms though; as the high levels of inflation has a major impact on this key economic indicator in nominal terms.

While our traditional economic sectors have scaled their performance and contribution to the economic development, the level of productivity of our resources remains a concern, and the rather slow pace of development of new emerging sectors of economic activities that should normally be the case in a developing country like Mauritius is likely to hamper the real growth potential of the country. The lack of manpower in key sectors, if not tackled in a timely and sustainable manner, could also prove to be detrimental to our capacity to create wealth in the near future.

* There is also the worrying issue affecting most sections of the population: falling standard of living. What is the true reason for the significant loss of purchasing power in Mauritius?

The sustained depreciation of the Mauritian Rupee versus the US Dollar as well as other foreign currencies since 2020 is the main reason for the significant loss of purchasing power in Mauritius. As we can see in this graph (see below), there is a strong positive relationship between the depreciation of the Mauritian Rupee and the loss of purchasing power as captured by the Consumer Price Index.

Since January 2020 the cumulative loss of purchasing power as 30 June 2023 is 27%. For the same period the Mauritian Rupee has depreciated by 23% versus the US Dollar. This simplified analysis demonstrates that 82% of the decline in purchasing power over the period 2020 to June 2023 can be explained by the depreciation of the Mauritian Rupee versus the USD over the same period.

The root cause for this significant depreciation of the Mauritian Rupee emanates from the money printing exercise that the government conducted when it printed Rs 140 billion. Note that the effect on the MUR is only reflecting the write-off of the transfer of Rs 60 billion made to the government! In simplified terms, everyone has contributed and paid for this Rs 60 billion transfer made to the government from the Central Bank via the depreciation of the Mauritian Rupee.

* There are uncertainties about the future though. Covid-19 has brought home the high costs of pandemics, which can strike any time. Are you of the view that we are now better placed to sustain another major crisis?

Unfortunately, several macroeconomic fundamentals have deteriorated. The key ones that are assessed by economists are as follows:

  • The total public sector debt has ballooned from Rs 327 billion in December 2019 to Rs 497 billion in September 2023, an increase of Rs 170 billion.
  • The balance sheet of the Bank of Mauritius has recorded the Rs 140 billion transfer through money printing.
  • The external public sector debt (money owed to foreign bodies) increased from Rs 56 billion in December 2019 to Rs 109 billion in September 2023.
  • The balance of trade deficit has worsened significantly from Rs 119 billion in 2019 to Rs 187 billion in 2022. A similar trend is expected in 2023.
  • The import cover ratio based on the country’s official reserves has reduced from 17 months in June 2020 to only 9.9 months in September 2023

That said, the resilience that the Mauritian economy has showcased in facing severe economic challenges and crises is laudable; we should, however, ensure that we bring a halt to our loss of competitiveness and decline in productivity.

Looking forward, the Mauritian economy will have to be rescripted with a bold vision and a strong commitment to a diligent and appropriate management of public finances as well as improving the level of confidence in the country’s ability and willingness to move in a sustainable manner to a high-income economy. Unfortunately, we cannot afford delaying this process anymore and any longer.


Mauritius Times ePaper Friday 10 November 2023

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