“The Budget, while having positive aspects, demands far more from policymakers

Interview: Sameer Sharma, Investment Analyst & Financial Risk Manager

to truly ignite and sustain economic growth above 4%”

* We should have perfected the art of using taxation to better influence the behaviour of economic actors.
This means consistently offering the private sector a conditional pathway to lower taxes‘

* ‘While the current Prime Minister appears benign and seems intent on moving in the right direction, there is an urgent need for greater decentralization of power’

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Budget 2025–2026 arrives at a time when Mauritius faces pressing structural challenges — sluggish productivity growth, a high public debt burden, and a consumption-led growth model showing diminishing returns. The government has framed this budget as a pivot towards structural reform, fiscal consolidation, and long-term economic resilience. But how transformative are its proposals in practice? Does it offer the clarity and credibility needed to shift the country toward investment-led, innovation-driven growth? In this in-depth conversation, economist and policy analyst Sameer Sharma provides a critical assessment of the budget’s core principles, evaluating it through four key lenses — objectives, priorities, resource mobilisation, and strategy — while questioning whether the implementation mechanisms are robust enough to meet the ambitions laid out.

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Mauritius Times: The Budget 2025-2026 was presented yesterday. What would you highlight as the core principle of this budget in addressing Mauritius’ current economic challenges, particularly the high budget deficit and public debt?

Sameer Sharma: A national budget needs to be looked at within four key interconnected dimensions: Its objectives, priorities, resource mobilization and strategies. We hence need to assess its performance after we bucket the fiscal policies announced via the budget.

Objectives: The government aims to achieve 4-5% real GDP growth from the current 3.5% projected growth rate by the end of its term, return to a primary budget surplus, and significantly reduce public sector debt toward 75% of GDP in the medium-term and 60% in the long-term, underpinned by “statutory fiscal responsibility”. Note that based on our investment to GDP ratio of 21.2%, our labour force dynamics and our current productivity trends, our maximum sustainable rate of growth without any structural reforms stands at the mid 3% growth range.

Priorities: To achieve these medium-term objectives which would require a significant boost to total factor productivity growth and investment rates, the government plans to shift our economic model from consumption-led growth to innovation- and investment-led growth with what it defines as structural reforms whilst protecting the most vulnerable, increase social protection, and promote greater social inclusion.
Another key priority for the government is to embrace climate transition and digital transformation, especially artificial intelligence, R&D, big data, and related skills. The third priority is to eliminate waste, inefficiency, and corruption, with a major focus on public sector and State Owned Enterprise reform. Fourthly, the Government plans to focus spending on infrastructure for transport, water, renewable energy, and climate resilience. Fifth, it plans to boost private sector-led growth by revitalizing sectors with four “Pôles de Croissance” — Renewable Energy, Waste-to-Wealth (circular economy), the Blue Economy (ocean resources), and Creative Economy. Sixth, the government plans to engage in the creation of a more well-funded pension system via an NPF 2.0. 

Resource Mobilization: Bar the typical increases on alcohol and tobacco, the Government plans to widen the tax base by introducing “fair share contributions” on large corporates and banks, by introducing significant increases in property taxes on non-citizens, by increasing taxes on the very rich, by cutting waste, by leveraging digital tools to improve tax compliance, by increasing duties on new vehicles and via Chagos related receipts as from next year. The income tax bracket is also being simplified from 11 bands to 3 main tax bands making the system less progressive.

Strategy: The Government aims to offset downside risks to growth emanating from fiscal consolidation with what it claims are growth supportive measures. The Government has committed itself to a medium-term fiscal consolidation plan and resurrect performance-based budgeting to ensure efficient public spending and stronger outcome orientation.

In an effort to maintain social safeguards, various announcements were made concerning the implementation of risk mitigation strategies pertaining to climate change, demographic challenges, and technological disruptions, alongside increased R&D expenditure. Furthermore, the budget details improvements to the governance framework through enhanced transparency and streamlined regulations to stimulate investments.

* How would you evaluate the budget across these four dimensions?

Let’s first analyse how realistic its medium-term 4% to 5% growth and debt reduction strategies are.

When a country enters the end of its long-term debt cycle, it needs to be able to do a bit of four things: implement a relatively dovish monetary policy stance allowing inflation to run slightly above target so that the real value of debt decreases over time. Given the current benign inflation outlook globally, Mauritius has some space to start easing monetary policy later in the year by 50bps to 75bps. The problem right now is that politicians have made unrealistic promises on stabilizing the currency despite the fact that the current spot price is below equilibrium where supply meets demand which explains the illiquidity problem in the foreign exchange market. So interest rates are likely to be stuck where they are for longer than they need to be.

Second, the government must focus on targeted spending cuts that hurt the economy the least. This involves curbing wasteful expenditure and broadening the tax base. While the government is indeed pursuing these measures, I believe a significant missed opportunity lies in its reluctance to tax rent-seekers more heavily, as opposed to those who contribute value through their labour and who, ideally, should be taxed less.

For instance, a large corporate is defined as one that generates income in excess of a mere Rs 24 million per year, based on a three-year look-back window, and irrespective of the sector in which the company operates. Banks, additionally, are subject to an extra levy. While a windfall profit tax — which is what this effectively is — might be warranted given the significant wealth transfers from the state to large private sector entities under the previous regime, particularly through the MIC and Rupee depreciation, it would have been more advantageous to target rent-seeking activities and companies with oligopolistic or monopolistic control in certain sectors more aggressively, while maintaining low and stable corporate taxes for businesses willing to invest in government-promoted economic sectors.

Why invest in Mauritius? If you are a successful entrepreneur, why stay in Mauritius and pay higher income taxes instead of relocating to a low-tax jurisdiction like Dubai? How can we expect to attract new investments — both from foreign investors and the local private sector — within priority sectors if our corporate tax policies do not offer targeted, conditional incentives for those willing to contribute meaningfully to the economy? And how will we improve labour productivity if we fail to attract highly skilled professionals who naturally seek competitive salaries?

Third, attention must be given to extending the maturity profile at the end of the debt cycle to alleviate cash flow pressures arising from interest payments — a strategy the Government intends to pursue. While Mauritius cannot afford to undertake a debt restructuring exercise, which would be perceived as a soft default, the Budget does acknowledge significant refinancing risks in the near term. Nevertheless, the Government’s debt strategy appears to be sound.

Fourth, a government must undertake structural reforms to counterbalance the downward pressure on growth caused by the fiscal and debt-related measures mentioned earlier. While the Government has broadly identified the right growth drivers, it falls short on specifics — beyond high-level statements, there is little clarity on implementation. For instance, building a modern AI ecosystem should be driven by the private sector in close partnership with the Government. Yet, Mauritius currently lacks a robust data infrastructure, the necessary talent pool, and the training programmes required to drive such a transformation.

Even in the United States, the return on investment in AI remains negative for most organizations currently implementing solutions — though this is expected to improve over the medium term. As someone actively working in this field, I believe Mauritian policymakers and commentators are underestimating the complexity of building a modern MLOps, LLMOps, or AgentOps ecosystem, and the timeline required for such systems to deliver tangible business value. While the Government speaks of investing in R&D, the allocation — Rs 200 million spread across multiple ministries, with just Rs 25 million earmarked specifically for AI — is modest relative to GDP. In global terms, Rs 25 million (roughly USD 550,000) is barely a starting point for meaningful AI development.

More importantly, what truly hampers growth in Mauritius is the prevalence of inefficiently managed, state-majority-owned enterprises — often led by political nominees — and a private sector that remains overly concentrated, dominated by monopolies and oligopolies. This lack of competition leads to inflated prices and stifles innovation. While there has been some discussion around reforming the Competition Commission and allowing parallel imports in the pharmaceutical sector, progress remains too slow. We need to act more decisively. The Competition Commission must be granted greater powers and significantly strengthened to operate with far more efficiency and impact than it does today.

Until politicians have the courage to do away with the system of political patronage and to reduce the role of Government in running largely inefficient and balance sheet constrained companies to a minority stake and until we successfully implement more free market reforms that aim to improve free and fair competition in the country, productivity growth and overall growth will remain stuck below the 4% mark.

Our capital markets remain as underdeveloped as ever. When it comes to attracting wealth managers and investment managers to Mauritius, we face key obstacles: a lack of sufficient local mandates, persistent foreign currency shortages, and an underwhelming capital market ecosystem. The local asset management industry is also overly fragmented and suffers from outdated tools, weak processes, and a shortage of specialised skills. Moreover, management fees are not competitive by global standards. While we aspire to bring in new financial players, we must also acknowledge that considerable reputational damage has been done to our jurisdiction over the past 10 years. Rebuilding credibility and trust will take time.

In sum, while the budget has many positives, policy makers need to do much more to really boost growth and sustainably push it above 4%. Statements are good, but action and specifics are lacking. We all know we have a major problem of putting the right people at the right places with the required experience and track records to get things done in Mauritius.

In sum, while the Budget contains many positives, policymakers must go much further to genuinely lift growth and sustain it above 4%. High-level statements are welcome, but action and specifics are lacking. One of our most persistent challenges remains the inability to place the right people in the right places — individuals with the necessary experience and track record to get things done in Mauritius.

* How do you assess the Budget’s proposals aimed at attracting more diversified and productive foreign direct investment beyond the high-end real estate sector? In your view, should the government consider imposing stricter conditions on foreign property development to ensure greater value creation for the local economy?

 

The budget certainly sends a strong signal that foreign villa sales are no longer its priority.

Summary Table of Major Changes

Item	Previous Rate	New Rate
Registration duty (non-citizens, EDB)	5%	10%
Land transfer tax (non-citizens, resale)	5% or nil	10% or 30% of gain, whichever is higher
Land transfer tax (promoter, EDB)	5%	10%
Property registration (fixed duty)	Rs 300	Rs 500

 

It will be interesting to see what the impact of this sudden shock will be on the value of real estate and land assets in Mauritius. How will lower land and asset prices impact consumption given the negative wealth effect?
Given the combination of higher income taxes, increased corporate taxes on businesses generating over Rs 24 million, and rising property taxes, how this will impact foreign investment — particularly in a context where real estate has historically dominated FDI inflows? Without broader free-market reforms and investor-friendly incentives in key oligopolistic sectors, who will replace the foreign villa buyers who, while adding limited long-term value, injected critical foreign capital? And how might this shift impact the rupee, which many argue is already being held at an artificially high level despite underlying supply-demand imbalances?

Would it not have been better to implement more moderate land value taxes targeting large landowners and smart cities and gated communities without taxing improvements made on the land or the properties themselves? Land value taxation is more efficient than property taxes.

The approach of increasing taxes on rent-seeking activities is the right direction, but the method might be too harsh and sudden. Notably, property taxes on foreigners are projected to rise sharply — from Rs 2.7 billion in 2024/25 to a staggering Rs 14 billion in 2025/26. Is it realistic to expect enough foreign buyers to generate such revenue now?

* Regarding social spending, given the need to streamline support and maximize impact, how effectively does Budget 2025-2026 target the most vulnerable groups? Do you think there is enough scope and political will for a thorough review of existing welfare schemes to improve their efficiency and fairness? 

While the minimum age for BRP payments has been reviewed, the Budget doesn’t make major cuts to welfare. Instead, the wealthy are paying more to support continued welfarism — social spending. On this front, there’s little to criticize, as rebalancing the tax system was needed. The real concern is about diminishing returns if we tax the rich heavily while trying to promote investment in key sectors — especially if fiscal incentives and disincentives aren’t carefully refined. 

* Beyond corporate tax, what is your assessment of the budget’s approach to other potential revenue-generating measures, such as a capital gains tax, dividends tax, or property tax? Do you believe enough was done to broaden the tax base?

Mauritius needed to move towards a system that distinguishes better between distributable and non-distributable profits and towards a system that sets taxes differently for rent seekers vs those who wish to work and produce more in key sectors that add more value to the economy. While we have clearly moved in the right direction, I feel the approach has often been like using a hammer rather than being more targeted with taxation. We need to reward work through low and stable income taxes — perhaps even consider cutting income taxes for high earners — while taxing dividend income more effectively.

We should have kept capital gains taxes at zero even on the property side for foreigners, but we could have introduced land value taxation, one of the most efficient forms of taxation but we did not. We could have imposed higher corporate taxes on oligopolies, rent seekers and monopolies more while providing incentives to them to partly reduce their taxes if they allow more SMEs to work with them.

We should have kept corporate taxes low for corporates that seek to add value in new sectors of the economy. We should have perfected the art of using taxation to better influence the behaviour of economic actors. This means consistently offering the private sector a conditional pathway to lower taxes when they align with desired economic goals. I believe we could have been more refined in our approach.

* Has the Budget 2025-2026 taken sufficiently bold steps and offered adequate incentives to truly position Mauritius as a significant player and foster genuine transformation in emerging sectors like AI, software development, tech-based exports, and green and blue technologies?

The jury is still out on the wish list from AI to the blue economy. The Government certainly hits on the right threads, but the budget lacks details when it comes to implementation. For example, the Government talks about coming up with a tourism blueprint in partnership with the private sector but how long will this take?
Our product is outdated, hotel prices are high, and our beaches are not what they used to be. Tourists are looking for experiences, and Mauritius really struggles at offering any with good value for money. Our private sector is all about seeking incentives from Government. They need the Government to lead when it should be the private sector that leads while the Government supports.

Another example of good intent that lacks details revolves around professionalizing the way in which we manage public assets including public pension assets via a modern liability driven investment framework. Will we again create another Expert Committee of pseudo experts with little experience in strategic asset allocation design and liability driven investing? Will we bother to call the diaspora that has experience in this, or will we appoint experts within restricted circles?

We have failed to professionalize the way in which we manage public assets in Mauritius and there is not enough accountability. Returns of pension funds are below those needed to generate positive funding ratios over time, and benchmarks are badly designed. We need to revive the idea of creating a Mauritius National Investment Authority that would be accountable to parliament and would manage all public assets via multiple segregated mandates and would also help better develop the local asset and wealth management industry.

* Are there signs that inter-ministerial coordination and policy coherence will improve as a result of Budget initiatives?

Yes, the 2025-2026 Budget contains several clear measures that signal a meaningful improvement in inter-ministerial coordination and policy coherence:

Institutional restructuring: The closure or merging of agencies such as Maurice Stratégie, the Mauritius Africa Fund, and the Mauritius Institute of Biotechnology — with their functions consolidated under core ministries like the Ministry of Financial Services and Economic Planning, as well as the Economic Development Board (EDB) — aims to centralize planning, concentrate expertise, and reduce duplication of roles across government.

Transfer of functions: The transfer of community infrastructure responsibilities (National Development Unit, Land Drainage Authority) to the Ministry of Local Government is aimed at ensuring consistent and coordinated project execution in towns and villages. Similarly, the merging of the School of Nursing with the Mauritius Institute of Health reflects a drive toward more integrated service delivery and resource pooling.

Coordinated sectoral delivery: There are explicit references in the budget to greater coordination between health and social security ministries for improved healthcare services for the elderly and disabled, and the consolidation of water sector bodies (Central Water Authority, Wastewater Management Authority, Irrigation Authority) into one entity, enhancing sector efficiency and coherence.

Industrial Policy and Land Use: The creation of committees such as the Industrial Policy Coordination Committee and measures like the Land Repurposing Scheme encourage ministries and public entities to work together on cross-cutting development priorities, such as capital productivity and optimized land use.

Process alignment and oversight: New protocols for capital project management, the introduction of project coordinators in ministries, and the requirement for financial clearance before project implementation are designed to align financial and operational oversight across government units, minimizing fragmentation.

High-level monitoring: The High-Level Steering Committee at the Prime Minister’s Office is tasked with monitoring progress on flagship initiatives, especially those that span multiple ministries (e.g., Innovative Mauritius mission).

* Do you believe the introduction of a legislative framework such as a Fiscal Responsibility Act is necessary or overdue for ensuring long-term fiscal discipline and transparency?

On this front, I don’t think we can criticize policy makers too much. From the speech and annexes, it appears the Government is genuinely committed to meeting its fiscal objectives.

* In your opinion, do the Budget measures go far enough in strengthening institutional independence and improving overall governance?

The measures lay a solid foundation for improved governance, transparency, and a more accountable state, particularly in fiscal management and the oversight of state-owned enterprises. However, the absence of a decisive move toward privatisation remains notable. Ultimately, the effectiveness of institutional independence — especially for regulatory, fiscal, and audit bodies — will depend on the strength of implementation, insulation from political interference, and consistent enforcement of the new rules.

The reforms are steps in the right direction, but they fall short of fundamentally overhauling existing power structures or establishing truly independent institutions. In Mauritius, Prime Ministers hold near-monarchical powers for five years. While the current Prime Minister appears benign and seems intent on moving in the right direction, there is an urgent need for greater decentralization of power.

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Mauritius Times ePaper Friday 6 June 2025

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