The International Monetary Fund has made recommendations to improve the state of Mauritius' economy. The ball is now in the court of the Minister of Finance who will very soon present the 2024-25 Budget.
Following Article IV consultations with Mauritius, the International Monetary Fund (IMF) concedes that the country's economy has rebounded strongly from the pandemic. The growth of Mauritius' real gross domestic product (GDP), which reached 8.9% in 2022, is estimated at 7% in 2023, according to the IMF.
However, the institution's delegates believe that in the future, it will be difficult for Mauritius to guarantee a sustainable and resilient economy. The main reason is that fiscal and external buffers have been eroded during the pandemic. IMF Executive Directors acknowledge that challenges and downside risks remain.
This is why they call for the continuation of prudent policies for Mauritius. The idea is to replenish the budgetary and external shock absorbers. Directors suggest gradual, growth-friendly fiscal consolidation in the medium term to rebuild fiscal reserves and further reduce public debt.
They recommend mobilizing tax revenues and containing current spending, while preserving essential social spending to protect the most vulnerable. Administrators recommend strengthening public financial management, notably by rationalizing special extra-budgetary funds.
The IMF's Article IV ratings on Mauritius came at a time when the Finance Minister's grand oral presentation is fast approaching. The 2024-25 Budget will be presented on June 7. After a decline of around 15% in 2020, the vulnerability of the local economy was exposed to other external shocks.
In view of the Budget, what approach should Renganaden Padayachy adopt in relation to the IMF recommendations? Azim Currimjee, economic observer and Managing Director of Quality Beverages Ltd (QBL), believes that a good balance is essential.
“There is nothing restrictive. The government has always taken macroeconomic priorities into consideration. The figures for the debt ratio in relation to GDP demonstrate, for example, that the country has progressed. This trajectory is expected to continue. I think that the IMF’s recommendations will be taken into account,” he says.
Faced with the neutrality of the IMF administrators, a cautious approach is proposed by a Chief Executive Officer (CEO) operating in the private sector. This warns against the fact that Mauritius finds itself in a vicious circle which accelerates the welfare state and which is not sustainable in the medium and long term. “The local economy will need to generate significant growth of between 6% and 8% to be able to support a social policy,” he explains.
Socialist
With the elections in its sights and the 20 measures announced by the opposition alliance, the government should try to refine its means of attracting the electorate. “We are in a year of campaigning and elections. We will therefore probably have a social budget aimed at attracting votes. Moreover, social takes precedence over the economy for any government which presents a final budget of its mandate,” indicates the CEO of the private sector. However, the violins do not seem to agree on the government's side. On the one hand, the Minister of Finance indicates that instead of being a “labous dou” Budget, the measures will be oriented towards improving the living conditions of Mauritians.
On the other hand, Parliamentary Private Secretary Prakash Ramchurrun contradicts Renganaden Padayachy by asserting that the 2024-25 Budget will be “labous dou” and will meet the expectations of the population. The private CEO points out that a socialist and populist budget has an economic cost. It would therefore not be very wise to further burden the country's debt, which is estimated at Rs 524 billion as of March 2024.
Azim Currimjee emphasizes, for his part, that it is preferable to wait for the budget speech to have clear ideas. “The last budgets presented by Renganaden Padayachy had an economic balance. The sharing of economic gains was done without affecting growth. Appropriate measures that are aligned with a principle of healthy growth will be taken for the next Budget,” he concludes.
