• Rama Sithanen talks about “financial crime” and “corporate greed”
  • The BoM will introduce “guidelines” to regulate the “forward market”

Obtaining dollars, euros or other currencies has become a real headache for both individuals and businesses. Worse still, forex transactions are essentially done on the “forward rate”, which means that they cost more. How long has this situation been going on?
For what ? And how to fix it? Point !

The situation and causes

Lack of foreign currency

Since the start of the year, the machine has been stuck and a shortage of foreign currencies persists, notes Cédric Béguier, Head of Investment Strategy – Capital Markets at AXYS. “Several independent Asset Managers seem to be having difficulty meeting the foreign exchange requests of our clients via commercial banks and a secondary market seems to be taking shape via local or foreign companies which provide liquidity at costs much more expensive than that of the market” , he observes.

For his part, Alexandre Sanchini, Chief Executive Officer of Blue Ship Capital, underlines that the lack of foreign currencies on the Mauritian market has been a reality for several years already. The supply of foreign exchange is very limited, he maintains. “Concretely, if you ask your bank or exchange agent to exchange your rupees for other currencies, in particular the dollar or the euro, this is not possible, or in very small quantities,” says he. Priority, he continues, will be given to those whose needs are priority, for example, for medical reasons, for studies, for import of basic necessities. “If it is for an investment, a vacation, a purchase that is not essential, the chances of obtaining foreign currency are very low,” he adds.

Rama Sithanen, former Minister of Finance, also sounded the alarm on the currency situation on Radio Plus. He deplores an abuse of the “forward rate”. The “forward rate” is a futures contract on transactions in financial instruments, particularly currencies. The principle is as follows: you place an order with a credit institution (a bank) for the purchase or sale of currencies. It is after a certain period defined in the futures contract (for example, after a week) that the order is executed. “The forward rate was reduced by the banks over one to three days. What happens is that, for example, the price of the dollar is displayed at Rs 47, but with the “forward rate”, we buy it at Rs 49 in a short period of time. We have never seen anything like this. This is unacceptable ! », Explains the former Minister of Finance.

Shortage and high currency prices

The paradox

It is a fact ! The days of the pandemic when foreign exchange barely entered the country are over. Moreover, the Governor of the Bank of Mauritius speaks of a return to normal. But, if foreign exchange enters the country through tourism and exports, how can we explain that there is a shortage in the market? For Alexandre Sanchini, there are two possible reasons. “It is the Bank of Mauritius which controls the quantity of foreign exchange which is allocated to individuals and companies which request them, and the BoM limits these amounts enormously. It is not easy to know why exactly, my opinion is that this mainly serves to rebuild their reserves which had decreased significantly since Covid-19,” maintains Alexandre Sanchini. Secondly, he continues, the operators who receive the currencies (hoteliers, exporters, etc.) “keep them preciously whereas they tended to exchange them for rupees immediately in the past, when there was no shortage “. For Alexandre Sanchini, the shortage is due to the Bank of Mauritius. “The operators act as such as a result of this posture,” he believes.



The consumer finds himself, despite himself, at the center of the currency shortage and the sliding of the rupee. Because, in the end, it is he who pays the high price through inflation. “In an essentially importing economy like Mauritius, the devaluation of the rupee is very penalizing for the consumer, since it is he who suffers from imported inflation. It’s a kind of very unfair tax because it hits hard on households who use most of their income for consumer spending,” says Alexandre Sanchini. In addition to consumers, importers, students and investors are also penalized by the lack of foreign currency on the market.

… importers

Yusuf Sambon, director of Lolo Hypermarket: “Our suppliers take us for deadbeats”

“The significant shortage of foreign currency is affecting us. I need a large sum of dollars to pay for equipment (cash boxes, shelves, etc.) imported from South Africa because we are doing renovation work in our hypermarket. However, we cannot get foreign currency. I had to resort to the “forward rate”. I would then have some of the currency next week, but at a higher rate. In the end, I lose out, but I have no choice,” laments Yusuf Sambon, director of Lolo Hypermarket. As for food products, the importer says he has orders waiting abroad, but he does not obtain the necessary foreign currency to pay for them. “Since January, we have been facing this situation, but now the situation is getting worse. Suppliers send us the products, but we don't have the dollars to pay for them. We look like deadbeats. It’s our image, but also that of the country, which is taking a big hit from the suppliers who sell us food,” laments Yusuf Sambon.

Mohammad Iqbal Hoosseny, director of Épicerie de l’Est: “We are starting to have problems with our suppliers”

Mohammad Iqbal Hoosseny, director of the Eastern Grocery (Best Foods Enterprise), does not hide his concern. “We don't have the amount of foreign currency we need. We have to queue, as they say. This situation has persisted for several months, but is becoming more serious. Money transfers remain on hold. We are starting to have problems with our suppliers. They no longer want to deliver to us. They think we don't want to pay when it's the banks that won't give us foreign currency. In short, we have no currency, the rates are higher when we can obtain it and we are losing our reputation with suppliers,” summarizes our interlocutor.

Shortage and high currency prices

The lack of foreign exchange and its effect on the rupee

Alexandre Sanchini, argues that the cause and effect relationship is not as simple as it seems. “Proof being that such a lack of foreign currency in Mauritius should have resulted in a much more frank devaluation of the rupee. Exchange rates are also managed by the Bank of Mauritius, to avoid any too sudden movement. The rupee is a structurally declining currency, which is entirely desirable for a developing country like Mauritius, because it allows it to be competitive on exports (including hotels), to regulate inflation , to manage debt, to facilitate growth…”, affirms Alexandre Sanchini. It shows that the rupee depreciates over a very long term average of 3% to 4% per year against the dollar. “And the last few years have been quite classic,” he opines.

What recommends…

Alexandre Sanchini, Chief Executive Officer of Blue Ship Capital: “The devaluation of the rupee has always been very gradual, and for this, we must recognize the good work of the Bank of Mauritius. There are a lot of countries which have had very strong devaluations of their currencies recently (Turkey, Argentina, many countries in Africa), which are catastrophic each time… The devaluation of the rupee is desirable, at a low and regular pace. , to support the growth of Mauritius. And the mandate of the Central Bank is rather well fulfilled from this point of view. On the other hand, it would be preferable if currencies were more easily available to private operators and individuals.”

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