The 2024-25 Budget should not include austerity measures given the electoral context, says Gérald Lincoln. In this interview, the EY Country Managing Partner discusses the opportunities that a “real opening” of the country to foreign talent would represent while sounding the alarm on the fact that there are more people leaving the country than of foreigners who arrive.

In a few hours, Renganaden Padayachy will do his Grand Oral. Many observers expect a popular, if not populist, Budget given that we are in an electoral context. Are we heading towards this scenario?

It is almost certain that there will be no austerity measures. In an election year, there will be quite a few popular measures announced. It's not any worse because it's part of democracy. A government thinks about elections and votes. It is natural to have popular measures in an end-of-term Budget.

This Budget will have a very strong social component. In particular, we should expect a series of measures in favor of purchasing power which will really leave an impression. Will the economy be relegated to the background in favor of social issues?

It's not contradictory. It is not because there is a lot of social issues that the economy will be relegated to the background. The Minister of Finance will take popular measures such as lowering the prices of household gas or fuel to directly hit the pockets of Mauritians. This is normal during this election period. The economy will not be forgotten in my opinion. Let us not forget that the goal of a government is to stimulate the economy and facilitate growth.

The possibility of a drop in fuel prices cannot be ruled out. Should we not instead review the structure of fuel prices which include a series of levies not related to fuel?

Yes ! It's time. There are contributions that have no place in the price of gasoline. I think the government will reduce the price of gasoline by removing unnecessary items.

The government is also expected on the question of salaries. Rumor has it that the payment of a 14th month will be enshrined in law. Will businesses, particularly SMEs, be able to withstand such a financial shock?

It would be dangerous to unilaterally impose a 14th month for all workers. Some companies will be able to afford it. Others already do it, or even pay bonuses that exceed the 14th month, particularly in the financial sector. But, for many businesses, this will become a cost imposed by the state. A cost which will increase the salary cost and many companies will not be able to pay.

It is the accumulation of years of growth that will result in a “trillion economy”. That said, this number means nothing. What we really need is that we need to work more and produce more. Productivity must increase in the country.”

After each Budget, the eternal question is the execution of budgetary measures. Are there any improvements to be made at this level?

Yes, there is more accountability today. The government is obliged to implement what it announces because there is more transparency and the press plays its role. In the past there have been a lot of announcements, but barely half have been implemented. In the current context, most measures, especially policy decisions, have been implemented. However, large infrastructure projects take longer and are complicated to get off the ground. For example, we have been talking about the Rivière-des-Anguilles Dam for several years, but its construction is still pending.

In the wake of the Budget, shouldn't we fear an escalation in terms of popular measures, particularly from the opposition?

The opposition already announced on May 1 that it would introduce a year of maternity leave in the event of victory. With the Budget, the risk of overbidding is there. At the same time, it's not an exaggeration. The government decides on its Budget. The opposition will criticize by saying that it will do more and better. This is part of the game of democracy. That said, I do not think that the Minister of Finance will be influenced by the measures announced by the opposition. I don't think it will come with the maternity leave measure.

The Budget is also an opportunity for the government to deliver its forecasts on its income and expenditure, and to take stock of the country's main economic indicators. What effect can a good Budget have on key indicators such as growth, inflation, employment and the current account?

The decisions announced in the Budget have a direct effect on what happens in the country. I will give you two examples: fiscal measures and monetary measures. These are two levers available to the government. If the government, for example, lowers taxes, this will stimulate the economy. If VAT, which is at 15%, is reduced to 10%, consumption should increase. Who says less tax, says more consumption and that is what will stimulate the economy. What we call, in the jargon, growth through consumption. If monetary measures are taken – i.e. a reduction in the interest rate – this will stimulate investment because the cost of money will fall.

Large amounts are contributed to the CSG, but they find themselves drowned in all public expenditure. We should return to a specific fund system where the beneficiaries are only those who contribute to the CSG.”

The Ministry of Finance's growth forecasts for 2024 are much more optimistic (6.5%) than those of the International Monetary Fund (4.9%). What explains such a gap?

Put two economists together, they will never make the same forecast. The truth is undoubtedly between what the two advocate. The Minister of Finance wants to show a positive image than it actually is. The IMF is very credible and makes forecasts that hold up. But, the most important thing is the trend. Whether we have a rate of 4.9% or 6.5%, it is that we have growth that remains the most important.

In the first draft of its Article IV on the country, the IMF indicates that Mauritius' GDP will increase from Rs 722.7 billion in 2024 to Rs 1,000 billion or Rs 1 trillion in 2029, an increase of 38%. How can the country achieve this goal?

If we manage to grow the economy year after year, we will achieve these forecasts. It is the accumulation of years of growth that will result in a “trillion economy”. That said, this number means nothing. What we really need is that we need to work more and produce more. Productivity must increase in Mauritius. It is not by increasing wages that we become richer. If nothing changes, we won't get rich. It's productivity and efficiency that count. I am worried about the very marked “brain drain” that we have in the country. We don't talk about it enough. We are not going to achieve this “trillion economy” if our young talents leave.

The IMF recommends reforming the Generalized Social Contribution (CSG) and that it only be paid to contributors. At the same time, the question of using the CSG to finance social protection policy remains problematic. Are you in favor of an overhaul of the CSG and the pension system more generally?

Yes, on two levels. Targeting is necessary. The pension should not be universal; it must target those who really need it. With the aging population, the number of beneficiaries will continue to increase. This will become a huge burden on public spending. For the CSG, the situation is quite worrying. It is not a fund like the National Pensions Fund (NPF). Large amounts are contributed to the CSG, but they find themselves drowned in all public expenditure. We should return to a specific fund system where the beneficiaries are only those who contribute to the CSG. However, currently, the CSG is simply a tax.

The Bretton Woods institution is making a new plea for greater independence for the Bank of Mauritius. Why is this necessary?

It is very important that institutions such as the Bank of Mauritius, but also the police force, the judiciary, the Financial Crimes Commission, among others, are managed independently of the powers of the day. Let's talk about the Mauritius Investment Corporation (MIC), which has been widely criticized. I think it's a good thing that we created it because it helped the Mauritian economy cope with the pandemic. It would be good for the MIC to be managed independently.

The government is often criticized, rightly or wrongly, for letting inflation slide and favoring the slide of the rupee. Four years after the start of the pandemic, should we review this policy?

It is market forces that are supposed to dictate the value of the rupee. This implies that there is no intervention on the part of the State or the Central Bank. That's the principle. But, in reality, we all know that the BoM regularly intervenes to prevent the rupee from sliding. It intervenes to prevent inflation. At the same time, there is a limit to the number of interventions she can make. The BoM's dollar reserves have fallen. This implies that the rupee is overvalued.

The IMF is calling for a structural transformation of the Mauritian economy. This joins the call of a number of observers who, for years, have been pleading for reforms. What reforms does the country need?

That's the million dollar question. Everyone has their own point of view. A reform that is easy to make, but which we do not do is a real opening to foreign talent. By foreigners, I don't necessarily mean the rich, but people who have talent, who want to work and who will bring new ideas to the country. Which will bring a change of direction. I'm not talking about counting on 5,000 Occupation Permits either. It's a small number. You have to think big. It is a structural reform which would change the Mauritian environment. Often, measures in this direction are announced, but the reality is that not many people come. There are more people leaving the country than foreigners arriving.

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