Vinaye Ancharaz, economist: “The injection of liquidity into the money supply will cause a surge in prices”

Social resilience was one of the areas favored by the Minister of Finance in the 2024-25 Budget. Will social measures reduce inequalities as Renganaden Padayachy claims?
First of all, it would be essential to define the meaning of inequality that the Minister of Finance is talking about. Renganaden Padayachy described the introduction of an Equal Opportunity Allowance as historic. A sum of Rs 2,000 will be granted to each household which earns less than Rs 20,000 per month. This is a good measure. However, this is not enough. The method chosen by the Minister of Finance to manage the cost of living is not adequate. Mauritius is dependent on imports. Addressing imported inflation and devaluation of the rupee would have addressed the root of the problem. Nothing has been proposed in the 2024-25 Budget to mitigate this problem. Measures to control the price of medicines and reduce the cost of fuel were expected. We have been entitled to palliative measures whose positive impact on the erosion of purchasing power will be ephemeral.

The salary structure within companies will be turned upside down”

What are the economic repercussions that could result from these social measures and where will the government get their funding from?
The Minister of Finance chose to manage the loss of purchasing power by granting more money to households. The revision of the guaranteed minimum income and the Basic Retirement Pension (BRP) and the series of allowances reflect the approach of the Grand Treasurer. The injection of liquidity into the money supply will cause a surge in prices and, in turn, inflation. This is a way of fueling the inflationary spiral, which allows the government to generate income. The government collects the inflation tax and money from Contribution Sociale Généralisé (CSG) contributions. This is where the financing of social measures is partly drawn from.

Will the increase in the guaranteed minimum income to Rs 20,000 have a positive influence on productivity?
The minimum wage increased from around Rs 11,000 to Rs 16,500. The government had proposed Rs 2,000 in the form of CSG Allowance. This first revision was not without consequences for businesses. The government has said it will provide financial support to businesses. However, it turns out that several companies are still waiting. The guaranteed minimum income will increase to Rs 20,000 from July as announced in the Budget. We understand that the government will be responsible for the differential amount. The real question lies in the psychological impact of this new salary revision on employees. A beginner with or without qualifications will now receive a salary of Rs 20,000. There are employees who, after several years within a company, benefit from a monthly remuneration of Rs 21,000. There are even graduates, whose current salary is Rs 22,000. Isn't this unfair to them? What is the message sent to the population? That effort and education are no longer necessary? This causes frustration among employees and the risk of an amplification of the brain drain is very real. It is a reduction in inequalities which increases injustice.
Furthermore, the salary structure within companies will be turned upside down, especially since a review is planned according to the Minister of Finance. The operating costs of businesses and their competitiveness will suffer the consequences.