2 July 2008
column
Port Louis — The MEF lays emphasis on the host of social measures that characterise the 2008-2009 Budget, saying that inflation, education, food and energy security as well as poverty alleviation have been given due attention. However the economic recovery remains fragile given the difficult and unpredictable international economic environment.
Around Rs 42 billion have been announced in the Budget 2008-2009 to reduce traffic congestion and modernise our road networks.
Introduction
The presentation of the 2008-2009 Budget Speech provided the stage for the Deputy Prime Minister and Minister of Finance and Economic Development to unveil Government's 'AMIGO' plan for building an Attractive, Modern, Inclusive, Green and Open Mauritius.
Boasting an improved macroeconomic performance that has been delivered thanks to economic reforms initiated since 2006, Government has been able to conjure up sufficient fiscal room to address some of the major economic and social concerns of the Mauritian economy whilst bringing down the budget deficit as a percentage of GDP and granting a Rs5.2 billion payout to public sector employees.
It is noteworthy that much of the pre-Budget expectations of employers in terms of the pressing economic and social issues that needed to be addressed in the Budget have been realised. Inflation, education, food and energy security, infrastructural bottlenecks and poverty alleviation were some of the important concerns of employers according to an opinion poll conducted by the MEF.
Inflation and Purchasing Power
Although the responsibility for maintaining price stability and keeping inflation in check lies with the Bank of Mauritius, Government may use fiscal measures to influence prices and the purchasing power of consumers. Thus, in order to increase the disposable incomes of households and provide some relief from the continuing loss of purchasing power due to high inflation, a proposition by the MEF to raise the income tax exemption thresholds has been retained. Nonetheless, the increase of Rs 25,000 is on the low side considering the MEF had proposed a rise of Rs85,000.
Government has resisted calls for a reduction in Value Added Tax (VAT) which would have applied to a larger basket of goods and services and instead opted for a reduction in customs duties on many imported food items and other articles commonly used by households to the tune of Rs1.8 billion. The Budget contains several social measures to alleviate the hardship of consumers in lower income groups, for instance, an increase in food aid, old age pensions and other social benefits, scholarships to students from poor families and the writing off of non-performing Development Bank of Mauritius (DBM) loans.
These measures come on top of the existing subsidies on basic food necessities such as rice and flour and cooking gas. The decline of the budget deficit to 3.3 percent of GDP and the introduction of Programme-Based Budgeting (PBB) to ensure greater efficiency of public expenditure are commendable measures that may help in the containment of inflation but it is feared that the increase in money supply caused by an average of 36.9 percent salary increase in the public sector and the likely spill-over effects on private sector pay could well give rise to heightened inflationary pressure in the economy.
Education
The Budget lays particular emphasis on raising the educational level of our human resources to support the development of an increasingly service oriented, knowledge based economy.
Government has set the target of doubling the tertiary enrolment ratio by 2015 and several measures have been contemplated for improving access to higher education including the creation of a Human Resource Development Knowledge and Arts Fund of the order of Rs1 billion which will finance the upgrading and building of physical infrastructure for tertiary education, student loan schemes and scholarships as well as specific training and skills projects.
There is little focus, however, on the overall quality of education in Mauritius and a holistic approach to education, training and skills development in general is lacking. A multi-pronged strategy should have been adopted for improving the employability of youths, the workforce of the future; upgrading the skills of the adult population, the current workforce; enhancing the employability of the unemployed and those currently excluded from the labour market; ensuring the development of skills is consistent with the needs of businesses and expectations of society; and instilling a culture of lifelong learning and skill upgrading.
Moreover, the budgetary measures do not deal with the cumbersome training environment which on the one hand does not encourage employers to upgrade the skills of their workforce and on the other does not induce private sector institutions to invest in the education and training sector. Similarly, measures to optimise the use of the training levy grant scheme, especially by SMEs, as called for by the MEF, would have helped to expand workplace learning which is essential for boosting the skills of workers and enhance the competitiveness of enterprises.
Food and Energy Security
Food and energy security have become important priorities for Government in the face of the global food crisis and the rising prices of petroleum products. The mobilisation of resources to boost production of food locally and in the region as well as the promotion of sustainable development through initiatives aiming at increasing the use of renewable sources of energy, encouraging energy efficiency and recycling are laudable. These remain long term endeavours and as such, the commitment and momentum for achieving food and energy security must be sustained over time.
Infrastructure
The present state of our public infrastructure does not match the development needs of the economy. Bottlenecks are, in fact, impeding the competitiveness and growth of many Mauritian enterprises. Numerous projects valued at around Rs42 billion have been announced in the Budget 2008-2009 to reduce traffic congestion and modernise our road networks, port, airport, water supply and sanitation infrastructure.
Half of the total value of the projects will be spent in the next three years and many will involve Public Private Partnerships (PPP). Government is also favouring a strategic approach to resolving the problem of inadequate infrastructure with the development of a Ten Year Infrastructure Development Plan.
These measures underline the vision to transform Mauritius into a modern economy with state of the art infrastructure and one can only hope Government will be able overcome the usual delays associated with the implementation of infrastructure-related projects and that its good intentions will be translated into concrete actions on the ground.
"The Bank of Mauritius has already expressed concerns over the possible return of double digits inflation as it assesses the impact on consumer demand of the sizeable salary increase in the public sector and the likely adjustments in private sector pay to follow."
Business Facilitation
Mauritius aims to be amongst the top ten economies of the world in terms of the ease of doing business. As such, the system of business licensing is being further simplified. A Commercial Division in the Supreme Court to facilitate the settlement of commercial disputes has also been announced and all permits relating to imports and exports will be abolished except for the absolute essentials.
The latter remain to be defined. Bureaucracy also imposes a heavy cost on doing business and is an important disincentive to investment. The MEF had proposed an ongoing framework for the appraisal and reduction of red tape through a high level body to review bureaucratic hurdles in public administration.
Yet no specific mention is made in the 2008-2009 Budget Speech with regards to bureaucracy per se. Although, it can be argued that the PRB report calls for a modern approach to human resource management, akin to private sector enterprises, favouring productivity, quality of service, efficiency and flexibility.
It also lays emphasis on the need for training and calls for more professionalism on the part of public sector employees. If implemented, these recommendations should lead to a much improved public administration that will contribute to a conducive business environment for higher investment and growth.
Enterprise Development
Budgetary measures in respect of enterprise development and SMEs include the creation of a Manufacturing Adjustment and SME Development Fund, with an initial contribution of Rs500 m, to help enhance the global competitiveness of Mauritian enterprises. This is in line with the MEF proposal for an Enterprise Upgrading Programme.
The specifics of the Fund is yet to be defined and it would be more useful if financial support to enterprises was accompanied by advice on how to improve the methods of production, invest in new technology and IT, enhance quality, develop human resources and adopt modern management practices.
There is also a broadened access to finance for SMEs and here the Budget emphasises the importance of giving non-financial support as well. The MEF has pioneered the concept of SME mentoring in Mauritius and has long called for entrepreneurs who are given finance to be mentored so that they can improve the survival and growth prospects of their business.
Pensions
Government has reiterated the increase in the retirement age from 60 to 65 years. Other reforms to the pension system include allowing portability of pension from 2 years of service to promote labour mobility, strengthening the governance of the National Pensions Fund (NPF) and National Savings Fund (NSF) and providing for a regulatory framework for private occupational pension schemes.
It is hoped that the administration of the NPF and NSF is reinforced with particular emphasis on management, investment strategy and transparency. Additionally, the private pension schemes regulatory framework should strike a balance between protecting beneficiaries and being business friendly so as to encourage more employers to set up such schemes for the benefit of their employees. The MEF is also of the view that the Budget could have encouraged workers to save more toward their retirement by allowing them to contribute to the NSF.
Social Measures
A pre-Budget opinion survey conducted by the MEF revealed that enterprises are generally sensitive to the plight of the poorest. The development and growth of business is dependent upon an economy that has appropriate redistribution mechanism in place to ensure the wellbeing of all the different segments of the population and hence promote a stable and secure social environment in which enterprises can thrive and create jobs.
The MEF is, therefore, supportive of the social measures announced in the Budget Speech 2008-2009 in particular with regards to the eradication of absolute poverty. Though, it should be noted that themes like law and order and the quality of health care which figure amongst the most important social concerns of employers have not been stressed in the Budget 2008-2009.
Conclusion
The 2008-2009 Budget builds on the achievements of the two previous reforming Budgets in 2006 and 2007 in addressing some of the major challenges facing the Mauritian economy. It seeks to tackle global issues like rising energy prices and food security as well as more domestic related concerns such as infrastructural bottlenecks, access to higher education, declining purchasing power and poverty alleviation.
The Budget also imparts a spirit of sharing characterised by a host of social measures to improve the living conditions of the neediest. The payment in full of the PRB recommendations demonstrates Government's improving financial position and ability to pay.
However, attention must be drawn to the fact that despite the creditable macroeconomic performance since 2005 and a 'bumper crop' in terms of Government finances this year, the economic recovery remains fragile given the difficult and unpredictable international economic environment.
There is no doubt that the Mauritian economy has turned the corner and halted a secular decline but we cannot afford to underestimate the existing risks to the economy. Oil and food prices are likely to remain high in the foreseeable future and the global economy may not have seen the full effects of the US financial crisis.
Furthermore, the Bank of Mauritius has already expressed concerns over the possible return of double digits inflation as it assesses the impact on consumer demand of the sizeable salary increase in the public sector and the likely adjustments in private sector pay to follow. The resilience of the economy and optimistic growth forecasts of 6.2 percent for 2008-2009 may well be sternly tested.
Vishal Ragoobur Economist
Be the first to Write a Comment!
Copyright © 2008 L'Express. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
