Mauritius: Covid-19 - Economic impact and response

We have witnessed two crises of unprecedented dimension in a span of twelve years. The memory of the financial crisis in 2008 is still fresh in our minds. Now the world is gripped with the COVID-19 pandemic which started in China but has rapidly spread like bonfire to a large number of countries. Besides taking its toll in human lives, it has wide implications for all economies forcing governments to take drastic measures to deal with the crisis. Mauritius is no exception.

Just like in 2008 when the Government adopted a stimulus package to face the financial crisis, this time it has come up with a package of measures to alleviate the impact on the economy, particularly the sectors which are directly affected. There is no doubt that the government has acted swiftly and vigilantly to face the pandemic and take decisive actions. We will analyse some features of the support plan to enterprises which is expected to mobilise Rs 9 billion.

Support measures

The measures announced are predominantly in the monetary field notably, the repo rate, the Special Relief Programme, the 2020 Savings Bond and easing of Ban-king Guidelines.

In this respect, the Bank of Mauritius is called upon to play a crucial role in driving us through this crisis akin to its counterparts in other countries. Other public institutions or bodies will have a complementary role to assist enterprises in their fields of expertise, e.g. SIC, DBM, SME Mauritius, Agricultural Marketing Board, Air Mauritius etc.

They are meant to provide sup-port to enterprises especially regarding financial costs. The reduction in the repo rate from 3.25% to 2.85% sends a strong signal to businesses to maintain their activities. However, in the present circumstances clouded in uncertainty, it seems unlikely for enterprises to wish to increase their level of indebtedness further. As the saying goes, we can bring a horse near a river but cannot force it to drink.

The Government has favoured the provision of funds rather than direct grants to enterprises. This is not surprising since our budget is already overstretched leaving little scope for direct financial assistance.

There are very few fiscal measures taken such as the Double Tax Deduction on Investment and the Environment Protection Fee. Enterprises affected by COVID-19 will be entitled to a double deduction in plant and machinery for the period March-June 2020. Presently, the priority of enterprises is to minimise losses or remain afloat. Decision to invest is a long process and granting three months for such investment to materialise is too short. The Environment Protection fee will provide some relief to tourism operators since it contributes over Rs 400M annually.

Other measures are mere palliatives or window dressing. For instance, the impact of a reduction in training levy for the next 4 months will be small; it will hardly cost Rs10M. Discounts in purchases at the duty-free shop or purchase of a maximum of 3 litres of spirit will depend on our ability to attract more tourists which in the present context appears unlikely. Likewise, promotional fares and hotel dis-counts will have limited impact on tourism given the move towards lockdown of many countries.

"The governmenthas favoured the provision of funds rather than direct grants to enterprises. This is not surprising since our budget is already overstretched leaving little scope for direct financial assistance.

Most of the measures are time-bound and for the short term only ending in July 2020. They are made on the premise that the crisis is temporary and the economy will resume its growth path sooner rather than later. This sounds very optimistic. Even if there is a reversal of the situation quickly, visitors will not be pouring in overnight. The recovery is bound to be gradual and it will require further investment in marketing. The validity of the measures for a longer period would have been more realistic and effective.

Apart from the repo rate which applies to the entire economy, other measures are selective and targeted. They are related to tourism, manufacturing particularly exports, SMEs, agro-industry and health. The health sector has a level of preparedness to cope with the crisis judging from the actions taken so far. The government is concerned with the availability of agricultural products like potatoes, onions and garlic. Besides ensuring their availability, it plans to boost production in future. This is a commendable decision as food security is strategic.

The impact

The tourism industry which has been the silver lining among the clouds for two decades is the most severely affected. Given its linkages with other sectors and services and its high multiplier effect, it is bound to impact on many industries, large and small, to wit, Air Mauritius and operators like SMEs, planters, hawkers and the taxis.

With the partial lockdown of the country from Europe which is our main market, the situation will be further aggravated. Obviously, hotels will not be able to maintain employment levels and the spectre of temporary layoff is looming but the plan does not provide any measure to support workers in the industry.

The pandemic will definitely affect our economic growth more severely than the financial crisis. We may recall that the economy grew by more than 5% between 2006 and 2008. The growth subsequently fell to 3.3% before pic-king up to 4 % for 2010 and 2011. We were able to weather the storm. This time growth is projected to fall to 2.6%-2.8% from the projected 4% for 2020 but the worst case scenario projects a negative growth leading the economy into a recession. The impact will be more pronounced given the already sluggish growth of the economy; we are reeling to reach even 4% for the past eight years.

It appears that we had more room to manœuvre in 2008 than we do have now. We often talk about resilience of the economy. Over time, the degree of resilience to external shocks has diminished for a number of reasons. Suffice to state here that our key sectors are not in good shape to help us tide over a crisis. More importantly, no new sectors/industries/pillars have emerged to cushion any adverse impact on the economy in the past fifteen years.

In the wake of the pandemic, the population and economic operators are concerned about availability of products. The supply chain is severely disrupted. We are highly vulnerable to external supply shocks. It may seem ironical that this year's theme of Independence Day has been "la natir nou lavenir". We could as well say that we owe our survival to agriculture. The question of food security comes to the fore. This is another area where we need to have a proper strategy and to which we have often paid lip service.


This pandemic should sound a wake-up call and provide food for thought for our long term national and sectoral strategies. Our policies should be based on long term rationale rather than meet short term expediency. Some of the measures contain the seeds of a future strategy which can be further nurtured, for example, food security strategy and SME strategy. Is it not opportune to generate a minimum of our basic needs? Should we think of SMEs only during a crisis or should it be an integrated part of our development? We should always prepare for a rainy day in our planning.

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