As the era of artificial growth and individual prosperity reaches its limits, the dour realities of the hard-knock life hit home.
Stemming from supply chain-related issues, if the surge in consumer prices was assumed to be "transitory", inflation is now a major concern in the equation of economic planning, pushing our central bank, government, and even corporates and households, into yet another challenge; credibility testing. Deep into entrenched inflation, with a Core 2 rate of 7,3%, rather than ponder whether the BoM has been ahead or behind the curve in tightening monetary policy to control inflationary pressures, we should now be ready to deal with the realities of the day; focus on constructive arguments; and work on painful, but necessary, reforms.
Our reality is that this inflationary situation is bound to stay for a while until anchored through proper and restrictive fiscal and monetary policies. In simple terms, the era of easy-credit facilities, low-interest rates, no-deposit loans, overconsumption, debt-fuelled growth, and capital-impaired central banking, including quantitative easing (money printing), is over. The collateral damage of globalisation and/ or short-sighted policies, local economic dilemmas are not dissimilar to many other countries' headaches, including developed economies like the United States, i.e., undercapitalized central banks' balance sheets, heavy public and private sector debts, current accounts and budget deficits, excess liquidity in the financial markets, all weakening our capacity in applying effective counter-inflationary measures.
In our case, facing our reality also means that there's no easy way out. Oblivious to the risk of electoral backlashes, the central bank and the government should go ahead with hard-hitting measures, however tough they may be. For instance, battling inflation de facto implies a rethinking of the actual economic growth scenario, i.e., the consumerism model. In this context, monetary policy tightening through the gradual increase in interest rates is necessary; fiscal consolidation through the reduction in overall, non-targeted social expenditures is necessary; better management and a more cautious public sector internal and external debt strategy are necessary. Equally, a refocusing on our productive economic sectors' development, together with pro-active strategic economic diplomacy, is needed. There can no more be any tolerance for window-dressing practices in central banking, and most importantly, no question of continuing to rely on easy monetary financing of public expenditures.
The latter would mean that the remaining printed money with the MIC has to be retransferred to the BoM for recapitalization. The corporates need to share the burden of the national fight against inflation. As there's nothing like a free lunch, the government's disbursements to the private sector during the Covid-19 period to support salaries and prevent business closures now need to be returned to the state, be it through the imposition of temporary charges or taxes. Moreover, households need to be more cautious in their debt-taking and spending decisions; public funds need to be better managed with a greater focus on productive priority projects and the cutting down on non-priority expenditures, for instance, travel expenses for the whole public sector.
Of course, taking bold actions is never that easy; interest rate hikes need to be in line with local debt realities to safeguard the overall financial stability; lower reliance on government would mean that private companies will have to open their capital and review their debt dependence growth strategies; national political responsibility, both for government and opposition, would mean less populist expenditure policies like the old-age pension, for instance. National responsibility would mean accepting that there's a price to pay for every citizen; indeed, it's now time to foot the bill for BoM's money creation to support salaries during the pandemic, be it through high fuel prices. Central banking responsibility would imply accepting higher bid rates on bills to mop up excess liquidity even though it will show through its weak monthly financial statements, and the list goes on and on...
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All this leads to the following conclusion; yes, there has been a lot of mismanagement of the economy, both in the private and public sectors, but what do we do next? Yes, there are international pressures and economic constraints like an appreciating dollar, but what do we do next? We all already know that we're in a dire situation. Economists, politicians, private sector industry captains, etc, should join hands and use their collective minds to lead us out of this situation. Now is the time to focus on how to get back on track, rather than why we fell off track... Now is the time to show our true solidarity and patriotism - our true Mauritianism!
