Kevin Teeroovengadum, regular contributor to l’express-économie views the current crisis to be more complex than the financial crisis of 2008. As such, he thinks the world is getting into a technical recession within the first and second quarters of this year. This being said, he will not be surprised if BOM will come out with further cuts of the repo rate.

Government has come out with a package of measures to the tune of Rs 9 billion, aimed at assisting financially operators affected by the economic impact of the Covid-19 virus. What is your take on these measures? Would you say, as many specialists and political observers claim, that this package is insufficient to deal with this financial crisis?
Since the announcement of the package, a number of things have evolved with further downside. Mauritius has closed its borders with Europe for two weeks which I think will have to extend till the end of April at least. Within Europe, a number of countries have started locking down, and the global economy is looking in more dire straits with the Fed Reserve reducing rates to a historical zero percent. The current crisis is far more complex and cannot be compared to the 2008 financial crisis.

Based on what we know today, I believe Rs 9 billion which is around 1.8% of our GDP will not suffice. Germany has earmarked 15% of its GDP to support the economy, Singapore is coming with a 2nd stimulus package within 1 month of the first one and other countries are preparing the same with 2.5% to 5% of GDP as support packages.

I believe we will need government support for three things. Firstly, to provide whatever financial resources to the health sector. There’s no price tag for the health safety of Mauritians and bearing in mind that without them there is no Mauritian economy.

Secondly to immediately support businesses and employees especially in the tourism sector, and thirdly hopefully in a couple of months to kick start the economy, assuming the virus contagion is contained in Europe by April end. I guess we will need Rs 20 billion to Rs 25 billion meaning the Finance Minister will need to start preparing for more support packages very soon.

Going through these measures, one is tempted to say that the government is assisting deeply affected economic sectors, namely the hotel industry, the manufacturing sector and small and medium enterprises (SMEs), with cheap loans, increasing consequently their gearing ratio given the fact they are already highly indebted. Do you share these views?
The room to manœuvre is quite limited for government as for years we have had Budget deficits and it is extremely difficult now to come up with the ideal solutions. Unlike Germany which is flush with cash in the state coffers after years of Budget surpluses and can adopt far better remedies than Mauritius. The harsh reality is that we have a number of companies, irrespective of whether they are big or small, with existing debts which they need to service.

When business is down, turnover is down, cash flow is also down, but debt remains to be serviced. So accessing cheaper loans to refinance existing ones is a must. Here the Bank of Mauritius has reduced the repo rate to 2.85% last week.

And commercial banks will also have to play the game by reducing their lending rates on existing loans and also be flexible with their clients in terms of providing a moratorium for the next 6 to 12 months on capital repayments and rescheduling interest payments. We need to be practical here as banks cannot allow their clients to default as it could potentially create a domino effect which the Mauritian economy can’t afford Given the surprising announcement of the Fed Reserve reducing its rate to zero on Sun-day, and looking at other central banks around the world following the same strategy, I won’t be surprised if the BOM comes back with further cuts to may be 2% to 2.25%. Again this would help everyone from corporates to SMEs to the man on the street who have loans and having difficulty to pay in the current situation.

On another note, I think it’s high time for some of our big private sector corporates to start looking at options of raising equity to reduce their gearing or divest from a number of subsidiaries/companies and consolidate in those where they have real expertise instead of being “Jack of all trades and master of none”. This can open doors for foreign investors to come in and inject badly needed fresh capital.

We are yet to know the full impact of this pandemic on the global economy and incidentally on the local economy. Have we good reasons to be really worried as we have only seen the tip of the iceberg?
Let me be frank. The global picture is not pretty. When French President Macron says that “we are at war” three times in his speech on Monday evening of 16th March, it tells you the gravity of this unprecedented situation.

The longer it takes for the virus to be contained in Europe the more uncertainties it creates. Bearing in mind that it has also reached the borders of Africa and can spread faster as the African countries are neither well prepared, nor well equipped as in other parts of the world, and also the fact that health infrastructures even in developed countries are being overwhelmed.

I believe the world is getting in-to a technical recession within the first and second quarter of this year. However, even if the virus is contained, I think things will not just be back to normal overnight. Fear will still pre-vent people from travelling or spending money the way they used to. I think we can potentially write off this year.

If the pandemic goes on beyond the month of April, then we will have to worry about a real lasting global recession that will lead to an L shape recovery well into 2021/2022.

Both the Bank of Mauritius and the Finance minister have worked out on growth hypotheses in case the economic situation worsens following an explosion of the pandemic worldwide. Whilst the BOM has given as a worst-case scenario a 2,6% economic growth, the Ministry of Finance, together with EDB‘s experts, has given a reduction from 1% to 6%, the worst case estimate being a negative growth of 3%. To what extent are you comfortable with this projection?
I think it’s very difficult to put a real figure as the situation is changing almost daily. I don’t believe given what we know to-date, that the BOM’s forecast of 2.6% will be met. There’s a strong possibility we might end up in negative territory for the first time over the past 40 years. Again if the virus is not contained by the end of April then we will be impacted severely. Mauritius is more vulnerable than in 2008 as we have a far more open economy and the country’s balance sheet is not stronger than then.

The decision to close down our air-port to foreign tourists from the EU will heavily hit our hotel industry given the size and importance of the European market to our industry. More particularly the French market. What are your views on this issue?

The government had no other option than close our borders with Europe. That is being done around the world. This is the first time ever we will see the tourism sector being impacted like that. Almost like a severe close down of hotels which I think will last till the end of June. Let’s hope that’s not the case. This is unprecedented again and a big blow to our tourism sector which was already struggling last year. Assuming the virus dissipates in the next two months, business will not recover overnight. That’s where I think it will be a hard job to get back on track to where we were in 2019 or even 2018. This year will be a year of write-offs. But at the same time, we need to prepare ourselves more than ever to be ready to go in a big way once the markets open up again.

“The room to manœuvre is quite limited for government as for years we have had budget deficits and it is extremely difficult now to come up with the ideal solutions.”

We know that each and every government in the world is powerless regarding the devastating effects of this pandemic. They are only finding ways and means to alleviate its damaging impact. Apart from this package, do you think the Finance minister with his economic team are assessing the situation rightly so that once the crisis is over, Mauritius can seize opportunities with the economy bouncing back?
In every crisis there are opportunities, but we need the right leaders to seize them. Looking back we have lost 10 years for not having restructured our economy, for not launching new sectors; that FDI has been stable and mainly in the real estate sector, that we didn’t have a new direction for the economy of the country, that our debt is still increasing, and Budget deficits becoming the norm. We have been lax!

I recognise that the current Minister of Finance has inherited a very difficult task. I hope that this crisis be a last wake up call to do the right things going forward. These include opening up the economy, opening to new talents, putting the right experienced people at the helm of key institutions, opening up to foreign investors, bringing US$1 billion of FDI per year, going full blast in the agro sector (like Qatar has done those last three years), moving into renewable energy, making innovation a key pillar of everything we do, refocusing our supposedly Africa strategy on what’s practically do-able and not wishful thinking.

Where we are today, the government should aim to execute smartly and efficiently just like the sniper who pulls the trigger and hits bullseye every time! We don’t have spare ammunition anymore. We need practical solutions today and tomorrow and not textbook theoretical solutions.

Economists and financial analysts are of the view that there are already signs that the world is heading towards a financial recession, 12 years after the 2007-2008 financial turmoil. Your comments?
Since the last financial crisis, the main tools of big economies have been quantitative easing. We saw how interest rates have been reduced over the years, in Europe we currently have negative interest rates and the USA zero interest rates. However in the last couple of years, there were signs that the global economy was running out of steam. Corona is the spark leading the global economy into recession this year. I think there is a more profound change happening in front of us. History has shown that we have had global recessions and depressions but lately it has become something unimaginable to a lot of people.

I believe we are experiencing similarities with what happened in Japan in the 1990s: a deflationary decade. We will experience low returns this decade and more so as there is a paradigm shift happening in front of us. This is the first time the world is dealing with an ageing population and consumption shift patterns by the younger generations in developed countries, nations are far more indebted than they were 10 years ago, a highly indebted global corporate sector, and technological advancement in Artificial Intelligence (AI) putting a lot of youth at risks in terms of not getting a full time secure job. All these are ingredients that we never had to deal with before at the same time and which will change the way we look at economies going forward.

Economic theories of the past won’t be useful to deal with what’s opening in front of us and that’s where even professional economists will have difficulties to come up with the right solutions and advice to their respective governments.