Pierre Dinan, économiste : «La stagflation des années 70 nous guette»

Le Premier ministre, Pravind Jugnauth, constate un «feel-good factor» dans le pays. Il en a fait part dans son message de fin d’année. Ressentez-vous ce sentiment de bien-être ?

Si le Premier ministre le dit, ça doit être vrai. Je pense à ce fameux humoriste français, Louis de Funès, qui, dans un de ses sketchs, affirmait exactement ceci, par rapport à un de ses personnages : s’il affirme un fait, c’est sûrement vrai. Cela dit, s’il y a un feel-good factor, nous devons tous éviter de sombrer dans l’euphorie du temps présent. La tentation du court terme nous guette tous.

Il y a le Mauricien tout court, ragaillardi par les espèces sonnantes et trébuchantes provenant de son boni de fin d’année, qui préfère ne pas penser à la fin de janvier. Tout comme le business- man qui court après les quick-wins et le rehaussement de la valeur de ses actions à la Bourse, sans se soucier si son entre- prise a un avenir prometteur. Et le politicien qui distribue des prébendes aux chers électeurs, qu’importe si la dette publique enfle. Le moyen et le long terme, on verra cela plus tard !

Le pays aborde 2023 avec les risques d’une nouvelle récession dans la zone euro et au Royaume-Uni, doublés d’un ralentissement économique aux États-Unis. Les institutions financières internationales et des économistes indépendants ont déjà tiré la sonnette d’alarme. Estimez-vous que l’économie mauricienne est suffisamment immunisée contre les effets négatifs d’une nouvelle récession ?

Par définition, Maurice n’est pas immunisé contre les méfaits d’une récession mondiale. La stagflation des années 70 nous guette, c’est-à-dire, un ralentissement de l’activité économique (stagnation), accompagnée d’une hausse des prix (inflation). Celle-ci est largement due à la désorganisation de l’acheminement des marchandises à travers les océans, à la suite du Covid ; celle-là prend sa source dans un ralentissement de la croissance qui s’annonce aux États-Unis et dans des pays européens. Nos industries d’exportation sont ainsi exposées à une baisse de la demande pour leurs marchandises et/ou leurs services.

D’une manière plus générale, quels sont, selon vous, les principaux défis auxquels l’économie est confrontée aujourd’hui ?

La population mauricienne, dans son ensemble, doit relever deux types de défis dans la conjoncture présente. Le premier est celui d’un réveil par rapport aux effets du Covid, lesquels sont malheureusement prolongés par les conséquences du conflit russo-ukrainien. Dans son ensemble, la population a, depuis 40 ans, pris l’habitude d’une croissance économique annuelle, de sorte que le gâteau à partager grossissait ainsi que la part de chacun. Le Covid a brutalement arrêté ce processus. Il nous revient donc de le relancer en nous mettant sérieusement au travail, ce qui, en termes économiques, signifie accroître notre productivité : celle des pouvoirs politiques à travers une gouvernance efficace ; celle des entreprises à travers un déploiement rationnel de leurs ressources managériales et financières ; et enfin celle de la population, dans son ensemble, à travers un réel effort de se ressaisir au travail, au lieu de se plaindre et de mendier l’aide des pouvoirs publics.

Le deuxième défi découle du premier, c’est celui de la mise en œuvre de toutes nos ressources naturelles. Vous l’avez deviné, il s’agit de l’exploitation rationnelle des millions de kilomètres carrés maritimes, mis à notre disposition par les Nations unies. Vivement que l’économie bleue soit enfin une réalité, et non pas seulement une ligne ajoutée à nos secteurs d’activités dans le tableau compilé par Statistics Mauritius, lequel révèle d’ailleurs l’insignifiance de ce secteur dans notre pays. Et que, parallèlement, dans ce même tableau, le secteur agricole, dans son ensemble, prenne une courbe ascendante, pour diminuer, de manière significative, la dépendance de notre pays des produits importés pour l’alimentation locale, des touristes, des riches étrangers ayant choisi de jouir de leur retraite chez nous et des travailleurs venus y gagner leur vie.

Officiellement, le pays est à moins de deux ans de la prochaine échéance électorale. Ne pensez-vous que la tentation pourrait être forte chez nos dirigeants de reléguer l’économie au second plan au profit de mesures sociales fortement électoralistes pour amadouer la population et gagner sa confiance ?

J’ai, en fait, déjà répondu à votre question ci-dessus, lorsque j’ai évoqué les dangers de succomber à la tentation du court terme pour récolter des gains immédiats, aux dépens de bénéfices solides et durables dans le moyen et le long terme. Ce type de tentations ne concerne pas seulement les hommes politiques. S’il est vrai qu’ils peuvent être tentés par la célèbre exclamation de Louis XIV, «après moi, le déluge», il faut aussi rappeler l’attitude des électeurs qui ne recherchent que leurs gains immédiats et personnels lorsqu’ils inscrivent leurs votes, sans tenir compte des possibles conséquences négatives à moyen et long termes. Ce n’est jamais facile de choisir entre Charybde et Scylla.

Sanroy Seechurn, Chief economist, Economic Development Board: “Any global slowdown or recession will have an impact on our country”

Is there a feel-good factor in the country as our prime minister seems to suggest?

Definitely, there is a feel-good factor in Mauritius since we ended 2022 on a positive note, with all our economic indicators showing a sustained recovery. Statistics Mauritius expects GVA at current basic prices to reach 9.2%, compared to 4.2% in 2021. This is more than twice the global growth rate. This performance permeates from the exceptional performance on all economic fronts. Total investment is expected to grow by 6.3% for the year to exceed pre-Covid levels. Private sector investment will experience a 7.9% growth. FDI will be around MUR 25 billion as major projects in the real estate, manufacturing, financial services and ICT sectors materialise.

We also note a strong rise in exports of goods and services which will reach MUR 314 billion in 2022. Exports of goods is driven by growth in exports of textile, sugar and medical devices, amongst others, as operators maximize on the opportunities obtained under recently signed agreements with China, India and the African continent. In fact, exports of goods will have reached MUR 100 billion in 2022, up from MUR 82 billion in 2021. Re-exports and proceeds from ship stores and bunkering activities are on a positive momentum as well.

On the economic front, is the country immune to potential risks of new recessions?

It is true that international financial institutions as well as independent economists have highlighted the high risks of a global economic slowdown in 2023. Since January 2022, the IMF has revised downwards the global growth projections for 2023 four times. For Mauritius, our GDP is expected to grow by around 5% in 2023, nearly double the global growth projected by the IMF for 2023. As a small island state, Mauritius operates in an increasingly globalized and competitive world economy. Any global slowdown or recession will certainly have an impact on our country. However, as a proactive government, we are continuously re-adapting our policies to strengthen our economic growth and resilience to future shocks.

For instance, we are working towards increasing the penetration of renewable energy to 60% of our country’s energy needs by 2030 and to phase out the use of coal before 2030. The move towards renewable energy will not only have environ- mental value, but also economic value. Renewable energies are not dependent on fossil imports, which will improve our balance of payments deficit. The cost of production will not depend on world oil prices and exchange rate fluctuations, and will therefore be more stable. We are adopting the same strategy for increasing local production of agricultural produce and reducing our dependency on imports. Let us not forget that these are the strategic areas where we have displayed the highest levels of vulnerability, and we are doing everything in our power to make sure we become more resilient in these respects.

According to you, what are the main challenges facing the local economy at this juncture?

The main challenge facing Mauritius today is in terms of the external shocks facing the economy. Indeed, since last year, the lingering effects of Covid-19 and the conflict between Ukraine and Russia have triggered a rise in energy and commodity prices, which have had snowball effects on the price levels of other economies, including that of Mauritius. This situation has been exacerbated by supply chain disruptions. This has put us in a precarious situation, and the government has invested massively in maintaining the quality of life of our citizens. Another issue that we are facing is one of labour shortage, as our economy starts to gain back its growth momentum. This phenomenon is affecting almost all sectors of activity, and we are working towards shortand long-term solutions to this issue.

The country is nearing the electoral deadline. Is there a risk that the ruling party puts the economy on a back seat and privileges social measures with a high electoral component to have the majority of the population on board in the forthcoming election?

A strong economy is a sine qua non for a government to put in place social measures, and therefore, it would be far-fetched to say that the economy would be put in the background. Besides, irrespective of an electoral deadline, social welfare has been at the centre of the government’s decision-making. Indeed, the pandemic has been a real and vibrant example of the government assisting the nation through continued support to their businesses and households and at the same time maintaining its economic performance.

Pamela Leste, Senior Manager, Economic, Market Analysis & Sustainability BDO Maurice : Renforcer la résilience pour un développement plus durable

Après trois années pénibles marquées par le Covid-19 et tous les impacts socio-économiques qui en ont découlé, nous pouvons comprendre que la population soit animée par un certain senti- ment de bien-être. La reprise se fait à présent ressentir avec notamment une relance du secteur touristique et ses effets multiplicateurs. L’ouverture aérienne et la baisse du risque de la pandémie ont aussi profité aux autres secteurs économiques ainsi qu’aux activités scolaires et sportives.

Toutefois il est difficile, voire impossible, de faire l’impasse sur les nombreux défis qui affectent la population en parallèle, notamment: le contexte inflationniste et la crise persistante au sein des pays industrialisés qui ont un impact négatif sur les ménages et affectent considérablement le pouvoir d’achat. De plus, la croissance enregistrée cette année dissimule une flambée des prix de denrées de base et des carburants, entre autres. Il est généralement coutume de marquer l’arrivée du Nouvel An par des célébrations, mais nous sommes conscients qu’il faudra se remettre à la tâche, comme le font déjà bon nombre d’entre nous.

Malgré une légère reprise au niveau local, nous ne pouvons fermer les yeux face aux risques d’une nouvelle récession dans la zone euro et le Royaume Uni ainsi qu’au ralentissement économique aux États-Unis. Face à ces risques, il nous faudra faire preuve de plus de résilience, de patience et de persévérance. À ce jour, notre économie dépend en majeure partie de facteurs externes. Nous sommes, par exemple, très sensibles aux fluctuations du taux de change, particulièrement celui du dollar américain, de l’euro et de la livre sterling. Il nous faudra impérativement trouver l’équilibre entre les importations et les exportations et innover tant au niveau de notre production et de nos services que de la productivité. Toutefois, le but recherché n’est pas qu’économique. Il y a aussi le volet social et environnemental. Les discussions et réflexions en cours sur le développement durable s’annoncent prometteuses au sein des différentes instances privées et publiques. Nous pouvons citer en ce sens: la création du Climate-related Environmental and Financial Risk Framework préconisé par la Banque centrale ou de l’ESG (Environmental, Social, Governance) Framework annoncé par le gouvernement.

En fait, les grands enjeux sont les mêmes chaque année car il s’agit d’assurer un emploi stable à la population active et accueillir ceux qui rejoignent le monde du travail. Il faudra promouvoir des opportunités d’investissements, créer de la valeur ajoutée et innover.

Objectifs des nations unies

Plus que jamais, le changement climatique devrait nous interpeller davantage. Compte tenu des intempéries extrêmes auxquelles nous faisons face (sécheresse, flash floods, etc.), la gestion de nos ressources en eau potable est essentielle. Les mesures punitives seules n’ont pas toujours la magie de réduire les infractions. Nos objectifs relatifs à l’énergie renouvelable méritent également une attention particulière. Comment faire pour les atteindre ? Comment atteindre nos objectifs de développement durable (les 17 Objectifs du Développement Durable des Nations unies) de manière collective ? Comment assurer une production alimentaire locale décente en volume et qualité ? Tels sont les sujets clés qui devraient tous nous préoccuper, tant au niveau du gouvernement qu’au niveau de la société civile.

D’autre part, le progrès économique ne peut être dissocié du progrès social. L’on sait que l’indicateur le plus pertinent reste le développement humain. Toute création de richesse devrait bénéficier à l’ensemble de la population. Dans un pays qui se dit et se veut démocratique, l’on s’attend à une prise de décisions dans l’intérêt du peuple qui s’aligne sur la bonne gouvernance. On comprend que toutes les grandes décisions ne se prennent pas au Parlement uniquement. À l’approche de l’échéance électorale, les promesses pleuvront sans doute mais il incombe aux citoyens responsables de discerner ce qui est juste et durable. Devons-nous privilégier les gains à court terme face aux bénéfices à long terme ?

Le problème épineux de la dette doit être pris au sérieux. Au moment de l’emprunt, on doit pouvoir estimer si la capacité de repaiement est réalisable. Le principe qui s’applique aux particuliers reste le même pour les entreprises privées et les services publics. Nous pouvons regagner le groupe des pays à revenus élevés mais il faut également viser plus loin que l’indicateur du revenu par tête d’habitant. Les objectifs à se fixer sont: un peuple heureux, des jeunes motivés à participer fièrement au développement du pays, un climat des affaires plus accueillant aux petites et moyennes entre- prises ainsi qu’une application plus concrète des principes du développement durable.

Kugan Parapen, economist: Economic growth does not necessarily mean increased prosperity for the masses

No one quite celebrates the New Year as Mauritians do. Except that the arrival of 2023 felt different – subdued. It seemed as if the economic hardship of the last few years had finally taken its toll on the population. If one had to summarise 2022 in a few words, it is very probable that the expression mari ser would have been designated as the runaway winner. Inflation has impacted households in so many ways that mostly everyone felt poorer at the end of the year. May be our prime minister was among the few who felt differently. In any case, it was somewhat inelegant, borderline disrespectful, for the head of the country to evoke a ‘feelgood factor’ in his year-end message to the population when, for the vast majority of them, 2022 had been an ‘annus horribilis’.

The truth is that economic growth is not necessarily synonymous with increased prosperity for the masses. Indeed, the full reopening of the Mauritian economy has led to economic growth in 2022 but that growth has mostly been beneficial to the owners of capital. The profitability of the private sector has rebounded significantly, with many of the biggest companies on the Stock Exchange of Mauritius posting record profits and resuming with dividend payments. Some will point to the wage compensation and the wage support for those earning up to Rs 50k as measures which have helped the working population; while it is true, the sheer magnitude of inflation over 2022 has been such that most employees are worse off in real terms. In fact, the general rise in prices in 2022 has matched the cumulative inflation of the four previous years (2017 to 2021).

From a macroeconomic perspective, Mauritius is experiencing one of the hottest rates of inflation globally and while governmental representatives point to international factors as being solely responsible for the domestic rate of inflation, the reality is different. The fact that the government has monetised the reserves of the central bank to bail itself out and to create the Mauritius Investment Corporation has contributed and will contribute towards keeping an upward momentum in local price levels.

With the full reopening of the economy, the financial system is now awash with liquidity and as Milton Friedman famously said, “inflation is always and everywhere a monetary phenomenon”. You cannot inject more than 20% of GDP in the financial system and expect normality. In fine, it is sad and somewhat revolting that those who are asked to bear the burden of bailing out the private sector and crony capitalists are those who have seen their debt refinancing increase significantly in the midst of interest rate hikes by the Bank of Mauritius. Ironically, the latter has fanned the flames of inflation and is now trying to put out a fire that it created in the first place. All eyes will be on the central bank in 2023 to see how they clean their own mess.

The global economic outlook will worsen this year as the post-Covid 19 excess cumulative savings disappear and households cut back on their expenditure. Amid persistently sticky inflation, leading central banks will hike interest rates further initially before pausing for quite some time thereafter. Such elevated financing costs will also curtail private investment, and this will accentuate the global slowdown in the world economy. We foresee an orderly repricing within the global economy and expect it to last until at least 2024.

This somewhat bleak outlook will obviously impact the Mauritian economy negatively. The silver lining being that the impact will not be first-hand but rather indirect. If one recalls correctly, the local economy did not suffer significantly from the 2008 financial crisis and we expect a similar outcome this time around. While the tourism industry will subsequently be impacted as economic growth falters, the biggest risk factor, in our opinion, relates to the financial and offshore sectors. These could be at risk of facing significant outflows if the forecasted economic slowdown morphs into a full-blown financial crisis.

The Mauritian economy has yet to fully recover from the Covid-19 pandemonium, and it faces the daunting prospect of navigating another potential economic crisis. While we are confident that the economy will fare better than post Covid-19 on a relative basis, we are concerned by the structural problems faced by the economy. The export-led economic model which has thrived in the past is no more relevant and needs to be revamped into a more balanced model. Never since the late 1970s has the purchasing power of the average Mauritian shrank so much in so little time. Only bold moves will reverse this trend. The real question remains – who will deliver them?

Imrith Ramtohul, Senior Investment Advisor : “The purchasing power of the population has decreased with all the price increases”

Is there a feel-good factor in the country as Prime Minister Pravind Jugnauth seems to suggest?

There is a feel-good factor, when compared specifically to 2020 and 2021. There are no longer Covid-related restrictions. People can now gather more easily, visit friends and family in large numbers and even travel abroad for holidays. However, one must also bear in mind that local inflation has risen significantly in 2022 (similar to other countries). The purchasing power of the population has decreased. On top of this, increases in the price of electricity, high petrol prices, water supply issues, and the re- cent multiple hikes of the repo rate might now be making many people more cautious regarding the future.

On the economic front, is the country immune to potential risks of new recessions?

The Head of the International Monetary Fund (IMF) has recently warned that a third of the global economy could move into recession during 2023. The war in Ukraine, rising prices and higher interest rates could negatively impact global growth. On the positive side, the recent easing of China’s Covid-related policies could position the country for growth in 2023. Given the size and importance of China’s economy, this could be positive for the global economy. Hopefully, Mauritius will benefit from this as well.

A global recession is likely to adversely impact our local economy. We rely a lot on tourism, exports and financial services for our economic growth. As mentioned by Moody’s last year, Mauritius relies on five countries (France, UK, Germany, South Africa, and Reunion) for around 60% of its tourist arrivals. Any major slowdown in these countries could see a drop in our tourist arrivals. Moreover, it seems that Europe will unfortunately not escape recession. Besides tourism, the Mauritian financial services sector and overall exports could be adversely affected as Europe remains a major market.

According to you, what are the main challenges facing the Mauritian economy at this juncture? In my opinion, the main challenges are keeping public debt under control, avoiding a country downgrade by Moody’s or other rating agencies and addressing the high inflation rate. Besides, there is also the risk that the rupee depreciates further over time and of lower investment by businesses due to the now higher repo rate.

Another challenge is our low savings rate in the country and how to reverse the trend. According to Statistics Mauritius, Gross Domestic Savings (GDS) as a percentage to GDP at market prices for 2022 would reach 12.6% from 9.7% in 2021. This is still considered low, and the percentage might decrease further if the country experiences recessionary conditions.

Finally, there is a need to address the water supply problem associated with the lack of rainfall. A prolonged drought could have adverse consequences for the local economy.

The country is nearing the electoral deadline. Is there a risk that the ruling party puts the economy on a back seat and privileges social measures with a high electoral component to have the majority of the population on board in the forthcoming election?

In my opinion, this is unlikely in 2023. The underlying economic and market conditions will remain challenging. As such, one would expect the authorities to closely focus on addressing the risks of a recession. Having said this, a few select well-thought measures could still be announced to improve the purchasing power of the population, raise productivity or even encourage investment in new projects. The icing on the cake would be the efficient addressing of the water supply problem!

Kevin Teeroovengadum, Financial Consultant : “Doubts about the future of Mauritius could lead to massive emigration and brain-drain”

Is there a feel-good factor in the country as Prime Minister Pravind Jugnauth seems to suggest?

After two years of Covid in 2020 and 2021 with multiple lock-downs and border closures, 2022 could be seen as a year of full reopening where our economic sectors have been operating as normal. Most importantly, the reopening of the tourism sector could have led to a feel-good factor with hotels running at high volumes by the end of 2022. In addition, the prime minister’s mention of a feel-good factor could be characterised by the record number of new cars sold, and the busy par- king lots of shopping malls during the festive season. We should also note that over the last 2 years, the authorities including via the Bank of Mauritius have injected Rs158 billion in the economy. Nearly 30% of GDP. This money would give a feel-good factor as it went in- to people’s pockets. But the key questions to ask are who benefited from those billions and which segment of the population is benefiting from the feel-good factor.

The reality is that the middle class and the bottom of the ladder are facing very tough times, with inflation rate hitting 12%, but inflation is far more than that when we look at specific goods bought by these people. Fuel has gone up by nearly 40% despite the fact that since May 2022 global oil prices have come down significantly; the rupee has depreciated by nearly 20% against the US dollar over the last two years and forex liquidity from banks has been a struggle for many Mauritians, despite its injection by the BOM; the repo rate has gone up four times to 4.5% meaning increasing pressure for individuals, SMEs and corporates to service their debts, knowing that many have got into a debt spiral pre-Covid, which has accentuated during the pandemic. On top of that, since the end of 2022, Mauritius is faced with a real risk of drought with constrained water supply all around the island. When you speak to people on the streets, the reality is that many are under extreme financial pressure and it seems, for the first time after decades. Many are even expressing doubts about the future of Mauritius, which could lead to massive emigration and brain-drain.

On the economic front, is the country immune to potential risks of new recessions?

The economy of Mauritius, even well before Covid, is more vulnerable to global recessions compared to 20 years ago as it is fully opened to the world and all its sectors are dependent on the growth in key markets such as Europe, Africa, and Asia. We have seen how in 2020, with a contraction of 15% in its GDP, Mauritius was one of the worst 10 countries having the deepest contraction, followed in 2021 by a very soft GDP growth of 3.7% despite the Rs158 billion injected by the authorities and, in 2022 our GDP per capita in US$ was still at the levels of 2013! We have lost 10 years in terms of our purchasing power in the global arena. Now with a looming recession in a number of countries in the Northern Hemisphere and China that’s slowing, Mauritius will be facing head winds this year. And its balance sheet will take another hit in 2023 as pressure will be felt on all our economic sectors. We should not think that because we had a decent year in tourism arrivals in 2022, we will have the same growth in 2023, the more so when “revenge travel” is over this year. Having said that, we need to understand that we are in a decade of multiple recessions and uncertainties. It’s up to the authorities and the private sector to put the right strategies to navigate this decade of economic turbulences. One prime example is how during Covid, countries like Dubai, Maldives, Seychelles have managed to reopen sooner and more importantly have managed to change strategies to target new markets and grab tourists with much higher spent. Seychelles had more than double its revenue per tourist whereas Mauritius had a 10% increase only. In an economic crisis, there are always opportunities and it’s up to us to find and make the most of them. For that to happen, we need to be one or two steps ahead of others, be proactive and have strong leaders in the private sector who are entrepreneurial to capture these opportunities.

According to you, what are the main challenges facing the Mauritian economy at this juncture?

Mauritius is faced with legacy problems that we have been carrying for the past 10 years and which subsequent governments haven’t tackled. They are: increasing imports and declining exports; an ageing population putting pressure on the pension bill; mismatch of skillset from our younger generation as the education system is still stuck in producing skillset not required for this new global networked economy; our tourism sec- tor with no clear-cut vision and strategies; our financial sector has gone down becoming a low value-added jurisdiction where accounting outsourced to Mauritius would be replaced by Artificial Intelligence (AI) in the coming years; our real estate sector stagnating and still using the same 20-year-old strategies when we started marketing our real estate to foreigners; and lastly, no new economic pillars have yet taken off. These are legacy problems.

When we look at new problems, we can see how since 2020, the world has changed and with the global geo-politics between East and West, protectionism is now part of a new world order, and we are entering it with China becoming a super power. This will impact on who and how we trade with as Mauritius must decide whether it needs to align with East or West or be neutral like India to remain open to both worlds. Already we are seeing signs that Mauritius is siding with the West and the latest sign is what might be happening with the relationship between Mauritius Telecom and Huawei.

It’s like a boat that’s sailing, and no one knows where it is going. sometimes, one might even ask if the captain himself knows where his boat is going?

The country is nearing the electoral deadline. Is there a risk that the ruling party puts the economy on a back seat and privileges social measures with a high electoral component to have the majority of the population on board in the forthcoming election?

Unfortunately, the economy has not been a priority for the last 10 years as subsequent governments have been focusing solely on their political agendas and survival. Whenever I ask about the vision and economic plan for Mauritius for 2030 or 2040 or 2050, it seems no one is aware of or knows what those plans are. It’s like a boat that’s sailing, and no one knows where it is going. Sometimes, one might even ask if the captain himself knows where his boat is going? We have an acute problem of brain drain, and what matters most to political leaders is the quantum of pen- sion increase to old-age Mauritians prior to elections. The question we should ask in 2023, is which political party will have the courage to write down its vision and economic plan for Mauritius and educate the people of what they truly intend to do for the benefit of the economy and of Mauritians at large…

Rajeev Hasnah, economist: Central bankers at the forefront in 2023

The resilience of the Mauritian economy could once again be put to test in 2023, with the expected additional monetary policy tightening and economic recession at the international level, in particular in the United States and our main trading markets, the United Kingdom and the Eurozone. The implications of the domestic policy decisions taken over the past few years may also start to reap its consequences locally. In this rather uncertain economic landscape, the following are some of the key risks that we may have to tackle in 2023:

1. Ongoing normalization of the interest rates at the international level

As we have witnessed in 2022, with the major central banks (FED, ECB and BoE) increasing their respective interest rates in an attempt to fight inflation and inflationary expectations, the Bank of Mauritius has had to follow suit to maintain the status quo on the interest rate differential between the Mauritian rupee and foreign currencies. This in turn may have prevented a further depreciation of the Mauritian rupee and hence limited the impact on domestic inflation. As those international central banks operate in more efficient financial markets than that of Mauritius, their monetary policy tightening may well have triggered the response they intended in terms of mopping up liquidity and forcing investors to revisit their investment valuations and plans. A consequent recession in those markets, which is viewed as a requirement to tame inflation and inflation expectations, is expected in 2023.

Unfortunately, the same cannot be said for Mauritius; while there is merit in the decision to normalize the interest rate to prevent a continued depreciation of the Mauritian rupee, the likely continuation of this normalization process could have an adverse impact on the domestic economic growth due to the continued deterioration of the domestic purchasing power of consumers as well as impeding the reserves re-accumulation for the rather indebted corporate sector. It should be noted that household consumption accounts for around 75% of the gross domestic product of the country.

Moreover, given the current state of the balance sheet of the Bank of Mauritius as at November-2022, further increases in interest rates, should they materialize, will pile up additional pressure on both the official and “accounting” reserves of the Bank.

2. Reduced safety nets of the domestic economy

It should be acknowledged that the Mauritian economy has so far been resilient to the succession of crises lately, starting from the Covid-19 related halt in economic activity and the economic ramifications of the Russia-Ukraine war. Unfortunately, to be able to deal with the recent crises, the required massive intervention of public resources, be it in terms of money printing of at least Rs 140 billion, use of reserves of various institutions and several other government handouts, which significantly raised public expenses, have considerably exhausted the country’s macroeconomic cushions. Moreover, if the returns from the recent investments are delayed or not to the expected levels, the country’s resiliency could be put to test, should another economic crisis emanate from the expected recession in 2023.

It should also be noted that since the outbreak of the Covid-19 pandemic, the Bank of Mauritius has had to intervene on the domestic foreign exchange market for a total of USD 3.6 billion. The total official reserves of the country stood at USD 7.8 billion as at December 2022, having increased by USD 1 billion from November 2022.

3. Public finances and indebtedness

Even though the recent high levels of inflation rates may have been beneficial for certain macroeconomic indicators, like the public debt to GDP ratio, which stands at 85.2%, representing a total public sector debt of Rs 461 billion, the structure and quantum of the public recurrent expenditures could be an issue going forward. The more delay we encounter in the implementation of a long overdue fiscal consolidation, the more painful it will be in the future and the least prepared we will be to face future crises.

4. Credit ratings

Taking into consideration the public finances and the Bank of Mauritius’ balance sheet, it will be crucial that we are able to at least maintain our current country ratings (Moody’s) of Baa3 Stable, within the investment grade category. Any deterioration in either key economic fundamentals or indicators that could result in a further deterioration of our credit ratings could be very costly for the economy in 2023. As Adam Smith once wrote, “All money is a matter of belief”; and since we have already embarked upon the money game in Mauritius to try to stabilize the economy and see through crises, it will be crucial that we are able to maintain and enhance the confidence in the Mauritian economy so that the country can proceed in rebuilding its reserves that have been in one way or the other depleted over the recent years.

Anthony Leung Shing, Country Senior Partner, PwC Mauritius: The population under the pressure of tightening monetary policy

We ended 2022 on a high... the terror of COVID-19 has faded away, tourists are back in force on the island, and our GDP will surpass its pre-pandemic level of 2019 for the first time in three years. In addition, with the wage compensation announcement of Rs1,000 last December, there is a general feel-good factor amongst the population. But what can we expect in 2023?

The economic rebound in 2022 was largely due to the re-opening of the borders in October 2021 and which led to an increase of 660% in tourist arrivals to 860,000 (till November 2022) compared to only 130,000 in 2021. The tourism sector will continue to be an engine for growth in 2023 despite the economic uncertainties and threats of a global recession. Two years of Covid have left many people desperate to go on holiday and the premium leisure market experienced a stronger rebound, with hotel occupancy rates in the premium segment exceeding pre-pandemic levels. Whilst the situation will remain challenging, I am optimistic that the target of 1.3million tourists in 2023 should be achievable.

In 2023, the global slowdown is expected to soften the country’s performance and GDP growth is expected at 5%. Being an open economy, the country will be vulnerable to external shocks, especially with its large balance of trade deficit. The current account deficit increased to 15% in 2022 against 5% in 2019 and this imbalance is putting pressure on the Rupee. There is a lack of foreign currency on the local market, and this will hamper business activities. Surprisingly, the country’s gross official international reserves are at Rs342bn (December 2022), with over 16 months cover on imports, and the Bank of Mauritius is likely to continue to intervene in the currency market. Given the current account deficit, foreign direct investment will not be sufficient to sustain the Rupee; the country needs to find ways to encourage the flow of foreign currency and should consider accelerating the repayment of some of the Covid sup- port loans given.

Inflation and increasing interest rates will remain key threats in 2023. The normalisation of the monetary policy of central banks across the world will continue to push interest rates up in the fight against inflation. With the pressure from imported inflation, the Bank of Mauritius will further narrow cross-border interest rate differentials whilst containing excess volatility in the foreign exchange market. The expectation for 2023 is that there may be further interest rate increases (up to 100 basis points) and thereafter the repo rate will hold. High inflation and interest rates will dampen consumption, and this poses a danger as consumption is a key growth driver, representing 89% of the country’s GDP in 2022, an increase of 14% on 2021.

Debt exposure to household appears substantial, with a 38% households’ loan-to-GDP ratio. The government’s measures in terms of increases in social benefits, food subsidies and continued price controls for staple food will mitigate the impact of inflation on consumer activity. However, the population will feel the pressure of tightening monetary policy, contracting real incomes, and debt servicing costs. These factors will force consumers to pull back on discretionary spending and focus on essentials. Those in lower paid jobs will struggle more; the minimum wage will not be sufficient to afford the cost of essentials and poverty will be on the rise.

Road and infrastructure projects have been dominant in recent years and, although these will continue to feature prominently, the construction industry appears to be losing steam with a growth of 1.1% in 2022 against 22.7% in 2021. Since 2015, many smart cities have been launched and are now well progressed. These projects will continue to influence urban economic development and help attract Foreign Direct Investments (‘FDI’) into the country. Real estate continues to be a significant source of FDI; in the first quarter of 2022, gross FDI flows into real estate activities amounted to approximately Rs2.7bn and represented just over 55% of all FDI flows into the country. Europe accounted for 43% of total inflows. We can expect similar trends in 2023 but the country’s lack of investment opportunities remains a concern for the future.

As in 2022, the world in 2023 remains uncertain. The war in Ukraine, weaker economic growth, stronger inflation as well as ongoing repercussions of the pandemic can alter the course of recovery. Let’s hope that the global economic slowdown will be short-lived!