In a press conference today, the Minister of Finance tried to paint a rosy picture of a booming mauritian economy, which however rests on a story full of lies. He made an outrageously false statement regarding the existence of USD2 bn of foreign reserves held by a sovereign fund, and also dismissed claims of GDP data rigging without any valid explanation.

Fictitious reserves

The Minister of Finance stated that the country’s total foreign exchange reserves currently amounted to USD10 bn, consisting of national foreign reserves (mostly held by the Bank of Mauritius- BoM) of USD8 bn, and of USD2 bn of foreign reserves held by a Sovereign fund (presumably the Mauritius Investment Corporation- MIC).

Gross foreign assets of BoM effectively stand at USD8 bn, but MIC does not hold USD2 bn. At the time of setting up MIC in 2020, Govt had announced that it would be funded from the BOM’s foreign reserves. This was never the case, and BoM invested Rs81 bn as equity in MIC simply by creating rupee money.

It should be noted that even BoM’s figure of USD8 bn is misleading as an indicator of external reserve adequacy, because it is shored up by disclosed BoM foreign borrowings of USD1.4 bn, and undisclosed foreign deposits by other financial institutions of the order of USD1bn. Net foreign exchange reserves are thus less than USD6 bn.

A sizeable part of these reserves is illiquid and not available for forex interventions because BoM holdings of foreign securities carry unrealized losses. The foreign exchange shortage therefore remains chronic, due to limited BoM interventions. BoM has been struggling to hold the rupee below the USD1=Rs47 mark, through recent interventions, but the rupee keeps weakening.

GDP manipulation

The other blatant falsehood in Govt’s catalogue of lies is that Mauritius has turned into a fast-growing economy, with high recent GDP growth rates. A number of economists have commented on the manipulation of official GDP estimates by Statistics Mauritius. Stats Mauritius has reclassified around Rs90 bn of foreign income of offshore companies as domestic income, whereas BoM, which is responsible for the compilation of balance of payments statistics, does not.

When questioned about GDP data manipulation, the Minister only replied that the IMF accepts the country’s GDP data as valid. What the Minister does not say is that the IMF has accepted GDP data pending the conclusion of a technical mission to review BoM balance of payments compilation, and to sort out the reclassification of GBC foreign income. BoM has so far refused to make this GBC adjustment, despite pressure from Stats Mauritius, because it would mean that the current account excluding GBCs is not in deficit, which is clearly unrealistic.

It is strongly suspected that Stats Mauritius has also been manipulating GDP figures by overestimating investment in 2023 and 2024. Stats Mauritius stood by its overblown estimate of investment in 2023, despite the fact that one of the largest public projects, namely the extension of Metro Express to Cote d’Or, did not go ahead as planned. IMF projects real GDP to grow by 4% in the medium term, well below the Minister’s forecast of 6 to 6.5%.

By grossly inflating GDP estimates, Govt can produce lower public debt to GDP ratios, and lower current account deficit to GDP ratios, and make the debt and external situation look far better than it actually is. The Ministry of Finance has also been cooking fiscal data, with an overestimation of Rs15 bn in Govt revenue for 23-24 and 24-25.

Doctoring Information

Govt wants to control economic information for political purposes. During the visit of an IMF mission earlier this year, Govt imposed an embargo on IMF staff meeting with Mauritians other than Govt officials. Even diplomatic representatives based in Mauritius were not allowed to interact with the IMF mission as was previously the case. Govt applied high-level pressure on the IMF, including from friendly countries, to modify the contents of the IMF Report in the wake of their mission to Mauritius.

MCB Focus, an insightful publication covering current economic developments, was forced to shut down, and its chief editor was sacked on Govt orders. Although Moody’s was fed with deceptive economic data, including imaginary progress on fiscal consolidation, Moody’s has not upgraded Mauritius from its borderline junk status rating, nor even changed the country’s outlook from stable to positive.

After laying claim to being the only Minister of Finance in the world to have achieved a balanced budget during the Covid pandemic, he is now trying to impress the population by referring to econometric modelling or dropping names of reputed economists, like Jean Tirole or Olivier Blanchard.

Conclusion

The Minister asserts that the electoral promises of Alliance Lepep are not based on any expectations of a windfall rental on Diego Garcia. But the PM and the aspiring DPM of this Alliance keep justifying additional spending on electoral promises by invoking the “milliards et milliards de roupies” from Diego Garcia. Quis est mentiri ? Kaun jhooth bol raha hai?