Growth not the only fly in the economic ointment

Self-criticism can be a painful but often cathartic act. The usually suave Lutchmeenaraidoo broke ranks and in a public bout of temper tantrum blisteringly rebuked his own Government for celebrating a paltry 3% annual growth. In an effortless sense of remorse, he stated that he is ashamed of such parlous economic outcome. Based on his discontent about growth, how would the former Minister objectively and dispassionately evaluate the economic performance of the government he surprisingly abandoned recently? Forget the second economic miracle as nobody believed in such exaggerated and unachievable rhetoric . Even on a much more mundane level, the economic achievements for the four year 2015-2018 period are well below par.

Two economic variables in favour of Government but…

Undoubtedly, Government expatiates on its massive public investment programme as the jewel in its economic crown. It is modernising, upgrading and expanding the road infrastructure and land transport system through the Metro Express and the Road Decongestion programme with positive impact on the construction industry. The problem however lies in the unsustainability of such investments as they are financed by one off grant from a friendly country in a deal that modified the double taxation treaty against us and by soaring public debt that is in excess of 70% of GDP when we factor in the colourable device of Special Purpose Vehicles to mask the true size of the rising public debt. Inspite of higher public investment, the share of total investment to GDP remains low at 17.7% of GDP for the 4 years from 2015 to 2018 compared to the target of 25% predicted by Government.

Headline inflation is subdued at 3.2% even if it has increased from its low level of 1% in 2016 amidst collapsing commodity prices and falling energy costs. However, the rupee has recently depreciated sharply over a short period and will impact imported inflation. One wonders whether the Bank of Mauritius is haunted by the ghost of Palmar and is interfering to depreciate the rupee to boost exports.

Seven unkept economic promises, some by huge margins
 

Vishnu is right to be ashamed as all seven economic promises contained in the second economic miracle document of 2015 have not materialised, some by extremely wide margins.

Table 1 summarises the yawning chasm between promises and achievements.

Government envisioned a GDP growth of 5.5% per annum . The average growth rate for the 2015 – 2018 period stands at 3.75% ,which is 32% below target;

It promised an income per capita of far more than US$ 13500 in 2018. The actual figure in 2018 is US$ 11180, which is at least 18% below objective;

It pledged to raise employment by an incredible 20000 per year. The actual number of jobs generated over the four year period is a modest 3200 per annum.

It is an astonishing 84% below target;

It undertook to lift investment to 25% of GDP. The share has actually fallen to 17.7% for the four year period. It is below target by 29%;

It vowed Rs 140 b of FDI over a five year period, around Rs 28 b per year. The actual average yearly FDI between 2015 and 2018 is Rs 13.9 b, a thumping 50% below target;

It committed to reverse the declining trend in manufacturing and bring it back to 25% of GDP in 2018. It stands an all time low of 12.3% of GDP in 2018, a dramatic 51% below target;

It projected to lower public sector debt to 50% of GDP in 2018. It has swollen to 64.5% in 2018, which is 29% higher than target. On an IMF basis and taking the SPVs’ into account, public debt would be higher than 70% of GDP.

Five other disappointing economic trends
 

There are also disquieting trends in some other economic fundamentals as depicted at Table 2 above.

i) savings as a percentage of GDP has reached a historical low at 9.1% in 2018 which is dismal for domestic resource mobilisation;

ii) the share of the export sector to GDP has shrunk from 5.8% in 2015 to 4.4% in 2018 as a result of the appalling performance of exports;

iii) the net export of goods and services which is the difference between exports and imports has deteriorated from negative 9.3% of GDP in 2015 to a staggering negative 13.5% of GDP in 2018;

iv) the deficit of the balance of current account has soared from 3.6% of GDP in 2015 to 5.6% in 2018;

v) the balance of trade posted a massive deficit of Rs 112 b, representing an extremely high 22.2% of GDP in 2018 from Rs 74.7 b and 16% of GDP in 2015 .

Six sectoral concerns

There are also worrisome trends in some key sectors of the economy.

i) sugar continues its sour descent with a combination of lower revenues and rising costs;

ii) textiles and clothing face huge challenges with factory closures, significant job losses and relocation of production abroad;

iii) the financial services sector is being hamstrung by the modification of the India tax treaty, BEPS, the changing regulatory and taxation landscape, the threats from the EU and the difficulties to move up market in terms of value added services;

iv) the hitherto buoyant tourism sector is under considerable pressure both in terms of arrivals and revenues. A recession is staring at us in that key economic cluster and the blame game has started. Tourists coming by air are down by a significant 4.5% for the first three months of 2019 with substantial decline from major markets such as China by 31%, Australia by 18%, Singapore and Reunion by 11% and UK by 9%. Revenue has shrunk by 6.6% in Jan 2019 compared to the same month last year.

v) there is hardly any new sector that is shaping up in terms of scale and scope to replace sunset industries and to compensate for slack elsewhere. The ocean economy is blocked in the starting stall while fin tech and blockchain remain largely motherhood statements.

vi) Air Mauritius, SBM, Maubank and NIC are all navigating stormy waters and need to be reengineered to reverse their fortunes. Some constitute a heavy financial burden to taxpayers.

Vishnu is spot on

To be fair, Government has scored on the social front with the significant increase in old aged pensions, the minimum wage and the negative income tax even if there are collateral economic, financial and budgetary fallouts. However it has utterly missed all the seven economic targets it set out at the beginning of its mandate. It is an outstanding case of excelling in overpromise and underdelivery. There are also other disappointing economic indicators and many sectoral concerns. True, economic news management by communication experts are important in modern politics. So are alternative facts as we see increasingly in some countries. To make us believe that copper is gold, if not diamond. However, it would be disingenuous to bury our heads in the sand and not acknowledge the unpalatable economic realities. Fact checking using official and reliable data show beyond reasonable doubt that Lutchmeenaraidoo is absolutely right on his scathing verdict on the poor economic management of the country. Belated but still spot on.