Budget 2016-17: Potential measures to boost the economy

The Budget 2016-17 will be presented on July 29 by the Minister of Finance, Pravind Jugnauth. How will the newly appointed Minister use this exercise to boost our economy? We asked two economists and a former Finance Minister about what measures can be used to this end.“Boost”, “relaunch”, “miracle”… Whatever the term used to describe the need to rekindle the economy, the fact remains that the next Budget needs to provide the necessary spark to get the economy rolling. Thus, much is expected from the newly appointed Finance Minister Pravind Jugnauth who has presented three budgets in the past, namely in 2004, 2005 and 2010.

Given the present economic situation, many issues are at stake and need to be addressed. In a press conference last week, Pravind Jugnauth highlighted that one of his goals is to lower public debt to attain 50% of gross domestic product (GDP).

“It is very important to note that the four traditional pillars of the economy, namely tourism, finance, manufacturing and sugar, are facing major challenges because of the international situation which is not as favorable as before… There are also uncertainties linked to Brexit and uncertainty on investment, especially regarding private investment. I will focus on fiscal discipline,” said the Finance Minister.

[[{"type":"media","view_mode":"media_large","fid":"23568","attributes":{"class":"media-image wp-image-37367 alignleft","typeof":"foaf:Image","style":"","width":"250","height":"264","alt":"pierre-dinan"}}]]According to Economist Pierre Dinan, despite the Budget being an annual event, there is the strong need to think about and implement measures that will last over the years to come. “We need to put the economy in the front seat. All of us, Mauritians and foreigners, are concerned with the economy, as we live here and invest here. We thus have to see to it that the government puts the economy back in business and also that the economy moves forward,” he says.

What measures can be implemented by the government to boost the economy? For Pierre Dinan, there are three key issues that should be addressed in the Budget 2016-17. “Firstly the government should forge ahead with infrastructural projects such as ports, smart cities, CWA and others.

Infrastructure is extremely important as it is required for the smooth running of the economy. The government also needs to launch projects which will create jobs. It should get projects going in existing productive sectors such as agriculture, textile, tourism, financial services. All these need to be nurtured. We need to find new markets. We thus expect this budget to lay emphasis on new markets for existing sectors involved in the production of goods and services and financial services as well as ICT. We do note that there has been a good start with tourism but we need this budget to lay emphasis on new projects and those which were announced last year. However, we notice that nothing has happened, for example, in the ocean economy project,” he says.

For the economist, a strategy must be developed for these projects. “We are tired of blank announcements. We need research which leads to an identification of what can be done. We thus believe that research should be encouraged in the budget. The next step should be to carry out a feasibility study to see if the project is economically and financially worth it. Finally, when you come to conclusion that it is right, then you market it with investors. It is important to carry on these preliminary steps,” he explains.

Pierre Dinan trusts that the government should come forward with the promotion of research and proper feasibility studies then look for investors. “This will give way to create jobs that will last.” Secondly the economist trusts that the budget should lay emphasis on public finances. “Pravind Jugnauth spoke about having a proper budget discipline. I hope that the Finance Minister walks the talk and that each rupee is spent properly.”

Thirdly, the economist believes that the focus should also be on the pyramid of population. “The government needs to look at the pyramid of population and see that the bottom is getting smaller as we have less births and the top is getting larger as the ageing population continues to grow. If this trend persists, the pyramid will collapse. Both bottom and top must be cared for. At the bottom, the government should introduce crèche in working places and remove the ceiling on tax allowances on children. The government should also increase the maternal leave and introduce the paternal leave.”

He explains that the government needs to be careful as people living longer need pensions. “Non-contributory pension cost a lot of money to the government. The government should seriously encourage the active population to contribute out of their own funds to a pension for their retirement. This would make them not rely only on the old age pension. In addition it should give fiscal incentives that will have two major benefits namely helping people to get a decent retirement pension and help to save. This also has a macro-economic effect as it will help the saving rate to somehow increase.”

[[{"type":"media","view_mode":"media_large","fid":"23569","attributes":{"class":"media-image size-full wp-image-37368 alignleft","typeof":"foaf:Image","style":"","width":"300","height":"340","alt":"Rajiv Servansingh"}}]]Rajiv Servansingh: “Increase expenditure on public infrastructure”

For the chairman of MindAfrica, the budget is always an opportunity for the government to address the economic problems of the country. Rajiv Servansingh trusts that we currently have two main challenges that need to be addressed. “The first one is the lack of investment and the second is unemployment in the country. So we expect the next budget to look into measures that will attract private investments into productive sectors of the economy other than real estate.”

He highlights that in spite of the budget deficit, “the government is expected to spend heavily on the public infrastructure development as a short term measure to support construction industry and employment creation.” Adding “we wish that the government would tackle the bureaucratic obstacles that stand in the way of private investment.”

Rajiv Servansingh states that the budget is also expected “to provide clear frameworks for the reinvention of the financial services sector following the end of the DTA with India within two years.” Finally “we expect the government to give due consideration to the social cohesion in the country by providing support to the more vulnerable sections of the population. Social stability is one of the pre-conditions necessary for the economic development to take place in a country,” he says.

The chairman of Mind Africa trusts that there are three major policies which can be immediately rolled out to boost the economy, namely “increase expenditure of public infrastructure, incentives to boost the export of goods and services and innovation in the productive sectors of the economy. Thirdly, the SME sector remains one of the backbones of the economy of Mauritius. It is hoped that the budget will address the issue of access to finance for small and medium enterprises by the setting up of the SME bank as previously announced.”

[[{"type":"media","view_mode":"media_large","fid":"23572","attributes":{"class":"media-image size-full wp-image-37369 alignleft","typeof":"foaf:Image","style":"","width":"300","height":"341","alt":"Vasant Bunwaree"}}]]Vasant Bunwaree: “Focus on creating more economic stability”

According to the former Finance Minister, the government should improve the public finance. “The budget should stick to predefined parameters such as public debt level and budget deficit. In the last months public funds have been spent left right and centre which has given rise to economic instability. In that sense, the Finance Minister should focus on creating more economic stability and improving fundamentals such as employment or inflation,” he says.

Vasant Bunwaree states that the growth remains stagnant despite all that is being done and that the public debt is a real scourge. “The government has been servicing its debts through borrowings. It should absolutely avoid this. It should stimulate growth, especially productivity, if not there will be no job creation. The government would thus have to pay much attention to all details and focus on the various growth sectors such as construction and sugar cane. The sugarcane sector is one that can soon disappear. It is thus of utmost importance for the government to find out solutions on how to support those sectors,” he explains.

The former Finance Minister argues about the recent millions spent on public infrastructure by the government. “I believe that the government has failed in its capital expenditure regarding infrastructures. There are many promising sectors which, despite difficult times, have been going strong such as tourism, ICT and even SMEs. I trust that the SME sector should be given priority consideration. In addition government should look at the regional possibilities and support its people by setting up platforms. Only then can the fight against unemployment have some meaning.”

Vasant Bunwaree also trusts that private investments should be encouraged to create jobs but not temporary ones. He believes that the financial sector should be reviewed at large especially following the DTA agreement signed with India. “The government should now repair the damage done. We should look at the way through which we can benefit from the investment outflows in India towards Africa. Mauritius must position itself as a platform.” Vasant Bunwaree also states that he trusts that the current Finance Minister Pravind Jugnauth will not increase the VAT. “I believe that there are other means to get revenues.”