Budget 2020-21 : l'analyse de Jameel Khadaroo, Partner - Consulting, Deloitte Mauritius

Tackling an Unprecedented Crisis Mauritius Budget 2020 – 2021
4 June 2020

Bouncing Back from the Great Lockdown

The Finance Minister, Dr the Honourable Renganaden Padayachy has delivered his maiden Budget Speech, in an unprecedented economic and social environment marked by limited visibility and livelihood challenges. He has charted an ambitious project for the Mauritian economy to bounce back from the Covid-19 crisis, with a key role for construction activities, whilst maintaining due focus on inclusiveness and social cohesion.

The authorities have been pursuing a number of so-called unconventional policies to support corporates as well as workers, and have approached international institutions for financial assistance, to counter expected severe economic contraction. With a view to safeguard financial stability and promote economic development, the Bank of Mauritius (BOM) has since the crisis inception announced several measures, the latest through a USD 2-billion fund targeting investment in systemic corporates and a MUR 60-billion contribution to Government. Financing of the latter would be through issue of BOM securities on the domestic market and may, by mopping up excess liquidity of nearly MUR 50 billion at least partially reconnect remarkably low market yields to the Key Repo Rate (KRR). 

Importantly, these two specific initiatives have the potential to be game changers in the prevailing circumstances, provided the right infrastructure and mechanism are set up for operationalisation, performance assessment and governance.

According to the IMF, with the Great Lockdown, the global economy is projected to contract by 3 percent in 2020, much worse than during the 2008-09 financial crisis, and to grow by 5.8 percent in 2021, with the help of policy support, should the pandemic fade in second half of 2020. 

The risks for more severe outcomes are, however, substantial. The mounting geopolitical tensions between the US and China in relation to the coronavirus origin and outbreak, as well as reduced international travel and trade due to absence of a vaccine, may constitute important obstacles to an early global economic recovery. 

Leading central banks like the Fed and ECB have implemented a set of funding, commercial and liquidity facilities to mitigate the impact of the pandemic on their respective economies and citizens. Nonetheless, as of date, there is limited visibility on the future trajectory of the world economy.

On the domestic front, the pandemic is currently forecasted to result into a contraction of 11 percent for the Mauritian economy in 2020, driven by reduced aggregate consumption, investment and exports demand, and by constrained aggregate supply through supply-chain bottlenecks. The unemployment rate has constantly fallen, from 7.9 percent in 2015 to 6.7 percent in 2019, but could easily breach into double-digit territory in coming months, with potentially significant layoffs in the highly vulnerable tourism and manufacturing sectors. The continuously deteriorating merchandise trade deficit, from 15.8 percent of GDP in 2015 to 21.7 percent in 2019, confirms the growing weakness of goods trade and calls for structural policies, e.g. an implementable Industry 4.0 roadmap for Mauritius. Headline inflation, which has been on a downtrend since 2017, reached a 10-year low of 0.5 percent in 2019, but is now likely to reverse course with imported cost-push pressures from rupee depreciation and higher freight costs. The budget deficit, which has evolved in a stable range of 3 percent – 3.5 percent of GDP since 2013, is estimated to explode to 13.6 percent in 2020, largely due to the Covid-19 crisis.

This budget proposes an ambitious MUR 100 billion roadmap for Mauritius to weather the ongoing economic storm and bounce back, through a plan to revive economic growth and private investment, fast-track construction and infrastructure projects, promote entrepreneurship, incentivise food security and import substitution through the domestic agro-processing and manufacturing. Exports promotion strategies are being widened and deepened for the manufacturing and tourism sectors. To safeguard the soundness of the global business sector and the financial sector in general, the authorities have committed to take necessary measures to comply with international best practice, including action on FATF standards and risk-based supervision.

Some of the key fiscal measures in the budget include:

• Replacement of NPF contribution by pension contribution at 3% for employees and 6% for employers, with no upper limit, for those earning more than MUR 50,000 per month, resulting in increased costs to employers; 
• Increase of solidarity levy from 5% to 25% on annual chargeable income in excess of MUR 3 million;
• Levy ranging from 0.1% - 0.3% on corporates with annual gross income of the company or group exceeding MUR 500 million

This budget emphasises, amongst others, digital transformation, public health enhancement, social security deepening, female empowerment, child protection, housing construction for middle-income families, unemployment benefit for a defined period, and attraction of foreign talent. Ultimately, solidarity has to prevail to ensure that we come out of the prevailing ordeal stronger, as one people and one nation.

By Jameel Khadaroo, Partner - Consulting, Deloitte Mauritius