Pension and year-end bonus : impact on consumption and the economy

December is a much-awaited month of the year for traders as it is a last chance to do good business. This year-end period will see a huge money supply in circulation. In addition to the traditional end-of-year bonus payable to all workers, there is also the payment of the double pension this December, after the substantial increase. But what will be the impact on consumption and the economy?

The amount of money in circulation will rise exponentially this month, not only with the payment of the end-of-year-bonus but also the higher pension rate. In addition, as from January, there will be the new minimum wage and the salary compensation, as well as the advance payment of Rs 1,000 to civil servants and performance bonuses to policemen, prison officers and firefighters. The pension hike, in force since December 1st, concerns approximately 220,484 retirees aged 60 to 89 and 4,264 retirees aged 90 to 99, as well as 157 centenarians, 18,501 widows and 32,702 recipients of the Basic Invalidity Pension.

All this money will affect consumption in general. According to a Bank of Mauritius estimate, about Rs 43 billion will be in circulation this December. But what will be the impact on our economy?

Zohra Gunglee, economist, argues that this additional monetary injection will stimulate the economy because the expenses of some will become the income of others and this cycle will continue. “This massive monetary injection will boost consumption and save jobs. It can, however, also have an inflationary push,” she says. She adds it is not necessary that all the money supply be put in circulation because there are many people who will choose to save for the future. “Retirees also have the opportunity to invest in the ‘Silver Retirement Bonds’ issued by the Central Bank. However, she opines that in Mauritius, we import a large proportion of what we consume, so there is a risk of worsening the trade deficit. “A good part of this money will thus go abroad.”

Ganessen Chinnapen : “Inflation will remain subdued”

Ganessen Chinnapen, economist, says it is indeed expected that there will be an increase of financial flows in the transmission mechanism of the economy with a rise in the velocity of money arising from bonus and pension hikes. “It is likely to stimulate the economy through an influx of consumption growth arising from end-of-year sales and purchases,” he adds. However, he believes inflation will remain subdued. “Elderly people have low propensity to consume and high propensity to save,” he concludes.  

Yaaseen Edoo : “Disabled persons spend a lot on travel”

Yaaseen Edoo, a Disability activist, says the pension rise will help ease the financial burden faced by people living with disabilities. However, this money will not necessarily be spent on additional consumer goods. He says persons with mobility impairment, even though they benefit from free public transport, cannot travel by bus and have to hire taxis, so a large proportion of their income is spent on travel. “I would say that persons with disabilities contribute a lot to the transport sector,” he says. Yaaseen Edoo concludes that the government must work towards ensuring public transport including feeder buses to be low floor buses so that the pensions obtained by persons with disabilities can be used for other necessities. 

Jayen Chellum : “The fall of the rupee is a major concern”

The Secretary General of the ‘Association des Consommateurs de l’île Maurice’ (ACIM), Jayen Chellum, says that, unfortunately, with overconsumption, there will be a trend towards rising prices. Paradoxically, in some cases, competition between traders to attract customers could also lead to lower prices. This is more likely in the case of electrical appliances. He calls them ‘trendsetters’ because they determine the price. “People buy a lot of home appliances in December,” he says. Jayen Chellum is also very concerned about the continuous fall of the rupee against the dollar. Higher demand, he believes, will drive up the exchange rate and result in higher prices of consumer goods. He says he is fully aware that at this time of the year, there will be a huge money supply in circulation.

Abdul Razack Noorkhan : “I fear a rise in the price of essential goods”

The president of St Francois Xavier Senior Citizens Association, Abdul Razack Noorkhan, says his members are very pleased with the rise in the old age pension. They especially appreciate the payment as early as December, as this means a double pension, considering the annual bonus. He agrees that a basic pension at Rs 9,000 allows the elderly to live better. However, he fears that in the long run, rising commodity prices could dilute the effect of the substantial increase. “Older people spend a lot on medicines, cereals and milk. Others need adult diapers. I note that some prices are already rising,” says the president of the seniors’ association based in Port Louis. For him, if all the products consumed by seniors become more expensive, then the very purpose of the pension hike would be defeated.

December spending spree is on

The country is already braced for consumers’ spending spree during the end-of-year festivities. The new Galaxy store in Port Louis, fully renovated and with more variety of products on display, is already attracting hordes of customers. In the south, the opening of Bo’Vallon Mall adds to the consumer offering of the region. In the north-east, the Riverside Shopping Centre at Rivière du Rempart has seen an uplift, while in the east, the Flacq Shopping Mall has come back to life after new additions, such as La Foir’Fouille. Elsewhere, many shopping centres have undergone major upgrades. Small retailers have also attempted some window dressing in order to retain existing customer base and attract new ones. Traders across the island are hoping to cash in on the shopping spree of the year-end. In the capital, hawkers are asking for permission to run street fairs at night. On the leisure side, the Belle Mare Splash N Fun Park is being forced to limit entry to avoid crowding, following the successful reopening of the leisure centre. On the other hand, consumers may see a rise in the prices of vegetables, following a spell of dry climate lately. Kreepalloo Sunghoon, secretary of the Small Planters’ Association, says the price of some vegetables has already risen, as rains are scare. Also, the price of certain products, such as milk, has already seen an increase due to an appreciation of the dollar vis-à-vis the rupee. The headline inflation rate for the twelve months ending October 2019 works out to 0.7%, compared to 3.5% for the twelve months ending October 2018. Figures for November 2019 are yet to be released.