Before the year 2023 comes to an end, it is important to take stock of the economic situation in Mauritius. The year 2023 was an unprecedented year because it was the economic recovery after the wave of Covid-19 that had put a brake on several economic activity in the country. The ki nouvo moris set of Monday, December 4, 2023, found it important to paint a picture of the country’s economic situation. To address this theme, Rising Ocean invited Kugan Parapen, economist by profession and member of the national committee of Rezistans ek Alternativ (ReA). The member of ReA confides that economist around the world had their feet off the mark by making predictions that turned out to be wrong because despite Covid-19 and geopolitical wars, the recovery of economic activities has proven fruitful.

How to sum up the year 2023?

Kugan Parapen says that although 2023 has not yet passed, however, the main lines of this year can already be discussed. A lot has happened internationally and domestically. It is worth remembering that at the beginning of 2023, many economists at the international level were predicting a kind of deceleration of the global economy due to the fact that the interest rate had risen meteorically around the world. In 2022 in countries such as the United States, the interest rate had come out of 0.5% to close to 5%.

However, many economists were surprised because their predictions did not materialize, and the opposite happened.

“Global consumption, especially in the United States, is still very strong and this means that many specialists operating in finance and economics are a bit of a laughingstock because their predictions have been off the mark. What’s important is why these predictions didn’t materialize.

This is mainly due to the consumption shown by the population. People continue to consume in a way that is in line with the resumption of activities in 2022. It is a continuation of post Covid tendency more essentially.

This money supply injected post Covid by the government and central bank, is not completely eroded.”

What about purchasing power in 2023?

In this economic model in which we operate, it is clear and unambiguous that it is the population that pays the price, points out Kugan Parapen.

“Regardless of the equation, if there is a winner, there must be a loser and in Mauritius, it is the exporters who are the winners and the population who loses.”

The population has two roles: the consumer and the employee. Indeed, based on their jobs, some employees are much more well paid than others and this has contributed to creating a gap between the Mauritian population. Those working in the import sector, the private and public sectors are not affected in the same way by the depreciation of the rupee. As a matter of fact, those who are self-employed, SMEs and so on are the most affected by rising prices.

“It is unfortunate to note that the gap between the Mauritian population continues to narrow. There is a gap and every time our rupee depreciates, the gap widens.”

The cost of living is extremely worrisome, and this is the case all over the world, the economist points out. A lot of people think inflation is behind us, but that’s not the case, Parapen said.

“Inflation in Mauritius for the month of October 2023 is at 4.6% excluding in January it was at 12%. There was still a decline, but 4.6% is still very high. Are we going to be able to bring inflation back under control, I’m not as optimistic as my colleagues.”

The world is entering a fairly high inflation regime and the interest rate in Mauritius may not come back down to the level it was a few years ago. Mauritius has entered a volatile socio-economic phase where there will be a lot of difficulties where many things will change at the political level. In Mauritius and even elsewhere, it is the wallet who decides at the time of voting, and this is what we see in the run-up to the next elections. It is more important to bring inflation under control as quickly as possible than to keep the interest rate low.

“The economic history of the world has shown through its cycles that the time when the economy and society are most damaged is when inflation is higher. The biggest lesson to be learned from the 1970s and 1980s is that the role of a central bank is not just to promote growth, but above all to ensure price stability. When a country is dealing with double-digit inflation, action must be taken.”

What about the CSG?

The current Ministry of Finance has an extremely weak view of the economy and especially of the functioning of a pension fund.

“The aging of the population is a reality and to hear a finance minister in 2023 tell the public that he does not believe in the establishment of a pension fund is nonsense.”

The decision to replace the NPF, which was a pension fund, with the CSG, which is a tax on wages, is inconceivable, because with the aging population of Mauritius, there will unfortunately not be enough young people to work to contribute to the pensions of the elderly. As a reminder, when the Minister of Finance abolished the NPF in 2021 to replace the CSG, he mentioned a reformed pension system, outside this is not a reform of the pension fund and it is rather a pension destruction, points out Kugan Parapen.

Watch the debate here: