Axys Reports: Red Card for the MSM Over Economic Management

In a recent report titled “The Winds of Change – Challenges for the New Government,” Axys has delivered a stark assessment of Mauritius’ economic landscape. The findings reveal deep-rooted issues stemming from massive imports, a consumption-focused economy, and the rapid depreciation of the Mauritian rupee, which has exacerbated inflation and significantly increased the cost of living for Mauritians in recent years.

In real terms, the country’s GDP has experienced a contraction, leading to significant concern among economic experts.

Axys emphasized that Mauritius is at a critical juncture, facing substantial challenges that, if left unchecked, could jeopardize the nation’s long-term stability and growth prospects.

These challenges occured from structural weaknesses within the economy, demographic shifts, and factors such as the ongoing depreciation of the rupee.

Despite Mauritius achieving a commendable growth rate of 5.9% over the past decade, largely driven by household consumption, Axys cautioned that this growth has been fueled by soaring imports.

Imports reached MUR 284 billion in 2023, compared to MUR 172 billion in 2014.

The report highlighted that, while the nominal figures may seem positive, the reality is more concerning.

“The country’s growth story, while positive in nominal terms, masks a troubling trend when real GDP is adjusted for currency depreciation.

The real GDP in USD terms has contracted at a rate of -0.3% Compound Annual Growth Rate (CAGR) since 2014, indicating that Mauritius’ economic growth is increasingly being eroded by the depreciation of the Mauritian rupee.”

The report is a clear indictment of the previous government’s economic management, particularly under former Minister of Finance Renganaden Padayachy.

Axys pointedly noted, “The real GDP contracted from USD 17 billion in 2019 to USD 16.2 billion in 2024, indicating that the economy has shrunk by approximately USD 800 million over the past five years.”

Furthermore, since 2014, the rupee has depreciated by over 30% against the US dollar, which has significantly impacted the real value of the country’s output.

To address these pressing issues, Axys proposed a series of measures.

First, a substantial increase in productivity across all economic sectors is essential to ensure sustained GDP growth.

This can be achieved by adopting advanced technologies, enhancing workforce skills, promoting innovation, and streamlining business processes.

The second priority is to diversify the economic base, reducing reliance on consumption and imports.

Axys suggested incentivizing domestic production in key sectors such as agriculture, marine resources, and renewable energy.

The third national priority should be to develop an export-oriented growth strategy that balances the trade deficit and diminishes dependence on imports.

Axys believed that to curb imports, the government should tax luxury items such as cars and high-end products.

The effects of the rupee’s depreciation have put immense pressure on the economy.

The report stated that the rupee has fallen by 23.2% in the past five years alone, leading to significant inflation and exacerbating the cost of living for Mauritians.

It is important to clarify that a decrease in inflation does not equate to lower prices; instead, it is reflecting a slower price increase compared to the previous year.

Inflation and the depreciation of the rupee have resulted in higher import costs, especially for essential goods such as food and energy, straining household budgets.

In light of this dire situation, the Bank of Mauritius has been compelled to intervene in the forex market to stabilize the rupee.

However, its reserves are dwindling, with net international reserves decreasing from USD 6.6 billion in FY19 to USD 4.9 billion in February 2024, equating to only 7.4 months of import cover. This decline amounting to USD 1.7 billion.

Axys pointed out that with the current account and balance of payments in negative territory (a deficit of MUR 29.6 billion), reserves are expected to decline further until the balance of payments situation improves.

This ongoing deterioration is believed to be a primary catalyst behind the rupee’s devaluation, which will continue unless addressed.

Looking ahead, Axys recommended a cautious approach to interest rates, emphasizing the need to bolster foreign currency reserves by increasing exports and attracting foreign direct investment.

Ultimately, Axys advocated for an economic environment where innovation flourishes, entrepreneurship is nurtured, and social justice prevails.

The organization envisioned an economy characterized by reduced bureaucracy and a business-friendly atmosphere, allowing individuals to pursue their ambitions.

“We must commit to equality to ensure that opportunities are accessible to all, fostering a fair and just society.

Through these efforts, we can build a resilient, inclusive, and prosperous future where creativity, fairness, and sustainable growth are integral to our economic advancement,” concludes the report.

Source: Le Mauricien