Stimulating an Island Nation: The Logic behind Mauritius’ Additional Stimulus Package

5 August 2009

At the end of October 2008, there was a consensus in Mauritius between policy makers and economic operators, that although the country was not facing any systemic financial risk, the global economic downturn would hit, in a significant manner, our main exports, namely, textile and tourism.

In Mauritius the banking sector is properly regulated, well capitalised with loan to deposit ratios typically in the range of 70-75 percent and, with minimal wholesale financing dependency, the sector has a strong balance sheet position.

However, it was felt that the global downturn would impact adversely on our more important export and tourist markets, namely, France, UK, USA, and Germany. Accordingly, there was a concern that the year 2009 would be difficult for our tourism and exports of textiles with high risk of job losses.

It was also agreed that the other sectors of the economy - such as sugar, ICT/BPO, and offshore activities - would be less adversely affected.

The shared understanding by the authorities and the business community led to intensive discussions regarding measures to be put into place to face the global crisis. Paragraph 2 of page 7 of the ASP summarises clearly this consultative process.

"Government has had intensive consultations with all sectors of the economy and with [Small and Medium-sized Enterprises (SMEs)] and set up a joint Committee with the [Joint Economic Council] to complement the one earlier instituted with the Chamber of Commerce and Industry. We also obtained inputs from the Association des Consommateurs de l'ile Maurice (ACIM), Association of Inbound Operators, Institute for Consumer Protection (ICP), Association of Trust and Management Companies (ATMC), AHRIM, Building and Civil Engineering Contractors Association (BACECA), the Chamber of Agriculture, Outsourcing and Telecommunications Association of Mauritius (OTAM), MBA, MEXA, AMM, the SME Federation and representatives of small and medium planters. These consultations and the work of these Committees have been important elements in putting together this stimulus package within a short period of time. In fact, they have allowed us to go beyond the calls to deal with the problems of textiles and tourism to take a holistic approach that will further strengthen our resilience and better prepare us for the rebound."

Policy makers felt there was an urgent need to support companies in difficulty with a view to save jobs and mitigate the adverse impact of the expected global economic slowdown. Furthermore, government agreed to accelerate the pace of reforms and frontload certain public infrastructure in order to maintain the investment rate. Accordingly, a whole range of measures in a document entitled "Additional Stimulus Package" (ASP) was announced in December 2008.

Details of the package

Though the ASP should be considered in a continuum of reforms already in motion, it is important to highlight that it focuses on the following objectives:

  • prevention of job losses by direct support to companies on the basis of burden sharing between shareholders, financial institutions and government;
  • introduction of a work mix training programme to prevent lay-off in spite of significant decrease in turnover and profitability;
  • provision of temporary relief through suspension of a range of fiscal measures across a wide range of sectors of the economy. The relief was targeted towards sectors ‘vulnerable' to the global economic downturn;
  • maintain investment through a massive public infrastructure programme and frontload a wide range of projects announced in the 2008/2009 Budget;

Job saving mechanism

One of the key components of the ASP is the Mechanism for Transitional Support to the Private Sector (MTSP). The main feature of the MTSP is to provide additional financial support through a rescue plan based on the principles of ‘risk sharing' as well as ‘burden sharing' by companies, financial institutions, and government. In a typical rescue plan, the company would meet 20 percent of the additional finance, while the remaining 80 percent would be equally shared by the banks and the government on concessionary terms. The guidelines for banks have also been set under the "Mauritius Approach" with clear ‘pricing and standstill' policies.

The government estimates that the MTSP, which is co-chaired by a representative of the government and the private sector, has already saved approximately 3000 jobs.

The implementation process

In December 2008, after the announcement of the ASP, government met with all of the country's main business organisations to establish eleven Working Groups. Each Group, it was agreed, would be co-chaired by a representative of the government and a representative of a business organisation with a mandate to operationalise the measures announced. A Steering Committee, co-chaired by the Secretary to Cabinet and the Director of the Joint Economic Council, was put into place to monitor the overall implementation of the ASP.

By March 2009, the Ministry of Finance and Economic Empowerment passed the ASP Finance Act to give legal authority to the measures announced in the ASP. The government's 2009 Budget, announced on 22 May 2009, reinforced the objectives of the ASP and earmarked additional funds to face the crisis.

Challenges

Mauritius appears to be sailing through the crisis reasonably well. Although the growth of the country's GDP over 2009 is expected to be approximately half of the average seen over the past three years (2.5 percent versus 5.1 percent) and unemployment is expected to rise to 8 percent from 7.2 percent in 2008, the total budget deficit will remain below 5 percent with overall debt at 59 percent of GDP. These macroeconomic indicators show that Mauritius would be able to weather the crisis without a major recession.

However, we are concerned about the adverse impact of the crisis on the SME sector which, so far, has been resisting quite well. There is an urgent need to operationalise a series of measures announced in the 2009 Budget (MTSP for SMEs, a Mauritius Approach for SMEs, Leasing facilities at concessionary rate to equipment modernization). These instruments were finalised by the MTSP at the end of July.

There is also a need to implement the infrastructure projects on a fast track mode. Accordingly, the 2009 Budget has placed special emphasis on capacity building as well as removing systemic constraints for implementing infrastructure projects.

With the global economic crisis starting to show signs of stabilisation, we would expect our export markets not to continue deteriorating and therefore see some respite on the textile and tourism sectors. Mauritius, however, is continuing to implement all the measures of the ASP and the 2009 Budget with the same sense of urgency as was done in the first half of 2009.

At present, it would appear that Mauritius has been ‘ahead of the curve' in terms of measures to contain job losses and mitigate the impact of the global economic downturn. We are closely monitoring our performance for the next six months and look forward to 2010 with more optimism.

More information

The Additional Stimulus Package is available on the website of the Ministry of Finance and Economic Empowerment (http://www.gov.mu/portal/goc/mof/files/minibud1208.pdf).

The ASP Finance Act can be accessed at the following website: (http://www.gov.mu/portal/goc/mof/files/stimulusact.pdf).

Guidelines of the MTSP as well as details on the Mauritius Approach can be found on the Enterprise Mauritius website (http://www.enterprisemauritius.biz).

The 2009 Budget is available at (http://www.gov.mu/portal/goc/mof/files/budspeech09.pdf).

Author

Raj Makoond is the Director of the Joint Economic Council, Mauritius

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