“For the past decade or longer, politics took precedence over the economics of running the country”

Interview: Rajeev Hasnah, Economist

* ‘The money illusion and debt-hungry games played since 2019 unfortunately have an expiry date, which is not very far in the future’

* ‘Having to deal with crises be it economic, political or climatic is now the new normal’

Rajeev Hasnah sheds light on a perplexing revelation from the 2024 World Happiness Report: Mauritian youths exhibit unprecedented levels of discontent compared to older generations. In a candid discussion, Hasnah attributes this divergence to economic disparities and a sense of entitlement, urging policymakers to prioritize inclusive growth and fiscal prudence. As Mauritius faces economic and other challenges now and in the years ahead, Rajeev Hasnah’s insights as an economist provide valuable guidance for steering the country toward stability and sustainable growth.

Mauritius Times: Referring to the 2024 edition of the World Happiness Report recently published by the UN Sustainable Development Solutions Network, Visual Capitalist reports that Mauritian youths (under 30 years old) are seemingly the most discontented demographic compared to older generations worldwide. This assertion may seem incredulous unless we are closely monitoring societal trends. What are your thoughts on this matter?

Rajeev Hasnah: The results of the World Happiness Report are enlightening and revealing from several perspectives for Mauritius both on its own and in comparison with other countries. While for the overall indicator, Mauritius ranks 70th out of 143 countries, the results are at extreme ranges when we apply the age filter. For those above 60 years old, Mauritius ranks 28th, which puts the country among the likes of France, Singapore, and Spain, whereas for those aged below 30 years old, Mauritius ranks 85th, which puts the country in the company of South Africa, Venezuela, and Ukraine (Venezuela’s and Ukraine’s rank are even better at 83rd and 82nd respectively).

Visual Capitalist ranks Mauritius as Number 1 in the world for the gap in the ranking between those aged above 60 years old and those aged under 30 years old. This disparity is quite shocking as while the level of happiness of old people is similar to that of those living in Singapore and France on one hand, the level of happiness of the young category is similar to those living in Venezuela, which is considered as an authoritarian regime by The Economist, and Ukraine, which is a country currently at war with Russia since February 2022! 

This significant gap in the level of happiness between these two different generations in Mauritius is very concerning as it points towards extreme opinions about the level of happiness for living in Mauritius. May be this situation in the level of happiness among the youths could explain why the country is currently undergoing a massive brain drain in all sectors of economic activity – the situation is so perverse that we could even refer to it as a labour force drain in the country.

* If the assertion of the UN Sustainable Development Solutions Network is correct, it suggests that we are not monitoring what’s happening in our own backyard, and that oversight might also extend to other demographics such as the elderly, women, and various segments of the labour force. It’s likely that the data from Mauritius Statistics may not capture the whole picture. What do you think?

The results of the World Happiness Report may not necessarily be captured and monitored by any public authorities in Mauritius, as this report is based on surveys that assessed three main criteria:

1. Life evaluations: assessment of overall well-being in the country
2. Positive emotions: laughter, enjoyment, and interest
3. Negative emotions: worry, sadness, and anger

Nevertheless, the above intangible assessment is also correlated to economic datasets such as GDP per capita, healthy life expectancy, freedom, and perceptions of corruption, among others.

As such, it can be said that the level of happiness experienced by those above 60 years old could be depicting the focus of recent government policies that ensured that the old age pension increased to Rs 13,500 today and also the fact that Mauritius is a nice place to live in terms of weather and affordable access to leisure places such as the beach.

As the country still has a modified version of extended families, old age pensioners could also be enjoying a relatively happy life as they are well surrounded with their descendants with sufficient monetary funds to make ends meet. While the massive loss of purchasing power over the years should have rendered the increase in pensions inconsequential, it is also a fact that it is quite uncommon for people in this age bracket in Mauritius to be on the lookout for building a house or having to cater for their children over and above themselves. So, they have less to worry about!

The average Mauritian experience seems to be at the opposite end for those aged below 30 years as well as those above 30 years old but below 60 years old. In their perception they could be worried about their future as well as that of their children’s and their retirement; they may also feel sad that they do not see much opportunity to be able to lead a comfortable life and build a decent asset base as their parents did in the previous generation; and angry about how their purchasing power both for consumables and owning an asset like a house has been robbed away from them in such a short time span.

* There may also be an issue with what many believe is prevalent among our youths: a sense of entitlement, which may not always be met. As an economist yourself, what’s your take on that?

As an economist, I am of the opinion that the results of the World Happiness Report could be depicting a Ricardian Equivalence mindset among those aged below 60 and more so among those aged below 50.

According to the Ricardian Equivalence theory, when a government finances its spending through borrowing rather than taxation, individuals anticipate that they will have to pay higher taxes in the future to repay the debt.

Applying this theory to the Mauritian context, it can be said that the massive increase in public debt since 2019 to the tune of around Rs 208 billion (versus Rs 65 billion increase between 2014 and 2019), the printing of money to the tune of Rs 140 billion along with the significant utilisation of the inflation tax as well as ballooning government recurrent expenses may have resulted in those aged below 60 years old to believe that these excessive non-productive spending and borrowing will ultimately be paid by them and also with ultimately not much left in the government coffers to cater for them when it is their turn to retire.

The above assessment could be at the back of the mind of the working class in one form or the other; this could be the core reason behind for why the happiness level of this category of people in Mauritius ranks even lower than Venezuela (an authoritarian regime) and Ukraine (a country at war).

* On the other hand, the Finance Minister will present the 2024-2025 Budget next week. There are numerous issues that call for serious attention: the challenges of inflation and the rising cost of living, public debt and fiscal sustainability, income inequality, support for vulnerable groups, economic resilience, and competitiveness, among others. But this Budget could be more about politics than good economics. Can our economy afford more politics in its present state?

Unfortunately for the past 10 years and potentially even before, politics took precedence over the economics of running the country. The affordability of political decisions as opposed to taking rational decisions for the benefit of the economy is always open to debates and interpretations as we have witnessed first-hand the works of an ongoing and sustained money illusion (deliberate or unplanned) since 2020 in Mauritius that made the fulfilling of political promises possible.

The money illusion and debt-hungry games that we have played since 2019 with the printing of Rs 140 billion from the Bank of Mauritius and the increase of Rs 208 billion of public debt since 2019 (Gross Public Debt as at March 2024 is at Rs 525 billion) unfortunately have an expiry date, which is not very far in the future. According to me, these are the core factors that resulted in a significant drop in the purchasing power of all Mauritians alike and for the persistent shortage of foreign exchange currencies in the country.

Though the IMF has been very diplomatic in its recommendations with regards to rebuilding reserves and fiscal buffers, it is very clear that the ability of any government to be able to continue playing these games further in the future will be significantly impaired, unless we have a massive increase in revenues going into the government coffers arising from increased economic activity or rent.

* There are many hotspots in some parts of the world that may impact economies globally. Do you anticipate that the road ahead will be challenging in the next few years, and what strategies could the government implement to mitigate the impact?

Over the past 20 years, the world has witnessed around 15 crises, ranging from the Global Financial crisis in 2007 to the Covid-19 pandemic and Russia-Ukraine war, passing through the Eurozone debt crisis among others. The new economic term used to describe this situation is “permacrisis” or as the G20 recently coined it, “cascading crisis”. Having to deal with crises be it economic, political or climatic is now the new normal. Obviously facing one crisis after another undoubtedly results in the erosion of our financial and human resilience, with each passing crisis making us more vulnerable to futures ones.

However, the countries that are not able to grow their economy in an inclusive and sustainable manner, and whose governments keep on repeating policy mistakes with more severe consequences on the reserves and resilience of their countries than the crisis itself, will undoubtedly enter a vicious cycle, which will ultimately take the country in a downward and negative spiral instead of an upward and positive one.

Unfortunately for Mauritius, the policy decisions taken to combat the Covid-19 crisis have significantly reduced the financial and economic resilience of our country, with the quasi depletion of our reserves and the massive increase in government indebtedness over a very short span of time.

It’s no surprise that the IMF recommends the government of Mauritius to rebuild its macroeconomic buffers and foreign reserves which will assist the country in facing the next crisis. The bad news for this is that while it is very easy to deplete these buffers and reserves in a short span of time (as we have already done since 2020), it is very difficult and takes an awful long time to rebuild those macroeconomic buffers and reserves.

Think of it this way; each successive government and generations of entrepreneurs and workers (including professionals) brought the country to where it was in 2019 and then came a crisis that resulted in policy decisions having significant and persistent negative consequences for the economy at large and every Mauritian in particular.

* The impact of economic disruptions resulting from conflicts may be more localized and immediate compared to the potentially global and long-lasting effects of climate change and job market transformation caused by automation and AI. Do you see Mauritius prepared for that challenge?

This is indeed a true challenge for Mauritius as we do not produce most of our basic commodities and we remain heavily dependent on imports for our core supplies. Unfortunately, despite the rhetoric that emerged during the Covid-19 period about self-sufficiency; no concrete actions have been taken.

I believe that it may not be efficient from a resource allocation perspective that we become fully autonomous on all our food requirements; rather we should be able to selectively promote local production so as to ensure that we have a good level of food security in key products; we are already doing a good job in products like eggs, chicken and some vegetables in that respect. Maybe we should replicate the success formula for the production of other key products.

Climate change is already impacting the population severely and our tourism sector which is still marketing Mauritius as a sun, sea and sand destination will be in dire straits within the next 20 years with the expected ongoing disappearance of our beaches due to the rising level of water globally. We only have to compare our actual shoreline to what it was 10 years ago to realise what is awaiting us ahead. We should start planning and acting now to mitigate the impact of the climatic changes on this core sector of our economic activity; delaying actions on that front to later could have disastrous consequences for our economic livelihoods.

It is a generally accepted fact that all new technological and other societal developments and trends normally require a period of 10 to 20 years before these new developments are adopted as the new norm in Mauritius. Unfortunately, we are in a similar cycle for this new technological wave and are potentially far behind, which is also understandable as these are still in development stages in the countries where the Research & Development are currently taking place.

* Moreover, there’s the matter of responsible spending—ensuring transparency and accountability in public finance management. Has Mauritius met the mark on this front?

Unfortunately, we have completely missed the mark on this front. May be having a robust and well-functioning Fiscal Responsibility and Budget Management Act will result in the much needed judicious, transparent and accountable public finance management legal framework so as to ensure that scarce resources are used diligently and not wasted.

This is more so relevant for a country like Mauritius, as on top of being limited in natural resources, we are also facing a declining trend and ageing of our key resource, Our People, along with climatic changes.

* Earlier we discussed youth dissatisfaction. To address concerns about brain, drain and skilled young Mauritians, many of them highly qualified, seeking opportunities abroad, what economic policies and incentives could be implemented to encourage them to stay and contribute to Mauritius’ development and innovation?

First of all, we have to understand what is it that they are worried, sad and angry about in Mauritius. From a purely economic standpoint, one can understand that the recent dwindling in consumption purchasing power, as well as an ever-increasing asset price inflation may have weighed heavily in the decisions of Mauritians looking for opportunities of earning a decent living and building a basic asset base. Securing their children’s future in another country that could be providing more promising opportunities for growth could also be a core reason for the ongoing exodus that the country is currently experiencing.

I believe that we should tackle the above first and foremost with judicious policymaking as well as ensuring that the rule of meritocracy, equity and fairness prevails along with the availability of opportunities for everyone to grow and contribute in the development of the country.

* With a new government set to take office in the next few months, what expectations do you have, regardless of its political affiliation?

Over and above what the IMF has recommended (structural transformation to strengthen Mauritius’ external position, boosting female labour force participation, addressing skill mismatches, fostering digitalization, and strengthening governance as well as anti‑corruption frameworks, and enhancing climate‑resilient infrastructure investment as well as strengthening the AML/CFT so as to secure a resilient and sustainable long‑term growth, and achieving high‑income status), I would add the following:

• We should restore confidence in all institutions of the country and more so in the ability of the government to handle all economic matters with a fair view of having a win-win situation for everyone (population, government, investors and businesses).
• Once the confidence level is back to what it was some 5 years earlier, the next government will be in a better position to gradually undertake and promote the implementation of key reforms in a phased manner such that the country can emerge more resilient with better prospects of sustainable growth.
• A review of our policy of energy generation such that this can be obtained in the greenest possible manner, at the lowest cost of production and thereby saving billions in importation of our core energy requirements.

It is important to point out that the government should not be focused on a short-termism approach with the only focus geared towards winning the next general elections. Actions and decisions should be taken in the general interests of all concerned parties, which will bear their benefits in the short-term, medium term and long-term.

Once we embark in this logic, we shall ensure a continuity in terms of our economic development such that in the end, all Mauritians win with the economy moving in a sustainable and tangible manner in the high-income category rather than climbing into this bracket just for namesake for a period less than one year!

Mauritius Times ePaper Friday 31 May 2024