Webinar 2 - Macroeconomic Implications of COVID-19 on Mauritius
Summary of Webinar Presentation and Discussions
The COVID-19 pandemic is taking the toll on every country’s economy. Small island states have been particularly vulnerable. To discuss the macroeconomic impact of the pandemic on Mauritius, a webinar was organised by IEC, in collaboration with the World Bank and the United Nations Resident Coordinator. The webinar included a series of presentations and discussions, to evaluate the recovery options at a macro level.
Mr Paul Baker, CEO of International Economics, opened and moderated the meeting. He mentioned that this webinar was a continuation of the first webinar organised on research and data on 30 September 2020. Mr Baker also launched the new platform, dedicated to recently published research papers, data and findings on COVID-19.
Macroeconomic outlook and external imbalances
Mr Erik von Uexkull, Country Representative of the World Bank, presented the macro-poverty outlook for Mauritius, painting a broad overview of the economic situation. He showed the trend in GDP according to different organisations, with strongly negative growth - between 12 and 14 percent - being predicted by the IMF, World Bank, MCB and Statistics Mauritius for 2020 and some diverging scenarios for recovery in 2021. While public debt rose sharply in fiscal year 2019/20, the 60 billion rupees transfer from the Bank of Mauritius to the government will limit the need for new debt in 2020/21. The debt to GDP ratio is also strongly influenced by the base effect – contraction and eventual recovery of GDP – and in a baseline scenario subject to significant downside risk the debt to GDP ratio would stabilize as growth recovers. He also focused on the Balance of Payment impacts. The large trade deficit in the merchandise sector has slightly improved despite the contraction in export due to an even larger contraction in imports as investments were delayed and commodity prices declined. But the surplus of the services trade balance has narrowed, driven by the contraction of the tourism sector. He also highlighted that the Bank of Mauritius was able to accumulate reserves due to the large inflows relating to the global financial sector prior to the COVID-19 crisis which allowed it to intervene in the exchange market to stabilise the Rupee in 2020.
The market as a reflection of the state of the economy
Mr Bhavik Desai, Head of Research at AXYS Stockbroking, started his intervention by questioning the performance of different sectors in Mauritius, pre-COVID-19. He then focused on the macro effects of the coronavirus pandemic, the Wakashio oil spill, and the advent of Mauritius being blacklisted by the European Union, all of which have hurt the economy. He explained that the local market has three parts to it, namely stocks, bonds and Exchange Traded Funds (ETF), making up 324 billion rupees in market capitalisation. He also mentioned that the top 20 liquid stocks have lost about 35% of their value over the last year. He also stated that Mauritian companies have seen their market capitalisation fall by 29%, which is aligned to the 33% annualised GDP contraction recorded during Q2-2020. The Bank of Mauritius has been defending the Rupee at approximately Rs 39.75 since mid-April, although the rupee has fallen by roughly 12%. Deposits have been rather stable at Rs600 billion since June, whereas foreign currency deposits grew from USD 3.1 billion in Q1 to an average of USD 3.4 billion between May and August. He mentioned that in order to restore confidence, three key factors have to be addressed, namely (1) reduce uncertainty (2) undertake reforms and take bold policy changes and (3) manage expectations.
Macro-trade and business impacts
Dr Thanika Juwaheer, Associate Professor and Ms Krishnee Appadoo, Lecturer, both from the University of Mauritius, presented the macro-trade and business impacts of COVID-19. Ms Appadoo showed that Sub-Saharan Africa may face a first recession in 25 years. Countries like Mauritius, relying on foreign exchange earnings from tourism are likely to be in difficult situations, the Ministry of Finance predicting a shrink of the GDP by 7-11% in 2020. The presenters focused on their findings of the impact of COVID-19 on the Agri-Business sector in Mauritius, where farmers have been severely affected by the disruption in food supply to hotels. Whilst short term fiscal policies have been put in place, farmers are looking for more support for the tourism and agribusiness. Dr Juwaheer talked about the remedial measures being undertaken by the Government of Mauritius to support the production and supply of disease prevention and control materials. Dr Juwaheer also mentioned that major efforts should be made to increase investments in infrastructure projects, in cultural, education and medical/health sectors to increase the overall level of demand as well as facilitate high-quality economic development.
Green jobs assessment modelling
Mr Riad Sultan, Senior Lecturer at the University of Mauritius spoke about the Green Jobs Assessment Model (GJAM), more specifically on the economic model which builds jobs without compromising the environment. He presented the input-output table, which shows the transactions in the economy, based on different sectors, such as agriculture, manufacturing, services and value added. The table shows the direct and indirect impacts of each sector on the economy (the ‘multiplier’ effects). The GJAM shows that each sector is interlinked, meaning that an impact on a particular sector, will have an indirect impact on other sectors as well. The input-output model evaluated the employment impact of COVID-19 in Mauritius. For example a reduction of Rs 1 million in revenues in the agricultural sector would result in the loss of approximately 1.72 jobs in the sector. He also mentioned that the final findings of the study will be published later this year, and will be available for consultations.
Impacts on the Mauritius tourism and hospitality industry and potential response strategies
Mr Jocelyn Kwok, CEO of the Association of Hotel and Restaurants in Mauritius (AHRIM), mentioned that AHRIM will publish the latest figures on the tourism sector early November 2020. The tourism sector is presently closed for business, and as a consequence is still benefiting from the Wage Assistance Scheme from the Government. Besides the impact on the tourism sector, investment and foreign exchange earnings have also been affected. The tourism sector contributes to the environment protection fees, intellectual property, taxes and rental of lease lands, among others. The AHRIM presented the forecasts for Seychelles tourism sector, which has opened to tourists unlike Mauritius, which is predicted to operate at 25% capacity in 2021 and 50% in 2022, with employment being the biggest challenge.
In questions surrounding the recovery, Mr Erik von Uexkull mentioned that based on current projections, Mauritius can expect to be back to its pre-crisis GDP level by 2022 or early 2023. A large part of the recovery process will depend on reinvigorating private sector investment in Mauritius. He mentioned that the share of private investments to GDP had been generally in decline for the past decade, predating COVID-19, hereby suggesting that structural reform to reverse this long-term trend were needed to support a strong recovery.
On another question regarding recovery from COVID-19, Mr Desai specified that borrowing is extremely cheap at the moment, with the US and Europe having negative yields. Mauritius are benefiting from an average of 2% borrowing rate as compared to 10-12% for other African countries.
Dr Pierre Fallavier, Senior Development Coordination Advisor at United Nations Resident Coordinator’s office in Mauritius, closed the session. He mentioned that the platform will be used to share knowledge amongst the community, and suggested signing up to the platform.