Mauritius: Economic reform and recovery (2005-2009)

Updated May 2010

After winning power in the July 2005 national Assembly election Mauritius Labour Party (MLP) leader Navin Ramgoolam became Prime Minister and he formed a coalition government with the member parties of the MLP's Alliance Sociale (Mouvement Socialiste Démocrate (MSD), Mouvement Militant Socialiste Mauricienne (MMSM) and the Parti Mauricien Xavier Duval (PMXD); Murison 2008, 776). The opposition alliance of the Mouvement Socialiste Mauricien (MSM), the Mouvement Militant Mauricien (MMM) and the Parti Mauricien Social Démocrate (PMSD), began to unravel. First the PMSD withdrew from the MSM/MMM alliance before the end of 2005 and then remaining two partners separated when the PMSD joined the ruling alliance in April 2006 (Murison 2008, 776; Kadima & Kasenally 2006, 83). In June Ashock Jugnauth resigned from the MSM that was led by his nephew Pravind Jugnauth and formed the Union Nationale, which became aligned with the MMM, as the MSM threw its lot in with the government (Murison 2008, 776). However, in March 2007 Ashock Jugnauth was found guilty of abusing his ministerial position in the run up to the 2005 elections by bribing voters to vote for him with promises of land and civil service jobs (Economist Intelligence Unit 2008). When the verdict was upheld on appeal by the Privy Council Ashock was forced to vacate his seat and contest a by election (supported by the MMM) in March 2009, which he then lost to Pravind Jugnauth (who was supported by the MLP. Economist Intelligence Unit 2008; GlobeSec 2009, 4).

On assuming office Ramgoolam promised to reform the multimember plurality constituency plurality electoral system that was adopted in 1966 along the lines suggested by the 2002 Report of the Sachs Commission that had been shelved by the previous government (see Electoral reform: The Sachs Commission for more details), but nothing came of this. In December 2006 elections for the Rodrigues Regional Assembly were held in which the Organisation du Peuple de Rodrigues (OPR) again won 10 of the 18 seats and the Mouvement Rodriguais (MR) eight (Murison 2008, 776).

The immediate and pressing issue for the government was the condition of the economy as a result of the implementation of the World Trade Organisation agreements by Mauritius' trading partners and the consequent loss of preferential access to European markets for sugar and textiles and for textiles to the United States, which had led to rising unemployment, balance of payments difficulties, falling government revenue and rising levels of public debt (Murison 2008, 776; IMF 2008a, 2). In 2001 the European Union severely slashed Mauritius' sugar quota, scheduled it to be phased out over the following five years and in 2006 began a phased 36% cut in the price of white sugar over a five year period until 2010 (Sparks 2008, 778, 779; IMF 2008a, 2). Similarly the textile industry suffered from the phasing out of textile quota agreements with Europe and the United States culminating in their abolition at the end of 2004 (IMF 2006, 11; IMF 2008a, 2). The government seized the bull by the horns in the 2006/7 budget and raised the prices on price controlled items such as medicines, petrol, transport and food items and announced its intention to liberalise markets by abolishing price fixing entirely (Sparks 2008, 777; IMF 2008a, 27). Food subsidies were reduced, or in some cases removed, and savings generated there were used to fund school feeding programmes, provide income support for those most in need and to retrain workers displaced from the sugar industry (Sparks 2008, 777; IMF 2008a, 27). To further reduce the budget deficit import and excise duties were raised or added and measures were taken to improve revenue collection and reduce tax avoidance (IMF 2008a, 27; AfDB/OECD 2008, 435). In 2006/7 further cuts in current government spending were made (AfDB/OECD 2008, 433, 434).

The effect of these measures was large price rises in a wide array of goods and services including luxuries such as soft drinks, alcohol and cigarettes, while the prices of essentials such as petrol, bread and rice doubled (IMF 2008a, 27). The inflation rate, which had averaged 5.1% a year between 2001 and 2005, rose from 4.9% in 2005 to 5.6% in 2006 and then to an estimated 10.7% in 2007 before falling to an estimated 9.5% in 2008 (IMF 2008b). However, as a result of the tighter fiscal regime the deficit before borrowing fell from 5.3% in 2005/6 to 4.3% in 2006/7 and public debt fell from 69.4% of GDP in 2005 to 63.1% in June 2007 (AfDB/OECD 2008, 433, 435). The economy proved to be remarkably resilient, for real GDP growth, which had barely averaged 3.5% between 2001 and 2005, quickened from 3.1% in 2005 to 3.6% in 2006 and then to 4.5% and 4.8% in 2007 and 2008 respectively (IMF 2008b; AFDB/OECD 2010). An anticipated acceleration of growth in 2008 did not materialise as the adverse effects of the global financial crisis made themselves felt in Mauritius in the form of declines in tourism and textile revenues and a decline to a 3% for 2009 was estimated (OECD 2010).

The population growth rate declined at a sedate (though mildly erratic) pace, from an annual average of 1.1% in 1996-2000 to 0.9% in 2001-2005 and then to 0.8% in 2006-2008 (IMF 2008b). Low and declining population growth rates and moderate to impressive national income growth rates translated into an acceleration of per capita income growth. The annual average rise per capita income in 2001-2005 was 2.5%, but in 2006-2008 it was an estimated 4.2% (IMF 2008b). Economic growth also led to job creation sufficient to result in a slow but steady decline in unemployment. Having risen slowly from below 4% in 1990 to over 5% in 1995, the unemployment rate deteriorated rapidly to peak at 9.3% in 2005 and then declined to 7.2% in 2008 (Sparks 2008, 778; Money Biz 2009).

Initially the tourism industry was unaffected by the other difficulties and real growth accelerated from 3.1% in 2002 to 5.6% in 2005 and 14% in 2007, largely as the result of successful marketing efforts that positioned Mauritius as an up market tourist destination and enabled it to attract high spending visitors in larger numbers (UNCTAD 2008, 127; AfDB/OECD 2008, 431, 432). The industry employed 5% of the workforce by 2007 and firms employing more than 10 people hired 2% more people in March 2007 than they had in the previous year (UNCTAD 2008, 127). However, the international financial meltdown severely constrained growth in tourist arrivals, which declined from 14% in 2007 to 3.1% in 2008, and slow economic recovery in France and the UK meant that rapid expansion would not resume in the immediate future (AfDB/OECD 2010). The growth of tourism also fuelled a boom in the construction industry as facilities were expanded and upgraded in 2007 and the sector grew by 15% compared with 5.2% the previous year (AfDB/OECD 2008, 431, 432). However, as tourism growth stalled from 2008 onwards, many infrastructure development projects were put on hold (AfDB/OECD 2010). Not surprisingly, manufacturing growth slowed from 4% in 2006 to 3.7% in 2007 and the sugar production declined by 7.9% in 2007 on the previous year (AfDB/OECD 2008, 432). However, measures were taken to rationalise sugar refinement so as to lower costs and improve competitiveness in the future and high sugar prices in 2009/10 cushioned the sector's difficulties (AfDB/OECD 2008, 433; AfDB/OECD 2010). The rapid development of fishing and fish processing, from 2003 onwards likewise offset the decline of textile production in the manufacturing sector (AfDB/OECD 2010).

Measures taken by the government and its predecessor to stem the advance of HIV/AIDS bore fruit as the number of new cases detected began to decline in 2006 and the decline was sustained in 2007, while adult prevalence (aged 15-49) was estimated at 1.8% in 2007 (Republic of Mauritius 2008, 5).

In March 2008 the MMSM, whose leader Madan Dulloo had been dismissed as Minister of Foreign Affairs, left the ruling coalition. The PMSD suffered a breakaway in September 2009, over the party's involvement with the governing alliance, when deputy leader Eric Guimbeau formed the Mouvement Mauricien Social Démocrate, which joined the MMM and the UM on the opposition benches. The PMSD then merged with Parti Mauricien Xavier Duval (PMXD) in October 2009, retaining the name Parti Mauricien Social Démocrate, with Charles Gaëtan Xavier Luc Duval as leader and Maurice Allet as President. Subsequently the Mouvement Républicain (MR, unrepresented in the National Assembly) dissolved itself to join the PMSD and its leader, Rama Valayden, became the Secretary-General. The reunited PMSD then remained part of the governing Alliance Sociale.

In the run up to the National Assembly elections held on 5 May 2010, under the leadership of Navin Ramgoolam, the MPL, the PMSD and the MSM fielded a common slate of candidates under the banner "Alliance of the Future" (l'Alliance de l'avenir; see Parties and coalitions that contested the 2010 National Assembly election for details). Paul Bérenger's MMM and the parties in the opposition (Ashock Jugnauth's UN, Guimbeau's MMSD and Dulloo's MMSM) formed the "Alliance of the Heart" (l'Alliance du coeur) to contest the election. The Alliance of the Future won a convincing mandate to continue its strategy for dealing with the fallout from international financial crisis and the way was paved for Ramgoolam to continue as Prime Minister, as he had done since his victory in December 1995. Alliance of the Future won 41 of the 62 elected seats to the Alliance of the Heart's 18 (see 2010 National Assembly elections results overview for details). The election yielded some surprises: Cehl Fakeemeeah, the leader of the Front Solidarité Mauricienne (FSM), won sit first seat (under its former name Hizbullah the FSM had been allocated a best loser seat in 1995). The MR took the two seats on Rodrigues, which the OPR had held since 1982.

References

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