The 2012 budget addresses the following main priorities of the present Government namely: Promoting Growth, Riding out the Crisis, Improving the Social Protection System, and Making the Fiscal System more efficient, effective and fairer.
In this assignment I will try to link the element addressed in the budget to its potential to present opportunities or threats to the economy of Mauritius. In other words, I will enumerate the different measures taken and I will link its impact on the economy of Mauritius in terms of economic growth, rise in the standard of living of the citizens and the benefits of these measures to the nation on other economic aspects.
Public Finance The budgetary measures are expected to raise revenue of Rs76.9 billion which will be generated from income taxes (Rs.16.4 billion), indirect taxes (Rs.44.4 billion) and grants and other budget support (Rs.3.4 billion). Meanwhile, government expenditure is expected to be Rs.90.5 billion. Consequently, the budget deficit anticipated for 2011/12 is 3.8% of GDP (3.2% of GDP in 2010)
Based on the PBB estimates, the government plans to maintain the budget deficit below the 4% mark until 2014 (3.4% of GDP).
Additionally, it has been highlighted that the government will for the first time in more than a decade; generate a surplus from its recurrent account.
The Public sector debt to GDP ratio will be reduced to 54.1% in 2012.
Mauritius is on course to achieve the objective of a 50% for Public sector debt to GDP ratio as set by law.
Government will raise part of its revenue by disinvesting from some of its commercial and industrial assets.
Small and Medium Enterprises (SMEs) The possible implication of the measures taken by the government of Mauritius to support the Small and Medium Enterprises are as follows:
It cannot be denied that the micro and SME’S sector is contribution actively in the economic development of Mauritius. It has been noted that the SME’s produce 37 percent of the GDP, that is some 120 billion rupees worth of output. They also provide employment and give living to 250,000 men and women. And it cannot be denied that this culture of entrepreneurship which tend to rise due to the support of the state and it helps to make the economy grow and to democratise.
Previously, the SME’S was suffering a lot due to high cost of credit. The interest rate of 14 percent and even higher was reducing the drive of entrepreneurs in Mauritius. The fact that the government has decided to make agreement with the banks to provide loans of Rs 3 billion over the next three years at interest rate of 3 percent above Repo rate, that is at 8.5percent is undoubtedly creating an opportunity for the SME’s to grow, be more profitable and even more competitive on the national market.
Moreover the as the government is waiving all the processing cost and charges will make be an encouragement to the new potential entrepreneur to enter the business world as the will no more have to go through various red tape procedure which will be less time consuming. This will also be more beneficial to the economy as the entrepreneur will be in operation very rapidly which means that their production will be made available to the society which will raise their living standard.
Furthermore the decision of the government to provide more land of industrial space for the development of the SME’s sector is to be very helpful for the new and existing entrepreneur as it will represent an alleviation of a major hindrance to their development. It will also help to reduce environmental hazard as the entrepreneur will no more need to use their residential or non-industrial space for their operations. This measure will also help to face lower initial costs as the government is giving them 50 percent discount on the rental cost in the first three years.
Ultimately, the fact the government is giving them Rs 20000 a month for their living expenses will encourage those who deserve help to come with innovative proposal.
Budgetary measures I would recommend for supporting SME’s:
I think that the government should focus on export promotion and development of new markets, particularly in Africa and emerging economies.
It should also focus on providing support services and technical assistance to SMEs, micro enterprises and start-ups.
And the state should encourage banks to give direct lending facilities to SME’s and not to focus only on the partial risk guarantees the SME’s can offer as this may represent a barrier for them to start their own business. However, the government provide assistance to the small entrepreneur in terms of security of payment for part of their dept to the bank in case of bankruptcy.
For those starting their own business the government should not only reduce the speed of procedures but also to reduce the charges associated to the initial costs such as amount to be paid for the patents.
Agro-Industry and Fishing The possible implication of the measures taken by the government of Mauritius to support the Agro-Industry and Fishing industry are as follows:
The fact that the planters are being refunded for their investment this will contribute to the economic growth of the country. Because as they are being refunded they can use that money to produce more as they will produce more the country will benefits from locally produce goods and there is no need to imports. This initiative will also make that farmers and breeder more competitive in the market.
The Equipment Modernisation Scheme (LEMS) is also supporting these entrepreneur to enjoy more economies of scale on the market as they are able to use up to date equipments which are not available to them, thus they can be more productive and efficient which will increase the Gross Domestic Product and thus the standard of living of these farmers and breeders but also other people of the Mauritius.
Moreover the fact that the government is increasing its government expenditure by investing about Rs2.6 billion in agricultural sector will help to reduce the income inequalities between the rich and the poor. This because this investment if properly manage by the beneficiary found under this sector, will result in more profits thus the sugarcane field workers and other people working in the agricultural sector may receive more income which will increase their purchasing power as well as their living standard.
Furthermore, it has been mentioned that the Enterprise Mauritius to organise an annual Mauritius Fair, this fair will be an event which will help to increase the knowledge of the local entrepreneurs. They will be able to collect much useful information about how the foreign entrepreneurs are operating. Therefore, the local can have an idea of how they can innovate so as to keep up with the pace of change in the international market so as to improve their performance and be more competitive on the global market.
The fact that the government is aiming at transforming the Development Bank of Mauritius into a Micro, Small and Medium Enterprise Bank will help finance be more available to those who want to enter the farming and plantation market more easily without worrying about the problem of finance as far as they are eligible for the scheme and they have a valid project proposal.
In addition by deciding to remove the 10% duty on refrigerated vehicles is an effective measure as it will reduce additional cost on the entrepreneur which will make them more profitable. Moreover, this measure will also help to make goods produced be more accessible to the market in general even in rural areas or areas far away of the business organisation.
Finally, the forecasted pilot programme to empower vulnerable women through small scale farming projects to be implemented is a project which will maximise the allocation if the scarce resources of Mauritius as it will help to manage properly the fund allocated to these entrepreneurs and it will also ensure that these women are making good use of the fund received. Therefore, this will reduce wastage and will maximise efficiency but also will motivate the entrepreneur to be more productive.
Budgetary measures I would recommend for supporting the Agro-Industry and Fishing industry:
The government and all those concerned should agree to make full use of the land available in Mauritius which are owned by the planters but by are not used to their optimum level. According to the Central Statistic Bureau (2009-2011) there are about 2,000 hectares owned by planters cultivating less than 2 hectares which are eligible for land conversion.
The state should assist entrepreneurs in terms of provision of more information about how to use their land efficiently and it must also reduce the barriers the entrepreneurs can meet in terms of complex procedures, small plot size and high costs of marketing as it is of this reason that the lands are not developed.
the government should provide the appropriate assistance to these owners to motivate them to use these land efficiently in order to encourage full employment in the nation which will result in greater goods produced which will be contribute greatly to increase the national income of Mauritius. In other words, it is to make a great leap forward on productivity we need to unleash the full potential of these lands for creating employment and wealth.
Tourism / Hospitality Industry The possible implication of the measures taken by the government of Mauritius to support the Tourism Industry is as follows:
To restore the tax exemption on the cosmetic surgery will benefit Mauritius as it will create a positive impact on the Balance of Payment as the service provided to the medical tourist will be accounted in the current account as an invisible service provided to foreign tourist. Therefore, the deficit experiencing Mauritius for the past years will be further reduced as it is expected to be by the Honourable Minster of Finance.
Moreover, the implementation of VAT exemption on the equipment needed by the fishermen, tourists, and other users of leisure boats will strengthen the security of these people which is to encourage the tourist to spend more on the aquatic activities as they are more confident. And for the fishermen, as the material are becoming more affordable for them their working condition will be improved and consequently they will be more motivated to work in a more effective way.
Furthermore, as the government is encouraging the agents of the tourism industry to maintain the worldwide image for quality tourism by re-adopting a three-prolonged strategy. It will help to attract more tourists in the country which will create a positive impact on the economy as the Balance of Payment will be positive. This benefit applies for the other measures taken in the Budget 2012 under the phase of “Tourist Back to Basics”.
Budgetary measures I would recommend for supporting the Tourism Industry:
It is advisable for the Ministry of Tourist, the Mauritius Airlines as well as other stakeholders work more on a marketing and promotion strategy to attract more visitors from non-euro-zone countries.
To formulate proposals for the industry to invest in promotion and development of new markets and identify areas where these agent can support the strategy. The objective is to get a higher share of the more than 60 million outbound tourists from India, China, America and Russia.
The aim is to double the annual number of visitors from India to 300, 000 by 2015. And the private sector is expected to work towards that same objective.
Similarly, Government needs to work with the stakeholders to attract around 150,000 visitors from China by 2015.
ICT/BPO The possible implications of the measures taken by the government of Mauritius to support the ICT/BPO Sector are as follows:
The LION 2 project will help to further facilitate the development of the emerging sectors. It will help to diversify the economy. This is because the ICT/BPO sector has been rising very rapidly recently and it is contributing lot in the improvement of the economy and has a great share in the Gross Domestic Product of the economy. Which means that the ICT/BPO sector is continuously creating job opportunities for the citizens therefore it is helping in alleviation poverty as more people has a job and can satisfy their basic needs and even some of their wants which will increase their standard of living.
Promoting the ICT/BPO sector in this way will enhance the potential of each firm in order to continuously increase the national income and even the per capita income.
Moreover, the fact that the communication barriers are alleviated as the connectivity via internet and other telecommunication modes are being improved, will facilitate international trade and new technology will continuously be introduced in the economy.
Furthermore as the government and other agents is making internet more accessible to everyone, it will make Mauritius are more knowledgeable and educated population.
It is a good point that the government is making the ICT/BPOP sector more competitive by intervening in their business activities in terms of regulatory framework. In such a way they will increase their efficiency and be more competitive therefore the general population will benefit from affordable price for internet access.
Budgetary measures I would recommend for supporting the ICT/BPO Sector:
Outsourcing and Telecommunications Association of Mauritius to identify the skills required for sustaining the growth of the ICT sector and to formulate an appropriate training program for private sector investment.
Government will work with the Outsourcing and Telecommunications Association of Mauritius to identify the skills required for sustaining the growth of the ICT sector and to formulate an appropriate training program for private sector investment.
Education and Training The possible implications of the measures taken by the government of Mauritius to support the Education and Training Sector are as follows:
The fact that the government is speeding up the procedures to give the foreign students their visas will encourage more foreign students to come in the country. As a result this will not only increase the National Income of the country but also will encourage the local students to be more efficient and make them become a more skilful workforce for the nation.
Moreover, as the government is allowing the foreign student to take part time jobs will help to attract more foreign students to Mauritius which beneficial for the Mauritian economy. Thus, they would be able to bring their skill and know how in the business organisations. However, at this point the state should give the local students priority for a job vacancy. The government need to make full employment of the labour resources in Mauritius before employing expatriates.
As the government is developing a port folio of strategies to support children from low income groups this will help to alleviate poverty in Mauritius. Either the education is being given at the crèches, pre primary, primary, secondary or tertiary level of schooling including the fact that Moreover, the fact that there will be an Extension of the pre-vocational education programme from three years to four years that is up to the age of sixteen. This will help to improve the quality of life in the economy as the workforce will become more skilful and more knowledgeable. In addition, giving children from low income groups to have the opportunity to receive education from a very young age will help to reduce inequalities between the rich and the poor. In the same vein, this will enable women to have more time to go to work and therefore they may contribute to increase the monthly income of their family.
Concerning the recruitment of 20 more support officers to reinforce the National Children’s Council and the Child Development Unit and six new children shelters will be opened across the country in 2012 will help to deal more efficiently with cases of child abuse. This will help to provide more support to the children concerned and make them become better citizen and efficient workforce rather than frustrated ones which may lead to the vicious circle of poverty.
Similarly, the government is therefore putting in place a Summer School Programme his for students due to the high percentage of failure at CPE, this programme will be beneficial for the students but it will also encourage the women the join the labour force. With will consequently, raise the amount of national income as there will be efficient use of the labor force.
The decision of the government to allocate a sum 500,000 rupees to each and every Government school in Mauritius and Rodrigues for renovation and upgrading will motivate the students to work more efficiently as their studying environment will be improved. And the proposal of Open School Programme in the afternoon, at weekends and during vacation for the community at large. That is to enable the community to use these facilities for learning, social, cultural and sports activities, this will has a positive impact on the economy as the society will engage themselves in activities which will enhance their knowledge and therefore the society will be more educated and resourceful.
Ultimately the pilot study will help as an indication that the resources of the economy are fully employed and it objective is to promote nation building and inculcate pride in the nation with particular emphasis on our common purpose, sense of unity, patriotism, civic responsibility and common national identity.
Budgetary measures I would recommend for supporting Education and Training Sector:
To enhance the reward for good academic performance;
Use education as a ladder to enable students from poor families to climb out of poverty;
Extend scholarships to post-graduate studies; and
Significantly increase the number of laureates
To give second scholarship for postgraduate studies either in Mauritius or abroad; and
To give two years internship in a Ministry/Department.
Green Mauritius- Sustainable Development The possible implications of the measures taken by the government of Mauritius to support the Sustainable Development are as follows:
In general it can be said that the main reason that these measure has been developed is because the world economy resources are limited and humans are finding themselves in a situation where they need to save the limited resources we have to survive now and to leave enough for the future generation. And Mauritius though it is a small island is no different because it depends largely on the resources that other country possessed such as oil and petroleum. Therefore, it is indispensable to develop a sustainable source of energy and other renewable materials to save cost and spent as less as foreign currency as possible. And it is a fact that Mauritius is a tropical country which can benefit the power of solar energy in their daily life instead of fossil fuel which is expensive and which pollutes the environment.
Another reason for these drastic measures is that the non sustainable development measures will tend to cause degradation of the environment which is not good for the quality of life of the population. These non sustainable developments are damaging the health of the global economy that is why the state with the precious help of other stakeholders including the private firms and the community as a whole are working together to support the concept of Maurice Ile Durable (MID) which has been newly introduced. The fact that the government is giving grants and financial assistance to adopt renewable source of energy to buy water tanks and solar water heater is a proof of the implementation of sustainable development.
Budgetary measures I would recommend for supporting the Sustainable Development in Mauritius:
To implement a pilot study to know to what extent the economy is implementing sustainable development methods in the houses, in their business or in their community.
Give Training, and seminars, on information about the importance of adopting sustainable development methods. Information can be given in the certain websites and leaflets also.
To do an appraisal to know how effective the development is being done.
Real Estate- Social Integration- Reducing Poverty The possible implications of the measures taken by the government of Mauritius to support the Social Integration are as follows:
Not everything that counts can be counted and eradicating absolute poverty is one of them. There exists no measure that can capture the full benefits of taking people out of poverty. But we know it counts a lot for the families who escape from the life of deprivation. It counts a lot for the children who will get a better start in life and who will not have to grow up in poverty. And it counts a lot for a country that holds high the values of compassion and generosity.
And the government is trying to resolve, commitment and compassion, its mission to eradicate absolute poverty and to achieve greater social integration.
The fact that the government is giving support families from lower income group to own house on their own is of great contribution in reducing poverty and make these people be more socially integrated in the economy.
Moreover, these policies will be a powerful tool to maximize effectiveness in the fight against poverty and is applicable for the housing schemes and crèches.
Such investment will have a positive impact on the society as it will increase their standard of living. These policies will help those who feel marginalised and excluded to actively participate in and contribute to economic life whilst earning enough to move out of poverty.
Housing is the area where the deepest inroads can be made is eradicating absolute poverty and improving the living standards of families 61 with modest income.
Budgetary measures I would recommend for supporting the Social Integration:
To construct more houses units for those earning a family income not exceeding 5000 rupees.
To lower the amount of initial deposit for those who earn less than 25000 rupees as this is a main barrier to the low income group earner.
To study special needs cases and to be flexible if their do not have a fixed amount of money in their account for the initial deposit on the condition they earn a regular income.
The initial deposit can be paid in several instalments instead of on down payment and it can be added on the monthly rent to be paid to facilitate the low income groups.
To speed up the procedures for application and delivery of the houses units.
For those who want to purchase a house for the first time they should receive for assistance by extending their repayment of their credit and reducing their monthly instalment as this will enable the low income segment to satisfy their daily income.
In cases on disability to pay back their dept the government should be more flexible and study the case carefully instead of just giving warning that the house will be seized. On the other hand the government should have a resilience plan for these families. For instead encourage them to start up their own business, in form of financial assistance, in case of redundancy which will help them increase their income, at the same time increase the quality of life in their community and their effort will reduce unemployment, help to alleviate poverty and contribute to increase the national income by increasing the level of Gross Domestic Product.
Marine Resources The possible implications of the measures taken by the government of Mauritius to the Marine Resources are as follows:
The fact that the government is investing in the lagoons by releasing at least 300,000 fish fingerlings and thousands of sea cucumbers in various areas will help the marine economic zone to hold tremendous potential for raising national productivity.
Moreover, the policy of creating coral farms and reefs sanctuaries will help to restore the ecological system of Mauritius and will help the marine creatures to be healthier and to reproduce in a better environment. Therefore this will increase the standard of living of the population and will add greater value to the fish being exported.
In addition, the sales of these marine creatures will increase the national income of the economy. It will also increase the economic growth of the nation and it will result in a shift in the Production Possibility Curve (PPC) that is there will be an outward shift in the PPC as the actual utilization will rise. Even it is a long term process it will enlarge the productive capacity of the country. This situation can be illustrated graphically.
Manufactured Goods (per year)
Marine and agricultural Goods (per year)
It is good to use the marine zone to the optimum level as it helps to create economic value and it constitutes a sizable contribution to GDP.
Furthermore, to initiate exchange programme with Rodrigues Fisheries Protection Service to share knowledge and skills will be beneficial for both economies. The fact that agent of the Fishing industry both islands are working together will lead to an increase in production as there will be team work thus greater share of ideas and experience. This activity will help this industry to bring innovation to be more productive. This may be in term of better fishing techniques and other knowledge sharing.
Ultimately, the fact that the state is taking measures which will help to reduce the associated cost of fishing will encourage more fishermen to enter in this industry as they know that they will not have to incur high level of costs in terms of VAT on fishing gear, outboard and inboard engines of up to 25 hp as well as VHF radios, VAT refund on semi-industrial fishing vessels used by fishermen grouped in cooperatives as the government is refunding them on these cost incurred and the state is levying a customs duty of only 10% refrigerated vehicles.
Budgetary measures I would recommend for supporting the Marine Resources:
To maximize the contribution of the marine sector to the giant leap forward on productivity we must make a big stride on R
Factors That Influence The Exchange Rate Economics Essay
The exchange rate is the rate at which one currency trades against another on the foreign exchange market. The exchange rate reflects the position of the national economy in the background of the world economy. The level of exchange rate represents an element of credibility of the national monetary system. It is considered as an important macroeconomic factor as a part of the monetary policy. Moreover, the recent Asian currency crisis represents how critically exchange rates impacts economic developments. The key factor leading to the crisis was the maintenance of pegged exchange rate regimes which encouraged external borrowing and resulted in excessive foreign exchange risk exposure.
This report will look into the different factors that influence the exchange rate and its impact on economy by making a relative comparison between US and UK and also highlighted some benefits of having weak currency.
Factors that influence exchange rate
Changes in relative inflation rates can affect international trade activity, which affects the demand and supply of currencies and thus influences exchange rates. For example, if US inflation rate increases and UK inflation rate remain the same, the British exports then tend to be more competitive which led to increased demand for British goods and hence US demand for UK currency increases.
In addition, the jump in the US inflation should reduce the British demand for US goods and therefore reduce the supply of pounds for sale. The US demand for pounds and reduced supply of pounds for sale will put an upward pressure on the value of pounds.
Changes in relative interest rates influences the investment in foreign securities, which influences the demand for and supply of currencies and therefore influences exchange rates. For example if US interest rate rises and British interest rate remained same. In this case, demands for British pounds will likely to be reduced, since US rates are more attractive to the investors and there will be less desire for British bank deposits. Supply of pounds for sale by the British investors should increase as they establish more banks deposits in the United States. This can be seen as an inward shift in the demand for pounds and an outward shift in the supply of pounds for sale and hence the exchange rate should decrease. Sometimes, change in the interest rate to the third country can also affect the exchange rate between the two countries. Suppose if Canadian interest rates increases, it becomes more attractive to the British investors than the US rate. The supply of pounds to be exchanged for dollars will be smaller which places an upward pressure on the value of pounds against the US dollar.
However, it is very important to consider the real interest rate as relative high interest rate may reflect expectations of relatively high inflation which can place downward pressure on the local currency. So, real interest rate adjusts the nominal interest rate for inflation.
Real interest rate = nominal interest rate-inflation rate
Another factor affecting exchange rate is the relative income level. Income level of the country determines the imports demanded which affects the exchange rate.
If the US income level rises while the British level of income remains the same. The scenario will represents three situations: a) the demand schedule for pounds will shift outward reflecting the increase in US income and therefore increased demand for British goods, b) the supply schedule of pounds for sale is not expected to change, c) exchange rate of pounds will rise.
Balance of payments:
The balance of payments, the economic variable that influence the exchange rate; an increase in the level of deficits determines the depreciation of the local currency while decrease will result in an appreciation. For example, current account deficit in US of 7% of GDP was one reason for depreciation of dollar in 2006-2007. Due to a fact that balance of payment includes current account and capital account, its influence on exchange rate is complex sometimes reversed, so if a trade deficit which generally led to the depreciation of currency can be covered by the capital inputs in such a way that it generates an appreciation on local currency.
Some other factors are:
Speculators make profit through the margin they seek in buying and selling of currencies. If speculators believe that pound will rise in near future, they will demand more now to be able to make more profit. This increase in demand will cause the value to rise. Movement in the exchange rate is not always directed by the economic fundamentals, but driven by sentiments of financial markets.
Change in competitiveness
To increase the long run value of the currency, it is necessary to increase the competitiveness in the global markets. For example, if British goods become more attractive and competitive this will also cause the value of exchange rate to rise.
Relative strength of other currencies is another factor that determines the exchange rate and has a vice-versa effect. For example, between 1999 and 2001, the pound appreciated because the euro was seen as a weak currency.
Merits of weak currency:
Weak currency also provides plenty of opportunities
One of the biggest reasons why weak currency helps the economy is because it increases the competitiveness of countryâ€™s goods. It boosts the foreign demand while keeping the local consumers demand domestic. These benefits of sale will translate into more jobs and consumer spending and also reduce the trade deficit of the country.
Foreign investment can support the countryâ€™s economy and weak currency in different ways, if the currency continues to fall; foreign investor may begin to load up on companies with sound fundamentals that are also less vulnerable to economic slowdown. A weaker currency will also makes the corporations more attractive buyout targets. Sovereign wealth funds of many countries like china and Dubai are flush with cash and are on the lookout for goods investment opportunities.
Tourism is considered as major source of revenue for many countries and also generates employment in the country. Weak currency attracts more tourism as they offer more savings on their expenditure. For example, a USD $250 hotel room cost CAD $295, now it only cost CAD $250 which represents 15% of savings.
This report has explained the series of factors that influences the exchange rate starting with imports and export, interest rate, inflation rate and balance of payment which are considered as the main determinant of exchange rate. These key economic factors can influence exchange rate movements through their effects on demand and supply conditions. These factors cause change in international trade or financial flows, they affect the demand for a currency or supply of currency for sale and therefore affect the equilibrium exchange rate. Then, the report moved towards merits of weak currency which explored the opportunities like increased employment, more consumer spending, foreign investment and tourism which directly contributes towards the countryâ€™s economy even at the time of diminishing value of its local currency.