The Budget speech of the Minister of Finance and Economic Development, the Hon. Dr. Renganaden Padayachy was eagerly awaited. The second speech of the Minister comes at a time when borders are still closed, when tourism and hospitality, have come to a near standstill, travel still far from taking off, numbers of new job opportunities is still unpredictable and new variants of the virus discovered only in recent months forcing many countries to introduce tighter travel restrictions.
Since the start of the pandemic around early 2020, it has been a difficult year for job seekers. Measures announced by the Government such as the Wage Assistance Scheme and other measures which include one-off grants, moratorium on loan repayments, amongst others have maintained the social and economic fabric. Nonetheless, the country suffered a contraction of 14.9% in its GDP. From the words of the Minister recorded few days back, the country has lost five years of its wealth because of the COVID.
Billions of dollars have been lost in 2020 and although the forecast for 2021 is better, many analysts believe that international travel and tourism won’t return to the normal pre-pandemic levels until around 2023. Shopping.at home and retail footfall has seen unprecedented falls as shoppers stayed indoors. Change in shopping behaviour has significantly affected retail business although online sales have relatively been boosted, as we reported in our COVID research studies.
The budget speech of yesterday was thus widely followed. Many had anticipated austerity measures, but instead, the budget focused on Recovery, Revival and Resilience – translating into a series of unexpected measures, which are meant to maintain a rebound in GDP for the year 2021 and beyond.
Whilst austerity could have resulted in tax increases or even a decrease in the BRP (which is today close to 6% of GDP), those were not among the measures of the Minister of Finance. Rather, the idea has been to maintain or even increase public investment, with the aim of attracting private sector investment (de facto), set the foundations for new economic pillars, increase investment in education (as we retain a services led small island state) and increase substantially the funding in healthcare. Those of course come at a cost, precisely when debt levels are rising, and why should this be a concern. The long term plan, as we understand is broadly defined , for a gradual reduction of the debt levels to 80% by 2025 and 70% by 2030.
Those revival-resilience measures also include the re-opening of the borders with the aim of achieving 50% of the average yearly arrivals within the next 12 months or so. Many external factors will dictate the future turn of events as to whether the scenario envisaged are taking shape. The budget sets the pace to be a catalyst for economic prosperity, while capitalizing on the crisis to develop new pillars. The renewable energy sector and the new manufacturing model under the pharmaceutical pillar, could prove to long lasting pillars in the medium term.