Mauritius Minister Unveils Package To Spur Growth

The tourism sector, which accounts for more than 9 percent of the island`s $9 billion economy, has warned revenue may fall this year.

The finance minister of Mauritius said on Saturday he was unveiling a Rs10.4 billion ($329 million) stimulus package to spur the economy because the risks to growth outweighed inflation concerns.

Mauritius sees 2008 growth above 5 percent, but the slowdown in its leading European, American and Asian export markets is weighing on the key textile, tourism and finance sectors.

"We are not in a recession. We are being pre-emptive. My only apprehension is that 85 percent of the problems and solutions are not in our hands," Finance Minister Ramakrishna Sithanen told Reuters in an interview.

"If it really bites and people stop travelling, then I am in trouble," he said after unveiling the package.

Sithanen said the forecast for economic growth in 2008 had been cut again to 5.1 percent from 5.4 percent, and warned that while the economy was a long way off entering into recession, the island was not immune from the global slowdown.

Earlier this month, the central bank cautioned against Mauritius spending its way out of the crisis at the expense of inflation. The private sector, however, has been calling for the focus to be on boosting economic activity.

"The balance of risk is stacked against growth rather than inflation," said Sithanen. "If I don't spend, people will say why did you not do anything? If I spend, people will ask where are you going to get the money from?"

"This is like choosing between measles and cholera."

TEXTILES AND TOURISM

He said fiscal discipline had made the package possible. It will include fast-tracking already earmarked public spending projects, new infrastructure programmes, accelerating private sector investment and cutting the price of flour, gas and bread.

Sithanen said it would be funded by re-prioritising existing public expenditure projects, from savings on debt-servicing due to lower interest rates and by tapping into a Rs1.8 billion contingency fund already in the 2008/9 budget.

"We have created the fiscal space. We have brought down the budget deficit from around 6 percent to 3.2 percent," Sithanen said, adding that the impact on the deficit would depend on how hard the global downturn hit Mauritius.

"If it goes really bad and revenue goes down, then we have a problem," he said.

Since 2006, the finance minister has introduced a raft of fiscal, monetary and business reforms to diversify the economy, bolstering the tourism, finance and ICT sectors.

Growth leapt from 2.3 percent in 2005 to above 5 percent each year since 2006. More foreign direct investment flowed into Mauritius between 2006 and 2008 than in the four previous decades collectively, Sithanen has said.

But as the world's advanced economies slow Mauritius is feeling the pinch, with analysts predicting economic growth will ease to 4 percent in 2009.

Textile firms are braced for a tough year in 2009, with orders already dropping by as much as 15 percent, while a strong local currency eats into profit margins. [ID:nL1702664]

The tourism sector, which accounts for more than 9 percent of the island's $9 billion economy, has warned revenue may fall this year with visitor arrival numbers expected to grow by less than half the originally forecast 8 percent.

Last week, New Mauritius Hotels <NMH.MZ> said it expected next year's first-half profits to fall by up to 30 percent from a year earlier. [ID:nL110265]

"It is clear the (global) recession will be deep, broad and prolonged," Sithanen said. "What is unclear, is what exactly will be the impact on textiles and tourism especially."