Anil Gujadhur: Economic Headwinds

The bull should be taken by the horns if we really want to face the challenge posed by the current weakening of our global business sector

On 10th May, the government signed up a protocol amending the principal clauses of our Double Tax Avoidance Agreement (DTAA) with India. The overall impact of the amendments due to take effect as soon as the two countries have ratified them has been judged to be negative for the economy.

The first signal of this impending negative impact was given by the International Monetary Fund (IMF) in its latest Article IV Consultation Report released in March 2016. The IMF stated, amongst others, that “the authorities face macro-financial challenges stemming from the recent collapse of a large financial conglomerate, which affected the real economy, as well as risk exposures and potential spillovers from the massive offshore sector and its sizeable inter-linkages with domestic banking activities. These challenges, discussed in the FSAP and in the consultation as a macro-financial pilot, require a significant strengthening of the macro-prudential and financial stability policy frameworks.” The IMF must have been aware of the amendments our July 2015 official delegation to India with regard to Treaty negotiations had already conceded to, which surfaced up on 10th May 2016.

Excerpts:

“According to statistics from the Financial Services Commission, Management Companies generated total income amounting to US$ 190 million in 2013 and US$ 206 million in 2014, paid US$49 million and US$ 53 million to their employees in these respective years. They generated total profits of US$ 51 million in each of 2013 and 2014, the last for which we have data, and paid tax to the MRA of US$ 8.9 million and 9.8 million respectively in these two years. Given the scale of their contribution in these various compartments of our economic life, the IMF and Moody’s are drawing attention to the potential setbacks the economy will suffer as a result of the change of the DTAA provisions...”

“We pointed out earlier the want of growth of our traditional goods and other services markets of late. No doubt, the current global economic situation is contributing to the slack. What the situation demands is less of loud and vain talk but more of action to open up newer external demand-driven activities from our economic agents as an intermediate processing centre for exports. We have to associate ourselves with global producers at varying scales of production and the expertise they bring along with them.Here again, we need outside expertise and a planned approach to development, with sustaining strategy behind i...”

Mauritius Times