Mauritius economy may suffer in rare political crisis

12 years, 8 months ago - July 29, 2011
Economy may suffer in rare political crisis
A cabinet walkout by the finance minister and five others could spark a political crisis that is likely to shake the growing economy of Mauritius

A cabinet walkout by the finance minister and five others could spark a political crisis that is likely to shake the growing economy of Mauritius, one of Africa's most stable countries that is a financial hub and a magnet for tourists.

Analysts said the political uncertainty was impacting on business sentiment and if not resolved quickly may jeopardise the economic outlook and ultimately hit growth in a country which markets itself as a bridge between Africa and Asia.

All six members of Finance Minister Pravind Jugnauth's Militant Socialist Movement (MSM) party quit the government on Tuesday prompting the crisis. Even though they agreed to remain in a coalition with Prime Minister Navinchandra Ramgoolam's Labour Party, the marriage has been rocked, analysts said.

The resignations by Jugnauth and his colleagues were meant to protest against the arrest of the health minister by an anti-graft watchdog after she was accused of inflating a government tender to acquire a private hospital.

Consistently rated one of Africa's best performing economies, the Indian Ocean island has weathered the fallout from the global economic slowdown and euro zone debt crisis better than expected, partly thanks to the economic policies of Ramgoolam's Labour Party, which dominates the ruling coalition.

Former central bank governor Dan Maraye told Reuters the walkout was a clear signal the four-party ruling Alliance de l'Avenir coalition -- made up of the Labour Party, MSM and two minor groups -- did not exist anymore.

Maraye said markets were already reacting negatively.

"If we persist in believing that this is the case it will create more instability inside government and will be highly detrimental to the economy and to our reputation," Maraye said.

Ramgoolam moved quickly to calm markets on Wednesday, appointing the minister of education and human resources, Vasant Kumar Bunwaree, as acting finance minister.

The benchmark SEMDEX stock index dropped 0.40 percent on Thursday to 2023.18 points, its lowest level since April 8. The index has been in decline since the ministers quit.

"This (fall) is partly due to the political situation in Mauritius," said Imrith Ramtohul, senior manager investment at Mauritius Union group.

"Everything will depend on what measures the Prime minister will take ... to resolve the political uncertainty.

FDI AT RISK

He said it could become more difficult to attract foreign direct investment (FDI) if the situation remained unchanged for a long time. FDI dropped 70 percent in the first quarter to 1.383 billion rupees.

The economy in the island nation of 1.3 million people was expected to grow by at least 4.5 percent this year, as the country diversifies away from the sugar, textiles and tourism sectors into offshore banking, business outsourcing, luxury real estate and medical tourism.

Mauritius was hit by the global downturn that curbed investment flows in 2009, but FDI to the island recovered to rise 60 percent in 2010 to 13.95 billion rupees.

The survival of Prime Minister Ramgoolam, who is on a visit to London and is due to return to Mauritius at the weekend, will now depend on the smaller partners in the coalition said Jocelyn Chan Low, associate professor at the University of Mauritius.

"This is (a big) political crisis and when we look at the parliamentary mathematics it shows smaller parties will be at the centre stage in a new configuration," Chan Low said.

"It is not good for the country to have political instability especially when we are facing some serious challenges with the Euro zone crisis and the situation in the U.S. Without economic leadership things may become tougher for us," Chan Low said.

Text by Reuters

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