What is good at an ?individual? level need not be good at a ?national? level. The minister of Finance in his budget speech made it clear to one and all that, by moving towards a duty free island in four years? time, citizens of Mauritius will certainly enjoy an increase in welfare through the reduction in prices of almost all the goods on the local market. To show his determination in this direction, he has announced reduction in tariff rates on 1850 tariff lines. In fact, since Tuesday the 5th, prices of some products have already decreased at the large super markets and indeed this is to the benefit of not only every citizens of Mauritius but also to the benefit of tourists. As a matter of fact, in the future, on the international tourism market, Mauritius will not only be sold for its tropical climate, splendid beaches and hospitality of its people but also as a shopping paradise.

Views concerning this policy of the government have been diverse with some people qualifying the policy as ?electoralist?, while to others it is ?politiquement opportun mais économiquement inapproprié?. The leader of the opposition qualified the budget as ?tout pour provoquer un désastre?, while the minister of Finance said that our lives have been changed in two and a half hours. We all as citizens of this country want to know where we are going in reality. Is it really a budget with realistic vision or just a popular budget to ?buy? votes?

To answer to these questions, a short term analysis of the reduction in tariff has been carried out and the results reported in what follows. We all know that the tariff reduction will certainly attract more imports of goods and these goods will be sold at a cheaper price. From an individual point of view, we should all be happy that we will have a larger variety of goods to choose from on the market and surely we will be able to buy some goods that we could not have afforded previously. However, from a national point of view, an increase in imports means that we need more foreign currencies to pay for the increased imports. To be prudent, I?m sure that no government would want deterioration in its current account following increased imports. As a matter of fact, it is inevitable that the Mauritian rupee will depreciate on the international currency market. In fact the rupee will be depreciated by around 3% in the near future. This is seriously matter of concern from the national point of view as the reserves today represent 8 months of imports and yet last year it was worth 9 months of imports. Indeed the depreciation of the rupee will make imports more expensive and exports cheaper. The extent to which imports will increase therefore not only depends on the tariff cuts but also on the depreciation of the rupee. For imports with low initial tariff, the depreciation might dominate, and this would mean that their prices would rise and the quantity imported of such goods would decline. To give some figures, imports of food products would increase by 5%, wearing apparels by 13%, leather products by 23% and paper products by 5%. However imports of beverages and tobacco may fall by 1%. This could be explained by the fact that some traders would invest some of their capital in imports of duty free products rather that beverages and tobacco.

As far as prices on average on the local market are concerned, wearing apparel will be sold around 10% cheaper, leather products around 27% cheaper, machinery and equipment around 11% cheaper and paper products around 2% cheaper. However, though prices of some manufactured food products will certainly fall considerably, on average prices of food products will fall marginally. I would explain this result by laying emphasis on the fact that firstly, much of our food products are locally produced and secondly, the rate of duty on some food products was already very low (15%) and where the rates were high, the ministry of Finance in most cases reduced the rate by only 15% (from 55% to 40% or from 40% to 30%). However in the case of wearing apparel, rate of duty has been decreased form 80% to 0%. I?m pretty much sure that some of the Mauritian citizens would have been happier if the situation was the other way round. We are all talking a lot about prices of goods, but I feel that ministry of Finance should have had some more measures in his budget as far as the prices for services are concerned. Is there a mechanism set in place to control the prices of hotel rooms or prices of food in restaurants following the increase in tourists? As it is today, there is a lack of fish on the local market; what will happen to its price and quantity available once more tourists start coming to Mauritius?

This policy of making of Mauritius a duty free island will lead to an increase in employment level. In fact more people will operate as traders, especially those unemployed. This is an opportunity to start a new business as traders. However, in the short term employment level will increase only by 4%. This is not enough to cure the unemployment problem we are currently facing. The level of income for Mauritian citizens will increase by 3.2 %. Mauritians will certainly be better off in the days to come; their consumption level will increase by 2.8%. This is a moment to rejoice. However, as I said previously, what is good at an individual level need not be good at a national level. The gross domestic product in the short term will increase by 0.6%.

However, we have to be pessimistic about some matters. To make this policy successful, what we need is a huge investment. Where are we going to get money for investment if savings do not increase much? Do we have to rely once again on foreign resources? Can we attract more tourists without liberalizing air access? If not, then do we have a plan ready for that? Who would be the prospective investors? Will the investment once again lie in the hands of the few aristocrats? Who will benefit from the shopping mall scheme? How far are local manufacturers at risk? How far can we sustain the public debt of 105 billion rupees? Should the government try reducing this debt in his budget instead of giving it a popular touch? The projection made by the government was that in 2005-2006, the budget deficit would be 4.0% of GDP, and yet he seems to be very much happy presenting a budget deficit of 4.8%. Are we caught in the spiral of indebtedness? I would go with Eric Ng, ?à quoi bon faire des projections macroéconomiques si on ne les respecte pas ??

<B>SHAWKAT ROJID (PhD Student.) </B>