Economic Governance and Management Chapter 4 Chapter 4 Figure 4.2: Real GDP growth and per capita GDP GDP, and 17 per cent of public expenditure is required to service the debt. This amounts to 30.3 per cent of government revenue. The debt structure underlines an important share of domestic debt and this situation may affect development and business prospects negatively. The government has made tremendous progress in managing and reducing the burden of external public debt. However, domestic debt is still overwhelming. One may therefore question its sustainability and its negative effect on business – and even on some parastatals and state-owned companies. 453. An important issue needs to be emphasised. Mauritius has made it clear that economic democratisation, which means a better distribution of assets and income, and a wider circle of opportunity for everyone, is the cornerstone of its development philosophy. This is very commendable, because Mauritius cannot achieve sustainable human development without democratising the development process fully – including its political, economic and social dimensions. While economic democratisation is commendable in Mauritius, there are obvious limitations to its implementation via the economic Empowerment Programme (EP). 454. One needs a thorough understanding of the socioeconomic and political nature of Mauritian society and its dynamics if one is to understand the macroeconomic trends and policies and their effects on sustainable development, as well as the socioeconomic forces that underpin the philosophy of democratising the economy and the EP. The private sector contributes more than three-quarters of the economy. A few white Mauritian families, particularly those of French descent, own, or at least control, most companies. They are a small minority of the population. Most of the people are of Indian (mostly Hindu) origin. They control the country’s politics. However, they lack a solid economic base, except that they control numerous parastatals and state-owned companies. This seems to inspire a type of complicity between the Hindu political elite and the white (Christian) economic elite. 455. This largely explains why active public-private partnerships, a ‘business-based’ or ‘business-oriented’ state model, and political and democratic stability, as components of the overall business environment, are accepted in Mauritius. Democratising the economy is, for the most part, a new way for the political elite to expand its economic base and to open it up to upper-level, middle-class groups of Indian descent, including Hindus, Tamils, Muslims and other Source: African Economic Outlook 2008 (using IMF and CSO data). 450. 451. 452. 184 One of the objectives of government macroeconomic policy is to assist, if not subsidise, EOEs. The expected gain in competitiveness may therefore erode social progress. The current approach of Mauritius, as a welfare state, has obviously had an effect on macroeconomic policy. One can therefore question the macroeconomic sustainability of the approach, particularly given the chronic budget deficit and its effect on savings and investment. The extent to which the fundamentals of a ‘business-led state’ will coexist with those of a welfare state and the sustainability of such a macroeconomic policy are crucial issues that the government must address. The government is implementing tax reforms as part of its response to the new challenges the economy is facing. The government introduced the 15 per cent flat rate, and reduced and simplified duties. These are instruments intended mainly to attract FDI, to reduce the cost of doing business for EOEs and to increase their competitiveness in international markets. The government, during the meeting with the minister of finance and economic empowerment, confirmed that the flat tax rate is productive, since it has contributed to expanding the fiscal base and has reduced fiscal fraud. The debt issue (see also objective 3 in this chapter) deserves the attention of the government and of other stakeholders because of the consequences of very high public debt. It represents 65.8 per cent of Economic Governance and Management 185