Mauritius is gearing up for its general election on November 10, 2024, and there’s a lot of discussion about what the different parties are promising. One of the most talked-about proposals is a 14th month bonus for all employees in both the public and private sectors. While this promise is appealing to workers, it raises big questions for businesses and the economy.

What is the 14th Month Bonus Proposal?

A proposal for a 14th-month bonus is gaining traction in Mauritius. This policy would provide employees with an additional month’s salary on top of the existing 13th-month bonus traditionally paid at the end of the year. The proposal enjoys broad support from both the ruling party and the opposition, making it a central issue in the upcoming election. While workers stand to benefit from increased income, businesses may face higher costs.

Economic Background: Challenges Mauritius is Facing

To understand why this proposal is controversial, it’s important to look at some current economic facts:

• Rising Prices: Inflation (the rate at which prices rise) is expected to be 4.9% in 2024. This means everyday costs for Mauritians are already going up.

• Government Debt: Mauritius has a large budget deficit, or gap between government spending and income, of Rs 63 billion, which is about 6% of the country’s GDP.

• High Public Debt: The government’s debt stands at Rs 575 billion, or more than 80% of the GDP.

With these financial challenges, adding a new expense like a 14th month bonus could have significant effects on the economy.

Impact on Businesses: Large Corporations vs. Small and Medium Enterprises (SMEs)

Large Corporations
Bigger companies may be able to manage the extra costs, but it won’t be easy. Here’s what they might do:

• Absorb the Cost: Some corporations could take on the additional salary costs without major changes, but this would likely cut into their profits.

• Raise Prices: To make up for the extra payroll costs, some businesses may increase their prices. This could lead to more inflation, making things more expensive for everyone.

Small and Medium Enterprises (SMEs)
For smaller businesses, this proposal is a bigger concern. SMEs operate with tighter budgets and less profit, so an extra month’s salary for employees is a serious expense. They may have to consider:

• Reducing Staff: To afford the 14th month salary, some SMEs might have to cut down on the number of employees.

• Relying on Government Assistance: Some may need financial help from the government to meet payroll, which puts additional pressure on public funds.

• Additional Support: SMEs might also need other forms of financial assistance to help employees with rising living costs, adding more expenses.

How This Proposal Could Affect the Economy

If the 14th month salary becomes a reality, it could create a ripple effect across the economy:

• Higher Prices and More Inflation: To cover the added costs, many businesses might increase prices. This could push inflation above the current projection of 4.9%, raising the cost of goods and services.

• Bigger Current Account Deficit: Mauritius already has a current account deficit (a measure of trade balance and payments) at 4.5% of GDP. Higher prices could worsen this, especially if Mauritian products become more expensive and less competitive internationally.

• More Pressure on Government Resources: If SMEs and other businesses need help to pay their employees, the government may have to offer more financial aid. This could increase the budget deficit even more.

Government’s Position and the Economists’ Take

The government has been offering social benefits and allowances through its 2024-25 budget, which has already added financial commitments. Some economists believe that adding a 14th month bonus doesn’t make economic sense, as it isn’t tied to company productivity or profitability. Instead, they argue that businesses should not be forced to take on extra costs without considering their financial health.

In other words, while the proposal sounds good for workers, it could lead to economic imbalance if businesses can’t handle the extra expenses. This could harm smaller companies and lead to higher prices, which affects everyone.

Final Thoughts: The Pros and Cons of the 14th Month Bonus Proposal

The 14th month bonus is a popular idea, especially among employees who would enjoy extra pay. But from an economic perspective, there are real concerns. The next government will need to carefully consider the impact of this proposal on both the business community and the broader economy.

Balancing voter-friendly promises with economic sustainability is key. Mauritius already has high public debt and inflationary pressures, so adding additional costs to businesses could have unintended consequences. If not managed carefully, this proposal could lead to higher prices, job cuts in small businesses, and a greater strain on government finances.

As we approach the election, it’s clear that both economic promises and practical solutions are needed to support long-term growth and stability in Mauritius.