Many decades of "no alternative": what the rupee's nosedive actually reveals

When the Bank of Mauritius abolished exchange controls in July 1994 and let the rupee float, the promise was simple: a currency set free by markets, disciplined by fundamentals, would find its natural level — and a “competitive” rupee would carry the island's export sector into a new era of growth. Three decades on, the rupee has lost roughly two-thirds of its value against the dollar. The export sector it was meant to power now imports more than it earns. And the official language used to explain each fresh depreciation reads almost word for word like the language used to explain the last one, and the one before that.

This is worth pausing on, because it isn't really a story about currency mechanics. It's a story about how a plausible economic idea, applied without regard for the structure of the economy it was applied to, calcified into an alibi.

The idea, and where it broke

The theory behind the 1994 float was standard textbook fare: a weaker currency makes your exports cheaper abroad, which should lift export volumes, which should lift growth. Mauritius had just spent a decade liberalising — interest rates freed in stages through the late 1980s, exchange controls loosened progressively, capital account restrictions lifted — and the float was the capstone. This was the dominant policy consensus of the era, and Mauritius was a diligent student of it.

The trouble is that the mechanism only works cleanly if a country's exports are not themselves built on imported inputs. Mauritius's are. Its manufacturing and services sectors run on imported fuel, imported machinery, imported intermediate goods and now on imported labour too. So a weaker rupee doesn't just make Mauritian exports cheaper — it simultaneously makes them more expensive to produce. The theoretical gain and the practical cost arrive by the same channel, and depending on the sector, they can cancel out or worse. The Bank of Mauritius knew this by the late 1990s: after the rupee fell sharply in 1996, 1997 and 1998, the central bank spent the next several years fighting the inflation that depreciation itself had fed, not export-led growth.

That should have been the moment the underlying model got revisited. It wasn't. Instead, the explanation shifted from "the float will work" to "the float is working, we just need complementary reforms" — and that reframing has held, with minor variations, for the better part of thirty years.

The recycled diagnosis

Read the IMF's Article IV consultations on Mauritius back to back and the pattern is almost eerie. In 2014, the Fund noted that the authorities, faced with falling competitiveness, believed structural reform and labour productivity gains — not currency management — were the real fix. In 2019, months before the pandemic, the Fund was again flagging a deteriorating external balance and an accommodative, expansionary policy stance alongside calls to "regain competitiveness." By 2025, following a currency collapse that the country's own Bank of Mauritius audit attributes substantially to internal policy choices, the Fund's language is nearly identical: the external position is weaker than fundamentals justify, and structural reform is what's needed.

Ten years, the same diagnosis, the same prescribed remedy, and a currency that has done nothing but slide. At some point a repeated diagnosis that never produces a cure is not a diagnosis. It's a script.

Two convenient untruths

Two claims have done most of the work of keeping that script alive.

The first is that productivity gains are the master key — that if Mauritius simply reforms education, labour markets and ease of doing business hard enough, competitiveness returns regardless of what the currency does. This isn't false so much as radically incomplete: productivity reform is slow, structural, and politically costly, which makes it a comfortable thing to recommend and a comfortable thing to keep not quite finishing. It lets policymakers point to a horizon goal instead of the balance sheet decisions being made this quarter.

The second is that imported-input inflation is a regrettable side effect of depreciation rather than a central feature of it. It is not a side effect. In an import-dependent economy, it is close to the whole story: the trade deficit pressures the currency, the weaker currency raises the cost of the next shipment of fuel and inputs, and the loop tightens. Mauritius's own trade data shows exactly this mechanism at work, with the current account deficit widening even as officials describe the situation as temporary.

What TINA obscures

None of this means Mauritius had unlimited room to manoeuvre. Small open economies exposed to global capital flows and tourism receipts genuinely do face real constraints, and "there is no alternative" is sometimes simply an accurate description of a narrow reserve position. But TINA has been doing double duty in Mauritius: describing a real constraint in the moment, while quietly erasing the question of how the constraint was built.

It was built, in large part, by choices that had nothing to do with market forces finding a natural level. Public capital injected into failing banks in 2015 and 2016, financed off the state's own balance sheet. Roughly eighteen billion rupees pumped into the system since 2019 — liquidity creation that a government-commissioned audit later found had accelerated the rupee's fall and stoked the very inflation officials were publicly attributing to global shocks. The same audit went further, questioning whether the central bank's independence had been compromised during this period. These are not the actions of an economy passively absorbing an unavoidable external shock. They are the actions of institutions repeatedly reaching for the balance sheet as the path of least resistance, then describing the bill for it as fate.

Fatalism, cynicism, or incompetence — probably all three, in sequence

It would be simpler if this were one villain: an incompetent central bank, or a cynical government protecting narrow interests. The record over thirty years suggests something less tidy and, in a way, more damning — a form of institutional path dependency that has survived multiple governments and multiple central bank governors.

The diagnosis has rarely been wrong; Article IV reports going back over a decade correctly identified a widening external imbalance and a weakening competitive position. What's failed, repeatedly, is the instrument. Each time a hard structural choice presented itself, the easier lever was the one pulled: recapitalise a bank rather than let it fail transparently and account for the cost in the budget; inject liquidity rather than raise taxes or cut protected spending; let the currency absorb the strain rather than confront the interests that benefit from the status quo. None of this required believing the depreciation story was false. It required only that believing it be convenient — and after a decade of convenience, the belief and the convenience became difficult to tell apart.

That is what makes fatalism the wrong word for where things stand today. Fatalism implies nothing could have been done. Something could have been done, repeatedly, by identifiable people in identifiable institutions, and the record — including the country's own government audit — says so in plain language. Whether that adds up to incompetence or cynicism is, in the end, a less useful question than the one it's usually asked instead of: whether the same institutions, faced with the same choice again, will reach for the same lever.