## 1. Vision 2030 ## Source details **Canonical URL:** [1. Vision 2030](https://www.imf.org/-/media/files/publications/cr/2017/cr17362.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2017/cr17362.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2017/cr17362.pdf.json) --- ### Context and recent developments - Development objective: Mauritius is seeking to become a high-income economy within the next 10 years. - Poverty: 9.8 percent. - Authorities envision medium term growth at about 4.3 percent. - Growth and external sector: - Growth recovered in 2016 driven by higher investment, tourism and financial services; goods exports fell. - Growth projected for 2017: 3.9 percent (staff); BOM estimates between 3.6 percent and 3.8 percent. - Current account deficit projected to widen to about 5.8 percent of GDP in 2017. - Real effective exchange rate appreciated by about 3.0 percent in the first half of 2017. - Foreign reserves: Bank of Mauritius’ foreign reserves increased by $700 million to $4.9 billion in 2016. - Labor market and prices: - Unemployment: 7.3 percent in 2016, down from 7.9 percent in 2015. - Inflation: headline CPI 5.3 percent year-on-year (yoy) in July (from 2.3 percent yoy at end-2016). - Headline inflation expected to remain above 4.0 percent during the second half of 2017. - Unemployment expected to fall to 6.9 percent. - Financial conditions and banking sector: - Credit growth to the private sector (including non-banks and cross-border) at 7.5 percent in July (up from 1 percent at end-2016). - Banks: average ROA 1.4 percent and ROE 13.8 percent at end-2016. - Non-performing loans (NPLs): 7.1 percent. - KRR lowered 50 bps to 3.5 percent in September but remains above interbank rates. - Base money growth: 13.5 percent as of July (from 6.7 percent in 2016). Excess reserves remain high. - Fiscal position: - Overall budget deficit: 3.4 percent of GDP in FY2016/17 (down from 3.6 percent of GDP in FY2015/16). - Total public debt: 65 percent of GDP. - Central government borrowing requirement for FY2017/18 set to increase to 4.5 percent of GDP. - Governance, macro policy and institutional developments: - Minister of Finance Mr. Pravind Jugnauth sworn in as Prime Minister on January 23rd. - 2016 amendments to BOM and Banking Acts extended BOM supervisory powers to financial-holding companies. - Authorities announced a doubling of minimum capital requirements to take effect in 2019. - Mauritius underwent the 2nd Mutual Evaluation of its AML/CFT regime in June 2017. - Credit rating: Baa1 (stable). - Global tax and investment environment: - Mauritius and India amended their DTA introducing capital gains taxes on Mauritius-based investments in India; grandfathering clause produced a temporary surge in FDI to India from Mauritius. - Mauritius signed the Multilateral Instrument (MLI) and elected to treat up to 23 of its DTAs under the MLI; the remaining 19 treaties will be re-negotiated bilaterally. ### Vision 2030 strategy and Public Investment Program (PIP) - Growth targets in Vision 2030: - Increase real GDP growth to 4.5 percent between 2018-2020, and 4.8 percent afterwards. - New growth sectors: manufacturing, ICT, financial services, the ocean economy, tourism, and agriculture. - Main pillars: large PIP in urban developments and transport, transforming Port Louis harbor, positioning Mauritius as a hub for global investment into mainland Africa, support to SMEs, and business environment improvements. - PIP specifics: - PIP foresees investments of up to 25 percent of GDP during 2017-2022. - Implementation share: about 68 percent by central government, 26 percent by SOEs, 6 percent by PPPs. - Historical implementation performance: - On average only 50 percent of projects implemented on schedule. - Around 35 percent delayed. - 7 percent abandoned. - Box Figure: 2017-2021 PIP (Billion Rupees) sectoral allocations: - Roads, transport and drain: 32.3 - Social services: 21.7 - Water and wastewater: 18.3 - Energy: 18.0 - Administrative and others: 13.5 - Public order and safety: 5.4 - Port: 4.4 - Air transport: 3.3 - Key point: Improving public investment efficiency is critical to realize growth dividends and preserve fiscal and debt sustainability; given central government’s limited fiscal space, PPPs could play a larger role. ### Outlook and risks - Growth outlook: - 2017 growth projected at 3.9 percent. - Medium-term growth expected to stabilize at about 4 percent. - Negative output gap estimated to close over the next year. - Inflation and labor market risks: - Signs of building inflationary pressures; controlled prices account for 19 percent of the CPI. - Labor shortages apparent in various sectors. - External and sectoral risks: - GBC sector under pressure from international anti-tax avoidance initiatives; preliminary staff assessment indicates a small fiscal impact but potentially large BOP impact. - Additional risks: further slowing of manufacturing exports; higher imports associated with PIP; Brexit negotiations and retreat from global trade and financial integration; pace of PIP implementation and political risk. ### Policy priorities (Vision 2030 dialogue) - Rebuild the credibility of the fiscal anchor and create fiscal space. - Tackle inflationary pressures and modernize the monetary policy framework. - Address financial stability risks. - Improve competitiveness and public investment efficiency. - Implement Financial Services Sector Blueprint measures and support SME financing (government-funded SME financing scheme provided loans of about 2 percent of GDP). *IMF staff summary of "1. Vision 2030" (CR17362) contained in the provided chapter.* --- ### Fiscal strategy and debt target ### Authorities’ fiscal strategy and new debt target - Public Debt Management Act amended in July 2017 introducing a gross debt concept for the debt target. - Debt target: 60 percent of GDP to be achieved by FY2020/21. - Authorities plan fiscal consolidation starting with next year’s budget; strategy elements include across-the-board rationalization of current spending, some revenue mobilization measures, and further rationalization expected for FY2019/20. ### Staff assessment of required adjustment and revenue potential - Staff estimate: adjustment measures of about 3.7 percent of GDP starting in FY2018/19 required to meet the new debt target. - Staff equivalence: this is equivalent to a primary surplus about 1½ percentage points tighter than planned. - Potential revenue gain: increasing CIT productivity and VAT C-efficiency to benchmark levels could yield additional revenues of about 0.8 percent of GDP. - Required measures to realize potential: revise CIT tax incentives policy, broaden the VAT base, improve tax administration and compliance, and unlock tax potential in the real estate and insurance sectors. ### Key central government fiscal figures (selected) - Total revenue and grants: - (2017/18 Prev.): 23.2 - (2018/19 Budget): 23.9 - (Baseline 2018/19): 23.0 - (Alternative 2018/19): 23.8 - Tax revenue: - (2017/18 Prev.): 19.6 - (2018/19 Budget): 19.7 - (Baseline 2018/19): 19.9 - (Alternative 2018/19): 20.7 - VAT: - (2017/18 Prev.): 7.1 - (Baseline 2018/19): 7.0 - Income tax: - (2017/18 Prev.): 4.2 - (Baseline 2018/19): 4.7 - Grants: - (2017/18 Prev.): 1.8 - (Baseline 2018/19): 1.2 - Total expense (current spending) (2017/18 Prev.): 23.4 - Gross operating balance ((3)=(1)-(2)) (2017/18 Prev.): -0.1 - Consolidated balance (2017/18 Prev.): -2.9 - Overall borrowing requirement (2017/18 Prev.): -3.6 - Central government debt: - (2017/18 Prev.): 60.2 - (2018/19 Budget): 57.9 - (Baseline 2018/19): 58.5 - (Alternative 2018/19): 57.7 - Public sector debt (2017/18 Prev.): 62.5 - Primary balance (incl. grants) (2017/18 Prev.): -0.4 - Primary balance (incl. grants) (Baseline 2018/19): -0.5 - Primary balance (incl. grants) (Baseline 2019/20): 0.3 ### Public investment and debt management recommendations - Improve efficiency and impact of public investment, particularly in project appraisal, selection and monitoring (PIMA recommendations). - Continue efforts to improve liquidity of government securities. - Undergo a Debt Management Performance Assessment (DeMPA) to identify additional pressure points. ### Implementation and timeline considerations - Authorities set up a dedicated unit at MOFED to help implement PIMA recommendations and launched the Online Budget Monitoring System (Budget Mauritius). - Authorities may consider shifting the target date to FY2021/22 if planned fiscal adjustment proves insufficient; staff view: a revised timeline would require additional fiscal consolidation and could have negative effects on policy credibility. --- ### Monetary policy, external position, and reserves ### Monetary policy stance and operational framework - Staff recommendation: tighten monetary policy by mopping up excess liquidity to bring market rates in line with the policy rate. - 2017 observation: spread between the interbank interest rate and the KRR widened to about 300bp. - Staff advice: announce a medium-term inflation objective (an inflation objective around 3 percent could be appropriate) and set price stability as the overriding policy objective. - Recommendation: a Memorandum of Understanding (MoU) between the BOM and MOFED to specify cost-sharing arrangement of monetary operations to strengthen BOM’s operational independence. - Clarify the role of the exchange rate and allow more exchange rate flexibility. ### Authorities’ view - Authorities do not see an impending need to tighten monetary policy and suggest a downward technical adjustment of the KRR to align with liquidity conditions. - Authorities expect inflation to subside and finish the year at about 3 percent and estimate a larger negative output gap than staff. - Authorities intend to continue to mop up excess liquidity but cite high sterilization cost as a main constraint and agree on need for a MoU. ### External position and reserves - External position assessment: Mauritius’ external position at end-2016 was weaker than implied by medium-term fundamentals and desirable policies (EBA-lite and other indicators). - Current account: overall current account deficit narrowed to 4.4 percent of GDP in 2016; current account gap rose from 1.2 percent in 2015 to 3.5 percent of GDP in 2016. - Real effective exchange rate gap: estimated about 10 percent at end-2016. - International reserves: reached $5.2 billion in May 2017 from $4.2 billion at end-2015. - Reserve adequacy: $5.2 billion equivalent to 115 percent of the adjusted ARA metric; staff advice: maintain reserve coverage at least at 100 percent of the ARA metric. - Authorities’ intention: maintain reserve coverage at about 9 months of prospective imports. ### Exchange Rate Support Scheme (ERSS) and MCP - ERSS introduced on September 11, 2017 to provide a temporary subsidy to exporters. - Subsidy determination: difference between reference rate (US$1 = MUR 34.50) and the exporter’s conversion rate, subject to a maximum of MUR 2.50 per dollar. - Scheme duration: six months; administered by the Ministry of Industry, Commerce and Consumer Protection. - Fiscal cost: expected to cost about 0.1 percent of GDP. - ERSS gives rise to a Multiple Currency Practice (MCP) under Article VIII, Section 3; authorities requested approval for temporary retention of the MCP. - Staff view: phase-out ERSS; acknowledge temporary nature and limited fiscal/external impact but recommend addressing structural competitiveness bottlenecks instead of distortionary measures. --- ### Financial sector policies, cross-border exposures, and macroprudential issues ### Banking sector soundness and supervisory actions - Banks are overall well-capitalized, liquid and profitable, but NPLs remain elevated. - NPLs: system NPL ratio stands at 7.1 percent; several banks have delinquency ratios of 10 percent or higher. - Regulatory capital to risk-weighted assets: 18.2 (2016). - Return on assets: 1.5 (2016). - Liquid assets to total assets: 27.9 (2016). - Staff recommendation on NPLs: introduce supervisory guidance with specific past-due periods after which defaulted loans should be written off. ### Cross-border banking exposures and liquidity risks - Bank credit to cross-border and GBC entities advanced by 12 percent yoy as of March-2017. - Banks’ claims on GBCs grew by 28 percent (at end-May, yoy); GBC deposits expanded by 12 percent (at end-March, yoy). - To sustain expansion, banks will have to raise adequate long-term funding in foreign currency to avoid maturity and currency mismatches. - Staff advised BOM to introduce the Net Stable Funding Ratio (NSFR) in the medium term and perform supervisory liquidity stress tests over the full maturity range. - Staff recommended enhanced home-host supervisory cooperation to scrutinize credit risks from cross-border exposures. ### Macroprudential framework and systemic risk monitoring - Financial Stability Committee empowered (includes MOFED, BOM, FSC); a proper macroprudential authority is yet to be established. - Staff: consider establishing a formal macroprudential body. - Staff recommended continued strengthening of BOM supervisory powers and systemic risk monitoring; ensure timely implementation of higher minimum capital requirements (doubling to take effect in 2019). ### GBC sector risks and policy response - GBC sector represents about 5 percent of GDP; licensing fees amount to 1 percent of GDP. - EU and OECD concerns: EU classified Mauritius’ Deemed Foreign Tax Credit (DTFC) as potentially harmful; OECD Forum found GBC2 regime potentially harmful. - Authorities intend to replace the DFTC regime with an exemptions system applying to GBC1s and other domestic firms alike; a Financial Services Sector Blueprint with detailed tax reform proposal expected by end of fiscal year. - Staff: prioritize efforts to address concerns raised by the OECD and the EU and ensure AML/CFT effectiveness to safeguard jurisdiction reputation. - Risk: a significant decline of GBC activity could pose large BOP and financial stability risks if not properly managed. --- ### Debt Sustainability Analysis (DSA), risk assessment, and stress tests ### Overall DSA findings and vulnerabilities - Overall assessment: Public debt remains sustainable under the baseline, but is likely to exceed 60 percent of GDP over the medium term and some vulnerabilities are emerging. - Public-sector debt-GDP ratio: 65.6 percent of GDP at end of FY2016/17. - Public gross financing needs are more vulnerable to growth, real interest rate, and primary balance shocks. - Debt peak: public debt-to-GDP ratio expected to reach about 67.5 percent of GDP in 2019/20, thereafter declining gradually to about 63 percent of GDP in 2022/23 under the baseline. ### Staff stress-test outcomes (selected) - Growth shock (one standard deviation lower for 2 years starting 2018): public debt would remain about 66 percent of GDP; public gross financing needs would remain above 15 percent of GDP. - Real interest rate shock (sovereign risk premia increase by more than 200 basis-points starting 2018): public-sector debt level and public gross financing needs would peak in 2022 at about 67 and 17 percent of GDP respectively. - Primary balance shock (cumulative deterioration of 1.4 percent of GDP over 2018-19): public debt level would remain higher than baseline by end of forecast horizon; public gross financing needs remain elevated. - Combined macro-fiscal shock (combining above shocks): sustained divergence from baseline, reaching about 71 percent of GDP in 2022. ### External DSA and external debt vulnerabilities - Total Gross External Debt (US$ Millions): 10,700.9; percent of GDP: 89.2. - Total Gross External Debt without banking sector liabilities (US$ Millions): 2,606.9; percent of GDP: 21.7. - Public external debt (US$ Millions): 1,780.7; percent of GDP: 14.8. - Private external debt (US$ Millions): 8,920.2; percent of GDP: 74.4. - Treatment: external DSA excludes banking sector liabilities as standard practice for financial centers where banking liabilities are more than matched by assets. - External stress-test sensitivity: - A minus one-half standard deviation shock to the non-interest current account would leave external debt ratio 6 percentage points higher than baseline by 2022. - A one-time 30 percent currency depreciation in 2018 would leave the external debt to GDP ratio 11 percentage points higher than baseline by 2022. - Conclusion: external debt is sustainable but vulnerable to large exogenous shocks; reforms to bolster competitiveness and limit foreign-currency borrowing exposure are important. --- ### Structural competitiveness, policy recommendations, and risk matrix ### Structural competitiveness issues - Mauritius climbed 15 spots on the World Economic Forum’s Global Competitiveness Index over last decade to become the most competitive economy in SSA. - Emerging weaknesses: - Lackluster productivity and rapid real wage growth reduced cost competitiveness. - Complex wage-setting mechanism not adequately linking productivity to wages. - Increased competition from low-wage jurisdictions (e.g. Madagascar). - Gaps in higher education and training, innovation, and technological readiness. - Obstacles to doing business; Mauritius dropped seven places in the 2017 Doing Business rankings, largely due to difficulties in starting a business. - Policy moves: - Business Facilitation Act simplifies starting a business via a one-stop e-licensing platform. - Introduction of the National Minimum Wage in 2018 could simplify wage-setting but requires caution to avoid adverse effects on competitiveness and employment. - Recommendations: align post-secondary curricula with economy needs, encourage tertiary enrolment in STEM, encourage foreign skilled labor where necessary, reinforce anti-corruption measures and AML/CFT tools. ### Key policy recommendations (staff appraisal) - Fiscal: - Recalibrate macroeconomic policy stance to address growing imbalances. - Further revenue mobilization required to build fiscal space and preserve debt sustainability; higher tax efficiency could yield about 0.8 percent of GDP. - Improve public investment management. - Monetary and FX: - Tighten monetary policy by mopping-up excess liquidity to bring interbank rates toward policy rate. - Announce a medium-term inflation objective (around 3 percent suggested). - Strengthen BOM operational independence and allow more exchange rate flexibility. - Maintain reserves at least at 100 percent of ARA metric and opportunistically build reserves. - Financial sector: - Lower high stock of NPLs via more stringent write-off practices and supervisory guidance. - Safeguard longer-term FX funding needs from banks’ cross-border expansion; introduce NSFR in medium term. - Consider establishing a formal macroprudential body. - Prioritize reforms addressing OECD/EU tax regime concerns and AML/CFT compliance. - Structural reforms: - Labor market reforms, higher education, innovation, governance and anti-corruption measures. - Simplify wage-setting mechanism and boost labor supply of youth and women. ### Risk Assessment Matrix — key entries - Business model risk: Relative Likelihood: High; Impact: High; Key statistics: GBC sector about 5 percent of GDP; licensing fees 1 percent of GDP; Policy Response: diversification, additional tax revenue sources, accelerate FSAP recommendations. - Retreat from cross-border integration: Relative Likelihood: High; Impact: Medium; Policy Response: labor market reforms, accelerate infrastructure investments, allow greater exchange rate flexibility. - Financial conditions (global rates, Fed normalization, ECB tapering): Relative Likelihood: High; Impact: Medium; Policy Response: accelerate FSAP recommendations, allow greater exchange rate flexibility. - Reduced financial services by correspondent banks ("de-risking"): Relative Likelihood: Medium; Impact: Medium; Policy Response: strengthen AML/CFT, strengthen risk management at smaller banks. --- *IMF staff report (cr17362).* ### 1. Vision 2030 _____________________________________________________________________________________ 6 ### 1. Vision 2030 ### Context and recent developments - Development objective: - Mauritius is seeking to become a high-income economy within the next 10 years. - Poverty: 9.8 percent. - Authorities envision medium term growth at about 4.3 percent. - Growth and external sector (recent outcomes): - Growth recovered in 2016 driven by higher investment, tourism and financial services; goods exports fell. - Growth projected for 2017: 3.9 percent (staff); BOM estimates between 3.6 percent and 3.8 percent. - Current account deficit projected to widen to about 5.8 percent of GDP in 2017. - Real effective exchange rate appreciated by about 3.0 percent in the first half of 2017. - Foreign reserves: Bank of Mauritius’ foreign reserves increased by $700 million to $4.9 billion in 2016. - Labor market and prices: - Unemployment: 7.3 percent in 2016, down from 7.9 percent in 2015. - Inflation: headline CPI 5.3 percent year-on-year (yoy) in July (from 2.3 percent yoy at end-2016), driven by food, fuel, and higher excises on tobacco and alcohol. - Headline inflation expected to remain above 4.0 percent during the second half of 2017. - Unemployment expected to fall to 6.9 percent. - Financial conditions and banking sector: - Credit growth to the private sector (including non-banks and cross-border) at 7.5 percent in July (up from 1 percent at end-2016). - Sectors gaining credit: Global Business Companies (GBCs), construction, financial and business services. - Banks: average ROA 1.4 percent and ROE 13.8 percent at end-2016. - Non-performing loans (NPLs): 7.1 percent. - Interbank and nominal interest rates are at historically low levels; KRR lowered 50 bps to 3.5 percent in September but remains above interbank rates. - Base money growth: 13.5 percent as of July (from 6.7 percent in 2016). Excess reserves remain high. - Fiscal position: - Overall budget deficit: 3.4 percent of GDP in FY2016/17 (down from 3.6 percent of GDP in FY2015/16), reflecting under-execution of the capital budget. - Total public debt: 65 percent of GDP. - Central government borrowing requirement for FY2017/18 set to increase to 4.5 percent of GDP (authorities’ medium-term framework 2016 indicative estimate was 3.6 percent of GDP). - Governance, macro policy and institutional developments: - Political change: Minister of Finance Mr. Pravind Jugnauth sworn in as Prime Minister on January 23rd; public criticism and coalition tensions followed. - Supervisory changes: 2016 amendments to BOM and Banking Acts extended BOM supervisory powers to financial-holding companies and strengthened systemic risk statistics. - Authorities announced a doubling of minimum capital requirements to take effect in 2019. - Mauritius underwent the 2nd Mutual Evaluation of its AML/CFT regime in June 2017 (scheduled for discussion by ESAAMLG in 2018). - Credit rating: Baa1 (stable). - Global tax and investment environment: - Mauritius and India amended their DTA introducing capital gains taxes on Mauritius-based investments in India; the grandfathering clause produced a temporary surge in FDI to India from Mauritius. - Mauritius signed the Multilateral Instrument (MLI) under OECD/G20 BEPS and elected to treat up to 23 of its DTAs under the MLI; the remaining 19 treaties will be re-negotiated bilaterally. ### Vision 2030 strategy and public investment - Growth targets in Vision 2030 (Box 1): - Increase real GDP growth to 4.5 percent between 2018-2020, and 4.8 percent afterwards. - New growth sectors: manufacturing, ICT, financial services, the ocean economy, tourism, and agriculture. - Main pillars: large Public Investment Program (PIP) in urban developments and transport, transforming Port Louis harbor, positioning Mauritius as a hub for global investment into mainland Africa, support to SMEs, and business environment improvements. - Public Investment Program (PIP) specifics: - PIP foresees investments of up to 25 percent of GDP during 2017-2022. - Implementation share: about 68 percent by central government, 26 percent by SOEs, 6 percent by PPPs. - Historical implementation performance: - On average only 50 percent of projects implemented on schedule. - Around 35 percent delayed. - 7 percent abandoned. - Improving public investment efficiency is critical to realize growth dividends and preserve fiscal and debt sustainability. Given central government’s limited fiscal space, PPPs could play a larger role. - Box Figure: 2017-2021 PIP (Billion Rupees) sectoral allocations (values reported in figure): - Roads, transport and drain: 32.3 - Social services: 21.7 - Water and wastewater: 18.3 - Energy: 18.0 - Administrative and others: 13.5 - Public order and safety: 5.4 - Port: 4.4 - Air transport: 3.3 ### Outlook and risks - Growth outlook: - 2017 growth projected at 3.9 percent. - Medium-term growth expected to stabilize at about 4 percent (broadly in line with potential output growth). - Negative output gap estimated to close over the next year. - Inflation and labor market risks: - Signs of building inflationary pressures; wage and controlled-price indexation mechanisms could be triggered. - Controlled prices account for 19 percent of the CPI (including fuel, bread, rice, flour, water and sewage, workman’s wages). - Labor shortages apparent in various sectors. - External and sectoral risks: - Global Business (GBC) sector is under pressure from international anti-tax avoidance initiatives: - EU classified Mauritius’ Deemed Foreign Tax Credit (DTFC) as potentially harmful. - OECD Forum on Harmful Tax Practices found GBC2 regime potentially harmful. - Authorities intend to replace the DFTC regime with an exemptions system applying to GBC1s and other domestic firms alike. - A Financial Services Sector Blueprint with a detailed tax reform proposal is expected to be finalized by the end of the fiscal year. - A significant decline in GBC activity could pose large BOP and financial stability risks; a preliminary staff assessment indicates a small fiscal impact but potentially large BOP impact. - Additional risks: - Further slowing of manufacturing exports. - Higher imports associated with PIP. - Brexit negotiations and retreat from global trade and financial integration. - Pace of PIP implementation and political risk. - Annex I lists additional risks (not reproduced here). ### Policy discussions and recommendations - Key elements of policy dialogue: - (a) Rebuilding the credibility of the fiscal anchor and creating fiscal space. - (b) Tackling inflationary pressures and modernizing the monetary policy framework to strengthen policy response to shocks. - (c) Addressing financial stability risks. - (d) Improving competitiveness. - Fiscal policy priorities and risks: - FY2017/18 budget deviates from authorities’ medium-term fiscal framework announced in 2016. - Central government borrowing requirement set to increase to 4.5 percent of GDP. - Projected higher spending on capital projects and social transfers to be partially financed by higher excises on tobacco and alcohol, improvements in tax compliance and administration, and financial assistance from the Government of India. - Fiscal risks increasing from: clearance of legacy non-performing assets from past bank restructurings; measures to support the export sector; higher inflation leading to higher wage bills; lower SOE profits; fiscal costs from ageing population and increased dependency ratios. - Debt sustainability analysis (DSA) points to increased public sector debt vulnerabilities (Annex II): rising public debt and contingent liabilities have left Mauritius’ gross financing needs more exposed to adverse real growth, real interest rate, and fiscal shocks; the debt/GDP ratio will likely remain elevated over the forecast horizon. - Debt profile vulnerabilities increased but are manageable (Annex III). - Monetary and financial stability recommendations: - Recalibrate macroeconomic policy stance to address emerging imbalances (widening current account deficit, smaller BOP surplus, REER appreciation). - Modernize monetary policy framework to improve transmission and to better steer market rates toward policy rates. - Continue strengthening BOM supervisory powers and systemic risk monitoring; ensure timely implementation of higher minimum capital requirements. - Monitor and manage financial stability risks related to potential GBC sector adjustments and credit allocation patterns. - Competitiveness and structural reforms: - Improve public investment efficiency to ensure PIP delivers growth dividends. - Implement Financial Services Sector Blueprint measures to align tax framework with international standards while managing economic and BOP implications. - Support SME financing (government-funded SME financing scheme provided loans of about 2 percent of GDP). *IMF staff summary of "1. Vision 2030" (CR17362) contained in the provided chapter.* ### 18. The authorities envision a fiscal consolidation to support the revised debt anchor. ### 18. The authorities envision a fiscal consolidation to support the revised debt anchor. ### Fiscal strategy and debt target - Public Debt Management Act amended in July 2017 to set a new debt target because meeting the previous target of 50 percent of GDP by the end of 2018 would have required an unrealistic fiscal adjustment. - New debt concept: a gross debt concept has been introduced for the purposes of the debt target. - Debt target: 60 percent of GDP to be achieved by FY2020/21. - Authorities plan a fiscal consolidation starting with next year’s budget as reflected in their announced medium-term fiscal framework (column “Baseline” in Text Table 1). - Strategy elements: across-the-board rationalization of current spending, some revenue mobilization measures, and further rationalization expected for FY2019/20 (which could coincide with the next general elections). ### Staff’s assessment of required adjustment - Staff estimate: adjustment measures of about 3.7 percent of GDP starting in FY2018/19 would be required to meet the new debt target. - Staff equivalence: this is equivalent to a primary surplus about 1½ percentage points tighter than planned. ### Revenue mobilization and efficiency gains - Staff analysis suggests scope to supplement planned consolidation with additional growth-friendly revenue mobilization (column “Alternative” in Text Table 1). - Benchmarking findings: Mauritius’ average Corporate Income Tax (CIT) productivity and VAT C-efficiency are below levels of similar economies. - Potential revenue gain: increasing CIT productivity and VAT C-efficiency to benchmark levels could yield additional revenues of about 0.8 percent of GDP (Appendix I). - Required measures to realize potential: revision of current CIT tax incentives policy, broadening the VAT base, further improving tax administration and compliance, and unlocking tax potential in the real estate and insurance sectors. ### Public investment and debt management recommendations - Improve efficiency and impact of public investment, particularly in project appraisal, selection and monitoring, per a recent Public Investment Management Assessment (PIMA). - Continue efforts to improve liquidity of government securities. - Identify additional pressure points in debt management by undergoing a Debt Management Performance Assessment (DeMPA). ### Authorities’ implementation and timeline considerations - Authorities concurred with the need to improve public investment management and build fiscal space to preserve debt sustainability. - Implementation steps: a dedicated unit at the Ministry of Finance and Economic Development (MOFED) set up to help implement PIMA recommendations; launch of the Online Budget Monitoring System (Budget Mauritius) to provide real-time estimates of progress against set milestones and targets. - Monitoring: Reports from Budget Mauritius will inform a monitoring inter-ministerial committee chaired by the Prime Minister. - Additional revenue measures proposed by authorities: improved dispute resolution system for tax arrears; revisions on the exemptions regime for individuals. - Timeline realism: authorities indicated they would consider shifting the target date to FY2021/22 if planned fiscal adjustment proves insufficient; staff view: a revised timeline would require additional fiscal consolidation and could have negative effects on policy credibility. ### Key central government fiscal figures (selected from Text Table 1) - Total revenue and grants (2017/18 Prev.): 23.2 - Total revenue and grants (2018/19 Budget): 23.9 - Total revenue and grants (Baseline 2018/19): 23.0 - Total revenue and grants (Alternative 2018/19): 23.8 - Tax revenue (2017/18 Prev.): 19.6 - Tax revenue (2018/19 Budget): 19.7 - Tax revenue (Baseline 2018/19): 19.9 - Tax revenue (Alternative 2018/19): 20.7 - Value added tax (VAT) (2017/18 Prev.): 7.1 - VAT (Baseline 2018/19): 7.0 - Income tax (2017/18 Prev.): 4.2 - Income tax (Baseline 2018/19): 4.7 - Grants (2017/18 Prev.): 1.8 - Grants (Baseline 2018/19): 1.2 - Total expense (current spending) (2017/18 Prev.): 23.4 - Gross operating balance ((3)=(1)-(2)) (2017/18 Prev.): -0.1 - Consolidated balance (2017/18 Prev.): -2.9 - Overall borrowing requirement (2017/18 Prev.): -3.6 - Central government debt (2017/18 Prev.): 60.2 - Central government debt (2018/19 Budget): 57.9 - Central government debt (Baseline 2018/19): 58.5 - Central government debt (Alternative 2018/19): 57.7 - Public sector debt (2017/18 Prev.): 62.5 - Public sector debt (2018/19 Budget): 64.7 - Primary balance (incl. grants) (2017/18 Prev.): -0.4 - Primary balance (incl. grants) (Baseline 2018/19): -0.5 - Primary balance (incl. grants) (Baseline 2019/20): 0.3 Sources for the table: Ministry of Finance and Development; Bank of Mauritius; and IMF staff estimates and projections. (GFSM 2001 presentation.) ### Monetary policy stance and operational framework - Staff recommendation: tighten monetary policy by mopping up excess liquidity in sufficient quantities to bring market rates in line with the policy rate. - Issue: large excess liquidity (partly from unsterilized foreign exchange purchases) has resulted in a persistent disconnect between policy rate (KRR) and overnight interbank rate. - 2017 observation: spread between the interbank interest rate and the KRR widened to about 300bp. - Closing the spread would imply tightening monetary policy as real money market rates would move into positive territory. - Further tightening should depend on incoming data on labor market slack, inflation expectations and credit market developments. - BOM intends to adopt a more forward-looking monetary policy framework; current framework lacks a clearly defined nominal anchor and suffers from perceived multiplicity of objectives. - Staff advice: announce a medium-term inflation objective (an inflation objective around 3 percent could be appropriate) and set price stability as the overriding policy objective in the medium term. - Clarify the role of the exchange rate and allow more exchange rate flexibility to improve resilience to shocks and address emerging inflationary pressures. - Recommendation: a Memorandum of Understanding (MoU) between the BOM and the MOFED to specify cost-sharing arrangement of monetary operations to strengthen BOM’s operational independence. - Other reforms: intensify interactions between forecasting team and Monetary Policy Committee (MPC); revisit merging of the Inflation Report and Financial Stability Report. ### Authorities’ view on monetary policy - Authorities do not see an impending need to tighten monetary policy; they argue current stance is appropriate and suggest a downward technical adjustment of the KRR to align with liquidity conditions. - Authorities’ inflation view: increase in inflation is due to changing seasonal pattern and inflation expected to subside and finish the year at about 3 percent. - Authorities estimate a larger negative output gap than staff; staff considers BOM’s output gap estimates optimistic given slowdown in population growth and total factor productivity. - Authorities agree on the need to review operational framework and on announcing an inflation objective in agreement with MOFED. - Authorities intend to continue to mop up excess liquidity but cite high sterilization cost as main constraint and agree on need for a MoU to specify cost-sharing. - Staff view: sterilization cost concerns should not take priority over benefits of a well-functioning monetary policy framework; costs ultimately borne by fiscal authority; a well-functioning money market can help reduce cost of government debt. - Authorities’ exchange rate stance: level of the exchange rate is market determined; BOM interventions intended to correct exchange rate misalignments from market fundamentals. - Staff recommendation: announce a clearly articulated intervention strategy to prevent excess volatility and opportunistically build reserves. ### External position and reserves - External position assessment: Mauritius’ external position at end-2016 was weaker than implied by medium-term fundamentals and desirable policies (EBA-lite and other indicators). - Current account: overall current account deficit narrowed to 4.4 percent of GDP in 2016; current account gap rose from 1.2 percent in 2015 to 3.5 percent of GDP in 2016. - Medium-term outlook: current account expected to widen due to increasing domestic demand, high import component of government’s PIP, and planned aircraft purchases. - Real effective exchange rate gap: estimated about 10 percent at end-2016, up from 3 percent a year earlier. - Staff view: tighter fiscal policy stance and addressing structural bottlenecks to competitiveness will help restore external balance. - International reserves: reached $5.2 billion in May 2017 from $4.2 billion at end-2015. - Reserve adequacy: $5.2 billion equivalent to 115 percent of the adjusted ARA metric; current level within the advisable range. - Staff advice: maintain reserve coverage at least at 100 percent of the ARA metric. - Authorities’ intention: maintain reserve coverage at about 9 months of prospective imports, implying continued reserves accumulation over the medium term to account for higher capital goods imports associated with major infrastructure projects. ### Exchange Rate Support Scheme and MCP - ERSS introduction: On September 11, 2017, authorities introduced the Exchange Rate Support Scheme (ERSS) to provide a temporary subsidy to exporters (excluding sugar exporters) due to depreciation of the US dollar. - Subsidy mechanism: amount determined by difference between a reference rate (US$1 = MUR 34.50) and the rate at which exporter converted export proceeds to domestic currency at its commercial bank, subject to a maximum of MUR 2.50 per dollar. - Duration and administration: scheme to run over six months; administered by the Ministry of Industry, Commerce and Consumer Protection. - Fiscal cost: expected to cost about 0.1 percent of GDP (to be covered with the appropriated budget for contingencies). - MCP implication: ERSS gives rise to a Multiple Currency Practice (MCP) under Article VIII, Section 3 because difference between spot market rates and effective exchange rate received by exporters, taking subsidy into account, can potentially exceed 2 percent; MCP is subject to Fund approval. - Authorities’ request: seeking approval for temporary retention of the MCP. - Staff view: authorities should remove structural bottlenecks hindering competitiveness rather than adopt distortionary measures; staff acknowledges the measure is temporary, not discriminatory, and expected to have minimum impact on fiscal and external accounts. ### Financial sector policies and risks - FSAP implementation: many 2015 FSAP recommendations implemented (BOM upgraded CAMEL bank rating, began solvency stress tests, aligned capital adequacy and liquidity regulation with Basel III; holding companies with financial sector subsidiaries now supervised by BOM and FSC; BOM upgrading bank resolution and crisis prevention framework). - Macroprudential: Financial Stability Committee empowered (includes MOFED, BOM, FSC); a proper macroprudential authority is yet to be established. - Banking sector position: overall banks are well-capitalized, liquid and profitable, but NPLs remain elevated. - NPLs: system NPL ratio stands at 7.1 percent; number of banks have delinquency ratios of 10 percent or higher due to low write-off of defaulted loans that peaked in early 2016. - Staff recommendation on NPLs: introduce supervisory guidance with specific past-due periods after which defaulted loans should be written off to curtail leeway in banks’ write-off practices. - Exposure to GBC sector: banks’ claims on GBCs grew by 28 percent (at end-May, yoy); GBC deposits expanded by 12 percent (at end-March, yoy). - GBC sector resilience: number of GBCs and total assets holding steady (growth rates around 1 percent at end-2016); GBC deposits appear adequately backed by liquid foreign-currency assets. - Risk: some investments channeled through GBC sector into India may be lost with expiry of grandfathering clause in March 2019. - Structural transition: authorities recognize need for GBC sector to transition from tax-incentive-based model to one providing higher value-added services (including investments into African markets); planned Financial Services Sector Blueprint to guide reforms. - AML/CFT: improving effectiveness of AML/CFT framework is important to safeguard jurisdiction reputation; recent allegations regarding integrity of FSC licensing process underscore need to ensure compliance with FATF standards on AML/CFT supervision and entity transparency. *Source: IMF staff report text.* ### 38. A number of large banks are expanding their cross-border exposures, which ### 38. A number of large banks are expanding their cross-border exposures, which ### Cross-border banking exposures and liquidity risks - Bank credit to cross-border and GBC entities advanced by 12 percent yoy as of March-2017. - Total credit provided to non-residents increasingly includes loans originated by a growing number of subsidiaries in African and Asian countries. - To sustain this momentum, banks will have to raise adequate long-term funding in foreign currency to avoid maturity and currency mismatches. - Beyond the adoption of the Basel III Liquidity Coverage Ratio (LCR) governing short-term exposures, staff advised the BOM to introduce the Net Stable Funding Ratio (NSFR) in the medium term. - Staff encouraged the BOM to perform supervisory liquidity stress tests assessing liquidity and funding positions over the entire maturity range. - Staff recommended continued scrutiny of potential credit risks arising from increasing cross-border exposures through enhanced home-host supervisory cooperation. ### Authorities’ response and supervisory actions - The authorities concurred with staff’s recommendations. - The BOM recognized the need to conduct supervisory liquidity stress tests over the full range of maturities, since the regulation on the NSFR may be introduced only after evaluating the impact of the LCR. - Regarding legacy NPLs, the BOM pointed to a few exposures accounting for a high share of defaulted claims but agreed that establishing past-due periods triggering the need for write-offs would be useful. - The BOM agreed that the relatively volatile GBC deposits need to be monitored closely, while safeguarding a sufficient level of liquid assets at banks. ### Structural competitiveness: summary of issues and reforms - Mauritius climbed 15 spots on the World Economic Forum’s Global Competitiveness Index rankings over the last decade to become the most competitive economy in SSA. - Competitiveness strengths: infrastructure, higher education and training, goods markets efficiency, improvements in the macroeconomic environment, and technological readiness. - Emerging weaknesses: - Lackluster productivity and rapid real wage growth reduced cost competitiveness; rate of wage increases has outstripped productivity growth in some sectors, leading to rising unit labor costs. - Complex wage-setting mechanism that does not adequately link productivity to wages. - Increased competition from other low-wage jurisdictions (e.g. Madagascar) affecting manufacturing export-oriented activities. - Gaps vis-à-vis emerging market comparator countries in higher education and training, innovation, and technological readiness. - Obstacles to doing business, including an inadequately educated workforce, inefficient government bureaucracy, low female participation in the workforce, and insufficient capital to innovate. - Developments and policy moves: - Mauritius dropped seven places in the 2017 Doing Business rankings, driven largely by difficulties in starting a business. - The recently-adopted Business Facilitation Act simplifies starting a business through a one-stop e-licensing platform for official permits, streamlines tax administration, and facilitates international trade and commerce. - Introduction of the National Minimum Wage in 2018 could form part of a broader effort to simplify the wage-setting mechanism and tighten the link between pay and productivity; caution advised to avoid adverse effects on enterprise competitiveness, job creation, and sectoral wage relativities while safeguarding social objectives. - Recommendations to address skills-mismatch and boost innovation policy: better align post-secondary curricula with economy needs, encourage tertiary enrolment in STEM subjects, and encourage foreign skilled labor where necessary. - Reinforce anti-corruption measures, such as the asset declaration system and anti-money-laundering tools, given the negative relationship between perceptions of corruption and global competitiveness rankings. ### Staff appraisal: macroeconomic outlook, policy recommendations, and financial-sector priorities - Macroeconomic outlook and risks: - Economic activity expected to remain robust, driven by the government’s ambitious PIP, and supported by continued dynamism in the tourism sector and financial intermediation activities. - Headline inflation is expected to recede in the second half of 2017, but is likely to finish the year around 4.0 percent under current policies. - Main sources of risks: further slowing of manufacturing exports and the pace of implementation of the PIP. - Fiscal policy: - The macroeconomic policy stance needs recalibration to address growing imbalances: output gap is closing, core inflation is increasing, and demand for credit is rising. - Further revenue mobilization is required to build fiscal space, support the fiscal anchor, and preserve debt sustainability. - Higher tax efficiency could yield additional revenues of about 0.8 percent of GDP. - Continued improvements in public investment management and identifying pressure points in debt management are recommended. - Monetary policy and framework: - A tightening of monetary policy is warranted to address growing underlying inflationary pressures. - Mopping-up excess liquidity in sufficient quantities is needed to bring interbank rates in line with the policy rate and regain control of money market conditions. - Clarifying the monetary policy framework will help increase policy coherence; there is currently no consensus on the definition of price stability and the role of the nominal exchange rate. - Announcing a medium-term inflation objective will be instrumental; an inflation objective of about 3 percent could serve as the foundation for the BOM’s policy actions and communication. - Strengthening the operational independence of the central bank and allowing more flexibility of the exchange rate are recommended. - Reserves and FX policy: - Staff welcomes the substantial improvement in international reserve buffers; reserve buffers now stand inside the optimal range of international reserves. - FX intervention policy should be geared towards maintaining reserve coverage at least at 100 percent of the adequacy metric, opportunistically building reserves and curbing excess volatility. - Financial sector and GBC risks: - Authorities are well-advanced in modernizing financial sector regulation and should now address salient banking sector issues. - Additional steps include lowering the still-high stock of NPLs through a more stringent approach to writing-off legacy exposures, and safeguarding the longer-term FX funding needs stemming from banks’ swift expansion abroad. - Consider establishing a formal macroprudential body. - Efforts to address concerns raised by the OECD and the EU about the tax regime should be prioritized. - The GBC sector, to which banks remain highly exposed, will need to adjust its business model as Mauritius transitions to a jurisdiction of higher value-added, and ensure compliance with FATF standards, particularly on AML/CFT supervision and entity transparency. - A significant decline of GBC activity could pose risks to external and financial stability if not properly managed. - Structural reform priorities: - Broader structural reforms in labor market, higher education, innovation, governance and anti-corruption (e.g. effective use of AML tools and strengthened asset declaration system) are key to economic transformation. - Simplifying the wage-setting mechanism will improve competitiveness; strengthening efforts to boost labor supply of youth and women will help close gender gaps and reduce inequality. - Other recommendations: - Staff encourages the authorities to phase-out the ERSS, and to expedite work on other measures to support the export-oriented sector. - Staff recommends approval for the temporary retention of the MCP on the basis that the ERSS is temporary, does not materially impede the member’s balance of payments adjustment, does not harm the interests of other members, and does not discriminate among members. *Source: cr17362 - 38. A number of large banks are expanding their cross-border exposures, which* ### 60. Staff recommends that the next Article IV consultation takes place in the standard ### 60. Staff recommends that the next Article IV consultation takes place in the standard ### Macroeconomic developments (Growth, Inflation, External Accounts) - Growth: - Real GDP growth: 3.6 (2016), 3.5 (2017), 3.9 (2018), 3.9 (2019), 4.0 (2020), 4.1 (2021), 4.1 (2022), 4.1 (2023), 4.1 (2024) [Table 1, "Real GDP"] - Real GDP per capita: 3.4 (2016), 3.4 (2017), 3.8 (2018), 3.5 (2019), 3.6 (2020), 3.7 (2021), 3.7 (2022), 3.8 (2023), 3.8 (2024) [Table 1, "Real GDP per capita"] - GDP per capita (in U.S. dollars): 10,001 (2016), 9,115 (2017), 9,613 (2018), 9,672 (2019), 10,105 (2020), 10,629 (2021), 11,180 (2022), 11,733 (2023), 12,327 (2024) [Table 1] - Inflation and prices: - GDP deflator: 1.7 (2016), 0.9 (2017), 3.0 (2018), 1.0 (2019), 2.9 (2020), 3.3 (2021), 3.2 (2022), 3.0 (2023), 3.0 (2024) [Table 1] - Consumer prices (period average): 3.2 (2016), 1.3 (2017), 1.0 (2018), 4.2 (2019), 5.0 (2020), 3.8 (2021), 3.4 (2022), 3.2 (2023), 3.1 (2024) [Table 1] - Consumer prices (end of period): 0.2 (2016), 1.3 (2017), 2.3 (2018), 5.0 (2019), 4.0 (2020), 3.5 (2021), 3.2 (2022), 3.1 (2023), 3.1 (2024) [Table 1] - External accounts: - Exports of goods and services, f.o.b. (percent change): 11.4 (2016), -12.1 (2017), -5.4 (2018), 3.5 (2019), 5.9 (2020), 6.4 (2021), 6.8 (2022), 6.9 (2023), 5.8 (2024) [Table 1] - Imports of goods and services, f.o.b. (percent change): 7.0 (2016), -13.9 (2017), -4.4 (2018), 8.3 (2019), 6.0 (2020), 10.2 (2021), 2.7 (2022), 1.5 (2023), 4.1 (2024) [Table 1] - Current account balance (percent of GDP): -5.7 (2014), -4.9 (2015), -4.4 (2016), -5.8 (2017), -6.3 (2018), -8.4 (2019), -6.2 (2020), -3.3 (2021), -0.4 (2022) [Table 1; Table 3] - Balance of goods and services (percent of GDP): -12.5 (2014), -10.8 (2015), -10.3 (2016), -13.0 (2017), -13.2 (2018), -15.4 (2019), -13.2 (2020), -10.4 (2021), -9.5 (2022) [Table 1; Table 3] - Net international reserves (millions of U.S. dollars): 3,868 (2014), 4,222 (2015), 4,934 (2016), 5,331 (2017), 5,657 (2018), 5,772 (2019), 5,963 (2020), 6,062 (2021), 6,320 (2022) [Table 1; Table 3] ### Monetary, exchange rate, and financial developments - Reserve buffers and liquidity: - Net International Reserves (US$ millions): 3,868 (2014), 4,222 (2015), 4,655 (2016), 4,934 (2017), 5,330 (2018), 5,657 (2019), 5,772 (2020), 5,963 (2021), 6,062 (2022), 6,320 (2023) [Figure 2; Table 4] - Months of imports of goods and services (reserves coverage): 6.9 (2014), 7.8 (2015), 8.4 (2016), 8.6 (2017), 8.3 (2018), 8.2 (2019), 8.4 (2020), 8.2 (2021), 10.1 (2022) [Table 1; Figure 2] - Banks' excess cash reserves and excess liquidity noted as "high" (Figure 2) - Interest rates and credit: - Interest rate (weighted average TBs, primary auctions): 2.2 (2016), 2.2 (2017), 2.1 (2018) [Table 1] - Broad money growth: 8.2 (2014), 7.8 (2015), 8.7 (2016), 4.9 (2017), 7.0 (2018), 7.5 (2019), 7.4 (2020), 7.2 (2021), 7.2 (2022) [Table 1] - Credit to non-government sector (percent change): -2.2 (2014), 8.7 (2015), -0.6 (2016), 4.8 (2017), 8.2 (2018), 7.9 (2019), 6.0 (2020), 5.7 (2021), 6.1 (2022) [Table 1] - Private sector credit and credit gap signals: private credit series and credit gap illustrated in Figure 2 (no single numeric summary in figure text) - Exchange rates and external pricing: - Nominal effective exchange rate (annual average) and real effective exchange rate (annual average) reported with changes: 2.0 (nominal 2014), -1.0 (2015), 1.8 (2016); real: 3.0 (2014), -1.1 (2015), 0.9 (2016) [Table 1] ### Fiscal developments and public debt - Consolidated fiscal balances (percent of GDP): - Overall consolidated balance (including grants): -4.3 (2014), -3.6 (2015), -3.4 (2016), -3.3 (2017), -3.1 (2018), -2.9 (2019), -2.9 (2020), -2.9 (2021), -2.8 (2022) [Table 1] - Primary balance (excluding grants): -1.7 (2014), -1.3 (2015), -1.6 (2016), -2.3 (2017), -1.7 (2018), -0.4 (2019–2022) [Table 1] - Revenues (including grants, percent of GDP): 20.6 (2014), 21.1 (2015), 21.2 (2016), 23.9 (2017), 23.0 (2018), 21.9 (2019–2022) [Table 1] - Central government finances (millions of Rupee and percent of GDP): - Total revenue and grants (millions of Rupee): 79,674 (2018/19 Budget), 88,269 (2019/20 Prel.), 102,400 (2020/21 Proj.), 94,028 (2021/22), 112,242 (2022/23), 115,915, 118,680, 127,355, 136,516, 146,335 [Table 2a] - Total expense (current spending) (millions of Rupee): 82,686 (2018/19), 97,084 (2019/20), 107,334 (2020/21), 102,925 (2021/22), 115,003 (2022/23), 119,214, 121,453, 130,194, 139,451, 149,347 [Table 2a] - Consolidated balance (millions of Rupee): -16,415 (2014), -15,098 (2015/16), -19,702 (2016/17), -14,984 (2017/18), -15,521 (2018/19), -15,699 (2019/20), -15,636 (2020/21), -16,645 (2021/22), -17,780 (2022/23), -18,924 (203? projected series) [Table 2a] - Central government debt (millions of Rupee): 222,247 (2014), 251,401 (2015), 262,811 (2016), 265,547 (2017), 271,393 (2018), 294,133 (2019), 311,547 (2020), 330,015 (2021), 349,595 (2022), 370,190 (2023) [Table 2a] - Debt ratios (percent of GDP): - Central government debt: 57.5 (2014), 60.2 (2015), 58.3 (2016), 60.0 (2017), 57.9 (2018), 58.5 (2019), 57.6 (2020), 56.9 (2021), 56.2 (2022), 55.5 (2023) [Table 2b] - Public sector debt: 62.9 (2014), 65.7 (2015), 62.9 (2016), 65.6 (2017), 64.7 (2018), 64.8 (2019), 65.0 (2020), 63.7 (2021), 62.6 (2022), 61.5 (2023) [Table 2b] ### Balance of payments and capital flows - Current account and components (millions of U.S. dollars): - Current account balance: -713 (2014), -562 (2015), -537 (2016), -531 (2017), -714 (2018), -812 (2019), -1,142 (2020), -888 (2021), -503 (2022), -62 (Last SR) [Table 3] - Trade balance: -2,266 (2014), -1,844 (2015), -2,027 (2016), -2,048 (2017), -2,415 (2018), -2,602 (2019), -3,031 (2020), -2,970 (2021), -2,778 (2022), -2,789 (Last SR) [Table 3] - Exports of goods, f.o.b.: 3,095 (2014), 2,684 (2015), 2,845 (2016), 2,359 (2017), 2,227 (2018), 2,335 (2019), 2,445 (2020), 2,568 (2021), 2,714 (2022), 2,857 (Last SR) [Table 3] - Imports of goods, f.o.b.: -5,361 (2014), -4,528 (2015), -4,872 (2016), -4,407 (2017), -4,642 (2018), -4,937 (2019), -5,476 (2020), -5,539 (2021), -5,492 (2022), -5,646 (Last SR) [Table 3] - Services (net): 691 (2014), 602 (2015), 691 (2016), 802 (2017), 815 (2018), 899 (2019), 935 (2020), 1,072 (2021), 1,200 (2022), 1,270 (Last SR) [Table 3] - Tourism receipts (component of services): 966 (2014), 878 (2015), 936 (2016), 986 (2017), 1,040 (2018), 1,115 (2019), 1,168 (2020), 1,313 (2021), 1,489 (2022), 1,565 (Last SR) [Table 3] - Income (net): 1,073 (2014), 906 (2015), 1,032 (2016), 947 (2017), 1,109 (2018), 1,107 (2019), 1,136 (2020), 1,174 (2021), 1,209 (2022), 1,561 (Last SR) [Table 3] - Capital and financial account: - Capital and financial accounts (net): 1,359 (2014), 1,072 (2015), 969 (2016), 1,414 (2017), 1,111 (2018), 1,139 (2019), 1,256 (2020), 1,079 (2021), 602 (2022), 320 (Last SR) [Table 3] - Direct investment (net, in Mauritius): 4,577 (2014), 6,918 (2015), 5,493 (2016), 20,445 (2017), 19,447 (2018), 18,763 (2019), 16,816 (2020), 15,175 (2021), 14,068 (2022), 12,647 (Last SR) [Table 3] - Portfolio investment (net): -425 (2014), -703 (2015), -537 (2016), -6,697 (2017), -6,113 (2018), -5,758 (2019), -5,150 (2020), -4,622 (2021), -4,161 (2022), -3,744 (Last SR) [Table 3] - Other investment (net): 1,239 (2014), 1,444 (2015), 808 (2016), -4,885 (2017), -4,893 (2018), -4,609 (2019), -3,877 (2020), -3,593 (2021), -4,011 (2022), -3,817 (Last SR) [Table 3] - Memorandum items: - Total external debt (percent of GDP): 108.9 (2014), 94.3 (2015), 98.0 (2016), 89.2 (2017), 99.4 (2018), 107.0 (2019), 113.3 (2020), 119.1 (2021), 124.8 (2022), 130.2 (Last SR) [Table 3] - Net international reserves, BOM (mill. of U.S. dollars): 3,868 (2014), 4,222 (2015), 4,654 (2016), 4,934 (2017), 5,331 (2018), 5,657 (2019), 5,772 (2020), 5,963 (2021), 6,062 (2022), 6,320 (Last SR) [Table 3] ### Banking sector and financial soundness - Deposit-taking sector and monetary aggregates (Table 4): - Money and quasi-money (M2, end period, millions of Rupees): 341,320 (2014), 368,020 (2015), 381,991 (2016), 400,153 (2017), 419,917 (2018), 449,338 (2019), 483,223 (2020), 519,158 (2021), 556,503 (2022), 596,534 (Last SR) [Table 4] - M3 plus nonbank holdings of government debt (L): 397,557 (2014), 437,999 (2015), 451,514 (2016), 477,789 (2017), 501,387 (2018), 536,516 (2019), 576,976 (2020), 619,882 (2021), 664,473 (2022), 712,271 (Last SR) [Table 4] - Financial soundness indicators (Table 5): - Regulatory capital to risk-weighted assets: 17.1 (2012), 17.3 (2013), 17.1 (Mar.), 18.4 (Jun.), 18.7 (Sep.), 18.2 (Dec.), 18.2 (2014), 18.2 (2015), 18.2 (2016) [Table 5] - Regulatory Tier I capital to risk-weighted assets: 15.5 (2012), 15.1 (2013), 15.1 (Mar.), 17.0 (Jun.), 17.2 (Sep.), 16.5 (Dec.), 16.6, 16.7 (2016) [Table 5] - Nonperforming loans (NPLs) to total gross loans: 3.6 (2012), 4.2 (2013), 4.9 (Mar.), 7.2 (Jun.), 7.8 (Sep.), 8.0 (Dec.), 8.0 (2014), 7.8 (2015), 7.8 (2016) [Table 5] - NPLs net of provisions to capital: 12.4 (2012), 12.7 (2013), 16.4 (Mar.), 19.1 (Jun.), 18.7 (Sep.), 18.6 (Dec.), 18.7 (2014–2016) [Table 5] - Liquid assets to total assets (liquid asset ratio): 19.1 (2012), 22.5 (2013), 24.1 (Mar.), 27.1 (Jun.), 27.4 (Sep.), 27.9 (Dec.), 28.3 (2014), 27.9 (2015), 27.9 (2016) [Table 5] - Foreign-currency-denominated loans to total loans: 56.5 (2012), 55.9 (2013), 58.8 (Mar.), 55.9 (Jun.), 54.9 (Sep.), 54.8 (Dec.), 54.8 (2014), 56.4 (2015), 56.4 (2016) [Table 5] - Return on assets: 1.4 (2012), 1.3 (2013), 1.4 (Mar.), 1.2 (Jun.), 1.4 (Sep.), 1.4 (Dec.), 1.5 (2014), 1.5 (2015), 1.5 (2016) [Table 5] *Sources: Mauritian authorities; Bank of Mauritius; Ministry of Finance and Development; and IMF staff estimates and projections.* ### Annex I. Risk Assessment Matrix ### cr17362 - Annex I. Risk Assessment Matrix ### Risk Assessment Matrix — key risks, likelihood, impact, and policy responses - Business model risk. - Relative Likelihood: High - Impact: High - Key statistics: GBC sector represents about 5 percent of GDP; licensing fees amount to 1 percent of GDP. - Policy Response: Adopt diversification strategy, identify additional sources of tax revenue, accelerate adoption of FSAP recommendations to mitigate risks to the banking sector. - Increased political instability. - Relative Likelihood: Low - Impact: High - Policy Response: Strengthen the AML/CFT framework. Foster the independence of institutions. Adopt a national anti-corruption strategy. - Pace of implementation of the PIP. - Description: A double-sided risk dependent on the adoption of the Public Investment Management reforms, and the capability of scaling up the execution of the capital budget. - Relative Likelihood: Low - Impact: Medium - Policy Response: Tighten monetary policy if faster execution. Accelerate adoption of Public Investment Management reforms if lower execution. - Retreat from cross-border integration. - Relative Likelihood: High - Impact: Medium - Description: Fraying consensus about benefits of globalization could lead to protectionism, reduced global and regional policy collaboration, and negative consequences for trade, capital and labor flows, sentiment, and growth. - Policy Response: Adopt labor market reforms, and accelerate infrastructure investments to improve competitiveness. Allow greater exchange rate flexibility. - Policy and geopolitical uncertainties. - Relative Likelihood: High - Impact: High - Context note: Two-sided risks to U.S. growth; uncertainty associated with negotiating post-Brexit arrangements; evolving political processes, including elections in several large advanced and emerging market economies. The EU and UK are Mauritius first and second largest trading partner. - Policy Response: Adopt labor market reforms, and accelerate infrastructure investments to improve competitiveness. Accelerate the Africa Strategy. Allow the exchange rate to play a shock absorbing role. - Financial conditions (global rates, Fed normalization, ECB tapering). - Relative Likelihood: High - Impact: Medium - Description: Higher debt service and refinancing risks could stress leveraged firms, households, and vulnerable sovereigns; adjustments could be disruptive if there are policy surprises. - Policy Response: Accelerate adoption of FSAP recommendations to mitigate risks to the banking sector, allow greater exchange rate flexibility. - Reduced financial services by correspondent banks ("de-risking"). - Relative Likelihood: Medium - Impact: Medium - Policy Response: Strengthen AML/CFT regulations. Strengthen risk management and internal controls at smaller banks. - Weaker-than-expected global growth / Significant slowdown in other large EMs/frontier economies. - Relative Likelihood: Medium - Impact: Low - Policy Response: Adopt labor market reforms and accelerate infrastructure investments to improve competitiveness, allow greater exchange rate flexibility. - Structurally weak growth in key advanced and emerging economies. - Relative Likelihood: High/Medium - Impact: Medium - Description: Low productivity growth (U.S., the Euro Area, and Japan), failure to fully address crisis legacies and undertake structural reforms, and persistently low inflation (the Euro Area, and Japan) undermine medium-term growth in advanced economies. - Policy Response: (As above under competitiveness and exchange rate flexibility.) ### Public Sector Debt Sustainability Analysis — summary of findings and vulnerabilities - Overall assessment: - Public debt remains sustainable under the baseline scenario, but is likely to exceed 60 percent of GDP over the medium term, and some vulnerabilities are emerging. - Compared to the last DSA, debt profile risks related to the share of public debt held by non-residents are slightly elevated. - Public gross financing needs are more vulnerable to growth, real interest rate and primary balance shocks. - A combined macro fiscal shock would see a sustained divergence of public sector debt dynamics from the baseline scenario. - Policy implication: The path to achieving the recently-revised debt target is fragile; authorities should maintain a prudent and disciplined medium-term fiscal policy. - Background and recent debt developments: - The last DSA (Country Report 16/89, February 2016) showed a moderately deteriorating, but manageable, debt outlook. - Public-sector debt-GDP ratio: 65.6 percent of GDP at the end of FY2016/17, compared with 65.7 percent of GDP at the same time in 2015 and 62.9 percent at end-December 2014. - Major policy changes would be needed to achieve the recently-revised public debt target (60 percent of GDP by June 20, 2021). - Mauritius accesses local and foreign capital markets with ease; external public debt represents about a quarter of the total. - Most recent auction for 10-year bonds took place in January 2017, with a spread over US 10-year Treasury bonds of about 275 basis points. - Interest payments stood at about 12 percent of domestic revenues at end FY2016/17. - Public DSA Risk Assessment: - None of the upper early warning thresholds of the risk assessment benchmarks are breached. - Risks associated with exposure to public debt held by non-residents have increased compared to the last DSA. - Realism of the Baseline Scenario — key baseline assumptions: - Growth: Real output growth is expected to maintain a steady pace over the forecast horizon, averaging 4 percent over the medium term. - GDP deflator and consumer prices: The deflator is expected to average about 3 percent over the medium term, while consumer prices are likely to average about 4 percent over the forecast horizon. - Fiscal strategy: The primary deficit (excluding grants) is expected to narrow, from an estimated 1.6 percent of GDP in 2016/17 to 0.5 percent of GDP in 2021/22. - Current Account: The current account deficit is expected to average 6 percent of GDP over the medium term. - Baseline Scenario projections: - Public financing needs are predicated on the FY2017/18 budget and authorities’ medium-term fiscal and debt management strategy. - New debt issuances are assumed to principally consist of domestic debt; medium-to-long term debt will continue to form the largest share of the debt stock. - Debt will continue to be principally denominated in local-currency. - Public debt-to-GDP ratio is expected to reach its peak of about 67.5 percent of GDP in 2019/20, thereafter declining gradually to about 63 percent of GDP in 2022/23. - The gradual decline in the debt to GDP ratio is expected to come principally from real GDP growth, while principal debt creating flows are the primary deficit, real interest rates, and other flows. - Stress Tests and distribution of risks — standardized scenarios and outcomes: - Growth shock: - Scenario: Real output growth lower than the baseline by one standard deviation for 2 years starting in 2018. - Outcome: Public debt level would remain at an elevated level (about 66 percent of GDP) over the medium term. - Public gross financing needs: Would remain above 15 percent of GDP. - Real interest rate shock: - Scenario: Increase in sovereign risk premia by more than 200 basis-points starting in 2018. - Outcome: Public-sector debt level and public gross financing needs would peak in 2022 at about 67 and 17 percent of GDP respectively. - Primary balance shock: - Scenario: Deterioration in the primary balance of about a cumulative 1.4 percent of GDP over the period 2018-19. - Outcome: Relatively mild effects on the public-debt level compared to the growth and interest rate shocks; public debt level would remain higher than in the baseline by the end of the forecast horizon. Public gross financing needs would also remain at an elevated level. - Combined macro-fiscal shock: - Scenario: Combination of the above three shocks into a single scenario. - Outcome: Sustained divergence from the baseline, reaching about 71 percent of GDP in 2022. Ratios of public debt to revenue and public gross financing needs would remain elevated over the medium term. - Distribution of risks (Fan Charts): Indicates that the public debt level is likely to remain at an elevated, yet stable, level over the forecast horizon. - Conclusion — policy priorities and vulnerabilities: - Mauritius’ public-sector debt level, while sustainable, is likely to remain at an elevated level over the medium term, with vulnerabilities emerging in some areas. - Debt will likely exceed 60 percent of GDP over the medium term; debt profile risks are emerging, notably regarding the proportion of public debt held by non-residents. - Public gross financing needs are susceptible to shocks to growth, interest rates, the primary balance, and a combined macro shock scenario. - Policy implication: Maintain prudent and disciplined medium-term fiscal policy to strengthen credibility of the revised debt target. *Annex I. Risk Assessment Matrix and Annex II. Public Sector Debt Sustainability Analysis — IMF staff summary from cr17362.* ### 11. The debt sustainability outlook relies on adopting a fiscal stance that will put the ### 11. The debt sustainability outlook relies on adopting a fiscal stance that will put the public debt ratio on a credible path to meeting the debt target. A prudent and disciplined medium-term focus for fiscal policy should be adopted to ensure that the recently-revised debt target remains credible, and to contain potential downside risks to the debt outlook. ### Public DSA risk assessment and heat map - Gross financing needs benchmark and stress thresholds used: - gross financing needs benchmark: 15% - bond spread shocks: 200 and 600 basis points - external financing requirement shocks: 5 and 15 percent of GDP - change in share of short-term debt shocks: 0.5 and 1 percent - public debt held by non-residents shocks: 15 and 45 percent - share of foreign-currency denominated debt shocks: 20 and 60 percent - Indicators presented (2016) and highlighting rules: - debt burden benchmark: 70% - cells highlighted green/yellow/red/white based on benchmark exceedance or relevance ### Evolution of public debt predictive densities and realism of baseline assumptions - Predictive density percentiles presented for 2015–2022: 10th-25th, 25th-75th, 75th-90th with Baseline - Forecast track record (2008–2016) versus all countries: - Real GDP growth median forecast error for Mauritius: -0.81 (percent), percentile rank: 37% - Primary balance median forecast error for Mauritius: -0.38 (percent of GDP), percentile rank: 47% - Inflation (Deflator) median forecast error for Mauritius: -2.68 (percent), percentile rank: 2% - Assessing projected fiscal adjustment (CAPB): - 3-year CAPB adjustment percentile rank: 44% - 3-year average CAPB level percentile rank: 70% ### Public Sector DSA — Baseline scenario (as of November 24, 2015) - Nominal gross public debt (in percent of GDP): - 2015: 58.9 - 2016: 68.0 - 2017: 67.2 - 2018: 67.2 - 2019: 67.2 - 2020: 67.5 - 2021: 66.1 - 2022: 65.0 (note: table shows 63.8 at end of series in one place) - Public gross financing needs (in percent of GDP): - 2015: 14.7 - 2016: 9.7 - 2017: 9.3 - 2018: 9.7 - 2019: 11.8 - 2020: 13.2 - 2021: 12.3 - 2022: 14.1 - Net public debt equals nominal gross public debt (same series) - Real GDP growth (in percent): - 2015: 4.1 - 2016: 3.5 - 2017–2022: 3.9, 3.9, 4.0, 4.1, 4.1, 4.1 (table lists year-by-year) - Inflation (GDP deflator, in percent): - 2015: 3.9 - 2016: 0.9 - 2017–2022: 3.0, 1.0, 2.9, 3.3, 3.2, 3.0, 3.0 (as per table) - Nominal GDP growth (in percent): 8.2 (2015), 4.5 (2016), 7.0 (2017), 4.9 (2018), 7.0 (2019), 7.5 (2020), 7.4 (2021), 7.2 (2022) - Effective interest rate (in percent): - 2015: 6.2 - 2016: 4.2 - 2017: 4.0 - 2018: 3.5 - 2019: 5.9 - 2020: 9.2 - 2021: 2.9 - 2022: 5.0 (table shows 4.8 in some entries) - Cumulative change in gross public sector debt over 2015–2022: -3.3 (percent of GDP) - Identified debt-creating flows (selected items, in percent of GDP): - Primary deficit (2015–2022 sequence): -0.4, 1.3, 1.0, 0.9, 0.6, 0.3, 0.3, 0.2, 2.5 (cumulative) - Primary (noninterest) revenue and grants (2015–2022 cumulative 39.2): annual series e.g., 20.9 (2015), 21.8 (2016), 21.7 (2017)... - Primary (noninterest) expenditure (2015–2022 cumulative 41.7): annual series e.g., 20.6 (2015), 23.1 (2016), 22.7 (2017)... - Automatic debt dynamics (cumulative contribution over 2015–2022): -6.2 (percent of GDP) - Interest rate/growth differential (same values as automatic dynamics) - Real interest rate contribution examples: 1.1 (2015), 1.9 (2016), 0.6 (2017), 1.6 (2018)... - Real GDP growth contribution examples: -2.2 (2015), -2.1 (2016), -2.5 (2017)... - Other identified debt-creating flows (cumulative 3.9) - Net acquisition of financial assets (cumulative 4.6) - Residual, including asset changes (cumulative -3.5) ### Composition of public debt and alternative scenarios - Baseline underlying assumptions (selected): - Real GDP growth (2017–2022): 3.9, 4.0, 4.1, 4.1, 4.1, 4.1 - Inflation (2017–2022): 1.0, 2.9, 3.3, 3.2, 3.0, 3.0 - Primary balance (2017–2022 baseline): -0.9, -0.6, -0.3, -0.3, -0.2, -0.2 - Effective interest rate (2017–2022 baseline): 3.5, 5.9, 9.2, 2.9, 5.0, 4.8 - Alternative scenarios shown: - Historical scenario with Primary Balance shifting to -0.9 (2017) then 0.2 thereafter - Constant Primary Balance Scenario with Primary Balance = -0.9 across 2017–2022 - Composition charts include: - Net debt (percent of GDP) trends 2015–2022 - Gross nominal public debt (percent of GDP) projection series - Public gross financing needs (percent of GDP) projections - By maturity: medium and long-term vs. short-term (percent of GDP) over 2006–2022 - By currency: local currency-denominated vs. foreign currency-denominated (percent of GDP) over 2006–2022 ### Stress tests — public DSA - Macro-fiscal stress tests include: - Primary Balance Shock, Real GDP Growth Shock, Real Interest Rate Shock, Real Exchange Rate Shock, Combined Shock, Combined Macro-Fiscal Shock - Selected underlying assumptions and outcomes (2017–2022): - Baseline real GDP growth: 3.9, 4.0, 4.1, 4.1, 4.1, 4.1 - Baseline inflation: 1.0, 2.9, 3.3, 3.2, 3.0, 3.0 - Baseline primary balance: -0.9, -1.3, -1.0, -0.3, -0.2, -0.2 (Primary Balance Shock panel shows shock path) - Example Real GDP Growth Shock path (2017–2022): 3.9, 3.0, 3.1, 4.1, 4.1, 4.1 - Example Real Interest Rate Shock effective interest rates (2017–2022): 3.5, 5.9, 6.4, 7.1, 7.7, 8.2 - Example Real Exchange Rate Shock inflation path shows 7.3 in one year (2018) under that shock - Stress test outputs (selected ranges shown in figures): - Gross Nominal Public Debt (in percent of GDP) under shocks for 2017–2022: e.g., ranges shown from about 60 to 72 percent across scenarios - Gross Nominal Public Debt (in percent of Revenue) and Public Gross Financing Needs (in percent of GDP) show stress increases under adverse scenarios ### External Debt Sustainability Analysis (Annex III) — summary and conclusions - Total external debt stock (including banking sector liabilities) and key figures: - Total Gross External Debt ($US Millions): 10,700.9 - Total Gross External Debt (percent of GDP): 89.2 - Total Gross External Debt without banking sector liabilities ($US Millions): 2,606.9; percent of GDP: 21.7 - Public external debt ($US Millions): 1,780.7; percent of GDP: 14.8 - central government: $US Millions 1,434.0; 12.0 percent of GDP - multilateral: $US Millions 961.5; 8.0 percent of GDP - bilateral: $US Millions 469.9; 3.9 percent of GDP - other lenders: $US Millions 2.6; 0.02 percent of GDP - Private external debt ($US Millions): 8,920.2; percent of GDP: 74.4 - Recent dynamics and medium-term projections: - Total external debt including banking sector liabilities fell from 101.9 percent of GDP at end-2013 to 89.2 percent of GDP at end-2016 - Over the forecast horizon, external debt is expected to rise to about 116 percent of GDP (total external debt) - Public-sector external debt is expected to decline over the same period as new public issuances tilt towards the domestic market - Treatment of banking sector liabilities: - External DSA excludes banking sector liabilities (standard practice for financial centers where banking liabilities are more than matched by assets) - External stress-test sensitivity: - A minus one-half standard deviation shock to the baseline non-interest current account in projection years would leave the external debt ratio 6 percentage points higher than the baseline by 2022 - A one-time 30 percent currency depreciation in 2018 would leave the external debt to GDP ratio 11 percentage points higher than the baseline by 2022 - Shocks to interest rates and growth, and a combined macroeconomic shock, have more limited implications; combined shock implies a slight increase in the external debt ratio in the medium term - Table 1 (External DSA Framework, 2012–2022) selected entries: - Baseline external debt (percent of GDP): 2012: 22.6; 2013: 24.8; 2014: 23.6; 2015: 24.0; 2016: 21.7; 2017: 23.5; 2018: 23.3; 2019: 25.7; 2020: 27.3; 2021: 26.5; 2022: 25.7 - Change in external debt (percent of GDP): e.g., 2016: -2.3; 2017: 1.9; 2018: -0.3; 2019: 2.4; 2020: 1.6; 2021: -0.8; 2022: -0.8 - Current account deficit, excluding interest payments (percent of GDP): 2012: 7.0; 2013: 6.0; 2014: 5.3; 2015: 4.6; 2016: 4.2; 2017: 6.5; 2018: 5.7; 2019: 7.9; 2020: 7.9; 2021: 4.6; 2022: 2.8 - External debt-to-exports ratio (percent): 2012: 42.8; 2013: 52.4; 2014: 47.4; 2015: 50.0; 2016: 49.9; 2017: 51.7; 2018: 50.1; 2019: 54.7; 2020: 57.3; 2021: 54.6; 2022: 52.2 - Gross external financing need (in billions of US dollars): 2012: 2.7; 2013: 3.8; 2014: 3.9; 2015: 4.3; 2016: 4.2; 2017: 5.7; 2018: 6.4; 2019: 7.5; 2020: 8.4; 2021: 8.9; 2022: 9.6 - Gross external financing need (in percent of GDP): 2012: 23.9; 2013: 31.8; 2014: 30.8; 2015: 37.7; 2016: 34.8; 2017–2022 show 10-Year and other summary statistics in table - Key macroeconomic assumptions underlying the baseline (selected): - Real GDP growth (percent): 2012: 3.2; 2013: 3.2; 2014: 3.6; 2015: 3.5; 2016: 3.8; 2017: 4.0; 2018: 3.9; 2019–2022: 4.0, 4.1, 4.1, 4.1 - GDP deflator in US dollars (change in percent): 2012: -1.5; 2013: 1.0; 2014: 2.0; 2015: -11.8; 2016: 0.7; 2017: 2.3; 2018: 9.2; 2019: -4.6; 2020–2022 near 0.9–1.2 - Nominal external interest rate (percent): 2012: 1.2; 2013: 1.2; 2014: 1.4; 2015: 1.1; 2016: 1.1; 2017: 1.6; 2018: 0.7; 2019: 2.4; 2020–2022 roughly 2.7–1.8 - Growth of exports (US$ terms, percent): 2012: 3.8; 2013: -6.8; 2014: 11.4; 2015: -12.1; 2016: -5.4; 2017: 3.4; 2018: 12.5; 2019–2022 series includes 3.8, 5.8, 6.2, 6.9, 7.1, 7.0 - Growth of imports (US$ terms, percent): 2012: 2.2; 2013: -2.7; 2014: 7.0; 2015: -13.9; 2016: -4.4; 2017: 4.1; 2018: 14.4; 2019–2022 includes 10.4, 3.7, 10.0, 6.3, 1.3, 7.1 - Current account balance, excluding interest payments (percent of GDP): 2012: -7.0; 2013: -6.0; 2014: -5.3; 2015: -4.6; 2016: -4.2; 2017: -7.3; 2018: -3.0; 2019: -6.5; 2020: -5.7; 2021: -7.9; 2022: -4.6; later: -2.8 - Concluding assessment: - Mauritius’ external debt is sustainable but vulnerable to large exogenous shocks - With external public sector debt declining over the medium term, total external debt stock (excluding banking liabilities) is expected to remain relatively stable over the forecast horizon - Vulnerabilities to non-interest current account shocks and real depreciation underscore the importance of reforms to bolster international competitiveness, support the current account balance, and limit exposure to external foreign currency borrowing *Source: IMF staff (cr17362).* ### Annex IV. External Stability Assessment ### Annex IV. External Stability Assessment ### A. Recent Balance of Payments Developments - The overall current account deficit narrowed from 4.9 percent of GDP in 2015 to an estimated 4.4 percent of GDP at end-2016. - Improvement driven largely by improved net services (chiefly tourism) and net income balances. - International reserves increased by about 6.3 percent of GDP throughout 2016. - The real effective exchange rate appreciated by about 1 percent in 2016. - Projections and medium-term outlook: - Current account expected to average about 6 percent of GDP over the medium term. - Fluctuations in the current account deficit expected to largely mirror movements in the balance of goods and services, with declining net income and net current transfers offset by increases in the net services balance. - International reserves expected to increase by about 21 percent in nominal terms over the medium term, but decline when expressed as months of imports (to about 8 months of goods and services imports). - International capital flows in 2016: - Overall capital and financial account increased from about 9 percent of GDP in 2015 to about 11 ½ percent of GDP at end-2016. - The GBC financial account constituted about three quarters of the overall financial account in 2016, driven chiefly by robust inward direct investment flows. - International Investment Position (IIP): - Official IIP data for end-2015 indicate Mauritius’ net asset position more than doubled throughout 2015. - Increase in international liabilities was outstripped by increase in cross-border asset holdings in 2015, chiefly due to higher direct and portfolio investment asset holdings by the GBC sector. - Preliminary authorities’ estimates indicate the net asset position also remained strong in 2016. ### B. External Balance Assessment - Methodology and applicability: - The EBA-lite methodology (CA model) and staff analysis suggest Mauritius’ external position at end-2016 was weaker than implied by medium-term fundamentals and desirable policy settings. - The External Sustainability (ES) approach was deemed inappropriate due to Mauritius’ status as a large OFC with large external asset and liability positions. - The Index of the Real Effective Exchange Rate approach was not used because results are characterized by high uncertainty (large residuals). - Optimal policies and policy gaps: - Policy stance at end-2016 with respect to international reserves and capital account openness considered appropriate and do not contribute to national policy gaps. - Optimal policy setting for the credit/GDP ratio is the estimated trend value for end of 2016 (gap of -6.5 percent of GDP). - Optimal fiscal stance at end-2016 set at a deficit of 1.6 percent of GDP. - CA model implications and REER assessment: - CA model implies a current account norm of -0.95 percent of GDP. - Estimated current account deficit (baseline) was 4.4 percent of GDP in 2016. - Using estimated current account elasticities, this implies an REER gap of about 10 percent. - The REER gap is up slightly from last year’s estimate and may reflect in part the growing disconnect between wages and productivity and associated cost competitiveness concerns. - Risk from GBC sector: - Assessment subject to downside risks from the changing nature of the GBC business. - Illustrative exercise: excluding GBC-related flows from the current account balance would imply a higher overvaluation of the REER and a substantially weaker external position. - Table 1: Exchange Rate Assessment – EBA Lite (Percent) - Real Exchange Rate Gap - Current Account Approach (baseline): 10.0 - Current Account Approach (exc. GBC flows): 27.6 - Current Account - Estimated Current Account Deficit (baseline): 4.4 - Estimated Current Account Deficit (exc. GBC flows): 9.3 - Current Account Norm: -0.95 - Current Account Gap: -3.5 - Current Account Elasticity: -0.4 ### C. Reserve Adequacy Assessment - Reserve adequacy metric: - Standard IMF reserve adequacy metric augmented to account for Mauritius’ exposure to risks stemming from the GBC sector. - Augmentation includes the portion of GBC deposits held in small and medium-size banks (net of liquid assets) to capture financial sector vulnerabilities associated with disruptions to foreign currency funding and considers liquidity of commercial banks’ foreign currency assets. - End-2016 assessment: - Per the adjusted metric, international reserves at end-2016 were inside the advisable range of international reserves. - Accounting for risks stemming from GBC deposits at small and medium-size banks, the level of international reserves at the end of 2016 stood at about 115 percent of the adjusted metric. - This level is significantly higher than in the last assessment and inside the advisable range of international reserves. - Since end-2016, international reserves have risen further. - Data and caveats: - 2016 data on GBC deposits and the IIP was unavailable; the adjusted metric for 2016 uses end-2015 data on GBC deposits and projections of GBC’s other liabilities. *Source: IMF staff estimates and country authorities as reported in Annex IV. External Stability Assessment.* ### References ### CR17362 - References ### Key references cited - Dudine, Paolo and Joao Tovar Jalles. (Forthcoming). How Buoyant is the Tax System? IMF Working Paper. - Haughton, Jonathan. (1998). Estimating Tax Buoyancy, Elasticity, and Stability. Discussion Paper No. 11. African Economic Policy Paper. United States Agency for International Development. - IMF. (2011). Mauritius: Revenue Administration: “Challenging the Future”. Fiscal Affairs Department Technical Assistance Report. - Jalle, Joao Tovar. (2017). Tax Buoyancy in Sub-Saharan Africa: An Empirical Exploration. African Development Review, Vol. 29, No. 1, 1-15. - OECD. (2010). Tax Policy Reform and Economic Growth. OECD Publishing. - Tanzi, Vito and Wowell Zee. (2001). Tax Policy for Developing Countries. IMF Economic Issues No. 27. ### Tax efficiency indicators (figure annotations and observations) - Historically, tax Revenue has tended to grow in line with GDP. - The tax burden has shifted gradually to consumption-based taxation. - Average CIT Productivity is below other MICs and other SMICs in SSA. - Average CIT Productivity and CIT tax expenditures: time series presented spanning 1990–2015; tax expenditures are reported as percent of GDP. - VAT indicators: - VAT C-efficiency is lower than peers’. - Chart elements: VAT C-Efficiency (left scale) and VAT Rate (right scale) for 2015 (or latest year available). - Mauritius: Composition of Tax Revenue (Percent of GDP) presented by periods 76-80, 81-85, 86-90, 91-95, 96-00, 01-05, 06-10, 11-15 with components: PIT, CIT, Excises, VAT, Gambling, Customs, Other. ### Relations with the Fund — institutional and financial position (as of October 30, 2017) - Membership Status: Joined: September 23, 1968; Article VIII. - General Resources Account: - Quota: 142.20 (SDR Million) 100.00 percent of quota. - Fund holdings of currency (Exchange Rate): 117.06 (SDR Million) 82.32 percent of quota. - Reserve Tranche Position: 25.15 (SDR Million) 17.69 percent of quota. - SDR Department: - Net cumulative allocation: 96.81 (SDR Million) 100.00 percent of allocation. - Holdings: 89.90 (SDR Million) 92.86 percent of allocation. - Outstanding Purchases and Loans: None. - Latest Financial Arrangements (historic): - Stand-By Mar 01, 1985 – Aug 31, 1986: Amount Approved 49.00 (SDR Million); Amount Drawn 49.00 (SDR Million). - Stand-By May 18, 1983 – Aug 17, 1984: Amount Approved 49.50 (SDR Million); Amount Drawn 49.50 (SDR Million). - Stand-By Dec 21, 1981 – Dec 20, 1982: Amount Approved 30.00 (SDR Million); Amount Drawn 30.00 (SDR Million). - Overdue Obligations and Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs): - Charges/Interest forthcoming: 2017: 0.02; 2018: 0.04; 2019: 0.04; 2020: 0.04; 2021: 0.04. - Total forthcoming: 2017: 0.02; 2018: 0.04; 2019: 0.04; 2020: 0.04; 2021: 0.04. - Implementation of HIPC, MDRI, CCR: Not Applicable. ### Exchange rate arrangement and recent policy action - De jure exchange rate arrangement: classified as floating. - De facto exchange rate arrangement: classified as floating. - Mauritius has accepted the obligations of Article VIII, Section 2, 3, and 4. - Exchange Rate Support Scheme (ERSS): - Introduced on September 11, 2017. - Purpose: provide a temporary subsidy to exporters in light of the depreciation of the US dollar. - Subsidy determination: difference between a reference rate (US$1 = MUR 34.50) and the rate at which the exporter has exchanged its export proceeds at its commercial bank, subject to a maximum of MUR 2.50 per dollar. - Scheme duration: six months. - Administered by: Ministry of Industry, Commerce and Consumer Protection. - The ERSS gives rise to an MCP under Article VIII, Section 3. - Exchange system: free of multiple currency practices and restrictions on payments and transfers for current international transactions. - Capital account: liberal. - Central bank interventions: Mauritius continues to intervene in the foreign exchange market to smooth excess volatility. - Reference exchange rate: On August 25, 2017, US$1 was equivalent to MUR 34.1. ### Article IV consultation and mission cycle - Article IV Consultation: Mauritius is on the standard 12-month cycle. - Last Article IV consultation completion by Executive Board: February 16, 2016 (Country Report No. 16/89, March, 2016). - Upcoming IMF work program items referenced in JMAP: 2018 Article IV consultation (September 2018) and Board meeting in November 2018. ### Technical assistance (2006–2017) — highlights by IMF department and AFRITAC South - AFRITAC South notable inputs (selected): - Updating the Finance & Audit Act (2008) and drafting revised underlying financial regulations, February 2012. - Multi-topic mission on PFM Legal framework and developing a new PFM Act, May/June 2012. - Implementation of Basel III, September 2012. - Fiscal Legal Framework, September 2012. - Revenue mobilization and Tax Administration Act finalization, February/March 2013. - Customs Law, January/February 2014. - Inflation Targeting, August 2014. - Forecasting and Policy Analysis Systems, 2015 – Ongoing. - Modeling and Forecasting missions: October 2016 and March 2017. - FAD (Fiscal Affairs Department) inputs: - Fiscal adjustment strategy and PSIA, February-March 2006. - PFM and MTEF, March 2007. - Implementing Program-Based Budgeting: February 2008; refinements in September 2009 and September 2010. - PEFA, November 2010. - Revenue administration, June 2011. - Public Investment Management Assessment (PIMA), November-December 2016. - Tax Administration Diagnostic Assessment (TADAT), August/September 2017. - LEG (Legal) inputs: - AML/CFT missions: July 2011; February 2012. - Central banking legislation: February 2012. - Monetary Policy Framework and Central Bank Act: June 2013. - Legal Reform on Central Banking, Banking Supervision, Crisis Management and Resolution, Deposit Insurance and Payments Systems: September 2017. - MCM/MFD (Monetary and Capital Markets / Monetary and Financial Department) inputs: - Financial sector policy and strategy: missions in 2006, 2007. - Financial Sector Assessment Program (FSAP): February 2007 and November 2015. - Liquidity and Debt management and Secondary Market Development: December 2012. - Monetary Policy Implementation: May/June 2013. - Bank Resolution and Crisis Management: March 2017. - STA (Statistics) inputs: - Multisector statistics, November 2006; national accounts statistics, February 2008. - Extensive balance of payments, monetary, government finance, price, and national accounts assistance through 2017. - Residential Property Price Index mission, March 2017. - Resident Representative: None. ### JMAP Bank–Fund coordination and World Bank/IFC activities - JMAP coordination meeting: IMF and World Bank teams met in August (year implied within document). - IMF work program areas: Article IV consultation, technical assistance in public financial management, tax administration, economic forecasting (AFRITAC South), financial sector stability and macroprudential frameworks (MCM), and macroeconomic statistics (STA). - World Bank Country Partnership Framework (CPF) FY2017/21 priorities: - Increasing competitiveness (regional trade and investment, Ocean Economy). - Fostering inclusion (education reforms, public pension policy). - Bolstering resilience and sustainability (water supply management, financial sector governance). - World Bank assistance highlights: - Water Sector ASA (Bank) and transaction advisory (IFC) ongoing FY17/18. - Development Policy Loan (DPL) series supporting Accelerated Program for Economic Integration (APEI) — timing TBC with expected delivery April 2018. - Ocean Economy report — expected delivery September 2017. - ASA on inequality and gender gaps ongoing FY17/18. - IFC interventions: - Support to banking sector access to long term funding. - Investing in regional private equity funds to increase regional integration. - Providing SMEs capacity building to improve SME lending and managerial literacy. - Water utility transaction advisory services. ### Statistical issues, data adequacy, and dissemination (as of December 1, 2017) - General assessment: Data provision is adequate for surveillance. - Improvements and ongoing work: - FSC started collecting quarterly data on GBCs to enhance BOP, international investment position, and MFS coverage and quality. - Other financial corporations to be covered by MFS in FY2017/18. - Statistics Mauritius introducing real estate price indices; AFRITAC South assisted with national accounts, price statistics, and a residential property price index. - Balance of Payments and IIP: Authorities reinforcing statistical framework; FSC quarterly data expected to improve quality and coverage. - Monetary and Financial Statistics: - BOM introduced SRFs for central bank and ODCs and began publishing data aligned to the Monetary and Financial Statistics Manual (MFSM) in International Financial Statistics and BOM publications. - Authorities broadening MFS coverage to Other Financial Corporations (OFC) and non-bank financial intermediaries representing about 90 percent of total assets of financial corporations. - Data standards: - Participant in the GDDS since September 2000. - Subscribed to Special Data Dissemination Standard (SDDS) on February 28, 2012. - Mauritius is the second Sub-Saharan African country to subscribe to the SDDS. - A data ROSC report was published in August 2008. ### Table of Common Indicators Required for Surveillance (selected entries, dates as reported) - Exchange Rates: Date of latest observation: September 2017; Date received: 10/2017; Frequency of data: D; Frequency of reporting: D; Frequency of publication: D. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation: September 2017; Date received: 10/2017; Frequency: M/M/M. - Reserve/Base Money: Date of latest observation: August 2017; Date received: 10/2017; Frequency: M/M/M. - Broad Money: Date of latest observation: August 2017; Date received: 10/2017; Frequency: M/M/M. - Central Bank Balance Sheet: Date of latest observation: July 2017; Date received: 10/2017; Frequency: M/M/M. - Consolidated Balance Sheet of the Banking System: Date of latest observation: August 2017; Date received: 10/2017; Frequency: M/M/M. - Interest Rates: Date of latest observation: August 2017; Date received: 10/2017; Frequency: M/M/M. - Consumer Price Index: Date of latest observation: September 2017; Date received: 10/2017; Frequency: M/M/M. - Revenue, Expenditure, Balance and Composition of Financing – General Government: Date of latest observation: Q4 FY16/17; Date received: 08/2017; Frequency: Q/Q/Q. - Exports and Imports of Goods and Services: Date of latest observation: Q2/2017; Date received: 09/2017; Frequency: Q/Q/Q. - External Current Account Balance: Date of latest observation: Q2/2017; Date received: 09/2017; Frequency: Q/Q/Q. - GDP/GNP: Date of latest observation: Q2/2017; Date received: 09/2017; Frequency: Q/Q/Q. - Gross External Debt: Date of latest observation: Q1/2017; Date received: 06/2017; Frequency: Q/Q/Q. - International Investment Position: Date of latest observation: Q4/2016; Date received: 09/2017; Frequency: Q/Q/Q. *Prepared from the IMF staff report informational annex content provided in the CR17362 References PDF.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17362.pdf_