## 1musea2022002

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### Estimates of the Debt Limit and Underlying Indicators
- Recent public debt evolution:
  - Public sector debt: around 64 percent of GDP (two years before FY2019/20) → around 85 percent of GDP in FY2019/20 → about 100 percent of GDP in FY2020/21.
  - Debt in FY2020/21 cited as 99.2 percent of GDP in summary text.
- Context:
  - Debt ceiling of 60 percent of GDP repealed in 2020 after activation of the escape clause.
  - Domestic revenue mobilization: around 22 percent of GDP in FY2020/21.
  - Recent large quasi-fiscal operations: BOM transfers to government around 4 and 13 percent of GDP in FY2019/20 and FY2020/21, respectively; SPV injection of Rs 80 billion (18 percent of FY2020/21 GDP).
- Methodology for recalibrating medium-term debt anchor:
  - Two-step approach:
    - Step 1: Estimate maximum sustainable debt limit (D*) using three methods: (i) fiscal fatigue (maximum primary balance / (r−g) under stress); (ii) debt-servicing capacity (ratio of interest expenses to revenues); (iii) maximum growth (debt level beyond which growth is negatively affected).
    - Step 2: Calibrate a debt anchor by deducting a safety margin (buffer) from estimated debt limit.
- Step 1 — estimated debt limits:
  - Fiscal fatigue approach:
    - Maximum feasible primary balance (PBmax): 2 percent of GDP.
    - Interest rate-growth differential (95th percentile, 2000-2019): 1.97 percent.
    - Implied debt limit: 101.4 percent of GDP.
    - Conservative alternative (maximum observed differential 2009): 74 percent of GDP.
  - Debt-servicing capacity approach:
    - Revenue-to-GDP ratio (FY2015/16–FY2018/19 average): 21.3 percent.
    - Effective interest rate on debt: 4.03 percent (less conservative); 4.50 percent (more conservative).
    - Debt-servicing capacity threshold (percent of revenue): 19.
    - Implied debt limit: 100.1 percent of GDP (less conservative); 90 percent of GDP (more conservative).
  - Maximum growth approach:
    - Output elasticity to public capital stock (α): 0.35.
    - Implied debt limit: 88.5 percent of GDP.
  - Summary ranges:
    - Less conservative scenario: estimated debt limits around 89 to 101 percent of GDP (average reported: 96.7 percent of GDP).
    - More conservative scenario: estimated debt limits around 75 to 90 percent of GDP (average reported: 84.3 percent of GDP).
- Step 2 — buffering to derive medium-term anchor:
  - Safety margin rationale: buffers of 7 to 15 percent of GDP common; default often 10 percent of GDP.
  - Adopted safety margin (buffer) for Mauritius: 15 percent of GDP (given recent large quasi-fiscal operations).
  - Resulting debt anchors after applying 15 percent buffer:
    - Less conservative scenario anchor: 86.7 percent of GDP.
    - More conservative scenario anchor: 74.3 percent of GDP.
  - Policy choice:
    - Average of scenarios yields proposed anchor: 80 percent of GDP.
    - Alternative risk-averse anchor: 74 percent of GDP (close to DSA risk threshold of 70 percent of GDP).
  - Note: proposed anchor (e.g., 80 percent of GDP) higher than repealed 60 percent of GDP.
- Transition/operational rules to reach anchor:
  - Current debt (FY2020/21): about 99.2 percent of GDP.
  - Suggested transition glidepath: deficit gradually declines from 7.6 percent of GDP in FY2021/22 to 3 percent of GDP in FY2026/27 and beyond.
  - Short-term operational rule candidates: overall balance and expenditure rules emphasized for simplicity and measurability.
  - Debt-stabilizing overall balance formula: OB = (−θ / (1+θ)) D.
    - For D = 80 percent of GDP and θ = 5.5 percent:
      - Instantaneous overall balance that stabilizes debt at the anchor: −4.2 percent of GDP.
      - A deficit target of −4.2 percent of GDP would not achieve convergence to the anchor within 30 years; smaller deficit needed for faster convergence.
  - Simulation tool: IMF Fiscal Affairs Department fiscal rules selection tool used to simulate overall balance floor and expenditure-to-GDP ceiling targeting convergence within no more than 10 years.
- Key quantitative markers (preserved exactly):
  - PBmax: 2 percent of GDP.
  - Interest rate-growth differential (95th percentile): 1.97 percent.
  - Revenue-to-GDP ratio (2015–2019 average): 21.3 percent.
  - Effective interest rate on debt: 4.03 percent; 4.50 percent.
  - Debt-servicing capacity threshold: 19.
  - α (output elasticity to public capital): 0.35.
  - Safety margin adopted: 15 percent of GDP.
  - Proposed medium-term anchor: 80 percent of GDP; alternative conservative anchor: 74 percent of GDP.
  - Proposed short-term deficit glidepath: 7.6 percent of GDP in FY2021/22 → 3 percent of GDP by FY2026/27.
  - Debt-stabilizing overall balance for 80 percent anchor and θ = 5.5 percent: −4.2 percent of GDP.
- Policy implications and recommendations:
  - Reinstate a medium-term debt ceiling; consider anchor at 80 percent of GDP (or 74 percent of GDP if more conservative).
  - Complement medium-term anchor with a short-term operational rule—preferably an overall balance ceiling around 3 percent of GDP in the medium term and/or an expenditure-to-GDP ceiling.
  - Adopt transition path with gradual decline in fiscal deficit (example: 7.6 percent → 3 percent of GDP by FY2026/27).
  - Continue debt sustainability assessment using IMF Debt Sustainability Assessment tools.
  - Explicitly account for quasi-fiscal operations and contingent liabilities when setting buffers and monitoring fiscal risks.

### Debt could be reduced towards the anchor (80 percent of GDP) by FY2024/25
- Key simulation findings:
  - Immediate adjustment of overall balance-to-GDP ratio to −3 percent starting in FY2022/23 would bring debt-to-GDP to the anchor (80 percent of GDP) in FY2024/25.
  - Alternatively, immediately adjusting total spending-to-GDP ratio to 27 percent starting in FY2022/23 would also bring debt-to-GDP to the anchor in FY2024/25.
  - Under both immediate-adjustment rules, real GDP growth would be lower than without the rules in the first years.
  - Baseline (no rule) scenario: debt-to-GDP would remain at around 85 percent.
  - Both immediate-adjustment scenarios likely unrealistic because they require a large and frontloaded adjustment.
- Simulation assumptions and technical parameters:
  - Simulation horizon: 15 years.
  - Simplifying assumptions:
    - (i) Effective average interest rate on debt remains the same as in the baseline.
    - (ii) All rules implemented by adjusting primary spending only.
    - (iii) Adjustment in primary spending affects GDP through instantaneous and lagged multipliers.
  - Primary spending multiplier assumptions:
    - 0.5 contemporaneously.
    - 0.1 one year after the adjustment.
  - Revenue and primary spending elasticities to output:
    - revenue elasticity = 1.
    - primary spending elasticity = 0.
- Gradual adjustment scenario and timing trade-offs:
  - Gradual adjustment allows convergence while better safeguarding growth.
  - Considered gradual scenario: fiscal deficit converges from 7.6 percent of GDP in 2021 to around 3 percent of GDP in FY2026/27 and beyond.
  - Under gradual scenario, debt ratio reaches medium-term anchor two years later, in FY2026/27.
- Improving enforceability — operational and institutional measures:
  - Reinstate medium-term debt anchor strengthened by a binding short-term operational rule (ceiling on overall balance as percent of GDP).
  - Calibrated ceiling discussed: overall deficit ceiling of 3 percent of GDP as operational rule reference.
  - Design choices:
    - Whether deficit target should be binding every fiscal year or met on average across two or three years for flexibility.
    - Operational rule expected to be binding in short term while medium-term anchor allows temporary deviations.
  - Complementary reforms:
    - Commit to credible medium-term fiscal framework and compliance.
    - Consider creating independent fiscal council to monitor the rule.
    - Introduce well-designed escape clauses: detailed, limited, with guidance on returning to anchor.
    - Note on past escape clause weakness: repealed rule’s escape clause was vague, frequently activated, lacking return guidance.
  - International context: almost 10 percent of countries with rules-based frameworks have a debt rule without an operational rule, while 15 percent have an operational rule without a debt rule (Eyraud and others 2018).
- Conclusion and recommendations:
  - Room to revise up medium-term debt anchor to up to 80 percent of GDP while safeguarding sustainability.
  - To reduce current debt of 99.2 percent of GDP (FY2020/21) toward 80 percent, adopt operational rule: overall deficit ceiling of 3 percent of GDP.
  - To mitigate growth effects, allow transition period with gradual deficit decline to 3 percent by FY2026/27 (debt reaches anchor in FY2026/27).
  - Continue DSA-based risk assessments regardless of anchor status.

### Financing gap for climate targets and access to climate finance
- Financing gap to meet Mauritius’ 2030 adaptation and mitigation targets:
  - Total financing gap: 1.6 percent of GDP per year by 2030 (around USD 180 million per year).
  - Breakdown:
    - Adaptation: 0.9 percent of GDP.
    - Mitigation: 0.7 percent of GDP.
  - Current assumption: actual climate change expenditure remains constant at 2 percent of GDP through FY2029/30 (reference: nominal GDP in FY2017/18).
  - Historical public environment expenditure: Rs10.3 billion (2.16 percent of GDP) in FY2017/18.
- Role of global climate funds and recent flows:
  - Climate Funds Update tracked 27 climate funds as of January 2022.
  - Approvals to several countries: USD 3.5 billion in 2020; USD 3.7 billion in 2021.
  - Actual disbursements: USD 345 million in 2020; USD 84 million in 2021.
  - Mauritius approvals during 2008-20 totaled USD 58 million (grants); only half disbursed.
  - Disbursement bias: despite higher adaptation needs in Mauritius’ NDC, disbursed funds skewed toward mitigation.
- Climate funds access modalities and accreditation:
  - Most disbursements to Mauritius during 2008-20 were through indirect access (implementing agencies were non-government multilateral agencies).
  - To broaden direct access, Mauritius could pursue accreditation by climate funds; accreditation requires track record in planning, appraisal, execution, reporting; process is lengthy and complex.
  - Country examples:
    - Ministry of Environment, Solid Waste Management and Climate Change: in process of becoming accredited as National Implementing Entity under the Adaptation Fund.
    - Mauritius Renewable Energy Agency: interest in accreditation as Direct Access Entity under the Green Climate Fund.
- Climate- and environment-related bonds:
  - Green and blue sovereign bonds can mobilize financing and include features to address debt service shocks.
  - Examples:
    - Fiji: USD 50 million sovereign green bond in 2017.
    - Barbados and Grenada: sovereign bonds with natural disaster clauses (Barbados clause: immediate 2-year suspension of debt-servicing upon independent declaration of a natural disaster; bond maturity automatically extended for two years).
    - Seychelles: USD 15 million sovereign blue bond in 2018.
  - Mauritius regulatory developments:
    - Financial Services Commission of Mauritius: Guidelines for the issue of Corporate and Green Bonds in December 2021.
    - Bank of Mauritius: Guide to Sustainable Bond Issuance in June 2021.
  - Status: green bond frameworks relatively new (last released December 2021); green and blue bond market in Mauritius at early stage.
- Public investment management (PIM) and climate readiness:
  - Mauritius participated in 2021 pilot Climate Change Public Investment Management Assessment (Climate PIMA); PIM practices need strengthening across planning, allocation, implementation.
  - Gaps identified:
    - Lack of central/subnational regulations, land-use, or building codes addressing climate concerns.
    - Appraisal methodologies for large infrastructure projects not standardized/published and lack climate provisions.
    - No climate-specific selection criteria; climate-related outputs/outcomes not clearly identified, monitored, or reported.
    - Ex-post reviews not systematic except for externally financed projects.
    - Methodologies for estimating maintenance needs do not address climate change impact.
    - National Disaster Risk Management Strategy (NDRMS) does not estimate climate change impact on infrastructure assets nor include mitigation/response plan.
    - Budgetary treatment: relatively small contingency allocation for natural disaster impacts; absence of published fiscal risk analysis.
- Recommended reforms to expand access to climate financing:
  - Review and revise land-use and building codes to incorporate climate change provisions.
  - Improve project appraisal and selection templates in public investment manual to include climate provisions.
  - Implement expenditure classification and coding to identify, monitor, report climate public sector expenditure (current and capital).
  - Strengthen MDAs capacity to conduct systematic ex-post reviews of major infrastructure projects with climate implications.
  - Develop maintenance manuals/guidelines for MDAs including climate provisions.
  - Develop and publish a fiscal risk statement in the budget, including a chapter identifying climate-related risks.
  - Roadmap elements: (i) secure accreditation to climate funds; (ii) strengthen green financing framework to generate issuer and investor interest.
- Conclusions on climate financing:
  - Financing gap: 1.6 percent of GDP per year by 2030 (around USD 180 million per year); adaptation needs larger (0.9 percent) than mitigation (0.7 percent).
  - Given limited fiscal space and elevated debt vulnerabilities, fully financing climate action will require external grants and concessional loans.
  - Donor financing to date limited and skewed toward mitigation despite adaptation needs.
  - Strengthening planning, appraisal, execution, reporting track record and implementing measures above can improve access to global climate funds and climate-related debt instruments (green/blue bonds).

### Impact of Digital Rupee (DR) on Liquidity Management and Monetary Policy Transmission
- Objective and motivation:
  - Analyze possible impact of Digital Rupee (DR) on liquidity management and monetary policy transmission under BOM’s new monetary policy framework planned in 2022.
  - Policy objectives for DR: reduce physical Rupee circulation costs; provide digital central bank money to population (including informal sector); enhance payment resilience; enable automated payments (smart contracts); preserve rupee sovereignty vs. cryptocurrencies; reinforce AML/CFT.
- Payment landscape and context:
  - BOM launched National Payment Switch in 2019 (Instant Payment System and Card Payment System).
  - Digital Mauritius 2030 Strategic Plan in place.
  - Broadband penetration: 91 percent.
  - Mobile phone subscription rate: 151.9 percent.
  - Two biggest banks account for more than 40 percent of total banking assets.
  - Fintech market share relatively small; adoption of cryptocurrencies and stablecoins currently low.
- New BOM framework features:
  - Announce medium-term inflation objective as target range of 2 to 4 percent; BOM will prefer the midpoint.
  - Policy interest rate to signal stance and define operating target; need transmission to overnight money market rate.
  - Instruments based on mid-corridor system: symmetric interest rate corridor defined by standing overnight deposit and credit facilities with constant width around key policy rate.
  - Main OMOs: 7 days maturity BOM bills traded in weekly fixed-rate full-allotment auctions at announced policy rate.
  - Reserve averaging mechanism, fine tuning, and longer-term structural liquidity operations combined.
- Analytical focus under structural surplus liquidity:
  - Historic structural liquidity surplus: rupee excess liquidity at Rs28 billion; about Rs130 billion further absorbed by BOM instruments by end-2021.
  - Excess liquidity fueled by large fiscal deficit monetization and quasi-fiscal expenditures financed by BOM and not fully sterilized.
  - Money market interest rate was systematically and substantially below announced policy rate.
  - Primary questions: impact on liquidity surplus; impact on sterilization costs (cost of removing liquidity surplus via BOM bills was Rs2.1 billion in 2021); impact on transmission of policy signal.
  - Analysis mainly assumes structural liquidity remains in surplus.
- DR issuance design dimensions:
  - DR types: rCBDC (retail DR, rDR) analogous to physical currency; wCBDC (wholesale DR, wDR) analogous to domestic reserve money.
  - Asset-exchange options for issuing DR: (i) currency in circulation, (ii) bank domestic reserves, (iii) HQLAs (government bonds).
  - Issuance against currency in circulation:
    - Users swap DR for physical Rupee; physical Rupee in circulation may reduce; domestic reserves may not change if conversion is from currency in circulation.
  - Issuance against domestic reserves:
    - Banks exchange domestic reserves for equal amount of DR (example Rs1 billion cited).
    - For wDR issued against reserves: equivalent reduction in conventional domestic liquidity.
    - For rDR issued against reserves: domestic reserves may not decline equivalently (substitution for deposits and/or currency in circulation).
  - Remuneration options:
    - Non-interest-bearing or interest-bearing CBDC.
    - Pfister (2019) inequality: interest rate on required reserves ≥ interest rate on wCBDC ≥ interest rate on rCBDC ≥ Effective lower bound.
  - Redeemability and caps:
    - Redeemability allows exchange of DR for other assets; mitigation measures include caps on how much reserve can be exchanged per period, selecting strong-capital banks as distributors, daily transaction/balance limits.
    - Examples: Central Bank of Nigeria’s eNaira and PBOC’s E-CNY have transaction and balance caps.
- Possible impact of issuing retail DR (rDR):
  - Non-interest-bearing rDR:
    - Less pressure on banks’ deposit outflows; limited reduction in domestic reserves and limited impact on monetary policy.
    - More likely substitution from currency in circulation than interest-bearing assets.
    - If substitution for deposits occurs, deposits and system liquidity may decline and deposit rate premium may increase.
    - Non-interest-bearing rDR creates less disintermediation risk when policy rate is away from zero lower bound; in ultra-low rates stronger incentive to switch from deposits to rDR.
  - Overall preferred design implication:
    - Simpler design of non-interest-bearing retail DR less distortive and preferable.
    - Wholesale DR impacts liquidity management more directly.
    - Remunerated retail and wholesale DR can blur policy signal and adversely affect transmission.
- Effects of interest-bearing rDR:
  - Interest-bearing rDR makes rDR more attractive than physical currency; competes more with bank deposits.
  - Stronger substitution for deposits → decline in deposits and total liquidity surplus held by banks at BOM.
  - Transmission of policy rate may become weaker as demand for policy-sensitive assets decreases.
  - Equilibrium deposit interest rate may increase due to smaller supply of deposits.
  - Central bank costs and sterilization: ambiguous—potentially lower sterilization and currency management costs but added cost of remunerating rDR.
  - Challenge: ensuring rDR remuneration rate and key policy rate are set consistently to prevent arbitrage and interference with policy signaling.
  - Constraining redeemability and supply limits or limiting issuance can mitigate adverse impacts.
  - Volatility of system liquidity may increase, requiring more frequent fine-tuning operations or more active reserve averaging by banks.
- Possible impact of issuing wholesale DR (wDR):
  - wDR issued against reserves interacts directly with liquidity and operational elements; structural liquidity (sum of DR and conventional reserves) remains the same.
  - Non-interest-bearing wDR:
    - Unlikely to significantly impact liquidity management or transmission; likely used intraday and redeemed at end of day.
    - Limited demand; no clear positive impact on managing liquidity, reducing monetary policy costs, or improving transmission.
  - Interest-bearing wDR:
    - May become attractive substitute for conventional reserves and compete with BOM money market instruments.
    - Reallocating to wDR swaps into another form of liquidity; excess must still be absorbed through main OMOs or it interferes with money market rate management.
    - Remunerating wDR while required reserves are not remunerated would interfere with Pfister (2019) interest-rate condition.
    - If institutional investors hold wDR without limits, remuneration rate could become hard floor for money market rates.
    - Efficiency gains from wDR hard to measure ex-ante; setting appropriate rate relative to policy rate difficult.
- Revisiting assumptions if excess liquidity remains:
  - Issuing DR will not necessarily improve policy transmission if interest rate management remains ineffective and overnight money market rate deviates from policy rate.
  - rDR against reserves may initially reduce excess liquidity but surplus may reemerge if BOM does not absorb liquidity through OMOs or other factors increase surplus.
  - For remunerated DR, blurred policy signal and transmission may persist or worsen.
  - wDR may replace some conventional excess liquidity but does not change aggregate excess because wDR remains part of aggregate surplus.
- Conclusion and policy implications:
  - Issuing unremunerated rDR is the more straightforward option with least adverse impact on liquidity management and monetary policy transmission under new framework.
  - Remunerated retail and wholesale DR can blur policy signal and adversely affect transmission.
  - Central bank should control only one short-term rate—the policy rate used in short-term OMOs—while standing facilities define symmetric corridor.
  - Improving liquidity management and monetary policy transmission better addressed by effective system of policy instruments envisaged in BOM’s new framework.
  - Further and deeper discussions warranted before launching DR.
- Key statistics and balance-sheet figures (Annex I, presented as in source):
  - The public's deposits: 1574
  - Monetary Gold and SDRs: 45
  - Reserve money: 300
  - Deposits at the Bank of Mauritius: 174
  - Debt securities and loans: 174
  - Currency and Deposits: 111
  - Currency in circulation: 50
  - Credit to the public: 736
  - Deposits from the Bank of Mauritius: 0
  - Securities: 190 (one instance 191)
  - Deposits of other depository corporations: 250 (one instance 249)
  - Net Claims on Central Govt: 179 (one instance 178)
  - Other liabilities: 84
  - Other items / Other tems: 137 and 163 (as shown)
  - Other assets: 924 (one instance 933)
  - Equity (Commercial Banks): 189
  - Equity (Bank of Mauritius): 20
  - Total: 484 (one instance 485)
  - Digital Rupee entries: 1 (appears under Reserve money / Digital Rupee and under Deposits/Securities in tables)

*Source: IMF staff estimates and analysis as presented in “Estimates of the Debt Limit and Underlying Indicators,” and related sections in content unit 1musea2022002.*

### 1. Estimates of the Debt Limit and Underlying Indicators __________________________________ 6

### 1. Estimates of the Debt Limit and Underlying Indicators

### A. Introduction and context
- Public sector debt rose from around 64 percent of GDP (two years before FY2019/20) to about 85 percent of GDP in FY2019/20, and to about 100 percent of GDP in FY2020/21.
- The debt ceiling of 60 percent of GDP was repealed in 2020 after activation of the escape clause, leaving fiscal policy without a medium-term debt anchor.
- Domestic revenue mobilization was around 22 percent of GDP in FY2020/21 (noted as relatively high compared to regional medians).
- Recent large quasi-fiscal operations included transfers from the Bank of Mauritius (BOM) to the government of around 4 and 13 percent of GDP in FY2019/20 and FY2020/21, respectively; and an SPV injection of Rs 80 billion (18 percent of FY2020/21 GDP).

### B. Methodology for recalibrating the medium-term debt anchor
- Two-step approach:
  - Step 1: Estimate the maximum sustainable debt limit (D*) using three methods: (i) fiscal fatigue (maximum primary balance / (r−g) under stress); (ii) debt-servicing capacity (ratio of interest expenses to revenues); (iii) maximum growth (debt level beyond which growth is negatively affected).
  - Step 2: Calibrate a debt anchor by deducting a safety margin (buffer) from the estimated debt limit to allow for macroeconomic shocks.

### C. Step 1 — Estimated debt limits (three approaches)
- Fiscal fatigue approach:
  - Assumed maximum feasible primary balance (PBmax): 2 percent of GDP.
  - Interest rate-growth differential (95th percentile, 2000-2019): 1.97 percent.
  - Implied debt limit: 101.4 percent of GDP.
  - Note: Using maximum observed differential (2009) instead would yield a lower estimate (74 percent of GDP) in a more conservative scenario.
- Debt-servicing capacity approach:
  - Revenue-to-GDP ratio (FY2015/16–FY2018/19 average): 21.3 percent.
  - Effective interest rate on debt (less conservative): 4.03 percent; (more conservative): 4.50 percent.
  - Debt-servicing capacity threshold (percent of revenue) used: 19.
  - Implied debt limit: 100.1 percent of GDP (less conservative); 90 percent of GDP under the more conservative interest assumption.
- Maximum growth approach:
  - Output elasticity to public capital stock (α): 0.35.
  - Implied debt limit: 88.5 percent of GDP.
- Summary ranges:
  - Less conservative scenario: estimated debt limits around 89 to 101 percent of GDP (average reported: 96.7 percent of GDP).
  - More conservative scenario: estimated debt limits around 75 to 90 percent of GDP (average reported: 84.3 percent of GDP).
  - Table-derived averages (before buffer) cited as 96.7 and 84.3 percent of GDP.

### D. Step 2 — From debt limit to medium-term anchor (buffering)
- Safety margin rationale: buffers of 7 to 15 percent of GDP common; default often 10 percent of GDP.
- Given recent large quasi-fiscal operations, a buffer of 15 percent of GDP is adopted for Mauritius.
- Resulting debt anchors after applying a 15 percent buffer:
  - Less conservative scenario anchor: 86.7 percent of GDP.
  - More conservative scenario anchor: 74.3 percent of GDP.
- Policy choice:
  - Taking the average of the two scenarios yields a proposed anchor of 80 percent of GDP.
  - Alternatively, a more risk-averse anchor could be 74 percent of GDP, closer to the DSA risk threshold of 70 percent of GDP.
- Note: The anchor (e.g., 80 percent of GDP) would be significantly higher than the repealed 60 percent of GDP.

### E. Transition and operational (short-term) rules to reach the anchor
- Current debt (FY2020/21) is about 99.2 percent of GDP (text indicates debt "from 99.2 percent of GDP in FY2020/21" in the summary paragraph).
- Suggested transition path:
  - Consider a transition period where the deficit gradually declines from 7.6 percent of GDP in FY2021/22 to 3 percent of GDP in FY2026/27 and beyond.
- Short-term operational rule candidates:
  - Paper focuses on overall balance and expenditure rules for their simplicity and measurability.
- Debt-stabilizing overall balance calculation:
  - Formula: OB = (−θ / (1+θ)) D.
  - For debt anchor D = 80 percent of GDP and assumed potential nominal GDP growth θ = 5.5 percent:
    - Instantaneous overall balance that stabilizes debt at the anchor: −4.2 percent of GDP.
    - A deficit target of −4.2 percent of GDP would not achieve convergence to the anchor within 30 years (convergence too slow); thus a smaller deficit would be needed for a faster convergence.
- Simulation approach:
  - The IMF Fiscal Affairs Department fiscal rules selection tool is used to simulate the debt-to-GDP impact of (i) an overall budget balance floor and (ii) an expenditure-to-GDP ceiling, targeting convergence within no more than 10 years.

### F. Key quantitative markers and scenarios (preserved exact figures)
- Recent and historical debt and fiscal figures:
  - Public sector debt: around 64 percent of GDP (two years before FY2019/20) → around 85 percent of GDP in FY2019/20 → about 100 percent of GDP in FY2020/21.
  - Debt in FY2020/21 cited as 99.2 percent of GDP in the policy-summary sentence.
- Assumptions and parameter values used in estimates:
  - Maximum feasible primary balance (PBmax): 2 percent of GDP.
  - Interest rate-growth differential (95th percentile): 1.97 percent.
  - Revenue-to-GDP ratio (2015–2019 average): 21.3 percent.
  - Effective interest rate on debt (less conservative): 4.03 percent; (more conservative): 4.50 percent.
  - Debt-servicing capacity threshold (percent of revenue): 19.
  - Output elasticity to public capital stock (α): 0.35.
  - Safety margin (buffer) adopted: 15 percent of GDP.
  - Proposed medium-term debt anchor: 80 percent of GDP (average of scenarios); alternative conservative anchor: 74 percent of GDP.
  - Proposed short-term deficit glidepath illustrative values: 7.6 percent of GDP in FY2021/22 → 3 percent of GDP by FY2026/27.
  - Debt-stabilizing overall balance for 80 percent anchor and θ = 5.5 percent: −4.2 percent of GDP.

### G. Policy implications and recommendations
- Reinstate a medium-term debt ceiling to safeguard debt sustainability and fiscal discipline; consider setting the anchor at 80 percent of GDP (or 74 percent of GDP if more conservative).
- Complement the medium-term anchor with a short-term operational rule—preferably an overall balance ceiling around 3 percent of GDP in the medium term and/or an expenditure-to-GDP ceiling—to guide fiscal consolidation and accelerate convergence.
- Adopt a transition path with a gradual decline in the fiscal deficit (example: from 7.6 percent of GDP in FY2021/22 to 3 percent of GDP by FY2026/27).
- Continue to assess debt sustainability risks using the IMF’s Debt Sustainability Assessment tools regardless of the debt anchor choice.
- Account explicitly for quasi-fiscal operations and contingent liabilities (including BOM transfers and SPV injections) when setting buffers and monitoring fiscal risks.

*Source: IMF staff estimates and analysis as presented in “Estimates of the Debt Limit and Underlying Indicators.”*

### 12. Debt could be reduced  towards the anchor (80 percent of GDP) by FY2024/25 by

### 12. Debt could be reduced  towards the anchor (80 percent of GDP) by FY2024/25 by

### Key simulation findings
- Immediate adjustment of the overall balance-to-GDP ratio to -3 percent, starting in FY2022/23, would bring the debt-to-GDP ratio to the anchor (80 percent of GDP) in FY2024/25.
- Alternatively, immediately adjusting the total spending-to-GDP ratio to 27 percent, starting in FY2022/23, would also bring the debt-to-GDP ratio to the anchor in FY2024/25.
- Under both rules, real GDP growth would be lower than without the rules in the first years.
- In the baseline (no rule) scenario, the debt-to-GDP ratio would remain at around 85 percent.
- The scenarios under the two rules would likely be unrealistic because they require a large and frontloaded adjustment.

### Simulation assumptions and technical parameters
- Simulation horizon: 15 years.
- Assumptions for simplicity:
  - (i) the effective average interest rate on debt remains the same as in the baseline;
  - (ii) all rules are implemented by adjusting primary spending only;
  - (iii) the adjustment in primary spending affects GDP through instantaneous and lagged multiplier effects.
- Primary spending multiplier assumptions:
  - 0.5 contemporaneously
  - 0.1 one year after the adjustment
- Revenue and primary spending elasticities to output:
  - revenue elasticity = 1
  - primary spending elasticity = 0

### Gradual adjustment scenario and timing trade-offs
- A gradual adjustment of the overall balance allows convergence to the debt anchor while better safeguarding growth.
- Considered scenario: fiscal deficit gradually converges from 7.6 percent of GDP in 2021 to around 3 percent of GDP in FY2026/27 and beyond (instead of an immediate adjustment in FY2022/23).
- Under the gradual scenario, the debt ratio reaches the medium-term anchor two years later, in FY2026/27.
- Figures referenced: Figure 2a (Debt-to-GDP ratio under different rules) and Figure 2b (Real GDP growth under different rules); Figure 3a (Overall balance under immediate vs. gradual adjustment) and Figure 3b (Debt-to-GDP ratio under immediate vs. gradual adjustment).

### Improving enforceability of the debt rule — operational and institutional measures
- Reinstating a medium-term debt anchor would be strengthened by adopting a short-term operational rule (a ceiling on the overall balance as percentage of GDP) that is binding in the short term.
- The repealed debt ceiling of 60 percent of GDP lacked short-term operational guidance; Mauritius did not have a good track record of complying with the repealed debt ceiling of 60 percent of GDP.
- The calibrated ceiling discussed: an overall deficit ceiling of 3 percent of GDP could serve as the operational rule reference.
- Design choices for the operational rule:
  - Whether the deficit target should be binding in every single fiscal year or met on average across two or three years to introduce flexibility.
  - The deficit ceiling would be expected to be binding in the short term while the medium-term debt anchor should allow temporary deviations.

### Complementary reforms to improve compliance and flexibility
- Commit to a credible medium-term fiscal framework and compliance with rules.
- Consider creating an independent fiscal council to monitor the rule.
- Introduce well-designed escape clauses:
  - Escape clauses should be detailed, cover a limited and well-defined range of circumstances, and include guidance on returning to the anchor after the triggering event ends.
  - The repealed debt rule’s escape clause was vague, was activated frequently, and lacked guidance on returning to the debt anchor, weakening credibility.
- International experience: almost 10 percent of countries with rules-based fiscal frameworks have a debt rule without an operational rule, while 15 percent have an operational rule without a debt rule (Eyraud and others 2018).

### Conclusions and policy recommendation summary
- There is room to revise up the medium-term debt anchor for Mauritius to up to 80 percent of GDP while safeguarding debt sustainability objectives.
- Calibration methods averaged models accounting for historically feasible primary balances, debt-servicing capacity, and growth objectives; the higher anchor reflects Mauritius’ strong debt-carrying capacity aligned with its well above-average tax revenue-to-GDP ratio.
- To reduce the current debt level of 99.2 percent of GDP in FY2020/21 towards the proposed anchor (80 percent of GDP), an operational rule could be adopted consisting of a ceiling for the overall deficit of 3 percent of GDP.
- To mitigate negative growth effects of fiscal adjustment, allow a transition period in which the deficit gradually declines to 3 percent of GDP in FY2026/27 and beyond, which would push the debt ratio to the anchor in FY2026/27.
- Debt sustainability risks should continue to be assessed using the IMF’s Debt Sustainability Assessment tools regardless of whether the debt anchor has been met.

*Source: IMF staff estimates.*

### 1.6 percent of GDP per year on average (around USD 180 million  per year). The financing  gap for

### 1musea2022002 - 1.6 percent of GDP per year on average (around USD 180 million per year). The financing gap for

### Financing gap and breakdown
- Total financing gap to meet Mauritius’ 2030 adaptation and mitigation targets: 1.6 percent of GDP per year by 2030 (around USD 180 million per year).
- Financing gap by category:
  - Adaptation: 0.9 percent of GDP.
  - Mitigation: 0.7 percent of GDP.
- Current assumption used in estimates: actual climate change expenditure remains constant at 2 percent of GDP through FY2029/30 (reference: nominal GDP in FY2017/18).
- Historical public environment expenditure: precise figure was Rs10.3 billion (2.16 percent of GDP) in FY2017/18 (Tracking Public Sector Environment Expenditure Assessment, 2018).

### Role of global climate funds and recent flows
- Climate Funds Update tracked 27 climate funds as of January 2022.
- Combined amount of financing approved from such funds to several countries:
  - USD 3.5 billion in 2020.
  - USD 3.7 billion in 2021.
- Actual disbursements fell short of approvals:
  - USD 345 million disbursed in 2020.
  - USD 84 million disbursed in 2021.
- Mauritius: approved financing during 2008-20 totaled USD 58 million (grants); only half of the approved amount was disbursed.
- Disbursement bias: despite higher adaptation needs in Mauritius’ NDC, disbursed funds have been disproportionately aimed at mitigation.

### Climate funds access modalities and accreditation
- Most disbursements to Mauritius during 2008-20 were through indirect access modality (implementing agencies were non-government multilateral agencies).
- To broaden direct access, Mauritius could pursue accreditation by climate funds to enable direct receipt and management of funding.
- Accreditation requirements include demonstrating a track record of planning, appraisal, execution, and reporting of climate-related funds, projects, and data; it is a lengthy and complex process.
- Examples noted in the country context:
  - Mauritius’ Ministry of Environment, Solid Waste Management and Climate Change: in process of becoming accredited as a National Implementing Entity under the Adaptation Fund.
  - Mauritius Renewable Energy Agency: expressed interest in accreditation as a Direct Access Entity under the Green Climate Fund.

### Climate- and environment-related bonds
- Green and blue sovereign bonds are an alternative to mobilize financing; they can include features to address debt service shocks.
- Examples from other small island states:
  - Fiji: USD 50 million sovereign green bond in 2017.
  - Barbados and Grenada: sovereign bonds with natural disaster clauses (Barbados’ clause: immediate 2-year suspension of debt-servicing upon independent declaration of a natural disaster; bond maturity automatically extended for two years).
  - Seychelles: USD 15 million sovereign blue bond in 2018.
- Mauritius’ regulatory developments:
  - Financial Services Commission of Mauritius issued Guidelines for the issue of Corporate and Green Bonds in December 2021.
  - Bank of Mauritius issued Guide to Sustainable Bond Issuance in June 2021.
- Mauritius’ green bond frameworks are relatively new (last released in December 2021).
- Green and blue bond market in Mauritius is at an early stage; reforms could increase issuer and investor interest.

### Public investment management (PIM) and climate readiness
- Mauritius has strengthened public infrastructure governance in recent years; participated in a 2021 pilot Climate Change Public Investment Management Assessment (Climate PIMA).
- Climate PIMA identified PIM practices and procedures needing strengthening across planning, allocation, and implementation phases.
- Gaps identified:
  - Lack of central or subnational regulations, land-use, or building codes addressing climate concerns for infrastructure projects.
  - Appraisal methodologies for large infrastructure projects are neither standardized nor published and lack climate change specific provisions.
  - No climate change specific selection criteria for project selection.
  - Climate-related outputs and outcomes of infrastructure projects are not clearly identified, monitored, or reported.
  - Ex-post reviews are not systematically conducted except for externally financed projects.
  - Methodologies for estimating maintenance needs of infrastructure assets do not address climate change impact.
  - National Disaster Risk Management Strategy (NDRMS) does not estimate climate change impact on infrastructure assets or include a mitigation/response plan.
  - Budgetary treatment: relatively small contingency allocation to manage natural disaster impacts on infrastructure; absence of published fiscal risk analysis.

### Recommended reforms to expand access to climate financing
- Proposed measures to improve eligibility and access to climate financing include:
  - Review and revise regulations on land-use and building codes to incorporate climate change provisions.
  - Improve templates for project appraisal and selection within the new public investment manual to elaborate climate change provisions.
  - Implement an expenditure classification and coding system to identify, monitor, and report climate change public sector expenditure, both current and capital.
  - Strengthen capacity of ministries, departments, and agencies (MDAs) to implement systematic ex-post reviews of major infrastructure projects, especially those with climate change implications.
  - Develop maintenance manuals and guidelines for all MDAs involved in delivering and maintaining major infrastructure projects, including climate change provisions.
  - Develop and publish a fiscal risk statement in the budget, including a chapter identifying climate-related risks.
- Roadmap elements to secure greater access to financing:
  - (i) securing accreditation to climate funds; (ii) strengthening existing green financing framework to generate interest among potential green and blue bond issuers and investors.

### Conclusions
- Mauritius faces a significant financing gap of 1.6 percent of GDP per year by 2030 to meet adaptation and mitigation targets, higher for adaptation (0.9 percent of GDP) than for mitigation (0.7 percent of GDP).
- Given limited fiscal space and elevated debt vulnerabilities, fully financing climate action will require external grants and concessional loans.
- Donor financing to date has been limited and skewed toward mitigation despite adaptation needs.
- Strengthening the track record of planning, appraisal, execution, and reporting of climate-related projects, and implementing the specific measures above, can improve Mauritius’ access to global climate funds and climate-related debt instruments such as green and blue bonds.

*Source: Content unit 1musea2022002 (IMF PDF).*

### 2018. Link: https://www.worldbank.org/en/news/press-release/2018/10/29/seychelles-

### IMPACT OF DIGITAL RUPEE ON LIQUIDITY MANAGEMENT AND MONETARY POLICY TRANSMISSION

### Background and objective of the paper
- Objective: analyze the possible impact of the Digital Rupee (DR) on liquidity management and monetary policy transmission in Mauritius in the context of the new monetary policy framework that the Bank of Mauritius (BOM) plans to adopt in 2022.
- Motivation and public-policy objectives for issuing DR:
  - Reduce physical Rupee in circulation and associated costs of issuing, circulating, accessing, and managing cash.
  - Provide the population with a digital form of central bank money, including for the informal sector.
  - Bring resilience to the current payment infrastructure.
  - Prepare the economy for innovative automated payments such as tax through smart contracts.
  - Preserve the sovereignty of the Mauritian rupee by curbing adoption of cryptocurrencies.
  - Preserve financial integrity by reinforcing AML/CFT measures.
- Contextual facts and payment landscape:
  - BOM launched a National Payment Switch in 2019 consisting of Instant Payment System (IPS) and Card Payment System (CPS).
  - Digital Mauritius 2030 Strategic Plan in place.
  - Broadband penetration rate is 91 percent.
  - Mobile phone subscription rate is 151.9 percent.
  - Two biggest banks account for more than 40 percent of total banking assets.
  - Fintech market share is relatively small; adoption of cryptocurrencies and stablecoins currently remains low.
- Authors and process: Prepared by Mikhail Pranovich (AFR) and Tao Sun (MCM); paper contributes to BOM decision-making on design, pilots, issuance, and capacity building.

### Modernizing monetary policy framework in Mauritius
- Key shortcomings historically:
  - No formal quantitative inflation objective announced prior to modernization.
  - Lack of effective standing facilities for much of 2006–recent period led to unconstrained interest rate volatility.
  - Main OMOs were medium-term (three months) rather than short-term (7 or 14 days).
  - BOM bill auction rates often deviated from announced key repo rate.
  - Reserve averaging period was relatively short at two weeks and borrowing from required reserves was constrained.
- Structural liquidity and past sterilization:
  - System historically dominated by structural liquidity surplus; surplus was less than fully sterilized.
  - Excess liquidity increased substantially when BOM purchased FX during 2016-2019; large amounts of foreign reserves were sold during pandemic period of 2021-22 but excess domestic liquidity remained.
  - Excess domestic liquidity was fueled by large fiscal deficit monetization and quasi-fiscal expenditures financed by the BOM and not fully sterilized.
  - Result: money market interest rate was systematically and substantially below the announced policy rate.
- New framework features planned by BOM:
  - Announce a medium-term inflation objective as a target range of 2 to 4 percent; BOM will prefer the midpoint of the range.
  - Policy interest rate will signal stance and define the operating target; transmission to an overnight money market rate is required.
  - Instruments based on a mid-corridor system: symmetric interest rate corridor defined by standing overnight deposit and credit facilities with constant width around the key policy rate.
  - Main OMOs: 7 days maturity BOM bills traded in weekly fixed-rate full-allotment auctions at the announced policy rate.
  - Operations combined with reserve averaging mechanism, fine tuning, and longer-term structural liquidity operations.

### Analytical focus under structural surplus liquidity
- Primary questions evaluated:
  - Impact on liquidity surplus: previously rupee excess liquidity was at Rs28 billion, while about Rs130 billion of liquidity was further absorbed by BOM instruments by end-2021. Analysis considers whether issuing DR may impact the liquidity surplus.
  - Impact on liquidity sterilization costs: cost of removing liquidity surplus through BOM bills reached Rs2.1 billion in 2021 and may increase as BOM normalizes policy stance.
  - Impact on transmission of the policy signal: whether issuing DR may interfere with the policy signal defined by the key policy rate.
- Assumption: analysis primarily assumes the structural liquidity position will still be in surplus; conclusions noted as not fundamentally changing if position shifts to deficit.

### DR issuance: three dimensions (assets exchanged, remuneration, redeemability)
- Definition and analogies:
  - rCBDC (retail CBDC, rDR): closest analogy to physical currency in circulation.
  - wCBDC (wholesale CBDC, wDR): available to banks as means of final settlement; closest analogy to domestic reserve money.
- Three asset-exchange options when issuing DR:
  - (i) currency in circulation, (ii) bank domestic reserves, (iii) high-quality liquid assets (HQLAs) such as government bonds.
- Issuance against currency in circulation:
  - Users swap DR for physical Rupee; if accepted as substitute, physical Rupee in circulation may reduce.
  - Domestic reserves in the BOM will not change as some currency in circulation could be converted to an equal amount of DR (Rs1 billion example cited in Annex I panel 2).
  - Alternatively, DR could be seen as complement and physical Rupee demand may not change.
- Issuance against domestic reserves:
  - Banks exchange domestic reserves for an equal amount of DR (Rs1 billion example cited in Annex I panel 3).
  - For wDR issued against reserves, equivalent reduction in conventional domestic liquidity will occur.
  - For rDR issued against reserves, domestic reserves do not necessarily decline by an equivalent amount; substitution may be for deposits and/or currency in circulation — substitution for deposits reduces domestic liquidity, substitution for currency does not.
- Remuneration options:
  - Two options: non-interest-bearing and interest-bearing CBDC.
  - Literature varies on desirability of remunerating CBDC; remunerating wCBDC at same rate as required reserves may keep parity but could substitute reserves with wCBDC.
  - Pfister (2019) notes remuneration rates should respect inequalities: interest rate on required reserves ≥ interest rate on wCBDC ≥ interest rate on rCBDC ≥ Effective lower bound.
- Redeemability and caps:
  - Redeemability allows holders to exchange DR for other assets (physical Rupee, deposits, reserve money).
  - Mitigation measures: caps on how much reserve can be exchanged for DR per period; selecting strong-capital banks as distributors; caps on conversion from deposits to DR in daily transaction and/or balance limits.
  - Examples: Central Bank of Nigeria’s eNaira and People’s Bank of China’s E-CNY have caps on transaction and balance limits.

### Possible impact of issuing retail DR (rDR)
- Non-interest-bearing rDR:
  - Creates relatively less pressure on banks’ deposit outflows; reduction in domestic reserves and impact on monetary policy more limited.
  - More likely end-users substitute currency in circulation rather than interest-bearing assets; hence limited reduction in end-user deposits and system liquidity surplus.
  - Sensitivity of liabilities to policy rate changes should largely remain unchanged if deposit substitution is limited.
  - If some substitution for deposits occurs, reduction in deposits and system liquidity may occur and deposit rate premium may increase implying a new equilibrium for deposit interest rates.
  - Non-interest-bearing rDR creates less pressure on bank deposits and intermediation when the policy rate is away from the zero lower bound.
  - In an environment of ultra-low rates, stronger incentive exists to switch from deposits to rDR and hence stronger disintermediation risk.

### Key findings and preferred design implication
- Overall conclusion: a simpler design of non-interest-bearing retail Digital Rupee seems to be less distortive and hence preferable.
- Wholesale DR impacts liquidity management more directly.
- Remunerated retail and wholesale DR can blur the policy signal and adversely affect monetary policy transmission.
- Non-interest-bearing retail DR would lead to a lower risk of interference with policy transmission relative to remunerated designs.

*Source: 1musea2022002 - 2018*

### 18. Interest-bearing rDR would mean that DR can be used as both the store of value and

### 18. Interest-bearing rDR would mean that DR can be used as both the store of value and the means of payments, and the impact on liquidity and policy transmission may be larger than that for non-interest-bearing  rDR.

### Effects of interest-bearing rDR on liquidity and policy transmission
- Interest-bearing rDR makes rDR more attractive than physical currency by providing a return.
- rDR will compete relatively more with other financial assets, including bank deposits, than non-interest-bearing rDR.
- Due to relatively stronger substitution for deposits:
  - The amount of deposits and total liquidity surplus held by banks at the BOM would decline.
  - The transmission of the policy rate may become weaker as the demand for assets sensitive to current and expected changes in the key policy decreases.
- As the supply of deposits may become relatively smaller, the equilibrium interest rate on deposits may increase due to higher premium that banks will need to pay.

### Central bank costs and sterilization
- Issuing interest-bearing rDR may have ambiguous effects on central bank monetary policy costs:
  - Potentially lower cost of sterilizing surplus through OMOs.
  - Potentially lower cost of managing physical Rupee.
  - Offsetting effect: remunerating rDR adds to costs.

### Challenges for monetary policy setting and transmission
- rDR remuneration rate directly competes with rates for assets (e.g., deposits); this could strengthen transmission from rDR to asset rates.
- Risk: difficulty ensuring rDR remuneration rate and the key policy interest rate prevailing in the short-term money market are set consistently, preventing arbitrage and avoiding interference with policy signaling and transmission.
- Literature references (as noted in source): BIS (2018); concept that an interest-rate-managing central bank should control only one rate in a short-term segment.

### Constraining redeemability and supply limits
- Introducing caps and limits on exchanging DR for other assets (for both non-interest- and interest-bearing rDR) may:
  - Constrain adverse impacts on liquidity management and transmission.
  - Limit attractiveness and demand for rDR and substitution away from other assets.
  - Reduce interference with the policy rate signal.
- Alternately, the same effect could be achieved by limiting issuance (supply) of rDR.

### Volatility of system liquidity and operational implications
- Volatility patterns of system liquidity may change with rDR issuance and may require more frequent fine-tuning operations.
- Under new policy framework with OMOs as fixed-rate full-allotment auctions:
  - BOM operations may not need to forecast system liquidity to parameterize auctions.
  - Banks must account for changes in volatility when managing liquidity and interacting with BOM bills.
- If volatility increases:
  - BOM will need to deploy fine-tuning operations more actively, or
  - Banks will need to make more active use of required reserve averaging mechanisms.

### Possible impact of issuing wDR (wholesale DR)
- Introducing wDR against bank reserves interacts directly with liquidity and operational elements of the new monetary policy framework.
- wDR remains a means of settlement; structural liquidity position (sum of DR and conventional domestic reserves) remains the same.
- Central bank still must conduct operations to ensure no excess liquidity is left and to align money market interest rate with the policy rate.

Findings for non-interest-bearing wDR:
- Unlikely to significantly impact liquidity management or transmission.
- Likely used intraday; banks redeem wDR for conventional reserves at end of day.
- Limited demand; no clear positive impact on managing liquidity, reducing monetary policy costs, or improving transmission.

Findings for interest-bearing wDR:
- May become attractive substitute for conventional domestic reserves and may compete with BOM’s money market instruments.
- Case for remunerating wDR is weak.
- Reallocating to wDR is swapping into another form of liquidity (wDR is equivalent of excess liquidity, not equivalent of BOM instrument used in OMOs).
- Excess must be absorbed through main OMOs; otherwise it interferes with BOM’s efforts to manage the money market rate.
- Remunerating wDR while conventional required reserves are not remunerated would interfere with the interest rate condition in Pfister (2019).

Complication from setting wDR interest rate:
- If institutional investors could hold wDR without limits, the remuneration rate could become the hard floor for money market rates.
- Efficiency gains from using wDR are hard to measure ex-ante; hard to know appropriate rate relative to policy rate to avoid arbitrage.
- Risk in liquidity surplus environment: setting interest rate on wDR inconsistently high could reduce demand for short-term OMOs instruments.
- Recommended policy approach: central bank should control only one short-term rate—the policy rate defining the rate in short-term OMOs—while standing facilities define the symmetric interest rate corridor.

### Revisiting assumptions: issuing DR if excess liquidity remains
- Excess liquidity remaining in the system may indicate incomplete implementation of the new framework.
- Issuing DR will not necessarily improve policy transmission if interest rate management remains ineffective and overnight money market rate deviates from the policy rate.
- rDR against reserves may initially reduce excess liquidity, but surplus may reemerge if BOM does not systematically absorb liquidity through OMOs or if other liquidity factors increase surplus.
- For remunerated DR, blurred policy signal and transmission may persist or worsen.
- wDR may replace some conventional excess liquidity but does not change aggregate excess because wDR remains part of aggregate excess and surplus.

### Conclusion and policy implications
- At current juncture, issuing unremunerated rDR is a more straightforward option with the least adverse impact on liquidity management and monetary policy transmission under the new policy framework.
- When issuing DR, the BOM needs to manage policy tradeoffs and synergies, including adverse impacts on liquidity management and transmission.
- Issuing unremunerated rDR results in lower interference with the policy signal, which is important for the proper functioning of the interest-rate-based policy framework.
- Improving liquidity management and monetary policy transmission could be better addressed by an effective system of policy instruments as envisaged in BOM’s new framework.
- Further and deeper discussions are warranted before launching DR.

### Key statistics and balance-sheet figures (as presented in Annex I)
- The public's deposits: 1574
- Monetary Gold and SDRs: 45
- Reserve money: 300
- Deposits at the Bank of Mauritius: 174
- Debt securities and loans: 174
- Currency and Deposits: 111
- Currency in circulation: 50
- Credit to the public: 736
- Deposits from the Bank of Mauritius: 0
- Securities: 190; later tables show 191 in one instance
- Deposits of other depository corporations: 250; one instance 249
- Net Claims on Central Govt: 179; one instance 178
- Other liabilities: 84
- Other items / Other tems: 137 and 163 (as shown)
- Other assets: 924; one instance 933
- Equity (Commercial Banks): 189
- Equity (Bank of Mauritius): 20
- Total: 484; one instance 485
- Digital Rupee entries: 1 (appears under Reserve money / Digital Rupee and under Deposits/Securities in tables)

*Source: IMF staff calculations.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1musea2022002.pdf_