## 3.5 percent in the medium term, in line with pre-pandemic growth. Headline inflation is

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### Outlook and projections
- Real GDP growth: projected to be 3.5 percent in the medium term, "in line with pre-pandemic growth."
- Headline inflation: projected to ease to 4.9 percent on average in 2024 and 3.5 percent thereafter, "in line with the Bank of Mauritius’ medium-term inflation target."
- External current account: expected to remain at 4.5 percent of GDP in 2024 and about 4 percent over the medium term.
- Public debt: estimated at 81 percent of GDP in June 2023 and projected to moderate over the medium term.
- International reserves: projected to gradually increase to cover 9.5 months of imports.

### Recent developments and key indicators
- Growth recovery:
  - Real GDP growth: 8.9 percent in 2022; estimated 7.0 percent in 2023.
  - Real GDP now exceeds its pre-pandemic level.
- Inflation and expectations:
  - Headline inflation averaged 7.0 percent in 2023 and moderated to 4.9 percent in March (after an uptick in early 2024 due to higher food prices).
  - One-year-ahead inflation expectations: 6.1 percent (as of February 2024).
- Labor market:
  - Total unemployment: 6.3 percent in Q3 2023 (lowest in 27 years).
  - Youth unemployment: 17.8 percent in Q3 2023 (from 25 percent in Q4 2022).
- Fiscal outcomes (FY22/23):
  - Primary fiscal deficit (excluding grants): 2.7 percent of GDP (halved from FY21/22).
  - Augmented primary fiscal deficit (including extra-budgetary special funds): 3.3 percent of GDP.
  - Overall borrowing requirement: 4.7 percent of GDP in FY22/23.
  - Financing included a US$250 million budget loan from the African Development Bank (1.4 percent of GDP) and higher domestic borrowing.
  - Public sector debt-to-GDP ratio: 81.2 percent in June 2023 (down from 91.9 percent in June 2021).
- Monetary stance:
  - Bank of Mauritius (BOM) key policy rate: 4.5 percent (held since December 2022).
  - Interbank (market) rate: aligned with key policy rate during H1 2023 but declined to around 3.1 percent in H2 2023.
  - BOM’s new monetary policy framework launched January 2023; removed excess liquidity in H1 2023 but less so in H2 2023.
  - Resulted in a negative key real policy rate in 2023 (average inflation 7.0 percent vs. key rate 4.5 percent).

### External position and reserves
- Current account:
  - Deficit reduced to 4.5 percent of GDP in 2023, from 11.1 percent in 2022.
  - Projected at 4.5 percent of GDP in 2024 and about 4 percent over the medium term.
- Drivers of improvement:
  - Strong rebound in tourism earnings.
  - Higher net income from portfolio investment.
  - Lower commodity import bill.
- REER and assessment:
  - Real effective exchange rate appreciated by 2.3 percent (driven by relatively higher inflation).
  - Staff-assessed 2023 CA gap of -1.2 percent of GDP and staff-estimated elasticity of 0.3 deliver an assessment of overvaluation of the 2023 REER by 3.9 percent.
  - IREER model estimate indicates an undervaluation of the REER in 2023 of 0.2 percent (with high uncertainty).
- Gross official reserves and adequacy:
  - Gross official reserves: US$7.3 billion at end-2023 (about 9.7 months of imports).
  - Reserves at end-2023 amount to 97.9 percent of the adjusted ARA metric (and 111 percent unadjusted); adjusted ARA metric uses a 15 percent augmentation of GBC deposits.
  - BOM’s net sales of FX decreased to US$0.4 billion in 2023 compared to US$0.8 billion in 2022.
- FX flows and GBCs:
  - Total net international capital and financial flows declined to about 0.4 percent of GDP in 2023 (from 8.2 percent in 2022).
  - GBC sector recorded a net outflow of 4.5 percent of GDP in 2023 (from a net inflow of 4.7 percent in 2022).
  - Gross FDI inflows in the domestic economy improved to 5.3 percent of GDP in 2023 from 4.2 percent of GDP in 2022 (concentrated in real estate).

### Financial sector developments and risks
- Asset quality and credit:
  - Private sector credit growth rebounded to 8.5 percent in 2023, up from 0.7 percent in 2022.
  - Housing credit growth peaked at 20 percent in February 2023 and slowed in H2 2023.
  - Residential real estate prices increased 27 percent in Q2 2023 then stopped increasing in Q3.
  - Share of non-performing loans (NPLs) increased to 5.8 percent in Q3 2023 from 4.9 percent at end-2022.
- Capital, liquidity, and exposures:
  - Capital ratios of the banking system were substantially above benchmarks as of September 2023.
  - Banks’ claims on central government-to-GDP ratio remains elevated at 20 percent.
  - Bank loan concentration in corporate and household sectors decreased to 69.5 percent in 2023 (from 74.5 percent in 2015–19 and 71 percent in 2022).
  - Net open FX positions of banks increased from 1.7 to 1.9 percent of Tier 1 Capital, remaining below the regulatory limit of 15 percent.
  - FX LCR stood at 213 percent in September 2023.
- Regulatory actions:
  - BOM placed Silver Bank (under 2 percent of total system rupee deposits) under conservatorship in February.
  - Two Guidelines issued in December 2023: classification/provisioning/write-off of credit exposures (additional macro-prudential provisions for household, construction, and commercial real estate loans) and Net Stable Funding Ratio (NSFR) requirement.
- Macroprudential posture:
  - Toolset includes Loan to Value, Debt to Income, Liquidity Coverage Ratio, Capital Conservation Buffer, risk weights, sectoral macroprudential provisions.
  - Stress testing and monitoring recommended to continue, with attention to GBC linkages and non-resident risks.

### Fiscal outlook, stance, and consolidation paths
- FY23/24 stance:
  - Fiscal stance expected to be expansionary.
  - Primary fiscal deficit (excluding grants) projected to widen by 0.2 percentage point to 2.9 percent of GDP.
  - Overall borrowing requirement projected to increase to 5.2 percent of GDP (from 4.7 percent in FY22/23).
  - Augmented primary fiscal deficit—including ESFs’ net spending—projected at 5.7 percent of GDP in FY23/24, compared to 3.3 percent in FY22/23 (implying fiscal stimulus of 2.4 percent of GDP).
  - A World Bank budget loan of US$250 million (1.6 percent of GDP) expected to help finance the budget.
- FY24/25:
  - Fiscal stance projected to turn contractionary as ESF’s net spending is expected to decline by 1.4 percentage points of GDP.
- Medium-term debt objectives and scenarios:
  - Medium-term objective: reduce public debt to about 65 percent of GDP.
  - Achieving 65 percent by mid-2026 would require fiscal adjustment of about 6.7 percent per year (judged challenging).
  - A gradual path targeting 65 percent by mid-2029 would imply fiscal adjustment in the overall primary balance of about 2.3 percent of GDP per year relative to the staff baseline.
  - Suggested composition of a 2.3 percent of GDP adjustment:
    - Increase tax revenue by +1 percent of GDP.
    - Cut current spending to achieve +1.3 percent of GDP savings.
- Suggested revenue and spending measures (estimated yields/savings):
  - Remove zero-rating for VAT and reduce the VAT threshold: 0.2 percent of GDP.
  - Lower the minimum income tax paying threshold and increase the top rates: 0.8 percent of GDP.
  - Streamline the CIT exemption regime for offshore companies (all tax expenditures in Mauritius, including CIT exemption): 3.5 percent of GDP.
  - Gradual and targeted phasing out of the CSG income allowance scheme: 0.6 percent of GDP.
  - Streamline housing and loan subsidies and improve targeting.
- Public financial management:
  - Standardize pre-appraisal, assessment, and review of public investments; strengthen financial reporting in line with IPSAS.
  - Planned publication in 2024 of consolidated statements of the public sector.
  - Review scope and reduce number of ESFs and publish ESFs’ spending execution.
- Fuel pricing and STC:
  - Adjustments of domestic fuel prices should continue to follow the existing automatic price mechanism, using targeted transfers to protect vulnerable households and reduce budgetary transfers to the State Trading Corporation (STC).
  - STC’s Price Stabilization Account deficit: 0.6 percent of GDP as of January 2024 (up from 0.3 percent at end-2021); budgetary transfer to STC of 0.04 percent of GDP in October 2023.

### Pension reform and long-term fiscal sustainability
- Proposed pension measures and potential savings:
  - Gradually increase Basic Retirement Pension (BRP) eligibility age from 60 to 65: potential savings of about 1.4 percent of GDP.
  - Keep Contribution Sociale Généralisée (CSG) pension benefits fixed at the current level over the medium term for those aged between 65 and 75: potential savings of 0.4 percent of GDP.
  - Reform the CSG to collect contributions from workers and provide benefits only to contributors.
- Long-term pension pressures:
  - FY22/23 pension benefits paid estimated at "around 7 percent of GDP" and contributions at "around 2 percent."
  - Demographic pressures imply rising pension financing needs absent reforms.

### Debt dynamics, baseline projections, and stress testing
- Public debt (selected series and projections):
  - Public debt: 81.2 percent (June 2023); 78.3 percent (2023); baseline projections show gradual decline with series: 78.3 78.3 78.1 77.6 77.3 76.9 76.7 76.6 76.6 76.6 (2024–2032 as presented).
- Gross financing needs and debt service:
  - Gross financing needs: series include 24.0 13.5 20.8 22.4 22.2 22.2 22.0 22.2 22.0 21.6 21.0 (percent of GDP across periods).
  - Debt service share: 20.9 9.9 17.3 20.4 20.7 21.0 20.9 21.1 20.9 20.4 19.9 (percent of GDP).
- Baseline contributors to debt change:
  - Primary deficit (percent of GDP): 3.2 3.7 3.6 2.1 1.6 1.2 1.2 1.2 1.2 1.2 1.2 (series as presented).
  - Real interest rate and relative inflation contributions: "Real interest rate and relative inflation -3.2 -1.9 -0.7 0.0 0.1 0.3 0.4 0.5 0.7 0.8 1.0" (series preserved).
- Sovereign risk assessment:
  - Overall risk of sovereign stress assessed as high under IMF’s Sovereign Risk and Debt Sustainability Framework.
  - Public sector debt peaked at 92 percent of GDP in June 2021; projected to decline to around 78 percent in June 2024, slightly below the statutory ceiling.
  - Risks include contingent liabilities from MIC, potential BOM recapitalization needs, population ageing, and climate events.

### Climate adaptation investment: DIGNAD model scenarios and implications
- Model calibration and assumptions:
  - Public infrastructure investment set at 3.5 percent of GDP (FY2022/23 estimate).
  - Public investment efficiency set at around 60 percent.
  - Natural disaster shock calibrated at 4 percent of GDP (based on historical shocks).
- Adaptation scenarios vs Baseline:
  - Baseline: public capital spending at 3.5 percent of GDP for first five years; no additional adaptation; disaster simulated in sixth year leads to larger reconstruction needs and higher public debt.
  - Adaptation Scenario 1:
    - Additional 1 percent of GDP per year on adaptation over 2024–2028.
    - Financing split 1/3 grants, 1/3 concessional debt, 1/3 domestic revenue.
    - Results: real GDP growth stronger (up to 0.8 percentage point more) during the investment phase; when shock hits, output losses about 1.5 percentage points on average in first three years; recovery to steady state in five years after shock; public debt higher during investment phase but peak debt after shock lower than baseline.
  - Adaptation Scenario 2:
    - Additional adaptation financed mostly by domestic debt (two thirds domestic debt, one third domestic fiscal revenue).
    - Results: GDP growth losses higher after shock by 0.2 percentage point on average in first three years compared with Scenario 1; recovery requires seven extra years versus Scenario 1; public debt-to-GDP ratio would peak at 85.6 percent in 2029.
- Policy implications:
  - Financing adaptation through a mix with grants and concessional financing (Scenario 1) helps maintain debt sustainability more than financing predominantly through domestic debt (Scenario 2).
  - Green public investment management and access to global climate funds can improve outcomes.

### Structural reform priorities for diversification and inclusion
- Diversification and economic complexity:
  - Services share increased but economy remains relatively less diversified with low economic complexity compared to some peers.
  - Authorities target ICT/digital, pharmaceuticals, renewable energy, blue and silver economies.
- Labor market and female participation:
  - FLFP and women’s employment well below men and below comparator countries; boosting FLFP to OECD average could raise potential growth by 0.8 percentage point per year (Selected Issues Paper).
  - Prime à L’Emploi: fiscal cost 0.3 percent of GDP in FY2022/23; as of February 2024 about 6,500 women (about 1 percent of the labor force) benefited.
  - Authorities aim to close a labor supply shortfall estimated at 50,000 workers via requalification, foreign labor facilitation, and women’s employment.
- Digitalization and governance:
  - Continue strengthening digital connectivity, cybersecurity, use digitalization to enhance revenue collection and fiscal transparency, and strengthen anti-corruption frameworks.
- Climate resilience:
  - Scale-up public investment in resilient infrastructure funded with grants, concessional financing, and domestic revenue mobilization to preserve debt sustainability.
  - Tax incentives on electric vehicles contributed to doubled sales in 2023.

### Monetary policy framework, BOM governance, and MIC ownership
- Monetary framework:
  - Inflation-targeting framework in place since January 2023: 2 to 5 percent range, aim of reaching 3.5 percent over the medium term; FPAS developed.
  - Key policy rate defined as rate BOM pays for 7-Day BOM Bills: 4.5 percent since end-2022.
  - Disconnect observed between BOM key policy rate and market interbank rate when auctions were capped in H2 2023.
- Policy recommendations:
  - Strengthen effectiveness of framework, resume uncapped auctions of 7-Day BOM bills to realign interbank and key policy rates, enhance communication, and stand ready to tighten if inflation reemerges.
  - Promptly adopt amendments to the Bank of Mauritius Act to protect central bank independence and reinforce credibility.
- Mauritius Investment Corporation (MIC):
  - MIC created and financed by BOM in 2020-21 via transfers for Rs 81 billion (17 percent of 2021 GDP); as of end-2023 MIC invested Rs 52 billion (8 percent of GDP) in 52 entities.
  - Options recommended: gradually phase out BOM ownership of MIC, place MIC under separate government entity or private sector, consider independent audit of MIC’s asset quality.
  - Fiscal cost of buying out BOM’s full ownership of MIC (including MIC deposits equivalent to 4 percent of GDP) would be 12 percent of 2023 GDP.
  - Authorities expressed reservations against BOM withdrawing ownership; MIC generated profits (0.4 percent of GDP per 2022 audited statements).

### AML/CFT, data, and capacity development
- AML/CFT:
  - Mauritius removed from FATF increased monitoring in 2021; technically compliant or largely compliant with 40 out of 40 FATF recommendations.
  - Ongoing enhancements: Beneficial Ownership Register, strengthened FSC capacity, NRA second round expected finalized Q1 2024, ESAAMLG assessment scheduled for 2027.
- Statistics and data:
  - Data provision broadly adequate for surveillance; Statistics Mauritius to rebase to 2023 base year by 2025.
  - Plans to improve GDP methodologies, external sector stats, residential property price index, and high-frequency indicators.
  - SM aims to reach SDDS Plus dissemination level.
- Fund technical assistance priorities:
  - Monetary policy framework customization, FPAS finalization, Banking Bill and BOM Act amendments, CBDC regulation, climate macro framework tool, transition to IPSAS accrual accounting, revenue mobilization, and export statistics granularity.

### Risk assessment (RAM) and sovereign risk
- Key global conjunctural risks:
  - Commodity price volatility: Likelihood: High; Expected Impact: High. Policy recommendations include allowing fuel prices to adjust, targeted transfers, outlook-based monetary tightening, and strengthening external buffers.
  - Abrupt global slowdown: Likelihood: Medium; Expected Impact: Medium. Policy: adjust pace of monetary tightening and fiscal consolidation; FX interventions to smooth volatility.
  - Systemic financial instability: Likelihood: Medium; Expected Impact: Medium. Policy: ensure FX liquidity, stress testing, targeted macroprudential measures, sustain AML/CFT.
- Structural risks:
  - Deepening geoeconomic fragmentation: Likelihood: High; Expected Impact: Medium. Policy: structural reforms and flexible exchange rate.
  - Extreme climate events: Likelihood: Medium; Expected Impact: High. Policy: scale-up climate adaptation investment while preserving debt sustainability.
- Domestic conjunctural risks:
  - Large fiscal slippages ahead of elections: Likelihood: High; Expected Impact: High. Policy: medium-term fiscal consolidation, pension reform, strengthen debt framework and monetary policy.
  - Delayed monetary tightening by BOM: Likelihood: Medium; Expected Impact: Medium. Policy: strengthen monetary framework and be prepared to tighten.
- Sovereign risk and DSA:
  - Final assessment: Overall risk of sovereign stress: High.
  - Near- and long-term assessments highlight contingent liability risks (MIC, BOM external debt), high vulnerability to climate shocks, and ageing population pressures.
  - Policy implication: credible medium-term fiscal consolidation and reforms to address ageing and climate resilience.

### Key quantitative highlights (as stated in the report)
- Growth and inflation:
  - Medium-term real GDP growth: 3.5 percent.
  - Headline inflation: 4.9 percent (2024 average), 3.5 percent (thereafter).
- External sector:
  - Current account deficit: 4.5 percent of GDP (2024), about 4 percent (medium term).
- Public finance and debt:
  - Public debt: 81 percent of GDP (June 2023, estimated).
  - Primary deficit (excluding grants): 2.7 percent of GDP (FY22/23).
  - Augmented primary deficit (including ESFs): 3.3 percent of GDP (FY22/23).
  - Overall borrowing requirement: 4.7 percent of GDP (FY22/23).
  - US$250 million budget loan from AfDB = 1.4 percent of GDP (FY22/23 financing).
- Monetary policy:
  - BOM key policy rate: 4.5 percent (since December 2022).
  - Interbank rate: around 3.1 percent in H2 2023.
- Labor market and expectations:
  - Unemployment rate: 6.3 percent (Q3 2023).
  - Youth unemployment: 17.8 percent (Q3 2023).
  - Headline inflation average 2023: 7.0 percent.
  - One-year-ahead inflation expectations: 6.1 percent (as of February 2024).

*Staff report for the 2024 Article IV Consultation.*

### 3.5 percent in the medium term, in line with pre-pandemic growth. Headline inflation is

### 1musea2024001 - 3.5 percent in the medium term, in line with pre-pandemic growth. Headline inflation is

### Outlook and projections
- Real GDP growth: projected to be 3.5 percent in the medium term, "in line with pre-pandemic growth."
- Headline inflation: projected to ease to 4.9 percent on average in 2024 and 3.5 percent thereafter, "in line with the Bank of Mauritius’ medium-term inflation target."
- External current account: expected to remain at 4.5 percent of GDP in 2024 and about 4 percent over the medium term.
- Public debt: estimated at 81 percent of GDP in June 2023 and projected to moderate over the medium term.

### Recent developments and key indicators
- Growth recovery:
  - Real GDP growth: 8.9 percent in 2022; estimated 7.0 percent in 2023.
  - Real GDP now exceeds its pre-pandemic level.
- Inflation and expectations:
  - Headline inflation averaged 7.0 percent in 2023 and moderated to 4.9 percent in March (after an uptick in early 2024 due to higher food prices).
  - One-year-ahead inflation expectations: 6.1 percent (as of February 2024).
- Labor market:
  - Total unemployment: 6.3 percent in Q3 2023 (lowest in 27 years).
  - Youth unemployment: 17.8 percent in Q3 2023 (from 25 percent in Q4 2022).
- Fiscal outcomes (FY22/23):
  - Primary fiscal deficit (excluding grants): 2.7 percent of GDP (halved from FY21/22).
  - Augmented primary fiscal deficit (including extra-budgetary special funds): 3.3 percent of GDP.
  - Overall borrowing requirement: 4.7 percent of GDP in FY22/23.
  - Financing included a US$250 million budget loan from the African Development Bank (1.4 percent of GDP) and higher domestic borrowing.
  - Public sector debt-to-GDP ratio: 81.2 percent in June 2023 (down from 91.9 percent in June 2021).
- Monetary stance:
  - Bank of Mauritius (BOM) key policy rate: 4.5 percent (held since December 2022).
  - Interbank (market) rate: aligned with key policy rate during H1 2023 but declined to around 3.1 percent in H2 2023.
  - BOM’s new monetary policy framework launched January 2023; removed excess liquidity in H1 2023 but less so in H2 2023.
  - Resulted in a negative key real policy rate in 2023 (average inflation 7.0 percent vs. key rate 4.5 percent).

### Risks to the outlook
- Downside risks include:
  - Deterioration in global growth.
  - Higher-than-anticipated fuel and food prices.
  - Extreme climate events.
- Structural vulnerabilities:
  - Exposure to climate change and an ageing population affecting medium- to long-term prospects.

### Executive Board / Directors’ assessment and priorities
- Broad agreement with the staff appraisal: welcomed strong recovery but highlighted remaining challenges and downside risks.
- Emphasized need for continued prudent policies to rebuild fiscal and external buffers and structural reforms to address climate change and ageing population.

### Policy recommendations and priorities
- Fiscal policy and debt management:
  - Pursue a gradual and growth-friendly fiscal consolidation over the medium term to rebuild fiscal buffers and further reduce public debt.
  - Mobilize tax revenue and contain current spending while safeguarding critical social spending to protect the most vulnerable.
  - Contain extra-budgetary spending and streamline extra-budgetary special funds.
  - Reinstated public debt ceiling framework should be further strengthened.
- Monetary policy and central bank governance:
  - Strengthen effectiveness of the new monetary policy framework and stand ready to tighten the monetary policy stance should inflationary pressures reemerge.
  - BOM should resume uncapped auctions to better align the interbank rate with the key policy rate.
  - Enhance monetary policy transmission, including by enhancing the communication strategy.
  - Promptly adopt amendments to the Bank of Mauritius Act to protect central bank independence and reinforce credibility.
  - Consider options to gradually phase out the central bank’s ownership of the Mauritius Investment Corporation (MIC) as MIC transitions to a longer-term development function.
- External and exchange rate policies:
  - Continue exchange rate flexibility.
  - Opportunistic foreign exchange purchases, consistent with the monetary policy framework, could help bolster foreign reserve buffers.
  - Bolster foreign reserves to enhance resilience to shocks.
- Financial sector and AML/CFT:
  - Continue close monitoring of financial sector risks, including risks from global business companies in the Mauritius International Financial Center.
  - Sustain AML/CFT compliance and the recent strengthening of the AML/CFT framework.
- Structural reforms for growth and inclusivity:
  - Embrace structural transformation to strengthen the external position and secure resilient, sustainable long-term growth.
  - Boost female labor force participation and address skill mismatches.
  - Foster digitalization and enhance governance and anti-corruption frameworks.
  - Promote external competitiveness and diversification.
  - Enhance climate-resilient infrastructure investment.
  - Reform the pension system and strengthen public financial management.

### Selected quantitative highlights (as stated in the report)
- Growth and inflation:
  - Medium-term real GDP growth: 3.5 percent.
  - Headline inflation: 4.9 percent (2024 average), 3.5 percent (thereafter).
- External sector:
  - Current account deficit: 4.5 percent of GDP (2024), about 4 percent (medium term).
- Public finance and debt:
  - Public debt: 81 percent of GDP (June 2023, estimated).
  - Primary deficit (excluding grants): 2.7 percent of GDP (FY22/23).
  - Augmented primary deficit (including ESFs): 3.3 percent of GDP (FY22/23).
  - Overall borrowing requirement: 4.7 percent of GDP (FY22/23).
  - US$250 million budget loan from AfDB = 1.4 percent of GDP (FY22/23 financing).
- Monetary policy:
  - BOM key policy rate: 4.5 percent (since December 2022).
  - Interbank rate: around 3.1 percent in H2 2023.
- Labor market and expectations:
  - Unemployment rate: 6.3 percent (Q3 2023).
  - Youth unemployment: 17.8 percent (Q3 2023).
  - Headline inflation average 2023: 7.0 percent.
  - One-year-ahead inflation expectations: 6.1 percent (as of February 2024).

*Staff report for the 2024 Article IV Consultation.*

### 5. The external current account deficit narrowed sharply in 2023. A strong rebound in

### 5. The external current account deficit narrowed sharply in 2023. A strong rebound in

### External position
- Current account deficit reduced to 4.5 percent of GDP in 2023, from 11.1 percent in 2022.
- Drivers of the narrowing:
  - Strong rebound in tourism earnings.
  - Higher net income from portfolio investment.
  - Lower commodity import bill.
- Real effective exchange rate appreciated by 2.3 percent, driven by Mauritius’ relatively higher inflation than trading partners.
- External current account projected to remain at 4.5 percent of GDP in 2024 and about 4 percent over the medium term.
- Financial inflows, especially FDI, expected to finance the current account deficit; international reserves projected to gradually increase to cover 9.5 months of imports.

### Financial sector risks and macroprudential framework
- Financial stability risks eased in H2 2023.
- Residential real estate prices: increased sharply in the first half of 2023 (27 percent increase in Q2), then stopped increasing in Q3.
- Housing credit growth peaked at 20 percent in February 2023 and slowed in H2 2023.
- Banks’ claims on central government-to-GDP ratio remains elevated at 20 percent.
- Bank loan concentration in corporate and household sectors decreased to 69.5 percent in 2023, from 74.5 percent in 2021 and 71 percent in 2022.
- Private sector credit growth rebounded to 8.5 percent in 2023, up from 0.7 percent in 2022.
- Share of non-performing loans (NPLs) in the overall financial sector increased to 5.8 percent in Q3 2023 from 4.9 percent at end-2022.
- Capital ratios of the banking system were substantially above benchmarks as of September 2023; return indicators and provisioning for NPLs improved in 2023.
- Net open FX positions of banks increased from 1.7 to 1.9 percent of Tier 1 Capital, remaining below the regulatory limit of 15 percent.
- In February, BOM placed Silver Bank (under 2 percent of total system rupee deposits) under conservatorship.
- Linkages between global business companies (GBC) and domestic banking sector are a source of vulnerability but exposure has been declining:
  - GBCs’ share of foreign exchange deposits in total FX deposits declined from over 60 percent in 2015–19 to 48 percent at end-2023.
  - FX LCR stood at 213 percent in September 2023.

### Macroprudential tools and recent regulatory measures
- BOM toolset includes: Loan to Value, Debt to Income, Liquidity Coverage Ratio, Capital Conservation Buffer, risk weights, sectoral macroprudential provisions.
- Two Guidelines issued in December 2023:
  - Guideline on the classification, provisioning, and write-off of credit exposures: requires banks to make additional macro-prudential provisions for household, construction, and commercial real estate loans.
  - Guideline on Net Stable Funding Ratio (NSFR): requires an enhanced liquidity risk management framework for the banking sector.

### Outlook and risks
- Real GDP growth projections:
  - 2024: 4.9 percent (IMF staff projection), authorities project 6.5 percent.
  - Medium term: around 3.5 percent, in line with pre-pandemic growth.
- Growth drivers: construction (major social housing and public transportation projects) and recovery of tourism to pre-pandemic levels.
- Headline inflation projections:
  - 2024: 4.9 percent on average.
  - Medium term (with closed output gap): 3.5 percent, in line with BOM’s medium-term inflation target.
- Key downside risks:
  - Deterioration in global growth depressing tourism.
  - Higher-than-anticipated fuel and food prices (spillovers from Russia’s war in Ukraine and the conflict in Gaza and Israel).
  - Delays in recalibrating macroeconomic policy mix ahead of elections.
  - Extreme climate events damaging tourism and infrastructure.
- Upside and additional risks:
  - Faster execution of social housing could boost growth but increase pressure on inflation and the exchange rate.
  - Authorities flag geopolitical uncertainty, U.S. elections, wars, and potential regional escalation in the Middle East as key risks.
- Sovereign risk assessment:
  - Overall risk of sovereign stress assessed as high under IMF’s Sovereign Risk and Debt Sustainability Framework.
  - Public sector debt peaked at 92 percent of GDP in June 2021; projected to decline to around 78 percent in June 2024, slightly below the statutory ceiling.
  - Risks to sovereign stress include historical debt shocks, projected financing needs, contingent liabilities related to BOM’s potential recapitalization needs and external debt, population ageing, and climate events.

### Fiscal outlook and stance
- FY23/24 fiscal stance expected to be expansionary:
  - Primary fiscal deficit (excluding grants) projected to widen by 0.2 percentage point to 2.9 percent of GDP.
  - Overall borrowing requirement projected to increase to 5.2 percent of GDP (from 4.7 percent in FY22/23).
  - Augmented primary fiscal deficit—including ESFs’ net spending—projected at 5.7 percent of GDP in FY23/24, compared to 3.3 percent in FY22/23, implying a fiscal stimulus of 2.4 percent of GDP.
  - A World Bank budget loan of US$250 million (1.6 percent of GDP) expected to help finance the budget.
- FY24/25: fiscal stance projected to turn contractionary as ESF’s net spending is expected to decline by 1.4 percentage points of GDP.

### Fiscal consolidation strategy and recommendations
- Need for gradual fiscal consolidation to rebuild pre-pandemic buffers and contain inflationary pressures; expected contractionary stance in FY24/25 is appropriate.
- Medium-term objective: reduce public debt to about 65 percent of GDP.
  - Achieving 65 percent by mid-2026 would require fiscal adjustment of about 6.7 percent per year and is judged challenging.
  - A more gradual path targeting 65 percent by mid-2029 would imply fiscal adjustment in the overall primary balance of about 2.3 percent of GDP per year relative to the staff baseline.
  - This 2.3 percent of GDP adjustment could be achieved through:
    - Increasing tax revenue by +1 percent of GDP yield.
    - Cutting current spending to achieve +1.3 percent of GDP savings.
- Suggested revenue and spending measures (with estimated yields/savings):
  - Remove zero-rating for VAT and reduce the VAT threshold: 0.2 percent of GDP.
  - Lower the minimum income tax paying threshold and increase the top rates: 0.8 percent of GDP.
  - Streamline the CIT exemption regime for offshore companies (all tax expenditures in Mauritius, including CIT exemption): 3.5 percent of GDP.
  - Gradual and targeted phasing out of the CSG income allowance scheme: 0.6 percent of GDP (temporary measure introduced in 2022 to support households).
  - Streamline housing and loan subsidies and improve targeting to protect vulnerable groups.
- Strengthen public financial management (PFM) to support consolidation:
  - Standardize pre-appraisal, assessment, and review of public investments to develop a strategic portfolio of projects.
  - Strengthen financial reporting in line with IPSAS, including planned publication in 2024 of consolidated statements of the public sector.
  - Review scope and reduce number of ESFs and publish ESFs’ spending execution.
- Adjustments of domestic fuel prices should continue to follow the existing automatic price mechanism, using targeted transfers to protect the most vulnerable and reduce budgetary transfers to the State Trading Corporation (STC).
  - Note: STC’s Price Stabilization Account deficit was 0.6 percent of GDP as of January 2024, up from 0.3 percent at end-2021; budgetary transfer to STC of 0.04 percent of GDP in October 2023.

### Pension reform and long-term fiscal sustainability
- Pension reforms proposed to address ageing and fiscal pressures:
  - Gradually increase Basic Retirement Pension (BRP) eligibility age from 60 to 65: potential savings of about 1.4 percent of GDP while targeting benefits to the most vulnerable elderly.
  - Keep Contribution Sociale Généralisée (CSG) pension benefits fixed at the current level over the medium term for those aged between 65 and 75: potential savings of 0.4 percent of GDP, while keeping the BRP benefit fixed until it reaches 20 percent of average wage.
  - Reform the CSG to collect contributions from workers and provide benefits only to contributors.

### Public debt framework and governance
- Public debt ceiling framework recommendations:
  - Adjust escape clauses for ceiling breaches to strengthen credibility: define “natural disaster” and “economic slowdown” more precisely and drop the clause on large public investments.
  - Further enhancements:
    - Introduce a medium-term debt target in the debt ceiling legislation.
    - Adopt a short-term operational rule for the fiscal balance to achieve the medium-term debt target.

*Source: INTERNATIONAL MONETARY FUND*

### 1.1 percent of GDP in FY23/24. They noted that Mauritius has never experienced sovereign stress

### 1musea2024001 - 1.1 percent of GDP in FY23/24. They noted that Mauritius has never experienced sovereign stress

### Fiscal position, debt strategy, and revenue mobilization
- Authorities note Mauritius has never experienced sovereign stress and that their debt management strategy is prudent, ensuring favorable maturity and currency composition.
- Public sector debt objectives:
  - Aim to keep public sector debt significantly below 80 percent of GDP in the medium term.
  - Target 65 percent by June 2026.
- Revenue mobilization:
  - Agreed there is room to increase domestic revenue mobilization.
  - Tax revenue could reach at least 25 percent of GDP.
  - Consideration to make the corporate income tax more progressive and mobilize more revenue from some specific sectors.
- Fiscal policy stance:
  - Containing current spending is important.
  - Given several shocks, protecting the vulnerable requires that critical social spending be maintained.

### Managing inflation pressures and monetary policy framework
- Inflation-targeting framework (in place since January 2023) features:
  - A 2 to 5 percent inflation target range, with the aim of reaching 3.5 percent over the medium term.
  - Modernized operations and a Forecasting and Policy Analysis System (FPAS).
  - Key policy rate defined as the rate BOM pays for 7-Day BOM Bills; this rate has been at 4.5 percent since end-2022.
- Recent inflation and real rate dynamics:
  - Q1 2024 average inflation remains above BOM’s target range (though is expected in range for 2024).
  - The real key policy rate (key policy rate minus inflation) has been negative since August 2021 but turned positive at the end of 2023 towards the natural rate (estimated at 0.9 percent).
- Policy recommendation:
  - BOM should remain vigilant and stand ready to tighten monetary conditions should inflationary pressures reemerge, maintaining forward-looking interest rate steering.
- Strengthening the framework:
  - Implementation could be strengthened by resuming uncapped issuance of 7-Day BOM bills remunerated at the key policy rate to realign the key policy rate and the interbank rate.
  - Deeper analysis of monetary policy transmission channels (interest rate, credit, exchange rate, expectations) is recommended.
  - Enhance monetary policy communication strategy (for example, by announcing the schedule for monetary policy committee meetings).

### Bank of Mauritius (BOM) operations, legal amendments, and FX strategy
- Operational notes:
  - During H1 2023, BOM drained excess liquidity aligning interbank rate with the key policy rate of 4.5 percent.
  - With capped 7-Day BOM Bills issuance in H2 2023 (up to Rs 1,000 to 5,000 million per week), interbank rate fell to 3.1 percent, below the key policy rate of 4.5 percent and close to the 3.0 percent rate on the uncapped overnight deposit facility.
  - Issuance of BOM longer-term securities increased mid-2023 at relatively low volumes.
- Legal and institutional recommendations:
  - Prompt adoption of amendments to the BOM Act, including to ensure fiscal backing, would help protect central bank independence.
  - Amendments should enable smooth open market operations to implement price and financial stability mandates.
  - A policy solvency assessment and a study of BOM’s operational costs compared with peers could guide assessment of BOM’s annual accounts.
  - Any government recapitalization of BOM should be consistent with BOM Act amendments.
- FX interventions and reserves:
  - BOM’s net sales of FX decreased to US$0.4 billion in 2023 compared to US$0.8 billion in 2022.
  - Gross official reserves fell to US$7.3 billion (about 9.7 months of imports) at end-2023 compared to US$7.7 billion at end-2022.
  - Using a modified IMF reserve adequacy metric (ARA), gross official reserves at end-2023 amounted to 97.9 percent of the metric, near the lower bound of the recommended 100–150 percent range.
  - Continued exchange rate flexibility and FX purchases when opportunities arise—and in line with the monetary policy framework—are recommended to bolster reserves.
  - Conditions in 2024 are expected to be favorable for a smooth adoption of BOM’s new FXI strategy under which BOM would intervene only to avoid disorderly market conditions.
- Authorities’ view on FX goal:
  - Authorities intend to opportunistically accumulate FX reserves with a goal to reach US$8 billion by end-2024.

### Mauritius Investment Corporation (MIC) ownership and risks
- Background:
  - MIC was created and financed by BOM in 2020-21 via transfers for Rs 81 billion or 17 percent of 2021 GDP.
  - As of end-2023, MIC has invested Rs 52 billion (8 percent of GDP) in 52 entities in Mauritius.
- Recommendations and fiscal implications:
  - BOM should consider options to gradually phase out its ownership in MIC.
  - Alternative institutional arrangements include placing MIC under a separate government entity or with the private sector.
  - Buying out BOM’s full ownership of MIC (including MIC deposits equivalent to 4 percent of GDP) would entail a fiscal cost of 12 percent of 2023 GDP.
  - Independent audit of MIC’s asset quality should be considered.
  - MIC’s commitment to uphold the Santiago Principles for Sovereign Wealth Funds would strengthen institutional safeguards.
- Authorities’ stance:
  - Authorities expressed strong reservations against BOM withdrawing ownership from MIC, noting MIC is performing well and started to generate profits (0.4 percent of GDP per the 2022 MIC audited financial statements).
  - Authorities noted BOM increased its capital from Rs 2 billion to Rs 10 billion in July 2020 and consider this to be sufficient.
  - They aim to adopt amendments to the BOM Act in 2025, prepared with Fund assistance.

### Financial sector resilience, macro-financial risks, and AML/CFT
- Financial sector resilience and risks:
  - Macro-financial risks have eased with the slowdown in housing loan growth; however, close monitoring of financial sector risks including the recent increase in NPLs should continue.
  - Sound lending standards should be maintained.
  - Regular stress testing of banks’ assets and portfolios remains vital.
  - Medium-term fiscal consolidation and strengthening SOEs’ financial position would help reduce banks’ exposure to public sector risks.
  - Exchange rate exposure in sectoral balance sheets is limited and financial stability risks from exchange rate flexibility appear contained.
- Credit and exposure data and findings:
  - Banks’ loans to corporates and households represent almost 70 percent of total bank loans in 2023.
  - Banks’ claims on central government-to-GDP ratio remains elevated.
  - Housing credit growth slowed in H2-2023 after a period of fast growth.
- AML/CFT progress and recommendations:
  - Recent progress in strengthening the AML/CFT framework is welcome and should be sustained to mitigate non-resident risks, including developing a Beneficial Ownership Register and strengthening Financial Services Commission capacity.
  - Swift implementation of planned actions to strengthen risk-based AML/CFT supervision of the financial sector and GBCs is encouraged.
- Box 1 highlights:
  - Mauritius was removed from FATF increased monitoring in 2021 after strengthening the AML/CFT framework.
  - Mauritius is technically compliant or largely compliant with 40 out of 40 FATF recommendations.
  - Institutional arrangements strengthened: Financial Crimes Commission Act, a core group reporting to a ministerial committee chaired by the Prime Minister, incorporation under FIAMLA, and ongoing preparation for the ESAAMLG AML/CFT assessment scheduled for 2027.
  - The authorities are conducting the second National Risk Assessment using the World Bank methodology and expect to finalize the NRA report during Q1 2024.

### External competitiveness and structural reform priorities
- External position assessment:
  - Mauritius’ external position at end-2023 is assessed as moderately weaker than the level implied by fundamentals and desirable policies.
  - Estimated 2023 current account gap: -1.2 percent of GDP.
  - Real exchange rate assessment: 3.9 percent overvaluation in 2023.
- Policy recommendations to support competitiveness and growth:
  - Advance structural reforms to foster private sector investment and economic diversification to support external competitiveness and sustainable financial inflows, including FDIs in new productive sectors.
  - Promote more open, stable, and transparent trade policies.
  - Structural reforms would support boosting the external current account balance and economic growth.

*International Monetary Fund staff summary based on the source content.*

### 37. As Mauritius aims to attain high-income status, economic diversification will be

### 37. As Mauritius aims to attain high-income status, economic diversification will be

### Economic diversification and complexity
- The share of services in value added has increased over time, but Mauritius remains a relatively less diversified economy with low economic complexity compared to some of its peers (other investment hubs).
- Mauritius’ complexity ranking has improved over time, despite a slight worsening in 2021.
- The Economic Complexity Index (ECI) measures an economy’s capabilities based on the diversity, ubiquity, and complexity of its export basket.
- Authorities’ strategy to pursue diversification focuses on supporting the development of the information and communication technology (ICT) and digital sectors, pharmaceuticals, and renewable energy.

### Structural reform priorities to support private investment and diversification
- Reducing skill mismatches in the domestic labor market:
  - Continue public and private sector-funded training schemes and reforms to facilitate the inclusion of foreign workers in the domestic labor market.
  - Progress in the implementation of the National Skills Development Strategy is welcome.
  - Regular consultations with the private sector should continue to ensure that policies and programs are fit-for-purpose.
- Further strengthening governance and the anti-corruption framework:
  - Advance plans to strengthen accountability and anti-corruption mechanisms.
  - Sustain efforts to maintain strong institutions, good governance, and improve the business environment to remain attractive to private investors.
- Fostering digitalization:
  - Continue efforts to strengthen the quality of digital connectivity and internet usage.
  - Strengthen institutional and technological safeguards on digitalization (including supported by IMF TA on cybersecurity).
  - Use digitalization to enhance revenue collection, strengthen the efficiency of public spending, and improve fiscal transparency.

### Female labor force participation and inclusive growth
- Female labor force participation (FLFP) and employment in Mauritius are well below that of men, and below that of women in comparator countries.
- Boosting FLFP to the OECD average could raise potential growth by 0.8 percentage point per year over the medium term (Selected Issues Paper).
- Policy measures to sustain:
  - Foster women’s skills and education, notably in science and technology.
  - Improve availability of childcare.
  - Improve maternal and paternal leave policies.
- Prime à L’Emploi (policy initiative):
  - Introduced in the 2022 Finance Act to incentivize young people and women to join the labor force.
  - Government provides a monthly contribution to firms up to Rs 15,000 for the first year of employment of youths aged between 18 and 35 years and women aged up to 50 years.
  - Modified under the 2023 Finance Act by extending its duration by two years while resetting the coverage to women and disabled individuals.
  - The fiscal cost of the program was 0.3 percent of GDP in FY2022/23 (1.2 percent of government current spending).
  - As of February 2024, about 6,500 women, representing about 1 percent of the labor force, had benefited from the scheme.
  - About 30 percent of eligible beneficiaries (including women) did not take advantage of the scheme as of February 2024; possible factors include employer costs (traveling, training levy and other emoluments), inability to claim the salary subsidy before fully complying with tax laws, and employer requirements to safeguard employment for two additional years.

### Climate resilience and adaptation investment
- Increasing adaptation investment can help Mauritius smooth the impact of extreme climate events (Annex IV).
- Building resilience to climate shocks is a national priority.
- Continue to scale-up public investment in resilient infrastructure to mitigate climate shocks.
- Consider a financing mix that includes grants, concessional financing, and domestic revenue mobilization to help preserve debt sustainability.
- Authorities noted that smoothing the impact of climate shocks will require continued investment in climate-resilient infrastructure preferably with grant or concessional financing.
- Authorities have advanced reforms in support of climate change mitigation, including tax incentives on electric vehicles whose sales doubled in 2023.

### Authorities’ views on diversification and labor supply
- Authorities broadly agreed that structural reforms remain key for diversification and building resilience to shocks.
- Their goal to achieve high-income status encompasses comprehensive reforms and creation of new growth poles in pharmaceuticals, biotechnology, information technology, and renewable energy.
- Strategy encompasses development of the blue and silver economy—encompassing ocean resources and the needs of the elderly.
- Recent and planned measures include requalifying coastal development and reclaiming land from the sea.
- Authorities committed to measures to reduce skill mismatches, facilitate hiring of foreign labor, and encourage women employment to close the labor supply shortfall estimated at 50,000 workers.

### Statistics, technical assistance, and capacity development
- Data provision is assessed as broadly adequate for surveillance.
- Statistics Mauritius (SM) ongoing efforts:
  - Narrow discrepancies between demand- and supply-side GDP methodologies.
  - Improve measurement of some sectors (including the GBC sector) and external sector statistics.
  - Improve compilation of the residential property price index.
  - Plans to streamline activities to focus on estimations of economic activity including high-frequency and leading indicators.
  - SM should advance efforts to increase its data dissemination to reach the Special Data Dissemination Standard Plus level.
- Capacity development (CD) and Fund Technical Assistance (TA):
  - Implementation of recommendations from Fund TA has been satisfactory.
  - Priority CD areas include strengthening the fiscal and debt framework, improving revenue mobilization, ongoing FPAS development, safeguarding BOM independence, and strengthening financial stability.
  - Continue CD projects to strengthen statistics (real sector, prices, monetary and financial sector, and balance of payments).
- Authorities’ requests and interests in TA:
  - Customization of the monetary policy framework for Mauritius and assistance on the FPAS.
  - Assistance to finalize the Banking Bill and amend the BOM Act, as well as CBDC regulation.
  - Assistance to develop a climate macro framework tool and climate risk integration.
  - Transitioning to accrual accounting and reporting in line with IPSAS.
  - TA to boost revenue mobilization and to strengthen coverage and granularity of exports statistics, including by destination countries.

### Staff appraisal and policy recommendations
- Recent assessment of the economy:
  - The economy rebounded strongly from the pandemic and the outlook remains favorable, but challenges remain.
  - Challenges: (i) fiscal and external buffers were eroded during the pandemic, and (ii) vulnerabilities to climate change and an ageing population loom over the medium- to long-term economic prospects.
  - Growth is expected to moderate in the medium term in line with potential, and risks to the outlook are on the downside.
- Fiscal policy recommendations:
  - Pursue growth-friendly fiscal consolidation over the medium term to rebuild fiscal buffers while protecting the most vulnerable.
  - Increase tax revenue and contain current and ESFs’ spending while safeguarding critical social spending.
  - Pension system reform remains key to support fiscal sustainability given ageing population.
  - Strengthen public financial management, including by streamlining ESFs, to support fiscal consolidation, transparency, and good governance.
  - Strengthen the new public debt ceiling framework by adjusting escape clauses for ceiling breaches.
- Monetary and exchange rate recommendations:
  - Implement the BOM’s new monetary policy framework more robustly and adopt amendments to the BOM Act.
  - BOM should resume uncapped auctions to better align the interbank rate with the key policy rate.
  - Enhance monetary policy communication strategy to strengthen transmission.
  - BOM should stand ready to tighten the monetary policy stance should inflationary pressures reemerge.
  - Continue exchange rate flexibility and advance FX purchases when opportunities arise, in line with the monetary policy framework, to help bolster foreign reserves buffers.
  - To help preserve BOM’s independence, consider options to gradually phase out its ownership of the MIC and promptly adopt amendments to the BOM Act including to ensure fiscal backing of the central bank.
- External sector and AML/CFT:
  - Mauritius’ external position at end-2023 was moderately weaker than the level implied by fundamentals and desirable policies.
  - Structural reforms to foster external competitiveness are needed to reduce external imbalances.
  - Recent progress in strengthening the AML/CFT framework is welcome and should be sustained, including provisions related to non-resident and cross-border activity.
  - Sustain efforts to improve external sector statistics, including measurement of the GBCs sector.
- Overall recommendation:
  - Continue to embrace structural transformation to secure resilient and sustainable long-term growth, with priorities including boosting female labor force participation and expanding skills, fostering digitalization, and enhancing climate-resilient infrastructure investment.

*MAURITIUS  INTERNATIONAL MONETARY FUND*

### 50. Staff recommends that the next Article IV consultation takes place on the standard

### 50. Staff recommends that the next Article IV consultation takes place on the standard 

### Real Sector Developments
- The economy has recovered from the pandemic and real GDP now exceeds its pre-pandemic level.
- Real GDP growth (annual percent change): 2019: 2.9; 2020: -14.5; 2021: 3.4; 2022: 8.9; 2023: 7.0; 2024: 4.9; 2025: 3.7; 2026: 3.5; 2027: 3.3; 2028: 3.3; 2029: 3.3.
- Real GDP per capita (annual percent change): 2019: 2.9; 2020: -14.6; 2021: 3.6; 2022: 9.1; 2023: 7.0; 2024: 4.9; 2025: 3.7; 2026: 3.5; 2027: 3.3; 2028: 3.3; 2029: 3.3.
- GDP per capita (in U.S. dollars): 2019: 11,408; 2020: 9,011; 2021: 9,087; 2022: 10,251; 2023: 11,417; 2024: 12,997; 2025: 14,025; 2026: 15,061; 2027: 16,045; 2028: 17,078; 2029: 18,157.
- Output gap: the output gap is nearly closed (chart indicates movement toward zero; specific series shown as "Output Gap (In percent of potential GDP)").
- Unemployment rate (percent): 2019: 6.7; 2020: 9.2; 2021: 9.1; 2022: 6.8; 2023: 6.3; projected 2024–2029: 6.3 each year.
- Tourism: Tourist arrivals and receipts have picked up strongly; tourism receipts growth (percent change): 2019: -5.9; 2020: -73.8; 2021: -23.8; 2022: 313.1; 2023: 29.7; 2024: 12.0; 2025: 6.7; 2026: 6.9; 2027: 6.0; 2028: 5.7; 2029: 5.5.
- Inflation: Consumer prices inflation (period average): 2019: 0.5; 2020: 2.5; 2021: 4.0; 2022: 10.8; 2023: 7.0; 2024: 4.9; 2025: 3.6; 2026: 3.8; 2027: 3.5; 2028: 3.5; 2029: 3.5.
- Consumer prices inflation (end of period): 2019: 0.9; 2020: 2.7; 2021: 6.8; 2022: 12.2; 2023: 3.9; 2024: 5.1; 2025: 4.0; 2026: 3.6; 2027: 3.5; 2028: 3.5; 2029: 3.5.
- Core inflation (Core 1 excludes food, beverages and tobacco components and mortgage interest on housing loan from headline inflation) shown as series; monthly Core 1 and headline averages indicate inflation has declined but remains above the target range of 2-5 percent.
- Risks: Significant weather events present a downside risk to the outlook (figure showing storms: Belal (2024), Batsirai (2022), Freddy (2023) with strongest winds since end-2018).

### External Sector Developments
- Current account balance improved in 2023 supported by the rebound in tourism.
- Current account balance (millions of US dollars): 2019: -718; 2020: -1,003; 2021: -1,497; 2022: -1,437; 2023: -654; 2024: -739; 2025: -767; 2026: -783; 2027: -826; 2028: -877; 2029: -937.
- Current account balance (percent of GDP): 2019: -5.0; 2020: -8.8; 2021: -13.0; 2022: -11.1; 2023: -4.5; projected 2024–2029: -4.5, -4.3, -4.1, -4.1, -4.1, -4.1 respectively.
- Trade balance (millions of US dollars): 2019: -3,071; 2020: -2,126; 2021: -2,683; 2022: -3,618; 2023: -3,607; projected 2024–2029: -3,807; -3,752; -3,844; -3,998; -4,164; -4,272.
- Exports of goods and services, f.o.b. (percent of GDP): 2019: 36.4; 2020: 27.1; 2021: 27.8; 2022: 38.7; 2023: 38.2; 2024: 38.0; 2025: 38.0; 2026: 38.4; 2027: 38.1; 2028: 37.4; 2029: 36.7.
- Imports of goods and services, f.o.b. (percent of GDP): 2019: -51.0; 2020: -45.8; 2021: -52.7; 2022: -62.3; 2023: -55.8; 2024: -55.1; 2025: -53.1; 2026: -52.7; 2027: -51.9; 2028: -51.0; 2029: -49.8.
- Direct investment in Mauritius increased in 2023 (financial flows chart and Table 3 show net direct investment in Mauritius in 2023: 446 million US dollars).
- Net financial inflows are expected to improve in 2024 and remain in surplus over the medium term (Financial and Capital Account Projections show Financial account: 2024: 2.1 percent of GDP; 2025: 2.0; 2026: 1.8; 2027: 1.7; 2028: 1.6; 2029: 1.5).
- Gross international reserves (millions of U.S. dollars): 2019: 7,354; 2020: 7,242; 2021: 7,805; 2022: 7,740; 2023: 7,254; projected 2024–2029: 7,604; 7,954; 8,304; 8,654; 9,004; 9,354.
- Months of imports of goods and services (reserves): 2019: 16.9; 2020: 14.3; 2021: 11.6; 2022: 11.6; 2023: 9.6; projected 2024–2029: 9.7; 9.5; 9.5; 9.5; 9.5; 9.5.
- Reserves movements in 2023: Gross international reserves fell in 2023 driven by a drop in banks' FX deposits at the BOM and net FX sales by the BOM (Changes in Reserves chart shows Sales interventions by BOM and other factors).

### Financial Sector Developments
- Banking system capital ratios are substantially above benchmarks. Regulatory capital to risk-weighted assets (percent): latest values in time series show 21.4, 20.9, 21.4 (selected recent points); Regulatory Tier 1 capital to risk-weighted assets similarly around 19.5 to 19.8.
- Non-performing loans to total loans: recent observations (Sep 2023 Q3) show 5.8 percent (series across periods: 2019–2023 Q3).
- Non-performing loans net of provisions to capital: values across periods with Sep 2023 around 10.1.
- Bank profitability: Return on assets and return on equity improved in 2023—Return on assets (percent): recent values 2.5, 2.6, 2.6; Return on equity (percent): recent values 21.4, 22.1, 21.6.
- Interest margin to gross income and non-interest expenses to gross income show trends: interest margin increased to the mid-70s percent range in recent periods; non-interest expenses to gross income declined to low 30s percent in recent quarters.
- Liquidity Coverage Ratio maintained above the regulatory limit of 100 percent (Liquidity indicators show Liquidity Coverage Ratio (RHS) series above 100 percent across 2018–2023).
- Net FX positions are well below the regulatory limit of 15 percent; Net open position in foreign exchange to capital series are well under 15 percent (examples: 1.1–3.4 percent across periods).
- Banking sector demonstrated resilience in 2023.
- Financial Soundness Indicators (Table 5, selected):
  - Regulatory capital to risk-weighted assets: range ~19.3–21.4 across 2018–2023 observations.
  - Non-performing loans to total loans: range ~4.7–6.3 across observations.
  - Return on assets: range ~1.0–2.6 across observations.
  - Liquid assets to total assets: range ~45.5–59.2 across observations.
  - Customer deposits to total (non-interbank) loans: values above 161.2 in multiple periods, rising in 2022–2023 observations.

### Fiscal Sector Developments
- Fiscal stance: expected to be expansionary in FY23/24 and turn contractionary in FY24/25.
- Central government finances (selected indicators, Table 1):
  - Overall borrowing requirement (percent of fiscal year GDP): 2019: -12.7; 2020: -22.1; 2021: -5.4; 2022: -4.7; 2023: -5.2; 2024: -5.4; 2025: -4.4; 2026: -4.1; 2027: -3.7; 2028: -3.8; 2029: -4.0.
  - Primary balance (excluding grants) (percent of GDP): 2019: -9.5; 2020: -16.5; 2021: -4.9; 2022: -2.7; 2023: -2.9; 2024: -3.1; 2025: -2.0; 2026: -1.7; 2027: -1.3; 2028: -1.3; 2029: -1.3.
  - Revenues (including grants) (percent of GDP): 2019: 22.1; 2020: 21.6; 2021: 24.1; 2022: 24.3; 2023: 24.2; 2024: 23.3; 2025: 23.0; 2026: 23.2; 2027: 23.2; 2028: 23.2; 2029: 23.2.
  - Expenditure, excl. net lending (percent of GDP): 2019: 33.5; 2020: 40.4; 2021: 31.0; 2022: 29.2; 2023: 28.9; 2024: 28.4; 2025: 27.3; 2026: 27.3; 2027: 27.0; 2028: 27.1; 2029: 27.2.
- Public debt:
  - Central government domestic debt (percent of fiscal year GDP): 2019: 63.6; 2020: 67.5; 2021: 61.7; 2022: 56.9; 2023: 53.7; projected 2024: 54.3; 2025: 55.1; 2026: 55.5; 2027: 55.6; 2028: 55.8; 2029: 56.5.
  - Central government external debt (percent of fiscal year GDP): 2019: 9.3; 2020: 15.8; 2021: 14.0; 2022: 13.7; 2023: 14.2; projected 2024: 13.9; 2025: 13.6; 2026: 13.5; 2027: 13.5; 2028: 13.4; 2029: 13.1.
  - Public sector debt (percent of GDP, Table 1 memorandum): 2019: 81.1; 2020: 91.9; 2021: 85.9; 2022: 81.2; 2023: 78.3; projected 2024–2029 show gradual decline to 76.9 by 2029.
- Debt service and interest rates: Despite recent declines, interest rates remain relatively high, putting pressure on debt service. Yield on Government Treasury Bills and Bonds series shown across maturities (December 2019, December 2020, December 2021, December 2022, January 2024, December 2023) indicate elevated yields across short and medium tenors.
- Pension costs: Pension spending and demographic trends will continue to put pressure on overall spending; pension spending projected trends shown in FY projections and long-term dependency ratios: 60+ dependency ratio and 65+ dependency ratio series from 2019 through 2059 illustrate rising demographic pressures.
- Fiscal composition: Current expenditure remains above the pre-pandemic level; net expenditure from special funds is projected to decline in FY24/25.
- Consolidated central government finances (Table 2a highlights, FY amounts in Millions of Rupees): Total revenue and grants FY2023/24: 148,360; FY2024/25: 166,530; FY2025/26: 174,595; Total expense (current spending) FY2023/24: 158,119; FY2024/25: 176,857; FY2025/26: 188,878.
- Overall borrowing requirement (Table 2a, Millions of Rupees): FY2019/20: -23,127; FY2020/21: -60,003; FY2021/22: -100,776; FY2022/23: -28,487; FY2023/24: -28,629; FY2024/25: -35,926; FY2025/26: -40,275.
- Financing composition (Table 2a): Domestic financing and foreign financing components presented (domestic and foreign financing amounts for each FY).

### Money, Credit, and Reserves
- Gross international reserves (millions of U.S. dollars, Table 3 memorandum): 2019: 7,354; 2020: 7,242; 2021: 7,805; 2022: 7,740; 2023: 7,254; projections through 2029 increase to 9,354.
- Monetary aggregates (Table 4, selected):
  - Money and quasi-money (M2, Millions of Rupees): 2019: 471,653; 2020: 554,951; 2021: 602,831; 2022: 627,747; 2023: 677,008; projections 2024–2029 rising to 1,124,300 by 2029.
  - M2 (percent change): 2019: 6.2; 2020: 17.7; 2021: 8.6; 2022: 4.1; 2023: 7.8; 2024: 8.3; 2025: 8.9; 2026: 9.3; 2027: 8.9; 2028: 8.8; 2029: 8.8.
  - M3 (M2 plus resident FC deposits and securities other than shares, Millions of Rupees): 2019: 601,973; 2020: 703,593; 2021: 765,847; 2022: 806,105; 2023: 864,674; projected 2024–2029 rising to 1,542,778.
- Bank sector net foreign assets (in millions of US dollars): 2019: 10,337; 2020: 11,857; 2021: 12,798; 2022: 13,023; 2023: 13,628; projections 2024–2029 near 13,637 down to 13,637 etc. (Table 4 series provide detailed levels).
- Net foreign assets of BoM (in millions of US dollars): 2019: 7,354; 2020: 7,210; 2021: 7,035; 2022: 6,624; 2023: 5,777; projected 2024–2029: 6,069; 6,305; 6,541; 6,778; 7,014; 7,250.

### Key Projections and Medium-Term Outlook (selected from tables)
- Real GDP growth: 2024: 4.9 percent; 2025: 3.7 percent; 2026: 3.5 percent; 2027–2029: 3.3 percent each year.
- Consumer prices inflation (period average): 2024: 4.9 percent; 2025: 3.6 percent; 2026: 3.8 percent; 2027–2029: 3.5 percent each year.
- Current account balance (percent of GDP): 2024: -4.5; 2025: -4.3; 2026: -4.1; 2027–2029: -4.1 each year.
- Financial account (percent of GDP): 2024: 2.1; 2025: 2.0; 2026: 1.8; 2027: 1.7; 2028: 1.6; 2029: 1.5.
- Total external debt (percent of GDP): 2023: 128.9; 2024: 119.8; 2025: 112.3; 2026: 105.4; 2027: 99.6; 2028: 93.8; 2029: 88.4.
- Gross international reserves (millions of U.S. dollars): see series above; months of imports converge to 9.5 months by 2024–2029.

### Policy-relevant Findings and Considerations (implicit from content)
- Macroeconomic outlook: Recovery from the pandemic is underway with tourism-led improvements supporting the external position and growth returning to pre-pandemic levels.
- Inflation: Inflation has declined from 2022 highs but remains above the 2-5 percent target range; policy attention to inflation dynamics is warranted.
- External buffers: Gross international reserves fell in 2023 but are projected to recover through 2029; monitoring BOM FX operations and bank FX deposits is important.
- Fiscal policy: The fiscal stance is projected to be expansionary in FY23/24 and contractionary in FY24/25; public debt remains relatively high in the medium term and interest rate dynamics increase debt service pressures.
- Structural pressures: Pension costs and demographic trends will exert upward pressure on spending over the long term.
- Financial sector: Banking sector is well capitalized and liquid with resilience demonstrated in 2023, but asset quality and interest rate pressures should be monitored.

*Source: IMF staff estimates, country authorities, and figures and tables as presented in the provided IMF chapter content.*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### Global Risks — Conjunctural Risks
- Commodity price volatility
  - Likelihood: High
  - Expected Impact: High. "Increase in commodity prices leads to real sector volatility and decline in real income globally. Lower external demand for tourism, higher cost of commodity imports, higher untargeted fuel subsidies, accelerating domestic inflation."
  - Policy Recommendation:
    - "Allow fuel prices to adjust in line with fuel price adjustment mechanism."
    - "Use targeted transfers to support vulnerable households from the impact of higher fuel prices."
    - "Outlook-based monetary tightening to address inflationary pressures and prevent de-anchoring inflation expectations."
    - "Strengthen external buffers."

- Abrupt global slowdown (including China, Europe, U.S. scenarios)
  - Likelihood: Medium
  - Expected Impact: Medium. "Lower external demand for export of goods and tourism negatively impacts the balance of payments and the growth outlook. Volatility of the exchange rate. Lower activity in the GBC and banking sector."
  - Policy Recommendation:
    - "Adjust the pace of monetary tightening and fiscal consolidation."
    - "FX interventions to smooth excessive volatility, while allowing for flexible exchange rate."

- Systemic financial instability
  - Likelihood: Medium
  - Expected Impact: Medium. "Capital outflows to “safe havens” and sudden stops in FDIs. Slowdown and elevated liquidity and rollover risks in GBC and banking sectors."
  - Policy Recommendation:
    - "Adopt measures to ensure financial system FX liquidity (incl. swaps with AEs central banks, FX intervention), while generally allowing for exchange rate flexibility."
    - "Monitor prudential risks at macro- and micro-level including through stress testing, adopt targeted macroprudential measures."
    - "Calibrate fiscal and monetary policies consistent with the medium-term objectives and outlook."
    - "Implement structural reforms to support private sector investment."
    - "Sustain compliance with AML/CFT standards."

Note: "1/ The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path. The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. The conjunctural shocks and scenarios highlight risks that may materialize over a shorter horizon (between 12 to 18 months) given the current baseline. Structural risks are those that are likely to remain salient over a longer horizon."

---

### Structural Risks
- Deepening geoeconomic fragmentation
  - Likelihood: High
  - Expected Impact: Medium. "Emerging barriers to trade and lower eternal demand for exports and tourism, rising cost of external funding, slow-down in growth and reduction in potential growth."
  - Policy Recommendation:
    - "Implement structural reforms to support private sector investment and economic diversification."
    - "Calibrate fiscal and monetary policies consistent with supporting growth while preserving macroeconomic stability."
    - "Support price competitiveness via flexible exchange rate."

- Extreme climate events
  - Likelihood: Medium
  - Expected Impact: High. "Lower external demand, including for tourism and negative impact on the growth outlook. Inflationary pressure. Damage to local infrastructure in case of local extreme climate events."
  - Policy Recommendation:
    - "Build resilience to climate change including through climate adaptation investment while preserving debt sustainability."
    - "Structural reforms to support private sector investment and promoting economic diversification."

---

### Domestic Risks — Conjunctural Risks
- Large fiscal slippages ahead of elections
  - Likelihood: High
  - Expected Impact: High. "Deterioration of the fiscal position, larger financing needs and worsening debt dynamics. Aggregate demand induces activity above capacity."
  - Policy Recommendation:
    - "Adopt a medium-term fiscal consolidation strategy, underpinned by credible measures to foster revenue mobilization, and increase spending efficiency."
    - "Reform the pension system to support fiscal sustainability."
    - "Strengthen the new debt framework."
    - "Strengthen the monetary policy framework and implement a forward-based monetary tightening to counter any inflationary pressures."

- Delayed and incomplete tightening of monetary policy stance by the Bank of Mauritius
  - Likelihood: Medium
  - Expected Impact: Medium. "Inflation persistently above the BOM’s target and inflation expectations de-anchored. Larger policy tightening is required to re-anchor expectations down the road with a negative impact on the growth outlook."
  - Policy Recommendation:
    - "Assess whether more capital buffers are needed to support BOM independence and implementation of its price and financial stability mandate."
    - "Strengthen the monetary policy framework and tighten monetary policy guided by the macroeconomic outlook."

---

### Annex II. Sovereign Risk and Debt Sustainability Framework (DSA) — Summary and Assessment

- Overall assessment
  - Mechanical signal: (not shown)
  - Final assessment: Overall ... High
  - Comments: "The overall risk of sovereign stress is high, reflecting mostly a high level of vulnerability in the medium- and long-term horizons."

- Horizon assessments
  - Near term: Medium term Moderate High
    - "Significant quasi-fiscal operations from the MIC (fully owned by the BOM), recapitalization needs of the BOM, and the large stock of the BOM external debt pose significant contingent liability risks to the central government in the medium term. High vulnerability to climate shocks poses significant growth and fiscal risks."
  - Long term: Final assessment ... High
    - "Long-term risks are high as Mauritius faces a declining population due to ageing and is highly vulnerable to climate shocks. On current policies, pension spending would increase over the long term, leading to unsustainable financing needs. A scaling up in climate adaptation investment would also push financing needs and the stock of debt above the baseline in the long term."

- DSA Summary Assessment — Commentary
  - "Mauritius is at a high overall risk of sovereign stress."
  - "Although debt is projected to decline further, it is expected to remain high in the baseline during an extended time horizon."
  - Risk mitigants:
    - "A favorable currency and maturity composition of debt which make liquidity risks moderate in the medium term, as assessed by the GFN Financeability Module."
    - "The deep domestic capital markets and banks' excess liquidity further mitigate the risks."
  - Policy implications:
    - "As the post-pandemic recovery continues, implementing a credible medium-term fiscal consolidation would help reduce debt vulnerabilities."
    - "Reforms to tackle risks arising from population ageing and increase resilience to climate change shocks would support fiscal and debt sustainability."

- Notes on DSA procedure and publication
  - "The risk of sovereign stress is a broader concept than debt sustainability. Unsustainable debt can only be resolved through exceptional measures (such as debt restructuring). In contrast, a sovereign can face stress without its debt necessarily being unsustainable, and there can be various measures—that do not involve a debt restructuring—to remedy such a situation, such as fiscal adjustment and new financing."
  - "1/ The near-term assessment is not applicable in cases where there is a disbursing IMF arrangement. In surveillance-only cases or in cases with precautionary IMF arrangements, the near-term assessment is performed but not published."
  - "2/ A debt sustainability assessment is optional for surveillance-only cases and mandatory in cases where there is a Fund arrangement. The mechanical signal of the debt sustainability assessment is deleted before publication. In surveillance-only cases or cases with IMF arrangements with normal access, the qualifier indicating probability of sustainable debt ("with high probability" or "but not with high probability") is deleted before publication."

*Source: Fund staff.*

### 5. Debt consolidation across sectors:

### 5. Debt consolidation across sectors:

### Reporting on intra-government debt holdings and debt stock composition
- Holder-level reporting (percent of GDP) shows central government budget as main holder: "Budget. central govt 13.95 6.5 0.4 3.5 15.0 25.4 114.7" (values preserved as presented).
- Central bank holdings shown: "Central bank 0.6 4.9 0.2 1.2 7.0".
- Total line in table: "Total 0 14.5 6 1.4 0.0 0.4 3.7 15.0 26.6 121.6".
- Notes on valuation and recording:
  - Nominal value definition and face value definition provided as in source (see footnotes 5/ and 6/).
  - Market value applies only to traded debt securities (footnote 7/).
- Comment: Includes National Property Fund; Mauritius' Development Bank is included, but not the State Bank of Mauritius.

### Public debt structure and composition (indicators and projections)
- Commentary: "The debt-to-GDP ratio will remain elevated in the medium term given the projected primary fiscal deficit. Nevertheless, debt composition is projected to remain relatively favorable as domestic financing and longer maturities will account for most of the debt, and the bulk of debt is potentially marketable."
- Perimeter for charts: nonfinancial public sector (currency split) and general government (governing law, maturity, instruments).
- Residual maturity: "6. years" (as presented).

### Baseline scenario projections (percent of GDP unless indicated otherwise)
- Public debt time series (Actual and projected):
  - Actual 2022: "Public debt 81.2"
  - 2023: "78.3"
  - 2024–2032 projections: "78.3 78.3 78.1 77.6 77.3 76.9 76.7 76.6 76.6 76.6"
- Change in public debt series: "Change in public debt -4.7 -2.9 0.0 0.0 -0.2 -0.4 -0.4 -0.4 -0.2 -0.1 0.0"
- Contribution of identified flows: "-5.9 -2.9 -0.3 -0.6 -0.9 -1.1 -1.0 -0.8 -0.7 -0.5 -0.4"
- Primary deficit (percent of GDP): "3.2 3.7 3.6 2.1 1.6 1.2 1.2 1.2 1.2 1.2 1.2"
- Noninterest revenues (percent of GDP): "24.3 24.2 23.3 23.0 23.1 23.2 23.2 23.2 23.2 23.2 23.2"
- Noninterest expenditures (percent of GDP): "27.5 27.9 26.8 25.0 24.8 24.4 24.4 24.4 24.4 24.4 24.4"
- Automatic debt dynamics: "-9.0 -6.5 -3.8 -2.7 -2.4 -2.2 -2.1 -1.9 -1.8 -1.6 -1.5"
- Real interest rate and relative inflation components:
  - "Real interest rate and relative inflation -3.2 -1.9 -0.7 0.0 0.1 0.3 0.4 0.5 0.7 0.8 1.0"
  - "Real interest rate -3.4 -2.3 -1.1 -0.2 -0.2 0.0 0.1 0.3 0.4 0.6 0.7"
  - "Relative inflation 0.2 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.2"
- Real growth rate contributions: "-6.4 -4.6 -3.2 -2.7 -2.6 -2.5 -2.5 n.a. -2.5 -2.5 -2.5 -2.5"
- Gross financing needs and debt service (percent of GDP):
  - "Gross financing needs 24.0 13.5 20.8 22.4 22.2 22.2 22.0 22.2 22.0 21.6 21.0"
  - "of which: debt service 20.9 9.9 17.3 20.4 20.7 21.0 20.9 21.1 20.9 20.4 19.9"
- Currency breakdown of GFN (percent of GDP):
  - "Local currency 18.1 9.1 16.6 19.7 20.0 20.4 20.3 20.5 20.3 19.9 19.3"
  - "Foreign currency 2.7 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.6 0.6 0.6"
- Memo items:
  - "Real GDP growth (percent) 8.0 6.0 4.2 3.6 3.4 3.3 3.3 3.3 3.3 3.3 3.3"
  - "Inflation (GDP deflator; percent) 8.0 6.2 4.6 3.7 3.9 3.7 3.7 3.7 3.7 3.7 3.7"
  - "Nominal GDP growth (percent) 16.7 12.6 9.0 7.5 7.4 7.2 7.1 7.1 7.1 7.1 7.1"
  - "Effective interest rate (percent) 3.5 3.0 3.1 3.4 3.6 3.7 3.8 4.0 4.3 4.5 4.7"
- Staff commentary: public debt remains high driven by r-g dynamics; projected real GDP growth contributes to debt reduction but is insufficient to offset relatively high primary deficit and real interest rate; gross financing needs remain elevated, declining only slowly.

### Realism of baseline assumptions and forecast track record
- Commentary: "The forecast track record tool does not show any projection realism issues as all cells are green throughout the table."
- Assessment highlights:
  - Growth expected to be major contributor to debt reduction in projection period.
  - Adjustment to cyclically-adjusted primary balance falls below the 75th percentile of past adjustments observed in other market access countries.
  - Recommendation: "The potential negative impact of fiscal adjustment on growth could be contained by improving the efficiency of public spending."

### Medium-term risk analysis and stress scenarios
- Overall risk indication: moderate.
- Key indicators and values:
  - "Fanchart width 64.30.9" (values preserved as presented).
  - "Probability of debt not stabilizing (pct) 31.00.3"
  - "Terminal debt level x institutions index 26.50.6"
  - "Debt fanchart index ...1.8"
  - "Average GFN in baseline 20.57.0"
  - "Bank claims on government (pct bank assets) 8.02.6"
  - "Chg. in claims on govt. in stress (pct bank assets) 0.00.0"
  - "GFN financeability index ...9.6"
- Commentary: the Debt Fanchart and GFN modules point to a moderate level of risk as the fan chart width and average financing needs fall above the median of the historical cross-country distribution.
- Natural disaster shocks (Mauritius highly vulnerable) would increase gross financing needs and leave them permanently higher than the baseline.
- Probabilities (2023-2028):
  - "Prob. of missed crisis, 2023-2028 (if stress not predicted): 18.2 pct."
  - "Prob. of false alarm, 2023-2028 (if stress predicted): 31.8 pct."
- Stress tests and modules indicate normalized medium-term index in the moderate range.

### Long-term risk analysis: demographics, pensions, and climate adaptation
- Long-term amortization and GFN risk: overall low risk from abnormally large debt amortizations on the longer-term horizon under baseline; high risk under historical-average primary balance scenario (deemed unrealistic).
- Pension system risks and projections:
  - FY22/23 pension benefits paid estimated at "around 7 percent of GDP" and contributions at "around 2 percent."
  - Demographic pressures: declining population and worsening dependency ratio projected.
  - Scenario assumptions for pension projection:
    - (i) "pension contributions are doubled, and benefits halved in the medium term,"
    - (ii) "contributions grow at the same rate as GDP per worker over time,"
    - (iii) "the labor force participation rate increases gradually over the next 20 years, stabilizing at over 70 percent."
  - Permanent adjustment needed in the pension system: "1.29% 50 years", "4.98% Until 2100", "16.40% 30 years" (values preserved as presented).
  - Commentary: With the assumed adjustments, pension financing needs would gradually increase over the long run, pushing gross financing needs above the baseline; an alternative scenario with no policy changes would be more adverse.
- Climate change and adaptation financing:
  - Historical average damages estimated at "1.5 to 2.3 percent of GDP per year during 1960-2022."
  - Climate adaptation scaling scenarios beyond t+5:
    - Standardized scenario: public investment scaled up permanently by "1.5 percent of GDP in each year beyond t+5" — would increase gross financing needs and public debt permanently above baseline.
    - Customized scenario: scaling up by "2 percent of GDP per year" — would result in higher financing needs and debt than standardized scenario.

### External sector assessment — key findings and policy implications
- Overall assessment: "The external position of Mauritius at end-2023 was moderately weaker than the level implied by fundamentals and desirable policies."
- Current account:
  - Current account deficit narrowed to "4.5 percent of GDP in 2023" from "11.1 percent of GDP in 2022."
  - Medium-term CA expected to converge to "about 4 percent of GDP."
  - EBA-lite adjustments and results for 2023:
    - "CA-Actual -4.5"
    - "Cyclical contributions (from model) (-) 0.1"
    - "Adjustment due to understated net income 6.8"
    - "Adjusted CA 2.1"
    - "CA Norm (from model) 3.3"
    - "Adjusted CA Norm 3.3"
    - "CA Gap -1.2"
    - "o/w Relative policy gap 2.0"
    - "Elasticity -0.3"
    - "REER Gap (in percent) 3.9"
  - Rationale: large NIIP leads to understatement of income inflows; an upward adjustor of "+6.8 percent of GDP" applied to account for understated net income flows.
- Foreign assets and liabilities (2023, percent of GDP):
  - "NIIP: 223"
  - "Gross Assets: 4191"
  - "Debt Assets: 181"
  - "Gross Liab.: 3967"
  - "Debt Liab.: 619"
- Assessment: vulnerabilities from large gross liabilities ("about 3967 percent of GDP in 2023") mitigated by large external assets ("about 4191 percent of GDP in 2023"); but risks remain due to GBCs concentration and banks' exposure to GBC deposits ("about 87 percent of GDP") — monitor banks’ exposure and credit risks, GBC sector developments, and sensitivity to global financial conditions and changes in foreign legal and taxation frameworks.
- Potential policy responses:
  - "Implementing a medium-term growth-friendly fiscal consolidation would help reduce external imbalances."
  - "Reserve accumulation would strengthen Mauritius’ external buffers against shocks."
  - "Preserving financial stability and continuing to strengthen the AML/CFT framework would help sustain capital and financial flows in Mauritius."
  - "Structural reforms to foster private sector investment and economic diversification would support sustainable financial inflows, including FDIs in new productive sectors, and improve resilience to global shocks."

*Source: IMF staff.*

### 2.3 percent in 2023. The REER appreciation in 2022

### 2.3 percent in 2023. The REER appreciation in 2022

### Real Effective Exchange Rate (REER) and Assessment
- REER appreciation in 2022 and 2023 is driven mainly by a higher inflation differential between Mauritius and trading partners, due to Mauritius’ relatively higher inflation.
- Between end-December 2023 and mid-April 2024, the Mauritian rupee depreciated by 5.7 percent relative to the U.S. dollar.
- IREER model estimate:
  - Index Real Effective Exchange Rate model (IREER) estimates an undervaluation of the REER in 2023 of 0.2 percent.
  - IREER-model results are characterized by large residuals entailing high uncertainty.
- Staff assessment (alternative approach):
  - Uses staff-assessed 2023 CA gap of -1.2 percent of GDP and a staff-estimated elasticity of 0.3.
  - Delivers an assessment of overvaluation of the 2023 REER by 3.9 percent.

### Capital and Financial Accounts: Flows and Medium-Term Outlook
- Background: Mauritius’ capital account is open (Financial Account Restriction Index (FARI) at 0.14).
- Total net international capital and financial flows:
  - Declined to about 0.4 percent of GDP in 2023 (from 8.2 percent in 2022).
- GBC sector:
  - Net outflow of 4.5 percent of GDP in 2023 (from a net inflow of 4.7 percent in 2022) reflecting GBCs’ large portfolio investment abroad.
- Domestic sector (excluding GBC):
  - Recorded net inflows of 4.9 percent of GDP in 2023 (from net inflows of 3.1 percent of GDP in 2022).
- Gross FDI inflows in the domestic economy:
  - Improved to 5.3 percent of GDP in 2023 from 4.2 percent of GDP in 2022.
  - Remain concentrated in the real estate sector.
- Medium-term expectation:
  - Capital and financial account expected to record a surplus, with the GBC sector operating as in the pre-pandemic years.
- Staff assessment and recommended monitoring:
  - Steady net financial inflows in the medium term will depend on dynamics of the GBC sector and how to attract new businesses.
  - Operations of the GBC sector need to be maintained against continued implementation of AML/CFT measures.
  - Structural reforms to foster economic diversification would help attract FDI inflows into the domestic economy.
  - High concentration of FDI inflows in real estate should be monitored and regulatory incentive schemes may need review if signs of a real estate price boom appear.

### FX Intervention and Reserves Level
- Gross official international reserves (GOIR):
  - Stood at US$7.3 billion at end-2023 (down from US$7.7 in 2022).
  - Equivalent measures: about 9.7 months of imports, 50 percent of GDP, 315 percent of exports, and 73 percent of short-term external debt.
- Drivers of reserve change 2022→2023:
  - Decline reflects Bank of Mauritius (BOM) net interventions (about US$ 0.4 billion) and outflow of banks’ deposit from the BOM (US$1.2 billion).
  - BOM external borrowing (US$0.3 billion) and investment income helped mitigate the decline.
- Recent exchange rate moves:
  - Mauritius’ de jure exchange rate arrangement is floating.
  - De facto arrangement reclassified to stabilized arrangement for period from May 5, 2023 until January 2024.
  - Latest data (between end-January and mid-April 2024) show a depreciation of the Mauritian rupee of 3.5 percent relative to the U.S. dollar.
- Historical BOM FX interventions:
  - BOM intervened 2017-19 to accumulate reserves, which reached US$7.3 billion (equivalent to 16.9 months of imports) at end-2019.
  - During 2020-23, BOM sold foreign exchange for a total of about US$3.1 billion (on net basis).
  - Over 2021-23, international reserves were supported by BOM’s external borrowing (about US$1.5 billion) and income on investments (US$0.485 billion).

### Reserve Adequacy Assessment (ARA Metric, Mauritian-specific adjustment)
- Methodology:
  - Foreign reserve adequacy assessed with IMF standard ARA metric, modified to reflect Mauritius-specific risks from GBCs.
  - Evaluation for end-2023 based on standard ARA metric augmented with 15 percent of all gross deposits of GBCs.
  - Change from prior assessment: previous augmentation used 100 percent of deposits of GBCs held in non-systemic small and medium-sized banks, net of short-term assets.
  - Rationale: use of gross GBCs’ deposits aligns the GBCs component with standard metric (also gross); reduction from 100 to 15 percent reflects assessed comparable risks of GBCs relative to other external liabilities.
  - Bank of Mauritius has relatively stringent regulations to manage liquidity risk (including FX liquidity risk) with regular upgrades in line with international norms.
- Adequacy outcomes (end-2023):
  - Stock of international reserves at end-2023 is estimated to cover 97.9 percent of the adjusted ARA metric.
  - The unadjusted metric for the same reserves would deliver 111 percent (reported as ARA metric results: Adjusted ARA metric 7.4; Unadjusted ARA metric 5.5; Reserves 7.3; Reserves as percent of ARA metric: 97.9 and 130.8 respectively).
  - Conclusion: reserves are slightly below adequacy level on the adjusted metric.
- Policy implications and recommended options:
  - Large size and complex structure of the GBC sector, relatively shallow FX market, and openness to capital flows warrant strong buffers against external shocks.
  - Opportunistic BOM foreign exchange purchases, consistent with inflation targeting, would support reserve accumulation.
  - Foreign exchange swap arrangements and credit lines with other central banks could provide additional liquidity insurance in market distress.

### Macro-Fiscal Implications of Climate Change Adaptation (DIGNAD model application)
- Model and calibration:
  - DIGNAD (Debt, Investment, Growth, and Natural Disaster) model: dynamic general equilibrium model analyzing impact of public investment on growth and debt sustainability, accounting for climate shocks via damage to public/private capital, temporary productivity loss, reduced public investment efficiency, and creditworthiness decline.
  - Tailored to Mauritius: public infrastructure investment set at 3.5 percent of GDP (estimate for FY2022/23); public investment efficiency set at around 60 percent.
  - Initial public debt calibrated using FY2022/23 debt-to-GDP ratio.
  - Economic impact of a natural disaster shock set at 4 percent of GDP (based on historical shocks; note extreme 1979 shock caused 14 percent of GDP loss).
- Two adaptation scenarios (relative to Baseline: no policy change):
  - Baseline Scenario:
    - No adaptation actions or reforms.
    - Public capital spending at 3.5 percent of GDP for first five years.
    - Climate disaster simulated in sixth year, leading to decline in GDP, private investment, and private consumption; public debt-to-GDP increases due to reconstruction and lower GDP.
  - Adaptation Scenario 1:
    - Additional 1 percent of GDP spent annually on adaptation investment over 2024-2028.
    - Financing split evenly: grants 1/3, concessional debt 1/3, domestic revenue 1/3.
    - Results: real GDP growth stronger (up to 0.8 percentage point more) than baseline during investment phase.
    - When shock hits (illustrated in 2029), output growth losses about 1.5 percentage points on average in first three years; recovery to steady state in five years after shock.
    - Public debt higher than baseline during investment phase but peak debt after shock lower than baseline; private investment and consumption losses less severe than baseline.
    - Financing via revenue mobilization reduces pressure on debt but negatively impacts private consumption.
  - Adaptation Scenario 2:
    - Additional adaptation financed mostly by domestic debt: two thirds domestic debt, one third domestic fiscal revenue.
    - Results vs Scenario 1: GDP growth losses higher after shock by 0.2 percentage point on average in first three years due to crowding out of private investment and consumption even in investment phase.
    - Growth takes seven extra years to recover to steady state compared with Scenario 1.
    - Public debt-to-GDP ratio would peak at 85.6 percent in 2029.
    - Consumption and labor income taxes identical in Scenarios 1 and 2 (same amount of financing through taxes).
- Key simulation conclusions:
  - Public investment in adaptation infrastructure increases resilience to climate shocks, supports post-disaster recovery, and reduces reconstruction costs.
  - Financing adaptation through a mix of grants, concessional borrowing, and domestic fiscal revenue (Scenario 1) helps maintain debt sustainability more than financing predominantly through domestic debt (Scenario 2).
  - Reforms such as green public investment management could help access global climate funds that provide grants and concessional loans.

### Policy Recommendations and Status (Select items from Annex V)
- Fiscal policy and debt sustainability:
  - Implement fiscal consolidation through credible revenue and expenditure measures; aim for further improvement without reliance on quasi-fiscal operations; phase out pandemic-related support and scale back capital spending.
  - Use targeted transfers through social safety nets rather than broad-based subsidies.
  - Reinstate fiscal rules to reduce debt vulnerabilities while allowing flexibility to address shocks.
  - Reform pension system to improve sustainability.
  - Recent status:
    - Fiscal imbalances narrowed in FY22/23 supported by contained spending; pandemic measures unwound in FY22/23 though current spending remained above pre-pandemic levels.
    - FY23/24 expected expansionary; projected to turn contractionary in FY24/25.
    - Some social measures are narrowly targeted; others remain broadly targeted.
    - Debt ceiling reinstated in June 2023 at 80 percent of GDP with escape clauses.
    - No significant pension reforms implemented; latest January 2024 increase targeted to a sub-group of old-age pensioners.
- Monetary policy:
  - Tighten policy stance to control inflation and counter un-anchoring of expectations; roll out new policy framework.
  - Support central bank independence: adopt new Bank of Mauritius (BOM) Act, MIC relinquish ownership, return of undisbursed funds to BOM, timely recapitalization.
  - Allow more exchange rate flexibility and orient FX intervention toward smoothing excessive volatility.
  - Recent status:
    - Authorities adopted a target range for inflation; BOM held key policy rate at 4.5 percent since December 2022 while absorbing some excess liquidity in first half of 2023.
    - New framework rolled out beginning 2023; BOM exploring options to improve effectiveness and communications.
    - TA from Fund to support central bank independence; amendments to BOM Act planned in 2025.
    - MIC has not relinquished ownership nor returned undisbursed funds; authorities consider BOM properly capitalized.
    - FX pressures eased in 2023 relative to 2022; BOM’s net sales of FX contributed to smoothing rupee volatility.
- Financial sector:
  - Continue monitoring risks and quality of loans under moratorium; extend stress testing to more complex scenarios; strengthen AML/CFT regime for non-resident and cross-border activity.
  - Recent status:
    - Authorities continued monitoring risks and lifted COVID-related loan moratorium.
    - Banking sector stress testing conducted with more complex scenarios.
    - Authorities committed at highest level to sustain AML/CFT compliance.
- Structural reforms:
  - Embrace structural transformation to diversify and digitalize economy; greater investment in climate adaptation and mitigation.
  - Recent status:
    - Authorities preparing Mauritius 2050 long-term vision to redefine diversification and digitalization goals.
    - New bilateral trade agreement under discussion with the United Arab Emirates.
    - With Fund TA, authorities working on scenario analysis for climate adaptation financing and pursuing accreditation with global climate funds.

*Sources: Country authorities and IMF staff estimates.*

### Annex VI. Status of Implementation of Key 2015 FSAP

### Annex VI. Status of Implementation of Key 2015 FSAP Recommendations

### Banking Supervision and Regulation
- Conduct regular macroprudential solvency and liquidity stress tests.
  - Solvency and liquidity stress testing exercises are conducted quarterly; results are published bi-annually in the BOM’s Financial Stability Report.
- Establish a macroprudential body with a clear financial stability objective, and adequate enabling framework.
  - The BOM has been designated to act as the macroprudential authority in Mauritius.
  - The Bank of Mauritius Act is currently under review with the assistance of the IMF and the BOM Bill will clarify the financial stability objectives and also provide for an enabling framework for the macroprudential authority.
  - The existing Financial Stability Committee includes representatives of the BOM, FSC, and the Ministry of Finance and serves as a forum for discussing financial stability issues.
- Improve monitoring and supervision of the GBC sector; seek significant consolidation of the management companies (MC) industry and raise its standards.
  - Grandfathering provisions for GBC2s ended on June 30, 2021.
  - The GBC sector has undergone a complete structuring overhaul, including a consolidation of the MC industry and supervision of the sector since end-2021.
- Implement measures to ensure that banking system liquidity is not adversely affected by developments in the GBC sector and cross-border sectors.
  - Basel III Liquidity Coverage Ratio (LCR) has been implemented in 2017.
  - Reporting requirements have been enhanced.
  - Stress tests scenarios assess banking sector vulnerability to adverse developments in the GBC sector.
  - Risk assessment of GBC deposits continues to be conducted and published in the Financial Stability Report (last was published December 2023).
  - Oversight of the liquidity risk was enhanced by adopting the risk-based supervision framework and coordinating with the FSC.
  - The risk-based framework gathers information on funding risks, which meets the needs of the Net Stable Funding Ratio that was introduced in December 2023 and will become effective in June 2024.

### Financial Sector Oversight
- Establish a framework for conglomerate supervision, strengthen consolidated supervision, and develop a supervisory framework for D-SIBs.
  - The framework for conglomerate and consolidated supervision has been agreed between the BOM and the FSC, and joint on-site examinations are conducted.
  - D-SIB framework is fully operational.
  - Terms of Reference for the Lead Regulator and the list of financial conglomerates (falling under the purview of the BOM and the FSC) were approved by the BOM and the FSC.
  - Joint Co-ordination Committee Working Group on Financial Stability fine-tunes data collection returns.
- Improve bank rating systems and develop more comprehensive remedial action program.
  - Enhancement of bank rating system is ongoing with the risk-based supervision framework.
  - Comprehensive remedial action program is fully operational.
  - BOM has recently placed Silver Bank under conservatorship.
- Amend the law to facilitate conglomerate supervision, improve consolidated supervision, and strengthen the corrective actions toolkit.
  - The Banking Act and BOM Act have been amended to improve conglomerate/consolidated supervision.
  - As part of its corrective actions’ toolkit, the BOM has issued instructions and directives to ultimate and intermediate financial holding companies incorporated in Mauritius. Such companies have at least one subsidiary or joint venture or such other ownership structure as the central bank may determine within the group that is a bank or a non-bank deposit-taking institution.
  - The Financial Services Act was amended in 2020 to allow collection of statistics from competent authorities or any other entity (e.g., ultimate and intermediate holding companies incorporated in Mauritius, which have, within the group, at least one subsidiary or joint venture, or such ownership structure as the FSC may determine, which holds a license under the relevant Acts issued by the FSC).

### Financial Safety Net
- Modify the Banking Act to make the resolution framework more efficient.
  - The banking legislation is being revamped and a draft Banking Bill has been prepared with assistance from the IMF, taking into consideration the key FSB attributes of Effective Resolution Regimes for financial institutions.
  - The draft legislation is expected to be finalized during 2024.
- Introduce an industry-funded deposit insurance scheme with powers to facilitate resolution.
  - The Mauritius Deposit Insurance Scheme Act (MDIS Act) enacted in April 2019 was proclaimed in a phased manner on December 2, 2023.
  - The relevant provisions for the incorporation of the Mauritius Deposit Insurance Corporation Ltd (MDIC) became effective December 15, 2023, while the remaining provisions would be effective by mid-June 2024.
  - The MDIC is expected to be operational by December 2024.
- Introduce, through changes in the current legal and regulatory framework, a comprehensive framework for crisis prevention and management.
  - The draft Banking Bill includes a comprehensive framework for crisis prevention and management.
  - A Draft Guideline on Recovery Planning has also been prepared for operationalizing the requirements laid down in the draft legislation on recovery planning.

_Annex VI. Status of Implementation of Key 2015 FSAP Recommendations — IMF staff report content provided in the source PDF._

### 2022. Additional support will be provided to rebase to the 2023 base year by 2025. Statistics

### 1musea2024001 - 2022. Additional support will be provided to rebase to the 2023 base year by 2025. Statistics

### Price and Real Activity Statistics
- Statistics Mauritius plans to start compiling flash GDP estimates and other high-frequency indicators of economic activity with support from AFRITAC South.
- Price statistics:
  - Statistics Mauritius compiles and disseminates a monthly CPI using weights based on expenditure data collected during 2017.
  - CPI compilation methods largely reflect international standards and best practice.
  - Index coverage could be expanded to include owner occupied housing.
  - Producer price indexes are compiled and disseminated monthly for agriculture and manufacturing.
    - Weights for both indexes are derived from values of production in 2017-19 and should be updated.
    - Need to expand PPI coverage to include services.
  - In April 2021, a quarterly residential property price index (RPPI) was disseminated; technical assistance continues to review RPPI compilation methods to allow greater data coverage and granularity.

### External Sector and Balance of Payments Statistics
- External Sector Statistics (ESS):
  - Authorities should continue to strengthen tracking of the GBC sector.
  - Inclusion of some corresponding transactions in goods, services, and the income account for the GBC would help improve ESS.
  - With IMF TA and collaboration between FSC and Statistics Mauritius, the BOM continues to work towards producing high-quality estimates for transactions in goods, services and net income account and including data on Authorized Companies (ACs) in the ESS.
- Recent external outcomes and buffers:
  - The current account deficit improved to 4.5 per cent of GDP in 2023.
  - Gross Official International Reserves remained comfortable – at about 11 months of imports at end April 2024.

### Fiscal Statistics and Fiscal Outcomes
- Coverage:
  - Coverage of central government accounts is comprehensive, as is coverage of central government and state-owned enterprise debt.
  - Authorities continue steps to implement IPSAS.
  - Progress should be accelerated towards implementing general government accounting, requiring compilation of statement of operations for non-financial public sector entities.
- Fiscal performance and targets:
  - The government reduced the budget deficit in FY22/23 while reinstating the debt ceiling fiscal policy anchor of 80 percent of GDP.
  - The primary fiscal deficit was halved to 2.7 percent of GDP.
  - Public debt-to-GDP ratio fell to 80.9 percent, from nearly 86 percent in 2021/22.
  - Authorities aim to reduce the primary deficit to 1.1 percent of GDP in FY23/24.
  - Strategy includes reducing public sector debt from around 80.9 percent in June 2023 to 75 percent by the end of June 2024.
  - Medium-term target is to return to pre-pandemic debt levels of around 60 percent.

### Monetary and Financial Statistics and Sector Developments
- Monetary and Financial Statistics (MFS):
  - Progress achieved by BOM in collection, compilation, and dissemination of MFS.
  - Introduction of Standardized Report Forms (SRFs) for the central bank and other depository corporations (ODCs).
  - Publication of data aligned to the MFS Manual in International Financial Statistics and BOM publications.
  - In October 2022, a TA mission assisted BOM in compiling MFS for the OFCs sector.
  - BOM started to disseminate MFS for OFCs in July 2023.
    - OFCs with data available include insurance companies, pension funds, investment funds (collective investment schemes and close-end funds, and global business funds), offshore entities (global business companies), and financial auxiliaries (collective investment scheme managers and pension scheme administrators).
- Financial access and stability:
  - Mauritius reports several FAS series and indicators, including commercial bank branches per 100,000 adults and ATMs per 100,000 adults (UN indicators for SDG Target 8.10).
  - Financial sector risks remained low, with robust capital ratios, declining credit concentration, and increased provisioning for non-performing loans.
- Monetary policy and BOM initiatives:
  - Monetary policy was broadly accommodative throughout 2023 but transitioned to a neutral stance by year-end.
  - Authorities remain vigilant and prepared to tighten policy if inflationary pressures reemerge.
  - New monetary policy framework withdrew excess rupee liquidity but did not influence the savings deposit rate and the prime lending rate as expected, indicating a disconnect between BOM’s key policy rate and market rates.
  - BOM is exploring options to enhance the effectiveness of the framework and will continue discussions with the IMF.
  - On external buffers, authorities plan to capitalize on favorable FX market conditions to accumulate reserves, aiming for a target of US$8 billion by the end of 2024, equivalent to over 12 months of prospective imports.
- Mauritius Investment Corporation (MIC):
  - MIC has played a crucial role in preserving financial stability, rescuing systemically important corporations, and shielding thousands of Mauritian families.
  - MIC plays a critical role in BOM’s investment strategy and portfolio diversification, has started to generate profits, and supports strategic domestic development initiatives.
  - Authorities note that MIC's operations do not influence BOM’s policy actions.

### Regulatory, Digitalization, and Climate-related Financial Measures
- Supervision and macroprudential measures:
  - Rigorous oversight of the financial sector remains a top priority.
  - BOM implemented a December 2023 guideline mandating banks to make additional macro-prudential provisions for sectors including housing and commercial real estate.
  - BOM issued a Guideline on the Net Stable Funding Ratio (NSFR).
  - A new Systemic Risk Indicator has been adopted.
- AML/CFT reforms:
  - In 2021, Mauritius exited the FATF list of "Jurisdictions under Increased Monitoring".
  - Mauritius was rated technically compliant or largely compliant with all 40 FATF recommendations.
  - Key initiatives: Financial Crimes Commission Act and establishment of a core group under FIAMLA, led by a ministerial committee chaired by the Prime Minister.
  - Efforts continue ahead of the 2027 AML/CFT assessment.
- Digitalization and payments:
  - BOM prioritized digitalization, established the Mauritius Financial Sector Cyber Committee, adopted ISO 20022 format for cross-border payments, and launched the Government Payment Portal.
  - Pilot testing of the 'Digital Rupee' has started, with Fund TA.
- Sustainable finance:
  - The Climate Change Centre (established October 2021) issued guidelines on climate-related financial risk management and pioneered sectoral risk identification and financial loss assessments.
  - BOM supported development of a Sustainable Finance Framework aligned with international sustainability standards to enable issuance of sustainable financial instruments.

### Data Standards, Quality, and Dissemination
- International data frameworks and subscriptions:
  - Mauritius participated in the GDDS since September 2000 and subscribed to the SDDS on February 28, 2012.
  - Statistics Mauritius in January 2024 expressed interest and readiness to move to the SDDS Plus level.
- Data quality:
  - A data ROSC report was published in August 2008.
- Table of Common Indicators Required for Surveillance (March 2024) — selected data timestamps and metadata preserved as reported:
  - Exchange Rates: Date of latest observation February 2024; Date received 3/2024; 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 February 2024; Date received 3/2024; Frequency of data M; Frequency of reporting M; Frequency of publication M.
  - Reserve/Base Money: Date of latest observation February 2024; Date received 3/2024; Frequency of data M; Frequency of reporting M; Frequency of publication M.
  - Broad Money: Date of latest observation February 2024; Date received 3/2024; Frequency of data M; Frequency of reporting M; Frequency of publication M.
  - Central Bank Balance Sheet: Date of latest observation February 2024; Date received 3/2024; Frequency of data M; Frequency of reporting M; Frequency of publication M.
  - Consolidated Balance Sheet of the Banking System: Date of latest observation January 2024; Date received 3/2024; Frequency of data M; Frequency of reporting M; Frequency of publication M.
  - Consumer Price Index: Date of latest observation February 2024; Date received 3/2024; Frequency of data M; Frequency of reporting M; Frequency of publication M.
  - Revenue, Expenditure, Balance and Composition of Financing – Central Government: Date of latest observation December 2023; Date received 1/2024; Frequency of data M; Frequency of reporting M; Frequency of publication M.
  - Stocks of Central Government and Central Government-Guaranteed Debt: Date of latest observation Q4/2023; Date received 3/2024; Frequency of data Q; Frequency of reporting Q; Frequency of publication Q.
  - Exports and Imports of Goods and Services: Date of latest observation Q4/2023; Date received 3/2024; Frequency of data Q; Frequency of reporting Q; Frequency of publication Q.
  - External Current Account Balance: Date of latest observation Q4/2023; Date received 3/2024; Frequency of data Q; Frequency of reporting Q; Frequency of publication Q.
  - GDP/GNP: Date of latest observation Q3/2023; Date received 12/2023; Frequency of data Q; Frequency of reporting Q; Frequency of publication Q.
  - Gross External Debt: Date of latest observation Q4/2023; Date received 3/2024; Frequency of data Q; Frequency of reporting Q; Frequency of publication Q.
  - International Investment Position: Date of latest observation December 2022; Date received 9/2023; Frequency of data A; Frequency of reporting A; Frequency of publication A.

### Recent Economic Developments, Outlook, and Risks
- Growth and labor market:
  - Real GDP grew by 8.9 percent in 2022, the fastest in over 35 years.
  - Real GDP expanded by 7 percent in 2023.
  - Main sectors driving activity: construction and accommodation and food service activities.
  - Tourist arrivals in 2023 were approximately 1.3 million visitors (nearly pre-pandemic levels).
  - Unemployment rate dropped to 6.3 percent in the third quarter of 2023, the lowest in over 25 years; female unemployment rate reached an all-time low.
- Inflation and external conditions:
  - Headline inflation eased to 6.1 per cent in February 2024 and then 5.2 percent in April 2024.
  - Despite higher international fuel and food prices, fiscal consolidation continued.
- Outlook and projection:
  - Authorities project 6.5 percent growth in 2024, supported by policies for exports and investment and construction of 8,000 social housing units by February 2025.
  - Authorities expect inflationary pressures to ease further, converging to the Bank of Mauritius’ (BOM) medium-term target range.
- Risks:
  - Major risks include lingering global geopolitical tensions, the U.S. elections, ongoing conflicts that could impact the GBC sector, and potential tail risks from escalating Middle Eastern tensions that could spike commodity prices and domestic inflation.
  - Authorities note potential impacts from global minimum tax reforms.

### Policy Priorities and Recommendations (as stated by the authorities)
- Fiscal policy:
  - Pursue a growth-friendly fiscal consolidation strategy over the medium term while protecting vulnerable populations.
  - Reduce the primary deficit to 1.1 percent of GDP in FY23/24 via continued revenue growth and prudent spending.
  - Continue comprehensive tax reforms (including changes in personal income tax rates and abolition of the solidarity levy).
  - Mobilize additional revenue through progressive corporate income tax reform and sector-specific revenue measures with Fund TA.
  - Maintain critical social spending while curbing current spending.
- Debt management:
  - Maintain a prudent debt management strategy to keep public sector debt below 80 percent of GDP in the medium-term.
  - Target reduction of public sector debt from around 80.9 percent in June 2023 to 75 percent by end June 2024; medium-term target around 60 percent.
- Monetary policy and reserves:
  - Be vigilant and ready to tighten monetary policy if inflation reemerges.
  - Improve effectiveness of the new monetary policy framework to address the disconnect between BOM’s key policy rate and market rates.
  - Accumulate foreign exchange reserves targeting US$8 billion by end of 2024 (over 12 months of prospective imports).
- Financial sector:
  - Continue rigorous oversight, strengthen bank supervision, use stress tests, and apply macroprudential measures (including NSFR and sectoral provisioning).
  - Continue AML/CFT reforms ahead of the 2027 assessment.
  - Advance digitalization (including Digital Rupee pilot) and sustainable finance initiatives.
- Structural reforms:
  - Advance structural reforms for diversification and achieving high-income status, focusing on pharmaceutical, biotechnology, information technology, and renewable energy sectors.
  - Expand blue and silver economies and address labor market imbalances, including policies to reduce skills mismatches, facilitate foreign labor hiring, and promote women's employment to fill an estimated labor shortfall of 50,000 workers.
  - Invest in climate-resilient infrastructure and supportive policies for climate change mitigation (e.g., tax incentives for electric vehicles).

*Source: 1musea2024001 - 2022. Additional support will be provided to rebase to the 2023 base year by 2025. Statistics*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1musea2024001.pdf_