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### Recent economic developments
- Recovery and composition
  - The economy grew by 4.7 percent in 2024, driven by services, construction, and tourism.
  - Unemployment was 5.8 percent at end-December 2024, down from 6.1 percent a year earlier.
- Inflation
  - Headline inflation (12-month average) declined to 2.5 percent in March 2025 from 7.0 percent in 2023, helped by easing international food and energy prices and the reduction of fuel excise duties in December.
  - Inflation expectations (1-year horizon) reached 3.7 percent in March 2025.
- External and reserves
  - External current account deficit widened in 2024 to 6.5 percent of GDP, mostly reflecting higher imports and freight costs.
  - Gross foreign reserves increased to US$8.5 billion by end-2024, covering almost 12 months of imports (11.8 months reported in indicators).
- Public debt and structural challenges
  - Public sector debt reached 87 percent of GDP at end-2024.
  - Key structural challenges: high public debt, significant public investment needs (notably for climate), low productivity, and an ageing society.

### Outlook and projections
- Growth projections
  - Real GDP growth is projected to soften to 3.0 percent in 2025.
  - Medium-term growth expected at around 3.4 percent.
- Inflation projections
  - Inflation is projected to average 3.6 percent in 2025 and remain within BOM’s target range over the medium term.
- External sector
  - Current account deficit projected to reduce to 4.7 percent of GDP in 2025 and to increase in 2026 due to subdued exports, then gradually decline.
- Fiscal outlook
  - Primary fiscal deficit (excluding grants) for FY24/25 projected to worsen by 3.4 ppt of GDP relative to FY23/24, to 6.5 percent of GDP.
  - Stock of public sector debt projected at around 88 percent of GDP at end-June 2025, and to gradually decline in the medium term.

### Key numerical indicators (selected)
- Real GDP growth (annual percent change): 2024: 4.7; 2025: 3.0; 2026–2030: 3.4.
- Real GDP per capita (annual percent change): 2025: 3.2; 2026–2030: 3.6, 3.6, 3.6, 3.7, 3.8.
- GDP per capita (U.S. dollars): 2024: 11,883; 2025: 12,448; 2026: 13,287; 2027: 14,183; 2028: 15,128; 2029: 16,131; 2030: 17,190.
- Consumer prices inflation (period average): 2024: 3.6; 2025: 3.6; 2026–2030: 3.6, 3.5, 3.5, 3.5, 3.5.
- Consumer prices inflation (end of period): 2024: 2.9; 2025: 3.9; 2026–2030: 3.5 repeated.
- Current account balance (percent of GDP): 2024: -6.5; 2025: -4.7; 2026: -6.1; 2027: -5.0; 2028: -4.3; 2029: -3.7; 2030: -3.0.
- Gross international reserves (millions of U.S. dollars): end-2024: 8,510; projected 2025: 8,675; 2026: 9,163; 2027: 9,475; 2028: 9,781; 2029: 10,083; 2030: 10,420.
- Months of imports of goods and services, f.o.b.: 2024: 11.8; 2025: 11.6; 2026–2030: 11.6, 11.4, 11.3, 11.2, 11.1.
- Public sector debt, fiscal year (percent of GDP): 2024: 88.3; 2025: 89.1; 2026: 88.1; 2027: 86.9; 2028: 85.3; 2029: 83.9; 2030: 82.7.
- Total external debt (percent of GDP): 2024: 139.2; 2025: 128.9; 2026: 119.3; 2027: 110.8; 2028: 102.2; 2029: 94.1; 2030: 87.1.

### Fiscal developments, projections, and debt dynamics
- FY23/24 outcomes
  - Primary fiscal deficit (excluding grants) increased by 0.4 ppt of GDP to 3.1 percent of GDP in FY23/24.
  - Including net expenditure from extra-budgetary special funds (ESFs), the primary deficit increased by 2.8 ppt of GDP to 6.1 percent of GDP; net expenditure from ESFs rose by 2.4 ppt of GDP driven by social housing construction payments.
  - Revenue (excluding grants) declined by 0.2 ppt of GDP.
  - Primary expenditure increased by 0.2 ppt of GDP.
  - Public sector debt rose to 87 percent of GDP at end-2024 (above statutory ceiling of 80 percent).
- FY24/25 and medium-term projections
  - Primary fiscal balance (excluding grants) projected to worsen by 3.4 ppt of GDP relative to FY23/24, to 6.5 percent of GDP in FY24/25.
  - Primary expenditure projected to increase by 5.1 ppt of GDP in FY24/25.
  - Revenue (excluding grants) projected to increase by 1.6 ppt of GDP in FY24/25.
  - Including net expenditures from ESFs, the primary deficit (excluding grants) projected to increase by 2.5 ppt of GDP to 8.6 percent of GDP.
  - Public sector debt projected at 88 percent of GDP at end-June 2025.
  - Government borrowing requirement for FY24/25: 10.4 percent of GDP.
  - External financing expected to increase to near 2.0 percent of GDP in FY24/25, reflecting a budget support loan from the African Development Bank of 1.5 percent of GDP.
- Sovereign risk assessment
  - Overall risk of sovereign stress assessed as high under IMF’s framework.
  - Public debt projected to remain above statutory ceiling at 83 percent of GDP by end-June 2031 under baseline.
  - Contingent liabilities and climate vulnerabilities noted as material fiscal risks.

### Fiscal adjustment strategy and expenditure composition
- Staff's baseline adjustment path
  - Streamlining of primary expenditure starts in FY25/26 by 2.7 ppt of GDP relative to FY24/25 and continues in stages.
  - Staff baseline assumes 1.2 ppt of GDP increase in total revenue in FY25/26 (including VAT e-invoicing 0.4 ppt, real estate reforms 0.1 ppt, unwinding EV negative excise duty 0.1 ppt, higher grants 0.4 ppt).
  - Baseline assumes conservative increase of 0.2 ppt of GDP in non-ESF capital spending in FY25/26.
- Identified expenditure pressures and reform options
  - Current spending accounts for 85 percent of total fiscal spending and remains about 6 ppt of GDP above pre-pandemic level.
  - Pension spending around 7.5 percent of GDP; pension contributions around 2 percent of GDP.
  - Policy options for pensions (not in baseline): raise BRP eligibility age from 60 to 65 (expected savings 1.7 percent of GDP at full impact); keep CSG pension benefit fixed for ages 65–75 (expected savings 0.4 percent of GDP); reform CSG to benefits only for contributors.
  - Unwinding housing subsidy schemes expected savings 0.7 percent of GDP (included in baseline).
  - Revenue mobilization more ambitious options (not in baseline): lower VAT registration threshold (0.6 ppt of GDP), remove VAT exemptions (up to 2 ppt of GDP), PIT top-rate reforms (0.8 ppt of GDP), streamline CIT exemptions for offshore companies.

### Monetary policy, exchange rate, and reserves management
- BOM operations and policy rates
  - BOM cut the key policy rate from 4.5 to 4.0 percent in September 2024 and raised it back to 4.5 percent in early February 2025.
  - Since mid-2023, capped issuance of 7-Day BOM bills left excess liquidity and produced a looser effective monetary policy stance (about 150bps looser than announced key policy rate).
  - Recommendation: resume uncapped issuance of 7-Day BOM bills (at the key policy rate) to align effective absorption with announced rate.
- Reserves and FX interventions
  - Gross foreign exchange reserves increased to US$8.5 billion by end-2024 — about 11.9 months of imports and an estimated 108 percent of the IMF’s reserve adequacy metric (ARA).
  - BOM’s net FX interventions were US$0.37 billion in 2024 and US$0.35 billion in 2023.
  - Recommendation: continue exchange rate flexibility and opportunistic FX purchases in line with the monetary policy framework; reserve FXI for acute FX liquidity shortages and to facilitate price discovery when appropriate.
- Institutional safeguards
  - Recommendation: adopt amendments to the BOM Act to ensure fiscal backing and protect central bank independence; strengthen governance (tenure, appointment, dismissal), clarify Board oversight, and limit BOM's powers for unlimited monetary financing.
  - Recommendation: BOM to phase out ownership of the Mauritius Investment Corporation (MIC) and promptly return undisbursed funds.

### Financial sector soundness, GBCs, and macro-financial risks
- Banking sector indicators
  - Credit to the private sector grew by 8.3 percent in 2024.
  - Consolidated Liquidity Coverage Ratio (LCR) stood at 299 percent in December 2024 (regulatory requirement: 100 percent).
  - Net Stable Funding Ratio (NSFR) guideline effective since June 2024.
  - Corporate leverage relative to earnings declined to 60 percent in June 2024 from 95 percent in December 2020.
  - Household sector leverage (credit by financial sector as a ratio to GDP) stood at 38 percent in June 2024 versus 42 percent in December 2020.
- Global Business Companies (GBCs) scale and linkages
  - GBCs account for 90.4 percent of total financial sector assets (US$755 billion), about 50 times GDP.
  - GBC deposits amount to US$12.4 billion and account for 28.6 percent of banking sector liabilities.
  - Bank loans to GBCs represent about 13.7 percent of total banks’ assets in 2024.
  - GBC domestic assets were US$212.6 billion in 2024; GBC non-resident assets were US$525.6 billion.
  - GBCs’ role: accounted for 8.2 percent of GDP in 2023 and about 10 percent of Mauritius Revenue Agency’s net tax revenue.
- Risks and stress scenarios
  - Scenarios that could expose banks: revisions of DTAs, rating changes, intensified anti-money laundering initiatives, shifts in investor sentiment.
  - A hypothetical storm calibrated for 2025 estimated to increase public debt-to-GDP ratio by 1.5 percent of GDP relative to baseline.
  - Balance sheet analysis indicates systemic vulnerabilities and data gaps; government net financial position negative (-259 billion rupees).
- Supervisory and macroprudential actions
  - Recommendations: regular stress testing, strengthen risk-based AML/CFT supervision, enhance monitoring of non-resident and GBC exposures, close data gaps on nonbank subsectors, and maintain macroprudential measures (LCR, NSFR, LTV, DSTI).

### External sector assessment and NIIP
- Current account and reserves
  - Current account deficit: 6.5 percent of GDP in 2024 (from 5.1 percent in 2023).
  - Net financial inflows increased to about 14.5 percent of GDP in 2024; GBC net inflows 19.1 percent of GDP in 2024.
  - GOIR: US$8.5 billion at end-2024 (11.9 months of imports, 56.6 percent of GDP); GOIR increased to US$8.8 billion at end-March 2025.
  - Reserves assessed at 108.24 percent of the adjusted ARA metric (reserves 8.51; ARA adjusted 32.34 in source table).
- NIIP and gross positions (2024)
  - NIIP estimated at 210 percent of GDP in 2024, down from 229 percent in 2023.
  - About 51 percent of the 2024 NIIP comes from the volatile GBCs sector; domestic economy’s NIIP 49 percent.
  - Gross Assets: 4153 (as presented); Gross Liabilities: 3944; Debt Assets: 153.4; Debt Liabilities: 609.
  - FDI and other investment accounted for 67 and 17 percent of total gross liabilities, respectively.
- Real exchange rate and valuation
  - Year average REER depreciated by 1.7 percent in 2024.
  - Between end-December 2024 and end-April 2025, the rupee appreciated by 4.0 percent relative to the U.S. dollar.
  - Staff-assessed 2024 CA gap: -4.0 percent of GDP; elasticity 0.3 implies an REER overvaluation assessment of 13.4 percent using that method.

### Climate, pensions, and long-term risks
- Pensions and demographics
  - Pension spending in baseline: 7.6 percent of GDP and contributions around 2 percent of GDP.
  - Illustrative permanent adjustments to keep pension assets positive: 1.42% — 50 years; 5.22% — Until 2100; 17.10% — 30 years.
- Climate adaptation and fiscal implications
  - Historical average climate damages estimated at 1.5 to 2.3 percent of GDP per year during 1960-2022.
  - Public investment scaling scenarios: standardized scenario +1.5 percent of GDP permanently beyond t+5; customized scenario +2 percent of GDP per year.
  - Both scenarios raise gross financing needs and public debt permanently above baseline.

### Risks to the outlook (Risk Assessment Matrix highlights)
- High-likelihood/high-impact risks
  - Trade policy uncertainty and sovereign debt distress (Likelihood: High; Expected Impact: High/Medium).
- Other material risks
  - Commodity price volatility (Likelihood: Medium; Expected Impact: Medium).
  - Tighter global financial conditions, regional conflicts, and domestic political economy setbacks (Likelihood: Medium; Expected Impact: Medium–High).
  - Climate change (Likelihood: Medium; Expected Impact: High).
- Policy responses recommended in RAM
  - Front-loaded growth-friendly fiscal consolidation, strengthen external buffers, outlook-based monetary tightening if needed, strengthen AML/CFT, and implement structural reforms to support competitiveness and resilience.

### Policy recommendations (summary of staff advice)
- Fiscal policy
  - Pursue frontloaded growth-friendly consolidation to rebuild fiscal credibility and fiscal space while protecting the most vulnerable.
  - Increase tax revenue and contain current and ESFs’ spending while safeguarding critical social spending and growth-enhancing capital spending.
  - Pension system reform essential to support fiscal sustainability.
  - Strengthen public financial management, including streamlining ESFs.
- Monetary and exchange rate policy
  - Strengthen implementation of the 2023 monetary policy framework and resume uncapped issuance of 7-Day BOM bills (at the key policy rate).
  - BOM should stand ready to tighten the monetary policy stance should inflationary pressures reemerge.
  - BOM should start to gradually phase out its ownership of MIC and adopt amendments to the BOM Act to protect central bank independence.
  - Continue to rely on exchange rate flexibility and opportunistic FX purchases in line with the monetary policy framework.
- Financial sector and AML/CFT
  - Continue steady progress in strengthening the AML/CFT framework, including provisions related to non-resident and cross-border activity.
  - Monitor financial sector risks closely, including real estate and GBC activity; strengthen supervision and stress testing.
- Structural reforms
  - Advance reforms to boost investment and innovation, strengthen workers’ skills, narrow gender gaps, and advance climate adaptation efforts.
- Governance and transparency
  - Implement central bank plan to phase out MIC ownership and promptly return undisbursed funds to BOM.
  - Adopt amendments to the Bank of Mauritius Act and enact a Fiscal Responsibility Law; publish a Fiscal Risk Statement.

### Authorities’ views (selected)
- Authorities noted weaker-than-previously-estimated economic performance after statistical revisions; inflationary pressures were successfully contained in early 2025.
- They consider the economy operating above potential due to high demand-side pressures from higher wages and expanded social transfers.
- Authorities project medium-term real GDP growth around 4.0 to 5.0 percent based on financial services sector growth and planned energy projects.
- Aim to reduce public debt to 75 percent of GDP by end-June 2031, with a frontloaded fiscal adjustment starting in FY25/26 (specific plans not yet announced).

*Source: IMF staff report for the 2025 Article IV Consultation (Mauritius).*

### 2.5 percent in March 2025 from 7.0 percent in 2023, helped by easing international food and

### Mauritius: Staff Report for the 2025 Article IV Consultation (extract)

### Recent economic developments
- Recovery and composition
  - The economy grew by 4.7 percent in 2024, driven by services, construction, and tourism.
  - Unemployment was 5.8 percent at end-December 2024, down from 6.1 percent a year earlier.
- Inflation
  - Headline inflation (12-month average) declined to 2.5 percent in March 2025 from 7.0 percent in 2023, helped by easing international food and energy prices and the reduction of fuel excise duties in December.
  - Inflation expectations (1-year horizon) reached 3.7 percent in March 2025.
- External and reserve position
  - The external current account deficit widened in 2024 to 6.5 percent of GDP, mostly reflecting higher imports and freight costs.
  - Gross foreign reserves increased to US$8.5 billion by end-2024, covering almost 12 months of imports.
- Public debt and medium-term challenges
  - Public sector debt reached 87 percent of GDP at end-2024 (official text: "which reached 87 percent of GDP at end-2024").
  - Key structural challenges: high public debt, significant public investment needs (notably for climate), low productivity, and an ageing society.

### Outlook and projections
- Growth
  - Real GDP growth is projected to soften to 3.0 percent in 2025 due to weakening external demand, easing tourism activity, and the drought.
  - Over the medium term, growth is expected at around 3.4 percent, reflecting demographic headwinds and labor shortages.
- Inflation
  - Inflation is projected to average 3.6 percent in 2025 and remain within BOM’s target range over the medium term.
- External sector
  - The external current account deficit is projected to reduce to 4.7 percent of GDP in 2025—reflecting lower oil prices, as exports grow modestly amid the slowdown in global demand—and to increase in 2026 due to subdued exports, but gradually decline thereafter.
- Fiscal outlook
  - The primary fiscal deficit (excluding grants) for FY24/25 is projected to worsen by 3.4 ppt of GDP relative to FY23/24, to 6.5 percent of GDP, mostly driven by higher compensation of employees, social benefits, and grants and transfers.
  - The stock of public sector debt is projected at around 88 percent of GDP at end-June 2025, and to gradually decline in the medium term.

### Key numerical indicators (selected)
- Real GDP growth (annual percent change): 2024: 4.7; 2025: 3.0; 2026–2030: 3.4 (2026 onward) with 3.4 repeated through 2030 in projections table.
- Real GDP per capita (annual percent change): 2025: 3.2; 2026–2030: 3.6, 3.6, 3.6, 3.7, 3.8 respectively.
- GDP per capita (in U.S. dollars): 2024: 11,883; 2025: 12,448; 2026: 13,287; 2027: 14,183; 2028: 15,128; 2029: 16,131; 2030: 17,190.
- Consumer prices inflation (period average): 2024: 3.6; 2025: 3.6; 2026–2030: 3.6, 3.5, 3.5, 3.5, 3.5 respectively.
- Consumer prices inflation (end of period): 2024: 2.9; 2025: 3.9; 2026–2030: 3.5 repeated.
- Current account balance (percent of GDP): 2024: -6.5; 2025: -4.7; 2026: -6.1; 2027: -5.0; 2028: -4.3; 2029: -3.7; 2030: -3.0.
- Gross international reserves (millions of U.S. dollars): end-2024: 8,510; projected 2025: 8,675; 2026: 9,163; 2027: 9,475; 2028: 9,781; 2029: 10,083; 2030: 10,420.
- Months of imports of goods and services, f.o.b.: 2024: 11.8; 2025: 11.6; 2026–2030: 11.6, 11.4, 11.3, 11.2, 11.1.
- Public sector debt, fiscal year (percent of GDP): 2024: 88.3; 2025: 89.1; 2026: 88.1; 2027: 86.9; 2028: 85.3; 2029: 83.9; 2030: 82.7.
- Total external debt (percent of GDP): 2024: 139.2; 2025: 128.9; 2026: 119.3; 2027: 110.8; 2028: 102.2; 2029: 94.1; 2030: 87.1.

### Risks to the outlook
- Downside risks highlighted:
  - High global uncertainty and tariff wars.
  - Higher-than-anticipated fuel and food prices.
  - Extreme climate shocks.
- Structural and balance-sheet risks:
  - External position at end-2024 is assessed as weaker than the level implied by fundamentals and desirable policies.
  - Financial sector risks warrant close monitoring, including the real estate sector and non-resident and global business companies operating in the Mauritius International Financial Center.
  - Statistical gaps and discrepancies need addressing to improve the quality and credibility of macroeconomic statistics.

### Policy recommendations
- Fiscal policy
  - Pursue frontloaded growth-friendly consolidation to rebuild fiscal credibility and fiscal space while protecting the most vulnerable.
  - Increase tax revenue and contain current and ESFs’ spending while safeguarding critical social spending and growth-enhancing capital spending.
  - Pension system reform is essential to support fiscal sustainability given population ageing.
  - Strengthen public financial management, including streamlining ESFs, to support consolidation, transparency, and good governance.
- Monetary and exchange rate policy
  - Strengthen implementation of the 2023 monetary policy framework and resume uncapped issuance of 7-Day BOM bills (at the key policy rate).
  - Bank of Mauritius (BOM) should stand ready to tighten the monetary policy stance should inflationary pressures reemerge.
  - BOM should start to gradually phase out its ownership of MIC and strengthen implementation of the monetary policy framework by resuming uncapped issuance of 7-Day BOM bills (at the key policy rate).
  - BOM should adopt amendments to the BOM Act, including to ensure fiscal backing, to protect central bank independence.
  - Ministry of Finance and BOM are encouraged to strengthen the commitment on their mutual agreement for BOM independence.
  - Continue to rely on exchange rate flexibility and FX purchases when opportunities arise and in line with the monetary policy framework to help further build foreign reserves buffers.
- Financial sector and AML/CFT
  - Continue steady progress in strengthening the AML/CFT framework, including provisions related to non-resident and cross-border activity.
  - Monitor financial sector risks closely, including those related to the real estate sector and global business company activity.
  - Improve external sector statistics, including measurement of the GBCs sector.
- Structural reforms
  - Advance reforms to boost investment and innovation and secure longer-term private sector-led growth.
  - Priorities include strengthening workers’ skills, narrowing gender gaps, and advancing climate adaptation efforts.
- Other governance and transparency actions
  - Implement central bank plan to gradually phase out ownership of the Mauritius Investment Corporation (MIC) and promptly return undisbursed funds to the central bank.
  - Adopt amendments to the Bank of Mauritius Act to protect central bank independence.

### Executive Board assessment (summary)
- The economy has recovered solidly and the outlook is favorable, but fiscal and structural challenges remain.
- The Board underscores the importance of addressing fiscal and external imbalances to increase resilience to large external shocks.
- Structural reforms to foster external competitiveness and address demographic headwinds and labor shortages are necessary for sustainable private sector-led growth.

*Source: IMF staff report for the 2025 Article IV Consultation (Mauritius).*

### 3.      Fiscal policy in FY23/24 was expansionary, resulting in increased debt pressures. The

### 1musea2025001-print-pdf - 3.      Fiscal policy in FY23/24 was expansionary, resulting in increased debt pressures.

### Fiscal developments and immediate outcomes
- Primary fiscal deficit (excluding grants) increased by 0.4 ppt of GDP to 3.1 percent of GDP in FY23/24.
- Including net expenditure from extra-budgetary special funds (ESFs), the primary deficit increased by 2.8 ppt of GDP to 6.1 percent of GDP; net expenditure from ESFs rose by 2.4 ppt of GDP driven by social housing construction payments.
- Revenue (excluding grants) declined by 0.2 ppt of GDP, mostly reflecting lower personal income tax and excise duty collection.
- Primary expenditure increased by 0.2 ppt of GDP as social benefits and other current expenses continued to rise.
- Public sector debt rose to 87 percent of GDP at end-2024 (above the statutory ceiling of 80 percent).
- In January 2025, Moody’s kept Mauritius at investment grade (Baa3) but downgraded the rating outlook to negative from stable.

### Monetary policy and reserves
- BOM cut the key policy rate from 4.5 to 4.0 percent in September 2024 and raised it back to 4.5 percent in early February 2025.
- BOM upgraded MPC press release communication, including mentioning Forecasting and Policy Analysis System (FPAS) analysis and announcing MPC meeting schedules.
- Gross foreign exchange reserves increased to US$8.5 billion by end-2024 — about 11.9 months of imports and an estimated 108 percent of the IMF’s reserve adequacy metric (ARA).
- External current account deficit estimated at 6.5 percent of GDP in 2024.
- Nominal rupee-USD rate depreciated by 6.7 percent in 2024 and the real effective exchange rates depreciated by 1.7 percent in 2024 from 2023.
- After the U.S. tariff announcement of April 2, 2025, the rupee fluctuated significantly and stabilized since mid-April.

### Financial sector and stability indicators
- Credit to the private sector grew by 8.3 percent in 2024.
- Consolidated Liquidity Coverage Ratio (LCR) stood at 299 percent in December 2024 (regulatory requirement: 100 percent).
- Net Stable Funding Ratio (NSFR) guideline effective since June 2024.
- Corporate leverage relative to earnings declined to 60 percent in June 2024 from 95 percent in December 2020.
- Household sector leverage (credit by financial sector as a ratio to GDP) stood at 38 percent in June 2024 versus 42 percent in December 2020.
- November (year) BOM introduced virtual assets guidelines.
- Ongoing AML/CFT investigations, including with MIC, suggest oversight challenges and risks to the financial sector.

### Outlook and projections
- Real GDP growth projected to soften to 3.0 percent in 2025 (slightly below potential).
- Tourist arrivals projected to remain around 1.4 million in 2025.
- Medium-term growth expected at around 3.4 percent.
- Headline inflation projected at 3.6 percent in 2025; over the medium term inflation projected to stay within BOM target range of 2-5 percent.
- External current account deficit projected to decline to 4.7 percent of GDP in 2025.
- Reserves projected to remain above 11 months of import cover.

### Fiscal projections and debt path for FY24/25 and medium term
- Primary fiscal balance (excluding grants) projected to worsen by 3.4 ppt of GDP relative to FY23/24, to 6.5 percent of GDP in FY24/25.
- Primary expenditure projected to increase by 5.1 ppt of GDP in FY24/25.
- Revenue (excluding grants) projected to increase by 1.6 ppt of GDP in FY24/25.
- Including net expenditures from ESFs, the primary deficit (excluding grants) projected to increase by 2.5 ppt of GDP to 8.6 percent of GDP.
- Public sector debt projected at 88 percent of GDP at end-June 2025.
- Government borrowing requirement for FY24/25: 10.4 percent of GDP.
- External financing expected to increase to near 2.0 percent of GDP in FY24/25, reflecting a budget support loan from the African Development Bank of 1.5 percent of GDP.

### Sovereign risk assessment
- Based on IMF’s Sovereign Risk and Debt Sustainability Framework, overall risk of sovereign stress assessed as high.
- Public debt projected to remain above statutory ceiling at 83 percent of GDP by end-June 2031 under baseline.
- Contingent liabilities: potential BOM recapitalization needs and external debt; adverse long-term pension effects from population ageing; fiscal risks from elevated climate shock vulnerabilities.
- Risk rating could be lower if medium-term growth is higher and fiscal consolidation is more ambitious than baseline.

### Risks to the outlook
- Downside risks: global uncertainty impacting tourism, tariff wars, higher energy and food prices, inability to implement fiscal consolidation, delays in policy recalibration, deterioration in SOEs' balance sheets, extreme weather shocks.
- Upside possibilities: finalization of Chagos agreement yielding windfall revenue; an end to Russia's war in Ukraine boosting tourism.

### Authorities’ views (selected)
- Authorities noted weaker-than-previously-estimated economic performance after statistical revisions; inflationary pressures were successfully contained in early 2025.
- They consider the economy operating above potential due to high demand-side pressures from higher wages and expanded social transfers.
- Expressed concerns about pre-election fiscal expansion and housing affordability due to rapid residential real estate price increases.
- Projected medium-term real GDP growth around 4.0 to 5.0 percent based on financial services sector growth and planned energy projects.
- Aim to reduce public debt to 75 percent of GDP by end-June 2031, with a frontloaded fiscal adjustment starting in FY25/26 (specific plans not yet announced).

### Policy discussion and recommendations
- Macroeconomic policy mix should be recalibrated to:
  - Rebuild fiscal space.
  - Conserve external buffers.
  - Maintain financial stability.
- An ambitious medium-term fiscal consolidation is recommended starting with the FY25/26 budget, protecting growth and the most vulnerable.
- Staff analysis on consolidation paths:
  - Authorities’ goal (75 percent of GDP by end-June 2031) would require a frontloaded adjustment to a primary balance of -0.3 percent of GDP starting in FY25/26 — implying a 6.2 ppt of GDP fiscal adjustment in FY25/26 (noted as unrealistic).
  - Staff baseline assumes a more realistic pace reaching 83 percent of GDP in six years, requiring a 3½ ppt of GDP improvement in the primary balance in FY25/26 and a 7.0 ppt of GDP total improvement through FY30/31 (reflecting both expenditure and revenue measures).
- Recommended priorities: protect social spending for the most vulnerable, climate investment, and other growth-enhancing spending; consider performance-based budgeting and strengthen budget controls.

*Source: 1musea2025001-print-pdf - 3.      Fiscal policy in FY23/24 was expansionary, resulting in increased debt pressures.*

### 17.      The fiscal adjustment will require expenditure restraint, which will need to balance

### 17.      The fiscal adjustment will require expenditure restraint, which will need to balance

### Fiscal adjustment and expenditure restraint
- Current spending (excluding interest) accounts for 85 percent of total fiscal spending.
- Current spending is about 20 and 13 percentage points higher than the sub-Saharan Africa and Caribbean islands average, respectively.
- Current spending remains about 6 ppt of GDP above pre-pandemic level.
- Staff's baseline: streamlining of primary expenditure starts in FY25/26 (by 2.7 ppt of GDP relative to FY24/25) and continues in stages over the medium term.

### Pension spending and recommendations
- Pension spending is around 7.5 percent of GDP.
- Pension contributions represent only around 2 percent of GDP.
- Basic Retirement Pension (BRP) has doubled since 2019 (70 percent up in real terms).
- Staff's baseline assumption: pension growth contained in line with inflation over the medium term.
- Additional reforms (not included in staff's baseline) to restore sustainability:
  - Gradually increase BRP eligibility age from 60 to 65 (expected savings of 1.7 percent of GDP at full impact).
  - Keep the CSG pension benefit fixed at the current level over the medium term for those aged 65 to 75 (expected savings of 0.4 percent of GDP).
  - Reform the CSG system to provide benefits only to contributors.

### Wages, allowances, and private sector subsidies
- New wage regulations from September 2024 increased FY24/25 government wage bill due to higher salaries (+0.2 ppt of GDP) and subsidies to selected SMEs (+0.2 ppt of GDP).
- A new 14th month allowance (introduced in December) impacts:
  - Government wage bill: +0.2 ppt of GDP.
  - Social benefits to pensioners: +0.9 ppt of GDP.
  - New subsidy for selected SMEs: +0.2 ppt of GDP.
- Staff's baseline assumes partial unwinding:
  - Government subsidy to private employees from the September wage regulations phased out in FY25/26 (0.2 percent of GDP).
  - Unwinding of the 14th month allowance to government employees (0.2 ppt of GDP excluding pensioners).
  - Unwinding of the subsidy for selected SMEs (0.2 ppt of GDP).

### Transfers, subsidies, and targeting
- Unwinding two housing subsidy schemes (Home Ownership and Home Loan Payment schemes) introduced in FY21/22 would generate expected savings of 0.7 percent of GDP (included in the baseline).
- Consideration for unwinding other broadly targeted schemes (not included in staff's baseline), e.g., the Independence Scheme (0.06 ppt of GDP).
- Recommendation: replace broadly targeted subsidies with better targeted schemes to protect the poor and most vulnerable.

### Fiscal expenditure composition and capital spending
- Non-ESF capital spending averaged around 2 percent of GDP per year pre-pandemic.
- Non-ESF capital spending projected to decline to 1.1 percent of GDP in FY24/25, from 1.3 percent in FY23/24.
- Staff's baseline assumes a conservative increase of 0.2 ppt of GDP in capital spending (excluding ESFs) in FY25/26.
- Recommendation: protect growth-enhancing capital spending.

### Revenue mobilization options and baseline
- Staff's baseline: 1.2 ppt of GDP increase in total revenue in FY25/26, which includes:
  - Introduction of VAT e-invoicing (0.4 ppt of GDP estimated yield).
  - Real estate sector reforms (0.1 ppt of GDP).
  - Unwinding of the negative excise duty for electric vehicles (0.1 ppt of GDP).
  - Higher grants (0.4 ppt of GDP).
- More ambitious revenue measures (not included in baseline):
  - Lowering VAT registration threshold (0.6 percent of ppt of GDP).
  - Selectively removing VAT exemptions (up to 2 ppt of GDP).
  - Reforming personal income tax (PIT): increasing the top three PIT rates by 1, 2, and 5 percent, respectively, while lowering all thresholds by 25 percent (0.8 ppt of GDP).
  - Streamlining corporate income tax (CIT) exemptions for offshore companies.
- Recommendation: sequence and stage reforms starting in FY25/26 to limit adverse growth impact and account for elevated global uncertainty.

### Distributional considerations when selecting measures
- Option to keep pension and other current spending growth in line with inflation to protect households' purchasing power.
- Reforming BRP gradually could reduce pension spending while protecting the most vulnerable; 89 percent of BRP recipients are above the poverty line.
- Lowering VAT registration threshold to Rs 3 million would keep 15 percent of (micro and small) enterprises outside the VAT scope.
- Recommendation: remove VAT exemptions focused on luxury products and lower PIT payment threshold while protecting the poor.
- Eliminating excise duty exemptions on electric/hybrid vehicles noted, with a caveat that climate adaptation is more critical than mitigation in Mauritius.

### Strengthening fiscal reporting, governance, and expenditure efficiency
- Plans to comply fully with International Public Sector Accounting Standards (IPSAS) starting with the Financial Statements of the Government for FY25/26.
- Ongoing efforts: consolidation of SOEs, ESFs, and regional governments; re-introduce performance-based budgeting starting in the FY25/26 budget.
- Recommendation: adopt a standardized template for investment pre-appraisal and assessment (IMF TA as needed).
- Monitor contingent liabilities in SOEs, improve SOE operational efficiency, and revenue mobilization via public utility tariff reform.
- Rationalize SOE expenditure through digital and organizational innovations and phased exit from non-strategic SOEs, including loss-making casinos.

### Public debt ceiling framework
- Recommendations to strengthen framework:
  - Narrowly define existing clauses for suspending the ceiling.
  - Introduce a medium-term debt target in the debt ceiling legislation.
  - Adopt a short-term operational rule for the fiscal balance.
- Recommend enacting a Fiscal Responsibility Law (FRL) and publishing a Fiscal Risk Statement in the budget to help assess climate risks and contingent liabilities.

### Authorities' views on fiscal consolidation
- Authorities agreed with need for front-loaded fiscal consolidation while protecting the vulnerable, capital spending, and growth.
- Authorities' target: reduce public sector debt to 75 percent of GDP by FY30/31 (relative to 83 percent under staff baseline).
- Authorities expressed concerns about pace and magnitude of consolidation potentially slowing growth; plan to protect capital spending and better target, repurpose, and streamline subsidies and social benefits.
- Authorities plan reforms to foster private investment and productivity, introduce a Fiscal Responsibility Act, reintroduce performance-based budgeting, and improve management of assets and liabilities of the consolidated public sector.
- Authorities plan disposal of non-strategic assets as part of consolidation.

### Strengthening the monetary policy framework and safeguarding BOM independence
- Headline inflation (annual average) declined to 3.6 percent in December 2024 and 2.5 percent in March 2025, within BOM's target range of 2–5 percent.
- Real natural interest rate: 0.9 percent (BOM estimate under review).
- Since mid-2023, capped issuance of 7-Day BOM bills at the key policy rate left excess liquidity and produced a looser effective monetary policy stance (about 150bps looser than announced key policy rate).
- Overnight interbank (market) rate was around 150 bps below the key policy rate; since end-2024 it increased above the Overnight Deposit Facility rate by around 50bps, though still 100bps below the announced key policy rate.
- Recommendation: BOM should resume uncapped issuance of 7-Day BOM bills at the key policy rate to align effective absorption rate with the announced key policy rate.
- BOM's net FX interventions were US$0.37 billion in 2024 and US$0.35 billion in 2023.
- Recommendation: continue exchange rate flexibility and FX purchases when opportunities arise, reserve FXI to address acute FX liquidity shortages and to facilitate price discovery and lean against sharp exchange rate fluctuations when reserves are sufficient and policies appropriate.
- Recommendation: adopt amendments to the BOM Act promptly to ensure fiscal backing, strengthen governance (tenure, appointment, dismissal procedures), strengthen the Financial Stability Committee, clarify Board oversight, and limit BOM's powers to provide unlimited monetary financing.
- Recommendation: promptly return undisbursed funds with the Mauritius Investment Corporation (MIC) (around a third of MIC's original equity) to BOM and gradually wind down remaining assets according to market conditions and fiscal space.

### BOM and authorities' views on monetary policy and MIC
- BOM highlighted the role of their Forecasting and Policy Analysis System (FPAS) model for forward-looking decision making.
- BOM welcomed Fund assistance to study monetary policy transmission challenges.
- Authorities noted commitment to a floating exchange rate regime, conserving external buffers, and lessons from the IPF for FXI conduct.
- Authorities and BOM agree fiscal backing safeguards BOM independence; BOM plans to gradually phase out ownership of MIC, report any associated losses, and return undisbursed MIC funds to BOM.

### Strengthening resilience and managing macro-financial risks
- Financial sector assets are 55 times GDP; GBCs’ assets account for 90 percent of financial sector assets.
- Continued monitoring needed for residential property prices showing signs of overheating; housing credit growth remained at a more moderate 2023 pace.
- Effective macroprudential measures in place include Liquidity Coverage Ratio, other capital and liquidity measures, loan-to-value and debt service-to-income ratios.
- Recommendation: address data gaps and conduct regular stress testing of financial sector assets and portfolios.
- Risks to monitor: large exposures of banks to non-residents and Global Business Companies (GBC) through funding and credit, changes in cross-border capital flows, shifts in investor sentiment exposing onshore banks to external shocks, and elevated government debt (including with banks).
- Recommendation: strengthen risk-based AML/CFT supervision of cross-border financial activity, monitor non-resident exposures, enhance transparency of beneficial ownership of GBCs, and sustain effective implementation of AML/CFT standards ahead of the 2027 FATF assessment.

_Italic: Source — 1musea2025001-print-pdf - 17.      The fiscal adjustment will require expenditure restraint, which will need to balance_

### 30.      The authorities agree that financial stability risks are contained and highlighted

### 1musea2025001-print-pdf - 30.      The authorities agree that financial stability risks are contained and highlighted

### Financial stability, AML/CFT, and supervision
- Authorities view financial stability risks as contained and highlighted by the macroprudential policies and supervisory framework in place.
- Ongoing monitoring commitments:
  - Continue close monitoring, including via stress testing and macroprudential toolkit, of risks emerging from GBCs or the real estate sector.
- Specific measures and developments:
  - The AML/CFT Risk-Based Supervision framework, implemented since 2018, recognizes the risks from cross-border financial activity and non-resident exposure.
  - A beneficial ownership registry is in place, capturing all companies including GBCs; this information is available to competent authorities.
  - Public Report on the recent National Risk Assessment was published in May 2025.
  - Additional national risk assessments are being undertaken for: Non-Profit Organizations, Virtual Assets, Proliferation Financing, legal persons and legal arrangements.
  - Various committees, entrenched in the law, oversee initiatives to ensure sustainability of AML/CFT effectiveness.

### Structural policies to foster sustainable and inclusive private sector-led growth and external competitiveness
- Rationale:
  - Structural reforms are essential to advance the authorities’ new growth model with greater reliance on private investment and innovation and to reduce external imbalances.
- Key staff recommendations:
  - Reverse recent labor market regulations that may undermine private sector competitiveness:
    - Productivity has stagnated amid persistent wage growth.
    - New wage regulations on above-minimum wages introduced in September 2024 could further undermine private sector competitiveness and should be reversed.
  - Strengthen workers’ skills and boost female labor force participation:
    - Advance government plans to (i) reduce inequalities in access to higher education; and (ii) increase female labor force participation.
    - Need financing for skill building, training, and education programs including for women, improve availability of affordable childcare, and further improve legislation on maternity and parental leave.
  - Advance climate adaptation to support economic resilience:
    - Weather shocks in Mauritius are associated with significant damage to housing, with repair costs accounting for an estimated 3 percent of household income (SIP “Increasing Resilience to Weather Shocks on Housing”).
    - Only 4 percent of households have property insurance.
    - A hypothetical storm (benchmarked with the macro-fiscal values of two past large storms) could possibly raise public debt by 1.5 percent of GDP (Annex VII).
    - Suggested actions: build on the Natural Disaster Financing Strategy and insurance schemes, deepen the property insurance market, introduce climate risk accounting in construction and land occupation guidelines, strengthen public investment institutions, and advance climate mitigation plans.

### Authorities’ views (on external position, reforms, and implementation)
- Agreement and priorities:
  - Authorities agreed external sector assessment that Mauritius’ external position at end-2024 remained weaker than the level implied by fundamentals and desirable policies.
  - Emphasized need for structural reforms to promote private sector innovation and competitiveness (including labor market reforms), and medium-term growth-friendly fiscal consolidation to reduce external imbalances.
  - Agreed that climate adaptation reforms would support external competitiveness and growth.
- Planned reforms and institutional initiatives:
  - Plans to reskill and expand the labor force, foster innovation in Fintech and digitalization.
  - Plan to set up a Climate Finance Unit at the Ministry of Finance to better mobilize and manage climate finance for adaptation, mitigation and resilience.

### Statistics, data shortcomings, and technical assistance
- Current data assessment:
  - Data provision is broadly adequate for surveillance but has shortcomings (Annex X).
  - Statistics Mauritius upgraded CPI benchmarking year from 2017 to 2023 in April 2023.
  - Public debt statistics updated by appropriately netting out stock of government securities held by non-financial SOEs.
  - Substantial revisions in historical national accounts and fiscal statistics undermine data credibility.
  - Large discrepancies persist between demand- and supply-side GDP.
  - Measurement of GBCs’ activities in the national accounts and BOP requires improvement.
  - Mauritius does not compile key FSIs for some sub-sectors of non-banks such as pension and insurance.
- Technical assistance (TA) and capacity development:
  - IMF TA in FY22–24 focused mostly on the financial and monetary sector.
  - Recent IMF TA supported improvements in consistency in recording of GBCs' activities (Annex XI).
  - Authorities requested TA and training on AML/CFT and requested a ROSC mission to assess data quality and modernize operations and governance of Statistics Mauritius.
  - With Fund support, authorities plan to continue and conclude ongoing FPAS related work.
  - Authorities plan to require TA from INTOSAI to strengthen national audit procedures.
- Authorities’ TA priorities and requests:
  - Commit to implementing ROSC recommendations and ensuring full independence of producers of official statistics.
  - Acknowledge BOM does not compile key FSIs for some non-bank subsectors and requested TA on financial sector indicators for Balance Sheet Approach analysis.
  - BOM requested assistance to complete the Banking Bill, amend the BOM Act, and support CBDC implementation.
  - BOM requested continued TA on monetary policy communications, climate issues, and further study of monetary policy transmission to fine tune BOM’s FPAS model.
  - Fiscal authorities plan to request TA to draft a Fiscal Responsibility Bill and improve assets and liability management.
  - Requested training on AML/CFT in preparation for the 2027 assessment and INTOSAI training for national audit procedures.

### Staff appraisal: outlook, policy priorities, and recommendations
- Macroeconomic outlook and risks:
  - Economy recovered solidly from the pandemic; recovery driven by services, construction, and tourism.
  - Medium-term outlook favorable but held back by demographic headwinds and labor shortages.
  - Mauritius faces fiscal and structural challenges: high public debt, significant public investment needs for climate, low productivity, and an ageing society.
  - Risks to the outlook are on the downside including from high global uncertainty.
- Fiscal policy recommendations:
  - Pursue frontloaded growth-friendly consolidation to shore up fiscal credibility and rebuild fiscal space while protecting the most vulnerable.
  - Increase tax revenue and contain current and ESFs' spending while safeguarding critical social spending and growth-enhancing capital spending.
  - Pension system reform is key for fiscal sustainability given ageing population.
  - Strengthen public financial management, including streamlining ESFs, to support consolidation, transparency, and good governance.
- Monetary and exchange rate policy recommendations:
  - BOM should start to gradually phase out its ownership of MIC and strengthen the monetary policy framework by resuming uncapped issuance of 7-Day BOM bills (at the key policy rate).
  - BOM should be ready to tighten monetary policy if inflationary pressures reemerge.
  - BOM should adopt amendments to the BOM Act, including to ensure fiscal backing, to protect central bank independence.
  - Ministry of Finance and BOM are encouraged to strengthen commitment on their mutual agreement for BOM independence.
  - Continue to rely on exchange rate flexibility and FX purchases when opportunities arise, in line with the monetary policy framework, to help build foreign reserves buffers.
- External sector and statistical recommendations:
  - Structural reforms to foster external competitiveness are needed to reduce external imbalances.
  - Sustain steady progress in strengthening the AML/CFT framework, including provisions related to non-resident and cross-border activity.
  - Continue close monitoring of financial sector risks, including the real estate sector.
  - Sustain efforts to improve external sector statistics, including measurement of the GBCs sector; address statistical gaps and discrepancies to improve quality and credibility of macroeconomic statistics.
- Structural reform priorities:
  - Advance reforms that boost investment and innovation to secure longer-term private sector-led growth.
  - Priorities: strengthen workers' skills through better education, narrow gender gaps, and advance climate adaptation efforts to support economic resilience.

*Source: IMF staff report excerpt.*

### 41.      Staff recommends that the next Article IV consultation takes place on the standard 12-

### 1musea2025001-print-pdf - 41.      Staff recommends that the next Article IV consultation takes place on the standard 12-

### Real sector developments
- The economy "has recovered from the pandemic."1/
- Private investment and household consumption supported growth in 2024.
- Tourist arrivals recovered to pre-pandemic levels; tourism earnings and arrivals shown through 2017M1–2025M3 series.
- Unemployment has receded to the lowest level in decades; unemployment rate series shows values up to 2025M3 with "Male", "Female", "Total" plotted.
- Inflation:
  - "Inflation has declined to the target band of 2-5 percent."2/
  - Core 1 definition: "Core 1 excludes food, beverages and tobacco components and mortgage interest on housing loan from headline inflation."
  - Monthly inflation series includes Core 1 (YoY), Headline (12-month average), End-of-period (YoY) up to 2025M3.
- Output gap: "The output gap is nearly closed."
- Real GDP growth and contributions by sector shown for 2018–2025; chart indicates Real GDP Level (RHS) in billions of rupees and contributions in percent.

### External sector developments
- "The current account deficit widened in 2024, reflecting higher freight costs...."
- "....while the financial account improved."
- Gross international reserves recovered in 2024, "helped by banks' FX deposits at the BOM."
- Projections:
  - "The current account balance is expected to remain in deficit over the medium term."
  - "Net financial inflows are expected to remain in surplus over the medium term."
- Current account and financial flows (selected figures and projections):
  - Current Account Balance (In percent of GDP) series plotted for 2017–2024.
  - Financial Flows (In percent of GDP) plotted for 2017–2024 with components: Direct investment, Portfolio investment, Other investment (abroad and in Mauritius).
  - Changes in reserves (In millions of US dollars) plotted 2017–2024; components include "Other factors, including borrowing from non-residents and reinvesting banks' excess cash in FX" and "Sales interventions by BOM, incl. transactions with banks and STC".
  - Current Account Projections (In percent of GDP) for 2024–2030 with components: Trade balance, GoodsServices (net), Income (net), Current transfers (net).
  - Financial and Capital Account Projections (in percent of GDP) 2024–2030 with "Financial account" and "Capital account".
  - Gross International Reserves (USD million and months of imports) series 2017–2024.

### Financial sector developments (banking system)
- "Capital ratios of the banking system are substantially above benchmarks."
  - Regulatory capital to risk-weighted assets series for 2019–2024 shows values above typical benchmark lines.
- Asset quality:
  - NPL ratio decreased in 2024; Non-performing loans to total loans series (2019–2024) moves downward through 2024.
  - Provisions to nonperforming loans and loan concentration by economic activity plotted 2019–2024.
- Profitability and liquidity:
  - "Banks’ profitability continues to grow and stabilized in Q3 2024..."
  - Return on equity, return on assets, interest margin to gross income, non-interest expenses to gross income series plotted with values through 2024.
  - Consolidated Liquidity Coverage Ratio remained above the regulatory limit of 100 but dropped in 2024.
- FX position:
  - "The net FX position of banks is well below the regulatory limit of 15 percent."
- Concluding statement: "The banking sector continues to demonstrate resilience."

### Fiscal sector developments
- Fiscal impulse:
  - "The fiscal impulse is expected to be expansionary in FY24/25 and turn contractionary in FY25/26."
- Current spending and debt:
  - "Current expenditure remains above the pre-pandemic level."
  - "The stock of public debt is expected to remain relatively high in the medium term."
- Interest rates: "Interest rates remain relatively high, putting pressure on government debt service."
- Pensions and demographics:
  - "Pension costs will continue to put pressure on overall spending..."
  - "...and these challenges will be exacerbated by demographic trends in the long term."
- Debt and yields (selected chart annotations and series):
  - Central Government Debt-to-GDP (Domestic debt and External debt) shown FY2018/19–FY2025/26.
  - Yield on Government Treasury Bills and Bonds by maturity buckets for December 2019–March 2025.
  - Overall Borrowing Requirement and Augmented Primary Balance (excl. grants) series FY2018/19–FY2025/26.
  - Total revenue and grants, current expenditure, net expenditure from special funds plotted FY2017/18–FY2025/26.
  - Pension spending and non-pension spending series FY2018/19–FY2026/27.
  - Dependency ratios (60+ and 65+) plotted 2019–2059.

### Key quantitative indicators (selected figures from tables)
- Table 1: Selected Economic and Financial Indicators, 2020–30 (annual percent change or levels as indicated)
  - Real GDP: 2020 -14.5; 2021 3.4; 2022 8.7; 2023 5.0; 2024 4.7; 2025 3.0; 2026 3.4; 2027 3.4; 2028 3.4; 2029 3.4; 2030 3.4
  - GDP per capita (in U.S. dollars): 2020 9,011; 2021 9,087; 2022 10,235; 2023 11,188; 2024 11,883; 2025 12,448; 2026 13,287; 2027 14,183; 2028 15,128; 2029 16,131; 2030 17,190
  - Consumer prices inflation (period average): 2020 2.5; 2021 4.0; 2022 10.8; 2023 7.0; 2024 3.6; 2025 3.6; 2026 3.6; 2027 3.5; 2028 3.5; 2029 3.5; 2030 3.5
  - Unemployment rate (percent): 2020 9.2; 2021 9.1; 2022 6.8; 2023 6.1; 2024 5.8; 2025 5.9; 2026 5.9; 2027 5.9; 2028 5.9; 2029 5.9; 2030 5.9
  - Current account balance (percent of GDP): 2020 -8.9; 2021 -13.1; 2022 -11.1; 2023 -5.1; 2024 -6.5; 2025 -4.7; 2026 -6.1; 2027 -5.0; 2028 -4.3; 2029 -3.7; 2030 -3.0
  - Gross international reserves (millions of U.S. dollars): 2020 7,242; 2021 7,805; 2022 7,740; 2023 7,254; 2024 8,510; 2025 8,675; 2026 9,163; 2027 9,475; 2028 9,781; 2029 10,083; 2030 10,420
  - Total external debt (percent of GDP): 2020 110.7; 2021 134.0; 2022 132.2; 2023 131.6; 2024 139.2; 2025 128.9; 2026 119.3; 2027 110.8; 2028 102.2; 2029 94.1; 2030 87.1
  - Public sector debt, fiscal year (percent of GDP): 2020 91.9; 2021 86.1; 2022 81.8; 2023 88.3; 2024 89.1; 2025 88.1; 2026 86.9; 2027 85.3; 2028 83.9; 2029 82.7; 2030 82.7
- Table 2a: Central Government Finances (millions of rupees), selected entries
  - Total revenue and grants: 2019/20 103,873; 2020/21 98,711; 2022/23 126,244; 2023/24 148,360; 2024/25 160,998; 2025/26 184,804; 2026/27 207,296; 2027/28 225,299; 2028/29 242,628; 2029/30 260,192; 2030/31 279,211; 2031/32 297,982
  - Tax revenue: 2019/20 91,879; 2020/21 86,028; 2022/23 107,720; 2023/24 129,787; 2024/25 141,132; 2025/26 160,970; 2026/27 179,554; 2027/28 198,951; 2028/29 214,395; 2029/30 229,949; 2030/31 246,817; 2031/32 263,283
  - Total expense (current spending): 2019/20 134,917; 2020/21 138,792; 2022/23 139,493; 2023/24 158,072; 2024/25 182,550; 2025/26 226,288; 2026/27 224,942; 2027/28 234,548; 2028/29 245,004; 2029/30 259,392; 2030/31 272,955; 2031/32 287,464
  - Interest payments: 2019/20 13,365; 2020/21 12,415; 2022/23 13,250; 2023/24 15,609; 2024/25 17,910; 2025/26 22,343; 2026/27 22,425; 2027/28 23,361; 2028/29 24,163; 2029/30 25,214; 2030/31 24,570; 2031/32 23,955
  - Social benefits: 2019/20 41,905; 2020/21 45,655; 2022/23 47,280; 2023/24 54,389; 2024/25 63,475; 2025/26 84,771; 2026/27 83,784; 2027/28 87,890; 2028/29 92,303; 2029/30 96,979; 2030/31 101,922; 2031/32 107,140
  - Gross operating balance ((3)=(1)-(2)): 2019/20 -31,044; 2020/21 -40,080; 2022/23 -13,249; 2023/24 -9,713; 2024/25 -21,552; 2025/26 -41,485; 2026/27 -17,646; 2027/28 -9,249; 2028/29 -2,375; 2029/30 800; 2030/31 6,257; 2031/32 10,518
  - Budget balance: 2019/20 -38,580; 2020/21 -47,689; 2022/23 -21,276; 2023/24 -18,856; 2024/25 -30,047; 2025/26 -49,485; 2026/27 -27,499; 2027/28 -20,341; 2028/29 -14,261; 2029/30 -11,932; 2030/31 -7,380; 2031/32 -4,090
  - OVERALL BORROWING REQUIREMENT: 2019/20 -60,003; 2020/21 -100,776; 2022/23 -28,487; 2023/24 -28,582; 2024/25 -40,716; 2025/26 -74,336; 2026/27 -41,173; 2027/28 -30,476; 2028/29 -29,643; 2029/30 -27,470; 2030/31 -24,003; 2031/32 -21,874
  - Central government debt (memorandum): 343,260; 379,851; 396,055; 430,943; 479,048; 568,474; 620,689; 663,841; 706,522; 748,504; 793,342; 842,509
  - Public sector debt (memorandum): 381,796; 419,358; 449,294; 495,567; 546,266; 634,206; 685,472; 726,738; 767,543; 807,663; 850,651; 897,981
- Table 3: Balance of Payments, 2020–30 (millions of US dollars and percent of GDP)
  - Current account balance (millions USD): 2020 -1,013; 2021 -1,504; 2022 -1,434; 2023 -725; 2024 -972; 2025 -741; 2026 -1,020; 2027 -880; 2028 -813; 2029 -743; 2030 -641
  - Trade balance (millions USD): 2020 -2,126; 2021 -2,683; 2022 -3,618; 2023 -3,601; 2024 -3,891; 2025 -3,634; 2026 -3,897; 2027 -4,081; 2028 -4,275; 2029 -4,409; 2030 -4,582
  - Exports of goods, f.o.b. (millions USD): 2020 1,789; 2021 1,962; 2022 2,388; 2023 2,295; 2024 2,375; 2025 2,461; 2026 2,440; 2027 2,570; 2028 2,660; 2029 2,764; 2030 2,908
  - Imports of goods, f.o.b. (millions USD): 2020 -3,915; 2021 -4,644; 2022 -6,005; 2023 -5,896; 2024 -6,266; 2025 -6,095; 2026 -6,338; 2027 -6,651; 2028 -6,935; 2029 -7,173; 2030 -7,490
  - Services (net) (millions USD): 2020 909; 2021 839; 2022 1,703; 2023 1,953; 2024 1,915; 2025 1,710; 2026 1,724; 2027 1,909; 2028 2,090; 2029 2,300; 2030 2,535
  - Of which: tourism travel (millions USD): 2020 262; 2021 232; 2022 1,091; 2023 1,401; 2024 1,480; 2025 1,126; 2026 1,079; 2027 1,145; 2028 1,227; 2029 1,312; 2030 1,389
- Table 4: Monetary Survey, 2020–30 (selected levels and percent changes)
  - Money and quasi-money (M2) (millions of US dollars): 2020 554,951; 2021 602,831; 2022 627,747; 2023 677,008; 2024 764,305; 2025 813,400; 2026 875,004; 2027 949,079; 2028 1,028,616; 2029 1,114,856; 2030 1,203,373
  - M2 percent change (memorandum): 2020 17.7; 2021 8.6; 2022 4.1; 2023 7.8; 2024 12.9; 2025 6.4; 2026 7.6; 2027 8.5; 2028 8.4; 2029 8.4; 2030 7.9
  - Gross international reserves, BOM (mill. of US dollars): Table 3 memorandum repeated (see above).
- Table 5: Financial Soundness Indicators for Banks and Non-Bank Deposit-Taking Institutions, 2020–2024 Q3 (selected indicators)
  - Regulatory capital to risk-weighted assets: 2024 series shows values around 22.3, 22.2, 22.3 in late-2023/2024 observations and quarterly values through Sep/Dec 2024.
  - Non-performing loans to total loans: 2020–2024 quarterly series moving from about 5.3 to 3.8 (Dec 2024 and 2024Q3 observations).
  - Return on assets: series showing increases up to about 2.6 by 2024 quarters.
  - Return on equity: series up to about 22.1 and 21.6 in 2023–2024 quarters.
  - Liquidity Coverage Ratio (RHS in chart) remained above regulatory limit of 100 but "dropped in 2024."
  - Net open position in foreign exchange to capital: series around 1.5–2.1, "well below the regulatory limit of 15 percent."
  - Customer deposits to total (non-interbank) loans: series showing high values above 200 in many quarters (e.g., 179.4, 182.7, 194.8... up to ~230.8).
  - Residential real estate loans to total loans: series around 10.6–13.4 percent across 2019–2024.

*Sources: Mauritian authorities; Bank of Mauritius; Ministry of Finance and Development; IMF staff estimates and projections.*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### Global Risks — Conjunctural Risks
- Trade policy, uncertainty, and investment shocks.
  - Likelihood: High
  - Expected Impact: High. "Increase in trade barriers, uncertainty, and non-renewal of the AGOA trade agreement could disrupt the current account, FDI, and supply chains affecting Mauritius. Also, an appreciated U.S. dollar and tighter financial conditions, and higher inflation can impact Mauritius."
  - Policy Recommendation:
    - Outlook-based monetary tightening to address inflationary pressures and prevent de-anchoring inflation expectations.
    - Strengthen external buffers.
    - Monitoring financial sector vulnerabilities.
- Sovereign debt distress.
  - Likelihood: High
  - Expected Impact: Medium. "High interest rates and stronger U.S. dollar could amplify sovereign-bank feedback and result in capital outflows and raise risk premia."
  - Policy Recommendation:
    - Adopt a front-loaded growth-friendly fiscal consolidation strategy, underpinned by credible measures to contain current spending, increase spending efficiency, delay non-critical capital spending, and foster revenue mobilization, while protecting the poor.
    - Strengthen external buffers.
    - Monitoring financial sector vulnerabilities.
- Commodity price volatility.
  - Likelihood: Medium
  - Expected Impact: Medium. "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 shield most 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.
    - Monitoring financial sector vulnerabilities.
- Global growth acceleration.
  - Likelihood: Low
  - Expected Impact: Low. "Higher external demand for export of goods and tourism positively impact the balance of payments and the growth outlook. Less volatility of the exchange rate. More activity in the GBC and banking sectors."
  - Policy Recommendation:
    - Accelerate the pace of monetary tightening and growth-friendly fiscal consolidation.
    - FX purchases if opportunities arise—and in line with the monetary policy framework—to help bolster foreign reserve buffers to guard against external shocks.
    - Sustain compliance with AML/CFT standards.
    - Monitoring financial sector vulnerabilities.
- Tighter financial conditions and systemic 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.
- Regional conflicts.
  - Likelihood: Medium
  - Expected Impact: Medium. "Lower demand for exports and tourism, rising cost of external funding, slowdown in FDI inflows and reduction in potential growth."
  - Policy Recommendation:
    - Implement structural reforms to support private sector investment.
    - Calibrate fiscal and monetary policies consistent with supporting growth while preserving macroeconomic stability.

### Global Risks — Structural Risks
- Climate Change.
  - Likelihood: Medium
  - Expected Impact: High. "Lower external demand, including for tourism and negative impact on the growth outlook. Inflationary pressure. Damage to local infrastructure and agriculture 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 boosting potential growth.

### Domestic Risks — Conjunctural Risks
- Political economy setbacks post-election.
  - Likelihood: Medium
  - Expected Impact: High. "Further deterioration of the fiscal position, larger financing needs and worsening debt dynamics. Aggregate demand induces activity above capacity. Potential implications of corruption findings for investor confidence, policy continuity, and public trust."
  - Policy Recommendation:
    - Adopt a medium-term growth-friendly fiscal consolidation strategy, underpinned by credible measures to foster revenue mobilization, contain current spending, 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 contain inflationary pressures.
    - Strengthen governance and anti-corruption policies.
- Incomplete tightening of monetary policy stance by the Bank of Mauritius.
  - Likelihood: Medium
  - Expected Impact: High. "Inflation returns to above BOM’s target range and inflation expectations de-anchor. Larger policy tightening is required to re-anchor expectations down the road with a negative impact on the growth outlook."
  - Policy Recommendation:
    - Amend the BOM Act, including to ensure fiscal backing, to help protect central bank independence and effective monetary policy.
    - Amendments should reinforce the credibility of BOM’s inflation-targeting framework by enabling smooth open market operations to implement its price stability mandate.
    - Ministry of Finance and BOM should strengthen the commitment on their mutual agreement for BOM independence.
    - Strengthen the monetary policy framework and tighten monetary policy guided by the macroeconomic outlook.

Notes on risk scoring and interpretation
- 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.

*Source: IMF staff.*

### 7.6 percent of GDP and contributions at around 2 percent. Mauritius is already facing a declining population due

### Mauritius: Long-Term Risks, External Sector Assessment, and Bank of Mauritius Policy Framework

### Pension and Demographics
- Pension spending in the baseline is "7.6 percent of GDP and contributions at around 2 percent."
- Demographic context:
  - Mauritius is already facing a declining population due to ageing, with the dependency ratio projected to worsen over time.
- Assumptions in the simple staff analysis (not based on a detailed actuarial pension study):
  - (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.
- Projected dynamics under these assumptions:
  - Pension financing needs would gradually increase starting in 2045 as assets from the National Pension Fund are gradually depleted.
  - Gross financing needs would be pushed on a rising path and above the baseline.
- Alternative scenarios:
  - An alternative scenario with no policy changes would result in a more adverse path.
  - A more ambitious reform would be needed to ensure pension sustainability.
- Quantified illustrative permanent adjustments needed to keep pension assets positive for specified horizons (in percentage points of GDP per year):
  - 1.42% — 50 years
  - 5.22% — Until 2100
  - 17.10% — 30 years

*Source: IMF staff.*

### Climate Change: Adaptation and Fiscal Implications
- Historical damage estimate:
  - Climate shocks caused average damages estimated at "1.5 to 2.3 percent of GDP per year during 1960-2022."
- Scenarios for public investment scaling to finance climate adaptation:
  - Standardized scenario: public investment scaled up permanently by "1.5 percent of GDP in each year beyond t+5."
  - Customized scenario: more aggressive scaling up of "2 percent of GDP per year."
- Projected fiscal impact:
  - Under the standardized scenario, gross financing needs and public debt would increase permanently above the baseline.
  - Under the customized scenario, financing needs and debt would be higher than under the standardized scenario.

*Source: IMF staff.*

### External Sector Assessment — Overall and Policy Responses
- Overall assessment as of end-2024:
  - The external position of Mauritius at end-2024 was weaker than the level implied by fundamentals and desirable policies.
  - The current account deficit widened to "6.5 percent of GDP in 2024 (from 5.1 percent of GDP in 2023)," due to higher imports and freight costs.
  - International reserves at end-2024 were assessed as above the lower bound of the advisable range.
- Potential policy responses recommended by staff:
  - Implement a medium-term growth-friendly fiscal consolidation to help reduce external imbalances.
  - Preserve financial stability and continue to strengthen the AML/CFT framework to sustain capital and financial flows.
  - Structural reforms to promote private sector competitiveness through productivity-enhancing labor market regulations and skills upgrade to support investment, innovation, and sustainable financial inflows, including FDI in new productive sectors, and improve resilience to global shocks.

*Source: IMF staff.*

### Foreign Assets and Liabilities — Position and Trajectory (2024)
- Net International Investment Position (NIIP):
  - NIIP is estimated at "210 percent of GDP in 2024," down from "229 percent in 2023."
  - Composition: "About 51 percent of the 2024 NIIP comes from the volatile Global Business Companies (GBCs) sector" and the domestic economy’s NIIP makes up the remaining "49 percent."
- Drivers of 2024 NIIP decrease:
  - Primarily driven by increases in foreign direct and other investment liabilities of GBCs.
- 2024 gross and debt aggregates (percent of GDP or exact figures as provided):
  - Gross Assets: "4153" (percent of GDP context presented in source)
  - Gross Liabilities: "3944"
  - Debt Assets: "153.4"
  - Debt Liabilities: "609"
- Portfolio shares:
  - FDI and other investment accounted for "67 and 17 percent of total gross liabilities, respectively."
  - Portfolio investments accounted for "29 percent of gross assets and 16 percent of liabilities."
- Assessment and monitoring priorities:
  - Vulnerabilities from large gross liabilities ("3944 percent of GDP in 2024") are expected to be mitigated by large external assets ("4153 percent of GDP in 2024").
  - Given Mauritius’ financial center status, monitor:
    - Banks’ exposure and credit risks to GBC deposits,
    - Developments in the GBC sector,
    - Sensitivity of GBCs and non-resident flows to global financial conditions,
    - Changes in foreign legal and taxation frameworks affecting GBC flows.

*Source: IMF staff.*

### Current Account, Adjustment, and Real Exchange Rate
- Current account path and medium-term expectation:
  - 2024 current account deficit: "6.5 percent of GDP in 2024" (widened from "5.1 percent of GDP in 2023").
  - Over the medium term, the current account deficit is expected to converge to "about 4 percent of GDP."
- EBA-lite model results and adjustments:
  - CA norm estimated at "4.8 percent of GDP in 2024."
  - Adjustment to account for downward bias in measured net income flows: "+7.1 percent of GDP."
  - Adjusted CA in 2024: "0.8 percent of GDP."
  - CA gap (Adjusted CA minus CA norm): "-4.0 percent of GDP."
- REER developments:
  - Year average REER depreciated by "1.7 percent in 2024," after appreciating by "5.8 and 2.5 percent in 2022 and 2023, respectively."
  - Between end-December 2024 and end-April 2025, the Mauritian rupee appreciated by "4.0 percent relative to the U.S. dollar."
- Staff assessment of REER valuation:
  - IREER model estimates an undervaluation of the REER in 2024 of "0.2 percent" but with large residuals and high uncertainty.
  - Using the staff-assessed 2024 CA gap ("-4.0 percent of GDP") and a staff-estimated elasticity of "0.3" delivers an assessment of overvaluation of the 2024 REER by "13.4 percent."

*Source: IMF staff estimates.*

### Capital and Financial Accounts — Flows and Assessments (2024)
- Capital account openness:
  - The Financial Account Restriction Index (FARI) is "0.14" indicating an open capital account.
- Net international capital and financial flows:
  - Total net flows increased to "about 14.5 percent of GDP in 2024 (against outflows of 0.9 percent in 2023)."
- GBC sector flows (2024):
  - GBC sector experienced a net financial inflow of "19.1 percent of GDP in 2024," from "7.2 percent in 2023."
  - These inflows reflect GBCs’ large portfolio and other investment inflows.
- Domestic (non-GBC) sector (2024):
  - Domestic sector recorded net outflows of "4.7 percent of GDP" (from net inflows of "8.1 percent of GDP in 2023").
  - Gross FDI inflows in the domestic economy declined to "6.0 percent of GDP in 2024" from "6.6 percent of GDP in 2023" and remain concentrated in the real estate sector.
- Assessment and policy implications:
  - Steady net financial inflows in the medium term will depend on the dynamics of the GBC sector, including attracting new businesses.
  - Maintain operations of the GBC sector while continuing AML/CFT implementation.
  - Structural reforms to promote private sector competitiveness would help attract FDI into the domestic economy.
  - Monitor high concentration of FDI in real estate; review regulatory incentive schemes if signs of a real estate price boom appear.

*Source: IMF staff estimates.*

### FX Intervention, Reserves Level, and Adequacy
- Gross official international reserves (GOIR):
  - GOIR stood at "US$8.5 billion at end-2024 (up from US$7.3 in 2023)" — about "11.9 months of imports, 56.6 percent of GDP, 356.2 percent of exports, and 80 percent of short-term external debt."
  - GOIR further increased to "US$8.8 billion at end-March 2025."
- Exchange rate regime classification changes:
  - De jure and de facto arrangement is floating.
  - Reclassifications due to increased exchange rate flexibility:
    - From "stabilized" to "crawl-like" effective "December 15, 2023."
    - From "crawl-like" to "floating" effective "August 2, 2024."
- Bank of Mauritius (BOM) FX interventions history:
  - BOM intervened during 2017–19 with average annual net purchases of "US$0.47 billion" to accumulate reserves reaching "US$7.3 billion" at end-2019 (equivalent to "16.9 months of imports").
  - Pandemic period (2020–22): BOM net sales averaging "US$0.92 billion per year."
  - Post-pandemic (2023-24): BOM net foreign exchange sales dropped to "US$0.36 billion average per year."
  - Over 2020–24, international reserves supported by BOM’s external borrowing of "about US$1.4 billion."
- Reserve adequacy assessment:
  - The adjusted ARA metric augments the standard metric with "15 percent of all gross foreign deposits of GBCs."
  - On this basis, stock of international reserves at end-2024 is estimated to cover "108.2 percent of the ARA metric, above adequacy level."
  - ARA metric values in source table:
    - ARA metric (unadjusted): "7.86" (billion of US$)
    - ARA metric (adjusted): "32.34" (billion of US$)
    - Reserves: "8.51" (billion of US$)
    - Reserves in percent of the ARA metric: "108.24"
- Policy recommendations:
  - Opportunistic BOM foreign exchange purchases, consistent with inflation targeting, would support further reserve accumulation.
  - Foreign exchange swap arrangements and credit lines with other central banks could provide additional liquidity insurance mechanisms in situations of market distress.
  - Strong buffers are warranted given the large size and complex structure of the GBC sector, the relatively shallow foreign exchange market, and openness to capital and financial flows.

*Source: IMF staff estimates.*

### Bank of Mauritius’ Policy Framework and FX Intervention (IPF Guidance)
- Monetary policy regime and FX context:
  - In 2023, BOM started implementing a new monetary policy framework under an Inflation Targeting (IT) regime, maintaining a floating exchange rate.
  - Mauritius is vulnerable to external shocks due to reliance on tourism exports and financial flows from the Mauritius International Financial Center.
  - Post-pandemic accommodative fiscal policy boosted imports and FX demand, contributing to rupee depreciation pressures; external position remains weaker than level implied by fundamentals and desirable policies.
  - FX interventions (net sales) were substantial immediately following the pandemic, averaging "US$0.92 billion per year over 2020-22," but decreased since 2023 to "US$0.36 billion over 2023-24."
  - BOM resorts to FXI occasionally; the FX policy is not well understood by the public.
- IMF Integrated Policy Framework (IPF) guidance for FXI:
  - FXI should be reserved to address acute FX liquidity shortages, facilitate price discovery, and lean against sharp exchange rate fluctuations, provided reserves are sufficient and monetary and fiscal stances are appropriate.
  - The IPF cautions against using FXI to delay necessary macroeconomic adjustments or deplete reserves to a point where currency pressures could intensify.
  - The IPF contemplates FXI under three cases of market frictions:
    - Case A: shallow or temporarily illiquid markets;
    - Case B: unhedged currency exposure of balance sheets;
    - Case C: de-anchoring of inflation expectations due to high exchange rate passthrough.
- Evidence on market shallowness:
  - The FX market in Mauritius indicated shallowness during late 2022 and early 2023, with significant improvements since 2024.
  - Market shallowness is proxied by widening risk premia implicit in covered (CIP) or uncovered interest parity (UIP).
  - Analysis of Mauritius’ risk premia does not suggest evidence of market shallowness or temporary illiquidity (IPF Case A) since early 2023. Risk premia increased sharply during the second half of 2022 and early 2023, then declined and remained broadly stable during 2024.

*Source: IMF staff.*

*Source: IMF staff.*

### 4. Similarly, FX market shallowness is not evident since 2024 in forward/spot rates. Banks’

### 1musea2025001-print-pdf - 4. Similarly, FX market shallowness is not evident since 2024 in forward/spot rates. Banks’

### FX market liquidity, swap transactions, and forward/spot rates
- Findings:
  - Banks’ reliance on swap transactions increased since the second half of 2024 (Figure 4), which may reflect banks’ hedging against exchange rate risk or other factors.
  - Market illiquidity appears contained as proxied by the small deviation between spot and forward rates and bid and ask rates.
  - The deviation between the 3-month forward rates and the spot rate has centered around zero since 2022, despite some temporary spikes in May-September 2023 (Figure 5), suggesting no sizable depreciation expectations or market illiquidity.
  - The same pattern emerges when considering the 12-month forward rate.
  - The bid-ask spread has stayed stable and close to zero since 2018, despite some small spikes in 2023 (Figure 6).
  - Overall, analysis of swap transactions and forward/spot rates does not suggest evidence of market shallowness or temporary illiquidity (IPF Case A) in 2024.

### Financial stability and FX exposures
- Key statistics and findings:
  - Private FX debt in Mauritius is around 40 percent of GPD.
  - Corporate FX credit share in total corporate credit was 29 percent in June 2024.
  - Banks hedge FX exposures limiting FX mismatches.
  - BOM’s stress tests on sudden outflows of non-resident FX deposits suggest sufficient buffers are in place.
  - There is no evidence of unhedged household or corporate mismatches.
- Conclusion under IPF:
  - Available data do not suggest a case of unhedged currency exposures to justify FXI as a way of countering financial stability risks (IPF Case B).

### Inflation, exchange rate, and implications for FX intervention (FXI)
- Findings:
  - Inflation expectations are within BOM’s target range of 2–5 percent.
  - Changes in the exchange rate are correlated with inflation (Figure 8) and with inflation expectations (Figure 9).
  - Actual and expected inflation have declined in recent months and are within the 2–5 percent BOM target range.
  - In the event of sharp changes in the exchange rate that risk de-anchoring inflation expectations and undermining price stability objectives, FXI could be contemplated under the IPF to counter the fluctuations (IPF Case C).
- Policy guidance:
  - Mauritius should continue to rely on exchange rate flexibility and FX purchases when opportunities arise—and in line with the monetary policy framework—to help further build external reserve buffers.
  - FXI use by BOM risks blurring monetary policy objectives given the lack of a well-established FXI policy framework.
  - FXI should be reserved to address acute FX liquidity shortages to facilitate price discovery and lean against sharp exchange rate fluctuations, provided reserves are sufficient.

### Annex V — Recent trends in wages and productivity: findings and policy implications
- Recent measures and immediate impacts:
  - In January 2024, the minimum wage was increased by 30 percent to Rs 16,500 per month.
  - In September 2024, regulations for wage increases—previously only applicable to the minimum wage—were extended to higher salaries via a Wage Relativity adjustment covering most workers earning between Rs 20,000 and 50,000 monthly, who account for about 45 percent of employees aged between 16 to 60 years old.
  - The September 2024 adjustment led to a higher government wage bill (+0.2 ppt of GDP) and new government subsidies to help selected SMEs bear the higher labor cost (+0.2 ppt of GDP).
  - In December 2024, the new government enacted a 14th month salary bonus for public and private employees; government subsidies to SMEs were increased (0.2 percent of GDP) because some SMEs were unable to absorb the additional labor cost.
- Risks and transmission channels:
  - Wage increases amid stagnating productivity could hinder competitiveness, fuel inflationary pressures, reduce employment, and depress tax revenue.
  - Post-pandemic inflation is highly correlated with wage growth, highlighting an apparent wage-price spiral and inflationary risks.
  - Corporate profitability has shrunk; a sustained increase in compensation after the pandemic has increased labor cost while productivity has lagged.
  - Employment did not decline as fast during the pandemic due in part to government wage assistance schemes (2020–22), but with eroded fiscal buffers and lower corporate profits, the ability to sustain hiring is more challenging.
  - Corporate income tax (CIT) revenue would fall if profitability declines; impact on personal income tax revenue depends on the employment response.
- Policy recommendations:
  - Assess whether the costs of the labor market regulations on firms’ productivity, tax revenue, employment, and inflation outweigh potential benefits.
  - Consider reversing the above-minimum wage regulations and allowing market wage discovery.
  - Build consensus around labor market regulations with an inclusive consultation process with the private sector, as recommended by the ILO.
- Supporting indicators (as presented):
  - Figures show Unit Labour Cost, Labour Productivity, Average Compensation (Index, 2018 = 100); Gross Operating Surplus Index (2018=100); Wage growth and CPI growth (y/y); and links between profitability and CIT revenue.

### Annex VI — Macro-financial linkages: Global Business Companies (GBCs)
- System structure and scale:
  - The GBCs account for 90.4 percent of the total financial sector assets (US$755 billion, 50 times the level of GDP), and 99 percent of the Other Financial Corporations (OFCs) assets.
  - Banks represented 6.9 percent of total assets of the financial sector assets (383 percent of GDP in 2024).
  - GBCs number 13,298.
  - The most significant exposures for GBCs are with non-resident entities, accounting for 75 percent of total assets at end-2023.
  - Exposures with residents other than GBCs represent only 2 percent of total assets and were fundamentally in the form of deposits held with domestic banking institutions.
  - Main GBC assets are in foreign direct and portfolio investment followed by cross-holdings; main liabilities are equities and investment fund shares, and loans from non-residents.
  - OFCs, mostly GBCs, hold more foreign currency assets than liabilities, leading to a net positive foreign currency position.
- Linkages to onshore banking and liquidity/credit risks:
  - GBC deposits amount to US$12.4 billion and are generally of short-term structure.
  - GBC deposits account for 28.6 percent of the banking sector balance sheet liabilities.
  - Bank loans to GBCs represent about 13.7 percent of total banks’ assets in 2024.
  - GBCs also hold equity stakes in onshore banks.
  - In line with prudential regulations, the consolidated LCR stood at 299 percent in 2024.
  - The Net Stable Funding Ratio became effective in June 2024 and has been implemented by banks.
  - Given banks’ exposures to GBCs, a review of the regulatory framework and regular stress testing remain vital to identify problems early and mitigate macro-financial risks.
- GBCs’ role in the domestic economy and balance of payments:
  - GBC domestic assets were US$212.6 billion in 2024; GBC non-resident assets were US$525.6 billion.
  - GBC domestic assets represent close to 1,400 percent of Mauritius’ GDP in 2024; large cross-holdings within GBC domestic assets are around 1,300 percent of GDP in 2024.
  - GBCs remained a key contributor to the economy, accounting for 8.2 percent to GDP in 2023.
  - GBCs and related activities contribute about 10 percent to Mauritius Revenue Agency’s net tax revenue.
  - GBCs’ direct contribution to employment is modest (0.5 percent of total employment).
  - Investment income from GBC investments from the rest of the world (6 percent of GDP) is used to finance the large current account deficit of the non-GBC economy in 2024 (-11 percent of GDP).
  - Net capital inflows became positive in 2024 (14 percent of GDP) compared to -4.6 percent of GDP in 2023.
  - The overall balance of payments remained positive at 7 percent of GDP in 2024 compared to -3.3 percent in 2023.
- Domestic sector balance-sheet imbalances and vulnerabilities:
  - General government net financial position is negative (-259 billion rupees); accumulated debt contributed to a negative net position of -36 percent of GDP in 2023.
  - The largest holder of government bonds is the banking sector; a systemic banking event could exacerbate government net liabilities.
  - The central bank has net financial assets of about 2 billion rupees due to net external assets at 39 percent of GDP in 2023; BOM’s net domestic liabilities have increased due to excess cash holdings of banks under other liabilities to ODCs.
  - OFCs net financial position is negative (representing -96 percent of GDP); the external assets of the sector account for about 73 percent of total assets of the OFC.
  - The non-financial sector is estimated to have a net asset position; total non-financial sector debt to GDP is estimated at 37 percent in Q32024.
  - Households’ debt to GDP is estimated at 35 percent in Q3 2024.
- Policy recommendations and priorities:
  - Strengthen the regulatory framework and stress testing for vulnerabilities arising from GBC-bank linkages and short-term GBC deposits.
  - Prioritize closing data gaps and enhance monitoring of cross-border exposures, GBC domestic asset cross-holdings, and the composition and maturity of GBC liabilities to better assess spillovers to the onshore financial system.
  - Maintain prudent fiscal policy to contain government indebtedness and monitor potential amplification of systemic risks via the banking sector.

*Source: IMF staff analysis as presented in the chapter.*

### 6. Risks to the GBCs and spillovers to the financial sector and real economy could be

### 6. Risks to the GBCs and spillovers to the financial sector and real economy could be

### Key scenarios and transmission channels
- Several scenarios could expose onshore banks to a decline in GBCs or non-resident foreign currency bank funding, creating funding gaps that could trigger reductions in foreign and domestic credit, with impacts on GDP and employment.
- Scenarios identified:
  - A potential revision of any of the forty-five Double Tax Agreements (DTAs);
  - A change in the investment grade of the country;
  - An intensification of initiatives against tax base erosion and avoidance or anti-money laundering;
  - Changes in investor sentiment (more towards fintech vs traditional investment).
- Macroeconomic and financial consequences highlighted:
  - Worsening of Mauritius’ balance of payments position (paragraph 4 reference in source);
  - Exchange rate pressure, weakening of reserves, and rising inflation and external debt servicing costs;
  - Effects on conglomerates with activities in some domestic sectors;
  - Banking distress could worsen the net liability position of the government and trigger confidence effects on the economy;
  - Potential regional spillovers, given Mauritius’ role as financial hub for investments in Africa.

### Balance Sheet Analysis findings (Table 3: Net Financial Positions by Sector, end-2023)
- Levels (in billions of rupees)
  - Assets: 107 428 2,352 31,191 2,440 15,875 24,217
  - Liabilities: 346 430 2,330 31,821 15,843 226 26,330
  - Net Position: -259 2 22 -630 -13,403 15,649 -2,113
- As percent of GDP
  - Assets: 16 65 357 4,733 370 2,409 3675
  - Liabilities: 53 65 354 4,829 2,404 34 3996
  - Net position: -36 0 3 -96 -2,024 2,375 -321
- Interpretation notes from source:
  - The BSA was compiled using balance sheet data from financial corporation sector and external sector (IIP) while imputing data on government, non-financial corporation and households using counterpart financial sector data.
  - Where balance sheet data on some financial instruments did not have counterpart sector, assumptions were made to allocate them to specific sectors based on available information.
  - Interpretation of BSA data requires more information relating to allocation of such items whenever they are significant.

### Data gaps and priorities
- Closing data gaps is critical to improve monitoring and early action. Specific gaps listed:
  - Compile key basic indicators for Nonbank Financial Institutions, for example, assets to total financial system assets and assets to gross domestic product.
  - Compile Financial Sound Indicators (FSIs) for pensions, and make publicly available the information for insurance.
  - Better disclose crossholdings within the GBC Sector to assess contagion channels (e.g., GBC equity stakes or other-financial instruments in onshore banks).
  - Significant data limitations limit the scope and accuracy of the Balance Sheet Analysis (BSA), particularly in the government, household, non-financial corporation and external sectors:
    - The government sector balance sheet misses the government's exposures to households and non-financial sector.
    - The non-financial corporations balance sheet is missing non-financial corporations' sectoral data.
    - Household sector balance sheet is missing data from government and non-financial corporations.
    - The external sector balance sheet is missing the exposures to government in national currency, exposures to households, and to non-financial corporate (in national currency).
  - Nevertheless, balance sheet inter-linkages analyzed still highlight systemic vulnerabilities, particularly in sectors with negative financial positions.

### Macroprudential framework and supervisory tools
- Authorities have developed macroprudential tools and stress testing tools to contain potential spillovers from the GBCs to onshore banking.
- Tools and practices in place or recent actions:
  - Regular review and updates of regulatory framework and macroprudential tools to limit liquidity and funding risks (e.g., LCR, Net Stable Funding Ratio, Stress Testing).
  - The Bank of Mauritius (BOM) needs to ensure fundamental banking risks, including corporate governance, are effectively supervised.
  - Implementation timeline and reporting examples:
    - Basel III Liquidity Coverage Ratio (LCR) implemented in 2017.
    - Net Stable Funding Ratio introduced in December 2023 and became effective in June 2024.
    - Risk assessment of GBC deposits published in the Financial Stability Report (last was published December 2024).
    - Stress testing exercises assess banking sector vulnerability to adverse developments in the GBC sector.
- Macroprudential governance:
  - The BOM has been designated to act as the macroprudential authority in Mauritius; the Bank of Mauritius Act is currently under review with IMF assistance to clarify financial stability objectives and provide an enabling framework.
  - 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.

### Implementation of prior FSAP recommendations (selected items)
- Solvency and liquidity stress testing exercises are conducted quarterly; results are published bi-annually in the BOM’s Financial Stability Report.
- Grandfathering provisions for GBC2s ended on June 30, 2021; the GBC sector has undergone a complete structuring overhaul, including consolidation of the MC industry and supervision of the sector since end-2021.
- Reporting requirements have been enhanced; oversight of liquidity risk was enhanced by adopting a risk-based supervision framework and coordinating with the FSC.
- The framework for conglomerate and consolidated supervision has been agreed between the BOM and the FSC; joint on-site examinations are conducted. D-SIB framework is fully operational.

### Fiscal risks from natural disasters (Annex VII)
- Context:
  - Mauritius is highly vulnerable to natural disasters; storms impose substantial fiscal costs.
  - Cyclone Belal (January 2024) severely impacted 7.8 percent of the population—the largest share of the population affected among recorded storms.
  - Storm Hollanda (February 1994) caused the largest recorded physical damage at 3.5 percent of GDP.
- Simulation findings using IMF ND_DDT:
  - A hypothetical storm calibrated for 2025 is estimated to increase public debt-to-GDP ratio by 1.5 percent of GDP compared to baseline.
  - Drivers of the higher public debt-to-GDP ratio in 2025: declining GDP growth, increasing primary fiscal deficit, and exchange rate depreciation.
  - A counteracting factor: higher inflation reduces the real interest rate compared to baseline, helping reduce the debt-to-GDP ratio.
  - In 2026, the public debt-to-GDP ratio is estimated to decline by about 0.5 percent of GDP compared to baseline due to partial recovery and higher GDP growth outweighing deficit impacts.
- Policy implications:
  - The accumulated impact of potentially frequent storms on the debt-to-GDP ratio raises significant risks to fiscal sustainability.
  - Recommended actions include preparation of a Fiscal Risk Statement in the budget with an assessment of climate risks, enhancing preparedness, investing in resilient infrastructure, and building on the Natural Disaster Financing Strategy and insurance schemes.

*Source: IMF staff estimates and Mauritian authorities as provided in the chapter.*

### Annex IX. Status of the 2024 Article IV Consultation Main

### Annex IX. Status of the 2024 Article IV Consultation Main

### Key Policy Recommendations (summary)
- Implement fiscal consolidation through credible revenue and expenditure measures; aim for growth-friendly fiscal consolidation through measures that increase tax revenue and cut current spending.
- Reform the pension system to make it more sustainable.
- Strengthen public financial management (PFM), including by streamlining extrabudgetary special funds (ESFs).
- Adjust the escape clauses of the debt ceiling framework for ceiling breaches.
- BOM should remain vigilant and stand ready to tighten monetary conditions should inflationary pressures reemerge.
- Strengthen the implementation of the new monetary policy framework, including by resuming uncapped issuance of 7-Day BOM bills.
- Promptly adopt amendments to the BOM Act, including to ensure fiscal backing, to help protect central bank independence.
- Rebuild external buffers to enhance resilience.
- BOM should consider options to gradually phase out its ownership in the Mauritius Investment Corporation (MIC).
- Strengthen the resilience of the financial sector and manage macro-financial risks.
- Sustain progress in strengthening the AML/CFT framework to mitigate non-resident risks.
- Reduce skill mismatches in the domestic labor market and increase women’s labor force participation.
- Foster digitalization to support diversification and enhance public services.
- Increase adaptation investment to smooth the impact of extreme climate events.

### Fiscal Policy and Debt Sustainability — Findings and Status
- Fiscal stance turned expansionary in FY23/24 and debt pressures increased as primary revenue (expenditure) declined (increased) due to lower PIT and VAT collection, and the continuous rise in current spending (notably social benefits), respectively.
- The fiscal position in FY24/25 is expected to remain loose.
- A new post-election fiscal package announced in December 2024 contributed to the worsening fiscal position.
- No pension system reforms have been implemented thus far.
- The new government announced intentions to streamline ESFs and move some of them into the Consolidated Fund, but no practical measures have been implemented thus far.
- Following up on the recommendation to strengthen financial reporting in line with IPSAS, the authorities published the consolidated statements of the public sector for FY22/23.
- The escape clauses of the debt ceiling have not been revised.
- Authorities announced plans to introduce the Fiscal Responsibility Law as part of strengthening their PFM.

### Monetary Policy — Findings and Status
- Inflation decreased in 2024 to BOM’s target range of 2-5 percent, as monetary policy accommodation reduced relative to 2023.
- BOM continued to remove excess liquidity from the system through the Overnight Deposit Facility, 7-Day BOM Bills and longer-term BOM securities.
- With the issuance of 7-Day BOM Bills capped since July 2023, the overnight interbank rate was around 3.1 percent for most of 2024 and declined to around 2.6 following the policy rate cut in September.
- BOM improved monetary policy communications by publishing the yearly calendar for Monetary Policy Committee (MPC) meetings in February 2025.
- The authorities received TA from the Fund to support central bank independence before the November elections.
- Gross foreign reserves at the central bank increased by US$1.3 billion between end-2023 and end-2024.
- The BOM is considering options to phase out its MIC ownership.

### Financial Sector — Findings and Status
- The banking sector continued to strengthen its capital and liquidity buffers during 2024, reinforcing the overall financial soundness and stability of the banking system.
- Adherence to prudential regulatory standards complemented buffer strengthening.
- Authorities carried out banking sector and financial stress testing with more complex scenarios.
- Recent progress in strengthening the AML/CFT framework is welcome; authorities have requested technical assistance from the Fund to prepare for the 2027 AML/CFT assessment.

### Structural Reforms — Findings and Status
- The new government published the 2025-29 program with pledges to: increase investment and productivity; accelerate energy transition; reduce skill mismatches.
  - Plans highlighted include: (i) improve the parental leave system to increase female labor force participation; (ii) make higher and technical education more accessible to low-income students; (iii) lift Mauritius’ ITC sector to make the country a regional digital hub.
- In July 2024, the authorities introduced the Climate Corporate Responsibility Levy, intended to collect revenue to finance climate-related projects.
- Long-term priorities should include greater investment in climate change adaptation and mitigation.

### Data Adequacy and Dissemination (Annex X) — Key points and ratings
- Median Rating: B
- Data Adequacy Assessment (selected sectors as presented):
  - National Accounts: B
  - Prices: B
  - Government Finance Statistics: B
  - External Sector Statistics: B
  - Monetary and Financial Statistics: C (noted in table)
  - Inter-sectoral Consistency: B
- Coverage/Consistency/Frequency excerpts:
  - Coverage: median B
  - Consistency: mixed B/C entries in detailed assessment
  - Frequency and Timeliness: several A and B ratings across series
- Use of data in Article IV: Staff does not use any data and/or estimates in lieu of official statistics. Staff complements authorities' presentation by computing the "augmented" fiscal balance which includes net expenditure from extra-budgetary special funds.
- Other data gaps:
  - Need for compilation of high-frequency indicators, including flash GDP estimates.
  - Need for more granular data on government spending on climate adaptation and mitigation, and penetration of digital technologies.
- Changes since last Article IV:
  - A new CPI series, based on an updated basket from the 2023 Household Budget Survey, was introduced as from April 2024, replacing the 2017 benchmarking year.
  - Consolidation of public debt data updated by netting out the stock of government securities held by non-financial SOEs.
- Corrective actions and capacity development priorities:
  - Authorities received IMF assistance in March 2025 to address weaknesses in national accounts and external statistics and improve consistency in recording GBCs’ activities.
  - The ROSC mission commenced virtually in April 2025 and is expected to conclude by the end of 2025.
  - Staff supports potential TA to improve coverage of government finance statistics and to commence compilation and dissemination of key FSIs for Nonbank Financial Institutions.
  - SM should advance efforts to increase its data dissemination to reach the Special Data Dissemination Standard Plus level.

### Technical Assistance and Statistical Issues (Annex XI) — Findings and TA actions
- GBCs estimation issues:
  - Since 2018, SM included estimates of GBCs’ output and implicit exports of services in national accounts while BOM did not include these estimates in the BOP, creating inconsistencies.
  - In 2024, BOM and SM attempted to reconcile datasets by including ad-hoc estimates in both BOP and SNA (of about 50 percent of SM initial estimates), keeping overall GDP unchanged but creating large statistical discrepancies in GDP by expenditure.
  - At authorities’ request, the Fund conducted a Joint National Accounts and External Sector Statistics TA mission in March 2025 to assess treatment and review ad-hoc estimates of GBCs’ output, services exports, and investment income.
- Methodology and data quality needs:
  - The methodology to estimate GBCs’ output could benefit from further refinements; source data from the External Sector Statistics National Accounts survey had notable inconsistencies and need disaggregation and further validation.
  - Inclusion of imputed services exports associated with GBCs and corresponding dividend payments contributed to the increase in GDP; impact on the current account and Gross National Income is muted as increased earnings from imputed exports are offset by corresponding dividend payments.
  - Appropriate approaches in line with statistical standards should be used to estimate output of different types of GBCs.
- BOP / IIP inconsistency:
  - A mismatch between Mauritius’ current account balance and the net international investment position arises because BOM currently does not include reinvested earnings in the primary income account of the BOP (neither on debits nor credits).
  - Over time, IIP data show Mauritius is a net lender while the BOP current account shows a sustained current account deficit.
  - To address the mismatch, the external sector assessment (Annex III) makes an adjustment to the current account balance.
  - Recommendation from TA mission: BOM should record reinvested earnings on both assets and liabilities (in the financial account) and debits and credits (in the primary income account) of the BOP.
- ROSC:
  - Authorities requested a Report on the Observance of Standards and Codes (ROSC) for Mauritius. The last ROSC was finalized in 2008.
  - The new ROSC, expected to be completed by end-2025, will review statistical laws and assess compliance with international statistical standards and codes, and review structure and governance of SM, skills, data systems, and business processes.
- Classification/coverage recommendations:
  - MIC and other BOM subsidiaries (Mauritius Deposit Insurance Corporation) should be classified as Nonbank Financial Institutions and properly reflected in MFS and FIS data.
- Recent IMF engagements:
  - Joint TA mission in March 2025.
  - IMF assistance in March 2025 addressing national accounts and external statistics weaknesses.
  - ROSC mission commenced virtually in April 2025 and expected to conclude by end-2025.

*Source: Annex IX, Annex X and Annex XI of the IMF staff report for the 2025 Article IV Consultation (Mauritius).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1musea2025001-print-pdf.pdf_