## 1musea2025002-print-pdf

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### Background
- Social protection has been a central policy objective in Mauritius, with fiscal policy tilting toward social goals since the pandemic through increased social transfers, pensions, and new allowances.
- The fiscal expansion contributed to higher household income and consumption but also to a deterioration of the fiscal position:
  - The stock of public debt increased by almost 30 ppt of GDP to around 90 percent of GDP between end-June 2019 and end-June 2025.
- The paper assesses how fiscal policy can be recalibrated to restore fiscal sustainability while protecting the poor and vulnerable.

### Recent trends in poverty and inequality
- National poverty and consumption trends:
  - National poverty rate (authorities’ estimate, national relative poverty line): fell from 9.6 percent in 2017 to 7.3 percent in 2023.
  - World Bank international poverty line for upper middle-income countries (US$ 6.85 per person per day) implies a 2023 poverty rate of 7.5 percent.
  - Household income increased by about 22 percent (2017–2023, real terms).
  - Household expenditure increased by about 18 percent (2017–2023, real terms).
- Distributional differences:
  - Gender: women's poverty rate is only 0.4 ppt higher than men’s.
  - Education: poverty rate around 11 percent for households with completed primary education only, compared to around 2 percent for those with upper secondary education.
  - Region: poverty is strikingly higher in Rodrigues compared to other regions.
- Inequality:
  - Gini coefficient at the household level estimated at 0.33 in 2023, down from 0.40 in 2017.
  - Inequality substantially higher in Rodrigues relative to other regions.

### Determinants of income (HBS2023 regression results summarized)
- Employment status:
  - Being unemployed is highly associated with lower income.
- Gender:
  - Female associated with earning around 28 percent lower income.
- Education:
  - Primary education achievers associated with 14 percent higher income relative to those who did not complete primary education.
  - Upper secondary graduates associated with 62 percent higher income relative to those who did not complete primary education.
- Age:
  - Income is nonlinearly related to age (increases with age up to a point, then declines).
- Seasonal and regional variations:
  - Income tends to be lower during cyclone season.
  - Income significantly lower in Rodrigues than in other regions.

### Fiscal policy role and trade-offs
- Supportive fiscal policies helped reduce poverty and increase private consumption, but:
  - Contributed to higher public current spending and public debt near 90 percent of GDP by end-June 2025.
  - High import content of consumption reduces the growth multiplier from higher public current transfers.
  - Capital spending has stagnated despite higher current spending.

### Findings on targeting and tax policy options
- Targeting of social benefits (share of beneficiaries who are poor, 2023 Household Budget Survey):
  - Old age pension (BRP): 11.0 percent poor, 89.0 percent non-poor.
  - Basic Widow Pension/Child Allowance: 17.5 percent poor, 82.5 percent non-poor.
  - Basic Invalid Pension/Carer’s Allowance: 14.4 percent poor, 85.6 percent non-poor.
  - Social aid (medical, spouse, rent allowance, etc.): 15.0 percent poor, 85.0 percent non-poor.
  - Other social benefits (unemployment, hardship relief, food aid, fisherman’s): 15.1 percent poor, 84.9 percent non-poor.
  - Scholarship grants: 15.0 percent poor, 85.0 percent non-poor.
- Implication:
  - It appears possible to reduce social benefit spending, notably the BRP, by better targeting beneficiaries without increasing poverty.
- Value-Added Tax (VAT):
  - Statutory VAT rate: 15 percent.
  - Average effective rate of consumption taxes (mostly VAT) in Mauritius: 6.5 percent (staff calculation based on World Bank Enterprise Survey data).
  - Current VAT payment threshold: annual turnover of Rs 6 million, covering about one in every four companies.
  - Proposal: lowering the threshold to Rs 3 million would:
    - Turn an additional ten percent of enterprises into taxpayers.
    - Generate additional Rs 4 billion in revenue (or 0.6 percent of GDP).
    - Still leave around 15 percent of enterprises exempted from VAT.
  - Note: the Rs 4 billion yield is calculated by multiplying the proposed change in the threshold (Rs 3 million) by the number of companies with turnover of Rs 3–6 million, adjusted by the C-efficiency of VAT of 55 percent.
- Personal Income Tax (PIT):
  - PIT exempting annual gross income below Rs 390,000.
  - HBS2023 data show over 60 percent of income earners have incomes below that threshold and are effectively tax exempt.
  - A large share of the population outside the PIT base lowers the average tax rate for most taxpayers, including very high earners.

### Policy recommendations (fiscal recalibration and sequencing)
- Recalibrate fiscal policy to restore fiscal space while preserving poverty reduction gains by:
  - Improving targeting of social benefits (e.g., better targeting of BRP and other universal/near-universal programs).
  - Reforming VAT exemptions and the VAT registration threshold to mobilize revenue while protecting vulnerable households (use some additional revenue to finance targeted transfers).
  - Streamlining PIT exemptions/allowances and reconsidering the PIT exemption threshold to broaden the tax base.
- Sequence reforms to protect the poor and vulnerable while generating savings and revenue to support higher capital spending needed for long-term growth.

### Removal of some excise duty (electric vehicles)
- Excise duty exemptions on electric vehicles:
  - Cost the budget an estimated 0.1 percent of GDP in foregone revenue every year.
  - HBS 2023 data on vehicle ownership by income group:
    - Around 30 percent of low-income households possess a vehicle.
    - 64 percent of higher-income households possess a vehicle.
  - Electric cars are typically more expensive and ownership is concentrated among higher-income households; the number of low-income households purchasing electric vehicles is described as negligible.
- Implication:
  - Unwinding the excise duty exemptions on electric vehicles would have a relatively small negative effect on low-income households and would help increase revenue.
  - Removing these exemptions may also help improve tax progressivity.

### Quantifying the likelihood of roof and wall leakage (housing damage)
- Simple DiD summary (Table 2, Mauritius Household Budget Survey, 2023):
  - Cyclone Season / Non-Cyclone Season / Difference
    - More Vulnerable Districts: 31.4 / 26.8 / 4.7
    - Less Vulnetable Districts: 25.5 / 20.0 / 5.5
    - Difference: 5.9 / 6.7 / -0.8
  - Interpretation: both LOCATION and SEASON are positively associated with leak incidence, but the interaction (DiD) is close to zero and not significant.
- Probit regression main marginal effects / coefficients (Table 3; probit with controls):
  - House located in more vulnerable districts: 0.2390*** (0.0391)
  - Cyclone season: 0.1879*** (0.0514)
  - Vulnerable district*Cyclone season: 0.1207 (0.0970)
  - Concrete roof: -0.8554*** (0.0924)
  - Concrete wall: -0.1874 (0.1257)
  - Wealth index: -0.1042*** (0.0192)
  - Has house and content insurance: -0.1110 (0.0980)
  - Constant: -0.0186 (0.0766)
  - Observations: 6923
- Interpretation:
  - Probability of leaks increases by approximately 0.24 for houses located in more vulnerable districts and by 0.19 during the cyclone season.
  - Concrete roof material is associated with a lower probability of leaks (-0.8554***).
  - Higher household wealth is associated with lower likelihood of leaks (-0.1042***).
  - Having house and content insurance does not significantly impact the probability of leaks (-0.1110).

### Policy implications: insurance, construction, and financing climate adaptation
- Insurance and household burden:
  - Typical household repair expense for roof or wall leaks: US$ 500 per year.
  - Equivalent to about 3 percent household annual income.
  - Only 4 percent of households who own their houses have house and content insurance, while 24 percent of households are impacted by leaks every year.
  - Annual household expenditure on house and content insurance averages Rs 107,000, equivalent to 13 percent of annual household disposable income.
  - By comparison, in the United States the ratio is around 2 percent of household income.
  - Around 80 percent of young Mauritians consider homeowners insurance as not necessary and too costly (Aumeer et al., 2015).
  - Existing government natural disaster emergency programs (eight programs listed) provide support but may discourage private market development and create potential moral hazard.
- Construction regulations and environmental assessment:
  - In 2023, 4,086 new residential construction permits were issued in Mauritius, but only 3 environmental impact assessment (EIA) licenses were approved for residential projects.
  - For non-residential projects, the ratio was 510 to 23.
  - Construction permits increased over time while EIA approvals remained constant—indicating the need to better adapt construction regulations to climate and environmental challenges.
- Financing climate adaptation:
  - Revenue from climate-related taxes in Mauritius: Rs 972 million (0.2 percent of GDP) in FY2022/23.
  - Introduction of the Climate Levy in FY24/25 was initially expected to boost climate-related revenue by Rs 5 billion, but more resources are needed to finance adaptation projects.
  - Recommended reforms to access global climate funds and climate-related debt instruments:
    - Strengthen planning, appraisal, execution, and reporting of climate-related projects.
    - Implement a tracking system to monitor and report climate change-related expenditure.
    - Publish in the budget a fiscal risk statement identifying climate-related risks.
  - Concessional financing is highlighted as key to support well-targeted government measures.

### Conclusions (D. Conclusions and F. Conclusions)
- Main assessment:
  - There seems to be room to rebuild fiscal policy buffers in Mauritius while preserving recent gains in social and poverty indicators.
- Fiscal policy to date:
  - Supportive fiscal policies have helped reduce poverty and inequality in recent years and contributed to higher household income.
- Fiscal policy options highlighted:
  - Make savings on social expenditure and increase tax revenue given poverty is down to a relatively low level.
  - Better target social benefits, notably the BRP universal pension.
  - Reform VAT and PIT systems through streamlining of exemptions and allowances and reducing the tax payment threshold.
- Distributional safeguard:
  - Given the scope to reallocate social benefits and tax expenditures more towards low-income households, it is estimated that the proposed measures may be implemented while continuing to protect the most vulnerable households.
- Housing and climate priorities:
  - Expand access to private homeowners’ insurance and make insurance more affordable.
  - Implement well-targeted government support measures while avoiding incentives that undermine private insurance uptake.
  - Adapt construction regulations and integrate climate risk analysis into construction authorization and licensing processes.
  - Pursue multilateral concessional financing and reforms that improve eligibility for global climate funds and climate-related financing instruments.

*Source: IMF staff analysis based on Mauritius’ 2023 Household Budget Survey, Ministry of Finance, Statistics Mauritius, World Bank Enterprise Survey, and IMF staff calculations.*

### 1. Proportion of Households in Relative Poverty, 1996/97–2023 ________________________ 6

### 1. Proportion of Households in Relative Poverty, 1996/97–2023

### Background
- Social protection has been a central policy objective in Mauritius, with fiscal policy tilting toward social goals since the pandemic through increased social transfers, pensions, and new allowances.
- The fiscal expansion contributed to higher household income and consumption but also to a deterioration of the fiscal position:
  - The stock of public debt increased by almost 30 ppt of GDP to around 90 percent of GDP between end-June 2019 and end-June 2025.
- The paper assesses how fiscal policy can be recalibrated to restore fiscal sustainability while protecting the poor and vulnerable.

### Recent trends in poverty and inequality
- National poverty rate (authorities’ estimate, national relative poverty line):
  - Fell from 9.6 percent in 2017 to 7.3 percent in 2023.
  - World Bank international poverty line for upper middle-income countries (US$ 6.85 per person per day) implies a 2023 poverty rate of 7.5 percent.
- Household income and expenditure changes (2017–2023, real terms):
  - Household income increased by about 22 percent.
  - Household expenditure increased by about 18 percent.
- Distributional differences:
  - Gender: women's poverty rate is only 0.4 ppt higher than men’s.
  - Education: poverty rate around 11 percent for households with completed primary education only, compared to around 2 percent for those with upper secondary education.
  - Region: poverty is strikingly higher in Rodrigues compared to other regions.
- Inequality (Gini):
  - Gini coefficient at the household level estimated at 0.33 in 2023, down from 0.40 in 2017.
  - Inequality substantially higher in Rodrigues relative to other regions.

### Determinants of income (HBS2023 regression results summarized)
- Employment status:
  - Being unemployed is highly associated with lower income.
- Gender:
  - Female associated with earning around 28 percent lower income.
- Education:
  - Primary education achievers associated with 14 percent higher income relative to those who did not complete primary education.
  - Upper secondary graduates associated with 62 percent higher income relative to those who did not complete primary education.
- Age:
  - Income is nonlinearly related to age (increases with age up to a point, then declines).
- Seasonal and regional variations:
  - Income tends to be lower during cyclone season.
  - Income significantly lower in Rodrigues than in other regions.

### Fiscal policy role and trade-offs
- Supportive fiscal policies helped reduce poverty and increase private consumption, but contributed to higher public current spending and public debt near 90 percent of GDP by end-June 2025.
- High import content of consumption reduces the growth multiplier from higher public current transfers.
- Capital spending has stagnated despite higher current spending.

### Findings on targeting and tax policy options
- Targeting of social benefits:
  - For six social programs, low-income individuals account for a much smaller share among beneficiaries, indicating room to improve targeting.
  - Share of beneficiaries who are poor (2023 Household Budget Survey):
    - Old age pension (BRP): 11.0 percent poor, 89.0 percent non-poor.
    - Basic Widow Pension/Child Allowance: 17.5 percent poor, 82.5 percent non-poor.
    - Basic Invalid Pension/Carer’s Allowance: 14.4 percent poor, 85.6 percent non-poor.
    - Social aid (medical, spouse, rent allowance, etc.): 15.0 percent poor, 85.0 percent non-poor.
    - Other social benefits (unemployment, hardship relief, food aid, fisherman’s): 15.1 percent poor, 84.9 percent non-poor.
    - Scholarship grants: 15.0 percent poor, 85.0 percent non-poor.
  - Implication: It appears possible to reduce social benefit spending, notably the BRP, by better targeting beneficiaries without increasing poverty.
- Value-Added Tax (VAT):
  - Statutory VAT rate: 15 percent.
  - Average effective rate of consumption taxes (mostly VAT) in Mauritius: 6.5 percent (staff calculation based on World Bank Enterprise Survey data).
  - Current VAT payment threshold: annual turnover of Rs 6 million, covering about one in every four companies.
  - Proposal: lowering the threshold to Rs 3 million would:
    - Turn an additional ten percent of enterprises into taxpayers.
    - Generate additional Rs 4 billion in revenue (or 0.6 percent of GDP).
    - Still leave around 15 percent of enterprises exempted from VAT.
  - Note: the Rs 4 billion yield is calculated by multiplying the proposed change in the threshold (Rs 3 million) by the number of companies with turnover of Rs 3–6 million, adjusted by the C-efficiency of VAT of 55 percent.
- Personal Income Tax (PIT):
  - PIT exempting annual gross income below Rs 390,000.
  - HBS2023 data show over 60 percent of income earners have incomes below that threshold and are effectively tax exempt.
  - A large share of the population outside the PIT base lowers the average tax rate for most taxpayers, including very high earners.

### Policy recommendations (implied by analysis)
- Recalibrate fiscal policy to restore fiscal space while preserving poverty reduction gains by:
  - Improving targeting of social benefits (e.g., better targeting of BRP and other universal/near-universal programs).
  - Reforming VAT exemptions and the VAT registration threshold to mobilize revenue while protecting vulnerable households (use some additional revenue to finance targeted transfers).
  - Streamlining PIT exemptions/allowances and reconsidering the PIT exemption threshold to broaden the tax base.
- Sequence reforms to protect the poor and vulnerable while generating savings and revenue to support higher capital spending needed for long-term growth.

*Source: IMF staff analysis based on Mauritius’ 2023 Household Budget Survey, Ministry of Finance, Statistics Mauritius, World Bank Enterprise Survey, and IMF staff calculations.*

### 14. Removal of some excise duty

### 14. Removal of some excise duty

### Excise duty exemptions on electric vehicles: findings and distributional effects
- Mauritius currently grants excise duties on the import of electric vehicles via exemptions that reduce revenue; this costs the budget an estimated 0.1 percent of GDP in foregone revenue every year.
- HBS 2023 data show vehicle ownership by income group:
  - Around 30 percent of low-income households possess a vehicle.
  - 64 percent of higher-income households possess a vehicle.
- Electric cars are typically more expensive and ownership is concentrated among higher-income households; the number of low-income households purchasing electric vehicles is described as negligible.
- Implication:
  - Unwinding the excise duty exemptions on electric vehicles would have a relatively small negative effect on low-income households and would help increase revenue.
- Equity consideration:
  - Removing these exemptions may also help improve tax progressivity.

### Conclusions on fiscal policy space and social protection (D. Conclusions)
- Main assessment:
  - There seems to be room to rebuild fiscal policy buffers in Mauritius while preserving recent gains in social and poverty indicators.
- Role of fiscal policy to date:
  - Supportive fiscal policies have helped reduce poverty and inequality in recent years.
  - The social orientation of fiscal policy has contributed to higher household income, helping reduce poverty.
- Fiscal policy options highlighted:
  - Make savings on social expenditure and increase tax revenue given poverty is down to a relatively low level.
  - Better target social benefits, notably the BRP universal pension.
  - Reform VAT and PIT systems through:
    - Streamlining of exemptions and allowances.
    - Reducing the tax payment threshold.
- Distributional safeguard:
  - Given the scope to reallocate social benefits and tax expenditures more towards low-income households, it is estimated that the proposed measures may be implemented while continuing to protect the most vulnerable households.

*Source: 14. Removal of some excise duty (excerpts) — IMF Mauritius report content provided.*

### 7. Actual housing damage is also

### 7. Actual housing damage is also

### D. Quantifying the Likelihood of Roof and Wall Leakage
- Context and method
  - A simple difference-in-differences (DiD) comparison shows the proportion of households reporting roof and/or wall leakage is higher in more vulnerable districts and during the cyclone season; the simple DiD estimate is -0.8 percentage points and is small and statistically insignificant.
  - An expanded DiD is estimated with a probit specification:
    - Dependent variable: LEAKit = 1 if household reports leakage on roof and/or wall.
    - LOCATION = 1 for houses located in more vulnerable districts (Rivière du Rempart, Flacq, Pamplemousses, Port Louis, and Moka).
    - SEASON = 1 for cyclone season months (February-April).
    - Z includes: (i) concrete roof dummy (1 if concrete, 0 otherwise); (ii) household wealth proxied by the asset ownership index; (iii) dummy for having house and content insurance.
- Summary of simple DiD (Table 2, Mauritius Household Budget Survey, 2023)
  - Cyclone Season / Non-Cyclone Season / Difference
    - More Vulnerable Districts: 31.4 / 26.8 / 4.7
    - Less Vulnetable Districts: 25.5 / 20.0 / 5.5
    - Difference: 5.9 / 6.7 / -0.8
  - Interpretation: both LOCATION and SEASON are positively associated with leak incidence, but the interaction (DiD) is close to zero and not significant, implying additional factors contribute to leakage occurrence beyond location and season.
- Main regression findings (Table 3; probit with controls)
  - Key marginal effects / coefficients (preserved exactly as reported):
    - House located in more vulnerable districts: 0.2390*** (0.0391)
    - Cyclone season: 0.1879*** (0.0514)
    - Vulnerable district*Cyclone season: 0.1207 (0.0970)
    - Concrete roof: -0.8554*** (0.0924)
    - Concrete wall: -0.1874 (0.1257)
    - Wealth index: -0.1042*** (0.0192)
    - Has house and content insurance: -0.1110 (0.0980)
    - Constant: -0.0186 (0.0766)
    - Observations: 6923
  - Interpretation of coefficients:
    - The probability of leaks increases by approximately 0.24 for houses located in more vulnerable districts (compared to those located in less vulnerable districts).
    - A similar estimate (0.19) applies to the cyclone season (compared to the non-cyclone season).
    - The DiD estimate (interaction) is close to zero and statistically insignificant, consistent with the simple DiD.
    - Concrete roof material is associated with a lower probability of leaks (-0.8554***), while the association for concrete walls is negative but statistically insignificant (-0.1874).
    - Higher household wealth is associated with lower likelihood of leaks (-0.1042***).
    - Having house and content insurance does not significantly impact the probability of leaks (-0.1110).

### E. Policy Implications
- Insurance and household burden
  - Typical household repair expense for roof or wall leaks: US$ 500 per year.
  - Equivalent to about 3 percent household annual income.
  - Only 4 percent of households who own their houses have house and content insurance, while 24 percent of households are impacted by leaks every year—suggesting potential underinsurance.
  - Private non-life insurance coverage in Mauritius is broadly in line with some island states but lags notably behind Seychelles (Figure 5).
- Affordability, awareness, and moral hazard
  - Annual household expenditure on house and content insurance averages Rs 107,000, equivalent to 13 percent of annual household disposable income.
  - By comparison, in the United States the ratio is around 2 percent of household income.
  - Around 80 percent of young Mauritians consider homeowners insurance as not necessary and too costly (Aumeer et al., 2015).
  - Existing government natural disaster emergency programs (eight programs listed) provide support but may discourage private market development and create potential moral hazard; striking a balance between government support and private insurance is important.
- Construction regulations and environmental assessment
  - In 2023, 4,086 new residential construction permits were issued in Mauritius, but only 3 environmental impact assessment (EIA) licenses were approved for residential projects.
  - For non-residential projects, the ratio was 510 to 23.
  - While construction permits increased over time, the number of EIA approvals remained constant—indicating the need to better adapt construction regulations to climate and environmental challenges.
- Financing climate adaptation
  - Revenue from climate-related taxes in Mauritius: Rs 972 million (0.2 percent of GDP) in FY2022/23.
  - Introduction of the Climate Levy in FY24/25 was initially expected to boost climate-related revenue by Rs 5 billion, but more resources are needed to finance adaptation projects.
  - Given limited fiscal space, Mauritius should consider reforms to access global climate funds and climate-related debt instruments, including:
    - Strengthening planning, appraisal, execution, and reporting of climate-related projects.
    - Implementing a tracking system to monitor and report climate change-related expenditure.
    - Publishing in the budget a fiscal risk statement identifying climate-related risks.
  - Concessional financing is highlighted as key to support well-targeted government measures.

### F. Conclusions
- Extreme weather events impose a significant financial burden on Mauritian households; policies should aim to mitigate costs and enhance adaptation.
- Policy priorities recommended:
  - Expand access to private homeowners’ insurance and make insurance more affordable.
  - Implement well-targeted government support measures while avoiding incentives that undermine private insurance uptake.
  - Adapt construction regulations and integrate climate risk analysis into construction authorization and licensing processes to reduce physical vulnerability and insurance costs.
  - Pursue multilateral concessional financing and reforms that improve eligibility for global climate funds and climate-related financing instruments.

*Source: IMF staff and Mauritius Household Budget Survey, 2023 (excerpt from the IMF chapter provided).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1musea2025002-print-pdf.pdf_