Press Release No. 09/43

Press Release No. 09/43
February 20, 2009

An International Monetary Fund (IMF) staff mission, led by Christina Daseking, Advisor in the IMF’s African Department, issued the following statement in Port Louis today:

“An IMF mission visited Port Louis during February 17-20, to review recent economic developments and discuss macroeconomic policies in light of the global financial crisis. It met with Prime Minister Navinchandra Ramgoolam, Minister of Finance and Economic Empowerment Ramakrishna Sithanen, Governor Rundheersing Bheenick, and other senior government officials, as well as private sector representatives and donors. The team benefited greatly from the fruitful discussions and is grateful to the authorities for their hospitality.

“As a result of sustained economic reforms over the last few years, Mauritius’s macroeconomic fundamentals are solid. The fiscal position improved, the public debt-to-GDP ratio declined, and economic growth reached its highest level in a decade in 2008. Moreover, while banks in many countries have come under severe stress, the Mauritian banking system has remained well capitalized and liquid.

“A sharply deteriorating external environment, however, is posing significant challenges. On the back of much weaker external demand for textiles and tourism, economic growth is projected to decelerate to 2 percent in 2009, down from more than 5 percent in 2008. The current account deficit is expected to rise further to 11 percent of GDP, notwithstanding falling prices for food and fuel. The latter, however, are now a welcome driver of lower inflation, which fell to just above 5 percent in January, measured on a year-on-year basis. This, in the mission’s view, is a more appropriate measure than the frequently used backward-looking average in guiding monetary policy decisions.

“The mission welcomed the government’s proactive policy response in the form of a fiscal stimulus package and co-ordinated monetary easing. Given the serious risks to the economy, it stressed the need to remain vigilant in maximizing the impact of the stimulus, while containing fiscal and balance of payments pressures. To this end, the mission encouraged the authorities to improve the efficiency of public spending and further support private investment by removing administrative bottlenecks. The global recession also adds urgency to measures that strengthen competitiveness and protect the most vulnerable groups through reforms of state enterprises and a replacement of poorly targeted price subsidies and social programs with a well-targeted social safety net. On the monetary policy and exchange rate front, in considering further easing, there is a continued need for preventing excessive exchange rate movements and maintaining a prudent level of international reserves.

“The IMF will maintain a close policy dialogue with the authorities and continue to provide technical assistance to Mauritius. A team is expected to return to Mauritius for the next Article IV consultation in the second half of this year.”