Press Release No. 11/25

Press Release No. 11/25
February 2, 2011

An International Monetary Fund (IMF) mission led by Martin Petri visited Port Louis during January 19–February 2, 2011 to conduct the discussions for the Article IV consultation with Mauritius. The mission met with The Honorable Vice Prime Minister and Minister of Finance and Economic Development Pravind Jugnauth, Governor of the Bank of Mauritius Rundheersing Bheenick, other senior government officials, as well as representatives of the National Assembly, the private sector, and civil society.

At the conclusion of the visit, Mr. Petri issued the following statement today in Port Louis:

“The Mauritian economy has performed better than expected with real growth at market prices increasing to 4 percent in 2010. This was not least due to the authorities’ prompt and comprehensive policy response to the global crisis over 2008–10. The challenge going forward will be to accelerate growth through increased public and private investment and productivity advances while continuing medium-term fiscal consolidation to reduce economic vulnerabilities. Taking account of the expected upturn in the world economy and the continuing effects of the fiscal stimulus, economic growth is projected to increase to somewhat more than 4 percent in 2011.

“The recent increase in inflation is mainly due to one-time exogenous factors that should not result in sustained inflationary pressures with the appropriate monetary policy response. Year-on-year inflation in 2011 is expected to be 5½ percent. At this juncture, the monetary policy stance appears broadly appropriate, but more efforts could be made to remove excess liquidity. Coordination between Bank of Mauritius (BOM) policies and the government’s financing should contribute to a smooth operation of the money and debt markets. The banking sector appears robust, and the financial system has proved resilient.

“With the 2011 budget, the government intends to set Mauritius on a strong growth trajectory. Compared to 2010, the overall fiscal balance including net lending is projected to increase mainly on account of capital investment net lending to public enterprises, and spending from special funds. Implementation constraints could result in lower than intended spending. With a small output gap estimated for Mauritius in 2011, the mission recommends careful execution of capital spending, tight financial controls on public enterprise loans, and saving unexpected revenues to limit the increase in the fiscal deficit. A well designed and predictable tax policy should support the government’s medium-term fiscal consolidation and growth agenda.

“Mauritius is a pioneer in the development of green taxes, but more can be done, not least regarding increasing road congestion. Here, tax policy has a critical role to play, including the fine-tuning of vehicle taxation to increase incentives to reduce emissions and congestion. An explicit carbon tax could replace a similarly structured tax to improve climate policy.

“The mission welcomes the structural reforms in recent years, which have contributed to raising Mauritius’ competitiveness. Maintaining reform momentum to reduce critical structural bottlenecks in infrastructure and the parastatal sector, as well as supporting export-oriented SMEs launching new products and services, will further strengthen Mauritius’ ability to compete in the world economy, including as an international financial center.

“The IMF stands ready to assist the authorities in the implementation of their economic program, including through the provision of technical assistance, and looks forward to continued fruitful policy dialogue in the period ahead.”