Press Release: IMF Executive Board Concludes 2014 Article IV Consultation with Mauritius
IMF News, April 23, 2014
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- Published: April 23, 2014
Overview
- IMF Executive Board concluded the Article IV consultation with Mauritius on April, 21, 2014.
- Press Release No. 14/176; IMF COMMUNICATIONS DEPARTMENT, Media Relations.
Macroeconomic developments (2013)
- Real GDP growth: 3.2 percent in 2013, lower than expected; main contributors to the slowdown: construction, sugar and tourism.
- Year-on-year inflation fell to 3.5 percent in 2013 despite public sector wage increases.
- Unemployment rate: unchanged at 8.0 percent (compared to 2012).
- Credit to private sector growth: described as robust.
- Current account deficit: widened to almost 10 percent of GDP in 2013.
- Reserve cover of imports of goods and services: stayed constant at 4½ months; Bank of Mauritius (BOM) accumulated additional net international reserves.
Fiscal policy stance and developments
- Fiscal stance: more expansionary than planned due to cyclical and one-off factors and slippages.
- Structural primary deficit: broadly unchanged relative to 2011.
- Overall deficit (including extra-budgetary funds): estimated at 4½ percent of GDP.
- Revenues: broadly unchanged as a proportion of GDP.
- Expenditures: increased by over 2 percent of GDP.
- Drivers of higher spending:
- Pay Research Bureau (PRB) report increased civil servant salaries beyond annual inflation adjustments; next adjustment expected in 2016.
- Additional spending related to flash floods in Port Louis.
- Unplanned transfers to local governments and public enterprises.
- Capital spending (including special funds): 1 percent of GDP higher, partially due to cost overruns.
Monetary policy and financial sector
- Monetary stance: somewhat accommodative.
- Policy rate history: maintained at 4.65 percent in September 2013 and February 2014, after a 25 basis point reduction in June 2013.
- Reserve requirements: raised from 7 to 8 percent in October 2013 to curb excess liquidity.
- BOM actions: built international reserves and used limited interventions to moderate excessive rupee fluctuations.
- Banking system: well-capitalized and resilient; Regulatory Tier I capital to risk-weighted assets well above Basel II and proposed Basel III requirements.
- Non-performing loans (NPL): increased slightly in 2013.
- Bank profitability: 20 percent return on equity.
- Liquidity ratios: have worsened in recent years and are on the low side in international comparisons.
- BOM supervisory and regulatory actions:
- Consulting with banks on Basel III implementation.
- Continued publication of bi-annual CAMEL ratings for all domestic banks.
- Implemented macroprudential measures addressing emerging NPLs in construction and real estate and rising indebtedness.
- Threats from a Ponzi-like scheme in 2013 were contained; regulatory framework subsequently improved.
External sector and exchange rate
- Staff assessment: rupee appears modestly overvalued in real effective terms.
- Recommendation to address external imbalances:
- Greater exchange rate flexibility.
- Well-prioritized infrastructure investment.
- Stepped-up reforms to address labor and product market rigidities.
- Further pension reforms to boost national savings while strengthening social protection.
Structural reforms, institutions, and statistics
- Mauritius described as having a track record as a reformer with strong institutions and a dynamic private sector.
- Africa Training Institute (ATI): set to open in June 2014 in Ebene.
- Statistical capacity strengthening: ongoing work on Monetary and Financial Statistics (MFS), balance of payments (BOP), and international investment position (IIP) statistics.
- Data dissemination: Mauritius subscribed to the IMF’s Special Data Dissemination Standard (SDDS) in February 2012 and is working on subscribing to SDDS Plus.
- Authorities’ intention to adopt SDDS Plus: welcomed by Directors; ongoing efforts to improve collection of financial and labor market statistics supported.
Executive Board Assessment and policy recommendations
- Overall assessment: Directors agreed with staff appraisal; prudent policies and strong institutions have delivered steady growth, well-anchored inflation expectations, and continued financial stability.
- Near-term outlook: generally favorable but subject to risks from an uncertain external environment.
- Fiscal policy recommendations:
- Start tightening fiscal policy in the year of the consultation to smooth adjustment and increase likelihood of achieving a 50 percent target for the debt-to-GDP ratio by 2018, as mandated by law.
- Articulate an ambitious consolidation strategy centered on:
- Better prioritizing public expenditure.
- Strengthening tax administration.
- Broadening the tax base.
- Undertake subsidy reforms and an overhaul of public enterprises.
- Improve framework for fiscal devolution, including better use of real estate taxes.
- Monetary policy recommendations:
- Current stance broadly appropriate; withdrawal of accommodation may be necessary if inflationary pressures intensify.
- Strengthen institutional and operational arrangements to support eventual adoption of a formal inflation targeting framework.
- Financial sector recommendations:
- Address persistent excess liquidity that hinders monetary transmission, encourages disintermediation, and riskier lending.
- Consider liquidity management approach involving additional issuance of government paper for monetary policy purposes.
- Strengthen collaboration between government and central bank.
- Continue to strengthen coordination between central bank and nonbank supervisor to ensure overall financial system soundness.
- External competitiveness and savings:
- Policies to bolster competitiveness and durably reduce the large structural current account deficit include exchange rate flexibility, prioritized infrastructure investment, labor and product market reforms, and pension reforms to boost national savings.
Selected economic and financial indicators (2011–14)
- Real GDP (annual percent change): 2011: 3.8; 2012: 3.3; 2013: 3.2; 2014 (Proj.): 3.7.
- Real GDP per capita (annual percent change): 2011: 3.4; 2012: 2.7; 2013: 2.6.
- GDP per capita (in U.S. dollars): 2011: 8,730; 2012: 8,835; 2013: 9,160; 2014 (Proj.): 9,661.
- Consumer prices (period average): 2011: 6.5; 2012: 3.9; 2013: 3.5.
- Consumer prices (end of period): 2011: 4.9; 2012: 4.5.
- Unemployment rate (percent): 2011: 7.9; 2012: 8.0.
- Exports of goods and services, f.o.b. (annual percent change, in US Dollars): 2011: 17.9; 2012: 6.0.
- Of which: tourism receipts (annual percent change): 2011: 16.1; 2012: -0.8; 2013: -10.6; 2014 (Proj.): 8.2.
- Imports of goods and services, f.o.b. (annual percent change): 2011: 20.6; 2012: 2.2; 2013: 7.2.
- Real effective exchange rate (annual averages): 2011: 6.2; 2012: 1.4; 2013: -0.4.
- Net foreign assets (annual change in percent of beginning of period M2): 2011: -8.2; 2012: 9.1; 2013: -2.8; 2014 (Proj.): 8.3.
- Domestic credit (annual change in percent of beginning of period M2): 2011: 10.8; 2012: 15.6; 2013: 16.5; 2014 (Proj.): 9.5.
- Credit to non-government sector (annual change): 2011: 14.3; 2012: 11.1.
- Broad money (end of period, annual percentage change): 2011: 6.4; 2012: 5.8; 2013: 7.8.
- Central government overall consolidated balance (including grants, percent of GDP): 2011: -2.5; 2012: -2.1; 2013: -4.5.
- Primary balance (including grants, percent of GDP): 2011: 0.9; 2012: -1.9; 2013: -1.7.
- Structural primary balance (including grants, percent of GDP): 2011: 0.4; 2012: -1.8; 2013: -1.6.
- Structural primary balance (excluding grants, percent of GDP): 2011: -0.3; 2012: 0.2; 2013: -2.2.
- Revenues and grants (percent of GDP): 2011: 21.4; 2012: 21.8.
- Expenditure, excluding net lending (percent of GDP): 2011: 23.9; 2012: 23.6; 2013: 25.9; 2014 (Proj.): 26.2.
- Domestic debt of central government (percent of GDP): 2011: 42.6; 2012: 41.0; 2013: 39.4.
- External debt of central government (percent of GDP): 2011: 10.4; 2012: 12.8; 2013: 14.0.
- Gross domestic investment (percent of GDP): 2011: 26.0; 2012: 24.8; 2013: 23.2; 2014 (Proj.): 19.1.
- Public (percent of GDP): 2011: 5.5; 2012: 5.0.
- Private (percent of GDP): 2011: 20.4; 2012: 19.2; 2013: 18.2.
- Gross national savings (percent of GDP): 2011: 12.7; 2012: 17.1; 2013: 13.0.
- Balance of goods and services (percent of GDP): 2011: -13.8; 2012: -13.1; 2013: -13.9.
- Current account balance (percent of GDP): 2011: -13.3; 2012: -7.9; 2013: -9.9; 2014 (Proj.): -8.7.
- Total external debt (percent of GDP): 2011: 85.1; 2012: 89.3; 2013: 91.6; 2014 (Proj.): 93.1.
- Net international reserves (millions of U.S. dollars): 2011: 2,631; 2012: 2,851; 2013: 3,112; 2014 (Proj.): 3,481.
- Months of imports of goods and services, f.o.b.: 2011: 4.2; 2012: 4.4; 2013: 4.8.
- GDP at current market prices (billions of Mauritian rupees): 2011: 323.0; 2012: 344.0; 2013: 366.4; 2014 (Proj.): 394.2.
- GDP at current market prices (millions of U.S. dollars): 2011: 11,251; 2012: 11,447; 2013: 11,930; 2014 (Proj.): 12,651.
- Public sector debt (percent of GDP): 2011: 58.6; 2012: 57.9; 2013: 60.0; 2014 (Proj.): 59.1.
- Public sector debt (for debt law ceiling purpose, percent of GDP): 2011: 54.3; 2012: 53.1; 2013: 55.1; 2014 (Proj.): 54.6.
- Foreign and local currency long-term debt rating (Moody's): 2011: Baa2; 2012: Baa1.
Source: Press Release No. 14/176, April 23, 2014, IMF Communications Department.