Press Release: IMF Executive Board Concludes 2015 Article IV Consultation with Mauritius
IMF News, March 17, 2016
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- Published: March 17, 2016
Macroeconomic developments
- Real GDP growth: 3.4 percent in 2015 (narrative); table shows Real GDP: 2012: 3.2, 2013: 3.6, 2014: 3.4, 2015: 3.8, 2016: 3.9, 2017: 4.0.
- Growth drivers and headwinds: weak external demand, protracted decline in construction, collapse of a large financial conglomerate group more than offset the positive impact of favorable terms of trade.
- Inflation: 0.4 percent in January 2016.
- Unemployment: hovers around 8 percent; higher among women and the youth.
- External sector: external current account deficit narrowed to about 5 percent of GDP.
- International reserves: increased to 6.5 months of imports (narrative); table reports Net international reserves (millions of U.S. dollars): 2015: 4,222 and Months of imports of goods and services, f.o.b.: 5.3.
- Terms of trade: favorable impact noted.
Monetary policy
- Monetary stance: remains broadly appropriate given subdued inflation.
- Policy rate: Bank of Mauritius reduced its key policy rate by 25 bps in November 2015, to 4.40 percent, to support the domestic economy while making progress in mopping up excess domestic currency liquidity.
- Directors supported the cautiously accommodative monetary stance in view of the subdued inflation environment.
Financial sector and macro‑financial risks
- Banking sector: credit growth is gradually recovering and overall, the banking system remains well capitalized.
- Asset quality: domestic non-performing loans have been rising and provisioning has not kept pace with the decline in asset quality.
- Offshore sector risks: macro‑financial challenges stem from risk exposures and potential spillovers from the very large offshore sector and its sizeable inter‑linkages with domestic banking activities.
- Executive Board recommendations (financial sector):
- Address potential spillover risks from complex inter‑linkages between large offshore activities, the banking system, and the domestic economy.
- Upgrade the macro‑prudential policy framework; create a macro‑prudential authority with a central role for the bank regulator to improve assessment and mitigation of systemic risks.
- Address information gaps regarding offshore business companies and their role in conglomerate groups.
- Improve consolidated supervision and oversight of mixed conglomerates, in line with the FSAP recommendations.
- Reconsider tax incentives that distort bank risk‑taking toward cross‑border and offshore activities.
- Promote better foreign currency liquidity management at domestic banks.
- Strengthen the ability of the Bank of Mauritius to supervise bank holding companies and monitor cross‑border risks.
- Develop a comprehensive framework for crisis prevention and management; upgrade the bank resolution framework prior to introducing deposit insurance.
- Bolster foreign currency buffers and seek appropriate financial insurance mechanisms.
Fiscal policy and public debt
- Fiscal performance: budgetary performance turned more prudent in 2015, reversing the deterioration of recent years; in 2015 both the overall consolidated deficit and the primary deficit remained below earlier budget projections and improved relative to 2014.
- Public debt: continued to increase (by more than 2 percentage points of GDP) due to the government’s interventions in the financial sector and the impact of the depreciating rupee on external debt.
- Table highlights (selected):
- Overall consolidated balance (including grants): 2012: -3.3, 2013: -4.2, 2014: -3.4, 2015: -3.0, 2016: -3.1, 2017: -3.2.
- Primary balance (excluding grants): 2012: -0.7, 2013: -0.9.
- Revenues (incl. grants): 2012: 21.4, 2013: 20.6, 2014: 21.9, 2015: 22.0.
- Expenditure, excl. net lending: 2012: 23.6, 2013: 24.6, 2014: 24.8, 2015: 23.9.
- Public sector debt (percent of GDP): 2012: 57.9, 2013: 60.0, 2014: 61.5, 2015: 63.7, 2016: 61.0, 2017: 59.6.
- Executive Board fiscal recommendations:
- Put in place a credible medium‑term strategy to safeguard debt sustainability.
- Create space for growth‑enhancing infrastructure investment by containing current spending while better targeting priority social expenditure.
- Broaden the tax base.
- Improve the efficiency of public entities.
- Target divestiture proceeds for debt reduction.
- Introduce an operational framework for monitoring fiscal risks and contingent liabilities arising from public‑private partnerships.
Structural reforms, labor, and statistics
- Structural priorities: raise growth and competitiveness by addressing infrastructure bottlenecks and skills mismatches, reducing the cost of doing business, and facilitating further diversification of the economy.
- Labor market measures: increase female labor force participation and immigration of skilled workers to help mitigate the impact on growth of the projected labor force decline.
- Statistics: authorities are strengthening statistical capacity by improving coverage of the offshore sector in official data and introducing a real estate price index.
Selected economic and financial indicators (selected highlights from table)
- Real GDP (annual percent change): 2012: 3.2; 2013: 3.6; 2014: 3.4; 2015: 3.8; 2016: 3.9; 2017: 4.0.
- GDP per capita (in U.S. dollars): 2012: 8,936; 2013: 9,480; 2014: 10,033; 2015: 9,218; 2016: 9,422; 2017: 10,018.
- Consumer prices (period average): 2012: 3.5; 2013: 1.3; 2014: 1.5; 2015: 2.1.
- Exports of goods and services, f.o.b. (annual percent change): 2012: -4.9; 2013: 11.4; 2014: -2.4; 2015: 4.2; 2016: 6.8; 2017: 7.2.
- Net international reserves (millions of U.S. dollars): 2012: 3,000; 2013: 3,441; 2014: 3,868; 2015: 4,222; 2016: 4,654; 2017: 4,987.
- Current account balance (percent of GDP): 2012: -7.3; 2013: -6.3; 2014: -5.6; 2015: -5.1; 2016: -4.5; 2017: -4.6.
Source: Press Release No. 16/116, March 17, 2016, IMF.