Public Information Notice: IMF Concludes Article IV Consultation with Mauritius
IMF News, May 22, 2001
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- Published: May 22, 2001
Background: recent developments and outlook
- On May 14, 2001, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Mauritius.
- Growth and output:
- Real GDP growth is now projected to grow at 7.8 percent in 2000/01, up from 3.6 percent in 1999/2000.
- Real GDP annual percentage change: 1996/97: 5.8; 1997/98: 6.0; 1998/99: 5.9; 1999/00: 3.6; Prov. 2000/01: 7.8.
- Inflation and labor market:
- Consumer price inflation declined to 5.3 percent in 1999/2000 from 7.9 percent in 1998/99, and is likely to decrease further to about 4.5 percent in 2000/01.
- Unemployment rose to 7.2 percent in 1999/2000 and close to 8 percent in 2000/01.
- Real wage growth in excess of increases in productivity contributed to rising unemployment.
- External sector:
- Terms of trade declined by 4.4 percent (mainly from higher oil prices).
- Real effective appreciation of the Mauritian rupee of 5.6 percent.
- Current account balance shifted to a surplus of 0.5 percent of GDP in 1999/2000 from a deficit of 1.6 percent of GDP in 1998/99.
- Current account deficit expected to revert to about -1.2 percent of GDP in 2000/01 as currency appreciation effects are felt and global slowdown takes hold.
- Overall balance of payments likely to remain in surplus at about 2 percent of GDP, reflecting November 2000 receipts of about 5.7 percent of GDP from the partial privatization of Mauritius Telecom.
- Net international reserves of the banking system projected import cover at end-June 2001: five months.
- Fiscal developments:
- Overall fiscal deficit (including parastatals) increased to 5.5 percent of GDP in 1999/2000 from 4.0 percent of GDP in 1998/99, reflecting large operating losses by the state oil company and electricity utility.
- Reforms in July 2000: significant reductions in external tariffs (mainly on raw materials and intermediates) and certain income tax and indirect tax reductions.
- Despite domestic petroleum and electricity price increases in September 2000, overall fiscal deficit in 2000/01 likely to widen to 7.6 percent of GDP.
- Public sector net borrowing requirement in 2000/01 will be sharply reduced by privatization proceeds.
- Privatization: November 2000 sale of 40 percent of Mauritius Telecom for US$261 million (or 5.7 percent of GDP) to France Telecom.
- Monetary and exchange rate policy:
- Lombard rate changes: 14 percent in December 1999; lowered to 13 percent in March 2000 and to 11.5 percent in June 2000; raised to 12.0 percent in late-September and to 12.5 percent in November 2000.
- The rupee had been appreciating in real terms through much of 1999 and 2000; allowed to respond to market pressures since October 2000 and by January 2001 had depreciated in real effective terms by 7.5 percent.
- Bank of Mauritius actions: targeted subsidies to export processing zone firms; reintroduced a 50 percent surrender requirement on export proceeds of the Mauritius Sugar Syndicate in mid-2000.
Executive Board assessment and policy recommendations
- General assessment:
- Directors were encouraged by the rebound in economic activity following the severe drought in 1999/2000 and noted that inflation was on a declining trend.
- Directors welcomed recent government steps, including adjustments of petroleum and electricity prices, but stressed that much more needed to be done due to prior fiscal deterioration.
- Fiscal policy recommendations:
- Encourage the authorities to initiate the process of medium-term deficit reduction with up-front actions in the forthcoming 2001/02 budget.
- Complementary institutional reforms recommended: establishment of a medium-term framework and greater transparency in the tax regime.
- Note: new spending initiatives could add to immediate fiscal pressures and risk an unsustainable debt burden without remedial actions.
- Monetary and institutional recommendations:
- Directors welcomed recent tightening of monetary policy and the reversal of the real currency appreciation.
- Endorsed proposed revisions to the Bank of Mauritius (BOM) Act to:
- Strengthen the central bank's institutional framework.
- Give the BOM greater independence.
- Mandate that price stability be its primary objective.
- Allow for a market-determined exchange rate.
- Increase BOM transparency and accountability.
- Financial sector and governance:
- Directors viewed favorably authorities' initiatives to strengthen and modernize the financial sector, with IMF technical assistance prioritized.
- The proposed Financial Services Development Bill would rationalize the legal framework and strengthen supervision of the nonbank sector.
- Banking sector remained essentially sound.
- Passage of the Economic Crime and Anti-Money Laundering Act noted as demonstration of commitment to strengthen institutions and align with international standards.
- Structural and labor market policies:
- With remedial fiscal actions, prospects for sustaining long-run growth at historic levels were encouraging.
- Risks to growth: demographic developments likely to reduce labor supply; changes in external trade environment could threaten privileged market access.
- Recommended actions to raise productivity growth:
- Increase markedly the compulsory education cycle.
- Reinforce the information technology base of the economy.
- Bolster domestic institutions, particularly in the financial sector.
- Strengthen the regulatory framework in the services sector and allow greater competition, including privatization of state utilities.
- Trade liberalization urged to accelerate productivity growth:
- Need for a preannounced medium-term liberalization of the import regime, including elimination of state trading, to ensure neutrality between import-competing and exporting sectors.
- Labor market recommendations:
- Address mismatch between workplace demands and workforce skills; create social safety nets for the unemployed.
- Intensify efforts to inject greater flexibility into the current centralized tripartite wage-negotiating system.
- Data and technical assistance:
- Directors noted that the quality and timeliness of Mauritius reporting to the IMF of core minimum and other economic and financial statistics were, in general, satisfactory for surveillance purposes.
- Supported the authorities' request for IMF technical assistance to improve the quality and coverage of the overall public accounts.
Selected economic indicators (as reported)
- Domestic economy (annual percentage change)
- Real GDP: 1996/97: 5.8; 1997/98: 6.0; 1998/99: 5.9; 1999/00: 3.6; Prov. 2000/01: 7.8.
- Consumer prices (period averages): 1996/97: 7.9; 1997/98: 5.4; 1998/99: 5.3; 1999/00: 4.5.
- Unemployment: 1996/97: 5.7; 1997/98: 6.2; 1998/99: 7.2; 1999/00: 8.0.
- External economy (in millions of U.S. dollars, unless otherwise indicated)
- Exports, f.o.b.: 1996/97: 1,734.8; 1997/98: 1,605.5; 1998/99: 1,608.2; 1999/00: 1,525.4; Prov. 2000/01: 1,613.0.
- Imports, f.o.b.: 1996/97: -2,018.5; 1997/98: -2,016.0; 1998/99: -2,045.7; 1999/00: -1,977.4; Prov. 2000/01: -2,091.0.
- Current account balance (excluding acquisition of aircraft and ships): 1996/97: 18.3; 1997/98: -115.8; 1998/99: -65.3; 1999/00: 22.8; Prov. 2000/01: -54.4.
- Current account balance (in percent of GDP): 1996/97: 0.4; 1997/98: -2.9; 1998/99: -1.6; 1999/00: 0.5; Prov. 2000/01: -1.2.
- Capital and financial account balance: 1996/97: -44.5; 1997/98: 73.8; 1998/99: 23.5; 1999/00: -175.7; Prov. 2000/01: 54.4.
- Net international reserves of the banking system (end of period): 1996/97: 1,026.2; 1997/98: 879.6; 1998/99: 893.7; 1999/00: 966.0; Prov. 2000/01: 1,052.4.
- Net international reserves (in months of prospective imports, c.i.f.): 1996/97: 5.1; 1997/98: 5.0; 1998/99: 5.2; 1999/00: 5.2; Prov. 2000/01: 5.0.
- Debt service (in percent of exports of goods and nonfactor services): 1996/97: 6.8; 1997/98: 7.0; 1998/99: 7.6; 1999/00: 7.7; Prov. 2000/01: 9.4.
- Change in real effective exchange rate (in percent, trade-weighted period averages; negative sign signifies a depreciation): 1996/97: 2.1; 1997/98: 1.4; 1998/99: -2.4; 1999/00: 5.6; Prov. 2000/01 (July 2000 to January 2001): 3.9.
- Financial variables (in percent of GDP unless otherwise indicated)
- Total revenues and grants: 1996/97: 20.2; 1997/98: 20.6; 1998/99: 21.4; 1999/00: 18.4.
- Total expenditures and net lending: 1996/97: 27.7; 1997/98: 24.2; 1998/99: 24.0; 1999/00: 25.3; 2000/01: 24.3.
- Central government fiscal balance: 1996/97: -7.5; 1997/98: -4.0; 1998/99: -3.4; 1999/00: -3.8; 2000/01: -5.9.
- Balance of selected state-owned enterprises (change in cash flows of the Central Electricity Board, the Central Water Authority, and the State Trading Corporation): 1997/98: -0.8; 1998/99: -0.6; 1999/00: -1.7.
- Consolidated fiscal balance (including selected state-owned enterprises): 1997/98: -4.7; 1998/99: -5.5; 1999/00: -7.6.
- Change in broad money (in percent): 1996/97: 8.8; 1997/98: 17.4; 1998/99: 13.2; 1999/00: 10.9; 2000/01: 12.5.
- Interest rate (maximum interest rate on fixed-time deposits with maturities between six and twelve months, end of period; the figure for 2000/01 is for January 2001): 1996/97: 10.0; 1997/98: 12.0; 1998/99: 10.8; 1999/00: 11.8.
- Sources: Mauritian authorities; and IMF staff estimates and projections.
Public Information Notice summarizing the Executive Board discussion concluded on May 14, 2001.