Public Information Notice: IMF Executive Board Concludes 2009 Article IV Consultation with Mauritius
IMF News, January 26, 2010
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- Published: January 26, 2010
Background and recent macroeconomic developments
- Output growth slowed from "4.2 percent year percent in 2008" to "less than 2 percent in 2009" as tourism, textiles, and construction contracted.
- Inflation has fallen to the low single digits due to lower global food and commodity prices and the domestic slowdown.
- The current account deficit narrowed as lower imports more than offset the contraction of external demand.
- Authorities implemented a fiscal stimulus package of "some 5 percent of Gross Domestic Product (GDP) over the period July 2009-December 2010."
- Government had previously saved "some 3 percent of GDP in special funds" for contingencies.
- The 2010 deficit is expected to be "4½ percent of GDP."
- Forward-looking debt sustainability analyses indicate public and external debt should remain sustainable over the medium term.
- The "2008 Public Debt Management Act" is cited as a tool to instill fiscal discipline and help ensure debt remains sustainable.
- The Bank of Mauritius (BoM) reduced the key Repo rate to "5.75 percent per year" in successive steps and has kept it unchanged in recent months pending further information on the economy.
- The BoM has refrained from intervention since December 2008; the floating exchange rate has remained stable against the U.S. dollar.
- The banking system has withstood the global financial turmoil; capital adequacy, liquidity, and profitability "remain sound" and the system "appears resilient."
- Reforms are underway to meet Special Data Dissemination Standard (SDDS) subscription requirements, with authorities on track to apply for SDDS subscription "by mid-2010."
Medium-term outlook and risks
- Medium-term growth forecast: economic growth is projected to increase to "5 percent per year by 2011," driven by a reversal of contraction in the EU (Mauritius' main export and tourism market).
- Downside risks: further deterioration of external accounts if global demand remains sluggish and capital inflows dry up.
- Alternative risk: if world demand picks up rapidly, a surge in oil prices could offset export rebounds, leading to deterioration of the trade deficit, larger financing requirements, and inflationary pressures.
Executive Board assessment — key findings and endorsements
- Directors commended authorities for a "prompt and comprehensive policy response" cushioning the economy from the global financial crisis.
- The size of the targeted and temporary fiscal stimulus and the extent of monetary easing were judged "well-calibrated to the magnitude of the external shock."
- Directors supported keeping some stimulus measures in reserve to be deployed only "if the economy falters."
- Directors underscored that fiscal consolidation remains important to reduce vulnerabilities from a "still-relatively high level of public debt" and to narrow the current account deficit.
- Reducing public debt further was recommended to create fiscal space for contingencies and eventual costs of an aging population; the "recent public debt management law" was noted to strengthen fiscal discipline.
- Directors welcomed efforts to secure external financing but emphasized that such financing "should not widen the deficit" and supported a pragmatic approach: use external financing for capital imports for public investment, limit substitution of domestic borrowing to what the market can absorb, and treat part of external funds as precautionary.
- The monetary and exchange rate framework was viewed as "well-suited" to Mauritius' needs; Directors encouraged taking advantage of low inflationary pressures to anchor inflation expectations at a lower rate.
- Directors supported compiling additional high-frequency indicators and developing analytical tools to better understand inflation dynamics and monetary policy transmission.
- The banking system was noted as "well-capitalized" and "appears resilient"; Directors welcomed movement toward greater risk-based financial sector supervision and early implementation of remaining recommendations of the 2007 Financial Sector Assessment Program.
- Directors supported improvements in public sector service delivery and efficiency, especially social protection, and called for further efforts to rationalize social assistance to target the poor and empower people for labor market opportunities.
- Medium-term priorities identified by Directors: reduce the level of public debt, refine the monetary policy framework, and sustain financial sector and structural reforms to raise productivity and resilience and improve competitiveness, including as a financial center.
- Directors supported authorities' data improvement efforts, including balance of payments, to meet SDDS requirements "by mid-2010."
- Directors welcomed establishment of the new Fund regional technical assistance center, "AFRITAC South," in Mauritius.
Selected economic and financial indicators (highlights from table, 2005–2013)
- Real GDP (annual percent change, selected years): 2005 "1.5"; 2006 "3.9"; 2007 "5.4"; 2008 "4.2"; 2009 "4.1"; 2010 "4.7"; 2011 "4.9"; 2012 "5.0".
- GDP deflator (annual percent change, selected years): 2005 "7.2"; 2006 "8.3"; 2007 "8.1".
- Consumer prices (period average): 2005 "9.0"; 2006 "8.8"; 2007 "9.7"; 2008 "3.0".
- Consumer prices (end of period): 2005 "11.8"; 2006 "8.7"; 2007 "6.8"; 2008 "4.5".
- Unemployment rate (percent): 2005 "9.6"; 2006 "9.1"; 2007 "8.5".
- Exports of goods, f.o.b. (annual percent change): 2006 "8.9"; 2007 "-4.7"; 2008 "-23.5"; 2009 "3.1".
- Tourism receipts (annual percent change): 2005 "2.2"; 2006 "15.6"; 2007 "29.0"; 2008 "11.5"; 2009 "-24.4".
- Imports of goods, f.o.b. (annual percent change): 2005 "14.0"; 2006 "16.4"; 2007 "6.0"; 2008 "20.6"; 2009 "-24.5".
- Net foreign assets (annual change percent of beginning of period M2): 2005 "6.9"; 2006 "48.8"; 2007 "13.1"; 2008 "3.7"; 2009 "13.7".
- Domestic credit (annual change percent of beginning of period M2): 2005 "14.7"; 2006 "10.2"; 2007 "11.7"; 2008 "22.5"; 2009 "14.6".
- Credit to private sector (annual change percent of beginning of period M2): 2005 "12.0"; 2006 "21.9"; 2007 "10.3"; 2008 "12.6"; 2009 "13.2".
- Broad money (end of period, annual percentage change): (table labels provided; selected entries not numerically completed in source excerpt).
- Central government overall balance (including grants, percent of GDP): 2005 "-5.3"; 2006 "-4.6"; 2007 "-3.4"; 2008 "-4.5"; 2009 "-3.9"; 2010 "-3.0"; 2011 "-2.2".
- Revenues and grants (percent of GDP): 2005 "20.1"; 2006 "19.3"; 2007 "22.0"; 2008 "21.1"; 2009 "20.9"; 2010 "20.3".
- Expenditure and net lending (percent of GDP): 2005 "25.8"; 2006 "23.6"; 2007 "25.7"; 2008 "26.1"; 2009 "25.6"; 2010 "25.9"; 2011 "24.7"; 2012 "23.1"; 2013 "22.7".
- Domestic debt of central government (percent of GDP): 2005 "51.4"; 2006 "46.6"; 2007 "45.6"; 2008 "43.8"; 2009 "42.6"; 2010 "41.4"; 2011 "38.5"; 2012 "34.2"; 2013 "31.1".
- External debt of central government (percent of GDP): 2005 "4.4"; 2006 "6.1"; 2007 "4.6"; 2008 "8.0"; 2009 "11.0"; 2010 "13.9".
- Gross domestic investment (percent of GDP): 2005 "21.4"; 2006 "24.3"; 2007 "25.1"; 2008 "24.6"; 2009 "26.3"; 2010 "26.2"; 2011 "24.8".
- Gross national savings (percent of GDP): 2005 "17.1"; 2006 "21.2"; 2007 "16.7"; 2008 "14.3"; 2009 "16.8"; 2010 "18.8"; 2011 "21.5".
- Balance of goods and services (percent of GDP): 2005 "-6.0"; 2006 "-11.3"; 2007 "-10.3"; 2008 "-14.7"; 2009 "-11.1".
- Exports of goods and services, f.o.b. (percent of GDP): 2005 "59.9"; 2006 "61.6"; 2007 "58.8"; 2008 "52.9"; 2009 "45.1".
- Imports of goods and services, f.o.b. (percent of GDP): 2005 "-65.9"; 2006 "-72.9"; 2007 "-69.0"; 2008 "-67.5"; 2009 "-56.2".
- Current account balance (percent of GDP): 2005 "-5.2"; 2006 "-9.4"; 2007 "-5.6"; 2008 "-8.1"; 2009 "-8.5"; projections: 2010 "-8.0"; 2011 "-7.5"; 2012 "-6.9".
- Total external debt (percent of GDP): 2005 "12.7"; 2006 "11.4"; 2007 "13.8"; 2008 "15.9"; 2009 "18.0".
- Net international reserves, BOM (millions of U.S. dollars): 2005 "1,361"; 2006 "1,297"; 2007 "1,814"; 2008 "1,784"; 2009 "1,989"; 2010 "2,039"; 2011 "2,088"; 2012 "2,152"; 2013 "2,375".
- Net international reserves, BOM (months of imports of goods, c.i.f.): 2005 "5.6"; 2006 "6.6"; 2007 "6.7".
Public Information Notice (PIN) No. 10/13 — January 26, 2010. IMF EXTERNAL RELATIONS DEPARTMENT, Public Affairs, Media Relations.