Public Information Notice: IMF Executive Board Concludes 2012 Article IV Consultation with Mauritius
IMF News, March 19, 2012
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- Published: March 19, 2012
Background: 2011 developments and policy actions
- Real GDP growth is estimated to remain at around 4 percent, driven mostly by growth in textiles, ICT, financial services, and real estate.
- Inflationary pressures:
- Year-on-year inflation rate tripled to 6.6 percent in June (mainly on account of import prices and one-time increases in administered prices).
- Jumped to 7 percent in November 2011 due to one-time increases in alcohol and tobacco excises.
- By December, year-on-year inflation fell to 4.9 percent as base effects became absorbed.
- Fiscal outcomes and public debt:
- The overall deficit is estimated to have narrowed to 2.4 percent of GDP.
- Structural primary deficit excluding grants decreased from 0.3 percent of GDP in 2010 to 0.1 percent.
- Capital expenditures were almost 1 percentage point of GDP lower than anticipated.
- Net accumulation of resources in extra budgetary funds of almost 1 percent of GDP.
- Public sector debt declined to 56 percent of GDP.
- Monetary policy and liquidity management:
- Key repo rate increased cumulatively by 65 basis points in response to inflationary developments.
- Cash reserve requirements increased from 6 to 7 percent in February.
- BOM issued Bank of Mauritius Bills and Notes with maturities of up to four years.
- Repo rate increases: 50 basis points in March and 25 basis points in June, then lowered by 10 basis points in December.
- Private sector credit growth estimated at 13 percent for 2011.
- BOM intervened in the foreign exchange market to smooth excess volatility and later to limit rupee appreciation; most interventions sterilized.
- BOM profitability was reduced in 2011 as a result of its liquidity management.
- Banking sector performance:
- Banks remained liquid and well-capitalized, with 14.1 percent of Regulatory Tier I capital to risk-weighted assets in June.
- Non-performing loans decreased from 2.8 percent of gross loans at end-2010 to 2.6 percent by June 2011.
- Banks remained profitable with 21.5 percent return on equity.
- In June 2011, the BOM started publishing CAMEL rating of domestic banks.
- External sector:
- Exports increased some 16 percent (in dollar terms) with strong growth across major tradable industries.
- Tourism receipts grew some 12 percent, though fourth quarter arrivals from key EU markets fell.
- Imports increased 17 percent, and a reduction in net transfers widened the current account deficit to some 10 percent of GDP.
- The deficit was more than covered with portfolio inflows and official loan disbursements.
- International reserves increased in nominal terms; reserve cover in terms of imports of goods and services slipped to 4.4 months.
- Structural and statistical developments:
- Wide-ranging structural reforms over two decades have positioned Mauritius as a top regional performer.
- Mauritius subscribed to the Special Data Dissemination Standard (SDDS) in February 2012.
Executive Board Assessment: views, priorities, and recommendations
- Overall judgment:
- Executive Directors agreed with the thrust of the staff appraisal and commended the authorities’ skillful policy response to the global crisis.
- The growth outlook for 2012 is broadly positive, although external risks have increased.
- Key priorities: sustain fiscal consolidation, reduce external imbalances, enhance competitiveness and public sector service delivery, and foster inclusive growth.
- Fiscal policy:
- Directors acknowledged the need for higher public investment to remove infrastructure bottlenecks.
- Most Directors saw merit in a slightly less expansionary fiscal stance than projected for 2012 to build policy buffers.
- In case of a significant slowdown, contingent measures in the budget can be used and automatic stabilizers should be allowed to operate.
- Fiscal consolidation needs to be sustained to reduce debt vulnerabilities and achieve Mauritius’ debt reduction targets.
- Emphasis on reform of the social protection system and public enterprises, rationalizing subsidies, better targeting social benefits, and developing a financial monitoring framework to minimize transfers to state owned enterprises, implement full cost recovery, and enhance governance.
- Monetary policy and inflation:
- Directors welcomed efforts to ensure price stability and supported continuing efforts to remove excess liquidity.
- Welcomed future plans to adopt formal inflation targeting to help anchor inflation expectations and supported initiatives to strengthen capacity within the central bank.
- Exchange rate and external buffers:
- Staff assessment that the real exchange rate is broadly in line with fundamentals was noted.
- Directors agreed the floating regime has served the economy well and exchange rate interventions should be limited to smoothing volatility.
- An adequate reserve cushion together with a stronger fiscal position and improved competitiveness are important to reduce external imbalances and safeguard against shocks.
- Financial sector oversight:
- Directors noted the banking system is well capitalized and resilient to shocks.
- They welcomed efforts to increase transparency and plans to strengthen supervisory coordination, enhance the stress testing framework, and improve data availability in the financial sector.
- Inclusive growth:
- Continued efforts needed to secure more inclusive and diversified growth, including investments in human and physical infrastructure and further improvements in the business environment.
- Commendation:
- Directors commended Mauritius’ subscription to the Special Data Dissemination Standard (SDDS) in February 2012.
Selected economic and financial indicators (highlights from the 2009–2017 series)
- Real GDP (annual growth): 3.0 (2009); 4.1 (2010); 4.2 (2011); 3.7 (2012, projection)
- GDP per capita (U.S. dollars, selected values): 6,919 (2009); 7,582 (2010); 7,990 (2011); 8,385 (2012)
- Consumer prices (period average): 2.9 (2009); 7.4 (2010); 6.5 (2011); 4.6 (2012)
- Exports of goods and services, f.o.b. (annual percent changes): -15.6 (2009); 18.9 (2010); 12.5 (2011); 15.5 (2012)
- Tourism receipts (annual percent changes): -23.5 (2009); 15.9 (2010); 10.4 (2011); 13.5 (2012)
- Imports of goods and services, f.o.b. (annual percent changes): -19.3 (2009); 20.5 (2010); 18.8 (2011); 17.1 (2012)
- Broad money (end of period, annual percentage change): 8.1 (2009); 7.6 (2010); 9.3 (2011); 12.3 (2012)
- Overall consolidated balance (including grants, percent of GDP): -2.0 (2009); -3.0 (2010); -4.8 (2011); -2.4 (2012)
- Primary balance (including grants, percent of GDP): -1.3 (2009); 0.6 (2010); -1.0 (2011); -0.5 (2012)
- Revenues and grants (percent of GDP): 22.8 (2009); 21.9 (2010); 21.5 (2011); 21.2 (2012)
- Expenditure, excl. net lending (percent of GDP): 24.8 (2009); 24.9 (2010); 26.2 (2011); 23.7 (2012)
- Domestic debt of central government (percent of GDP): 44.7 (2009); 43.1 (2010); 42.5 (2011); 41.2 (2012)
- External debt of central government (percent of GDP): 8.9 (2009); 8.5 (2010); 10.5 (2011); 11.6 (2012)
- Gross domestic investment (percent of GDP): 26.4 (2009); 24.4 (2010); 26.6 (2011); 25.3 (2012)
- Gross national savings (percent of GDP): 13.8 (2009); 15.6 (2010); 14.2 (2011); 14.7 (2012)
- Balance of goods and services (percent of GDP): -10.5 (2009); -12.1 (2010); -15.7 (2011); -13.5 (2012)
- Current account balance (percent of GDP): -7.4 (2009); -8.2 (2010); -11.8 (2011); -9.9 (2012)
- Net international reserves (millions of U.S. dollars): 2,150 (2009); 2,448 (2010); 2,253 (2011); 2,636 (2012)
- Months of imports of goods and services, f.o.b. (reserve cover): 5.1 (2009); 3.8 (2010); 4.0 (2011)
- Public sector debt (percent of GDP): 59.6 (2009); 57.3 (2010); 58.8 (2011); 56.1 (2012)
- Foreign currency long-term debt rating (Moody's): Baa2
Public Information Notice No. 12/27, March 19, 2012.