Mauritius: IMF Executive Board Concludes 2013 Article IV Consultation
IMF News, April 3, 2013
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- Published: April 3, 2013
Background: 2012 performance and policy setting
- Growth decelerated to 3.3 percent in 2012, due to weak sugar and textile exports and a slowdown in the construction sector; information and communication technology and financial services sectors saw strong growth.
- Output gap estimated to have been small (around ½ percent).
- Consumer price inflation moderated to 3.9 percent.
- Unemployment rate estimated to have marginally increased from 7.9 percent in 2011 to 8 percent in 2012.
- Current account deficit narrowed but remained relatively high at 10 percent of gross domestic product (GDP) in 2012.
- Bank of Mauritius (BOM) reserve cover of imports of goods and services rose to 4.4 months from 4.3 months at end-2011.
- In June 2012, Moody’s upgraded the country’s credit rating to Baa1.
- Fiscal outturn: overall deficit including extra-budgetary funds estimated at 2.3 percent of GDP in 2012, a reduction of over 1 percentage point of GDP relative to previous projections and similar to the 2011 outcome.
- Reduction in transfers and subsidies decreased by over 1 percent of GDP compared to 2011 (particularly transfers to state-owned enterprises).
- Expenditures on goods and services were lower; extra-budgetary spending increased relative to 2011.
- Better than expected tax revenue performance (in particular for value added tax receipts) was offset by lower non-tax revenue and grants so total revenues remained stable as a percentage of GDP.
- Monetary policy: BOM reduced the policy rate by 50 basis points to 4.9 percent in March 2012 and maintained it thereafter.
- Excess liquidity in the banking system remained elevated; yield on 3-month treasury bills fell by 120 basis points to 2.7 percent at end-2012.
- After June 2012, authorities intervened more actively in foreign exchange markets to build international reserves and moderate rupee fluctuations.
- Banking system: well-capitalized; Regulatory Tier I capital to risk-weighted assets well above Basel II and proposed Basel III requirements.
- Non-performing loans (NPL) increased slightly in 2012; banks remained profitable with a 20 percent return on equity.
- Liquidity-to-assets ratios have worsened and are on the low side in international comparisons.
- BOM circulated a consultation paper to banks in October 2012 as a first step toward gradual Basel III phase-in and continued to publish bi-annual CAMEL ratings.
- Structural reforms and statistical capacity:
- Wide-ranging structural reforms over the past decade supported strong regional performance.
- Mauritius subscribed to the IMF’s Special Data Dissemination Standard (SDDS) in February 2012.
Executive Board assessment — key messages and recommendations
- Overall appraisal:
- Executive Directors endorsed the staff appraisal.
- Authorities have a good track record of prudent macroeconomic management and implementing structural reforms, delivering low inflation, declining debt-to-GDP ratios, and satisfactory growth given the external environment.
- Recent efforts to improve human and capital infrastructure (especially road congestion) should continue.
- Fiscal policy:
- Staff recommended a neutral fiscal policy stance for 2013 to smooth medium-term fiscal consolidation and facilitate external adjustment and rebuilding of policy buffers.
- Over the medium term, fiscal consolidation should focus on reductions in transfers and subsidies and revenue-raising measures.
- Increases in the revenue-to-GDP ratio would provide additional space for priority spending on human and physical capital.
- Monetary and financial sector policy:
- The current accommodative monetary policy stance remains appropriate, but authorities should be ready to tighten if inflation accelerates beyond expectations.
- Inflationary pressures relate to wage increases and adjustments in administered prices; expectations appear well-anchored.
- Excess liquidity should be reduced to better align the policy rate with market rates and strengthen the monetary transmission mechanism.
- The banking system is well-capitalized and profitable; stress testing indicates resilience against a range of shocks.
- Real estate developments should be monitored and cooperation between the BOM and the Financial Services Commission further improved.
- External adjustment and competitiveness:
- Increasing national savings and fostering competitiveness would reduce the large external current account deficit.
- Medium-term fiscal consolidation should facilitate external adjustment.
- Improvements in competitiveness through structural reforms and investment in infrastructure and human capital are crucial.
- The floating exchange rate regime continues to serve the country well; staff estimates that the real exchange rate is broadly in line with fundamentals.
- Pension and labor market reforms:
- The pension system could be used to increase national savings; recent reforms improved the system but further reforms would be helpful.
- An increase in mandatory contribution rates for the National Pension Fund (NPF) combined with an actuarially-sustainable increase in benefits is likely to lead to higher overall national savings.
- Inclusion of most public pension systems within a strengthened NPF and mandatory inclusion of self-employed workers in the NPF might be considered.
- Labor market reform should target employability of low-skilled youth and women (majority of the unemployed).
- Align education curriculum to industry needs and increase private sector involvement in vocational education to reduce skills mismatches.
- Review wage-setting mechanisms to align real wage increases closer with labor productivity improvements.
- Consider introducing an earned income tax credit to encourage low-wage earners to take jobs that build skills.
Selected economic and financial indicators (2010–2018) — notable figures preserved exactly as in source
- Real GDP: 4.1 (2010); 3.8 (2011); 3.7 (2012); 3.3 (2013); 4.4 (2014); 4.7 (2015); 4.6 (2016); 4.5 (2017); 2018 (not shown).
- Real GDP per capita: 3.6 (2010); 3.4 (2011); 3.1 (2012); 2.7 (2013); 3.5 (2014); 3.2 (2015); 4.2 (2016).
- GDP per capita (in U.S. dollars): 7,562 (2010); 8,725 (2011); 8,403 (2012); 8,850 (2013); 8,789 (2014); 9,395 (2015); 9,912 (2016); 10,486 (2017); 11,101; 11,806; 12,561 (later years shown).
- GDP deflator: 1.7 (2010); 3.9 (2011); 5.9 (2012); 5.7 (2013); 5.0 (2014).
- Consumer prices (period average): 2.9 (2010); 6.5 (2011); 4.8 (2012); 5.3 (2013).
- Consumer prices (end of period): 6.1 (2010); 4.9 (2011); 5.5 (2012); 6.0 (2013); 5.1; (additional years shown).
- Unemployment rate (percent): 7.8 (2010); 7.9 (2011); … (2012); 8.0 (2013).
- Exports of goods and services, f.o.b.: 18.9 (2010); 19.6 (2011); 3.0 (2012); 6.7 (2013); 6.3; 6.8; 7.1; 7.3.
- Of which: tourism receipts: 15.9 (2010); 23.0 (2011); 10.3 (2012); 4.3 (2013); 5.4; 5.8.
- Imports of goods and services, f.o.b.: 20.5 (2010); 20.8 (2011).
- Real effective exchange rate (annual averages): 6.2 (2010); 1.3 (2011).
- Net foreign assets (annual change in percent of beginning of period M2): 20.2 (2010); -7.7 (2011); 16.9 (2012); 9.2 (2013); 6.9.
- Domestic credit (annual change): 8.6 (2010); 10.0 (2011); 14.6 (2012); 11.8 (2013).
- Net claims on government: 1.0 (2010); -1.4 (2011); 1.5 (2012); -1.3 (2013).
- Credit to non-government sector 1: 9.9 (2010); 10.2 (2011); 8.2 (2012); 18.2 (2013); 10.7.
- Broad money (end of period, annual percentage change): 7.6 (2010); 12.3 (2011); 9.7 (2012).
- Overall consolidated balance (including grants) 2 (percent of GDP): -3.0 (2010); -2.1 (2011); -3.7 (2012); -2.3 (2013); -3.2; -2.6; -1.9; -1.5; -1.8.
- Primary balance (including grants): 0.4 (2010); -0.5 (2011); 0.7 (2012); -0.6 (2013); 0.1; 1.2; 1.1.
- Structural primary balance (including grants): 0.8 (2010); 0.2 (2011).
- Structural primary balance (excluding grants): -0.3 (2010); -1.2 (2011); -0.4 (2012); 0.3 (2013).
- Revenues and grants (percent of GDP): 21.9 (2010); 21.4 (2011); 21.8 (2012); 20.9 (2013); 21.3; 20.3.
- Expenditure, excl. net lending (percent of GDP): 24.9 (2010); 23.5 (2011); 25.5 (2012); 23.7 (2013); 24.1; 24.5; 23.2; 21.7; 22.0.
- Domestic debt of central government (percent of GDP): 43.1 (2010); 42.6 (2011); 40.5 (2012); 41.5 (2013); 38.1; 39.7; 37.6; 37.4; 36.0; 34.5; 33.2.
- External debt of central government (percent of GDP): 7.5 (2010); 8.4 (2011); 8.7 (2012); 11.6 (2013); 12.4; 12.6; 11.7; 10.9.
- Gross domestic investment (percent of GDP): 23.6 (2010); 25.7 (2011); 24.8 (2012); 24.7 (2013); 25.3; 25.1; 25.6; 25.8; 25.9.
- Public: 7.4 (2010); 7.7 (2011); 7.2 (2012); 5.6 (2013).
- Private: 17.5 (2010); 19.2 (2011); 20.0 (2012); 20.4 (2013).
- Gross national savings (percent of GDP): 13.3 (2010); 13.1 (2011); 14.8 (2012); 14.7 (2013); 16.4; 15.4; 16.2; 16.7; 18.1; 18.7; 13.8; 13.6; 13.7; 15.8; 14.1; 15.2; 17.4.
- Balance of goods and services (percent of GDP): -12.2 (2010); -13.2 (2011); -13.8 (2012); -13.0 (2013); -12.7; -12.5; -11.8; -11.5; -10.8; -10.5; -10.1.
- Current account balance (percent of GDP): -10.3 (2010); -12.6 (2011); -10.2 (2012); -10.0 (2013); -9.1; -9.7; -8.8; -8.1; -7.2.
- Overall balance (percent of GDP): 2.1 (2010); 1.6 (2011); -2.4 (2012); 1.8 (2013); 1.4.
- Total external debt 3 (percent of GDP): 22.3 (2010); 16.1 (2011); 17.7 (2012); 26.7 (2013); 26.5; 23.8.
- Net international reserves (millions of U.S. dollars): 2,448 (2010); 2,631 (2011); 2,420 (2012); 2,834 (2013); 2,512; 2,977; 3,144; 3,298; 3,497; 3,766; 4,044.
- GDP at current market prices (billions of Mauritian rupees): 298.8 (2010); 322.8 (2011); 350.0 (2012); 344.6 (2013); 385.9; 377.9; 412.5; 451.9; 496.2; 544.5; 597.5.
- GDP at current market prices (millions of U.S. dollars): 9,706 (2010); 11,244 (2011); 11,466 (2012).
- Public sector debt (percent of GDP) 4: 57.4 (2010); 57.0 (2011); 56.2 (2012); 55.7 (2013); 55.8; 54.2; 50.0; 47.6.
- Foreign and local currency long-term debt rating (Moody's): Baa2 (2010); Baa1 (2011).
Source: IMF Public Information Notice No. 13/42, April 3, 2013 — Executive Board conclusion of the 2013 Article IV consultation with Mauritius.