IMF Executive Board Concludes 2021 Article IV Consultation with Mauritius

IMF News, June 24, 2021

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Real GDP contracted by 15 percent in 2020 due to halted tourism.
From the outset of the pandemic, rapid border closure, lockdown, and public health measures kept viral transmission low.
Vaccinations began in February 2021; the authorities target vaccinating 60 percent of the population by end-September 2021.
Unemployment—while high—was contained by wage support schemes.

The economy is forecast to begin recovering in 2021, with growth at about 5 percent.
Tourism flows expected to slowly resume in the second half of 2021; exports will strengthen in line with global demand.
Unemployment will likely remain elevated as wage support schemes are scaled back but then return to trend in the following years.
Inflation is projected to increase modestly by end-2021, propelled by recuperating aggregate demand.
Medium-term growth is projected to converge to pre-pandemic rates of 3-3½ percent.
Downside risks: uncertain tourism flows and a prolonged pandemic requiring costly containment and behavioral changes hurting tourism.

Fiscal deficit widened notably in 2020 amid falling revenue and urgent social spending needs.
Directors agreed the fiscal stance should remain accommodative in the near term.
Given rising debt, authorities should prepare for credible medium-term consolidation and rebuilding fiscal buffers, including through an appropriate fiscal rule.
Once the country has exited the crisis, policy guidance:
- Increase revenue and reduce spending to put debt on a declining path while avoiding undue social costs.
- Address the divergence between pension spending and revenue, given the unfavorable demographic situation.

Directors concurred that monetary policy should remain accommodative in the near term, while preparing for normalization of monetary and exchange rate policies.
Encouraged actions:
- Enhance the central bank’s credibility.
- Improve monetary policy transmission and effectiveness.
Specific cautions and recommendations:
- The central bank should refrain from providing direct financing to the government and engaging in quasi-fiscal activities.
- Reform the Bank of Mauritius law, including to preempt further exceptional transfers to the government.
- Recapitalize the central bank and relinquish ownership of the Mauritius Investment Corporation (MIC); financing of the MIC should be provided through the budgetary process.

The current account deficit widened substantially in 2020.
Directors noted Mauritius’ external position at end-2020 was substantially weaker than is consistent with medium-term fundamentals and desirable policies, while official foreign reserves coverage remained within the adequacy range.
Recommended revising foreign exchange intervention strategy to support exchange rate flexibility, smooth extreme exchange rate volatility, and ensure market liquidity.

Directors urged sustaining reforms to support structural transformation toward strong, resilient, and inclusive growth.
Supported authorities’ commitments to:
- Exit the FATF and EU AML/CFT lists.
- Enhance diversification and strengthen competitiveness.
- Improve public sector procurement practices.
- Mitigate vulnerabilities to climate change.
Noted that challenges and risks remain, particularly the unclear pace of recovery in tourism, complicating decisions on when to scale back emergency measures.

Executive Directors agreed with the thrust of the staff appraisal.
Directors congratulated Mauritius for success in containing COVID-19 but cautioned that challenges and risks remain.
Emphasized addressing debt sustainability concerns and strengthening the monetary policy framework.

Real GDP (percentage change): 2019: 3.0; 2020: -14.9; 2021: 5.0; 2022: 6.7
Consumer prices (period average, percentage change): 2019: 0.5; 2020: 2.5; 2021: 2.3; 2022: 3.7
Unemployment rate (percent): 2019: 9.2
Net foreign assets (percentage change): 2019: 13.5; 2020: 16.4; 2021: -8.7; 2022: -0.4
Broad money (percentage change): 2019: 6.2; 2020: 17.7; 2021: -1.5
Central government finances 1 (percent of GDP) — Overall borrowing requirement 2: 2019: -13.1; 2020: -20.0; 2021: -8.4; 2022: -5.6
Revenues, including grants (percent of GDP): 2019: 22.7; 2020: 21.8; 2021: 23.2; 2022: 23.9
Expenditure, excluding net lending (percent of GDP): 2019: 34.5; 2020: 38.4; 2021: 31.3; 2022: 29.4
Current account balance (percent of GDP): 2019: -5.4; 2020: -12.6; 2021: -15.6; 2022: -6.8
Gross international reserves (millions of U.S. dollars): 2019: 7,329; 2020: 7,242; 2021: 6,192; 2022: 5,942
GDP at current market prices (billions of Mauritian rupees): 2019: 498.3; 2020: 429.4; 2021: 453.6; 2022: 498.5
Public sector debt, fiscal year (percent of GDP): 2019: 84.6; 2020: 92.0; 2021: 92.6; 2022: 91.4

IMF Executive Board Concludes 2021 Article IV Consultation with Mauritius — Press Release No. 21/194 (June 24, 2021).