IMF Executive Board Concludes 2022 Article IV Consultation with Mauritius
IMF News, June 17, 2022
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- Published: June 17, 2022
Recent economic developments
- Real GDP expanded by 4 percent in 2021 as many sectors recovered to pre-pandemic levels while the tourism sector remained subdued.
- The current account deficit widened substantially in 2021.
- Fiscal performance is expected to improve in FY2021/22 helped by quasi-fiscal operations, although the pandemic and new pressures on current spending burden the fiscal balance.
- Inflation increased from 2.7 percent at end-2020 to 6.8 percent at end-2021 and further to 11 percent at end-April 2022.
- The financial sector, including the Global Business Companies (GBCs) segment, was stable in 2021.
- Mauritius exited from the Financial Action Task Force (FATF) list of jurisdictions under increased monitoring in October 2021 and the analogous EU and UK lists soon after.
- The health impact of the pandemic was successfully managed, with a vaccination campaign covering over 90 percent of the eligible population by May 2022.
Outlook and staff projections
- Staff projects real GDP growth of 6.1 percent in 2022.
- Tourist arrivals are expected at 60 percent of pre-pandemic levels, driving much of the rebound.
- Unemployment is expected to decline as the economy recovers and to return to trend in the medium-term.
- Annual inflation is expected to rise to 11.4 percent in 2022 due to surging commodity prices, past depreciation of the rupee, and recovering domestic demand.
- The economy is expected to converge to its pre-pandemic trend growth of 3-3½ per-cent in the medium term.
- Downside risks include the war in Ukraine, rising global inflation that reduces real disposable income and may weigh on global demand (including tourism), and higher freight costs.
Executive Board assessment — key findings
- The economy is recovering from the pandemic following a substantial contraction in 2020; most sectors are broadly back to pre-pandemic output levels except tourism.
- The key macroeconomic challenge is to continue the recovery while controlling inflation in a global environment with high fuel and food prices and slower recovery.
- The recovery is expected to continue but at a slower pace than projected before the war in Ukraine, reflecting lower growth in trading partners, less optimistic prospects for tourist flows, and worsening terms of trade.
- Inflation has picked up substantially due to global supply bottlenecks, higher fuel and food prices, freight costs, and the past depreciation of the rupee.
- The fiscal consolidation path needs careful calibration to balance pandemic recovery with long-term fiscal and debt sustainability.
- Adhering to fiscal rules is critical to preserve fiscal sustainability and reduce debt vulnerabilities in the medium term.
- Public debt is elevated after increasing during the pandemic; fiscal performance continues to be impacted by the pandemic and renewed pressures on current spending.
- Targeted transfers to the vulnerable may be needed in the face of sharp increases in food and fuel prices.
- If the economy continues to recover, revenue should increase and spending be reduced, including through pension system reform, to put debt on a declining path in the medium term.
- The monetary policy normalization cycle needs to proceed to minimize potential second-round effects from supply-side shocks and to control inflation in the medium term.
- The monetary policy framework needs to be modernized and the credibility and independence of the Bank of Mauritius (BOM) safeguarded.
- Staff recommends that the new monetary policy framework be rolled out soon to support policy effectiveness.
- Consistent with the inflation targeting framework, the BOM’s FX intervention strategy should aim to smooth volatility while generally allowing for exchange rate flexibility.
- The government needs to recapitalize the BOM per existing legislation for the BOM to accommodate the monetary policy costs.
- Reform of the BOM law should prohibit central bank’s transfers to the government and quasi-fiscal financing.
- Relinquishing the BOM ownership of the MIC would also help strengthen operational independence and financial position.
- The external position at end-2021 was substantially weaker than suggested by fundamentals and desirable policies, although official foreign reserves remained broadly adequate.
- The current account gap was large and negative, pointing to substantial overvaluation of the rupee compared to its level consistent with long-term fundamentals.
- The external assessment is highly uncertain due to the transitory supply shock to tourism.
- Financing of the current account will continue to depend on financial and capital flows in the GBC sector; exit from AML/CFT listings should support flows, but indirect impact of sanctions on Russia may pose risks.
- Mauritius should embrace structural transformation to continue sustainable and resilient long-term growth, prioritizing diversification, competitiveness, greater digitalization, and adaptation and mitigation policies to tackle climate change vulnerabilities.
Selected economic and financial indicators, 2019-2023
- Real GDP (percentage change): 2019: 3.0; 2020: -14.9; 2021: 4.0; 2022: 6.1; 2023: 5.6
- Consumer prices (period average, percentage change): 2019: 0.5; 2020: 2.5; 2021: 11.9; 2022: 5.8
- Unemployment rate (percent): 2019: 6.7; 2020: 9.2; 2021: 9.5; 2022: 7.8; 2023: 7.5
- Net foreign assets (percent change): 2019: 13.5; 2020: 16.4; 2021: 18.6; 2022: 2.0; 2023: -1.3
- Net claims on government (percent change): 2019: -3.8; 2020: 8.8; 2021: 34.8
- Credit to non-government sector (percent change): 2019: 17.1; 2020: 2.7; 2021: -0.4; 2022: 5.5; 2023: 8.2
- Broad money (percent change): 2019: 6.2; 2020: 17.7; 2021: 8.6; 2022: 1.9
- Overall borrowing requirement (percent of GDP): 2019: -13.1; 2020: -23.1; 2021: -7.6; 2022: -3.9; 2023: -6.1
- Revenues, including grants (percent of GDP): 2019: 22.7; 2020: 24.0; 2021: 23.9; 2022: 23.8
- Expenditure, excluding net lending (percent of GDP): 2019: 34.5; 2020: 42.3; 2021: 33.1; 2022: 29.5
- Current account balance (percent of GDP): 2019: -5.1; 2020: -9.2; 2021: -13.7; 2022: -13.5; 2023: -8.1
- Gross international reserves (millions of U.S. dollars): 2019: 7,329; 2020: 7,242; 2021: 8,513; 2022: 6,801; 2023: 6,371
- GDP at current market prices (billions of Mauritian rupees): 2019: 498.3; 2020: 429.7; 2021: 465.1; 2022: 520.1; 2023: 581.3
- Public sector debt, fiscal year (percent of GDP): 2019: 84.6; 2020: 99.2; 2021: 92.4; 2022: 88.1; 2023: 86.1
IMF Executive Board press release, June 17, 2022.
