Public Information Notice: IMF Concludes 2003 Article IV Consultation with Mauritius

IMF News, August 6, 2003

Source details

Canonical URL

Public Information Notice: IMF Concludes 2003 Article IV Consultation with Mauritius

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Published: August 6, 2003

Background: recent performance and risks

• On June 30, 2003, the Executive Board of the International Monetary Fund concluded the Article IV consultation with Mauritius.
• Growth and sectoral contributors
  • Real GDP expanded at a robust pace of 4 percent in 2001/02 (July-June).
  • Real GDP growth is expected to slow in 2002/03 to about 3½ percent.
  • Growth in 2002/03 will rely mainly on construction, financial services and other services.
  • Sugar output declined substantially in the current fiscal year after a record crop in 2001/02, due to cyclone damage.
  • EPZ and tourism sectors are adversely affected by the weak global environment and uncertain prospects following the war in Iraq.
• Labor market
  • Unemployment has risen since the early 1990s despite robust growth, reflecting an increasingly inadequate education and training system and labor market rigidities.
  • Unemployment was nearly 10 percent at end-2002, compared to 9.4 percent in 2001.
• Public finances and public enterprises
  • The overall fiscal deficit will remain at close to 6 percent of GDP for 2002/03.
  • Short-term risks to public finances arise from the worsening financial position of some state-owned enterprises, notably the State Trading Corporation (STC) and the Central Electricity Board (CEB), which accumulated significant losses in the current fiscal year due to the sharp rise in the international price of oil in 2002 and early 2003.
• Monetary and price developments
  • Monetary policy was tightened in 2002/03 compared to 2001/02.
  • The Bank of Mauritius has reduced the Lombard rate since the beginning of the fiscal year by a total of 125 basis points in response to a widening interest rate differential and the slowdown in activity.
  • Consumer price inflation is estimated at about 5 percent (period average) at end-June 2003, compared with 6.4 percent a year earlier.
• External sector and reserves
  • The external current account surplus is estimated at about 4 percent of GDP in 2002/03.
  • Net international reserves of the Bank of Mauritius increased to an estimated US$1.3 billion (7.3 months of import cover) at end-June 2003, compared with US$1 billion (6 months of import cover) at end-June 2002.
• Financial sector assessment (FSAP) findings
  • FSAP concluded Mauritius has a well developed financial system; the banking system is highly profitable and sound.
  • Three main sources of potential risks and vulnerabilities were identified:
  • risks associated with external economic shocks and downturns due to limited diversification and high credit concentration in a few sectors;
  • rollover risks of growing short-term public debt;
  • potential reputation risk from money laundering or criminal activities of offshore funds and companies.

Key statistics (selected from IMF staff estimates and projections)

• Real GDP (annual percentage change): 1998/99 5.4; 1999/00 2.7; 2000/01 7.0; 2001/02 4.0; 2002/03 3.3.
• Consumer prices (period averages): 1998/99 7.9; 1999/00 5.3; 2000/01 4.4; 2001/02 6.4; 2002/03 5.1.
• Unemployment (percent): 1998/99 7.1; 1999/00 8.1; 2000/01 8.9; 2001/02 9.4; 2002/03 9.8.
• External sector (in millions of U.S. dollars):
  • Exports, f.o.b: 1998/99 1,680.2; 1999/00 1,522.6; 2000/01 1,639.0; 2001/02 1,582.9; 2002/03 1,676.4.
  • Imports, f.o.b.: 1998/99 -2,045.7; 1999/00 -2,006.5; 2000/01 -1,891.9; 2001/02 -1,802.0; 2002/03 -1,942.8.
  • Current account balance: 1998/99 -65.3; 1999/00 -68.7; 2000/01 154.3; 2001/02 238.2; 2002/03 234.8.
  • Current account (in percent of GDP): 1998/99 -1.5; 1999/00 -1.6; 2000/01 3.4; 2001/02 5.2; 2002/03 4.6.
• Net international reserves of the Bank of Mauritius (end of period, in millions of U.S. dollars): 1998/99 625.4; 1999/00 688.0; 2000/01 789.3; 2001/02 1,017.0; 2002/03 1,328.3.
• Net international reserves (in months of prospective imports, c.i.f.): 1998/99 3.5; 1999/00 4.1; 2000/01 5.0; 2001/02 6.0; 2002/03 7.3.
• Debt service (in percent of exports of goods and nonfactor services): 1998/99 7.6; 1999/00 7.9; 2000/01 9.8; 2001/02 8.5; 2002/03 7.3.
• Change in real effective exchange rate (in percent): 1998/99 -1.9; 1999/00 5.7; 2000/01 2.7; 2001/02 -1.9; 2002/03 0.1.
• Fiscal and financial variables (in percent of GDP, unless otherwise indicated):
  • Total revenues and grants: 1998/99 20.1; 1999/00 20.9; 2000/01 18.1; 2001/02 18.4; 2002/03 20.8.
  • Total expenditures and net lending: 1998/99 23.4; 1999/00 24.7; 2000/01 23.9; 2001/02 24.4; 2002/03 26.7.
  • Central government fiscal balance 4/: 1998/99 -33; 1999/00 -3.8; 2000/01 -5.7; 2001/02 -5.9; 2002/03 -5.9.
  • Primary fiscal balance 4/ 5/: 1998/99 0.1; 1999/00 -0.4; 2000/01 -1.3; 2001/02 -2.6; 2002/03 -1.6.
  • Change in broad money (in percent): 1998/99 13.2; 1999/00 10.9; 2000/01 9.9; 2001/02 13.0; 2002/03 11.0.
  • Interest rate (in percent) 6/: 1998/99 12.0; 1999/00 10.8; 2000/01 11.4; 2001/02 11.8; 2002/03 11.8.

Executive Board assessment: findings and policy recommendations

• General assessment
  • Directors agreed that generally sound macroeconomic policies created conditions for investment and growth and underpinned the strong performance of the Mauritian economy over the last two decades.
  • Consistent real output growth enabled more than doubling of per capita income, narrowing of income disparities, and remarkable progress in social indicators amid a stable political system.
  • More recently, the fiscal deficit has been high, growth has slowed, and unemployment remains relatively high and persistent.
  • Recovery of growth to historical levels will depend on global recovery, continued good macroeconomic policies, EPZ and tourism performance, and a rebound in sugar production from the cyclone-depressed level of 2002.
• Medium-term challenges highlighted by Directors
  • Explore scope for further economic diversification.
  • Address persistent unemployment despite satisfactory growth rates.
  • Contain the budget deficit and overall public debt level.
  • Implement structural reforms to improve competitiveness, especially labor market flexibility, and promote private sector investment.
• Specific policy recommendations and calls to action
  • Sugar and textiles: Directors welcomed sugar sector restructuring efforts and noted the textile sector’s positioning for increased export opportunities, while calling for further restructuring to improve competitiveness.
  • Utilities, wages and costs: Address high utility costs and discourage wage increases that exceed labor productivity growth; adjust electricity tariffs in line with movements in the international price of fuel oil used for generation.
  • Petroleum pricing: Implement the agreed automatic pricing mechanism for petroleum products.
  • Government involvement and foreign investment: Reduce government involvement in commercial activities; eliminate remaining obstacles to foreign investment, particularly relating to permits and licensing processes.
  • Labor market and education: Reform pay-setting mechanisms to allow firm-level collective bargaining; encourage arbitration tribunals and pay-setting bodies to consider economic and competitiveness factors; continue efforts to improve the education system to address skill-job mismatches.
  • Fiscal consolidation and public debt: Pursue a more ambitious fiscal deficit reduction target with the objective of reducing the deficit to within a manageable range by 2006/07 and stabilizing public debt at a lower level.
  • Monetary policy and inflation framework: Monitor liquidity carefully before reducing interest rates further; the informal inflation targeting framework was working well and authorities were encouraged to consider moving to formal inflation targeting in the context of greater central bank independence.
  • Exchange rate and financial markets: Directors considered the market-determined exchange rate broadly consistent with fundamentals and encouraged efforts to deepen the interbank foreign exchange market.
  • Financial system strengthening and AML/CFT: Implement key recommendations of the Financial System Stability Assessment to further strengthen the financial system; welcome enactment of the Financial Intelligence and Anti-Money Laundering Act of 2002 and encourage acceptance of the United Nations conventions on money laundering and terrorism financing.
  • Trade policy: Commendation for reducing tariff rates in regional trade agreements; encouragement to simplify the customs tariff system and eliminate nontariff barriers over the medium term.
  • Technical assistance: Staff assessment found Fund-provided technical assistance to be well-targeted and generally effective; Directors suggested a more rigorous prioritization process could improve efficiency in some areas.
• Procedural note
  • It is expected that the next Article IV consultation with Mauritius will be held on the standard 12-month cycle.