Public Information Notice: IMF Concludes 2004 Article IV Consultation with Mauritius
IMF News, August 25, 2004
Source details
- Canonical URL
- Public Information Notice: IMF Concludes 2004 Article IV Consultation with Mauritius
Other formats
Bibliographic details
- Published: August 25, 2004
Background — macroeconomic developments and outlook
- Real GDP growth:
- 2002/03 (July-June): 2¾ percent
- 2003/04 (expected rebound): around 4½ percent
- Drivers: recovery of tourism and sugar production (favorable weather), continued strong construction and transportation activity.
- Export Processing Zone (EPZ) sector: registered negative growth for the second consecutive year due to high domestic production costs and increasing competition.
- Unemployment:
- 2002: 9.7 percent
- 2003: 10.2 percent
- Fiscal developments:
- Overall fiscal deficit 2002/03: 6.2 percent of GDP
- Overall fiscal deficit 2003/04 (estimated/in line with target): 5.5 percent of GDP
- Improvement primarily reflects higher tax and nontax revenue.
- Overall balance of 30 nonfinancial public sector corporations:
- 2001/02: deficit of 0.6 percent of GDP
- 2002/03: surplus of 0.9 percent of GDP
- Central Electricity Board (CEB): continues to face financial difficulties.
- State Trading Corporation (STC): financial position expected to improve after early April 2004 introduction of automatic mechanism for adjusting petroleum product prices.
- Public debt trajectory:
- Around 66 percent of GDP in 1999/00
- About 80 percent in 2002/03
- Projected at 73 percent of GDP by end-June 2004
- Risk: public debt could become unsustainable if central government fiscal deficits continue.
- Monetary and financial conditions:
- Average annual inflation:
- 2002: 6.4 percent
- 2003: around 4 percent
- Bank of Mauritius (BOM) monetary policy:
- Lombard rate lowered in five steps by a total of 200 basis points to 9½ percent in late January 2004.
- Excess liquidity in the banking system due to cautious bank lending amid sectoral weaknesses.
- Financial system: generally sound.
- AML/CFT: government has taken actions to strengthen framework.
- External sector:
- Overall balance of payments surplus projected to decline from 6½ percent of GDP in 2002/03 to below 2 percent in 2003/04.
- Current account: projected to remain in surplus as tourism recovery offsets widening trade deficit.
- Capital and financial account: projected small deficit of 0.8 percent of GDP in 2003/04 (compared with a surplus in 2002/03).
- FDI: expected to weaken in 2003/04.
- Portfolio investment inflows: expected strong growth (primarily from U.S. and U.K. mutual funds) due to high interest rate differentials.
Executive Board assessment — findings and policy recommendations
- Broad assessment and risks:
- Directors noted Mauritius' strong social and economic achievements over 25 years: strong GDP growth, high domestic savings, improving living standards, strong public institutions, good governance, rule of law, stable democratic system, transparent regulatory environment.
- Concerns: high and growing unemployment (especially among the unskilled), uncertain medium-term outlook for key sectors, large stock of domestic public debt.
- Fiscal policy recommendations:
- Continue implementing structural adjustments and reforms (especially sugar and textile sectors and the labor market) and reduce persistent budget deficits to safeguard past achievements and strengthen medium-term fiscal sustainability.
- Urged further measures to reduce the deficit to return domestic public debt to a sustainable path and stabilize the debt-to-GDP ratio over the medium term.
- Revenue-side recommendations:
- Broaden the income tax base.
- Extend the VAT to additional items.
- Spending-side recommendations:
- Prioritize government expenditures more carefully.
- Stretch out non-critical capital projects.
- Target generalized subsidies for rice and flour to only disadvantaged groups.
- Institutional reform:
- Creation of a debt management unit in the Ministry of Finance to improve the maturity structure of the debt.
- Maintain fiscal discipline in the period leading to the general elections.
- Monetary and exchange rate policy:
- Commended reduction in inflation.
- Urged BOM to monitor excess liquidity closely to guard against rapid credit expansion and increased inflation.
- Encouraged review of the effectiveness of monetary policy instruments, in particular the signaling role of the Lombard rate.
- Noted the real effective exchange rate appears broadly in line with macroeconomic fundamentals.
- Welcomed policy of allowing the exchange rate to respond to market forces and supported view that external competitiveness should be fostered through real productivity gains.
- Financial sector and markets:
- Considered the financial system well developed, sound, and profitable.
- Welcomed authorities' positive response to Financial Sector Assessment Program recommendations (2003).
- Recommended development of an efficient corporate bond market to allow institutional investor diversification and reduce credit concentration.
- Welcomed issuance of guidance notes to banks on anti-money laundering and countering financing of terrorism and passage of the Convention on the Suppression of the Financing of Terrorism Act 2003.
- Structural reforms, labor market, and competitiveness:
- Encouraged steps to address impending loss of trade preferences in sugar and textile sectors; welcomed planned review of the Sugar Sector Strategy.
- Welcomed establishment of the Textile Emergency Support Team to assist rehabilitation and restructuring of viable textile enterprises.
- Called for closer link between wage increases and productivity growth to facilitate textile sector restructuring, stimulate job creation, and improve competitiveness.
- Urged making the wage bargaining system more flexible and streamlining labor regulations to stem rise in unit labor costs.
- Welcomed measures to improve access to education and strengthen curricula at all levels to alleviate skills mismatch and raise employment over the medium term.
- Economic diversification and infrastructure:
- Commended efforts to diversify into financial services, tourism, and information and communications technology.
- Urged greater opportunities for private sector participation in infrastructure development (public utilities, transportation, commercial areas) while noting potential costs and risks of public-private partnerships.
- Trade policy:
- Welcomed authorities' commitment to trade liberalization and reduction of customs duties in the 2004/05 budget.
- Urged announcement of a medium-term tariff reform program, including lowering maximum and average tariff rates.
Selected economic indicators (as presented)
- Domestic economy (annual percentage change)
- Real GDP:
- 1999/00: 2.7
- 2000/01: 7.6
- 2001/02: 4.3
- 2002/03: 4.4
- Prov. 2003/04: (not separately listed in table)
- Consumer prices (period averages):
- 1999/00: 5.3
- 2000/01: 6.4
- 2001/02: 5.1
- 2002/03: 3.9
- Unemployment:
- 1999/00: 7.7
- 2000/01: 8.8
- 2001/02: 9.1
- 2002/03: 9.7
- Prov. 2003/04: 10.2
- External economy (in millions of U.S. dollars, unless otherwise indicated)
- Exports, f.o.b:
- 1999/00: 1,522.6
- 2000/01: 1,639.0
- 2001/02: 1,592.9
- 2002/03: 1,843.5
- Prov. 2003/04: 2,016.9
- Imports, f.o.b.:
- 1999/00: -2,006.5
- 2000/01: -1,891.9
- 2001/02: -1,798.2
- 2002/03: -2,129.4
- Prov. 2003/04: -2,328.1
- Current account balance:
- 1999/00: -68.7
- 2000/01: 154.3
- 2001/02: 247.8
- 2002/03: 136.1
- Prov. 2003/04: 155.6
- Current account (in percent of GDP):
- 1999/00: -1.6
- 2000/01: 3.4
- 2001/02: 5.4
- 2002/03: 2.6
- Capital and financial account:
- 1999/00: -18.7
- 2000/01: 90.2
- 2001/02: -12.2
- 2002/03: -108.8
- Prov. 2003/04: -44.7
- Net international reserves of the Bank of Mauritius (end of period):
- 1999/00: 688.0
- 2000/01: 789.3
- 2001/02: 1,017.0
- 2002/03: 1,438.5
- Prov. 2003/04: 1,549.3
- Reserves (in months of prospective imports, c.i.f.) 2/:
- 1999/00: 4.1
- 2000/01: 5.0
- 2001/02: 6.9
- 2002/03: 7.5
- Debt service (in percent of exports of goods and nonfactor services):
- 1999/00: 7.9
- 2000/01: 9.8
- 2001/02: 8.4
- 2002/03: 8.2
- Prov. 2003/04: 6.0
- Change in real effective exchange rate (in percent) 3/:
- 1999/00: 5.7
- 2000/01: -1.9
- 2001/02: -1.0
- 2002/03: ...
- Financial variables (in percent of GDP, unless otherwise indicated) 2/
- Total public debt:
- 1999/00: 65.8
- 2000/01: 64.4
- 2001/02: 70.5
- 2002/03: 80.5
- Prov. 2003/04: 72.8
- Total revenues and grants:
- 1999/00: 20.9
- 2000/01: 18.2
- 2001/02: 18.4
- 2002/03: 20.3
- Total expenditures and net lending:
- 1999/00: 24.7
- 2000/01: 23.9
- 2001/02: 24.4
- 2002/03: 26.5
- Prov. 2003/04: 26.4
- Central government fiscal balance 4/ (including grants):
- 1999/00: -3.8
- 2000/01: -5.7
- 2001/02: -5.9
- 2002/03: -6.2
- Prov. 2003/04: -5.5
- Primary fiscal balance 4/ 5/ (overall central government fiscal balance, excluding interest payments):
- 1999/00: -0.4
- 2000/01: -1.3
- 2001/02: -2.6
- 2002/03: -1.5
- Change in broad money (in percent):
- 1999/00: 10.9
- 2000/01: 9.9
- 2001/02: 13.0
- 2002/03: 11.7
- Prov. 2003/04: 9.6
- Interest rate (in percent) 6/ (Average prime lending rate, end of fiscal year):
- 1999/00: 11.0
- 2000/01: 11.1
- 2001/02: 10.6
- 2002/03: 9.0
- Prov. 2003/04: 7.0
- Notes from table:
- 1/ Fiscal year from July to June.
- 2/ Excluding the acquisition of aircraft and ships.
- 3/ Trade-weighted period averages; data for 2002/03 are for July-Feb. 2003. A negative sign signifies a depreciation.
- 4/ Including grants.
- 5/ Overall central government fiscal balance, excluding interest payments.
- 6/ Average prime lending rate (end of fiscal year, in percent).
Source: Public Information Notice: IMF Concludes 2004 Article IV Consultation with Mauritius, August 25, 2004.