## Public Information Notice: IMF Concludes 2004 Article IV Consultation with Mauritius

_IMF News, August 25, 2004_

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## Bibliographic details
- Published: August 25, 2004

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### 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.*

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## References

- [Mauritius and the IMF](http://www.imf.org/external/country/MUS/index.htm)
- [Public Information Notices](https://www.imf.org/en/news/searchnews)
- [Article IV](https://www.imf.org/external/pubs/ft/aa/aa04.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0498_