Public Information Notice: IMF Executive Board Concludes 2008 Article IV Consultation with Mauritius
IMF News, July 15, 2008
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- Published: July 15, 2008
Background: recent performance and pressures
- Economic growth responding to structural reform efforts; tax reform, improvements in the business environment, and investment initiatives have spurred foreign investment to unprecedented levels.
- Growth projected at 6½-7 percent in 2007/08 (fiscal year ending June 2008); broad based, especially strong in tourism, banking, construction, and services.
- Rising fiscal receipts and expenditure containment have cut the deficit and public sector debt is continuing to decline.
- External current account deficit has eased but remains high on investment-driven import growth.
- Exchange rate appreciated 17 percent in real effective terms in the 12 months ending February 2008 from an overly depreciated level in 2005-06.
- Inflation remains a concern despite some dampening from exchange rate appreciation; the economy faces rising labor, infrastructure, and other bottlenecks and strong head winds from international commodity price rises.
- Bank of Mauritius (BoM) reserves projected to reach 6½ months of imports by end 2007/08.
- Large and rising errors and omissions items in the balance of payments cloud external sector analysis.
Fiscal and monetary developments
- Fiscal:
- Overall fiscal position improved as revenues rose strongly in response to tax reforms and expenditure was contained.
- Tax reform made the tax regime more progressive, easier to administer, and broadened the base.
- Debt service declined with falling interest rates; capital expenditure is under-target owing to implementation difficulties.
- Authorities introduced fiscal management laws expected to contribute to better fiscal performance.
- Monetary:
- Monetary policy being strengthened to improve transparency and effectiveness.
- Liquidity has been growing rapidly and excess liquidity persisted in the financial system since early 2007.
- Interest rates declined markedly as government borrowing requirement dropped.
- In April 2008 the BoM introduced new instruments, extended a special deposit facility, and widened the repo corridor to strengthen liquidity management.
- BoM conducted sterilized intervention in the foreign exchange market to limit nominal appreciation of the rupee.
Financial sector and structural reforms
- Banking sector and financial system remain relatively sound; vulnerability indicators have improved.
- Nonperforming loans ratio declined; banking system is well capitalized.
- Stock exchange outperformed most emerging markets in 2007, pushing the index to record levels.
- Trade and parastatals:
- Authorities continued efforts to liberalize international trade and secure market access; a partnership agreement with the EU initiated, a free trade agreement with Pakistan signed, and an agreement with India under discussion.
- Several parastatals maintain import and distribution monopolies on basic goods; an administered price regime remains in place for many basic goods.
- Medium-term outlook:
- Growth projected to remain at about 5 percent through the medium-term, reflecting continued growth in tourism, services, and investment in large projects.
- Fiscal consolidation expected to proceed with moderate primary surpluses and a declining overall deficit and public debt burden.
- External current account deficit expected to decline only moderately as large foreign investment inflows draw in imports.
- Key macroeconomic challenge: manage recent economic success through broadening structural reforms to spur economic efficiency and consolidate and refocus fiscal policy.
Executive Board assessment and policy recommendations
- Directors welcomed revived performance, noting tax and business environment reforms since 2006 contributed to reduced fiscal deficits and rising FDI.
- Concerns:
- Large capital inflows have added to demand pressures.
- Inflation remains high, reflecting rising international commodity prices and emerging supply constraints.
- Fiscal policy recommendations:
- Proceed with plans for further fiscal consolidation and deeper structural reforms to alleviate bottlenecks and ensure sustained noninflationary growth.
- Build on tax reform successes and extend reform effort to the expenditure side of the budget and the parastatal sector.
- Improve efficiency of social assistance by consolidating and targeting.
- Introduce program-based budgeting (noted for 2008/09 (July/June) budget) to strengthen spending efficiency.
- Introduce fiscal management laws on public debt management and public finance and audit.
- Caution: sizable public sector wage increase in the 2008/09 budget could contribute to further inflationary pressures given strong private sector demand.
- Monetary policy recommendations:
- Continue efforts to strengthen the monetary framework and remain vigilant against inflation in light of increasing demand pressures.
- BoM communication of an inflation target range would help shape inflation expectations.
- Greater efforts to manage liquidity in closer coordination with fiscal authorities.
- Steps welcomed to strengthen BoM's capital base and governance structures.
- Exchange rate and external sector:
- Managed floating exchange rate regime considered appropriate.
- Real effective exchange rate of the rupee appears broadly in line with fundamentals.
- Nominal appreciation in 2007-08 helped dampen inflation; further real appreciation may be unavoidable if capital inflows rise and should preferably occur through nominal appreciation.
- Any nominal appreciation should be accompanied by additional fiscal consolidation and structural reforms to improve efficiency and competitiveness.
- Structural reform priorities:
- Support disengagement and divestment strategy for parastatals in importation and distribution of basic goods.
- Upgrade workforce skills and enhance labor market flexibility.
- Liberalize domestic trade, reduce import duties, and phase out administered prices.
- Statistics:
- Improving coverage and reliability of national statistics is a high priority, especially for the financial account of the balance of payments and the international investment position.
- Next consultation:
- Next Article IV consultation expected on the standard 12-month cycle.
Key statistics and projections (selected figures from Table 1)
- Real GDP (annual percent change): 2005/06: 3.6; 2006/07: 4.2; 2007/08: 6.6; 2008/09: 6.2; 2009/10: 5.1.
- Real GDP per capita (annual percent change): 2005/06: 2.8; 2006/07: 3.4; 2007/08: 5.7; 2008/09: 5.4; 2009/10: 4.3; 2010/11: 4.4.
- GDP deflator (annual percent change): 2005/06: 7.9; 2006/07: 8.4; 2007/08: 7.5; 2008/09: 6.8; 2009/10: 5.5; 2010/11: 5.0.
- Consumer prices (period average): 2005/06: 10.7; 2006/07: 9.5; 2007/08: 8.5; 2008/09: 7.3; 2009/10: 6.0; 2010/11: 5.3.
- Consumer prices (end of period): 2005/06: 7.6; 2006/07: 10.0; 2007/08: 9.0; 2008/09: 8.0; 2009/10: 6.5.
- Unemployment rate (percent): 2005/06: 8.9; 2006/07: 8.7.
- Exports of goods, f.o.b. (U.S. dollars): 2005/06: 12.1; 2006/07: 3.2.
- Exports of services (U.S. dollars): 2005/06: 20.2; 2006/07: 24.2; 2007/08: 16.7; 2008/09: 14.1; 2009/10: 12.3; 2010/11: 11.4; 2011/12: 11.2.
- Tourism receipts (U.S. dollars): 2005/06: 23.8; 2006/07: 25.0; 2007/08: 17.6; 2008/09: 15.0; 2009/10: 12.0; 2010/11: 11.5.
- Imports of goods, f.o.b. (U.S. dollars): 2005/06: 14.5; 2006/07: 17.0; 2007/08: 15.1; 2008/09: 6.4; 2009/10: 6.1; 2010/11: 5.8.
- Nominal effective exchange rate (period averages): 2005/06: -3.4; 2006/07: -9.9; 2007/08: 3.0.
- Real effective exchange rate (period averages): 2005/06: 0.6; 2006/07: -2.8; 2007/08: 7.1.
- Net international reserves, BOM (millions of U.S. dollars): 2005/06: 1,408; 2006/07: 1,617; 2007/08: 2,343; 2008/09: 2,628; 2009/10: 2.978; 2010/11: 3,168; 2011/12: 3,453; 2012/13: 3,895.
- Net international reserves, BOM (months of imports of goods, c.i.f.): 2005/06: 5.2.
- Central government overall balance (including grants, percent of GDP): 2005/06: -5.3; 2006/07: -4.2; 2007/08: -3.0; 2008/09: -2.3; 2009/10: -1.9; 2010/11: -1.5.
- Revenues and grants (percent of GDP): 2005/06: 20.1; 2006/07: 19.3; 2007/08: 21.7; 2008/09: 20.8; 2009/10: 20.9; 2010/11: 21.2; 2011/12: 21.4.
- Expenditure and net lending (percent of GDP): 2005/06: 25.5; 2006/07: 23.6; 2007/08: 24.7; 2008/09: 23.2; 2009/10: 23.1; 2010/11: 22.9.
- Domestic debt of central government (percent of GDP): 2005/06: 51.4; 2006/07: 46.6; 2007/08: 44.7; 2008/09: 40.5; 2009/10: 37.0; 2010/11: 33.7; 2011/12: 30.3; 2012/13: 27.0.
- External debt of central government (percent of GDP): 2005/06: 4.7; 2006/07: 4.9; 2007/08: 7.0; 2008/09: 8.1; 2009/10: 9.2.
- Gross domestic investment (percent of GDP): 2005/06: 22.5; 2006/07: 26.4; 2007/08: 29.1; 2008/09: 30.8; 2009/10: 32.4; 2010/11: 33.8; 2011/12: 35.0; 2012/13: 35.3.
- Gross national savings (percent of GDP): 2005/06: 17.2; 2006/07: 18.4; 2007/08: 24.6; 2008/09: 29.4; 2009/10: 30.9; 2010/11: 31.9.
- Trade balance (percent of GDP): 2005/06: -13.2; 2006/07: -17.4; 2007/08: -19.3; 2008/09: -21.2; 2009/10: -20.0; 2010/11: -18.9; 2011/12: -18.0; 2012/13: -17.0.
- Current account balance (percent of GDP): 2005/06: -8.0; 2006/07: -4.3; 2007/08: -6.2; 2008/09: -4.5; 2009/10: -4.0.
- Overall external balance (percent of GDP): 2005/06: -1.6; 2006/07: 2.9; 2007/08: 3.1; 2008/09: 1.5; 2009/10: 2.0; 2010/11: 2.7.
- Total external debt (percent of GDP): 2005/06: 11.7; 2006/07: 11.0; 2007/08: 9.9; 2008/09: 11.3.
- GDP at current market prices (millions of Mauritian rupees): 2005/06: 194,572; 2006/07: 218,784; 2007/08: 252,870; 2008/09: 288,702; 2009/10: 324,056; 2010/11: 359,426; 2011/12: 396,775; 2012/13: 438,006.
- GDP per capita (U.S. dollars): 2005/06: 5,357; 2006/07: 5,649; 2007/08: 6,325; 2008/09: 7,326; 2009/10: 8,703; 2010/11: 9,778; 2011/12: 10,937; 2012/13: 12,236.
- Foreign currency long-term debt rating (Moody's): 2005/06: Baa2; 2006/07: Baa1.
Public Information Notice (PIN) No. 08/83; July 15, 2008.