Public Information Notice: IMF Executive Board Concludes 2011 Article IV Consultation with Mauritius
IMF News, May 3, 2011
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- Published: May 3, 2011
Background: 2010 performance and 2011 outlook
- Real GDP growth accelerated to 4 percent in 2010 (compared with 3 percent in 2009), driven by strong growth in fishing, information and communications technology (ICT), and financial industries.
- Real GDP growth is projected at 4.1 percent in 2011, taking account of the expected upturn in the world economy and the continuing effects of the fiscal stimulus.
- The average inflation rate was 2.9 percent in 2010, although it accelerated to 6.1 percent at end-year.
- Year-on-year inflation is expected to increase to 5¾ percent in 2011, resulting in average inflation of 7½ percent in 2011, driven by projected increases in commodity prices, increases in excise duties, and administered prices.
- The 2010 current account deficit widened to 9½ percent of GDP, driven by a surge in imports, and is projected to widen to 12 percent of GDP in 2011 due to higher commodity import prices and large imports related to public infrastructure projects and FDI.
- Largest growth risks identified: shocks to external demand, particularly tourism and FDI.
- Fiscal developments:
- Total revenues decreased by ¾ percent of GDP in 2010 on account of grants.
- Higher spending of ¾ percent of GDP led the overall consolidated fiscal deficit (including special funds) to widen from 2 percent of GDP in 2009 to 3.5 percent in 2010.
- The fiscal deficit is projected to increase to 4.8 percent of GDP in 2011, reflecting authorities’ intent to increase growth through greener taxation and increased public investment.
- Total revenues projected to decline marginally in 2011, reflecting lower nontax revenues and higher grants.
- Expenditure mix: essentially unchanged current spending levels (more goods and services and less transfers) with greater public investment, much under the PPP framework.
- Monetary policy and exchange rate:
- Monetary policy was loosened in 2010 to support recovery.
- Average inflation low at 2.9 percent in 2010 but end-year increase mainly due to imported inflation.
- The real exchange rate appreciated by 3 percent during 2010.
- Financial sector:
- Banks remained liquid and well-capitalized, even above proposed Basel III requirements.
- Share of non-performing loans decreased; banks were profitable with 16.7 percent return on equity despite low leverage ratios.
- BOM stress-tests (June) indicate domestic banks would be resilient to significant increases in NPLs and losses on large exposures.
- Mauritius became a member of the International Association of Deposit Insurers and is preparing steps to establish a deposit insurance scheme.
- Nonbank financial institutions intermediate a large part of international investment into Asia and Africa and continue to receive substantial inflows.
- Structural reforms and statistics:
- Wide-ranging structural reforms over two decades established Mauritius as a top regional performer.
- National statistical capacity is being strengthened; subscription to the SDDS is expected for end 2011.
Executive Board Assessment: main findings and policy recommendations
- General assessment:
- Executive Directors endorsed the staff’s appraisal concluding that authorities’ prompt policy response over 2008–10 helped cushion the economy and supported a recovery to 4 percent growth in 2010.
- The 2011 budget measures reflect intent to diversify exports, restructure and deleverage enterprises, accelerate public infrastructure investments, and improve the regulatory environment.
- Fiscal policy recommendations:
- Staff recommended a less expansionary fiscal policy; with the output gap in 2011 estimated close to zero, staff recommends limiting the overall fiscal deficit to 4¼ percent of GDP.
- The 4¼ percent of GDP deficit target is compatible with higher capital spending to address infrastructure bottlenecks.
- Though Mauritius is well placed to comply with the legally-mandated 50 percent of GDP debt ceiling by 2018, staff recommended a slightly more ambitious medium-term fiscal consolidation path to reduce debt vulnerabilities.
- Staff suggested targeting the structural primary fiscal balance to achieve a debt-to-GDP ratio of less than 40 percent over the longer term.
- Monetary policy and inflation:
- The central bank should closely monitor inflationary pressures with a tightening bias to prevent recent inflationary pressures from becoming engrained.
- With appropriate early monetary policy response and wage restraint, second-round effects of imported inflation should be limited.
- BOM’s measures to remove excess liquidity will likely reduce its profitability and should be coordinated with the government’s financing strategy to ensure smooth operation of money and securities markets.
- Staff estimates suggest the rupee appreciated further in 2010 relative to its estimated equilibrium rate, though broadly in line with fundamentals.
- Structural reforms and growth drivers:
- Continued far-reaching reform strategy needed to increase long-run growth potential.
- Staff estimates suggest growth rates above 4 percent require:
- accelerated investment project implementation,
- labor market reforms to decrease unemployment rates,
- education initiatives to enhance human capital,
- structural reforms to increase total factor productivity.
- Staff recommended improving service delivery and efficiency in the public enterprise sector, particularly for water, and encouraged expanding private sector involvement in managing state-owned enterprises.
- Staff supports authorities’ intention to diversify the export base, which relies heavily on Europe.
- Environmental and tax policy:
- Mauritius is a pioneer of green taxation and should continue initiatives supporting sustainable development.
- Authorities agreed taxes are appropriate instruments to reduce environmental damages while preserving revenue.
- Staff recommends:
- converting a tax on energy products into an explicit carbon tax to reflect CO2 externalities,
- adopting a motor vehicle tax system that raises the marginal costs of driving to reduce pollution and alleviate traffic congestion in the capital area.
- Staff encourages continued review of the tax system to make it more environmentally sustainable and growth enhancing.
Selected economic and financial indicators, 2007–2011 (key figures from table)
- Real GDP (annual percent change): 2007: 5.9; 2008: 5.5; 2009: 3.0; 2010: 4.0; 2011 (Proj.): 4.1
- Real GDP per capita (in rupees): 2007: 4.9; 2008: 5.2; 2009: 2.5; 2010: 3.6; 2011 (Proj.): 3.5
- GDP per capita (in U.S. dollars): 2007: 6,160; 2008: 7,598; 2009: 6,951; 2010: 7,593; 2011 (Proj.): 7,990
- GDP deflator (annual percent change): 2007: 8.0; 2008: 6.5; 2009: 0.2; 2010: 1.6; 2011 (Proj.): 5.0
- Consumer prices (period average): 2007: 8.6; 2008: 9.7; 2009: 2.9; 2010: 7.4; 2011 (Proj.): (blank)
- Consumer prices (end of period): 2007: 6.8; 2008: 1.5; 2009: 6.1; 2010: 5.8
- Unemployment rate (percent): 2007: 8.5; 2008: 7.2; 2009: 7.3; 2010: 7.5
- Exports of goods, f.o.b. (annual percent change): 2007: -4.7; 2008: -19.3; 2009: 13.3; 2010: 12.5; 2011 (Proj.): (blank)
- Tourism receipts (annual percent change): 2007: 29.0; 2008: 11.5; 2009: -22.9; 2010: 15.2; 2011 (Proj.): 10.4
- Imports of goods, f.o.b. (annual percent change): 2007: 6.0; 2008: 20.6; 2009: -20.5; 2010: 19.0; 2011 (Proj.): 18.8
- Real effective exchange rate (annual averages): 2007: 0.5; 2008: 12.6; 2009: -4.3
- Net foreign assets (annual change in percent of beginning of period M2): 2007: 13.2; 2008: 8.1; 2009: 17.4; 2010: 20.0; 2011 (Proj.): 10.3
- Domestic credit (annual change in percent of beginning of period M2): 2007: 11.7; 2008: 21.2; 2009: 1.8; 2010: 10.8; 2011 (Proj.): 16.1
- Credit to private sector (annual change in percent of beginning of period M2): 2007: 5.4; 2008: 0.4; 2009: 9.9; 2010: 13.6
- Interest rate (weighted average TBs, primary auctions): 2007: 10.0; 2008: 9.0; 2009: 4.4; 2010: 3.9
- Overall consolidated balance (incl. grants, percent of GDP): 2007: -2.6; 2008: -1.5; 2009: -2.0; 2010: -4.8
- Revenues and grants (percent of GDP): 2007: 21.4; 2008: 22.7; 2009: 21.9; 2010: 21.5
- Expenditure, excl. net lending (percent of GDP): 2007: 24.0; 2008: 22.9; 2009: 24.7; 2010: 25.4; 2011 (Proj.): 26.2
- Domestic debt of central government (percent of GDP): 2007: 45.6; 2008: 43.9; 2009: 44.5; 2010: 43.0; 2011 (Proj.): 42.5
- Gross domestic investment (percent of GDP): 2007: 25.1; 2008: 24.6; 2009: 26.3
- Public: 6.6 (2007); 7.6 (2008); (2009 blank)
- Private: 19.7 (2007); 20.5 (2008); 18.6 (2009)
- Gross national savings (percent of GDP): 2007: 22.1; 2008: 18.3; 2009: 15.3; 2010: 16.2; 2011 (Proj.): 14.2
- Balance of goods and services (percent of GDP): 2007: -9.9; 2008: -14.2; 2009: -10.4; 2010: -13.0; 2011 (Proj.): -15.7
- Exports of goods and services, f.o.b. (percent of GDP): 2007: 56.7; 2008: 51.1; 2009: 46.9; 2010: 49.5; 2011 (Proj.): 52.9
- Imports of goods and services, f.o.b. (percent of GDP): 2007: -66.6; 2008: -65.3; 2009: -57.3; 2010: -62.5; 2011 (Proj.): -68.6
- Current account balance (percent of GDP): 2007: -5.5; 2008: -10.2; 2009: -7.5; 2010: -9.6; 2011 (Proj.): -11.8
- Total external debt (percent of GDP): 2007: 10.7; 2008: 12.4; 2009: 13.5
- Net international reserves (millions of U.S. dollars): 2007: 1,789; 2008: 1,760; 2009: 2,150; 2010: 2,448; 2011 (Proj.): 2,253
- Net international reserves (in months of imports of goods and services, f.o.b.): 2007: 3.4; 2008: 5.1; 2009: 4.8; 2010: 3.8
- GDP at current market prices (billions of Mauritian rupees): 2007: 244.0; 2008: 274.3; 2009: 283.3; 2010: 299.5; 2011 (Proj.): 327.4
- GDP at current market prices (millions of U.S. dollars): 2007: 7,792; 2008: 9,641; 2009: 8,865; 2010: 9,729; 2011 (Proj.): 10,299
- Public sector debt (percent of GDP): 2007: 54.0; 2008: 55.3; 2009: 59.3; 2010: 58.5; 2011 (Proj.): 58.8
- Foreign currency long-term debt rating (Moody's): Baa2
Public Information Notice No. 11/49, May 3, 2011 — IMF Executive Board conclusions on the 2011 Article IV consultation with Mauritius.