## Press Information Notice: IMF Concludes Article IV Consultation with Mauritius

_IMF News, June 29, 1998_

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## Bibliographic details
- Published: June 29, 1998

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### Background and recent developments
- Period covered: 1996/97-1997/98 (July–June).
- Real GDP expanded by some 5 1/2 percent a year, driven by export processing zone manufactures, sugar exports, and tourism.
- Consumer price inflation:
  - nearly 8 percent in 1996/97;
  - decelerated to about 5 1/3 percent in 1997/98.
- Unemployment rose from about 3 1/3 percent in 1992 to some 6 percent in 1997, reflecting a skills mismatch, substitution of foreign for domestic labor, and substitution of capital for labor.
- Fiscal developments:
  - Overall fiscal deficit (including grants, excluding exceptional factors such as privatization receipts) narrowed from 6 1/4 percent of GDP in 1995/96 to an estimated 3 2/3 percent in 1997/98.
  - Buoyant tax revenues, restraint on current expenditure, and a decline in government capital outlays contributed to the narrowing.
- Monetary and credit developments:
  - Expansion in broad money in 1997/98 estimated at 18 1/3 percent.
  - Large overall increase in domestic bank credit estimated at 23 1/3 percent of beginning-of-period broad money.
  - Required cash reserve ratio for commercial banks reduced in July 1997 from 8 percent to 6 percent.
- External sector:
  - External current account surplus (including transfers, excluding acquisition of aircraft and ships) about 2 percent of GDP in 1996/97; envisaged at about 1 1/3 percent of GDP for 1997/98 due to lower sugar prices and higher imports, partly offset by higher tourism earnings.
  - Net international reserves of the banking system estimated at some 5 3/4 months’ import cover for end-June 1998.
  - External debt-service ratio about 6 2/3 percent of exports of goods and services in 1997/98.
- Exchange rate and market measures:
  - Real effective appreciation of the Mauritian rupee by 2 1/2 percent in 1996/97 and a further 3 percent in the first half of 1997/98.
  - Bank of Mauritius terminated surrender requirement for export proceeds of the Mauritius Sugar Syndicate effective July 1, 1997 (after reduction from 100 percent to 75 percent in July 1996).

### Regulatory and prudential measures
- April 1997: domestic commercial banks subject to a daily-monitored 15 percent exposure limit on open foreign exchange positions in relation to relevant capital.
- January 1, 1998: minimum paid-up or assigned capital for domestic and offshore banks raised from Mau Rs 50 million to Mau Rs 75 million.
- January 1, 1999 (planned): further raise of minimum paid-up or assigned capital to Mau Rs 100 million.

### Executive Board assessment — findings and risks
- Commendations:
  - Authorities' generally prudent approach to economic management.
  - Continued buoyant overall economic activity.
  - Deceleration in the rate of inflation.
  - Maintenance of a relatively comfortable external reserve position.
- Concerns and risks:
  - Current budget surplus had not yet been achieved despite narrowing overall fiscal deficit.
  - Unemployment continued to edge up.
  - Rapid monetary expansion poses potential difficulties.
  - Sharp depreciation of some Asian currencies posed potential external risks.
  - Need for policy adjustments given Mauritius' open current and capital accounts.

### Policy recommendations by Executive Directors
- Fiscal policy:
  - Aim for further consolidation to reduce government's domestic borrowing, including reliance on bank financing.
  - Fiscal reforms should center on effective implementation of a value-added tax (VAT), complemented by restraint on current expenditures.
  - VAT rate and coverage should be sufficient to replace other indirect taxes; compensate for planned lowering of tariff rates; and raise the tax revenue-to-GDP ratio.
  - Limit government expenditure by reforming and downsizing the civil service and eliminating consumer subsidies for flour and rice.
  - Allocate some VAT revenue and privatization receipts to develop workers' skills through vocational training.
- Monetary policy and financial sector:
  - Tightening of monetary policy needed; likely require introduction of full-fledged open-market operations by the Bank of Mauritius.
  - Establish a mechanism for regular and continuous coordination between the Ministry of Finance and the Bank of Mauritius.
- Exchange rate and external policies:
  - Remain prepared to tighten financial policies and allow the exchange rate of the Mauritian rupee to adjust to underlying market pressures following Asian currency depreciations.
  - Proceed with rationalization of the tariff regime as soon as practicable after full and effective implementation of the VAT.
- Labor market and competitiveness:
  - Remove rigidities in the wage determination process to reduce pressure on competitiveness and help address unemployment.

### Selected economic indicators, 1993/94–1997/98 (fiscal year from July to June)
- Domestic economy (annual percentage change)
  - Real GDP: 1993/94: 4.3; 1994/95: 3.5; 1995/96: 5.0; 1996/97: 5.3; 1997/98 Est.: 5.5
  - Consumer prices (period averages): 1993/94: 9.4; 1994/95: 6.1; 1995/96: 5.8; 1996/97: 7.9; 1997/98: (figure in text: about 5 1/3 percent)
- External economy (In millions of SDRs) 2/
  - Exports, f.o.b.: 1993/94: 952.8; 1994/95: 990.4; 1995/96: 1,119.8; 1996/97: 1,162.1; 1997/98: 1,187.8
  - Imports, f.o.b.: 1993/94: -1,111.9; 1994/95: -1,253.5; 1995/96: -1,336.2; 1996/97: -1,344.0; 1997/98: -1,481.2
  - Current account balance 3/: 1993/94: - 53.7; 1994/95: - 133.8; 1995/96: - 16.4; 1996/97: 23.3; 1997/98: - 50.8
  - Current account balance (in percent of GDP) 3/: 1993/94: - 2.3; 1994/95: - 5.3; 1995/96: - 0.6; 1996/97: 0.8; 1997/98: - 1.7
  - Capital and financial account balance: 1993/94: 22.4; 1994/95: 43.0; 1995/96: - 52.4; 1996/97: - 28.7; 1997/98: 50.8
  - Net international reserves of the banking system (end of period): 1993/94: 606.5; 1994/95: 559.1; 1995/96: 740.5; 1996/97: 747.7; 1997/98: 728.7
  - Net international reserves (in months of imports, c.i.f.) 4/: 1993/94: 5.2; 1994/95: 6.3; 1995/96: (value shown under notes); 1996/97: (value shown under notes)
  - Debt service (in percent of exports of goods and nonfactor services): 1993/94: 7.3; 1994/95: 8.2; 1995/96: 9.0; 1996/97: 6.8; 1997/98: 6.7
  - Change in real effective exchange rate (in percent) 5/: 1993/94: 0.1; 1994/95: 0.4; 1995/96: - 4.3; 1996/97: 2.5; 1997/98: 3.1
- Financial variables (In percent of GDP) 2/
  - Total revenues and grants: 1993/94: 21.7; 1994/95: 19.9; 1995/96: 17.6; 1996/97: 20.2; 1997/98: 20.3
  - Total expenditures and net lending: 1993/94: 24.2; 1994/95: 23.6; 1995/96: 24.3; 1996/97: 26.9; 1997/98: 24.0
  - Current fiscal balance 6/: 1993/94: 1.7; 1994/95: - 0.3; 1995/96: - 2.7; 1996/97: - 1.0; 1997/98: - 1.1
  - Overall fiscal balance 6/: 1993/94: - 4.1; 1994/95: - 7.0; 1995/96: - 6.7; 1996/97: - 3.9
  - Change in broad money (in percent): 1993/94: 17.3; 1994/95: 11.8; 1995/96: 15.9; 1996/97: 8.8; 1997/98: 18.3
  - Interest rate (in percent) 7/: 1993/94: 12.0; 1994/95: 11.0; 1995/96: 13.0; 1996/97: 12.5; 1997/98: 10.5

*Press Information Notice: IMF Concludes Article IV Consultation with Mauritius, June 29, 1998.*

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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/pn9846_