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

_IMF News, August 18, 1999_

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## Bibliographic details
- Published: August 18, 1999

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### Background
- Period covered: July 1998–June 1999; Executive Board conclusion date: August 3, 1999.
- Real GDP growth: estimated at 5 1/3 percent for 1998/99.
- Expansion was broad based with significant contributions from:
  - manufacturing (especially in the export processing zone-EPZ),
  - financial and business services (including offshore activities),
  - trade (including tourism),
  - other services (particularly transport and communications).
- Inflation (consumer prices, period averages):
  - quickened to an estimated 8 percent in 1998/99 from 5 1/3 percent in 1997/98.
  - Factors cited: introduction of a value-added tax (VAT) in September 1998; ongoing drought; rapid expansion of bank credit to the private sector; lagged impact of a 10 percent nominal depreciation of the Mauritian rupee vis-à-vis the U.S. dollar following the Asian currency crises.
- Unemployment: 5 3/4 percent in 1997/98; likely edged up in 1998/99 due to skills mismatch and inadequate labor market flexibility.
- Fiscal position:
  - Overall fiscal deficit in 1998/99 (including grants and exceptional factors such as proceeds from sale of fixed assets): estimated at some 4 percent of GDP.
  - Underlying fiscal deficit (including grants but excluding exceptional factors): likely widened to about 5 1/3 percent of GDP.
  - Government financing: likely met entirely from domestic nonbank sources and, for the first time in the 1990s, made net repayments to the banking system.
  - Commercial banks sharply expanded credit to the private sector, largely in the form of tax-free company debentures.
  - Prudential change: effective January 1, 1999, Bank of Mauritius raised minimum paid-up or assigned capital for both domestic and offshore banks from Mau Rs 75 million to Mau Rs 100 million.
- External sector:
  - External current account deficit (including acquisition of aircraft and ships) in 1998/99: just over 2 percent of GDP (compared with 3 percent in 1997/98), driven by a substantial rise in tourism-related earnings and lower petroleum import prices.
  - Net international reserves of the banking system at end-June 1999: estimated at a 5-month import cover.
  - External debt-service ratio in 1998/99: estimated at 8 percent of exports of goods and services (up from 7 percent in 1997/98), reflecting an early repayment on a floating-rate note.
  - Real effective exchange rate (period-average, bilateral-trade-weighted): appreciated by 3 1/2 percent in 1997/98 and remained unchanged over July–December 1998.

### Executive Board Assessment
- Overall appraisal:
  - Directors welcomed the authorities' success in maintaining buoyant economic activity amid global turbulence.
  - Directors noted concerns: quickened inflation, likely higher unemployment, and weakened near-term prospects due to a serious drought.
  - Directors were encouraged by the authorities' resolve to pursue key policy adjustments and reforms.
- Fiscal policy and public finances:
  - Supported phased fiscal consolidation, taking social needs into account.
  - Expected fiscal adjustment to rely primarily on higher VAT revenues from improved VAT administration and downsizing of the civil service.
  - Strong encouragement to scale down the large number of tax exemptions and concessions.
  - Stressed need to restructure government expenditure to provide resources for vocational training to address skills mismatch.
- Monetary and financial sector policy:
  - Commended government net repayments to the banking system to achieve monetary restraint.
  - Cautioned to discontinue tax-free status of company debentures.
  - Urged development of full-fledged open-market operations to gain greater monetary control through indirect instruments.
  - Emphasized need for coordination of domestic liquidity and treasury cash management.
- Banking supervision and prudential framework:
  - Underscored need to strengthen prudential requirements and banking supervision due to relatively high nonperforming loans, low loan provisioning, and high banking concentration ratios.
  - Urged authorities to expedite passage of long-overdue revisions to the Bank of Mauritius and Banking Acts.
- Exchange rate and external competitiveness:
  - Welcomed authorities' intention to allow the exchange rate of the Mauritian rupee to adjust to underlying market pressures.
  - Noted steps in the 1999/2000 budget to liberalize the tariff regime but favored a more ambitious reduction in tariff rates, in concert with higher VAT revenue collections and consistent with regional commitments, to foster external competitiveness and employment expansion.
- Labor market and competition policy:
  - Recommended replacing the outmoded tripartite wage negotiation system and revising laws governing labor shedding to allow appropriate labor market flexibility, while taking potential social effects into account.
  - Emphasized need to promote greater market competition, notably for petroleum products and cement.
- Private sector development:
  - Supported providing mainly legislative support for private sector initiatives domestically and abroad.
  - Emphasized need to adopt unambiguous and transparent guidelines to encourage investment.
- Data and surveillance:
  - While data were satisfactory for surveillance purposes, Directors encouraged authorities to intensify efforts to provide the Fund with annual estimates and projections for the fiscal accounts and balance of payments.

### Key Policy Recommendations and Priorities
- Implement phased fiscal consolidation focusing on:
  - improved VAT administration to raise revenues,
  - downsizing civil service,
  - scaling down tax exemptions and concessions.
- Restructure government expenditure to finance vocational training to address skills mismatch.
- Strengthen monetary control by:
  - discontinuing tax-free company debentures,
  - developing open-market operations,
  - coordinating domestic liquidity and treasury cash management.
- Reinforce prudential requirements and banking supervision; expedite revisions to Bank of Mauritius and Banking Acts.
- Maintain exchange rate flexibility to reflect market pressures.
- Liberalize tariff regime further and pursue policies to improve external competitiveness and employment.
- Reform labor institutions (wage negotiation system and laws governing labor shedding) with attention to social impacts.
- Promote market competition (petroleum, cement) and adopt transparent investment guidelines for private sector initiatives.
- Provide the IMF with annual fiscal and balance of payments estimates and projections.

### Mauritius: Selected Economic Indicators (as presented)
- Domestic economy (Annual percentage change)
  - Real GDP:
    - 1994/95: 3.5
    - 1995/96: 5.1
    - 1996/97: 5.6
    - 1997/98: 5.3
    - 1998/99 Est.: 5 1/3
  - Consumer prices (period averages):
    - 1994/95: 6.1
    - 1995/96: 5.8
    - 1996/97: 7.9
    - 1997/98: 5.4
    - 1998/99 Est.: 8.0
- External economy (In millions of U.S. dollars)2
  - Exports, f.o.b.:
    - 1994/95: 1,452.2
    - 1995/96: 1,563.7
    - 1996/97: 1,622.7
    - 1997/98: 1,603.4
    - 1998/99 Est.: 1,583.8
  - Imports, f.o.b.:
    - 1994/95: -1,838.0
    - 1995/96: -1,865.8
    - 1996/97: -1,888.1
    - 1997/98: -2,012.4
    - 1998/99 Est.: -1,982.6
  - Current account balance3:
    - 1994/95: -196.2
    - 1995/96: -22.9
    - 1996/97: 17.1
    - 1997/98: -114.9
    - 1998/99 Est.: -87.6
  - Current account balance (in percent of GDP)3:
    - 1994/95: -5.3
    - 1995/96: -0.6
    - 1996/97: 0.4
    - 1997/98: -2.9
    - 1998/99 Est.: -2.2
  - Capital and financial account balance:
    - 1994/95: 63.0
    - 1995/96: -73.1
    - 1996/97: -40.0
    - 1997/98: 75.3
    - 1998/99 Est.: 87.6
  - Net international reserves of the banking system (end of period):
    - 1994/95: 852.5
    - 1995/96: 953.6
    - 1996/97: 1,020.4
    - 1997/98: 873.0
    - 1998/99 Est.: 901.7
  - Net international reserves (in months of prospective imports, c.i.f.)4:
    - 1994/95: 5.2
    - 1995/96: 5.7
    - 1996/97: 6.2
    - 1997/98: 5.2
    - 1998/99 Est.: 5.0 (noting table entry of 5.2, 5.7, 6.2, 5.2, 5.0 structure; end-June 1999 reported as a 5-month import cover in text)
  - Debt service (in percent of exports of goods and nonfactor services):
    - 1994/95: 8.2
    - 1995/96: 9.0
    - 1996/97: 6.8
    - 1997/98: 7.0
- Change in real effective exchange rate (in percent)5:
  - 1994/95: -4.2
  - 1995/96: 2.7
  - 1996/97: 3.6
  - 1997/98: 0.0
  - 1998/99 Est. (July–December 1998): figure reported as unchanged over July–December 1998 in text.
- Financial variables (In percent of GDP)2
  - Total revenues and grants:
    - 1994/95: 20.0
    - 1995/96: 17.6
    - 1996/97: 20.2
    - 1997/98: 20.4
    - 1998/99 Est.: 20.5
  - Total expenditures and net lending:
    - 1994/95: 23.7
    - 1995/96: 25.0
    - 1996/97: 27.8
    - 1997/98: 24.4
    - 1998/99 Est.: 24.6
  - Overall fiscal balance6:
    - 1994/95: -3.7
    - 1995/96: -7.3
    - 1996/97: -7.6
    - 1997/98: -4.0
    - 1998/99 Est.: -4.1
  - Excluding exceptional factors6:
    - 1995/96: ...
    - 1996/97: -6.2
    - 1997/98: -5.4
    - 1998/99 Est.: -3.9
  - Change in broad money (in percent):
    - 1994/95: 11.8
    - 1995/96: 15.9
    - 1996/97: 8.8
    - 1997/98: 17.4
    - 1998/99 Est.: 13.4
  - Interest rate (in percent)7 (maximum interest rate on fixed time deposits with maturities between six and twelve months):
    - 1994/95: 11.0
    - 1995/96: 13.0
    - 1996/97: 12.5
    - 1997/98: 10.0
    - 1998/99 Est.: 11.5

*Source: IMF Public Information Notice, August 18, 1999 (IMF Executive Board conclusion of Article IV consultation with Mauritius).*

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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)

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