IMF Executive Board Concludes 2014 Article IV Consultation with Mauritius


On April, 21, 2014, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Mauritius.

A stable macroeconomic environment was maintained in 2013, despite difficult external developments. Real GDP growth was lower than expected at 3.2 percent in 2013, mainly on account of construction, sugar and tourism. With subdued international prices, inflationary pressures declined in 2013, despite the public sector wage increases, and year-on-year inflation fell to 3.5 percent. The unemployment rate was unchanged compared to 2012 at 8.0 percent. Credit to private sector growth remained robust. On the external front, the current account deficit widened to almost 10 percent of GDP in 2013. The reserve cover of imports of goods and services stayed constant at 4½ months with the Bank of Mauritius (BOM) accumulating additional net international reserves.

The fiscal policy stance was more expansionary than planned because of cyclical and one-off factors but also slippages. The structural primary deficit was broadly unchanged relative to 2011. The overall deficit including extra-budgetary funds is estimated at 4½ percent of GDP. While revenues remained broadly unchanged in proportion of GDP, expenditures increased by over 2 percent of GDP. As expected wages increased following the Pay Research Bureau’s (PRB) report, which increases civil servant salaries beyond annual inflation adjustments periodically with the next adjustment expected in 2016. Additional spending was also related to the flash floods in Port Louis as well as unplanned transfers to local governments and public enterprises. Finally, capital spending including by the special funds was 1 percent of GDP higher, though partially due to cost overruns.

Monetary policy was somewhat accommodative. Throughout the year, while a sluggish domestic demand and low international inflationary pressures helped anchor inflation expectations. The public sector wage increase related to the PRB report did not lead to strong private sector wage pressures. In this context, the BOM maintained the policy rate at 4.65 percent in September 2013 and February 2014, following a 25 basis point reduction in June 2013. In October 2013, reserve requirements were raised from 7 to 8 percent to curb excess liquidity in the banking system. The authorities continued building international reserves and used limited interventions to moderate excessive fluctuations of the rupee. The banking system remained well-capitalized and resilient in a strong regulatory context. Regulatory Tier I capital to risk-weighted assets are well above Basel II and the proposed Basel III requirements. Non-performing loans (NPL) increased slightly in 2013, but banks remained profitable with a 20 percent return on equity, despite low leverage ratios. However, liquidity ratios have worsened in recent years and are on the low side in international comparisons. BOM is consulting with banks on implementation of Basel III regulations and continued to publish its bi-annual CAMEL ratings for all domestic banks. It implemented macroprudential measures aimed at addressing emerging NPLs in the construction and real estate sectors as well as rising indebtedness. Threats to financial stability posed by a Ponzi-like scheme in 2013 were contained successfully, and the regulatory framework was subsequently improved.

Mauritius has established a track record as a reformer with strong institutions and a dynamic private sector. The Africa Training Institute (ATI) is set to open in June 2014 in Ebene. The country statistical capacity continues to be strengthened, including ongoing work on Monetary and Financial Statistics (MFS) as well as balance of payments (BOP) and international investment position (IIP) statistics. Mauritius subscribed to the IMF’s Special Data Dissemination Standard (SDDS) in February 2012, being the second Sub-Saharan African country to do so and is working on subscribing to SDDS Plus.

Executive Board Assessment2

Executive Directors agreed with the thrust of the staff appraisal. They noted that Mauritius’ prudent policies and strong institutions have delivered steady growth, well-anchored inflation expectations, and continued financial stability. The near-term growth outlook is generally favorable, but an uncertain external environment carries risks. Against this background, Directors encouraged the authorities to consolidate recent macroeconomic gains, strengthen policy buffers, and pursue greater economic diversification through structural reforms to enhance the resilience of the economy.

Directors generally considered it appropriate to start tightening fiscal policy this year to smooth adjustment and increase the likelihood that the 50 percent target for the debt-to-GDP ratio is achieved by 2018, as mandated by law. They encouraged the authorities to articulate an ambitious consolidation strategy centered on better prioritizing public expenditure, strengthening tax administration, and broadening the tax base. Subsidy reforms and an overhaul of public enterprises, as well as an improved framework for fiscal devolution, including a better use of real estate taxes, could also underpin the budgetary adjustment over the medium term.

Directors agreed that the current monetary stance is broadly appropriate, but cautioned that a withdrawal of accommodation might be necessary if inflationary pressures intensify. They also suggested strengthening the institutional and operational arrangements that would support the eventual adoption of a formal inflation targeting framework.

Directors noted that the banking system remains well-capitalized, profitable, and resilient to shocks. They observed, however, that persistent excess liquidity in the banking system has hindered the monetary transmission mechanism, while also encouraging disintermediation and riskier lending. To address this issue, Directors encouraged the authorities to consider an approach to liquidity management involving additional issuance of government paper for monetary policy purposes and—more broadly—closer collaboration between the government and the central bank. Similarly, coordination between the central bank and the nonbank supervisor should continue to be strengthened to ensure the soundness of the overall financial system.

Directors took note of the staff’s assessment that the rupee appears to be modestly overvalued in real effective terms. To bolster Mauritius’s international competitiveness and durably reduce the large structural current account deficit, they recommended greater exchange rate flexibility, well-prioritized infrastructure investment, and stepped-up reforms to address labor and product markets rigidities. Directors also agreed that the external adjustment could benefit from further pension reforms that would boost national savings while strengthening social protection.

Directors welcomed the authorities’ intention to adopt the Fund’s SDDS Plus, and supported ongoing efforts to improve the collection of financial and labor market statistics.

Mauritius: Selected Economic and Financial Indicators, 2011–14

2011    2012    2013    2014

              Est.    Proj.

National income, prices and employment

Real GDP

3.8    3.3    3.2    3.7

Real GDP per capita

3.4    2.7    2.6    3.2

GDP per capita (in U.S. dollars)

8,730    8,835    9,160    9,661

GDP deflator

4.1    3.1    3.3    3.7

Consumer prices (period average)

6.5    3.9    3.5    3.9

Consumer prices (end of period)

4.9    3.2    3.5    4.5

Unemployment rate (percent)

7.9    8.0    8.0    …

    (Annual percent change, in US Dollars)

External sector

Exports of goods and services, f.o.b.

17.9    3.8    3.7    6.0

Of which: tourism receipts

16.1    -0.8    -10.6    8.2

Imports of goods and services, f.o.b.

20.6    2.2    3.9    7.2

Nominal effective exchange rate (annual averages)

3.3    0.5    -1.3    …

Real effective exchange rate (annual averages)

6.2    1.4    -0.4    …

Terms of trade

-5.7    0.3    0.6    …

    (Annual change in percent of beginning of period M2)

Money and credit

Net foreign assets

-8.2    9.1    -2.8    8.3

Domestic credit

10.8    15.6    16.5    9.5

Net claims on government

0.1    -1.1    2.3    1.0

Credit to non-government sector 1

10.8    16.1    14.3    11.1

Broad money (end of period, annual percentage change)

6.4    8.2    5.8    7.8

Income velocity of broad money

1.0    1.0    1.0    1.0

Interest rate (weighted average T-Bills, primary auctions)

4.6    3.3    …    …

    (Percent of GDP, unless otherwise indicated)

Central government finances

Overall consolidated balance (including grants) 2

-2.5    -2.1    -4.5    -4.5

Primary balance (including grants)

0.5    0.9    -1.9    -1.7

Structural primary balance (including grants)

0.4    0.9    -1.8    -1.6

Structural primary balance (excluding grants)

-0.3    0.2    -2.2    -2.2

Revenues and grants

21.4    21.4    21.4    21.8

Expenditure, excluding net lending

23.9    23.6    25.9    26.2

Domestic debt of central government

42.6    41.0    41.0    39.4

External debt of central government

9.5    10.4    12.8    14.0

Investment and saving

Gross domestic investment

26.0    24.8    23.2    23.2


5.5    5.5    5.0    4.1


20.4    19.2    18.2    19.1

Gross national savings

12.7    17.1    14.0    13.0


-0.5    1.0    -0.5    0.0


13.3    16.1    14.5    13.0

External sector

Balance of goods and services

-13.8    -13.1    -13.1    -13.9

Exports of goods and services, f.o.b.

51.8    52.9    52.6    52.6

Imports of goods and services, f.o.b.

-65.6    -65.9    -65.7    -66.5

Current account balance

-13.3    -7.9    -9.9    -8.7

Overall balance

1.6    1.8    4.5    2.9

Total external debt 3

85.1    89.3    91.6    93.1

Net international reserves (millions of U.S. dollars)

2,631    2,851    3,112    3,481

Months of imports of goods and services, f.o.b.

4.2    4.4    4.4    4.8

Memorandum items:

GDP at current market prices (billions of Mauritian rupees)

323.0    344.0    366.4    394.2

GDP at current market prices (millions of U.S. dollars)

11,251    11,447    11,930    12,651

Public sector debt (percent of GDP)

58.6    57.9    60.0    59.1

Public sector debt (for debt law ceiling purpose) 4

54.3    53.1    55.1    54.6

Foreign and local currency long-term debt rating (Moody’s)

Baa2    Baa1    Baa1    …

Sources: Mauritian authorities; and IMF staff estimates and projections.

1 Includes credit to parastatals.

2 GFSM 2001 concept of net lending/net borrowing; includes special and other extra budgetary funds.

3 Numbers were revised to include debts of deposit taking institutions and SDR allocation in 2009.

4 For the purposes of calculating the public debt ceiling, the 2008 Public Debt Management Act allows for the discounting of certain types of state-owned enterprise debt.

1 Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: