- Real GDP growth in 2017 is projected at 3.9 percent on the back of dynamism in the construction sector.
- The authorities seek to graduate Mauritius to a high-income economy within the next ten years on the basis of an ambitious public investment program and improvements to the business climate.
- Attaining the next level of economic development will require Mauritius to use strong and independent institutions to overcome the variety of policy challenges outlined above.
An International Monetary Fund (IMF) mission led by Amadou Sy visited Port Louis and Ebène during July 31–August 15, 2017 to conduct the discussions for the 2017 Article IV consultation with Mauritius.
At the conclusion of the visit, Mr. Sy issued the following statement today in Port Louis:
“The Mauritian economy continues to be robust and staff project economic activity for 2017 to remain in line with recent trends. However, Mauritius is facing a challenging environment and vulnerabilities are rising. Options to improve resilience include: (a) rebuilding the credibility of the fiscal anchor and creating fiscal space for infrastructure and human capital investment; (b) tackling inflationary pressures by tightening monetary policy, while modernizing the monetary policy framework to strengthen the policy response to shocks; (c) addressing financial stability risks, and (d) improving competitiveness to support growth.”
“The authorities seek to graduate Mauritius to a high-income economy within the next ten years on the basis of an ambitious public investment program and improvements to the business climate. Attaining the next level of economic development will require Mauritius to use strong and independent institutions to overcome the variety of policy challenges outlined above. Early signs are promising, with both the pending formation of the National Economic Development Board, and the drafting of the Financial Sector Blueprint, important welcome steps towards harmonizing the policy direction and implementation across sectors. Considering Mauritius’ track record of reinventing its economic model, there are grounds for optimism that the country will successfully manage the reform process.”
“Real GDP growth in 2017 is projected at 3.9 percent on the back of dynamism in the construction sector. Tourism and financial intermediation activities are expected to provide support, though at a slower pace than 2016. Domestic demand will continue to be supported by recovering business and consumer confidence, and increased public investment. However, falling sugar production and subdued exports would weigh down on agriculture and manufacturing activity. The capital and financial account has proven resilient in the face of the revised Double Taxation Avoidance Agreement (DTAA) with India, mainly owing to the grandfathering clause.”
“The fiscal stance remains expansionary. The overall budget deficit stood at 3.4 percent of GDP in FY2016/17, down from 3.6 percent of GDP in FY2015/16, mostly reflecting the underexecution of the capital budget and increased tax revenue mobilization. The primary balance (excluding grants) and the overall borrowing requirement deteriorated somewhat. Total public debt remained constant at 65 percent of GDP. Staff recommends supplementing the planned fiscal consolidation with additional revenue mobilization efforts to strengthen the credibility of the fiscal anchor. Additional elements of a growth-friendly fiscal consolidation include improvements in public investment and debt management.”
“Inflation has picked up on the back of supply shocks, but there are signs of further building inflationary pressures. Headline inflation outcomes in the first half of the year surprised on the upside, and more than doubled to 5.3 percent year-on-year in July from 2.3 percent at the end of 2016, mostly driven by higher food and fuel prices, the increase in excises on tobacco and alcohol products. Headline inflation is expected to remain above 5 percent during the second half of 2017 onwards, mostly on account of second round effects.”
“Monetary policy is accommodative. The Key Repo Rate (KRR) has been kept constant at 4 percent in the last year. Nominal interest rates are at historically low levels, and real market interest rates are negative. The mission recommends tackling inflationary pressures by tightening monetary policy, while modernizing the monetary policy framework to strengthen policy response to shocks”
“The Global Business Sector is under pressure from international anti-tax avoidance initiatives. The authorities are undertaking efforts to address the concerns raised by the OECD and the EU in these matters. Prioritizing the adoption of the Blueprint for the Financial Services Sector, can help the GBC sector transition from a system based largely on tax incentives to one that provides higher value added services.”
“The overall current account deficit narrowed at the end of 2016 to 4.4 percent of GDP, reflecting strong tourism receipts and net income balances. Yet it is expected to widen over the medium-term, due to growing domestic demand, the high import component of the government’s investment program, and planned aircraft purchases. The team estimates that Mauritius’ external position at the end of 2016 was weaker than implied by medium-term fundamentals and desirable policies. Staff recommends allowing more flexibility of the exchange rate to help address the emerging imbalances, and maintaining reserve coverage at least at 100 percent of the adequacy metric to safeguard external stability.”
“Mauritius has made great strides over the last decade to top the competitiveness rankings in Sub-Saharan Africa (SSA), but still lags emerging market peers as lackluster productivity and rapid real wage growth in recent years have reduced cost competitiveness.
The recently-adopted Business Facilitation Act is a welcome step to improve Mauritius’ business environment. Broader structural reforms in areas such as the labor market including the promotion of youth and female labor participation in the labor force, higher education and innovation policies will be key drivers of Mauritius’ economic transformation going forward.”
“The mission met with Prime Minister and Minister of Finance and Economic Development, Pravind Jugnauth, Minister of Financial Services, Good Governance and Institutional Reforms, Dharmendar Sesungkur, Governor of the Bank of Mauritius Rameswurlall Basant Roi, other senior government officials, as well as the private sector, academia, and civil society. The mission would like to thank the Mauritian authorities for their excellent cooperation, and the very productive discussions. The IMF stands ready to support the authorities’ reform efforts, including through the provision of technical assistance, and looks forward to a continued and fruitful policy dialogue in the period ahead.”
Distributed by APO on behalf of International Monetary Fund (IMF).
Source: Apo-Opa
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