An International Monetary Fund (IMF) mission led by Mauro Mecagni visited Port Louis on December 2–16, 2015 to conduct the discussions for the 2015 Article IV consultation with Mauritius.
At the conclusion of the visit, Mr. Mecagni issued the following statement:
“The Mauritian economy has remained resilient in 2015, despite some difficult domestic developments and the volatility affecting other emerging and frontier markets. The economy continued to grow at the respectable rate of over 3 percent in per capita terms, and inflation fell to an historical low (1 percent in November 2015). The fiscal deficit for the first half of the year was lower than projected, although public debt rose due to the injection of public capital in two banks, and the impact of the rupee depreciation on external debt. Excess domestic liquidity was significantly reduced; the external current account deficit has declined; and international reserves have risen to the equivalent of over 6 months of imports.
“The main challenges for 2016 and beyond pertain to reducing public debt through a growth-friendly and pro-poor medium-term fiscal consolidation effort; further increasing the resilience of the financial sector by strengthening the macro-prudential oversight framework ; and addressing the reforms needed to transition to high-income status, in particular with a view to improving productivity and competitiveness. Addressing infrastructure bottlenecks, skill mismatches and gender inequality in the labor market will also be important.
“The medium-term outlook is favorable if sound policies continue to be implemented. The implementation of new public investment programs would catalyze private investment and help to raise GDP growth to close to 4 percent in 2016 and beyond, with rates of inflation below 3 percent. Higher imports associated with these investment programs are likely to widen the current account deficit to some 6–6.5 percent of GDP. International reserves are nonetheless projected to strengthen gradually, supported by continued capital inflows as Mauritius seeks to leverage its financial sector as a hub to channel significant investments to Africa and Asia.
“The 2015/16 fiscal stance accentuates the expansionary trend of recent years, and fiscal space needs to be created to implement the government’s ambitious investment program while reducing public debt in the medium term. Reduction of subsidies, better targeting of social assistance programs and improved efficiency in public enterprises could yield significant gains in tilting the composition of government expenditure toward infrastructure, human capital development spending and pro-poor programs. There is also scope to increase revenues, including by reducing tax exemptions and further broadening the tax base. The mission welcomes the authorities’ continued commitment to fiscal transparency, as evidenced by the decision to gradually eliminate special funds by 2018, and the ongoing preparation for divestiture of assets targeted at debt reduction.
“Given the low inflation environment, the current monetary policy stance is broadly appropriate. The mission welcomes the Bank of Mauritius’ successful efforts in mopping up excess domestic liquidity in the banking system, and concurs with the authorities that this process should continue at an appropriate pace in order to enhance the responsiveness of market interest rates to changes in the monetary policy rate. The authorities are also committed to strengthening financial sector supervision, improving the regulatory framework, and further deepening coordination among regulatory agencies in order to boost the resilience of the financial sector to both domestic and external shocks.
“Going forward, further reforms need to be implemented to take the next leap in development. These include measures to stimulate female labor force participation, which would help mitigate the effect of the projected decline in Mauritius’ labor force in the next decades; investments in interconnectivity, transportation and communication; and strengthening the institutional framework to lower the cost of doing business and preserve Mauritius’ hard-earned macroeconomic and financial stability.
“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.”
The mission met with Prime Minister Anerood Jugnauth, Vice Prime Minister and Minister of Tourism and External Communication Xavier-Luc Duval, Minister of Finance and Economic Development Seetanah Lutchmeenaraidoo, Governor of the Bank of Mauritius Rameswurlall Basant Roi and other senior officials as well as the private sector, academia and civil society.