Numbers & Statistics

IMF Executive Board Concludes 2019 Article IV Consultation with Mauritius

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Via IMF (Den Internationale Valutafond)

On April 22, 2019, the Executive Board of the
International Monetary Fund (IMF) concluded the Article IV consultation

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with Mauritius.

The Mauritian economy continues to grow at a steady pace, benefiting
from a vibrant services sector and strong domestic demand. Real GDP
expanded by 3.8 percent in 2017 and is estimated to have grown at a
similar rate in 2018. Inflationary pressures are contained, and the
unemployment rate has fallen to about 6.9 percent. The external
balance, however, continues to deteriorate due to a rising trade
deficit in goods. International reserves have improved significantly
since 2016, supported by continued financial inflows. Monetary policy
remains accommodative, while the fiscal stance continues to be
expansionary.

A prudent stance by financial services firms and supervisory agencies
has helped to maintain financial stability. Activity in the offshore
global business sector has been broadly resilient while reforms to the
sector are underway. Notable efforts are being pursued to meet the
international anti-tax avoidance initiatives and to strengthen the
AML/CFT framework in line with the Financial Action Task Force (FATF) recommendations, though
further reforms are needed to fully meet them.

Going forward, the growth momentum is expected to continue. Real GDP
growth is projected at about 4 percent in the medium term. Without
fiscal consolidation, the authorities’ debt target of 60 percent of GDP
by FY2020/21 is unlikely to be met. Rather, public debt is projected to
stay elevated over the forecast horizon, with the debt outlook being
susceptible to a range of macro-fiscal shocks. As the revised tax
treaty with India comes into effect, the global business sector is
entering a transition phase, with efforts underway to move into
high-value added services and tap into other markets, notably in the
region.

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Executive Board Assessment

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Executive Directors welcomed Mauritius’ steady economic growth momentum
and broadly positive macroeconomic outlook. Noting the rising fiscal
and external sector vulnerabilities, Directors encouraged the
authorities to pursue prudent policies to strengthen macroeconomic and
financial resilience and to continue reforms to boost productivity and
competitiveness.

Directors underscored the need for fiscal adjustment to enhance fiscal
credibility, preserve debt sustainability, and reduce the external
imbalance. Given the public investment needs, the authorities’ debt
target of 60 percent of GDP for FY2020/21 is unlikely to be met without
a significant policy adjustment. While the authorities are considering
extending the target by two years, Directors urged a gradual fiscal
consolidation beginning with the next budget for FY2019/20 to enhance
fiscal credibility and to put public debt on a declining path.

Directors agreed that the monetary policy stance is broadly appropriate
at the current juncture. They encouraged the authorities to continue
their efforts to contain excess liquidity in the banking system.
Further modernizing the monetary policy framework by building the
necessary capacity to announce and track a medium‑term inflation
objective would help to enhance policy credibility and improve
resilience to shocks.

Directors highlighted the widening external imbalance. While
international reserves have improved significantly on the back of
strong financial inflows, given the large size of the offshore sector,
Directors agreed that the foreign exchange intervention policy should
continue to build reserves buffers as conditions permit, to strengthen
resilience to shocks.

Directors appreciated the authorities’ efforts to bolster
competitiveness by introducing effective and efficient initiatives to
improve the business climate, build innovation capacity, reduce the
skill mismatch, and increase female workforce participation.
Maintaining strong and independent institutions is essential to ensure
the country remains an attractive investment and employment
destination.

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Directors stressed the importance of implementing the outstanding FSAP
recommendations for further strengthening financial stability. They
also welcomed the steps taken to comply with the international anti‑tax
avoidance initiatives and the efforts to strengthen the AML/CFT
framework. In this context, they underscored the need to expeditiously
implement the remaining recommendations of the Eastern and Southern
African Anti Money Laundering Group (ESAAMLG). Directors also
encouraged the authorities to continue to improve data quality.




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