Mauritius Staff Report
Mauritius Staff Report
Mauritius Staff Report
EXECUTIVE
BOARD
MEETING
SM/19/75
April 8, 2019
Publication: Yes*
*Unless an objection from the authorities is received prior to the conclusion of the Board’s consideration,
the document will be published.
MAURITIUS
MAURITIUS
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION
April 4, 2019
KEY ISSUES
Context. Mauritius is pursuing an ambitious strategy—centered around upgrading the
infrastructure, promoting diversification, and spurring private investment—to foster
inclusive growth and reach the high-income country milestone. Several structural
challenges, notably, a shortage of suitably skilled workers, an aging population, and
declining productivity and cost competitiveness confront Mauritius in meeting these goals.
Moreover, speedy compliance with international anti-tax avoidance initiatives and AML/CFT
standards is necessary to remain an attractive investment destination. Notable efforts are
underway to address these challenges.
Outlook and Risks. The economy is expected to continue expanding at a steady pace, with
real GDP growth projected at about 4 percent in the medium term. The fiscal stance remains
expansionary and public debt is projected to stay elevated over the forecast horizon. The
current account deficit is expected to widen further in the near term before stabilizing at
about 5 percent of GDP. Key risks to the outlook stem from a tightening of global financial
conditions, a growth slowdown in major partners, and a contraction in the activity of the
offshore business sector.
Focus of the Consultation. Discussions during the 2019 Article IV consultation focused on
preserving fiscal sustainability, regaining external competitiveness, and maintaining financial
integrity and stability.
Main Policy Recommendations.
• Pursue fiscal consolidation from the forthcoming budget FY2019/20 to build fiscal
credibility and set public debt firmly on a declining path into the medium term.
• The current monetary policy stance is broadly appropriate, but vigilance is warranted
against any emerging inflationary pressures.
Approved By Discussions took place in Port Louis and Ebène during January 16–30,
2019. The staff team comprised Ms. Mahvash Qureshi (head), Messrs.
David Owen (AFR)
Sandesh Dhungana, Lennart Erickson, Salifou Issoufou, and Torsten
and Kevin Fletcher
Wezel (all AFR). Mr. David Owen (AFR) and Mr. Kelvio Carvalho da
(SPR)
Silveira (OED) participated in some of the meetings. Mmes. Raveesha
Gupta and Danielle Bieleu (both AFR) provided support from
headquarters. The mission met with the Prime Minister and Minister of
Finance and Economic Development, the Honorable Mr. Pravind
Jugnauth, senior officials, parliamentarians, and representatives of the
private sector, academia, unions, and the donor community.
CONTENTS
CONTEXT_________________________________________________________________________________________ 4
BOXES
1. Update on International Tax Transparency and Anti-Tax Avoidance Initiatives _________________ 8
2. Unlocking Structural Transformation in Mauritius _____________________________________________ 16
3. Key Deficiencies in the AML/CFT Framework Identified by ESAAMLG _________________________ 17
FIGURES
1. Real Sector Developments, 2013–19 __________________________________________________________ 21
2. External Sector Developments, 2013–18 _______________________________________________________ 22
3. Fiscal, Financial, and Institutional Indicators, 2013–2018 ______________________________________ 23
TABLES
1. Selected Economic and Financial Indicators, 2015–24 _________________________________________ 24
ANNEXES
I. Risk Assessment Matrix ________________________________________________________________________ 30
II. Debt Sustainability Analysis ___________________________________________________________________ 31
III. External Debt Sustainability Analysis __________________________________________________________ 41
IV. External Sector Assessment ___________________________________________________________________ 45
V. Status of Implementation of Key FSAP Recommendations ____________________________________ 51
VI. Summary of the Capacity Development Strategy _____________________________________________ 52
VII. Status of the 2017 Article IV Consultation Main Recommendations__________________________ 54
APPENDICES
I. Financial Conditions Index for Mauritius _______________________________________________________ 55
II. Mauritius as a Financial Center: Current Standing and Prospects ______________________________ 57
III. Private Savings in Mauritius___________________________________________________________________ 64
IV. Draft Press Release ___________________________________________________________________________ 66
CONTEXT
1 Mauritius is a small open economy that has shown remarkable resilience and agility
over the years to become an upper middle-income country. Political stability and strong
institutions have helped to maintain macroeconomic Human Development Index, 1990-2017
1.0 20
stability and make major strides in economic and 0.8
15
human development. An ambitious strategy— 0.6
2. Several challenges confront Mauritius in meetings its ambitious goals. Since its
independence five decades ago, Mauritius has achieved a remarkable transformation from a
monocrop economy to a sophisticated services-oriented economy. However, efforts to diversify
further and move up the value chain are hampered by several structural challenges—notably, a
shortage of suitably skilled workers, an aging population, and declining cost competitiveness and
productivity. Public investments to upgrade infrastructure have resulted in an elevated debt level
and a growing external imbalance. Moreover, speedy compliance with international anti-tax
avoidance initiatives and AML/CFT standards is necessary to remain an attractive investment
destination.
3. Efforts are underway to address these challenges. Several steps have been undertaken
to boost skill development, improve the business climate, and build innovation capacity.
Compliance with international anti-tax avoidance initiatives has made significant progress, while
identified areas for improvement in the AML/CFT framework are being addressed.
percent in 2017 to 3.2 percent in 2018 (Figure 1). Source: Statistics Mauritius.
Note: Primary=agriculture and mining; services=wholesale and retail trade, tourism, ICT,
financial and insurance activities.
5. The current account deficit has widened, but the overall balance of payments has
remained in surplus. The current account deficit (CAD) jumped from 4 percent of GDP in 2016
to 5.6 percent of GDP in 2017, largely reflecting a deteriorating trade balance of goods. It is
estimated to have widened further to 6.2 percent of GDP in 2018, despite improvements in net
exports of services and the income account. Large financial inflows—in particular, foreign direct
investment (FDI) into the offshore and real estate sectors—more than covered the CAD in 2017–
18, resulting in an overall balance of payments (BOP) surplus and an increase in official foreign
exchange (FX) reserves of about US$1.4 billion between end-2016 and end-2018 (Figure 2).
Mauritius: Current Account Balance, 2015Q1-2018Q3 Mauritius: Financial Account Balance, 2015Q1-2018Q3
(In Million USD) (In Million USD)
800 5000
600 4000
400 3000
200 2000
0 1000
0
-200
-1000
-400
-2000
-600
-3000
-800
-4000
-1000
Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 -5000
Goods Services
Direct investment Portfolio investment
Primary income balance Secondary income balance
Other investment Reserve assets
Net errors and omissions Financial account
Source: Mauritian authorities.
Note: The financial account is presented in BPM5 terms with positive values indicating inflows.
6. The nominal and real effective exchange rates have appreciated considerably since
2016. In cumulative terms, the nominal and real effective exchange rate have appreciated by
about 3 and 5 percent, respectively, since 2016 (Figure 2). The average pace of appreciation,
however, slowed down in 2018 relative to 2017, partly because of sustained foreign exchange
intervention. The Exchange Rate Support Scheme introduced by the authorities in September
2017 to provide a temporary subsidy to exporters was removed in March 2018, ending a multiple
currency practice.
80
0
40
-4 0
2016M1 2016M6 2016M11 2017M4 2017M9 2018M2 2018M7 2018M12 2016M1 2016M6 2016M11 2017M4 2017M9 2018M2 2018M7 2018M12
Sources: IMF Information Notice System database; Bank of Mauritius; and IMF staff calculations.
7. The fiscal outturn for FY2017/18 was broadly in line with the budget. The central
government’s total revenue for FY2017/18 was lower than budgeted (by about 2.5 percent of
GDP) due to lower than anticipated nontax revenues and external grants. The shortfall was,
however, more than offset by restraint in current spending and under execution of capital
spending that led to a smaller fiscal deficit (by 0.3 percent of GDP) than budgeted. While public-
sector debt grew by 3 percent in nominal terms, the public debt-to-GDP ratio declined to 63.7
percent by end-FY2017/18 from 65.0 percent in end-FY2016/17.1 Based on the fiscal outturns for
the first half of FY2018/19, the overall fiscal deficit for FY2018/19 is also estimated to be 0.3
percent of GDP smaller than budgeted, while public debt is expected to rise to 64.9 percent of
GDP by end-FY2018/19 owing to increased external borrowing by state-owned enterprises to
finance investment spending.
8. Monetary policy remains accommodative. The Key Repo Rate (KRR) has remained at a
historically low level of 3.5 percent since September 2017, while broad money growth has been
fairly stable. In line with previous recommendations, the Bank of Mauritius (BOM) has undertaken
substantive efforts to contain excess liquidity in the banking sector by issuing securities and
sterilizing proceeds from FX intervention. As a result, the targeted 91-day public sector bill rate
has moved within the KRR corridor (Figure 3).
9. Bank lending has continued to recover amid Private Sector Credit Growth, 2016M1-2018M9
(In Percent)
improving financial conditions. Credit to the private 15
10. Financial soundness indicators point to continued financial sector stability. Bank
capital is well above the regulatory minimum, and banks meet enhanced liquidity requirements
under Basel III (i.e., the new liquidity coverage ratio (LCR), including in foreign currency). Banks
have increased exposure to the region, and the BOM has strengthened cross-border supervision
and cooperation with foreign supervisors. The non-performing loan (NPL) ratio has declined from
7.8 percent at end-2016 to 6.4 percent at end-2018Q3 and will fall further with the transfer of a
majority of state-owned Maubank’s NPLs to a special purpose vehicle and the requirement for
banks to accelerate write-offs, in line with previous recommendations. BOM stress tests using
severe scenarios proposed by staff suggest that banks’ capital is adequate to absorb sizable
shocks to NPLs, while liquidity and market risks also appear manageable. Non-bank financial
institutions have been growing by double digits, spurred by pent-up demand for pension and
1
Public-sector debt is defined as debt of the central government and nonfinancial state-owned enterprises.
insurance services, and are being monitored for stability risks by the Financial Services
Commission (FSC).
11. Initiatives to foster financial inclusion are Mauritius: Accounts in Financial Institutions
(In Percent)
underway. The BOM has opened the secondary 100 2011 2014 2017
80
market for government paper to small investors, 60
launched financial literacy programs and proposed 40
12. Activity in the offshore global business sector has been broadly resilient. Ahead of
the expiry in end-March 2019 of the grandfathered tax benefit under the revised tax treaty with
India, performance of the global business sector has remained steady—not least because of the
growing importance of Mauritius as a regional investment hub. Estimates show that FDI into
Africa from Mauritius doubled during 2012–17, and a majority of the new Global Business License
(formerly Category 1 Global Business License, GBC1) applications in 2017 targeted Africa.
10
20
8
15
6
10
4
5
2
0 0
2012 2013 2014 2015 2016 2017 2015 2016 2017 2018
15
400
300 10
200
5
100
0 0
2016 2017 2018 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3
13. Notable steps have been taken to meet the international anti-tax avoidance
initiatives. Significant reforms related to the global business sector were introduced in 2018 to
comply with the OECD/EU anti-tax avoidance initiatives (Box 1). Consequently, in November
2018, the OECD concluded that Mauritius meets the requirements of the Base Erosion and Profit
Shifting (BEPS) Action 5 and does not have any harmful features in its tax regimes. Moreover,
Mauritius has placed all its applicable tax treaties under the coverage of the OECD’s Multilateral
Instrument, with the ratification process establishing new provisions expected to be completed
by end-2019. The EU, as part of its own tax transparency initiative, has expressed some concerns
about the new tax regime, which the authorities have indicated their commitment to address by
end-2019.
15. External imbalances are expected to widen in the near term. The CAD is projected to
increase to about 7 percent of GDP in 2019–20 owing to lackluster merchandise export
performance and higher imports associated with public infrastructure projects, as well as the
planned aircraft purchases by the state-owned airline. It is expected to decline to about 5 percent
of GDP over the medium term on the back of lower projected oil prices and capital imports, while
being fully financed by financial inflows.
16. The fiscal stance will remain expansionary, as several initiatives are undertaken to
boost employment and growth. Staff’s baseline scenario presumes a fiscal deficit in FY2019/20
of a similar magnitude as in FY2018/19 (about 3 percent of GDP), as election-related spending
pressures are likely to preclude fiscal consolidation.2 At the same time, increased borrowing for
public capital spending is projected to push public debt to 67.5 percent of GDP by end-
FY2019/20 and to 67.8 percent of GDP by end-FY2020/21. Thereafter, public debt is projected to
decline gradually to about 63 percent of GDP by end-FY2024/25 as public spending tails off.
17. The vibrant global business sector is entering a transition phase. With the expiration
of the tax benefit granted by India, some equity investment may channel through other global
financial centers with specific locational advantages. Nevertheless, Mauritius could become an
important source of debt investment into India as a tax benefit for such flows is retained in the
renegotiated treaty. Moreover, Mauritius is also becoming a gateway for investment flows into
Africa—though the volume of such transactions is presently smaller than flows to India
(Appendix II). The future growth of the sector hinges on how quickly it can tap into other markets
and diversify into high-value added services to remain globally competitive.
18. The outlook is exposed to several types of risks. Being a small open economy,
Mauritius is highly vulnerable to adverse external shocks (Annex I). Key risks include a tightening
of global financial conditions that could reduce financial inflows and threaten macro-financial
stability; a growth slowdown in major partners that could affect exports and financial flows; and
higher commodity prices that could exacerbate the external imbalance. On the domestic front,
given the strong macro-financial linkages (see Appendix I), a slowdown in the global business
sector could pose a downside risk to the outlook. Economic growth could, however, surprise on
the upside if the initiatives to support SMEs, youth skill development, and female labor force
participation (FLFP) spur private investment and employment.
POLICY DISCUSSIONS
Mauritius’ key economic challenge is to boost economic growth, while preserving fiscal
sustainability, regaining external competitiveness, and maintaining financial integrity and stability.
The policy discussions thus focused around these priority areas.
2
The next general elections in Mauritius will be held before May 2020.
19. On current policies, the public statutory debt target will be missed. The
expansionary fiscal stance in FY2018/19 deviates from the medium-term fiscal framework
announced with the FY2017/18 budget, which projected a consolidation through FY2020/21 to
meet the statutory public debt target of 60 percent of GDP by the end of FY2020/21. While the
FY2018/19 budget also foresees a fiscal consolidation (a smaller primary deficit averaging 0.4
percent of GDP) in FY2019/20 and FY2020/21 to meet the target, its projected adjustment is
based on public debt statistics that do not fully factor in borrowing outside of the central
government. Meeting the debt target on schedule thus requires a much larger consolidation
than envisaged in the FY2018/19 budget.
20. The authorities are considering extending the deadline to meet the debt target.
Given the large adjustment required to meet the debt target by FY2020/21 (a primary surplus
averaging about 2.2 percent of GDP; Text Table 1: Adjustment scenario 1), which could
potentially disrupt efforts to upgrade infrastructure and boost long-term growth, the authorities
are considering extending the timeline to meet the debt target two years later in FY2022/23. In
staff’s view, while such an extension seems warranted in current circumstances, fiscal
consolidation while protecting the social safety net should be pursued from the forthcoming
budget (FY2019/20) to bolster the credibility of the government’s fiscal plans and to put public
sector debt firmly on a declining path into the medium term.
21. Gradual fiscal consolidation appears feasible to reach the revised debt target.
Under the baseline scenario, which presumes borrowing for aircraft purchases in the near term, a
primary balance adjustment of about 0.5 percent of GDP in FY2019/20 and 0.8 percent of GDP a
year thereafter appears feasible to achieve the debt target of 60 percent of GDP by FY2022/23
(Text Table 1: Adjustment scenario 2). If the aircrafts were to be leased, as is an option discussed
by the authorities during the mission, public debt would be lower by about 1-2 percent of GDP in
the near term than in the baseline, and the pace of adjustment could be modestly slower.
Recently, the authorities have also indicated the possibility of postponing the aircraft purchases
to FY2022/23, which would imply lower debt levels and financing needs in the near term but
would require a similar adjustment as in scenario 2 (Text Table 1) to reach the debt target of 60
percent of GDP by FY2022/23. The choice among these various options should be based on
longer-term considerations (that is, the most beneficial option in net present value terms).
• Mobilize domestic revenue, notably, through higher excise taxes on alcohol, tobacco, and
luxury items; imposition of toll taxes on repaired/new roads; increase in the solidarity levy;
introduction of property taxes; streamlining the tax incentive framework; and improvements
in tax auditing efficiency.
• Rationalize spending by better targeting social spending and subsidies; allowing subsidies to
support the national minimum wage implementation to lapse as scheduled; reining in wage
growth; and reforming the national pension system.
Baseline: 1
Consolidated fiscal balance -3.7 -3.3 -2.9 -3.0 -3.0 -2.9 -2.9 -2.9 -2.8
Primary fiscal balance (excl. grants) -1.4 -1.5 -1.0 -1.8 -1.8 -1.6 -1.6 -1.6 -1.6
Public sector debt 65.0 65.0 63.7 64.9 67.5 67.8 66.7 65.4 64.4
23. A decline in public debt over the medium term will help to safeguard
macroeconomic stability and create room to respond to shocks. The Debt Sustainability
Analysis (DSA) under the baseline scenario indicates
Mauritius: Old-Age Dependency Ratio
that Mauritius’ public debt level is sustainable, but the (In Percent)
40
outlook is susceptible to a range of macro-fiscal shocks Projected old age dependency ratio (20-yrs. ahead)
Elderly population
(Annex II). While the maturity structure of public debt is 30 Projected elderly population ratio (20-yrs. ahead)
24. Improvements in fiscal transparency and public investment management will also
help to preserve debt sustainability. Enhancing fiscal transparency by moving towards general
government reporting and implementing the International Public Sector Accounting Standards
(IPSAS) will bolster credibility and help to maintain sustainability. Steps taken to improve public
investment efficiency (including the establishment of project monitoring and coordination
ministerial committees) are welcome, but there remains room for improvement in line with the
2017 Public Investment Management Assessment (PIMA) recommendations. Transparency in the
public procurement process could also be strengthened by clarifying the processes and
outcomes—including those for special purpose entities.
Authorities’ Views
25. The authorities’ agreed with the thrust of staff advice. While extension of the timeline
to meet the debt target by FY2022/23 is under consideration, options to mobilize revenue and
streamline expenditure to support consolidation are being explored. On IPSAS implementation,
the authorities indicated their full commitment to follow the roadmap and implement the
standards by FY2022/23. Along with several departmental technical committees, a steering
committee has been created at the Ministry of Finance and Economic Development (MOFED) to
oversee IPSAS implementation.
26. The current monetary policy stance appears broadly appropriate against the
backdrop of subdued inflation. With inflationary pressures contained, the accommodative
monetary policy stance remains appropriate at the current juncture. However, given the nearly
closed output gap and upside risks to inflation, vigilance is warranted against emerging
inflationary pressures.
Mauritius: Banks' Excess Liquidity, 2015M3-2018M12
27. Efforts to contain the level of excess liquidity (In Billion MUR)
40
in the banking system are welcome and should Foreign currency
Mauritian Rupees
below the end-2017 level, and the gap between the KRR 10
and the money market rates (91-day bill rate and the
overnight interbank rate) narrowed (Figure 3).3 While 0
19-Mar-15 19-Mar-16 19-Mar-17 19-Mar-18
issuance of securities to absorb liquidity entails costs for Source: Bank of Mauritius.
Note: Foreign currency (FC) refers to Mauritian Rupees equivalent of foreign
the BOM, the alignment of the money market rate with currencies. The increase in banks' excess FC holding since November 2017
corresponds with the implementation of the Liquidity Coverage Ratio.
3
Banks’ excess liquidity comprises both domestic and foreign currency, but the increase in the latter since November 2017 is
largely a consequence of the introduction of the LCR by the BOM. To manage excess liquidity, the BOM has been focusing on
the 91-day bill yield (at issuance) as its operating target, as opposed to the interbank rate which is the announced operational
target. The BOM views the 91-day bill rate as an appropriate target since excess liquidity has been successfully managed by
sustaining the level of the 91-day bill rate consistent with the KRR. The BOM indicated that it is monitoring developments in
both the 91-day bill and the interbank rates to assess their sustainability before formalizing the choice of the operational target.
the policy rate is important to improve the operational efficiency of monetary policy. In line with
previous staff recommendations, staff encouraged the MOFED and the BOM to reach a tractable
agreement on financing the costs of these monetary policy interventions.
28. Staff discussed the potential benefits of a more forward-looking monetary policy
framework. The current monetary policy framework of implicit inflation targeting (IT) has served
Mauritius well, but moving toward a more formal framework with a clearly defined medium-term
inflation objective could help to enhance monetary policy credibility and better anchor inflation
expectations, thereby providing greater flexibility to respond to shocks. While several elements
for formal IT are already in place, efforts should focus on determining the appropriate medium-
term inflation target (and the band around it), further strengthening the BOM’s forecasting
capacity, and setting up institutional mechanisms (particularly for transparency and
accountability) to effectively implement the framework.
Authorities’ Views
29. The authorities broadly agreed with staff assessment that monetary policy should
remain cautiously accommodative and respond to inflation developments. On banks’ excess
liquidity, the BOM indicated that a large part in foreign currency corresponds to the LCR, while
that in domestic currency partly reflects banks’ precautionary holdings. Given the alignment of
the KRR and the money market rate, the BOM plans to focus on managing liquidity to meet
demand from banks. The BOM reiterated its concerns about the costs associated with open
market operations and sterilized FX intervention, and the desire to have in place a cost-sharing
arrangement with MOFED, but the details of such a mechanism remain to be worked out. The
authorities saw merit in modernizing the monetary policy framework but provided some caveats
regarding adoption of a formal IT regime—including practical difficulties in determining the
optimal inflation target.
30. The deteriorating external competitiveness warrants attention. Staff’s external sector
assessment suggests that Mauritius’ external position at end-2017 was substantially weaker than
implied by medium-term fundamentals and desirable policy settings (Annex IV). While the
estimates of the current account gap obtained from the EBA-lite methodology are subject to
considerable uncertainty, not least because of Mauritius’s status as a global financial center,
other approaches and indicators also point to a substantially weak external position. The CAD is
estimated to have widened further in 2018, implying a similar assessment.
31. International reserves stand within the advisable range of the adjusted reserve
adequacy metric. International reserves have improved since 2016 and, at about 120 percent of
the adjusted reserve adequacy metric, are in the middle of the advisable range. Given the large
size of the offshore sector, however, FX intervention policy should continue to opportunistically
build reserves to further strengthen resilience.
Advancing Reforms
education and training, labor market efficiency, and Sub-Saharan Africa (SSA)
Other GFCs
SSA: Upper-middle income
institutional quality. These gaps manifest in Source: World Economic Forum, IMF staff calculations.
Notes: Index ranges from 1 (lowest) to 7 (highest). Statistics for comparator groups are averages.
unfavorable productivity and diversification trends SSA upper-middle income=Nonoil exporting upper-middle income countries of sub-Saharan
Africa. Other GFCs=Other financial centers (Hong Kong SAR, Ireland, Luxembourg, Singapore,
33. Steps taken to improve the business climate and facilitate structural transformation
are welcome, but more could be done to improve effectiveness. In recent years, several
initiatives and reforms have been introduced to improve the business climate, build innovation
capacity, and move into higher value-added sectors—including introduction of the Business
Facilitation Act 2017, development of a Financial Sector Blueprint, and creation of the National
Economic Development Board to promote private investment and exports. In addition, several
incentives to support SMEs, youth skill development, and FLFP have been put forward. However,
there remains room to:
• Improve synergies between the various initiatives and coordination among the stakeholders
to enhance the effectiveness of reforms.
• Conduct regular monitoring and evaluation of the initiatives to track progress and prevent
wastage of public resources.
• Generate greater awareness about the initiatives among the targeted groups and make
information easily available.
Gross Enrollment Ratio, 2013-17
(In Percent)
34. Structural transformation requires 120
Other GFCs Mauritius SSA
The authorities’ focus on skill development is a step in the Sources: World Bank's World Development Indicators and IMF staff
calculations.
right direction, which could be made more fruitful by Notes: SSA=Sub-Saharan Africa. Other GFCs=Other global financial
centers (Hong Kong SAR, Ireland, Singapore, Sw itzerland). Values
are period averages.
conducting regular establishment surveys to better identify and address the skill needs across
the economy. Strengthening partnerships with leading international academic and research
institutions could also help to foster skills and knowledge sharing.
35. Broader reforms in the labor market will help to improve cost competitiveness. Real
wages have generally outpaced labor productivity in the export-oriented sector in Mauritius. The
current salary compensation mechanism—based on annual changes to the cost of living
negotiated by the government, trade unions, and businesses—could be improved to better align
productivity with real wages. The national minimum wage introduced in 2018 is an important
step toward safeguarding social objectives, but its impact on SME competitiveness and job
creation should be monitored to strike the right balance. Furthermore, while FLFP has improved
in recent years, it remains well below peers. Given the high education level among females,
bolstering their workforce participation will help to alleviate labor supply constraints and reduce
the economy’s skill gap. In this context, efforts should be made to better understand the reasons
for the limited FLFP across the different age groups/education levels to improve the targeting
and design of programs aimed at boosting FLFP.
Mauritius: Labor Productivity and Unit Labor Costs Mauritius: Productivity Growth in Export Sector
(Index, 1982=100) (In Percent)
1000 15
Labor Productivity
Unit Labor Costs 10
800
Labor Productivity: EOEs
Unit Labor Costs: EOEs 5
600
0
400
-5
200
-10
Multifactor Productivity Growth
Multifactor Productivity Growth-3 yr MA
0 -15
1982 1989 1996 2003 2010 2017 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
Female to Male Labor Force Participation Ratio Mauritius: Gross Enrollment Ratio, 2013-17
(In percent) (In Percent)
100 Other GFCs Sub-Saharan Africa 120
Female Male
Mauritius SSA: Upper middle-income
100
80
80
60
60
40
40
20
20
0 0
1990 1994 1998 2002 2006 2010 2014 2018 Primary Secondary Tertiary
Sources: Statistics Mauritius, World Bank's World Development Indicators, and IMF staff calculations.
Notes: SSA=Sub-Saharan Africa. Other GFCs=Other global financial centers (Hong Kong SAR, Ireland, Singapore, Switzerland).
36. Strong and independent institutions are key to overcoming policy challenges.
Mauritius has a track record of good governance and strong institutions, but recent years have
seen a slight deterioration in some aspects of institutional quality indicators, including an
increase in the perception of corruption. Staff urged the authorities to maintain strong and
independent institutions to remain an attractive investment and employment destination.
Improving fiscal transparency and strengthening the AML/CFT framework could help to improve
public perceptions regarding corruption (see ¶24 and ¶41). The recent adoption of the
Declaration of Assets Bill, which extends the scope of the assets to be declared and the
categories of public officials obliged to declare their assets, is a welcome step and should be
effectively implemented.
co-ordination externalities (i.e., new economic activities often Source: Statistics Mauritius and IMF staff
overcome the externalities. In the near term, a pragmatic Sources: Harvard CID and IMF staff calculations.
Note: SSA=Sub-Saharan Africa; Regional peers=Non-oil
strategy would entail focusing on value upgrading in the exporting SSA countries (Botswana, Namibia, South Africa);
Other GFCs=Ireland, Singapore, Sw itzerland, UAE.
traditional sectors to spur productivity and transformation.
Bolstering Savings
37. From a saving-investment perspective, the external imbalance over the last decade
has been driven by a decline in national savings, including private savings. While fiscal
consolidation will contribute to raising national savings and reducing the large CAD, staff analysis
shows that the private saving rate is also around 3 percent of GDP lower than potential, given
Mauritius’ economic and structural characteristics (Appendix III). Economic growth would help to
boost private savings, but a rapidly rising old-age dependency ratio requires a higher level of
savings to alleviate fiscal pressures and avoid abrupt policy adjustments in the future. In this
regard, efforts should focus on increasing public awareness of the importance of savings,
encouraging private savings, e.g., through old-age related saving schemes, and reforming the
national pension system in line with previous recommendations (IMF Country Report 14/107).
Authorities’ Views
AML/CFT Framework
40. Mauritius has undertaken substantial steps to address its AML/CFT deficiencies. In
2018, it amended its AML Law to include, inter alia, customer due diligence (CDD) requirements
for reporting entities, enhanced obligations pertaining to politically exposed persons and group-
wide internal controls, and new provisions relating to the gathering and maintenance of
beneficial ownership information. To improve understanding of ML/TF risks, Mauritius has
undertaken a National Risk Assessment (NRA) to be finalized in 2019. It has also initiated piloting
a risk-based plan of AML/CFT supervision of banks. To address shortcomings in the CDD of
reporting agencies and in the availability and accuracy of the beneficial ownership information
on legal persons and arrangements, a centralized know-your-customer system is being
developed.
Financial Supervision
42. Outstanding issues in the financial supervisory and regulatory frameworks need to
be addressed. While several recommendations of the last FSAP have been adopted (Annex V),
other recommendations—including implementation of risk-based and consolidated supervision,
adoption of the remaining Basel III instruments, legal changes to upgrade the financial safety net,
and establishing a macroprudential authority—should also be followed. As the loan-to-value
ratio was effectively suspended in mid-2018, staff advised close monitoring of credit and
property market developments to periodically evaluate the need for its re-introduction.
Fintech Development
43. Mauritius aspires to become a regional hub for fintech activities. A regulatory
sandbox licensing (RSL) regime for fintech start-ups has already been set up, along with a
National RSL Committee to coordinate and assess all fintech-related RSL applications. Within the
fintech domain, the authorities are initially focusing on activities relating to digital assets, but a
more detailed fintech strategy, including for mobile money and payments, should be informed
by an assessment of comparative strengths and limitations (Appendix II).
44. Adequate AML/CFT safeguards should be put in place for fintech-related activities.
Specifically, when adopting regulation on services in digital assets, as was recently done for
custodian services, AML/CFT risks should be evaluated and addressed. Proper safeguards relating
to CDD and beneficial ownership of digital assets should be established, which will be facilitated
by the ongoing work on the centralized know-your-customer system.
Authorities’ Views
45. The authorities agreed with the importance of expeditiously meeting ESAAMLG
recommendations and upgrading financial regulation. They highlighted the significant steps
taken to address the identified weaknesses in the AML/CFT framework and expressed
commitment to remedy the remaining deficiencies, including with technical assistance from
international institutions. They broadly agreed with the recommendations on financial sector
regulatory reforms, some of which have been implemented and others are in progress. They
contended, however, that the current arrangement of committees coordinating macroprudential
policies across the regulatory bodies has served them well and that there is no pressing need to
create a macroprudential authority.
OTHER ISSUES
46. Data provision is broadly adequate for surveillance, but there is room for
improvement. The ongoing efforts of Statistics Mauritius to improve the national accounts data
following TA recommendations are welcome (Annex VI). Further progress is warranted to validate
the GBC1 annual survey data quality, improve its timeliness, and set a revision policy.
STAFF APPRAISAL
48. The macroeconomic outlook is broadly positive, but vulnerabilities remain. Growth
is projected at about 4 percent in the medium term, driven by robust performance in the
construction and services sectors. Unemployment is expected to decline further, while
inflationary pressures are likely to remain contained. The CAD is projected to widen in 2019–20,
before stabilizing at around 5 percent of GDP. Risks to the outlook stem from changes in both
global and domestic conditions and are mostly tilted to the downside.
50. The monetary policy stance is broadly appropriate. Efforts to contain excess liquidity
in the banking system should continue. The monetary policy framework could be modernized
further by building the necessary capacity and institutional arrangements to announce and track
a medium-term inflation objective, which will help to enhance policy credibility and improve
resilience to shocks.
51. The widening external imbalance needs attention. Staff’s analysis indicates that the
external position of Mauritius is substantially weaker than implied by medium-term fundamentals
and desirable policy settings. While international reserves have improved significantly supported
by financial inflows and are within the advisable range, given the large size of the offshore sector,
FX intervention policy should continue to opportunistically build reserves buffers to strengthen
resilience to shocks.
54. The steps taken to comply with the international anti-tax avoidance initiatives are
welcome. The progress made in compliance with international anti-tax avoidance initiatives and
the conclusion by the OECD that Mauritius does not have any harmful features in its tax regimes
are notably positive developments. The remaining requirements to meet international standards
should also be swiftly implemented to strengthen Mauritius’ image as a globally competitive
financial center.
56. Staff recommends that the next Article IV consultation takes place in the standard
12-month cycle.
Figure 1.1.Mauritius:
Figure Mauritius: Real SectorDevelopments,
Real Sector Developments, 2013–19
2013-19
Contribution to Real GDP Growth: Expenditure Side Contribution to Real GDP Growth: Supply Side
(In Percent) (In Percent)
10 5
8
4
6
3
4
2 2
0
1
-2
-4
0
-6 -1
2013 2014 2015 2016 2017 2018 2019 2013 2014 2015 2016 2017 2018 2019
Agriculture and mining Manufacturing
Con su mption In vestment
Ut ilit ies Con st ruct ion
In vent ories Net exports Services Taxes
Statistical discrepancy Real GDP growth Statistical discrepancy Real GDP
40
200
7.0
100 20
0 0 6.5
2013 2014 2015 2016 2017 2018Q3 2013 2014 2015 2016 2017 2018
Male
Primary Services Manu facturing and constru ction
Female
Tot al un employment (right-axis)
6 4
4
2
0
2
-2
0
Food and non- alcohol Transport
Apr-1 7 Aug-17 Dec-1 7 Apr-1 8 Aug-18 Dec-1 8 Housing, water, and fue ls Alcohol and toba cco
Furnishings and maintenance Restaura nts and hotels
Education Miscellaneous
Clothing and footwear Communication
Recre ation and culture Health
Inflation
Sources: Country authorities and IMF staff estimates.
Notes: Shaded areas are projections. The services sector includes wholesale and retail trade, financial and insurance activities, information and communication,
accomodation and food, and other services. CORE1 inflation excludes “Food, Beverages and Tobacco” and mortgage interest on housing loans. The annual
average method compares the average level of prices during a 12-month period with the average level during the corresponding previous 12-month period. The
year-on-year methodology is computed as the change in the Consumer Price Index for a given month compared with the same month of the preceding year in
percentage terms.
5
15
0
5
-5
-5
-10
-15
-15 Goods Services
Goods and services Tourism
-25 -20
2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018
0 4 6
-50
4
-100 2
Direct investment Portfolio investment 2
-150 Other investment Reserve assets
Erros and Omissions Financial account
-200 0 0
2013 2014 2015 2016 2017 2018 Jan-16 Ju n-16 Nov-16 Apr-1 7 Sep-17 Feb-18 Ju l-18 Dec-1 8
External Debt
Monthly Exchange Rate (In Percent of GDP)
0.04 130 120
Public sector debt
125
100 Private sector debt
120
0.03 80
115
110 60
105
0.02 40
USD/MUR
Euro/M UR
100
NEER (right-axis) 20
95
REER (right-axis)
0.01 90 0
Jan-16 Jun-16 Nov-16 Apr-17 Sep-17 Feb-18 Jul-18 Dec-18 2013 2014 2015 2016 2017 2018
Figure3.3.Mauritius:
Figure Mauritius: Fiscal,
Fiscal,Financial,
Financial,and
andInstitutional Indicators,
Institutional 2013–2018
Indicators, 2013-2018
Fiscal Balance Central government debt
(In Percent of Fiscal Year GDP) (In Percent of Fiscal Year GDP)
70
20
60
10 50
0 40
-10 30
20
-20
10
-30
0
2013/14 2014/15 2015/16 2016/17 2017/18 2018/19
2013/14 2014/15 2015/16 2016/17 2017/18 2018/19
Income tax Customs and export duties
Goods and service s taxes Other taxes
Grants Social contribution Domestic External
Other revenue Compensation of employee s
Purchase of goods & services Inte re st
Subsidie s, gra nts and benefits Other e xpense
Contingencie s Fiscal balance
9 6
6 4
3 2
0
0
Jan-16 Ju n-16 Nov-16 Apr-1 7 Sep-17 Feb-18 Ju l-18 Dec-1 8
-3
2015Q1 2015Q4 2016Q3 2017Q2 2018Q1 2018Q4 KRR corridor Key repo rate (KRR)
In terban k rate Len din g rate
Credit Gap Br oad mon ey growth
Deposit r ate 91-day T-bill yield
Credit growth
50
0.4
4 40
30
2 0.2
20
10
0
Diversion of Favoriti sm in Irregular Judicial Transparency 0 0
2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017
public funds decisions of pay ments and independence of government
Control of Corruption Upper bound
gov ernment bribes policymaki ng Estimate Upper bound Lower bound
Lower bound
officials
Sources: Country authorities, IMF staff calculations, World Economic Forum, Transparency International, and Worldwide Governance Indicators (D.
Kaufmann and A. Kraay, 2017)
Notes: Shaded area in the top two charts indicates projections. Credit gap is defined as the difference between the actual and the HP-filtered
credit-to-GDP ratio (in percentage points). The KRR corridor is set by the BOM as KRR +/- 50 bps. The Global Competitveness Index ranges from 1
(lowest) to 7 (highest). Data for irregular payments and bribes begins from 2010/11. Corruption Perceptions Index ranges from 0 (highly corrupt) to
100 (least corrupt). WGI refers to the Worldwide Governance Indicators, for which values range from -2.5 (high corruption) to 2.5 (low corruption).
Statistics for comparator groups are averages. SSA Upper-middle income group excludes the oil exporters. Global competitors include other
financial centers: Hong Kong SAR, Ireland, Luxembourg, Singapore, Switzerland, and the United Arab Emirates.
Total revenue and grants (1) 87,848 102,400 94,100 112,242 100,987 117,437 112,894 118,203 125,841 133,033 141,418 149,881
Domestic revenue 87,514 95,987 91,196 105,264 98,387 108,540 105,773 111,780 118,963 125,668 133,551 141,498
Tax revenue 77,810 84,720 84,147 92,259 91,492 99,723 99,274 104,900 111,567 117,779 125,092 132,519
Income tax - Individuals 7,621 8,270 8,661 9,467 9,527 9,850 10,001 10,630 11,383 12,189 13,019 13,873
Income tax - Corporations 10,459 11,069 11,881 12,525 12,403 14,750 14,524 15,437 16,532 17,702 18,908 20,148
Value added tax (VAT) 28,805 31,430 30,231 32,835 32,989 36,125 35,783 38,031 40,728 43,611 46,688 49,749
Excise duties 15,633 17,439 17,275 20,180 20,109 20,932 20,785 21,536 22,385 22,384 23,184 24,020
Customs 1,343 1,150 1,177 1,305 1,335 1,440 1,426 1,459 1,468 1,473 1,482 1,487
Other taxes 13,950 15,362 14,922 15,947 15,129 16,626 16,755 17,808 19,071 20,421 21,812 23,242
Social contributions 1,375 1,417 1,377 1,545 1,349 1,297 1,322 1,378 1,505 1,581 1,721 1,799
Nontax revenue 8,329 9,850 5,672 11,460 5,546 7,520 5,176 5,501 5,891 6,308 6,738 7,180
Grants 333 6,413 2,904 6,978 2,600 8,897 7,122 6,423 6,878 7,365 7,867 8,383
Total expense (current spending) (2) 97,152 107,334 103,225 115,003 104,549 122,136 116,421 123,032 132,041 141,133 150,601 160,079
Expenditures on goods and services 40,160 44,137 41,381 47,221 41,467 49,527 46,609 50,031 53,373 57,151 61,044 64,968
Compensation of employees 26,208 29,597 28,364 30,552 29,233 31,396 31,323 33,785 35,652 38,175 40,776 43,371
Use of goods and services and other expense 13,952 14,540 13,016 16,669 12,234 18,131 15,286 16,246 17,721 18,976 20,268 21,598
Interest payments 10,119 11,296 10,958 11,900 11,378 13,375 13,245 12,744 14,138 15,371 16,271 17,020
Domestic interest 10,561 10,228 11,145 12,614 11,928 12,918 13,866 14,641 15,296
External interest 735 730 755 631 816 1,220 1,505 1,630 1,723
Transfers and subsidies 21,850 24,221 23,484 25,632 22,458 26,818 24,045 25,556 27,368 29,305 31,302 33,354
Subsidies 1,768 1,513 1,517 1,955 1,674 1,648 1,612 1,713 1,835 1,965 2,099 2,236
Grants and transfers 20,082 22,708 21,966 23,677 20,784 25,170 22,433 23,843 25,533 27,340 29,203 31,118
Social benefits 25,023 27,080 27,401 29,550 29,246 31,916 32,521 34,564 37,016 39,635 42,336 45,112
Contingencies 0 600 0 700 0 500 0 136 146 -329 -352 -375
Gross operating balance ((3)=(1)-(2)) -9,304 -4,934 -9,125 -2,761 -3,562 -4,699 -3,527 -4,829 -6,200 -8,100 -9,182 -10,198
Net acquisition of non-financial assets (capital spending) 5,793 10,020 6,330 12,713 7,951 9,320 8,311 10,264 9,308 8,737 8,523 7,931
Net lending / borrowing (central governm. budget balance) 2 -15,098 -14,954 -15,455 -15,474 -11,513 -14,019 -11,838 -15,093 -15,507 -16,837 -17,706 -18,129
Net lending / borrowing (special funds)3 -490 -4,748 858 -47 -2,030 -4,843 -3,243 -1,023 -1,096 -1,173 -1,253 -1,335
CONSOLIDATED BALANCE -15,588 -19,702 -14,597 -15,521 -13,543 -16,455 -15,081 -16,116 -16,603 -18,010 -18,959 -19,465
Transactions in financial assets/liabilities -364 3,592 -39 5,514 2,268 8,430 8,163 2,877 1,941 1,467 915 975
Net acquisition of financial assets 31 3,782 339 6,150 2,829 9,320 8,963 3,727 2,851 2,442 1,957 2,085
Of which: net lending -2,227 695 -825 -34 -1,025 721 871 926 991 1,062 1,134 1,208
Adjustment for difference in cash and accrual -395 -190 -378 -636 -561 -890 -800 -850 -911 -975 -1,041 -1,110
OVERALL BORROWING REQUIREMENT -15,224 -23,294 -14,558 -21,035 -15,811 -24,885 -23,244 -18,994 -18,543 -19,477 -19,874 -16,884
FINANCING 15,224 23,294 14,558 21,035 15,811 24,756 23,244 18,994 18,543 19,477 19,874 20,440
Domestic 10,035 21,994 20,146 21,787 17,851 27,413 20,294 17,058 16,078 16,092 15,556 15,107
Banks 3,345 7,331 6,715 7,262 5,950 6,765 5,686 5,359 5,364 5,185 5,036
Nonbanks 6,690 14,663 13,430 14,525 11,901 13,530 11,372 10,719 10,728 10,371 10,071
Foreign 5,188 1,300 -5,588 -752 -2,040 -2,657 2,949 1,935 2,465 3,385 4,318 5,333
Disbursements 7,775 6,500 2,348 6,994 6,100 6,636 7,212 7,806 8,364
Amortization -2,587 -5,200 -3,100 -4,045 -4,165 -4,171 -3,827 -3,488 -3,031
Memorandum items:
Central government debt 251,401 262,811 265,547 271,393 270,413 290,805 310,336 328,928 348,555 368,514 389,084
Public sector debt 4 274,326 283,629 290,103 303,376 300,164 326,714 361,262 388,672 409,313 429,271 449,842
GDP at current market prices (FY, in billions of Rupees) 422 451 446 469 471 504 535 573 614 656 699
Expenditure, excluding net lending 103,435 122,102 108,696 127,763 114,530 136,299 127,975 134,319 142,444 151,043 160,377 169,346
Primary balance (incl. grants) -5,469 -8,406 -3,638 -3,621 -2,165 -5,487 -1,836 -3,372 -2,465 -2,639 -2,688 -2,445
Primary balance (excl. grants) -5,802 -14,819 -6,542 -10,599 -4,765 -14,384 -8,957 -9,795 -9,343 -10,004 -10,555 -10,828
Sources: Ministry of Finance and Development and IMF staff estimates and projections.
1
GFSM 2001 presentation.
2
Corresponds to the authorities' budget presentation.
3
Includes the following special and other extra-budgetary funds: Maurice Ile Durable Fund; Human Resource, Knowledge and Arts Development Fund; Food Security Fund; Local Infrastructure Fund; and
Social Housing Development Fund; National Resillience Fund (named Business Growth Fund prior to 2012); Road Decongestion; Program Fund; Build Mauritius Fund and Lotto Fund.
4
For the purposes of calculating the public debt ceiling, the 2008 Public Debt Management Act requires netting certain types of State-Owned Enterprises' debt.
Total revenue and grants (1) 20.8 21.1 23.9 21.4 23.3 22.4 22.1 22.0 21.7 21.6 21.5
Domestic revenue 20.7 20.4 22.4 20.9 21.6 21.0 20.9 20.8 20.5 20.4 20.3
Tax revenue 18.4 18.9 19.7 19.4 19.8 19.7 19.6 19.5 19.2 19.1 19.0
Income tax - Individuals 1.8 1.9 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Income tax - Corporations 2.5 2.7 2.7 2.6 2.9 2.9 2.9 2.9 2.9 2.9 2.9
Value added tax (VAT) 6.8 6.8 7.0 7.0 7.2 7.1 7.1 7.1 7.1 7.1 7.1
Excise duties, incl. "Maurice Ile Durable" levy 3.7 3.9 4.3 4.3 4.2 4.1 4.0 3.9 3.6 3.5 3.4
Customs 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.2 0.2
Other taxes 3.3 3.3 3.4 3.2 3.3 3.3 3.3 3.3 3.3 3.3 3.3
Social contributions 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
Nontax revenue 2.0
0.0 1.3
0.0 2.4
0.0 1.2
0.0 1.5
0.0 1.0
0.0 1.0
0.0 1.0
0.0 1.0
0.0 1.0
0.0 1.0
0.0
Grants 0.1 0.7 1.5 0.6 1.8 1.4 1.2 1.2 1.2 1.2 1.2
Total expense (current spending) (2) 23.0 23.1 24.5 22.2 24.3 23.1 23.0 23.0 23.0 23.0 22.9
Expenditures on goods and services 9.5 9.3 10.1 8.8 9.8 9.3 9.3 9.3 9.3 9.3 9.3
Compensation of employees 6.2 6.4 6.5 6.2 6.2 6.2 6.3 6.2 6.2 6.2 6.2
Use of goods and services and other expense 3.3 2.9 3.6 2.6 3.6 3.0 3.0 3.1 3.1 3.1 3.1
Interest payments 2.4 2.5 2.5 2.4 2.7 2.6 2.4 2.5 2.5 2.5 2.4
Domestic interest 0.0 2.3 2.4 0.0 0.0 2.5 2.2 2.3 2.3 2.2 2.2
External interest 0.0 0.2 0.2 0.0 0.0 0.1 0.2 0.2 0.2 0.2 0.2
Transfers and subsidies 5.2 5.3 5.5 4.8 5.3 4.8 4.8 4.8 4.8 4.8 4.8
Subsidies 0.4 0.3 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3
Grants and transfers 4.8 4.9 5.0 4.4 5.0 4.5 4.5 4.5 4.5 4.5 4.5
Social benefits 5.9 6.1 6.3 6.2 6.3 6.5 6.5 6.5 6.5 6.5 6.5
Other expense 1.3 0.9 1.2 0.6 0.0 0.7 0.7 0.7 0.7 0.7 0.7
Contingencies 0.0 0.0 0.1 0.0 0.1 0.0 0.0 0.0 -0.1 -0.1 -0.1
Gross operating balance ((3)=(1)-(2)) -2.2 -2.0 -0.6 -0.8 -0.9 -0.7 -0.9 -1.1 -1.3 -1.4 -1.5
Net acquisition of non-financial assets (capital spending) 1.4 1.4 2.7 1.7 1.9 1.7 1.9 1.6 1.4 1.3 1.1
Net lending / borrowing (central governm. budget balance) 2 -3.6 -3.5 -3.3 -2.4 -2.8 -2.4 -2.8 -2.7 -2.7 -2.7 -2.6
Net lending / borrowing (special funds)3 -0.1 0.2 0.0 -0.4 -1.0 -0.6 -0.2 -0.2 -0.2 -0.2 -0.2
CONSOLIDATED BALANCE -3.7 -3.3 -3.3 -2.9 -3.3 -3.0 -3.0 -2.9 -2.9 -2.9 -2.8
Transactions in financial assets/liabilities -0.1 0.0 1.2 0.5 1.7 1.6 0.5 0.3 0.2 0.1 0.1
Net acquisition of financial assets 0.0 0.1 1.3 0.6 1.9 1.8 0.7 0.5 0.4 0.3 0.3
Of which: net lending -0.5 -0.2 0.0 -0.2 0.1 0.2 0.2 0.2 0.2 0.2 0.2
Adjustment for difference in cash and accrual -0.1 -0.1 -0.1 -0.1 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2
OVERALL BORROWING REQUIREMENT -3.6 -3.3 -4.5 -3.4 -4.9 -4.6 -3.5 -3.2 -3.2 -3.0 -2.4
FINANCING 3.6 3.3 4.5 3.4 4.9 4.6 3.5 3.2 3.2 3.0 2.9
Domestic 2.4 4.5 4.6 3.8 5.4 4.0 3.2 2.8 2.6 2.4 2.2
Banks 0.8 1.5 1.5 1.3 1.3 1.1 0.9 0.9 0.8 0.7
Nonbanks 1.6 3.0 3.1 2.5 2.7 2.1 1.9 1.7 1.6 1.4
Foreign 1.2 -1.3 -0.2 -0.4 -0.5 0.6 0.4 0.4 0.6 0.7 0.8
Disbursements 1.8 0.0 0.5 0.0 1.4 1.1 1.2 1.2 1.2 1.2
Amortization -0.6 0.0 -0.7 0.0 -0.8 -0.8 -0.7 -0.6 -0.5 -0.4
Memorandum items:
Central government debt 59.5 59.5 57.9 57.4 57.7 58.0 57.4 56.8 56.2 55.7
Public sector debt4 65.0 65.0 64.7 63.7 64.9 67.5 67.8 66.7 65.5 64.4
Central government expenditure, excluding net lending 24.5 24.4 27.2 24.3 27.1 25.4 25.1 24.9 24.6 24.5 24.2
Central government primary balance (incl. grants) -1.3 -0.8 -0.8 -0.5 -1.1 -0.4 -0.6 -0.4 -0.4 -0.4 -0.3
Central government primary balance (excl. grants) -1.4 -1.5 -2.3 -1.0 -2.9 -1.8 -1.8 -1.6 -1.6 -1.6 -1.6
Sources: Ministry of Finance and Development; Bank of Mauritius; and IMF staff estimates and projections.
1
GFSM 2001 presentation.
2
Corresponds to the authorities' budget presentation.
3
Includes the following special and other extra-budgetary funds: Maurice Ile Durable Fund; Human Resource, Knowledge and Arts Development Fund; Food Security Fund; Local
Infrastructure Fund; and Social Housing Development Fund; National Resillience Fund (named Business Growth Fund prior to 2012); Road Decongestion; Program Fund; Build Mauritius
Fund and Lotto Fund.
4
For the purposes of calculating the public debt ceiling, the 2008 Public Debt Management Act requires netting certain types of State-Owned Enterprises' debt.
Services (net) 691 775 841 1,061 1,120 1,235 1,347 1,539 1,746 1,978
Of which: tourism 884 956 1,079 1,155 1,240 1,368 1,519 1,677 1,849 2,039
Income (net) 1,081 1,094 1,448 1,472 1,526 1,527 1,487 1,291 1,108 914
Of which: GBCs 912 1,066 1,155 1,321 1,368 1,361 1,306 1,093 889 670
Current transfers (net) -326 -328 -410 -408 -405 -403 -400 -397 -393 -389
Capital and financial accounts 1,092 1,329 1,436 1,247 1,188 1,182 1,161 1,211 1,202 1,361
Capital account -4 -1 -3 -3 -3 -3 -3 -4 -4 -4
Financial account 1,096 1,330 1,439 1,250 1,191 1,185 1,164 1,214 1,206 1,365
Direct investment (net) 4,490 8,077 5,123 5,219 5,269 5,642 5,963 6,301 6,655 6,681
Abroad -10,515 6,899 5,492 -2,253 -1,766 -508 1,606 1,300 566 871
In Mauritius 15,005 1,179 -369 7,472 7,036 6,150 4,357 5,001 6,089 5,810
Portfolio investment (net) 7,255 -2,881 -1,396 -552 -499 -27 701 1,113 1,575 2,019
Other investment (net) -10,649 -3,867 -2,288 -3,416 -3,579 -4,429 -5,499 -6,199 -7,025 -7,335
Of which: SDR allocation … … … … … … … … … …
Government (net) -101 -99 -67 -68 777 323 120 123 149 149
Private (net) -10,548 -3,768 -2,221 -3,348 -4,356 -4,751 -5,620 -6,323 -7,173 -7,484
Overall balance 569 738 821 356 93 129 202 224 200 356
Change in official reserves (- = increase) -569 -738 -821 -356 -93 -129 -202 -223 -199 -354
Table 5. Mauritius: Financial Soundness Indicators for the Banking Sector1, 2015–2018Q3
(End of Period, in percent; unless otherwise indicated)
Capital adequacy
Regulatory capital to risk-weighted assets ² 18.4 18.7 18.2 18.2 18.2 18.5 18.6 18.2 18.8 18.6 18.0 18.3
Regulatory Tier I capital to risk-weighted assets 17.0 17.2 16.5 16.6 16.7 16.9 17.2 16.8 17.4 17.2 16.7 16.9
Capital to total assets 10.5 10.5 10.5 10.6 10.6 10.2 10.4 10.0 10.1 10.0 11.6 11.8
Asset composition and quality
Nonperforming loans (NPLs) to total gross loans 7.2 7.8 8.0 8.0 7.8 7.9 7.9 7.8 7.0 7.2 6.9 6.4
NPLs net of provisions to capital 19.1 18.7 19.1 18.7 18.7 19.3 17.9 18.3 16.3 15.6 14.3 13.2
Large exposures to capital 184.3 190.2 188.4 176.5 159.8 150.0 136.6 157.4 224.4 228.3 235.3 230.2
Earnings and Profitability
Return on assets 1.2 1.4 1.4 1.5 1.5 1.4 1.5 1.5 1.6 1.5 1.5 1.7
Return on equity 12.1 13.1 13.6 14.0 13.9 13.2 14.9 14.7 15.2 14.9 14.6 15.7
Interest margin to gross income 68.5 62.7 67.2 63.0 71.5 69.2 68.8 70.2 69.6 66.9 71.5 71.3
Noninterest expenses to gross income 44.3 36.2 41.8 38.9 45.9 42.3 40.2 44.3 42.9 41.1 40.5 41.5
Personnel expenses to non-interest expenses 50.5 50.6 52.0 47.7 47.3 49.4 49.5 49.1 49.5 49.3 49.4 46.2
Trading income to total income 10.0 16.2 7.9 17.9 9.5 10.3 8.7 12.3 10.2 12.5 8.2 11.5
Liquidity
Liquid assets to total assets (liquid asset ratio) 27.1 27.4 27.9 28.3 27.9 26.8 28.1 25.0 22.2 23.2 25.4 21.6
Liquid assets to total short-term liabilities 34.5 34.4 34.1 34.3 33.9 33.3 35.2 32.2 28.9 30.0 28.8 24.6
Foreign-currency-denominated loans to total loans 55.9 54.9 54.8 54.8 56.4 56.0 55.0 54.3 55.0 55.2 54.4 53.8
Foreign-currency-denominated liabilities to total liabilities 52.7 52.0 51.8 52.0 51.6 52.0 50.8 49.8 49.7 51.1 50.6 49.1
Customer deposits to total (non-interbank) loans 147.4 145.1 148.9 151.6 150.5 152.4 156.6 157.1 153.4 159.3 155.2 148.3
Sensitivity to market risk
Net open positions in FX to capital 3.0 2.5 2.9 3.0 3.1 4.7 3.7 3.3 3.2 4.8 3.0 2.6
Relative Time
Source of Risks Impact Policy Response
Likelihood Horizon
External Risks
Sharp tightening of global financial Low/ ST High: Capital flow reversal Allow exchange rate flexibility and tighten
conditions Medium could affect the external and monetary policy if inflationary pressures
fiscal positions, requiring an emerge. Let automatic fiscal stabilizers
abrupt and potentially operate. Provide foreign exchange
disruptive adjustment. liquidity if dollar shortages appear.
Spillovers to the financial Accelerate adoption of FSAP
system would be likely. recommendations to mitigate risks to the
banking sector.
Rising protectionism and retreat from High ST, MT High/Medium: Impact on Adopt labor market reforms and improve
multilateralism the Balance of Payments the business climate to boost
and economic growth would competitiveness. Allow greater exchange
depend on the extent to rate flexibility and fiscal adjustment to
which trade and financial reduce external imbalances and ensure
flows are disrupted. medium-term debt stabilization, while
protecting social spending.
Weaker-than-expected global growth: High/Medium: The US, EU, Allow monetary easing if medium-term
and China are Mauritius’ inflation expectations are contained and
• Euro Area High ST, MT major trading and financial let automatic fiscal stabilizers operate.
• U.S. Medium ST, MT partners. Significant impact Adopt labor market reforms and improve
• China Medium ST, MT on the external sector is infrastructure to boost competitiveness.
likely. Facilitate export diversification. Allow
exchange rate flexibility to absorb shocks.
Large swings in energy prices Medium ST, MT High: Increase in oil prices Tighten monetary policy if second-round
would worsen the current effects start to build up. Tighten fiscal
account deficit and increase policy and improve external
inflation. competitiveness through structural
reforms.
Domestic Risks
Changes to the business model. Activity in Medium ST, MT High: Impact on financial Facilitate diversification to develop new
the offshore global business sector is stability, economic activity, growth drivers and improve the
weakened following expiration of tax fiscal revenues, and competitiveness of traditional sectors.
benefits granted by India. employment.
AML/CFT concerns. Loss of market Medium ST, MT High: Impact on growth and Strengthen the AML/CFT framework in line
confidence and correspondent banking employment. with the FATF standards.
relationships due to the identified
deficiencies in the AML/CFT framework.
Lack of fiscal credibility reduces market Low ST, MT High/Medium: Increase in Fiscal consolidation, while protecting the
confidence interest rates, credit rating poor, to meet the debt target. Improve
downgrade, capital public financial management and fiscal
outflows, and financial transparency.
instability.
Natural disasters Medium ST, MT High: Lower growth Build ex-ante resilience with fiscal buffers
because of disruption to and better infrastructure. Mobilize revenue
agriculture, tourism, to meet fiscal costs. Loosen monetary
manufacturing, and damage policy if inflation is not a concern.
to infrastructure.
1/ The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The
relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a
probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of
concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. “Short term (ST)” and “medium-term (MT)”
are meant to indicate that the risk could materialize within 1 year and 3 years, respectively.
Background
1. The last debt sustainability analysis (DSA) for Mauritius, published in December
2017, showed a moderately deteriorating, but manageable, debt outlook. Mauritius’ public
debt outlook in the last DSA (see Country Report 17/362) showed that public debt indicators
were generally below their relevant indicative thresholds over the medium-term, but some were
vulnerable to combined macro-fiscal shocks. This note updates that analysis.
1Public-sector debt for the purposes of this DSA is defined as central government (including extrabudgetary
units) and state-owned enterprise (SOE) debt (including loan guarantees extended to SOEs by central
government).
2The authorities switched from calendar to fiscal year accounting in mid-2015 (the fiscal year ends in June of
each year). The authorities’ public debt target is also in fiscal year terms. Fiscal and debt data in the DSA and the
main text of the Staff Report are shown on a fiscal-year basis, unless otherwise indicated. Considered in calendar
year terms, however, the figures are very similar with end-year public debt being 63.7 and 65.1 percent of GDP in
2017 and 2018, respectively.
3. Mauritius has a strong track record of credit worthiness. The lion’s share of public
debt that fulfills the government’s borrowing requirement is sourced from the highly liquid
domestic market. Short-term debt has fallen notably in the last few years and stood at 5.6 per-
cent of GDP in FY17/18, in line with the authorities’ policy of lengthening the maturity profile of
public securities. In December 2018, an auction of 10-year bonds was oversubscribed at an
interest rate of 5.2 percent. Overall, the maturity structure of public sector debt remains strong,
with long-term domestic debt comprising more than half of the total (Figure 2).3
4. The share of external debt in total public-sector debt remains low. External debt
constituted less than one-fifth of total public debt (about 12 percent of GDP) in FY17/18, with the
entirety of the central government external debt being concessional. Mauritius has no history of
debt difficulties, and indicators of capacity to repay, such as interest payments to revenue, are at
manageable levels.4
5. The authorities’ public debt target cannot be achieved in the absence of a major
policy change. The statutory public-sector debt target of 60 percent of GDP by FY20/21 cannot
be achieved without a significant and potentially economically disruptive fiscal adjustment in the
near-term. The baseline envisages a debt-to-GDP level of 67.8 percent of GDP by FY20/21, falling
to about 64.4 percent over the duration of the DSA projection horizon.
6. Overall, the debt profile appears sustainable, though there are some areas of
concern. Five upper-bound early warning thresholds are crossed, compared to none in the
previous DSA. However, all of these relate to the gross financing needs (GFN) and mainly reflect
the repayment of short-term debt in FY2018/19, with the GFN projected to fall markedly in the
medium-term. Risks associated with exposure to non-resident liabilities have risen due to
increased borrowing to finance public infrastructure projects. Other debt profile vulnerabilities
remain at or close to lower-bound early warning thresholds.
7. The baseline assumptions of the current DSA are consistent with the
macroeconomic framework underlying the 2019 Article IV Staff Report (see main text).
Figure 3 assesses the realism of the baseline scenario for DSA purposes. The forecast errors in
recent years for Mauritius’ real GDP growth, the primary balance, and inflation (deflator), have
3 In recent years, SOEs have increased their holdings of central government securities, which stood at a modest
0.6 percent of GDP at end-2018. The authorities’ presentation of public-sector debt nets out these securities from
total public-sector debt. However, the DSA presented here does not net out these securities since the
corresponding (consolidated) fiscal accounts for the nonfinancial public sector are not available.
4 Interest payments stood at about 11 percent of domestic revenues at end FY2017/18.
been low or at the median for all countries. This gives confidence in the forecasts underpinning
the macroeconomic framework.
• Growth. Real output growth is expected to maintain a steady pace over the forecast horizon,
averaging about 4 percent over the medium-term.
• GDP deflator and consumer prices. The deflator is expected to average about 2¾ percent
over the medium-term, while consumer prices are likely to average about 3⅓ percent over
the forecast horizon.
• Fiscal strategy. The central government primary balance (including grants) is expected to
remain at about -½ percent of GDP in the near term, improving marginally in later years.
However, the state-owned enterprises (SOEs) are expected to contract external debt of about
3 percent of GDP over FY19/20 and FY20/21, mostly for financing the light-rail project and
aircraft purchases.
• Current Account. The current account deficit is expected to average about 5½ percent of
GDP in the medium-term and will be largely financed by private financial flows.
Baseline Scenario
9. The baseline scenario foresees that public-sector debt dynamics are sustainable
over the medium-term, despite the spike through FY2020/21. Overall, the path of public
debt over the forecast horizon is assessed as sustainable (Figure 4). As noted above, after
peaking in FY2020/21, the reduction in public capital spending will reduce upward pressures on
debt. The ensuing gradual decline in the debt-to-GDP ratio is aided by sustained real growth,
while the principal debt creating flows are the primary deficit and real interest rates.
10. Standardized stress tests reveal some vulnerabilities to the public debt outlook.
Downside risks to real GDP growth, the primary balance, and the real interest rate reveal the
following vulnerabilities to the baseline outlook (Figure 5):
5 The full terms of the loans associated with the aircraft purchases had not been finalized until the preparation of
this DSA, and there is a possibility that the aircrafts are leased, rather than purchased, by the state-owned airline.
Any financing is expected to be long term with amortization not beginning until after FY2023/24.
• Growth shock. Lower real output growth by one standard deviation relative to the baseline
for two years starting in FY19/20 would push debt up to 68.6 percent in FY20/21, compared
to 67.8 percent in the baseline. By FY23/24, debt would be 0.6 percentage points higher than
the baseline.
• Real interest rate shock. An increase in sovereign risk premia by more than 200 basis-points
starting in FY19/20 would set both the public-sector debt level and public gross financing
needs on an upward path, reaching 70.3 percent and 11.1 percent, respectively, by FY23/24.
• Primary balance shock. Fiscal slippage, in the form of a cumulative deterioration in the
primary balance of about 4 percent of GDP over FY19/20-FY20/21, would have the strongest
near-term effect, pushing total debt up to 72 percent of GDP in FY20/21.
• Combined macro-fiscal shock. Combining the above three shocks into a single scenario
would imply a sustained divergence of public debt dynamics from the baseline scenario
(public debt-to-GDP ratio would reach about 75,2 percent by FY23/24). The public debt-to-
revenue ratio and public gross financing needs would also remain at an elevated level over
the medium-term, and on an increasing course toward the end of the projection period, in
this scenario.
• Contingent liability shock. The realization of a contingent liability shock equal to 10 percent
of banking sector assets would have the largest effect of the scenarios considered, reflecting
the relatively large size of the Mauritian banking sector. Debt would rise to 96.7 percent of
GDP in FY19/20 and remain elevated throughout the forecast period. Gross financing needs
in FY19/20 would spike to 45 percent of GDP, though would fall off rapidly in subsequent
years.
The distribution of risks (fan charts, Figure 4) indicates that the public debt level is unlikely to
exceed 72 percent of GDP, even during the upcoming period of elevated public-sector
investment.
Bank Assets to GDP Ratio, 2007-16
11. Mauritius faces additional (In Percent)
challenges to fiscal sustainability. The large 160
In the longer term, population aging will put Source: World Bank's Global Financial Development and Structure Database.
greater financial pressure on the country’s Notes: Global comparators indicates the average for other major
international financial centers (Hong Kong SAR, Ireland, Luxembourg,
pension system (see IMF Country Report No. Singapore, Switzerland, and the United Arab Emirates). SSA upper -middle
income countries indicates the average for other non -oil exporting sub-
Conclusion
13. While the projected path of public debt is sustainable, the baseline debt path
depends on the return of public-sector investment to historical levels. The main driver of the
increase in public debt in the near term is the rise in public capital spending (notably, the new
light-rail system and aircraft purchases by the state-owned airline), which is likely to taper off in
the medium-term. A prudent and credible medium-term fiscal stance is essential to ensure that
downside risks to the debt outlook are contained.
Figure 1. Mauritius: Public Sector Debt Sustainability Analysis (DSA) – Baseline Scenario
(in percent of GDP unless otherwise indicated: data for fiscal year (e.g., 2018=FY2018/19))
1/
Debt, Economic and Market Indicators
Actual Projections As of 2/29/2019
2/
2007-2015 2016 2017 2018 2019 2020 2021 2022 2023
Nominal gross public debt 56.5 65.0 63.7 64.9 67.5 67.8 66.7 65.5 64.4 Sovereign Spreads
Of which: guarantees 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 EMBIG (bp) 3/ n.a.
Public gross financing needs 16.4 12.5 12.5 17.9 15.7 14.1 9.2 7.9 8.4 5Y CDS (bp) n.a.
Net public debt 56.5 65.0 63.7 64.9 67.5 67.8 66.7 65.5 64.4
Real GDP growth (in percent) 4.0 3.8 3.7 4.4 3.4 4.0 4.0 4.0 4.0 Ratings Foreign Local
Inflation (GDP deflator, in percent) 2.5 1.7 1.8 2.4 2.8 3.0 2.9 2.7 2.4 Moody's n.a. Baa1
Nominal GDP growth (in percent) 6.6 5.6 5.6 6.9 6.3 7.1 7.1 6.8 6.6 S&Ps n.a. n.a.
4/
Effective interest rate (in percent) 5.8 4.0 3.9 4.4 3.9 3.9 3.9 3.9 3.9 Fitch n.a. n.a.
15 20
projection
Debt-Creating Flows
15
(in percent of GDP)
10
10
5 5
0
0
-5
-10
-5
-15
-10 -20
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 cumulative
Primary deficit Real GDP growth Real interest rate
Exchange rate depreciation Other debt-creating flows Residual
Change in gross public sector debt
Figure 2. Mauritius: Public DSA – Composition of Public Debt and Alternative Scenarios
Figure 2. Mauritius Public DSA - Composition of Public Debt and Alternative Scenarios
(data forfiscal
(data for fiscal year
years (e.g.
(e.g., 2018-FY2018/19)
2018=FY2018/19)
60 60
50 50
40 40
30 30 projection
20 projection 20
10 10
0 0
2007 2009 2011 2013 2015 2017 2019 2021 2023 2007 2009 2011 2013 2015 2017 2019 2021 2023
Alternative Scenarios
Baseline Historical Constant Primary Balance
Underlying Assumptions
(in percent)
Baseline Scenario 2018 2019 2020 2021 2022 2023 Historical Scenario 2018 2019 2020 2021 2022 2023
Real GDP growth 4.4 3.4 4.0 4.0 4.0 4.0 Real GDP growth 4.4 3.8 3.8 3.8 3.8 3.8
Inflation 2.4 2.8 3.0 2.9 2.7 2.4 Inflation 2.4 2.8 3.0 2.9 2.7 2.4
Primary Balance -3.3 -4.0 -2.4 -0.9 -0.6 -0.5 Primary Balance -3.3 -0.5 -0.5 -0.5 -0.5 -0.5
Effective interest rate 4.4 3.9 3.9 3.9 3.9 3.9 Effective interest rate 4.4 3.9 4.3 4.6 4.8 5.0
Constant Primary Balance Scenario
Real GDP growth 4.4 3.4 4.0 4.0 4.0 4.0
Inflation 2.4 2.8 3.0 2.9 2.7 2.4
Primary Balance -3.3 -3.3 -3.3 -3.3 -3.3 -3.3
Effective interest rate 4.4 3.9 3.9 3.9 3.9 3.9
MAURITIUS
Figure 3. Mauritius: Public DSA - Realism of Baseline Assumptions
Figure 3. Mauritius Public DSA - Realism of Baseline Assumptions
(data for fiscal
(data for year
fiscal(e.g.,
years2018=FY2018/19)
(e.g., 2018=FY2018/19)
Forecast Track Record, versus all countries
Real GDP Growth Primary Balance Inflation (Deflator)
(in percent, actual-projection) (in percent of GDP, actual-projection) (in percent, actual-projection)
Mauritius median forecast error, 2009-2017: -0.73 Mauritius median forecast error, 2009-2017: -0.59 Mauritius median forecast error, 2009-2017: -2.68
Has a percentile rank of: 33% Has a percentile rank of: 42% Has a percentile rank of: 3%
6 4 6
pessimistic
4 4
2
2 2
0
0 0
-2 -2 -2
Distribution of Distribution of Distribution of
optimistic
-4 -4
forecast errors: 1/ -4 forecast errors: 1/ forecast errors: 1/
-6 -6 Distribution of forecast errors:
Distribution of forecast errors:
-6
-8 Median -8 Median
Mauritius forecast error Mauritius forecast error
-10 -8 -10
2009 2010 2011 2012 2013 2014 2015 2016 2017 2009 2010 2011 2012 2013 2014 2015 2016 2017 2009 2010 2011 2012 2013 2014 2015 2016 2017
Year 2/ Year 2/ Year 2/
4
4 -2
2 2
-4
0 0 -6
More
More
Less
0
1
2
3
4
5
6
7
8
-4
-3
-2
-1
Less
0
1
2
3
4
5
6
7
8
-4
-3
-2
-1
t-5 t-4 t-3 t-2 t-1 t t+1 t+2 t+3 t+4 t+5
Gross Nominal Public Debt Gross Nominal Public Debt Public Gross Financing Needs
(in percent of GDP) (in percent of Revenue) (in percent of GDP)
72 340 20
18
70 330
16
320 14
68
310 12
66 10
300 8
64 6
290
4
62 280
2
60 270 0
2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023
Gross Nominal Public Debt Gross Nominal Public Debt Public Gross Financing Needs
(in percent of GDP) (in percent of Revenue) (in percent of GDP)
120 500 50
45
100 450
40
80 400 35
30
60 350 25
20
40 300 15
10
20 250
5
0 200 0
2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023
Underlying Assumptions
(in percent)
Primary Balance Shock 2018 2019 2020 2021 2022 2023 Real GDP Growth Shock 2018 2019 2020 2021 2022 2023
Real GDP growth 4.4 3.4 4.0 4.0 4.0 4.0 Real GDP growth 4.4 3.1 3.7 4.0 4.0 4.0
Inflation 2.4 2.8 3.0 2.9 2.7 2.4 Inflation 2.4 2.7 2.9 2.9 2.7 2.4
Primary balance -3.3 -4.0 -3.2 -1.6 -0.7 -0.6 Primary balance -3.3 -4.1 -2.5 -0.9 -0.6 -0.5
Effective interest rate 4.4 3.9 3.9 3.9 4.0 4.0 Effective interest rate 4.4 3.9 3.9 3.9 3.9 3.9
Real Interest Rate Shock Real Exchange Rate Shock
Real GDP growth 4.4 3.4 4.0 4.0 4.0 4.0 Real GDP growth 4.4 3.4 4.0 4.0 4.0 4.0
Inflation 2.4 2.8 3.0 2.9 2.7 2.4 Inflation 2.4 8.5 3.0 2.9 2.7 2.4
Primary balance -3.3 -4.0 -2.4 -0.9 -0.6 -0.5 Primary balance -3.3 -4.0 -2.4 -0.9 -0.6 -0.5
Effective interest rate 4.4 3.9 5.1 6.1 6.7 7.2 Effective interest rate 4.4 3.9 3.8 3.8 3.8 3.8
Combined Shock Contingent Liability Shock
Real GDP growth 4.4 3.1 3.7 4.0 4.0 4.0 Real GDP growth 4.4 3.1 3.7 4.0 4.0 4.0
Inflation 2.4 2.7 2.9 2.9 2.7 2.4 Inflation 2.4 2.7 2.9 2.9 2.7 2.4
Primary balance -3.3 -4.1 -3.2 -1.6 -0.7 -0.6 Primary balance -3.3 -33.0 -2.4 -0.9 -0.6 -0.5
Effective interest rate 4.4 3.9 5.0 6.0 6.6 7.1 Effective interest rate 4.4 4.2 6.7 6.3 6.2 6.1
Debt level 1/ Real GDP Primary Balance Real Interest Exchange Rate Contingent
Growth Shock Shock Rate Shock Shock Liability shock
600 no 15 8% 1 45 19% 60
19%
200 data 5 0.5 15 20
1 2 1 2 1 2 1 2 1 2
-5%
Annual Change in
External Financing Public Debt Held by Public Debt in
Bond spread Short-Term Public
Requirement Non-Residents Foreign Currency
Debt
(in basis points) 4/ (in percent of GDP) 5/ (in percent of total) (in percent of total) (in percent of total)
2. The total external debt stock has declined in recent years and is expected to remain
stable over the medium term. The total external debt stock including banking sector liabilities
fell from a peak of 103 percent of GDP at end-2014 to 78.5 percent of GDP at end-2018. It is
expected to increase to around 83 percent of GDP in 2019, owing to an increase in public-sector
external debt (reflecting new borrowing to finance public infrastructure projects and purchase of
aircrafts for the state-owned airline), and to stabilize at about 80 percent of GDP in the medium
term.
baseline scenario, external debt without banking sector liabilities is projected to increase to
21.2 percent of GDP by 2020 before declining to 19.6 percent of GDP by 2024.
4. Standard stress tests highlight that Mauritius’ external debt is particularly sensitive
to non-interest current account and real exchange rate depreciation shocks. A negative
shock to the baseline non-interest current account of one-half standard deviation would increase
the external debt ratio by 6 percentage points relative to the baseline by 2024. A one-time
30 percent currency depreciation in 2019 would increase the external debt to GDP ratio by
9 percentage points relative to the baseline by 2024.
5. Shocks to interest rates and growth do not have implications for external debt
sustainability and a combined shock would have limited implications for external debt
sustainability.1 The effect of growth and interest rate shocks is nil while a combined
macroeconomic shock scenario would imply a 3 percentage points increase in the external debt
ratio in the medium-term.
Conclusion
1A combined shock consists of permanent ¼ standard deviation shocks applied to real interest rate, growth rate,
and current account balance.
1/ 2/
Figure 1. Mauritius: External Debt Sustainability: Bound Tests
Mauritius: External Debt Sustainability: Bound Tests 1/ 2/
(External
(ExternalDebt
debtin
inPercent
percent of GDP)
of GDP)
40 40
31
30 30
Historical i-rate shock
5
20
20 20
Baseline 20 Baseline 20
10
10
0
0 0
2014 2016 2018 2020 2022 2024
2014 2016 2018 2020 2022 2024
40
40
30
Growth 30
CA shock 26
shock
20
20
20
Baseline 20
Baseline 20
10
10
0
0
2014 2016 2018 2020 2022 2024
2014 2016 2018 2020 2022 2024
40 40
Combined 29
30 30
shock 30 %
23 depreciation
20 20
Baseline 20 Baseline 20
10 10
0 0
2014 2016 2018 2020 2022 2024 2014 2016 2018 2020 2022 2024
Sources: IMF staff estimates.
1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average
projections for the respective variables in the baseline and scenario being presented. Ten -year historical average for the variable is also shown.
2/ For historical scenarios, averages are calculated over the past ten-year period, and the information is used to project debt dynamics five years ahead.
3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and the current account balance.
4/ Scenario assumes one-time real exchange rate depreciation of 30 percent in 2019.
Change in external debt -4.8 1.6 -1.9 -1.9 -1.9 4.8 0.9 -0.5 -0.5 -0.3 -0.3
Identified external debt-creating flows (4+8+9) 4.1 6.6 2.3 4.7 2.9 4.9 3.6 2.6 2.4 2.2 1.9
Current account deficit, excluding interest payments 5.1 3.3 3.8 5.4 6.0 7.2 6.5 5.5 5.3 5.1 4.8
Deficit in balance of goods and services 11.6 10.0 10.3 13.5 13.7 15.0 13.8 12.2 10.5 9.1 7.6
Exports 46.9 46.1 42.5 40.7 40.1 40.1 39.6 39.3 39.0 38.9 38.8
Imports 58.5 56.2 52.8 54.2 53.8 55.1 53.5 51.5 49.5 47.9 46.4
Net non-debt creating capital inflows (negative) 0.0 1.1 -0.8 0.6 -2.2 -1.9 -2.4 -2.3 -2.3 -2.3 -2.3
Automatic debt dynamics 2/ -1.0 2.1 -0.7 -1.3 -1.0 -0.4 -0.5 -0.5 -0.5 -0.6 -0.6
Contribution from nominal interest rate 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.2 0.2
Contribution from real GDP growth -0.9 -0.8 -0.8 -0.7 -0.6 -0.6 -0.8 -0.8 -0.8 -0.8 -0.8
Contribution from price and exchange rate changes 3/ -0.4 2.6 -0.2 -0.8 -0.6 ... ... ... ... ... ...
Residual, incl. change in gross foreign assets (2-3) 4/ -9.0 -4.9 -4.2 -6.6 -4.7 -0.1 -2.6 -3.0 -3.0 -2.5 -2.3
External debt-to-exports ratio (in percent) 41.6 45.9 45.3 42.7 38.8 50.6 53.6 52.8 51.9 51.2 50.4
Gross external financing need (in billions of US dollars) 5/ 0.9 0.6 0.6 1.0 1.1 1.3 1.2 1.1 1.1 1.2 1.1
including banks external debt 3.9 4.2 4.2 5.7 6.4 6.4 6.5 6.6 6.9 7.2 7.5
in percent of GDP 7.1 4.8 5.2 7.4 7.4 10-Year 10-Year 8.5 7.7 6.7 6.4 6.1 5.7
including banks external debt 30.1 35.9 33.9 42.6 44.5 42.9 41.2 39.6 38.7 38.2 37.5
Scenario with key variables at their historical averages 6/ 20.3 22.8 24.8 26.7 28.9 31.2 -2.2
Historical Standard
Key Macroeconomic Assumptions Underlying Baseline Average Deviation
Nominal GDP (US dollars) 12.8 11.7 12.2 13.3 14.3 14.8 15.8 16.8 17.9 18.9 20.1
Real GDP growth (in percent) 3.7 3.6 3.8 3.8 3.8 3.7 0.3 3.9 3.9 4.0 4.0 4.0 4.0
GDP deflator in US dollars (change in percent) 1.7 -11.8 0.8 4.5 3.7 0.1 7.1 -0.1 2.4 2.2 2.4 1.9 1.8
Nominal external interest rate (in percent) 1.4 1.3 1.2 1.3 1.4 1.3 0.2 1.2 1.1 1.3 1.2 1.1 1.0
Growth of exports (US dollar terms, in percent) 6.4 -10.1 -3.5 3.9 5.9 2.1 11.3 3.8 5.0 5.5 5.7 5.7 5.7
Growth of imports (US dollar terms, in percent) 1.9 -12.2 -1.7 11.4 6.8 2.8 12.9 6.2 3.2 2.5 2.5 2.6 2.6
Current account balance, excluding interest payments -5.1 -3.3 -3.8 -5.4 -6.0 -6.7 3.0 -7.2 -6.5 -5.5 -5.3 -5.1 -4.8
Net non-debt creating capital inflows 0.0 -1.1 0.8 -0.6 2.2 1.4 1.8 1.9 2.4 2.3 2.3 2.3 2.3
2. Assessment. The external balance sheet does not appear to be a major source of risk
for Mauritius. Potential vulnerabilities posed by the large gross non-FDI liabilities (1,119 per-
cent of GDP in 2017) are expected to be mitigated by large non-FDI short-term external
assets (about 1,900 percent of GDP in 2017). Mauritius official reserves increased by 7.8 per-
cent of GDP to about 45 percent of GDP in 2017.1 According to staff’s projections, the NIIP is
expected to average 146 percent of GDP over 2018–23.
1 Given that Mauritius has a sizable offshore financial sector with large and volatile external asset and liability
positions (around 3,000 percent of GDP at end-2017) and a positive net foreign asset (NFA) position, the External
Sustainability (ES) approach appears to be unsuitable for assessing Mauritius’ external stability. Nevertheless,
using the External Balance Sheet model, the current account (CA) norm that would stabilize NIIP at the target
level of about 173 percent of GDP (average over 2012–16) is estimated at 0.1 percent of GDP, implying a CA gap
of -6.3 percent of GDP, and a real effective exchange rate (REER) overvaluation of about 19 percent.
B. Current Account
3. Background. Mauritius’ current account (CA) deficit widened from 4 percent of GDP
in 2016 to 5.6 percent of GDP in 2017, largely because of a worsening of the goods trade
balance. The current account deficit is expected to widen further to 6.2 percent of GDP in
2018 due to higher oil prices, and to around 7.4 percent of GDP in 2019 on the back of
higher capital imports associated with large-scale public infrastructure projects, before
declining to about 5 percent of GDP in the medium term.
Current Account
Current Account (baseline) -5.6
Current Account (excluding GBC flows) -11.1
Current Account Norm 0.2
Current Account Norm (excluding GBC flows) 0.2
Current Account Gap -5.8
Current Account Gap (excluding GBC flows) -11.3
Current Account Elasticity -0.3
2 The estimated overvaluation is larger than in 2016 (10 percent). The estimate for 2017 is, however, based on the
revised External Balance Assessment (EBA)-lite methodology (see IMF’s 2018 External Sector Report—Refinements
to the External Balance Assessment Methodology—Technical Supplement) and is not fully comparable to the
earlier external assessments. Nevertheless, even if the old methodology is applied, the extent of REER
overvaluation has increased.
3As an illustrative exercise, excluding the offshore global business sector-related flows from the current account
balance would imply an even higher overvaluation of the REER and a substantially weaker external position.
5. Background. Mauritius’ real effective exchange rate (REER) appreciated by 3.9 per-
cent on a year-on-year (y-o-y) basis in 2017—both because of high inflation and a 2.5 per-
cent y-o-y nominal effective exchange rate (NEER) appreciation. This followed cumulative
appreciation of the REER by 3.3 percent and the NEER by 2.8 percent over 2014–16. Recent
data show that the REER and NEER appreciated by 1.4 percent and 0.3 percent, respectively,
in 2018 on a y-o-y basis.
6. Assessment. Based on the Index of Real Effective Exchange Rate (IREER) model of the
EBA-lite approach, the estimated REER gap implies an overvaluation of about 25 percent (or a
range of 15 to 35 percent), which is broadly consistent with the CA-model based assessment
but is also subject to considerable uncertainty. Using preliminary data for 2018, the estimated
REER gap indicates a similar overvaluation in 2018.
8. Assessment. The capital and financial account is likely to remain in surplus in the near
and medium-term, resulting in an overall balance of payments surplus.
E. Reserve Adequacy
10. Assessment. To assess the adequacy of Mauritius’ foreign exchange reserves, as in the
previous assessments (Country Reports 16/89 and 17/362), the standard reserve adequacy metric
is augmented with a portion of the deposits of the offshore global business companies (GBCs)
held in small and medium-sized banks (net of liquid assets). The augmented metric, therefore,
helps to capture financial risks stemming from the offshore global business sector in the form of
disruptions to foreign currency funding, while considering the liquidity of commercial banks’
foreign currency assets.4 Per the adjusted metric, staff estimates the stock of international
4 The reserve adequacy assessment excludes the external other liabilities of the global business sector, which are
large and matched by their external asset holdings.
reserves at end-2017 to be about 121 percent of the adjusted metric (higher than 115 percent of
the adjusted metric in end-2016) and at about 133 percent in end-2018, and hence within the
advisable range (Figure 2).5 As noted in earlier staff assessments (Country Report 16/89),
however, the large size and complex structure of the global business sector, and its strong
linkage with the real sector, warrants stronger buffers against external shocks.6 In this respect,
and considering the substantial overvaluation of the currency, further reserve accumulation may
be desirable, while considering insurance mechanisms such as swap arrangements or credit lines
with other central banks, alongside addressing the structural bottlenecks to boost
competitiveness (as discussed in the main text).
11. Overall, staff assesses that the external position in 2017 was substantially weaker
than what is consistent with fundamentals and desirable policies. Specifically, staff estimates
the CA gap to be -5 to -7 percent of GDP and the REER overvaluation to be 14-20 percent. While
these estimates are based on the analysis above, especially the EBA-lite model results, they are
subject to considerable uncertainty, reflecting Mauritius’ highly open economy and position as a
financial center. Preliminary data indicate that the external assessment for 2018 is also likely to
be similar.
5 5
-5 3
2
-15 1
0
-25 2010 2011 2012 2013 2014 2015 2016 2017 2018
2012 2013 2014 2015 2016 2017 2018 Fishin g Textiles and apparel Sugar
Curren t t ransfers (net ) In come (net) non -GBC Other goods Tou rism Other services exports
In come (net) GBC Trade balance
Transport
Curren t accou nt balance
4 3 110
2
105
2
1
100
0 0
2012 2013 2014 2015 2016 2017 2018 95
2010 2011 2012 2013 2014 2015 2016 2017 2018
Billion USD (right-axis) Months of imports
Nominal Real
The current account deficit is projected to decrease… … while the financial account is expected to remain in surplus.
Current Account Balance Financing Sources
(In Percent of GDP) (In Percent of GDP)
20 10 10
60
Reserves (months of imports)
8
10 5 40
20 6
0 0
0 4
-10 -5
-20 2
-20 -10
2018 2019 2020 2021 2022 2023 2024 -40 0
2018 2019 2020 2021 2022 2023 2024
Current transfers (net) Income (net) non-GBC
Direct investment Portfolio investment
Income (net) GBC Balance on goods and ser vices Other investment Errors and Omissions
GBC Financial account (net) Capital account
Current account balance (RHS)
Projected reserves (months of imports)
250%
>100%
Emerging Markets
Mauritius
200%
Adequacy range
150%
100-150%
100%
50%
5-20%
0%
Reserves/Metric Reserves/100% Short-term Debt Reserves/ 100% Broad Money
Conduct regularly macroprudential solvency and Solvency stress testing implemented; tests for liquidity
liquidity stress tests. and other risks being validated.
Establish a macroprudential body with a clear Not implemented. The Financial Stability Committee
financial stability objective, and adequate enabling serves as forum for discussing macroprudential issues.
framework.
Improve the monitoring and supervision of the GBC Data collection on GBC has been expanded and
sector; seek significant consolidation of the MC supervisory powers strengthened; a draft framework
industry and raise its standards. for oversight of management companies is expected
for February 2019.
Implement measures to ensure that banking system Basel III Liquidity Coverage Ratio (LCR) implemented in
liquidity is not adversely affected by developments 2017; Net Stable Funding Ratio (NSFR) pending. Risk
in the GBC and cross-border sectors. assessment of stability of GBC deposits conducted in
2018.
Establish a framework for conglomerate supervision, Framework for conglomerate and consolidated
strengthen consolidated supervision, and develop a supervision agreed between BOM and FSC and joint
supervisory framework for D-SIBs. on-site examinations conducted; D-SIB framework
enacted.
Improve bank rating systems and develop more Implemented: bank rating (CAMEL) system expanded;
comprehensive remedial action program. remedial action program to be implemented as part of
risk-based supervision (work in progress).
Amend law to facilitate conglomerate supervision, Banking Act and BOM Act amended to improve
improve consolidated supervision, and strengthen conglomerate/consolidated supervision. Changes to
the corrective actions toolkit. Financial Services Act submitted by FSC to parent
ministry. Action on corrective actions toolkit pending.
Modify the Banking Act in order to make the In the process of implementation, supported by IMF
resolution framework more efficient. technical assistance.
A. Background
4. Notable progress has been made over the years in terms of improving data quality
and implementing reforms. Technical assistance (TA) to Mauritius is demand-driven and has
encompassed a broad range of issues. Much progress has been observed in several areas—
including the quality and coverage of macroeconomic statistics, modernization of the monetary
policy framework, introduction of Basel III financial regulations, strengthening of the bank
resolution and crisis management framework, as well as in improving revenue administration.
Yet, there remains scope for improvement, especially, with regard to the compilation of national
and external sector accounts, monetary policy implementation, fiscal reporting to cover general
government accounts and implement the International Public-Sector Accounting Standards
(IPSAS), improving budget planning and execution, and strengthening the AML/CFT framework.
Authorities’ Views
The authorities appreciated the ongoing TA provided by the IMF and broadly agreed with
staff assessment of CD priorities. They requested further assistance to strengthen the AML/CFT
Risk-Based Supervisory framework, national account statistics (especially, compilation of the GDP
by the expenditure approach), and the financial stability operational framework. The authorities
also identified CD in tax administration (including big data analysis and trade-based money
laundering) and PFM (consolidation of public sector financial reporting and implementation of
the IPSAS) as high priority areas.
Fiscal Policy and Adopt further revenue mobilization efforts to Fiscal revenue in FY2017/18 fell short of the
Debt Sustainability build fiscal space, support the fiscal anchor budget target by about ½ percent of GDP, but
and preserve debt sustainability. Tax efficiency the consolidated balance target was met as the
should be improved to yield additional public investment budget was under executed.
revenues. Continued improvements in public The FY2018/19 budget remains expansionary.
investment management and identifying While debt is projected to be sustainable, the
pressure points in debt management should statutory debt target of 60 percent of GDP by
also be elements of the fiscal strategy. FY2020/21 is unlikely to be met. On debt
management, the maturity structure of new
issuances is more favorable. Programs are
underway to improve tax efficiency. Some
public financial management concerns remain
around investments by SOEs.
Monetary Policy Tighten monetary policy to address Amid a decline in inflation, an accommodative
inflationary pressures. Announce a medium- monetary policy stance has been maintained.
term inflation objective to better anchor Banks’ excess liquidity has been contained
inflation expectations. Absorb excess liquidity owing to improved liquidity management, and
in the banking system through open market the average overnight bank rate has moved into
operations. the policy rate corridor. A medium-term
inflation objective has not been announced.
Exchange Rate Foreign exchange intervention should be Reserves increased to about USD 6.3 billion by
Policy geared towards maintaining adequate reserve end-2018, falling in the middle of the range of
coverage, opportunistically building reserves the adjusted reserve adequacy metric.
and curbing excess volatility.
Financial Sector Take additional steps to shore up financial The Bank of Mauritius (BOM) has asked banks
stability including by lowering the high NPL to develop their own write-off policies and
stock through a more stringent approach to progress in this area is ongoing. In 2018, the
writing-off legacy exposures, and by BOM introduced a forex liquidity requirement
safeguarding the longer-term forex funding for short-term positions, prescribing a minimum
needs stemming from banks’ swift expansion liquidity buffer per currency. However, it does
abroad. In addition, consider establishing a not cover longer-term forex funding above one
formal macroprudential body. year in residual maturity. No formal plans are in
train to establish a macroprudential body.
International tax Address the concerns raised by the OECD and Reforms have been introduced and the OECD
avoidance and the EU about the tax regime and ensure has concluded that Mauritius’ tax regime does
AML/CFT compliance with FATF standards, particularly not have harmful features. Decision by the EU is
with regard to AML/CFT supervision and entity pending. Following the ESAAMLG mutual
transparency. evaluation, reforms to address the identified
shortcomings in the AML/CFT framework are
being pursued.
Structural reforms Pursue reforms to improve cost While fiscal initiatives have been undertaken to
competitiveness. Simplify the wage-setting boost female labor force participation and
mechanism and strengthen efforts to boost address youth unemployment, broader labor
youth and female labor force participation. market reforms—including to the overall wage-
setting mechanism—are pending.
2. The constructed FCIs track economic activity well. Overall, external factors (such
as stock market indicators in major partner countries) turn out to be relatively more important
than domestic factors in explaining financial conditions in Mauritius. Notably, the constructed
FCIs appear to track GDP growth well—a testament to the importance of the financial sector in
the domestic economy and the FCIs’ potential forecasting power (Figures 1 and 2). Estimating
real GDP growth with the FCIs in a diffusion index model yields significantly lower root mean
squared errors than when the FCIs are excluded.
3. The FCI may also be used for macroprudential policy purposes. Going forward, if
the authorities decide to introduce the countercyclical capital buffer (CCB)—an additional capital
cushion built during upswings to absorb losses in downturns—in their policy toolkit, the FCI
could potentially serve as an important indicator for triggering the CCB. Specifically, a
comparison of the predictive quality of the computed FCIs with the private sector credit-to-GDP
gap (“credit gap”) variable that the Basel Committee for Banking Supervision recommends
following for setting the CCB, shows that the FCI performs better in tracking credit growth
accelerations and loan quality deterioration. While the FCIs lead the turning points in private
sector credit growth by about four quarters, particularly during 2007–10, the credit gap variable
almost moves in tandem with credit growth (Figure 3). Similarly, the FCI also appears to be a
better predictor of a rise in the NPL ratio (Figure 4).
4. The FCIs can thus be considered as a useful tool for forecasting economic
activity and monitoring financial stability in Mauritius. Overall, the analysis suggests that FCIs
are a good leading indicator of real GDP and private sector credit growth in Mauritius—thereby
also showing that external financial conditions play a key role in explaining economic and
financial activity in the country. The authorities could include the FCI in their forecasting toolkit,
or consider using it for macroprudential policy purposes, possibly together with other external
and domestic finanical indicators (including the credit gap, as well as developments in credit
standards and asset prices).
Figure 1. Mauritius: GDP Growth, PCA (purged) and VAR FCIs Figure 2. Mauritius: GDP Growth, PCA (unpurged) and VAR FCIs
2003Q4-2018Q2 2003Q4-2018Q2
3 8 3 8
2 2
6 6
1 1
0 4 0 4
-1 -1
2 2
-2 -2
-3 0 -3 0
2003Q4 2005Q3 2007Q2 2009Q1 2010Q4 2012Q3 2014Q2 2016Q1 2017Q4
Static PCA FCI (purged) Dynamic PCA FCI (Purged) Static PCA FCI (unpurged) Dynamic PCA FCI (unpurged)
VAR FCI Real GDP growth (in percent; right-axis) VAR FCI Real GDP growth (in percent; right-axis)
Sources: Bank of Mauritius, Bloomberg, Statistics Mauritius, and IMF staff estimates. Sources: Bank of Mauritius, Bloomberg, Statistics Mauritius, and IMF staff estimates.
Figure 3. Mauritius: Credit Growth, FCI, and Credit Gap Figure 4. Mauritius: NPL Ratio, FCI, and Credit Gap
2004Q2-2018Q1 2009Q1-2018Q1
30 2 9 2
20
6
1 1
10
0 3
0 0
-10
0
-20
-1 -1
-3
-30
-40 -2 -6 -2
2004Q2 2005Q4 2007Q2 2008Q4 2010Q2 2011Q4 2013Q2 2014Q4 2016Q2 2017Q4 2009Q1 2010Q3 2012Q1 2013Q3 2015Q1 2016Q3 2018Q1
Credit gap (in percent) Credit growth (in percent) Credit gap (in percent) NPL Ratio (in percent)
Dynamic PCA FCI (right-axis) VAR FCI (right-axis) Dynamic PCA FCI (right-axis) VAR FCI (right-axis)
Sources: Bank of Mauritius, Statistics Mauritius, and IMF staff estimates. Sources: Bank of Mauritius, Statistics Mauritius, and IMF staff estimates.
The financial center of Mauritius is a key part of the economy. While cross-border investment has
been the core activity of the center, efforts are underway to move into more high-value added
services. Staff analysis suggests that transformation of the sector requires addressing the skills,
infrastructure, and innovation capacity gaps expeditiously. Moreover, development of fintech
requires ensuring that adequate AML/CFT safeguards are put in place.
2. Cross-border investment is a core activity of the IFC. While the IFC is built upon three
major pillars—cross-border investment, cross-border corporate banking, and private banking
and wealth management—the facilitation of cross-border investment and related fund
administration activities is its core area of specialization, which contributes about 60 percent to
the IFC’s economic value added, 90 percent to its tax payments, and 70 percent to its
employment. Cross-border corporate banking follows, accounting for about 30 percent of the
IFC’s economic value added.
3. The IFC has grown on the back of a favorable tax regime, supportive regulatory
framework, and a well-educated labor force. The government’s Financial Sector Blueprint
highlights certain features of the Mauritian economy that support its IFC including a stable legal
and regulatory environment, a business-friendly tax policy, a generally talented workforce, and a
network of bilateral double taxation and investment protection treaties that help to foster
investment linkages. However, the report also notes that a significant upgrading of human and
physical capital, and ICT infrastructure is needed to move into higher value-added financial
services (such as asset and treasury management and trade finance) and boost the IFC’s
contribution to growth.
4. Comparing the competitiveness of the IFC with other global financial centers
conveys a mixed picture. Mauritius ranks mid-range among comparator financial centers in
financial sector depth (measured by private sector credit relative to GDP), and while its capital
account openness is among the highest in the world, the magnitude of investments (both inward
and outward) is relatively small in absolute terms. In terms of doing business, the indicators
generally show a favorable perception of investors, yet Mauritius lags advanced financial centers
in higher (tertiary) education enrollment and the ICT infrastructure (Figure 1).1
5. The IFC is successfully diversifying into sub-Saharan Africa (SSA). With the tax
advantage vis-à-vis India being phased out at end-March 2019, Mauritius’ IFC has been
increasingly tapping the SSA market, supported by the authorities’ Africa Strategy.2 The number
of GBCs with an Africa focus is comparable to those investing in India, though the total amount
of investment is considerably lower (Figure 2). During 2012–17, foreign direct investment (FDI)
from Mauritius into SSA doubled to USD25 billion, with nearly 25 percent of FDI into Kenya and
12 percent into Senegal and Côte d’Ivoire originating from Mauritius or passing through its IFC.
6. In its transition to the next level, the IFC faces two key challenges. First, certain
investment flows may be diverted to other financial centers that are geographically closer to
source markets and offer more diversified products than Mauritius. In 2018, for example,
Singapore appears to have captured some equity investment into India that traditionally passed
through the IFC. Second, investments into SSA may not be enough to compensate for the
slowdown in financial activity with India, at least in the short run. To meet these challenges,
Mauritius needs to address the skill gap and infrastructure needs swiftly, so that it can expand its
range of financial services and grow its client base.
7. Within its IFC strategy, Mauritius aspires to become a regional fintech hub. A recent
report by a high-level committee on fintech prospects notes that the mature banking sector
stimulating business-to-business demand, along with supportive regulators offers opportunities
for the sector to grow, while low venture capital investment, limited ties with other fintech hubs,
and difficulties in recruiting tech talent are areas for development. Cross-country comparison
with other financial centers indicates that Mauritius lags significantly in innovation capacity
(especially, the quality of research institutions, R&D spending, and university-industry
collaboration), ICT infrastructure (e.g., secure internet servers and mobile broadband
subscriptions), as well as in the energy generation capacity required for certain crypto asset
activities (Figure 3).
8. Mauritius has been an early promoter of fintech, but some safeguards need to be
strengthened. In 2016, the Mauritian authorities were among the first to introduce a regulatory
sandbox licensing (RSL) regime—an enabling yet controlled environment for fintech activities still
lacking a regulatory framework—under which licenses for innovative products have been issued
(e.g., peer-to-peer lending and robo-advisor). While some RSL requirements match those of
1According to the Global Financial Centres Index 24 (September 2018), the competitiveness of Mauritius’ IFC has
improved, yet it is still perceived as a “local specialized” center as opposed to a “global leader.”
2The Africa Strategy aims to reinforce economic collaboration with the African states to leverage on Mauritius’
comparative advantage as a well-established IFC and drive investment into the region.
other regional fintech hubs (e.g., fit-and-proper checks), overall the framework appears less
stringent in risk identification and consumer protection.3
9. Some traditional fintech activities such as mobile money are not as prominent in
Mauritius as in peers. Mauritius has the highest share of adult bank account holders in SSA
(90 percent versus 43 percent for SSA), but it also has one of the lowest shares of mobile money
accounts (6 percent versus 21 percent for SSA).4 Deficiencies in the quality of the systems of
mobile network operators is considered as one reason for this gap—with a new standardized
open platform under the National Payment Switch aiming to provide a level playing field for
banks and non-bank operators, thereby addressing certain hindrances to fintech providers.
10. The authorities are initially focusing on activities relating to digital assets. Following
the recognition of digital assets as an asset class for investment in November 2018, and
consultations with the industry, a new regulatory framework for licensing of custodians of digital
assets entered into force in March 2019, based on the high-level committee’s recommendations.5
Outside digital assets activity, however, the authorities have not yet launched a strategy for
promoting other key fintech activities such as mobile money and payments, peer-to-peer
lending and crowdfunding, and tech-enabled investment services.
11. In pursuit of becoming a regional fintech hub, the legal and regulatory gaps—
particularly concerning AML/CFT and crypto exchange service providers—should be
addressed. Under the relevant FATF standard, countries must identify and address the ML/TF
risks and should ensure that virtual asset providers are regulated for AML/CFT purposes, licensed
or registered, and subject to effective systems of monitoring and ensuring compliance with the
FATF standard. Ambiguities in Mauritius’ AML/CFT framework potentially result in gaps in the
coverage of certain digital assets (e.g. payment tokens), service providers (e.g. mobile wallet
operators, issuers of non-security tokens) and crypto asset exchangers not licensed as a financial
institution. The FIAMLA and AML/CFT regulations should be amended to implement the new
FATF standard on virtual asset service providers. The authorities should also thoroughly vet and
monitor the newly-licensed custodians of digital assets for AML/CFT compliance. Furthermore,
financial-stability risks can arise when, for example, a dominant fintech provider to which many
financial institutions are linked ceases operations. The authorities should focus on monitoring
and assessing concentration risk by gathering appropriate data and metrics.
3 Safeguards are stronger in Singapore where preliminary testing to identify risks is required before applying to
the RSL. The consumer protection aspect is also not as explicit in Mauritius’ regime as in some other cases (e.g.,
India).
4 Source: World Bank’s Findex database.
5 Separately, the committee also suggested changes to the RSL regime and the AML/CFT law (FIAMLA) with
respect to fintech as well as enhancements to supervisory technology. As an example, Singapore uses
technologies for data validation, including data-cleaning and quality checks, to allow supervisors to focus more
on investigations.
12. Greater international cooperation in fintech is requisite. The IMF’s Bali Fintech
Agenda envisions a framework for facilitating further cooperation between industry and
regulators—both within countries and across borders—to foster fintech opportunities, while
mitigating financial-stability risks. In this context, Mauritius will benefit by following the example
of fintech frontrunners Australia, Singapore and the U.K. that have signed cooperation
agreements among themselves as well as with other countries. These agreements enable
regulators to share information about emerging fintech trends and policy issues, share regulatory
expertise to facilitate the entry of fintech start-ups into the other jurisdiction’s regulatory
sandbox, and promote engagement between the respective fintech bodies to discuss
collaboration opportunities.
12 4000
3000
8
2000
4
1000
0 0
2010 2011 2012 2013 2014 2015 2016 2017 2010 2011 2012 2013 2014 2015 2016 2017
200 60
150
40
100
20
50
0
0
2010 2011 2012 2013 2014 2015 2016 2017
2010 2011 2012 2013 2014 2015 2016 2017
Getting
80
credit
100 60
40
Ease of 20
Starting a
doing
business 0
business
2007-08 2009-10 2011-12 2013-14 2015-16 2017-18
0
Mobile-Broadband Subscriptions, 2018
(Per 100 persons)
250
Protecting 200
minority Paying taxes
150
investors
Hong Kong SAR, China India 100
Ireland Israel
Malta Mauritius 50
Singapore South Africa
Switzerland UAE 0
UK UAE SGP ISR MLT IRL CHE UK ZAF MUS IND
Sources: IMF CDIS and CPIS surveys, World Bank, and World Economic Forum.
Notes: The same legend is followed in all charts. UAE=United Arab Emirates. UK=United Kingdom. SGP=Singapore. ISR=Israel. MLT=Malta.
IRL=Ireland. CHE=Switzerland. ZAF=South Africa. MUS=Mauritius. IND=India.
Net Cumulate Live Global Business Companies Value of Investment Held by GBC 1s
(In Thousands) (In Billion USD)
14
250
12
200
10
8 150
6 100
4
50
2
0
0 India Africa India Africa India Africa India Africa
2015 2016 2017 2018
2015 2016 2017 2018
India - focus Africa - focus Others
Portfolio Investment Direct Investment
25 90
20
70
50
15
30
10
10
5
-10
0 2009 2010 2011 2012 2013 2014 2015 2016
2012 2013 2014 2015 2016 2017 France German y Mauritiu s
Netherlands Norway Pakistan
South Africa Nigeria Mozambique Kenya Zambia Others South Africa Switzerlan d Un ited Kingdom
United States Others
80 80
60
60
40
40
20
20
0
Cote d'Ivoire Ghana Nigeria
0 France Mauritiu s Morocco
2009 2010 2011 2012 2013 2014 2015 2016 Canada Switzerlan d Un ited States
South Africa UK Netherlan ds
Canada France Mauritius Others
Togo Others
0.6
5
0.5
4
0.4
3
0.3
2
0.2
1 0.1
0 0
SGP CHE ISR UAE IRL UK MLT IND MUS ZAF UK IND CHE SGP ISR IRL ZAF UAE MLT MUS
4 5
4
3
3
2
2
1 1
0
0
ISR CHE SGP UK IRL UAE MLT ZAF IND MUS ISR CHE UK SGP IRL IND UAE ZAF MLT MUS
10 4
0 2
-10 0
2010 2011 2012 2013 2014 2015 2016 2017 Singapore Hong Kong SAR Dubai Mauritius
The private saving rate in Mauritius has declined over the years, contributing to a lower national
saving rate and a sizable current account deficit. Using data over the last four decades, the analysis
shows that the deposit rate and economic growth are the key drivers of private savings in Mauritius.
Given the economic and demographic characteristics, private saving rate is about 3 percent of GDP
lower than potential in Mauritius.
1. The current account balance of Mauritius has been in a persistent deficit since the
mid-2000s, peaking at about 10 percent of GDP in 2010. From a savings and investment
perspective, Mauritius’ current account deficit can be largely attributed to a decline in national
savings, as investment has remained tepid (Figure 1). National savings fell sharply during the
global financial crisis in 2008–09, but recovered somewhat in 2011, and have averaged about
17 percent of GDP since then. This ratio is one of the lowest among middle-income sub-Saharan
African (SSA) countries—most of which have also been running current account deficits in recent
years, though generally of a smaller magnitude than Mauritius.
15 20
5 10
-5 0
-15 -10
South Africa
Equatorial Guinea
Cabo Verde
Gabon
Ghana
Botswana
Namibia
Senegal
Lesotho
Mauritius
Kenya
Cameroon
Nigeria
198 0 198 4 198 8 199 2 199 6 200 0 200 4 200 8 201 2 201 6
Source: IMF World Economic Outlook, and IMF staf f calculations. Source: IMF World Economic Outlook, and IMF staf f calculations.
2. The main contributor to national saving is private saving, which has averaged
about 18 percent of GDP in recent years. As in other countries in SSA, national savings in
Mauritius are mainly driven by private savings, which have fallen from a peak of 32 percent of
GDP in the early 2000s to about 18 percent of GDP over the last decade (Figure 2). This rate is
lower than the average private saving rate for other emerging market and developing countries
(EMDEs), as well as the average for Mauritius’ middle-income peers in the region (Figure 3).
3. The deposit rate and income growth are important determinants of private saving
in Mauritius. Empirical analysis shows that the deposit rate and income growth are key drivers of
private saving in Mauritius, while there is no strong evidence that public saving or demographic
trends are associated with private saving in the country (see Selected Issues Paper).
15
15 5
-5
5 -15
Cabo Verd e
Sou th Africa
Côte d 'Ivoire
Gab on
Gha na
Ang ola
Zambia
Sen egal
Lesotho
Namibia
Mauritius
Ken ya
Nigeria
Cameroon
-5
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
Source: IMF World Economic Outlook, and IMF staff calculations. Source: IMF World Economic Outlook, and IMF staf f calculations.
Figure 3. Private Saving across Country Groups Figure 4. Mauritius: Actual and Predicted Private
(In Percent of GDP) Saving (In Percent of GDP)
30
35
30
20
25
20
10
15
10
0
Actual
1980-89 1990-99 2000-09 2010-17 5 Predicted
EMDEs (excl. SSA)
SSA middle-income (excl. Mauritius) 0
SSA upper middle-income (excl. Mauritius and oil exporters) 1981 1987 1993 1999 2005 2011 2017
Mauritius
Source: IMF, World Economic Outlook, and IMF staff calculations.
Source: IMF World Economic Outlook, and IMF staff calculations.
On [April 22, 2019], the Executive Board of the International Monetary Fund (IMF)
concluded the Article IV consultation1 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
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.
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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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: http://www.imf.org/external/np/sec/misc/qualifiers.htm.
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Est. Budget Proj. Proj.