An International Monetary Fund (IMF) mission led by Martin Petri visited Port Louis during January 22-February 5, 2014 to conduct the discussions for the 2014 Article IV consultation with Mauritius.
The mission met with The Honorable Prime Minister Dr. Navin Ramgoolam, Vice Prime Minister and Minister of Finance and Economic Development Xavier-Luc Duval, Governor of the Bank of Mauritius Rundheersing Bheenick, other senior government officials, as well as representatives of the National Assembly, the private sector, and civil society.
At the conclusion of the visit, Mr. Petri issued the following statement today in Port Louis:
"The authorities maintained a stable macroeconomic environment in 2013, despite difficult external developments.
The fiscal deficit rose in part because of spending in response to the March flash floods and larger than expected capital spending. Inflation fell to low levels.
The challenges in 2014 are to (i) start reducing public debt through a smooth medium-term fiscal consolidation path; (ii) improve the monetary policy transmission mechanism by removing excess reserves; (iii) pursue public sector reforms while protecting the poor; and (iv) address productivity and competitiveness challenges needed to raise medium-term economic growth prospects.
"Staff projects that real economic growth will increase to 3.7 percent in 2014, fueled by strong activity in seafood, information & communications technology, and financial services; and supported by improving external demand.
There is some upside to the growth projections if public investment is executed faster than projected or private investment accelerates.
"At less than 4 percent, inflation remains subdued, and inflationary expectations appear well-anchored. The mission projects headline consumer price index inflation to rise marginally to 3.8 percent on average in 2014.
The current monetary policy stance is broadly appropriate, but needs to be made more effective by removing excess reserves from the banking system.
This will likely cause losses for the Bank of Mauritius (BOM), but these would be entirely justified. Overall, the banking sector appears robust, but BOM should continue to monitor sectoral developments as it has in the past. The financial system has proven resilient to external shocks.
"The 2014 budget aims to support growth and employment, and expands social protection. Staff projects the fiscal policy stance to be neutral compared to 2013.
Given the need for medium-term debt reduction, staff would recommend a moderately restrictive fiscal stance in 2014 to initiate the required fiscal adjustment.
The authorities' medium-term fiscal consolidation plans are welcome to reduce external imbalances, mitigate debt vulnerabilities and rebuild fiscal buffers, but these efforts might need to be strengthened to safely reach the 2018 debt law target.
"The structural deficit of the external current account remains a concern, especially in an environment marked by more moderate growth, low national savings, and declining market shares in some export sectors.
Raising growth potential would require removing infrastructure bottlenecks, in particular by providing a strong regulatory framework that encourages private sector involvement, improving the planning and implementation of the public investment program, reforming the state-owned enterprises sector, reducing the cost of doing business, closing the skills-mismatch and further strengthening educational outcomes, as well as identifying and promoting new high value-added niche markets, where Mauritius could have competitive advantages.
Pension reforms could promote national savings while better achieving social protection for the poor and the overall workforce.
These challenges appear manageable in light of Mauritius' track record as a reformer with strong institutions and a vibrant private sector.
However, they require renewed effort to reach the goal of becoming a high-income economy within a decade.
"The IMF stands ready to assist the authorities in the implementation of their economic program, including through the provision of technical assistance, and looks forward to continued fruitful policy dialogue in the period ahead."