20210627-IMF-Mauritius_2021_Article_IV_Consultation-Press_Release_Staff_Report_and_Statement_by_the_Executive_Director_for_Mauritius_69页_1mb

Summary of the 2021 Article IV Consultation with Mauritius

Core Content

The 2021 Article IV Consultation with Mauritius, conducted by the IMF, assessed the country's economic impact from the pandemic, policy responses, and future outlook. The consultation concluded that while the pandemic severely affected the economy, particularly through the collapse of tourism, the authorities managed to contain the virus and implement a comprehensive stimulus package to support households and firms.

Main Views and Key Information

Economic Impact of the Pandemic

• Tourism collapse: Tourism, which accounts for over one-fifth of the economy, came to a sudden halt in March 2020, leading to a sharp contraction in real GDP by 15 percent in 2020.
• Current account deficit: The current account deficit widened from 5.4 percent of GDP in 2019 to 12.6 percent in 2020.
• Unemployment: Unemployment rose to 9.2 percent in 2020, up from 6.7 percent in 2019, but was kept under control through wage support schemes.
• Inflation: Inflation remained low at 2.5 percent in 2020, driven by weak aggregate demand and lower oil prices.
• Fiscal deficit: The fiscal deficit widened significantly due to falling revenues and increased social spending.

Policy Responses

• Health measures: The government implemented strict lockdowns and border closures, which helped contain the virus.
• Stimulus package: A large and comprehensive fiscal stimulus package was introduced, including wage subsidies, income support for the self-employed, and targeted support for the tourism sector.
• Off-budget measures: A significant portion of the stimulus (about Rs61 billion or 14.2 percent of 2020 GDP) was provided off-budget, mainly through quasi-fiscal support mechanisms.
• Banking and global business sector: The banking and global business sectors remained stable, with GBCs' US dollar-denominated deposits and net financial flows remaining positive.

Economic Outlook

• Growth forecast: Real GDP is expected to grow by 5 percent in 2021, driven by a strong base effect from the 2020 contraction.
• Tourism recovery: Tourism is expected to gradually resume, with arrivals reaching about 15 percent of 2019 levels in the second half of 2021 and 60 percent in 2022.
• Unemployment: Unemployment is projected to remain elevated in 2021 but will return to trend levels in the following years.
• Inflation: Inflation is expected to rise modestly to 3.5 percent by end-2021, due to recovering demand and higher oil prices.
• Medium-term growth: Growth is expected to converge to pre-pandemic rates of 3–3.5 percent.

Risks and Challenges

• Downside risks: The economic outlook is subject to downside risks, including uncertain tourism recovery, potential prolonged pandemic effects, and financial market anxieties.
• Debt sustainability: Public debt is projected to increase to 93 percent of GDP by FY2021/22, with risks from macro-fiscal shocks and financial sector instability.
• Pension system: The pension system poses a significant medium-term challenge, with projected increases in pension spending from 4.5 percent of GDP in FY2018/19 to over 8 percent by FY2023/24.

Key Policy Recommendations

• Fiscal Policy:

  • Continue accommodative fiscal policy during the reopening phase with prioritized and targeted expenditures.
  • Implement broad-based structural reforms to build a more resilient, green, and inclusive economy.
  • Prepare for credible medium-term fiscal consolidation to stabilize debt and build buffers.
  • Focus on programs aligned with long-term development and social goals, such as digitalization, inclusion, and climate change mitigation.

• Monetary Policy:

  • Maintain accommodative monetary policy in the near term.
  • Strengthen the central bank's credibility and monetary policy transmission.
  • Avoid direct government financing and quasi-fiscal activities.
  • Reform the Bank of Mauritius law to prevent further exceptional transfers to the government.
  • Recapitalize the central bank and relinquish ownership of the Mauritius Investment Corporation (MIC).

• Competitiveness and Structural Reforms:

  • Implement measures to improve competitiveness and accelerate structural transformation.
  • Focus on education and technology to support long-term growth.

• AML/CFT:

  • Continue efforts to exit from the FATF and EU AML/CFT lists.

Executive Board Assessment

• The Executive Board agreed with the staff appraisal and praised Mauritius for its successful pandemic containment.
• Directors emphasized the need for structural reforms, fiscal consolidation, and improving monetary policy credibility.
• They supported the government's commitment to address debt sustainability, strengthen competitiveness, and enhance social and environmental outcomes.

Key Figures and Tables

• Real GDP growth: Contracted by 15 percent in 2020, forecast to grow by 5 percent in 2021.
• Public debt: Increased from 66 percent of GDP in FY2018/19 to 93 percent in FY2021/22.
• Fiscal stimulus: Estimated at Rs121 billion or 28 percent of 2020 GDP.
• Unemployment rate: Rose to 9.2 percent in 2020, expected to remain elevated in 2021.
• Inflation: Averaged 2.5 percent in 2020, projected to increase to 3.5 percent by end-2021.
• Current account deficit: Jumped to 12.6 percent of GDP in 2020, expected to narrow to 6.8 percent by 2022.

Conclusion

The IMF concluded that while the pandemic severely impacted Mauritius, the government's response was effective in containing the virus and mitigating economic damage. The country is expected to recover in 2021, with growth forecast at 5 percent. However, the path to recovery is uncertain, and the government must focus on structural reforms, fiscal consolidation, and improving the monetary policy framework to ensure long-term economic resilience and sustainability.