“Structural reforms required to tackle challenges, particularly from climate change and an ageing population”

On May 15, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation with Mauritius. According to the report, the economy has rebounded strongly from the pandemic on the back of buoyant tourism, social housing construction, and financial services. Supportive policies also facilitated the strong recovery, including fiscal measures. Real GDP growth reached 8.9 percent in 2022, and an estimated 7 percent in 2023, such that output has now exceeded its pre-pandemic level. Inflation has declined, supported by lower international commodity prices, averaging 7 percent in 2023. The external current account deficit narrowed sharply in 2023 to 4.5 percent of GDP, reflecting a strong rebound in tourism earnings. Looking ahead, securing a sustainable and resilient economy presents challenges: fiscal and external buffers were eroded during the pandemic, and vulnerabilities to climate change and an ageing population loom over longer-term economic prospects.

According to the Article IV Consultation report of the International Monetary Fund (IMF) for Mauritius, released on Friday morning, the outlook is favourable, with real GDP growth projected at 4.9 percent in 2024, and around 3.5 percent in the medium term, in line with pre-pandemic growth. Headline inflation is projected to ease to 4.9 percent on average in 2024, and 3.5 percent thereafter, in line with the Bank of Mauritius’ medium-term inflation target. The external current account deficit is expected to remain at 4.5 percent of GDP in 2024, and about 4 percent over the medium term. The fiscal stance in fiscal year 2023-24 is expected to be expansionary, as revenue growth has decelerated and extra-budgetary spending for social housing construction increased. Public debt, estimated at 81 percent of GDP in June 2023, is projected to moderate over the medium term.

Risks to the outlook are on the downside, including from deterioration in global growth, higher-than-anticipated fuel and food prices, and extreme climate events.

Executive Board Assessment       

Executive Directors agreed with the thrust of the staff appraisal. They welcomed Mauritius’ strong economic recovery from the pandemic, which has been underpinned by the authorities’ supportive policy response. While recognizing the favourable growth outlook, Directors stressed that challenges and downside risks remain. Against this backdrop, they called for continued prudent policies to rebuild fiscal and external buffers, and for structural reforms to tackle challenges, particularly from climate change and an ageing population.

Directors agreed that a gradual and growth-friendly fiscal consolidation over the medium term is needed to rebuild fiscal buffers and further reduce public debt. They recommended mobilizing tax revenue and containing current spending, while safeguarding critical social spending to protect the most vulnerable. Directors called for reforming the pension system and for strengthening public financial management, including by streamlining extrabudgetary special funds. They welcomed the reinstatement of the public debt ceiling framework, which should be further strengthened.

Directors commended the new monetary policy framework, which has helped contain inflationary pressures. They agreed that the Bank of Mauritius (BOM) should stand ready to tighten the monetary policy stance should inflationary pressures re-emerge. Directors called on the BOM to resume uncapped auctions to better align the interbank rate with the key policy rate. They encouraged further strengthening monetary policy transmission, including by enhancing the communication strategy. To help preserve the BOM’s independence, Directors recommended amendments to the BOM Act and suggested exploring options to gradually phase out the central bank’s ownership of the Mauritius Investment Corporation. Directors called for continued exchange rate flexibility and concurred that opportunistic foreign exchange purchases, consistent with the monetary policy framework, would help bolster foreign reserve buffers. They stressed the need for continued close monitoring of financial sector risks.

Directors agreed that embracing structural transformation is key to strengthening Mauritius’ external position, securing resilient and sustainable long-term growth, and achieving high income status. In particular, they encouraged boosting female labour force participation, addressing skill mismatches, fostering digitalization, and strengthening governance and anticorruption frameworks. Directors recommended promoting external competitiveness and diversification, as well as enhancing climate-resilient infrastructure investment. They commended the strengthening of the AML/CFT framework and encouraged sustaining this progress.

It is expected that the next Article IV consultation with Mauritius will be held on the standard 12-month cycle.