The FINANCIAL — A stable macroeconomic environment was maintained in 2013, despite difficult external developments. Real GDP growth was lower than expected at 3.2 percent in 2013, mainly on account of construction, sugar and tourism, according to the Article IV consultation with Mauritius concluded by the Executive Board of the International Monetary Fund (IMF).
With subdued international prices, inflationary pressures declined in 2013, despite the public sector wage increases, and year-on-year inflation fell to 3.5 percent. The unemployment rate was unchanged compared to 2012 at 8.0 percent. Credit to private sector growth remained robust. On the external front, the current account deficit widened to almost 10 percent of GDP in 2013. The reserve cover of imports of goods and services stayed constant at 4½ months with the Bank of Mauritius (BOM) accumulating additional net international reserves, according to IMF.
The fiscal policy stance was more expansionary than planned because of cyclical and one-off factors but also slippages. The structural primary deficit was broadly unchanged relative to 2011. The overall deficit including extra-budgetary funds is estimated at 4½ percent of GDP. While revenues remained broadly unchanged in proportion of GDP, expenditures increased by over 2 percent of GDP. As expected wages increased following the Pay Research Bureau’s (PRB) report, which increases civil servant salaries beyond annual inflation adjustments periodically with the next adjustment expected in 2016. Additional spending was also related to the flash floods in Port Louis as well as unplanned transfers to local governments and public enterprises. Finally, capital spending including by the special funds was 1 percent of GDP higher, though partially due to cost overruns, according to IMF.
Monetary policy was somewhat accommodative. Throughout the year, while a sluggish domestic demand and low international inflationary pressures helped anchor inflation expectations. The public sector wage increase related to the PRB report did not lead to strong private sector wage pressures. In this context, the BOM maintained the policy rate at 4.65 percent in September 2013 and February 2014, following a 25 basis point reduction in June 2013. In October 2013, reserve requirements were raised from 7 to 8 percent to curb excess liquidity in the banking system. The authorities continued building international reserves and used limited interventions to moderate excessive fluctuations of the rupee. The banking system remained well-capitalized and resilient in a strong regulatory context. Regulatory Tier I capital to risk-weighted assets are well above Basel II and the proposed Basel III requirements. Non-performing loans (NPL) increased slightly in 2013, but banks remained profitable with a 20 percent return on equity, despite low leverage ratios. However, liquidity ratios have worsened in recent years and are on the low side in international comparisons. BOM is consulting with banks on implementation of Basel III regulations and continued to publish its bi-annual CAMEL ratings for all domestic banks. It implemented macroprudential measures aimed at addressing emerging NPLs in the construction and real estate sectors as well as rising indebtedness. Threats to financial stability posed by a Ponzi-like scheme in 2013 were contained successfully, and the regulatory framework was subsequently improved, according to IMF.
Mauritius has established a track record as a reformer with strong institutions and a dynamic private sector. The Africa Training Institute (ATI) is set to open in June 2014 in Ebene. The country statistical capacity continues to be strengthened, including ongoing work on Monetary and Financial Statistics (MFS) as well as balance of payments (BOP) and international investment position (IIP) statistics. Mauritius subscribed to the IMF’s Special Data Dissemination Standard (SDDS) in February 2012, being the second Sub-Saharan African country to do so and is working on subscribing to SDDS Plus, according to IMF.
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