Located off the southeast coast of Africa, neighboring the French island of La Reunion, Mauritius is an island state of 1.3 million inhabitants. It possesses an immense maritime territory of over 1 million square kilometers. The country’s political and economic situation has been stable since independence in 1968, but its environment
Mauritius’ economy has expanded at a consistent and moderate pace in recent years, broadly in line with that of its potential output (GDP growth was 3.8% in 2016). Growth has been led by the service sectors, especially expanding financial services and tourism, but with substantial contributions also from other services sectors (ICT, real estate, and retail trade). The main drag on its economic growth has been the contract textile sector (which subtracted 0.3 percentage points from GDP in 2016). On the expenditures side, private consumption growth has been steady at around 3%, while investment has begun to pick up again after slumping to a record low share of GDP (17.3% in 2016). Consumer price inflation had been subdued, averaging 2.3% in 2016, but surged in mid-2017; the CPI rose by 6.4% year-on-year in June 2017. This increase was driven mainly by higher vegetable prices (due to poor weather). Core inflation measures remain at moderate levels but also show some upward momentum.
The external position of the economy has remained solid. The current account deficit has compressed sharply in recent years, to 4.6% of GDP in 2016 (compared to an average of around 8% over the last decade), reflecting a shrinking goods trade deficit (supported by lower global commodity prices which reduced import costs), and strong tourist spending. External financing has continued to be supported by large net direct investment inflows from the offshore corporate sector, and gross international reserves have risen steadily, to $5.3 billion in June 2017, equivalent to approximately 9 months of imports.
The economy is projected to expand at a similar pace to that of recent years, which is broadly consistent with the estimated current pace of potential output growth. This baseline incorporates some fiscal drag, in line with official medium-term projections, as the government seeks to reduce its fiscal deficits to reduce the gross public sector debt burden. Growth may exceed the baseline projection if the government’s ambitious public infrastructure program gathers pace and crowds in more private investment—though, in this case, monetary policy, currently highly accommodative, would likely need to tighten significantly to prevent the economy from over-heating. Conversely, growth may underperform (relative to the baseline) if there is significant under-execution of public investment, as has been the case in recent years, and if the recent supply-side driven increase in inflation proves to be persistent and necessitates a policy response.
The public debt burden is significant, at approximately 65% of GDP, but debt sustainability risks remain well-contained based on the latest estimates. Mauritius’s risk profile benefits from low external public debt (of about 25% of GDP), comprising mostly concessional, long-maturity borrowing. The government’s medium-term fiscal framework targets a modest reduction in debt-GDP to 60%.
Mauritius is a stable, multiparty, parliamentary democracy. Shifting coalitions are a feature of politics in the country. The president is the head of state and the prime minister has full executive powers and heads the government. The legislative elections held in December 2014 were won by the Alliance Lepep, a coalition comprising the Militant Socialist Movement (MSM), the Mauritian Social Democrat Party (PMSD), and the Liberation Movement. The coalition secured a comfortable parliamentary majority with 53 out of 69 seats. The MSM founder, Anerood Jugnauth, become Prime Minister (PM).
In January of 2017, following the resignation of then-PM Jugnauth (86), the Finance Minister, Pravind Jugnauth (son of Anerood), became PM, in accordance with a constitutional rule that states the leader of the largest party in parliament
Mauritius’ relatively large offshore sector faces the challenges of adapting to a fast-changing global regulatory environment and, in particular, to revisions to the country’s double taxation avoidance agreement with India, which have begun to take effect. The industry and its regulators are engaging these shifts and have ambitious plans to re-position Mauritius as a regional financial hub. But uncertainties over the outlook of the financial sector may weigh on activity, which could spill over into the wider economy.
Over the long term, Mauritius faces the challenge of sustaining its historically inclusive growth model, while progressing in its goal of becoming a high-income economy. This will require lifting the performance of the education system, addressing constraints to labor productivity growth (including persistent gender gaps in the labor market), and investing sustainably and efficiently to improve public infrastructure. A key challenge is to address gender disparities; despite relatively strong female educational attainment, the gender wage gap is stubbornly wide at about 30% in the private sector, and the female labor participation rate is strikingly low (32 percentage points lower than males in 2015).
Last Updated: Dec 04, 2017