Overview

Political Context

Mauritius enjoys a relatively stable political landscape. The country has a multiparty parliamentary democracy where the president is the head of state and the prime minister has full executive powers and heads the government.

The legislative elections of December 10th 2014 were won by the Alliance Lepep, a party comprised of the Militant Socialist Movement (MSM), the Mauritian Social Democrat Party (PMSD) and the Liberation Movement. The coalition secured a comfortable parliamentary majority and now controls 51 out of 69 seats in the National Assembly, with the MSM founder, Sir Anerood Jugnauth, becoming prime minister. The coalition's overwhelming victory and firm legislative backing is expected to support political stability and gives it a strong mandate to implement its policy program. The 85-year-old Sir Anerood Jugnauth has held the function of prime minister for a total of 16 years since his first appointment in 1982 and his experience and political acumen is expected to support stability.

Economic Overview

Mauritius continues to register positive growth amid international economic uncertainties. However, the economic slowdown in the Eurozone has affected economic growth given Mauritius’s dependency on tourists, trade and foreign direct investment (FDI). The economy registered a GDP growth rate of 3.5% in 2014, below initial projections of 3.7 to 4.0% due to the poor performance of the construction sector which declined by 6.4%, and the textile sector which grew around 1.5%. However, in line with the evolving structural change in the composition of the economy over the last decade, growth continued to be supported by the services sector, most notably, the financial services, trade, and ICT sectors which grew by 5.4%, 3.2% and 6.4% respectively in 2014. Growth in the tourism sector also accelerated to 4.1% in 2014.

The economic slowdown in 2014 led to reduced tax collection and increased public debt.  Tax collection slowed to 20.6% of GDP compared to projected rate of 22.2% of GDP. This was particularly the case for income and profit taxes (4.2% compared to the projected 4.4% of GDP) and VAT (11.3% compared to the projected 12.5%). Grants were also lower than anticipated (0.1% against a projected rate of 0.6%).  To compensate for this, the government delayed the implementation of the Pay Research Bureau and reduced expenditure on goods and services.

Nonetheless, primary deficit was 0.6% of GDP (higher than the 0.4% of GDP that was projected) and public sector net debt (statutory debt ceiling) increased from 54% of GDP in 2013 to 54.2% of GDP in 2014. The 2015 public budget will not consolidate public debt, and achieving the 2018 debt target will require relatively large fiscal consolidation measures moving forward. Debt as a share of GDP for the purpose of the debt ceiling is expected to be contained at 54.2% in 2015 based on assumptions for high economic growth and cheap financing. Overall, public sector debt is expected to be reduced to 58.6% of GDP after reaching 61.5% of GDP in 2014.

 

The monetary policy stance adopted by the Bank of Mauritius continues to be accommodative. Monetary policy easing continues in the light of the slowdown of the domestic economy and lingering global uncertainties. The repo rate has been maintained at 4.65% since June 2013.  This more accommodative monetary policy stance was facilitated by the decline of the year on year inflation rate from 3.6% in December 2013 to 2.6% in 2014, in part related to subsiding food and oil international prices. The Bank of Mauritius continues its interventions in the foreign exchange market to build additional international reserves with parallel sterilization of the additional money supply to serve as buffers against a potential economic slowdown. Gross international reserves stood at $4.0 billion in 2014 (representing six months of import cover), up from $3.3 billion in 2013 (representing 4.8 months of import cover).

 

The current account deficit hovered around 8 to 9% of GDP in recent years, lower than in the years 2010-2011 due to lower deficit in goods and services and lower portfolio investment income. Exports were stable, reaching 52 to 55% of GDP in recent years. The current account is deemed to be structural, explained mostly by a decline in private saving, increased imports of capital goods, a deceleration of Mauritius’ main trading partners, and adverse terms of trade. A larger proportion of the current account deficit continues to be financed by foreign direct investment (FDI) and financial flows from global business companies. Over the course of 2014, the Bank of Mauritius accumulated gross international reserves of about $4.0 billion. Reserve import coverage by end of 2014 was equivalent to six months of imports of goods and services.

 

Social Context

Inequality is growing in Mauritius and relative poverty increased from 8.5% in 2007 to 9.8% in 2012. Income growth of the bottom 40% increased at an annual rate of 1.8% compared to 3.1% for the population at large over the same period. As a result, the middle class has shrunk in the last 5 years and vulnerability to falling back into poverty increased. Efforts are needed to raise the quality of education system, including the vocational sub-system to cater for private sector development needs, and reduce skills mismatches. In relation to that a better coordination between sectors such as education, health and active labor market programs could better tackle chronic poverty, facilitate labor market reintegration of those left behind.

Development Challenges

Mauritius’s main challenges include improving the infrastructure system (as it relates to road congestion and water delivery), addressing a scarcity of skilled human resources due to limited capacity to reform the traditional education system, resolving a brain drain and the limited ability to make use of the large diaspora community, and reforming large and relatively inefficient public companies and parastatals.

Mauritius is set to accelerate reforms aimed at diversifying the economy, both in terms of climbing the value chain and reorienting exports toward emerging markets. Reforms with regards to trade barriers, education, and infrastructure will be crucial to achieving this. Moreover, the acceleration of fiscal consolidation is essential to achieving substantial efficiency gains in the budget and ensuring effective expenditure in priority areas such as the social safety net system, in order to cope with the impacts of a potential economic downturn. 

Last Updated: Jun 23, 2015

World Bank Group Engagement in Mauritius

The World Bank Group Country Partnership Strategy (CPS) establishes a framework for World Bank Group engagement in Mauritius and it is set to expire at the end of FY15. The CPS is centered around four pillars: fiscal consolidation and improving public sector efficiency, improving trade competitiveness, improving the investment climate, and democratizing the economy through participation, inclusion and sustainability.

The World Bank launched the preparation of a new strategy, now called the Country Partnership Framework (CPF), and conducted a Systematic Country Diagnostic (SCD), made of assessments of various socio-economic indicators in the country, to inform the preparation of the CPF scheduled for completion in FY15. Concurrently, the Government of Mauritius is preparing a blueprint strategy that outlines a reform program set to accelerate annual GDP growth to 6% and allow Mauritius to reach high income status by 2020.

The Bank's role in Mauritius is evolving, reflecting the country's success in gaining access to capital markets. Because of its relatively high income, Mauritius is one of only a few African countries eligible for International Bank for Reconstruction and Development (IBRD) assistance.

Last Updated: Jun 23, 2015

The World Bank assists Mauritius in implementing a series of reforms to raise the effectiveness of its public sector and support private sector competitiveness. Some of its support includes the recent series of Development Policy Lending (DPL) operations totaling $20 million and $15 million. The Bank is presently engaged in the provision of an investment loan of around $50 million for road investment and technical assistance in infrastructure projects addressing the following sectors: water, energy, sanitation, transportation, and food protection. It is also preparing a new DPL series to support private sector competitiveness, and a new investment loan to improve road safety and asset management in the transport sector.

World Bank Group lending has been complemented with just-in-time technical and analytical support on a variety of topics including infrastructure, review of public expenditure, health, tourism, education, social protection and poverty, public enterprises and civil service reforms, finance, diaspora, and institutional strengthening. A number of knowledge and technical assistance products related to monitoring and assessing poverty and inequality are in the pipeline.

Last Updated: Jun 23, 2015

The Bank has a very strong partnership with Mauritius. With a facilitation from the World Bank, Mauritius has emerged as an exporter of “how to reform” expertise to peer African governments but also as an importer of inbound knowledge services in selected areas of their reform program. Facilitating these knowledge transfers is an important part of the work of the World Bank Office.  The country views regional integration as part of its overall development strategy to enhance economic growth and achieve sustainable development.  Thus, the World Bank has been supporting Mauritius achieve its regional priorities, including in the area of blue economy, which aims at achieving sustainable use of sea resources. To that end, the Bank’s Board approved recently a total of $75.5 million for the implementation of the First South West Indian Ocean Fisheries Governance and Shared Growth Project (SWIOFish1), which helps improve regional cooperation for African countries that border the waters of the South West Indian Ocean, including Mauritius, Comoros, Madagascar, Seychelles, Somalia, Kenya, Tanzania, Mozambique, South Africa and Maldives. This project, the first of its kind for Mauritius, has also received support from the Global Environment Facility (GEF).  

Last Updated: Jun 23, 2015


LENDING

Mauritius: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments