An International Monetary Fund (IMF) mission led by Mariana Colacelli visited Mauritius from January 9 to January 18, 2024, to conduct the 2024 Article IV Consultation.
Among the salient features, the IMF called for a recalibration of the macroeconomic mix as well as the need of the hour remains rebuilding buffers and maintaining economic stability while priorities should include strengthening monetary policy effectiveness, rebuilding external buffers, and continuing to closely monitor the financial sector risks.
Ms. Colacelli commented: “The economy has rebounded strongly from the impact of the pandemic, supported by the deployment of pre-pandemic fiscal and external buffers. Real GDP growth reached 8.9 percent in 2022 from rebounding tourism and manufacturing. Rapid growth was sustained in 2023 where it is estimated to be at 6.9 percent—with output now having exceeded its pre-pandemic level. Vibrant tourism, social housing construction, and continued strong performance of transport and financial services buoyed growth.”
She further added: “While still above the Bank of Mauritius’ (BOM) target range of 2-5 percent, inflation fell during 2023, supported by lower international commodity prices. Average headline inflation declined from 10.8 percent in 2022 to 7.0 percent in 2023, and January 2024 inflation recorded 5.2 percent year-on-year. The external current account deficit is estimated to have narrowed significantly in 2023 while foreign exchange reserves stood at US$ 7.3 billion at end-2023.”
The IMF head enumerated on favorable growth outlook where in 2024, the real GDP growth is projected at 4.9 percent, driven by construction as major social housing and public transportation projects are ramped up and the recovery of tourism to pre-pandemic levels. On the other hand, she commented that headline inflation is poised to ease to 4.9 percent on average in 2024, mainly reflecting international oil and food price dynamics.
On the flip side, a deterioration in global growth could depress tourism, while higher-than-anticipated fuel and food prices due to spillovers from Russia’s invasion of Ukraine and the conflict in Gaza and Israel could exacerbate inflation, worsen the external position, and weaken the recovery. Extreme climate events could weaken tourism and damage local infrastructure, thus weakening growth.
The IMF advocated the need for policy decisions to focus on recalibrating the macroeconomic mix set to rebuild macroeconomic buffers that were eroded as a result of the pandemic and a need to maintain financial stability.
While the fiscal stance in fiscal year 2023-24 is expected to be expansionary—with the primary fiscal deficit projected to widen to 2.9 percent of GDP, excluding grants—implementing the authorities’ medium-term growth-friendly fiscal consolidation plan is important to reduce public debt and rebuild fiscal buffers, including by mobilizing additional tax revenue and reducing current spending, while protecting the most vulnerable.
She observed that the monetary policy stance has remained broadly accommodating while inflation not only declined while remained above the Bank of Mauritius target range. Ms. Colacelli urged the Central Bank to stand ready in a bid to tighten its stance should inflationary pressures remerge while buttressing the effectiveness of the new monetary policy framework including by further enhancing its communication strategy.
Several proposals were made: Rebuilding macroeconomic buffers, including foreign reserves, would help enhance the resilience of the economy in the face of shocks. Strengthening the resilience of the financial sector and managing macro-financial risks will help support financial stability. The IMF Mission Head also proposed the close monitoring of financial sector risks should continue, including with the global business companies operating in the Mauritius International Financial Center.
“Advancing structural reforms, including sustaining compliance with Anti Money Laundering/Combating the Financing of Terrorism (AML/CFT) standards, improving governance, reducing skill mismatches in the labor market, and fostering digitalization and climate-resilient infrastructure investment is key to supporting private sector investment and promoting economic diversification,” she added.
